<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
U.S. BANCORP
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6711 41-0255900
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
<TABLE>
<S> <C>
LEE R. MITAU
U.S. BANK PLACE U.S. BANK PLACE
601 SECOND AVENUE SOUTH 601 SECOND AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55402-4302 MINNEAPOLIS, MINNESOTA 55402-4302
(612) 973-1111 (612) 973-1111
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including area code, of registrant's telephone number, including area code, of agent
principal executive offices) for service)
</TABLE>
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
JAY L. SWANSON JULIUS G. CHRISTENSEN KEN IKARI
ELIZABETH C. HINCK Western Bancorp Irell & Manella LLP
Dorsey & Whitney LLP 4100 Newport Place, Suite 900 333 South Hope Street, Suite
3300
220 South Sixth Street Newport Beach, California 92660 Los Angeles, California
90071-3042
Minneapolis, Minnesota 55402 (949) 863-2459 (213) 229-0524
(612) 340-8877
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: as soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(3) FEE(4)
<S> <C> <C> <C> <C>
Common Stock, $1.25 par value............... 22,058,859 shares $42.46875 $936,812,168 $260,434
</TABLE>
(1) Based upon an estimate of the maximum number of shares of common stock, no
par value (the "Western common stock"), of Western Bancorp that will be
exchanged for shares of common stock, $1.25 par value, of U.S. Bancorp
pursuant to the merger described herein.
(2) Estimated solely for the purpose of calculating the registration fee, based
upon the average of the high and low sales prices for the Western Common
Stock on July 1, 1999, as reported on the Nasdaq National Market.
(3) Calculated in accordance with Rule 457(f)(l) under the Securities Act based
on the aggregate market value of $936,812,168 of the shares of Western
common stock expected to be canceled in connection with the merger.
(4) The registration fee of $260,434 was calculated pursuant to Rule 457(f)
under the Securities Act by multiplying .000278 times the proposed maximum
aggregate offering price.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
Dear Shareholder:
The Board of Directors of Western Bancorp has agreed to merge Western into
U.S. Bancorp. We believe this merger is in your best interest as a shareholder
of Western.
At the time of the merger, each share of Western common stock that you hold
will be converted automatically into 1.2915 shares of common stock of U.S.
Bancorp. These shares of U.S. Bancorp common stock will be listed on the New
York Stock Exchange under the symbol "USB."
The merger cannot be completed until the shareholders of Western approve its
principal terms. We will hold a meeting of our shareholders to vote on this
merger proposal. YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND
THE SHAREHOLDER MEETING, PLEASE TAKE THE TIME TO VOTE BY COMPLETING AND MAILING
THE ENCLOSED PROXY CARD TO US. If you sign, date and mail your proxy card
without indicating how you want to vote, your proxy will be counted as a vote in
favor of the merger. Not returning your card or not instructing your broker how
to vote any shares held for you in street name will have the same effect as a
vote against the merger.
The date, time and place of the meeting is as follows:
, 1999, , at a.m. local time
4100 Newport Place, Third Floor
Newport Beach, California 92660
The attached documents provide you with detailed information about this
meeting and the proposed merger. You can also obtain information about Western
and about U.S. Bancorp from publicly available documents that have been filed
with the Securities and Exchange Commission. Please read these documents
carefully in their entirety.
We strongly support the merger of Western with U.S. Bancorp and recommend
that you vote in favor of it.
<TABLE>
<S> <C>
[LOGO] [LOGO]
Hugh S. Smith, Jr. Matthew P. Wagner
Chairman of the Board President and Chief Executive Officer
</TABLE>
PROXY STATEMENT/PROSPECTUS DATED , 1999
AND FIRST MAILED TO SHAREHOLDERS ON , 1999
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS
PROXY STATEMENT/PROSPECTUS OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES WE ARE OFFERING THROUGH THIS DOCUMENT ARE NOT SAVINGS OR DEPOSIT
ACCOUNTS OR OTHER OBLIGATIONS OF ANY BANK OR NON-BANK SUBSIDIARY OF EITHER OF
OUR COMPANIES, AND THEY ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
<PAGE>
[LOGO]
NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON 1999 AT A.M.
AT WESTERN BANCORP
4100 NEWPORT PLACE, THIRD FLOOR
NEWPORT BEACH, CALIFORNIA 92660
TO THE SHAREHOLDERS OF WESTERN BANCORP:
The 1999 Annual Meeting of Shareholders of Western Bancorp will be held at
Western Bancorp, 4100 Newport Place, Third Floor, Newport Beach, California
92660 on , 1999, at a.m., local time, for the following
purposes:
1. To consider and vote upon a proposal to approve the principal terms of a
proposed merger of Western with and into U.S. Bancorp pursuant to an Agreement
and Plan of Merger, dated as of May 19, 1999, between Western and U.S. Bancorp.
A copy of the agreement is attached as Appendix A to this Proxy
Statement/Prospectus. The agreement provides the terms and conditions of this
merger.
2. To elect a board of 12 directors for Western to hold office until the
merger is completed or, if the merger is not completed, until the next annual
meeting of shareholders and until their respective successors have been elected
and qualified.
3. To approve the amendment and restatement of Western's Stock Incentive
Plan to: (a) increase the maximum number of shares that may be issued pursuant
to the Stock Incentive Plan from 1,004,405 shares to 1,500,000 shares in the
aggregate; (b) permit the award of shares of common stock of Western to
participants in the Stock Incentive Plan; (c) provide for the grant of
restoration options to participants; and (d) make other technical changes.
4. To consider a shareholder proposal regarding disclosure of financial
information from current directors and prospective director nominees.
5. To consider and transact other business that may properly come before
the Annual Meeting and at any adjournments or postponements.
Only shareholders of record on the books of Western as of the close of
business on , 1999 will be entitled to notice of and to vote at the Annual
Meeting. A list of shareholders entitled to vote will be available for
inspection at the offices of Western, 4100 Newport Place, Suite 900, Newport
Beach, California 92660, for 10 days prior to the Annual Meeting.
PLEASE READ THE ENCLOSED PROXY STATEMENT/PROSPECTUS CAREFULLY. IT IS
IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING. THEREFORE,
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED SELF-ADDRESSED, POSTAGE PREPAID ENVELOPE. IF YOU LATER FIND THAT YOU
CAN BE PRESENT OR DESIRE TO REVOKE YOUR PROXY FOR ANY REASON, YOU MAY DO SO BY
VOTING IN PERSON OR MAILING IN ANOTHER PROXY TO BE RECEIVED PRIOR TO THE ANNUAL
MEETING.
By Order of the Board of Directors
/s/ Julius G. Christensen
Julius G. Christensen
Secretary
, 1999
Newport Beach, California
<PAGE>
REFERENCES TO ADDITIONAL INFORMATION
This Proxy Statement/Prospectus incorporates important business and
financial information about U.S. Bancorp and Western that is not included in or
delivered with this document. This information is available to you without
charge upon your written or oral request. You can obtain documents incorporated
by reference in this Proxy Statement/Prospectus by requesting them in writing or
by telephone from the appropriate company at the following addresses:
<TABLE>
<S> <C>
U.S. BANCORP WESTERN
Investor Relations Investor/Public Relations
U.S. Bancorp Western Bancorp
U.S. Bank Place 4100 Newport Place, Suite 900
601 Second Avenue South Newport Beach, CA 92660
Minneapolis, Minnesota 55402-4302 Telephone (949) 863-2387
Telephone (612) 973-1111
</TABLE>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY , 1999 TO
RECEIVE THEM BEFORE THE ANNUAL MEETING. IF YOU REQUEST INCORPORATED DOCUMENTS
FROM US, WE WILL MAIL THEM TO YOU BY FIRST CLASS MAIL, OR ANOTHER EQUALLY PROMPT
MEANS, WITHIN ONE BUSINESS DAY AFTER WE RECEIVE YOUR REQUEST.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY............................................................................... 1
The Merger.......................................................................... 1
General............................................................................. 1
Exchange of Shares.................................................................. 1
Western Stock Options and Warrants.................................................. 1
Dissenters' Rights.................................................................. 1
The Companies....................................................................... 2
Western Annual Meeting.............................................................. 3
Record Date; Vote Required.......................................................... 3
Voting Agreements................................................................... 3
Western's Reasons for the Merger.................................................... 3
U.S. Bancorp's Reasons for the Merger............................................... 4
Western's Recommendation to Shareholders............................................ 4
Opinion of Western's Financial Advisor.............................................. 4
Conditions to Completion of the Merger.............................................. 4
Termination of the Merger Agreement; Expenses....................................... 4
Stock Option Agreement.............................................................. 5
Waiver and Amendment................................................................ 5
Accounting Treatment................................................................ 6
Regulatory Approvals................................................................ 6
Interests of Directors and Officers in the Merger that Differ from Your Interests... 6
Material Federal Income Tax Consequences............................................ 7
Material Differences in the Rights of Shareholders.................................. 7
Forward-looking Statements May Prove Inaccurate..................................... 7
Unaudited Comparative per Common Share Data......................................... 8
Comparative per Share Market Price Information...................................... 9
Selected Financial Data............................................................. 10
THE WESTERN ANNUAL MEETING............................................................ 14
General............................................................................. 14
Matters to be Considered............................................................ 14
Record Date and Outstanding Securities.............................................. 14
Quorum and Voting................................................................... 15
Revocation of Proxies............................................................... 16
Solicitation of Proxies............................................................. 16
Communications by Western Shareholders with Western................................. 16
Independent Public Accountants...................................................... 17
Recommendation of the Western Board................................................. 17
THE MERGER (PROPOSAL 1)............................................................... 18
General............................................................................. 18
The Merger.......................................................................... 18
Conversion of Stock; Treatment of Options........................................... 18
Background and Reasons for the Merger............................................... 19
Recommendation of the Western Board of Directors and Western's Reasons for the
Merger............................................................................ 21
Opinion of Western's Financial Advisor.............................................. 22
Exchange of Certificates; Fractional Shares......................................... 30
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Effective Time...................................................................... 30
Conduct of Business Pending the Merger and Other Agreements......................... 31
Representations and Warranties...................................................... 33
Limitation on Acquisition Proposals................................................. 34
Conditions to Completion of the Merger.............................................. 35
Regulatory Approvals Required for the Merger........................................ 36
Termination of the Agreement........................................................ 38
The Stock Option Agreement.......................................................... 40
The Voting Agreements............................................................... 43
Extension, Waiver and Amendment of the Agreement.................................... 44
Stock Exchange Listing.............................................................. 44
Expenses............................................................................ 44
Indemnification of Western Directors and Officers by U.S. Bancorp................... 45
Interests of Certain Persons in the Merger.......................................... 45
Restrictions on Resales by Affiliates............................................... 47
Material Federal Income Tax Consequences............................................ 47
Accounting Treatment................................................................ 49
PRICE RANGE OF COMMON STOCK AND DIVIDENDS............................................. 49
INFORMATION ABOUT U.S. BANCORP........................................................ 50
General............................................................................. 50
Government Policies................................................................. 51
Supervision and Regulation.......................................................... 51
Additional Information.............................................................. 52
INFORMATION ABOUT WESTERN BANCORP..................................................... 52
General............................................................................. 52
Additional Information.............................................................. 52
ELECTION OF DIRECTORS OF WESTERN BANCORP (PROPOSAL 2)................................. 53
General............................................................................. 53
Information Regarding the Nominees for the Western Board............................ 53
CERTAIN INFORMATION CONCERNING THE WESTERN BOARD AND ITS COMMITTEES................... 55
Audit Committee..................................................................... 55
Executive Committee................................................................. 56
Compensation Committee.............................................................. 56
Trust Executive Committee........................................................... 58
EXECUTIVE OFFICERS OF WESTERN......................................................... 59
Executive Compensation.............................................................. 60
Options/SARs Grants in the Last Fiscal Year......................................... 61
Aggregated Option/SAR Exercises in the Last Fiscal Year and Fiscal Year-End
Option/SAR Values................................................................. 61
Long-Term Incentive Plan Awards in the Last Fiscal Year............................. 61
Compensation of Directors........................................................... 62
Employment Arrangement--Mark H. Stuenkel............................................ 62
Executive Severance Plan............................................................ 63
Performance Graph................................................................... 64
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 16 Reporting................................................................ 65
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................ 66
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................ 69
Banking Transactions................................................................ 69
Investment Banking Services......................................................... 69
The 1998 Private Placement.......................................................... 70
AMENDMENT AND RESTATEMENT OF WESTERN'S STOCK INCENTIVE PLAN (PROPOSAL 3).............. 71
Increase in Aggregate Number of Shares.............................................. 71
Provision for the Grant of Stock Awards............................................. 71
Provision for the Grant of Restoration Options...................................... 72
Technical Changes................................................................... 72
Required Vote....................................................................... 72
Summary of the Stock Incentive Plan as Amended by the 1999 Amendment................ 72
Federal Income Tax Consequences..................................................... 77
SHAREHOLDER PROPOSAL (PROPOSAL 4)..................................................... 80
Shareholder Proposal Regarding Disclosure of Certain Financial Information from
Current Directors and Prospective Director Nominees............................... 80
Shareholder's Supporting Statement.................................................. 80
Statement in Opposition to the Shareholder Proposal................................. 80
DESCRIPTION OF U.S. BANCORP CAPITAL STOCK AND COMPARISON OF SHAREHOLDER RIGHTS........ 82
Description of U.S. Bancorp Capital Stock........................................... 82
Additional Provisions of the U.S. Bancorp Certificate and U.S. Bancorp Bylaws....... 87
Comparison of Rights of U.S. Bancorp Stockholders and Western Shareholders.......... 87
DISSENTERS' APPRAISAL RIGHTS.......................................................... 98
LEGAL MATTERS......................................................................... 100
EXPERTS............................................................................... 100
SHAREHOLDER PROPOSALS................................................................. 101
OTHER MATTERS......................................................................... 101
WHERE YOU CAN FIND MORE INFORMATION................................................... 101
Information Regarding U.S. Bancorp.................................................. 101
Information Regarding Western....................................................... 102
Information Regarding U.S. Bancorp and Western...................................... 103
FORWARD-LOOKING STATEMENTS............................................................ 104
INDEX OF DEFINED TERMS................................................................ 105
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
APPENDIX A AGREEMENT AND PLAN OF MERGER............................................... A-1
APPENDIX B OPINION OF CREDIT SUISSE FIRST BOSTON CORPORATION.......................... B-1
APPENDIX C CALIFORNIA CORPORATION CODE SECTIONS DEALING WITH DISSENTERS' RIGHTS....... C-1
APPENDIX D STOCK OPTION AGREEMENT..................................................... D-1
APPENDIX E WESTERN BANCORP STOCK INCENTIVE PLAN....................................... E-1
</TABLE>
iv
<PAGE>
SUMMARY
THIS BRIEF SUMMARY HIGHLIGHTS SOME INFORMATION FROM THE PROXY
STATEMENT/PROSPECTUS. IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. WE URGE YOU TO CAREFULLY READ THE ENTIRE PROXY
STATEMENT/PROSPECTUS AND THE OTHER DOCUMENTS TO WHICH THIS DOCUMENT REFERS TO
FULLY UNDERSTAND THE PROPOSED MERGER. SEE "WHERE YOU CAN FIND MORE INFORMATION."
THE MERGER (PAGE 18)
We have attached the Agreement and Plan of Merger, dated as of May 19, 1999,
between U.S. Bancorp and Western Bancorp to this Proxy Statement/Prospectus as
Appendix A. Please read the merger agreement. It is the legal document that
governs the merger.
GENERAL (PAGE 18)
We propose a transaction in which Western will merge into U.S. Bancorp. After
the merger, you will no longer own shares of Western, and your shares of Western
common stock will be exchanged for shares of U.S. Bancorp common stock as
described below. Subject to obtaining the approvals required, we expect to
complete the merger by October 1999.
A brief description of U.S. Bancorp can be found under the caption "INFORMATION
ABOUT U.S. BANCORP." More complete information on the business, operations and
management of U.S. Bancorp can be found in U.S. Bancorp's public reports. See
"WHERE YOU CAN FIND MORE INFORMATION."
EXCHANGE OF SHARES (PAGES 18 AND 30)
When the merger is completed, each of your shares of Western common stock will
automatically become the right to receive shares of U.S. Bancorp common stock.
According to the exchange ratio agreed to by U.S. Bancorp and Western, you will
receive 1.2915 shares of U.S. Bancorp common stock for each share of Western
common stock that you own. If the average closing price of the U.S. Bancorp
common stock falls below specified levels prior to the completion of the merger,
U.S. Bancorp may, at its discretion, adjust the exchange ratio so that the value
of the merger consideration per share of Western common stock does not fall
below $36.80. See "THE MERGER--General" and "--Termination of Agreement."
You will have to surrender your Western common stock certificates to receive new
certificates representing shares of U.S. Bancorp common stock. This will not be
necessary until you receive written instructions after we have completed the
merger.
DO NOT SEND STOCK CERTIFICATES WITH YOUR PROXY CARD.
WESTERN STOCK OPTIONS AND WARRANTS (PAGE 18)
In the merger, except for some options issued to Matthew P. Wagner, the
President and Chief Executive Officer of Western, each option to buy a share of
Western common stock granted under Western's stock option plans will be
converted into the right to receive a number of shares of U.S. Bancorp common
stock equal to the "net option value" divided by $35.62, plus cash for any
fractional share. The "net option value" is equal to the difference, if
positive, between $46.00 and the exercise price of the Western stock option.
Options with exercise prices equal to or above $46.00 will be canceled without
payment. Mr. Wagner's options to purchase Western common stock will be converted
into options to purchase U.S. Bancorp common stock on terms intended to provide
him substantially the same economic results, as set forth in a separate
agreement between Mr. Wagner and U.S. Bancorp. Each of Western's outstanding
warrants will become a warrant to buy U.S. Bancorp common stock. The Western
warrants will be exchanged for U.S. Bancorp warrants with the same terms and
conditions as the original Western warrants. The number of shares of U.S.
Bancorp common stock subject to each new warrant, as well as the exercise price
of that warrant, will be adjusted to reflect the exchange ratio in the merger.
DISSENTERS' RIGHTS (PAGE 98)
Holders of Western common stock who do not vote in favor of the merger and who
have fully complied with all applicable provisions of the California General
Corporation Law may have the right to require U.S. Bancorp to purchase the
shares of Western common stock held by them
<PAGE>
for cash at the fair market value of those shares on the day prior to the date
the merger was announced. See "DISSENTERS' APPRAISAL RIGHTS." Appendix C
contains a copy of the relevant provisions of the California General Corporation
Law. The value of the dissenting shares, determined in accordance with
California General Corporation Law, may be more or less than the value of the
shares of U.S. Bancorp common stock to be received in connection with the
merger.
THE COMPANIES (PAGES 50 AND 52)
U.S. BANCORP
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-9302
(612) 973-1111
U.S. Bancorp is a regional multi-state bank holding company with its
headquarters in Minneapolis, Minnesota. U.S. Bancorp operates four banks and
eleven trust companies with banking offices in 17 Midwestern and Western states.
U.S. Bancorp offers full-service brokerage services at approximately 100 offices
through a wholly owned subsidiary. The banking subsidiaries of U.S. Bancorp are
engaged in general retail and commercial banking business, and provide a wide
variety of services to individuals, businesses, industry, institutional
organizations, governmental entities and other financial institutions. U.S.
Bancorp also has various other subsidiaries engaged in financial services.
At March 31, 1999, U.S. Bancorp's assets totaled approximately $76.1 billion,
its deposits totaled approximately $48.7 billion and its shareholders' equity
totaled approximately $6.2 billion. U.S. Bancorp's market capitalization of
nearly $25 billion at March 31, 1999 placed it eighth among U.S. bank holding
companies. For the quarter ended March 31, 1999, U.S. Bancorp reported a return
on average assets of 1.99%, a return on average common equity of 24.6% and an
efficiency ratio of 50.4%, before nonrecurring items. Without the impact of
investment banking and brokerage activity, its efficiency ratio was 43.3%.
For further information concerning U.S. Bancorp, see "INFORMATION ABOUT U.S.
BANCORP" and "SUMMARY--Selected Financial Data--Selected Historical Financial
Data of U.S. Bancorp" and the U.S. Bancorp documents incorporated by reference
in this Proxy Statement/Prospectus as described under "WHERE YOU CAN FIND MORE
INFORMATION."
WESTERN BANCORP
4100 Newport Place, Suite 900
Newport Beach, California 92660
(949) 863-2351
Western is a bank holding company with two bank subsidiaries, Southern
California Bank and Santa Monica Bank. Southern California Bank primarily serves
Los Angeles, Orange and San Diego Counties and the surrounding market in
Southern California. Santa Monica Bank's primary market area is the western part
of Los Angeles County. As of March 31, 1999, Santa Monica Bank had 16 branch
offices, including branch offices in Santa Monica, Westwood, Malibu, Pacific
Palisades, Marina del Rey, Beverly Hills, Century City, Encino, West Hollywood,
Culver City and Glendale. Southern California Bank's primary market area
includes southern Los Angeles County, Orange County and northern San Diego
County. As of March 31, 1999, Southern California Bank had six branch offices in
southern Los Angeles County, eight branch offices throughout Orange County and
one in northern San Diego County.
Western, through Southern California Bank and Santa Monica Bank, offers a broad
range of banking products and services, including many types of business and
personal savings and checking accounts and other banking products and services,
including escrow services, international banking services, asset based lending
services, real estate loans and mortgage loans, cash management services and
trust services.
On March 31, 1999, Western's assets were approximately $2.5 billion, its
deposits were approximately $2.1 billion and its shareholders' equity was
approximately $355 million. For the quarter ended March 31, 1999, Western
reported a return on average assets of 1.46%, a return on average common equity
of 10.2% and an efficiency ratio of 59.0%. On an operating basis, before the
amortization of goodwill, its efficiency ratio was 52.8%.
For further information concerning Western, see "INFORMATION ABOUT WESTERN
2
<PAGE>
BANCORP" and "SUMMARY--Selected Financial Data--Selected Historical Financial
Data of Western" herein. You can obtain additional information on Western from
the other documents that are incorporated by reference in this Proxy
Statement/Prospectus. See "WHERE YOU CAN FIND MORE INFORMATION."
WESTERN ANNUAL MEETING (PAGE 14)
The Annual Meeting of Shareholders of Western will be held on , 1999,
at a.m., local time, at Western Bancorp, 4100 Newport Place, Third Floor,
Newport Beach, California 92660. At the Annual Meeting, shareholders of Western
will be asked:
- to consider and vote on a proposal to approve the principal terms of the
proposed merger of Western with U.S. Bancorp;
- to elect 12 persons to serve as directors of Western;
- to approve an amendment and restatement of Western's Stock Incentive Plan
to: (a) increase the maximum number of shares that may be issued pursuant
to the Stock Incentive Plan from 1,004,405 shares to 1,500,000 shares in
the aggregate; (b) permit the award of shares of Western common stock to
participants in the Western Stock Incentive Plan; (c) provide for the
grant of restoration options to participants; and (d) make other technical
changes;
- to consider a shareholder proposal regarding disclosure of financial
information from current directors and prospective director nominees; and
- to consider and transact other business that may properly come before the
Annual Meeting and at any adjournments or postponements.
If the merger is approved by Western shareholders and we subsequently complete
the merger, the other proposals, if approved, will only be effective until the
merger is completed, which we expect will occur by October 1999.
RECORD DATE; VOTE REQUIRED (PAGES 14 AND 15)
You can vote at the Annual Meeting if you owned Western common stock at the
close of business on , 1999. You can cast one vote for each share of
Western common stock you owned at that time, except that in the election of
directors you may have the right to vote your shares cumulatively. To approve
the principal terms of the merger, the holders of a majority of the outstanding
shares of Western common stock allowed to vote at the Annual Meeting must vote
in favor of doing so.
If you are the registered owner of your shares, you may vote them in person by
attending the Annual Meeting or by mailing us your proxy if you are unable or do
not wish to attend. If your shares are deposited with a broker, they will advise
you about the Annual Meeting and how to instruct them to vote your shares
(usually by signing and returning your proxy card to them). You can revoke your
proxy at any time before the Annual Meeting by sending a written notice revoking
the proxy or a later-dated proxy to the Secretary of Western or the inspector of
elections, or by attending the Annual Meeting and filing a written notice
revoking the proxy before any votes are taken at the Annual Meeting.
VOTING AGREEMENTS (PAGE 43)
Under voting agreements with U.S. Bancorp, each of the members of the Western
board of directors and each executive officer of Western has agreed to vote his
or her shares of Western common stock in favor of the merger. As of July 1,
1999, these directors and executive officers together were able to direct the
voting of 3,839,582 shares (or approximately 18.1%) of the outstanding Western
common stock.
WESTERN'S REASONS FOR THE MERGER (PAGE 21)
Management of Western believes that the merger will enable Western and U.S.
Bancorp together to compete more effectively with larger banking institutions
resulting from consolidation in the financial services industry. Management also
believes that Western and U.S. Bancorp complement each other in their approaches
to banking in terms of their markets, both geographic and demographic. Finally,
Western management believes that, as a result of the merger, Western and U.S.
Bancorp will be able to
3
<PAGE>
more effectively take advantage of banking opportunities in California and in
other parts of the United States.
U.S. BANCORP'S REASONS FOR THE MERGER
U.S. Bancorp believes that the merger will provide U.S. Bancorp with an
attractive opportunity to expand its operations in Southern California,
particularly in Los Angeles, Orange and San Diego counties. U.S. Bancorp
believes that Western's locations and business mix complement U.S. Bancorp's
current position in California and will enable U.S. Bancorp to offer its broad
array of products and services to customers of Western.
WESTERN'S RECOMMENDATION TO SHAREHOLDERS (PAGES 17 AND 21)
The board of directors of Western believes that the merger is fair to you and in
your best interests, and unanimously recommends that you vote "FOR" the proposal
to approve the principal terms of the merger.
OPINION OF WESTERN'S FINANCIAL ADVISOR (PAGE 22)
Credit Suisse First Boston Corporation has acted as a financial advisor to
Western's board of directors in connection with the merger and has delivered to
the Western board of directors its written opinion that, as of the date of the
signing of the merger agreement, based upon and subject to various
qualifications and assumptions described in its opinion, the exchange ratio of
one share of Western common stock for 1.2915 shares of U.S. Bancorp common stock
is fair to the Western shareholders from a financial point of view. We have
attached the full text of the opinion to this Proxy Statement/Prospectus as
Appendix B. You should read it completely to understand the assumptions made,
matters considered and the limitations of the review made by Credit Suisse First
Boston in providing its opinion.
If we complete the merger, Western will pay to Credit Suisse First Boston a cash
fee equal to $1,000,000. Western has also agreed to reimburse Credit Suisse
First Boston for its reasonable out-of-pocket expenses, disbursements and
liabilities assumed related to its engagement.
Belle Plaine Financial LLC and its affiliate, Belle Plaine Partners, Inc., have
also served as financial advisors to Western since May 17, 1995, including in
connection with the merger. If we complete the merger, Western will pay to Belle
Plaine Financial a cash fee equal to $1,500,000. Western has also agreed to
reimburse Belle Plaine Financial for its reasonable out-of-pocket expenses,
disbursements and liabilities assumed related to its engagement.
CONDITIONS TO COMPLETION OF THE MERGER (PAGE 35)
The completion of the merger depends on a number of conditions being met. These
include:
- approval of the principal terms of the merger and the merger agreement by
a majority of the Western shareholders;
- approval of the merger by the federal and state regulatory authorities of
Western and U.S. Bancorp;
- approval by the New York Stock Exchange of the listing of any newly issued
shares of U.S. Bancorp common stock that U.S. Bancorp will issue in the
merger; and
- the absence of (1) any injunction or legal restraint blocking the merger
or (2) any proceedings by a government body trying to block the merger.
Either Western or U.S. Bancorp could choose to complete the merger even though a
condition has not been satisfied, as long as it is not prohibited by law.
Western and U.S. Bancorp cannot be certain when, or if, the conditions to the
merger will be satisfied or waived, or that the merger will be completed.
TERMINATION OF THE MERGER AGREEMENT; EXPENSES (PAGES 38 AND 40)
Western and U.S. Bancorp can agree at any time to terminate the merger agreement
without completing the merger. Also, either party can decide to terminate the
merger agreement if:
- the other party breaches the merger agreement in a material way, and the
breaching party does not correct the breach within 30 days;
- the merger has not been completed by December 31, 1999, unless the failure
to complete the merger by that time is due to a violation of the merger
agreement by the
4
<PAGE>
party that wants to terminate the merger agreement;
- any government agency denies an approval needed to complete the merger,
and that denial has become final and nonappealable;
- Western does not obtain shareholder approval; or
- a condition in the merger agreement becomes impossible to satisfy.
U.S. Bancorp may also terminate the merger agreement if Western's board of
directors withdraws or modifies, in some way adverse to U.S. Bancorp, its
recommendation to the Western shareholders to approve the principal terms of the
merger prior to the Annual Meeting or any adjournments or postponements of the
Annual Meeting.
Western may also terminate the merger agreement if there is a significant
decrease in U.S. Bancorp's common stock trading price and the exchange ratio is
not adjusted to allow Western shareholders to receive a minimum merger
consideration equal to $36.80 in U.S. Bancorp common stock for each share of
Western common stock.
If the merger agreement is terminated and the merger abandoned under certain
circumstances, Western will pay to U.S. Bancorp $5,000,000 as a termination fee.
Western would only be required to pay this fee in the event of any of the
following:
- termination of the merger agreement by U.S. Bancorp due to a material
breach by Western;
- a failure on the part of the Western board of directors to recommend the
merger; or
- a failure of Western to obtain the necessary shareholder approval in the
event that a party other than U.S. Bancorp has made or intends to make a
takeover proposal for Western.
If the merger agreement is terminated due to a material breach by U.S. Bancorp,
U.S. Bancorp will pay Western a termination fee of $5,000,000.
Except in the case of a willful breach by U.S. Bancorp, payment of the
termination fee by either party will relieve that party of any liability for a
breach of any of its representations, warranties, covenants or other agreements
contained in the merger agreement.
STOCK OPTION AGREEMENT (PAGE 40)
As an inducement and condition to U.S. Bancorp's entering into the merger
agreement, Western entered into a Stock Option Agreement dated May 19, 1999.
Pursuant to the stock option agreement, Western granted to U.S. Bancorp an
unconditional, irrevocable option to purchase up to 4,201,049 authorized but
unissued shares of Western common stock for a purchase price per share of
$40.125, subject to adjustment in some circumstances. U.S. Bancorp may exercise
this option only if some limited conditions specified in the stock option
agreement occur. To the best of Western's and U.S. Bancorp's knowledge, none of
these circumstances has occurred as of the date of this Proxy Statement/
Prospectus. Pursuant to the stock option agreement, the number of shares of
Western common stock that U.S. Bancorp may purchase upon exercise of the option
may not be greater than 19.9% of the shares of Western common stock outstanding
at the time of the exercise. The purchase of Western common stock pursuant to
the stock option agreement is subject to compliance with applicable law,
including receipt of any necessary approvals under the Bank Holding Company Act
of 1956.
The stock option agreement is intended to increase the likelihood that the
merger will be completed according to the terms set forth in the merger
agreement, and may be expected to discourage offers by third parties to acquire
Western prior to the completion of the merger.
WAIVER AND AMENDMENT (PAGE 44)
Western and U.S. Bancorp may jointly amend the merger agreement. In addition,
each party may waive its right to require the other party to adhere to the terms
and conditions of the merger agreement. However, Western may not amend the
merger agreement or waive a term of the merger agreement after Western
shareholders approve the principal terms of the merger if the amendment or
waiver (1) affects a principal term of the merger agreement, such as reducing or
changing the consideration that will be received by Western shareholders or (2)
violates the California General Corporation Law.
5
<PAGE>
ACCOUNTING TREATMENT (PAGE 49)
U.S. Bancorp expects to account for the merger using the purchase method of
accounting under generally accepted accounting principles.
REGULATORY APPROVALS (PAGE 36)
We cannot complete the merger unless it is approved or exempted by the
California Department of Financial Institutions and the Comptroller of Currency.
In addition, we cannot complete the merger until we receive approval or a waiver
from the Board of Governors of the Federal Reserve System. Once the Board of
Governors of the Federal Reserve System, the California Department of Financial
Institutions and the Comptroller of Currency approve the merger or grant a
waiver or exemption, as applicable, we have to wait anywhere from 15 to 30 days
before we can complete the merger, during which time the Department of Justice
can challenge the merger.
In addition, the merger is subject to the approval of, or notice to, state and
other regulatory authorities.
Western and U.S. Bancorp have filed all of the required applications or notices
with the Board of Governors of the Federal Reserve System, the California
Department of Financial Institutions, the Comptroller of Currency and any other
regulatory authorities.
As of the date of this Proxy Statement/Prospectus, we have not received all of
the required approvals or waivers. While we do not know of any reason that we
would not be able to obtain the necessary approvals, exemptions or waivers in a
timely manner, we cannot be certain when or if we will obtain them.
INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER THAT DIFFER FROM YOUR
INTERESTS (PAGE 45)
Some executive officers and directors of Western have interests in the merger
that are somewhat different than yours because the terms of their agreements and
arrangements with Western give them additional benefits when a change in control
of Western occurs. These agreements and arrangements include:
- financial advisory agreements with Belle Plaine Partners, Inc. and Belle
Plaine Financial LLC, of which John M. Eggemeyer, a director of Western,
is a principal;
- the executive severance plan maintained by Western; and
- stock options held by directors and executive officers of Western that
accelerate on a change in control event, such as the merger.
At the time of the signing of the merger agreement, some of these plans and
agreements were modified at U.S. Bancorp's request and with the consent of the
individuals and entities affected by the requested changes. The Belle Plaine
entities and Messrs. Eggemeyer and Wagner also agreed to confidentiality and
non-solicitation agreements with U.S. Bancorp, which will become effective upon
completion of the merger, in consideration for some payments to be made by U.S.
Bancorp, and Mr. Wagner agreed to exchange his Western stock options for options
to purchase U.S. Bancorp common stock at the time the merger is completed. See
"THE MERGER--Interests of Certain Persons in the Merger" beginning on page 45
and "EXECUTIVE OFFICERS OF WESTERN-- Employment Arrangement--Mark H. Stuenkel"
beginning on page 62.
In addition, U.S. Bancorp will pay consulting fees totaling approximately
$70,000 to Mr. Wagner for his consulting services to U.S. Bancorp during the six
months following the merger. At or after the completion of the merger, David I.
Rainer, the President and Chief Executive Officer of Santa Monica Bank, will be
paid a $360,000 retention bonus by U.S. Bancorp and will be granted stock
options to purchase 60,000 shares of U.S. Bancorp common stock, 6,000 shares of
restricted U.S. Bancorp common stock that vests in equal amounts on the third,
fourth and fifth anniversaries of the completion of the merger and $720,000
worth of restricted U.S. Bancorp common stock that vests in equal amounts on the
first and second anniversaries of the completion of the merger. See "THE
MERGER--Interests of Certain Persons in the Merger" beginning on page 45.
Also, following the merger, U.S. Bancorp will purchase directors' and officers'
insurance for the officers and directors of Western and will indemnify officers
and directors of Western for events occurring before the merger, including
6
<PAGE>
events that are related to the merger agreement. This indemnity and insurance
will be in addition to the indemnification and insurance to which those officers
and directors of Western who become officers and directors of U.S. Bancorp
following the completion of the merger will be entitled while acting in that
capacity at and after the merger. See "THE MERGER-- Indemnification of Western
Directors and Officers by U.S. Bancorp" beginning on page 45.
Western's board of directors knew about the interests of Western's executive
officers and directors described above, and considered them when it approved the
merger agreement and the merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE 47)
We expect that for United States federal income tax purposes, your exchange of
shares of Western common stock for shares of U.S. Bancorp common stock generally
will not cause you to recognize any gain or loss. You will, however, have to
recognize income or gain in connection with any cash you receive for your
fractional shares or pursuant to the exercise of your dissenters' rights.
THIS TAX TREATMENT MAY NOT APPLY TO EVERY WESTERN SHAREHOLDER. DETERMINING THE
ACTUAL TAX CONSEQUENCES OF THE MERGER TO YOU MAY BE COMPLICATED. THEY WILL
DEPEND ON YOUR SPECIFIC SITUATION AND ON SPECIAL FACTS NOT WITHIN OUR CONTROL.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR FOR A FULL UNDERSTANDING OF THE MERGER'S
TAX CONSEQUENCES.
See "THE MERGER--Material Federal Income Tax Consequences" beginning on page 47.
MATERIAL DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS (PAGE 87)
The rights of U.S. Bancorp stockholders are governed by Delaware law and U.S.
Bancorp's Certificate of Incorporation and Bylaws. The rights of Western
shareholders are governed by California law and Western's Articles of
Incorporation and Bylaws. If the merger is completed, Western shareholders will
become shareholders of U.S. Bancorp, and the rights of Western shareholders will
be governed by Delaware law and by U.S. Bancorp's Certificate of Incorporation
and Bylaws.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE 104)
We have each made forward-looking statements in this Proxy Statement/Prospectus
(and in documents to which we refer you in this Proxy Statement/Prospectus) that
are subject to risks and uncertainties. These forward-looking statements include
information about possible or assumed future results of our respective
operations, the performance of U.S. Bancorp after the merger is completed and
our expectations regarding the merger. When we use any of the words "believes,"
"expects," "anticipates," "estimates" or similar expressions, we are making
forward-looking statements. Many possible events or factors could affect the
future financial results and performance of each of our companies and the
performance of U.S. Bancorp after the merger and could cause those results or
performance to differ materially from those expressed in our forward-looking
statements. These possible events or factors include the following:
- increased competition among financial services companies;
- changes in interest rates that reduce our interest margins;
- changes in general economic conditions that occur or that are worse than
we expected;
- legislative or regulatory changes that adversely affect our business or
the merger;
- increased personal or commercial customers' bankruptcies; and
- technology-related changes, including "Year 2000" compliance.
