<PAGE>
As filed with the Securities and Exchange Commission on May 5, 1997.
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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FIRST SECURITY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 6711 87-6118148
(State or other juris- (Primary Standard Industrial (I.R.S. Employer
diction of incorporation Classification Code Number) Identification No.)
or organization)
79 SOUTH MAIN STREET
SALT LAKE CITY, UTAH 84111
(801) 246-5706
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------
SCOTT C. ULBRICH
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
FIRST SECURITY CORPORATION
79 SOUTH MAIN STREET
SALT LAKE CITY, UTAH 84111
(801) 246-5706
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
-------------
Copies To:
A. ROBERT THORUP, ESQ. GARY S. FINDLEY, ESQ.
RAY, QUINNEY & NEBEKER GARY STEVEN FINDLEY & ASSOCIATES
79 SOUTH MAIN STREET 1470 NORTH HUNDLEY STREET
SALT LAKE CITY, UTAH 84111 ANAHEIM, CALIFORNIA 92806
(801) 532-1500 (714) 630-7136
(FAX) (801) 532-7543 (FAX) (714) 630-7910
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Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the Effective Time of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
-------------
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
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- -----------------------------------------------------------------------------------------------------------------------------------
Title of each class of Amount to be registered Proposed Maximum Proposed Maximum Amount of registration
securities to be registered offering price per share aggregate offering price fee
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock ($1.25 3,600,000 shares(1) $24.875(2) $89,550,000(2) $27,133.65
par value)
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock Rights (3) 3,600,000 rights None None None
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the maximum possible number of shares of the Registrant's
Common Stock to be issued in connection with the Merger described
herein after the effect of the FSC Common Stock split as of May 15,
1997.
(2) Estimated pursuant to Rule 457(f)(2) solely for the purpose of
calculating the registration fee based on the book value of the
securities to be received by Registrant as determined on May 5, 1997,
adjusted to reflect the FSC Common Stock split effective as of
May 15, 1997.
(3) One Right to purchase Junior Series B Preferred Stock of FSC is
associated with each share of Common Stock. The Rights are not
transferable separately from the Common Stock except in limited
circumstances.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
This Registration Statement consists of consecutively numbered pages.
The Exhibit Index is on consecutively numbered page .
<PAGE>
FIRST SECURITY CORPORATION
CROSS-REFERENCE SHEET
FOR
REGISTRATION STATEMENT ON FORM S-4 AND PROSPECTUS / PROXY STATEMENT
<TABLE>
<S> <C> <C>
1. Forepart of Registration Statement and Facing Page and pages RS-2 and RS-3 of
Outside Front Cover Page of Registration Statement; Outside Front
Prospectus Cover Page of Prospectus / Proxy
Statement
2. Inside Front and Outside Back Cover Available Information; Information About
Pages of Prospectus FSC -- Incorporation of Certain Documents
by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Summary of Prospectus / Proxy Statement;
Charges and Other Information GLOSSARY; Outside Front Cover Page of
Prospectus / Proxy Statement; Selected
Comparative Financial Data; The Merger;
Information About FSC; Federal Income
Tax Consequences; Information About
Bancorp.
4. Terms of the Transaction The Merger; Appendix A
5. PRO FORMA Financial Information Selected Historical, PRO FORMA and
Equivalent PRO FORMA per Share Data;
Selected Comparative Financial Data
6. Material Contracts with the Company The Merger -- Background of and Reasons
Being Acquired for the Merger; The Merger -- Interests of
Certain Persons in the Merger
7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties
Deemed to be Underwriters
8. Interests of Named Experts and Experts; Legal Matters
Counsel
9. Disclosure of Commission Position on Comparative Rights of Shareholders --
Indemnification for Securities Act Directors
Liabilities
10. Information with Respect to S-3 Selected Comparative Financial Data;
Registrants Information About FSC
</TABLE>
RS-2
<PAGE>
<TABLE>
<S> <C> <C>
11. Incorporation of Certain Information by Incorporation of Certain Information by
Reference Reference
12. Information with Respect to S-2 or S-3 Not Applicable
Registrants
13. Incorporation of Certain Information by Not Applicable
Reference
14. Information with Respect to Not Applicable
Registrants Other than S-2 or S-3
Registrants
15. Information with Respect to S-3 Not Applicable
Companies
16. Information with Respect to S-2 or S-3 Not Applicable
Companies
17. Information with Respect to Companies Available Information; Information about
Other than S-2 or S-3 Companies Bancorp; Selected Historical, PRO FORMA and
Equivalent PRO FORMA per Share Data; Selected
Comparative Financial Data
18. Information if Proxies, Consents or Summary of Prospectus / Proxy Statement;
Authorizations are to be Solicited The Shareholders' Meeting; The Proposed Merger Agreement;
No Rights of Dissenting Shareholders; Information
about FSC; Information About Bancorp; -- Interests
of Certain Persons in the Mergers
19. Information if Proxies, Consents or Not Applicable
Authorizations Are Not To Be Solicited, or
in an Exchange Offer
</TABLE>
RS-3
<PAGE>
PROSPECTUS/PROXY STATEMENT
FIRST SECURITY CORPORATION AMERICAN BANCORP OF NEVADA
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
This Prospectus/Proxy Statement is furnished by American Bancorp of
Nevada, Inc. ("Bancorp") and First Security Corporation ("FSC"), in
connection with the meeting of Bancorp Shareholders called for June __,
1997 (the "Shareholders' Meeting") where votes will be taken on (a) the
election of a Board of Directors for Bancorp for the coming year and (b) the
proposed Merger Agreement whereby American Bank of Commerce ("ABC"), a
wholly-owned subsidiary of Bancorp would merge with and into First Security
Bank of Nevada ("FSB"), a wholly owned subsidiary of FSC, and whereby Bancorp
would merge with and into FSC (collectively referred to as the "Mergers").
If the Merger Agreement is approved and consummated, the new Directors of
Bancorp will resign. If the Mergers fail to take place, the new Directors
will govern Bancorp until its next annual shareholders meeting. At present,
Bancorp knows of no other matters to be presented at the Shareholders'
Meeting.
This Prospectus/Proxy Statement, first being mailed to Bancorp
Shareholders on or about May __, 1997, together with the Appendices attached
hereto, constitutes FSC's Prospectus, which was filed with the Securities and
Exchange Commission as part of a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended (the "Registration Statement"), with
respect to up to 3,600,000 shares of FSC's Common Stock, $1.25 par value per
share (the "FSC Common Stock"), to be issued to Bancorp Shareholders pursuant
to the Conversion Ratio in the Merger Agreement if approved.
FSC has supplied all the information contained herein with respect to
itself and FSB. FSC's principal executive offices are located at 79 South
Main Street, Salt Lake City, Utah 84111. FSC's information telephone number
with respect to this transaction is (801) 246-5706 (Attn: Scott C. Ulbrich,
Chief Financial Officer).
ABC and Bancorp have supplied all the information contained in this
Prospectus/Proxy Statement with respect to themselves. The principal
executive offices of ABC and of Bancorp are located at 4425 Spring Mountain
Road, Las Vegas, Nevada 89102. ABC and Bancorp's information telephone
number with respect to this transaction is (702) 362-7222 (Attn: Bruce
Hendricks, President).
Neither the delivery of this Prospectus/Proxy Statement nor any sale or
exchange made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs or operations of
FSC, FSB, Bancorp or ABC since the date hereof.
This Prospectus/Proxy Statement does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby within
any jurisdiction or to any person to whom it is unlawful to make such offer
or solicitation within such jurisdiction. No agent or officer of FSC, FSB,
Bancorp or ABC, nor any other person has been authorized to give any
information or to make any representations other than as contained herein;
and, if given or made, such information or representations should not be
relied upon as having been authorized by FSC, FSB, Bancorp or ABC.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
The date of this Prospectus/Proxy Statement is May __, 1997
<PAGE>
[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE>
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE. . . . . . . . . . . . . . . 1
GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
THE SHAREHOLDERS' MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . 16
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Persons Entitled to Vote At the Shareholders'
Meeting; Proxy Voting; Broker Non-Votes . . . . . . . . . . . . . . . . . 16
Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Votes Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Security Ownership of Certain Beneficial Owners and Management . . . . . . 17
Section 16(a) Beneficial Ownership Compliance. . . . . . . . . . . . . . . 19
Proxy Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
PROPOSAL NUMBER ONE: ELECTION OF DIRECTORS. . . . . . . . . . . . . . . . . 19
Nominees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
The Board of Directors and Committees. . . . . . . . . . . . . . . . . . . 21
Compensation of Directors. . . . . . . . . . . . . . . . . . . . . . . . . 22
PROPOSAL NUMBER TWO: THE PROPOSED MERGER AGREEMENT. . . . . . . . . . . . . 23
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Reasons for the Mergers; Recommendations of the Bancorp Board of Directors. 24
Opinions of Financial Advisor. . . . . . . . . . . . . . . . . . . . . . . 25
Interests of Certain Persons in the Mergers. . . . . . . . . . . . . . . . 31
The Merger Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Consideration to Be Received by Bancorp Shareholders . . . . . . . . . . . 32
Options and Stock Appreciation Rights. . . . . . . . . . . . . . . . . . . 33
Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 33
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Conditions to the Mergers. . . . . . . . . . . . . . . . . . . . . . . . . 35
Termination of the Merger Agreement. . . . . . . . . . . . . . . . . . . . 36
Operations After the Mergers . . . . . . . . . . . . . . . . . . . . . . . 36
Effect of the Mergers on ABC Employee Benefit Plans. . . . . . . . . . . . 36
FEDERAL INCOME TAX CONSEQUENCES. . . . . . . . . . . . . . . . . . . . . . . 37
NO RIGHTS OF DISSENTING SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . 40
RESALES OF FSC COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . . . . 40
CAPITALIZATION AND PRO FORMA CAPITALIZATION OF FSC AND BANCORP . . . . . . . 41
SELECTED COMPARATIVE FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . 42
SELECTED HISTORICAL, PRO FORMA AND EQUIVALENT PRO FORMA PER
SHARE DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
INFORMATION ABOUT FSC. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Competition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Supervision and Regulation . . . . . . . . . . . . . . . . . . . . . . . . 47
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Description of FSC's Capital Stock . . . . . . . . . . . . . . . . . . . . 60
Historical Prices and Dividends of FSC Common Stock. . . . . . . . . . . . 62
(i)
<PAGE>
INFORMATION ABOUT ABC AND BANCORP. . . . . . . . . . . . . . . . . . . . . . 64
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Regulation and Supervision of Bancorp. . . . . . . . . . . . . . . . . . . 65
Regulation and Supervision of ABC. . . . . . . . . . . . . . . . . . . . . 65
Competition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Recent Legislation and Other Changes . . . . . . . . . . . . . . . . . . . 66
Government Monetary Policies . . . . . . . . . . . . . . . . . . . . . . . 67
Lending Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Investment Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Interest Rate Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Market Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Stock Options and Similar Awards to Management . . . . . . . . . . . . . . 74
Transactions with Management . . . . . . . . . . . . . . . . . . . . . . . 77
SELECTED BANCORP FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . .
BANCORP'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF 1996 RESULTS OF OPERATIONS AND FINANCIAL CONDITION. . . . . . . . . . . . 79
Liquidity and Asset/Liability Management . . . . . . . . . . . . . . . . . 79
Capital Resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Asset Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Interest Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Interest Rate Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Allowance for Loan Losses. . . . . . . . . . . . . . . . . . . . . . . . . 83
Non-Interest Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Non-Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Dividend Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
New Accounting Pronouncements. . . . . . . . . . . . . . . . . . . . . . . 85
COMPARATIVE RIGHTS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . 87
Authorized Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . 87
Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Repurchase and Redemption of Shares. . . . . . . . . . . . . . . . . . . . 90
Payment of Dividends to Shareholders . . . . . . . . . . . . . . . . . . . 90
Assessments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Amendments to Articles or Certificate of Incorporation . . . . . . . . . . 91
Amendments to Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Shareholder Approval of Mergers and Other Business Combinations. . . . . . 92
Rights of Dissenting Shareholders. . . . . . . . . . . . . . . . . . . . . 93
Annual Meetings of Stockholders. . . . . . . . . . . . . . . . . . . . . . 94
Special Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . 94
Shareholder Consent to Action Without a Meeting. . . . . . . . . . . . . . 94
Shareholder Inspection of Records. . . . . . . . . . . . . . . . . . . . . 95
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
DEADLINE FOR FSC SHAREHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . 95
DEADLINE FOR BANCORP SHAREHOLDER PROPOSALS . . . . . . . . . . . . . . . . . 96
(ii)
<PAGE>
APPENDIX A -- MERGER AGREEMENT
APPENDIX B -- BANCORP'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1996.
APPENDIX C -- FINDLEY FAIRNESS OPINION
(iii)
<PAGE>
AVAILABLE INFORMATION
FSC and Bancorp are subject to the informational reporting requirements
of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and in
accordance therewith file periodic reports, proxy statements and other
information with the Securities and Exchange Commission ("Commission").
FSC's or Bancorp's recent filings with the Commission can be inspected and
copied at the Public Reference Facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Office at [1801 California Street, Suite 4800, Denver, Colorado 80202-2648].
Copies of such material can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Such information may also be accessed electronically by
means of the Commission's home page on the Internet (http://www.sec.gov.).
In addition, the FSC Common Stock and the Bancorp Common Stock are traded by
means of the NASDAQ, and such reports, proxy statements and other information
concerning FSC or Bancorp should be available for inspection and copying at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
FSC 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 ("Securities Act"), with respect to
the FSC Common Stock offered hereby. This Prospectus/Proxy Statement does
not contain all the information set forth in the Registration Statement and
the exhibits thereto, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information, reference is made to the Registration Statement, including the
exhibits thereto.
Statements contained in this Prospectus/Proxy Statement or in any
documents incorporated in this Prospectus/Proxy Statement 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. The Registration Statement may
be inspected by anyone without charge at the principal office of the
Commission in Washington, D.C., and copies of all or any part of it may be
obtained from the Commission upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are incorporated herein by reference the following documents filed with
the Commission by FSC (File No. 1-6906):
(a) FSC's Annual Report on Form 10-K for the year ended December 31,
1996; and
(b) FSC's Proxy Statement dated March 15, 1997; and
<PAGE>
-2-
(c) FSC's Current Reports on Form 8-K dated March 25, 1997 and May 5, 1997;
and
(d) Description of FSC Common Stock as included in FSC's Registration
Statement on Form S-3, filed with the Commission on September 13, 1991,
Commission File Number 33-42784.
All documents filed by FSC, respectively, with the Commission pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date of this Prospectus/Proxy Statement and prior to the date of the
Shareholders' Meeting are incorporated herein by reference, and such
documents shall be deemed to be a part hereof from the date of filing of such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus/Proxy Statement to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus/Proxy Statement.
THIS PROSPECTUS/PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH FSC
DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS, ARE AVAILABLE WITHOUT
CHARGE TO ANY PERSON TO WHOM THIS PROSPECTUS/PROXY STATEMENT IS DELIVERED
UPON WRITTEN OR ORAL REQUEST TO FIRST SECURITY CORPORATION, ATTENTION: SCOTT
C. ULBRICH, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, SUITE 200,
79 SOUTH MAIN STREET, SALT LAKE CITY, UTAH 84111; TELEPHONE NUMBER
(801) 246-5706. IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS PRIOR TO
THE SHAREHOLDERS' MEETING, ANY REQUEST SHOULD BE RECEIVED ON OR BEFORE
MAY__, 1997. COPIES OF SUCH DOCUMENTS WILL ALSO BE AVAILABLE UPON
REQUEST THEREAFTER UNTIL THE EFFECTIVE TIME (AS DEFINED HEREINAFTER).
No agent or officer of FSC, FSB, ABC or Bancorp, nor any other person
has been authorized to give any information or to make any representations
other than as contained herein and in the documents incorporated herein by
reference; and, if given or made, such information or representations should
not be relied upon as having been authorized by FSC, FSB, ABC or Bancorp.
Neither the delivery of this Prospectus/Proxy Statement nor any sale or
exchange made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs or operations of
FSC, FSB, ABC or Bancorp since the date hereof, or that the information
herein is correct as of any time subsequent to such date.
<PAGE>
-3-
GLOSSARY
As used in this Prospectus/Proxy Statement, the following are the
meanings for the terms set forth below:
"ABC" means American Bank of Commerce.
"ABC-FSB MERGER" means the merger of ABC with and into FSB.
"BANCORP" means American Bancorp of Nevada and all of its subsidiaries
on a consolidated basis.
"BANCORP COMMON STOCK" means shares of common stock, $.05 par value,
of Bancorp.
"BANCORP-FSC MERGER" means the merger of Bancorp with and into FSC.
"BHC ACT" means the Bank Holding Company Act of 1956, as amended.
"CLOSING" means the closing of the transactions contemplated by the
Merger Agreement.
"CLOSING DATE" means the date upon which Closing occurs.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations thereunder.
"COMPTROLLER" means the Office of the Comptroller of the Currency.
"CONVERSION RATIO" means the fraction of a share of FSC Common Stock
to be received by Bancorp Shareholders for each issued and outstanding
share of Bancorp Common Stock at the Effective Time.
"DELAWARE STATUTE" means the Delaware General Corporation Law.
"DIVISION" means the Nevada Financial Institutions Division,
Department of Business and Industry.
"EFFECTIVE TIME" means the date on which the Mergers have become
effective under Delaware and Nevada law.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
<PAGE>
-4-
"EXCHANGE AGENT" means First Security Bank, N.A. or such other
national bank designated by FSC to perform the duties of exchange
agent provided for in the Merger Agreement.
"FDIC" means the Federal Deposit Insurance Corporation.
"FEDERAL RESERVE BOARD" means the Board of Governors of the Federal
Reserve System.
"FSB" means First Security Bank of Nevada.
"FSB COMMON STOCK" means the common stock of FSB.
"FSC" means First Security Corporation.
"FSC COMMON STOCK" (or sometimes "Common Stock" used alone) means
shares of common stock, $1.25 par value per share, of FSC.
"IRS" means Internal Revenue Service.
"MERGERS" means the Bancorp-FSC Merger and the ABC-FSB Merger, when
referred to together.
"MERGER AGREEMENT" means the Agreement and Plan of Reorganization
dated as of March 17, 1997, among FSC, Bancorp, FSB and ABC.
"NASDAQ NATIONAL MARKET SYSTEM" means the National Market System of
the National Association of Securities Dealers Automatic Quotation
System.
"NEVADA STATUTE" means the Nevada General Corporation Law, consisting
of Sections 78.010 ET SEQ. of the Nevada Revised Statutes, as amended.
"NONPERFORMING ASSETS" means the total of nonaccruing and renegotiated
loans plus Other Real Estate (ORE).
"OTHER BANCORP SUBSIDIARIES" means AmBank Financial, Inc. and AmBank
Mortgage Company, both Nevada corporations which are wholly-owned
subsidiaries of Bancorp.
"RECORD DATE" means the close of business on April 30, 1997, the date
set by the Board of Directors of Bancorp to determine the Bancorp
Shareholders who are entitled to notice of and to vote at the
Shareholders' Meeting.
<PAGE>
-5-
"REGISTRATION STATEMENT" means the registration statement of FSC on
Form S-4 filed with the Securities and Exchange Commission under the
Securities Act with respect to 3,600,000 shares of the FSC Common Stock
possibly issuable pursuant to the Merger Agreement.
"RIGHT" means right to acquire a new class of stock of FSC under
certain circumstances involving the acquisition of certain amounts of
FSC shares by a third party. (SEE "INFORMATION ABOUT FSC--Description
of FSC's Capital Stock.")
"SARS" mean the stock appreciation rights previously granted by
Bancorp.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"SHAREHOLDERS" or "BANCORP SHAREHOLDERS," when used without other
identification to a particular entity, refers to the holders of shares
of Bancorp Common Stock.
"SHAREHOLDERS' MEETING" means the meeting of the Bancorp Shareholders
that will be held (a) to elect a Board of Directors and (b) to
consider and vote upon the Merger Agreement.
<PAGE>
-6-
PROSPECTUS SUMMARY
The following is a summary of certain significant information contained
in this Prospectus/Proxy Statement or in documents incorporated herein by
reference. This summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus/Proxy Statement, the
Appendices hereto, and the documents incorporated herein by reference.
Shareholders are urged to read carefully this Prospectus/Proxy Statement and
the attached Appendices in their entirety.
<TABLE>
<S> <C>
FSC FSC is a regional bank holding company headquartered in Salt Lake
City, Utah. FSC owns and operates five banks, with offices in
the 6 Western States of Idaho, New Mexico, Nevada, Oregon, Utah
and Wyoming, and several other financial services companies, some
having a national presence. Through its subsidiaries, FSC
provides commercial and agricultural finance, consumer banking,
trust, capital markets, treasury management, investment
management, data processing, leasing and securities brokerage
services. At December 31, 1996, FSC and its consolidated
subsidiaries had consolidated assets of $14.7 billion,
consolidated deposits of $9.4 billion and shareholders' equity of
$1.1 billion. FSC has paid a regular dividend on its Common
Stock since its incorporation in 1928. (SEE "INFORMATION ABOUT FSC.")
FSC's principal executive offices are located at 79 South Main
Street, Salt Lake City, Utah 84111, and its telephone number is
(801) 246-6000.
BUSINESS OF FSB FSB is a state chartered bank doing business through 8 branches
in Clark County, Nevada. Its main office is located at 530 Las
Vegas Blvd., Las Vegas, Nevada 89101. Its telephone number is
(702) 251-1100.
BUSINESS OF Bancorp is a Nevada corporation and a Federal Reserve Board-regulated
BANCORP bank holding company, and is the holder of all of the outstanding
stock of ABC. Bancorp also owns all of the outstanding stock of
AmBank Financial, Inc. and AmBank Mortgage Company (collectively,
the "Other Bancorp Subsidiaries"), the business of both of which has been
substantially curtailed at this time. It is the intent of the parties to
the Merger Agreement that the Other Bancorp Subsidiaries be combined with
and into Bancorp prior to the Effective Time. Bancorp's sole business is
that of a holding company for ABC and the Other Bancorp Subsidiaries.
BUSINESS OF ABC ABC is a state-chartered commercial bank with assets of approximately
$318 million at December 31, 1996, doing business from its head
office and through four branch offices located in Clark County, Nevada.
It is headquartered at 4425 Spring Mountain Road, Las Vegas,
Nevada 89102. Its telephone number is (702) 362-7222.
<PAGE>
-7-
PURPOSE OF The Shareholders' Meeting will be held on June __, 1997, at 10:00 a.m.
SHAREHOLDERS' Las Vegas Time at ____________, Las Vegas, Nevada, for the purposes of asking
MEETING the Bancorp Shareholders to (a) elect a Board of Directors for the coming
year and (b) to approve the Merger Agreement. If the Merger Agreement is
approved and the Mergers are consummated, the new Directors of Bancorp will
resign prior to the Effective Time. If the Merger Agreement is not approved,
or if it fails to close and is terminated, the newly elected Board of Directors
will govern Bancorp until the next annual meeting of Bancorp Shareholders.
(SEE "The Mergers," below.) Bancorp is the sole shareholder of
ABC, and Bancorp has agreed to vote the shares of ABC in favor of
the ABC-FSB Merger. Under applicable law, the shareholders of FSC are
not entitled to vote on the Bancorp-FSC Merger. FSC, as the sole
shareholder of FSB, has agreed to vote the shares of FSB in favor of
the ABC-FSB Merger. (SEE "THE Shareholders' Meeting--General.")
THE NOMINEES All members of the current Bancorp Board of Directors are
FOR BANCORP'S renominated for election as Directors at the Shareholders' Meeting.
BOARD OF DIRECTORS The ten (10) nominees receiving the largest vote totals at the
Shareholders' Meeting will be elected the Bancorp Board of
Directors. The new Directors will serve until the next annual
meeting of Bancorp Shareholders; provided, however, that if the
proposed Merger Agreement is approved by the Bancorp Shareholders
and is otherwise consummated, the Directors of Bancorp will
resign in connection with the Closing of the Merger Agreement.
THE MERGER By resolutions of their Boards of Directors, FSC, FSB, Bancorp and
AGREEMENT ABC have agreed pursuant to an Agreement and Plan of Reorganization
dated as of March 17, 1997 (the "Merger Agreement") that ABC will
merge with and into FSB (the "ABC-FSB Merger"); and that Bancorp
will merge with and into FSC if such is approved by the shareholders
of Bancorp (the "Bancorp-FSC Merger"). (Hereinafter the ABC-FSB
Merger and the Bancorp-FSC Merger may be jointly referred to as
"the Mergers".) As a result of the Mergers, all shares of Bancorp
Common Stock will be exchanged for shares of FSC Common Stock.
<PAGE>
-8-
EFFECT OF THE The Merger Agreement provides for a cancellation of all ABC shares,
MERGERS ON and the conversion of each share of Bancorp Common Stock
BANCORP; (including all shares issuable upon the exercise of outstanding
EXCHANGE options) into 0.945 share of FSC Common Stock (subject to possible
OF SHARES adjustment as described below) ("the Conversion Ratio"). (The Merger
Agreement provides for a 0.63 ratio, but the intervening 3 for 2 stock split
announced by FSC for May 15, 1997 has the effect of changing the ratio to 0.945
(See "The Mergers--Opinion of Financial Advisor")). There were 3,722,247 shares
of Bancorp Common Stock and options to acquire another 211,831 shares outstanding
as of April 30, 1997. Assuming that Closing took place on May__, 1997 (and
using the actual Average Closing Price as of that date of $______ per FSC
share), each share of Bancorp Common Stock (including those
issuable upon exercise of options) would be converted into 0.945
share of FSC Common Stock.
The Conversion Ratio, and ultimately the number of shares of FSC
Common Stock to be received by Bancorp Shareholders, will be
adjusted upward or downward if the average of the daily closing
prices of a share of FSC Common Stock as quoted on the NASDAQ
National Market System for the fifteen (15) consecutive trading
days ending on the date immediately preceding the Closing Date
("the Average Share Price") is greater than $26.00 or less than
$22.00, provided that in no event shall the Conversion Ratio be
less than 0.90 of a FSC share or greater than 0.99 of a FSC share.
The Conversion Ratio will also be adjusted to reflect any stock
dividends, subdivisions, split ups, reclassifications or
combinations of FSC Common Stock prior to the Effective Time.
IT IS IMPOSSIBLE TO PREDICT THE FINAL CONVERSION RATIO WITH
CERTAINTY BECAUSE OF THE POTENTIAL FOR CHANGES IN THE APPLICABLE
CLOSING PRICE FOR SHARES OF FSC COMMON STOCK. (SEE "THE
MERGERS--Consideration to be Received by Shareholders.")
Each share of FSC Common Stock received by Bancorp Shareholders
will have an attached Right, which Right is part of a
shareholder-rights plan adopted by FSC in 1989. The Rights give
holders the opportunity to purchase additional equity interests
in FSC at a significant discount under certain circumstances.
(SEE "INFORMATION ABOUT FSC--Description of FSC's Capital Stock.")
All 230,963 stock appreciation rights previously issued by
Bancorp (the "SARs"), will be cashed out by Bancorp prior to the
Effective Time.
<PAGE>
-9-
No fractional shares of FSC Common Stock will be issued; instead,
a cash payment will be made for fractional shares determined by
the average of the high and low sale prices for FSC Common Stock
quoted on the NASDAQ National Market System on the last business
day prior to the Effective Time.
The terms of the Mergers were negotiated at arm's length, and
have been deemed to be fair by the directors of the merging
corporations. Bancorp has retained The Findley Group ("Findley")
as its independent financial adviser to render an opinion on the
fairness of the Bancorp-FSC Merger to Bancorp Shareholders. The
form of the Findley Opinion is attached to this Prospectus /
Proxy Statement as Appendix C.
ABC and Bancorp are both Nevada corporations. As a result of the
Mergers, Bancorp Shareholders will become shareholders of FSC, a
Delaware corporation. The laws governing the rights of
shareholders differ between Nevada and Delaware. (SEE "THE
MERGER AGREEMENT--Consideration to Be Received by Shareholders,"
"INFORMATION ABOUT FSC--Description of FSC Common Stock"; and
"COMPARATIVE RIGHTS OF SHAREHOLDERS.")
<PAGE>
-10-
FSC COMMON The shares of FSC Common Stock to be issued in connection with the
STOCK Mergers will be entitled along with all other outstanding shares
of FSC Common Stock to receive dividends when, as and if declared
by the Board of Directors of FSC. Holders of FSC Common Stock
are entitled to one vote for each share held. The holders of FSC
Common Stock do not have any preemptive rights to subscribe for
additional shares of FSC should FSC decide to issue additional
shares in the future. (SEE "INFORMATION ABOUT FSC--Description
of FSC Common Stock.")
RECOMMENDATION THE BOARD OF DIRECTORS OF BANCORP RECOMMEND
OF BANCORP'S THAT THE SHAREHOLDERS VOTE FOR THE DIRECTOR
BOARD NOMINEES AND FOR APPROVAL OF THE MERGER AGREEMENT.
PERSONS ENTITLED The Bancorp Board of Directors has determined that Bancorp
TO VOTE AT THE Shareholders as of the close of business on April 30, 1997 are
SHAREHOLDERS entitled to notice of and to vote at the Shareholders' Meeting in
MEETING connection with the Mergers.
TIME AND PLACE The Bancorp Shareholders will meet on June ___, 1997,
OF SHAREHOLDERS' at ______________________, Las Vegas, Nevada, at 10:00 a.m.
MEETING for the purpose of holding the Shareholders' Meeting.
REVOCABILITY OF Bancorp Shareholders may designate and instruct proxies to vote on
PROXIES their behalf at the Shareholders' Meeting. Delivered together with
this Prospectus/Proxy Statement is a Proxy Card which may be used to
designate and instruct the proxy holders to vote at the Shareholders'
Meeting, whether or not a Shareholder plans to attend the Shareholders'
Meeting in person. Any Bancorp Shareholder who has designated and
given a proxy instruction may revoke it at any time prior to its
exercise at the Shareholders' Meeting either by revoking it in writing
sent to the Secretary of Bancorp prior to the Shareholders' Meeting,
by duly executing and delivering a new and different proxy card
bearing a later date; or by appearing at such Shareholders' Meeting
and, by addressing the chair of the Meeting, (a) orally revoking such
proxy and (b) voting contrary to such proxy in person when the call
for voting on the Election of Directors and/or on the Merger Agreement
occurs at the Shareholders' Meeting. The mere presence at the
Shareholders' Meeting of a person who has previously designated and
instructed a proxy will not revoke such designation and instruction.
</TABLE>
<PAGE>
-11-
QUORUM The presence, either in person or by proxy, of the holders
of more than fifty percent (50%) of the outstanding shares
of Bancorp Common Stock entitled to vote at the
Shareholders' Meeting is necessary to constitute a quorum
at the Shareholders' Meeting.
VOTE REQUIRED The affirmative vote of at least a majority (more than 50%)
of the issued and outstanding shares of Bancorp Common
Stock is required to approve the Merger Agreement. Bancorp
holds all of ABC's Common Stock, and has indicated that it
will vote those shares in favor of the Merger Agreement.
FSC owns all of the outstanding common stock of FSB, and
has indicated that it will vote those shares in favor of
the Merger Agreement. Under Delaware law, the shareholders
of FSC are not entitled to vote on the Merger Agreement.
CLOSING DATE AND It is currently expected that Closing of the Merger
EFFECTIVE TIME; Agreement will be on or before June 30, 1997, once all
CONDITIONS TO THE of the necessary conditions precedent, including but not
MERGER AGREEMENT limited to the following, occur:
(i) the obtaining of the consent of all
government regulatory authorities whose consent is
legally required to consummate the Mergers, and
the expiration of all associated statutory waiting
periods;
(ii) the requisite shareholder approval of
the Merger Agreement;
(iii) the delivery of required opinions of
counsel and financial advisors, and required letters
from Certified Public Accountants; and
(iv) the performance of certain covenants
agreed among the parties to the Merger Agreement,
including but not limited to maintenance of agreed
net worth levels and limitations on dividends and
other corporate actions by ABC and Bancorp pending
the vote on the Mergers (SEE Merger Agreement,
Appendix A).
The parties may agree on another date (in any such case,
the "Closing Date").
The Effective Time of the ABC-FSB Merger will be the close
of business on the date the Nevada Financial Institutions
Division (the "Division")
<PAGE>
-12-
deems the ABC-FSB merger to be effective under Nevada law,
or such later time as the parties may agree; and the
Bancorp-FSC Merger will be effective upon the filing of the
Articles of Merger with the appropriate Delaware and Nevada
government authorities. (SEE "THE MERGERS--Conditions to
the Mergers.")
REGULATORY The ABC-FSB Merger is subject to approval by the Federal
APPROVALS Reserve Board and by the Division. Both the Federal Reserve
Board and the Division are still reviewing the ABC-FSB
Merger as of the date of this Prospectus/Proxy Statement.
Neither FSC nor Bancorp knows of any reason why the ABC-FSB
Merger will not be approved by the Federal Reserve Board
or the Division in time to effect the Closing; however,
there can be no assurances as to when, if or with what
conditions such approvals will be granted. The
Bancorp-FSC Merger also is subject to approval by the
Federal Reserve Board.
There also can be no assurance that the U.S. Department of
Justice will not challenge the Mergers on antitrust
grounds, or if such a challenge is made, as to the result
thereof. Filings necessary to start the Justice Department
review period were filed on May__, 1997, and the
period for review will expire on June__, 1997.
AN APPROVAL BY THE FEDERAL RESERVE BOARD REFLECTS ONLY THE
VIEW THAT THE MERGERS DO NOT CONTRAVENE APPLICABLE
COMPETITIVE STANDARDS IMPOSED BY LAW, AND THAT THE MERGERS
ARE CONSISTENT WITH REGULATORY POLICIES RELATING TO SAFETY
AND SOUNDNESS; AN APPROVAL BY THE FEDEaRAL RESERVE BOARD IS
NOT AN OPINION BY THE FEDERAL RESERVE BOARD THAT THE
MERGERS ARE FAVORABLE TO THE SHAREHOLDERS FROM A FINANCIAL
POINT OF VIEW OR THAT THE FEDERAL RESERVE BOARD HAS
CONSIDERED THE ADEQUACY OF THE TERMS OF THE MERGERS; AND
AN APPROVAL BY THE FEDERAL RESERVE BOARD IS NOT AN
ENDORSEMENT OR RECOMMENDATION OF THE MERGERS.
(SEE "THE MERGERS--Regulatory Approvals," "--Conditions
to the Mergers," and "--Termination of the Merger
Agreement.")
<PAGE>
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TERMINATION OR The Merger Agreement may be amended after approvals by the
AMENDMENT OF Shareholders only in nonmaterial ways by the Boards of
MERGER AGREEMENT Directors of the parties. "Nonmaterial" amendments would
not include changes to the share exchange ratio, tax
consequences, or methods of accounting for the Mergers.
The Merger Agreement may be terminated at any time prior
to the Effective Time by the mutual consent of ABC, FSB,
Bancorp and FSC, OR by either Bancorp or FSC at any time
after December 17, 1997, if Closing has not yet occurred,
OR at any time prior to Closing by either FSC or Bancorp
if any warranty or covenant of the other party is breached
and remains uncured for more than 30 days, OR by FSC if
less than a majority of the shares of Bancorp Common
Stock approve the Bancorp-FSC Merger or if the Mergers are
not approved by any required governmental authority.
NO SOLICITATION Bancorp and ABC have agreed in the Merger Agreement that
neither they nor any of their agents or employees, directly
or indirectly, will initiate, solicit or encourage any
inquiries or the making of any proposal or offer for,
furnish any confidential information relating to, or engage
in any negotiations or discussions concerning, any
acquisition or purchase of Bancorp or ABC.
MANAGEMENT OF Following the Mergers, Bancorp and ABC will cease to exist,
ABC AFTER THE and the current offices of ABC will be closed or operated
ABC-FSB MERGER as branches of FSB. All decisions as to the future
operation of ABC's branch offices following the Mergers,
and all personnel action with regard to current ABC
employees managing and/or employed at such branch offices,
will be in the sole discretion of FSB under current
management policies and employment programs of FSB.
INTERESTS OF As of the Record Date, the directors and executive officers
CERTAIN PERSONS of Bancorp, and certain persons affiliated with them, as a
IN THE MERGERS group, beneficially held approximately thirty-seven
percent (37%) of the outstanding shares of Bancorp
Common Stock entitled to vote at the Shareholders' Meeting,
and have indicated their intention to vote FOR the Merger.
Shareholders representing approximately thirty-six
percent (36%) of the outstanding common stock of Bancorp
(including all of the Directors of ABC and Bancorp)
have executed Shareholder Voting Agreements with FSC and
FSB pursuant to which such Shareholders have agreed to vote
their respective shares of Bancorp Common Stock in favor of
the Mergers.
<PAGE>
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All of Bancorp's directors and executive officers own
shares of Bancorp Common Stock which will be converted in
the Merger on the same terms and conditions as apply to all
other shares of Bancorp Common Stock. None of these
directors and executive officers have agreements for
additional compensation or any other rights which become
effective upon a change in control. However, certain
executive officers and directors of Bancorp will have
interests in the Mergers (in addition to their interests as
Bancorp Shareholders generally), including employment
agreements and, in one case, a covenant not to compete.
(SEE "THE MERGERS--Interests of Certain Persons in the
Merger.")
Current retirement and health insurance plans available to
employees of ABC will terminate as of the Effective Time of
the ABC-FSB Merger, if not before. Some employees of ABC
may be hired as employees of FSB following the Mergers, and
those employees of ABC who are hired as employees of FSB
will be subject to existing employee plans and plan
requirements of FSB. FSC has agreed to provide employees of
ABC who are employed by FSB or an affiliate thereof with
employee benefits on substantially the same basis and
applying the same eligibility standards as other FSC
subsidiary employees. (SEE "THE MERGERS--Interests of
Certain Persons in the Mergers"; "--Effect of Mergers on
ABC Employee Benefit Plans.")
FEDERAL Ray Quinney & Nebeker, special tax counsel to FSC have
INCOME TAX rendered an opinion with respect to certain federal income
CONSEQUENCES tax consequences of the Mergers. In summary, the opinion
is to the effect that, for federal income tax purposes,
the Mergers will constitute nontaxable reorganizations and
that no gain or loss will be recognized by Shareholders
who exchange all of their Bancorp Common Stock solely for
FSC Common Stock. Gain or loss will be recognized to
holders of Bancorp Common Stock who receive cash in lieu
of fractional share interests pursuant to the Mergers. The
amount of the gain or loss will be the difference between
the cash received and the basis of the fractional share
interests surrendered in exchange for the cash. The
opinion is based on certain assumptions and
representations. BANCORP SHAREHOLDERS SHOULD CONSULT WITH
THEIR OWN TAX ADVISERS REGARDING THE TAX CONSEQUENCES OF
THE MERGERS IN LIGHT OF THEIR OWN TAX SITUATIONS. (SEE
"FEDERAL INCOME TAX CONSEQUENCES.")
DISSENTERS' RIGHTS Bancorp Shareholders who vote against the Merger Agreement
are not entitled to dissenters' rights under the Nevada
General Corporation Law, as amended (the "Nevada Statute").
Under the theory of the Nevada Statute, such dissenting
Bancorp Shareholders have a ready remedy in their ability
to sell their shares of Bancorp Common Stock into the
market
<PAGE>
-15-
and receive cash at the prevailing fair market value for
shares of Bancorp Common Stock.
MARKET PRICE Shares of FSC Common Stock are traded on the NASDAQ
COMPARISON National Market System. The closing sale price of FSC
Common Stock on the NASDAQ National Market System was
$34.375 per share on March 14, 1997, the last trading
day prior to the public announcement of the execution
of the Merger Agreement; and $34.875 per share on the
Record Date. (These share prices, if adjusted for the
FSC Common Stock split effective on May 15, 1997, would
have been approximately $22.916 and $23.25, respectively.)
Shares of Bancorp Common Stock are also traded on the
NASDAQ National Market System. The closing sale price of
Bancorp Common Stock on the NASDAQ National Market System
was $20.00 per share on March 14, 1997, the last trading
day prior to the public announcement of the execution of
the Merger Agreement; and $19.00 per share on the Record
Date.
<PAGE>
-16-
THE SHAREHOLDERS' MEETING
GENERAL
This Prospectus/Proxy Statement is being furnished to Bancorp
Shareholders in connection with the solicitation of proxies by the Board
of Directors of Bancorp and to be voted at the Shareholders' Meeting to be
held at __________________________________, Las Vegas, Nevada, at 10:00 a.m.
local time on June, 1997, and at any adjournments thereof (the "Shareholders'
Meeting"). Each Bancorp Shareholder is entitled to one vote for each share
of Bancorp Common Stock held as of the Record Date. The purposes of the
Shareholders' Meeting are (a) to elect a Board of Directors to govern Bancorp
for the coming year, and (b) to consider and to act upon the Merger Agreement
and the transactions contemplated therein and such other matters as may
properly be brought before the meeting. Bancorp does not have knowledge of
any other matters to be presented at the Shareholders' Meeting. If the Merger
Agreement is approved and consummated, the new Bancorp Directors will resign
prior to the Effective Time. If the Merger Agreement is not approved at the
Shareholders' Meeting, or if it otherwise fails to close and is terminated,
then the newly elected Bancorp Board of Directors will govern Bancorp until
the next annual meeting of Bancorp Shareholders.
The date on which this Prospectus/Proxy Statement is first being sent to
Bancorp Shareholders is on or about _____________, 1997.
PERSONS ENTITLED TO VOTE AT THE SHAREHOLDERS' MEETING; PROXY VOTING; BROKER NON-
VOTES
There were issued and outstanding 3,722,247 shares of Bancorp Common
Stock on April 30, 1997, the "Record Date" and 211,831 additional shares covered
by stock options that are exercisable within 60 days of the Record Date. On
any matter submitted to the vote of the Bancorp Shareholders, each holder of
Bancorp Common Stock will be entitled to one vote, in person or by Proxy, for
each share of Common Stock he or she held of record as of the Record Date.
The effect of broker nonvotes is that such votes are not counted as being
voted; however such votes are counted for purposes of determining a quorum.
The effect of a vote of abstention on any matter is that such vote is not
counted as a vote for or against the matter, but is counted as an abstention.
Shares represented at the Shareholders' Meeting by properly executed and
completed proxies will, unless such proxies have been previously revoked, be
voted in accordance with such instructions. If no instructions are indicated
on signed and delivered proxies, such shares will be voted FOR the ten (10)
nominees for Directors and FOR the Merger Agreement. If any other matters are
properly presented at the Shareholders' Meeting for action, the persons named
in the proxies will have discretion to vote on such matters in accordance
with their best judgment.
Any Bancorp Shareholder who has designated and instructed a proxy may
revoke it at any time prior to its exercise at the Shareholders' Meeting
either by filing an instrument revoking it with the Secretary of Bancorp
prior to the Shareholders' Meeting, by duly executing a new and different
proxy card bearing a later date; or by appearing in person at the
Shareholders' Meeting and, by addressing the chair of the Meeting, (a) orally
revoking an earlier
<PAGE>
-17-
proxy card, and (b) voting contrary to the earlier proxy card in person at
the time that votes on the Mergers are called for at the Shareholders'
Meeting. The mere presence at the Shareholders' Meeting of a person who has
designated and instructed a proxy will not revoke such designation and
instruction.
QUORUM
The presence, either in person or by properly designated and instructed
proxies, of the holders of a majority (more than 50%) of the outstanding
shares of Bancorp Common Stock entitled to vote at the Shareholders' Meeting
is necessary to constitute a quorum at the Shareholders' Meeting.
VOTES REQUIRED
For election of Directors, the ten (10) nominees receiving the largest
number of votes in their favor will be elected as the Board of Directors for
Bancorp for the coming year and until the next Bancorp annual shareholders
meeting.
Under the Merger Agreement, the affirmative vote of the holders of a
majority (anything over 50%) of the outstanding shares of Bancorp Common
Stock is required to approve the Bancorp-FSC Merger. Each Bancorp
Shareholder is entitled to one vote at the Shareholders' Meeting for each
share of Bancorp Common Stock held of record by him or her on the Record
Date. Directors and officers of Bancorp and certain persons affiliated with
them, holding approximately 36% of the outstanding shares of Bancorp Common
Stock have indicated their intention to vote such shares IN FAVOR of the
Merger. Under Delaware law, the Bancorp-FSC Merger does not require a vote
by the holders of FSC Common Stock.
The holders of a majority (anything over 50%) of the outstanding shares
of ABC and FSB must approve the ABC-FSB Merger. FSC holds all of the
outstanding FSB Common Stock, and will vote in favor of the ABC-FSB Merger,
thus insuring the needed approval of FSB's Shareholders. Bancorp holds all
of ABC's Common Stock, has executed and delivered the Merger Agreement, and
will cause ABC to approve the ABC-FSB Merger.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Bancorp knows of no person who owns, beneficially or of record either
individually or together with associates, 5% or more of the outstanding
shares of Bancorp Common Stock, except as set forth in the table below. The
following table sets forth, as of March 1, 1997, the number and percentage of
shares of Bancorp Common Stock beneficially owned, directly or indirectly, by
each of Bancorp's Directors and named executive officers and by the Directors
and named executive officers of Bancorp as a group. The shares "beneficially
owned' are determined under Securities and Exchange Commission rules, and do
not necessarily indicate ownership for any other purpose. In general,
beneficial ownership includes shares over which a Director, principal
shareholder or named executive officer has sole or shared voting or
investment power and shares which such person has the right to acquire within
60 days of April 30, 1997. Unless otherwise indicated, the persons listed
below have sole voting and investment
<PAGE>
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powers. Bancorp is not aware of any arrangements which may, at a subsequent
date, result in a change of control of Bancorp other than through the
proposed Merger Agreement.
Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class(1)
- ---------------- -------------------- -----------
Directors and Named Executive Officers:
- ---------------------------------------
James V. Bradham 123,694(2) 3.3%
Vern J. Christensen 69,300(3)(4) 1.9%
Elias F. Ghanem, M.D. 69,513(3)(5) 1.9%
Nasser F. Ghanem 250,520(3)(6) 6.7%
Bruce E. Hendricks 23,603(7) *
Joel A. Laub 9,620(8) *
Betty Lou Lehman 347,168(3)(9) 9.3%
Darrell A. Luery 9,582(10) *
Edward D. Smith 97,433(3) 2.6%
Claudine B. Williams 406,310(3)(11) 10.9%
Patricia L. Kirkwood 12,466(12) *
Robert E. Olson 57,439(13) 1.5%
Robert J. Sistek 14,452(14) *
All Directors and Named Executive
Officers as a Group (numbering 13) 1,491,100 39.0%
- --------------
* Less than one percent.
(1) Includes shares subject to options held by each Director and the
Directors and officers as a group that are exercisable within 60 days of
April 30, 1997. These are treated as issued and outstanding for the purpose
of computing the percentage of each Director and the Directors and officers
as a group but not for the purpose of computing the percentage of class of
any other person.
(2) Mr. Bradham has 5,583 shares acquirable by exercise of stock options.
(3) Total includes 12,117 shares acquirable by exercise of stock options.
(4) Mr. Christensen has shared voting and investment powers as to 11,167 of
these shares.
(5) Dr. E. Ghanem has shared voting and investment powers as to 51,129 of
these shares.
(6) Mr. N. Ghanem's address is c/o American Bancorp of Nevada, 4425 Spring
Mountain Road, Las Vegas, Nevada 89102.
(7) Mr. Hendricks has shared voting and investment powers as to 13,319 of
these shares.
(8) Mr. Laub has shared voting and investment powers as to 6,170 of these
shares and has 3,450 shares acquirable by exercise of stock options.
(9) Ms. Lehman has shared voting and investment powers as to 308,651 of
these shares. Ms. Lehman's address is c/o American Bancorp of Nevada, 4425
Spring Mountain Road, Las Vegas, Nevada 89102.
(10) Mr. Luery has shared voting and investment powers as to 6,132 of these
shares and has 3,450 shares acquirable by exercise of stock options.
(11) Ms. Williams has shared voting and investment powers as to 394,193 of
these shares. Ms. Williams' address is c/o American Bancorp of Nevada, 4425
Spring Mountain Road, Las Vegas, Nevada 89102.
(12) Ms. Kirkwood has 4,320 shares acquirable by exercise of stock options.
(13) Mr. Olson has shared voting and investment powers as to 52,719 of these
shares and has 4,720 shares acquirable by exercise of stock options.
(14) Mr. Sistek has 7,387 shares acquirable by exercise of stock options.
<PAGE>
-19-
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Bancorp's
Directors and certain executive officers and persons who own more than ten
percent of a registered class of Bancorp's equity securities (collectively,
the "Reporting Persons"), to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. The Reporting Persons
are required by Securities and Exchange Commission regulation to furnish
Bancorp with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from the Reporting Persons that no Forms 5 were
required for those persons, Bancorp believes that, during 1996 the Reporting
Persons complied with all filing requirements applicable to them.
PROXY SOLICITATION
Proxies are being solicited by and on behalf of the Board of Directors
of Bancorp through the use of this Prospectus/Proxy Statement. Pursuant to
the Merger Agreement, each party will bear its own costs in connection with
preparing this Prospectus/Proxy Statement and mailing and Shareholders'
Meeting expenses.
In addition to solicitation by use of the mails, proxies may be
solicited by directors, officers and employees of Bancorp in person or by
telephone, telegram or other means of communication. Such directors,
officers and employees will not be additionally compensated for such
activities, but may be reimbursed for out-of-pocket expenses in connection
with such solicitation. As necessary, arrangements will be made with banks,
custodians, nominees and fiduciaries for the forwarding of proxy solicitation
material to beneficial owners of Bancorp Common Stock held of record by such
persons, and in connection therewith such firms will be reimbursed for
reasonable expenses in forwarding such materials.
BANCORP SHAREHOLDERS VOTING FOR THE MERGER AGREEMENT SHOULD NOT SEND
THEIR BANCORP STOCK CERTIFICATES WITH THEIR PROXIES.
PROPOSAL NUMBER ONE: ELECTION OF DIRECTORS
NOMINEES
Bancorp's Bylaws presently provide that the number of Directors shall
not be less than six (6) nor more than twelve (12). The Bylaws further
provide that the exact number of Directors shall be ten (10) until changed by
the affirmative vote of a majority of the Board.
The persons named below, all of whom are currently members of the
Bancorp Board, have been nominated for election as Directors to serve until
the 1998 Annual Meeting of Shareholders and until their successors are
elected and have qualified. If the Merger Agreement is approved and
consummated, these Directors will resign prior to the Effective Time. Unless
otherwise instructed, proxyholders will vote the Proxies received by them for
the election of the nominees named below. Votes will be cast by the
proxyholders in such a way
<PAGE>
-20-
to effect, if possible, the election of the nominees named below. The ten
nominees for directors receiving the most votes will be elected Directors. In
the event that any of the nominees should be unable to serve as a Director,
it is intended that the Proxy will be voted for the election of such
substitute nominee, if any, as shall be designated by the Board. The Board
has no reason to believe that any of the nominees named below will be unable
to serve if elected. Additional nominations for Directors may only be made by
complying with the nomination procedures which are included in the Notice of
Annual Meeting of Shareholders accompanying this Prospectus / Proxy Statement.
The following table sets forth as of April 30, 1997, the names of, and
certain information concerning, the persons nominated by the Board for election
as Directors of Bancorp.
<TABLE>
<CAPTION>
YEAR FIRST PRINCIPAL
NAME AND TITLE APPOINTED OCCUPATION DURING THE
OTHER THAN DIRECTOR AGE DIRECTOR PAST FIVE YEARS
- ----------------------------- ----- --------------- -------------------------------------------------
<S> <C> <C> <C>
James V. Bradham 56 1982 Vice Chairman and Chief Executive Officer of Bancorp
Vice Chairman and and ABC since October 1996 and former President and
Chief Executive Officer Chief Executive Officer of Bancorp and of ABC.
Vern J. Christensen 72 1982 Director and President of Nevada Recycling Corporation
and President of Quality Towing, Inc.
Elias F. Ghanem, M.D. 58 1982 Physician and Chief Executive Officer of Prime Health
Group of Companies.
Nasser F. Ghanem 55 1982 President of Empire Travel & Tours, President of
Empire Money Exchange, President of Universal Life
and private investor.
Bruce E. Hendricks 46 1996 President and Chief Operating Officer of Bancorp and
President and Chief Operating ABC since October 1996 and former Senior Executive
Officer Vice President and Chief Operating Officer of Bancorp
and ABC from June 1996 through October 1996. Prior
to that time, he was President of Sheridan State Bank, a
Wyoming State Bank.
Joel A. Laub 44 1993 President of Joel Laub & Associates, President of
Astoria Homes, LLC and former Secretary/ Treasurer of
Pageantry Homes.
Betty Lou Lehman 68 1989 Marriage and family therapist in private practice.
Darrell A. Luery 56 1994 President and Chief Operating Officer of Bally's Grand,
Inc.
Edward D. Smith 59 1982 Member of the Board of Directors of Sun Pacific
Secretary Farming & Shippers, Secretary of Nevada Recycling
Corporation, Director of Quality Towing, Inc. and
President of Southwest Consultants Ltd.
Claudine B. Williams 76 1982 Chairman of the Bancorp Board and Chairman of the
Chairman of the Board ABC Board. Chairman of the Board of Harrah's Las
Vegas and member of the Board of Directors of
International Game Technology.
