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Filed pursuant to Rule 424(b)3
Registration No. 333-29409
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[LOGO]
JOINT PROXY STATEMENT
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FIRST BANK SYSTEM, INC. U. S. BANCORP
SPECIAL MEETING OF SHAREHOLDERS ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 31, 1997 TO BE HELD ON JULY 31, 1997
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PROSPECTUS OF FIRST BANK SYSTEM, INC.
(To be renamed "U.S. Bancorp" upon consummation
of the Merger described herein)
------------------------
This Joint Proxy Statement-Prospectus is being furnished to shareholders of
First Bank System, Inc., a Delaware corporation ("FBS" and, after the merger
described below, "New USBC"), in connection with the solicitation of proxies by
the Board of Directors of FBS (the "FBS Board") for use at the special meeting
of shareholders of FBS (including any adjournment or postponement thereof, the
"FBS Special Meeting") to be held on Thursday, July 31, 1997 at 10:00 a.m. local
time at First Bank on Marquette Avenue, 10th Floor Auditorium, 90 South Sixth
Street, Minneapolis, Minnesota. At the FBS Special Meeting, holders of the
common stock, $1.25 par value per share ("FBS Common Stock" and after the merger
described below, "New USBC Common Stock"), of FBS are being asked to consider
and vote upon (i) a proposal to approve and adopt the Agreement and Plan of
Merger, dated as of March 19, 1997 (the "Merger Agreement"), by and between U.
S. Bancorp, an Oregon corporation ("USBC"), and FBS, providing for the merger of
USBC with and into FBS (the "Merger"), (ii) a proposal to approve an amendment
to the Restated Certificate of Incorporation of FBS, as previously amended (the
"FBS Certificate"), to increase the maximum number of directors to 30 and to
exempt from the 80% shareholder voting requirement any future amendment to the
FBS Certificate to reduce the maximum number of directors to not less than the
greater of (a) the number of directors then in office and (b) 24 (the "FBS Board
Expansion Amendment"), and (iii) a proposal to approve the New USBC 1997 Stock
Incentive Plan (the "1997 Plan"). A copy of the Merger Agreement is attached
hereto as Appendix A and is incorporated herein by reference.
This Joint Proxy Statement-Prospectus also is being furnished to
shareholders of USBC in connection with the solicitation of proxies by the Board
of Directors of USBC (the "USBC Board") for use at the annual meeting of
shareholders of USBC (including any adjournment or postponement thereof, the
"USBC Annual Meeting") to be held on Thursday, July 31, 1997 at 10:00 a.m. local
time in the Ballroom of the Multnomah Athletic Club, 1849 S.W. Salmon, Portland,
Oregon. At the USBC Annual Meeting, holders of the common
(CONTINUED ON FOLLOWING PAGE)
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT- PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS
ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
------------------------
The date of this Joint Proxy Statement-Prospectus is June 17, 1997.
<PAGE>
stock, $5.00 par value per share ("USBC Common Stock"), of USBC will consider
and vote upon a proposal to approve the Merger Agreement. Also at the USBC
Annual Meeting, holders of USBC Common Stock will consider and vote upon (i) the
election of directors to serve until the earlier of the next annual meeting of
USBC shareholders or the consummation of the Merger and (ii) a proposal to
approve the selection of the independent auditors for USBC for USBC's fiscal
year ending December 31, 1997 or, if the Merger is consummated prior to December
31, 1997, for the period prior to consummation of the Merger.
This Joint Proxy Statement-Prospectus also constitutes a prospectus of FBS
with respect to (i) the New USBC Common Stock issuable to holders of USBC Common
Stock upon consummation of the Merger and (ii) the shares of 8 1/8% Cumulative
Preferred Stock, Series A, of New USBC ("New USBC 8 1/8% Preferred Stock") to be
issued to holders of shares of 8 1/8% Cumulative Preferred Stock, Series A, of
USBC ("USBC 8 1/8% Preferred Stock") upon consummation of the Merger.
Copies of this Joint Proxy Statement-Prospectus are also being furnished to
holders of shares of USBC 8 1/8% Preferred Stock for informational purposes, but
proxies are not being solicited from such holders and such holders are not
entitled, and are not being asked, to vote at the FBS Special Meeting or the
USBC Annual Meeting.
Upon consummation of the Merger (the "Effective Time"), USBC will merge with
and into FBS, which will be the surviving corporation and will change its name
to "U.S. Bancorp". Each outstanding share of USBC Common Stock will be converted
into the right to receive 0.755 of a share of New USBC Common Stock (the
"Exchange Ratio"), with cash being paid in lieu of fractional shares. Each
outstanding share of FBS Common Stock will remain outstanding following the
Merger and will constitute a share of New USBC Common Stock. In addition, in the
Merger, each share of USBC 8 1/8% Preferred Stock will be converted into one
share of New USBC 8 1/8% Preferred Stock, which will have rights, preferences
and terms substantially identical to the rights, preferences and terms of USBC
8 1/8% Preferred Stock.
The FBS Common Stock is listed on the New York Stock Exchange, Inc. (the
"NYSE") under the symbol "FBS" and the USBC Common Stock is quoted on The Nasdaq
Stock Market's National Market System (the "Nasdaq National Market") under the
symbol "USBC". The New USBC Common Stock outstanding after the Merger will be
listed on the NYSE under the symbol "USB". The USBC 8 1/8% Preferred Stock is
currently quoted on the Nasdaq National Market under the symbol "USBCP" and the
New USBC 8 1/8% Preferred Stock outstanding after the Merger will be quoted on
the Nasdaq National Market under the symbol "USBCP". The last reported sale
price of FBS Common Stock on the NYSE Composite Transactions List was $85.75 per
share on June 16, 1997 and $78.25 per share on March 19, 1997, the last trading
day preceding public announcement of the proposed Merger. The last reported sale
price of USBC Common Stock as reported by the Nasdaq National Market was $64.06
per share on June 16, 1997 and $48.25 per share on March 19, 1997. Because the
Exchange Ratio is fixed, a change in the market price of FBS Common Stock before
the consummation of the Merger would affect the market value as of the Effective
Time of the New USBC Common Stock to be received in the Merger in exchange for
USBC Common Stock. THERE CAN BE NO ASSURANCE AS TO THE MARKET PRICE OF THE FBS
COMMON STOCK AT ANY TIME PRIOR TO THE EFFECTIVE TIME OR AS TO THE MARKET PRICE
OF NEW USBC COMMON STOCK OR NEW USBC 8 1/8% PREFERRED STOCK AT ANY TIME
THEREAFTER. Shareholders are urged to obtain current market quotations for FBS
Common Stock and USBC Common Stock.
Based on (i) the 146,834,315 shares of USBC Common Stock outstanding on the
USBC Record Date (as defined below), (ii) the 4,132,546 shares of USBC Common
Stock issuable upon the exercise of outstanding stock options on such date and
(iii) the Exchange Ratio of 0.755, approximately 113,979,980 shares of New USBC
Common Stock are expected to be issued in the Merger or to be issuable following
the Merger upon the exercise of the New USBC options into which outstanding USBC
options will be converted in the Merger. Based on the six million shares of USBC
8 1/8% Preferred Stock outstanding on the USBC Record Date, six million shares
of New USBC 8 1/8% Preferred Stock are expected to be issued in the Merger.
This Joint Proxy Statement-Prospectus and forms of proxy are first being
mailed to shareholders of FBS and USBC on or about June 23, 1997.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION.......................... 1
INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE.................................... 1
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
INFORMATION.................................. 3
SUMMARY........................................ 4
General...................................... 4
The Companies................................ 4
FBS Special Meeting and Vote Required........ 5
USBC Annual Meeting and Vote Required........ 6
The Merger................................... 7
Conditions to the Merger..................... 8
Recommendations of Boards of Directors....... 8
Opinion of FBS's Financial Advisor........... 8
Opinion of USBC's Financial Advisor.......... 8
Effective Time of the Merger................. 9
Waiver; Amendment; Termination............... 9
Certain Federal Income Tax Consequences...... 10
Interests of Certain Persons in the Merger... 10
Stock Option Agreements...................... 11
Expenses and Termination Fees................ 12
No Appraisal Rights.......................... 12
Accounting Treatment......................... 12
Regulatory Approvals......................... 13
Markets and Market Prices.................... 13
Comparative Rights of Shareholders........... 14
Dividends.................................... 14
COMPARATIVE UNAUDITED PER SHARE DATA........... 15
Notes to Comparative Unaudited Per Share
Data......................................... 16
SELECTED HISTORICAL FINANCIAL DATA............. 17
PRO FORMA SELECTED FINANCIAL DATA.............. 20
RATIOS OF EARNINGS TO FIXED CHARGES............ 21
FBS SPECIAL MEETING............................ 22
General...................................... 22
Solicitation, Voting and Revocability of
Proxies.................................... 22
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Recommendation of FBS Board.................. 24
USBC ANNUAL MEETING............................ 25
General...................................... 25
Solicitation, Voting and Revocability of
Proxies.................................... 25
Recommendation of USBC Board................. 26
THE MERGER..................................... 27
Description of the Merger.................... 27
Background of the Merger..................... 28
Reasons of FBS for the Merger................ 30
Reasons of USBC for the Merger............... 33
Opinion of FBS's Financial Advisor........... 34
Opinion of USBC's Financial Advisor.......... 41
The Effective Time........................... 45
Exchange of Certificates..................... 45
Representations and Warranties............... 46
Conduct of Business Prior to the Merger and
Other Covenants............................ 47
Conditions to the Merger..................... 50
Termination of the Merger Agreement.......... 50
Waiver and Amendment......................... 51
Expenses and Termination Fees................ 51
Certain Federal Income Tax Consequences...... 51
Interests of Certain Persons in the Merger... 53
Stock Option Agreements...................... 59
Accounting Treatment......................... 63
Regulatory Matters........................... 63
Resale of New USBC Common Stock and New USBC
8 1/8% Preferred Stock Received by USBC
Shareholders............................... 65
FBS Dividend Reinvestment and Common Stock
Purchase Plan.............................. 65
No Appraisal Rights.......................... 65
MANAGEMENT AND OPERATIONS AFTER THE MERGER..... 66
1998 and 1999 Earnings Estimates............. 71
MARKET PRICES AND DIVIDENDS.................... 72
FBS.......................................... 72
USBC......................................... 73
BUSINESS OF FBS................................ 73
BUSINESS OF USBC............................... 74
DESCRIPTION OF FBS AND NEW USBC CAPITAL
STOCK........................................ 74
General...................................... 74
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Preferred Stock.............................. 75
Common Stock................................. 75
New USBC 8 1/8% Preferred Stock.............. 78
Certain Provisions of the FBS Certificate and
FBS Bylaws................................. 81
COMPARATIVE RIGHTS OF SHAREHOLDERS OF FBS
COMMON STOCK AND USBC COMMON STOCK........... 81
General...................................... 81
Action by Written Consent.................... 81
Meeting of Shareholders...................... 82
Number of Directors, Vacancies and
Newly-Created Directorships................ 82
Classification of Board...................... 83
Removal of Directors......................... 83
Advance Notice of Shareholder Nominations for
Directors and Proposals.................... 83
Quorum at Shareholders' Meetings............. 83
Supermajority Voting......................... 83
Statutory Provisions Affecting Takeovers..... 84
AMENDMENTS TO FBS RESTATED CERTIFICATE OF
INCORPORATION................................ 85
General...................................... 85
The Board Expansion Amendment................ 86
PROPOSAL TO APPROVE THE NEW USBC 1997 STOCK
INCENTIVE PLAN............................... 87
Summary of the 1997 Plan..................... 87
OWNERSHIP OF USBC CAPITAL STOCK................ 92
Security Ownership of Directors and Executive
Officers................................... 92
Security Ownership of Certain Beneficial
Owners..................................... 93
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ELECTION OF USBC DIRECTORS..................... 94
Directors of USBC............................ 94
Operation of USBC Board and Board
Committees................................. 94
Executive Compensation....................... 95
Report of Compensation Committee on Executive
Compensation............................... 103
Stock Performance Graph...................... 106
Transactions with USBC....................... 106
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE................................... 107
SELECTION OF USBC AUDITORS..................... 107
LEGAL OPINIONS................................. 108
EXPERTS........................................ 108
SHAREHOLDER PROPOSALS.......................... 108
OTHER MATTERS.................................. 109
MANAGEMENT AND ADDITIONAL INFORMATION.......... 109
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION........................ 110
APPENDIX A--MERGER AGREEMENT................... A-1
APPENDIX B--USBC STOCK OPTION AGREEMENT........ B-1
APPENDIX C--FBS STOCK OPTION AGREEMENT......... C-1
APPENDIX D--OPINION OF MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED.................. D-1
APPENDIX E--OPINION OF CREDIT SUISSE FIRST
BOSTON CORPORATION........................... E-1
APPENDIX F--NEW USBC 1997 STOCK INCENTIVE
PLAN......................................... F-1
</TABLE>
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<PAGE>
AVAILABLE INFORMATION
FBS and USBC are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by FBS and USBC with the Commission may
be inspected and copied at the Commission's public reference room located at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the public reference facilities in the Commission's regional offices located
at 7 World Trade Center, 13th Floor, New York, New York 10048, and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661. Copies of such
material may be obtained at prescribed rates by writing to the Commission,
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549.
Certain of such reports, proxy statements and other information are also
available from the Commission over the Internet at http://www.sec.gov. The FBS
Common Stock is listed on the NYSE. The periodic reports, proxy statements and
other information filed by FBS with the Commission may be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005. The shares of
USBC Common Stock and USBC 8 1/8% Preferred Stock are traded over the counter on
the Nasdaq National Market. Reports, proxy statements and other information
concerning USBC may also be inspected at the offices of the National Association
of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
This Joint Proxy Statement-Prospectus is included as part of a registration
statement on Form S-4 (together with all amendments and exhibits thereto,
including documents and information incorporated by reference, the "Registration
Statement") filed with the Commission by FBS, relating to the registration under
the Securities Act of 1933, as amended (the "Securities Act"), of the shares of
New USBC Common Stock and New USBC 8 1/8% Preferred Stock offered hereby. This
Joint Proxy Statement-Prospectus does not contain all of the information set
forth in the Registration Statement, certain portions of which have been omitted
pursuant to the rules and regulations of the Commission, to which reference is
hereby made for further information with respect to FBS and USBC and the New
USBC Common Stock and New USBC 8 1/8% Preferred Stock offered hereby. Statements
contained herein concerning any documents are not necessarily complete and, in
each instance, reference is made to the copies of such documents filed as
exhibits to the Registration Statement. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission by FBS are incorporated
herein by reference: (a) FBS's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997 (the "FBS 10-Q"); (b) FBS's Annual Report on Form 10-K for
the year ended December 31, 1996 (the "1996 FBS 10-K"); (c) the portions of
FBS's Proxy Statement for the Annual Meeting of Stockholders held on April 24,
1997 that have been incorporated by reference in the 1996 FBS 10-K; (d) FBS's
two Current Reports on Form 8-K dated March 20, 1997; and (e) the description of
the FBS Common Stock contained in Item 1 of the FBS Registration Statement on
Form 8-A dated March 19, 1984, as amended in its entirety by that Form 8
Amendment dated February 26, 1993 and that Form 8-A/A-2 dated October 6, 1994
and any amendment or report updating such description filed on or after the date
of this Joint Proxy Statement-Prospectus and prior to the time at which the FBS
Special Meeting and the USBC Annual Meeting have been finally adjourned.
The following documents filed with the Commission by USBC are incorporated
herein by reference: (a) USBC's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997 (the "USBC 10-Q"); (b) USBC's Annual Report on Form 10-K
for the year ended December 31, 1996 (the "1996 USBC 10-K"); (c) USBC's Current
Report on Form 8-K dated March 26, 1997; and (d) the description of the USBC
Common Stock contained in Exhibit 28 to USBC's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1992, and any amendment or reports filed for the
purpose of updating such description prior to the date of the USBC Annual
Meeting.
All documents filed by either FBS or USBC pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the
time at which the FBS Special Meeting and
<PAGE>
the USBC Annual Meeting have been finally adjourned shall be deemed to be
incorporated herein by reference and to be a part hereof from the date of such
filing. Any statement contained herein or in a document incorporated or deemed
to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained herein
or in any other subsequently filed document which also is, or is deemed to be,
incorporated herein by reference modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed to constitute a part
hereof, except as so modified or superseded.
THIS JOINT PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE DOCUMENTS RELATING TO
FBS (EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED THEREIN) ARE AVAILABLE
TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY OF THIS JOINT
PROXY STATEMENT-PROSPECTUS IS DELIVERED, WITHOUT CHARGE, UPON WRITTEN OR ORAL
REQUEST TO JOHN DANIELSON, INVESTOR AND CORPORATE RELATIONS, FIRST BANK SYSTEM,
INC., FIRST BANK PLACE, 601 SECOND AVENUE SOUTH, MINNEAPOLIS, MINNESOTA
55402-4302, TELEPHONE NUMBER (612) 973-2261. THE DOCUMENTS RELATING TO USBC
(EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED THEREIN) ARE AVAILABLE TO
EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY OF THIS JOINT PROXY
STATEMENT-PROSPECTUS IS DELIVERED, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST
TO JANE KEISTER, INVESTOR RELATIONS, U. S. BANCORP, 111 SOUTHWEST FIFTH AVENUE,
PORTLAND, OREGON 97204, TELEPHONE NUMBER (503) 275-6472. FBS OR USBC, AS THE
CASE MAY BE, WILL SEND THE REQUESTED DOCUMENTS BY FIRST-CLASS MAIL WITHIN ONE
BUSINESS DAY OF THE RECEIPT OF THE REQUEST. IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY REQUEST SHOULD BE RECEIVED NO LATER THAN FIVE BUSINESS
DAYS BEFORE THE APPLICABLE MEETING DATE. PERSONS REQUESTING COPIES OF EXHIBITS
TO SUCH DOCUMENTS THAT ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH
DOCUMENTS WILL BE CHARGED THE COSTS OF REPRODUCTION AND MAILING.
------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT-PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY FBS OR USBC. THIS JOINT
PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY OR AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE ANY SECURITIES BY ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT-PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF FBS OR USBC
SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE. FBS HAS SUPPLIED ALL INFORMATION CONTAINED IN THIS JOINT
PROXY STATEMENT-PROSPECTUS RELATING TO FBS AND ITS SUBSIDIARIES, AND USBC HAS
SUPPLIED ALL INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT-PROSPECTUS
RELATING TO USBC AND ITS SUBSIDIARIES.
THIS JOINT PROXY STATEMENT-PROSPECTUS DOES NOT COVER ANY RESALES OF SHARES
OF NEW USBC COMMON STOCK OR NEW USBC 8 1/8% PREFERRED STOCK OFFERED HEREBY TO BE
RECEIVED BY SHAREHOLDERS OF USBC DEEMED TO BE "AFFILIATES" OF USBC OR FBS UPON
THE CONSUMMATION OF THE MERGER. NO PERSON IS AUTHORIZED TO MAKE USE OF THIS
JOINT PROXY STATEMENT-PROSPECTUS IN CONNECTION WITH ANY SUCH RESALES.
2
<PAGE>
FOR NORTH CAROLINA RESIDENTS: THE COMMISSIONER OF INSURANCE OF THE STATE OF
NORTH CAROLINA HAS NOT APPROVED OR DISAPPROVED THE SECURITIES OFFERED HEREBY NOR
HAS THE COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT-PROSPECTUS.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
THIS JOINT PROXY STATEMENT-PROSPECTUS (INCLUDING INFORMATION INCLUDED OR
INCORPORATED BY REFERENCE HEREIN) CONTAINS OR MAY CONTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THIS JOINT PROXY
STATEMENT-PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS, PLANS, OBJECTIVES, FUTURE
PERFORMANCE AND BUSINESS OF EACH OF FBS AND USBC ON A STAND-ALONE BASIS AND OF
NEW USBC ON A PRO FORMA COMBINED BASIS FOLLOWING THE CONSUMMATION OF THE MERGER,
INCLUDING (A) STATEMENTS RELATING TO THE COST SAVINGS AND THE IMPACT ON REPORTED
EARNINGS THAT ARE EXPECTED TO RESULT FROM THE MERGER (SEE "THE MERGER--REASONS
OF FBS FOR THE MERGER," "--OPINION OF FBS'S FINANCIAL ADVISOR," "--REASONS OF
USBC FOR THE MERGER," "--OPINION OF USBC'S FINANCIAL ADVISOR" AND "MANAGEMENT
AND OPERATIONS AFTER THE MERGER--1998 AND 1999 EARNING ESTIMATES"); (B)
STATEMENTS RELATING TO THE IMPACT ON REVENUES OF THE MERGER; (C) STATEMENTS
RELATING TO THE RESTRUCTURING CHARGES EXPECTED TO BE INCURRED IN CONNECTION WITH
THE MERGER (SEE "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION");
AND (D) STATEMENTS PRECEEDED BY, FOLLOWED BY OR THAT INCLUDE THE WORDS
"BELIEVES," "EXPECTS," "ANTICIPATES" OR SIMILAR EXPRESSIONS. THESE
FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. FACTORS THAT
MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES:
(1) EXPECTED COST SAVINGS FROM THE MERGER CANNOT BE FULLY REALIZED OR REALIZED
WITHIN THE EXPECTED TIME FRAME; (2) REVENUES FOLLOWING THE MERGER ARE LOWER THAN
EXPECTED, OR DEPOSIT ATTRITION, OPERATING COSTS OR CUSTOMER LOSS AND BUSINESS
DISRUPTION FOLLOWING THE MERGER ARE GREATER THAN EXPECTED; (3) COMPETITIVE
PRESSURES AMONG DEPOSITORY AND OTHER FINANCIAL INSTITUTIONS INCREASE
SIGNIFICANTLY; (4) COSTS OR DIFFICULTIES RELATED TO THE INTEGRATION OF THE
BUSINESSES OF FBS AND USBC ARE GREATER THAN EXPECTED; (5) CHANGES IN THE
INTEREST RATE ENVIRONMENT REDUCE MARGINS; (6) GENERAL ECONOMIC OR BUSINESS
CONDITIONS, EITHER NATIONALLY OR IN THE STATES IN WHICH NEW USBC WILL BE DOING
BUSINESS, ARE LESS FAVORABLE THAN EXPECTED RESULTING IN, AMONG OTHER THINGS, A
DETERIORATION IN CREDIT QUALITY OR A REDUCED DEMAND FOR CREDIT; (7) LEGISLATIVE
OR REGULATORY CHANGES ADVERSELY AFFECT THE BUSINESSES IN WHICH NEW USBC WILL BE
ENGAGED; AND (8) CHANGES IN THE SECURITIES MARKETS. THE FORWARD-LOOKING EARNINGS
ESTIMATES INCLUDED IN THIS JOINT PROXY STATEMENT-PROSPECTUS HAVE NOT BEEN
EXAMINED OR COMPILED BY THE INDEPENDENT AUDITORS OF FBS OR USBC NOR HAVE SUCH
AUDITORS APPLIED ANY PROCEDURES THERETO. ACCORDINGLY, SUCH AUDITORS DO NOT
EXPRESS AN OPINION OR ANY OTHER FORM OF ASSURANCE ON THEM.
3
<PAGE>
SUMMARY
THE INFORMATION BELOW IS QUALIFIED IN ITS ENTIRETY BY, AND REFERENCE IS MADE
TO, THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS JOINT PROXY
STATEMENT-PROSPECTUS, INCLUDING THE ACCOMPANYING APPENDICES AND THE DOCUMENTS
INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT-PROSPECTUS. EACH
SHAREHOLDER IS URGED TO READ THIS JOINT PROXY STATEMENT-PROSPECTUS AND THE
EXHIBITS HERETO IN THEIR ENTIRETY AND WITH CARE. AS USED IN THIS JOINT PROXY
STATEMENT-PROSPECTUS, THE TERM "FBS" REFERS TO FBS AND, UNLESS THE CONTEXT
OTHERWISE REQUIRES, ITS SUBSIDIARIES, THE TERM "USBC" REFERS TO USBC AND, UNLESS
THE CONTEXT OTHERWISE REQUIRES, ITS SUBSIDIARIES AND THE TERM "NEW USBC" REFERS
TO FBS AS THE SURVIVING CORPORATION AFTER THE MERGER AND, UNLESS THE CONTEXT
OTHERWISE REQUIRES, ITS SUBSIDIARIES.
GENERAL
This Joint Proxy Statement-Prospectus, the notice of the USBC Annual Meeting
to be held on July 31, 1997, the notice of the FBS Special Meeting to be held on
July 31, 1997 and the forms of proxy solicited in connection therewith are first
being mailed to holders of USBC capital stock ("USBC Shareholders") and holders
of FBS Common Stock ("FBS Shareholders") on or about June 23, 1997.
At the FBS Special Meeting, FBS Shareholders will consider and vote upon (a)
a proposal to approve and adopt the Merger Agreement pursuant to which, among
other things, (i) USBC will merge with and into FBS, with FBS as the surviving
corporation, (ii) each outstanding share of USBC Common Stock will be converted
into the right to receive 0.755 of a share of New USBC Common Stock (with cash
paid in lieu of fractional shares), (iii) each outstanding share of USBC 8 1/8%
Preferred Stock will be converted into one share of New USBC 8 1/8% Preferred
Stock having substantially identical terms and (iv) the FBS Certificate will be
amended to increase the number of authorized shares of FBS Common Stock from
200,000,000 to 500,000,000 and to change the name of FBS to "U.S. Bancorp"; (b)
a proposal to amend the FBS Certificate to increase the maximum number of FBS
directors to 30 and to exempt from the 80% shareholder voting requirement
contained in the FBS Certificate any future amendment to the FBS Certificate to
reduce the maximum number of FBS directors to not less than the greater of (i)
the number of directors then in office and (ii) 24 (the "FBS Board Expansion
Amendment"); and (c) a proposal to approve the New USBC 1997 Stock Incentive
Plan (the "1997 Plan"). While the FBS Board recommends that FBS Shareholders
vote "FOR" approval of the FBS Board Expansion Amendment and the 1997 Plan, the
approval and adoption of the Merger Agreement and the consummation of the Merger
are not contingent upon approval of the FBS Board Expansion Amendment or the
1997 Plan. If approved by the FBS Shareholders at the FBS Special Meeting, the
FBS Board Expansion Amendment and the 1997 Plan will become effective only upon
consummation of the Merger.
At the USBC Annual Meeting, holders of shares of USBC Common Stock will
consider and vote upon a proposal to approve the Merger Agreement. Also at the
USBC Annual Meeting, holders of USBC Common Stock will consider and vote upon
(i) the election of directors to serve until the earlier of the next succeeding
annual meeting of USBC shareholders or the Effective Time and (ii) a proposal to
approve the selection of the independent auditors for USBC for USBC's fiscal
year ending December 31, 1997 or, if the Merger is consummated prior to December
31, 1997, for the period prior to the Effective Time. The holders of record of
shares of USBC 8 1/8% Preferred Stock will receive notice of, but are not
entitled to vote at, the USBC Annual Meeting. A copy of the Merger Agreement is
attached hereto as Appendix A and is incorporated herein by reference.
THE COMPANIES
FBS. FBS, a Delaware corporation, is a regional multi-state bank holding
company registered under the Bank Holding Company Act of 1956, as amended (the
"BHCA") and is headquartered in Minneapolis, Minnesota. At March 31, 1997, FBS
and its subsidiaries had consolidated assets of $36.0 billion, consolidated
deposits of $23.4 billion and shareholders' equity of $3.0 billion, placing it
among the 25 largest
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United States bank holding companies in terms of total assets. FBS operates four
banks and nine trust companies having banking offices in 11 Midwestern and Rocky
Mountain states. FBS also has various nonbank subsidiaries engaged in financial
services, principally in the Upper Midwest.
FBS's banking subsidiaries are engaged in general retail and commercial
banking business. They provide a wide variety of services to individuals,
businesses, industry, institutional organizations, governmental entities and
other financial institutions. Depository services include checking, savings and
time certificates. Additional services include commercial lending, financing of
import/export trade, foreign exchange and retail and institutional brokerage
services. Treasury management and receivable lockbox collection are provided for
corporate customers. The banks and trust companies provide a full range of
fiduciary activities for individuals, estates, foundations, business
corporations and charitable organizations.
For further information concerning FBS, see "SELECTED HISTORICAL FINANCIAL
DATA," "PRO FORMA SELECTED FINANCIAL DATA," "BUSINESS OF FBS" and "UNAUDITED PRO
FORMA CONDENSED COMBINED FINANCIAL INFORMATION" herein and the FBS documents
incorporated by reference herein as described under "INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE."
The principal executive offices of FBS are located at First Bank Place, 601
Second Avenue South, Minneapolis, Minnesota 55402-4302 (telephone number (612)
973-1111).
USBC. USBC, an Oregon corporation, is a regional bank holding company
subject to regulation under the BHCA and headquartered in Portland, Oregon.
USBC's principal activities are located in the Northwest, but it has operations
throughout the Far West and, to a lesser extent, the rest of the United States.
At March 31, 1997, USBC had consolidated assets of approximately $33.8 billion
and shareholders' equity of approximately $2.8 billion. USBC is among the 30
largest bank holding companies in the United States in terms of total assets.
The principal banking subsidiaries of USBC at March 31, 1997 were United States
National Bank of Oregon ("U. S. Bank of Oregon"), U. S. Bank of Washington,
National Association, U. S. Bank of Idaho, U. S. Bank of California, U. S. Bank
of Nevada and U.S. Bank of Utah. The banking subsidiaries were merged into U. S.
Bank of Oregon as of June 14, 1997.
The banking subsidiaries of USBC are engaged in general retail and corporate
banking, and provide investment and trust services. U. S. Bank of Oregon and U.
S. Bank of Idaho are each the largest commercial banks, in terms of deposits, in
their states, while the other banking subsidiaries have significant presences in
their states and chosen markets. Other subsidiaries of USBC provide financial
services related to banking, including lease financing, discount brokerage,
investment advisory services, and insurance agency and credit life insurance
services. In addition, the investment advisor subsidiary of U. S. Bank of
Oregon, Qualivest Capital Management, Inc., advises a group of mutual funds, the
Qualivest Funds.
For further information concerning USBC, see "SELECTED HISTORICAL FINANCIAL
DATA" and "BUSINESS OF USBC" herein and the USBC documents incorporated by
reference herein as described under "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE."
The principal executive offices of USBC are located at 111 Southwest Fifth
Avenue, Portland, Oregon 97204 (telephone number (503) 275-6111).
FBS SPECIAL MEETING AND VOTE REQUIRED
The FBS Special Meeting will be held on Thursday, July 31, 1997 at 10:00
a.m., local time, at First Bank on Marquette Avenue, 10th Floor Auditorium, 90
South Sixth Street, Minneapolis, Minnesota. At that time, the FBS Shareholders
will be asked to consider and vote upon (i) a proposal to approve and adopt the
Merger Agreement, (ii) a proposal to approve the FBS Board Expansion Amendment
and (iii) a proposal to approve the 1997 Plan. While the FBS Board recommends
that FBS Shareholders vote "FOR" the FBS Board Expansion Amendment and the 1997
Plan, the approval and adoption of the Merger Agreement and the consummation of
the Merger are not contingent upon approval of the FBS Board
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Expansion Amendment or the 1997 Plan. If approved by the FBS Shareholders at the
FBS Special Meeting, the FBS Board Expansion Amendment and adoption of the 1997
Plan will become effective only upon consummation of the Merger. Only the record
holders of FBS Common Stock at the close of business on June 9, 1997 (the "FBS
Record Date") are entitled to notice of and to vote at the FBS Special Meeting.
On the FBS Record Date, there were approximately 22,023 holders of record of FBS
Common Stock and 133,606,498 shares of FBS Common Stock outstanding.
Each share of FBS Common Stock entitles its holder to one vote. Approval and
adoption of the Merger Agreement requires the approval of the holders of a
majority of the outstanding shares of FBS Common Stock. The proposed FBS Board
Expansion Amendment requires the affirmative vote of not less than 80% of the
outstanding shares of FBS Common Stock. Approval of the 1997 Plan requires the
affirmative vote of the holders of a majority of the shares of FBS Common Stock
represented and entitled to vote, assuming that at least 50% of the votes
entitled to be cast on the matter are voted at the FBS Special Meeting. As of
the FBS Record Date, directors and executive officers of FBS beneficially owned
and were entitled to vote 2,117,985 shares of FBS Common Stock, or approximately
1.6% of the shares entitled to vote at the FBS Special Meeting. It is currently
expected that each such director and executive officer of FBS will vote the
shares of FBS Common Stock he or she is entitled to vote for approval and
adoption of the Merger Agreement and the approval of the FBS Board Expansion
Amendment and the 1997 Plan. As of the FBS Record Date, the banking and trust
subsidiaries of FBS, as fiduciaries, custodians and agents, held a total of
3,645,409 shares, or approximately 2.7% of the outstanding shares, of FBS Common
Stock under trust agreements and other instruments and agreements for various
beneficiaries. These entities maintained sole or shared voting power with
respect to 3,523,705 of these shares, which represented approximately 2.6% of
the outstanding shares of FBS Common Stock on the FBS Record Date. In addition,
as of the FBS Record Date, the banking and trust subsidiaries of USBC, as
fiduciaries, custodians and agents, held a total of 28,536 shares, or less than
one percent of the outstanding shares, of FBS Common Stock under trust
agreements and other instruments and agreements for various beneficiaries. As of
the FBS Record Date, USBC did not beneficially own any shares of FBS Common
Stock (excluding shares issuable to USBC under certain conditions as described
under "THE MERGER--Stock Option Agreements"). Also as of the FBS Record Date,
directors and executive officers of USBC beneficially owned and were entitled to
vote 1,171 shares of FBS Common Stock, or less than one percent of the shares
entitled to be voted at the FBS Special Meeting. See "FBS SPECIAL MEETING,"
"AMENDMENTS TO FBS RESTATED CERTIFICATE OF INCORPORATION" AND "PROPOSAL TO
APPROVE THE NEW USBC 1997 STOCK INCENTIVE PLAN."
USBC ANNUAL MEETING AND VOTE REQUIRED
The USBC Annual Meeting will be held on Thursday, July 31, 1997 at 10:00
a.m., local time, in the Ballroom of the Multnomah Athletic Club, 1849 S.W.
Salmon, Portland, Oregon, at which time the holders of USBC Common Stock will be
asked to (i) approve the Merger Agreement, (ii) elect directors to serve until
the earlier of the next annual meeting of USBC shareholders or the Effective
Time and (iii) approve the selection of the independent auditors for USBC for
USBC's fiscal year ending December 31, 1997 or, if the Merger is consummated
prior to December 31, 1997, for the period prior to the Effective Time. Only the
record holders of USBC Common Stock at the close of business on June 9, 1997
(the "USBC Record Date") are entitled to notice of and to vote at the USBC
Annual Meeting. The record holders of shares of USBC 8 1/8% Preferred Stock at
the USBC Record Date will receive notice of, but are not entitled to vote at,
the USBC Annual Meeting. On the USBC Record Date, there were 20,821 holders of
record of USBC Common Stock and 146,834,315 shares of USBC Common Stock
outstanding.
The affirmative vote of the holders of a majority of the outstanding shares
of USBC Common Stock entitled to vote is required to approve the Merger
Agreement. Directors of USBC will be elected by a plurality of the votes cast by
the shares of USBC Common Stock entitled to vote in the election at the USBC
Annual Meeting, provided a quorum of at least a majority of the votes entitled
to be cast at the
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meeting is present. A majority of the shares of USBC Common Stock represented at
the USBC Annual Meeting may approve the selection of the independent auditors of
USBC. If a majority of such shares do not vote to approve the selection of the
independent auditors, the USBC Board will reconsider the selection. As of the
USBC Record Date, directors and executive officers of USBC beneficially owned
and were entitled to vote 12,689,137 shares of USBC Common Stock, or
approximately 8.6% of the shares entitled to vote at the USBC Annual Meeting. It
is currently expected that each such director and executive officer of USBC will
vote the shares of USBC Common Stock he or she is entitled to vote for approval
of the Merger Agreement. As of the USBC Record Date, the banking and trust
subsidiaries of USBC, as fiduciaries, custodians and agents, held a total of
15,792,595 shares, or approximately 10.8% of the outstanding shares, of USBC
Common Stock under trust agreements and other instruments and agreements for
various beneficiaries. These entities maintained sole or shared voting power
with respect to 1,807,993 of such shares of USBC Common Stock. In addition, as
of the USBC Record Date, the banking and trust subsidiaries of FBS, as
fiduciaries, custodians and agents, held a total of 73,564 shares, or less than
one percent of the outstanding shares, of USBC Common Stock under trust
agreements and other instruments and agreements for various beneficiaries. As of
the USBC Record Date, FBS was the beneficial owner of 100 shares of USBC Common
Stock (excluding shares issuable to FBS under certain conditions as described
under "THE MERGER--Stock Option Agreements"). Also as of the USBC Record Date,
directors and executive officers of FBS did not beneficially own any shares of
USBC Common Stock. See "USBC ANNUAL MEETING," "ELECTION OF USBC DIRECTORS" and
"SELECTION OF USBC AUDITORS."
THE MERGER
In the Merger, subject to the terms and conditions of the Merger Agreement,
USBC will merge with and into FBS, which will be the surviving corporation and
will change its name to "U.S. Bancorp". Pursuant to the Merger, each outstanding
share of USBC Common Stock will be converted into the right to receive 0.755 of
a share of New USBC Common Stock, with cash to be paid in lieu of any resulting
fractional shares of New USBC Common Stock. Each share of FBS Common Stock
outstanding prior to the Merger will continue to be outstanding after the
Effective Time and will constitute a share of New USBC Common Stock. Holders of
USBC Common Stock immediately prior to the Merger as a group will own
approximately 45.3%, and holders of FBS Common Stock immediately prior to the
Merger as a group will own approximately 54.7%, of the New USBC Common Stock to
be outstanding immediately following the Effective Time, based on shares
outstanding as of the respective Record Dates.
Upon consummation of the Merger, each option to purchase shares of USBC
Common Stock issued by USBC pursuant to any of its employee or director stock
option programs or otherwise (each, a "USBC Employee Stock Option") that is
outstanding and unexercised immediately prior to the Effective Time will be
converted automatically into an option to purchase shares of New USBC Common
Stock. The number of shares of New USBC Common Stock purchasable upon the
exercise of such USBC Employee Stock Option will be equal to the product of the
number of shares of USBC Common Stock underlying the USBC Stock Option
multiplied by the Exchange Ratio and rounded to a whole share, and the exercise
price per share of New USBC Common Stock under each such USBC Employee Stock
Option will be adjusted by dividing the per share exercise price of each such
USBC Stock Option by the Exchange Ratio and rounded down to the nearest cent.
See "THE MERGER--Description of the Merger" and "PROPOSAL TO APPROVE THE NEW
USBC 1997 STOCK INCENTIVE PLAN."
In addition, at the Effective Time, each share of USBC 8 1/8% Preferred
Stock will be converted into a share of New USBC 8 1/8% Preferred Stock, with
rights, terms and preferences substantially identical to the USBC 8 1/8%
Preferred Stock.
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CONDITIONS TO THE MERGER
The Merger is subject to the satisfaction of certain conditions, including
among others, the approval and adoption of the Merger Agreement and the Merger
by the holders of a majority of the outstanding shares of USBC Common Stock
entitled to vote at the USBC Annual Meeting and by the holders of a majority of
the outstanding shares of FBS Common Stock entitled to vote at the FBS Special
Meeting, and the approval of appropriate regulatory agencies. See "THE
MERGER--Conditions to the Merger."
For additional information relating to the Merger, see "THE MERGER."
RECOMMENDATIONS OF BOARDS OF DIRECTORS
THE BOARD OF DIRECTORS OF FBS (THE "FBS BOARD"), WITH ONE DIRECTOR ABSENT,
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY, THE FBS BOARD EXPANSION AMENDMENT AND THE 1997 PLAN. THE FBS BOARD
BELIEVES THAT THE MERGER, THE FBS BOARD EXPANSION AMENDMENT AND THE 1997 PLAN
ARE IN THE BEST INTERESTS OF FBS AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS
THAT FBS SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND APPROVAL OF THE FBS BOARD EXPANSION AMENDMENT AND THE 1997 PLAN. FOR A
DISCUSSION OF THE FACTORS CONSIDERED BY THE FBS BOARD IN REACHING ITS
CONCLUSIONS, SEE "THE MERGER--BACKGROUND OF THE MERGER" AND "--REASONS OF FBS
FOR THE MERGER."
THE BOARD OF DIRECTORS OF USBC (THE "USBC BOARD"), WITH ONE DIRECTOR ABSENT,
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY. THE USBC BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF
USBC AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT USBC SHAREHOLDERS VOTE
"FOR" APPROVAL OF THE MERGER AGREEMENT. FOR A DISCUSSION OF THE FACTORS
CONSIDERED BY THE USBC BOARD IN REACHING ITS CONCLUSIONS, SEE "THE
MERGER--BACKGROUND OF THE MERGER" AND "--REASONS OF USBC FOR THE MERGER."
OPINION OF FBS'S FINANCIAL ADVISOR
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), which
has served as financial advisor to FBS in connection with the Merger, has
rendered its written opinion to the FBS Board that the Exchange Ratio is fair,
from a financial point of view, to the holders of FBS Common Stock. Such opinion
was delivered orally to the FBS Board on March 19, 1997 and in writing as of
that date and on the date of this Joint Proxy Statement-Prospectus. A copy of
the written opinion delivered by Merrill Lynch on the date of this Joint Proxy
Statement-Prospectus is attached hereto as Appendix D, and should be read in its
entirety with respect to assumptions made, matters considered and limitations on
the review undertaken by Merrill Lynch in connection with such opinion. See "THE
MERGER--Opinion of FBS's Financial Advisor."
OPINION OF USBC'S FINANCIAL ADVISOR
Credit Suisse First Boston Corporation ("CSFB"), financial advisor to USBC,
has rendered to the USBC Board a written opinion, dated the date of this Joint
Proxy Statement-Prospectus, to the effect that, as of such date and based upon
and subject to certain matters stated in such opinion, the Exchange Ratio is
fair to the holders of USBC Common Stock from a financial point of view. A copy
of the opinion of CSFB dated the date of this Joint Proxy Statement-Prospectus
is attached hereto as Appendix E and should be read carefully in its entirety
with respect to the procedures followed, assumptions made, matters considered
and limitations on the review undertaken in connection with such opinion. The
opinion of CSFB is directed to the USBC Board and relates only to the fairness
of the Exchange Ratio from a financial point of view, does not address any other
aspect of the proposed Merger or any related transaction and does not
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constitute a recommendation to any shareholder as to how such shareholder should
vote at the USBC Annual Meeting. See "THE MERGER--Opinion of USBC's Financial
Advisor."
EFFECTIVE TIME OF THE MERGER
Subject to the satisfaction or waiver of certain conditions set forth in the
Merger Agreement, the parties will cause the Effective Time to occur on (i) the
third business day to occur after (or, at the election of FBS, on the last
business day of the month in which such day occurs) the satisfaction or waiver
of the last of (a) the approval and adoption of the Merger Agreement by the
holders of FBS Common Stock and USBC Common Stock at their respective meetings
of shareholders, (b) the receipt of all regulatory approvals required to
consummate the transactions contemplated by the Merger Agreement (provided that
all such approvals shall remain in full force and effect and all statutory or
regulatory waiting periods in respect thereof shall have expired and no such
approvals shall contain conditions or restrictions that the FBS Board or the
USBC Board reasonably determines in good faith would, following the Effective
Time, have a material adverse effect on New USBC and its subsidiaries, taken as
a whole (see "THE MERGER--Regulatory Matters")), (c) the receipt of all consents
or approvals of third parties (other than regulatory authorities) required for
consummation of the Merger other than those that, if not received, would not be
reasonably likely to have a material adverse effect on USBC or FBS, and (d) the
approval for listing on the NYSE of the New USBC Common Stock to be issued in
the Merger and the approval for listing on the NYSE or the approval for
quotation on the Nasdaq National Market of the New USBC 8 1/8% Preferred Stock
to be issued in the Merger or (ii) such other date to which the parties may
agree in writing. The day on which the Effective Time occurs is referred to as
the "Effective Date."
WAIVER; AMENDMENT; TERMINATION
Prior to the Effective Time, the Merger Agreement permits any provision
thereof to be (i) waived by the party benefited by the provision or (ii) amended
or modified by an agreement in writing between FBS and USBC, approved by their
respective Boards of Directors and executed in the same manner as the Merger
Agreement, except that, after the USBC Annual Meeting, the consideration to be
received by the USBC Shareholders for each share of USBC stock may not be
decreased.
The Merger Agreement may be terminated and the Merger abandoned (i) by the
mutual consent of FBS and USBC; (ii) by either FBS or USBC, if the other party
breaches its representations and warranties in the Merger Agreement, which
breach cannot be or has not been cured within 30 days after the giving of
written notice to the breaching party of such breach; (iii) by either FBS or
USBC, if the other party breaches its covenants or agreements in the Merger
Agreement, which breach cannot be or has not been cured within 30 days after the
giving of written notice to the breaching party of such breach; (iv) by either
FBS or USBC, in the event that the Merger is not consummated by March 31, 1998,
except to the extent that the failure of the Merger to be consummated arises out
of or results from the knowing action or inaction of the party seeking to
terminate the Merger Agreement; (v) by either FBS or USBC, in the event that (a)
the approval of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") or any other regulatory authority required for
consummation of the Merger and the other transactions contemplated by the Merger
Agreement has been denied by final nonappealable action or (b) shareholder
approval and adoption of the Merger Agreement is not obtained at the USBC Annual
Meeting or the FBS Special Meeting or any adjournment or postponement thereof;
or (vi) by either FBS or USBC, if the Board of Directors of the other party
withdraws its recommendation or adversely modifies or changes its recommendation
to its shareholders to approve the Merger Agreement and, in the case of FBS, the
FBS Board Expansion Amendment, at any time prior to their respective meetings of
shareholders.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The obligations of USBC and FBS to consummate the Merger are conditioned on,
among other things, the receipt of opinions, each dated as of the Effective
Time, of Wachtell, Lipton, Rosen & Katz and Cleary, Gottlieb, Steen & Hamilton,
special tax counsel to USBC and FBS, respectively, based on certain facts,
representations and assumptions set forth therein, substantially to the effect
that for federal income tax purposes the Merger will qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and that accordingly: (i) no gain or loss
will be recognized by FBS or USBC as a result of the Merger, (ii) no gain or
loss will be recognized by shareholders of USBC who exchange their USBC Common
Stock or USBC 8 1/8% Preferred Stock solely for New USBC Common Stock or New
USBC 8 1/8% Preferred Stock, respectively, in the Merger (except with respect to
cash received by a holder of USBC Common Stock in lieu of a fractional share
interest in New USBC Common Stock), and (iii) the tax basis of the New USBC
Common Stock and New USBC 8 1/8% Preferred Stock received by shareholders who
exchange all of their USBC Common Stock solely for New USBC Common Stock or USBC
8 1/8% Preferred Stock solely for New USBC 8 1/8% Preferred Stock will be the
same as the basis of the USBC Common Stock or USBC 8 1/8% Preferred Stock, as
the case may be, surrendered in exchange therefor. EACH USBC SHAREHOLDER IS
URGED TO CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER, AS WELL AS ANY APPLICABLE STATE, LOCAL, FOREIGN OR
OTHER TAX CONSEQUENCES, BASED ON SUCH SHAREHOLDER'S OWN PARTICULAR FACTS AND
CIRCUMSTANCES. See "THE MERGER--Certain Federal Income Tax Consequences." In
addition, USBC has received from Wachtell, Lipton, Rosen & Katz, and FBS has
received from Cleary, Gottlieb, Steen & Hamilton, such firm's opinion, dated
June 17, 1997, that, based upon and subject to certain facts, representations
and assumptions set forth therein, the discussion under "THE MERGER--Certain
Federal Income Tax Consequences", except as otherwise indicated under such
heading, represents such firm's opinion as to the material federal income tax
consequences of the Merger under currently applicable law.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of USBC management and of the USBC Board have arrangements
with FBS, including those relating to the election of Gerry B. Cameron, Chairman
of the Board and Chief Executive Officer of USBC, as Chairman of the Board of
New USBC; the election of each of Robert D. Sznewajs, Vice Chairman of USBC, and
Gary T. Duim, Executive Vice President of USBC, as Vice Chairmen of New USBC;
the election or appointment of all of the directors of the USBC Board to the
Board of Directors of New USBC (the "New USBC Board"); and certain benefits
under the Merger Agreement, existing employment agreements and severance and
benefit plans. See "THE MERGER--Interests of Certain Persons in the Merger" and
"MANAGEMENT AND OPERATIONS AFTER THE MERGER." Messrs. Cameron, Duim and Sznewajs
have each signed an employment agreement with FBS, which will become effective
upon consummation of the Merger (each, an "Employment Agreement" and together,
the "Employment Agreements") pursuant to which, among other things, they will
receive certain cash payments that they would have been entitled to under their
existing employment agreements with USBC if they had been terminated without
cause (as defined therein) immediately following the Effective Time ($5,946,505,
$2,859,148 and $3,541,378, respectively, assuming an Effective Date of August 1,
1997). Each of USBC's executive officers (including Messrs. Cameron, Sznewajs
and Duim), have employment agreements with USBC pursuant to which each such
executive officer would be entitled to certain payments if within a specified
period following a "change in control," such as the Merger, he or she is
terminated without "cause" or resigns for "good reason." Excluding Messrs.
Cameron, Duim and Sznewajs, and assuming such termination immediately after an
assumed Effective Date of August 1, 1997, the amount of such payments to
executive officers of USBC would be, in the aggregate, $18,585,353. In addition,
FBS has agreed to indemnify the present and former directors and officers of
USBC and its subsidiaries from and after the Effective Date against certain
liabilities arising at or prior to the Effective Date to the fullest extent
permitted under Oregon law and the USBC Restated Articles of Incorporation (the
"USBC Articles") and USBC's bylaws (the "USBC Bylaws") and to use its best
efforts to provide the
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present and former directors and officers of USBC and its subsidiaries with
directors' and officers' liability insurance for three years from the Effective
Date covering certain liabilities arising prior to the Effective Date.
Additionally, certain stock-based compensation plans in which USBC directors and
officers participate provide for accelerated vesting of awards in the event of
(i) a change in control of USBC, such as the Merger or (ii) a change in control
of USBC followed by a termination of employment without "cause" or a resignation
for "good reason". While the final amounts of such awards cannot be determined
precisely until the Effective Date (as certain of such awards depend on the
business performance of USBC as determined as of such date), and the actual
amount of such awards may therefore vary from the estimates set forth herein, it
is estimated that such provisions will result (assuming an Effective Date of
August 1, 1997) in the vesting as of the Effective Date of stock-based awards
with respect to 464,102 shares of USBC Common Stock and cash performance awards
totalling $3,692,809, in each case for the USBC executive officers in the
aggregate, and of stock-based awards with respect to 21,155 shares of USBC
Common Stock for USBC non-employee directors in the aggregate.
Consummation of the Merger will constitute a "partial change of control"
under certain employment agreements and change-in-control severance agreements
between FBS and certain FBS senior executive officers, and under FBS's stock
option and restricted stock agreements. Accordingly, following consummation of
the Merger, if any such executive officer is terminated other than for "cause"
or resigns for "good reason (partial)", he or she would be entitled to receive
certain payments and other benefits and such executive officer's options and
restricted stock would vest. Assuming each of the 12 FBS executive officers
covered by such agreements was terminated other than for "cause" or resigns for
"good reason (partial)" immediately after an assumed Effective Date of August 1,
1997, the aggregate cash amount payable to such FBS executive officers would be
approximately $30.7 million. In addition, FBS expects to enter into employment
contracts with Richard A. Zona and Philip G. Heasley, Vice Chairman-Finance and
Vice Chairman of FBS, respectively.
See "THE MERGER--Interests of Certain Persons in the Merger."
STOCK OPTION AGREEMENTS
As an inducement and condition to the willingness of FBS to enter into the
Merger Agreement, USBC, as issuer, entered into a stock option agreement with
FBS, as grantee, dated as of March 20, 1997 (the "USBC Stock Option Agreement"),
and as an inducement and condition to USBC's willingness to enter into the
Merger Agreement, FBS, as issuer, entered into a stock option agreement with
USBC, as grantee, dated as of March 20, 1997 (the "FBS Stock Option Agreement"
and, together with the USBC Stock Option Agreement, the "Stock Option
Agreements"). The USBC Stock Option Agreement and FBS Stock Option Agreement are
attached as Appendices B and C to this Joint Proxy Statement-Prospectus,
respectively.
Pursuant to the USBC Stock Option Agreement, USBC granted to FBS an
irrevocable option (the "USBC Option") to purchase a number of shares of USBC
Common Stock up to 19.9% of the number of shares of USBC Common Stock
outstanding immediately before exercise of the USBC Option for a purchase price
of $47.75 per share, subject to adjustment in certain circumstances.
Pursuant to the FBS Stock Option Agreement, FBS granted to USBC an
irrevocable option (the "FBS Option"; the USBC Option and the FBS Option are
each referred to herein as an "Option" or collectively, "Options") to purchase a
number of shares of FBS Common Stock up to 19.9% of the number of shares of FBS
Common Stock outstanding immediately before exercise of the FBS Option for a
purchase price of $77.50 per share, subject to adjustment in certain
circumstances.
Each Option would generally become exercisable, if, prior to the termination
of the Merger Agreement, a third party makes a proposal to engage in an
acquisition of the issuer and an acquisition is consummated within 18 months
following such termination. Under certain circumstances, the holder of the
Option also could elect to sell the Option, and any shares previously purchased
thereunder, back to the
11
<PAGE>
issuer at a price generally reflecting the price offered or paid by the
third-party acquirer for other shares of the issuer. Alternatively, under
certain circumstances, the holder of the Option could surrender the Option for a
cash payment from the issuer of the Option of $200 million. The maximum profit
realizable under either Option is $300 million.
The purchase of any shares of USBC Common Stock or FBS Common Stock pursuant
to an Option is subject to compliance with applicable law, including the receipt
of necessary approvals under the BHCA.
Arrangements such as the Stock Option Agreements are entered into in
connection with corporate mergers and acquisitions in an effort to increase the
likelihood that the transactions will be consummated in accordance with their
terms and to compensate the grantee for the efforts undertaken and the expenses,
losses and opportunity costs incurred by it in connection with the transactions
if they are not consummated under certain circumstances involving an acquisition
or potential acquisition of the issuer by a third party. The Stock Option
Agreements were entered into to accomplish these objectives. The Stock Option
Agreements may have the effect of discouraging offers by third parties to
acquire USBC or FBS prior to the Merger, even if, in the case of USBC, such
persons might have been prepared to offer to pay consideration to USBC's
shareholders that has a higher current market price than the shares of New USBC
Common Stock to be received by such holders pursuant to the Merger Agreement.
To the best knowledge of USBC and FBS, no event giving rise to the right to
exercise either of the Options has occurred as of the date of this Joint Proxy
Statement-Prospectus.
See "THE MERGER--Background of the Merger", "--Stock Option Agreements" and
Appendices B and C to this Joint Proxy Statement-Prospectus.
EXPENSES AND TERMINATION FEES
The Merger Agreement provides that, in the event of the termination of the
Merger Agreement and the abandonment of the Merger at any time by either party
due to (i) a material breach by the other party of such party's representations,
warranties, covenants or agreements in the Merger Agreement, (ii) any withdrawal
or adverse modification or change to the recommendation to shareholders by the
Board of Directors of the other party or (iii) a failure on the part of the
other party to receive the requisite shareholder approval of the Merger
Agreement, then the terminating party will be entitled to receive, as
compensation to such party for the expenses associated with the negotiation of
the Merger Agreement and the other matters contemplated by the Merger Agreement,
a fee of $20,000,000, which will be payable whether or not the payor's
shareholders have approved the Merger Agreement (the "Termination Fee
Provisions").
Except as provided in the Termination Fee Provisions, each party to the
Merger Agreement will bear all expenses incurred by it in connection with the
Merger Agreement and the transactions contemplated thereby, except that printing
expenses and Commission registration fees will be shared equally between USBC
and FBS.
NO APPRAISAL RIGHTS
Holders of USBC Common Stock and USBC 8 1/8% Preferred Stock do not have
appraisal rights under the Oregon Business Corporation Act (the "OBCA") with
respect to the Merger. Holders of FBS Common Stock do not have appraisal rights
under the Delaware General Corporation Law (the "DGCL") with respect to the
Merger. See "THE MERGER--No Appraisal Rights."
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for as a
"pooling-of-interests" under generally accepted accounting principles. The
obligation of FBS to consummate the Merger is conditioned upon receipt of
letters from its independent auditors to the effect that the Merger may be
accounted for in such
12
<PAGE>
manner. To conform to the provisions of SAB 96 "Treasury Stock Acquisitions
Following Consummation of a Business Combination Accounted for as a Pooling of
Interests," the FBS Board has terminated FBS's stock repurchase program. See
"THE MERGER--Accounting Treatment" and "--Conditions to the Merger."
REGULATORY APPROVALS
The Merger is subject to the approval of the Federal Reserve Board. In
addition, the Merger may be subject to the approval of or notice to (i) the bank
regulatory authorities in California, Idaho, Nevada, Oregon, Utah and Washington
and (ii) the insurance regulatory authority in Oregon (collectively, the "State
Authorities"). The Merger may not be consummated until expiration of applicable
statutory or regulatory waiting periods.
FBS and USBC have filed all required applications for regulatory review and
approval or notice with the Federal Reserve Board and the State Authorities in
connection with the Merger. There can be no assurance that all such approvals
will be obtained or as to the date of such approvals, or that such approvals
will not impose a condition or requirement that causes such approvals to fail to
satisfy the conditions set forth in the Merger Agreement. There can likewise be
no assurance that the United States Department of Justice or applicable State
Authorities or other state governmental officials will not challenge the Merger,
or, if such a challenge is made, as to the result thereof.
FBS submitted its final application to the Federal Reserve Bank of
Minneapolis on April 14, 1997. The application was accepted for processing by
the Board of Governors of the Federal Reserve System on April 21, 1997. The bank
regulatory authorities for the states of Nevada, Oregon and California approved
the Merger on May 13, June 5, and June 10, 1997, respectively.
See "THE MERGER--Conditions to the Merger" and "--Regulatory Matters."
MARKETS AND MARKET PRICES
The FBS Common Stock is listed on the NYSE under the symbol "FBS" and the
USBC Common Stock is traded on the Nasdaq National Market under the symbol
"USBC".
The following table sets forth the closing price per share of FBS Common
Stock and the closing price per share of USBC Common Stock, as reported on the
NYSE Composite Transactions List and The Nasdaq Stock Market's National Market
System, respectively, and the "equivalent per share price" (as defined below) of
USBC Common Stock as of March 19, 1997, the last trading day before FBS and USBC
publicly announced the execution of the Merger Agreement and on June 16, 1997,
the last trading day prior to the date of this Joint Proxy Statement-Prospectus.
The "equivalent per share price" of USBC Common Stock as of each such date
equals the closing price per share of FBS Common Stock on such date multiplied
by the Exchange Ratio.
<TABLE>
<CAPTION>
MARKET PRICES PER SHARE
---------------------------------
FBS USBC EQUIVALENT
COMMON COMMON PER SHARE
STOCK STOCK PRICE
--------- --------- -----------
<S> <C> <C> <C>
March 19, 1997............................................. $ 78.25 $ 48.25 $ 59.08
June 16, 1997.............................................. 85.75 64.06 64.74
</TABLE>
FBS Shareholders and holders of USBC Common Stock are urged to obtain
current market quotations for FBS Common Stock and USBC Common Stock. Because
the Exchange Ratio is fixed, a change in the market price of FBS Common Stock
before the consummation of the Merger would affect the market value as of the
Effective Time of the New USBC Common Stock to be received in the Merger in
exchange for USBC Common Stock. THERE CAN BE NO ASSURANCE AS TO THE MARKET PRICE
OF FBS COMMON STOCK AT ANY TIME BEFORE THE EFFECTIVE DATE, OR AS TO THE MARKET
PRICE OF NEW USBC COMMON STOCK AT ANY TIME FOLLOWING THE EXCHANGE OF USBC COMMON
STOCK FOR NEW USBC COMMON STOCK PURSUANT TO THE MERGER. SEE "THE
MERGER--GENERAL."
13
<PAGE>
COMPARATIVE RIGHTS OF SHAREHOLDERS
Upon consummation of the Merger, holders of USBC Common Stock will become
holders of New USBC Common Stock. As USBC is organized under the laws of the
State of Oregon and FBS is (and after the Merger, New USBC will be) organized
under the laws of the State of Delaware, differences in the rights of the
holders of USBC Common Stock and the USBC 8 1/8% Preferred Stock, on one hand,
and the holders of New USBC Common Stock and the New USBC 8 1/8% Preferred
Stock, on the other, arise from differences between the OBCA and the DGCL and
from differences between the USBC Articles and the USBC Bylaws on the one hand,
and the FBS Certificate and FBS's bylaws (the "FBS Bylaws") on the other.
However, under any circumstances in which holders of New USBC 8 1/8% Preferred
Stock would have additional rights under Oregon law if New USBC were
incorporated under the OBCA, holders of USBC 8 1/8% Preferred Stock will be
entitled to such rights. For a discussion of certain similarities and
differences between the rights of holders of USBC Common Stock and the rights of
holders of New USBC Common Stock, see "COMPARATIVE RIGHTS OF SHAREHOLDERS OF FBS
COMMON STOCK AND USBC COMMON STOCK."
DIVIDENDS
Until the Merger, FBS and USBC will coordinate the declaration and payment
of dividends in respect of FBS Common Stock and USBC Common Stock. The Merger
Agreement prohibits either FBS or USBC from increasing the rate of dividends on
its common stock prior to the Effective Date. The New USBC Board will determine
the amount and timing of any dividends declared and paid by New USBC after the
Effective Time. Management of each of FBS and USBC intends to recommend to the
New USBC Board the continuation of quarterly dividends at rates consistent with
recent dividend practices of FBS. See "MARKET PRICES AND DIVIDENDS--Dividends."
14
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth selected comparative unaudited per share data
for FBS on a historical and pro forma combined basis, and for USBC on a
historical and pro forma equivalent basis, giving effect to the Merger using the
pooling-of-interests method of accounting. The pro forma comparative unaudited
per share data assumes the Merger had been consummated at the beginning of the
periods presented. For a description of the effect of pooling-of-interests
accounting on the historical financial statements of FBS, see "THE
MERGER--Accounting Treatment." The information set forth below is based on and
derived from the consolidated historical financial statements of FBS and USBC
and the unaudited pro forma condensed combined financial information, including
the respective notes thereto, incorporated by reference into, or appearing
elsewhere in, this Joint Proxy Statement-Prospectus. This information should be
read in conjunction with such historical financial statements and pro forma
financial information and the related notes thereto. See "AVAILABLE
INFORMATION," "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and "UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION."
The per share data set forth herein are presented for comparative purposes
only and are not necessarily indicative of the future combined financial
position, the results of the future operations or the actual results or combined
financial position of New USBC that would have been achieved had the Merger been
consummated as of the dates or for the periods indicated.
While no assurance can be given, FBS and USBC expect that New USBC will
achieve substantial benefits from the Merger including operating cost savings
and revenue enhancements. However, the pro forma comparative unaudited per share
data do not reflect any direct costs, potential savings or revenue enhancements
which are expected to result from the consolidation of operations of FBS and
USBC, and therefore, do not purport to be indicative of the results of future
operations of New USBC.
<TABLE>
<CAPTION>
FBS COMMON STOCK USBC COMMON STOCK
------------------------ ------------------------
PRO FORMA PRO FORMA
HISTORICAL COMBINED HISTORICAL EQUIVALENT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BOOK VALUE(1):
March 31, 1997.................................................... $ 22.51 $ 21.14 $ 17.76 $ 15.96
December 31, 1996................................................. 22.63 20.99 17.40 15.85
DIVIDENDS DECLARED(2):
Three Months Ended:
March 31, 1997.................................................. .465 .465 .310 .351
Year Ended:
December 31, 1996............................................... 1.65 1.65 1.18 1.25
December 31, 1995............................................... 1.45 1.45 1.06 1.09
December 31, 1994............................................... 1.16 1.16 .94 .88
INCOME FROM CONTINUING OPERATIONS(3)(4):
Three Months Ended:
March 31, 1997.................................................. 1.27 1.17 .80 .88
Year Ended:
December 31, 1996............................................... 5.34 4.74 3.08 3.58
December 31, 1995............................................... 4.19 3.51 2.09 2.65
December 31, 1994............................................... 2.21 2.16 1.60 1.63
</TABLE>
(NOTES ON FOLLOWING PAGE)
15
<PAGE>
NOTES TO COMPARATIVE UNAUDITED PER SHARE DATA
(1) The pro forma combined book values per share of FBS Common Stock are based
upon the pro forma total common equity for FBS and USBC, divided by the
total pro forma shares of New USBC Common Stock assuming conversion of USBC
Common Stock at the Exchange Ratio of 0.755 of a share of New USBC Common
Stock for each share of USBC Common Stock. The pro forma equivalent book
values per share of USBC Common Stock represent the pro forma combined
amounts multiplied by the Exchange Ratio. See "THE MERGER--Description of
the Merger."
(2) The pro forma combined dividends declared assume no changes in the
historical dividends declared per share of FBS Common Stock. The pro forma
equivalent dividends per share of USBC Common Stock represent the cash
dividends declared on a share of FBS Common Stock multiplied by the Exchange
Ratio. See "THE MERGER--Description of the Merger."
(3) The pro forma combined income per share from continuing operations has been
computed based on the average number of outstanding shares and common
equivalent shares of FBS, and the average number of outstanding shares and
common equivalent shares of USBC adjusted for the exchange ratio. The pro
forma equivalent income from continuing operations per share of USBC stock
represents the pro forma combined income from continuing operations
multiplied by the Exchange Ratio. See "THE MERGER--Description of the
Merger."
(4) The historical earnings per common share for USBC was based on the average
number of common shares outstanding. The impact of common share equivalents,
such as stock options, and other potentially dilutive securities is not
material; therefore, they were not included in the historical USBC
calculations. The following table summarizes the USBC average common shares
and USBC average common shares and common equivalent shares referenced in
Note (3).
<TABLE>
<CAPTION>
USBC AVERAGE COMMON AND
USBC AVERAGE COMMON SHARES COMMON EQUIVALENT SHARES
---------------------------- --------------------------
<S> <C> <C>
March 31, 1997.................................... 147,934,580 150,500,227
December 31, 1996................................. 151,312,898 153,409,823
December 31, 1995................................. 151,554,000 153,859,695
December 31, 1994................................. 151,391,600 153,091,596
</TABLE>
16
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth certain selected historical consolidated
financial information for FBS and USBC. The selected historical financial data
of FBS and USBC for the years ended December 31, 1992 through 1996 was derived
from the audited consolidated historical financial statements of FBS and USBC,
respectively. The selected historical financial data for the three months ended
March 31, 1997 and 1996 was derived from the unaudited historical financial
statements of FBS and USBC, respectively. This information should be read in
conjunction with the audited consolidated historical financial statements of FBS
and USBC, the pro forma selected financial data, and the unaudited pro forma
condensed combined financial information, including the respective notes
thereto, incorporated by reference into, or appearing elsewhere in, this Joint
Proxy Statement-Prospectus. See "AVAILABLE INFORMATION," "INCORPORATION OF
CERTAIN INFORMATION BY REFERENCE," "PRO FORMA SELECTED FINANCIAL DATA" and
"UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION."
17
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF
FIRST BANK SYSTEM, INC.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996 1996 1995 1994 1993
- ---------------------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT:
Net interest income (taxable-equivalent basis).................. $ 384.8 $ 379.3 $ 1,553.6 $ 1,454.0 $ 1,434.5 $ 1,355.9
Provision for credit losses..................................... 37.0 31.0 136.0 115.0 123.6 133.1
--------- --------- --------- --------- --------- ---------
Net interest income after provision for credit losses......... 347.8 348.3 1,417.6 1,339.0 1,310.9 1,222.8
Securities gains (losses)....................................... -- 14.6 15.0 -- (115.0) .3
Other nonrecurring gains........................................ -- 160.8 300.8 31.0 -- --
Other noninterest income........................................ 225.8 208.1 869.9 752.1 673.9 618.6
Merger-related charges.......................................... -- 69.9 69.9 -- 125.3 72.2
Other nonrecurring charges...................................... -- 56.9 107.9 31.0 -- --
Other noninterest expense....................................... 296.0 297.6 1,210.3 1,174.9 1,224.1 1,192.5
--------- --------- --------- --------- --------- ---------
Income from continuing operations before income taxes and
cumulative effect of changes in accounting principles....... 277.6 307.4 1,215.2 916.2 520.4 577.0
Taxable-equivalent adjustment................................... 4.8 4.7 20.6 13.8 15.1 17.7
Income taxes.................................................... 101.0 125.9 454.8 334.3 191.8 198.6
--------- --------- --------- --------- --------- ---------
Income from continuing operations before cumulative effect of
changes in accounting principles............................ 171.8 176.8 739.8 568.1 313.5 360.7
Income (loss) from discontinued operations...................... -- -- -- -- (8.5) 2.5
--------- --------- --------- --------- --------- ---------
Income before cumulative effect of changes in accounting
principles.................................................. 171.8 176.8 739.8 568.1 305.0 363.2
Cumulative effect of changes in accounting principles........... -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Net income.................................................... $ 171.8 $ 176.8 $ 739.8 $ 568.1 $ 305.0 $ 363.2
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
FINANCIAL RATIOS:
Return on average assets........................................ 2.00% 2.03% 2.09% 1.73% .91% 1.13%
Return on average common equity................................. 23.1 23.2 23.8 21.3 11.2 13.9
Efficiency ratio................................................ 48.5 56.7 51.0 53.9 64.0 64.1
Net interest margin............................................. 4.98 4.86 4.89 4.91 4.74 4.69
SELECTED FINANCIAL RATIOS EXCLUDING MERGER-RELATED AND
NONRECURRING ITEMS AND CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES:
Return on average assets........................................ 2.00 1.84 1.88 1.73 1.35 1.27
Return on average common equity................................. 23.1 21.0 21.4 21.3 17.0 15.8
Efficiency ratio................................................ 48.5 50.7 49.9 53.3 58.1 60.4
PER COMMON SHARE:
Primary income from continuing operations before cumulative
effect of changes in accounting principles.................... $ 1.27 $ 1.28 $ 5.34 $ 4.19 $ 2.21 $ 2.46
Income (loss) from discontinued operations.................... -- -- -- -- (.06) .02
Cumulative effect of changes in accounting principles......... -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Primary net income.............................................. $ 1.27 $ 1.28 $ 5.34 $ 4.19 $ 2.15 $ 2.48
--------- --------- --------- --------- --------- ---------
Fully diluted income from continuing operations before
cumulative effect of changes in accounting principles......... $ 1.27 $ 1.26 $ 5.25 $ 4.11 $ 2.20 2.45
Income (loss) from discontinued operations.................... -- -- -- -- (.06) .02
Cumulative effect of changes in accounting principles......... -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Fully diluted net income........................................ $ 1.27 $ 1.26 $ 5.25 $ 4.11 $ 2.14 $ 2.47
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Dividends paid*................................................. $ .4650 $ .4125 $ 1.65 $ 1.45 $ 1.16 $ 1.00
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
AVERAGE BALANCE SHEET DATA:
Loans........................................................... $ 26,908 $ 26,329 $ 26,806 $ 25,383 $ 23,863 $ 21,808
Earning assets.................................................. 31,353 31,371 31,754 29,603 30,265 28,907
Assets.......................................................... 34,918 35,044 35,477 32,886 33,545 32,191
Deposits........................................................ 22,582 23,047 23,443 22,708 24,661 25,637
Long-term debt.................................................. 3,880 3,264 3,393 2,963 2,609 1,633
Common equity................................................... 3,011 3,032 3,085 2,634 2,603 2,409
Total shareholders' equity...................................... 3,011 3,133 3,175 2,739 2,746 2,769
PERIOD END BALANCE SHEET DATA:
Loans........................................................... $ 27,173 $ 26,878 $ 27,128 $ 26,400 $ 24,556 $ 23,497
Assets.......................................................... 36,000 36,572 36,489 33,874 34,128 33,370
Deposits........................................................ 23,423 24,346 24,379 22,514 24,256 26,386
Long-term debt.................................................. 4,257 3,504 3,553 3,201 2,981 2,070
Common equity................................................... 3,001 3,233 3,053 2,622 2,494 2,466
Total shareholders' equity...................................... 3,001 3,329 3,053 2,725 2,612 2,744
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1992
- ---------------------------------------------------------------- ---------
<S> <C>
CONDENSED INCOME STATEMENT:
Net interest income (taxable-equivalent basis).................. $ 1,175.7
Provision for credit losses..................................... 191.7
---------
Net interest income after provision for credit losses......... 984.0
Securities gains (losses)....................................... 46.3
Other nonrecurring gains........................................ --
Other noninterest income........................................ 567.4
Merger-related charges.......................................... 110.4
Other nonrecurring charges...................................... --
Other noninterest expense....................................... 1,135.9
---------
Income from continuing operations before income taxes and
cumulative effect of changes in accounting principles....... 351.4
Taxable-equivalent adjustment................................... 22.7
Income taxes.................................................... 115.7
---------
Income from continuing operations before cumulative effect of
changes in accounting principles............................ 213.0
Income (loss) from discontinued operations...................... 2.7
---------
Income before cumulative effect of changes in accounting
principles.................................................. 215.7
Cumulative effect of changes in accounting principles........... 233.2
---------
Net income.................................................... $ 448.9
---------
---------
FINANCIAL RATIOS:
Return on average assets........................................ 1.56%
Return on average common equity................................. 20.0
Efficiency ratio................................................ 71.5
Net interest margin............................................. 4.54
SELECTED FINANCIAL RATIOS EXCLUDING MERGER-RELATED AND
NONRECURRING ITEMS AND CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES:
Return on average assets........................................ .89
Return on average common equity................................. 10.8
Efficiency ratio................................................ 65.2
PER COMMON SHARE:
Primary income from continuing operations before cumulative
effect of changes in accounting principles.................... $ 1.46
Income (loss) from discontinued operations.................... .02
Cumulative effect of changes in accounting principles......... 1.87
---------
Primary net income.............................................. $ 3.35
---------
Fully diluted income from continuing operations before
cumulative effect of changes in accounting principles......... $ 1.45
Income (loss) from discontinued operations.................... .02
Cumulative effect of changes in accounting principles......... 1.79
---------
Fully diluted net income........................................ $ 3.26
---------
---------
Dividends paid*................................................. $ .88
---------
---------
AVERAGE BALANCE SHEET DATA:
Loans........................................................... $ 19,108
Earning assets.................................................. 25,899
Assets.......................................................... 28,837
Deposits........................................................ 22,953
Long-term debt.................................................. 1,453
Common equity................................................... 2,090
Total shareholders' equity...................................... 2,495
PERIOD END BALANCE SHEET DATA:
Loans........................................................... 20,692
Assets.......................................................... 32,758
Deposits........................................................ 26,395
Long-term debt.................................................. 1,151
Common equity................................................... 2,354
Total shareholders' equity...................................... 2,745
</TABLE>
- --------------------------------------------------------------------------------
* Dividends per share have not been restated for the Metropolitan Financial
Corporation ("MFC") or Colorado National Bankshares, Inc. ("CNB") mergers.
MFC paid common dividends of $25.1 million in 1994 ($.80 per share), $12.1
million in 1993 ($.39 per share) and $7.7 million in 1992 ($.27 per share).
CNB paid common dividends of $3.2 million in 1992 ($.28 per share).
18
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF
U. S. BANCORP
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996 1996 1995 1994 1993 1992(1)
- ------------------------------------------------ --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS
Interest income................................. $ 637.4 $ 600.0 $ 2,483.3 $ 2,392.5 $ 2,074.4 $ 1,962.2 $ 1,944.7
Interest expense................................ 260.5 251.8 1,016.7 993.1 738.7 698.1 825.2
--------- --------- --------- --------- --------- --------- ---------
Net interest income............................. 376.9 348.2 1,466.6 1,399.4 1,335.7 1,264.1 1,119.5
Net interest income (taxable-equivalent)(2)..... 386.8 359.2 1,510.1 1,449.5 1,389.5 1,317.5 1,169.3
Provision for credit losses..................... 45.9 30.1 135.2 124.1 120.1 106.3 148.8
Total noninterest revenues...................... 145.6 144.5 585.2 524.7 552.7 620.3 519.3
Noninterest expenses............................ 287.1 278.8 1,156.6 1,191.9 1,305.1 1,273.4 1,098.1
Merger and integration costs.................... -- 8.4 18.2 98.9 -- -- --
Restructuring charge............................ -- -- -- -- 100.0 -- --
Total noninterest expenses...................... 287.1 287.2 1,174.8 1,290.8 1,405.1 1,273.4 1,098.1
Income before cumulative effect of accounting
changes....................................... 121.5 112.9 478.9 329.0 254.7 341.1 271.5
Cumulative effect of accounting changes......... -- -- -- -- -- -- 59.9
Net income...................................... $ 121.5 $ 112.9 $ 478.9 $ 329.0 $ 254.7 $ 341.1 $ 211.6
PER COMMON SHARE
Income before accounting changes................ $ .80 $ .73 $ 3.08 $ 2.09 $ 1.60 $ 2.23 $ 1.87
Net income...................................... .80 .73 3.08 2.09 1.60 2.23 1.45
Book value...................................... 17.76 16.57 17.40 16.38 15.40 15.23 13.45
Cash dividends declared(3)...................... .31 .28 1.18 1.06 .94 .85 .76
Average common shares outstanding (000's)....... 147,935 150,815 151,313 151,554 151,392 147,518 142,609
FINANCIAL RATIOS
Return on average common equity................. 18.44% 17.67% 17.99% 12.90% 10.62% 15.71% 14.06%
Return on average assets........................ 1.49 1.46 1.50 1.09 .87 1.22 1.07
Overhead ratio.................................. 53.92 57.02 56.07 65.38 72.34 65.71 65.03
Net interest margin............................. 5.31 5.19 5.32 5.38 5.35 5.31 5.17
Average total shareholders' equity to average
assets........................................ 8.36 8.52 8.60 8.63 8.35 8.01 7.50
CAPITAL RATIOS
Leverage capital ratio.......................... 8.36% 7.97% 8.17% 7.89% 7.82% 7.64% 7.10%
Risk-based capital ratios
Tier 1 capital ratio.......................... 8.30 8.25 8.11 8.44 8.72 8.95 8.63
Total capital ratio........................... 11.98 11.52 11.83 11.79 11.38 11.75 11.51
CREDIT QUALITY RATIOS
Nonperforming assets as a % of loans and
foreclosed assets............................. .90% .64% .73% .73% 1.06% 1.44% 1.77%
Allowance as a % of loans....................... 1.90 1.90 1.90 1.91 1.79 1.77 1.81
Allowance as a % of nonperforming loans......... 232 432 320 336 192 144 117
PERIOD END BALANCES
Assets.......................................... $ 33,754.2 $ 31,557.2 $ 33,260.4 $ 31,794.3 $ 30,609.1 $ 29,086.8 $ 27,874.8
Interest-earning assets......................... 30,029.5 28,100.2 29,242.0 27,883.3 27,004.4 25,945.9 24,643.2
Loans........................................... 25,320.5 23,267.3 25,046.7 22,784.8 21,643.4 19,445.3 18,039.8
Deposits........................................ 25,078.8 23,226.7 24,977.0 23,264.7 21,859.3 21,447.7 21,061.6
Long-term debt.................................. 1,950.2 1,354.4 1,811.5 1,377.0 1,244.2 1,161.2 1,437.2
Capital qualifying securities................... 300.0 -- 300.0 -- -- -- --
Common shareholders' equity..................... 2,632.1 2,489.0 2,560.8 2,467.0 2,343.0 2,291.7 1,971.1
Preferred stock................................. 150.0 150.0 150.0 150.0 150.0 150.0 150.0
Full-time equivalent employees.................. 14,244 14,089 14,055 14,081 15,388 17,340 16,273
</TABLE>
- --------------------------------------------------------------------------------
(1) 1992 net income includes a $59.9 million after-tax charge from the adoption
of Statement of Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and SFAS No.
112, "Employers' Accounting for Postemployment Benefits." 1992 income before
accounting changes per common share on a primary and fully diluted basis was
$1.84 and $1.79, respectively; net income per share on a primary and fully
diluted basis was $1.42 and $1.40, respectively. Dilution was not material
in the other periods represented. 1992 returns on average common equity and
assets were computed before accounting changes. After accounting changes,
return on average assets was .84% and return on average common equity was
11.25%.
