<PAGE> 1
[COMERICA LETTERHEAD]
December 28, 1994
United States Securities
and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Attn: Barry McCarty
Division of Corporate Finance
RE: COMERICA INCORPORATED (FILE NO. 0-7269); (THE "COMPANY") AMENDMENT
NO. 1 TO REGISTRATION STATEMENT ON FORM S-4 (FILE NO. 33-56627) FILED
IN CONNECTION WITH THE ACQUISITION OF UNIVERSITY BANK & TRUST COMPANY
("UBT") (THE "REGISTRATION STATEMENT")
Ladies and Gentleman:
On December 21, 1994 the Registration Statement was declared effective by the
Securities and Exchange Commission. On such date, UBT mailed prospectuses to
shareholders of UBT. Attached to such prospectuses were UBT's: Form 10-K for
the year ended December 31, 1993 (the "Form 10- K"); Amendment No. 1 to the
Form 10-K on Form 10-K/A; Form 10-Q for the quarterly period ending September
30, 1994 (the "Form 10-Q"); and Amendment No. 1 to the Form 10-Q on Form 10-Q/A
(the "Prospectus Attachments"). The Prospectus Attachments are exhibits to the
Registration Statement but, as mailed with the prospectuses, are an addition to
the last prospectus filed as a part of the Registration Statement. Therefore,
the Company hereby files, by direct transmittal via EDGAR, pursuant to Rule
424(b)(3) of the Securities Act of 1933 the form of prospectus with the
Prospectus Attachments which was sent to UBT shareholders.
Should you have any question, please call the undersigned at (313) 222-9350.
Very truly yours,
Comerica Incorporated
By /s/ Robert C. Shrosbree
<PAGE> 2
Pursuant to Rule 424(b)(3)
Registration No. 33-56627
[UBT LOGO]
December 21, 1994
Dear Stockholder:
You are cordially invited to attend a Special Meeting of the Stockholders
of University Bank & Trust Company ("UBT"), which will be held at the offices of
UBT located at 250 Lytton Avenue, Palo Alto, California, at 4:30 p.m., local
time, on Wednesday, January 25, 1995 (the "Special Meeting").
At the Special Meeting, UBT stockholders will be asked to consider and vote
upon a proposal (the "Merger Proposal") to approve and adopt the Agreement and
Plan of Reorganization and Merger, dated as of October 4, 1994 (the "Merger
Agreement"), by and among Comerica Incorporated, a Delaware corporation and a
registered bank holding company headquartered in Detroit, Michigan ("Comerica"),
Comerica Interim Incorporated, a California corporation ("Interim") and UBT,
providing for the merger (the "Merger") of Interim into UBT pursuant to the
terms of the Agreement of Merger (the "Subsidiary Merger Agreement"). UBT will
be the surviving corporation of the Merger. No other business will be transacted
at the Special Meeting.
In the Merger, each fully diluted outstanding share of UBT Common Stock, no
par value (subject to certain provisions with respect to fractional shares and
dissenting shares) will be converted into the right to receive 1.7456 shares of
Comerica Common Stock, $5.00 par value per share (the "Comerica Common Stock"),
subject to certain adjustments described in the Merger Agreement.
The proposed Merger requires, among other conditions, certain regulatory
approvals, as well as the approval of the stockholders of UBT.
Your Board of Directors has determined that the Merger Agreement and the
Merger are in the best interests of UBT and its stockholders. THE BOARD
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU
VOTE FOR APPROVAL OF THE MERGER PROPOSAL AT THE SPECIAL MEETING.
The accompanying Notice and Proxy Statement/Prospectus describe the matters
to be acted upon at the Special Meeting. Stockholders are urged to review
carefully the attached Proxy Statement/Prospectus. This document contains a
detailed description of the Merger, its terms and conditions and the
transactions contemplated thereby. In addition, UBT's Annual Report on Form 10-K
for the year ended December 31, 1993 (the "Form 10-K"), UBT's Amendment No. 1 to
the Form 10-K on Form 10-K/A, UBT's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1994 (the "Form 10-Q") and UBT's Amendment
No. 1 to the Form 10-Q on Form 10-Q/A have been enclosed.
Because of the significance to UBT of the proposed Merger, your
participation in the Special Meeting, in person or by proxy, is especially
important. We urge you to vote FOR approval and adoption of the Merger Proposal.
Your continuing interest in the business of UBT is appreciated, and we hope
you will attend the Special Meeting. It is important that your shares be
represented at the Special Meeting. Accordingly, whether or not you plan to
attend the Special Meeting, please sign, date and mail the enclosed Proxy
promptly in the postage-paid envelope that has been provided to you for your
convenience. If you wish to vote in accordance with the recommendations of your
Board of Directors, it is not necessary to specify your choices; you may merely
sign, date and return the enclosed Proxy.
Sincerely,
/s/ CARL J. SCHMITT
Carl J. Schmitt
Chairman of the Board and
Chief Executive Officer
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[UB&T LOGO]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 25, 1995
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of University
Bank & Trust Company will be held at UBT's offices located at 250 Lytton Avenue,
Palo Alto, California on January 25, 1995 at 4:30 p.m., local time (the "Special
Meeting"), for the following purposes, all of which are more fully described in
the accompanying Proxy Statement/Prospectus:
To consider and vote upon a proposal (the "Merger Proposal") to adopt
and approve (a) the Agreement and Plan of Reorganization and Merger, dated
as of October 4, 1994 (the "Merger Agreement"), by and among Comerica
Incorporated, a Delaware corporation and a registered bank holding company
headquartered in Detroit, Michigan ("Comerica"), Comerica Interim
Incorporated, a California corporation ("Interim"), and UBT, and (b) the
Agreement of Merger (the "Subsidiary Merger Agreement"), providing for the
merger (the "Merger") of Interim with and into UBT, and all of the
transactions contemplated thereby, including but not limited to, the
conversion, subject to certain provisions relating to fractional shares and
dissenting shares, of each fully diluted outstanding share of common stock,
no par value per share, of UBT ("UBT Common Stock") into the right to
receive 1.7456 shares of common stock, $5.00 par value per share, of
Comerica, subject to certain adjustments described in the Merger Agreement.
The Merger Agreement and the Subsidiary Merger Agreement are set forth in
Annex A and Annex B, respectively, of the accompanying Proxy
Statement/Prospectus.
Stockholders of UBT Common Stock may have dissenter's rights under
California law if their shares of UBT Common Stock qualify as "dissenting
shares" under California law. These rights may require UBT to purchase for cash
at fair market value from UBT stockholders any such "dissenting shares". UBT
stockholders must strictly comply with applicable California law to exercise
their dissenter's rights. A copy of the pertinent statutory provisions is
attached to this Proxy Statement/Prospectus as Annex C.
The UBT Board of Directors has fixed the close of business on December 1,
1994, as the record date for the determination of UBT stockholders entitled to
notice of and to vote at the Special Meeting. Only UBT stockholders of record at
the close of business on such date are entitled to notice of, and to vote at,
the Special Meeting.
The UBT Common Stock is the only security of UBT whose holders are entitled
to vote upon the proposals to be presented at the Special Meeting. Approval of
the Merger Proposal requires the affirmative vote of the holders of not less
than a majority of the outstanding shares of UBT Common Stock.
Your vote is important regardless of the number of shares you own. Each
stockholder, whether he or she now plans to attend the Special Meeting, is
requested to sign, date and return the enclosed Proxy without delay in the
enclosed postage-paid envelope. You may revoke your Proxy at any time prior to
its exercise. Any stockholder present at the Special Meeting or at any
adjournments or postponements thereof may revoke his or her Proxy and vote
personally on each matter brought before the Special Meeting.
/s/ GAYLE A. ANDERSON
Gayle A. Anderson, Secretary
December 21, 1994
THE BOARD OF DIRECTORS OF UBT UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
MERGER PROPOSAL. PLEASE DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT
PROMPTLY IN THE ENCLOSED POSTAGE PAID RETURN ENVELOPE.
<PAGE> 4
[UB&T LOGO]
PROXY STATEMENT
------------------
COMERICA INCORPORATED
PROSPECTUS
------------------
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is being
furnished to stockholders of University Bank & Trust Company ("UBT") in
connection with the solicitation of proxies by the Board of Directors of UBT for
use at its Special Meeting of Stockholders (including any adjournments or
postponements thereof) to be held on January 25, 1995, and relates to the
proposed merger (the "Merger") of UBT with Comerica Interim Incorporated, a
California corporation ("Interim") and a wholly-owned subsidiary of Comerica
Incorporated, a Delaware corporation ("Comerica"), pursuant to the Agreement and
Plan of Reorganization and Merger, dated as of October 4, 1994 (the "Merger
Agreement"), by and among UBT, Interim and Comerica and all of the transactions
contemplated thereby including the completion of the Merger pursuant to the
terms of the Agreement of Merger (the "Subsidiary Merger Agreement").
This Proxy Statement/Prospectus also constitutes a prospectus of Comerica
with respect to up to 2,680,820 shares of common stock, $5.00 par value per
share, of Comerica ("Comerica Common Stock") which may be issuable to holders of
common stock, no par value per share, of UBT ("UBT Common Stock"), in the
Merger. Upon consummation of the Merger, each outstanding share of UBT Common
Stock will, subject to certain provisions with respect to fractional shares and
dissenting shares, be converted into the right to receive 1.7456 shares of
Comerica Common Stock, subject to certain adjustments described in the Merger
Agreement.
Comerica Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "CMA." The last reported sales price of the Comerica Common
Stock on the NYSE Composite Tape on December 16, 1994 was $25.125.
THE SHARES OF COMERICA COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE
FUND OR ANY OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS DECEMBER 21, 1994
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to stockholders of UBT on or about December 21, 1994.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION................................................................. 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 2
SUMMARY............................................................................... 4
The Parties......................................................................... 4
The Special Meeting................................................................. 4
The Merger.......................................................................... 5
Selected Consolidated Financial Data of Comerica Incorporated....................... 11
Selected Consolidated Financial Data of University Bank & Trust Company............. 12
Comparative Per Share Data.......................................................... 13
Comparative Stock Prices............................................................ 14
INTRODUCTION.......................................................................... 15
THE COMPANIES......................................................................... 15
Comerica Incorporated............................................................... 15
University Bank & Trust Company..................................................... 18
THE SPECIAL MEETING................................................................... 19
Matters to be Considered at the Special Meeting..................................... 19
Vote Required....................................................................... 19
Security Ownership of Certain Beneficial Owners..................................... 19
Voting of Proxies................................................................... 19
Revocability of Proxies............................................................. 20
Record Date; Shares Entitled to Vote; Quorum........................................ 20
Solicitation of Proxies............................................................. 20
THE MERGER............................................................................ 20
Form of the Merger.................................................................. 20
Merger Consideration................................................................ 20
Background of the Merger............................................................ 21
Comerica Reasons for the Merger..................................................... 25
Recommendation of the Board of Directors of UBT and Reasons for the Merger.......... 25
Opinion of UBT's Financial Advisor.................................................. 25
Summary of Financial Analyses....................................................... 26
Effective Time of Merger............................................................ 28
Conversion of Shares; Procedures for Exchange of Certificates; Fractional Shares.... 28
Acquisition Proposals............................................................... 29
Conditions to the Consummation of the Merger........................................ 30
Regulatory Approvals Required....................................................... 31
Operations Pending the Merger....................................................... 32
Operations After the Merger......................................................... 33
Interests of Certain Persons in the Merger.......................................... 33
Stock Option Plans.................................................................. 34
Cancellation Fee; Liquidated Damages................................................ 35
Anticipated Accounting Treatment.................................................... 35
Certain Federal Income Tax Consequences............................................. 35
Resale of Comerica Common Stock; Restrictions on Transfer........................... 36
Stock Exchange Listing.............................................................. 36
Dissenter's Rights.................................................................. 37
CERTAIN REGULATORY CONSIDERATIONS..................................................... 39
General............................................................................. 39
Interstate Banking and Branching.................................................... 39
Payment of Dividends................................................................ 40
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Certain Transactions by Comerica with its Affiliates................................ 41
Capital............................................................................. 41
Comerica's Support of Subsidiary Banks.............................................. 43
FDIC Insurance Assessments.......................................................... 44
FDICIA.............................................................................. 44
Implications of Being a Savings and Loan Holding Company............................ 45
DESCRIPTION OF COMERICA CAPITAL STOCK................................................. 46
Comerica Preferred Stock............................................................ 47
Comerica Common Stock............................................................... 48
DESCRIPTION OF UBT CAPITAL STOCK...................................................... 48
COMPARISON OF SHAREHOLDER RIGHTS...................................................... 48
Classification, Removal and Nomination of Board of Directors........................ 49
Special Meetings of Shareholders.................................................... 50
Limitation of Liability of Directors................................................ 50
Action by Written Consent........................................................... 50
Certain Business Combinations....................................................... 50
Amendment of Certificate of Incorporation........................................... 51
Rights Plans........................................................................ 51
Dividends........................................................................... 54
THE MERGER AGREEMENT.................................................................. 54
Representations and Warranties...................................................... 54
Conduct of Business Pending the Merger.............................................. 54
Conditions to the Merger............................................................ 56
Termination......................................................................... 60
Liquidated Damages; Cancellation Fee................................................ 60
Expenses............................................................................ 61
Shareholder Agreements.............................................................. 61
Resales by Affiliates............................................................... 61
Amendment and Waiver................................................................ 62
THE STOCK OPTION AGREEMENT............................................................ 62
LEGAL MATTERS......................................................................... 64
EXPERTS............................................................................... 64
STOCKHOLDER PROPOSALS................................................................. 64
</TABLE>
ANNEXES
Annex A - Agreement and Plan of Reorganization and Merger
Annex B - Subsidiary Merger Agreement
Annex C - Chapter 13 of the General Corporations Law of the State of
California Code Relating to Dissenters Rights
Annex D - Opinion of Goldman, Sachs & Co.
Annex E - Stock Option Agreement
ii
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NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY COMERICA, INTERIM OR UBT. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF COMERICA, INTERIM OR UBT SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO SUCH DATE. ALL
INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS RELATING TO COMERICA
AND ITS SUBSIDIARIES HAS BEEN SUPPLIED BY COMERICA AND ALL INFORMATION CONTAINED
IN THIS PROXY STATEMENT/PROSPECTUS RELATING TO UBT AND ITS SUBSIDIARIES HAS BEEN
SUPPLIED BY UBT.
AVAILABLE INFORMATION
Comerica is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith Comerica files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Since June 17, 1994,
UBT has been a California state bank and a member of the Federal Reserve and
therefore files reports, proxy statements and other information with the Federal
Reserve Board (the "Federal Reserve"). Prior to June 17, 1994, UBT was a
National Association and filed reports, proxy statements and other information
with the Office of the Comptroller of the Currency (the "Comptroller").
The reports, proxy statements and other information filed by Comerica with
the Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center,
New York, New York 10048 and Northwestern Atrium Center, 500 West Madison, Suite
1400, Chicago, Illinois 60661. Copies of such material also can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The reports, proxy statements and
other information filed by UBT with the Federal Reserve can be inspected and
copied at the Public Reference Section of the offices of the Federal Reserve at
20th and C Streets, N.W., Washington, D.C. 20551. The reports, proxy statement
and other information filed by UBT with the Comptroller can be inspected and
copied at the offices of the Comptroller, Independence Square, 250 E. Street,
S.W., Washington, D.C. 20219. In addition, material filed by Comerica can be
inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005, and materials filed by UBT can be inspected at the
offices of the NASDAQ (National Association of Securities Dealers Automated
Quotations) National Market System at 1735 K Street, N.W., Washington, D.C.
20006.
Comerica has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Comerica Common Stock to be issued pursuant to the Merger Agreement. This Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits thereto. Such additional information may
be inspected and copied as set forth above. Statements contained in this Proxy
Statement/Prospectus or in any document incorporated in this Proxy
Statement/Prospectus by reference as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
1
<PAGE> 8
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Comerica pursuant to
the Exchange Act (File No. 1-10706), the Federal Reserve by UBT (Tax
Identification No. 77-0376213) or the Comptroller by UBT (Tax Identification No.
94-2622607) are incorporated by reference in this Proxy Statement/Prospectus:
1. Comerica's Annual Report on Form 10-K for the year ended December
31, 1993 (the "1993 Comerica 10-K").
2. Comerica's Quarterly Reports on Form 10-Q for the quarterly periods
ended March 31, June 30 and September 30, 1994.
3. The description of the Comerica Common Stock, par value $5.00 per
share, incorporated by reference in the Registration Statement on Form 8-A
dated March 4, 1991.
4. Comerica's Registration Statement on Form 8-A dated March 4, 1991,
as amended by an Amendment on Form 8 filed November 1, 1991.
5. The portions of Comerica's Proxy Statement for the Annual Meeting
of Shareholders held May 20, 1994 that have been incorporated by reference
in the 1993 Comerica 10-K other than the Report of the Compensation
Committee on Executive Compensation and the Performance Graph on pages
25-29 thereof.
6. UBT's Annual Report on Form 10-K for the year ended December 31,
1993 (the "UBT Form 10-K") filed with the Comptroller.
7. UBT's Amendment No. 1 on Form 10-K/A to the UBT Form 10-K, filed
with the Comptroller.
8. UBT's Proxy Statement for the Annual Meeting of Shareholders held
on June 16, 1994, filed with the Comptroller.
9. UBT's Quarterly Reports on Form 10-Q for the quarterly periods
ended March 31, 1994 filed with the Comptroller and June 30 and September
30, 1994 filed with the Federal Reserve.
10. UBT's Amendment No. 1 on Form 10-Q/A for the quarterly period
ended September 30, 1994 filed with the Federal Reserve.
11. UBT's Current Report on Form 8-K dated June 17, 1994 filed with
the Federal Reserve.
12. UBT's Current Report on Form 8-K dated October 17, 1994 filed with
the Federal Reserve.
The documents listed above as items 6 through 12 above have been filed as
exhibits to the Registration Statement of which this Proxy Statement/Prospectus
is a part. In addition, a copy of the documents listed in items 6, 7 and 10
above, as well as UBT's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1994, separately accompany this Proxy Statement/Prospectus.
2
<PAGE> 9
All documents and reports filed by Comerica and UBT pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the date of the Special Meeting of
stockholders of UBT shall be deemed to be incorporated by reference in this
Proxy Statement/Prospectus and to be a part hereof from the dates of filing of
such documents or reports. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement/Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON
WRITTEN OR ORAL REQUEST, IF FOR COMERICA, TO JUDITH C. DART, EXECUTIVE VICE
PRESIDENT, GENERAL COUNSEL AND SECRETARY, COMERICA INCORPORATED, COMERICA TOWER
AT DETROIT CENTER, 500 WOODWARD AVENUE, DETROIT, MICHIGAN 48226, TELEPHONE (313)
222-7937; AND IF FOR UBT, TO GAYLE A. ANDERSON, SECRETARY, 250 LYTTON AVENUE,
P.O. BOX 89, PALO ALTO, CALIFORNIA 94301, TELEPHONE (415) 327-0210. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, REQUESTS SHOULD BE RECEIVED BY JANUARY
18, 1995 (5 BUSINESS DAYS BEFORE THE DATE OF THE SPECIAL MEETING).
3
<PAGE> 10
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus. As this summary is necessarily incomplete,
reference is made to, and this summary is qualified in its entirety by, the more
detailed information contained or incorporated by reference in this Proxy
Statement/Prospectus and the annexes hereto. Stockholders are urged to read this
Proxy Statement/Prospectus and the annexes hereto in their entirety. Certain
capitalized terms which are used but not defined in this summary are defined
elsewhere in this Proxy Statement/Prospectus.
THE PARTIES
University Bank & Trust Company ("UBT") is a California state-chartered
bank and a member of the Federal Reserve System. UBT provides basic banking
services and personal trust services to individuals and business enterprises
located primarily in California's Palo Alto area. UBT offers traditional banking
services such as lending and deposit takings in addition to specialized banking
services designed to meet the needs of its customers. As of September 30, 1994,
UBT had total assets of approximately $442.2 million, total deposits of
approximately $403.5 million, total loans (net of unearned income) of
approximately $211.9 million, and stockholders' equity of approximately $35.4
million. The main banking office of UBT and the principal executive offices of
UBT are both located at 250 Lytton Avenue, Palo Alto, California 94301. Its
telephone number is (415) 327-0210.
Comerica Incorporated ("Comerica") is a Delaware corporation and a bank
holding company registered under the Bank Holding Company Act of 1956, as
amended (the "BHCA"), headquartered in Detroit, Michigan. As of September 30,
1994, Comerica owned directly or indirectly 9 banking and 45 active non-banking
subsidiaries. As of September 30, 1994, Comerica had total assets of
approximately $31.8 billion, total deposits of approximately $20.3 billion,
total loans (net of unearned income) of approximately $20.8 billion, and
stockholders' equity of approximately $2.4 billion. Comerica's principal
subsidiary, Comerica Bank, is a commercial banking and trust institution that
offers individuals, the business community, and governmental agencies all
services associated with a full-service commercial banking institution. The
principal executive offices of Comerica are presently located at Comerica Tower
at Detroit Center, 500 Woodward Avenue, Suite 3100, Detroit, Michigan 48226. Its
telephone number is (313) 222-4000.
Comerica Interim Incorporated is a California corporation and a wholly
owned subsidiary of Comerica. Interim is being used specifically as a merger
vehicle for the acquisition by Comerica of UBT and currently has no assets or
operations.
THE SPECIAL MEETING
Special Meeting of Stockholders. A special meeting of the stockholders of
UBT will be held at the offices of UBT, located at 250 Lytton Avenue, Palo Alto,
California, on January 25, 1995, at 4:30 p.m., local time (the "Special
Meeting"). See "THE SPECIAL MEETING."
Matters to Be Considered. At the Special Meeting, holders of UBT Common
Stock, no par value per share ("UBT Common Stock"), will consider and vote upon
a proposal (the "Merger Proposal") to adopt and approve (a) the Agreement and
Plan of Reorganization and Merger, dated as of October 4, 1994 (the "Merger
Agreement"), by and among UBT, Interim and Comerica, and (b) the Agreement of
Merger (the "Subsidiary Merger Agreement") providing for the merger (the
"Merger") of Interim with and into UBT, with UBT being the surviving entity. No
other matters will be brought before the Special Meeting. See "THE SPECIAL
MEETING -- Matters to Be Considered at the Special Meeting."
Votes Required. The affirmative vote of the holders of a majority of the
outstanding shares of UBT Common Stock entitled to vote thereon is required to
approve the Merger Proposal. See "THE SPECIAL MEETING -- Vote Required."
Record Date. The record date for the Special Meeting is December 1, 1994
(the "Record Date"). Only UBT stockholders of record at the close of business on
the Record Date are entitled to notice of, and to vote at, the Special Meeting.
4
<PAGE> 11
As of the Record Date, there were 1,407,597 shares of UBT Common Stock
outstanding, and each such share is entitled to one vote at the Special Meeting.
As of the Record Date, there were 495 holders of record of UBT Common Stock.
Security Ownership. As of September 30, 1994, directors and executive
officers of UBT and their affiliates may be deemed to be the beneficial owners
of approximately 16.5% of the outstanding shares of UBT Common Stock. Such
officers and directors are entitled to exercise options to acquire a total of
11,000 shares of UBT Common Stock, which would result in such persons being
deemed to be the beneficial owners of approximately 17.3% of the shares of UBT
Common Stock outstanding as of September 30, 1994. See "THE MERGER -- Stock
Option Plans." Each UBT director who owns UBT Common Stock (each a "director-
stockholder") has executed an agreement which, among other things, obligates
each director-stockholder to vote the shares of UBT Common Stock owned or
controlled by them in favor of the Merger, subject to fiduciary obligations. See
"THE MERGER AGREEMENT -- Shareholder Agreements." As of the Record Date, the
director-stockholders of UBT owned or controlled an aggregate of 168,545 shares
of UBT Common Stock, representing approximately 11.97% of the then outstanding
shares of UBT Common Stock.
As of the Record Date, no shares of UBT Common Stock were beneficially
owned by Comerica, Interim or any of their subsidiaries, directors or executive
officers, or their affiliates, excepting 400 shares of UBT Common Stock owned
jointly by a Comerica director and his wife.
THE MERGER
Form of the Merger. Pursuant to the Merger Agreement, which is hereby
incorporated by reference and is set forth in Annex A to this Proxy
Statement/Prospectus, at the Effective Time (see "THE MERGER -- Effective Time
of Merger") of the Merger, Interim will merge with and into UBT, with UBT being
the surviving corporation in accordance with the terms of the Subsidiary Merger
Agreement. As a result of the Merger, Comerica will own the entire equity
interest in, and become the sole stockholder of, UBT. See "THE MERGER -- Form of
the Merger."
Merger Consideration. Upon consummation of the Merger, each outstanding
share of UBT Common Stock will, subject to certain provisions with respect to
fractional shares and dissenting shares, be converted into the right to receive
1.7456 shares of Comerica Common Stock (based upon an assumed number of shares
of Fully Diluted UBT Common Stock (as defined in the Merger Agreement) of
1,591,186 as of the consummation of the Merger), subject to certain adjustments
described in the Merger Agreement (as so adjusted, the "UBT Conversion Rate").
The Merger Agreement provides for an adjustment to the UBT Conversion Rate in
the event that UBT's Consolidated Net Worth (as defined in the Merger Agreement)
is less than the sum of $34,200,000 and the Pre-Closing Income Amount (as
defined in the Merger Agreement), or in the event of certain changes in the
capitalization of Comerica, including, but not limited to, any recapitalization,
reorganization, stock split or stock dividend. In addition, all existing rights
with respect to UBT Common Stock pursuant to outstanding UBT stock options (the
"UBT Stock Options") under UBT Stock Option plans, whether vested or unvested or
exercisable shall be converted into and become rights with respect to Comerica
Common Stock and Comerica will assume each UBT Stock Option in accordance with
the terms of the UBT Stock Option plans and the stock option agreement, if any,
by which it is evidenced. In general, each UBT Stock Option holder will receive
the stock options for the number of shares of Comerica Common Stock such holder
would have been entitled to receive had such holder exercised his or her UBT
Stock Options in full immediately prior to the Effective Time, with appropriate
adjustment of the exercise price. See "THE MERGER -- Merger Consideration and --
Conditions to the Consummation of the Merger."
Upon consummation of the Merger, each outstanding share of Interim will be
converted into one share of the surviving corporation.
Effective Time of the Merger. It is expected that if the Merger Proposal is
approved by the UBT stockholders, and assuming that the other conditions
described in the Merger Agreement are satisfied, the Merger will become
effective during the first quarter of 1995. See "THE MERGER -- Effective Time of
Merger."
5
<PAGE> 12
If the Merger does not become effective on or prior to August 31, 1995, any
of Comerica, Interim or UBT may terminate the Merger Agreement. See "THE MERGER
AGREEMENT -- Termination."
Purpose of the Merger and Comerica's Reasons for the Merger. The purpose of
the Merger is for Comerica to acquire the entire equity interest in UBT. It is
part of Comerica's current business strategy to expand its activities from
Michigan into states such as California where management believes there are
long-term opportunities which will benefit Comerica and its shareholders.
Comerica California Incorporated, a California corporation and registered bank
holding company, is Comerica's wholly owned bank holding company subsidiary
operating in the State of California, which through its wholly owned subsidiary,
Comerica Bank-California, a California bank, focuses on middle market banking,
small business banking, private banking, high technology, commercial real estate
lending and mortgage banker financing, as well as trust services, in the San
Jose and Los Angeles areas. See "THE COMPANIES -- Comerica Incorporated."
Comerica believes that through the Merger Comerica will be able to increase its
penetration of the California commercial, retail and private banking markets in
the communities served by UBT. This transaction is also expected to enhance the
competitiveness of the companies currently in the deregulated banking
environment and prospectively after the full impact of the Interstate Banking
and Branching Efficiency Act of 1994 (the "Interstate Act") is known. See "THE
MERGER -- Comerica Reasons for the Merger."; "CERTAIN REGULATORY CONSIDERATIONS
- -- Interstate Banking and Branching."
Recommendations of the UBT Board of Directors and Reasons for the
Merger. The Board of Directors of UBT believes that the terms of the Merger are
fair to and in the best interests of UBT and its stockholders. All of the
members of the UBT Board were at the meeting approving the Merger Agreement and
they unanimously approved the Merger Agreement, the Subsidiary Merger Agreement
and the Merger. Accordingly, the UBT Board recommends that UBT stockholders vote
FOR the Merger Proposal. See "THE MERGER -- Recommendation of the Board of
Directors of UBT and Reasons for the Merger."
The terms of the Merger Agreement, including the financial consideration
provided therein, were the result of arms' length negotiations between Comerica,
Interim and UBT and their respective representatives. In reaching a conclusion
to approve the Merger, the Board of Directors of UBT considered a number of
factors, including, but not limited to, the need to address the need for a
successor to its Chairman within the context of a consolidating banking industry
and a regulatory environment which is increasingly burdensome to smaller
institutions. See "THE MERGER -- Recommendation of the Board of Directors of UBT
and Reasons for the Merger" and "-- Background of the Merger."
Opinion of Financial Advisor to UBT. Goldman, Sachs & Co. ("Goldman Sachs")
has served as financial advisor, and has delivered its written opinion to the
UBT Board, dated as of the date of this Proxy Statement/Prospectus, that the UBT
Conversion Rate to be received by UBT stockholders pursuant to the Merger
Agreement is fair to UBT stockholders. UBT has agreed to pay Goldman Sachs a fee
for their services which is in part contingent on the consummation of the
Merger. See "THE MERGER -- Opinion of UBT's Financial Advisor." The full text of
Goldman Sachs' written opinion, dated as of the date of this Proxy
Statement/Prospectus, which sets forth the assumptions made, matters considered
and limits on their review, is attached hereto as Annex D. UBT Common
Stockholders are urged to and should read such opinion in its entirety.
UBT Acquisition Proposals. The Merger Agreement provides that UBT will not
authorize or knowingly permit any of its representatives, directly or
indirectly, to solicit or encourage, or participate in any discussions or
negotiations with, or provide any nonpublic information to, any person or group
of persons (other than Comerica, Interim or their representatives) concerning
any "Acquisition Proposal." An Acquisition Proposal is defined generally to mean
any proposal for the acquisition or participation in a merger or other business
combination involving UBT, any proposal by which any person or group other than
Comerica or Interim would acquire the right to vote 10% or more of the capital
stock of UBT entitled to vote for the election of directors, any acquisition of
the assets of UBT other than in the ordinary course of business, or any
acquisition of more than 10% of the outstanding capital stock of UBT. However,
UBT or its Board of Directors are not prevented from (A) furnishing non-public
information to, or entering into discussions or negotiations with, any person or
entity in connection with an unsolicited bona fide written Acquisition Proposal
by such person or entity or
6
<PAGE> 13
recommending an unsolicited bona fide written Acquisition Proposal to the
shareholders of UBT, if and to the extent that (1) the Board of Directors of UBT
believes in good faith (after consultation with and the concurrence of its
financial advisor) that such Acquisition Proposal would, if consummated, result
in a transaction materially more favorable to UBT's stockholders from a
financial point of view than the transaction contemplated by the Merger
Agreement and the UBT Board of Directors determined in good faith after
consultation with its outside legal counsel that such action is necessary for
UBT to comply with its fiduciary duties to stockholders under applicable law,
and (2) prior to furnishing such non-public information to, or entering into
discussions or negotiations with, such person or entity, the UBT Board of
Directors received from such person or entity an executed confidentiality
agreement, with terms similar in scope to those contained in the confidentiality
agreement between Comerica and UBT, or (B) complying with Rule 14e-2 promulgated
under the Exchange Act of 1934, as amended, with regard to an Acquisition
Proposal. UBT is required to notify Comerica immediately upon receipt of any
inquiry regarding any Acquisition Proposal. See "THE MERGER -- Acquisition
Proposals."
Conditions to the Merger; Termination. The obligations of Comerica, Interim
and UBT, as the case may be, to consummate the Merger are subject to various
conditions set forth in the Merger Agreement including, but not limited to,
obtaining requisite stockholder and regulatory approvals; the absence of any
materially burdensome condition imposed for any regulatory approval; the absence
of any action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger by any governmental entity which
makes the Merger illegal, requires any material divestiture or imposes a
materially burdensome condition; the accuracy in all material respects of the
representations and warranties of, and performance in all material respects of
the covenants required to be performed prior to the Effective Time of the Merger
by, the other parties to the Merger Agreement; the absence of any materially
adverse change to the other parties or their subsidiaries; receipt of an opinion
of legal counsel in respect of certain Federal income tax consequences (see "THE
MERGER -- Certain Federal Income Tax Consequences"); receipt of legal opinions
and approval of their respective legal counsel of the transactions contemplated
by the Merger Agreement; approval for listing of the shares of the Comerica
Common Stock to be issued in the Merger on the New York Stock Exchange; and
receipt from each of Ernst & Young and KPMG Peat Marwick, LLP of letters, in
form and substance satisfactory to Comerica and UBT and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement filed in
connection with the Merger. In addition, the obligations of Comerica and Interim
to consummate the Merger are subject to the following further conditions, among
others: the requirements that UBT's reserve for possible loan losses 5 business
days prior to the Effective Time shall be at least the greater of $4,700,000 or
2.25% of UBT's total loans outstanding on that date (subject to certain
adjustments) and that UBT's non-performing assets outstanding on the last day of
the month immediately preceding the Effective Time shall be no more than
$4,711,431. The obligation of UBT to consummate the Merger is subject to the
receipt of the written opinion of Goldman Sachs prior to the mailing of this
Proxy Statement/Prospectus, dated the date of this Proxy Statement/Prospectus to
the effect that, as of such date, the UBT Conversion Rate is fair. There can be
no assurance that the conditions to the Merger will be satisfied. See "THE
MERGER AGREEMENT -- Conditions to the Merger."
Under certain circumstances, Comerica, Interim or UBT may terminate the
Merger Agreement, either prior to or after approval thereof by UBT stockholders.
See "THE MERGER AGREEMENT -- Termination."
Liquidated Damages; Cancellation Fee. The Merger Agreement provides that,
in the event an Acquisition Event shall occur or (i) any of UBT, Comerica or
Interim terminates the Merger Agreement because the Merger Agreement, the
Subsidiary Merger Agreement and the Merger are not ratified by UBT's
stockholders, (ii) any of UBT, Comerica or Interim terminates the Merger
Agreement because there shall have been a material breach of any of the
representations or warranties set forth in the Merger Agreement on the part of
the other party, (iii) Comerica terminates the Merger Agreement because there is
a default by UBT, pursuant to the Merger Agreement and the continuance of such
failure for a period of 20 Business Days after written notice, which failure to
perform, in the reasonable opinion of Comerica and Interim cannot be cured prior
to the closing, or (iv) Comerica terminates the Merger Agreement because the UBT
Board did not publicly
7
<PAGE> 14
recommend in this Proxy Statement/Prospectus that UBT stockholders adopt and
approve the Merger Agreement or shall withdraw, modify or amend such
recommendation in any respect materially adverse to Comerica followed by an
Acquisition Event within 90 days of such termination, UBT is required to pay to
Comerica the sum of $3,200,000 as reasonable and full liquidated damages and
reasonable compensation for the loss sustained thereby. For the purposes of the
Merger Agreement, an Acquisition Event is defined generally to mean (a) that UBT
has authorized, recommended, publicly proposed or publicly announced an
intention to authorize, recommend or propose, or entered into an agreement to
effect the following: a merger, consolidation or similar transaction involving
UBT or any of its subsidiaries; the disposition of assets of UBT or any of its
subsidiaries representing 15% or more of the consolidated assets of UBT and its
subsidiaries; or the issuance, sale or other disposition of securities
representing 10% or more of the voting power of UBT or any of its subsidiaries,
other than securities issued pursuant to the Stock Option Agreement, (b) the
acquisition of the beneficial ownership or the right to acquire beneficial
ownership by any person or group of persons (as the term "beneficial ownership"
is defined in Rule 13d-3 of the Securities Exchange Act of 1934) of 15% or more
of the outstanding UBT Common Stock; or (c) within 180 days after termination of
the Merger Agreement by Comerica upon the occurrence of certain events specified
in the Merger Agreement, where such events were caused in whole or in part by
any action or inaction within the control of UBT, any subsidiary of UBT or the
directors of UBT or UBT's subsidiaries.
In addition, the Merger Agreement provides that, in the event of
termination by UBT of this Agreement because Interim or Comerica has breached
any of their representations and warranties set forth in the Merger Agreement
and in the reasonable opinion of UBT such breach cannot be cured prior to
closing and would have a Material Adverse Effect on Interim or Comerica or
because of a default by Comerica or Interim pursuant to the Merger Agreement and
the continuance of such failure for a period of 20 business days after written
notice of such default, in the reasonable opinion of UBT, cannot be cured prior
to the closing, then Comerica and Interim, jointly and severally, shall pay to
UBT as reasonable and full liquidated damages and reasonable compensation for
the loss sustained thereby and not as a penalty or forfeiture, the sum of
$2,000,000. See "THE MERGER AGREEMENT -- Liquidated Damages; Cancellation Fee."
Regulatory Approvals Required. The Merger is subject to prior approval by
the Federal Reserve Board, the Commissioner of the Michigan Financial
Institutions Bureau (the "Michigan Commissioner") and the State of California's
Superintendent of Banks (the "California Superintendent"). Although it is not a
condition to consummation of the Merger, Comerica may, sometime after such
consummation, elect to merge the surviving corporation of the merger between UBT
and Interim with and into Comerica Bank-California, a wholly-owned subsidiary of
Comerica California Incorporated, Comerica's California bank holding company
(the "Subsidiary Bank Merger"). The Subsidiary Bank Merger would be subject to
prior approval of the Federal Deposit Insurance Corporation ("FDIC"), and the
California Superintendent. Applications for approval of the Merger have been
filed with the Federal Reserve, the Michigan Commissioner and the California
Superintendent. There can be no assurance that any of these regulatory
authorities will approve the Merger or the Subsidiary Bank Merger, or if
approved, as to the date of such approvals. There can also be no assurance that
such approvals will not contain a condition or requirement which causes such
approvals to fail to satisfy the conditions to the consummation of the Merger.
There can also be no assurance that the Department of Justice will not challenge
the Merger or the Subsidiary Bank Merger, or as to the outcome of any such
challenge if made. See "THE MERGER -- Conditions to the Consummation of the
Merger and -- Regulatory Approvals Required."
Operations Pending the Merger. In the Merger Agreement, UBT has agreed to
carry on its business and the business of its subsidiaries in substantially the
manner as conducted prior to the execution of the Merger Agreement, to notify
Comerica promptly of any material adverse changes or events, to take certain
other actions, and to provide Comerica with certain reports and information. UBT
has also agreed in the Merger Agreement that it will not take certain actions,
including by way of example and not of limitation, issue capital stock (other
than pursuant to outstanding stock options under its Stock Option Plans), issue
other securities convertible into capital stock, acquire or dispose of material
assets, incur indebtedness other than in the ordinary course of business or
declare or pay any dividend, other than regular quarterly cash dividends in an
8
<PAGE> 15
amount not to exceed $.35 per share. See "THE MERGER AGREEMENT -- Conduct of
Business Pending the Merger" and "THE MERGER -- Operations Pending the Merger."
Operations After the Merger. If the Merger is consummated, UBT will be the
surviving corporation of the Merger, with the articles of incorporation of UBT
and the name University Bank & Trust Company. The separate existence of Interim
will cease, and the surviving corporation will continue as a wholly owned
subsidiary of Comerica. The Board of Directors of the surviving corporation will
be made up of certain directors of Interim and UBT serving in those capacities
at the Effective Time. It is anticipated that, upon consummation of the Merger,
Comerica will contribute the stock of the surviving corporation to Comerica
California Incorporated, Comerica's California bank holding company. At some
point after the consummation of the Merger the surviving corporation may merge
into Comerica Bank-California, a California bank and wholly owned subsidiary of
Comerica California Incorporated. At such time, the surviving corporation would
be run as a separate division of Comerica Bank-California.
Following the consummation of the Merger, Carl J. Schmitt, Chairman of the
Board and Chief Executive Officer of UBT is expected to remain as Chairman of
the Board of the surviving corporation. It is also expected that Mr. Schmitt,
upon the anticipated Merger of the surviving corporation into Comerica Bank-
California, will become a member of the Board of Directors of Comerica
Bank-California and, as a result, will receive a fee for each board meeting he
attends, as well as reimbursement for expenses he incurs in doing so. See "THE
MERGER -- Interests of Certain Persons in the Merger."
Banking policies and procedures of the surviving corporation and its
subsidiaries will continue in accordance with the policies of Comerica. See "THE
MERGER -- Operations After the Merger."
Interests of Certain Persons in the Merger. Certain members of UBT's
management, including Mr. Carl J. Schmitt, may be deemed to have certain
interests in the Merger that are in addition to their interests as stockholders
of UBT generally. The UBT Board was aware of these interests and considered
them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby. See "THE MERGER -- Interests of Certain
Persons in the Merger" and -- "Operations After the Merger".
Anticipated Accounting Treatment. The Merger is expected to be treated as a
purchase for accounting and financial reporting purposes. The shares of Comerica
Common Stock to be issued in the Merger will be authorized but unissued shares,
or shares held as treasury shares. Subject to the rules of the Commission,
Comerica may repurchase shares of Comerica Common Stock in open market or other
transactions to fund the Merger consideration. See "THE MERGER -- Anticipated
Accounting Treatment."
Certain Federal Income Tax Consequences. The obligations of Comerica,
Interim and UBT to effect the Merger are conditioned upon the receipt of a legal
opinion dated the Effective Time of the Merger from legal counsel acceptable to
Comerica, subject to exceptions and assumptions normally included, and in form
and substance reasonably satisfactory to Comerica and UBT, to the effect that
the Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "IRC"), and that Comerica, Interim and UBT will each be a party to
that reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E)
of the IRC. There can be no assurance that this opinion will be received. See
"THE MERGER -- Certain Federal Income Tax Consequences."
The material federal income tax consequences of the proposed transactions
to stockholders of UBT are summarized under "THE MERGER -- Certain Federal
Income Tax Consequences."
Stock Exchange Listing. The Comerica Common Stock is listed on the New York
Stock Exchange ("NYSE"). Comerica has agreed to apply for the listing of the
shares of Comerica Common Stock to be issued in the Merger on the NYSE. The
obligations of the parties to the Merger Agreement to consummate the Merger are
subject to approval for listing by the NYSE of such shares. See "THE MERGER --
Stock Exchange Listing."
Dissenter's Rights. Holders of UBT Common Stock may have certain
dissenter's rights if their shares of UBT Common Stock qualify as "dissenting
shares" under California law. These rights may require UBT to
9
<PAGE> 16
purchase for cash at fair market value from UBT shareholders any such
"dissenting shares." UBT stockholders must strictly comply with applicable
California law to exercise their dissenter's rights. A copy of the pertinent
statutory provisions are attached to this Proxy Statement/Prospectus as Annex C.
See "THE MERGER -- Dissenter's Rights."
For additional information with respect to dissenter's rights and a
description of the procedure to exercise those rights, see "THE MERGER --
Dissenter's Rights."
Stock Option Agreement. As a condition to entering into the Merger
Agreement, Comerica insisted that it be granted an option to purchase up to
137,718 shares of UBT Common Stock, representing approximately 9.9% of the
issued and outstanding shares of UBT Common Stock. UBT made such grant pursuant
to a separate Stock Option Agreement, dated October 4, 1994 (the "Stock Option
Agreement"). The per share exercise price of $38.25 was determined on the basis
of the average closing price of UBT Common Stock on the NASDAQ National Market
System for the seven trading days ending on October 4, 1994. The option may be
exercised only upon the occurrence of certain events and conditions. The Stock
Option Agreement is attached to this Proxy Statement/Prospectus as Annex E. See
"THE STOCK OPTION AGREEMENT."
The Stock Option Agreement is intended to increase the likelihood that the
Merger will be consummated in accordance with the terms of the Merger Agreement.
Consequently, certain aspects of the Stock Option Agreement may have the effect
of discouraging persons who might now or prior to the Effective Time be
interested in acquiring all of or a significant interest in UBT from considering
or proposing such an acquisition, even if such persons were prepared to pay a
higher price per share for UBT Common Stock than the price per share implicit in
the UBT Conversion Rate or a higher price per share for UBT Common Stock than
the then current market price of such shares.
Certain Regulatory Considerations. As financial institutions, Comerica and
its banking subsidiaries are subject to certain regulatory restrictions, and
examination and reporting requirements, of certain federal and state banking
authorities. Such restrictions impact, among other things, the payment of
dividends to Comerica by its bank subsidiaries and the extent to which Comerica
and its nonbank subsidiaries can borrow or otherwise obtain credit from its bank
subsidiaries. In addition, Comerica and its bank subsidiaries are subject to
certain capital requirements. Comerica is also expected to act as a source of
financial strength to each of its subsidiary banks and to commit resources to
support each of such subsidiaries. The regulatory structure applicable to banks
has been considerably revised by recent federal legislation. See "CERTAIN
REGULATORY CONSIDERATIONS."
10
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA OF COMERICA INCORPORATED
(SHARE DATA IN THOUSANDS, EXCEPT PER SHARE DATA; INCOME STATEMENT AND BALANCE
SHEET AMOUNTS IN MILLIONS)
The following table sets forth certain selected consolidated financial data
of Comerica and is based on the consolidated financial statements of Comerica,
including the respective notes thereto, which are incorporated by reference in
this Proxy Statement/Prospectus from Comerica's Annual Report on Form 10-K for
the year ended December 31, 1993 and Quarterly Report on Form 10-Q for the nine
months ended September 30, 1994, and should be read in conjunction therewith.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" above.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED(1)
-----------------------------
SEPTEMBER 30, SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------- ------------- -----------------------------------------------
1994 1993 1993 1992 1991 1990 1989
------------- ------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONDENSED STATEMENT OF INCOME
(IN MILLIONS):
Net interest income....................... $ 918 $ 845 $ 1,134 $ 1,121 $ 1,050 $ 927 $ 847
Provision for loan losses................. 44 55 69 111 105 100 147
Noninterest income........................ 344 331 462 411 385 348 293
Noninterest expenses...................... 780 761 1,038 1,092 945 848 754
Provision for income taxes................ 147 109 148 89 105 79 51
------------- ------------- ------- ------- ------- ------- -------
Net income................................ $ 291 $ 251 $ 341 $ 240 $ 280 $ 248 $ 188
=========== =========== ======== ======== ======== ======== ========
PER COMMON SHARE DATA:
Net income (primary)...................... $ 2.46 $ 2.09 $ 2.85 $ 1.99 $ 2.41 $ 2.25 $ 1.73
Net income (fully diluted)................ 2.46 2.08 2.85 1.98 2.38 2.23 1.71
Cash dividends declared................... .92 .79 1.07 .96 .92 .87 .77
Common stockholders' equity (period
end).................................... 20.20 18.56 18.99 17.38 16.30 14.52 13.05
Average primary common shares outstanding
(in thousands).......................... 118,148 120,079 119,569 119,113 114,713 108,742 106,640
CONSOLIDATED AVERAGE BALANCES
(IN MILLIONS):
Total loans............................... $19,825 $18,143 $18,307 $17,447 $16,622 $15,477 $14,113
Total assets.............................. 31,128 26,684 27,236 26,510 26,365 24,332 22,466
Total deposits............................ 21,305 20,635 20,721 20,913 20,785 19,381 18,397
Long-term debt............................ 2,298 1,004 1,087 414 323 348 354
Common stockholders' equity............... 2,288 2,123 2,136 1,957 1,741 1,485 1,322
Total stockholders' equity................ 2,288 2,123 2,136 1,995 1,779 1,523 1,360
PERFORMANCE RATIOS:(2)
Return on average assets.................. 1.24% 1.25% 1.25% 0.91% 1.06% 1.02% 0.84%
Return on average common stockholders'
equity.................................. 16.94 15.73 15.94 12.10 15.90 16.47 13.94
Net interest margin -- taxable
equivalent.............................. 4.34 4.72 4.65 4.73 4.49 4.36 4.33
Noninterest expenses as % of average total
assets.................................. 2.50 2.85 3.81 4.12 3.58 3.49 3.36
Nonperforming assets as % of loans and
other real estate owned(3).............. 1.02 1.29 1.09 1.50 1.48 1.54 1.68
Nonperforming loans as % of loans(3)...... .78 .99 .83 1.23 1.22 1.19 1.33
Allowance for loan losses as % of
loans(3)................................ 1.58 1.63 1.56 1.69 1.62 1.60 2.30
Allowance for loan losses as % of
nonperforming assets.................... 153 126 143 113 109 104 137
Net charge-offs as % of average loans..... .23 .42 .43 .57 .58 1.18 .51
Total stockholders' equity as % of
assets(3)............................... 7.50 7.76 7.2 7.61 6.68 6.05 6.04
Common stockholders' equity as % of
assets(3)............................... 7.50 7.76 7.2 7.47 6.55 5.90 5.88
REGULATORY CAPITAL RATIOS:(4)
Tier I risk-based capital................. 8.40% 8.70% 8.21% 8.83% 8.13% 7.23% 7.26%
Total risk-based capital.................. 12.13 11.56 11.58 11.82 10.69 9.99 9.79
Leverage ratio............................ 7.01 7.80 7.04 7.52 6.61 5.75 5.88
</TABLE>
- -------------------------
(1) During the nine months ended September 30, 1994, Comerica completed the
acquisitions of Pacific Western Bancshares, Inc. and Lockwood Banc Group,
Inc. in purchase transactions. See "THE COMPANIES -- Comerica Incorporated
-- Recently Completed Acquisitions."
(2) Ratios are annualized where appropriate.
(3) At period end.
(4) Calculated under the risk-based and leverage capital guidelines effective as
of December 31, 1992.
11
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA OF UNIVERSITY BANK & TRUST COMPANY
The following table sets forth certain selected consolidated financial data
of UBT and is based on the financial statements of UBT, including the respective
notes thereto, which are incorporated by reference in this Proxy
Statement/Prospectus from UBT's Annual Report on Form 10-K for the year ended
December 31, 1993 and Quarterly Report on Form 10-Q for the nine months ended
September 30, 1994, and should be read in conjunction therewith. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" above.
(INCOME STATEMENT AND BALANCE SHEET AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------- ------------- -------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
------------- ------------- -------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Interest income................... $ 19,194 $ 17,798 $ 23,501 $ 23,865 $ 25,397 $ 25,833 $ 22,693
Interest expense.................. 5,343 4,855 6,418 8,101 12,251 13,499 11,300
------------- ------------- -------- -------- -------- --------- ----------
Net interest income............... 13,851 12,943 17,083 15,764 13,146 12,334 11,393
Provision for credit losses....... 475 1,100 2,833 2,215 875 360 310
Other income...................... 2,903 2,601 5,150 3,895 2,518 2,240 1,600
Other expenses.................... 11,099 9,940 13,515 11,808 10,312 9,497 8,044
------------- ------------- -------- -------- -------- --------- ----------
Income before income taxes........ 5,180 4,504 5,885 5,636 4,477 4,717 4,639
Provision for income taxes........ 1,478 1,324 1,644 1,555 1,261 1,352 1,393
------------- ------------- -------- -------- -------- --------- ----------
Net income........................ $ 3,702 $ 3,180 $ 4,241 $ 4,081 $ 3,216 $ 3,365 $ 3,246
=========== =========== ========= ========= ========= ========= ==========
PER SHARE DATA:
Net income........................ $ 2.63 $ 2.31 $ 3.07 $ 3.07 $ 2.46 $ 2.61 $ 2.56
Dividends per share............... 1.05 1.05 1.40 1.10 1.00 .75 .30
Stockholders' equity per share at
period end...................... 25.31 22.97 25.53 21.69 19.76 18.30 16.29
CONSOLIDATED BALANCES -
END OF PERIOD:
Assets............................ $ 442,156 387,733 406,731 373,955 337,012 287,147 258,265
Net Loans......................... 211,868 211,898 211,972 224,550 191,782 162,651 144,190
Deposits.......................... 403,544 354,716 367,204 343,193 309,134 260,788 231,387
Shareholders' equity.............. 35,433 30,730 34,311 28,425 25,191 22,397 19,471
CONSOLIDATED AVERAGE BALANCES:
Assets............................ 414,866 371,994 377,611 347,533 308,923 273,242 229,544
Loans............................. 211,294 226,212 218,779 206,311 168,909 156,207 126,748
STATEMENT OF OPERATIONS DATA
AVERAGE BALANCES:
Deposits.......................... 378,567 339,146 343,847 317,611 281,319 249,481 208,807
Stockholders' equity.............. 32,930 29,803 30,177 26,784 23,735 20,893 17,896
PERFORMANCE RATIOS (ANNUALIZED):
Return on average assets.......... 1.19% 1.14% 1.12% 1.17% 1.04% 1.23% 1.41%
Return on average equity.......... 14.99% 14.25% 14.05% 15.24% 13.55% 16.11% 18.14%
Net interest margin (fully taxable
equivalent)..................... 5.28% 5.60% 5.46% 5.48% 5.21% 5.50% 6.04%
Non-interest expense to average
total assets.................... 2.68% 2.67% 3.58% 3.40% 3.35% 3.48% 3.49%
Non-performing assets to total
assets.......................... 1.20% 1.40% 1.31% 1.37% 0.24% 0.12% 0.00%
Non-performing loans to total
loans........................... 0.59% 2.14% 1.71% 1.74% 0.28% 0.02% 0.01%
Allowance for credit losses to
total loans..................... 2.04% 1.79% 2.55% 1.60% 0.88% 0.99% 1.19%
Allowance for credit losses to
nonperforming loans............. 345.58% 83.94% 149.00% 91.70% 315.77% 5,224.24% 13,769.23%
STATEMENT OF OPERATIONS DATA:
Net charge-offs to average
loans........................... 0.64% 0.43% 0.36% 0.17% 0.49% 0.27% 0.05%
REGULATORY CAPITAL RATIOS:
Tier 1 risk-based capital ratio... 13.60% 12.30% 12.97% 11.11% 10.67% 10.03% NA
Total risk-based capital ratio.... 14.85% 13.55% 14.24% 12.36% 11.45% 10.80% NA
Leverage ratio.................... 7.91% 8.11% 8.06% 7.97% 7.58% 8.03% NA
</TABLE>
12
<PAGE> 19
COMPARATIVE PER SHARE DATA (UNAUDITED)
The following table sets forth for the Comerica Common Stock and the UBT
Common Stock certain historical, pro forma and pro forma equivalent per share
financial information. The pro forma data does not purport to be indicative of
the results of future operations or the results that would have occurred had the
Merger been consummated at the beginning of the periods presented. The pro forma
data gives effect to the Merger and is based on numerous assumptions and
estimates. The pro forma financial data has been included as required by the
rules of the Commission and is provided for comparative purposes only. The
information presented below should be read in conjunction with the separate
financial statements of Comerica and UBT, including the applicable notes,
incorporated by reference herein. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
<TABLE>
<CAPTION>
UBT
COMERICA --------------------------
----------------------- EQUIVALENT
HISTORICAL PRO FORMA HISTORICAL PRO FORMA(2)
---------- --------- ---------- ------------
<S> <C> <C> <C> <C>
COMMON STOCKHOLDERS' EQUITY:
December 31, 1993................................ $18.99 $ 19.08 $25.53 $33.31
September 30, 1994............................... 20.20 20.27 25.31 35.38
CASH DIVIDENDS:(1)
Year ended December 31, 1993..................... 1.07 1.07 1.4 1.87
Nine months ended September 30, 1994............. .92 .92 1.05 1.61
NET INCOME:
Year ended December 31, 1993:
Primary....................................... 2.85 2.86 3.07 4.99
Fully diluted................................. 2.85 2.85 3.07 4.97
Nine months ended September 30, 1994(3)
Primary....................................... 2.46 2.47 2.63 4.31
Fully diluted................................. 2.46 2.47 2.63 4.31
</TABLE>
- -------------------------
(1) The Comerica pro forma combined dividends per share amounts represent
historical dividends declared per share only on Comerica Common Stock. The
UBT historical dividends per share amount for nine months ended September
30, 1994 does not include a $.35 dividend per share declared on September
15, 1994 payable on October 26, 1994 to UBT stockholders of record on
October 12, 1994.
(2) The UBT pro forma equivalent per share amounts are calculated by multiplying
the Comerica pro forma per share amounts by an assumed UBT Conversion Rate
of 1.7456 (assuming no adjustments being required to the UBT Conversion
Rate). See "THE MERGER -- Merger Consideration."
(3) Does not include the dilutive effect of the grant of an option to Comerica
to purchase up to 137,718 shares of UBT Common Stock pursuant to the Stock
Option Agreement. See "THE STOCK OPTION AGREEMENT."
13
<PAGE> 20
COMPARATIVE STOCK PRICES
Comerica Common Stock is listed on the New York Stock Exchange ("NYSE").
The table below sets forth, for the periods indicated, the high and low sales
prices per share of Comerica Common Stock as reported on the NYSE Composite
Transactions Tape. The per share information set forth below has been adjusted
to reflect the 100% stock dividend paid January 4, 1993 to Comerica common
shareholders of record as of December 15, 1992.
UBT Common Stock is listed on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") National Market System. The following
table sets forth, for the periods indicated, the high and low sales prices per
share of UBT Common Stock. Prices reflect actual trades.
<TABLE>
<CAPTION>
COMERICA UBT
COMMON STOCK COMMON STOCK
------------------ ------------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
1992 First Quarter........................................................ $30.250 $26.250 $26.500 $23.000
Second Quarter....................................................... 31.875 26.500 25.500 22.750
Third Quarter........................................................ 31.125 27.688 28.000 23.500
Fourth Quarter....................................................... 32.750 29.250 28.500 24.500
1993 First Quarter........................................................ $33.375 $28.750 $34.000 $24.500
Second Quarter....................................................... 35.250 27.625 35.000 30.500
Third Quarter........................................................ 31.500 26.875 37.000 33.000
Fourth Quarter....................................................... 29.000 25.125 37.000 30.500
1994 First Quarter........................................................ $28.250 $25.250 $ 35.50 $ 31.00
Second Quarter....................................................... 30.875 25.125 36.00 29.00
Third Quarter........................................................ 31.250 27.750 39.50 33.00
Fourth Quarter (through December 1, 1994)............................ 28.250 25.250 46.00 38.50
</TABLE>
On October 3, 1994 (the last trading day preceding the execution of the
Merger Agreement), the last sales price of Comerica Common Stock as reported on
the NYSE Composite Transactions Tape was $27.375 per share. On December 16, 1994
(the last practicable date prior to the mailing of this Proxy
Statement/Prospectus), the last sales price of Comerica Common Stock as reported
on the NYSE Composite Transactions Tape was $25.125 per share.
On October 3, 1994 (the last trading day preceding the execution of the
Merger Agreement), the last sales price of UBT Common Stock as reported on the
NASDAQ National Market System Composite Transactions Tape was $38.50 per share
(or approximately $47.79 per share of Comerica Common Stock on an equivalent per
share basis). On December 16, 1994 (the last practicable date prior to the
mailing of this Proxy Statement/Prospectus), the last sales price of UBT Common
Stock as reported on the NASDAQ National Market System Composite Tape was $42.5
per share (or approximately $43.86 share of Comerica Common Stock on an
equivalent per share basis).(1)
UBT STOCKHOLDERS ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
COMERICA COMMON STOCK. NO ASSURANCE CAN BE GIVEN CONCERNING THE MARKET PRICE OF
COMERICA COMMON STOCK BEFORE OR AFTER THE DATE ON WHICH THE MERGER IS
CONSUMMATED. THE MARKET PRICE OF COMERICA COMMON STOCK WILL FLUCTUATE BETWEEN
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS AND THE DATE ON WHICH THE MERGER IS
CONSUMMATED AND THEREAFTER.
On September 30, 1994, there were 16,031 holders of record of Comerica
Common Stock, and 509 holders of record of UBT Common Stock.
- -------------------------
(1) Equivalent per share prices of UBT Common Stock as compared to Comerica
Common Stock assume a UBT Conversion Rate of 1.7456. The UBT Conversion Rate
is subject to adjustment. See "THE MERGER -- Merger Consideration."
14
<PAGE> 21
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to stockholders of
University Bank & Trust Company ("UBT") in connection with the solicitation of
proxies by the Board of Directors of UBT (the "UBT Board") for use at the
Special Meeting of Stockholders of UBT (the "Special Meeting") to be held at the
offices of UBT located at 250 Lytton Avenue, Palo Alto, California on January
25, 1995 at 4:30 p.m., and at any adjournments or postponements thereof.
At the Special Meeting, the stockholders of UBT will be asked to consider
and vote upon a proposal (the "Merger Proposal") to adopt and approve (a) the
Agreement and Plan of Reorganization and Merger, dated as of October 4, 1994
(the "Merger Agreement"), by and among Comerica Incorporated, a Delaware
corporation and a registered bank holding company ("Comerica"), Comerica Interim
Incorporated, a California corporation ("Interim"), and UBT attached as Annex A
hereto and more fully described herein, and (b) the Agreement of Merger (the
"Subsidiary Merger Agreement"), attached as Annex B hereto, providing for the
merger (the "Merger") of Interim with and into UBT. UBT will be the surviving
corporation following the Merger, and will become a wholly-owned subsidiary of
Comerica.
In the Merger, each outstanding share of common stock, no par value per
share, of UBT ("UBT Common Stock"), subject to certain provisions with respect
to fractional shares and dissenting shares, will be converted into the right to
receive 1.7456 of a share of common stock, $5.00 par value per share, of
Comerica ("Comerica Common Stock") (based upon an assumed number of shares of
Fully Diluted UBT Common Stock (as defined in the Merger Agreement) of 1,591,186
as of the consummation of the Merger), subject to certain adjustments described
in the Merger Agreement (the "UBT Conversion Rate"). In addition, all existing
rights with respect to UBT Common Stock pursuant to UBT stock option plans (the
"Stock Options"), whether vested or unvested or exercisable shall be converted
into and become rights with respect to Comerica Common Stock. Each UBT Stock
Option holder will receive the number of stock options for Comerica Common Stock
such holder would have received according to the UBT Conversion Rate as if such
holder exercised his or her UBT Stock Options in full immediately prior to the
Effective Date. See "THE MERGER -- Merger Consideration."
The date on which this Proxy Statement/Prospectus is first being sent to
stockholders of UBT is on or about December 21, 1994.
THE COMPANIES
COMERICA INCORPORATED
General. Comerica is a registered bank holding company incorporated under
the laws of the State of Delaware, headquartered in Detroit, Michigan and was
formed in 1973 to acquire the outstanding common stock of Comerica Bank
(formerly Comerica Bank-Detroit), a Michigan banking corporation ("Comerica
Bank"). On June 18, 1992, Manufacturers National Corporation, a registered bank
holding company incorporated under the laws of the State of Delaware
("Manufacturers"), was merged with and into Comerica. Comerica was the surviving
corporation. The merger was accounted for as a pooling-of-interests. As of
September 30, 1994, Comerica owned directly or indirectly all the outstanding
common stock (except for directors' qualifying shares, where applicable) of 9
banking and 45 active nonbanking subsidiaries. At September 30, 1994, Comerica
had total assets of approximately $31.8 billion, total deposits of approximately
$20.3 billion, total loans (net of unearned income) of approximately $20.8
billion, and shareholders' equity of approximately $2.4 billion. At September
30, 1994, Comerica was the second largest bank holding company headquartered in
Michigan in terms of total assets.
Comerica's business strategy focuses on five core businesses in four
geographic markets. Those businesses are corporate banking, consumer banking,
private banking, institutional trust and investment management, and
international finance and trade services. Corporate banking incorporates highly
specialized units servicing a full range of company sizes with both credit and
non-credit products. Consumer banking provides deposit, credit and fee-based
products to individuals needing financial services but whose income or wealth do
not make them prospects for private banking services. Private banking is
oriented to servicing the financial needs
15
<PAGE> 22
of the affluent market as defined by individual net income or worth.
Institutional trust and investment management activities involve providing
companies, municipalities and other entities a wide spectrum of investment
management products and trust products such as master trust, master custody, and
corporate trust services, as well as administering and serving as trustee for
employee benefit plans. International finance and trade services offer importers
and exporters trade financing, letters of credit, foreign exchange and
international customhouse brokerage and freight forwarding products. The core
businesses are tailored to each of Comerica's four primary geographic markets:
the Midwest (currently Michigan and Illinois), Texas, California, and Florida.
The Midwest is the only market in which all five core businesses are currently
pursued. In California and Texas, the primary focus is on corporate banking and
private banking activities. In Florida, the primary focus is on private banking.
On September 14, 1992, Comerica Bank, Comerica's principal banking
subsidiary, and Manufacturers Bank, N.A. (the principal banking subsidiary of
Manufacturers prior to its merger into Comerica on June 18, 1992) were merged,
with Comerica Bank being the surviving institution. Such merger was accounted
for using the pooling-of-interests method. At September 30, 1994, Comerica Bank
had approximately 282 branch offices in Michigan and total assets of
approximately $25.3 billion. At September 30, 1994, Comerica Bank was the second
largest commercial bank in Michigan in terms of deposits.
In Illinois, Comerica owns Comerica Bank-Illinois. At September 30, 1994,
Comerica Bank-Illinois had 24 offices in Illinois and total assets of
approximately $1.5 billion.
In Texas, Comerica owns Comerica Bank-Texas, which focuses on middle market
banking, small business banking, private banking and trust services in the
Dallas/Fort Worth, Texas area, and Lockwood National Bank of Houston which
provides similar services in the Houston area. At September 30, 1994, Comerica
Bank-Texas and Lockwood National Bank of Houston had total assets of
approximately $3.4 billion and 60 offices. See "Recently Completed Acquisitions"
for information regarding Lockwood National Bank of Houston, which was acquired
by Comerica on August 4, 1994.
In California, Comerica owns Comerica Bank-California, which focuses on
middle market banking, small business and private banking, as well as trust
services, in the San Jose and Los Angeles areas. At September 30, 1994, Comerica
Bank-California had total assets of approximately $2.0 billion. It has 33
offices of which eleven are located in the San Francisco Bay Area. Comerica
Bank-California provides a wide array of services focused in middle market
banking, small business banking, high technology, commercial real estate lending
and mortgage banker financing. Comerica Bank-California also provides cash
management and trade finance services to corporate customers. It also targets
affluent and professional clients and provides customized solutions for their
private banking needs. Specialized banking services include lines of credit,
equipment loans, residential mortgage loans, equity lines of credit and consumer
loans. Comerica Bank-California offers fully managed trust accounts for
individuals and companies, and administration, record keeping, and investment
services for 401(k) plans and pension and profit sharing plans.
Comerica serves trust and banking customers in Florida through Comerica
Bank & Trust, F.S.B., a federally chartered savings bank, which operates seven
offices and had approximately $160 million in assets at September 30, 1994.
Competitors of Comerica's banking subsidiaries include commercial banks,
savings and loan associations, consumer and commercial finance companies,
leasing companies, credit unions and other financial services companies. Based
on the recent passage of the Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Act") and on legislation passed during 1985 that allows
Michigan-based banks to acquire or be acquired by banks in states with similar
laws in effect, Comerica believes that the level of competition will increase in
the future.
Comerica's principal executive offices are located at Comerica Tower at
Detroit Center, 500 Woodward Avenue, Suite 3100, Detroit, Michigan 48226, and
its telephone number is (313) 222-4000.
Recently Completed Acquisitions. On September 8, 1993, Comerica, Pacific
Western Bancshares, Inc., a Delaware corporation and a bank holding company
("PAC WEST"), Pacific Western Bank, a California state-chartered bank and a
wholly owned subsidiary of PAC WEST ("PWB") and Comerica California
16
<PAGE> 23
Incorporated, a California registered bank holding company and wholly owned
subsidiary of Comerica ("COM CAL") entered into an Agreement and Plan of
Reorganization and Merger providing for, among other things, the merger of COM
CAL into PAC WEST with PAC WEST being the surviving corporation under the
charter and bylaws of COM CAL and the name "Comerica California Incorporated".
The merger was completed on March 30, 1994 and was accounted for as a purchase.
PAC WEST shareholders received common stock of Comerica valued at approximately
$121 million. At December 31, 1993, PAC WEST had assets of approximately $1
billion. PWB merged into Comerica Bank-California on June 30, 1994.
On April 4, 1994, Comerica, Michigan National Corporation, a Michigan
corporation and a bank holding company ("MNC"), Lockwood Banc Group, Inc., a
Michigan corporation, wholly owned subsidiary of MNC and a registered bank
holding company ("Lockwood") and Lockwood National Bank of Houston, a national
banking association and wholly owned subsidiary of Lockwood ("LNB") entered into
a Stock Purchase Agreement whereby Comerica purchased from MNC all of the issued
and outstanding stock of Lockwood and LNB. The purchase was completed on August
4, 1994 for a purchase price of approximately $44 million in cash. At June 30,
1994 Lockwood had assets of approximately $318 million. Comerica contributed the
stock of LNB to Comerica Texas Incorporated its wholly owned bank holding
company in Texas. It is expected that LNB will merge into Comerica Bank-Texas in
the first quarter of 1995.
Pending Joint Venture. On November 2, 1994, Comerica and Munder Capital
Management, Inc., a Delaware corporation and registered investment adviser
located in the Detroit, Michigan metropolitan area ("Munder"), entered into a
Joint Venture Agreement providing for the combination of the investment advisory
businesses of Munder and two investment advisory subsidiaries of Comerica:
Woodbridge Capital Management, Inc. ("Woodbridge") and World Asset Management,
Inc. ("World"). The Joint Venture Agreement contemplates the formation of a
partnership that will succeed to the investment advisory businesses of Munder,
Woodbridge, and World. Munder will hold a majority interest in the proposed
partnership, and Comerica will hold a minority interest. The venture is subject
to regulatory approval, which is expected by December 31, 1994.
Future Acquisitions. Comerica continues to review and evaluate potential
acquisitions in order to expand its core businesses in defined markets. Comerica
anticipates that from time to time in the future it will acquire companies which
complement and effectuate Comerica's business objectives in both
federally-assisted and negotiated transactions. Certain bank acquisitions,
including those by Comerica and others have typically involved the payment of a
premium over book and market values, which may sometimes result in some dilution
to the acquiring company's book value and net income per common share. Comerica
expects that future acquisitions may involve acquisition premiums and dilution.
Michigan Environmental Complaint. Manufacturers Bank (which was merged with
and into Comerica Bank in September, 1992) was served on July 24, 1990 with a
complaint by the Attorney General of the State of Michigan ("Plaintiff") in
which the Plaintiff sought to impose strict, joint, and several liabilities upon
Manufacturers Bank pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA"), the Resource Conservation and
Recovery Act, and the Michigan Water Resources Commission Act. Plaintiff alleged
that Manufacturers Bank was an operator of certain facilities which have
environmental problems and that Manufacturers Bank had indicia of ownership
under CERCLA. The facilities involved were actually owned and operated by Auto
Specialties Manufacturing Company ("AUSCO"), now in bankruptcy. Plaintiff bases
the allegation upon the fact that two former Manufacturers Bank officers and
employees were members of the Board of Directors of AUSCO and that Manufacturers
Bank allegedly directed the installation of new management at AUSCO. Plaintiff
contends Manufacturers Bank had final and ultimate approval over AUSCO's
corporate strategies, policies and acquisitions.
Plaintiff seeks cleanup costs and damages and has expressed the opinion
that the claim will be well in excess of $30 million. Comerica's management
believes that this action will not have a materially adverse effect on
Comerica's consolidated financial position, although it may, depending upon the
amount of ultimate liability, if any, and the consolidated results of operations
in the year of final resolution, have a materially adverse effect on the
consolidated results of operation in that year. On January 12, 1993, the United
States
17
<PAGE> 24
District Court for the Western District of Michigan granted Manufacturers Bank
its motion for summary judgment. The Plaintiff has filed an appeal to the Sixth
Circuit Court of Appeals.
UNIVERSITY BANK & TRUST COMPANY
UBT is a California state bank organized in 1994 under the laws of the
State of California. The predecessor of UBT is University National Bank & Trust
Company, a national bank ("UNBT"), organized in 1980 under the federal laws of
the United States. On June 17, 1994, UNBT converted from a national bank charter
to a state charter, using the revised name of University Bank & Trust Company.
As a California state chartered bank which is also a member of the Federal
Reserve, UBT is governed by the California Financial Code and regulated by the
California Superintendent of Banks and the Federal Reserve Board. At September
30, 1994, UBT had total assets of approximately $442.2 million, total deposits
of approximately $403.5 million, total loans (net of unearned income) of
approximately $211.9 million, and stockholders' equity of approximately $35.4
million.
UBT commenced operations on May 13, 1980. Since its formation, UBT has
provided basic banking services and personal trust services to individuals and
business enterprises in the Palo Alto area. Palo Alto is located on the San
Francisco Peninsula, approximately 30 miles south of San Francisco, on the
northern periphery of "Silicon Valley."
UBT's primary service area is considered to be the communities of Palo
Alto, Menlo Park, Atherton and Portola Valley plus the unincorporated areas of
Ladera and Stanford University. This primary service area is oriented towards
professional services, light industry, retail businesses and education.
UBT considers its principal service a "banking relationship," the keystone
of which is a transaction account. In the case of corporations, the transaction
account is a demand (checking) account. In the case of individuals, it is a
Super-NOW account that pays interest, provided that sufficient funds (i.e.,
either a daily minimum balance of $3,000 or an average monthly balance of
$6,000) are maintained. Once a customer has established the "relationship" with
UBT by opening a transaction account, that customer may utilize all other UBT
services, including money fund accounts, certificates of deposit, safe deposit
box rentals, cashier's checks, and the purchase of U.S. postage stamps, U.S.
Savings Bonds and traveler's checks. Borrowing clients who are low and moderate
income individuals are not expected to be deposit clients of UBT. UBT also makes
available to qualified customers commercial, personal and real estate loans,
credit cards and standby letters of credit. Through its correspondents, UBT is
also able to offer limited international banking and municipal bond trading
services.
UBT's Trust Department specializes in personal trust services and acts as
trustee on a range of employee benefit plans. UBT does not provide stock
transfer services. UBT maintains a Trust Representative Office at 133 Mission
Street, Santa Cruz, California.
UBT has an office at 800 Oak Grove, Menlo Park, California. UBT has
automatic teller machines at its two offices and it issues an automatic teller
machine "ATM" card which enables a customer to withdraw cash at over 65,000
offices of other financial institutions world wide which are members of Cirrus,
Money Network, Star System, American Express and the Interlink Network. UBT also
maintains an ATM machine at the Forum, 23500 Christo Rey Drive, Cupertino,
California.