</TABLE>
<PAGE>
-21-
All of the nominees named above have served as members of Bancorp's
Board during the past year. All nominees will continue to serve if elected
at the Meeting until the 1998 Annual Meeting of Shareholders and until their
successors are elected and have qualified. None of the Director nominees
were selected pursuant to any arrangement or understanding other than with
the Directors and Management of Bancorp acting within their capacities as
such. There are no family relationships among any of the Directors and
executive officers of Bancorp, other than Dr. Elias Ghanem and Mr. Nasser
Ghanem, who are brothers. No Director or executive officer of Bancorp, other
than Ms. Williams, who serves as a Director of International Game Technology,
Mr. Luery who serves as a Director of Bally's Grand, Inc., and Dr. E. Ghanem
who serves as a Director of Continue Care, serves as a director of any
company besides Bancorp which has a class of securities registered under, or
which is subject to the periodic reporting requirements of, the Securities
Exchange Act of 1934, or of any company registered as an investment company
under the Investment Company Act of 1940.
THE BOARD OF DIRECTORS AND COMMITTEES
Bancorp's Board of Directors held four (4) meetings during 1996. None
of the Directors attended less than 75 percent of all Board meetings and
committee meetings (of which they were a member) that were held in 1996.
There were no standing committees of Bancorp's Board. In 1996 ABC had
a standing Audit Committee and Compensation Committee. ABC's Audit Committee,
which consisted of Messrs. Christensen (chairman), and N. Ghanem and Ms.
Williams, met four (4) times during 1996. ABC's Compensation Committee did not
meet in 1996.
<PAGE>
-22-
COMPENSATION OF DIRECTORS
CASH FEES
Bancorp's Directors do not receive compensation from Bancorp, however
during 1996, the Directors, other than Messrs. Bradham and Hendricks,
received a fee of $1,000 per month for attendance at ABC's board of directors
meetings and $500 for each of ABC's committee meetings attended. In 1997,
ABC's Directors will receive the same compensation for attendance at ABC's
board of directors meetings and committee meetings as that received during
1996. Additionally, during 1996 each Director, other than Messrs. Bradham
and Hendricks, received a $10,000 retainer. In 1997, each Director, other
than Messrs. Bradham and Hendricks will receive a $10,000 retainer, which
will be paid semi-annually during their term as Directors.
STOCK OPTIONS AND STOCK APPRECTIATION REQUESTS
Over the last several years, Directors of Bancorp have been granted stock
options or stock appreciation rights as described in the following two
paragraphs. Note that all prices and numbers of shares are as of the grant
date, and do not reflect adjustments due to stock dividends and stock splits.
In December, 1992, each Bancorp Director, other than Messrs. Bradham,
Hendricks, Laub and Luery, received a stock option under Bancorp's 1989 Stock
Option Plan to acquire 6,500 shares of Bancorp Common Stock. The exercise
price for these shares for each Director, other than Ms. Williams, was $9.25
per share and for Ms. Williams was $10.17 per share. The options are for a
term of five years expiring in December, 1997. The vesting of the Director
options is 20% of the total option amount per year with the first 20% amount
having vested in December, 1992. In April, 1995, each Bancorp Director,
other than Mr. Hendricks, received a stock option under the Bancorp 1995
Stock Option Plan to acquire 4,000 shares of Bancorp Common Stock. The
exercise price for these shares was $13.25 per share. The options are for a
term of five years expiring in April, 2000. The vesting of these Director
options is 25% of the total option amount per year with the first 25% amount
vesting in April, 1996. In December, 1995, each Bancorp Director, other than
Mr. Hendricks, received an additional stock option under the Bancorp 1995
Stock Option Plan to acquire 4,000 shares of Bancorp Common Stock. The
exercise price for these shares was $13.50 per share. The options are for a
term of five years expiring in December, 2000. The vesting of these Director
options is 25% of the total option amount per year with the first 25% amount
vesting in December, 1996.
In January, 1995, each Bancorp Director, other than Mr. Hendricks, also
received 4,000 stock appreciation rights ("SARs") under the Bancorp 1995
Stock Appreciation Rights Plan. The value of the Bancorp Common Stock on the
date of grant was $13.25 per share. The SARs are for a term of five years
expiring in April, 2000. The vesting of the SARs is 25% of the total rights
amount per year with the first 25% amount vesting in April, 1996. In
December, 1995, each Bancorp Director, other than Mr. Hendricks, received
4,000 additional SARs under the Bancorp 1995 Stock Appreciation Rights Plan.
The value of Bancorp Common Stock on the date of grant was $13.50 per share.
The SARs are for a term of five years expiring in December, 2000. The
vesting of the SARs is 25% of the total amount per year with the first 25%
amount vesting in December, 1996. Mr. Hendricks received certain stock
options and stock appreciation rights at the time he was hired in 1996.
<PAGE>
-23-
PROPOSAL NUMBER TWO: THE PROPOSED MERGER AGREEMENT
BACKGROUND
ABC has grown into a strong and viable financial services organization.
Its strong deposit base and customer loyalty make it attractive as a means
for the expansion of the FSB branch system in Clark County, Nevada. Under
Nevada law, banking organizations such as ABC can be acquired by other banks
and bank holding companies located in Nevada and in certain other states. In
the current changing regulatory environment, several independent Nevada
banking organizations have been acquired by larger, often out-of-state
banking organizations seeking to achieve an initial or improved market
position in Nevada. It is attractive to FSB to acquire ABC as a means of
improving its competitive position in Clark County, as well as a means to
better compete with these other institutions entering the Nevada market.
Today's financial marketplace imposes challenges and burdens. The
squeeze on net interest margins, competition in general (including
availability of new products and services from numerous nontraditional
financial-service providers), the need for management succession and demands
for additional capital to provide a fully competitive array of products and
services were all considered by Bancorp's Board of Directors in determining
that the Merger Agreement is in the best interests of Bancorp Shareholders,
the depositors and loan customers of ABC, and new customers in the
marketplace.
From time to time, principals of FSC talked with the management of
Bancorp concerning the possibility of a merger transaction. In early 1996
discussions were held between Bancorp and FSC, but an agreement concerning a
merger transaction was not reached at that time. After discussions with FSC
were terminated in early 1996, Bancorp and ABC concentrated on growing ABC
through the remainder of 1996 and building its profitability. In early
January 1997, FSC renewed conversations with Bancorp concerning a merger
transaction. After several weeks of negotiation, the Merger Agreement was
finalized and presented to the Boards of Directors of ABC and Bancorp, and to
the Executive Committee of FSC. On March 17, 1997, the Bancorp Board held a
meeting to consider approval of the Merger Agreement. At this meeting
Bancorp/ABC management as well as Bancorp's legal and financial advisors made
presentations regarding their evaluation of FSC and FSB, and the terms of the
proposed Merger Agreement. In addition, Findley, as financial advisor,
prepared a calculation of the Conversion Ratio using certain assumptions
regarding the market value of FSC common stock. Findley also rendered an
oral opinion (subsequently confirmed in writing) to the Bancorp Board to the
effect that as of the date, and based upon, and subject to the certain
matters stated in such opinion, the Conversion Ratio was fair from a
financial point of view to Bancorp Shareholders. Based upon its
consideration of these presentations and the presentations previously made at
meetings of the Bancorp Board as well as other factors more fully described
below, Bancorp's Board of Directors (with one Director absent) unanimously
approved and authorized the execution and delivery of the Merger Agreement,
which took place on March 17, 1997.
Bancorp Shareholders representing approximately 36% of the outstanding
Bancorp Common Stock, including all of the Directors of ABC and Bancorp,
executed shareholder voting
<PAGE>
-24-
agreements with FSC and FSB pursuant to which these Bancorp Shareholders have
agreed to vote their respective shares of Bancorp Common Stock in favor of
the Merger Agreement. Immediately after its execution and delivery, the
Merger Agreement was publicly announced.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BANCORP BOARD OF DIRECTORS
The Bancorp Board has unanimously concluded that the Merger Agreement is
in the best interests of Bancorp Shareholders and unanimously recommends that
the Bancorp Shareholders approve the Merger Agreement at the Shareholders'
Meeting. In reaching this determination to approve the Merger Agreement,
Bancorp's Board of Directors considered the following factors which
constitute all of the material factors considered by Bancorp' Board of
Directors in approving the Merger Agreement:
A. Information concerning the financial performance and condition,
business operations, capital levels, asset quality and prospects
of FSC and FSB.
B. Information concerning the ability of FSC/FSB and Bancorp/ABC to
achieve combined operating efficiencies.
C. The current and prospective economic, regulatory and competitive
environment facing Bancorp/ABC, including in particular, the
franchise value of Bancorp due to its branch locations in Clark
County; its high level of demand deposits and business lending
focus; its leverage capital ratios and data processing systems.
D. The business strategies and management of FSC/FSB and the extent of
their interest in continuing Bancorp/ABC's significant business
relationships in Clark County.
E. The advantages of being part of a larger entity, including the
potential for operating efficiencies, a higher legal lending limit,
the generally higher trading multiples of larger financial
institutions and the increasing of the liquidity of the stock held
by Bancorp Shareholders.
F. The cash dividend paying history of FSC and expected cash dividends
of FSC in the future.
G. The terms of the Merger Agreement and other agreements to be
executed in connection with the Merger and its review of those
agreements with its financial and legal advisors.
H. The financial and other presentations of Findley (including the
assumptions and methodologies underlying its analysis and
presentations of financial information with respect to the Merger
Agreement) and the written opinion of Findley dated March 17, 1997,
that as of the date of such opinion, and
<PAGE>
-25-
based upon and subject to the matter stated in such opinion, the
Conversion Ratio is fair, from a financial point of view, to
Bancorp Shareholders.
The foregoing discussion of the information and factors considered by
the Bancorp Board is not intended to be exhaustive, but constitutes the
material factors considered by Bancorp Board. In reaching its determination
to approve and recommend the principal terms of the Merger Agreement, the
Bancorp Board did not assign relative or specific weights to the foregoing
factors and individual Directors may have weighed such factors differently.
FOR THE REASONS SET FORTH ABOVE, THE BANCORP BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AS IN THE BEST INTEREST OF BANCORP
AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT BANCORP SHAREHOLDERS
APPROVE THE MERGER AGREEMENT AT THE SHAREHOLDERS' MEETING.
OPINIONS OF FINANCIAL ADVISOR
Bancorp retained Findley to act as its financial advisor in connection
with the Merger Agreement in early 1997 and subsequently ratified the
engagement in a letter dated March 3, 1997 (the "Findley Engagement
Letter") based upon its qualifications, expertise and reputation and the
prior business relationships of Findley with Bancorp. Findley served in a
similar capacity during early 1996 in discussions between FSC and Bancorp
which did not result in an acceptable transaction to Bancorp and FSC.
Findley has been involved in the representation of financial
institutions in California and the Western United States since the mid-1950s.
Since that time, Findley has been actively involved as a representative of
either buyers or sellers in mergers and acquisitions of financial
institutions. In addition to being investment bankers and management
consultants to financial institutions, principals of Findley publish THE
FINDLEY REPORTS which is an annual financial analysis of the Western United
States commercial banking institutions. THE FINDLEY REPORTS also publishes a
monthly newsletter which evaluates, among other things, mergers and
acquisitions involving commercial banking institutions in the Western United
States. THE FINDLEY REPORTS has been reporting on merger and acquisition
transactions in California and the Western United States involving commercial
banking institutions since the early 1960s.
Findley rendered to Bancorp its oral opinion on March 17, 1997, which
was confirmed in writing by delivery of written opinion dated March 17, 1997,
that subject to the assumptions and limitations set forth therein, the
Conversion Ratio is fair, from a financial point of view, to Bancorp
Shareholders. A copy of the opinion of Findley, dated March 17, 1997 is
attached as Appendix C to this Prospectus / Proxy Statement and should be
read in its entirety. The following summary is qualified in its entirety by
reference to the full text of the opinion attached as Appendix C. The
opinion is addressed to the Bancorp Board of Directors and does not
constitute a recommendation to any Bancorp Shareholder as to how such Bancorp
Shareholder should vote at the Shareholders' Meeting.
<PAGE>
-26-
In connection with its opinions, Findley has informed the Bancorp Board of
Directors that among other things, it:
(a) reviewed certain publicly available financial information and other
data with respect to Bancorp and FSC, including the consolidated
financial statements for recent years, the December 31, 1996 bank call
reports for ABC and FSB and certain other relevant financial and
operating data relating to Bancorp and FSC made available to Findley
from published sources and from the internal records of Bancorp
and FSC;
(b) reviewed the Merger Agreement;
(c) reviewed the 1996 Annual Reports for FSC and Bancorp;
(d) reviewed certain historical market prices and trading volumes of
FSC common stock;
(e) compared Bancorp and FSC from a financial point of view with
certain other financial institutions that Findley deemed to be relevant;
(f) considered financial terms, to the extent publicly available, of
selected recent business combinations of selected banks in California
and nationwide that Findley deemed to be comparable, in whole or in
part, to the transactions contemplated in the Merger Agreement;
(g) reviewed and discussed with representatives of Bancorp certain
information of a business and financial nature regarding Bancorp and
FSC furnished to Findley by Bancorp and FSC, including financial
forecasts and related assumptions of Bancorp and FSC;
(h) made inquiries regarding and discussed the Merger Agreement and
other matters related thereto with Bancorp's and FSC's legal counsel;
(i) reviewed a draft of this Prospectus / Proxy Statement;
(j) performed such other analyses and examinations as Findley deemed
appropriate, none of which were material, individually or in the
aggregate, other than those described below.
In its analysis, Findley assumed a Conversion Ratio of 0.63 and a share
price for FSC Common Stock of $33.00 which is at the lower range of recent
FSC stock trades and is the bottom threshold, before increasing the
Conversion Ratio pursuant to the Merger Agreement.
<PAGE>
-27-
Since the date the Merger Agreement was executed and delivered by
Bancorp and FSC, FSC has announced a 3-for-2 stock split in the form of a 50%
stock dividend to be effected in May 1997, prior to expected closing of the
Mergers. Under the terms of the Merger Agreement, the Conversion Ratio is
adjusted for this stock split, and the Conversion Ratio will now be 0.945 if
the Average Closing Price for shares of FSC Common Stock is between $22.00
and $26.00 at the time of determination. The Conversion Ratio can go as low
as 0.90 and as high as 0.99 should the Average Closing Price go below $22.00
or above $26.00 per share. The FSC stock split has no bearing on the Findley
Opinion.
- -COMPARABLES ANALYSIS Findley reviewed the consideration paid in recently
announced transactions whereby certain banks were acquired. Specifically,
Findley reviewed 53 transactions involving acquisitions of selected banks in
California completed since January 1, 1995 (the "California Acquisitions").
California was used due to the lack of transactions in Nevada. For each bank
acquired in such transactions, Findley compiled figures illustrating, among
other things, the ratio of the premium (I.E., purchase price in excess of
book value) to deposits, purchase price to book value and purchase price to
previous year's earnings.
The figures for all banks acquired in the California Acquisitions produced:
(a) a median percentage of premium to deposits of 2.63 percent,
(b) a median ratio of purchase price to book value of 1.28, and
(c) a median ratio of purchase price to previous year's earnings of 12.85.
In comparison, assuming that the Conversion Ratio to be paid to Bancorp
Shareholders under the Merger Agreement (before taking into account the stock
split) equals $20.79 per share (using a value for FSC Common Stock of $33.00
per share), Findley determined that the Conversion Ratio in the Merger,
assuming all outstanding options were exercised and all SARs were cashed out,
represented a percentage of premium to deposits of 20.09 percent, a ratio of
purchase price to book value of 2.57 and a ratio of purchase price to 1996
earnings of 16.77. The high and low sale price for FSC Common Stock for the
first quarter of 1997 prior to announcement of the execution of the Merger
Agreement was $37.25 and $33.21 respectively, and the last reported sale
price for FSC Common Stock immediately prior to the announcement of the
execution of the Merger Agreement was $34.25. Trading in FSC Common Stock
has been heavy and FSC is traded on the NASDAQ National Market System. The
recent trades and volume of trades of FSC are a reliable indicator of market
value.
Findley also reviewed thirty-one transaction involving select
acquisitions of banks in the United States valued between $25 million and
$100 million taking place in 1996 (the "National Bank Acquisitions"). For
each Bank acquired in such transactions, Findley compiled figures
illustrating, among other things, purchase price to book value, purchase
price to previous
<PAGE>
-28-
year's earnings, and the buyer book value received as a multiple of seller
book value. The figures for the National Bank Acquisitions produced:
a) a median ratio of purchase price to book value of 2.19,
b) a median ratio to purchase price of previous year's earnings of
21.96, and
c) a ratio of buyer book value received per seller book value of
1.31.
In comparison, assuming that the Conversion Ratio to be paid in the
Merger equals $20.79 per share (using a value from FSC common stock of $33.00
per share) Findley determined that the Conversion Ratio in the Merger,
assuming all options were exercised and all SARs cashed out, represented a
ratio of purchase price to book value of 2.57, a ratio of purchase price to
1996 earnings of 16.77 and a ratio of value received to book value of 1.18.
No other company or transaction used in the above analysis as a
comparison is identical to Bancorp, FSC or the Merger Agreement.
Accordingly, an analysis of the results of the foregoing is not mathematical;
rather, it involves complex considerations and judgements concerning
differences in financial and operating characteristics of the companies and
other factors that could affect the public trading value of the companies to
which FSC, Bancorp and the Merger Agreement are being compared.
CONTRIBUTION ANALYSIS Findley analyzed the contribution of each of FSC and
Bancorp to, among other things, common equity and net income of the PRO FORMA
Surviving Corporation for the period ending December 31, 1996. This analysis
showed, among other things, that based on PRO FORMA combined balance sheets
and income statements for FSC and Bancorp as of December 31, 1996, Bancorp
would have contributed 2.71 percent of the deposits and 2.89 percent of the
shareholder's equity of the Surviving Corporation (before taking into account
any operating efficiencies). Based upon the consideration to be paid in the
Merger, the Bancorp Shareholders would own approximately 3.14 percent of the
Surviving Corporation, assuming all options were exercised and all SARs were
cashed out.
DISCOUNTED CASH FLOW ANALYSIS Findley examined the results of a discounted
cash flow analysis designed to compare the Conversion Ratio with the present
value, under certain assumptions, that would be attained if Bancorp remained
independent through the year 2000, assuming that at such time Bancorp would
be acquired by a larger financial institution. The cash flows for the
Surviving Corporation assumed that the Conversion Ratio equals $20.74 per
share. The results produced in the analyses do not purport to be indicative
of actual values or expected values of Bancorp or the Surviving Corporation
at such future date. All cases were analyzed assuming realization of
operating efficiencies, estimated by Findley, in the amounts and time periods
forecasted by Findley.
The discount rates used ranged from eight percent to fourteen percent.
For the Bancorp stand-alone analysis, the terminal price multiples applied to
the year 2000 estimated earnings per share ranged from 12.0 to 16.0. The
lower levels of the price to earnings value
<PAGE>
-29-
multiples range reflected an estimated future trading range of Bancorp or the
Surviving Corporation, while the higher levels of the price to earnings value
multiples range were more indicative of a future sale of Bancorp or the
Surviving Corporation to a larger financial institution.
For the Bancorp stand-alone analysis, the cash flows were comprised of
the projected cash flows for years 1997 through 2000, assuming that no
dividends are paid, plus the terminal value of Bancorp Common Stock at the
year-end 2000 (calculated by applying each one of the assumed terminal price
to earnings value multiples as stated above to the year 2000 projected
Bancorp earnings per share). A similar analysis was done for the Surviving
Corporation with the exception that FSC continued to pay cash dividends
consistent with current practice. The discount rates above were then applied
to these cash flows to obtain the present values per share of Bancorp common
stock.
The analysis assumed that projected earnings, among other things, would
be achieved and that certain assumed operating efficiencies would be realized
(for the Surviving Corporation case). Assuming a present value discount rate
of twelve percent, a terminal price to earnings value multiple of 15.0 and
that Bancorp remained independent through the year 2000 and was then acquired
by a larger financial institution, the analysis indicates that a holder of
one share of Bancorp Common Stock on December 31, 1996 would receive cash
flows with a present value of $17.75. Using the same present value discount
rate and the same terminal price to earnings value multiple and assuming the
Merger Agreement was consummated and that the Surviving Corporation remained
independent through the year 2000 and continued to pay cash dividends at
present levels, the analysis indicates that a holder of one share of Bancorp
Common Stock on December 31, 1996 would receive cash flows with a present
value of at least $25.30.
Using the same assumptions regarding projected earnings and operating
efficiencies, the analysis indicates cash flows with a present value per
share ranging from $15.40 to $19.70, assuming that Bancorp remained
independent through the year 2000 before being acquired by a larger financial
institution, and $22.27 to $28.80, assuming that the Surviving Corporation
remained independent through the year 2000.
COMPARABLE COMPANY ANALYSIS Using public and other available information,
Findley compared certain financial ratios of Bancorp and FSC (including the
ratio of net income to average total assets ("Return on Average Assets"), the
ratio of net income to average total equity ("Return on Average Equity"), the
ratio of average equity to average assets and certain credit ratios for the year
ended December 31, 1996 to a peer group consisting of 20 selected banks located
in Nevada and the Western United States. No company used in the analysis is
identical to Bancorp or FSC. The analysis necessarily involved complex
considerations and judgements concerning differences in financial and operating
characteristics of the companies. The results of this analysis indicated that
both Bancorp and FSC performed above the peer group level on the basis of
profitability in 1996. FSC's net income, total assets and shareholder equity
significantly changed in 1996, with the implementation of Project Vision.
Bancorp's financial performance in 1996 reflected a higher than peer group level
on Return on Average Assets and Return on Average Equity.
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The foregoing summarizes the material portions of Findley's report, but
does not purport to be a complete description of the presentation by Findley
to the Bancorp Board or the analyses performed by Findley. The preparation
of a fairness opinion is not necessarily susceptible to partial analysis or
summary description. Findley believes that its analyses and the summary set
forth above must be considered as a whole and that selecting a portion of its
analyses and of the factors considered, without considering all analyses and
factors, would create an incomplete view of the process underlying the
analyses set forth in its presentation to the Bancorp Board.
In performing its analyses, Findley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of FSC or Bancorp. The
analyses performed by Findley are not necessarily indicative of actual values
or actual future results, which may be significantly more or less favorable
than suggested by such analyses. Such analyses were prepared solely as part
of Findley's analysis of the fairness from a financial standpoint, of the
Conversion Ratio to Bancorp Shareholders and were provided to the Bancorp
Board in connection with the delivery of Findley's opinion. The analyses do
not purport to be appraisals or to reflect the prices at which any securities
may trade at the present time or at any time in the future. Findley used in
its analyses various projections of future performance prepared by the
management of FSC and Bancorp. The projections are based on numerous
variables and assumptions which are inherently unpredictable and must be
considered not certain of occurrence as projected. Accordingly, actual
results could vary significantly from those set forth in such projections.
In rendering its opinions, Findley relied upon and assumed without
independent verification the accuracy and completeness of all of the
financial and other information reviewed by Findley for the purposes of its
opinion. Findley did not make an independent evaluation or appraisal of the
assets and liabilities of FSC, Bancorp or any of their respective
subsidiaries. Bancorp did not impose any limitations or restrictions with
respect to the scope of Findley's investigation or the procedures or methods
it followed, or with regard to any other matters relating to Findley's
rendering its opinions.
Pursuant to the Findley Engagement Letter, Bancorp agreed to pay Findley
a fee for its time and expense plus $300,000 for Findley's services rendered
to Bancorp in connection with this transaction, which services included the
issuance of Findley's opinions and assistance in the negotiation of the
Merger Agreement and the underlying transactions. Gary Steven Findley, an
affiliate of The Findley Group and special counsel for Bancorp also
participated in negotiations regarding the Merger Agreement. To date, $40,990
has been paid to Findley including $36,909 for services rendered by the law
firm of Gary Steven Findley & Associates for acting as special counsel in
connection with this transaction. Bancorp has agreed to indemnify Findley
against certain liabilities and expenses in connection with its services as
financial advisor to Bancorp.
Bancorp has employed the law firm of Gary Steven Findley & Associates,
an affiliate of Findley, as special counsel during the past two years. Gary
Steven Findley is the principal of the firm and of The Findley Group. The
law firm has been paid fees of $86,543 for its services over the last two
years, inclusive of assisting in the unsuccessful negotiations
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between FSC and Bancorp in early 1996. No other amounts have been paid to
other Findley affiliates or Findley over the last two years for bank related
consulting services.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
It is anticipated that some, if not all, current employees of ABC will
become employees of FSB, and that some, if not all, business branches of ABC
will be continued as branches of FSB and with the availability of products
and services available through other FSB branches of like size in Nevada.
ABC employees hired by FSB will be provided with the same benefits as their
peers at FSB. (SEE "THE MERGERS--Operations After the Mergers"; "--Effect
of the Mergers on ABC Employee Benefit Plans.")
All of Bancorp's Directors and executive officers own shares of Bancorp
Common Stock which will be converted into shares of FSC Common Stock through
the Merger Agreement on the same terms and conditions as apply to all other
Bancorp Shareholders. As of the Record Date, the Directors of Bancorp, and
certain persons affiliated with them, as a group, beneficially held
approximately thirty-six percent (36%) of the outstanding shares of Bancorp
Common Stock entitled to vote at the Shareholders' Meeting, and have
indicated their intention to vote FOR the Merger Agreement.
In considering the recommendation of the Bancorp Board of Directors with
respect to the Merger Agreement, Bancorp Shareholders should be aware that
certain executive officers and Directors of Bancorp have certain interests in
the Merger Agreement being approved that are in addition to the interests of
the Bancorp Shareholders generally. The Bancorp Board of Directors was aware
of these interests and considered them, among other matters, in approving the
Merger Agreement and the transactions contemplated thereby. For example, the
Merger Agreement requires that Bruce Hendricks, currently the President of
Bancorp and of ABC, agree with FSC that he will become an employee of FSB for
at least two (2) years following the Effective Time. Compensation of Mr.
Hendricks will be pursuant to an Employment Agreement negotiated specially
with FSB. Mr. Hendricks' Employment Agreement will provide, in substantial
part, that Mr. Hendricks will be an employee and executive officer of FSB
with particular responsibilities to facilitate the smooth and effective
transition of ABC operations and customers with and into those of FSB. FSB
will pay Mr. Hendricks a signing bonus of $10,000 and a base salary of
$135,000, with entitlement to participate in all FSB insurance, bonus,
compensation and retirement plans. Specifically, after his first year with
FSB, Mr. Hendricks will be subject to a possible bonus opportunity equal to
up to 25% of his base salary. In addition, James V. Bradham, currently the
Vice Chairman and Chief Executive Officer of Bancorp, will be required to
execute and deliver a Non-Compete Agreement whereby he agrees not to compete
with FSB for a period of two (2) years following the Effective Time. Mr.
Bradham will be paid $120,000 by FSB as compensation for his agreement not
to compete.
During 1994-96, ABC and Bancorp have had transactions in the ordinary
course of business with some of the Directors, Executive Officers and
principal stockholders of Bancorp or their affiliates. Such transactions,
including borrowings and loan commitments, are on substantially the same
terms, including interest rates and collateral as applicable, as those
prevailing at the time for comparable transactions with others, and, in the
opinion of the
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respective managements of Bancorp and ABC, did not involve more than a normal
risk of collectability, nor did they present significant unfavorable features.
TERMS OF THE MERGERS/MERGER AGREEMENT
The detailed terms of and conditions to the Mergers are contained in the
Merger Agreement, which is attached to this Prospectus/Proxy Statement as
Appendix A. The Merger Agreement is incorporated herein by reference. The
description in this Prospectus/Proxy Statement of the terms of and conditions
to the Merger Agreement is qualified by, and made subject to, the more
complete information set forth in the text of the Merger Agreement.
Subject to the terms and conditions of the Merger Agreement, ABC will be
merged with and into FSB, and Bancorp will be merged with and into FSC. As a
result, the separate existences of ABC and of Bancorp will cease. Bancorp,
which is the sole shareholder of ABC, will be deemed to receive stock in FSC
in return for its stock in ABC (although no stock in FSC will be formally
issued to Bancorp, because this is but a transitory step in the overall
transaction). Bancorp Shareholders who do not exercise Dissenters' Rights
will receive FSC Common Stock in exchange for their shares of Bancorp Common
Stock.
CONSIDERATION TO BE RECEIVED BY BANCORP SHAREHOLDERS
The Merger Agreement provides for a cancellation of all shares of ABC
common stock, and the conversion of each share of Bancorp Common Stock
(including all shares issuable upon the exercise of outstanding options) into
a fraction of a share of FSC Common Stock, determined according to a formula
set out in the Merger Agreement (the "Conversion Ratio").
There were 3,722,247 shares of Bancorp Common Stock and options to
acquire another 211,831 shares outstanding as of May __, 1997. Assuming
closing of the Merger Agreement had taken place on that date, each share of
Bancorp Common Stock (including those issuable upon exercise of options)
would have been converted into 0.945 of a share of FSC Common Stock.
Notwithstanding the foregoing, the Conversion Ratio, and ultimately the
number of shares of FSC Common Stock to be received by Bancorp Shareholders,
may be adjusted upward or downward from 0.945 if the average of the daily
closing prices of a share of FSC Common Stock as quoted on the NASDAQ
National Market System for the fifteen (15) consecutive trading days ending
on the date preceding the Closing Date is greater than $26.00 or less than
$22.00, provided that in no event shall the Conversion Ratio be less than
0.90 or greater than 0.99. The Conversion Ratio will also be adjusted to
reflect any stock dividends, subdivisions, split ups, reclassifications or
combinations of FSC Common Stock prior to the Effective Time. It is
impossible to predict the final exchange ratio with certainty because of the
potential for changes in the applicable closing price for shares of FSC
Common Stock.
Each share of FSC Common Stock received by Bancorp Shareholders will
have an attached Right, which Right is part of a shareholder-rights plan
adopted by FSC in 1989. The Rights give holders the opportunity to purchase
additional equity interests in FSC at a significant discount under certain
circumstances.
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(SEE "INFORMATION ABOUT FSC--Description of FSC's Capital Stock.")
No certificates for fractional shares of FSC Common Stock will be issued
in connection with the Mergers. Any Bancorp Shareholder who would otherwise
be entitled to receive a certificate for a fraction of a share of FSC Common
Stock will receive, instead, an amount of cash, without interest, determined
by the average of the daily closing sale prices for FSC Common Stock as
reported on the NASDAQ National Market System in the fifteen (15) consecutive
trading days ending on the date preceding the Closing Date.
The Conversion Ratio was determined by arm's length negotiations between
representatives of Bancorp and representatives of FSC. In arriving at their
opinion that such consideration is fair to Bancorp Shareholders, Bancorp
Directors reviewed and considered, among other things, the historical and
current financial position and results of operations of Bancorp; the business
prospects for Bancorp; the general economic, market, and financial conditions
relating to Bancorp; the Findley Opinion; and other recent bank acquisition
transactions.
OPTIONS AND STOCK APPRECIATION RIGHTS.
All outstanding stock options issued by Bancorp prior to the Merger
Agreement will be terminated prior to the Effective Time in return for cash
payments to the option holders. The 230,963 Stock Appreciation Rights
("SARs") issued by Bancorp will be cashed out by Bancorp prior to Closing.
EXCHANGE OF CERTIFICATES
At the Effective Time, the Bancorp Shareholders will cease to have any
rights as Bancorp Shareholders, and their sole rights will pertain to their
right to receive shares of FSC Common Stock and any cash payment, if
applicable, for fractional shares.
As promptly as practicable after the Effective Time, the Exchange Agent
will mail to all the Bancorp Shareholders required to exchange their shares
in the Mergers transmittal materials, including a Letter of Transmittal for
use in exchanging certificates of Bancorp Common Stock for certificates of
FSC Common Stock. As soon as practicable after the Letter of Transmittal is
properly completed and returned along with the certificates of Bancorp Common
Stock to the Exchange Agent, FSC will cause to be issued to the person
specified in the Letter of Transmittal certificates for the number of shares
of FSC Common Stock and, to the extent applicable, any cash in lieu of
fractional shares of FSC Common Stock, to which such person is entitled under
the Merger Agreement.
The risk of loss of certificates mailed to the Exchange Agent will be on
the tendering Bancorp Shareholder. Shareholders claiming rights based on
stock certificates that are lost or stolen must provide the Exchange Agent
with a bond or insurance undertaking sufficient to indemnify FSC in the event
a third party also makes claim under the Merger Agreement based on the same
certificates.
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If any certificate for shares of FSC Common Stock is to be issued in a
name other than that in which the Bancorp share certificate surrendered in
exchange therefor is registered, the Bancorp certificate so surrendered must
be properly endorsed and otherwise in proper form for transfer, and the
person requesting such exchange must pay FSC any transfer or other taxes
required by reason of the issuance of a certificate for shares of FSC Common
Stock in any name other than that of the registered holder of the certificate
surrendered, or establish to the satisfaction of FSC that such tax has been
paid or is not payable.
Each share of FSC Common Stock issued in connection with the Mergers
will be deemed to have been issued at the Effective Time. Accordingly,
Bancorp Shareholders who receive FSC Common Stock in the Mergers will be
entitled to receive any dividends or other distributions which may be payable
to all holders of record of FSC Common Stock as of any date after the
Effective Time. However, no Bancorp Shareholder will be entitled to receive
shares of FSC Common Stock or cash, and no dividends or other distributions
will actually be paid with respect to any shares of FSC Common Stock, until
the certificate or certificates formerly representing the shares of Bancorp
Common Stock have been surrendered in accordance with the procedures
described above. At the time such surrender has been accomplished, a
certificate representing the appropriate number of shares of FSC Common Stock
will be issued and accrued dividends and other distributions on such shares
of FSC Common Stock will be paid without interest and less taxes, if any,
imposed thereon.
ACCOUNTING TREATMENT
FSC expects that the Mergers will be accounted for under generally
accepted accounting principles as a "purchase."
REGULATORY APPROVALS
The Federal Reserve Board and the Division must approve the ABC-FSB
Merger, and the Federal Reserve Board must approve the Bancorp-FSC Merger.
The Federal Reserve Board and the Division are still reviewing the
Merger Agreement transactions and their effects as of the date of this
Prospectus/Proxy Statement. Neither FSC nor Bancorp knows of any reason why
the Federal Reserve Board or the Division will not approve the transactions
contemplated in the Merger Agreement in a timely fashion, although there can
be no guaranty that such approvals will be forthcoming in time for the
Closing or at all. If approved by the Federal Reserve Board, the U.S.
Department of Justice will have 30 days within which to challenge the Merger
Agreement on antitrust grounds. THERE IS NO ASSURANCE THAT THESE REGULATORY
APPROVALS WILL BE RECEIVED TIMELY OR AT ALL.
AN APPROVAL BY THE FEDERAL RESERVE BOARD REFLECTS ONLY ITS VIEW THAT
THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT DO NOT CONTRAVENE
APPLICABLE COMPETITIVE STANDARDS IMPOSED BY LAW, AND THAT SUCH TRANSACTIONS
ARE CONSISTENT WITH REGULATORY POLICIES RELATING TO SAFETY AND SOUNDNESS; AN
APPROVAL
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BY THE FEDERAL RESERVE BOARD IS NOT AN OPINION BY THE FEDERAL RESERVE BOARD
THAT THE MERGER TRANSACTIONS ARE FAVORABLE TO THE STOCKHOLDERS FROM A
FINANCIAL POINT OF VIEW OR THAT THE FEDERAL RESERVE BOARD HAS CONSIDERED THE
ADEQUACY OF THE TERMS OF THE TRANSACTIONS; AND AN APPROVAL BY THE FEDERAL
RESERVE BOARD IS NOT AN ENDORSEMENT OR RECOMMENDATION OF THE MERGER AGREEMENT.
CONDITIONS TO THE MERGERS
The obligations of the parties to effect the Mergers are conditioned,
among other things, on (i) approval by the Directors of ABC, Bancorp, FSC and
FSB (all of which has occurred); (ii) approval by holders of at least a
majority of Bancorp Common Stock; (iii) certain Bancorp Shareholders having
delivered letters concerning future sales of the FSC Common Stock received in
the Bancorp -FSC Merger (SEE "RESALES OF FSC COMMON STOCK," below);
(iv) the Registration Statement (covering the FSC Common Stock to be issued
under the Merger Agreement) becoming effective and no stop order suspending
its effectiveness being issued and continuing in effect; (v) receipt, in form
and substance reasonably satisfactory to Bancorp and FSC, of all necessary
orders, consents and approvals of regulatory authorities and expiration of
all applicable statutory waiting periods; (vi) FSC shall have received required
letters from Certified Public Accountants with respect to Bancorp's and ABC's
financial condition; (vii) there shall have been no increase in the number of
Bancorp's outstanding stock options or SARs and certain related plans shall
have been terminated; (viii) the receipt of an opinion of special tax counsel
concerning the tax free nature of the Mergers; (ix) the maintenance of a net
worth for Bancorp of $33,800,000.00 as of the Closing Date (exclusive of
securities gains or losses pursuant to FASB 115 for the period from
January 1, 1997 through the Closing and subject to certain adjustments set
forth in the Merger Agreement); (x) the assets, books, records and operations
of ABC shall be in reasonably satisfactory condition and FSB having approved
ABC's loan portfolio based on its review and its direction of charge offs to
occur prior to Closing; (xi) Bruce Hendricks having executed and delivered to
FSB an employment agreement in a form acceptable to FSB, and James V. Bradham
having executed and delivered to FSB an agreement not to compete in a form
acceptable to FSB; (xii) each of ABC and Bancorp having maintained normal
business operations through the Closing Date; (xiii) counsel for the parties
having delivered satisfactory opinions; and (xiv) the absence of any
litigation, regulatory proceeding or other matter which challenges the
legality or effectiveness of the transactions contemplated hereby or seeks an
order, decree or injunction enjoining or prohibiting the consummation of the
Mergers.
The parties may agree to waive or modify certain of these conditions,
although there is no present intention to do so.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the
Effective Time by (i) mutual consent of ABC, FSB, Bancorp and FSC,
(ii) either Bancorp or FSC at any time after December 17, 1997, if the
Closing has not yet occurred, (iii) by any party if the other party's
warranties or covenants are in breach and such breach is not cured within 30
days of notice, or (iv) by FSC if less than a majority of shares of Bancorp
Common Stock approve the
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Merger Agreement or if the Merger Agreement is not approved by any required
governmental authority. If so terminated, the Merger Agreement will
immediately become void; PROVIDED, that if failure to consummate the Merger
Agreement is caused by the willful breach of the Merger Agreement by one of
the parties, other parties may seek damages up to $1,000,000 as provided in
the Merger Agreement and/or specific performance.
OPERATIONS AFTER THE MERGERS
As proposed, ABC will merge with and into FSB, and Bancorp will merge
with and into FSC. Bancorp and ABC will cease separate operations or
separate existence, and the offices of ABC will either be operated as
branches of FSB or closed, in the discretion of FSB.
EFFECT OF THE MERGERS ON ABC EMPLOYEE BENEFIT PLANS
Until the Effective Time, all retirement and health insurance plans
maintained by ABC for the benefit of employees will remain in effect without
substantive change, except as may be required by applicable law in connection
with the intended termination of these plans as part of the Mergers.
On or before the Effective Time, Bancorp and FSC will determine
whether it is in the best interests of the parties and the employees of
Bancorp and ABC to terminate Bancorp's 401(k) Plan or to merge such plan into
an FSC benefit plan to the extent of any ABC employees hired by FSB; provided,
however, that no accounts will be permitted to roll-over to FSC's 401(k) plan
without the express written consent of the trustee and sponsor of FSC's 401(k)
plan to such roll-over, which approval shall not be given in any event without
receipt of such documentation from Bancorp and Bank as may be requested by FSC,
including, without limitation, an Internal Revenue Service ruling obtained by
Bancorp approving the roll-over and ensuring the qualification of the FSC
401(k) plan if it accepts such roll-overs.
As of the Effective Time of the ABC-FSB Merger, the current ABC health
insurance plan likely will terminate. Subject to applicable law, all ABC
employees hired by FSB after the Mergers will be eligible to participate in
the FSC health insurance plan now in effect, in accordance with its terms.
FEDERAL INCOME TAX CONSEQUENCES
This description of the material federal income tax consequences of
the Merger Agreement is included solely for the information of Bancorp
Shareholders. No information is provided with respect to the consequences of
any applicable state, local or foreign tax laws. Also, the specific tax
consequences to a Bancorp Shareholder may depend upon the individual
situation of the Bancorp Shareholder. Therefore, each Bancorp Shareholder is
urged to consult his or her own tax adviser concerning the specific tax
consequences of the Merger Agreement to such Bancorp Shareholder.
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Ray, Quinney & Nebeker, special tax counsel to FSC, has rendered its
opinion addressing certain tax consequences of the Merger Agreement, which
opinion is summarized below. The opinion is to the effect that if the
transactions contemplated in the Merger Agreement take place as described
therein, more likely than not:
(i) The ABC-FSB Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code.
(ii) The Bancorp-FSC Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code.
(iii) No gain or loss will be recognized by the holders of
Bancorp Common Stock who exchange such stock for FSC Common
Stock pursuant to the Bancorp-FSC Merger (with the possible
exception of gain recognized upon the receipt of FSC Rights
or cash in lieu of fractional shares (see below)).
(iv) The basis of the FSC Common Stock received by the holders
of Bancorp Common Stock in the Bancorp-FSC Merger will be
the same as the basis of the Bancorp Common Stock
surrendered in exchange therefor, after appropriate
reduction for the basis of fractional shares for which cash
is received.
(v) The holding period of the FSC Common Stock received by the
holders of Bancorp Common Stock pursuant to the Bancorp-FSC
Merger will include the holding period of the Bancorp
Common Stock surrendered in exchange therefor, provided
that the Bancorp Common Stock surrendered was held as a
capital asset at the time of the exchange.
(vi) Any cash received by the holders of Bancorp Common Stock in
lieu of a fractional share of FSC Common Stock will be
treated as having been received in redemption of the shares
so cashed out, and will result in taxable gain or loss.
The amount of such gain or loss will be the difference
between the cash received and the basis of the shares or
the fractional share interest surrendered in exchange
therefor. Provided the shares or the fractional share
interest was held as a capital asset at the time of
redemption, such gain or loss will constitute capital gain
or loss.
(vii) No gain or loss will be recognized by ABC or FSB as a
result of the ABC-FSB Merger.
(viii) No gain or loss will be recognized by Bancorp or FSC as a
result of the Bancorp-FSC Merger.
(ix) The holding period of ABC's assets in the hands of FSB will
include the period during which such assets were held by
ABC.
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(x) The holding period of Bancorp's assets in the hands of FSC
will include the period during which such assets were held
by Bancorp.
An opinion of counsel is not binding upon the IRS or the
courts. It is uncertain whether the IRS would issue a favorable ruling on
the Merger Agreement. The tax opinion is based upon certain factual
assumptions, and upon certain representations and assurances made by ABC,
Bancorp, FSC and FSB. Counsel has expressed no opinion concerning the
consequences of the Merger Agreement on the Bancorp Shareholders under
applicable state or local income tax laws.
One of the requirements for tax-free reorganization treatment
is that shareholders of the acquired corporation acquire a substantial and
continuing interest in the acquiring corporation. The opinion of counsel is
based on the assumption that Bancorp shareholders have no plan or intention
to sell or otherwise dispose of an amount of FSC Common Stock to be received
under the Merger Agreement that would reduce their aggregate ownership of FSC
Common Stock to a number of shares having in the aggregate a value at the
Effective Time of less than fifty percent (50%) of the total value of the
Bancorp Common Stock outstanding immediately prior to the Effective Time.
For purposes of such determination, Bancorp Common Stock that is exchanged
for cash or other property, or surrendered by dissenters, or exchanged for
cash in lieu of the issuance of fractional shares of FSC Common Stock, will
be treated as outstanding Bancorp Common Stock immediately prior to the
Effective Time.
The IRS has taken the position that the Rights attached to the
FSC Common Stock (SEE "INFORMATION ABOUT FSC--Shareholder Rights Plan")
were taxable "boot" to the recipient shareholders in a transaction similar
to the Bancorp-FSC Merger. Accordingly, the IRS may conclude that Bancorp
Shareholders should be taxed currently on the value of the FSC Rights
received in the Mergers. The correctness of the IRS' position has not been
determined by a court of law. In any event, it is unlikely that the value of
the Rights exceeds $0.01 per share of FSC Common Stock received by Bancorp
Shareholders (even though the value is a question of fact) because the Rights
are not separately tradeable from the FSC Common Stock and are redeemable at
FSC's option for only $0.01 each, and it is very unlikely that such Rights
will ever become separately tradeable or ever be redeemed.
Bancorp Shareholders should also be aware that the IRS may
examine transactions taking place before, contemporaneously with, or after a
reorganization to determine whether reorganization treatment is appropriate,
or in some cases to determine whether shareholders will be taxed on other
economic benefits that are included as part of the overall transaction.
Thus, loan transactions between parties, compensation arrangements,
non-compete agreements, consulting arrangements and other transactions could
be reviewed by the IRS and determined to constitute taxable income to
specific parties to the Mergers or could be a basis for assertion that
reorganization treatment is not appropriate to the Mergers. Furthermore, if
the IRS were to establish as to some Bancorp Shareholders that part of the
FSC Common Stock received in the Mergers is severable from the Mergers,
resulting in a proportionally increased equity interest being received in the
Mergers by other Bancorp Shareholders, the Bancorp Shareholders whose equity
interests were deemed to be constructively increased by the Mergers may be
treated as having received a taxable stock dividend. Thus, notwithstanding
the opinions of counsel,
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Bancorp Shareholders should consult with their tax advisers as to the tax
consequences of the Mergers.
Under Section 3406 of the Code, Bancorp Shareholders may be
subject to "backup withholding" at the rate of 31% on "reportable
payments" to be received by them if they fail to furnish their correct
taxpayer identification numbers or for certain other reasons. FSC will
report to these persons and to the IRS for each calendar year the amount of
any reportable payments during that year and the amount of tax withheld, if
any, with respect to those reportable payments.
Holders of stock options for shares of Bancorp Common Stock
are required to exercise those options prior to the Effective Time, and will
receive shares of FSC Common Stock in exchange for the shares of Bancorp
Common Stock received through the exercise of the options. IF THE OPTIONS
WERE "NONQUALIFIED" UNDER THE CODE, the exercise of the stock option will
likely result in ordinary income to the extent of the difference between the
exercise price and the fair market value of the underlying Bancorp Common
Stock at the time of exercise. The basis of these optionee Bancorp
Shareholders in their FSC Common Stock will be the fair market value of their
Bancorp Common Stock received through the exercise of stock options
determined at the time of exercise. IF THE OPTIONS WERE "INCENTIVE STOCK
OPTIONS" UNDER THE CODE, the exercise of the option will not result in
taxable income at that time, and the basis of such optionee Bancorp
Shareholders in their FSC Common Stock will be the exercise price paid for
their Bancorp Common Stock received upon exercise of their options.
Holders of stock appreciation rights issued by Bancorp will be
cashed out prior to the Effective Time based on the difference between the
start price of each SAR and the fair market value of Bancorp Common Stock at
the time of the cash out. Cash received in settlement of SARs will be
ordinary income to such holders.
The Code also imposes an alternative minimum tax and excise
taxes on certain types of transactions. Applicability of such taxes is
usually controlled, in whole or part, by other matters unrelated to the
Mergers or by the unique characteristics of the particular taxpayer.
Accordingly, Bancorp Shareholders are encouraged to consult their tax
advisers if they are or might be subject to such taxes.
NO RIGHTS OF DISSENTING SHAREHOLDERS
Because FSB is the surviving bank in the ABC-FSB Merger,
neither federal nor state law provides dissenter's rights to FSB Shareholders
who may object to the ABC-FSB Merger.
If the Bancorp-FSC Merger is approved, the Nevada General
Corporation Law, as amended (the "Nevada Statute"), provides no
dissenter's rights to those Bancorp Shareholders who object to the Merger
("Dissenting Shareholder(s)"). The theory of the Nevada Statute is that
such Dissenting Shareholders may sell their shares of Bancorp Common Stock
into the public market immediately prior to the Effective Time of the
Bancorp-FSC Merger and thereby obtain fair market value in cash for their
Bancorp Common Stock.
<PAGE>
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RESALES OF FSC COMMON STOCK
The shares of FSC Common Stock to be issued to Bancorp Shareholders in
connection with the Merger Agreement will be registered with the Securities
and Exchange Commission under the provisions of the Securities Act of 1933
("the Securities Act"). Based on recently enacted federal legislation
preempting such requirements for NASDAQ National Market System securities, no
registration or qualification of such shares will be pursued in any state in
which any Bancorp Shareholder currently resides.
Resales of the FSC Common Stock received in connection with the Merger
Agreement will need to be in compliance with applicable state securities laws
and regulations, and this compliance will be the responsibility of the
selling or transferring Shareholder.
FSC shares received by persons who are deemed to be "affiliates" of
Bancorp for purposes of Rule 145 under the Securities Act, may be resold by
them only in transactions permitted by such Rule, or as otherwise permitted
under the Securities Act. Rule 145 applies certain of the requirements and
provisions of Rule 144 (applicable to unregistered shares) to registered
shares received by an affiliate of a party to a merger transaction. Rule 144,
in turn, applies certain restrictions on method and amount of securities
sales. As a condition to the Closing on the Merger Agreement, each person
who is so identified is required to deliver to FSC at or prior to Closing a
written agreement satisfactory to counsel for FSC that such person and his or
her "associates" (as defined for purposes of Rule 145) shall not offer to
sell or otherwise dispose of any shares of FSC Common Stock issued to such
person or his or her associates pursuant to the Merger Agreement in violation
of the Securities Act or the regulations thereunder.
CAPITALIZATION AND PRO FORMA CAPITALIZATION
OF FSC AND BANCORP
What follows is a summary financial description of the current
capitalization of both FSC and Bancorp as of December 31, 1996. The
information presented is drawn from the audited financial statements of the
companies. Also shown is the PRO FORMA capitalization of the combined
companies as a result of the Mergers:
<TABLE>
(IN THOUSANDS) FSC BANCORP PRO FORMA
--- ------- ---------
COMBINED
--------
<S> <C> <C> <C>
COMMON EQUITY 1,140,108 31,651 1,171,759
PREFERRED EQUITY 540 0 540
LONG-TERM DEBT 944,055 0 944,055
SHORT-TERM DEBT 2,830,630 0 2,830,630
</TABLE>
<PAGE>
-41-
SELECTED COMPARATIVE FINANCIAL DATA
The following selected historical financial information on FSC and
Bancorp is derived from audited year-end consolidated financial statements of
FSC, certain of which are incorporated herein by reference, and from the
audited 1996, 1995, 1994, 1993 and 1992 year-end consolidated financial
statements of Bancorp. (Bancorp financial statements at December 31, 1996
and 1995, as to balance sheet items, and for the years ended December 31,
1996, 1995 and 1994 are attached as Appendix B.) All FSC results have been
restated to reflect FSC's pooling-of-interest acquisitions in 1993 and 1994,
and to reflect in per share amounts the stock splits effected by means of 50%
stock dividends on May 1, 1992 and February 15, 1996. In addition, FSC's
results were restated to reflect adoption of SFAS No. 109, "Accounting for
Income Taxes," retroactive to 1988. The average balance sheet data on
Bancorp is presented on a yearly basis. This information should be read in
conjunction with such financial statements and notes thereto, and the
information hereinafter set forth under the captions "INFORMATION ABOUT FSC",
and "INFORMATION ABOUT ABC AND BANCORP," below. (SEE "AVAILABLE INFORMATION,"
above; "INFORMATION ABOUT FSC--Incorporation of Certain Documents by
Reference," below.)