(2) Includes taxable-equivalent adjustment related to income on certain loans
and securities that is exempt from federal and applicable state income
taxes. The federal statutory tax rate was 34% for 1992 and 35% for
subsequent years presented.
(3) Dividends per share are based on historical USBC common cash dividends
declared.
19
<PAGE>
PRO FORMA SELECTED FINANCIAL DATA
REFLECTING THE MERGER OF FIRST BANK SYSTEM, INC. AND U. S. BANCORP
The following table presents selected unaudited financial data for the
combined company prepared on a pro forma basis. The pro forma income statement
items have been prepared assuming the Merger occurred at the beginning of the
periods presented. The pro forma income statement items and related per share
amounts do not include anticipated revenue enhancements, operating cost savings
or the after-tax impact of merger-related costs expected as a result of the
Merger.
The pro forma balance sheet items give effect to the Merger as if it
occurred at the beginning of the period presented and includes adjustments to
reflect the after-tax impact of merger-related costs. See "INCORPORATION OF
CERTAIN INFORMATION BY REFERENCE" and "UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION."
PRO FORMA SELECTED HISTORICAL FINANCIAL DATA
FIRST BANK SYSTEM, INC. AND U. S. BANCORP
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996 1996 1995 1994
- ---------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT:
Net interest income (taxable-equivalent basis)............ $ 771.6 $ 738.5 $ 3,063.7 $ 2,903.5 $ 2,824.0
Provision for credit losses............................... 82.9 61.1 271.2 239.1 243.7
--------- --------- --------- --------- ---------
Net interest income after provision for credit
losses................................................ 688.7 677.4 2,792.5 2,664.4 2,580.3
Security gains (losses)................................... 1.7 18.0 20.8 3.0 (124.2)
Other nonrecurring gains.................................. 5.0 171.1 358.4 48.0 47.2
Other noninterest income.................................. 364.7 338.9 1,391.7 1,256.8 1,188.6
Merger and restructuring charges.......................... -- 78.3 88.1 98.9 225.3
Other nonrecurring charges................................ -- 56.9 118.2 38.2 27.2
Other noninterest expense................................. 583.1 576.4 2,356.6 2,359.6 2,502.0
--------- --------- --------- --------- ---------
Income from continuing operations before income
taxes................................................. 477.0 493.8 2,000.5 1,475.5 937.4
Taxable-equivalent adjustment............................. 14.7 15.7 64.1 63.9 68.9
Income taxes.............................................. 169.0 188.4 717.7 514.5 300.3
--------- --------- --------- --------- ---------
Income from continuing operations..................... $ 293.3 $ 289.7 $ 1,218.7 $ 897.1 $ 568.2
--------- --------- --------- --------- ---------
FINANCIAL RATIOS:
Return on average assets.................................. 1.75% 1.76% 1.81% 1.42% .89%
Return on average common equity........................... 22.8 22.6 23.0 18.9 12.1
Efficiency ratio.......................................... 51.1 57.0 53.2 59.3 67.8
Net interest margin....................................... 5.15 5.02 5.09 5.14 5.02
SELECTED FINANCIAL RATIOS EXCLUDING MERGER AND
RESTRUCTURING CHARGES AND OTHER NONRECURRING ITEMS:
Return on average assets.................................. 1.72 1.64 1.67 1.50 1.23
Return on average common equity........................... 22.5 21.0 21.2 20.1 16.8
Efficiency ratio.......................................... 51.3 53.5 52.9 56.7 62.4
PER COMMON SHARE:
Primary income from continuing operations................. $ 1.17 $ 1.13 $ 4.74 $ 3.51 $ 2.16
Fully diluted income from continuing operations........... 1.16 1.12 4.67 3.43 2.14
Dividends paid............................................ .4650 .4125 1.65 1.45 1.16
AVERAGE BALANCE SHEET DATA:
Loans..................................................... $ 52,324 $ 49,450 $ 50,855 $ 47,703 $ 44,584
Earning assets............................................ 60,771 59,163 60,192 56,532 56,205
Assets.................................................... 68,010 66,257 67,491 63,173 62,797
Deposits.................................................. 47,160 46,197 47,252 44,727 46,147
Long-term debt............................................ 5,751 4,629 4,908 4,162 3,796
Common equity............................................. 5,165 5,083 5,229 4,640 4,437
Total shareholders' equity................................ 5,315 5,334 5,469 4,895 4,730
PERIOD END BALANCE SHEET DATA:
Loans..................................................... $ 52,747 $ 50,299 $ 52,355 $ 49,345 $ 46,375
Assets.................................................... 69,843 68,218 69,838 65,757 64,826
Deposits.................................................. 48,502 47,573 49,356 45,779 46,115
Long-term debt............................................ 6,207 4,858 5,364 4,578 4,225
Common equity............................................. 5,183 5,272 5,164 4,639 4,387
Total shareholders' equity................................ 5,333 5,518 5,314 4,892 4,655
</TABLE>
20
<PAGE>
RATIOS OF EARNINGS TO FIXED CHARGES
The following are the consolidated ratios of earnings to fixed charges for
FBS for the three months ended March 31, 1997 and for each of the years in the
five-year period ended December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED ------------------------------------------
MARCH 31, 1997 1996 1995 1994 1993
----------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges:
Excluding interest on deposits.......................... 3.20 3.50 3.11 2.68 4.06
Including interest on deposits.......................... 1.97 2.04 1.80 1.56 1.69
<CAPTION>
1992
---------
<S> <C>
Ratio of Earnings to Fixed Charges:
Excluding interest on deposits.......................... 2.71
Including interest on deposits.......................... 1.33
</TABLE>
For purposes of computing the consolidated ratios, earnings represent the
net income of FBS plus applicable income taxes and fixed charges, less
capitalized interest. Fixed charges represent interest expense (exclusive of
interest on deposits in one case and inclusive of such interest in the other),
capitalized interest, amortization of debt discount and appropriate issuance
costs and the interest component of net rent expense under all lease
commitments.
21
<PAGE>
FBS SPECIAL MEETING
GENERAL
This Joint Proxy Statement-Prospectus is being furnished to FBS Shareholders
as part of the solicitation of proxies by the FBS Board for use at the FBS
Special Meeting to be held on Thursday, July 31, 1997 at First Bank on Marquette
Avenue, 10th Floor Auditorium, 90 South Sixth Street, Minneapolis, Minnesota.
This Joint Proxy Statement-Prospectus and the accompanying Proxy Card are first
being mailed to holders of FBS Common Stock on or about June 23, 1997.
The purpose of the FBS Special Meeting is to consider and vote upon (a) a
proposal to approve and adopt the Merger Agreement, pursuant to which, among
other things, (i) USBC will be merged with and into FBS, with FBS as the
surviving corporation, (ii) each outstanding share of USBC Common Stock will be
converted into the right to receive 0.755 of a share of New USBC Common Stock
(with cash paid in lieu of fractional shares), (iii) each outstanding share of
USBC 8 1/8% Preferred Stock, will be converted into one share of New USBC 8 1/8%
Preferred Stock, having terms substantially identical to the USBC 8 1/8%
Preferred Stock and (iv) the FBS Certificate will be amended to increase the
number of authorized shares of FBS Common Stock from 200,000,000 to 500,000,000
and to change the name of FBS to "U.S. Bancorp", such amendment to be effective
at the Effective Time; (b) a proposal to approve an amendment to the FBS
Certificate to increase the maximum number of FBS directors to 30 and to exempt
from the 80% shareholder voting requirement any future amendment to the FBS
Certificate to reduce the maximum number of FBS directors to not less than the
greater of (i) the number of directors then in office and (ii) 24, such
amendment to be effective at the Effective Time; and (c) a proposal to approve
the 1997 Plan.
Pursuant to the Merger Agreement, holders of USBC Common Stock would be
entitled to receive 0.755 of a share of New USBC Common Stock for each share of
USBC Common Stock held as of the Effective Date. Based on the number of shares
of USBC Common Stock outstanding on the USBC Record Date, consummation of the
Merger would result in the issuance of 110,859,907 shares of New USBC Common
Stock, or approximately 45.3% of the total number of shares of New USBC Common
Stock after the consummation of the Merger (based on the number of FBS Common
Stock outstanding on the FBS Record Date). Based on the total number of shares
and rights to acquire shares of USBC Common Stock outstanding on the USBC Record
Date, a maximum aggregate of 113,979,980 shares of New USBC Common Stock could
be issued in the Merger, or approximately 44.3% of the New USBC Common Stock
outstanding after consummation of the Merger (based on the number of shares of
FBS Common Stock and rights to acquire shares of FBS Common Stock outstanding on
the FBS Record Date).
The principal purpose and effect of the amendment to increase the authorized
number of shares of FBS Common Stock from 200,000,000 to 500,000,000 will be to
provide for a sufficient number of shares of New USBC Common Stock for issuance
to shareholders of USBC in the Merger and to authorize additional shares of
common stock that may be issued upon the approval of the FBS Board without
further shareholder approval. See "AMENDMENTS TO FBS CERTIFICATE OF
INCORPORATION."
While the FBS Board recommends that FBS Shareholders vote "FOR" approval of
the FBS Board Expansion Amendment and the 1997 Plan, the approval and adoption
of the Merger Agreement and consummation of the Merger are not contingent upon
the approval of the FBS Board Expansion Amendment or the 1997 Plan. The Merger
is subject to a number of conditions, including the receipt of required
regulatory and shareholder approvals. See "THE MERGER--Conditions to the Merger"
and "--Regulatory Matters."
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
FBS Shareholders as of the FBS Record Date are entitled to notice of and to
vote at the FBS Special Meeting and any adjournment or postponement thereof.
Accordingly, only holders of record of shares of
22
<PAGE>
FBS Common Stock at the close of business on such date will be entitled to vote
at the FBS Special Meeting and any adjournment or postponement thereof, with
each share entitling its owner to one vote on all matters properly presented at
the FBS Special Meeting and any adjournment or postponement thereof. On the FBS
Record Date, there were approximately 22,023 holders of record of the
133,606,498 shares of FBS Common Stock then outstanding.
Although the FBS Bylaws require the presence, in person or by proxy, of not
less than one-third of the total number of outstanding shares of FBS Common
Stock entitled to vote at the FBS Special Meeting for purposes of a quorum at
the FBS Special Meeting, under Delaware law, the Merger Agreement must be
approved and adopted by the holders of a majority of the outstanding shares of
FBS Common Stock. Such approval would also satisfy the NYSE requirement that the
issuance of New USBC Common Stock contemplated by the Merger Agreement must be
approved by a majority of the votes cast at the FBS Special Meeting and that at
least 50% of the votes entitled to be cast on the matter are voted at the FBS
Special Meeting. With respect to the FBS Board Expansion Amendment, the FBS
Certificate requires approval of the holders of at least 80% of the outstanding
shares of FBS Common Stock entitled to vote. Approval of the 1997 Plan requires
the affirmative vote of the holders of a majority of the shares of FBS Common
Stock represented and entitled to vote, assuming that at least 50% of the votes
entitled to be cast on the matter are voted at the FBS Special Meeting.
If an executed Proxy Card is returned and the shareholder has explicitly
abstained from voting on any matter, the shares represented by such proxy will
be considered present at the FBS Special Meeting for purposes of determining a
quorum and for purposes of calculating the vote, but will not be considered to
have been voted in favor of such matter. Under the rules of the NYSE, brokers
who hold shares in street name for customers who are the beneficial owners of
such shares are prohibited from giving a proxy to vote shares held for such
customers without specific instructions from such customers. Given that the DGCL
requires the affirmative vote of the holders of a majority of the outstanding
shares of FBS Common Stock to approve and adopt the Merger Agreement, and that
the FBS Certificate requires the approval of the holders of at least 80% of the
outstanding shares of FBS Common Stock to approve the FBS Board Expansion
Amendment, any abstention and any failure of such customers to provide specific
instructions with respect to their shares of FBS Common Stock to their broker
will have the same effect as a vote against the approval and adoption of the
Merger Agreement and approval of the FBS Board Expansion Amendment. With respect
to the approval of the 1997 Plan, given that the affirmative vote of the holders
of a majority of the shares of FBS Common Stock represented at the FBS Special
Meeting and entitled to vote is necessary for approval of the 1997 Plan, an
abstention will have the same effect as a vote against the approval of the 1997
Plan; however, with respect to brokers who hold the shares in street name for
customers, the failure of such customers to provide specific instructions with
respect to their shares of FBS Common Stock to their broker will be treated as
if such shares are not represented at the FBS Special Meeting. FAILURE TO RETURN
A PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE FBS SPECIAL MEETING WILL HAVE
THE SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT, THE FBS BOARD EXPANSION
AMENDMENT AND THE 1997 PLAN.
It is currently expected that all of the 2,117,985 shares of FBS Common
Stock which the directors and executive officers of FBS beneficially owned and
were entitled to vote as of the FBS Record Date (1.6% of the total number of
outstanding shares of FBS Common Stock as of such date) will be voted for
approval and adoption of the Merger Agreement and approval of the FBS Board
Expansion Amendment and the 1997 Plan. As of the FBS Record Date, the banking
and trust subsidiaries of FBS, as fiduciaries, custodians and agents, held a
total of 3,645,409 shares, or approximately 2.7% of the outstanding shares, of
FBS Common Stock under trust agreements and other instruments and agreements for
various beneficiaries. These entities maintained sole or shared voting power
with respect to 3,523,705 of these shares, which represented 2.6% of the
outstanding shares of FBS Common Stock on the FBS Record Date. In addition, as
of the FBS Record Date, the banking and trust subsidiaries of USBC, as
fiduciaries, custodians and agents, held a total of 28,536 shares, or less than
one percent of the outstanding shares, of FBS Common
23
<PAGE>
Stock under trust agreements and other instruments and agreements for various
beneficiaries. As of the FBS Record Date, USBC did not beneficially own any
shares of FBS Common Stock (excluding shares issuable to USBC under certain
conditions as described under "THE MERGER--Stock Option Agreements"). Also as of
the FBS Record Date, directors and executive officers of USBC beneficially owned
and were entitled to vote 1,171 shares of FBS Common Stock, or less than one
percent of the shares entitled to be voted at the FBS Special Meeting.
If the accompanying Proxy Card is properly executed and returned to FBS in
time to be voted at the FBS Special Meeting, the shares represented thereby will
be voted in accordance with the instructions marked thereon. EXECUTED BUT
UNMARKED PROXIES WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND APPROVAL OF THE FBS BOARD EXPANSION AMENDMENT AND THE 1997 PLAN. The FBS
Board does not know of any matters other than those described in the notice of
the FBS Special Meeting that are to come before the FBS Special Meeting. If any
other matters are properly brought before the FBS Special Meeting, including,
among other things, a motion to adjourn or postpone the FBS Special Meeting to
another time and/or place for the purpose of soliciting additional proxies in
favor of the proposal to approve and adopt the Merger Agreement or to approve
the FBS Board Expansion Amendment or the 1997 Plan or to permit dissemination of
information regarding material developments relating to the Merger or otherwise
germane to the FBS Special Meeting, one or more of the persons named in the
Proxy Card will vote the shares represented by such proxy upon such matters as
determined in their discretion; provided, however, that no proxy that is voted
against the proposal to approve and adopt the Merger Agreement will be voted in
favor of any such adjournment or postponement for the purpose of soliciting
additional proxies.
The presence of a shareholder at the FBS Special Meeting will not
automatically revoke such shareholder's proxy. Any proxy given pursuant to this
solicitation may be revoked by the person giving it by giving written notice of
such revocation to the Secretary of FBS at any time before it is voted, by
delivering to FBS a duly executed, later-dated proxy or by attending the FBS
Special Meeting and voting in person. All written notices of revocation and
other communications with respect to revocation of FBS proxies should be
addressed to Lee R. Mitau, Secretary, First Bank System, Inc., First Bank Place,
601 Second Avenue South, Minneapolis, Minnesota 55402-4302.
The cost of soliciting proxies for the FBS Special Meeting will be borne by
FBS, except that the cost of preparing and mailing this Joint Proxy
Statement-Prospectus will be borne equally by FBS and USBC. In addition to use
of the mails, proxies may be solicited personally or by telephone, telegraph,
facsimile or other means of communication by directors, officers and employees
of FBS, who will not be specially compensated for such activities, but who may
be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. FBS will also request persons, firms and companies holding shares
in their names or in the name of their nominees, which are beneficially owned by
others, to send proxy materials to and obtain proxies from such beneficial
owners. FBS will reimburse such persons for their reasonable expenses incurred
in that connection. FBS has retained MacKenzie Partners, Inc. to assist in the
solicitation of proxies at a cost of approximately $17,500, plus customary
expenses.
RECOMMENDATION OF FBS BOARD
The FBS Board, with one director absent, has unanimously approved the Merger
Agreement and the transactions contemplated thereby, the FBS Board Expansion
Amendment and the 1997 Plan. The FBS Board believes that the Merger, the FBS
Board Expansion Amendment and the 1997 Plan are in the best interests of FBS and
its shareholders and unanimously recommends that FBS Shareholders vote "FOR"
approval and adoption of the Merger Agreement and approval of the FBS Board
Expansion Amendment and the 1997 Plan. See "THE MERGER--Reasons of FBS for the
Merger," "AMENDMENTS TO FBS RESTATED CERTIFICATE OF INCORPORATION" and "PROPOSAL
TO APPROVE THE NEW USBC 1997 STOCK INCENTIVE PLAN."
24
<PAGE>
USBC ANNUAL MEETING
GENERAL
This Joint Proxy Statement-Prospectus is being furnished to holders of USBC
Common Stock as part of the solicitation of proxies by the USBC Board for use at
the USBC Annual Meeting to be held on Thursday, July 31, 1997 at 10:00 a.m.,
local time, in the Ballroom of the Multnomah Athletic Club, 1849 S.W. Salmon,
Portland, Oregon. This Joint Proxy Statement-Prospectus and the accompanying
Proxy Card are first being mailed to holders of USBC Common Stock on or about
June 23, 1997.
The purpose of the USBC Annual Meeting is to consider and vote upon a
proposal to approve the Merger Agreement. Also at the USBC Annual Meeting,
holders of USBC Common Stock will consider and vote upon (i) the election of
directors to serve until the earlier of the next annual meeting of USBC
shareholders or the Effective Time and (ii) a proposal to approve the selection
of the independent auditors for USBC for USBC's fiscal year ending December 31,
1997 or, if the Merger is consummated prior to December 31, 1997, for the period
prior to the Effective Date.
The Merger is subject to a number of conditions, including the receipt of
required regulatory and shareholder approvals. See "THE MERGER--Conditions to
the Merger" and "--Regulatory Matters."
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
Holders of USBC Common Stock as of the USBC Record Date are entitled to
notice of and to vote at the USBC Annual Meeting and any adjournments or
postponements thereof. Accordingly, only holders of record of shares of USBC
Common Stock at the close of business on such date will be entitled to vote at
the USBC Annual Meeting and any adjournments or postponements thereof, with each
share entitling its owner to one vote on all matters properly presented at the
USBC Annual Meeting and any adjournments or postponements thereof. On the USBC
Record Date, there were 20,821 holders of record of the 146,834,315 shares of
USBC Common Stock then outstanding. Under Oregon law, the Merger Agreement must
be approved and adopted by the holders of a majority of outstanding shares of
USBC Common Stock. Directors of USBC will be elected by a plurality of the votes
cast by the shares of USBC Common Stock entitled to vote in the election at the
USBC Annual Meeting, provided a quorum of at least a majority of the votes
entitled to be cast at the meeting is present. A majority of the shares of USBC
Common Stock represented at the USBC Annual Meeting may approve the selection of
the independent auditors of USBC. If a majority of such shares do not vote to
approve the selection, the USBC Board will reconsider the selection.
If an executed Proxy Card is returned and the shareholder has explicitly
abstained from voting on any matter, the shares represented by such proxy will
be considered present at the USBC Annual Meeting for purposes of determining the
presence of a quorum and for purposes of calculating the vote, but will not be
considered to have been voted in favor of such matter. In addition, brokers who
hold shares in street name for customers who are the beneficial owners of such
shares are prohibited from giving a proxy to vote shares held for such customers
without specific instructions from such customers. Given that the OBCA requires
the affirmative vote of the holders of a majority of the outstanding shares of
USBC Common Stock entitled to vote on the proposal to approve the Merger
Agreement, if such customers fail to provide specific instructions with respect
to their shares of USBC Common Stock to their broker or such shareholders
explicitly abstain from voting on the proposals, the effect will be the same as
a vote against the approval of the Merger Agreement. FAILURE TO RETURN A
PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE USBC ANNUAL MEETING WILL HAVE THE
SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT.
It is currently expected that all of the 12,689,137 shares of USBC Common
Stock which the directors and executive officers of USBC beneficially owned and
were entitled to vote as of the USBC Record Date (8.6% of the total number of
outstanding shares of USBC Common Stock as of such date) will be voted for
approval of the Merger Agreement. In particular, in connection with the
execution of the Merger Agreement, Joshua Green III and Harry L. Bettis,
directors of USBC who beneficially owned at the USBC Record Date approximately
5.7% and approximately 2.0% of the outstanding USBC Common Stock,
25
<PAGE>
respectively, delivered letters (together, the "Shareholder Letters") to USBC
and FBS. In the Shareholder Letters, each of Messrs. Green and Bettis stated his
respective intention to use reasonable best efforts to vote or cause to be voted
in favor of the Merger all shares of USBC Common Stock owned or controlled by
him. As of the USBC Record Date, the banking and trust subsidiaries of USBC, as
fiduciaries, custodians and agents, held a total of 15,792,595 shares, or
approximately 10.8% of the outstanding shares, of USBC Common Stock under trust
agreements and other instruments and agreements for various beneficiaries. These
entities maintained sole or shared voting power with respect to 1,807,993 of
such shares, which represented approximately 1.2% of the outstanding shares of
USBC Common Stock on the USBC Record Date. In addition, as of the USBC Record
Date, the banking and trust subsidiaries of FBS, as fiduciaries, custodians and
agents, held a total of 73,564 shares, or less than one percent of the
outstanding shares, of USBC Common Stock under trust agreements and other
instruments and agreements for various beneficiaries. As of the USBC Record
Date, FBS was the beneficial owner of 100 shares of USBC Common Stock (excluding
shares issuable to FBS under certain conditions as described under "THE
MERGER--Stock Option Agreements"). Also as of the USBC Record Date, directors
and executive officers of FBS did not beneficially own any shares of USBC Common
Stock entitled to be voted at the USBC Annual Meeting.
If the accompanying Proxy Card is properly executed and returned to USBC in
time to be voted at the USBC Annual Meeting, the shares represented thereby will
be voted in accordance with the instructions marked thereon. EXECUTED BUT
UNMARKED PROXIES WILL BE VOTED FOR APPROVAL OF THE MERGER AGREEMENT AND FOR
APPROVAL OF THE SELECTION OF USBC'S INDEPENDENT AUDITORS. The USBC Board does
not know of any matters other than those described in the notice of the USBC
Annual Meeting that are to come before the USBC Annual Meeting. If any other
matters are properly brought before the USBC Annual Meeting, including, among
other things, a motion to adjourn or postpone the USBC Annual Meeting to another
time and/or place for the purpose of soliciting additional proxies in favor of
the proposal to approve the Merger Agreement or to permit dissemination of
information regarding material developments relating to the Merger or otherwise
germane to the USBC Annual Meeting, one or more of the persons named in the
Proxy Card will vote the shares represented by such proxy upon such matters as
determined in their discretion; provided, however, that no proxy that is voted
against the proposal to approve the Merger Agreement will be voted in favor of
any such adjournment or postponement for the purpose of soliciting additional
proxies.
The presence of a shareholder at the USBC Annual Meeting will not
automatically revoke such shareholder's proxy. Any proxy given pursuant to this
solicitation may be revoked by the person giving it by giving written notice of
such revocation to the Secretary of USBC at any time before it is voted, by
delivering to USBC a duly executed, later-dated proxy, by delivering to any
other person a duly executed, later dated proxy that such other person uses to
vote at the USBC Annual Meeting or by attending the USBC Annual Meeting and
voting in person. All written notices of revocation and other communications
with respect to revocation of USBC proxies should be addressed to First Chicago
Trust Company of New York, Attention: Inspectors of Election, P.O. Box 8640,
Edison, New Jersey 08818-9142.
The cost of soliciting proxies for the USBC Annual Meeting will be borne by
USBC, except that the cost of preparing and mailing this Joint Proxy
Statement-Prospectus will be borne equally by USBC and FBS. In addition to use
of the mails, proxies may be solicited personally or by telephone, telegraph,
facsimile or other means of communication by directors, officers and employees
of USBC, who will not be specially compensated for such activities, but who may
be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. USBC will also request persons, firms and companies holding shares
in their names or in the name of their nominees, which are beneficially owned by
others, to send proxy materials to and obtain proxies from such beneficial
owners. USBC will reimburse such persons for their reasonable expenses incurred
in that connection. USBC has retained Beacon Hill Partners, Inc. to assist in
the solicitation of proxies at a cost of approximately $5,000 plus customary
expenses.
RECOMMENDATION OF USBC BOARD
The USBC Board (with one director absent) has unanimously approved the
Merger Agreement and the transactions contemplated thereby. The USBC Board
believes that the Merger Agreement is in the best interests of USBC and its
shareholders and unanimously recommends that USBC Shareholders vote "FOR"
approval of the Merger Agreement. See "THE MERGER--Reasons of USBC for the
Merger."
26
<PAGE>
THE MERGER
THE FOLLOWING SUMMARY OF CERTAIN TERMS AND PROVISIONS OF THE MERGER
AGREEMENT, WHICH DESCRIBES ALL MATERIAL TERMS AND PROVISIONS THEREOF, IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OTHER INFORMATION CONTAINED
ELSEWHERE IN THIS JOINT PROXY STATEMENT-PROSPECTUS INCLUDING THE APPENDICES
HERETO AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. A COPY OF THE MERGER
AGREEMENT (EXCLUDING THE EXHIBITS AND SCHEDULES THERETO) IS SET FORTH IN
APPENDIX A TO THIS JOINT PROXY STATEMENT-PROSPECTUS AND IS INCORPORATED HEREIN
BY REFERENCE, AND REFERENCE IS MADE THERETO FOR A COMPLETE DESCRIPTION OF THE
TERMS OF THE MERGER. SHAREHOLDERS ARE URGED TO READ THE MERGER AGREEMENT AND
EACH OF THE OTHER APPENDICES HERETO CAREFULLY.
DESCRIPTION OF THE MERGER
At the Effective Time, (i) USBC will merge with and into FBS and the
separate corporate existence of USBC will cease and (ii) FBS will survive and
continue to exist as a Delaware corporation. Subject to the satisfaction or
waiver of certain conditions set forth in the Merger Agreement and described
more fully in "--Conditions to the Merger," the Merger will become effective
upon the filing of articles and a certificate of merger in the offices of the
Secretaries of State of Oregon and Delaware, respectively, or at such later date
and time as may be set forth in the articles or certificate of merger, in
accordance with Section 60.494 of the OBCA and Section 252 of the DGCL. The
Merger will have the effects prescribed in Section 60.497 of the OBCA and
Section 259 of the DGCL and the certificate of incorporation and bylaws of the
surviving corporation will be those of FBS, as in effect immediately prior to
the Effective Time, as amended as of the Effective Time to effect the amendments
to the FBS Certificate contemplated by the terms of the Merger Agreement
(subject, in the case of the FBS Board Expansion Amendment, to FBS shareholder
approval of such amendment). Accordingly, upon consummation of the Merger, the
name of FBS will be changed to "U.S. Bancorp" (referred to herein as "New
USBC").
At the Effective Time, automatically by virtue of the Merger and without any
action on the part of any party or shareholder, each share of USBC Common Stock
(excluding shares of USBC Common Stock held by USBC, FBS or any of their
respective subsidiaries, in each case other than in a fiduciary capacity or as a
result of debts previously contracted in good faith (such shares, and any shares
of USBC capital stock similarly held, "Treasury Shares")), issued and
outstanding immediately prior to the Effective Time will become and be converted
into the right to receive 0.755 of a share of New USBC Common Stock; provided
that, in the event FBS changes (or establishes a record date for changing) the
number of shares of FBS Common Stock issued and outstanding prior to the
Effective Date as a result of a stock split, stock dividend, recapitalization or
similar transaction with respect to the outstanding FBS Common Stock and the
record date of such transaction is prior to the Effective Date, the Exchange
Ratio will be proportionately adjusted.
In addition, at the Effective Time (1) each share of USBC 8 1/8% Preferred
Stock (excluding any Treasury Shares) issued and outstanding immediately prior
to the Effective Time will become and be converted into one share of New USBC
8 1/8% Preferred Stock, having terms substantially identical to those of the
USBC 8 1/8% Preferred Stock; (2) the shares of FBS Common Stock outstanding
immediately prior to the Effective Time will continue to be outstanding after
the Effective Time and will constitute shares of New USBC Common Stock; and (3)
each of the shares of USBC Common Stock held as Treasury Shares immediately
prior to the Effective Time will be canceled and retired at the Effective Time
and no consideration will be issued in exchange therefor. Also at the Effective
Time, all USBC Employee Stock Options, which are then outstanding and
unexercised, will cease to represent a right to acquire shares of USBC Common
Stock and will be converted automatically into options to purchase shares of New
USBC Common Stock, and New USBC will assume each USBC Employee Stock Option
subject to the terms of any of the relevant stock option plans of USBC and the
agreements evidencing grants, including but not limited to the accelerated
vesting of such options which will occur in connection with and by virtue of the
Merger as and to the extent required by such plans and agreements; provided,
however, that from and after the Effective Time, (i) the number of shares of New
USBC Common Stock purchasable upon
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exercise of such USBC Employee Stock Option will be equal to the number of
shares of USBC Common Stock that were purchasable under such USBC Employee Stock
Option immediately prior to the Effective Time multiplied by the Exchange Ratio,
and rounding to the nearest whole share and (ii) the per share exercise price
under each such USBC Employee Stock Option will be adjusted by dividing the per
share exercise price of each such USBC Employee Stock Option by the Exchange
Ratio, and rounding down to the nearest cent. Notwithstanding the foregoing,
each USBC Employee Stock Option which is intended to be an "incentive stock
option" (as defined in Section 422 of the Code) will be adjusted in accordance
with the requirements of Section 424 of the Code and, with respect to any such
incentive stock options, fractional shares will be rounded down to the nearest
whole number of shares and where necessary the per share exercise price will be
rounded down to the nearest cent. Each USBC Employee Stock Option will, in
accordance with its terms, be subject to further adjustment as appropriate to
reflect any stock split, stock dividend, recapitalization or other similar
transaction with respect to New USBC Common Stock on or subsequent to the
Effective Date. See "PROPOSAL TO APPROVE THE NEW USBC 1997 STOCK INCENTIVE
PLAN."
FBS may, at any time prior to the Effective Time, change the method of
effecting the combination with USBC if and to the extent it deems such change to
be desirable, including, without limitation, to provide for a merger of USBC
with or into a wholly-owned subsidiary of FBS, in which either USBC or such
subsidiary is the surviving corporation; provided, however, that no such change
will (i) alter or change the amount or kind of consideration to be issued to
USBC Shareholders as provided for in the Merger Agreement (the "Merger
Consideration"), (ii) adversely affect the tax treatment of USBC Shareholders as
a result of receiving the Merger Consideration or (iii) materially impede or
delay consummation of the transactions contemplated by the Merger Agreement.
BACKGROUND OF THE MERGER
In recent years, FBS has from time to time explored potential business
combinations with other financial institutions it viewed to be strategic
acquisition candidates. In November of 1995, FBS entered into a merger agreement
with First Interstate Bancorp. This agreement was subsequently terminated and
First Interstate Bancorp was ultimately acquired by Wells Fargo & Co. Both
before and after entering into this agreement with First Interstate Bancorp,
since 1993 FBS has considered USBC to be a preferred potential merger partner.
USBC has traditionally pursued a strategy of growing its business through
internal growth, selected regional expansion by acquisition and enhancing
earnings by, among other things, re-engineering its operations. In connection
with this strategy, USBC management has focused on the changing pace of
consolidation and technological and regulatory change in the banking industry,
and has continually evaluated the steps that would be necessary to assure that
USBC remained a competitive and strong institution. Prior to the negotiations
with FBS as described in this section, USBC did not pursue negotiations with
other parties related to being acquired in a business combination.
In November and December of 1996, John F. Grundhofer, Chairman, President
and Chief Executive Officer of FBS, contacted Gerry B. Cameron, Chairman,
President and Chief Executive Officer of USBC, regarding FBS's interest in
pursuing a possible business combination between FBS and USBC, and suggested to
Mr. Cameron in general terms how a potential merger might be structured.
In December 1996, USBC retained CSFB as its financial advisor in order to
assist USBC in connection with USBC's consideration of its various strategic
alternatives. At a USBC Board meeting on February 20, 1997, Mr. Cameron
described to the USBC Board the various preliminary expressions of interest USBC
had received from time to time from other institutions (none of which proceeded
beyond exploratory contacts), including the contacts by Mr. Grundhofer, and CSFB
described the range of opportunities available to USBC both on a stand-alone
basis and as a strategic merger partner, which included several hypothetical
scenarios involving business combinations between USBC and other banking
institutions as well as potential business strategies, including, without
limitation, acquisitions of other banking franchises and non-banking companies,
that USBC might implement as a stand-alone entity.
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There was an extensive discussion among the directors concerning the
desirability of continuing to hold discussions with FBS of the nature Mr.
Cameron outlined. There was also a discussion of USBC's ongoing business
opportunities and of the significant investments in technology that would be
required for USBC to meet its future objectives on a stand-alone basis. The
Board determined at this meeting that it had not been presented with a
sufficiently well defined alternative to warrant changing USBC's existing
business strategy, and therefore determined not to actively pursue further
negotiations with FBS or any potential merger partner. Following the meeting Mr.
Cameron was contacted by several USBC directors, each of whom had participated
in the meeting, who encouraged him to continue to investigate USBC's strategic
alternatives, including further discussions with FBS concerning the terms of a
potential strategic combination between USBC and FBS.
Messrs. Grundhofer and Cameron held additional discussions concerning the
terms of a potential transaction. Robert D. Sznewajs, Vice Chairman of USBC, and
Philip G. Heasley, Vice Chairman of FBS, engaged in additional discussions about
business issues in a potential combination of USBC and FBS, including issues
relating to management, technology and the anticipated integration process.
On March 1, 1997, Messrs. Grundhofer and Cameron met and discussed, among
other things, the potential composition of the Board of Directors and senior
management of a combined company. In addition, during the period between
February 20 and March 11, other discussions continued between the senior
managements of the two companies.
At the March 11, 1997 meeting of the USBC Board, Mr. Cameron described the
further discussions between the parties, USBC's senior management made
presentations which set forth the reasons for the Merger and the potential
benefits to USBC and its shareholders from the Merger, USBC's legal advisors
reviewed the USBC Board's obligations in consideration thereof, and USBC's
financial advisors discussed the strategic, business and operational fit,
rationale and financial aspects of the transaction. As a result of these
presentations and its discussions thereof, at the conclusion of its March 11,
1997 meeting, the USBC Board authorized negotiations with FBS regarding a
potential business combination.
Later on March 11, 1997, FBS and USBC entered into a customary
confidentiality agreement containing a "standstill" provision pursuant to which
each party agreed, for a period of two years following the date of such
agreement, not to take certain actions relating to an acquisition of the other
party's assets or securities without such other party's consent. Following the
execution and delivery of the confidentiality agreement, each of USBC and FBS
began its due diligence review of the other and discussions between the senior
managements and representatives of the companies continued. During this period,
the Exchange Ratio was determined through arm's-length negotiations between the
parties. Certain other terms of the Merger were also determined during this
period, including the makeup of the board of directors of the combined company
following the Merger, the positions and responsibilities of Messrs. Cameron,
Sznewajs, and Duim in the combined company, the level of employee benefits and
severance payments payable to employees and the level of the combined company's
charitable commitments to USBC communities. Also during this period, the Merger
Agreement, the Employment Agreements and the Stock Option Agreements were
drafted, discussed and negotiated by the parties and their respective
representatives.
On March 19, 1997, at a special meeting of the FBS Board, Mr. Grundhofer and
senior management of FBS reviewed the reasons for and the potential benefits of
the Merger and updated the FBS Board on discussions with USBC; FBS's general
counsel and legal advisors reviewed the terms of the Merger Agreement, the
Employment Agreements and the Stock Option Agreements; and Merrill Lynch made a
presentation regarding the financial terms of the Merger and the fairness, from
a financial point of view, of the Exchange Ratio to the holders of FBS Common
Stock. See "--Opinion of FBS's Financial Advisor." After discussions and
detailed consideration of the Merger Agreement, the Employment Agreements and
the Stock Option Agreements and of the factors discussed below under "--Reasons
of FBS for the Merger," the FBS Board (with one director absent) unanimously
approved and authorized the execution of the Merger Agreement, the Employment
Agreements and the Stock Option Agreements.
Also on March 19, 1997, at a special meeting of the USBC Board, Mr. Cameron
and senior management of USBC again reviewed the reasons for and the potential
benefits of the Merger and
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updated the USBC Board on discussions with FBS; USBC's legal advisors reviewed
the terms of the Merger Agreement and of the Stock Option Agreements; and CSFB
made a presentation regarding the financial terms of the Merger and the
fairness, from a financial point of view, of the Exchange Ratio to holders of
USBC Common Stock. See "--Opinion of USBC's Financial Advisor." After discussion
and detailed consideration of the Merger Agreement and the Stock Option
Agreements and of the factors discussed below under "--Reasons of USBC for the
Merger," the USBC Board (with 11 directors present and one director absent)
unanimously approved and authorized the execution of the Merger Agreement and
the Stock Option Agreements.
The Merger Agreement and the Employment Agreements were each entered into on
March 19, 1997 and the Stock Option Agreements were each entered into on March
20, 1997.
In connection with the execution of the Merger Agreement, Joshua Green III
and Harry L. Bettis, directors of USBC who beneficially own 8,399,460 shares of
USBC Common Stock (approximately 5.7% of the outstanding shares of USBC Common
Stock) and 2,973,947 shares of the USBC Common Stock (approximately 2.0% of the
outstanding shares of USBC Common Stock), respectively, delivered the
Shareholder Letters to FBS and USBC. See "USBC ANNUAL MEETING--Solicitation,
Voting and Revocability of Proxies."
REASONS OF FBS FOR THE MERGER
In reaching its determination to approve the Merger Agreement, the
Employment Agreements, and the FBS Stock Option Agreement and the transactions
contemplated thereby and to recommend that the FBS Shareholders approve and
adopt the Merger Agreement and approve the FBS Board Expansion Amendment, the
FBS Board considered a variety of factors, including the following:
ENHANCED FRANCHISE. The FBS Board considered that the Merger would result
in a combined company serving approximately 3.9 million retail customers and
approximately 475,000 business customers through approximately 995 branches and
4,565 automated teller machines. The FBS Board was advised that as of June 30,
1996 (the latest date for which such information was available), the combined
company would be among the three largest banking institutions in terms of
deposits in nine of the 17 states, and 29 of the 57 metropolitan areas,
comprising its franchise area, including Minneapolis/St. Paul, Portland/
Vancouver, Seattle/Bellevue/Everett, Denver, Boise, Omaha, Salem, Spokane,
Lincoln, Sioux Falls, Eugene and Colorado Springs.
GREATER OVERALL RESOURCES. The FBS Board considered that the Merger would
result in the eighth largest bank holding company in the nation (in terms of
market capitalization). The FBS Board took into account that the combined
company would have approximately $70 billion in assets, approximately $49
billion in deposits and a market capitalization exceeding $18 billion. As a
result, the FBS Board believed that the Merger would significantly enhance both
companies' ability to compete effectively in a rapidly changing financial
marketplace.
ATTRACTIVE MARKET DEMOGRAPHICS. In comparing the market demographics for
the markets in which both USBC and FBS have strong positions, the FBS Board
considered the fact that the USBC markets enjoyed a weighted average growth rate
of 2.3% from 1990 to 1996, compared to 2% for such years for FBS's markets, and
1.5% for the U.S. average. In addition, the FBS Board noted that the weighted
average growth of median household income over the same period within these
markets was 4.2% for USBC markets, 3.6% for FBS markets, and 3.4% for the U.S.
average. The FBS Board was aware that the growth rate in median household income
in either or both of the markets served by USBC and FBS could reverse or
decline. See "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION."
COMPLEMENTARY MARKETS; DIVERSIFICATION OF ECONOMIC RISK. The FBS Board
considered that the Merger would unite the highly complementary markets of FBS
in the Midwest/Rocky Mountain region and USBC in the Pacific Northwest/Rocky
Mountain region, and that the combined company's franchise would
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be broadly diversified over 17 contiguous states from Illinois to Washington,
including 57 metropolitan areas. The FBS Board was advised that the geographical
diversification of the combined entity through the proposed Merger would reduce
the risk of a significant adverse impact resulting from an economic downturn in
an individual market area, and, more generally, result in more stable and
predictable financial results over time, increasing the potential effectiveness
of long-term and strategic planning. The FBS Board was also aware that such
geographic diversification might not protect the combined company from the
potential negative effects of a nationwide economic downturn or a downturn
affecting both USBC's and FBS's markets. See "CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION."
OPPORTUNITIES FOR EFFICIENCIES AND COST SAVINGS. The FBS Board considered
that the combined company would be capable of increasing its capitalization and
profitability through the achievement of economies of scale and the elimination
of redundancies. The FBS Board took into account that the retail bank franchise
of FBS is founded on an efficient, centralized product management and operations
structure and multiple distribution channels, and that FBS's product and
distribution model is designed to divide its product management efforts from its
sales efforts, enabling FBS to contain costs while expanding market share. The
FBS Board was advised that investments in technology have reduced costs and
increased productivity, making FBS one of the nation's most efficient banks with
an efficiency ratio for the quarter ended December 31, 1996 of 49.9%. The FBS
Board was advised that FBS management expected that the combined company would
be able to achieve $340 million in annual pre-tax expense savings attributable
to the integration of data processing and other back office operations, the
elimination of redundant corporate overhead and staff positions and the
consolidation of certain business lines. The FBS Board was advised that these
potential cost savings are expected to be achieved in various amounts at various
times during the one-year period following the Merger. In considering the
opportunities for efficiencies and cost savings, the FBS Board was aware that
(i) such savings might not be realized fully or realized within the time frame
expected by management, (ii) the two companies might fail to integrate well or
achieve synergies sufficient to avoid earnings dilution and (iii) costs or
difficulties related to the integration of the businesses of FBS and USBC might
be greater than expected. The FBS Board was also aware that a reduction in
workforce would be necessary to achieve the projected cost savings and
efficiencies from the Merger. See "CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION" and "MANAGEMENT AND OPERATIONS AFTER THE
MERGER--1998 and 1999 Earnings Estimates."
OPPORTUNITIES FOR REVENUE ENHANCEMENT. The FBS Board took into account that
FBS has a successful history of developing and marketing new financial products
and services. The FBS Board was informed that the proposed Merger would provide
opportunities for revenue enhancement through the marketing of such products and
services to the broad retail and commercial customer base of USBC. The FBS Board
was advised that FBS management estimated that such revenue enhancements would
provide pre-tax income of $84 million in the second year following the Merger,
but was aware that there could be no assurances that such revenue enhancement
and resulting income would be realized or the timing thereof. The FBS Board also
was aware of the risk that USBC's relationship with its customers might be
disrupted as a result of the Merger. See "CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION."
TECHNOLOGY. The FBS Board took into account that FBS has made a substantial
investment in technology and systems necessary to support its interstate
expansion and to allow the rapid integration of acquired financial institutions,
and that FBS's systems are based on a standardized enterprise-wide model and
provide a multi-state operating environment. The FBS Board was advised that the
household information-based nature of FBS's systems enables FBS to focus on the
customer and the product, and that FBS's information system utilizes parallel
processing, giving FBS an exceptional capacity to handle additional information
volume at a lower cost than traditional systems. The FBS Board further noted
that scalability of the system would allow it to support eight times more
servers than it currently does, and each server on the network could be upgraded
to eight times its current processing power. The FBS Board was
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also aware that in some bank mergers not involving FBS or USBC, technological
and systems integration took longer than expected.
The FBS Board was advised that in October 1996, USBC publicly announced its
intention to spend between $50 and $70 million in certain technology initiatives
through the end of 1998, including an automated sales platform program, a new
teller system, a new deposit system, and a new wire transfer system. The FBS
Board was informed that these expenditures could be substantially reduced by
leveraging existing systems at FBS.
FINANCIAL CONSIDERATIONS. The FBS Board considered its evaluation of the
financial terms of the Merger and their effect on holders of FBS Common Stock
and whether such terms are consistent with FBS's long-term strategy of enhancing
shareholder value with external geographic expansion through selective
acquisitions. The FBS Board took into account that earnings per share accretion
of the combined companies is estimated to be 2% in 1998 and 8% in 1999. These
estimates exclude the effect of Merger-related expenses. The FBS Board was aware
that actual results could vary significantly from these estimates. See
"MANAGEMENT AND OPERATIONS AFTER THE MERGER--1998 and 1999 Earnings Estimates"
and "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION."
ADVICE OF FINANCIAL ADVISOR AND FAIRNESS OPINION. The FBS Board considered
the financial advice of Merrill Lynch (including the assumptions and
methodologies underlying its analysis in connection therewith) and the opinion
of Merrill Lynch that, as of March 19, 1997, the Exchange Ratio was fair, from a
financial point of view, to the holders of FBS Common Stock. The opinion of
Merrill Lynch and the analysis underlying its opinion are summarized below, and
a copy of the opinion delivered on the date hereof, setting forth the procedures
followed, the matters considered, the scope of the review undertaken and the
assumptions made by Merrill Lynch, is attached hereto as Appendix D. See
"--Opinion of FBS Financial Advisor."
TERMS OF MERGER AGREEMENT, EMPLOYMENT AGREEMENTS AND STOCK OPTION
AGREEMENTS. The FBS Board took into consideration the terms of the Merger
Agreement, the Employment Agreements and the Stock Option Agreements and the
transactions contemplated thereby. The FBS Board was aware that the FBS Stock
Option Agreement might discourage an offer for FBS from a third party prior to
consummation of the Merger. The FBS Board also took into account the costs
related to the new employment agreements with USBC senior management, the terms
of the Merger Agreement providing for increased severance benefits to certain
USBC employees and the interests certain officers and directors of USBC and FBS
have in the Merger. See "THE MERGER--Conduct of Business Prior to the Merger and
Other Covenants" and "--Interests of Certain Persons in the Merger."
DUE DILIGENCE REVIEW. The FBS Board considered its knowledge and review of
the financial condition, results of operations and business operations and
prospects of FBS and USBC, as well as the results of FBS's due diligence review
of USBC.
DIRECTORS AND MANAGEMENT OF FBS AFTER THE MERGER. The FBS Board took into
account that, subject to FBS Shareholder approval of the FBS Board Expansion
Amendment, the New USBC Board would initially consist of all of the current
directors of FBS and USBC, and that the current management of each company would
have a significant influence in the management of New USBC, with John F.
Grundhofer continuing as Chief Executive Officer and President of New USBC. The
FBS Board also considered the employment agreements with Messrs. Cameron,
Sznewajs and Duim and that Mr. Cameron would serve as Chairman of New USBC and
that Messrs. Sznewajs and Duim would serve as Vice Chairmen of New USBC. See
"--Interests of Certain Persons in the Merger" and "MANAGEMENT AND OPERATIONS
AFTER THE MERGER."
TAX AND ACCOUNTING TREATMENT OF THE MERGER. The FBS Board considered that
the Merger was expected to be tax-free to FBS and its shareholders for federal
income tax purposes and be accounted for under the pooling-of-interests method
of accounting (See"--Certain Federal Income Tax Consequences").
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REGULATORY APPROVALS. The FBS Board was advised that the requisite
regulatory approvals for the Merger were likely to be obtained without undue
delay (see "--Regulatory Matters").
The foregoing discussion of the information and factors considered by the
FBS Board is not intended to be exhaustive but is believed to include all
material factors considered by the FBS Board. In reaching its determination to
approve the Merger, the Employment Agreements, the FBS Stock Option Agreement
and the transactions contemplated thereby, the FBS Board did not assign any
relative or specific weights to the foregoing factors, and individual directors
may have given differing weights to differing factors. After deliberating with
respect to the Merger and other transactions contemplated by the Merger
Agreement, and considering, among other things, the matters discussed above, the
FBS Board (with one director absent) unanimously approved the Merger Agreement
and the transactions contemplated thereby as being fair to, and in the best
interests of, FBS and its shareholders. There is no guarantee that the combined
company will achieve or receive any of the benefits, cost savings or synergies
described above. See "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
INFORMATION."
BASED ON THE FOREGOING, THE FBS BOARD UNANIMOUSLY RECOMMENDS THAT FBS
SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
FBS BOARD EXPANSION AMENDMENT.
REASONS OF USBC FOR THE MERGER
In determining to approve the Merger Agreement and the transactions
contemplated thereby and to recommend its approval by the USBC Shareholders, the
USBC Board considered a number of factors, including, without limitation, the
following:
(i) the USBC Board's familiarity with and review of the financial condition,
results of operations, cash flow, business and prospects of USBC and FBS;
(ii) the USBC Board's review of the operating environment, including, but
not limited to, the continued consolidation and increasing competition in the
banking and financial services industries, the prospect for further changes in
these industries and the importance of operational scale and financial resources
to remaining competitive in the long term and being able to capitalize on
developing opportunities in these industries;
(iii) the USBC Board's belief that, while the Merger would change USBC's
existing business strategy, the terms of the Merger Agreement are attractive in
that the agreement allows USBC Shareholders to become shareholders of a combined
institution that will be among the premier bank companies in the United States
and, while no assurances can be given, that is expected to serve approximately
3.9 million households and 475,000 business clients, to have approximately $70
billion in assets and $49 billion in deposits and a substantial presence in 17
states in a continuous region spanning Illinois to Washington;
(iv) the complementary strengths of FBS and USBC and the fact that the
Merger would combine USBC's strong name and brand identity and strengths in
leasing, small business and agricultural lending and PC banking with FBS's
sophisticated technology and its strengths in payment systems, home equity
lending, asset management and corporate trust;
(v) while no assurances can be given, the anticipated cost savings,
operating efficiencies and enhanced revenue opportunities available to the
combined company from the Merger, including, without limitation, synergies
available due to the ability to leverage FBS's technology investments for use
throughout the combined company, and the likelihood that the company's
technologies could be rapidly integrated following consummation of the Merger.
The USBC Board also considered the fact that, while no assurances can be given,
the combined company would be expected to rank first in efficiency ratio among
United States banks with assets of $25 billion or more;
(vi) the USBC Board's assessment that the combined company resulting from
the Merger would better serve the convenience and needs of its customers and the
communities it serves as a result of being a substantially larger bank (as
compared to USBC remaining independent), thereby affording access to
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greater financial, managerial and technological resources and an ability to
offer an expanded range of potential products and services;
(vii) the USBC Board's review of strategic alternatives to enhance
shareholder value, including potential transactions with other parties and
remaining independent, which alternatives the Board believed were not likely to
result in greater shareholder value than the Merger, based on, among other
things, the Board's knowledge of USBC and FBS and on the information presented
to it at its March 11 and March 19, 1997 meetings, as described herein;
(viii) the financial presentation and opinion of CSFB rendered to the USBC
Board as to the fairness, from a financial point of view, of the Exchange Ratio
to holders of USBC Common Stock (see "--Opinion of USBC's Financial Advisor");
(ix) the expectation that the Merger will generally be a tax-free
transaction to USBC and its shareholders and will qualify for
pooling-of-interests accounting treatment (see "--Certain Federal Income Tax
Consequences" and "--Accounting Treatment");
(x) the effect of the Merger on USBC constituencies other than its
shareholders, including USBC's senior management and other employees and the
communities served by USBC, such considerations including FBS's commitment to
maintain USBC's charitable contributions to USBC communities, the USBC Board's
awareness and assessment of the potential that a merger could be expected to
provide USBC employees, including senior management, with employment and other
benefits and the potential impact of the transaction on employment in certain
communities in which USBC operates (see"--Interests of Certain Persons in the
Merger" and "MANAGEMENT AND OPERATIONS AFTER THE MERGER");
(xi) the significant participation proposed for the members of the USBC
Board of Directors on the board of directors of the combined company, and the
fact that Mr. Cameron and Messrs. Sznewajs and Duim would serve as Chairman of
the Board of Directors and Vice Chairmen, respectively, of the combined company
following consummation of the Merger (see "--Interests of Certain Persons in the
Merger"); and
(xii) the USBC Board's belief, after consultation with its legal counsel,
that the required regulatory approvals could be obtained to consummate the
Merger (see "--Regulatory Matters").
In reaching its determination to approve and recommend the Merger, the USBC
Board did not assign any relative or specific weights to the various factors
considered by it, and individual directors may have given differing weights to
different factors. The foregoing discussion of the information and factors
considered by the USBC Board is not intended to be exhaustive but is believed to
include all material factors considered by the USBC Board.
BASED ON THE FOREGOING, THE USBC BOARD BELIEVES THAT THE MERGER IS FAIR TO
AND IN THE BEST INTEREST OF USBC AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS
THAT USBC SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
OPINION OF FBS'S FINANCIAL ADVISOR
Merrill Lynch has acted as financial advisor to FBS in connection with the
Merger.
Representatives of Merrill Lynch attended the meeting of the FBS Board held
on March 19, 1997 at which the FBS Board considered and approved the Merger
Agreement. At that meeting, Merrill Lynch rendered its opinion (the "Merrill
Lynch Opinion") that, as of such date, the Exchange Ratio was fair to the
holders of shares of FBS Common Stock from a financial point of view. Such
opinion was reconfirmed in writing as of the date of this Joint Proxy
Statement-Prospectus. No limitations were imposed by FBS with respect to the
investigations made or procedures followed by Merrill Lynch in rendering its
opinions.
The full text of Merrill Lynch's written opinion dated as of the date of
this Joint Proxy Statement-Prospectus is attached as Appendix D to this Joint
Proxy Statement-Prospectus and is incorporated herein by reference. The
description of the Merrill Lynch Opinion set forth herein is qualified in its
entirety by reference to the full text of such opinion. FBS Shareholders are
urged to read the Merrill Lynch
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Opinion in its entirety for a description of the procedures followed,
assumptions made, matters considered, and qualifications and limitations on the
review undertaken, by Merrill Lynch in connection therewith.
THE MERRILL LYNCH OPINION WAS PROVIDED TO THE FBS BOARD FOR ITS INFORMATION
AND IS DIRECTED ONLY TO THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE
EXCHANGE RATIO TO THE HOLDERS OF FBS COMMON STOCK. IT DOES NOT ADDRESS THE
UNDERLYING BUSINESS DECISION OF FBS TO ENGAGE IN THE MERGER AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY FBS SHAREHOLDER AS TO HOW SUCH SHAREHOLDER
SHOULD VOTE AT THE FBS SPECIAL MEETING WITH RESPECT TO THE MERGER OR ANY OTHER
MATTER RELATED THERETO.
The summary set forth below does not purport to be a complete description of
the analyses performed by Merrill Lynch underlying the Merrill Lynch Opinion or
the presentation furnished by Merrill Lynch to the FBS Board. Such summary does
constitute a complete summary, in all material respects, of the material
financial analyses furnished by Merrill Lynch to the FBS Board on March 19, 1997
in connection with the Merrill Lynch Opinion. The preparation of a fairness
opinion involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of these methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to a partial analysis or summary description. Accordingly,
notwithstanding the separate factors summarized below, Merrill Lynch believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and factors considered by it, without considering all analyses and
factors, or attempting to ascribe relative weights to some or all such analyses
and factors, could create an incomplete view of the evaluation process
underlying the Merrill Lynch Opinion.
In performing its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of FBS, USBC and Merrill
Lynch. The analyses performed by Merrill Lynch are not necessarily indicative of
actual values or actual future results, which may be significantly more or less
favorable than the values or results suggested by such analyses. With respect to
the comparison of selected companies analysis and the analysis of selected bank
merger transactions summarized below, no public company utilized as a comparison
is identical to FBS or USBC. Accordingly, an analysis of publicly traded
comparable companies and comparable business combinations is not mathematical;
rather it involves complex considerations and judgments concerning the
differences in financial and operating characteristics of the companies and
other factors that could affect the public trading values of the companies
concerned. The analyses do not purport to be appraisals or to reflect the prices
at which FBS or USBC might actually be sold or the prices at which any
securities may trade at the present time or at any time in the future. Merrill
Lynch was not asked to consider, and the Merrill Lynch Opinion does not in any
manner address, the price at which shares of New USBC Common Stock will actually
trade following consummation of the Merger. In addition, as described above, the
Merrill Lynch Opinion and Merrill Lynch's presentation to the FBS Board were
among many factors taken into consideration by the FBS Board in making its
determination to approve the Merger Agreement. Consequently, the Merrill Lynch
analyses described below should not be viewed as determinative of the decision
of the FBS Board or FBS's management with respect to the Merger.
In arriving at its opinion, Merrill Lynch, among other things, reviewed
certain publicly available business and financial information relating to FBS
and USBC, as well as the Merger Agreement. Merrill Lynch also reviewed certain
other information, including publicly available financial forecasts for FBS and
USBC, as well as information provided to it by FBS regarding cost savings and
related expenses and revenue enhancements expected to result from the Merger
(the "Expected Synergies"), and met with members of senior management of FBS to
discuss the businesses and prospects of FBS and USBC, before and after giving
effect to the Merger, and the Expected Synergies.
Merrill Lynch reviewed certain financial and stock market data for FBS and
USBC and compared that data with similar data for other publicly held companies
that Merrill Lynch deemed to be relevant. In addition, Merrill Lynch considered
the financial terms of certain other transactions which Merrill Lynch deemed
relevant. Merrill Lynch also considered the pro forma impact of the Merger.
Merrill Lynch
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reviewed such other financial studies and analyses and performed such other
investigations and took into account such other matters as it deemed necessary,
including its assessment of general economic, market and monetary conditions.
In preparing its opinion, Merrill Lynch relied on the accuracy and
completeness of all information supplied or otherwise made available to Merrill
Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly
available. Merrill Lynch has not assumed responsibility for independently
verifying such information, has not undertaken an independent evaluation or
appraisal of the assets or liabilities, contingent or otherwise, of FBS or USBC
or any of their subsidiaries and was not furnished with any such evaluation or
appraisal. Merrill Lynch is not expert in the evaluation of allowances for loan
losses and has not made an independent evaluation of the adequacy of the
allowances for loan losses for each of FBS or USBC, nor has Merrill Lynch
reviewed any individual credit files relating to FBS or USBC and Merrill Lynch
has assumed that the aggregate allowance for loan losses for each of FBS and
USBC is adequate to cover such losses and will be adequate on a pro forma basis
for the combined entity. In addition, Merrill Lynch has not conducted a physical
inspection of the properties or facilities of FBS or USBC. With respect to the
financial forecast information, including, without limitation, financial
forecasts, evaluations of contingencies and projections regarding
under-performing and non-performing assets, net charge-offs, adequacy of
reserves and future economic conditions, and the Expected Synergies furnished to
or discussed with Merrill Lynch by FBS, Merrill Lynch assumed that they were
reasonably prepared and reflected the best currently available estimates,
allocations and judgment of FBS's management as to the expected future financial
performance of FBS or USBC, as the case may be, and the Expected Synergies.
Merrill Lynch expressed no opinion as to such financial forecast information or
the Expected Synergies or the assumptions on which they were based. In addition,
Merrill Lynch assumed that the Merger will be accounted for as a
pooling-of-interests under generally accepted accounting principles and that it
will qualify as a tax-free reorganization for United States federal income tax
purposes.
The Merrill Lynch Opinion is necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
such opinion. For purposes of rendering its opinion Merrill Lynch assumed, in
all respects material to its analysis, that the representations and warranties
of each party to the Merger Agreement and all related documents and instruments
(collectively, the "Documents") contained therein are true and correct, that
each party to the Documents will perform all of the covenants and agreements
required to be performed by such party under such Documents and that all
conditions to the consummation of the Merger will be satisfied without waiver
thereof. Merrill Lynch also assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Merger, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Merger.
Information furnished to Merrill Lynch and used by it in certain of its
analyses was prepared by the senior management of FBS in connection with the
Merger and were not prepared with a view towards public disclosure. Such
information was based on numerous variables and assumptions which are inherently
uncertain, including, without limitation, factors related to general economic
and competitive conditions, and accordingly, actual results could vary
significantly from those set forth therein. See "CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION."
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The following is a summary of the material analyses furnished by Merrill
Lynch to the FBS Board on March 19, 1997, in connection with its fairness
opinion.
SUMMARY OF PROPOSAL. Merrill Lynch reviewed the terms of the proposed
transaction, including the Exchange Ratio and the implied aggregate transaction
value. Based on FBS's closing stock price of $77.50 on March 18, 1997, Merrill
Lynch calculated an implied transaction value per share of USBC of $58.51, and
an implied total transaction value of approximately $8.8 billion. Merrill Lynch
also calculated the price to market, price to book, price to tangible book and
price to earnings multiples for USBC in the Merger based on such implied total
transaction value. This analysis yielded a price to market multiple of 1.23x, a
price to book value multiple of 3.36x, a price to tangible book value multiple
of 3.95x and a price to 1996 earnings multiple of 19.00x.
PRO FORMA MERGER ANALYSIS. Based on publicly available earnings forecasts
and the Expected Synergies, including after-tax fully-phased-in synergy
assumption of $254 million in 1999 and after-tax merger and reorganization
charges of $448 million, Merrill Lynch analyzed certain pro forma effects of the
Merger. This analysis indicated that the transaction would be accretive to
projected earnings per share of FBS Common Stock in 1998 and thereafter, and
that the Merger would be dilutive to FBS's book value and accretive to tangible
book value per share at the assumed closing of the Merger (September 30, 1997).
In this analysis, Merrill Lynch assumed that FBS performed in accordance with
the publicly available earnings forecasts and the Expected Synergies provided to
Merrill Lynch by FBS's senior management.
CONTRIBUTION ANALYSIS. Merrill Lynch reviewed the relative contributions in
terms of various balance sheet items, last twelve months' net income, 1997
estimated net income and market capitalization to be made by FBS and USBC to the
combined institution based on data at December 31, 1996. Merrill Lynch analyzed
total assets, total loans (net), total deposits, common equity, tangible common
equity, latest twelve months' net income, 1997 estimated net income and fully
diluted market capitalization of the combined institution. This analysis showed
that, while FBS Shareholders would own approximately 54.3% of the outstanding
shares of the combined institution based upon the Exchange Ratio, FBS's implied
contribution was 52.3% of total assets, 51.5% of total loans (net), 49.4% of
total deposits, 54.4% of common equity, 48.5% of tangible common equity, 57.8%
of latest twelve months' income, 59.9% of 1997 estimated net income and 59.7% of
market capitalization.
HISTORICAL TRADING VALUATION. Merrill Lynch analyzed the closing price on
March 18, 1997, the 52-week high price, and the average price over various
periods, each ending on March 18, 1997 ranging from a five-day period to a
90-day period, for FBS Common Stock. Merrill Lynch calculated an implied value
per share for USBC corresponding to each of such prices of FBS Common Stock.
Merrill Lynch derived a summary reference range of implied values per share for
USBC ranging from $56.92 to $63.70, corresponding to the 90-day average trading
price and the 52-week high price, respectively.
DISCOUNTED DIVIDEND STREAM ANALYSIS--USBC. Using a discounted dividend
stream analysis, Merrill Lynch estimated the present value of the future streams
of after tax cash flows that USBC could produce and distribute to shareholders
("dividendable net income") assuming an after-tax synergy assumption of $254
million in 1999 and an after-tax restructuring charge of $448 million from 1997
through 2002. Merrill Lynch assumed that USBC performed in accordance with
publicly available earnings forecasts from First Call provided to Merrill Lynch
by FBS's senior management and that USBC's tangible common equity to tangible
asset ratio would be maintained at a minimum 5.5% level. Merrill Lynch estimated
the terminal values for the USBC Common Stock at 10.0, 11.0 and 12.0 times
USBC's 2003 estimated operating income (defined as net income before intangible
amortization). The dividendable net income streams and terminal values were then
discounted to present values using different discount rates (ranging from 12% to
15%) chosen to reflect different assumptions regarding required rates of return
of holders or prospective buyers of USBC Common Stock. This discounted dividend
stream analysis indicated a reference range of $53.71 to $69.54 per share for
USBC Common Stock. As indicated above, this analysis is not necessarily
indicative of actual values or actual future results and does not purport to
reflect the prices at which any securities may trade at the present time or at
any time in the future. Discounted dividend stream analysis is a widely
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used valuation methodology, but the results of such methodology are highly
dependent upon the numerous assumptions that must be made, including earnings
growth rates, dividend payout rates, terminal values and discount rates.
ANALYSIS OF SELECTED BANK MERGER TRANSACTIONS--USBC. Merrill Lynch reviewed
publicly available information regarding fifteen bank merger transactions with a
value greater than $1 billion which had occurred in the United States since
January 1, 1995 that it deemed to be relevant (the "Comparable Transactions").
The Comparable Transactions and the month in which they were announced are:
Allied Irish Banks, plc's proposed acquisition of Dauphin Deposit Corporation
(January, 1997), NationsBank Corporation's acquisition of Boatmen's Bancshares,
Inc. (August, 1996), Wells Fargo & Company's acquisition of First Interstate
Bancorp (January, 1996), Fleet Financial Group, Inc.'s acquisition of NatWest
Bank N.A. (December, 1995), Bank of Boston Corporation's acquisition of
BayBanks, Inc. (December, 1995), CoreStates Financial Corp's acquisition of
Meridian Bancorp, Inc. (October, 1995), UJB Financial Corp.'s acquisition of The
Summit Bancorporation (September, 1995), NationsBank Corporation's acquisition
of Bank South Corporation (September, 1995), National City Corporation's
acquisition of Integra Financial Corporation (August, 1995), Boatmen's
Bancshares, Inc.'s acquisition of Fourth Financial Corporation (August, 1995),
PNC Bank Corp.'s acquisition of Midlantic Corporation (July, 1995), First Union
Corporation's acquisition of First Fidelity Bancorporation (June, 1995), USBC's
acquisition of West One Bancorp (May, 1995), Fleet Financial Group, Inc.'s
acquisition of Shawmut National Corporation (February, 1995) and National
Australia Bank Limited's acquisition of Michigan National Corporation (February,
1995). Merrill Lynch compared the price to book value, price to tangible book
value and price to earnings ratios and the implied deposit premium paid in the
Merger to the corresponding ratios for the Comparable Transactions. This
analysis yielded a range of (i) price to 30-day market multiple of 1.05x to
1.67x with a mean of 1.32x and a median of 1.29x (compared with a multiple of
1.23x for USBC in the Merger), (ii) price to book value multiples of 1.05x to
2.87x with a mean of 2.12x and a median of 2.10x (compared with a multiple of
3.36x for USBC in the Merger), (iii) price to tangible book value multiples of
1.41x to 4.09x with a mean of 2.45x and a median of 2.39x (compared with a
multiple of 3.95x for USBC in the Merger), (iv) price to trailing twelve months'
earnings multiples of 12.20x to 23.35x with a mean of 16.08x and a median of
15.53x (compared with a multiple of 19.00x for USBC in the Merger), and (v)
implied deposit premiums paid of 4.53% to 20.74% with a mean of 13.30% and a
median of 12.69% (compared with a premium of 26.15% for USBC in the Merger).
This analysis yielded an overall imputed reference range per share of USBC
Common Stock of $35.44 to $65.84 based on the mean and median imputed range.
No company or transaction used in the above analysis as a comparison is
identical to USBC or the Merger, respectively. Accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value of
USBC and the companies to which it is being compared.
COMPARISON OF SELECTED COMPARABLE COMPANIES--USBC. Merrill Lynch compared
selected operating and stock market results of USBC to the publicly available
corresponding data of certain other companies which Merrill Lynch deemed to be
relevant, including Barnett Banks, Inc., Crestar Financial Corporation, Comerica
Incorporated, FBS, First of America Bank Corporation, Huntington Bancshares
Incorporated, Mellon Bank Corporation, Southern National Corporation, SouthTrust
Corporation, and Summit Bancorp. (collectively the "USBC Composite"). This
comparison showed, among other things, that as for the latest twelve months
ended December 31, 1996, (i) USBC's ratio of noninterest expense to average
assets was 3.59% compared to a mean of 3.32% and a median of 3.41% for the USBC
Composite, (ii) USBC's ratio of noninterest income to average assets was 1.72%
compared to a mean of 1.81% and a median of 1.77% for the USBC Composite, (iii)
USBC's net interest margin was 5.31%, compared with a mean of 4.50% and a median
of 4.55% for the USBC Composite, (iv) USBC's efficiency ratio (defined as
noninterest expenses divided by the sum of noninterest income and net interest
income before provision for loan losses) was 55.69%, compared with a mean of
55.80% and a median of 57.53% for the USBC
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Composite, (v) USBC's return on average assets was 1.50% compared to a mean of
1.36% and a median of 1.36% for the USBC Composite and (vi) USBC's return on
average equity was 17.45% compared to a mean of 16.77% and a median of 16.70%
for the USBC Composite. This comparison also indicated that (i) at December 31,
1996, (A) USBC's tangible equity to tangible asset ratio was 7.09% compared to a
mean of 6.81% and a median of 6.87% for the USBC Composite, (B) USBC's ratio of
nonperforming loans to total loans was 0.59% compared with a mean of 0.50% and a
median of 0.59% for the USBC Composite, (C) USBC's ratio of nonperforming assets
to total assets was 0.55% compared with a mean of 0.48% and a median of 0.48%
for the USBC Composite, (D) USBC's ratio of loan loss reserves to nonperforming
assets was 261.06% compared with a mean of 246.77% and a median of 246.76% for
the USBC Composite, (ii) as of March 17, 1997, (X) the ratio of USBC's market
price to estimated earnings for the twelve month-period ending December 31, 1997
was 13.09x, compared to a mean of 12.26x and a median of 12.18x for the USBC
Composite (assuming reported average earnings estimates based on data from First
Call, for both USBC and the USBC Composite), (Y) the ratio of USBC's market
price to book value per share at December 31, 1996 was 2.78x, compared to a mean
of 2.58x and a median of 2.57x for the USBC Composite, (Z) the ratio of USBC's
market price to tangible book value per share at December 31, 1996 was 3.27x,
compared to a mean of 3.15x and a median of 2.81x for the USBC Composite, and
(iii) as of December 31, 1996, USBC's dividend yield was 2.52%, compared to a
mean of 2.74% and a median of 2.79% for the USBC Composite.
DISCOUNTED DIVIDEND STREAM ANALYSIS--FBS. Using a discounted dividend
stream analysis, Merrill Lynch estimated the present value of FBS's dividendable
net income that FBS could produce on a stand-alone basis from 1997 through 2002.
Merrill Lynch assumed that FBS performed in accordance with publicly available
earnings forecasts and that FBS's tangible common equity to tangible asset ratio
would be maintained at a minimum 5.5% level. Merrill Lynch estimated the
terminal values for the FBS Common Stock at 10.0, 11.0 and 12.0 times FBS's 2003
estimated operating income (defined as net income before intangible
amortization). The dividendable net income streams and terminal values were then
discounted to present values using different discount rates (ranging from 12% to
15%) chosen to reflect different assumptions regarding required rates of return
of holders or prospective buyers of FBS Common Stock. This discounted dividend
stream analysis indicated a reference range of $70.09 to $89.64 per share for
FBS Common Stock. As indicated above, this analysis is not necessarily
indicative of actual values or actual future results and does not purport to
reflect the prices at which any securities may trade at the present or at any
time in the future. Discounted dividend stream analysis is a widely used
valuation methodology, but the results of such methodology are highly dependent
upon the numerous assumptions that must be made, including earnings growth
rates, dividend payout rates, terminal values and discount rates.
COMPARISON OF SELECTED COMPARABLE COMPANIES--FBS. Merrill Lynch compared
selected operating and stock market results of FBS to the publicly available
corresponding data of certain other companies which Merrill Lynch deemed to be
relevant, including Barnett Banks, Inc., Crestar Financial Corporation, Comerica
Incorporated, USBC, First of America Bank Corp., Huntington Bancshares Inc.,
Mellon Bank Corporation, Southern National Corporation, Southtrust Corp. and
Summit Bancorp (collectively the "FBS Composite"). This comparison showed, among
other things, that as for the latest twelve months ended December 31, 1996, (i)
FBS's ratio of noninterest expense to average assets was 3.41% compared to a
mean of 3.34% and a median of 3.56% for the FBS Composite, (ii) FBS's ratio of
noninterest income to average assets was 2.45% compared to a mean of 1.66% and a
median of 1.72% for the FBS Composite, (iii) FBS's net interest margin was
4.90%, compared with a mean 4.54% and a median of 4.55% for the FBS Composite,
(iv) FBS's efficiency ratio (defined as noninterest expenses divided by the sum
of noninterest income and net interest income before provision for loan losses)
was 49.89%, compared with a mean 56.38% and a median of 57.53% for the FBS
Composite, (v) FBS's return on average assets was 1.83% compared to a mean of
1.33% and a median of 1.36% for the FBS Composite, and (vi) FBS's return on
average equity was 20.48% compared to a mean of 16.45% and a median of 16.70%
for the FBS Composite. This comparison also indicated that (i) at December 31,
1996, (A) FBS's tangible equity to tangible asset ratio was 5.80% compared to a
mean of 6.94% and a median of 7.05% for the FBS Composite, (B) FBS's ratio of
nonperforming loans to total loans was 0.45% compared with a mean of
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0.50% and a median of 0.59% for the FBS Composite, (C) FBS's ratio of
nonperforming assets to total assets was 0.38% compared with a mean of 0.50% and
a median of 0.52% for the FBS Composite, (D) FBS's ratio of loan loss reserves
to nonperforming assets was 375.09% compared with a mean of 235.37% and a median
of 246.76% for the FBS Composite, (ii) as of March 17, 1997 (X) the ratio of
FBS's market price to estimated earnings for the twelve-month period ending
December 31, 1997 was 12.89x, compared to a mean of 12.28x and a median of
12.18x for the FBS Composite (assuming reported average earnings estimates based
on data from First Call, for both FBS and the FBS Composite), (Y) the ratio of
FBS's market price to book value per share at December 31, 1996 was 3.47x,
compared to a mean of 2.51x and a median of 2.57x for the FBS Composite, (Z) the
ratio of FBS's market price to tangible book value per share at December 31,
1996 was 5.15x, compared to a mean of 2.96x and a median of 2.81x for the FBS
Composite, and (iii) as of December 31, 1996, FBS's dividend yield was 2.08%,
compared to a mean of 2.78% and a median of 2.79% for the FBS Composite.
DISCOUNTED DIVIDEND STREAM ANALYSIS--COMBINED COMPANY. Merrill Lynch
estimated the present value of the dividendable net income that the combined
institution could produce and distribute to shareholders from 1997 through 2002.
Merrill Lynch assumed that the combined institution performed in accordance with
publicly available earnings forecasts and assumed that the combined
institution's tangible equity to asset ratio would be maintained at a minimum
5.5% level. Merrill Lynch estimated the terminal values for the combined
institution's common stock at 10.0, 11.0 and 12.0 times the combined
institution's 2003 estimated operating income. The dividendable net income
streams and terminal values were then discounted to present values using
different discount rates (ranging from 12% to 15%) chosen to reflect different
assumptions regarding required rates of return of holders or prospective buyers
of common stock of New USBC (after giving effect to the Merger). Assuming
after-tax projected synergies of $254 million resulting from the Merger and
after-tax merger and reorganization charges of $448 million, this discounted
dividend stream analysis indicated a reference range of between $72.12 and
$93.43 per share of New USBC Common Stock (after giving effect to the Merger).
As indicated above, this analysis is not necessarily indicative of actual values
or actual future results and does not purport to reflect the prices at which any
securities may trade at the present or at any time in the future. Discounted
dividend stream analysis is a widely used valuation methodology, but the results
of such methodology are highly dependent upon the numerous assumptions that must
be made, including earnings growth rates, dividend payout rates, terminal values
and discount rates.
In connection with its opinion dated as of the date of this Joint Proxy
Statement-Prospectus, Merrill Lynch performed procedures to update, as
necessary, certain of the analyses described above and reviewed the assumptions
on which such analyses described above were based and the factors considered in
connection therewith. Merrill Lynch did not perform any analyses in addition to
those described above in updating its March 19, 1997 opinion.
FBS retained Merrill Lynch based upon Merrill Lynch's experience and
expertise. Merrill Lynch is an internationally recognized investment banking and
advisory firm. Merrill Lynch, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. Merrill Lynch has, in the past,
provided financial advisory and financing services to FBS and USBC and may
continue to do so and has received, and may receive, fees for the rendering of
such services. In the ordinary course of its business, Merrill Lynch and its
affiliates may actively trade the debt and/or equity securities of FBS and USBC
and their respective affiliates for their own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
FBS and Merrill Lynch have entered into a letter agreement dated March 7,
1997 relating to the services to be provided by Merrill Lynch in connection with
the Merger. FBS has agreed to pay Merrill Lynch fees as follows: (i) a cash fee
of $1,000,000, which was payable upon the execution of the letter agreement,
(ii) a cash fee of $1,500,000, which was payable upon execution of the Merger
Agreement; (iii) a cash fee of $7,500,000 payable at the Effective Time. To
date, Merrill Lynch has received fees from
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FBS totalling $2,500,000, payable to it pursuant to clauses (i) and (ii) above.
In such letter, the Company also agreed to reimburse Merrill Lynch for its
reasonable out-of-pocket expenses incurred in connection with its advisory work,
including the reasonable fees and disbursements of its legal counsel, and to
indemnify Merrill Lynch against certain liabilities relating to or arising out
of the Merger, including liabilities under the federal securities laws.
OPINION OF USBC'S FINANCIAL ADVISOR
CSFB has acted as financial advisor to USBC in connection with the Merger.
CSFB was selected by USBC based on CSFB's experience, expertise and familiarity
with USBC and its business. CSFB is an internationally recognized investment
banking firm and is regularly engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes.
In connection with CSFB's engagement, USBC requested that CSFB evaluate the
fairness of the Exchange Ratio from a financial point of view. On March 19,
1997, the date on which the Merger Agreement was executed, CSFB rendered to the
USBC Board a written opinion to the effect that, as of such date and based upon
and subject to certain matters stated in such opinion, the Exchange Ratio was
fair to the holders of USBC Common Stock from a financial point of view. CSFB
has confirmed its opinion dated March 19, 1997 by delivery of a written opinion
dated the date of this Joint Proxy Statement-Prospectus. In connection with its
opinion dated the date of this Joint Proxy Statement-Prospectus, CSFB updated
certain of the analyses performed in connection with its opinion delivered on
March 19, 1997 and reviewed the assumptions on which such analyses were based
and the factors considered in connection therewith.
THE FULL TEXT OF CSFB'S WRITTEN OPINION TO THE USBC BOARD DATED THE DATE OF
THIS JOINT PROXY STATEMENT-PROSPECTUS, WHICH SETS FORTH THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN,
IS ATTACHED AS APPENDIX E TO THIS JOINT PROXY STATEMENT-PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. SHAREHOLDERS OF USBC ARE URGED TO READ THIS
OPINION CAREFULLY IN ITS ENTIRETY. CSFB'S OPINION IS DIRECTED TO THE USBC BOARD
AND RELATES ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL POINT OF
VIEW, DOES NOT ADDRESS ANY OTHER ASPECT OF THE PROPOSED MERGER OR ANY RELATED
TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO
HOW SUCH SHAREHOLDER SHOULD VOTE AT THE USBC SPECIAL MEETING. THE SUMMARY OF THE
OPINION OF CSFB SET FORTH IN THIS JOINT PROXY STATEMENT-PROSPECTUS IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, CSFB reviewed the Merger Agreement and certain
publicly available business and financial information relating to USBC and FBS.
CSFB also reviewed certain other information relating to USBC and FBS, including
financial forecasts provided to CSFB by USBC and FBS, and met with the
managements of USBC and FBS to discuss the businesses and prospects of USBC and
FBS. CSFB also considered certain financial and stock market data of USBC and
FBS and compared that data with similar data for other publicly held companies
in businesses similar to those of USBC and FBS and considered, to the extent
publicly available, the financial terms of certain other business combinations
and other transactions recently effected. CSFB also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria which CSFB deemed relevant.