7
<PAGE>
UNAUDITED COMPARATIVE PER COMMON SHARE DATA
The following table presents selected comparative unaudited per share data
for U.S. Bancorp on a historical and pro forma combined basis, and for Western
on a historical and pro forma equivalent basis, giving effect to the merger
using the purchase method of accounting. The information presented below is
derived from the consolidated historical financial statements of U.S. Bancorp
and Western, including the related notes, incorporated by reference into this
Proxy Statement/Prospectus. This information should be read in conjunction with
the historical financial statements and the related notes. See "WHERE YOU CAN
FIND MORE INFORMATION." The per share data included below is not necessarily
indicative of the results of future operations of the combined entity or the
actual results that would have been achieved had the merger been completed prior
to the periods indicated.
The pro forma combined book values per share of U.S. Bancorp common stock
are based upon the pro forma total common equity for U.S. Bancorp and Western,
divided by the total pro forma shares of U.S. Bancorp common stock, assuming
conversion of Western common stock at an exchange ratio of 1.2915 shares of U.S.
Bancorp common stock for each share of Western common stock as provided in the
merger agreement. The pro forma equivalent book values per share of Western
common stock represent the pro forma combined amounts multiplied by the exchange
ratio. The pro forma combined dividends declared assume no changes in the
historical dividends declared per share of U.S. Bancorp common stock. The pro
forma equivalent dividends per share of Western common stock represent the cash
dividends declared on a share of U.S. Bancorp common stock multiplied by the
exchange ratio. The pro forma combined net income per share has been computed
based on the average number of outstanding shares of U.S. Bancorp, and the
average number of outstanding shares of Western common stock adjusted for the
exchange ratio. The pro forma equivalent net income per share of Western common
stock represents the pro forma combined net income multiplied by the exchange
ratio.
<TABLE>
<CAPTION>
U.S. BANCORP
COMMON STOCK WESTERN COMMON STOCK
------------------------ ------------------------
PRO FORMA PRO FORMA
HISTORICAL COMBINED HISTORICAL EQUIVALENT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BOOK VALUE:
March 31, 1999.............................. $ 8.50 $ 9.49 $ 16.98 $ 12.26
December 31, 1998........................... 8.23 9.28 16.88 11.99
DIVIDENDS DECLARED:
Three months ended March 31, 1999........... .195 .195 .225 .252
Year ended December 31, 1998................ .70 .70 .675 .904
NET INCOME:
Three months ended March 31, 1999........... .51 .49 .43 .63
Year ended December 31, 1998................ 1.81 1.73 1.00 2.23
</TABLE>
8
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
Shares of U.S. Bancorp common stock are listed on the New York Stock
Exchange, and shares of Western common stock are listed on the Nasdaq National
Market. The following table sets forth the closing prices per share of U.S.
Bancorp common stock and Western common stock and the "equivalent per share
price" (as explained below) of Western common stock as of May 18, 1999, the last
trading day before the date on which U.S. Bancorp and Western announced the
merger, and as of , 1999, the last practicable date prior to the date
of this Proxy Statement/Prospectus. The "equivalent per share price" of Western
common stock on any date equals the closing price of the U.S. Bancorp common
stock on that date multiplied by the exchange ratio of 1.2915 shares of U.S.
Bancorp common stock for each share of Western common stock.
<TABLE>
<CAPTION>
U.S. BANCORP WESTERN EQUIVALENT
MARKET PRICE PER SHARE AS OF COMMON STOCK COMMON STOCK PER SHARE PRICE
- --------------------------------------------- -------------- --------------- ---------------
<S> <C> <C> <C>
May 18, 1999................................. $ 34.375 $ 39.00 $ 44.40
, 1999................................. $ $ $
</TABLE>
Of course, the market prices of U.S. Bancorp common stock and Western common
stock will fluctuate prior to the merger. Therefore, you are encouraged to
obtain current stock price quotations for U.S. Bancorp common stock and Western
common stock prior to the completion of the merger.
9
<PAGE>
SELECTED FINANCIAL DATA
In the following tables, we provide you with summary historical financial
data of U.S. Bancorp and Western. We have prepared this information using the
unaudited consolidated financial statements for the three-month periods ended
March 31, 1999 and 1998, the audited consolidated financial statements for the
five years ended December 31, 1998 of U.S. Bancorp and for the three years ended
December 31, 1998 of Western, and Western's unaudited consolidated financial
statements as of December 31, 1996 and for the years ended December 31, 1995 and
1994.
When you read this summary historical data, it is important that you also
read the historical financial statements and related notes in the quarterly and
annual reports filed with the Securities Exchange Commission, as well as the
section of the quarterly and annual reports titled "Management's Discussion and
Analysis of Financial Condition and Results of Operations." See "WHERE YOU CAN
FIND MORE INFORMATION" on page 101.
10
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF U.S. BANCORP
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
INCOME STATEMENT DATA: 1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Net interest income (taxable-
equivalent basis)............... $ 793.4 $ 768.0 $ 3,111.9 $ 3,106.0 $ 3,034.7 $ 2,886.6 $ 2,809.6
Provision for credit losses....... 117.0 90.0 379.0 460.3 271.2 239.1 243.7
--------- --------- --------- --------- --------- --------- ---------
Net interest income after
provision for credit losses..... 676.4 678.0 2,732.9 2,645.7 2,763.5 2,647.5 2,565.9
Securities gains (losses)......... -- 12.6 12.6 3.6 20.8 3.0 (124.2)
Other nonrecurring gains.......... -- -- -- 9.4 330.6 44.8 52.6
Other noninterest income.......... 626.3 445.9 2,244.0 1,602.2 1,431.7 1,265.5 1,186.5
Restructuring and merger-related
charges......................... 2.9 46.5 216.5 511.6 88.1 98.9 225.3
Other nonrecurring charges........ -- -- -- -- 118.2 38.2 27.2
Other noninterest expense......... 715.9 559.1 2,627.8 2,300.7 2,331.8 2,338.8 2,479.6
--------- --------- --------- --------- --------- --------- ---------
Income from continuing operations
before income taxes............. 583.9 530.9 2,145.2 1,448.6 2,008.5 1,484.9 948.7
Taxable-equivalent adjustment..... 10.7 13.1 51.3 57.9 64.1 63.9 69.0
Income taxes...................... 206.4 189.3 766.5 552.2 725.7 523.9 311.5
Income from continuing
operations...................... 366.8 328.5 1,327.4 838.5 1,218.7 897.1 568.2
Loss from discontinued
operations...................... -- -- -- -- -- -- (8.5)
--------- --------- --------- --------- --------- --------- ---------
Net income........................ $ 366.8 $ 328.5 $ 1,327.4 $ 838.5 $ 1,218.7 $ 897.1 $ 559.7
--------- --------- --------- --------- --------- --------- ---------
SELECTED FINANCIAL RATIOS:
Return on average assets.......... 1.98% 1.91% 1.85% 1.22% 1.81% 1.42% .89%
Return on average common equity... 24.4 22.1 21.9 14.6 21.1 17.2 10.9
Efficiency ratio.................. 50.6 49.9 53.1 59.6 52.9 59.0 67.5
Net interest margin............... 4.82 4.98 4.87 5.04 5.04 5.10 4.99
SELECTED FINANCIAL RATIOS BEFORE
RESTRUCTURING AND MERGER-RELATED
CHARGES AND OTHER NONRECURRING
ITEMS:
Diluted earnings per share........ $ .51 $ .47 $ 1.96 $ 1.68 $ 1.47 $ 1.23 $ .98
Return on average assets.......... 1.99% 2.03% 2.03% 1.83% 1.69% 1.51% 1.23%
Return on average common equity... 24.6 23.5 24.1 22.0 19.8 18.3 15.3
Efficiency ratio.................. 50.4 46.1 49.1 48.9 52.2 56.3 62.1
Banking efficiency ratio(1)....... 43.3 45.2 44.2 47.9 51.5 55.8 61.4
PER COMMON SHARE:
Earnings per share from continuing
operations...................... $ .51 $ .44 $ 1.81 $ 1.13 $ 1.60 $ 1.19 $ .73
Loss from discontinued
operations...................... -- -- -- -- -- -- (.01)
--------- --------- --------- --------- --------- --------- ---------
Earnings per share................ $ .51 $ .44 $ 1.81 $ 1.13 $ 1.60 $ 1.19 $ .72
--------- --------- --------- --------- --------- --------- ---------
Diluted earnings per share from
continuing operations........... $ .50 $ .44 $ 1.78 $ 1.11 $ 1.57 $ 1.16 $ .71
Loss from discontinued
operations...................... -- -- -- -- -- -- (.01)
--------- --------- --------- --------- --------- --------- ---------
Diluted earnings per share........ .50 .44 $ 1.78 $ 1.11 $ 1.57 $ 1.16 $ .70
--------- --------- --------- --------- --------- --------- ---------
Dividends paid(2)................. $ .195 $ .175 $ .70 $ .62 $ .55 $ .48 $ .39
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
AVERAGE BALANCE SHEET DATA:
Loans.......................................... $ 59,081 $ 54,657 $ 55,979 $ 53,513 $ 50,855 $ 47,703 $ 44,584
Earning assets................................. 66,738 62,572 63,868 61,675 60,201 56,556 56,233
Assets......................................... 75,107 69,821 71,791 68,771 67,402 63,084 62,708
Deposits....................................... 47,620 47,287 47,327 47,336 47,252 44,726 46,146
Long-term debt................................. 13,967 10,534 11,481 7,527 4,908 4,162 3,796
Common equity.................................. 6,088 6,036 6,049 5,667 5,679 5,090 4,887
Total shareholders' equity..................... 6,088 6,036 6,049 5,798 5,919 5,345 5,180
BALANCE SHEET DATA:
Loans.......................................... $ 59,619 $ 54,969 $ 59,122 $ 54,708 $ 52,355 $ 49,345 $ 46,375
Assets......................................... 76,110 70,949 76,438 71,295 69,749 65,668 64,737
Deposits....................................... 48,672 48,558 50,034 49,027 49,356 45,779 46,115
Long-term debt................................. 13,774 10,412 13,781 10,247 5,369 4,583 4,225
Common equity.................................. 6,177 6,123 5,970 5,890 5,613 5,089 4,837
Total shareholders' equity..................... 6,177 6,123 5,970 5,890 5,763 5,342 5,105
</TABLE>
- ------------
(1) Without investment banking and brokerage activity.
(2) Dividends per share have not been restated for the merger of First Bank
System, Inc. and U.S. Bancorp in August 1997 and the merger of First Bank
System, Inc. and Metropolitan Financial Corporation in February 1995. U.S.
Bancorp paid common dividends of $139.1 million through July 1997 ($.62 per
share), $168.7 million in 1996 ($1.18 per share), $133.1 million in 1995
($1.06 per share) and $116.0 million in 1994 ($.94 per share). Metropolitan
Financial Corporation paid common dividends of $25.1 million in 1994 ($.80
per share).
12
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF WESTERN
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS
ENDED MARCH 31, AT OR FOR THE YEARS ENDED DECEMBER 31,
------------------------ -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA: 1999 1998 1998(1) 1997 1996(2) 1995 1994
----------- ----------- ----------- --------- ----------- ----------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income........................ $ 43,564 $ 42,616 $ 181,628 $ 132,309 $ 98,776 $ 82,354 $ 70,269
Interest expense....................... 10,332 11,652 48,520 37,333 29,286 25,060 17,798
----------- ----------- ----------- --------- ----------- ----------- ---------
Net interest income.................... 33,232 30,964 133,108 94,976 69,490 57,294 52,471
Provision for loan and lease losses.... 675 300 1,325 4,080 2,671 9,756 4,422
----------- ----------- ----------- --------- ----------- ----------- ---------
Net interest income after provision for
loan and lease losses................ 32,557 30,664 131,783 90,896 66,819 47,538 48,049
Noninterest income..................... 10,881 9,159 44,856 27,436 23,489 15,243 13,450
Noninterest expense.................... 26,030 25,098 130,150 93,587 72,161 63,714 60,619
----------- ----------- ----------- --------- ----------- ----------- ---------
Income before income tax............... 17,408 14,725 46,489 24,745 18,147 (933) 880
Income tax expense (benefit)........... 8,388 6,776 26,333 12,832 4,601 (1,831) 1,680
----------- ----------- ----------- --------- ----------- ----------- ---------
Net income (loss)...................... $ 9,020 $ 7,949 $ 20,156 $ 11,913 $ 13,546 $ 898 $ (800)
----------- ----------- ----------- --------- ----------- ----------- ---------
Comprehensive income (loss)............ $ 7,301 $ 8,023 $ 20,942 $ 12,925 $ 12,884 $ 7,101 $ (3,919)
----------- ----------- ----------- --------- ----------- ----------- ---------
ENDING BALANCE SHEET DATA:
Assets................................. $ 2,496,237 $ 2,620,964 $ 2,585,880 $1,898,417 $ 1,667,816 $ 1,170,922 $ 995,286
Securities............................. 304,932 343,276 365,084 275,857 362,325 228,926 269,826
Mortgage loans held for sale........... 99,157 96,465 130,255 97,211 63,855 51,588 12,448
Loans and leases, net of deferred fees
and unearned income (3).............. 1,680,789 1,520,065 1,668,954 1,141,192 992,615 703,180 582,281
Allowance for loan and lease losses.... 28,459 29,284 26,743 20,271 19,251 18,147 16,475
Goodwill............................... 142,776 153,774 145,514 36,369 34,630 5,864 2,464
Deposits............................... 2,083,947 2,228,935 2,172,269 1,675,698 1,460,287 1,046,210 892,901
Borrowed funds......................... 24,079 24,841 23,722 19,797 31,494 9,202 16,991
Common shareholders' equity............ 354,990 343,074 352,075 184,706 160,362 104,847 78,348
PER SHARE DATA AND SELECTED RATIOS:
Earnings (loss) per common and common
equivalent share
Basic................................ $ 0.43 $ 0.43 $ 1.00 $ 0.83 $ 1.18 $ 0.10 $ (0.10)
Diluted (4).......................... 0.43 0.41 0.98 0.79 1.14 0.09 (0.10)
Dividends declared per share........... 0.225 0.150 0.675 0.30 -- -- --
Book value per share................... 16.98 16.86 16.88 12.10 11.57 8.73 9.02
Tangible book value per share.......... 10.15 9.30 9.90 9.72 9.07 8.24 8.74
Shareholders' equity to assets at
period end........................... 14.22% 13.09% 13.62% 9.73% 9.62% 8.95% 7.87%
Tangible shareholders' equity to
tangible assets at period end........ 9.02 7.67 8.46 7.97 7.70 8.50 7.64
Return on average assets............... 1.46 1.38 0.80 0.68 1.04 0.08 (0.08)
Return on average equity............... 10.22 11.29 5.94 6.91 11.18 0.99 (0.97)
Average shareholders' equity to average
assets............................... 14.25 12.21 13.51 9.89 9.32 8.41 7.88
Net interest margin.................... 6.17 6.23 6.16 6.14 6.00 5.98 5.71
</TABLE>
- -------------
(1) Includes the accounts and operating results of Santa Monica Bank since the
January 27, 1998 acquisition date.
(2) Includes the accounts and operating results of Western Bank since the
September 30, 1996 acquisition date.
(3) Includes only loans held for investment.
(4) Excludes stock options as common stock equivalents in 1994 as the effect
thereof was anti-dilutive.
13
<PAGE>
THE WESTERN ANNUAL MEETING
GENERAL
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of the enclosed proxy by the board of directors of Western (the
"WESTERN BOARD") for use at the 1999 Annual Meeting of Shareholders of Western
(the "ANNUAL MEETING") to be held at 4100 Newport Place, Third Floor, Newport
Beach, CA 92660, on , 1999, beginning at a.m., local time,
and at any adjournment or postponement, pursuant to the accompanying Notice of
Annual Meeting. This Proxy Statement/Prospectus is expected to be mailed to
shareholders of Western on or about , 1999.
MATTERS TO BE CONSIDERED
The Annual Meeting will be held for the following purposes:
1. To consider and vote upon a proposal to approve the principal terms of the
proposed merger (the "MERGER") of Western and U.S. Bancorp pursuant to the
Agreement and Plan of Merger, dated as of May 19, 1999 (the "AGREEMENT")
between Western and U.S. Bancorp. A copy of the Agreement is attached as
Appendix A to this Proxy Statement/Prospectus. The Agreement provides for
the Merger on the terms and subject to the conditions of the Agreement.
2. To elect a board of 12 directors for Western to hold office until the next
annual meeting of Western shareholders and until their respective successors
have been elected and qualified or until the Merger is completed.
3. To approve the amendment and restatement of Western's Stock Incentive Plan
(the "STOCK INCENTIVE PLAN") to:
- increase the maximum number of shares that may be issued pursuant to the
Stock Incentive Plan from 1,004,405 shares to 1,500,000 shares in the
aggregate;
- permit the award of shares of Western common stock to participants in the
Stock Incentive Plan;
- provide for the grant of restoration options to participants; and
- make other technical changes.
Upon completion of the Merger, the Stock Incentive Plan and all options
issued under it will be terminated.
4. To vote upon a shareholder proposal regarding disclosure of financial
information from current directors and prospective director nominees of
Western. The shareholder proposal, if approved, would not apply following
the completion of the Merger.
5. To consider and transact other business that may properly come before the
Annual Meeting and at any adjournments or postponements.
RECORD DATE AND OUTSTANDING SECURITIES
The Western Board has fixed the close of business on , 1999, as
the record date (the "RECORD DATE"). Only shareholders of record of Western
common stock on the books of Western as of the close of business on the Record
Date will be entitled to notice of and to vote at the Annual Meeting and any
postponements or adjournments. On the Record Date, Western had
shares of Western common stock issued and outstanding, and
approximately 2,800 shareholders of record. Each share of Western common stock
outstanding on the Record Date is entitled to one vote at the Annual Meeting on
each matter to be voted on, except that in the case of election of directors
Western shareholders may have the power to vote their shares cumulatively.
14
<PAGE>
QUORUM AND VOTING
Western has appointed Arnold C. Hahn, Western's Executive Vice President and
Chief Financial Officer, to function as the inspector of elections of the Annual
Meeting, to tabulate votes, to ascertain whether a quorum is present and to
determine the voting results on all matters presented to Western shareholders. A
majority of all outstanding shares of Western common stock entitled to vote at
the Annual Meeting, represented in person or by proxy, constitutes a quorum for
the transaction of business at the Annual Meeting. Abstentions and broker
non-votes are each included in the determination of the number of shares
present. They are not counted, however, for the purpose of determining the
election of each nominee for director and are not counted as votes in favor of
(1) the proposal to approve the principal terms of the Merger, (2) the amendment
to the Stock Incentive Plan or (3) the shareholder proposal.
If a quorum is not obtained, or fewer shares of Western common stock are
voted in favor of the principal terms of the Merger than a majority of the
shares eligible to vote at the Annual Meeting in person or by proxy, the Annual
Meeting will be postponed or adjourned for the purpose of allowing additional
time for obtaining additional proxies or votes, and at any subsequent
reconvening of the Annual Meeting, all proxies will be voted in the same manner
as the proxies would have been voted at the original convening of the Annual
Meeting, except for any proxies that have effectively been revoked or withdrawn
prior to the subsequent Annual Meeting.
The authorized number of directors of Western is 12, and the 12 nominees
receiving the highest number of votes at the time of the Annual Meeting will be
elected, assuming a quorum is present. Affirmative votes representing a majority
of the outstanding shares of Western common stock will be required to approve
the principal terms of the Merger. Affirmative votes representing a majority of
the votes cast, in person or represented by proxy, at the Annual Meeting will be
required to approve each of (1) the amendment to the Stock Incentive Plan and
(2) the shareholder proposal.
Each Western shareholder will be entitled to one vote, in person or by
proxy, for each share of Western common stock in his or her name on the books of
Western as of the Record Date on any matter submitted to the vote of the Western
shareholders, except that in connection with the election of directors, the
shares may be voted cumulatively if a candidate's or candidates' name(s) have
been properly placed in nomination prior to the voting and a Western shareholder
present at the meeting has given notice of his or her intention to vote his or
her shares cumulatively. If a Western shareholder has given this notice, then
all Western shareholders entitled to vote for the election of directors may
cumulate their votes, and discretionary authority to cumulate votes, if
necessary, is being solicited. Cumulative voting entitles a Western shareholder
to give one or more nominees as many votes as is equal to the number of
directors to be elected multiplied by the number of shares owned by the Western
shareholder, or to distribute his or her votes on the same principle between two
or more nominees as he or she deems appropriate. If cumulative voting occurs,
proxies provided to management's proxy holders will be voted to elect as many of
Western's nominees as possible.
Shares of Western common stock represented by proxies properly executed and
received by Western in time to be voted at the Annual Meeting will be voted in
accordance with the instructions indicated on the proxies and, if no
instructions are indicated, will be voted:
- "FOR" the approval of the principal terms of the Merger;
- "FOR" the amendment to the Stock Incentive Plan;
- "AGAINST" the shareholder proposal set forth in this Proxy
Statement/Prospectus; and
- "FOR" each of the 12 director nominees named in this Proxy
Statement/Prospectus at the Annual Meeting or any adjournment or
postponement of the Annual Meeting.
15
<PAGE>
All proxies voted "FOR" the approval of the principal terms of the Merger,
"FOR" the amendment to the Stock Incentive Plan, "FOR" each of the twelve
director nominees and "AGAINST" the shareholder proposal, including proxies on
which no instructions are indicated, may, at the discretion of the proxy holder,
be voted "FOR" a motion to adjourn or postpone the Annual Meeting to another
time and/or place for the purpose of soliciting additional proxies or otherwise.
The Western Board is not currently aware of any business to be acted upon at
the Annual Meeting other than as described in this Proxy Statement/Prospectus.
If, however, other matters are properly brought before the Annual Meeting,
persons appointed as proxies will have discretion to vote or act on the matters
in their best judgment.
Under Western's Bylaws and Rule 14a-8 of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), Western shareholders may not present
proposals for action at the Annual Meeting unless written notice of the
proposal, containing the information required by the Western Bylaws and Rule
14a-8, was delivered to the Secretary of Western no later than July [16], 1999.
One such shareholder proposal, which is set forth in this Proxy
Statement/Prospectus as Proposal 4, was received by that date.
REVOCATION OF PROXIES
The presence of a Western shareholder at the Annual Meeting (or at any
adjournment or postponement) will not automatically revoke the shareholder's
proxy. However, a Western shareholder may revoke a proxy at any time prior to
its exercise by:
- delivery to the inspector of elections or the Secretary of Western of a
written notice of revocation prior to the Annual Meeting (or, if the
Annual Meeting is adjourned or postponed, prior to the time the adjourned
or postponed meeting is actually held);
- delivery to the inspector of elections or the Secretary of Western prior
to the Annual Meeting (or, if the Annual Meeting is adjourned or
postponed, prior to the time the adjourned or postponed meeting is
actually held) of a duly executed proxy bearing a later date; or
- attending the Annual Meeting (or, if the Annual Meeting is adjourned or
postponed, by attending the adjourned or postponed meeting) and filing a
written notice of revocation with the inspector of elections or the
Secretary of Western prior to the taking of votes on any matter.
SOLICITATION OF PROXIES
Proxies may be solicited by mail, personal interview, telephone and telecopy
by directors, officers and employees of Western and its subsidiaries on a
part-time basis and for no additional compensation. The entire cost of
soliciting proxies under this Proxy Statement/Prospectus will be borne by
Western and will include amounts paid in reimbursement to banks, brokerage
firms, custodians, nominees and others for their expenses in forwarding
soliciting material to the beneficial owners of Western common stock held of
record by that person. Western and U.S. Bancorp will each bear all costs that
they each incur, including legal and accounting fees.
COMMUNICATIONS BY WESTERN SHAREHOLDERS WITH WESTERN
Any written revocation of proxy or other communications in connection with
this Proxy Statement/ Prospectus, and requests for additional copies of this
Proxy Statement/Prospectus or the Proxy Card, should be addressed to Julius G.
Christensen, Secretary, Western Bancorp, 4100 Newport Place, Suite 900, Newport
Beach, California 92660. If you have any questions or need further assistance in
voting your shares, please call Mr. Christensen at (949) 863-2459.
16
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of KPMG LLP has served as Western's certified public accountants
for the 1998 fiscal year. Representatives of KPMG are expected to be present at
the Annual Meeting and are expected to be available to respond to appropriate
questions and to make any statements they desire.
RECOMMENDATION OF THE WESTERN BOARD
At a meeting of the Western Board held on March 18, 1999, the Western Board
approved the amendment and restatement of the Stock Incentive Plan, and
recommended the approval of the amendment and restatement by Western
shareholders.
At a meeting of the Western Board held on May 19, 1999, the Western Board
approved the Agreement and the transactions contemplated by the Agreement, and
recommended the approval of their principal terms by Western shareholders.
At a meeting of the Western Board held on July 15, 1999, the Western Board
recommended that Western shareholders vote against the shareholder proposal that
begins on page of this Proxy Statement/Prospectus.
Each of the directors and executive officers (in his or her capacity as a
Western shareholder) and some other Western shareholders have executed voting
agreements (the "VOTING AGREEMENTS") with Western. In the Voting Agreements,
each of the directors, executive officers and other persons has agreed to vote
or cause to be voted in favor of the Agreement and the Merger contemplated by
the Agreement all shares of Western common stock over which he or she has the
power to vote or direct the voting at the time of the Annual Meeting. As of July
1, 1999, the directors and executive officers of Western had the ability to
direct the voting of 3,839,582 shares of Western common stock, or approximately
18.1% of the total number of outstanding shares of Western common stock.
17
<PAGE>
THE MERGER (PROPOSAL 1)
THIS SECTION OF THE PROXY STATEMENT/PROSPECTUS DESCRIBES, AMONG OTHER
THINGS, THE MATERIAL ASPECTS OF THE MERGER. THE FOLLOWING SUMMARY OF THE
MATERIAL TERMS AND PROVISIONS OF THE AGREEMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE AGREEMENT, WHICH IS ATTACHED AS APPENDIX A TO THIS PROXY
STATEMENT/PROSPECTUS.
GENERAL
On May 19, 1999, U.S. Bancorp and Western entered into the Agreement, which
provides for the merger of Western with and into U.S. Bancorp. U.S. Bancorp will
be the surviving corporation in the Merger (the "SURVIVING CORPORATION"). Except
for shares for which dissenters' rights have been properly perfected, each share
of common stock, no par value per share, of Western (the "WESTERN COMMON STOCK")
issued and outstanding at the Effective Time of the Merger (see "--Effective
Time" below) will be converted into the right to receive 1.2915 shares of common
stock, par value $1.25 per share, of U.S. Bancorp (the "U.S. BANCORP COMMON
STOCK"). If the average closing price of the U.S. Bancorp Common Stock falls
below specified levels prior to the completion of the Merger, U.S. Bancorp, at
its discretion, may adjust the exchange ratio so that Western shareholders
receive Merger consideration per share of Western Common Stock with a value
greater than or equal to $36.80. See "--Termination of the Agreement" below.
THE MERGER
Subject to the terms and conditions of the Agreement, at the Effective Time,
Western will merge with U.S. Bancorp. U.S. Bancorp will be the Surviving
Corporation and will continue its existence as a bank holding company under the
Delaware General Corporation Law ("DGCL").
At the Effective Time, the separate existence of Western will terminate, and
holders of Western Common Stock will cease to be, and will have no rights as,
shareholders of Western, other than to receive any dividend or other
distribution with respect to Western Common Stock with a record date occurring
prior to the Effective Date. These holders will instead have the right to
receive U.S. Bancorp Common Stock and cash in lieu of fractional shares unless
they exercise their dissenters' rights. See "--Conversion of Stock; Treatment of
Options" below. After the Effective Time, there will be no transfers on the
stock transfer books of Western or U.S. Bancorp of shares of Western Common
Stock.
CONVERSION OF STOCK; TREATMENT OF OPTIONS
At the Effective Time, each share of Western Common Stock issued and
outstanding immediately prior to the Effective Time will be converted, subject
to customary antidilution adjustments as provided in the Agreement and described
below, into the right to receive shares of U.S. Bancorp Common Stock based on
the ratio of one share of Western Common Stock for 1.2915 shares of U.S. Bancorp
Common Stock (the "EXCHANGE RATIO"). If the average closing price of U.S.
Bancorp Common Stock falls below specified levels prior to completion of the
Merger, U.S. Bancorp, at its discretion, may adjust the Exchange Ratio so that
the value of the Merger consideration per share of Western Common Stock does not
fall below $36.80. See "--Termination of the Agreement" below.
At the Effective Time, except for some options issued to Matthew P. Wagner,
President and Chief Executive Officer of Western, each outstanding option to
purchase shares of Western Common Stock under any Western stock option plan (all
such options of an option holder having the same exercise price, a "WESTERN
STOCK OPTION"), whether vested or unvested, will be converted into the right to
receive (a) the number of shares of U.S. Bancorp Common Stock equal to the
quotient obtained by dividing the Net Option Value (as defined below) with
respect to the Western Stock Option by $35.62 plus (b) cash for any fractional
shares. The "NET OPTION VALUE" will equal the amount obtained by multiplying the
positive difference, if any, between $46.00 and the applicable exercise price of
the Western Stock Option times the number of shares for which the Western Stock
Option is exercisable.
18
<PAGE>
At the Effective Time, all outstanding warrants to purchase shares of
Western Common Stock (all such warrants of a warrant holder, a "WESTERN
WARRANT") will be converted into a warrant to acquire, on the same terms and
conditions as were applicable under the Western Warrant, the number of shares of
U.S. Bancorp Common Stock equal to (a) the number of shares of Western Common
Stock subject to the Western Warrant, multiplied by (b) the Exchange Ratio,
which product will be rounded up to the nearest whole number (all such new
warrants of a warrant holder, a "REPLACEMENT WARRANT"), at an exercise price per
share (rounded up or down to the nearest whole cent) equal to (y) the aggregate
exercise price for the shares of Western Common Stock that were purchasable
pursuant to the Western Warrant divided by (z) the number of full shares of U.S.
Bancorp Common Stock subject to the Replacement Warrant.
If, prior to the Effective Time, the number of outstanding shares of Western
Common Stock or U.S. Bancorp Common Stock is changed as a result of a stock
split, reorganization, recapitalization, reclassification, combination, stock
dividend, exchange of shares, reverse stock split, or other similar changes in
capitalization, or either party declares a stock dividend or extraordinary cash
dividend, an appropriate and proportionate adjustment will be made to the
Exchange Ratio.
BACKGROUND AND REASONS FOR THE MERGER
Since the mid-1990s when the core of Western's current senior management
team was brought together, Western has been aware of the rapidly changing
structure of the banking market in Southern California. Consistent with what
appears to be a nationwide trend, Western's senior management believes that a
process of consolidation is occurring and will continue to occur in the Southern
California financial services industry in which Western competes, resulting in a
reduction in the number of independent and community banks.
In order to compete with the larger financial institutions resulting from
the consolidation of the financial services industry, and in order to achieve
long-term profitability, Western's management has regularly explored a number of
acquisition opportunities to achieve greater market share. Western has
successfully pursued a select number of these opportunities, acquiring six
banking institutions between September 1996 and December 1998, and growing from
two branches to 31 branches during that period. At the same time, Western's
management has from time to time reviewed with the Western Board the possible
benefits of strategic business combinations with other financial institutions,
including larger bank holding companies, as part of its ongoing evaluation of
available strategies to increase shareholder value. Although Western's
management and its financial advisors believed that Western had established
itself as a valuable independent franchise in Southern California, they also
observed that the combination of Western with a strong and successful regional
or national bank holding company in need of an established Southern California
operation might make for a good partnership that would create additional value
for the shareholders of both corporations.
In late March and early April 1999, Western received unsolicited expressions
of interest for a possible merger with Western from U.S. Bancorp, the company at
which some of Western's senior executives were previously employed, and another
bank holding company. Discussions commenced with representatives of the other
bank holding company in mid-April 1999. On April 28, 1999, the Western Board met
to consider the preliminary proposal made by the other bank holding company. The
Western Board concluded that, while Western did not consider itself to be up for
sale and remaining independent continued to be the prevailing business strategy
for Western, Western's financial advisors and senior management should proceed
with discussions with respect to that preliminary proposal and Western should
conduct, and allow the other bank holding company to conduct, appropriate due
diligence. By May 4, 1999, Western and the other bank holding company had
mutually agreed, after further meetings were held between their respective
senior management and after having consulted with their respective financial
advisors, that a combination of Western with the other bank holding company
would not be in the best interests of the Western shareholders or the other bank
holding
19
<PAGE>
company. This conclusion was based, in part, on the apparent determination by
the other bank holding company that the terms of its preliminary proposal had
been too aggressive.
During the course of Western's discussions with the other bank holding
company, Western's management continued to explore alternative options for
enhancing shareholder value. On April 18, 1999, John M. Eggemeyer, a director of
Western and President of Belle Plaine Partners, Inc., financial advisor to
Western, made inquiries of the representatives of other bank holding companies
(including U.S. Bancorp) determined by Western management to have the capacity
to effect a strategic combination with Western that would be beneficial to the
Western shareholders. Western's senior management, with the advice of Belle
Plaine Partners, Inc. and based upon further discussions with those other bank
holding companies, determined that for the time being a transaction on
acceptable terms with U.S. Bancorp would be the only viable alternative to
remaining independent. On May 4, 1999, Mr. Eggemeyer informed senior management
of U.S. Bancorp that, while Western had decided to remain independent of the
other potential strategic business partners with which it had discussions,
Western was willing to entertain further discussions with U.S. Bancorp
concerning a possible strategic business combination. Subsequently, on May 5,
1999, U.S. Bancorp delivered a non-binding indication of interest letter to
Western, which outlined in general the terms of a potential merger transaction.
On May 6, 1999, another special meeting of the Western Board was called and held
at which Western's financial advisors and senior management were directed to
proceed with discussions concerning a definitive agreement with U.S. Bancorp and
to permit U.S. Bancorp to conduct necessary due diligence.
On May 10, 1999, Mr. Eggemeyer and Mr. Wagner met with senior management of
U.S. Bancorp to discuss the strategic advantages to Western's shareholders of
the combination of Western and U.S. Bancorp. From May 11, 1999 through May 17,
1999, management personnel of Western and U.S. Bancorp met several times to
discuss financial information, operations, management and other issues
concerning the possible strategic combination of Western and U.S. Bancorp, and
to conduct other due diligence. During the same period, various terms of the
Agreement were discussed and negotiated. The Western team concluded that the
continuing trend of bank consolidations, coupled with the strategic fit of
Western and U.S. Bancorp, required that the Western Board have the opportunity
to review and discuss U.S. Bancorp's proposal and Western's other strategic
options, including remaining independent or combining with another bank holding
company. On May 17, 1999, the Western Board held a special meeting at which,
after consulting with its financial advisors and senior management, it reviewed
the terms of U.S. Bancorp's proposal and a draft of each of the Agreement and
the Stock Option Agreement. At that meeting, Credit Suisse First Boston
Corporation orally rendered its opinion that, based on the preliminary terms,
and subject to the final form of the Agreement, the consideration to be received
by Western shareholders in the Merger would be fair from a financial point of
view and that it believed it would be in a position to render a written fairness
opinion at the time of the execution and delivery of the Agreement. The Western
Board concluded that the acceptance of the proposal might be in the best
interests of Western and its shareholders, provided that certain open issues
were resolved in a manner acceptable to the Western Board.
During the next two days, extended discussions were held between the
management of, and counsel for, each of Western and U.S. Bancorp concerning the
final terms of the draft Agreement and the draft Stock Option Agreement. The
draft Agreement and the draft Stock Option Agreement were revised several times
as the parties negotiated over various issues, including break-up fees and the
treatment of outstanding options and warrants to purchase Western Common Stock.
The parties also negotiated the terms of the Voting Agreements and the
Confidentiality/Non-Solicitation Agreements. General agreement was reached on
various points in accordance with the instructions received from the Western
Board. On May 19, 1999, Credit Suisse First Boston confirmed in writing its
opinion as to the fairness of the consideration to be received by the Western
shareholders from a financial point of view, and the Western Board held a
special meeting to consider the revised Agreement and the revised Stock Option
Agreement and the transactions contemplated by these agreements. All members of
the
20
<PAGE>
Western Board were present at the meeting with the exception of Dale E. Walter.
At the meeting, the members of the Western Board who were present unanimously
approved the Agreement, the Stock Option Agreement and the related agreements,
and authorized Western's management to take all action reasonably necessary to
effect the Merger. Mr. Walter subsequently informed Western's management that he
joined in the Board's approval and authorization of all of the matters
considered at the May 19, 1999 special meeting. Later that day, Mr. Wagner
executed and delivered the Agreement and the Stock Option Agreement on behalf of
Western. Immediately after its execution and delivery, the Agreement was
publicly announced.
The management of each of Western and U.S. Bancorp believes that the two
institutions complement each other in their approach to banking in terms of
their markets, both geographic and demographic. Consequently, both managements
perceive opportunities for increased operating efficiencies through a merger and
believe that, by combining forces, they will be able to move effectively to take
advantage of banking opportunities on a nationwide basis.
RECOMMENDATION OF THE WESTERN BOARD OF DIRECTORS AND WESTERN'S REASONS FOR THE
MERGER
The Western Board has unanimously approved the Merger and the Agreement and
unanimously recommends that Western shareholders vote "FOR" the approval of the
principal terms of the Merger. In reaching its decision to approve the Merger,
the Western Board analyzed Western's alternatives for enhancement of Western
shareholder value, including Western's prospects under several assumptions, so
as to be able to compare the value of a share of Western Common Stock with the
consideration to be paid by U.S. Bancorp. At the same time, the Western Board
also reviewed the history of U.S. Bancorp and the prospects of U.S. Bancorp if
the Merger were completed and consulted with its legal and financial advisors.