UBT is in the process of obtaining regulatory approval to open a new branch
in Los Altos, California.
Competitors of UBT include commercial banks, savings & loan associations,
securities brokerage firms and credit unions.
UBT's principal executive offices are located at 250 Lytton Avenue, Palo
Alto, California 94301, and its telephone number is (415) 327-0210.
18
<PAGE> 25
THE SPECIAL MEETING
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, holders of UBT Common Stock will consider and vote
upon the Merger Proposal to approve and adopt the Merger Agreement, the
Subsidiary Merger Agreement and the Merger. No other matters will be brought
before the Special Meeting.
ALL THE MEMBERS OF THE UBT BOARD WERE PRESENT AT THE MEETING APPROVING THE
MERGER AGREEMENT, AND THEY UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE
SUBSIDIARY MERGER AGREEMENT AND THE MERGER. THE UBT BOARD RECOMMENDS THAT UBT
STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER PROPOSAL.
VOTE REQUIRED
The affirmative vote of the holders of at least a majority of the
outstanding shares of UBT Common Stock entitled to vote thereon is required to
approve the Merger Proposal. Each share of UBT Common Stock is entitled to one
vote. Thus, any shares of UBT Common Stock which for any reason, including
abstentions or broker non-votes, are not voted for approval of the Merger
Proposal will not count toward the required total and will have the same effect,
for purposes of approving the Merger Proposal, as shares voted against the
Merger Proposal. Approval of the Merger Proposal by the requisite vote of UBT
stockholders is a condition to, and required for, the consummation of the
Merger. See "THE SPECIAL MEETING -- Record Date; Shares Entitled to Vote;
Quorum."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
At September 30, 1994, UBT directors, executive officers and their
affiliates may be deemed to be the beneficial owners of approximately 230,551
shares of UBT Common Stock, representing approximately 16.5% of the then
outstanding shares of UBT Common Stock. Such officers and directors are entitled
to exercise options to acquire a total of 11,000 shares of UBT Common Stock,
which would result in such persons being deemed to be the beneficial owners of
approximately 17.3% of the shares of UBT Common Stock outstanding as of
September 30, 1994. See "THE MERGER -- Stock Option Plans." Each
director-stockholder of UBT has executed an agreement with Comerica which, among
other things, obligates them to vote the shares of UBT Common Stock owned or
controlled by them in favor of the Merger, subject to fiduciary obligations. See
"THE MERGER AGREEMENT -- Shareholder Agreements."
As of the Record Date, no shares of UBT Common Stock were beneficially
owned by Comerica, Interim or any of their subsidiaries, directors or executive
officers, or their affiliates, excepting 400 shares of UBT Common Stock owned
jointly by a Comerica director and his wife.
VOTING OF PROXIES
Shares of UBT Common Stock represented by properly executed proxies
received at or prior to the Special Meeting will be voted at the Special Meeting
in the manner specified by the holders of such shares. Properly executed proxies
which do not contain voting instructions will be voted FOR approval of the
Merger Proposal.
If any other matters are properly presented at the Special Meeting for
consideration, including, among other things, consideration of a motion to
adjourn the Special Meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons named
in the form of proxy enclosed herewith and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment.
UBT does not have any knowledge of any matters to be presented at the
Special Meeting other than those matters referred to and described herein.
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REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form of proxy does not preclude a
stockholder from voting in person or otherwise revoking a proxy. Attendance at
the Special Meeting will not in and of itself constitute revocation of a proxy.
A stockholder may revoke a proxy at any time prior to its exercise by filing
with Gayle A. Anderson, Secretary of UBT, 250 Lytton Avenue, Palo Alto,
California 94301, a duly executed revocation or a proxy bearing a later date or
by voting in person at the Special Meeting.
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
Only holders of record of UBT Common Stock at the close of business on
December 1, 1994 (the "Record Date") will be entitled to receive notice of, and
to vote at, the Special Meeting. At the Record Date, UBT had outstanding
1,407,597 shares of UBT Common Stock. Holders of a majority of the outstanding
shares of UBT Common Stock entitled to vote must be represented in person or by
proxy at the Special Meeting in order for a quorum to be present at the Special
Meeting. As of the Record Date, there were 495 holders of record of outstanding
UBT Common Stock.
SOLICITATION OF PROXIES
UBT will bear the cost of the solicitation of proxies from its
stockholders. In addition to solicitation by mail, the directors, officers and
employees of UBT may solicit proxies from their respective stockholders by
telephone or telegram or in person. Such persons will not be additionally
compensated, but will be reimbursed for reasonable out-of-pocket expenses
incurred in connection with such solicitation. Arrangements will also be made
with brokerage firms, nominees, fiduciaries and other custodians, for the
forwarding of solicitation materials to the beneficial owners of shares held of
record by such persons, and UBT will reimburse such persons for their reasonable
out-of-pocket expenses in connection therewith.
UBT has retained the services of its transfer agent, First Interstate Bank
of California, to facilitate the distribution of solicitation materials and the
solicitation of proxies from banks, brokerage houses, fiduciaries and custodians
holding shares of UBT Common Stock in their names for beneficial holders. First
Interstate Bank of California may also solicit proxies from registered
stockholders. Solicitation would be made by mail, telephone and personal
contact. UBT will pay First Interstate Bank of California an estimated fee of
$5,000 for its services, plus its reasonable out-of-pocket costs.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES
WITH THEIR PROXY CARDS
THE MERGER
FORM OF THE MERGER
Pursuant to the Merger Agreement, at the Effective Time (as defined below
under "Effective Time") of the Merger, Interim will merge with and into UBT,
pursuant to the terms of the Subsidiary Merger Agreement with UBT being the
surviving corporation. As a result of the Merger, Comerica will own the entire
equity interest in, and become the sole stockholder of, UBT.
MERGER CONSIDERATION
UBT Conversion Rate. Upon consummation of the Merger, each outstanding
share of UBT Common Stock will be converted (subject to the provisions with
respect to fractional shares and dissenting shares described under "Conversion
of Shares; Procedures for Exchange of Certificates; Fractional Shares" and
"Dissenters Rights" below) into the right to receive that number of shares of
duly authorized, validly issued, fully paid and nonassessable Comerica Common
Stock determined by dividing:
(a) a fraction, the numerator of which is $76,961,840, and the
denominator of which is $28.7083; provided, however that such numerator
shall be reduced by $1 for each $1 that the UBT Consolidated
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Net Worth (as defined in the Merger Agreement) at the Effective Time of the
Merger is less than the sum of (i) $34,200,000, and (ii) the product
obtained by multiplying $460,000 by the number of whole and fractional
months beginning with September 1, 1994 and ending on the date upon which
the Merger is consummated (the "Pre-Closing Income Amount");
by (b) the sum of the total number of shares of UBT Common Stock
outstanding as of the consummation of the Merger, assuming the exercise of
all of the UBT Stock Options (as defined in the Merger Agreement) and any
other options or other rights in or for UBT Common Stock, other than
options contemplated by the Stock Option Agreement.
Such amount, as adjusted, is referred to herein as the "UBT Conversion
Rate". THE UBT CONVERSION RATE OF 1.7456 DISCUSSED HEREIN ASSUMES NO ADJUSTMENT
IN THE NUMBER DETERMINED PURSUANT TO THE FOREGOING CLAUSE (A) AND THAT NUMBER OF
SHARES OF UBT COMMON STOCK DESCRIBED IN THE FOREGOING CLAUSE (B) IS 1,591,186.
THE UBT CONVERSION RATE WAS DETERMINED THROUGH ARM'S-LENGTH NEGOTIATIONS BETWEEN
UBT, COMERICA AND INTERIM.
In addition, all existing rights with respect to UBT Common Stock pursuant
to UBT stock option plans (the "UBT Stock Options"), whether vested or unvested
or exercisable shall be converted into and become rights with respect to
Comerica Common Stock. Each UBT Stock Option holder will receive the number of
stock options for Comerica Common Stock such holder would have received
according to the UBT Conversion Rate as if such holder exercised his or her UBT
Stock Options in full immediately prior to the Effective Date.
It is a condition to Comerica's obligation to consummate the Merger that
the number of shares of Comerica Common Stock that shall be issuable pursuant to
the terms of the Merger Agreement shall not exceed 2,680,820 as of the Effective
Time.
The Merger Agreement also requires the UBT Conversion Rate to be further
appropriately adjusted to reflect any recapitalization, reorganization,
reclassification, split-up, merger, consolidation, exchange, stock or other
dividend or distribution (other than regular quarterly cash dividends) made,
declared or effective with respect to Comerica Common Stock between the date of
the Merger Agreement and the Effective Time of the Merger.
There can be no assurance that an adjustment to the UBT Conversion
Rate will not occur.
BACKGROUND OF THE MERGER
UBT was founded in 1980 by its current Chairman and Chief Executive
Officer, Carl J. Schmitt. Since UBT's inception, Mr. Schmitt and certain of his
family members, as a group, have constituted the single largest shareholder
block of UBT, owning approximately 12% of the outstanding shares. For more
information regarding the business and history of UBT, and additional
information related to the stock ownership of UBT, see "THE COMPANIES --
University Bank & Trust Company."
UBT has enjoyed steady growth and consistent earnings throughout its
history, and has been recognized in its market as an institution characterized
by personalized, high level customer service. The Board has attributed much of
the resulting success of UBT to the personal qualities and leadership style of
Mr. Schmitt. Beginning in late 1992 and early 1993, however, a series of events
began to heighten the Board's awareness of, and its need to address, certain
difficult issues facing UBT and its future.
In 1992, the market served by UBT was working through a major recession.
While UBT weathered this recession, it highlighted some of the limitations of an
independent bank serving primarily a single geographic market.
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In early 1993, UBT underwent an intensive regulatory compliance examination
which also highlighted the increasing and, in management's view, disparate
burden of regulatory compliance on relatively small, niche-oriented institutions
like UBT.
Also in early 1993, the need to identify a suitable successor to Mr.
Schmitt became more acute because he suffered a minor heart attack. Soon
thereafter, Mr. Schmitt made known his desire to begin planning for retirement
from the full time responsibilities of Chairman of the Board and Chief Executive
Officer. By the end of 1993, the convergence of these events caused the Board to
consider alternative courses of action.
On January 19, 1994, the Board met in executive session for a lengthy
review of UBT's progress in the past and its prospects for the future,
particularly in light of Mr. Schmitt's desires. The trend of consolidation in
the banking industry was also discussed. After considerable discussion, the
Board analysis centered on two alternative strategies: (1) to engage an
investment banker to help determine the value of UBT were it to be sold, and (2)
to search for and evaluate possible successors to Mr. Schmitt to take office as
Mr. Schmitt commenced a phased-in retirement from the positions of Chairman and
CEO.
Mr. Schmitt voiced his view that, based on his extensive knowledge of bank
executives familiar with UBT and its market (and knowledge of a number of bank
executives outside UBT's market), and on his efforts to inquire of the
availability of top management to move to UBT, he was not confident of UBT's
ability to identify a suitable successor. He also conveyed to the Board his
concern for the value of UBT and its franchise if he were to commence a
phased-in retirement without a successor having been identified.
The Board concluded at the end of its January 19, 1994 meeting that UBT
should go forward with the strategy of engaging an investment banker of national
stature in the banking industry to assist in the valuation and potential sale of
UBT. Mr. Schmitt suggested, and the Board concurred, that contact should be
initiated with Goldman, Sachs & Co. ("Goldman Sachs").
Mr. Schmitt travelled to New York in late January 1994 to meet with
representatives of Goldman Sachs. No agreements were signed and no conclusions
were reached at the meeting, although UBT agreed to provide additional
information to Goldman Sachs to enable Goldman Sachs to better understand UBT
and its value. Mr. Schmitt also acted during this period to engage the law firm
of Gray Cary Ware & Freidenrich in Palo Alto, California to serve as counsel to
UBT in the event of any sale or merger transaction.
On March 17, 1994, the Board met again, this time joined by counsel and by
representatives of Goldman Sachs. Goldman Sachs made a presentation to the Board
regarding its credentials, a preliminary assessment of UBT's value, and an
overview of possible strategies for marketing UBT to prospective buyers.
Following the presentation, representatives of Goldman Sachs were excused from
the meeting, and the Board undertook an extensive discussion of the overall
question of whether to pursue sale or merger of UBT and if so, on what terms.
Several directors questioned whether now was the right time to pursue a sale or
merger, both in terms of UBT's present condition and in terms of the market for
bank mergers and acquisitions. There was discussion of the likely corporate
structure, regulatory requirements and timing of a possible sale or merger
transaction. There was also discussion of anticipated individual compensation to
Mr. Schmitt in the event of a sale or merger, as the Board recognized his unique
value to prospective buyers or merger partners, and also recognized that Mr.
Schmitt did not have any employment agreement or other agreement with UBT
providing him with compensation upon change in control of UBT. At the conclusion
of this meeting, Mr. Schmitt was authorized to engage Goldman Sachs to
investigate and pursue sale or merger opportunities.
Goldman Sachs promptly commenced a due diligence review of UBT, including
an examination of financial results, management's financial projections,
competitive position and market share, deposit profile, liquidity, interest rate
exposure, loan portfolio and fixed assets and other matters in order to
determine the range of fair value for UBT. Goldman Sachs prepared a confidential
descriptive memorandum (the "Confidential Memorandum") about UBT and, based on
its extensive knowledge of, and contacts within, the banking industry
nationwide, selected parties that might be interested and able to acquire UBT.
Of the parties discussed, a list of twenty-two institutions was developed which
Goldman Sachs and management agreed would represent the most attractive
potential merger partners. Goldman Sachs contacted these institutions
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(without identifying UBT by name) to see if there was sufficient interest by any
of them to sign a confidentiality agreement and receive a copy of the
Confidential Memorandum.
On May 19, 1994, the Board met again, and Mr. Schmitt gave a progress
report on the efforts of Goldman Sachs. The institutions which were interested
in receiving a Confidential Memorandum were discussed, although it was
recognized that there were additional contacts to be made.
By the middle of June 1994, it had been determined that of the twenty-two
institutions contacted, nine were willing to sign a confidentiality agreement
and review the Confidential Memorandum. The other institutions decided for
various reasons not to pursue the opportunity to acquire UBT.
Mr. Schmitt invited each of the nine institutions which had signed the
Confidentiality Agreement to meet with him prior to submitting any proposal.
Over the next several weeks, Mr. Schmitt, together with one or more
representatives of Goldman Sachs, had personal meetings to explain the
philosophy of UBT and respond to any questions with the five interested parties
(including Comerica) which requested such meetings.
Following those meetings, on June 30, 1994, a letter was sent to nine
interested parties requesting that they submit non-binding indications of
interest by July 6, 1994. Three institutions responded to the request for
non-binding indications of interest. Of the three, one of the indications was
delivered orally and subsequently was withdrawn. Both written indications
included a price or range of prices for UBT. After consultation with Goldman
Sachs and input from Board members, Mr. Schmitt directed Goldman Sachs to go
back to both institutions and inform them that, while each of their respective
proposals were compelling in many respects, including perceived cultural fit and
reputation, the offers did not adequately reflect the value of UBT's franchise.
Both institutions were instructed that if they could offer consideration of at
least $50.00 per share, Mr. Schmitt and Goldman Sachs felt it appropriate to
continue discussions and for either, or both, institution to spend additional
time familiarizing themselves with UBT, its earnings record, and its prospects
for 1995. As a result of such discussions, only Comerica elected to continue in
the process.
On July 21, 1994, the Board met and received another update on the selling
effort. At this time only Comerica had indicated a willingness to consider a
price valued at $50 per share for the outstanding shares (and options) of UBT.
Additional efforts by Goldman Sachs to re-introduce the second bidder into the
process were unsuccessful. The Board directed Mr. Schmitt to continue his
discussion with Comerica to determine if an acceptable proposal could be
forthcoming.
During August 1994, a number of meetings with Comerica were held by Mr.
Schmitt and representatives of Goldman Sachs. On August 3, 1994, Mr. Schmitt met
in California with the Vice Chairman of Comerica, along with the Chairman and
the President of Comerica Bank-California. This meeting was focused on gaining a
better understanding of the operating philosophies of the two institutions.
Further, similar discussions took place on August 16, when Mr. Schmitt met with
senior management of Comerica at Comerica's headquarters offices in Detroit.
On August 17, 1994, Mr. Schmitt met with senior members of UBT's management
team to inform them of the discussions with Comerica, and of a meeting scheduled
for the following day between them and their counterparts at Comerica
Bank-California. The August 18, 1994 meeting was held at the offices of Goldman
Sachs in San Francisco. Following this meeting, negotiations were broken off at
the direction of Mr. Schmitt.
On August 22, 1994, Goldman Sachs informed Mr. Schmitt that Comerica had
requested an additional meeting to explore the reasons Mr. Schmitt had broken
off discussions and determine if the problems could be resolved. Later that
week, the meeting was held among Mr. Schmitt, a representative of Goldman Sachs,
the Chairman and the President of Comerica Bank-California. Mr. Schmitt
suggested at that meeting that another meeting be held among only management
representatives of the two institutions, to determine if his concerns about
preserving the franchise value of UBT could be reconciled with Comerica's
concerns for consistent and attractive earnings. This additional meeting was
held the following week, and although no agreements were reached, Mr. Schmitt
came away believing that substantial progress had been made toward better
understanding of the subjective aspects of UBT's value and the keys to
preserving and enhancing that value in the future.
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On September 15, 1994, UBT's Board of Directors met again in executive
session to receive a full briefing on the status of negotiations with Comerica,
and to reconsider the question of whether any sale or merger was the right step
at that time. The status report delivered by Mr. Schmitt indicated Comerica had
at that time offered $50 per UBT share, subject to satisfactory completion of
due diligence. Mr. Schmitt had countered at a flat exchange rate of 1.7 shares
of Comerica stock, which at the time equalled more than $50 per share based on
the then prevailing Comerica share price. No resolution had been reached on this
issue by Mr. Schmitt and Comerica.
The Board again considered the appropriateness of a potential sale, at that
time in the context of having a bona fide buyer seriously interested in
acquiring UBT. Although the possible adverse impacts of a sale or merger on the
community were recognized as a negative aspect of any transaction, concerns over
the successorship issue regarding Mr. Schmitt, the disparate impact of the
increasing regulatory burden on smaller banks, and the consolidation trend
sweeping the industry were all viewed as persuasive in favor of proceeding with
a transaction if the terms could be successfully negotiated. At the conclusion
of the meeting, the Board voted unanimously to go forward and have Mr. Schmitt
attempt to negotiate an acceptable final price.
The next day, September 16, 1994, the parties agreed on a fixed share
exchange ratio, subject to a downward adjustment under certain circumstances,
based on an average of the closing price of Comerica common stock for the period
from September 12, 1994 until two days before signing a definitive agreement to
merge. The parties also agreed on a schedule for Comerica to conduct its due
diligence while negotiations for the definitive agreement were ongoing.
On September 24, 1994, Mr. Schmitt met with the Chairman of the Board and
the President of Comerica Bank-California to discuss the terms of a severance
package and a proposed covenant not to compete from Mr. Schmitt, as well as Mr.
Schmitt's continuing commitment to assist UBT following any merger. Mr. Schmitt
set forth his needs and expectations with respect to compensation for such an
arrangement. Tentative agreement was reached calling for a payment at closing of
the Merger of $1 million in severance and a payment of approximately $1.2
million in exchange for Mr. Schmitt's agreement not to compete in Santa Clara
and Santa Cruz counties in California, and in exchange for his agreement to
continue as Chairman of the Board of the surviving company.
On September 26, 1994 Mr. Schmitt, together with a representative of
Goldman Sachs, met in Detroit, Michigan with senior management of Comerica to
conduct due diligence on the current financial condition and future prospects
for Comerica. During this time, Comerica's due diligence on UBT also proceeded,
and counsel for the parties worked on the terms of a definitive agreement, which
by September 30, 1994 was in substantially final form.
On October 2, 1994, the UBT Board members met with representatives of
Goldman Sachs and legal counsel to review the status of negotiations and the
terms of the proposed Merger Agreement. Goldman Sachs gave a detailed review of
the sale process, the terms and conditions of the proposed final agreement
relative to other bank merger transactions, and concluded with its oral opinion
that the terms, as proposed in the most recent draft of the Agreement, were fair
to UBT's stockholders from a financial point of view. Legal counsel briefed the
Board on the material terms of the proposed definitive agreement, including the
mutual breakup fees, the lock up option, as well as the proposed terms of a
Non-Competition Agreement between Mr. Schmitt and Comerica. At the conclusion of
the meeting, Board members voted unanimously to approve the Merger Agreement,
the Subsidiary Merger Agreement and the transactions contemplated thereby,
including, but not limited to, the Merger and the proposed Non-Competition
Agreement to be entered into by Mr. Schmitt, but reserved for themselves a 24
hour period in which to reconvene if any director felt differently the following
day.
No director called for a reconvening of the Board meeting, and on October
4, 1994 the Merger Agreement was executed by the parties.
The Comerica Board approved the Merger and authorized execution of the
Merger Agreement on September 16, 1994.
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COMERICA REASONS FOR THE MERGER
It is part of Comerica's current business strategy to expand its activities
from Michigan into states such as California where management believes there are
long-term opportunities which will benefit Comerica and its shareholders.
Comerica California Incorporated is Comerica's wholly-owned bank holding company
subsidiary operating in the State of California, which through its wholly owned
subsidiary, Comerica Bank-California, focuses on middle market banking, small
business banking, private banking and trust services in the San Francisco Bay
and San Jose areas. See "THE COMPANIES -- Comerica Incorporated -- General."
Comerica believes that through the Merger Comerica will be able to increase its
penetration of the California commercial, retail and private banking markets in
the communities served by UBT. This transaction is also expected to enhance the
competitiveness of the companies in a deregulated banking environment.
In addition, Comerica believes that in light of the acceleration in the
number and size of combinations currently occurring within the financial and
banking industries and the promulgation of the Interstate Act will provide
further impetus to consolidation of banking entities, it is desirable for
Comerica to expand its financial resources and markets.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF UBT AND UBT REASONS FOR THE MERGER
The UBT Board has determined that the Merger Agreement is in the best
interests of UBT and its stockholders, and unanimously recommends that the UBT
Common Stockholders approve the Merger Proposal. In arriving at its conclusion,
the UBT Board was influenced by the factors discussed above under "Background of
Merger", namely the need to address the need for a successor to its Chairman
within the context of a consolidating banking industry and a regulatory
environment which is increasingly burdensome to smaller institutions. The UBT
Board also considered several additional factors, though the Board did not
assign any specific or relative weight to these factors in its considerations.
Additional factors considered by the Board included the following:
(i) the fact that the due diligence examination conducted by
representatives of UBT, including Goldman Sachs, indicated that Comerica is
strong in capital, earnings and management, and has good regulatory
relationships, and a compatible operating philosophy with UBT;
(ii) the opinion of Goldman Sachs that the UBT Conversion Rate is fair
to the stockholders of UBT;
(iii) the fact that the Merger will be tax-free for federal income tax
purposes for the stockholders of UBT Common Stock (other than in respect to
cash paid in lieu of fractional shares);
(iv) the likelihood that the Merger would result in receipt of
substantially increased dividends to stockholders of UBT Common Stock who
keep their shares of Comerica Common Stock after the Merger;
(v) the market liquidity afforded by the listing of shares of Comerica
Common Stock on the NYSE compared to the minimal trading of UBT's Common
Stock;
(vi) the Board's review with its legal advisors and with Goldman Sachs
of the provisions of the Merger Agreement; and
(vii) the probable impact of the Merger on employees and customers of
UBT.
OPINION OF UBT'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated March 17, 1994 (the "Engagement
Letter"), UBT retained Goldman Sachs as its exclusive financial advisor in
connection with reviewing UBT's strategic alternatives, including a possible
sale of UBT. Goldman Sachs is an internationally recognized investment banking
firm and is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted
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securities, private placements and valuations for estate, corporate and other
purposes. Goldman Sachs is familiar with UBT, having acted as financial advisor
in connection with, and having participated in certain of the negotiations
leading to, the Merger Agreement. Goldman Sachs has also provided certain
investment banking services to Comerica from time to time and may provide
investment banking services to Comerica in the future. The UBT Board selected
Goldman Sachs to act as UBT's exclusive financial advisor based on Goldman
Sachs' substantial experience in mergers and acquisitions and in securities
valuation generally.
THE FULL TEXT OF THE GOLDMAN SACHS WRITTEN OPINION DATED AS OF THE DATE OF
THIS PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITS ON THEIR REVIEW, IS ATTACHED HERETO AS ANNEX D. HOLDERS OF
SHARES OF UBT COMMON STOCK ARE URGED TO AND SHOULD READ SUCH OPINION IN ITS
ENTIRETY.
In connection with its opinion dated as of the date of this Proxy
Statement/Prospectus, Goldman Sachs reviewed, among other things, the Merger
Agreement; the Registration Statement on Form S-4, including this Proxy
Statement/Prospectus relating to the Special Meeting to be held in connection
with the Merger Agreement; Annual Reports to Stockholders and Annual Reports on
Form 10-K of UBT for the two years ended December 31, 1993; Annual Reports to
Stockholders and Annual Reports on Form F-2 of UBT for the three years ended
December 31, 1991; Annual Reports to Stockholders and Annual Reports on Form
10-K of Comerica for the five years ended December 31, 1993; certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of UBT and Comerica;
certain other communications from UBT to its stockholders; and certain internal
financial analyses and forecasts for UBT prepared by its management. Goldman
Sachs also held discussions with members of the senior managements of UBT and
Comerica regarding the past and current business operations, financial condition
and future prospects of their respective companies. In addition, Goldman Sachs
has reviewed the reported price and trading activity for UBT Common Stock,
compared certain financial and stock market information with similar information
for certain other companies the securities of which are publicly traded,
reviewed the financial terms of certain recent business combinations in the
banking industry specifically and in other industries generally and performed
such other studies and analyses as Goldman Sachs considered appropriate.
Goldman Sachs relied, without independent verification, upon the accuracy
and completeness of all of the financial and other information reviewed by it
for purposes of its opinion. In that regard, Goldman Sachs assumed, with the
consent of the UBT Board, that the financial forecasts, including, without
limitation, projections regarding underperforming and nonperforming assets and
net chargeoffs were reasonably prepared on a basis reflecting the best currently
available judgments and estimates of UBT and that such forecasts would be
realized in the amounts and at the times contemplated thereby. Goldman Sachs is
not an expert in the evaluation of loan and lease portfolios for purposes of
assessing the adequacy of the allowances for losses with respect thereto and has
assumed, with the consent of the UBT Board, that such loss allowances for each
of UBT and Comerica are in the aggregate adequate to cover all such losses.
Goldman Sachs did not review individual credit files nor did it make an
independent evaluation or appraisal of the assets and liabilities of UBT or
Comerica or any of their respective subsidiaries. Goldman Sachs also has assumed
that Comerica will receive all necessary regulatory approvals without undue
delay.
Pursuant to the terms of the Engagement Letter, UBT has agreed to pay
Goldman Sachs a transaction fee equal to 1.5% of the aggregate consideration
paid in such transaction or approximately $1.15 million. In addition, UBT has
agreed to reimburse Goldman Sachs for its reasonable out-of-pocket expenses,
including the fees and disbursements of its counsel, plus any sales, use or
similar taxes arising in connection with its engagement, and to indemnify
Goldman Sachs against certain liabilities relating to or arising out of its
engagement, including liabilities under the federal securities laws.
SUMMARY OF FINANCIAL ANALYSES
The following is a summary of the material financial analyses utilized by
Goldman Sachs in connection with providing its written opinion dated as of the
date of this Proxy Statement/Prospectus to the UBT Board but does not purport to
be a complete description of the analyses performed by Goldman Sachs.
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Pro Forma Analysis. Goldman Sachs analyzed certain pro forma effects for
1995 resulting from the Merger based on (i) financial forecasts for UBT prepared
by UBT management, (ii) projected earnings for Comerica based on the median of
institutional brokers' estimates compiled by SNL Securities, L.P. as of December
1, 1994 (SNL Securities, L.P. is a data firm that monitors and publishes a
compilation of earnings estimates produced by selected research analysts), and
(iii) cost savings equal to 10% of UBT's estimated 1994 noninterest expense,
estimated by management of UBT to be attainable in the Merger.
Selected Transaction Analysis. Goldman Sachs analyzed certain information
relating to 19 bank and thrift acquisitions, including nine bank acquisitions in
the states of Arizona, California, Colorado, Oklahoma and Texas announced since
January 1, 1992 in which the aggregate consideration was greater than $25
million and less than $100 million (the "Western U.S. Bank Acquisitions") and
ten acquisitions by Comerica announced since January 1, 1988 (the "Comerica
Acquisitions"). Such analysis indicated that, for the Western U.S. Bank
Acquisitions and the Comerica Acquisitions, (i) the median values of the
consideration paid as a multiple of tangible book value were 1.9x and 1.9x,
respectively, as compared to a corresponding value for the consideration payable
pursuant to the Merger as a multiple of UBT's tangible book value of 1.8x; (ii)
the median values of the adjusted consideration paid as a multiple of adjusted
tangible book value (where both consideration and tangible book value are
adjusted to eliminate excess capital, defined as capital in excess of a 6.00%
tangible common equity to tangible assets) were 2.0x and 1.9x, respectively, as
compared to a corresponding value for the adjusted consideration payable
pursuant to the Merger as a multiple of UBT's adjusted tangible book value of
2.1x, and; (iii) the median value of the consideration paid as a multiple of the
acquired banking organizations' latest twelve months' ("LTM") after-tax earnings
were 11.0x and 13.4x, respectively, as compared to the corresponding value for
the consideration paid pursuant to the Merger as a multiple of UBT's after-tax
LTM earnings of 13.6x.
Selected Company Analysis. Goldman Sachs reviewed and compared actual and
estimated selected financial, operating and stock market information for UBT
with corresponding information for selected mid-capitalization banking
organizations located in California, including CVB Financial Corporation,
California Bancshares, Inc., City National Corporation, Imperial Bancorp, Santa
Barbara Bancorp, Silicon Valley Bancshares and Westamerica Bancorp
(collectively, the "Selected Group One Banks"), and for selected
large-capitalization organizations headquartered in California, including
BankAmerica Corporation, First Interstate Bancorp and Wells Fargo & Company
(collectively, the "Selected Group Two Banks"), based on publicly available
information, consensus analysts' estimates for the Selected Group One Banks and
the Selected Group Two banks and financial forecasts for UBT prepared by
management. Such analysis indicated, among other things, that for the Selected
Group One Banks and the Selected Group Two Banks, (i) the median estimated 1995
price-earnings multiples were 9.0x and 7.0x, respectively, as compared to a
corresponding value of 8.8x for UBT, (ii) the median values of price as a
multiple of tangible book value per share were 1.4x and 1.8x, respectively, as
compared to a corresponding value of 1.5x for UBT, (iii) the median ratios of
nonperforming assets as a percentage of total loans and other real estate owned
were 2.10% and 1.50%, respectively, as compared to 2.31% for UBT, (iv) the
median ratios of loan loss reserves as a percentage of nonperforming loans were
140% and 329%, respectively, as compared to 346% for UBT, (v) the median
after-tax returns on equity were 9.3% and 21.5%, respectively, as compared to
14.4% for UBT, and (vi) the median ratios of tangible common equity as a
percentage of tangible assets were 7.94% and 5.47%, respectively, as compared to
8.01% for UBT.
Selected Comerica Information Analysis. Goldman Sachs reviewed and analyzed
certain financial and other information for Comerica, including (i) historical
and current loan portfolio by type of loan, (ii) deposit market share by state
in the United States and by county in California, (iii) a comparison of actual
and estimated selected financial, operating and stock market information for
Comerica with corresponding information for selected super-regional banking
organizations, including Banc One Corporation, Boatmen's Bancshares, Inc.,
Corestates Financial Corporation, First Bank System, Inc., First Interstate
Bancorp, Mellon Bank Corporation, NBD Bancorp, Inc., National City Corporation,
Norwest Corporation, PNC Bank Corporation, U.S. Bancorp and Wells Fargo &
Company (collectively, the "Selected Super-Regional Banks"), (iv) the daily
stock price performance of Comerica Common Stock, the Standard & Poor's 500
Stock Index and a composite of the Selected Super-Regional Banks, all indexed
daily from December 2, 1993
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<PAGE> 34
to December 2, 1994, weekly from December 2, 1991 to December 2, 1994 and
monthly from November 30, 1989 to November 30, 1994, (v) historical trading
prices per share and trading volume of Comerica Common Stock, on a daily basis
from December 2, 1993 through December 2, 1994, on a weekly basis from December
2, 1991 through December 2, 1994 and on a monthly basis from November 30, 1984
to November 30, 1994, and (vi) summaries of selected research reports on, and
earnings estimates for, Comerica.
Other Analyses. Goldman Sachs also analyzed available information regarding
the ownership and ownership profiles of shares of UBT Common Stock and Comerica
Common Stock.
General. The foregoing is a summary of the material financial analyses
performed by Goldman Sachs, but does not purport to be a complete description of
the analyses performed by Goldman Sachs. The preparation of a fairness opinion
is a complex process and is not necessarily susceptible to partial analysis or
summary description. Selecting portions of the analyses or of the summary set
forth above, without considering the analysis as a whole, could create an
incomplete view of the processes underlying Goldman Sachs' opinion. In arriving
at their fairness determination, Goldman Sachs considered the results of all
such analyses. No Selected Group One Bank or Selected Group Two Bank is
identical to UBT and none of the Western U.S. Bank Acquisitions or the Comerica
Acquisitions, is identical to the Merger. Accordingly, Goldman Sachs indicated
to the UBT Board that analyses of the results described above under Selected
Transaction Analysis and Selected Company Analysis are not mathematical, but
rather involve complex considerations and judgments concerning differences in
operating and financial characteristics including, among other things,
differences in revenue composition and earnings performance among UBT, Comerica
and the selected companies and transactions reviewed. The analyses were prepared
solely for purposes of Goldman Sachs' providing their written opinion dated as
of the date of this Proxy Statement/Prospectus, to the UBT Board as to the
fairness of the UBT Conversion Rate, and do not purport to be appraisals or
necessarily reflect the prices at which UBT or its securities actually may be
sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses.
EFFECTIVE TIME OF MERGER
The Merger will become effective as to UBT at the time (the "Effective
Time") when an appropriate certificate of merger and the Subsidiary Merger
Agreement with respect to the Merger are filed with the Secretary of State of
the State of California. It is currently anticipated that if the Merger is
approved by UBT stockholders at the Special Meeting, and all the other
conditions to the Merger are satisfied, the Merger will become effective during
the first quarter of 1995.
There can be no assurance, however, that the Effective Time will not be
delayed. In the event the Merger has not become effective by August 31, 1995,
the Board of Directors of Comerica, UBT or Interim, as applicable, may terminate
the Merger Agreement notwithstanding any approvals previously given by the
stockholders of UBT. See "THE MERGER AGREEMENT -- Termination."
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
The conversion of outstanding shares of UBT Common Stock into shares of
Comerica Common Stock will occur automatically at the Effective Time.
Outstanding shares of UBT Common Stock will be converted into the right to
receive that number of shares of Comerica Common Stock determined in accordance
with the Merger Agreement. See "Merger Consideration" above.
As soon as is practicable after the Effective Time, Norwest Bank Minnesota,
N.A., or another person chosen by Comerica, in its capacity as Exchange Agent
(the "Exchange Agent"), will send to each UBT stockholder a form of letter of
transmittal (which will specify that delivery will be effected, and risk of loss
and title to certificates for shares of UBT Common Stock will pass, only upon
proper delivery of such certificates to the Exchange Agent) and instructions for
use in effecting the exchange of the certificates for shares of Comerica Common
Stock and cash in lieu of fractional shares.
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<PAGE> 35
UBT STOCKHOLDERS SHOULD NOT FORWARD UBT CERTIFICATES TO THE EXCHANGE AGENT
UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS. UBT STOCKHOLDERS SHOULD NOT RETURN
STOCK CERTIFICATES WITH THE ENCLOSED FORMS OF PROXIES.
Until the certificates representing UBT Common Stock are surrendered for
exchange after the consummation of the Merger, holders of such certificates will
not be paid dividends or other distributions that are declared on Comerica
Common Stock, or have the right to vote or exercise rights with respect to the
shares of Comerica Common Stock to which they will be entitled. Upon surrender
and exchange of such certificates, any such unpaid dividends or other
distributions will be paid (without interest) in accordance with the terms of
such Comerica Common Stock.
No transfer taxes will be payable by any stockholder in respect of the
issuance of the new certificates, except that if any new certificate is to be
issued in a name other than that in which the UBT certificates surrendered shall
have been registered, it shall be a condition of such issuance that the holder
requesting such issuance shall properly endorse the certificate or certificates
and shall pay to Comerica or the Exchange Agent any transfer taxes payable on
the issuance, or on any prior transfer of such surrendered certificate, or
establish to the satisfaction of Comerica or the Exchange Agent that such taxes
have been paid or are not payable.
Any Comerica Common Stock or cash delivered to the Exchange Agent (together
with any interest or profits earned thereon) and not distributed at the end of
nine months from the Effective Time, will be returned to Comerica, in which
event the persons entitled to payment shall look only to Comerica for
reimbursement. If any holder of UBT Common Stock shall be unable to surrender
such holder's certificates for such stock because such certificates have been
stolen, lost or destroyed, such holder may deliver in lieu thereof an affidavit
and indemnity bond in form and substance with surety reasonably satisfactory to
the Exchange Agent.
After the Effective Time, there will be no further registration of
transfers on the stock transfer books of the surviving corporation of the shares
of UBT Common Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, certificates representing such shares are
presented to the surviving corporation in the Merger, they will be canceled and
exchanged for Comerica Common Stock as provided in the Merger Agreement.
No fractional shares of Comerica Common Stock will be issued to any UBT
stockholder upon consummation of the Merger. In lieu of the issuance of any
fractional share of Comerica Common Stock, cash payments will be made to UBT
stockholders in respect of any fractional share in an amount equal to the
product (rounded to the nearest tenth) obtained by multiplying (a) $28.7083, by
(b) the fraction of the share of Comerica Common Stock to which the UBT
stockholder would otherwise be entitled. No such stockholder will be entitled to
dividends or other rights in respect of any such fraction. No interest on the
cash payments to be made in lieu of the issuance of fractional shares will
accrue pending surrender to the Exchange Agent of certificates representing UBT
Common Stock.
ACQUISITION PROPOSALS
For the period between the execution of the Merger Agreement and the
Effective Time of the Merger, UBT has agreed not to authorize or knowingly
permit any of its representatives, directly or indirectly, to solicit or
encourage any Acquisition Proposal (as defined below), or participate in any
discussion or negotiations with any person or group of persons other than
Comerica, Interim or their representatives concerning any Acquisition Proposal.
An "Acquisition Proposal" is defined as any (i) proposal pursuant to which
any person other than Comerica or Interim would acquire or participate in a
merger or other business combination involving UBT; (ii) proposal by which any
person or group other than Comerica or Interim would acquire the right to vote
10% or more of the capital stock of UBT entitled to vote thereon for the
election of directors; (iii) acquisition of the assets of UBT other than in the
ordinary course of business; or (iv) acquisition in excess of 10% of the
outstanding capital stock of UBT, other than that contemplated by the Merger
Agreement. However, UBT or its Board of Directors may not be prevented from (A)
furnishing non-public information to, or entering into discussions or
negotiations with, any person or entity in connection with an unsolicited bona
fide written
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<PAGE> 36
Acquisition Proposal by such person or entity or recommending an unsolicited
bona fide written Acquisition Proposal to the shareholders of UBT, if and only
to the extent that (1) the Board of Directors of UBT believes in good faith
(after consultation with and the concurrence of its financial advisor) that such
Acquisition Proposal would, if consummated, result in a transaction materially
more favorable to UBT's shareholders from a financial point of view than the
transaction contemplated by the Merger Agreement and the UBT Board of Directors
determined in good faith after consultation with its outside legal counsel that
such action is necessary for UBT to comply with its fiduciary duties to
shareholders under applicable law, and (2) prior to furnishing such non-public
information to, or entering into discussions or negotiations with, such person
or entity, the UBT Board of Directors received from such person or entity an
executed confidentiality agreement, with terms similar in scope to those
contained in the confidentiality agreement between Comerica and UBT, or (B)
complying with Rule 14e-2 promulgated under the Exchange Act of 1934, as
amended, with regard to an Acquisition Proposal. UBT is required to notify
Comerica immediately upon receipt of any such Acquisition Proposal.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The obligations of Comerica, Interim and UBT under the Merger Agreement to
consummate the Merger are subject to various conditions, including but not
limited to, obtaining requisite stockholder and regulatory approvals; the
absence of any materially burdensome condition imposed in connection with
obtaining any such regulatory approvals; the absence of any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger by any governmental entity which makes the Merger
illegal, requires any material divestiture or imposes a materially burdensome
condition; the accuracy in all material respects of the representations and
warranties of, and performance in all material respects of the covenants
required to be performed prior to the Effective Time by, the other parties to
the Merger Agreement; the absence of any materially adverse change to the other
parties to the Merger Agreement or their subsidiaries; receipt of opinion of
legal counsel to Comerica in respect of certain federal income tax consequences
of the Merger (see " -- Certain Federal Income Tax Consequences" below); receipt
of legal opinions and approval of their respective legal counsel of the validity
of the transactions contemplated in the Merger Agreement; and approval for
listing of the shares of the Comerica Common Stock to be issued in the Merger on
the NYSE and receipt of letters from each of Ernst & Young LLP and KPMG Peat
Marwick, LLP dated the effective date of the Registration Statement to be filed
in connection with the Merger and the Effective Time, in form and substance
satisfactory to Comerica and UBT and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
In addition, the obligations of Comerica and Interim under the Merger
Agreement to consummate the Merger are subject to certain other conditions,
including, but not limited to, the requirements that UBT's reserve for possible
loan losses on the Determination Date shall be at least the greater of
$4,700,000 or 2.25% of UBT's total loans outstanding on that date, and that
UBT's non-performing assets outstanding on the last day of the month immediately
preceding the Effective Time shall be no more than $4,711,431; the absence of
any materially adverse change to UBT or its subsidiaries; and receipt of
shareholder agreements from each UBT director who owns UBT Common Stock which,
among other things, obligates each such director to vote the shares of UBT
Common Stock owned or controlled by such director in favor of the Merger,
subject to fiduciary obligations. See "THE MERGER AGREEMENT -- Shareholder
Agreements."
Further, the obligation of UBT under the Merger Agreement to consummate the
Merger is subject to certain conditions, including but not limited to the, the
receipt of a written opinion of Goldman Sachs concerning the fairness of the UBT
Conversion Rate.
There can be no assurance that the conditions to the Merger will be
satisfied. See "THE MERGER AGREEMENT -- Conditions to the Merger."
Under certain circumstances, the Merger Agreement may be terminated by
Comerica, Interim or UBT, as applicable, at any time prior to the Effective
Time, whether before or after approval of the Merger by the stockholders of UBT.
See "THE MERGER AGREEMENT -- Termination."
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<PAGE> 37
REGULATORY APPROVALS REQUIRED
The Merger is subject to prior approval by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") under Section 3 of the Bank
Holding Company Act of 1956, as amended (the "BHCA"). Although it is not a
condition of the Merger, Comerica may elect, after consummation of the Merger,
to merge the surviving corporation with and into Comerica Bank-California (the
"Subsidiary Bank Merger"). The Subsidiary Bank Merger (when and if it is
initiated) would be subject to prior approval by the Federal Deposit Insurance
Corporation (the "FDIC") under the Bank Merger Act, as amended (the "BMA").
Application for approval of the Merger under the BHCA has been filed with the
Federal Reserve Board. If the Subsidiary Bank Merger is initiated, an
application for its approval will be filed with the FDIC under the BMA. The BHCA
and the BMA prohibit the Federal Reserve Board and the FDIC from approving the
Merger or the Subsidiary Bank Merger, as the case may be, (i) if it would result
in a monopoly or be in furtherance of any combination or conspiracy to
monopolize or to attempt to monopolize the business of banking in any part of
the United States, or (ii) if its effect in any section of the country may be
substantially to lessen competition or to tend to create a monopoly, or if it
would in any other manner be in restraint of trade, unless the Federal Reserve
Board or the FDIC finds that the anticompetitive effects of the Merger or the
Subsidiary Bank Merger, as the case may be, are clearly outweighed in the public
interest by the probable effects of the transaction in meeting the needs and
convenience of the communities to be served. Neither the Merger nor the
Subsidiary Bank Merger may ordinarily be consummated until the thirtieth day
following the date of Federal Reserve Board and FDIC approval of each such
transaction, respectively, during which time the United States Department of
Justice may challenge the Merger or the Subsidiary Bank Merger, as the case may
be, on antitrust grounds. The commencement of an antitrust action would stay the
effectiveness of the Federal Reserve Board's approval unless a court
specifically orders otherwise. Under legislation enacted in September, 1994, the
post-approval waiting period may be shortened from 30 to 15 days, with the
consent of the Federal Reserve Board, as the case may be, and if the United
States Department of Justice does not object.
It is possible that the Federal Reserve Board or the United States
Department of Justice may request that Comerica or UBT divest certain operations
in order to alleviate what such agency believes would otherwise be an adverse
competitive effect. Neither Comerica nor UBT can predict whether such
divestitures will be required, or if required, what the aggregate amount of any
such divestitures may be, but each believes that divestitures are unlikely to be
required, and if required, that the aggregate amount of any such divestitures
will not be material, on a pro forma basis, to the business, operations or
financial condition of the combined institution and its subsidiaries, taken as a
whole. The application to the Federal Reserve Board has not proposed any
divestiture. Any application to the FDIC relating to the Subsidiary Bank Merger
would not propose any divestiture. If the level of any required divestitures is
sufficiently large in amount so as to render the consummation of the Merger
inadvisable in the reasonable judgment of either the Comerica Board or the UBT
Board, one of the conditions to the consummation of the Merger will not be
satisfied and either Comerica or UBT may terminate the Merger Agreement. See
"THE MERGER AGREEMENT -- Conditions to the Merger" and -- "Termination" below.
In addition, each of the BHCA and BMA require that the Federal Reserve
Board and the FDIC take into consideration, among other factors, the financial
and managerial resources and future prospects of the institutions and the
convenience and needs of the communities to be served. The Federal Reserve Board
and the FDIC have the authority to deny an application if it concludes that the
combined organization would have an inadequate capital position or if the
requirements of the Community Reinvestment Act of 1977 are not satisfied.
While Comerica already conducts operations in California, its banking
operations are principally conducted in Michigan with operations in Ohio,
Illinois, Texas and Florida. Although Section 3(d) of the BHCA generally
restricts interstate bank acquisitions, there is an exception to this
restriction provided the relevant states authorize such acquisitions.
The California Superintendent of Banks (the "California Superintendent")
must also approve the Merger, under provisions of California law that require
such approval in connection with the acquisition of a
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<PAGE> 38
California bank or bank holding company by an out-of-state bank holding company.
In order to approve the application, the California Superintendent must find (i)
that there is "substantial reciprocity" between the interstate banking laws of
the States of California and Michigan, meaning that a bank holding company whose
operations are principally conducted in California could acquire a Michigan bank
or bank holding company on terms and conditions that are substantially the same
as those on which a Michigan banking organization may acquire a California bank,
and (ii) that Comerica's acquisition of UBT will not have an adverse effect on
the public convenience or advantage in California. No assurances can be given
that the California Superintendent will approve the Merger, and the Merger will
not be consummated unless such approval is obtained. An application for this
approval under these provisions has been filed. In addition, the Subsidiary Bank
Merger would have to be reviewed by the California Superintendent for approval
under the California Banking Law.
The Merger will require the approval of the Commissioner of the Michigan
Financial Institutions Bureau (the "Michigan Commissioner"). Before this
approval may be granted, Comerica must agree to comply with certain consumer
laws applicable to Michigan residents. In addition, the Michigan Commissioner
must assess the composite record of the bank subsidiaries of Comerica in meeting
the credit needs of the communities in the states in which these bank
subsidiaries are located, including low and moderate income neighborhoods,
consistent with the safe and sound operation of these bank subsidiaries. An
application for this approval under these provisions has been filed.
The Merger and the Subsidiary Bank Merger (if and when it is initiated)
will not be consummated unless all of the requisite regulatory approvals for
such transactions are obtained. See "-- Conditions to Consummation of the
Merger" above and "THE MERGER AGREEMENT -- Amendment and Waiver" and "--
Termination" below.
THERE CAN BE NO ASSURANCE THAT THE REGULATORY AUTHORITIES DESCRIBED ABOVE
WILL APPROVE THE MERGER AND THE SUBSIDIARY BANK MERGER (IF AND WHEN IT IS
INITIATED), AND IF SUCH TRANSACTIONS ARE APPROVED, THERE CAN BE NO ASSURANCE AS
TO THE DATE OF SUCH APPROVALS. THERE CAN ALSO BE NO ASSURANCE THAT ANY SUCH
APPROVALS WILL NOT CONTAIN A MATERIALLY BURDENSOME CONDITION OR REQUIREMENT
WHICH CAUSES SUCH APPROVALS TO FAIL TO SATISFY THE CONDITIONS TO CONSUMMATION OF
THE MERGER SET FORTH IN THE MERGER AGREEMENT. THERE CAN LIKEWISE BE NO ASSURANCE
THAT THE DEPARTMENT OF JUSTICE WILL NOT CHALLENGE THE MERGER OR THE SUBSIDIARY
BANK MERGER, OR IF SUCH A CHALLENGE IS MADE, AS TO THE RESULT THEREOF.
OPERATIONS PENDING THE MERGER
In the Merger Agreement, UBT has agreed to carry on its business, and to
cause its subsidiaries to carry on their businesses in the ordinary course, in
substantially the manner as conducted prior to the execution of the Merger
Agreement and use commercially reasonable efforts to preserve intact its
business organizations, keep available the services of its officers and
employees and preserve its relationships with customers, suppliers and others
having business dealings with it, to notify Comerica promptly of any material
adverse changes or events, and maintain material permits, insurance and bonding
coverage, perform contractual obligations, observe legal requirements, and file
governmental reports and returns. In addition, UBT has agreed to maintain
assets, advise Comerica of certain acquisitions of its common stock, charge-off
loans consistent with past practice, maintain an adequate allowance for loan
losses and furnish certain reports and financial information and statements to
Comerica, maintain reserves for contingent liabilities, and furnish certain
information to Comerica with respect to litigation. UBT also agreed that it will
not take certain actions, including, by way of example and not of limitation,
declare or pay dividends other than regular quarterly cash dividends in an
amount not to exceed $.35 per share, issue capital stock (other than pursuant to
Stock Option Plans) or issue other securities convertible into capital stock,
acquire or dispose of material assets, incur indebtedness other than in the
ordinary course of business, make credit policies less stringent, make any
capital expenditures in excess of certain amounts, renew or enter into any new
employment agreements or terminate any employment benefit plan or arrangement,
except as contemplated by the Merger Agreement, or take any action that would
result in any of its representations and warranties in the Merger Agreement
becoming untrue or in any condition to the Merger not being satisfied, or amend
its Articles of Incorporation or Bylaws. See "THE MERGER AGREEMENT -- Conduct of
Business Pending the Merger."
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<PAGE> 39
OPERATIONS AFTER THE MERGER
If the Merger is consummated at the Effective Time, UBT will be the
surviving corporation with the Articles of Incorporation of UBT and the name
University Bank & Trust Company. The separate existence of Interim will cease.
It is anticipated that upon consummation of the Merger, Comerica will transfer
the stock of the surviving corporation to Comerica California Incorporated. It
is also anticipated that subsequent to consummation of the Merger, the surviving
corporation will merge into Comerica Bank-California. At that time, it is
expected that the surviving corporation will be run as a separate division of
Comerica Bank-California. At the Effective Time, the Board of Directors and
officers of the surviving corporation will be made up of certain directors of
Interim and UBT serving in those capacities at the Effective Time.
Following the consummation of the Merger, Carl J. Schmitt is expected to
remain as Chairman of the Board of the surviving corporation. It is also
expected that Mr. Schmitt, upon the anticipated Merger of the surviving
corporation into Comerica Bank-California, will become a member of the Board of
Directors of Comerica Bank-California and, as a result, will receive a fee for
each board meeting he attends as well as reimbursement for expenses he incurs in
doing so. See "THE MERGER -- Interests of Certain Persons in the Merger."
Banking policies and procedures of the surviving corporation and its
subsidiaries will continue in accordance with the policies of Comerica.
It is part of Comerica's current business strategy to expand its business
activities into states such as California where management believes there are
long-term opportunities which will benefit Comerica and its stockholders. In
California, Comerica has a wholly-owned bank holding company subsidiary which
owns and operates Comerica Bank-California See "THE COMPANIES -- Comerica
Incorporated -- General."
Information about the directors, executive officers and principal
shareholders of Comerica is contained in Comerica's Proxy Statement for its 1994
Annual Meeting of Shareholders, relevant portions of which are incorporated by
reference in this Proxy Statement/Prospectus pursuant to Comerica's Annual
Report on Form 10-K for the year ended December 31, 1993. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE" and "AVAILABLE INFORMATION."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the management and Board of Directors of UBT have
certain interests in the Merger that are in addition to their general interests
as stockholders of UBT. The UBT Board was aware of these interests and
considered them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby.
The Merger Agreement provides, as a condition to Comerica's obligations to
consummate the Merger, that Carl J. Schmitt shall have entered into a
Non-Competition Agreement with Comerica pursuant to which, among other things,
Mr. Schmitt will agree not to solicit, cause or induce any employee of UBT to
leave; cause any customer or client of UBT to terminate or adversely change any
relationship with UBT; cause, induce or encourage any potential supplier or
customer to not enter into any business relationship with UBT or directly or
indirectly as, among other things, an employee or director, engage in any
business relating to a bank or other financial institution in the counties of
Santa Clara and Santa Cruz in the State of California. The Non-Competition
Agreement has a term of five years from the date of Mr. Schmitt's termination of
employment with UBT. Mr. Schmitt will receive the sum of approximately $1.2
million within 10 days of the execution of the Non-Competition Agreement to be
executed at the consummation of the Merger. In addition, upon closing of the
Merger, Mr. Schmitt will receive a one time severence payment of $1 million.
As did each of the other director-shareholders of UBT, Carl J. Schmitt has
entered into a Shareholder Agreement with Comerica. See "THE MERGER AGREEMENT --
Shareholder Agreements." In addition, each of Carl J. Schmitt, Gayle A.
Anderson, David Hood, Hall Palmer and Suzanne M. Powers has entered into an
Affiliate's Agreement with Comerica. See "THE MERGER AGREEMENT -- Resales by
Affiliates."
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<PAGE> 40
UBT has agreements with each of its directors, under which UBT will
indemnify each of such persons, to the maximum amount permitted by law, for
certain liabilities incurred by such persons in their capacities as directors of
UBT. Comerica has agreed that all rights of indemnification under such
agreements and UBT's Charter and Bylaws shall survive the Merger and continue in
full force and effect, without any amendment thereto, for a period of six years
from the Effective Date.
Under the Merger Agreement, Comerica has agreed to use its commercially
reasonable efforts to cause to be maintained in effect, for a period of six
years after the Effective Time, policies of directors' and officers' liability
insurance (with such coverage, terms and conditions as are now less advantageous
than the insurance presently maintained by Comerica for its officers and
directors) with respect to all matters arising from facts or events which
occurred before the Effective Time for which UBT, or its subsidiaries would have
had an obligation to indemnify their directors and officers. Comerica's
obligation to do so, however, is limited to the extent that it need not pay
premiums in excess of 300% of the amount of the 1994 annual premiums paid by UBT
for such insurance.
As of September 30, 1994, the directors and executive officers of UBT
beneficially owned 230,551 shares of UBT Common Stock, representing
approximately 16.5% of UBT Common Stock outstanding at that time. See "THE
SPECIAL MEETING -- Security Ownership of Certain Beneficial Owners."
Comerica has indicated that it does not intend to employ Gayle A. Anderson,
Executive Vice President and Chief Financial Officer of UBT, subsequent to the
consummation of the Merger and that in connection with her departure she will be
provided with a one-time cash severance payment of approximately $380,000.
STOCK OPTION PLANS
UBT has two stock option plans, the Amended and Restated Stock Option Plan
(the "Option Plan") and the Outside Directors Stock Option Plan (the "Directors
Plan"). Options granted under both the Option Plan and the Directors Plan
generally vest (i.e., become exercisable) at the rate of 20% each year from the
date of grant.
The table below shows, as to the executive officers and directors named,
the aggregate amount of UBT Common Stock subject to options outstanding at
September 30, 1994 under the Option Plan and the Directors Plan. All options
under the Option Plan and the Directors Plan, whether vested or unvested, will
be converted into rights with respect to Comerica Common Stock and Comerica
shall assume each such stock option in accordance with the Option Plan and the
Directors Plan, respectively. See "THE MERGER -- Merger Consideration."
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED WEIGHTED
OPTIONS AT SEPTEMBER 30, 1994 AVERAGE EXERCISE
NAME EXERCISABLE/UNEXERCISABLE PRICE PER SHARE
- -------------------------------------------------- ------------------------------------ ----------------
<S> <C> <C> <C>
Carl J. Schmitt................................... 0 10,150 $26.42
Gayle A. Anderson................................. 5,000 6,900 24.65
David Hood........................................ 1,800 9,200 26.80
Hall Palmer....................................... 0 6,900 26.54
Suzanne M. Powers................................. 1,200 8,200 26.32
Lawrence A. Aufmuth............................... 400 600 24.75
Thomas R. Brown................................... 400 600 24.75
Linda R. Meier.................................... 400 600 24.75
J. Boyce Nute..................................... 400 600 24.75
George G.C. Parker................................ 400 600 24.75
William A. Preston................................ 200 600 24.75
Leslie M. Quist................................... 400 600 24.75
Leonard Ware...................................... 400 600 24.75
============ ============ ============
</TABLE>
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<PAGE> 41
CANCELLATION FEE; LIQUIDATED DAMAGES
The Merger Agreement provides that, in the event an Acquisition Event shall
occur or (i) any of UBT, Comerica or Interim terminates the Merger Agreement
because the Subsidiary Merger Agreement and the Merger are not ratified and
approved by UBT's shareholders, (ii) any of UBT, Comerica or Interim terminates
the Merger Agreement because there shall have been a material breach of any of
the representations or warranties set forth in the Merger Agreement on the part
of the other party, (iii) Comerica terminates the Merger Agreement because there
is a default by UBT, pursuant to the Merger Agreement and the continuance of
such failure for a period of 20 business days after written notice, which
failure to perform, in the reasonable opinion of Comerica and Interim cannot be
cured prior to the closing, or (iv) Comerica terminates the Agreement because
the UBT Board did not publicly recommend in this Proxy Statement/Prospectus that
UBT stockholders adopt and approve the Merger Agreement or the UBT Board shall
withdraw, modify or amend such recommendation in any respect materially adverse
to Comerica, followed in the case of each of the foregoing clauses (i) through
(iv) above by an Acquisition Event within 90 days of such termination, UBT is
required to pay to Comerica the sum of $3,200,000 as reasonable and full
liquidated damages and reasonable compensation for the loss sustained thereby.
In the event of termination by UBT of the Merger Agreement because Interim
or Comerica has breached any of their representations and warranties set forth
in the Merger Agreement and in the reasonable opinion of UBT such breach cannot
be cured prior to closing and would have a Material Adverse Effect on Interim or
Comerica, or because of a default by Comerica or Interim pursuant to the Merger
Agreement and the continuance of such failure for a period of 20 business days
after written notice of such default, in the reasonable opinion of UBT, cannot
be cured prior to the closing, then Comerica and Interim, jointly and severally,
shall pay to UBT as reasonable and full liquidated damages and reasonable
compensation for the loss sustained thereby and not as a penalty or forfeiture,
the sum of $2,000,000. The making and receipt of such payments, as applicable
shall satisfy the obligations and liabilities of UBT and Comerica and Interim,
respectively under the Merger Agreement, and UBT, Comerica and Interim, as the
case may be, shall have no further obligations of any kind under the Merger
Agreement. See "THE MERGER AGREEMENT -- Cancellation Fee; Liquidated Damages."
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to qualify as a purchase for accounting and
financial reporting purposes. Under this method of accounting, Comerica will
adjust the assets and liabilities of UBT to their fair values as of the
Effective Time. The shares of Comerica Common Stock to be issued in the Merger
will be authorized but unissued shares, or shares held as treasury shares.
Subject to the rules of the Commission, Comerica may repurchase shares of
Comerica Common Stock in open market or other transactions to fund the Merger
consideration.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Required Tax Opinion Regarding the Merger. The obligations of Comerica and
UBT to effect the Merger are conditioned upon the receipt of an opinion of legal
counsel satisfactory to Comerica subject to assumptions and exceptions normally
included, dated the Effective Time, to the effect that the Merger will be
treated for federal income tax purposes as a reorganization within the meaning
of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code of 1986,
as amended (the "IRC"), and that Comerica, Interim and UBT will each be a party
to that reorganization within the meaning of Section 368(b) of the IRC. It is
expected that Miller, Canfield, Paddock and Stone, P.L.C., counsel to Comerica,
will deliver such an opinion to Comerica and UBT.
Summary of Anticipated Federal Income Tax Consequences. The following is a
summary of the anticipated Federal income tax consequences of the Merger to UBT
stockholders. It is not intended as tax advice and is based upon the parties'
understanding of the Federal income tax laws as currently interpreted and does
not address issues of state or local taxation. It does not constitute a
representation by UBT, Interim,
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<PAGE> 42
Comerica, or their counsel. The following discussion is included solely for
purposes of general information only.
BECAUSE OF THE COMPLEXITIES OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS,
IT IS RECOMMENDED THAT UBT STOCKHOLDERS CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE MERGER.
This summary is limited to those persons who hold shares of UBT Common
Stock as "capital assets" (generally, property held for investment) within the
meaning of Section 1221 of the IRC. (Any reference herein to a "Section" is a
reference to a section of the IRC unless otherwise specified.) The tax
consequences to any particular stockholder of UBT Common Stock may be affected
by matters not discussed below. For example, certain taxpayers, such as life
insurance companies, tax-exempt organizations, and foreign taxpayers may be
subject to special rules not addressed herein. In addition, the tax consequences
to UBT stockholders who acquired their shares of UBT Common Stock pursuant to
the exercise of employee stock options or otherwise as compensation is not
discussed below.
Assuming the Merger satisfies all requirements of Section 368(a)(1)(A) and
Section 368(a)(2)(E), the Merger will have the Federal income tax consequences
described below.
Receipt Solely of Comerica Common Stock in Exchange for UBT Common Stock. A
stockholder who receives solely shares of Comerica Common Stock in exchange for
shares of UBT Common Stock in the Merger will not recognize gain or loss on the
exchange. The stockholder's tax basis in the Comerica Common Stock received will
be the same as the stockholder's tax basis in the shares of UBT Common Stock
exchanged in the Merger, and the holding period of the Comerica Common Stock
received will include the holding period of the UBT Common Stock exchanged.
Receipt of Cash in Lieu of Fractional Shares. Pursuant to the Merger, UBT
stockholders will receive cash in lieu of fractional shares of Comerica Common
Stock. Since the payment to a stockholder of cash in lieu of a fractional
Comerica share in this transaction is undertaken solely for the purpose of
saving the expense and inconvenience of issuing and transferring fractional
shares, and is not separately bargained for consideration, these payments will
generally be treated as having been received as distributions in full payment in
exchange for the Comerica Common Stock redeemed as provided in Section 302(a)
and taxed as capital gain or loss.
RESALE OF COMERICA COMMON STOCK; RESTRICTIONS ON TRANSFER
The shares of Comerica Common Stock to be issued in the Merger will be
registered under the Securities Act and will be freely transferable under the
Securities Act, except for shares issued to any stockholder who may be deemed to
be an "affiliate" of UBT for purposes of Rule 145 under the Securities Act.
Affiliates may not sell their shares of Comerica Common Stock acquired in
connection with the Merger except pursuant to an effective registration
statement under the Securities Act covering such shares or in compliance with
Rule 145 or another applicable exemption from the registration requirements of
the Securities Act. Persons who may be deemed to be affiliates of UBT generally
include individuals or entities that control, are controlled by or under common
control with UBT, and may include certain officers and directors of UBT, as well
as principal stockholders of UBT.
UBT has delivered to Comerica a written agreement from each person UBT
believes to be an affiliate of UBT obligating each such person to ensure
compliance with the Securities Act. See "THE MERGER AGREEMENT -- Resales by
Affiliates".
STOCK EXCHANGE LISTING
The Comerica Common Stock is listed on the NYSE. Comerica has agreed to
apply for NYSE listing of the shares of Comerica Common Stock to be issued in
the Merger. The obligations of the parties to the Merger Agreement to consummate
the Merger are subject to approval of that application and the listing by the
NYSE of such shares. See "THE MERGER -- Conditions to the Consummation of the
Merger" above.
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<PAGE> 43
DISSENTER'S RIGHTS
The stockholders of UBT may have certain dissenter's rights under Chapter
13 (Sections 1300-1312) of the California General Corporations Law (the "CGCL")
if said stockholders qualify as holders of "dissenting shares" under the CGCL.
The exercise of dissenter's rights may require UBT to purchase for cash at fair
market value from dissenting UBT stockholders UBT Common Stock which qualifies
as dissenting shares. The fair market value will be determined as of October 3,
1994, the day before the first announcement of the terms of the Merger; provided
however, that fair market value will not be adjusted for any appreciation or
depreciation in value resulting from the Merger.
"Dissenting Shares" are defined under the CGCL as 1) any shares not listed
on a national securities exchange certified by the California Commissioner of
Corporations or listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System immediately prior to a reorganization
("Listed Securities"), 2) Listed Securities, if demands for payment are filed
with respect to 5% or more of the outstanding shares of that class of Listed
Securities; 3) shares which were outstanding on the date for determination of
stockholders entitled to vote on the reorganization and were not voted in favor
of the reorganization, or shares described in 1) above which were voted against
the reorganization; 4) shares which the dissenting stockholder has demanded that
the corporation purchase at fair market value in accordance with the CGCL; and
5) shares which the dissenting stockholder has submitted for endorsement in
accordance with the CGCL. Under the CGCL, UBT stockholders will waive their
stockholder dissenting rights if they do not vote against the Merger.
Inasmuch as the UBT Common Stock is admitted for quotation on the
NASDAQ/National Market System, a national securities exchange certified by the
California Commissioner of Corporations, shares of UBT Common Stock will only
qualify as Dissenting Shares if demands for payment are filed with respect to 5%
or more of the outstanding shares of UBT Common Stock. Subject to this
limitation, holders of UBT Common Stock desiring to exercise dissenter's rights
must comply with the requirements set forth in items 4 and 5 listed above.
Assuming the Merger Proposal is approved, UBT must mail to all of its
stockholders meeting those requirements notice of such approval of the
reorganization within 10 days of the Special Meeting, together with a copy of
the relevant sections of the CGCL, a statement of the price determined by UBT to
represent the fair market value of the Dissenting Shares, and a brief
description of the procedure to be followed if a stockholder desires to exercise
dissenter's rights. The statement of price constitutes an offer by UBT to
purchase the shares of the dissenting stockholder at such price, unless those
shares lose their status as Dissenting Shares under the CGCL.
Merely voting or delivering a proxy directing a vote against the approval
of the Merger, or failing to deliver a proxy or vote as to approval of the
Merger, does not constitute a demand for purchase. A written demand is
essential. Any stockholder of record who has the right to require UBT to
purchase such stockholders' shares of UBT Common Stock and has complied with the
requirements set forth in items 4 and 5 listed above, and who desires that UBT
purchase such shares of UBT Common Stock, shall make written demand upon UBT for
the purchase of such shares of UBT Common Stock and payment to the stockholder
in cash of their fair market value. Notice must be received by UBT or any
transfer agent thereof, not later than the date of the Special Meeting. The
demand must state the number and class of shares of UBT Common Stock held of
record by the stockholder which the stockholder demands that UBT purchase and
shall contain a statement of what such stockholder claims to be the fair market
value of those shares as of the day before the announcement of the Merger. The
statement of fair market value constitutes an offer by the stockholder to sell
the shares at such price. A stockholder may not withdraw a demand for payment
without the consent of UBT.
Holders of UBT common Stock desiring to exercise dissenter's rights should
send demand for payment to UBT in care of Gayle A. Anderson, Secretary, 250
Lytton Avenue, P.O. Box 89, Palo Alto, California 94301 by registered or
certified mail, return receipt requested. The demand should be signed by the
stockholder of record (or his or her duly authorized representative) exactly as
his or her name appears on the certificates evidencing ownership of the shares
of UBT Common Stock. A demand for the purchase of shares of UBT
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<PAGE> 44
Common Stock owned jointly by more than one person should identify and be signed
by all such holders. Any person signing a demand for purchase in any
representative capacity (such as attorney-in-fact, executor, administrator,
trustee or guardian) should indicate his or her title and, if UBT so requests,
furnish written proof of his or her capacity and authority to sign the demand.
Within 30 days after the date notice of approval of the Merger is mailed to
its stockholders by UBT, any stockholder exercising dissenter's rights must
deliver to UBT at its principal office or at the office of any transfer agent
thereof, the share certificates representing the shares of UBT Common Stock the
stockholder demands to be purchased, to be stamped or endorsed with the
statement that the shares are Dissenting Shares or to be exchanged for
certificates of appropriate denomination so stamped or endorsed. Upon subsequent
transfer of the Dissenting Shares on the corporate books, the new certificate,
initial transaction statement, and other written statements issued thereof shall
bear a like statement, together with the name of the original dissenting holder
of the shares.
If UBT and a dissenting stockholder agree that the shares are Dissenting
Shares and agree upon the price of the shares, the stockholder will be entitled
to that price plus interest at the legal rate on judgments from the date of the
agreement. The agreement fixing the fair market value of any Dissenting Shares
must be filed with the Secretary of UBT. Subject to certain creditors' rights,
UBT shall make payment at the later of 1) within 30 days after the agreement or
2) within 30 days after any statutory or contractual conditions to the Merger
are satisfied, subject to surrender of the share certificates to UBT. Cash
dividends, if any, declared and paid by UBT on the Dissenting Shares after the
date of approval of the Merger and prior to payment for the Dissenting Shares
shall be credited against the total amount to be paid by UBT.
If UBT and a dissenting stockholder disagree that the shares are Dissenting
Shares and/or disagree on the fair market value of the shares, the stockholder
may file within 6 months after the date on which the notice of the approval of
the Merger by the outstanding shares was mailed to the stockholder, a complaint
in the Superior Court for Santa Clara County requesting that the court determine
whether the shares are Dissenting Shares and/or the fair market value of the
shares. In addition, any other dissenting stockholder may intervene in any
action pending on such a complaint.
If the status of the shares is at issue, the court will first determine
whether the shares are Dissenting Shares. If the court finds that the shares are
Dissenting Shares, the court, or one or more impartial appraisers, will at that
time determine the fair market value of the shares if said amount also is in
issue. If judgement is rendered against UBT, UBT will pay the amount equal to
the fair market value of each Dissenting Share multiplied by the number of
Dissenting Shares which any dissenting stockholder is entitled to require UBT to
purchase, with interest thereon at the legal rate from the date judgment was
entered. Judgement is payable upon the endorsement and delivery to UBT of the
certificates of the shares described in the judgement. Costs of the action will
be assessed or apportioned as the court considers equitable, but, if the
appraisal exceeds the price offered by UBT, UBT will be assessed all costs
(including, in the discretion of the court, attorneys' fees, fees of expert
witnesses and interest at the legal rate from the date of compliance with UBT's
obligations under Chapter 13 of the CGCL if the value for the Dissenting Shares
is more than 125% of the price originally offered by UBT).
No stockholder of UBT who has a right to demand payment of cash for the
shares of UBT Common Stock held by him or her shall have any right at law or in
equity to attack the validity of the Merger or to have the Merger set aside or
rescinded, except in an action to test whether the number or shares required to
authorize or approve the Merger have been legally voted in favor thereof.
UBT Common Stock holders wishing to exercise dissenter's rights should seek
advice from their attorney in conjunction with the exercise of such rights.
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<PAGE> 45
CERTAIN REGULATORY CONSIDERATIONS
GENERAL
Bank holding companies and banks are extensively regulated under both
federal and state law. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. A change in
applicable law or regulation may have a material effect on the business of
Comerica.
As a bank holding company, Comerica is subject to regulation under the BHCA
and its examination and reporting requirements. Under the BHCA, bank holding
companies may not (subject to certain limited exceptions) directly or indirectly
acquire the ownership or control of more than 5% of any class of voting shares
or substantially all of the assets of any company, including a bank, without the
prior written approval of the Federal Reserve Board. In addition, banking
holding companies are generally prohibited under the BHCA from engaging in
nonbanking activities, subject to certain exceptions.
The BHCA prohibits the Federal Reserve Board from approving the acquisition
by a bank holding company of more than 5% of any class of the voting shares of,
or substantially all the assets of, any bank (or its holding company) located
outside of the state in which the operations of such acquiring bank holding
company's banking subsidiaries are principally conducted on the date such
company became a bank holding company unless such acquisition is specifically
authorized by the laws of the state in which the bank to be acquired is located.
Most states, including Michigan and California, have adopted legislation that
permits out-of-state bank holding companies throughout the United States to
acquire local banks and bank holding companies. Most states that have enacted
such nationwide interstate banking laws, including Michigan and California, have
a reciprocity requirement. In approving Comerica's acquisition of the
predecessors to Comerica Bank -- California, both the Federal Reserve Board and
the California Superintendent determined that the "substantial reciprocity"
requirement of California law was met in connection with such an interstate
acquisition.
INTERSTATE BANKING AND BRANCHING
On September 29, 1994, the Reigle/Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") was signed into law. This
Interstate Act effectively permits nationwide banking. The Interstate Act
provides that one year after enactment, adequately capitalized and adequately
managed bank holding companies may acquire banks in any state, even in those
jurisdictions that currently bar acquisitions by out-of-state institutions,
subject to deposit concentration limits. The deposit concentration limits
provide that regulatory approval by the Federal Reserve Board may not be granted
for a proposed interstate acquisition if after the acquisition, the acquiror on
a consolidated basis would control more than 10% of the total deposits
nationwide or would control more than 30% of deposits in the state where the
acquiring institution is located. The deposit concentration state limit does not
apply for initial acquisitions in a state and in every case, may be waived by
the state regulatory authority. Interstate acquisitions are subject to
compliance with the Community Reinvestment Act ("CRA"). States are permitted to
impose age requirements not to exceed five years on target banks for interstate
acquisitions. States are not allowed to opt-out of interstate banking.