In connection with its review, CSFB did not assume any responsibility for
independent verification of any of the information provided to or otherwise
reviewed by CSFB and relied on such information being complete and accurate in
all material respects. With respect to the financial forecasts, CSFB assumed
that such forecasts were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements of USBC and FBS
as to the future financial performance of USBC and FBS. In addition, CSFB also
assumed, with the consent of the USBC Board, that off-balance sheet activities
of USBC and FBS, including derivatives and other similar financial instruments,
will not adversely affect the future financial position and results of
operations of USBC and FBS. CSFB also was
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not requested to conduct, and did not conduct, a review of individual credit
files or make an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of USBC and FBS nor was CSFB furnished
with any such evaluations or appraisals, including loan or lease portfolios or
the allowances for losses with respect thereto, and CSFB assumed, with the
consent of the USBC Board, that such allowances for USBC and FBS are in the
aggregate adequate to cover such losses. CSFB further assumed, with the consent
of the USBC Board, that in the course of obtaining the necessary regulatory and
third-party consents for the proposed Merger and transactions contemplated
thereby, no restriction will be imposed that will have a material adverse effect
on the contemplated benefits of the Merger or the transactions contemplated
thereby. CSFB's opinion was necessarily based upon information available to
CSFB, and financial, economic, market and other conditions as they existed and
could be evaluated, on the date of its opinion. CSFB did not express any opinion
as to the actual value of the FBS Common Stock when issued pursuant to the
Merger or the prices at which the FBS Common Stock will trade subsequent to the
Merger. In connection with its engagement, CSFB was not requested to, and did
not, solicit third-party indications of interest in acquiring all or any part of
USBC. Although CSFB evaluated the Exchange Ratio from a financial point of view,
CSFB was not requested to, and did not, recommend the specific consideration
payable in the Merger, which consideration was determined through negotiation
between USBC and FBS. No other limitations were imposed by USBC on CSFB with
respect to the investigations made or procedures followed by CSFB in rendering
its opinion.
In preparing its opinion to the USBC Board, CSFB performed a variety of
financial and comparative analyses, including those described below performed by
CSFB in connection with its opinion dated March 19, 1997. The summary of CSFB's
analyses set forth below does not purport to be a complete description of the
analyses underlying CSFB's opinion, but rather, sets forth a description of the
material analyses performed by CSFB for purposes of such opinion. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. In arriving at its opinion, CSFB made qualitative judgments
as to the significance and relevance of each analysis and factor considered by
it. Accordingly, CSFB believes that its analyses must be considered as a whole
and that selecting portions of its analyses and factors, without considering all
analyses and factors, could create a misleading or incomplete view of the
processes underlying such analyses and its opinion. In its analyses, CSFB made
numerous assumptions with respect to USBC, FBS, industry performance,
regulatory, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of USBC and FBS. No company,
transaction or business used in such analyses as a comparison is identical to
USBC, FBS or the proposed Merger, nor is an evaluation of the results of such
analyses entirely mathematical; rather, such analyses involve complex
considerations and judgments concerning financial and operating characteristics
and other factors that could affect the acquisition, public trading or other
values of the companies, business segments or transactions being analyzed. The
estimates contained in such analyses and the ranges of valuations resulting from
any particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by such analyses. In addition, analyses relating
to the value of businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty. CSFB's opinion and financial analyses were only one of many factors
considered by the USBC Board in its evaluation of the proposed Merger and should
not be viewed as determinative of the views of USBC's Board or management with
respect to the Exchange Ratio or the proposed Merger.
The following is a summary of each of the material financial analyses
performed by CSFB in connection with its opinion dated March 19, 1997:
CALCULATION OF IMPLIED VALUE OF EXCHANGE RATIO. CSFB calculated the implied
value of the Exchange Ratio based on the closing stock price of FBS Common Stock
on March 18, 1997 (one trading day prior to execution of the Merger Agreement)
and based on the average closing stock price of FBS Common Stock during the 20
trading days prior to and including March 18, 1997, which indicated implied
equity values for
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USBC of approximately $58.51 per share and $61.41 per share, respectively. The
implied equity value of $58.51 per share equated to implied multiples for USBC
of latest twelve months' earnings per share ("EPS"), estimated calendar 1997 EPS
and most recent book value and tangible book value of 19.0x, 17.3x, 3.4x and
4.0x, respectively, and an implied premium to the closing price of USBC Common
Stock on March 18, 1997 of approximately 23%. The implied equity value of $61.41
per share equated to implied multiples for USBC of latest twelve months' EPS,
estimated calendar 1997 EPS and most recent book value and tangible book value
of 19.9x, 18.1x, 3.6x and 4.2x, respectively, and an implied premium to the
closing price of USBC Common Stock on March 18, 1997 of approximately 28%. CSFB
then compared these results with those derived from the analyses described
below.
SELECTED TRANSACTIONS ANALYSIS. Using publicly available information, CSFB
analyzed the purchase prices and implied transaction multiples paid in the
following selected transactions in the banking industry (acquiror/target):
USBC/West One Bancorp; Allied Irish Banks, plc/Dauphin Deposit Corporation;
Southern National Corporation/United Carolina Bancshares Corporation; Mercantile
Bancorporation Inc./Mark Twain Bancshares, Inc.; NationsBank
Corporation/Boatmen's Bancshares, Inc. (the "NationsBank/Boatmen's
Transaction"); Wells Fargo & Company/First Interstate Bancorp; Bank of Boston
Corporation/ BayBanks, Inc.; CoreStates Financial Corp/Meridian Bancorp, Inc.;
UJB Financial Corp./The Summit Bancorporation; National City Corporation/Integra
Financial Corporation; PNC Bank Corp./Midlantic Corporation; and First Union
Corporation/First Fidelity Bancorporation (collectively, the "Selected
Transactions"). With respect to the Selected Transactions analyzed, CSFB focused
primarily on the NationsBank/Boatmen's Transaction, which transaction CSFB
considered to be the most similar to the Merger. All multiples were based on
information available at the time of announcement of the transaction. This
analysis indicated a range of multiples for the Selected Transactions of latest
twelve months' EPS, estimated one-year forward EPS and most recent book value
and tangible book value of 10.8x to 20.8x (with an average of 15.6x for the
Selected Transactions and 18.5x based on the NationsBank/Boatmen's Transaction),
11.2x to 17.9x (with an average of 14.3x for the Selected Transactions and 15.1x
based on the NationsBank/Boatmen's Transaction), 2.0x to 3.0x (with an average
of 2.4x for the Selected Transactions and 2.7x based on the
NationsBank/Boatmen's Transaction) and 2.1x to 3.7x (with an average of 2.6x for
the Selected Transactions and 3.0x based on the NationsBank/Boatmen's
Transaction), respectively. In addition, CSFB reviewed the premiums paid in the
Selected Transactions based on the closing stock prices of the acquired
companies one month prior to public announcement of the transaction, which
indicated a range of premiums of approximately 12% to 50% (with an average of
28% based on the Selected Transactions as a whole and a premium of approximately
50% based on the NationsBank/Boatmen's Transaction). CSFB then calculated an
imputed per-share equity reference range for USBC by applying the range of
multiples derived for the Selected Transactions (excluding outliers) to
corresponding financial data of USBC, which indicated an implied equity
reference range for USBC of approximately $38 to $63 per share based on the
Selected Transactions as a whole and approximately $44 to $57 per share based on
the NationsBank/Boatmen's Transaction.
DISCOUNTED CASH FLOW ANALYSIS. CSFB estimated the present value of the
future streams of after-tax free cash flows that USBC could produce on a
stand-alone basis through fiscal year 2001 based on a 6% Tier-1 leverage ratio,
both before and after giving effect to, among other things, certain cost savings
and revenue enhancements anticipated by the management of FBS to result from the
Merger. The range of estimated terminal values was calculated by applying
multiples ranging from 13.0x to 15.0x to the projected 2001 net income of USBC.
The free cash flow streams and estimated terminal values were then discounted to
present values using discount rates ranging from 13% to 15%. This analysis
indicated an implied equity reference range for USBC of approximately $41 to $49
per share, without giving effect to certain cost savings and revenue
enhancements anticipated by the management of FBS to result from the Merger, and
approximately $51 to $64 per share, assuming certain cost savings and revenue
enhancements anticipated by the management of FBS to result from the Merger are
achieved.
SELECTED COMPANIES ANALYSIS. CSFB compared certain financial, operating and
stock market data of USBC to corresponding data of selected publicly traded
companies in the banking industry, after applying
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an equity control premium of 30%. Such companies included: Barnett Banks, Inc.;
Bank of Boston Corporation; Comerica Incorporated; First Chicago NBD
Corporation; First Union Corporation; KeyCorp; NationsBank Corporation; PNC Bank
Corp.; and Wachovia Corporation (collectively, the "Selected Companies"). EPS
estimates for the Selected Companies were based on estimates of selected
investment banking firms as compiled by First Call and EPS estimates for USBC
were based on internal estimates of the management of USBC. All multiples were
based on closing stock prices on March 18, 1997. This analysis indicated a range
of multiples for the Selected Companies of latest twelve months' EPS, estimated
calendar 1997 EPS, estimated calendar 1998 EPS and most recent book value and
tangible book value of 17.8x to 24.7x (with an average of 20.7x), 15.7x to 19.6x
(with an average of 17.4x), 14.1x to 17.6x (with an average of 15.5x), 2.9x to
4.0x (with an average of 3.4x) and 3.1x to 5.4x (with an average of 4.1x),
respectively. CSFB then calculated an imputed per-share equity reference range
for USBC by applying these multiples to corresponding financial data of USBC,
which indicated an implied equity reference range for USBC of approximately $50
to $66 per share.
CONTRIBUTION ANALYSIS. CSFB analyzed the relative contributions of USBC and
FBS to, among other things, the estimated net income of the pro forma combined
company for fiscal 1997 and 1998, both before and after giving effect to certain
cost savings and revenue enhancements which the management of FBS estimated
could be achieved in the Merger, with particular focus on the estimated net
income contributions of USBC and FBS after taking into account such cost savings
and revenue enhancements. This analysis indicated that (i) without giving effect
to such cost savings and revenue enhancements, USBC would contribute
approximately 39% and 38% of the net income of the combined company in fiscal
1997 and 1998, respectively, and (ii) after giving effect to such cost savings
and revenue enhancements, USBC would contribute approximately 46% of the net
income of the combined company in each of fiscal 1997 and 1998, assuming USBC
contributed 100% of the value of such cost savings and revenue enhancements.
CSFB then imputed an implied per-share equity value for USBC based on these
percentage contributions, which indicated an implied equity reference for USBC
of approximately $47 to $65 per share. Based on the Exchange Ratio, current
holders of USBC Common Stock and FBS Common Stock would own approximately 45%
and 55%, respectively, of the combined company upon consummation of the Merger.
PRO FORMA MERGER ANALYSIS. CSFB analyzed the potential pro forma effect of
the Merger on USBC's EPS during the calendar years 1998 and 1999 and on USBC's
tangible book value and dividends per share relative to USBC on a stand-alone
basis. This analysis indicated that the proposed Merger could be accretive to
USBC's EPS in each of the years analyzed, dilutive to USBC's tangible book value
per share and accretive to USBC's dividends per share, assuming certain cost
savings and revenue enhancements anticipated by the management of FBS to result
from the Merger are achieved. CSFB also analyzed the potential pro forma effect
of the Merger on FBS's EPS during the calendar years 1998 and 1999 relative to
FBS on a stand-alone basis. This analysis indicated that the Merger could be
dilutive to FBS's EPS in calendar year 1998 and accretive to FBS's EPS in
calendar year 1999, assuming certain cost savings and revenue enhancements
anticipated by the management of FBS to result from the Merger are achieved. The
actual results achieved by the combined company may vary from projected results
and the variations may be material.
MISCELLANEOUS. Pursuant to the terms of CSFB's engagement, USBC has agreed
to pay CSFB for its services in connection with the proposed Merger an aggregate
financial advisory fee of $14.0 million, of which $2.0 million was payable upon
execution of the Merger Agreement, $1.5 million will be payable upon the mailing
of this Joint Proxy Statement-Prospectus, and the balance of which will be
payable upon consummation of the Merger. USBC also has agreed to indemnify CSFB
and certain related persons and entities against certain liabilities, including
liabilities under the federal securities laws, arising out of CSFB's engagement.
CSFB has in the past provided financial services to USBC unrelated to the
proposed Merger, for which services CSFB has received compensation.
In the ordinary course of its business, CSFB and its affiliates may actively
trade the debt and equity securities of both USBC and FBS for their own accounts
and for the accounts of customers and, accordingly, may at any time hold a long
or short position in such securities.
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THE EFFECTIVE TIME
Subject to the satisfaction or waiver of certain conditions contained in the
Merger Agreement, the parties will cause the Effective Time to occur on (i) the
third business day to occur after (or, at the election of FBS, on the last
business day of the month in which such day occurs) the satisfaction or waiver
of the last of (a) the approval and adoption of the Merger Agreement by the
holders of FBS Common Stock and USBC Common Stock at their respective
shareholder meetings, (b) the receipt of all regulatory approvals required to
consummate the transactions contemplated by the Merger Agreement (provided that
all such approvals shall remain in full force and effect and all statutory or
regulatory waiting periods in respect thereof shall have expired and no such
approvals shall contain any conditions or restrictions that either the FBS Board
or the USBC Board reasonably determines in good faith would, following the
Effective Time, have a material adverse effect on New USBC and its subsidiaries,
taken as a whole), (c) the receipt of all consents or approvals of third parties
(other than regulatory authorities) required for consummation of the Merger
other than those that, if not received, would not be reasonably likely to have a
material adverse effect on USBC or FBS, and (d) the approval for listing on the
NYSE of the New USBC Common Stock to be issued in the Merger and the approval
for listing on the NYSE or the approval for quotation on The Nasdaq Stock Market
of the New USBC 8 1/8% Preferred Stock to be issued in the Merger, in each case
subject to official notice of issuance, or (ii) such other date to which the
parties may agree in writing.
At the Effective Time, holders of USBC Common Stock and USBC 8 1/8%
Preferred Stock will cease to be, and will have no rights as, shareholders of
USBC, other than to receive (i) any dividend or other distribution with respect
to such USBC Common Stock or USBC 8 1/8% Preferred Stock with a record date
occurring prior to the Effective Time and (ii) the Merger Consideration. After
the Effective Time, there will be no transfers on the stock transfer books of
USBC or New USBC of shares of USBC Common Stock or USBC 8 1/8% Preferred Stock.
EXCHANGE OF CERTIFICATES
EXISTING USBC COMMON STOCK. At or prior to the Effective Time, FBS will
deposit, or will cause to be deposited, with First Chicago Trust Company of New
York, who has been appointed by FBS as the Exchange Agent, for the benefit of
the holders of certificates formerly representing shares of USBC Common Stock
("USBC Certificates"), certificates representing the shares of New USBC Common
Stock ("New USBC Certificates") and an estimated amount of cash to be paid in
exchange for outstanding shares of USBC Common Stock in the Merger (such cash
and New USBC Certificates, together with any dividends or distributions with
respect thereto (without any interest thereon), being hereinafter referred to as
the "Exchange Fund").
As promptly as practicable after the Effective Date, New USBC will send or
cause to be sent to each holder of record of shares of USBC Common Stock
immediately prior to the Effective Time transmittal materials for use in
exchanging such shareholder's USBC Certificates for the consideration due in
respect thereof. New USBC will cause the New USBC Certificates and/or any check
in respect of any fractional share interests or dividends or distributions that
such shareholder will be entitled to receive to be delivered to such shareholder
upon delivery to the Exchange Agent of USBC Certificates (or indemnity
reasonably satisfactory to FBS and the Exchange Agent, if any of such
certificates are lost, stolen or destroyed) owned by such shareholder. No
interest will be paid on any such cash to be paid in respect of any fractional
share interests or dividends or distributions which any shareholder will be
entitled to receive upon such delivery.
HOLDERS OF USBC COMMON STOCK SHOULD NOT SEND IN THEIR USBC CERTIFICATES
UNTIL THEY RECEIVE THE TRANSMITTAL MATERIALS FROM THE EXCHANGE AGENT.
No fractional shares of New USBC Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in the Merger;
instead, New USBC will pay to each holder of USBC Common Stock who would
otherwise be entitled to a fractional share of New USBC Common Stock (after
taking into account all USBC Certificates delivered by such holder) an amount in
cash (without interest) determined by multiplying such fraction by the average
of the last sale prices of FBS
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Common Stock, as reported by the NYSE Composite Transactions List (as reported
in THE WALL STREET JOURNAL or, if not reported therein, in another authoritative
source) for the five NYSE trading days immediately preceding the Effective Date.
Notwithstanding the foregoing, neither the Exchange Agent nor New USBC nor
USBC will be liable to any holder (or, if after the Effective Time, former
holder) of USBC Common Stock for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
No dividends or other distributions with respect to New USBC Common Stock
with a record date occurring after the Effective Time will be paid to the holder
of any unsurrendered USBC Certificate until the holder thereof surrenders such
USBC Certificate in accordance with the terms of the Merger Agreement (or
delivers indemnity reasonably satisfactory to FBS and the Exchange Agent, if any
such certificate is lost, stolen or destroyed). After the proper surrender of a
USBC Certificate (or delivery of such indemnity), the record holder thereof will
be entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect to shares of
New USBC Common Stock represented by such USBC Certificate.
EXISTING USBC 8 1/8% PREFERRED STOCK. AT AND AFTER THE EFFECTIVE TIME,
CERTIFICATES REPRESENTING SHARES OF USBC 8 1/8% PREFERRED STOCK SHALL BE DEEMED
TO REPRESENT NEW USBC 8 1/8% PREFERRED STOCK WITHOUT ANY FURTHER ACTION ON THE
PART OF NEW USBC, USBC OR THE HOLDER THEREOF. ACCORDINGLY, HOLDERS OF USBC
8 1/8% PREFERRED STOCK SHOULD NOT SEND IN CERTIFICATES FOR SUCH SHARES NOW OR
AFTER THE EFFECTIVE TIME OF THE MERGER. Upon transfers of any such shares of
USBC 8 1/8% Preferred Stock after the Effective Time, New USBC will cause to be
issued new certificates for New USBC 8 1/8% Preferred Stock to the recipient of
such transfer.
EXISTING FBS COMMON STOCK. Certificates representing shares of FBS Common
Stock will remain outstanding after the Merger and will constitute New USBC
Certificates representing shares of New USBC Common Stock. Such certificates,
although referring to FBS prior to the change of FBS's name to "U.S. Bancorp"
and not referring to New USBC, will constitute certificates for New USBC Common
Stock without any action on the part of shareholders. Such certificates may
continue to be sold, pledged or otherwise disposed of exactly as current
certificates for FBS Common Stock may be sold, pledged or otherwise disposed of,
and will constitute for all purposes New USBC Common Stock. ACCORDINGLY, HOLDERS
OF FBS COMMON STOCK SHOULD NOT SEND IN CERTIFICATES FOR SUCH SHARES NOW OR AFTER
THE EFFECTIVE TIME OF THE MERGER. Upon transfer of any certificates representing
shares of FBS Common Stock after the Effective Time, New USBC will cause to be
issued New USBC Certificates to the recipient of such transfer.
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement each of FBS and USBC makes representations and
warranties to the other regarding, among other things, (a) its corporate
organization and existence; (b) its capitalization; (c) disclosure of its
subsidiaries and their corporate organization and existence; (d) its corporate
power and authority to enter into, and its due authorization, execution and
delivery of, the Merger Agreement and the Stock Option Agreements; (e) the
Merger Agreement and the Stock Option Agreements and related transactions not
violating its charter and bylaws, applicable law and certain material
agreements; (f) its financial statements and filings with the Commission; (g)
the absence of undisclosed legal or regulatory actions or proceedings; (h) its
compliance with applicable law; (i) the absence of undisclosed material
contracts and the absence of defaults under its contracts; (j) its investment
banking arrangements; (k) its employee benefit plans and related matters; (l)
its labor matters and practices; (m) the inapplicability to the transactions
contemplated by the Merger Agreement and the Stock Option Agreements of state
anti-takeover statutes and anti-takeover provisions of its articles or
certificate of incorporation; (n) environmental liabilities; (o) the filing and
accuracy of its tax returns; (p) the accounting and tax treatment of the Merger;
(q) required governmental and regulatory approvals; (r) the receipt of fairness
opinions; (s) certain interest rate risk management instruments; (t) in the case
of USBC, the right to use its name; and (u) the absence of certain materially
adverse changes in its business since December 31, 1996.
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CONDUCT OF BUSINESS PRIOR TO THE MERGER AND OTHER COVENANTS
Prior to the Effective Time, except as expressly contemplated by the Merger
Agreement, (i) without the prior written consent of FBS, USBC will not, and will
cause each of its subsidiaries not to, and (ii) without the prior written
consent of USBC (which consent will not be unreasonably withheld or delayed),
FBS will not, and will cause each of its subsidiaries not to take the following
actions:
(1) conduct the business of it and its subsidiaries other than in the
ordinary and usual course or, to the extent consistent with the Merger
Agreement, fail to use reasonable efforts to preserve intact its business
organizations and assets and maintain its rights, franchises and existing
relations with customers, suppliers, employees and business associates, or take
any action that would adversely affect its ability to perform any of its
material obligations under the Merger Agreement;
(2) in the case of USBC, other than pursuant to the conversion, exercise or
exchange of securities that are convertible into or exercisable or exchangeable
for capital stock and that were previously disclosed to FBS and outstanding as
of the date of the Merger Agreement, (i) issue, sell or otherwise permit to
become outstanding, or authorize the creation of, any additional shares of
capital stock, any rights to acquire capital stock or any securities or
obligations convertible into or exercisable or exchangeable for, or giving any
person any right to subscribe for, or any options, calls or commitments relating
to, or any stock appreciation right or other instrument the value of which is
determined in whole or in part by reference to, shares of capital stock, (ii)
enter into any agreement with respect to the foregoing, or (iii) permit any
additional shares of capital stock to become subject to new grants of employee
or director stock options, rights to acquire capital stock, or similar
stock-based employee rights;
(3) (i) make, declare or pay any dividend other than (a) in the case of
USBC, (A) quarterly cash dividends on USBC Common Stock in an amount not to
exceed $0.31 per share, (B) dividends payable on USBC 8 1/8% Preferred Stock at
a rate not exceeding the rate provided for in the terms thereof, and (C)
dividends from 99%-owned subsidiaries to USBC or another 99%-owned subsidiary of
USBC, as applicable, and (b) in the case of FBS, (A) quarterly cash dividends on
FBS Common Stock not in excess of $0.465 per share and (B) dividends from
subsidiaries to FBS or another subsidiary of FBS, as applicable, on or in
respect of, or declare or make any distribution on any shares of its capital
stock, or (ii) directly or indirectly adjust, split, combine, redeem,
reclassify, purchase or otherwise acquire, any shares of its capital stock,
other than as previously agreed to by the other party;
(4) in the case of USBC and its subsidiaries, enter into or amend any
written employment, consulting, severance or similar agreements or arrangements
with any of its directors, officers or employees, or grant any salary or wage
increase or increase any employee benefit (including incentive or bonus
payments), except (i) for normal individual increases in compensation to
employees in the ordinary course of business consistent with past practice, (ii)
for other changes as are provided for in the Merger Agreement or as may be
required by law, (iii) to satisfy contractual obligations existing as of the
date of the Merger Agreement, or (iv) for additional grants of awards to newly
hired employees consistent with past practice;
(5) in the case of USBC and its subsidiaries, enter into or amend (except
(i) as may be required by applicable law or (ii) to satisfy contractual
obligations existing as of the date of the Merger Agreement) any pension,
retirement, stock option, stock purchase, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
related thereto, in respect of any of its directors, officers or other
employees, including without limitation taking any action that accelerates the
vesting or exercise of any benefits payable thereunder;
(6) in the case of USBC, except as previously disclosed to FBS, sell,
transfer, mortgage, encumber or otherwise dispose of or discontinue any portion
of its assets, business or properties, that is material to it and its
subsidiaries taken as a whole, or acquire (other than by way of foreclosures or
acquisitions of control in a bona fide fiduciary capacity or in satisfaction of
debts previously contracted in good faith, in each case in the ordinary and
usual course of business consistent with past practice) all or any portion of,
the assets, business or properties of any other entity that is material to it
and its subsidiaries taken as a
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whole, and in the case of FBS, make, or cause any of its subsidiaries to make,
any acquisition or take any other action which would materially adversely affect
its ability to consummate the transactions contemplated by the Merger Agreement;
(7) in the case of USBC, amend the USBC Articles or the USBC Bylaws;
(8) implement or adopt any change in its accounting principles, practices or
methods, other than as may be required by generally accepted accounting
principles;
(9) in the case of USBC, except in the ordinary course of business
consistent with past practice, enter into or terminate any material contract,
agreement or lease, or amend or modify in a material respect any of its existing
material contracts, leases or agreements;
(10) in the case of USBC and its subsidiaries, except in the ordinary course
of business consistent with past practice, settle any claim, action or
proceeding involving money damages that is material to it and its subsidiaries,
taken as a whole;
(11) take any action while knowing that such action would, or is reasonably
likely to, prevent or impede the Merger from qualifying (i) for
pooling-of-interests accounting treatment or (ii) as a reorganization within the
meaning of Section 368(a) of the Code; or knowingly take any action that is
intended or is reasonably likely to result in (a) any of its representations and
warranties set forth in the Merger Agreement being or becoming untrue in any
material respect at any time at or prior to the Effective Time, (b) any of the
conditions to the Merger not being satisfied, or (c) a material violation of any
provision of the Merger Agreement except, in each case, as may be required by
applicable law; provided, however, that nothing in the Merger Agreement shall
limit the ability of FBS or USBC to exercise its rights under the USBC Stock
Option Agreement or the FBS Stock Option Agreement, as the case may be;
(12) (i) implement or adopt any material change in its interest rate risk
management policies, procedures or practices, (ii) fail to follow its existing
policies or practices with respect to managing its exposure to interest rate
risk, or (iii) fail to use commercially reasonable means to avoid any material
increase in its aggregate exposure to interest rate risk; or
(13) agree or commit to do anything prohibited by the foregoing.
The Merger Agreement provides that, until the Effective Time, USBC and FBS
shall coordinate the declaration of any dividends or other distributions with
respect to USBC Common Stock and FBS Common Stock and the record dates and
payment dates relating thereto. It is intended that holders of shares of USBC
Common Stock and the holders of FBS Common Stock shall not receive more than one
dividend, or fail to receive one dividend, for any single calendar quarter on
their shares.
The Merger Agreement also contains various covenants by the parties,
including those requiring FBS and USBC (1) to use their best efforts in good
faith to take all necessary actions to effect the Merger; (2) to recommend
approval and to take all action necessary to convene a shareholders meeting of
each company to vote on (i) the Merger Agreement and (ii) in the case of FBS,
the FBS Board Expansion Amendment; (3) to cooperate in the preparation of the
Registration Statement and this Joint Proxy Statement-Prospectus; (4) to provide
the other party with reasonable access to information regarding such party under
the condition that no confidential information be shared with any third party
except as required by applicable law or Commission rules and regulations; (5) to
refrain from soliciting or encouraging any alternative business combination
transactions; (6) to use their respective best efforts to cause persons that
they deem as "affiliates" (as defined by Rule 145 under the Securities Act and
Commission Accounting Series Releases 130 and 135) to execute and deliver an
agreement limiting such person's ability to sell, transfer or dispose of his or
her shares of USBC or FBS capital stock, as the case may be; (7) to take all
steps within their control to exempt the transactions contemplated by the Merger
Agreement and the Stock Option Agreements from any state anti-takeover law that
purports to apply to such agreement; (8) to take all reasonable steps to ensure
that entering into the Merger Agreement and the Stock Option Agreements and the
transactions contemplated thereby do not result in any grant of rights to any
person under either party's articles or certificate of incorporation or bylaws
or any material agreement to which such party or its subsidiaries is a party
(except as contemplated under the mandatory
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provisions of its outstanding officer and director stock options and the
Options); (9) in the case of FBS, to use its best efforts (i) to list on the
NYSE prior to the Effective Date, the shares of the New USBC Common Stock to be
issued to the holders of USBC Common Stock in the Merger and (ii) if the USBC
8 1/8% Preferred Stock is quoted on the Nasdaq National Market prior to the
Effective Date, either to list on the NYSE or to provide for the quotation on
the Nasdaq National Market, at FBS's discretion, the New USBC 8 1/8% Preferred
Stock to be issued to holders of USBC 8 1/8% Preferred Stock in the Merger; (10)
to cooperate and use their reasonable best efforts (i) to prepare all
documentation, to effect all filings and to obtain all permits, consents,
approvals and authorizations of all third parties and regulatory authorities
necessary to consummate the transactions contemplated by the Merger Agreement
and (ii) to cause the Merger to be consummated as expeditiously as reasonably
practicable; (11) to use their best efforts to cause their respective
independent public accountants to deliver to the other party customary
accountant's "comfort" letters; (12) in the case of FBS, subject in certain
respects to shareholder approval of the FBS Board Expansion Amendment, to cause
the appointment and election of all of the directors of the USBC Board to the
New USBC Board; and (13) in the case of FBS, to cause the appointment of Mr.
Cameron as Chairman of the New USBC Board and Messrs. Sznewajs and Duim each as
a Vice Chairman of New USBC. See "--Interests of Certain Persons in the Merger."
The Merger Agreement provides that no provision shall be construed to require
USBC, FBS or any of their respective subsidiaries or affiliates to take any
action that would violate applicable law (whether statutory or common law), rule
or regulation.
In addition, FBS has agreed to indemnify the present and former officers and
directors of USBC and its subsidiaries to the fullest extent permitted by Oregon
law, the USBC Articles and the USBC Bylaws with respect to claims, actions or
proceedings arising out of actions or omissions occurring at or prior to the
Effective Time and, for three years following the Effective Date, to use its
best efforts to provide that portion of directors' and officers' liability
insurance that serves to reimburse the present and former directors and officers
of USBC or any of its subsidiaries with respect to claims arising from facts or
events which occurred prior to the Effective Time. See "--Interests of Certain
Persons in the Merger."
The Merger Agreement provides that until the transition to New USBC's
benefit plans as set forth below, New USBC and its subsidiaries shall provide
employees of USBC and its subsidiaries who become employees of New USBC and its
subsidiaries with compensation and employee benefit plans, programs,
arrangements and other perquisites ("Employee Benefit Plans") that are, in the
aggregate, substantially the same as the compensation and Employee Benefit Plans
provided to such individuals by USBC immediately prior to the Effective Date.
Within two years following the Effective Time, New USBC and its subsidiaries
shall provide USBC employees who become employees of New USBC with compensation
and Employee Benefit Plans that are substantially the same as the compensation
and Employee Benefit Plans provided to similarly situated employees of New USBC
or its subsidiaries who were not employees of USBC.
The Merger Agreement provides that, notwithstanding the foregoing, New USBC
and its Subsidiaries shall honor, in accordance with their terms, all benefits
(including retiree benefits) vested as of the Effective Time under USBC's
Employee Benefit Plans or under other contracts, arrangements, commitments or
understandings as disclosed by USBC. See "--Interests of Certain Persons in the
Merger."
The Merger Agreement provides that New USBC will, following the Effective
Date, maintain the aggregate level of charitable contributions historically
maintained by USBC in USBC markets.
The Merger Agreement provides that, except with respect to (i) liability
insurance for, and indemnification of, directors and officers of USBC and its
subsidiaries and (ii) the election of USBC Board members to the New USBC Board
and the appointment of certain USBC officers as officers of New USBC, nothing in
the Merger Agreement expressed or implied is intended to confer upon any person,
other than the parties thereto or their respective successors, any rights,
remedies, obligations or liabilities under or by reason of the Merger Agreement.
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CONDITIONS TO THE MERGER
The obligation of each of the parties to consummate the Merger is
conditioned upon the satisfaction at or prior to the Effective Time of each of
the following: (1) approval and adoption of the Plan of Merger contained in the
Merger Agreement by the requisite vote of the holders of USBC Common Stock and
the requisite vote of the holders of FBS Common Stock; (2) all regulatory
approvals required to consummate the transactions contemplated by the Merger
Agreement shall have been obtained and shall be in full force and effect and all
statutory or regulatory waiting periods in respect thereof shall have expired
and no such approvals shall contain any conditions or restrictions that either
the FBS Board or the USBC Board reasonably determines in good faith would,
following the Effective Time, have a material adverse effect on New USBC and its
subsidiaries taken as a whole; (3) the receipt of all consents or approvals of
all persons (other than regulatory authorities) required for the consummation of
the Merger unless the failure to obtain any such consent or approval is not
reasonably likely to have, individually or in the aggregate, a material adverse
effect on USBC or FBS; (4) no order, decree or injunction of any court or agency
of competent jurisdiction is in effect, and no law, statute or regulation has
been enacted or adopted, that enjoins, prohibits or makes illegal the
consummation of any of the transactions contemplated by the Merger Agreement;
(5) in the case of FBS, FBS shall have received from Ernst & Young LLP, its
independent auditors, letters, dated the date of or shortly prior to each of the
date on which this Joint Proxy Statement-Prospectus is first mailed to
shareholders and again on the Effective Date, stating its opinion that the
Merger will qualify for pooling-of-interests accounting treatment; (6) with
respect to the obligations of each party, (i) the representations and warranties
of the other party contained in the Merger Agreement will be true and correct as
of the time of the Merger Agreement and the Effective Time (except for any
representations and warranties made as of a specified date, which shall be true
and correct as of such date) and (ii) each of the agreements and covenants to be
performed and complied with by the other party pursuant to the Merger Agreement
on or prior to the Effective Date shall have been duly performed and complied
with in all respects (except to the extent that any failure so to comply would
not be reasonably likely to result, individually or in the aggregate, in a
material adverse effect on the financial position, results of operations or
business with respect to that other party); (7) no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
Commission or any other regulatory authority; (8) opinions from Cleary,
Gottlieb, Steen & Hamilton and Wachtell, Lipton, Rosen & Katz shall have been
received by FBS and USBC, respectively, dated as of the Effective Time, to the
effect that the Merger will be treated as a reorganization within the meaning of
Section 368(a) of the Code (See "--Certain Federal Income Tax Consequences");
(9) a certificate of designations having been filed in accordance with Section
151 of the DGCL fixing the preferences, limitations and relative rights of the
New USBC 8 1/8% Preferred Stock; and (10) the shares of New USBC Common Stock
issuable pursuant to the Merger Agreement having been approved for listing on
the NYSE, and if the shares of USBC 8 1/8% Preferred Stock were quoted on The
Nasdaq Stock Market prior to the Effective Time, the shares of New USBC 8 1/8%
Preferred Stock issuable pursuant to the Merger Agreement either having been
approved for listing on the NYSE or approved for quotation on the Nasdaq
National Market, in either case, subject to official notice of issuance.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated, and the Merger may be abandoned (1)
at any time prior to the Effective Time, by the mutual consent of FBS and USBC,
if the Board of Directors of each party so determines by vote of a majority of
the members of its entire Board; (2) at any time prior to the Effective Time, by
either FBS or USBC, if its Board of Directors so determines by vote of a
majority of the members of its entire Board, in the event of either (i) a breach
by the other party of any of its representations or warranties contained in the
Merger Agreement, which breach cannot be or has not been cured within 30 days
after the giving of written notice to the breaching party of such breach, or
(ii) a breach by the other party of any of its covenants or agreements contained
in the Merger Agreement, which breach cannot be or has not been cured within 30
days after the giving of written notice to the breaching party of such breach
and which breach would be reasonably likely, individually or in the aggregate,
to result in a material
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adverse effect with respect to the breaching party; (3) at any time prior to the
Effective Time, by either FBS or USBC, if its Board of Directors so determines
by vote of a majority of the members of its entire Board, in the event that the
Merger is not consummated by March 31, 1998, except to the extent that the
failure of the Merger to be consummated arises out of or results from the
knowing action or inaction of the party seeking to terminate the Merger
Agreement; (4) by either FBS or USBC, if its Board of Directors so determines by
a vote of a majority of its members, in the event (i) the approval of the
Federal Reserve Board or any other regulatory authority required for
consummation of the Merger and the other transactions contemplated by the Merger
Agreement will have been denied by final nonappealable action or (ii) any
required shareholder approval and adoption of the Merger Agreement is not
obtained at the USBC Annual Meeting or the FBS Special Meeting; or (5) by FBS or
USBC, if the Board of Directors of the other party withdraws its recommendation
or adversely modifies or changes its recommendation to its shareholders to
approve the Merger Agreement and, in the case of FBS, the FBS Board Expansion
Amendment at any time prior to their respective meeting of shareholders.
In the event of termination of the Merger Agreement pursuant to its terms
and the abandonment of the Merger, no party to the Merger Agreement will have
any liability or further obligation to any other party except (i) for the
Termination Fee Provisions and the provisions of the Merger Agreement and the
Confidentiality Agreement providing for the continued confidentiality of
confidential information and expense allocation, and (ii) that termination will
not relieve a breaching party from liability for any willful breach of the
Merger Agreement giving rise to such termination. Termination of the Merger
Agreement will not affect the Stock Option Agreements.
WAIVER AND AMENDMENT
Prior to the Effective Time, any provision of the Merger Agreement may be
(i) waived by the party benefited by such provision or (ii) amended or modified
at any time by an agreement in writing between FBS and USBC and approved by
their respective Boards of Directors and executed in the same manner as the
Merger Agreement, provided that after the USBC Annual Meeting, the Merger
Consideration to be received by the USBC Shareholders for each share of USBC
stock will not thereby be decreased.
EXPENSES AND TERMINATION FEES
The Merger Agreement provides that, in the event of the termination of the
Merger Agreement and the abandonment of the Merger at any time by either party
in the event of (i) a material breach by the other party of such party's
representations, warranties, covenants or agreements in the Merger Agreement,
(ii) any withdrawal or adverse modification or change to the recommendation to
shareholders by the Board of Directors of the other party or (iii) a failure on
the part of the other party to receive the requisite shareholder approval of the
Merger Agreement, the terminating party will be entitled to receive, as
compensation to such party for the expenses associated with the negotiation of
the Merger Agreement and the other matters contemplated by the Merger Agreement,
a fee of $20,000,000, payment of which will not be subject to approval by the
shareholders of either party.
Except as provided in the Termination Fee Provisions described above, each
party to the Merger Agreement will bear all expenses incurred by it in
connection with the Merger Agreement and the transactions contemplated thereby,
except that printing expenses and Commission registration fees will be shared
equally between USBC and FBS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
USBC and FBS expect that the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code and that for federal income tax
purposes no gain or loss will be recognized by shareholders of USBC upon the
receipt of New USBC Common Stock for USBC Common Stock or New USBC 8 1/8%
Preferred Stock for USBC 8 1/8% Preferred Stock pursuant to the Merger (except
with respect to the receipt of cash by a holder of USBC Common Stock in lieu of
a fractional share interest in New USBC Common Stock). The Internal Revenue
Service (the "Service") has not been and will not be asked
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to rule on the tax consequences of the Merger. Instead, USBC will rely on the
opinion of Wachtell, Lipton, Rosen & Katz, special counsel to USBC, and FBS will
rely on the opinion of Cleary, Gottlieb, Steen & Hamilton, special counsel to
FBS, as to certain federal income tax consequences of the Merger. Such opinions
will be based upon facts described therein and upon certain assumptions and
certain representations that will be made by USBC and FBS. The opinions of
Wachtell, Lipton, Rosen & Katz and Cleary, Gottlieb, Steen & Hamilton will be
based on the Code, the Regulations promulgated thereunder, current
administrative rulings and practice and judicial authority, all of which are
subject to change. An opinion of counsel is not binding on the Service and there
can be no assurance, and none is hereby given, that the Service will not take a
position contrary to one or more positions reflected in such opinions or that
such opinions will be upheld by the courts if challenged by the Service. EACH
SHAREHOLDER OF USBC COMMON STOCK AND USBC 8 1/8% PREFERRED STOCK IS URGED TO
CONSULT HIS OR HER OWN TAX AND FINANCIAL ADVISORS AS TO THE FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER UNDER SUCH SHAREHOLDER'S OWN PARTICULAR FACTS AND
CIRCUMSTANCES AND ALSO AS TO ANY STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES
ARISING OUT OF THE MERGER.
The obligation of each of USBC and FBS to consummate the Merger is
conditioned on, among other things, the receipt by USBC of the opinion, dated as
of the Effective Time, of Wachtell, Lipton, Rosen & Katz and the receipt by FBS
of the opinion, dated as of the Effective Time, of Cleary, Gottlieb, Steen &
Hamilton, each of which will be based upon facts and representations to be
provided to such firms, and subject to various assumptions, substantially to the
effect that the Merger will qualify as a "reorganization" within the meaning of
Section 368(a) of the Code and that the following material federal income tax
consequences will result from the Merger:
(a) No gain or loss will be recognized by FBS or USBC as a result of the
Merger;
(b) No gain or loss will be recognized by the shareholders of USBC who
exchange their USBC Common Stock or USBC 8 1/8% Preferred Stock solely for
New USBC Common Stock or New USBC 8 1/8% Preferred Stock, respectively,
pursuant to the Merger (except with respect to cash received by a holder of
USBC Common Stock in lieu of a fractional share interest in New USBC Common
Stock); and
(c) The tax basis of the New USBC Common Stock and New USBC 8 1/8%
Preferred Stock received by USBC shareholders who exchange all of their USBC
Common Stock and USBC 8 1/8% Preferred Stock solely for New USBC Common
Stock and New USBC 8 1/8% Preferred Stock, respectively, in the Merger will
be the same as the tax basis of the USBC Common Stock or USBC 8 1/8%
Preferred Stock, as the case may be, surrendered in exchange therefor.
The receipt by a holder of USBC Common Stock of cash in lieu of a fractional
share interest in New USBC Common Stock will be treated as though the fractional
share of New USBC Common Stock was distributed as a part of the exchange and
then redeemed by New USBC, and, assuming that the redemption of the fractional
share of New USBC Common Stock is characterized as a sale or exchange of such
stock and not as a dividend, a USBC shareholder will recognize gain or loss in
an amount equal to the difference between the amount of cash received and the
basis of the fractional share of New USBC Common Stock deemed to be surrendered,
which gain or loss will be capital gain or loss if the New USBC Common Stock was
a capital asset in the hands of the USBC shareholder.
The foregoing is only a summary description of the material anticipated
federal income tax consequences of the Merger, without regard to the particular
facts and circumstances of each shareholder of USBC. It does not discuss all of
the consequences that may be relevant to shareholders of USBC entitled to
special treatment under the Code (such as insurance companies, dealers in
securities, exempt organizations or foreign persons) or to shareholders of USBC
who acquired their USBC stock pursuant to the exercise of employee stock options
or otherwise as compensation. The summary set forth above does not purport to be
a complete analysis of all potential tax effects of the transactions
contemplated by the Merger Agreement or the Merger itself. No information is
provided herein with respect to the tax consequences, if any, of the Merger or
the exchange of shares pursuant thereto under state, local, foreign or other tax
laws.
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USBC has received from Wachtell, Lipton, Rosen & Katz, and FBS has received
from Cleary, Gottlieb, Steen & Hamilton, such firm's opinion, dated June 17,
1997, that, based upon and subject to certain facts, representations and
assumptions set forth therein, the foregoing discussion, except as otherwise
indicated, represents such firm's opinion as to the material federal income tax
consequences of the Merger under currently applicable law.
In the event that USBC or FBS is unable to obtain its respective opinion of
counsel, dated as of the Effective Time, as set forth above, each of USBC and
FBS is permitted, under the Merger Agreement, to waive the receipt of such
opinions as a condition to such party's obligation to consummate the Merger. As
of the date of this Joint Proxy Statement-Prospectus, neither USBC nor FBS
intends to waive the condition as to the receipt of opinions of counsel as set
forth herein and neither party anticipates that the material income tax
consequences of the Merger will be materially different than those described
above. In the event of such a failure to obtain tax opinions as set forth above,
and a party's determination to waive such condition to the consummation of the
Merger, both USBC and FBS will resolicit the votes of its respective
shareholders to approve consummation of the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of FBS's management, the FBS Board, USBC's management and
the USBC Board may be deemed to have certain interests in the Merger that are in
addition to their interests as FBS Shareholders or USBC Shareholders, as the
case may be, generally. The FBS Board and the USBC Board were aware of these
interests in approving the Merger Agreement and the transactions contemplated
thereby.
BOARD OF DIRECTORS. At the Effective Time, subject to approval of the FBS
Board Expansion Amendment, FBS will cause all of the members of the USBC Board
on the date of the Merger Agreement who remain members of the USBC Board
immediately prior to the Effective Time and willing so to serve ("Former USBC
Directors") to be elected or appointed as directors of New USBC at, or as
promptly as practicable after, the Effective Time. It is expected that at the
Effective Time, the New USBC Board will consist of 26 persons (unless otherwise
agreed to in writing prior to the Effective Time): the 15 members of the FBS
Board and the 11 directors listed under "ELECTION OF USBC DIRECTORS."
In the event that the FBS Board Expansion Amendment is not approved, FBS
shall appoint or elect 10 Former USBC Directors to the New USBC Board and shall
appoint the remaining Former USBC Director (as selected by the Chief Executive
Officer of USBC) and one FBS director (as agreed among the members of the FBS
Board) as advisory directors of the New USBC Board. It is the intention of the
parties that the size of the New USBC Board be substantially reduced as of the
first annual meeting of shareholders of New USBC following the Effective Time,
but that, in connection with such reduction, and thereafter until at least the
third annual meeting of shareholders of New USBC following the Effective Time,
the Former USBC Directors shall constitute in the aggregate between 40% and 45%
of the total number of directors of New USBC then in office.
For information on the current members of the USBC Board who are expected to
become members of the New USBC Board after the Merger, see "MANAGEMENT AND
OPERATIONS AFTER THE MERGER--Board of Directors" and "ELECTION OF USBC
DIRECTORS." For information on the current members of the FBS Board who will
continue to serve as directors of New USBC after the Merger, see "MANAGEMENT AND
OPERATIONS AFTER THE MERGER--Board of Directors."
SENIOR MANAGEMENT. The Merger Agreement provides that at the Effective
Time, John F. Grundhofer, Chairman, President and Chief Executive Officer of
FBS, will be President and Chief Executive Officer of New USBC. The Merger
Agreement also provides that at the Effective Time (i) Gerry B. Cameron,
President and Chief Executive Officer of USBC and Chairman of the USBC Board,
will become Chairman of the New USBC Board for a term extending through December
31, 1998 and (ii) Robert D. Sznewajs, Vice Chairman of USBC, and Gary T. Duim,
Executive Vice President of USBC, shall each be a Vice Chairman of New USBC.
Richard A. Zona and Philip G. Heasley, each currently a
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Vice Chairman of FBS, will each continue as a Vice Chairman of New USBC. See
"--Employment Agreements with Gerry B. Cameron, Gary T. Duim and Robert D.
Sznewajs," "--Employment Agreement with John F. Grundhofer" and "--Proposed
Employment Agreements with Richard A. Zona and Philip G. Heasley."
DIRECTORS' AND OFFICERS' INSURANCE; INDEMNIFICATION OF USBC DIRECTORS AND
OFFICERS. The Merger Agreement provides that, for a period of three years after
the Effective Time, New USBC shall use its best efforts to provide that portion
of directors' and officers' liability insurance that serves to reimburse the
present and former directors and officers of USBC or any of its subsidiaries
(determined as of the Effective Time) with respect to claims against such
directors and officers arising from facts or events which occurred before the
Effective Time, which insurance shall contain at least the same coverage and
amounts, and contain terms and conditions no less advantageous, than the
coverage currently provided by USBC; provided, however, that in no event shall
New USBC be required to expend more than 200% of the current amount expended by
USBC ($557,613) (the "Insurance Amount") to maintain or procure such directors'
and officers' insurance coverage; provided, further, that if New USBC is unable
to maintain or obtain the insurance called for by the Merger Agreement, New USBC
shall use its reasonable best efforts to obtain as much comparable insurance as
is available for the Insurance Amount; and provided, further, that the officers
and directors of USBC or any subsidiary may be required to make application and
provide customary representations and warranties to New USBC's insurance carrier
for the purpose of obtaining such insurance; and provided, further, that such
coverage will have a single aggregate for such three-year period in an amount
not less than the annual aggregate of such coverage currently provided by USBC.
The Merger Agreement also requires New USBC to indemnify, defend and hold
harmless each present and former director and officer of USBC and its
subsidiaries, following the Effective Date (each, an "Indemnified Party"),
against all costs or expenses (including reasonable attorneys' fees), judgments,
fines, losses, claims, damages or liabilities (collectively, "Costs") incurred
in connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative (each a "Claim"), arising out
of actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by the Merger Agreement), to
the fullest extent that USBC is permitted to indemnify its directors and
officers under Oregon law, the USBC Articles and USBC Bylaws as in effect on the
date of the Merger Agreement. The Merger Agreement also provides that New USBC
will advance expenses incurred by such persons in connection with Claims to the
fullest extent permitted under applicable law. These indemnification obligations
of New USBC will continue in force without limitation as to time.
ACCELERATED VESTING UNDER EMPLOYEE BENEFIT PLANS. The consummation of the
Merger will constitute a change in control of USBC for purposes of certain of
USBC's benefit plans, and consummation of the Merger will constitute a partial
change in control of FBS for purposes of FBS's benefit plans; accordingly,
provisions of certain of these benefit plans will, under certain circumstances,
cause the acceleration of vesting and/or payment of certain equity-based and
cash-based incentives as described below.
EMPLOYMENT AGREEMENTS WITH GERRY B. CAMERON, GARY T. DUIM AND ROBERT D.
SZNEWAJS. FBS has entered into Employment Agreements with each of Mr. Gerry B.
Cameron, the current Chairman of the Board, President and Chief Executive
Officer of USBC, Mr. Gary T. Duim, the current Executive Vice President of USBC,
and Mr. Robert D. Sznewajs, the current Vice Chairman of USBC, that become
effective on the Effective Date of the Merger. Under the Employment Agreement
with Mr. Cameron, he will receive an initial cash payment equal to the amount to
which he would have been entitled under his existing employment agreement with
USBC if, following a change of control of USBC (such as will result from the
Merger), he was no longer Chief Executive Officer. Assuming the Effective Date
is August 1, 1997, such initial payment would be approximately $5,946,506. Mr.
Cameron will also be employed as Chairman of New USBC through December 31, 1998
at an annual salary not less than his current USBC salary and an annual bonus
such that his total cash compensation is equal to the greater of his total
salary ($800,000) and bonus ($848,640) in 1996 at USBC or the salary and bonus
for the year in question of the
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Chief Executive Officer of New USBC. At the Effective Date Mr. Cameron will be
granted 75,000 shares of New USBC restricted stock and options on 200,000 shares
of New USBC Common Stock (with an exercise price equal to the fair market value
of the shares on the Effective Date of the Merger). The value of the restricted
stock and options will depend on the market price of New USBC Common Stock at
and after the Effective Time. For information on historical prices of FBS Common
Stock, see "MARKET PRICES AND DIVIDENDS--FBS." The restricted shares and options
will vest on the earliest of December 31, 1998, a change of control of New USBC,
his death, his termination without cause (as defined) or his resignation with
good reason (as defined). Upon a termination without cause or for good reason he
would also receive the remainder of his compensation through December 31, 1998.
Upon termination of his employment for any reason, he would be entitled to
receive, in lieu of the pension benefits he would have been entitled to receive
under his existing USBC arrangements, a retirement benefit of $1,000,000 per
year for life less any benefit payable pursuant to FBS's and USBC's qualified
retirement plan, and if his current wife survives him, she will be entitled to
receive an annual benefit of $500,000 per year for her life. Mr. Cameron and his
current wife will also be entitled to medical benefits for life (with an
approximate value of $69,000 over the benefits to which Mr. Cameron is entitled
under his existing employment agreement with USBC). Mr. Cameron will be based in
Portland and, in addition to presiding over New USBC Board meetings, would have
such responsibilities as are assigned to him from time to time by the New USBC
Board. The Merger Agreement also provides that Mr. Cameron will be Chairman of
the New USBC Board for a term extending through December 31, 1998.
Pursuant to the terms of their respective employment agreements, which have
a term of three years commencing on the Effective Date, Messrs. Duim and
Sznewajs each would serve as a Vice Chairman of New USBC. They would each be
entitled to an initial cash payment equal to what they would have received under
their existing USBC employment contracts if they terminated their employment for
"good reason" following the Merger. Assuming the Effective Date is August 1,
1997, such initial payments could be $2,859,148 in the case of Mr. Duim and
$3,541,378 in the case of Mr. Sznewajs. For a three-year period each will be
entitled to a base salary plus bonus such that his base salary and bonus are not
less than the base salary and bonus of other New USBC Vice Chairmen. Although
the final base salaries and bonuses have not yet been determined, the annual
base salary of each of them could initially range from $415,000 to $450,000.
Messrs. Duim and Sznewajs will also receive an amount equal to the remainder of
their compensation over the three-year period if they are terminated by New USBC
without cause or resign for good reason (as defined). They will each receive
50,000 shares of restricted New USBC Common Stock and options covering 100,000
shares of New USBC Common Stock with an exercise price equal to the fair market
value of the shares on the Effective Date of the Merger, vesting over three
years or on a change of control, on their termination without cause or on their
resignation with good reason, except that only one-half of the shares of
restricted New USBC Common Stock would vest upon a resignation with good reason.
The value of such restricted stock and options will depend on the market price
of New USBC Common Stock at and after the Effective Time. For information on
historical prices of FBS Common Stock, see "MARKET PRICES AND DIVIDENDS--FBS."
New USBC will pay Messrs. Cameron, Duim and Sznewajs an amount sufficient to
cover any taxes imposed under Section 4999 of the Code (including any taxes
imposed on any such payments), provided that if it is determined that the
payments with respect to which such taxes would be imposed do not exceed 110% of
the greatest amount (the "Reduced Amount") that could be paid without giving
rise to any such tax, then New USBC will make no payment in respect of any taxes
imposed under Section 4999 of the Code and the payments will be reduced to the
Reduced Amount. The effect of any payments to be made by New USBC in respect of
Section 4999 of the Code will be that the amounts to be received by Messrs.
Cameron, Duim and Sznewajs will not be reduced by any excise tax thereunder.
While the statutory provisions and rules relating to the type and amount of
payments subject to tax under Section 4999 of the Code are complex and the
following does not purport to be a complete description thereof, in general,
Section 4999 of the Code imposes a 20% excise tax on the receipt of certain
payments by particular individuals specified in the Code (including officers,
employee-shareholders or
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"highly compensated individuals" of a corporation (as defined in the Code))
which payments are, among other things, contingent upon a change in control of
the corporation, and which equal or exceed three times the average annual amount
(the "Base Amount") paid by the corporation and includible in the gross income
of the individual during the five years preceding the date of the change in
control. If Section 4999 applies, the excise tax is 20% of the excess of such
payments over the Base Amount.
USBC EXECUTIVE AGREEMENTS. USBC has individual employment agreements (the
"USBC Executive Agreements") with the 12 executive officers of USBC (including
agreements between USBC and each of Messrs. Cameron, Duim and Sznewajs). The
USBC Executive Agreements generally provide that in the event of a termination
of employment by the company without "cause" or by the executive for "good
reason" (as defined) during the three-year period following a "change in
control," such executive officers would be entitled to receive (i) his or her
full base salary through the date of termination at the rate in effect on the
date the change in control occurred, plus (ii) depending on the individual
contract, an amount equal to a multiple (generally two or three times) of the
sum of (x) his or her annual base salary at such rate plus (y) his or her
highest annual bonus paid during the three calendar years ending prior to the
year in which the change in control occurred, plus (iii) an amount equal to the
excess of (x) the actuarial equivalent of the executive's benefit under the U.
S. Retirement Plan and the U. S. Supplemental Benefits Plan, determined as if
the executive's employment continued for a specified period after the date of
termination, over (y) the actuarial equivalent of the executive's actual benefit
(paid or payable) under the U. S. Retirement Plan and the U. S. Supplemental
Plan at the date of termination, as well as continuation of the company's
welfare benefits. Consummation of the Merger will constitute a change in control
for purposes of the USBC Executive Agreements.
Individuals (other than certain USBC employees with written employment
agreements or change in control agreements) who are employees of USBC or any of
its subsidiaries immediately prior to the Effective Time and whose employment is
terminated within two years after the Effective Time or, in certain cases, in
anticipation of the Merger, shall be entitled to receive cash severance benefits
in an amount equal to the greater of (i) the cash severance benefits, if any, to
which they would have been entitled under USBC's Employee Benefit Plans as in
effect immediately prior to the Effective Time and (ii) the cash severance
benefits, if any, to which they would have been entitled under FBS's Employee
Benefits Plans if they had been employees of FBS immediately prior to the
Effective Time and through the time of such termination; provided that payment
of this amount shall be in complete settlement of any amounts to which such
employees would have been entitled under USBC's Employee Benefit Plans and FBS's
Employee Benefit Plans. In computing the benefits payable pursuant to the Merger
Agreement, service with USBC and its subsidiaries shall be treated as service
with FBS and its subsidiaries.
Pursuant to the Merger Agreement, written employment agreements or change in
control agreements with certain USBC employees (other than the agreements of
Messrs. Cameron, Sznewajs and Duim) will remain in full force and effect except
that FBS has agreed that any of such agreements providing for severance benefits
of two times base salary and bonus and two years of benefits continuation and
pension credit shall, at the Effective Time, be deemed amended to provide
severance benefits of three times base salary and bonus, three years of benefits
continuation and five years of pension credit.
Based on the foregoing, and assuming that each of the following executive
officers of USBC terminated such individual's employment with good reason
immediately after an assumed Effective Date of August 1, 1997, such individuals
would receive payments in approximately the following amounts: Arland D.
Hatfield, $3,015,068; V. Lamoine Saunders, $2,676,029 (in the case of Mr.
Saunders, not including a retirement benefit annuity with a value of $354,006);
and other USBC executive officers as a group (other than Messrs. Cameron, Duim
and Sznewajs) $12,540,250.
USBC, or any successor thereto, will also pay such executive an amount
sufficient to cover any tax imposed under Section 4999 of the Code and penalties
resulting from the payments provided in the agreement or otherwise, provided
that if it is determined that the lump-sum payment plus the additional payments
do not exceed 110% of the greatest amount that could be paid to the executive
without giving
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rise to any excise tax, then the payments will be reduced. See "--Employment
Agreements with Gerry B. Cameron, Gary T. Duim and Robert D. Sznewajs."
USBC STOCK OPTIONS AND RESTRICTED STOCK. The Merger will constitute a
"change in control" under certain existing USBC stock-based compensation plans,
including the USBC 1990 Non-Employee Director Stock Option Plan, as amended and
restated, and the USBC 1993 Stock Incentive Plan. Unvested options granted under
each such plan generally will vest in full upon consummation of the Merger, and
restricted stock units will be converted into unrestricted shares of USBC Common
Stock. In the case of the 1993 Stock Incentive Plan, the lapse of restrictions
will not occur until a termination of the grantee's employment within a
specified period following consummation of the Merger (by USBC without "Cause,"
or by the grantee for "Good Reason," in each case as defined in the 1993 Stock
Incentive Plan). As a result of these provisions, assuming the Effective Date is
August 1, 1997, the non-employee directors of USBC, in the aggregate, will
become vested in options representing 21,155 shares of USBC Common Stock, and
the executive officers of USBC, assuming, for purposes of the vesting of
restricted stock only, that they were to terminate their employment for Good
Reason immediately after the Effective Time, would become vested in options and
restricted stock representing, in the aggregate, 375,553 shares of USBC Common
Stock (including 87,345, 20,175 and 30,021 shares with respect to Messrs.
Cameron, Duim and Sznewajs, respectively). Also, upon consummation of the
Merger, unvested performance shares awardable under the 1993 Stock Incentive
Plan will be deemed to have been earned to the extent provided in such plan (and
in the performance shares award agreements thereunder). The number of shares
earned cannot be precisely determined until the Effective Date and will depend
on specified business performance measures with respect to USBC, determined at
the time of the Merger and pursuant to the 1993 Stock Incentive Plan. Assuming
the Effective Date is August 1, 1997, executive officers of USBC who are
participants in the 1993 Stock Incentive Plan will be deemed to have earned, in
the aggregate, performance shares representing an estimated 88,549 shares of
USBC Common Stock (including an estimated 34,722, 6,314 and 11,049 shares with
respect to Messrs. Cameron, Duim and Sznewajs, respectively). Under the USBC
Performance Cash Award Plan, each USBC executive officer participating therein
is entitled to receive, on an accelerated basis, a portion of his or her
performance cash award after a change in control, such as the Merger. The
portion of the performance cash award to be received will depend on certain
business performance measures with respect to USBC, determined at the time of
the Merger and pursuant to the USBC Performance Cash Award Plan. Assuming the
Effective Date is August 1, 1997, USBC executive officers would be entitled to
receive performance cash awards of an estimated $3,692,809 in the aggregate
(including an estimated $1,329,061, $260,643 and $459,958 with respect to
Messrs. Cameron, Duim and Sznewajs, respectively). The actual performance awards
as finally determined could be materially different from the foregoing
estimates. For more information on the participation of USBC directors and
executive officers in stock-based compensation plans, see "ELECTION OF USBC
DIRECTORS--Executive Compensation."
EMPLOYMENT AGREEMENT WITH JOHN F. GRUNDHOFER. Under John F. Grundhofer's
employment agreement with FBS, Mr. Grundhofer is entitled to severance benefits
in the event of termination of employment under certain circumstances. In the
event of termination of employment without "cause" or by Mr. Grundhofer with
"good reason" (as such terms are defined in the employment agreement), in
addition to compensation and benefits already earned, he will be entitled to
receive (i) a lump sum payment equal to three times his annual salary plus
target bonus potential, (ii) continuation of his participation in FBS benefit
and retirement plans and continuation of a $1 million life insurance policy for
a three-year period, (iii) continuation of personal benefits for a three-year
period, (iv) immediate exercisability of all options and vesting of restricted
stock that would have become exercisable or vested during the remaining term of
the employment agreement if no such termination had occurred, (v) credit for
three additional years of service under FBS's Supplemental Executive Retirement
Plan ("SERP"), and (vi) payment for individual outplacement counseling services
up to a maximum of $60,000. In the event FBS terminates Mr. Grundhofer's
employment with "cause," or he terminates employment without "good reason," Mr.
Grundhofer would forfeit all compensation and benefits following such
termination. In the event of
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termination of employment without "cause" or by Mr. Grundhofer with "good
reason" within 24 months following a partial change in control, including the
Merger, the following additional provisions will apply: (vii) the bonus used to
calculate the lump sum payment under (i) above will be the greatest of Mr.
Grundhofer's (a) target bonus potential available on the date of termination,
(b) the bonus earned in the last fiscal year prior to the date of termination,
or (c) the average bonus earned in the last three fiscal years prior to the date
of termination; (viii) credit shall be given for five (instead of three)
additional years of service under (v) above; (ix) FBS will pay Mr. Grundhofer
the full amount of any long-term cash incentive award for any plan periods then
in progress to the extent not provided for in any FBS long-term cash incentive
plan or plans; and (x) the year-to-date pro rata amount of any annual cash
incentive award to the extent not provided for in any FBS annual cash incentive
plan or plans. Based on the foregoing, and assuming that Mr. Grundhofer
terminated his employment for good reason immediately after an assumed Effective
Date of August 1, 1997, he would be entitled to a cash payment of approximately
$9.3 million (including the SERP enhancement described above).
Mr. Grundhofer's employment agreement provides that the payments and
benefits which he is entitled to receive in the event of termination of his
employment will be reduced by certain amounts which he earns from other
employment or services during the three-year period following his termination of
employment with FBS. FBS has agreed to compensate Mr. Grundhofer for certain
taxes and penalties which may be imposed as a result of payments and benefits
which he receives in the event of termination of his employment after a partial
change in control.
FBS CHANGE IN CONTROL SEVERANCE AGREEMENTS. FBS has entered into individual
change in control severance agreements with certain executive officers (other
than Mr. Grundhofer) providing for severance payments upon termination of
employment in anticipation of or during the two-year period following a "full
change in control" or "partial change in control" of FBS (as defined in such
agreements). The Merger will constitute a partial change in control for this
purpose. Termination of employment must be by FBS other than for "cause" or by
the individual for "good reason (partial)," as such terms are defined in the
relevant agreements. The agreements provide for a lump sum payment equal to
three times the terminated individual's annual salary and average actual
incentive pay for the prior three years, continuation of certain benefits for up
to three years, credit for three additional years of service under FBS
retirement plans and five additional years of service under FBS's SERP, the
payment of long-term cash incentive awards and pro rata annual cash incentive
awards and individual outplacement services. Based on the foregoing, and
assuming that each of the following executive officers of FBS terminated such
individual's employment for good reason immediately after an assumed Effective
Date of August 1, 1997, such individuals would receive cash payments (including
SERP enhancements) in approximately the following amounts: Richard A. Zona,
$4,186,924; Philip G. Heasley, $3,590,467; Daniel C. Rohr, $2,338,350; and John
M. Murphy, Jr., $2,089,007; all 7 other executive officers of FBS as a group,
$9,328,503. In addition, FBS has agreed to pay such officers an amount
sufficient to cover any tax imposed by Section 4999 of the Code and penalties
resulting from payments and benefits under the severance pay agreement and other
arrangements. FBS also maintains change in control severance plans covering a
broad range of salaried employees and providing for different levels of payments
based on job classification. The vesting of outstanding stock options
accelerates and restrictions on restricted stock lapse upon a full change in
control (as defined), and upon certain terminations of employment in connection
with a partial change in control (as defined), of FBS. The Merger will
constitute a partial change in control for these purposes. Pursuant to the FBS
Personal Retirement Account, a broad-based retirement plan, vesting of accounts
accelerates under certain circumstances in connection with a partial change in
control. Under the FBS Capital Accumulation Plan, FBS's 401(k) plan, partial
year matching contributions would be made under certain circumstances in
connection with a partial change in control.
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PROPOSED EMPLOYMENT AGREEMENTS WITH RICHARD A. ZONA AND PHILIP G.
HEASLEY. FBS is currently contemplating entering into employment agreements
prior to the Effective Date with Mr. Richard A. Zona and Mr. Philip G. Heasley,
currently Vice Chairmen of FBS. Although the terms of such agreements have not
been finalized, it is expected that such agreements will have a term of three
years commencing on the Effective Date and will provide for a payment of three
years' salary and bonus in the event they are terminated by New USBC without
cause any time during the term of such agreement or they resign for good reason
(as defined) at any time that John F. Grundhofer is no longer the Chief
Executive Officer of New USBC. In addition, each contract is expected to provide
that the executive will be entitled to a base salary plus bonus during its term
not less than the base salary and bonus of other New USBC Vice Chairmen. The
final base salaries and bonuses have not been determined, but the annual base
salary of each of them could initially range from $415,000 to $450,000.
FBS STOCK OPTIONS AND RESTRICTED STOCK. The Merger will constitute a
"partial change in control" under FBS's stock option and restricted stock
agreements. Accordingly, under those agreements, in the event of the termination
of employment by FBS other than for "cause" or by the individual for "good
reason (partial)" (as such terms are defined), in anticipation of the Merger or
within two years of the Effective Date of the Merger, such individual's options
would accelerate and restricted stock would vest.
STOCK OPTION AGREEMENTS
As an inducement and condition to FBS's willingness to enter into the Merger
Agreement and the FBS Stock Option Agreement, USBC entered into the USBC Stock
Option Agreement with FBS. As an inducement and condition to USBC's willingness
to enter into the Merger Agreement and the USBC Stock Option Agreement, FBS
entered into the FBS Stock Option Agreement with USBC. The following description
of the Stock Option Agreements is qualified in its entirety by reference to the
text of such Stock Option Agreements, copies of which are attached hereto as
Appendices B and C and which are incorporated herein by reference.
For purposes of the following summary, the term (i) "Issuer" means USBC with
respect to the USBC Stock Option Agreement and FBS with respect to the FBS Stock
Option Agreement and (ii) "Grantee" means FBS with respect to the USBC Stock
Option Agreement and USBC with respect to the FBS Stock Option Agreement.
Pursuant to the USBC Stock Option Agreement, USBC granted FBS the USBC
Option, which permits FBS to purchase a number of shares of USBC Common Stock up
to approximately 19.9% of the number of shares of USBC Common Stock outstanding
immediately before exercise of the USBC Option. The exercise price of the USBC
Option is $47.75 per share (the closing market price on the trading day
preceding the execution of the Merger Agreement), subject to adjustment under
specified circumstances (such exercise price, as so adjusted, being referred to
herein as the "USBC Option Price"). Pursuant to the FBS Stock Option Agreement,
FBS granted USBC the FBS Option, which permits USBC to purchase a number of
shares of FBS Common Stock up to approximately 19.9% of the number of shares of
FBS Common Stock outstanding immediately before exercise of the FBS Option. The
exercise price of the FBS Option is $77.50 per share (the closing market price
on the trading day preceding the execution of the Merger Agreement), subject to
adjustment under specified circumstances (such exercise price, as so adjusted,
being referred to herein as the "FBS Option Price"; the USBC Option Price and
the FBS Option Price are each referred to herein as an "Option Price").
Each of the Options will become exercisable in whole or in part if both an
"Initial Triggering Event" and a "Subsequent Triggering Event" occur with
respect to the Issuer prior to the occurrence of an "Exercise Termination
Event," as such terms are defined below. The purchase of any shares of USBC
Common Stock or FBS Common Stock pursuant to an Option is subject to compliance
with applicable law, including the receipt of necessary approvals under the
BHCA. If the Grantee of either Option were to exercise its right to acquire the
full 19.9% of the outstanding shares of the Issuer's common stock subject
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to such Grantee's Option, such Grantee would hold approximately 16.6% of the
outstanding shares of the Issuer's common stock immediately after such exercise.
The Stock Option Agreements generally define the term "Initial Triggering
Event" to mean any of the following events or transactions:
(i) Issuer or any of its subsidiaries, without Grantee's prior written
consent, enters into an agreement to engage in an "Acquisition Transaction"
(as defined below) with a third party or the Board of Directors of Issuer
recommends that the shareholders of Issuer approve or accept any Acquisition
Transaction, other than as contemplated by the Merger Agreement;
(ii) A third party shall have acquired beneficial ownership or the right
to acquire beneficial ownership of 10% or more of the outstanding shares of
Issuer common stock (provided, that in the case of the FBS Stock Option
Agreement, such percentage shall be 15% with respect to the USBC Trust
Group, in its fiduciary capacity);
(iii) The shareholders of Issuer shall have voted and failed to approve
the Merger Agreement at the Issuer's shareholder meeting or such meeting has
not been held in violation of the Merger Agreement or has been canceled
prior to termination of the Merger Agreement if, prior to such shareholder
meeting (or if such shareholder meeting shall not have been held or shall
have been canceled, prior to such termination), it shall have been publicly
announced that any third party shall have made, or disclosed an intention to
make, a proposal to engage in an Acquisition Transaction with respect to the
Issuer;
(iv) Issuer's Board of Directors withdraws or modifies (or publicly
announces its intention to withdraw or modify) in any manner adverse to
Grantee its recommendation that the shareholders of Issuer approve the
Merger Agreement at the Issuer's shareholder meeting, or Issuer, without
Grantee's prior written consent, authorizes, recommends or proposes (or
publicly announces its intention to authorize, recommend or propose) an
agreement to engage in an Acquisition Transaction with a third party;
(v) A third party makes a proposal to Issuer or its shareholders to
engage in an Acquisition Transaction and such proposal has been publicly
announced;
(vi) A third party shall have filed with the Commission a registration
statement with respect to a potential exchange offer that would constitute
an Acquisition Transaction (or filed a preliminary proxy statement with the
Commission with respect to a potential vote by its shareholders to approve
the issuance of shares to be offered in such an exchange offer);
(vii) Issuer willfully breaches any covenant or obligation contained in
the Merger Agreement in anticipation of engaging in an Acquisition
Transaction, and following such breach Grantee would be entitled to
terminate the Merger Agreement (whether immediately or after the giving of
notice or passage of time or both); or
(viii) A third party files an application or notice with the Federal
Reserve Board or other federal or state bank regulatory or antitrust
authority, which application or notice has been accepted for processing, for
approval to engage in an Acquisition Transaction.
As used in the Stock Option Agreements, the term "Acquisition Transaction"
means (a) a merger or consolidation or any similar transaction, involving Issuer
or any "Significant Subsidiary" (as defined in Rule 1-02 of Regulation S-X
promulgated by the Commission) of Issuer (other than mergers, consolidations or
similar transactions involving solely Issuer and/or one or more of its
wholly-owned subsidiaries and, in the case of the FBS Stock Option Agreement,
other than a merger or consolidation as to which the common shareholders of FBS
immediately prior thereto in the aggregate own at least 60% of the common stock
of the publicly held surviving or successor corporation immediately following
consummation thereof), provided that any such transaction is not entered into in
violation of the terms of the Merger
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Agreement, (b) a purchase, lease or other acquisition of all or substantially
all of the assets or deposits of Issuer or any of its Significant Subsidiaries
or (c) a purchase or other acquisition (including by merger, consolidation,
share exchange or otherwise) of securities representing 10% or more of the
voting power of Issuer or any of its subsidiaries (provided, that in the case of
the FBS Stock Option Agreement, such percentage shall be 15% with respect to the
USBC Trust Group, in its fiduciary capacity).
The Stock Option Agreements generally define the term "Subsequent Triggering
Event" to mean any of the following events or transactions: (i) The acquisition
by a third party of beneficial ownership of 20% or more of the then outstanding
common stock of Issuer or (ii) Issuer or any of its subsidiaries, without having
received the prior written consent of Grantee, enters into an agreement to
engage in an Acquisition Transaction with a third party or the Board of
Directors of Issuer recommends that the shareholders of Issuer approve or accept
any Acquisition Transaction, other than as contemplated by the Merger Agreement;
provided, that for purposes of the definition of "Subsequent Triggering Event,"
the percentage referred to in clause (c) of the definition of "Acquisition
Transaction" above shall be 20% rather than 10%.
The Stock Option Agreements define the term "Exercise Termination Event" to
mean any of (i) the Effective Time; (ii) termination of the Merger Agreement in
accordance with its terms, if such termination occurs prior to the occurrence of
an Initial Triggering Event except a termination by Grantee of the type
described in clause (2) of the first paragraph under "--Termination of the
Merger Agreement"; (iii) the passage of 18 months, subject to extension in order
to obtain required regulatory approvals, to comply with applicable regulatory
waiting periods or to avoid liability under Section 16(b) of the Exchange Act,
after termination of the Merger Agreement if such termination is concurrent with
or follows the occurrence of an Initial Triggering Event or is a termination of
the type described in clause (2) of the first paragraph under "--Termination of
the Merger Agreement"; (iv) the date on which the shareholders of Grantee shall
have voted and failed to approve and adopt the Merger Agreement and the Merger
(unless (A) Issuer shall then be in material breach of its covenants or
agreements contained in the Merger Agreement or (B) on or prior to such date,
the shareholders of Issuer shall have also voted and failed to approve and adopt
the Merger Agreement and the Merger); or (v) the date on which the reciprocal
Option granted by Grantee to Issuer shall have become exercisable in accordance
with its terms if it shall become exercisable prior to a Subsequent Triggering
Event. Notwithstanding anything to the contrary contained in the Stock Option
Agreements, neither of the Options may be exercised at any time when the Grantee
thereunder is in breach of any of its covenants or agreements contained in the
Merger Agreement such that the Issuer thereof shall be entitled to terminate the
Merger Agreement pursuant to the terms thereof, and each of the Stock Option
Agreements shall automatically terminate upon the termination of the Merger
Agreement by Issuer pursuant to the terms thereof as a result of a breach by the
Grantee of its covenants or agreements contained therein.
If an Option becomes exercisable, it may be exercised in whole or in part
within six months following the applicable Subsequent Triggering Event.
Grantee's right to exercise the Option and certain other rights under the Stock
Option Agreements are subject to an extension in order to obtain required
regulatory approvals and comply with applicable regulatory waiting periods and
to avoid liability under Section 16(b) of the Exchange Act. The Option Price and
the number of shares issuable under the Option are subject to adjustment in the
event of specified changes in the capital stock of Issuer.
Upon the occurrence of a Subsequent Triggering Event that occurs prior to an
Exercise Termination Event, Grantee will have certain registration rights with
respect to the shares of Issuer common stock issued or issuable pursuant to the
Option.
Each Stock Option Agreement also provides that at any time after the
occurrence of a "Repurchase Event" (as defined below), upon request, Issuer
shall be obligated to repurchase the Option and all or any part of the shares
("Option Shares") received upon the full or partial exercise of the Option from
the holder thereof. Such repurchase of the Option shall be at a price per share
equal to the amount by which the "Market/Offer Price" (as defined below) exceeds
the Option Price (as adjusted). A repurchase of
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Option Shares shall be at a price per share equal to the Market/Offer Price. The
term Market/Offer Price means the highest of (i) the price per share at which a
tender or exchange offer has been made for Issuer common stock, (ii) the price
per share of Issuer common stock that any third party is to pay pursuant to an
agreement with Issuer, (iii) the highest closing price per share of Issuer
common stock within the six-month period immediately preceding the date that
notice to repurchase is given or (iv) in the event of a sale of all or
substantially all of Issuer's assets or deposits, the sum of the price paid for
such assets or deposits and the current market value of the remaining assets (as
determined by a nationally recognized investment banking firm), divided by the
number of shares of Issuer common stock outstanding at the time of such sale.
The term "Repurchase Event" is defined to mean (i) the acquisition by any third
party of beneficial ownership of 50% or more of the outstanding shares of Issuer
common stock or (ii) the consummation of an Acquisition Transaction; provided,
that for purposes of the definition of "Repurchase Event," the percentage
referred to in clause (c) of the definition of "Acquisition Transaction" above
shall be 50% rather than 10%.
The Stock Option Agreements also provide that Grantee may, at any time
following a Repurchase Event and prior to an Exercise Termination Event,
surrender the Option (and any Option Shares obtained upon the exercise thereof
and still held by Grantee) for a surrender fee (the "Surrender Fee") equal to
$200 million (i) plus, if applicable, Grantee's purchase price with respect to
any Option Shares and (ii) minus any net cash received pursuant to the sale of
Option Shares to any third party (less the purchase price of such Option
Shares). Grantee may not exercise its right to surrender the Option and receive
the Surrender Fee if Issuer has previously repurchased any Option Shares as
described in the preceding paragraph.
The "Total Profit" (as defined below) that Grantee may realize with regard
to either Option may not exceed $300 million. If Grantee's Total Profit would
exceed such amount, Grantee would be required, at its sole election, to (a)
reduce the number of Option Shares subject to the Option, (b) deliver Option
Shares to the Issuer for cancellation, (c) pay cash to Issuer or (d) do any
combination of the foregoing so that Grantee's actual realized Total Profit
shall not exceed $300 million. "Total Profit" is defined to mean the aggregate
(before taxes) of (i) any amount received pursuant to Issuer's repurchase of the
Option (or any portion thereof), (ii) any amount received pursuant to Issuer's
repurchase of the Option Shares (less the purchase price for such Option
Shares), (iii) any net cash received pursuant to the sale of Option Shares to
any third party (less the purchase price of such Option Shares), (iv) any
amounts received on transfer of the Option or any portion thereof to a third
party and (v) any equivalent amounts received with respect to the Substitute
Option (as defined below). In addition, Grantee may not exercise the Option for
a number of Option Shares as would, as of the date of such exercise, result in
Grantee (if it were immediately to sell such Option Shares, together with all
other Option Shares held by Grantee and its affiliates as of such date, at the
closing market price on the previous trading day) realizing a net gain in excess
of $300 million.
Pursuant to the terms of the relevant Stock Option Agreements, in the event
that, prior to an Exercise Termination Event, Issuer enters into certain
transactions in which Issuer is not the surviving corporation, certain
fundamental changes in the capital stock of Issuer occur or Issuer sells all or
substantially all of its or certain of its subsidiaries' assets, the Option
shall be converted into a substitute option (the "Substitute Option"), with
terms similar to those of the Option, to purchase capital stock of the entity
that is the effective successor to Issuer.
The Stock Option Agreements provide that neither Grantee nor Issuer may
assign any of its rights or obligations thereunder without the written consent
of the other party, except that within the 12 months after the Option first
becomes exercisable, Grantee may, subject to certain limitations, assign its
rights and obligations thereunder in whole or in part (subject to extension in
certain cases).