<PAGE>
-42-
FSC
<TABLE>
DECEMBER 31
-----------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME
Interest Income..... 987,808 934,859 773,517 644,732 656,448
Net Interest
Income............. 516,576 474,991 458,102 403,938 375,949
Provision for
Possible Loan
Losses.............. 40,300 21,082 825 11,684 30,277
Income
Before Taxes........ 277,595 190,196 221,177 173,267 150,252
Net Income........... 177,843 120,005 140,134 114,056 100,343
PER COMMON SHARE
DATA
Net Income.......... 2.29 1.57 1.87 1.58 1.44
Cash Dividends
Declared........... 0.86 0.75 0.69 0.59 0.45
Book Value.......... 15.06 13.71 11.95 11.49 10.54
AVERAGE BALANCE
SHEET DATA
Earning Assets...... 11,671,304 11,038,396 10,072,306 8,319,615 7,680,167
Total Assets........ 13,045,607 12,232,262 11,139,838 9,214,260 8,490,487
Total Deposits...... 8,884,443 8,391,856 7,699,627 6,956,114 6,567,776
Long-Term Debt...... 746,885 728,788 368,096 204,129 103,659
Total
Stockholders' Equity 1,067,847 986,175 868,735 784,658 686,159
END OF PERIOD
BALANCE SHEET
DATA
Earning Assets...... 13,115,096 11,746,677 11,019,059 9,329,273 8,054,059
Total Assets........ 14,708,024 13,034,607 12,148,982 10,211,689 8,895,673
Total Deposits...... 9,439,263 8,773,642 8,053,344 7,503,707 6,868,453
Long-Term Debt...... 944,055 720,521 685,426 224,836 127,203
Total
Stockholders' Equity 1,140,648 1,030,263 889,474 835,731 722,447
</TABLE>
<PAGE>
-43-
BANCORP
<TABLE>
DECEMBER 31
-----------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME
- ------
Interest Income..... 20,273 19,408 14,416 11,299 9,872
Net Interest
Income............. 14,480 13,393 11,092 8,530 6,980
Provision for
Possible Loan
Losses............. 375 570 20 130 150
Income
Before Taxes....... 6,715 5,478 4,344 2,872 2,272
Net Income.......... 4,877 4,107 3,314 2,307 1,831
PER COMMON SHARE
DATA
Net Income.......... 1.28 1.10 .90 .65 .54
Cash Dividends
Declared........... -0- -0- -0- -0- -0-
Book Value.......... 8.51 7.20 6.10 5.19 4.56
AVERAGE BALANCE
SHEET DATA
Earning Assets...... 238,900 221,195 190,934 165,030 122,416
Total Assets........ 281,347 256,140 224,160 195,993 148,913
Total Deposits...... 212,005 206,068 188,972 167,678 127,179
Total
Stockholders' Equity 29,859 24,331 20,441 15,454 13,981
END OF PERIOD
BALANCE SHEET
DATA
Earning Assets...... 265,274 227,030 192,041 176,554 144,424
Total Assets........ 317,854 276,691 227,419 210,463 178,243
Total Deposits...... 248,596 211,524 192,811 173,664 154,909
Total
Stockholders' Equity 31,651 26,889 20,131 17,929 15,416
</TABLE>
<PAGE>
-44-
SELECTED HISTORICAL, PRO FORMA AND
EQUIVALENT PRO FORMA PER SHARE DATA
The following table, which shows comparative historical per Common
Share data for FSC and Bancorp (separately and PRO FORMA combined), and
equivalent PRO FORMA per share data for Bancorp, should be read in
conjunction with the financial information appearing elsewhere in this
Prospectus / Proxy Statement or as incorporated herein by reference to other
documents. The PRO FORMA data in the table, presented as of December 31,
1996, 1995 and 1994, are presented for comparative and illustrative purposes
only and are not necessarily indicative of the combined financial position of
FSC following the BANCORP-FSC Merger or FSC's results of operations in the
future or what the combined financial position or results of operations would
have been had the Merger Agreement been consummated during the periods or as
of the dates for which the information in the table is presented:
HISTORICAL PRO FORMA
--------------- -------------------------
FSC AND
BANCORP BANCORP
PRO-FORMA EQUIVALENT
PER COMMON SHARE FSC BANCORP COMBINED PRO-FORMA(4)
- ---------------- ----- ------- --------- ------------
NET INCOME:(1,5)
For the year ended
December 31, 1996 2.29 1.28 2.28 1.44
December 31, 1995 1.57 1.10 1.57 0.99
December 31, 1994 1.87 .90 1.85 1.17
CASH DIVIDENDS:(2,5)
For the year ended
December 31, 1996 0.86 0.00 0.86 0.54
December 31, 1995 0.75 0.00 0.75 0.47
December 31, 1994 0.69 0.00 0.69 0.43
BOOK VALUE:(3)
As of December 31, 15.06 8.51 15.01 9.46
1996(5)
__________________
Note (1) Fully-diluted Net Income per Common Share is based on weighted
average Common Shares outstanding and assumes conversion of
preferred shares and convertible debt.
Note (2) PRO FORMA cash dividends represent historical cash dividends of FSC.
Note (3) Book value per Common Share is based on total period-end
Shareholders' equity and, for FSC, less preferred equity of
$540,000 (at December 31, 1996). 1995 and 1994 period-end and
data are not shown because the pro forma effect is immaterial.
Note (4) PRO FORMA equivalent amounts are computed by multiplying the PRO
FORMA combined amounts by the estimated exchange ratio as of the
dates shown. (See "The Mergers -- Consideration to be Received
by Shareholders.")
Note (5) Restated for stock dividends and stock splits.
<PAGE>
-45-
INFORMATION ABOUT FSC
GENERAL
FSC is a regional bank holding company headquartered in Salt Lake
City, Utah. FSC owns and operates five banks, with offices in the 6 Western
States of Idaho, New Mexico, Nevada, Oregon, Utah and Wyoming, and several
other financial services companies, some having a national presence.
Through its subsidiaries, FSC provides commercial and agricultural finance,
consumer banking, trust, capital markets, treasury management, investment
management, data processing, leasing and securities brokerage services. At
December 31, 1996, FSC and its consolidated subsidiaries had consolidated
assets of $14.7 billion, consolidated deposits of $9.4 billion and
shareholders' equity of $1.1 billion. FSC has paid a regular dividend on
its Common Stock since its incorporation in 1928.
FSC maintains its executive offices at 79 South Main Street, Salt
Lake City, Utah 84111, telephone (801) 246-6000.
The principal assets of FSC are the capital stock of First Security
Bank, N.A. ("FSBNA") (approximately 99.9% owned), and First Security Bank
of New Mexico ("FSBNM") (100% owned), all of which provide a broad range of
banking, fiduciary, financial and other services. Based on deposits of
approximately $7.3 billion at December 31, 1996, FSBNA was ranked the 74th
largest commercial bank in the United States, and is the largest bank in the
State of Utah and the second largest bank in the State of Idaho. Based on
deposits of nearly $1.2 billion at December 31, 1996, FSBNM was ranked 287th
largest commercial bank in the United States, and the 3rd largest bank in the
State of New Mexico. It currently has 28 branches.
FSC also owns 100% of the outstanding capital stock of FSB, 99.9% of
the outstanding capital stock of First Security Bank of Wyoming, a Wyoming
state bank, and 100% of the shares of First Security Bank of Oregon, an
Oregon savings bank. (All of FSC's banking subsidiaries will be referred to
hereafter as "the FSC Banks".) Along with these banking organizations, FSC
also directly or indirectly owns the stock of various nonbank companies
engaged in businesses related to banking and finance, including management
and services, securities brokerage, equipment leasing, insurance and
investment management subsidiaries and a small business investment company.
In addition to its equity investment in subsidiaries, FSC directly
or indirectly raises funds principally to finance the operations of its
nonbank subsidiaries. A substantial portion of FSC's annual income is
typically derived from dividends directly from its bank and nonbank
subsidiaries, and from interest on loans to FSC's nonbank subsidiaries.
<PAGE>
-46-
COMPETITION
As indicated above, as of December 31, 1996, FSBNA is the largest
bank in Utah, the second largest bank in Idaho and FSBNM was the third
largest bank in New Mexico (second largest in Albuquerque). In Wyoming,
Nevada and Oregon, FSC's banks are smaller, more localized competitors, with
competition coming from a variety of larger banks and credit unions. First
Security Bank of Oregon, at the last measurement date, was the 6th largest
bank in Oregon. First Security Bank of Wyoming, at the most recent
measurement date, was the 5th largest bank in Wyoming. FSB has a presence
in the Clark County, Nevada, market of approximately 5% market share in
deposits.
The FSC Banks compete with other banking organizations in the states
in which they operate on the basis of price, service and convenience. Other
types of financial institutions, such as savings banks, savings and loan
associations, and credit unions offer a wide range of deposit and loan
services (including commercial loans) and, in some instances, fiduciary
services. The FSC banks also compete with brokerage firms and mutual funds
which provide the substantial equivalent of checking accounts, credit cards
and similar devices which strongly resemble deposit products. Major
retailers compete for loans by offering credit cards and retail installment
contracts. It is anticipated that competition from nonbank organizations
will continue to grow.
SUPERVISION AND REGULATION
REFERENCES IN THIS SECTION TO APPLICABLE STATUTES AND REGULATIONS
ARE BRIEF SUMMARIES ONLY, AND DO NOT PURPORT TO BE COMPLETE. THE READER
SHOULD CONSULT SUCH STATUTES AND REGULATIONS THEMSELVES FOR A FULL
UNDERSTANDING OF THE DETAILS OF THEIR OPERATION.
FSC is a bank holding company registered under the BHC Act, and is
subject to supervision and regulation by the Federal Reserve Board. Federal
laws subject bank holding companies to particular restrictions on the types
of activities in which they may engage, and to a range of supervisory
requirements and activities, including regulatory enforcement actions for
violation of laws and policies.
The Nevada Revised Statutes provide that a holding company and its
subsidiaries are subject to regular examination by and may be required to
file reports with the Superintendent of Banks.
- ACTIVITIES "CLOSELY RELATED" TO BANKING. The BHC Act prohibits
a bank holding company, with certain limited exceptions, from acquiring
direct or indirect ownership or control of any voting shares of any company
which is not a bank or from engaging in any activities other than those of
banking, managing or controlling banks and certain other subsidiaries, or
furnishing services to or performing services for its subsidiaries. One
principal exception to these prohibitions allows the acquisition of interests
in companies whose activities are found by the Federal Reserve Board, by
order or regulation, to be so closely related to banking, managing, or
controlling banks as to be a proper incident thereto. Some of the activities
that have been determined by regulation to be closely related to banking are
making or servicing
<PAGE>
-47-
loans, performing certain data processing services, acting as an investment
or financial advisor to certain investment trusts and investment companies,
and providing securities brokerage services. Other activities approved by
the Federal Reserve Board include consumer financial counseling, tax planning
and tax preparation, futures and options advisory services, check guaranty
services, collection agency and credit bureau services, and personal property
appraisals. In approving acquisitions by FSC of companies engaged in
banking-related activities, the Federal Reserve Board considers a number of
factors, including the expected benefits to the public, such as greater
convenience and increased competition or gains in efficiency, which are
weighed against the risks of possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest, or unsound banking practices. The Federal Reserve Board is also
empowered to differentiate between activities commenced DE NOVO and
activities commenced through acquisition of a going concern.
- SECURITIES ACTIVITIES. The Federal Reserve Board has approved
applications by bank holding companies to engage, through nonbank
subsidiaries, in certain securities-related activities (underwriting of
municipal revenue bonds, commercial paper, consumer-receivable-related
securities and one-to-four family mortgage-backed securities), provided that
the affiliates would not be "principally engaged" in such activities for
purposes of Section 20 of the Glass-Steagall Act. In very limited
situations, holding companies have been permitted to underwrite and deal in
corporate debt and equity securities through such subsidiaries.
- SAFE AND SOUND BANKING PRACTICES. Bank holding companies are not
permitted to engage in unsafe and unsound banking practices. The Federal
Reserve Board may order a bank holding company to terminate an activity or
control of a nonbank subsidiary if such activity or control constitutes a
significant risk to the financial safety, soundness or stability of a
subsidiary bank and is inconsistent with sound banking principles.
Regulation Y also requires a holding company to give the Federal Reserve
Board prior notice of any redemption or repurchase of its own equity
securities, if the consideration to be paid, together with the consideration
paid for any repurchases or redemptions in the preceding year, is equal to
10% or more of the company's consolidated net worth.
The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") expanded the Federal Reserve Board's authority to prohibit
activities of bank holding companies and their nonbanking subsidiaries which
represent unsafe and unsound banking practices or which constitute violations
of laws or regulations. Notably, FIRREA increased the amount of civil money
penalties which the Federal Reserve Board can assess for such practices or
violations. The penalties can be as high as $1 million per day. FIRREA also
expanded the scope of individuals and entities against which such penalties
may be assessed.
- ANTI-TYING RESTRICTIONS. Bank holding companies and their bank
and nonbank affiliates are prohibited from tying the provision of certain
services, such as extensions of credit, to other services offered by a
holding company or its affiliates.
<PAGE>
-48-
- ANNUAL REPORTING; EXAMINATIONS. FSC is required to file an annual
report with the Federal Reserve Board, and such additional information as the
Federal Reserve Board may require pursuant to the BHC Act. The Federal
Reserve Board may examine a bank holding company or any of its subsidiaries,
and charge the company for the cost of such an examination. FSC also will be
subject to reporting and disclosure requirements under the state and federal
securities laws subsequent to the offering contemplated by these materials.
- BANK HOLDING COMPANY CAPITAL ADEQUACY REQUIREMENTS. The Federal
Reserve Board monitors the capital adequacy of bank holding companies. The
Federal Reserve Board uses a combination of risk-based guidelines and
leverage ratios to evaluate capital adequacy. The Federal Reserve Board has
adopted a system using internationally consistent risk-based capital adequacy
guidelines to evaluate the capital adequacy of bank holding companies. Under
the risk-based capital guidelines, different categories of assets are
assigned different risk weights, based generally on the perceived credit risk
of the asset. These risk weights are multiplied by corresponding asset
balances to determine a "risk-weighted" asset base. Certain off-balance
sheet items, which previously were not expressly considered in capital
adequacy computations, are added to the risk-weighted asset base by
converting them to a balance sheet equivalent and assigning to them the
appropriate risk weight. Total capital is defined as the sum of "Tier 1"
and "Tier 2" capital elements, with "Tier 2" being limited to 100% of
"Tier 1." For bank holding companies, "Tier 1" capital includes, with
certain restrictions, common stockholders' equity, perpetual preferred stock
and minority interests in consolidated subsidiaries less certain intangibles.
"Tier 2" capital includes, with certain limitations, certain forms of
perpetual preferred stock, as well as maturing capital instruments and the
reserve for possible loan losses and specified levels of certain intangibles.
In addition to the risk-based capital guidelines, the Federal
Reserve Board has adopted the use of a leverage ratio as an additional tool
to evaluate the capital adequacy of banks and bank holding companies. The
leverage ratio is defined to be a company's "Tier 1" capital divided by its
adjusted total assets. The leverage ratio adopted by the federal banking
agencies requires a 3.0% "Tier 1" capital to adjusted total assets ratio
for institutions with a CAMEL rating of 1. Institutions which are not CAMEL
1 rated will be expected to maintain a 100 to 200 basis point cushion; I.E.,
these institutions will be expected to maintain a leverage ratio of 4.0% to
5.0%, and institutions planning acquisitions are expected to maintain higher
ratios.
The following table sets forth the current regulatory requirements
for capital ratios of bank holding companies as compared with FSC's capital
ratios at December 31, 1996:
<PAGE>
-49-
TIER 1 TOTAL
CAPITAL TO CAPITAL TO
LEVERAGE RISK-WEIGHTED RISK-WEIGHTED
RATIO(1) ASSETS(2) ASSETS(3)
----------- ------------- -------------
REGULATORY MINIMUM 4.00-5.00% 4.00% 8.00%
FSC AT DECEMBER 31, 1996 8.16% 11.34% 14.50%
(1) THE LEVERAGE RATIO IS DEFINED AS THE RATIO OF TIER 1 CAPITAL (USING FINAL
1992 RISK-BASED CAPITAL GUIDELINES TO DEFINE TIER 1 CAPITAL) TO AVERAGE
ASSETS, NET OF GOODWILL. FEDERAL RESERVE BOARD GUIDELINES PROVIDE THAT ALL
BANK HOLDING COMPANIES (OTHER THAN THOSE THAT MEET CERTAIN CRITERIA) MAINTAIN
A MINIMUM LEVERAGE RATIO OF 3%, PLUS AN ADDITIONAL CUSHION OF 100 TO 200
BASIS POINTS. THE GUIDELINES ALSO STATE THAT BANKING ORGANIZATIONS
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.
(2) SHAREHOLDERS' EQUITY LESS GOODWILL (TIER 1 CAPITAL) DIVIDED BY
RISK-WEIGHTED ASSETS.
(3) TIER 1 CAPITAL PLUS RESERVE FOR POSSIBLE LOAN LOSSES (LIMITED TO 1.25% OF
TOTAL RISK-WEIGHTED ASSETS) PLUS QUALIFIED SUBORDINATED AND CONVERTIBLE DEBT
(TIER 2 CAPITAL) DIVIDED BY RISK-WEIGHTED ASSETS.
Bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations beyond their current levels.
However management is unable to predict whether and when higher capital
requirements would be imposed and, if so, at what levels and on what schedule.
- IMPOSITION OF LIABILITY FOR UNDERCAPITALIZED SUBSIDIARIES. The
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
requires each federal banking agency to revise its risk-based capital
standards within eighteen months of enactment of FDICIA to ensure that those
standards take adequate account of interest rate risk, concentration of
credit risk and the risks of non-traditional activities, as well as reflect
the actual performance and expected risk of loss on multi-family mortgages.
The new law also requires each federal banking agency to specify within nine
months after the date of the enactment of the statute, by regulation, the
levels at which an insured institution would be considered "well
capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized."
Under the regulations adopted by the banking agencies, all of FSC's
subsidiary banks would be deemed to be "well capitalized."
FDICIA requires bank regulators to take "prompt corrective action" to
resolve problems associated with insured depository institutions. In the
event an institution becomes "undercapitalized," it must submit a capital
restoration plan. If an institution becomes "significantly
undercapitalized" or "critically undercapitalized," additional and
significant limitations are placed on the institution. The capital
restoration plan of an undercapitalized institution will not be accepted by
the regulators unless each company "having control of" the undercapitalized
institution "guarantees" the subsidiary's compliance with the capital
restoration plan until it becomes "adequately capitalized." FSC has
control of all of its subsidiaries for purposes of this statute.
Under FDICIA, the aggregate liability of all companies controlling a
particular institution is limited to the lesser of 5% of the institution's
assets at the time it became
<PAGE>
-50-
undercapitalized or the amount necessary to bring the institution into
compliance with applicable capital standards. FDICIA grants greater powers
to the bank regulators in situations where an institution becomes
"significantly" or "critically" undercapitalized or fails to submit a
capital restoration plan. For example, a bank holding company controlling
such an institution can be required to obtain prior Federal Reserve Board
approval of proposed dividends, or might be required to consent to a merger
or to divest the troubled institution or other affiliates.
Additionally, Federal Reserve Board policy discourages the payment of
dividends by a bank holding company from borrowed funds as well as payments
that would adversely affect capital adequacy. Failure to meet the capital
guidelines may result in institution by the Federal Reserve Board of
appropriate supervisory or enforcement actions.
The "PROMPT CORRECTIVE ACTION" provisions of FDICIA reflect the same
concerns which gave rise to a position adopted by the Federal Reserve Board
known as the "source of strength doctrine," which is based on the Federal
Reserve Board's Regulation Y. Regulation Y directs bank holding companies to
"serve as a source of financial and managerial strength" to their
subsidiary banks, and bars them from engaging in unsafe and unsound practices.
- AUDIT REPORTS. Beginning January 1, 1994, FDICIA requires insured
institutions with $500 million or more in total assets to submit annual audit
reports prepared by independent auditors to federal and state regulators. In
most cases, the audit report of the institution's holding company can be used
to satisfy this requirement. The annual audit report shall include financial
statements prepared in accordance with generally accepted accounting
principles, statements concerning management's responsibility for the
financial statements, internal controls and compliance with legal
requirements designated by the FDIC, and an attestation by the auditor
regarding the statements of management. FDICIA requires that independent
audit committees be formed, consisting of outside directors only. The
committees of institutions with assets of $3 billion or more must include
members with experience in banking or financial management, must have access
to outside counsel, and must not include representatives of large customers.
- ACQUISITIONS BY BANK HOLDING COMPANIES. The BHC Act requires every
bank holding company to obtain the prior approval of the Federal Reserve
Board before it may acquire all or substantially all of the assets of any
bank, or ownership or control of any voting shares of any bank, if after such
acquisition it would own or control, directly or indirectly, more than 5% of
the voting shares of such bank. In approving bank acquisitions by bank
holding companies, the Federal Reserve Board is required to consider the
financial and managerial resources and future prospects of the bank holding
company and the banks concerned, the convenience and needs of the communities
to be served, and various competitive factors. The Attorney General of the
United States may, within 30 days after approval of an acquisition by the
Federal Reserve Board, bring an action challenging such acquisition under the
federal antitrust laws, in which case the effectiveness of such approval is
stayed pending a final ruling by the courts.
- INTERSTATE ACQUISITIONS. Under the federally enacted Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 ("IBBEA"),
individual states could "opt-out" of
<PAGE>
-51-
the federal law that would allow banks on an interstate basis to engage in
interstate branching by merging out-of-state banks with host state banks
after June 1, 1997. In addition under IBBEA, individual states could also
"opt-in" and allow out-of-state banks to merge with host state banks prior
to June 1, 1997. The host state is allowed under IBBEA to impose certain
nondiscriminatory conditions on the resulting depository institution until
June 1, 1997. Nevada, in enacting NRS 666.400 ET SEQ., provides for the
"opt-in" under IBBEA allowing interstate bank merger transactions prior to
July 1, 1997, of an out-of-state bank with a Nevada Bank.
On September 29, 1994, IBBEA was enacted which has eliminated many of
the current restrictions to interstate banking and branching. The IBBEA
permits full nationwide interstate banking to adequately capitalized and
adequately managed bank holding companies beginning September 29, 1995,
without regard to whether such transaction is expressly prohibited under the
laws of any state. The IBBEA's branching provisions permit full nationwide
interstate bank merger transactions to adequately capitalized and adequately
managed banks beginning June 1, 1997. However, states retain the right to
completely "opt out" of interstate bank mergers and to continue to require
that out-of-state banks comply with the states' rules governing entry.
The states that opt out must enact a law after September 29, 1994, and
before June 1, 1997, that (i) applies equally to all out-of-state banks and
(ii) expressly prohibits merger transactions with out-of-state banks. States
which opt out of allowing interstate bank merger transactions will preclude
the mergers of banks in the opting out state with banks located in other
states. In addition, banks located in states that opt out are not permitted
to have interstate branches. States can also "opt in" which means states
can permit interstate branching earlier than June 1, 1997.
The laws governing interstate banking and interstate bank mergers
provide that transactions, which result in the bank holding company or bank
controlling or holding in excess of ten percent of the total deposits
nationwide or thirty percent of the total deposits statewide, will not be
permitted except under certain specified conditions. However, any state may
waive the thirty percent provision for such state. In addition, a state may
impose a cap of less than thirty percent of the total amount of deposits held
by a bank holding company or bank provided such cap is not discriminatory to
out-of-state bank holding companies or banks.
- - DEPOSIT INSURANCE ASSESSMENTS. FDICIA required the FDIC to make effective,
no later than January 1, 1994, regulations setting up a risk-based deposit
insurance system. In addition, the FDIC can impose special assessments to
cover the cost of borrowings from the U.S. Treasury, the Federal Financing
Bank, and BIF member banks. The semiannual assessment must be based on: (1)
the probability of a loss to the BIF; (2) the potential magnitude of the
loss; and (3) the revenue and reserve needs of the fund.
The Economic Growth and Regulatory Paperwork Reduction Act (the "1996 Act")
as part of the Omnibus Appropriations Bill was enacted on September 30, 1996
and includes many banking related provisions. The most important banking
provision is the recapitalization of the Savings Association Insurance Fund
("SAIF"). The 1996 Act provides for a one time assessment of approximately
65 basis points per $100 of deposits of SAIF insured deposits including Oakar
deposits payable on November 30, 1996. For the years 1997 through 1999, the
banking industry will assist in the payment of interest on FICO bonds that
were issued to help pay for the cleanup of the savings and loan industry.
Banks will pay approximately 1.3 cents per $100 of deposits for this special
assessment, and after the year 2000, banks will pay approximately 2.4 cents
per $100 of deposits until the FICO bonds mature in 2017. There is a
three-year moratorium on conversions of SAIF deposits to Bank Insurance Fund
("BIF") deposits.
- MERGERS OF BANKS AND THRIFTS. FDICIA has eased restrictions on
cross-industry mergers. Members of the BIF and the Savings Association
Insurance Fund are generally allowed to merge, assume each other's deposits,
and transfer assets in exchange for an assumption of deposit liabilities. A
formula applies to treat insurance assessments relating to acquired deposits
as if they were still insured through the acquired institution's insurance
fund. The transaction must be approved by the appropriate federal banking
regulator. In considering such approval, the regulators take into account
applicable capital requirements, certain interstate banking restrictions, and
other factors.
- BANK REGULATION. Two of FSC's bank subsidiaries are national banks,
which are subject to regulation and supervision by the Comptroller. The
other banks are a state-chartered bank in Wyoming, subject to regulation and
supervision by the State of Wyoming
<PAGE>
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and by the FDIC; a state-chartered savings bank in Oregon, which is regulated
by the State of Oregon and by the FDIC; and FSB, a state-chartered bank in
Nevada, subject to regulation and supervision by the State of Nevada and by
the FDIC. Bank regulations on both the federal and state levels are broad in
their scope and materially affect the business of FSC and its banks.
All of FSC's subsidiary banks are subject to the requirements and
restrictions under federal and state law, including requirements to maintain
reserves against deposits, restrictions on the types and amounts of loans
that may be granted and the interest that may be charged thereon, and
limitations on the types of investments that may be made and the types of
services that may be offered. Various consumer laws and regulations also
affect the operations of the banks. In addition to the impact of regulation,
commercial banks are affected significantly by actions of the Federal Reserve
Board as it attempts to control the money supply and credit availability in
order to influence the economy.
- PERMISSIBLE ACTIVITIES FOR STATE-CHARTERED INSTITUTIONS/EQUIVALENCE
TO NATIONAL BANK POWERS. FDICIA provides that, effective December 19,
1992, no state bank or subsidiary thereof may engage as principal in
any activity not permitted for national banks, unless the institution
complies with applicable capital requirements and the FDIC determines
that the activity poses no significant risk to the insurance fund. In
general, statutory restrictions on the activities of banks are aimed
at protecting the safety and soundness of depository institutions.
Many of the statutory restrictions limit the participation of such
institutions in the securities and insurance product markets. Each of
the state-chartered banking subsidiaries of FSC are in compliance with
the restrictions imposed by FDICIA.
- EQUITY INVESTMENTS. In general, FDICIA prohibits state banks from
directly or indirectly acquiring or retaining any equity investment of
a type, or in an amount, not permitted for national banks. This
prohibition does not apply to (1) investments in majority-owned
subsidiaries; (2) qualified lower-income housing projects; (3) certain
investments in shares listed on a national exchange or shares of a
registered investment company; (4) investments in providers of
directors' and officers' liability insurance; and (5) shares of state-
examined institutions engaging only in activities permissible for a
national bank. Other restrictions may apply to such investments.
FDICIA requires the divestiture of impermissible equity investments
held prior to December 19, 1991, as quickly as is prudent, but not
later than December 19, 1996. In addition, during each of the three
years following the enactment of FDICIA, each state bank must reduce
by at least one-third the amount of impermissible publicly traded
shares owned as of December 19, 1991, that exceeds the amount of the
bank's capital. Each of FSC's state-chartered subsidiary banks has
implemented a plan for aligning its investment portfolio with the
requirements of FDICIA, and is presently in compliance with FDICIA's
equity divestiture requirements.
- RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES. One set of
restrictions is found in Section 23A of the Federal Reserve Act, which
affects loans to and investments in FSC and any of its subsidiaries.
Section 23A imposes quantitative and
<PAGE>
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qualitative limits on transactions between a bank and any affiliate, and
also requires certain levels of collateral for such loans. It also limits
the amount of advances to third parties which are collateralized by the
securities or obligations of FSC or its subsidiaries.
Another set of restrictions is found in Section 23B of the Federal
Reserve Act. Among other things, Section 23B requires that certain
transactions between FSC's subsidiary banks and their affiliates must
be on terms substantially the same, or at least as favorable to FSC or
its subsidiaries, as those prevailing at the time for comparable
transactions with or involving other nonaffiliated companies. In the
absence of such comparable transactions, any transaction between FSC
and its affiliates must be on terms and under circumstances, including
credit standards, that in good faith would be offered to or would
apply to nonaffiliated companies. FSC is also subject to certain
prohibitions against advertising which suggests that FSC is
responsible for the obligations of its affiliates.
The restrictions on loans to insiders contained in the Federal Reserve
Act and Regulation O now apply to all insured institutions and their
subsidiaries and holding companies. The aggregate amount of an
institution's loans to insiders is limited to the amount of its
unimpaired capital and surplus, unless the FDIC determines that a
lesser amount is appropriate. Insiders are subject to enforcement
actions for knowingly accepting loans in violation of applicable
restrictions. Loans made prior to the enactment of FDICIA are not
subject to the restrictions.
- RESTRICTIONS ON SUBSIDIARY BANK DIVIDENDS. The Federal Reserve
Board, the Comptroller and the FDIC have each issued policy statements
to the effect that bank holding companies and member banks, national
banks and state banks should generally only pay dividends out of
current operating earnings. The prior approval of the Comptroller is
required if the total of all dividends declared by the board of
directors of a national bank in any calendar year will exceed the
aggregate of the bank's net profits (as defined by regulatory
authorities) for that year and its retained net profits for the
preceding two years. Similar restrictions govern the other banking
subsidiaries of FSC. In addition, national banks can pay dividends
only to the extent that retained net profits exceed "bad debts", which
are generally defined to include the principal amount of loans that
are in arrears as to interest by nine months or more and that are not
secured and that are not in the process of collection. As of
December 31, 1996, FSC's subsidiary banks could have declared
additional dividends to FSC totalling approximately $259.11 million
without regulatory approval or restriction. Federal banking
regulators also may prohibit federally insured banks from paying
dividends if the payment of such dividend would leave the bank
"undercapitalized" as defined in FDICIA and the implementing
regulations, or the payment of dividends would, in light of the
financial condition of such bank, constitute an unsafe or unsound
practice. Applicable Nevada, Wyoming and Oregon law place similar
restrictions on the payment of dividends by banks organized under the
laws of those states.
<PAGE>
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- BRANCH CLOSING REQUIREMENTS. FDICIA requires FSC 's banks to notify
the FDIC and branch customers 90 days prior to a branch closing,
including a detailed statement regarding the reasons for the closing.
Notice of the closing must be posted at the facility 30 days prior to
the closing.
- TRUTH IN SAVINGS DISCLOSURES. FDICIA subjects FSC's banks to
information requirements concerning advertisements and solicitations
for deposits. The FDIC requires such advertisements and solicitations
to disclose the following: (1) annual percentage yield and the period
for which it is in effect; (2) minimum balance and initial deposit
requirements; (3) a statement that fees could reduce the yield; and
(4) interest penalty for early withdrawal. Misleading advertisements
are prohibited. Schedules of rates, fees, and other terms must be
distributed to customers, and notice of any changes must be mailed 30
days before they go into effect. Violations of these restrictions are
subject to enforcement actions by regulators, civil suits by
depositors, and could result in the payment of penalties and
attorneys' fees. FDICIA requires depository institutions to disclose
fees, interest rates and other terms concerning deposit accounts to
consumers before they open accounts. FDICIA requires depository
institutions that provide periodic statements to consumers to include
information about fees imposed, interest earned and the annual
percentage yield on those statements. FDICIA imposes substantive
limitations on the methods by which institutions determine the balance
on which interest is calculated. Rules dealing with advertisements
for deposit accounts are also included in the law.
- EXAMINATIONS. The FDIC periodically examines and evaluates insured
banks. Based upon such an evaluation, the FDIC may revalue the assets
of an insured institution and require that it establish specific
reserves to compensate for the difference between the FDIC-determined
value and the book value of such assets. FDICIA requires that these
on-site examinations be conducted every 12 months, except that certain
well capitalized banks may be examined every 18 months. FDICIA
authorizes the FDIC to assess the institution for its costs of
conducting the examinations. The rules and regulations of the
Comptroller, which regulates FSC's national banks, and the various
state banking authorities regulating FSC's state-chartered banks, also
provide for periodic examinations by those agencies.
- STANDARDS FOR SAFETY AND SOUNDNESS. As part of FDICIA's efforts to
promote the safety and soundness of depository institutions and their
holding companies, the appropriate federal banking regulators were
required to promulgate by December 1, 1993 regulations specifying
operational and management standards (addressing internal controls,
loan documentation, credit underwriting and interest rate risk) and
asset quality, earnings and stock valuation standards (including a
minimum ratio of market value to book value of the publicly traded
shares of such depository institutions and holding companies). The
Federal Reserve Board issued on April 19, 1993 proposed regulations on
standards for safety and soundness, and revised guidelines were issued
in 1995.
<PAGE>
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- - REAL ESTATE LENDING EVALUATIONS. FDICIA requires uniform standards for
evaluations by the regulators of loans secured by real estate or made to
finance improvements to real estate that take into consideration the risk
posed to the insurance funds by real estate loans, the availability of
credit, and the need for safe and sound operation of insured depository
institutions. FDICIA also prohibits the regulators from adversely evaluating
a real estate loan or investment solely on the grounds that the investment
involves commercial, residential or industrial property, unless the safety
and soundness of an institution may be affected.
In order to implement these provisions, on December 31, 1992, the agencies
adopted regulations establishing loan-to-value (LTV) ratio limitations on
real estate lending by insured depository institutions. The Federal Reserve
Board also established loan-to-value ratio limitations on real estate lending
by bank holding companies and their nonbank subsidiaries. Certain
transactions are excluded from the LTV ratio limitations. Specifically,
these limits do not apply to: loans guaranteed or insured by the U.S.
Government or an agency thereof, or backed by the full faith and credit of a
state government; loans facilitating the sale of real estate acquired by the
lending institution in the ordinary course of collecting a debt previously
contracted; loans where real estate is taken as additional collateral solely
through an abundance of caution by the lender; loans renewed, refinanced, or
restructured by the original lender(s) to the same borrower(s), without the
advancement of new funds; or loans originated prior to the effective date of
the regulation.
<PAGE>
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- - BROKERED DEPOSIT RESTRICTIONS. FIRREA and FDICIA generally bar
institutions which are not well capitalized from accepting brokered deposits.
The FDIC has issued rules which prohibit undercapitalized institutions from
soliciting or accepting such deposits. Adequately capitalized institutions
would be allowed to solicit such deposits, but could only accept them if a
waiver is obtained from the FDIC.
- - REAL ESTATE APPRAISAL REQUIREMENTS. The federal banking agencies have
issued final regulations requiring, after December 31, 1992, insured
institutions to obtain appraisals by certified or licensed appraisers for
transactions having a value over $100,000.
- - FIRREA'S IMPACT. FIRREA's primary purpose was to restructure the statutory
and regulatory framework applicable to savings associations, and establish a
mechanism for resolving insolvent thrift institution cases. Certain
provisions of FIRREA, however, affect the bank subsidiaries of holding
companies, including FSC. Among the most significant of these provisions are
those which: (1) clarify the powers and duties of the FDIC as receiver or
conservator of a bank; (2) enhance the enforcement powers of the federal
banking regulators; (3) establish new reporting requirements under the Home
Mortgage Disclosure Act designed to prevent discriminatory lending practices;
(4) require the federal banking agencies to make public a rating of a bank's
performance under the Community Reinvestment Act; and (5) prohibit banks from
entering into contracts with persons providing goods, products or services if
the performance of such contracts would adversely affect the bank's safety
and soundness. FIRREA's primary impact on commercial banks has been to
increase the enforcement authority of federal regulators and to expand the
scope of potential targets of enforcement actions.
<PAGE>
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FIRREA also contains a "cross-guarantee" provision which makes
commonly controlled insured depository institutions liable to the
FDIC for any losses incurred in connection with the failure of an
affiliated insured depository institution.
- EXPANDING ENFORCEMENT AUTHORITY. One of the major
additional burdens imposed on the banking industry by FDICIA is the
increased ability of banking regulators to monitor the activities
of banks and their holding companies. In addition, the Federal
Reserve Board, Comptroller and FDIC are possessed of extensive
authority to police unsafe or unsound practices and violations of
applicable laws and regulations by depository institutions and
their holding companies. For example, the FDIC may terminate the
deposit insurance of any institution which it determines has
engaged in an unsafe or unsound practice. The agencies can also
assess civil money penalties of up to $1 million per day, issue
cease and desist or removal orders, seek injunctions, and publicly
disclose such actions. FDICIA, FIRREA and other laws have expanded
the agencies' authority in recent years, and the agencies have not
yet fully tested the limits of their powers.
- INSTABILITY OF REGULATORY STRUCTURE. The laws and
regulations affecting banks and bank holding companies are in a
state of flux. The rules and the regulatory agencies in this area
have changed significantly over recent years, and there is reason
to expect that similar changes will continue in the future. It is
difficult to predict the outcome of these changes.
<PAGE>
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CAPITALIZATION
The following table sets forth the unaudited historical capitalization
of FSC as of December 31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
($'s in Thousands)
<S> <C>
LONG-TERM DEBT
Parent Company:
Floating Rate Notes due 1999. . . . . . . . . . . . . . . . . . . . . $ 6,984
Medium Term Notes due 1998-2003 . . . . . . . . . . . . . . . . . . . 32,750
7.875% Senior Notes due 1999. . . . . . . . . . . . . . . . . . . . . 98,962
6.875% Senior Notes due 2006. . . . . . . . . . . . . . . . . . . . . 150,000
7.5% Subordinated Notes due 2002. . . . . . . . . . . . . . . . . . . 75,000
7.0% Subordinated Notes due 2005. . . . . . . . . . . . . . . . . . . 125,000
8.41% Junior Subordinated Debentures due 2026 . . . . . . . . . . . . 150,000
Subsidiaries:
Bank Notes & FHLB Borrowings(1,2) . . . . . . . . . . . . . . . . . . 304,320
Non-Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,039
----------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . 944,055
----------
STOCKHOLDERS' EQUITY
Series A, $3.15 Cumulative Convertible Preferred Stock:
(10,277 shares outstanding) . . . . . . . . . . . . . . . . . . . . . 540
Common Stock (par value $1.25, authorized 300,000,000 shares, issued
and outstanding 76,270,256 shares)(3)(4). . . . . . . . . . . . . . . 95,338
Paid-in surplus. . . . . . . . . . . . . . . . . . . . . . . . . . 130,398
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . 923,375
Net unrealized loss on securities available for sale . . . . . . . 877
----------
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,149,988
Less: common treasury stock at cost (564,184 shares). . . . . . . . . (9,880)
----------
Total common stockholders' equity . . . . . . . . . . . . . . . . . . 1,140,108
----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 1,140,648
----------
Total long-term debt and stockholders' equity. . . . . . . . . . . $2,084,703
----------
</TABLE>
- -------------------
(1)These obligations are direct obligations of subsidiaries of FSC, and as
such, constitute claims against such subsidiaries ranking prior to FSC's
equity therein.
(2)Federal Home Loan Bank borrowings almost all mature in 1996-2000.
(3)Shares issued and outstanding and as adjusted exclude 3,759,827 shares
reserved for issuance upon exercise of outstanding employee stock options,
187,000 shares reserved for issuance upon exercise of conversion rights of
preferred stock, 1,147,000 shares reserved for issuance under the dividend
reinvestment and stock purchase plan, 2,869,447 shares reserved for issuance
under FSC's Comprehensive Management Incentive Plan, 1,257,000 shares
reserved for issuance under the 1994 Employee Stock Purchase Plan, and
669,000 shares reserved for issuance under FSC's Non-Employee Director Stock
Option Plan.
(4)Not restated for 50% stock dividend payable May 15, 1997 to stockholders
of record May 12, 1997.
<PAGE>
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DESCRIPTION OF FSC'S CAPITAL STOCK
The following statements are brief summaries of the material provisions
relating to FSC's Preferred Stock and FSC Common Stock and are qualified in
their entirety by the provisions of FSC's Certificate of Incorporation, which
has been filed with the Commission.
- PREFERRED STOCK. The Certificate of Incorporation authorizes the
issuance of 400,000 shares of preferred stock with no par value. On December
31, 1996, there were 10,277 shares of $3.15 Cumulative Convertible Preferred
Stock, Series "A" (the "Series A Preferred Stock") outstanding. Holders
of Series A Preferred Stock have the right to receive semi-annual dividends
at the annual rate of $3.15 per share. Such right is cumulative and such
dividends are payable before dividends may be paid on the FSC Common Stock.
The Series A Preferred Stock is convertible into the FSC Common Stock at a
ratio of 12.15 shares of FSC Common Stock for each share of Series A
Preferred Stock. This conversion right is subject to adjustment in certain
events to protect against dilution of the conversion rights attached to the
Series A Preferred Stock. In the event of a liquidation, dissolution or
winding up of FSC, the holders of Series A Preferred Stock are entitled to
receive cash value of $52.50 per share plus unpaid accumulated preferred
dividends before any distribution is made to holders of the FSC Common Stock.
FSC may, at the option of the Board of Directors, redeem the whole or any
part of the outstanding Series A Preferred Stock at the redemption price of
$52.50 per share plus unpaid accumulated preferred dividends.
Holders of FSC's Series A Preferred Stock are entitled to one vote per
share on all matters submitted to a vote of stockholders. Voting for the
election of directors is not cumulative. If at any time four or more
semi-annual dividends on the Series A Preferred Stock are in default, in
whole or in part, the holders of the Series A Preferred Stock as a class will
be entitled to elect four directors and the holders of the FSC Common Stock
will be entitled to elect the remaining directors. Holders of any additional
Preferred Stock hereafter issued may have such full or limited voting rights
as are provided by the Board of Directors.
The Board of Directors of FSC is authorized by the Certificate of
Incorporation to provide, without further shareholder action, for the
issuance of one or more series of preferred stock. The Board of Directors
has the power to fix various terms with respect to each series, including
voting powers, designations, preferences and relative, participating,
optional or other special rights, qualifications, limitations, restrictions
and redemption, conversion or exchangeability provisions. Holders of
preferred stock have no pre-emptive rights. The Series A Preferred Stock is
not publicly traded.
- FSC COMMON STOCK. FSC is authorized to issue 300,000,000 shares of FSC
Common Stock with a par value of $1.25 per share. As of December 31, 1996,
there were outstanding 75,706,072 (net of Treasury Stock) shares of FSC
Common Stock. At such date, there were 2,869,447 shares reserved for
issuance under FSC's Comprehensive Management Incentive Plan as stock bonuses
and other awards; 1,147,000 shares reserved for issuance under FSC's Dividend
Reinvestment Plan; 187,298 shares reserved for issuance upon the conversion
of FSC's Series A Preferred Stock, and 3,833,327 shares reserved for issuance
upon exercise
<PAGE>
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of outstanding stock options. Payment of dividends on the FSC Common Stock
is also subject to the prior rights of FSC's outstanding Preferred Stock.
The holders of FSC Common Stock are entitled to voting rights for the
election of directors and for other purposes, subject to the voting rights of
the holders of Preferred Stock conferred by law and to the specific voting
rights granted to each series of Preferred Stock and to voting rights which
may in the future be granted to subsequently created series of Preferred
Stock.
Holders of FSC Common Stock are entitled to receive dividends when and if
declared by the Board of Directors of FSC out of any funds legally available
therefor, and are entitled upon liquidation, after claims of creditors and
preferences of FSC's Preferred Stock and any other series of Preferred Stock
hereafter authorized, to receive PRO RATA the net assets of FSC. FSC Common
Stock has no pre-emptive or conversion rights.
As of August 28, 1989, FSC adopted a Shareholder Rights Agreement (the
"Plan") and the Board of Directors of FSC on that date (a) declared a
dividend of one "Right" for each share of FSC Common Stock held of record
as of the close of business on September 8, 1989, and (b) authorized the
issuance of one Right in respect of each share of FSC Common Stock issued
after September 8, 1989 and prior to the occurrence of certain events
described in the Plan, primarily involving the acquisition of target levels
of FSC shares by persons not then holding such amounts. Each Right entitles
the registered holder to purchase from FSC a unit consisting of one
one-thousandth of a share of Junior Series B Preferred Stock at a purchase
price of $29.63 per unit. The Rights are attached to all shares of FSC
Common Stock that were outstanding on September 8, 1989 or have been issued
since that date, and no separate Rights Certificates have been or will be
distributed until the occurrence of certain events described in the Rights
Agreement. Until the occurrence of such events, no Right may be exercised or
traded separately from the FSC Common Stock. Following separation, the
Rights may, depending upon the occurrence of certain events described in the
Rights Agreement, entitle the holders thereof to either purchase or receive
additional shares of FSC Common Stock. The Rights will expire at the close
of business on August 28, 1999, unless earlier redeemed by FSC, which may be
done at $0.01 per Right, in accordance with the terms of the Plan.
The Plan is designed to protect FSC's stockholders' interests in the
event of an unsolicited attempt to acquire FSC, including a gradual
accumulation of shares in the open market. FSC believes that the Plan
provides protection against a partial or two-tier tender offer that does not
treat all stockholders equally and against other coercive takeover tactics
which could impair FSC's Board of Directors' ability to represent FSC's
stockholders fully. Management believes that the Rights should also deter
any attempt by a controlling stockholder to take advantage of FSC through
self-dealing transactions. The Plan is not intended to prevent a takeover of
FSC. Issuing the Rights has no dilutive effect, does not affect reported
earnings per share, and does not change the way in which FSC's shares are
traded. However, the exercise of Rights by some but not all of FSC's
stockholders would have a dilutive effect on nonexercising stockholders.
Moreover, some may argue that the Plan has the potential for "entrenching"
current management by allowing current voting stockholders to increase their
<PAGE>
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voting shares, thus making a tender offer more difficult and costly. Shares
of FSC Common Stock do not have cumulative voting rights.
FSC Common Stock is not subject to redemption by either FSC or a
stockholder, and there is no restriction on the repurchase by FSC of shares
of FSC Common Stock except for certain regulatory limits.
FSC's Certificate of Incorporation provides that, in general, an
affirmative vote of not less than 80% of the outstanding shares of FSC Common
Stock is required to approve or authorize certain major corporate
transactions involving FSC and holders of more than 15% of the FSC Common
Stock (including certain mergers, substantial dispositions of assets,
liquidation or dissolution, or recapitalization). The 80% vote is not
required in some such circumstances, including certain transactions which
have been approved in advance by a majority of the Board of Directors, or
where holders of FSC Common Stock receive a price per share that satisfies
the fairness criteria set forth in the Certificate of Incorporation.
HISTORICAL PRICES AND DIVIDENDS OF FSC COMMON STOCK
FSC Common Stock is quoted on the NASDAQ National Market System under the
symbol "FSCO."
Future dividends will be determined by FSC's Board of Directors in light
of circumstances existing at the time, including the earnings and financial
condition of FSC, and there is no assurance that dividends will continue to
be paid at current levels. No material restrictions have been imposed on
FSC's ability to pay dividends from its earned surplus by bank regulations or
applicable law.
Payment of dividends on the FSC Common Stock is also subject to the prior
rights of FSC's outstanding Preferred Stock.
The following table sets forth by quarter the high and low sales price of
FSC Common Stock as reported on the NASDAQ National Market System, and the
cash dividends declared per share for the calendar periods indicated. The
information presented below was obtained from the National Association of
Securities Dealers, Inc. and reflects interdealer prices, without retail
markup, markdown or commissions, and may not represent actual transactions.
All stock prices and dividends per share reported below have been adjusted
for 50% stock dividends effected by FSC on February 15, 1996, May 18, 1992
and on June 3, 1991, which had the effect of 3-for-2 stock splits.
On April 21, 1997, FSC's Board of Directors declared another 3 for 2
stock split in the form of a 50% stock dividend with a record date of
May 12, 1997, to be paid on May 15, 1997. The financial information in this
Prospectus / Proxy Statement has not been adjusted to reflect this latest
stock split.
<PAGE>
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CASH DIVIDENDS
DECLARED PER
HIGH LOW SHARE
---- --- ----------------
1997
Second Quarter
(thru May 2, 1997) $35.88 $31.75 $.27
First Quarter 37.50 31.75 .23
1996
Fourth Quarter $34.13 $28.13 $.23
Third Quarter 28.13 23.75 .21
Second Quarter 27.63 22.88 .21
First Quarter 27.75 23.17 .21
1995
Fourth Quarter $25.33 $20.33 $.19
Third Quarter 22.17 18.33 .19
Second Quarter 19.09 15.33 .19
First Quarter 17.09 14.67 .19
1994
Fourth Quarter $19.00 $14.33 $.17
Third Quarter 21.33 18.50 .17
Second Quarter 20.67 18.17 .17
First Quarter 19.33 17.17 .17
1993
Fourth Quarter $20.00 $16.00 $.15
Third Quarter 19.00 17.67 .15
Second Quarter 20.00 17.00 .15
First Quarter 20.17 17.00 .13
1992
Fourth Quarter $18.33 $14.67 $.13
Third Quarter 17.50 14.33 .11
Second Quarter 16.83 13.45 .11
First Quarter 15.55 12.11 .10
The closing price of FSC Common Stock as reported on the NASDAQ National
Market System on March 4, 1997, the last trading day prior to the public
announcement of the Merger Agreement was $34.63 per share. On May___,
1997, the closing price for FSC Common Stock was $_____ per share.
FSC has paid cash dividends on its common and preferred stock without
reduction in amount for over 60 consecutive years. Since 1983, these
dividends have been paid quarterly. Dividends on FSC's $3.15 Cumulative
Preferred Stock are paid semi-annually and are current.
<PAGE>
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The Bancorp Shareholders are advised to obtain current market quotations
for FSC Common Stock. No assurances can be given concerning the market price
of the FSC Common Stock before or after the date on which the Mergers are
consummated. The market price of the FSC Common Stock will fluctuate between
the date of this Prospectus/Proxy Statement and the Closing Date and
thereafter. Because the Conversion Ratio is subject to the adjustment
mechanisms described earlier in this Prospectus / Proxy Statement, and
because the market price of the FSC Common Stock is subject to fluctuation,
the value of the shares of FSC Common Stock that holders of Bancorp Common
Stock will receive under the Merger Agreement may increase or decrease prior
to and following the Closing.
INFORMATION ABOUT ABC AND BANCORP
GENERAL
Bancorp was organized and incorporated under the laws of the State of
Nevada on January 12, 1982, for the purpose of becoming a bank holding
company by acquiring all of the outstanding capital stock of ABC. The
reorganization of ABC and Bancorp was completed on August 5, 1982. Bancorp
has three subsidiaries: ABC, a Nevada state-chartered bank headquartered in
Las Vegas, Nevada; and AmBank Financial, Inc. ("Financing Company") and
AmBank Mortgage Company ("Mortgage Company", and collectively with
Financing Company, the "Other Bancorp Subsidiaries"). The operations of
the Other Bancorp Subsidiaries have been substantially curtailed since 1985
and these entities are essentially inactive. The Other Bancorp Subsidiaries
will be combined with Bancorp prior to the Effective Time and cease their
separate existence.
ABC was incorporated under the laws of the State of Nevada on June 8,
1979, and was licensed by the Nevada State Banking Department and commenced
operations as a Nevada state-chartered bank on November 26, 1979. ABC is an
insured bank under the Federal Deposit Insurance Act, with deposits insured
up to the applicable limits thereof, but, like many state-chartered banks of
its size, it is not a member of the Federal Reserve System.
The primary services provided by ABC include commercial, construction,
and real estate financing, and business loans to customers who are
predominantly small- and middle-market businesses. The bank also grants
consumer loans to individuals, offers a full array of depository accounts and
provides full trust and estate administration services.
Bancorp's business is concentrated in Southern Nevada, in and around
Clark, County, and is subject to the general economic conditions of this
area. Bancorp has no industry segments other than banking related operations.
ABC currently operates out of its head office at 4425 Spring Mountain
Road, Las Vegas, Nevada, 89102. It also operates four branch offices, all
located in Las Vegas, Nevada. A new branch in Las Vegas has been approved by
the Division, but not yet opened.
<PAGE>
-64-
REGULATION AND SUPERVISION OF BANCORP
Upon the reorganization of ABC on August 15, 1982, Bancorp became a bank
holding company within the meaning of the BHC Act, and is subject to the
supervision and regulation of the Federal Reserve Board. ABC is currently
subject to regulation by the Superintendent of Banks of Nevada and by the
FDIC. FSB is also under the supervision of these regulatory authorities.
As a bank holding company, Bancorp is subject to the same regulation and
requirements that are described earlier with respect to FSC. (SEE
"INFORMATION ABOUT FSC -- Supervision and Regulation.")
The Nevada Revised Statutes provide that a holding company and its
subsidiaries are subject to regular examination by and may be required to
file reports with the Superintendent of Banks.
REGULATION AND SUPERVISION OF ABC
ABC is a Nevada state-chartered bank with commercial banking powers,
and its deposits are insured up to the maximum legal limit by the FDIC. ABC is
subject to supervision, regulation and regular examination by the State of
Nevada Financial Institutions Division and the FDIC. Although ABC is not a
member of the Federal Reserve System, it is nevertheless, subject to certain
regulations of the Federal Reserve Board. The statutes and rules administered
by these agencies regulate the investment activities of ABC, loans, certain of
its check-clearing activities, payments of dividends, the establishment of new
branches, as well as numerous other aspects of the banking business.
COMPETITION
ABC's operations include the acceptance of checking and savings
deposits, and the making of commercial, real estate, home improvement,
construction, automobile and other vehicle loans, and other consumer loans.
ABC also offers many customary services, including, but not limited to,
cashier's checks, bank-by-mail, automatic check deposit and traveler's checks.
In July of 1985, ABC began operation of the Financial Services
department. This department has full trust powers, but has specialized in
pension and profit sharing plan administration. To date, the business
development efforts in obtaining accounts has been successful and ABC
anticipates future growth and profitability from this operation.
The banking business in Nevada, and in the market served by ABC, is
highly competitive. ABC competes for loans and deposits with other
commercial banks, savings banks, finance companies, credit unions, and other
financial institutions. In addition, other entities (both governmental and
private industry) seeking to raise capital through the issuance and sale of
debt or equity securities, mutual funds, or tax deferred annuities also
provide competition for ABC in the acquisition of deposits. Larger
commercial banks have greater lending limits than ABC and may perform certain
other functions which ABC does not currently offer.
<PAGE>
-65-
In order to compete with other financial institutions in its primary
service area, ABC relies principally upon local promotional activities,
customer referrals, personal contact by its officers, directors, employees
and shareholders, extended hours and specialized services. From 1994 through
1996, a total of five new banks opened in Las Vegas which are targeting ABC's
customer market.