Branching between states may be accomplished either by merging separate
banks located in different states into one legal entity, or by establishing de
novo branches in another state. Consolidation of banks is not permitted until
June 1, 1997 provided that the state has not passed legislation "opting-out" of
interstate branching. If a state opts-out prior to June 1, 1997, then banks
located in that state may not participate in interstate branching. A state may
opt-in to interstate branching by bank consolidation or by de novo branching by
passing appropriate legislation earlier than June 1, 1997. Interstate branching
is also subject to a 30% statewide deposit concentration limit on a consolidated
basis, and a 10% nationwide deposit concentration limit. The laws of the host
state regarding community reinvestment, fair lending, consumer protection
(including usury limits) and establishment of branches shall apply to the
interstate branches.
De novo branching by an out-of-state bank is not permitted unless the host
state expressly permits de novo branching by banks from out-of-state. The
establishment of an initial de novo branch in a state is subject
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<PAGE> 46
to the same conditions as apply to initial acquisition of a bank in the host
state other than the deposit concentration limits.
Effective one year after enactment, the Interstate Act permits bank
subsidiaries of a bank holding company to act as agents for affiliated
depository institutions in receiving deposits, renewing time deposits, closing
loans, servicing loans and receiving payments on loans and other obligations. A
bank acting as agent for an affiliate shall not be considered a branch of the
affiliate. Any agency relationship between affiliates must be on terms that are
consistent with safe and sound banking practices. The authority for an agency
relationship for receiving deposits includes the taking of deposits for an
existing account but is not meant to include the opening or origination of new
deposit accounts. Subject to certain conditions, insured saving associations
which were affiliated with banks as of June 1, 1994, may act as agents for such
banks. An affiliate bank or saving association may not conduct any activity as
an agent which such institution is prohibited from conducting as principal.
If an interstate bank decides to close a branch located in a low- or
moderate-income area, it must comply with additional branch closing notice
requirements. The appropriate regulatory agency is authorized to consult with
community organizations to explore options to maintain banking services in the
affected community where the branch is to be closed.
To ensure that interstate branching does not result in taking deposits
without regard to a community's credit needs, the regulatory agencies are
directed to implement regulations prohibiting interstate branches from being
used as "deposit production offices." The regulations to implement its
provisions are due by June 1, 1997. The regulations must include a provision to
the effect that if loans made by an interstate branch are less than fifty
percent of the average of all depository institutions in the state, then the
regulator must review the loan portfolio of the branch. If the regulator
determines that the branch is not meeting the credit needs of the community, it
has the authority to close the branch and to prohibit the bank from opening new
branches in that state.
When the interstate banking provisions become effective in one year,
Comerica will have enhanced opportunities to acquire banks in any state subject
to approval by the appropriate federal and state regulatory agencies. When the
interstate branching provisions become effective in June 1997, Comerica will
have the opportunity to consolidate its affiliate banks to create one legal
entity with branches in more than one state should management decide to do so,
or to establish branches in different states, subject to any state opt-out
provisions. The agency authority permitting Comerica affiliate banks to act as
agents for each other in accepting deposits or servicing loans should make it
more convenient for customers of one Comerica bank to transact their banking
business at a Comerica affiliate in another state provided that operations are
in place to facilitate these out of state transactions.
PAYMENT OF DIVIDENDS
Comerica is a legal entity separate and distinct from its banking and other
subsidiaries. Most of Comerica's revenues result from dividends paid to it by
its bank subsidiaries. There are statutory and regulatory requirements
applicable to the payment of dividends by subsidiary banks as well as by
Comerica to its shareholders.
Each state bank subsidiary that is a member of the Federal Reserve System
and each national banking association is required by federal law to obtain the
prior approval of the Federal Reserve Board or the Comptroller of the Currency
(the "Comptroller"), as the case may be, for the declaration and payment of
dividends if the total of all dividends declared by the board of directors of
such bank in any year will exceed the total of (i) such bank's net profits (as
defined and interpreted by regulation) for that year plus (ii) the retained net
profits (as defined and interpreted by regulation) for the preceding two years,
less any required transfers to surplus. In addition, these banks may only pay
dividends to the extent that retained net profits (including the portion
transferred to surplus) exceed bad debts (as defined by regulation).
Under the foregoing dividend restrictions, in 1994 Comerica's subsidiary
banks, without obtaining governmental approvals, can declare aggregate dividends
of approximately $273 million from retained net
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profits of the preceding two years, plus an amount approximately equal to the
net profits (as measured under current regulations), if any, earned for the
period from January 1, 1994 through the date of declaration. During 1993,
Comerica's subsidiary banks paid $311 million in dividends.
The banking authorities in the states where Comerica owns state-chartered
banks also regulate the payment of dividends by banks organized in such states.
Generally, (i) California state banks such as Comerica Bank-California may not
declare or pay a dividend, without the prior written approval of the California
Superintendent, if the total of all dividends declared by such bank in any
calendar year would exceed the total of its net profits, as defined, for that
year combined with its retained net profits, as defined, for the preceding two
years, (ii) Michigan state banks such as Comerica Bank may not pay a dividend if
the amount of such dividend would exceed net profits then on hand or surplus
remaining after payment thereof would be less than 20 percent of the bank's
capital, and (iii) payment of dividends by Texas state banks such as Comerica
Bank-Texas are restricted by minimum capital requirements. Generally, an
Illinois state chartered bank, such as Comerica Bank-Illinois, may pay dividends
only out of net profits. If an Illinois bank's surplus does not equal its
capital, it may declare a dividend only after at least one-tenth of its net
profits since the declaration of the last dividend has been added to its
surplus. An Illinois bank may not pay dividends in an amount greater than net
profits then on hand, less deductions for losses and bad debts, as defined by
statute.
The payment of dividends by Comerica and its bank subsidiaries is also
affected by various regulatory requirements and policies, such as the
requirement to maintain capital at or above regulatory guidelines. In addition,
if, in the opinion of the applicable regulatory authority, a bank under its
jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the bank, could include
the payment of dividends), such authority may require, after notice and hearing,
that such bank cease and desist from such practice. The Federal Reserve Board
and the Comptroller have each indicated that paying dividends that deplete a
bank's capital base to an inadequate level would be an unsafe and unsound
banking practice. The Federal Reserve Board, the Comptroller and the FDIC have
issued policy statements which provide that bank holding companies and insured
banks should generally only pay dividends out of current operating earnings.
CERTAIN TRANSACTIONS BY COMERICA WITH ITS AFFILIATES
There are also various legal restrictions on the extent to which Comerica
and most of its nondepository subsidiaries can borrow or otherwise obtain credit
from, or engage in certain other transactions with, its depository subsidiaries.
The "covered transactions" that an insured depository institution and its
subsidiaries are permitted to engage in with their nondepository affiliates are
limited to the following amounts: (i) in the case of any one such affiliate, the
aggregate amount of covered transactions of the insured depository institution
and its subsidiaries cannot exceed 10% of the capital stock and the surplus of
the insured depository institution; and (ii) in the case of all affiliates, the
aggregate amount of covered transactions of the insured depository institution
and its subsidiaries cannot exceed 20% of the capital stock and surplus of the
insured depository institution. In addition, extensions of credit that
constitute covered transactions must be collateralized in prescribed amounts.
"Covered transactions" are defined by statute to include a loan or
extension of credit to the affiliate, a purchase of securities issued by an
affiliate, a purchase of assets from the affiliate (unless otherwise exempted by
the Federal Reserve Board), the acceptance of securities issued by the affiliate
as collateral for a loan and the issuance of a guarantee, acceptance, or letter
of credit for the benefit of an affiliate. Further, a bank holding company and
its subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or furnishing
of services.
CAPITAL
The Federal Reserve Board has adopted final risk based capital guidelines
for bank holding companies. The minimum guideline for the ratio of total capital
("Total Capital") to risk weighted assets (including certain off-balance-sheet
activities, such as standby letters of credit) is 8%. At least half of the Total
Capital is to be composed of common stockholders' equity, minority interests in
the equity accounts of consolidated
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subsidiaries and a limited amount of perpetual preferred stock, less disallowed
intangibles including goodwill ("Tier 1 Capital"). The remainder may consist of
subordinated debt, other preferred stock and a limited amount of loan loss
reserves ("Tier 2 Capital").
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum Tier 1 Capital leverage ratio (Tier 1 Capital to total assets, less
goodwill) of 3% for bank holding companies that meet certain specified criteria,
including having the highest regulatory rating. All other bank holding companies
will generally be required to maintain a minimum Tier 1 Capital leverage ratio
of 3% plus an additional cushion of 100 to 200 basis points. The Federal Reserve
Board has not advised Comerica of any specific minimum Tier 1 Capital leverage
ratio applicable to it. The guidelines also provide that bank holding companies
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels
without significant reliance on intangible assets (e.g., goodwill, core deposit
intangibles and purchased mortgage servicing rights). Furthermore, the
guidelines indicate that the Federal Reserve Board will continue to consider a
"tangible Tier 1 Capital leverage ratio" (deducting all intangibles) in
evaluating proposals for expansion or new activities. As of September 30, 1994,
the "tangible Tier 1 Capital leverage ratios" of Comerica, UBT and pro forma
(giving effect to the Merger) for UBT and Comerica combined were 6.89%, 7.91%
and 6.79%, respectively.
The following tables set forth the Tier 1 capital to risk-weighted assets
ratios, the total capital to risk-weighted assets ratios and the Tier 1 leverage
ratios for Comerica and UBT individually and on a pro forma combined basis as of
certain dates and periods. Such pro forma combined data is derived from the
financial information of Comerica and UBT at September 30, 1994 and for each of
the years presented below and gives effect to the Merger, the repurchase of
shares to be issued to holders of UBT Common Stock as consideration for the
Merger, adjustment to fair value of the assets and liabilities of UBT as of the
Effective Time.
TIER 1 CAPITAL TO RISK-WEIGHTED ASSETS RATIO
(IN EACH CASE CALCULATED PURSUANT TO THE
FINAL RISK-BASED CAPITAL GUIDELINES)
<TABLE>
<CAPTION>
PRO FORMA
AS OF: COMERICA UBT COMBINED
- ------------------------------------------------------------------ -------- ----- ---------
<S> <C> <C> <C>
September 30, 1994................................................ 8.40% 13.60% 8.31%
December 31, 1993................................................. 8.21 12.97 --
December 31, 1992................................................. 8.83 11.11 --
December 31, 1991................................................. 8.13 10.67 --
</TABLE>
TOTAL CAPITAL TO RISK-WEIGHTED ASSETS RATIO
(IN EACH CASE CALCULATED PURSUANT TO THE
FINAL RISK-BASED CAPITAL GUIDELINES)
<TABLE>
<CAPTION>
PRO FORMA
AS OF: COMERICA UBT COMBINED
- ------------------------------------------------------------------ -------- ----- ---------
<S> <C> <C> <C>
September 30, 1994................................................ 12.13% 14.85% 12.01%
December 31, 1993................................................. 11.58 14.24 --
December 31, 1992................................................. 11.82 12.36 --
December 31, 1991................................................. 10.69 11.45 --
</TABLE>
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TIER 1 LEVERAGE RATIO
<TABLE>
<CAPTION>
PRO FORMA
AS OF: COMERICA UBT COMBINED
- ------------------------------------------------------------------ -------- ----- ---------
<S> <C> <C> <C>
September 30, 1994................................................ 7.01% 7.91% 6.91%
December 31, 1993................................................. 7.04 8.35 --
December 31, 1992................................................. 7.52 7.36 --
December 31, 1991................................................. 6.61 7.58 --
</TABLE>
Each of Comerica's banks is subject to similar capital requirements adopted
by the Federal Reserve Board, the Comptroller or the FDIC. At September 30,
1994, each of Comerica's subsidiary banks had a Tier 1 Capital ratio and a Total
Capital ratio (computed under the 1993 guidelines) in excess of the fully phased
in requirements and a Tier 1 Capital leverage ratio in excess of 6.50%. At
September 30, 1994, Comerica Bank's Tier 1 Capital ratio and Total Capital ratio
(computed under the 1993 guidelines) was in excess of the fully phased in
requirements and its Tier 1 Capital leverage ratio was 6.49%. No regulatory
agency has advised any of Comerica's subsidiary banks of any specific applicable
minimum Tier 1 Capital leverage ratio.
Failure to meet capital guidelines could subject an insured bank to a
variety of enforcement remedies, including the termination of deposit insurance
by the FDIC and a prohibition on the taking of brokered deposits. See "FDICIA"
below.
It is possible that bank regulators will raise capital requirements
applicable to banking organizations beyond their current levels. However, the
management of Comerica is unable to predict whether and when higher capital
requirements might be imposed and, if they are imposed, at what levels and on
what schedule.
COMERICA'S SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve Board policy, Comerica is expected to act as a source
of financial strength to each of its subsidiary banks and, if necessary, to
commit resources to support each of such subsidiaries. This support may be
required at times when, absent such Federal Reserve Board policy, Comerica would
not otherwise be required to provide it.
Under the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA"), a depository institution insured by the FDIC can be held liable
for any loss incurred by, or reasonably expected to be incurred by, the FDIC
after August 9, 1989 in connection with (i) the default of a commonly controlled
FDIC-insured depository institution, or (ii) any assistance provided by the FDIC
to any commonly controlled FDIC-insured depository institution "in danger of
default." "Default" is defined generally as the appointment of a conservator or
receiver and "in danger of default" is defined generally as the existence of
certain conditions indicating that a default is likely to occur in the absence
of regulatory assistance.
Under Michigan law, if the capital of a Michigan state chartered bank is
impaired by losses or otherwise, the Michigan Financial Institutions Bureau is
authorized to require payment of the deficiency by assessment upon the bank's
shareholders, pro rata, and to the extent necessary, if any such assessment is
not paid by any shareholder after three months' notice, to cause the sale of the
stock of such shareholder to make good the deficiency.
Under the National Bank Act, if the capital stock of a national bank is
impaired by losses or otherwise, the Comptroller is authorized to require
payment of the deficiency by assessment upon the bank's shareholders, pro rata,
and to the extent necessary, if any such assessment is not paid by any
shareholder after three months' notice, to sell the stock of such shareholder to
make good the deficiency.
Any capital loans by a bank holding company to any of its subsidiary banks
are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of
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payment. This priority would apparently apply to guarantees of capital plans
under the Federal Deposit Insurance Corporation Improvement Act of 1991
(discussed below) ("FDICIA").
FDIC INSURANCE ASSESSMENTS
Comerica's subsidiary banks are subject to FDIC deposit insurance
assessments. On January 1, 1994, a permanent risk-based deposit premium
assessment system became effective under which each depositary institution is
placed in one of nine assessment categories based on certain capital and
supervisory measures. The assessment rates under the system range from 0.23
percent to 0.31 percent of domestic deposits depending upon the assessment
category into which the insured institution is placed. It is possible that such
assessments will be increased and it is possible that there may be special
additional assessments in the future. A significant increase in the assessment
rate or a special additional assessment could have an adverse impact on
Comerica's results of operations.
FDICIA
In December 1991 FDICIA was enacted. This legislation substantially revises
the bank regulatory and funding provisions of the Federal Deposit Insurance Act
and makes revisions to several other federal banking statutes.
Among other things, FDICIA requires the federal banking agencies to take
"prompt corrective action" in respect of depository institutions that do not
meet minimum capital requirements. FDICIA establishes five capital tiers: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." A depository institution's
capital tier depends upon where its capital levels are in relation to various
relevant capital measures, which includes a risk-based capital measure and a
leverage ratio capital measure, and certain other factors.
A depository institution is well capitalized if it significantly exceeds
the minimum level required by regulation of each relevant capital measure,
adequately capitalized if it meets each such measure, undercapitalized if it
fails to meet any such measure, significantly undercapitalized if it is
significantly below any such measure and critically undercapitalized if it has a
ratio of tangible equity to total assets that is equal to or less than 2
percent. An institution may be deemed to be in a capitalization category that is
lower than is indicated by its actual capital position if, among other things,
it receives an unsatisfactory examination rating.
Regulations establishing the specific capital tiers have been adopted.
Under these regulations, for an institution to be well capitalized it must have
a total risk-based capital ratio of at least 10 percent, a Tier 1 risk-based
capital ratio of at least 6 percent, and a Tier 1 leverage ratio of at least 5
percent, and not be subject to any specific capital order or directive. For an
institution to be adequately capitalized it must have a total risk-based capital
ratio of at least 8 percent, a Tier 1 risk-based capital ratio of at least 4
percent, and a leverage ratio of at least 4 percent (and in some cases 3
percent). Under these new regulations, the banking subsidiaries of Comerica
would be considered to be well capitalized as of September 30, 1994.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to growth
limitations and are required to submit a capital restoration plan. The federal
banking agencies may not accept a capital plan without determining, among other
things, that the plan is based on realistic assumptions and is likely to succeed
in restoring the depository institution's capital. In addition, for a capital
restoration plan to be acceptable, the depository institution's parent holding
company must guarantee that the institution will comply with such capital
restoration plan. The aggregate liability of the parent holding company is
limited to the lesser of (i) an amount equal to 5 percent of the depository
institution's total assets at the time it became undercapitalized, and (ii) the
amount that is necessary (or would have been necessary) to bring the institution
into compliance with all capital standards applicable with respect to such
institution as of the time it fails to comply with the plan. If a depository
institution fails to submit an acceptable plan, it is treated as if it were
significantly undercapitalized.
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Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce the total
assets and cessation of receipt of deposits from correspondent banks. Critically
undercapitalized institutions are subject to the appointment of a receiver or
conservator.
Under FDICIA, the FDIC is permitted to provide financial assistance to an
insured bank before appointment of a conservator or receiver only if (i) such
assistance would be the least costly method of meeting the FDIC's insurance
obligations, (ii) grounds for appointment of a conservator or a receiver exist
or are likely to exist, (iii) it is unlikely that the bank can meet all capital
standards without assistance, and (iv) the bank's management has been competent,
has complied with applicable laws, regulations, rules and supervisory directives
and has not engaged in any insider dealing, speculative practice or other
abusive activity.
FDICIA directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding companies relating to
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, a maximum ratio of classified assets to capital, minimum earnings
sufficient to absorb losses, a minimum ratio of market value to book value for
publicly traded shares and other standards as they deem appropriate. Because
such standards have been proposed but not yet finalized, management is unable to
assess their impact.
FDICIA also contains a variety of other provisions that may affect the
operations of depository institutions including new reporting requirements,
regulatory standards for real estate lending, "truth in savings" provisions, the
requirement that a depository institution give 90 days' prior notice to
customers and regulatory authorities before closing any branch and a prohibition
on the acceptance or renewal of brokered deposits by depository institutions
that are not well capitalized or are adequately capitalized and have not
received a waiver from the FDIC. Under regulations relating to the brokered
deposit prohibition, Comerica Bank is well capitalized and may accept brokered
deposits without restriction.
IMPLICATIONS OF BEING A SAVINGS AND LOAN HOLDING COMPANY
As a result of Comerica's control of all of the capital stock of Comerica
Bank & Trust, F.S.B. ("Comerica FSB"), Comerica is a savings and loan holding
company under Section 10 of the Home Owners' Loan Act, as amended ("HOLA").
Comerica is registered with the Office of Thrift Supervision (the "OTS") and is
subject to OTS regulations, supervision and reporting requirements.
With certain exceptions, a savings and loan holding company must obtain the
prior written approval of the OTS before acquiring control of an insured savings
association or savings and loan holding company through the acquisition of stock
or through a merger or some other business combination. HOLA prohibits the OTS
from approving an acquisition by a savings and loan holding company which would
result in the holding company controlling savings associations in more than one
state unless (i) the holding company is authorized to do so by the FDIC as an
emergency acquisition, (ii) the holding company controls a savings association
which operated an office in the additional state or states on March 5, 1987, or
(iii) the statutes of the state in which the savings association to be acquired
is located specifically permit a savings association chartered by such state to
be acquired by an out-of-state savings association or savings and loan holding
company.
As a subsidiary of a savings and loan holding company, Comerica FSB is
subject to certain restrictions in its dealings with Comerica and with other
companies affiliated with Comerica. In addition, savings association
subsidiaries of savings and loan holding companies are required to give the OTS
thirty days' prior notice of any proposed payment of dividends to the savings
and loan holding company.
As a federal savings bank, Comerica FSB is subject to the capital adequacy
guidelines of the OTS. In general, a federal savings bank is required to satisfy
three capital requirements: (i) a leverage test under which core capital must be
at least three percent of adjusted total assets, (ii) a tangible capital test
under which tangible capital must be at least 1.5% of adjusted total assets and
(iii) a risk based capital test under which core capital must, on a fully
phased-in basis, be at least 4% of risk adjusted assets and total capital must,
on a fully phased-in basis, be at least 8% of risk adjusted assets. The OTS has
proposed a regulation that would
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<PAGE> 52
increase the minimum leverage ratio from 3% to at least 4% to 5% for savings
associations not having the highest supervisory rating. As of September 30,
1994, Comerica FSB had capital well in excess of the foregoing requirements with
a leverage ratio of 6.75%, a tangible capital ratio of 6.75%, a core risk based
capital ratio of 11.14%, and a total risk based capital ratio of 12.40%.
In general, a savings and loan holding company such as Comerica that has a
federal savings bank subsidiary that fails to meet the "qualified thrift lender"
test is required to become a bank holding company. As Comerica is already a bank
holding company, Comerica FSB's failure to satisfy the "qualified thrift lender"
test would have no material effect on Comerica. In addition, if a federal
savings bank, such as Comerica FSB, does not satisfy the "qualified thrift
lender" test, then such federal savings bank (i) will be limited to establishing
new branches as if it were a national bank located in the same state, (ii) will
be barred from obtaining new Federal Home Loan Bank advances, (iii) will be
prohibited from making any new investment or engaging in any new activity unless
the investment or activity is permitted for a national bank and (iv) will be
subject to the dividend restrictions applicable to national banks. Moreover,
three years after it has failed to qualify as "qualified thrift lender", a
federal savings bank must (i) divest any investments and activities not
permitted for a national bank and (ii) repay any of its outstanding Federal Home
Loan Bank advances "as promptly as can prudently be done" consistent with its
safe and sound operation and must divest any investment and cease any activity
not permitted for a national bank. Even if Comerica FSB failed the "qualified
thrift lender" test, Comerica does not believe that it would have a significant
effect on its operations.
To be a "qualified thrift lender" a federal savings bank must maintain
"qualified thrift investments" of at least 65 percent of its "portfolio assets"
as measured on a monthly average basis in 9 out of the last 12 months. The
assets that qualify as "qualified thrift investments" include assets generally
related to the development of domestic residential real property. "Portfolio
assets" is defined as a federal savings bank's total assets, minus (i) goodwill
and other intangible assets, (ii) the value of property used by the savings
association to conduct its business and (iii) subject to a maximum of 20 percent
of total assets, liquid assets required to be maintained under Section 6 of
HOLA.
DESCRIPTION OF COMERICA CAPITAL STOCK
The following description contains a summary of all of the material
features of the capital stock of Comerica but does not purport to be complete
and is subject to and qualified in its entirety by reference to the Comerica
Restated Certificate of Incorporation, including the Certificate of Designation
for the Comerica Series C Preferred Stock (the "Comerica Charter"), all of which
are filed as exhibits to the Registration Statement of which this Proxy
Statement/Prospectus forms a part and are incorporated herein by reference. See
also "COMPARISON OF SHAREHOLDER RIGHTS" below. The following description should
be read carefully by the UBT stockholders.
Comerica's total authorized capital stock currently consists of (i)
10,000,000 shares of preferred stock, without par value (the "Comerica Preferred
Stock"), and (ii) 250,000,000 shares of Comerica Common Stock, with a par value
of $5.00 per share.
With respect to the Comerica Preferred Stock, 500,000 shares with no stated
value have been designated as Series C Participating Preferred Stock (the
"Comerica Series C Preferred Stock"). All shares of two former series of
Comerica Preferred Stock, designated Adjustable Rate Cumulative Preferred Stock,
Series A and Series B Preferred Stock, have been redeemed and restored to the
status of authorized but unissued Comerica Preferred Stock. All shares
designated as Comerica Series C Preferred Stock have been reserved for issuance
in connection with the Comerica Rights. The Comerica Rights are not currently
exercisable and no shares of Comerica Series C Preferred Stock are outstanding.
For a description of the Comerica Rights, see "COMPARISON OF SHAREHOLDER RIGHTS
- -- Rights Plans" below.
With respect to the Comerica Common Stock, as of September 30, 1994,
119,294,531 shares of Comerica Common Stock were issued and outstanding.
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COMERICA PREFERRED STOCK
General. The Comerica Preferred Stock may be issued in one or more series
at such time or times and for such consideration or considerations as Comerica's
Board may determine. The Comerica Board is expressly authorized at any time, and
from time to time, to provide for the issuance of Comerica Preferred Stock with
such voting powers or without voting powers, and with such designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the Comerica Board resolution providing for the issuance thereof.
The Comerica Board is authorized to designate the series and the number of
shares comprising such series, the dividend rate on the shares of such series,
the redemption rights, if any, any purchase, retirement or sinking fund
provisions, any conversion rights and any special voting rights.
Uncommitted authorized but unissued shares of Comerica Preferred Stock may
be issued from time to time to such persons and for such consideration as the
Comerica Board may determine and holders of the then outstanding shares of
Comerica Common Stock or Comerica Preferred Stock may or may not be given the
opportunity to vote thereon, depending upon the nature of any such transactions,
applicable law, the rules and policies of NYSE and the judgment of the Comerica
Board regarding the submission of such issuance to Comerica's shareholders.
Comerica shareholders have no preemptive rights to subscribe to newly issued
shares.
Moreover, it is possible that shares of Comerica Preferred Stock would be
issued for the purpose of making an acquisition by an unwanted suitor of a
controlling interest in Comerica more difficult, time-consuming or costly or
otherwise to discourage an attempt to acquire control of Comerica. Under such
circumstances the availability of authorized and unissued shares of Comerica
Common Stock and Comerica Preferred Stock may make it more difficult for
shareholders to obtain a premium for their shares. Such authorized and unissued
shares could be used to create voting or other impediments or to frustrate a
person seeking to obtain control of Comerica by means of a merger, tender offer,
proxy contest or other means. Such shares could be privately placed with
purchasers who might cooperate with the Comerica Board in opposing such an
attempt by a third party to gain control of Comerica. The issuance of shares of
Comerica Preferred Stock could also be used to dilute ownership of a person or
entity seeking to obtain control of Comerica. Although Comerica does not
currently contemplate taking such action, shares of one or more series of
Comerica Preferred Stock could be issued for the purposes and effects described
above and the Comerica Board reserves its rights (if consistent with its
fiduciary responsibilities) to issue such stock for such purposes.
Shares of Comerica Preferred Stock redeemed or acquired by Comerica may
return to the status of authorized and unissued shares of Comerica Preferred
Stock, without designation as to series, and may be reissued by the Comerica
Board.
Comerica Series C Preferred Stock. The Comerica Series C Preferred Stock is
issuable upon exercise of the Comerica Rights. The Comerica Rights are not
currently exercisable and no shares of Comerica Series C Preferred Stock are
outstanding. For a description of the Comerica Rights, see "COMPARISON OF
SHAREHOLDER RIGHTS -- Rights Plan" below. The Comerica Series C Preferred Stock
carries a quarterly dividend rate equal (rounded to the nearest cent) to the
greater of (a) $10 or (b) a multiple (the "Comerica Multiple") times the
aggregate per share amount of all cash dividends and the Comerica Multiple times
the aggregate per share amount of all non-cash dividends or other distributions
other than a dividend payable in shares of Comerica Common Stock or a
subdivision of the outstanding shares of Comerica Common Stock, declared on the
Comerica Common Stock during the period specified. Dividends on the Comerica
Series C Preferred Stock are cumulative. The Comerica Multiple, which is subject
to adjustment upon the occurrence of stock dividends on, or splits or
combinations of, outstanding Comerica Common Stock is 450. Unless all dividends
on the Comerica Series C Preferred Stock have been paid in full, no dividend may
be declared or paid on the Comerica Common Stock. If dividends shall be in
arrears in an amount equal to six quarterly dividends, the holders of the
Comerica Series C Preferred Stock shall have the right, voting as a class, to
elect two directors.
Each share of Comerica Series C Preferred Stock is entitled to vote on all
matters submitted to a vote of the shareholders of Comerica, the number of votes
being subject to adjustment under the same circumstances
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which require an adjustment of the Comerica Multiple but may not have more than
one vote per share. Except as otherwise required by the Comerica Charter or
bylaws, the holders of shares of Comerica Series C Preferred Stock and the
holders of Comerica Common Stock vote together as one class.
Upon any liquidation, dissolution or winding up of Comerica, each share of
Comerica Series C Preferred Stock is entitled, prior to any payment or
distribution in respect of the Comerica Common Stock, to a liquidation
preference equal to $100 plus any accrued and unpaid dividends. If sufficient
assets of Comerica remain after payment of the liquidation preference in respect
of the Comerica Series C Preferred Stock and certain payments to the holders of
Comerica Common Stock, the Comerica Series C Preferred Stock participates with
the Comerica Common Stock in respect of the remaining assets of Comerica based
on a ratio.
If Comerica enters into any consolidation, merger, combination or other
transaction in which Comerica Common Stock is exchanged for other stock,
securities, cash or other property, then the shares of Comerica Series C
Preferred Stock will at the same time be similarly exchanged in an amount per
share, subject to certain adjustments, equal to the Comerica Multiple times the
aggregate amount of stock, security, cash or other property into which or for
which each share of Comerica Common Stock is changed or exchanged.
COMERICA COMMON STOCK
Subject to the rights of any outstanding shares of Comerica Preferred
Stock, the holders of Comerica Common Stock are entitled to receive such
dividends as may from time to time be declared by the Comerica Board. They are
entitled to one vote per share of Comerica Common Stock on every issue submitted
to them as Comerica shareholders at a meeting of shareholders or otherwise. In
the event of liquidation they are entitled, after payment in full of the
liquidation preference of any outstanding Comerica Preferred Stock and subject
to the right of the holders of Comerica Series C Preferred Stock to participate
in certain distributions, to share ratably in all assets of Comerica available
for distribution to holders of Comerica Common Stock. Holders of shares of
Comerica Common Stock do not have preemptive or cumulative voting rights. All
shares of Comerica Common Stock now issued and outstanding are fully paid and
nonassessable.
The registrar and transfer agent for the Comerica Common Stock is Norwest
Bank, Minnesota, National Association.
DESCRIPTION OF UBT CAPITAL STOCK
UBT's total authorized capital stock currently consists of 6,000,000 shares
of Common Stock, with no par value (the "UBT Common Stock").
Holders of UBT Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders of UBT. The holders of UBT Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
by the UBT Board of Directors out of funds legally available therefor. In the
event of liquidation, dissolution or winding up of UBT, the holders of UBT
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities. The UBT Common Stock has no preemptive, redemption, conversion
or other subscription rights. The outstanding shares of UBT Common Stock are
fully paid and nonassessable.
As of September 30, 1994, there were 1,339,697 shares of UBT Common Stock
outstanding held by 509 holders of record.
The transfer agent and registrar for the UBT Common Stock is First
Interstate Bank of California.
COMPARISON OF SHAREHOLDER RIGHTS
In the event the proposed Merger is consummated, stockholders of UBT whose
shares of UBT Common Stock, are converted into shares of Comerica Common Stock
will become shareholders of Comerica. Their
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rights will be governed by Delaware law and the Comerica Charter and the
Comerica Bylaws (the "Comerica Bylaws").
Certain differences between the rights of holders of UBT Common Stock and
the holders of Comerica Common Stock are set forth below. UBT is organized under
the laws of California and Comerica is organized under the laws of Delaware, and
there are differences arising from various provisions of the Comerica Charter,
the Comerica Bylaws, the UBT Articles of Incorporation (the "UBT Charter"), the
UBT Bylaws, the "Comerica Rights Agreement" (See "Rights Plans" below) and state
laws. This summary contains a description of the material differences, but is
not meant to be relied upon as an exhaustive list or detailed description of the
provisions discussed and is qualified in its entirety by reference to the DGCL,
California state law, the Comerica Charter, the Comerica Bylaws, the UBT
Charter, the UBT Bylaws and the Comerica Rights Agreement.
CLASSIFICATION, REMOVAL AND NOMINATION OF BOARD OF DIRECTORS
The Comerica Charter provides for classification of the Comerica Board into
three classes of directors with each class as nearly equal in number as possible
and elected for a three-year term, and with only one class standing for election
each year. The total number of directors and the number of directors
constituting each class may be fixed or changed from time to time by the
Comerica Board without shareholder approval. The Comerica Board currently
consists of 14 members. The affirmative vote of the holders of at least 75% of
Comerica's then outstanding voting stock is required to amend, change, or repeal
this provision unless such amendment, change, or repeal is approved by
three-fourths of the Comerica Board, in which case such amendment, change, or
repeal will only require the affirmative vote of a majority of shares entitled
to vote thereon. The Comerica Charter contains no provisions concerning the
removal of directors. Under the DGCL, then, Comerica shareholders may remove a
Comerica director only for cause.
Nominations of candidates for election as directors of Comerica at any
election meeting may be made by the Directors' Committee of the Board of
Directors until June 18, 1995, and thereafter by the Board of Directors.
Shareholders may nominate directors by delivering notice to the Secretary of
Comerica not less than 30 days prior to the date of the election meeting,
outlining in the notice (a) the name, age, business address and residence of
each nominee proposed in the notice, (b) the principal occupation or employment
of each such nominee, (c) the number of shares of Comerica Capital Stock which
are beneficially owned by each such nominee, and (d) such other information
concerning each such nominee as would be required in a proxy statement
soliciting proxies for the election of such nominee.
The UBT Bylaws provide that the UBT Board of Directors shall consist of not
less than 7 nor more than 13 directors, until changed by amendment of the
Articles of Incorporation or, if not prohibited by the Articles, by an amendment
to the Bylaws adopted by the shareholders. The exact number of directors within
the range mentioned above is fixed at 9 and may be reduced or increased within
the range by a resolution duly adopted by the Board of Directors. Directors need
not be shareholders of the corporation.
Board of Director nominations may be made by the Board of Directors or by
any shareholder of any outstanding class of capital stock of the corporation
entitled to vote for the election of directors. Notice of intention to make any
nominations shall be made in writing and shall be delivered or mailed to the
President of UBT not less than 21 days nor more than 60 days prior to any
meeting of shareholders called for the election of directors; provided however,
that if less than 21 days' notice of the meeting is given to shareholders, such
notice of intention to nominate shall be mailed or delivered to the President of
UBT not later than the close of business on the tenth day following the day on
which the notice of meeting was mailed; provided further, that if notice of such
meeting is sent by third class mail, no notice of intention to make nominations
shall be required. Such notification shall contain the following information to
the extent known to the notifying shareholder: (a) the name and address of each
proposed nominee; (b) the principal occupation of each proposed nominee; (c) the
number of shares of capital stock of UBT owned by each proposed nominee; (d) the
name and residence address of the notifying shareholder; and (e) the number of
shares of capital stock of UBT owned by the notifying shareholder. Nominations
not made in accordance herewith may, in the
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discretion of the Chairperson of the meeting, be disregarded and upon the
Chairperson's instructions, the inspectors of election can disregard all votes
cast for each such nominee.
SPECIAL MEETINGS OF SHAREHOLDERS
The Comerica Bylaws provide that a special meeting of shareholders may be
called only by (i) the Chairman of the Board of Comerica or, during such
Chairman's absence or disability, by the President of Comerica, or (ii) by the
President or Secretary of Comerica at the request in writing of a majority of
the Comerica Board, or at the request in writing by shareholders owning at least
75% of the then outstanding Comerica voting stock entitled to vote at the
meeting. Pursuant to the Comerica Charter, any amendment, alteration, change,
addition to, or repeal of this Comerica Bylaw provision proposed by a Comerica
shareholder requires the affirmative vote of the holders of at least 75% of
Comerica's then outstanding voting stock, and the same super majority
shareholder vote is required to amend, change, or repeal this Comerica Charter
provision, except under the circumstances described above under "--
Classification, Removal, and Nomination of Board of Directors."
The UBT Bylaws provide that special meetings of shareholders may be called
by the Board of Directors, or by the shareholders entitled to cast not less than
10% of the votes at the meeting.
LIMITATION OF LIABILITY OF DIRECTORS
The DGCL permits, and the Comerica Charter provides, that a director shall
not be personally liable to Comerica or its shareholders for monetary damages
for breach of fiduciary duty as a director, except for liability (a) for any
breach of the director's duty of loyalty to the corporation or its shareholders,
(b) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (c) for the approval of an illegal
dividend, asset distribution, stock purchase, or certain other illegal actions,
or (d) for any transaction for which the director derived an improper personal
benefit.
The UBT Charter and Bylaws provide that, the liability of directors of UBT
for monetary damages shall be eliminated to the fullest extent permitted under
California law.
ACTION BY WRITTEN CONSENT
The Comerica Charter permits shareholder action by written consent only if
such consent is taken by not less than 75% of the outstanding voting stock of
Comerica. The affirmative vote of the holders of at least 75% of Comerica's then
outstanding voting stock is required to amend, change, or repeal this Comerica
Charter provision.
The UBT Bylaws permit shareholder action by written consent only if the
consent is signed by the holders of outstanding shares having not less than the
minimum number of votes necessary to authorize such action at a meeting at which
all shares entitled to vote were present, except that unanimous written consent
is required for election of directors to non-vacant positions.
CERTAIN BUSINESS COMBINATIONS
Section 203 of the DGCL. Delaware has enacted a business combination
statute (Section 203 of the DGCL) pursuant to which a corporation having a class
of voting stock listed on a national securities exchange or authorized for
quotation on a national inter-dealer quotation system or held of record by more
than 2,000 shareholders, and whose charter or bylaws do not provide that the
corporation shall not be governed by the statute shall not engage in any
business combination (defined as any merger or consolidation of the corporation
or its subsidiary) with any interested shareholder (defined generally as any
person owning or recently owning 15% of more of the outstanding voting stock of
the corporation) for a period of 3 years following the date that such
shareholder became an interested shareholder, unless (a) prior to such date the
board of directors of the corporation approved either the business combination
or the transaction which resulted in the shareholder becoming an interested
shareholder, or (b) the interested shareholder owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced,
excluding
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for purposes of determining the number of shares outstanding those shares owned
(i) by persons who are directors and also officers and (ii) employee stock plans
in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer, or (c) on or subsequent to such date the business combination is approved
by the board of directors and authorized at an annual or special meeting of
shareholders, and not by written consent, by the affirmative vote of at least 66
and 2/3% of the outstanding voting stock which is not owned by the interested
shareholder.
Comerica Charter Provisions With Respect to Certain Business
Combinations. The Comerica Charter provides that any "Business Combination"
(hereinafter referred to as a "Comerica Business Combination") involving
Comerica and a person who beneficially owns 10% or more of Comerica's capital
stock (a "Comerica Related Person") must be approved by (i) the holders of at
least 75% of the votes entitled to be cast by the holders of Comerica's voting
stock and (ii) a majority of the votes entitled to be cast by the holders of
such voting stock, excluding stock beneficially owned by such Comerica Related
Person (the "Comerica Voting Requirement"). The Comerica Voting Requirement does
not apply if the Comerica Business Combination is approved by three-fourths of
the Comerica Continuing Directors (defined generally to include each director
who either was a director immediately prior to the time the Comerica Related
Person in the Comerica Business Combination became such a person or was
designated as a Comerica Continuing Director by a majority of the then Comerica
Continuing Directors prior to initial election as a director), or complies with
certain minimum price and other requirements. As defined in the Comerica
Charter, a Comerica Business Combination includes, among other things, (i) any
merger or consolidation of Comerica with, into, or for the benefit of a Comerica
Related Person; (ii) the sale by Comerica of a Substantial Part (more than 10%
of the fair market value) of its assets to a Comerica Related Person; (iii) the
acquisition by Comerica of a Substantial Part of the assets of a Comerica
Related Person; (iv) the issuance by Comerica of any of its securities to a
Comerica Related Person (other than an issuance which is effected on a pro rata
basis to all Comerica shareholders); or (v) the acquisition by Comerica of any
securities of a Comerica Related Person. This provision of the Comerica Charter
cannot be amended, changed, or repealed except by a vote similar to the Comerica
Voting Requirement unless such amendment, change, or repeal is recommended by
three-fourths of the Comerica Continuing Directors, in which case such
amendment, change, or repeal will require such vote, if any, as otherwise is
required by Delaware law.
The California Corporations Code does not have a business combination
statute. The UBT Charter does not have a comparable business combination
provisions.
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Comerica Charter provides that any amendment, change, or repeal of such
charter with respect to the provisions relating to (i) size and classification
of the Comerica Board, (ii) certain amendments to the provisions of the Comerica
Bylaws relating to calling special meetings of shareholders and nominations of
director candidates, (iii) Business Combinations, and (iv) actions of
shareholders permitted by written consent must be approved by a vote of at least
75% of the then outstanding shares of capital stock entitled to vote (and, with
respect to amending provisions relating to Business Combinations, a majority of
the outstanding shares of capital stock entitled to vote of which a Related
Person is not a beneficial owner); provided, however, that such voting
requirements are not required by any proposed amendment, change, or repeal
recommended to shareholders by not less than three-fourths of the Comerica Board
(or, with respect to such proposals relating to Business Combinations,
three-fourths of the Comerica Continuing Directors (as defined above)).
Pursuant to California law, the Charter of UBT may be amended by the
approval of the UBT Board of Directors and the affirmative vote or written
consent of a majority of the outstanding shares entitled to vote.
RIGHTS PLANS
Comerica Rights Plan. On January 26, 1988, the Comerica Board declared a
dividend distribution of one right (each, a "Comerica Right") for each
outstanding share of Comerica Common Stock to shareholders of record at the
close of business on February 8, 1988. Each Comerica Right entitles the
registered holder to
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purchase from Comerica a unit consisting of 1/100th of one share (a "Unit") of
Comerica Series C Preferred Stock at a Purchase Price (the "Comerica Purchase
Price") of $175 in cash per Unit, subject to adjustment. The number of Comerica
Rights per share of Comerica Common Stock is subject to adjustment in certain
events described below. Each share of Comerica Common Stock currently carries
2/9ths of one Comerica Right. The Comerica Common Stock to be issued in the
Merger will have attached thereto the associated number of Rights. The
description and terms of the Comerica Rights are set forth in a Rights Agreement
(the "Comerica Rights Agreement"), dated as of January 28, 1988, as amended,
between Comerica and Comerica Bank, as Rights Agent (the "Comerica Rights
Agent").
At the present time, the Comerica Rights attach to all Comerica Common
Stock certificates representing outstanding shares, and no separate Comerica
Rights certificates have been distributed. The Comerica Rights will separate
from the Comerica Common Stock and a "Comerica Distribution Date" will occur
upon the earlier of (i) ten days following a public announcement that a person
or group of affiliated or associated persons (a "Comerica Acquiring Person") has
acquired, or obtained the right to acquire, beneficial ownership of 20 percent
or more of the outstanding shares of Comerica Common Stock (the "Comerica Stock
Acquisition Date"), or (ii) ten business days following the commencement of a
tender offer or exchange offer that would result in a person or group
beneficially owning 25% or more of such outstanding shares of Comerica Common
Stock. Until a Comerica Distribution Date, (i) the Comerica Rights will be
evidenced by the Comerica Common Stock certificates and will be transferred with
and only with such Comerica Common Stock certificates, (ii) new Comerica Common
Stock certificates issued after February 8, 1988 will contain a notation
incorporating the Comerica Rights Agreement by reference, and (iii) the
surrender for transfer of any certificates for Comerica Common Stock outstanding
will also constitute the transfer of the Comerica Rights associated with the
Comerica Common Stock represented by such certificates.
The Comerica Rights are not exercisable until the Comerica Distribution
Date and will expire at the earlier of (i) the close of business on February 8,
1998, and (ii) the date which is 24 months after the first date upon which
Comerica can generally be acquired by bank holding companies, and Comerica is
generally permitted to acquire banks, principally located in at least 15 of the
20 states listed on Exhibit D to the Comerica Rights Agreement, unless earlier
redeemed by Comerica as described below. Pursuant to the Comerica Rights
Agreement, Comerica reserves the right to require prior to the occurrence of a
Comerica Triggering Event (as defined below) that, upon any exercise of Comerica
Rights, a number of Comerica Rights be exercised so that only whole shares of
Comerica Series C Preferred Stock will be issued.
As soon as practicable after a Comerica Distribution Date, Comerica Rights
certificates will be mailed to holders of record of the Comerica Common Stock as
of the close of business on the Comerica Distribution Date and, thereafter, the
separate Comerica Rights certificates alone will represent the Comerica Rights.
Except as otherwise determined by the Comerica Board and except in connection
with the shares of Comerica Common Stock issued upon the exercise of employee
stock options or the conversion of convertible securities, only shares of
Comerica Common Stock issued prior to the Comerica Distribution Date will be
issued with Comerica Rights. The number of Comerica Rights per share of Comerica
Common Stock is subject to adjustment upon the occurrence of stock dividends on,
or splits or combinations of, outstanding Comerica Common Stock. Currently, each
share of Comerica Common Stock currently carries 2/9ths of one Comerica Right.
In the event that, at any time following the Comerica Distribution Date,
(i) a person becomes the beneficial owner of more than 25 percent of the then
outstanding shares of Comerica Common Stock except pursuant to an offer for all
outstanding shares of Comerica Common Stock which the independent directors
serving on the Comerica Board determine to be fair to, and otherwise in the best
interests of, Comerica shareholders, or (ii) Comerica is the surviving
corporation in a merger with a Comerica Acquiring Person and the Comerica Common
Stock is not changed or exchanged, each holder of a Comerica Right will
thereafter have the right to receive, upon exercise, Comerica Common Stock (or,
in certain circumstances, cash, property, or other securities of Comerica)
having a value equal to two times the exercise price of the Comerica Right.
Notwithstanding the foregoing, following the occurrence of any of the events set
forth in this paragraph, all Comerica Rights that are, or (under certain
circumstances specified in the Comerica Rights Agreement) were, beneficially
owned by any Comerica Acquiring Person will be null and void. However, Comerica
Rights
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are not exercisable following the occurrence of either of the events set forth
above until such time as the Comerica Rights are no longer redeemable by
Comerica as set forth below.
In the event that, at any time following the Comerica Stock Acquisition
Date, (i) Comerica is acquired in a merger or other business combination
transaction in which Comerica is not the surviving corporation or Comerica
Common Stock is changed or exchanged (other than a merger which follows an offer
described in clause (i) of the preceding paragraph), or (ii) 50 percent or more
of Comerica's assets or earning power is sold or transferred, each holder of a
Comerica Right (except Comerica Rights which previously have been voided as set
forth above) shall thereafter have the right to receive, upon exercise, common
stock of the acquiring company having a value equal to two times the exercise
price of the Comerica Right. Each of the events set forth in this paragraph and
in the preceding paragraph is referred to as a "Comerica Triggering Event."
The Comerica Purchase Price payable, and the number of Units of Comerica
Series C Preferred Stock or other securities or property issuable, upon exercise
of the Comerica Rights are subject to adjustment in certain events.
At any time until ten days following the Comerica Stock Acquisition Date,
Comerica may redeem the Comerica Rights in whole, but not in part, at a price of
$0.05 per Comerica Right, subject to adjustment where appropriate (payable in
cash, stock, or other consideration deemed appropriate by the Comerica Board).
After the redemption period has expired, Comerica's right of redemption may be
reinstated if a Comerica Acquiring Person reduces his or her beneficial
ownership to 10 percent or less of the outstanding shares of Comerica Common
Stock in a transaction or series of transactions not involving Comerica.
Immediately upon the action of the Comerica Board ordering redemption of the
Comerica Rights, the Comerica Rights will terminate and the only right of the
holders of Comerica Rights will be to receive the $0.05 redemption price.
Until a Comerica Right is exercised, the holder thereof, as such, will have
no rights as a holder of Comerica shares, including, without limitation, the
right to vote or to receive dividends.
Other than those provisions relating to the principal economic terms of the
Comerica Rights, any of the provisions of the Comerica Rights Agreement
(including the provisions relating to the termination of such agreement) may be
amended by the Comerica Board prior to the Comerica Distribution Date. After the
Comerica Distribution Date, the provisions of the Comerica Rights Agreement may
be amended by the Comerica Board in order to cure any ambiguity, to make changes
which do not adversely affect the interests of holders of Comerica Rights
(excluding the interests of any Comerica Acquiring Person), or to shorten or
lengthen any time period under the Comerica Rights Agreement; provided, however,
that no amendment to adjust the time period governing redemption shall be made
at such time as the Comerica Rights are not redeemable.
The Comerica Rights have certain anti-takeover effects. The Comerica Rights
will cause substantial dilution to a person or group that attempts to acquire
Comerica on terms not approved by the Comerica Board, unless the offer is
conditional on a substantial number of Comerica Rights being acquired. The
Comerica Rights, however, should not affect any prospective offeror willing to
make an offer at a fair price and otherwise in the best interests of Comerica
and its shareholders as determined by a majority of the independent directors on
the Comerica Board, or willing to negotiate with the Comerica Board. The
Comerica Rights should not interfere with any merger or other business
combination approved by the Comerica Board since the Comerica Board may, at its
option, at any time until ten days following the Comerica Stock Acquisition Date
redeem all but not less than all of the then outstanding Comerica Rights at the
$0.05 redemption price.
The Comerica Rights Agreement is incorporated herein by reference. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" above. The foregoing
description of the Comerica Rights does not purport to be complete and is
qualified in its entirety by reference to the Comerica Rights Agreement, as
amended.
UBT does not have a rights plan.
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DIVIDENDS
UBT is a corporation organized under the laws of the State of California
and Comerica is a corporation organized under the laws of the State of Delaware.
Dividends upon the UBT Common Stock and the Comerica Common Stock may be
declared by the Board of Directors of UBT and Comerica, respectively, pursuant
to the applicable provisions of California and Delaware law.
The payment of dividends by Comerica and its bank subsidiaries is affected
by various regulatory requirements and policies. See "CERTAIN REGULATORY
CONSIDERATIONS -- Payment of Dividends."
The payment of dividends by UBT is similarly affected by various regulatory
requirements and policies.
THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the Merger
Agreement not otherwise described in this Proxy Statement/Prospectus and is
qualified in its entirety by reference to the Merger Agreement which is attached
as Annex A to this Proxy Statement/Prospectus. The Merger Agreement is
incorporated herein by reference. UBT stockholders are urged to read the Merger
Agreement carefully.
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement, each of UBT, Comerica and Interim have made
certain customary representations relating to, among other things, (i) each of
their organization and similar corporate matters; (ii) certain licenses,
permits, and certificates necessary for each to conduct their respective
businesses; (iii) authorization, execution, delivery, performance, and
enforceability of the Merger Agreement and related matters; (iv) documents filed
by each party with the Commission and other regulatory authorities and the
accuracy of information contained therein; (v) the capital structure of each
party; (vi) in the case of UBT, the validity, payment, and nonassessability of
the authorized capital stock of UBT; (vii) the accuracy of information supplied
by each party in connection with this Proxy Statement/Prospectus and the
Registration Statement on Form S-4 of which this Proxy Statement/Prospectus
forms a part; (viii) compliance with applicable laws; (ix) the absence of
material pending or threatened litigation except as disclosed by the parties
prior to the date of the Merger Agreement; (x) the absence of restrictive
agreements with banking regulators except as disclosed by the parties on
schedules attached to the Merger Agreement; (xi) in the case of UBT, the
existence of insurance policies; (xii) in the case of UBT, good and marketable
title to real and personal property; (xiii) in the case of UBT and Comerica,
filing of tax returns and payment of taxes; (xiv) the performance of all
material obligations; (xv) in the case of UBT, the validity of certain loans and
investments; (xvi) the absence of material adverse change in the assets or
financial condition of the parties; (xvii) the use of brokers and finders;
(xviii) in the case of UBT, the status of trust assets; (xix) in the case of
UBT, material contracts; (xx) the absence of any material adverse changes to the
businesses of the parties; (xxi) the absence of any undisclosed liabilities of
the parties; (xxii) in the case of UBT, retirement and other employee plans and
matters relating to the Employee Retirement Income Security Act of 1974, as
amended; (xxiii) in the case of UBT, certain intellectual property rights;
(xxiv) in the case of UBT, certain environmental matters; (xxv) in the case of
UBT, the absence of any power of attorney; (xxvi) disclosures made in the
schedules to the Merger Agreement; (xxvii) the performance of all material
obligations; (xxviii) in the case of UBT, outstanding stock options; (xxix) in
the case of UBT, subsidiaries; (xxx) in the case of UBT, interest rate risk
management instruments; (xxxi) no actual knowledge of misrepresentation or
breach of warranty, and (xxxii) in the case of Comerica, the formation of
Interim.
CONDUCT OF BUSINESS PENDING THE MERGER
In the Merger Agreement, UBT has agreed to carry on its business in
substantially the manner as conducted prior to the execution of the Merger
Agreement, and UBT has agreed to notify Comerica promptly in writing of any
Material Change in the capital structure, financial condition, assets, results
of operations, business or prospects of UBT or of any other Materially Adverse
Change known to UBT respecting the
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business and operation of UBT or of any matter which would make the
representations and warranties set forth in the Merger Agreement not true and
correct in any material respects as of the effective date of the Registration
Statement and at the Effective Time. All capitalized terms not defined in this
paragraph have the meanings given to them in the Merger Agreement.
In addition, UBT has agreed in the Merger Agreement that it will (i) use
commercially reasonable efforts to satisfy the conditions to the Merger
specified in the Merger Agreement, (ii) keep in full force all material permits
and licenses, (iii) use commercially reasonable efforts to maintain insurance
and bonding coverage, (iv) perform its contractual obligations and not amend,
modify, or terminate any material agreement, understanding, commitment, or offer
(each, an "Understanding") or materially default under any Understanding, (v)
observe legal requirements applicable to its business, (vi) duly and timely file
all reports and returns required with any governmental entity, (vii) maintain
assets and properties in good condition and repair, (viii) promptly advise
Comerica of the acquisition by any person or group of ownership or control of 5%
or more of the outstanding shares of UBT Common Stock, (ix) charge-off loans
consistent with past practice, (x) furnish to Comerica copies of reports and
other filings with its Board of Directors and regulatory agencies and copies of
monthly and quarterly financial statements, (xi) maintain reserves for
contingent liabilities in accordance with generally accepted accounting
principles consistent with past practice, (xii) notify Comerica of the filing of
any litigation or governmental or regulatory action or investigation, (xiii)
inform Comerica of the amounts and categories of loans, leases, and other
extensions of credit that have been classified as "Specially Mentioned,"
"Renegotiated," "Substandard," "Doubtful," "Loss," or any comparable
classification and furnish Comerica monthly schedules of certain classified
credits, (xiv) furnish Comerica upon request information with respect to
participating loans and leases, loans and leases (including commitments) to any
UBT director, officer at or above the vice president level, or 5% stockholder,
and standby letters of credit, and (xv) furnish Comerica copies of loan
applications of $500,000 or more and related financial information.
UBT has also agreed that it will not, without the written consent of
Comerica, among other things, (i) declare or pay any dividend or make any other
distribution in respect of its capital stock other than regular quarterly cash
dividends in an amount not to exceed $.35 per share, (ii) split, combine or
reclassify any of its capital stock, or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, (iii) repurchase or otherwise acquire any shares of its capital
stock, other than through customary repossession, (iv) take any action that
would or might result in any of its representations and warranties contained in
the Merger Agreement being or becoming materially untrue or in any of the
conditions precedent to the Merger not being satisfied, (v) except as
specifically contemplated by UBT Stock Option Plans (See THE MERGER -- Stock
Option Plan) issue, deliver, or sell, or authorize the issuance, delivery, or
sale of any shares of its capital stock or any class of securities convertible
into capital stock, or rights, warrants, or options therefor, except as
specifically contemplated by the UBT Stock Options or the UBT Stock Option
Agreement, (vi) amend its articles of incorporation or bylaws, except as
required by law or the Merger Agreement, (vii) authorize or knowingly permit any
direct or indirect solicitation of any Acquisition Proposal, unless such
Acquisition Proposal shall be in writing and shall have been received by the UBT
Board without solicitation after the date of the Merger Agreement, (viii) other
than in the ordinary course of business consistent with prior practice, acquire,
or agree to acquire, the assets of any business or person which would be
material to UBT, (ix) sell or lease any material assets, except in the ordinary
course of business, consistent with prior practice, (x) incur any indebtedness
for borrowed money or guarantee any such indebtedness other than in the ordinary
course of business consistent with prior practice, (xi) enter into any
Understanding, except relating to deposits incurred, loans made in connection
with the Merger Agreement, loan sales made in the ordinary course of business or
for less than $100,000 and having a term of not more than one year, (xii) make,
or commit to make, any loan or other extension of credit to any UBT or
Subsidiary director, officer or employee, except in accordance with a practice
or policy in effect as of the date of the Merger Agreement, (xiii) grant any
general or uniform increase in pay and benefits for employees outside the
ordinary course of business consistent with prior practice, (xiv) sell,
transfer, mortgage, encumber or otherwise dispose of any assets or liabilities,
except in the ordinary course and consistent with prior practice or as required
by an existing contract, (xv) make its credit underwriting policies, standards
or practices relating to the making of loans and other extension of credit, less
stringent than those in effect on August 30, 1994,
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(xvi) except in connection with budgeted capital expenditures or the pending
opening of a branch office, make any capital expenditures, or commitments with
respect thereto, except those in the ordinary course of business which do not
exceed $250,000 in the aggregate, (xvii) renew or extend any existing employment
contract, enter into any new employment contract or make special or
extraordinary payments to any person, without the prior written consent of
Comerica, (xviii) make any material investments, by purchase of stock or
securities or by capital contribution, in any other individual, corporation, or
other entity, except in the ordinary course of business consistent with prior
practice, (xix) except as otherwise required to correct a prior filing,
compromise or settle any assertion or claim of a deficiency in taxes or file any
appeal from an asserted deficiency except in a form previously approved by
Comerica, or make any tax election or change any method or period of accounting
unless required by generally accepted accounting principles or law, (xx)
terminate any employee plan or benefit arrangement, except as anticipated under
the Merger Agreement, (xxi) change its fiscal year or methods of accounting,
except as required by changes in generally accepted accounting principles, (xxi)
take any action which would disqualify the Merger as a tax-free "reorganization"
for tax purposes, and (xxii) take or cause to be acquired any real estate
interest without an environmental assessment thereof and the written consent of
Comerica and Interim.
Comerica has agreed to use commercially reasonable efforts to expeditiously
satisfy the conditions to the Merger specified in the Merger Agreement, refrain
from any action that would or might result in any of its representations and
warranties under the Merger Agreement becoming untrue, except to the extent such
actions are required by any applicable law, regulation, or at the direction of
any regulatory authority, and to refrain from any action that would disqualify
the UBT Merger as a "reorganization" within the meaning of Section 368(a) of the
IRC.
CONDITIONS TO THE MERGER
Conditions in favor of Comerica, Interim, and UBT. Each of Comerica's,
Interim's and UBT's, obligation to effect the Merger is subject to the following
conditions:
(i) the Merger Agreement, the Subsidiary Merger Agreement and the
Merger shall have been validly ratified and confirmed or authorized by the
holders of a majority of the outstanding UBT Common Stock entitled to vote;
(ii) all material permits, approvals, and consents required to be
obtained, and all waiting periods required to expire, prior to the
consummation of the Merger under applicable federal laws of the United
States or applicable laws of any state having jurisdiction over the Merger
shall have been obtained or expired, as the case may be (all such permits,
approvals, and consents and the lapse of all such waiting periods being
referred to as the "Requisite Regulatory Approvals"), without the
imposition of any condition which is materially burdensome upon UBT,
Comerica, Interim, their respective affiliates, or the surviving
corporation;
(iii) no action shall have been taken, nor any statute, rule,
regulation, or order enacted, entered, enforced or deemed applicable to the
Merger, by any governmental entity which: (a) makes the consummation of the
Merger illegal; (b) requires the divestiture by Comerica of any material
subsidiary or of a material portion of the business of Comerica on a
consolidated basis; or (c) imposes any condition upon Comerica, Interim or
their subsidiaries (other than general provisions of law applicable to all
banks and bank holding companies) which in the reasonable judgment of
Comerica and Interim would be materially burdensome, to Comerica and
Interim;
(iv) the Registration Statement on Form S-4 of which this Proxy
Statement/Prospectus forms a part shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and shall remain in effect
and no legal, administrative, arbitration, investigatory, or other
proceeding by any governmental entity shall have been instituted and, at
what would otherwise have been the Effective Time, remain pending by or
before any governmental entity to restrain or prohibit the transactions
contemplated by the Merger Agreement;
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(v) the shares of Comerica Common Stock deliverable pursuant to the
Merger Agreement shall have been duly authorized for listing, subject to
notice of issuance, on the NYSE;
(vi) Comerica and UBT shall have received an opinion from counsel to
Comerica dated the Effective Time, subject to assumptions and exceptions
normally included and in form and substance reasonably satisfactory to
Comerica and UBT, to the effect that the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section
368(a) of the IRC and that Comerica, Interim, and UBT will each be a party
to that reorganization within the meaning of Section 368(b) of the IRC (See
"THE MERGER -- Certain Federal Income Tax Consequences"); and
(vii) Comerica and UBT shall have received from each of Ernst & Young
LLP and KPMG Peat Marwick, LLP letters, dated the effective date of the
Registration Statement on Form S-4 and the Effective Time, in form and
substance satisfactory to Comerica and UBT and customary in scope and
substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration
Statement.
Conditions in favor of Comerica and Interim. The obligations of Comerica
and Interim to effect the Merger are subject to the fulfillment of the
conditions specified in the Merger Agreement, including, but not limited to, the
following:
(i) except as otherwise provided in this paragraph (i), (a) the
representations and warranties of UBT contained in the Merger Agreement
shall be true in all material respects as of the Effective Time as though
made at and as of the Effective Time except to the extent they expressly
refer to an earlier time and, except where the failure to be true,
individually or in the aggregate, would not have or would not be reasonably
likely to have, a material adverse effect on UBT or upon the consummation
of the transactions contemplated by the Merger Agreement; (b) UBT shall
have duly performed and complied in all material respects with all
agreements and covenants required by the Merger Agreement to be performed
or complied with by them prior to or at the Effective Time, except where
the failure to so perform and comply, individually or in the aggregate,
would not have or would not be reasonably likely to have, a material
adverse effect on UBT or upon the consummation of the transactions
contemplated by the Merger Agreement; (c) none of the events or conditions
entitling Comerica to terminate the Merger Agreement shall have occurred
and be continuing; and (d) UBT shall have delivered to Comerica a
certificate dated the date of the Effective Time and signed by its Chief
Executive Officer to the effect set forth in the clauses (a), (b) and (c)
of this paragraph (i);
(ii) any consent required for the consummation of the Merger under any
agreement, contract, or license to which UBT is a party or by or under
which it is bound or licensed, the withholding of which might have a
material adverse effect on Comerica or UBT, shall have been obtained;
(iii) Comerica shall have received the closing schedules to the Merger
Agreement (the "Closing Schedules"), and the Closing Schedules shall not
reflect any item that was not on the schedules delivered with the execution
copy of the Merger Agreement that would have, or would be reasonably likely
to have, a material adverse effect on UBT or upon the consummation of the
Merger;
(iv) UBT's reserve for possible loan losses on the determination sale
shall be at least the greater of $4,700,000 or 2.25% of UBT's total loans
outstanding on that date. UBT provided, however, that this condition shall
be met (a) to the extent loan losses are reduced from the date of the
Merger Agreement by the actual charge-off of loans that are specified in
the Loan Loss Allocation Report; or (b) to the extent the allowance for
loan loss reserves are reduced from the date of the Merger Agreement by the
actual charge-off of loans where such charge-off specifically has been
provided for since June 30, 1994 by an appropriate charge to earnings;
(v) UBT's non-performing assets (including Other Real Estate Owned and
in Substance Foreclosures) outstanding on the last day of the month
immediately preceding the Effective Time shall be no more than $4,711,431;
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(vi) between the date of the Merger Agreement and the Effective Time,
no event or circumstance shall have occurred which had a Material Adverse
Effect on UBT or its Subsidiaries and Comerica and Interim shall have
received a certificate signed on behalf of UBT by UBT's Chief Executive
Officer to such effect;
(vii) Comerica shall have received a letter from KPMG Peat Marwick,
LLP dated the Effective Time, after customary review but without audit, in
form and substance satisfactory to Comerica containing the certifications
required by the Merger Agreement (i) certifying that the conditions set
forth in paragraphs (iv) and (v) above have been satisfied and (ii) setting
forth, as of the Business Day immediately prior to the Closing Date, (A)
UBT Consolidated Net Worth, (B) Fully Diluted UBT Common Stock, (C) UBT's
reserve for possible loan losses, and (D) the amount of UBT's non
performing assets;
(viii) Comerica shall have received from its legal counsel an opinion
regarding the Proxy Statement/Prospectus;
(ix) Comerica shall have received from legal counsel to UBT, an
opinion dated the Effective Time as to securities and corporate matters in
form and substance customary for transactions of this nature and reasonably
satisfactory to Comerica;
(x) counsel for Comerica shall have approved, in the exercise of
counsel's reasonable discretion, the validity of all transactions herein
contemplated, as well as the form and substance of all opinions,
certificates, instruments of transfer and other documents to be delivered
to Comerica under the Merger Agreement or that are reasonably requested by
such counsel;
(xi) the sale of the Comerica Common Stock resulting from the Merger
shall have been qualified or registered with the appropriate State
securities law regulatory authorities of all States in which qualification
or registration is required and such qualifications or registrations shall
not have been suspended or revoked;
(xii) UBT shall have delivered to Comerica not later than 30 days
prior to the date of Registration Statement on Form S-4 becomes effective,
all of the executed Affiliate Agreements in the form attached as an exhibit
to the Merger Agreement (see "Resales by Affiliates" below);
(xiii) Comerica shall have received from each of KPMG Peat Marwick,
LLP and Ernst & Young letters, dated the effective date of the Registration
Statement, the date of the meeting of UBT's shareholders in connection with
this Agreement and the Effective Time, in form and substance satisfactory
to Comerica and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement;
(xiv) Comerica shall have received from Ernst & Young an opinion,
dated the date of the Effective Time, in form and substance satisfactory to
Comerica, to the effect that the Merger on the terms and conditions
contained in the Merger Agreement and in the Subsidiary Merger Agreement
will be treated for accounting purposes as a pooling of interests;
(xv) Comerica shall have received a non-competition agreement from
Carl J. Schmitt in substantially the form attached to the Merger Agreement;
(xvi) The total number of shares of Comerica Common Stock that shall
be issuable pursuant to the terms of the Merger Agreement under any
computation shall not be greater than 2,680,820 shares, subject to
adjustment as appropriate to reflect any recapitalization, reorganization,
reclassification, split-up, merger, consolidation, exchange, stock or other
dividend or distribution (other than regular quarterly cash dividends)
made, declared or effective with respect to the Comerica Common Stock
between the date of the Merger Agreement and the Effective Time;
(xvii) Comerica shall have received the environmental site assessments
(the "Site Assessments") provided for in the Merger Agreement, unless
Comerica shall have waived its right to conduct such assessment, and,
except as disclosed, such Site Assessments shall not have disclosed any
environmental
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condition which would be reasonably likely to have a Material Adverse
Effect on real property owned, controlled or used by UBT;
(xviii) UBT nor any of its Subsidiaries shall be subject to any
memorandum of understanding, cease and desist order, or other agreement
with any governmental entity restricting the conduct of UBT and its
Subsidiaries' business, prospects and operations, so as to have a Material
Adverse Effect, other than those agreements described in schedule 3.10 to
the Merger Agreement as of the date of the execution of the Merger
Agreement; and
(xix) UBT's director-stockholders shall have delivered to Comerica not
later than ten Business Days from the date of the Merger Agreement the
Shareholder Agreements in the form attached to the Merger Agreement. See
"Shareholder Agreements" below.
Conditions in favor of UBT. The obligation of UBT to effect the Merger
shall be subject to the fulfillment of the conditions specified in the Merger
Agreement, including, without limitation, the following:
(i) except as otherwise provided in this paragraph (i), (a) the
representations and warranties of Comerica and Interim contained in the
Merger Agreement shall be true in all material respects as of the Effective
Time as though made at the Effective Time, except to the extent they
expressly refer to an earlier time and except where the failure to be true,
individually or in the aggregate, would not have or would not be reasonably
likely to have, a Material Adverse Effect on Comerica or Interim or upon
the consummation of the transactions contemplated hereby; (b) Comerica and
Interim shall have duly performed and complied in all material respects
with all agreements and covenants required by the Merger Agreement to be
performed or complied with by them prior to or at the Effective Time,
except where the failure to so perform and comply, individually or in the
aggregate, would not have or would not be reasonably likely to have, a
Material Adverse Effect on Comerica or Interim or upon the consummation of
the transactions contemplated in the Merger Agreement; (c) none of the
events or conditions entitling UBT to terminate the Merger Agreement shall
have occurred and be continuing; and (d) Comerica and Interim shall have
delivered to UBT a certificate dated the date of the Effective Time and
signed by a duly authorized officer to the effect set forth in clauses (a),
(b) and (c) of this paragraph (i);
(ii) prior to the mailing of this Proxy Statement/Prospectus to the
stockholders of UBT, UBT shall have received an opinion of Goldman Sachs,
dated the date of this Proxy Statement/Prospectus, to the effect that, as
of such date, the UBT Conversion Rate is fair to the stockholders of UBT
from a financial point of view;
(iii) counsel for UBT shall have approved, in the exercise of
counsel's reasonable discretion, the validity of all transactions herein
contemplated, as well as the form and substance of all opinions,
certificates, instruments of transfer and other documents to be delivered
to UBT under the Merger Agreement or reasonably requested by such counsel;
(iv) there shall not have been any change in the consolidated
financial condition, aggregate net assets, stockholders' equity, business,
or operating results of Comerica and its subsidiaries taken as a whole,
from January 1, 1994 to the Effective Time that results in a Material
Adverse Effect on the consolidated financial condition, aggregate net
assets, shareholders' equity, business operating results of Comerica and
its Subsidiaries taken as a whole;
(v) any consent required for the consummation of the Merger under any
agreement, contract or license to which Comerica or Interim is a party or
by or under which either of them is bound or licensed, the withholding of
which might have a Material Adverse Effect on Comerica or UBT or the
transactions contemplated by the Merger Agreement shall have been obtained;
and
(vi) UBT shall have received from legal counsel to Comerica and
Interim an opinion dated the Effective Time as to securities and corporate
matters in form and substance customary for transactions contemplated by
the Merger Agreement and reasonably satisfactory to UBT.
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TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the stockholders of UBT: (a) by mutual
consent of the Boards of Directors of UBT, Interim and Comerica; (b) by any of
Comerica, UBT or Interim upon the failure to satisfy any conditions to all
parties' obligations to close specified in the Merger Agreement if such failure
is not caused by any action or inaction of the party requesting termination of
the Agreement; (c) by any of UBT, Interim or Comerica if the Effective Time
shall not have occurred by the close of business on August 31, 1995 provided
such failure is not caused by a breach of the Merger Agreement by the
terminating party; (d) by Comerica if an Acquisition Event shall have occurred;
(e) by any of UBT, Interim or Comerica if there shall have been a material
breach of any of the representations or warranties set forth in the Merger
Agreement on the part of the other party, which breach in the reasonable opinion
of the non-breaching party by its nature cannot be cured prior to the closing
and which breach would, in the reasonable opinion of the non-breaching party,
individually or in the aggregate, have, or be reasonably likely to have, a
material adverse effect on the breaching party or upon the consummation of the
transactions contemplated in the Merger Agreement; (f) by UBT, Comerica or
Interim if the Merger Agreement, the Subsidiary Merger Agreement and the Merger
are not ratified and approved by UBT's shareholders; (g) by UBT after the
occurrence of a default by Comerica or Interim and the continuance of such
failure for a period of 20 business days after written notice of such default,
which failure to perform, in the reasonable opinion of UBT cannot be cured prior
to closing; (h) by Comerica or Interim after the occurrence of a default by UBT
and the continuance of such failure for a period of 20 business days after
written notice of such default, which failure to perform, in the reasonable
opinion of Comerica and Interim cannot be cured prior to closing; (i) by
Comerica and Interim if any environmental site assessment provided for in the
Merger Agreement discloses any environmental condition which would be reasonably
likely to have a material adverse effect on the property which is the subject
thereof; (j) by Comerica if the UBT Board of Directors does not publicly
recommend in this Proxy Statement/Prospectus that UBT's stockholders approve and
adopt the Merger Agreement, or if after recommending in this Proxy
Statement/Prospectus that stockholders ratify and confirm the Merger Agreement,
the UBT Board of Directors shall have withdrawn, modified or amended such
recommendations in any respect materially adverse to Comerica; (k) by UBT upon
the failure of Comerica or Interim to satisfy any conditions to UBT's
obligations to close specified in the Merger Agreement; and (l) by Comerica and
Interim upon the failure of UBT to satisfy any conditions to Comerica's
obligation to close specified in the Merger Agreement.