Arrangements such as the Stock Option Agreements are customarily entered
into in connection with corporate mergers and acquisitions in an effort to
increase the likelihood that the transactions will be consummated in accordance
with their terms, and to compensate the grantee for the efforts undertaken
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and the expenses, losses and opportunity costs incurred by it in connection with
the transactions if they are not consummated under certain circumstances
involving an acquisition or potential acquisition of the issuer by a third
party. The Stock Option Agreements were entered into to accomplish these
objectives. The Stock Option Agreements may have the effect of discouraging
offers by third parties to acquire USBC or FBS prior to the Merger, even if, in
the case of USBC, such persons were prepared to offer to pay consideration to
USBC's shareholders which has a higher current market price than the shares of
New USBC Common Stock to be received by such holders pursuant to the Merger
Agreement.
To the best knowledge of USBC and FBS, no event giving rise to the right to
exercise either of the Options has occurred as of the date of this Joint Proxy
Statement-Prospectus.
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for as a
"pooling-of-interests" under generally accepted accounting principles and the
receipt of an opinion of FBS's independent auditors that such accounting method
may be used is a condition to FBS's obligation to consummate the Merger. To
conform to the provisions of SAB 96 "Treasury Stock Acquisitions Following
Consummation of a Business Combination Accounted for as a Pooling of Interests,"
the FBS Board has terminated FBS's stock repurchase program. The unaudited pro
forma financial information included in this Joint Proxy Statement-Prospectus
reflects the Merger using the pooling-of-interests method of accounting. See
"COMPARATIVE UNAUDITED PER SHARE DATA," "SELECTED HISTORICAL FINANCIAL DATA" and
"UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION."
REGULATORY MATTERS
FEDERAL RESERVE BOARD. The Merger is subject to prior approval by the
Federal Reserve Board under Section 3 of the BHCA and prior notice to the
Federal Reserve Board under Section 4 of the BHCA. The BHCA requires the Federal
Reserve Board, when approving a transaction such as the Merger, to take into
consideration the financial and managerial resources (including the competence,
experience and integrity of the officers, directors and principal shareholders)
and future prospects of the existing and proposed institutions and the
convenience and needs of the communities to be served. In considering financial
resources and future prospects, the Federal Reserve Board will, among other
things, evaluate the adequacy of the capital levels of the parties to a proposed
transaction and of the resulting institutions.
The BHCA prohibits the Federal Reserve Board from approving a merger if it
would result in a monopoly or be in furtherance of any combination or conspiracy
to monopolize or to attempt to monopolize the business of banking in any part of
the United States, or if its effect in any section of the country would be
substantially to lessen competition or to tend to create a monopoly, or if it
would in any other manner result in a restraint of trade, unless the Federal
Reserve Board finds that the anti-competitive effects of the merger are clearly
outweighed in the public interest by the probable effect of the transaction in
meeting the convenience and needs of the communities to be served. In addition,
under the Community Reinvestment Act of 1977, as amended (the "CRA"), the
Federal Reserve Board must take into account the record of performance of the
existing institutions in meeting the credit needs of the entire community,
including low- and moderate-income neighborhoods, served by such institutions.
The Federal Reserve Board will furnish notice and a copy of the application
for approval of the Merger to the Office of Comptroller of the Currency (the
"OCC"), and the State Authorities. These agencies have 30 days to submit their
views and recommendations to the Federal Reserve Board. The Federal Reserve
Board is required to hold a public hearing in the event it receives a written
recommendation of disapproval of the application from any of these agencies
within such 30-day period. Furthermore, applicable Federal law provides for the
publication of notice and public comment on applications filed with the Federal
Reserve Board and authorizes such agency to permit interested parties to
intervene in the
63
<PAGE>
proceedings. If an interested party is permitted to intervene, such intervention
could delay the regulatory approvals required for consummation of the Merger.
Under Section 4 of the BHCA and related regulations, the Federal Reserve
Board must consider whether the performance of FBS's and USBC's nonbanking
activities on a combined basis can reasonably be expected to produce benefits to
the public (such as greater convenience, increased competition and gains in
efficiency) that outweigh possible adverse effects (such as undue concentration
of resources, decreased or unfair competition, conflicts of interest and unsound
banking practices). This consideration includes an evaluation of the financial
and managerial resources of FBS and USBC and the effect of the proposed
transaction on those resources.
Assuming Federal Reserve Board approval, the Merger may not be consummated
until 30 days after such approval, during which time the United States
Department of Justice may challenge the Merger on antitrust grounds. The
commencement of an antitrust action would stay the effectiveness of the Federal
Reserve Board's approval unless a court specifically ordered otherwise. With the
approval of the Federal Reserve Board and the concurrence of the Department of
Justice, the waiting period may be reduced to no less than 15 days. FBS and USBC
believe that the Merger does not raise substantial antitrust or other
significant regulatory concerns and that they will be able to obtain all
requisite regulatory approvals on a timely basis without the imposition of any
condition that would have a material adverse effect on New USBC.
STATE AUTHORITIES. Consummation of the Merger may be subject to the
approval of or notice to the State Authorities under various state bank,
insurance and securities regulatory statutes. The Merger may also be subject to
review by the attorneys general in the various states in which FBS and USBC own
banking subsidiaries, including California, Idaho, Nevada, Oregon, Utah and
Washington.
STATUS OF REGULATORY APPROVALS AND OTHER INFORMATION. FBS and USBC have
filed all applications and notices and have taken (or will promptly take) other
appropriate action with respect to any requisite approvals or other action of
any governmental authority. The Merger Agreement provides that the obligation of
each of FBS and USBC to consummate the Merger is conditioned upon (i) the
receipt of all requisite regulatory approvals, including the approvals of the
Federal Reserve Board and, to the extent necessary, the State Authorities, (ii)
the termination or expiration of all statutory or regulatory waiting periods in
respect thereof and (iii) no such approvals containing conditions or
restrictions which either the FBS Board or the USBC Board reasonably determine
in good faith would, after the Effective Date, have a material adverse effect on
New USBC and its subsidiaries taken as a whole.
FBS submitted its final application to the Federal Reserve Bank of
Minneapolis on April 14, 1997. The application was accepted for processing by
the Board of Governors of the Federal Reserve System on April 21, 1997. The bank
regulatory authorities for the states of Nevada, Oregon and California approved
the Merger on May 13, June 5, and June 10, 1997, respectively.
THE MERGER CANNOT PROCEED IN THE ABSENCE OF THE REQUISITE REGULATORY
APPROVALS. THERE CAN BE NO ASSURANCES THAT ALL SUCH REGULATORY APPROVALS WILL BE
OBTAINED OR AS TO THE DATES OF SUCH APPROVALS. THERE CAN ALSO BE NO ASSURANCE
THAT SUCH APPROVALS WILL NOT CONTAIN A CONDITION OR REQUIREMENT THAT CAUSES SUCH
APPROVALS TO FAIL TO SATISFY THE CONDITIONS SET FORTH IN THE MERGER AGREEMENT.
SEE "--CONDITIONS TO THE MERGER."
See "--The Effective Time," "--Conditions to the Merger" and "--Termination
of the Merger Agreement."
64
<PAGE>
RESALE OF NEW USBC COMMON STOCK AND NEW USBC 8 1/8% PREFERRED STOCK RECEIVED BY
USBC SHAREHOLDERS
The shares of New USBC Common Stock and New USBC 8 1/8% Preferred Stock
issuable to shareholders of USBC upon consummation of the Merger have been
registered under the Securities Act. Such securities may be traded freely
without restriction by those shareholders who are not deemed to be "affiliates"
of USBC or FBS, as that term is defined in rules promulgated under the
Securities Act.
Shares of New USBC Common Stock or New USBC 8 1/8% Preferred Stock received
by those shareholders of USBC who are deemed to be "affiliates" of USBC at the
time of the USBC Annual Meeting may be resold without registration under the
Securities Act only as permitted by Rule 145 under the Securities Act or as
otherwise permitted under the Securities Act. Commission guidelines regarding
qualifying for the pooling-of-interests method of accounting also limit sales of
shares of the acquiring and acquired company by affiliates of either company in
a business combination. Commission guidelines also indicate that the
pooling-of-interests method of accounting will generally not be challenged on
the basis of sales by affiliates of the acquiring or acquired company if they do
not dispose of any of the shares of the corporation they own or shares of a
corporation they receive in connection with a merger during the period beginning
30 days before the merger and ending when financial results covering at least 30
days of post-merger operations of the combined operations have been published.
Each of FBS and USBC has agreed in the Merger Agreement to use its
reasonable best efforts to obtain and deliver to the other party, on or prior to
the date of mailing of this Joint Proxy Statement-Prospectus, signed
representation letters from each director, executive officer and other person
who may reasonably be deemed to be an "affiliate" of such party to the effect
that such persons will not, among other things, offer to sell, transfer or
otherwise dispose of any of the shares of New USBC Common Stock or New USBC
8 1/8% Preferred Stock distributed to them pursuant to the Merger except (i)
with respect to affiliates of USBC, in compliance with Rule 145, or in a
transaction that, in the opinion of counsel reasonably satisfactory to FBS, is
otherwise exempt from the registration requirements of the Securities Act, or in
an offering which is registered under the Securities Act and (ii) with respect
to affiliates of each of USBC and FBS, in compliance with Commission guidelines
regarding qualifying for pooling-of-interests accounting treatment. This Joint
Proxy Statement-Prospectus does not cover resales of New USBC Common Stock or
New USBC 8 1/8% Preferred Stock received by persons who are deemed to be
"affiliates" of USBC. No person is authorized to make use of this Joint Proxy
Statement-Prospectus in connection with any such resales.
FBS DIVIDEND REINVESTMENT AND COMMON STOCK PURCHASE PLAN
Pursuant to its Automatic Dividend Reinvestment and Common Stock Purchase
Plan (the "FBS Reinvestment and Purchase Plan"), FBS provides eligible
shareholders with a method of investing cash dividends and optional cash
payments at 100% of the average price (as defined in the FBS Reinvestment and
Purchase Plan) in additional shares of FBS Common Stock without payment of any
brokerage commission or service charge. The FBS Reinvestment and Purchase Plan
includes certain dollar limitations on participation and provides for eligible
shareholders to elect dividend reinvestment on only a part of the shares
registered in the name of a participant (while continuing to receive cash
dividends on remaining shares). It is anticipated that the FBS Reinvestment and
Purchase Plan will continue after the Effective Time and that all holders of New
USBC Common Stock (including shareholders of USBC who receive New USBC Common
Stock in the Merger) will have the right to participate therein.
NO APPRAISAL RIGHTS
Under the OBCA, holders of USBC Common Stock and USBC 8 1/8% Preferred Stock
will have no appraisal rights in connection with the Merger Agreement and the
consummation of the transactions contemplated thereby.
Under the DGCL, holders of FBS Common Stock will have no appraisal rights in
connection with the Merger Agreement and the consummation of the transactions
contemplated thereby.
65
<PAGE>
MANAGEMENT AND OPERATIONS AFTER THE MERGER
BOARD OF DIRECTORS. At the Effective Time, subject to approval of the FBS
Board Expansion Amendment by the holders of 80% of the outstanding FBS Common
Stock, FBS will cause all of the Former USBC Directors to be elected or
appointed as directors of New USBC at, or as soon as practicable after, the
Effective Time (such appointment or election of Former USBC Directors to be as
evenly distributed as possible among the classes of New USBC directors). It is
the intention of the parties that the size of the New USBC Board be
substantially reduced as of the first annual meeting of shareholders of New USBC
following the Effective Time. Until at least the third annual meeting of
shareholders of New USBC following the Effective Time, it is intended that the
Former USBC Directors will constitute in the aggregate between 40% and 45% of
the total number of directors of New USBC then in office.
The Merger is not conditioned upon approval of the FBS Board Expansion
Amendment. If adopted by FBS Shareholders, the FBS Board Expansion Amendment
would be effective only upon consummation of the Merger. In the event such
approval is not obtained at the FBS Special Meeting, FBS would appoint or elect
to the New USBC Board 10 Former USBC Directors and the remaining Former USBC
Director (as selected by the Chief Executive Officer of USBC) and one FBS
director (as agreed among the members of the FBS Board) would be appointed as
advisory directors of the New USBC Board entitled to participate at all New USBC
Board meetings to the fullest extent permitted by applicable law.
Set forth below is certain information with respect to each individual who
currently is expected to become a member of the New USBC Board as of the
Effective Time.
<TABLE>
<CAPTION>
YEAR BECAME PRESENT OFFICE OR OTHER PRINCIPAL
A DIRECTOR OF OCCUPATION OR EMPLOYMENT AND
NAME FBS OR USBC AGE FIVE-YEAR EMPLOYMENT HISTORY
- --------------------------------------- --------------- --- -------------------------------------------------
<S> <C> <C> <C>
Linda L. Ahlers........................ 1997 (FBS) 47 President of the Department Store Division of
Dayton Hudson Corporation and has been employed
by that company since 1977 in various positions.
Harry L. Bettis........................ 1995 (USBC) 62 Director of West One Bancorp from 1971 until
1995. For more than five years, Mr. Bettis has
been a rancher in Payette, Idaho.
Gerry B. Cameron....................... 1994 (USBC) 59 Chief Executive Officer and Director of USBC
since January 1994 and Chairman of the Board of
USBC since April 1994. He was also President of
USBC from April 1994 until December 1995 and was
reelected President of USBC in February 1997. Mr.
Cameron was Vice Chairman of USBC from January
1993 through April 1994. He was Executive Vice
President of United States National Bank of
Oregon ("U. S. Bank of Oregon") from March 1979
until July 1993. Mr. Cameron was elected a
director of U. S. Bank of Oregon in January 1993
and was elected Chairman of the Board in July
1993. He was President and Chief Executive
Officer of U. S. Bank of Washington, National
Association
("U. S. Bank of Washington"), until January 1993.
Mr. Cameron is also a director of Tektronix, Inc.
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
YEAR BECAME PRESENT OFFICE OR OTHER PRINCIPAL
A DIRECTOR OF OCCUPATION OR EMPLOYMENT AND
NAME FBS OR USBC AGE FIVE-YEAR EMPLOYMENT HISTORY
- --------------------------------------- --------------- --- -------------------------------------------------
<S> <C> <C> <C>
Carolyn Silva Chambers................. 1995 (USBC) 65 Director of U. S. Bank of Oregon from 1993 until
1995. Ms. Chambers was President and Chief
Executive Officer of Chambers Communications
Corp., a broadcast and television company, from
1983 to 1995; she is currently Chairman and Chief
Executive Officer. Ms. Chambers has been
President and Chief Executive Officer of Chambers
Construction Company, a construction firm, since
1986. Both Chambers Communications and Chambers
Construction are based in Eugene, Oregon. Ms.
Chambers is also a director of Portland General
Corporation.
Arthur D. Collins, Jr. ................ 1996 (FBS) 49 President and Chief Operating Officer of
Medtronic, Inc., a medical device company, since
1996 and prior thereto Chief Operating Officer,
Corporate Executive Vice President and President
of Medtronic International, since 1992.
Peter H. Coors......................... 1996 (FBS) 50 Vice Chairman and Chief Executive Officer of
Coors Brewing Company, and Director and Vice
President of Adolph Coors Company. Mr. Coors has
been associated with Coors Brewing Company since
1970, serving in various capacities.
Franklin G. Drake...................... 1969 (USBC) 69 Chairman of the Board, retired, of Donald M.
Drake Company, a construction firm headquartered
in Portland, Oregon. Mr. Drake is Chairman and
Chief Executive Officer of Drake Management. He
was previously President and Chief Executive
Officer of Donald M. Drake Company for more than
five years until July 1993.
Robert L. Dryden....................... 1995 (USBC) 63 Director of U. S. Bank of Washington from 1991
until 1995. Mr. Dryden serves as Executive Vice
President, Airplane Production, of the Boeing
Company (Commercial Airplane Group), in Seattle,
Washington, and has held this position since
1990. Mr. Dryden is also a director of Puget
Sound Energy, Inc.
John B. Fery........................... 1995 (USBC) 67 Director of West One Bancorp from 1976 until
1995. Mr. Fery is retired Chairman and Chief
Executive Officer of Boise Cascade Corporation, a
paper and forest products company headquartered
in Boise, Idaho. He served as Chief Executive
Officer from 1972 through July 1994, and retired
as Chairman in July 1995. Mr. Fery also serves as
a director of Albertson's Inc., The Boeing
Company, and Hewlett-Packard Company.
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
YEAR BECAME PRESENT OFFICE OR OTHER PRINCIPAL
A DIRECTOR OF OCCUPATION OR EMPLOYMENT AND
NAME FBS OR USBC AGE FIVE-YEAR EMPLOYMENT HISTORY
- --------------------------------------- --------------- --- -------------------------------------------------
<S> <C> <C> <C>
Joshua Green III....................... 1987 (USBC) 61 Chairman of the Board and Chief Executive Officer
of Joshua Green Corporation, a family investment
firm and Chairman of its wholly-owned subsidiary,
Sage Manufacturing Corporation. Mr. Green served
as Chairman of the Board and a director of U. S.
Bank of Washington from February 1988 until
January 1997. Mr. Green was also Vice Chairman of
USBC from December 1987 until January 1993. Mr.
Green is also a director of Safeco Corporation.
John F. Grundhofer..................... 1990 (FBS) 58 Chairman, President and Chief Executive Officer
of FBS since 1990.
Roger L. Hale.......................... 1987 (FBS) 62 President and Chief Executive Officer of TENNANT
Company, a manufacturer of industrial and
commercial floor maintenance equipment and
products, since 1976.
Delbert W. Johnson..................... 1994 (FBS) 58 Chairman and Chief Executive Officer of Pioneer
Metal Finishing, a division of Safeguard
Scientifics Inc. and a metal finishing company,
since 1978.
Norman M. Jones........................ 1995 (FBS) 66 Former Chairman of the Board of First Bank, fsb,
the former thrift subsidiary of FBS, since 1995
and prior thereto served as Chairman of
Metropolitan Financial Corporation and was
employed by that company from 1952 through 1995
in various capacities.
Richard L. Knowlton.................... 1992 (FBS) 65 Chairman of The Hormel Foundation, a public
foundation organized for the benefit of
charitable organizations, since 1995 and prior
thereto Chairman and Chief Executive Officer of
Hormel Foods Corporation, a meat and food
processing company, as well as serving in various
capacities with the corporation since 1948.
Jerry W. Levin......................... 1995 (FBS) 53 Chairman of Revlon, Inc., a cosmetics and
personal care and professional products company,
since 1995 and prior thereto President of Revlon,
Inc. since 1991. Also currently Chairman and
Chief Executive Officer of The Coleman Company,
Inc., a manufacturer and marketer of outdoor
recreational products, since February 1997.
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
YEAR BECAME PRESENT OFFICE OR OTHER PRINCIPAL
A DIRECTOR OF OCCUPATION OR EMPLOYMENT AND
NAME FBS OR USBC AGE FIVE-YEAR EMPLOYMENT HISTORY
- --------------------------------------- --------------- --- -------------------------------------------------
<S> <C> <C> <C>
Kenneth A. Macke....................... 1985 (FBS) 58 General Partner, Macke Partners, a private
venture capital and investment company, since
1995; Retired Chairman and Chief Executive
Officer of Dayton Hudson Corporation, a
diversified retail company, a position held from
1984 until retirement in 1994.
Allen T. Noble......................... 1995 (USBC) 68 President of Farm Development Corporation, a
corporate agricultural management company based
in Boise, Idaho, Allen Noble Farms, Inc., A-D
Cattle Company, Campbell Tractor Company
comprised of four John Deere dealerships in
Treasure Valley, Idaho, ALVAC, a Life Flight
Helicopter Company, and Noble Linear Irrigation
Company. Mr. Noble served as a director of West
One Bancorp from 1975 until 1983 and from 1984
until 1995.
Edward J. Phillips..................... 1988 (FBS) 52 Chairman and Chief Executive Officer of Phillips
Beverage Company, an importer and marketer of
distilled spirits. Mr. Phillips has been
associated with the company serving in various
capacities since 1969.
Paul A. Redmond........................ 1994 (USBC) 60 Director of U. S. Bank of Washington from 1992
until 1994. Since 1985, he has been Chairman of
the Board and Chief Executive Officer of The
Washington Water Power Company, an electric and
gas utility with headquarters in Spokane,
Washington. Mr. Redmond is also a director of
Itron, Inc.
S. Walter Richey....................... 1990 (FBS) 61 Chairman and Chief Executive Officer of Meritex,
Inc., a real estate management and development
and warehousing company, since 1978.
Richard L. Robinson.................... 1993 (FBS) 67 Chairman and Chief Executive Officer of Robinson
Dairy, Inc., a dairy company, since 1975.
N. Stewart Rogers...................... 1988 (USBC) 67 Chairman of the Board and a director of Penwest,
Ltd. Mr. Rogers is also a director of Fluke Corp.
and of VWR Scientific Products Corp. Mr. Rogers
was Senior Vice President of Univar Corporation,
a distributor of chemicals, until his retirement
in December 1991.
Richard L. Schall...................... 1987 (FBS) 67 Retired Vice Chairman of the Board and Chief
Administrative Officer of Dayton Hudson
Corporation, a diversified retail company,
retiring in 1985.
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
YEAR BECAME PRESENT OFFICE OR OTHER PRINCIPAL
A DIRECTOR OF OCCUPATION OR EMPLOYMENT AND
NAME FBS OR USBC AGE FIVE-YEAR EMPLOYMENT HISTORY
- --------------------------------------- --------------- --- -------------------------------------------------
<S> <C> <C> <C>
Walter Scott, Jr....................... 1996 (FBS) 66 Chairman, President and Chief Executive Officer
of Peter Kiewit Sons', Inc., a construction,
mining, telecommunications, energy and computer
outsourcing company, since 1979.
Benjamin R. Whiteley................... 1994 (USBC) 67 Director of U. S. Bank of Oregon from 1988
through April 1994 and of USBC from 1986 through
1988. Mr. Whiteley has been Chairman of the Board
of Standard Insurance Company, a life insurance
company, since August 1994. From January 1993
until August 1994, he served as Chairman and
Chief Executive Officer of Standard Insurance
Company, and, prior to that, as President and
Chief Executive Officer for more than five years.
Mr. Whiteley is also a director of Northwest
Natural Gas Company, Willamette Industries, Inc.,
and The Greenbrier Companies, Inc.
</TABLE>
Additional information with respect to the foregoing individuals is set
forth under "ELECTION OF USBC DIRECTORS," in the case of individuals who have
been nominated to serve as directors of USBC, and in the proxy statement with
respect to FBS's 1997 Annual Meeting of Stockholders, in the case of individuals
who are currently directors of FBS. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
MANAGEMENT. The executive officers of New USBC after the Merger will be
comprised of certain members of FBS's senior management and certain members of
USBC's senior management. Mr. Cameron will become Chairman of the New USBC Board
for a term extending through December 31, 1998. Mr. Grundhofer will continue to
be President and Chief Executive Officer of New USBC following the Merger. In
addition, Robert D. Sznewajs and Gary T. Duim, each of USBC, will each become a
Vice Chairman of New USBC, and Richard A. Zona and Philip G. Heasley, each of
FBS, will each remain a Vice Chairman of New USBC. Concurrently with the
execution of the Merger Agreement, FBS entered into employment agreements with
Gerry B. Cameron, Gary T. Duim and Robert D. Sznewajs, which employment
agreements will become effective on the Effective Date of the Merger. In
addition, FBS expects to enter into employment agreements with Richard A. Zona
and Philip G. Heasley. See "THE MERGER--Interests of Certain Persons in the
Merger."
Additional information about such persons is contained in the 1996 FBS 10-K
and the 1996 USBC 10-K, as applicable, which are incorporated by reference in
this Joint Proxy Statement-Prospectus. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
OPERATIONS. FBS and USBC expect to ultimately realize cost savings of
approximately $340 million (pre-tax). Such cost savings are expected to be
realized by various means including reductions in staff, consolidation of
certain data processing and other back office operations, and consolidation and
elimination of certain duplicate or excess office facilities. The cost savings
are expected to be achieved in various amounts at various times during the
two-year period subsequent to the Effective Time and not ratably over, or at the
beginning or end of, such period. No adjustment has been included in the
unaudited pro forma condensed combined financial information included in this
Joint Proxy Statement-Prospectus for the anticipated cost savings.
The extent to which cost savings will be achieved is dependent upon various
factors beyond the control of FBS and USBC, including regulatory factors,
economic conditions, unanticipated changes in business
70
<PAGE>
conditions and inflation. Therefore, no assurances can be given with respect to
the ultimate level of cost savings, if any, to be realized, or that such savings
will be realized in the time frame currently anticipated. See "SELECTED
HISTORICAL FINANCIAL DATA," "PRO FORMA SELECTED FINANCIAL DATA," "UNAUDITED PRO
FORMA CONDENSED COMBINED FINANCIAL INFORMATION" and "CAUTIONARY STATEMENT
CONCERNING FORWARD LOOKING INFORMATION."
COSTS INCURRED IN CONNECTION WITH THE MERGER. FBS and USBC also anticipate
that they will incur Merger-related expenses and restructuring charges in
connection with the Merger, which expenses are estimated to be approximately
$625 million (pre-tax) in the aggregate. These items principally result from
expenses to be incurred in connection with the integration of operations and
systems, elimination of redundancies, and staff reductions and officer and
employee retention arrangements. It is anticipated that substantially all of
these expenses and charges will be incurred in the first year following the
Effective Date of the Merger.
The expenses and charges to be incurred in connection with the Merger are
dependent upon various factors beyond the control of FBS and USBC. No assurance
can be given that such expenses and charges will not exceed the amounts
described above. See "SELECTED HISTORICAL FINANCIAL DATA," "PRO FORMA SELECTED
FINANCIAL DATA," "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION"
and "CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING INFORMATION."
CORPORATE HEADQUARTERS. New USBC's corporate headquarters will be located
in Minneapolis, Minnesota. In addition, it is expected that New USBC will
continue to operate portions of its businesses from existing FBS and USBC
locations.
For additional information regarding management and operations of the
combined company, see "BUSINESS OF FBS" and "BUSINESS OF USBC."
1998 AND 1999 EARNINGS ESTIMATES
In analyzing the anticipated financial impact of the Merger, FBS prepared
certain earnings estimates for the combined company. As a baseline for these
earnings estimates, FBS used consensus "street" earnings per share estimates
published by Institutional Brokers Estimate System ("IBES") for both FBS and
USBC. The IBES estimates for FBS's stand-alone fully diluted earnings per share
are $6.09 and $6.85 for 1998 and 1999, respectively. From the IBES base, FBS
made certain adjustments regarding cost savings and revenue enhancements
expected to be realized from the Merger to derive a pro forma fully diluted
earnings per share estimate of $6.20 in 1998 (excluding Merger-related charges)
and $7.41 in 1999. The significant assumptions utilized by FBS in preparing
these estimates include the following:
- The Merger will be consummated in the third quarter of 1997.
- The combined company will have average fully diluted common shares
outstanding of approximately 247 million in 1998 and approximately 248
million in 1999. An estimated 111 million shares will be issued in the
Merger.
- FBS expects to achieve pre-tax operating cost savings of approximately
$340 million by various means including reductions in staff, consolidation
of certain data processing and other back office operations, and
consolidation and elimination of certain duplicate or excess office
facilities in connection with the transaction. Approximately $220 million,
or 65 percent, of the operating cost savings are expected to be achieved
by the end of 1998 and the remainder in 1999.
- The Merger will result in pre-tax revenue enhancements totaling
approximately $35 million in 1998 and $84 million in 1999. These estimates
assume, among other things, that the revenue enhancements result from
marketing the complementary products and services of both companies to the
broad retail and commercial customer base of New USBC.
- In connection with the merger, FBS expects to incur pre-tax merger-related
costs of $625 million.
71
<PAGE>
The combined company's ability to achieve these earnings estimates is
dependent upon various factors, a number of which will be beyond the control of
New USBC, including the regulatory environment, economic conditions,
unanticipated changes in business conditions and inflation, and no assurances
can be given with respect to the ultimate level and composition of cost savings
and revenue enhancements to be realized, or that such cost savings and revenue
enhancements will be realized in the time frames currently anticipated. As a
result of these and other factors, there will be differences between the
earnings estimates presented herein and actual results and these differences
could be material. See "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
INFORMATION" regarding these forward-looking earnings estimates and "UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION."
MARKET PRICES AND DIVIDENDS
FBS
The FBS Common Stock is listed on the NYSE under the symbol "FBS". The
following table sets forth the range of high and low sales prices as reported on
the NYSE Composite Transaction List, together with the per share dividends
declared by FBS, during the periods indicated.
<TABLE>
<CAPTION>
PRICE RANGE
--------------------
<S> <C> <C> <C>
QUARTER HIGH LOW DIVIDENDS
- --------------------------------------------------------------------------------- --------- --------- -------------
1995:
First.......................................................................... $ 40.50 $ 32.63 $ .3625
Second......................................................................... 44.63 38.88 .3625
Third.......................................................................... 48.25 39.50 .3625
Fourth......................................................................... 53.75 47.63 .3625
1996:
First.......................................................................... $ 59.88 $ 46.00 $ .4125
Second......................................................................... 63.75 56.25 .4125
Third.......................................................................... 68.00 55.38 .4125
Fourth......................................................................... 74.00 63.75 .4125
1997:
First.......................................................................... $ 84.50 $ 67.50 $ .4650
Second (through June 16, 1997)................................................. 85.75 71.00 .4650
</TABLE>
On March 19, 1997, the last trading day before FBS and USBC publicly
announced the execution of the Merger Agreement, the closing price per share of
FBS Common Stock on the NYSE Composite Transactions List was $78.25. On June 16,
1997, the last trading day prior to the date of this Joint Proxy
Statement-Prospectus, such price was $85.75. Past price performance is not
necessarily indicative of likely future price performance. Holders of FBS Common
Stock and USBC Common Stock are urged to obtain current market quotations for
shares of FBS Common Stock.
Holders of FBS Common Stock are entitled to receive dividends from funds
legally available therefor when, as and if declared by the FBS Board. Although
the FBS Board presently intends to continue the policy of paying quarterly cash
dividends, future dividends of FBS would depend upon the earnings of FBS and its
subsidiaries, their financial condition and other factors including applicable
governmental regulations and policies. See "DESCRIPTION OF FBS AND NEW USBC
CAPITAL STOCK." The FBS Board will continue to determine dividends by
considering the factors listed above and expects that dividends will continue to
be paid in amounts consistent with prior levels. As the factors used to
determine dividends necessarily involve a number of future contingencies to
which all companies are subject, there can be no certainty that dividends of New
USBC will equal FBS's current dividend rate per share.
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USBC
The USBC Common Stock is traded on the Nasdaq National Market. The following
table sets forth the range of high and low sales prices as reported by The
Nasdaq Stock Market, together with the per share dividends declared by USBC,
during the periods indicated.
<TABLE>
<CAPTION>
PRICE RANGE
--------------------
<S> <C> <C> <C>
QUARTER HIGH LOW DIVIDENDS
- ----------------------------------------------------------------------------------- --------- --------- ---------------
1995:
First............................................................................ $ 26 3/4 $ 22 $ .25
Second........................................................................... 27 3/4 23 1/2 .25
Third............................................................................ 29 1/2 23 7/8 .28
Fourth........................................................................... 36 28 1/4 .28
1996:
First............................................................................ $ 34 5/8 $ 29 1/4 $ .28
Second........................................................................... 37 3/8 31 5/8 .28
Third............................................................................ 40 3/4 33 .31
Fourth........................................................................... 47 38 3/4 .31
1997:
First............................................................................ $ 57 7/8 $ 44 1/4 .31
Second (through June 16, 1997)................................................... 64 1/16 52 7/16 .31
</TABLE>
On March 19, 1997, the last trading day before FBS and USBC publicly
announced the execution of the Merger Agreement, the closing price per share of
USBC Common Stock was $48 1/4. On June 16, 1997, the last trading day prior to
the date of this Joint Proxy Statement-Prospectus, such price was $64 1/16. Past
price performance is not necessarily indicative of likely future price
performance. Holders of USBC Common Stock are urged to obtain current market
quotations for shares of USBC Common Stock.
Holders of shares of USBC Common Stock are entitled to receive dividends
from funds legally available therefor when, as and if declared by the USBC
Board.
BUSINESS OF FBS
FBS, a Delaware corporation, is a regional multi-state banking company
registered under the BHCA, headquartered in Minneapolis, Minnesota. At March 31,
1997, FBS and its subsidiaries had consolidated assets of $36.0 billion,
consolidated deposits of $23.4 billion and shareholders' equity of $3.0 billion,
placing it among the 25 largest United States bank holding companies in terms of
total assets. FBS operates four banks and nine trust companies having banking
offices in 11 Midwestern and Rocky Mountain states. FBS also has various nonbank
subsidiaries engaged in financial services, principally in the Upper Midwest.
The banking subsidiaries are engaged in general retail and commercial
banking business. They provide a wide variety of services to individuals,
businesses, industry, institutional organizations, governmental entities and
other financial institutions. Depository services include checking, savings and
time certificates. Additional services include commercial lending, financing of
import/export trade, foreign exchange and retail and institutional brokerage
services. Treasury management and receivable lockbox collection are provided for
corporate customers. The four banks and nine trust companies provide a full
range of fiduciary activities for individuals, estates, foundations, business
corporations and charitable organizations.
FBS was incorporated under Delaware law in 1929 and has functioned as a
multi-bank holding company since that time. Its principal executive offices are
located at First Bank Place, 601 Second Avenue South, Minneapolis, Minnesota
55402-4302 (telephone (612) 973-1111). For further information concerning FBS,
see the FBS documents incorporated by reference herein as described under
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
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BUSINESS OF USBC
USBC is a regional bank holding company incorporated in the state of Oregon
in 1968 and headquartered in Portland, Oregon. U. S. Bank of Oregon was
originally chartered in 1891. USBC's principal activities are located in the
Northwest, but it has operations throughout the Far West and, to a lesser
extent, the rest of the United States. At March 31, 1997, USBC had consolidated
assets of approximately $33.8 billion and shareholders' equity of approximately
$2.8 billion. USBC is among the 30 largest bank holding companies in the United
States in terms of total assets. The principal banking subsidiaries of USBC at
March 31, 1997, were U. S. Bank of Oregon, U. S. Bank of Washington, National
Association, U. S. Bank of Idaho, U. S. Bank of California, U. S. Bank of Nevada
and U.S. Bank of Utah. The banking subsidiaries were merged into U. S. Bank of
Oregon as of June 14, 1997.
The banking subsidiaries of USBC are engaged in general retail and corporate
banking, and provide investment and trust services. U. S. Bank of Oregon and U.
S. Bank of Idaho are each the largest commercial banks, in terms of deposits, in
their states, while the other banking subsidiaries have significant presences in
their states and chosen markets. Other subsidiaries of USBC provide financial
services related to banking, including lease financing, discount brokerage,
investment advisory services and insurance agency and credit life insurance
services. In addition, the investment advisor subsidiary of U. S. Bank of
Oregon, Qualivest Capital Management, Inc. advises a group of mutual funds, the
Qualivest Funds.
The principal executive offices of USBC are located at 111 Southwest Fifth
Avenue, Portland, Oregon 97204 (telephone (503) 275-6111).
DESCRIPTION OF FBS AND NEW USBC CAPITAL STOCK
IN THE MERGER, FBS WILL BE THE SURVIVING CORPORATION AND FBS STOCK WILL
REMAIN OUTSTANDING AND WILL CONSTITUTE NEW USBC STOCK. ACCORDINGLY, EXCEPT AS
THE FBS CERTIFICATE IS AMENDED IN CONNECTION WITH THE MERGER (AS DESCRIBED
BELOW), THE NEW USBC CAPITAL STOCK WILL BE IDENTICAL TO THE FBS STOCK.
THE FOLLOWING DESCRIPTION OF THE CAPITAL STOCK OF FBS DOES NOT PURPORT TO BE
COMPLETE AND IS SUBJECT, IN ALL RESPECTS, TO APPLICABLE DELAWARE LAW AND TO THE
PROVISIONS OF THE FBS CERTIFICATE. THE FOLLOWING DESCRIPTION IS QUALIFIED BY
REFERENCE TO THE FBS CERTIFICATE, THE CERTIFICATE OF DESIGNATION FOR THE NEW
USBC 8 1/8% PREFERRED STOCK, AND THE AGREEMENTS AND DOCUMENTS REFERRED TO BELOW
UNDER "--PERIODIC STOCK PURCHASE RIGHTS AND RISK EVENT WARRANTS," COPIES OF
WHICH ARE INCORPORATED BY REFERENCE AS EXHIBITS TO THE REGISTRATION STATEMENT OF
WHICH THIS JOINT PROXY STATEMENT-PROSPECTUS IS A PART.
GENERAL
The authorized capital stock of FBS consists of 200,000,000 shares of FBS
Common Stock, par value $1.25 per share, and 10,000,000 shares of preferred
stock, par value $1.00 per share ("preferred stock of FBS"). Pursuant to the
Merger Agreement, upon consummation of the Merger, the number of authorized
shares of FBS Common Stock would increase from 200,000,000 to 500,000,000. The
increase in the number of authorized shares of FBS Common Stock is necessary to
have sufficient shares available for consummation of the Merger, in connection
with which FBS anticipates issuing up to 113,979,980 shares of FBS Common Stock.
FBS had a shareholder rights plan adopted on December 21, 1988, but which
expired pursuant to its terms in July of 1996.
Under the FBS Certificate, the FBS Board or a duly authorized committee
thereof has the power, without further action by the shareholders, unless action
is required by applicable laws or regulations, to provide for the issuance of
preferred stock in one or more series and to fix the voting rights,
designations, preferences, and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof by
adopting a resolution or resolutions creating and designating such series.
As of the FBS Record Date, 141,747,738 shares of FBS Common Stock were
issued (including 8,141,240 shares held in treasury), 15,404,404 shares were
reserved for issuance under FBS's employee and
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director plans and the FBS Reinvestment and Purchase Plan, 48,010 shares were
reserved for issuance under outstanding warrants to purchase FBS Common Stock
and 15,000,000 shares were reserved for issuance upon exercise of the Periodic
Stock Purchase Rights and Risk Event Warrants described below. As of the FBS
Record Date, there were no shares of preferred stock of FBS outstanding and
12,750 shares of preferred stock of FBS reserved for issuance.
PREFERRED STOCK
FBS presently has one series of preferred stock authorized for future
issuance. The FBS Series 1990A Preferred Stock, liquidation value $100,000 per
share ("FBS Series 1990A Preferred Stock"), is authorized for future issuance as
described below.
FBS SERIES 1990A PREFERRED STOCK.
In connection with the sale by FBS of 12,600,000 shares of FBS Common Stock
and accompanying periodic stock purchase rights and risk event warrants in a
private placement in July 1990, FBS may under certain circumstances be obligated
to issue up to 12,750 shares of Series 1990A Preferred Stock. See "-- Common
Stock--Periodic Stock Purchase Rights and Risk Event Warrants" below. The shares
of Series 1990A Preferred Stock would, if issued, provide for a liquidation
preference of $100,000 per share. The dividend rate would be adjusted quarterly
and would be determined at the time of issuance.
If, at the time of any annual meeting of FBS Shareholders for the election
of directors, the amount of accrued but unpaid dividends on the Series 1990A
Preferred Stock were equal to at least six quarterly dividends on such series,
then the number of directors of FBS would be increased by one and the holders of
such Series, voting as a separate class, would be entitled to elect one
additional director who would continue to serve the full term for which he or
she would have been elected, notwithstanding the declaration or payment of any
dividends on the Series 1990A Preferred Stock. The affirmative vote or consent
of the holders of at least two-thirds of the outstanding shares of FBS Series
1990A Preferred Stock will be required for any amendment of the FBS Certificate
(including any certificate of designation or any similar document relating to
any series of preferred stock of FBS) which will adversely affect the powers,
preferences, privileges or rights of the FBS Series 1990A Preferred Stock. The
affirmative vote or consent of the holders of at least two-thirds of the
outstanding shares of FBS Series 1990A Preferred Stock will be required to
issue, authorize, or increase the authorized amount of, or issue or authorize
any obligation or security convertible into or evidencing a right to purchase,
any additional class or series of stock ranking prior to the FBS Series 1990A
Preferred Stock as to dividends or upon liquidation.
ADDITIONAL PROVISIONS. The rights of holders of FBS Common Stock will be
subject to, and may be adversely affected by, the rights of holders of any
preferred stock that may be issued in the future. Any such issuance may
adversely affect the interests of holders of the FBS Common Stock by limiting
the control that such holders may exert by exercise of their voting rights, by
subordinating their rights in liquidation to the rights of the holders of
preferred stock of FBS and otherwise. In addition, the issuance of shares of
preferred stock of FBS may, in some circumstances, deter or discourage takeover
attempts and other changes in control of FBS, including takeovers and changes in
control that some holders of the FBS Common Stock may deem to be in their best
interests and in the best interests of FBS, by making it more difficult for a
person who has gained a substantial equity interest in FBS to obtain voting
control or to exercise control effectively. FBS has no current plans or
agreements with respect to the issuance of any shares of preferred stock, except
as described above with respect to the Series 1990A Preferred Stock and in
connection with the consummation of the Merger.
COMMON STOCK
GENERAL. Each share of FBS Common Stock is entitled to such dividends as
may from time to time be declared by the FBS Board from any funds legally
available for dividends. FBS may not declare any cash
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<PAGE>
dividends on, or make any payment on account of, the purchase, redemption or
other retirement of, FBS Common Stock unless full dividends (including
accumulated dividends, if applicable) have been paid or declared or set apart
for payment upon all outstanding shares of the preferred stock of FBS and FBS is
not in default or in arrears with respect to any sinking or other analogous fund
or other agreement for the purchase, redemption or other retirement of any
shares of preferred stock of FBS. Holders of FBS Common Stock are entitled to
one vote per share. Shareholders do not have the right to cumulate their votes
in the election of directors. FBS Common Stock has no conversion rights and the
holders of FBS Common Stock have no preemptive or other rights to subscribe for
additional securities of FBS. In the event of the liquidation of FBS, after the
payment or provision for payment of all debts and liabilities and subject to the
rights of the holders of preferred stock of FBS which may be outstanding, the
holders of FBS Common Stock will be entitled to share ratably in the remaining
assets of FBS. Shares of FBS Common Stock are fully paid and nonassessable. The
FBS Common Stock is listed on the NYSE.
FBS DIVIDEND REINVESTMENT AND COMMON STOCK PURCHASE PLAN. Pursuant to its
FBS Reinvestment and Purchase Plan, FBS provides eligible shareholders with a
method of investing cash dividends and optional cash payments at 100% of the
average price (as defined in the FBS Reinvestment and Purchase Plan) in
additional shares of FBS Common Stock without payment of any brokerage
commission or service charge. The FBS Reinvestment and Purchase Plan includes
certain dollar limitations on participation and provides for eligible
shareholders to elect dividend reinvestment on only a part of the shares
registered in the name of a participant (while continuing to receive cash
dividends on remaining shares). It is anticipated that the FBS Reinvestment and
Purchase Plan will continue after the Effective Date and that shareholders of
USBC who receive shares of New USBC Common Stock pursuant to the Merger will
have the right to participate therein.
PERIODIC STOCK PURCHASE RIGHTS AND RISK EVENT WARRANTS. FBS has entered
into (i) a Stock Purchase Agreement, dated as of May 30, 1990 (as amended, the
"Stock Purchase Agreement"), by and among Corporate Partners, L.P. ("Corporate
Partners"), Corporate Offshore Partners, L.P. ("Offshore" and, together with
Corporate Partners, the "Partnerships"), The State Board of Administration of
Florida ("State Board") solely in its capacity as a managed account and not in
its individual capacity (State Board and the Partnerships being referred to
herein collectively as the "Purchasers"), Corporate Advisors, L.P. and FBS and
(ii) a Stock Purchase Agreement, dated as of May 30, 1990 (the "Florida Stock
Purchase Agreement"), by and between State Board in its individual capacity and
FBS. Pursuant to the Stock Purchase Agreement, FBS sold (a) to Corporate
Partners 8,856,241 shares of FBS Common Stock, 10 Periodic Stock Purchase Rights
(each a "PSPR") and one Risk Event Warrant, (b) to Offshore 643,976 shares of
FBS Common Stock, 10 PSPRs and one Risk Event Warrant and (c) to State Board
939,783 shares of FBS Common Stock, 10 PSPRs and one Risk Event Warrant.
Pursuant to the Florida Stock Purchase Agreement, FBS sold to State Board
2,160,000 shares of FBS Common Stock, 10 PSPRs and one Risk Event Warrant.
The Stock Purchase Agreement and the Florida Stock Purchase Agreement
contain transfer restrictions with respect to the shares of FBS Common Stock
acquired thereunder and standstill provisions limiting further acquisitions of
FBS Common Stock by the Purchasers and State Board. The Stock Purchase Agreement
and the Florida Stock Purchase Agreement also grant each of the Purchasers and
State Board the right to purchase its pro rata share of any Voting Securities
(as defined in the Stock Purchase Agreement) sold by FBS for cash, subject to
certain exceptions. Pursuant to the Stock Purchase Agreement, the Purchasers
have designated one person to act as a non-voting observer of the FBS Board.
Each PSPR issued to the Purchasers and State Board relates to a specific
twelve-month period commencing with the twelve-month period following closing of
the transactions contemplated under the Stock Purchase Agreement and the Florida
Stock Purchase Agreement. Each PSPR shall become exercisable in the event that a
Dividend Shortfall (as defined in the Stock Purchase Agreement) exists for the
specific twelve-month period to which such PSPR relates. A Dividend Shortfall
will be deemed to exist to the extent that FBS has not paid a cash dividend
equal to $0.205 per share of FBS Common Stock for
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each quarter within such twelve-month period. The PSPRs will be exercisable for
that number of shares of FBS Common Stock or (subject to the prior approval of
the Federal Reserve Board) depositary shares representing one one-thousandth of
a share of Series 1990A Preferred Stock ("Depositary Shares") such that the
holders of PSPRs will receive value equal to the Dividend Shortfall. Once a PSPR
has become exercisable, it will remain exercisable for a one-year period at an
exercise price of $1.25 per share of FBS Common Stock or $1.00 per Depositary
Share. If a PSPR were to become exercisable and were not redeemed by FBS as
described below, the issuance of Depositary Shares or FBS Common Stock upon
exercise of a PSPR could adversely affect the market price of the FBS Common
Stock. If the PSPRs were to be exercised for FBS Common Stock, there could be
substantial dilution of the FBS Common Stock.
Each Risk Event Warrant will become exercisable in the event of certain
defined change of control events with respect to FBS where the value received by
holders of the FBS Common Stock is less than $13.875 per share, or in certain
circumstances in the event the FBS Common Stock is valued at less than $13.875
per share on the tenth anniversary of the closing of the transactions
contemplated under the Stock Purchase Agreement. The consummation of the Merger
does not constitute a change of control for purposes of the Risk Event Warrants.
The Risk Event Warrants will be exercisable for that number of shares of FBS
Common Stock at an exercise price of $1.25 per share or, in certain
circumstances (subject to the prior approval of the Federal Reserve Board),
Depositary Shares such that the holders of Risk Event Warrants will receive
value equal to such shortfall. If the Risk Event Warrants were to become
exercisable and were not redeemed by FBS as described below, the issuance of
Depositary Shares or FBS Common Stock upon exercise of a Risk Event Warrant
could adversely affect the market price of the FBS Common Stock. If the Risk
Event Warrants were to be exercised for FBS Common Stock, there could be
substantial dilution of the FBS Common Stock. In the event of a change in
control at a time when the market price of the FBS Common Stock is less than
$13.875 per share, the Risk Event Warrants may have the effect of reducing the
price per share to be received by the holders of the FBS Common Stock.
In the event of the exercise of a Risk Event Warrant upon the occurrence of
certain change of control events, FBS may, at its option (subject to the prior
approval of the Federal Reserve Board), elect to have such Risk Event Warrant
become exercisable for other securities of FBS acceptable to the holder of such
Risk Event Warrant in lieu of the shares of FBS Common Stock for which such Risk
Event Warrant would otherwise become exercisable. In addition, FBS has the right
(subject to the prior approval of the Federal Reserve Board) to redeem any PSPR
at a price equal to the Dividend Shortfall and any Risk Event Warrant at a price
equal to the Value Shortfall (as defined in the Stock Purchase Agreement) or the
Termination Shortfall Amount (as defined in the Stock Purchase Agreement), as
applicable, after such PSPR or Risk Event Warrant, as the case may be, shall
have become exercisable. FBS also has entered into a registration rights
agreement with the Purchasers and with State Board pursuant to which the
Purchasers and State Board, respectively, are granted certain rights to cause
FBS to register with the Commission the FBS Common Stock acquired pursuant to
the Stock Purchase Agreement and the Florida Stock Purchase Agreement and the
securities acquired upon exercise of the PSPRs and the Risk Event Warrants.
The foregoing is a summary of the transactions contemplated by the Stock
Purchase Agreement and the Florida Stock Purchase Agreement and related
documents and is qualified in its entirety by the more detailed information
contained in such agreements and documents, copies of which are incorporated by
reference as exhibits to the Registration Statement of which this Joint Proxy
Statement-Prospectus is a part.
FBS COMMON STOCK REPURCHASE PROGRAM. During 1995, 1996 and during the
period from January 1, 1997 to March 19, 1997, FBS repurchased 11.9 million
shares, 15.1 million shares and 1.9 million shares of FBS Common Stock,
respectively. On March 19, 1997, in connection with its approval of the Merger
Agreement, the FBS Board terminated its repurchase authorization (most recently
adopted on February 21, 1996). See "THE MERGER--Accounting Treatment."
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NEW USBC 8 1/8% PREFERRED STOCK
Pursuant to the terms of the Merger Agreement, each share of USBC 8 1/8%
Preferred Stock will be converted into one share of New USBC 8 1/8% Preferred
Stock. The terms of the New USBC 8 1/8% Preferred Stock will be substantially
identical to the terms of the USBC 8 1/8% Preferred Stock.
RANK. The New USBC 8 1/8% Preferred Stock will rank on a parity as to
payment of dividends and distribution of assets upon dissolution, liquidation or
winding up of New USBC with the shares of each other currently outstanding
series of preferred stock of New USBC. The New USBC 8 1/8% Preferred Stock will
rank prior to the New USBC Common Stock with respect to the payment of dividends
and distribution of assets upon dissolution, liquidation or winding up of New
USBC.
DIVIDENDS. Holders of shares of New USBC 8 1/8% Preferred Stock will be
entitled to receive, when, as and if declared by the New USBC Board, or a duly
authorized committee thereof, out of assets of New USBC legally available for
payment, cumulative cash dividends, payable quarterly in arrears, at the rate of
8 1/8% per share per annum. Dividends on the New USBC 8 1/8% Preferred Stock
will be payable quarterly on the fifteenth of February, May, August and November
of each year (each, a "Dividend Payment Date"), commencing on the first Dividend
Payment Date following the Effective Time. Dividends payable on the first
Dividend Payment Date following the Effective Time shall be in respect of the
quarterly dividend period commencing on and including the last Dividend Payment
Date with respect to the USBC 8 1/8% Preferred Stock on which dividends were
paid prior to the Effective Time and shall be pursuant to the dividend
declaration of the USBC Board, if any, prior to the Effective Time. Each
declared dividend shall be payable to holders of record as they appear at the
close of business on the stock books of New USBC on such record dates, not more
than 45 calendar days preceding the payment dates therefor, as are determined by
the New USBC Board. Quarterly dividend periods shall commence on and include the
Dividend Payment Date and shall end on and include the day next preceding the
next following Dividend Payment Date. The right of holders of New USBC 8 1/8%
Preferred Stock to receive dividends is cumulative.
No full dividends shall be declared or paid or set aside for payment on any
stock of New USBC ranking, as to dividends, on a parity with or junior to the
New USBC 8 1/8% Preferred Stock for any period unless full cumulative dividends
on the New USBC 8 1/8% Preferred Stock have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
aside for such payment on the New USBC 8 1/8% Preferred Stock for all dividend
periods terminating on or prior to the date of payment of such dividends. When
dividends are not paid in full on the New USBC 8 1/8% Preferred Stock and any
other preferred stock of New USBC ranking on a parity as to dividends with the
New USBC 8 1/8% Preferred Stock, all dividends declared or paid upon shares of
the New USBC 8 1/8% Preferred Stock and such other preferred stock shall be
declared and paid pro rata so that the amount of dividends declared and paid per
share on the New USBC 8 1/8% Preferred Stock and such other preferred stock
shall in all cases bear to each other the same ratio that accrued dividends per
share (which in the case of noncumulative preferred stock shall not include any
accumulation in respect of unpaid dividends for prior dividend periods) on
shares of the New USBC 8 1/8% Preferred Stock and such other preferred stock
bear to each other. Except as provided in the preceding sentence, unless full
cumulative dividends on the New USBC 8 1/8% Preferred Stock have been paid or
declared and set aside for payment, no dividends (other than dividends or
distributions paid in shares of, or options, warrants or rights to subscribe for
or purchase shares of, New USBC Common Stock or any other stock of New USBC
ranking junior to the New USBC 8 1/8% Preferred Stock as to dividends and upon
liquidation) shall be declared or paid or set aside for payment or any other
distribution declared or made upon the New USBC Common Stock or any other stock
of New USBC ranking junior to or on a parity with the New USBC 8 1/8% Preferred
Stock as to dividends or upon liquidation. No New USBC Common Stock or any other
stock of New USBC ranking junior to or on a parity with the New USBC 8 1/8%
Preferred Stock as to dividends or upon liquidation shall be redeemed, purchased
or otherwise acquired for any consideration (and no moneys shall be paid to or
made available for a sinking fund for the redemption of any shares of any such
stock) by New USBC
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(except by conversion into or exchange for stock of New USBC ranking junior to
the New USBC 8 1/8% Preferred Stock as to dividends and upon liquidation)
unless, in each case, the full cumulative dividends on the New USBC 8 1/8%
Preferred Stock shall have been paid or declared and set aside for payment.
Holders of shares of the New USBC 8 1/8% Preferred Stock shall not be entitled
to any dividend, whether payable in cash, property or stock, in excess of the
full dividends on such shares. No interest shall be payable in respect of any
dividend payment which may be in arrears on the New USBC 8 1/8% Preferred Stock.
Dividends payable on shares of the New USBC 8 1/8% Preferred Stock (i) for
any period other than a full dividend period, shall be computed on the basis of
a 360-day year consisting of twelve 30-day months and (ii) for each full
dividend period, shall be computed by dividing the annual dividend rate by four.
Any dividend payment made on shares of the New USBC 8 1/8% Preferred Stock shall
first be credited against the earlier accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION. Prior to July 23, 1997, the New USBC 8 1/8% Preferred Stock is
not redeemable. At any time on or after July 23, 1997, the New USBC 8 1/8%
Preferred Stock is redeemable, in whole or in part, from time to time at the
option of New USBC upon not less than 30 nor more than 60 days' notice at $25.00
per share plus all accrued and unpaid dividends to the date of redemption.
If less than all the outstanding shares of New USBC 8 1/8% Preferred Stock
are to be redeemed, New USBC will select those to be redeemed pro rata, by lot
or by a substantially equivalent method. On and after the redemption date,
dividends will cease to accrue on the shares, and they shall be deemed to cease
to be outstanding, provided that the redemption price (including any accrued and
unpaid dividends to the date fixed for redemption) has been duly paid or
provided for.
The New USBC 8 1/8% Preferred Stock will not be entitled to the benefits of
any sinking fund.
Notwithstanding the foregoing, unless the full cumulative dividends on all
outstanding shares of New USBC 8 1/8% Preferred Stock shall have been paid or
contemporaneously are declared and paid for all past dividend periods, no shares
of New USBC 8 1/8% Preferred Stock shall be redeemed unless all outstanding
shares of New USBC 8 1/8% Preferred Stock are simultaneously redeemed; provided,
however that the foregoing shall not prevent the purchase or acquisition of
shares of New USBC 8 1/8% Preferred Stock or of shares of such other series of
preferred stock pursuant to a purchase or exchange offer made on the same terms
to holders of all outstanding shares of New USBC 8 1/8% Preferred Stock, and,
unless the full cumulative dividends on all outstanding shares of New USBC
8 1/8% Preferred Stock and any other stock of New USBC ranking on a parity with
such series as to dividends and upon liquidation shall have been paid or
contemporaneously are declared and paid for all past dividend periods, New USBC
shall not purchase or otherwise acquire directly or indirectly any shares of
preferred stock of such series (except by conversion into or exchange for stock
of New USBC ranking junior to the preferred stock of such series as to dividends
and upon liquidation). In addition, in order to qualify as Tier 1 capital, New
USBC 8 1/8% Preferred Stock may not be redeemed at New USBC's option without the
prior approval of the Federal Reserve Board.
LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of New USBC, the holders of the New
USBC 8 1/8% Preferred Stock will be entitled, subject to the rights of
creditors, but before any distribution or payment to the holders of New USBC
Common Stock or any other security ranking junior to the New USBC 8 1/8%
Preferred Stock on liquidation, dissolution or winding up of New USBC, to
receive $25.00 per share plus accrued and unpaid dividends. In the event that,
upon any such voluntary or involuntary liquidation, dissolution or winding up,
the available assets of New USBC are insufficient to pay such amount on all
outstanding shares of New USBC 8 1/8% Preferred Stock and the corresponding
amounts payable on all shares of other classes or series of stock of New USBC
ranking on a parity with the New USBC 8 1/8% Preferred Stock in the distribution
of assets, then the holders of the New USBC 8 1/8% Preferred Stock and of all
other such classes or series shall share ratably in any distribution of assets
in proportion to the full amounts to which they would otherwise be respectively
entitled.
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For such purposes, the consolidation or merger of New USBC with any other
corporation shall not be deemed to constitute a liquidation, dissolution or
winding up of New USBC.
VOTING RIGHTS. Except as otherwise noted or as required by law, each holder
of shares of New USBC 8 1/8% Preferred Stock shall be entitled to notice of
shareholders' meetings, but will not be entitled to vote. When holders of New
USBC 8 1/8% Preferred Shares are entitled to vote, each holder, as of the record
date in connection with such vote, is entitled to one vote.
If at any time the equivalent of six quarterly dividends, whether or not
consecutive, payable on the New USBC 8 1/8% Preferred Stock are unpaid or not
declared and set aside for payment, the number of directors of New USBC shall be
increased by two and the holders of shares of the New USBC 8 1/8% Preferred
Stock outstanding at the time (voting separately, as a single class with the
holders of shares of any one or more series of preferred stock of New USBC
ranking on a parity with the New USBC 8 1/8% Preferred Stock as to dividends or
upon liquidation and upon which like voting rights have been conferred and are
exercisable) shall have the right to elect two directors to serve as such until
all arrearages of dividends on the New USBC 8 1/8% Preferred Stock have been
paid or declared and set aside for payment at which time the terms of office of
the two directors so elected shall terminate and the number of directors of New
USBC shall be reduced by two (subject to any additional rights as to the
election of directors provided for the holders of shares of other preferred
stock of New USBC). Any director so elected may be removed by, and shall not be
removed except by, the vote of the holders of shares of the New USBC 8 1/8%
Preferred Stock outstanding at the time (voting separately as a single class
with the holders of shares of any one or more series of preferred stock of New
USBC ranking on a parity with the New USBC 8 1/8% Preferred Stock as to
dividends or upon liquidation and upon which like voting rights have been
conferred and are exercisable).
So long as any shares of the New USBC 8 1/8% Preferred Stock remain
outstanding, New USBC shall not, without the affirmative vote or consent of the
holders of at least two-thirds of the shares of the New USBC 8 1/8% Preferred
Stock and of any other similarly affected series of preferred stock of New USBC
ranking on a parity with the New USBC 8 1/8% Preferred Stock as to dividends or
upon liquidation and upon which like voting rights have been conferred and are
exercisable outstanding at the time (voting separately as a single class without
regard to series), given in person or by proxy, either in writing or at a
meeting, (i) authorize, create or issue, or increase the authorized or issued
amount of, any class or series of stock ranking prior to the New USBC 8 1/8%
Preferred Stock as to dividends or upon liquidation or (ii) amend, alter or
repeal, whether by merger or otherwise, the provisions of the Certificate of
Incorporation of New USBC so as to materially and adversely affect any of the
preferences, limitations, and relative rights of the New USBC 8 1/8% Preferred
Stock; provided, however, that any increase in the amount of the authorized
preferred stock of New USBC or the creation and issuance of other series of
preferred stock of New USBC, in each case ranking on a parity with or junior to
the New USBC 8 1/8% Preferred Stock as to dividends or upon liquidation, will
not be deemed to materially and adversely affect such preferences, limitations
and relative rights.
Without limiting the foregoing, under any circumstances in which holders of
the New USBC 8 1/8% Preferred Stock would have additional rights under Oregon
law if New USBC were incorporated under the OBCA, holders of New USBC 8 1/8%
Preferred Stock will be entitled to such rights.
CONVERSION RIGHTS. The New USBC 8 1/8% Preferred Stock is not convertible
into shares of any other class or series of the capital stock of New USBC.
NO OTHER RIGHTS. The shares of New USBC 8 1/8% Preferred Stock shall not
have any preferences, voting powers or relative, participating, optional or
other special rights except as set forth above, in the FBS Certificate or as
otherwise required by law.
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CERTAIN PROVISIONS OF THE FBS CERTIFICATE AND FBS BYLAWS
The FBS Certificate requires the affirmative vote of the holders of 80% of
the "Voting Stock" (defined therein) of FBS to approve certain mergers,
consolidations, reclassifications, dispositions of assets or liquidation,
involving or proposed by certain significant shareholders, unless certain price
and procedural requirements are met or unless the transaction is approved by the
"Continuing Directors" (defined therein). In addition, the FBS Certificate
provides for classification of the FBS Board into three separate classes, sets a
maximum Board size of 24 and authorizes action by the shareholders of FBS only
pursuant to a meeting and not by a written consent. The foregoing provisions of
the FBS Certificate can only be amended by the affirmative vote of the holders
of not less than 80% of the outstanding FBS voting stock. For a description of
the FBS Board Expansion Amendment, see "AMENDMENTS TO THE FBS CERTIFICATE." The
FBS Bylaws provide that special meetings of shareholders may be called only by
the FBS Board or the chief executive officer. The overall effect of these
provisions may be to delay or prevent attempts by other corporations or groups
to acquire control of FBS without negotiation with the FBS Board.
COMPARATIVE RIGHTS OF SHAREHOLDERS OF FBS COMMON STOCK AND
USBC COMMON STOCK
GENERAL
FBS is (and New USBC will therefore be) a Delaware corporation, subject to
the provisions of the DGCL. USBC is an Oregon corporation, subject to the
provisions of the OBCA. Shareholders of USBC will, upon consummation of the
Merger, become shareholders of New USBC. The rights of such shareholders as
shareholders of New USBC will then be governed by the FBS Certificate (as
amended in accordance with the Merger Agreement and, subject to approval by FBS
Shareholders, the FBS Board Expansion Amendment), the FBS Bylaws and by the
DGCL.
The following discussion of certain material differences between the rights
of USBC Shareholders under the USBC Articles and USBC Bylaws and the OBCA, on
the one hand, and the rights of FBS Shareholders under the FBS Certificate and
the FBS Bylaws and the DGCL, on the other hand, is only a summary of certain
provisions thereof and does not purport to be a complete description of such
differences. Except as noted below, all references to the rights of FBS and FBS
Shareholders will be applicable to FBS following the Merger when its name will
be changed to "U.S. Bancorp".
The following summary does not reflect any rules of the NYSE that may apply
to FBS and any rules of the Nasdaq National Market that may apply to USBC in
connection with the matters discussed. This summary does not purport to be a
complete discussion of, and is qualified in its entirety by reference to, the
DGCL, the OBCA, the respective common laws of Delaware and Oregon and the full
texts of the governing corporate instruments of each corporation, to which
shareholders are referred.
ACTION BY WRITTEN CONSENT
USBC. The OBCA provides that action required or permitted to be taken at a
shareholders' meeting may be taken by shareholders without a meeting only by the
unanimous written consent of all shareholders entitled to vote.
FBS. The DGCL provides that, unless otherwise provided in the certificate
of incorporation, shareholders may act by the written consent of the holders of
not less than the minimum number of shares that would be necessary to approve
such action at a meeting where all shares entitled to vote were present and
voted. The FBS Certificate provides that FBS Shareholders may not act by written
consent.
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MEETING OF SHAREHOLDERS
USBC. Under the OBCA, special meetings of the shareholders may be called
(i) by the board of directors or such other persons as may be authorized by the
articles of incorporation or bylaws or (ii) upon written demand of the holders
of 10% of the votes entitled to be cast at such meeting. The USBC Bylaws provide
that special meetings may be called by the USBC Board, the chairman of the USBC
Board, the chief executive officer, any vice chairman or the president or by the
holders of 10% of the shares then outstanding and entitled to vote at such
meeting.
FBS. Under the DGCL, special meetings of the shareholders may be called by
the board of directors or such other persons as may be authorized by the
certificate of incorporation or bylaws. The FBS Bylaws provide that special
meetings of FBS Shareholders may be called only by the FBS Board or the chief
executive officer.
NUMBER OF DIRECTORS, VACANCIES AND NEWLY-CREATED DIRECTORSHIPS
USBC. Under the OBCA, the number of directors shall be specified or fixed
in accordance with the articles of incorporation or bylaws. The USBC Articles do
not contain a provision with respect to the number of directors. The USBC Bylaws
provide for the number of directors to be fixed from time to time by a majority
of the entire USBC Board; provided that, pursuant to the USBC Bylaws, USBC must
have at least five and not more than 25 directors.
The OBCA provides that, unless the articles of incorporation provide
otherwise, a vacancy on the board, including a vacancy resulting from an
increase in the number of directors, may be filled by the shareholders or the
board of directors (including if the remaining directors constitute fewer than a
quorum). The USBC Articles provide that any vacancy on the USBC Board by reason
of an increase in the number of directors may be filled by the affirmative vote
of a majority of the number of directors fixed by the USBC Bylaws prior to such
increase and that any directorship not so filled may be filled by election at
the next annual meeting or at a special meeting called for that purpose;
provided that not more than four such directorships may be filled by directors
during any one period between annual meetings. Under the OBCA, the term of a
director elected by the board of directors to fill a vacancy expires at the next
shareholders' meeting at which directors are elected.
FBS. Under the DGCL, the number of directors shall be fixed by or in the
manner provided in the bylaws, unless the certificate of incorporation fixes the
number of directors, in which case a change in the number of directors shall be
made only by amendment to the certificate. The FBS Certificate provides that the
number of directors shall be fixed by the FBS Bylaws, and shall not be less than
12 nor more than 24. The FBS Certificate also provides that this provision may
not be amended or repealed unless approved by the affirmative vote of holders of
not less than 80% of the outstanding voting stock of FBS. The FBS Bylaws
currently provide that the FBS Board shall consist of sixteen directors.
The FBS Certificate provides that vacancies and newly-created directorships
resulting from an increase in the number of FBS directors shall be filled only
by a majority of the directors then in office, although less than a quorum, or
by the sole remaining director. The FBS Certificate also provides that this
provision may not be amended or repealed unless approved by the affirmative vote
of holders of not less than 80% of the outstanding voting stock of FBS. If the
FBS Board Expansion Amendment is approved, the FBS Certificate will be amended
to increase the maximum number of FBS directors to 30 and to exempt from the 80%
shareholder voting requirement any future amendment to the FBS Certificate to
reduce the maximum number of FBS directors to not less than the greater of (i)
the number of directors then in office and (ii) 24. As of the Effective Date,
the FBS Bylaws shall have been amended to provide that the number of directors
shall be fixed from time to time by resolution of the FBS Board in conformity
with the FBS Certificate.
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CLASSIFICATION OF BOARD
USBC. The OBCA provides that, unless there are six or more directors and
the articles of incorporation or bylaws provide for a classified board, the
board of directors shall consist of a single class of directors elected annually
by a plurality of votes cast by the shares entitled to vote in the election at a
meeting at which a quorum is present. The USBC Articles and USBC Bylaws do not
provide for a classified Board, and the USBC Board is elected annually. There is
no cumulative voting.
FBS. As permitted by the DGCL, the FBS Certificate provides for
classification of the FBS Board into three classes of directors with each class
as nearly equal in number as possible and elected for a three-year term and only
one class standing for election each year. The affirmative vote of the holders
of at least 80 percent of the outstanding voting stock of FBS is required to
amend or repeal this provision. There is no cumulative voting.
REMOVAL OF DIRECTORS
USBC. The OBCA provides that directors may be removed with or without cause
by a vote of the shareholders unless the articles of incorporation provide
otherwise. The USBC Articles contain no provision relating to removal of
directors.
FBS. The FBS Certificate provides that shareholders may remove a director
only for cause.
ADVANCE NOTICE OF SHAREHOLDER NOMINATIONS FOR DIRECTORS AND PROPOSALS
USBC. The USBC Bylaws require that nomination for election as director
(other than nominations by or on behalf of the USBC Board) and shareholder
proposals at an annual meeting or other meeting called for such purpose, must be
in writing and must be delivered or mailed to the chairman of the USBC Board not
less than 25 days nor more than 60 days prior to any meeting, provided that if
less than 30 days' notice of the meeting is given to shareholders, such
nomination must be mailed or delivered to the chairman of the USBC Board not
later than the fifth day following the day on which the notice of the meeting
was mailed.
FBS. The FBS Bylaws require that any shareholder nominating a person for
election as a director must give written notice to the secretary of FBS not less
than 90 days prior to an annual meeting of shareholders or not less than seven
days after the date on which notice of a special meeting of shareholders for the
election of directors is given. The FBS Bylaws contain no advance notice
requirements relating to shareholder proposals for business to be conducted at a
shareholder's meeting.
QUORUM AT SHAREHOLDERS' MEETINGS
USBC. The USBC Bylaws provide that a majority of votes entitled to be cast
on any matter by a voting group, in person or by proxy, constitute a quorum for
such a meeting.
FBS. The FBS Bylaws require that the holders of not less than one-third of
the shares entitled to vote at any shareholder's meeting be present, in person
or by proxy, to constitute a quorum.
SUPERMAJORITY VOTING
USBC. Article IX of the USBC Articles requires the affirmative vote of the
holders of not less than two-thirds of the outstanding USBC Common Stock in
connection with certain "Business Combinations" (as defined in the USBC
Articles), involving a "Related Person" (as defined in the USBC Articles). The
two-thirds shareholder vote is not required (i) if the Business Combination
meets certain "fair price" criteria, (ii) if the Related Person acquires all its
shares of USBC Common Stock by means of a cash tender offer for any and all
shares or (iii) in the event that the USBC Board approves the Business
Combination, provided that (a) such approval occurred before the Related Person
became a Related
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Person, or (b) a majority of the USBC Board consisted of "Continuing Directors"
(as defined in the USBC Articles) and at least two-thirds of the "Continuing
Directors" approved the Business Combination. The affirmative vote of the
holders of not less than two-thirds of the outstanding USBC Common Stock that is
not beneficially owned by a Related Person or its affiliates is required to
amend or repeal Article IX.
FBS. The FBS Certificate requires the affirmative vote of the holders of
not less than 80% of the outstanding shares of FBS entitled to vote in
connection with certain "Business Transactions" (as defined in the FBS
Certificate) involving a "Related Person" (as defined in the FBS Certificate).
The 80% shareholder vote is not required if the Business Transaction meets
certain "fair price" criteria or in the event the "Continuing Directors" (as
defined in the FBS Certificate) approve the transaction. The FBS Certificate
also requires the vote of the holders of at least 80% of the outstanding shares
of FBS entitled to vote generally in the election of directors to add to, alter,
change or repeal the supermajority provisions.
STATUTORY PROVISIONS AFFECTING TAKEOVERS
USBC. USBC is subject to the provisions of OBCA Sections 60.825-60.845 (the
"Oregon Business Combination Statute") and Sections 60.801-60.816 (the "Oregon
Control Share Act"). The Oregon Business Combination Statute contains provisions
regulating a broad range of business combinations, such as a merger or
consolidation, between a "resident domestic corporation" such as USBC and an
"interested shareholder" (which is defined as any owner of 15% or more of the
corporation's stock) or an affiliate or associate of the interested shareholder
for three years after the date on which such shareholder became an interested
shareholder, unless, among other things, (a) the acquisition which caused the
person to become an interested shareholder, or the business combination, was
approved in advance by the corporation's board of directors, (b) the business
combination was approved by the board of directors and authorized at a meeting
of shareholders by at least two-thirds of the outstanding voting stock not owned
by the interested shareholder, or (c) upon consummation of the transaction which
resulted in the shareholder becoming an interested shareholder, the interested
shareholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding shares owned by (i)
directors that are also officers and (ii) certain employee share plans).
The provisions of the Oregon Control Share Act effectively deny voting
rights to shares of an Oregon corporation acquired in "control share
acquisitions" unless a resolution granting such voting rights is approved at a
meeting of shareholders by affirmative majority vote of (i) all outstanding
shares entitled to vote at such meeting by class if required by the terms of
such shares; and (ii) all outstanding shares entitled to vote at such meeting
voting by class if required by the terms of such shares, excluding all
interested shares. A control share acquisition is one in which a purchasing
shareholder acquires more than one-fifth, one-third, or one-half, under various
circumstances, of the voting power of the stock of an "issuing public
corporation." An "issuing public corporation" is an Oregon corporation with (i)
one hundred or more shareholders; (ii) its principal place of business,
principal office or substantial assets in Oregon; and (iii) either (a) more than
10% of its shareholders resident in Oregon; (b) more than 10% of its shares
owned by Oregon residents; or (c) 10,000 shareholders resident in Oregon. USBC
meets the statutory definition of an issuing public corporation. If a control
share acquisition is made and the acquiring person owns or has the right to vote
a majority or more of the corporation's voting stock, and those shares are
granted voting rights, shareholders who do not vote in favor of restoring voting
rights are entitled to dissenters' appraisal rights. The OBCA permits a
corporation to opt out of the application of the Oregon Control Share Act to
acquisitions of its shares by appropriately amending its articles of
incorporation or bylaws. In connection with its approval of the Merger, the USBC
Board amended the USBC By-Laws so as to opt out of the Oregon Control Share Act.
Section 60.157 of the OBCA expressly authorizes a corporation to issue
rights, options or warrants to the holders of all shares of any class of stock
that (i) preclude or limit the exercise, transfer or receipt of rights, options
or warrants by any person owning or offering to acquire a specified number or
percentage of
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such corporation's outstanding stock or other securities or any transferee of
any such person or (ii) invalidate or void the rights, options or warrants held
by any such person or any transferee.
FBS. FBS is subject to Section 203 of the DGCL, which is substantially the
same as the Oregon Business Combination Statute. There is nothing in Delaware
law directly comparable to the Oregon Control Share Act. Pursuant to Delaware
judicial precedent, a corporation may issue rights, options or warrants having
similar terms to those authorized by the OBCA.
AMENDMENTS TO FBS RESTATED CERTIFICATE OF INCORPORATION
GENERAL
The Merger Agreement provides that, at the Effective Time, the FBS
Certificate will be amended in accordance with the DGCL as follows: (i) the name
of the corporation will be changed to "U.S. Bancorp", (ii) the number of
authorized shares of FBS Common Stock will be increased from 200,000,000 to
500,000,000, and (iii) if the FBS Board Expansion Amendment is approved by the
requisite 80% shareholder vote, the maximum number of FBS directors will be
increased to 30 and the 80% shareholder voting requirement will not apply to any
future amendment to the FBS Certificate to reduce the maximum number of FBS
directors to not less than the greater of (a) the number of directors then in
office and (b) 24. The principal purpose and effect of these amendments to the
FBS Certificate (other than the FBS Board Expansion Amendment) will be to create
a sufficient number of shares of FBS Common Stock for issuance to former
shareholders of USBC in the Merger and to authorize additional shares of capital
stock that may be issued upon the approval of the FBS Board without shareholder
approval. The principal purpose and effect of the FBS Board Expansion Amendment
is to increase the maximum number of directors on the FBS Board, thereby
permitting the integration of the Former USBC Directors with the FBS Board, and
to permit the FBS Board to be reduced in size in the future without the
necessity of obtaining an 80% shareholder vote. While the FBS Board recommends
that FBS Shareholders vote "FOR" the FBS Board Expansion Amendment, the approval
of the Merger Agreement is not contingent upon the approval of the FBS Board
Expansion Amendment. The FBS Board Expansion Amendment would become effective
only upon consummation of the Merger.
In addition, FBS will file a Certificate of Designations with the Secretary
of State of the State of Delaware fixing the preferences, limitations and
relative rights of the New USBC 8 1/8% Preferred Stock, shares of which are to
be issued in the Merger.
As of the FBS Record Date, there were 133,606,498 shares of FBS Common Stock
outstanding and an additional 30,452,414 shares of FBS Common Stock were
reserved for issuance. This leaves FBS with 35,941,088 authorized but unissued,
unreserved and uncommitted shares of FBS Common Stock available for issuance.
After giving effect to the Merger, approximately 284,038,892 shares of New USBC
Common Stock will be outstanding or reserved for issuance. Accordingly, New USBC
will have approximately 215,961,108 shares of New USBC Common Stock available
for issuance. As of the FBS Record Date, there were no preferred shares of FBS
outstanding and 12,750 preferred shares of FBS reserved for issuance. FBS had
9,987,250 authorized but unissued, unreserved and uncommitted preferred shares
available for issuance at the FBS Record Date. Assuming no change in
capitalization except giving effect to the Merger, at the Effective Time,
6,000,000 shares of New USBC 8 1/8% Preferred Stock will be outstanding. Giving
effect to the Merger, approximately 12,750 preferred shares will be reserved for
issuance. As a result, New USBC will have approximately 3,987,250 shares of
preferred stock authorized but unissued, unreserved and uncommitted available
for issuance.
The additional shares of FBS Common Stock for which authorization is sought
would be a part of the existing class of FBS Common Stock and, if and when
issued, would have the same rights and privileges as the shares of FBS Common
Stock presently outstanding. Such additional shares would not (and the shares of
FBS Common Stock presently outstanding do not) entitle holders thereof to
preemptive or cumulative voting rights. The increase in authorized shares will,
in addition to providing sufficient capital stock for
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issuance in connection with the Merger, provide additional shares for general
corporate purposes, including stock dividends, raising additional capital,
issuances pursuant to employee and shareholder stock plans and possible future
acquisitions. There are, however, no present plans, understandings or agreements
for issuing a material number of additional shares of FBS Common Stock from the
additional shares of stock proposed to be authorized pursuant to the amendment.
Approximately 113,979,980 shares of New USBC Common Stock and 6 million shares
of New USBC 8 1/8% Preferred Stock are expected to be issued in the Merger.
The issuance of shares of FBS Common Stock, including the additional shares
that would be authorized if the proposed amendment is adopted, may dilute the
present equity ownership position of current holders of FBS Common Stock and may
be made without shareholder approval, unless otherwise required by applicable
laws or stock exchange regulation. Under existing NYSE regulations, approval of
the holders of a majority of the shares of FBS Common Stock would nevertheless
be required in connection with any transaction or series of related transactions
that would result in the original issuance of additional shares of FBS Common
Stock, other than in a public offering for cash, if (i) the FBS Common Stock
(including securities convertible into FBS Common Stock) has, or will have upon
issuance, voting power equal to or in excess of 20% of the voting power
outstanding before the issuance of such FBS Common Stock, (ii) the number of
shares of FBS Common Stock to be issued is or will be equal to or in excess of
20% of the number of shares outstanding before the issuance of the FBS Common
Stock or (iii) the issuance would result in a change of control of FBS.
The amendment might also have the effect of discouraging an attempt by
another person or entity, through the acquisition of a substantial number of
shares of FBS Common Stock, to acquire control of FBS with a view to
consummating a merger, sale of all or any part of FBS's assets, or a similar
transaction, because the issuance of new shares could be used to dilute the
stock ownership of such person or entity.
THE BOARD EXPANSION AMENDMENT
As noted above, the approval of the holders of at least 80% of the
outstanding shares of FBS Common Stock is required to approve the FBS Board
Expansion Amendment. See "FBS SPECIAL MEETING." In the event the FBS Board
Expansion Amendment is approved, the maximum size of the FBS Board would be
expanded from 24 to 30 members and the 80% shareholder voting requirement
currently applicable to amendments to these provisions of the FBS Certificate
would be eliminated with respect to any amendment to the FBS Certificate to
reduce the maximum number of FBS Directors to the greater of (a) the number of
directors then in office and (b) 24. Under the DGCL, the approval of the holders
of a majority of the outstanding shares of FBS Common Stock would be required to
approve any amendment to the FBS Certificate reducing the maximum size of the
FBS Board. While the FBS Board recommends that FBS Shareholders vote "FOR" the
FBS Board Expansion Amendment, the consummation of the Merger is not contingent
upon the approval of the FBS Board Expansion Amendment. The FBS Board Expansion
Amendment would become effective only upon consummation of the Merger.