The factors that were examined as part of this analysis include, but were not
limited to, the following:
- A review of Western's business, operations, financial condition and
earnings on an historical and a prospective basis;
- The efficacy of Western's strategic plan under current competitive
conditions and actions that would increase financial performance and
shareholder value over the period of its projections;
- The increasing competition in Western's markets from both existing and
potential competitors, some of which have far greater assets and
resources, in part as a result of the consolidation taking place in the
financial services industry;
- The consolidation of the banking industry nationally and in Western's
markets in particular;
- A review of potential benefits for shareholders of a larger organization
with greater resources, increased operating efficiencies, increased
lending limits and a stronger market position;
- The belief of the Western Board and management that a business combination
with U.S. Bancorp would offer the potential for increased long-term value
and liquidity to current Western shareholders;
- The Western Board's review, based primarily on the analysis of Credit
Suisse First Boston, of the business, operations, earnings and financial
condition of U.S. Bancorp on both a historical and a prospective basis,
the enhanced opportunities for operating efficiencies and revenue
enhancement that could result from the Merger, the enhanced opportunities
for growth that the Merger would make possible and the respective
contributions the parties would bring to a combined institution;
- The terms of the Agreement and transactions contemplated by the Agreement,
including the Exchange Ratio, noting that it reflected a 13.8% premium for
Western shareholders based on the closing price of U.S. Bancorp Common
Stock and Western Common Stock on May 18, 1999.
- A comparison of the U.S. Bancorp offer with reported transactions,
nationally and in Western's market, by financial institutions with similar
characteristics;
21
<PAGE>
- An analysis of the potential value that could be realized by Western
shareholders in a business combination transaction with other companies
that might be both interested in and financially and otherwise capable of
engaging in a business combination transaction with Western, some of which
companies engaged in preliminary discussions with Western; and
- The opinion of Credit Suisse First Boston, dated as of May 19, 1999, that
based upon and subject to the matters stated in that opinion, the
consideration to be received by Western shareholders in the Merger was
fair to Western shareholders from a financial point of view.
The above discussion of the material factors considered by the Western Board
is not exhaustive but does set forth the principal factors considered by the
Western Board. The Western Board collectively reached the unanimous conclusion
to approve the Merger and the Agreement in light of the factors described above
and other factors that each member of the Western Board felt were appropriate.
The Western Board did not assign relative or specific weights to any of the
factors described above and individual directors may have weighed the factors
differently.
FOR THE REASONS SET FORTH ABOVE, THE WESTERN BOARD HAS UNANIMOUSLY APPROVED
THE MERGER AS FAIR TO AND IN THE BEST INTERESTS OF WESTERN AND THE WESTERN
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT WESTERN SHAREHOLDERS APPROVE THE
PRINCIPAL TERMS OF THE MERGER.
OPINION OF WESTERN'S FINANCIAL ADVISOR
Western retained Credit Suisse First Boston Corporation ("CSFB") to evaluate
the fairness of the Merger, from a financial point of view, to the Western
shareholders. CSFB was selected by Western Board based on CSFB's qualifications,
expertise and reputation, as well as CSFB's investment banking contacts and
familiarity with Western.
In connection with CSFB's engagement, Western requested that CSFB evaluate
the fairness to the Western shareholders from a financial point of view of the
consideration to be received by the Western shareholders pursuant to the terms
of the Agreement. On May 17, 1999, the Western Board met to review the fairness
of the proposed Merger. During this meeting, CSFB orally rendered its opinion
that, based upon the preliminary terms, and subject to the final form of the
Agreement, CSFB believed it would be in a position to render a fairness opinion.
CSFB subsequently confirmed in writing on May 19, 1999, that, as of that date,
based upon and subject to the various considerations set forth in the CSFB
opinion, the proposed consideration to be received by the Western shareholders
pursuant to the Agreement was fair to Western shareholders from a financial
point of view.
THE FULL TEXT OF THE CSFB OPINION, WHICH SETS FORTH, AMONG OTHER THINGS,
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED, AND LIMITATIONS ON
THE SCOPE OF THE REVIEW UNDERTAKEN BY CSFB IN RENDERING THE CSFB OPINION, IS
ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT/PROSPECTUS AND INCORPORATED BY
REFERENCE. WESTERN SHAREHOLDERS ARE URGED TO, AND SHOULD, READ THE CSFB OPINION
CAREFULLY AND IN ITS ENTIRETY. THE CSFB OPINION ADDRESSES ONLY THE FAIRNESS OF
THE PROPOSED CONSIDERATION TO THE WESTERN SHAREHOLDERS FROM A FINANCIAL POINT OF
VIEW AS OF THE DATE OF THE CSFB OPINION, AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY WESTERN SHAREHOLDER AS TO HOW THE SHAREHOLDER SHOULD VOTE
AT THE ANNUAL MEETING. THE SUMMARY OF THE CSFB OPINION SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE CSFB OPINION.
In arriving at its opinion, CSFB reviewed certain publicly available
business and financial information relating to Western and U.S. Bancorp. CSFB
also reviewed certain other information, including internal financial
statements, financial forecasts and other financial and operating data of
Western and U.S. Bancorp provided to it by Western and met with Western's and
U.S. Bancorp's managements to discuss the business and prospects of Western and
U.S. Bancorp. CSFB also relied upon the views of Western's and U.S. Bancorp's
managements concerning the business, operational and
22
<PAGE>
strategic benefits and implications of the Merger, including estimates provided
to CSFB of the operating cost savings to be achieved through the combination of
operations of Western and U.S. Bancorp.
CSFB also considered certain financial and stock market data of Western and
U.S. Bancorp, and CSFB compared such financial and stock market data with
similar data for other publicly held companies in businesses it deemed similar
to those of Western and U.S. Bancorp. CSFB considered the financial terms, to
the extent publicly available, of other business combinations and other
transactions which had recently been effected. CSFB also considered other
information, financial studies, analyses and investigations and financial,
economic and market criteria that it deemed relevant.
In connection with its review, CSFB did not assume any responsibility for
independent verification of any of the information described above and relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, CSFB assumed that they had been reasonably prepared on
bases reflecting the best available estimates and judgments of Western's and
U.S. Bancorp's managements as to the future financial performance of Western and
U.S. Bancorp. Specifically, for purposes of its opinion, CSFB relied upon,
without independent verification, the assessment by Western's and U.S. Bancorp's
managements of the cost savings and other strategic benefits expected to be
derived or to result from the Merger. In addition, CSFB did not make an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of Western and U.S. Bancorp, nor was CSFB furnished with any such
evaluations or appraisals. The CSFB opinion is necessarily based upon financial,
economic, market and other conditions as they existed and could be evaluated on
the date of the CSFB opinion.
In preparing its opinion, CSFB performed a variety of financial and
comparative analyses. The following is a summary of the material analyses
performed by CSFB in connection with the preparation of the CSFB opinion, and
reviewed with the Western board in a meeting held on May 17, 1999. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. CSFB believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, could create a misleading view of the processes underlying the CSFB
opinion. In addition, CSFB may have given various analyses more or less weight
than other analyses, and may have deemed various assumptions more or less
probable than other assumptions, so that the range of valuation resulting from
any particular analysis described below should not be taken to be CSFB's view of
the actual value of Western or U.S. Bancorp. In performing its analyses, CSFB
made numerous assumptions with respect to industry performance, general business
and economic conditions and other matters, many of which are beyond the control
of Western and U.S. Bancorp. The analyses performed by CSFB are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses. In addition, analyses
relating to the value of businesses or assets do not purport to be appraisals or
to necessarily reflect the prices at which businesses or assets may actually be
sold. The analyses performed were prepared solely as part of CSFB's analysis of
the fairness of the consideration to Western shareholders from a financial point
of view and were provided to the Western Board in connection with the delivery
of the CSFB opinion.
The following is a summary of the analyses performed by CSFB in connection
with the preparation of the CSFB opinion. The summary of the analyses includes
information presented in tabular format. In order to fully understand the
analyses, the tables should be read together with the text of each summary.
Consideration of the tables alone without the full narrative description of the
analyses, including the underlying assumptions, would create a misleading or
incomplete view of the process underlying, and conclusions represented by, the
CSFB opinion.
23
<PAGE>
VALUATION ANALYSIS
CSFB analyzed the premium represented by the proposed consideration compared
to values for Western on a stand-alone basis using three valuation
methodologies: (1) a comparable companies analysis, (2) a regression of price to
book on a return on equity ("ROE") analysis, and (3) a discounted cash flow
analysis (without giving effect to the potential net cost savings realizable
from the Merger). CSFB also analyzed the proposed consideration compared to
change-in-control values for Western using four valuation methodologies: (1) a
comparable companies analysis including a 25% acquisition premium, (2) a
regression of price to book on ROE analysis including a 25% acquisition premium,
(3) an analysis of prices of recent mergers and acquisitions involving
comparable financial institutions, and (4) a discounted cash flow analysis
(giving effect to the potential net cost savings realizable from the Merger). A
contribution analysis was also performed to determine each entity's relative
contribution to the pro forma combined entity. These methodologies are discussed
below.
STAND ALONE VALUATION
COMPARABLE COMPANIES ANALYSIS. Using publicly available information, CSFB
compared selected financial, operating and stock market data as of May 14, 1999,
for Western to corresponding data of companies that it selected as comparable to
Western. The comparable companies selected reflect companies with similar
banking operations in similar markets. The comparable companies were:
<TABLE>
<S> <C>
City National Bank Pacific Capital Bancorp
Columbia Bank Westamerica Bancorp
CVB Financial Greater Bay Bancorp
</TABLE>
Based on the estimated financial data from publicly available analyst
research reports for the comparable companies composed by equity research
analysts, CSFB compared the market values per share of the selected companies as
multiples to each of their actual earnings per share ("EPS") over the twelve
months between March 31, 1998 and March 31, 1999, estimated fiscal year 1999
EPS, estimated fiscal year 2000 EPS, estimated fiscal year 1999 cash EPS,
estimated fiscal year 2000 cash EPS, book value per share, and tangible book
value per share. The following table shows the low, average, and high estimated
multiples of the selected companies.
<TABLE>
<CAPTION>
MULTIPLES
-------------------------------
LOW AVG. HIGH
--------- --------- ---------
<S> <C> <C> <C>
LTM EPS(1)....................................... 16.3x 18.2x 19.4x
1999E EPS........................................ 15.4 16.4 17.8
2000E EPS........................................ 12.9 14.4 16.1
1999E Cash EPS(2)................................ 14.9 15.9 17.3
2000E Cash EPS(2)................................ 12.5 14.0 15.6
Book Value....................................... 1.8 3.2 3.9
Tangible Book Value.............................. 1.8 3.4 4.0
</TABLE>
- ------------
(1) LTM refers to "Latest Twelve Months" of publicly released earnings.
(2) Cash EPS refers to GAAP EPS plus goodwill amortization per share.
CSFB then applied the multiples set forth in the table above to Western
management's estimates of Western's earnings in 1999 and 2000, as well as its
actual earnings and book values. Western management's earnings estimates per
share are $1.94 and $2.41 for 1999 and 2000, respectively. CSFB arrived at a
stand-alone valuation range for Western of $32.00 to $39.00 per share based on
this analysis.
24
<PAGE>
REGRESSION ANALYSIS. Using publicly available information, CSFB performed a
regression analysis of Western's comparable companies' price to book ratios on
their corresponding ROE. The resulting regression line provided a correlation
coefficient of 0.8515, which is considered a meaningful coefficient. Applying
Western's ROE to this regression line, the resulting implied price to book ratio
in turn implied a price per share for Western of $35.79.
DISCOUNTED CASH FLOW ANALYSIS. CSFB prepared a discounted cash flow
analysis using estimates of the future after tax cash flows (dividendable net
income) of Western from June 30, 1999 to December 31, 2003. These cash flows
were then discounted to a present value using discount rates ranging from 12% to
14%, chosen to reflect the market's implied cost of Western Common Stock. CSFB
also estimated the terminal values for Western Common Stock at 17 to 19 times
Western's 2003 estimated net income. The terminal multiples were chosen based on
current trading multiples of comparable companies. This discounted cash flow
analysis indicated a stand-alone range of value for Western of $37.00 to $41.00
per share. CSFB included this analysis because it is a widely used valuation
methodology, but noted that the results of the methodology are highly dependent
on the numerous assumptions that must be made, including earnings growth rates,
dividend payout rates, terminal values and discount rates.
STAND ALONE VALUATION SUMMARY. Using the comparable companies analysis, the
regression analysis, and the discounted cash flow analysis, CSFB determined a
stand-alone value range of Western to be $36.00 to $41.00 per share. The
following table summarizes the stand-alone valuation of Western.
<TABLE>
<CAPTION>
IMPLIED VALUE
--------------------------------
<S> <C> <C>
PER SHARE TOTAL (SMM)(1)
--------------- ---------------
Comparable Companies........................................ $32.00-$39.00 $691-$842
Regression Analysis......................................... $35.79 $773
Discounted Cash Flow........................................ $37.00-$41.00 $799-$886
</TABLE>
- ------------
(1) Based on 21.6 million fully diluted Western shares outstanding.
CHANGE IN CONTROL VALUATION
COMPARABLE COMPANIES ANALYSIS WITH 25% CONTROL PREMIUM. CSFB performed a
comparable companies analysis using the same data and companies as the
stand-alone comparable companies analysis, but included a 25% control premium in
determining the multiple ranges for the selected companies. CSFB determined that
this premium was substantially consistent with the average one-month premium
resulting from sales of banking institutions during the 12 months preceding the
date of its opinion. The following table shows the low, average, and high
estimated multiples of the selected companies.
<TABLE>
<CAPTION>
MULTIPLES
-------------------------------
LOW AVG. HIGH
--------- --------- ---------
<S> <C> <C> <C>
LTM EPS(1)........................................................... 20.3x 22.8x 24.3x
1999E EPS............................................................ 19.3 20.5 22.3
2000E EPS............................................................ 16.1 18.0 20.1
1999E Cash EPS(2).................................................... 18.7 19.9 21.6
2000E Cash EPS(2).................................................... 15.6 17.5 19.6
Book Value........................................................... 2.2 3.9 4.9
Tangible Book Value.................................................. 2.2 4.2 5.0
</TABLE>
- ------------
(1) LTM refers to "Latest Twelve Months" of publicly released earnings.
(2) Cash EPS refers to GAAP EPS plus goodwill amortization per share.
25
<PAGE>
Using these multiples, CSFB determined a value range of $40.00 to $49.00 per
share. Based on U.S. Bancorp's price per share of $34.81 as of May 14, 1999,
this value range implied a range of exchange ratios of 1.1490 to 1.4075 shares
of U.S. Bancorp Common Stock per share of Western Common Stock.
REGRESSION ANALYSIS. The regression analysis run for the change-in-control
scenario was the same as in the stand-alone case, except for a 25% premium added
to the implied value of Western by the analysis, in order to account for the
change-in-control. Using this technique, CSFB arrived at an implied value of
$44.74 per share in a change-in-control scenario. Based on U.S. Bancorp's price
per share of $34.81 as of May 14, 1999, this value range implied an exchange
ratio of 1.2852 shares of U.S. Bancorp Common Stock per share of Western Common
Stock.
COMPARABLE ACQUISITIONS ANALYSIS. CSFB analyzed the purchase prices and
implied transaction multiples paid in the following selected acquisitions in the
banking sector determined by CSFB to be comparable to the Merger:
<TABLE>
<CAPTION>
ANNOUNCEMENT DATE BUYER SELLER
- -------------------------------- --------------------------- ------------------------------
<C> <S> <C>
4/19/99......................... Citizens Banking Corp. F&M Bancorp. Inc.
8/27/98......................... BB&T Corp. MainStreet Financial
5/21/98......................... Citizens Bancshares Inc. Mid Am Inc.
4/9/98.......................... StarBanc Corp. Trans Financial Inc.
3/25/98......................... Zions Bancorp Sumitomo Bank of CA
2/2/98.......................... Mercantile Bancorp. Firstbank of IL
1/12/98......................... National City Corp. Fort Wayne National Corp.
</TABLE>
Using the implied multiples to LTM EPS, Forward EPS, and Forward Cash EPS,
CSFB arrived at an implied value of $40.00 to $49.00 per share for Western.
Forward EPS and Foward Cash EPS refer to the expected EPS and Cash EPS,
respectively, for the next full fiscal year for the selling company. Based on
U.S. Bancorp's price per share of $34.81 as of May 14, 1999, this value range
implied a range of exchange ratios of 1.1490 to 1.4075 shares of U.S. Bancorp
Common Stock per share of Western Common Stock.
DISCOUNTED CASH FLOW VALUATION. CSFB conducted a discounted cash flow
valuation of the potential cost savings achievable by Western merging with the
operations of U.S. Bancorp. These cost savings were assumed to be 25% of
Western's non-mortgage non-interest expense base, phased in 25% in 1999, 80% in
2000 and 100% thereafter. Included in these cost savings was a restructuring
charge of $25 million after-tax. The cash flows of these cost savings were
discounted to a present value using discount rates in perpetuity ranging from
12% to 14%, chosen to reflect the market's implied cost of Western Common Stock.
When the present value of these cost savings were added to the stand-alone
discounted cash flow analysis valuation for Western, the total value arrived at
was $42.00 to $49.00 per share. Based on U.S. Bancorp's price per share of
$34.81 as of May 14, 1999, this value range implied a range of exchange ratios
of 1.2065 to 1.4075 shares of U.S. Bancorp Common Stock per share of Western
Common Stock.
CHANGE-IN-CONTROL VALUATION SUMMARY. As shown in the table below, the
valuation analyses yield an implied change-in-control valuation for Western of
$42.00 to $49.00 per share. Based on U.S.
26
<PAGE>
Bancorp's price per share of $34.81 as of May 14, 1999, this value range implied
a range of exchange ratios of 1.2065 to 1.4075 shares of U.S. Bancorp Common
Stock per share of Western Common Stock.
<TABLE>
<CAPTION>
IMPLIED VALUE
---------------------------------- IMPLIED
TOTAL EXCHANGE
PER SHARE ($MM)(1) RATIO(2)
----------------- --------------- -------------------
<S> <C> <C> <C>
Comparable Companies with 25% Premium $40.00-$49.00 $864-$1,058 1.1490x-1.4075x
Regression Analysis $44.74 $966 1.2852x
Comparable Acquisitions $40.00-$49.00 $864-$1,058 1.1490x-1.4075x
Discounted Cash Flow with Cost
Savings $42.00-$49.00 $907-$1,058 1.2065x-1.4075x
</TABLE>
- ------------
(1) Based on 21.6 million fully diluted Western shares outstanding.
(2) Based on U.S. Bancorp share price of $34.81 as of May 14, 1999.
CONTRIBUTION ANALYSIS
CSFB also performed a contribution analysis to determine Western's
contribution to the pro forma entity of Western and U.S. Bancorp combined. At
the proposed Exchange Ratio, Western shareholders would contribute approximately
4% of the shares to the pro forma institution of Western and U.S. Bancorp
combined. On an earnings basis, it was determined that Western would contribute
between 3% and 4% of earnings to the pro forma institution of Western and U.S.
Bancorp combined, based on estimated 1999 and 2000 earnings provided to CSFB by
Western's management. This contribution to earnings implied a range of exchange
ratios that included the proposed exchange ratio.
VALUATION OF U.S. BANCORP STOCK
Using publicly available information, CSFB compared selected operating
statistics. On the basis of performance ratios, U.S. Bancorp compared favorably
to its peers, with its performance ratios mostly above the median, and in some
cases at the high end of the range of the performance ratios of its peers.
Included in these performance ratios were net interest margin, efficiency, fees
to total revenue, ROE, EPS growth from 1998 to 1999, and analyst consensus of
long-term EPS growth.
<TABLE>
<CAPTION>
PEERS(1)
---------------------------------
USB LOW MEDIAN HIGH
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net Interest Margin........................................ 4.82% 3.73% 4.12% 4.46%
Efficiency................................................. 50.43 46.22 57.37 64.05
Fees/Total Revenue......................................... 44.45 29.68 43.78 68.13
ROAE....................................................... 24.16 16.42 19.86 22.73
EPS Growth 1998-1999(2).................................... 12.35 7.82 11.83 20.86
Analyst Consensus Long Term EPS Growth(2).................. 12.5 9.7 12.0 15.8
</TABLE>
- ------------
(1) Data for the quarter ended March 31, 1999, except where noted. Peers include
Mellon, Comerica, First Security, KeyCorp, BancOne and Firstar.
(2) Based on First Call estimates, as of May 14, 1999.
27
<PAGE>
CSFB further noted that U.S. Bancorp traded at or below peer mean and median
multiples to earnings on May 14, 1999 and that, while U.S. Bancorp traded at
higher multiples to book and tangible book, its return on average equity was
higher than both peer mean and peer median return on average equity.
<TABLE>
<CAPTION>
PEERS(1)
----------------------
USB MEAN MEDIAN
----------- --------- -----------
<S> <C> <C> <C>
Current Price.................................................. $ 34.81 -- --
Price to:
LTM EPS...................................................... 17.3x 19.6x 17.4x
1999E EPS(2)................................................. 15.8 17.3 15.8
2000E EPS(2)................................................. 14.0 15.2 14.0
2000E Cash EPS(2)............................................ 12.9 14.2 13.5
Book......................................................... 4.1 3.4 3.4
Tangible Book................................................ 6.0 4.7 3.8
ROAE(3)........................................................ 24.16% 19.86% 19.95%
</TABLE>
- ------------
(1) Peers include Mellon, Comerica, First Security, KeyCorp, BancOne and
Firstar.
(2) Source of earnings estimates: First Call as of May 14, 1999.
(3) For the quarter ended March 31, 1999.
Furthermore, on a regression of price to book versus ROE, it was determined
that U.S. Bancorp traded below the regression line, thus at a lower value than
implied by the regression.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ROAE PRICE/BOOK
--------- ---------------
<S> <C> <C>
MEL.................................................................... 22.73% 4.2
CMA.................................................................... 20.68% 3.3
FSCO................................................................... 16.42% 2.2
KEY.................................................................... 19.21% 2.7
ONE.................................................................... 22.40% 3.5
USB.................................................................... 24.16% 4.1
</TABLE>
28
<PAGE>
It was also noted that eight of ten equity analysts who had formally updated
their opinions of U.S. Bancorp Common Stock in 1999 maintained a "buy" or
"strong buy" rating on the stock.
<TABLE>
<CAPTION>
DATE OF LAST UPDATE(1) ANALYST FIRM RECOMMENDATION
- ------------------------------ ---------------- -------------------------- -------------------------
<S> <C> <C> <C>
5/3/99 C. D'Arista Friedman Billings Buy
4/29/99 T. McCandless CIBC Oppenheimer Strong Buy
4/15/99 B. Vanderliet Keefe Bruyette Buy
4/14/99 M. Plodwick Lehman Brothers Buy
3/3/99 N. Bush Ryan Beck Strong Buy
3/1/99 C. Murray JP Morgan Market Perform
2/26/99 M. Mayo CSFB Buy
2/3/99 D. Yates AG Edwards Buy
1/21/99 H. Dickson Salomon Smith Barney Buy
1/21/99 S. Flannigan Merrill Lynch Near-term Accumulate
</TABLE>
- ------------
Source: Bloomberg
(1) Last update prior to date of CSFB opinion. Recommendations are updated from
time to time and are subject to change.
PRO FORMA MERGER ANALYSIS
CSFB analyzed certain pro forma effects of the Merger on the earnings and
book values of both Western and U.S. Bancorp. Such analysis was based on the
proposed Exchange Ratio and assumed that the Merger was treated as a purchase
for accounting purposes before taking into account any one-time restructuring
charges. The following table sets forth the EPS and book value
accretion/(dilution) to U.S. Bancorp shareholders for fiscal years 1999, 2000
and 2001.
ACCRETION/DILUTION
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1999 2000 2001
--------- --------- ---------
<S> <C> <C> <C>
EPS..................................... (0.7%) (1.7%) (1.5%)
Cash EPS................................ (0.1) 0.0 0.0
Book Value.............................. 11.4 NA NA
Tangible Book Value..................... 1.1 NA NA
</TABLE>
CSFB also analyzed the effect of the Merger on Western shareholders'
earnings and book values. The following table sets forth the EPS and book value
accretion/(dilution) to Western shareholders for fiscal years 1999, 2000 and
2001.
29
<PAGE>
ACCRETION/DILUTION
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------
1999 2000 2001
----- ----- -----
<S> <C> <C> <C>
Management EPS.................................... 45% 30% 32%
Street EPS........................................ 46 33 42
Book Value........................................ (26) NA NA
Tangible Book Value............................... (23) NA NA
</TABLE>
OTHER ISSUES
In addition, CSFB noted that an exchange of U.S. Bancorp Common Stock for
Western Common Stock would give Western shareholders increased liquidity, as it
was determined that Western had a 90-day average daily trading volume of 96,852
shares, or $3.2 million, as compared to U.S. Bancorp's 1,533,853 shares, or
$53.3 million, in each case for the period between February 14, 1999 and May 14,
1999.
In an engagement letter dated May 4, 1999, between CSFB and Western, Western
agreed to pay CSFB, upon consummation of the Merger, a fee of $1.0 million for
the fairness opinion provided by CSFB in connection with the sale of Western to
U.S. Bancorp. Western will also reimburse CSFB for all out-of-pocket expenses
resulting from or arising out of its engagement, including the fees and expenses
of CSFB's legal counsel. All consideration includes cash, securities, property,
and any other form of consideration. In addition, Western also agreed to
indemnify CSFB, its affiliates, the respective directors, officers, partners,
agents and employees of CSFB and its affiliates, and each person, if any,
controlling CSFB or any of its affiliates, against certain liabilities,
including liabilities under the federal securities laws.
EFFECTIVE TIME
The effective date for the Merger (the "EFFECTIVE DATE") will be the
business day on which the last to be satisfied or waived of the conditions to
completion of the Merger set forth in the Agreement has been fulfilled or
waived. The "EFFECTIVE TIME" of the Merger will be the time on the Effective
Date when the Merger is completed.
EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
At or prior to the Effective Time, U.S. Bancorp will deposit with First
Chicago Trust Company of New York (the "EXCHANGE AGENT") for the benefit of the
holders of certificates formerly representing shares of Western Common Stock,
for exchange in the Merger in accordance with the Agreement: (1) certificates
representing the shares of U.S. Bancorp Common Stock and (2) cash for fractional
shares (together with any dividends or distributions with a record date
occurring after the Effective Date, without any interest on the cash, dividends
or distributions, the "EXCHANGE FUND").
As promptly as practicable after the Effective Date, U.S. Bancorp or the
Exchange Agent will send a form letter of transmittal to Western shareholders of
record immediately prior to the Effective Date. The form letter of transmittal
will contain instructions with respect to the surrender of certificates
representing Western Common Stock in exchange for U.S. Bancorp Common Stock and
cash for fractional shares. No interest will be paid on any cash that is paid
for fractional share interests or for dividends or distributions.
WESTERN COMMON STOCK CERTIFICATES SHOULD NOT BE RETURNED WITH THE ENCLOSED
PROXY AND SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT UNLESS AND UNTIL THE
WESTERN SHAREHOLDER RECEIVES A LETTER OF TRANSMITTAL FOLLOWING THE EFFECTIVE
TIME.
30
<PAGE>
Until the certificates representing Western Common Stock are surrendered for
exchange after the Effective Time, holders of the certificates will accrue but
will not be paid dividends or other distributions declared after the Effective
Time with respect to U.S. Bancorp Common Stock into which their shares have been
converted. When such certificates are surrendered, any unpaid dividends or other
distributions will be paid, without interest. After the Effective Time, there
will be no transfers on Western's stock transfer books of shares of Western
Common Stock issued and outstanding immediately prior to the Effective Time. If
certificates representing shares of Western Common Stock are presented after the
Effective Time for transfer, they will be canceled and exchanged for the
relevant certificate representing the applicable shares of U.S. Bancorp Common
Stock, subject to the provisions of the Agreement.
No fractional shares of U.S. Bancorp Common Stock will be issued to any
Western shareholder upon completion of the Merger. For each fractional share
that would otherwise be issued, U.S. Bancorp will pay an amount in cash without
interest determined by multiplying the fraction by the average of the closing
sale prices of U.S. Bancorp Common Stock, as reported by the New York Stock
Exchange Composite Transactions Reporting System, as reported in THE WALL STREET
JOURNAL or, if not reported in that publication, in another authoritative
service, for the five NYSE trading days immediately preceding the Effective
Date.
If any shares of Western Common Stock are not surrendered or the
consideration for them is not claimed prior to the date on which the
consideration would otherwise escheat to or become the property of any
governmental unit or agency, the unclaimed consideration will, to the extent
permitted by abandoned property and any other applicable law, become the
property of U.S. Bancorp (and to the extent not in its possession will be paid
over to U.S. Bancorp), free and clear of all claims or interest of any person
previously entitled to the claims. Notwithstanding the above, none of U.S.
Bancorp, Western, the Exchange Agent or any other person will be liable to any
former Western shareholder for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
If a certificate for Western Common Stock has been lost, stolen or
destroyed, the exchange of certificates may still be completed if the Exchange
Agent receives appropriate evidence as to the loss and appropriate evidence as
to ownership of the certificate by the claimant. An indemnity reasonably
satisfactory to U.S. Bancorp may also be required.
For a description of the U.S. Bancorp Common Stock and a description of the
differences between the rights of Western shareholders, on the one hand, and the
U.S. Bancorp stockholders, on the other hand, see "DESCRIPTION OF U.S. BANCORP
CAPITAL STOCK AND COMPARISON OF SHAREHOLDER RIGHTS."
CONDUCT OF BUSINESS PENDING THE MERGER AND OTHER AGREEMENTS
Pursuant to the Agreement, prior to the Effective Time, each of U.S. Bancorp
and Western has agreed not to:
- willfully take any action that the party reasonably should know would
materially adversely affect or delay the ability of the party to perform
any of its obligations under the Agreement;
- take any action that would be reasonably likely to prevent the Merger from
qualifying as a reorganization within the meaning of Section 368 of the
Code; or
- knowingly take any action that is intended or is reasonably likely to
result in
(a) any of its representations in the Agreement becoming untrue in any
material respect;
(b) any of the conditions of the Merger not being satisfied; or
(c) a material violation of the Agreement except, in each case, as
required by law.
31
<PAGE>
Western has agreed, in addition to the foregoing, except as required by
applicable law, or previously disclosed, not to:
- conduct its business except in the ordinary course consistent with past
practice;
- alter its capital structure with respect to its capital stock;
- make, declare or pay any quarterly dividend on its capital stock above
$0.225 per share of Western Common Stock;
- enter into, renew or amend its employment agreements except in the
ordinary course of business, or as required by law, to satisfy previously
disclosed contractual obligations or for grants of awards to newly hired
employees consistent with past practice;
- enter into, adopt or materially change its employee benefit plans, except
to satisfy previously disclosed contractual obligations;
- dispose of or discontinue any of its assets, deposits, business or
properties, except in the ordinary course of business;
- acquire, or agree to acquire, any material assets (except other real
estate owned), except in the ordinary course of business and in a
transaction that is not material to Western and its subsidiaries, taken as
a whole;
- make any capital expenditures out of the ordinary course of business or
over $50,000 individually or $500,000 in the aggregate;
- amend the Western articles of incorporation or bylaws;
- implement or adopt any change in its financial accounting principles,
practices or methods, other than as may be required by generally accepted
accounting principles ("GAAP") or regulatory accounting principles;
- enter into, terminate or renew or amend any material contract, except in
the ordinary course of business consistent with past practice;
- implement or adopt any material change in its interest rate and other risk
management policies, procedures or practice; fail to follow its existing
policies or practices with respect to managing its exposure to interest
rate risk; or fail to use commercially reasonable means to avoid any
material increase in its aggregate exposure to interest rate risk;
- incur any indebtedness for borrowed money in any amount exceeding
$5,000,000 in the aggregate or voluntarily incur or become subject to any
material liability, other than those within the ordinary course of
business;
- discharge any material lien or encumbrances on Western's or its
subsidiaries' assets or pay or cancel any material debt, except in the
ordinary course of business;
- fail to maintain its current insurance policies or replace them without
providing substantially equal coverage;
- enter into any settlement in excess of $100,000 to which Western or its
subsidiaries became a party after the date of the Agreement;
- make any agreement binding it to extend credit, except in the ordinary
course of business, but in no event may an extension of credit exceed
$5,000,000 without submitting loan package information to the chief credit
officer of U.S. Bancorp for review with a right of comment, at least one
full business day prior to taking any action; or
- agree or commit to do any of the above.
32
<PAGE>
REPRESENTATIONS AND WARRANTIES
The Agreement contains representations and warranties of U.S. Bancorp, on
the one hand, and Western, on the other hand. Western has given representations
and warranties as to:
- its corporate organization, existence and its articles of incorporation
and bylaws;
- its capitalization and corporate structure;
- its ownership of other securities;
- its corporate power and authority;
- the approvals and consents required for the Merger and the compliance of
the Agreement and the Merger with (a) various agreements, (b) its articles
of incorporation and bylaws, and (c) applicable laws;
- governmental and third-party approvals;
- timely filing of required regulatory reports, including filings with the
Securities and Exchange Commission (the "SEC") since December 31, 1997;
- the accuracy and completeness of specified financial statements and those
required filings with applicable regulatory authorities;
- the absence of specified changes in its business since December 31, 1998;
- the absence of undisclosed liabilities;
- the absence of material legal proceedings and injunctions;
- the absence of regulatory proceedings;
- the completeness of its regulatory filings since December 31, 1996;
- its compliance with all other laws and its own articles of incorporation
and bylaws and the possession of all required permits;
- the absence of undisclosed material contracts or non-competition
agreements;
- the absence of any knowledge of its default of any material contract;
- the absence of any undisclosed broker's fees;
- its compliance with labor laws and the lack of any knowledge of the
resignation of key employees;
- its employee benefit plans and related matters;
- its labor matters;
- its properties;
- its knowledge of its environmental matters;
- the filing, payment and accuracy of its tax returns and its belief as to
the qualification of the Merger within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "CODE");
- its risk management instruments;
- the accuracy of its books and records;
- its loan portfolio;
- the accuracy of its insurance policy disclosure and the absence of any
default on its policies;
- its affiliate transactions;
33
<PAGE>
- its proper administration of fiduciary accounts;
- the extent of its millennium compliance; and
- the exemption of the Agreement, the Seller Option Agreement and the Merger
from any antitakeover laws.
U.S. Bancorp, on the other hand, has given representations and warranties as
to:
- its corporate organization, existence and its certificate of incorporation
and bylaws;
- its capitalization and corporate structure;
- its corporate power and authority;
- the approvals and consents required for the Merger and the compliance of
the Agreement and the Merger with (a) material agreements, (b) its
certificate of incorporation and bylaws, and (c) applicable laws;
- the timely filing of required regulatory reports (including SEC filings)
and their accuracy and completeness;
- the absence of specified changes in its business since December 31, 1998;
- its belief as to the qualification of the Merger within the meaning of
Section 368 of the Code;
- the completeness of its regulatory filings since December 31, 1996;
- the absence of regulatory proceedings;
- the absence of material legal proceedings;
- its compliance with all other laws and its own certificate of
incorporation and bylaws and the possession of all required permits; and
- the extent of its millennium compliance.
LIMITATION ON ACQUISITION PROPOSALS
Western has agreed not to, and to cause its subsidiaries and Western's and
its subsidiaries' officers, directors, agents, advisors and affiliates not to,
solicit or encourage inquiries regarding confidential information for, or engage
in any negotiations concerning, any proposal for the acquisition of Western by a
party other than U.S. Bancorp. However, if the Western Board determines in good
faith and in conformity with the written advice of outside counsel, after
Western has received an unsolicited Superior Proposal (as defined below), that
the failure to do so would result in a breach of the Western Board's fiduciary
duties to the Western shareholders, Western may, in response to an unsolicited
request for information, furnish information to, and enter into discussions
with, the party making the Superior Proposal after signing a customary
confidentiality agreement. After receiving a Superior Proposal, and prior to the
Annual Meeting, the Western Board may modify its approval or recommendation of
the Agreement in accordance with the written advice of outside counsel, if it
determines in good faith that the failure to modify its approval or
recommendation would be in breach of its fiduciary duties to the Western
shareholders. Under the Agreement, a "SUPERIOR PROPOSAL" is defined as a written
takeover proposal that in the good faith judgment of a majority of the
disinterested members of the Western Board (based on a written opinion of
Western's financial advisor that the financial value of the consideration in
such takeover proposal exceeds the financial value of the consideration in the
Merger) is more favorable to the Western shareholders than the Merger and is
made by a party financially capable of completing the takeover proposal. Western
is required to inform U.S. Bancorp of any written takeover proposal, its general
terms and the identity of the party making the proposal within 24 hours of
receipt.
34
<PAGE>
CONDITIONS TO COMPLETION OF THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER
The respective obligation of each of U.S. Bancorp and Western to complete
the Merger is subject to the fulfillment or written waiver by U.S. Bancorp and
Western prior to the Effective Time of each of the following conditions:
(a) The principal terms of the Agreement and the Merger shall have been
approved by the requisite vote of the Western shareholders;
(b) All required regulatory approvals shall have been obtained and shall
remain in full force and effect and all applicable statutory waiting
periods shall have expired;
(c) No governmental authority of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any statute, rule or regulation,
or any judgment, decree, injunction or other order (whether temporary,
preliminary or permanent) (an "INJUNCTION") which is in effect and
prohibits consummation of the transactions contemplated by the Agreement;
(d) The registration statement on Form S-4 of which this Proxy
Statement/Prospectus is a part (the "REGISTRATION STATEMENT") shall have
become effective under the Securities Act of 1933, as amended (the
"SECURITIES ACT"); and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC. The U.S.