LIQUIDATED DAMAGES; CANCELLATION FEE
The Merger Agreement provides that, in the event an Acquisition Event shall
occur or (i) any of UBT, Comerica or Interim terminates the Merger Agreement
because the Subsidiary Merger Agreement and the Merger are not ratified by UBT's
shareholders, (ii) any of UBT, Comerica or Interim terminates the Merger
Agreement because there shall have been a material breach of any of the
representations or warranties set forth in the Merger Agreement on the part of
the other party, (iii) Comerica terminates the Merger Agreement because there is
a default by UBT, pursuant to the Merger Agreement and the continuance of such
failure for a period of 20 Business Days after written notice, which failure to
perform, in the reasonable opinion of Comerica and Interim cannot be cured prior
to the closing, or (iv) Comerica terminates the Agreement because the UBT Board
did not publicly recommend in this Proxy Statement/Prospectus that UBT
stockholders adopt and approve the Merger Agreement or shall withdraw, modify or
amend such recommendation in any respect materially adverse to Comerica followed
by an Acquisition Event within 90 days of such termination, UBT shall pay to
Comerica, as reasonable and full liquidated damages and reasonable compensation
for the loss sustained thereby and not as a penalty or forfeiture, the sum of
$3,200,000, within ten (10) business days following such occurrence. For the
purposes of the Merger Agreement, an Acquisition Event is defined generally to
mean (a) that UBT has authorized, recommended, publicly proposed or publicly
announced an intention to authorize, recommend or propose, or entered into an
agreement to effect the following: a merger, consolidation or similar
transaction involving UBT or any of its subsidiaries; the disposition of assets
of UBT or any of its subsidiaries representing 15% or more of the consolidated
assets of UBT and its subsidiaries; or the issuance, sale or other disposition
of securities representing 10% or more of the voting power of UBT or any of its
subsidiaries, other than securities issued
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pursuant to the Stock Option Agreement, (b) the acquisitions of the beneficial
ownership or the right to acquire beneficial ownership by any person or group of
persons (as the term "beneficial ownership" is defined in Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) of 15% of the outstanding UBT
Common Stock; or (c) the occurrence of any of the events described in the
foregoing clause (a) within 180 days after the termination of the Merger
Agreement by Comerica upon the failure of any of the conditions described above
under "THE MERGER AGREEMENT" -- Conditions to the Merger -- "Conditions in favor
of Comerica and Interim" under items (i), (ii), (iii), (iv), (v), (vi), (vii),
(ix), (xii), (xiii) and (xviii) where such failure shall have been caused in
whole or in part by any action or inaction within the control of UBT, or any
Subsidiary of UBT or the directors of any of UBT or UBT's Subsidiaries.
The Merger Agreement provides that, in the event of termination by UBT of
this Agreement because Interim or Comerica has breached any of their
representations and warranties set forth in the Merger Agreement and in the
reasonable opinion of UBT such breach cannot be cured prior to closing and would
have a Material Adverse Effect on Interim or Comerica or because of a default by
Comerica or Interim pursuant to the Merger Agreement and the continuance of such
failure for a period of 20 Business Days after written notice of such default,
in the reasonable opinion of UBT, cannot be cured prior to the closing, then
Comerica and Interim, jointly and severally, shall pay to UBT as reasonable and
full liquidated damages and reasonable compensation for the loss sustained
thereby and not as a penalty or forfeiture, the sum of $2,000,000, within ten
(10) Business Days following such occurrence.
EXPENSES
Whether or not the Merger is consummated, all costs and expenses incurred
in connection with the Merger Agreement and the transactions contemplated
thereby shall be paid by the party incurring the same; provided, however, that
Comerica will file on a timely basis the reports required by Rule 144(c) of the
Securities Act. UBT's expenses incurred in connection with the Merger Agreement
and the transactions contemplated therein, including attorneys', accountants',
investment bankers' and any other fees, collectively shall not exceed the sum of
$1,500,000 without the prior written consent of Comerica which shall not be
unreasonably withheld.
SHAREHOLDER AGREEMENTS
As noted above in item (xix) under the caption "Conditions to the Merger --
Conditions in favor of Comerica and Interim," the Merger is conditioned upon
delivery by each of the UBT director-stockholders of a Shareholder Agreement,
the form of which is prescribed by the Merger Agreement. The Shareholder
Agreement obligates each of the members of the UBT Board of Directors who own
shares of UBT Common Stock to vote those shares, as well as any other shares of
UBT Common Stock over which any such director exercises voting power, in favor
of the Merger at any stockholder meeting or in connection with any solicitation
of stockholder written consent occurring prior to August 31, 1995, subject to
fiduciary obligations. Pursuant to the Shareholder Agreement, each
director-stockholder also agrees not to pledge or otherwise encumber, or to
sell, assign or otherwise dispose of, any of such director-stockholder UBT
Common Stock, or enter into any agreement to do any of the foregoing, until (i)
adjournment of the special meeting of UBT stockholders called to approve the
Merger, (ii) termination of the Merger Agreement in accordance with its terms,
or (iii) August 31, 1995, except with Comerica's prior written consent or
pursuant to the Merger. Finally, the Shareholder Agreement obligates each
director-stockholder not to directly or indirectly solicit or initiate any
inquiries, proposals or offers from any person or entity other than Comerica or
an affiliate of Comerica, or vote in favor of, any proposal or transaction for
disposition of, the business or assets of UBT or any of its subsidiaries, the
acquisition of the securities of UBT or any such subsidiary, or any business
combination other than with Comerica or one of its affiliates.
RESALES BY AFFILIATES
Pursuant to the terms of the Merger Agreement, certain persons believed by
UBT to be "affiliates" (as defined in Rule 144 of the Securities Act of 1933) of
UBT have entered into an "Affiliate's Agreement." The Affiliate's Agreement
generally provides that affiliates of UBT may not sell or otherwise dispose of
(a) any
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shares of UBT Common Stock currently owned by them or any shares of Comerica
Common Stock received pursuant to the Merger, for a period beginning not less
than thirty days prior to the consummation of the Merger and ending on the date
that Comerica publishes financial results covering a period of at least thirty
days of combined operations of UBT and Comerica following the consummation of
the Merger (except that such affiliates may exchange their shares of UBT Common
Stock for shares of Comerica Common Stock in the Merger), or (b) any shares of
Comerica Common Stock received pursuant to the Merger or any securities that may
be distributed with respect thereto or issued in exchange or substitution
therefor (collectively, the "Restricted Securities"), or any option, right or
other interest with respect to any Restricted Securities, unless such sale or
other disposition is effected (i) pursuant to an exemption from the registration
requirements of the Securities Act, or (ii) pursuant to an effective
registration statement under the Securities Act. Notwithstanding the foregoing,
affiliates may make bona fide gifts of such shares of Comerica Common Stock so
long as the recipients thereof agree not to sell or otherwise dispose of the
Comerica Common Stock except as provided in the Affiliate's Agreement. Because
the Merger is currently expected to qualify as a purchase for accounting and
financial reporting purposes, affiliates may be relieved from certain
restrictions in the Affiliate's Agreement which relate to treatment of the
Merger as a pooling of interests for accounting purposes.
AMENDMENT AND WAIVER
Subject to applicable law, (i) the Merger Agreement may be amended by
action taken or authorized by the respective boards of directors of Comerica,
Interim and UBT, as the case may be, or the duly authorized committees thereof,
at any time before or after approval by the stockholders of UBT; provided,
however, that after any such approval by the stockholders, no amendment shall be
made which by law requires further approval by such stockholders without such
further approval; and (ii) any term or provision of the Merger Agreement may be
waived in writing at any time by the party which is entitled to the benefits of
the specific term or provision Neither Comerica nor UBT has determined under
what circumstances it would waive any of the terms and provisions of the Merger
Agreement.
THE STOCK OPTION AGREEMENT
The following is a brief summary of certain provisions of the Stock Option
Agreement, dated as of October 4, 1994, between UBT and Comerica, which is
attached hereto as Annex E. The following summary is qualified in its entirety
by reference to the Stock Option Agreement.
Under the Stock Option Agreement, UBT has granted to Comerica an
irrevocable option to purchase up to 137,718 shares of UBT Common Stock at a per
share exercise price equal to $38.50, which was calculated on the basis of the
average of the closing prices for UBT Common Stock on the NASDAQ National Market
System for the seven trading days ending on the date of the Stock Option
Agreement.
The option is exercisable only upon the occurrence of one of the following
events (each a "Purchase Event"):
(a) UBT fails to publicly oppose a Tender Offer or an Exchange Offer
(as defined below) or authorizes, recommends, publicly proposes or publicly
announces an intention to authorize, recommend or propose, or enters into
an agreement with any person (other than Comerica or any of its
subsidiaries) to (i) effect a merger, consolidation or similar transaction
involving UBT or any of its subsidiaries (other than internal mergers,
reorganizations, consolidations or dissolutions involving only existing
subsidiaries), (ii) except as permitted in the Merger Agreement, sell,
lease, exchange or otherwise dispose of 15% or more of the consolidated
assets of UBT and its subsidiaries, or (iii) issue, sell or otherwise
dispose of (including by merger, consolidation, share exchange or similar
transaction) securities representing 10% or more of the voting power of UBT
or any of its subsidiaries (any of the foregoing an "Acquisition
Transaction"); or
(b) any person (other than Comerica or its subsidiaries) shall have
acquired beneficial ownership (as defined under the Exchange Act) of or the
right to acquire beneficial ownership of, or any group (as
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defined in the Exchange Act) shall have been formed which beneficially owns
or has the right to acquire beneficial ownership of 15% or more of the
outstanding common stock of UBT.
The option will terminate upon the earliest to occur of (i) the moment in
time which is immediately prior to the Effective Time, (ii) 12 months after the
first occurrence of a Purchase Event, (iii) 18 months after the termination of
the Merger Agreement following the occurrence of a Preliminary Purchase Event
(as defined below), (iv) termination of the Merger Agreement in accordance with
the terms thereof prior to the occurrence of a Purchase Event or a Preliminary
Purchase Event (other than a termination by Comerica if the Merger Agreement,
the subsidiary Merger Agreement and the merger are not ratified and approved by
UBT's shareholder's company or by Comerica and UBT upon the mutual consent of
their Board of Directors if UBT at that time was entitled to terminate the
merger because the Merger Agreement, the Subsidiary Merger Agreement and the
Merger were not ratified by UBT's shareholders, or (v) 12 months after the
termination of the Merger Agreement by Comerica if the Merger Agreement, the
Subsidiary Merger Agreement and the Merger are not ratified and approved by
UBT's shareholder's company or by Comerica and UBT upon the mutual consent of
their Board of Directors if UBT at that time was entitled to terminate the
merger because the Merger Agreement, the Subsidiary Merger Agreement and the
Merger whereas not ratified by UBT's shareholders (provided, however, that if
within 12 months after such termination of the Merger Agreement a Purchase Event
or Preliminary Purchase Event occurs, then the option will terminate 12 months
after the first occurrence of such event). The closing of a purchase of shares
pursuant to the Stock Option Agreement is subject to the obtaining of all
necessary governmental approvals.
For purposes of the Stock Option Agreement, each of the following events is
a "Preliminary Purchase Event":
(a) any person (other than Comerica or any of its subsidiaries) shall
have commenced (as defined in the Exchange Act), or shall have filed a
registration statement under the Securities Act with respect to, a tender
offer or exchange offer for shares of UBT's Common Stock which, upon
consummation of such offer, would result in such person owning or
controlling 15% or more of the outstanding common stock of UBT (such an
offer being referred to as a "Tender Offer" or an "Exchange Offer,"
respectively);
(b) the stockholders of UBT shall not have approved the Merger
Agreement at the meeting of such stockholders held for the purpose of
voting on the Merger Agreement, such meeting shall not have been held or
shall have been canceled prior to termination of the Merger Agreement or
the Board of Directors of UBT shall have withdrawn or modified in a manner
adverse to Comerica the recommendation of such Board of Directors with
respect to the Merger Agreement, in each case after it shall have been
publicly announced that any person (other than Comerica or any subsidiary
of Comerica) shall have (i) made, or disclosed an intention to make, a
proposal to engage in an Acquisition Transaction, or (ii) commenced a
Tender Offer or filed a registration statement under the Securities Act
with respect to an Exchange Offer.
The number and type of securities subject to the option and the purchase
price of shares will be adjusted for any change in the UBT's Common Stock by
reason of a stock dividend, stock split, split up, recapitalization,
combination, exchange of shares or similar transaction, such that Comerica will
receive (upon exercise of the option) the same number and type of securities as
if the option had been exercised immediately prior to the occurrence of such
event (or the record date therefor). The number of shares of UBT Common Stock
subject to the option will also be adjusted in the event that UBT issues
additional shares of common stock such that the number of shares of common stock
subject to the option, together with shares previously purchased pursuant
thereto, represents 9.9% of UBT's Common Stock then issued and outstanding,
without giving effect to shares subject to or issued pursuant to the option.
In the event that UBT enters into any agreement (i) to merge or consolidate
with any person other than Comerica or one of its subsidiaries such that UBT is
not the surviving corporation, (ii) to permit any person, other than Comerica or
one of its subsidiaries, to merge into UBT and UBT is the surviving corporation,
but, in connection with such merger, the outstanding shares of UBT's Common
Stock are changed into or exchanged for stock or other securities of UBT or any
other person or cash or any other property or the outstanding shares of UBT's
Common Stock prior to such merger shall after such merger represent less than
50% of the outstanding shares and share equivalents of the merged company, or
(iii) to sell or otherwise
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transfer all or substantially all of its assets to any person other than
Comerica or one of its subsidiaries, then, and in each such case, the agreement
governing the transaction must provide that, upon consummation of the
transaction, the option will be converted into or exchanged for an option (the
"Substitute Option") to purchase securities of either the acquiring person, a
person that controls the acquiring person or UBT (if UBT is the surviving
entity), in all cases in the option of Comerica. The number of shares for which
the Substitute Option will be exercisable and the exercise price applicable
thereto will be determined in accordance with Sections 7(c) and 7(d) of the
Stock Option Agreement.
As described above under "Stock Option Agreement," the Stock Option
Agreement may discourage competing offers for UBT and is intended to increase
the likelihood that the Merger is consummated in accordance with the terms of
the Merger Agreement.
LEGAL MATTERS
The legality of the Comerica Common Stock and associated rights to be
issued in connection with the Merger will be passed upon by Miller, Canfield,
Paddock and Stone, P.L.C., 150 West Jefferson, Suite 2500, Detroit, Michigan
48226.
EXPERTS
The consolidated financial statements of Comerica incorporated herein by
reference to the Comerica Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, have been audited by Ernst & Young LLP, independent
accountants, which is based in part on the report of KPMG Peat Marwick, LLP for
the year ended December 31, 1991, the predecessor auditors for Comerica, and
have been so incorporated herein in reliance upon such reports, given on the
authority of such firms as experts in auditing and accounting.
The consolidated financial statements of UBT incorporated in this Proxy
Statement/Prospectus by reference from the UBT Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, have been audited by KPMG Peat Marwick,
LLP independent auditors, as stated in their report which is incorporated herein
by reference, and have been so incorporated in reliance upon the report of KPMG
Peat Marwick, LLP given upon their authority as experts in accounting and
auditing.
The UBT Board has appointed the firm of KPMG Peat Marwick, LLP, certified
public accountants, as independent auditors for UBT for 1994. Representatives of
KPMG Peat Marwick, LLP are expected to be present at the UBT Special Meeting.
These representatives will have an opportunity to make statements if they so
desire and will be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
UBT will hold a 1995 Annual Stockholders Meeting only if the Merger is not
consummated prior to the time for such meeting designated by the UBT Board in
accordance with the Bylaws of UBT. Should such annual meeting occur, any UBT
stockholder who wishes to present a proposal for inclusion in the proxy
statement for such annual meeting must comply with the rules and regulations of
the Commission then in effect. As disclosed in the UBT Proxy Statement for its
1994 Annual Meeting of Stockholders, any such proposal must have been received
by UBT not later than December 30, 1994.
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ANNEX A
AGREEMENT
AND PLAN OF
REORGANIZATION
AND MERGER
BY AND AMONG
UNIVERSITY BANK & TRUST COMPANY,
COMERICA INTERIM INCORPORATED
AND
COMERICA INCORPORATED
<PAGE> 72
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.1 The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.2 Effect of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.3 Articles of Incorporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.4 Conversion of INTERIM Stock. . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.5 Conversion of UBT Stock Options. . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.6 Conversion of Issued and Outstanding UBT Common Stock. . . . . . . . . . . . . . 10
Section 2.7 Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.8 Exchange Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF UBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.1 Organization; Corporate Power; Etc. . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.2 Licenses and Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.4 Authorization of Agreement; No Conflicts. . . . . . . . . . . . . . . . . . . . . 12
Section 3.5 Capital Structure. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.6 UBT Filings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.7 Accuracy of Information Supplied. . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.8 Compliance with Applicable Laws. . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.9 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.10 Agreements with Banking Authorities. . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.12 Title to Assets other than Real Property. . . . . . . . . . . . . . . . . . . . 16
Section 3.13 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.14 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.15 Performance of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.16 Loans and Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.18 Brokers and Finders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.19 Material Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.20 Absence of Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.21 Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.22 Employees; Employee Benefit Plans; ERISA. . . . . . . . . . . . . . . . . . . . . 21
Section 3.23 Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.24 [Reserved]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.25 Intellectual Property Rights. . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.26 Hazardous Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.27 Stock Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.28 Interest Rate Risk Management Instruments. . . . . . . . . . . . . . . . . . . . 27
Section 3.29 Disclosure in Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.30 No Actual Knowledge of Misrepresentation or Breach of Warranty. . . . . . . . . 27
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Section 3.31 Effective Date of Representations, Warranties, Covenants and Agreements. . . . . 27
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF COMERICA . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.1 Organization; Corporate Power; Etc. . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.2 Licenses and Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 4.3 Authorization of Agreement; No Conflicts. . . . . . . . . . . . . . . . . . . . . 28
Section 4.4 Capital Structure of COMERICA. . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.5 Formation of INTERIM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.6 COMERICA Filings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.7 Accuracy of Information Supplied. . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.8 Compliance With Applicable Laws. . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.9 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.10 Agreements with Banking Authorities. . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.11 Performance of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.12 Brokers and Finders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.13 Absence of Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.14 Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.15 Disclosure in Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.16 No Actual Knowledge of Misrepresentation or Breach of Warranty. . . . . . . . . . 33
Section 4.17 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 4.19 Effective Date of Representations, Warranties, Covenants and Agreements. . . . . 34
ARTICLE 5 ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 5.1 Access to Information, Due Diligence, etc. . . . . . . . . . . . . . . . . . . . 34
Section 5.2 Shareholder Approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 5.3 Taking of Necessary Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 5.4 Registration Statement and Applications. . . . . . . . . . . . . . . . . . . . . 36
Section 5.5 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 5.6 Notification of Certain Events. . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 5.7 Environmental Assessment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 5.8 Schedules, Closing Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 5.9 Indemnification and Insurance. . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 5.10 Additional Accruals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 6 CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 6.1 Affirmative Conduct of UBT. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 6.2 Negative Covenants of UBT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.3 Conduct of COMERICA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE 7 CONDITIONS PRECEDENT TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.1 Conditions to the Parties' Obligations. . . . . . . . . . . . . . . . . . . . . 46
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Section 7.2 Conditions to COMERICA's and INTERIM's Obligations. . . . . . . . . . . . . . . 47
Section 7.3 Conditions to UBT's Obligations. . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE 8 TERMINATION, AMENDMENTS AND WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 8.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 8.2 Effect of Termination; Survival. . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 8.3 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 8.4 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 8.5 Liquidated Damages; Cancellation Fee. . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE 9 GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 9.1 Non-Survival of Representations and Warranties. . . . . . . . . . . . . . . . . 54
Section 9.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 9.3 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 9.4 Entire Agreement/No Third Party Rights/Assignment. . . . . . . . . . . . . . . 54
Section 9.5 Non-disclosure of Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 9.6 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
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INDEX OF EXHIBITS
Exhibit 2.1.1 Form of Subsidiary Merger Agreement
Exhibit 7.2.14 Form of Affiliate's Agreement
Exhibit 7.2.17 Form Covenant Not to Compete
Exhibit 7.2.21 Form of Shareholder's Agreement
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AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER is entered into
as of October 4, 1994 by and among UNIVERSITY BANK & TRUST COMPANY, a
California bank ("UBT"), COMERICA INTERIM INCORPORATED, a California
corporation to be created by COMERICA ("INTERIM") and COMERICA INCORPORATED, a
Delaware corporation and bank holding company ("COMERICA").
W I T N E S S E T H:
WHEREAS the respective Boards of Directors of UBT and COMERICA have
determined that it is in the best interests of UBT and COMERICA and their
respective businesses and stockholders for UBT to be merged with INTERIM, a
California corporation and wholly- owned subsidiary of COMERICA to be formed
after the date of this Agreement, upon the terms and subject to the conditions
set forth in this Agreement and in accordance with the California Corporations
Code, the California Financial Code and other applicable laws; and
WHEREAS each of the Boards of Directors of UBT and COMERICA has
approved this Agreement and the transactions contemplated hereby; and
WHEREAS UBT's Board of Directors has resolved to recommend approval of
the merger of UBT and INTERIM to its shareholders:
NOW, THEREFORE, in consideration of these premises and the
representations, warranties and agreements herein contained, UBT and COMERICA
hereby agree as follows:
ARTICLE 1 DEFINITIONS
As used in this Agreement, the following terms shall have the meanings set
forth below:
"Acquisition Event" shall mean any of the following:
(a) UBT shall have authorized, recommended, publicly proposed or
publicly announced an intention to authorize, recommend or propose, or entered
into an agreement with any Person (other than COMERICA or any Subsidiary of
COMERICA) to effect an Acquisition Transaction or failed to publicly oppose a
Tender Offer or an Exchange Offer (as defined below). As used herein, the term
Acquisition Transaction shall mean (A) a merger, consolidation or similar
transaction involving UBT or any of its Subsidiaries (other than internal
mergers, reorganizations, consolidations or dissolutions involving only
existing Subsidiaries), (B) the disposition, by sale, lease, exchange or
otherwise, of assets of UBT or any of its Subsidiaries representing 15% or more
of the consolidated assets of UBT and its Subsidiaries or (C) the issuance,
sale or other disposition of (including by way of merger, consolidation, share
exchange or any similar transaction) securities representing 10% or more of the
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voting power of UBT or any of its Subsidiaries, other than securities issued
pursuant to the Stock Option Agreement; or
(b) any Person (other than COMERICA or any Subsidiary of COMERICA)
shall have acquired beneficial ownership (as such term is defined in Rule 13d-3
promulgated under the Exchange Act of or the right to acquire beneficial
ownership of, or any "group" (as such term is defined under the Exchange Act)
shall have been formed which beneficially owns or has the right to acquire
beneficial ownership of 15% or more of the then outstanding shares of UBT
Common Stock; or
(c) the occurrence of any of the events described in subsection (a) of
this paragraph within a period of 180 days following the termination of this
Agreement by COMERICA pursuant to Sections 8.1.4, 8.1.5, 8.1.6, 8.1.8 or 8.1.11
or by COMERICA pursuant to Section 8.1.13 solely by reason of the failure of
the conditions set forth in Sections 7.2.1, 7.2.2, 7.2.3, 7.2.5, 7.2.6, 7.2.7,
7.2.8, 7.2.10, 7.2.11, 7.2.14, 7.2.15 or 7.2.20 to be satisfied where such
failure shall have been caused in whole or in part by any action or inaction
within the control of UBT, any Subsidiary of UBT or the directors of any of UBT
or UBT's Subsidiaries (it being understood that any action or inaction outside
of the control of UBT or UBT's Subsidiaries, such as, by way of example only,
the filing of a lawsuit against them, shall not come within this subsection (c)
of this paragraph).
"Acquisition Proposal" shall have the meaning given such term in
Section 6.2.5.
"Affiliate" or "affiliate" shall mean, with respect to any other
Person, any Person that, directly or indirectly, controls or is controlled by
or is under common control with such Person.
"Agreement Date COMERICA Shares" shall mean the result of a fraction,
the numerator of which is $76,961,840 and the denominator of which is the
Agreement Date COMERICA Share Price; provided, however, that such numerator
shall be reduced by $1 for each $1 that the UBT Consolidated Net Worth at the
Effective Time is less than the sum of $34,200,000 plus the Pre-Closing Income
Amount.
"Agreement Date COMERICA Share Price shall mean $28.7083.
"Benefit Arrangement" shall have the meaning given such term in
Section 3.22.4.
"BHCA" shall mean the Bank Holding Company Act of 1956, as amended.
"Business Day" shall mean any day, other than a Saturday, Sunday or
legal holiday, on which California state banks are open for substantially all
their banking business in California.
"Classified Credits" shall have the meaning given such term in Section
6.1.16.
"Closing" shall have the meaning given such term in Section 2.1.
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"Closing Date" shall have the meaning given such term in Section 2.1.
"Closing Schedules" shall have the meaning given such term in Section
5.8.
"COMERICA" shall have the meaning set forth in the preamble to this
Agreement.
"COMERICA Common Stock" shall mean the Common Stock, $5.00 par value
per share, of COMERICA.
"COMERICA Filings" shall have the meaning given such term in Section
4.6.1.
"COMERICA Financial Statements" shall mean the financial statements of
COMERICA that were filed on SEC Form 10-K for the year ended December 31, 1993
and the unaudited financial statements filed on SEC Form 10-Q for the quarters
ended March 31, 1994 and June 30, 1994.
"COMERICA SEC Documents" shall have the meaning set forth in Section
4.6.2.
"Conversion Rate" shall mean the result of a fraction, the numerator
of which is the Agreement Date COMERICA Shares, as adjusted and determined at
the Effective Time, and the denominator of which is Fully Diluted UBT Common
Stock at the Effective Time.
"Covered Loan" shall have the meaning given such term in Section 3.16.
"Deemed COMERICA Shares" shall have the meaning given such term in
Section 2.5.1.
"Default" shall mean, as to any party to this Agreement, a failure by
such party to perform, in any material respect, any of the agreements or
covenants provided by Articles 5 or 6.
"Determination Date" shall mean the fifth Business Day before the date
on which the Effective Time occurs.
"Disclosed Matters" shall have the meaning given such term in Section
5.7.
"Effective Time" shall have the meaning given such term in Section 2.1.
"Employee Plan" shall have the meaning given such term in Section
3.22.3.
"Environmental Laws" shall mean and include any and all laws,
statutes, ordinances, rules, regulations, orders, or determinations of any
Governmental Entity pertaining to health or to the environment, including,
without limitation, the Clean Air Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), the Federal Water Pollution Control Act Amendments, the
Occupational Safety and Health Act of 1970, as amended, the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), the
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Hazardous Materials Transportation Act of 1975, as amended, the Safe Drinking
Water Act, as amended, and the Toxic Substances Control Act, as amended.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Agent" shall mean Norwest Bank, Minnesota, National
Association, or such other Person as COMERICA shall have appointed to perform
the duties set forth in Section 2.8.
"Exchange Offer" shall mean the commencement (as such term is defined
in Rule 14d-2 under the Exchange Act) of an exchange offer or the filing by any
person of a registration statement under the Securities Act with respect to, an
exchange offer to purchase any shares of UBT Common Stock such that, upon
consummation of such offer, such person would own or control 15% or more of the
then outstanding shares of UBT Common Stock.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System.
"Fully Diluted UBT Common Stock" shall mean the sum of the total
number of shares of UBT Common Stock outstanding on the Closing Date assuming
the exercise of all of the UBT Stock Options and any other options or other
rights in or for UBT Common Stock other than the options contemplated by the
Stock Option Agreement.
"Generally Accepted Accounting Principles" shall mean generally
accepted accounting principles consistently applied.
"Governmental Entity" shall mean any court, federal, state, local or
foreign government or any administrative agency or commission or other
governmental authority or instrumentality whatsoever.
"Hazardous Substances" shall have the meaning given such term in
Section 3.26.5.
"Intellectual Property" shall have the meaning given such term in
Section 3.25.
"INTERIM" shall have the meaning set forth in the preamble to this
Agreement.
"IRC" shall mean the Internal Revenue Code of 1986, as amended.
"Knowledge" shall mean, with respect to any representation or warranty
contained in this Agreement: (1) as to COMERICA, the actual knowledge, after
due inquiry, of any executive officer or director of either COMERICA and (2) as
to UBT, the actual knowledge, after due inquiry, of any:
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(i) director; or (ii) executive officer, one of whom shall be the person within
UBT who has principal responsibility for regulatory and compliance matters.
"Last Regulatory Approval" shall mean the final Requisite Regulatory
Approval required from any Governmental Entity under applicable federal laws of
the United States and laws of any state having jurisdiction over the Merger for
the Merger to be consummated.
"Material Adverse Effect" shall mean a material adverse effect: (i) on
the business, assets, results of operations or financial condition of a Person
and its subsidiaries, if any, taken as a whole (unless specifically indicated
otherwise); or (ii) on the ability of a party to perform its obligations under
this Agreement or to consummate the transactions contemplated by this
Agreement.
"Merger" shall have the meaning set forth in Section 2.1.
"New Certificates" shall have the meaning given such term in Section
2.8.1.
"Non-Performing Assets" shall mean the sum of the book value, as of
the applicable date, of UBT's (i) loans 90 days past due as to either
principal or interest, (ii) loans on which interest is or should be recognized
only upon receipt, (iii) loans on which interest is being or has been
renegotiated to lower than market rates due to the adverse financial condition
of the borrower, and (iv) other real estate owned.
"Person" or "person" shall mean an individual, corporation,
partnership, joint venture, trust or unincorporated organization, Governmental
Entity or any other legal entity whatsoever.
"Pre-Closing Income Amount" shall mean the product obtained by
multiplying $460,000 by the number of whole and fractional months beginning
with September 1, 1994 and ending on the Closing Date.
"Property" shall have the meaning given such term in Section 3.26.1.
"Proxy Statement" shall have the meaning given such term in Section
3.4.2.
"Registration Statement" shall have the meaning given such term in
Section 3.7.2.
"Regulatory Authority" shall mean any Governmental Entity, the
approval of which is legally required for consummation of the Merger.
"Requisite Regulatory Approvals" shall have the meaning set forth in
Section 7.1.2.
"Returns" shall mean all returns, declarations, reports, statements,
and other documents required to be filed with respect to federal, state, local
and foreign Taxes, and the term "Return" means any one of the foregoing
Returns.
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"SEC" shall mean the Securities and Exchange Commission.
"Secured Loan" shall have the meaning given such term in Section 3.16.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Site Assessment" shall have the meaning given such term in Section
5.7.1.
"Stock Option Agreement" shall mean the agreement between UBT and
COMERICA dated the date of this Agreement.
"Subsidiary" shall mean, with respect to any corporation (the
"parent"), any other corporation, association or other business entity of which
more than 50% of the shares of the Voting Stock are owned or controlled,
directly or indirectly, by the parent or by one or more Subsidiaries of the
parent, or by the parent and one or more of its Subsidiaries.
"Subsidiary Merger Agreement" shall have the meaning given such term
in Section 2.1.
"Surviving Corporation" shall have the meaning given such term in
Section 2.1.
"Surviving Corporation Stock" shall have the meaning given such term
in Section 2.4.
"Taxes" shall mean all federal, state, local and foreign net income,
gross income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, lease, service, service use, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property, windfall
profits, customs, duties, or other taxes, together with any interest and any
penalties, additions to tax, or additional amounts with respect thereto, and
the term "Tax" means any one of the foregoing Taxes.
"Tender Offer" shall mean the commencement (as such term is defined in
Rule 14d-2 under the Exchange Act) of a tender offer or the filing by any
person of a registration statement under the Securities Act with respect to, a
tender offer to purchase any shares of UBT Common Stock such that, upon
consummation of such offer, such person would own or control 15% or more of the
then outstanding shares of UBT Common Stock.
"Trust Assets" shall mean and include: (a) all right, title and
interest of UBT in and to and under any and all trusts, wills, agency
agreements, decedent's estates and other representative or fiduciary
appointments in favor of, or services by, UBT's Subsidiaries as further
described in Schedule 3.17 to this Agreement and all other trusts, wills,
agency agreements and the like similar to the foregoing under which UBT has
been named as of the Closing Date in some representative or fiduciary capacity
to take effect at some time in the future; and (b) all properties, rights,
documents, instruments, interests and other tangible and intangible assets
owned by, governed or administered under, arising under or with respect to or
pertaining to any of the foregoing.
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"UBT" shall have the meaning set forth in the preamble of this
Agreement.
"UBT Certificates" shall have the meaning given such term in Section
2.8.1.
"UBT Common Stock" shall mean the common stock, no par value, of UBT
and any Common Stock of UBT created pursuant to any recapitalization,
reorganization, or similar event or any subdivision or combination of shares of
common stock or similar event.
"UBT Consolidated Net Worth" shall mean the difference between:
(A) the sum of: (1) total shareholders' equity of UBT as of
the Determination Date determined in accordance with Generally
Accepted Accounting Principles applied consistently with prior
periods; (2) any amount attributable to the payment of regular
quarterly dividends in the amount of $.35 per share or less
paid on or after the date of this Agreement; and (3) any
amount attributable to the actual exercise of the UBT Stock
Options between the date of this Agreement and the Closing
Date;
minus
(B) amounts attributable to the period from the date of this
Agreement to the Determination Date and arising from: (1)
gains and income attributable to real estate development
activities; (2) gains from the sale or other disposition of
assets not in the ordinary course of business (other than
gains resulting from the sale of Other Real Estate Owned,
which shall be added to total shareholders' equity); (3) gains
attributable to non-recurring extraordinary items, and changes
related to new accounting principles and changes in
application of existing accounting principles; (4) all fees
and costs of UBT attributable to the consummation of the
transaction contemplated by this Agreement exceeding
$1,500,000, including without limitation, advisory, investment
banking, legal and accounting fees and filing fees not
previously paid or accrued; and (5) the sum of $600,000 to the
extent that the Other Real Estate Owned by UBT on the date of
this Agreement has not been written down to such extent
between the date of this Agreement and the Closing Date. The
parties understand and agree that those items specified in
(B)(1) - (5) of this paragraph shall be calculated net of any
related tax benefit determined at the applicable tax rate;
provided, however, that the amounts calculated pursuant to (A) and (B) above
shall not reflect any gains or losses, as the case may be, attributable to
mark to market gains or losses arising from the date of this Agreement through
the Closing Date.
"UBT Filings" shall have the meaning given such term in Section 3.6.
"UBT Financial Statements" shall have the meaning given such term in
Section 3.7.3.
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"UBT Stock Options" shall mean any options granted on or before the
Effective Time, whether vested or unvested, pursuant to the UBT Stock Option
Plans.
"UBT Stock Option Plans" shall mean the University National Bank &
Trust Company 1980 Stock Option Plan, as amended, the University National Bank
& Trust Company Outside Directors Stock Option Plan effective as of January 23,
1992, as amended, and any other UBT stock option plan, whether qualified or
non-qualified.
"Understanding" shall have the meaning set forth in Section 6.1.5.
"Voting Stock" shall mean the stock or other interest entitling the
holders thereof to vote in the election of the directors, trustees or Persons
performing similar functions of the Person in question, except that it shall
not include any stock or other interest so entitling the holders thereof to
vote only upon the happening of a contingency, whether or not such contingency
has occurred.
ARTICLE 2 THE MERGER
Section 2.1 The Merger. Subject to the terms and conditions of
this Agreement, as promptly as practicable following the receipt of the Last
Regulatory Approval and the expiration of all applicable waiting periods,
INTERIM shall be merged into UBT (which shall be the Surviving Corporation of
the merger) in accordance with the applicable provisions of the California
Financial Code and the California Corporations Code (the "Merger") pursuant to
the Agreement of Merger attached to this Agreement as Exhibit 2.1 (the
"Subsidiary Merger Agreement"). The closing of the Merger (the "Closing")
shall take place at a location, time and Business Day to be designated by
COMERICA (the "Closing Date"). The Merger shall be effective when the
Subsidiary Merger Agreement (together with any other documents required by law
to effectuate the Merger) shall have been approved by the Superintendent of
Banks and filed with the Secretary of State of the State of California. When
used in this Agreement, the term "Effective Time" shall mean the time of filing
of the Subsidiary Merger Agreement with the Secretary of State, and "Surviving
Corporation" shall mean UBT.
Section 2.2 Effect of the Merger. By virtue of the Merger and at
the Effective Time, all of the rights, privileges, powers and franchises and
all property and assets of every kind and description of UBT and INTERIM shall
be vested in and be held and enjoyed by the Surviving Corporation, without
further act or deed, and all the estates and interests of every kind of UBT and
INTERIM, including all debts due to either of them, shall be as effectively the
property of the Surviving Corporation as they were of UBT and INTERIM
immediately prior to the Effective Time, and the title to any real estate
vested by deed or otherwise in either UBT or INTERIM shall not revert or be in
any way impaired by reason of the Merger; and all rights of creditors and liens
upon any property of UBT and INTERIM shall be preserved unimpaired and all
debts, liabilities and duties of UBT and INTERIM shall be debts, liabilities
and duties of the Surviving Corporation and may be
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enforced against it to the same extent as if such debts, liabilities and duties
had been incurred or contracted by it, and none of such debts, liabilities or
duties shall be expanded, increased, broadened or enlarged by reason of the
Merger.
Section 2.3 Articles of Incorporation. The articles of
incorporation of INTERIM in effect immediately prior to the Effective Time
shall be the articles of incorporation of the Surviving Corporation until
amended in accordance with the provisions thereof and the name of the Surviving
Corporation shall be "University Bank & Trust Company."
Section 2.4 Conversion of INTERIM Stock. The authorized and
issued capital stock of INTERIM, all of which shall be owned by COMERICA,
immediately prior to the Effective Time, on and after the Effective Time,
pursuant to the Subsidiary Merger Agreement and without any further action on
the part of COMERICA or INTERIM shall be converted into one share of common
stock of the Surviving Corporation (the "Surviving Corporation Stock"). Each
outstanding stock certificate which prior to the Effective Time represented
shares of capital stock of INTERIM automatically and for all purposes shall be
deemed to represent the number of shares of Surviving Corporation Stock into
which the shares of capital stock of INTERIM represented by such certificate
have been converted as provided in this Section 2.4.
Section 2.5 Conversion of UBT Stock Options. At the Effective
Time, all outstanding rights with respect to UBT Common Stock pursuant to stock
options under the UBT Stock Option Plans, whether vested or unvested or whether
or not then exercisable, shall be converted into and become rights with respect
to COMERICA Common Stock, and COMERICA shall assume each UBT Stock Option in
accordance with the terms of the UBT Stock Option Plans and the stock option
agreement by which it is evidenced.
2.5.1 From and after the Effective Time, (i) each
UBT Stock Option assumed by COMERICA may be exercised solely for shares of
COMERICA Common Stock; (ii) the number of shares of COMERICA Common Stock
subject to each UBT Stock Option shall be equal to the number of full or
partial shares of COMERICA Common Stock as the holder of such UBT Stock Option
would have been entitled to receive pursuant to Section 2.6 of this Agreement
had such holder exercised such option in full immediately prior to the
Effective Time (the "Deemed COMERICA Shares"); and (iii) the per share exercise
price for each such UBT Stock Option shall be equal to the result of (y) the
aggregate exercise price for the shares of UBT Common Stock otherwise
purchasable pursuant to such UBT Stock Option, divided by (z) the Deemed
COMERICA Shares; provided, however, that the option price, the number of shares
purchasable pursuant to such option and the terms and conditions of exercise of
such option shall be determined in order to comply with Section 424(a) of the
IRC.
2.5.2 As soon as practicable after the Effective
Time, COMERICA shall file a registration statement on Form S-3 or Form S-8, as
the case may be (or any successor or other appropriate forms), or another
appropriate form with respect to the shares of COMERICA Common
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Stock subject to such options and shall use its best efforts to maintain the
effectiveness of such registration statements for so long as such options
remain outstanding.
Section 2.6 Conversion of Issued and Outstanding UBT Common
Stock. Except as provided in Section 2.7, each share of Fully Diluted UBT
Common Stock shall be converted at the Effective Time into and become the right
to receive that number of shares of duly authorized, validly issued, fully paid
and nonassessable shares of COMERICA Common Stock equal to the Conversion Rate,
as determined at the Effective Time, subject to adjustment, if any, as provided
in any other section of this Agreement. The Conversion Rate shall be further
appropriately adjusted to reflect any recapitalization, reorganization,
reclassification, split-up, merger, consolidation, exchange, stock or other
dividend or distribution (other than regular quarterly cash dividends), made,
declared or effective with respect to the COMERICA Common Stock between the
date of this Agreement and the Effective Time.
Section 2.7 Fractional Shares. No fractional shares of
COMERICA Common Stock shall be issued in the Merger. In lieu thereof, each
holder of UBT Common Stock who would otherwise be entitled to receive a
fractional share shall receive an amount in cash equal to the product (rounded
to the nearest tenth) obtained by multiplying (a) the Agreement Date COMERICA
Share Price by (b) the fraction of the share of COMERICA Common Stock to which
such holder would otherwise be entitled. No such holder shall be entitled to
dividends or other rights in respect of any such fraction.
Section 2.8 Exchange Procedures. On or as soon as practicable
after the Effective Time, COMERICA will deliver to the Exchange Agent
certificates representing a sufficient number of shares of COMERICA Common
Stock issuable in the Merger and funds representing a sufficient amount of cash
payable for fractional shares in the Merger pursuant to Section 2.7 of this
Agreement.
2.8.1 Upon surrender for cancellation to the
Exchange Agent of one or more certificates for shares of UBT Common Stock ("UBT
Certificates"), accompanied by a duly executed letter of transmittal in proper
form, the Exchange Agent shall, as promptly as practicable thereafter, deliver
to each holder of such surrendered UBT Certificates, certificates representing
the appropriate number of shares of COMERICA Common Stock ("New Certificates")
and/or checks for payment of cash in lieu of fractional shares, in respect of
the UBT Certificates. In no event shall the holders of UBT Certificates
entitled to receive cash in lieu of fractional shares be entitled to receive
interest on such amounts.
2.8.2 Until the UBT Certificates have been
surrendered and exchanged as herein provided, each outstanding UBT Certificate
shall represent, on and after the Effective Time, the right to receive the
number of shares of COMERICA Common Stock into which the number of shares of
UBT Common Stock shown thereon have been converted as provided by Section 2.6.
No dividends or other distributions that are declared on COMERICA Common Stock
shall be paid to holders thereof otherwise entitled to receive the same until
the UBT Certificates have been
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surrendered in exchange for New Certificates in the manner herein provided, but
upon such surrender, such dividends or other distributions, from and after the
Effective Time, will be paid to such holders in accordance with the terms of
such COMERICA Common Stock. In no event shall the holders entitled to receive
such dividends or other distributions be entitled to receive interest on such
dividends or other distributions.
2.8.3 No transfer taxes shall be payable by any
shareholder in respect of the issuance of New Certificates, except that if any
New Certificate is to be issued in a name other than that in which the UBT
Certificates surrendered shall have been registered, it shall be a condition of
such issuance that the holder requesting such issuance shall properly endorse
the certificate or certificates and shall pay to COMERICA or the Exchange Agent
any transfer taxes payable by reason thereof, or of any prior transfer of such
surrendered certificate, or establish to the satisfaction of COMERICA or the
Exchange Agent that such taxes have been paid or are not payable.
2.8.4 Any COMERICA Common Stock or cash delivered
to the Exchange Agent (together with any interest or profits earned thereon)
and not distributed pursuant to this Section 2.8 at the end of nine months from
the Effective Time, shall be returned to COMERICA, in which event the Persons
entitled thereto shall look only to COMERICA for payment thereof.
2.8.5 Notwithstanding anything to the contrary set
forth in Sections 2.8.2 and 2.8.3 hereof, if any holder of UBT Common Stock
shall be unable to surrender such holder's UBT Certificates because such
certificates have been stolen, lost or destroyed, such holder may deliver in
lieu thereof an affidavit and indemnity bond in form and substance and with
surety reasonably satisfactory to Exchange Agent and COMERICA.
2.8.6 The Exchange Agent shall not be entitled to
vote or exercise any rights of ownership with respect to the shares of COMERICA
Common Stock held by it from time to time hereunder, except that it shall
receive and hold all dividends or other distributions paid or distributed with
respect to such shares of COMERICA Common Stock for the account of the Persons
entitled thereto.
2.8.7 After the Effective Time, there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of UBT Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
certificates representing such shares are presented to the Surviving
Corporation, they shall be canceled and exchanged for COMERICA Common Stock as
provided in this Article 2.
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF UBT
UBT represents and warrants to COMERICA as follows:
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Section 3.1 Organization; Corporate Power; Etc. UBT is a bank
duly organized, validly existing and in good standing under the laws of the
State of California. UBT is authorized by the State of California to conduct a
general banking business and its deposits are insured by the FDIC in the manner
and to the extent provided by law. Each of UBT and its Subsidiaries has all
requisite corporate power and authority to own, lease and operate its
properties and assets and to carry on its business substantially as presently
conducted. UBT maintains and operates branch offices only in the State of
California. Neither the scope of the business of UBT or any Subsidiary of UBT
nor the location of any of their respective properties requires that UBT or any
of its Subsidiaries be licensed or qualified to conduct business in any
jurisdiction other than the State of California except where the failure to be
so licensed or qualified would not have a Material Adverse Effect on UBT.
Section 3.2 Licenses and Permits. Except as disclosed on Schedule
3.2, UBT and its Subsidiaries have all licenses, certificates, franchises and
permits that are necessary for the conduct of their respective businesses, and
such licenses are in full force and effect, except for any failure to obtain or
failure to be in full force and effect that would not, individually or in the
aggregate, have a Material Adverse Effect on UBT. The properties, assets,
operations and business of UBT and its Subsidiaries are and have been
maintained and conducted, in all material respects, in compliance with all
applicable licenses, certificates, franchises and permits.
Section 3.3 Subsidiaries. The only corporation, partnership,
joint venture or other entity in which UBT owns, directly or indirectly (except
as pledgee pursuant to loans or stock or other interest held as the result of
or in lieu of foreclosure pursuant to pledge or other security arrangement),
any equity position or other voting interest is the Lytton Corporation.
Section 3.4 Authorization of Agreement; No Conflicts.
3.4.1 The execution and delivery of this Agreement
and the Subsidiary Merger Agreement by UBT and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of UBT, subject only to the approval of
this Agreement, the Subsidiary Merger Agreement and the Merger by UBT's
shareholders. This Agreement has been duly executed and delivered by UBT and
constitutes a valid and binding obligation of UBT, enforceable in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting the rights
of California state banks, and in any case, by general equitable principles,
and the Subsidiary Merger Agreement, upon due execution and filing thereof by
UBT in accordance with the applicable provisions California Financial Code and
the California Corporations Code, will constitute a valid and binding
obligation of UBT, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting the rights of California banks generally and by
general equitable principles.
3.4.2 Except as disclosed on Schedule 3.4, the
execution and delivery of this Agreement and the Subsidiary Merger Agreement
and the consummation of the transactions contemplated hereby and thereby do not
and will not conflict with, or result in any violation of or
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default or loss of a material benefit under, any provision of the articles of
incorporation or bylaws of UBT or, except for the necessity of obtaining
Requisite Regulatory Approvals and approval of the shareholders of UBT, any
material mortgage, indenture, lease, agreement or other instrument or any
permit, concession, grant, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to UBT or its
properties, other than any such conflict, violation, default or loss which will
not have a Material Adverse Effect on UBT or which will be cured or waived
prior to the Effective Time. No material consent, approval, order or
authorization of, or registration, declaration or filing with, any governmental
authority is required in connection with the execution and delivery of this
Agreement or the Subsidiary Merger Agreement by UBT or the consummation by it
of the transactions contemplated hereby or thereby, except for (a) filings
required in order to obtain the Requisite Regulatory Approvals, (b) the filing
with the SEC of a proxy statement in definitive form relating to the meeting of
shareholders of UBT to be held in connection with this Agreement and the
transactions contemplated hereby (the "Proxy Statement"); and (c) the filing
of the Subsidiary Merger Agreement with the Superintendent of Banks of the
State of California and the Secretary of State of the State of California.
Section 3.5 Capital Structure.
3.5.1 The authorized capital stock of UBT consists
solely of 3,000,000 shares of Common Stock, no par value. At of the close of
business on September 26, 1994, 1,391,097 shares of Common Stock were
outstanding and 144,700 shares were reserved for issuance pursuant to UBT's
Stock Option Plans. All outstanding shares of UBT capital stock are validly
issued, fully paid and nonassessable (except for assessments made pursuant to
Section 662 of the California Financial Code) and do not possess any preemptive
rights. Other than the UBT Stock Options described on Schedule 3.27 to this
Agreement and the Stock Option Agreement, there are not on the date of this
Agreement any options, warrants, calls, rights, commitments, securities or
agreements of any character to which UBT is a party or by which it is bound
obligating UBT to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of UBT or obligating UBT to grant,
extend or enter into any such option, warrant, call, right, commitment or
agreement.
3.5.2 UBT is the direct owner, beneficially and of
record, of all of the issued and outstanding capital stock of the Lytton
Corporation which is its only direct Subsidiary, free and clear of all liens,
pledges, charges and other encumbrances of any nature whatsoever.
Section 3.6 UBT Filings.
3.6.1 Since January 1, 1992, UBT and its
Subsidiaries have filed all reports, registrations and statements, together
with any amendments required to be made with respect thereto, copies of which
have been made available to COMERICA, except to the extent prohibited by law,
that were required to be filed with (a) the Federal Reserve Board or any
Federal Reserve Bank; (b) the California Superintendent of Banks; (c) the
Federal Deposit Insurance Corporation; and (d) any other applicable federal,
state or local governmental or regulatory authority. All such reports,
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registrations and filings are collectively referred to as the "UBT Filings."
As of their respective filing dates, each of the past UBT Filings (a) was true
and complete in all material respects (or was amended so as to be so promptly
following discovery of any discrepancy); and (b) complied in all material
respects with all of the statutes, rules and regulations enforced or
promulgated by the Governmental Entity with which it was filed (or was amended
so as to be so promptly following discovery of any such noncompliance) and none
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The UBT Financial Statements have been prepared in accordance
with Generally Accepted Accounting Principles or applicable banking regulations
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and present fairly (subject, in the case of the
unaudited statements, to recurring adjustments normal in nature and amount) the
consolidated financial position of UBT as of the respective dates indicated and
the consolidated results of its operations and changes in cash flows at the
respective dates and for the respective periods covered by such financial
statements.
3.6.2 UBT has filed each report, schedule,
registration statement and definitive proxy statement and amendments to each of
the foregoing since January 1, 1991 that UBT was required to file with the SEC,
the OCC or the FDIC, as applicable, since such date (the "UBT SEC Documents"),
all of which have been made available to COMERICA. As of their respective
dates, the UBT SEC Documents complied in all material respects with the
requirements of the Securities Act and the Exchange Act, as the case may be,
and the rules and regulations of the SEC thereunder applicable to such UBT SEC
Documents, and none of the UBT SEC Documents contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of UBT included in the UBT SEC Documents comply in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with Generally Accepted Accounting Principles applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of the unaudited statements, as permitted by Form
10-Q of the SEC) and fairly present (subject, in the case of the unaudited
statements, to recurring audit adjustments normal in nature and amount) the
consolidated financial position of UBT as at the dates thereof and the
consolidated results of its operations and cash flows for the periods then
ended.
Section 3.7 Accuracy of Information Supplied.
3.7.1 No representation or warranty of UBT
contained in this Agreement or any statement, schedule, exhibit or certificate
prepared by and given or to be given by or on behalf of UBT or its Subsidiaries
to COMERICA in connection herewith and none of the information supplied or to
be supplied by UBT or its Subsidiaries to COMERICA under this Agreement
contains or will contain any untrue statement of material fact or omit to state
any material fact required to be
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stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading.
3.7.2 None of the information supplied or to be
supplied by UBT for inclusion or incorporation by reference in, or relating to
UBT and included or incorporated by reference in, (i) the Registration
Statement on Form S-4 to be filed with the SEC by COMERICA in connection with
the issuance of shares of COMERICA Common Stock in the Merger (including the
Proxy Statement and prospectus constituting a part thereof, the "Registration
Statement") will, at the time the Registration Statement becomes effective
under the Securities Act, 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; (ii) the Proxy Statement and any amendment or
supplement thereto will, at all times from the date of mailing to shareholders
of UBT through the date of the meeting of shareholders of UBT to be held in
connection with the Merger, 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; and (iii) the statements, correspondence,
applications and forms to be filed with securities or "blue sky" authorities,
self regulatory authorities, the NYSE or any Governmental Entity in connection
with the Merger, the issuance of any shares of COMERICA Common Stock in
connection with the Merger, or any Requisite Regulatory Approvals will, at the
time filed or at the time they become effective, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Proxy Statement
(except for such portions thereof that relate only to COMERICA and its
Subsidiaries) will comply in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder.
3.7.3 UBT has delivered or will deliver as soon as
practicable to COMERICA copies of: (a) the balance sheet as of March 31, 1994,
June 30, 1994 and September 30, 1994 of UBT; and (b) the balance sheets of UBT
and its consolidated Subsidiaries as of December 31, 1992 and 1993 and the
related statements of income changes in stockholders' equity and cash flows for
the years then ended and the related notes to such financial statements, as
audited by KPMG Peat Marwick, independent public accountants (the "UBT
Financial Statements"), and UBT will hereafter until the Closing Date deliver
to COMERICA copies of additional financial statements of UBT as provided in
Sections 5.1.1(iii) and 6.1.11(iii). The UBT Financial Statements have been
prepared (and all of said additional financial statements will be prepared) in
accordance with Generally Accepted Accounting Principles or applicable banking
regulations consistently followed throughout the periods covered by such
statements (except as may be indicated in the notes thereto or, in the case of
the unaudited statements, as permitted by Form 10-Q of the SEC), and present
(and, in the case of said additional financial statements, will present) fairly
(subject in the case of the unaudited statements, to recurring adjustments
normal in nature and amount), the financial position of UBT and its
consolidated Subsidiaries as of the respective dates indicated and the results
of their operations and changes in cash flows at the respective dates and for
the respective periods covered by such financial statements.
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Section 3.8 Compliance with Applicable Laws. The businesses of
UBT and its Subsidiaries are not being conducted in violation of any applicable
law, ordinance or regulation, except for violations which individually or in
the aggregate would not have a Material Adverse Effect on UBT. Except as set
forth in Schedule 3.8 and except for normal examinations conducted by a
Governmental Entity in the regular course of business of UBT, no investigation
or review by any Governmental Entity with respect to UBT is pending or, to the
knowledge of UBT, threatened, nor has any Governmental Entity indicated to UBT
an intention to conduct the same, other than those the outcome of which, as far
as can be reasonably foreseen, will not have a Material Adverse Effect on UBT.
Section 3.9 Litigation. There is no suit, action or proceeding
pending or, to the knowledge of UBT, threatened against or affecting UBT or any
Subsidiary which, if adversely determined, would have a Material Adverse Effect
on UBT and its Subsidiaries taken as a whole; nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
outstanding against UBT or any Subsidiary having, or which, insofar as
reasonably can be foreseen, in the future would have, any such effect.
Schedule 3.9 contains a true, correct and complete list, including
identification of the applicable insurance policy covering such litigation, if
any, subject to reservation of rights, if any, the applicable deductible and
the amount of any reserve therefor, of all pending litigation in which UBT or
any Subsidiary is a named party, all of which is adequately covered by
insurance in force, except for applicable deductibles, or have been adequately
reserved for in accordance with UBT's and UBT's prior business practices.
Section 3.10 Agreements with Banking Authorities. Except as set
forth on Schedule 3.10 to this Agreement, none of UBT or any Subsidiary of UBT
is a party to any written agreement, memorandum of understanding, order or
directive with any Governmental Entity.
Section 3.11 Insurance. Schedule 3.11 contains a list of all
policies of insurance and bonds carried and owned by UBT or any Subsidiary.
None of UBT or any Subsidiary is in default under any such policy of insurance
or bond such that it can be canceled and all material claims thereunder have
been filed in timely fashion. UBT and its Subsidiaries have filed claims with,
or given notice of claim, to their insurers or bonding companies in timely
fashion, with respect to all material matters and occurrences for which they
believe they have coverage.
Section 3.12 Title to Assets other than Real Property. UBT and its
Subsidiaries have good and marketable title to all their properties and assets,
other than real property which is the subject of Section 3.13, owned or leased
by UBT or any Subsidiary, free and clear of all mortgages, liens, encumbrances,
pledges or charges of any kind or nature except for: (a) encumbrances as set
forth in the UBT Financial Statements; (b) liens for current taxes not yet due
which have been fully reserved for; and (c) encumbrances, if any, that are not
substantial in character, amount or extent or that do not materially detract
from the value, or materially interfere with present use of the property
subject thereto or affected thereby.
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Section 3.13 Real Property. Schedule 3.13 is an accurate list and
general description of all real property owned or leased by UBT or any of its
Subsidiaries other than Other Real Estate Owned. UBT and its Subsidiaries have
good and marketable title to the real property, and valid leasehold interests
in the leaseholds, described in such schedule, free and clear of all mortgages,
covenants, conditions, restrictions, easements, liens, security interests,
charges, claims, assessments and encumbrances, except for (a) rights of
lessors, lessees or sublessees in such matters that are reflected in a written
lease; (b) current taxes (including assessments collected with taxes) not yet
due and payable; (c) any encumbrances set forth in UBT's Financial Statements;
and (d) encumbrances, if any, that are not substantial in character, amount or
extent or that do not materially detract from the value, or materially
interfere with present use of the property subject thereto of affected thereby;
and (e) minor defects and irregularities in title and encumbrances which do not
materially impair the use thereof for the purposes for which such property is
held. UBT and its Subsidiaries have valid leasehold interests in the leaseholds
they respectively hold, free and clear of all mortgages, liens, security
interest, charges, claims, assessments and encumbrances, except for (a) claims
of lessors, co-lessees or sublessees in such matters as are reflected in a
written lease; (b) title exceptions affecting the fee estate of the lessor
under such leases and (c) other matters as described in Schedule 3.13. The
activities of UBT and its Subsidiaries with respect to all real property owned
or leased by them for use in connection with their operations are in all
material respects permitted and authorized by applicable zoning laws,
ordinances and regulations and all applicable laws and regulations of any
Governmental Entity, including environmental matters affecting such properties.
Except as set forth in Schedule 3.13, UBT and its Subsidiaries enjoy quiet
possession under all material leases to which either is the lessee and all of
such leases are valid and in full force and effect.
Section 3.14 Taxes.
3.14.1 Filing of Returns. UBT and its Subsidiaries
have duly prepared and filed federal, state, local and foreign Returns (for tax
or informational purposes) which were required to be filed by or in respect of
UBT and its Subsidiaries, or any of their properties, income and/or operations
on or prior to the Closing Date. As of the time of filing, the foregoing
Returns correctly reflect the material facts regarding the income, business,
assets, operations, activities, status, and any other information required to
be shown thereon. Except as set forth on Schedule 3.14, no extension of time
within which to file any Return has been requested.
3.14.2 Payment of Taxes. With respect to all Taxes
imposed on UBT or any Subsidiary or for which UBT is or could be liable,
whether to taxing authorities (as, for example, under law) or to other Persons
or entities (as, for example, under tax allocation agreements), with respect to
all taxable periods or portions of periods ending on or before the Closing
Date, all applicable tax laws and agreements have been or will be fully
complied with, and all such amounts required to be paid by or on behalf of UBT
or any Subsidiary to taxing authorities or others on or before the date hereof
have been paid.
3.14.3 Audit History. Except as disclosed on
Schedule 3.14, there has not, within the last 3 years, been any review or audit
by any taxing authority of any Tax liability of UBT
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or any Subsidiary. Except as disclosed on Schedule 3.14, UBT and its
Subsidiaries have not received any notice of any pending or threatened audit by
the Internal Revenue Service or any state, local or foreign agency related to
UBT's and its Subsidiaries' Tax or information returns or Tax liability for any
period and no claim for assessment or collection of Taxes has been asserted
against UBT or its Subsidiaries. UBT and its Subsidiaries currently have no
unpaid deficiency assessed by the Internal Revenue Service or any state, local
or foreign taxing authority with respect to any of UBT's and its Subsidiaries'
Tax returns filed for fiscal years ended on or after December 31, 1987 through
Closing Date, nor, to the Knowledge of UBT, is there reason to believe that any
deficiency will be assessed. There are no actions, suits, proceedings,
investigations or claims now pending or, to the Knowledge of UBT, threatened
against UBT or its Subsidiaries in respect of Taxes, nor are any matters under
discussion by UBT or its Subsidiaries with any Governmental Entity relating to
Taxes.
3.14.4 Statute of Limitations. No agreements are in
force or are currently being negotiated by or on behalf of UBT or its
Subsidiaries for any waiver or for the extension of any statute of limitations
governing the time of assessment or collection of any Tax. No closing
agreements or compromises with any taxing authority are currently pending or
have been entered into by UBT or its Subsidiaries.
3.14.5 Withholding Obligations. UBT and its
Subsidiaries have withheld from each payment made to any of its officers,
directors and employees, the amount of all applicable Taxes, including, but not
limited to, income tax, social security contributions, unemployment
contributions, backup withholding and other deductions required to be withheld
therefrom by any Tax law and have paid the same to the proper Taxing
authorities within the time required under any applicable legislation.
3.14.6 Tax Liens. There are no Tax liens, whether
imposed by any federal, state, local or foreign taxing authority, outstanding
against any assets owned by UBT or its Subsidiaries, except for liens for taxes
that are not yet due and payable.
3.14.7 Safe Harbor Lease Property. None of the
assets owned by UBT or its Subsidiaries is property that is required to be
treated as being owned by any other Person pursuant to the so-called safe
harbor lease provisions of former Section 168 (f)(8) of the IRC.
3.14.8 Security for Tax-Exempt Obligations. None of
the assets owned by UBT or its Subsidiaries directly or indirectly secures any
debt, the interest on which is tax-exempt under Section 103(a) of the IRC.
3.14.9 Tax-Exempt Use Property. None of the assets
owned by UBT or its Subsidiaries is "tax-exempt use property" within the
meaning of Section 168(h) of the IRC.
3.14.10 Foreign Person. None of UBT or its
Subsidiaries is a person other than a United States person within the meaning
of the IRC.
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3.14.11 No Withholding. The transaction contemplated
herein is not subject to the tax withholding provisions of Section 3406 of the
IRC, or of Subchapter A of Chapter 3 of the IRC.
3.14.12 Tax Reserves. UBT and its Subsidiaries have
made full and adequate provision and reserve for all federal, state, local or
foreign Taxes for the current period for which Tax and information returns are
not yet required to be filed. The UBT Financial Statements contain fair and
sufficient accruals for the payment of all Taxes for the periods covered by the
UBT Financial Statements and all periods prior thereto.
3.14.13 Tax Elections. No new material elections
with respect to Taxes or any changes in current material elections with respect
to Taxes affecting the assets owned by UBT or its Subsidiaries shall be made
after the date of this Agreement without the prior written consent of COMERICA,
which shall not be unreasonably withheld.
3.14.14 IRC Section 382 Applicability. None of UBT
or any related party, including any party joining in any consolidated return to
which UBT is a member, was subject to IRC Section 382 prior to the execution
of this Agreement.
3.14.15 Disclosure Information. Within sixty days of
the date of this Agreement, UBT will provide COMERICA with a schedule setting
forth the following information with respect to UBT as of the most recent
practicable date: (a) UBT's basis in its assets; (b) the amount of any net
operating loss, net capital loss, unused investment or other credit, unused
foreign tax, or excess charitable contribution allocable to UBT; and (c) the
amount of any deferred gain or loss allocable to UBT arising out of any
deferred intercompany transactions.
Section 3.15 Performance of Obligations. UBT and its Subsidiaries
have performed in all material respects all of the obligations required to be
performed by them to date under, and none of UBT nor any Subsidiary is in
default under or in breach of, any term or provision of any covenant, contract,
lease, indenture or any other covenant to which any is a party, is subject or
is otherwise bound, and no event has occurred that, with the giving of notice
or the passage of time or both, would constitute such default or breach, where
such default or breach or failure to perform would have a Material Adverse
Effect on UBT and its Subsidiaries taken as a whole. To UBT's Knowledge no
party with whom UBT or its Subsidiaries has an agreement that is of material
importance to the businesses of UBT and its Subsidiaries taken as a whole is in
default thereunder.
Section 3.16 Loans and Investments. Except as set forth on
Schedule 3.16, in all material respects, all loans, leases and other extensions
of credit, and guaranties, security agreements or other agreements supporting
any loans or extensions of credit, and investments of UBT and its Subsidiaries
are, and constitute the legal, valid and binding obligations of the parties
thereto and are enforceable against such parties in accordance with their
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting the rights of California
banks or creditors generally and by general equitable principles. As of August
31, 1994, and except as
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disclosed in Schedule 3.16, no loans or investments held by UBT or any
Subsidiary are (i) more than ninety days past due with respect to any scheduled
payment of principal or interest, other than loans on a non-accrual status;
(ii) classified as "loss," "doubtful," "substandard" or "specially mentioned"
by any federal or state banking regulators; or (iii) on a non-accrual status in
accordance with UBT's loan review procedures. None of such investments, other
than loans, are subject to any restrictions, contractual, statutory or other,
that would materially impair the ability of the entity holding such investment
to dispose freely of any such investment at any time, except restrictions on
the public distribution or transfer of any such investments under the
Securities Act and the regulations thereunder or state securities laws and
pledges or security interests given in connection with government deposits.
UBT has no loans, leases or other extensions of credit outstanding, or
commitments to make any loans, leases or other extensions of credit to any
Affiliates of UBT which are not on substantially the same terms (including
interest rates, repayment terms and collateral) as would be available for
comparable transactions with Persons of similar creditworthiness who are not
Affiliates of UBT. For each outstanding loan or extension of credit or
commitment to make a loan or extension of credit where the original principal
amount is in excess of $25,000, UBT to its Knowledge has taken all action
consistent with good banking practice to document each such loan or extension
of credit, including perfecting security interests, if applicable, or obtaining
the due execution and delivery of guaranties or similar obligations, if
applicable.
Section 3.17 Status of Trust Assets. Schedule 3.17 is a complete
list of all Trust Assets.
3.17.1 With respect to the Trust Assets: (i) no
notice has been received by UBT or any of its Subsidiaries questioning the
validity or enforceability of any of the agreements, contracts or other
commitments to which UBT is a party comprising a part of the Trust Assets; (ii)
to UBT's Knowledge, none of the parties to any such agreement, contract or
other commitment is in default of any material obligation under, or in the
performance of, any material term, condition or other provision of any such
agreement, contract or other commitment; (iii) the rights of UBT or its
Subsidiaries to receive fees in connection with Trust Assets are free and clear
of all pledges, security interests and liens of any kind whatsoever; (iv) in
the management, operation and servicing of the Trust Assets, UBT and its
Subsidiaries have complied, in all material respects, with all applicable
federal, state and local laws, rules, regulations, ordinances, rulings, orders,
awards, judgments and decrees; and (v) in the management, operation and
servicing of the Trust Assets, UBT and its Subsidiaries have complied with all
material terms of all instruments governing the Trust Assets.
3.17.2 Except as set forth on Schedule 3.17.2, to
UBT's Knowledge, (without conducting any site investigation or other analysis
for the purpose of making this representation), neither the use nor current
condition of any real property relating to the Trust Assets is or has been such
during the time the Trust Assets were owned, operated or managed by UBT, in
violation of any Environmental Law under circumstances where the violation
would have a Material Adverse Effect (as defined in Section 5.7.2) on the real
property in question. UBT has adhered to and followed in all material respects
all environmental policies of UBT with respect to the Trust Assets.
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Section 3.18 Brokers and Finders. Other than the retention of
Goldman, Sachs & Co., none of UBT or any Subsidiary is a party to or obligated
under any agreement with any broker or finder relating to the transactions
contemplated hereby, and neither the execution of this Agreement or the
Subsidiary Merger Agreement nor the consummation of the transactions provided
for herein or therein will result in any liability to any broker or finder.
UBT agrees to indemnify and hold harmless COMERICA and INTERIM and their
respective affiliates, and to defend with counsel selected by COMERICA and
INTERIM and reasonably satisfactory to UBT from and against any liability, cost
or expense, including reasonable attorneys' fees, incurred in connection with a
breach of this Section 3.18.
Section 3.19 Material Contracts. Schedule 3.19 to this Agreement
is a complete and accurate written list of all material agreements, obligations
or understandings, written and oral, to which UBT or any Subsidiary is a party
as of the date of this Agreement, except for loans and other extensions of
credit made by UBT in the ordinary course of business and those items disclosed
in the UBT Financial Statements.
Section 3.20 Absence of Material Adverse Effect. Since December
31, 1993, the businesses of UBT and its Subsidiaries have been conducted only
in the ordinary course, in the same manner as theretofore conducted, and no
event or circumstance occurred or is expected to occur which has, or is likely
to result in, a Material Adverse Effect on UBT.
Section 3.21 Undisclosed Liabilities. To UBT's Knowledge, UBT and
its Subsidiaries have no liabilities or obligations, either accrued, contingent
or otherwise, that are material to UBT and its Subsidiaries taken as a whole
and that have not been reflected or disclosed in the UBT Financial Statements,
or incurred subsequent to December 31, 1993 in the ordinary course of business
consistent with past practices. Neither UBT nor any of UBT's Subsidiaries has
any knowledge of any basis for the assertion against any of them of any
liability, obligation or claim (including without limitation that of any
Governmental Entity) that is likely to result in or cause a Material Adverse
Effect that is not fairly reflected in the UBT Financial Statements.
Section 3.22 Employees; Employee Benefit Plans; ERISA.
3.22.1 All of UBT's and its Subsidiaries'
obligations for payment to trusts or other funds or to any Governmental Entity
or to any individual, director, officer, employee or agent (or his or her
heirs, legatees or legal representatives) with respect to unemployment
compensation benefits, profit-sharing, pension or retirement benefits or social
security benefits, whether arising by operation of law, by contract or by past
custom, have been properly accrued for the periods covered thereby on the UBT
Financial Statements and paid when due. All of UBT's and its Subsidiaries
obligations, whether arising by operation of law, by contract or by past custom
for vacation or holiday pay, bonuses and other forms of compensation which are
payable to UBT's and its Subsidiaries' directors, officers, employees or agents
have been properly accrued on the UBT Financial Statements for the periods
covered thereby and paid when due. Except as set forth on Schedule 3.22, there
are no unfair labor practice complaints, strikes, slowdowns, stoppages or other
controversies pending
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or, to the knowledge of UBT, attempts to unionize or controversies threatened
between UBT or any Subsidiary or Affiliate and, or relating to, any of their
employees that are likely to have a Material Adverse Effect on UBT and its
Subsidiaries taken as a whole. None of UBT or any Subsidiary is a party to any
collective bargaining agreement with respect to any of their employees and,
except as set forth on Schedule 3.22, none of UBT or any Subsidiary is a party
to a written employment contract with any of their employees and there are no
understandings with respect to the employment of any officer or employee of UBT
or its Subsidiaries which are not terminable by UBT or its Subsidiaries without
liability on not more than thirty (30) days' notice. Except as disclosed in
the UBT Financial Statements for the periods covered thereby, all sums due for
employee compensation have been paid and all employer contributions for
employee benefits, including deferred compensation obligations, and any
benefits under any Employee Plan (as defined in Section 3.22.3 hereof) or any
Benefit Arrangement (as defined in Section 3.22.4 hereof) have been duly and
adequately paid or provided for in accordance with plan documents. Except as
set forth on Schedule 3.22, no director, officer or employee of UBT or any
Subsidiary is entitled to receive any payment of any amount under any existing
agreement, severance plan or other benefit plan as a result of the consummation
of any transaction contemplated by this Agreement or the Subsidiary Merger
Agreement. UBT and its Subsidiaries have complied in all material respects
with all applicable federal and state statutes and regulations which govern
workers' compensation, equal employment opportunity and equal pay, including,
but not limited to, all civil rights laws, Presidential Executive Order 1124,
and the Fair Labor Standards Act of 1938, as amended and the Americans with
Disabilities Act.
3.22.2 Prior to the execution of this Agreement,
UBT has delivered as Schedule 3.22 a complete list of:
a. all current employees of UBT or any
Subsidiary, together with each employee's age, tenure with UBT or Subsidiary,
title or job classification, and the current annual rate of compensation
anticipated to be paid to each such employee; and
b. all Employee Plans and Benefit
Arrangements, including all plans or practices providing for current
compensation or accruals for active Employees, including, but not limited to,
all employee benefit plans, all pension, profit-sharing, retirement, bonus,
stock option, incentive, deferred compensation, severance, long-term
disability, medical, dental, health, hospitalization, life insurance or other
insurance plans or related benefits.
3.22.3 Except as disclosed on Schedule 3.22, none of
UBT or any Subsidiary maintains, administers or otherwise contributes to any
"employee benefit plan," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), which is subject to any
provisions of ERISA and covers any employee, whether active or retired, of UBT
or any Subsidiary of either (any such plan being herein referred to as an
"Employee Plan"). True and complete copies of each such Employee Plan,
including amendments thereto, have been previously delivered to COMERICA,
together with (i) all agreements regarding plan assets with respect to such
Employee Plans, (ii) a true and complete copy of the annual reports for the
most recent three years (Form 5500 Series including, if applicable, Schedules A
and B thereto) prepared in connection with
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any such Employee Plan, (iii) a true and complete copy of the actuarial
valuation reports for the most recent three years, if any, prepared in
connection with any such Employee Plan covering any active employee of UBT,
(iv) a copy of the most recent summary plan description of each such Employee
Plan, together with any modifications thereto, and (v) a copy of the most
recent favorable determination letter (if applicable) from the Internal Revenue
Service for each Employee Plan. None of the Employee Plans is a "multiemployer
plan" as defined in Section 3(37) of ERISA or a "multiple employer plan" as
covered in Section 412(c) of the IRC, and none of UBT or any Subsidiary has
been obligated to make a contribution to any such multiemployer or multiple
employer plan within the past five years. Each Employee Plan which is intended
to be qualified under Section 401(a) of the IRC is so qualified and each trust
maintained pursuant thereto is exempt from income tax under Section 501(a) of
the IRC, and none of UBT or any Subsidiary is aware of any fact which has
occurred which would cause the loss of such qualification or exemption.
3.22.4 Except as disclosed in Schedule 3.22 and
exclusive of any Employee Plan, none of UBT or any Subsidiary maintains (other
than base-salary and base wages) any form of current or deferred compensation,
bonus, stock option, stock appreciation right, severance pay, salary
continuation, retirement or incentive plan or arrangement for the benefit of
any director, officer or employee, whether active or retired, of UBT or any
Subsidiary or for any class or classes of such directors, officers or
employees. Except as disclosed in Schedule 3.22 and other than any Employee
Plan, none of UBT or any Subsidiary maintains any group or individual health or
insurance, welfare or similar plan or arrangement for the benefit of any
director, officer or employee of UBT or any Subsidiary whether active or
retired, or for any class or classes of such directors, officers or employees.
Any such plan or arrangement described in this Section 3.22.4, copies of which
have been delivered to COMERICA, shall be herein referred to as a "Benefit
Arrangement."