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PROPOSAL TO APPROVE THE NEW USBC 1997 STOCK INCENTIVE PLAN
In April 1997, the FBS Board adopted the New USBC 1997 Stock Incentive Plan
(the "1997 Plan"), which would incorporate certain existing plans of FBS and
USBC, subject to approval by the FBS Shareholders and contingent upon
consummation of the Merger. While the FBS Board recommends that FBS Shareholders
vote "FOR" the approval of the 1997 Plan, the approval of the Merger is not
contingent upon approval of the 1997 Plan. The purpose of the 1997 Plan is to
aid in attracting and retaining employees, management personnel, other personnel
and members of the New USBC Board who are not also employees of New USBC
("Non-Employee Directors") capable of assuring the future success of New USBC,
to offer such persons incentives to put forth maximum efforts for the success of
New USBC's business and to afford such persons an opportunity to acquire a
proprietary interest in New USBC. The following summary description of the 1997
Plan is qualified in its entirety by reference to the full text of the plan,
which is attached to this Joint Proxy Statement-Prospectus as Appendix F.
SUMMARY OF THE 1997 PLAN
For purposes of administration and share accounting under the 1997 Plan, the
following plans of FBS and USBC would be considered to be incorporated in the
1997 Plan upon its effective date: the FBS 1996 Stock Incentive Plan, the FBS
1987 Stock Option Plan, the 1988 Equity Participation Plan, the FirsTier
Financial, Inc. Omnibus Equity Plan, and the WCIC 1984 Stock Option and
Incentive Plan (collectively, the "FBS Plans") and USBC's 1993 Stock Incentive
Plan, 1985 Stock Option and SAR Plan, 1984 Stock Incentive Plan, 1973 Stock
Incentive Plan, HeartFed Option Plan, West One Option Plan, CBI Employee Plan,
1995 Director Plan, 1993 Director Plan, 1990 Director Plan and Subsidiary
Director Plan (collectively, the "USBC Plans").
All outstanding options, restricted stock and other awards subject to the
terms of the FBS Plans and the USBC Plans will remain outstanding and subject to
the terms and conditions of those plans but are counted as part of the total
number of shares of New USBC Common Stock awarded under the 1997 Plan, subject,
in the case of the USBC Plans, to appropriate adjustments reflecting the
conversion of USBC Common Stock into New USBC Common Stock pursuant to the terms
of the Merger. Additionally, the authorized shares of FBS Common Stock under the
FBS 1996 Stock Incentive Plan not subject to previously outstanding awards
(approximately 2,879,000 shares as of May 30, 1997) will be available for grant
under the 1997 Plan. The FBS Board has determined that in order to meet New
USBC's needs for approximately the next two years, 6,000,000 additional shares
of New USBC Common Stock are required to be authorized for issuance under the
1997 Plan. Not more than 1,000,000 shares would be available for the grant of
additional restricted stock awards following the Merger. The 1997 Plan will
authorize the issuance of an aggregate of 22,125,802 shares of New USBC Common
Stock (which includes the 13,246,802 shares subject to outstanding awards under
the USBC Plans and the FBS Plans), of which approximately 8,879,000 shares will
be available for grant. Such numbers will be automatically adjusted to reflect
activity under the FBS Plans and the USBC Plans prior to the Effective Time.
If any shares of New USBC Common Stock subject to any award or to which an
award relates are not purchased or are forfeited, or if any such award
terminates without the delivery of shares or other consideration (in each case,
including those awards granted under the FBS Plans and the USBC Plans), the
shares previously used for such awards will be available for future awards under
the 1997 Plan. In addition, any shares that are used by a 1997 Plan participant
as full or partial payment to New USBC of the purchase price relating to an
award, or in connection with the satisfaction of tax obligations relating to an
award in accordance with the provisions relating to tax withholding (including
those awards granted under the FBS Plans and the USBC Plans), shall again be
available for the granting of awards under the 1997 Plan. Notwithstanding the
foregoing, the total number of shares of New USBC Common Stock that may be
purchased upon exercise of Incentive Stock Options (as defined below) granted
under the 1997 Plan following effectiveness of the 1997 Plan may not exceed
6,000,000 shares (subject to adjustment as
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described below). No person may be granted any award or awards the value of
which awards are based solely on an increase in the value of the New USBC Common
Stock after the date of grant for more than 1,000,000 shares of New USBC Common
Stock, in the aggregate, in any calendar year.
ELIGIBILITY. Any employee, officer, consultant or independent contractor of
New USBC and its affiliates is eligible to receive awards under the 1997 Plan.
The 1997 Plan also provides for the automatic grant of options to Non-Employee
Directors as described below. FBS estimates that approximately 23,000 employees
will be eligible to participate in the 1997 Plan during 1997. The 1997 Plan will
become effective immediately following consummation of the Merger, subject to
approval by the FBS Shareholders. New awards granted under the 1997 Plan will
only be granted during a 10-year period beginning on the effective date of the
1997 Plan. However, unless otherwise expressly provided in the 1997 Plan or an
applicable award agreement, any award granted may extend beyond the end of such
10-year period.
TYPES OF AWARDS; PLAN ADMINISTRATION. The 1997 Plan will permit the
granting of (a) stock options, including "incentive stock options" ("Incentive
Stock Options") meeting the requirements of Section 422 of the Code and stock
options that do not meet such requirements ("Nonqualified Stock Options"), (b)
stock appreciation rights ("SARs"), (c) restricted stock and restricted stock
units, (d) performance awards and (e) other awards valued in whole or in part by
reference to or otherwise based upon New USBC's stock ("other stock-based
awards"). The 1997 Plan will be administered by a committee of the New USBC
Board consisting exclusively of two or more directors each of whom is a
"non-employee director" within the meaning of Rule 16b-3 promulgated pursuant to
the Exchange Act and each of whom shall be an "outside director" within the
meaning of Section 162(m) of the Code (the "Committee"). The Committee will have
the authority to establish rules for the administration of the 1997 Plan, to
select the individuals to whom awards are granted, to determine the types of
awards to be granted and the number of shares of New USBC Common Stock covered
by such awards, and to set the terms and conditions of such awards. The
Committee may also determine whether the payment of any amounts received under
any award shall or may be deferred. Determinations and interpretations with
respect to the 1997 Plan will be at the sole discretion of the Committee, whose
determinations and interpretations will be binding on all interested parties.
The Committee may delegate to one or more officers the right to grant awards
with respect to individuals who are not subject to Section 16(b) of the Exchange
Act.
Awards shall be granted for no cash consideration or for such minimal cash
consideration as may be required by applicable law. Awards may provide that upon
the grant or exercise thereof the holder will receive shares of New USBC Common
Stock, cash or any combination thereof, as the Committee shall determine. The
exercise price per share under any stock option, the grant price of any SAR, and
the purchase price of any security which may be purchased under any other
stock-based award shall not be less than 100% of the fair market value of New
USBC Common Stock on the date of the grant of such option, SAR or award. Options
shall be exercised by payment in full of the exercise price, either in cash or,
at the discretion of the Committee, in whole or in part by tendering shares of
New USBC Common Stock or other consideration having a fair market value on the
date the option is exercised equal to the exercise price. Determinations of fair
market value under the 1997 Plan shall be made in accordance with methods and
procedures established by the Committee. For purposes of the 1997 Plan, the fair
market value of shares of New USBC Common Stock on a given date shall be the
closing composite price of the shares as reported for New York Stock Exchange
issues on such date, if the shares are then listed on the New York Stock
Exchange.
The 1997 Plan will provide that the Committee may grant reload options,
separately or together with another option, and may establish the terms and
conditions of such reload options. Pursuant to a reload option, the optionee
would be granted a new option to purchase the number of shares not exceeding the
sum of (i) the number of shares of New USBC Common Stock tendered as payment
upon the exercise of the option to which such reload option relates, and (ii)
the number of shares of New USBC Common Stock tendered as payment of the amount
to be withheld under tax laws in connection with the exercise of
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<PAGE>
the option to which such reload option relates. Reload options may be granted
with respect to options granted under any stock option plan of New USBC.
The holder of an SAR will be entitled to receive the excess of the fair
market value (calculated as of the exercise date or, if the Committee shall so
determine, as of any time during a specified period before or after the exercise
date) of a specified number of shares over the grant price of the SAR.
The holder of restricted stock may have all of the rights of a stockholder
of New USBC, including the right to vote the shares subject to the restricted
stock award and to receive any dividends with respect thereto, or such rights
may be restricted. Restricted stock may not be transferred by the holder until
the restrictions established by the Committee have lapsed. Holders of restricted
stock units shall have the right, subject to any restrictions imposed by the
Committee, to receive shares of New USBC Common Stock (or a cash payment equal
to the fair market value of such shares) at some future date. Upon termination
of the holder's employment during the restricted period, restricted stock and
restricted stock units are forfeited, unless the Committee determines otherwise.
Performance awards will provide the holder thereof the right to receive
payments, in whole or in part, upon the achievement of such goals during such
performance periods as the Committee shall establish. A performance award
granted under the 1997 Plan may be denominated or payable in cash, shares of New
USBC Common Stock or restricted stock.
The Committee is also authorized to establish the terms and conditions of
other stock-based awards.
NON-EMPLOYEE DIRECTOR PARTICIPATION. Under the 1997 Plan, Non-Employee
Directors will receive (or have received pursuant to the terms of an FBS Plan)
Nonqualified Stock Options to purchase 2,500 shares of New USBC Common Stock
upon first being elected or appointed to the New USBC Board at the time of or
following the Merger. (Non-Employee Directors serving on the FBS Board prior to
the Merger previously received such grants under predecessor plans). During the
term of the 1997 Plan, Non-Employee Directors will be granted, as of the date of
each annual meeting of stockholders commencing with the 1998 annual meeting of
shareholders, if such Director's term of office continues after such date, an
option to purchase 1,700 shares of New USBC Common Stock. Such options will be
exercisable in full as of the date of grant, will expire on the tenth
anniversary of the date of grant and will have an exercise price equal to the
fair market value of New USBC Common Stock as of the date of grant.
Additionally, the 1997 Plan will provide for the grant of reload options to
Non-Employee Directors, pursuant to which such Directors would receive an option
to purchase that number of shares of New USBC Common Stock equal to the number
of shares of New USBC Common Stock tendered as payment upon the exercise of the
option to which such reload option relates plus the number of shares, if any,
delivered or withheld as payment of an amount representing tax obligations in
connection with the exercise of the option to which it relates.
MISCELLANEOUS. No award and no right under any award granted under the 1997
Plan shall be transferable by the individual to whom it was granted otherwise
than by will or by the laws of descent and distribution; PROVIDED, HOWEVER,
that, if so determined by the Committee, a participant may, in the manner
established by the Committee, designate a beneficiary or beneficiaries to
exercise the rights of the participant and receive any property distributable
with respect to any award upon the death of the participant; and PROVIDED,
FURTHER, except in the case of an Incentive Stock Option, awards may be
transferable as specifically provided in any applicable award agreement pursuant
to terms determined by the Committee. Except as otherwise provided in any
applicable award agreement (other than an award agreement relating to an
Incentive Stock Option), pursuant to terms determined by the Committee, each
award or right under any award shall be exercisable during a participant's
lifetime only by the participant or, if permissible under applicable law, by the
participant's guardian or legal representative. Except as otherwise provided in
any applicable award agreement, no award or right under any such award may be
pledged, alienated, attached or otherwise encumbered, and any purported pledge,
alienation, attachment or encumbrance thereof shall be void and unenforceable
against the Company or any Affiliate.
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<PAGE>
If any dividend or other distribution, recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of shares of New USBC Common Stock or other
securities of New USBC or other similar corporate transaction or event affecting
the shares of New USBC Common Stock would be reasonably likely to result in the
diminution or enlargement of the benefits or potential benefits intended to be
made available under the 1997 Plan or under an award, the Committee shall, in
such manner as it deems equitable or appropriate in order to prevent such
diminution or enlargement of any such benefits or potential benefits, adjust any
or all of (a) the number and type of shares (or other securities or property)
which thereafter may be made the subject of awards, (b) the number and type of
shares (or other securities or property) subject to outstanding awards, and (c)
the purchase or exercise price with respect to any award. The Committee may
correct any defect, supply any omission, or reconcile any inconsistency in the
1997 Plan or any award agreement in the manner and to the extent it shall deem
desirable to carry the 1997 Plan into effect.
The Board of Directors may amend, alter or discontinue the 1997 Plan at any
time, provided that stockholder approval must be obtained for any change that
(i) requires the approval of New USBC's stockholders under any rules or
regulations of the National Association of Securities Dealers, Inc., the NYSE,
or any other securities exchange applicable to New USBC; or (ii) requires the
approval of New USBC's stockholders under the Code in order to permit Incentive
Stock Options to be granted under the 1997 Plan.
For information on stock prices relating to FBS Common Stock, see "MARKET
PRICES AND DIVIDENDS."
TAX CONSEQUENCES. The following is a summary of the principal federal
income tax consequences generally applicable to awards under the 1997 Plan. The
grant of an option or SAR is not expected to result in any taxable income for
the recipient. The holder of an Incentive Stock Option generally will have no
taxable income upon exercising the Incentive Stock Option (except that a
liability may arise pursuant to the alternative minimum tax), and New USBC will
not be entitled to a tax deduction when an Incentive Stock Option is exercised.
Upon exercising a Nonqualified Stock Option, the optionee must recognize
ordinary income equal to the excess of the fair market value of the shares of
New USBC Common Stock acquired on the date of exercise over the exercise price,
and New USBC will be entitled at that time to a tax deduction for the same
amount. Upon exercising a SAR, the amount of any cash received and the fair
market value on the exercise date of any shares of New USBC Common Stock
received are taxable to the recipient as ordinary income and deductible by New
USBC. The tax consequence to an optionee upon a disposition of shares acquired
through the exercise of an option will depend on how long the shares have been
held and upon whether such shares were acquired by exercising an Incentive Stock
Option or by exercising a Nonqualified Stock Option or SAR. Generally, there
will be no tax consequence to New USBC in connection with the disposition of
shares acquired under an option, except that New USBC may be entitled to a tax
deduction in the case of a disposition of shares acquired under an Incentive
Stock Option before the applicable Incentive Stock Option holding periods set
forth in the Code have been satisfied.
With respect to other awards granted under the 1997 Plan that are payable in
cash or shares of New USBC Common Stock that are either transferable or not
subject to substantial risk of forfeiture, the holder of such an award must
recognize ordinary income equal to the excess of (a) the cash or the fair market
value of the shares of New USBC Common Stock received (determined as of the date
of such receipt) over (b) the amount (if any) paid for such shares of New USBC
Common Stock by the holder of the award, and New USBC will be entitled at that
time to a deduction for the same amount. With respect to an award that is
payable in shares of New USBC Common Stock that are restricted as to
transferability and subject to substantial risk of forfeiture, unless a special
election is made pursuant to the Code, the holder of the award must recognize
ordinary income equal to the excess of (i) the fair market value of the shares
of New USBC Common Stock received (determined as of the first time the shares
became transferable or not subject to substantial risk of forfeiture, whichever
occurs earlier) over (ii) the amount (if any) paid for such
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<PAGE>
shares of New USBC Common Stock by the holder, and New USBC will be entitled at
that time to a tax deduction for the same amount.
Special rules may apply in the case of individuals subject to Section 16(b)
of the Exchange Act. In particular, unless a special election is made pursuant
to the Code, shares received pursuant to the exercise of a stock option or SAR
may be treated as restricted as to transferability and subject to a substantial
risk of forfeiture for a period of up to six months after the date of exercise.
Accordingly, the amount of any ordinary income recognized, and the amount of New
USBC's tax deduction, are determined as of the end of such period.
Under the 1997 Plan, the Committee may permit participants receiving or
exercising awards, subject to the discretion of the Committee and upon such
terms and conditions as it may impose, to surrender shares of New USBC Common
Stock (either shares received upon the receipt or exercise of the award or
shares previously owned by the optionee) to New USBC to satisfy federal and
state withholding tax obligations.
RECOMMENDATION BY THE FBS BOARD; VOTE REQUIRED. The affirmative vote of the
holders of a majority of the shares of FBS Common Stock represented at the FBS
Special Meeting and entitled to vote is necessary for approval of the 1997 Plan.
Proxies will be voted in favor of such proposal unless otherwise specified. THE
FBS BOARD RECOMMENDS THAT FBS SHAREHOLDERS VOTE "FOR" APPROVAL OF THE 1997 PLAN.
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OWNERSHIP OF USBC CAPITAL STOCK
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table gives, as of June 9, 1997, certain information
concerning the beneficial ownership of USBC Common Stock by each of USBC's
directors, by the USBC executive officers named in the Summary Compensation
Table below and by USBC's present directors and all of its executive officers as
a group. Unless otherwise indicated, all shares listed as beneficially owned are
held with sole voting and investment power. No shares of USBC Preferred Stock
are beneficially owned by the indicated persons or group.
<TABLE>
<CAPTION>
APPROXIMATE
PERCENT
AMOUNT BENEFICIALLY OF
NAME OWNED CLASS
- -------------------------------------------------------------------------------- --------------------- -------
<S> <C> <C>
Harry L. Bettis................................................................. 2,981,100(4)(6) 2.0
Gerry B. Cameron................................................................ 418,779(1)(2)(3) *
Carolyn Silva Chambers.......................................................... 8,400(4) *
Franklin G. Drake............................................................... 48,989(4) *
Robert L. Dryden................................................................ 17,801(4) *
Gary T. Duim.................................................................... 98,524(1)(2)(3) *
John B. Fery.................................................................... 23,574(4) *
Joshua Green III................................................................ 8,391,860(4)(5) 5.7
Arland D. Hatfield.............................................................. 98,164(1)(2)(3) *
Allen T. Noble.................................................................. 9,871(4) *
Paul A. Redmond................................................................. 16,423(4) *
N. Stewart Rogers............................................................... 27,587(4) *
Robert D. Sznewajs.............................................................. 114,101(1)(2)(3) *
Benjamin R. Whiteley............................................................ 19,508(4) *
All directors and executive officers as a group
(22 persons).................................................................. 12,689,137(1)(2)(3)(4) 8.6
</TABLE>
- ------------------------
* Excluded because percentage beneficially owned is less than 1% of the Common
Stock.
(1) Includes shares underlying Restricted Stock Units ("RSUs") issued pursuant
to USBC's 1993 Stock Incentive Plan as well as dividend equivalent RSUs, if
elected by the grantee. Unvested RSUs are forfeited on termination of
employment, other than for retirement, disability or death, while dividend
equivalent RSUs, if elected, are not forfeited under any termination
circumstances. The officers cannot use the RSUs or transfer them until they
are converted into common shares. Grantees may elect dividend equivalents
paid on the RSUs in either cash or dividend equivalent RSUs. RSUs vest in
20% increments over five years and dividend equivalent RSUs vest either (1)
in increments of 20% over five years or (2) in a lump sum after five years
(at the election of the grantee). The number of RSUs held by each named
executive officer as of June 9, 1997 are as follows:
<TABLE>
<CAPTION>
NAME STOCK UNITS
- --------------------------------------------------------------------------------- -----------
<S> <C>
Gerry B. Cameron................................................................. 15,840
Robert D. Sznewajs............................................................... 7,108
Gary T. Duim..................................................................... 4,800
Arland D. Hatfield............................................................... 5,017
All executive officers as a group................................................ 56,337
</TABLE>
(2) Includes shares subject to employee stock options that are currently
exercisable or will become exercisable on or before August 9, 1997, as
follows: Mr. Cameron, 318,547 shares; Mr. Sznewajs,
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<PAGE>
92,876 shares; Mr. Duim 73,546 shares; Mr. Hatfield, 62,706 shares; and all
executive officers of USBC as a group 726,434 shares.
(3) Includes the indicated number of shares allocated to the accounts of
participants under the USBC Employee Investment Plan as follows: Mr.
Cameron, 30,392 shares; Mr. Sznewajs, 864 shares; Mr. Duim, 6,310 shares;
Mr. Hatfield, 13,613 shares; and all executive officers of USBC as a group,
87,808 shares. Participants in the plan may direct the voting of the shares
allocated to their accounts.
(4) Includes shares subject to stock options held by non-employee directors of
USBC that are currently exercisable or will become exercisable on or before
August 9, 1997, as follows: Mr. Bettis, 3,000 shares; Ms. Chambers, 8,300
shares; Mr. Drake, 23,692 shares; Mr. Dryden, 17,051 shares; Mr. Fery, 3,000
shares; Mr. Green, 24,600 shares; Mr. Noble, 3,000 shares; Mr. Redmond,
15,184 shares; Mr. Rogers, 18,949 shares; Mr. Whiteley, 12,108 shares; and
all present non-employee directors as a group, 128,884 shares.
(5) See note 2 to the next table for additional information regarding Mr.
Green's share ownership.
(6) Include 3,910 shares subject to restrictions on transferability as to which
Mr. Bettis has voting power.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following persons are known by USBC to beneficially own more than 5% of
the outstanding shares of USBC Common Stock as of June 9, 1997:
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY APPROXIMATE PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OF CLASS
- ------------------------------------------------------------------------- ------------------ ---------------------
<S> <C> <C>
Trust Group(1)........................................................... 15,792,595 10.8%
United States National Bank of Oregon
P. O. Box 3168
Portland, Oregon 97208-9933
Joshua Green III(2)...................................................... 8,391,860 5.7%
1425 Fourth Avenue
Seattle, Washington 98101
</TABLE>
- ------------------------
(1) The Trust Group of United States National Bank of Oregon, a wholly owned
subsidiary of USBC, held the indicated shares as of June 9, 1997, in
fiduciary capacities for various beneficiaries, including participants in
the U. S. Bancorp Employee Investment Plan. The Trust Group has sole voting
power as to 757,694 shares, shared voting power as to 1,013,351 shares, sole
investment power as to 14,023,203 shares, and shared investment power as to
1,576,163 shares.
(2) Includes 125,302 shares owned by Mr. Green; 6,059 shares owned by Mr.
Green's wife; 2,180,316 shares held by Joshua Green Corporation, of which
Mr. Green is chairman and chief executive officer; 5,089,171 shares held by
a limited partnership of which Joshua Green Corporation is the general
partner; 575,181 shares held by various estates, trusts, and custodianships
as to which Mr. Green has shared voting power and in which various family
members of Mr. Green are beneficiaries; 391,231 shares held by a charitable
foundation of which Mr. Green is president; and 24,600 shares subject to
stock options that are currently exercisable or will become exercisable on
or before August 9, 1997. Mr. Green owns 59% of the voting common stock of
Joshua Green Corporation and has sole voting power over another 20% of such
stock; accordingly, the other shareholders and directors of Joshua Green
Corporation are not deemed to have shared voting and dispositive power over
the shares of Common Stock beneficially owned by Joshua Green Corporation by
reason of their capacities as such.
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<PAGE>
ELECTION OF USBC DIRECTORS
DIRECTORS OF USBC
The directors of USBC will be elected at the USBC Annual Meeting to serve
until the earlier of the next annual meeting of USBC shareholders or the
Effective Time. Subject to the matters discussed under "AMENDMENTS TO FBS
RESTATED CERTIFICATE OF INCORPORATION," the directors elected at the USBC Annual
Meeting are expected to become directors of New USBC as of the Effective Time.
The USBC Board has set the number of positions on the USBC Board at eleven. The
names of USBC's nominees for director are given below together with certain
information about each of them, including their ages, their position with USBC
and periods of service as a director of USBC. There are no family relationships
among the directors. All the nominees are currently directors of USBC and of
USBC's major bank subsidiaries.
If for some unforeseen reason one or more of the nominees is not available
as a candidate for director, the number of directors constituting the USBC Board
may be reduced prior to the annual meeting, or the proxies of holders of USBC
Common Stock may be voted for such other candidate or candidates as may be
nominated by the Board. The USBC Bylaws provide that nominations for election to
the USBC Board may be made by the USBC Board or by any holder of record of USBC
securities entitled to vote for the election of directors. Nominations other
than those made by or on behalf of the USBC Board must be made in writing and
delivered or mailed to the Chairman of the USBC Board not less than 25 days and
not more than 60 days prior to the shareholders meeting at which directors are
to be elected. The shareholder should specify the name of each proposed nominee
and should set forth information as to the nominee's qualifications for
membership on the USBC Board. The USBC Bylaws provide for a shorter deadline if
less than 30 days' notice of the meeting is given to shareholders.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION WITH USBC SINCE
- ------------------------------------------------ --- ------------------------------------------------ -----------
<S> <C> <C> <C>
Harry L. Bettis................................. 62 Director 1995
Gerry B. Cameron................................ 59 Chairman of the Board, Chief Executive Officer 1994
and President
Carolyn Silva Chambers.......................... 65 Director 1995
Franklin G. Drake............................... 69 Director 1969
Robert L. Dryden................................ 63 Director 1995
John B. Fery.................................... 67 Director 1995
Joshua Green III................................ 61 Director 1987
Allen T. Noble.................................. 68 Director 1995
Paul A. Redmond................................. 60 Director 1994
N. Stewart Rogers............................... 67 Director 1988
Benjamin R. Whiteley............................ 67 Director 1994
</TABLE>
For a description of the principal occupation of each director for at least
the last five years, see "MANAGEMENT AND OPERATIONS AFTER THE MERGER."
OPERATION OF USBC BOARD AND BOARD COMMITTEES
BOARD COMMITTEES. The USBC Board has a standing Audit Committee, which
recommends to the Board the accounting firm to be selected as independent
auditors and reviews matters relating to public disclosure, corporate practices,
regulatory and financial reporting, accounting procedures and policies,
financial and accounting controls, and transactions involving potential
conflicts of interest. The Audit Committee receives and evaluates on behalf of
the Board reports of reviews by the Federal Reserve Board, which is the federal
supervisory agency for bank holding companies, and the OCC, which is the primary
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<PAGE>
supervisory agency for USBC's national bank subsidiaries. Reports of
examinations by supervisory agencies for other USBC subsidiaries, including the
Federal Deposit Insurance Corporation (the "FDIC"), and various state agencies,
are also received by the Audit Committee.
The Audit Committee also reviews the planned scope and results of audits,
the annual reports to the Commission and to the shareholders and the Proxy
Statement and makes recommendations regarding approval to the USBC Board. The
Audit Committee also performs for USBC's bank subsidiaries certain audit
functions required under FDIC regulations.
Current members of the Audit Committee are Messrs. Whiteley (chairperson),
Drake, Dryden, Redmond, and Ms. Chambers. The Audit Committee held six meetings
in 1996.
The USBC Board also has a standing Compensation Committee composed of five
non-employee directors, Messrs. Rogers (chairperson), Bettis, Dryden, Fery, and
Redmond. The Compensation Committee reviews and makes recommendations to the
USBC Board from time to time regarding compensation of USBC's officers and
nonemployee directors. The Compensation Committee administers USBC's stock-based
compensation plans and incentive plans and makes decisions regarding the grant
of stock options and other awards to officers and employees thereunder. The
Compensation Committee met six times in 1996.
The USBC Board has a standing Executive Committee composed of Messrs.
Cameron (chairperson), Bettis, Drake and Green. The Executive Committee will
hold meetings at the call of the Chairman of the Board and may exercise
authority as specifically delegated by the USBC Board during intervals between
board meetings. The Executive Committee also recommends nominees for election to
the USBC Board and reviews nominations by shareholders. The Executive Committee
met two times in 1996.
MEETINGS. The USBC Board held ten meetings during 1996. Each director
attended at least 75% of the total number of meetings of the Board and meetings
held by all committees of the Board on which the director served during 1996.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The table below shows the compensation awarded
or paid to, or earned by, USBC's chief executive officer and each of its four
other most highly compensated executive officers (the "named executive
officers") during each of the years in the three-year period ended December 31,
1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------------- -------------------------------------
OTHER RESTRICTED NUMBER OF LONG-TERM
ANNUAL STOCK SECURITIES INCENTIVE
NAME AND PRINCIPAL COMPENSATION UNITS UNDERLYING PAYOUTS
POSITION(1) YEAR SALARY($) BONUS(4)($) (5)($) (6)($) OPTIONS(#) (7)($)
- --------------------------- --------- ----------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gerry B. Cameron........... 1996 $ 800,000 $ 848,640 $ 628,650 89,700 $ 780,452
Chairman of the Board 1995 700,000 630,000 $ 53,622 -- 116,250 --
and Chief Executive 1994 508,750 250,000 58,252 --
Officer
Daniel R. Nelson(2)........ 1996 525,000 464,100 -- 47,700 --
President and Chief 1995 -- -- -- 29,610 --
Operating Officer 1994 -- -- -- -- --
Robert D. Sznewajs(3)...... 1996 425,000 375,700 269,875 30,900 273,384
Vice Chairman 1995 375,000 271,575 -- 36,989 --
1994 233,750 175,000 -- 20,408 --
Gary T. Duim............... 1996 280,000 280,000 190,500 17,000 234,131
Executive Vice President 1995 250,000 181,134 -- 21,138 --
1994 200,000 97,084 -- 19,417 --
Arland D. Hatfield......... 1996 280,000 278,563 190,500 17,000 234,131
Executive Vice President 1995 250,000 190,993 -- 21,138 --
1994 210,000 88,310 -- 19,417 --
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL COMPENSATION
POSITION(1) (8)($)
- --------------------------- -------------
<S> <C>
Gerry B. Cameron........... $ 97,943
Chairman of the Board 50,970
and Chief Executive 28,241
Officer
Daniel R. Nelson(2)........ 24,906
President and Chief --
Operating Officer --
Robert D. Sznewajs(3)...... 29,610
Vice Chairman 8,344
23,940
Gary T. Duim............... 31,288
Executive Vice President 18,534
8,717
Arland D. Hatfield......... 31,828
Executive Vice President 18,066
11,710
</TABLE>
95
<PAGE>
- ------------------------
(1) Includes principal capacities in which each officer served during 1996.
(2) Mr. Nelson became an employee of USBC effective December 26, 1995 and
retired from USBC effective January 1, 1997.
(3) Mr. Sznewajs became a USBC employee in April 1994.
(4) Represents amounts paid or accrued under the USBC Executive Annual Incentive
Plan.
(5) Represents the aggregate incremental cost to USBC of providing various
perquisites and personal benefits to Mr. Cameron in 1995, including a
one-time, automobile-related benefit of $41,250 in association with the
elimination of executive automobiles. Amounts which total the lesser of
$50,000 or 10% of the total annual salary and bonus for a given named
executive officer have been omitted pursuant to SEC disclosure rules.
(6) The amount reported for each officer for 1996 is the value of the RSUs on
February 14, 1996. In accordance with SEC proxy rules, the value of those
RSUs is shown here using the low market price of USBC Common Stock on
February 14, 1996, which was $31.75. RSUs earn dividends, which are payable
in cash or reinvested in RSUs each quarter, at the option of the officer.
The following table shows (a) the total number of RSUs credited to each of
the named executive officers as of February 14, 1996, and (b) the value of
those RSUs, based on the low market price of USBC Common Stock on December
31, 1996.
<TABLE>
<CAPTION>
VALUE AT
RESTRICTED 12/31/96
STOCK UNITS ($)
------------- -----------
<S> <C> <C>
Gerry B. Cameron......................................................... 19,800 888,525
Robert D. Sznewajs....................................................... 8,500 381,438
Gary T. Duim............................................................. 6,000 269,250
Arland D. Hatfield....................................................... 6,000 269,250
</TABLE>
(7) Represents amounts paid or accrued under the USBC Performance Share Plan for
the three-year period ended December 31, 1996.
(8) Except with respect to Mr. Nelson, represents amounts that 1) were
contributed by USBC under the USBC Employee Investment Plan, a qualified
plan under Section 401(k) of the Code, as a pro-rata matching contribution
and invested in USBC Common Stock; or 2) that would have been allocated to
each officer's matching contribution account under the Employee Investment
Plan had compensation subject to the plan included deferred compensation and
had Code limits not been applicable, but instead were credited under the
USBC Supplemental Benefits Plan; or 3) that equal the value in cash or RSUs
of dividend equivalents earned on RSUs. In the case of Mr. Nelson,
represents the dollar value of the benefit premium paid in 1996 for a
split-dollar life insurance policy, projected on an actuarial basis,
calculated as if the premiums were advanced without interest until recovered
by USBC upon termination of the split-dollar agreement.
STOCK-BASED COMPENSATION. The following table provides information
regarding options to purchase USBC Common Stock granted to the named executive
officers pursuant to the USBC 1993 Stock Incentive Plan during 1996.
OPTION GRANTS IN LAST FISCAL YEAR(1)
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED FISCAL YEAR PRICE ($/SHARE) DATE(2) VALUE($)(3)
- --------------------------------------------- ----------- ----------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Gerry B. Cameron............................. 89,700 7.5% $ 32.75 3/20/2006 $ 592,917
Daniel R. Nelson............................. 47,700 4.0% 32.75 1/01/2002 315,297
Robert D. Sznewajs........................... 30,900 2.6% 32.75 3/20/2006 204,249
Gary T. Duim................................. 17,000 1.4% 32.75 3/20/2006 112,370
Arland D. Hatfield........................... 17,000 1.4% 32.75 3/20/2006 112,370
</TABLE>
- ------------------------------
(1) No stock appreciation rights ("SARs") were granted to the named executive
officers during 1996. All options were granted for the number of shares
indicated at exercise prices equal to the fair market value of the USBC
Common Stock on the date of
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grant. All options are immediately and fully vested with provisions for
forfeiture or reimbursement of a percentage of shares if termination of
employment other than retirement, disability, or death occurs within three
years of grant date.
(2) Mr. Nelson retired effective January 1, 1997. His option, therefore, expires
in five years at January 1, 2002.
(3) The values shown have been calculated based on the Black-Scholes option
pricing model and do not reflect the effect of restrictions on
transferability. The values indicated were calculated based on the following
assumptions: (i) expectations regarding volatility were based on quarterly
stock price data during the three-year period ended December 31, 1996; (ii)
the risk-free rate of return was assumed to be 6.20% for options and 7.08%
for time lapse vesting; (iii) the time of exercise was assumed to be five
years after the date of grant; and (iv) the dividend yield was assumed to be
3.60% (the annual dividend rate divided by the stock price on the grant
date). The values which may ultimately be realized by the holders of the
reported options will depend on the market value of the USBC Common Stock
during the periods during which the options are exercisable, which may vary
significantly from the assumptions underlying the Black-Scholes model.
Information regarding exercises of stock options during 1996, and
unexercised options held as of December 31, 1996, by the named executive
officers is summarized in the table below.
Information regarding exercises of stock options during 1996, and
unexercised options held as of December 31, 1996, by the named executive
officers is summarized in the table below.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES(1)
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES OPTIONS
UNDERLYING OPTIONS AT YEAR-END($)(3)
OPTIONS VALUE TOTAL -------------------------- --------------------------
NAME EXERCISED REALIZED($)(2) OPTIONS EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- ------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gerry B. Cameron.............. 4,250 $ 19,125 309,952 178,291 131,661 $2,782,735 $ 2,540,010
Daniel R. Nelson.............. 0 0 47,700 47,700 0 578,363 0
Daniel R. Nelson.............. 22,052(4) 677,335 291,847 291,847 0 9,248,051 0
Robert D. Sznewajs............ 0 0 88,297 44,999 43,298 652,933 854,205
Gary T. Duim.................. 3,000 53,751 95,415 64,855 30,560 1,226,052 588,459
Arland D. Hatfield............ 2,900 44,541 101,215 70,655 30,560 1,411,333 588,459
</TABLE>
- ------------------------
(1) No SARs were exercised during 1996 and no named executive officer held any
SARs at December 31, 1996.
(2) Represents the amount by which the fair market value or sale price of the
shares of USBC Common Stock underlying employee stock options at the date of
exercise exceeded the exercise price.
(3) Value is calculated based on the amount by which the low sale price of the
USBC Common Stock, $44.875 as reported in The Wall Street Journal for the
last trading day in 1996, exceeds the per share exercise price of
unexercised options. All options reflected in the table were granted at an
exercise price equal to the fair market value of a share of USBC Common
Stock on the date of grant.
(4) Represents options granted to Mr. Nelson by West One Bancorp. Under West One
Bancorp's plan provisions, value is calculated based upon the average of
high and low sale price of the USBC Common Stock, which was $45.875 for the
last trading day in 1996.
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The following table sets forth information regarding performance cash awards
to the named executive officers pursuant to the USBC Performance Cash Award Plan
during 1996.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE
OR OTHER
TARGET % OF PERIOD ESTIMATED FUTURE PAYOUTS UNDER
3-YEAR UNTIL NON-STOCK PRICE BASED PLANS(2)
AVERAGE OF MATURATION -----------------------------------------------------
NAME BASE SALARY(1) OR PAYOUT THRESHOLD(%) TARGET(%) MAXIMUM(%)
- ------------------------------------------- ----------------- ----------- ------------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Gerry B. Cameron........................... 185% 3 years 0 185 370
Daniel R. Nelson........................... 150% 3 years 0 150 300
Robert D. Sznewajs......................... 120% 3 years 0 120 240
Gary T. Duim............................... 100% 3 years 0 100 200
Arland D. Hatfield......................... 100% 3 years 0 100 200
</TABLE>
- ------------------------
(1) Represents target awards of cash under USBC's Performance Cash Plan.
Opportunity for payout underlying the award represents anticipation of three
years' value to be paid out in three year's time. It is not intended that
similar awards will be made in 1997-98.
(2) Following the three-year period ending December 1998, awards will be settled
pursuant to a performance matrix calculated pursuant to a formula based on a
comparison of USBC's net income growth and return on equity over three years
with that of comparably capitalized regional banks included in the S&P Major
Regional Banks Index.
RETIREMENT PLANS. USBC maintains two retirement plans, the USBC Retirement
Plan (the "U. S. Retirement Plan"), which covers eligible employees and officers
of USBC and its participating subsidiaries, and the West One Retirement Plan
(the "W. O. Retirement Plan") which covers certain USBC employees who formerly
were employees of West One Bancorp (collectively, the "Retirement Plans").
The U. S. Retirement Plan and the W. O. Retirement Plan provide for payment
of monthly pension benefits based upon an employee's years of service and
compensation level. Pursuant to either the USBC Supplemental Benefits Plan (the
"U. S. Supplemental Plan") or the West One Supplemental Executive Retirement
Plan (the "W. O. SERP"), designated key employees, including USBC executive
officers, will receive retirement benefits in addition to those payable under
the Retirement Plans (collectively, the "Supplemental Plans").
The following tables show the estimated annual benefits payable under the U.
S. Retirement Plan and the W. O. Retirement Plan, respectively, (including
amounts payable pursuant to applicable provisions of the U. S. Supplemental Plan
and W. O. SERP) for participants with various years of benefit service and
specified levels of compensation (based on the average during the five
consecutive calendar years out of the last ten years for which compensation was
highest ("Highest Average Compensation")).
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<PAGE>
U. S. RETIREMENT PLAN PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------------
COMPENSATION LEVEL 15 20 25 30 35
- ----------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$125,000............................................. $ 30,100 $ 40,200 $ 50,200 $ 53,300 $ 56,500
150,000............................................. 36,500 48,700 60,800 64,600 68,300
175,000............................................. 42,900 57,200 71,500 75,800 80,200
200,000............................................. 49,200 65,700 82,100 87,100 92,100
225,000............................................. 55,600 74,200 92,700 98,300 104,000
250,000............................................. 62,000 82,700 103,300 109,600 115,800
300,000............................................. 74,700 99,700 124,600 132,100 139,600
350,000............................................. 87,500 116,700 145,800 154,600 163,300
400,000............................................. 100,200 133,700 167,100 177,100 187,100
450,000............................................. 113,000 150,700 188,300 199,600 210,800
500,000............................................. 125,700 167,700 209,600 222,100 234,600
550,000............................................. 138,500 184,700 230,800 244,600 258,300
600,000............................................. 151,200 201,700 252,100 267,100 282,100
650,000............................................. 164,000 218,700 273,300 289,600 305,800
700,000............................................. 176,700 235,700 294,600 312,100 329,600
750,000............................................. 189,500 252,700 315,800 334,600 353,300
800,000............................................. 202,200 269,700 337,100 357,100 377,100
850,000............................................. 215,000 286,700 358,300 379,600 400,800
</TABLE>
W. O. RETIREMENT PLAN PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------------
COMPENSATION LEVEL 15 20 25 30 35
- ----------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$125,000............................................. $ 34,000 $ 50,000 $ 66,000 $ 66,000 $ 74,000
150,000............................................. 44,000 63,000 83,000 83,000 91,000
175,000............................................. 53,000 76,000 99,000 99,000 107,000
200,000............................................. 63,000 89,000 115,000 115,000 123,000
250,000............................................. 83,000 115,000 148,000 148,000 156,000
300,000............................................. 102,000 141,000 180,000 180,000 189,000
350,000............................................. 122,000 167,000 213,000 213,000 222,000
400,000............................................. 141,000 193,000 245,000 245,000 254,000
450,000............................................. 161,000 219,000 278,000 278,000 287,000
500,000............................................. 180,000 245,000 310,000 310,000 320,000
550,000............................................. 200,000 271,000 343,000 343,000 353,000
600,000............................................. 219,000 297,000 375,000 375,000 385,000
700,000............................................. 258,000 349,000 440,000 440,000 451,000
</TABLE>
Compensation, for purposes of determining retirement benefits payable under
the Retirement Plans, generally consists of a participant's nondeferred
compensation up to a maximum annual limit imposed by the Code and excludes
amounts paid in excess of limits on variable items such as commissions,
long-term incentive compensation, and severance pay. Code limits are
disregarded, and deferred compensation is included in determining retirement
benefits payable, under the combined provisions of the Retirement Plans and the
Supplemental Plans.
Retirement benefits in the tables above are expressed in terms of single
life annuities and are not subject to reduction for Social Security benefits.
Benefits may be reduced from the amounts shown in the
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tables if the participant retires early (before age 65) or if the participant
elects to have benefits paid as a joint and survivor annuity.
Certain executive officers have been awarded an enhanced retirement benefit
under the U. S. Supplemental Plan. With respect to Mr. Cameron, this benefit
will result in his receiving payments upon retirement pursuant to the U. S.
Retirement Plan, primary Social Security benefits, and the U. S. Supplemental
Plan equal in the aggregate to 55% of his Highest Average Compensation and, in
addition, in his being exempted from the provisions of the U. S. Supplemental
Plan providing for a percentage reduction (normally 7%) in benefits for
retirement after age 55 but before age 62 ("Reduction Percentage"), if (i) he
continues to be chief executive officer of USBC through at least December 31,
1998, or (ii) his employment as chief executive officer terminates following a
change in control of USBC. If Mr. Cameron were to retire after December 31,
1998, with his Highest Average Compensation unchanged from the average at
December 31, 1996, his annual retirement benefit, assuming a single life annuity
and reduction for estimated Social Security benefits, would be $485,316.
Retirement benefits for Mr. Nelson were calculated on his years of benefit
service upon retirement. His benefits equal a fraction (65% multiplied by his
years of benefit service, divided by 25) multiplied by his Highest Average
Compensation. His benefits were reduced for retirement prior to age 65. Mr.
Nelson retired from USBC effective January 1, 1997, at which time he had a total
of 12.75 years of credited benefit service. His annual retirement benefit at
this time, assuming single life annuity, reductions for estimated Social
Security benefits and for employer contributions to the Employee Investment Plan
and deferred compensation account, and reduction for early retirement, is
$192,267.
The enhanced retirement benefit for Messrs. Sznewajs and Duim will depend on
their years of benefit service upon retirement. Their enhanced retirement
benefits will equal a fraction (2.75% multiplied by the number of years of
benefit service, up to a maximum of 55%) multiplied by their respective Highest
Average Compensation. For this purpose, Mr. Sznewajs has been credited with 11
years of benefit service for service with a prior employer and, as of December
31, 1996, had a total of 13.735 years of benefit service credited to his
account, and Mr. Duim, as of the same date, had a total of 8.929 years of
benefit service credited to his account. Mr. Sznewajs and Mr. Duim are each
fully vested in their respective enhanced retirement benefits. Mr. Sznewajs will
also be entitled to a Reduction Percentage of 3% (applicable to retirement
before age 62) if his employment is terminated by USBC prior to December 31,
2002. If Mr. Sznewajs were to retire at age 62 with Highest Average Compensation
unchanged from December 31, 1996, his annual retirement benefits, assuming
single life annuity, reduction for estimated Social Security benefits, and
benefits from previous employers, would be $340,140. If Mr. Duim were to retire
at age 62 with Highest Average Compensation unchanged from December 31, 1996,
his annual retirement benefits, with the same assumptions as for Mr. Sznewajs,
would be $177,780.
If Mr. Hatfield's employment with USBC is terminated, he will be entitled to
credit for 25 years of benefit service and to receive benefits under the U. S.
Retirement Plan that are not subject to a Reduction Percentage. At December 31,
1996, Mr. Hatfield had 18.6 credited years of benefit service and a compensation
level of $350,952 per year for purposes of calculating retirement benefits under
the U. S. Retirement Plan Pension Plan Table above.
For purposes of USBC's compensation plans, including the Supplemental Plans,
and, with certain exceptions, employment agreements with its executive officers,
a change in control includes (i) the acquisition (other than directly from USBC)
by a person or group (other than USBC or any employee benefit plan or
corporation controlled by USBC) of 20% or more of the combined voting power of
USBC's voting securities, (ii) with certain exceptions, the existing directors'
ceasing to constitute a majority of the USBC Board, (iii) consummation of a
reorganization, merger, or sale or other disposition of all or substantially all
of the assets of USBC (a "Business Combination"), unless substantially all of
the beneficial owners of USBC's voting securities immediately prior to such
Business Combination beneficially own more than 50% of the outstanding common
stock and combined voting power of the corporation resulting from
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such Business Combination, in substantially the same proportions as their
ownership immediately prior to such Business Combination, and certain other
conditions are met, and (iv) approval by the shareholders of a complete
liquidation or dissolution of USBC.
USBC EXECUTIVE AGREEMENTS. USBC is a party to the USBC Executive Agreements
with its 12 executive officers, including each of the named executive officers,
other than Mr. Nelson, providing for severance compensation in the event of
termination of employment following a change in control of USBC. Each of the
USBC Executive Agreements has a term ending February 20, 2000 (December 31, 2002
in the case of Mr. Sznewajs), subject to automatic extension annually
thereafter. Also, if a change in control of USBC occurs during the term of the
USBC Executive Agreements, the term will be extended automatically for three
additional calendar years beyond the year in which the change in control occurs.
Pursuant to the USBC Executive Agreements, each executive has agreed to remain
as a USBC employee throughout any tender or exchange offer for USBC's voting
securities unless a change in control of USBC occurs or the executive's
compensation is reduced.
The USBC Executive Agreements further provide that if, within three years
following the occurrence of a change in control, an executive's employment with
USBC is terminated by USBC without cause or by the executive for good reason (as
defined), the executive will be entitled to receive (i) his or her full base
salary through the date of termination at the rate in effect on the date the
change in control occurred, plus (ii), depending on the individual contract, an
amount equal to a multiple (generally two or three times) of the sum of (x) his
or her annual base salary at such rate plus (y) his or her highest annual bonus
paid during the three calendar years ending prior to the year in which the
change in control occurred. Special payment provisions apply in the event of the
executive's death or disability.
The USBC Executive Agreements also provide for reimbursement of legal fees
and expenses and reasonable amounts for outplacement services and for the
continuation of health, disability and life insurance benefits following
termination of employment voluntarily for good reason or involuntarily without
cause. The amounts payable under a USBC Executive Agreement will be reduced to
the extent that the executive receives payment under USBC's Severance Benefits
Plan and to the extent that the executive receives salary continuation and
incentive compensation benefits under another employment agreement. The
Executive Agreements also provide for reimbursement for any excise tax imposed
on benefits that constitute excess parachute payments plus any related federal,
state and local income taxes.
The USBC Executive Agreement entered into with Mr. Sznewajs providing for
compensation in the event his employment with USBC is terminated under specified
circumstances prior to the earlier of December 31, 2002, and the date, if any,
on which he becomes chief executive officer of USBC. Upon termination of Mr.
Sznewajs' employment by USBC during the term of the agreement (the "Term")
without cause (as defined) or by Mr. Sznewajs with good reason (as defined), he
will be entitled to his full base salary through termination, together with (i)
an amount equal to three times the sum of (A) his annual base salary plus (B)
his average annual incentive compensation paid or accrued during the last two
fiscal years, and (ii) continued benefits under USBC's welfare benefit plans for
three years following termination. If Mr. Sznewajs becomes disabled during the
Term, he will continue to receive his salary and benefits until the earlier of
the expiration of the Term and 180 days after he became disabled.
West One Bancorp entered into an employment agreement with Mr. Nelson prior
to its merger with USBC, which agreement expired as of January 1, 1997 as a
result of Mr. Nelson's retirement. The agreement provided that West One Bancorp
and subsequently USBC would continue to employ Mr. Nelson at least until the
earlier of January 15, 1999, or the date on which he became Chief Executive
Officer of USBC. If Mr. Nelson's employment were terminated by USBC without
cause or by him for good reason (as defined), Mr. Nelson would have been
entitled to receive (i) his full base salary through the date of termination at
the rate in effect on the date the termination occurred, plus (ii) a prorated
portion of his highest incentive compensation during the three fiscal years
prior to the merger (the "Recent Annual Bonus"), plus (iii) an amount equal to
three times the sum of (x) his annual base salary at such rate plus (y) the
Recent Annual Bonus, plus (iv) an amount equal to the actuarial equivalent of
the total retirement
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benefit for three additional years of service. The agreement also provided for
reimbursement of legal and accountant fees and expenses and reasonable amounts
for outplacement services and for the continuation of health, disability, and
life insurance benefits for three years following termination voluntarily with
good reason or involuntarily without cause. The agreement provided for
reimbursement of any excise tax imposed on benefits that constitute excess
parachute payments plus any related federal, state, and local income taxes.
For information on employment agreements entered into by FBS with Mr. Gerry
B. Cameron, Mr. Gary T. Duim and Mr. Robert D. Sznewajs in connection with the
Merger, and the impact of the Merger on the USBC Executive Agreements, see "THE
MERGER--Interests of Certain Persons in the Merger."
DIRECTORS' COMPENSATION.
ANNUAL AND MEETING FEES. USBC Directors, other than officer-directors,
receive an annual retainer of $25,000, as well as $1,200 for each Board meeting
and $1,000 for each committee meeting attended. In addition, the chairs of the
Audit Committee and the Compensation Committee receive an annual retainer of
$5,000 and $3,500, respectively.
NON-EMPLOYEE DIRECTOR STOCK OPTIONS. USBC has also adopted a series of
stock option plans for nonemployee directors (the "Director Plans") to encourage
increased ownership of USBC Common Stock by non-employee directors and to
provide enhanced incentives for such directors to exert their best efforts on
USBC's behalf. The Director Plans currently provide for the grant of an Initial
Option to purchase 4,000 shares of USBC Common Stock when a person first becomes
a non-employee director of USBC (or was serving as a non-employee director on
October 18, 1990) and of an Annual Option to purchase 2,000 shares of USBC
Common Stock to each person who is re-elected to serve as a non-employee
director as of each annual shareholders meeting. Initial Options and Annual
Options are granted at an exercise price equal to fair market value of the USBC
Common Stock on the date of grant.
Each non-employee director is permitted to elect to receive a grant of
deferred compensation options in lieu of all or a portion of the retainer and
meeting fees otherwise payable for service on the USBC Board. The exercise price
of a deferred compensation option is calculated so that the value of the option
(that is, the excess of the total market value of the shares subject to the
option over the aggregate exercise price) on the date of grant equals the amount
of director's fees foregone.
Pursuant to the foregoing provisions, in 1996, each of USBC's non-employee
directors were granted an Annual Option to purchase 2,000 shares at an exercise
price of $33.375 per share.
Initial Options and Annual Options currently become exercisable as follows:
none during the first year following the date of grant; up to 50% during the
second year; up to 80% during the third year; and 100% thereafter. Deferred
compensation options become fully exercisable six months after the date of
grant. An option generally will become exercisable in full notwithstanding the
above vesting schedules in the event of the director's death, disability or
retirement from the USBC Board or upon the occurrence of a change in control of
USBC.
Payment of the exercise price of all options granted under the Director
Plans may be in cash, in shares of USBC Common Stock already owned by the
director, or in a combination of cash and shares. The term of each option shall
be unlimited unless terminated earlier pursuant to the applicable Director Plan.
If an appointee ceases to be a director, the term of his or her option will
expire after five years in the case of retirement, after one year in the case of
death or disability, and after three months upon ceasing to be a director for
any other reason (except that no deferred compensation option will expire less
than seven months after the date of grant).
HEALTH INSURANCE REIMBURSEMENT. A portion of the cost of premiums incurred
by a non-employee director of USBC for health care insurance coverage of such
director and his or her dependents will be subsidized or reimbursed by USBC upon
the director's request, provided that no portion of such premiums are subsidized
by any other employer. Reimbursement is subject to the same conditions and
limits as are applicable to active employees. Two nonemployee directors received
health care subsidies and tax offsets during 1996.
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REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
OBJECTIVES OF USBC'S COMPENSATION PROGRAM. The Compensation Committee (the
"Committee") of the USBC Board reviews and approves guiding principles for
USBC's executive compensation program, as well as administering certain specific
elements of the program. The Committee is composed of five outside directors.
See "--Operation of USBC Board and Board Committees." Members of the Committee
are not eligible to participate in any USBC compensation plans other than the
Director Plans, a deferred compensation plan for non-employee directors, and
health care benefits options.
USBC has adopted, with the Committee's approval, a compensation program that
includes a broad mix of salary, incentive compensation, and retirement and
health and welfare benefits. It seeks to provide all its employees, including
executives, with appropriate incentives for current performance as well as for
achieving the long-term objectives of the corporation by tying compensation to
the performance of USBC. It also seeks to align executive interests with those
of the shareholders. To this end, annual cash bonuses and long-term awards are
granted based on performance factors. Additionally, the Committee has strongly
encouraged direct stock ownership at significant levels by executives. Through
its compensation program, USBC also strives to attract and retain the
individuals essential to a successful organization.
USBC has taken steps to mitigate the negative impact of Section 162(m) of
the Code on executive compensation. Section 162(m) limits the deductibility of
compensation paid to covered employees to $1,000,000 plus qualifying performance
based compensation and other qualifying compensation. With the exception of
Awards of restricted stock unit awards, elements of annual compensation and long
term incentive compensation qualify for exemption from the limit because they
are awarded pursuant to shareholder-approved, performance-driven plans.
The following report describes generally USBC's compensation and employee
benefit programs as they apply to executive officers, including Messrs.
Sznewajs, Duim and Hatfield, and the actions of the Committee and the USBC Board
with respect to 1996 compensation paid to Gerry B. Cameron, USBC's chief
executive officer during 1996.
EMPLOYEE BENEFITS. Eligible USBC employees, including its executive
officers, may participate in its health and welfare benefits program, which
includes medical, dental, life, and disability insurance, and a cafeteria plan.
Subject to eligibility requirements, USBC employees also participate in its
Retirement Plan, a qualified defined benefit pension plan. They may also choose
to participate in its Employee Investment Plan, a salary deferral plan qualified
under Code Section 401(k). Under the USBC Supplemental Benefits Plan, executive
officers and other key employees may be designated to receive certain additional
benefits which are not provided by the Retirement Plan and Employee Investment
Plan.
DECISIONS REGARDING CASH COMPENSATION. Decisions regarding salary and cash
incentive compensation to be paid to Mr. Cameron were made by the USBC Board
pursuant to the recommendations of the Committee. Decisions regarding cash
compensation paid to executive officers (other than Mr. Cameron) who were
members of the Executive Management Committee (a committee of eleven of USBC's
top executive officers, including Messrs. Sznewajs, Duim, and Hatfield) were
made by the Committee in November 1995 following review of recommendations by
Mr. Cameron. The Executive Management Committee or individual Executive
Management Committee members have been delegated authority to make decisions
regarding cash compensation to be paid to other executive officers. Compensation
to be paid to certain USBC executive officers who are also employees of one of
USBC's subsidiaries is subject to approval by the respective boards of directors
of such subsidiaries.
Periodically, USBC engages outside consultants to survey and report on
executive compensation paid by a group of S&P Major Regional Banks with total
assets and net earnings at levels comparable to those of USBC to assist in its
review and conclusions regarding executive compensation. The comparison group
includes the bank holding companies in the S&P Major Regional Banks Index
appearing under "Stock Performance Graph" below except for two companies for
which data was not available.
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APPROVAL OF 1996 SALARY LEVELS. In November 1995, the Committee reviewed
market analyses of base salaries and total compensation paid by the comparison
group referred to above. Following that review, the Committee recommended, and
the USBC Board approved, an increase in Mr. Cameron's salary level for 1996 to
$800,000 from $700,000 in 1995. The 1996 salary level fell in between the 25th
and 50th percentiles of bank holding companies in the market survey. In
establishing Mr. Cameron's salary, the Committee considered the success of
USBC's expense reduction program (known as "Focus 59%") and the merger of USBC
and West One Bancorp, the largest merger in USBC's history. Additional factors
considered were the effect of salary compression at the top levels of USBC's
management and USBC's ability both to compete for new executives and retain
executives currently in USBC's employ. The Committee also reviewed USBC's
average total shareholder return, return on assets, and return on common equity
as compared to the S&P Major Regional Banks Index. Salary levels for 1996 for
members of the Executive Management Committee were approved by the USBC Board
pursuant to recommendations by Mr. Cameron, as affirmed by the Committee, and
were based on similar factors as those considered in establishing Mr. Cameron's
salary.
ANNUAL CASH INCENTIVE COMPENSATION. The Executive Annual Incentive Plan
(the "Executive Plan") covers members of the Executive Management Committee
(including Mr. Cameron) and is administered by the Committee. The Management
Annual Incentive Plan (the "Management Plan") covers selected management
executives who are not Executive Management Committee members and is
administered by the Executive Management Committee. The Executive Plan and the
Management Plan are collectively referred to as the "Annual Plans."
The Annual Plans are designed to reward participants for the achievement of
objective, measurable performance goals established to support USBC's strategic
plan. The Annual Plans contemplate the establishment each year of target awards,
performance components and related success factors and relative weights,
performance goals and additional modifier goals within each component, and
performance percentages for each component. Performance components may relate to
performance by USBC and its subsidiaries as a whole or by a principal operating
group, business unit, support unit, or project shared by two or more operating
groups or units. For each performance component, based on the level of
achievement for the related success factors, a performance percentage is
determined ranging from 0% for performance below a specified threshold level, to
a minimum value of not less than 50% for performance equal to the threshold
level, to 100% for performance equal to a specified target level, to a maximum
value for 1996 not to exceed 200%.
The corporate performance targets established for 1996 under the Annual
Plans by the USBC Board following the Committee's recommendation were based on
budgeted performance criteria as follows: core operating expenses for the full
year and fourth quarter, core operating income, and core earnings per share. In
February 1997, the Committee determined that the level of attainment of the
corporate performance targets corresponded to a 176.8% payout for target awards
under the Annual Plans.
The 1996 target award established under the Executive Plan for Mr. Cameron
by the USBC Board in November 1995 pursuant to the Committee's recommendation
was set at 60% of his 1996 base salary. An actual award of 106% of base salary
was approved in February 1997 in light of Mr. Cameron's contribution to the
level of attainment of USBC's corporate performance targets.
With respect to other Executive Management Committee members, the Committee
established target awards under the Executive Plan in March 1996 ranging from
35% to 50% of their 1996 base salaries. In February 1997, the Committee
approved, with Board concurrence, Mr. Cameron's determination of levels of
achievement of the performance components assigned to other Executive Management
Committee members pursuant to authority delegated to Mr. Cameron, resulting in
awards for 1996 ranging from 57% to 100% of 1996 base salaries. Additional cash
incentive awards are granted under the Performance Cash Award Plan. In March
1996, the Committee approved awards under the Performance Cash Award Plan to
members of the Executive Management Committee. The performance cash awards
provide long term
104
<PAGE>
incentive cash payouts to be calculated pursuant to a formula based on a
comparison of USBC's net income growth and return on equity over three years
with that of comparably capitalized S&P Major Regional Banks. The awards are
intended to provide a cash opportunity portion for long term incentive
compensation payable upon achievement of preset strategic objectives.
DECISIONS REGARDING STOCK-BASED INCENTIVE COMPENSATION. In March 1996, Mr.
Cameron presented recommendations to the Committee with respect to stock-based
awards to members of the Executive Management Committee under the USBC 1993
Stock Incentive Plan. After consideration of Mr. Cameron's recommendations, the
Committee granted awards to each executive comprised of a combination of
incentive and nonqualified stock options. In February 1997, Mr. Cameron
presented recommendations to the Committee for additional options to the members
of the Executive Management Committee under the USBC 1993 Stock Incentive Plan,
and upon consideration of these recommendations, the Committee granted awards of
incentive and nonqualified stock options to each member.
The award of stock options encourages executive retention and motivates top
executives to create additional equity value for shareholders by tying
compensation to stock value. The size of individual grants, including grants to
Mr. Cameron, were based upon a comparison to similar grants by peer institutions
reflected in the market survey referred to above and the anticipated effect of
the awards on USBC's ability to retain current executives and attract new
talent. See "--Executive Compensation--Stock-Based Compensation."
The Compensation Committee
N. Stewart Rogers, Chairman
Harry L. Bettis
Robert L. Dryden
John B. Fery
Paul A. Redmond
105
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns for the
five-year period ended December 31, 1996, for the Common Stock, for the Standard
& Poor's 500 composite stock index (the "S&P 500"), and for the S&P Major
Regional Banks Index, in each case assuming investment of $100 at the close of
business on the last trading day prior to January 1, 1992, and reinvestment of
dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
U S BANCORP BANKS (MAJOR REGIONAL)-500 S&P 500 INDEX
<S> <C> <C> <C>
Dec-91 100.00 100.00 100.00
12-1-92 121.73 127.34 107.62
12-1-93 119.27 135.00 118.46
12-1-94 112.11 127.78 120.03
12-1-95 173.07 201.20 166.13
12-1-96 238.49 274.92 203.05
</TABLE>
<TABLE>
<CAPTION>
MEASUREMENT PERIOD BANKS (MAJOR
(FISCAL YEAR COVERED) U. S. BANCORP REGIONAL)-500 S&P 500 INDEX
- ------------------------------------------------------------------------ ----------------- ----------------- -------------
<S> <C> <C> <C>
Dec. 91................................................................. 100 100 100
Dec. 92................................................................. 122 127 108
Dec. 93................................................................. 119 135 118
Dec. 94................................................................. 112 128 120
Dec. 95................................................................. 173 201 165
Dec. 96................................................................. 238 275 203
</TABLE>
TRANSACTIONS WITH USBC
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. Harry L.
Bettis, Carolyn Silva Chambers, Franklin G. Drake, Robert L. Dryden, John B.
Fery, Allen T. Noble, Paul A. Redmond, and N. Stewart Rogers were members of the
Compensation Committee during 1996.
During 1996, certain directors (including each member of the Compensation
Committee) and executive officers of USBC, their associates, and members of
their immediate families were customers of USBC and its subsidiary banks. It is
expected that directors, executive officers, their associates, and members of
their immediate families will continue to be customers of USBC and its
subsidiary banks in the future. Generally, transactions between USBC or its
subsidiary banks and executive officers and directors of USBC, their associates
and family members are made in the ordinary course of business on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons and do not involve more
than the normal risk of collectibility or present other unfavorable features.
Loans to certain executive officers that were made on terms other than those
summarized above are described below under "--Other Transactions."
106
<PAGE>
OTHER TRANSACTIONS. In connection with the relocation in 1989 of executive
officer Phyllis J. Campbell to Seattle, Washington, USBC made a real estate loan
to finance her purchase of a residence. The loan was made on the same terms as
loans made to other USBC employees except the interest rate per annum was fixed
at 7 1/4% for Ms. Campbell. Such interest rate would increase to 10 1/4% in the
event of termination of her employment with USBC. The highest outstanding
balance on Ms. Campbell's loan during 1996 and the balance at December 31, 1996,
respectively, were $225,168 and $206,952.
Eugene Bank Tower Associates Limited Partnership, a Washington limited
partnership ("Eugene Tower Associates"), owns and leases the U. S. Bank Center
in Eugene, Oregon. Ms. Chambers has an interest in a company which is a general
partner in Eugene Tower Associates. U. S. Bank of Oregon made lease payments for
space in the U. S. Bank Center totaling approximately of $830,000 during 1996.
In connection with the Merger Agreement relating to the acquisition of
Peoples Bancorporation ("Peoples") in 1987, USBC entered into a shareholder
agreement with certain holders of the common stock of Peoples pursuant to which
such holders agreed to vote in favor of the merger of Peoples with a USBC
subsidiary. Pursuant to this agreement, USBC has agreed to afford such holders
(the holders of approximately 8.4 million shares of USBC Common Stock listed as
beneficially owned by Mr. Green under "OWNERSHIP OF USBC CAPITAL STOCK--Security
Ownership of Certain Beneficial Owners" above) certain registration rights with
respect to such shares of USBC Common Stock (as well as shares issued as a
result of any change in capitalization) (the "Registrable Securities"). USBC is
obligated, under certain circumstances and subject to specified terms and
conditions, to use its best efforts to register for sale under the federal and
state securities laws the Registrable Securities of such holders (and certain
transferees). Such holders may make written requests of USBC, until December 22,
1997, to effect a registration for sale of at least 1,080,000 shares (as
adjusted) of Registrable Securities. Holders of Registrable Securities are
entitled to an aggregate of three such registrations. USBC has also agreed to
permit such holders to include their Registrable Securities in certain other
registrations of USBC Common Stock; under certain circumstances, any such
registration would be counted against the holders' three registration
opportunities. All expenses of such registration, other than underwriters'
discounts and commissions applicable to the holders' Registrable Securities and
fees and disbursements of the holders' counsel, will be paid by USBC. The
agreement also contains certain indemnification provisions.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Exchange Act ("Section 16") requires that reports of
beneficial ownership of USBC Common Stock and USBC 8 1/8% Preferred Stock and
changes in such ownership be filed with the Commission by Section 16 "reporting
persons," including directors, certain officers, holders of more than 10% of the
outstanding USBC Common Stock or USBC 8 1/8% Preferred Stock, and certain trusts
of which reporting persons are trustees. USBC is required to disclose in this
Joint Proxy Statement-Prospectus each reporting person whom it knows to have
failed to file any required reports under Section 16 on a timely basis. Based
solely upon a review of copies of Section 16 reports furnished to USBC and
written statements confirming that no other reports were required, to USBC's
knowledge, all Section 16 reporting requirements applicable to known reporting
persons, except for one Form 4 report which was filed one day late by Mr. Green,
were complied with during 1996.
SELECTION OF USBC AUDITORS
The USBC Board has selected Deloitte & Touche LLP as independent auditors
for 1997 or, if the Merger is consummated prior to December 31, 1997, for the
period prior to the Effective Time. Deloitte & Touche LLP has examined the
financial statements of USBC since January 1, 1969. It is expected that
representatives of Deloitte & Touche LLP will be present at the USBC Annual
Meeting, will have the opportunity to make a statement if they so desire, and
will be available to respond to appropriate questions.
107
<PAGE>
RECOMMENDATION BY THE USBC BOARD; VOTE REQUIRED. Although the selection of
auditors is not required to be submitted to a vote of the shareholders, the USBC
Board has decided to ask the USBC Shareholders to approve the selection and
recommends that the USBC Shareholders vote FOR approval. If a majority of the
shares of USBC Common Stock represented at the USBC Annual Meeting does not vote
to approve the selection, the USBC Board will reconsider the selection.
LEGAL OPINIONS
The validity of the shares of New USBC Common Stock and New USBC 8 1/8%
Preferred Stock offered hereby will be passed upon for FBS by Dorsey & Whitney
LLP, Minneapolis, Minnesota.
The Merger Agreement provides that, as a condition to FBS's obligation to
consummate the Merger, FBS receive the opinion of Cleary, Gottlieb, Steen &
Hamilton, special counsel to FBS, substantially to the effect that the Merger
will qualify as a "reorganization" under Section 368(a) of the Code. The Merger
Agreement also provides that, as a condition to USBC's obligation to consummate
the Merger, USBC shall receive the opinion of Wachtell, Lipton, Rosen & Katz,
special counsel to USBC, substantially to the effect that the Merger will
qualify as a "reorganization" under Section 368(a) of the Code.
Dorsey & Whitney LLP and certain of its members are indebted to and have
other banking and trust relationships with certain banking subsidiaries of FBS.
EXPERTS
The consolidated financial statements of FBS as of December 31, 1996 and
1995, and for each of the three years in the period ended December 31, 1996
appearing in FBS's 1996 10-K for the year ended December 31, 1996 have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements incorporated in this registration
statement by reference from the 1996 USBC 10-K have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference. The consolidated financial statements give
retroactive effect to the 1995 merger of U. S. Bancorp and subsidiaries and West
One Bancorp and subsidiaries, which has been accounted for as a
pooling-of-interests. The consolidated statements of income, shareholders'
equity, and cash flows of West One Bancorp and subsidiaries for the year ended
December 31, 1994 (not presented separately in the 1996 USBC 10-K) were audited
by Coopers & Lybrand L.L.P., independent auditors, as stated in their report,
which is incorporated herein by reference from the 1996 USBC 10-K. Such reports
are incorporated herein by reference in reliance upon the respective reports of
such firms given upon their authority as experts in accounting and auditing. All
of the foregoing firms are independent auditors.
Representatives of Ernst & Young LLP are expected to be present at the FBS
Special Meeting, and representatives of Deloitte & Touche LLP are expected to be
present at the USBC Annual Meeting. In each case, such representatives will have
the opportunity to make a statement if they desire to do so and are expected to
be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS
FBS SHAREHOLDER PROPOSALS. In order to be eligible for inclusion in FBS's
(or New USBC's) proxy solicitation materials for its 1998 annual meeting of
shareholders, any shareholder proposal to be considered at such meeting must be
received by FBS's Corporate Secretary, Lee R. Mitau, at FBS's main office, First
Bank Place, 601 Second Avenue South, Minneapolis, Minnesota 55402-4302, no later
than
108
<PAGE>
November 18, 1997. Any such proposal shall be subject to the requirements of the
proxy rules adopted under the Exchange Act.
USBC SHAREHOLDER PROPOSALS. If the Merger is not consummated, in order to
be eligible for inclusion in USBC's proxy solicitation materials for its 1998
annual meeting of shareholders, any shareholder proposal to be considered at
such meeting must be received by USBC's Corporate Secretary Division, P. O. Box
2200, Portland, Oregon 97208-2200, no later than February 19, 1998. Any such
proposal shall be subject to the requirements of the proxy rules adopted under
the Exchange Act.
OTHER MATTERS
As of the date of this Joint Proxy Statement-Prospectus, the FBS Board and
the USBC Board know of no matters that will be presented for consideration at
the FBS Special Meeting or the USBC Annual Meeting other than as described in
this Joint Proxy Statement-Prospectus. If any other matters shall properly come
before either shareholder meeting or any adjournments or postponements thereof
and be voted upon, the enclosed proxies will be deemed to confer discretionary
authority on the individuals named as proxies therein to vote the shares
represented by such proxies as to any such matters. The persons named as proxies
intend to vote or not to vote in accordance with the recommendation of the
respective managements of FBS and USBC.
MANAGEMENT AND ADDITIONAL INFORMATION
Certain information relating to the management, executive compensation,
various benefit plans (including stock plans), voting securities and the
principal holders thereof, certain relationships and related transactions and
other related matters as to FBS is set forth in or incorporated by reference in
the Annual Report on Form 10-K for the year ended December 31, 1996 of FBS,
which is incorporated by reference in this Joint Proxy Statement-Prospectus. See
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE." FBS Shareholders who wish
to obtain copies thereof may contact FBS at its address or telephone number set
forth under "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
109
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The Unaudited Pro Forma Condensed Combined Financial Information and
accompanying notes reflect the application of the pooling-of-interests method of
accounting. Under this method of accounting, the recorded assets, liabilities,
shareholders' equity, income and expenses of FBS and USBC are combined and
recorded at their historical amounts.
The following Unaudited Pro Forma Condensed Combined Balance Sheet as of
March 31, 1997 and the Unaudited Pro Forma Condensed Combined Statements of
Income for the three months ended March 31, 1997 and 1996 and for the three
years ended December 31, 1996 combine the historical amounts of FBS and USBC
after giving effect to certain adjustments described in the attached Notes to
the Unaudited Pro Forma Condensed Combined Financial Information. The Unaudited
Pro Forma Condensed Combined Financial Information present the combined results
of operations of FBS and USBC as if the Merger had been effective at the
beginning of each period.
The Unaudited Pro Forma Information should be read in conjunction with the
consolidated historical financial statements of FBS and USBC, including the
respective notes thereto, which are incorporated by reference in the Joint Proxy
Statement-Prospectus. The Unaudited Pro Forma Condensed Combined Financial
Information presented is not necessarily indicative of the combined financial
position or results of the future operations of the combined entity or the
actual results that would have been achieved had the merger been consummated
prior to the periods indicated.
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Unaudited Pro Forma Condensed Combined Balance Sheet at March 31, 1997..................................... 111
Unaudited Pro Forma Condensed Combined Statement of Income:
Three months ended March 31, 1997...................................................................... 112
Three months ended March 31, 1996...................................................................... 113
Year ended December 31, 1996........................................................................... 114
Year ended December 31, 1995........................................................................... 115
Year ended December 31, 1994........................................................................... 116
Notes to Unaudited Pro Forma Condensed Combined Financial Information...................................... 117
</TABLE>
110
<PAGE>
MERGER OF FBS AND USBC
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
ADJUSTED
PRO FORMA
(DOLLARS IN MILLIONS) FBS USBC ADJUSTMENTS COMBINED
- --------------------------------------------------------------- --------- --------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks........................................ $ 2,483 $ 1,945 $ 4,428
Federal funds sold and resale agreements....................... 585 517 1,102
Trading account securities..................................... 105 87 192
Available-for-sale securities.................................. 3,373 3,060 6,433
Held-to-maturity securities.................................... -- 776 776
Loans and leases............................................... 27,173 25,574 52,747
Allowance for loans and leases................................. 512 481 993
--------- --------- -----------
Net loans................................................ 26,661 25,093 51,754
Bank premises and equipment.................................... 393 617 $ (86)(C) 924
Customers' liability on acceptances............................ 188 433 621
Other assets................................................... 2,212 1,226 175(C) 3,613
--------- --------- ----- -----------
Total assets............................................. $ 36,000 $ 33,754 $ 89 $ 69,843
--------- --------- ----- -----------
--------- --------- ----- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits....................................................... $ 23,423 $ 25,079 $ 48,502
Federal funds purchased and repurchase agreements.............. 2,032 1,709 3,741
Other short-term funds borrowed................................ 1,762 824 2,586
Long-term debt................................................. 4,257 1,950 6,207
Company-obligated mandatorily redeemable preferred securities
of subsidiary trust.......................................... 300 300 600
Acceptances outstanding........................................ 188 433 621
Other liabilities.............................................. 1,037 677 $ 539(C) 2,253
--------- --------- ----- -----------
Total liabilities........................................ 32,999 30,972 539 64,510
Shareholders' equity:
Preferred stock................................................ -- 150 150
Common stock................................................... 177 741 (601)(D) 317
Capital surplus................................................ 1,162 199 601(D) 1,962
Retained earnings.............................................. 2,256 1,715 (450)(C) 3,521
Unrealized loss on securities, net of tax...................... (26) (23) (49)
Less: treasury stock........................................... 568 -- 568
--------- --------- ----- -----------
Shareholders' equity........................................... 3,001 2,782 (450) 5,333
--------- --------- ----- -----------
Total liabilities and shareholders' equity..................... $ 36,000 $ 33,754 $ 89 $ 69,843
--------- --------- ----- -----------
--------- --------- ----- -----------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
111
<PAGE>
MERGER OF FBS AND USBC
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE QUARTER ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
HISTORICAL
------------------------------ PRO FORMA
(IN MILLIONS, EXCEPT PER SHARE DATA) FBS USBC COMBINED
- ---------------------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
INTEREST INCOME
Loans........................................................... $ 586.2 $ 576.5 $ 1,162.7
Securities...................................................... 57.4 58.7 116.1
Other interest income........................................... 12.6 2.2 14.8
-------------- -------------- --------------
Total interest income....................................... 656.2 637.4 1,293.6
INTEREST EXPENSE
Deposits........................................................ 158.6 193.2 351.8
Federal funds purchased, repurchase agreements and other
short-term borrowings......................................... 54.9 29.5 84.4
Long-term debt.................................................. 56.6 31.6 88.2
Company-obligated mandatorily redeemable preferred securities of
subsidiary trust.............................................. 6.1 6.2 12.3
-------------- -------------- --------------
Total interest expense...................................... 276.2 260.5 536.7
-------------- -------------- --------------
Net interest income............................................. 380.0 376.9 756.9
Provision for credit losses..................................... 37.0 45.9 82.9
-------------- -------------- --------------
Net interest income after provision for credit losses........... 343.0 331.0 674.0
NONINTEREST INCOME
Credit card fee revenue......................................... 77.3 13.1 90.4
Trust fees...................................................... 66.0 18.6 84.6
Service charges on deposit accounts............................. 36.4 50.2 86.6
Securities gains................................................ -- 1.7 1.7
Equity investment income........................................ -- 5.0 5.0
Other........................................................... 46.1 57.0 103.1
-------------- -------------- --------------
Total noninterest income.................................... 225.8 145.6 371.4
NONINTEREST EXPENSE
Salaries and benefits........................................... 141.4 159.9 301.3
Occupancy and equipment......................................... 46.7 49.7 96.4
Goodwill and other intangible assets............................ 19.8 7.5 27.3
Other........................................................... 88.1 70.0 158.1
-------------- -------------- --------------
Total noninterest expense................................... 296.0 287.1 583.1
-------------- -------------- --------------
Income from continuing operations before income taxes........... 272.8 189.5 462.3
Applicable income taxes......................................... 101.0 68.0 169.0
-------------- -------------- --------------
Income from continuing operations............................... $ 171.8 $ 121.5 $ 293.3
-------------- -------------- --------------
-------------- -------------- --------------
Income from continuing operations applicable to common equity... $ 171.8 $ 118.5 $ 290.3
-------------- -------------- --------------
-------------- -------------- --------------
EARNINGS PER COMMON SHARE
Average common and common equivalent shares..................... 135,525,339 147,934,580 249,153,010
Income from continuing operations............................... $ 1.27 $ .80 $ 1.17
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
112
<PAGE>
MERGER OF FBS AND USBC
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE QUARTER ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
HISTORICAL
------------------------------ PRO FORMA
(IN MILLIONS, EXCEPT PER SHARE DATA) FBS USBC COMBINED
- ---------------------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
INTEREST INCOME
Loans........................................................... $ 574.7 $ 531.2 $ 1,105.9
Securities...................................................... 68.7 59.4 128.1
Other interest income........................................... 11.2 9.4 20.6
-------------- -------------- --------------
Total interest income....................................... 654.6 600.0 1,254.6
INTEREST EXPENSE
Deposits........................................................ 167.0 189.8 356.8
Federal funds purchased, repurchase agreements and other
short-term borrowings......................................... 63.5 38.3 101.8
Long-term debt.................................................. 49.5 23.7 73.2
-------------- -------------- --------------
Total interest expense...................................... 280.0 251.8 531.8
-------------- -------------- --------------
Net interest income............................................. 374.6 348.2 722.8
Provision for credit losses..................................... 31.0 30.1 61.1
-------------- -------------- --------------
Net interest income after provision for credit losses........... 343.6 318.1 661.7
NONINTEREST INCOME
Credit card fee revenue......................................... 62.8 18.4 81.2
Trust fees...................................................... 56.2 17.2 73.4
Service charges on deposit accounts............................. 33.9 47.0 80.9
Securities gains................................................ 14.6 3.4 18.0
Termination fee................................................. 115.0 -- 115.0
Gain on sale of mortgage banking operations..................... 45.8 -- 45.8
Equity investment income........................................ -- 10.5 10.5
Other........................................................... 55.2 48.0 103.2
-------------- -------------- --------------
Total noninterest income.................................... 383.5 144.5 528.0
NONINTEREST EXPENSE
Salaries and benefits........................................... 152.3 151.0 303.3
Occupancy and equipment......................................... 49.6 51.4 101.0
Goodwill and other intangible assets............................ 47.4 3.4 50.8
Merger and restructuring........................................ 69.9 8.4 78.3
Other........................................................... 105.2 73.0 178.2
-------------- -------------- --------------
Total noninterest expense................................... 424.4 287.2 711.6
-------------- -------------- --------------
Income from continuing operations before income taxes........... 302.7 175.4 478.1
Applicable income taxes......................................... 125.9 62.5 188.4
-------------- -------------- --------------
Income from continuing operations............................... $ 176.8 $ 112.9 $ 289.7
-------------- -------------- --------------
-------------- -------------- --------------
Income from continuing operations applicable to common equity... $ 175.1 $ 109.9 $ 285.0
-------------- -------------- --------------
-------------- -------------- --------------
EARNINGS PER COMMON SHARE
Average common and common equivalent shares..................... 137,020,911 150,814,519 252,254,906
Income from continuing operations............................... $ 1.28 $ .73 $ 1.13
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
113
<PAGE>
MERGER OF FBS AND USBC
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL
---------------------------- PRO FORMA
(IN MILLIONS, EXCEPT PER SHARE DATA) FBS USBC COMBINED
- -------------------------------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
INTEREST INCOME
Loans............................................................... $ 2,339.3 $ 2,221.2 $ 4,560.5
Securities.......................................................... 267.0 233.6 500.6
Other interest income............................................... 47.6 28.5 76.1
------------- ------------- -------------
Total interest income........................................... 2,653.9 2,483.3 5,137.2
INTEREST EXPENSE
Deposits............................................................ 673.1 768.2 1,441.3
Federal funds purchased, repurchase agreements and other
borrowings........................................................ 245.1 147.4 392.5
Long-term debt...................................................... 202.7 101.1 303.8
------------- ------------- -------------
Total interest expense.......................................... 1,120.9 1,016.7 2,137.6
------------- ------------- -------------
Net interest income................................................. 1,533.0 1,466.6 2,999.6
Provision for credit losses......................................... 136.0 135.2 271.2
------------- ------------- -------------
Net interest income after provision for credit losses............... 1,397.0 1,331.4 2,728.4
NONINTEREST INCOME
Credit card fee revenue............................................. 292.6 59.7 352.3
Trust fees.......................................................... 230.7 71.6 302.3
Service charges on deposit accounts................................. 141.5 197.4 338.9
Securities gains.................................................... 15.0 5.8 20.8
Termination fee..................................................... 190.0 -- 190.0
State income tax refund............................................. 65.0 -- 65.0
Gain on sale of mortgage banking operations......................... 45.8 -- 45.8
Equity investment income............................................ -- 27.8 27.8
Gain on sale of operations and loans................................ -- 25.6 25.6
Other............................................................... 205.1 197.3 402.4
------------- ------------- -------------
Total noninterest income........................................ 1,185.7 585.2 1,770.9
NONINTEREST EXPENSE
Salaries and benefits............................................... 570.6 615.2 1,185.8
Occupancy and equipment............................................. 187.5 200.5 388.0
Goodwill and other intangible assets................................ 106.5 22.8 129.3
SAIF special assessment............................................. 51.0 10.3 61.3
Merger and restructuring............................................ 69.9 18.2 88.1
Other............................................................... 402.6 307.8 710.4
------------- ------------- -------------
Total noninterest expense....................................... 1,388.1 1,174.8 2,562.9
------------- ------------- -------------
Income from continuing operations before income taxes............... 1,194.6 741.8 1,936.4
Applicable income taxes............................................. 454.8 262.9 717.7
------------- ------------- -------------
Income from continuing operations................................... $ 739.8 $ 478.9 $ 1,218.7
------------- ------------- -------------
------------- ------------- -------------
Income from continuing operations applicable to common equity....... $ 733.6 $ 466.7 $ 1,200.3
------------- ------------- -------------
------------- ------------- -------------
EARNINGS PER COMMON SHARE...........................................