Bancorp Common Stock to be issued in the Merger shall have been approved
for listing on the New York Stock Exchange, subject to official notice of
issuance;
(e) All permits and other authorizations under state securities laws
necessary to complete the transactions contemplated by the Agreement and
to issue the shares of U.S. Bancorp Common Stock to be issued in the
Merger shall have been received and be in full force and effect; and
(f) No proceeding initiated by any governmental authority seeking an
Injunction shall be pending.
CONDITIONS TO OBLIGATION OF WESTERN
The obligation of Western to complete the Merger is also subject to the
fulfillment or written waiver by Western prior to the Effective Time of each of
the following conditions:
(a) The representations and warranties of U.S. Bancorp set forth in the
Agreement shall be true and correct as of the date of the Agreement and
as of the Effective Date as though made on and as of the Effective Date
(except that representations and warranties that by their terms speak
only as of the date of the Agreement or some other date shall be true and
correct as of such date); and Western shall have received a certificate,
dated the Effective Date, signed on behalf of U.S. Bancorp by the Chief
Financial Officer of U.S. Bancorp to that effect;
(b) U.S. Bancorp shall have performed in all material respects all
obligations required to be performed by it under the Agreement at or
prior to the Effective Time, and Western shall have received a
certificate, dated the Effective Date, signed on behalf of U.S. Bancorp
by the Chief Financial Officer of U.S. Bancorp to that effect;
(c) Western shall have received an opinion of Irell & Manella LLP, counsel
to Western, dated the Effective Date, substantially to the effect that,
on the basis of facts, representations and assumptions set forth in the
opinion that are consistent with the state of facts existing at the
Effective Time, the Merger constitutes a "reorganization" within the
meaning of Section 368(a) of the Code; and
(d) Since the date of the Agreement, there shall have been no material
adverse change in, and no event, occurrence or development in the
business of U.S. Bancorp or any of its subsidiaries
35
<PAGE>
that, taken together with other events, occurrences and developments with
respect to the business, would have or would reasonably be expected to
have a material adverse effect with respect to U.S. Bancorp and its
subsidiaries, taken as a whole.
CONDITIONS TO OBLIGATION OF U.S. BANCORP
The obligation of U.S. Bancorp to complete the Merger is also subject to the
fulfillment or written waiver by U.S. Bancorp prior to the Effective Time of
each of the following conditions:
(a) The representations and warranties of Western set forth in the Agreement
shall be true and correct as of the date of the Agreement and as of the
Effective Date as though made on and as of the Effective Date (except
that representations and warranties that by their terms speak only as of
the date of the Agreement or some other date shall be true and correct as
of such date); and U.S. Bancorp shall have received a certificate, dated
the Effective Date, signed on behalf of Western by the Chief Financial
Officer of Western to that effect;
(b) Western shall have performed in all material respects all obligations
required to be performed by it under the Agreement at or prior to the
Effective Time; and U.S. Bancorp shall have received a certificate, dated
the Effective Date, signed on behalf of Western by the Chief Financial
Officer of Western to that effect;
(c) U.S. Bancorp shall have received an opinion of Dorsey & Whitney LLP,
counsel to U.S. Bancorp, dated the Effective Date, to the effect that, on
the basis of facts, representations and assumptions set forth in the
opinion that are consistent with the state of facts existing at the
Effective Time, the Merger constitutes a "reorganization" within the
meaning of Section 368(a) of the Code; and
(d) Since the date of this Agreement, there shall have been no material
adverse change in, and no event, occurrence or development in the
business of Western or any of its subsidiaries that, taken together with
other events, occurrences and developments with respect to the business,
would have or would reasonably be expected to have a material adverse
effect with respect to Western and its subsidiaries, taken as a whole.
REGULATORY APPROVALS REQUIRED FOR THE MERGER
Western and U.S. Bancorp and their respective subsidiaries have agreed to
use their reasonable best efforts to take all actions, and to do all things
necessary, proper or desirable, or advisable under applicable laws, so as to
permit completion of the Merger as promptly as practicable and otherwise to
enable completion of the Merger and to cooperate fully with the other parties to
that end. In addition, they each agreed to provide truthful information in
various regulatory filings and promptly to correct any material omission. Each
party may reasonably review in advance and consult with the other with respect
to all written information submitted to any third party or regulatory authority
in connection with the Merger. Each party will consult with the other party with
respect to obtaining all material consents and approvals of third parties and
regulatory authorities, and each party will keep the other parties appraised of
the status of material matters relating to completion of the Merger.
The requisite regulatory approvals for the Merger include approvals or
waivers from the Office of the Comptroller of the Currency (the "OCC"), the
Board of Governors of the Federal Reserve System (the "FRB") and the California
Department of Financial Institutions (the "DFI"). The Merger cannot proceed in
the absence of these requisite regulatory approvals or waivers. There can be no
assurance that these approvals will be obtained, and, if obtained, there can be
no assurance as to the date of any of these approvals or the absence of any
litigation challenging the approvals. U.S. Bancorp and Western are not aware of
any other material governmental approvals or actions that are required prior to
the parties' completion of the Merger other than those described below. It is
presently contemplated that if
36
<PAGE>
any such additional governmental approvals or actions are required, such
approvals or actions will be sought. There can be no assurance, however, that
any of the approvals or actions will be obtained.
FEDERAL RESERVE BOARD AND COMPTROLLER OF THE CURRENCY
The Merger is subject to prior approval by the FRB under Section 3 of the
Bank Holding Company Act, as amended (the "BHCA"). The FRB may waive the
requirement of an application and prior approval under the BHCA in connection
with certain bank holding company mergers if the transaction is part of the
merger of the bank or banks to be acquired with a subsidiary bank of the
acquiring bank holding company. The waiver may be granted if the bank merger is
subject to prior approval by another federal supervisory agency under Section
18(c) of the Federal Deposit Insurance Act, as amended (commonly known as the
"BANK MERGER ACT"), if the acquiring bank holding company will continue to meet
capital adequacy guidelines and if some other regulatory conditions are met.
U.S. Bancorp and Western have agreed to merge Western's subsidiary banks,
Southern California Bank and Santa Monica Bank, into U.S. Bancorp's lead
subsidiary bank, U.S. Bank National Association (the "BANK MERGER"). The Bank
Merger is subject to the prior approval of the OCC under the Bank Merger Act and
Section 215a of the National Bank Act, as amended. U.S. Bancorp and Western
believe that all conditions for a waiver from the FRB will be satisfied.
The Bank Merger Act requires the OCC, when approving a transaction such as
the Bank 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 OCC will,
among other things, evaluate the adequacy of the capital levels of the parties
to a proposed transaction and of the resulting institutions.
The Bank Merger Act prohibits the OCC 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 OCC 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 OCC 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 OCC will furnish notice and a copy of the application for approval of
the Merger to the FRB, the Federal Deposit Insurance Corporation and the United
States Department of Justice ("DOJ"). These agencies have 30 days to submit
their views and recommendations to the OCC. The Bank Merger Act also provides
for the publication of notice and public comment on applications filed with the
OCC and authorizes such agency to permit interested parties to intervene in the
proceedings. If an interested party is permitted to intervene, the intervention
could delay the regulatory approvals required for completion of the Merger.
Assuming OCC approval, the Merger may not be completed until 30 days after
the approval, during which time the DOJ may challenge the Merger on antitrust
grounds. The commencement of an antitrust action would stay the effectiveness of
the OCC's approval unless a court specifically ordered otherwise. With the
approval of the OCC and the concurrence of the DOJ, the waiting period may be
reduced to no less than 15 days. Western and U.S. Bancorp believe that the
Merger and the Bank Merger do 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.
37
<PAGE>
CALIFORNIA DEPARTMENT OF FINANCIAL INSTITUTIONS
Because Santa Monica Bank and Southern California Bank are state-chartered
banks, the Merger is subject to prior approval of the California Commissioner of
Financial Institutions under Section 701 of the California Financial Code. Under
Section 708 of the California Financial Code, the DFI may exempt a transaction
from this requirement of prior approval if the Commissioner by regulation or
order exempts the transaction as not being comprehended within the purposes of
the California Financial Code and the regulation of the transaction is not
necessary or appropriate in the public interest or for the protection of a bank,
a controlling person, or the depositors, creditors or shareholders of a bank or
a controlling person. Because U.S. Bancorp has filed an application for approval
of the Merger with the OCC, we believe that all conditions for an exemption from
the DFI will be satisfied. Accordingly, U.S. Bancorp has requested an exemption
from the DFI.
STATUS OF REGULATORY APPROVALS AND OTHER INFORMATION
Western and U.S. Bancorp 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. U.S. Bancorp
submitted its application to the OCC and provided a copy to the FRB and the DFI
on July 2, 1999, with a request for waiver of prior approval. The application
was accepted for processing by the OCC on July 6, 1999.
THE MERGER CANNOT PROCEED IN THE ABSENCE OF THE REQUISITE REGULATORY
APPROVALS. THERE CAN BE NO ASSURANCE THAT ALL OF THESE REGULATORY APPROVALS WILL
BE OBTAINED OR AS TO THE DATES OF THE APPROVALS.
TERMINATION OF THE AGREEMENT
TERMINATION
The Agreement may be terminated, and the Merger may be abandoned, before or
after approval of the matters presented in connection with the Merger by the
Western shareholders, as follows.
(a) At any time prior to the Effective Time, the Agreement may be terminated
by the mutual consent of U.S. Bancorp and Western.
(b) At any time prior to the Effective Time, the Agreement may be terminated
by U.S. Bancorp or Western, upon written notice to the other party, in
the event of either:
(i) a breach by the other party of any representation or warranty
contained in the Agreement, which breach cannot be or has not been
cured within 30 days after the giving of written notice to the
breaching party of the breach, provided that the breach individually
or in the aggregate with other breaches, has had or is reasonably
expected to have a material adverse effect on the non-breaching
party; or
(ii) a breach by the other party of any of the covenants or agreements
contained in the Agreement, which breach cannot be or has not been
cured within 30 days after the giving of written notice to the
breaching party of the breach, provided that the breach
individually or in the aggregate with other breaches, has had or is
reasonably expected to have a material adverse effect on the
non-breaching party.
(c) At any time prior to the Effective Time, the Agreement may be terminated
by U.S. Bancorp or Western, in the event that the Merger is not completed
by December 31, 1999, except to the extent that the failure of the Merger
then to be completed arises out of or results from the failure of the
party seeking to terminate to perform or observe the covenants and
agreements of the party set forth in the Agreement.
(d) The Agreement may be terminated by Western or U.S. Bancorp, in the event
that the approval of any governmental authority required for completion
of the Merger and the other transactions contemplated by the Agreement
will have been denied by a final nonappealable
38
<PAGE>
action of any governmental authority, or the Agreement may be terminated
by Western or U.S. Bancorp in the event that the shareholder approval
required for adoption of the Agreement and Merger is not obtained at the
Annual Meeting.
(e) At any time prior to the Annual Meeting, the Agreement may be terminated
by U.S. Bancorp if the Western Board will have failed to recommend the
Merger to the Western shareholders, withdrawn the recommendation or
modified or changed the recommendation in a manner adverse, in any
respect, to the interests of U.S. Bancorp.
(f) The Agreement may be terminated by either U.S. Bancorp or Western, if
any of the conditions to the party's obligation to complete the
transactions contemplated in the Agreement will have become impossible to
satisfy.
(g) The Agreement may be terminated by Western, on either of the two trading
days immediately after the Twenty Day Calculation Period (as defined
below), if both of the following conditions are satisfied:
(i) the average of the daily closing prices of a share of U.S. Bancorp
Common Stock as reported on the consolidated tape of the New York
Stock Exchange during the Twenty Day Calculation Period (as defined
below) (the "U.S. BANCORP AVERAGE PRICE") is less than $28.38; and
(ii) the number obtained by dividing the U.S. Bancorp Average Price by
$35.4792 is less than the number obtained by dividing the Final
Index Price (as defined below) by the Initial Index Price (as
defined below) and subtracting .20 from the quotient;
PROVIDED, HOWEVER, that Western will not be permitted to terminate the Agreement
if U.S. Bancorp agrees to adjust the Exchange Ratio in a manner that provides
Western shareholders with Merger consideration per share of Western Common Stock
with a value (using the U.S. Bancorp Average Price) greater than or equal to
$36.80. For purposes of this section:
(A) The "INDEX GROUP" means those banking companies listed on Schedule
8.01(h) of the Agreement (which is included in Appendix A following the
Agreement), the common stock of which is publicly traded and as to which
there is no pending publicly announced proposal at any time during the
Twenty Day Calculation Period for the company to be acquired. In the
event that any of the companies are so removed from the Index Group, the
weights attributed to the remaining companies will be adjusted
proportionately.
(B) The "INITIAL INDEX PRICE" means the weighted average (weighted in
accordance with the factors listed on Schedule 8.01(h) of the Agreement)
of the closing prices for the period from and including May 6, 1999 to
and including May 18, 1999 of the companies comprising the Index Group.
(C) The "FINAL PRICE" of any company belonging to the Index Group means the
average of the daily closing sale prices of a share of common stock of
that company, as reported on the consolidated transaction reporting
system for the market or exchange on which the common stock is
principally traded, during the Twenty Day Calculation Period.
(D) The "FINAL INDEX PRICE" means the weighted average (weighted in
accordance with the factors listed on Schedule 8.01(h) of the Agreement)
of the Final Prices for all of the companies comprising the Index Group.
39
<PAGE>
(E) The "TWENTY DAY CALCULATION PERIOD" means the 20 consecutive trading
days ending at the end of the third business day prior to the Effective
Date.
(F) If U.S. Bancorp or any company belonging to the Index Group declares a
stock dividend or effects a reclassification, recapitalization, split-up,
combination, exchange of shares or similar transaction between the date
of the Agreement and the date three days prior to the Effective Date, the
closing prices for the common stock of such company will be appropriately
adjusted for the purposes of the definitions above so as to be comparable
to the price on the date of the Agreement.
EFFECT OF TERMINATION AND ABANDONMENT
Termination will not relieve a breaching party from liability for any
willful breach of the Agreement giving rise to the termination. Any termination
will not affect the Stock Option Agreement except as provided in the Stock
Option Agreement. In the event of termination, Western agrees to pay U.S.
Bancorp the sum of $5,000,000 (the "TERMINATION FEE") if U.S. Bancorp terminated
the Agreement and abandoned the Merger due to (1) Western's breach of its
representations, warranties, covenants or other agreements contained in the
Agreement or (2) the Western Board fails to recommend the Merger to the Western
shareholders in the agreed form. U.S. Bancorp will also receive the Termination
Fee if the Merger was abandoned due to the inability to obtain the necessary
approval of Western shareholders at the Annual Meeting, but only if it is
publicly announced that a third party has made or disclosed the intention to
make a takeover proposal. Payment of the Termination Fee by Western relieves
Western of liability for any breach, including a willful breach, of any of
Western's representations, warranties, covenants or other agreements contained
in the Agreement.
On the other hand, if the Agreement is terminated and the Merger is
abandoned due to U.S. Bancorp's breach of its representations, warranties,
covenants and agreements set forth in the Agreement, U.S. Bancorp will pay to
Western the Termination Fee. Payment of the Termination Fee by U.S. Bancorp
relieves U.S. Bancorp of liability for any breach, other than a willful breach,
of any of U.S. Bancorp's representations, warranties, covenants or other
agreements contained in the Agreement.
THE STOCK OPTION AGREEMENT
As an inducement and condition to U.S. Bancorp's willingness to enter into
the Merger Agreement, Western entered into the Stock Option Agreement, dated as
of May 19, 1999 (the "STOCK OPTION AGREEMENT"), with U.S. Bancorp. The following
description of the Stock Option Agreement is qualified in its entirety by
reference to the text of the Stock Option Agreement, a copy of which is attached
hereto as Appendix D and which is incorporated in this Proxy
Statement/Prospectus by reference.
Pursuant to the Stock Option Agreement, Western granted U.S. Bancorp an
unconditional, irrevocable option (the "OPTION"), which permits U.S. Bancorp to
purchase a number of shares of Western Common Stock up to approximately 19.9% of
the number of shares of Western Common Stock outstanding immediately before
exercise of the Option. The exercise price of the Option is $40.125 per share,
which was the closing market price on the trading day that was two days prior to
the date of the Agreement, subject to adjustment under specified circumstances
(the exercise price, as so adjusted, is referred to as the "OPTION PRICE").
The Option will become exercisable in whole or in part if both an "Initial
Triggering Event" and a "Subsequent Triggering Event" occur with respect to
Western prior to the occurrence of an "Exercise Termination Event," as the terms
are defined below. The purchase of any shares of Western Common Stock pursuant
to the Option is subject to compliance with applicable law, including the
receipt of necessary approvals under the BHCA. If U.S. Bancorp were to exercise
its right to acquire the full 19.9% of the outstanding shares of Western Common
Stock subject to the Option, U.S. Bancorp would
40
<PAGE>
hold approximately 16.6% of the outstanding shares of Western Common Stock
immediately after the exercise.
The Stock Option Agreement generally defines the term "INITIAL TRIGGERING
EVENT" to mean any of the following events or transactions:
(A) Western or any of its subsidiaries, without U.S. Bancorp's prior written
consent, enters into an agreement to engage in an "Acquisition
Transaction" (as defined below) with a third party; or the Western Board
recommends that the Western shareholders approve or accept any
Acquisition Transaction, other than as contemplated by the Agreement;
(B) A third party shall have acquired beneficial ownership or the right to
acquire beneficial ownership of 10% or more of the outstanding shares of
Western Common Stock;
(C) The Western shareholders shall have voted and failed to approve the
Agreement at the Annual Meeting or the Annual Meeting has not been held
in violation of the Agreement or has been canceled prior to termination
of the Agreement if, prior to the Annual Meeting (or if the Annual
Meeting shall not have been held or shall have been canceled, prior to
the 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 Western;
(D) The Western Board withdraws or modifies (or publicly announces its
intention to withdraw or modify), in any manner adverse to U.S. Bancorp,
its recommendation that the Western shareholders approve the Agreement at
the Annual Meeting, or Western, without U.S. Bancorp'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;
(E) A third party shall have made a non-frivolous proposal to Western or the
Western shareholders to engage in an Acquisition Transaction, and the
proposal has been publicly announced;
(F) A third party 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 the exchange offer);
(G) Western shall have breached any covenant or obligation contained in the
Agreement in anticipation of engaging in an Acquisition Transaction, and
following the breach U.S. Bancorp would be entitled to terminate the
Agreement (whether immediately or after the giving of notice or passage
of time or both); or
(H) A third party files an application or notice with the FRB 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 Agreement, the term "ACQUISITION TRANSACTION"
means (a) a merger or consolidation or any similar transaction involving Western
or any "SIGNIFICANT SUBSIDIARY" (as defined in Rule 1-02 of Regulation S-X
promulgated by the SEC) of Western, other than mergers, consolidations or
similar transactions involving solely Western and/or one or more of its wholly
owned subsidiaries, provided that the transactions are not entered into in
violation of the terms of the Agreement, (b) a purchase, lease or other
acquisition of all or substantially all of the assets or deposits of Western 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 Western or any of its
Significant Subsidiaries.
41
<PAGE>
The Stock Option Agreement generally defines the term "SUBSEQUENT TRIGGERING
EVENT" to mean any of the following events or transactions: (1) the acquisition
by a third party of beneficial ownership of 25% or more of the then outstanding
Western Common Stock or (2) the occurrence of the Initial Triggering Event
described in clause (c) of the definition of "Acquisition Transaction" above,
except that the percentage referred to in clause (c) will be 25%.
The Stock Option Agreement defines the term "EXERCISE TERMINATION EVENT" to
mean any of (1) the Effective Time; (2) termination of the Agreement in
accordance with its terms, if the termination occurs prior to the occurrence of
an Initial Triggering Event except a termination by U.S. Bancorp of the type
described in paragraphs (b)(i) and (b)(ii) under "--Termination of the
Agreement"; or (3) the passage of 18 months, after termination of the Agreement
if the termination is concurrent with or follows the occurrence of an Initial
Triggering Event or is a termination by U.S. Bancorp of the type described in
paragraphs (b)(i) and (b)(ii) under "--Termination of the Agreement" (unless the
breach by Western giving rise to the right of termination is non-volitional).
If the Option becomes exercisable, it may be exercised in whole or in part
within six months following the applicable Subsequent Triggering Event. U.S.
Bancorp's right to exercise the Option and certain other rights under the Stock
Option Agreement are subject to extension in order to obtain required regulatory
approvals to 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 Western.
Upon the occurrence of a Subsequent Triggering Event that occurs prior to an
Exercise Termination Event, U.S. Bancorp will have certain registration rights
with respect to the shares of Western Common Stock issued or issuable pursuant
to the Option.
The Stock Option Agreement also provides that at any time after the
occurrence of a "Repurchase Event" (as defined below), upon request, Western
will 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 of the Option. The repurchase of the Option Shares will be at a price
equal to the market/offer price multiplied by the number of Option Shares so
designated. The term "MARKET/OFFER PRICE" means the highest of
- the price per share at which a tender or exchange offer has been made for
Western Common Stock;
- the price per share of Western Common Stock that any third party is to pay
pursuant to an agreement with Western;
- the highest closing price per share of Western Common Stock within the
six-month period immediately preceding the date that notice to repurchase
is given; or
- in the event of a sale of all or substantially all of Western assets or
deposits, the sum of the price paid for the 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 Western Common Stock outstanding at the time of such sale.
The term "REPURCHASE EVENT" is defined to mean (1) the acquisition by any
third party of beneficial ownership of 50% or more of the outstanding shares of
Western Common Stock or (2) the consummation of an Acquisition Transaction
described in clause (c) of the definition of "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 will be 50% rather than 10%.
The Stock Option Agreement also provides that U.S. Bancorp may, at any time
following a Repurchase Event and prior to an Exercise Termination Event,
surrender the Option (and any Option
42
<PAGE>
Shares obtained upon the exercise of the Option and still held by U.S. Bancorp)
for a surrender fee (the "SURRENDER FEE") equal to $35 million (1) plus, if
applicable, U.S. Bancorp's purchase price with respect to any Option Shares held
by it and (2) minus any net cash received pursuant to the sale of Option Shares
(or any other securities into which the Option Shares were converted or
exchanged) to any third party over U.S. Bancorp's purchase price of the Option
Shares. U.S. Bancorp may not exercise its right to surrender the Option and
receive the Surrender Fee if Western has previously repurchased any Option
Shares as described in the preceding paragraphs.
Pursuant to the terms of the Stock Option Agreement, in the event that,
prior to an Exercise Termination Event, Western enters into specified
transactions in which Western is not the surviving corporation, or Western sells
all or substantially all of its or some of its subsidiaries' assets, the Option
will 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 Western.
The Stock Option Agreement provides that neither U.S. Bancorp nor Western
may assign any of its rights or obligations under the Stock Option Agreement
without the written consent of the other party, except that if a Subsequent
Triggering Event will have occurred prior to an Exercise Termination Event, U.S.
Bancorp may, subject to certain limitations, assign its rights and obligations
under the Stock Option Agreement in whole or in part (subject to extension in
certain cases) within 12 months following the Subsequent Triggering Event.
Arrangements such as the Stock Option Agreement are frequently entered into
in connection with corporate mergers and acquisitions in an effort to increase
the likelihood that the transactions will be completed in accordance with their
terms, and to compensate the acquiror for the efforts undertaken and the
expenses, losses and opportunity costs incurred by it in connection with the
transactions if they are not completed under circumstances involving an
acquisition or potential acquisition of the target by a third party. The Stock
Option Agreement was entered into to accomplish these objectives. The Stock
Option Agreement may have the effect of discouraging offers by third parties to
acquire Western prior to the Merger.
To the best knowledge of Western and U.S. Bancorp, no event that could give
rise to the right to exercise the Option has occurred as of the date of this
Proxy Statement/Prospectus.
THE VOTING AGREEMENTS
Western has entered into Voting Agreements with each of Adriana M. Boeka,
Robert M. Borgman, Suzanne R. Brennan, Rice E. Brown, Julius G. Christensen,
John M. Eggemeyer, William C. Greenbeck, Arnold C. Hahn, Robert L. McKay, David
I. Rainer, Bernard E. Schneider, Hugh S. Smith, Jr., Mark H. Stuenkel, Matthew
P. Wagner, Dale E. Walter, Castle Creek Capital Partners Fund I LP, Castle Creek
Capital Partners Fund IIa LP and Castle Creek Capital Partners Fund IIb LP, each
a shareholder, current director and/or executive officer of Western. These
shareholders have the power in the aggregate to direct the voting of 18.1% of
the issued and outstanding shares of Western Common Stock as of the Record Date.
Each of these shareholders has agreed, in consideration of the substantial
expenses incurred by Western and U.S. Bancorp in connection with the Agreement
and as a condition to Western and U.S. Bancorp entering into the Agreement, to
vote or to cause to be voted, or to execute a written consent with respect to,
all of the shares of Western Common Stock with respect to which the shareholder
has the power to direct the voting of, in favor of adoption and approval of the
Agreement and the Merger at every meeting of Western shareholders at which these
matters are considered and at every adjournment or postponement of the Annual
Meeting and in connection with every proposal to take action by written consent
with respect to these matters.
Each Voting Agreement also provides that the shareholder will not, and will
not permit any entity under its control to, deposit any of the shareholder's
shares of Western Common Stock in a voting trust
43
<PAGE>
or subject any of the shares to any agreement, arrangement or understanding with
respect to the voting of the shares inconsistent with the Voting Agreement
entered into by that shareholder.
The Voting Agreements will terminate upon the earlier to occur of the
completion of the Merger (except for certain provisions which will survive the
completion of the Merger) or the date on which the Agreement is terminated in
accordance with its terms.
The Voting Agreements bind the actions of the signatories to the agreements
only in their capacity as Western shareholders. Those directors of Western who
signed Voting Agreements are not and could not be contractually bound to
abrogate their fiduciary duties as directors of Western. Accordingly, while the
shareholders/directors are, under the Voting Agreements executed by them,
contractually bound to vote as a Western shareholder in favor of the Merger and
against other acquisition proposals (should any be presented), their fiduciary
duties as Western directors nevertheless required them to act in their capacity
as directors in the best interest of Western when they decided to approve the
Merger. In addition, the shareholders/directors will continue to be bound by
their fiduciary duties as Western directors with respect to any decisions they
may take in the future in connection with the Merger or otherwise.
EXTENSION, WAIVER AND AMENDMENT OF THE AGREEMENT
At any time prior to the Effective Time, U.S. Bancorp and Western, by action
taken or authorized by their respective Boards of Directors, may, to the extent
legally allowed:
- extend the time for the performance of any of the obligations or other
acts of the other party;
- waive any inaccuracies in the representations and warranties contained in
the Agreement or in any document delivered pursuant to the Agreement; and
- waive compliance with any of the agreements or conditions contained in the
Agreement.
Any agreement on the part of a party to any extension or waiver will be
valid only if set forth in a written instrument signed on behalf of such party,
but the extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition will not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure.
Prior to the Effective Time, any provision of the Agreement may be amended
or modified at any time, by an agreement in writing between the parties,
executed in the same manner as the Agreement. However, after the Annual Meeting,
the Agreement may not be amended if it would violate the California General
Corporation Law or reduce the amount or change the form of the consideration to
be received by Western shareholders in the Merger.
STOCK EXCHANGE LISTING
U.S. Bancorp has agreed to use its reasonable best efforts to list, prior to
the Effective Date, on the New York Stock Exchange, subject to official notice
of issuance, the shares of U.S. Bancorp Common Stock to be issued to the holders
of Western Common Stock in the Merger.
EXPENSES
Except for any Termination Fee payable under the Agreement and except for
proxy solicitation costs to be borne by Western, the Agreement generally
provides that each of U.S. Bancorp and Western will pay its own expenses in
connection with the Merger and the transactions contemplated by the Agreement.
44
<PAGE>
INDEMNIFICATION OF WESTERN DIRECTORS AND OFFICERS BY U.S. BANCORP
U.S. Bancorp has agreed to indemnify and hold harmless all present and
former Western directors and officers against costs and expenses incurred in
connection with any actual or threatened claim or proceeding, arising out of
matters existing or occurring at or prior to the Effective Time, to the fullest
extent permitted by law. U.S. Bancorp has also agreed, for a period of six years
after the Effective Date, to provide insurance for Western's officers and
directors with respect to claims against those officers and directors arising
from facts or events that occurred on or before the Effective Time. However,
U.S. Bancorp is obligated to expend no more than 200% per annum of the current
amount expended by Western to maintain directors' and officers' insurance
coverage.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
ACCELERATION OF STOCK OPTIONS
As a result of the Merger, currently non-vested options to acquire 215,120
shares of Western Common Stock granted under Western's stock option plans and
currently non-vested options to acquire 5,583 shares of Western Common Stock
granted outside of any of Western's stock option plans will vest and become
immediately exercisable thirty days prior to the Effective Date. These options
otherwise would have vested periodically until January 15, 2002 at exercise
prices ranging from $14.02 to $40.50 per share. All options, except for options
issued to Matthew P. Wagner, the President and Chief Executive Officer of
Western, that are not exercised prior to the Merger will be converted into the
right to receive U.S. Bancorp Common Stock pursuant to and upon the terms set
forth in the Agreement. See "THE MERGER--Conversion of Stock; Treatment of
Options." Pursuant to a separate agreement between U.S. Bancorp and Mr. Wagner,
all options to purchase Western Common Stock held by Mr. Wagner on May 19, 1999
will be converted into options to acquire U.S. Bancorp Common Stock. This
agreement allows Mr. Wagner to acquire a number of shares of U.S. Bancorp Common
Stock equal to the number of shares of Western Common Stock underlying his
options multiplied by the Exchange Ratio, at the same aggregate exercise price.
EXECUTIVE SEVERANCE AND OTHER ARRANGEMENTS
Most executives of Western are entitled to the benefits of the Western
Executive Severance Plan (the "SEVERANCE PLAN"). In addition, Mark Stuenkel,
President and Chief Executive Officer of Southern California Bank, and Western
are parties to an Executive Salary Continuation Agreement. For a description of
these agreements, see "EXECUTIVE OFFICERS OF WESTERN--Executive Severance Plan"
and "--Employment Arrangement--Mark H. Stuenkel."
In addition, the Agreement provides that bonuses payable to the employees of
Western, including to its executive officers, under Western's incentive plans
for the year ended December 31, 1999 will be determined by Western's chief
executive officer in consultation with U.S. Bancorp.
In order to retain the services of David I. Rainer, the President and Chief
Executive Officer of Santa Monica Bank, U.S. Bancorp agreed to pay Mr. Rainer a
salary of $300,000 annually, a retention bonus of $360,000 following the Merger
and agreed that Mr. Rainer's incentive target bonus for the year 2000 would be
no less than 50% of his base salary. In addition, U.S. Bancorp agreed to grant
options to purchase 60,000 shares of U.S. Bancorp Common Stock that vest in
equal amounts on the third, fourth and fifth anniversaries of the completion of
the Merger, 6,000 shares of restricted U.S. Bancorp Common Stock that vests in
equal amounts on the first and second anniversaries of the completion of the
Merger, and $720,000 worth of restricted U.S. Bancorp Common Stock upon
completion of the Merger. The options will have an exercise price equal to the
price of the U.S. Bancorp Common Stock on the date of the Merger, and the
options and the restricted stock will vest over a period of up to five years
following completion of the Merger.
45
<PAGE>
INVESTMENT ADVISORY SERVICES
Belle Plaine Partners, Inc. and Belle Plaine Financial LLP are affiliates of
John M. Eggemeyer, a director of Western, and the funds controlled by him. Mr.
Eggemeyer and those funds collectively beneficially own approximately 13.3% of
the outstanding shares of Western Common Stock as of July 1, 1999. Mr. Eggemeyer
is a principal of each of Belle Plaine Partners and Belle Plaine Financial.
Belle Plaine Partners serves as a financial advisor to Western under an
engagement letter dated May 17, 1995. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS--Investment Banking Services." Pursuant to this engagement letter,
upon the completion of the Merger, Belle Plaine Partners would have been
entitled to a payment by Western of cash fees in an amount equal to 2% of the
aggregate consideration paid by U.S. Bancorp pursuant to the Agreement. However,
pursuant to a Novation dated May 19, 1999 (the "NOVATION"), Belle Plaine
Partners assigned all of its rights under the May 17, 1995 engagement letter to
Belle Plaine Financial. In connection with the Novation and in contemplation of
the execution of the Agreement, pursuant to an Amendment to Letter Agreement
dated May 19, 1999, Western and Belle Plaine Financial agreed that (1)
immediately prior to the completion of the Merger, the May 17, 1995 engagement
letter would terminate and be of no further force and effect and (2) in
connection with the completion of the Merger, Western would pay to Belle Plaine
Financial $1.5 million and reimburse Belle Plaine Financial for its reasonable
out-of-pocket expenses, disbursements and liabilities related to their
engagement, which would constitute all monies owing to Belle Plaine Financial
from Western as a result of the Merger.
CONFIDENTIALITY/NONSOLICITATION AGREEMENTS
Mr. Wagner entered into a Confidentiality/Non-solicitation agreement on and
as of May 19, 1999 with U.S. Bancorp. Pursuant to that agreement, Mr. Wagner has
agreed to certain restrictions during and after his employment with Western in
exchange for $2.2 million plus interest, payable in eight quarterly installments
commencing as of the completion of the Merger. These restrictions include,
generally, keeping confidential the confidential information of Western and, for
a 24-month period following the Effective Date, not competing with the business
of Western and not soliciting Western's customers or employees.
Each of Mr. Eggemeyer and Belle Plaine Financial, of which Mr. Eggemeyer is
a principal, entered into a Confidentiality/Non-solicitation agreement on and as
of May 19, 1999 with U.S. Bancorp. Pursuant to that agreement, Mr. Eggemeyer and
Belle Plaine Financial agreed to certain restrictions, including, generally,
keeping confidential the confidential information of Western and, for a 24-month
period following the Effective Date, not soliciting Western's customers or
employees. In consideration of those restrictions, U.S. Bancorp will pay $4
million to Mr. Eggemeyer and $6 million to Belle Plaine Financial. One-half of
each of those payments will be paid on the Effective Date, and the remaining
one-half of each of those payments, plus interest, will be paid on the one-year
anniversary of the Effective Date.
CONSULTING AGREEMENT
In order to effect a smooth and orderly transfer of ownership of the
business of Western to U.S. Bancorp, U.S. Bancorp will enter into a consulting
agreement with Mr. Wagner. The essential terms of this agreement are summarized
below.
46
<PAGE>
MATTHEW P. WAGNER. U.S. Bancorp will retain Mr. Wagner as a consultant to
render the consulting and advisory services that U.S. Bancorp requests to assist
U.S. Bancorp in retaining business after the Effective Date. In rendering these
services, Mr. Wagner will be acting as an independent contractor and not as an
employee or agent of U.S. Bancorp. Unless terminated earlier in accordance with
the consulting agreement, the term of the agreement will commence as of the
Effective Date and will continue for a continuous period of six months. As
compensation in full for Mr. Wagner's services, U.S. Bancorp will pay Mr. Wagner
a consulting fee of $70,000 payable in six monthly installments.
RESTRICTIONS ON RESALES BY AFFILIATES
The issuance of shares of U.S. Bancorp Common Stock to Western shareholders
in the Merger has been registered under the Securities Act. The shares of U.S.
Bancorp Common Stock exchanged in the Merger may be traded freely and without
restriction by those shareholders not deemed to be "affiliates" of Western, as
that term is defined under the Securities Act. An "AFFILIATE" of Western, as
defined by the rules promulgated pursuant to the Securities Act, is a person who
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, Western. Any subsequent transfer
of the shares by any person who is an affiliate of Western at the time the
Merger is submitted for vote of the holders of Western Common Stock will, under
existing law, require either:
- the further registration under the Securities Act of the shares of U.S.
Bancorp Common Stock to be transferred;
- compliance with Rule 145 promulgated under the Securities Act, permitting
limited sales under some circumstances; or
- the availability of another exemption from registration.
These restrictions are expected to apply to the directors and executive
officers of Western and the holders of 10% or more of the Western Common Stock
and to specified relatives or the spouse of the person and any trusts, estates,
corporations or other entities in which the person has a 10% or greater
beneficial or equity interest.
Stop transfer instructions will be given by U.S. Bancorp to the transfer
agent with respect to the U.S. Bancorp Common Stock to be received by persons
subject to the restrictions described above, and the certificates for such stock
will be appropriately legended.
Western has agreed in the Agreement to use its reasonable best efforts to
cause each person who is an affiliate, for purposes of Rule 145 of the
Securities Act, of Western to deliver to U.S. Bancorp a written agreement
intended to ensure compliance with the Securities Act.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated United States federal
income tax consequences of the Merger to Western shareholders who hold Western
Common Stock as a capital asset. The summary is based on the Code, Treasury
regulations under the Code and administrative rulings and court decisions in
effect as of the date of the Agreement, all of which are subject to change at
any time, possibly with retroactive effect. This summary is not a complete
description of all of the tax consequences of the Merger and, in particular, may
not address United States federal income tax considerations applicable to
shareholders subject to special treatment under United States federal income tax
law, including, for example, foreign persons, financial institutions, dealers in
securities, insurance companies, tax-exempt entities, holders who acquired their
shares of Western Common Stock pursuant to the exercise of an employee stock
option or right or otherwise as compensation and holders who hold Western Common
Stock as part of a hedge, straddle or conversion transaction. In
47
<PAGE>
addition, no information is provided in this Proxy Statement/Prospectus with
respect to the tax consequences of the Merger under applicable foreign, state or
local laws.