While there are twelve commercial banks in the service area, ABC
believes its emphasis on customer service and personal contact set it apart
from its competitors. Concentrating on the small to medium size business
accounts effectively limits ABC's direct competition to six other banks.
RECENT LEGISLATION AND OTHER CHANGES
From time to time, legislation is enacted which has the effect of
increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial institutions. Proposals to change the laws and regulations
governing the operations and taxation of banks and other financial
institutions are frequently made in Congress, in the Nevada legislature and
before various bank regulatory agencies. The likelihood of any major changes
and the impact such changes might have on Bancorp and ABC are impossible to
predict. Certain of the potentially significant changes which have been
enacted recently by Congress or various regulatory or professional agencies
are discussed in the Section entitled "Supervision and Regulation" below.
Effective September 28, 1995, Nevada allows for early interstate banking
and authorizes out-of-state banks to enter Nevada by the acquisition of or
merger with a Nevada bank that was in existence at September 28, 1995, or has
been in existence for at least five years.
The banking regulators will have broad powers to regulate
undercapitalized institutions. Undercapitalized institutions must file
capital restoration plans and are automatically subject to restrictions on
dividends, management fees and asset growth. In addition, the institution is
prohibited from opening new branches, making acquisitions or engaging in new
lines of business without the approval of its appropriate banking regulator.
Holding companies with undercapitalized institutions will be prohibited from
capital distributions without the prior approval of the Federal Reserve Board.
It is likely that other bills affecting the business of banks may be
introduced in the future by the United States Congress or Nevada legislature.
A discussion of accounting changes is included under Management's
Discussion and Analysis.
<PAGE>
-66-
GOVERNMENT MONETARY POLICIES
The commercial banking business is affected not only by general economic
conditions, but also by the monetary policies of regulatory authorities,
including the Federal Reserve Board and the FDIC. These government monetary
policies have had a significant effect on the operating results of commercial
banks in general, and are expected to continue to do so in the future.
The Federal Reserve Board regulates the national supply of bank credit
by open market dealings in United States government securities and changes in
the discount rate on member bank borrowings. The monetary policies of these
agencies are influenced by various factors, including inflation,
unemployment, short-term and long-term changes in the international trade
balance, and the fiscal policies of the United States government. Future
monetary policies, and the effect of such policies on the future business and
earnings of Bancorp and ABC, cannot be predicted.
LENDING ACTIVITIES
The following represents the significant categories of loans originated
at ABC and the related risks associated with each type of lending activity:
Construction Lending: Target market is the small and medium
size local builder developing entry-level or first move up type single
family residence tracts. ABC will typically finance in appropriately
sized phases and have pre-sale requirements. ABC will finance
owner-builder single family residence properties for qualified
borrowers. Financing is available on a limited basis for speculative
properties to financially sound borrowers. Voucher control is required.
Risks include over-advance on collateral, environmental hazards, misuse
of construction funds, project location and quality, and general real
estate market conditions.
Commercial Mortgages: Such loans are used to fund the refinance or
acquisition of commercial property, which is typically owner occupied,
or where the owner occupies a significant portion of the property.
These properties are usually of the office-warehouse configuration.
Funding of speculative or income properties is very limited. Risks
include, but not limited, over-advance on collateral, single-purpose
structure, environmental hazards, and commercial real estate market
conditions.
Business Term: Used to fund equipment purchases and plant expansions.
These loans are usually structured on a fully amortizing basis for term
of 3-5 years and are generally secured by equipment financed. Risks
include over-advance on equipment purchased, insufficient debt service
coverage, unique or single-purpose equipment with a limited resale
market.
Revolving Lines of Credit: Lines are used to fund short-term
working capital needs, finance accounts receivable and inventory
purchases. Lines can be secured or unsecured. Risks include normal
credit risks, improper usage, diversion of funds and the risk of the
lines not revolving properly.
<PAGE>
-67-
INVESTMENT POLICY
At December 31, 1996, Bancorp had approximately $121,876,000 in its
investment portfolio. As part of ABC's normal operation, deposits not used
to fund loans are invested in a variety of securities offered by the federal
government and certain of its agencies, as well as municipalities. The
general philosophy of ABC is to invest for relatively short periods of time
and not try to outguess the market. The stated policy of ABC is that 70% of
the portfolio must mature within three years. The policy also stipulates
allowable levels of investments and, in the case of municipal bonds, the
acceptable ratings required. While there is interest rate risk involved with
any investment, the short-term nature of the portfolio minimizes ABC's
exposure to substantial fluctuations in interest rates. Additionally,
management maintains the majority of the investment portfolio on a fixed rate
basis. When purchasing municipal bonds, ABC attempts to offset the credit
risk by demanding sufficient spreads to government bonds to compensate for
the risk of default. At December 31, 1996, the portfolio is comprised of
approximately 56% Treasuries and Agencies, 23% Collateralized Mortgage
Obligations issued by Government Agencies and 18% Municipal Bonds.
INTEREST RATE RISK
Management attempts to protect earnings from wide shifts in interest
rates by employing the following strategies:
Loans: Approximately 95% of ABC's loan portfolio is written on an
adjustable basis that floats with ABC's base rate. Thus, approximately
$120,401,000 reprices immediately upon a change in the base rate.
Investments: Total investments represent approximately 38% of
total assets at December 31, 1996. In administering the investment
portfolio, management adheres to Bancorp's "Investment Portfolio Policy
and Guidelines", "Asset/Liability Policy" and "Interest Rate Risk
Policy." These internal policy guidelines dictate the maturity of
at least 70% of the investment portfolio to be no greater than three
years. The actual average life of the portfolio at December 31, 1996
was approximately 1.92 years. This strategy of maintaining short
maturities provides maximum flexibility in managing fluctuating interest
rates. Additionally, the majority of the investment portfolio is of a
fixed rate nature. This enables management to provide an underlying
level of income, irrespective of changes in interest rates.
Diversification for all areas of investments is a key element in
interest rate risk. Management monitors the investment portfolio to
ensure that an appropriate balance is maintained in terms of both
maturity and type of investment instrument. Monitoring is aided by the
use of a computer program, specializing in Asset/Liability Management
and Interest Rate Risk.
Deposits: Management discourages use of long-term Certificates of
Deposit by consistently paying at or below market rates and not offering
greater than one-year maturities, with the exception of 18 month IRAs
and SEPs. At
<PAGE>
-68-
December 31, 1996, approximately 61% of time deposits had a maturity of
three months or less. Due to the large concentration of business
accounts, approximately 44% of all deposits at December 31, 1996 are
noninterest bearing.
The above factors provide management the opportunity to maintain
favorable net interest margins under most normal interest rate scenarios.
EMPLOYEES
Bancorp, together with its subsidiaries, had 116 full-time equivalent
employees as of January 1, 1997.
PROPERTIES
Bancorp operates out of ABC's head office located at 4425 Spring
Mountain Road, Las Vegas, Nevada 89102. ABC also operates branch offices
located at 727 South 9th Street, Las Vegas, Nevada 89104, 1690 East
Flamingo, Las Vegas, Nevada 89119, 2980 West Sahara Avenue, Las Vegas,
Nevada 89102 and at 4050 Losee Road, North Las Vegas, Nevada 89030. The
Spring Mountain, West Sahara and Losee Road properties are owned by ABC, the
construction of which was provided by internal available funds. The premises
for the South 9th and East Flamingo branches are leased. The rental payments
for 1996 made for all premises total $206,456. Leases for the South 9th
Street and East Flamingo offices terminate August 31, 2001, and November 30,
2006, respectively.
During the third quarter of 1996, Bancorp completed construction on a
two-story 16,000 square foot office complex located adjacent to its corporate
headquarters site which now houses its Financial Services department. The
building also offers additional leasing opportunities with approximately
13,000 rentable square feet of class "A" office space. As of December 31,
1996, Bancorp had finalized lease agreements with tenants for approximately
10,600 square feet. Negotiations to rent the remainder are ongoing.
Management anticipates having the building fully occupied by the second
quarter of 1997. Plans are underway for a third building at Bancorp's
corporate headquarters site. The building will be designed to accommodate
the Check Processing and Data Processing departments as well as drive-up
windows.
ABC's newest branch facility located in the industrial area of North Las
Vegas was officially open as of August 7, 1996, and is now serving customers
located within that area. This newest branch consists of approximately 5,000
square feet with two drive-up windows. ABC now has a total of five branches
throughout the Las Vegas area. Construction of both facilities was funded by
cash flows from operations and had no significant impact on capital. During
the fourth quarter of 1996, Bancorp purchased approximately 2.22 acres of raw
land in the southwest area of Las Vegas and anticipates opening another
branch office during 1997. This would make a total of six branches in the
Las Vegas Valley area. Construction of the new processing center and branch
will be funded through cash flows from operations. The impact on capital is
not expected to be significant.
<PAGE>
-69-
LEGAL PROCEEDINGS
No material legal proceedings are pending against Bancorp or its
subsidiaries other than ordinary, routine litigation incidental to the
business of Bancorp and its subsidiaries.
MARKET INFORMATION
Bancorp's common stock trades on the NASDAQ National Market tier of the
NASDAQ stock market under the symbol: ABCN.
The following table sets forth certain stock quotations for each
quarterly period since January 1, 1995. Stock prices represent the range of
high and low quotations from the National Association of Securities Dealers,
Inc. Such market quotations may not represent actual transactions. Amounts
have been adjusted to reflect stock splits and stock dividends.
Stock Price
Quarter End High Bid Low Bid
----------- -------- -------
June, 1997 (thru May 2, 1997) $22.00 $18.00
March, 1997 22.87 15.00
December, 1996 17.50 15.00
September, 1996 18.25 13.00
June, 1996 24.00 16.50
March, 1996 20.00 15.00
December, 1995 16.00 12.75
September, 1995 13.00 12.25
June, 1995 13.00 12.00
March, 1995 14.50 12.25
DIVIDENDS
On March 18, 1996, Bancorp's Board of Directors declared a 15% stock
dividend on the outstanding shares of Bancorp Common Stock, effective on
April 9, 1996 to Bancorp Shareholders of record on April 2, 1996. On March
20, 1995, the Bancorp Board of Directors of Bancorp declared a four-for-three
stock split on the outstanding shares of common stock of Bancorp, effective
on April 11, 1995 to Bancorp Shareholders of record on April 4, 1995. On
March 21, 1994, the Bancorp Board of Directors declared a 15% stock dividend
on the outstanding shares of common stock of Bancorp, effective on April 12,
1994 to Bancorp Shareholders of record on April 5, 1994.
It is the policy of Bancorp to pay cash dividends to shareholders only
when it is prudent to do so and Bancorp's performance justifies such action.
<PAGE>
-70-
Accordingly, no assurance can be given that cash dividends will ever be
declared by Bancorp. At this time, it is not the intention of Bancorp to
declare cash dividends for the foreseeable future.
State of Nevada banking regulations restrict distribution of the net
assets of ABC because such regulations require the sum of ABC's stockholders'
equity and allowance for loan losses to be at least 6% of the average of
ABC's total daily deposit liabilities for the preceding 60 days. As a result
of these regulations, approximately $14,175,000 and $12,367,500 of ABC's
stockholders' equity was restricted at December 31, 1996 and 1995,
respectively.
<PAGE>
-71-
EXECUTIVE OFFICERS
The following table sets forth certain information concerning Bancorp's
Executive Officers and certain executive officers of ABC as of April 30, 1997:
Position and Principal Occupation
Name Age For the Past Five Years
- -------------------- --- ------------------------------------------
Claudine B. Williams 75 Chairman of the Board of Bancorp and
of ABC. Chairman of the Board of
Harrah's Las Vegas and member of the
Board of Directors of International Game
Technology.
James V. Bradham 56 Vice Chairman and Chief Executive Officer
of Bancorp and of ABC since October
1996 and former President and Chief
Executive Officer of the Company and the
Bank.
Bruce E. Hendricks 46 President and Chief Operating Officer of
Bancorp and of ABC since October 1996 and
former Senior Executive Vice President
and Chief Operating Officer of Bancorp
and of ABC from June 1996 through October
1996. Prior to that time, President of
Sheridan State Bank, a Wyoming State
Bank.
Robert E. Olson 56 Treasurer of Bancorp and Executive Vice
President and Chief Financial Officer of
ABC.
Edward D. Smith 59 Secretary of Bancorp and of ABC. Member
of the Board of Directors of Sun Pacific
Farming & Shippers, Secretary of Nevada
Recycling Corporation, Director of
Quality Towing, Inc. and President of
Southwest Consultants Ltd.
Patricia L. Kirkwood 43 Executive Vice President and Cashier of
ABC. Previously served as Senior Vice
President and Cashier of ABC.
Robert J. Sistek 56 Executive Vice President and Senior Loan
Officer of ABC.
EXECUTIVE COMPENSATION
During 1996, Bancorp did not pay any cash compensation to its executive
officers and no such cash compensation is expected to be paid during 1997.
However, certain of the persons serving as the executive officers of Bancorp
are also employees of ABC, and they received during 1996, and are expected to
receive in 1997, cash compensation in their capacities as executive officers
of ABC.
Information relating to Bancorp Directors is set forth earlier in this
Prospectus / Proxy Statement under "THE SHAREHOLDERS' MEETING".
<PAGE>
-72-
The following table shows the total salary, bonus and fee compensation
with respect to the President, CEO and the four (4) other highest paid
Executive Officers for the years shown:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------- --------------------------------------
NAME AND YEAR SALARY BONUS OTHER ANNUAL RESTRICTED OPTIONS/SARS LTIP PAY- ALL OTHER
PRINCIPAL POSITION ($) ($) COMPENSATION STOCK (#) OUTS COMPENSATION(1)
($) AWARD(S) ($) ($)
($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
JAMES V. BRADHAM, Vice 1996 179,400 107,640 0 0 0/0 0 13,355
Chairman/CEO, Director 1995 179,400 62,790 0 0 8,000/8,000(4) 0 12,025
1994 179,400 62,790 0 0 0/0 0 11,209
BRUCE E. HENDRICKS(2), 1996 125,000 67,390 0 0 5,000/5,000(4) 0 518
President/COO, Director
ROBERT E. OLSON, Executive 1996 94,200 42,390 0 0 0/0 0 10,000
Vice President 1995 94,200 42,390 0 0 6,000/6,000(4) 0 8,709
1994 94,200 32,970 0 0 0/0 0 7,710
ROBERT J. SISTEK, Executive 1996 84,200 37,890 0 0 0/0 0 7,381
Vice President 1995 84,200 37,890 0 0 6,000/6,000(4) 0 6,824
1994 84,200 29,470 0 0 0/0 0 6,707
JAMES E. ZURBRIGGEN(3), 1996 94,200 42,390 0 0 0/0 0 6,813
Executive Vice President 1995 94,200 42,390 0 0 6,000/6,000(4) 0 6,040
1994 94,200 32,970 0 0 0/0 0 5,332
</TABLE>
(1) This amount represents ABC's contribution under ABC's Profit
Sharing/401(k) Plan and the cost of premiums for life insurance.
(2) Mr. Hendricks became employed by Bancorp and ABC on June 18, 1996.
(3) Mr. Zurbriggen terminated his employment with Bancorp and ABC on
February 14, 1997.
(4) The numbers of shares are as of the date of grant and do not reflect
adjustments for stock dividends or stock splits.
Salary levels of Senior Officers are determined by the Board of
Directors. There are no salary continuation agreements with any officers of
Bancorp or ABC.
<PAGE>
-73-
STOCK OPTIONS AND SIMILAR AWARDS TO MANAGEMENT.
The following two tables provide information concerning the stock
options and similar awards provided to the Executive Officers listed in The
Summary Compensation Table during 1996 and exercises of Options and similar
awards by these listed Executive Officers during 1996:
<TABLE>
<CAPTION>
OPTION/SAR GRANTS TO CERTAIN EXECUTIVE OFFICERS DURING 1996
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Individual Grants
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Name Options/SARs % of Total Options/SARs Exercise or Expiration
Granted Granted to All Employees Base Price Date
(#) in Fiscal Year ($/Sh)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bruce E. Hendricks 5,000 Options 31.75% Options 17.00 June 2001
-----------------------------------------------------------------------------------
5,000 SARs 62.5% SARs 17.00 June 2001
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OPTION/SAR EXERCISES BY CERTAIN EXECUTIVE OFFICERS DURING 1996
AND YEAR-END OPTION VALUES
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
UNEXERCISED OPTIONS/SARs (#) VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS/SARs ($)
- ------------------------------------------------------------------------------------------------------------------------------------
SHARES
ACQUIRED
ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
(#) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
James V. Bradham 0 0 4,433 Options 7,434 Options $27,990 Options $33,063 Options
2,683 SARs 8,050 SARs $15,511 SARs $46,541 SARs
- ------------------------------------------------------------------------------------------------------------------------------------
Bruce E. Hendricks 0 0 0 Options 5,000 Options N/A Options N/A Options
0 SARs 5,000 SARs N/A SARs N/A SARs
- ------------------------------------------------------------------------------------------------------------------------------------
Robert E. Olson 0 0 3,857 Options 5,710 Options $ 25,617 Options $25,960 Options
2,012 SARs 6,038 SARs $ 11,633 SARs $34,907 SARs
- ------------------------------------------------------------------------------------------------------------------------------------
Robert J. Sistek 0 0 10,524 Options 5,710 Options $105,128 Options $25,960 Options
2,012 SARs 6,038 SARs $ 11,633 SARs $34,907 SARs
- ------------------------------------------------------------------------------------------------------------------------------------
James E. Zurbriggen 0 9,614 3,857 Options 5,710 Options $25,617 Options $25,960 Options
862 SARs 6,038 SARs $ 3,457 SARs $34,907 SARs
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-74-
TRANSACTIONS WITH MANAGEMENT
Some of the Directors and Executive Officers of Bancorp, ABC and
companies with which they are associated, are customers of, and have had
banking transactions with, ABC. As of December 31, 1996 there were no loans
outstanding to any executive officer or Director of Bancorp.
<PAGE>
-75-
SELECTED BANCORP FINANCIAL DATA
<TABLE>
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
For the Year
Total Interest Income .................... $ 20,272,630 $ 19,408,247 $ 14,416,296 $ 11,298,826 $ 9,872,039
Total Interest Expense ................... 5,792,329 6,015,423 3,323,811 2,768,571 2,891,802
Net Interest Income ...................... 14,480,301 13,392,824 11,092,485 8,530,255 6,980,237
Provision for Loan Loss .................. 375,000 570,000 20,000 130,000 150,000
Securities Gain/(Loss) ................... 307,258 (19,922) (246,245) 349,066 399,772
Income before cumulative
effect of change in
accounting principle (1) ............... 4,877,378 4,107,091 3,314,281 2,222,168 1,831,252
Net Income ............................... 4,877,378 4,107,091 3,314,281 2,307,168 1,831,252
At Year-End
Total Securities (2) ..................... $ 121,875,695 $ 120,589,071 $ 115,800,375 $ 111,322,628 $ 83,301,300
Total Net Loans .......................... 125,426,641 93,244,167 75,378,085 65,057,540 56,123,073
Total Assets ............................. 317,854,123 276,690,628 227,419,250 210,463,073 178,243,042
Total Deposits ........................... 248,595,953 211,523,839 192,811,233 173,664,075 154,909,321
Total Stockholders' Equity (2) ........... 31,651,410 26,888,923 20,131,146 17,928,913 15,415,916
Per Share Data (4)
Income before cumulative
effect of change in
accounting principle (1) ............... $ 1.28 $ 1.10 $ .90 $ .63 $ .54
Net Income ............................... 1.28 1.10 .90 .65 .54
Cash Dividends (none paid)
Book value per share (2) (3) ............. 8.51 7.20 6.10 5.19 4.56
</TABLE>
- -------------------
(1) Effective January 1, 1993, Bancorp adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), Accounting for Income Taxes. The
adoption of SFAS 109 changed Bancorp's method of accounting for income taxes
to an asset and liability approach. Prior to 1993, Bancorp accounted for
income taxes under Statement of Financial Accounting Standards No. 96 (SFAS96).
(2) Book value for 1996, 1995 and 1994 is calculated exclusive of an
adjustment to total capital of $16,000, $284,000 and ($1,987,500)
respectively, net of tax effect, as a result of FAS 115, which requires banks
to "Mark to Market" those investment securities it has designated as
"available-for-sale". All securities within the Company's investment
portfolio were classified as "available-for-sale" at December 31, 1996 and
1995.
(3) Book value per share is based on the actual number of outstanding shares at
December 31.
(4) Amounts have been adjusted to reflect the effect of stock splits and stock
dividends.
<PAGE>
-76-
<TABLE>
ASSETS 1996
--------------------------------------
Average
Balance Interest % Yield/Rate(1)
--------- ---------- ---------------
<S> <C> <C> <C>
Loans (2)(3) ............................. $ 106,221 $ 12,592 11.85
Securities: (4)
Taxable - AFS (5) ................... 100,642 6,113 6.07
Non-taxable - AFS ................... 24,697 1,180 4.78
Federal Funds Sold ....................... 7,340 388 5.29
----------------------
Total Interest Earning Assets ............ 238,900 20,273 8.49
----------------------
Cash & Due From Banks .................... 27,105
Premises and Equipment, net .............. 11,516
Other .................................... 3,826
---------
Total Non-Interest Earning ............... 42,447
---------
Total Assets ............................. 281,347
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Bearing Demand Deposit .......... $ 94,637 $ 3,429 3.62
Savings Deposits ......................... 15,462 530 3.43
Time Deposits ............................ 9,718 417 4.29
Repurchase Agreements .................... 37,627 1,416 3.76
----------------------
Total Interest Bearing Liabilities ....... 157,444 5,792 3.68
----------------------
Non-Interest Bearing Deposits ............ 92,188
Other .................................... 1,856
---------
Total Non-Interest Bearing Liabilities ... 94,044
Stockholders' Equity ..................... 29,859
---------
Total Liabilities and Stockholders' Equity 281,347
---------
---------
Net Interest Earned 14,481
------
------
Net Yield On Interest Earning Assets 6.06
</TABLE>
(1) The yield/rate is calculated by dividing interest earned/paid by the
average balance. The presentation is not on a tax equivalent basis.
(2) Loan fees are included in the interest yield calculation. Loan fees for the
year ended December 31, 1996 are $1,715,000. The interest yield excluding
fees is 10.24%.
(3) Non-accrual loans are included in the interest yield calculation. The
daily average of non-accrual loans for 1996 is $209,242.
(4) Yield is calculated by dividing the interest earned by the average
historical cost (not market value) of the securities.
(5) Other interest bearing accounts having an average balance of $5,500,000
are included in taxable securities.
<PAGE>
-77-
<TABLE>
ASSETS 1995
-----------------------------------
Average
Balance Interest % Yield/Rate(1)
--------- --------- ---------------
<S> <C> <C> <C>
Loans (2)(3)........................... $ 89,663 $ 11,564 12.90
Securities: (4)
Taxable - AFS (5) ................ 95,234 6,043 6.35
Taxable - HTM .................... 655 48 7.33
Non-taxable - AFS ................ 6,170 291 4.72
Non-taxable - HTM ................ 22,738 1,071 4.71
Federal Funds Sold .................... 6,735 391 5.81
--------------------
Total Interest Earning Assets ......... 221,195 19,408 8.77
--------------------
Cash & Due From Banks ................. 22,094
Premises and Equipment, net ........... 9,738
Other ................................. 3,113
----------
Total Non-Interest Earning ............ 34,945
----------
Total Assets .......................... 256,140
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Bearing Demand Deposit ....... $ 98,210 $ 3,889 3.96
Savings Deposits ...................... 17,709 632 3.57
Time Deposits ......................... 11,618 476 4.10
Repurchase Agreements ................. 24,217 1,018 4.20
-------------------
Total Interest Bearing Liabilities .... 151,754 6,015 3.96
-------------------
Non-Interest Bearing Deposits ......... 78,531
Other ................................. 1,524
---------
Total Non-Interest Bearing Liabilities. 80,055
Stockholders' Equity .................. 24,331
---------
Total Liabilities and Stockholders'
Equity .............................. 256,140
---------
---------
Net Interest Earned 13,393
------
------
Net Yield On Interest Earning Assets 6.05
</TABLE>
(1) The yield/rate is calculated by dividing interest earned/paid by the
average balance. The presentation is not on a tax equivalent basis.
(2) Loan fees are included in the interest yield calculation. Loan fees for the
year ended December 31, 1995 are $1,623,146. The interest yield excluding
fees is 11.09%.
(3) Non-accrual loans are included in the interest yield calculation. The daily
average of non-accrual loans for 1995 is $158,846.
(4) Yield is calculated by dividing the interest earned by the average
historical cost (not market value) of the securities.
(5) Other interest bearing accounts having an average balance of $6,400,000 are
included in taxable securities.
<PAGE>
-78-
<TABLE>
1994
-------------------------------------
Average
Balance Interest % Yield/Rate(1)
--------- --------- ---------------
<S> <C> <C> <C>
Loans (2)(3) ............................. $ 69,084 $ 8,307 12.02
Securities: (4)
Taxable - AFS (5) ................... 79,328 4,270 5.38
Taxable - HTM ....................... 807 60 7.43
Non-taxable - AFS ................... 4,628 211 4.56
Non-taxable - HTM ................... 32,211 1,376 4.27
Federal Funds Sold ....................... 4,876 192 3.94
---------------------
Total Interest Earning Assets ............ $ 190,934 $ 14,416 7.55
---------------------
Cash & Due From Banks .................... 21,318
Premises and Equipment, net .............. 9,303
Other .................................... 2,605
---------
Total Non-Interest Earning ............... 33,226
---------
Total Assets ............................. $ 224,160
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Bearing Demand Deposits ......... $ 83,469 $ 2,107 2.52
Savings Deposits ......................... 18,095 502 2.77
Time Deposits ............................ 10,814 331 3.06
Repurchase Agreements .................... 13,785 384 2.79
---------------------
Total Interest Bearing Liabilities ....... $ 126,163 $ 3,324 2.63
---------------------
Non-Interest Bearing Deposits ............ 76,594
Other .................................... 962
---------
Total Non-Interest Bearing Liabilities ... 77,556
---------
Stockholders' Equity ..................... 20,441
---------
Total Liabilities and Stockholders' Equity $ 224,160
---------
---------
Net Interest Earned ...................... $ 11,092
---------
---------
Net Yield On Interest Earning Assets ..... 5.81
</TABLE>
(1) The yield/rate is calculated by dividing interest earned/paid by the
average balance. The presentation is not on a tax equivalent basis.
(2) Loan fees are included in the interest yield calculation. Loan fees for the
year ended December 31, 1994 are $1,613,131. The interest yield excluding
fees is 9.69%.
(3) Non-accrual loans are included in the interest yield calculation. The daily
average of non-accrual loans for 1994 is $96,073.
(4) Yield is calculated by dividing the interest earned by the average
historical cost (not market value) of the securities.
(5) Other interest bearing accounts having an average balance of $3,300,00 are
included in taxable securities.
<PAGE>
-79-
ASSETS (Interest Differential, in $000's) 1996 Compared to 1995
- ------------------------------------------------------------------------
Total Volume Yield/Rate
Change Variance Variance(2)
------- -------- ------------
Loans (1) .......................... $ 1,028 $ 2,136 $(1,108)
Securities:
Taxable ....................... 22 302 (280)
Non-taxable ................... (182) (198) 16
Federal Funds Sold ................. (3) 35 (38)
------- ------- -------
Total Interest Earning Assets ...... $ 865 $ 2,275 $(1,410)
------- ------- -------
------- ------- -------
LIABILITIES
Interest Bearing Demand Deposits ... $ (460) $ (141) $ (319)
Savings Deposits ................... (102) (80) (22)
Time Deposits ...................... (59) (78) 19
Repurchase Agreements .............. 398 564 (166)
------- ------- -------
Total Interest Bearing Liabilities . $ (223) $ 265 $ (488)
------- ------- -------
------- ------- -------
(1) Interest accrued on all non-accruing loans has been reversed for the
current year and the income accounts adjusted accordingly.
(2) The rate/volume variance is included in the rate variance.
ASSETS 1995 Compared to 1994
- -------------------------------------------------------------------------
Total Volume Yield/Rate
Change Variance Variance(2)
------- -------- ------------
Loans (1) ........................... $ 3,257 $ 2,475 $ 782
Securities:
Taxable - AFS .................. 1,773 856 917
Taxable - HTM .................. (12) (11) (1)
Non-taxable - AFS .............. 80 70 10
Non-taxable - HTM .............. (305) (405) 100
Federal Funds Sold and .............. 199 73 126
------- ------- -------
Total Interest Earning Assets ....... $ 4,992 $ 3,058 $ 1,934
------- ------- -------
------- ------- -------
LIABILITIES
Interest Bearing Demand Deposits .... $ 1,782 $ 372 $ 1,410
Savings Deposits .................... 130 (11) 141
Time Deposits ....................... 145 25 120
Repurchase Agreements ............... 634 291 343
------- ------- -------
Total Interest Bearing Liabilities .. $ 2,691 $ 677 $ 2,014
------- ------- -------
------- ------- -------
(1) Interest accrued on all non-accruing loans has been reversed for the
current year and the income accounts adjusted accordingly.
(2) The rate/volume variance is included in the rate variance.
<PAGE>
-80-
INVESTMENT PORTFOLIO
The following table shows the contractual maturity distribution by carrying
amount and weighted average yield to maturity of Bancorp's investment portfolio
at December 31, 1996.
Available for Sale
<TABLE>
Less than One Year One through Five Years Five through Ten Years Over Ten Years Total
Amount %Yield Amount %Yield Amount %Yield Amount %Yield Amount
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity securities (2) $ 3,000,000 4.98 3,000,000
U.S. Treasury and
other U.S. govt.
agencies and
corporations (1) 34,286,270 6.00 33,090,389 6.19 405,510 9.73 0 0 67,782,169
Obligations of states
and political
subdivisions 6,317,090 4.62 13,345,882 4.87 2,843,098 5.05 0 0 22,506,070
Collateralized Mortgage
obligations 6,890,540 6.29 20,778,786 6.21 416,730 5.16 0 0 28,086,056
Other securities 501,400 5.87 0 0 0 0 0 0 501,400
----------- ----------- ---------- ----- ------------
Total $50,995,300 $67,215,057 $3,665,338 $ 0 $121,875,695
----------- ----------- ---------- ----- ------------
----------- ----------- ---------- ----- ------------
</TABLE>
Maturities may differ from contractual maturities in collateralized mortgage
obligations because the mortgages underlying the securities may be called or
repaid without penalties. Yields on tax exempt securities are not calculated on
a tax equivalent basis.
(1) Structured notes with a balance of $8,279,949 at December 31, 1996 are
included in U.S. Treasury and other U.S. government agencies and
corporations.
(2) Equity securities consist of Dutch Auction rate preferred stocks which bear
interest and generally have an average maturity of 49 days from the date of
issuance.
The following table shows the carrying amount of the Company's investment
portfolio at December 31, 1995 and 1994.
1995 1994
Total Total
Amount Amount
------------ ------------
Available for Sale
---------------------------------
Equity securities .................... $ 5,479,711 $ 8,000,000
U.S. Treasury and other U.S. govt
agencies and corporations .......... 69,587,402 65,392,565
Obligations of states and political
subdivisions ....................... 25,909,258 4,692,411
Collateralized mortgage obligations .. 18,881,783 9,917,073
Other securities ..................... 730,917 1,195,121
------------ ------------
Total ................................ $120,589,071 $ 89,197,170
------------ ------------
------------ ------------
Held to Maturity
----------------
Obligations of states and political
subdivisions ........................................ $26,603,205
-----------
Total ................................................. $26,603,205
-----------
-----------
<PAGE>
-81-
A. The composition of Bancorp's loan portfolio is as follows:
<TABLE>
1996 1995 1994 1993 1992
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate loans:
Construction .................................. $ 24,105,582 $ 15,113,573 $ 19,675,572 $ 12,391,794 $ 13,053,544
Residential ................................... 11,594,713 10,643,190 6,907,000 8,983,865 5,972,420
Commercial .................................... 48,274,044 34,627,184 28,164,512 24,716,731 17,175,380
----------------------------------------------------------------------------
Total Real Estate Loans ............................ 83,974,339 60,383,947 54,747,084 46,092,390 36,201,344
----------------------------------------------------------------------------
Commercial, financial and industrial loans ......... 35,428,680 24,875,838 17,875,351 16,742,024 18,134,842
Commercial receivables financing ................... 3,329,322 2,396,952 0 0 0
Loans to individuals ............................... 4,977,794 7,340,220 4,156,000 3,447,244 2,824,022
----------------------------------------------------------------------------
127,710,135 94,996,957 76,778,435 66,281,658 57,160,208
Less unearned net loans fees ....................... 972,058 510,170 673,451 574,866 512,693
----------------------------------------------------------------------------
Total Loans ........................................ $126,738,077 $ 94,486,787 $ 76,104,984 $ 65,706,792 $ 56,647,515
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
B. Maturities and Sensitivity of Loans to Changes in Interest Rates
The following table shows the balances of commercial, financial and industrial
loans and real estate - construction loans outstanding as of December 31, 1996
by maturities, based on remaining scheduled repayments of principal. Also shown
are the balance of loans due after one year, classified according to sensitivity
to changes in interest rates.
MATURITY
<TABLE>
One Year or Less One Through Five Years After Five Years Total
---------------- ---------------------- ---------------- ----------
<S> <C> <C> <C> <C>
1996
- ----
Commercial, Financial and Industrial ....... $24,724,507 $10,092,199 $ 611,974 $35,428,680
Real Estate - Construction ................. 23,564,996 540,586 0 24,105,582
----------- ----------- ----------- -----------
Total ...................................... $48,289,503 $10,632,785 $ 611,974 $59,534,262
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The maturity of certain loans may vary due to the Bank's rollover policy. The
Bank will consider extending the maturity of a loan upon receipt of current
financial information and evaluation of the loan performance, the financial
performance of the business, and overall economic conditions. Loans with
maturities so affected have been revised as appropriate in the above table.
INTEREST SENSITIVITY
The following table represents the total amount of commercial, financial
and industrial loans and real estate construction loans due after one year which
(a) have predetermined interest rates and (b) have floating or adjustable
interest rates.
Loans Due After One Year 1996
- --------------------------- -----------
Fixed or Predetermined Rate $ 1,257,948
Floating or Adjustable Rate 9,986,811
-----------
Total $11,244,759
-----------
-----------
<PAGE>
-82-
C. Risk Elements
1. The table below shows the aggregate amount of loans accounted for on a
non-accrual basis, accruing loans which are contractually past due 90 days
or more as to principal or interest and loans which are "troubled debt
restructurings" as defined in statement of Financial Accounting Standard
No. 15, "Accounting for Debtors and Creditors for Troubled Debt
Restructurings" as of year end for the past five years.
Non-Accrual Past Due 90 Troubled Debt
December 31 Amount Days or More Restructuring
----------- ----------------------------------------
1996 $700,171 $ 0 $ 0
1995 765,961 0 0
1994 0 5,000 0
1993 56,000 0 0
1992 705,000 525,174 0
Loans are placed on non-accrual status when they go over 90 days delinquent, or
when circumstances indicate that timely collection of interest is doubtful.
Loans over 90 days delinquent may be left on accrual status if a repayment plan
has been negotiated and it appears likely that all interest will be paid.
The gross interest income that would have been recorded on non-accrual loans for
the year ended December 31, 1996 if the loans had been current in accordance
with their original terms is $23,545. The amount of interest income on those
loans that was included in net income for the year ended December 31, 1996 is
$96,447.
2. Potential Problem Loans
As of December 31, 1996 there are no loans outstanding, excluding those
identified in Item III.C.1. above, which causes management to have serious
doubts as to the ability of the borrower to comply with the loan repayment
terms.
3. Foreign Outstandings
The Bancorp did not have any foreign loans outstanding for the years ended
December 31, 1996, 1995, or 1994.
4. Loan Concentrations
The loan portfolio is concentrated in the Southern Nevada area. Within the
portfolio there is a concentration in real estate lending, with commercial
real estate lending representing approximately 38% of total loans and
construction lending at 19%. All real estate loans are secured with
1st trust deeds with conservative loan-to-value ratios supported by
current appraisals. Commercial real estate loans are on predominantly
owner-occupied properties, or where the owner occupies a significant
portion of the property. Land values in the Las Vegas area continue to
increase as the population of the area reflects strong growth. Construction
loans are primarily for small to medium tracts of SFRs in the $100M-$135M
range. Concentrations are reviewed quarterly to control lending on
speculative projects. Land loans represent a small portion of real estate
lending, are conservatively underwritten, and are often made in connection
with project development.
D. Other Interest Bearing Assets
As of December 31, 1996, Bancorp had no other interest bearing assets that
would be required to be disclosed under Item III.C.1 or III.C.2, if such
assets were loans.
SUMMARY OF LOAN LOSS EXPERIENCE
A. Analysis of the Allowance for Loan Losses
The following table details the amount of loans charged to reserve and the
additions to the allowance for loan losses for the past five years.
<PAGE>
-83-
Each month, the Bank's allowance for loan losses is reviewed to determine the
adequacy of reserve balances. All loans whose principal balance is greater than
or equal to $10,000 and which are delinquent for 30 days or more for principal
or interest are selected for detailed study. The appropriate account officers
are notified, and each submits reports of borrowers' financial condition,
adequacy of collateral, and recommended reserves. Senior management then reviews
and determines the necessary adjustment to the allowance for loan loss.
<TABLE>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for Loan Losses, January 1 ................ $ 1,242,620 $ 726,899 $ 649,252 $ 524,442 $ 452,923
Deduct:
Loans Charged Off During the Year .............. (315,889) (86,409) (14,684) (122,860) (92,595)
Less Recoveries of Losses Previously Charged-Off 9,705 32,130 72,331 117,670 14,114
----------- ----------- ----------- ----------- -----------
Net Loans Charged-Off .......................... 306,184 54,279 (57,647) 5,190 78,481
----------- ----------- ----------- ----------- -----------
Allowance Prior to Additions ........................ 936,436 672,620 706,899 519,252 374,442
----------- ----------- ----------- ----------- -----------
Additions to Allowance Charged to Operating Expense . 375,000 570,000 20,000 130,000 150,000
----------- ----------- ----------- ----------- -----------
Allowance for Loan Losses, December 31 .............. $ 1,311,436 $ 1,242,620 $ 726,899 $ 649,252 $ 524,442
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Ratio of Net Charge-Offs to Average Loans Outstanding .29% .06% (08%) .01% .16%
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
The schedule below shows the major categories of loan charge-offs and recoveries
for the years 1996, 1995, 1994, 1993 and 1992.
<TABLE>
NET CHARGE-OFFS 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Charge-Offs:
Real estate loans
Construction ............................. $ 0 $ 0 $ 0 $ 28,400 $ 0
Residential .............................. 0 0 0 0 0
Commercial ............................... 0 0 0 0 0
Commercial, financial and industrial .............. 309,939 64,348 12,049 23,875 90,043
Commercial receivables financing .................. 0 0 0 0 0
Loans to individuals .............................. 5,950 22,061 2,635 70,585 2,552
-------- -------- -------- --------- --------
Total ............................................. 315,889 86,409 14,684 122,860 92,595
-------- -------- -------- --------- --------
Less Recoveries:
Real estate loans
Construction ............................. $ 0 $ 0 $ 28,400 $ 80,000 $ 0
Residential .............................. 0 0 0 0 0
Commercial ............................... 0 0 0 0 1,753
Commercial, financial and industrial .............. 8,323 22,545 28,588 27,325 11,300
Commercial receivables financing .................. 0 0 0 0 0
Loans to individuals .............................. 1,382 9,585 15,343 10,345 1,061
-------- -------- -------- -------- --------
Total ............................................. 9,705 32,130 72,331 117,670 14,114
-------- -------- -------- -------- --------
Net Charge-Offs ........................................ $306,184 $ 54,279 $(57,647) $ 5,190 $ 78,481
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
</TABLE>
<PAGE>
-84-
B. Allocation of the allowance for loan losses
1996 REPORTED PERIOD
-------------------------
% Of Loans In
Balance at End of Each Category
Period Applicable to: Amount To Total Loans
---------- --------------
Real estate loans:
Construction ............................. $ 245,908 18.9%
Residential .............................. 39,607 9.1%
Commercial ............................... 511,984 37.8%
Commercial, financial and industrial loans .... 429,624 27.7%
Commercial receivables financing .............. 33,958 2.6%
Loans to individuals .......................... 50,355 3.9%
---------------------
Total ......................................... $1,311,436 100%
---------------------
---------------------
1995 REPORTED PERIOD
Real estate loans:
Construction ............................ $ 197,695 15.9%
Residential ............................. 139,220 11.2%
Commercial .............................. 452,944 36.5%
Commercial, financial and industrial loans ... 325,392 26.2%
Commercial receivables financing ............. 31,354 2.5%
Loans to individuals ......................... 96,015 7.7%
---------------------
Total ........................................ $1,242,620 100%
---------------------
---------------------
1994 REPORTED PERIOD
Real estate loans:
Construction ............................ $ 186,278 25.6%
Residential ............................. 65,392 9.0%
Commercial .............................. 266,647 36.7%
Commercial, financial and industrial loans ... 169,235 23.3%
Commercial receivables financing ............. 0 0.0%
Loans to individuals ......................... 39,347 5.4%
---------------------
Total ........................................ $ 726,899 100%
---------------------
---------------------
1993 REPORTED PERIOD
Real estate loans:
Construction ............................ $ 121,382 18.7%
Residential ............................. 88,000 13.6%
Commercial .............................. 242,109 37.3%
Commercial, financial and industrial loans ... 163,994 25.3%
Commercial receivables financing ............. 0 0.0%
Loans to individuals ......................... 33,767 5.1%
---------------------
Total ........................................ $ 649,252 100%
---------------------
---------------------
1992 REPORTED PERIOD
Real estate loans:
Construction ............................ $ 119,766 22.9%
Residential ............................. 54,797 10.4%
Commercial .............................. 157,583 30.0%
Commercial, financial and industrial loans ... 166,386 31.8%
Commercial receivables financing ............. 0 0.0%
Loans to individuals ......................... 25,910 4.9%
---------------------
Total ........................................ $ 524,442 100%
---------------------
---------------------
<PAGE>
-85-
DEPOSITS
A. The table below shows the average daily balance of deposits by type
for the years ended December 31, 1996, 1995 and 1994.
1996 Average Average
(In Thousands) Balance Rate Paid
------------ ---------
Non-Interest Bearing Demand Deposits ........... $ 92,188 0%
Interest Bearing Demand Deposits ............... 94,637 3.62%
Time Deposits .................................. 9,718 4.29%
Savings Deposits ............................... 15,462 3.43%
--------
Total .......................................... $212,005
--------
--------
1995 Average Average
Balance Rate Paid
------------ ---------
Non-Interest Bearing Demand Deposits ........... $ 78,531 0%
Interest Bearing Demand Deposits ............... 98,210 3.96%
Time Deposits .................................. 11,618 4.10%
Savings Deposits ............................... 17,709 3.57%
--------
Total .......................................... $206,068
--------
--------
1994 Average Average
Balance Rate Paid
------------ ---------
Non-Interest Bearing Demand Deposits ........... $ 76,594 0%
Interest Bearing Demand Deposits ............... 83,469 2.52%
Time Deposits .................................. 10,814 3.06%
Savings Deposits ............................... 18,095 2.77%
--------
Total .......................................... $188,972
--------
--------
The Bank's customer base is primarily comprised of small-to-mid-sized businesses
and professionals. The Bank is precluded by regulation from paying interest on a
majority of these business accounts. The Bank does, however, provide services in
the form of computer hardware and software, armored transport and other
ancillary services to certain depositors. During 1996, services of approximately
$218,886 were provided for customers with average balances of approximately
$91,745,732. The value of the services represented .24% of the customers'
average deposit balances. During 1995, services of approximately $197,553 were
provided for customers with average balances of approximately $83,327,935, which
represented .23% of the customers' average deposit balance.
B. Not applicable.
C. Not applicable.
D. Maturities of time certificates of deposit of $100,000 or more at
December 31, 1996.
Maturity 1996
---------------------------------------------------------------
3 Months or Less $5,602,465
3 to 6 Months 1,035,681
6 to 12 Months 708,539
Over 12 Months 471,289
----------
Total $7,817,974
----------
----------
E. Not applicable.
<PAGE>
-86-
RETURN ON EQUITY AND ASSETS
The table below shows various key ratios including return on equity and
return on assets.
1996 1995 1994
- --------------------------------------------------------------------------------
Return on Assets
(Net Income Divided by Average Total Assets) ......... 1.73% 1.60% 1.48%
Return on Equity
(Net Income Divided by Average Equity) ............... 16.33% 16.88% 16.21%
Cash Dividend Payout Ratio ........................... 0% 0% 0%
Equity to Assets Ratio
(Average Equity Divided by Average Total Assets) ..... 10.61% 9.50% 9.12%
SHORT-TERM BORROWINGS
At December 31, 1996, 1995 and 1994, short-term borrowings were in the form
of repurchase agreements with a one-day maturity.
Weighted-average Average Weighted-average
Balance interest rate balance interest rate
Dec. 31. Dec. 31. for year for year
--------------------------------------------------------------
1996 $36,440,370 4.01% $37,626,801 3.76%
1995 $36,748,550 4.16% $24,217,033 4.20%
1994 $13,779,992 3.30% $13,784,883 2.79%
The maximum amount of total outstanding repurchase agreements at any
month-end during the years ended December 31, 1996, 1995 and 1994 is as
follows:
Month Amount
-------- -----------
1996 November $45,488,185
1995 December $36,748,550
1994 August $19,110,866
<PAGE>
-87-
BANCORP'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF 1996 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction
with the consolidated financial statements of Bancorp. The consolidated
financial statements include Bancorp, and the accounts of its wholly-owned
subsidiaries (ABC and the Other Bancorp Subsidiaries).
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
Adequate liquidity and maintenance of an appropriate balance between
rate sensitive earning assets and liabilities are the principal functions of
asset/liability management of a banking organization. Liquidity management
involves the ability to meet the cash flow requirements of customers who are
depositors desiring to withdraw funds and borrowers requiring assurance that
sufficient funds will be available to meet their credit needs. The measures of
solid liquidity practices such as Total Deposits to Total Assets and Loans to
Deposit ratios are constantly monitored for any adverse trends. Historically,
ABC's loan to deposit ratio has been low when compared to industry norms and,
conversely, its liquidity ratio has been high. At December 31, 1996, the net
loan to deposit ratio was approximately 50%. ABC's primary sources of liquidity
are total cash and due from banks, other interest bearing accounts, federal
funds sold, and its available-for-sale securities. The liquidity ratio, which
is comprised of total cash and cash equivalents and unpledged securities as a
percent of total demand deposits, stood at approximately 45.75% at December 31,
1996 and 57.93% at December 31, 1995.
Management seeks to avoid fluctuating net interest margins and to
enhance consistent growth of net interest income during periods of changing
interest rates. Effective asset/liability management enabled ABC to maintain
desired levels of liquidity and capital while protecting against the possible
negative impact of interest rate volatility. ABC avoids the use of highly
sensitive short-term funds such as brokered deposits and believes its deposits
represent funding sources with safety in respect to both liquidity and earnings,
and permits the maintenance of an appropriate relationship between the cost and
maturity of liabilities and the yield and maturity of assets. Net cash flow
from operations continues to remain positive primarily due to favorable interest
rate yields and growth in the loan portfolio. As loan growth continues, the
loan to deposit ratio may rise but there is substantial room to increase the
loan portfolio without impeding the liquidity ratio. The increase in deposits
provided the major funding from financing activities. It is anticipated that
deposits will continue to steadily increase as ABC opens additional branches and
the local economy continues its growth.
CAPITAL RESOURCES
Capital increases will continue to be provided by earnings. Capital
growth, exclusive of net unrealized gains/losses on available-for-sale
securities, for the year ended December 31, 1996 was 18.91% compared to 20.28%
for the same period of 1995. While there are no definite plans to issue
additional common stock, shareholders approved 15% stock dividend during 1996, a
four-for-three stock split during 1995 and a 15% stock dividend during
<PAGE>
-88-
1994. Neither stock dividends nor stock splits have an effect on total capital.
Stockholders' equity, exclusive of net unrealized gains/losses on available-for-
sale securities, of Bancorp as a percentage of total assets at December 31, 1996
stood at 9.95%. At December 31, 1995 the ratio was 9.62%. Risk-based capital
guidelines require banks to maintain an underlying capital base of 8.00% of
"risk-weighted" assets. At December 31, 1996, ABC was well above the minimum
requirement with a capital base of 15.67% (Tier 1).
During the third quarter of 1996, Bancorp completed construction on a
two-story 16,000 square foot office complex located adjacent to its corporate
headquarters site which now houses its Financial Services department. The
building also offers additional leasing opportunities with approximately 13,000
rentable square feet of class "A" office space. As of December 31, 1996,
Bancorp had finalized lease agreements with tenants for approximately 10,600
square feet. Negotiations to rent the remainder are ongoing. Management
anticipates having the building fully occupied by the second quarter of 1997.
Plans are underway for a third building at Bancorp's corporate headquarters
site. The building will be designed to accommodate the Check Processing and
Data Processing departments as well as drive-up windows. ABC's newest branch
facility located in the industrial area of North Las Vegas was officially open
as of August 7, 1996 and is now serving customers located within that area.
This newest branch consists of approximately 5,000 square feet with two drive up
windows. ABC now has a total of five branches throughout the Las Vegas area.
Construction of both facilities was funded by cash flows from operations and had
no significant impact on capital. During the fourth quarter of 1996 Bancorp
purchased approximately 2.22 acres of raw land in the southwest area of Las
Vegas and anticipates opening another branch office during 1997. This would
make a total of six branches in the Las Vegas Valley area. Construction of the
new processing center and branch will be funded through cash flows from
operations. The impact on capital is not expected to be significant.
On November 15, 1995, the Financial Accounting Standards Board
("FASB") released a Special Report entitled "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities." This report provided for a one-time opportunity to reclassify
securities between held-to-maturity ("HTM") and available-for-sale ("AFS") that
would not call into question an institution's future intent to hold other
securities to maturity.
This one-time transfer was authorized to take place between November
15, 1995 and December 31, 1995. On November 27, 1995, ABC elected to transfer
all securities classified as HTM to the AFS category. This transfer does not in
any way indicate that future purchases may not be placed in the HTM category.
As of December 31, 1996, the capital accounts were increased by $16,000,
representing the after tax effect of the AFS portfolio's increase in fair value
above its costs.
ASSET GROWTH
Bancorp experienced an increase in total assets during 1996 of
$41,163,495 or 14.88% and in 1995 of $49,271,378 or 21.67%. Stronger loan
demand resulted in a $32,251,290 or 34.13% increase in loans in 1996.
Accompanying the increase in loans was an
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increase of $1,286,624 or 1.07% in available-for-sale securities. ABC
premises and equipment increased $2,335,950 or 22.23% during the year ended
1996 which is the direct result of the new office complex and branch facility
previously discussed under Capital Resources. The increase in total assets
was primarily funded by increases in the deposit base of ABC of $37,072,114
or 17.53%. It is anticipated that total assets will continue to increase
during 1997, as the Southern Nevada economy remains strong and ABC continues
it aggressive business development efforts and branch expansion activities.
INTEREST INCOME
Total interest income for 1996 totaled $20,272,630 as compared to
$19,408,247 for 1995. This increase of $864,383 or 4.45% followed the 1995
increase over 1994 of $4,991,951 or 34.63%.
The increase in interest income reflects the change in the yield and
volume of earning assets when comparing one year to another. Average earning
assets increased by approximately $17,704,967 to $238,899,739 while the average
yield for those assets decreased to 8.49% from 8.77% in 1995. Average earning
assets in 1995 were $30,260,570 above 1994's level of $190,934,202. The 1994
yield was 7.55%. Management anticipates continued growth in earning assets.
The individual components comprising total interest income are interest and fees
on loans, interest on investment securities and interest on federal funds sold.
The yields and related volumes of these components changed individually as
follows:
Interest and Fees on Loans: Income generated by Bancorp's loan
portfolio increased $1,027,764 or 8.89% for the year ended December 31, 1996.
This increase is the result of an increase in the average loan volume of
approximately $16,557,715 or 18.47% which was offset by a decrease in the yield
to 11.85% in 1996 from 12.90% in 1995. During the year ended December 31, 1995,
interest and fees on loans increased $3,256,671 or 39.2%. This increase is
attributable to an increase in the average volume of $20,578,519 or 29.79%
coupled with an increase in the yield of .88%.
Interest on Securities: Total income from the securities portfolio
decreased $159,884 or 2.15% for the year ended December 31, 1996 following an
increase of $1,536,279 or 25.97% during 1995. The nominal decrease in
investment income for the current year is the result of an increase in the
average volume of $541,690 or .43% offset by a decrease in the yield to 5.82% in
1996 from 5.97% in 1995. The tax equivalent yield decreased to 6.14% in 1996
from 6.34% in 1995. The decline in the 1996 yield is attributable to an overall
decrease in interest rates. The average volume of investment securities
increased by 6.69% for the year ended December 31, 1995. Management attempts to
maximize the benefit from tax-free municipal bonds and will continue to do so.
It is anticipated that any purchases of investment securities in 1997 will have
short-term maturities with higher yields than those currently maturing.
Interest on Federal Funds Sold: Total interest on federal funds sold
decreased $3,497 or .89% in 1996 following a $199,001 or 103.48% increase in
1995. The average volume increased $605,562 or 8.99% during the year ended
December 31, 1996 which was
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offset by a decrease in the yield to 5.29% from 5.81% in 1995. The increase
for the year ended December 31, 1995 was a result of an increase in the
average volume of $1,858,917 or 38.13% coupled with an increase in the yield
of 1.87%.