Average common and common equivalent shares......................... 137,415,619 151,312,898 253,240,035
Income from continuing operations................................... $ 5.34 $ 3.08 $ 4.74
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
114
<PAGE>
MERGER OF FBS AND USBC
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
HISTORICAL
------------------------------ PRO FORMA
(IN MILLIONS, EXCEPT PER SHARE DATA) FBS USBC COMBINED
- ---------------------------------------------------------------- -------------- -------------- ---------------
<S> <C> <C> <C>
INTEREST INCOME
Loans........................................................... $ 2,273.4 $ 2,116.9 $ 4,390.3
Securities...................................................... 237.2 249.9 487.1
Other interest income........................................... 34.6 25.7 60.3
-------------- -------------- ---------------
Total interest income....................................... 2,545.2 2,392.5 4,937.7
INTEREST EXPENSE
Deposits........................................................ 706.7 710.0 1,416.7
Federal funds purchased, repurchase agreements and other
borrowings.................................................... 208.3 199.7 408.0
Long-term debt.................................................. 190.0 83.4 273.4
-------------- -------------- ---------------
Total interest expense...................................... 1,105.0 993.1 2,098.1
-------------- -------------- ---------------
Net interest income............................................. 1,440.2 1,399.4 2,839.6
Provision for credit losses..................................... 115.0 124.1 239.1
-------------- -------------- ---------------
Net interest income after provision for credit losses........... 1,325.2 1,275.3 2,600.5
NONINTEREST INCOME
Credit card fee revenue......................................... 232.7 73.4 306.1
Trust fees...................................................... 175.3 65.8 241.1
Service charges on deposit accounts............................. 123.7 189.5 313.2
Securities gains................................................ -- 3.0 3.0
Gain on sale of branches........................................ 31.0 -- 31.0
Gain on sale of operations and loans............................ -- 8.9 8.9
Equity investment income -- 3.2 3.2
Other........................................................... 220.4 180.9 401.3
-------------- -------------- ---------------
Total noninterest income.................................... 783.1 524.7 1,307.8
NONINTEREST EXPENSE
Salaries and benefits........................................... 537.4 602.1 1,139.5
Occupancy and equipment......................................... 192.8 212.8 405.6
Goodwill and other intangible assets............................ 57.1 16.6 73.7
Merger and restructuring........................................ -- 98.9 98.9
Other........................................................... 418.6 360.4 779.0
-------------- -------------- ---------------
Total noninterest expense................................... 1,205.9 1,290.8 2,496.7
-------------- -------------- ---------------
Income from continuing operations before income taxes........... 902.4 509.2 1,411.6
Applicable income taxes......................................... 334.3 180.2 514.5
-------------- -------------- ---------------
Income from continuing operations............................... $ 568.1 $ 329.0 $ 897.1
-------------- -------------- ---------------
-------------- -------------- ---------------
Income from continuing operations applicable to common equity... $ 560.6 $ 316.8 $ 877.4
-------------- -------------- ---------------
-------------- -------------- ---------------
EARNINGS PER COMMON SHARE
Average common and common equivalent shares..................... 133,936,030 151,554,000 250,100,100
Income from continuing operations............................... $ 4.19 $ 2.09 $ 3.51
-------------- -------------- ---------------
-------------- -------------- ---------------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
115
<PAGE>
MERGER OF FBS AND USBC
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
HISTORICAL
------------------------------ PRO FORMA
(IN MILLIONS, EXCEPT PER SHARE DATA) FBS USBC COMBINED
- ---------------------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
INTEREST INCOME
Loans........................................................... $ 1,914.7 $ 1,786.4 $ 3,701.1
Securities...................................................... 339.9 263.2 603.1
Other interest income........................................... 33.5 24.8 58.3
-------------- -------------- --------------
Total interest income....................................... 2,288.1 2,074.4 4,362.5
INTEREST EXPENSE
Deposits........................................................ 597.3 523.8 1,121.1
Federal funds purchased, repurchase agreements and other
borrowings.................................................... 123.5 135.6 259.1
Long-term debt.................................................. 147.9 79.3 227.2
-------------- -------------- --------------
Total interest expense...................................... 868.7 738.7 1,607.4
-------------- -------------- --------------
Net interest income............................................. 1,419.4 1,335.7 2,755.1
Provision for credit losses..................................... 123.6 120.1 243.7
-------------- -------------- --------------
Net interest income after provision for credit losses........... 1,295.8 1,215.6 2,511.4
NONINTEREST INCOME
Credit card fee revenue......................................... 179.0 73.3 252.3
Trust fees...................................................... 159.2 65.3 224.5
Service charges on deposit accounts............................. 127.3 191.6 318.9
Securities losses............................................... (115.0) (9.2) (124.2)
Gain on sales of operations and loans........................... -- 62.9 62.9
Equity investment loss.......................................... -- (5.4) (5.4)
Other........................................................... 208.4 174.2 382.6
-------------- -------------- --------------
Total noninterest income.................................... 558.9 552.7 1,111.6
NONINTEREST EXPENSE
Salaries and benefits........................................... 556.4 646.2 1,202.6
Occupancy and equipment......................................... 192.1 227.4 419.5
Goodwill and other intangible assets............................ 50.4 16.0 66.4
Merger and restructuring........................................ 125.3 100.0 225.3
Other........................................................... 425.2 415.5 840.7
-------------- -------------- --------------
Total noninterest expense................................... 1,349.4 1,405.1 2,754.5
-------------- -------------- --------------
Income from continuing operations before income taxes........... 505.3 363.2 868.5
Applicable income taxes......................................... 191.8 108.5 300.3
-------------- -------------- --------------
Income from continuing operations............................... $ 313.5 $ 254.7 $ 568.2
-------------- -------------- --------------
-------------- -------------- --------------
Income from continuing operations applicable to common equity... $ 300.9 $ 242.5 $ 543.4
-------------- -------------- --------------
-------------- -------------- --------------
EARNINGS PER COMMON SHARE
Average common and common equivalent shares..................... 136,274,991 151,391,600 251,859,146
Income from continuing operations............................... $ 2.21 $ 1.60 $ 2.16
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
116
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
NOTE A: MERGERS AND ACQUISITIONS
On February 16, 1996, FBS completed its acquisition of Omaha-based FirsTier
Financial Inc. ("FirsTier"), a regional financial services holding company based
in Omaha, Nebraska, with $3.7 billion in assets and $2.9 billion in deposits.
The acquisition was accounted for under the purchase method of accounting.
On June 6, 1996, USBC acquired California Bancshares, Inc., a $1.6 billion
bank holding company headquartered in the San Francisco East Bay Area, in a
transaction accounted for as a purchase.
NOTE B: BASIS OF PRESENTATION
The unaudited pro forma financial information has been prepared under the
pooling-of-interests method of accounting and is based on the historical
consolidated financial statements of FBS and USBC. Certain amounts in the
historical financial statements of USBC have been reclassified to conform with
FBS's historical financial statement presentation.
The pro forma adjustments represent management's best estimate based on
available information at this time. These adjustments may change as additional
information becomes available.
NOTE C: MERGER AND INTEGRATION COSTS
In connection with the merger, New USBC expects to incur pre-tax
merger-related costs of $625 million ($450 million after tax), $450 million of
which is expected to occur at closing with the remaining $175 million to be
incurred within a year. The costs are expected to include: $270 million in
severance and retention, $190 million in conversion costs (primarily system
development and production costs, and customer forms and communication costs),
$40 million in occupancy expenses (primarily lease exit costs) and $39 million
in other merger costs (principally legal and investment banking fees). These
costs also include an $86 million write down of duplicate facilities and other
capitalized assets.
These amounts, including the related tax effect of $175 million, have been
reflected in the Unaudited Pro Forma Condensed Combined Balance Sheet as of
March 31, 1997 and are not reflected in the Unaudited Pro Forma Condensed
Combined Statements of Income as they are not expected to have a continuing
impact on New USBC. These amounts will be recorded in the financial statements
in accordance with generally accepted accounting principles.
NOTE D: SHAREHOLDERS' EQUITY
In conjunction with the transaction, FBS will exchange 0.755 shares of FBS
Common Stock for each share of common stock of USBC. USBC had 148,175,994 shares
of common stock outstanding as of March 31, 1997. The common stock in the
Unaudited Pro Forma Condensed Combined Balance Sheet has been adjusted to
reflect the par value of FBS Common Stock to be issued, with a related
adjustment to capital surplus. Pro forma combined retained earnings reflects the
adjustments for anticipated merger-related costs as discussed above.
NOTE E: OPERATING COST SAVINGS
FBS expects to achieve $340 million of pre-tax operating cost savings
through reductions in staff, consolidation of data processing and back office
operations, and elimination of certain duplicate or excess office facilities.
Approximately $220 million, or 65 percent, of the operating cost savings are
expected to be
117
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
NOTE E: OPERATING COST SAVINGS (CONTINUED)
achieved by the end of 1998 with the remainder achieved in 1999. No adjustment
has been included in the unaudited pro forma condensed financial information for
the anticipated operating cost savings. There can be no assurance that
anticipated operating cost savings will be achieved in the amounts or at the
times anticipated.
NOTE F: EARNINGS PER SHARE
The pro forma combined earnings per common share data is computed based on
the average number of outstanding shares and common equivalent shares of FBS,
and the average number of outstanding shares and common equivalent shares of
USBC adjusted for the exchange ratio, for each period presented.
The historical earnings per common share for USBC was based on the average
number of common shares outstanding. The impact of common share equivalents,
such as stock options, and other potentially dilutive securities, is not
material; therefore, they were not included in the historical USBC calculations.
The following table summarizes USBC average common shares and USBC average
common shares and common equivalent shares.
<TABLE>
<CAPTION>
USBC AVERAGE COMMON AND
USBC AVERAGE COMMON SHARES COMMON EQUIVALENT SHARES
------------------------------------ ----------------------------------
<S> <C> <C>
March 31, 1997.......................... 147,934,580 150,500,227
March 31, 1996.......................... 150,814,519 152,627,808
December 31, 1996....................... 151,312,898 153,409,823
December 31, 1995....................... 151,554,000 153,859,695
December 31, 1994....................... 151,391,600 153,091,596
</TABLE>
118
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
U.S. BANCORP
AND
FIRST BANK SYSTEM, INC.
DATED AS OF MARCH 19, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C> <C>
ARTICLE I CERTAIN DEFINITIONS........................................................................................ A-4
1.01. CERTAIN DEFINITIONS............................................................................ A-4
ARTICLE II THE MERGER; EFFECTS OF THE MERGER......................................................................... A-7
2.01. THE MERGER..................................................................................... A-7
2.02. EFFECTIVE DATE AND EFFECTIVE TIME.............................................................. A-8
2.03. AMENDMENT OF FBS CERTIFICATE; CERTIFICATE OF DESIGNATIONS...................................... A-8
2.04. TAX CONSEQUENCES............................................................................... A-8
2.05. ACCOUNTING TREATMENT........................................................................... A-8
ARTICLE III MERGER CONSIDERATION; EXCHANGE PROCEDURES................................................................ A-9
3.01. MERGER CONSIDERATION........................................................................... A-9
3.02. RIGHTS AS STOCKHOLDERS; STOCK TRANSFERS........................................................ A-9
3.03. FRACTIONAL SHARES.............................................................................. A-9
3.04. EXCHANGE PROCEDURES............................................................................ A-9
3.05. ANTI-DILUTION PROVISIONS....................................................................... A-10
3.06. OPTIONS........................................................................................ A-10
ARTICLE IV ACTIONS PENDING MERGER.................................................................................... A-11
4.01. ORDINARY COURSE................................................................................ A-11
4.02. CAPITAL STOCK.................................................................................. A-11
4.03. DIVIDENDS, ETC................................................................................. A-11
4.04. COMPENSATION; EMPLOYMENT AGREEMENTS; ETC....................................................... A-11
4.05. BENEFIT PLANS.................................................................................. A-12
4.06. ACQUISITIONS AND DISPOSITIONS.................................................................. A-12
4.07. AMENDMENTS..................................................................................... A-12
4.08. ACCOUNTING METHODS............................................................................. A-12
4.09. CONTRACTS...................................................................................... A-12
4.10. CLAIMS......................................................................................... A-12
4.11. ADVERSE ACTIONS................................................................................ A-12
4.12. RISK MANAGEMENT................................................................................ A-12
4.13. AGREEMENTS..................................................................................... A-12
ARTICLE V REPRESENTATIONS AND WARRANTIES............................................................................. A-13
5.01. DISCLOSURE SCHEDULES........................................................................... A-13
5.02. STANDARD....................................................................................... A-13
5.03. REPRESENTATIONS AND WARRANTIES................................................................. A-13
ARTICLE VI COVENANTS................................................................................................. A-20
6.01. BEST EFFORTS................................................................................... A-20
6.02. STOCKHOLDER APPROVALS.......................................................................... A-20
6.03. REGISTRATION STATEMENT......................................................................... A-20
6.04. PRESS RELEASES................................................................................. A-21
6.05. ACCESS; INFORMATION............................................................................ A-21
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C> <C>
6.06. ACQUISITION PROPOSALS.......................................................................... A-21
6.07. AFFILIATE AGREEMENTS........................................................................... A-21
6.08. TAKEOVER LAWS.................................................................................. A-22
6.09. NO RIGHTS TRIGGERED............................................................................ A-22
6.10. SHARES LISTED.................................................................................. A-22
6.11. REGULATORY APPLICATIONS........................................................................ A-22
6.12. INDEMNIFICATION................................................................................ A-23
6.13. SEVERANCE AND BENEFIT PLANS.................................................................... A-24
6.14. ACCOUNTANTS' LETTERS........................................................................... A-25
6.15. CERTAIN DIRECTOR AND OFFICER POSITIONS......................................................... A-25
6.16. CHARITABLE CONTRIBUTIONS....................................................................... A-26
6.17. COORDINATION OF DIVIDENDS...................................................................... A-26
6.18. NOTIFICATION OF CERTAIN MATTERS................................................................ A-26
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE MERGER................................................................. A-26
7.01. STOCKHOLDER VOTE............................................................................... A-26
7.02. REGULATORY APPROVALS........................................................................... A-26
7.03. THIRD PARTY CONSENTS........................................................................... A-26
7.04. NO INJUNCTION, ETC............................................................................. A-26
7.05. ACCOUNTING TREATMENT........................................................................... A-26
7.06. REPRESENTATIONS, WARRANTIES AND COVENANTS OF FBS............................................... A-26
7.07. REPRESENTATIONS, WARRANTIES AND COVENANTS OF USBC.............................................. A-27
7.08. EFFECTIVE REGISTRATION STATEMENT............................................................... A-27
7.09. TAX OPINION.................................................................................... A-27
7.10. CERTIFICATE OF DESIGNATIONS.................................................................... A-27
7.11. NYSE LISTING................................................................................... A-27
ARTICLE VIII TERMINATION............................................................................................. A-28
8.01. TERMINATION.................................................................................... A-28
8.02. EFFECT OF TERMINATION AND ABANDONMENT.......................................................... A-28
8.03. TERMINATION EXPENSES........................................................................... A-28
ARTICLE IX MISCELLANEOUS............................................................................................. A-29
9.01. SURVIVAL....................................................................................... A-29
9.02. WAIVER; AMENDMENT.............................................................................. A-29
9.03. COUNTERPARTS................................................................................... A-29
9.04. GOVERNING LAW.................................................................................. A-29
9.05. EXPENSES....................................................................................... A-29
9.06. NOTICES........................................................................................ A-29
9.07. ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES............................................. A-30
9.08. INTERPRETATION................................................................................. A-30
</TABLE>
A-3
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of March 19, 1997 (this "AGREEMENT"),
by and between U.S. Bancorp, an Oregon corporation ("USBC"), and First Bank
System, Inc., a Delaware corporation ("FBS").
WITNESSETH:
WHEREAS, the Boards of Directors of USBC and FBS have determined that it is
in the best interests of their respective companies and their stockholders to
consummate the strategic business combination transaction provided for herein in
which USBC will, subject to the terms and conditions set forth herein, merge
(the "MERGER") with and into FBS, so that FBS is the surviving corporation in
the Merger; and
WHEREAS, as a condition and inducement to FBS's willingness to enter into
this Agreement and the FBS Option Agreement (as defined below), in no event
later than 6:00 a.m. New York City time on March 20, 1997, FBS and USBC are
entering into the USBC Stock Option Agreement (the "USBC OPTION AGREEMENT") in
substantially the form attached hereto as Exhibit A, pursuant to which USBC will
grant FBS an option exercisable upon the occurrence of certain events; and
WHEREAS, as a condition and inducement to USBC's willingness to enter into
this Agreement and the USBC Option Agreement, in no event later than 6:00 a.m.
New York City time on March 20, 1997, FBS and USBC are entering into the FBS
Stock Option Agreement (the "FBS OPTION AGREEMENT") in substantially the form
attached hereto as Exhibit B, pursuant to which FBS will grant USBC an option
exercisable upon the occurrence of certain events; and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and also to prescribe certain
conditions to the Merger;
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.01. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth below:
"AGREEMENT" shall have the meaning set forth in the recitals to this
Agreement.
"BOARD SIZE AMENDMENT" shall mean the amendments to the FBS Certificate
contemplated by Section 2.03(c).
"CERTIFICATE OF DESIGNATIONS" shall have the meaning set forth in Section
2.03(d).
"CHANGE OF CONTROL AGREEMENTS" shall have the meaning set forth in Section
6.13(c).
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMPENSATION AND BENEFIT PLANS" shall have the meaning set forth in Section
5.03(l).
"CONFIDENTIALITY AGREEMENT" shall mean that certain confidentiality
agreement, dated March 11, 1997, by and between USBC and FBS.
"COSTS" shall have the meaning set forth in Section 6.12(a).
"DGCL" shall have the meaning set forth in Section 2.01(b).
"DISCLOSURE SCHEDULE" shall have the meaning set forth in Section 5.01.
"EFFECTIVE DATE" shall have the meaning set forth in Section 2.02.
A-4
<PAGE>
"EFFECTIVE TIME" shall have the meaning set forth in Section 2.02.
"EMPLOYEE BENEFIT PLANS" shall have the meaning set forth in Section
6.13(a).
"ENVIRONMENTAL LAWS" shall have the meaning set forth in Section 5.03(o).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" shall have the meaning set forth in Section 5.03(l).
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"EXCHANGE AGENT" shall have the meaning set forth in Section 3.04(a).
"EXCHANGE FUND" shall have the meaning set forth in Section 3.04(a).
"EXCHANGE RATIO" shall have the meaning set forth in Section 3.01(a).
"FBS" shall have the meaning set forth in the recitals to this Agreement.
"FBS AFFILIATE" shall have the meaning set forth in Section 6.07(a).
"FBS BOARD" shall mean the Board of Directors of FBS.
"FBS CERTIFICATE" shall mean the Restated Certificate of Incorporation of
FBS.
"FBS COMMON STOCK" shall have the meaning set forth in Section 3.01(a).
"FBS MEETING" shall have the meaning set forth in Section 6.02.
"FBS OPTION AGREEMENT" shall have the meaning set forth in the recitals to
this Agreement.
"FBS PREFERRED STOCK" shall mean FBS Series 1990A Preferred Stock and New
FBS Preferred Stock.
"FBS SERIES 1990A PREFERRED STOCK" shall mean the Adjustable Rate Cumulative
Preferred Stock Series 1990A, liquidation value $100,000 per share, of FBS.
"FBS STOCK" shall mean FBS Common Stock and FBS Preferred Stock.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"FEDERAL RESERVE BOARD" shall mean the Board of Governors of the Federal
Reserve System.
"FORMER USBC DIRECTORS" shall have the meaning set forth in Section 6.15(a).
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 6.12(a).
"INSURANCE AMOUNT" shall have the meaning set forth in Section 6.12(b).
"JOINT PROXY STATEMENT" shall have the meaning set forth in Section 6.03.
"LIENS" shall mean any charge, mortgage, pledge, security interest,
restriction, claim, lien, or encumbrance.
"MATERIAL ADVERSE EFFECT" shall mean with respect to USBC, FBS or the
Surviving Corporation any effect that (i) is material and adverse to the
financial position, results of operations or business of USBC and its
Subsidiaries taken as a whole, FBS and its Subsidiaries taken as a whole, or the
Surviving Corporation and its Subsidiaries taken as a whole, respectively, or
(ii) would materially impair the ability of either USBC or FBS to perform its
obligations under this Agreement or otherwise materially threaten or materially
impede the consummation of the Merger and the other transactions contemplated by
this Agreement; provided, however, that Material Adverse Effect shall not be
deemed to include the impact of (a) changes in banking and similar laws of
general applicability or interpretations thereof by courts or governmental
authorities, (b) changes in generally accepted accounting principles or
regulatory accounting
A-5
<PAGE>
requirements applicable to banks and their holding companies generally, (c)
actions or omissions of USBC or FBS taken with the prior written consent of FBS
or USBC, as applicable, in contemplation of the transactions contemplated
hereby, and (d) any modifications or changes to valuation policies and practices
in connection with the Merger or restructuring charges taken in connection with
the Merger, in each case in accordance with generally accepted accounting
principles.
"MEETING" shall have the meaning set forth in Section 6.02.
"MERGER" shall have the meaning set forth in the recitals to this Agreement
and in Section 2.01(a).
"MERGER CONSIDERATION" shall have the meaning set forth in Section 2.01(a).
"MULTIEMPLOYER PLANS" shall have the meaning set forth in Section 5.03(l).
"NASDAQ" shall mean The Nasdaq Stock Market, Inc.'s National Market System.
"NEW CERTIFICATES" shall have the meaning set forth in Section 3.04(a).
"NEW FBS PREFERRED STOCK" shall have the meaning set forth in Section
3.01(b).
"NYSE" shall mean the New York Stock Exchange, Inc.
"OBCA" shall have the meaning set forth in Section 2.01(b).
"OCC" shall mean the Office of the Comptroller of the Currency.
"OLD CERTIFICATES" shall have the meaning set forth in Section 3.04(a).
"OTS" shall mean the Office of Thrift Supervision.
"PERSON" or "PERSON" shall mean any individual, bank, corporation,
partnership, association, joint-stock company, business trust or unincorporated
organization.
"PENSION PLAN" shall have the meaning set forth in Section 5.03(l).
"PLANS" shall have the meaning set forth in Section 5.03(l).
"PREVIOUSLY DISCLOSED" by a party shall mean information set forth in its
Disclosure Schedule.
"REGISTRATION STATEMENT" shall have the meaning set forth in Section 6.03.
"REGULATORY AUTHORITIES" shall have the meaning set forth in Section
5.03(h).
"REPRESENTATIVES" of a party shall mean such party's directors, officers,
employees, legal or financial advisors or any representatives of such legal or
financial advisors.
"RIGHTS" shall mean, with respect to any person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any person any
right to subscribe for or acquire, or any options, calls or commitments relating
to, or any stock appreciation right or other instrument the value of which is
determined in whole or in part by reference to the market price or value of,
shares of capital stock of such person.
"SEC" shall mean the Securities and Exchange Commission.
"SEC DOCUMENTS" shall have the meaning set forth in Section 5.03(g).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"SUBSIDIARY" and "SIGNIFICANT SUBSIDIARY" shall have the meanings ascribed
to them in Rule 1-02 of Regulation S-X of the SEC.
"SURVIVING CORPORATION" shall have the meaning set forth in Section 2.01(a).
A-6
<PAGE>
"TAKEOVER LAWS" shall have the meaning set forth in Section 5.03(n).
"TAKEOVER PROPOSAL" shall mean, with respect to any person, any tender or
exchange offer, proposal for a merger, consolidation or other business
combination involving USBC or FBS or any of their Significant Subsidiaries,
respectively, or any proposal or offer to acquire in any manner a substantial
equity interest in, or a substantial portion of the assets or deposits of, USBC
or FBS or any of its respective Significant Subsidiaries other than the
transactions contemplated by this Agreement and, in the case of USBC, the USBC
Option Agreement, and, in the case of FBS, the FBS Option Agreement.
"TAXES" shall mean all taxes, charges, fees, levies or other assessments,
however denominated, including, without limitation, all net income, gross
income, gross receipts, sales, use, ad valorem, goods and services, capital,
transfer, franchise, profits, license, withholding, payroll, employment,
employer health, excise, estimated, severance, stamp, occupation, property or
other taxes, custom duties, fees, assessments or charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts imposed by any taxing authority whether arising before, on or after the
Effective Date.
"TAX RETURNS" shall have the meaning set forth in Section 5.03(p).
"TREASURY SHARES" shall mean shares of USBC Stock held by USBC or any of its
Subsidiaries or by FBS or any of its Subsidiaries, in each case other than in a
fiduciary capacity or as a result of debts previously contracted in good faith.
"USBC" shall have the meaning set forth in the recitals to this Agreement.
"USBC AFFILIATE" shall have the meaning set forth in Section 6.07(a).
"USBC ARTICLES" shall mean the Restated Articles of Incorporation of USBC.
"USBC BOARD" shall mean the Board of Directors of USBC.
"USBC COMMON STOCK" shall have the meaning set forth in Section 3.01(a).
"USBC MEETING" shall have the meaning set forth in Section 6.02.
"USBC OPTION AGREEMENT" shall have the meaning set forth in the recitals to
this Agreement.
"USBC PREFERRED STOCK" shall have the meaning set forth in Section 3.01(b).
"USBC STOCK" shall mean USBC Common Stock and USBC Preferred Stock.
"USBC STOCK OPTION" shall have the meaning set forth in Section 3.06.
ARTICLE II
THE MERGER; EFFECTS OF THE MERGER
2.01. THE MERGER. (a) THE SURVIVING CORPORATION. At the Effective Time,
USBC shall merge with and into FBS (the "MERGER"), the separate corporate
existence of USBC shall cease and FBS shall survive and continue to exist as a
Delaware corporation (FBS, as the surviving corporation in the Merger, sometimes
being referred to herein as the "SURVIVING CORPORATION"). FBS may at any time
prior to the Effective Time change the method of effecting the combination with
USBC (including, without limitation, the provisions of this Article II) if and
to the extent it deems such change to be desirable, including, without
limitation, to provide for a merger of USBC directly with or into a wholly-owned
subsidiary of FBS, in which either USBC or such subsidiary is the surviving
corporation; PROVIDED, HOWEVER, that no such change shall (i) alter or change
the amount or kind of consideration to be issued to holders of USBC Stock as
provided for in this Agreement (the "MERGER CONSIDERATION"), (ii) adversely
affect the tax treatment of USBC's stockholders as a result of receiving the
Merger Consideration or (iii) materially impede or delay consummation of the
transactions contemplated by this Agreement.
A-7
<PAGE>
(b) EFFECTIVENESS AND EFFECTS OF THE MERGER. Subject to the satisfaction
or waiver of the conditions set forth in Article VII in accordance with this
Agreement, the Merger shall become effective upon the occurrence of both (i) the
filing in the office of the Secretary of State of Oregon of articles of merger
in accordance with Section 60.494 of the Oregon Business Corporation Act (the
"OBCA") and (ii) the filing in the office of the Secretary of State of the State
of Delaware of a certificate of merger in accordance with Section 252 of the
Delaware General Corporation Law (the "DGCL"), or such later date and time as
may be set forth in such articles and certificate. The Merger shall have the
effects prescribed in the OBCA and in the DGCL.
(c) CERTIFICATE OF INCORPORATION AND BY-LAWS. Subject to Section 2.03, the
certificate of incorporation and by-laws of the Surviving Corporation shall be
those of FBS, as in effect immediately prior to the Effective Time.
(d) NAME. Effective immediately upon the consummation of the Merger, the
name of FBS shall be U.S. Bancorp.
2.02. EFFECTIVE DATE AND EFFECTIVE TIME. Subject to the satisfaction or
waiver of the conditions as set forth in Article VII in accordance with this
Agreement, the parties shall cause the effective date of the Merger (the
"EFFECTIVE DATE") to occur on (i) the third business day to occur after the last
of the conditions set forth in Sections 7.01, 7.02, 7.03 and 7.11 shall have
been satisfied or waived in accordance with the terms of this Agreement (or, at
the election of FBS, on the last business day of the month in which such day
occurs) or (ii) such other date to which the parties may agree in writing. The
time on the Effective Date when the Merger shall become effective is referred to
as the "EFFECTIVE TIME."
2.03. AMENDMENT OF FBS CERTIFICATE; CERTIFICATE OF DESIGNATIONS. (a) At
the Effective Time, Article First of the FBS Certificate shall be amended to
read in its entirety as follows: "The name of this corporation is U.S. Bancorp."
(b) At the Effective Time, the first sentence of Article Fourth of the FBS
Certificate shall be amended to read in its entirety as follows: "The total
number of shares of all classes of stock which FBS shall have the authority to
issue is 510,000,000, consisting of 10,000,000 shares of Preferred Stock of the
par value of $1.00 each and 500,000,000 shares of Common Stock of the par value
of $1.25 each."
(c) Subject to the provisions of Section 6.15(c), at the Effective Time, (i)
the first sentence of Article Sixth of the FBS Certificate shall be amended to
replace the words "nor more than twenty-four (24)" with the words "nor more than
thirty (30)" and (ii) the final sentence of Article Sixth of the FBS Certificate
shall be amended to read in its entirety as follows: "Notwithstanding any other
provisions of this Amended Certificate of Incorporation or the Bylaws of the
Corporation (and notwithstanding that a lesser percentage may be specified by
law), the provisions of this Article Sixth may not be amended or repealed
(except an amendment hereto to reduce the maximum number of directors of the
Corporation to not less than the greater of (A) the number of directors then in
office and (B) twenty-four (24)) unless such action is approved by the
affirmative vote of the holders of not less than eighty percent (80%) of the
voting power of all of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, considered
for purposes of this Article Sixth as a single class."
(d) At or prior to the Effective Time, FBS shall file a certificate of
designations pursuant to Section 151 of the DGCL fixing the preferences,
limitations and relative rights of the New FBS Preferred Stock, shares of which
are to be issued in the Merger pursuant to Section 3.01(b), in a form mutually
acceptable to FBS and USBC (the "CERTIFICATE OF DESIGNATIONS").
2.04. TAX CONSEQUENCES. It is intended that the Merger shall qualify as a
reorganization under Section 368(a) of the Code.
2.05. ACCOUNTING TREATMENT. It is intended that the Merger shall be
accounted for as a "pooling of interests" under generally accepted accounting
principles.
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ARTICLE III
MERGER CONSIDERATION; EXCHANGE PROCEDURES
3.01. MERGER CONSIDERATION. Subject to the provisions of this Agreement,
at the Effective Time, automatically by virtue of the Merger and without any
action on the part of any party or stockholder:
(a) OUTSTANDING USBC COMMON STOCK. Each share, excluding Treasury Shares,
of the common stock, par value $5.00 per share, of USBC (the "USBC COMMON
STOCK"), issued and outstanding immediately prior to the Effective Time shall
become and be converted into the right to receive 0.755 shares (subject to
possible adjustment as set forth in Section 3.05, the "EXCHANGE RATIO") of the
common stock, par value $1.25 per share, of FBS ("FBS COMMON STOCK").
(b) OUTSTANDING USBC PREFERRED STOCK. Each share of USBC 8 1/8% Cumulative
Preferred Stock, Series A, without par value, liquidation preference $25 per
share (the "USBC PREFERRED STOCK"), excluding any Treasury Shares, issued and
outstanding immediately prior to the Effective Time, shall become and be
converted into one share of a new series of preferred stock of FBS ("NEW FBS
PREFERRED STOCK") having terms (to be set forth in the Certificate of
Designations) substantially identical to those of the USBC Preferred Stock.
(c) OUTSTANDING FBS COMMON STOCK. Each share of FBS Common Stock issued
and outstanding immediately prior to the Effective Time shall be unchanged and
shall remain issued and outstanding as common stock of the Surviving
Corporation.
(d) TREASURY SHARES. Each of the shares of USBC Stock held as Treasury
Shares immediately prior to the Effective Time shall be canceled and retired at
the Effective Time and no consideration shall be issued in exchange therefor.
3.02. RIGHTS AS STOCKHOLDERS; STOCK TRANSFERS. At the Effective Time,
holders of USBC Stock shall cease to be, and shall have no rights as,
stockholders of USBC, other than to receive any dividend or other distribution
with respect to such USBC Stock with a record date occurring prior to the
Effective Time and the consideration provided under this Article III. After the
Effective Time, there shall be no transfers on the stock transfer books of USBC
or the Surviving Corporation of shares of USBC Stock.
3.03. FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of FBS Common Stock and no certificates or scrip therefor, or
other evidence of ownership thereof, will be issued in the Merger; instead, FBS
shall pay to each holder of USBC Common Stock who would otherwise be entitled to
a fractional share of FBS Common Stock (after taking into account all Old
Certificates delivered by such holder) an amount in cash (without interest)
determined by multiplying such fraction by the average of the last sale prices
of FBS Common Stock, as reported by the NYSE Composite Transactions Reporting
System (as reported in THE WALL STREET JOURNAL or, if not reported therein, in
another authoritative source), for the five NYSE trading days immediately
preceding the Effective Date.
3.04. EXCHANGE PROCEDURES. (a) At or prior to the Effective Time, FBS
shall deposit, or shall cause to be deposited, with a bank or trust company
which may be a Subsidiary of FBS (the "EXCHANGE AGENT"), for the benefit of the
holders of certificates formerly representing shares of USBC Common Stock ("OLD
CERTIFICATES"), for exchange in accordance with this Article III, certificates
representing the shares of FBS Common Stock ("NEW CERTIFICATES") and an
estimated amount of cash (such cash and New Certificates, together with any
dividends or distributions with a record date occurring after the Effective Date
with respect thereto (without any interest on any such cash, dividends or
distributions), being hereinafter referred to as the "EXCHANGE FUND") to be paid
pursuant to this Article III in exchange for outstanding shares of USBC Common
Stock. Certificates evidencing shares of USBC Preferred Stock will remain
outstanding and will represent the shares of New FBS Preferred Stock into which
such shares of USBC Preferred Stock are converted on the Effective Date.
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(b) As promptly as practicable after the Effective Date, FBS shall send or
cause to be sent to each former holder of record of shares (other than Treasury
Shares) of USBC Common Stock immediately prior to the Effective Time transmittal
materials for use in exchanging such stockholder's Old Certificates for the
consideration set forth in this Article III. FBS shall cause the New
Certificates into which shares of a stockholder's USBC Common Stock are
converted on the Effective Date and/or any check in respect of any fractional
share interests or dividends or distributions which such person shall be
entitled to receive to be delivered to such stockholder upon delivery to the
Exchange Agent of Old Certificates representing such shares of USBC Common Stock
(or indemnity reasonably satisfactory to FBS and the Exchange Agent, if any of
such certificates are lost, stolen or destroyed) owned by such stockholder. No
interest will be paid on any such cash to be paid in lieu of fractional share
interests or in respect of dividends or distributions which any such person
shall be entitled to receive pursuant to this Article III upon such delivery.
(c) Notwithstanding the foregoing, neither the Exchange Agent nor any party
hereto shall be liable to any former holder of USBC Stock for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(d) No dividends or other distributions with respect to FBS Common Stock
with a record date occurring after the Effective Time shall be paid to the
holder of any unsurrendered Old Certificate representing shares of USBC Common
Stock converted in the Merger into the right to receive shares of such FBS
Common Stock until the holder thereof shall be entitled to receive New
Certificates in exchange therefor in accordance with this Article III, and no
such shares of FBS Common Stock shall be eligible to vote until the holder of
Old Certificates is entitled to receive New Certificates in accordance with this
Article III. After becoming so entitled in accordance with this Article III, the
record holder thereof also shall be entitled to receive any such dividends or
other distributions, without any interest thereon, which theretofore had become
payable with respect to shares of FBS Common Stock such holder had the right to
receive upon surrender of the Old Certificate.
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of USBC for twelve months after the Effective Time shall be paid to
FBS. Any stockholders of USBC who have not theretofore complied with this
Article III shall thereafter look only to FBS for payment of the shares of FBS
Common Stock, cash in lieu of any fractional shares and unpaid dividends and
distributions on the FBS Common Stock deliverable in respect of each share of
USBC Common Stock such stockholder holds as determined pursuant to this
Agreement, in each case, without any interest thereon.
3.05. ANTI-DILUTION PROVISIONS. In the event FBS changes (or establishes a
record date for changing) the number of shares of FBS Common Stock issued and
outstanding prior to the Effective Date as a result of a stock split, stock
dividend, recapitalization or similar transaction with respect to the
outstanding FBS Common Stock and the record date therefor shall be prior to the
Effective Date, the Exchange Ratio shall be proportionately adjusted.
3.06. OPTIONS. At the Effective Time, all employee and director stock
options to purchase shares of USBC Common Stock (each, a "USBC STOCK OPTION"),
which are then outstanding and unexercised, shall cease to represent a right to
acquire shares of USBC Common Stock and shall be converted automatically into
options to purchase shares of FBS Common Stock, and FBS shall assume each such
USBC Stock Option subject to the terms thereof, including but not limited to the
accelerated vesting of such options which shall occur in connection with and by
virtue of the Merger as and to the extent required by the plans and agreements
governing such USBC Stock Options; PROVIDED, HOWEVER, that from and after the
Effective Time, (i) the number of shares of FBS Common Stock purchasable upon
exercise of such USBC Stock Option shall be equal to the number of shares of
USBC Common Stock that were purchasable under such USBC Stock Option immediately
prior to the Effective Time multiplied by the Exchange Ratio, and rounding to
the nearest whole share, and (ii) the per share exercise price under each such
USBC Stock Option shall be adjusted by dividing the per share exercise price of
each such USBC Stock Option by the
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Exchange Ratio, and rounding down to the nearest cent. The terms of each USBC
Stock Option shall, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, stock dividend,
recapitalization or other similar transaction with respect to FBS Common Stock
on or subsequent to the Effective Date. Notwithstanding the foregoing, each USBC
Stock Option which is intended to be an "incentive stock option" (as defined in
Section 422 of the Code) shall be adjusted in accordance with the requirements
of Section 424 of the Code. Accordingly, with respect to any incentive stock
options, fractional shares shall be rounded down to the nearest whole number of
shares and where necessary the per share exercise price shall be rounded down to
the nearest cent.
ARTICLE IV
ACTIONS PENDING MERGER
From the date hereof until the Effective Time, except as expressly
contemplated by this Agreement, the FBS Option Agreement or the USBC Option
Agreement, (i) without the prior written consent of FBS, USBC will not, and will
cause each of its Subsidiaries not to, and (ii) without the prior written
consent of USBC (which consent shall not be unreasonably withheld or delayed)
FBS will not, and will cause each of its Subsidiaries not to:
4.01. ORDINARY COURSE. Conduct the business of it and its Subsidiaries
other than in the ordinary and usual course or, to the extent consistent
therewith, fail to use reasonable efforts to preserve intact their business
organizations and assets and maintain their rights, franchises and existing
relations with customers, suppliers, employees and business associates, or take
any action that would adversely affect its ability to perform any of its
material obligations under this Agreement.
4.02. CAPITAL STOCK. In the case of USBC, other than pursuant to Rights
Previously Disclosed and outstanding on the date hereof, (i) issue, sell or
otherwise permit to become outstanding, or authorize the creation of, any
additional shares of capital stock or any Rights, (ii) enter into any agreement
with respect to the foregoing, or (iii) permit any additional shares of capital
stock to become subject to new grants of employee or director stock options,
other Rights or similar stock-based employee rights. Without limiting the
foregoing, USBC will not issue or agree to issue any shares of capital stock or
Rights under USBC's 1997 Amended and Restated Non-Employee Director Stock
Incentive and Deferral Plan or USBC's 1997 Employee Stock Purchase Plan.
4.03. DIVIDENDS, ETC. (a) Subject to the provisions of Section 6.17, make,
declare, pay or set aside for payment any dividend (other than (i) in the case
of USBC, (A) quarterly cash dividends on USBC Common Stock in an amount not to
exceed $0.31 per share paid with record and payment dates consistent with past
practice, (B) dividends payable on USBC Preferred Stock at a rate not exceeding
the rate provided for in the terms thereof, and (C) dividends from 99% owned
Subsidiaries to USBC or another 99% owned Subsidiary of USBC, as applicable, and
(ii) in the case of FBS, quarterly cash dividends on FBS Common Stock not in
excess of $0.465 per share (paid with record and payment dates consistent with
past practice) and dividends from Subsidiaries to FBS or another Subsidiary of
FBS, as applicable) on or in respect of, or declare or make any distribution on
any shares of its capital stock or (b) except to the extent required to do so
under its existing Compensation and Benefit Plans, directly or indirectly
adjust, split, combine, redeem, reclassify, purchase or otherwise acquire, any
shares of its capital stock other than as Previously Disclosed.
4.04. COMPENSATION; EMPLOYMENT AGREEMENTS; ETC. In the case of USBC and
its Subsidiaries, enter into or amend any written employment, consulting,
severance or similar agreements or arrangements with any of its directors,
officers or employees, or grant any salary or wage increase or increase any
employee benefit (including incentive or bonus payments), except (i) for normal
individual increases in compensation to employees in the ordinary course of
business consistent with past practice, (ii) for other changes as are provided
for herein or as may be required by law, (iii) to satisfy contractual
obligations existing as of the
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date hereof and, if material, Previously Disclosed, or (iv) for additional
grants of awards to newly hired employees consistent with past practice.
4.05. BENEFIT PLANS. In the case of USBC and its Subsidiaries, enter into
or amend (except (i) as may be required by applicable law or (ii) to satisfy
contractual obligations existing as of the date hereof and, if material,
Previously Disclosed) any pension, retirement, stock option, stock purchase,
savings, profit sharing, deferred compensation, consulting, bonus, group
insurance or other employee benefit, incentive or welfare contract, plan or
arrangement, or any trust agreement related thereto, in respect of any of its
directors, officers or other employees, including without limitation taking any
action that accelerates the vesting or exercise of any benefits payable
thereunder.
4.06. ACQUISITIONS AND DISPOSITIONS. In the case of USBC, except as
Previously Disclosed, sell, transfer, mortgage, encumber or otherwise dispose of
or discontinue any portion of its assets, business or properties, which is
material to it and its Subsidiaries taken as a whole, or acquire (other than by
way of foreclosures or acquisitions of control in a bona fide fiduciary capacity
or in satisfaction of debts previously contracted in good faith, in each case in
the ordinary and usual course of business consistent with past practice) all or
any portion of, the assets, business or properties of any other entity which is
material to it and its Subsidiaries taken as a whole. FBS will not, and will
cause its Subsidiaries not to, make any acquisition or take any other action
which would materially adversely affect its ability to consummate the
transactions contemplated by this Agreement.
4.07. AMENDMENTS. In the case of USBC, amend the USBC Articles or its
by-laws.
4.08. ACCOUNTING METHODS. Implement or adopt any change in its accounting
principles, practices or methods, other than as may be required by generally
accepted accounting principles.
4.09. CONTRACTS. In the case of USBC and its Subsidiaries, except in the
ordinary course of business consistent with past practice, enter into or
terminate any material contract, agreement or lease, or amend or modify in a
material respect any of its existing material contracts, agreements or leases.
4.10. CLAIMS. In the case of USBC and its Subsidiaries, except in the
ordinary course of business consistent with past practice, settle any claim,
action or proceeding involving money damages that is material to it and its
Subsidiaries, taken as a whole.
4.11. ADVERSE ACTIONS. (a) Take any action while knowing that such action
would, or is reasonably likely to, prevent or impede the Merger from qualifying
(i) for "pooling-of-interests" accounting treatment or (ii) as a reorganization
within the meaning of Section 368(a) of the Code; or (b) knowingly take any
action that is intended or is reasonably likely to result in (i) any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time at or prior to the Effective Time,
(ii) any of the conditions to the Merger set forth in Article VII not being
satisfied or (iii) a material violation of any provision of this Agreement
except, in each case, as may be required by applicable law; PROVIDED, HOWEVER,
that nothing contained herein shall limit the ability of FBS or USBC to exercise
its rights under the USBC Option Agreement or the FBS Option Agreement, as the
case may be.
4.12. RISK MANAGEMENT. Except as required by applicable law or regulation,
(a) implement or adopt any material change in its interest rate risk management
policies, procedures or practices; (b) fail to follow its existing policies or
practices with respect to managing its exposure to interest rate risk; or (c)
fail to use commercially reasonable means to avoid any material increase in its
aggregate exposure to interest rate risk.
4.13. AGREEMENTS. Agree or commit to do anything prohibited by Sections
4.01 through 4.12.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01. DISCLOSURE SCHEDULES. On or prior to the date hereof, FBS has
delivered to USBC and USBC has delivered to FBS a schedule (respectively, its
"DISCLOSURE SCHEDULE") setting forth, among other things, items the disclosure
of which is necessary or appropriate either in response to an express disclosure
requirement contained in a provision hereof or as an exception to one or more
representations or warranties contained in Section 5.03 or to one or more of its
covenants contained in Article IV; PROVIDED, that (i) no such item is required
to be set forth in a Disclosure Schedule as an exception to a representation or
warranty if its absence is not reasonably likely to result in the related
representation or warranty being deemed untrue or incorrect under the standard
established by Section 5.02, and (ii) the mere inclusion of an item in a
Disclosure Schedule as an exception to a representation or warranty shall not be
deemed an admission by a party that such item represents a material exception or
fact, event or circumstance or that such item is reasonably likely to result in
a Material Adverse Effect.
5.02. STANDARD. No representation or warranty of FBS or USBC contained in
Section 5.03 shall be deemed untrue or incorrect, and no party hereto shall be
deemed to have breached a representation or warranty, as a consequence of the
existence of any fact, event or circumstance unless such fact, circumstance or
event, individually or taken together with all other facts, events or
circumstances inconsistent with any representation or warranty contained in
Section 5.03 has had or is reasonably likely to have a Material Adverse Effect.
5.03. REPRESENTATIONS AND WARRANTIES. Subject to Sections 5.01 and 5.02
and except as Previously Disclosed in a paragraph of its Disclosure Schedule
corresponding to the relevant paragraph below, USBC hereby represents and
warrants to FBS, and FBS hereby represents and warrants to USBC as follows:
(a) ORGANIZATION, STANDING AND AUTHORITY. Such party is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Such party is duly qualified to do business
and is in good standing in the states of the United States and foreign
jurisdictions where its ownership or leasing of property or assets or the
conduct of its business requires it to be so qualified. It has in effect all
federal, state, local, and foreign governmental authorizations necessary for it
to own or lease its properties and assets and to carry on its business as it is
now conducted.
(b) SHARES. (i) As of the date hereof, the authorized capital stock of
USBC consists solely of (A) 250,000,000 shares of USBC Common Stock, of which
148,058,414 shares were outstanding as of March 11, 1997 and (B) 50,000,000
shares of preferred stock, of which 6,000,000 shares have been designated as
USBC Preferred Stock, all of which 6,000,000 shares were outstanding as of March
11, 1997. As of the date hereof, the authorized capital stock of FBS consists
solely of (X) 200,000,000 shares of FBS Common Stock, of which 133,422,201
shares were outstanding as of March 3, 1997 and (Y) 10,000,000 shares of
preferred stock, of which 12,750 shares have been designated as FBS Series 1990A
Preferred Stock, of which no shares are outstanding as of the date hereof. As of
March 3, 1997, no shares of USBC Common Stock and 8,325,537 shares of FBS Common
Stock were held in treasury by USBC and FBS, respectively. The outstanding
shares of such party's capital stock have been duly authorized and are validly
issued and outstanding, fully paid and nonassessable, and subject to no
preemptive rights (and were not issued in violation of any preemptive rights).
As of the date hereof, except as set forth in its Disclosure Schedule pursuant
to Section 5.03(b)(ii), there are no shares of such party's capital stock
authorized and reserved for issuance, such party does not have any Rights issued
or outstanding with respect to its capital stock, and such party does not have
any commitment to authorize, issue or sell any such shares or Rights, except
pursuant to this Agreement, the USBC Option Agreement or the FBS Option
Agreement, as the case may be. Since December 31, 1996, such party has issued no
shares of its capital stock or Rights or reserved any shares for such purposes
except pursuant to plans or commitments Previously Disclosed.
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(ii) The number of shares of USBC Common Stock which are issuable and
reserved for issuance upon exercise of USBC Stock Options as of the date hereof
are Previously Disclosed in USBC's Disclosure Schedule, and the number of shares
of FBS Common Stock which are issuable and reserved for issuance upon exercise
of any employee or director stock options to purchase shares of FBS Common
Stock, and the number and terms of any Rights, as of February 28, 1997 are
Previously Disclosed in FBS's Disclosure Schedule.
(iii) In the case of the representations and warranties of FBS, the shares
of FBS Stock to be issued in exchange for shares of USBC Stock in the Merger,
when issued in accordance with the terms of this Agreement, will be duly
authorized, validly issued, fully paid and nonassessable.
(c) SUBSIDIARIES. (i) (A) Such party has Previously Disclosed a list of
all of its Subsidiaries together with the jurisdiction of organization of each
such Subsidiary, (B) it owns, directly or indirectly, at least 99% of the issued
and outstanding capital stock of each of its Significant Subsidiaries, (C) no
equity securities of any of its Significant Subsidiaries are or may become
required to be issued (other than to it or its Subsidiaries) by reason of any
Rights, (D) there are no contracts, commitments, understandings or arrangements
by which any of such Significant Subsidiaries is or may be bound to sell or
otherwise transfer any shares of the capital stock of any such Significant
Subsidiaries (other than to it or its Subsidiaries), (E) there are no contracts,
commitments, understandings, or arrangements relating to its rights to vote or
to dispose of such shares (other than to it or its Subsidiaries), and (F) all of
the shares of capital stock of each such Significant Subsidiary held by it or
its Subsidiaries are fully paid and (except pursuant to 12 U.S.C. Section55 or
equivalent state statutes in the case of bank Subsidiaries) nonassessable and
are owned by it or its Subsidiaries free and clear of any Liens.
(ii) In the case of the representations and warranties of USBC, USBC does
not own (other than in a bona fide fiduciary capacity or in satisfaction of a
debt previously contracted) beneficially, directly or indirectly, any shares of
any equity securities or similar interests of any person, or any interest in a
partnership or joint venture of any kind other than its Subsidiaries.
(iii) Each of such party's Significant Subsidiaries has been duly organized
and is validly existing in good standing under the laws of the jurisdiction of
its organization, and is duly qualified to do business and in good standing in
the jurisdictions where its ownership or leasing of property or the conduct of
its business requires it to be so qualified. Each of such Significant
Subsidiaries has in effect all federal, state, local, and foreign governmental
authorizations necessary for it to own or lease its properties and assets and to
carry on its business as it is now conducted.
(d) CORPORATE POWER. Such party and each of its Significant Subsidiaries
has the corporate power and authority to carry on its business as it is now
being conducted and to own all its properties and assets; and it has the
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and, in the case of FBS, the FBS Option Agreement, and, in
the case of USBC, the USBC Option Agreement, and to consummate the transactions
contemplated hereby and thereby.
(e) CORPORATE AUTHORITY. (i) In the case of the representations and
warranties of USBC, (A) subject in the case of this Agreement to receipt of the
requisite approval and adoption of this Agreement (subject to Section 8.03) and
the Merger by the holders of a majority of the outstanding shares of USBC Common
Stock entitled to vote thereon, this Agreement, the USBC Option Agreement and
the transactions contemplated hereby and thereby have been authorized by all
necessary corporate action of USBC and the USBC Board prior to the date hereof
and (B) this Agreement and the USBC Option Agreement are legal, valid and
binding agreements of USBC, enforceable in accordance with their respective
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar laws of
general applicability relating to or affecting creditors' rights or by general
equity principles).
(ii) In the case of the representations and warranties of FBS, (A) subject
in the case of this Agreement (subject to Section 8.03) to (1) receipt of the
requisite approval and adoption of this
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Agreement and the Merger by the holders of a majority of the outstanding shares
of FBS Common Stock entitled to vote thereon and (2) subject to Section 6.15(c),
receipt of the requisite approval of the Board Size Amendment by the holders of
at least 80% of the outstanding shares of FBS Common Stock entitled to vote
thereon, this Agreement and the FBS Option Agreement and the transactions
contemplated hereby and thereby have been authorized by all necessary corporate
action of FBS and the FBS Board and (B) this Agreement and the FBS Option
Agreement are legal, valid and binding agreements of FBS, enforceable in
accordance with their respective terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to or
affecting creditors' rights or by general equity principles).
(f) NO DEFAULTS. Subject to receipt of the regulatory approvals, and
expiration of the waiting periods, referred to in Section 5.03(r) and required
filings under federal and state securities laws, the execution, delivery and
performance of this Agreement and, in the case of FBS, the FBS Option Agreement,
and, in the case of USBC, the USBC Option Agreement, and the consummation of the
transactions contemplated hereby and thereby by it do not and will not (i)
constitute a breach or violation of, or a default under, any law, rule or
regulation or any judgment, decree, order, governmental permit or license, or
agreement, indenture or instrument of it or of any of its Subsidiaries or to
which it or any of its Subsidiaries or properties is subject or bound, (ii)
constitute a breach or violation of, or a default under, its articles or
certificate of incorporation or by-laws, or (iii) require any consent or
approval under any such law, rule, regulation, judgment, decree, order,
governmental permit or license, agreement, indenture or instrument.
(g) FINANCIAL REPORTS AND SEC DOCUMENTS. (i) Its Annual Reports on Form
10-K for the fiscal years ended December 31, 1995 and 1996, and all other
reports, registration statements, definitive proxy statements or information
statements filed or to be filed by it or any of its Subsidiaries subsequent to
December 31, 1995 under the Securities Act, or under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act, in the form filed, or to be filed (collectively,
its "SEC DOCUMENTS"), with the SEC, as of the date filed (A) complied or will
comply in all material respects as to form with the applicable requirements
under the Securities Act or the Exchange Act, as the case may be, and (B) did
not and will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; and each of the balance sheets contained in or incorporated by
reference into any such SEC Document (including the related notes and schedules
thereto) fairly presents and will fairly present the financial position of the
entity or entities to which it relates as of its date, and each of the
statements of income and changes in stockholders' equity and cash flows or
equivalent statements in such SEC Documents (including any related notes and
schedules thereto) fairly presents and will fairly present the results of
operations, changes in stockholders' equity and changes in cash flows, as the
case may be, of the entity or entities to which it relates for the periods to
which they relate, in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved, except in each case
as may be noted therein, subject to normal year-end audit adjustments in the
case of unaudited statements.
(ii) Since December 31, 1996, it has not incurred any liability other than
in the ordinary course of business consistent with past practice.
(h) LITIGATION; REGULATORY ACTION. (i) No litigation, claim or other
proceeding before any court or governmental agency is pending against it or any
of its Subsidiaries and, to the best of its knowledge, no such litigation, claim
or other proceeding has been threatened.
(ii) Neither it nor any of its Subsidiaries or properties is a party to or
is subject to any order, decree, agreement, memorandum of understanding or
similar arrangement with, or a commitment letter or similar submission to, or
extraordinary supervisory letter from, any federal or state governmental agency
or authority charged with the supervision or regulation of financial
institutions or issuers of securities or engaged in the insurance of deposits
(including, without limitation, the OCC, the Federal Reserve Board,
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the FDIC and the OTS) or the supervision or regulation of it or any of its
Subsidiaries (collectively, the "REGULATORY AUTHORITIES").
(iii) Neither it nor any of its Subsidiaries has been advised by any
Regulatory Authority that such Regulatory Authority is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, decree, agreement, memorandum of understanding, commitment letter,
supervisory letter or similar submission.
(i) COMPLIANCE WITH LAWS. It and each of its Subsidiaries:
(i) in the conduct of its business, is in compliance with all applicable
federal, state, local and foreign statutes, laws, regulations, ordinances,
rules, judgments, orders or decrees applicable thereto or to the employees
conducting such businesses, including, without limitation, the Equal Credit
Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Home
Mortgage Disclosure Act and all other applicable fair lending laws and other
laws relating to discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders and approvals of, and
has made all filings, applications and registrations with, all Regulatory
Authorities that are required in order to permit them to conduct their
businesses substantially as presently conducted; all such permits, licenses,
certificates of authority, orders and approvals are in full force and effect
and, to the best of its knowledge, no suspension or cancellation of any of them
is threatened; and
(iii) has received, since December 31, 1995, no notification or
communication from any Regulatory Authority (A) asserting that it or any of its
Subsidiaries is not in compliance with any of the statutes, regulations, or
ordinances which such Regulatory Authority enforces, (B) threatening to revoke
any license, franchise, permit, or governmental authorization, (C) threatening
or contemplating revocation or limitation of, or which would have the effect of
revoking or limiting, federal deposit insurance (nor, to its knowledge, do any
grounds for any of the foregoing exist) or (D) failing to approve any proposed
acquisition, or stating its intention not to approve acquisitions proposed to be
effected by it within a certain time period or indefinitely.
(j) MATERIAL CONTRACTS; DEFAULTS. Except for those agreements and other
documents filed as exhibits to its SEC Documents, neither it nor any of its
Subsidiaries is a party to, bound by or subject to any agreement, contract,
arrangement, commitment or understanding (whether written or oral) (i) that is a
"material contract" within the meaning of Item 601(b)(10) of the SEC's
Regulation S-K or (ii) that materially restricts the conduct of business by it
or any of its Subsidiaries. Neither it nor any of its Subsidiaries is in default
under any contract, agreement, commitment, arrangement, lease, insurance policy
or other instrument to which it is a party, by which its respective assets,
business, or operations may be bound or affected, or under which it or its
respective assets, business, or operations receives benefits, and there has not
occurred any event that, with the lapse of time or the giving of notice or both,
would constitute such a default.
(k) NO BROKERS. No action has been taken by it that would give rise to any
valid claim against any party hereto for a brokerage commission, finder's fee or
other like payment with respect to the transactions contemplated by this
Agreement, excluding, in the case of USBC, a fee to be paid to Credit Suisse
First Boston Corporation, and, in the case of FBS, fees to be paid to Merrill
Lynch & Co. and Goldman, Sachs & Co., which, in each case, has been heretofore
disclosed to the other party.
(l) EMPLOYEE BENEFIT PLANS. (i) In the case of the representations and
warranties of USBC, USBC's Disclosure Schedule contains a complete list of all
bonus, vacation, deferred compensation, pension, retirement, profit-sharing,
thrift, savings, employee stock ownership, stock bonus, stock purchase,
restricted stock, stock appreciation and stock option plans, all employment or
severance contracts, all medical, dental, disability, severance, health and life
plans, all other employee benefit and fringe benefit plans, contracts or
arrangements and any "change of control" or similar provisions in any plan,
contract or arrangement maintained or contributed to by it or any of its
Subsidiaries for the benefit of officers, former
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officers, employees, former employees, directors, former directors, or the
beneficiaries of any of the foregoing (collectively, "COMPENSATION AND BENEFIT
PLANS").
(ii) In the case of the representations and warranties of USBC, true and
complete copies of USBC's Compensation and Benefit Plans, including, but not
limited to, any trust instruments and/or insurance contracts, if any, forming a
part thereof, and all amendments thereto have been supplied or made available to
FBS.
(iii) Each of its Compensation and Benefit Plans has been administered in
accordance with the terms thereof. All "employee benefit plans" within the
meaning of Section 3(3) of ERISA, other than "multiemployer plans" within the
meaning of Section 3(37) of ERISA ("MULTIEMPLOYER PLANS"), covering employees or
former employees of it and its Subsidiaries (its "PLANS"), to the extent subject
to ERISA, are in material compliance with ERISA, the Code, the Age
Discrimination in Employment Act and other applicable laws. Each Compensation
and Benefit Plan of it or its Subsidiaries which is an "employee pension benefit
plan" within the meaning of Section 3(2) of ERISA ("PENSION PLAN") and which is
intended to be qualified under Section 401(a) of the Code has received a
favorable determination letter from the Internal Revenue Service, and it is not
aware of any circumstances reasonably likely to result in the revocation or
denial of any such favorable determination letter. There is no pending or, to
its knowledge, threatened litigation or governmental audit, examination or
investigation relating to the Plans.
(iv) No liability under Title IV of ERISA has been or is expected to be
incurred by it or any of its Subsidiaries with respect to any ongoing, frozen or
terminated "single-employer plan," within the meaning of Section 4001(a)(15) of
ERISA, currently or formerly maintained by any of them, or the single-employer
plan of any entity which is considered one employer with it under Section
4001(a)(14) of ERISA or Section 414 of the Code (an "ERISA AFFILIATE"). Neither
it nor any of its Subsidiaries nor any ERISA Affiliate of it or any of its
Subsidiaries presently contributes to a Multiemployer Plan or a multiple
employer plan (as described in Section 4064(a) of ERISA), nor have they
contributed to such a plan within this calendar year and the preceding five
calendar years. No notice of a "reportable event," within the meaning of Section
4043 of ERISA for which the 30-day reporting requirement has not been waived,
has been required to be filed for any Pension Plan of it or any of its
Subsidiaries or by any ERISA Affiliate within the past 12 months.
(v) All contributions, premiums and payments required to have been made
under the terms of any Compensation and Benefit Plan of it or any of its
Subsidiaries have been made. Neither any Pension Plan of it or any of its
Subsidiaries nor any single-employer plan of an ERISA Affiliate of it or any of
its Subsidiaries has an "accumulated funding deficiency" (whether or not waived)
within the meaning of Section 412 of the Code or Section 302 of ERISA. Neither
it nor any of its Subsidiaries has provided, or is required to provide, security
to any Pension Plan or to any single-employer plan of an ERISA Affiliate
pursuant to Section 401(a)(29) of the Code.
(vi) Under each Pension Plan of it or any of its Subsidiaries which is a
single-employer plan, as of the last day of the most recent plan year ended
prior to the date hereof, the actuarially determined present value of all
"benefit liabilities", within the meaning of Section 4001(a)(16) of ERISA (as
determined on the basis of the actuarial assumptions contained in the Pension
Plan's most recent actuarial valuation) did not exceed the then current value of
the assets of such Pension Plan, and there has been no adverse change in the
financial condition of such Pension Plan (with respect to either assets or
benefits) since the last day of the most recent plan year.
(vii) Neither it nor any of its Subsidiaries has any obligations under any
Compensation and Benefit Plans to provide benefits, including death or medical
benefits, with respect to employees of it or its Subsidiaries beyond their
retirement or other termination of service other than (A) coverage mandated by
Part 6 of Title I of ERISA or Section 4980B of the Code, (B) retirement or death
benefits under any employee pension benefit plan (as defined under Section 3(2)
of ERISA), (C) disability benefits under any
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employee welfare plan that have been fully provided for by insurance or
otherwise, or (D) benefits in the nature of severance pay.
(viii) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (A) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute or otherwise) becoming due to any current or former director or
employee of it or any of its Subsidiaries under any Compensation and Benefit
Plan or otherwise from it or any of its Subsidiaries, (B) increase any benefits
otherwise payable under any Compensation and Benefit Plan or (C) result in any
acceleration of the time of payment or vesting of any such benefit.
(m) LABOR MATTERS. Neither it nor any of its Subsidiaries is a party to or
is bound by any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is it or any of its
Subsidiaries the subject of a proceeding asserting that it or any such
Subsidiaries has committed an unfair labor practice (within the meaning of the
National Labor Relations Act) or seeking to compel it or such Subsidiaries to
bargain with any labor organization as to wages and conditions of employment,
nor is there any strike or other labor dispute involving it or any of its
Subsidiaries pending or, to its knowledge, threatened, nor is it aware of any
activity involving it or its Subsidiaries' employees seeking to certify a
collective bargaining unit or engaging in other organizational activity.
(n) TAKEOVER LAWS; ARTICLE IX OF USBC ARTICLES; ARTICLE EIGHTH OF FBS
CERTIFICATE. It has taken all action required to be taken by it in order to
exempt this Agreement and, in the case of FBS, the FBS Option Agreement, and, in
the case of USBC, the USBC Option Agreement, and the transactions contemplated
hereby and thereby from, and this Agreement and, in the case of FBS, the FBS
Option Agreement, and, in the case of USBC, the USBC Option Agreement, and the
transactions contemplated hereby and thereby are exempt from, the requirements
of any "moratorium", "control share", "fair price" or other antitakeover laws
and regulations of any state (collectively, "TAKEOVER LAWS"), including, without
limitation (i) the State of Delaware in the case of the representations and
warranties of FBS, including Section 203 of the DGCL, and (ii) the State of
Oregon in the case of the representations and warranties of USBC, including
Sections 60.801-60.816 and 60.825-60.845 of the OBCA. In the case of the
representations and warranties of USBC, the transactions contemplated by this
Agreement and the USBC Option Agreement have been duly approved by the USBC
Board for purposes of Article IX of the USBC Articles. In the case of the
representations and warranties of FBS, the transactions contemplated by this
Agreement and the FBS Option Agreement have been duly approved by the FBS Board
for purposes of the Article Eighth of the FBS Certificate.
(o) ENVIRONMENTAL MATTERS. (i) As used in this Agreement, "ENVIRONMENTAL
LAWS" means all applicable local, state and federal environmental, health and
safety laws and regulations, including, without limitation, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation, and Liability Act, the Clean Water Act, the Federal Clean Air Act,
and the Occupational Safety and Health Act, each as amended, regulations
promulgated thereunder, and state counterparts.
(ii) Neither the conduct nor operation of such party or its Subsidiaries nor
any condition of any property presently or previously owned, leased or operated
by any of them violates or violated Environmental Laws and no condition has
existed or event has occurred with respect to any of them or any such property
that, with notice or the passage of time, or both, is reasonably likely to
result in liability under Environmental Laws. Neither such party nor any of its
Subsidiaries has received any notice from any person or entity that it or its
Subsidiaries or the operation or condition of any property ever owned, leased,
operated, held as collateral or held as a fiduciary by any of them are or were
in violation of or otherwise are alleged to have liability under any
Environmental Law, including, but not limited to, responsibility (or potential
responsibility) for the cleanup or other remediation of any pollutants,
contaminants, or hazardous or toxic wastes, substances or materials at, on,
beneath, or originating from any such property.
(p) TAX MATTERS. (i)(A) All returns, declarations, reports, estimates,
information returns and statements required to be filed on or before the
Effective Date under federal, state, local or any foreign tax laws
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("TAX RETURNS") with respect to it or any of its Subsidiaries, have been or will
be timely filed, or requests for extensions have been timely filed and have not
expired; (B) all material Tax Returns filed by it are complete and accurate; (C)
all Taxes shown to be due and payable (without regard to whether such Taxes have
been assessed) on such Tax Returns have been paid or adequate reserves have been
established for the payment of such Taxes; and (D) no material (1) audit or
examination or (2) refund litigation with respect to any Tax Return is pending.
(ii) It has no reason to believe that any conditions exist that might
prevent or impede the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
(q) ACCOUNTING TREATMENT; TAX TREATMENT. As of the date hereof, it is
aware of no reason why the Merger will fail to qualify (i) for
pooling-of-interests accounting treatment or (ii) as a reorganization under
Section 368(a) of the Code.
(r) REGULATORY APPROVALS. No consents or approvals of, or filings or
registrations with, any court, administrative agency or commission or other
governmental authority or instrumentality or with any third party are necessary
to consummate the Merger except for (i) the filing of applications and notices,
as applicable, with the Federal Reserve Board and, to the extent necessary, the
OCC and the bank regulatory authorities of the States in which USBC and its
Subsidiaries operate; (ii) approval of (A) the listing on the NYSE of the FBS
Common Stock to be issued in the Merger and (B) the listing on the NYSE or the
quotation on NASDAQ of the New FBS Preferred Stock to be issued in the Merger;
(iii) the filing with the SEC of the Joint Proxy Statement in definitive form
and the filing and declaration of effectiveness of the Registration Statement;
(iv) the filing of (A) a certificate of merger with the Secretary of State of
the State of Delaware pursuant to the DGCL and (B) articles of merger with the
Secretary of State of the State of Oregon pursuant to the OBCA; (v) such filings
as are required to be made or approvals as are required to be obtained under the
securities or "Blue Sky" laws of various states in connection with the issuance
of FBS Stock in the Merger; (vi) receipt of the approvals set forth in Section
7.01; and (vii) the consents and approvals set forth in paragraph 5.03(r) of
USBC's Disclosure Schedule. As of the date hereof, neither of USBC nor FBS is
aware of any reason why the approvals of such regulatory authorities will not be
received without the imposition of a condition or requirement described in the
second sentence of Section 7.02.
(s) FAIRNESS OPINIONS. In the case of the representations and warranties
of USBC, on or before the date hereof, Credit Suisse First Boston Corporation
has delivered an opinion to the USBC Board that the Exchange Ratio is fair, from
a financial point of view, to the holders of USBC Common Stock. In the case of
the representations and warranties of FBS, on or before the date hereof, Merrill
Lynch & Co. has delivered an opinion to the FBS Board that the Exchange Ratio is
fair, from a financial point of view, to the holders of FBS Common Stock.
(t) RISK MANAGEMENT INSTRUMENTS. All interest rate swaps, caps, floors and
option agreements and other interest rate risk management arrangements, whether
entered into for its own account, or for the account of one or more of its
Subsidiaries or their customers, were entered into (i) in accordance with
prudent banking practices and all applicable laws, rules, regulations and
regulatory policies and (ii) with counterparties believed to be financially
responsible at the time; and each of them constitutes the valid and legally
binding obligation of it or one of its Subsidiaries, enforceable in accordance
with its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to or affecting creditors' rights
or by general equity principles), and are in full force and effect. Neither it
nor its Subsidiaries, nor to its knowledge any other party thereto, is in breach
of any of its obligations under any such agreement or arrangement.
(u) USBC NAME. In the case of the representations and warranties of USBC,
USBC has the right to use the U.S. Bancorp name in each state of the United
States, free and clear of any Liens, and no other person has the right to use
such name in any such state.
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(v) NO MATERIAL ADVERSE EFFECT. Since December 31, 1996, (i) it and its
Subsidiaries have conducted their respective businesses in the ordinary and
usual course consistent with past practice (excluding the incurrence of expenses
related to this Agreement and the transactions contemplated hereby) and (ii) no
event has occurred or circumstance arisen that, individually or taken together
with all other facts, circumstances and events (described in any paragraph of
Section 5.03 or otherwise), is reasonably likely to have a Material Adverse
Effect with respect to it.
ARTICLE VI
COVENANTS
USBC hereby covenants to and agrees with FBS, and FBS hereby covenants to
and agrees with USBC, that:
6.01. BEST EFFORTS. Subject to the terms and conditions of this Agreement,
it shall use its best efforts in good faith to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
desirable, or advisable under applicable laws, so as to permit consummation of
the Merger as promptly as practicable and otherwise to enable consummation of
the transactions contemplated hereby and shall cooperate fully with the other
party hereto to that end.
6.02. STOCKHOLDER APPROVALS. Each of them shall take, in accordance with
applicable law, applicable stock exchange or NASDAQ rules and its respective
articles or certificate of incorporation and by-laws, all action necessary to
convene, respectively, (i) an appropriate meeting of stockholders of FBS to
consider and vote upon (A) the approval and adoption of this Agreement and the
Merger (including the issuance of the shares of FBS Common Stock to be issued in
the Merger pursuant to this Agreement) and (B) the Board Size Amendment and (C)
any other matters required to be approved by FBS stockholders for consummation
of the Merger (including any adjournment or postponement, the "FBS MEETING"),
and (ii) an appropriate meeting of stockholders of USBC to consider and vote
upon the approval and adoption of this Agreement and the Merger and any other
matters required to be approved by USBC's stockholders for consummation of the
Merger (including any adjournment or postponement, the "USBC MEETING"; and each
of the FBS Meeting and the USBC Meeting, a "MEETING"), respectively, as promptly
as practicable after the Registration Statement is declared effective. The FBS
Board and the USBC Board shall recommend such approval, and each of FBS and USBC
shall take all reasonable lawful action to solicit such approval by its
respective stockholders.
6.03. REGISTRATION STATEMENT. (a) Each of FBS and USBC agrees to cooperate
in the preparation of a registration statement on Form S-4 (the "REGISTRATION
STATEMENT") to be filed by FBS with the SEC in connection with the issuance of
FBS Stock in the Merger (including the joint proxy statement and prospectus and
other proxy solicitation materials of FBS and USBC constituting a part thereof
(the "JOINT PROXY STATEMENT") and all related documents). Provided the other
party has cooperated as required above, each party agrees to file the Joint
Proxy Statement in preliminary form with the SEC as promptly as reasonably
practicable, and FBS agrees to file the Registration Statement with the SEC as
soon as reasonably practicable after any SEC comments with respect to the
preliminary Joint Proxy Statement are resolved. Each of USBC and FBS agrees to
use all reasonable efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as reasonably practicable after
filing thereof. FBS also agrees to use all reasonable efforts to obtain all
necessary state securities law or "Blue Sky" permits and approvals required to
carry out the transactions contemplated by this Agreement. USBC agrees to
furnish to FBS all information concerning USBC, its Subsidiaries, officers,
directors and stockholders as may be reasonably requested in connection with the
foregoing.
(b) Each of USBC and FBS agrees, as to itself and its Subsidiaries, that
none of the information supplied or to be supplied by it for inclusion or
incorporation by reference in (i) the Registration Statement will, at the time
the Registration Statement and each amendment or supplement thereto, if any,
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state
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any material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Joint Proxy Statement and any
amendment or supplement thereto will, at the date of mailing to stockholders and
at the times of the FBS Meeting and the USBC Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading or any
statement which, in the light of the circumstances under which such statement is
made, will be false or misleading with respect to any material fact, or which
will omit to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier statement in the Joint Proxy Statement or any amendment or supplement
thereto. Each of USBC and FBS further agrees that if it shall become aware prior
to the Effective Date of any information furnished by it that would cause any of
the statements in the Joint Proxy Statement to be false or misleading with
respect to any material fact, or to omit to state any material fact necessary to
make the statements therein not false or misleading, to promptly inform the
other party thereof and to take the necessary steps to correct the Joint Proxy
Statement.
(c) In the case of FBS, FBS will advise USBC, promptly after FBS receives
notice thereof, of the time when the Registration Statement has become effective
or any supplement or amendment has been filed, of the issuance of any stop order
or the suspension of the qualification of the FBS Stock for offering or sale in
any jurisdiction, of the initiation or threat of any proceeding for any such
purpose, or of any request by the SEC for the amendment or supplement of the
Registration Statement or for additional information.
6.04. PRESS RELEASES. It will not, without the prior approval of the other
party, issue any press release or written statement for general circulation
relating to the transactions contemplated hereby, except as otherwise required
by applicable law or regulation or NYSE rules.
6.05. ACCESS; INFORMATION. (a) Upon reasonable notice and subject to
applicable laws relating to the exchange of information, it shall afford the
other party and the other party's officers, employees, counsel, accountants and
other authorized representatives, access, during normal business hours
throughout the period prior to the Effective Date, to all of its properties,
books, contracts, commitments and records and, during such period, it shall
furnish promptly to such other party (i) a copy of each material report,
schedule and other document filed by it pursuant to the requirements of federal
or state securities or banking laws, and (ii) all other information concerning
the business, properties and personnel of it as the other may reasonably
request.
(b) It will not use any information obtained pursuant to this Section 6.05
for any purpose unrelated to the consummation of the transactions contemplated
by this Agreement and, if this Agreement is terminated, will hold all
information and documents obtained pursuant to this paragraph in confidence (as
provided in, and subject to the provisions of, the Confidentiality Agreement).
No investigation by either party of the business and affairs of the other shall
affect or be deemed to modify or waive any representation, warranty, covenant or
agreement in this Agreement, or the conditions to either party's obligation to
consummate the transactions contemplated by this Agreement.
6.06. ACQUISITION PROPOSALS. It shall not, and shall cause its
Subsidiaries and its and its Subsidiaries' officers, directors, agents, advisors
and affiliates not to, solicit or encourage inquiries or proposals with respect
to, or engage in any negotiations concerning, or provide any confidential
information to, or have any discussions with, any person relating to, any
Takeover Proposal. It shall immediately cease and cause to be terminated any
activities, discussions or negotiations conducted prior to the date of this
Agreement with any parties other than FBS or USBC, as applicable, with respect
to any of the foregoing. It shall promptly (within 24 hours) advise the other
party following the receipt by it of any Takeover Proposal and the substance
thereof (including the identity of the person making such Takeover Proposal),
and advise the other party of any developments with respect to such Takeover
Proposal immediately upon the occurrence thereof.
6.07. AFFILIATE AGREEMENTS. (a) Not later than the 15th day prior to the
mailing of the Joint Proxy Statement, (i) FBS shall deliver to USBC, a schedule
of each person that, to the best of its knowledge, is or
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is reasonably likely to be, as of the date of the FBS Meeting, deemed to be an
"affiliate" of it (each, an "FBS AFFILIATE") as that term is used in SEC
Accounting Series Releases 130 and 135; and (ii) USBC shall deliver to FBS, a
schedule of each person that, to the best of its knowledge, is or is reasonably
likely to be, as of the date of the USBC Meeting, deemed to be an "affiliate" of
it (each, a "USBC AFFILIATE") as that term is used in Rule 145 under the
Securities Act or SEC Accounting Series Releases 130 and 135.
(b) Each of USBC and FBS shall use its respective reasonable best efforts to
cause each person who may be deemed to be a USBC Affiliate or an FBS Affiliate,
as the case may be, to execute and deliver to USBC and FBS on or before the date
of mailing of the Joint Proxy Statement an agreement in the form attached hereto
as EXHIBIT C or EXHIBIT D, respectively.