3.22.5 All Employee Plans and Benefit Arrangements
are operated in material compliance with the requirements prescribed by any and
all statutes, governmental or court orders, or governmental rules or
regulations currently in effect, including but not limited to ERISA and the
IRC, applicable to such plans or arrangements, and plan documents relating to
any such plans or arrangements, comply with or will be amended to comply with
applicable legal requirements. Except as disclosed in Schedule 3.22, no
Employee Plan which is subject to Title IV of ERISA has been completely or
partially terminated and no condition exists that could constitute grounds for
the termination of any Employee Plan pursuant to Subtitle C of Title IV of
ERISA, nor has UBT or any Subsidiary incurred, nor does either reasonably
expect to incur, any liability to the Pension Benefit Guaranty Corporation,
except for required premium payments which have been paid when due; except as
disclosed in Schedule 3.22, none of the Employee Plans which are employee
pension benefit plans within the meaning of Section 3(2) of ERISA has engaged
in a merger or consolidation with any other plan or transferred assets or
liabilities from any other plan; with respect to each Employee Plan, to UBT's
Knowledge, none of UBT, any Subsidiary nor any Employee Plan, nor any trusts
created thereunder, nor any trustee, administrator nor any other fiduciary
thereof, has engaged in a "prohibited transaction," as defined in Section 406
of ERISA and Section 4975 of the IRC, that could subject any of them or
COMERICA to liability under Section 409 or 502(i) of ERISA or Section 4975 of
the IRC or that would adversely affect the qualified status of such plans; each
"plan official"
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within the meaning of Section 412 of ERISA of each Employee Plan is bonded to
the extent required by such Section 412; with respect to each Employee Plan, to
the Knowledge of UBT, no employee of UBT or any Subsidiary nor any fiduciary of
any Employee Plan has engaged in any breach of fiduciary duty as defined in
Part 4 of Subtitle B of Title I of ERISA which could subject UBT or any
Subsidiary to liability if UBT or any Subsidiary is obligated to indemnify such
Person against liability. No Employee Plan that is subject to Title IV of
ERISA or Section 412 of the IRC incurred any "accumulated funding deficiency"
(as defined in ERISA), whether or not waived, taking into account contributions
made within the period described in Section 412(c)(10) of the IRC; nor, except
as disclosed in Schedule 3.22, has any of UBT or any Subsidiary failed to make
any contribution or pay any amount due and owing as required by law or the
terms of any Employee Plan or Benefit Arrangement.
3.22.6 Except as set forth on Schedule 3.22, to the
Knowledge of UBT, no Employee Plan or Benefit Arrangement has any liability of
any nature, accrued or contingent, including, without limitation, liabilities
for federal, state, local or foreign taxes, interest or penalty other than
liability for claims arising in the course of the administration of each such
plan. There is no pending or, to the Knowledge of UBT, threatened legal
action, proceeding or investigation against any Employee Plan, other than
routine claims for benefits, which could result in liability to such plans and
there is no basis for any such legal action or proceeding.
3.22.7 Each Benefit Arrangement which is a group
health plan (within the meaning of such term under IRC Section 4980B(g)(2))
complies and has complied in all material respects with the requirements of
Section 601 through 608 of ERISA or Section 4980B of the IRC governing
continuation coverage requirements for employee-provided group health plans.
3.22.8 Except as disclosed in Schedule 3.22, none of
UBT or any Subsidiary maintains any Employee Plan or Benefit Arrangement
pursuant to which any benefit or other payment will be required to be made by
UBT or any Subsidiary or Affiliate or pursuant to which any other benefit will
accrue or vest in any director, officer or employee of UBT or any Subsidiary or
Affiliate, in either case as a result of the consummation of the transactions
contemplated by this Agreement.
3.22.9 No "reportable event," as defined in ERISA,
has occurred with respect to any of the Employee Plans.
Section 3.23 Powers of Attorney. No power of attorney or similar
authorization given by UBT or any Subsidiary is presently in effect or
outstanding other than powers of attorney given in the ordinary course of
business with respect to routine matters.
Section 3.24 [Reserved].
Section 3.25 Intellectual Property Rights. Schedule 3.25 is a
complete and accurate list of all United States and foreign patents,
trademarks, service marks, copyrights and all pending applications therefor,
whether or not issued (the "Intellectual Property"), that relate to or arise
from
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or are used in the operation of the businesses of UBT and its Subsidiaries or
the rights of UBT and its Subsidiaries thereunder. There are no material
claims or demands of any Person pertaining to the Intellectual Property, and no
proceedings have been instituted or are pending or threatened, which challenge
the rights of UBT and its Subsidiaries in respect thereof, and to the Knowledge
of UBT, none of the Intellectual Property is being infringed upon or
appropriated by others, and none is subject to any outstanding order, decree,
judgment, stipulation, injunction, restriction or agreement affecting the scope
of the free and unrestricted use by UBT or any Subsidiary. To the Knowledge of
UBT, none of UBT or any Subsidiary is infringing or violating, and has not so
infringed or violated, any Intellectual Property rights of others.
Section 3.26 Hazardous Materials.
3.26.1 Except for ordinary and necessary quantities
of cleaning, pest control and office supplies, and other small quantities of
Hazardous Substances used in the ordinary course of UBT's and its Subsidiaries
businesses, used and stored in compliance with applicable Environmental Laws,
or ordinary rubbish, debris and nonhazardous solid waste stored in garbage cans
or bins for regular disposal off-site, or petroleum contained in and de minimus
quantities discharged from motor vehicles in their ordinary operation on the
Property (as defined below), UBT and its Subsidiaries have not engaged in the
generation, use, manufacture, treatment, transportation, storage (in tanks or
otherwise), or disposal of Hazardous Substances other than as permitted by
applicable law. To UBT's Knowledge, (and without conducting any site
investigation or other analysis for the purpose of making this representation),
no Hazardous Substances have been released, emitted or disposed of, or
otherwise deposited, on or in any real property which is now or has been
previously owned or leased in the past two years by UBT or any Subsidiary,
including (Other Real Estate Owned)(collectively, the "Property"), or to UBT's
Knowledge (based upon a review of UBT's loan origination documentation, as and
if updated upon renewal), on or in any real property in which UBT or any
Subsidiary now holds any security interest, mortgage or other lien or interest,
except for (i) Disclosed Matters; (ii) ordinary and necessary quantities of
cleaning, pest control and office supplies, and other small quantities of
Hazardous Substances used in the ordinary course of UBT's and its Subsidiaries
businesses, used and stored in compliance with applicable Environmental Laws,
or ordinary rubbish, debris and nonhazardous solid waste stored in garbage cans
or bins for regular disposal off-site, or petroleum contained in and de minimus
quantities discharged from motor vehicles in their ordinary operation on the
Property; and (iii) such releases, emissions, disposals or deposits which
constituted a violation of an Environmental Law but did not have a Material
Adverse Effect on the Property involved . To UBT's Knowledge, (and without
conducting any site investigation or other analysis for the purpose of making
this representation), no activity has been undertaken on the Property during
UBT's or any Subsidiary's occupancy of or during any period in which UBT or any
Subsidiary had any rights in the Property that would cause or contribute to:
a. the Property becoming a treatment,
storage or disposal facility within the
meaning of RCRA or any similar state law or
local ordinance;
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b. a release or threatened release of
any Hazardous Substances under circumstances
which would violate any Environmental Laws; or
c. the discharge of Hazardous
Substances into any soil, subsurface water or
ground water or into the air, or the dredging
or filling of any waters, that would require a
permit or any other approval under the Federal
Water Pollution Control Act, 33 U.S.C. Section
1251 et seq., the Clean Air Act, as amended,
42 U.S.C. Section 7401 et seq., or any
similar federal or state law or local
ordinance;
the cumulative effect of which would have a Material Adverse Effect on the
Property involved.
3.26.2 To UBT's Knowledge, (and without conducting
any site investigation or other analysis for the purpose of making this
representation), there are no substances or conditions in or on the Property
that may support a claim or cause of action under any Environmental Law and, to
UBT's Knowledge, (and without conducting any site investigation or other
analysis for the purpose of making this representation), there are not, and
never have been, any underground storage tanks located in or under the
Property.
3.26.3 None of UBT or any Subsidiary has received any
written notice of, and to its Knowledge, (and without conducting any inquiry of
any Governmental Entity for the purpose of making this representation), any
verbal notice of, any pending or threatened claims, investigations,
administrative proceedings, litigation, regulatory hearings or requests or
demands for remedial or response actions or for compensation, with respect to
the Property, alleging noncompliance with or violation of any Environmental Law
or seeking relief under any Environmental Law and the Property is not listed on
the United States Environmental Protection Agency's National Priorities List of
Hazardous Waste Sites, or, to UBT's Knowledge, any other list, schedule, log,
inventory or record of hazardous waste sites maintained by any federal, state
or local agency.
3.26.4 Except as set forth on Schedule 3.26, to UBT's
Knowledge, (and without conducting any site investigation or other analysis for
the purpose of making this representation), there are no environmental reports
regarding the Property nor have there been any environmental investigations
relating to the Property.
3.26.5 "Hazardous Substances" shall mean any
hazardous, toxic or infectious substance, material, gas or waste which is
regulated by any local, state or federal Governmental Entity, or any of their
agencies or which has been identified by any such Governmental Entity as a
toxic, cancer causing or otherwise hazardous substance.
Section 3.27 Stock Options. Schedule 3.27 to this Agreement
contains a list of all of all UBT Stock Options outstanding, indicating for
each: (a) the grant date; (b) whether vested or unvested; (c) exercise price;
and (d) a vesting schedule by plan year.
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Section 3.28 Interest Rate Risk Management Instruments.
All interest rate swaps, floors and option agreements and similar interest rate
risk management arrangements to which UBT or any of its Subsidiaries is a party
or by which any of their properties or assets may be bound were entered into in
the ordinary course of business, in accordance with commercially reasonable
banking practices and applicable rules, regulations and policies of the
California Superintendent of Banks and are legal, valid and binding obligations
enforceable in accordance with their terms against UBT and, to UBT's Knowledge,
against all other parties thereto (except as may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting the rights of
California banks or creditors and by general equitable principles). To UBT's
Knowledge, all counterparties to such arrangements are financially responsible
and are able to adequately perform their obligations under such arrangements.
UBT and its Subsidiaries have duly performed their obligations under such
arrangements to the extent that such obligations to perform have accrued and to
UBT's Knowledge, there are no material breaches, violations or defaults or
allegations or assertions of such by any party to such arrangements.
Section 3.29 Disclosure in Schedules. Anything disclosed by UBT or
any of is Subsidiaries in the Schedules to this Agreement shall be considered
to have been disclosed for purposes of all representations, warranties and
covenants of such party under this Agreement.
Section 3.30 No Actual Knowledge of Misrepresentation or Breach of
Warranty. In connection with any investigation of UBT conducted by COMERICA,
UBT has not, to its Knowledge, failed to advise COMERICA and INTERIM on or
before the Closing Date of any actual Knowledge UBT may have that any of the
representations or warranties of UBT contained in this Agreement or in the
exhibits and schedules to this Agreement are not true.
Section 3.31 Effective Date of Representations, Warranties,
Covenants and Agreements. Each representation, warranty, covenant and
agreement of UBT set forth in this Agreement shall be deemed to be made on and
as of the date hereof and as of the Effective Time.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF COMERICA
COMERICA represents and warrants to UBT that:
Section 4.1 Organization; Corporate Power; Etc. COMERICA is a
bank holding company registered under the BHCA. COMERICA is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own, operate
and lease its properties and to carry on its business substantially as they are
being conducted on the date of this Agreement. Each of COMERICA's Subsidiaries
has all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business substantially as they are being
conducted on the date of this Agreement, except where the failure to have such
power or authority would not have a Material Adverse Effect on COMERICA or the
ability to consummate the transactions contemplated by this Agreement. COMERICA
has all requisite corporate power and authority to enter into this Agreement
and, subject to the obtaining of all
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Requisite Regulatory Approvals, to consummate the transactions contemplated
hereby. Neither the scope of business of COMERICA or any Subsidiary or the
location of any of their properties requires that COMERICA be licensed to
conduct business in any jurisdiction other than those jurisdictions in which it
is licensed or qualified to do business as a foreign corporation where the
failure to be so licensed or qualified would, individually or in the aggregate,
have a Material Adverse Effect on COMERICA.
Section 4.2 Licenses and Permits. COMERICA and its Subsidiaries
have all material licenses, certificates, franchises and permits that are
necessary for the conduct of their respective businesses, and such licenses are
in full force and effect, except for any failure to be in full force and effect
that would not, individually or in the aggregate, have a Material Adverse
Effect on COMERICA or any of its banking subsidiaries. The properties and
operations of COMERICA and its Subsidiaries are and have been maintained and
conducted, in all material respects, in compliance with all applicable
licenses, certificates, franchises and permits.
Section 4.3 Authorization of Agreement; No Conflicts.
4.3.1 The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and thereby, have
been duly authorized by all necessary corporate action on the part of COMERICA.
This Agreement has been duly executed and delivered by COMERICA and constitutes
a legal, valid and binding obligation of COMERICA, enforceable against COMERICA
in accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting
the rights of Delaware corporations and bank holding companies generally and by
general equitable principles, and the Subsidiary Merger Agreement, upon due
execution and filing thereof in accordance with the applicable provisions of
the California Corporations Code and California Financial Code, will constitute
a valid and binding obligation of INTERIM, enforceable in accordance with its
terms.
4.3.2 The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby does not and will
not, in the case of COMERICA, and will not, in the case of INTERIM, conflict
with, or result in any violation of or default or loss of a material benefit
under, any provision of the certificate of incorporation or bylaws of COMERICA
or INTERIM or, except for the necessity of obtaining Requisite Regulatory
Approvals, any material mortgage, indenture, lease, agreement or other material
instrument, or any permit, concession, grant, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
COMERICA or any of its Subsidiaries, other than any such conflict, violation,
default or loss which (i) will not have a Material Adverse Effect on COMERICA;
or (ii) will be cured or waived prior to the Effective Time. No material
consent, approval, order or authorization of, or registration, declaration or
filing with, any governmental authority is required in connection with the
execution and delivery of this Agreement by COMERICA and INTERIM or the
consummation by COMERICA or INTERIM of the transactions contemplated hereby,
except for (a) filings required in order to obtain Requisite Regulatory
Approvals, (b) the filing of the Registration Statement with the SEC and the
declaration by the SEC that the Registration Statement is effective, (c) the
filing and approval of
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the Subsidiary Merger Agreement with the California Superintendent of Banks and
the Secretary of State of the State of California; (d) any approvals required
to be obtained pursuant to the BHCA or any other required governmental approval
for the execution and delivery of this Agreement by COMERICA or INTERIM or the
consummation of the Merger; (e) any consents, authorizations, approvals,
filings or exemptions required to be made or obtained under the securities of
"blue sky" laws of various jurisdictions in connection with the issuance of
shares of COMERICA Common Stock contemplated by this Agreement; and (f) any
consents, authorizations, approvals, filings or exemptions in connection with
compliance with the rules of the NYSE.
Section 4.4 Capital Structure of COMERICA. On the date of this
Agreement, the authorized capital stock of COMERICA consists of 250,000,000
shares of COMERICA Common Stock and 10,000,000 shares of Preferred Stock
without par value. At the close of business on September 30, 1994, 119,294,355
shares of COMERICA Common Stock were outstanding, no shares of COMERICA Common
Stock were reserved for issuance upon the exercise of outstanding employee
stock options (including COMERICA's Long Term Incentive Plan and COMERICA's
dividend reinvestment plan), 751,395 shares of COMERICA Common Stock were held
by COMERICA in its treasury (in addition to shares held directly or indirectly
in trust accounts, managed accounts and the like or otherwise held in a
fiduciary capacity that are beneficially owned by third parties), not more than
500,000 shares of COMERICA Series C Participating Preferred Stock were reserved
for issuance upon exercise of the rights distributed to the holders of COMERICA
Common Stock pursuant to the Rights Agreement, dated as of January 26, 1988,
between COMERICA and COMERICA Bank as Rights Agent. The issuance of the shares
of COMERICA Common Stock proposed to be issued pursuant to this Agreement at
the Effective Time will have been duly authorized by all requisite corporate
action of COMERICA, and such shares, when issued as contemplated by this
Agreement, will constitute duly authorized, validly issued, fully paid and
non-assessable shares of COMERICA Common Stock, and will not have been issued
in violation of the preemptive or similar rights of any person. As of the date
of this Agreement, and except for this Agreement, the COMERICA Stock Plans, the
COMERICA Rights Agreement, COMERICA does not have outstanding any options,
warrants, calls, rights, commitments, securities or agreements of any character
to which COMERICA is a party or by which it is bound obligating COMERICA to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock of COMERICA or obligating COMERICA to grant, extend or
enter into any such option, warrant, call, right, commitment or agreement.
Section 4.5 Formation of INTERIM. As soon as practicable after
the of this Agreement, COMERICA shall cause INTERIM to be formed, all of the
stock of which will be held by COMERICA.
Section 4.6 COMERICA Filings.
4.6.1 Since January 1, 1992, COMERICA and its
Subsidiaries have filed all reports, registrations and statements, together
with any amendments required to be made with respect thereto, copies of which
have been made available to UBT except to the extent prohibited by law, that
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were required to be filed with (a) the Federal Reserve Board or any Federal
Reserve Bank; (b) the OCC; (c) the Federal Deposit Insurance Corporation; (d)
Michigan Banking Commissioner; and (e) any other applicable federal, state or
local governmental or regulatory authority. All such reports, registrations and
filings are collectively referred to as the "COMERICA Filings." As of their
respective filing dates, each of the past COMERICA Filings (a) was true and
complete in all material respects (or was amended so as to be so promptly
following discovery of any discrepancy); and (b) complied in all material
respects with all of the statutes, rules and regulations enforced or
promulgated by the Governmental Entity with which it was filed (or was amended
so as to be so promptly following discovery of any such noncompliance) and none
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The COMERICA Financial Statements, together with the financial
statements contained in the COMERICA Filings, have been prepared in accordance
with Generally Accepted Accounting Principles consistently followed throughout
the periods covered by such statements, and present fairly the consolidated
financial position of COMERICA as of the respective dates indicated and the
consolidated results of its operations and changes in its cash flows at the
respective dates and for the respective periods covered by such financial
statements.
4.6.2 COMERICA has filed each report, schedule,
registration statement and definitive proxy statement and amendments to each of
the foregoing since January 1, 1991 that COMERICA was required to file with the
SEC since such date (the "COMERICA SEC Documents"), all of which have been made
available to UBT. As of their respective dates, the COMERICA SEC Documents
complied in all material respects with the requirements of the Securities Act
and the Exchange Act, as the case may be, and the rules and regulations of the
SEC thereunder applicable to such COMERICA SEC Documents, and none of the
COMERICA SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The financial statements of COMERICA included in
the COMERICA SEC Documents comply in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with Generally Accepted
Accounting Principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present
(subject, in the case of the unaudited statements, to recurring adjustments
normal in nature and amount) the consolidated financial position of COMERICA as
at the dates thereof and the consolidated results of its operations and cash
flows for the periods then ended.
Section 4.7 Accuracy of Information Supplied.
4.7.1 No representation or warranty of COMERICA
contained in this Agreement or any statement, schedule, exhibit or certificate
given or to be given by or on behalf of COMERICA to UBT in connection herewith
and none of the information supplied or to be supplied by COMERICA to UBT under
this Agreement contains or will contain any untrue statement of
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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.
4.7.2 None of the information supplied or to be
supplied by COMERICA for inclusion or incorporation by reference in, or
relating to COMERICA and included or incorporated by reference in, (i) the
Registration Statement on Form S-4 to be filed with the SEC by COMERICA in
connection with the issuance of shares of COMERICA Common Stock in the Merger
(including the Proxy Statement and prospectus constituting a part thereof, the
"Registration Statement") will, at the time the Registration Statement becomes
effective under the Securities Act, 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; (ii) the Proxy Statement and any
amendment or supplement thereto will, at all times from the date of mailing to
shareholders of UBT through the date of the meeting of shareholders of UBT to
be held in connection with the Merger, 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; and (iii) the statements, correspondence,
applications and forms to be filed with securities or "blue sky" authorities,
self regulatory authorities, the NYSE or any Governmental Entity in connection
with the Merger, the issuance of any shares of COMERICA Common Stock in
connection with the Merger, or any Requisite Regulatory Approvals will, at the
time filed or at the time they become effective, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Registration
Statement (except for such portions thereof that relate only to UBT and its
Subsidiaries) will comply in all material respects with the provisions of the
Securities Act and the rules and regulations thereunder.
Section 4.8 Compliance With Applicable Laws. Except as disclosed
in the COMERICA SEC Documents filed prior to the date of this Agreement, the
businesses of COMERICA and its Subsidiaries are not being conducted in
violation of any law, ordinance or regulation, except for violations which
individually or in the aggregate would not, have a Material Adverse Effect on
COMERICA and its Subsidiaries taken as a whole. No investigation or review by
any Governmental Entity with respect to COMERICA is pending or, to the
knowledge of COMERICA, threatened, nor has any Governmental Entity indicated to
COMERICA an intention to conduct the same, other than those previously
disclosed to UBT, the outcome of which, as far as can be reasonably foreseen,
will not have a Material Adverse Effect on COMERICA or any Subsidiary.
Section 4.9 Litigation. Except as disclosed in the COMERICA SEC
Documents, there is no suit, action or proceeding pending or, to the Knowledge
of COMERICA, threatened against or affecting COMERICA and its Subsidiaries
which, if adversely determined, would have a Material Adverse Effect on
COMERICA or any Subsidiary of COMERICA taken as a whole; nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against COMERICA or any Subsidiary of COMERICA having,
or which, insofar as reasonably can be foreseen, in the future would have, any
such effect.
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Section 4.10 Agreements with Banking Authorities. Except as set
forth on Schedule 4.10, none of COMERICA or its banking subsidiaries is a party
to any written agreement, memorandum of understanding or order or directive
with any Governmental Entity.
Section 4.11 Performance of Obligations. COMERICA and its
Subsidiaries have performed in all material respects all of the obligations
required to be performed by them to date and none of COMERICA nor any of its
Subsidiaries is in default under or in breach of any term or provision of any
covenant, contract, lease, indenture or any other covenant to which it is a
party, is subject or is otherwise bound, and no event has occurred that, with
the giving of notice or the passage of time or both, would constitute such
default or breach, where such default or breach would have a Material Adverse
Effect on COMERICA and its Subsidiaries, taken as a whole. To COMERICA's
Knowledge, no party with whom COMERICA or its Subsidiaries has an agreement
that is of material importance to the business of COMERICA and its Subsidiaries
taken as a whole, is in default thereunder.
Section 4.12 Brokers and Finders. COMERICA is not a party to or
obligated under any agreement with any broker or finder relating to the
transactions contemplated hereby, and neither the execution of this Agreement
or the Subsidiary Merger Agreement nor the consummation of the transaction
provided for herein or therein will result in any liability to any broker or
finder. COMERICA agrees to indemnify and hold harmless UBT and its affiliates
and to defend with counsel selected by UBT and reasonably satisfactory to
COMERICA from and against any liability, cost or expense, including attorneys'
fees, incurred in connection with a breach of this Section 4.12.
Section 4.13 Absence of Material Adverse Change. Except as
disclosed in COMERICA SEC Documents, since December 31, 1993, the businesses of
COMERICA and its Subsidiaries have been conducted only in the ordinary course,
in the same manner as theretofore conducted, and no event or circumstance has
occurred or is expected to occur which resulted in or is likely to result in a
Material Adverse Effect on COMERICA.
Section 4.14 Undisclosed Liabilities. COMERICA and its
Subsidiaries have no liabilities or obligations, either accrued, contingent or
otherwise, that are material to COMERICA and its Subsidiaries taken as a whole
and that have not been: (a) reflected or disclosed in the COMERICA Financial
Statements; (b) incurred subsequent to January 1, 1994 in the ordinary course
of business consistent with past practice; or (c) disclosed in writing to UBT
prior to the date of this Agreement. COMERICA knows of no basis for the
assertion against it or any of its Subsidiaries of any liability, obligation or
claim (including without limitation that of any Governmental Entity) that is
likely to result in or cause a Material Adverse Effect on COMERICA and its
Subsidiaries, taken as a whole, that is not fairly reflected in the COMERICA
Financial Statements or otherwise disclosed in writing to UBT prior to the date
of this Agreement.
Section 4.15 Disclosure in Schedules. Anything disclosed by
COMERICA or any of its Subsidiaries in the Schedules to this Agreement shall be
considered to have been disclosed for purposes of all representations,
warranties and covenants of such party under this Agreement.
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Section 4.16 No Actual Knowledge of Misrepresentation or Breach of
Warranty. In connection with any investigation of UBT conducted by
COMERICA, COMERICA has not, to its Knowledge, failed to advise UBT on or before
the date hereof of any Knowledge COMERICA may have that any of the
representations or warranties of UBT contained in this Agreement or in the
exhibits and schedules to this Agreement are not true.
Section 4.17 Taxes.
4.17.1 Filing of Returns. COMERICA has duly prepared
and filed federal, state, local and foreign Returns (for tax or informational
purposes) which were required to be filed by or in respect of COMERICA and its
Subsidiaries, or any of their properties, income and/or operations on or prior
to the Closing Date. As of the time of filing, the foregoing Returns correctly
reflect the material facts regarding the income, business, assets, operations,
activities, status, and any other information required to be shown thereon.
4.17.2 Payment of Taxes. With respect to all Taxes
imposed on COMERICA or any Subsidiary or for which COMERICA is or could be
liable, whether to taxing authorities (as, for example, under law) or to other
Persons or entities (as, for example, under tax allocation agreements), with
respect to all taxable periods or portions of periods ending on or before the
Closing Date, all applicable tax laws and agreements have been or will be fully
complied with, and all such amounts required to be paid by or on behalf of
COMERICA or any Subsidiary to taxing authorities or others on or before the
date hereof have been paid.
4.17.3 Audit History. Except as previously
disclosed to UBT, there has not, within the last year, been any review or audit
by any taxing authority of any Tax liability of COMERICA or any Subsidiary.
Except as previously disclosed to UBT, COMERICA and its Subsidiaries have not
received any notice of any pending or threatened audit by the Internal Revenue
Service or any state, local or foreign agency related to COMERICA's and its
Subsidiaries' Tax or information returns or Tax liability for any period and no
claim for assessment or collection of Taxes has been asserted against COMERICA
or its Subsidiaries. COMERICA and its Subsidiaries currently have no unpaid
deficiency assessed by the Internal Revenue Service or any state, local or
foreign taxing authority with respect to any of COMERICA's and its
Subsidiaries' Tax returns filed for fiscal years ended on or after December 31,
1993 through Closing Date, nor, to the Knowledge of COMERICA, is there reason
to believe that any deficiency will be assessed.
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Section 4.18 No Knowledge Regarding Approvals. COMERICA has no
reason to believe that the Requisite Regulatory Approvals will impose any
condition which is materially burdensome upon UBT, COMERICA, INTERIM, their
respective Affiliates or the Surviving Corporation or will require the
divestiture by COMERICA of any material Subsidiary or of a material portion of
the business of COMERICA.
Section 4.19 Effective Date of Representations, Warranties,
Covenants and Agreements. Each representation, warranty, covenant and
agreement of COMERICA set forth in this Agreement shall be deemed to be made on
and as of the date hereof and as of the Effective Time.
ARTICLE 5 ADDITIONAL AGREEMENTS
Section 5.1 Access to Information, Due Diligence, etc.
5.1.1 Upon reasonable notice, UBT and its
subsidiaries shall allow COMERICA and INTERIM and their accountants, counsel
and other representatives reasonable access during business hours to its
officers, employees, properties, books, contracts, commitments and records and
from the date hereof through the Effective Time, shall furnish to COMERICA as
soon as practicable, (i) a copy of each UBT Filing filed since the date of this
Agreement after such document has been filed with the appropriate Governmental
Entity; (ii) unless otherwise prohibited by law, a copy of each report,
schedule and other documents filed or received by it during such period with
any Regulatory Authority or the Internal Revenue Service (as to documents other
than related to employees or customers and other than those distributed to
banks generally); (iii) as promptly as practicable following the end of each
calendar month after the date hereof, a consolidated balance sheet of UBT as of
the end of such month; and (iv) all other information concerning its business,
properties, assets, financial condition, results of operations, liabilities,
personnel and otherwise as COMERICA or INTERIM may reasonably request.
5.1.2 Upon reasonable notice, COMERICA shall allow
UBT and its accountants, counsel and other representatives such access to its
officers, employees, properties, books, contracts, commitments and records as
COMERICA provides to financial analysts in the normal course of business and,
from the date hereof through the Effective Time at UBT's request, shall furnish
to UBT as soon as practicable, a copy of each COMERICA SEC Document filed since
the date of this Agreement and any other information relating to its existing
business, properties, financial condition, results of operations and personnel
as UBT may reasonably request.
5.1.3 UBT, INTERIM and COMERICA each agrees to keep
confidential and not divulge to any other party or Person (other than to the
employees, attorneys, accountants and consultants of each who have a need to
receive such information and other than as may be required by law or the rules
of the NYSE) any information received from the other, unless and until the
earlier of (i) the second anniversary of the date on which this Agreement
terminates; and (ii) the date on
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which such documents and other information otherwise becomes publicly
available. In the event of termination of this Agreement for any reason, the
parties shall promptly return or at the election of the other party destroy all
documents obtained from the other and any copies or notes of such documents
(except as otherwise required by law) and, upon the request of the other party,
confirm such destruction to the other in writing.
Section 5.2 Shareholder Approval.
5.2.1 UBT shall promptly call a meeting of its
shareholders to be held at the earliest practicable date after the date on
which the initial Registration Statement is filed with the SEC for the purpose
of ratifying and confirming this Agreement and authorizing the Subsidiary
Merger Agreement and the Merger. The UBT Board of Directors will recommend to
the UBT shareholders ratification and confirmation of this Agreement, the
Subsidiary Merger Agreement and the Merger; provided, however, that the UBT
Board of Directors may withdraw such recommendation if such Board of Directors
believes in good faith that a Superior Proposal (defined below) has been made
and shall have determined in good faith, after consultation with its outside
legal counsel, that the withdrawal of such recommendation is necessary for such
Board of Directors to comply with its fiduciary duties under applicable law.
5.2.2 Prior to the Effective Time of the Merger,
COMERICA, as the sole shareholder of INTERIM, shall take all action proper or
advisable for the consummation of the Merger by INTERIM.
Section 5.3 Taking of Necessary Action.
5.3.1 Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees, subject to applicable laws and
the fiduciary duties of UBT's, COMERICA's or INTERIM's Board of Directors as
advised in writing by counsel, to use all reasonable efforts promptly to take
or cause to be taken all action and promptly to do or cause to be done all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
and the Subsidiary Merger Agreement, including, without limitation, the
delivery of any certificate or other document reasonably requested by counsel
to a party to this Agreement. Without limiting the foregoing, COMERICA, UBT
and INTERIM will use their reasonable efforts to obtain all consents of third
parties and Government Entities necessary or, in the reasonable opinion of
COMERICA and INTERIM or UBT, advisable for the consummation of the transactions
contemplated by this Agreement. Without limiting the foregoing, COMERICA shall
cause INTERIM to take all actions necessary to execute and file the Subsidiary
Merger Agreement and to effect all transactions contemplated of INTERIM by this
Agreement. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement or the
Subsidiary Merger Agreement, or to vest the Surviving Corporation with full
title to all properties, assets, rights, approvals, immunities and franchises
of UBT and its Subsidiaries, the proper officers or directors of COMERICA,
INTERIM or UBT, as the case may be, shall take all such necessary action.
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5.3.2 UBT shall use its best efforts to cause each
director, executive officer and other Person who is an "affiliate" (for
purposes of Rule 145 under the Securities Act and for purposes of qualifying
for "pooling-of-interests" treatment for accounting purposes) of UBT to deliver
to COMERICA, within 20 Business Days after the date of this Agreement and in
any event prior to the date the Registration Statement on Form S-4 is initially
filed, a written agreement in the form attached hereto as Exhibit 7.2.15.
Section 5.4 Registration Statement and Applications.
5.4.1 COMERICA and UBT will cooperate and jointly
prepare and file as promptly as practicable the Registration Statement (in
which the Proxy Statement will be included as a prospectus), the statements,
applications, correspondence or forms to be filed with appropriate State
securities law regulatory authorities, and the statements, correspondence,
applications or forms to be filed to obtain the Requisite Regulatory Approvals
to consummate the transactions contemplated by this Agreement. Each of
COMERICA and UBT shall use all reasonable efforts to have the Registration
Statement declared effective under the Securities Act as promptly as
practicable after such filing, and thereafter mail the Proxy Statement to UBT's
shareholders. COMERICA shall prepare and file the listing application to be
filed with the New York Stock Exchange with respect to the COMERICA Common
Stock to be issued in the Merger. Each party will furnish all financial or
other information, including independent public accountant comfort letters
relating thereto, certificates, consents and opinions of counsel concerning it
and its Subsidiaries reasonably deemed necessary by the other party for the
filing or preparation for filing of the Registration Statement and related
matters.
5.4.2 Each party shall provide to the other at the
request of the other party: (i) immediately prior to the filing thereof, copies
of all material statements, applications, correspondence or forms to be filed
with State securities law regulatory authorities, the SEC and other appropriate
regulatory authorities to obtain the Requisite Regulatory Approvals to
consummate the transactions contemplated by this Agreement; provided, however,
that no approval need be obtained from any party to which such materials are
provided; and (ii) promptly after delivery to, or receipt from, such regulatory
authorities all written communications, letters, reports or other documents
relating to the transactions contemplated by this Agreement.
5.4.3 COMERICA, INTERIM and UBT shall receive
opinions of their respective counsel, addressed to the parties and dated the
date the Registration Statement becomes effective and the date of the
shareholders meeting in substantially the forms previously agreed upon.
Section 5.5 Expenses.
5.5.1 Whether or not the Merger is consummated, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring the same;
provided, however, that COMERICA will file on a timely basis at its own expense
the reports required by Rule 144(c) of the Securities Act.
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5.5.2 UBT's expenses incurred in connection with
this Agreement and the transactions contemplated by this Agreement, including
attorneys', accountants', investment bankers' and any other fees, collectively
shall not exceed the sum of $1,500,000 without the prior written approval of
COMERICA, which shall not be unreasonably withheld. UBT shall use its best
efforts to ensure that its attorneys, accountants, investment bankers and other
consultants engaged in connection with the transaction contemplated by this
Agreement submit full and final bills on the Closing Date.
Section 5.6 Notification of Certain Events.
5.6.1 UBT shall provide to COMERICA and INTERIM, as
soon as practicable, written notice (sent via facsimile and overnight mail or
courier) of the occurrence or failure to occur of any of the events,
circumstances or conditions that are the subject of Sections 6.1 and 6.2, which
notice shall provide reasonable detail as to the subject matter thereof.
5.6.2 COMERICA shall provide to UBT as soon as
practicable, written notice (sent via facsimile and overnight mail or courier)
of the occurrence or failure to occur of any of the events, circumstances or
conditions that are the subject of Section 6.3, which notice shall provide
reasonable detail as to the subject matter thereof.
5.6.3 The parties shall promptly advise each other
in writing of any change or event which could reasonably be expected to have a
Material Adverse Effect on any such party.
5.6.4 UBT shall immediately notify COMERICA in
writing in the event that UBT becomes aware that the Registration Statement or
Proxy Statement at any time contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading or that the Registration Statement or the Proxy
Statement otherwise is required to be amended as supplemented, which notice
shall specify, in reasonable detail, the circumstances thereof.
Section 5.7 Environmental Assessment.
5.7.1 COMERICA and INTERIM shall have the right to
conduct before the Closing Date, but to be commenced no later than 60 days
after the date of this Agreement, at their sole expense, environmental site
investigations and assessments ("Site Assessments") covering any real property
owned or leased by UBT (including Other Real Estate Owned) or held in trust or
otherwise managed by UBT, for the purpose of determining whether there exists
on such real property any environmental condition which could result in any
liability, cost or expense to COMERICA, INTERIM, the Surviving Corporation or
any other owner, user or occupant of such property relating to Hazardous
Substances or other adverse environmental conditions. Such Site Assessment may
include both above and below the ground testing for environmental damage or the
presence of Hazardous Substances on such property as may be reasonably
necessary to conduct the
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Site Assessment in the opinion of the persons conducting such Site Assessment
and UBT shall allow such persons access to such property during normal business
hours and upon reasonable prior notice in order to permit them to conduct the
Site Assessment and shall otherwise cooperate with such persons in connection
therewith. In exercising its rights hereunder, COMERICA shall coordinate with
UBT to avoid unduly interfering with the conduct of business by UBT and its
Subsidiaries. For invasive testing (exclusive of asbestos sampling)(e.g., soil
and soil boring testing), COMERICA will first present to UBT the plan of
testing that is contemplated by COMERICA and COMERICA may not conduct such
testing without UBT's prior written consent, which shall not be unreasonably
withheld or delayed. In connection with such inspection and testing, COMERICA
shall obtain at its sole cost and expense all permits and licenses required in
connection with the performance of such work. COMERICA shall repair any
damages caused by its tests or inspections. COMERICA hereby indemnifies UBT
for all injuries and damages to persons or property caused by such surveys and
testing for the cost of removing all mechanics' or materialmen's liens on the
inspected property resulting from such surveys and testing ordered by COMERICA.
As used herein, "Disclosed Matters" shall mean all information contained in the
Site Assessments obtained by COMERICA.
5.7.2 If any such Site Assessment discloses any
environmental condition which would be reasonably likely to have a Material
Adverse Effect on such real property, COMERICA and INTERIM shall have the right
and option to terminate this Agreement prior to the Closing Date and to declare
it null and void pursuant to Section 8.1.9 of this Agreement by delivering
written notice of termination to UBT within thirty (30) days after the receipt
of each such Site Assessment and including with such notice a copy of such Site
Assessment. For purposes of this Section 5.7.2, Material Adverse Effect shall
mean a diminution in value (from the appraised value of the property in
question), of more than ten percent and at least $150,000.
5.7.3 COMERICA and INTERIM shall not provide any
such Site Assessment, or any non-public information contained therein, to any
third party, including any Governmental Entity, unless otherwise required to do
so by law or regulation.
Section 5.8 Schedules, Closing Schedules. All schedules
referred to in this Agreement have be previously and separately delivered by
the parties. On the Closing Date, UBT shall prepare updates of the schedules
provided for in Articles 3 and 7 of this Agreement and shall deliver to
COMERICA revised schedules containing the updated information (the "Closing
Schedules")(or a certificate signed by UBT's Chief Executive Officer stating
that there have been no changes on the applicable schedules). The Closing
Schedules shall be dated as of the day prior to the Closing Date and shall
contain information as of the day prior to the Closing Date or as of such
earlier date as is practicable in the circumstance.
Section 5.9 Indemnification and Insurance.
5.9.1 For a period of six years after the Effective
Time, COMERICA shall use its commercially reasonable efforts to cause to be
maintained in effect policies of directors' and officers' liability insurance
(with such coverage, terms and conditions as are no less advantageous than
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the insurance presently maintained by COMERICA with respect to its officers and
directors) with respect to all matters arising from facts or events which
occurred before the Effective Time for which UBT would have had an obligation
to indemnify their directors and officers; provided, however, that in no event
shall COMERICA be obligated to expend, in order to maintain or provide
insurance coverage pursuant to this Section 5.9.1 any amount per annum in
excess of 300% of the amount of the 1994 annual premiums paid by UBT for such
insurance (the "Maximum Amount"). If the amount of the annual premiums
necessary to maintain or procure such insurance coverage exceeds the Maximum
Amount, COMERICA shall use all reasonable efforts to maintain the most
advantageous policies of directors' and officers' insurance obtainable for an
annual premium equal to the Maximum Amount.
5.9.2 COMERICA agrees that all rights to
indemnification and all limitations of liability existing in favor of the
directors and officers of UBT as provided in UBT's Articles of Incorporation or
Bylaws or any Indemnification Agreement with respect to matters occurring prior
to the Effective Time shall survive the Merger and shall continue in full force
and effect, without any amendment thereto, for a period of six years from the
Effective Time; provided, however, that all rights to indemnification in
respect of any claim (a "Claim") asserted or made within such period shall
continue until the final disposition of such Claim. Nothing contained in this
Section 5.9.2 shall be deemed to preclude any rights to indemnification or
limitations on liability provided in UBT's Articles of Incorporation or Bylaws
or the similar governing documents of any of UBT's Subsidiaries with respect to
matters occurring subsequent to the Effective Time to the extent that the
provisions establishing such rights or limitations are not otherwise amended to
the contrary.
5.9.3 If COMERICA or any of its successors or
assigns (i) shall consolidate with or merge into any other corporation or
entity and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) shall transfer all or substantially all of
its properties and assets to any individual, corporation or other entity, then
and in each such case, COMERICA shall take no action to impair the rights
provided in this Section 5.9.
5.9.4 The provisions of this Section are intended to
be for the benefit of, and shall be enforceable by, each director or officer of
UBT and his or her heirs and representatives.
Section 5.10 Additional Accruals.
5.10.1 At COMERICA's or INTERIM's request, UBT shall,
consistent with Generally Accepted Accounting Principles, establish such
additional accruals and reserves immediately prior to the Effective Time as may
be necessary to conform UBT's accounting and credit loss reserve practices and
methods to those of COMERICA and INTERIM or its Subsidiaries; provided,
however, that no accrual or reserve made by UBT pursuant to this Section
5.10.1, or any litigation or regulatory proceeding arising out of any such
accrual or reserve, or any other effect on UBT resulting from UBT's compliance
with this Section 5.10.1, shall constitute or be deemed to be a breach,
violation of or failure to satisfy any representation, warranty, covenant,
condition or other provision of this Agreement or otherwise be considered in
determining whether any such breach,
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violation or failure to satisfy shall have occurred; and provided further,
however, that no accrual or reserve made by UBT pursuant to this Section 5.10.1
shall be used by the parties in the calculation of the Conversion Rate.
5.10.2 UBT shall continue to accrue anticipated
bonuses and profit sharing amounts in a manner consistent with UBT's prior
practice.
ARTICLE 6 CONDUCT OF BUSINESS
Section 6.1 Affirmative Conduct of UBT. During the period from
the date of execution of this Agreement through the Effective Time, UBT agrees
to carry on its business, and to cause its Subsidiaries to carry on their
businesses, in the ordinary course in substantially the manner in which
heretofore conducted, subject to changes in law applicable to all California
banks and directives from regulators, and use all commercially reasonable
efforts to preserve intact its business organization, keep available the
services of its officers and employees, (other than terminations in the
ordinary course of business) and preserve its relationship with customers,
suppliers and others having business dealings with it; and, to these ends, will
fulfill each of the following;
6.1.1 Use its commercially reasonable efforts, or
cooperate with others, to expeditiously bring about the satisfaction of the
conditions specified in Article 7 hereof;
6.1.2 Advise COMERICA promptly in writing of any
Material Adverse Change known to UBT or of any matter which would make the
representations and warranties set forth in Article 3 hereof not true and
correct in any respect as of the effective date of the Registration Statement
and at the Effective Time;
6.1.3 Keep in full force and effect all of the
existing material permits and licenses of UBT and its Subsidiaries;
6.1.4 Use its commercially reasonable efforts to
maintain insurance or bonding coverage on all properties owned or leased by it
or for which it is responsible to maintain such coverage and on its business
operations, and carry not less than the same coverage for fidelity, public
liability, personal injury, property damage and other risks equal to that which
is in effect as of the date of this Agreement; and notify COMERICA in writing
promptly of any facts or circumstances which could affect UBT's ability to
maintain such insurance or bonding coverage;
6.1.5 Perform its contractual obligations and not
amend, modify, or, except as they may be terminated in accordance with their
terms, terminate any material contract, agreement, understanding, commitment,
or offer, whether written or oral, (collectively referred to as an
"Understanding") or materially default in the performance of any of its
obligations under any Understanding where such action would have a Material
Adverse Effect on UBT;
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6.1.6 Duly observe and conform to all legal
requirements applicable to its business, except for any failure to so observe
and conform, that would not, individually or in the aggregate, and, in the
future will not, have a Material Adverse Effect on UBT;
6.1.7 Duly and timely file as and when due all
reports and returns required to be filed with any Governmental Entity;
6.1.8 Maintain its assets and properties in good
condition and repair, normal wear and tear excepted;
6.1.9 Promptly advise COMERICA in writing of any
event or any other transaction within UBT's Knowledge whereby any Person or
related group of Persons acquires, directly or indirectly, record or beneficial
ownership (as defined in Rule 13d-3 promulgated by the SEC pursuant to the
Exchange Act) or control of 5% or more of the outstanding shares of UBT Common
Stock prior to the record date fixed for the UBT shareholders' meeting or any
adjourned meeting thereof to approve the transactions contemplated herein;
6.1.10 Charge off, in a manner consistent with past
practices, all loans, leases, receivables and other assets, or portions
thereof, deemed uncollectible in accordance or consistent with Generally
Accepted Accounting Principles, regulatory accounting principles, applicable
law or regulation, or classified as "loss" or as directed by any regulatory
authority, unless such classification or direction has been disregarded in good
faith and UBT has submitted in writing to such regulatory authority the basis
upon which it has so disregarded such classification or direction; and maintain
the allowance for loan losses of UBT at a level which is adequate to provide
for all known and reasonably expected losses on assets outstanding and other
inherent risks in UBT's loan portfolio;
6.1.11 Furnish to COMERICA, as soon as practicable,
and in any event within fifteen days after it is prepared, unless the
disclosure is prohibited by applicable law or regulation, (i) a copy of any
report submitted to the board of directors of UBT and access to the working
papers related thereto, provided, however, that UBT need not furnish COMERICA
communications of UBT's legal counsel regarding UBT's rights against and
obligations to COMERICA or its Affiliates under this Agreement or books,
records and documents covered by the attorney-client privilege, or which are
attorneys' work product, (ii) copies of all reports, renewals, filings,
certificates, statements, correspondence and other documents specific to UBT
filed with or received from the SEC, Federal Reserve Board, any Federal Reserve
Bank, the FDIC, the California State Banking Department or any other
Governmental Entity; (iii) monthly unaudited statements of condition and
statements of income for and quarterly unaudited consolidated and consolidating
statements of condition and statements of income for UBT, in each case prepared
on a basis consistent with past practice, and (iv) such other reports as
COMERICA may reasonably request relating to UBT. Each of the financial
statements of UBT delivered pursuant to this subsection 6.1.11 shall be
accompanied by a certificate of the Chief Financial Officer of UBT to the
effect that such financial statements fairly present the financial information
presented therein of UBT, for the periods covered, subject to recurring audit
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adjustments normal in nature and amount, necessary for a fair presentation and
are prepared on a basis consistent with past practice;
6.1.12 UBT agrees that through the Effective Time, as
of their respective dates, (i) each UBT Filing will be true and complete in all
material respects; and (ii) each UBT Filing will comply in all material
respects with all of the statutes, rules and regulations enforced or
promulgated by the Governmental Entity with which it will be filed and none
will 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 will be made, not
misleading. Any financial statement contained in any of such UBT Filings that
is intended to present the financial position of the entities or entity during
the periods involved to which it relates will fairly present the financial
position of such entities or entity and will be prepared in accordance with
Generally Accepted Accounting Principles or applicable banking regulations
consistently applied, except as stated therein;
6.1.13 Maintain reserves for contingent liabilities
in accordance with Generally Accepted Accounting Principles and consistent with
past practices;
6.1.14 Promptly notify COMERICA of the filing of any
litigation, or the filing of any governmental or regulatory action, including
any investigation or notice of investigation, or similar proceeding or notice
of any claims against UBT or any of its assets;
6.1.15 [Intentionally Left Blank].
6.1.16 Inform COMERICA of the amounts and categories
of any loans, leases or other extensions of credit that have been classified by
any bank regulatory authority or by any unit of UBT as "Specially Mentioned,"
"Renegotiated," "Substandard," "Doubtful," "Loss" or any comparable
classification ("Classified Credits"). UBT will furnish to COMERICA, as soon as
practicable, and in any event within fifteen days after the end of each
calendar month, schedules including the following: (i) Classified Credits by
type (including each credit in an amount equal to or greater than $25,000), and
its classification category; (ii) nonaccrual credits by type (including each
credit in an amount equal to or greater than $25,000), (iii) renegotiated loans
(loans on which interest has been renegotiated to lower than market rates
because of the financial condition of the borrowers) by type, (iv) delinquent
credits by type (including each delinquent credit in an amount equal to or
greater than $25,000), including an aging into 30-89 and 90+ day categories;
(v) loans or leases charged off, in whole or in part, during the previous month
by type (including each such loan or lease in an amount equal to or greater
than $25,000); and (vi) other real estate or assets owned stating with respect
to each its type;
6.1.17 Furnish to COMERICA, upon COMERICA's request,
schedules with respect to the following: (i) participating loans and leases,
stating, with respect to each, whether it is purchased or sold, the loan or
lease type; (ii) loans or leases (including any commitments) by UBT to any UBT
director, officer at or above the Vice President level, or shareholder holding
5% or more
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of the capital stock of UBT, including with respect to each such loan or lease
the identity and, to the best knowledge of UBT, the relation of the borrower to
UBT, the loan or lease type and the outstanding and undrawn amounts; and (iii)
standby letters of credit, by type, (including each letter of credit in a face
amount equal to or greater than $25,000); and
6.1.18 Furnish to COMERICA copies of each credit
authorization package, consisting of all applications for and financial
information regarding loans, renewals of loans or other extensions of credit of
$500,000 or more (on a non-cumulative basis), which are approved by UBT after
the date of this Agreement, within five Business Days of preparation of such
packages.
Section 6.2 Negative Covenants of UBT. During the period from the
date of execution of this Agreement through the Effective Time, UBT agrees
(except to the extent COMERICA shall otherwise consent in writing), that it
shall not:
6.2.1 (i) declare or pay any dividend on or make any
other distribution in respect of any of its capital stock, other than regular
quarterly cash dividends in an amount not to exceed $.35 per share; (ii) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock; or (iii) repurchase or otherwise acquire any
shares of its capital stock, other than through customary repossession;
6.2.2 take any action that would result in any of
the representations and warranties set forth in the Agreement becoming untrue
in any material respect or in any of the conditions to the Merger set forth in
Article 7 not being satisfied, except to the extent such actions are undertaken
in accordance with applicable law, regulation or at the direction of any
regulatory authority;
6.2.3 except as specifically contemplated by the UBT
Stock Option Plans, (and previously authorized to be issued), and the Stock
Option Agreement, issue, deliver or sell, authorize the issuance, delivery or
sale of or purchase any shares of its capital stock or any class of securities
convertible into capital stock, or rights, warrants or options, including
options under any stock Option Plans;
6.2.4 amend its articles of incorporation or bylaws,
except as required by applicable law or by the terms of this Agreement;
6.2.5 authorize or knowingly permit any of its
representatives, directly or indirectly, to solicit or encourage any
Acquisition Proposal (as hereinafter defined) or participate in any discussions
or negotiations with, or provide any nonpublic information to, any Person or
group of Persons (other than COMERICA, INTERIM and their representatives)
concerning any Acquisition Proposal. UBT shall notify COMERICA immediately if
an inquiry regarding an Acquisition Proposal is received by UBT, including the
terms thereof. For purposes of this Section 6.2.5, "Acquisition Proposal"
shall mean any (i) proposal pursuant to which any Person other than COMERICA or
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INTERIM would acquire or participate in a merger or other business combination
involving UBT; (ii) proposal by which any Person or group, other than COMERICA
or INTERIM, would acquire the right to vote ten percent (10%) or more of the
capital stock of UBT entitled to vote thereon for the election of directors;
(iii) acquisition of the assets of UBT other than in the ordinary course of
business; or (iv) acquisition in excess of ten percent (10%) of the outstanding
capital stock of UBT, other than as contemplated by this Agreement.
Notwithstanding the foregoing, nothing contained in this Agreement shall
prevent UBT or its Board of Directors from (A) furnishing non-public
information to, or entering into discussions or negotiations with, any person
or entity in connection with an unsolicited bona fide written Acquisition
Proposal by such person or entity or recommending an unsolicited bona fide
written Acquisition Proposal to the shareholders of UBT, if and only to the
extent that (1) the Board of Directors of UBT believes in good faith (after
consultation with and the concurrence of its financial advisor) that such
Acquisition Proposal would, if consummated, result in a transaction materially
more favorable to UBT's shareholders from a financial point of view than the
transaction contemplated by this Agreement (any such more favorable Acquisition
Proposal being referred to in this Agreement as a "Superior Proposal") and the
UBT Board of Directors determined in good faith after consultation with its
outside legal counsel that such action is necessary for UBT to comply with its
fiduciary duties to shareholders under applicable law and (2) prior to
furnishing such non-public information to, or entering into discussions or
negotiations with, such person or entity, the UBT Board of Directors received
from such person or entity an executed confidentiality agreement, with terms no
more favorable to such party than those contained in the Confidentiality
Agreement between UBT and COMERICA, or (B) complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal.
6.2.6 acquire or agree to acquire by merging,
consolidating with, or by purchasing a substantial portion of the assets of, or
in any other manner, any business or any Person or otherwise acquire or agree
to acquire any assets which are material, on a consolidated basis, to UBT,
other than in the ordinary course of business consistent with prior practice;
6.2.7 sell, lease or otherwise dispose of any of its
assets which are material, individually or in the aggregate, to UBT, except in
the ordinary course of business consistent with prior practice;
6.2.8 incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities of UBT or
any subsidiary thereof or guarantee any debt securities of others other than in
the ordinary course of business consistent with prior practice;
6.2.9 enter into any Understanding, except (A)
deposits incurred, and short-term debt securities (obligations maturing within
one year) issued, in the ordinary course of business and consistent with prior
practice, and liabilities arising out of, incurred in connection with, or
related to the consummation of this Agreement, (B) commitments to make loans or
other extensions of credit in the ordinary course of business and consistent
with prior practice; (C) commitments to act as trustee or agent in the ordinary
course of business and consistent with prior practice; (D) loan sales in the
ordinary course of business, without any recourse, provided that no commitment
to sell loans
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shall extend beyond the Effective Time; and (E) any Understanding that has a
value of less than $100,000 and a term of not more than one year;
6.2.10 make or enter into a commitment to make any
loan or other extension of credit, or enter into any commitment to make any
loan or other extension of credit, to any UBT or Subsidiary director, officer
or employee except in accordance with practice or policy in existence on the
date of this Agreement;
6.2.11 except in the ordinary course of business and
consistent with prior practice or as required by an existing contract or as
disclosed in Schedule 6.2.11, grant any general or uniform increase in the
rates of pay of employees or employee benefits or any increase in salary or
employee benefits of any officer, employee or agent or pay any bonus to any
Person;
6.2.12 sell, transfer, mortgage, encumber or
otherwise dispose of any assets or other liabilities except in the ordinary
course of business and consistent with prior practice or as required by any
existing contract;
6.2.13 make its credit underwriting policies,
standards or practices relating to the making of loans and other extensions of
credit, or commitments to make loans and other extensions of credit, less
stringent than those in effect on August 30, 1994;
6.2.14 except in connection with budgeted capital
expenditures for the pending opening of a branch office, make any capital
expenditures, or commitments with respect thereto, except those in the ordinary
course of business which do not exceed $250,000 in aggregate;
6.2.15 renew or extend any existing employment
contract or agreement, enter into any new employment contract or agreement or
make special or extraordinary payments to any person without the prior written
consent of COMERICA;
6.2.16 except in the ordinary course of business
consistent with prior practice, make any material investments, by purchase of
stock or securities, contributions of capital, property transfers, purchases of
any property or assets or otherwise, in any other individual, corporation or
other entity;
6.2.17 except as otherwise required to correct a
prior filing, compromise or otherwise settle or adjust any assertion or claim
of a deficiency in taxes (or interest thereon or penalties in connection
therewith) or file any appeal from an asserted deficiency except in a form
previously approved by COMERICA in writing or file or amend any federal,
foreign or state tax return or report or make any tax election or change any
method or period of accounting unless required by generally accepted accounting
principles or applicable law;
6.2.18 except as contemplated in this Agreement,
terminate any Employee Plan or Benefit Arrangement;
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6.2.19 change its fiscal year or methods of
accounting in effect at June 30, 1994, except as required by changes in
Generally Accepted Accounting Principles as concurred to by UBT's independent
auditors; or
6.2.20 take or cause to be taken any action which
would disqualify the Merger as a "pooling of interests" for accounting purposes
or the Merger as a "reorganization" within the meaning of Section 368(a) of the
IRC.
6.2.21 take or cause to be taken into Other Real
Estate Owned any property without (i) an environmental report reporting no
adverse environmental condition on such property; or (ii) the written consent
of COMERICA and INTERIM.
Section 6.3 Conduct of COMERICA. During the period from the date
of execution of this Agreement through the Effective Time, COMERICA agrees
(except to the extent UBT shall otherwise consent in writing) to do the
following:
6.3.1 Use its commercially reasonable efforts, or
cooperate with others, to expeditiously bring about the satisfaction of the
conditions specified in Article 7 hereof;
6.3.2 Not take any action that would or might result
in any of the representations and warranties set forth in the Agreement
becoming untrue or in any of the conditions to the Merger set forth in Article
7 not being satisfied, except to the extent such actions are undertaken in
accordance with applicable law, regulation or at the direction of any
regulatory authority; and
6.3.3 Not take or cause to be taken any action which
would disqualify the Merger as a "reorganization" within the meaning of Section
368(a) of the IRC as a tax free reorganization.
ARTICLE 7 CONDITIONS PRECEDENT TO CLOSING
Section 7.1 Conditions to the Parties' Obligations. The
obligations of all the parties to this Agreement to effect the Merger shall be
subject to the fulfillment of the following conditions:
7.1.1 This Agreement, the Subsidiary Merger
Agreement and the Merger shall have been validly ratified and confirmed or
authorized by the holders of a majority of the outstanding UBT Common Stock
entitled to vote.
7.1.2 All material permits, approvals and consents
required to be obtained, and all waiting periods required to expire, prior to
the consummation of the Merger under applicable federal laws of the United
States or applicable laws of any state having jurisdiction over the Merger
shall have been obtained or expired, as the case may be (all such permits,
approvals and consents and
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the lapse of all such waiting periods being referred to as the "Requisite
Regulatory Approvals"), without the imposition of any condition which is
materially burdensome upon UBT, COMERICA, INTERIM, their respective Affiliates
or the Surviving Corporation.
7.1.3 There shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, by any Governmental Entity which: (i) makes the
consummation of the Merger illegal; (ii) requires the divestiture by COMERICA
of any material Subsidiary or of a material portion of the business of
COMERICA; or (iii) imposes any condition upon COMERICA, INTERIM or their
Subsidiaries (other than general provisions of law applicable to all banks and
bank holding companies) which in the judgment of COMERICA and INTERIM would be
materially burdensome to COMERICA or INTERIM.
7.1.4 The Registration Statement shall become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and shall
remain in effect. No legal, administrative, arbitration, investigatory or
other proceeding by any Governmental Entity shall have been instituted and, at
what would otherwise have been the Effective Time, remain pending by or before
any Governmental Entity to restrain or prohibit the transactions contemplated
hereby.
7.1.5 The shares of COMERICA Common Stock
deliverable pursuant to this Agreement shall have been duly authorized for
listing, subject to notice of issuance, on the New York Stock Exchange.
7.1.6 COMERICA and UBT shall have received an
opinion from counsel to COMERICA dated the Effective Time, subject to
assumptions and exceptions normally included, and in form and substance
reasonably satisfactory to COMERICA and UBT to the effect that the Merger will
be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the IRC and that COMERICA, UBT will each be a
party to that reorganization within the meaning of Section 368(b) of the IRC.
7.1.7 COMERICA, INTERIM and UBT shall have received
from each of Ernst & Young and KPMG Peat Marwick, letters, dated the effective
date of the Registration Statement and the Effective Time, in form and
substance satisfactory to COMERICA, INTERIM and UBT and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.
Section 7.2 Conditions to COMERICA's and INTERIM's Obligations.
The obligations of COMERICA and INTERIM to effect the Merger shall be subject
to the fulfillment (or waiver by COMERICA and INTERIM) of the following
conditions:
7.2.1 Except as otherwise provided in this Section
7.2, (a) the representations and warranties of UBT contained in Article 3 shall
be true in all material respects as of the Effective Time as though made at the
Effective Time, except to the extent they expressly refer to an earlier time
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and except where the failure to be true, individually or in the aggregate,
would not have or would not be reasonably likely to have, a Material Adverse
Effect on UBT or upon the consummation of the transactions contemplated hereby;
(b) UBT shall have duly performed and complied in all material respects with
all agreements and covenants required by this Agreement to be performed or
complied with by them prior to or at the Effective Time, except where the
failure to so perform and comply, individually or in the aggregate, would not
have or would not be reasonably likely to have, a Material Adverse Effect on
UBT or upon the consummation of the transactions contemplated hereby; (c) none
of the events or conditions entitling COMERICA to terminate this Agreement
under Article 8 shall have occurred and be continuing; and (d) UBT shall each
have delivered to COMERICA a certificate dated the date of the Effective Time
and signed by its Chief Executive Officer to the effect set forth in
subsections 7.2.1 (a), (b) and (c).
7.2.2 Any consent required for the consummation of
the Merger under any agreement, contract or license to which UBT is a party or
by or under which it is bound or licensed, the withholding of which might have
a Material Adverse Effect on COMERICA or UBT or the transactions contemplated
by this Agreement shall have been obtained.
7.2.3 COMERICA shall have received the Closing
Schedules and such Closing Schedules shall not reflect any item that was not on
the schedules delivered on the date of execution of this Agreement that would
have or would be reasonably likely to have, a Material Adverse Effect on UBT or
upon the consummation of the transactions contemplated hereby.
7.2.4 [Intentionally Left Blank].
7.2.5 UBT's reserve for possible loan losses on the
Determination Date shall be at least the greater of $4,700,000 or 2.25% of
UBT's total loans outstanding on that date; provided, however, that this
condition shall be met (a) to the extent loan loss reserves are reduced from
the date of this Agreement by the actual charge-off of loans that are
specifically provided for in the Loan Loss Reserve Allocation Report; or (b) to
the extent loan loss reserves are reduced from the date of this Agreement by
the actual charge-off of loans where such charge-off specifically has been
provided for since June 30, 1994 by an appropriate charge to earnings.
7.2.6 UBT's Non-Performing Assets (including Other
Real Estate Owned and in substance foreclosures) outstanding on the last day of
the month immediately preceding the Effective Time shall be no more than
$4,711,431.
7.2.7 Between the date of this Agreement and the
Effective Time, no event or circumstance shall have occurred which had a
Material Adverse Effect on UBT or its Subsidiaries and COMERICA and INTERIM
shall have received a certificate signed on behalf of UBT by UBT's Chief
Executive Officer to such effect.
7.2.8 COMERICA shall have received from KPMG Peat
Marwick a letter dated the Effective Time, after customary review but without
audit, in form and substance satisfactory
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to COMERICA, (i) certifying that the conditions set forth in subsections 7.2.5
and 7.2.6 have been satisfied and (ii) setting forth, as of the Business Day
immediately prior to the Closing Date, (A) UBT Consolidated Net Worth; (B)
Fully Diluted UBT Common Stock; (C) UBT's reserve for possible loan losses;
and (D) the amount of UBT's Non-Performing Assets.
7.2.9 COMERICA shall have received from its legal
counsel the opinion called for by Section 5.4.3.
7.2.10 COMERICA shall have received from legal
counsel to UBT an opinion dated the Effective Time as to securities and
corporate matters in form and substance customary for transaction of this
nature and reasonably satisfactory to COMERICA.
7.2.11 [Intentionally Left Blank].
7.2.12 Counsel for COMERICA shall have approved, in
the exercise of counsel's reasonable discretion, the validity of all
transactions herein contemplated, as well as the form and substance of all
opinions, certificates, instruments of transfer and other documents to be
delivered to COMERICA hereunder or that are reasonably requested by such
counsel.
7.2.13 The sale of the COMERICA Common Stock
resulting from the Merger shall have been qualified or registered with the
appropriate State securities or "blue sky" regulatory authorities of all
jurisdictions in which qualification or registration is required under
applicable laws, and such qualifications or registrations shall not have been
suspended or revoked.
7.2.14 UBT shall have delivered to COMERICA not later
than 30 days prior to the date the Registration Statement on Form S-4 becomes
effective, all of the executed Affiliate Agreements in the form attached hereto
as Exhibit 7.2.14.
7.2.15 COMERICA shall have received from each of KPMG
Peat Marwick and Ernst & Young letters, dated the effective date of the
Registration Statement, the date of the meeting of UBT's shareholders in
connection with this Agreement and the Effective Time, in form and substance
satisfactory to COMERICA and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement.
7.2.16 COMERICA shall have received from Ernst &
Young an opinion, dated the date of the Effective Time, in form and substance
satisfactory to COMERICA, to the effect that the Merger on the terms and
conditions contained in this Agreement and in the Subsidiary Merger Agreement
will be treated for accounting purposes as a pooling of interests.
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7.2.17 A non-competition agreement in substantially
the form attached as Exhibit 7.2.17 to this Agreement.
7.2.18 The total number of shares of COMERICA Common
Stock that shall be issuable pursuant to the terms of this Agreement under any
computation shall not be greater than 2,680,820 shares, subject to adjustment
as appropriate to reflect any recapitalization, reorganization,
reclassification, split-up, merger, consolidation, exchange, stock or other
dividend or distribution (other than regular quarterly cash dividends) made,
declared or effective with respect to the COMERICA Common Stock between the
date of this Agreement and the Effective Time.
7.2.19 COMERICA shall have received the Site
Assessments provided for in Section 5.7.1, unless COMERICA shall have waived
its right to conduct such assessment, and, except as disclosed on Schedule
3.26, such Site Assessment shall not have disclosed any environmental condition
which would be reasonably likely to have a Material Adverse Effect (as defined
in Section 5.7.2) on such real property.
7.2.20 None of UBT or any of its Subsidiaries shall
be subject to any memorandum of understanding, cease and desist order, or other
agreement with any Governmental Entity restricting the conduct of UBT and its
Subsidiaries' business, prospects and operations, so as to have a Material
Adverse Effect, other than those agreements attached as Schedule 3.10 as of the
date of execution of this Agreement.
7.2.21 UBT's director-shareholders shall have
delivered to COMERICA and INTERIM not later than ten Business days from date of
this Agreement the Shareholder's Agreements in the form attached hereto as
Exhibit 7.2.21.
Section 7.3 Conditions to UBT's Obligations. The obligation of
UBT to effect the Merger shall be subject to the fulfillment (or waiver by UBT)
of the following conditions:
7.3.1 Except as otherwise provided in this Section
7.3, (a) the representations and warranties of COMERICA and INTERIM contained
in Article 4 shall be true in all material respects as of the Effective Time as
though made at the Effective Time, except to the extent they expressly refer to
an earlier time and except where the failure to be true, individually or in the
aggregate, would not have or would not be reasonably likely to have, a Material
Adverse Effect on COMERICA or INTERIM or upon the consummation of the
transactions contemplated hereby; (b) COMERICA and INTERIM shall have duly
performed and complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by them
prior to or at the Effective Time, except where the failure to so perform and
comply, individually or in the aggregate, would not have or would not be
reasonably likely to have, a Material Adverse Effect on COMERICA or INTERIM or
upon the consummation of the transactions contemplated hereby; (c) none of the
events or conditions entitling UBT to terminate this Agreement under Article 8
shall have occurred and be continuing; and (d) COMERICA and INTERIM shall each
have delivered to
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UBT certificates dated the date of the Effective Time and signed by a duly
authorized officer to the effect set forth in subsections 7.3.1 (a), (b) and
(c).
7.3.2 Prior to the mailing of the Prospectus/Proxy
Statement to the shareholders of UBT shall have received an opinion of Goldman,
Sachs & Co., dated the date of the Prospectus/Proxy Statement, to the effect
that, as of such date, the Conversion Rate is fair to the shareholders of UBT
from a financial point of view.
7.3.3 Counsel for UBT shall have approved, in the
exercise of counsel's reasonable discretion, the validity of all transactions
herein contemplated, as well as the form and substance of all opinions,
certificates, instruments of transfer and other documents to be delivered to
UBT hereunder or reasonably requested by such counsel.
7.3.4 There shall not have been any change in the
consolidated financial condition, aggregate net assets, shareholders' equity,
business, or operating results of COMERICA and its Subsidiaries taken as a
whole, from January 1, 1994 to the Effective Time that results in a Material
Adverse Effect on the consolidated financial condition, aggregate net assets,
shareholders' equity, business, or operating results of COMERICA and its
Subsidiaries taken as a whole.
7.3.5 Any consent required for the consummation of
the Merger under any agreement, contract or license to which COMERICA or
INTERIM is a party or by or under which either of them is bound or licensed,
the withholding of which might have a Material Adverse Effect on COMERICA or
UBT or the transactions contemplated by this Agreement shall have been
obtained.
7.3.6 UBT shall have received from legal counsel to
COMERICA and INTERIM an opinion dated the Effective Time opinions dated the
Effective Time as to securities and corporate matters in form and substance
customary for transaction of this nature and reasonably satisfactory to UBT.
ARTICLE 8 TERMINATION, AMENDMENTS AND WAIVERS
Section 8.1 Termination. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after approval by the
shareholders of UBT:
8.1.1 by mutual consent of the Boards of Directors
of UBT, INTERIM and COMERICA;
8.1.2 by any of COMERICA, UBT or INTERIM upon the
failure to satisfy any conditions specified in Section 7.1 if such failure is
not caused by any action or inaction of the party requesting termination of
this Agreement;
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8.1.3 by any of UBT, INTERIM or COMERICA if the
Effective Time shall not have occurred by the close of business on August 31,
1995, provided such failure to close shall not have been caused by the breach
of this Agreement by the terminating party;
8.1.4 by COMERICA if an Acquisition Event shall have
occurred;
8.1.5 by any of UBT, INTERIM or COMERICA if there
shall have been a material breach of any of the representations or warranties
set forth in this Agreement on the part of the other party, which breach, in
the reasonable opinion of the non-breaching party, by its nature cannot be
cured prior to the Closing and which breach would, in the reasonable opinion of
the non-breaching party, individually or in the aggregate, have, or be
reasonably likely to have, a Material Adverse Effect on the breaching party or
upon the consummation of the transactions contemplated hereby;
8.1.6 by any of UBT, COMERICA or INTERIM if this
Agreement, the Subsidiary Merger Agreement and the Merger are not ratified and
approved by UBT's shareholders;
8.1.7 by UBT after the occurrence of a Default by
COMERICA or INTERIM and the continuance of such failure for a period of 20
Business Days after written notice of such Default, which failure to perform,
in the reasonable opinion of UBT, cannot be cured prior to the Closing;
8.1.8 by COMERICA after the occurrence of a Default
by UBT and the continuance of such failure for a period of 20 Business Days
after written notice of such Default, which failure to perform, in the
reasonable opinion of COMERICA and INTERIM cannot be cured prior to the
Closing;
8.1.9 by COMERICA in accordance with the provisions
of 5.7.2 of this Agreement;
8.1.10 [Intentionally Left Blank];
8.1.11 by COMERICA if the UBT Board of Directors does
not publicly recommend in the Prospectus/Proxy Statement that UBT's
shareholders approve and adopt this Agreement, or if after recommending in the
Prospectus/Proxy Statement that shareholders ratify and confirm this Agreement,
the UBT Board of Directors shall have withdrawn, modified or amended such
recommendation in any respect materially adverse to COMERICA;
8.1.12 by UBT upon the failure of COMERICA or INTERIM
to satisfy any conditions specified in Section 7.3;
8.1.13 by COMERICA and INTERIM upon the failure by
UBT to satisfy any conditions specified in Section 7.2.
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Section 8.2 Effect of Termination; Survival. Except as provided
in Section 8.5, no termination of this Agreement as provided in Section 8.1 for
any reason or in any manner shall release, or be construed as so releasing, any
party hereto from its obligations pursuant to Sections 5.1.3, 5.5, 8.5 or 9.5
hereof or from any liability or damage to any other party hereto arising out
of, in connection with or otherwise relating to, directly or indirectly, said
party's material breach, Default or failure in performance of any of its
covenants, agreements, duties or obligations arising hereunder, or any breaches
of any representation or warranty contained herein arising prior to the date of
termination of this Agreement.
Section 8.3 Amendment. This Agreement may be amended by the
parties hereto, by action taken by UBT's respective boards of directors or the
duly authorized committees thereof, and the duly authorized officers or boards
of directors of COMERICA and INTERIM at any time before or after approval
hereof by the shareholders of UBT; provided, however, that after any such
approval by the shareholders, no amendment shall be made which by law requires
further approval by such shareholders without such further approval.
Section 8.4 Waiver. Any term or provision of this Agreement may
be waived in writing at any time by the party which is, or whose shareholders
are, entitled to the benefits thereof.
Section 8.5 Liquidated Damages; Cancellation Fee.
8.5.1 Notwithstanding anything to the contrary
contained herein, in the event of the occurrence of an Acquisition Event or
termination of this Agreement pursuant to Sections 8.1.6 or 8.1.11, or pursuant
to Sections 8.1.5 or 8.1.8 followed by an Acquisition Event within 90 days of
such termination, then UBT shall pay to COMERICA, as reasonable and full
liquidated damages and reasonable compensation for the loss sustained thereby
and not as a penalty or forfeiture, the sum of $3,200,000, within ten (10)
Business Days following such occurrence. Upon the making and receipt of such
payment under this Section 8.5.1 and except for Sections 5.1.3, 5.5 or 9.5 UBT
shall have no further obligations or liabilities of any kind under this
Agreement and COMERICA and UBT shall have no further obligations of any kind
under this Agreement (but not including the Stock Option Agreement, which shall
remain in full force and effect).
8.5.2 Notwithstanding anything to the contrary
contained herein, in the event of termination by UBT of this Agreement pursuant
to Sections 8.1.5 or 8.1.7, then COMERICA and INTERIM, jointly and severally,
shall pay to UBT as reasonable and full liquidated damages and reasonable
compensation for the loss sustained thereby and not as a penalty or forfeiture,
the sum of $2,000,000, within ten (10) Business Days following such occurrence.
Upon the making and receipt of such payment under this Section 8.5.2 and except
for Sections 5.1.3, 5.5 or 9.5 COMERICA and INTERIM shall have no further
obligations or liabilities of any kind under this Agreement and COMERICA and
UBT shall have no further obligations of any kind under this Agreement (but not
including the Stock Option Agreement, which shall remain in full force and
effect).