INTEREST EXPENSE
The major components of interest expense are interest on deposits and
interest on securities sold under agreements to repurchase. The average cost of
funds decreased to 3.68% in 1996 from 3.96% in 1995. The average cost of funds
was 2.63% in 1994. The cost of funds and related volumes of these individual
components were as follows:
Interest on Deposits: Total interest on deposits decreased $621,364
or 12.43% in 1996. In 1995 interest on deposits increased $2,058,261 or 70.02%.
The average volume for interest bearing deposits decreased $7,718,845 or 6.05%
during 1996 following an increase of $15,158,271 in 1995. The average rate
decreased to 3.65% in 1996. The average rate was 3.92% in 1995 and 2.62% in
1994.
Interest on Securities Sold Under Agreement to Repurchase: A
repurchase agreement is an agreement between ABC and customer where ABC sells
U.S. government securities to the customer. On the agreed date, usually the
following day, ABC repurchases the securities at the same price plus interest at
a predetermined rate. Interest expense paid for the year ended December 31,
1996 increased $398,270 or 39.13%. In 1995 interest expense increased $633,351
or 164.74%. The average volume for this category increased $13,409,768 or
55.37% to $37,626,801 in 1996 from $24,217,033 in 1995. The average volume was
$13,784,883 in 1994. Average rates decreased to 3.76% in 1996 from 4.20% in
1995. Rates for 1994 averaged 2.79%. Interest on these account are
individually negotiated at a rate based on ABC's average federal funds rate for
the month. Average federal funds rates for 1996 were approximately .53% lower
than in 1995, while the 1995 rates were approximately 1.41% higher than in 1994.
INTEREST RATE RISK
Management attempts to protect earnings from wide shifts in interest
rates by employing the following strategies:
Loans: Approximately 95% of ABC's loan portfolio is written on an
adjustable basis that floats with ABC's base rate. Thus, approximately
$120,401,000 reprices immediately upon a change in the base rate.
Securities: Total securities represent approximately 38.34% of total
assets at December 31, 1996. In administering the securities portfolio,
management adheres to Bancorp's "Investment Portfolio Policy and Guidelines",
"Asset/Liability Policy" and "Interest Rate Risk Policy". These internal policy
guidelines dictate the average life of at least 70% of the securities portfolio
mature within three years. The actual average life of the portfolio at December
31, 1996 was approximately 1.92 years. This strategy of maintaining short
maturities provides maximum flexibility in managing fluctuating interest rates.
Additionally, the majority of the
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securities portfolio is of a fixed rate nature. This enables management to
provide an underlying level of income, irrespective of changes in interest
rates. Diversification for all areas of investments is a key element in
interest rate risk. Management monitors the securities portfolio to ensure
that an appropriate balance is maintained in terms of both maturity and type
of security instrument. Monitoring is aided by the use of a computer
program, specializing in Asset/Liability Management and Interest Rate Risk.
Deposits: Management discourages use of long-term Certificates of
Deposit by consistently paying at or below market rates and not offering greater
than one-year maturities, with the exception of 18 month IRAs and SEPs. At
December 31, 1996, approximately 61% of time deposits had a maturity of three
months or less. Due to the large concentration of business accounts,
approximately 44% of all deposits at December 31, 1996 are non-interest bearing.
The above factors provide management the opportunity to maintain
favorable net interest margins under most normal interest rate scenarios.
ALLOWANCE FOR LOAN LOSSES
The purpose of the allowance for loan losses is to maintain reserves at
a level sufficient to cover estimated future loan losses. Management
exercises its judgment in establishing loan loss reserves for existing loans
which may become uncollectible in the future. ABC's current allowance for
loan losses reflects an ongoing evaluation of the known risks in the loan
portfolio and current economic conditions. The allowance for loan losses was
5.54% higher at December 31, 1996 than at December 31, 1995. Expenses for the
provision of loan losses were $375,000 in 1996 as compared to $570,000 in
1995. At December 31, 1995 the allowance for loan losses was 70.95% higher
than at December 31, 1994.
Net charged off loans in 1996 were $306,184 compared to $54,279 in
1995 and ($57,647) in 1994. Net loan losses increased $251,905 or 464% in 1996
and increased $111,926 or 194% in 1995. Net loans at year end were $125,426,641
in 1996 and $93,244,167 in 1995. The allowance for loan loses at year end 1996
was 1.03% and in 1995 was 1.32% of loans outstanding. The allocated portion of
the allowance consists of 5 categories: substandard, doubtful, loss, accounts
receivable factoring, and pass credits. Additionally, special consideration was
given to adequately allocate allowances for ABC's track-home borrowers.
Management believes construction loans for partially pre-sold track homes may
have the potential to be less risk tolerant than other types of construction
loans. Ongoing evaluation of the loan portfolio and new loan products are
determining factors in maintaining the allocated allowance for loan losses. The
allocated allowance at December 31, 1996 was $859,487 as compared to $592,000 at
December 31, 1995. This increase is primarily the result of two loans
classified as doubtful.
At December 31, 1996, Bancorp has two loans totaling approximately
$700,000 classified as impaired in accordance with FASB Statement No. 114 as
amended by FASB Statement No. 118. Approximately $24,000 of interest income
would have been recorded for the year ended December 31, 1996 had the loans been
current in accordance with their original
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terms. No loans were accounted for as "troubled debt restructurings" as
defined in SFAS No. 15. Loans are placed on non-accrual status when they go
over 90 days delinquent, or when circumstances indicate that timely
collection of interest in doubtful. Loans over 90 days delinquent may be left
on accrual status if a repayment plan has been negotiated and it appears
likely that all interest will be paid. At December 31, 1996, there are no
other loans outstanding which causes management serious doubts as to the
ability of the borrower to comply with the loan repayment terms.
Bancorp had approximately $195,000 classified as other real estate
owned ("REO"), which is included in Other Assets on the Consolidated Balance
Sheet at December 31, 1996. This property consists of one single family
residence which was acquired through foreclosure. Bancorp recorded a loss of
approximately $50,000 during 1996 to reduce the recorded amount to fair value.
At December 31, 1996, Bancorp was in negotiations to sell the property.
The loan portfolio is concentrated in the Southern Nevada area. Of
total loan commitments, 58% are in real estate loans, and 44% of real estate
loan commitments are comprised of residential construction loans.
Management places greater emphasis on the entry-level and first move-
up housing market. Additionally, land loans are conservatively underwritten.
Management reviews concentrations in the real estate loan portfolio on a
quarterly basis. Management also performs an analysis of the allowance for loan
losses on a quarterly basis and appraisal reviews are performed to support the
values at which loans are carried in the portfolio. Risk percentages are
assigned to all classified loans to ensure that the reserve is adequate and gain
excess reserve is provided for any unexpected problems that may arise within the
portfolio. The FDIC, as an integral part of their examination process,
periodically reviews ABC's allowance for loan losses, and may require ABC to
make additions to the allowance based on their judgment about information
available to them at the time of their examinations. Management feels that the
current allowance for loan losses of $1,311,436 is adequate for ABC to meet all
anticipated loan losses.
NON-INTEREST INCOME
Total non-interest income increased $315,792 or 22.18% for the year
ended December 31, 1996 and increased $239,941 or 20.27% during 1995. The
main component of the 1996 increase is net realized gains recorded on the
sale of investment securities of $307,258 compared with a recorded loss of
$19,922 during 1995. Additionally, trust operations revenue increased
$84,200 or 26.03% due to increased assets under management. Other accounts
with significant fluctuations include property rental income which increased
$47,745 or 24.97% due to Bancorp's new office complex and Voucher control
fees which declined by $82,896 or 30.78% due to the reduction in construction
loans made during the year.
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NON-INTEREST EXPENSE
Non-interest expenses are comprised of three major categories: salaries,
wages and employee benefits, occupance expenses, and all other expenses.
Total non-interest expense increased by $360,982 or 4.12% in 1996 and by
$856,470 or 10.82% in 1995. The three components of this category are
analyzed as follows:
Salaries, Wages and Employee Benefits: Total salary, wages and employee
benefit expense increased $575,453 or 12.65% in 1996 while in 1995 there was
an increase of $557,187 or 13.96% over 1994. The increase in 1996 is
primarily the result of normal salary increases coupled with additional
staffing of the North Las Vegas branch. Full-time equivalent staff increased
to 116 in 1996 from 113 in 1995 and 98 in 1994. Salary, wages and employee
benefits expenses will increase in 1997 as more employees are added to staff
planned branch expansion.
Occupance Expense: Occupance expenses increased $203,331 or 13.53% as
compared to a decrease of $115,038 or 7.11% in 1995. The increase in 1996 is
primarily the result of additional depreciation expense of Bancorp's two new
facilities. The 1995 decrease is primarily the result of tenant improvements
becoming fully depreciated.
Other Expenses: Total expenses in this category decreased $417,802 or
15.38% during 1996 compared to an increase of $414,321 or 17.99% in 1995.
The majority of the 1996 decrease is due to the reduction of FDIC
assessments. The Banking Insurance Fund (BIF) became fully funded during
1995 and as such, expenses were $366,733 less than in 1995. Additionally,
expense related to the 1995 Stock Appreciation Rights Plan decreased
$242,000. These decreases were offset by an increase in REO expense of
approximately $174,000.
DIVIDEND POLICIES
It has been the policy of the company to retain all earnings for the
purpose of supporting growth rather than pay cash dividends to shareholders.
The Board of Directors declared a 15% stock dividend on March 18, 1996, a
four-for-three stock split on March 20, 1995 and a 15% stock dividend on
March 21, 1994.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1996, Bancorp adopted FASB Statement no. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF. Statement No. 121 establishes accounting standards for
the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to these assets to be held and used for long-lived assets
and certain identifiable intangibles to be disposed of. There was no
material effect on the consolidated financial statements relating to this
adoption.
Effective January 1, 1996, Bancorp adopted FASB Statement No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. Statement No. 123 establishes
financial accounting and reporting standards for stock-based employee
compensation plans, such as stock options and
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stock purchase plans. The statement generally suggests but does not require
stock-based compensation transactions for employees to be accounted for based
on the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measurable.
Transactions occurring after December 15, 1995 with non-employees shall be
accounted for based on the fair value of the consideration received or the
fair value of the equity instruments issued, whichever is more reliably
measurable. Companies that do not elect to change their accounting for
stock-based compensation are required to disclose the effect on net income
and earnings per share as if the accounting provisions of Statement No. 123
were applied. Bancorp has decided not to adopt the accounting provisions of
this statement.
The FASB has issued Statement No. 125 ACCOUNTING FOR TRANSFERS AND
SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES (as amended
by FASB No. 127 which defers implementation of certain provisions of FASB No.
125 to January 1, 1998), which becomes effective for transactions occurring
after December 31, 1996. The Statement distinguishes transfers of financial
assets that are sales from transfers that are secured borrowings. The
Statement also establishes standards on the initial recognition and
measurement of servicing assets and other retained interest and servicing
liabilities, and their subsequent measurement. Management does not believe
the application of this Statement to transactions of Bancorp that have been
typical in the past will materially affect Bancorp's financial position or
results of operations.
Emerging Issues Task Force (EITF) Issue No. 96-12 RECOGNITION OF
INTEREST INCOME AND BALANCE SHEET CLARIFICATION OF STRUCTURED NOTES, requires
the use of the retrospective interest method of recognizing income on certain
structured note securities. The application of this consensus applies
prospectively to new securities acquired after November 14, 1996. Management
does not believe the application of this consensus will materially affect
Bancorp's financial position or results of operations.
The FASB issued Statement No. 128 EARNINGS PER SHARE which establishes
standards for computing and presenting earnings per share (EPS). The
Statement simplifies the standards for computing earnings per share
previously found in APB Opinion No. 15, EARNINGS PER SHARE, and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted DPS computation.
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COMPARATIVE RIGHTS OF SHAREHOLDERS
The current rights of the Bancorp Shareholders are governed by the
Nevada General Corporation Law (the "Nevada Statute") and the Articles of
Incorporation and Bylaws of Bancorp. Upon consummation of the Mergers,
Bancorp Shareholders will all become stockholders of FSC, a Delaware
corporation. As stockholders of FSC, their rights will be governed by the
Delaware General Corporation Law (the "Delaware Statute") and by FSC's
Certificate of Incorporation and Bylaws. The Nevada Statute and the Articles
of Incorporation and Bylaws of Bancorp differ from the Delaware Statute and
the Certificate of Incorporation and Bylaws of FSC in certain respects.
Although it is not practical to compare all such differences, the following
is a summary of certain of the more significant of them.
AUTHORIZED CAPITAL STOCK
BANCORP. Under Bancorp's Articles of Incorporation, the aggregate
number of shares which it is authorized to issue is 5,000,000 shares of
Common Stock, $.05 par value. All shares of Bancorp Common Stock are
identical in rights and have one vote. The holders of Bancorp Common Stock
are entitled to such dividends as may be declared from time to time by the
Bancorp Board of Directors from funds available therefor, subject to certain
restrictions, and upon liquidation are entitled to receive pro rata all
assets of Bancorp available for distribution to such holders after provision
for liabilities.
FSC. Under FSC's Certificate of Incorporation, FSC is authorized to
issue 300,000,000 shares of common stock and 400,000 shares of preferred
stock. All shares of FSC Common Stock are identical in rights and have one
vote. All shares of preferred stock also have one vote.
The FSC Common Stock to be issued in the Merger will be newly issued
from authorized and unissued FSC Common Stock. The FSC Common Stock, when
delivered pursuant to the Merger Agreement, will be duly authorized and
validly issued, fully paid and non-assessable, which status will be supported
by an opinion of FSC's counsel.
FSC's Certificate of Incorporation provides that its Board of Directors
can issue preferred stock in one or more series and with such terms and at
such times and for such consideration as the FSC Board of Directors may
determine. The authority of the FSC Board of Directors includes the
determination or fixing of the following with respect to shares of any series
thereof: (a) the number of shares and designation or title thereof; (b)
rights as to dividends; (c) whether and upon what terms the shares are to be
redeemable; (d) rights and preferences of the holders upon the liquidation,
dissolution or winding up of FSC; (e) whether the shares are to be subject to
a retirement or sinking fund; (f) whether and upon what terms the shares are
convertible; (g) the voting rights, if any; (h) whether the issuance of any
additional shares of a series shall be subject to restrictions as to issuance
or as to the powers, preferences or rights of any other series; and (i) any
other preferences, privileges, powers or relative rights specified by the
Board of Directors. FSC has designated 18,052 shares of its preferred stock
as Series A Cumulative Convertible Preferred Stock, of which 10,277 were
issued and
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outstanding as of December 31, 1996, and all of the currently outstanding
shares of which have voting rights, and are convertible at the option of the
holders into 12.15 shares of FSC Common Stock, for each share of Cumulative
Convertible Preferred Stock.
On August 28, 1989, FSC's Board of Directors adopted a Shareholder
Rights Plan whereby each FSC shareholder is issued rights to acquire a new
class of junior preferred stock, which rights could also be expanded by the
FSC Board of Directors to allow the purchase of additional shares of FSC
under certain circumstances involving the acquisition of certain amounts of
FSC stock by a third party. (SEE "INFORMATION ABOUT FSC--Description of
FSC's Capital Stock--Common Stock.").
DIRECTORS
NUMBER. Bancorp's Bylaws provide that the number of its directors shall
be not less than 6 nor more than 12, with the exact number to be set from
time to time by the Board of Directors. Currently, Bancorp has 10 Directors.
FSC's Bylaws provide that the number of its directors shall be not less than
six nor more than thirty, with the exact number to be established from time
to time by resolution of the Board of Directors. Currently, FSC has 18
directors.
ELECTION. Both the Nevada Statute and the Delaware Statute provide that
members of the board of directors are elected by a plurality vote of the
shareholders or stockholders, with each share being entitled to one vote,
unless the articles or certificate of incorporation provide otherwise.
Neither Bancorp nor FSC allow cumulative voting with respect to the election
of directors.
REMOVAL. The Nevada Statute provides that one or more directors of a
corporation may be removed with or without cause, by the vote of stockholders
representing not less than two-thirds of the voting power of the issued and
outstanding stock entitled to vote, subject to certain conditions. These
conditions include certain voting requirements applicable to corporations
having cumulative voting rights and to the removal of a member of a board who
is elected by a single class. The Bancorp Board of Directors is not
classified. Bancorp Shareholders may not cumulate votes for Directors.
Under the Delaware Statute any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares entitled to vote at an election of directors. The Delaware Statute
also provides additional requirements for the removal of a member of a board
which is classified as to term or elected by a single class or elected by
classes possessing cumulative voting rights. However, these additional
requirements do not apply to FSC, as the Board of Directors of FSC is not
classified and none of FSC's shares of capital stock possesses any cumulative
voting rights.
INDEMNIFICATION. Both the Nevada and the Delaware Statutes provide that
a director, employee, officer or agent of a corporation may be indemnified
against liability (other than in an action by or in the right of the
corporation) and other costs incurred by such person in connection with such
proceeding, provided such person acted in good faith and in a manner
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such person reasonably believed to be in, and not opposed to, the best
interests of the corporation, and, with respect to any criminal proceeding,
had no reason to believe the conduct was unlawful. For actions or suits
brought by or in the name of the corporation, both the Nevada and the
Delaware Statutes provide that a director, employee, officer or agent of a
corporation may be indemnified against expenses incurred by such person in
connection with such proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in, or at least not opposed to,
the best interests of the corporation, except that if such person is adjudged
to be liable to the corporation, such person can be indemnified if and only
to the extent that a court determines that despite the adjudication of
liability, in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as the court
shall deem proper. On the other hand, if he/she prevails, indemnification is
mandatory. SEE the following subsection captioned "Directors's and
Officer's Liability" for a discussion of the differences in the standards of
liability for Bancorp Directors compared to FSC Directors.
Both the Delaware Statute and the Nevada Statute provide that the
determination of whether an officer or director is entitled to
indemnification (that is, whether or not the person has met the statutory
standard of conduct required for indemnification) is to be made (1) by the
board of directors by a majority vote of a quorum consisting of directors who
are not parties to the action, suit or proceeding in question, or (2) if such
a quorum is not obtainable or if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
FSC's Articles of Incorporation, as amended, provide for indemnification
of such persons to the full extent allowed by applicable law. Bancorp has no
such broad indemnification provision.
DIRECTOR'S AND OFFICER'S LIABILITY. The Nevada and Delaware Statutes
both allow a corporation to include, in its articles or certificate of
incorporation, a provision that limits or eliminates the personal liability
of an officer (Nevada only) or a director to the corporation and its
stockholders for monetary damages for such person's breach of fiduciary duty,
provided that such provision may not so limit a director's liability (i) for
a breach of his or her duty of loyalty to the corporation (Delaware only);
(ii) for acts or omissions not in good faith or involving fraud (Nevada
only), intentional misconduct or a knowing violation of law; (iii) for
unlawful payments of dividends, certain stock repurchases or redemptions; or
(iv) for any transaction from which the director derived an improper personal
benefit (Delaware only).
These provisions have the effect of protecting a corporation's directors
against personal liability from breaches of their duty of care. FSC, with
the approval of its stockholders, amended its Certificate of Incorporation to
include such provisions in 1989. Bancorp, with the approval of its
stockholders, amended its Articles of Incorporation to include such
provisions in 1987.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE 1933 ACT
MAY BE PERMITTED TO DIRECTORS, OFFICERS AND CONTROLLING PERSONS OF FSC, FSC
HAS BEEN ADVISED THAT IN THE OPINION OF THE
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SECURITIES AND EXCHANGE COMMISSION SUCH INDEMNIFICATION IS AGAINST PUBLIC
POLICY AS EXPRESSED IN THE 1933 ACT AND IS, THEREFORE, UNENFORCEABLE. IN THE
EVENT THAT A CLAIM FOR INDEMNIFICATION AGAINST SUCH LIABILITIES (OTHER THAN
THE PAYMENT BY FSC OF EXPENSES INCURRED OR PAID BY A DIRECTOR, OFFICER OR
CONTROLLING PERSON OF THE REGISTRANT IN A SUCCESSFUL DEFENSE OF ANY ACTION,
SUIT OR PROCEEDING) IS ASSERTED BY SUCH DIRECTOR, OFFICER OR CONTROLLING
PERSON IN CONNECTION WITH THE SECURITIES BEING REGISTERED, FSC WILL, UNLESS
IN THE OPINION OF ITS COUNSEL THE MATTER HAS BEEN SETTLED BY CONTROLLING
PRECEDENT, SUBMIT TO A COURT OF APPROPRIATE JURISDICTION THE QUESTION OF
WHETHER SUCH INDEMNIFICATION BY IT IS AGAINST PUBLIC POLICY AS EXPRESSED IN
THE 1933 ACT AND WILL BE GOVERNED BY THE FINAL ADJUDICATION OF SUCH ISSUE.
TRANSACTIONS INVOLVING INTERESTED DIRECTORS. The Delaware Statute
states that a transaction involving an interested director of a Delaware
corporation is not void or voidable if (a) the director's interest in the
transaction is disclosed to the board and a majority of the disinterested
directors approve it, (b) the interest is disclosed to the stockholders and
the transaction is approved by a majority of the stockholders, or (c) the
transaction is fair to the corporation. The Nevada Statute contains a
similar provision, except that the board of directors may approve the
transaction only if the vote is sufficient without counting the vote of the
interested directors.
REPURCHASE AND REDEMPTION OF SHARES
The Delaware Statute permits a corporation to redeem or repurchase any
of its shares for cash, other property or a promissory note except when the
capital of the corporation is impaired, or when such repurchase or redemption
would impair any capital of the corporation. The Nevada Statute is silent on
this point.
PAYMENT OF DIVIDENDS TO SHAREHOLDERS
Holders of Bancorp Common Stock are entitled to share ratably in such
cash dividends as may be declared from time to time by Bancorp's Board of
Directors out of funds legally available therefor, subject to certain
restrictions. Under the Nevada Statute, Bancorp may only declare dividends
on its capital stock if the corporation would not be rendered insolvent
(subject to two tests and certain further restrictions).
The Delaware Statute allows a corporation, subject to any restrictions
in its certificate of incorporation, to declare and pay dividends upon its
shares of capital stock either out of its surplus (as determined under the
statute) or, in the event there is no such surplus, out of its net profits
for the fiscal year in which the dividend is declared and/or the preceding
fiscal year. Further restrictions on dividends apply in the event a
corporation has issued shares possessing a preference upon the distribution
of assets. The ability of a Delaware corporation to pay dividends on, or to
make repurchases or redemptions of, its shares is dependent on the financial
status of the corporation standing alone and not on a consolidated basis.
FSC's restated
<PAGE>
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Certificate of Incorporation grants to the Board of Directors the power
to declare dividends on its Common Stock, subject to any dividend or sinking
fund requirements pertaining to its Preferred Stock. FSC is also subject to
restrictions on its dividend paying ability under banking laws. (SEE
"INFORMATION ABOUT FSC--Supervision and Regulation.")
ASSESSMENTS
All outstanding shares of Bancorp and FSC are fully paid and
nonassessable, except to the extent Bancorp Common Stock is assessable under
the Nevada Statute.
PREEMPTIVE RIGHTS
The Nevada Statute, Section 78.265, provides that Bancorp Shareholders
have a preemptive right to acquire unissued shares, treasury shares or
securities convertible into such shares unless provided otherwise in the
Articles of Incorporation. Bancorp's Articles of Incorporation are silent on
the issue of preemptive rights. Delaware law does not provide for preemptive
rights unless expressly provided in the Certificate of Incorporation. FSC's
Certificate does not provide for preemptive rights.
AMENDMENTS TO ARTICLES OR CERTIFICATE OF INCORPORATION
The Delaware Statute permits the board of directors of a Delaware
corporation to adopt a resolution of its own volition setting forth a
proposed amendment to the corporation's certificate of incorporation and
directing that such proposed amendments be submitted to a vote at a meeting
of shareholders. Upon the written request of the holders of not less than 10%
of the shares entitled to vote upon a proposed amendment, the board of
directors is required to adopt a resolution setting forth the requested
amendment and directing that the amendment be submitted to a vote at a
meeting of stockholders.
The Nevada Statute similarly permits the board of directors of a Nevada
corporation to adopt a resolution proposing changes to the corporation's
articles of incorporation and directing that such proposed amendments be
submitted to a vote at a stockholders meeting.
The voting requirements for shareholder approval of proposed amendments
under the Nevada Statute and the Delaware Statute both generally require a
majority vote of the shares entitled to vote on such amendments.
AMENDMENTS TO BYLAWS
The Nevada Statute provides that, unless the power to amend a
corporation's bylaws is reserved to its shareholders by its articles of
incorporation, the bylaws may be amended by the Board of Directors. Bancorp
has made no such reservation.
<PAGE>
-100-
The Delaware Statute provides that stockholders may amend the bylaws of
a corporation, provided that the corporation may, in its articles of
incorporation, also confer such power upon the board of directors. FSC's
Certificate of Incorporation expressly authorizes its Board of Directors to
amend its Bylaws.
SHAREHOLDER APPROVAL OF MERGERS AND OTHER BUSINESS COMBINATIONS
The Nevada Statute requires that any proposed exchange, merger or
consolidation of a corporation must be approved by the holders of a majority
of the outstanding shares entitled to vote.
The Delaware Statute provides that a merger, consolidation, sale, lease
or exchange of all or substantially all of its assets may be effected upon a
vote of the holders of a majority of a corporation's outstanding shares.
Delaware law does not require a stockholder vote of the surviving corporation
in a merger if (a) the merger does not amend the existing certificate of
incorporation, (b) each outstanding share of the surviving corporation before
the merger is unchanged or becomes a treasury share of the surviving
corporation, and (c) the number of shares to be issued by the surviving
corporation in the merger does not exceed 20% of the shares outstanding
immediately prior to such issuance.
In February 1988, the Delaware Statute was amended to prohibit certain
business combinations (generally mergers, consolidations and sales of 10% or
more of a corporation's assets) between Delaware corporations and
"Interested Stockholders." As defined under the Delaware Statute,
Interested Stockholders are persons who alone, or together with their
affiliates, beneficially own 15% or more of the outstanding stock of a
corporation. The Delaware Statute bars business combinations between an
Interested Stockholder and the corporation for a period of three years after
any such person or group has become an Interested Stockholder. The Delaware
Statute contains exceptions to the prohibition which allows such combinations
if, as a result of the transaction which causes a person to become an
Interested Stockholder, such person owns 85% or more of the outstanding
voting stock (with certain exceptions). Another provision exempts from the
coverage of the Delaware Statute any transaction approved by the
corporation's board of directors and two-thirds of the outstanding voting
stock not held by the Interested Stockholder. FSC's Certificate of
Incorporation provides for super-majority voting requirements in certain
cases of non-consensual merger votes.
The Nevada Statute similarly prohibits such business combinations
between Nevada corporations and interested stockholders for a period of 3
years after the interested stockholder's date of acquiring shares unless the
combination or the purchase of the shares, made by the interested stockholder
is approved by the board of directors. The Nevada Statute also prohibits
such business combinations after the expiration of 3 years after the
interested stockholder's date of acquiring shares unless the combination
meets the requirements specified in Section 78.439 for director and
stockholder approvals or Sections 78.441 to 78.444 inclusive with respect to
the consideration to be received in the combination by all stockholders other
than the interested stockholder. The Nevada Statute defines interested
stockholders to include persons who, alone or together with affiliates,
beneficially own 10% of the outstanding stock of the
<PAGE>
-101-
corporation. A Nevada corporation may opt-out of the application of these
provisions under certain circumstances. Bancorp has not opted out of the
application of this statute.
The Nevada Statute also denies voting rights to a stockholder who
acquires a controlling interest in a Nevada corporation, unless such voting
rights are approved by a majority of the voting powers of the corporation. A
Nevada corporation may opt-out of the application of these provisions under
certain circumstances. Bancorp has not opted out of the application of this
statute. The Delaware Statute contains no such provision.
Nevada law does not require a stockholder vote of the surviving
corporation in a merger if (a) the merger does not amend the existing
articles of incorporation, (b) each outstanding share of the surviving
corporation before the merger is unchanged, and (c) the number of shares to
be issued by the surviving corporation in the merger does not exceed 20% of
the shares outstanding immediately prior to such issuance.
RIGHTS OF DISSENTING SHAREHOLDERS
Sections 92A.300 to 92A.500 of the Nevada Statute provide statutory
appraisal rights to certain shareholders who may dissent from certain
corporate reorganizations such as mergers or sales of all or substantially
all of the institution's assets. Under the Nevada Statute, shareholders are
not entitled to dissenters' rights in the event of a merger if, at the record
date fixed to determine the shareholders entitled to receive notice of and to
vote at the meeting at which the plan of merger is to be acted on, the shares
are listed on a national securities exchange, included in the NASDAQ National
Market System, or are held by at least 2,000 stockholders of record, unless
an exception applies.
The Delaware Statute provides appraisal rights only in the case of a
statutory merger, consolidation or sale of substantially all the assets of a
corporation, except that such rights are not available in cases in which the
corporation is to be the surviving corporation and no vote of its
stockholders is required for such transaction or, unless otherwise provided
in the certificate of incorporation, in cases in which the consideration for
such transaction is shares of stock listed on a national securities exchange
or held of record by more than 2,000 stockholders, unless such stockholders
are required by the terms of the merger, consolidation or sale to accept
anything other than shares of stock of the surviving corporation, shares of
stock of another corporation which are all listed or held by such number of
record holders, cash in lieu of fractional shares of such stock, or any
combination thereof. The Certificate of Incorporation of FSC does not
provide for greater appraisal rights than those set forth in the Delaware
Statute.
FSC Shareholders are not entitled to dissent from or vote on the Mergers.
ANNUAL MEETINGS OF SHAREHOLDERS
The Delaware Statute authorizes the Delaware Chancery Court to order a
Delaware corporation to hold an election of directors upon an application by
any stockholder or director if an annual meeting of the stockholders has not
been held for 13 months. The Nevada Statute authorizes a Nevada Court to
similarly order the election of directors of a Nevada
<PAGE>
-102-
corporation upon application by a stockholder who holds not less than 15% of
the voting power if an annual meeting of stockholders has not been held for
18 months.
SPECIAL MEETINGS OF SHAREHOLDERS
The Nevada Statute provides that special meetings of a corporation's
shareholders may be called by the board of directors, the holders of at least
one-tenth of all the votes entitled to be cast on the subject matter of the
meeting, or by such other persons as are designated in the corporation's
articles of incorporation or bylaws. Bancorp's Articles of Incorporation and
Bylaws do not give any additional person the authority to call special
meetings of the shareholders.
Under the Delaware Statute, special meetings of stockholders of a
corporation may be called by the board of directors or by such persons as are
authorized by the corporation's certificate of incorporation or bylaws.
FSC's Bylaws provide that such meetings may also be called by the President,
and shall be called by the President or the Secretary at the written request
of stockholders owning not less than a majority of all shares issued and
outstanding and entitled to vote on any proposal to be submitted to the
meeting. The Nevada Statute is similar to the Delaware Statute concerning
meetings of shareholders in general, although the Nevada Statute is silent as
to any distinction between regular and special meetings of shareholders.
SHAREHOLDER CONSENT TO ACTION WITHOUT A MEETING
Under the Nevada Statute, any action which may be taken at any meeting
of shareholders may be taken without a meeting and a vote if a written
consent stating the action is signed by a majority of the shareholders
entitled to vote with respect to the subject matter thereof, unless the
corporation's articles of incorporation provide otherwise. Bancorp's
articles of incorporation do not restrict this right.
The Delaware Statute provides that, unless otherwise provided in the
certificate of incorporation, any action which may be taken at any meeting of
stockholders may be taken without a meeting, prior notice or a vote, if
written consents setting forth the action taken are signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to take such action if the action were taken at a meeting.
FSC's Certificate of Incorporation does not prohibit such actions by written
consent.
SHAREHOLDER INSPECTION OF RECORDS
The Delaware Statute grants every stockholder the right to inspect a
Delaware corporation's stockholder register and other books and records. The
Nevada Statute states that any stockholder who holds at least 5% of the
outstanding stock may inspect the corporation's articles of incorporation,
bylaws and stock ledger.
<PAGE>
-103-
LEGAL MATTERS
The legality of the FSC Common Stock offered hereby and certain other
matters with respect to the Mergers will be passed upon for FSC and FSB by
Ray, Quinney & Nebeker, P.C. As of the Record Date, attorneys at Ray,
Quinney & Nebeker, as a group, were beneficial owners of no more than 4% of
the total outstanding FSC common stock and held no shares of Bancorp Common
Stock. A shareholder of Ray, Quinney & Nebeker is the daughter of the
Chairman and Chief Executive Officer of FSC. Another shareholder acts as
Assistant Secretary of FSC.
The law firm of Gary Steven Findley & Associates will pass upon certain
matters in connection with the Mergers for Bancorp and for ABC. As of the
Record Date, attorneys at Gary Steven Findley & Associates beneficially owned
4,000 shares of Bancorp Common Stock and 1,000 shares of FSC Common Stock.
EXPERTS
The consolidated financial statements as of December 31, 1996 and 1995,
and for each of the three years in the period ended December 31, 1996
incorporated in this prospectus/proxy statement by reference from FSC's
Annual Report on Form 10-K have been audited by Deloitte & Touche, LLP,
independent certified public accountants, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance
upon such report given upon the authority of that firm as experts in
accounting and auditing.
The consolidated financial statements of Bancorp as of December 31, 1996
and 1995 and for each of the three years in the period ended December 31,
1996 included in this prospectus/proxy statement have been audited by
McGladrey & Pullen, LLP, independent certified public accountants, as stated
in their report appearing in Appendix B, and have been so included in
reliance upon such report given upon the authority of that firm as experts in
accounting and auditing.
DEADLINE FOR FSC SHAREHOLDER PROPOSALS
Any FSC shareholder who wishes to present a proposal for action at the
APRIL 1998 ANNUAL MEETING of the FSC shareholders, must submit his proposal
in writing by Certified Mail -- Return Receipt Requested, to First Security
Corporation, Attention: Secretary of the Corporation, 79 South Main Street,
Salt Lake City, Utah 84111, on or before December 31, 1997.
DEADLINE FOR BANCORP SHAREHOLDER PROPOSALS
Assuming the Merger Agreement is not approved at the Shareholders'
Meeting, or that the Merger Agreement otherwise fails to close and is
terminated, a Bancorp shareholder who wishes to present a proposal for action
at the 1998 ANNUAL MEETING of the Bancorp shareholders, must submit his
proposal in writing by Certified Mail -- Return Receipt Requested,
<PAGE>
-104-
to American Bancorp of Nevada, Attention: Secretary of the Corporation, 4425
Spring Mountain Road, Las Vegas, Nevada 89102, on or before December 31, 1997.
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware contains detailed
provisions on indemnification of directors and officers of a Delaware
corporation against expenses, judgments, fines and amounts paid in
settlement, actually and reasonably incurred in connection with litigation.
The Certificate of Incorporation of First Security Corporation provides
for indemnification of directors and officers to the full extent permitted or
allowed by the laws of the State of Delaware, as such laws exist or may
hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the registrant to provide broader
indemnification rights than permitted or allowed by Section 145). The
registrant also insures its officers and directors to the full extent
permitted by Section 145.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS. The Registration Statement includes the following Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
2. Agreement and Plan of Reorganization, dated as of March 17, 1997,
by and among First Security Corporation ("FSC"), First Security
Bank of Nevada ("FSB"), American Bancorp of Nevada
("Bancorp"), and American Bank of Commerce ("ABC"). (Included
as Appendix A to the Prospectus / Proxy Statement.
3(1). Certificate of Incorporation, as amended (Exhibit 3.1 to FSCO's
Registration Statement on Form S-4, Reg #333-30045, filed
July 24, 1990, incorporated by reference).
3(2). Bylaws of FSC, as amended Jan. 29, 1996 (Exhibit 3.2 to FSCO's
Annual Report on Form 10-K for the year ended Dec. 31, 1995,
incorporated by reference).
4(1). No instruments defining the rights of holders of long-term debt
of FSC and its subsidiaries have been included as exhibits because
the total amount of indebtedness authorized under any such
instrument does not exceed 10% of the total assets of FSC and its
subsidiaries on a consolidated basis.
4(2). Rights Agreement between FSC and First Security Bank NA,
dated Aug. 28, 1990, which includes: Exhibit A, the form of Rights
Certificate and the form of Election of Exercise; Exhibit B, the
form of Certificate of Designation of FSC's Junior Series B
Preferred Stock, no par value per share; and Exhibit
RS-4
<PAGE>
C, the Summary of Rights (Exhibit 4 to FSC's Report on Form 8-K,
dated Aug. 28, 1990, filed Sept. 1, 1990, incorporated by
reference).
4(3). Amendment Agreement between FSC and First Security Bank of Utah NA,
dated Sept. 26, 1990, amending the Rights Agreement between the same
parties dated Aug. 28, 1990, (Exhibit 1 to FSC's Amendment #1 on
Form 8-A, dated Oct. 10, 1990, filed Oct. 16, 1990, amending FSC's
Report on Form 8-K, dated Aug. 28, 1990, filed Sept. 1, 1990,
incorporated by reference).
5. Opinion of Ray, Quinney & Nebeker as to the legality of the shares
being registered.
8. Opinion of Ray, Quinney & Nebeker re: Tax Matters.
10(1). Amended and Restated FSC Comprehensive Management Incentive Plan
(Exhibit 10.1 to FSC's Annual Report on Form 10-K for the year
ended Dec. 31, 1994, incorporated by reference).
10(2). Employment Agreement between FSCO and Spencer F. Eccles, dated
Oct. 16, 1996 (Exhibit 10.3 to FSC's Registration Statement on
Form S-4, Reg #333-21759, filed Feb. 13, 1997, incorporated by
reference).
10(3). Employment Agreement between FSC and Morgan J. Evans, dated
Oct. 16, 1996 (Exhibit 10.4 to FSC's Registration Statement on
Form S-4, Reg #333-21759, filed Feb. 13, 1997, incorporated by
reference).
10(4). Employment Agreement between FSC and Michael P. Caughlin, dated
Oct. 16, 1996 (Exhibit 10.9 to FSC's Registration Statement on
Form S-4, Reg #333-21759, filed Feb. 13, 1997, incorporated by
reference).
10(5). Employment Agreement between FSC and Brad D. Hardy, dated Oct. 16,
1996 (Exhibit 10.8 to FSC's Registration Statement on Form S-4,
Reg #333-21759, filed Feb. 13, 1997, incorporated by reference).
10(6). Employment Agreement between FSC and Mark D. Howell, dated
Oct. 16, 1996 (Exhibit 10.10 to FSC's Registration Statement on
Form S-4, Reg #333-21759, filed Feb. 13, 1997, incorporated by
reference).
10(7). Employment Agreement between FSC and J. Patrick McMurray, dated
Oct. 16, 1996 (Exhibit 10.6 to FSC's Registration Statement on
Form S-4, Reg #333-21759, filed Feb. 13, 1997, incorporated by
reference).
10(8). Employment Agreement between FSC and L. Scott Nelson, dated
Oct. 16, 1996 (Exhibit 10.5 to FSC's Registration Statement on
Form S-4, Reg #333-21759, filed Feb. 13, 1997, incorporated by
reference).
RS-5
<PAGE>
10(9). Employment Agreement between FSC and Scott C. Ulbrich, dated
Oct. 16, 1996 (Exhibit 10.7 to FSC's Registration Statement on
Form S-4, Reg #333-21759, filed Feb. 13, 1997, incorporated by
reference).
10(10). The form of FSC's Deferred Compensation Plan Deferral
Election -- 01/01/95 -- 12/31/95 (Exhibit 10.10 to FSC's Annual
Report on Form 10-K for the year ended Dec. 31, 1994, incorporated
by reference).
13(1). FSC's Annual Report on Form 10-K for the year ended December 31,
1996, hereby incorporated by reference [File No. 1-6906].
22. FSC's Subsidiaries (included in FSC's Annual 10-K Report for the
year ended December 31, 1996 [File No. 1-6906], and incorporated
by reference).
24(1). Consent of Deloitte & Touche, LLP.
24(2). Consent of McGladrey & Pullen LLP.
24(3). Consent of Ray, Quinney & Nebeker (filed as part of Exhibit 5 and
Exhibit 8(1)).
24(4) Consent of Gary Steven Findley & Associates.
24(5) Consent of the Findley Group.
25. Power of Attorney (included in signature pages of original filing
of Registration Statement).
28. Form of Proxy Materials for Bancorp Shareholders' Meeting.
RS-6
<PAGE>
ITEM 22. UNDERTAKINGS.
FSC hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, as amended (the "1933 Act"), each
filing of FSC's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended), that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
FSC hereby undertakes that, prior to any public reoffering of
the securities registered hereunder through use of a prospectus which is a part
of this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
THE UNDERTAKING AS TO INDEMNIFICATION OF OFFICERS AND DIRECTORS
REQUIRED TO BE DISCLOSED BY ITEM 512(i) OF REGULATION S-K IS FOUND IN
"COMPARATIVE RIGHTS OF SHAREHOLDERS--DIRECTORS--DIRECTOR LIABILITY" IN THE
PROSPECTUS / PROXY STATEMENT.
FSC hereby undertakes that every prospectus (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the 1933 Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective; and that, for purposes of determining any liability
under the 1933 Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
FSC hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Items 10(b),
11 or 13 of this Form, within one business day of receipt of such request, and
to send the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to the
Effective Time of the registration statement through the date of responding to
the request.
FSC hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired, that was not the subject of and included in the registration statement
when it became effective.
RS-7
<PAGE>
FSC hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
Effective Time of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
RS-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, First Security
Corporation has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Salt Lake City, Utah,
on the 6th day of May, 1997.
FIRST SECURITY CORPORATION
By: /s/ Morgan J. Evans
-----------------------
Morgan J. Evans
President and Chief Operating Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints A. Robert Thorup, Esq. and Brad D. Hardy, Esq. and each of them, his
true and lawful attorney-in-fact and agent, with full powers of substitution,
for him and in his name, place and stead, in any and all capacities, to sign
and to file any and all amendments, including pre- and/or post-effective
amendments to this Registration Statement, with the Securities and Exchange
Commission, granting to said attorney-in-fact full power and authority to
perform any other act on behalf of the undersigned required to be done in
connection therewith.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date or dates indicated.
SIGNATURE TITLE DATE
/s/ Spencer F. Eccles Chairman and Chief May 6, 1997
- ----------------------- Executive Officer, Director
Spencer F. Eccles
/s/ Morgan J. Evans President and Chief May 6, 1997
- ----------------------- Operating Officer, Director
Morgan J. Evans
RS-9
<PAGE>
/s/ Scott C. Ulbrich Executive Vice President and May 6, 1997
- ----------------------- Chief Financial Officer
Scott C. Ulbrich (Principal Financial and
Accounting Officer)
/s/ James C. Beardall Director May 6, 1997
- -----------------------
James C. Beardall
/s/ Rodney H. Brady Director May 6, 1997
- -----------------------
Rodney H. Brady
/s/ James E. Bruce Director May 6, 1997
- -----------------------
James E. Bruce
/s/ Thomas D. Dee II Director May 6, 1997
- -----------------------
Thomas D. Dee II
Director
- -----------------------
Dr. David P. Gardner
/s/ Robert H. Garff Director May 6, 1997
- -----------------------
Robert H. Garff
/s/ Jay Dee Harris Director May 6, 1997
- -----------------------
Jay Dee Harris
/s/ Robert T. Heiner Director May 6, 1997
- -----------------------
Robert T. Heiner
RS-10
<PAGE>
/s/ Karen H. Huntsman Director May 6, 1997
- -----------------------
Karen H. Huntsman
/s/ G. Frank Joklik Director May 6, 1997
- -----------------------
G. Frank Joklik
/s/ B. Z. Kastler Director May 6, 1997
- -----------------------
B. Z. Kastler
Director
- -----------------------
Joseph G. Maloof
/s/ Scott S. Parker Director May 6, 1997
- -----------------------
Scott S. Parker
/s/ James L. Sorenson Director May 6, 1997
- -----------------------
James L. Sorenson
/s/ Harold J. Steele Director May 6, 1997
- -----------------------
Harold J. Steele
/s/ James R. Wilson Director May 6, 1997
- -----------------------
James R. Wilson
172535.05/art
RS-11
<PAGE>
APPENDIX A
AGREEMENT OF MERGER
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization, dated as of March 17, 1997 (this
"AGREEMENT"), is made and entered into by and among FIRST SECURITY CORPORATION,
a Delaware corporation ("FSC"), FIRST SECURITY BANK OF NEVADA, a bank organized
under the laws of Nevada ("FSB"), AMERICAN BANCORP OF NEVADA, a Nevada
corporation ("BANCORP"), and AMERICAN BANK OF COMMERCE, a bank organized under
the laws of Nevada ("BANK").
R E C I T A L S:
A. FSC is a corporation duly organized and existing under the laws of the
State of Delaware, with its principal place of business located at 79 South Main
Street, Salt Lake City, Utah. FSC is authorized by its Articles of
Incorporation to issue (i) 400,000 shares of preferred stock, each of no par
value ("FSC PREFERRED STOCK"), 18,052 of which are designated as Class A
Preferred Stock, of which 10,277 were issued and outstanding on December 31,
1996, and (ii) 300,000,000 shares of common stock, each of $1.25 par value ("FSC
COMMON STOCK"), of which as of December 31, 1996, there were 75,706,072.05 (net
of Treasury) shares issued and outstanding.
B. FSB is a bank duly organized under the laws of the State of Nevada,
with its principal place of business located at Las Vegas, Nevada. FSB is
authorized by its Articles of Incorporation to issue 5,000,000 shares of common
stock, each of $1.00 par value, of which as of the date of this Agreement there
were 612,000 shares issued and outstanding. FSC owns beneficially and of record
all of the issued and outstanding shares of common stock of FSB.
C. Bancorp is a corporation duly organized and existing under the laws of
the State of Nevada, with its principal office located at 4425 Spring Mountain
Road, Las Vegas, Nevada 89102. Bancorp is authorized by its Articles of
Incorporation to issue 5,000,000 shares of common stock, each of $0.05 par value
("BANCORP COMMON STOCK"), of which as of the date of this Agreement there were
3,721,840 shares issued and outstanding and 212,238 options outstanding to
acquire 212,238 shares of Bancorp Common Stock (the "OPTIONS").
D. Bank is a bank incorporated under the laws of the State of Nevada,
having its principal place of business located at 4425 Spring Mountain Road, Las
Vegas, Nevada 89102. Bank is authorized by its Articles of Incorporation to
issue 1,000,000 shares of common stock, each of $5.00 par value, of which as of
the date of this Agreement there were 273,471 shares issued and outstanding.
Bancorp owns beneficially and of record all of the issued and outstanding shares
of common stock of Bank.
<PAGE>
E. Bancorp owns beneficially and of record all of the issued and
outstanding shares of capital stock of AmBank Financial, Inc., a Nevada
corporation, and of AmBank Mortgage Company, a Nevada corporation (collectively,
the "SUBSIDIARIES").
F. The parties hereto desire that Bank be merged with and into FSB (the
"BANK MERGER") pursuant to a Plan and Agreement of Bank Merger attached hereto
as Exhibit A (the "BANK MERGER AGREEMENT"), and that immediately after the Bank
Merger, Bancorp be merged with and into FSC (the "MERGER") pursuant to a Plan
and Agreement of Merger in the form attached hereto as Exhibit B (the "PLAN OF
MERGER").
A G R E E M E N T:
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and conditions set forth herein, the parties hereto covenant and agree
as follows:
ARTICLE I
THE BANK MERGER
1.1 THE BANK MERGER. Pursuant to the laws of the State of Nevada, and
subject to the terms and conditions of this Agreement and the Bank Merger
Agreement, the Bank shall be merged with and into FSB, which shall be the
surviving bank, immediately prior to but essentially concurrently with the
Merger.
1.2 EFFECT OF THE BANK MERGER. At the effective time, Bank shall be
merged with and into FSB in the manner and with the effect provided by the laws
of the State of Nevada and the separate legal existence of Bank shall cease,
except to the extent provided by the laws of the State of Nevada in the case of
a bank after its merger into another bank, and thereupon FSB and Bank (sometimes
referred to as the "MERGING BANKS") shall be a single bank. FSB, as the
surviving corporation, shall thereupon and thereafter possess all the rights,
privileges, powers and franchises, of a public as well as of a private nature,
and shall be subject to all restrictions, disabilities and duties of the Merging
Banks; and all property, real, personal and mixed, and all debts due to the
Merging Banks on whatever account, including subscriptions for shares and all
other things in action or belonging to the Merging Banks shall be taken and
deemed to be vested in FSB without further act or deed. FSB shall thenceforth
be responsible for all the debts, liabilities and duties of each of the Merging
Banks and any claim existing or action or proceeding pending by or against
either of the Merging Banks may be prosecuted to judgment as if the Bank Merger
had not taken place, or FSB may be substituted in place of the Bank, and neither
the rights of creditors nor any liens upon any property of either shall be
impaired by the Bank Merger.
(a) ARTICLES OF INCORPORATION; BYLAWS; DIRECTORS. The Articles
of Incorporation and Bylaws of FSB in effect
<PAGE>
immediately prior to the Bank Merger shall govern FSB after the Bank Merger
without amendment. The directors and officers of FSB shall be the directors
and officers of FSB holding such positions immediately prior to the Bank
Merger.
1.3 CONVERSION OF SHARES. The manner and basis of converting the
shares of the Merging Banks shall be as follows:
1.3.1 FSB COMMON STOCK. All shares of FSB common stock which are
outstanding immediately prior to the Bank Merger shall continue to be
outstanding immediately after the Bank Merger. FSB shall issue such additional
shares of FSB common stock to FSC as may be reasonable and proper to compensate
FSC for the FSC Common Stock to be issued in the concurrent merger of Bancorp
into FSC.
1.3.2 BANK COMMON STOCK. Each share of Bank common stock which is
outstanding immediately prior to the Bank Merger and all rights in respect
thereof, IPSO FACTO, shall be cancelled, and no FSB common stock or FSC Common
Stock shall be delivered in exchange therefor.
1.4 SUBSEQUENT ACTIONS. If, at any time after the Bank Merger, FSB shall
consider or be advised that any deeds, bills of sale, assignments, assurances,
or any other actions or things are necessary or desirable to vest, perfect, or
confirm of record or otherwise in FSB its right, title, or interest in, to, or
under any of the rights, properties, or assets of Bank acquired or to be
acquired by FSB as a result of or in connection with the Merger, or otherwise to
carry out this Agreement, the officers and directors of FSB shall be authorized
to execute and deliver, in the name and on behalf of Bank or otherwise, all such
deeds, bills of sale, assignments, and assurances, and to make and do, in the
name and on behalf of Bank or otherwise, all such other actions and things as
may be necessary or desirable to vest, perfect, or confirm any right, title, and
interest in, to, and under such rights, properties, or assets in FSB or
otherwise to carry out this Agreement.
ARTICLE II
THE MERGER
2.1 THE MERGER. Immediately after but essentially concurrently with the
Bank Merger, and pursuant to the laws of the States of Delaware and Nevada and
subject to the terms and conditions of this Agreement and the Plan of Merger,
Bancorp shall be merged with and into FSC, which shall be the surviving
corporation.
2.2 EFFECT OF THE MERGER. At the Effective Time (as defined in Section
8.2.2. below), Bancorp shall be merged with and into FSC in the manner and with
the effect provided by the laws of Delaware and Nevada and the separate legal
existence of Bancorp shall cease, except to the extent provided by the laws of
the State of Nevada in the case of a corporation after its merger
<PAGE>
into another corporation, and thereupon FSC and Bancorp (sometimes referred
to as the "MERGING ENTITIES") shall be a single corporation. FSC, as the
surviving corporation, shall thereupon and thereafter possess all the rights,
privileges, powers and franchises, of a public as well as of a private
nature, and shall be subject to all restrictions, disabilities and duties of
the Merging Entities; and all property, real, personal and mixed, and all
debts due to the Merging Entities on whatever account, including
subscriptions for shares and all other things in action or belonging to the
Merging Entities shall be taken and deemed to be vested in FSC without
further act or deed. FSC shall thenceforth be responsible for all the debts,
liabilities and duties of each of the Merging Entities and any claim existing
or action or proceeding pending by or against either of the Merging Entities
may be prosecuted to judgment as if the Merger had not taken place, or FSC
may be substituted in place of Bancorp, and neither the rights of creditors
nor any liens upon any property of either shall be impaired by the Merger.
The outstanding shares of capital stock of Bancorp shall be converted on the
basis, terms and conditions described in Section 2.3.
(a) CERTIFICATE OF INCORPORATION; BYLAWS; DIRECTORS. The
Certificate of Incorporation and Bylaws of FSC in effect immediately prior to
the Merger shall govern FSC after the Merger without amendment. The directors
and officers of FSC shall be the directors and officers of FSC holding such
positions immediately prior to the Merger.
2.3 CONVERSION OF SHARES. The manner and basis of converting the shares
of the Merging Entities shall be as follows:
2.3.1 FSC COMMON STOCK. All shares of FSC Common Stock which are
outstanding immediately prior to the Effective Time shall continue to be
outstanding immediately after the Effective Time.