6.08. TAKEOVER LAWS. No party shall take any action that would cause the
transactions contemplated by this Agreement and, in the case of FBS, the FBS
Option Agreement, and, in the case of USBC, the USBC Option Agreement, to be
subject to requirements imposed by any Takeover Law and each of them shall take
all necessary steps within its control to exempt (or ensure the continued
exemption of) the transactions contemplated by this Agreement and, in the case
of FBS, the FBS Option Agreement, and, in the case of USBC, the USBC Option
Agreement, from, or if necessary challenge the validity or applicability of, any
applicable Takeover Law, as now or hereafter in effect, including, without
limitation, Section 203 of the DGCL, Sections 60.801-60.816 and 60.825-60.845 of
the OBCA, or any other Takeover Laws that purport to apply to this Agreement,
the USBC Option Agreement, the FBS Option Agreement or the transactions
contemplated hereby or thereby.
6.09. NO RIGHTS TRIGGERED. Each of USBC and FBS shall take all reasonable
steps necessary to ensure that the entering into of this Agreement and, in the
case of FBS, the FBS Option Agreement, and, in the case of USBC, the USBC Option
Agreement, and the consummation of the transactions contemplated hereby and
thereby and any other action or combination of actions, or any other
transactions contemplated hereby and thereby, do not and will not result in the
grant of any rights to any person (i) under its articles or certificate of
incorporation or by-laws or (ii) under any material agreement to which it or any
of its Subsidiaries is a party (except as expressly contemplated by (A) the
mandatory provisions under its stock option plans or (B) the FBS Option
Agreement or the USBC Option Agreement, as applicable).
6.10. SHARES LISTED. In the case of FBS, FBS shall use its best efforts to
(i) list, prior to the Effective Date, on the NYSE, subject to official notice
of issuance, the shares of FBS Common Stock to be issued to the holders of USBC
Common Stock in the Merger and (ii) if the USBC Preferred Stock is quoted on
NASDAQ immediately prior to the Effective Time, prior to the Effective Date,
either (at FBS's discretion) list on the NYSE, subject to official notice of
issuance, or provide for the quotation on NASDAQ of the shares of New FBS
Preferred Stock to be issued to the holders of USBC Preferred Stock in the
Merger.
6.11. REGULATORY APPLICATIONS. (a) FBS and USBC and their respective
Subsidiaries shall cooperate and use their respective reasonable best efforts
(i) to prepare all documentation, to effect all filings and to obtain all
permits, consents, approvals and authorizations of all third parties and
Regulatory Authorities necessary to consummate the transactions contemplated by
this Agreement, including, without limitation, any such approvals or
authorizations required by the Federal Reserve Board, the OCC and, to the extent
necessary, the regulatory authorities of the States in which USBC and its
Subsidiaries operate, and (ii) to cause the Merger to be consummated as
expeditiously as reasonably practicable. Provided USBC has cooperated as
required above, FBS agrees to file the requisite applications to be filed by it
with the Federal Reserve, the OCC and, to the extent necessary, the regulatory
authorities of the States in which USBC and its Subsidiaries operate, as
promptly as reasonably practicable. Each of FBS and USBC shall have the right to
review in advance, and to the extent practicable each will consult with the
other, in each case subject to applicable laws relating to the exchange of
information, with respect to, all material written information submitted to any
third party or any Regulatory Authority in connection with the transactions
contemplated by this Agreement. In exercising the foregoing right, each of the
parties hereto agrees to act reasonably and as promptly as practicable. Each
party hereto agrees that it will consult with the other party hereto
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with respect to the obtaining of all material permits, consents, approvals and
authorizations of all third parties and Regulatory Authorities necessary or
advisable to consummate the transactions contemplated by this Agreement and each
party will keep the other party apprised of the status of material matters
relating to completion of the transactions contemplated hereby.
(b) Each party agrees, upon request, to furnish the other party with all
information concerning itself, its Subsidiaries, directors, officers and
stockholders and such other matters as may be reasonably necessary or advisable
in connection with any filing, notice or application made by or on behalf of
such other party or any of its Subsidiaries to any third party or Regulatory
Authority.
6.12. INDEMNIFICATION. (a) Following the Effective Date and without
limitation as to time, FBS shall indemnify, defend and hold harmless the present
and former directors and officers of USBC and its Subsidiaries (each, an
"INDEMNIFIED PARTY") against all costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
(collectively, "COSTS") incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated by
this Agreement) to the fullest extent that USBC is permitted to indemnify its
directors and officers under the laws of the State of Oregon, the USBC Articles
and USBC's by-laws as in effect on the date hereof (and FBS shall also advance
expenses (including expenses constituting Costs described in Section 6.12(e)) as
incurred to the fullest extent permitted under applicable law; PROVIDED that any
determination required to be made with respect to whether an officer's or
director's conduct complies with the standards set forth under Oregon law, the
USBC Articles and USBC's by-laws shall be made by independent counsel (which
shall not be counsel that provides material services to FBS) selected by FBS and
reasonably acceptable to such officer or director; and PROVIDED, FURTHER, that
in the absence of applicable Oregon judicial precedent to the contrary, such
counsel, in making such determination, shall presume such officer's or
director's conduct complied with such standard and FBS shall have the burden to
demonstrate that such officer's or director's conduct failed to comply with such
standard.
(b) For a period of three years from the Effective Time, FBS shall use its
best efforts to provide that portion of director's and officer's liability
insurance that serves to reimburse the present and former officers and directors
of USBC or any of its Subsidiaries (determined as of the Effective Time) (as
opposed to USBC) with respect to claims against such directors and officers
arising from facts or events which occurred before the Effective Time, which
insurance shall contain at least the same coverage and amounts, and contain
terms and conditions no less advantageous, as that coverage currently provided
by USBC; PROVIDED, HOWEVER, that in no event shall FBS be required to expend
more than 200 percent of the current amount expended by USBC (the "INSURANCE
AMOUNT") to maintain or procure such directors and officers insurance coverage;
PROVIDED, FURTHER, that if FBS is unable to maintain or obtain the insurance
called for by this Section 6.12(b), FBS shall use its reasonable best efforts to
obtain as much comparable insurance as is available for the Insurance Amount;
PROVIDED, FURTHER, that officers and directors of USBC or any Subsidiary may be
required to make application and provide customary representations and
warranties to FBS's insurance carrier for the purpose of obtaining such
insurance; and provided, further, that such coverage will have a single
aggregate for such three-year period in an amount not less than the annual
aggregate of such coverage currently provided by USBC.
(c) Any Indemnified Party wishing to claim indemnification under Section
6.12(a), upon learning of any claim, action, suit, proceeding or investigation
described above, shall promptly notify FBS thereof; PROVIDED that the failure so
to notify shall not affect the obligations of FBS under Section 6.12(a) unless
and to the extent such failure materially increases FBS's liability under such
subsection (a).
(d) If FBS or any of its successors or assigns shall consolidate with or
merge into any other entity and shall not be the continuing or surviving entity
of such consolidation or merger or shall transfer all or substantially all of
its assets to any entity, then and in each case, proper provision shall be made
so that the successors and assigns of FBS shall assume the obligations set forth
in this Section 6.12.
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(e) FBS shall pay all reasonable Costs, including attorneys' fees, that may
be incurred by any Indemnified Party in enforcing the indemnity and other
obligations provided for in this Section 6.12. The rights of each Indemnified
Party hereunder shall be in addition to any other rights such Indemnified Party
may have under applicable law.
6.13. SEVERANCE AND BENEFIT PLANS. (a) Until the transition to FBS's
benefit plans as set forth below, FBS shall cause the Surviving Corporation and
its Subsidiaries to provide employees of USBC and its Subsidiaries who become
employees of the Surviving Corporation and its Subsidiaries with compensation
and employee benefit plans, programs, arrangements and other perquisites
(including, but not limited to, "employee benefit plans" within the meaning of
section 3(3) of ERISA) ("EMPLOYEE BENEFIT PLANS") that are, in the aggregate,
substantially the same as the compensation and Employee Benefit Plans provided
to such individuals by USBC immediately prior to the Effective Date. Within two
years following the Effective Time, FBS shall cause the Surviving Corporation
and its Subsidiaries to provide USBC employees who are employees thereof with
compensation and Employee Benefit Plans that are substantially the same as the
compensation and Employee Benefit Plans provided to similarly situated employees
of the Surviving Corporation or its Subsidiaries who were not employees of USBC;
provided, however, FBS shall cause the Surviving Corporation and its
Subsidiaries to take into account any co-payments or deductibles under USBC's
health plans, as disclosed in USBC's Disclosure Schedule, and, with respect to
any person covered by USBC's health plans, not impose any pre-existing condition
exclusion to exclude from coverage any condition covered under USBC's health
plans, as disclosed in USBC's Disclosure Schedule. For the purpose of
determining eligibility to participate in Employee Benefit Plans, eligibility
for benefit forms and subsidies and the vesting of benefits under such Employee
Benefit Plans (including, but not limited to, any pension, severance, 401(k),
vacation and sick pay), and for purposes of accrual of benefits under any
severance, sick leave, vacation and other similar Employee Benefit Plans, FBS
shall give effect to years of service (and for purposes of qualified and
nonqualified pension plans, prior earnings) with USBC or its Subsidiaries, as
the case may be, as if they were with FBS or its Subsidiaries.
(b) Notwithstanding the foregoing, FBS shall, and shall cause its
Subsidiaries to, honor in accordance with their terms all benefits (including
retiree benefits, if any) that were vested as of the Effective Time under USBC's
Employee Benefit Plans or under other contracts, arrangements, commitments or
understandings described in USBC's Disclosure Schedule.
(c) Individuals who are employees of USBC or any of its Subsidiaries (other
than persons who have individual written employment agreements or change of
control agreements with USBC or its Subsidiaries as specified in paragraph
6.13(c) of USBC's Disclosure Schedule (the "CHANGE OF CONTROL AGREEMENTS"))
immediately prior to the Effective Time and whose employment is terminated
within two years after the Effective Time shall be entitled to receive cash
severance benefits in an amount equal to the greater of (i) the amount of cash
severance benefits, if any, to which they would have been entitled under USBC's
Employee Benefit Plans as in effect immediately prior to the Effective Time and
(ii) the amount of cash severance benefits, if any, to which they would have
been entitled under FBS's Employee Benefit Plans if they had been employees of
FBS (and not been employees of USBC) immediately prior to the Effective Time and
through the time of such termination; provided, that payment of this amount
shall be in complete settlement of any amounts to which such employees would
have been entitled under USBC's Employee Benefit Plans and FBS's Employee
Benefit Plans. In computing the benefits payable pursuant to this Section
6.13(c), service with USBC and its Subsidiaries shall be treated as service with
FBS and its Subsidiaries. For purposes of clause (ii) of the first sentence of
this Section 6.13(c), (x) prior to the Effective Time USBC and FBS shall
negotiate in good faith and mutually determine how to allocate different
categories and levels of USBC employees among FBS's existing employment
categories and levels, (y) severance payments shall be made using such
procedures, and payable at such times, as reasonably determined by FBS in
consultation with USBC, which procedures and times need not be identical to
those provided for in either USBC's existing severance plans or in FBS's
existing severance plans but in no way will such procedures have a material
adverse impact on the rights of any such USBC employee, and (z) the events
giving rise to entitlement to cash severance benefits shall be based on the
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occurrence of a "Partial Change of Control" (and not a "Change of Control")
within the meaning of FBS's severance plans. The Change of Control Agreements
(other than the agreements of Messrs. Cameron, Sznewajs and Duim, who are
separately entering into agreements with FBS) shall remain in full force and
effect except that FBS agrees that any of such agreements providing for
severance benefits of two-times base salary and bonus and two years of benefits
continuation and pension credit shall, at the Effective Time, be deemed amended
to provide severance benefits of three times base salary and bonus, three years
of benefits continuation and five years of pension credit.
(d) Nothing in this Section 6.13 shall be interpreted as preventing FBS or
its Subsidiaries from amending, modifying or terminating any Employee Benefit
Plans or other contracts arrangements, commitments or understandings, in
accordance with their terms and applicable law.
(e) It is the express understanding and intention of USBC and FBS that no
employee of USBC or FBS or other person shall be deemed to be a third party
beneficiary, or have or acquire any right to enforce the provisions of this
Section 6.13, and that nothing in this Agreement shall be deemed to constitute
an Employee Benefit Plan or an amendment to an Employee Benefit Plan.
6.14. ACCOUNTANTS' LETTERS. Each of USBC and FBS shall use its best
efforts to cause to be delivered to the other party, and such other party's
directors and officers who sign the Registration Statement, a letter of Deloitte
& Touche LLP and Ernst & Young LLP, respectively, independent auditors, dated
(i) the date on which the Registration Statement shall become effective and (ii)
a date shortly prior to the Effective Date, and addressed to such other party,
and such directors and officers, in form and substance customary for "comfort"
letters delivered by independent accountants in accordance with Statement of
Accounting Standards No. 72.
6.15. CERTAIN DIRECTOR AND OFFICER POSITIONS. (a) Subject to Section
6.15(c), FBS agrees to cause all of the members of the USBC Board on the date
hereof who are still members of the USBC Board immediately prior to the
Effective Time and willing so to serve ("FORMER USBC DIRECTORS") to be elected
or appointed as directors of FBS at, or as promptly as practicable after, the
Effective Time (such appointment or election of Former USBC Directors to be as
evenly distributed as possible among the classes of FBS directors). It is the
intention of the parties that the size of the board of directors of the
Surviving Corporation be substantially reduced as of the first annual meeting of
stockholders of the Surviving Corporation following the Effective Time but that,
in connection with such reduction, and thereafter until at least the third
annual meeting of stockholders of the Surviving Corporation following the
Effective Time, the Former USBC Directors constitute in the aggregate between
40% and 45% of the total number of directors of the Surviving Corporation then
in office.
(b) At the Effective Time, (i) Gerry B. Cameron shall be Chairman of the FBS
Board for a term extending through December 31, 1998 and John F. Grundhofer
shall continue to be President and Chief Executive Officer of FBS and (ii) Gary
T. Duim and Robert D. Sznewajs shall each be a Vice Chairman of FBS.
(c) FBS shall use all reasonable efforts to solicit the affirmative vote of
the holders of at least 80% of the outstanding FBS Common Stock entitled to vote
thereon at the FBS Meeting with respect to approval of the Board Size Amendment.
In the event such approval is not obtained at the FBS Meeting, the parties agree
that, notwithstanding the provisions of Section 6.15(a), FBS shall appoint or
elect to the FBS Board the maximum number of Former USBC Directors (and in no
event fewer than 10 Former USBC Directors) as would result in there being 24 FBS
directors and FBS agrees to appoint the remaining Former USBC Director (as
selected by the Chief Executive Officer of USBC) as an advisory director of the
FBS Board entitled to fully participate at all FBS Board meetings to the fullest
extent permitted by applicable law. FBS shall provide the advisory director with
compensation, benefits and indemnification as if such person were a full member
of the FBS Board. The parties agree that the Merger shall not be conditioned
upon approval of the Board Size Amendment, and if such approval is not obtained
at the FBS
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Meeting, the FBS Certificate as amended at the Effective Time, shall not include
the Board Size Amendment.
6.16. CHARITABLE CONTRIBUTIONS. Following the Effective Date, FBS shall
maintain the aggregate level of charitable contributions historically maintained
by USBC in USBC markets.
6.17. COORDINATION OF DIVIDENDS. Until the Effective Time, USBC and FBS
shall coordinate with the other the declaration of any dividends or other
distributions with respect to the USBC Common Stock and the FBS Common Stock and
the record dates and payment dates relating thereto, it being the intention of
the parties that holders of shares of USBC Common Stock or FBS Common Stock
shall not receive more than one dividend, or fail to receive one dividend, for
any single calendar quarter on their shares of USBC Common Stock (including any
shares of FBS Common Stock received in exchange therefor in the Merger) or FBS
Common Stock, as the case may be.
6.18. NOTIFICATION OF CERTAIN MATTERS. Each of USBC and FBS shall give
prompt notice to the other of any fact, event or circumstance known to it that
(i) is reasonably likely, individually or taken together with all other facts,
events and circumstances known to it, to result in any Material Adverse Effect
with respect to it or (ii) would cause or constitute a material breach of any of
its representations, warranties, covenants or agreements contained herein.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of each of the parties to consummate the Merger is
conditioned upon the satisfaction at or prior to the Effective Time of each of
the following:
7.01. STOCKHOLDER VOTE. Approval and adoption of this Agreement (subject
to Section 8.03) and the Merger by the requisite vote of the stockholders of
USBC and approval and adoption of this Agreement (subject to Section 8.03) and
the Merger (including the issuance of shares of FBS Common Stock to be issued in
the Merger pursuant to this Agreement) by the requisite vote of the stockholders
of FBS.
7.02. REGULATORY APPROVALS. All regulatory approvals required to
consummate the transactions contemplated hereby, including, without limitation,
those specified in Section 5.03(r), shall have been obtained and shall remain in
full force and effect and all statutory waiting periods in respect thereof shall
have expired and no such approvals shall contain any conditions or restrictions
which either the FBS Board or the USBC Board reasonably determines in good faith
would, following the Effective Time, have a Material Adverse Effect on the
Surviving Corporation and its Subsidiaries taken as a whole.
7.03. THIRD PARTY CONSENTS. All consents or approvals of all persons
(other than Regulatory Authorities) required for the consummation of the Merger
shall have been obtained and shall be in full force and effect, unless the
failure to obtain any such consent or approval is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on USBC or FBS.
7.04. NO INJUNCTION, ETC. No order, decree or injunction of any court or
agency of competent jurisdiction shall be in effect, and no law, statute or
regulation shall have been enacted or adopted, that enjoins, prohibits or makes
illegal the consummation of any of the transactions contemplated hereby.
7.05. ACCOUNTING TREATMENT. In the case of FBS's obligations, FBS shall
have received from Ernst & Young LLP, independent auditors for FBS, letters,
dated the date of or shortly prior to each of the mailing date of the Joint
Proxy Statement and the Effective Date, stating its opinion that the Merger
shall qualify for pooling-of-interests accounting treatment.
7.06. REPRESENTATIONS, WARRANTIES AND COVENANTS OF FBS. In the case of
USBC's obligations: (a) each of the representations and warranties contained
herein of FBS shall be true and correct as of the date of this Agreement and
upon the Effective Date with the same effect as though all such representations
and warranties had been made on the Effective Date, except for any such
representations and warranties made
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as of a specified date, which shall be true and correct as of such date, in each
case subject to the standard set forth in Section 5.02, (b) each and all of the
agreements and covenants of FBS to be performed and complied with pursuant to
this Agreement on or prior to the Effective Date shall have been duly performed
and complied with in all respects (except to the extent that any failure so to
comply would not be reasonably likely, individually or in the aggregate, to
result in a Material Adverse Effect with respect to FBS), and (c) USBC shall
have received a certificate signed by the Chief Financial Officer of FBS, dated
the Effective Date, to the effect set forth in clauses (a) and (b) of this
Section 7.06.
7.07. REPRESENTATIONS, WARRANTIES AND COVENANTS OF USBC. In the case of
FBS's obligations: (a) each of the representations and warranties contained
herein of USBC shall be true and correct as of the date of this Agreement and
upon the Effective Date with the same effect as though all such representations
and warranties had been made on the Effective Date, except for any such
representations and warranties made as of a specified date, which shall be true
and correct as of such date, in each case subject to the standard set forth in
Section 5.02, (b) each and all of the agreements and covenants of USBC to be
performed and complied with pursuant to this Agreement on or prior to the
Effective Date shall have been duly performed and complied with in all respects
(except to the extent that any failure so to comply would not be reasonably
likely, individually or in the aggregate, to result in a Material Adverse Effect
with respect to USBC), and (c) FBS shall have received a certificate signed by
the Chief Financial Officer of USBC, dated the Effective Date, to the effect set
forth in clauses (a) and (b) of this Section 7.07.
7.08. EFFECTIVE REGISTRATION STATEMENT. The Registration Statement shall
have become effective and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC or any other
Regulatory Authority.
7.09. TAX OPINION. USBC shall have received an opinion from Wachtell,
Lipton, Rosen & Katz, and FBS shall have received an opinion from Cleary,
Gottlieb, Steen & Hamilton, tax counsel to USBC and FBS, respectively, each
dated as of the Effective Time, substantially to the effect that, on the basis
of the facts, representations and assumptions set forth in such opinions which
are consistent with the state of facts existing at the Effective Time, the
Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and that accordingly:
(i) No gain or loss will be recognized by FBS or USBC as a result of the
Merger;
(ii) No gain or loss will be recognized by the stockholders of USBC who
exchange their USBC Stock solely for FBS Stock pursuant to the Merger
(except with respect to cash received in lieu of a fractional share interest
in FBS Stock); and
(iii) The tax basis of the FBS Stock received by stockholders who
exchange all of their USBC Stock solely for FBS Stock in the Merger will be
the same as the tax basis of the USBC Stock surrendered in exchange
therefor.
In rendering such opinion, such counsel may require and rely upon
representations and covenants including those contained in certificates of
officers of FBS, USBC and others.
7.10. CERTIFICATE OF DESIGNATIONS. The Certificate of Designations shall
have been filed in accordance with Section 151 of the DGCL.
7.11. NYSE LISTING. The shares of FBS Common Stock issuable pursuant to
this Agreement shall have been approved for listing on the NYSE, subject to
official notice of issuance, and, subject to Section 6.10, the shares of New FBS
Preferred Stock issuable pursuant to this Agreement shall either have been
approved for listing on the NYSE or approved for trading on NASDAQ, in either
case subject to official notice of issuance.
It is specifically provided, however, that a failure to satisfy any of the
conditions set forth in Sections 7.05 and 7.07 shall only constitute conditions
if asserted by FBS, and a failure to satisfy any of the conditions set forth in
Section 7.06 shall only constitute conditions if asserted by USBC.
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ARTICLE VIII
TERMINATION
8.01. TERMINATION. This Agreement may be terminated, and the Merger
may be abandoned:
(a) MUTUAL CONSENT. At any time prior to the Effective Time, by the
mutual consent of FBS and USBC, if the Board of Directors of each so
determines by vote of a majority of the members of its entire Board.
(b) BREACH. At any time prior to the Effective Time, by FBS or USBC,
if its Board of Directors so determines by vote of a majority of the members
of its entire Board, in the event of either: (i) a breach by the other party
of any representation or warranty contained herein (subject to the standard
set forth in Section 5.02), which breach cannot be or has not been cured
within 30 days after the giving of written notice to the breaching party of
such breach; or (ii) a breach by the other party of any of the covenants or
agreements contained herein, which breach cannot be or has not been cured
within 30 days after the giving of written notice to the breaching party of
such breach and which breach would be reasonably likely, individually or in
the aggregate, to result in a Material Adverse Effect with respect to the
breaching party.
(c) DELAY. At any time prior to the Effective Time, by FBS or USBC, if
its Board of Directors so determines by vote of a majority of the members of
its entire Board, in the event that the Merger is not consummated by March
31, 1998, except to the extent that the failure of the Merger then to be
consummated arises out of or results from the knowing action or inaction of
the party seeking to terminate pursuant to this Section 8.01(c).
(d) NO APPROVAL. By USBC or FBS, if its Board of Directors so
determines by a vote of a majority of the members of its entire Board, in
the event (i) the approval of the Federal Reserve Board or any other
Regulatory Authority required for consummation of the Merger and the other
transactions contemplated by the Merger shall have been denied by final
nonappealable action of such Regulatory Authority or (ii) any stockholder
approval required by Section 7.01 herein is not obtained at the USBC Meeting
or the FBS Meeting.
(e) FAILURE TO RECOMMEND, ETC. At any time prior to the USBC Meeting,
by FBS if the USBC Board shall have failed to make its recommendation
referred to in Section 6.02, withdrawn such recommendation or modified or
changed such recommendation in a manner adverse to the interests of FBS; or
at any time prior to the FBS Meeting, by USBC if the FBS Board shall have
failed to make its recommendation referred to in Section 6.02, withdrawn
such recommendation or modified or changed such recommendation in a manner
adverse to the interests of USBC.
(f) STOCK OPTION AGREEMENTS. (i) By FBS, at any time after 6:00 a.m.
New York City time on March 20, 1997, if the USBC Option Agreement shall not
have been executed and delivered by USBC to FBS prior to such termination or
(ii) by USBC, at any time after 6:00 a.m. New York City time on March 20,
1997, if the FBS Option Agreement shall not have been executed and delivered
by FBS to USBC prior to such termination.
8.02. EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination
of this Agreement and the abandonment of the Merger pursuant to this Article
VIII, no party to this Agreement shall have any liability or further obligation
to any other party hereunder except (i) as set forth in Sections 8.03 and 9.01
and (ii) that termination will not relieve a breaching party from liability for
any willful breach of this Agreement giving rise to such termination; PROVIDED,
HOWEVER, that any termination shall not affect the USBC Option Agreement or the
FBS Option Agreement.
8.03. TERMINATION EXPENSES. (a) In the event of termination of this
Agreement and the abandonment of the Merger at any time (i) by FBS pursuant to
Sections 8.01(b), 8.01(e) or 8.01(f)(i) or (ii) by USBC or FBS pursuant to
Section 8.01(d)(ii) as a result of the failure to receive the stockholder
approval
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at the USBC Meeting contemplated by Section 7.01, and in order to compensate FBS
for the expenses associated with the negotiation of this Agreement and the other
matters contemplated hereby, USBC shall, within one business day following such
termination, pay FBS a fee of $20,000,000 in immediately available funds. FBS's
right to receive such fee, and ability to enforce the provisions of this Section
8.03(a), shall not be subject to approval by the stockholders of USBC or FBS.
(b) In the event of termination of this Agreement and the abandonment of the
Merger at any time (i) by USBC pursuant to Sections 8.01(b), 8.01(e) or
8.01(f)(ii) or (ii) by FBS or USBC pursuant to Section 8.01(d)(ii) as a result
of the failure to receive the stockholder approval at the FBS Meeting
contemplated by Section 7.01, and in order to compensate USBC for the expenses
associated with the negotiation of this Agreement and the other matters
contemplated hereby, FBS shall, within one business day following such
termination, pay USBC a fee of $20,000,000 in immediately available funds.
USBC's right to receive such fee, and ability to enforce the provisions of this
Section 8.03(b), shall not be subject to approval by the stockholders of FBS or
USBC.
ARTICLE IX
MISCELLANEOUS
9.01. SURVIVAL. All representations, warranties, agreements and covenants
contained in this Agreement shall not survive the Effective Time or termination
of this Agreement if this Agreement is terminated prior to the Effective Time;
PROVIDED, HOWEVER, if the Effective Time occurs, the agreements of the parties
in Sections 6.12, 6.13, 6.15 and Article IX and in the Confidentiality Agreement
shall survive the Effective Time, and if this Agreement is terminated prior to
the Effective Time, the agreements of the parties in Sections 6.05(b), 8.02,
8.03 and Article IX and in the Confidentiality Agreement shall survive such
termination.
9.02. WAIVER; AMENDMENT. Prior to the Effective Time, any provision of
this Agreement may be (i) waived by the party benefited by the provision, or
(ii) amended or modified at any time, by an agreement in writing between the
parties hereto approved by their respective Boards of Directors and executed in
the same manner as this Agreement, except that, after the USBC Meeting the
consideration to be received by the stockholders of USBC for each share of USBC
Stock shall not thereby be decreased.
9.03. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
9.04. GOVERNING LAW. This Agreement shall be governed by, and interpreted
in accordance with, the laws of the State of New York, without regard to the
conflict of law principles thereof (except to the extent that mandatory
provisions of Federal law or of the corporation laws of the State of Oregon with
respect to USBC or of the State of Delaware with respect to FBS are applicable).
9.05. EXPENSES. Subject to Section 8.03, each party hereto will bear all
expenses incurred by it in connection with this Agreement and the transactions
contemplated hereby, except that printing expenses and SEC registration fees
shall be shared equally between USBC and FBS.
9.06. NOTICES. All notices, requests and other communications hereunder to
a party shall be in writing and shall be deemed given if personally delivered,
telecopied (with confirmation) or mailed by registered or certified mail (return
receipt requested) to such party at its address set forth below or such other
address as such party may specify by notice to the parties hereto.
If to USBC, to:
U.S. Bancorp
111 S.W. Fifth Avenue, T-31
Portland, Oregon 97204
Attention: Dwight V. Board, Esq.
Fax: (503) 275-3706
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With a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Edward D. Herlihy, Esq.
Fax: (212) 403-2000
If to FBS, to:
First Bank System, Inc.
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Lee R. Mitau, Esq.
Fax: (612) 973-4333
With copies to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Victor I. Lewkow, Esq.
Fax: (212) 225-3999
and
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: H. Rodgin Cohen, Esq.
Fax: (212) 558-3588
9.07. ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Agreement,
the USBC Option Agreement, the FBS Option Agreement and the Confidentiality
Agreement represent the entire understanding of the parties hereto with
reference to the transactions contemplated hereby and thereby and this Agreement
supersedes any and all other oral or written agreements (other than the USBC
Option Agreement, the FBS Option Agreement and the Confidentiality Agreement)
heretofore made. Except for Sections 6.12 and 6.15, nothing in this Agreement
expressed or implied, is intended to confer upon any person, other than the
parties hereto or their respective successors, any rights, remedies, obligations
or liabilities under or by reason of this Agreement.
9.08. INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of, or
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and are not part of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." No provision of this Agreement shall
be construed to require USBC, FBS or any of their respective Subsidiaries or
affiliates to take any action which would violate applicable law (whether
statutory or common law), rule or regulation.
* * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
U.S. BANCORP
By: /s/ GERRY B. CAMERON
-----------------------------------------
Name: Gerry B. Cameron
Title: Chairman of the Board, Chief
Executive Officer and President
FIRST BANK SYSTEM, INC.
By: /s/ JOHN F. GRUNDHOFER
-----------------------------------------
Name: John F. Grundhofer
Title: Chairman, President
and Chief Executive Officer
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APPENDIX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of March 20, 1997, between FIRST BANK
SYSTEM, INC., a Delaware corporation ("Grantee"), and U.S. BANCORP., an Oregon
corporation ("Issuer").
W I T N E S S E T H:
WHEREAS, on March 19, 1997, Grantee and Issuer entered into an Agreement and
Plan of Merger (the "Merger Agreement");
WHEREAS, as a condition and inducement to Grantee's execution of the Merger
Agreement and pursuit of the transactions contemplated thereby and in
consideration therefor and in consideration of the grant of the Reciprocal
Option (as hereinafter defined), Issuer has agreed to grant Grantee the Option
(as hereinafter defined); and
WHEREAS, the Board of Directors of Issuer has approved the grant of the
Option and the Merger Agreement prior to the date hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, in the Reciprocal Option and in the Merger
Agreement, the parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to an aggregate of
29,463,624 fully paid and nonassessable shares of the common stock, $5.00 par
value per share, of Issuer ("Common Stock") at a price per share equal to the
last reported sale price per share of Common Stock as reported on the NASDAQ
National Market System on March 18, 1997; PROVIDED, HOWEVER, that in the event
Issuer issues or agrees to issue any shares of Common Stock at a price less than
such last reported sale price per share (as adjusted pursuant to subsection (b)
of Section 5) other than as permitted by the Merger Agreement, such price shall
be equal to such lesser price (such price, as adjusted if applicable, the
"Option Price"); PROVIDED, FURTHER, that in no event shall the number of shares
for which this Option is exercisable exceed 19.9% of the issued and outstanding
shares of Common Stock. The number of shares of Common Stock that may be
received upon the exercise of the Option and the Option Price is subject to
adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement and other than pursuant to an event described in
Section 5(a) hereof), the number of shares of Common Stock subject to the Option
shall be increased so that, after such issuance, such number together with any
shares of Common Stock previously issued pursuant hereto, equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing contained
in this Section 1(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer or Grantee to breach any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in whole
or part, if, but only if, both an Initial Triggering Event (as hereinafter
defined) and a Subsequent Triggering Event (as hereinafter defined) shall have
occurred prior to the occurrence of an Exercise Termination Event (as
hereinafter defined), PROVIDED that the Holder shall have sent the written
notice of such exercise (as provided in subsection (f) of this Section 2) within
six (6) months following such Subsequent Triggering Event (or such later period
as provided in Section 10). Each of the following shall be an Exercise
Termination Event: (i) the Effective Time of the Merger; (ii) termination of the
Merger Agreement in accordance with the provisions thereof if such termination
occurs prior to the occurrence of an Initial Triggering Event except a
termination by Grantee pursuant to Section 8.01(b) of the Merger Agreement; or
(iii) the passage of eighteen (18) months (or such longer period as provided in
Section 10) after termination of the Merger
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Agreement if such termination is concurrent with or follows the occurrence of an
Initial Triggering Event or is a termination pursuant to Section 8.01(b) of the
Merger Agreement; (iv) the date on which the shareholders of the Grantee shall
have voted and failed to approve and adopt the Merger Agreement and the Merger
(unless (A) Issuer shall then be in material breach of its covenants or
agreements contained in the Merger Agreement or (B) on or prior to such date,
the shareholders of Issuer shall have also voted and failed to approve and adopt
the Merger Agreement and the Merger); or (v) the date on which the Reciprocal
Option shall have become exercisable in accordance with its terms if it shall
become exercisable prior to a Subsequent Triggering Event. The term "Holder"
shall mean the holder or holders of the Option. Notwithstanding anything to the
contrary contained herein, (i) the Option may not be exercised at any time when
Grantee shall be in material breach of any of its covenants or agreements
contained in the Merger Agreement such that Issuer shall be entitled to
terminate the Merger Agreement pursuant to Section 8.01(b) thereof and (ii) this
Agreement shall automatically terminate upon the termination of the Merger
Agreement by Issuer pursuant to Section 8.01(b) thereof as a result of the
material breach by Grantee of its covenants or agreements contained in the
Merger Agreement.
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring on or after the date hereof:
(i) Issuer or any of its Subsidiaries (as hereinafter defined) (each an
"Issuer Subsidiary"), without having received Grantee's prior written
consent, shall have entered into an agreement to engage in an Acquisition
Transaction (as hereinafter defined) with any person (the term "person" for
purposes of this Agreement having the meaning assigned thereto in Sections
3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), and the rules and regulations thereunder) other than Grantee or
any of its Subsidiaries (each a "Grantee Subsidiary") or the Board of
Directors of Issuer (the "Issuer Board") shall have recommended that the
shareholders of Issuer approve or accept any Acquisition Transaction other
than as contemplated by the Merger Agreement or this Agreement. For purposes
of this Agreement, (a) "Acquisition Transaction" shall mean (x) a merger or
consolidation, or any similar transaction, involving Issuer or any
Significant Subsidiary (as defined in Rule 1-02 of Regulation S-X
promulgated by the Securities and Exchange Commission (the "SEC")) of Issuer
(other than mergers, consolidations or similar transactions involving solely
Issuer and/or one or more wholly-owned Issuer Subsidiaries, PROVIDED, any
such transaction is not entered into in violation of the terms of the Merger
Agreement), (y) a purchase, lease or other acquisition of all or
substantially all of the assets or deposits of Issuer or any Significant
Subsidiary of Issuer, or (z) a purchase or other acquisition (including by
way of merger, consolidation, share exchange or otherwise) of securities
representing 10% or more of the voting power of Issuer or any Significant
Subsidiary of Issuer (except that in the case of the Trust Group of Issuer
in its fiduciary capacity for various beneficiaries, including participants
in Issuer's Employee Investment Plan (the "Trust Group"), such percentage
shall be 15%) and (b) "Subsidiary" shall have the meaning set forth in Rule
12b-2 under the 1934 Act;
(ii) Any person other than the Trust Group, Grantee or any Grantee
Subsidiary shall have acquired beneficial ownership or the right to acquire
beneficial ownership of 10% or more of the outstanding shares of Common
Stock or the Trust Group shall have acquired 15% or more of the outstanding
shares of Common Stock (the term "beneficial ownership" for purposes of this
Agreement having the meaning assigned thereto in Section 13(d) of the 1934
Act, and the rules and regulations thereunder);
(iii) The shareholders of Issuer shall have voted and failed to approve
the Merger Agreement and the Merger at a meeting which has been held for
that purpose or any adjournment or postponement thereof, or such meeting
shall not have been held in violation of the Merger Agreement or shall have
been cancelled prior to termination of the Merger Agreement if, prior to
such meeting (or if such meeting shall not have been held or shall have been
cancelled, prior to such termination), it shall
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have been publicly announced that any person (other than Grantee or any of
its Subsidiaries) shall have made, or disclosed an intention to make, a
proposal to engage in an Acquisition Transaction;
(iv) The Issuer Board shall have withdrawn or modified (or publicly
announced its intention to withdraw or modify) in any manner adverse to
Grantee its recommendation that the shareholders of Issuer approve the
transactions contemplated by the Merger Agreement, or Issuer or any Issuer
Subsidiary, without having received Grantee's prior written consent, shall
have authorized, recommended, proposed (or publicly announced its intention
to authorize, recommend or propose) an agreement to engage in an Acquisition
Transaction with any person other than Grantee or a Grantee Subsidiary;
(v) Any person other than Grantee or any Grantee Subsidiary shall have
made a proposal to Issuer or its shareholders to engage in an Acquisition
Transaction and such proposal shall have been publicly announced;
(vi) Any person other than Grantee or any Grantee Subsidiary shall have
filed with the SEC a registration statement with respect to a potential
exchange offer that would constitute an Acquisition Transaction (or filed a
preliminary proxy statement with the SEC with respect to a potential vote by
its shareholders to approve the issuance of shares to be offered in such an
exchange offer);
(vii) Issuer shall have willfully breached any covenant or obligation
contained in the Merger Agreement in anticipation of engaging in an
Acquisition Transaction, and following such breach Grantee would be entitled
to terminate the Merger Agreement (whether immediately or after the giving
of notice or passage of time or both); or
(viii) Any person other than Grantee or any Grantee Subsidiary, other than
in connection with a transaction to which Grantee has given its prior
written consent, shall have filed an application or notice with the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") or
other federal or state bank regulatory or antitrust authority, which
application or notice has been accepted for processing, for approval to
engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) The acquisition by any person (other than Grantee or any Grantee
Subsidiary) of beneficial ownership of 20% or more of the then outstanding
Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in clause
(i) of subsection (b) of this Section 2, except that the percentage referred
to in clause (z) of the second sentence thereof shall be 20%.
(d) The term "Reciprocal Option" shall mean the option granted pursuant to
the option agreement dated the date hereof between the Grantee, as issuer of
such option, and Issuer, as grantee of such option.
(e) Issuer shall notify Grantee promptly in writing of the occurrence of any
Initial Triggering Event or Subsequent Triggering Event (together, a "Triggering
Event"), it being understood that the giving of such notice by Issuer shall not
be a condition to the right of the Holder to exercise the Option.
(f) In the event the Holder is entitled to and wishes to exercise the Option
(or any portion thereof), it shall send to Issuer a written notice (the date of
which being herein referred to as the "Notice Date") specifying (i) the total
number of shares it will purchase pursuant to such exercise and (ii) a place and
date not earlier than three business days nor later than 60 business days from
the Notice Date for the closing of such purchase (the "Closing Date"); PROVIDED,
that if prior notification to or approval of the Federal Reserve Board or any
other regulatory or antitrust agency is required in connection with such
purchase, the Holder shall promptly file the required notice or application for
approval, shall promptly notify Issuer of such filing, and shall expeditiously
process the same and the period of time that otherwise would run
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pursuant to this sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have been
obtained and any requisite waiting period or periods shall have passed. Any
exercise of the Option shall be deemed to occur on the Notice Date relating
thereto.
(g) At the closing referred to in subsection (f) of this Section 2, the
Holder shall (i) pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Issuer,
PROVIDED that failure or refusal of Issuer to designate such a bank account
shall not preclude the Holder from exercising the Option and (ii) present and
surrender this Agreement to Issuer at its principal executive offices.
(h) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (g) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder.
(i) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder hereof
and Issuer and to resale restrictions arising under the Securities Act of
1933, as amended. A copy of such agreement is on file at the principal
office of Issuer and will be provided to the holder hereof without charge
upon receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act") in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions of this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference in the opinion of Counsel to the Holder;
and (iii) the legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
(j) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (f) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 2 in the name of the
Holder or its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to
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be observed or performed hereunder by Issuer; (iii) promptly to take all action
as may from time to time be required (including (x) complying with all
applicable premerger notification, reporting and waiting period requirements
specified in 15 U.S.C. Section 18a and regulations promulgated thereunder and
(y) in the event, under the Bank Holding Company Act of 1956, as amended (the
"BHCA"), or the Change in Bank Control Act of 1978, as amended, or any state or
other federal banking law, prior approval of or notice to the Federal Reserve
Board or to any state or other federal regulatory authority is necessary before
the Option may be exercised, cooperating fully with the Holder in preparing such
applications or notices and providing such information to the Federal Reserve
Board or such state or other federal regulatory authority as they may require)
in order to permit the Holder to exercise the Option and Issuer duly and
effectively to issue shares of Common Stock pursuant hereto; and (iv) promptly
to take all action provided herein to protect the rights of the Holder against
dilution.
4. This Agreement (and the Option granted hereby) are exchangeable, without
expense, at the option of the Holder, upon presentation and surrender of this
Agreement at the principal office of Issuer, for other Agreements providing for
Options of different denominations entitling the holder thereof to purchase, on
the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Agreements and
related Options for which this Agreement (and the Option granted hereby) may be
exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Agreement, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Agreement, if mutilated, Issuer will
execute and deliver a new Agreement of like tenor and date. Any such new
Agreement executed and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not the Agreement so lost, stolen,
destroyed or mutilated shall at any time be enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option and the Option Price shall be subject to adjustment from time to time
as provided in this Section 5.
(a) In the event of any change in, or distributions in respect of, the
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of shares
or the like, the type and number of shares of Common Stock purchasable upon
exercise hereof shall be appropriately adjusted and proper provision shall be
made so that, in the event that any additional shares of Common Stock are to be
issued or otherwise become outstanding as a result of any such change (other
than pursuant to an exercise of the Option), the number of shares of Common
Stock that remain subject to the Option shall be increased so that, after such
issuance and together with shares of Common Stock previously issued pursuant to
the exercise of the Option (as adjusted on account of any of the foregoing
changes in the Common Stock), it equals 19.9% of the number of shares of Common
Stock then issued and outstanding.
(b) Whenever the number of shares of Common Stock purchasable upon exercise
hereof is adjusted as provided in this Section 5, the Option Price shall be
adjusted by multiplying the Option Price by a fraction, the numerator of which
shall be equal to the number of shares of Common Stock purchasable prior to the
adjustment and the denominator of which shall be equal to the number of shares
of Common Stock purchasable after the adjustment.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior to
an Exercise Termination Event, Issuer shall, at the request of Grantee delivered
within twelve (12) months (or such later period as provided in Section 10) of
such Subsequent Triggering Event (whether on its own behalf or on behalf of any
subsequent holder of this Option (or part thereof) or any of the shares of
Common Stock issued pursuant hereto), promptly prepare, file and keep current a
registration statement under the 1933 Act
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covering any shares issued and issuable pursuant to this Option and shall use
its reasonable best efforts to cause such registration statement to become
effective and remain current in order to permit the sale or other disposition of
any shares of Common Stock issued upon total or partial exercise of this Option
("Option Shares") in accordance with any plan of disposition requested by
Grantee. Issuer will use its reasonable best efforts to cause such registration
statement promptly to become effective and then to remain effective for such
period not in excess of 180 days from the day such registration statement first
becomes effective or such shorter time as may be reasonably necessary to effect
such sales or other dispositions. Grantee shall have the right to demand two
such registrations. The Issuer shall bear the costs of such registrations
(including, but not limited to, Issuer's attorneys' fees, printing costs and
filing fees, except for underwriting discounts or commissions, brokers' fees and
the fees and disbursements of Grantee's counsel related thereto). The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
Option Shares as provided above, Issuer is in registration with respect to an
underwritten public offering by Issuer of shares of Common Stock, and if in the
good faith judgment of the managing underwriter or managing underwriters, or, if
none, the sole underwriter or underwriters, of such offering the inclusion of
the Option Shares would interfere with the successful marketing of the shares of
Common Stock offered by Issuer, the number of Option Shares otherwise to be
covered in the registration statement contemplated hereby may be reduced;
PROVIDED, HOWEVER, that after any such required reduction the number of Option
Shares to be included in such offering for the account of the Holder shall
constitute at least 25% of the total number of shares to be sold by the Holder
and Issuer in the aggregate; and PROVIDED FURTHER, HOWEVER, that if such
reduction occurs, then Issuer shall file a registration statement for the
balance as promptly as practicable thereafter as to which no reduction pursuant
to this Section 6 shall be permitted or occur and the Holder shall thereafter be
entitled to one additional registration and the twelve (12) month period
referred to in the first sentence of this section shall be increased to
twenty-four (24) months. Each such Holder shall provide all information
reasonably requested by Issuer for inclusion in any registration statement to be
filed hereunder. If requested by any such Holder in connection with such
registration, Issuer shall become a party to any underwriting agreement relating
to the sale of such shares, but only to the extent of obligating itself in
respect of representations, warranties, indemnities and other agreements
customarily included in such underwriting agreements for Issuer. Upon receiving
any request under this Section 6 from any Holder, Issuer agrees to send a copy
thereof to any other person known to Issuer to be entitled to registration
rights under this Section 6, in each case by promptly mailing the same, postage
prepaid, to the address of record of the persons entitled to receive such
copies. Notwithstanding anything to the contrary contained herein, in no event
shall the number of registrations that Issuer is obligated to effect be
increased by reason of the fact that there shall be more than one Holder as a
result of any assignment or division of this Agreement.
7. (a) At any time after the occurrence of a Repurchase Event (as defined
below) (i) at the request of the Holder, delivered prior to an Exercise
Termination Event (or such later period as provided in Section 10), Issuer (or
any successor thereto) shall repurchase the Option from the Holder at a price
(the "Option Repurchase Price") equal to the amount by which (A) the
market/offer price (as defined below) exceeds (B) the Option Price, multiplied
by the number of shares for which this Option may then be exercised and (ii) at
the request of the owner of Option Shares from time to time (the "Owner"),
delivered prior to an Exercise Termination Event (or such later period as
provided in Section 10), Issuer (or any successor thereto) shall repurchase such
number of the Option Shares from the Owner as the Owner shall designate at a
price (the "Option Share Repurchase Price") equal to the market/offer price
multiplied by the number of Option Shares so designated. The term "market/offer
price" shall mean the highest of (i) the price per share of Common Stock at
which a tender or exchange offer therefor has been made, (ii) the price per
share of Common Stock to be paid by any third party pursuant to an agreement
with Issuer, (iii) the highest closing price for shares of Common Stock within
the six-month period immediately preceding the date the Holder gives notice of
the required repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, or (iv) in the event of a sale
of all or substantially all of Issuer's assets or deposits, the sum of the net
price paid in such sale for such assets or
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deposits and the current market value of the remaining net assets of Issuer as
determined by a nationally recognized investment banking firm selected by the
Holder or the Owner, as the case may be, and reasonably acceptable to Issuer,
divided by the number of shares of Common Stock of Issuer outstanding at the
time of such sale. In determining the market/offer price, the value of
consideration other than cash shall be determined by a nationally recognized
investment banking firm selected by the Holder or Owner, as the case may be, and
reasonably acceptable to Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Issuer, at its principal office, a
copy of this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the Owner,
as the case may be, elects to require Issuer to repurchase this Option and/or
the Option Shares in accordance with the provisions of this Section 7. As
promptly as practicable, and in any event within five business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto, Issuer shall deliver or
cause to be delivered to the Holder the Option Repurchase Price and/or to the
Owner the Option Share Repurchase Price therefor or the portion thereof that
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Issuer shall immediately so notify the
Holder and/or the Owner and thereafter deliver or cause to be delivered, from
time to time, to the Holder and/or the Owner, as appropriate, the portion of the
Option Repurchase Price and the Option Share Repurchase Price, respectively,
that it is no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; PROVIDED, HOWEVER, that if
Issuer at any time after delivery of a notice of repurchase pursuant to
paragraph (b) of this Section 7 is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to the
Holder and/or the Owner, as appropriate, the Option Repurchase Price and the
Option Share Repurchase Price, respectively, in full (and Issuer hereby
undertakes to use its reasonable best efforts to obtain all required regulatory
and legal approvals and to file any required notices as promptly as practicable
in order to accomplish such repurchase), the Holder or Owner may revoke its
notice of repurchase of the Option and/or the Option Shares whether in whole or
to the extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (i) deliver to the Holder and/or the Owner, as appropriate, that
portion of the Option Repurchase Price and/or the Option Share Repurchase Price
that Issuer is not prohibited from delivering; and (ii) deliver, as appropriate,
either (A) to the Holder, a new Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Agreement was
exercisable at the time of delivery of the notice of repurchase by a fraction,
the numerator of which is the Option Repurchase Price less the portion thereof
theretofore delivered to the Holder and the denominator of which is the Option
Repurchase Price, and/or (B) to the Owner, a certificate for the Option Shares
it is then so prohibited from repurchasing. If an Exercise Termination Event
shall have occurred prior to the date of the notice by Issuer described in the
first sentence of this subsection (c), or shall be scheduled to occur at any
time before the expiration of a period ending on the thirtieth day after such
date, the Holder shall nonetheless have the right to exercise the Option until
the expiration of such 30-day period.
(d) For purposes of this Section 7, a "Repurchase Event" shall be deemed to
have occurred upon the occurrence of any of the following events or transactions
after the date hereof:
(i) the acquisition by any person (other than Grantee or any Grantee
Subsidiary) of beneficial ownership of 50% or more of the then outstanding
Common Stock; or
(ii) the consummation of any Acquisition Transaction described in
Section 2(b)(i) hereof, except that the percentage referred to in clause (z)
shall be 50%.
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8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or a Grantee Subsidiary, or engage in a plan of exchange with
any person, other than Grantee or a Grantee Subsidiary and Issuer shall not be
the continuing or surviving corporation of such consolidation or merger or the
acquiror in such plan of exchange, (ii) to permit any person, other than Grantee
or a Grantee Subsidiary, to merge into Issuer or be acquired by Issuer in a plan
of exchange and Issuer shall be the continuing or surviving or acquiring
corporation, but, in connection with such merger or plan of exchange, the then
outstanding shares of Common Stock shall be changed into or exchanged for stock
or other securities of any other person or cash or any other property or the
then outstanding shares of Common Stock shall after such merger or plan of
exchange represent less than 50% of the outstanding shares and share equivalents
of the merged or acquiring company, or (iii) to sell or otherwise transfer all
or substantially all of its or any Significant Subsidiary's assets or deposits
to any person, other than Grantee or a Grantee Subsidiary, then, and in each
such case, the agreement governing such transaction shall make proper provision
so that the Option shall, upon the consummation of any such transaction and upon
the terms and conditions set forth herein, be converted into, or exchanged for,
an option (the "Substitute Option"), at the election of the Holder, of either
(x) the Acquiring Corporation (as hereinafter defined) or (y) any person that
controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or surviving
person of a consolidation or merger with Issuer (if other than Issuer), (ii)
the acquiring person in a plan of exchange in which Issuer is acquired,
(iii) Issuer in a merger or plan of exchange in which Issuer is the
continuing or surviving or acquiring person, and (iv) the transferee of all
or substantially all of Issuer's assets or deposits (or the assets or
deposits of a Significant Subsidiary of Issuer).
(ii) "Substitute Common Stock" shall mean the common stock issued by the
issuer of the Substitute Option upon exercise of the Substitute Option.
(iii) "Assigned Value" shall mean the market/offer price, as defined in
Section 7.
(iv) "Average Price" shall mean the average closing price of a share of
the Substitute Common Stock for one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; PROVIDED that if Issuer is the issuer of
the Substitute Option, the Average Price shall be computed with respect to a
share of common stock issued by the person merging into Issuer or by any
company which controls or is controlled by such person, as the Holder may
elect.
(c) The Substitute Option shall have the same terms as the Option, PROVIDED
that if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as similar as possible and in no event
less advantageous to the Holder. The issuer of the Substitute Option shall also
enter into an agreement with the then Holder or Holders of the Substitute Option
in substantially the same form as this Agreement (after giving effect for such
purpose to the provisions of Section 9), which agreement shall be applicable to
the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option was exercisable
immediately prior to the event described in the first sentence of Section 8(a),
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option was exercisable immediately prior to the
event described in the first sentence of Section 8(a) and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
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(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 19.9% of the
shares of Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option (the "Substitute Option Issuer")
shall make a cash payment to Holder equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (e)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). This difference in value shall be determined by a
nationally recognized investment banking firm selected by the Holder.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the issuer of the Substitute Option (the
"Substitute Option Issuer") shall repurchase the Substitute Option from the
Substitute Option Holder at a price (the "Substitute Option Repurchase Price")
equal to the amount by which (i) the Highest Closing Price (as hereinafter
defined) exceeds (ii) the exercise price of the Substitute Option, multiplied by
the number of shares of Substitute Common Stock for which the Substitute Option
may then be exercised, and at the request of the owner (the "Substitute Share
Owner") of shares of Substitute Common Stock (the "Substitute Shares"), the
Substitute Option Issuer shall repurchase the Substitute Shares at a price (the
"Substitute Share Repurchase Price") equal to the Highest Closing Price
multiplied by the number of Substitute Shares so designated. The term "Highest
Closing Price" shall mean the highest closing price for shares of Substitute
Common Stock within the six-month period immediately preceding the date the
Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the case
may be, may exercise its respective rights to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and/or certificates for
Substitute Shares accompanied by a written notice or notices stating that the
Substitute Option Holder or the Substitute Share Owner, as the case may be,
elects to require the Substitute Option Issuer to repurchase the Substitute
Option and/or the Substitute Shares in accordance with the provisions of this
Section 9. As promptly as practicable and in any event within five business days
after the surrender of the Substitute Option and/or certificates representing
Substitute Shares and the receipt of such notice or notices relating thereto,
the Substitute Option Issuer shall deliver or cause to be delivered to the
Substitute Option Holder the Substitute Option Repurchase Price and/or to the
Substitute Share Owner the Substitute Share Repurchase Price therefor or the
portion thereof which the Substitute Option Issuer is not then prohibited under
applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy, from
repurchasing the Substitute Option and/or the Substitute Shares in part or in
full, the Substitute Option Issuer shall immediately so notify the Substitute
Option Holder and/or the Substitute Share Owner and thereafter deliver or cause
to be delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute Option
Repurchase Price and/or the Substitute Share Repurchase Price, respectively,
which it is no longer prohibited from delivering, within five (5) business days
after the date on which the Substitute Option Issuer is no longer so prohibited;
PROVIDED, HOWEVER, that if the Substitute Option Issuer is at any time after
delivery of a notice of repurchase pursuant to subsection (b) of this Section 9
prohibited under applicable law or regulation, or as a consequence of
administrative policy, from delivering to the Substitute Option Holder and/or
the Substitute Share Owner, as appropriate, the Substitute Option
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Repurchase Price and the Substitute Share Repurchase Price, respectively, in
full (and the Substitute Option Issuer shall use its best efforts to receive all
required regulatory and legal approvals as promptly as practicable in order to
accomplish such repurchase), the Substitute Option Holder and/or Substitute
Share Owner may revoke its notice of repurchase of the Substitute Option or the
Substitute Shares either in whole or to the extent of prohibition, whereupon, in
the latter case, the Substitute Option Issuer shall promptly (i) deliver to the
Substitute Option Holder or Substitute Share Owner, as appropriate, that portion
of the Substitute Option Repurchase Price or the Substitute Share Repurchase
Price that the Substitute Option Issuer is not prohibited from delivering; and
(ii) deliver, as appropriate, either (A) to the Substitute Option Holder, a new
Substitute Option evidencing the right of the Substitute Option Holder to
purchase that number of shares of the Substitute Common Stock obtained by
multiplying the number of shares of the Substitute Common Stock for which the
surrendered Substitute Option was exercisable at the time of delivery of the
notice of repurchase by a fraction, the numerator of which is the Substitute
Option Repurchase Price less the portion thereof theretofore delivered to the
Substitute Option Holder and the denominator of which is the Substitute Option
Repurchase Price, and/or (B) to the Substitute Share Owner, a certificate for
the Substitute Option Shares it is then so prohibited from repurchasing. If an
Exercise Termination Event shall have occurred prior to the date of the notice
by the Substitute Option Issuer described in the first sentence of this
subsection (c), or shall be scheduled to occur at any time before the expiration
of a period ending on the thirtieth day after such date, the Substitute Option
Holder shall nevertheless have the right to exercise the Substitute Option until
the expiration of such 30-day period.
10. The 30-day, 6-month, 12-month, 18-month or 24-month periods for exercise
of certain rights under Sections 2, 6, 7, 9, 12 and 15 shall be extended: (i) to
the extent necessary to obtain all regulatory approvals for the exercise of such
rights (for so long as the Holder, Owner, Substitute Option Holder of Substitute
Share Owner, as the case may be, is using commercially reasonable efforts to
obtain such regulatory approvals), and for the expiration of all statutory
waiting periods; and (ii) to the extent necessary to avoid liability under
Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Issuer Board prior to the date hereof and no other corporate proceedings on the
part of Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and reserve
and to permit it to issue, and at all times from the date hereof through the
termination of this Agreement in accordance with its terms will have reserved
for issuance upon the exercise of the Option, that number of shares of Common
Stock equal to the maximum number of shares of Common Stock at any time and from
time to time issuable hereunder, and all such shares, upon issuance pursuant
thereto, will be duly authorized, validly issued, fully paid, nonassessable, and
will be delivered free and clear of all claims, liens, encumbrance and security
interests and not subject to any preemptive rights.
12. Neither of the parties hereto may assign any of its rights or
obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations hereunder within twelve (12)
months following such Subsequent Triggering Event (or such later period as
provided in Section 10); PROVIDED, HOWEVER, that until the date 15 days
following the date on which the Federal Reserve Board has approved an
application by Grantee to acquire the shares of Common Stock subject to the
Option, Grantee may not assign its rights under the Option except in (i) a
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widely dispersed public distribution, (ii) a private placement in which no one
party acquires the right to purchase in excess of 2% of the voting shares of
Issuer, (iii) an assignment to a single party (E.G,, a broker or investment
banker) for the purpose of conducting a widely dispersed public distribution on
Grantee's behalf or (iv) any other manner approved by the Federal Reserve Board.
13. Each of Grantee and Issuer will use its best efforts to make all filings
with, and to obtain consents of, all third parties and governmental authorities
necessary to the consummation of the transactions contemplated by this
Agreement, including, without limitation, applying to the Federal Reserve Board
under the BHCA for approval to acquire the shares issuable hereunder, but
Grantee shall not be obligated to apply to state banking authorities for
approval to acquire the shares of Common Stock issuable hereunder until such
time, if ever, as it deems appropriate to do so.
14. (a) Notwithstanding any other provision of this Agreement, in no event
shall the Grantee's Total Profit (as hereinafter defined) exceed $300 million
and, if it otherwise would exceed such amount, the Grantee, at its sole
election, shall either (a) reduce the number of shares of Common Stock subject
to this Option, (b) deliver to Issuer for cancellation Option Shares previously
purchased by Grantee, (c) pay cash to Issuer, or (d) any combination thereof, so
that Grantee's actually realized Total Profit shall not exceed $300 million
after taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this Option may
not be exercised for a number of shares as would, as of the date of exercise,
result in a Notional Total Profit (as defined below) of more than $ 300 million;
PROVIDED that nothing in this sentence shall restrict any exercise of the Option
permitted hereby on any subsequent date.
(c) As used herein, the term "Total Profit" shall mean the aggregate amount
(before taxes) of the following: (i) the amount received by Grantee pursuant to
Issuer's repurchase of the Option (or any portion thereof) pursuant to Section
7, (ii) (x) the amount received by Grantee pursuant to Issuer's repurchase of
Option Shares pursuant to Section 7, less (y) the Grantee's purchase price for
such Option Shares, (iii) (x) the net cash amounts received by Grantee pursuant
to the sale of Option Shares (or any other securities into which such Option
Shares are converted or exchanged) to any unaffiliated party, less (y) the
Grantee's purchase price of such Option Shares, (iv) any amounts received by
Grantee on the transfer of the Option (or any portion thereof) to any
unaffiliated party, and (v) any amount equivalent to the foregoing with respect
to the Substitute Option.
(d) As used herein, the term "Notional Total Profit" with respect to any
number of shares as to which Grantee may propose to exercise this Option shall
be the Total Profit determined as of the date of such proposed exercise assuming
that this Option were exercised on such date for such number of shares and
assuming that such shares, together with all other Option Shares held by Grantee
and its affiliates as of such date, were sold for cash at the closing market
price for the Common Stock as of the close of business on the preceding trading
day (less customary brokerage commissions).
15. (a) Grantee may, at any time following a Repurchase Event and prior to
the occurrence of an Exercise Termination Event (or such later period as
provided in Section 10), relinquish the Option (together with any Option Shares
issued to and then owned by Grantee) to Issuer in exchange for a cash fee equal
to the Surrender Price; PROVIDED, HOWEVER, that Grantee may not exercise its
rights pursuant to this Section 15 if Issuer has repurchased the Option (or any
portion thereof) or any Option Shares pursuant to Section 7. The "Surrender
Price" shall be equal to $200 million (i) plus, if applicable, Grantee's
purchase price with respect to any Option Shares and (ii) minus, if applicable,
the excess of (B) the net cash amounts, if any, received by Grantee pursuant to
the arms' length sale of Option Shares (or any other securities into which such
Option Shares were converted or exchanged) to any unaffiliated party, over (B)
Grantee's purchase price of such Option Shares.
(b) Grantee may exercise its right to relinquish the Option and any Option
Shares pursuant to this Section 15 by surrendering to Issuer, at its principal
office, a copy of this Agreement together with
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certificates for Option Shares, if any, accompanied by a written notice stating
(i) that Grantee elects to relinquish the Option and Option Shares, if any, in
accordance with the provisions of this Section 15 and (ii) the Surrender Price.
The Surrender Price shall be payable in immediately available funds on or before
the second business day following receipt of such notice by Issuer.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from paying the
Surrender Price to Grantee in full, Issuer shall immediately so notify Grantee
and thereafter deliver or cause to be delivered, from time to time, to Grantee,
the portion of the Surrender Price that it is no longer prohibited from paying,
within five business days after the date on which Issuer is no longer so
prohibited; PROVIDED, HOWEVER, that if Issuer at any time after delivery of a
notice of surrender pursuant to paragraph (b) of this Section 15 is prohibited
under applicable law or regulation, or as a consequence of administrative
policy, from paying to Grantee the Surrender Price in full, (i) Issuer shall (A)
use its reasonable best efforts to obtain all required regulatory and legal
approvals and to file any required notices as promptly as practicable in order
to make such payments, (B) within five days of the submission or receipt of any
documents relating to any such regulatory and legal approvals, provide Grantee
with copies of the same, and (c) keep Grantee advised of both the status of any
such request for regulatory and legal approvals, as well as any discussions with
any relevant regulatory or other third party reasonably related to the same and
(ii) Grantee may revoke such notice of surrender by delivery of a notice of
revocation to Issuer and, upon delivery of such notice of revocation, the
Exercise Termination Date shall be extended to a date six months from the date
on which the Exercise Termination Date would have occurred if not for the
provisions of this Section 15(c) (during which period Grantee may exercise any
of its rights hereunder, including any and all rights pursuant to this Section
15).
16. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief.
17. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or Section
5 hereof), it is the express intention of Issuer to allow the Holder to acquire
or to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
18. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
fax, telecopy, or by registered or certified mail (postage prepaid, return
receipt requested) at the respective addresses of the parties set forth in the
Merger Agreement.
19. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without regard to the conflict of law principles
thereof (except to the extent that mandatory provisions of Federal law or of the
corporation law of the State of Oregon are applicable).
20. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
21. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
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22. Except as otherwise expressly provided herein, in the Reciprocal Option
or in the Merger Agreement, this Agreement contains the entire agreement between
the parties with respect to the transactions contemplated hereunder and
supersedes all prior arrangements or understandings with respect thereof,
written or oral. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assignees. Nothing in this Agreement, expressed or
implied, is intended to confer upon any party, other than the parties hereto,
and their respective successors except as assignees, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided herein.
23. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
FIRST BANK SYSTEM, INC.
By: /s/ JOHN F. GRUNDHOFER
-----------------------------------------
Name: John F. Grundhofer
Title: Chairman, President
and Chief Executive Officer
U.S. BANCORP
By: /s/ GERRY B. CAMERON
-----------------------------------------
Name: Gerry B. Cameron
Title: Chairman of the Board, Chief
Executive Officer and President
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APPENDIX C
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of March 20, 1997, between U.S. BANCORP an
Oregon corporation ("Grantee"), and FIRST BANK SYSTEM, INC., a Delaware
corporation ("Issuer").
W I T N E S S E T H:
WHEREAS, on March 19, 1997, Grantee and Issuer entered into an Agreement and
Plan of Merger (the "Merger Agreement");
WHEREAS, as a condition and inducement to Grantee's execution of the Merger
Agreement and pursuit of the transactions contemplated thereby and in
consideration therefor and in consideration of the grant of the Reciprocal
Option (as hereinafter defined), Issuer has agreed to grant Grantee the Option
(as hereinafter defined); and
WHEREAS, the Board of Directors of Issuer has approved the grant of the
Option and the Merger Agreement prior to the execution hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, in the Reciprocal Option and in the Merger
Agreement, the parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to an aggregate of
26,551,018 fully paid and nonassessable shares of the common stock, $1.25 par
value per share, of Issuer ("Common Stock") at a price per share equal to the
last reported sale price per share of Common Stock as reported on the
consolidated tape for New York Stock Exchange, Inc. issues on March 18, 1997;
PROVIDED, HOWEVER, that in the event Issuer issues or agrees to issue any shares
of Common Stock at a price less than such last reported sale price per share (as
adjusted pursuant to subsection (b) of Section 5) other than as permitted by the
Merger Agreement, such price shall be equal to such lesser price (such price, as
adjusted if applicable, the "Option Price"); PROVIDED, FURTHER, that in no event
shall the number of shares for which this Option is exercisable exceed 19.9% of
the issued and outstanding shares of Common Stock. The number of shares of
Common Stock that may be received upon the exercise of the Option and the Option
Price is subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement and other than pursuant to an event described in
Section 5(a) hereof), the number of shares of Common Stock subject to the Option
shall be increased so that, after such issuance, such number together with any
shares of Common Stock previously issued pursuant hereto, equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing contained
in this Section 1(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer or Grantee to breach any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in whole
or part, if, but only if, both an Initial Triggering Event (as hereinafter
defined) and a Subsequent Triggering Event (as hereinafter defined) shall have
occurred prior to the occurrence of an Exercise Termination Event (as
hereinafter defined), PROVIDED that the Holder shall have sent the written
notice of such exercise (as provided in subsection (f) of this Section 2) within
six (6) months following such Subsequent Triggering Event (or such later period
as provided in Section 10). Each of the following shall be an Exercise
Termination Event: (i) the Effective Time of the Merger; (ii) termination of the
Merger Agreement in accordance with the provisions thereof if such termination
occurs prior to the occurrence of an Initial Triggering Event except a
termination by Grantee pursuant to Section 8.01(b) of the Merger Agreement; or
(iii) the passage of eighteen (18) months (or such longer period as provided in
Section 10) after termination of the Merger Agreement if such termination is
concurrent with or follows the occurrence of an Initial Triggering Event
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or is a termination pursuant to Section 8.01(b) of the Merger Agreement; (iv)
the date on which the shareholders of Grantee shall have voted and failed to
approve the Merger Agreement and the Merger (unless (A) Issuer shall then be in
material breach of its covenants or agreements contained in the Merger Agreement
or (B) on or prior to such date, the shareholders of Issuer shall have also
voted and failed to approve and adopt the Merger Agreement and the Merger); or
(v) the date on which the Reciprocal Option shall have become exercisable in
accordance with its terms if it shall become exercisable prior to a Subsequent
Triggering Event. The term "Holder" shall mean the holder or holders of the
Option. Notwithstanding anything to the contrary contained herein, (i) the
Option may not be exercised at any time when Grantee shall be in material breach
of any of its covenants or agreements contained in the Merger Agreement such
that Issuer shall be entitled to terminate the Merger Agreement pursuant to
Section 8.01(b) thereof and (ii) this Agreement shall automatically terminate
upon the termination of the Merger Agreement by Issuer pursuant to Section
8.01(b) thereof as a result of the material breach by Grantee of its covenants
or agreements contained in the Merger Agreement.
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring on or after the date hereof:
(i) Issuer or any of its Subsidiaries (as hereinafter defined) (each an
"Issuer Subsidiary"), without having received Grantee's prior written
consent, shall have entered into an agreement to engage in an Acquisition
Transaction (as hereinafter defined) with any person (the term "person" for
purposes of this Agreement having the meaning assigned thereto in Sections
3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), and the rules and regulations thereunder) other than Grantee or
any of its Subsidiaries (each a "Grantee Subsidiary") or the Board of
Directors of Issuer (the "Issuer Board") shall have recommended that the
shareholders of Issuer approve or accept any Acquisition Transaction other
than as contemplated by the Merger Agreement or this Agreement. For purposes
of this Agreement, (a) "Acquisition Transaction" shall mean (x) a merger or
consolidation, or any similar transaction, involving Issuer or any
Significant Subsidiary (as defined in Rule 1-02 of Regulation S-X
promulgated by the Securities and Exchange Commission (the "SEC")) of Issuer
(other than mergers, consolidations or similar transactions involving solely
Issuer and/or one or more wholly-owned Issuer Subsidiaries and other than a
merger or consolidation as to which the common shareholders of Issuer
immediately prior thereto in the aggregate own at least 60% of the common
stock of the publicly held surviving or successor parent corporation
immediately following consummation thereof, PROVIDED, any such transaction
is not entered into in violation of the terms of the Merger Agreement), (y)
a purchase, lease or other acquisition of all or substantially all of the
assets or deposits of Issuer or any Significant Subsidiary of Issuer, or (z)
a purchase or other acquisition (including by way of merger, consolidation,
share exchange or otherwise) of securities representing 10% or more of the
voting power of Issuer or any Significant Subsidiary of Issuer, and (b)
"Subsidiary" shall have the meaning set forth in Rule 12b-2 under the 1934
Act;
(ii) Any person other than Grantee or any Grantee Subsidiary shall have
acquired beneficial ownership or the right to acquire beneficial ownership
of 10% or more of the outstanding shares of Common Stock (the term
"beneficial ownership" for purposes of this Agreement having the meaning
assigned thereto in Section 13(d) of the 1934 Act, and the rules and
regulations thereunder);
(iii) The shareholders of Issuer shall have voted and failed to approve
and adopt the Merger Agreement and the Merger at a meeting which has been
held for that purpose or any adjournment or postponement thereof, or such
meeting shall not have been held in violation of the Merger Agreement or
shall have been cancelled prior to termination of the Merger Agreement if,
prior to such meeting (or if such meeting shall not have been held or shall
have been cancelled, prior to such termination), it shall have been publicly
announced that any person (other than Grantee or any of its Subsidiaries)
shall have made, or disclosed an intention to make, a proposal to engage in
an Acquisition Transaction;
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(iv) The Issuer Board shall have withdrawn or modified (or publicly
announced its intention to withdraw or modify) in any manner adverse to
Grantee its recommendation that the shareholders of Issuer approve the
transactions contemplated by the Merger Agreement, or Issuer or any Issuer
Subsidiary, without having received Grantee's prior written consent, shall
have authorized, recommended, proposed (or publicly announced its intention
to authorize, recommend or propose) an agreement to engage in an Acquisition
Transaction with any person other than Grantee or a Grantee Subsidiary;
(v) Any person other than Grantee or any Grantee Subsidiary shall have
made a proposal to Issuer or its shareholders to engage in an Acquisition
Transaction and such proposal shall have been publicly announced;
(vi) Any person other than Grantee or any Grantee Subsidiary shall have
filed with the SEC a registration statement with respect to a potential
exchange offer that would constitute an Acquisition Transaction (or filed a
preliminary proxy statement with the SEC with respect to a potential vote by
its shareholders to approve the issuance of shares to be offered in such an
exchange offer);
(vii) Issuer shall have willfully breached any covenant or obligation
contained in the Merger Agreement in anticipation of engaging in an
Acquisition Transaction, and following such breach Grantee would be entitled
to terminate the Merger Agreement (whether immediately or after the giving
of notice or passage of time or both); or
(viii) Any person other than Grantee or any Grantee Subsidiary, other than
in connection with a transaction to which Grantee has given its prior
written consent, shall have filed an application or notice with the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") or
other federal or state bank regulatory or antitrust authority, which
application or notice has been accepted for processing, for approval to
engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) The acquisition by any person (other than Grantee or any Grantee
Subsidiary) of beneficial ownership of 20% or more of the then outstanding
Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in clause
(i) of subsection (b) of this Section 2, except that the percentage referred
to in clause (z) of the second sentence thereof shall be 20%.
(d) The term "Reciprocal Option" shall mean the option granted pursuant to
the option agreement dated the date hereof between the Grantee, as issuer of
such option, and Issuer, as grantee of such option.
(e) Issuer shall notify Grantee promptly in writing of the occurrence of any
Initial Triggering Event or Subsequent Triggering Event (together, a "Triggering
Event"), it being understood that the giving of such notice by Issuer shall not
be a condition to the right of the Holder to exercise the Option.
(f) In the event the Holder is entitled to and wishes to exercise the Option
(or any portion thereof), it shall send to Issuer a written notice (the date of
which being herein referred to as the "Notice Date") specifying (i) the total
number of shares it will purchase pursuant to such exercise and (ii) a place and
date not earlier than three business days nor later than 60 business days from
the Notice Date for the closing of such purchase (the "Closing Date"); PROVIDED,
that if prior notification to or approval of the Federal Reserve Board or any
other regulatory or antitrust agency is required in connection with such
purchase, the Holder shall promptly file the required notice or application for
approval, shall promptly notify Issuer of such filing, and shall expeditiously
process the same and the period of time that otherwise would run pursuant to
this sentence shall run instead from the date on which any required notification
periods have expired or been terminated or such approvals have been obtained and
any requisite waiting period or
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periods shall have passed. Any exercise of the Option shall be deemed to occur
on the Notice Date relating thereto.
(g) At the closing referred to in subsection (f) of this Section 2, the
Holder shall (i) pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Issuer,
PROVIDED that failure or refusal of Issuer to designate such a bank account
shall not preclude the Holder from exercising the Option and (ii) present and
surrender this Agreement to Issuer at its principal executive offices.
(h) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (g) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder.
(i) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale restrictions
arising under the Securities Act of 1933, as amended. A copy of
such agreement is on file at the principal office of Issuer and
will be provided to the holder hereof without charge upon receipt
by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act") in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions of this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference in the opinion of Counsel to the Holder;
and (iii) the legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
(j) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (f) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 2 in the name of the
Holder or its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including (x) complying with all applicable premerger notification, reporting
and waiting
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period requirements specified in 15 U.S.C. Section 18a and regulations
promulgated thereunder and (y) in the event, under the Bank Holding Company Act
of 1956, as amended (the "BHCA"), or the Change in Bank Control Act of 1978, as
amended, or any state or other federal banking law, prior approval of or notice
to the Federal Reserve Board or to any state or other federal regulatory
authority is necessary before the Option may be exercised, cooperating fully
with the Holder in preparing such applications or notices and providing such
information to the Federal Reserve Board or such state or other federal
regulatory authority as they may require) in order to permit the Holder to
exercise the Option and Issuer duly and effectively to issue shares of Common
Stock pursuant hereto; and (iv) promptly to take all action provided herein to
protect the rights of the Holder against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable, without
expense, at the option of the Holder, upon presentation and surrender of this
Agreement at the principal office of Issuer, for other Agreements providing for
Options of different denominations entitling the holder thereof to purchase, on
the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Agreements and
related Options for which this Agreement (and the Option granted hereby) may be
exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Agreement, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Agreement, if mutilated, Issuer will
execute and deliver a new Agreement of like tenor and date. Any such new
Agreement executed and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not the Agreement so lost, stolen,
destroyed or mutilated shall at any time be enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option and the Option Price shall be subject to adjustment from time to time
as provided in this Section 5.
(a) In the event of any change in, or distributions in respect of, the
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of shares
or the like, the type and number of shares of Common Stock purchasable upon
exercise hereof shall be appropriately adjusted and proper provision shall be
made so that, in the event that any additional shares of Common Stock are to be
issued or otherwise become outstanding as a result of any such change (other
than pursuant to an exercise of the Option), the number of shares of Common
Stock that remain subject to the Option shall be increased so that, after such
issuance and together with shares of Common Stock previously issued pursuant to
the exercise of the Option (as adjusted on account of any of the foregoing
changes in the Common Stock), it equals 19.9% of the number of shares of Common
Stock then issued and outstanding.
(b) Whenever the number of shares of Common Stock purchasable upon exercise
hereof is adjusted as provided in this Section 5, the Option Price shall be
adjusted by multiplying the Option Price by a fraction, the numerator of which
shall be equal to the number of shares of Common Stock purchasable prior to the
adjustment and the denominator of which shall be equal to the number of shares
of Common Stock purchasable after the adjustment.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior to
an Exercise Termination Event, Issuer shall, at the request of Grantee delivered
within twelve (12) months (or such later period as provided in Section 10) of
such Subsequent Triggering Event (whether on its own behalf or on behalf of any
subsequent holder of this Option (or part thereof) or any of the shares of
Common Stock issued pursuant hereto), promptly prepare, file and keep current a
registration statement under the 1933 Act covering any shares issued and
issuable pursuant to this Option and shall use its reasonable best efforts to
cause such registration statement to become effective and remain current in
order to permit the sale or
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other disposition of any shares of Common Stock issued upon total or partial
exercise of this Option ("Option Shares") in accordance with any plan of
disposition requested by Grantee. Issuer will use its reasonable best efforts to
cause such registration statement promptly to become effective and then to
remain effective for such period not in excess of 180 days from the day such
registration statement first becomes effective or such shorter time as may be
reasonably necessary to effect such sales or other dispositions. Grantee shall
have the right to demand two such registrations. The Issuer shall bear the costs
of such registrations (including, but not limited to, Issuer's attorneys' fees,
printing costs and filing fees, except for underwriting discounts or
commissions, brokers' fees and the fees and disbursements of Grantee's counsel
related thereto). The foregoing notwithstanding, if, at the time of any request
by Grantee for registration of Option Shares as provided above, Issuer is in
registration with respect to an underwritten public offering by Issuer of shares
of Common Stock, and if in the good faith judgment of the managing underwriter
or managing underwriters, or, if none, the sole underwriter or underwriters, of
such offering the inclusion of the Option Shares would interfere with the
successful marketing of the shares of Common Stock offered by Issuer, the number
of Option Shares otherwise to be covered in the registration statement
contemplated hereby may be reduced; PROVIDED, HOWEVER, that after any such
required reduction the number of Option Shares to be included in such offering
for the account of the Holder shall constitute at least 25% of the total number
of shares to be sold by the Holder and Issuer in the aggregate; and PROVIDED
FURTHER, HOWEVER, that if such reduction occurs, then Issuer shall file a
registration statement for the balance as promptly as practicable thereafter as
to which no reduction pursuant to this Section 6 shall be permitted or occur and
the Holder shall thereafter be entitled to one additional registration and the
twelve (12) month period referred to in the first sentence of this section shall
be increased to twenty-four (24) months. Each such Holder shall provide all
information reasonably requested by Issuer for inclusion in any registration
statement to be filed hereunder. If requested by any such Holder in connection
with such registration, Issuer shall become a party to any underwriting
agreement relating to the sale of such shares, but only to the extent of
obligating itself in respect of representations, warranties, indemnities and
other agreements customarily included in such underwriting agreements for
Issuer. Upon receiving any request under this Section 6 from any Holder, Issuer
agrees to send a copy thereof to any other person known to Issuer to be entitled
to registration rights under this Section 6, in each case by promptly mailing
the same, postage prepaid, to the address of record of the persons entitled to
receive such copies. Notwithstanding anything to the contrary contained herein,
in no event shall the number of registrations that Issuer is obligated to effect
be increased by reason of the fact that there shall be more than one Holder as a
result of any assignment or division of this Agreement.