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ARTICLE 9 GENERAL PROVISIONS
Section 9.1 Non-Survival of Representations and Warranties. None
of the representations, warranties, covenants and agreements in this Agreement
or in any instrument delivered pursuant to this Agreement shall survive the
Effective Time, except for those covenants and agreements contained herein and
therein which by their terms apply in whole or in part after the Effective Time
or to a termination of this Agreement.
Section 9.2 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally, mailed by registered or certified mail (return receipt requested),
sent by confirmed overnight courier or telecopied (with electronic confirmation
and verbal confirmation of the person to whom such telecopy is addressed), on
the date such notice is so delivered, mailed or sent, as the case may be, to
the parties at the following addresses or (or any such other address for a
party as shall be specified by like notice):
If to UBT at:
UNIVERSITY BANK & TRUST COMPANY
250 Lytton
Palo Alto, California 94301
Attention: Carl J. Schmitt
If to COMERICA or INTERIM at:
COMERICA INCORPORATED
Corporate Secretary - Corporate Legal Department
500 Woodward Avenue, 33rd Floor
Detroit, Michigan 48226
Attention: Mark W. Yonkman
Section 9.3 Counterparts. This Agreement may be executed in one
or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
Section 9.4 Entire Agreement/No Third Party Rights/Assignment.
This Agreement (including the documents and instruments referred to herein):
(a) constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof; (b) except as expressly set forth herein, is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder; (c) shall not be assigned by a party, by operation of law
or otherwise, without the consent of the other parties; and
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(d) subject to the foregoing, shall be binding upon and shall inure to the
benefit of the parties hereto and their permitted successors and assigns.
Section 9.5 Non-disclosure of Agreement. COMERICA, UBT and
INTERIM agree, except as required by law or the rules of the NYSE, so long as
this Agreement is in effect, not to issue any public notice, disclosure or
press release with respect to the transactions contemplated by this Agreement
without seeking the consent of the other party, which consent shall not be
unreasonably withheld.
Section 9.6 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of California, without
regard to any applicable conflicts of law.
Section 9.7 Headings/Table of Contents. The table of contents
and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Section 9.8 Enforcement of Agreement. The parties hereto agree
that irreparable damage will occur in the event that any of the provisions of
this Agreement or the Subsidiary Merger Agreement is not performed in
accordance with its specific terms or is otherwise breached. It is accordingly
agreed that the parties shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and
provision 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.
Section 9.9 Severability. Any term or provision of this
Agreement which is invalid or unenforceable in any jurisdiction shall, as to
that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
IN WITNESS WHEREOF, UBT and COMERICA have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first above written.
UNIVERSITY BANK & TRUST COMPANY COMERICA INCORPORATED
By: /s/ Carl J. Schmitt By: /s/ Mark W. Yonkman
--------------------------- --------------------
Name: Carl J. Schmitt Name: Mark W. Yonkman
Its: Chief Executive Officer Its: Vice President and
Assistant Secretary
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ANNEX B
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER, dated as of _____________ 1995 between Comerica
Interim Incorporated ("Interim"), a corporation organized under the laws of the
state of California, the headquarters of which is located in the city of San
Jose, county of Santa Clara, state of California, with capital divided into
5,000,000 shares of common stock, each of no par value, and University Bank &
Trust Company ("UBT"), a state bank organized under the laws of the state of
California, the headquarters of which is located in the city of Palo Alto,
county of Santa Clara, state of California, with capital divided into
3,000,000 shares of common stock, each pursuant to a resolution of its board of
directors, adopted by the unanimous vote of its directors, and a consent
resolution of the sole shareholder of each, pursuant to the authority given by
and in accordance with the applicable provisions of law and subject to the
approval of the applicable regulatory agency.
WITNESSETH:
WHEREAS, the Boards of Directors of UBT and Interim deem it in the best
interests of UBT and Interim, the public which they serve and the shareholders
of each of Interim and UBT, to consolidate and merge UBT with Interim under the
provisions of applicable law.
NOW THEREFORE, in consideration of the agreements contained herein, the Boards
of Directors of UBT and Interim hereby adopt this Agreement of Merger, and
agree that the plan for the consummation of their merger shall be as follows:
SECTION 1. Upon the Effective Date, as defined below, of the merger, UBT
and Interim (the "Merging Parties") shall be consolidated under the charter of
UBT and UBT shall be the surviving entity and the separate corporate existence
of Interim shall cease.
SECTION 2. The name of the surviving institution (the "Surviving
Institution") shall be University Bank & Trust Company, which shall be a
California chartered bank.
SECTION 3. The Surviving Institution shall engage in the business of
banking and providing trust services and any business related or incidental
thereto, with all of the powers, and subject to all of the limitations and
restrictions, conferred or imposed by applicable laws of the State of
California and the United States of America. The corporate term of the
Surviving Institution shall be the corporate term of UBT. This business shall
be conducted by the Surviving Institution at its main office, which shall be
located at ___________, Palo Alto, California, and at the following legally
established branches and trust representative offices:
JOINT BRANCHES AND TRUST REPRESENTATIVE OFFICES:
<PAGE> 132
All of the branches of Interim and UBT and trust representative offices of UBT
which were in lawful operation at the Effective Date shall continue as branches
and trust representative offices of the Surviving Institution, and the
principal office of _________________ in Palo Alto California shall continue as
the main office and a trust representative office of the Surviving Institution.
SECTION 4. The amount of capital stock of the Surviving Institution shall
be divided into 5,000,000 shares of common stock, each of no par value, which
shares shall be vested equally, share for share, with the voting rights and all
other rights, powers and privileges, without qualification, limitation or
restriction, of one share over another.
SECTION 5. The persons listed below shall be the directors of the
Surviving Institution until the next annual meeting of the shareholders of the
Surviving Institution or until their successors are duly elected and qualified:
[Directors]
SECTION 6. The persons listed below shall be the senior officers of the
Surviving Institution, holding the positions listed next to their respective
names, until such persons resign or are removed from such positions:
[Officers]
SECTION 7. The Articles of Incorporation of Interim shall be the Articles
of Incorporation of the Surviving Institution.
SECTION 8. The Bylaws of UBT in effect immediately prior to the Effective
Date of the merger, as amended, shall be and constitute the Bylaws of the
Surviving Institution until the same shall thereafter be altered, amended or
repealed.
SECTION 9. The merger shall be consummated and become effective, subject
to the terms and conditions of this Agreement of Merger and in accordance with
Section 2072 of the California Financial Code, when the Agreement of Merger,
having been filed with the Secretary of State with the approval of the
Superintendent of Banks endorsed thereon, shall have been certified by the
Secretary of State and filed with the Superintendent of Banks; provided,
however, that the date must follow, among other things, the approval of the
merger by the sole shareholder of UBT and Interim and by the Superintendent of
the California State Banking Department. The close of business on the day on
which the merger shall become effective is herein referred to as the "Effective
Date."
SECTION 10. At the Effective Date of the merger, the corporate existence
of the Merging Parties shall be consolidated into and continued in the
Surviving Institution, which shall be deemed to be the same corporation as
each of the Merging Parties, possessing all the rights, privileges, powers and
franchises, and subject to all the restrictions, disabilities and duties of the
Merging Parties, except as such rights, privileges, powers and franchises may
be limited by law. Upon the merger becoming effective, all the provisions of
law regarding the effects of merger shall be effective with respect to the
merger and the Surviving Institution, including, without limitation, the
following:
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A. All of the rights, interests, privileges, powers, and
franchises of the Merging Parties, both of a public and private nature, shall
vest in the Surviving Institution without further act or deed as effectively as
the same were vested in the Merging Parties prior to the merger.
B. All property, real, personal and mixed, including, without
limitation, all debts due, chooses in action of every description, licenses,
registrations, and other assets of every kind and description of the Merging
Parties shall, without further act or deed, be transferred to, vested in and
devolve upon the Surviving Institution, and shall be as effectively the
property of the Surviving Institution as they were of the Merging Parties prior
to the merger without any deed or other transfer and without any order or other
action on the part of any court or otherwise.
C. Title to any real estate, whether vested by deed or otherwise,
in the Merging Parties shall not revert or be in any way impaired by reason of
the merger or otherwise.
D. The Surviving Institution shall thenceforth be subject to all
of the restrictions, disabilities, duties, liabilities and obligations of the
Merging Parties and the same may thereafter be enforced against it to the same
extent as if the same had been incurred or contracted by the Surviving
Institution.
E. The Surviving Institution, by virtue of the merger, and
without any order or other action on the part of any court or otherwise, shall
hold and enjoy the same and all rights of property, franchises and interests,
including appointments, designations, and nominations and all other rights and
interest as trustee, executor, administrator, registrar of stocks and bonds,
guardian of estates, assignee, receiver, guardian of mentally incompetent
persons and in every other fiduciary capacity, in the same manner and to the
same extent as such rights, franchises and interests were held or enjoyed by
the Merging Parties, or either of them, at the time of the merger.
F. Any action or proceeding pending by or against the Merging
Parties may be prosecuted to judgment to the same extent as if the merger had
not taken place, which judgment shall bind the Surviving Institution, or,
alternatively, the Surviving Institution may be proceeded against or
substituted in place of the Merging Parties in any such action or proceeding.
The officers and directors of the Merging Parties shall, from time to time, as
and when requested by the Surviving Institution or its successors or assigns,
execute and deliver or cause to be executed and delivered, such deeds,
instruments, assignments, or assurances as the Surviving Institution may deem
necessary, desirable, or convenient in order to vest in and confirm to the
Surviving Institution title to or possession of any property or rights of the
Merging Parties acquired or to be acquired by reason of or as a result of the
merger, or otherwise to carry out the purposes of this Merger Agreement. Any
person who, immediately before the merger became effective, was an officer or
director of the Merging Parties is hereby fully authorized, in the name of such
institution, to execute any and all such deeds, instruments, assignments, or
assurances, or to take any and all such action as may be requested by the
Surviving Institution.
SECTION 11. The manner of converting the shares of the Merging Parties
into shares of the Surviving Institution shall be as follows:
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<PAGE> 134
Upon the Effective Date of merger, each share of common stock of UBT then
issued and outstanding shall be, and hereby is, by virtue of the merger and
without any action on the part of the holder thereof, converted into the right
to receive _________________. Each share of common stock of Interim then
issued and outstanding shall be, and hereby is, by virtue of the merger and
without any action on the part of the holder thereof, converted into and
constitute the shares of the common stock, no par value, of the Surviving
Institution, and all the shares of the Surviving Institution shall be owned by
Comerica Incorporated, a Delaware corporation.
SECTION 12. This Agreement of Merger may be terminated by the unilateral
action of the board of directors of either of the Merging Parties prior to the
approval of the sole shareholder of either of the Merging Parties or by the
mutual consent of the boards of both of the Merging Parties after the sole
shareholder of either of the Merging Parties has taken affirmative action.
SECTION 13. This Agreement shall be ratified and confirmed by written
consent resolution of the sole shareholder of each of the Merging Parties in
lieu of a shareholders' meeting.
SECTION 14. This Agreement may be executed in one or more counterparts,
all of which shall be taken together to constitute one and the same instrument
and shall be binding upon each party who may sign a counterpart of this
instrument.
IN WITNESS WHEREOF, UBT and Interim, pursuant to the approval and authority
duly given by resolution of their respective Boards of Directors, have caused
this Merger Agreement to be signed by their respective Presidents and
Secretaries on this day and year first above written.
<TABLE>
<CAPTION>
COMERICA INTERIM INCORPORATED UNIVERSITY BANK & TRUST COMPANY
<S> <C>
By: By:
------------------------------ ----------------------------------
Name: Name:
Its: Its: President
By: By:
------------------------------ ----------------------------------
Name: J. Michael Fulton Name:
Its: President and Chief Executive Officer Its: Secretary
By:
------------------------------
Name: Rebecca Levey
Its: Secretary
</TABLE>
4
<PAGE> 135
ANNEX C
CHAPTER 13
DISSENTER'S RIGHTS
Section 1300. REORGANIZATION OR SHORT-FORM MERGER; DISSENTING SHARES;
CORPORATE PURCHASE AT FAIR MARKET VALUE; DEFINITIONS
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) of Section 1201, each shareholder of such corporation entitled to vote on
the transaction and each shareholder of a disappearing corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as
defined in subdivision (b). The fair market value shall be determined as of
the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split,
reverse stock split or share dividend which become effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (o) of Section 25100 or (B)
listed on the list of OTC margin stocks issued by the Board of Governors of the
Federal Reserve System, and the notice of meeting of shareholders to act upon
the reorganization summarizes this section and Sections 1301, 1302, 1303 and
1304; provided, however, that this provision does not apply to any shares with
respect to which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided, further, that this
provision does not apply to any class of shares described in subparagraph (A)
or (B) if demands for payment are filed with respect to 5 percent or more of
the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short- form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
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(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
Section 1301. NOTICE TO HOLDERS OF DISSENTING SHARES IN REORGANIZATIONS;
DEMAND FOR PURCHASE; TIME; CONTENTS
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision
(b) of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance
with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
Section 1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT; UNCERTIFICATED
SECURITIES
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of
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appropriate denomination so stamped or endorsed or (b) if the shares are
uncertificated securities, written notice of the number of shares which the
shareholder demands that the corporation purchase. Upon subsequent transfers
of the dissenting shares on the books of the corporation, the new certificates,
initial transaction statement, and other written statements issued therefor
shall bear a like statement, together with the name of the original dissenting
holder of the shares.
Section 1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT FIXING FAIR
MARKET VALUE; FILING; TIME OF PAYMENT
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
Section 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR FAIR
MARKET VALUE; LIMITATION; JOINDER; CONSOLIDATION; DETERMINATION
OF ISSUES; APPOINTMENT OF APPRAISERS
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting shares
is in issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
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<PAGE> 138
Section 1305. REPORT OF APPRAISERS; CONFIRMATION; DETERMINATION BY COURT;
JUDGMENT; PAYMENT; APPEAL; COSTS
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed
by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of
any party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time
as may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which
any dissenting shareholder who is a party, or who has intervened, is entitled
to require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of
Section 1301).
Section 1306. PREVENTION OF IMMEDIATE PAYMENT; STATUS AS CREDITORS; INTEREST
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
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Section 1307. DIVIDENDS ON DISSENTING SHARES
Cash dividends declared and paid by the corporation upon the dissenting shares
after the date of approval of the reorganization by the outstanding shares
(Section 152) and prior to payment for the shares by the corporation shall be
credited against the total amount to be paid by the corporation therefor.
Section 1308. RIGHTS OF DISSENTING SHAREHOLDERS PENDING VALUATION; WITHDRAWAL
OF DEMAND FOR PAYMENT
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
Section 1309. TERMINATION OF DISSENTING SHARE AND SHAREHOLDER STATUS
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
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Section 1310. SUSPENSION OF RIGHT TO COMPENSATION OR VALUATION PROCEEDINGS;
LITIGATION OF SHAREHOLDERS' APPROVAL
If litigation is instituted to test the sufficiency or regularity of the votes
of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
Section 1311. EXEMPT SHARES
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
Section 1312. RIGHT OF DISSENTING SHAREHOLDER TO ATTACK, SET ASIDE OR RESCIND
MERGER OR REORGANIZATION; RESTRAINING ORDER OR INJUNCTION;
CONDITIONS
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-
form merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand
payment of cash for the shareholder's shares pursuant to this chapter. The
court in any action attacking the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded shall not restrain or enjoin the consummation of the transaction
except upon 10 days' prior notice to the corporation and upon a determination
by the court that clearly no other remedy will adequately protect the
complaining shareholder or the class of shareholders of which such shareholder
is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short- form merger set aside or rescinded, (1) a party to a
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reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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ANNEX D
December 19, 1994
Board of Directors
University Bank & Trust Company
250 Lytton Avenue
Palo Alto, CA 94302
Gentlemen and Mesdames:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $2.50 per share (the "Shares"), of
University Bank & Trust Company (the "Company") of the exchange ratio, subject
to adjustment pursuant to the Agreement, as defined below, of 1.7456 shares of
Common Stock, par value $5.00 per Share, of Comerica Incorporated ("Comerica"),
to be received for each Share (the "Exchange Ratio") pursuant to the Agreement
and Plan of Reorganization and Merger dated as of October 4, 1994 among the
Company, Comerica Interim Incorporated, a wholly-owned subsidiary of Comerica,
and Comerica (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having acted as its financial advisor in connection
with, and having participated in certain of the negotiations leading to, the
Agreement. We have also provided certain investment banking services to Comerica
from time to time and may provide investment banking services to Comerica in
the future.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Registration Statement on Form S-4, including the Proxy
Statement-Prospectus relating to the Special Meeting of Stockholders of
the Company to be held in connection with the Agreement; Annual Reports to
Stockholders and Annual Reports on Form 10-K of the Company for the two years
ended December 31, 1993; Annual Reports to Stockholders and Annual Reports on
Form F-2 of the Company for the three years ended December 31, 1991; Annual
Reports to Stockholders and Annual Reports on Form 10-K of Comerica for the
five years ended December 31, 1993; certain interim reports to stockholders and
Quarterly Reports on Form 10-Q of the Company and of Comerica; certain other
communications from the Company to its stockholders; and certain internal
financial analyses and forecasts for the Company prepared by its management. We
also have held discussions with members of the senior managements of the
Company and Comerica regarding the past and current business operations,
financial condition and future prospects of their respective companies. In
addition, we have reviewed the reported price and trading activity for the
Shares, compared certain financial and stock market information for the Company
with similar information for certain other companies the securities of which
are publicly
<PAGE> 143
University Bank & Trust Company
December 19, 1994
Page Two
traded, reviewed the financial terms of certain recent business combinations in
the banking industry specifically and in other industries generally and
performed such other studies and analyses as we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In that regard, we have assumed, with your consent,
that the financial forecasts, including, without limitation, projections
regarding underperforming and nonperforming assets and net chargeoffs, have
been reasonably prepared on a basis reflecting the best currently available
judgments and estimates of the Company and that such forecasts will be realized
in the amounts and at the times contemplated thereby. We are not experts in
the evaluation of loan and lease portfolios for the purposes of assessing the
adequacy of the allowances for losses with respect thereto and have assumed,
with your consent, that such allowances for each of the Company and Comerica
are in the aggregate adequate to cover all such losses. In addition, we have
not reviewed individual credit files nor have we made an independent evaluation
or appraisal of the assets and liabilities of the Company or Comerica or any of
their subsidiaries and have not been furnished with any such evaluation or
appraisal. We also have assumed that Comerica will receive all necessary
regulatory approvals without undue delay.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair to the holders of Shares.
Very truly yours,
/s/ Goldman, Sachs & Co.
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<PAGE> 144
ANNEX E
THE TRANSFER OF THIS AGREEMENT IS
SUBJECT TO CERTAIN PROVISIONS CONTAINED
HEREIN AND TO RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT
This Stock Option Agreement, dated as of October 4, 1994 (the
"Agreement"), is made by and between University Bank & Trust Company, a
California Bank ("Issuer"), and Comerica Incorporated, a Delaware corporation
("Grantee") .
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Reorganization and Merger dated as of the date hereof (the "Merger Agreement"),
providing for, among other things, the merger of a subsidiary of Grantee with
and into Issuer, with Issuer as the surviving corporation; and
WHEREAS, as a condition and inducement to Grantee's execution of the
Merger Agreement, Grantee has requested that Issuer agree, and Issuer has
agreed, to grant Grantee the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, and intending to be legally bound hereby, Issuer and
Grantee agree as follows:
1. Defined Terms. Capitalized terms which are used but not defined
herein shall have the meanings ascribed to such terms in the Merger Agreement.
2. Grant of Option. Subject to the terms and conditions set forth
herein, Issuer hereby grants to Grantee an irrevocable option (the "Option") to
purchase up to 137,718 (as adjusted as set forth herein) shares (the "Option
Shares") of Common Stock, par value $.01 per share ("Issuer Common Stock"), of
Issuer at a purchase price per Option Share determined by calculating the
average of the closing prices for Issuer Common Stock on the NASDAQ for the
seven trading days ending on the date hereof (the "Purchase Price").
3. Exercise of Option. (a) If not in material breach of the Merger
Agreement, Grantee may exercise the Option, in whole or in part, at any time
and from time to time following the occurrence of a Purchase Event (as defined
below); provided that the Option shall terminate and be of no further force
and effect upon the earliest to occur of (i) immediately prior to the Effective
Time, (ii) 12 months after the first occurrence of a Purchase Event, (iii) 18
months after the termination of the Merger Agreement following the occurrence
of a Preliminary Purchase Event (as defined below), (iv) termination of the
Merger Agreement in accordance with the terms thereof prior to the occurrence
of a Purchase Event or a Preliminary Purchase Event (other than a termination
of the Merger Agreement by Grantee pursuant to Section 8.1.6 thereof or by
Grantee and Issuer pursuant to Section 8.1.1 thereof if Grantee shall at that
time have been entitled to
<PAGE> 145
terminate the Merger Agreement pursuant to Section 8.1.6 thereof) or (v) 12
months after the termination of the Merger Agreement by Grantee pursuant to
Section 8.1.6 thereof or by Grantee and Issuer pursuant to Section 8.1.1
thereof if Grantee shall at that time have been entitled to terminate the
Merger Agreement pursuant to Section 8.1.6 thereof (provided, however, that if
within 12 months after such termination of the Merger Agreement a Purchase
Event or a Preliminary Purchase Event shall occur, then notwithstanding
anything to the contrary contained herein, this Option shall terminate 12
months after the first occurrence of such an event); and provided further, that
any purchase of shares upon exercise of the Option shall be subject to
compliance with applicable law, including, without limitation, the California
Financial Code.
(b) As used herein, a "Purchase Event" means any of the following
events:
(i) Issuer shall have authorized, recommended,
publicly proposed or publicly announced an intention to
authorize, recommend or propose, or entered into an agreement
with any person (other than Grantee or any Subsidiary of
Grantee) to effect an Acquisition Transaction or failed to
publicly oppose a Tender Offer or an Exchange Offer (as
defined below). As used herein, the term Acquisition
Transaction shall mean (A) a merger, consolidation or similar
transaction involving Issuer or any of its Subsidiaries (other
than internal mergers, reorganizations, consolidations or
dissolutions involving only existing Subsidiaries), (B) the
disposition, by sale, lease, exchange or otherwise, of assets
of Issuer or any of its Subsidiaries representing 15% or more
of the consolidated assets of Issuer and its Subsidiaries or
(C) the issuance, sale or other disposition of (including by
way of merger, consolidation, share exchange or any similar
transaction) securities representing 10% or more of the voting
power of Issuer or any of its Subsidiaries; or
(ii) any person (other than Grantee or any Subsidiary
of Grantee) shall have acquired beneficial ownership (as such
term is defined in Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of or
the right to acquire beneficial ownership of, or any "group"
(as such term is defined under the Exchange Act) shall have
been formed which beneficially owns or has the right to
acquire beneficial ownership of 15% or more of the then
outstanding shares of Issuer Common Stock.
(c) As used herein, a "Preliminary Purchase Event" means any of the
following events:
(i) any person (other than Grantee or any Subsidiary
of Grantee) shall have commenced (as such term is defined in
Rule 14d-2 under the Exchange Act) or shall have filed a
registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to, a tender
offer or exchange offer to purchase any shares of Issuer
Common Stock such that, upon consummation of such offer, such
person would own or control 15% or more of the then
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<PAGE> 146
outstanding shares of Issuer Common Stock (such an offer being
referred to herein as a "Tender Offer" or an "Exchange Offer
respectively); or
(ii) the holders of Issuer Common Stock shall not
have approved the Merger Agreement at the meeting of such
stockholders held for the purpose of voting on the Merger
Agreement, such meeting shall not have been held or shall have
been cancelled prior to termination of the Merger Agreement,
or Issuer's Board of Directors shall have withdrawn or
modified in a manner adverse to Grantee the recommendation of
Issuer's Board of Directors with respect to the Merger
Agreement, in each case after it shall have been publicly
announced that any person (other than Grantee or any
Subsidiary of Grantee) shall have (A) made or disclosed an
intention to make a proposal to engage in an Acquisition
Transaction or (B) commenced a Tender Offer or filed a
registration statement under the Securities Act with respect
to an Exchange Offer.
As used in this Agreement, "person" shall have the meaning specified
in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
(d) In the event Grantee wishes to exercise the Option, it shall send
to Issuer a written notice (the date of which is referred to as the "Notice
Date") specifying (i) the total number of Option Shares it intends to purchase
pursuant to such exercise and (ii) a place and date not earlier than three
business days nor later than 15 business days from the Notice Date for the
closing (the "Closing") of such purchase (the "Closing Date"). If prior
notification to or approval of the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") or any other regulatory authority is
required in connection with such purchase, Issuer shall cooperate with Grantee
in the filing of the required notice or application for approval and the
obtaining of any such approval.
4. Payment and Delivery of Certificates. (a) On each Closing Date,
Grantee shall (i) pay to Issuer, in immediately available funds by wire
transfer to a bank account designated by Issuer, an amount equal to the
Purchase Price multiplied by the number of Option Shares to be purchased on
such Closing Date and (ii) present and surrender this Agreement to the Issuer
at the address of the Issuer specified in Section 12(f) hereof.
(b) At each Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in Section 4(a),
(i) Issuer shall deliver to Grantee (A) a certificate or certificates
representing the Option Shares to be purchased at such Closing, which Option
Shares shall be free and clear of all liens, claims, charges and encumbrances
of any kind whatsoever, and (B) if the Option is exercised in part only, an
executed new agreement with the same terms as this Agreement evidencing the
right to purchase the balance of the shares of Issuer Common Stock purchasable
hereunder, and (ii) Grantee shall deliver to Issuer a letter agreeing that
Grantee shall not offer to sell or otherwise dispose of such Option Shares in
violation of the provisions of this Agreement.
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(c) Certificates for the Option Shares delivered at each Closing shall
be endorsed with a restrictive legend which shall read substantially as
follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED
AS OF OCTOBER 4, 1994, A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO
THE HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A
WRITTEN REQUEST THEREFOR.
It is understood and agreed that the above legend shall be removed by
delivery of substitute certificate(s) without such legend if Grantee shall have
delivered to Issuer a copy of a letter from the staff of the SEC, or an opinion
of counsel in form and substance reasonably satisfactory to Issuer and its
counsel, to the effect that such legend is not required for purposes of the
Securities Act.
5. Representations and Warranties of Issuer. Issuer hereby represents
and warrants to Grantee as follows:
(a) Due Authorization. Issuer has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals referred
to herein, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Issuer. This Agreement has been duly executed and delivered by
Issuer.
(b) Authorized Stock. Issuer has taken all necessary corporate and
other action to authorize and reserve and to permit it to issue, and, at all
times from the date hereof until the obligation to deliver Issuer Common Stock
upon the exercise of the Option terminates, will have reserved for issuance,
upon exercise of the Option, shares of Issuer Common Stock necessary for
Grantee to exercise the Option, and Issuer will take all necessary corporate
action to authorize and reserve for issuance all additional shares of Issuer
Common Stock or other securities which may be issued pursuant to Section 7 upon
exercise of the Option. The shares of Issuer Common Stock to be issued upon due
exercise of the Option, including all additional shares of Issuer Common Stock
or other securities which may be issuable pursuant to Section 7, upon issuance
pursuant hereto, shall be duly and validly issued, fully paid and nonassessable
(except for assessments made pursuant to Section 662 of the California
Financial Code), and shall be delivered free and clear of all liens, claims,
charges and encumbrances of any kind or nature whatsoever, including any
preemptive rights of any stockholder of Issuer.
(c) Board Action. The performance by Issuer of this Agreement and the
transactions contemplated hereby (including the exercise of the Option) do not
require any approval of the stockholders of Issuer.
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6. Representations and Warranties of Grantee. Grantee hereby
represents and warrants to Issuer that:
(a) Due Authorization. Grantee has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals or
consents referred to herein, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Grantee. This Agreement has been duly executed
and delivered by Grantee.
(b) Purchase Not for Distribution. This Option is not being, and any
Option Shares or other securities acquired by Grantee upon exercise of the
Option will not be, acquired with a view to the public distribution thereof and
will not be transferred or otherwise disposed of except in a transaction
registered or exempt from registration under the Securities Act.
7. Adjustment Upon Changes in Capitalization, etc. (a) In the event of
any change in Issuer Common Stock by reason of a stock dividend, stock split,
split up, recapitalization, combination, exchange of shares or similar
transaction, the type and number of shares or securities subject to the Option,
and the Purchase Price therefor, shall be adjusted appropriately, and proper
provision shall be made in the agreements governing such transaction so that
Grantee shall receive, upon exercise of the Option, the number and class of
shares or other securities or property that Grantee would have received in
respect of Issuer Common Stock if the Option had been exercised immediately
prior to such event, or the record date therefor, as applicable. If any
additional shares of Issuer Common Stock are issued after the date of this
Agreement (other than pursuant to an event described in the first sentence of
this Section 7(a)), the number of shares of Issuer Common Stock subject to the
Option shall be adjusted so that, after such issuance, it, together with any
shares of Issuer Common Stock previously issued pursuant hereto, equals 9.9% of
the number of shares of Issuer Common Stock then issued and outstanding,
without giving effect to any shares subject to or issued pursuant to the
Option. Issuer agrees that in no event shall the number of shares of Issuer
Common Stock issued after the date of this Agreement pursuant to the preceding
sentence, together with the number of shares of Issuer Common Stock subject to
the Option, adjusted as aforesaid, exceed the number of available authorized
but unissued and unreserved shares of Issuer Common Stock.
(b) In the event that Issuer shall enter into an agreement (i) to
consolidate with or merge into any person, other than Grantee or one of its
Subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee or one
of its Subsidiaries, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then
outstanding shares of Issuer Common Stock shall be changed into or exchanged
for stock or other securities of Issuer or any other person or cash or any
other property or the outstanding shares of Issuer Common Stock immediately
prior to such merger shall after such merger represent less than 50% of the
outstanding shares and share equivalents of the merged company, or (iii) to
sell or otherwise
5
<PAGE> 149
transfer all or substantially all of its assets to any person other than
Grantee or one of its Subsidiaries, then, and in each such case, the agreement
governing such transaction shall make proper provisions so that the Option
shall, upon the consummation of any such transaction and upon the terms and
conditions set forth herein, be converted into, or exchanged for, an option
(the "Substitute Option"), at the election of Grantee, of either (A) the
Acquiring Corporation (as defined below), (B) any person that controls the
Acquiring Corporation, or (C) in the case of a merger described in clause (ii),
the Issuer (such person being referred to as the "Substitute Option Issuer").
(c) The Substitute Option shall have the same terms as the Option,
provided that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to Grantee. The Substitute Option Issuer shall also
enter into an agreement with the then holder or holders of the Substitute
Option in substantially the same form as this Agreement, which shall be
applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
shares of the Substitute Common Stock (as is hereinafter defined) as is equal
to the Assigned Value (as is hereinafter defined) multiplied by the number of
shares of the Issuer Common Stock for which the Option was theretofore
exercisable, divided by the Average Price (as is hereinafter defined). The
exercise price of the Substitute Option per share of the Substitute Common
Stock (the "Substitute Purchase Price") shall then be equal to the Purchase
Price multiplied by a fraction in which the numerator is the number of shares
of the Issuer Common Stock for which the Option was theretofore exercisable and
the denominator is the number of shares of the Substitute Common Stock for
which the Substitute Option is exercisable.
(e) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (A) the continuing or
surviving corporation of a consolidation or merger with Issuer (if other than
Issuer), (B) Issuer in a merger in which Issuer is the continuing or surviving
person, and (C) the transferee of all or any substantial part of the Issuer's
assets (or the assets of its Subsidiaries).
(ii) "Substitute Common Stock" shall mean the common stock issued by
the Substitute Option Issuer upon exercise of the Substitute Option.
(iii) "Assigned Value" shall mean the highest of (A) the price per
share of the Issuer Common Stock at which a tender offer or exchange offer
therefor has been made by any person (other than Grantee), (B) the price per
share of the Issuer Common Stock to be paid by any person (other than the
Grantee) pursuant to an agreement with Issuer, and (C) the highest bid price
per share of Issuer Common Stock as quoted on the principal trading market or
securities exchange on which such shares are traded as reported by a recognized
source within the six-month period immediately preceding the agreement;
provided, however, that in the event of a
6
<PAGE> 150
sale of less than all of Issuer's assets, the Assigned Value shall be the sum
of the price paid in such sale for such assets and the current market value of
the remaining assets of Issuer as determined by a nationally recognized
investment banking firm selected by Grantee (or by a majority in interest of
the Grantees if there shall be more than one Grantee (a"Grantee Majority")),
divided by the number of shares of the Issuer Common Stock outstanding at the
time of such sale. In the event that an exchange offer is made for the Issuer
Common Stock or an agreement is entered into for a merger or consolidation
involving consideration other than cash, the value of the securities or other
property issuable or deliverable in exchange for the Issuer Common Stock shall
be determined by a nationally recognized investment banking firm mutually
selected by Grantee and Issuer (or if applicable, Acquiring Corporation),
provided that if a mutual selection cannot be made as to such investment
banking firm, it shall be selected by Grantee (or a Grantee Majority).
(iv) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of the Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided that if Issuer is the issuer of
the Substitute Option, the Average Price shall be computed with respect to a
share of common stock issued by Issuer, the person merging into Issuer or by
any company which controls or is controlled by such merging person, as Grantee
may elect.
(f) In no event, pursuant to any of the foregoing paragraphs, shall
the Substitute Option be exercisable for more than 9.9% of the aggregate of the
shares of the Substitute Common Stock outstanding prior to exercise of the
Substitute Option.
(g) Issuer shall not enter into any transaction described in
subsection (b) of this Section 7 unless the Acquiring Corporation and any
person that controls the Acquiring Corporation assume in writing all the
obligations of Issuer hereunder and take all other actions that may be
necessary so that the provisions of this Section 7 are given full force and
effect (including, without limitation, any action that may be necessary so that
the shares of Substitute Common Stock are in no way distinguishable from or
have lesser economic value than other shares of common stock issued by the
Substitute Option Issuer).
(h) The provisions of Sections 8 and 9 shall apply, with appropriate
adjustments, to any securities for which the Option becomes exercisable
pursuant to this Section 7 and as applicable, references in such sections to
"Issuer", "Option", "Purchase Price" and "Issuer Common Stock" shall be deemed
to be references to "Substitute Option Issuer", "Substitute Option",
"Substitute Purchase Price" and "Substitute Common Stock", respectively.
8. Listing. If Issuer Common Stock or any other securities to be
acquired upon exercise of the Option are then authorized for quotation on the
NASDAQ, the New York Stock Exchange (NYSE) or any securities exchange, Issuer,
upon the request of Grantee, will promptly file an application to authorize for
quotation the shares of Issuer Common Stock or other securities to be
7
<PAGE> 151
acquired upon exercise of the Option on the NASDAQ, NYSE or such other
securities exchange and will use its best efforts to obtain approval of such
listing as soon as practicable.
9. Division of Option. This Agreement (and the Option granted hereby)
are exchangeable, without expense, at the option of Grantee, upon presentation
and surrender of this Agreement at the principal office of Issuer for other
Agreements providing for Options of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of Issuer
Common Stock purchasable hereunder. The terms "Agreement" and "Option" as used
herein include any other Agreements and related Options for which this
Agreement (and the Option granted hereby) may be exchanged. Upon receipt by
Issuer of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Agreement, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Agreement, if mutilated, Issuer will execute and deliver a
new Agreement of like tenor and date. Any such new Agreement executed and
delivered shall constitute an additional contractual obligation on the part of
Issuer, whether or not the Agreement so lost, stolen, destroyed or mutilated
shall at any time be enforceable by anyone.
10. Miscellaneous. (a) Expenses. Except as otherwise provided in
Section 8, each of the parties hereto shall bear and pay all costs and expenses
incurred by it or on its behalf in connection with the grant or exercise of
this Option, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may be
waived at any time by the party that is entitled to the benefits of such
provision. This Agreement may not be modified, amended, altered or supplemented
except upon the execution and delivery of a written agreement executed by the
parties hereto.
(c) Entire Agreement; No Third-Party Beneficiary; Severability. This
Agreement, together with the Merger Agreement and the other documents and
instruments referred to herein and therein (i) constitutes the entire agreement
and supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof and (ii) is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or a federal or state
regulatory agency to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
If for any reason such court or regulatory agency determines that the Option
does not permit Grantee to acquire, or does not require Issuer to repurchase,
the full number of shares of Issuer Common Stock as provided in Sections 3 and
8 (as adjusted pursuant to Section 7), it is the express intention of Issuer to
allow Grantee to acquire or to require Issuer to repurchase such lesser number
of shares as may be permissible without any amendment or modification hereof.
8
<PAGE> 152
(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of California without regard to any
applicable conflicts of law rules.
(e) Descriptive Headings. The descriptive headings contained herein
are for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
(f) Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be given (and
shall be deemed to have been duly received if so given) by personal delivery,
by telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) to the parties as follows:
If to Issuer:
UNIVERSITY BANK & TRUST COMPANY
250 Lytton Avenue
Palo Alto, California 94301
Attention: Carl J. Schmitt
If to Grantee:
COMERICA INCORPORATED
Corporate Secretary - Corporate Legal Department
500 Woodward Avenue, 33rd Floor
Detroit, Michigan 48226
Attention: Mark W. Yonkman
or to such other address as a party may have furnished to the others in writing
in accordance with this paragraph, except that notices of change of address
shall only be effective upon receipt. Any notice, demand or other
communication given pursuant to the provisions of this Section 11(f) shall be
deemed to have been given on the date actually delivered or three days
following the date mailed, as the case may be.
(g) Counterparts. This Agreement and any amendments hereto may be
executed in two counterparts, each of which shall be considered one and the
same agreement and shall become effective when both counterparts have been
signed, it being understood that both parties need not sign the same
counterpart.
(h) Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder or under the Option shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other party, except that Grantee may assign this
Agreement to a wholly owned subsidiary of Grantee and Grantee may assign its
rights hereunder in whole or in part after the occurrence of a Purchase Event.
Subject to
9
<PAGE> 153
the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors
and assigns.
(i) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) Specific Performance. The parties hereto agree that this Agreement
may be enforced by either party through specific performance, injunctive relief
and other equitable relief. Both parties further agree to waive any requirement
for the securing or posting of any bond in connection with the obtaining of any
such equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
University Bank & Trust Company
By: /s/ Carl J. Schmitt
---------------------------
Name: Carl J. Schmitt
Title: Chief Executive Officer
COMERICA INCORPORATED
By: /s/ Mark W. Yonkman
-----------------------------------
Name: Mark W. Yonkman
Title: Vice President and Assistant
Secretary
10
<PAGE> 154
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from to
Commission File Number
UNIVERSITY NATIONAL BANK & TRUST COMPANY
(Exact name of registrant as specified in its charter)
National Banking Laws 94-2622607
- --------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 LYTTON AVENUE, PALO ALTO, CALIFORNIA 94301
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code, (415) 327-0210
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $2.50 par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports, and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [ X ]
[Cover page 1 of 2 pages]
<PAGE> 155
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the average of the closing bid and ask prices of the
Common Stock on March 7, 1994 as reported by NASDAQ National Market System, was
approximately $44,629,997.
As of March 7, 1994, Registrant had 1,362,748 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the Annual Meeting is incorporated by reference into
Part III.
<PAGE> 156
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I Page
<S> <C>
ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . 1
ITEM 2. Properties . . . . . . . . . . . . . . . . . . . . 20
ITEM 3. Legal Proceedings. . . . . . . . . . . . . . . . . 20
ITEM 4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . . 20
PART II
ITEM 5. Market for Registrant's Common Stock and Related
Security Holder Matters. . . . . . . . . . . . . . 22
ITEM 6. Selected Financial Data. . . . . . . . . . . . . . 23
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . 24
ITEM 8. Financial Statements and Supplementary Data. . . . 40
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . 63
PART III
ITEM 10. Directors and Executive Officers of the Registrant 63
ITEM 11. Executive Compensation . . . . . . . . . . . . . . 64
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . 64
ITEM 13. Certain Relationships and Related Transactions . . 64
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K. . . . . . . . . . . . . . . . 65
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 66
</TABLE>
<PAGE> 157
PART I.
ITEM 1. BUSINESS
General
The Bank commenced operations on May 13, 1980. Its principal banking office is
located at 250 Lytton Avenue, Palo Alto, California. Since its formation, the
Bank has provided basic banking services and personal trust services to
individuals and business enterprises in the Palo Alto area. Palo Alto is
located on the San Francisco Peninsula, approximately 30 miles south of San
Francisco, on the northern periphery of "Silicon Valley."
The Bank's primary service area is considered to be the communities of Palo
Alto, Menlo Park, Atherton and Portola Valley plus the unincorporated areas of
Ladera and Stanford University. This primary service area is oriented towards
professional services, light industry, retail businesses and education.
The Bank considers its principal service a "banking relationship," the keystone
of which is a transaction account. In the case of corporations, the
transaction account is a demand (checking) account. In the case of
individuals, it is a Super-NOW account that pays interest, provided that
sufficient funds (i.e., either a daily minimum balance of $3,000, or an average
monthly balance of $6,000) are maintained. Once a customer has established the
"relationship" with the Bank by opening a transaction account, that customer
may utilize all other Bank services, including money fund accounts,
certificates of deposit, safe deposit box rentals, cashier's checks, and the
purchase of U.S. postage stamps, U.S. Savings Bonds and traveler's checks.
Borrowing clients who are low and moderate income individuals are not expected
to be deposit clients of the bank. The Bank also makes available to qualified
customers commercial, personal and real estate loans, credit cards and standby
letters of credit. Through its correspondents, the Bank is also able to offer
limited international banking and municipal bond trading services.
The Bank's Trust Department specializes in personal trust services and acts as
trustee on a range of employee benefit plans. The Bank does not provide stock
transfer services. The Bank maintains a Trust Representative Office at 133
Mission Street, Santa Cruz, CA.
The Bank has an office at 800 Oak Grove, Menlo Park, CA. The Bank has
automatic teller machines at its two offices and it issues an ATM card which
enables a customer to withdraw cash at over 65,000 offices of other financial
institutions world wide which are members of Cirrus, Money Network, Star
System, American Express and the Interlink Network. The Bank also maintains an
ATM machine at the Forum, 23500 Christo Rey Drive, Cupertino, CA. The Bank
employed 138 full time and 8 part-time employees at year end.
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<PAGE> 158
Competition From Other Financial Institutions
The Bank considers its principal market area to be composed of the communities
of Palo Alto, Menlo Park, Atherton, Portola Valley and Stanford. According to
the 1990 Census, the aggregate population of these communities was 118,390.
The 1990 Census further indicates that individuals 18 years old or older with
four or more years of college education totaled 55.8% of this market, versus
28.2% for the San Francisco Bay Area and 20.8% for the State of California.
Individuals in this primary market area who were 16 years old or older at the
1990 Census date and who were employed as executives, administrators, managers
or in a professional specialty totaled 52.7%, as compared to 33.1% for the San
Francisco Bay Area and 28.6% for the State of California.
This market is very heavily serviced by financial institutions. There are 31
commercial banking offices, 13 savings and loan offices, 24 securities
brokerage firms and six credit unions within this market area. The 31 banking
offices alone had deposits from individuals, partnerships and corporations
totaling $2.9 billion as of June 30, 1993, compared to $1.6 billion at December
31, 1983. The Bank's market share was 2.17% on December 31, 1982, 3.88% on
December 31, 1983, 4.49% on December 31, 1984, 6.39% on December 31, 1985,
6.50% on December 31, 1986, 8.57% on December 31, 1987, 9.59% on December 31,
1988, 9.74% on December 31, 1989, 10.07% on December 31, 1990, 10.52% on
December 31, 1991, 11.20% on December 31, 1992 and 11.60% on June 30, 1993.
With regard to loans, the Bank competes with other commercial banks, savings
and loan associations, consumer finance companies and other lending
institutions. The Bank's Trust Department competes with the trust departments
of all the major banks operating within the Bank's primary service area.
In addition to its principal market area, the Bank considers as a secondary
market area, the surrounding communities of Woodside, Los Altos, Mountain View,
Sunnyvale, and Santa Clara to the south and Redwood City, San Carlos, Belmont
and San Mateo to the north. The Bank services customers in these areas by mail
or by the use of its six courier vans, which pick up non-cash deposits on
scheduled routes.
Outside its primary market area, the Bank competes with other national banks,
state banks, savings and loan associations, and credit unions for time and
savings deposits, other deposits, checking or draft accounts, and loans
throughout the San Francisco Bay area. With respect to certain of its
services, including, but not limited to, loans, and particularly with respect
to securing funds available for deposits, the Bank competes with other
financial institutions such as insurance companies, consumer and business
finance or loan companies, industrial loan associations, real estate investment
trusts, pension funds, mortgage companies, and credit card organizations. The
national equity and debt securities markets also compete for available funds.
2
<PAGE> 159
Many of the Bank's competitors offer a comprehensive array of banking products
which the Bank has chosen not to offer, and these competitors thereby may have
a competitive advantage over the Bank. Further, many of the Bank's competitors
have long established reputations and loyal customer bases. However,
management of the Bank believes that the level of service which it provides in
the delivery of banking services to its customers contributes to the Bank's
ability to obtain market share in the face of such competition.
Many of the banks and other financial institutions, including regional money
center banks, with which the Bank competes, have capital and resources
substantially in excess of the capital and resources of the Bank. Because
banks, including the Bank, are generally restricted from lending in excess of a
specified percentage of their capital base to one borrower, the Bank is
dependent upon its correspondent relationships for loan participations in order
to accommodate loan requests in excess of its legal lending limit. The Bank's
legal limit on unsecured lending to any one entity was $5,156,922 on December
31, 1993.
To a certain extent, the Bank is also faced with competition from banks and
other institutions located in money centers outside of California, and from
foreign banks which maintain representative offices in California.
Commitments
As of December 31, 1993, and December 1992, the Bank's loan commitment by
category is as follows:
<TABLE>
<CAPTION>
Loan Commitments Loan Commitments
Outstanding as of Outstanding as of
December 31, 1993 December 31, 1992
--------------------- ---------------------
Percent Percent
(Thousands) of Total (Thousands) of Total
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Commercial
Loans $ 44,165 53.99% $ 40,269 50.05%
Consumer Revolving
Lines of Credit 23,071 28.20% 29,305 36.42%
Real Estate
Loans 9,431 11.53% 3,554 4.42%
Letters of
Credit 5,139 6.28% 7,328 9.11%
-------- ------- ------- -------
TOTAL $ 81,806 100.00% $ 80,456 100.00%
-------- ------- ------- -------
</TABLE>
3
<PAGE> 160
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
----------------- -----------------
<S> <C> <C> <C> <C>
Estimate of
Amount Drawn
During Year $ 44,076 53.88% $ 39,806 49.48%
</TABLE>
All commitments made are "firm" and could be drawn. The largest category of
commitments is Commercial Loans ($44,165M [53.99%]). The Bank expects
approximately 50% of these commitments to be drawn. The Bank anticipates that
50% of the commitments in the next largest category, Consumer Revolving Loans
($23,071M [28.20%]) to be drawn. Less than 5% of the commitments are fixed
rate commitments.
Commercial loan commitments are generally in the form of revolving lines of
credit with floating interest rates and typically mature within one year. All
other commitments are on terms whereby prices of interest rates are to be
determined by market conditions prevailing at the time of exercise.
Concentration of Bank Deposits
There are no material portions of the Bank's deposit base obtained from a
single person or group of persons. The Bank has no deposits of Federal, State
or Local governments other than a Treasury Tax and Loan account. At December
31, 1993, the Bank had deposits totaling $44,696,233 from its Trust Department.
That total represents deposits of 750 individual trust accounts.
As of December 31, 1993, the Bank's deposit structure was as follows:
<TABLE>
<CAPTION>
Deposits Percent
Type of Account (Thousands) of Total
--------------- ----------- --------
<S> <C> <C>
Demand Deposits (1) $ 60,848 16.57%
Savings and NOW Accounts (2) 85,007 23.15%
Time Certificates of
Deposit 21,957 5.98%
Public Deposits 810 .22%
Trust Deposits 44,696 12.17%
Personal Money Funds 80,619 21.96%
Nonpersonal Money Funds 73,267 19.95%
--------- ------
TOTAL $367,204 100.00%
========= ======
</TABLE>
(1) Demand deposits are comprised entirely of corporate transaction accounts.
(2) Individual transaction accounts, as well as transaction accounts for
non-profit organizations, partnerships and sole proprietorships are all
classified as Savings & NOW Accounts.
4
<PAGE> 161
Seasonality of Business
The Bank generally experiences an increase in total deposits at year-end and in
April in anticipation of tax payments as shown below:
<TABLE>
<CAPTION>
Total Deposits
--------------
Monthly Average Balance
-----------------------
<S> <C>
December 1990 $260,000,000
April 1991 276,000,000
May 1991 265,000,000
December 1991 307,000,000
April 1992 334,000,000
May 1992 320,000,000
December 1992 332,000,000
April 1993 343,000,000
May 1993 350,000,000
December 1993 367,000,000
</TABLE>
Foreign Sources of Business
There are no material deposit liabilities incurred from outside the Bank's
primary and secondary service areas. The Bank has no brokered deposits and has
a policy not to accept any. The Bank's loans are made primarily to
professionals, executives and privately held companies in the Bank's market
area. From time to time, loan participations are purchased from another bank.
As of December 31, 1993, participations totaling $1,659,000 were included in
the Bank's portfolio.
(Balance of this page intentionally left blank.)
5
<PAGE> 162
SUPERVISION AND REGULATION
The Bank is regulated and supervised by the Office of the Comptroller of the
Currency (the "OCC") and, therefore, is subject to periodic examination by the
OCC. Deposits of the Bank's customers are insured by the Federal Deposit
Insurance Corporation (the "FDIC") up to the maximum limit of $100,000, and, as
an insured bank, the Bank is subject to certain regulations of the FDIC. As a
national bank, the Bank is a member of the Federal Reserve System and is also
subject to the regulations of the Federal Reserve Board (the "FRB").
The regulations of those federal bank regulatory agencies govern most aspects
of the Bank's business and operations, including but not limited to requiring
the maintenance of non-interest bearing reserves on deposits, limiting the
nature and amount of investments and loans which may be made, regulating the
issuance of securities, restricting the payment of dividends, regulating bank
expansion and bank activities and determining maximum rates of interest allowed
on certain deposits.
EFFECT OF STATE LAW
The laws of the State of California also affect the Bank's business and
operations. For example, under 12 U.S.C. Section 36, the OCC may authorize a
national bank to establish branch offices only to the extent allowable under
state law for state banks. Therefore, as California law presently permits a
state bank to establish a branch office at any location in the state, a
national bank may be similarly authorized to establish a branch by the OCC. On
a similar basis, 12 U.S.C. Section 85 provides that state law, in most
circumstances, determines the maximum rate of interest which a national bank
may charge on a loan. As California law exempts all state-chartered and
national banks from the application of its usury laws, national banks are also
provided such an exemption pursuant to Section 85.
CHANGE IN BANK CONTROL
The Bank Holding Company Act of 1956, as amended (the "Holding Company Act")
and the Change in Bank Control Act of 1978, as amended (the "Change in Control
Act"), together with regulations of the FRB and the OCC, require that,
depending on the particular circumstances, either FRB approval must be obtained
or notice must be furnished to the OCC and not disapproved prior to any person
or company acquiring "control" of a national bank, such as the Bank, subject to
exemptions for certain transactions. Control is conclusively presumed to exist
if an individual or company acquires 25% or more of any class of voting
securities of the bank. Control is rebuttably presumed to exist if a person
acquires 10% or more but less than 25% of any class of voting securities and
either the company has registered securities under Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),
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<PAGE> 163
or no other person will own a greater percentage of that class of voting
securities immediately after the transaction.
CAPITAL ADEQUACY REQUIREMENTS
The Bank is subject to the OCC's capital guidelines and regulations governing
capital adequacy for national banks. As noted below, the Federal banking
agencies have solicited comments on a proposed regulation which would impose
additional capital requirements on banks based on the interest rate risk
inherent in a bank's portfolio.
The OCC has established a minimum leverage ratio of 3% Tier 1 capital(1) to
total assets for national banks that have received the highest composite
regulatory rating (a regulatory measurement of capital, assets, management,
earnings and liquidity) and that are not anticipating or experiencing any
significant growth. All other institutions will be required to maintain a
leverage ratio of at least 100 to 200 basis points above the 3% minimum.
OCC's regulations also require national banks to maintain a minimum ratio of
qualifying total capital to risk-weighted assets of 8.00%. Risk- based capital
ratios are calculated with reference to risk-weighted assets, including both on
and off-balance sheet exposures, which are multiplied by certain risk weights
assigned by the OCC to those assets. At least one-half of the qualifying
capital must be in the form of Tier 1 capital.
Set forth below are Bank's risk based and leverage capital ratios as of
December 31, 1993:
<TABLE>
<CAPTION>
RISK BASED CAPITAL RATIO AS OF DECEMBER 31, 1993
------------------------------------------------
RISK
BASED
AMOUNT RATIO
------ ------
<S> <C> <C>
Tier 1 Capital.............. $ 31,534 11.92%
Total Capital............... $ 34,869 13.19%
Total Capital minimum
requirement............... $ 21,157 8.00%
Excess...................... $ 13,712
Risk-weighted assets........ $264,458
</TABLE>
(1) Tier 1 capital is generally defined as the sum of the core capital
elements less goodwill and certain intangibles. The following items are
defined as core capital elements: (i) common stockholders' equity; (ii)
qualifying noncumulative perpetual preferred stock; and (iii) minority
interests in the equity accounts of consolidated subsidiaries.
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<PAGE> 164
LEVERAGE RATIO AS OF DECEMBER 31, 1993
<TABLE>
<CAPTION>
LEVERAGE
AMOUNT RATIO (1)
------ -----
<S> <C> <C>
Tier 1 Capital ............. $ 31,534 8.35%
Minimum Leverage
requirement............... 11,328 to 3.00% to
18,881 5.00%
Excess...................... $ 20,206 to
12,653
Average total assets........ $ 377,617
- ---------------------------
</TABLE>
(1) Tier 1 Capital to average total assets.
Management of the Bank believes that the Bank will continue to meet its minimum
capital requirements in the foreseeable future.
Under certain circumstances, the OCC may determine that the capital ratios for
a national bank shall be maintained at levels which are higher than the minimum
levels required by the guidelines. A national bank which does not achieve and
maintain adequate capital levels as required may be subject to supervisory
action by the OCC through the issuance of a capital directive to ensure the
maintenance of required capital levels. In addition, the Bank is required to
meet certain guidelines of the OCC concerning the maintenance of an adequate
allowance for loan and lease losses.
If any time the Bank fails to meet its minimum regulatory capital requirements,
it is required, within 45 days thereafter, to submit a capital restoration plan
to the OCC for review and approval.
As required by the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), the federal banking agencies have solicited comments on a
proposed method of incorporating an interest rate risk component into the
current risk-based capital guidelines, with the goal of ensuring that
institutions with high levels of interest rate risk have sufficient capital to
cover their exposures. Interest rate risk is the risk that changes in market
interest rates might adversely affect a bank's financial condition. Under the
proposal, interest rate risk exposures would be quantified by weighing assets,
liabilities and off-balance sheet items by risk factors which approximate
sensitivity to interest rate fluctuations. Institutions identified as having
an interest rate risk exposure greater than a defined threshold would be
required to allocate additional capital to support this higher risk. Higher
individual capital allocations could be required by the bank regulators based
on supervisory concerns.
As the federal banking agencies have solicited comments on this
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<PAGE> 165
proposal but have not yet proposed regulations to implement any interest rate
risk component into the risk-based capital guidelines, the ultimate impact on
the Bank of final regulation in this area cannot be predicted at this time.
PAYMENT OF DIVIDENDS
The ability of the Bank to make dividend payments is subject to statutory and
regulatory restrictions.
The Board of Directors of a national bank may declare the payment of dividends
depending upon the earnings, financial condition and cash needs of the bank and
general business conditions. A national bank may not pay dividends from its
capital. All dividends must be paid out of net profits then on hand, after
deducting losses and bad debts. A national bank is further prohibited from
declaring a dividend on its shares of common stock until its surplus fund
equals the amount of capital stock or until 10% of the bank's net profits of
the preceding half year in the case of quarterly or semiannual dividends, or
the preceding two consecutive half-year periods in the case of an annual
dividend, are transferred to the surplus fund. Moreover, the approval of the
OCC is required for the payment of dividends if the total of all dividends
declared by the bank in any calendar year would exceed the total of its net
profits of that year combined with its retained net profits of the two
preceding years, less any required transfers to surplus or a fund for the
retirement of any preferred stock.
In addition to the above requirements, guidelines adopted by the OCC set forth
factors which are to be considered by a national bank in determining the
payment of dividends. A national bank, in assessing the payment of dividends,
is to evaluate the bank's capital position, its maintenance of an adequate
allowance for loan and lease losses, and the need to revise or develop a
comprehensive capital plan.
Moreover, the OCC has broad authority to prohibit a national bank from engaging
in banking practices which it considers to be unsafe or unsound. It is
possible, depending upon the financial condition of the national bank in
question and other factors, that the OCC may assert that the payment of
dividends or other payments by a bank is considered an unsafe or unsound
banking practice and therefore, implement corrective action to address such a
practice.
Accordingly, the future payment of cash dividends by the Bank will not only
depend upon the Bank's earnings during any fiscal period but will also depend
upon the assessment of its Board of Directors of capital requirements and other
factors, including dividend guidelines and the maintenance of an adequate
allowance for loan and lease losses.
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<PAGE> 166
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
GENERAL
FDICIA primarily addresses the safety and soundness of the deposit insurance
funds, supervision of and accounting by insured depository institutions and
prompt corrective action by the federal bank regulatory agencies for troubled
institutions. FDICIA gives the FDIC, in its capacity as federal insurer of
deposits, broad authority to promulgate regulations to assure the viability of
the deposit insurance funds including regulations concerning safety and
soundness standards. FDICIA also places restrictions on the activities of
state-chartered institutions and on institutions failing to meet minimum
capital standards and provides enhanced enforcement authority for the federal
banking agencies. FDICIA has strengthened FDIC regulations regarding insider
transactions.
PROMPT CORRECTIVE ACTION
FDICIA amended the Federal Deposit Insurance Act ("FDIA") to establish a format
for closer monitoring of insured depository institutions and to enable prompt
corrective action by regulators when an institution begins to experience
difficulty. The general thrust of these provisions is to impose greater
scrutiny and more restrictions on institutions as they descend the
capitalization ladder.
FDICIA establishes five capital categories for insured depository institutions:
(a) Well Capitalized;(1) (b) Adequately Capitalized;(2) (c)
Undercapitalized;(3) (d) Significantly Undercapitalized;(4) and (e) Critically
Undercapitalized.(5) All insured institutions (e.g., the Bank) are barred from
making
(1) Well Capitalized means a financial institution with a total risk-based
ratio of 10% or more, a Tier 1 risk-based ratio of 6% or more and a leverage
ratio of 5% or more, so long as the institution is not subject to an order,
written agreement, capital directive or prompt corrective action directive to
meet and maintain a specific capital level for any capital measure.
(2) Adequately Capitalized means a total risk-based ratio of 8% or more, a
Tier 1 risk-based ratio of 4% or more and a leverage ratio of 4% or more (3% or
more if the institution has received the highest composite rating in its most
recent report of examination) and does not meet the definition of a Well
Capitalized institution.
(3) Undercapitalized means a financial institution with a total risk-based
ratio of less than 8%, a Tier 1 risk-based ratio of less than 4% or a leverage
ratio of less than 4%.
(4) Significantly Undercapitalized means a financial institution with a
total risk-based ratio of less than 6%, a Tier 1 risk-based ratio of less than
3% or a leverage ratio of less than 3%.
(5) Critically Undercapitalized means a financial institution with a ratio
of tangible equity to total assets that is equal to or less than 2%.
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<PAGE> 167
capital distributions or paying management fees to a controlling person if to
do so would cause the institution to fall into any of the three
undercapitalized categories.
Undercapitalized institutions are subject to several mandatory supervisory
actions, including increased monitoring and periodic review of the
institution's efforts to restore its capital, submitting an acceptable capital
restoration plan, restricted asset growth, and limits on acquisitions, new
branches or new lines of business. A parent holding company of an
undercapitalized bank is expected to guarantee that the bank will comply with
the bank's capital restoration plan until the bank has been adequately
capitalized, on the average, for four (4) consecutive quarters. Such guarantee
is limited to the lesser of 5% of the bank's total assets at the time it became
undercapitalized or the amount necessary to bring the bank into full capital
compliance.
Significantly undercapitalized institutions and undercapitalized institutions
that fail to submit and implement adequate capital restoration plans are
subject to the mandatory provisions applicable to undercapitalized institutions
and, in addition, may be required to: sell additional capital, including
voting shares; restrict transactions with affiliates; restrict interest rates
paid on deposits; restrict asset growth or reduce total assets; terminate,
reduce or alter any risky activities; elect new directors and install new
management; cease accepting deposits from correspondent depository
institutions; or divest or liquidate certain subsidiaries. A bank holding
company may be required to divest itself of any affiliate of the institution
(other than another insured depository institution) under certain conditions.
Critically undercapitalized institutions face even more severe restrictions.
In addition, significantly undercapitalized institutions will be prohibited
from paying any bonus or raise to a senior executive officer without prior
agency approval. No such approval will be granted to an institution which is
required to but has failed to submit an acceptable capital restoration plan.
FDICIA also provides that if a well or adequately capitalized or
undercapitalized institution is in an unsafe or unsound condition or is
engaging in an unsafe or unsound practice, its capital category may be
downgraded to achieve a higher level of regulatory scrutiny and prompt
corrective action. FDICIA restricts the solicitation and acceptance of and
interest rates payable on brokered deposits by insured depository institutions
that are not well capitalized and has added new bases for which a conservator
or receiver may be appointed for undercapitalized and critically
undercapitalized institutions and under certain other circumstances not
relating to capital levels. Finally, FDICIA establishes a risk-based
assessment system for calculating a depository institution's semiannual deposit
insurance premium under which institutions pay premiums based upon their
capital classification and supervisory risk.
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<PAGE> 168
BROKERED DEPOSITS
FDICIA restricts the acceptance of brokered deposits by insured depository
institutions that are not well capitalized. It also places restrictions on the
interest rate payable on brokered deposits and the solicitation of such
deposits. An undercapitalized institution will not be allowed to solicit
brokered deposits by offering rates of interest that are significantly higher
than the prevailing rates of interest on insured deposits in the particular
institution's normal market areas or in the market area in which such deposits
would otherwise be accepted.
The FDIC has promulgated final regulations with respect to the ability of
insured depository institutions in each of the new capitalization categories to
accept brokered deposits. Under the regulations, undercapitalized institutions
are prohibited from accepting funds obtained directly or indirectly though a
deposit broker. Adequately capitalized institutions may accept brokered
deposits only if a waiver is first obtained from the FDIC. Well capitalized
institutions are permitted by the regulations to accept brokered funds without
restriction. For purposes of the brokered deposit regulation the FDIC has
stated that the term "well capitalized" means an institution whose leverage and
risk- based capital ratios are at least one to two percentage points higher
than those currently required by applicable regulations, and which has not been
notified that it is in a troubled condition.
In addition to the above restrictions on acceptance of brokered deposits,
FDICIA provides that no pass-through deposit insurance will be provided to
employee benefit plan deposits accepted by an institution which is ineligible
to accept brokered deposits under applicable law and regulations.
DEPOSIT INSURANCE PREMIUMS
As of January 1, 1993, the FDIC charges higher deposit insurance premiums on
banks which pose greater risks to the deposit insurance fund. Under the rule,
a bank is required to pay an annual insurance premium of 0.23% to 0.31% for
domestic deposits, depending upon the bank's risk classification. A bank's
risk classification is determined by the FDIC according to the bank's capital
ratios and the FDIC's evaluation of the bank based upon federal and state
supervisory examinations and other relevant information. Under the
classification system, the Bank's deposit insurance premium is set at 0.23%.
PROPOSED STANDARDS ON SAFETY AND SOUNDNESS
Pursuant to the requirements of FDICIA, recently proposed FDIC and OCC
regulations provide new standards for safety and soundness applicable to banks.
The proposed regulations establish managerial, operational, asset quality and
earnings standards for state national banks as well as bank holding companies,
i.e.,
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<PAGE> 169
requiring banks and bank holding companies to maintain a ratio of classified
assets to total capital and ineligible allowances no greater than 1.0, and to
maintain minimum earnings sufficient to absorb losses without impairing
capital. A bank's "minimum earnings" are sufficient if the bank is in
compliance with established minimum capital requirements as calculated by the
last four quarters and projected for the next four quarters.
In addition, the proposed safety and soundness standards would prohibit
excessive compensation or compensation which could lead to material financial
loss for the bank or bank holding company.
These regulations are subject to change; therefore, the ultimate impact on the
Bank of final regulation in this area cannot be predicted at this time.
EXTENSIONS OF CREDIT TO INSIDERS AND TRANSACTIONS WITH AFFILIATES
The Federal Reserve Act and FRB Regulation O, which are applicable to national
banks, place limitations and conditions on loans or extensions of credit to: a
bank's or bank holding company's executive officers, directors and principal
shareholders (i.e., in most cases, those persons who own, control or have power
to vote more than 10% of any class of voting securities); any company
controlled by any such executive officer, director or shareholder; or any
political or campaign committee controlled by such executive officer, director
or principal shareholder.
Loans extended to any of the above persons must comply with
loan-to-one-borrower limits, require prior full board approval when aggregate
extensions of credit to such person exceed specified amounts, must be made on
substantially the same terms (including interest rates and collateral) as, and
following credit-underwriting procedures that are not less stringent than,
those prevailing at the time for comparable transactions with non-insiders, and
must not involve more than the normal risk of repayment or present other
unfavorable features. Regulation O also prohibits a bank from paying an
overdraft on an account of an executive officer or director, except pursuant to
a written pre-authorized interest-bearing extension of credit plan that
specifies a method of repayment or a written pre-authorized transfer of funds
from another account of the officer or director at the bank.
The provisions of Regulation O summarized above reflect substantial
strengthening as a result of the adoption of FDICIA. FDICIA also resulted in
an amendment to Regulation O which provides that the aggregate limit on
extensions of credit to all insiders of a bank as a group cannot exceed the
bank's unimpaired capital and unimpaired surplus. An exception to this
limitation is provided for banks with less than $100,000,000 in deposits. The
aggregate limit applicable to such banks is two times the bank's unimpaired
capital and unimpaired surplus, provided the bank meets or exceeds all
applicable capital requirements.
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<PAGE> 170
GOVERNMENT MONETARY POLICY
The earnings of the Bank are and will be affected by the policies of regulatory
authorities, including the FRB. An important function of the FRB is to
regulate the national supply of bank credit. Among the instruments used to
implement these objectives are open market operations in U.S. Government
securities, changes in reserve requirements against bank deposits, and changes
in the discount rate which banks pay on advances from the Federal Reserve
System. These instruments are used in varying combinations to influence
overall growth and distribution of bank loans, investments and deposits, and
their use may also affect interest rates on loans or interest rates paid for
deposits. The monetary policies of the FRB have had a significant effect on
the operating results of commercial banks in the past and are expected to
continue to do so in the future. The effect, if any, of such policies upon the
future business earnings of the Bank cannot be predicted.
RECENT REGULATIONS AND GUIDELINES
BANK SALES OF NONDEPOSIT INVESTMENTS
Securities activities of national banks, as well as their subsidiaries and
affiliates, are governed by OCC regulations. The OCC has taken the position
that bank sales of alternative investment products, such as mutual funds and
annuities, raise substantial bank safety and soundness concerns involving
consumer confusion over the nature of the products offered, and the potential
for mismanagement of sales programs for such investments which could expose a
bank to liability under the anti-fraud provisions of federal securities laws.
Accordingly, the OCC has issued guidelines to national banks which recommend,
among other things, establishing a compliance and audit program to monitor the
bank's mutual funds sales activities and compliance with applicable federal
securities laws, providing full disclosure to customers about the risks of such
investments (including the possibility of loss of principal investment),
conducting securities activities of bank subsidiaries or affiliates in separate
and distinct locations, and prohibiting bank employees involved in
deposit-taking activities from selling investment products or from giving
investment advice.
Banks are also required to establish qualitative standards for the selection
and marketing of the investments offered by the bank and maintain appropriate
documentation regarding suitability of investments recommended to bank
customers.
OTHER
Various other legislation, including proposals to overhaul the bank regulatory
system and to limit the investments that a depository institution may make with
insured funds, is introduced into
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<PAGE> 171
Congress or the California Legislature from time to time. The Bank cannot
determine the ultimate effect that any potential legislation, if enacted, would
have upon the financial condition or operations of the Bank.
IMPACT OF FEDERAL AND CALIFORNIA TAX LAWS
The following are the more significant Federal and California income tax
provisions affecting commercial banks.
1. CORPORATE TAX RATES. For tax years beginning on or after July 1, 1987,
and before 1993, for most corporations taxable income was taxed at a 34 percent
rate. For tax years beginning after 1992, corporate taxable income in excess
of $10 million generally is taxed at a 35 percent rate. Corporations with
taxable income over $15 million are subject to an additional tax of 3 percent
of the excess over $15 million, or $100,000, whichever is smaller.
2. CORPORATE ALTERNATIVE MINIMUM TAX. The Tax Reform Act of 1986 (the "1986
Act") enacted an alternative minimum tax ("AMT"). Generally, a corporation
will be subject to the AMT to the extent the tentative minimum tax exceeds the
corporation's regular tax liability. The tentative minimum tax is equal to (a)
20 percent of the excess of a corporation's "alternative minimum taxable
income" ("AMTI") over an exemption amount, less (b) the alternative minimum tax
foreign tax credit. Generally, AMTI is defined as taxable income computed with
special adjustments and increased by the amount of tax preferences for a tax
year.
Effective for tax years beginning after 1989, a special adjustment is made for
"adjusted current earnings" ("ACE"). This adjustment replaced the "book
income" adjustment that was effective for tax years beginning in 1987 through
1989. The ACE adjustment is equal to three-fourths of the excess of ACE over
AMTI (determined without regard to this adjustment and the AMT net operating
loss). Generally, ACE is computed by adjusting AMTI to reflect the rules
applicable in computing corporate earnings and profits for federal income tax
purposes; adjustments are made for depreciation, for inclusion of certain items
otherwise excluded from taxable income, for disallowance of certain deductions
otherwise allowed in computing taxable income, and other items. The U.S.
Treasury has promulgated regulations providing detailed rules for calculating
the ACE adjustment.
The Revenue Reconciliation Act of 1989 (the "1989 Act"), the Revenue
Reconciliation Act of 1990 (the "1990 Act"), and the Comprehensive National
Energy Policy Act of 1992 (the "Energy Tax Act") made various technical changes
to the ACE provisions. In addition, the Revenue Reconciliation Act of 1993
(the "1993 Act") eliminates the special ACE adjustment for depreciation after
1993, and provides that depreciation is to be calculated under the method
utilized in determining AMTI. The 1993 Act also made other technical changes
to the ACE provisions.
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<PAGE> 172
Generally, for purposes of determining AMTI, a corporation is required to
compute its depreciation allowance using a slower depreciation rate than that
used in computing regular taxable income. Also, special adjustments are made
in computing a corporation's net operating loss, and generally a net operating
loss deduction cannot exceed 90 percent of AMTI. Further, tax-exempt interest
on certain private activity bonds issued after August 7, 1986 constitutes a tax
preference increasing AMTI. Finally, the Energy Tax Act and the 1993 Act made
technical changes to the AMT provisions.
3. BAD DEBT DEDUCTION. The 1986 Act required a bank with average adjusted
bases of all assets exceeding $500 million ("large bank") to compute its bad
debt deduction using the specific charge-off method. Under that method, a
deduction is taken at the time the debt becomes partially or wholly worthless.
Under prior law, a large bank could also use one of two reserve methods, under
which a bad debt deduction was computed according to the amount added to a
reserve set aside for bad debts. The 1986 Act, as modified by the 1990 Act,
continued to permit a bank not meeting the definition of a large bank ("small
bank") to use either the specific charge-off method or the "experience" reserve
method, under which the addition to bad debt reserve is based on the bank's
actual loss experience for the current year and five preceding years.
The U.S. Treasury has promulgated regulations permitting a bank to elect to
establish a conclusive presumption that a debt is worthless, based on applying
a single set of standards for both regulatory and tax accounting purposes.
4. INTEREST INCURRED FOR TAX-EXEMPT OBLIGATIONS. Generally, taxpayers are not
allowed to deduct interest on indebtedness incurred to purchase or carry
tax-exempt obligations. Prior to the 1986 Act, this provision generally did
not apply to interest paid by banks or other financial institutions with
respect to debts incurred in the ordinary course of the bank's business. Banks
were subject, however, to a 20 percent disallowance of such interest in certain
cases.
After the 1986 Act, a bank is denied a deduction for the portion of the bank's
interest that is allocable to tax-exempt obligations acquired by the bank after
August 7, 1986. The 20 percent disallowance of pre-1986 Act law continues to
apply to tax-exempt obligations acquired between January 1, 1983 and August 7,
1986. A special exception applies to a "qualified tax-exempt obligation,"
which includes any tax-exempt obligation that (a) is not a private activity
bond and (b) is issued by an issuer that reasonably anticipates it will issue
not more than $10 million of tax-exempt obligations (other than certain private
activity bonds) during the calendar year. Qualified tax-exempt obligations are
treated as acquired before August 8, 1986; thus, interest expense allocable to
such bonds continues to be deductible, subject to the 20 percent disallowance.
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<PAGE> 173
5. NET OPERATING LOSSES. Under the 1986 Act, a bank is permitted to carry a
net operating loss ("NOL") back to the prior three tax years and forward to the
succeeding fifteen tax years, as opposed to the ten-year carryback and
five-year carryforward periods of prior law. The prior law periods were
retained, however, to the extent the NOL of a commercial bank is attributable
to a bad debt deduction taken under the specific charge-off method. This
special rule applies to NOLs for tax years beginning after December 31, 1986
and before January 1, 1994. The 1990 Act clarifies that a commercial bank's
bad debt loss is treated as a separate NOL to be taken into account after the
remaining portion of the NOL for the year.
6. AMORTIZATION OF INTANGIBLE ASSETS INCLUDING BANK DEPOSIT BASE. Prior to
the 1993 Act, there was considerable controversy regarding the amortization
(depreciation) of certain intangible assets, such as customer lists and similar
items. Generally, the issue involved whether the intangible asset represented
non-amortizable goodwill or a separate and distinct asset which could be
amortized over its useful life.