HOLDERS OF WESTERN COMMON STOCK ARE URGED TO CONSULT WITH THEIR TAX ADVISORS
REGARDING THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE
EFFECTS OF UNITED STATES FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
GENERAL
U.S. Bancorp and Western 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 Western
shareholders who exchange their shares of Western Common Stock solely for shares
of U.S. Bancorp Common Stock pursuant to the Merger (except with respect to the
receipt of cash by a Western shareholder in lieu of a fractional share interest
in U.S. Bancorp Common Stock). The Internal Revenue Service ("IRS") has not been
and will not be asked to rule on the tax consequences of the Merger. Instead,
U.S. Bancorp will rely on the opinion of Dorsey & Whitney LLP regarding the tax
consequences of the Merger, and Western will rely on the opinion of Irell &
Manella LLP regarding the tax consequences of the Merger. It is a condition to
the completion of the Merger that each of U.S. Bancorp and Western receive such
a tax opinion. These tax opinions will be rendered on the basis of facts,
representations and assumptions set forth or referred to in such opinions. In
rendering these tax opinions, Irell & Manella LLP and Dorsey & Whitney LLP will
require and will rely upon factual representations contained in certificates of
officers of U.S. Bancorp and Western. These tax opinions will also be based upon
the Code, the regulations thereunder now in effect, current administrative
rulings and practice, and judicial authority, all of which are subject to
change. None of the tax opinions to be delivered to the parties in connection
with the Merger as described herein are binding on the IRS or the courts.
Accordingly, there can be no assurance that the IRS will not challenge the
conclusions reflected in these tax opinions.
Based upon the facts and representations provided to such counsel, and
subject to various assumptions and qualifications, each of Irell & Manella LLP
and Dorsey & Whitney LLP will opine, as of the Effective Date, that the
following federal income tax consequences will result from the Merger:
(1) The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, and U.S. Bancorp and Western will each be a
party to the reorganization;
(2) No gain or loss will be recognized by Western shareholders who exchange
their Western Common Stock solely for U.S. Bancorp Common Stock pursuant
to the Merger, except with respect to cash received in lieu of a
fractional share interest in U.S. Bancorp Common Stock;
(3) The holding period of the U.S. Bancorp Common Stock received by a
Western shareholder pursuant to the Merger will include the period during
which the Western Common Stock surrendered in exchange therefor was held
by such Western shareholder, provided that the Western Common Stock of
such Western shareholder was held as a capital asset at the Effective
Date; and
(4) The tax basis of the U.S. Bancorp Common Stock received by a Western
shareholder who exchanges Western Common Stock for U.S. Bancorp Common
Stock in the Merger will be the same as the tax basis of the Western
Common Stock surrendered in exchange therefor, subject to any adjustments
required as the result of the receipt of cash in lieu of a fractional
share of U.S. Bancorp Common Stock.
Cash received by a Western shareholder in lieu of a fractional share
interest in U.S. Bancorp Common Stock generally will be treated as received in
redemption of such fractional share interest, and a Western shareholder should
generally recognize capital gain or loss for United States federal income tax
purposes measured by the difference between the amount of cash received and the
portion of the
48
<PAGE>
tax basis of the share of Western Common Stock allocable to such fractional
share interest. Cash received by a Western shareholder pursuant to the exercise
of dissenters' rights generally will be treated as received in redemption of
such shareholder's Western Common Stock, and a Western shareholder should
generally recognize capital gain or loss for United States federal income tax
purposes, measured by the difference between the amount of cash received and the
tax basis of such shareholder's Western Common Stock. In either situation, such
capital gain or loss would be a long-term capital gain or loss if the holding
period for such share of Western Common Stock is greater than one year at the
Effective Time.
ACCOUNTING TREATMENT
The Merger will be accounted for by U.S. Bancorp under the purchase method
of accounting in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations," as amended. Under this method of accounting, the
purchase price will be allocated to assets acquired and liabilities assumed
based on their fair market values at the date of the acquisition. Income of the
combined company will not include income or loss of Western prior to the
Effective Date.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
U.S. BANCORP
U.S. Bancorp Common Stock is listed on the New York Stock Exchange and
traded under the symbol "USB." The following table sets forth, for the periods
indicated, the high and low reported closing sale prices per share of U.S.
Bancorp Common Stock on the NYSE Composite Transactions reporting system and
cash dividends declared per share of U.S. Bancorp Common Stock.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
-------------------- DIVIDENDS
HIGH LOW PAID
--------- --------- -----------
<S> <C> <C> <C>
1997
First Quarter.................................................. $ 28.17 $ 22.50 $ .155
Second Quarter................................................. 29.17 23.67 .155
Third Quarter.................................................. 32.50 28.52 .155
Fourth Quarter................................................. 38.88 30.75 .155
1998
First Quarter.................................................. $ 41.81 $ 33.75 $ .175
Second Quarter................................................. 45.63 37.13 .175
Third Quarter.................................................. 47.31 33.69 .175
Fourth Quarter................................................. 43.00 25.63 .175
1999
First Quarter.................................................. $ 37.75 $ 30.50 $ .195
Second Quarter................................................. 37.75 31.50 .195
Third Quarter (through July 8, 1999)........................... 34.81 33.13 --
</TABLE>
On May 18, 1999, the last trading day before U.S. Bancorp and Western
publicly announced the execution of the Agreement, the closing price per share
of U.S. Bancorp Common Stock on the New York Stock Exchange Composite
Transactions reporting system was $34.375. On , 1999, the last trading
day prior to the date of this Proxy Statement/Prospectus, the price was $ .
Past price performance is not necessarily indicative of likely future price
performance. Holders of Western Common Stock are urged to obtain current market
quotations for shares of U.S. Bancorp Common Stock.
49
<PAGE>
Holders of U.S. Bancorp Common Stock are entitled to receive dividends from
funds legally available when, as and if declared by the U.S. Bancorp Board of
Directors. Although the U.S. Bancorp Board of Directors presently intends to
continue the policy of paying quarterly cash dividends, the payment of future
dividends of U.S. Bancorp would depend upon the earnings of U.S. Bancorp and its
subsidiaries, their financial condition and other factors, including applicable
governmental regulations and policies.
WESTERN BANCORP
Western Common Stock is listed on the Nasdaq National Market and traded
under the symbol "WEBC." The following table sets forth the high and low closing
sales prices for Western Common Stock for the periods indicated, as listed in
the Nasdaq National Market reporting system, and the quarterly cash dividends
declared per share for the periods indicated.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
-------------------- DIVIDENDS
HIGH LOW DECLARED
--------- --------- -----------
<S> <C> <C> <C>
1997
First Quarter (1).............................................. $ 34.00 $ 19.13 $ --
Second Quarter................................................. 37.19 28.63 --
Third Quarter.................................................. 33.25 28.63 --
Fourth Quarter................................................. 33.88 29.88 0.15
1998
First Quarter.................................................. $ 43.50 $ 30.75 $ 0.15
Second Quarter................................................. 47.88 39.50 0.15
Third Quarter.................................................. 43.13 28.88 0.15
Fourth Quarter................................................. 33.56 25.50 0.225
1999
First Quarter.................................................. 32.12 29.38 0.225
Second Quarter................................................. 43.50 29.25 0.225
Third Quarter (through July 8, 1999)...........................
</TABLE>
- ------------
(1) Prior to June 3, 1997, Western Common Stock was traded solely "over the
counter," and trading was not extensive. Consequently, sales price
information prior to that date consists largely of quotations by dealers
making a market in Western Common Stock and reflect inter-dealer prices,
without adjustments for mark-ups, mark-downs or commissions, and may not
represent actual transactions. In addition, trading in Western Common Stock
prior to June 3, 1997 was limited in volume and may not be a reliable
indicator of its market value. On June 3, 1997, Western Common Stock was
designated for quotation on the Nasdaq National Market and on that date
Western effected a 1.0 for 8.5 reverse stock split (the "REVERSE STOCK
SPLIT"). The prices of Western Common Stock prior to June 3, 1997 in the
preceding table have been adjusted for the Reverse Stock Split. The prices
listed above for periods subsequent to June 3, 1997 are as reported by the
Nasdaq National Market.
INFORMATION ABOUT U.S. BANCORP
GENERAL
U.S. Bancorp is a regional, multi-state bank holding company headquartered
in Minneapolis, Minnesota. U.S. Bancorp was incorporated in Delaware in 1929 and
owns 100 percent of the capital stock of each of its four banks and eleven trust
companies, having approximately 1,000 banking offices in 17 Midwestern and
Western states. U.S. Bancorp offers full-service brokerage services at
50
<PAGE>
approximately 100 offices through a wholly owned subsidiary. U.S. Bancorp also
has various nonbank subsidiaries engaged in financial services.
The banks are engaged in general commercial banking business, principally in
domestic markets. They range in size from less than $1.0 million to $49.0
billion in deposits and provide a wide variety of services to individuals,
businesses, industry, institutional organizations, governmental entities, and
other financial institutions. Depository services include checking accounts,
savings accounts, and time certificate contracts. Ancillary services such as
treasury management and receivable lockbox collection are provided for corporate
customers. U.S. Bancorp's bank and trust subsidiaries provide a full range of
fiduciary activities for individuals, estates, foundations, business
corporations, and charitable organizations.
U.S. Bancorp provides banking services through its subsidiary banks to both
domestic and foreign customers and correspondent banks. These services include
consumer banking, commercial lending, financing of import/export trade, foreign
exchange, and investment services. U.S. Bancorp, through its subsidiaries, also
provides services in trust, commercial and agricultural finance, data
processing, leasing, and brokerage services.
U.S. Bancorp was formerly known as First Bank System, Inc. and is the
organization created by the merger of First Bank System, Inc. with U.S. Bancorp
of Portland, Oregon.
GOVERNMENT POLICIES
The operations of U.S. Bancorp's various operating units are affected by
state and federal legislative changes and by policies of various regulatory
authorities, including those of the several states in which they operate, the
United States and foreign governments. These policies include, for example,
statutory maximum legal lending rates, domestic monetary policies of the FRB,
United States fiscal policy, international currency regulations and monetary
policies, and capital adequacy and liquidity constraints imposed by bank
regulatory agencies.
SUPERVISION AND REGULATION
U.S. Bancorp is a registered bank holding company under the BHCA and is
subject to the supervision of, and regulation by, the FRB.
Under the BHCA, a bank holding company may engage in banking, managing or
controlling banks, furnishing or performing services for banks it controls, and
conducting activities that the FRB has determined to be closely related to
banking. U.S. Bancorp must obtain the prior approval of the FRB before acquiring
more than 5 percent of the outstanding shares of another bank or bank holding
company, and must provide notice to, and in some situations obtain the prior
approval of, the FRB in connection with the acquisition of more than 5 percent
of the outstanding shares of a company engaged in a "bank-related" business.
Under the BHCA, as amended by the Riegle-Neal Act, U.S. Bancorp may acquire
banks throughout the United States, subject only to state or federal deposit
caps and state minimum-age requirements. Effective June 1, 1997, the Riegle-Neal
Act authorized interstate branching by acquisition and consolidation in those
states that had not opted out by that date.
National banks are subject to the supervision of, and are examined by, the
OCC. All subsidiary banks of U.S. Bancorp are members of the Federal Deposit
Insurance Corporation, and as such, are subject to examination thereby. In
practice, the primary federal regulator makes regular examinations of each
subsidiary bank subject to its regulatory review or participates in joint
examinations with other federal regulators. Areas subject to regulation by
federal authorities include the allowance for credit losses, investments, loans,
mergers, issuance of securities, payment of dividends, establishment of branches
and other aspects of operations.
51
<PAGE>
ADDITIONAL INFORMATION
You may obtain financial and other information relating to U.S. Bancorp, its
directors and its executive officers from its Current Report on Form 8-K filed
July , 1999, its Quarterly Report on Form 10-Q for the period ended March 31,
1999, and its Annual Report on Form 10-K for the year ended December 31, 1998.
You may obtain a copy of these reports as indicated under "WHERE YOU CAN FIND
MORE INFORMATION."
INFORMATION ABOUT WESTERN BANCORP
GENERAL
Western is a bank holding company registered under the BHCA, and its
principal business is to serve as a holding company for its banking
subsidiaries, Southern California Bank ("SCB") and Santa Monica Bank ("SMB" and
together with SCB, the "BANKS"). Western was organized on May 20, 1983 as a
California corporation and commenced operations as a bank holding company on
June 18, 1984. In September 1996, Western acquired Western Bank. In June 1997,
Western merged with California Commercial Bankshares ("CCB"), with Western being
the surviving corporation (the "CCB MERGER"). Also in June 1997, Monarch Bank, a
wholly owned subsidiary of Western prior to the CCB Merger, merged with National
Bank of Southern California, a wholly owned subsidiary of CCB ("NBSC"), with
NBSC being the surviving bank. In October 1997, Western merged with SC Bancorp,
with Western being the surviving corporation (the "SCB MERGER"). In December
1997, Western merged NBSC with SCB, with SCB being the surviving bank. In
January 1998, Western acquired SMB by merging SMB with Western Bank (the "SMB
ACQUISITION"), with Western Bank being the surviving bank. As part of the SMB
Acquisition, Western Bank's name was changed to "Santa Monica Bank." Western
acquired Bank of Los Angeles ("BKLA") on October 23, 1998 through the merger of
BKLA with SMB (the "BKLA ACQUISITION"), with SMB being the surviving bank. On
December 30, 1998, Western merged with PNB Financial Group, with Western being
the surviving corporation (the "PNB MERGER"). Western completed the merger of
Pacific National Bank, a wholly owned subsidiary of PNB Financial Group prior to
the PNB Merger, with and into SCB on February 26, 1999, with SCB being the
surviving bank.
Western, through the Banks, primarily serves Los Angeles, Orange and San
Diego Counties and the surrounding market in Southern California. SMB's primary
market area is the western part of Los Angeles County. As of March 31, 1999, SMB
had 16 branch offices, including branch offices in Santa Monica, Westwood,
Malibu, Pacific Palisades, Marina del Rey, Beverly Hills, Century City, Encino,
West Hollywood, Culver City and Glendale. SCB's primary market area includes
southern Los Angeles County, Orange County and northern San Diego County. As of
March 31, 1999, SCB had six branch offices in southern Los Angeles County, eight
branch offices throughout Orange County and one in northern San Diego County.
Western also engages in mortgage banking operations through PNB Mortgage, a
division of SCB, and its four full service residential mortgage loan offices
located in Irvine, Santa Ana, San Diego and Dublin, California, and its five
mortgage loan production offices in Honolulu, Hawaii; Bellevue, Washington; and
Phoenix, Tucson and Prescott, Arizona. The Banks offer a broad range of banking
products and services, including many types of business and personal savings and
checking accounts and other consumer banking products and services such as
escrow services, real estate loans and mortgage loans, international banking
services, asset-based lending services, cash management services and trust
services.
ADDITIONAL INFORMATION
You may obtain financial and other information relating to Western, its
directors and its executive officers from its Current Report on Form 8-K, filed
July , 1999, its Quarterly Report on Form 10-Q for the period ended March 31,
1999, and its Annual Report on Form 10-K for the year ended December 31, 1998.
You may obtain a copy of these reports as indicated under "WHERE YOU CAN FIND
MORE INFORMATION."
52
<PAGE>
ELECTION OF DIRECTORS OF WESTERN BANCORP (PROPOSAL 2)
At Western's Annual Meeting, Western shareholders will be asked to vote on
the election of twelve directors who will constitute the full Western Board. The
twelve nominees receiving the highest number of votes from holders of shares of
Western Common Stock represented and voting at the Annual Meeting will be
elected to the Western Board. Unless a nominee other than the nominees listed
below is properly nominated, abstentions and broker non-votes will not have an
effect on the election of the nominees listed below. Each director so elected
will hold office until the completion of the Merger or, if the Merger is not
completed, the next annual meeting and until his or her successor is elected and
qualified.
GENERAL
Each proxy received will be voted for the election of the persons named
below, unless the shareholder signing such proxy withholds authority to vote for
one or more of these nominees in the manner described on the proxy. Each nominee
has consented to being named in this Proxy Statement/Prospectus and to serve if
elected. All of the nominees are currently serving as directors of Western.
Although it is not contemplated that any nominee named below will decline or be
unable to serve as a director, in the event any nominee declines or is unable to
serve as a director, the proxies will be voted by the proxy holders as directed
by the Western Board.
There are no family relationships between any director, nominee or executive
officer and any other director, nominee or executive officer of Western. Except
as described in this Proxy Statement/ Prospectus, there are no arrangements or
understandings between any director, nominee or executive officer and any other
person pursuant to which he or she has been or will be selected as a director
and/or executive officer of Western.
INFORMATION REGARDING THE NOMINEES FOR THE WESTERN BOARD
The following is a list of, and certain biographical information for, the
twelve persons nominated by the Western Board for election as directors of
Western. All of the nominees are currently directors of Western. Directors' ages
are as of July 1, 1999.
<TABLE>
<CAPTION>
DIRECTOR OF
WESTERN
NAME AGE POSITION WITH WESTERN SINCE
- --------------------------- --- ------------------------------------------- ---------------
<S> <C> <C> <C>
Adriana M. Boeka 48 Director 1998
Rice E. Brown 61 Director 1988
John M. Eggemeyer 53 Director 1997
William C. Greenbeck 51 Director 1997
Arnold C. Hahn 47 Director, Executive Vice President and
Chief Financial Officer 1998
Robert L. McKay 68 Director 1997
David I. Rainer 42 Director, President and Chief Executive
Officer of SMB 1999
Bernard E. Schneider 53 Director 1999
Hugh S. Smith, Jr. 68 Chairman and Director 1996
Mark H. Stuenkel 47 Director, President and Chief Executive
Officer of SCB 1997
Matthew P. Wagner 42 Director, President and Chief Executive
Officer 1996
Dale E. Walter 65 Director 1996
</TABLE>
53
<PAGE>
ADRIANA M. BOEKA has been a principal of The Manex Group, a management
consulting firm, since 1995. Ms. Boeka served as Chairman of the Board of BKLA
from October 1997 through October 1998 and Senior Vice President/Division
Manager of Bank of California from 1987 through 1995.
RICE E. BROWN, MSFS is a registered investment advisor and registered
principal and serves as President and a director of the firm Rice Brown
Financial Services, Inc., which has been in business for over 35 years. His
primary focus is in the area of money management using fee asset basis and
estate planning. He is also the former President of the National Association of
Life Underwriters, a Washington, D.C. based professional money management group.
JOHN M. EGGEMEYER is an investor and advisor to financial institutions. From
1992 to 1994, Mr. Eggemeyer was a principal of Mabon Securities Corp., an
investment bank. From 1990 to the present, Mr. Eggemeyer has been the President
of Belle Plaine Partners, Inc. He is also the President of Castle Creek Capital
LLC, a registered bank holding company, and Belle Plaine Financial LLC, a
registered broker/dealer. He currently serves as a director for each of the
following companies: Western, Rancho Santa Fe National Bank and TCF Financial
Corporation.
WILLIAM C. GREENBECK, a developer and manager of industrial and commercial
real property, has been a Managing General Partner of Downey Land Limited since
1975. Mr. Greenbeck served as a director and Secretary of SC Bancorp from 1981
to 1997; he also served as a director of SCB from 1982 to 1997 and from 1984,
served as its Secretary.
ARNOLD C. HAHN has served as Executive Vice President and Chief Financial
Officer of Western since November 1996 and as a director since September 1998.
Mr. Hahn also serves as a director of each of the Banks. Mr. Hahn served as
Secretary of Western from November 1996 to October 1997. Prior to joining
Western, Mr. Hahn spent 6 years as a Senior Vice President of Finance for U.S.
Bancorp in Minneapolis, Minnesota. Prior to joining U.S. Bancorp, Mr. Hahn was a
partner with Ernst & Young LLP.
ROBERT L. MCKAY has been a private investor in Orange County, California
since 1981 where he oversees his investments in venture capital and real estate.
From 1966 to 1981, Mr. McKay was President of Taco Bell, Inc. From 1992 to 1997,
Mr. McKay served as a director of CCB.
DAVID I. RAINER has served as President, Chief Executive Officer and
director of SMB since February 1999. Mr. Rainer has also served as a director of
Western since February 1999. Mr. Rainer was appointed Executive Vice President
of California United Bank in June 1992 and assumed the position of Chief
Operating Officer in late 1992. He assumed the additional title of President of
California United Bank in February 1994 and President and Chief Operating
Officer of CU Bancorp in 1995, a position he held until joining SMB. He was
elected to the Board of Directors of CU Bancorp and California United Bank in
1993. From July 1989 to June 1992, Mr. Rainer was employed by Bank of America
(Security Pacific National Bank) where he was a Senior Vice President. From
March 1989 to July 1989, Mr. Rainer was a Senior Vice President with Faucet &
Company. From July 1982 to March 1989, Mr. Rainer was employed by Wells Fargo
Bank, where he held the positions of Vice President and Manager.
BERNARD E. SCHNEIDER was appointed to the Western Board in February 1999.
Mr. Schneider is a partner and an attorney with the international law firm of
McDermott, Will & Emery, joining the firm in September 1993. Mr. Schneider was
Chairman of the Board of PNB Financial Group from 1996 to 1998 and of PNB from
1993 to 1998.
HUGH S. SMITH, JR. currently serves as the Chairman of the Board of Western,
Chairman of the Board of SCB and a director of SMB. From September 1996 to
December 1997, Mr. Smith also served as Chief Executive Officer of Western.
Prior to September 30, 1996, Mr. Smith was Chairman of the Board and Chief
Executive Officer of Western Bank, a position he held for 23 years.
54
<PAGE>
MARK H. STUENKEL currently serves as a director of Western and President and
Chief Executive Officer of SCB and is a member of the Board of Directors of SCB.
Mr. Stuenkel joined NBSC as a Senior Credit Officer in 1982. In 1988, he was
named President of NBSC and in 1997 was named to the additional position of
Chief Executive Officer. Mr. Stuenkel also served as Senior Vice President of
CCB from 1982 to 1991 and as Executive Vice President from 1991 to 1997. Prior
to joining CCB and NBSC in 1982, Mr. Stuenkel held various positions with
Security Pacific National Bank.
MATTHEW P. WAGNER currently serves as a director and the President and Chief
Executive Officer of Western. In February 1997, Mr. Wagner was appointed
President of Western, and in December 1997 he was appointed Chief Executive
Officer of Western. Mr. Wagner also serves as a director of each of the Banks.
In October 1996, Mr. Wagner was elected President and Chief Executive Officer of
Western Bank, positions he held until January 1998. Prior to joining Western in
1996, Mr. Wagner was with U.S. Bancorp in Minneapolis, Minnesota as an Executive
Vice President from 1991 to 1996 and as a Senior Vice President from 1985 to
1991.
DALE E. WALTER has over 35 years of banking experience, having served as
Chief Executive Officer of several Southern California independent banks. Mr.
Walter served as President and Chief Executive Officer of the Bank of Industry
from 1980 to June 1992; as Chairman and Chief Executive Officer of Commerce
Bancorp from January 1993 to July 1994; and as President and Chief Executive
Officer of Guardian Bank from October 1994 to February 1995. From February 1996
to the present, Mr. Walter has operated a wholesale golf travel company. Mr.
Walter currently serves as a director of First Community Bank of the Desert.
THE WESTERN BOARD RECOMMENDS THAT WESTERN SHAREHOLDERS VOTE FOR THE ELECTION
OF ALL OF ITS NOMINEES FOR DIRECTOR.
CERTAIN INFORMATION CONCERNING THE WESTERN BOARD
AND ITS COMMITTEES
During 1998, the Western Board held 16 meetings. All directors attended at
least 75 percent of the meetings of the Western Board during the time they were
directors of Western. The principal committees of the Western Board are: the
Audit Committee, the Executive Committee, the Compensation Committee and the
Trust Executive Committee. Each of these committees is described below.
AUDIT COMMITTEE
As of the date of this Proxy Statement/Prospectus, the Audit Committee of
the Western Board consists of Adriana M. Boeka, Rice E. Brown, John M.
Eggemeyer, William C. Greenbeck, Robert L. McKay, Bernard E. Schneider and Dale
E. Walter. The Audit Committee recommends to the Western Board for its approval
a certified public accounting firm to conduct Western's annual audit. The Audit
Committee will also:
- confer from time to time with Western's certified public accountants
regarding their audit work and the details thereof;
- review management letters of Western's certified public accounting firm;
- meet and consult with Western's executive and financial officers to
discuss accounting policies;
- review staffing of Western's accounting and financial departments and make
recommendations to the Western Board relating to these departments;
- provide assistance and recommendations to the Western Board with respect
to the general financial needs, policies and practices of Western; and
- supervise the internal audit process.
The Audit Committee held ten meetings in 1998.
55
<PAGE>
EXECUTIVE COMMITTEE
As of the date of this Proxy Statement/Prospectus, the Executive Committee
of the Western Board consists of John M. Eggemeyer, William C. Greenbeck, Hugh
S. Smith, Jr., Matthew P. Wagner and Dale E. Walter. The Executive Committee has
all the authority of the Western Board that can be delegated to a committee of a
board of directors under the CGCL. The primary function of the Executive
Committee is to investigate and recommend to the Western Board actions to be
taken by the Western Board in the following areas:
- investigate, interview and recommend a slate of directors for nomination
by the Western Board at the annual meeting of Western shareholders and,
when necessary, fill a vacancy on the Western Board;
- recommend and assist in securing competent management and overseeing
Western's business performance;
- assist with monitoring Western's operations to insure there are adequate
controls to indicate compliance with law;
- assist with establishing management's business objectives and policies
designed to achieve those objectives in a legal and sound manner;
- recommend to the Western Board specific policies;
- recommend to the Western Board a schedule of reporting by management to
the Executive Committee and to the Western Board;
- make recommendations to the Western Board regarding the establishment of
appropriate committees to assist the Western Board to monitor its policies
and procedures in specific areas of Western's activities, such as audits,
trusts, loans, loan review, etc;
- investigate acquisition opportunities and make recommendations to the
Western Board regarding such opportunities; and
- take actions, investigate and report to the Western Board on matters
assigned to the Executive Committee by the Chairman of the Western Board.
The Executive Committee held one formal meeting in 1998.
COMPENSATION COMMITTEE
The Compensation Committee of the Western Board as of the date of this Proxy
Statement/ Prospectus consists of John M. Eggemeyer, William C. Greenbeck and
Dale E. Walter.
It is the duty of the Compensation Committee to administer Western's
compensation systems and various incentive plans, including its stock option
plan and its annual performance bonus plan. In addition, the Compensation
Committee reviews compensation levels of members of management, evaluates the
performance of management, considers management succession and related matters.
The Compensation Committee reviews with the Western Board in detail all aspects
of compensation for senior officers. The Compensation Committee did not formally
meet in 1998. However, the Compensation Committee met in the first quarter of
1999 to evaluate executive compensation and performance during the 1998 fiscal
year.
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has reviewed the compensation for Matthew P.
Wagner, Chief Executive Officer of Western, and each of the four highest paid
executive officers for 1998 and has reported to the Western Board that, in the
Compensation Committee's opinion, the compensation of all officers is reasonable
in view of Western's consolidated performance and the contribution of those
officers to that performance. In doing so, the Compensation Committee takes into
account how compensation compares to compensation paid by competing companies as
well as Western's
56
<PAGE>
performance and economic conditions in Western's service area. Members of the
Compensation Committee have also reviewed compensation surveys and analysis by
an executive compensation consulting firm.
Western has adopted a compensation system for its executive officers, among
others, designed to communicate and encourage a community banking focus, create
an ownership culture, encourage team orientation, be competitive in the
marketplace, reward performance and contributions, and be easy to understand and
simple to administer. This compensation system is intended to link compensation
of the executive officers of Western to the strategic business direction of
Western and to key organizational goals. In order to achieve these goals,
Western's compensation system for its executive officers provides for base
salaries below the median base salary for comparable positions at a peer group
of comparable financial institutions, with significant upside potential based on
performance through annual cash bonus plans and stock option grants. The annual
target cash bonus for the executive officers is based primarily on achievement
of Western's financial goals and other strategic objectives. The measures of
achievement include earnings per share, return on equity, return on assets and
other strategically important achievements. The target cash bonus for Western's
Chief Executive Officer and the other executive officers is a percentage of base
salary tied to achievement of Western's financial plan. In addition, the
Compensation Committee considers stock option grants to the Chief Executive
Officer and the other executive officers based on the achievement of financial
and strategic goals.
Following the close of 1998, the Compensation Committee reviewed Western's
1998 fiscal year financial results compared with planned results and strategic
objectives achieved compared with planned objectives. In particular and in
addition to financial results reviewed, the Compensation Committee considered:
(1) the completion of the SMB Acquisition, the BKLA Acquisition and the PNB
Merger, each of which was completed in 1998; (2) the operational consolidation
of NBSC, SCB, SMB, Western Bank and BKLA onto Western's operational platform,
each of which was successfully completed in 1998; (3) the significant
improvement in the credit quality of the loan portfolios at the Banks during
1998; (4) the execution of Western's Year 2000 Plan during 1998; and (5) the
review of some key performance measures such as return on assets, efficiency
ratio, return on equity and earnings per share. Although the Compensation
Committee determined that performance-based cash bonuses would not be paid to
any of the named executive officers, other than to Mr. Stuenkel to whom Western
was contractually obligated to pay a cash bonus of $92,112, in light of the
achievement of some financial and strategic objectives of Western, the
Compensation Committee approved the following grants of immediately vested stock
options with an exercise price of $31.375 per share and 1999 compensation levels
to the named executive officers to be effective as of March 1, 1999:
<TABLE>
<CAPTION>
SECURITIES 1999
NAME AND TITLE UNDERLYING OPTIONS COMPENSATION
- ----------------------------------------------------------- ------------------ -------------
<S> <C> <C>
Matthew P. Wagner,
President and Chief Executive Officer 100,000 $ 358,000
Suzanne R. Brennan,
Executive Vice President--Operations 35,000 $ 157,000
Arnold C. Hahn,
Executive Vice President and Chief Financial Officer 50,000 $ 176,000
Hugh S. Smith, Jr.
Chairman of the Board -- $ 187,000
Mark H. Stuenkel,
President--SCB and Chief Executive Officer 30,000 $ 199,650
</TABLE>
The Compensation Committee approved the above stock option grants and
salaries in lieu of approving performance-based cash bonuses for the 1998 fiscal
year, and in recognition that the base salaries of the named executive officers
and some of the other executive officers were below the
57
<PAGE>
median base salary for comparable positions at a peer group of comparable
financial institutions during the 1998 fiscal year. In addition, in light of her
contributions in connection with the operational conversions completed during
1998 and accomplishments in connection with Western's Year 2000 Plan, the
Compensation Committee approved a cash bonus to Ms. Brennan, Executive Vice
President-- Operations, of $56,000.
This Compensation Committee report was completed by the Compensation
Committee as of March 1, 1999. The members of the Compensation Committee filing
this report were John M. Eggemeyer, William C. Greenbeck and Dale E. Walter.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On May 20, 1998, Western formed the Compensation Committee and appointed
John M. Eggemeyer, William C. Greenbeck and Dale F. Walter as members of the
Compensation Committee. No member of the Compensation Committee is a current or
former officer of Western. However, from 1981 to 1997 Mr. Greenbeck served as
Secretary of SC Bancorp, which merged with and into Western in October 1997. Mr.
Eggemeyer is a principal of Belle Plaine Partners and Belle Plaine Financial,
each of which provided investment banking services to Western during the 1998
fiscal year and is currently providing such services to Western in connection
with the transactions contemplated by the Agreement. See "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS--Investment Banking Services." In addition, each of Mr.
Eggemeyer and Mr. Walter was an investor in Western's 1998 Private Placement.
See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS--The 1998 Private
Placement."
TRUST EXECUTIVE COMMITTEE
As of the date of this Proxy Statement/Prospectus, the Trust Executive
Committee of the Western Board consists of John M. Eggemeyer, Rice E. Brown,
William C. Greenbeck, David I. Rainer, Hugh S. Smith Jr., Matthew P. Wagner and
Mark H. Stuenkel. The Trust Executive Committee's primary responsibility is to
review and approve the administration of the fiduciary responsibilities of SMB
in the operation of its Trust Department and to ensure sound banking practices
in the operation of the Trust Department. The Trust Executive Committee also:
- appoints the Trust Administration and Investment Committee to oversee real
and personal property held in a fiduciary capacity;
- ensures the operation of the Trust Department separate and apart from
every other department at SMB;
- ensures the maintenance of separate sets of books and records for the
Trust Department;
- approves an SMB officer for the administration of the Trust Department;
- annually reviews the assets of each trust account;
- approves all purchases, sales and changes in trust assets;
- approves the opening and closing of all trust accounts;
- provides for annual audit of the Trust Department; and
- periodically reports on its activities to the Western Board.
The Trust Committee has delegated some of its duties to the Trust Administration
and Investment Committee. The Trust Committee held ten meetings in 1998.
58
<PAGE>
EXECUTIVE OFFICERS OF WESTERN
The following table sets forth as to each of the persons who currently
serves as an executive officer of Western, the person's age, the person's
current position with Western, and the period during which the person has served
in as an executive officer of Western:
<TABLE>
<CAPTION>
YEAR HIRED
NAME AGE POSITION WITH WESTERN BY WESTERN
- ---------------------- --- ----------------------------------------------------- -----------
<S> <C> <C> <C>
Robert M. Borgman..... 51 Executive Vice President and Chief Credit Officer 1997
Suzanne R. Brennan.... 48 Executive Vice President--Operations 1997
Julius G.
Christensen......... 33 Executive Vice President, General Counsel and 1997
Secretary
Arnold C. Hahn........ 47 Executive Vice President and Chief Financial Officer 1996
David I. Rainer....... 41 President and Chief Executive Officer of SMB 1999
Hugh S. Smith......... 68 Chairman of the Board 1996
Mark H. Stuenkel...... 47 President and Chief Executive Officer of SCB 1982
Matthew P. Wagner..... 42 President and Chief Executive Officer 1996
</TABLE>
ROBERT M. BORGMAN is currently an Executive Vice President and the Chief
Credit Officer of Western. Mr. Borgman also serves on the Board of Directors of
each of the Banks. Prior to joining Western in August 1997, Mr. Borgman was the
founder, President and Chief Executive Officer of National Business Finance,
Inc., a national commercial finance and factoring organization headquartered in
Denver, Colorado from 1987 to 1997. During the period from 1978 to 1987, Mr.
Borgman held the position of Senior Vice President and Manager of Commercial
Lending at First Interstate Bank of Denver.
SUZANNE R. BRENNAN has served as Executive Vice President--Operations of
Western since July 1997. Ms. Brennan also serves on the Board of Directors of
each of the Banks. Prior to joining Western, Ms. Brennan was the Senior Vice
President of Corporate Trust Operations at U.S. Bancorp in Minneapolis,
Minnesota from October 1994 to July 1997. From November 1986 to October 1994,
Ms. Brennan managed securities processing for U.S. Bancorp. She also has
managerial operations experience with the Federal Reserve Bank of Minneapolis
and the University of Minnesota.
JULIUS G. CHRISTENSEN has served as Executive Vice President and General
Counsel of Western since September 1997 and as Secretary of Western since
October 1997. Mr. Christensen also serves as a director of each of the Banks.
Prior to joining Western, Mr. Christensen was in practice with the law firm of
Sullivan & Cromwell engaged in merger and acquisitions and securities law
practice from September 1995 to September 1997. From 1992 to 1995, Mr.
Christensen was a candidate for a Juris Doctorate degree from Harvard Law School
and received that degree in June 1995.
ARNOLD C. HAHN has served as Executive Vice President and Chief Financial
Officer of Western since November 1996 and as a director of Western since
September 1998. Mr. Hahn also serves as a director of each of the Banks. Mr.
Hahn served as Secretary of Western from November 1996 to October 1997. Prior to
joining Western, Mr. Hahn spent six years as a Senior Vice President of Finance
for U.S. Bancorp in Minneapolis, Minnesota. Prior to joining U.S. Bancorp, Mr.
Hahn was a partner with Ernst & Young LLP.
HUGH S. SMITH, JR. currently serves as the Chairman of the Board of Western,
Chairman of the Board of SCB and a director of SMB. From September 1996 to
December 1997, Mr. Smith also served as Chief Executive Officer of Western.
Prior to September 30, 1996, Mr. Smith was Chairman of the Board and Chief
Executive Officer of Western Bank, a position he held for 23 years.
DAVID I. RAINER has served as President and Chief Executive Officer and
Director of SMB since February 1999. Mr. Rainer has also served as a director of
Western since February 1999. Mr. Rainer was appointed Executive Vice President
of California United Bank in June 1992 and assumed the position of Chief
Operating Officer in late 1992. He assumed the additional title of President of
California United Bank in February 1994 and President and Chief Operating
Officer of CU Bancorp in 1995, a position he held until joining SMB. He was
elected to the Board of Directors of CU Bancorp
59
<PAGE>
and California United Bank in 1993. From July 1989 to June 1992, Mr. Rainer was
employed by Bank of America (Security Pacific National Bank) where he was a
Senior Vice President. From March 1989 to July 1989 Mr. Rainer was a Senior Vice
President with Faucet & Company. From July 1982 to March 1989, Mr. Rainer was
employed by Wells Fargo Bank, where he held the positions of Vice President and
Manager.
MARK H. STUENKEL currently serves as President and Chief Executive Officer
of SCB and is a member of the Board of Directors of Western and SCB. Mr.
Stuenkel joined NBSC as a Senior Credit Officer in 1982. In 1988, he was named
President of NBSC and in 1997 was named to the additional position of Chief
Executive Officer. Mr. Stuenkel also served as Senior Vice President of CCB from
1982 to 1991 and as Executive Vice President from 1991 to 1997. Prior to joining
CCB and NBSC in 1982, Mr. Stuenkel held various positions with Security Pacific
National Bank.
MATTHEW P. WAGNER is the President and Chief Executive Officer of Western.