7. (a) At any time after the occurrence of a Repurchase Event (as defined
below) (i) at the request of the Holder, delivered prior to an Exercise
Termination Event (or such later period as provided in Section 10), Issuer (or
any successor thereto) shall repurchase the Option from the Holder at a price
(the "Option Repurchase Price") equal to the amount by which (A) the
market/offer price (as defined below) exceeds (B) the Option Price, multiplied
by the number of shares for which this Option may then be exercised and (ii) at
the request of the owner of Option Shares from time to time (the "Owner"),
delivered prior to an Exercise Termination Event (or such later period as
provided in Section 10), Issuer (or any successor thereto) shall repurchase such
number of the Option Shares from the Owner as the Owner shall designate at a
price (the "Option Share Repurchase Price") equal to the market/offer price
multiplied by the number of Option Shares so designated. The term "market/offer
price" shall mean the highest of (i) the price per share of Common Stock at
which a tender or exchange offer therefor has been made, (ii) the price per
share of Common Stock to be paid by any third party pursuant to an agreement
with Issuer, (iii) the highest closing price for shares of Common Stock within
the six-month period immediately preceding the date the Holder gives notice of
the required repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, or (iv) in the event of a sale
of all or substantially all of Issuer's assets or deposits, the sum of the net
price paid in such sale for such assets or deposits and the current market value
of the remaining net assets of Issuer as determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case may be,
and
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reasonably acceptable to Issuer, divided by the number of shares of Common Stock
of Issuer outstanding at the time of such sale. In determining the market/offer
price, the value of consideration other than cash shall be determined by a
nationally recognized investment banking firm selected by the Holder or Owner,
as the case may be, and reasonably acceptable to Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Issuer, at its principal office, a
copy of this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the Owner,
as the case may be, elects to require Issuer to repurchase this Option and/or
the Option Shares in accordance with the provisions of this Section 7. As
promptly as practicable, and in any event within five business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto, Issuer shall deliver or
cause to be delivered to the Holder the Option Repurchase Price and/or to the
Owner the Option Share Repurchase Price therefor or the portion thereof that
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Issuer shall immediately so notify the
Holder and/or the Owner and thereafter deliver or cause to be delivered, from
time to time, to the Holder and/or the Owner, as appropriate, the portion of the
Option Repurchase Price and the Option Share Repurchase Price, respectively,
that it is no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; PROVIDED, HOWEVER, that if
Issuer at any time after delivery of a notice of repurchase pursuant to
paragraph (b) of this Section 7 is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to the
Holder and/or the Owner, as appropriate, the Option Repurchase Price and the
Option Share Repurchase Price, respectively, in full (and Issuer hereby
undertakes to use its reasonable best efforts to obtain all required regulatory
and legal approvals and to file any required notices as promptly as practicable
in order to accomplish such repurchase), the Holder or Owner may revoke its
notice of repurchase of the Option and/or the Option Shares whether in whole or
to the extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (i) deliver to the Holder and/or the Owner, as appropriate, that
portion of the Option Repurchase Price and/or the Option Share Repurchase Price
that Issuer is not prohibited from delivering; and (ii) deliver, as appropriate,
either (A) to the Holder, a new Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Agreement was
exercisable at the time of delivery of the notice of repurchase by a fraction,
the numerator of which is the Option Repurchase Price less the portion thereof
theretofore delivered to the Holder and the denominator of which is the Option
Repurchase Price, and/or (B) to the Owner, a certificate for the Option Shares
it is then so prohibited from repurchasing. If an Exercise Termination Event
shall have occurred prior to the date of the notice by Issuer described in the
first sentence of this subsection (c), or shall be scheduled to occur at any
time before the expiration of a period ending on the thirtieth day after such
date, the Holder shall nonetheless have the right to exercise the Option until
the expiration of such 30-day period.
(d) For purposes of this Section 7, a "Repurchase Event" shall be deemed to
have occurred upon the occurrence of any of the following events or transactions
after the date hereof:
(i) the acquisition by any person (other than Grantee or any Grantee
Subsidiary) of beneficial ownership of 50% or more of the then outstanding
Common Stock; or
(ii) the consummation of any Acquisition Transaction described in
Section 2(b)(i) hereof, except that the percentage referred to in clause (z)
shall be 50%.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or a Grantee Subsidiary and Issuer shall not be the
continuing or surviving corporation of such consolidation or merger, (ii) to
permit any
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person, other than Grantee or a Grantee Subsidiary, to merge into Issuer and
Issuer shall be the continuing or surviving or acquiring corporation, but, in
connection with such merger, the then outstanding shares of Common Stock shall
be changed into or exchanged for stock or other securities of any other person
or cash or any other property or the then outstanding shares of Common Stock
shall after such merger represent less than 50% of the outstanding shares and
share equivalents of the merged or acquiring company, or (iii) to sell or
otherwise transfer all or substantially all of its or any Significant
Subsidiary's assets or deposits to any person, other than Grantee or a Grantee
Subsidiary, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or surviving
person of a consolidation or merger with Issuer (if other than Issuer), (ii)
Issuer in a merger in which Issuer is the continuing or surviving or
acquiring person, and (iii) the transferee of all or substantially all of
Issuer's assets or deposits (or the assets or deposits of a Significant
Subsidiary of Issuer).
(ii) "Substitute Common Stock" shall mean the common stock issued by the
issuer of the Substitute Option upon exercise of the Substitute Option.
(iii) "Assigned Value" shall mean the market/offer price, as defined in
Section 7.
(iv) "Average Price" shall mean the average closing price of a share of
the Substitute Common Stock for one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; PROVIDED that if Issuer is the issuer of
the Substitute Option, the Average Price shall be computed with respect to a
share of common stock issued by the person merging into Issuer or by any
company which controls or is controlled by such person, as the Holder may
elect.
(c) The Substitute Option shall have the same terms as the Option, PROVIDED
that if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as similar as possible and in no event
less advantageous to the Holder. The issuer of the Substitute Option shall also
enter into an agreement with the then Holder or Holders of the Substitute Option
in substantially the same form as this Agreement (after giving effect for such
purpose to the provisions of Section 9), which agreement shall be applicable to
the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option was exercisable
immediately prior to the event described in the first sentence of Section 8(a),
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option was exercisable immediately prior to the
event described in the first sentence of Section 8(a) and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 19.9% of the
shares of Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option (the "Substitute Option Issuer")
shall make a cash payment to Holder equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (e)
over
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(ii) the value of the Substitute Option after giving effect to the limitation in
this clause (e). This difference in value shall be determined by a nationally
recognized investment banking firm selected by the Holder.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the issuer of the Substitute Option (the
"Substitute Option Issuer") shall repurchase the Substitute Option from the
Substitute Option Holder at a price (the "Substitute Option Repurchase Price")
equal to the amount by which (i) the Highest Closing Price (as hereinafter
defined) exceeds (ii) the exercise price of the Substitute Option, multiplied by
the number of shares of Substitute Common Stock for which the Substitute Option
may then be exercised, and at the request of the owner (the "Substitute Share
Owner") of shares of Substitute Common Stock (the "Substitute Shares"), the
Substitute Option Issuer shall repurchase the Substitute Shares at a price (the
"Substitute Share Repurchase Price") equal to the Highest Closing Price
multiplied by the number of Substitute Shares so designated. The term "Highest
Closing Price" shall mean the highest closing price for shares of Substitute
Common Stock within the six-month period immediately preceding the date the
Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the case
may be, may exercise its respective rights to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and/or certificates for
Substitute Shares accompanied by a written notice or notices stating that the
Substitute Option Holder or the Substitute Share Owner, as the case may be,
elects to require the Substitute Option Issuer to repurchase the Substitute
Option and/or the Substitute Shares in accordance with the provisions of this
Section 9. As promptly as practicable and in any event within five business days
after the surrender of the Substitute Option and/or certificates representing
Substitute Shares and the receipt of such notice or notices relating thereto,
the Substitute Option Issuer shall deliver or cause to be delivered to the
Substitute Option Holder the Substitute Option Repurchase Price and/or to the
Substitute Share Owner the Substitute Share Repurchase Price therefor or the
portion thereof which the Substitute Option Issuer is not then prohibited under
applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy, from
repurchasing the Substitute Option and/or the Substitute Shares in part or in
full, the Substitute Option Issuer shall immediately so notify the Substitute
Option Holder and/or the Substitute Share Owner and thereafter deliver or cause
to be delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute Option
Repurchase Price and/or the Substitute Share Repurchase Price, respectively,
which it is no longer prohibited from delivering, within five (5) business days
after the date on which the Substitute Option Issuer is no longer so prohibited;
PROVIDED, HOWEVER, that if the Substitute Option Issuer is at any time after
delivery of a notice of repurchase pursuant to subsection (b) of this Section 9
prohibited under applicable law or regulation, or as a consequence of
administrative policy, from delivering to the Substitute Option Holder and/or
the Substitute Share Owner, as appropriate, the Substitute Option Repurchase
Price and the Substitute Share Repurchase Price, respectively, in full (and the
Substitute Option Issuer shall use its best efforts to receive all required
regulatory and legal approvals as promptly as practicable in order to accomplish
such repurchase), the Substitute Option Holder and/or Substitute Share Owner may
revoke its notice of repurchase of the Substitute Option or the Substitute
Shares either in whole or to the extent of prohibition, whereupon, in the latter
case, the Substitute Option Issuer shall promptly (i) deliver to the Substitute
Option Holder or Substitute Share Owner, as appropriate, that
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portion of the Substitute Option Repurchase Price or the Substitute Share
Repurchase Price that the Substitute Option Issuer is not prohibited from
delivering; and (ii) deliver, as appropriate, either (A) to the Substitute
Option Holder, a new Substitute Option evidencing the right of the Substitute
Option Holder to purchase that number of shares of the Substitute Common Stock
obtained by multiplying the number of shares of the Substitute Common Stock for
which the surrendered Substitute Option was exercisable at the time of delivery
of the notice of repurchase by a fraction, the numerator of which is the
Substitute Option Repurchase Price less the portion thereof theretofore
delivered to the Substitute Option Holder and the denominator of which is the
Substitute Option Repurchase Price, and/or (B) to the Substitute Share Owner, a
certificate for the Substitute Option Shares it is then so prohibited from
repurchasing. If an Exercise Termination Event shall have occurred prior to the
date of the notice by the Substitute Option Issuer described in the first
sentence of this subsection (c), or shall be scheduled to occur at any time
before the expiration of a period ending on the thirtieth day after such date,
the Substitute Option Holder shall nevertheless have the right to exercise the
Substitute Option until the expiration of such 30-day period.
10. The 30-day, 6-month, 12-month, 18-month or 24-month periods for exercise
of certain rights under Sections 2, 6, 7, 9, 12 and 15 shall be extended: (i) to
the extent necessary to obtain all regulatory approvals for the exercise of such
rights (for so long as the Holder, Owner, Substitute Option Holder or Substitute
Share Owner, as the case may be, is using commercially reasonable efforts to
obtain such regulatory approvals), and for the expiration of all statutory
waiting periods; and (ii) to the extent necessary to avoid liability under
Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Issuer Board and no other corporate proceedings on the part of Issuer are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered by
Issuer.
(b) Issuer has taken all necessary corporate action to authorize and reserve
and to permit it to issue, and at all times from the date hereof through the
termination of this Agreement in accordance with its terms will have reserved
for issuance upon the exercise of the Option, that number of shares of Common
Stock equal to the maximum number of shares of Common Stock at any time and from
time to time issuable hereunder, and all such shares, upon issuance pursuant
thereto, will be duly authorized, validly issued, fully paid, nonassessable, and
will be delivered free and clear of all claims, liens, encumbrance and security
interests and not subject to any preemptive rights.
12. Neither of the parties hereto may assign any of its rights or
obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations hereunder within twelve (12)
months following such Subsequent Triggering Event (or such later period as
provided in Section 10); PROVIDED, HOWEVER, that until the date 15 days
following the date on which the Federal Reserve Board has approved an
application by Grantee to acquire the shares of Common Stock subject to the
Option, Grantee may not assign its rights under the Option except in (i) a
widely dispersed public distribution, (ii) a private placement in which no one
party acquires the right to purchase in excess of 2% of the voting shares of
Issuer, (iii) an assignment to a single party (E.G,, a broker or investment
banker) for the purpose of conducting a widely dispersed public distribution on
Grantee's behalf or (iv) any other manner approved by the Federal Reserve Board.
13. Each of Grantee and Issuer will use its best efforts to make all filings
with, and to obtain consents of, all third parties and governmental authorities
necessary to the consummation of the transactions
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contemplated by this Agreement, including, without limitation, applying to the
Federal Reserve Board under the BHCA for approval to acquire the shares issuable
hereunder, but Grantee shall not be obligated to apply to state banking
authorities for approval to acquire the shares of Common Stock issuable
hereunder until such time, if ever, as it deems appropriate to do so.
14. (a) Notwithstanding any other provision of this Agreement, in no event
shall the Grantee's Total Profit (as hereinafter defined) exceed $300 million
and, if it otherwise would exceed such amount, the Grantee, at its sole
election, shall either (a) reduce the number of shares of Common Stock subject
to this Option, (b) deliver to Issuer for cancellation Option Shares previously
purchased by Grantee, (c) pay cash to Issuer, or (d) any combination thereof, so
that Grantee's actually realized Total Profit shall not exceed $300 million
after taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this Option may
not be exercised for a number of shares as would, as of the date of exercise,
result in a Notional Total Profit (as defined below) of more than $300 million;
PROVIDED that nothing in this sentence shall restrict any exercise of the Option
permitted hereby on any subsequent date.
(c) As used herein, the term "Total Profit" shall mean the aggregate amount
(before taxes) of the following: (i) the amount received by Grantee pursuant to
Issuer's repurchase of the Option (or any portion thereof) pursuant to Section
7, (ii) (x) the amount received by Grantee pursuant to Issuer's repurchase of
Option Shares pursuant to Section 7, less (y) the Grantee's purchase price for
such Option Shares, (iii) (x) the net cash amounts received by Grantee pursuant
to the sale of Option Shares (or any other securities into which such Option
Shares are converted or exchanged) to any unaffiliated party, less (y) the
Grantee's purchase price of such Option Shares, (iv) any amounts received by
Grantee on the transfer of the Option (or any portion thereof) to any
unaffiliated party, and (v) any amount equivalent to the foregoing with respect
to the Substitute Option.
(d) As used herein, the term "Notional Total Profit" with respect to any
number of shares as to which Grantee may propose to exercise this Option shall
be the Total Profit determined as of the date of such proposed exercise assuming
that this Option were exercised on such date for such number of shares and
assuming that such shares, together with all other Option Shares held by Grantee
and its affiliates as of such date, were sold for cash at the closing market
price for the Common Stock as of the close of business on the preceding trading
day (less customary brokerage commissions).
15. (a) Grantee may, at any time following a Repurchase Event and prior to
the occurrence of an Exercise Termination Event (or such later period as
provided in Section 10), relinquish the Option (together with any Option Shares
issued to and then owned by Grantee) to Issuer in exchange for a cash fee equal
to the Surrender Price; PROVIDED, HOWEVER, that Grantee may not exercise its
rights pursuant to this Section 15 if Issuer has repurchased the Option (or any
portion thereof) or any Option Shares pursuant to Section 7. The "Surrender
Price" shall be equal to $200 million (i) plus, if applicable, Grantee's
purchase price with respect to any Option Shares and (ii) minus, if applicable,
the excess of (B) the net cash amounts, if any, received by Grantee pursuant to
the arm's-length sale of Option Shares (or any other securities into which such
Option Shares were converted or exchanged) to any unaffiliated party, over (B)
Grantee's purchase price of such Option Shares.
(b) Grantee may exercise its right to relinquish the Option and any Option
Shares pursuant to this Section 15 by surrendering to Issuer, at its principal
office, a copy of this Agreement together with certificates for Option Shares,
if any, accompanied by a written notice stating (i) that Grantee elects to
relinquish the Option and Option Shares, if any, in accordance with the
provisions of this Section 15 and (ii) the Surrender Price. The Surrender Price
shall be payable in immediately available funds on or before the second business
day following receipt of such notice by Issuer.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from paying the
Surrender Price to Grantee in full, Issuer shall immediately so notify
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Grantee and thereafter deliver or cause to be delivered, from time to time, to
Grantee, the portion of the Surrender Price that it is no longer prohibited from
paying, within five business days after the date on which Issuer is no longer so
prohibited; PROVIDED, HOWEVER, that if Issuer at any time after delivery of a
notice of surrender pursuant to paragraph (b) of this Section 15 is prohibited
under applicable law or regulation, or as a consequence of administrative
policy, from paying to Grantee the Surrender Price in full, (i) Issuer shall (A)
use its reasonable best efforts to obtain all required regulatory and legal
approvals and to file any required notices as promptly as practicable in order
to make such payments, (B) within five days of the submission or receipt of any
documents relating to any such regulatory and legal approvals, provide Grantee
with copies of the same, and (c) keep Grantee advised of both the status of any
such request for regulatory and legal approvals, as well as any discussions with
any relevant regulatory or other third party reasonably related to the same and
(ii) Grantee may revoke such notice of surrender by delivery of a notice of
revocation to Issuer and, upon delivery of such notice of revocation, the
Exercise Termination Date shall be extended to a date six months from the date
on which the Exercise Termination Date would have occurred if not for the
provisions of this Section 15(c) (during which period Grantee may exercise any
of its rights hereunder, including any and all rights pursuant to this Section
15).
16. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief.
17. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or Section
5 hereof), it is the express intention of Issuer to allow the Holder to acquire
or to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
18. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
fax, telecopy, or by registered or certified mail (postage prepaid, return
receipt requested) at the respective addresses of the parties set forth in the
Merger Agreement.
19. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without regard to the conflict of law principles
thereof (except to the extent that mandatory provisions of Federal law or of the
corporation law of the State of Delaware are applicable).
20. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
21. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
22. Except as otherwise expressly provided herein, in the Reciprocal Option
or in the Merger Agreement, this Agreement contains the entire agreement between
the parties with respect to the transactions contemplated hereunder and
supersedes all prior arrangements or understandings with respect thereof,
written or oral. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assignees. Nothing in this Agreement, expressed or
implied, is intended to confer upon any party, other than the parties hereto,
and their respective successors except as assignees, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided herein.
23. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
U.S. BANCORP
By: /s/ GERRY B. CAMERON
-----------------------------------------
Name: Gerry B. Cameron
Title: Chairman of the Board, Chief
Executive Officer and President
FIRST BANK SYSTEM, INC.
By: /s/ JOHN F. GRUNDHOFER
-----------------------------------------
Name: John F. Grundhofer
Title: Chairman, President
and Chief Executive Officer
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APPENDIX D
[LOGO]
June 17, 1997
Board of Directors
First Bank System, Inc.
First Bank Place
601 Second Avenue
Minneapolis, MN 55402-4302
Members of the Board:
We understand that First Bank System, Inc. ("First Bank System") and U.S.
Bancorp, Inc. ("U.S. Bancorp") have entered into an Agreement and Plan of
Merger, dated as of March 19, 1997 (the "Agreement"), pursuant to which U.S.
Bancorp will be merged with and into First Bank System in a transaction (the
"Merger") in which each outstanding share of U.S. Bancorp common stock, par
value $5.00 per share (the "U.S. Bancorp Shares"), will be converted into the
right to receive 0.755 shares (the "Exchange Ratio") of the common stock, par
value $1.25 per share, of First Bank System (the "First Bank System Shares"),
all as set forth more fully in the Agreement.
You have asked us whether, in our opinion, the proposed Exchange Ratio in
the Merger is fair to the stockholders of First Bank System from a financial
point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) reviewed certain publicly available business and financial information
relating to First Bank System and U.S. Bancorp which we deemed to be
relevant;
(2) reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets, liabilities and prospects of
First Bank System and U.S. Bancorp, as well as the amount and timing of
the cost savings and related expenses and revenue enhancements expected
to result from the Merger (the "Expected Synergies") furnished to us by
senior management of First Bank System;
(3) conducted discussions with members of senior management of First Bank
System concerning the foregoing, including the respective businesses,
prospects, regulatory condition and contingencies of First Bank System
and U.S. Bancorp, before and after giving effect to the Merger, and the
Expected Synergies;
(4) reviewed the market prices and valuation multiples for the First Bank
System Shares and the U.S. Bancorp Shares and compared them with those
of certain publicly traded companies which we deemed to be relevant;
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(5) reviewed the results of operations of First Bank System and U.S. Bancorp
and compared them with those of certain publicly traded companies which
we deemed to be relevant; (6) reviewed the proposed financial terms of
the Merger with the financial terms of certain other transactions which
we deemed to be relevant;
(7) reviewed the PRO FORMA impact of the Merger;
(8) reviewed the Agreement and Plan of Merger; and
(9) reviewed such other financial studies and analyses and took into account
such other matters as we deemed necessary, including our assessment of
general economic, market and monetary conditions.
In preparing our opinion we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities, contingent or otherwise, of First Bank System or U.S. Bancorp or
any of their subsidiaries, nor have we been furnished with any such evaluation
or appraisal. We are not experts in the evaluation of allowances for loan losses
and we have not made an independent evaluation of the adequacy of the allowance
for loan losses of First Bank System or U.S. Bancorp, nor have we reviewed any
individual credit files relating to U.S. Bancorp or First Bank System and we
have assumed that the aggregate allowance for loan losses for each of U.S.
Bancorp and First Bank System is adequate to cover such losses and will be
adequate on a PRO FORMA basis for the combined entity. In addition, we have not
conducted any physical inspection of the properties or facilities of First Bank
System or U.S. Bancorp. With respect to the financial forecast information,
including, without limitation, financial forecasts, evaluations of contingencies
and projections regarding under-performing and non-performing assets, net
charge-offs, adequacy of reserves and future economic conditions, and the
Expected Synergies, furnished to or discussed with us by First Bank System, we
have assumed that they have been reasonably prepared and reflect the best
currently available estimates, allocations and judgment of First Bank System's
management as to the expected future financial performance of First Bank System
or U.S. Bancorp, as the case may be, and the Expected Synergies. We express no
opinion as to such financial forecast information or the Expected Synergies or
the assumptions on which they were based. We have further assumed that the
Merger will be accounted for as a pooling-of-interests under generally accepted
accounting principles and that it will qualify as a tax-free reorganization for
United States federal income tax purposes.
Our opinion is necessarily based upon market, economic and other conditions
as in effect on, and the information made available to us as of, the date
hereof. For purposes of rendering this opinion we have assumed, in all respects
material to our analysis, that the representations and warranties of each party
in the Agreement and all related documents and instruments (collectively, the
"Documents") contained therein are true and correct, that each party to the
Documents will perform all of the covenants and agreements required to be
performed by such party under such Documents, and that all conditions to the
consummation of the Merger will be satisfied without waiver thereof. We have
also assumed that in the course of obtaining the necessary regulatory or other
consents or approvals (contractual or otherwise) for the Merger, no
restrictions, including any divestiture requirements or amendments or
modifications, will be imposed that will have a material adverse effect on the
contemplated benefits of the Merger.
We are acting as financial advisor to First Bank System in connection with
the Merger and will receive a fee from First Bank System for our services, a
significant portion of which is contingent upon the consummation of the Merger.
In addition, First Bank System has agreed to indemnify us for certain
liabilities arising out of our engagement. We may have, in the past, provided
financial advisory and financing services to First Bank System and U.S. Bancorp
and may continue to do so and have received, and may receive, fees for the
rendering of such services. In addition, in the ordinary course of our business,
we may actively trade debt
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and/or equity securities of First Bank System and U.S. Bancorp and their
respective affiliates for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of First
Bank System. Our opinion does not address the merits of the underlying decision
by First Bank System to engage in the Merger, and does not constitute a
recommendation to any shareholder as to how such shareholder should vote on the
proposed Merger.
We are not expressing any opinion herein as to the prices at which the First
Bank System Shares will trade following the announcement or consummation of the
Merger.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Exchange Ratio is fair from a financial point of view
to the stockholders of First Bank System.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
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APPENDIX E
CREDIT FIRST CREDIT SUISSE FIRST BOSTON CORPORATION
SUISSE BOSTON
Eleven Madison Avenue Telephone: 212 325 2000
New York, NY 10010-3629
June 17, 1997
Board of Directors
U.S. Bancorp
111 S.W. Fifth Avenue
Portland, Oregon 97204
Members of the Board:
You have asked us to advise you with respect to the fairness to the holders of
common stock of U.S. Bancorp ("USB") from a financial point of view of the
consideration to be received by such holders pursuant to the terms of the
Agreement and Plan of Merger, dated as of March 19, 1997 (the "Merger
Agreement"), by and between USB and First Bank System, Inc. ("FBS"). The Merger
Agreement provides for, among other things, the merger of USB with and into FBS
(the "Merger") pursuant to which each outstanding share of common stock, par
value $5.00 per share, of USB (the "USB Common Stock") will be converted into
the right to receive 0.755 of a share (the "Exchange Ratio") of the common
stock, par value $1.25 per share, of FBS (the "FBS Common Stock").
In arriving at our opinion, we have reviewed the Merger Agreement and certain
publicly available business and financial information relating to USB and FBS.
We have also reviewed certain other information relating to USB and FBS,
including financial forecasts, provided to us by USB and FBS, and have met with
the management of USB and FBS to discuss the business and prospects of USB and
FBS.
We have also considered certain financial and stock market data of USB and FBS,
and we have compared those data with similar data for other publicly held
companies in businesses similar to USB and FBS, and we have considered, to the
extent publicly available, the financial terms of certain other business
combinations and other transactions which have recently been effected. We also
considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which we deemed
relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that such forecasts have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the managements of USB and FBS as to the future financial
performance of USB and FBS. We also have assumed, with your consent, that
off-balance sheet activities of USB and FBS, including derivatives and other
similar financial instruments, will not adversely affect the future financial
position and results of operations of USB and FBS. We have not been requested
to conduct, and have not conducted, a review of individual credit files or made
an independent evaluation or appraisal of the assets or liabilities (contingent
or otherwise) of USB and FBS, nor have we been furnished with any such
evaluations or appraisals, including loan or lease portfolios or the allowances
for losses with respect thereto, and have assumed, with your consent, that such
allowances for USB and FBS are in the aggregate adequate to cover such losses.
We also have assumed, with your consent, that in the course
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CREDIT FIRST CREDIT SUISSE FIRST BOSTON CORPORATION
SUISSE BOSTON
Board of Directors
U.S. Bancorp
June 17, 1997
Page 2
of obtaining the necessary regulatory and third party consents for the proposed
Merger and the transactions contemplated thereby, no restriction will be imposed
that will have a material adverse effect on the contemplated benefits of the
Merger or the transactions contemplated thereby. Our opinion is necessarily
based upon information available to us, and financial, economic, market and
other conditions as they exist and can be evaluated, on the date hereof. We are
not expressing any opinion as to the actual value of the FBS Common Stock when
issued pursuant to the Merger or the prices at which the FBS Common Stock will
trade subsequent to the Merger. In connection with our engagement, we were not
requested to, and did not, solicit third party indications of interest in
acquiring all or any part of USB.
We have acted as financial advisor to USB in connection with the Merger and will
receive a fee for our services, a significant portion of which is contingent
upon the consummation of the Merger. In the past, we have provided financial
services to USB unrelated to the proposed Merger, for which services we have
received compensation. In the ordinary course of its business, Credit Suisse
First Boston and its affiliates may actively trade the debt and equity
securities of both USB and FBS for their own accounts and for the accounts of
customers and, accordingly, may at any time hold long or short positions in such
securities.
It is understood that this letter is for the information of the Board of
Directors of USB in connection with its evaluation of the Merger, does not
constitute a recommendation to any stockholder as to how such stockholder should
vote with respect to the Merger, and is not to be quoted or referred to, in
whole or in part, in any registration statement, prospectus or proxy statement,
or in any other document used in connection with the offering or sale of
securities, nor shall this letter be used for any other purposes, without our
prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as the date
hereof, the Exchange Ratio is fair to the holders of USB Common Stock from a
financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
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APPENDIX F
U.S. BANCORP
1997 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; EFFECT ON PRIOR PLANS.
(a) PURPOSE. The purpose of the U.S. Bancorp 1997 Stock Incentive Plan (the
"Plan") is to aid in attracting and retaining employees, management personnel
and other personnel and members of the Board of Directors who are not also
employees ("Non-Employee Directors") of First Bank System, Inc. (which,
following the Merger as defined herein, will be renamed U.S. Bancorp) (the
"Company") capable of assuring the future success of the Company, to offer such
personnel and Non-Employee Directors incentives to put forth maximum efforts for
the success of the Company's business and to afford such personnel and
Non-Employee Directors an opportunity to acquire a proprietary interest in the
Company.
(b) EFFECT ON PRIOR PLANS. First Bank System, Inc. hereby adopts the Plan,
subject to approval by the stockholders of First Bank System, Inc., and subject
further to consummation of the merger of the current U. S. Bancorp with and into
First Bank System, Inc. (the "Merger") pursuant to the terms of the Agreement
and Plan of Merger by and between First Bank System, Inc. and the current U. S.
Bancorp dated as of March 19, 1997. As so established and approved, the Plan
shall be known as the 1997 Stock Incentive Plan. On the effective date of the
Plan determined in accordance with Section 10 of the Plan, for purposes of
administration and share accounting pursuant to Sections 3 and 4 of the Plan,
the following plans of First Bank System, Inc. and the current U. S. Bancorp
shall be considered to be incorporated in the Plan: the First Bank System, Inc.
1996 Stock Incentive Plan, the First Bank System, Inc. 1987 Stock Option Plan,
the 1988 Equity Participation Plan, the FirsTier Financial, Inc. Omnibus Equity
Plan (as assumed by First Bank System, Inc.), and the WCIC 1984 Stock Option and
Incentive Plan (as assumed by First Bank System, Inc.) (the "FBS Plans") and the
current U. S. Bancorp's 1993 Stock Incentive Plan, 1985 Stock Incentive Plan,
1984 Stock Incentive Plan, 1973 Stock Incentive Plan, HeartFed Option Plan, West
One Option Plan, CBI Employee Plan, 1995 Director Plan, 1993 Director Plan, 1990
Director Plan and Subsidiary Director Plan (the "U. S. Bancorp Plans"). All
outstanding options, restricted stock and other awards issued under the FBS
Plans and the U. S. Bancorp Plans shall remain subject to the terms and
conditions of the plans under which they were issued, but shares of stock
relating to outstanding options, restricted stock or other awards issued under
the FBS Plans and the U. S. Bancorp Plans are considered shares of stock subject
to the Plan under Section 4 of the Plan.
SECTION 2. DEFINITIONS.
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) any entity that, directly or indirectly
through one or more intermediaries, is controlled by the Company and (ii)
any entity in which the Company has a significant equity interest, as
determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock, Restricted Stock Unit, Performance Award or other Stock-Based Award
granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or
other instrument or document evidencing any Award granted under the Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any regulations promulgated thereunder.
(e) "Committee" shall mean a committee of the Board of Directors of the
Company designated by such Board to administer the Plan and composed of not
less than two directors, each of whom is a
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"Non-Employee Director" within the meaning of Rule 16b-3 (which term
"Non-Employee Director" is defined in this paragraph for purposes of the
definition of "Committee" only and is not intended to define such term as
used elsewhere in the Plan). Each member of the Committee shall also be an
"outside director" within the meaning of Section 162(m) of the Code.
(f) "Eligible Person" shall mean any employee, officer, director
(including any Non-Employee Director), consultant or independent contractor
providing services to the Company or any Affiliate who the Committee
determines to be an Eligible Person.
(g) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair
market value of such property determined by such methods or procedures as
shall be established from time to time by the Committee. Notwithstanding the
foregoing, for purposes of the Plan, the Fair Market Value of Shares on a
given date shall be the closing price of the Shares as reported on the New
York Stock Exchange on such date, if the Shares are then traded on the New
York Stock Exchange.
(h) "Incentive Stock Option" shall mean an option granted under Section
6(a) of the Plan that is intended to meet the requirements of Section 422 of
the Code or any successor provision.
(i) "Non-Qualified Stock Option" shall mean an option granted under
Section 6(a) of the Plan, or Section 6(g) of the Plan in the case of grants
to Non-Employee Directors, that is not intended to be an Incentive Stock
Option.
(j) "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option.
(k) "Other Stock-Based Award" shall mean any right granted under Section
6(e) of the Plan.
(l) "Participant" shall mean an Eligible Person designated to be granted
an Award under the Plan.
(m) "Performance Award" shall mean any right granted under Section6(d)
of the Plan.
(n) "Person" shall mean any individual, corporation, partnership,
association or trust.
(o) "Restricted Stock" shall mean any Share granted under Section6(c) of
the Plan.
(p) "Restricted Stock Unit" shall mean any unit granted under Section
6(c) of the Plan evidencing the right to receive a Share (or a cash payment
equal to the Fair Market Value of a Share) at some future date.
(q) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934.
(r) "Shares" shall mean shares of Common Stock, $1.25 par value, of the
Company or such other securities or property as may become subject to Awards
pursuant to an adjustment made under Section 7(c) of the Plan.
(s) "Stock Appreciation Right" shall mean any right granted under
Section 6(b) of the Plan.
SECTION 3. ADMINISTRATION.
The Plan shall be administered by the Committee. Subject to the terms of the
Plan and applicable law, the Committee shall have full power and authority to:
(i) designate Participants; (ii)determine the type or types of Awards to be
granted to each Participant under the Plan; (iii) determine the number of Shares
to be covered by (or with respect to which payments, rights or other matters are
to be calculated in connection with) each Award; (iv) determine the terms and
conditions of any Award or Award Agreement; (v) amend the terms and conditions
of any Award or Award Agreement and accelerate the exercisability of Options or
the lapse of restrictions relating to Restricted Stock or Restricted Stock
Units; (vi) determine
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whether, to what extent and under what circumstances Awards may be exercised in
cash, Shares, other securities, other Awards or other property, or canceled,
forfeited or suspended; (vii) determine whether, to what extent and under what
circumstances cash, Shares, other securities, other Awards, other property and
other amounts payable with respect to an Award under the Plan shall be deferred
either automatically or at the election of the holder thereof or the Committee;
(viii)interpret and administer the Plan and any instrument or agreement relating
to, or Award made under, the Plan; (ix) establish, amend, suspend or waive such
rules and regulations and appoint such agents as it shall deem appropriate for
the proper administration of the Plan; and (x) make any other determination and
take any other action that the Committee deems necessary or desirable for the
administration of the Plan. Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations and other decisions under or with
respect to the Plan or any Award shall be within the sole discretion of the
Committee, may be made at any time and shall be final, conclusive and binding
upon any Participant, any holder or beneficiary of any Award and any employee of
the Company or any Affiliate.
SECTION 4. SHARES AVAILABLE FOR AWARDS.
(a) SHARES AVAILABLE. Subject to adjustment as provided in Section 7(c), the
total number of Shares available for granting Awards under the Plan shall be
22,125,802 (12,894,977 of which were previously authorized and subject to
outstanding Awards under the FBS Plans or authorized and available for grant
under the First Bank System, Inc. 1996 Stock Incentive Plan, 3,230,825 of which
were previously authorized and subject to outstanding Awards under the U.S.
Bancorp Plans and 6,000,000 of which will be authorized upon stockholder
approval of the Plan and subject to consummation of the Merger); PROVIDED,
HOWEVER, that the total number of Shares authorized under the Plan shall be
deemed to be reduced automatically, as of the effective date of the Plan
determined in accordance with Section 10 of the Plan, by that number of Shares
that were subject to outstanding awards under the FBS Plans and the U. S.
Bancorp Plans, as of the date of adoption of the Plan by the First Bank System,
Inc. Board of Directors, that are no longer subject to outstanding awards as of
the date of the Merger. Not more than 1,000,000 of such Shares, subject to
adjustment as provided in Section 7(c) of the Plan, will be available for
granting additional Awards of Restricted Stock following the effective date of
the Plan determined in accordance with Section 10 of the Plan. If any Shares
covered by an Award or to which an Award relates are not purchased or are
forfeited, or if an Award otherwise terminates without delivery of any Shares,
then the number of Shares counted against the aggregate number of Shares
available under the Plan with respect to such Award, to the extent of any such
forfeiture or termination, shall again be available for granting Awards under
the Plan. In addition, any Shares that are used by a Participant as full or
partial payment to the Company of the purchase price relating to an Award, or in
connection with satisfaction of tax obligations relating to an Award, shall
again be available for granting Awards under the Plan. For purposes of the
previous two sentences, the term "Award" shall explicitly include any awards
outstanding under the FBS Plans and the U. S. Bancorp Plans as of the effective
date of the Plan determined in accordance with Section 10 of the Plan.
(b) ACCOUNTING FOR AWARDS. For purposes of this Section 4, if an Award
entitles the holder thereof to receive or purchase Shares, the number of Shares
covered by such Award or to which such Award relates shall be counted on the
date of grant of such Award against the aggregate number of Shares available for
granting Awards under the Plan. Such Shares may again become available for
granting Awards under the Plan pursuant to the provisions of Section 4(a) of the
Plan, subject to the limitations set forth in Section 4(c) of the Plan.
(c) INCENTIVE STOCK OPTIONS. Notwithstanding the foregoing, the number of
Shares available for granting Incentive Stock Options under the Plan, on and
after the effective date of the Plan determined in accordance with Section 10 of
the Plan, shall not exceed 6,000,000, subject to adjustment as provided in
Section 7(c) of the Plan and Section 422 or 424 of the Code or any successor
provisions.
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(d) AWARD LIMITATIONS UNDER THE PLAN. No Eligible Person may be granted any
Award or Awards, the value of which Awards are based solely on an increase in
the value of the Shares after the date of grant of such Awards, for more than
1,000,000 Shares (subject to adjustment as provided in Section 7(c) of the
Plan), in the aggregate, in any calendar year beginning with the year commencing
January 1, 1997. The foregoing limitation specifically includes the grant of any
"performance-based" Awards within the meaning of Section162(m) of the Code.
SECTION 5. ELIGIBILITY.
Any Eligible Person, including any Eligible Person who is an officer or
director of the Company or any Affiliate, shall be eligible to be designated a
Participant; PROVIDED, HOWEVER, that an Incentive Stock Option may only be
granted to full or part-time employees (which term as used herein includes,
without limitation, officers and directors who are also employees) and an
Incentive Stock Option shall not be granted to an employee of an Affiliate
unless such Affiliate is also a "subsidiary corporation" of the Company within
the meaning of Section 424(f) of the Code or any successor provision.
SECTION 6. AWARDS.
(a) OPTIONS. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
(i) EXERCISE PRICE. The purchase price per Share purchasable under an
Option shall be determined by the Committee; PROVIDED, HOWEVER, that such
purchase price shall not be less than 100% of the Fair Market Value of a
Share on the date of grant of such Option.
(ii) OPTION TERM. The term of each Option shall be fixed by the
Committee.
(iii) TIME AND METHOD OF EXERCISE. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part and
the method or methods by which, and the form or forms (including, without
limitation, cash, Shares, other securities, other Awards or other property,
or any combination thereof, having a Fair Market Value on the exercise date
equal to the relevant exercise price) in which, payment of the exercise
price with respect thereto may be made or deemed to have been made.
(iv) RELOAD OPTIONS. The Committee may grant "reload" options,
separately or together with another Option, pursuant to which, subject to
the terms and conditions established by the Committee and any applicable
requirements of Rule 16b-3 or any other applicable law, the Participant
would be granted a new Option when the payment of the exercise price of a
previously granted option is made by the delivery of shares of the Company's
Common Stock owned by the Participant pursuant to Section 6(a)(iii) hereof
or the relevant provisions of another plan of the Company, and/or when
shares of the Company's Common Stock are tendered or forfeited as payment of
the amount to be withheld under applicable tax laws in connection with the
exercise of an option, which new Option would be an option to purchase the
number of Shares not exceeding the sum of (A) the number of shares of the
Company's Common Stock provided as consideration upon the exercise of the
previously granted option to which such "reload" option relates and (B) the
number of shares of the Company's Common Stock tendered or forfeited as
payment of the amount to be withheld under applicable tax laws in connection
with the exercise of the option to which such "reload" option relates.
"Reload" options may be granted with respect to options granted under this
Plan or any other stock option plan of the Company or any of its affiliates
(which shall explicitly include plans assumed by the Company in connection
with mergers and the like). Such "reload" options shall have a per share
exercise price equal to the Fair Market Value as of the date of grant of the
new Option. Any such reload options shall be subject to availability of
sufficient shares for grant under the Plan.
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(b) STOCK APPRECIATION RIGHTS. The Committee is hereby authorized to grant
Stock Appreciation Rights to Participants subject to the terms of the Plan and
any applicable Award Agreement. A Stock Appreciation Right granted under the
Plan shall confer on the holder thereof a right to receive upon exercise thereof
the excess of (i) the Fair Market Value of one Share on the date of exercise
(or, if the Committee shall so determine, at any time during a specified period
before or after the date of exercise) over (ii) the grant price of the Stock
Appreciation Right as specified by the Committee, which price shall not be less
than 100% of the Fair Market Value of one Share on the date of grant of the
Stock Appreciation Right. Subject to the terms of the Plan and any applicable
Award Agreement, the grant price, term, methods of exercise, dates of exercise,
methods of settlement and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the Committee. The Committee may
impose such conditions or restrictions on the exercise of any Stock Appreciation
Right as it may deem appropriate.
(c) RESTRICTED STOCK AND RESTRICTED STOCK UNITS. The Committee is hereby
authorized to grant Awards of Restricted Stock and Restricted Stock Units to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
(i) RESTRICTIONS. Shares of Restricted Stock and Restricted Stock Units
shall be subject to such restrictions as the Committee may impose
(including, without limitation, any limitation on the right to vote a Share
of Restricted Stock or the right to receive any dividend or other right or
property with respect thereto), which restrictions may lapse separately or
in combination at such time or times, in such installments or otherwise as
the Committee may deem appropriate.
(ii) STOCK CERTIFICATES. Any Restricted Stock granted under the Plan
shall be evidenced by issuance of a stock certificate or certificates, which
certificate or certificates shall be held by the Company. Such certificate
or certificates shall be registered in the name of the Participant and shall
bear an appropriate legend referring to the restrictions applicable to such
Restricted Stock. In the case of Restricted Stock Units, no Shares shall be
issued at the time such Awards are granted.
(iii) FORFEITURE; DELIVERY OF SHARES. Except as otherwise determined by
the Committee, upon termination of employment (as determined under criteria
established by the Committee) during the applicable restriction period, all
Shares of Restricted Stock and all Restricted Stock Units at such time
subject to restriction shall be forfeited and reacquired by the Company;
PROVIDED, HOWEVER, that the Committee may, when it finds that a waiver would
be in the best interest of the Company, waive in whole or in part any or all
remaining restrictions with respect to Shares of Restricted Stock or
Restricted Stock Units. Shares representing Restricted Stock that is no
longer subject to restrictions shall be delivered to the holder thereof
promptly after the applicable restrictions lapse or are waived. Upon the
lapse or waiver of restrictions and the restricted period relating to
Restricted Stock Units evidencing the right to receive Shares, such Shares
shall be issued and delivered to the holders of the Restricted Stock Units.
(d) PERFORMANCE AWARDS. The Committee is hereby authorized to grant
Performance Awards to Participants subject to the terms of the Plan and any
applicable Award Agreement. A Performance Award granted under the Plan (i) may
be denominated or payable in cash, Shares (including, without limitation,
Restricted Stock), other securities, other Awards or other property and (ii)
shall confer on the holder thereof the right to receive payments, in whole or in
part, upon the achievement of such performance goals during such performance
periods as the Committee shall establish. Subject to the terms of the Plan and
any applicable Award Agreement, the performance goals to be achieved during any
performance period, the length of any performance period, the amount of any
Performance Award granted and the amount of any payment or transfer to be made
pursuant to any Performance Award shall be determined by the Committee.
(e) OTHER STOCK-BASED AWARDS. The Committee is hereby authorized to grant to
Participants such other Awards that are denominated or payable in, valued in
whole or in part by reference to, or otherwise
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based on or related to, Shares (including, without limitation, securities
convertible into Shares), as are deemed by the Committee to be consistent with
the purpose of the Plan; PROVIDED, HOWEVER, that such grants must comply with
applicable law. Subject to the terms of the Plan and any applicable Award
Agreement, the Committee shall determine the terms and conditions of such
Awards. Shares or other securities delivered pursuant to a purchase right
granted under this Section 6(e) shall be purchased for such consideration, which
may be paid by such method or methods and in such form or forms (including
without limitation, cash, Shares, other securities, other Awards or other
property or any combination thereof), as the Committee shall determine, the
value of which consideration, as established by the Committee, shall not be less
than 100% of the Fair Market Value of such Shares or other securities as of the
date such purchase right is granted.
(f) GENERAL. Except as otherwise specified with respect to Awards to
Non-Employee Directors pursuant to Section 6(g) of the Plan:
(i) NO CASH CONSIDERATION FOR AWARDS. Awards shall be granted for no
cash consideration or for such minimal cash consideration as may be required
by applicable law.
(ii) AWARDS MAY BE GRANTED SEPARATELY OR TOGETHER. Awards may, in the
discretion of the Committee, be granted either alone or in addition to, in
tandem with or in substitution for any other Award or any award granted
under any plan of the Company or any Affiliate other than the Plan. Awards
granted in addition to or in tandem with other Awards or in addition to or
in tandem with awards granted under any such other plan of the Company or
any Affiliate may be granted either at the same time as or at a different
time from the grant of such other Awards or awards.
(iii) FORMS OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan
and of any applicable Award Agreement, payments or transfers to be made by
the Company or an Affiliate upon the grant, exercise or payment of an Award
may be made in such form or forms as the Committee shall determine
(including, without limitation, cash, Shares, other securities, other Awards
or other property or any combination thereof), and may be made in a single
payment or transfer, in installments or on a deferred basis, in each case in
accordance with rules and procedures established by the Committee. Such
rules and procedures may include, without limitation, provisions for the
payment or crediting of reasonable interest on installment or deferred
payments.
(iv) LIMITS ON TRANSFER OF AWARDS. No Award and no right under any such
Award shall be transferable by a Participant otherwise than by will or by
the laws of descent and distribution; PROVIDED, HOWEVER, that, if so
determined by the Committee, a Participant may, in the manner established by
the Committee, designate a beneficiary or beneficiaries to exercise the
rights of the Participant and receive any property distributable with
respect to any Award upon the death of the Participant; and PROVIDED,
FURTHER, except in the case of an Incentive Stock Option, Awards may be
transferable as specifically provided in any applicable Award Agreement or
amendment thereto pursuant to terms determined by the Committee. Except as
otherwise provided in any applicable Award Agreement or amendment thereto
(other than an Award Agreement relating to an Incentive Stock Option),
pursuant to terms determined by the Committee, each Award or right under any
Award shall be exercisable during the Participant's lifetime only by the
Participant or, if permissible under applicable law, by the Participant's
guardian or legal representative. Except as otherwise provided in any
applicable Award Agreement or amendment thereto (other than an Award
Agreement relating to an Incentive Stock Option), no Award or right under
any such Award may be pledged, alienated, attached or otherwise encumbered,
and any purported pledge, alienation, attachment or encumbrance thereof
shall be void and unenforceable against the Company or any Affiliate.
(v) TERM OF AWARDS. The term of each Award shall be for such period as
may be determined by the Committee.
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(vi) RESTRICTIONS; SECURITIES EXCHANGE LISTING. All certificates for
Shares or other securities delivered under the Plan pursuant to any Award or
the exercise thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the
rules, regulations and other requirements of the Securities and Exchange
Commission and any applicable federal or state securities laws, and the
Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions. If the
Shares or other securities are traded on a securities exchange, the Company
shall not be required to deliver any Shares or other securities covered by
an Award unless and until such Shares or other securities have been admitted
for trading on such securities exchange.
(g) NON-QUALIFIED STOCK OPTIONS TO NON-EMPLOYEE DIRECTORS. The Committee
shall issue Non-Qualified Stock Options to Non-Employee Directors in
accordance with this Section 6(g).
Each Non-Employee Director serving on the Company's Board of Directors
immediately prior to the Merger was granted an Option to purchase 2,500 Shares
(subject to adjustment pursuant to Section 7(c) of the Plan) pursuant to the
terms of the First Bank System, Inc. 1991 Stock Incentive Plan or the First Bank
System, Inc. 1996 Stock Incentive Plan. Each Non-Employee Director first elected
or appointed to the Company's Board of Directors following the Merger and during
the term of the Plan shall be granted, as of the date of such Director's first
election or appointment to the Board of Directors, a Non-Qualified Stock Option
to purchase 2,500 Shares (subject to adjustment pursuant to Section 7(c) of the
Plan). Each Non-Employee Director shall be granted during the term of the Plan,
as of the date of each Annual Meeting of Stockholders of the Company commencing
with the 1998 Annual Meeting of Stockholders of the Company, if such Director's
term of office continues after such date, a Non-Qualified Stock Option to
purchase 1,700 Shares (subject to adjustment pursuant to Section 7(c) of the
Plan).
Each Non-Qualified Stock Option granted to a Non-Employee Director pursuant
to this Section 6(g) shall be exercisable in full as of the date of grant, shall
have an exercise price equal to the Fair Market Value of a Share on the date of
grant and shall expire on the tenth anniversary of the date of grant, except as
provided below.
Except as hereinafter provided, each Option granted pursuant to this Section
6(g) (including those Options granted pursuant to Section 6(h) of the First Bank
System, Inc. 1991 Stock Incentive Plan as provided therein and under Section
6(g) of the First Bank System, Inc. 1996 Stock Incentive Plan as provided
therein) shall be deemed to include a provision entitling the optionee to a
further Non-Qualified Stock Option (a "Non-Employee Director Reload Option") in
the event the optionee exercises such an Option, in whole or in part, by
surrendering other Shares in accordance with this Section 6(g) (including any
predecessor provision under the First Bank System, Inc. 1991 Stock Incentive
Plan or the First Bank System, Inc. 1996 Stock Incentive Plan) and the terms of
the Option and/or when shares of the Company's Common Stock are delivered or
withheld as payment of an amount representing tax obligations in connection with
the exercise of an option. Any such Non-Employee Director Reload Option (i)
shall be for a number of Shares equal to the sum of (x) the number of Shares
surrendered as part or all of the exercise price of the Option to which it
relates plus (y) the number of Shares, if any, delivered or withheld as payment
of an amount representing tax obligations in connection with the exercise of the
Option to which it relates; (ii) shall have an expiration date which is the same
as the expiration date of the Option to which it relates; (iii) shall have an
exercise price equal to the Fair Market Value of a Share on the date of exercise
of the Option to which it relates; and (iv) shall be exercisable in full as of
the date of grant. A Non-Employee Director Reload Option may be reloaded under
the same terms, provided that the original Option to which such series of
Non-Employee Director Reload Options relates may be reloaded a maximum of three
times. Non-Employee Director Reload Options shall only be granted to a Director
during such Director's term as a Non-Employee Director. Any such Non-Employee
Director Reload Option shall be subject to availability of sufficient shares for
grant under the Plan. Shares surrendered as part or all of the exercise price of
the Option to which it relates that have been owned by the optionee less
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than six months will not be counted for purposes of determining the number of
Shares that may be purchased pursuant to a Non-Employee Director Reload Option.
All grants of Non-Qualified Stock Options pursuant to this Section 6(g)
shall be automatic and non-discretionary and shall be made strictly in
accordance with the foregoing terms and the following additional provisions:
(i) Non-Qualified Stock Options granted to a Non-Employee Director
hereunder shall terminate and may no longer be exercised if such Director
ceases to be a Non-Employee Director of the Company, except that:
(A) If such Director's term shall be terminated for any reason other
than gross and willful misconduct, death, disability, or retirement, such
Director may at any time within a period of three months after such
termination, but not after the termination date of the Option, exercise
the Option.
(B) If such Director's term shall be terminated by reason of gross
and willful misconduct during the course of the term, including but not
limited to, wrongful appropriation of funds of the Company or the
commission of a gross misdemeanor or felony, the Option shall be
terminated as of the date of the misconduct.
(C) If such Director's term shall be terminated by reason of
disability or retirement, such Director may exercise the Option in
accordance with the terms thereof as though such termination had never
occurred. If such Director shall die following any such termination, the
Option may be exercised in accordance with its terms by the personal
representatives or administrators of such Director or by any person or
persons to whom the Option has been transferred by will or the applicable
laws of descent and distribution.
(D) If such Director shall die while a Director of the Company or
within three months after termination of such Director's term for any
reason other than disability or retirement or gross and willful
misconduct, the Option may be exercised in accordance with its terms by
the personal representatives or administrators of such Director or by any
person or persons to whom the Option has been transferred by will or the
applicable laws of descent and distribution.
(ii) Non-Qualified Stock Options granted to Non-Employee Directors may
be exercised in whole or in part from time to time by serving written notice
of exercise on the Company at its principal executive offices, to the
attention of the Company's Secretary. The notice shall state the number of
shares as to which the Option is being exercised and be accompanied by
payment of the purchase price. A Non-Employee Director may, at such
Director's election, pay the purchase price by check payable to the Company,
by promissory note, or in shares of the Company's Common Stock, or in any
combination thereof having a Fair Market Value on the exercise date equal to
the applicable exercise price. If payment or partial payment is made by
promissory note, such note shall be a full recourse note and shall (A) be
secured by the Shares to be delivered upon exercise of such Option, (B) be
limited in principal amount to the maximum amount permitted under applicable
laws, rules and regulations, (C) be for a term of six years and (D) bear
interest at the applicable federal rate (as determined in accordance with
Section 1274(d) of the Code), compounded semi-annually.
(iii) In order for a Non-Employee Director to satisfy obligations under
tax laws in connection with an Option granted pursuant to this Section 6(g)
(including any predecessor provision under the First Bank System, Inc. 1991
Stock Incentive Plan and the First Bank System, Inc. 1996 Stock Incentive
Plan), such Director may (A) elect to have the Company withhold a portion of
the Shares otherwise to be delivered upon exercise of such Option with a
Fair Market Value equal to the amount of such taxes (an "Election") or (B)
deliver to the Company Shares other than Shares issuable upon exercise of
such Option with a Fair Market Value equal to the amount of such taxes. An
Election, if any, must be made on or before the date that the amount of tax
to be withheld is determined.
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SECTION 7. AMENDMENT AND TERMINATION; ADJUSTMENTS.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) AMENDMENTS TO THE PLAN. The Board of Directors of the Company may amend,
alter, suspend, discontinue or terminate the Plan at any time and from time to
time; PROVIDED, HOWEVER, that, notwithstanding any other provision of the Plan
or any Award Agreement, without the approval of the stockholders of the Company,
no such amendment, alteration, suspension, discontinuation or termination shall
be made that, absent such approval:
(i) would violate the rules or regulations of the New York Stock
Exchange, any other securities exchange or the National Association of
Securities Dealers, Inc. that are applicable to the Company; or
(ii) would cause the Company to be unable, under the Code, to grant
Incentive Stock Options under the Plan.
(b) AMENDMENTS TO AWARDS. The Committee may waive any conditions of or
rights of the Company under any outstanding Award, prospectively or
retroactively. The Committee may not amend, alter, suspend, discontinue or
terminate any outstanding Award, prospectively or retroactively, without the
consent of the Participant or holder or beneficiary thereof, except as
otherwise herein provided.
(c) ADJUSTMENTS. In the event that any dividend or other distribution
(whether in the form of cash, Shares, other securities or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase or exchange of
Shares or other securities of the Company or other similar corporate
transaction or event affecting the Shares would be reasonably likely to
result in the diminution or enlargement of any of the benefits or potential
benefits intended to be made available under the Plan or under an Award
(including, without limitation, the benefits or potential benefits of
provisions relating to the term, vesting or exercisability of any Option,
the availability of any tandem stock appreciation rights or "reload" option
rights, if any, contained in any Option Award, and any "change in control"
or similar provisions of any Award), the Committee shall, in such manner as
it shall deem equitable or appropriate in order to prevent such diminution
or enlargement of any such benefits or potential benefits, adjust any or all
of (i) the number and type of Shares (or other securities or other property)
which thereafter may be made the subject of Awards, (ii) the number and type
of Shares (or other securities or other property) subject to outstanding
Awards and (iii) the purchase or exercise price with respect to any Award;
PROVIDED, HOWEVER, that the number of Shares covered by any Award or to
which such Award relates shall always be a whole number.
(d) CORRECTION OF DEFECTS, OMISSIONS AND INCONSISTENCIES. The Committee
may correct any defect, supply any omission or reconcile any inconsistency
in the Plan or any Award in the manner and to the extent it shall deem
desirable to carry the Plan into effect.
SECTION 8. INCOME TAX WITHHOLDING.
In order to comply with all applicable federal or state income tax laws or
regulations, the Company may take such action as it deems appropriate to ensure
that all applicable federal or state payroll, withholding, income or other
taxes, which are the sole and absolute responsibility of a Participant, are
withheld or collected from such Participant. In order to assist a Participant in
paying all federal and state taxes to be withheld or collected upon exercise or
receipt of (or the lapse of restrictions relating to) an Award, the Committee,
in its discretion and subject to such additional terms and conditions as it may
adopt, may permit the Participant to satisfy such tax obligation by (i) electing
to have the Company withhold a portion of the Shares otherwise to be delivered
upon exercise or receipt of (or the lapse of
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restrictions relating to) such Award with a Fair Market Value equal to the
amount of such taxes or (ii) delivering to the Company Shares other than Shares
issuable upon exercise or receipt of (or the lapse of restrictions relating to)
such Award with a Fair Market Value equal to the amount of such taxes. The
election, if any, must be made on or before the date that the amount of tax to
be withheld is determined.
SECTION 9. GENERAL PROVISIONS.
(a) NO RIGHTS TO AWARDS. Except as otherwise provided in Section 6(g) of the
Plan, no Eligible Person, Participant or other Person shall have any claim to be
granted any Award under the Plan, and there is no obligation for uniformity of
treatment of Eligible Persons, Participants or holders or beneficiaries of
Awards under the Plan. The terms and conditions of Awards need not be the same
with respect to different Participants.
(b) DELEGATION. The Committee may delegate to one or more officers of the
Company or any Affiliate or a committee of such officers the authority, subject
to such terms and limitations as the Committee shall determine, to grant Awards
to Eligible Persons who are not officers or directors of the Company for
purposes of Section 16 of the Securities Exchange Act of 1934, as amended.
(c) AWARD AGREEMENTS. No Participant will have rights under an Award granted
to such Participant unless and until an Award Agreement shall have been duly
executed on behalf of the Company.
(d) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements, and such arrangements may
be either generally applicable or applicable only in specific cases.
(e) NO RIGHT TO EMPLOYMENT, ETC. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ, or as
giving a Non-Employee Director the right to continue as a Director, of the
Company or any Affiliate. In addition, the Company or an Affiliate may at any
time dismiss a Participant from employment, or terminate the term of a Non-
Employee Director, free from any liability or any claim under the Plan, unless
otherwise expressly provided in the Plan or in any Award Agreement.
(f) GOVERNING LAW. The validity, construction and effect of the Plan and any
rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Minnesota.
(g) SEVERABILITY. If any provision of the Plan or any Award is or becomes or
is deemed to be invalid, illegal or unenforceable in any jurisdiction or would
disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the purpose or intent of
the Plan or the Award, such provision shall be stricken as to such jurisdiction
or Award, and the remainder of the Plan or any such Award shall remain in full
force and effect.
(h) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall create or
be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
(i) NO FRACTIONAL SHARES. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash shall be paid in lieu of any fractional Shares or whether such fractional
Shares or any rights thereto shall be canceled, terminated or otherwise
eliminated.
(j) HEADINGS. Headings are given to the Sections and subsections of the Plan
solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
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(k) SECTION 16 COMPLIANCE. The Plan is intended to comply in all respects
with Rule 16b-3 or any successor provision, as in effect from time to time and
in all events the Plan shall be construed in accordance with the requirements of
Rule 16b-3. If any Plan provision does not comply with Rule 16b-3 as hereafter
amended or interpreted, the provision shall be deemed inoperative. The Board of
Directors, in its absolute discretion, may bifurcate the Plan so as to restrict,
limit or condition the use of any provision of the Plan with respect to persons
who are officers or directors subject to Section 16 of the Securities and
Exchange Act of 1934, as amended, without so restricting, limiting or
conditioning the Plan with respect to other Participants.
SECTION 10. EFFECTIVE DATE OF THE PLAN.
The Plan shall be effective as of the effective date of the Merger, subject
to prior approval by the stockholders of First Bank System, Inc. in accordance
with applicable law.
SECTION 11. TERM OF THE PLAN.
New Awards shall only be granted under the Plan during a 10-year period
beginning on the effective date of the Plan. However, unless otherwise expressly
provided in the Plan or in an applicable Award Agreement, any Award theretofore
granted may extend beyond the end of such 10-year period, and the authority of
the Committee provided for hereunder with respect to the Plan and any Awards,
and the authority of the Board of Directors of the Company to amend the Plan,
shall extend beyond the end of such period.
F-11
<PAGE>
[LOGO]
FIRST BANK PLACE
601 SECOND AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55402-4302
June 17, 1997
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
First Bank System, Inc. ("FBS") to be held on Thursday, July 31, 1997, at 10:00
a.m. local time, at First Bank on Marquette Avenue, 10th Floor Auditorium, 90
South Sixth Street, Minneapolis, Minnesota to consider a very exciting
transaction -- the merger of FBS and U. S. Bancorp ("USBC").
At the meeting, FBS common stockholders will be asked to consider and vote
upon a proposal to approve and adopt an Agreement and Plan of Merger dated as of
March 19, 1997 (the "Merger Agreement") pursuant to which USBC will merge with
and into FBS (the "Merger"). In the Merger, each outstanding share of common
stock of USBC will be converted into the right to receive 0.755 of a share of
FBS common stock (the "Exchange Ratio"), and each outstanding share of 8 1/8%
cumulative preferred stock, Series A, of USBC will be converted into one share
of FBS preferred stock having substantially identical terms.
The combined company will be the fourteenth largest banking organization in
the United States based on assets. The combined organization will have
approximately $70 billion in assets and approximately $49 billion in deposits
and will serve nearly four million households and 475,000 businesses in 17
contiguous states from Illinois to Washington. Current FBS stockholders will in
the aggregate own approximately 54.7% of the common stock of the combined
company, which will change its name to "U.S. Bancorp" ("New USBC").
In addition, at the meeting you will be asked to consider and vote upon (i)
a proposal to increase the maximum number of FBS directors to 30 (the "FBS Board
Expansion Amendment") and (ii) a proposal to approve the New USBC 1997 Stock
Incentive Plan (the "1997 Plan").
Consummation of the Merger is subject to certain conditions, including
obtaining the requisite approvals of the Merger Agreement by FBS's and USBC's
shareholders and the appropriate regulatory authorities. However, the Merger is
not contingent upon shareholder approval of the FBS Board Expansion Amendment or
the 1997 Plan. The FBS Board Expansion Amendment and the 1997 Plan will become
effective only upon consummation of the Merger.
THE BOARD OF DIRECTORS OF FBS (WITH ONE DIRECTOR ABSENT) HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, THE FBS
BOARD EXPANSION AMENDMENT AND THE 1997 PLAN AND BELIEVES THAT THESE ACTIONS ARE
IN THE BEST INTERESTS OF FBS AND ITS SHAREHOLDERS. THE BOARD UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR EACH PROPOSAL. FBS's financial advisor, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, has rendered its written opinion to
the FBS Board of Directors dated the date of the accompanying Joint Proxy
Statement-Prospectus that the Exchange Ratio is fair, from a financial point of
view, to the holders of FBS common stock.
FBS SHAREHOLDERS ARE URGED TO READ CAREFULLY THE ACCOMPANYING NOTICE OF FBS
SPECIAL MEETING AND JOINT PROXY STATEMENT-PROSPECTUS, INCLUDING THE APPENDICES
THERETO, WHICH CONTAIN IMPORTANT INFORMATION ABOUT THE MERGER.
Whether or not you personally attend the meeting, it is very important that
your shares are represented at the Special Meeting. Failure to vote will have
the same effect as a vote against the Merger Agreement. Please complete, sign,
date and return the accompanying proxy card as soon as possible, even if you
plan to attend the special meeting. This procedure will not prevent you from
voting in person, but will ensure that your vote is counted if you are unable to
attend.
Although FBS will change its name to "U.S. Bancorp" in connection with the
Merger, certificates representing FBS Common Stock will constitute certificates
for New USBC Common Stock without any action by shareholders. ACCORDINGLY,
HOLDERS OF FBS COMMON STOCK SHOULD NOT SEND IN CERTIFICATES FOR SUCH SHARES NOW
OR AFTER THE MERGER. Upon transfer of any shares of FBS common stock following
the Merger, New USBC will cause to be issued New USBC certificates to the
purchaser or other recipient of such transfer.
On behalf of the FBS Board of Directors, I thank you for your support and
again urge you to vote FOR the approval and adoption of the Merger Agreement and
approval of the FBS Board Expansion Amendment and the 1997 Plan.
Very truly yours,
[LOGO]
John F. Grundhofer
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
<PAGE>
[LOGO]
FIRST BANK SYSTEM, INC.
FIRST BANK PLACE
601 SECOND AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55402-4302
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 31, 1997
NOTICE IS HEREBY GIVEN that a special meeting (including any adjournments or
postponements thereof, the "FBS Special Meeting") of holders of the common
stock, $1.25 par value ("FBS Common Stock" and, after the Merger described
below, "New USBC Common Stock"), of First Bank System, Inc. ("FBS" and, after
the Merger, "New USBC"), will be held on Thursday, July 31, 1997, at 10:00 a.m.
local time, at First Bank on Marquette Avenue, 10th Floor Auditorium, 90 South
Sixth Street, Minneapolis, Minnesota. The Joint Proxy Statement-Prospectus for
the FBS Special Meeting is attached and a Proxy Card is enclosed.
The FBS Special Meeting is for the purpose of considering and acting upon
the following proposals:
1. A proposal to approve and adopt the Agreement and Plan of Merger
dated as of March 19, 1997 (the "Merger Agreement") by and between U. S.
Bancorp, an Oregon corporation ("USBC"), and FBS, pursuant to which, among
other things, (i) USBC will be merged with and into FBS (the "Merger"), with
FBS as the surviving corporation, (ii) each outstanding share of common
stock, $5.00 par value, of USBC ("USBC Common Stock") will be converted into
the right to receive 0.755 of a share of New USBC Common Stock (with cash
paid in lieu of fractional shares), (iii) each outstanding share of 8 1/8%
cumulative preferred stock, Series A, $25 liquidation preference, of USBC
("USBC 8 1/8% Preferred Stock"), will be converted into one share of 8 1/8%
cumulative preferred stock, Series A, $25 liquidation preference, of New
USBC ("New USBC 8 1/8% Preferred Stock"), having terms substantially
identical to the USBC 8 1/8% Preferred Stock, and (iv) the Restated
Certificate of Incorporation of FBS, as previously amended (the "FBS
Certificate"), will be amended to increase the number of authorized shares
of FBS Common Stock from 200,000,000 to 500,000,000 and to change the name
of FBS to "U.S. Bancorp". Each outstanding share of FBS Common Stock will
remain outstanding as a share of New USBC Common Stock following the Merger.
A copy of the Merger Agreement is attached as Appendix A to the accompanying
Joint Proxy Statement-Prospectus.
2. A proposal to approve an amendment to the FBS Certificate to
increase the maximum number of FBS directors to 30 and to exempt from the
80% shareholder voting requirement any future amendment to the FBS
Certificate to reduce the maximum number of FBS directors to not less than
the greater of (i) the number of directors then in office and (ii) 24 (the
"FBS Board Expansion Amendment").
3. A proposal to approve the New USBC 1997 Stock Incentive Plan (the
"1997 Plan").
4. Such other matters as may properly come before the FBS Special
Meeting.
Approval and adoption of the Merger Agreement requires the affirmative vote
of the holders of a majority of the outstanding shares of FBS Common Stock.
Approval of the FBS Board Expansion Amendment requires the affirmative vote of
the holders of not less than 80 percent of the outstanding shares of FBS Common
Stock. Approval of the 1997 Plan requires the affirmative vote of the holders of
a majority of the shares of FBS Common Stock represented at the meeting and
entitled to vote, assuming that at least 50% of the votes entitled to be cast on
the matter are voted at the FBS Special Meeting. While the Board of Directors of
FBS recommends that FBS shareholders vote "FOR" the FBS Board Expansion
Amendment and the 1997 Plan, the approval and adoption of the Merger Agreement
and the consummation of the Merger are not contingent upon approval of the FBS
Board Expansion Amendment or the 1997 Plan. The FBS Board Expansion Amendment
and the 1997 Plan will become effective only upon consummation of the Merger.
The Board of Directors of FBS is not aware of any other business to come before
the FBS Special Meeting.
<PAGE>
THE BOARD OF DIRECTORS OF FBS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE FBS
BOARD EXPANSION AMENDMENT AND THE 1997 PLAN.
The close of business on June 9, 1997 has been fixed as the record date for
determination of the holders of FBS Common Stock entitled to notice of and to
vote at the FBS Special Meeting. A list of the holders of FBS Common Stock will
be available for examination by any FBS shareholder for purposes germane to the
FBS Special Meeting at FBS's headquarters located at First Bank Place, 601
Second Avenue South, Minneapolis, Minnesota 55402-4302 during normal business
hours for a period of at least 10 days prior to the FBS Special Meeting and at
the FBS Special Meeting.
It is very important that your shares be represented at the FBS Special
Meeting. You are urged to complete and sign the accompanying Proxy Card, which
is solicited by the Board of Directors of FBS, and mail it promptly in the
enclosed envelope. All proxies are important, so please complete each Proxy Card
sent to you and return it in the envelope provided. Your proxy will not be used
if you attend and vote at the FBS Special Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
[LOGO]
Lee R. Mitau
SECRETARY
Minneapolis, Minnesota
June 17, 1997
IMPORTANT: PLEASE RETURN EACH PROXY CARD SENT TO YOU. THE PROMPT RETURN OF
PROXIES WILL SAVE FBS THE EXPENSE OF FURTHER REQUESTS FOR PROXIES. AN ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
ALTHOUGH FBS WILL CHANGE ITS NAME TO "U.S. BANCORP" IN CONNECTION WITH THE
MERGER, CERTIFICATES REPRESENTING FBS COMMON STOCK WILL CONSTITUTE CERTIFICATES
FOR NEW USBC COMMON STOCK WITHOUT ANY ACTION BY SHAREHOLDERS. ACCORDINGLY,
HOLDERS OF FBS COMMON STOCK SHOULD NOT SEND IN CERTIFICATES FOR SUCH SHARES NOW
OR AFTER THE MERGER. UPON TRANSFER OF ANY SHARES OF FBS COMMON STOCK FOLLOWING
THE MERGER, NEW USBC WILL CAUSE TO BE ISSUED NEW USBC CERTIFICATES TO THE
RECIPIENT OF SUCH TRANSFER.
<PAGE>
CDE
U. S. BANCORP
111 SOUTHWEST FIFTH AVENUE
PORTLAND, OREGON 97204
June 17, 1997
Dear Shareholder:
You are cordially invited to attend the annual meeting of the shareholders
of U. S. Bancorp ("USBC") to be held on Thursday, July 31, 1997, at 10:00 a.m.,
local time, in the Ballroom of the Multnomah Athletic Club, 1849 S.W. Salmon,
Portland, Oregon.
At the meeting, holders of USBC common stock will be asked to consider and
vote upon a proposal to approve the Agreement and Plan of Merger dated as of
March 19, 1997 (the "Merger Agreement") by and between USBC and First Bank
System, Inc., a Delaware corporation ("FBS" and, after the merger described
below, "New USBC"), pursuant to which USBC will be merged (the "Merger") with
and into FBS, which will change its name to "U.S. Bancorp". Holders of USBC
common stock will be asked to elect directors to serve on the USBC Board of
Directors until the earlier of the next annual meeting of shareholders of USBC
or the consummation of the Merger and to approve the selection of independent
auditors for USBC for 1997, or if the Merger is consummated prior to December
31, 1997, for the period prior to consummation of the Merger.
If the Merger is approved and consummated, each share of USBC common stock
will be converted into the right to receive 0.755 of a share of New USBC common
stock (the "Exchange Ratio") and each outstanding share of USBC's 8 1/8%
Cumulative Preferred Stock, Series A (the "USBC 8 1/8% Preferred Stock") will be
converted into one share of New USBC preferred stock having substantially
identical terms as the USBC 8 1/8% Preferred Stock. Each outstanding share of
the capital stock of FBS will remain outstanding after the Merger. Also, it is
expected that each member of the USBC Board of Directors will become a member of
the New USBC Board of Directors.
Consummation of the Merger is subject to certain conditions, including
obtaining the requisite approvals of USBC's and FBS's shareholders and
appropriate regulatory authorities.
THE USBC BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
APPROVAL OF THE MERGER AGREEMENT. USBC'S FINANCIAL ADVISOR, CREDIT SUISSE FIRST
BOSTON CORPORATION, HAS RENDERED A WRITTEN OPINION TO THE USBC BOARD OF
DIRECTORS DATED THE DATE OF THE ENCLOSED JOINT PROXY STATEMENT-PROSPECTUS TO THE
EFFECT THAT, AS OF SUCH DATE AND BASED UPON AND SUBJECT TO CERTAIN MATTERS
STATED IN SUCH OPINION, THE EXCHANGE RATIO IS FAIR, FROM A FINANCIAL POINT OF
VIEW, TO HOLDERS OF USBC COMMON STOCK.
A Notice of Annual Meeting of Shareholders and a Joint Proxy
Statement-Prospectus which describes the Merger and the background to the
transaction are enclosed. I URGE YOU TO READ ALL OF THESE MATERIALS (INCLUDING
THE APPENDICES THERETO) CAREFULLY.
A proxy card is enclosed. Please indicate your voting instructions and sign,
date, and mail the proxy card promptly in the return envelope provided. Whether
or not you plan to attend the meeting in person, it is important that you return
the enclosed proxy card so that your shares are voted. FAILURE TO VOTE WILL HAVE
THE SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT.
I strongly support the Merger and join with the other members of the USBC
Board of Directors in enthusiastically recommending the Merger to you. If you
should have any questions about the Merger or need assistance in completing your
proxy card, please contact Jane Keister, Investor Relations,
U. S. Bancorp, 111 Southwest Fifth Avenue, Portland, Oregon 97204, telephone
(503) 275-6472.
Very truly yours,
Gerry B. Cameron
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE>
CDE
U. S. BANCORP
111 SOUTHWEST FIFTH AVENUE
PORTLAND, OREGON 97204
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 31, 1997
The annual meeting of shareholders of U. S. Bancorp ("USBC") will be held on
Thursday, July 31, 1997, at 10:00 a.m., local time, in the Ballroom of the
Multnomah Athletic Club, 1849 S.W. Salmon, Portland, Oregon, for the following
purposes:
1. Approving the Agreement and Plan of Merger dated as of March 19,
1997 (the "Merger Agreement") by and between USBC and First Bank System,
Inc., a Delaware corporation ("FBS" and, after the merger described below,
"New USBC"), as described in the accompanying Joint Proxy
Statement-Prospectus.
2. Electing directors to serve on the USBC Board of Directors until the
earlier of the next annual meeting of shareholders or the consummation of
the Merger (defined below).
3. Approving the selection of independent auditors for USBC for 1997
or, if the Merger is consummated prior to December 31, 1997, for the period
prior to consummation of the Merger.
4. Transacting such other business as may properly come before the
meeting.
If the merger contemplated by the Merger Agreement (the "Merger") is
consummated, USBC will be merged with and into FBS, which will change its name
to "U.S. Bancorp".
Only holders of common stock of record as of the close of business on June
9, 1997, have the right to receive notice of and to vote at the annual meeting.
Holders of USBC's 8 1/8% Cumulative Preferred Stock, Series A ("USBC 8 1/8%
Preferred Stock") are entitled to receive the Notice and the Joint Proxy
Statement-Prospectus but are not entitled to vote upon the proposal to approve
the Merger Agreement.
A copy of the Merger Agreement is attached as Appendix A to the accompanying
Joint Proxy Statement-Prospectus. As stated in the Joint Proxy
Statement-Prospectus, upon consummation of the Merger, each share of USBC common
stock will be converted into the right to receive 0.755 of a share of New USBC
common stock and each share of USBC 8 1/8% Preferred Stock will be converted
into one share of New USBC preferred stock having substantially identical terms.
Also, it is expected that each member of the USBC Board of Directors will become
a member of the Board of Directors of New USBC.
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO COMPLETE, DATE, SIGN, AND
RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED AS SOON AS POSSIBLE. THE
BOARD OF DIRECTORS OF USBC UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF
THE MERGER AGREEMENT.
By Order of the Board of Directors
Dwight V. Board
SECRETARY
June 17, 1997
<PAGE>
CDE
U. S. BANCORP
111 SOUTHWEST FIFTH AVENUE
PORTLAND, OREGON 97204
June 17, 1997
Dear Holder of USBC 8 1/8% Cumulative Preferred Stock:
Enclosed is a Notice of Annual Meeting of Shareholders and a Joint Proxy
Statement-Prospectus relating to the proposed merger (the "Merger") of U. S.
Bancorp ("USBC") with and into First Bank System, Inc. ("FBS") pursuant to the
Agreement and Plan of Merger dated as of March 19, 1997 (the "Merger Agreement")
by and between USBC and FBS. Pursuant to the Merger Agreement, FBS will be the
surviving corporation and will change its name to "U.S. Bancorp" ("New USBC").
In the Merger, each outstanding share of USBC's 8 1/8% Cumulative Preferred
Stock, Series A (the "USBC Preferred Stock"), will be converted into one share
of New USBC preferred stock having substantially identical terms as the USBC
Preferred Stock. Holders of USBC Preferred Stock are entitled to receive the
Notice and the Joint Proxy Statement-Prospectus but are not entitled to vote
upon the proposal to approve the Merger Agreement or other proposals at the
Annual Meeting or to appraisal rights under Oregon law. Accordingly, this
mailing is for your information only and no action is required on your part. On
consummation of the Merger, your USBC Preferred Stock will automatically be
converted into preferred stock of New USBC having substantially identical terms.
YOUR EXISTING CERTIFICATES REPRESENTING SHARES OF USBC PREFERRED STOCK WILL
REMAIN VALID BUT WILL THEN REPRESENT YOUR NEW USBC PREFERRED STOCK. ACCORDINGLY,
DO NOT SEND IN CERTIFICATES FOR YOUR USBC PREFERRED STOCK.
Your interest and continued support of USBC are appreciated.
Very truly yours,
Gerry B. Cameron
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE>
CDE
U. S. BANCORP
111 SOUTHWEST FIFTH AVENUE
PORTLAND, OREGON 97204
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 31, 1997
The annual meeting of shareholders of U. S. Bancorp ("USBC") will be held on
Thursday, July 31, 1997, at 10:00 a.m., local time, in the Ballroom of the
Multnomah Athletic Club, 1849 S.W. Salmon, Portland, Oregon, for the following
purposes:
1. Approving the Agreement and Plan of Merger dated as of March 19,
1997 (the "Merger Agreement") by and between USBC and First Bank System,
Inc., a Delaware corporation ("FBS" and, after the merger described below,
"New USBC"), as described in the accompanying Joint Proxy
Statement-Prospectus.
2. Electing directors to serve on the USBC Board of Directors until the
earlier of the next annual meeting of shareholders or the consummation of
the Merger (defined below).
3. Approving the selection of independent auditors for USBC for 1997
or, if the Merger is consummated prior to December 31, 1997, for the period
prior to consummation of the Merger.
4. Transacting such other business as may properly come before the
meeting.
If the merger contemplated by the Merger Agreement (the "Merger") is
consummated, USBC will be merged with and into FBS, which will change its name
to "U.S. Bancorp".
Only holders of common stock of record as of the close of business on June
9, 1997, have the right to receive notice of and to vote at the annual meeting.
Holders of USBC's 8 1/8% Cumulative Preferred Stock, Series A ("USBC 8 1/8%
Preferred Stock") are entitled to receive the Notice and the Joint Proxy
Statement-Prospectus but are not entitled to vote upon the proposal to approve
the Merger Agreement.
A copy of the Merger Agreement is attached as Appendix A to the accompanying
Joint Proxy Statement-Prospectus. As stated in the Joint Proxy
Statement-Prospectus, upon consummation of the Merger, each share of USBC common
stock will be converted into the right to receive 0.755 of a share of New USBC
common stock and each share of USBC 8 1/8% Preferred Stock will be converted
into one share of New USBC preferred stock having substantially identical terms.
Also, it is expected that each member of the USBC Board of Directors will become
a member of the Board of Directors of New USBC.
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO COMPLETE, DATE, SIGN, AND
RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED AS SOON AS POSSIBLE. THE
BOARD OF DIRECTORS OF USBC UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF
THE MERGER AGREEMENT.
By Order of the Board of Directors
Dwight V. Board
SECRETARY
June 17, 1997