The 1993 Act provides that certain intangible property acquired by a taxpayer
must be amortized over a 15 year period. For this purpose, acquired assets
required to be amortized include goodwill and the deposit base or any similar
asset acquired by a financial institution (such as checking and savings
accounts, escrow accounts and similar items). The 15 year amortization rule
generally applies to property acquired after August 10, 1993. Taxpayers may
elect, however, to apply the new rules to property acquired after July 25,
1991. The IRS recently issued temporary regulations regarding the election to
retroactively apply the amortization rules.
7. MARK TO MARKET RULES. The 1993 Act introduced certain "mark-to-market" tax
accounting rules for "dealers in securities." Under these rules, certain
"securities" held at the close of a taxable year must be marked to fair market
value, and the unrealized gain or loss inherent in the security must be
recognized in that year for federal income tax purposes. Under the definition
of a "dealer", a bank or financial institution that regularly purchases or
sells loans may be subject to the new rules. The rules generally are effective
for tax years ending on or after December 31, 1993.
Certain securities are excepted from the mark-to-market rules provided the
taxpayer timely complies with certain identification rules. The principal
exceptions affecting banks are for (1) any security held for investment and (2)
any note, bond, or other evidence of indebtedness acquired or originated in the
ordinary course of business and which is not held for sale. If a taxpayer
timely and properly identifies loans and securities as being excepted from the
mark-to-market rules, these loans and securities will not be subject to the new
rules. Generally, a financial institution may make the identification of an
excepted debt
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<PAGE> 174
obligation in accordance with normal accounting practices, but no later than 30
days after acquisition. The IRS recently issued temporary regulations
interpreting the mark-to-market provisions.
8. CALIFORNIA TAX LAWS. A commercial bank is subject to the California
franchise tax. The applicable tax rate is higher than that applied to general
(non-financial) corporations because it includes an amount "in lieu" of many
other state and local taxes and license fees payable by such corporations but
generally not payable by banks and financial corporations. The bank statutory
tax rate for income years ending in 1989, 1990 and 1991 was 10.741%. For
income years ending after 1991 and before December 1, 1995, the rate is based
on the franchise tax rate applicable to general corporations (currently 9.3%)
plus the in-lieu rate, but the total rate cannot exceed 11.7%. For these
years, the in-lieu rate is computed under a formula based on the amount of
personal property taxes, business license taxes and California income reported
for general corporations, and must be at least 1.3%. Based on this formula,
the bank rate for income years ending in 1992 and 1993 is 11.007% and 11.107%,
respectively. For income years ending on or after December 31, 1995, the
applicable bank tax rate will be the general corporate rate plus 2%, with no
ceiling.
California has substantially adopted the federal AMT, subject to modifications
for the ACE adjustment, computation of NOLs, tax preference treatment for
tax-exempt interest and certain other items. Generally, a bank is subject to
California AMT in an amount equal to the sum of (a) seven percent of AMTI
(computed for California purposes) over an exemption amount and (b) the excess
of the bank tax rate over the general corporation tax rate applied against net
income for the taxable year, unless the bank's regular tax liability is
greater.
California permits a bank to compute its deduction for bad debt losses under
either the specific charge-off method or according to the amount of a
reasonable addition to a bad debt reserve. Regulations provide detailed rules
for determining the deduction under either method.
California has incorporated the federal NOL provisions, subject to significant
modifications for most corporations. First, NOLs arising in income years
beginning before 1987 are disregarded. Second, no carryback is permitted, and
NOLs may be carried forward only five years. Third, in most cases, only fifty
percent of the NOL for any income year may be carried forward. Fourth, NOL
carryover deductions are suspended for income years beginning in calendar years
1991 and 1992, although the carryover period is extended by one year for losses
sustained in income years beginning in 1991 and by two years for losses
sustained in income years beginning before 1991. Finally, the special federal
NOL rules regarding bad debt losses of commercial banks do not apply for
California purposes.
In 1993, California enacted legislation which significantly
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<PAGE> 175
modifies the NOL provisions for income years beginning after 1992. First, for
most corporations, the carryover period is reduced to five years (under prior
law, the carryover period was 15 years). Second, the California NOL provisions
are made permanent (under prior law, the California NOL provisions were to
expire for NOLs arising after 1996). The 1993 legislation also makes other
changes to the California NOL provisions, including special NOL carryover
provisions for corporations and banks in bankruptcy.
The various laws discussed herein contain other changes that could have a
significant impact on the banking industry. The effect of these changes is
uncertain and varied, and it is unclear to what extent any of these changes may
influence the Company's or the Bank's operations or the banking industry
generally.
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ITEM 2. PROPERTIES
The Bank's headquarters building is located at 250 Lytton Avenue, Palo Alto,
California. The Bank commenced operations in this new facility on October 20,
1986. The building, owned by the Bank, contains 25,800 square feet spread over
three floors. In addition, there are two levels of underground parking.
On July 26, 1989, the Bank entered into a lease purchase agreement on the
building located at 800 Oak Grove, Menlo Park and presently occupies 6,527
square feet. The purchase was completed on February 1, 1991. Additionally,
effective October 16, 1989, the Bank leased 1,053 square feet at 133 Mission
Street, Santa Cruz, California to house its Trust Representative Office. On
October 15, 1993, the Bank purchased a 5,348 square foot building at 275 Third
Street, Los Altos, California for $1,258,723 for future use.
The total book value of the premises, including land, equipment, furniture and
fixtures was $15,895,053 at December 31, 1993 compared to $14,767,804 at
December 31, 1992.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Bank is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of shareholders was held on December 20, 1993 to approve a
plan of conversion pursuant to which the bank will convert into a California
state licensed bank. There were 1,343,002 shares outstanding on the record
date for the meeting, November 19, 1993. There were present at said meeting in
person or by proxy shareholders of 961,424 shares of common stock entitled to
vote (71.59%). 957,498 shares were voted in favor of the conversion, 868
shares were voted against, and 3,206 shares abstained.
No other matters were voted upon at the meeting.
PART II.
ITEM 5. MARKET FOR THE BANK'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
Market Information
The Common Stock of the Bank is listed on NASDAQ (National Association of
Securities Dealers Automated Quotations) under the quotation symbol UNNB.
Principal market makers for the Bank's Common Stock are: Dean Witter Reynolds,
Hoefer & Arnett, H.J. Meyer & Co., Inc., Wedbush Morgan Securities, Inc., and
Montgomery Securities. Prices reflect actual trades.
20
<PAGE> 177
<TABLE>
<CAPTION>
Quarter Ended High Low Last Volume
- ------------- ---- --- ----- --------
<S> <C> <C> <C> <C>
3-31-93 $34.00 $24.50 $33.00 34,824
6-30-93 35.00 30.50 33.00 18,482
9-30-93 37.00 33.00 37.00 28,401
12-31-93 37.00 30.50 33.00 39,387
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended High Low Last Volume
- ------------- ---- --- ----- --------
<S> <C> <C> <C> <C>
3-31-92 $26.50 $23.00 $24.50 51,126
6-30-92 25.50 22.75 23.50 68,912
9-30-92 28.00 23.50 27.50 20,603
12-31-92 28.50 24.50 25.50 16,969
</TABLE>
Holders
The Bank has authorized 3,000,000 shares of Common Stock, par value $2.50 per
share. As of March 7, 1994, 1,362,748 shares were outstanding and were held by
approximately 875 shareholders.
Dividends
On January 8, 1993, the Board of Directors declared a dividend of thirty-five
cents per share to shareholders of record February 8, 1993. On March 18, 1993,
the Board declared a dividend of thirty-five cents per share to shareholders of
record April 12, 1993. On May 20, 1993, the Board declared a dividend of
thirty-five cents per share to shareholders of record July 12, 1993. On
September 16, 1993, the Board declared a dividend of thirty-five cents per
share to shareholders of record October 8, 1993. On November 18, 1993, the
Board declared a dividend of thirty-five cents per share to shareholders of
record January 17, 1994.
Currently there are no existing contractual restrictions on the Bank's ability
to pay dividends.
The Bank's policy is that dividends shall be paid only out of current period
income. The future dividend policy of the Bank is subject to the discretion of
the Board of Directors and will depend upon a number of factors, including
future earnings and capital needs in conjunction with total liability growth.
The Bank has paid a dividend on a semi-annual basis since 1985 as is reflected
in the following chart. Quarterly payments began in January 1993.
21
<PAGE> 178
<TABLE>
<CAPTION>
History of Dividend Payout
--------------------------
Total
-----
Paid Paid Annual
---- ---- ------
Year February August Payout
---- -------- ------ ------
<S> <C> <C> <C>
1985 $0.10 $0.10 $86,722.70
1986 $0.10 $0.20 $148,685.60
1987 $0.20 $0.20 $208,872.40
1988 $0.20 $0.30 $265,671.80
1989 $0.30 $0.30 $357,012.00
1990 $0.30 $0.45 $911,567.70
1991 $0.45 $0.55 $1,260,610.95
1992 $0.55 $0.55 $1,430,162.70
</TABLE>
<TABLE>
<CAPTION>
Total
-----
Paid Paid Paid Paid Annual
---- ---- ---- ---- ------
February April July October Payout
-------- ----- ---- ------- ------
<S> <C> <C> <C> <C> <C>
1993 $0.35 $0.35 $0.35 $0.35 $1,871,232.65
1994 $0.35 $479,539.15
</TABLE>
22
<PAGE> 179
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Summary of Earnings 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income $23,501 $23,865 $25,397 $25,833 $22,693 $18,573
Interest Expense 6,418 8,101 12,251 13,499 11,300 9,205
- -----------------------------------------------------------------------------------------------------------------------------
Net Interest Income 17,083 15,764 13,146 12,334 11,393 9,368
Provision for Loan Losses 2,833 2,215 875 360 310 330
Net Interest Income after
Provision for Loan Losses 14,250 13,549 12,271 11,974 11,083 9,038
Non-Interest Income 5,150 3,895 2,518 2,240 1,600 1,255
Non-Interest Expense 13,515 11,808 10,312 9,497 8,044 6,522
- -----------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 5,885 5,636 4,477 4,717 4,639 3,771
Income Taxes 1,644 1,555 1,261 1,352 1,393 1,055
- -----------------------------------------------------------------------------------------------------------------------------
Net Income $4,241 $4,081 $3,216 $3,365 $3,246 $2,716
Per Share:
Average Number of Shares Outstanding,
Weighted (000's) 1,383 1,329 1,307 1,290 1,267 1,122
Net Income $3.07 $3.07 $2.46 $2.61 $2.56 $2.42
Dividend $1.40 $1.10 $1.00 $0.75 $0.30 $0.25
Book Value Per Share at December 31 $25.53 $21.69 $19.76 $18.30 $16.29 $13.88
- -----------------------------------------------------------------------------------------------------------------------------
Balance Sheet Averages (000's)
- -----------------------------------------------------------------------------------------------------------------------------
Total Assets $377,611 $347,533 $308,923 $273,242 $229,544 $216,994
Net Loans 218,779 206,310 168,909 156,207 126,748 96,566
Deposits 343,847 317,611 281,319 249,481 208,807 197,257
Securities Sold Under Repurchase Agreements 1,398 1,354 1 659 1,013 4,716
Total Deposits and Securities Sold Under
Repurchase Agreements 345,246 318,965 281,320 250,140 209,820 201,973
Shareholders' Equity 30,177 26,784 23,735 20,893 17,896 13,064
- -----------------------------------------------------------------------------------------------------------------------------
Trust Assets at Year-end (000's) Cost $377,195 $345,213 $364,972 $212,567 $187,377 $136,097
Market 480,947 431,994 460,583 271,520 250,136 173,311
- -----------------------------------------------------------------------------------------------------------------------------
Selected Ratios
Return on Average Assets 1.12% 1.17% 1.04% 1.23% 1.41% 1.25%
Return on Average Equity 14.05% (1) 15.24% 13.55% 16.11% 18.14% 20.79%
Loan to Deposit (Average Balances) 63.63% 64.96% 60.04% 62.61% 60.70% 48.95%
Average Daily Prime Rate 6.00% 6.25% 8.46% 10.01% 10.87% 9.31%
Per Share Dividend to Earnings Per Share 45.60% 35.83% 40.65% 28.74% 11.72% 10.33%
Average Equity to Average Total Assets 7.99% 7.71% 7.68% 7.65% 7.80% 6.02%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not reflect unrealized gain on securities per SFAS 115.
23
<PAGE> 180
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Capital
During 1993, the Bank's capital net of dividends paid increased by $5,885,944
or 20.71%, compared to an increase of $3,233,279 or 12.83% in 1992, and an
increase of $2,794,593 or 12.48% in 1991. Sources of additional capital in
each of the periods were retained earnings, exercise of stock options and
purchases of new stock by the Bank's profit sharing plan. Additionally, in
1993, $2,776,280 of the increase is unrealized gains on securities available
for sale, net, as a result of the Bank's adoption of SFAS 115, "Accounting for
Certain Investments in Debt and Equity Securities," as of December 31, 1993.
The Consolidated Statement of Changes in Shareholders' Equity in the financial
statements reflects the detailed changes.
It is the intention of the Bank to continue capital augmentation through
earnings retention net of dividends in future years.
Liquidity
Historically, the Bank's balance sheet has shown a high degree of liquidity.
The following table shows balance sheet proportions for the years ending
December 31, 1993, December 31, 1992 and December 31, 1991:
AVERAGE BALANCE SHEET
<TABLE>
<CAPTION>
12/31/93 12/31/92 12/31/91
-------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash & Due From Banks $25,653 6.79% $21,383 6.15% $17,299 5.60%
Investment Securities 73,028 19.34% 70,134 20.18% 66,201 21.43%
Fed Funds Sold 35,212 9.32% 25,950 7.47% 27,283 8.83%
Loans 224,016 59.32% 211,204 60.77% 180,647 58.48%
Premises & Equipment 14,792 3.92% 14,611 4.20% 13,321 4.31%
Other Assets 4,910 1.30% 4,251 1.22% 4,172 1.35%
------- ------- ------- ------- ------- -------
TOTAL ASSETS $377,611 100.00% $347,533 100.00% $308,923 100.00%
======== ======= ======== ======= ======== =======
LIABILITIES
Demand Deposits $50,135 13.28% $40,712 11.71% $35,227 11.40%
Savings & Now 76,649 20.30% 67,141 19.32% 55,408 17.94%
Money Funds 193,474 51.24% 177,367 51.04% 150,012 48.56%
Time Deposits 23,589 6.25% 32,392 9.32% 40,673 13.17%
------- ------- ------- ------- ------- -------
Total Deposits $343,847 91.06% $317,612 91.39% $281,320 91.06%
Other Borrowings 1,398 0.37% 1,354 0.39% 1,181 0.38%
Other Liabilities 2,189 0.58% 1,783 0.51% 2,687 0.87%
------- ------- ------- ------- ------- -------
TOTAL LIABILITIES $347,434 92.01% $320,749 92.29% $285,188 92.32%
SHAREHOLDERS' EQUITY 30,177 7.99% 26,784 7.71% 23,735 7.68%
------- ------- ------- ------- ------- -------
TOTAL LIABILITIES
AND EQUITY $377,611 100.00% $347,533 100.00% $308,923 100.00%
======== ======= ======== ======= ======== =======
</TABLE>
24
<PAGE> 181
Totals may not add due to rounding.
Bank assets containing a high degree of liquidity are Cash & Due from Banks,
Investment Securities and Federal Funds sold. In 1993, those assets comprised
35.45% of the Bank's assets compared to 33.80% in 1992 and 35.46% in 1991.
A principal source of liquidity is new deposit generation. In the following
table, loans include bankers' acceptances. Growth rates for the last three
years are shown in the following table:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Net Average Loans $224,016 $211,204 $180,647
Annual Growth Rate, Loans 6.07% 16.91% 12.49%
Average Deposits $343,847 $317,612 $281,320
Annual Growth Rate, Deposits 8.26% 12.90% 12.76%
Loan to Deposit Ratio
Average Balance 65.15% 66.50% 64.21%
</TABLE>
The investment portfolio is another source of liquidity. While a portion of
the portfolio is intended to be a long term investment, a portion is invested
in short-term obligations pending re-employment of these funds in the loan
portfolio or for deposit withdrawals. As of December 31, 1993, bonds totaling
$60,894,270 mature within one year. Additionally, at December 31, 1993, the
Bank owned bankers' acceptances totaling $5,450,193 which mature within 180
days. The securities in the portfolio are freely marketable.
Other internal sources of liquidity are the retention of earnings and cash flow
generated in the loan portfolio.
External sources of liquidity include borrowings available to the Bank. As of
December 31, 1993, the Bank has two lines of credit available totaling
$10,000,000 of which $5,000,000 is on an "as available" basis. An additional
$5,000,000 is committed to June 30, 1994, and on which commitment fees have
been paid.
Results of Operations
Average deposits and other borrowings increased $26.3 million or 8.24% from
December 31, 1992 to December 31, 1993 compared to an increase of $36.5 million
or 12.91% from December 31, 1991 to December 31, 1992. The increase was in all
deposit categories except time deposits with the largest increase in demand
deposits, 23.15%. Time deposits decreased $8.8 million, or 27.18%. In the
same period, average loans, net of bankers' acceptances, increased by $12.5
million, or 6.04%. The loan to deposit ratio including bankers' acceptances
decreased to 65.15% on an average balance basis for the period ending December
31, 1993 from 66.50% for the period ending December 31, 1992. On an average
basis, the investment portfolio increased by $2.9 million, or 4.13%, to $73.0
25
<PAGE> 182
million in 1993. Federal funds sold and bankers' acceptances were used as
alternative short-term investment vehicles.
Total average assets increased by 8.65%, or $30.1 million, to $378 million for
the year ending December 31, 1993. This compares to a growth rate of 12.50 in
1992, 13.06% in 1991, 19.04% in 1990, 5.78% in 1989, 23.23% in 1988, 37.0% in
1987, 26.0% in 1986, 31.7% in 1985 and 31.2% in 1984. Total actual assets at
December 31, 1993 were $406 million, an increase of 8.76% over 1992.
Daily average balances are expressed in thousands of dollars.
<TABLE>
<CAPTION>
Distribution of Daily Average Assets
------------------------------------
1993 1992
---- ----
ASSETS Amount Percent Amount Percent
- ------ ------ ------- ------ -------
<S> <C> <C> <C> <C>
Cash and Due From Banks $25,653 6.79% $21,383 6.15%
Investment Securities
Taxable 37,634 9.97% 36,714 10.56%
Non-Taxable 35,394 9.37% 33,420 9.62%
Federal Funds Sold 35,212 9.32% 25,950 7.47%
Bankers Acceptances 5,238 1.39% 4,893 1.41%
Loans, net 218,778 57.94% 206,311 59.36%
Premises & Equipment, net 14,792 3.92% 14,611 4.20%
Other Assets 4,910 1.30% 4,251 1.22%
-------- ------- -------- -------
Total Assets $377,611 100.00% $347,533 100.00%
======== ======= ======== =======
</TABLE>
Totals may not add due to rounding.
The distribution of daily average liabilities and shareholders' equity in the
following chart shows some changes. As a percentage of total average
liabilities and shareholders' equity, at December 31, 1993, savings and NOW
accounts increased from 19.32% to 20.30% of total liabilities. Money funds
increased from 51.04% to 51.24%. Time deposits decreased from 9.32% to 6.25%.
Shareholders' Equity increased from 7.71% to 7.99%.
<TABLE>
<CAPTION>
Distribution of Daily Average Liabilities
-----------------------------------------
1993 1992
---- ----
LIABILITIES AND Amount Percent Amount Percent
- --------------- ------ ------- ------ -------
SHAREHOLDERS' EQUITY
- --------------------
<S> <C> <C> <C> <C>
Deposits:
Demand $50,135 13.28% $40,712 11.71%
Savings and NOW 76,649 20.30% 67,141 19.32%
Money Funds 193,474 51.24% 177,367 51.04%
Time 23,589 6.25% 32,392 9.32%
Other Borrowed Funds 1,398 0.37% 1,354 0.39%
Other Liabilities 2,189 0.58% 1,783 0.51%
Shareholder's Equity 30,177 7.99% 26,784 7.71%
-------- ------- -------- --------
Total Liabilities &
Shareholders' Equity $377,611 100.00% $347,533 100.00%
======== ======= ======== =======
</TABLE>
Totals may not add due to rounding.
26
<PAGE> 183
Maturity Distribution of Time Certificates of Deposit Greater than $100,000 as
of December 31, 1993
<TABLE>
<S> <C>
Three Months or Less $13,455
Three to Six Months 1,817
Six to Twelve Months 1,500
More than Twelve Months -0-
-------
Total $16,772
=======
</TABLE>
All of the Bank's deposits are domestic deposits. At December 31, 1993,
deposits of all related parties totaled $2,799,223, or 8.88% of capital.
In the Bank's thirteenth full year of operations, net income totaled $4,241,412
compared to $4,081,170 in 1992, and $3,216,151 in 1991. Comparable per
weighted share earnings were $3.07, $3.07, and $2.46 at December 31, 1993,
1992, and 1991 respectively. Book values per common share were $25.53, $21.69,
and $19.76 for the respective periods.
The primary source of the Bank's earnings is net interest income which
represents the difference between interest earned on loans and investments and
interest paid on deposits and short-term borrowings. In 1993, net interest
income on a taxable equivalent basis was $18,355,000, an increase of 7.94% over
the $17,005,000 reported in 1992. This compares to an 18.23% increase over the
$14,383,000 reported in 1991.
Net interest margin decreased by two basis points to 5.46% for the year ending
December 31, 1993. Net interest margin was 5.48% in 1992 and 5.21% in 1991.
A more detailed discussion of the components of income and expense follows and
should be read in conjunction with the accompanying schedules, the Selected
Financial Data, the Consolidated Statements of Income and Notes to Consolidated
Financial Statements included in this report.
(Balance of this page intentionally left blank)
27
<PAGE> 184
<TABLE>
<CAPTION>
SUMMARY OF EARNINGS
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest Income $23,501,138 $23,865,369 $25,396,996 $25,832,373 $22,692,622
Interest Expense 6,417,806 8,100,810 12,251,246 13,498,650 11,299,716
----------- ----------- ----------- ----------- -----------
Net Interest Income 17,083,332 15,764,559 13,145,750 12,333,723 11,392,906
Provision for Loan Losses 2,832,799 2,215,233 875,000 360,000 310,000
----------- ----------- ----------- ----------- -----------
Net Interest Income After
Provision for Loan Losses 14,250,533 13,549,326 12,270,750 11,973,723 11,082,906
Non-Interest Income 5,150,117 3,894,502 2,518,030 2,240,042 1,599,743
Non-Interest Expense 13,515,238 11,807,658 10,311,629 9,496,669 8,043,866
----------- ----------- ----------- ----------- -----------
INCOME BEFORE TAXES 5,885,412 5,636,170 4,477,151 4,717,096 4,638,783
Income Taxes 1,644,000 1,555,000 1,261,000 1,352,000 1,393,000
----------- ----------- ----------- ----------- -----------
NET INCOME $4,241,412 $4,081,170 $3,216,151 $3,365,096 $3,245,783
=========== ========== =========== =========== ===========
Per Share: (Restated to reflect two-for-one
split in November 1989.)
Average Number of
Shares Outstanding 1,382,931 1,329,474 1,307,896 1,289,068 1,267,354
Net Income $3.07 $3.07 $2.46 $2.61 $2.56
Book Value Per Share at December 31 $25.53 $21.69 $19.76 $18.30 $16.29
</TABLE>
28
<PAGE> 185
<TABLE>
<CAPTION>
INTEREST RATES AND NET INTEREST DIFFERENTIAL
THREE YEARS, 1991 - 1993
The following is an analysis of net interest income and margin. Balances are expressed in thousands of dollars.
1993 1992 1991
------------------ -------------------------------------- -----------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
------- ------- ------- ------- -------- ------- ------- ------- -------
Balance Expense Rate % Balance Expense Rate % Balance Expense Rate %
------- ------- ------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investment Securities:
Taxable $37,634 $2,468 6.56% $36,714 $2,751 7.49% $34,938 $2,883 8.25%
Non-Taxable* 35,394 3,761 10.63% 33,420 3,634 10.87% 31,263 3,490 11.16%
Federal Funds Sold 35,212 1,024 2.91% 25,950 872 3.36% 27,283 1,497 5.49%
Loans-Interest & Fees 227,959 17,527 7.69% 214,001 17,844 8.34% 182,644 18,713 10.25%
-------- ------- -------- ------- -------- -------
Total Earning Assets 336,199 $24,780 7.37% $310,085 $25,101 8.09% $276,128 $26,583 9.63%
Cash & Due From Banks $25,653 $21,383 $17,299
Premises & Equipment 14,792 14,611 13,321
Other Assets 967 1,454 2,175
-------- -------- --------
Total Assets $377,611 $347,533 $308,923
======== ======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Deposits & Borrowings
Demand $50,135 0 0.00% $40,712 0 0.00% $35,227 0 0.00%
Savings & Now 76,649 865 1.13% 67,141 1,233 1.84% 55,408 1,977 3.57%
Money Funds 193,474 4,831 2.50% 177,367 5,579 3.15% 150,012 7,746 5.16%
Time 23,589 677 2.87% 32,392 1,240 3.83% 40,673 2,409 5.92%
Other Borrowed Funds 1,398 44 3.15% 1,354 44 3.25% 1,181 68 5.76%
------- ------ -------- ------ -------- -------
Total Deposits & Borrowings $345,245 $6,417 1.86% $318,966 $8,096 2.54% $282,501 $12,200 4.32%
Other Liabilities $2,189 $1,783 $2,687
Shareholders' Equity 30,177 26,784 23,735
------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $377,611 $347,533 $308,923
======== ========= ========
Interest and Loan Fee Income $24,780 7.37% $25,101 8.09% $26,583 9.63%
Interest Expense** 6,417 1.91% 8,096 2.61% 12,200 4.42%
------- ----- ------- ----- ------- ------
NET INTEREST INCOME AND MARGIN $18,363 5.46% $17,005 5.48% $14,383 5.21%
======= ===== ======= ===== ======= =====
</TABLE>
*Interest income is calculated on a fully taxable equivalent basis using the
federal statutory tax rate of 34%. The tax equivalent adjustment was
$1,278,806, $1,235,555 in 1992, and $1,186,766 in 1991. **Interest on deposits
as a percent of earning assets.
29
<PAGE> 186
In the following Analysis of Changes in Interest Income and Expense, the change
resulting from growth is expressed as a volume change while the change in yield
is expressed as a rate change. Nonaccrual loans are included in the
calculations. Income and yields are on a fully taxable equivalent basis, using
the federal statutory income tax rate of 34% in 1993 and 1992.
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE
--------------------------------------------------
INCREASE (DECREASE) 1993 over 1992 1992 over 1991
- ------------------- -------------- --------------
IN INTEREST INCOME Change Due To Change Due To
- ------------------ ------------- -------------
AND INTEREST EXPENSE Volume Rate Total Volume Rate Total
- -------------------- ------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Loans $1,073 ($1,390) ($317) $2,615 ($3,484) ($869)
Investment Securities 247 (403) (156) 358 (346) 12
Federal Funds Sold 269 (117) 152 (45) (580) (625)
---- ------ ----- ------- -------- --------
Total $1,589 ($1,910) ($321) $2,928 ($4,410) ($1,482)
====== ======== ====== ======= ======= ========
Savings and NOW
Deposits $107 ($475) ($368) $215 ($959) ($744)
Money Fund Deposits 402 (1,150) (748) 860 (3,027) (2,167)
Time Deposits (253) (310) (563) (317) (852) (1,169)
Other Borrowings 1 (1) 0 7 (31) (24)
----- ------ ------ ----- -------- --------
Total $257 ($1,936) ($1,679) $765 ($4,869) ($4,104)
====== ======== ====== ======= ======= ========
</TABLE>
Interest Rates and Interest Differentials
The primary source of the Bank's earnings is the net interest income, or
interest differential, which represents the difference between interest earned
on loans and investments and interest paid on deposits and short term
Borrowings. In 1993, net interest income on a taxable equivalent basis was
$18,363,000, an increase of 7.99% over the $17,005,000 net interest income in
1992. This compares to a 18.23% increase in 1992 over net interest income of
$14,383,000 in 1991.
Net interest margin decreased two basis points from 5.48% in 1992 to 5.46% in
1993.
Interest income on a taxable equivalent basis decreased from $25,101,000 in
1992 to $24,780,000 in 1993, which represents a 1.28% decrease. Interest
income in 1992 had decreased 5.57% over interest income in 1991, which was
$26,583,000. The decrease in 1993 was attributable to a decrease in yield from
8.09% to 7.37%. The decrease in 1992 was also attributable to a decrease in
yield from 9.63% to 8.09%. Overall, average rates earned on total earning
assets decreased by seventy two basis points. A factor in this decrease was
the decrease in the average daily prime rate from 6.25% to 6.00% in 1993.
Interest expense on deposits and borrowed money decreased by $1,679,000, or
20.74% in 1993, as compared to a decrease of $4,104,000, or 33.64%, in 1992.
Average balances of interest-bearing liabilities increased by 8.24% in 1993, as
compared to a 12.91% increase in 1992. The average rate paid on
30
<PAGE> 187
interest bearing liabilities decreased by sixty eight basis points from 2.54%
in 1992 to 1.86% in 1993. In 1991, the average rate paid on interest-bearing
liabilities was 4.32%.
Demand deposits increased $9,423,000, or 23.15% in 1993 compared to an increase
of $5,485,000 or 15.57% in 1992 over 1991. The Bank's demand deposits are held
totally by corporate depositors doing business with the Bank.
Non-Interest Revenue
The following table reflects the components on total income after provision for
loan losses in thousands for the years ending December 31, 1993, 1992 and 1991.
<TABLE>
<CAPTION>
% of % of % of
---- ---- ----
1993 Total 1992 Total 1991 Total
---- ----- ---- ----- ---- -----
Income Income Income
------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Total Income After
Provision for
Loan Losses $14,251 73.45% $13,549 77.68% $12,271 82.97%
Fiduciary Income 2,427 12.51% 2,046 11.73% 1,556 10.52%
Service Charges 510 2.63% 510 2.92% 477 3.23%
Other Income 2,214 11.41% 1,338 7.67% 485 3.28%
------- ------- ------- ------- ------- -------
Total Income $19,402 100.00% $17,443 100.00% $14,789 100.00%
======= ======= ======= ======= ======= =======
</TABLE>
The following table reflects the components of non-interest income in thousands
and the percentage change for the years 1993, 1992, and 1991.
<TABLE>
<CAPTION>
Percentage Increase
-------------------
1993 1992
---- ----
Over Over
---- ----
1993 1992 1991 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Service Charges $510 $510 $477 0.00% 6.92%
Trust and Fiduciary
Fees 2,427 2,046 1,556 18.62% 31.49%
Other Income 2,214 1,338 485 65.47% 175.88%
------ ------ ------
Total $5,151 $3,894 $2,518 32.28% 54.65%
====== ====== ======
</TABLE>
Trust and fiduciary fees accounted for 47.12% of non-interest revenues in 1993
compared to 52.54% in 1992 and increased $381,000 or 18.62% in 1993. The
market value of trust assets, upon which those fees are based, was $481 million
at year end. Service charges on deposit accounts remained the same at $510,000.
Other income is derived from safe deposit rentals, traveler's cheque
commissions, miscellaneous fees for other bank services and gain on sale of
securities. The Bank adopted SFAS 115, "Accounting for Certain Investments in
Debt and Equity Securities," and classified the entire portfolio as available
for sale. As a part of that restructuring, all government securities having a
maturity greater than five years were sold producing a gain of $1,646,300.
31
<PAGE> 188
Following a change in investment policy in the second quarter of 1992, the
entire U. S. Government portfolio was sold, producing a net long term capital
gain of $790,000. Other income increased by 65.47%, or $876,000 in 1993.
Other income increased by 175.88% to $1,338,000 in 1992.
Non-Interest Expense
The following table reflects the components of non-interest expense in
thousands and the percentage change for the years 1993, 1992, and 1991.
<TABLE>
<CAPTION>
Percentage
----------
Increase
--------
1993 1992
---- ----
Over Over
---- ----
1993 1992 1991 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Salaries and Benefits $8,396 $7,253 $6,525 15.76% 11.16%
Occupancy Expense 1,235 1,087 968 13.62% 12.29%
FDIC and OCC Assessments 861 778 613 10.67% 26.92%
Data Processing 239 291 272 -17.87% 6.99%
Outside services 218 71 77 207.04% -7.79%
Marketing 381 290 254 31.38% 14.17%
Stationery & Supplies 418 365 287 14.52% 27.18%
Telephone & Postage 348 329 289 5.78% 13.84%
Other Expense 1,419 1,348 1,035 5.27% 30.24%
------- ------- -------
Total $13,515 $11,812 $10,320 14.42% 14.46%
======= ======= =======
</TABLE>
Non-interest expense increased $1,703,000 or 14.42% in 1993 over 1992. This
compares to a 14.46% increase in 1992.
Salaries and employee benefits increased 15.76% over 1992 compared to a 11.16%
increase in 1992 over 1991. The increases were due to pay increases and to
staff increases that were necessary to service the substantial increases in
deposits and earning assets. Average full-time equivalent staff in 1993 was
134.6 compared to 120.7 in 1992, an increase of 11.52%. Occupancy expense
increased $148,000, or 13.62%, in 1993, compared to an increase of 12.29% in
1992. Marketing expense increased by 31.38% in 1993 over 1992 compared to an
increase of 14.17% in 1992. The category of non-interest expense which
increased by the largest percentage was outside services which increased
$147,000 or 207.04% in 1993 over 1992 compared to a decrease of $6,000, or
7.79% in 1992 over 1991. This was caused by the employment of the Secura Group
to assist in regulatory matters. Increases in all categories of other expense
are attributed primarily to the Bank's growth in 1993 and 1992.
Loan Portfolio
The Bank's loan portfolio is primarily composed of commercial and industrial
loans with adjustable or floating interest rates. Adjustable rate loans
comprise approximately 93% of the portfolio, a factor that is critical to
maintaining a favorable spread between yields on earning assets and rates paid
on interest-bearing
32
<PAGE> 189
liabilities. All loans are domestic. There are no loan concentrations which
exceed 10% of outstanding loans.
Maturity Distribution and Rate Sensitivity Analysis
The following table shows the maturity distribution of loans on an average
balance basis for 1993, 1992, 1991, 1990 and 1989 (in thousands of dollars).
<TABLE>
<CAPTION>
One Year One to Over
-------- ------ ----
Or Less 5 Years 5 years Total
------- ------- ------- -----
<S> <C> <C> <C> <C>
1993
Commercial & Industrial $86,605 $7,809 $0 $94,414
Bankers' Acceptances 5,238 0 0 5,238
Real Estate 120,010 0 0 120,010
Consumer 6,997 1,282 18 8,297
-------- ------ --- --------
Total Loans $218,850 $9,091 $18 $227,959
======== ====== === ========
1992
Commercial & Industrial $82,944 $6,953 $0 $89,897
Bankers' Acceptances 4,893 0 0 4,893
Real Estate 113,749 0 0 113,749
Consumer 3,568 1,894 0 5,462
-------- ------ --- --------
Total Loans $205,154 $8,847 $0 $214,001
======== ====== === ========
1991
Commercial & Industrial $84,223 $3,360 $0 $87,583
Bankers' Acceptances 11,738 0 0 11,738
Real Estate 80,506 0 0 80,506
Consumer 632 2,185 0 2,817
-------- ------ --- --------
Total Loans $177,099 $5,545 $0 $182,644
======== ====== === ========
1990
Commercial & Industrial $86,243 $2,831 $0 $89,074
Bankers' Acceptances 9,170 0 0 9,170
Real Estate 70,612 0 0 70,612
Consumer 2,816 1,873 0 4,689
-------- ------ --- --------
Total Loans $168,841 $4,704 $0 $173,545
======== ====== === ========
1989
Commercial & Industrial $83,130 $1,373 $2,063 $86,566
Bankers' Acceptances 3,961 0 0 3,961
Real Estate 57,400 0 0 57,400
Consumer 624 1,390 0 2,014
-------- ------ ------ --------
Total Loans $145,115 $2,763 $2,063 $149,941
======== ====== ====== ========
</TABLE>
Loan Portfolio Distribution By Type
The following table shows the composition of the Bank's loan portfolio (in
thousands of dollars) by type of loan at the dates indicated.
33
<PAGE> 190
<TABLE>
<CAPTION>
Loan Distribution By Type
-------------------------
December 31
-----------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial & Industrial $94,623 $97,601 $95,735 $89,871 $84,475
Bankers' Acceptances 5,450 1,983 15,115 9,170 3,961
Real Estate Construction 5,116 17,339 7,315 6,310 6,759
Real Estate Mortgage 112,878 107,549 85,078 34,074 29,564
Consumer Installment 5,045 5,744 5,482 34,120 25,182
-------- -------- -------- -------- --------
Total $223,112 $230,216 $208,725 $173,545 $149,941
Less: Reserve for Loan
Losses (5,690) (3,682) (1,828) (1,724) (1,790)
-------- -------- -------- -------- --------
Net Loans $217,422 $226,534 $206,897 $171,821 $148,151
======== ======== ======== ======== ========
</TABLE>
Loss Provision and Allowance for Possible Loan Losses
The allowance for possible loan losses, which provides for the risk of losses
inherent in the credit extension process, is increased by the provision for
possible loan losses charged to expense and decreased by the amount of
charge-offs net of recoveries. There is no precise method of predicting
specific losses or amounts that ultimately may be charged off on particular
segments of the loan portfolio, especially in light of the current economic
environment. The conclusion that a loan may become uncollectible, in whole or
in part, and be charged off against the allowance, is a matter of judgment.
Similarly, the adequacy of the allowance for possible loan losses and the level
of the related provision for possible loan losses can be determined only on a
judgmental basis, after full review, including consideration of the following:
economic conditions, borrowers' financial condition, evaluation of industry
trends, loans which are contractually current as to payment terms but
demonstrate a higher degree of risk as identified by management, continuing
evaluation of the performing loan portfolio, monthly review and evaluation of
potential problem loans identified as having loss potential, and bi-monthly
review by the Board of Directors.
The Bank has established an Allowance for Loan Losses to insure that it meets
statutory and regulatory requirements. This policy provides for a systematic
and consistent approach to provide an adequate Allowance that is sufficient to
absorb all loan and lease losses.
The Bank provided $2,832,799 as an addition to the allowance for possible loan
losses in 1993. In 1992, the provision was $2,215,233 and in 1991, $875,000.
At December 31, 1993, the allowance for loan losses was $5,690,341 or 2.61% of
loans, net of banker's acceptances, compared to $3,682,064, or 1.61% of loans
at December 31, 1992, and $1,828,025, or .94% of loans at December 31, 1991.
Net losses in 1993 were $824,522, compared to net losses of $361,194 in 1992
and net losses of $770,996 in 1991.
34
<PAGE> 191
The following table summarizes the activity in the allowance for loan losses
for the years ended December 31, 1993, 1992, 1991, 1990 and 1989.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Allowance for Loan Losses
(Dollars in Thousands)
- ---------------------------------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance, January 1 $3,682 $1,828 $1,724 $1,790 $1,461
Charge-offs by Loan Category:
Commercial 685 160 877 438 6
Real Estate Mortgage 119 85 0 0 0
Real Estate Construction 0 0 0 0 0
Consumer 12 119 7 5 3
Other 18 0 0 0 59
- ---------------------------------------------------------------------------
Total Charge-offs $834 $364 $884 $443 $68
- ---------------------------------------------------------------------------
Recoveries by Loan Category:
Commercial 5 0 112 11 52
Real Estate Mortgage 0 0 0 0 0
Real Estate Construction 0 0 0 0 0
Consumer 4 3 1 6 35
Other 0 0 0 0 0
- ---------------------------------------------------------------------------
Total Recoveries $9 $3 $113 $17 $87
- ---------------------------------------------------------------------------
Net Charge-offs $825 $361 $771 $426 ($19)
- ---------------------------------------------------------------------------
Provision Charged to Expense $2,833 $2,215 $875 $360 $310
- ---------------------------------------------------------------------------
Balance, December 31 $5,690 $3,682 $1,828 $1,724 $1,790
===========================================================================
Ratios:
Charge-offs to
Average Loans 0.37% 0.17% 0.40% 0.27% -0.01%
Allowance to total loans
At the End of the Year 2.61% 1.61% 0.94% 1.05% 1.23%
Allowance to Nonperforming
loans at the end of the year 141.19% 91.68% 315.72% 5224.24% 13769.00%
===========================================================================
</TABLE>
Based upon an evaluation of individual credits, historical credit loss
experienced by loan type and economic conditions, management has allocated the
allowance for loan losses at December 31, 1993, 1992, 1991, and 1990. This
method was not employed in 1989.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Allocation of the Allowance for Loan Losses
(Dollars in Thousands)
- ---------------------------------------------------------------------------
Amount of Allowance at December 31,
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial $567 $551 $530 229 N/A
Real Estate Construction 0 11 92 2 N/A
Real Estate Mortgage 1,464 1,124 412 191 N/A
Consumer 52 184 76 109 N/A
Leases 0 0 0 0 N/A
Non-Classified 783 1,270 612 537 N/A
Unallocated 2,824 542 106 656 N/A
- ---------------------------------------------------------------------------
Total $5,690 $3,682 $1,828 $1,724 $1,790
===========================================================================
</TABLE>
35
<PAGE> 192
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Percent of Loans in Each Category to Total Loans
- ----------------------------------------------------------------------------
December 31,
------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial 38.33% 37.80% 45.00% 54.00% 56.34%
Real Estate Construction 2.35% 4.90% 3.60% N/A N/A
Real Estate Mortgage 51.86% 50.00% 47.40% 42.50% 38.47%
Consumer 2.32% 2.40% 2.70% 2.80% 2.55%
Leases 3.00% 2.30% 0.50% 0.00% 0.00%
Other 2.14% 2.60% 0.80% 0.70% 2.64%
- ---------------------------------------------------------------------------
Total 100.00% 100.00% 100.00% 100.00% 100.00%
===========================================================================
</TABLE>
Non-Performing Loans
Loans for which the accrual of interest has been suspended, other loans with
principal or interest contractually past due 90 days or more, or restructured
loans are set forth in the following table:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Non-Performing Loans
(Dollars in Thousands)
- ---------------------------------------------------------------------------
December 31,
------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans Accounted for on a
Nonaccrual Basis $3,814 $4,015 $579 $33 $13
Other Loans with principal or
Interest contractually 0 0 0 0 0
Past Due 90 Days or More
Restructured Loans 0 0 0 0 0
- ---------------------------------------------------------------------------
Total $3,814 $4,015 $579 $33 $13
===========================================================================
</TABLE>
Nonaccrual loans totaled $3,814,202 as of December 31, 1993 compared to
$4,015,744 as of December 31, 1992, a decrease of 5.02%. Nonaccrual loans
totaled $578,725 in 1991. The substantial increase in 1992 was due to local
economic conditions and the depressed real estate market. Net income not
realized as a result of the nonaccrual status totaled $321,239 in 1993,
$108,442 in 1992, and $12,253 in 1991. It is the Bank's policy to place loans
on nonaccrual at ninety days delinquency or when it is identified as a
potential collection problem.
Other Real Estate Owned
As of December 31, 1993, the Bank owned two parcels of other real estate
totaling $1,540,522 compared to three parcels totaling $1,111,805 at December
31, 1992, a decrease of 38.56%. Other real estate owned at December 31, 1991
totaled $238,743. Expenses associated with other real estate totaled $44,364
in 1993 and $54,674 in 1992. Comparable information is not available for 1991.
In 1993, two parcels were sold at a loss of $30,115.
Prior to recording a foreclosure, the Bank provides for any expected loss in
its allowance for loan losses. At the time of foreclosure, any difference
between the loan balance and the fair value is charged to the allowance for
loan losses. Foreclosed property is recorded at the lower of its cost basis or
fair value, less estimated selling costs. Any subsequent decline in value is
charged directly to the income statement via the valuation allowance.
36
<PAGE> 193
Investment Portfolio
The book value of the Bank's investment portfolio increased by $36,400,916 or
50.74% to $108,144,955 at December 31, 1993. This compares to a decrease of
$1,910,000 in 1992. The decrease in 1992 was due to increased loan demand.
The increase in 1993 was caused by the high degree of liquidity afforded by
deposit inflows. As of December 31, 1993, the Bank adopted SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities," and
classified the entire portfolio as available for sale. As a part of that
restructuring, U. S. Agency obligations having maturities greater than five
years were sold. Sales proceeds of $23,624,531 were received and gross gains
of $1,712,799 and gross losses of $80,000 were realized. The Bank also
received proceeds of $5,238,500 and recognized gross gains of $13,500 as a
result of maturities or calls of investment securities in 1993. During 1992,
proceeds of $35,453,000 were received and gross gains of $879,789 and gross
losses of $43,446 were realized upon the sale of the Bank's U. S. Treasury and
Agency security portfolios. The proceeds were re-invested in U. S. Agency
securities with maturities of five to ten years. At December 31, 1993, the
investment portfolio contained $4,705,560 net unrealized gain compared to
$3,705,730 in net unrealized gain at December 31, 1992. The following table
breaks down the Bank's investment portfolio by type, maturity and yield at
December 31, 1993, 1992 and 1991.
<TABLE>
<CAPTION>
Book Value Year-End
---------- --------
(000's) Yields
------- ------
1993 1992 1991 1993 (1)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Type and Maturity Groupings
U. S. Treasury Securities
Within one year $14,834 $0 $0 3.22%
After one but within
five years 0 0 4,142 0.00%
------- ------ ------
Total $14,834 $0 $4,142 3.22%
U. S. Government Agencies
Within one year $44,727 $5,000 $11,579 3.21%
After one but within
five years 5,180 0 14,502 7.03%
After five but within
ten years 5,078 30,892 8,500 7.68%
------- ------- -------
Total $54,985 $35,892 $34,581 4.01%
State and Municipal Obligations
Within one year $1,167 $1,455 $1,107 11.69%
After one but within
five years 6,965 6,320 6,181 10.50%
After five but within
ten years 16,675 12,922 10,778 9.66%
Over ten years 13,187 14,846 16,573 10.91%
------- ------- -------
Total $37,994 $35,543 $34,639 10.31%
Federal Reserve Bank Stock $331 $309 $290 6.00%
------- ------- -------
Total Securities $108,144 $71,744 $73,652 6.10%
======== ======= =======
</TABLE>
37
<PAGE> 194
(1) Yield is computed on a tax-equivalent basis using a 34% statutory tax
rate.
(Balance of this page is left blank intentionally.)
38
<PAGE> 195
Summary of Quarterly Information
The following quarterly information is unaudited. However, in the opinion of
management, all adjustments have been made to present fairly the results of
operations for such periods.
<TABLE>
<CAPTION>
1993
----
Quarter Ended
-------------
December 31 September 30 June 30 March 31
----------- ------------ ------- --------
<S> <C> <C> <C> <C>
Interest Income $5,703,026 $5,944,964 $5,974,698 $5,878,446
Interest Expense 1,562,444 1,609,567 1,637,117 1,608,679
---------- ---------- ---------- ----------
Net Interest Income 4,140,582 4,335,397 4,337,581 4,269,767
Provision for Loan Losses 1,732,799 500,000 300,000 300,000
---------- ---------- ---------- ----------
Net Interest Income after
Provision for Loan Losses 2,407,783 3,835,397 4,037,581 3,969,767
Non-Interest Income 2,547,859 893,239 863,971 845,048
Non-Interest Expense 3,574,883 3,326,599 3,311,051 3,302,699
---------- ---------- ---------- ----------
Income before Income Taxes 1,380,759 1,402,037 1,590,501 1,512,116
Income Tax Provision 319,777 412,153 467,556 444,514
---------- ---------- ---------- ----------
Net Income $1,060,982 $989,884 $1,122,945 $1,067,602
========== ========== ========== ==========
Earnings per Share $0.76 $0.71 $0.81 $0.78
</TABLE>
<TABLE>
<CAPTION>
1992
----
Quarter Ended
-------------
December 31 September 30 June 30 March 31
----------- ------------ -------- ---------
<S> <C> <C> <C> <C>
Interest Income $5,993,862 $5,883,022 $6,024,862 $5,963,617
Interest Expense 1,711,667 1,896,145 2,219,461 2,269,171
---------- ---------- ---------- ----------
Net Interest Income 4,282,195 3,986,877 3,805,401 3,694,446
Provision for Loan Losses 225,000 675,000 1,015,233 300,000
---------- ---------- ---------- ----------
Net Interest Income after
Provision for Loan Losses 4,057,195 3,311,877 2,790,168 3,394,446
Non-Interest Income 885,285 752,553 1,504,033 752,626
Non-Interest Expense 3,159,464 2,865,522 2,921,357 2,865,671
---------- ---------- ---------- ----------
Income before Income Taxes 1,783,016 1,198,908 1,372,844 1,281,401
Income Tax Provision 492,040 330,740 378,723 353,497
---------- ---------- ---------- ----------
Net Income $1,290,976 $868,168 $994,121 $927,904
========== ========== ========== ==========
Earnings per Share $0.97 $0.65 $0.75 $0.70
</TABLE>
39
<PAGE> 196
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Index to Financial Statements Page
- ----------------------------- ----
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . 41
Balance Sheets - December 31, 1993
and December 31, 1992. . . . . . . . . . . . . . . . . . . 42
Statements of Income for the Years
ended December 31, 1993, 1992 and 1991 . . . . . . . . . . 43
Statement of Changes in Shareholders' Equity for
Years ended December 31, 1993, 1992 and 1991 . . . . . . . 44
Statement of Cash Flows for the Years
ended December 31, 1993, 1992 and 1991 . . . . . . . . . . 45
Notes to Financial Statements for Years
ended December 31, 1993, 1992 and 1991 . . . . . . . . . . 46
</TABLE>
<PAGE> 197
[LETTERHEAD]
Independent Auditors' Report
The Board of Directors
University National Bank & Trust Company:
We have audited the accompanying consolidated balance sheets of University
National Bank & Trust Company and subsidiary as of December 31, 1993 and 1992,
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1993. 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 audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of University National
Bank & Trust Company and subsidiary as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in notes 1 and 2 to the consolidated financial statements, the
Bank adopted the provisions of the Financial Accounting Standards Board's
(FASB) Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" as of December 31 1993.
[SIG]
January 19, 1994
41
<PAGE> 198
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Consolidated Balance Sheets
December 31, 1993 and 1992
<TABLE>
<CAPTION>
Assets 1993 1992
------ ---- ----
<S> <C> <C>
Cash and due from banks $ 27,376,337 28,320,740
Investment securities (note 2) 112,850,515 71,744,039
Federal funds sold 29,200,000 27,600,000
Bankers' acceptances purchased 5,450,193 1,983,378
Loans (note 3):
Commercial 94,622,718 97,600,906
Real estate 117,993,896 124,887,610
Consumer installment 5,045,245 5,743,961
----------- -----------
217,661,859 228,232,477
Less allowance for loan losses (note 3) 5,690,341 3,682,064
----------- -----------
Net loans 211,971,518 224,550,413
Buildings, furniture and equipment, net (note 4) 15,895,053 14,767,804
Accrued interest receivable and other assets 3,987,499 4,989,047
----------- -----------
$ 406,731,115 373,955,421
=========== ===========
<CAPTION>
Liabilities and Shareholders' Equity
------------------------------------
<S> <C> <C>
Liabilities:
Deposits:
Demand accounts $ 62,434,405 56,272,356
NOW accounts 82,700,220 82,875,126
Savings accounts 2,306,397 2,939,802
Insured money fund accounts 197,742,435 176,620,146
Time certificates of deposit, $100,000 and over
(note 5) 16,771,741 17,856,571
Other time certificates (note 5) 5,249,224 6,629,376
----------- -----------
Total deposits 367,204,422 343,193,377
Accrued interest payable and other liabilities
(note 6) 5,216,101 2,337,396
----------- -----------
Total liabilities 372,420,523 345,530,773
----------- -----------
Commitments and contingencies (note 10)
Shareholders' equity (notes 7, 8 and 12):
Common stock, $2.50 par value. Authorized: 3,000,000
shares; issued and outstanding: 1,343,952 in 1993
and 1,310,566 in 1992 3,359,880 3,276,415
Capital surplus 7,750,946 7,094,925
Unrealized gains on securities available for sale, net
(note 1) 2,776,280 -
Retained earnings 20,423,486 18,053,308
----------- -----------
Total shareholders' equity 34,310,592 28,424,648
----------- -----------
$ 406,731,115 373,955,421
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
42
<PAGE> 199
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Consolidated Statements of Income
Years ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest on loans and bankers'
acceptances $ 17,526,793 17,843,968 18,713,463
Interest on federal funds sold 1,024,438 872,370 1,497,104
Interest on investment securities:
Nontaxable 2,482,155 2,750,824 2,303,507
Taxable 2,467,752 2,398,207 2,882,922
---------- ---------- ----------
23,501,138 23,865,369 25,396,996
---------- ---------- ----------
Interest expense:
Interest on deposits:
Interest on NOW, savings, and
insured money fund accounts and
time certificates of deposit
under $100,000 5,864,796 7,144,152 10,409,017
Interest on time certificates of
deposit, $100,000 and over 508,919 912,392 1,774,570
---------- ---------- ----------
6,373,715 8,056,544 12,183,587
Interest on borrowed money 44,091 44,266 67,659
---------- ---------- ----------
6,417,806 8,100,810 12,251,246
---------- ---------- ----------
Net interest income 17,083,332 15,764,559 13,145,750
Provision for loan losses (note 3) 2,832,799 2,215,233 875,000
---------- ---------- ----------
Net interest income after
provision for loan losses 14,250,533 13,549,326 12,270,750
Other operating income:
Trust and fiduciary fees 2,426,916 2,046,312 1,555,783
Investment securities gain, net 1,646,299 836,343 -
Customer service charges 509,544 509,878 476,973
Other income 567,358 501,969 485,274
---------- ---------- ----------
19,400,650 17,443,828 14,788,780
---------- ---------- ----------
Other expenses:
Salaries and employee benefits 8,396,089 7,252,788 6,525,220
Occupancy 1,235,116 1,087,260 968,055
FDIC and OCC assessments 861,343 777,873 612,902
Other expenses 3,022,690 2,689,737 2,205,452
---------- ---------- ----------
13,515,238 11,807,658 10,311,629
---------- ---------- ----------
Income before income taxes 5,885,412 5,636,170 4,477,151
Income taxes (note 6) 1,644,000 1,555,000 1,261,000
---------- ---------- ----------
Net income $ 4,241,412 4,081,170 3,216,151
========== ========== ==========
Net income per common share (note 1) $ 3.07 3.07 2.46
==== ==== ====
</TABLE>
See accompanying notes to consolidated financial statements.
43
<PAGE> 200
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
Common stock Unrealized
------------ gains on
securities Total
Capital available Retained shareholders'
Shares Amount surplus for sale, net earnings equity
------ ------ ------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1990 1,223,607 $3,059,018 5,890,997 - 13,446,761 22,396,776
Issuance of common stock 51,199 127,997 577,029 - 705,026
Tax benefits arising from
disqualifying disposition
of stock options (note 7) - - 134,027 - - 134,027
Cash dividends ($1.00 per share) - - - - (1,260,611) (1,260,611)
Net income - - - - 3,216,151 3,216,151
--------- ---------- --------- --------- ---------- ----------
Balances, December 31, 1991 1,274,806 3,187,015 6,602,053 - 15,402,301 25,191,369
Issuance of common stock 35,760 89,400 492,872 - - 582,272
Cash dividends ($1.10 per share) - - - - (1,430,163) (1,430,163)
Net income - - - - 4,081,170 4,081,170
--------- ---------- --------- --------- ---------- ----------
Balances, December 31, 1992 1,310,566 3,276,415 7,094,925 - 18,053,308 28,424,648
Issuance of common stock 33,386 83,465 590,021 - - 673,486
Tax benefits arising from
disqualifying disposition of
stock options (Note 7) - - 66,000 - - 66,000
Cash dividends ($1.40 per share) - - - - (1,871,234) (1,871,234)
Unrealized gains on securities
available for sale, net (note 1) - - - 2,776,280 - 2,776,280
Net income - - - - 4,241,412 4,241,412
--------- ---------- --------- --------- ---------- ----------
Balances, December 31, 1993 1,343,952 $3,359,880 7,750,946 2,776,280 20,423,486 34,310,592
========= ========== ========= ========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 201
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Consolidated Statements of Cash Flows
Years ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,241,412 4,081,170 3,216,151
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 2,832,799 2,215,233 875,000
Depreciation and amortization 709,420 590,281 547,605
Net amortization of investment security
discounts 181,975 131,068 47,661
Gain on sale or call of investment
securities (1,646,299) (836,343) -
Decrease (increase) in deferred taxes (691,000) (705,000) 79,300
Changes in other operating assets and
liabilities:
Accrued interest receivable and
other assets (51,817) (345,224) 48,640
Accrued interest payable and
other liabilities 2,759,790 (349,058) 533,306
---------- ---------- ----------
Net cash provided by operating
activities 8,336,280 4,782,127 5,347,663
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from maturities of investment
securities 1,455,000 6,685,000 7,850,000
Proceeds from sales and calls of investment
securities prior to maturity 28,863,031 35,453,434 -
Purchase of investment securities (65,254,623) (39,524,395) (17,972,904)
Decrease in securities sold under repurchase
agreements - - (1,675,000)
Net decrease (increase) in loans 9,746,096 (34,983,267) (30,006,544)
Net decrease (increase) in bankers'
acceptances purchased (3,466,815) 13,131,315 (5,944,185)
Capital expenditures (1,836,669) (1,250,540) (4,122,594)
---------- ---------- ----------
Net cash used in investing
activities (30,493,980) (20,488,453) (51,871,227)
---------- ---------- ----------
Cash flows from financing activities:
Net increase in demand deposits, NOW
accounts, savings deposits and insured
money fund deposits 26,476,027 42,801,332 59,753,218
Net decrease in certificates of deposit (2,464,982) (8,741,782) (11,407,360)
Cash dividends (1,871,234) (1,430,163) (1,260,611)
Proceeds from common stock issued 673,486 582,272 705,026
---------- ---------- ----------
Net cash provided by financing
activities 22,813,297 33,211,659 47,790,273
---------- ---------- ----------
Net increase in cash and cash equivalents 655,597 17,505,333 1,266,709
Cash and cash equivalents, beginning of year 55,920,740 38,415,407 37,148,698
---------- ---------- ----------
Cash and cash equivalents, end of year $ 56,576,337 55,920,740 38,415,407
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
45
<PAGE> 202
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Notes to Consolidated Financial Statements
December 31, 1993 and 1992
(1) Summary of Significant Accounting Policies
(a) General
University National Bank & Trust Company and subsidiary (collectively
the "Bank") commenced operations as a commercial bank in May 1980. The
Bank's main facility is located in downtown Palo Alto, with an
additional banking floor in downtown Menlo Park and a trust
representative office in Santa Cruz. Commercial banking services
offered by the Bank include accepting checking, savings, and time
deposits and money fund deposit accounts; advancing commercial,
installment, and certain real estate loans; and offering safe deposit
services and other customary banking services to the retail, business,
and professional community in and adjacent to Palo Alto. In
addition, the Bank offers trust and trustee services to employee
benefit plans, living trusts and testamentary trusts.
(b) Principles of Consolidation
The accompanying consolidated financial statements of the Bank include
the accounts of University National Bank & Trust Company and Lytton
Corporation, its wholly owned subsidiary. All significant intercompany
transactions have been eliminated.
(c) Fair Value of Financial Instruments
Fair value of the Bank's on- and off-balance sheet financial
instruments are determined using the estimates, methods and assumptions
as set forth below.
(i) Cash and Due from Banks, Federal Funds Sold, Bankers'
Acceptances Purchased, Accrued Interest Receivable and
Accrued Interest Payable
The book value approximates fair value because of the
short maturity of these instruments.
(ii) Investment Securities
Fair value of investment securities, except certain
state and municipal securities, is estimated based on
bid prices published in financial newspapers or bid
quotations received from securities dealers. The fair
value of certain state and municipal securities is not
readily available through market sources other than
dealer quotations, so fair value estimates are based
on quoted market prices of similar instruments,
adjusted for differences between the quoted instruments
and the instruments being valued.
(Continued)
46
<PAGE> 203
2
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Notes to Consolidated Financial Statements
(iii) Loans
Fair values are estimated for portfolios of loans with
similar financial characteristics. Loans are segregated
by type such as commercial, commercial real estate,
residential real estate and consumer installment. Each
loan category is further segmented into fixed and
adjustable rate interest terms and by performing or
nonperforming categories.
Fair value of performing fixed rate loans is
calculated by discounting scheduled cash flows on a pool
basis through estimated maturities using estimated
market discount rates that reflect the credit and
interest rate risk inherent in the loans. The estimated
maturity is based on the Bank's historical experience
with repayments for each loan classification, modified,
as required, by an estimate of the effect of current
economic and lending conditions.
For adjustable rate mortgage loans, the estimated
average repricing period is 180 days. For adjustable
rate commercial loans, the average repricing period is
one day. Based on the repricing frequency and minimal
credit concerns for these loans, the book value of
adjustable rate loans is used as an estimate of their
fair value.
Fair value for significant nonperforming loans is based
on estimated cash flows that are discounted using a
rate commensurate with the risk associated with the
estimated cash flows. Assumptions regarding credit
risk, cash flows, and discount rates are judgmentally
determined using available market information and
specific borrower information.
(iv) Deposit Liabilities
Fair value of deposits with no stated maturity, such as
non-interest bearing demand deposits, NOW accounts,
savings, and insured money fund accounts, is equal to
the amount payable on demand as of December 31, 1993 and
1992. The fair value of certificates of deposit is
based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates
currently offered for deposits of similar remaining
maturities.
(Continued)
47
<PAGE> 204
3
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Notes to Consolidated Financial Statements
(v) Commitments to Extend Credit and Standby Letters of
Credit
Fair value of commitments to extend credit is estimated
using the fees currently charged to enter into
similar agreements, taking into account the original
terms of the agreements and the present creditworthiness
of the counterparties. The fair value of letters of
credit is based on fees actually charged for similar
agreements in the prior year. No fair value assigned
to loans in process.
(vi) Limitations
Fair value estimates are made at a specific point in
time, based on relevant market information and
information about the financial instrument. These
estimates do not reflect any premium or discount that
could result from offering for sale at one time the Bank's
entire holdings of a particular financial instrument.
Because no market exists for a significant portion of
the Bank's financial instruments, fair value estimates
are based on judgments regarding future expected loss
experience, current economic conditions, risk
characteristics of various financial instruments, and
other factors. These estimates are subjective in nature
and involve uncertainties and matters of significant
judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly
affect the estimates.
Fair value estimates are based on existing on- and
off-balance sheet financial instruments without
attempting to estimate the value of anticipated future
business and the value of assets and liabilities that
are not considered financial instruments. For example,
the Bank has a substantial trust department that
contributes net fee income annually. The trust
department is not considered a financial instrument, and
its value has not been incorporated into fair value
estimates. Other significant assets and liabilities
that are not considered financial assets or liabilities
include deferred taxes and buildings, furniture and
equipment. In addition, the tax ramifications related
to the realization of unrealized gains and losses can
have a significant effect on fair value estimates and
have not been considered in the fair value estimates.
(Continued)
48
<PAGE> 205
4
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Notes to Consolidated Financial Statements
(d) Investment Securities
The Bank adopted Statement of Financial Accounting Standards No.
115 (SFAS No. 115), "Accounting for Certain Investments in Debt and
Equity Securities" as of December 31, 1993. SFAS No. 115 requires
entities to classify investments in debt securities and equity
securities with readily determinable fair values as held to maturity,
available for sale, or trading, and establishes accounting and reporting
requirements for each classification. In accordance with SFAS No. 115,
the Bank has classified its investment securities as available for sale
as it does not have the intent to hold such securities until maturity.
Available for sale securities are reported at fair value, with
unrealized gains and losses, net of taxes, reported as a separate
component of shareholders equity. Amortization of premiums and
accretion of discounts arising at acquisition of investment securities
are included in income using methods that approximate the interest
method. Gains or losses on the sale of securities are determined based
on the specific identification method.
Prior to adopting SFAS No. 115, the Bank accounted for its
investment securities at cost, adjusted for the amortization of premiums
and the accretion of discounts based on its intent to hold such
securities for the foreseeable future or until maturity.
(e) Loans and Allowance for Loan Losses
Loans are stated at the amount of unpaid principal net of undisbursed
funds, reduced by an allowance for loan losses. Interest on
commercial, real estate, and consumer installment loans is accrued on a
simple interest method on daily balances of the principal amount
outstanding. The allowance for loan losses is established through a
provision for loan losses charged to expense. Loans are charged against
the allowance for loan losses when management believes that the
collectibility of principal is unlikely. The allowance is an amount
that management believes will be adequate to absorb possible losses on
existing loans that may become uncollectible, based on evaluations of
loan collectibility and prior loan loss experience. These evaluations
take into consideration such factors as changes in the nature and volume
of the loan portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may affect the
borrowers ability to pay. Regulatory examiners may require the Bank to
recognize additions to the allowance based on their judgments about
information available to them at the time of their examinations.
Accrual of interest is discontinued and prior accrued interest is
reversed on a loan when the payment of interest or principal is 90 or
more days past due.
Loan origination and commitment fees and certain direct loan origination
costs are deferred and the net amount amortized as an adjustment of
the related loan's yield over its estimated life.
(Continued)
49
<PAGE> 206
5
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Notes to Consolidated Financial Statements
In June 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 114 (SFAS No.
114), "Accounting by Creditors for Impairment of a Loan." SFAS No. 114
requires entities to measure certain impaired loans based on the present
value of future cash flows discounted at the loan's effective interest
rate, or at the loan's market value or the fair value of collateral if
the loan is secured. SFAS No. 114 is effective for years beginning
after December 15, 1994. The Bank does not expect that the adoption of
SFAS No. 114 will have a material effect on its consolidated financial
statements.
(f) Buildings, Furniture and Equipment
Buildings, furniture and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
(g) Income Taxes
In January 1993, the Bank adopted Statement of Financial Accounting
Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes."
SFAS No. 109 requires a change from the deferred method of accounting
for income taxes required under Accounting Principles Board (APB)
Opinion 11 to the asset and liability method. Under the asset and
liability method, deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year
in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
Under SFAS No. 109, deferred tax assets are recognized for
deductible temporary differences and operating loss and tax credit
carryforwards, and then a valuation allowance is established to reduce
that deferred tax asset if it is "more likely than not" that the related
tax benefits will not be realized.
The adoption of SFAS No. 109 did not have a material effect on the
Bank's consolidated financial statements.
(Continued)
50
<PAGE> 207
6
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Notes to Consolidated Financial Statements
(h) Net Income Per Common Share
Net income per common share is based on the weighted average
number of common shares outstanding of 1,382,931 in 1993, 1,329,474 in
1992, and 1,307,896 in 1991, including the effect of stock options. The
net income per common share includes net shares issuable upon assumed
exercise of stock options using the "treasury stock method," which
assumes that stock options are exercised at the beginning of the period
and the proceeds from exercise are used to purchase common stock at
average market prices.
(i) Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents
include cash and due from banks and federal funds sold.
Supplemental disclosure of cash flow information follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Cash paid for interest $ 6,432,638 8,196,670 12,352,926
Cash paid for income taxes $ 1,550,000 1,945,000 1,428,682
</TABLE>
Investment securities increased by $4,705,560, and deferred taxes and
shareholders equity increased by $1,929,280 and $2,776,280,
respectively, for net unrealized gains on securities classified as
available for sale.
Capital surplus increased by $66,000 in 1993 and $134,027 in 1991 when
the Bank recognized tax benefits from the disqualifying disposition of
stock options by optionees (note 7).
(Continued)
51
<PAGE> 208
7
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Notes to Consolidated Financial Statements
(2) Investment Securities
The following tables present the amortized cost and estimated fair value
of investment securities.
<TABLE>
<CAPTION>
December 31, 1993
-----------------------------------------------------------------
Securities Obligations
of U.S. of states
U.S. government and Total
Treasury agencies and political investment
securities corporations subdivisions securities
---------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Maturity in years:
1 year or less $ 14,833,842 44,727,342 1,167,312 60,728,496
1 to 5 years - 5,179,728 6,965,359 12,145,087
5 to 10 years - 5,408,917 16,675,509 22,084,426
Over 10 years - - 13,186,946 13,186,946
---------- ---------- ---------- -----------
Amortized cost 14,833,842 55,315,987 37,995,126 108,144,955
Gross unrealized gains 30,408 794,170 3,887,000 4,711,578
Gross unrealized losses - - (6,018) (6,018)
---------- ---------- ---------- -----------
Estimated fair value $ 14,864,250 56,110,157 41,876,108 112,850,515
========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1992
------------------------------------------------
Securities Obligations
of U.S. of states
government and Total
agencies and political investment
corporations subdivisions securities
------------ ------------ ----------
<S> <C> <C> <C>
Maturity in years:
1 year or less $ - 1,455,485 1,455,485
1 to 5 years 5,000,000 6,320,038 11,320,038
5 to 10 years 30,892,283 12,922,020 43,814,303
Over 10 years 309,100 14,845,113 15,154,213
---------- ---------- -----------
Amortized cost 36,201,383 35,542,656 71,744,039
Gross unrealized gains 945,399 2,849,766 3,795,165
Gross unrealized losses (64,557) (24,878) (89,435)
---------- ---------- -----------
Estimated fair value $ 37,082,225 38,367,544 75,449,769
========== =========== ===========
</TABLE>
(Continued)
52
<PAGE> 209
8
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Notes to Consolidated Financial Statements
The maturity distribution of investment securities at estimated fair
value follows:
<TABLE>
<CAPTION>
December 31, 1993
-----------------------------------------------------------------
Securities Obligations
of U.S. of states
U.S. government and Total
Treasury agencies and political investment
securities corporations subdivisions securities
---------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Maturity in years:
1 year or less $ 14,864,250 44,815,142 1,214,878 60,894,270
1 to 5 years - 5,546,530 7,432,245 12,978,775
5 to 10 years - 5,748,485 18,109,989 23,858,474
Over 10 years - - 15,118,996 15,118,996
---------- ---------- ---------- -----------
Estimated fair value $ 14,864,250 56,110,157 41,876,108 112,850,515
========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1992
------------------------------------------------
Securities Obligations
of U.S. of states
government and Total
agencies and political investment
corporations subdivisions securities
------------ ------------ ----------
<S> <C> <C> <C>
Maturity in years:
1 year or less $ - 1,497,438 1,497,438
1 to 5 years 5,042,180 6,802,967 11,845,147
5 to 10 years 31,730,945 13,789,449 45,520,394
Over 10 years 309,100 16,277,690 16,586,790
---------- ---------- ----------
Estimated fair value $ 37,082,225 38,367,544 75,449,769
========== ========== ==========
</TABLE>
In 1993, coincident with the adoption of SFAS No. 115, the Bank
restructured a portion of its investment portfolio to invest in
securities with shorter term maturities. Sales proceeds of $23,624,531
were received and gross gains of $1,712,799 and gross losses of $80,000
were realized as a result of this restructuring. The Bank also received
proceeds of $5,238,500 and recognized gross gains of $13,500 as a result
of maturities or calls of investment securities in 1993. In 1992,
proceeds of $35,453,434 were received and gross gains of $879,789 and
gross losses of $43,446 were realized upon sale of the Bank's U.S.
Treasury and agency securities portfolios.
As of December 31, 1993 and 1992, no investment securities were sold
under repurchase agreements, and $43,351,270 and $50,347,263,
respectively, of investment securities were pledged for the faithful
performance of the trust function and to secure certain public and trust
deposits.
(Continued)
53
<PAGE> 210
9
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Notes to Consolidated Financial Statements
(3) Loans and Allowance for Loan Losses
The following table presents the book value and estimated fair value of
loans.
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
------------------------------ --------------------------
Book Estimated Book Estimated
value fair value value fair value
----- ---------- ----- ----------
<S> <C> <C> <C> <C>
Commercial:
Fixed $ 17,040,349 16,810,445 13,570,190 13,672,275
Adjustable 77,582,369 77,368,399 84,030,716 83,273,717
Real estate:
Commercial:
Adjustable 28,057,017 28,057,017 65,994,388 65,994,388
Residential:
Adjustable 89,936,879 89,936,879 58,893,222 58,893,222
Consumer installment:
Fixed 1,649,476 1,571,620 2,238,496 2,165,327
Adjustable 3,395,769 3,395,769 3,505,465 3,505,465
----------- ----------- ----------- -----------
Total $ 217,661,859 217,140,129 228,232,477 227,504,394
=========== =========== =========== ===========
</TABLE>
Activity in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 3,682,064 1,828,025 1,724,021
Provision charged to income 2,832,799 2,215,233 875,000
Loans charged off (833,986) (363,746) (884,379)
Loan recoveries 9,464 2,552 113,383
----------- --------- ---------
Balance, end of year $ 5,690,341 3,682,064 1,828,025
=========== ========= =========
</TABLE>
Loans classified as nonaccrual as of December 31, 1993 and 1992 were
$3,814,202 and $4,015,744, respectively. The effect on interest income
had these loans been performing in accordance with contractual terms
in 1993 and 1992 was not material to the consolidated financial
statements.
Certain directors, executive officers and principal shareholders are
loan customers of the Bank. Such loans are made in the ordinary course
of business on normal credit terms, including interest rate and
collateralization, and none represent more than a normal risk of
collection. Such loans were approximately $1,153,000 and $546,000 as of
December 31, 1993 and 1992, respectively. During 1993, additional loans
of approximately $3,030,000 were made and payments of approximately
$2,423,000 were received. During 1992, additional loans of
(Continued)
54
<PAGE> 211
10
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Notes to Consolidated Financial Statements
approximately $2,440,000 were made and payments of approximately
$4,064,000 were received.
(4) Buildings, Furniture and Equipment
Buildings, furniture and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1993 1992
---- ----
<S> <C> <C>
Land $ 3,883,237 3,180,514
Buildings 11,996,235 11,333,420
Furniture and equipment 3,674,808 3,420,531
---------- ----------
19,554,280 17,934,465
Less accumulated depreciation 3,659,227 3,166,661
---------- ----------
$ 15,895,053 14,767,804
========== ==========
</TABLE>
The Bank leases its Santa Cruz trust office under a noncancelable
operating lease which expires in September 1995. Upon expiration, the
Bank has one three year option remaining on the lease. Should
the Bank not extend the lease in 1995, the Bank has the right to
continue the lease on a month-to-month basis, and pay a monthly rent
equal to 125% of the monthly rent payable during the last month of the
current lease term. Monthly rent is based on a minimum rental plus
adjustments for cost-of-living increases.