In February 1997, Mr. Wagner was appointed to the post of President of Western,
and in December 1997 he was appointed to the additional post of Chief Executive
Officer of Western. Mr. Wagner also serves on the Board of Directors of Western
and each of the Banks. In October 1996, Mr. Wagner was elected President and
Chief Executive Officer of Western Bank, positions he held until January 1998.
Prior to joining Western in 1996, Mr. Wagner was an Executive Vice President
with U.S. Bancorp in Minneapolis, Minnesota since 1991 and a Senior Vice
President since 1985.
EXECUTIVE COMPENSATION
The following table reflects all compensation paid to Matthew P. Wagner, the
Chief Executive Officer of Western, and the four other most highly compensated
executive officers receiving a total annual salary and bonus of $100,000 or
more.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------------------------
ANNUAL COMPENSATION AWARDS
--------------------------------- ------------------------------ PAYOUTS
OTHER SECURITIES -----------------------
ANNUAL RESTRICTED UNDERLYING LTIP
COMP STOCK OPTIONS/SARS PAYOUTS ALL OTHER
NAME AND PRINCIPAL PERSON YEAR SALARY($) BONUS ($) ($)(1) AWARDS(S)($) (#) ($) COMP($)
- -------------------------- --------- --------- --------- ----------- --------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Matthew P. Wagner......... 1998 275,000 -- -- -- --(2) -- --
President and Chief 1997 175,000 175,000 -- -- 21,000 -- 200,000(3)
Executive Officer 1996 43,750 100,000 58,823
Suzanne R. Brennan........ 1998 140,000 56,000 -- -- --(4) -- --
Executive Vice 1997 63,179 40,000 -- -- 9,188 -- --
President--Operations
Arnold C. Hahn............ 1998 150,000 -- -- -- --(5) -- --
Executive Vice 1997 150,000 120,000 -- -- 15,000 -- --
President and Chief 1996 25,029 100,000 -- 15,882 -- --
Financial Officer
Hugh S. Smith, Jr......... 1998 187,144 -- -- -- -- -- --
Chairman of the Board 1997 187,000 40,000 -- -- 23,529 -- --
1996 188,260 50,000 -- -- -- -- --
Mark H. Stuenkel(6)....... 1998 181,500 92,112 -- -- --(7) -- --
President and Chief 1997 163,414 83,738 -- -- 32,647 -- --
Executive Officer of 1996 161,027 76,125 -- -- -- -- --
SCB
</TABLE>
- ------------
(1) None of the named executive officers had other annual compensation in excess
of $50,000 or 10 percent of the total annual salary and bonus reported for
any of the years shown.
60
<PAGE>
(2) Mr. Wagner was granted 100,000 immediately vested options on January 15,
1999 as compensation for services rendered in the 1998 fiscal year.
(3) The amount reflects reimbursement of costs incurred in connection with Mr.
Wagner's relocation to California.
(4) Ms. Brennan was granted 35,000 immediately vested options on January 15,
1999 as compensation for services rendered during the 1998 fiscal year.
(5) Mr. Hahn was granted 50,000 immediately vested options on January 15, 1999
as compensation for services rendered during the 1998 fiscal year.
(6) Mr. Stuenkel joined Western as President and Chief Executive Officer of NBSC
on June 4, 1997 as part of the CCB Merger. Mr. Stuenkel's compensation,
including the amount of his bonus, is prescribed in the Salary Continuation
Agreement entered into between NBSC and Mr. Stuenkel. See "--Employment
Arrangement--Mark H. Stuenkel." Mr. Stuenkel's compensation includes amounts
received from CCB prior to the CCB Merger.
(7) Mr. Stuenkel was granted 30,000 immediately vested options on January 15,
1999 as compensation for services rendered during the 1998 fiscal year.
OPTIONS/SARS GRANTS IN THE LAST FISCAL YEAR
No individual grants of options or grants of stock appreciation rights
("SARS") were made during the year ending December 31, 1998 to any of the named
executive officers. However, options were granted to some executive officers,
including the named executive officers, in January 1999 as compensation for
services rendered in the 1998 fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table lists the aggregate number of unexercised options and
the value of unexercised in-the-money options at December 31, 1998. Western has
not granted SARs.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT FY- OPTIONS/SARS
ACQUIRED ON VALUE END(#) AT FY-END($)
EXERCISE REALIZED ------------------------ ------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ----------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Suzanne R. Brennan -- -- 3,062 6,126 -- --
Arnold C. Hahn -- -- 15,588 15,294 161,255 80,628
Hugh S. Smith, Jr. -- -- 8,556 7,841 130,308 119,449
Mark H. Stuenkel 11,250 293,175 35,882 21,765 629,026 113,062
Matthew P. Wagner -- -- 46,216 33,607 597,260 298,615
</TABLE>
LONG-TERM INCENTIVE PLAN AWARDS IN THE LAST FISCAL YEAR
No Long Term Incentive Plan Awards were made during the 1998 fiscal year to
any of the named executive officers.
61
<PAGE>
COMPENSATION OF DIRECTORS
The Western Board approved the following fees to be paid to outside
directors of Western during the year ended December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Annual Retainer: $5,000 plus a number of options equal to $15,000 divided by the market
price of Western Common Stock at the time of grant
Regular Meeting Fee: $750
Special Meeting Fee: $300
Committee Meeting Fee: $300
</TABLE>
During 1998, directors' fees were paid and options granted according to the
above schedule.
On January 14, 1999, the executive committee of the Western Board approved a
procedure by which each outside director of Western may elect during the first
quarter of each fiscal year to receive either cash compensation pursuant to the
above schedule of fees or compensation in the form of options to acquire shares
of Western Common Stock ("STOCK-BASED COMPENSATION") for serving on the Western
Board for that fiscal year. This election is irrevocable for the remainder of
the fiscal year. In the event that a director elects Stock-Based Compensation,
such director will receive 3,000 stock options to vest on December 31 of such
year with an exercise price equal to the closing price as of January 15, or the
next trading day, of such year. However, in the event that the director does not
attend 75% of the Western Board's meetings and committee meetings for which the
director is a committee member, the 3,000 options granted for that fiscal year
will be canceled, and the director will receive cash compensation for the
meetings actually attended during the year according to the above schedule.
On May 16, 1995, the Western Board approved the 1995 Directors Deferred
Compensation Plan, which was approved by Western shareholders on July 17, 1995.
This plan is effective for fees earned on and after July 1, 1995. No
compensation has been awarded under this plan.
EMPLOYMENT ARRANGEMENT--MARK H. STUENKEL
In 1988 NBSC entered into an Executive Salary Continuation Agreement with
Mr. Stuenkel (the "SALARY CONTINUATION AGREEMENT"), the terms of which Western
agreed to honor as part of the CCB Merger. Pursuant to the Salary Continuation
Agreement, Mr. Stuenkel is entitled to receive benefits upon his retirement,
death or disability or upon his termination of service with SCB prior to his
retirement, death or disability unless Mr. Stuenkel's employment with SCB is
terminated either (i) voluntarily by Mr. Stuenkel, other than for "good reason"
(as defined in the Salary Continuation Agreement) or (ii) by SCB for "cause" (as
defined in the Salary Continuation Agreement), in which case no benefits or
payments will be paid pursuant to the Salary Continuation Agreement. Mr.
Stuenkel's retirement benefits are fully vested in the Salary Continuation
Agreement.
Under the terms of the Salary Continuation Agreement, Mr. Stuenkel or his
estate will be entitled to receive $62,500 annually, for a period of fifteen
years after the earlier of his retirement from SCB or his death. If Mr.
Stuenkel's employment with SCB is terminated due to disability prior to
retirement, Mr. Stuenkel (or his estate) will be entitled to receive his
benefits under the Salary Continuation Agreement upon retirement or death or to
elect to receive a disability benefit in an amount equal to the present value of
Mr. Stuenkel's retirement benefits under his Salary Continuation Agreement. The
Salary Continuation Agreement also has provisions that became effective upon the
occurrence of a Change in Control (as defined in the Salary Continuation
Agreement) of CCB or NBSC. In the event of a Change in Control, the Salary
Continuation Agreement provided that it would become an employment agreement
with a three-year term. The CCB Merger constituted a Change in Control;
therefore, the Salary Continuation Agreement became an "employment agreement"
with a three-year term. Under that employment agreement, during his period of
employment, Mr. Stuenkel is entitled to receive $165,000 per year as annual base
salary, as well as regular bonuses and other benefits. This
62
<PAGE>
amount is in addition to the amounts that he would be paid under the Salary
Continuation Agreement upon retirement. The Salary Continuation Agreement also
provides for Mr. Stuenkel to receive salary and bonus increases annually and all
non-cash forms of compensation and benefits that he received prior to the Change
in Control during the three-year term.
As an "employment agreement," the Salary Continuation Agreement provides
that, if Mr. Stuenkel either terminates his employment for "good reason" or is
terminated by SCB for any reason other than "cause," then SCB is required to pay
cash compensation to Mr. Stuenkel during his remaining employment term; provided
that Mr. Stuenkel will receive no less than two times the annual compensation to
which he otherwise would be entitled as an employee. Moreover, all employee
benefit plans and programs in which Mr. Stuenkel is entitled to participate will
continue for the remainder of Mr. Stuenkel's three-year term, and he will
continue to be entitled to receive his retirement, death and disability benefits
as provided in the Salary Continuation Agreement.
EXECUTIVE SEVERANCE PLAN
On March 19, 1998, Western adopted the Western Executive Severance Plan (the
"SEVERANCE PLAN"), pursuant to which some executives of Western and its
subsidiaries, including the named executive officers of Western, will be
entitled to receive a severance payment from Western if within 24 months after a
Change of Control (as defined in the Severance Plan) an eligible executive's
employment with Western or one of its subsidiaries terminates for any reason
other than:
- death;
- disability;
- termination by Western or one of its subsidiaries for Just Cause (as
defined in the Severance Plan);
- retirement in accordance with the normal policy of Western;
- voluntary termination by such executive for other than Good Reason (as
defined in the Severance Plan); or
- the sale of Western or the subsidiary that employed the executive before
the sale, if the executive has been offered employment with the purchaser
on substantially the same terms and conditions under which the executive
was employed prior to the sale.
In addition, an executive whose employment terminates within 90 days before
a Change in Control, or in anticipation of a Change in Control that actually
occurs, may be entitled to receive benefits under the Severance Plan. The amount
of the Severance Payment (as defined in the Severance Plan) under the Severance
Plan will be equal to the executive's "COMPENSATION" (as defined in the
Severance Plan) multiplied by a multiplier ranging from one to three depending
on the executive's employee grade. To the extent that the "Compensation" for any
executive officer is to be determined by reference to a target bonus that is
expressed as a range, U.S. Bancorp has agreed to apply the maximum target bonus.
In addition, if an executive becomes eligible for a Severance Payment, the
executive will also be entitled to welfare benefits for the Severance Period (as
defined in the Severance Plan) applicable to the executive. In order to become
eligible for Severance Payments under the Severance Plan, the executive must
execute and deliver a Release (as defined in the Severance Plan). The Merger, if
completed, will constitute a Change of Control under the Severance Plan and will
give rise to Severance Payments to those eligible executives not offered
substantially similar employment by U.S. Bancorp.
The Severance Payments received by some executive officers of Western may be
large enough to be "PARACHUTE PAYMENTS" as defined in Section 280G of the Code.
An executive officer of Western who receives a parachute payment will thereby
also receive an excess parachute payment. Under Section 4999 of the Code, he or
she will be subject to a 20% excise tax on the amount of the excess
63
<PAGE>
parachute payment. The cash out or acceleration of the vesting of stock options
upon a "TERMINATING EVENT" under Western's stock option plans, which would occur
upon completion of the Merger, could also (standing alone, or in conjunction
with any Severance Payments) cause the executive officers to recognize some
amounts as excess parachute payments. Furthermore, Section 280G of the Code
provides that neither Western nor U.S. Bancorp can take an income tax deduction
for any Severance Payment that constitutes an excess parachute payment. The
Severance Plan obligates Western, or U.S. Bancorp as its successor, to gross up
any executive officer of Western who receives an excess parachute payment for
the 20% excise tax the executive will incur on the excess parachute payment.
This means that Western, or U.S. Bancorp as its successor, will pay the excise
tax liability of the executive officer plus any income or excise tax liability
the executive officer incurs because of the payment by Western, or U.S. Bancorp
of the excise tax. In this way, Western, or U.S. Bancorp, will place the
executive officer in the same tax position he or she would have been in if
Congress had never enacted Sections 280G and 4999 of the Code. Western, or U.S.
Bancorp, will not be able to take an income tax deduction for gross up payments
it makes to executive officers of Western under the Severance Plan.
Mr. Wagner, who would have been entitled to receive approximately $2.15
million under the Severance Plan, has agreed with U.S. Bancorp to forego $1.2
million of the payment as an additional inducement for U.S. Bancorp to enter
into the Agreement with Western. As a result, assuming that all eligible
employees under the Severance Plan, including the executive officers, become
entitled to receive Severance Payments in connection with the Merger as a result
of Termination for Good Reason or without Just Cause, U.S. Bancorp and Western
currently estimate that approximately $ in the aggregate will be payable
to such employees, including $ in the aggregate to the executive officers of
Western, as Severance Payments and an additional $ in the aggregate
will be payable to "gross up" such employees, including $ in the aggregate to
the executive officers, who become liable for the excise tax. The actual amount
of such aggregate payments may be reduced in the event one or more of such
employees, including the executive officers, enter into retention or other
similar agreements with Western or U.S. Bancorp.
PERFORMANCE GRAPH
Western Common Stock trades on the Nasdaq National Market under the symbol
"WEBC." Prior to June 3, 1997, trading in Western Common Stock occurred solely
"over the counter," and was not extensive. Consequently, sales price information
prior to that date consists largely of quotations by dealers making a market in
Western Common Stock and may not represent actual transactions. In addition,
trading in Western Common Stock prior to June 3, 1997 was limited in volume and
may not be a reliable indication of its market value. As a result, the sales
price information for Western Common Stock in the following graph for 1994
reflects inter-dealer prices, without adjustments for mark-ups, mark-downs or
commissions and may not represent actual transactions. The sales price
information for 1995 and 1996 reflects the sales price of Western Common Stock
in some private placements, which Western believes is the most reliable
indicator of the value of Western Common Stock available at the time. The sales
price information for 1997 and 1998 reflects trades of Western Common Stock on
the Nasdaq National Market.
64
<PAGE>
The following graph shows the cumulative total return on Western Common
Stock with a comparable return on the indicated indices for the last five fiscal
years. The total return on Western Common Stock is determined based on the
change in the price of Western Common Stock and assumes reinvestment of all
dividends and an original investment of $100. The total return on the indicated
indices also assume reinvestment of dividends and an original investment in each
index of $100 on December 31, 1993.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
VALUE OF INVESTMENT
<S> <C> <C> <C>
WEBC NASDAQ BANK INDEX S&P 500 INDEX
1993 $100 $100 $100
1994 $100 $100 $107
1995 $113 $118 $139
1996 $138 $196 $171
1997 $325 $328 $229
1998 $293 $325 $293
</TABLE>
SECTION 16 REPORTING
Section 16(a) of the Exchange Act requires Western's directors and executive
officers and the beneficial owners of more than ten percent of Western Common
Stock to file with the SEC reports of initial ownership and reports of changes
in ownership of Western Common Stock and other equity securities of Western.
Because of the complexity of the reporting rules, Western has assumed
responsibility for preparing and filing all reports required to be filed under
Section 16(a) by the directors and executive officers. Western believes that
during the last fiscal year all Section 16(a) filing requirements applicable to
its directors and executive officers were complied with, except for the failure
to file Form 4s for Robert M. Borgman, Suzanne R. Brennan, and John M.
Eggemeyer. Once the omissions were discovered, the relevant forms were filed
promptly.
65
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The shares of Western Common Stock constitute the only outstanding class of
voting securities of Western. As of July 6, 1999, there were 21,170,506 shares
of Western Common Stock outstanding and entitled to vote and approximately 2,800
shareholders of record.
The following table lists any known Western shareholders with beneficial
ownership of five percent or more of the outstanding Western Common Stock and
the beneficial ownership of the Western Common Stock of all directors and
executive officers of Western and all current executive officers and directors
of Western as a group. Information with respect to beneficial ownership is based
upon Western's records and data supplied to Western by its shareholders as of
July 6, 1999. All shares are Western Common Stock, the only class of security
outstanding.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF
NAME, TITLE AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) CLASS
- ----------------------------------------------------------------------------- ---------------------- -----------
<S> <C> <C> <C>
Shares 2,256,132
Castle Creek Capital Partners Fund I LP(2) Warrants 33,557
6051 El Tordo -----
Rancho Santa Fe, California 92067 2,289,689 10.8%
Castle Creek Partners Fund II LP
6051 El Tordo
Rancho Santa Fe, California 92067 Shares 490,843 2.3
Franklin Mutual Advisors, Inc.(3)
51 John F. Kennedy Parkway
Shorthills, New Jersey Shares 1,685,481 8.0
Adriana M. Boeka
Director Shares 30,335
2049 Century Park East, #1100 Options 3,000
Los Angeles, California 90067 Total -----
33,335 0.2
Robert M. Borgman
Executive Vice President and Chief Credit Officer Shares 2,000
4100 Newport Place, Suite 900 Options 47,000
Newport Beach, California 92660 Total -----
49,000 0.2
Suzanne R. Brennan
Executive Vice President--Operations Shares 1,900
16420 Valley View Street Options 44,188
La Mirada, California 90638 Total -----
46,088 0.2
Rice E. Brown
Director Shares 3,294
27127 Calle Arroya, Suite 1907 Options 3,358
San Juan Capistrano, California 92675 Total -----
6,652 *
Julius G. Christensen
Executive Vice President--General Counsel and Secretary Shares --
4100 Newport Place, Suite 900 Options 33,000
Newport Beach, California 92660 Total -----
33,000 0.2
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF
NAME, TITLE AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) CLASS
- ----------------------------------------------------------------------------- ---------------------- -----------
<S> <C> <C> <C>
2,816,716
John M. Eggemeyer(4) Shares 3,946
Director Options 61,646
6051 El Tordo Warrants -----
Rancho Santa Fe, California 92066 Total 2,882,308 13.6
William C. Greenbeck(5)
Director Shares 63,845
9530 East Imperial Highway Options 3,820
Downey, California 90242 Total -----
67,665 0.3
Arnold C. Hahn
Director, Executive Vice President and Chief Financial Officer Shares 6,978
4100 Newport Place, Suite 900 Options 80,882
Newport Beach, California 92660 Total -----
87,860 0.4
Robert L. McKay
Director Shares 765,882
11551 Plantero Drive Options 3,813
Santa Ana, California 92705 Total -----
769,695 3.6
David I. Rainer --
Director, President and Chief Executive Officer of SMB Shares 60,000
1231 Fourth Street Options -----
Santa Monica, California 90401 Total 60,000 0.3
Bernard E. Schneider
Director Shares 33,000
1301 Dove Street, 5(th) Floor Options 3,000
Newport Beach, California 92660 Total -----
36,000 0.2
Hugh S. Smith Jr.
Director Shares 31,198
1251 Westwood Boulevard Options 7,845
Los Angeles, California 90024 Total -----
39,043 0.2
Mark H. Stuenkel
Director, President and Chief Executive Officer of SCB Shares 42,349
4100 Newport Place, Suite 900 Options 62,647
Newport Beach, California 92660 Total -----
104,996 0.5
Matthew P. Wagner
Director, President and Chief Executive Officer Shares 30,727
1251 Westwood Boulevard Options 179,823
Los Angeles, California 92660 Total ------
210,550 1.0
Dale E. Walter
Director Shares 11,358
50855 Washington Street, Suite C-211 Options 4,142
La Quinta, California 92253 Total -----
15,500 0.1
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF
NAME, TITLE AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) CLASS
- ----------------------------------------------------------------------------- ---------------------- -----------
<S> <C> <C> <C>
Directors and Executive Officers as a group Shares 3,839,582
Options 540,464
Warrants 61,646
Total --------
4,441,692 20.4
All Directors as a group Shares 3,835,682
Options 416,376
Warrants 61,946
Total --------
4,313,604 20.0
</TABLE>
- ------------
* Beneficial ownership does not exceed one percent of Western Common Stock
outstanding.
(1) Beneficial owner of a security includes any person who, directly or
indirectly, through any contract, arrangement, understanding, relationship,
or otherwise has or shares: (a) voting power, which includes the power to
vote, or to direct the voting power, of the security; and/or (b) investment
power, which includes the power to dispose, or to direct the disposition, of
the security. Beneficial owner also includes any person who has the right to
acquire beneficial ownership of the security as defined above within 60
days. Ownership includes vested stock options and warrants. For purposes of
determining whether stock options have vested under the Stock Incentive
Plan, we have assumed that we will complete the Merger on October 1, 1999,
and that, as a result, all stock options issued by Western will have
accelerated due to the Merger and will have vested on September 1, 1999.
Consequently, all stock options issued by Western are included in the
amounts of beneficial ownership of their holders.
(2) Castle Creek Partners Fund-I, L.P. (the "FUND") is the beneficial owner of
2,256,332 shares of Western Common Stock and 33,557 warrants. Mr. Eggemeyer,
a director of Western, is a principal of the Fund.
(3) Shares of Western Common Stock beneficially owned by Franklin Mutual
Advisors, Inc. are held in various investment funds.
(4) Ownership includes 3,946 shares of Western Common Stock which may be
purchased upon the exercise of stock options, 28,089 shares of Western
Common Stock which may be purchased upon the exercise of warrants and
2,256,132 shares and 33,557 warrants owned by the Fund and 490,843 shares
owned by Castle Creek Capital Partners Fund II (together with the Fund, the
"FUNDS") of which Mr. Eggemeyer is a principal. Mr. Eggemeyer disclaims any
beneficial ownership of the shares of Western Common Stock held by the Funds
except to the extent of his interest in the Funds.
(5) Ownership includes 41,065 shares of Western Common Stock for which Mr.
Greenbeck has sole power of investment and sole power to vote and 22,780
shares of Western Common Stock for which Mr. Greenbeck shares the power of
investment and the power to vote with Ted Mooschekian, General Partner of
Downy Land Limited.
68
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
BANKING TRANSACTIONS
Some of the directors and executive officers of Western and the Banks, and
the companies with which they are associated, are customers of, and have had
banking transactions with, the Banks in the ordinary course of the Banks'
business, and the Banks expect to have banking transactions with these persons
in the future.
In the opinion of management of Western, all loans and commitments to lend
included in these transactions were made in compliance with applicable laws on
substantially the same terms, including interest rates and collateral, as those
prevailing for comparable transactions with other persons of similar
creditworthiness, and did not involve more than a normal risk of collectibility
or present other unfavorable features. The amount of all loans and credit
extensions to executive officers, directors, and principal shareholders of
Western, together with their associates, was approximately $384,000 on June 1,
1999, constituting approximately 0.1% of Western's equity capital accounts on
that date.
INVESTMENT BANKING SERVICES
Belle Plaine Partners, Inc. and Belle Plaine Financial LLP are entities
related to the Funds, which beneficially owned approximately 13.0% percent of
the outstanding Western Common Stock as of July 1, 1999. John M. Eggemeyer, a
director of Western, is a principal of the Funds, Belle Plaine Partners and
Belle Plaine Financial.
Belle Plaine Partners serves as a financial advisor to Western under an
engagement letter dated May 17, 1995. In that capacity, Belle Plaine Partners
provided financial advisory and consulting services in connection with the
Merger. See "THE MERGER--Interests of Certain Persons in Merger-- Investment
Advisory Services." Also in that capacity, Belle Plaine Partners was paid fees
of $4.2 million, $3.2 million and $1.4 million in 1998, 1997 and 1996,
respectively, for evaluating and identifying potential acquisitions, including a
fee of $1.4 million in connection with Western's acquisition of all of the
issued and outstanding shares of common stock of Western Bank which closed on
September 30, 1996; a fee of $1.4 million in connection with the CCB Merger
which closed on June 4, 1997; a fee of $1.8 million in connection with the SCB
Merger which closed on October 10, 1997; a fee of $2.7 million in connection
with the SMB Acquisition which closed on January 27, 1998 (in connection with
the SMB Acquisition, Belle Plaine Partners also advised Western and assisted in
placing the 1998 Private Placement Shares (as defined below)); a fee of $711,000
in connection with the BKLA Acquisition which closed on October 23, 1998; and a
fee of $753,000 in connection with the PNB Merger which closed on December 30,
1998.
In addition, Belle Plaine Financial was paid approximately $863,000 in 1996
for services rendered in connection with capital raising transactions related to
Western's strategic evolution. Pursuant to the May 17, 1995 engagement letter,
upon the completion of the Merger, Belle Plaine Partners would have been
entitled to a payment by Western of cash fees in an amount equal to 2% of the
aggregate consideration paid by U.S. Bancorp pursuant to the Agreement. However,
pursuant to the Novation, Belle Plaine Partners assigned all of its rights under
the May 17, 1995 engagement letter to Belle Plaine Financial. In connection with
the Novation and in contemplation of the operation of the Agreement, pursuant to
an Amendment to Letter Agreement dated May 19, 1999, amending the May 17, 1995
engagement letter, Western and Belle Plaine Financial agreed that (1)
immediately prior to the completion of the Merger, the May 17, 1995 engagement
letter would terminate and be of no further force and effect and (2) as a result
of the completion of the Merger, Western would pay to Belle Plaine Financial
$1.5 million, which would constitute all monies owed to Belle Plaine Financial
or Belle Plaine Partners from Western as a result of the Merger. Upon completion
of the Merger, U.S. Bancorp, as the Surviving Corporation, will assume Western's
obligations with respect to these payments.
69
<PAGE>
THE 1998 PRIVATE PLACEMENT
In order to raise a portion of the capital necessary to fund the payment of
the cash consideration paid in the SMB Acquisition, in November 1997 Western
entered into Standby Stock Purchase Agreements with certain accredited investors
(the "1998 PRIVATE PLACEMENT INVESTORS") within the meaning of Rule 501(a) under
the Securities Act. Pursuant to the Standby Stock Purchase Agreements, the 1998
Private Placement Investors committed to purchase a minimum of approximately
1,962,650 shares of Western Common Stock and to standby to purchase up to
approximately 4,347,300 additional shares of Western Common Stock if requested
to do so by Western (collectively, the "1998 PRIVATE PLACEMENT SHARES"). The
purchase price of the 1998 Private Placement Shares was $28.00 per share. The
1998 Private Placement Investors agreed to pay the purchase price of the 1998
Private Placement Shares prior to the effective time of the SMB Acquisition. In
this private placement (the "1998 PRIVATE PLACEMENT"), Western issued a total of
2,327,550 shares of Western Common Stock for $65,171,400 in the aggregate. The
1998 Private Placement Shares were not registered under the Securities Act.
However, pursuant to the Standby Stock Purchase Agreements, Western has filed
under the Securities Act a "shelf" registration statement providing for the
registration of the 1998 Private Placement Shares.
Some directors, executive officers and Western shareholders holding more
than 5 percent of the outstanding Western Common Stock at the time of the 1998
Private Placement participated in the 1998 Private Placement. The following
table sets forth the number and the dollar value of 1998 Private Placement
Shares purchased by each person:
<TABLE>
<CAPTION>
1998 PRIVATE PLACEMENT INVESTOR SHARES DOLLARS
- -------------------------------------------------------------------------------------- ---------- -------------
<S> <C> <C>
Castle Creek Capital Partners Fund I-L.P.............................................. 528,900 $ 14,809,200
Digange, Joseph J..................................................................... 4,450 124,600
Eggemeyer, John M..................................................................... 5,900 165,200
Franklin Mutual Advisers, Inc......................................................... 528,900 14,809,200
Hahn, Arnold C........................................................................ 4,700 131,600
Jacoby, William H..................................................................... 4,300 120,400
McKay, Robert L....................................................................... 41,500 1,162,000
Rose, John W.......................................................................... 5,900 165,200
Smith, Hugh S., Jr.................................................................... 5,900 165,200
Wagner, Matthew P..................................................................... 9,500 266,000
Walter, Dale E........................................................................ 4,300 120,400
Wellington Management Company, LLP.................................................... 424,000 11,872,000
---------- -------------
TOTAL............................................................................... 1,568,250 $ 43,911,000
---------- -------------
---------- -------------
</TABLE>
70
<PAGE>
AMENDMENT AND RESTATEMENT OF WESTERN'S
STOCK INCENTIVE PLAN (PROPOSAL 3)
The Western shareholders are being asked to approve the amendment and
restatement of Western's Stock Incentive Plan, which was originally adopted by
the Western Board on March 16, 1993 and approved at the 1993 Annual Meeting of
Shareholders. On May 23, 1995, May 15, 1996 and March 19, 1998, the Western
Board amended the Stock Incentive Plan, which amendments were approved by the
Western shareholders at the 1995 Annual Meeting of Shareholders, the 1996 Annual
Meeting of Shareholders and the 1998 Annual Meeting of Shareholders,
respectively.
On March 18, 1999, the Western Board approved the amendment and restatement
of the Stock Incentive Plan (the "1999 AMENDMENT") to: (1) increase the maximum
number of shares that may be issued pursuant to the Stock Incentive Plan from
1,004,405 shares to a maximum of 1,500,000 shares in the aggregate; (2) permit
the award of shares of Western Common Stock to participants in the Stock
Incentive Plan; (3) provide for the grant of restoration options to
participants; and (4) make other technical changes. If the Merger is completed,
the Stock Incentive Plan and all options issued under the Stock Incentive Plan
will be terminated. The amendments reflected in the Stock Incentive Plan and the
reasons for the amendments are as follows:
INCREASE IN AGGREGATE NUMBER OF SHARES
Western desires to increase the maximum number from 1,004,405 to 1,500,000,
which represents approximately 7.1% of the 21,170,506 shares of Western Common
Stock issued and outstanding on the Record Date.
The Western Board believes that it is necessary to increase the number of
shares of Western Common Stock available for issuance under the Stock Incentive
Plan in order to ensure that Western maintains the ability in the future to
continue to utilize the Stock Incentive Plan to attract and retain highly
qualified officers and other employees by providing adequate incentives through
the issuance of stock options and stock awards. As of the Record Date, Western
had issued options (either exercised or still outstanding) covering 977,103
shares, leaving 27,302 shares available for issuance pursuant to stock options
or stock awards that may be granted in the future (including pursuant to
ratification of grants made in the ordinary course to new employees). The
Western Board believes that the number of shares currently available for future
stock option and stock award grants is not sufficient for its purposes, and, as
a result, the 1999 Amendment increases the shares of Western Common Stock
available for issuance to 1,500,000.
PROVISION FOR THE GRANT OF STOCK AWARDS
The Stock Incentive Plan has been amended to provide for the issuance of
awards of Western Common Stock to some grantees. The 1999 Amendment provides
that stock awards may be granted, with or without restrictions, to participants
in the Stock Incentive Plan, including Western's directors, full-time officers,
full-time key employees, consultants, business associates and others with
important business relationships with Western ("ELIGIBLE PARTICIPANTS"). The
stock awards are intended to serve as an additional means by which participants
in the Stock Incentive Plan may take part in the ownership of Western and
thereby have an interest in the success and increased value of Western. The
Western Board believes that allowing Western to provide stock awards will
provide additional flexibility to Western in structuring incentive compensation
packages and will help Western maintain the ability to attract and retain highly
qualified managerial personnel and other employees. No stock awards have been
granted as of the date of this Proxy Statement/Prospectus.
71
<PAGE>
PROVISION FOR THE GRANT OF RESTORATION OPTIONS
The 1999 Amendment amends the Stock Incentive Plan to authorize the grant of
"Restoration Options" to optionees. Pursuant to the 1999 Amendment, in the event
that any optionee delivers to Western, or has withheld from the shares of
Western Common Stock otherwise issuable upon exercise of an option, shares of
Western Common Stock in payment of the exercise price of, or income tax
withholding in respect of, any option, Western will have the right to provide
for the grant of a Restoration Option to the optionee. The holder of the
Restoration Option will be entitled to purchase a number of shares of Western
Common Stock not to exceed the number of shares delivered or withheld upon
exercise of the original option plus the number of shares, if any delivered or
withheld by Western to satisfy any withholding tax liability arising in
connection with the exercise of the original option. A Restoration Option will
have a per share exercise price of not less than 100% of the per share fair
market value of the Western Common Stock on the date of grant of the Restoration
Option, a term not longer than the term of the original option at the time of
exercise of the option, and other terms and conditions that the committee
administering the Stock Incentive Plan in its sole discretion determines. The
Western Board believes that authorizing Western to issue Restoration Options to
participants will enhance Western's ability to allow participants in the Stock
Incentive Plan to maintain or increase their equity interests in Western and
thereby have a greater stake in the success of Western. The Western Board
believes that the Restoration Options will serve as an important additional
incentive under the Stock Incentive Plan for Western to use to attract and
retain highly competent officers and other employees.
TECHNICAL CHANGES
The 1999 Amendment also amends some technical matters, which the Western
Board believes are not material.
REQUIRED VOTE
Affirmative votes representing a majority of shares of Western Common Stock
present in person or represented by proxy at the Annual Meeting and entitled to
vote on this proposal will be required to approve this proposal. Abstentions and
broker non-votes will count as votes against this proposal because they will be
counted as present at the Annual Meeting and entitled to vote on (but not for)
this proposal.
SUMMARY OF THE STOCK INCENTIVE PLAN AS AMENDED BY THE 1999 AMENDMENT
The principal features of the Stock Incentive Plan, as amended by the 1999
Amendment, are summarized below. This summary, however, is not intended to be a
complete discussion of all of the terms of the Stock Incentive Plan and is
subject to and qualified in its entirety by the full text of the Stock Incentive
Plan, a copy of which is attached to this Proxy Statement/Prospectus as Appendix
E. A copy of the Stock Incentive Plan, as amended, is also available for
inspection at Western.
The purpose of the Stock Incentive Plan is to strengthen Western (including
its subsidiaries) by providing an additional means of attracting and retaining
competent managerial personnel and by providing to participants an added
incentive for high levels of performance and for unusual efforts to increase the
earnings and performance of Western and to allow consultants, business
associates and others with an important business relationship with Western, an
opportunity to participate in the ownership of Western and thereby have an
interest in the success and increased value of Western. The Western Board
believes that the Stock Incentive Plan has assisted and will continue to assist
in accomplishing these objectives by providing a means whereby all Eligible
Participants may purchase shares of Western Common Stock pursuant to stock
options or stock awards granted in accordance with the Stock Incentive Plan.
72
<PAGE>
ADMINISTRATION OF THE STOCK INCENTIVE PLAN
The Stock Incentive Plan is administered by the Western Board or by a stock
option committee designated and selected by the Western Board (the "COMMITTEE")
consisting of at least two and no more than five persons, at least two of whom
must be directors of Western. Regardless of whether a Committee is selected, the
Western Board may act as the Committee, and any action taken by the Western
Board as the Committee will be deemed to be action taken by the Committee. The
Western Board will have the right, in its sole and absolute discretion, to
remove or replace any person from or on the Committee at any time for any reason
whatsoever. In the event of any conflict between any action taken by the Western
Board and the Committee, the action taken by the Western Board will be
controlling and the action taken by the Committee will be disregarded. The terms
of the Stock Incentive Plan do not require the Committee to be composed solely
of "outside directors" within the meaning of Section 162(m) of the Code.
Any action of the Committee with respect to the administration of the Stock
Incentive Plan will be taken pursuant to a majority vote, or pursuant to the
unanimous written consent, of its members. Any action taken by the Committee
pursuant to a majority vote or the unanimous written consent of its members in
the administration of the Stock Incentive Plan will be valid and binding, so
long as the same is in conformity with the terms and conditions of the Stock
Incentive Plan. Subject to compliance with each of the terms, conditions and
restrictions set forth in the Stock Incentive Plan, the Committee will have the
exclusive right, in its sole and absolute discretion, to establish the terms and
conditions of any stock options and stock awards granted under the Stock
Incentive Plan. The Committee, in its sole and absolute discretion, may grant
stock awards or stock options to Eligible Participants providing for the grant
of, or exercisable for, the number of shares of Western Common Stock, and on the
terms and conditions as it deems advisable and specifies in the respective
grants.
SHARES SUBJECT TO THE STOCK INCENTIVE PLAN
Prior to the 1999 Amendment, 1,004,405 shares of Western Common Stock were
authorized for issuance to Eligible Participants under the Stock Incentive Plan,
and as of the Record Date, an aggregate of 977,103 shares of Western Common
Stock have been granted under the Stock Incentive Plan. If the 1999 Amendment is
approved, up to an aggregate of 1,500,000 shares of Western Common Stock will be
authorized for issuance under the Stock Incentive Plan. If any stock option or
stock award is canceled, surrendered or expires for any reason without having
been exercised or received in full, the unpurchased shares represented by the
option or award will be again available for grants under the Stock Incentive
Plan. Shares that are not issued before the expiration or termination of a stock
option or stock award will thereafter be available for future stock options and
stock awards under the Stock Incentive Plan. The aggregate number of shares
available under the Stock Incentive Plan and the number of shares subject to
outstanding stock options and stock awards will be increased or decreased to
reflect any changes in the outstanding Western Common Stock by reason of any
reorganization, merger, recapitalization, reclassification, stock split, stock
dividend, stock consolidation, or other similar transaction without
consideration to Western.
TYPE OF OPTIONS
Two types of options may be granted under the Stock Incentive Plan: options
intended to qualify as incentive stock options under Section 422 of the Code
("ISOS"), and options not so qualified for favorable federal income tax
treatment ("NSOS"). Each option granted will be subject to a stock option
agreement between the participant and Western. Such agreements will contain such
terms and provisions as the Committee may determine in its discretion, and need
not be uniform.