2.3.2 CONVERSION OF BANCORP COMMON STOCK. Each share of Bancorp
Common Stock which is outstanding immediately prior to the Effective Time (of
which there shall be no more than 3,934,078 shares fully diluted and assuming
all Options have been exercised), other than shares as to which dissenters'
rights have been perfected, and all rights in respect thereof, shall be
converted IPSO FACTO, and without any action on the part of the holder thereof,
at the Effective Time, into the right to receive 0.63 shares of FSC Common Stock
(the "CONVERSION RATIO"), subject to adjustment as specified in Subsections (a)
and (b) hereof, if applicable.
(a) The Conversion Ratio shall be adjusted either upward or
downward under the following circumstances:
(i) If the average of the daily closing prices of a share
of FSC Common Stock as quoted on
<PAGE>
the NASDAQ National Market System, for the fifteen (15)
consecutive trading days ending on the date preceding the Closing
Date (the "AVERAGE CLOSING PRICE") is greater than $39.00, then
the Conversion Ratio shall be determined as follows; provided,
however, that in no event shall the Conversion Ratio be less
than 0.60:
96,660,296, DIVIDED BY A, DIVIDED BY B
For purposes of the above formula:
A = Average Closing Price; and
B = 3,934,078
(ii) If the Average Closing Price is less than $33.00, then
the Conversion Ratio shall be determined as follows; provided,
however that in no event shall the Conversion Ratio be greater
than 0.66:
81,789,477, DIVIDED BY A, DIVIDED BY B
For purposes of the above formula:
A = Average Closing Price
B = 3,934,078
(b) ADJUSTMENTS FOR FSC DILUTION. If prior to the Effective
Time, FSC shall declare a stock dividend or distribution upon or subdivide,
split up, reclassify or combine the FSC Common Stock, or declare a dividend, or
make a distribution on the FSC Common Stock in any security convertible into FSC
Common Stock, as of a record date prior to the Effective Time, appropriate
adjustment or adjustments (rounded to four digits to the right of the decimal
point) will be made to the Conversion Ratio and the total number of shares of
FSC Common Stock to be issued in the transaction so as to maintain the
proportional interest in FSC Common Stock which the shareholders of Bancorp
would otherwise have received.
2.3.3 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. As of the Effective Time, FSC shall deposit
with First Security Bank of Utah, N.A. (the "EXCHANGE AGENT") for the benefit of
the holders of shares of Bancorp Common Stock, for exchange in accordance with
this Section 2.3, certificates representing the shares of FSC Common Stock (such
shares of FSC Common Stock, together with any dividends or distributions with
respect thereto, being hereinafter referred to as the "EXCHANGE FUND") issuable
pursuant to this Section 2.3 in exchange for shares of Bancorp Common
<PAGE>
Stock outstanding immediately prior to the Effective Time. To the extent FSC
owns shares of FSC Common Stock as treasury stock, such shares may be
deposited into the Exchange Fund.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable
after the Effective Time, the Exchange Agent shall mail to each Bancorp
shareholder of record (other than holders of shares as to which dissenters'
rights are perfected) (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates shall
pass, only upon delivery of the Bancorp certificates to the Exchange Agent, and
shall be in such form and have such other provisions as FSC and Bancorp may
reasonably specify), and (ii) instructions for use in effecting the surrender of
the Bancorp certificates in exchange for certificates representing shares of FSC
Common Stock. Upon surrender of a Bancorp certificate for cancellation to the
Exchange Agent, together with such letter of transmittal, duly executed, the
holder of such Bancorp certificate shall be entitled to receive in exchange
therefor a certificate representing that number of whole shares of FSC Common
Stock which such holder has the right to receive pursuant to the provisions of
this Section 2.3, and the certificate so surrendered shall forthwith be
canceled. Until so surrendered, the certificates which prior to the Merger
represented shares of Bancorp Common Stock shall be deemed for all corporate
purposes to evidence ownership of the shares of FSC Common Stock into which such
shares of Bancorp Common Stock shall have been converted; provided, however,
that no dividends or other distributions declared or made after the Effective
Time with respect to FSC Common Stock with a record date after the Effective
Time shall be paid until the holder shall have surrendered certificates
therefore, at which time the holder shall be paid the amount of dividends, if
any, without interest, which shall theretofore have become payable with respect
to the shares of FSC Common Stock into which such shares shall have been
converted.
If any certificate for shares of FSC Common Stock is to be issued in a name
other than that in which the certificate surrendered in exchange therefor is
registered, it shall be a condition of the issuance thereof that the certificate
so surrendered shall be properly endorsed and otherwise in proper form for
transfer, and that the person requesting such exchange pay to the Exchange Agent
for such purposes any applicable transfer or other taxes required by reason of
the issuance of a certificate for shares of FSC Common Stock in any name other
than that of the registered holder of the certificate surrendered, or establish
to the satisfaction of the Transfer Agent that such tax has been paid or is not
payable. Until surrendered as contemplated by this Section 2.3, each
certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the certificate representing
shares of FSC Common Stock and cash in lieu of any fractional shares of FSC
Common Stock as contemplated by this Section 2.3.
<PAGE>
(c) NO FURTHER OWNERSHIP RIGHTS IN BANCORP COMMON STOCK. All
shares of FSC Common Stock issued upon the surrender for exchange of shares
of Bancorp Common Stock in accordance with the terms hereof (including any
cash paid pursuant to Subsection (d)) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such shares of Bancorp Common
Stock, and there shall be no further registration of transfers on the stock
transfer books of FSC of the shares of Bancorp Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates are presented to FSC for any reason, they shall be
canceled and exchanged as provided in this Agreement.
(d) NO FRACTIONAL SHARES. Notwithstanding any other
provision of this Agreement to the contrary, neither certificates nor script
representing fractional shares of FSC Common Stock shall be issued in the
Merger, and such fractional share interests shall not entitle the owner
thereof to vote or to any rights of a shareholder of FSC. In lieu of any
such fractional shares, each holder of shares of Bancorp Common Stock who
would otherwise have been entitled to a fraction of a share of FSC Common
Stock upon surrender of certificates as provided in this Section 2.3 shall
upon such surrender be paid an amount of cash (without interest) determined
by multiplying (a) the fractional share interest to which such holder would
otherwise be entitled, (b) by the Average Closing Price (as such term is
defined in Section 2.3.2, above) of a share of FSC Common Stock. From time
to time, at the request of the Exchange Agent, after the determination of
amounts of cash to be paid to holders of Bancorp Common Stock in lieu of any
fractional share interests, FSC shall make available such amounts to the
Exchange Agent.
2.4 SHARES OF DISSENTING HOLDERS. If holders of Bancorp Common Stock
dissent from the Merger and demand appraisal of their shares, any issued and
outstanding shares of Bancorp Common Stock held by a dissenting holder shall
not be converted as described in Section 2.3, but shall from and after the
Effective Time represent only the right to receive such consideration as may
be determined to be due to such dissenting holder pursuant to Nevada Rev.
Stat. 78.481, ET SEQ.; provided, however, that each share of Bancorp Common
Stock outstanding immediately prior to the Effective Time, and held by a
dissenting holder who shall, after the Effective Time, withdraw his or her
demand for appraisal or lose his or her right of appraisal shall be deemed to
be converted, as of the Effective Time, into FSC Common Stock in accordance
with Section 2.3 and the certificates representing such Bancorp Common Stock
shall be surrendered in accordance with Section 2.3.
2.5 SUBSEQUENT ACTIONS. If, at any time after the Effective Time, FSC
shall consider or be advised that any deeds, bills of sale, assignments,
assurances, or any other actions or things are necessary or desirable to
vest, perfect, or confirm of record of otherwise in FSC its right, title, or
interest in, to, or under any of the rights, properties, or assets of Bancorp
<PAGE>
acquired or to be acquired by FSC as a result of or in connection with the
Merger, or otherwise to carry out this Agreement, the officers and directors
of FSC shall be authorized to execute and deliver, in the name and on behalf
of Bancorp or otherwise, all such deeds, bills of sale, assignments, and
assurances, and to make and do, in the name and on behalf of Bancorp or
otherwise, all such other actions and things as may be necessary or desirable
to vest, perfect, or confirm any right, title, and interest in, to, and under
such rights, properties, or assets in FSC or otherwise to carry out this
Agreement.
ARTICLE III
COVENANTS OF BANCORP AND BANK
3.1 NEGATIVE COVENANTS OF BANCORP AND BANK. Except as otherwise
contemplated hereby, between the date hereof and the Effective Time or the
time when this Agreement terminates as provided herein, neither Bancorp nor
Bank shall, without the prior written authorization of the Chairman or
President of FSB:
3.1.1 CHANGE IN CAPITAL STOCK; ISSUANCE OF SHARES. Make any
change in their authorized capital stock, or issue, agree to issue or permit
Bancorp or Bank to become obligated to issue any shares of their capital
stock or securities convertible into their capital stock;
3.1.2 OPTIONS, WARRANTS, AND RIGHTS. Grant or issue any options,
warrants or other rights, including stock appreciation rights, of any kind
relating to the purchase of shares of their capital stock or securities
convertible into their capital stock (Bancorp and Bank hereby represent and
warrant that, except for the Options and the 231,963 stock appreciation
rights (the "SARS") outstanding as of the date hereof, no options, warrants,
stock appreciation rights or other rights to purchase shares of their capital
stock are outstanding on the date hereof);
3.1.3 DIVIDENDS. Declare or pay any dividends or other
distributions on any shares of their capital stock; provided, however, that
the Bank may declare dividends to Bancorp in accordance with normal practices
and to cover expenses associated with the transactions hereunder;
3.1.4 PURCHASE OF SHARES. Purchase or otherwise acquire, or agree
to acquire, any shares of their stock, other than in a fiduciary capacity;
3.1.5 BENEFIT PLANS. Except as required by law, enter into or
amend any pension, retirement, stock option, stock appreciation, profit
sharing, deferred compensation, consultant, bonus, group insurance or similar
benefit plan in respect of any of their directors, officers or other
employees;
3.1.6 CONDUCT OF BUSINESS. Except as contemplated by this
Agreement, take or omit to take any action which (i) causes
<PAGE>
Bancorp or Bank not to conduct its businesses in a manner consistent with
normal business practices, including with respect to the securities or asset
portfolios of Bank, (ii) has a material and adverse effect on the financial
condition (present or prospective), businesses, properties, assets or
operations of Bancorp or Bank (the parties hereto recognize that the
operation of Bancorp and Bank until the Effective Time is the responsibility
of Bancorp, Bank, and the respective Boards of Directors and officers of such
corporations; nevertheless, Bancorp and Bank shall keep FSB advised of all
important changes in the financial condition (present or prospective),
businesses, properties, assets or operations of Bancorp and Bank);
3.1.7 ACQUISITIONS AND MERGERS. Acquire or merge with any other
company or acquire any branch or other significant part of the assets of any
other company;
3.1.8 LIENS; INDEBTEDNESS; INCREASE IN COMPENSATION, ETC. Except
in the ordinary course of business, (i) mortgage, pledge or subject to a lien
or any other encumbrance any of their assets, dispose of any of their assets,
incur or cancel any indebtedness or claims, purchase or lease any assets
having a purchase price or lease cost, in the aggregate, of more than
$10,000.00, or (ii) increase any compensation or benefits payable to their
officers or employees, except to pay (y) routine merit increases in
accordance with past practices and (z) costs associated with the transactions
contemplated under this Agreement in a total amount not to exceed
$1,250,000.00.
3.1.9 AMENDMENTS TO CHARTER, ETC. Amend their respective Articles
of Incorporation or make any material amendments to their respective Bylaws
which would interfere in any manner with the transactions contemplated by
this Agreement;
3.2 PRESERVATION OF BUSINESS, EMPLOYEES. Bancorp and Bank shall use
their best efforts to retain for the benefit of FSC and FSB the continuing
services of the present officers and employees of Bancorp and Bank, to
preserve the goodwill of customers and others having business relations with
Bank, to preserve the deposit levels of Bank, to preserve the benefits of all
contractual relationships with others and to keep in force at least at their
present limits all policies of insurance currently in effect;
3.3 INVESTIGATION; ACCESS. Bancorp and Bank shall diligently endeavor
to (i) take or cause to be taken all action required under this Agreement on
their part to be taken as promptly as practicable so as to permit the
consummation of the transactions contemplated by this Agreement at the
earliest possible date and cooperate fully with FSC and FSB to that end,
including, without limitation, providing to FSC and FSB, and their employees,
accountants and counsel, access to Bancorp's and Bank's books, records,
reports, tax returns and facilities and to their employees, accountants, and
counsel; provided, however, that such investigation to be conducted by FSC
and FSB shall be
<PAGE>
performed in such a manner which will not unreasonably interfere with the
normal operations, customers or employee relations of Bancorp and Bank, and
shall be in accordance with procedures established by the parties having due
regard for the foregoing, and (ii) furnish all necessary information for
inclusion in any applications relating to the consents, approvals and
permissions of regulatory authorities referred to in Article VII.
To facilitate the investigations of Bancorp and Bank to be conducted by
FSC and FSB, Bancorp and Bank shall deliver to FSB, as soon as reasonably
possible, (i) a list setting forth all of the classified, criticized and
nonperforming assets of Bank ("CLASSIFIED ASSETS") as identified by Bank or
by the most recent examination by Bank's federal or state bank examiner,
along with an explanation of management's response for dealing with such
assets, (ii) a list of all loans which are more than thirty (30) days past
due ("PAST DUE LOANS"), and (iii) Bank management's analysis of expected
losses to be incurred with respect to the loans (assets) identified in items
(i) and (ii).
From execution of the Agreement until Closing (as defined in Section
8.1, below), Bancorp and Bank shall deliver to FSB (i) monthly reports which
summarize the loan and lease and the deposit activity of Bank for the
previous month, and (ii) a report detailing any changes to the Classified
Assets or Past Due Loans.
3.4 REGULATORY APPROVALS. Bancorp and Bank and the Shareholders shall
(i) use their best efforts in good faith to obtain all necessary regulatory
approvals and to take or cause to be taken all other action required under
this Agreement on its or their part to be taken as promptly as practicable so
as to permit the consummation of the transactions contemplated by this
Agreement at the earliest possible date, and cooperate fully with FSC and FSB
to that end, (ii) furnish all necessary information for inclusion in any
applications relating to the consents, approvals, and permissions of
regulatory authorities referred to in Article VII. Bancorp and Bank shall
have the right to review all applications to such regulatory authorities
before the filing thereof and to comment upon the form of such applications
and the information contained therein.
3.5 NOTIFICATION OF ACTIONS. Bancorp and Bank covenant and agree to
immediately notify FSC and FSB in the event of any action which materially
affects any of the covenants set forth in this Article III.
3.6 TERMINATION OF EMPLOYEE BENEFIT PLANS. On or before the Effective
Time, Bancorp and FSC shall determine whether it is in the best interests of
the parties hereto and the employees of Bancorp and Bank to terminate the
employee benefit plans (as described in Section 4.1.16) or to merge such
plans into an appropriate FSC benefit plan. FSC will cooperate in such
determination to enable the plan participants to "roll-over" any benefits of
said plans into any existing benefit plan maintained
<PAGE>
by FSC as to which such benefits may be transferred without cost to FSC, or
necessity of material amendment to, or adverse effect on qualification of,
such FSC plan; provided, however, that no accounts shall be permitted to
roll-over to FSC's 401(k) plan without the express written consent of the
trustee and sponsor of FSC's 401(k) plan, in its sole discretion, to such
roll-over, which approval shall not be given in any event without receipt of
such documentation from Bancorp and Bank as may be requested by FSC,
including, without limitation, an Internal Revenue Service ruling obtained by
Bancorp approving the roll-over and ensuring the qualification of the FSC
401(k) plan if it accepts such roll-overs.
3.7 INFORMATION FOR PROXY STATEMENT. Upon request by FSC, Bancorp
shall timely prepare and deliver to FSC, in such form required by rules and
regulations of the United States Securities and Exchange Commission (the
"SEC"), all information, descriptions, accounting reports and schedules
(including audited financial statements in the form required by Regulation
S-X of the SEC, as may be required) and other materials required for
preparation and filing of the Registration Statement contemplated by Section
5.1.10 of this Agreement.
3.8 ENVIRONMENTAL REPORTS. Within twenty (20) days of execution of
this Agreement, Bancorp and Bank shall cause to be prepared, by firms
reasonably acceptable to FSC, Phase I Environmental Reports with respect to
real property owned by Bancorp, Bank and the Subsidiaries, including Bank's
branch facilities and assets held by Bank as other assets, other real estate
owned or as in substance foreclosure. In the event a Phase I report
indicates that Bancorp, Bank and the Subsidiaries, as appropriate, may be a
potentially liable party for remedial action under any environmental laws (as
such term is defined in Section 4.1.7 below), then Bancorp, Bank or the
Subsidiaries, as the case may be, shall cause Phase II Environmental Reports
to be prepared detailing any possible exposure under such laws. The cost of
said Phases I and II Environmental Reports and the cost of any remedial
action determined to be necessary by such reports shall be borne by Bancorp,
Bank or the Subsidiaries as the case may be. Bank shall make available to FSC
any Phase I Environmental Reports which it has obtained on real property
secured loans.
3.9 CORPORATE RESTRUCTURING. After the submission of all regulatory
applications, Bancorp and Bank will use their best efforts and will cooperate
with FSC and FSB to facilitate any corporate reorganizations of Bancorp and
the Subsidiaries which the parties agree are beneficial to effectuating the
Merger and the Bank Merger contemplated hereby.
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
BANCORP AND BANK
4.1 REPRESENTATIONS AND WARRANTIES OF BANCORP AND BANK. As an
inducement to FSC and FSB to enter into this Agreement, and in addition to
any representations and warranties made elsewhere in this Agreement, Bancorp
and Bank hereby jointly and severally represent and warrant to FSC and FSB
that the statements contained in this Article IV are correct and complete in
all material respects as of the date of this Agreement and will be correct
and complete in all material respects as of the Closing Date.
4.1.1 ORGANIZATION, CONDUCT OF BUSINESS, ETC. Bancorp, Bank, and
each of the Subsidiaries (i) are each duly organized and validly existing and
in good standing under the laws of the State of Nevada, (ii) have all
requisite power and authority (corporate and other) to own their respective
properties and conduct their respective businesses as now being conducted,
(iii) are each duly qualified to do business and are in good standing in each
jurisdiction in which the character of the properties owned or leased by them
therein or in which the transaction of their respective businesses makes such
qualification necessary, except where failure to so qualify would not have a
material adverse effect on Bancorp and its consolidated Subsidiaries or their
respective businesses, operations, properties, assets or condition (financial
or otherwise), and (iv) are not transacting business, or operating any
properties owned or leased by any of them, in violation of any provision of
federal or state law or any rule or regulation promulgated thereunder, which
violation would have a material adverse effect on Bancorp and its
consolidated Subsidiaries or their respective businesses, operations,
properties, assets or condition (financial or otherwise).
4.1.2 OPTIONS, SARS, WARRANTS, ETC. Schedule 4.1.2 hereto
identifies (i) the holders of each of the Options, the number of Options held
by each holder of Options and the Option exercise price with respect thereto,
under the 1989 Bancorp Stock Option Plan (the "1989 PLAN") and/or the 1995
Bancorp Stock Option Plan (the "1995 STOCK OPTION PLAN"; the 1989 Plan and
the 1995 Stock Option Plan collectively, the "STOCK OPTION PLANS") and (ii)
the holders of the SARs, and the rights associated therewith, under the 1995
Stock Appreciation Rights Plan (the "SAR PLAN") and the number of SARs held
by each holder of SARs. Except for the Options and the SARs, there are no
outstanding stock appreciation rights or options, warrants, calls, units or
commitments of any kind relating to the issuance, sale, purchase or
redemption of, or securities convertible into, capital stock of Bancorp or
Bank.
4.1.3 CAPITAL STOCK. All of the outstanding shares of capital
stock of Bancorp, Bank and each of the Subsidiaries have been duly authorized
and are validly issued, fully paid and
<PAGE>
nonassessable. The outstanding shares of the capital stock of Bancorp and
the holders of record thereof are identified on Schedule 4.1.3 hereto.
Bancorp owns all of the issued and outstanding capital stock of Bank and each
of the Subsidiaries and such shares of stock are owned and will be owned by
Bancorp at the Closing free and clear of any liens, encumbrances or claims.
Except for Bank, the Subsidiaries, and as set forth in Schedule 4.1.3,
Bancorp does not own any equity interest in any other business organization.
4.1.4 AUTHORIZATION; VALIDITY OF AGREEMENT. Bancorp and Bank each
have the corporate power and authority to execute and deliver this Agreement.
This Agreement has been duly and validly approved by the Board of Directors
of each of Bancorp and Bank, has been duly executed and delivered on
Bancorp's and Bank's behalf, and, subject to approval by the shareholders of
each of Bancorp and Bank, constitutes a valid and binding agreement of each
such corporation, enforceable in accordance with its terms.
4.1.5 BANCORP AND BANK REPORTS. Since January 1, 1995, each of
Bancorp and Bank have filed all reports, registrations and statements,
together with any amendments required to be made with respect thereto, that
were required to be filed with (i) the Board of Governors of the Federal
Reserve System (the "FEDERAL RESERVE BOARD"), (ii) the Federal Deposit
Insurance Corporation (the "FDIC"), and (iii) the Nevada Banking Division.
(All such reports and statements filed by Bank or Bancorp with the Federal
Reserve Board, the FDIC, the Nevada Banking Division, and other applicable
state securities or banking authorities are collectively referred to herein
as the "BANCORP REPORTS".) As of their respective dates, the Bancorp Reports
complied in all material respects with all the statutes, rules and
regulations enforced or promulgated by the regulatory authority with which
they were filed and did not and as of the date hereof do not contain any
untrue statement of a material fact or omit 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 are made, not misleading. Except
as set forth on Schedule 4.1.5, since January 1, 1995, no regulatory agency,
including the Federal Reserve Board, the FDIC, or the Nevada Banking
Division, has criticized the management or operation of Bancorp or Bank,
cited Bancorp or Bank for a violation of law, or imposed any mandatory action
by Bancorp or Bank to bring such party in compliance with applicable rules
and regulations.
4.1.6 BANCORP AND BANK FINANCIAL STATEMENTS AND TAX RETURNS.
Bancorp's Consolidated Balance Sheets as of December 31, 1994, December 31,
1995, and December 31, 1996, and its Consolidated Statements of Income and
Consolidated Statements of Cash Flow for the years ended December 31, 1994,
December 31, 1995, and December 31, 1996, together with a review thereof by
independent certified accountants reasonably acceptable to FSC and FSB true and
correct copies of which have heretofore been
<PAGE>
delivered to FSB (collectively, the "FINANCIAL STATEMENTS"), were prepared in
accordance with generally accepted accounting principles consistently applied
and present fairly Bancorp's and Bank's financial condition, results of
operations and changes in cash flow as of such dates.
Bancorp has delivered (or will deliver within five (5) days of
execution of this Agreement) true and correct copies of all tax returns filed
for the fiscal years ending 1992, 1993 1994 and 1995. Bancorp and Bank have
filed all federal, state and local tax returns and forms (including but not
limited to forms 1099), which are required by law to be filed or delivered as
of the date hereof and have paid all taxes which have become due. No
penalties or other charges are, or will become, due with respect to the late
filing of any such return. Each such tax return heretofore filed by Bancorp
and Bank correctly and accurately reflects the amount of its tax liability
thereunder. Bancorp and Bank have also paid all other assessments or taxes to
the extent that the same have become due and payable. Except as set forth on
Schedule 4.1.6, there are not in force any extensions of time with respect to
the dates on which any tax return was or is due to be filed by Bancorp or
Bank, or any waivers or agreements by either or them for the extension of
time for the assessment or payment of any tax.
Except as set forth in Schedule 4.1.6, to the best knowledge of Bancorp
and Bank, after due inquiry, Bancorp and Bank have timely filed all currency
transaction reports required by the Bank Secrecy Act, as amended, and all
information returns required by Sections 6041, 6041A, 6042, 6045, 6049,
6050H, and 6050J of the Internal Revenue Code of 1986, as amended (the
"CODE"), and have exercised due diligence in obtaining certified taxpayer
identification numbers as required pursuant to Treasury Regulation 35a.9999.
Where payment of such taxes is not required to be made as of the date hereof,
Bancorp or Bank (as the case may be) has set up an adequate reserve or
accrual for the payment of all taxes required to be paid in respect of the
periods covered by such returns.
Bancorp will provide to FSB from time to time prior to the
Effective Time all interim financial statements relating to Bancorp and/or
Bank customarily prepared by Bancorp or Bank.
4.1.7 OTHER LIABILITIES; ENVIRONMENTAL MATTERS. Except as and to
the extent stated in the Financial Statements delivered or to be delivered
pursuant to Section 4.1.6 and in Schedule 4.1.7, and except for those
liabilities incurred in the normal course of the Bank's business, neither
Bancorp, Bank nor any of the Subsidiaries have any material liabilities or
obligations, secured or unsecured (whether accrued, absolute, contingent or
otherwise), and whether due or to become due, including but not limited to
liabilities on account of taxes, other governmental charges or lawsuits
subsequently brought. Except as set forth on Schedule 4.1.7, there are no
suits, actions or proceedings pending or, to the knowledge of Bancorp or
<PAGE>
Bank or any of its directors or officers, threatened, or any contingent
liability which would give rise to any right of indemnification on the part
of any director of officer of Bancorp, Bank or any of the Subsidiaries or his
or her heirs, executors or administrators, as against Bancorp, Bank or the
Subsidiaries or any successor to the business of Bancorp, Bank or the
Subsidiaries.
For purposes of this Section 4.1.7, the term "environmental laws"
shall include all federal, state and local laws, rules, regulations and
standards designed to protect human health or the environment, as amended
from time to time, and all regulations promulgated thereunder, including,
without limitation, the Clean Air Act, 42 U.S.C.A. Sections 7401, ET SEQ.,
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C.A. Sections 9601, ET SEQ., the Federal Water Pollution Control Act, 33
U.S.C.A. Sections 1251, ET SEQ., the Resource Conservation and Recovery Act,
42 U.S.C.A. Sections 6901, ET SEQ., the Toxic Substances Control Act, 15
U.S.C.A. Sections 2601, ET SEQ., and any similar federal or state law, as
amended from time to time, and all regulations promulgated thereunder.
"Hazardous substance" shall include all petroleum products as well as any
toxic or hazardous material, hazardous waste or other hazardous or regulated
substance defined in or regulated by any environmental law.
Except as set forth in Schedule 4.17, to the best knowledge of
Bancorp and Bank after due inquiry, neither Bancorp, Bank nor any of the
Subsidiaries, nor any property of Bancorp, Bank or the Subsidiaries, is
subject to any pending or potential claim, liability or obligation arising
under any environmental law.
With respect to the real property owned or leased by Bancorp, Bank
or any of the Subsidiaries (including other real estate), to the best
knowledge of Bancorp and Bank after due inquiry:
(a) No such property is presently contaminated by, and no
such property has ever been used or is presently being used by any person to
generate, manufacture, refine, transport, treat, store, handle or dispose of,
any hazardous substance in any regulated form or quantity.
(b) No such property has ever contained or presently
contains, or has been used or is being used by any person for storage of,
asbestos, ureaformaldehyde foam insulation, PCB's, dioxins, mercury, lead or
uranium (or other heavy metal) products or tailings, or any other hazardous
substance in any regulated form or quantity, whether contained in
construction or fill materials or used or stored thereon or therein.
(c) Neither Bancorp, Bank nor any of the Subsidiaries, nor
any other tenant or occupant of any such
<PAGE>
property, has received a summons, citation, directive, letter, notice of
violation, request for information or other communication, written or oral,
from any local, state or federal agency concerning any possible intentional
or unintentional action or omission on the part of any person which has
resulted in the possible release of any hazardous substance affecting such
property or concerning any other possible violation of any environmental law
affecting the property.
(d) To the extent any permit, approval or registration is or
has been required to be obtained or maintained under any environmental law
with respect to any such property, any improvement of or on any such property
or any activity occurring on any such property, each such permit, approval or
registration has been obtained and is in good standing. In addition, all
such permits, approvals and registrations have been disclosed to FSC in
writing.
(e) No such property contains or has ever contained any
storage tank or other vessel or container used or intended for use to store
petroleum or any other hazardous substance.
4.1.8 LOAN LOSS RESERVES. The Allowance for Possible Loan Losses
and Net Loan Charge-Offs of Bank as established from time to time by Bank are
adequate as determined by the standards applied to Bank by the applicable
bank regulatory agencies and pursuant to generally accepted accounting
principles.
4.1.9 TITLE TO PROPERTIES. Except as reflected in the Financial
Statements delivered or to be delivered pursuant to Section 4.1.6, Bancorp,
Bank and each of the Subsidiaries own, free and clear of any liens, claims,
charges, options, or other encumbrances, all of the property, real, personal
or mixed, reflected in the Financial Statements of Bancorp and all property
acquired since such date. In Bancorp's and Bank's opinion, all such
properties which are material to the business or operations of Bancorp, Bank
and each of the Subsidiaries are in a good state of maintenance and repair
and are adequate for their respective current uses and purposes. During
each of the past three calendar years, Bank and each of the Subsidiaries and
their respective properties have been insured for customary risks with
customary limits, deductibles, and exclusions, including but not limited to
Bankers Blanket Bond, and such insurance protection continues in effect as of
the date hereof. Bancorp, Bank, or the Subsidiaries as appropriate, has
delivered to FSB true and correct copies of all deeds, title insurance
policies and surveys it has with respect to the real property owned by them
and copies of all leases with respect to real property leased by them.
4.1.10 ABSENCE OF DEFAULTS. The execution of this Agreement, the
Bank Merger Agreement and the Plan of Merger does not, and performance of the
transactions contemplated by them will not (assuming Bancorp shareholder
approval and applicable regulatory approval), (a) violate the provisions of
the Articles
<PAGE>
of Incorporation or Bylaws of Bancorp, Bank, or any of the Subsidiaries, or
(b) violate the provisions of or place Bancorp, Bank, or any of the
Subsidiaries in default under any agreement, indenture, mortgage, lien,
lease, contract, instrument, order, judgment, decree, ordinance, statute, or
regulation to which Bancorp, Bank or any of the Subsidiaries is subject, to
which any property of Bancorp, Bank or any of the Subsidiaries is subject, or
to which Bancorp, Bank or any of the Subsidiaries is a party, which
violations or defaults would in the aggregate have a material adverse effect
on the business, operations, properties, assets, or condition (financial or
otherwise) of Bancorp, Bank or any of the Subsidiaries.
4.1.11 ABSENCE OF MATERIAL ADVERSE CHANGES. Except as set forth
on Schedule 4.1.11, since December 31, 1996, there has been no material
adverse change, and no development involving a reasonably foreseeable
prospective material adverse change, in or affecting the financial condition
(present or prospective), businesses, properties, assets or operations
(present or prospective) of Bancorp, Bank or any of the Subsidiaries.
4.1.12 ACTIONS, PROCEEDINGS AND INVESTIGATIONS. Set forth on
Schedule 4.1.12 hereto is a complete and accurate listing of all litigation,
administrative or other proceeding to which Bancorp, Bank or any of the
Subsidiaries is a party, except for such proceedings in which either of
Bancorp, Bank or any of the Subsidiaries is seeking to collect on a loan or
lease transaction and no counter claim or similar claim has been filed
against Bancorp, Bank or any of the Subsidiaries. There are no actions,
proceedings or investigations pending, or, to the knowledge of the executive
officers of each of Bancorp and Bank, threatened or contemplated against or
relating to Bancorp, Bank or any of the Subsidiaries or any of their
respective properties or assets (and said officers are not aware of any facts
that would give rise to any such claim), which would materially and adversely
affect the financial condition (present or prospective), businesses,
properties, assets or operations (present or prospective) of Bancorp, Bank or
any of the Subsidiaries, or the ability of Bank or Bancorp to consummate the
Bank Merger or the Merger contemplated hereby.
4.1.13 ABSENCE OF BROKERAGE COMMISSIONS, ETC. Except for
Bancorp's agreement with The Findley Group, the details of which have been
disclosed to FSC and FSB, all negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Bancorp and Bank
directly with FSC and FSB without the participation or intervention of any
other person, firm or corporation employed or engaged by or on behalf of
Bancorp or Bank in such a manner as to give rise to any valid claim against
Bancorp, Bank, FSC or FSB for a brokerage commission, finder's fee or like
payment.
4.1.14 MATERIAL CONTRACTS. Except for those documents listed on
Schedule 4.1.14 hereto, copies of which documents have been provided by Bancorp
and Bank to FSB, neither Bancorp, Bank
<PAGE>
nor any of the Subsidiaries are parties to any contract, agreement or other
legally binding arrangement, including but not limited to any lease, service
contract, employment agreement or other arrangement with any employee, agent
or independent contractor, including but not limited to any pension,
retirement, stock option, stock appreciation, profit sharing, deferred
compensation, consultant, bonus, group insurance or similar plan, or any
other agreement or arrangement which (i) provides for a remaining term in
excess of two (2) years from and after the date hereof, or (ii) provides for
a total payment thereunder in excess of $25,000.00.
4.1.15 COMPLIANCE WITH LAWS; DOCUMENTATION.
(a) Except as set forth on Schedule 4.1.15, to the best
knowledge of Bancorp and Bank, after due inquiry: the conduct by Bancorp,
Bank and each of the Subsidiaries of their respective business does not
violate or infringe any domestic or foreign laws, statutes, ordinances, rules
or regulations, the enforcement of which, individually or in the aggregate,
would materially and adversely affect the business, operations, properties,
assets or condition (financial or otherwise) of Bancorp, Bank or any of the
Subsidiaries; and Bancorp, Bank and each of the Subsidiaries have complied in
all material respects with every local, state or federal law or ordinance,
and every regulation or order issued thereunder, now in effect and applicable
to Bank governing or pertaining to fair housing, anti-redlining, equal
credit opportunity, truth-in-lending, real estate settlement procedures, fair
credit reporting and every other prohibition against unlawful discrimination
in residential lending, or governing consumer credit, including, but not
limited to, the Consumer Credit Protection Act, Truth-in-Lending Law, and in
particular Regulation Z promulgated by the Federal Reserve Board, and the
Real Estate Settlement Procedures Act of 1974.
(b) All loans, leases, contracts and accounts receivable
(billed and unbilled), security agreements, guarantees and recourse
agreements of Bank as held in its portfolio, or as sold into the secondary
market, represent and are valid and binding obligations of their respective
parties and debtors, enforceable in accordance with their respective terms;
each is based on a valid, binding and enforceable contract(s) or
commitment(s), each of which has been executed and delivered in full
compliance, in form and substance, with any and all federal, state or local
laws applicable to the Bank, or to the other party or parties to the
contract(s) or commitment(s), including without limitation the
Truth-in-Lending Act, Regulations Z and U of the Federal Reserve Board, laws
and regulations providing for non-discriminatory practices in the granting of
loans or credit, applicable usury laws, laws imposing lending limits, and
each has been administered in full compliance with all applicable federal,
state or local laws or regulations. Except as set forth on Schedule 4.1.15,
all Uniform Commercial Code filings, or filings of trust deeds, or of lien or
other security interest documentation that are required by any applicable
federal, state
<PAGE>
or local government laws and regulations to perfect the security interests
referred to in any and all of such documents or other security agreements
have been made, and all security interests under such deeds, documents or
security agreements have been perfected, and all contracts have been entered
into or assumed in full compliance with all applicable material legal or
regulatory requirements.
(c) To the best knowledge of Bancorp and Bank, all loan files
of Bank are complete and accurate in all material respects and have been
maintained in accordance with good banking practice.
(d) All notices of default, foreclosure proceedings or
repossession proceedings against any real or personal property collateral
have been issued, initiated and conducted by Bank in full formal and
substantive compliance with all applicable federal, state or local laws and
regulations, and no loss or impairment of any security interest, or exposure
to meritorious lawsuits or other proceedings against Bank, has been or will
be suffered or incurred by Bank.
(e) To the best knowledge of Bancorp and Bank, Bank is not in
violation of any applicable servicer or other requirement of the FHA, VA,
FNMA, GNMA, FHLMC or any private mortgage insurer which insures any loans
owned by Bank or as to which Bank has sold to other investors, the effect of
which violation would materially and adversely affect the business,
operations, properties, assets or condition (financial or otherwise) of Bank,
and with respect to such mortgage loans Bank has not done or failed to do, or
caused to be done or omitted to be done, any act the effect of which act or
omission impairs or invalidates (i) any FHA insurance or commitments of the
FHA to insure, (ii) any VA guarantee or commitment of the VA to guarantee,
(iii) any private mortgage insurance or commitment of any private mortgage
insurer to insure, (iv) any title insurance policy, (v) any hazard insurance
policy, or (vi) any flood insurance policy required by the National Flood
Insurance Act of 1968, as amended, to the material detriment of the Bank.
(f) Bank is not knowingly engaged principally, or as one of
its important activities, in the business of extending credit for the purpose
of purchasing or carrying any margin stock.
4.1.16 BANCORP'S EMPLOYEE BENEFITS.
(a) The only "employee benefit plans" (as defined by section
(3) of the Employee Retirement Income Security Act of 1984 (ERISA)) sponsored
or maintained by Bancorp, Bank or any of the Subsidiaries are set forth in
Schedule 4.1.16. Except as set forth in Schedule 4.1.16, Bancorp and Bank
represent that neither they nor any of the Subsidiaries have, nor do they
sponsor, any other pension, profit-sharing, thrift, savings, bonus,
retirement, vacation, life insurance, health insurance,
<PAGE>
severance, sickness, disability, medical or death benefit plans other than
the above specified plans (hereinafter sometimes collectively referred to as
the "BENEFIT PLANS").
Except as set forth on Schedule 4.1.16, there are no
employment contracts entered into by Bancorp, Bank or any of the Subsidiaries
and no other deferred compensation contracts, agreements, arrangements, or
commitments maintained or agreed to by Bancorp, Bank or any of the
Subsidiaries. There are no compensation, employment or collective bargaining
agreements, stock options, stock purchase agreements, life, health, accident
or other insurance, bonus, deferred or incentive compensation, severance or
separation, profit sharing, retirement, or other employee benefit policies or
arrangements of any kind covering employees or former employees of Bancorp,
Bank or any of the Subsidiaries, or any other person.
(b) WELFARE PLANS. The only "Employee Welfare Benefit Plans"
(as defined in section 3(1) of ERISA) sponsored or maintained by Bancorp,
Bank or any of the Subsidiaries, or to which Bancorp, Bank or any of the
Subsidiaries contributes or is required to contribute, are as set forth in
Schedule 4.1.16. Bancorp and Bank shall supplement Schedule 4.1.16 as
expeditiously as possible after the execution of this Agreement to include
the amount of liability of Bancorp, Bank and any of the Subsidiaries for
payments more than thirty days past due with respect to such employee welfare
benefit plans as of December 31, 1996, the amount of monthly payments due and
owing for each month that such plans are continued, and the amount of
liability for claims if Bancorp, Bank or any of the Subsidiaries were to
terminate such plans and the costs involved in any such termination.
(c) 401(K) RETIREMENT PLAN. Other than the Bancorp 401(k)
Retirement Plan (the "RETIREMENT PLAN") set forth in Schedule 4.1.16, neither
Bancorp, Bank nor any of the Subsidiaries has maintained a "Pension Benefit
Plan" that is subject to title 1, subtitle B, part 3 of ERISA. With respect
to such Retirement Plan, the amount of liability for any contribution paid or
owing for the last or current plan year and the plan year in which the
Closing occurs shall be set forth on Schedule 4.1.16. There are no other
material liabilities of Bancorp, Bank or any of the Subsidiaries that would
be incurred in connection with a termination of the Retirement Plan. Other
than such contribution for said years as is listed on Schedule 4.1.16, the
Retirement Plan and Trust is fully funded, and there will be no additional
material liabilities for funding the Retirement Plan or the termination of
the Retirement Plan, as of the date of Closing.
(d) COMPLIANCE WITH THE CODE AND ERISA. Each of the Benefit
Plans, is, and has since inception been, in compliance in all material respects
with, and each such Benefit Plan is and has been operated and administrated in
accordance with its provisions and in compliance with, the applicable laws,
<PAGE>
rules and regulations governing such plan, including, without limitation, the
rules and regulations promulgated by the Department of Labor, the Pension
Benefit Guaranty Corporation ("PBGC") and the Internal Revenue Service under
ERISA or the Code. All of the Pension Benefit Plans and any related trust
agreements or annuity contracts (or any other funding instruments) comply
currently, and have complied in the past, both as to form and operation, with
the provisions of ERISA and the Code (including section 410(b) of the Code
relating to coverage), where required in order to be tax-qualified under
section 401(a) or 403(a) or other applicable provisions of the Code, and all
other applicable laws, rules, and regulations; all necessary governmental
approvals for the Benefit Plans have been obtained; and a favorable
determination as to the qualification under the Code of the Retirement Plan
and each amendment thereto has been made by the Internal Revenue Service.
(e) CLAIMS ADMINISTRATION AND LIABILITIES. Each Employee
Welfare Benefit Plan and each Pension Benefit Plan has been administered to
date in material compliance with the requirements of the claims procedure of
the Code and ERISA. All reports required by any government agency and
disclosures to participants with respect to each Employee Welfare Benefit
Plan and each Pension Benefit Plan have been timely made or filed. All
Benefit Plans have been operated since inception in material compliance with
the governing instruments and applicable federal or state law. All health
plans maintained by Bancorp, Bank and each of the Subsidiaries have been
administered in material compliance with federal law, including the health
care continuation requirements of federal law (COBRA). Other than as
required by federal law on health contribution benefits (COBRA), and amounts
due participants under the Retirement Plan, neither Bancorp, Bank nor any of
the Subsidiaries has any obligation to furnish health, severance, or other
benefits under any Benefit Plan after retirement or other severance of an
employee.
(f) PROHIBITED TRANSACTIONS. Neither Bancorp, Bank nor any
plan fiduciary of any Employee Welfare Benefit Plan or Pension Benefit Plan
has engaged in any transaction in violation of section 406(a) or (b) of ERISA
(for which no exemption exists under section 408 of ERISA) or any "prohibited
transaction" (as defined in section 4975(c)(1) of the Code) for which no
exemption exists under section 4975(c)(2) or (d) of the Code or in any
prohibited transactions under predecessor provisions of the Code.
(g) LIABILITIES TO PBGC. Neither Bancorp, Bank nor any of
the Subsidiaries has ever had liabilities to the PBGC. No material liability
to the PBGC has been or will be incurred by Bancorp, Bank or any of the
Subsidiaries or other trade or business under "common control" with Bancorp,
Bank or any of the Subsidiaries (as determined under section 414(c) of the
Code) ("COMMON CONTROL ENTITY") on account of any termination of a
<PAGE>
Pension Benefit Plan subject to title IV of ERISA. On and after September 2,
1974, no filing has been made by Bancorp, Bank or any of the Subsidiaries (or
any Common Control Entity) with the PBGC (and no proceeding has been
commenced by the PBGC) to terminate any Pension Benefit Plan subject to title
IV of ERISA maintained, or wholly or partially funded, by Bancorp, Bank or
any of the Subsidiaries (or any Common Control Entity). Neither Bancorp,
Bank nor any of the Subsidiaries nor any Common Control Entity, has (i)
ceased operations at a facility so as to become subject to the provisions of
section 4062(e) of ERISA, (ii) withdrawn as a substantial employer so as to
become subject to the provisions of section 4063 of ERISA, (iii) ceased
making contributions on or before the Closing Date to any Pension Benefit
Plan subject to section 4064(a) of ERISA to which Bancorp, Bank or any of the
Subsidiaries (or any Common Control Entity) made contributions during the
five years prior to the Closing Date, or (iv) made a complete or partial
withdrawal from a multi-employer plan (as defined in section 3(37) of ERISA)
so as to incur withdrawal liability as defined in section 4201 of ERISA
(without regard to subsequent reduction or waiver of such liability under
section 4207 or 4208 of ERISA).
(h) COPIES OF RELEVANT DOCUMENTS. Complete and correct
copies of the following documents have been furnished to FSC or will be
furnished to FSC within twenty (20) days of the execution of this Agreement:
(i) The Benefit Plans and any related trust agreements;
(ii) The most recent Summary Plan descriptions of each
Benefit Plan subject to ERISA;
(iii) The most recent determination letters of the Internal
Revenue Service with respect to the qualified status of a Pension Benefit
Plan;
(iv) Annual Reports (on form 5500 series) required to be
filed with any governmental agency for the last two years;
(v) Financial information which identifies (x) all
asserted or unasserted claims arising under any Benefit Plan, (y) all
claims presently outstanding against any Benefit Plan, and (z) a
description of any future compliance action required with respect to any
Benefit Plan under ERISA, or federal or state law.
(i) VALIDITY AND ENFORCEABILITY. The Employee Welfare
Benefit Plans and the Pension Benefit Plans are legally valid and binding and
in full force and effect.
4.1.17 REPURCHASE AGREEMENTS. Bank has, as of the date hereof,
and as of the Closing Date will have, valid and perfected first position
security interests in all government
<PAGE>
securities subject to repurchase agreements, and, to the knowledge of the
Bank, as of the date hereof, the value of the collateral securing each such
repurchase agreement equals or exceeds the amount of the debt secured by such
collateral under such agreement.
4.1.18 LICENSES. All licenses, permits, and other governmental
authorizations that are required in connection with the business of Bancorp,
Bank and the Subsidiaries have been obtained, are in full force and effect as
of the date hereof, and will be in full force and effect on the Effective
Date. Such license, permits, and authorizations are valid and sufficient for
all business presently carried on by them, and no consents or waivers
thereunder are required to be obtained in connection with the transactions
contemplated hereby, except for the approval of required regulatory
authorities. Schedule 4.1.18 contains a list of all such licenses, permits
and authorizations and all applications therefor.
DISCLOSURE. No representation or warranty by Bancorp or
Bank contained in this Agreement, nor any statement or certificate furnished
or to be furnished by Bancorp or Bank to FSC or FSB or their representatives
in connection herewith or pursuant hereto, contains or will contain any
untrue statement of a material fact, or omits or will omit to state any
material fact required to make the statements herein or therein contained not
misleading or necessary in order to provide a prospective purchaser of the
business of Bancorp and Bank with adequate information as to Bancorp and Bank
and their condition (financial and otherwise), properties, assets,
liabilities, business and prospects, and Bancorp and Bank have disclosed to
FSC and FSB in writing all material adverse facts known to them relating to
the same. Disclosures made on any one schedule are deemed to have been made
on all schedules.
ARTICLE V
COVENANTS, REPRESENTATIONS AND WARRANTIES OF FSC AND FSB
5.1 COVENANTS, REPRESENTATIONS AND WARRANTIES OF FSC AND FSB. As an
inducement to Bancorp and Bank to enter into this Agreement, and in addition
to any representations and warranties made elsewhere in this Agreement, FSC
and FSB hereby jointly and severally represent and warrant to Bancorp and
Bank that the statements contained in this Article V are correct and complete
as of the date of this Agreement and will be correct and complete as of the
Closing Date.
5.1.1 ORGANIZATION, CONDUCT OF BUSINESS, ETC. FSC and FSB (i) are
each duly organized and validly existing and in good standing under the laws
of Delaware (in the case of FSC), or the State of Nevada (in the case of
FSB), (ii) have all requisite power and authority (corporate and other) to
own their respective properties and conduct their respective businesses as
now being conducted, (iii) are each duly qualified to do business and are
<PAGE>
in good standing in each jurisdiction in which the character of the
properties owned or leased by them therein or in which the transaction of
their respective businesses makes such qualification necessary, except when
failure to so qualify would not have a material adverse effect on FSC and its
consolidated subsidiaries, and (iv) are not transacting business, or
operating any properties owned or leased by any of them, in violation of any
provision of federal or state law or any rule or regulation promulgated
thereunder, which violation would have a material adverse effect on FSC and
its consolidated subsidiaries.
5.1.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. FSC and FSB each
have the corporate power and authority to execute and deliver this Agreement.
This Agreement has been duly and validly approved by their respective Boards
of Directors, has been duly executed and delivered on their behalf, and
constitutes a valid and binding agreement of each of FSC and FSB, enforceable
in accordance with its terms, subject to approval of the sole shareholder of
FSB.
5.1.3 FSC REPORTS. Since January 1, 1995, FSC and its
consolidated subsidiaries have filed all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that were required to be filed with (i) the SEC including, but not
limited to, Form 10-K, Form 10-Q, Form 8-K and proxy statements, (ii) the
Federal Reserve Board, (iii) the Office of the Comptroller of the Currency,
(iv) the FDIC, (v) the Nevada Banking Division, and (vi) other applicable
state securities or banking authorities. All such reports and statements
filed with the SEC, the Federal Reserve Board, the FDIC, the Nevada Banking
Division, and other applicable state securities or banking authorities are
collectively referred to herein as the "FSC REPORTS." As of their respective
dates, to the best knowledge of the officers of FSC or FSB, as appropriate,
the FSC Reports complied in all material respects with all the statutes,
rules and regulations enforced or promulgated by the regulatory authority
with which they were filed and did not contain any untrue statement of a
material fact or omit 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 are made, not misleading.
5.1.4 FSC FINANCIAL STATEMENTS; TAX RETURNS. FSC's Consolidated
Balance Sheets as of December 31, 1994 and December 31, 1995, and its
Consolidated Statements of Income and Consolidated Statements of Cash Flow
for the years then ended, heretofore delivered to Bancorp, were prepared in
accordance with generally accepted accounting principles consistently applied
and present fairly its consolidated financial condition, results of
operations and changes in financial position as of such dates and for such
periods. FSC will provide a copy of its Consolidated Balance Sheet and its
Consolidated Statement of Income and Consolidated Statement of Cash Flow as
of December 31, 1996 when available. FSC and FSB have filed all federal,
state and local tax returns and forms (including but not limited to forms
1099),
<PAGE>
which are required by law to be filed or delivered as of the date hereof and
have paid all taxes which have become due. Where payment of such taxes is
not required to be made as of the date hereof, FSC or FSB (as the case may
be) has set up an adequate reserve or accrual for the payment of all taxes
required to be paid in respect of the periods covered by such returns.
Except as and to the extent stated in the FSC financial statements
provided by FSC to Bancorp and except for those liabilities incurred in the
normal course of FSC's or any of its subsidiaries' respective business, FSC
and FSB do not have any material liabilities or obligations, secured or
unsecured (whether accrued, absolute, contingent or otherwise) which would
materially and adversely affect the ability of FSC or FSB to consummate the
Merger or the Bank Merger contemplated hereby.
5.1.5 ABSENCE OF MATERIAL ADVERSE CHANGES. Since December 31,
1996, there has been no material adverse change, and no development involving
a reasonably foreseeable prospective material adverse change, in or affecting
the financial condition (present or prospective), businesses, properties or
operations of FSC and its consolidated subsidiaries.
5.1.6 ABSENCE OF DEFAULTS UNDER AGREEMENTS. Neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby will conflict with or result in a breach of or constitute
a default under any provision of FSC's Certificate of Incorporation or FSB's
Articles of Incorporation, or their respective Bylaws, or any agreement to
which FSC or FSB is a party or by which either of them is bound or to which
any of their respective properties is subject, or result in the creation of
any liens or encumbrances upon their respective assets, and no consents or
waivers thereunder are required to be obtained in connection with the
transactions contemplated hereby, except for the approval of required
regulatory authorities and of the shareholders of FSB, Bank and Bancorp.
5.1.7 ACTIONS, PROCEEDINGS, AND INVESTIGATIONS. Except as set
forth in FSC's filings with the SEC, there are no actions, proceedings or
investigations pending, or to the knowledge of the executive officers of FSC
and FSB, threatened or contemplated, against or relating to FSC or any of its
consolidated subsidiaries, or any of their respective properties, which would
materially and adversely affect the financial condition (present or
prospective), businesses, properties or operations of FSC and its
consolidated subsidiaries, or the ability of FSC or FSB to consummate the
Merger or the Bank Merger contemplated hereby.
5.1.8 REGULATORY APPROVALS. FSC and FSB shall (i) use their best
efforts in good faith to obtain all necessary regulatory approvals and to
take or cause to be taken all other action required under this Agreement on
their part to be taken as promptly as practicable so as to permit the
consummation of the
<PAGE>
transactions contemplated by this Agreement at the earliest possible date,
and cooperate fully with Bancorp and Bank to that end, and (ii) furnish all
necessary information for inclusion in any applications relating to the
consents, approvals, and permissions of regulatory authorities referred to in
Article VII. FSC knows of no reasons why the transactions contemplated by
this Agreement should not be approved by the regulatory authorities.
5.1.9 FSC COMMON STOCK. All of the outstanding FSC Common Stock
is duly authorized and validly issued, fully paid and nonassessable. The FSC
Common Stock to be issued and delivered pursuant to the Merger, when issued
as contemplated hereby, shall be duly authorized, validly issued, fully paid
and nonassessable.
5.1.10 REGISTRATION OF SHARES. FSC will use its best efforts to
cause a Registration Statement on Form S-4 or other appropriate form (the
"REGISTRATION STATEMENT") to be filed and declared effective under the
Securities Act of 1933, as amended (the "1933 ACT"), with respect to the FSC
Common Stock which is to be issued in connection with the transactions
contemplated by this Agreement, which Registration Statement, at the time it
becomes effective, and at the Effective Time, shall in all material respects
conform to the requirements of the 1933 Act and the General Rules and
Regulations of the SEC under the 1933 Act (the "1933 RULES"), and the FSC
Common Stock to be issued by FSC in connection with the Merger shall be duly
qualified or exempted, as the case may be, under applicable state Blue Sky
securities laws in those states in which Bancorp has informed FSC that its
shareholders reside.