(5) Certificates of Deposit
The following table presents the book value and estimated fair value of
certificates of deposit.
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
-------------------------- ---------------------------
Book Estimated Book Estimated
value fair value value fair value
----- ---------- ----- ----------
<S> <C> <C> <C> <C>
Certificates of deposit:
Maturing in six
months or less $ 19,221,283 19,227,450 21,532,572 21,546,412
Maturing between
six months and
one year 2,678,778 2,690,675 2,545,891 2,550,416
Maturing between
one and two
years 120,904 121,056 407,484 421,502
---------- ---------- ---------- ----------
Total $ 22,020,965 22,039,181 24,485,947 24,518,330
========== ========== ========== ==========
</TABLE>
(Continued)
55
<PAGE> 212
11
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Notes to Consolidated Financial Statements
(6) Income Taxes
As discussed in note 1, the Bank adopted SFAS No. 109 as of
January 1, 1993.
The income tax provision included in the accompanying consolidated
statements of income follows:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 1,499,000 1,468,000 722,500
State 836,000 792,000 459,200
--------- --------- ---------
2,335,000 2,260,000 1,181,700
--------- --------- ---------
Deferred:
Federal (512,000) (528,000) 54,800
State (179,000) (177,000) 24,500
--------- --------- ---------
(691,000) (705,000) 79,300
--------- --------- ---------
$ 1,644,000 1,555,000 1,261,000
========= ========= =========
</TABLE>
Applicable income taxes for financial reporting purposes differ from the
amount computed by applying the statutory federal income tax rate for the
reasons noted in the table below:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------
1993 1992 1991
-----------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory federal
income tax rate $ 2,001,040 34.0% $ 1,916,000 34.0% $ 1,522,200 34.0%
Increase (decrease) in
tax resulting from:
Tax-exempt income (802,918) (13.6) (762,000) (13.5) (698,900) (15.6)
State income tax, net
of federal tax benefit 433,913 7.3 406,000 7.2 319,200 7.1
Other, net 11,965 .2 (5,000) (.1) 118,500 2.7
----------- ----- ----------- ----- ----------- -----
Applicable income taxes $ 1,644,000 27.9% $ 1,555,000 27.6% $ 1,261,000 28.2%
=========== ===== =========== ===== =========== =====
</TABLE>
(Continued)
56
<PAGE> 213
12
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Notes to Consolidated Financial Statements
Under SFAS No. 109, temporary differences between the financial statement
carrying amounts and tax bases of assets and liabilities that give rise
to significant components of the deferred tax asset and liability
amounts relate to the following:
<TABLE>
<CAPTION>
December 31, January 1,
1993 1993
---- ----
<S> <C> <C>
Deferred tax assets:
Book provision for loan losses in excess of tax provision $(2,095,148) (1,271,246)
State franchise taxes (284,389) (257,759)
Loan fees and other, net (49,247) (83,615)
--------- ---------
Total deferred tax assets (2,428,784) (1,612,620)
Less valuation allowance 361,083 360,599
--------- ---------
Deferred tax assets, net (2,067,701) (1,252,021)
--------- ---------
Deferred tax liabilities:
Tax depreciation in excess of book 138,928 104,918
Difference in recognition of lease income 184,408 93,442
Tax effect of unrealized gains on securities classified as available for sale 1,929,280 -
--------- ---------
Total deferred tax liabilities 2,252,616 198,360
--------- ---------
Net deferred tax liability (asset) $ 184,915 (1,053,661)
=========== ==========
</TABLE>
The following is a summary of deferred taxes under SFAS No. 109:
<TABLE>
<CAPTION>
Deferred Valuation Deferred Net
tax asset allowance tax liability total
--------- --------- ------------- -----
<S> <C> <C> <C> <C>
Balances, January 1, 1993 $(1,612,620) 360,599 198,360 (1,053,661)
Changes (816,164) 484 2,054,256 1,238,576
----------- ------- --------- ----------
Balances, December 31, 1993 (2,428,784) 361,083 2,252,616 184,915
=========== ======= ========= ==========
</TABLE>
(Continued)
57
<PAGE> 214
13
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Notes to Consolidated Financial Statements
Prior to 1993, the Bank accounted for income taxes on the deferred
method of accounting in accordance with APB Opinion 11. Under APB
Option 11, timing differences in the recognition of income and expenses
for tax and financial statement purposes result in deferred taxes. The
principal elements of these timing differences are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1992 1991
---- ----
<S> <C> <C>
Provision for state income taxes
deductible for federal income tax
purposes $(131,000) 23,400
Provision for loan losses for
federal income tax purposes
greater (less) than provision for
financial statements (752,000) (25,000)
Other, net 178,000 80,900
-------- ------
$(705,000) 79,300
======== ======
</TABLE>
(7) Employee Stock Option Plan
The Bank has a stock option plan for certain of its officers and key
employees. Options are granted at prices per share not less than market
price at date of grant. The options are exercisable beginning one
year from the date of grant at 20% annually and expire at various dates
through January 2003. Options that terminate without being exercised may
be reissued. Shares of common stock reserved for stock options were
6,950 and 48,950 as of December 31, 1993 and 1992, respectively.
<TABLE>
<CAPTION>
Shares
under Price
option per share
------ ---------
<S> <C> <C>
Outstanding as of January 1, 1992 154,726 $ 6.56 - $ 32.50
Granted 11,000 $ 24.75 - $ 26.25
Exercised (21,826) $ 6.56 - $ 15.19
Expired - $ - - $ -
-------
Outstanding as of December 31, 1992 143,900 $ 11.25 - $ 32.50
Outstanding as of January 1, 1993 143,900 $ 11.25 - $ 32.50
Granted 42,000 $ 26.75 - $ 35.50
Exercised (19,050) $ 11.50 - $ 24.75
Expired - $ - - $ -
-------
Outstanding as of December 31, 1993 166,850 $ 11.25 - $ 35.50
=======
</TABLE>
(Continued)
58
<PAGE> 215
14
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Notes to Consolidated Financial Statements
As of December 31, 1993, 49,050 shares were exercisable at prices from
$11.25 to $35.50. As of December 31, 1992, 52,500 shares were
exercisable at prices from $11.25 to $32.50.
Tax benefits from the early disposition of stock by optionees under
incentive stock options of $66,000 and $134,027 were credited to capital
surplus in 1993 and 1991, respectively.
(8) Outside Directors Stock Option Plan
In January 1992, the Board and shareholders of the Bank adopted a stock
option plan for its nonemployee directors. Options are granted at prices
per share not less than market price at date of grant. The options
are exercisable beginning one year from the date of grant at 20% annually
and expire January 1998. Options that terminate without being exercised
may be reissued. Shares of common stock reserved for granting of stock
options were 11,800 and 11,000 as of December 31, 1993 and 1992,
respectively.
<TABLE>
<CAPTION>
Shares
under Price
option per share
------ ---------
<S> <C> <C>
Outstanding as of January 1, 1992 - $ 24.75
Granted 9,000 $ 24.75
Exercised - $ 24.75
Expired - $ 24.75
-----
Outstanding as of December 31, 1992 9,000 $ 24.75
======
Outstanding as of January 1, 1993 9,000 $ 24.75
Granted - $ 24.75
Exercised (200) $ 24.75
Expired (800) $ 24.75
-----
Outstanding as of December 31, 1993 8,000 $ 24.75
=====
</TABLE>
As of December 31, 1993, 1,600 shares were exercisable through January
1998 at a price of $24.75 per share.
(9) Profit-Sharing Plan
The Bank has a profit sharing plan covering substantially all of its
employees. Contributions are made to the plan at the discretion of the
Bank's Board of Directors. Plan contributions were $415,540, $408,117
and $321,615 for the years ended December 31, 1993, 1992 and 1991,
respectively.
(Continued)
59
<PAGE> 216
15
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Notes to Consolidated Financial Statements
(10) Commitments and Contingencies
(a) Financial Instruments with Off-Balance Sheet Risk
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. Such 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 contractual amounts
of these instruments reflect the extent of involvement the Bank
has in particular classes of financial instruments.
The Bank s exposure to credit loss in the event of nonperformance
by the other party to financial instruments for commitments
to extend credit and standby letters of credit is represented by
the contractual amount of the instruments. The Bank uses the same
credit policies in making commitments and conditional obligations
as it does for on-balance sheet instruments. The Bank controls
the credit risk of these transactions through credit approvals,
limits, and monitoring procedures.
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 a fee. 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 counterparty. Collateral held varies, but may include
marketable securities, accounts receivable, inventory, property,
plant, and equipment, income-producing commercial properties and
residential properties.
Standby letters of credit are written conditional commitments
issued by the Bank to guarantee the performance of a customer
to a third party. Such guarantees are primarily issued to support
public and private borrowing arrangements. These guarantees are
extended for less than five years and expire in decreasing amounts
through 1997. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers.
Of the standby letters of credit outstanding as of December 31,
1993, 58% are unsecured, and 42% are 100% collateralized.
(Continued)
60
<PAGE> 217
16
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Notes to Consolidated Financial Statements
The contract amount and estimated fair value of commitments to extend
credit and standby letters of credit as of December 31, 1993 is as
follows.
<TABLE>
<CAPTION>
Contract Estimated
amount fair value
------ ----------
<S> <C> <C>
Commitments to extend credit $ 76,667,184 549,000
Standby letters of credit 5,139,135 77,000
</TABLE>
Based on the historical experience of the Bank, management does not
believe that it will be called upon to disburse all of the funds
available under these commitments.
(b) Concentration of Credit Risk
The Bank grants residential, commercial and consumer loans to customers
located primarily in the northern California Bay Area. Although the
Bank has a diversified portfolio, a substantial portion of its debtors
ability to honor their contracts is dependent upon the economic sector
of the northern California Bay Area.
(c) Available Lines of Credit
As of December 31, 1993, the Bank had available an unused line of
credit of $5,000,000 for federal fund borrowings on an "as available"
basis, and a $5,000,000 committed line of credit. Any amounts drawn on
the committed line of credit will be collateralized by marketable
securities having an aggregate market value of not less than 125% of
the loan amount.
(11) Trust Assets
The trust department of the Bank held the following types of fiduciary
assets, at cost:
<TABLE>
<CAPTION>
December 31,
-------------------------
1993 1992
-----------------------
<S> <C> <C>
Personal living trusts $ 149,920,580 120,667,545
Employee benefit trusts 33,003,395 28,906,440
Agency, safekeeping, custodian and escrow accounts 188,604,731 188,795,296
Court trusts 4,667,417 4,712,972
Plus liabilities 999,349 2,130,452
------------- -----------
$ 377,195,472 345,212,705
============= ===========
</TABLE>
The market value of the trust assets was approximately $480,947,000 and
$431,994,000 as of December 31, 1993 and 1992, respectively. These
assets are not beneficially owned by the Bank and, therefore, are not
included in the accompanying consolidated balance sheets.
(Continued)
61
<PAGE> 218
17
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Notes to Consolidated Financial Statements
(12) Regulatory Matters
The Bank is subject to the Office of the Comptroller of the Currency
(OCC) governing capital adequacy. The OCC has adopted regulations for
determining capital adequacy that involve assigning assets to four
broad risk categories and that establish minimum capital ratios based
on these assignments. The regulations require a ratio of capital to
risk-weighted assets of 8.00% and a minimum Tier 1 ratio (as defined
by the regulations) of 4.00%. As of December 31, 1993, the Bank
qualified for the top capital category of "well capitalized" under the
regulations.
Additionally, banking regulations limit the amount of dividends that may
be paid without prior approval by the Bank s regulatory agency.
Retained earnings against which dividends may be paid without prior
approval is approximately $6,890,700 as of December 31, 1993, subject to
the minimum capital ratio requirements noted above.
62
<PAGE> 219
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item other than information regarding executive
officers is set forth under "Election of Directors" and "Executive Compensation
and Other Matters" in the Bank's Proxy Statement for the 1994 Annual Meeting of
Shareholders, which is herein incorporated by reference.
Executive Officers
CARL J. SCHMITT, age 59, has been Chairman and Chief Executive Officer of the
Bank since its organization in 1979. Mr. Schmitt was self-employed as a
banking consultant from 1978 to 1979 and was Superintendent of Banks of the
State of California from 1975 to 1978.
GAYLE A. ANDERSON, age 52, has been Executive Vice President and Chief
Financial Officer since December, 1984. She has 30 years banking experience
including that of President of Golden Gate Bank in San Francisco and 12 years
of experience in the California State Banking Department.
DAVID R. HOOD, age 49, has been Executive Vice President and Senior Lending
Officer since 1991. He has been with the Bank since 1985. Mr. Hood had an
eighteen year career with Wells Fargo Bank, most recently serving as Vice
President and Manager of the San Mateo Business Center.
HALL PALMER, age 53, has been Executive Vice President and Senior Trust Officer
since May, 1987. From 1984 to 1987, he was Senior Vice President and Executive
Trust Officer with Key Bank of Oregon, formerly Pacific Western Bank. Mr.
Palmer had a sixteen year career with Wells Fargo Bank, most recently serving
as Vice President and Trust Officer managing the Peninsula Trust Region from
1982 to 1984.
SUZANNE M. POWERS, age 36, has been Executive Vice President and Senior
Operations Officer since January, 1992. She has been with the Bank since 1981.
From 1975 to 1981, she was with the chartered Bank of London, most recently as
an Operations Officer in the Fremont Office.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth under "Executive
Compensation and Other Matters" in the Bank's Proxy Statement for the 1994
Annual Meeting of Shareholders which is incorporated
63
<PAGE> 220
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under "General Information,
Stock Ownership of Certain Beneficial Owners and Management" in the Bank's
Proxy statement for the 1994 Annual Meeting of Shareholders which is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth under "Executive
Compensation and Other Matters, Certain Relationships and Transactions" in the
Bank's Proxy Statement for the 1994 Annual Meeting of Shareholders which is
incorporated herein by reference.
64
<PAGE> 221
PART IV.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Association dated December 11, 1979 as amended.
3.2 Restated Bylaws of the Association dated July 19, 1990.
10.1 1980 Stock Option Plan, Amended and Restated as of July 21, 1988.*
10.2 Outside Directors Stock Option Plan dated January 23, 1992.*
10.3 Employees' Profit Sharing and Tax Deferred Savings Plan Effective as
of January 1, 1988 as amended.*
(b) Reports on Form 8-K
No Form 8-K was filed during the fourth quarter.
*Relates to compensation.
<PAGE> 222
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
University National Bank
& Trust Company
By /s/ Carl J. Schmitt
--------------------------
Carl J. Schmitt, Chairman
and Chief Executive Officer
Date: March 23, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the date indicated.
<TABLE>
<CAPTION>
Signature Title
- -----------------------------------------------------------------
<S> <C>
Carl J. Schmitt* Chairman of the Board, Chief
Executive Officer and Director
(Principal Executive Officer)
Gayle A. Anderson* Executive Vice President and
Chief Financial Officer
(Principal Financial and
Principal Accounting Officer)
Lawrence A. Aufmuth* Director
Thomas R. Brown* Director
Linda R. Meier* Director
George G. C. Parker* Director
William A. Preston* Director
Leslie M. Quist* Director
Leonard Ware* Director
</TABLE>
*By /s/ Carl J. Schmitt
-------------------
(Carl J. Schmitt,
Attorney-In-Fact)
Date: March 23, 1994
66
<PAGE> 223
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: [ ]
University National Bank & Trust Company
(Exact name of registrant as specified in charter)
National Banking Laws 94-2622607
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
250 Lytton Avenue, Palo Alto, California 94301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 327-0210
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Not applicable.
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $2.50 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ X ]
As of March 7, 1994, the aggregate market value of the voting stock
held by non-affiliates of the registrant, based upon the closing bid and asked
prices per share of registrant's Common Stock as reported by NASDAQ, was
$44,629,997.
As of March 7, 1994, the registrant had 1,362,748 shares of Common
Stock, $2.50 par value, outstanding.
THIS AMENDMENT 10-K/A CONTAINS 10 PAGES.
THERE ARE NO EXHIBITS TO THIS AMENDMENT 10-K/A.
<PAGE> 224
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Item 10 is hereby amended and restated in its entirety to read as follows:
MANAGEMENT
Directors. This section sets forth for the current Directors, each of
whom is nominated for election as a Director at the Annual Meeting, certain
information with respect to their age and background.
<TABLE>
<CAPTION>
Director
NAME POSITION(S) WITH THE BANK AGE SINCE
- ---- ------------------------- --- ---------
<S> <C> <C> <C>
Lawrence A. Aufmuth Director 49 1991
Thomas R. Brown Director 56 1991
Linda R. Meier Director 53 1979
J. Boyce Nute Director 58 1986
George G. C. Parker Director 54 1986
William A. Preston Director 57 1979
Leslie M. Quist Director 41 1984
Carl J. Schmitt Chairman of the Board, Chief Executive Officer 59 1979
and President
Leonard Ware Director 66 1979
</TABLE>
Lawrence A. Aufmuth is an attorney and since June 1988 has been a
partner in the law firm Aufmuth, Fox & Baigent. From July 1971 to June 1988,
he was a member of Ware & Freidenrich, A Professional Corporation (now Gray
Cary Ware & Freidenrich, A Professional Corporation), a law firm in Palo Alto,
California.
Thomas R. Brown has been Chairman of the Boards of Directors of
California Casualty Management Company, California Casualty Indemnity Exchange,
California Casualty Insurance Company, California Casualty & Fire Insurance
Company and California Casualty General Insurance Company since 1978. Since
1972, he has been a director and Vice President of California Casualty & Life
Insurance Co. Mr. Brown has also been a director of Pillar Point Capital
Management, Inc., an investment management company, since 1993.
Linda R. Meier is the Chair of the Board of Directors of Stanford
University Hospital and has been a member of that Board of Directors since
1978. She is Vice President of the Board of Trustees of Stanford University,
having joined the Board in 1984. Ms. Meier was Treasurer of Lucile Salter
Packard Children's Hospital at Stanford University from 1990 to 1992.
J. Boyce Nute has been the Chairman of the Board and Chief Executive
Officer of Mayfield Publishing Company (formerly National Press Publishing
Corporation) since 1972. From 1972 to 1992 Mr. Nute was also the President of
National Press Publishing Corporation. Mr. Nute is a member of the Boards of
Directors of Morgan Kaufman Publishers, Scott/Jones Publishing and Claude Laval
Corporation.
George G. C. Parker is the Associate Dean, Director of the Master of
Business Administration program and Professor of Management (Teaching) at the
Graduate School of Business of Stanford University. Mr. Parker also provides
consulting services to various corporations and banks regarding financial
management and strategy. In addition, he is a member of the Board of Managers
(Trustees) of Haverford College, Haverford, Pennsylvania.
2
<PAGE> 225
William A. Preston is Chairman and Chief Executive Officer of APM,
Inc., Palo Alto, California. Mr. Preston has been associated with this
company, which is engaged in the manufacture of plastic products, since 1969.
Leslie M. Quist was Assistant Vice President, Corporate Banking, of
Wells Fargo Bank, National Association, from January 1979 to November 1983.
She is a member of St. Luke's Hospital Junior Auxiliary of San Francisco and a
Board member of the Woodside School Foundation.
Carl J. Schmitt has been Chairman and Chief Executive Officer of the
Bank since its organization in 1979. Mr. Schmitt was self-employed as a
banking consultant from 1978 to 1979 and was Superintendent of Banks of the
State of California from 1975 to 1978. Mr. Schmitt is a member of the Board of
Directors of the Federal Reserve Bank of San Francisco.
Leonard Ware was a member of Ware & Freidenrich, A Professional
Corporation (now Gray Cary Ware & Freidenrich, A Professional Corporation), a
law firm in Palo Alto, California, from 1969 to 1981, and of counsel to that
firm from 1981 to June 1992. Mr. Ware has been self-employed as a lawyer since
June 1992.
No Director of the Bank holds directorships in other companies with a
class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934, except William A. Preston, who is a director of Pacific
Scientific Company, a technical manufacturer, and Thomas R. Brown, who is a
director of Hexcel Corporation, an advanced materials manufacturer, and CorVel
Corporation, an independent provider of medical cost containment and managed
care services.
Meetings of the Board of Directors. The Board of Directors had six
meetings during 1993. In 1993, all incumbent Directors of the Bank attended at
least 75% of the meetings of the Board of Directors and the meetings of all
committees, including the Audit and Compensation Committees, on which each
Director serves, except for Leslie M. Quist, who attended six meetings of the
Board of Directors and ten of the sixteen meetings of the committees on which
he serves, and Leonard Ware, who attended six meetings of the Board of
Directors and five of the eight meetings of the committees on which he serves.
The Board of Directors of the Bank has established an Audit Committee
and a Compensation Committee. The members of the Audit Committee are J. Boyce
Nute, as Chairperson, Thomas R. Brown, George G. C. Parker and Leslie M. Quist.
The members of the Compensation Committee are William A. Preston, as
Chairperson, Linda R. Meier and Lawrence A. Aufmuth.
The Audit Committee met three times during 1993. The functions of the
Audit Committee are to recommend the appointment of and to oversee a firm of
independent public accountants, whose duty it is to audit the books and records
of the Bank for the fiscal year for which they are appointed, to monitor and
analyze the results of the internal and regulatory examinations, and to monitor
the Bank's financial and accounting organization and financial reporting.
The Compensation Committee met once during 1993. The function of the
Compensation Committee is to make recommendations to the Board of Directors
regarding the compensation of the executive officers of the Bank. The Board of
Directors makes the final decision regarding such matters. For additional
information concerning the Compensation Committee, see "COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION".
The Bank does not have a standing nominating committee. The Board of
Directors of the Bank performs the function of a nominating committee.
3
<PAGE> 226
Executive Officers
CARL J. SCHMITT, age 59, has been Chairman, Chief Executive Officer [and
President] of the Bank since its organization in 1979. Mr. Schmitt was
self-employed as a banking consultant from 1978 to 1979 and was Superintendent
of Banks of the State of California from 1975 to 1978.
GAYLE A. ANDERSON, age 52, has been Executive Vice President and Chief
Financial Officer since December 1984. She has 30 years banking experience,
including that of President of Golden Gate Bank in San Francisco and 12 years
of experience in the California State Banking Department.
DAVID R. HOOD, age 49, has been Executive Vice President and Senior Lending
Officer since 1991. He has been with the Bank since 1985. Mr. Hood had an 18
year career with Wells Fargo Bank, most recently serving as Vice President and
Manager of the San Mateo Business Center.
HALL PALMER, age 53, has been Executive Vice President and Senior Trust Officer
since May 1987. From 1984 to 1987, he was Senior Vice President and Executive
Trust Officer with Key Bank of Oregon, formerly Pacific Western Bank. Mr.
Palmer had a 16 year career with Wells Fargo Bank, most recently serving as
Vice President and Trust Officer managing the Peninsula Trust Region from 1982
to 1984.
SUZANNE M. POWERS, age 36, has been Executive Vice President and Senior
Operations Officer since January 1992. She has been with the Bank since 1981.
From 1975 to 1981, she was with the Chartered Bank of London, most recently as
an Operations Officer in the Fremont Office.
ITEM 11. EXECUTIVE COMPENSATION.
Item 11 is hereby amended and restated in its entirety to read as follows:
The following table sets forth information concerning the compensation
of the Chief Executive Officer of the Bank and the four other most highly
compensated executive officers of the Bank as of December 31, 1993, whose total
salary and bonus for the year ended December 31, 1993, exceeded $100,000, for
services in all capacities to the Bank and its subsidiaries, during the fiscal
years ended December 31, 1991, 1992 and 1993:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term All Other
Annual Compensation Compensation Compensation(1)
--------------------------------- ------------ ---------------
Awards
------
Options
Name and Principal Position Year Salary Bonus (Shares)
-------------------------------- ------ ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Carl J. Schmitt, Chairman 1993 $213,849 $202,217 6,000 $26,023 (2)
and Chief Executive ----
Officer 1992 207,600 172,913 -0- 30,371 (3)
----
1991 200,000 178,434 3,750 --
----
Gayle A. Anderson, Executive 1993 $92,174 $101,108 4,000 $19,437 (4)
Vice President, Chief Financial ----
Officer and Secretary to 1992 89,640 93,107 -0- 20,021 (4)
The Association ----
1991 86,377 96,080 2,500 --
----
</TABLE>
<PAGE> 227
<TABLE>
<CAPTION>
Long Term All Other
Annual Compensation Compensation Compensation(1)
--------------------------------- ------------ ---------------
Awards
------
Name and Principal Options
Position Year Salary Bonus (Shares)
-------------------------------- ------ ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
David Hood, Executive Vice 1993 $91,024 $88,975 4,000 $17,347 (5)
President and Senior ----
Lending Officer 1992 89,162 48,910 -0- 14,960 (5)
----
1991 85,950 31,741 5,000 --
----
Hall Palmer, Executive Vice 1993 $92,111 $101,108 4,000 $19,412 (6)
President and Senior Trust ----
Officer 1992 89,334 93,107 -0- 20,014 (6)
----
1991 86,299 96,080 2,500 --
----
Suzanne M. Powers, 1993 $92,324 $64,709 4,000 $15,406 (7)
Executive Vice President ----
and Senior Operations 1992 74,376 33,200 3,000 10,290 (7)
Officer ----
1991 67,542 26,594 1,000 --
----
</TABLE>
- ----------------------------
(1) Information for years prior to fiscal 1992 is not required to be
disclosed under the transition provisions of the rules of the
Securities and Exchange Commission.
(2) Represents an annual premium of $1,724 for disability insurance, an
annual premium of $1,455 for a $100,000 face value term life policy
covering Mr. Schmitt, and a profit-sharing contribution of $22,844 by
the Bank to Mr. Schmitt's account under the Bank's Profit Sharing and
Tax Deferred Savings Plan.
(3) Represents an annual premium of $1,754 for disability insurance, and
an annual premium of $1,289 for a $100,000 face value term life policy
covering Mr. Schmitt, and a profit-sharing contribution of $27,328 by
the Bank to Mr. Schmitt's account under the Bank's Profit Sharing and
Tax Deferred Savings Plan.
(4) Represents a profit-sharing contribution by the Bank to Ms. Anderson's
account under the Bank's Profit Sharing and Tax Deferred Savings Plan.
(5) Represents a profit-sharing contribution by the Bank to Mr. Hood's
account under the Bank's Profit Sharing and Tax Deferred Savings Plan.
(6) Represents a profit-sharing contribution by the Bank to Mr. Palmer's
account under the Bank's Profit Sharing and Tax Deferred Savings Plan.
(7) Represents a profit-sharing contribution by the Bank to Ms. Powers'
account under the Bank's Profit Sharing and Tax Deferred Savings Plan.
The following table provides the specified information concerning
grants of options to purchase the Bank's Common Stock made during the year
ended December 31, 1993, to the persons named in the Summary Compensation
Table:
5
<PAGE> 228
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants in Fiscal 1993 Option Term(1)
--------------------------------------------------------------------- ----------------------------
% of
Total
Options
Granted
to Exercise
Employees or
in Base
Options Fiscal Price Expiration
Name Granted(2) Year ($/Sh) Date 5% ($) 10% ($)
------------------- ---------- --------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Carl J. Schmitt 6,000 14.3% $26.75 1/27/03 $261,438 $416,296
Gayle A. Anderson 4,000 9.5% $26.75 1/27/03 $174,292 $277,530
David Hood 4,000 9.5% $26.75 1/27/03 $174,292 $277,530
Hall Palmer 4,000 9.5% $26.75 1/27/03 $174,292 $277,530
Suzanne M. Powers 4,000 9.5% $26.75 1/27/03 $174,292 $277,530
</TABLE>
(1) Potential gains are net of exercise price, but before taxes associated
with exercise. These amounts represent certain assumed rates of
appreciation only, based on the Securities and Exchange Commission's
rules. Actual gains, if any, on stock option exercises are dependent
on the future performance of the Common Stock, overall market
conditions and the optionholders' continued employment through the
vesting period. The amounts reflected in this table may not
necessarily be achieved. One share of stock purchased at $26.75 in
1993 would yield profits of $16.82 at 5% appreciation over ten years,
or $42.63 per share at 10% appreciation over the same period.
(2) Options granted under the Bank's Amended and Restated Stock Option
Plan (the "Option Plan") are exercisable in five equal installments,
commencing one year after the date the option is granted. Under the
Option Plan, the Board retains discretion to modify the terms of
outstanding options.
The following table provides the specified information concerning
exercises of options to purchase the Bank's Common Stock in the fiscal year
ended December 31, 1993, and unexercised options held as of December 31, 1993,
by the persons named in the Summary Compensation Table:
AGGREGATED OPTION EXERCISES
AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
Value of Unexercised In-
Number of Unexercised the-Money Options at
Options at 12/31/93 12/31/93
--------------------------- -----------------------------
Shares
Acquired
on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---------------- --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Carl J. Schmitt 0 $0 10,600 12,150 $207,456 $72,363
Gayle A. 800 $19,200 3,100 8,800 $50,375 $48,975
Anderson
</TABLE>
6
<PAGE> 229
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
David Hood 2,000 $29,000 1,800 10,200 $27,850 $58,650
Hall Palmer 2,000 $36,500 7,700 8,800 $137,400 $48,975
Suzanne M. 600 $8,400 1,200 9,200 $16,900 $60,400
Powers
</TABLE>
CERTAIN TRANSACTIONS
The Bank has had, and expects to have in the future, banking
transactions in the ordinary course of its business with the Bank's Directors,
officers, principal shareholders and their associates, on the same terms,
including interest rates and collateral on loans, as those prevailing at the
same time for comparable transactions with others, and which, in the opinion of
the Bank's management, do not involve more than the normal risk of
collectibility or present other unfavorable features. Furthermore, it is the
Bank's policy to preclude its executive officers, other than its Chairman of
the Board, from borrowing from the Bank, and any loan to a Director, including
the Chairman of the Board, must be approved by the entire Board of Directors.
During 1993, the Bank retained Aufmuth, Fox & Baigent, the law firm of which
Mr. Aufmuth is a shareholder and an employee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1993, William A. Preston, Linda R. Meier and Lawrence A.
Aufmuth served on the Bank's Compensation Committee. During 1993, the Bank
retained Aufmuth, Fox & Baigent, the law firm of which Mr. Aufmuth is a
shareholder and an employee.
COMPENSATION OF DIRECTORS
Non-employee directors of the Bank were reimbursed during 1993 at the
rate of $1,500 per month. The total compensation paid to all non-employee
directors in 1993 was $180,000. Under the Bank's Outside Directors Stock
Option Plan, each non-employee Director received a one-time nonqualified stock
option for 1,000 shares of the Bank's Common Stock with an exercise price equal
to closing market price on date of grant on January 23, 1992. The options
become exercisable in five equal annual installments, commencing one year after
the date of the grant.
CHANGES TO BENEFIT PLANS
In March 1994, the Bank proposed an amendment to increase the share
reserve under its Option Plan. From the date of that proposal to April 23,
1994, a Senior Vice President of the Bank, who is not an executive officer, has
received a stock option grant for 2,500 shares and there have been no stock
option grants to any executive officers of the Bank or to any other Bank
employee. Non-employee directors are not eligible to participate in the Option
Plan.
In addition to the increase in the share reserve, the Board of
Directors has amended the Option Plan, subject to shareholder approval, to
limit the numbers of shares that may be granted to any employee under the
Option Plan to 5,000 shares within any fiscal year. Although the Bank does not
typically make grants that would approach that limit, the proposed amendment
would allow option grants to executive officers under the Option Plan to meet
one of the requirements for exemption from the $1,000,000 cap on deductibility
of executive officer compensation imposed by section 162(m) of the Internal
Revenue Code of 1986.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Item 12 is hereby amended and restated in its entirety to read as follows:
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
7
<PAGE> 230
The following table sets forth as of April 23, 1994, certain
information with respect to the beneficial ownership of the Bank's Common Stock
by (i) all persons known by the Bank to be the beneficial owners of more than
5% of the outstanding Common Stock, (ii) each Director and Director-nominee of
the Bank, (iii) the Chief Executive Officer and the four other most highly
compensated executive officers of the Bank as of December 31, 1993, whose
salary and bonus for the year ended December 31, 1993, exceeded $100,000, and
(iv) all executive officers and Directors of the Bank as a group.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT
NATURE OF OF BANK
SHARES COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OUTSTANDING OUTSTANDING
----------------------------------- --------------------------
<S> <C> <C>
Carl J. Schmitt . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,316 (2) 6.4%
Robert Schmitt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,400 (3) 5.2%
48 Encino Road
Atherton, California
Hall Palmer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,127 (4) 2.1%
Linda R. Meier . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,538 (5) 1.9%
Gayle A. Anderson . . . . . . . . . . . . . . . . . . . . . . . . . . 25,186 (6) 1.8%
Leonard Ware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,448 (7) 1.5%
William A. Preston . . . . . . . . . . . . . . . . . . . . . . . . . . 19,784 (8) 1.4%
David Hood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,005 (9) *
Suzanne Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,203 (10) *
George G. C. Parker . . . . . . . . . . . . . . . . . . . . . . . . . 5,050 (11) *
J. Boyce Nute . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,127 (12) *
Leslie M. Quist . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,600 (13) *
Lawrence A. Aufmuth . . . . . . . . . . . . . . . . . . . . . . . . . 1,900 (14) *
Thomas R. Brown . . . . . . . . . . . . . . . . . . . . . . . . . . . 900 (15) *
All Current Directors and Executive
Officers of the Bank as a Group (13 persons) . . . . . . . . . . . . . 239,184 17.5%
</TABLE>
_________________________________________
* Less than 1%.
(1) Except as indicated in the footnotes to this table, the persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them, subject to
applicable community property laws. Unless otherwise indicated, the
business address of each of the beneficial owners of more than 5% of
the outstanding Common Stock is 250 Lytton Avenue, Palo Alto,
California.
(2) Includes 42 shares held by spouse, 20,061 shares held in the Bank's
Profit Sharing and Tax Deferred Savings Plan, 750 shares held in a
401(k) plan, 3,305 shares held in an individual retirement account,
50,557 shares held in the Schmitt Family Trust, as to which Carl J.
Schmitt has shared voting and investment power, and 12,600 shares
subject to options granted under the Bank's Amended and Restated Stock
Option Plan that may be exercised within 60 days of April 23, 1994.
(3) Includes 400 shares held by spouse and 70,000 shares held in trusts
for the benefit of family members, as to which Robert Schmitt has sole
voting and investment power.
(4) Includes 4,898 shares held in the Bank's Profit Sharing and Tax
Deferred Savings Plan, 4,713 shares held in 401(k) plans, 8,500 shares
held in a trust, as to which Mr. Palmer has shared voting and
investment power, and 9,600 shares subject to options granted under
the Bank's Amended and Restated Stock Option Plan that may be
exercised within 60 days of April 23, 1994.
8
<PAGE> 231
(5) Includes 26,138 shares held in the Meier Family Trust, as to which Ms.
Meier has shared voting and investment power, and 400 shares subject
to an option granted under the Bank's Outside Directors Stock Option
Plan that may be exercised within 60 days of April 23, 1994.
(6) Includes 7,736 shares held in the Bank's Profit Sharing and Tax
Deferred Savings Plan, 2,201 shares held in a 401(k) plan and 3,100
shares subject to options granted under the Bank's Amended and
Restated Stock Option Plan that may be exercised within 60 days of
April 23, 1994.
(7) Includes 6,324 shares owned by spouse, 6,400 shares held in trusts for
the children of Mr. Ware, as to which he has shared voting and
investment power and of which he disclaims beneficial ownership, and
400 shares subject to options granted under the Bank's Outside
Directors Stock Option Plan that may be exercised within 60 days of
April 23, 1994.
(8) Includes 2,646 shares held in a Keough Plan and 400 shares subject to
options granted under the Bank's Outside Directors Stock Option Plan
that may be exercised within 60 days of April 23, 1994.
(9) Includes 300 shares held by a minor child, 2,172 shares held in the
Bank's Profit Sharing and Tax Deferred Savings Plan, 533 shares held
in a 401(k) plan, and 1,800 shares subject to options granted under
the Bank's Amended and Restated Stock Option Plan that may be
exercised within 60 days of April 23, 1994.
(10) Includes 1,690 shares held in the Bank's Profit Sharing and Tax
Deferred Savings Plan, 513 shares held in a 401(k) plan, and 1,200
shares subject to options granted under the Bank's Amended and
Restated Stock Option Plan that may be exercised within 60 days of
April 23, 1994.
(11) Includes 400 shares subject to options granted under the Bank's
Outside Directors Stock Option Plan that may be exercised within 60
days of April 23, 1994.
(12) Includes 245 shares held in an individual retirement account, 244
shares held in spouse's individual retirement account and 400 shares
subject to options granted under the Bank's Outside Directors Stock
Option Plan that may be exercised within 60 days of April 23, 1994.
(13) Includes 400 shares subject to options granted under the Bank's
Outside Directors Stock Option Plan that may be exercised within 60
days of April 23, 1994.
(14) Includes 1,500 shares held in an individual retirement account and 400
shares subject to options granted under the Bank's Outside Directors
Stock Option Plan that may be exercised within 60 days of April 23,
1994.
(15) Includes 400 shares subject to options granted under the Bank's
Outside Directors Stock Option Plan that may be exercised within 60
days of April 23, 1994.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Item 13 is hereby amended and restated in its entirety to read as follows:
CERTAIN TRANSACTIONS
The Bank has had, and expects to have in the future, banking
transactions in the ordinary course of its business with the Bank's Directors,
officers, principal shareholders and their associates, on the same terms,
including interest rates and collateral on loans, as those prevailing at the
same time for comparable transactions with others, and which, in the opinion of
the Bank's management, do not involve more than the normal risk of
collectibility or present other unfavorable features. Furthermore, it is the
Bank's policy to preclude its executive officers, other than its Chairman of
the Board, from borrowing from the Bank, and
9
<PAGE> 232
any loan to a Director, including the Chairman of the Board, must be approved
by the entire Board of Directors.
10
<PAGE> 233
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
University National Bank & Trust Company
By: /s/ CARL J. SCHMITT
-----------------------------------
Carl J. Schmitt, Chairman and Chief
Executive Officer
Date: April 28, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities
and on the date indicated.
<TABLE>
<CAPTION>
Signature Title
--------------------------------------------------------------------------------------------------------------
<S> <C>
Carl J. Schmitt* Chairman of the Board, Chief Executive Officer and
Director (Principal Executive Officer)
Gayle A. Anderson* Executive Vice President and Chief Financial
Officer (Principal Financial and Principal
Accounting Officer)
Lawrence A. Aufmuth* Director
Thomas R. Brown* Director
Linda R. Meier* Director
George G. C. Parker* Director
William A. Preston* Director
Leslie M. Quist* Director
Leonard Ware* Director
</TABLE>
*By: /s/ CARL J. SCHMITT
------------------------------------
(Carl J. Schmitt, Attorney-In-Fact)
Date: April 28, 1994
11
<PAGE> 234
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
Commission File Number
UNIVERSITY BANK & TRUST COMPANY
(Exact name of registrant as specified in its charter)
California 77-0376213
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 LYTTON AVENUE, PALO ALTO, CALIFORNIA 94301
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code, (415) 327-0210
University National Bank & Trust Company
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the Registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common shares outstanding as of November 7, 1994 - 1,402,197
<PAGE> 235
UNIVERSITY BANK & TRUST COMPANY
QUARTERLY REPORT FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 4
Consolidated Balance Sheets 4
Consolidated Statements of Income for The
Three Months Ended September 30, 1994 and 1993 5
Consolidated Statements of Income for The
Three Months Ended September 30 and June 30, 1994 6
Consolidated Statements of Income for The
Nine Months Ended September 30, 1994 and 1993 7
Consolidated Statements of Cash Flows for
The Nine Months Ended September 30, 1994 and 1993 8
Statement of Changes in Undivided Profits for
The Nine Months Ended June 30, 1994 and 1993 9
Notes to Consolidated Financial Statements 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
</TABLE>
2
<PAGE> 236
UNIVERSITY BANK & TRUST COMPANY
AND CONSOLIDATED SUBSIDIARY
PART I
FINANCIAL INFORMATION
University Bank & Trust Company (the "Bank") commenced business as a general
commercial bank on May 13, 1980. The Bank's wholly-owned subsidiary, Lytton
Corporation, is inactive. Consolidated financial statements are filed for the
Bank and Lytton Corporation.
The information furnished herein reflects all adjustments which are, in the
opinion of management, necessary to a fair statement of the results of the
interim period ended September 30, 1994. The results for this period are not
necessarily indicative of the results to be expected for the year. The
financial statements included herein are unaudited.
3
<PAGE> 237
Quarterly Balance Sheet
September 30, 1994 10-Q
ITEM 1. Financial Statements
UNIVERSITY BANK & TRUST COMPANY
CONSOLIDATED BALANCE SHEET
(Unaudited, 000's omitted)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
(In Thousands)
<S> <C> <C>
ASSETS
Cash and Due From Banks $30,363 $27,376
Securities 113,162 112,850
Federal Funds Sold 46,500 29,200
Loans and Lease Financing
Commercial, Financial & Industrial 40,967 36,610
Real Estate Construction 5,211 5,116
Real Estate Mortgage 138,414 141,192
Instalment Loans 22,176 23,055
Lease Financing 8,269 6,535
Bankers Acceptances 14,672 5,450
Other Loans 2,469 6,009
Less: Unearned Income (900) (855)
Total Gross Loans 231,278 223,112
Less Reserve for Loan Losses (4,738) (5,690)
Net Loans 226,540 217,422
Premises and Fixed Assets 15,626 15,895
Other Real Estate Owned 3,945 1,541
Accrued Interest Receivable
And Other Assets 6,020 2,447
Total Assets $442,156 $406,731
LIABILITIES
Deposits
Demand $69,274 $62,434
Savings & Super NOW accounts 81,526 85,007
Money Fund Accounts 223,362 197,743
Time Deposits $100,000 and over 23,630 16,772
Time Deposits under $100,000 5,752 5,249
Total Deposits $403,544 $367,205
Securities sold under Repurchase
Agreement 0 0
Accrued Interest Payable and
Other Liabilities 3,179 5,216
Total Liabilities $406,723 $372,421
EQUITY CAPITAL
Common Stock, $2.50 par value
Authorized, 3,000,000 shares
Issued and Outstanding, 1,343,952 Shares at
12/31/93 & 1,399,697 at 9/30/94 3,499 3,360
Capital Surplus 8,806 7,751
Retained Earnings 22,688 20,423
Unrealized Gain on Securities
Available for Sale 440 2,776
TOTAL SHAREHOLDERS' EQUITY $35,433 $34,310
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $442,156 $406,731
</TABLE>
4
<PAGE> 238
Quarterly Report of Income
September 30, 1994 F-4
UNIVERSITY BANK & TRUST COMPANY
CONSOLIDATED STATEMENT OF INCOME
(Unaudited, 000's omitted)
<TABLE>
<CAPTION>
Three Months Ended
September 30, September 30,
1994 1993
(In Thousands)
<S> <C> <C>
Interest Income
Interest and fees on loans $4,779 $4,336
Income from financing lease receivables 159 126
Interest on Securities
Taxable 986 585
Non-Taxable 639 627
Interest income on Federal funds sold 564 271
Total Interest Income $7,127 $5,945
Interest Expense
Interest on Deposits
Time Certificates over $100M $181 $145
Other Time Deposits 1,768 1,459
Securities Sold Under Repurchase Agreements 26 6
Total Interest Expense $1,975 $1,610
Net Interest Income $5,152 $4,335
Provision for Loan and Lease Losses 75 500
NET INTEREST INCOME AFTER PROVISION
FOR LOAN AND LEASE LOSSES $5,077 $3,835
Non-Interest Income
Income from Fiduciary Activities 754 621
Service Charges on Deposit Accounts 127 129
Other Income 197 128
Gains (Losses) on securities not held in
trading accounts 10 15
Total Non-Interest Income $1,088 $893
Non-Interest Expense
Salaries and Benefits 2,355 2,091
Occupancy Expense 356 322
Other Expense 1,038 913
Total Non-Interest Expense $3,749 $3,326
INCOME BEFORE INCOME TAXES $2,416 $1,402
Applicable Income Taxes 689 412
NET INCOME $1,727 $990
Earnings Per Share $1.21 $0.71
Dividends Per Share $0.35 $0.35
</TABLE>
5
<PAGE> 239
Quarterly Report of Income
September 30,1994 F-4
UNIVERSITY BANK & TRUST COMPANY
CONSOLIDATED STATEMENT OF INCOME
(Unaudited, 000's omitted)
<TABLE>
<CAPTION>
Three Months Ended
September 30, June 30,
1994 1994
(In Thousands)
<S> <C> <C>
Interest Income
Interest and fees on loans $4,779 $4,282
Income from financing lease receivables 159 141
Interest on Securities
Taxable 986 881
Non-Taxable 639 628
Interest income on Federal funds sold 564 438
Total Interest Income $7,127 $6,370
Interest Expense
Interest on Deposits
Time Certificates over $100M $181 $121
Other Time Deposits 1,768 1,634
Securities Sold Under Repurchase Agreements 26 6
Total Interest Expense $1,975 $1,761
Net Interest Income $5,152 $4,609
Provision for Loan and Lease Losses 75 100
NET INTEREST INCOME AFTER PROVISION
FOR LOAN AND LEASE LOSSES $5,077 $4,509
Non-Interest Income
Income from Fiduciary Activities 754 581
Service Charges on Deposit Accounts 127 127
Other Income 197 140
Gains (Losses) on securities not held in
trading accounts 10 0
Total Non-Interest Income $1,088 $848
Non-Interest Expense
Salaries and Benefits 2,355 2,295
Occupancy Expense 356 344
Other Expense 1,038 1,080
Total Non-Interest Expense $3,749 $3,719
INCOME BEFORE INCOME TAXES $2,416 $1,638
Applicable Income Taxes 689 467
NET INCOME $1,727 $1,171
Earnings Per Share $1.21 $0.83
Dividends Per Share $0.35 $0.35
</TABLE>
6
<PAGE> 240
Quarterly Report of Income
September 30, 1994
UNIVERSITY BANK & TRUST COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, 000's omitted)
<TABLE>
<CAPTION>
Fiscal Year-to-Date
September 30, September 30,
1994 1993
(In Thousands)
<S> <C> <C>
Interest Income
Interest and fees on loans $13,032 $13,040
Income from financing lease receivables 432 359
Interest on Securities
Taxable 2,562 1,873
Non-Taxable 1,889 1,869
Interest income on Federal funds sold 1,279 657
Total Interest Income $19,194 $17,798
Interest Expense
Interest on Deposits
Time Certificates over $100M $414 $384
Other Time Deposits 4,891 4,435
Securities Sold Under Repurchase Agreements 38 36
Total Interest Expense $5,343 $4,855
Net Interest Income $13,851 $12,943
Provision for Loan and Lease Losses 475 1,100
NET INTEREST INCOME AFTER PROVISION
FOR LOAN AND LEASE LOSSES $13,376 $11,843
Non-Interest Income
Income from Fiduciary Activities 2,011 1,784
Service Charges on Deposit Accounts 383 382
Other Income 494 421
Gain (loss) on securities sold 15 15
Total Non-Interest Income $2,903 $2,602
Non-Interest Expense
Salaries and Benefits 6,880 6,187
Occupancy Expense 1,028 930
Other Expense 3,191 2,824
Total Non-Interest Expense $11,099 $9,941
INCOME BEFORE INCOME TAXES $5,195 $4,519
Applicable Income Taxes 1,478 1,324
NET INCOME $3,717 $3,195
Earnings Per Share $2.63 $2.31
Dividends Per Share $1.05 $1.05
</TABLE>
7
<PAGE> 241
UNIVERSITY BANK & TRUST COMPANY
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
SEPTEMBER SEPTEMBER
CASH FLOWS FROM OPERATING ACTIVITIES: 1994 1993
<S> <C> <C>
Net Income $3,702 $3,180
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 475 1,100
Depreciation and amortization 581 524
Net amortization of investment security 468 140
Discounts
(Gain) loss on sale of fixed assets 1 4
(Gain) loss on call of securities (15)
Changes in assets and liabilities
Interest receivable and other assets (5,781) (15)
Interest payable and other liabilities (2,037) (823)
NET CASH USED BY OPERATING ACTIVITIES ($2,606) $4,110
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from calls or maturities of investment $210,839 $5,455
securities
Proceeds from sale of investment securities 0
Purchase of investment securities (215,564) (2,996)
Increase (decrease) in securities sold under
repurchase agreements 0
Net (increase) decrease in loans receivable 1,055 12,400
Net (increase) decrease in bankers' acceptances (9,222) (7,408)
Capital expenditures (312) (498)
NET CASH USED BY INVESTING ACTIVITIES ($13,204) $6,953
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, NOW,
savings, and money fund deposits $28,979 $16,050
Net increase (decrease) in certificates of
deposits 7,361 (4,527)
Cash dividends (1,437) (1,401)
Proceeds from common stock issued 1,194 526
NET CASH PROVIDED BY FINANCING ACTIVITIES 36,097 10,648
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $20,287 $21,711
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD $56,576 $55,921
CASH AND CASH EQUIVALENTS AT END OF PERIOD $76,863 $77,632
</TABLE>
8
<PAGE> 242
UNIVERSITY BANK & TRUST COMPANY
STATEMENT OF CHANGES IN
UNDIVIDED PROFIT
Nine Months Ended September 30, 1994
<TABLE>
<S> <C>
Balance at beginning of current fiscal year $20,423,486
Net income to date 3,702,135
Transfer to Dividends Payable (1,437,293)
-----------
Balance at end of interim period $22,688,328
</TABLE>
(The balance of this page intentionally left blank.)
9
<PAGE> 243
UNIVERSITY BANK & TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
Quarter ended September 30, 1994
The financial statements included herein are unaudited. The information
furnished herein reflects all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of the interim period
ended September 30, 1994.
NOTE A - Summary of Significant Accounting Policies
Investment Securities
The Bank adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" as of
December 31, 1993. The Bank has classified its investment securities as
available for sale. Available for sale securities are reported at fair value,
with unrealized gains and losses, net of taxes, reported as a separate
component of shareholders' equity. Amortization of premiums and accretion of
discounts arising at acquisition of investment securities are included in
income using methods that approximate the interest method.
Loans
Loans are stated net of undisbursed funds. Interest on commercial, consumer
installment and real estate loans is accrued on a simple interest basis.
Interest on loans is not accrued in those instances where management considers
principal amounts doubtful of collection.
Loan Fees
Nonrefundable fees for loan origination and commitments in excess of direct
costs of originating the loan or commitment are amortized over the life of the
loan using the straight line method. Fees originated since 1988 are recognized
as income using the interest method as required by FASB 91.
Allowance for Loan Losses
The allowance for loan losses is established through charges to earnings in the
form of a provision for loan losses. Loans which are determined to be
uncollectible are charged against this allowance, and subsequent recoveries, if
any, are credited to the allowance.
10
<PAGE> 244
The allowance for loan losses is an amount that management believes will be
adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of the collectability of loans and prior
loan experience. The evaluations take into consideration such factors as
changes in the nature and volume of specific problem loans and current or
anticipated economic conditions that may affect the borrowers' ability to pay.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is computed using the straight line method over
estimated useful lives of the assets.
Income Per Share of Common Stock
Net income per share is based upon the weighted average number of common shares
outstanding adjusted by the dilutive effect of stock options outstanding on a
fully diluted basis.
<TABLE>
<CAPTION>
Three Months Ended September 30
-------------------------------
1994 1993
---- ----
(Amounts in thousands)
<S> <C> <C>
Weighted average shares:
Primary 1,428 1,389
Fully Diluted 1,434 1,393
</TABLE>
NOTE B - Provision for Income Taxes
No portion of income tax provision is attributable to foreign operations. The
provision for income tax has been calculated taking into account the tax-exempt
status of portions of municipal bond income. Of the federal statutory income
tax rate of 34%, the following are the components of the current quarter
provision:
<TABLE>
<S> <C>
Statutory tax rate 100.0%
Tax effect of municipal income (51.6%)
------
Current provision tax rate 48.4%
</TABLE>
11
<PAGE> 245
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Capital
During the third quarter of 1994, the Bank's capital increased by $1,134,933,
or 3.31%, compared to an increase of $540,288, or 1.79% in the same period of
1993. Without the effect of the adoption of SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities" as of December 31, 1993, this
increase was $870,920 or 2.61%. Sources of additional capital in each of the
periods were retained earnings, exercise of stock options and purchases of new
stock by the Bank's profit sharing and 401K plans. The Bank paid a dividend of
thirty-five cents a share to shareholders of record July 13, 1994, or a total
of $485,624. A dividend of $.35 per share, totaling $468,053 was paid in the
third quarter of 1993. Dividend payments continued on a quarterly basis in
1993 and 1994.
The Bank is subject to the Federal Reserve Bank's regulations. In 1989, the
Federal Reserve Bank established risk-based capital guidelines for member
banks. The Comptroller of the Currency and the FDIC have issued similar
guidelines for national banks. The guidelines define Tier 1 Capital and Total
Capital. Tier 1 Capital consists of common and qualifying preferred
shareholders' equity and minority interests in equity accounts of consolidated
subsidiaries. Total Capital consists of, in addition to Tier 1 Capital,
mandatory convertible debt, preferred stock not qualifying as Tier 1 Capital,
subordinated and other qualifying term debt and a portion of the allowance for
loan losses less the remaining 50% of investments in unconsolidated
subsidiaries. The Tier 1 component must comprise at least 50% of qualifying
Total Capital. Risk-based capital ratios are calculated with reference to
risk-weighted assets which include both on and off-balance sheet exposures.
The minimum required qualifying total capital ratio is 8%, of which at least 4%
must consist of Tier 1 Capital. At September 30, 1994, the Bank's Tier 1
Capital totaled $34,993,000 and Total Capital was $38,210,000. The Bank's Tier
1 capital to total risk weighted assets ratio was 13.60% and its Total Capital
to total risk weighted assets ratio was 14.85%.
It is the intention of the Bank to continue capital augmentation through
earnings retention net of dividends in future years.
Liquidity
Historically, the Bank's balance sheet has shown a high degree of liquidity.
The following table shows balance sheet proportions for the quarter ending
September 30, 1994 and for the years ending December 31, 1993 and December 31,
1992.
12
<PAGE> 246
AVERAGE BALANCE SHEET
<TABLE>
<CAPTION>
9/30/94 12/31/93 12/31/92
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash & Due From Bank $26,603 6.26% $25,653 6.79% $21,383 6.15%
Investment Securities 102,256 24.04% 73,028 19.34% 70,134 20.18%
Fed Funds Sold 50,783 11.94% 35,212 9.32% 25,950 7.47%
Loans 221,363 52.05% 224,016 59.32% 211,204 60.77%
Premises & Equipment 15,691 3.69% 14,792 3.92% 14,611 4.20%
Other Assets 8,594 2.02% 4,910 1.30% 4,251 1.22%
----- ----- ----- ----- ----- -----
TOTAL ASSETS $425,290 100.00% $377,611 100.00% $347,533 100.00%
======== ======= ======== ======= ======== =======
LIABILITIES
Demand Deposits $60,634 14.26% $50,135 13.28% $40,712 11.71%
Savings & Now 80,919 19.03% 76,649 20.30% 67,141 19.32%
Money Funds 219,184 51.54% 193,474 51.24% 177,367 51.04%
Time Deposits 24,451 5.75% 23,589 6.25% 32,392 9.32%
----- ----- ----- ----- ----- -----
Total Deposits $385,188 90.57% $343,847 91.06% $317,612 91.39%
Other Borrowings 4,208 0.99% 1,398 0.37% 1,354 0.39%
Other Liabilities 1,745 0.41% 2,189 0.58% 1,783 0.51%
----- ----- ----- ----- ----- -----
TOTAL LIABILITIES $391,141 91.97% $347,434 92.01% $320,749 92.29%
SHAREHOLDERS' EQUITY 34,149 8.03% 30,177 7.99% 26,784 7.71%
----- ----- ----- ----- ----- -----
TOTAL LIABILITIES $425,290 100.00% $377,611 100.00% $347,533 100.00%
AND EQUITY ======== ======= ======== ======= ======== =======
</TABLE>
Totals may not add due to rounding.
Bank assets containing a high degree of liquidity are Cash & Due From Banks,
Investment Securities and Federal Funds Sold. For the quarter ending September
30, 1994, those assets comprised 42.24% of the Bank's assets compared to 34.83%
in 1993 and 33.80% in 1992.
A principal source of liquidity is new deposit generation. Historically, loan
generation has periodically lagged deposit growth. The loan to deposit ratio
decreased from 66.50% in 1992 to 65.15% in 1993 and to 57.44% in the third
quarter of 1994. Growth rates for the third quarter of 1994 and for the years
1993 and 1992 are shown in the following table.
<TABLE>
<CAPTION>
September 30, 1994 1993 1992
------------------- ---- ----
<S> <C> <C> <C>
Net Loans $221,363 $224,016 $211,204
Growth Rate (1.18%) 6.07% 16.92%
Deposits $385,188 $343,847 $317,612
Growth Rate 12.02% 8.26% 12.90%
Loans to Deposits 57.47% 65.15% 66.50%
</TABLE>
13
<PAGE> 247
The investment portfolio is another source of liquidity. While a portion of
the portfolio is intended to be a permanent investment, a portion is invested
in short-term obligations pending re-employment of these funds in the loan
portfolio or for deposit withdrawals. As of September 30, 1994, the investment
portfolio totaled $112,416,814. Of that amount, $1,447,256, or 1.29% of the
total portfolio matures within one year. Additionally, the securities in the
portfolio are freely marketable. The portfolio contains $745,049 in unrealized
appreciation.
Within the loan portfolio are investments in short-term bankers acceptances
totaling $14,672,051 at September 30, 1994. These acceptances all mature
within 180 days.
Other internal sources of liquidity are the retention of earnings and cash flow
generated in the loan portfolio.
External sources of liquidity include borrowings available to the Bank. As of
September 30, 1994, the Bank has two lines available totaling $10,000,000 of
which $5,000,000 is committed until June 30, 1995, and on which commitment fees
have been paid. $5,000,000 is on an "as available" basis.
Indebtedness of Management
The Bank has had, and expects to have in the future, banking transactions in
the ordinary course of its business with directors, officers, principal
shareholders and their associates, on the same terms, including interest rates
and collateral on loans, as those prevailing at the same time for comparable
transactions with others, and which, in the opinion of the Bank's Management,
do not involve a greater risk of collectibility. Furthermore, it is the Bank's
policy to preclude its executive officers, with the exception of the Chairman
of the Board, from borrowing from the Bank and any loan to the Chairman or a
director must be approved by the entire Board of Directors.
The following table summarizes the loans to Directors and Principal Holders of
Equity Securities in the quarter ended September 30, 1994:
<TABLE>
<S> <C>
Outstanding Balances as of June 31, 1994 $1,716,202.50
Aggregate Amount of New Loans Made -0-
Aggregate Amount of Repayments 2,488,436.95
Aggregate Amount of Other Changes 2,399,720.99
Aggregate Amount of Outstandings at September 30,1994 $1,627,486.54
</TABLE>
During the period ended September 30, 1994, none of these loans became past due
or was placed on non-accrual.
Results of Operations
In the quarter ended September 30, 1994, average daily assets increased
14
<PAGE> 248
by $46.6 million or 12.30% over the third quarter 1993 and increased by $13.1
million, or 3.18%, over the second quarter of 1994. Deposits and other
borrowings increased $42.6 million, or 12.30% over the third quarter of 1993
and increased $10.5 million, or 2.76% over the first quarter of 1994.
The mix in earning assets reflects a decrease in loan demand. Loans, net of
banker's acceptances, as a percent of earning assets were 59.63% for the
quarter ended September 30, 1994, compared to 66.26% for the third quarter of
1993 and 59.28% for the second quarter of 1994.
Net Interest Income and Margin
In the three months ended September 30, 1994, net interest income on a fully
taxable equivalent basis increased $551,000, or 11.17% from the preceding
quarter and increased $824,000, or 17.69%, over the same period in 1993.
Interest-earning assets averaged $379.2 million, an increase of $42.2 million,
or 12.53%, over the same period in 1993. Interest earned on those assets
increased $1,188,000, or 18.95%, for a total of $7,456,000 in this period. The
composite fully taxable equivalent yield on interest-earning assets increased
from 7.38% in the third quarter of 1993 to 7.80% in the current period.
Compared with the preceding period, interest on earning assets increased
$762,000, or 11.38%. Yields increased fifty five basis points from 7.25% to
7.80%.
Average interest-bearing liabilities increased by $42.6 million to $389.4
million, or 12.30% over the same period in 1993. Interest expense increased
$364,000, or 22.61%. The composite average cost of funds increased from 1.84%
to 2.01%. In this quarter, compared to the prior quarter, the cost of funds
increased by fourteen basis points from 1.87% to 2.01%. Net interest margin
decreased from 5.48% in the third quarter of 1993 to 5.34% in the second
quarter of 1994 and increased to 5.74% in the current quarter.
Non-Interest Income
In this period, non-interest income increased $200,000, or 22.79% over the same
period in 1993 and increased $240,000, or 28.30% from the prior period.
Non-interest income is derived from Trust Department fees, service charges on
deposit accounts, other fees and charges and safe deposit rentals. In this
period, trust fees accounted for $753,000 or 69.92% of non-interest revenue.
Increases in non-interest income over the prior quarter are due to increased
volume of trust business.
Non-Interest Expense
Non-interest expense increased $423,000, or 12.72%, in this period compared to
the same period in 1993, and increased $30,000 or 0.81% over the prior period.
Overall increases in non-interest expense are due to increases in deposits and
earning assets and increased
15
<PAGE> 249
staff and other costs necessary to service this growth.
Provision for Loan and Lease Losses
The Bank provided $75,000 for loan losses in this period compared to $500,000
in the third quarter of 1993 and to $100,000 in the second quarter of 1994.
The Bank's Reserve for Loan Losses is maintained at a level that Management
believes will be adequate to absorb possible losses. During the preceeding
quarter, the Bank adopted a new loan loss adequacy policy to conform to the new
federal guidelines "Interagency Policy Statement on the Allowance for Loan and
Lease Losses (ALLL)" which was issued December 21, 1993. Management
evaluations take into consideration such factors as changes in the nature and
volume of specific problem loans and current economic conditions that may
affect the borrower's ability to repay.
The balance of the reserve for loan losses was $4,738,343 at September 30, 1994
compared to $4,044,239 at September 30, 1993 and to $4,877,101 at June 30,
1994. Net losses totaled $213,757 in the third quarter of 1994 compared to
$407,977 in the third quarter of 1993 and to $1,199,074 in the second quarter
of 1994.
Loans on non-accrual totaled $1,371,058 at September 30, 1994 compared to
$4,817,855 at September 30, 1993 and to $1,189,529 at June 30, 1994. The
previous increase was due to deterioration in the local economy, particularly
in real estate. As of September 30, 1994, the Bank owned two parcels of other
real estate with a book value totaling $3,945,373 compared to one parcel having
a book value of $608,732 at September 30, 1993.
Investment Portfolio
The Bank adopted SFAS No. 115, "Accounting for Certain Investments in Debt &
Equity Securities," as of December 31, 1993. SFAS 115 requires entities to
classify investments in debt securities and equity securities with readily
determinable fair values as held to maturity, available for sale, or trading
and establishes accounting and reporting requirements for each classification.
The Bank has classified all of its investments as available for sale as it does
not have the intent to hold such securities until maturity. Available for sale
securities are reported at fair value, with unrealized gains and losses, net of
taxes, reported as separate component of shareholders' equity. At September
30, 1994, this separate component of equity was $439,579.
The portfolio increased by $43,256,989, or 62.55% to $112,416,814 book value
from September 30, 1993 to September 30, 1994. Large deposit generation
coupled with low loan demand created excess liquidity.
Letters of Credit
At September 30, 1994, the Bank's commitments under unused letters of credit
were $4,045,000 of which 20% are reasonably expected to be exercised within the
next twelve months. At September 30, 1993, such commitments totaled $6,985,222
and at June 30, 1994, $4,477,000.
16
<PAGE> 250
Interest Analysis
September 30, 1994
The following table is a summary of the major elements of income and expenses
for the quarter ended September 30, 1994, compared with the same quarter of
1993 and the quarter ended June 30, 1994.
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended
September 30 September 30 Percent September 30 June 30 Percent
1994 1993 Change 1994 1994 Change
<S> <C> <C> <C> <C> <C> <C>
Interest Income $7,127,192 $5,944,964 19.89% $7,127,192 $6,370,588 11.88%
Interest Expense 1,975,212 1,609,567 22.72% 1,975,212 1,761,620 12.12%
Net Interest Income $5,151,980 $4,335,397 18.84% $5,151,980 $4,608,968 11.78%
Provision for Loan Losses 75,000 500,000 -85.00% 75,000 100,000 -25.00%
Net Interest Income after
Provision for Loan Losses $5,076,980 $3,835,397 32.37% $5,076,980 $4,508,968 12.60%
Non-Interest Income 1,077,892 877,864 22.79% 1,077,892 847,560 27.18%
Non-Interest Expense 3,749,473 3,326,599 12.71% 3,749,473 3,718,514 0.83%
Income Before Securities Gains $2,405,399 $1,386,662 73.47% $2,405,399 $1,638,014 46.85%
Net Gain on Sale of Securities 10,421 15,375 0.00% 10,421 0 100.00%
Net Income Before Income Taxes $2,415,820 $1,402,037 72.31% $2,415,820 $1,638,014 47.48%
Income Taxes 689,232 412,153 67.23% 689,232 467,323 47.49%
Net Income $1,726,588 $989,884 74.42% $1,726,588 $1,170,691 47.48%
Earnings per Share of
Common Stock:
Net Income $1.21 $0.71 70.42% $1.21 $0.83 45.78%
Dividends per Share of
Common Stock $0.35 $0.35 0.00% $0.35 $0.35 0.00%
</TABLE>
17
<PAGE> 251
Interest Differential
September, 1994/September, 1993
INTEREST RATES AND NET INTEREST DIFFERENTIAL
The major portion of the Bank's income results from the difference between
interest income derived from earning assets and interest expense paid on
liabilities incurred primarily for the funding of those assets. The
difference is referred to as net interest income. Net interest income
expressed as a percent of average total earning assets is referred to as
net interest margin. Net interest income and net interest margin are
summarized in the following comparisons for the three months ended
September 30, 1994 over the same period in 1993 and for the three months
ended June 30, 1994. Average balances are expressed in thousands of
dollars:
<TABLE>
<CAPTION>
For the Three Months Ended
September 30, 1994 September 30, 1993
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate % Balance Expense Rate %
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment Securities:
Taxable $63,341 $986 6.18% $35,031 $585 6.63%
Non-Taxable* 38,915 968 9.87% 34,879 950 10.81%
Federal Funds Sold 50,783 564 4.41% 35,935 271 2.99%
Loans-Interest & Fees 226,141 4,938 8.66% 231,110 4,462 7.66%
Total Earning Assets 379,180 7,456 7.80% 336,955 6,268 7.38%
Cash & Due From Banks 26,603 26,416
Premises & Equipment 15,691 14,787
Other Assets 3,816 544
Total Assets $425,290 $378,702
LIABILITIES & SHAREHOLDERS' EQUITY
Deposits & Borrowings
Demand $60,634 $0 0.00% $51,680 $0 0.00%
Savings & Now 80,919 175 0.86% 75,979 211 1.10%
Money Funds 219,184 1,550 2.81% 193,768 1,208 2.47%
Time 24,451 223 3.62% 24,779 185 2.96%
Other Borrowed Funds 4,208 26 2.45% 551 6 4.32%
Total Deposits & Borrowings 389,396 1,974 2.01% 346,757 1,610 1.84%
Other Liabilities 1,745 1,517
Shareholders' Equity 34,149 30,428
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $425,290 $378,702
Interest and Loan Fee Income 7,456 7.80% 6,268 7.38%
Interest Expense** 1,974 2.07% 1,610 1.90%
NET INTEREST INCOME AND MARGIN $5,482 5.74% $4,658 5.48%
</TABLE>
*Interest income is calculated on a fully taxable equivalent basis using
the federal statutory rate of 34%. The tax equivalent adjustment was
$329,093 for the quarter ending September 30, 1994 and $322,965 for the
quarter ending September 30, 1993.
**Interest on deposits as a percent of earning assets.
18
<PAGE> 252
Interest Differential
September, 1994/June, 1994
INTEREST RATES AND NET INTEREST DIFFERENTIAL (CONTINUED)
<TABLE>
<CAPTION>
For the Three Months Ended
September 30, 1994 June 30, 1994
--------------------------------------- ------------------------------------------------
Average Income/ Yield/ Average Income/ Yield/ Change in
Balance Expense Rate % Balance Expense Rate % Average
ASSETS Balance
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Securities:
Taxable $63,341 986 6.18% $67,185 881 5.26% (3,844)
Non-Taxable* 38,915 968 9.87% 37,873 952 10.08% 1,042
Federal Funds Sold 50,783 564 4.41% 45,643 438 3.85% 5,140
Loans-Interest & Fees 226,141 4,938 8.66% 219,390 4,423 8.09% 6,751
Total Earning Assets 379,180 7,456 7.80% 370,091 6,694 7.25% 9,089
Cash & Due From Banks 26,603 26,823
Premises & Equipment 15,691 15,815
Other Assets 3,816 (541)
Total Assets $425,290 $412,188
LIABILITIES & SHAREHOLDERS' EQUITY
Deposits & Borrowings
Demand $60,634 $0 0.00% $55,857 $0 0.00% 4,777
Savings & Now 80,919 175 0.86% 85,682 181 0.85% (4,763)
Money Funds 219,184 1,550 2.81% 216,159 1,416 2.63% 3,025
Time 24,451 223 3.62% 20,761 160 3.09% 3,690
Other Borrowed Funds 4,208 26 2.45% 460 6 5.23% 3,748
Total Deposits & Borrowings 389,396 1,974 2.01% 378,919 1,763 1.87% 10,477
Other Liabilities 1,745 562
Shareholders' Equity 34,149 32,707
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $425,290 $412,188
Interest and Loan Fee Income 7,456 7.80% 6,694 7.25%
Interest Expense** 1,974 2.07% 1,763 1.91%
NET INTEREST INCOME AND MARGIN $5,482 5.74% $4,931 5.34%
</TABLE>
*Interest income is calculated on a fully taxable equivalent basis
using the federal statutory rate of 34%. The tax equivalent adjustment
was $329,093 for the quarter ending September 30, 1994 and $323,782 for the
quarter ending June 30, 1994.
**Interest on deposits as a percent of earning assets.
19
<PAGE> 253
PART II
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings to which the bank is a party.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There have been no defaults upon senior securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
An index of all financial statements files as a part of this quarterly report
is set forth at page 2 and is incorporated herein by reference.
There are no other applicable exhibits to be filed as a part of this report.
On October 4, 1994, the Bank filed Form 8-K reporting that it had executed an
agreement to merge with Comerica Incorporated on October 4, 1994 as described
in Items 1 and 5.
II-1
<PAGE> 254
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
University Bank & Trust Company
By /s/ Carl J. Schmitt
---------------------------
Carl J. Schmitt, Chairman
and Chief Executive Officer
Date: November 13, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the date indicated.
<TABLE>
<CAPTION>
Signature Title
- --------------------------------------------------------------------------------
<S> <C>
Carl J. Schmitt* Chairman of the Board, Chief
Executive Officer and Director
(Principal Executive Officer)
Gayle A. Anderson* Executive Vice President and
Chief Financial Officer
(Principal Financial and
Principal Accounting Officer)
Lawrence A. Aufmuth* Director
Thomas R. Brown* Director
Linda R. Meier* Director
George G. C. Parker* Director
William A. Preston* Director
Leslie M. Quist* Director
Leonard Ware* Director
*By /s/ Carl J. Schmitt
-------------------------
(Carl J. Schmitt,
Attorney-In-Fact)
Date: November 13, 1994
</TABLE>
<PAGE> 255
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from_________to__________
Commission File Number
UNIVERSITY BANK & TRUST COMPANY
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0376213
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 LYTTON AVENUE, PALO ALTO, CALIFORNIA 94301
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code, (415)327-0210
UNIVERSITY NATIONAL BANK & TRUST COMPANY
Former name, former address and former fiscal year, if changed
since last report.
THIS REPORT CONSISTS OF A TOTAL OF THREE PAGES.
1
<PAGE> 256
UNIVERSITY BANK & TRUST COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, 000's omitted)
<TABLE>
<CAPTION>
Fiscal Year-to-Date
September 30, September 30,
1994 1993
(In Thousands)
<S> <C> <C>
Interest Income
Interest and fees on loans $13,032 $13,040
Income from financing lease receivables 432 359
Interest on Securities
Taxable 2,562 1,873
Non-Taxable 1,889 1,869
Interest income on Federal funds sold 1,279 657
------- -------
Total Interest Income $19,194 $17,798
Interest Expense
Interest on Deposits
Time Certificates over $100M $ 414 $ 384
Other Time Deposits 4,891 4,435
Securities Sold Under Repurchase Agreemen 38 36
Total Interest Expense $ 5,343 $ 4,855
------- -------
Net Interest Income $13,851 $12,943
Provision for Loan and Lease Losses 475 1,100
------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN AND LEASE LOSSES $13,376 $11,843
Non-Interest Income
Income from Fiduciary Activities 2,011 1,784
Service Charges on Deposit Accounts 383 382
Other Income 494 421
Gain (loss) on securities sold 15 15
------- -------
Total Non-Interest Income $ 2,903 $ 2,602
Non-Interest Expense
Salaries and Benefits 6,880 6,187
Occupancy Expense 1,028 930
Other Expense 3,191 2,824
------- -------
Total Non-Interest Expense $11,099 $ 9,941
INCOME BEFORE INCOME TAXES $ 5,180 $ 4,504
Applicable Income Taxes 1,478 1,324
------- -------
NET INCOME $ 3,702 $ 3,180
======= =======
Earnings Per Share $2.63 $2.31
Dividends Per Share $1.05 $1.05
</TABLE>
2
<PAGE> 257
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
UNIVERSITY BANK & TRUST COMPANY
December 6, 1994 /s/ CARL J. SCHMITT
-------------------
Carl J. Schmitt
3