73
<PAGE>
ELIGIBILITY AND PARTICIPATION
All Eligible Participants are eligible for selection to participate in the
Stock Incentive Plan, subject to two restrictions: (1) no ISO may be granted to
any person who, at the time of grant, is not a regular employee of Western, and
(2) no participant may receive grants of options with respect to more than
100,000 shares of Western Common Stock (subject to adjustment in the event of a
reorganization, merger, recapitalization, reclassification, stock dividend,
stock split, stock consolidation, or other similar transaction without
consideration to Western) during any fiscal year of Western or a portion of any
fiscal year. If an option is canceled, the canceled option continues to be
counted against the maximum number of shares for which options may be granted to
a participant during a fiscal year of Western or a portion of a fiscal year.
Subject to these limitations, an individual who has been granted an option may,
if such individual is otherwise eligible, be granted additional options as the
Committee may determine.
OPTION PRICE; EXERCISABILITY OF OPTIONS
The purchase price for shares of Western Common Stock covered by each option
will be determined by the Committee, but will not be less than one hundred
percent (100%) of the fair market value of the shares on the date of grant, or,
if an ISO is granted to a Western shareholder owning 10% or more of the total
combined voting power of Western (measured by ownership of all classes of
capital stock), not less than 110% of the fair market value of the shares on the
date of grant. However, the aggregate fair market value of shares of Western
Common Stock (determined at the date of grant) for which ISOs (whenever granted)
are exercisable for the first time by a participant during any calendar year
must not exceed $100,000. Any stock options granted in excess of this limitation
will be NSOs. The purchase price of shares on the exercise of an option must be
paid in full at the time of exercise in cash or by check payable to the order of
Western, or, subject to the prior written approval of the Committee, by the
delivery of shares of Western Common Stock already owned by the participant,
provided that the shares have been held by the participant for at least six
months, or by the participant's execution and delivery of a secured promissory
note. Each option will be exercisable according to the rate determined by the
Western Board or the Committee, except that options will be exercisable at a
minimum rate of 20% per year over a five-year period.
Subject to the prior written approval of the Committee, an optionee may
exercise an option by surrendering a portion of the option being exercised and
apply the appreciated value of the shares subject to the surrendered portion of
the option to payment of the exercise price. The appreciated value is the excess
of the fair market value of the surrendered shares at the time of exercise over
the exercise price of the shares.
RESTORATION OPTIONS
In the event that any optionee delivers to Western, or has withheld from the
shares of Western Common Stock otherwise issuable upon exercise of an option,
shares of Western Common Stock in payment of the exercise price of, or tax
withholding in respect of, any option, the Committee will have the right to
provide for the grant of a Restoration Option to the optionee. For a description
of the grant of Restoration Options, see "--Provision for the Grant of
Restoration Options" above.
STOCK AWARDS
Subject to the express provisions and limitations of the Stock Incentive
Plan, the Committee, in its sole and absolute discretion, may grant stock awards
to Eligible Participants for a number of shares of Western Common Stock on the
terms and conditions and to the Eligible Participants that it deems advisable
and specifies in the respective grants. Subject to the limitations and
restrictions set forth in the Stock Incentive Plan, an Eligible Participant who
has been granted a stock option or stock award
74
<PAGE>
may, if otherwise eligible, be granted additional stock options or stock awards
if the Committee so determines. The Committee, in its sole and absolute
discretion, may impose restrictions in connection with any stock award,
including without limitation (1) imposing a restricted period during which all
or a portion of the Western Common Stock subject to the stock award may not be
sold, assigned, transferred, pledged or otherwise encumbered (the "RESTRICTED
PERIOD"), and (2) providing for a vesting schedule with respect to the Western
Common Stock such that if a grantee ceases to be an Eligible Participant during
the Restricted Period, some or all of the shares of Western Common Stock subject
to the stock award will be immediately forfeited and returned to Western. The
Committee may, at any time, reduce or terminate the Restricted Period. Each
certificate issued in respect to shares of Western Common Stock pursuant to a
stock award that is subject to restrictions will be registered in the name of
the grantee, will be deposited by the grantee with Western together with a stock
power endorsed in blank and will bear an appropriate legend summarizing the
restrictions imposed with respect to the shares of Western Common Stock.
Notwithstanding any provision in any agreement pertaining to a stock award, upon
the occurrence of a "Vesting Event," all shares of Western Common Stock subject
to the stock award will become immediately vested. A "VESTING EVENT" is defined
as the approval by the Western shareholders of any matter, plan or transaction
that would constitute a "Terminating Event" or if any Terminating Event occurs
without Western shareholder approval, the occurrence of such Terminating Event.
A "TERMINATING EVENT" under the Stock Incentive Plan includes (i) the completion
of a plan of dissolution or liquidation of Western; (ii) subject to some
exceptions, the failure of the individuals who were members of the Western Board
as of Western's 1998 shareholders meeting to constitute 2/3 of the members of
the Western Board; (iii) some mergers, reorganizations and consolidations; (iv)
the sale of all or substantially all the assets of Western; or (v) the
acquisition of beneficial ownership of stock representing more than fifty
percent (50%) of the voting power of Western by another person or entity.
Subject to the terms of any agreement governing a stock award, the grantee
of a stock award will have all the rights of a Western shareholder with respect
to the Western Common Stock issued pursuant to a stock award, including the
right to vote the shares; provided, however, that dividends or distributions
paid with respect to shares that have not vested will be deposited with Western
and will be subject to forfeiture until the underlying shares have vested unless
otherwise released by the Committee in its sole discretion. A grantee will not
be entitled to interest with respect to the dividends or distributions so
deposited.
DURATION OF STOCK OPTIONS AND STOCK AWARDS
Unless previously terminated by the Western Board, the Stock Incentive Plan
terminates ten years from the date the Stock Incentive Plan was adopted by the
Western Board, or March 16, 2003. Each stock option and stock award will expire
on the date specified by the Committee, but all stock options and stock awards
will expire within ten years of the date of grant. ISOs granted to Western
shareholders owning 10% or more of the total combined voting power of Western
(measured by ownership of all classes of capital stock) will expire within five
years from the date of grant.
TERMINATING EVENTS
Not less than thirty days prior to an occurrence of any Terminating Event,
the Committee or the Western Board will notify each grantee of the pendency of
the Terminating Event. Upon the effective date of the Terminating Event, the
Stock Incentive Plan will automatically terminate, all stock options granted
under the plan will terminate and all unvested stock awards will be canceled and
the underlying Western Common Stock forfeited and returned to Western, unless
provision is made to continue the Stock Incentive Plan or assume or substitute
the stock options and unvested stock awards granted under the Stock Incentive
Plan. If the Stock Incentive Plan and unexercised stock options terminate
pursuant to a Terminating Event, all optionees will have the right to exercise
the stock
75
<PAGE>
options then outstanding prior to the completion of the Terminating Event,
unless the Western Board has provided for the cancellation of the stock options
in exchange for a cash payment equal to the excess of the fair market value of
the Western Common Stock as of the date of the Terminating Event over the
exercise price of the stock option. The completion of the Merger would be a
"Terminating Event" under the Stock Incentive Plan. See "THE MERGER--Conversion
of Stock; Treatment of Options."
TERMINATION OF EMPLOYMENT; DEATH OR DISABILITY
If a participant ceases to be an Eligible Participant for any reason other
than death or disability, the participant's vested stock options will expire on
the earlier of their expiration date or the date that is three months (unless
otherwise determined by the Committee in an individual option agreement) after
the participant's status as an Eligible Participant is terminated. If a
participant dies or becomes disabled, the participant's vested stock options
will expire on the earlier of their expiration date or the date that is 12
months (unless otherwise determined by the Committee in an individual option
agreement) after the date of death or disability. After a participant's death,
any stock options that remained exercisable on the date of death may be
exercised by the person or persons to whom the participant's rights pass by will
or the laws of descent and distribution. In no event may the option be exercised
after the end of the original option term.
RIGHTS AS A SHAREHOLDER; ASSIGNABILITY
No grantee will be entitled to the privileges of stock ownership as to any
shares of Western Common Stock not actually issued and delivered.
Options granted under the Stock Incentive Plan are not transferrable by the
optionee other than by will or the laws of descent and distribution, and will be
exercisable during the optionee's lifetime only by the optionee or his or her
guardian or legal representative. Under the current terms of the Stock Incentive
Plan, in the event of termination of employment as a result of the optionee's
disability or in the event of an employee's death during the exercise period,
the option will, to the extent exercisable, remain exercisable for up to one
year (but not beyond the end of the original option term) by the disabled
optionee or, in the event of death, by the person or persons to whom rights
under the option have passed by will or the laws of descent and distribution.
AMENDMENT AND TERMINATION OF THE STOCK INCENTIVE PLAN
The Western Board reserves the right to suspend, amend, or terminate the
Stock Incentive Plan, and, with the consent of a grantee, make modifications of
the terms and conditions of his or her stock option or stock award that it deems
advisable, except that the Western Board may not, without further approval of a
majority of the shares of the Western Common Stock then outstanding, increase
the maximum number of shares covered by the Stock Incentive Plan or change any
provision of the Stock Incentive Plan that would affect the qualification as an
ISO under the Stock Incentive Plan or make any other change for which Western
shareholder approval is required pursuant to Section 162(m) of the Code.
MISCELLANEOUS PROVISIONS
No shares of Western Common Stock will be issued by Western pursuant to a
stock award or upon exercise of any stock option, and a grantee will have no
rights or claim to such shares, unless and until: (a) with respect to a stock
option, payment in full for the stock option has been received by Western; (b)
all applicable registration requirements of the Securities Act, all applicable
listing requirements of securities exchanges or associations on which the
Western Common Stock is then listed or traded, and
76
<PAGE>
all other requirements of law or regulatory body have been fully satisfied; and
(c) any applicable income tax withholding requirements have been satisfied.
Stock awards and stock options that are issued by Western pursuant to the
Stock Incentive Plan need not be registered with the SEC. However, Western
intends to register the Western Common Stock reserved for issuance under the
Stock Incentive Plan with the SEC prior to issuing any Western Common Stock upon
exercise or grant of the option or award.
IF THE CHANGES EFFECTED BY THE PROPOSED AMENDMENTS ARE APPROVED BY THE
WESTERN SHAREHOLDERS, WESTERN MAY MODIFY THE OUTSTANDING OPTIONS UNDER THE STOCK
INCENTIVE PLAN CONSISTENT WITH THE PROPOSED AMENDMENTS.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion of federal income tax consequences does not purport
to be a complete analysis of all of the potential tax effects of the Stock
Incentive Plan. It is based upon laws, regulations, rulings and decisions now in
effect, all of which are subject to change. The recently enacted Taxpayer Relief
Act of 1997 has changed various tax rules, including the rules governing the
taxation of capital gains, and there is some uncertainty regarding the impact of
the Taxpayer Relief Act of 1997 on the Stock Incentive Plan. No information is
provided with respect to persons who are not citizens or residents of the United
States, or as to foreign, state or local tax laws, or estate and gift tax
considerations. In addition, the tax consequences to a particular participant
may be affected by matters not discussed in this Proxy Statement/Prospectus.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT HIS OR HER TAX ADVISOR
CONCERNING THE TAX CONSEQUENCES OF THE STOCK INCENTIVE PLAN, INCLUDING THE
EFFECTS OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND OF CHANGES IN THE TAX
LAWS.
The Stock Incentive Plan is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA") and is not qualified
under Section 401(a) of the Code.
NON-QUALIFIED STOCK OPTIONS
Under current federal income tax law, the grant of an NSO has no tax effect
on Western or the optionee to whom it is granted. If the shares of Western
Common Stock received on the exercise of an NSO are not subject to restrictions
on transfer or risk of forfeiture, the exercise of the NSO will result in
ordinary income to the optionee equal to the excess of the fair market value of
the shares at the time of exercise over the option price. The optionee's tax
basis in the shares will be equal to the aggregate exercise price paid by the
optionee plus the amount of taxable income recognized upon the exercise of the
option. Upon any subsequent disposition of the shares, any gain or loss
recognized by the optionee will be treated as capital gain or loss and will be
long-term capital gain or loss if the shares are held for the applicable period
after exercise. At the time of recognition of ordinary income by the optionee
upon exercise, Western will normally be allowed to take a deduction for federal
income tax purposes in an amount equal to such recognized income.
INCENTIVE STOCK OPTIONS
The federal income tax consequences associated with ISOs are generally more
favorable to the optionee and less favorable to Western than those associated
with NSOs. Under current federal income tax law, the grant of an ISO does not
result in income to the optionee or in a deduction for Western at the time of
the grant. Generally, the exercise of an ISO will not result in income for
regular taxpayers for the optionee if the optionee does not dispose of the
shares within two years after the date of grant or within one year after the
date of exercise. If these requirements are met, the basis of the shares of
Western Common Stock upon a later disposition will be the option price, any gain
or loss on the later disposition will be taxed to the optionee as capital gain
or loss (which will be long-term capital gain or loss if the shares are held for
the applicable period after exercise), and Western will not be entitled to
77
<PAGE>
a deduction. The excess of the market value on the exercise date over the option
price is an adjustment to regular taxable income in determining alternative
minimum taxable income, which could cause the optionee to be subject to the
alternative minimum tax. Under the Taxpayer Relief Act of 1997, the alternative
minimum tax rate may be higher than the rate on long-term capital gains. If the
optionee disposes of the shares before the expiration of either of the holding
periods described above (a "DISQUALIFYING DISPOSITION"), the optionee will have
compensation taxable as ordinary income, and Western will normally be entitled
to a deduction, equal to the lesser of (a) the fair market value of the shares
on the exercise date minus the option price, or (b) the amount realized on the
disposition minus the option price. If the price realized in any such
Disqualifying Disposition of the shares exceeds the fair market value of the
shares on the exercise date, the excess will be treated as long-term or
short-term capital gain, depending on the optionee's holding period for the
shares. Western is not entitled to any deduction corresponding to any capital
gains realized by a participant.
STOCK AWARDS
If Western makes an award of Western Common Stock to a participant, and the
shares are not subject to forfeiture restrictions, the participant will
recognize taxable income in an amount equal to the fair market value of the
Western Common Stock at the time of the award, and Western will be entitled to a
deduction in the same amount. A participant will normally not recognize taxable
income upon an award of shares that are non-transferable and subject to
forfeiture restrictions ("RESTRICTED SHARES"), and Western will not be entitled
to a deduction until the lapse of the applicable restrictions. Upon the lapse of
the restrictions, the participant will recognize ordinary taxable income in an
amount equal to the fair market value, at the time of such lapse, of the Western
Common Stock as to which the restrictions have lapsed, and Western will be
entitled to a deduction in the same amount. However, a participant may elect
under Section 83(b) of the Code to recognize taxable ordinary income in the year
the Restricted Shares are awarded in an amount equal to the fair market value of
the shares at that time, determined without regard to the restrictions. In this
event, Western will then be entitled to a deduction in the same amount. Any gain
or loss subsequently recognized by the participant will be a capital gain or
loss. If, after making a Section 83(b) election, any Restricted Shares are
forfeited, or if the fair market value at vesting or upon sale is lower than the
amount on which the participant was taxed, the participant cannot then claim a
tax deduction for the loss.
$1,000,000 LIMIT ON DEDUCTIBLE COMPENSATION
Section 162(m) of the Code provides that any publicly traded corporation
will be denied a deduction for compensation paid to certain executive officers
to the extent that the compensation exceeds $1,000,000 per officer per year.
However, the deduction limit does not apply to "performance-based compensation,"
as defined in Section 162(m) of the Code. Compensation is performance-based
compensation if:
- the compensation is payable on account of the attainment of one or more
performance goals;
- the performance goals are established by a compensation committee of the
board of directors consisting of "outside directors";
- the material terms of the compensation and the performance goals are
disclosed and approved by the shareholders in a separate vote; and
- the compensation committee certifies that the performance goals have been
satisfied.
Western believes that, if the Western shareholders approve the Stock Incentive
Plan and the Committee is composed entirely of "outside directors," the stock
options granted under the Stock Incentive Plan will satisfy the requirements to
be treated as performance-based compensation, and accordingly will not be
subject to the deduction limit of Section 162(m) of the Code.
78
<PAGE>
EXCESS PARACHUTE PAYMENTS
Under Section 4999 of the Code, certain officers, shareholders, and
highly-compensated individuals ("DISQUALIFIED INDIVIDUALS") will be subject to
an excise tax (in addition to federal income taxes) of 20% of the amount of
certain "excess parachute payments" that they receive as a result of a change in
control of Western. Furthermore, Section 280G of the Code prevents Western from
taking a deduction for any "excess parachute payments." The cash out or
acceleration of the vesting of stock options upon a Terminating Event may
(standing alone, or in conjunction with any Severance Payments) cause the
holders of the stock options who are Disqualified Individuals to recognize
certain amounts as "excess parachute payments" on which they must pay the 20%
excise tax, and for which Western will be denied a tax deduction. For a
description of Western's obligation to "gross up" the excise tax, see "EXECUTIVE
OFFICERS OF WESTERN--Executive Severance Plan."
SPECIAL RULES; WITHHOLDING OF TAXES
Special tax rules may apply to a participant who is subject to Section 16 of
the Exchange Act as an officer, director or Western shareholder. Other special
tax rules will apply if a participant exercises a stock option by delivering
shares of Western Common Stock that he or she already owns, or through a
"cashless exercise."
Western may take whatever steps the Committee deems appropriate to comply
with any applicable withholding tax obligation, including requiring any
participant to pay the amount of any applicable withholding tax to Western in
cash. The Committee may, in its discretion, authorize "cashless withholding."
THE WESTERN BOARD RECOMMENDS THAT WESTERN SHAREHOLDERS VOTE FOR THE
AMENDMENT AND RESTATEMENT OF THE STOCK INCENTIVE PLAN.
79
<PAGE>
SHAREHOLDER PROPOSAL (PROPOSAL 4)
Set forth below is information concerning a proposal received by Western
from a Western shareholder (the "SHAREHOLDER PROPOSAL") for inclusion in this
Proxy Statement/Prospectus in accordance with the rules of the SEC. Affirmative
votes representing a majority of shares of Western Common Stock present in
person or represented by proxy at the Annual Meeting and entitled to vote on
this proposal will be required to approve this proposal. Abstentions and broker
non-votes will count as votes against this proposal because they will be counted
as present at the Annual Meeting and entitled to vote on (but not for) this
proposal.
SHAREHOLDER PROPOSAL REGARDING DISCLOSURE OF CERTAIN FINANCIAL INFORMATION FROM
CURRENT DIRECTORS AND PROSPECTIVE DIRECTOR NOMINEES
Gerald R. Armstrong, 910 Fifteenth Street, No. 754, Denver, Colorado 80202-2924,
who has represented to Western that he is the owner of at least 151 shares of
Western Common Stock, has advised Western of his intent to present the following
proposal for consideration at the Annual Meeting:
"That the shareholders of Western Bancorp, assembled in person and by proxy
in an annual meeting, request the Board of Directors to take those steps
necessary, upon conclusion of the 1999 annual meeting of shareholders, to issue
to all shareholders the following information (in addition to the annual report
and proxy statements):
"All financial holdings of members of the Western Bancorp Board of
Directors, their businesses, and affiliates, in any other
financial service's entity, regardless of percentage owned, other
than Western Bancorp. Further, that said data be updated and
reported, no less than quarterly, to all Western shareholders."
SHAREHOLDER'S SUPPORTING STATEMENT
"Shareholders are entitled to maximum, not minimum, information regarding
their investment. The adoption of this proposal would be in keeping with
disclosure standards aimed at minimizing conflicts of interest, as well as
ensuring representation of interests of the entire Western Bancorp shareholder
constituency, rather than those whose interest may be divergent. Strategic
Planning and Corporate development are key to the ongoing and future success of
Western Bancorp. Accordingly, where Directors have outside holdings, which are
not disclosed, those interests may cause certain Directors to create undue
influence upon other members of the Western Bancorp Board of Directors in
arriving at decisions as to its acquisition targets. Therefore, in order to
ensure Western Bancorp pursues only transactions free of any potential conflicts
of interest for its Directors, or their affiliated holdings, such information
must be made available to the entire Western Bancorp shareholder base."
"If you agree with this proposal, please vote FOR."
STATEMENT IN OPPOSITION TO THE SHAREHOLDER PROPOSAL
The Western Board recommends a vote "AGAINST" the Shareholder Proposal for
the following reasons.
The Western Board believes that the Shareholder Proposal would not serve the
best interests of Western and would adversely impact the ability of Western to
retain a competent and effective board of directors.
This Shareholder Proposal would require disclosure of personal and
confidential financial information from current directors and prospective
director nominees that far exceed the significant statutory disclosure
requirements that mandate the disclosure of information already contained in
Western's Annual Report and this Proxy Statement/Prospectus concerning the
personal financial holdings of the members of the Board of Directors and any of
their business transactions with Western.
80
<PAGE>
The public disclosure requirements contained in Regulation 14A and Regulation
S-K under the Exchange Act were specifically promulgated by the SEC to identify
and disclose material personal, financial and business information of directors,
and such disclosures should adequately identify potential conflicts of interests
between a director and Western, in addition to providing qualitative information
about a director's experience and other qualifications.
The Western Board believes that existing disclosure requirements of the SEC
with respect to proxy statements and annual reports are more than sufficient to
disclose any potential conflict of interest and allow such disclosures to be
made in a clear, concise and understandable manner. Western's policy is to make
all disclosures in compliance with the securities laws and provide relevant and
material information concerning the directors and the operations and business of
Western.
The rules and regulations of the Exchange Act already require directors to
disclose and discuss the terms and arrangements of their directorship, any fees
or compensation received by such directors, employment history, other board
memberships, certain family relationships, business experience, involvement in
various legal proceedings, and their security ownership of Western. Moreover,
Western directors are specifically required to disclose any business
relationships or other similar transactions to which Western or any of its
subsidiaries is or was a party, in which the amount involved exceeds $60,000 and
in which the director had or will have a direct or indirect material interest,
including transactions with a member of the director's immediate family.
Western has consistently attempted to add to the Western Board highly
qualified individuals who are independent thinkers and respected leaders of the
business community. Such individuals are able to provide substantial benefit and
guidance to Western. To burden such individuals with the obligation to disclose
what would otherwise be personal and confidential financial information that is
not required by the SEC may dissuade and discourage certain ideal candidates
from serving as directors of Western. Western believes the Shareholder Proposal
to be unduly burdensome and wholly inappropriate.
Accordingly, the Board of Directors recommends that you vote "AGAINST" this
Shareholder Proposal, and your proxy will be so voted if the Stockholder
Proposal is presented unless you specify otherwise.
THE WESTERN BOARD RECOMMENDS THAT WESTERN SHAREHOLDERS VOTE AGAINST PROPOSAL
4.
81
<PAGE>
DESCRIPTION OF U.S. BANCORP CAPITAL STOCK AND
COMPARISON OF SHAREHOLDER RIGHTS
As a result of the conversion of shares of Western Common Stock into shares
of U.S. Bancorp Common Stock in the Merger, Western shareholders will become
holders of stock of U.S. Bancorp ("U.S. BANCORP STOCKHOLDERS"), and their rights
will be governed by the DGCL and by the certificate of incorporation of U.S.
Bancorp ("U.S. BANCORP CERTIFICATE") and its Bylaws ("U.S. BANCORP BYLAWS"),
which differ in some respects from the California General Corporate Law and the
Articles of Incorporation of Western ("WESTERN ARTICLES") and its Bylaws
("WESTERN BYLAWS"). The following is a description of U.S. Bancorp's capital
stock, including the U.S. Bancorp Common Stock to be issued in the Merger, and a
summary of the material differences between the rights of Western shareholders
and U.S. Bancorp stockholders. Although it is impractical to compare all of the
aspects in which the DGCL and the California General Corporation Law (the
"CGCL") and the companies' governing instruments differ with respect to
shareholder rights, the following discussion summarizes the material significant
differences between them.
DESCRIPTION OF U.S. BANCORP CAPITAL STOCK
The following description of the capital stock of U.S. Bancorp does not
purport to be complete and is subject, in all respects, to applicable Delaware
law and to the provisions of the U.S. Bancorp Certificate. The following
description is qualified by reference to the U.S. Bancorp Certificate, and the
certificate of designation for each series of preferred stock of U.S. Bancorp.
GENERAL
The authorized capital stock of U.S. Bancorp consists of 1,500,000,000
shares of U.S. Bancorp Common Stock, par value $1.25 per share, and 50,000,000
shares of preferred stock, par value $1.00 per share. Unless action is required
by applicable laws or regulations, the board of directors of U.S. Bancorp (the
"U.S. BANCORP BOARD") has the power to adopt resolutions that (1) provide for
the issuance of preferred stock in one or more series and (2) fix or limit the
voting rights, designations, preferences, and relative, participating, optional
or other special rights of the preferred stock. This power is limited by
applicable laws or regulations and may be delegated to a committee of the U.S.
Bancorp Board.
As of March 31, 1999, 744,797,857 shares of U.S. Bancorp Common Stock were
issued (including 18,428,964 shares held in treasury), 60,090,134 shares were
reserved for issuance under U.S. Bancorp's employee and director plans and U.S.
Bancorp's dividend reinvestment plan, 89,108 shares were reserved for issuance
under outstanding warrants to purchase U.S. Bancorp Common Stock and 45,000,000
shares were reserved for issuance upon exercise of the Periodic Stock Purchase
Rights and Risk Event Warrants described below. As of the Record Date, there
were shares of preferred stock of U.S. Bancorp outstanding and
shares of preferred stock of U.S. Bancorp reserved for issuance.
PREFERRED STOCK
U.S. Bancorp presently has one series of preferred stock issued and
outstanding and one series of preferred stock authorized for future issuance. As
of the Record Date, U.S. Bancorp had shares of U.S. Bancorp's Term
Participating Preferred Stock (the "TERM PARTICIPATING PREFERRED STOCK") and
shares of its Series 1990A Preferred Stock reserved for issuance.
TERM PARTICIPATING PREFERRED STOCK
GENERAL. U.S. Bancorp has established a series of preferred stock, par
value $1.00 per share, designated as the "TERM PARTICIPATING PREFERRED STOCK."
U.S. Bancorp issued such shares as consideration in connection with a merger
transaction. Holders of Term Participating Preferred Stock will possess rights
to receive U.S. Bancorp Common Stock pursuant to a Rights Agreement, dated as of
January 4, 1999, between U.S. Bancorp and U.S. Bank National Association, as
Rights Agent.
82
<PAGE>
The number of shares of Term Participating Preferred Stock will initially be
approximately 100,000. The U.S. Bancorp Board may increase or decrease the
number of shares, but not below the number then outstanding. Any shares
transferred to U.S. Bancorp will be available for reissuance as shares of this
series.
TERM. The shares of Term Participating Preferred Stock will remain until
December 31, 2003, or the Early Termination Date, as defined in the Rights
Agreement (the "TERM DATE"), unless earlier purchased by U.S. Bancorp. From the
Term Date, (1) each share of Term Participating Preferred Stock will represent
only the right to receive the number of shares of U.S. Bancorp Common Stock to
which the holder of the attached right would be entitled, assuming that the
right is validly exercised or deemed exercised and (2) the holders of the Term
Participating Preferred Stock will have no other rights or claims against U.S.
Bancorp.
DIVIDENDS. The U.S. Bancorp Board may declare dividends on the Term
Participating Preferred Stock, out of funds legally available, on the date
occurring prior to the Term Date that dividends or other distributions except
those payable in U.S. Bancorp Common Stock, are payable on or in respect
of U.S. Bancorp Common Stock and in an amount per share equal to the aggregate
amount of dividends or other distributions, except those payable in U.S. Bancorp
Common Stock, that would be payable on that date to a holder of the Reference
Package (as defined below). Dividends on each share will cumulate from the date
such share is originally issued.
However, any share originally issued after a dividend record date and on or
prior to the dividend payment date to which the record date relates will not be
entitled to receive the dividend payable on the dividend payment date. Holders
of shares will not be entitled to any dividends, whether payable in cash,
property or stock, in excess of full cumulative dividends.
The term "REFERENCE PACKAGE" initially means ten shares of U.S. Bancorp
Common Stock. If U.S. Bancorp, at any time after the close of business on the
date of initial issuance of the Term Participating Preferred Stock, (1) declares
or pays a dividend on any U.S. Bancorp Common Stock payable in U.S. Bancorp
Common Stock, (2) subdivides, by any split, recapitalization or otherwise, any
U.S. Bancorp Common Stock or (3) combines any U.S. Bancorp Common Stock into a
smaller number of shares, then the Reference Package after this event will be
the U.S. Bancorp Common Stock that a holder of the Reference Package immediately
prior to the event would hold after the event.
While any shares of Term Participating Preferred Stock are outstanding, U.S.
Bancorp must first pay the full cumulative dividends, including the dividend to
be due upon payment of the dividend, distribution, redemption, purchase or other
acquisition, on all outstanding shares if U.S. Bancorp (1) declares a dividend
upon the U.S. Bancorp Common Stock or upon any other stock ranking junior to the
Term Participating Preferred Stock as to dividends or upon liquidation, except
for dividends in the stock, or (2) acquires for any consideration, or pays or
makes available any money for a sinking fund for the redemption of any shares of
the stock, any U.S. Bancorp Common Stock or any other stock of U.S. Bancorp
ranking junior to or on a parity with the Term Participating Preferred Stock as
to dividends or upon liquidation, except by conversion into or exchange for the
stock.
MERGER. If there is a transaction prior to the Term Date in which the
shares of U.S. Bancorp Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then each share of Term
Participating Preferred Stock shall at the same time be similarly exchanged or
changed in an amount equal to the aggregate amount of stock, securities, cash
and/or any other property payable in kind, as the case may be, that a holder of
the Reference Package would be entitled to receive as a result of the
transaction.
LIQUIDATION PREFERENCE. If U.S. Bancorp is liquidated prior to the Term
Date, the holders of shares of Term Participating Preferred Stock will be
entitled to receive an amount per share equal to the aggregate amount
distributed or to be distributed prior to the date in connection with the
liquidation to a holder of the Reference Package. This payment will be made
before any distribution or payment is made to the holders of U.S. Bancorp Common
Stock or of any other stock of U.S. Bancorp ranking junior to the Term
Participating Preferred Stock upon liquidation. This payment also includes
accrued
83
<PAGE>
dividends to the distribution or payment date, whether or not earned or
declared. If the payment is made in full to all holders, or on or following the
occurrence of the Term Date, the holders as such will have no right or claim to
any of the remaining assets of U.S. Bancorp.
If the assets of U.S. Bancorp available for distribution to the holders of
shares of Term Participating Preferred Stock upon any liquidation of U.S.
Bancorp are insufficient to pay all amounts to which the holders are entitled
pursuant to the preceding paragraph, no distribution will be made on account of
any shares of any other class or series of preferred stock ranking on a parity
with the Term Participating Preferred Stock. However, U.S. Bancorp may pay
proportionate distributive amounts on account of the shares of Term
Participating Preferred Stock, ratably in proportion to the full distributable
amounts for which holders of all of these parity shares are respectively
entitled upon the liquidation. Upon the liquidation of U.S. Bancorp, the holders
of shares of Term Participating Preferred Stock then outstanding will be
entitled to be paid out of assets of U.S. Bancorp available for distribution to
its stockholders all amounts to which the holders are entitled pursuant to the
preceding paragraph before any payment is made to the holders of U.S. Bancorp
Common Stock or any other stock of U.S. Bancorp ranking junior upon liquidation
to the Term Participating Preferred Stock.
REDEMPTION. The shares of Term Participating Preferred Stock will not be
redeemable.
VOTING. The shares of Term Participating Preferred Stock will not afford
their holders any right to vote or consent except as required by law.
TRANSFER. A share of Term Participating Preferred Stock may not be
transferred by any person to whom the share is issued by U.S. Bancorp except:
(1) by an employee to the employee's spouse or children or trusts for their
benefit or the benefit of the employee; (2) by the laws of descent; or (3) to
U.S. Bancorp; and, in each case, without the receipt of value for the shares.
U.S. BANCORP SERIES 1990A PREFERRED STOCK
In connection with the sale by U.S. Bancorp of 37,800,000 shares of U.S.
Bancorp Common Stock and accompanying periodic stock purchase rights and risk
event warrants in a private placement in July 1990, U.S. Bancorp may under some
circumstances be obligated to issue up to 12,750 shares of its 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 U.S. Bancorp stockholders 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 the
series, then the number of directors of U.S. Bancorp would be increased by one
and the holders of such Series 1990A Preferred Stock, 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 U.S. Bancorp Series 1990A Preferred Stock will be required
for any amendment of the U.S. Bancorp Certificate, including any certificate of
designation or any similar document relating to any series of preferred stock of
U.S. Bancorp, that will adversely affect the powers, preferences, privileges or
rights of the U.S. Bancorp Series 1990A Preferred Stock. The affirmative vote or
consent of the holders of at least two-thirds of the outstanding shares of U.S.
Bancorp 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 U.S. Bancorp Series 1990A
Preferred Stock as to dividends or upon liquidation.
84
<PAGE>
ADDITIONAL PROVISIONS
The rights of holders of U.S. Bancorp 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 U.S. Bancorp Common Stock by (1) limiting the
control that the holders may exert by exercise of their voting rights or (2)
subordinating their rights in liquidation to the rights of the holders of
preferred stock of U.S. Bancorp. In addition, the issuance of shares of
preferred stock of U.S. Bancorp may discourage takeover attempts and other
changes in control of U.S. Bancorp by limiting the exercise of control by a
person who has gained a substantial equity interest in U.S. Bancorp. U.S.
Bancorp has no current plans or agreements with respect to the issuance of any
other shares of preferred stock, except as described above with respect to the
Series 1990A Preferred Stock and the Term Participating Preferred Stock.
COMMON STOCK
GENERAL. Each share of U.S. Bancorp Common Stock is entitled to the
dividends that may from time to time be declared by the U.S. Bancorp Board of
Directors from any funds legally available for dividends. U.S. Bancorp may not
declare any cash dividends on, or make any payment on account of, the purchase,
redemption or other retirement of, U.S. Bancorp Common Stock unless (1) 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 U.S. Bancorp and (2) U.S. Bancorp 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
U.S. Bancorp. Holders of U.S. Bancorp Common Stock are entitled to one vote per
share. U.S. Bancorp stockholders do not have the right to cumulate their votes
in the election of directors. U.S. Bancorp Common Stock has no conversion
rights, and the holders of U.S. Bancorp Common Stock have no preemptive or other
rights to subscribe for additional securities of U.S. Bancorp. In the event of
the liquidation of U.S. Bancorp, after the payment or provision for payment of
all debts and liabilities and subject to the rights of the holders of preferred
stock of U.S. Bancorp that may be outstanding, the holders of U.S. Bancorp
Common Stock will be entitled to share ratably in the remaining assets of U.S.
Bancorp. The U.S. Bancorp Common Stock is listed on the New York Stock Exchange.
U.S. BANCORP DIVIDEND REINVESTMENT AND COMMON STOCK PURCHASE PLAN. Pursuant
to its U.S. Bancorp Reinvestment and Purchase Plan, U.S. Bancorp provides
eligible stockholders with a method of investing cash dividends and optional
cash payments at 100% of the average price (as defined in the U.S. Bancorp
Reinvestment and Purchase Plan) in additional shares of U.S. Bancorp Common
Stock without payment of any brokerage commission or service charge. The U.S.
Bancorp Reinvestment and Purchase Plan includes some dollar limitations on
participation and provides for eligible stockholders 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.
PERIODIC STOCK PURCHASE RIGHTS AND RISK EVENT WARRANTS. U.S. Bancorp has
entered into (1) 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 in this Proxy Statement/Prospectus collectively as the
"PURCHASERS"), Corporate Advisors, L.P. and U.S. Bancorp and (2) 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 U.S.
Bancorp.
Pursuant to the Stock Purchase Agreement, U.S. Bancorp sold:
- to Corporate Partners, 26,568,723 shares of U.S. Bancorp Common Stock, 10
Periodic Stock Purchase Rights (each a "PSPR") and one Risk Event Warrant,
85
<PAGE>
- to Offshore, 1,931,928 shares of U.S. Bancorp Common Stock, 10 PSPRs and
one Risk Event Warrant, and
- to State Board, 2,819,349 shares of U.S. Bancorp Common Stock, 10 PSPRs
and one Risk Event Warrant.
Pursuant to the Florida Stock Purchase Agreement, U.S. Bancorp sold to State
Board 6,480,000 shares of U.S. Bancorp 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 U.S. Bancorp Common
Stock acquired under it and standstill provisions limiting further acquisitions
of U.S. Bancorp 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 U.S.
Bancorp for cash, subject to some exceptions. Pursuant to the Stock Purchase
Agreement, the Purchasers have designated one person to act as a non-voting
observer of the U.S. Bancorp 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 the PSPR relates. A Dividend Shortfall
will be deemed to exist to the extent that U.S. Bancorp has not paid a cash
dividend equal to $0.0683 per share of U.S. Bancorp Common Stock for each
quarter within the twelve-month period. The PSPRs will be exercisable for that
number of shares of U.S. Bancorp Common Stock or, subject to the prior approval
of the FRB, 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 U.S. Bancorp Common Stock or $1.00 per Depositary
Share. If a PSPR were to become exercisable and were not redeemed by U.S.
Bancorp as described below, the issuance of Depositary Shares or U.S. Bancorp
Common Stock upon exercise of a PSPR could adversely affect the market price of
the U.S. Bancorp Common Stock. If the PSPRs were to be exercised for U.S.
Bancorp Common Stock, there could be substantial dilution of the U.S. Bancorp
Common Stock.