5.1.11 NOTIFICATION OF ACTIONS. FSC and FSB covenant and agree to
immediately notify Bancorp and Bank in the event of the breach of any of the
covenants set forth in this Article V.
5.1.12 NASDAQ/NMS LISTING. FSC shall use all reasonable efforts
to cause the shares of FSC Common Stock to be issued in the Merger to be
approved for listing on the National Association of Security Dealers
Automatic Quotation, National Market System ("NASDAQ/NMS") prior to the
Closing Date.
5.1.13 INDEMNIFICATION. FSC agrees that all rights to
indemnification or exculpation now existing in favor of the directors and
officers of Bancorp and Bank as provided in their respective charters,
bylaws, indemnification agreements or otherwise in effect as of the date
hereof with respect to matters occurring prior to the Effective Time shall
survive the Merger and shall continue in full force and effect. If FSC or
any of its successors or assigns (i) shall consolidate with or merge into any
other corporation or entity and shall 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, FSC shall use its
best
<PAGE>
efforts to cause such successor and assigns of FSC to assume the obligations
set forth in this Section 5.1.13.
FSC shall use its best efforts to cause the persons serving as
officers and directors of Bancorp and Bank immediately prior to the Effective
Time to be covered for a period of two (2) years after the Effective Time by
the current policies of directors' and officers' liability insurance
maintained by Bancorp with respect to acts or omissions occurring prior to
the Effective Time which were committed by such officers and directors in
their capacity as such (provided that FSC may substitute therefor policies of
at least the same coverage and amounts containing terms and conditions which
are no less advantageous to such officers and directors); PROVIDED, HOWEVER,
that FSC shall not be obligated to make annual premium payments for such
insurance to the extent such premiums exceed 150% of the premiums paid as of
the date hereof by Bancorp for such insurance.
The provisions of this Section 5.1.13 are intended to be for the
benefit of, and shall be enforceable by, each of the present and former
officers and directors of Bancorp and Bank (each, an "INDEMNIFIED PARTY"),
and each Indemnified Party's heirs and representatives.
ARTICLE VI
PROXY STATEMENTS; SHAREHOLDER MEETINGS
6.1 PROXY STATEMENT. FSC (with the assistance of Bancorp and Bank)
shall prepare the Registration Statement, as provided in Section 5.1.10
above, which Registration Statement will include a Proxy Statement to be used
with respect to providing the shareholders notice of the shareholder meetings
for Bancorp, Bank and FSB, respectively. Bancorp and Bank represent and
warrant that the information they provide for use in the Proxy Statement will
comply in all material respects with the requirements of the Securities
Exchange Act of 1934 (the "1934 ACT") and the applicable rules and
regulations promulgated by the SEC under such Act (the "1934 RULES"), and
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements contained therein not misleading, except that Bancorp and Bank
make no representation with respect to information furnished by FSC or FSB
expressly for inclusion in the Proxy Statement. FSC and FSB represent and
warrant that the Proxy Statement will comply in all material respects with
the requirements of the 1934 Act and the applicable 1934 Rules, and will not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
contained therein not misleading, except that FSC and FSB make no
representation with
<PAGE>
respect to information furnished in writing by Bancorp and Bank expressly for
inclusion in the Proxy Statement.
6.2 BANCORP AND BANK MEETINGS. This Agreement, the Bank Merger
Agreement (to be executed by FSB and Bank), and the Plan of Merger (the
latter duly executed by FSC and Bancorp) shall be submitted for approval,
ratification and confirmation by the shareholders of Bancorp and Bank at a
meeting thereof to be called in accordance with the applicable provisions of
law and held as promptly as practicable after the execution of this Agreement
and of the Plan of Merger, and in no event later than the expiration of
forty-five days following the effectiveness of the Registration Statement.
Bancorp will mail the Proxy Statement prepared by FSC as part of the
Registration Statement to its shareholders for purposes of the meeting of its
shareholders. Bancorp owns all of the issued and outstanding shares of
common voting stock of Bank and as the sole shareholder of Bank covenants and
agrees to approve this Agreement and the Bank Merger Agreement on behalf of
Bank.
6.3 FSB ACTION BY UNANIMOUS WRITTEN CONSENT. This Agreement and the
Bank Merger Agreement shall be submitted for approval, ratification and
confirmation by the sole shareholder of FSB pursuant to an Action by
Unanimous Written Consent in accordance with the applicable provisions of law
as promptly as practicable after the execution of this Agreement, and in no
event later than the expiration of forty-five days following the
effectiveness of the Registration Statement.
ARTICLE VII
CONDITIONS OF CLOSING
7.1 CONDITIONS OF CLOSING.
7.1.1 CONDITIONS OF CLOSING FOR ALL PARTIES. The consummation of
the transactions contemplated by this Agreement is conditioned upon the
following:
7.1.1(a) REGULATORY APPROVAL. All consents, approvals and
permissions and the satisfaction of all of the requirements prescribed by
law, including but not limited to the consents, approvals and permissions of
all applicable regulatory authorities, which are necessary to the carrying
out of the Bank Merger and the Merger as described in this Agreement, shall
have been procured; provided, however, the approvals referred to in this
subsection 7.1.1(a) shall not have imposed any significant conditions which
FSC and FSB on the one hand, or Bancorp and Bank, on the other, reasonably
deem to be materially disadvantageous or burdensome.
7.1.1(b) REGISTRATION STATEMENT, ETC. The FSC Common Stock
to be issued by FSC hereunder shall be the subject
<PAGE>
of the Registration Statement and to qualification or exemption under state
securities laws as appropriate. The Registration Statement shall have been
declared effective and shall not be subject to a stop order or any threatened
stop order.
7.1.1(c) NO INJUNCTION, ETC. There shall not have been
instituted any litigation, regulatory proceeding or other matter which
challenges the legality or effectiveness of the transactions contemplated
hereby or seeks an order, decree or injunction enjoining or prohibiting the
consummation of the Bank Merger or the Merger.
7.1.1(d) TAX MATTERS. FSB, FSC and Bancorp shall have
received (unless otherwise dispensed with by them) an opinion from FSC
counsel to the effect (i) that the Bank Merger will constitute a nontaxable
reorganization in accordance with Section 368(a) of the Code and that the
Merger will constitute a nontaxable reorganization in accordance with Section
368(a) of the Code, and (ii) that any other matters agreed to by the parties
will be favorably treated for tax purposes. As of the date hereof, neither
Bancorp, Bank, FSC or FSB is aware of any reason why each of the Bank Merger
and the Merger should not constitute a nontaxable reorganization in
accordance with such Code section.
7.1.2 CONDITIONS OF CLOSING FOR FSC AND FSB. The obligation of
FSC and FSB, respectively, to consummate the transactions contemplated by
this Agreement is conditioned upon the following:
7.1.2(a) SHAREHOLDER APPROVAL. The sole shareholder of Bank
shall have approved this Agreement, the Bank Merger Agreement and the Bank
Merger contemplated hereby and thereby and a majority of the shareholders of
Bancorp (unless a higher percentage of the outstanding shares of Bancorp must
approve the transaction under the Articles of Incorporation or Bylaws of
Bancorp) shall have approved and confirmed this Agreement, the Plan of Merger
and the Merger contemplated hereby and thereby.
7.1.2(b) BANCORP AND BANK RESOLUTIONS; CORPORATE DOCUMENTS.
Bancorp and Bank shall have delivered to FSC and FSB certified copies of
resolutions duly adopted by the Board of Directors of Bancorp and Bank
approving this Agreement, the Bank Merger Agreement, the Plan of Merger, the
Bank Merger and the Merger, all as contemplated hereby, and directing the
submission thereof to a vote of the shareholders of Bancorp and Bank, and
certified copies of resolutions duly adopted by the shareholders of each of
Bancorp and Bank (owning the outstanding shares as required by subsection (a)
above) approving this Agreement, the Bank Merger Agreement, the Bank Merger,
the Plan of Merger and the Merger, all as contemplated hereby. Bancorp and
Bank shall deliver to FSC and FSB (i) copies certified by the Nevada
Secretary of State's Office of Bancorp's, Bank's and the Subsidiaries'
respective Articles of Incorporation; (ii) copies
<PAGE>
certified by the respective Corporate Secretaries of Bancorp's, Bank's and
the Subsidiaries' respective Bylaws; and (iii) certificates of good standing
as to Bancorp, Bank, and the Subsidiaries dated as of the Closing Date,
issued by the appropriate governmental agencies.
7.1.2(c) BANCORP AND BANK REPRESENTATIONS AND WARRANTIES.
Unless waived in writing by FSB and FSC, the representations and warranties
of Bancorp and Bank contained in this Agreement shall be correct on and as of
the Effective Time with the same effect as though made on and as of such
date. Except as otherwise contemplated by this Agreement, Bancorp and Bank
shall have performed in all material respects all of its obligations and
agreements hereunder theretofore to be performed by them. FSC and FSB shall
have received at the Closing a certificate to the foregoing effect dated as
of the Closing Date and executed on behalf of Bancorp and Bank by one of its
duly authorized executive officers.
7.1.2(d) OPTIONS, SARS. There shall have been no increase in
the number of Options or SARs as set forth on Schedule 2.1.2 hereof.
7.1.2(e) COMFORT LETTERS. FSC shall have received letters
from McGladry & Pullen, LLP, dated (1) the effective date of the Registration
Statement and (2) shortly prior to the Effective Time, in form and substance
satisfactory to FSC, with respect to Bancorp's and Bank's financial
condition, which letters shall be based upon customary specified procedures
undertaken by such firm. The "comfort letters" contemplated hereby shall
include, but not be limited to, those matters identified in Schedule 7.1.2(e)
attached hereto.
7.1.2(f) OPINION OF BANCORP COUNSEL. Unless waived in
writing by FSC and FSB, FSC and FSB shall have received at the Closing from
each of Marquis & Aurbach and Gary Steven Findley & Associates, counsel to
Bancorp and Bank, a written opinion, dated as of the Closing Date,
substantially in the form of Schedule 7.1.2(f) hereto.
7.1.2(g) AFFILIATES LETTER. Unless waived in writing by FSC,
FSC shall have received a letter from each person who, in the opinion of
Bancorp and its counsel (who shall be entitled to rely on written
certificates of such persons), is an "affiliate" (as that term is defined in
Rule 405 promulgated by the SEC under the 1933 Act) of Bancorp in the form
attached hereto as Schedule 7.1.2(g). Such "affiliates" letter shall include
covenants with respect to the continued ownership of the FSC Common Stock to
be received pursuant to the Merger.
7.1.2(h) CONDITION OF BANK. FSB shall have determined, based
on an audit and review by its officers, accountants and legal counsel,
conducted prior to or immediately
<PAGE>
after the execution of this Agreement (the "INITIAL DUE DILIGENCE") and
updated as of the Closing Date, as provided hereinbelow, that (i) the assets,
books, records and operations of Bank are in reasonably satisfactory
condition and will not adversely impact FSB after consummation of the Bank
Merger; (ii) based on the review of the assets, books, records and operations
of Bank by FSB, there are no liabilities (existing, threatened or contingent)
which FSB, in its discretion, determines to be unacceptable; (iii) the
methodology for determining, and the allowance for loan and lease losses of
the Bank as determined by the grading of Bank loans and leases by FSB, is
adequate in all material respects; (iv) the net earnings before taxes for the
years ended 1993, 1994, 1995 and 1996 are as reported in the Financial
Statements delivered to FSB pursuant to Section 4.1.6; and (v) as of the
Closing Date, the net worth of Bancorp, calculated in accordance with
generally accepted accounting principles, and after accrual or payment of the
expenses incurred by Bancorp with respect to the Merger, including but not
limited to auditor's and attorney's fees and expenses incurred with respect
to termination of employee plans, will exceed $33,800,000.00 (exclusive of
securities gains or losses pursuant to FASB 115 for the period from January
1, 1997 through the Closing); provided, however, that in the event any of the
following occur, the parties agree to make appropriate adjustments
(reductions) to said minimum capital level:
(1) all outstanding options of Bancorp are not exercised;
(2) the closing date occurs prior to July 31, 1997; or
(3) the applicable tax rate for Bancorp is less than 35%.
Provided, further, that in the event that FSB shall have
determined, as a result of its Initial Due Diligence review, any items which
constitute in the aggregate a potential loss exposure in excess of $500,000,
the parties agree to make an appropriate adjustment to the Conversion Ratio.
In the event FSB determines, and Bank agrees, that certain
loans or assets should be written down or charged off or that additions to
the provision for loan losses should be made, as contemplated by subsections
(iii) and (iv) of this Section 7.1.2(i), Bank agrees to take such actions as
are appropriate under the circumstances and the net worth requirement set
forth in this section as a condition to Closing shall be determined after the
taking of such actions.
Any charge-offs or additions to the allowance for loan loss at
or prior to the Closing made at the request, in writing, of FSC or FSB, for
the conveniences of FSC or FSB, and
<PAGE>
not required by said subsections (ii) and (iii) of this Section 7.1.2(i),
which charge-offs or additions Bancorp and Bank agree to make, shall not
reduce net worth for purposes of satisfaction of the net worth condition set
forth in this section.
With respect to the credit review to be conducted by FSB
hereunder, FSB covenants and agrees that the update credit review of Bank by
FSB shall be conducted approximately fifteen (15) business days prior to the
Closing Date. In conducting the update credit review, FSB agrees that it
shall apply the same credit review procedures and credit standards it used in
the initial credit review and that in its update review it will only seek a
change of a grade on a Bank loan (or lease) from the initial review if there
has been a demonstrable adverse change in the credit, or the borrower or
guarantor (or collateral supporting the credit) has suffered a material
adverse event.
7.1.2(i) AGREEMENT NOT TO COMPETE. James V. Bradham shall
have executed and delivered an Agreement Not to Compete in the form set forth
as Schedule 7.1.2(j) attached hereto and incorporated herein.
7.1.2 EMPLOYMENT AGREEMENT. Bruce Hendricks shall have
execute and delivered an Employment Agreement in the form set forth as
Schedule 7.1.2(k) attached hereto and incorporated herein.
7.1.2(k) CONDITION OF PROPERTIES. FSC shall have determined,
based on the Phase I and Phase II Environmental Reports, as provided in
Section 3.7 above, that there are no liabilities (existing, threatened or
outright) associated with the real properties owned by Bancorp, Bank or the
Subsidiaries which are unacceptable.
7.1.2(l) TERMINATION OF STOCK OPTION AND SAR PLANS. The 1989
Plan and the 1995 Stock Option Plan and the SAR Plan shall each have been
terminated.
7.1.3 CONDITIONS OF CLOSING FOR BANCORP AND BANK. The obligation
of Bancorp and Bank, respectively, to consummate the transactions
contemplated by this Agreement is conditioned upon the following:
7.1.3(a) SHAREHOLDER APPROVAL. The sole shareholder of FSB
shall have approved, ratified and confirmed this Agreement, the Bank Merger
Agreement and the Bank Merger.
7.1.3(b) FSC AND FSB REPRESENTATIONS AND WARRANTIES. Unless
waived in writing by Bancorp and Bank, the representations and warranties of
FSC and FSB contained in this Agreement shall be correct on and as of the
Effective Time with the same effect as though made on and as of such date,
except for changes which are not, in the aggregate, material and adverse to
the financial condition, businesses, properties or operations of FSC and its
consolidated subsidiaries, and, except as otherwise
<PAGE>
contemplated by this Agreement, FSC and FSB shall have performed in all
material respects all of their obligations and agreements hereunder
theretofore to be performed by them. Bancorp and Bank shall have received at
the Closing a certificate to the foregoing effect dated as of the Closing
Date and executed on behalf of FSC and FSB by one of their duly authorized
executive officers.
7.1.3(c) OPINION OF FSC COUNSEL. Unless waived in writing by
Bancorp and Bank, Bancorp and Bank shall have received at the Closing from
Ray, Quinney & Nebeker, counsel to FSC and FSB, a written opinion, dated as
of the Closing Date, substantially in the form of Schedule 7.1.3(c) hereto.
ARTICLE VIII
CLOSING OF THE MERGER
8.1 CLOSING. Unless this Agreement is earlier terminated in accordance
with Article IX, Bank shall be merged with and into FSB, with FSB being the
surviving entity, and immediately thereafter Bancorp shall be merged with and
into FSC, with FSC being the surviving corporation, all as contemplated by
this Agreement, the Plan of Merger and the Bank Merger Agreement, at a
closing (the "CLOSING") to be held at the offices of FSB, 530 Las Vegas
Boulevard South, Las Vegas, Nevada, at 9:00 A.M., local time, on a date (the
"CLOSING DATE") mutually agreed upon by the parties as soon as practicable
after satisfaction of the conditions precedent set forth in Article VII and
the expiration of the required waiting period following approval of FSB's
application to the Nevada Banking Division relating to the Bank Merger, and
FSC's application to the Federal Reserve Board relating to the Merger, but in
no event later than thirty (30) days after the expiration of the latter of
such period.
8.2 FILING OF ARTICLES OF MERGER AND PLAN OF MERGER.
8.2.1 BANK MERGER. Bank and FSB shall execute articles of merger
in substantially the form attached to the Bank Merger Agreement and shall
cause such articles of merger to be approved by the Nevada Banking Division
and filed with the Nevada Secretary of State's office, on the Closing Date or
as soon thereafter as practicable. The Bank Merger shall take effect on such
dates as the Nevada Banking Division under rules and regulations governing
such office deems the Bank Merger effective.
8.2.2 MERGER. Following receipt of approval of the Plan of Merger
from the shareholders of Bancorp, the respective secretaries or assistant
secretaries of FSC and Bancorp shall provide such certifications to
Certificate of Merger or Articles of Merger (or Plan of Merger) as are
required by the Delaware General Corporation Law and, as soon as practicable
following the consummation and effectiveness of the Bank Merger, Bancorp and
FSC shall cause the Certificate of Merger or Articles of Merger
<PAGE>
(or Plan of Merger) as so certified to be filed with the Delaware Secretary
of State and with the county clerk of the appropriate Delaware county. FSC
and Bancorp shall also execute articles of merger in substantially the form
attached to the Plan of Merger and, as soon as practicable following the
consummation and effectiveness of the Bank Merger, shall cause such articles
of merger, together with a copy of the Certificate of Merger or Articles of
Merger (Plan of Merger) certified by the Secretary of State of the State of
Delaware, to be filed with the Nevada Secretary of State's office. The time
when the Merger shall become effective under the laws of the State of
Delaware is herein called the "EFFECTIVE TIME." In no event shall FSC and
Bancorp consummate the Merger unless and until the Bank Merger shall have
first been consummated. Further, once the Bank Merger has been consummated,
FSC and Bancorp shall in all events consummate the Merger, and any failure to
consummate the Merger shall constitute a condition subsequent to the Bank
Merger entitling Bank or FSB to rescind and unbind the Bank Merger.
8.2.3 BANCORP STOCK OPTIONS. At the Effective Time, upon due and
proper exercise by the holders of the Options issued under the Stock Option
Plans (as defined in Section 4.1.2, above), the holders thereof shall
receive, in lieu of Bancorp Common Stock, such number of shares of FSC Common
Stock as shall be determined by applying the Conversion Ratio set forth in
this Agreement to the number of shares of Bancorp Common Stock covered by
such Option, to the end that any holder exercising, as of the Effective Time,
the Option shall, in lieu of Bancorp Common Stock, receive FSC Common Stock
at the conversion ratio.
8.2.4 STOCK APPRECIATION RIGHTS. At the Effective Time, the SARs,
in an amount not to exceed 231,963 shall be cashed out for a value equal to
the Average Closing Price, multiplied by the Conversion Ratio, less the
exercise price for such SAR but in no event shall such cash-out amount exceed
$2,441,000 or be less than $1,564,000.
ARTICLE IX
TERMINATION
9.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time:
(a) by mutual consent of the Boards of Directors of FSC and
FSB and the Boards of Directors of Bancorp and Bank; or
(b) by the Boards of Directors of FSC and FSB or the Boards
of Directors of Bancorp and Bank at any time after the expiration of nine (9)
months from the date hereof, if the Merger and the Bank Merger shall not
theretofore have been consummated
<PAGE>
by the failure to satisfy the conditions to Closing not within the control of
the electing party; or
(c) by Bancorp and Bank, upon written notice to FSC and FSB
at any time if any representation or warranty of FSC and FSB contained in
this Agreement was materially incorrect when made or becomes materially
incorrect on or prior to the Closing Date, or if FSC or FSB fails to comply
with any of its covenants contained in this Agreement, and the same is not
cured within thirty (30) days after notice of such inaccuracy or
noncompliance; or
(d) by FSC and FSB upon written notice to Bancorp and Bank at
any time if any representation or warranty of Bancorp and Bank contained in
this Agreement was materially incorrect when made or becomes materially
incorrect on or prior to the Closing Date, or if Bancorp and Bank fails to
comply with any of its covenants contained in this Agreement, and the same is
not cured within thirty (30) days after notice of such inaccuracy or
noncompliance; or
(e) by FSC and FSB, upon written notice to Bancorp and Bank
at any time if a majority of Bancorp's shareholders (or such higher level
mandated by the Articles of Incorporation or Bylaws of Bancorp) does not
approve the Merger contemplated hereby, or if such Merger is disapproved by
any governmental authority whose approval is necessary. a) EFFECT OF
TERMINATION. In the event of termination and abandonment hereof pursuant to
the provisions of Section 9.1, this Agreement shall become void and have no
force or effect, except that provisions of this Agreement relating to
confidentiality or payment of expenses and this Section shall survive the
termination. Such termination shall not relieve any party of liability for
any default prior to such termination.
ARTICLE X
ADDITIONAL COVENANTS
10.1 COSTS. Each of the parties to this Agreement shall pay its own
charges and costs incurred or to be incurred in connection with the execution
and performance of this Agreement. In the event of a willful breach of a
material agreement or covenant contained herein by either Bancorp and Bank,
on the one hand, or FSC and FSB, on the other, which breach either directly
or indirectly results or would result in a failure to consummate the Bank
Merger and the Merger, and which breach cannot be cured or is not cured
within thirty (30) days after written notice of such breach is given to the
party committing such breach, the party causing such breach shall be liable
to the other party for damages for an amount not to exceed $1,000,000.00;
provided, however, that either party may elect to forego the receipt of
<PAGE>
such payment, and pursue its right to the specific performance or enforcement
of the terms and provisions of this Agreement.
10.2 INSTRUMENTS OF TRANSFER, ETC. Each of the parties hereto shall
cooperate with the other parties in every way in carrying out the
transactions contemplated herein, in delivering instruments to perfect the
conveyances, assignments and transfers contemplated herein, and in delivering
all documents and instruments reasonably deemed necessary or useful by
counsel for any party hereto.
10.3 NOTICES. All notices, requests, consents and demands shall be
given to or made upon the parties at their respective addresses set forth
below, or at such other address as a party may designate in writing delivered
to the other parties. Unless otherwise agreed in this Agreement, all
notices, requests, consents and demands shall be given or made by personal
delivery, by confirmed air courier, by facsimile transmission ("FAX") (with a
copy to follow by first class mail), or by certified first class mail, return
receipt requested, postage prepaid, to the party or parties addressed as
aforesaid. If sent by confirmed air courier, such notice shall be deemed to
be given upon the earlier to occur of the date upon which it is actually
received by the addressee or the business day upon which delivery is made at
such address as confirmed by the air courier (or if the date of such
confirmed delivery is not a business day, the next succeeding business day).
If mailed, such notice shall be deemed to be given upon the earlier to occur
of the date upon which it is actually received by the addressee or the second
business day following the date upon which it is deposited in a first-class
postage-prepaid envelope in the United States mail addressed as aforesaid.
If given by fax, such notice shall be deemed to be given upon the date it is
actually received by the addressee.
(a) IF TO FSC AND FSB, TO:
First Security Bank of Nevada
530 Las Vegas Blvd. S
Las Vegas, Nevada 89101
Attn: David J. Smith, President
and Chief Executive Officer
Fax Number (702) 385-8705
WITH A COPY TO:
First Security Corporation
79 South Main Street
Salt Lake City, Nevada 84111
Attn: Brad D. Hardy, Esq.
Executive Vice-President & General Counsel
Fax Number: (801) 359-6928
<PAGE>
WITH A COPY TO:
Sylvia I. Iannucci of
Ray, Quinney & Nebeker
400 Deseret Building
79 South Main Street
Salt Lake City, Nevada 84111
Fax Number: (801) 532-7543
(b) IF TO BANCORP AND BANK, TO:
American Bancorp of Nevada
4425 Spring Mountain Road
Las Vegas, Nevada 89102
Attn: James V. Bradham
Fax Number: (702) 368-3241
WITH A COPY TO:
Gary S. Findley, Esq. of
Gary Steven Findley & Associates
1470 North Hundley Street
Anaheim, California 92806
Fax Number: (714) 630-7910
WITH A COPY TO:
Phillip S. Aurbach, Esq. of
Marquis & Aurbach
228 South Fourth Street
Las Vegas, Nevada 89101
Fax Number: (702) 382-5816
Each party hereto shall notify promptly the other in writing of the
occurrence of any event which will or may result in the failure to satisfy
the conditions specified in Article VII hereof. Between the date of this
Agreement and the Effective Time, each party hereto will advise the other of
the satisfaction of such conditions as they occur.
10.4 AMENDMENTS. Prior to the Effective Time, any provision of this
Agreement and of the Bank Merger Agreement and the Plan of Merger, except for
Section 4.2 of the Bank Merger Agreement and Section 4.2 of the Plan of
Merger, which establish the conversion ratios, may be amended or modified at
any time, either before or after its approval by the shareholders of either
party to this Agreement, by an agreement in writing between the parties
hereto approved by their respective Boards of Directors (or Executive
Committee in the case of FSC) and executed in the same manner as this
Agreement.
<PAGE>
10.5 ENTIRE AGREEMENT. This Agreement and all exhibits and schedules
attached hereto, and other documents incorporated or referred to herein,
constitute the entire agreement of the parties hereto with respect to the
subject matter contained herein, and there are no covenants, terms,
conditions, express or implied, other than as set forth or referred to
herein. This Agreement supersedes all prior agreements between the parties
relating to all or part of the subject matter herein. The parties may not
amend, modify or cancel this Agreement except as provided herein or by a
written agreement signed by all parties to the Agreement.
10.6 ASSIGNMENT. This Agreement may not be assigned by any party
hereto except with the prior written consent of the other parties.
10.7 COUNTERPARTS. Any number of counterparts of this Agreement may be
signed and delivered and each shall be considered an original and together
they shall constitute one agreement.
10.8 EXCLUSIVE MERGER AGREEMENT. Bancorp, the Board of Directors of
Bancorp, and the shareholders of Bancorp executing this Agreement below,
covenant and agree that, between the date hereof and the date of the meeting
of the shareholders of Bancorp described in Article VI hereof, they will not,
either directly or indirectly, solicit or attempt to procure offers relating
to the Merger or Bank Merger, or acquisition of Bancorp or Bank, with or by
any entity not a party to this Agreement, or negotiate or enter into any
agreements relating to the Merger or Bank Merger, or acquisition of Bancorp
or Bank, with or by any such third party, and such persons further agree to
use his or her best efforts to obtain the approval of the Merger by
shareholders of Bancorp. Notwithstanding the foregoing, neither Bancorp nor
Bank nor any of their respective officers or directors shall be required by
this Section 10.8 to take or refrain from taking any action if to do so
would, in the opinion of Bancorp's legal counsel, violate the duties imposed
by law on the Bancorp directors or officers to the Bancorp shareholders.
10.9 PUBLIC STATEMENTS. No party to this Agreement shall issue any
press release or other public statement concerning the transactions
contemplated by this Agreement without first providing the other parties
hereto with a written copy of the text of such release or statement and
obtaining the consent of the other parties respecting such release or
statement, which consent will not be unreasonably withheld. The consent
provided for in this Section shall not be required if the delay necessary to
obtain such consent would preclude the timely issuance of a press release or
public statement as required by law. The provisions of this Section 10.9
shall not be construed as prohibiting the filing of copies of this Agreement
or descriptions of this Agreement with regulatory agencies as to which
regulatory approvals are contemplated by this Agreement.
<PAGE>
10.10 CONFIDENTIALITY. Each party shall use all information that it
obtains from the others pursuant to this Agreement solely for the
effectuation of the transactions contemplated by this Agreement or for other
purposes consistent with the intent of this Agreement and shall not use any
of such information for any other purpose, including, without limitation, the
competitive detriment of the other parties. Each party shall maintain as
strictly confidential all information it learns from the others and shall
upon expiration or termination of this Agreement, return promptly to the
other parties all documentation (and copies thereof) provided by them or made
available by third parties. Each party may disclose such information to its
respective affiliates, counsel, accountants, tax advisors and consultants.
This provision shall not prohibit the use or disclosure of confidential
information pursuant to court order or which has otherwise become publicly
available.
10.11 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None
of the representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for the agreements contained in Section 2.3, 5.1.13, 10.9 and
10.10 and the agreements of the Affiliates contained in the letters referred
to in Section 7.1.2(g).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first set forth above.
FIRST SECURITY CORPORATION
By /s/ MORGAN J. EVANS
------------------------------------------
Morgan J. Evans, President and
Chief Operating Officer
FIRST SECURITY BANK OF NEVADA
By /s/ David J. Smith
------------------------------------------
David J. Smith, President and
Chief Executive Officer
AMERICAN BANCORP OF NEVADA
By /s/ James V. Bradham
------------------------------------------
James V. Bradham,
Chief Executive Officer
AMERICAN BANK OF COMMERCE
By /s/ James V. Bradham
------------------------------------------
James V. Bradham,
Chief Executive Officer
<PAGE>
APPENDIX B
BANCORP'S AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<PAGE>
AMERICAN BANCORP OF NEVADA
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1996
CONTENTS
- -------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT 1
- -------------------------------------------------------------------------------
FINANCIAL STATEMENTS
Consolidated balance sheets 2
Consolidated statements of income 3-4
Consolidated statements of stockholders' equity 5
Consolidated statements of cash flows 6-7
Notes to consolidated financial statements 8-30
- -------------------------------------------------------------------------------
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
American Bancorp of Nevada
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheets of American
Bancorp of Nevada and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 American
Bancorp of Nevada and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ McGladrey & Pullen, LLP
Las Vegas, Nevada
January 17, 1997
Page 1
<PAGE>
AMERICAN BANCORP OF NEVADA
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
ASSETS 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks (Note 2) $ 36,453,878 $ 36,375,727
Other interest bearing accounts 9,571,362 3,696,771
Federal funds sold 8,400,000 9,500,000
------------------------------
Cash and cash equivalents 54,425,240 49,572,498
Available-for-sale securities (Notes 3 and 8) 121,875,695 120,589,071
Loans receivable (Note 4) 126,738,077 94,486,787
Less allowance for loan losses (Note 5) (1,311,436) (1,242,620)
------------------------------
Net loans 125,426,641 93,244,167
Bank premises and equipment, net (Note 6) 12,845,741 10,509,791
Accrued interest receivable 2,008,949 2,051,124
Deferred taxes, net (Note 9) 465,499 307,500
Other assets 806,358 416,477
------------------------------
Total assets $317,854,123 $276,690,628
------------------------------
------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------
Deposits:
Non-interest bearing demand $108,555,716 $ 88,386,803
Interest bearing:
Checking 112,619,836 94,601,128
Savings 14,653,627 18,431,473
Time, $100,000 and over (Note 7) 7,817,974 5,354,883
Other time (Note 7) 4,948,800 4,749,552
------------------------------
Total deposits 248,595,953 211,523,839
Securities sold under agreements to repurchase (Notes 3 and 8) 36,440,370 36,748,550
Accrued interest and other liabilities 1,166,390 1,529,316
------------------------------
Total liabilities 286,202,713 249,801,705
------------------------------
Commitments and Contingencies (Notes 10, 13 and 15)
Stockholders' Equity (Notes 3, 11, 12 and 13)
Common stock, $.05 par value, 5,000,000 shares authorized;
shares issued: (1996) 3,729,057, (1995) 3,229,877; shares
outstanding: (1996) 3,715,533, (1995) 3,213,803 186,453 161,494
Surplus 28,293,760 20,420,262
Retained earnings 3,264,478 6,156,314
Unrealized gain on available-for-sale securities, net of income taxes 16,000 284,000
------------------------------
31,760,691 27,022,070
Less treasury stock, at cost (1996) 13,524 shares;
(1995) 16,074 shares (109,281) (133,147)
------------------------------
Total stockholders' equity 31,651,410 26,888,923
------------------------------
Total liabilities and stockholders' equity $317,854,123 $276,690,628
------------------------------
------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
Page 2
<PAGE>
AMERICAN BANCORP OF NEVADA
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income on:
Loans receivable $12,591,750 $11,563,986 $ 8,307,315
Securities:
Taxable 6,112,979 6,090,622 4,330,032
Nontaxable 1,180,097 1,362,338 1,586,649
-----------------------------------------------
Total interest on securities 7,293,076 7,452,960 5,916,681
Federal funds sold 387,804 391,301 192,300
-----------------------------------------------
Total interest income 20,272,630 19,408,247 14,416,296
Interest expense on:
Deposits 4,376,256 4,997,620 2,939,359
Securities sold under
agreements to repurchase 1,416,073 1,017,803 384,452
-----------------------------------------------
Total interest expense 5,792,329 6,015,423 3,323,811
Net interest income 14,480,301 13,392,824 11,092,485
Provision for loan losses (Note 5) 375,000 570,000 20,000
-----------------------------------------------
Net interest income after provision
for loan losses 14,105,301 12,822,824 11,072,485
-----------------------------------------------
Non-interest income:
Service charges on deposit accounts 179,479 162,916 176,576
Gain (loss) on sale of securities, net (Note 3) 307,258 (19,922) (246,245)
Other fees 307,110 307,648 312,276
Property rental 238,926 191,181 275,220
Trust operations (Note 14) 407,691 323,491 263,847
Voucher control fees 186,461 269,357 336,376
Other 112,790 189,252 65,932
-----------------------------------------------
Total non-interest income 1,739,715 1,423,923 1,183,982
-----------------------------------------------
Non-interest expense:
Salaries, wages and employee benefits (Note 15) 5,124,158 4,548,705 3,991,518
Occupancy (Note 10) 1,706,020 1,502,689 1,617,727
FDIC and state assessments 9,293 376,026 419,972
Customer service 218,886 193,828 193,568
Professional fees 400,510 465,193 386,834
Advertising and public relations 290,388 268,031 253,461
Directors' compensation 247,439 520,931 225,511
Other 1,132,944 893,253 823,595
-----------------------------------------------
Total non-interest expense $ 9,129,638 $ 8,768,656 $ 7,912,186
-----------------------------------------------
-----------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
Page 3
<PAGE>
AMERICAN BANCORP OF NEVADA
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes $ 6,715,378 $ 5,478,091 $ 4,344,281
Provision for income taxes (Note 9) 1,838,000 1,371,000 1,030,000
---------------------------------------------------
Net income $ 4,877,378 $ 4,107,091 $ 3,314,281
---------------------------------------------------
---------------------------------------------------
Net income per common and
common equivalent share $ 1.28 $ 1.10 $ 0.90
---------------------------------------------------
---------------------------------------------------
Weighted average common shares outstanding 3,802,500 3,739,768 3,646,802
---------------------------------------------------
---------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
Page 4
<PAGE>
AMERICAN BANCORP OF NEVADA
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
Unrealized
Gain (Loss)
Common Stock on Securities
---------------------- Available
Outstanding Retained for Sale, Net Treasury
Shares Amount Surplus Earnings Income Taxes Stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 ............... 1,958,304 $ 98,736 $15,403,387 $2,562,649 $ -- $(135,859) $17,928,913
Net effect of change in accounting method. -- -- -- -- 374,000 -- 374,000
Net income ............................... -- -- -- 3,314,281 -- -- 3,314,281
15% stock dividend (Note 11) ............. 294,229 14,711 3,810,266 (3,824,977) -- -- --
Fractional shares issued in cash ......... -- -- -- (1,473) -- -- (1,473)
Stock options exercised (Note 13) ........ 112,950 5,648 696,646 -- -- -- 702,294
Tax effect of stock option transactions
(Note 13) .............................. -- -- 172,400 -- -- -- 172,400
Sales of treasury stock .................. 175 -- 875 -- -- 1,356 2,231
Net change in unrealized gain/ (loss) on
available-for-sale securities, net of
income taxes (Note 3)................... -- -- -- -- (2,361,500) -- (2,361,500)
---------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 ............... 2,365,658 119,095 20,083,574 2,050,480 (1,987,500) (134,503) 20,131,146
Net income ............................... -- -- -- 4,107,091 -- -- 4,107,091
Four-for-three stock split (Note 11) ..... 791,919 39,596 (39,596) -- -- -- --
Fractional shares issued in cash ......... -- -- -- (1,257) -- -- (1,257)
Stock options exercised (Note 13) ........ 56,051 2,803 237,386 -- -- -- 240,189
Tax effect of stock option transactions
(Note 13) .............................. -- -- 137,979 -- -- -- 137,979
Sales of treasury stock .................. 175 -- 919 -- -- 1,356 2,275
Net change in unrealized gain/(loss) on
available-for-sale securities, net of
income taxes (Note 3) .................. -- -- -- -- 2,271,500 -- 2,271,500
---------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 ............... 3,213,803 161,494 20,420,262 6,156,314 284,000 (133,147) 26,888,923
Net income ............................... -- -- -- 4,877,378 -- -- 4,877,378
15% stock dividend (Note 11) ............. 482,780 24,139 7,742,633 (7,766,772) -- -- --
Fractional shares issued in cash ......... -- -- -- (2,442) -- -- (2,442)
Stock options exercised (Note 13) ........ 16,400 820 84,055 -- -- -- 84,875
Tax effect of stock option transactions
(Note 13) .............................. -- -- 28,000 -- -- -- 28,000
Sales of treasury stock .................. 2,550 -- 18,810 -- -- 23,866 42,676
Net change in unrealized gain/(loss) on
available-for-sale securities, net of
income taxes (Note 3) .................. -- -- -- -- (268,000) -- (268,000)
---------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 ............... 3,715,533 $186,453 $28,293,760 $3,264,478 $ 16,000 $(109,281) $31,651,410
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
Page 5
<PAGE>
AMERICAN BANCORP OF NEVADA
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Interest and fees on loans $ 13,034,191 $ 11,192,886 $ 8,270,136
Interest on securities 7,470,112 7,144,454 5,490,177
Interest on federal funds sold 387,804 391,301 192,300
Other income 1,432,457 1,443,845 1,430,227
Interest paid on deposits (4,359,410) (4,969,663) (2,920,764)
Interest paid on securities sold under agreements
to repurchase (1,416,073) (1,017,803) (384,452)
Cash paid to suppliers and employees (8,793,933) (7,464,901) (6,908,629)
Income taxes paid (2,184,620) (1,158,000) (845,000)
-----------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,570,528 5,562,119 4,323,995
-----------------------------------------------
Cash Flows From Investing Activities
Proceeds from maturities and sales of
available-for-sale securities (Note 3) 76,031,045 53,610,450 59,141,624
Proceeds from maturities of
held-to-maturity securities -- 32,483,201 37,978,620
Purchase of available-for-sale securities (77,531,822) (62,202,926) (75,384,827)
Purchase of held-to-maturity securities -- (25,000,000) (30,790,986)
Net increase in loans made to customers (33,019,364) (18,272,799) (10,340,545)
Purchase of bank premises and equipment (3,086,688) (1,607,926) (1,030,359)
-----------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (37,606,829) (20,990,000) (20,426,473)
-----------------------------------------------
Cash Flows From Financing Activities
Net increase in deposits 37,072,114 18,712,606 19,147,158
Net increase (decrease) in securities sold under
agreements to repurchase (308,180) 22,968,558 (4,265,570)
Proceeds from issuance of common stock 125,109 241,207 702,775
-----------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 36,889,043 41,922,371 15,584,363
-----------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 4,852,742 26,494,490 (518,115)
Cash and Cash Equivalents, Beginning of Year 49,572,498 23,078,008 23,596,123
-----------------------------------------------
Cash and Cash Equivalents, End of Year $ 54,425,240 $ 49,572,498 $ 23,078,008
-----------------------------------------------
-----------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
Page 6
<PAGE>
AMERICAN BANCORP OF NEVADA
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income $ 4,877,378 $ 4,107,091 $ 3,314,281
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of bank
premises and equipment 750,738 663,699 708,042
Amortization of premiums and
accretion of discounts on securities 115,412 (256,843) 197,111
Provision for loan losses 375,000 570,000 20,000
(Gain) loss on sale of securities (307,258) 19,922 246,245
(Increase) decrease in other assets 122,184 (374,185) (34,040)
Increase (decrease) in other liabilities (362,926) 832,435 (127,644)
--------------------------------------------------
Net cash provided by operating
activities $ 5,570,528 $ 5,562,119 $ 4,323,995
--------------------------------------------------
Supplemental Schedule of Non-Cash Investing
and Financing Activities:
Stock dividends $ 7,766,772 $ -- $ 3,824,977
Held-to-maturity securities transferred to
available-for-sale $ -- $ 25,344,511 $ --
Net change in unrealized gain (loss) on
available-for-sale securities $ (268,000) $ 2,271,500 $ (2,361,500)
Four-for-three stock split $ -- $ 39,596 $ --
</TABLE>
See Notes to Consolidated Financial Statements.
Page 7
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
American Bancorp of Nevada (the "Company") is a bank holding company
providing a full range of banking services to commercial and consumer
customers through five branches of its subsidiary, American Bank of Commerce
(the "Bank"), located in Southern Nevada.
The primary services provided by the Bank include commercial, construction
and real estate financing, and business loans to customers who are
predominantly small and middle-market businesses. The Bank also grants
consumer loans to individuals, offers a full array of depository accounts and
provides trust and estate administration services.
The Company's business is concentrated in Southern Nevada and is subject to
the general economic conditions of this area.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of American
Bancorp of Nevada and its wholly-owned subsidiaries, American Bank of
Commerce, AmBank Mortgage Company and AmBank Financial, Inc. All significant
intercompany accounts and transactions have been eliminated in consolidation.
AmBank Mortgage Company's and AmBank Financial Inc.'s operations have been
substantially curtailed since 1986.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents includes cash
on hand, other interest bearing accounts, amounts due from banks (including
cash items in process of clearing) and federal funds sold. Cash flows from
loans originated by the Bank and deposits are reported net.
The Bank maintains amounts due from banks which, at times, may exceed
federally insured limits. The Bank has not experienced any losses in such
accounts.
Page 8
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
AVAILABLE-FOR-SALE SECURITIES
Securities classified as available-for-sale include all equity securities and
those debt securities that the Company intends to hold for an indefinite
period of time but not necessarily to maturity. Any decision to sell a
security classified as available-for-sale would be based on various factors,
including significant movements in interest rates, changes in the maturity
mix of the Company's assets and liabilities, liquidity needs, regulatory
capital considerations and other similar factors. Securities
available-for-sale are carried at fair value. Unrealized gains or losses are
reported as increases or decreases in stockholders' equity, net of the
related deferred tax effect. Realized gains or losses, determined on the
basis of the cost of specific securities sold, are included in earnings.
LOANS RECEIVABLE
Loans receivable are stated at the amount of unpaid principal, reduced by
unearned fees and allowance for loan losses.
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 collectibility of the principal is
unlikely. The allowance is an amount that management believes will be
adequate to absorb estimated losses on existing loans that may become
uncollectible, based on evaluation of the collectibility of loans and prior
credit loss experience. This evaluation also takes into consideration such
factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem credits and current economic
conditions that may affect the borrower's ability to pay. While management
uses the best information available to make its evaluation, future
adjustments to the allowance may be necessary if there are significant
changes in economic or other conditions. In addition, the Federal Deposit
Insurance Corporation (FDIC), as an integral part of their examination
process, periodically reviews the Bank's allowance for loan losses, and may
require the Bank to make additions to the allowance based on their judgment
about information available to them at the time of their examinations.
Impaired loans are measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price or the fair value
of the collateral if the loan is collateral dependent. A loan is impaired
when it is probable the Company will be unable to collect all contractual
principal and interest payments due in accordance with the terms of the loan
agreement.
Page 9
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTEREST AND FEES ON LOANS
Interest on loans is recognized over the terms of the loans and is calculated
under the effective interest method. The accrual of interest on impaired
loans is discontinued when, in management's opinion, the borrower may be
unable to meet payments as they become due. When interest accrual is
discontinued, all unpaid accrued interest is reversed. Interest income is
subsequently recognized only to the extent cash payments are received.
Loan origination and commitment fees and certain direct loan origination
costs are deferred and the net amount amortized as an adjustment of the
related loan's yield. The Company is generally amortizing these amounts over
the contractual life. Commitment fees based upon a percentage of a customer
unused line of credit and fees related to standby letters of credit are
recognized over the commitment period.
BANK PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed principally by the straight-line
method over the following estimated useful lives:
Years
-------
Buildings 30
Equipment and furnishings 3 - 7
Improvements to leased property are amortized over the lesser of the term of
the lease or life of the improvements.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share are determined on the basis
of the weighted-average number of common shares and common equivalent shares
outstanding. The weighted average number of common and common equivalent
shares outstanding and earnings per share have been adjusted for all periods
presented to reflect the stock dividends and stock split discussed in Note
11. Common stock equivalents represent the dilutive effect of outstanding
stock options.
INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effect of
changes in tax laws and rates on the date of enactment.
The Company and its subsidiaries file a consolidated income tax return. The
provision for taxes on income is based upon earnings reported in the
consolidated financial statements.
Page 10
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATION OF OTHER INTEREST BEARING ACCOUNTS
During the year ended December 31, 1996, management began classifying other
interest bearing accounts as cash and cash equivalents compared to their
previous classification as securities available-for-sale. The December 31,
1995 balance sheet and the December 31, 1995 and 1994 statements of cash
flows were reclassified to be consistent with the classifications adopted
during the year ended December 31, 1996.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board (FASB) Statement No. 107, DISCLOSURES
ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value.
Management uses its best judgment in estimating the fair value of the
Company's financial instruments; however, there are inherent weaknesses in
any estimation technique. Therefore, for substantially all financial
instruments, the fair value estimates presented herein are not necessarily
indicative of the amounts the Company could have realized in a sales
transaction at either December 31, 1996 or 1995. The estimated fair value
amounts for 1996 and 1995 were measured as of their respective year ends, and
were not reevaluated or updated for purposes of these consolidated financial
statements subsequent to those respective dates. As such, the estimated fair
values of these financial instruments subsequent to the respective reporting
dates may be different than the amounts reported at each year end.
The information in Note 16 should not be interpreted as an estimate of the
fair value of the entire Company since a fair value calculation is only
required for a limited portion of the Company's assets.
Due to the wide range of valuation techniques and the degree of subjectivity
used in making the estimate, comparisons between the Company's disclosures
and those of other companies or banks may not be meaningful.
The following methods and assumptions were used by the Company in estimating
the fair value of its financial instruments:
CASH AND CASH EQUIVALENTS
The carrying amounts reported in the consolidated balance sheets for cash and
cash equivalents approximate their fair values.
AVAILABLE-FOR-SALE SECURITIES
Fair values for securities are based on quoted market prices, dealer quotes,
or valuations obtained from securities pricing services offered by various
brokers. Fair values of securities with prepayment risk such as collateral
mortgage obligations (CMO's) and securities with little or no active trading
market such as certain structured notes and municipal securities do not
necessarily represent the actual trade price which could be obtained on any
given day for any particular security.
Page 11
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
LOANS RECEIVABLE
For variable rate loans that reprice frequently and experience no significant
change in credit risk, fair values are based on carrying values. At December
31, 1996 and 1995, variable rate loans comprised approximately 95% and 94% of
the loan portfolio, respectively. The fair value for all other loans are
estimated using discounted cash flow analyses and interest rates currently
being offered for loans with similar terms to borrowers with similar credit
quality.
ACCRUED INTEREST RECEIVABLE
The carrying amounts reported in the consolidated balance sheets for
accrued interest receivable approximate their fair values.
DEPOSIT LIABILITIES
Fair values disclosed for demand deposits equal their carrying amounts,
which represent the amounts payable on demand. The carrying amounts for
variable-rate, deposit accounts approximate their fair values. Fair values
for fixed-rate certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on these
deposits. Early withdrawals of fixed-rate certificate of deposits are not
expected to be significant.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The fair value of securities sold under agreements to repurchase, all of
which mature within one day, is the amount payable on demand at the
reporting date.
OFF-BALANCE-SHEET INSTRUMENTS
Fair values for the Company's off-balance-sheet instruments (lending
commitments and standby letters of credit) are based on quoted fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the counterparties' credit standing.
Page 12
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CURRENT ACCOUNTING DEVELOPMENT
Effective January 1, 1996, the Company adopted FASB Statement No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF. Statement No. 121 establishes accounting standards for
the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used for long-lived assets
and certain identifiable intangibles to be disposed of. There was no
material effect on the consolidated financial statements relating to this
adoption.
Effective January 1, 1996, the Company adopted FASB Statement No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. Statement No. 123 establishes
financial accounting and reporting standards for stock-based employee
compensation plans, such as stock options and stock purchase plans. The
Statement generally suggests but does not require stock-based compensation
transactions for employees to be accounted for based on the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable. Transactions occurring after December
15, 1995 with non-employees shall be accounted for based on the fair value of
the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable. Companies that do not elect
to change their accounting for stock-based compensation are required to
disclose the effect on net income and earnings per share as if the accounting
provision of Statement No. 123 were applied. The Company has decided not to
adopt the accounting provision of this Statement.
The FASB has issued Statement No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING
OF FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES (as amended by FASB No.
127 which defers implementation of certain provisions of FASB No. 125 to
January 1, 1998), which becomes effective for transactions occurring after
December 31, 1996. The Statement does not permit earlier or retroactive
application. The Statement distinguishes transfers of financial assets that
are sales from transfers that are secured borrowings. A transfer of financial
assets in which the transferor surrenders control over those assets is
accounted for as a sale to the extent that consideration other than
beneficial interests in the transferred assets is received in exchange. The
Statement also establishes standards on the initial recognition and
measurement of servicing assets and other retained interests and servicing
liabilities, and their subsequent measurement.
The Statement requires that debtors reclassify financial assets pledged as
collateral and that secured parties recognize those assets and their
obligation to return them in certain circumstances in which the secured party
has taken control of those assets. In addition, the Statement requires that
a liability be derecognized only if the debtor is relieved of its obligation
through payment to the creditor or by being legally released from being the
primary obligor under the liability either judicially or by the creditor.
Management does not believe the application of the Statement to transactions
of the Company that have been typical in the past will materially affect the
Company's financial position or results of operations.
Emerging Issues Task Force (EITF) Issue No. 96-12 RECOGNITION OF INTEREST
INCOME AND BALANCE SHEET CLASSIFICATION OF STRUCTURED NOTES, requires the use
of the retrospective interest method of recognizing income on certain
structured note securities. The application of this consensus applies
prospectively to new securities acquired after November 14, 1996. Management
does not believe the application of this consensus will materially affect the
Company's financial position or results of operations.
Page 13
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
NOTE 2. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Company is required to maintain reserve balances in cash or on deposit
with the Federal Reserve Bank. The total of those reserve balances was
approximately $5,960,000 at December 31, 1996.
NOTE 3. SECURITIES
Carrying amounts and fair values of available-for-sale securities as of
December 31, 1996 and 1995 are summarized as follows:
<TABLE>
1996
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
---------------------------------------------------------
<S> <C> <C> <C> <C>
Equity securities ......................... $ 3,000,000 $ -- $ -- $ 3,000,000
Structured notes .......................... 8,475,199 2,217 (197,467) 8,279,949
Obligations of U.S. Treasury
and U.S. government agencies ............ 59,343,008 261,627 (102,415) 59,502,220
Obligations of states and
political subdivisions .................. 22,340,071 207,403 (41,404) 22,506,070
Collateralized mortgage obligations ....... 28,192,417 40,459 (146,820) 28,086,056
Other securities .......................... 500,000 1,400 -- 501,400
-----------------------------------------------------------
$121,850,695 $ 513,106 $(488,106) $121,875,695
-----------------------------------------------------------
1995
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
---------------------------------------------------------
Equity securities ......................... $ 5,479,711 $ -- $ -- $ 5,479,711
Structured notes .......................... 14,939,417 4,673 (305,190) 14,638,900
Obligations of U. S. Treasury
and U.S. government agencies ............ 54,458,579 570,312 (80,389) 54,948,502
Obligations of states and
political subdivisions .................. 25,789,251 177,369 (57,362) 25,909,258
Collateralized mortgage obligations ....... 18,762,190 142,060 (22,467) 18,881,783
Other securities .......................... 728,923 1,994 -- 730,917
-----------------------------------------------------------
$120,158,071 $ 896,408 $(465,408) $120,589,071
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>
Page 14
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
NOTE 3. SECURITIES (CONTINUED)
The amortized cost and fair value of securities as of December 31, 1996, by
contractual maturities, are shown below. Maturities may differ from
contractual maturities in CMO's because the mortgages underlying the
securities may be called or repaid without any penalties. Therefore, these
securities, and equity securities, which have no maturity, are listed
separately in the maturity summary. In addition, securities with amortized
cost of $23,073,242 and fair value of $23,018,606 at December 31, 1996
contain certain call provisions. Given certain interest rate environments
some or all of these securities may be called by their issuers prior to the
scheduled maturities.
Amortized Fair
Cost Value
---------------------------
Due in one year or less ............... $ 41,685,347 $ 41,461,510
Due after one year through 5 years .... 46,189,787 46,436,271
Due after 5 years through 10 years .... 2,783,144 2,891,858
Collateralized mortgage obligations ... 28,192,417 28,086,056
Equity securities ..................... 3,000,000 3,000,000
----------------------------
$121,850,695 $121,875,695
----------------------------
----------------------------
Proceeds from sales of available-for-sale securities and the gross gains and
losses realized on those sales during the years ended December 31, 1996, 1995
and 1994 are as follows:
1996 1995 1994
----------------------------------------
Proceeds from sales ........ $19,747,907 $16,767,148 $37,167,658
----------------------------------------
Gross realized gains ....... $ 335,700 $ 47,561 $ 215,120
Gross realized losses ...... (28,442) (67,483) (461,365)
----------------------------------------
$ 307,258 $ (19,922) $ (246,245)
----------------------------------------
----------------------------------------
Securities with amortized cost of $75,210,764 and $63,396,639 at December 31,
1996 and 1995, respectively, were pledged to secure public deposits,
securities sold under agreements to repurchase and for other purposes
required or permitted by law.
On November 27, 1995, the Company reassessed the appropriateness of the
classification of all securities in accordance with the issuance of the
Financial Accounting Standards Board's GUIDE TO IMPLEMENTATION OF STATEMENT
115 ON ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. As
a result, the Company transferred $25,344,511 of securities previously
classified as held-to-maturity into available-for-sale securities. The
Company did not recognize an unrealized holding gain or loss as a result of
the transfer.
Page 15
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
NOTE 4. LOANS RECEIVABLE
The composition of the Company's loan portfolio at December 31 is as follows:
1996 1995
---------------------------
Real estate loans:
Construction .......................... $ 24,105,582 $15,113,573
Residential ........................... 11,594,713 10,643,190
Commercial ............................ 48,274,044 34,627,184
---------------------------
83,974,339 60,383,947
Commercial, financial and industrial
loans ................................. 35,428,680 24,875,838
Commercial receivables financing ......... 3,329,322 2,396,952
Loans to individuals ..................... 4,977,794 7,340,220
---------------------------
127,710,135 94,996,957
Less unearned net loan fees .............. (972,058) (510,170)
---------------------------
$126,738,077 $94,486,787
---------------------------
---------------------------
The loans are expected to be repaid from cash flows or proceeds from the sale
of selected assets of the borrowers. The Company's policy for requiring
collateral is to obtain collateral whenever it is available or desirable,
depending upon the degree of risk the Company is willing to take.
The Company's real estate loans are secured by office buildings, land for
development, multifamily residential real estate, single family homes and
other property, substantially all of which is in Southern Nevada.
Substantially all of these loans are secured by first liens with an initial
loan to value ratio of generally not more than 70%.
The Company has two impaired loans with a combined recorded investment of
$700,171 as of December 31, 1996, which have been recognized in conformity
with FASB Statement No. 114, as amended by FASB Statement No. 118. The
allowance for loan losses related to these loans was $350,086 at December 31,
1996. Interest income recognized on the impaired loans is not considered
material.
Excluding the loans referred to in the previous paragraph, the Company has no
other material loans at December 31, 1996 and 1995 which should be classified
as impaired loans in accordance with FASB Statement No. 114 as amended by
FASB Statement No. 118.
Page 16
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
NOTE 5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
Years Ended December 31,
-----------------------------------
1996 1995 1994
-----------------------------------
Balance, beginning ...................... $1,242,620 $ 726,899 $649,252
Provision charged to operating expense... 375,000 570,000 20,000
Recoveries of amounts charged off ....... 9,705 32,130 72,331
Less amounts charged off ................ (315,889) (86,409) (14,684)
-----------------------------------
Balance, ending ......................... $1,311,436 $1,242,620 $726,899
-----------------------------------
-----------------------------------
NOTE 6. BANK PREMISES AND EQUIPMENT
The major classes of bank premises and equipment and the total accumulated
depreciation and amortization at December 31 are as follows:
December 31,
-------------------------
1996 1995
-------------------------
Land ............................................... $ 3,614,072 $ 2,902,594
Building and improvements .......................... 9,908,920 8,214,022
Equipment and furniture ............................ 3,326,583 2,848,658
------------------------
16,849,575 13,965,274
Less accumulated depreciation and amortization ..... (4,003,834) (3,455,483)
------------------------
$12,845,741 $10,509,791
------------------------
------------------------
Page 17
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
NOTE 7. TIME DEPOSITS
At December 31, 1996, the scheduled maturities of time deposits are as
follows:
1997 $ 12,353,509
1998 383,265
1999 30,000
----------------
$ 12,766,774
----------------
----------------
NOTE 8. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase remain under the Company's
control and generally mature within one day of the transaction date.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
1996 1995
---------------------------
Average balance during the year ................ $37,626,801 $24,217,033
Average interest rate during the year .......... 3.76% 4.20%
Maximum month-end balance during the year ...... $45,488,185 $36,748,550
Securities underlying the agreements at year
end are as follows:
Carrying value ................................. $66,481,741 $53,817,697
Estimated fair value ........................... 66,406,117 53,916,277
Page 18
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
NOTE 9. INCOME TAX MATTERS
The provision for federal income taxes is comprised of the following for the
years ended December 31, 1996, 1995 and 1994:
1996 1995 1994
------------------------------------
Current expense ........................ $1,858,000 $1,593,600 $ 964,000
Deferred taxes ......................... (20,000) (222,600) 66,000
------------------------------------
$1,838,000 $1,371,000 $1,030,000
------------------------------------
------------------------------------
The provision for income taxes differs from the amounts computed by applying
the U. S. federal income tax rate to pretax income for the years ended
December 31, 1996, 1995 and 1994 as follows:
1996 1995 1994
------------------------------------
Expected provision for income taxes .... $2,350,300 $1,917,300 $1,520,000
Tax exempt interest .................... (413,000) (476,800) (527,000)
Disallowed interest expense ............ 34,800 47,300 34,000
Dividends received deduction ........... (28,500) (51,000) (39,000)
Benefit of income taxed at lower rates . (67,000) (41,500) (28,600)
Other .................................. (38,600) (24,300) 70,600
------------------------------------
$1,838,000 $1,371,000 $1,030,000
------------------------------------
------------------------------------
Page 19
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
NOTE 9. INCOME TAX MATTERS (CONTINUED)
The temporary differences which created deferred tax assets and liabilities
at December 31, 1996 and 1995 are as follows:
1996 1995
-----------------------
Deferred tax assets:
Allowance for loan losses ........................ $362,000 $ 333,100
Bank premises and equipment ...................... 91,000 76,100
Accrued expenses ................................. 13,000 86,300
Other ............................................ 42,499 20,200
-----------------------
Total deferred tax assets ........................ $508,499 $ 515,700
-----------------------
Deferred tax liabilities:
Unrealized gain on available-for-sale securities.. $ (9,000) $(147,000)
Deferred loan fees and expenses .................. (34,000) (61,200)
-----------------------
Total deferred tax liabilities ................... (43,000) (208,200)
-----------------------
Net deferred tax assets .......................... $465,499 $307,500
-----------------------
-----------------------
NOTE 10. COMMITMENTS AND CONTINGENCIES
CONTINGENCIES
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management, any liability resulting from such
proceedings would not have a material adverse effect on the consolidated
financial statements.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. They involve, to varying degrees, elements of credit risk
in excess of amounts recognized on the consolidated balance sheets.
The Company's exposure to credit loss in the event of nonperformance by the
other parties to the financial instrument for these commitments is
represented by the contractual amounts of those instruments. The Company
uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Page 20
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
NOTE 10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
A summary of the contract amount of the Company's exposure to
off-balance-sheet risk as of December 31, 1996 and 1995 is as follows:
1996 1995
------------------------
Commitments to extend credit ....................... $75,893,769 $44,851,447
Standby letters of credit .......................... 1,993,436 3,391,044
------------------------
$77,887,205 $48,242,491
------------------------
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. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Company evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the party. Collateral
held varies, but may include accounts receivable, inventory, property and
equipment, residential real estate and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. Collateral held varies as specified above and is required as the
Company deems necessary.
LEASE COMMITMENTS
The Company leases certain premises under noncancelable operating leases
expiring in various years through 2006. The following is a schedule of
future minimum rental payments under these leases:
1997 $ 209,463
1998 209,463
1999 209,463
2000 209,463
2001 179,131
Thereafter 582,460
----------
Total $1,599,443
----------
----------
Total rental expense under these leases and month-to-month leases for the
years ended December 31, 1996, 1995 and 1994 was $206,456, $197,894 and
$253,880, respectively.
Page 21
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
NOTE 11. COMMON STOCK
On March 18, 1996, the Board of Directors of the Company declared a 15% stock
dividend on the outstanding shares of common stock of the Company, effective
on April 9, 1996 to stockholders of record on April 2, 1996. On March 20,
1995 the Board of Directors of the Company declared a four-for-three stock
split on the outstanding shares of common stock of the Company, effective on
April 11, 1995 to stockholders of record on April 4, 1995. On March 21, 1994
the Board of Directors of the Company declared a 15% stock dividend on the
outstanding shares of common stock of the company effective on April 12, 1994
to stockholders of record on April 5, 1994.
NOTE 12. REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered
by federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory - and possibly additional discretionary -
actions by regulators that, if undertaken, could have a direct material
effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Bank must meet specific capital guidelines that involve qualitative measures
of the Bank's assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Bank's capital amounts
and classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1996,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Federal
Deposit Insurance Corporation (FDIC) categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total
risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the
table. There are no conditions or events since that notification that
management believes have changed the Bank's category.
Page 22
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
NOTE 12. REGULATORY CAPITAL (CONTINUED)
The Bank's actual capital amounts and ratios are presented in the following
table:
<TABLE>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- ------------------ -------------------
Amount Ratio Amount Ratio Amount Ratio
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk-Weighted Assets) ....... $ 31,327,000 16.4% $ 15,328,000 8% $19,160,000 10%
Tier I Capital (to Risk-Weighted Assets) ...... $ 30,026,000 15.7% 7,664,000 4% $11,496,000 6%
Tier I Capital (to Average Assets) ............ $ 30,026,000 10.3% 11,715,000 4% $14,643,000 5%
As of December 31, 1995:
Total Capital (to Risk-Weighted Assets) ....... $ 26,253,000 17.6% $ 11,950,000 8% $14,937,000 10%
Tier I Capital (to Risk-Weighted Assets) ...... $ 25,021,000 16.8% $ 5,975,000 4% $ 8,962,000 6%
Tier I Capital (to Average Assets) ............ $ 25,021,000 9.8% $ 10,207,000 4% $12,759,000 5%
</TABLE>
The Company's capital amounts and ratios are substantially the same as the
amounts presented above.
Additionally, State of Nevada banking regulations restrict distribution of
the net assets of the Bank because such regulations require the sum of the
Bank's stockholders' equity and allowance for loan losses to be at least 6%
of the average of the Bank's total daily deposit liabilities for the
preceding 60 days. As a result of these regulations, approximately
$14,175,000 and $12,367,500 of the Bank's stockholders' equity was restricted
at December 31, 1996 and 1995, respectively.
NOTE 13. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The Company has employee stock-based compensation plans, which are described
below, in effect at December 31, 1996. The Company applies APB Opinion 25
and related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its stock option plans. Had
compensation cost for the Company's stock-based compensation plans been
recorded based on the fair value at the grant dates for awards under those
plans consistent with the method of FASB Statement 123, the Company's net
income and earnings per share would have been reduced to the pro forma
amounts indicated below:
1996 1995
--------------------------
Net income As reported $4,877,378 $4,107,091
Pro forma 4,603,119 3,966,078
Earnings per share As reported 1.28 1.10
Pro forma 1.21 1.06
Page 23
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
NOTE 13. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS (CONTINUED)
STOCK OPTIONS
The Company has granted certain directors, officers and key employees options
to purchase shares of the Company's common stock at prices equal to or
greater than the fair market value at the date of grant. On April 17, 1995,
the Company's shareholders approved the 1995 Stock Option Plan ("1995 Plan").
The 1995 Plan authorized 350,000 (which increased to 402,500 shares as a
result of the 15% stock dividend declared during 1996) shares of common stock
to be provided by shares authorized but unissued. Options under the 1995 plan
become exercisable in annual installments of 25% of the amount granted per
optionee, one year following the date of grant and expire five years after
the date of grant. The fair value of each option grant for pro forma
disclosure purposes discussed above is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions:
Risk free interest rate 6.48% to 6.55%
Dividend yield 0%
Expected lives 4 to 5 years
Volatility 32% to 33%
Additional information concerning this stock option plan follows:
1996 1995
-------------------
Options outstanding, beginning of year ............... 123,250 --
Granted .............................................. 16,750 123,750
Adjustment due to stock dividends .................... 18,194 --
Forfeited ............................................ (13,130) (500)
Exercised ............................................ (1,520) --
-------------------
Options outstanding, end of year ..................... 143,544 123,250
-------------------
-------------------
Options exercisable, end of year ........................ $ 31,699 $ --
Available to grant, end of year ......................... $257,436 $226,750
Weighted-average exercise price under option, end of year $ 12.13 $ 13.37
Weighted-average exercise price of options, granted at
fair value, during the year .......................... $ 15.95 $ 13.38
Weighted-average fair value of options granted during
the year ............................................. $ 6.25 $ 5.30
Weighted-average price of options exercised ............. $ 11.52 $ --
Weighted-average price of options forfeited ............. $ 11.64 $ 13.25
The range of exercise prices at December 31, 1996 is $11.52 to $17 and the
weighted-average remaining contractual life of the options outstanding as of
December 31, 1996 is 3.8 years.
Page 24
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 13. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS (CONTINUED)
Options granted prior to 1995 become exercisable, in annual installments of
20% of the amount granted per optionee, upon the date of grant. Information
concerning these stock options follows:
1996 1995 1994
-------------------------------
Options outstanding, beginning of
year .............................. 100,332 123,900 239,050
Adjustment due to stock split ........ 36,950
Forfeited ............................ (2,751) (4,467) (2,200)
Exercised ............................ (14,880) (56,051) (112,950)
-------------------------------
Options outstanding, end of year ..... 82,701 100,332 123,900
-------------------------------
-------------------------------
Options exercisable, end of year ..... 78,733 75,780 86,850
Available to grant, end of year ...... 10,418 7,667 1,750
Average exercise price under option,
end of year ....................... $ 5.14 $ 5.80 $ 5.19
STOCK APPRECIATION RIGHTS
On January 23, 1995, the Company's Board of Directors approved the 1995 Stock
Appreciation Rights Plan ("SAR Plan"). The SAR Plan authorized 350,000
rights to be granted to certain directors, officers and key employees at the
discretion of the Board of Directors. Each right gives the grantee the right
to receive cash payment from the Company equal to the excess of (a) the fair
market value of a share of the Company's common stock at a date, as
determined by the SAR Plan, approximating the date such right is exercised
over (b) the fair market value of a share of the Company's common stock on
the date of grant. Grantees may exercise their rights at any time between
the time a right vests and five years following the date of grant. Rights
granted under the SAR Plan vest in annual installments of 25% beginning one
year following the date of grant. Changes in the market price of the
Company's common stock are reflected as a charge to earnings for each period
in which the rights are outstanding.
Page 25
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 13. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS (CONTINUED)
Information concerning stock appreciation rights is as follows:
1996 1995
------------------
Rights outstanding, beginning of year .................... 129,329 --
Granted .................................................. 8,000 111,000
Adjustment due to stock split ............................ -- 18,329
Adjustment due to stock dividend ......................... 19,250 --
Forfeited ................................................ (1,000) --
Exercised ................................................ (13,416) --
-----------------
Rights outstanding, end of year .......................... 142,163 129,329
-----------------
Rights exercisable, end of year .......................... 31,529 --
Available to grant, end of year .......................... 194,421 220,671
Weighted-average exercise price of rights, end of year ... $ 10.36 $ 11.48
Weighted-average exercise price of rights, granted at fair
value, during the year ................................ $ 16.44 $ 13.38
Weighted-average price of rights exercised ............... $ 9.70 $ --
Weighted-average price of rights forfeited ............... $ 11.74 $ --
The price range for rights at December 31, 1996 is $8.64 to $17 and the
weighted-average remaining contractual life of the rights outstanding as of
December 31, 1996 is 2.3 years.
NOTE 14. TRUST DEPARTMENT
Assets with a recorded value of $96,541,105 and $65,557,444 were held in
trust for others at December 31, 1996 and 1995, respectively. These assets
and the offsetting liability amounts are not recorded on the consolidated
financial statements since they are not assets of the Company.
NOTE 15. EMPLOYEE BENEFIT PLAN
The Company has a qualified 401(k) employee benefit plan for all eligible
employees. Each participant is able to defer a maximum of 15% of their
annual compensation subject to Internal Revenue Code maximums. The Company
contributes an amount equal to 100% of each employee's contribution up to the
first 3%, and 50% for contributions over 3% but no more than 6% of the
employee's annual compensation. Additionally, the Company may elect to
contribute a discretionary amount each year, but no election was made during
1996, 1995 or 1994. The Company's total contribution for 1996, 1995 and 1994
was $122,799, $93,496 and $110,279, respectively.
Page 26
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments
at December 31 are as follows:
<TABLE>
1996 1995
--------------------------- -----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents ............. $ 54,425,240 $ 54,425,240 $ 49,572,498 $ 49,572,498
Available-for-sale securities ......... 121,875,695 121,875,695 120,589,071 120,589,071
Loans, net ............................ 125,426,641 125,240,496 93,244,167 93,244,167
Accrued interest receivable ........... 2,008,949 2,008,949 2,051,124 2,051,124
Financial liabilities:
Deposits .............................. $(248,595,953) $(248,614,390) $(211,523,839) $(211,523,839)
Securities sold under
agreements to repurchase ........... (36,440,370) (36,440,370) (36,748,550) (36,748,550)
Unrecognized financial
instruments:
Commitments to extend credit .......... $ -- $ 555,513 $ -- $ 370,046
Standby letters of credit ............. -- 20,802 -- 34,486
</TABLE>
The Company assumes interest rate risk (the risk that general interest rate
levels will change) as a result of its normal operations. As a result, the
fair values of the Company's financial instruments will change when interest
rate levels change and that change may be either favorable or unfavorable to
the Company. Management attempts to match maturities of assets and
liabilities to the extent believed necessary to minimize interest rate risk.
However, borrowers with fixed rate obligations are less likely to prepay in a
rising rate environment and more likely to prepay in a falling rate
environment. Also, depositors who are receiving fixed rates are more likely
to withdraw funds before maturity in a rising rate environment and less
likely to do so in a falling rate environment. Management monitors rates and
maturities of assets and liabilities and attempts to minimize interest rate
risk by adjusting terms of new loans and deposits and by investing in
securities with terms that mitigate the Company's overall interest rate risk.
Page 27
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 17. CONDENSED FINANCIAL INFORMATION
Condensed financial information of the Company (parent only) is provided below:
AMERICAN BANCORP OF NEVADA (PARENT ONLY)
CONDENSED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
- ------ --------------------------
Cash .............................................. $ 713,906 $ 889,160
Due from American Bank of Commerce ................ 494,917 394,917
Investment in American Bank of Commerce ........... 30,042,107 25,305,331
Investment in other subsidiaries .................. 597,754 586,107
Deferred taxes .................................... 126,002 126,002
-------------------------
Total assets ........................ $31,974,686 $ 27,301,517
-------------------------
-------------------------
Liabilities and Stockholders' Equity
Liabilities - Accrued and other liabilities ....... $ 323,276 $ 412,594
-------------------------
Stockholders' Equity
Common stock ................................... 186,453 161,494
Surplus ........................................ 28,293,760 20,420,262
Retained earnings .............................. 3,264,478 6,156,314
Unrealized gain on available-for-sale
securities, net of income taxes .............. 16,000 284,000
-------------------------
31,760,691 27,022,070
Less treasury stock, at cost ...................... (109,281) (133,147)
-------------------------
Total stockholders' equity ........................ 31,651,410 26,888,923
-------------------------
Total liabilities and stockholders' equity ........ $31,974,686 $27,301,517
-------------------------
-------------------------
Page 28
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 17. CONDENSED FINANCIAL INFORMATION (CONTINUED)
AMERICAN BANCORP OF NEVADA (PARENT ONLY)
CONDENSED INCOME STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
--------------------------------------
Expenses ............................. $ 211,044 $ 573,935 $ 160,497
--------------------------------------
Loss before equity in undistributed
earnings of subsidiaries .......... (211,044) (573,935) (160,497)
Equity in undistributed earnings of
subsidiaries ...................... 5,016,422 4,486,026 3,474,778
--------------------------------------
Income before taxes .................. 4,805,378 3,912,091 3,314,281
Income tax benefit ................... 72,000 195,000 --
--------------------------------------
Net income ........................... $4,877,378 $4,107,091 $3,314,281
--------------------------------------
--------------------------------------
Page 29
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 17. CONDENSED FINANCIAL INFORMATION (CONTINUED)
AMERICAN BANCORP OF NEVADA (PARENT ONLY)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
1996 1995 1994
---------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Reconciliation of Net Income to Net Cash
Used In Operating Activities:
Net income ..................................... $ 4,877,378 $ 4,107,091 $ 3,314,281
Earnings from subsidiaries ..................... (5,016,422) (4,486,026) (3,474,778)
(Increase) decrease in assets .................. (72,000) (195,000) (15,540)
Increase (decrease) in other liabilities ....... (89,319) 394,042 4,682
---------------------------------------
Net cash used in operating activities (300,363) (179,893) (171,355)
---------------------------------------
Cash Flows From Financing Activities
Proceeds from sales of treasury stock .......... 42,676 2,275 2,231
Proceeds from issuance of common stock ......... 84,875 240,189 702,294
Fractional shares issued in cash ............... (2,442) (1,257) (1,473)
---------------------------------------
Net cash provided by financing activities ......... 125,109 241,207 703,052
---------------------------------------
Net increase (decrease) in cash ................... (175,254) 61,314 531,697
Cash, Beginning of Year ........................... 889,160 827,846 296,149
---------------------------------------
Cash, End of Year ................................. $ 713,906 $ 889,160 $ 827,846
---------------------------------------
Supplemental Schedule of Non-Cash Investing
and Financing Activities:
Stock dividends issued ............................ $ 7,766,772 $ -- $ 3,824,977
---------------------------------------
---------------------------------------
</TABLE>
Page 30
<PAGE>
APPENDIX C
FAIRNESS OPINION
<PAGE>
March 17, 1997
The Board of Directors
American Bancorp of Nevada
4425 Spring Mountain Road
Las Vegas, Nevada 89102
Attn: James V. Bradham, Chief Executive Officer
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the common shareholders of American Bancorp of Nevada (the
"Company") of the Conversion Ratio as defined in the Agreement and Plan of
Reorganization, dated as of March 17, 1997 (the "Merger Agreement"), by and
among the Company and First Security Corporation ("FSC"). The Merger
Agreement provides for the merger of the Company with and into FSC (the
"Merger"). In addition, American Bank of Commerce, the Company's wholly owned
subsidiary ("Bank") shall be merged with and into First Security Bank of
Nevada, the FSC's wholly owned subsidiary. In connection with the Merger,
each outstanding share of common stock no par value, of the Company (the
"Company Common Stock"), except as otherwise set forth in the Merger
Agreement, will be exchanged for shares of FSC common stock, $1.25 per share
par value in the ratio of 0.63 shares of FSC common shares for each share of
the Company's common stock subject certain adjustments as described in the
Merger Agreement. All capitalized terms used but not defined in this letter,
shall have the meanings specified in the Merger Agreement.
Please be advised that while certain provisions of the Merger are summarized
above, the terms of the Merger are more fully described in the Merger
Agreement. As a result, the description of the Merger and certain other
information contained herein is qualified in its entirety by reference to the
more detailed information appearing or incorporated by reference in the
Merger Agreement.
<PAGE>
Board of Directors -2- March 17, 1997
In arriving at our opinion, we have reviewed (i) the Merger Agreement; (ii)
the 1996 Annual Report for FSC and the Company; (iii) the audited annual
financial statements of FSC on Form 10-K and the Company on Form 10-K for the
five years ended December 31, 1996 and the quarterly unaudited financial
statements of FSC on Form 10-Q and the Company on Form 1O-Q for the period
ended September 30, 1996, and certain unaudited financial analyses and
projections of the Company; (iv) FSC's Form 8-Ks for 1996/1997; (v) the
December 31, 1996 Call Reports for Bank and FSB; (vi) current and historical
market prices of the common stock of FSC and the Company; (vii) certain
publicly available information concerning the business of FSC and the Company
and of certain other companies engaged in businesses comparable to FSC and
the Company, and the reported prices for certain other companies' securities
deemed comparable; (viii) publicly available terms of certain transactions
involving companies comparable to the Company and the consideration received
for such companies; (ix) certain internal financial analyses and forecasts
prepared by the Company and its management; (x) the terms of other relevant
business combinations; (xi) such other financial studies, analyses and other
information we deemed appropriate for the purposes of this opinion; and (xii)
examinations of various regulatory agencies for FSC, the Company and its
respective subsidiaries.
We have held discussions with certain members of the management of the
Company and FSC with respect to certain aspects of the Merger; the past and
current business operations of the Company, FSC and their respective
subsidiaries; the financial condition, regulatory condition, and future
prospects and operations of the Company and FSC; and certain other matters we
believed necessary or appropriate to our inquiry.
In performing such analysis, we have used such valuation methodologies as we
have deemed necessary or appropriate for the purposes of this opinion. Our
view is based on (i) our consideration of the information the Company and FSC
have supplied to us to date, (ii) our understanding of the terms upon which
the Company and FSC intend to consummate the Merger, and (iii) the
consummation of the Merger within the time periods contemplated by the Merger
Agreement.
In rendering our opinion, we have relied upon and assumed, without assuming
any responsibility or liability for independent verification, the accuracy
and completeness of all information that was publicly available or was
furnished to us by the Company or FSC or otherwise reviewed by The Findley
Group, and we have not assumed any responsibility or liability therefore. We
have not conducted any valuation or appraisal of any assets or liabilities,
nor have any such valuations or appraisals been provided to us. In relying on
financial analyses provided to us by the Company and FSC, we have assumed
that they have been reasonably prepared based on assumptions reflecting the
best currently available estimates and judgments by management as to the
expected future results of operations and financial condition of the Company
and FSC, including, without limitation, projections regarding underperforming
and nonperforming assets and net charge-offs to which such analyses or
forecasts relate. We are not experts in the evaluation of allowances for loan
losses and we have not assumed any responsibility for making an independent
evaluation of the adequacy of the allowance for loan losses of the Company or
FSC nor have we reviewed any of the credit files.
<PAGE>
Board of Directors -3- March 17, 1997
We have also assumed that the Merger will have the tax consequences described
in the Merger Agreement and in discussions with, and materials furnished to
us by, representatives of FSC and the Company.
Our opinion is necessarily based on economic, market and other conditions as
in effect on, and the information made available to us as of, the date
hereof. It should be understood that subsequent developments may affect this
opinion and that we do not have any obligation to update, revise, or reaffirm
this opinion, except to update this opinion for the Company's Proxy Statement
to be delivered to shareholders in relation to approval of the merger.
We have acted as investment banker and financial advisor to the Company with
respect to the proposed Merger and will receive a fee from the Company for
our services. Please be advised that we have no other current financial
advisory or other relationships with the Company or FSC except that Gary
Steven Findley & Associates, which is an affiliated company to The Findley
Group, has provided ongoing consulting/legal services to the Company.
Principals of The Findley Group and Gary Steven Findley & Associates have
beneficial ownership of 4,000 shares of the Company common stock and also
have beneficial ownership of 1,000 shares of FSC common stock.
This letter is provided solely for the benefit of the Board of Directors of
the Company in connection with and for the purposes of its evaluation of the
Merger. This opinion may not be disclosed, referred to, or communicated by
you (in whole or in part) to any third party for any purpose whatsoever
except with our prior written consent in each instance. This opinion may be
reproduced in full in any proxy or information statement mailed to common
shareholders of the Company but may not otherwise be disclosed publicly in
any manner without our prior written approval and must be treated as
confidential. Our opinion is directed to the Board of Directors of the
Company and does not constitute a recommendation to any shareholder of the
Company as to how such shareholder should vote at any meeting of the Company
held in connection with the Merger or as to any other action which such
shareholders may take.
On the basis of and subject to the foregoing, it is our opinion as of the
date hereof that the Conversion Ratio is fair, from a financial point of
view, to the common shareholders of the Company.
Very truly yours,
THE FINDLEY GROUP
By: /s/ Gary Steven Findley
---------------------------------------
Gary Steven Findley
Director
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
Number Description of Exhibit Page No.
- ------ ---------------------- ----------
2 Agreement and Plan of Reorganization, dated as of
March 17, 1997, by and among First Security Corporation
("FSC"), First Security Bank of Nevada ("FSB"),
American Bancorp of Nevada ("Bancorp"), and American
Bank of Commerce ("ABC").
3(1) Certificate of Incorporation, as amended (Exhibit 3.1 ***
to FSCO's Registration Statement on Form S-4,
Reg #33-30045, filed July 24, 1990, incorporated by
reference).
3(2) Bylaws of FSC, as amended Jan. 29, 1996 (Exhibit 3.2 ***
to FSCO's Annual Report on Form 10-K for the year ended
Dec. 31, 1995, incorporated by reference).
4(1) No instruments defining the rights of holders of ***
long-term debt of FSC and its subsidiaries have been
included as exhibits because the total amount of
indebtedness authorized under any such instrument does
not exceed 10% of the total assets of FSC and its
subsidiaries on a consolidated basis.
4(2) Rights Agreement between FSC and First Security Bank, ***
NA, dated Aug. 28, 1990, which includes:
Exhibit A, the form of Rights Certificate and the form
of Election of Exercise; Exhibit B, the form of
Certificate of Designation of FSC's Junior Series B
Preferred Stock, no par value per share; and Exhibit C,
the Summary of Rights (Exhibit 4 to FSC's Report on
Form 8-K, dated Aug. 28, 1990, filed Sept. 1, 1990,
incorporated by reference).
4(3) Amendment Agreement between FSC and First Security Bank, ***
NA, dated Sept. 26, 1990, amending the Rights
Agreement between the same parties dated Aug. 28, 1990,
(Exhibit 1 to FSC's Amendment #1 on Form 8-A, dated
Oct. 10, 1990, filed Oct. 16, 1990, amending FSC's Report
on Form 8-K, dated Aug. 28, 1990, filed Sept. 1, 1990,
incorporated by reference).
RS-12
<PAGE>
5 Opinion of Ray, Quinney & Nebeker as to the legality of -----
the shares being registered.
8 Opinion of Ray, Quinney & Nebeker re: Tax Matters. -----
10(1) Amended and Restated FSC Comprehensive Management ***
Incentive Plan (Exhibit 10.1 to FSC's Annual Report on
Form 10-K for the year ended Dec. 31, 1994, incorporated
by reference).
10(2) Employment Agreement between FSC and Spencer F. Eccles, ***
dated Oct. 16, 1996 (Exhibit 10.3 to FSC's Registration
Statement on Form S-4, Reg #333-21759, filed Feb. 13, 1997,
incorporated by reference).
10(3). Employment Agreement between FSC and Morgan J. Evans, ***
dated Oct. 16, 1996 (Exhibit 10.4 to FSC's Registration
Statement on Form S-4, Reg #333-21759, filed Feb. 13, 1997,
incorporated by reference).
10(4). Employment Agreement between FSC and Michael P. Caughlin, ***
dated Oct. 16, 1996 (Exhibit 10.9 to FSC's Registration
Statement on Form S-4, Reg #333-21759, filed Feb. 13, 1997,
incorporated by reference).
10(5). Employment Agreement between FSC and Brad D. Hardy, dated ***
Oct. 16, 1996 (Exhibit 10.8 to FSC's Registration Statement
on Form S-4, Reg #333-21759, filed Feb. 13, 1997,
incorporated by reference).
10(6). Employment Agreement between FSC and Mark D. Howell, ***
dated Oct. 16, 1996 (Exhibit 10.10 to FSC's Registration
Statement on Form S-4, Reg #333-21759, filed Feb. 13, 1997,
incorporated by reference).
10(7). Employment Agreement between FSC and J. Patrick McMurray, ***
dated Oct. 16, 1996 (Exhibit 10.6 to FSC's Registration
Statement on Form S-4, Reg #333-21759, filed Feb. 13, 1997,
incorporated by reference).
RS-13
<PAGE>
10(8). Employment Agreement between FSC and L. Scott Nelson, ***
dated Oct. 16, 1996 (Exhibit 10.5 to FSC's Registration
Statement on Form S-4, Reg #333-21759, filed Feb. 13, 1997,
incorporated by reference).
10(9). Employment Agreement between FSC and Scott C. Ulbrich, ***
dated Oct. 16, 1996 (Exhibit 10.7 to FSC's Registration
Statement on Form S-4, Reg #333-21759, filed Feb. 13, 1997,
incorporated by reference).
10(10) The form of FSC's Deferred Compensation Plan Deferral ***
Election -- 01/01/95 - 12/31/95 (Exhibit 10.10 to FSC's
Annual Report on Form 10-K for the year ended Dec. 31, 1994,
incorporated by reference).
13(1). FSC's Annual Report on Form 10-K for year ended December 31, ***
1996 (incorporated by reference) [File No. 1-6906].
22. FSC's Subsidiaries (included in FSC's Annual Report on ***
Form 10-K for the year ended December 31, 1996
[File No. 1-6906], and incorporated by reference therefrom).
24(1). Consent of Deloitte & Touche LLP. -----
24(2) Consent of McGladrey & Pullen LLP. -----
24(3) Consent of Ray, Quinney & Nebeker (filed as part of ***
Exhibit 5 and Exhibit 8(1)).
24(4) Consent of Gary Steven Findley & Associates. -----
24(5) Consent of The Findley Group. -----
25 Power of Attorney (included in signature pages of original ***
filing of Registration Statement).
28 Form of Notice and Proxy Card -----
for Bancorp Shareholders' Meeting.
- -------------------
***Incorporated by reference.
RS-14
<PAGE>
EXHIBIT 5
OPINION OF RAY, QUINNEY & NEBEKER AS TO
THE LEGALITY OF THE SHARES BEING REGISTERED.
May 7, 1997
First Security Corporation American Bancorp of Nevada
Attn: Morgan J. Evans, President Attn: James V. Bradham
79 South Main Street 4425 Spring Mountain Road
Salt Lake City, Utah 84111 Las Vegas, Nevada 89102
Re: REGISTRATION AND ISSUANCE OF FIRST SECURITY CORPORATION
COMMON STOCK TO SHAREHOLDERS OF AMERICAN BANCORP OF NEVADA
Dear Messrs. Evans and Bradham:
This Firm has acted as counsel to First Security Corporation, a
Delaware corporation ("the Company"), in connection with its registration of
shares of its common stock, par value $1.25 ("the Shares") for use in the
Merger (as defined in the Prospectus/Proxy Statement included in the Company's
Registration Statement on Form S-4 as filed with the Securities and Exchange
Commission on May 7, 1997.
In connection with this representation, we have examined the
originals, or copies identified to our satisfaction, of such minutes,
agreements, corporate records and filings and other documents necessary to our
opinion contained in this letter. We have also relied as to certain matters of
fact upon representations made to us by officers and agents of the Company
<PAGE>
Morgan J. Evans
James V. Bradham
May 7, 1997
Page 2
and of American Bancorp of Nevada. Based upon and in reliance on the foregoing,
it is our opinion that:
1. The Company has been duly incorporated and is validly existing and
in good standing as a corporation under the laws of the State of
Delaware; and has full corporate power and authority to own its
properties and conduct its business as described in the
Prospectus/Proxy Statement referred to above.
2. When issued and distributed to the Shareholders of American
Bancorp of Nevada under the terms of the Merger Agreement, the Shares
will be duly and validly issued and will be fully paid and
nonassessable.
3. The shareholders of the Company have no pre-emptive rights to acquire
additional shares of First Security Common Stock in respect of the Shares.
We hereby consent to the use of our name in the Prospectus/Proxy
Statement and therein being disclosed as counsel to the Company in this matter.
Very truly yours,
RAY, QUINNEY & NEBEKER
/s/ A.R. Thorup
--------------------------
By: A. Robert Thorup,
a Shareholder and Director
of the Firm
<PAGE>
EXHIBIT 8
OPINION OF RAY, QUINNEY & NEBEKER RE: TAX MATTERS.
May 7, 1997
First Security Corporation American Bancorp of Nevada
Attn: Morgan J. Evans, President Attn: James V. Bradham
79 South Main Street 4425 Spring Mountain Road
Salt Lake City, Utah 84111 Las Vegas, Nevada 89102
Ladies and Gentlemen:
We have acted as counsel to First Security Corporation, a Delaware
corporation ("FSC"), in connection with the mergers (the "Mergers") of American
Bancorp of Nevada ("Bancorp") with and into FSC, and of American Bank of
Commerce ("ABC") with and into First Security Bank of Nevada ("FSB"), with FSC
and FSB being the surviving entities, as more fully described in that certain
Agreement and Plan of Mergers, dated March 17, 1997 (the "Agreement"), by and
among FSC, Bancorp, ABC and FSB, and in that certain S-4 Registration Statement
dated as of May 7, 1997 (the "Registration Statement"), to be filed with the
Securities and Exchange Commission. This opinion is delivered to you pursuant
to the Agreement. Unless otherwise defined herein, capitalized terms shall
have the meanings given them in the Agreement. Further, all references to
the Code are to the Internal Revenue Code of 1986, as amended.
In connection with this opinion, we have reviewed a signed copy of the
Agreement, the Registration Statement and all other documents we have deemed
necessary or appropriate for purposes of this opinion. In addition, we
expressly rely upon the representations and facts set forth in the Agreement and
the Registration Statement. If any of the representations and facts set forth
in the Agreement and the Registration Statement upon which this opinion is based
are not true and accurate, both on the date of this letter and at the effective
date of the Mergers, then we express no opinion. Further, our opinion assumes
that the Mergers will occur fully in accordance with the terms and provisions of
the Agreement insofar as they are
<PAGE>
First Security Corporation
American Bancorp of Nevada
May 7, 1997
Page 2
pertinent to this opinion. If it does not, then we express no opinion.
Based on the foregoing, and subject to the qualifications and exceptions
heretofore and hereafter set forth, it is our opinion that for Federal income
tax purposes:
(i) The ABC-FSB Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code.
(ii) The Bancorp-FSC Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code.
(iii) No gain or loss will be recognized by the holders of Bancorp Common
Stock who exchange such stock for FSC Common Stock pursuant to the
Bancorp-FSC Merger (with the possible exception of gain recognized
upon the receipt of FSC Rights or cash in lieu of fractional shares
(see below)).
(iv) The basis of the FSC Common Stock received by the holders of Bancorp
Common Stock in the Bancorp-FSC Merger will be the same as the basis of
the Bancorp Common Stock surrendered in exchange therefor, after
appropriate reduction for the basis of fractional shares for which
cash is received.
(v) The holding period of the FSC Common Stock received by the holders of
Bancorp Common Stock pursuant to the Bancorp-FSC Merger will include the
holding period of the Bancorp Common Stock surrendered in exchange
therefor, provided that the Bancorp Common Stock surrendered was held as
a capital asset at the time of the exchange.
(vi) Any cash received by the holders of Bancorp Common Stock in lieu of a
fractional share of FSC Common Stock will be treated as having been
received in redemption of the shares so cashed out, and will result in
taxable gain or loss. The amount of such gain or loss will be the
difference between the cash received and the basis of the shares or the
fractional share interest surrendered in exchange therefor. Provided the
shares or the fractional share interest was held as a capital asset at the
time of redemption,
<PAGE>
First Security Corporation
American Bancorp of Nevada
May 7, 1997
Page 3
such gain or loss will constitute capital gain or loss.
(vii) No gain or loss will be recognized by ABC or FSB as a result of the
ABC-FSB Merger.
(viii) No gain or loss will be recognized by Bancorp or FSC as a result of
the Bancorp-FSC Merger.
(ix) The holding period of ABC's assets in the hands of FSB will include the
period during which such assets were held by ABC.
(x) The holding period of Bancorp's assets in the hands of FSC will include
the period during which such assets were held by Bancorp.
The opinions set forth above are predicated upon and are limited by the
assumptions set forth herein and are further subject to the qualifications,
assumptions, exceptions, and limitations set forth below:
(a) The opinions and conclusions set forth herein are based upon the
Federal income tax laws of the United States, including the Code, Treasury
Regulations and judicial and administrative interpretations thereof, as they
exist on the date of this letter. There can be no assurance that the legal
authorities upon which our opinion is based will not be modified, revoked,
supplemented or otherwise changed, with possible retroactive effect. A material
change in the legal authorities or the facts, information, covenants,
statements, representations or assumptions upon which our opinion is based could
affect our conclusions. However, we undertake no obligation to reexamine or
revise our opinion in the light of any such changes.
(b) The opinions set forth herein are limited to those Federal income tax
consequences of the Mergers which are specifically addressed in the seven
numbered paragraphs above. In particular, no opinion is expressed with respect
to the tax consequences of the Mergers under Code Sections 55 through 59 and the
Regulations thereunder (providing for alternative minimum tax). We also express
no opinion or conclusion with regard to foreign, state or local income tax
consequences.
<PAGE>
First Security Corporation
American Bancorp of Nevada
May 7, 1997
Page 4
(c) In rendering the opinions set forth above, we have assumed that the
shareholders of Bancorp Common Stock have no plan or intention to sell, exchange
or otherwise dispose of an amount of shares of FSC Common Stock to be received
in the Mergers that would reduce their ownership of FSC Common Stock to a number
of shares having in the aggregate a value as of the effective date of the
Mergers of less than fifty percent (50%) of the total value of all Bancorp
Common Stock outstanding immediately prior to the Mergers. For purposes of this
assumption, shares of Bancorp Common Stock exchanged for cash in lieu of
fractional shares of FSC Common Stock will be treated as Bancorp Common Stock
outstanding immediately prior to the Mergers.
(d) We have further assumed that neither FSC, Bancorp nor ABC will take
any actions, either prior to or after the Mergers, which would cause the Mergers
not to be a tax free reorganization within the meaning of Code Section
368(a)(1)(A) and 368(a)(2)(E); that prior to the Mergers FSC will be in control
of FSB within the meaning of Code Section 368(c); that in the Mergers shares of
Bancorp stock representing control of Bancorp, as defined in Code Section
368(c), will be exchanged solely for voting stock of FSC; that none of the
parties to the Mergers is an investment company as defined in Code Section
368(a)(2)(F)(iii) and (iv); that Bancorp is not under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Code Section
368(a)(3)(A); that there is no intercorporate indebtedness between any of the
parties that was issued, acquired or will be settled at a discount; and that
each of the parties will pay its own expenses in connection with the Mergers.
(e) We have further assumed that the sole consideration to be received by
the shareholders of Bancorp in exchange for their Bancorp stock will consist of
FSC stock and cash in lieu of fractional shares of FSC stock and that such
consideration is the result of arm's length bargaining between the parties.
(f) We have further assumed the authenticity of all documents submitted to
us as originals and the conformity with the original documents of all documents
submitted to us as copies and the legal capacity of the signing parties to
execute and deliver such documents.
(g) The opinions set forth herein are given only as of the date hereof.
We undertake no obligation to advise you of
<PAGE>
First Security Corporation
American Bancorp of Nevada
May 7, 1997
Page 5
changes of law or fact that occur after the date of this opinion letter.
(h) The opinions set forth herein are given solely to FSC for its benefit
and the benefit of its shareholders and are given solely in connection with the
Mergers and shall not be deemed binding for any other purpose, and you shall not
have the right to rely thereon for any other purpose.
Very truly yours,
RAY, QUINNEY & NEBEKER
/s/ Gerald T. Snow
--------------------------------------
By: Gerald T. Snow,
a Shareholder and Director of the Firm
<PAGE>
EXHIBIT 24(1)
CONSENT OF DELOITTE & TOUCHE LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of First Security Corporation on Form S-4 of our report dated Fevruary 21,
1997, appearing in the Annual Report on Form 10-K of First Security
Corporation for th eyear ended December 31, 1996, and to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
May 2, 1997
<PAGE>
EXHIBIT 24(2)
CONSENT OF McGLADREY & PULLEN LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of our
report, dated January 17, 1997, relating to the consolidated financial
statements fo American Bancorp of Nevada and subsidiaries. We also consent to
the reference of our Firm under the caption "Experts" in the Prospectus/Proxy
Statement.
McGLADREY & PULLEN, LLP
Las Vegas, Nevada
May 7, 1997
<PAGE>
EXHIBIT 24(4)
CONSENT OF GARY STEVEN FINDLEY & ASSOCIATES
[Letterhead]
May 5, 1997
First Security Corporation
79 South Main Street
Salt Lake City, Utah 84111
Gentlemen:
We hereby consent to the references made to Gary Steven Findley & Associates in
the Form S-4 Registration Statement of First Security Corporation in connection
with the acquisition of American Bancorp of Nevada.
Sincerely,
GARY STEVEN FINDLEY & ASSOCIATES
By: /s/ Gary S. Finley
--------------------------------
Gary Steven Findley
Attorney at Law
<PAGE>
EXHIBIT 24(5)
CONSENT OF THE FINDLEY GROUP
May 7, 1997
First Security Corporation
79 South Main Street
Salt Lake City, Utah 84111
Gentlemen:
We hereby consent to the inclusion of the Fairness Opinion of The Findley Group
in the Form S-4 Registration Statement of First Security Corporation in
connection with the acquisition of American Bancorp of Nevada. We also consent
to the references made in the such Form S-4 Registration Statement to The
Findley Group.
Sincerely,
/s/ Gary Findley
----------------------------
Gary Steven Findley
Director
<PAGE>
EXHIBIT 28
FORM OF NOTICE AND PROXY CARD FOR
BANCORP SHAREHOLDERS' MEETING.
<PAGE>
AMERICAN BANCORP OF NEVADA
NOTICE OF SHAREHOLDERS' MEETING
TO BE HELD ON June , 1997
NOTICE IS HEREBY GIVEN that a Shareholders' Meeting of Shareholders of
American Bancorp of Nevada ("BANCORP") will be held at the of
the , , Las Vegas, Nevada on June , 1997, at 10:00 AM,
local time (the "Shareholders' Meeting"), for the following purposes, all of
which are more fully described in the accompanying Prospectus / Proxy Statement:
1. To elect ten (10) Directors to serve as the Bancorp Board of Directors
for the coming year (provided that those Directors so elected will
resign if the Merger Agreement (see below) is approved and
consummated); and
2. To consider and vote upon a proposal to approve and adopt the
Agreement of Merger, dated as of March 17, 1997 (the "Merger
Agreement"), by and between First Security Corporation ("FSC"),
BANCORP, American Bank of Commerce ("ABC") and First Security Bank
of Nevada ("FSB") and the transactions contemplated thereby; and
3. To transact such other business as may properly come before the
Shareholders' Meeting or any adjournments or postponements thereof.
The Merger Agreement is set forth in Appendix A of the accompanying
Prospectus / Proxy Statement.
BANCORP's Board of Directors has fixed the close of business on April 30,
1997 as the Record Date for the determination of shareholders entitled to
notice of and to vote at the Shareholders' Meeting and any adjournments or
postponements thereof. Only shareholders of record at the close of business
on such date are entitled to notice of and to vote at the Shareholders'
Meeting. A list of BANCORP shareholders entitled to vote at the
Shareholders' Meeting will be available for examination, during ordinary
business hours, at BANCORP's headquarters office at 4425 Spring Mountain
Road, Las Vegas, Nevada for 10 days prior to the Shareholders' Meeting.
BANCORP Common Stock is the only security of BANCORP whose holders are
entitled to vote upon the proposals to be presented at the Shareholders'
Meeting.
Each Shareholder, even though he or she now plans to attend the
Shareholders' 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 shareholder present at the Shareholders'
Meeting or at any adjournments or postponements thereof may revoke his or her
Proxy and vote personally on each matter brought before the Shareholders'
Meeting.
By Order of the Board of Directors,
/s/ Edward D. Smith
Secretary
May , 1997
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE AND
ADOPT THE MERGER AGREEMENT
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE
<PAGE>
May , 1997
Dear Shareholder:
You are cordially invited to attend a meeting ("Shareholders' Meeting")
of the Shareholders of American Bancorp of Nevada ("Bancorp") to be held at
the of the , , Las Vegas, Nevada on
, June , 1997, at 10:00 AM, local time. At the Shareholders' Meeting,
you will be asked to (a) vote to elect the Bancorp Board of Directors for the
coming year (provided that if the Merger Agreement (see below) is approved
and consummated, Bancorp's Directors will resign) and (b) consider and vote
on a Plan and Agreement of Merger dated as of March 17, 1997 ("Merger
Agreement"), pursuant to which BANCORP will be acquired by First Security
Corporation ("FSC") by means of a merger ("Merger") of BANCORP with and into
FSC. In connection with the Merger, BANCORP's wholly-owned subsidiary,
American Bank of Commerce, will be merged with and into First Security Bank
of Nevada.
The Merger Agreement provides for the conversion and exchange of all
outstanding shares of BANCORP common stock into shares of FSC common stock, at
an exchange rate to be determined finally within a few days of the Closing, but
which will be no less than 0.90 shares and no more than 0.99 shares of FSC
Common Stock for each BANCORP share. All outstanding BANCORP common stock will
be exchanged in the Merger for FSC common Stock. On May , 1997, the average
of the closing bid and asked prices of FSC common stock, as reported on the
NASDAQ / NMS, was $ .
In addition to describing the terms and conditions of the Merger
Agreement, the enclosed Prospectus / Proxy Statement sets forth information,
including financial data, about BANCORP and FSC. The complete text of the
Merger Agreement appears as Appendix A to the Prospectus / Proxy Statement.
BANCORP's financial advisor has also given an opinion that the Merger is fair to
the shareholders of BANCORP from a financial point of view, and this opinion is
attached as Appendix C. Please carefully review all of these materials and
consider the information contained in them. APPROVAL OF THE MERGER AGREEMENT
REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING
SHARES OF BANCORP COMMON STOCK. DIRECTORS AND OTHER SHAREHOLDERS OWNING AN
AGGREGATE OF APPROXIMATELY 37% OF THE OUTSTANDING STOCK OF BANCORP HAVE AGREED
TO VOTE THEIR SHARES IN FAVOR OF THE MERGER.
YOUR BOARD OF DIRECTORS BELIEVES THE MERGER IS IN THE BEST INTERESTS OF
BANCORP'S SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE MERGER AGREEMENT.
Regardless of the size of your holdings, it is important that your shares
be voted at the Shareholders' Meeting. Whether or not you plan to attend the
Shareholders' Meeting, please complete, sign, date, and mail, as soon as
possible, the enclosed proxy in the postage-paid envelope provided. We
appreciate the continued support of our shareholders and look forward to seeing
you at the Shareholders' Meeting.
Sincerely,
/s/ James V. Bradham
-------------------------
Chief Executive Officer
<PAGE>
AMERICAN BANCORP OF NEVADA
P R O X Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert E. Olson and Bruce E. Hendricks,
and each of them, with full power of substitution, to vote as designated
below, all shares of American Bancorp of Nevada ("Bancorp") common stock owned
of record by the undersigned at the Shareholders' Meeting of Shareholders of
American Bancorp of Nevada to be held on June , 1997 at 10:00 A.M. (Nevada
Time) in the at the , , Las Vegas, Nevada
or at any adjournment thereof, on the proposals to elect Directors and to
approve the Merger Agreement, and on all other matters that may properly come
before the Shareholders' Meeting. However, BANCORP will not use such
discretionary authority in connection with voting on adjournment of the
Shareholders' Meeting to solicit additional proxies. (Each Shareholder of
Record should have received a Prospectus/Proxy Statement with this Proxy
Designation and Instruction describing the proposed Merger.)
IN THE ABSENCE OF DIRECTIONS TO THE CONTRARY, THE DESIGNATED PROXIES WILL
VOTE FOR THE DIRECTOR NOMINEES AND FOR THE PROPOSED MERGER.
1. ELECTION OF DIRECTORS
/ / FOR all Nominees listed below,
/ / WITHHOLD AUTHORITY from all nominees listed below (except as marked to the
contrary below) nominees list below
IMPORTANT INSTRUCTIONS: WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.
James V. Bradham Elias F. Ghanem Bruce E. Hendricks
Vern J. Christensen Nasser F. Ghanem Joel A. Laub
Betty Lou Lehman Edward D. Smith
Darrell A. Luery Claudine B. Williams
2. APPROVAL OF MERGER AGREEMENT
ON THE PROPOSAL TO APPROVE THE AGREEMENT OF MERGER DATED AS OF MARCH 17,
1997 PURSUANT TO WHICH BANCORP WILL MERGE WITH AND INTO FSC.
FOR / / AGAINST / / ABSTAIN / /
(THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES AND FOR THE
MERGER AGREEMENT)
DATE OF THIS PROXY
, 1997
- ---------------------------------
(When signing as a Trustee, Executor Corporate Office, or General Partner,
please give FULL TITLE on the "joint tenant" line.)
THIS PROXY MAY BE REVOKED BY A MORE RECENTLY DATED PROXY OR BY WRITTEN NOTICE
TO THE SECRETARY OF BANCORP TO THE SHAREHOLDERS' MEETING, OR BY APPEARING AT
THE SHAREHOLDERS' MEETING AND VOTING IN PERSON.
Signature
--------------------------------------
No. of shares
----------------------------------
Signature of
Joint Tenant
(if any)
---------------------------------------