Each "RISK EVENT WARRANT" will become exercisable in the event of some
defined change of control events with respect to U.S. Bancorp where the value
received by holders of the U.S. Bancorp Common Stock is less than $4.625 per
share, or in some circumstances in the event the U.S. Bancorp Common Stock is
valued at less than $4.625 per share on the tenth anniversary of the closing of
the transactions contemplated under the Stock Purchase Agreement. The Risk Event
Warrants will be exercisable for that number of shares of U.S. Bancorp Common
Stock at an exercise price of $1.25 per share or, in some circumstances, subject
to the prior approval of the FRB, Depositary Shares such that the holders of
Risk Event Warrants will receive value equal to the shortfall. If the Risk Event
Warrants were to become exercisable and were not redeemed by U.S. Bancorp as
described below, the issuance of Depositary Shares or U.S. Bancorp Common Stock
upon exercise of a Risk Event Warrant could adversely affect the market price of
the U.S. Bancorp Common Stock. If the Risk Event Warrants were to be exercised
for U.S. Bancorp Common Stock, there could be substantial dilution of the U.S.
Bancorp Common Stock. In the event of a change in control at a time when the
market price of the U.S. Bancorp Common Stock is less than $4.625 per share, the
Risk Event Warrants may have the effect of reducing the price per share to be
received by the holders of the U.S. Bancorp Common Stock.
In the event of the exercise of a Risk Event Warrant upon the occurrence of
certain change of control events, U.S. Bancorp may, at its option, subject to
the prior approval of the FRB, elect to have such Risk Event Warrant become
exercisable for other securities of U.S. Bancorp acceptable to the
86
<PAGE>
holder of the Risk Event Warrant in lieu of the shares of U.S. Bancorp Common
Stock for which the Risk Event Warrant would otherwise become exercisable. In
addition, U.S. Bancorp has the right, subject to the prior approval of the FRB,
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 the PSPR or Risk Event Warrant,
as the case may be, will have become exercisable. U.S. Bancorp 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 some
rights to cause U.S. Bancorp to register with the SEC the U.S. Bancorp 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.
ADDITIONAL PROVISIONS OF THE U.S. BANCORP CERTIFICATE AND U.S. BANCORP BYLAWS
The U.S. Bancorp Certificate requires the affirmative vote of the holders of
80% of the "Voting Stock" (as defined in the U.S. Bancorp Certificate) of U.S.
Bancorp to approve certain mergers, consolidations, reclassifications,
dispositions of assets or liquidation, involving or proposed by certain
significant stockholders, unless certain price and procedural requirements are
met or unless the transaction is approved by the "Continuing Directors" (as
defined in the U.S. Bancorp Certificate). In addition, the U.S. Bancorp
Certificate provides for classification of the U.S. Bancorp Board into three
separate classes, sets a maximum board size of 30 and authorizes action by the
stockholders of U.S. Bancorp only pursuant to a meeting and not by a written
consent. These provisions of the U.S. Bancorp Certificate can only be amended by
the affirmative vote of the holders of not less than 80% of the outstanding U.S.
Bancorp voting stock, except with respect to any amendment to the U.S. Bancorp
Certificate to reduce the maximum number of U.S. Bancorp directors to the
greater of (1) the number of directors then in office and (2) 24, which
amendment would require the approval of the holders of a majority of the
outstanding of U.S. Bancorp Common Stock pursuant to the DGCL. The U.S. Bancorp
Bylaws provide that special meetings of stockholders may be called only by the
U.S. Bancorp Board of Directors 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 U.S. Bancorp without negotiation
with the U.S. Bancorp Board.
COMPARISON OF RIGHTS OF U.S. BANCORP STOCKHOLDERS AND WESTERN SHAREHOLDERS
GENERAL
U.S. Bancorp is a bank holding company incorporated under and subject to all
the provisions of the DGCL and the U.S. Bancorp Certificate and U.S. Bancorp
Bylaws. Western is a bank holding company incorporated under and subject to all
the provisions of the CGCL and the Western Articles and Western Bylaws.
Upon consummation of the Merger, except for those persons who dissent from
the Merger and perfect their dissenters' rights under the CGCL
(Section1300-1312), Western shareholders of will become U.S. Bancorp
stockholders. The rights of Western shareholders differ from the rights of U.S.
Bancorp stockholders because the Western charter documents and the law of its
state of incorporation differ in certain material respects from the U.S. Bancorp
charter documents and the law of its state of incorporation.
The following is a summary of the principal differences in the rights of
Western shareholders as compared to the rights of U.S. Bancorp stockholders. For
information on how to obtain copies of the Western Articles, the Western Bylaws,
the U.S. Bancorp Certificate, and the U.S. Bancorp Bylaws, see "WHERE YOU CAN
FIND MORE INFORMATION."
CAPITAL STOCK
The authorized capital stock of U.S. Bancorp consists of 1,500,000,000
shares of U.S. Bancorp Common Stock, par value $1.25 per share, and 50,000,000
shares of preferred stock, par value $1.00
87
<PAGE>
per share. Unless action is required by applicable laws or regulations, the U.S.
Bancorp Board has the power to adopt resolutions that (1) provide for the
issuance of preferred stock in one or more series and (2) fix or limit the
voting rights, designations, preferences, and relative, participating, optional
or other special rights of the preferred stock. This power is limited by
applicable laws or regulations and may be delegated to a committee of the U.S.
Bancorp Board.
As of the Record Date, shares of U.S. Bancorp Common Stock were
issued, including shares held in treasury, shares were reserved for
issuance under U.S. Bancorp's employee and director plans and U.S. Bancorp's
dividend reinvestment plan, shares were reserved for issuance under
outstanding warrants to purchase U.S. Bancorp Common Stock and shares were
reserved for issuance upon exercise of the PSPRs and Risk Event Warrants. As of
the Record Date, there were shares of preferred stock of U.S.
Bancorp outstanding and shares of preferred stock of U.S. Bancorp
reserved for issuance.
The authorized capital stock of Western consists of 100,000,000 shares of
Western Common Stock and 5,000,000 shares of preferred stock. Unless action is
required by applicable laws or regulations, the Western Board has the power to
adopt resolutions that:
- provide for the issuance of preferred stock in one or more series;
- determine and alter the rights, preferences, privileges and restrictions
granted to or imposed upon any wholly unissued series of preferred stock;
and
- fix the number of shares of any series of preferred stock and the
designation of any series of preferred stock.
This power is limited by applicable laws or regulations and may be delegated to
a committee of the Western Board.
As of July 1, 1999, 21,170,506 shares of Western Common Stock were issued
and outstanding, 957,167 shares were reserved for issuance under Western's Stock
Incentive Plan, 19,936 shares were reserved for issuance outside of Western's
Stock Incentive Plan, 111,009 shares were reserved for issuance under
outstanding warrants to purchase Western Common Stock and 4,201,049 shares of
Western Common Stock were reserved for issuance under the Stock Incentive Plan.
As of July 1, 1999, there were no shares of preferred stock of Western
outstanding, and no shares of preferred stock of Western were reserved for
issuance.
DIRECTORS
Under the U.S. Bancorp Bylaws, the U.S. Bancorp Board has the authority to
determine the number of directors from time to time, provided that, under the
U.S. Bancorp Certificate, the number of directors may not be less than 12 nor
more than 30. The directors of U.S. Bancorp are divided into three classes
(Class I, Class II and Class III), with each class have the same number of
directors as nearly as is possible. The term of office of the Class I directors
will expire at U.S. Bancorp's annual meeting in 2002, the term of office of the
Class II directors will expire at U.S. Bancorp's annual meeting in 2000, and the
term of office of the Class III directors will expire at U.S. Bancorp's annual
meeting in 2001. At each annual election of directors, the directors chosen to
succeed those whose terms have then expired are identified as being of the same
class as the directors they succeed and are elected for a term expiring at the
third succeeding annual election of directors. Vacancies and newly created
directorships resulting from an increase in the number of directors may be
filled by a majority of the directors then in office, and the directors so
chosen will hold office until the next election of the class for which the
directors were chosen and until their successors are elected and qualified.
The Western Bylaws provide that the Western Board shall consist of not less
than nine nor more than 16 members, with the exact number set by resolution of
the Western Board or by vote of the Western shareholders. Any amendment to the
Western Bylaws affecting the authorized number of directors must be approved by
the vote of a majority of shares of Western Common Stock. Any amendment to the
Western Bylaws purporting to reduce the number of authorized directors to fewer
than five cannot be adopted if the shares voted against the amendment are equal
to more than 16 2/3%
88
<PAGE>
of the outstanding shares of Western Common Stock entitled to vote on the
amendment. The number of directors is presently fixed at twelve. Each director
is elected at the annual meeting of Western shareholders to serve a one-year
term and until his or her successor is elected.
The Western Bylaws provide that vacancies in the Western Board, except for a
vacancy created by the removal of a director, may be filled by a majority of the
remaining directors, though less than a quorum, or by a sole remaining director,
and each director so elected shall hold office until his or her successor is
elected at an annual or a special meeting of the Western shareholders. A vacancy
in the Western Board created by the removal of a director may only be filled by
the vote of a majority of the shares of Western Common Stock entitled to vote
represented at a duly held meeting at which a quorum is present, or by the
written consent of the holders of all of the outstanding shares of Western
Common Stock. The Western shareholders may elect a director or directors at any
time to fill any vacancy or vacancies not filled by the directors. Any election
by written consent, except to fill a vacancy by removal, will require the
consent of holders of a majority of the outstanding shares of Western Common
Stock entitled to vote.
INSPECTION OF SHAREHOLDER LISTS
Under the DGCL any stockholder of record has the right to inspect, copy and
make extracts of the stockholder lists and specified stockholder materials,
including addresses, shareholdings and some other information, at any time for a
purpose reasonably related to the person's interest as a stockholder. For 10
days prior to, and during, a stockholder meeting, the stockholder list must be
open to inspection to stockholders for any purpose germane to the meeting.
During this 10-day period, the list must be kept at a place specified in the
notice of meeting in the city where the meeting is to be held, or, if not
specified, at the place the meeting is to be held.
The right of Western shareholders to inspect the Western shareholder list is
governed by the CGCL, which provides that one or more shareholders holding at
least five percent of the outstanding voting shares, or one percent in the case
of shareholders who have filed a Schedule 14A with the SEC, are entitled to
inspect and copy the Western shareholder list. In addition, any Western
shareholder has the right to inspect the shareholder list at any time during
normal business hours upon written demand, provided that the purpose is related
to the Western shareholder's interest as a Western shareholder or a holder of a
voting trust certificate. Western shareholders who wish to exercise inspection
rights must follow the procedures provided in Section 1600 of the CGCL.
AMENDMENT OF CHARTER DOCUMENTS
The DGCL requires approval by the holders of a majority of the voting power
of U.S. Bancorp Common Stock and resolution of the U.S. Bancorp Board in order
to amend the U.S. Bancorp Certificate of Incorporation. The DGCL reserves the
power to amend or repeal the bylaws exclusively to the stockholders unless the
certificate of incorporation confers such power upon the directors. The U.S.
Bancorp Bylaws do not contain any supermajority voting provisions, except as
described above under "--Additional Provisions of the U.S. Bancorp Certificate
and U.S. Bancorp Bylaws."
The U.S. Bancorp Certificate provides that the U.S. Bancorp Bylaws may be
amended or repealed by the U.S. Bancorp Board, subject to the power of the
shareholders to amend or repeal any such change to the U.S. Bancorp Bylaws.
To amend the articles of incorporation of a California corporation, the CGCL
requires the approval of the corporation's board of directors and a majority of
the outstanding shares entitled to vote. An amendment cannot reduce the number
of directors on a board of directors having a fixed size or the minimum number
of directors on a board of directors having a variable size to fewer than five
directors if the votes cast against adoption of such a provision, or the shares
not consenting in the case of action by written consent, are equal to more than
16 2/3% of the outstanding shares entitled to vote. The Western Articles do not
contain any supermajority voting provisions.
89
<PAGE>
AMENDMENT AND REPEAL OF BYLAWS AND REGULATIONS
Under the DGCL, holders of a majority of the voting power of a corporation
and, when provided in the certificate of incorporation, the directors of the
corporation, have the power to adopt, amend and repeal the by-laws of a
corporation. The U.S. Bancorp Certificate provides that the U.S. Bancorp Bylaws
may be amended or repealed by the U.S. Bancorp Board, subject to the power of
the stockholders to amend or repeal any such change to the U.S. Bancorp Bylaws.
The U.S. Bancorp Bylaws require a majority vote at any special or annual
stockholder meeting or a majority vote of the entire board of directors in order
to amend or repeal the provisions of the U.S. Bancorp Bylaws.
The CGCL provides that holders of a majority of the outstanding shares
entitled to vote and the corporation's board of directors each have the power to
adopt, amend or repeal a corporation's bylaws, although the articles or bylaws
of the corporation may restrict or eliminate the power of the board to take
these actions. Furthermore, a bylaw provision cannot reduce the number of
directors on a board of directors having a fixed size or the minimum number of
directors on a board of directors having a variable size to fewer than five
directors if the votes cast against adoption of a such provision, or the shares
not consenting in the case of action by written consent, are equal to more than
16 2/3% of the outstanding shares entitled to vote. Neither the Western Bylaws
nor the Western Articles restricts the power of the Western Board to adopt,
amend or repeal the Western Bylaws, except that the Western Bylaws do not permit
the Western Board to change the minimum and maximum number of directors set
forth in the Western Bylaws.
REMOVAL OF DIRECTORS
The DGCL provides that directors may be removed from office, with or without
cause, by the holders of a majority of the voting power of all outstanding
voting stock, unless the corporation has a classified board and its certificate
of incorporation otherwise provides. If the corporation has cumulative voting,
in which event if less than the entire board is to be removed, no director may
be removed without cause if the votes cast against the director's removal would
be sufficient to elect that director if voted cumulatively either at an election
of the entire board of directors or for classes of the board. Under the U.S.
Bancorp Certificate, U.S. Bancorp stockholders may remove a director only for
cause upon a majority vote of the stockholders.
The CGCL provides that directors may be removed without cause if the removal
is approved by the majority of the outstanding shares entitled to vote, but the
CGCL further provides that with respect to directors of corporations not having
classified boards of directors, no director can be removed, unless the entire
board is removed, if the votes cast against removal of the director would be
sufficient to elect the director if voted cumulatively without regard to whether
cumulative voting is permitted, at an election at which the same total number of
votes were cast and the entire number of directors authorized at the time of the
director's most recent election were then being elected. Western does not
currently have a classified board.
RIGHT TO CALL SPECIAL MEETINGS OF STOCKHOLDERS
The DGCL permits special meetings of stockholders to be called by the board
of directors and any other persons, including stockholders, that the certificate
of incorporation or by-laws specify. The DGCL does not require that stockholders
be given the right to call special meetings. The U.S. Bancorp Bylaws provide
that special meetings of stockholders of the corporation may be called only by
the U.S. Bancorp Board or the Chief Executive Officer.
Under the CGCL, a corporation's board of directors, its chairman of the
board of directors, its president, the holders of shares entitled to cast not
less than 10% of the votes at a meeting of shareholders and any additional
persons that are specified in the corporation's articles or bylaws have the
authority to call special meetings of shareholders. According to the Western
Articles and the
90
<PAGE>
Western Bylaws, special meetings of the Western shareholders, for the purpose of
taking any action permitted to be taken by the Western shareholders under the
CGCL, the Western Articles or the Western Bylaws, may be called at any time by
the Chairman of the Board, the President, the Western Board, or by one or more
Western shareholders holding not less than ten percent (10%) of the votes
entitled to be cast at the meeting. Upon request in writing that a special
meeting of Western shareholders be called for any proper purpose, the officer
entitled to call a special meeting shall cause notice to be given to Western
shareholders entitled to vote not less than 35 not more than 60 days after the
receipt of the request. The notice of any special meeting shall specify the
general nature of the business to be transacted at such meeting.
STOCKHOLDER ACTION WITHOUT A MEETING
The DGCL provides that, unless otherwise provided in the certificate of
incorporation, any action that may be taken at a meeting of stockholders may be
taken without a meeting, without prior notice and without a vote, if the holders
of common stock having not less than the minimum number of votes otherwise
required to approve the action at a meeting of stockholders consent in writing
to the action. The U.S. Bancorp Certificate provides that any action required or
permitted to be taken by the stockholders must be effected at a duly called
annual or special meeting of stockholders and may not be effected by any consent
in writing by such stockholders.
The CGCL provides that, unless otherwise provided in the articles of
incorporation, any action that may be taken at a special or annual meeting of
shareholders may be taken without a meeting and without prior notice if a
consent in writing, setting forth the action taken, is signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take the action at a meeting at which all shares
entitled to vote on the action were present and voted. The Western Articles do
not otherwise provide. Except as discussed above with respect to filling
vacancies on the board of directors, the CGCL does not permit directors to be
elected by written consent except by the unanimous written consent of all shares
entitled to vote in the election of directors.
CLASS VOTING
The DGCL requires voting by separate classes only with respect to amendments
to a corporation's certificate of incorporation that increase or decrease the
aggregate number of authorized shares of a class, increase or decrease the par
value of the shares of that class, or alter or change the powers, preferences,
or special rights of the shares of that class so as to affect them adversely.
The CGCL requires voting by separate classes with respect to amendments to a
corporation's articles of incorporation that:
- increase or decrease the aggregate number of authorized shares of the
class;
- effect an exchange, reclassification or cancellation of all or part of the
shares of the class;
- effect an exchange, or create a right of exchange, of all or part of the
shares of another class into shares of the class;
- change the rights, preferences, privileges or restrictions of the shares
of the class;
- create a new class of shares having rights, preferences or privileges
prior to the shares of the class, or increase the rights, preferences or
privileges or the number of authorized shares of any class having rights,
preferences or privileges prior to the shares of that class;
- divide the shares of any class of preferred shares into series having
different rights, preferences, privileges or restrictions or authorize the
board to do so; or
- cancel or otherwise affect dividends on the shares of the class that have
accrued but have not been paid.
91
<PAGE>
In addition, the CGCL requires voting by class with respect to mergers,
share exchanges, reorganizations and similar transactions. For purposes of such
voting requirement, classes of common stock differing only as to voting rights
are considered a single class of shares.
CUMULATIVE VOTING
Under the DGCL, stockholders do not have the right to cumulate their votes
in the election of directors unless this right is granted in the certificate of
incorporation. The U.S. Bancorp Certificate does not grant this right.
Under the CGCL, shareholders have the right to cumulate their votes in the
election of directors, but a listed corporation may adopt a provision to
eliminate cumulative voting if (1) it has outstanding shares listed on the New
York Stock Exchange or the American Stock Exchange or (2) it has outstanding
securities designated as qualified for trading on the Nasdaq National Market.
The Western shareholders are entitled to cumulative voting rights in connection
with the election of directors if the names of the relevant candidate(s) have
been placed in nomination prior to commencement of the voting and the
shareholder(s) intending to cumulate votes have given notice of their intent
prior to the commencement of the voting.
PROVISIONS AFFECTING BUSINESS COMBINATIONS
Section 203 of the DGCL provides generally that any person who acquires 15%
or more of a corporation's voting stock (thereby becoming an "INTERESTED
STOCKHOLDER") may not engage in a wide range of "business combinations" with the
corporation for a period of three years following the date the person became an
Interested Stockholder, unless:
- the board of directors of the corporation has approved, prior to that
acquisition date, either the business combination or the transaction that
resulted in the person becoming an Interested Stockholder;
- upon completion of the transaction that resulted in the person becoming an
Interested Stockholder, that person owns at least 85% of the corporation's
voting stock outstanding at the time the transaction commenced (excluding
shares owned by persons who are directors and also officers and shares
owned by employee stock plans in which participants do not have the right
to determine confidentially whether shares will be tendered in a tender or
exchange offer); or
- the business combination is approved by the board of directors and
authorized by the affirmative vote (at an annual or special meeting and
not by written consent) of at least 66 2/3% of the outstanding voting
stock not owned by the Interested Stockholder.
These restrictions of Interested Stockholders do not apply under some
circumstances, including, but not limited to, the following:
- if the corporation's original certificate of incorporation contains a
provision expressly electing not to be governed by Section 203 of the
DGCL; or
- if the corporation, by action of its stockholders, adopts an amendment to
its by-laws or certificate of incorporation expressly electing not to be
governed by Section 203 of the DGCL.
The U.S. Bancorp Certificate requires the affirmative vote of the holders of not
less than 80% of the outstanding shares of U.S. Bancorp entitled to vote in
connection with some "Business Transactions" (as defined in the U.S. Bancorp
Certificate) involving a "Related Person" (as defined in the U.S. Bancorp
Certificate). The 80% stockholder vote is not required if the Business
Transaction meets some "fair price" criteria or in the event the "Continuing
Directors" (as defined in the U.S. Bancorp Certificate) approve the transaction.
The U.S. Bancorp Certificate also requires the vote of the holders
92
<PAGE>
of at least 80% of the outstanding shares of U.S. Bancorp entitled to vote
generally in the election of directors to add to, alter, change or repeal the
supermajority provisions.
Neither the CGCL nor the Western Articles contains any provisions similar to
the DGCL and the U.S. Bancorp Certificate provisions just described.
INTERESTED DIRECTOR TRANSACTIONS
Under both the CGCL and DGCL, some contracts or transactions in which one or
more of a corporation's directors has an interest are not void or voidable
because of the interest if specified conditions, such as obtaining the required
approval and fulfilling the requirements of good faith and full disclosure, are
met. With some exceptions, the conditions are similar under the CGCL and DGCL.
Under the CGCL and DGCL, (a) either the shareholders or the board of directors
must approve the contract or transaction after full disclosure of the material
facts, and in the case of board approval, the contract or transaction must also
be "just and reasonable" (in California) or "fair" (in Delaware) to the
corporation, or (b) the contract or transaction must have been just and
reasonable or fair as to the corporation at the time it was approved by the
board of directors, a committee of the board or the shareholders. In the latter
case, the CGCL explicitly places the burden of proof on the interested
directors. Under the CGCL, if shareholder approval is sought, the interested
director is not entitled to vote his or her shares at a shareholder meeting with
respect to any action regarding the contract or transaction. If board approval
is sought, the contract or transaction must be approved by a majority vote of a
quorum of the directors, without counting the vote of any interested directors
(except that interested directors may be counted for the purpose of establishing
a quorum). Under the DGCL, if board approval is sought, the contract or
transaction must be approved by a majority of the disinterested directors (even
though less than a majority of a quorum). Neither U.S. Bancorp nor Western is
aware of any plans to propose any transaction involving directors of Western
that could not be so approved under California law but could be so approved
under Delaware law.
MERGERS, ACQUISITIONS AND OTHER TRANSACTIONS
Except as disclosed above in "--Provisions Affecting Business Combinations,"
the DGCL and U.S. Bancorp's governing documents require approval of mergers,
consolidations and dispositions of all or substantially all of a corporation's
assets (other than so-called "parent-subsidiary" mergers) by a majority of the
voting power of the corporation. The DGCL does not require stockholder approval
for majority share acquisitions or for combinations involving the issuance of
less than 20% of the voting power of the corporation, except for "business
combinations" subject to Section 203 of the DGCL.
Under the CGCL, a merger or consolidation by a California corporation
generally requires the affirmative vote of a majority of the outstanding shares
entitled to vote in each particular class of shares, voting separately by class.
For purposes of this voting requirement, classes of common stock differing only
as to voting rights are considered a single class of shares. See "--Class
Voting." Neither the Western Articles nor the Western Bylaws provide for any
greater vote.
LOANS TO OFFICERS AND EMPLOYEES
Under the CGCL, a corporation cannot make any loan or guaranty to or for the
benefit of a director or officer of the corporation or its parent unless the
loan or guaranty, or a plan providing for the loan or guaranty, is approved by
shareholders owning a majority of the outstanding shares of the corporation.
However, under the CGCL, any corporation with 100 or more shareholders of record
may seek approval of a bylaw provision by the outstanding shares authorizing the
board of directors alone to approve loans or guaranties to or on behalf of
officers (whether or not the officers are directors). The loans or guaranties or
plans may be approved by the vote of the disinterested directors if the board
determines that the loan or guaranty or plan may reasonably be expected to
benefit the
93
<PAGE>
corporation. Under the DGCL, a corporation may make loans to, guaranty the
obligations of, or otherwise assist its officers or other employees and those of
its subsidiaries (including directors who are also officers or employees) when
the action, in the judgment of the directors, may reasonably be expected to
benefit the corporation.
SHAREHOLDER DERIVATIVE SUITS
The CGCL provides that a shareholder bringing a derivative action on behalf
of a corporation need not have been a shareholder at the time of the transaction
in question, provided that specified tests are met. Under the DGCL, a
stockholder may only bring a derivative action on behalf of the corporation if
(1) the stockholder was a stockholder of the corporation at the time of the
transaction in question or (2) his or her stock subsequently devolved upon him
or her by operation of law. The CGCL also provides that the corporation or the
defendant in a derivative suit may make a motion to the court for an order
requiring the plaintiff shareholder to furnish a security bond. The DGCL does
not have a similar bonding requirement.
RIGHTS OF DISSENTING STOCKHOLDERS
Under the DGCL, appraisal rights are available to dissenting stockholders in
connection with some mergers or consolidations. However, unless the certificate
of incorporation otherwise provides, the DGCL does not provide for appraisal
rights (1) with respect to shares of a corporation that are listed on a national
securities exchange or designated as a national market system security on an
interdealer quotations system by the National Association of Securities Dealers,
Inc. or held of record by more than 2,000 stockholders, as long as the
stockholders receive in the merger shares of the surviving corporation or of any
other corporation the shares of which are listed on a national securities
exchange or designated as a national market system security on an interdealer
quotations system by the National Association of Securities Dealers, Inc. or
held of record by more than 2,000 stockholders, or (2) if the corporation is the
surviving corporation and no vote of its stockholders is required for the
merger. The U.S. Bancorp Certificate does not provide otherwise. The DGCL does
not provide appraisal rights to stockholders who dissent from the sale of all or
substantially all of a corporation's assets or an amendment to the corporation's
certificate of incorporation, although a corporation's certificate of
incorporation may so provide. The U.S. Bancorp Certificate does not so provide.
Under the CGCL, if approval of the outstanding shares of a corporation is
required for a merger, exchange or a sale of all or substantially all of a
corporation's assets, appraisal rights are available to dissenting shareholders.
However, the CGCL generally does not provide for appraisal rights with respect
to shares of some corporations, including those that are listed on a national
securities exchange or designated as a national market system security on an
interdealer quotations system by the National Association of Securities Dealers,
Inc., as long as the exchange or interdealer quotation system has been certified
by rule or order of the Commissioner of Corporations of the State of California.
An exception to the rule regarding shares listed on a national securities
exchange or designated as a national market system security on an interdealer
quotations system exists if demands for appraisal are filed with respect to 5%
or more of the outstanding shares of that class, in which case the holders of
the shares are entitled to appraisal rights. The Western Common Stock is traded
on Nasdaq National Market, and Western shareholders therefore have appraisal
rights only if 5% or more of the outstanding shares of Western Common Stock seek
appraisal rights. See "DISSENTERS APPRAISAL RIGHTS."
Under the DGCL, among other procedural requirements, a stockholder's written
demand for appraisal of shares must be received before the taking of the vote on
the matter giving rise to appraisal rights. Under the CGCL, a shareholder of a
corporation that is listed on a national securities exchange or designated as a
national market system security on an interdealer quotations system must deliver
written demand for appraisal to the corporation not later than the date of the
shareholders' meeting
94
<PAGE>
being held to vote upon the corporation action giving rise to appraisal rights.
See "DISSENTERS APPRAISAL RIGHTS."
DIVIDENDS
Both the DGCL and the CGCL permit dividends to be paid in cash, property or
shares of a corporation's capital stock. The DGCL provides that a corporation
may pay dividends out of any surplus, and, if it has no surplus, out of any net
profits for the fiscal year in which the dividend was declared or for the
preceding fiscal year (provided that the payment will not reduce capital below
the amount of capital represented by all classes of shares having a preference
upon the distribution of assets). The CGCL provides that a corporation may pay
dividends if the amount of the retained earnings of the corporation immediately
prior to the payment equals or exceeds the amount of the proposed distribution.
The CGCL also provides that a corporation may pay dividends if immediately after
giving effect to the payment, (1) the sum of the assets of the corporation
(exclusive of goodwill, capitalized research and development expenses and
deferred charges) would be at least equal to 1.25 times its liabilities (not
including deferred taxes, deferred income and other deferred credits) and (2)
the current assets of the corporation would be at least equal to its current
liabilities or, if the average of the earnings of the corporation before taxes
on income and before interest expense for the two preceding fiscal years was
less than the average of the interest expense of the corporation for those
fiscal years, at least equal to 1.25 times its current liabilities. In any
event, the CGCL precludes a corporation from paying a dividend if the
corporation, as a result of the dividend, would likely be unable to meet its
liabilities as they mature.
Holders of U.S. Bancorp Common Stock are entitled to receive dividends
declared by the U.S. Bancorp Board out of funds legally available under the laws
of the State of Delaware, subject to the rights of holders of any preferred
stock of U.S. Bancorp. During 1998, total dividends on U.S. Bancorp Common Stock
were $516.4 million, compared with $445.7 million in 1997 and $406.9 million in
1996. U.S. Bancorp has raised its quarterly dividend rate in each of the past
five years. On a per share basis, dividends paid to holders of U.S. Bancorp
Common Stock totaled $.70 in 1998, $.62 in 1997, and $.55 in 1996. On February
17, 1999, the U.S. Bancorp Board increased the quarterly common dividend rate to
$.195 from $.175. U.S. Bancorp's primary funding sources for dividends on U.S.
Bancorp Common Stock are dividends received from its bank and nonbank
subsidiaries. Payment of dividends to U.S. Bancorp by its depository
subsidiaries is subject to ongoing review by banking regulators and to various
statutory limitations. No predictions can be made as to future dividends. The
decision to pay dividends is made quarterly by the U.S. Bancorp Board and
depends on earnings, cashflow requirements and other factors.
Holders of Western Common Stock are entitled to receive dividends declared
by the Western Board out of funds legally available under the laws of the State
of California, subject to the rights of holders of any preferred stock of
Western that may be issued after the date of this Proxy Statement/ Prospectus.
Western management believes that, were Western not to consummate the Merger, it
would be able to continue paying quarterly dividends. However, because Western
must comply with the CGCL and banking regulations when paying dividends, there
can be no assurance that Western would continue to pay dividends at this level,
if at all. In addition, Western's ability to pay dividends is limited by a Third
Amendment to Revolving Credit Agreement, dated as of January 27, 1998, between
Western and The Northern Trust Company, which provides that Western may not
declare or pay any dividend other than dividends payable in Western Common Stock
or in the ordinary course of business not to exceed 50% of net income per fiscal
quarter of Western before goodwill amortization and any restructuring charges
incurred in connection with any merger, consolidation or other restructuring
contemplated by transactions.
On August 20, 1997, the Western Board approved the institution of a
quarterly dividend and subsequently declared a cash dividend of $0.15 per share
payable on December 10, 1997 to Western
95
<PAGE>
shareholders of record on November 10, 1997, $0.15 per share payable on March
27, 1998 to Western shareholders of record on February 27, 1998, $0.15 per share
payable on June 26, 1998 to Western shareholders of record on June 5, 1998,
$0.15 per share payable on September 25, 1998 to Western shareholders of record
on August 28, 1998, $0.225 per share payable on December 24, 1998 to Western
shareholders of record on December 4, 1998, $0.225 per share payable on March
26, 1999 to Western shareholders of record on March 5, 1999, and $0.225 per
share payable on June 25, 1999 to Western shareholders of record on June 4,
1999.
PREEMPTIVE RIGHTS OF SHAREHOLDERS
The DGCL provides that no stockholder shall have any preemptive rights to
purchase additional securities of the corporation unless the certificate of
incorporation expressly grants these rights. The U.S. Bancorp Certificate does
not provide for preemptive rights. The CGCL provides that a corporation's
articles of incorporation may grant to shareholders preemptive rights to
subscribe to any or all issues of shares or securities. The Western Articles do
not grant preemptive rights to shareholders.
INDEMNIFICATION
The DGCL allows a Delaware corporation to include in its bylaws, and the
U.S. Bancorp Bylaws contain, a provision eliminating the liability of a director
for monetary damages for a breach of such director's fiduciary duties as a
director, except liability:
- for any breach of the director's duty of loyalty to the corporation or its
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or knowing violation of law;
- under Section 174 of the DGCL, which deals generally with unlawful
payments of dividends, stock repurchases and redemptions; and
- for any transaction from which the director derived an improper personal
benefit.
The DGCL permits a corporation to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, other than an action by or in the right of the corporation, by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with the action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
relevant conduct was unlawful. The DGCL permits a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation by reason of the fact that the person acted in any of the capacities
set forth above against expenses, including attorneys' fees, actually and
reasonably incurred by the person in connection with the defense or settlement
of the action if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation. However, no indemnification may be made in respect of any claim or
issue as to which the person is adjudged liable to the corporation unless, and
only to the extent that, the Court of Chancery of Delaware or the court in which
the action was brought determines upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, the
person is fairly and reasonably entitled to indemnity for the expenses as the
Court of Chancery of Delaware or the other court deems proper.
96
<PAGE>
The DGCL provides that a corporation must indemnify a present or former
director or officer of a corporation who has been successful on the merits or
otherwise in the defense of any action, suit or proceeding referred to above or
in defense of any claim, issue or matter against expenses, including attorneys'
fees, actually and reasonably incurred by the person. The U.S. Bancorp Bylaws
provide that it will indemnify to the full extent permitted by, and in the
manner permissible under, the DGCL any person made, or threatened to be made, a
party to any action, suit, or proceeding, whether criminal, civil,
administrative, or investigative, by reason of the fact that such person (i) is
or was a director, advisory director, or officer of U.S. Bancorp or any
predecessor of U.S. Bancorp, or (ii) is or was a director, advisory director or
officer of U.S. Bancorp or any predecessor of U.S. Bancorp and served any other
corporation, partnership, joint venture, trust or other enterprise as a
director, advisory director, officer, partner, trustee, employee or agent at the
request of U.S. Bancorp or any predecessor of U.S. Bancorp. These rights of
indemnification will not be deemed exclusive of any other rights to which the
director, advisory director or officer may be entitled apart from the provisions
described herein.
The U.S. Bancorp Board, in its discretion, will have power on behalf of U.S.
Bancorp to indemnify any person, other than a director, advisory director or
officer, made a party to any action, suit, or proceeding by reason of the fact
that the person, or the testator or intestate of the person, is or was an
employee of U.S. Bancorp.
The DGCL permits a corporation to pay expenses, including attorneys' fees,
incurred by an officer or director in defending any proceeding in advance of the
final disposition of the matter upon receipt of an undertaking by or on behalf
of such person to repay the amount if it is ultimately determined that the
person is not entitled to indemnity. The U.S. Bancorp Certificate provides that
expenses incurred in defending any proceedings will be paid by U.S. Bancorp in
advance of the final disposition of the proceedings, and that if required by the
DGCL, the advancement of expenses incurred by a U.S. Bancorp indemnitee in his
or her capacity as a director or officer, and not in any other capacity, will be
made only upon delivery of an undertaking by or on behalf of the U.S. Bancorp
indemnitee to repay the amount unless it is ultimately determined that the U.S.
Bancorp indemnitee is entitled to indemnification. The U.S. Bancorp Certificate
and the DGCL also provide that the indemnification provisions of the U.S.
Bancorp Certificate and the statute are not exclusive of any other right that a
person seeking indemnification may have or later acquire under any statute,
provision of the U.S. Bancorp Certificate and U.S. Bancorp Bylaws, agreement,
vote of stockholders or disinterested directors, or otherwise. In addition, the
U.S. Bancorp Certificate and the DGCL provide that the corporation may maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the corporation or of any subsidiary or affiliate or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not U.S. Bancorp would have the power to
indemnify the person against the expense, liability or loss under the DGCL.
The indemnification laws of the CGCL allow indemnification to directors,
officers and agents that act in good faith reasonably believing they are acting
in the best interests of the corporation. In the case of a criminal matter, the
person being indemnified must have had no reasonable basis for believing the
conduct to be unlawful. If the indemnification relates to an action by or in the
right of the corporation to procure a judgment in its favor, indemnification is
limited to expenses actually and reasonably incurred in the conduct of his or
her defense or settlement but only if the person acted in good faith believing
the actions to be in the best interests of the corporation and its shareholders.
There is no indemnification for:
- amounts paid in settlements without court approval for a pending action;
- expenses incurred in defending a pending action that is settled or
otherwise disposed of without court approval;
- matters in which the person will have been adjudged liable to the
corporation unless the court determines that the person is entitled to be
indemnified; or
- other matters specified in the CGCL.
97
<PAGE>
Under the Western Bylaws, Western may indemnify its directors, officers,
employees and other agents (each an "AGENT") for expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding, other than by action by or in the right of Western, by
reason of the fact that the person is or was an Agent if that person:
- acted in good faith and in a manner that person reasonably believed to be
in the best interests of Western; and
- in the case of a criminal proceeding, had no reasonable cause to believe
the conduct of that person was unlawful.
Western may also indemnify any person who was or was threatened to be a party to
any action by or in the right of Western against expenses actually and
reasonably incurred by that person in the defense or settlement of that action,
but only if that person acted:
- in good faith, in a manner that person believed to be in the best
interests of Western; and
- with the care, including reasonable inquiry, that an ordinarily prudent
person in a like position would use under similar circumstances.
There is no indemnification, with respect to actions by or in the right of
Western, for:
- any claim, issue or matter as to which that person is adjudged liable to
Western, unless the court finds that person is fairly and reasonably
entitled to indemnity; or
- amounts and expenses paid in settlement or any other disposition of a
pending action, except as set forth in the following sentence.
Western is obliged to indemnify any Agent who successfully defends himself
against any actions or proceedings brought by reason of the fact that the person
was an Agent for any expenses actually and reasonably incurred in the defense of
these actions or proceedings.
The Western Bylaws also provide that Western may advance expenses incurred
in defending against proceedings for which a person may be indemnified by
Western upon receipt of an undertaking to return any amounts advanced to the
extent that it ultimately determined the person was not legally entitled to be
indemnified by Western in the proceeding.
In addition, the Western Bylaws provide that Western may maintain insurance,
at its expense, on behalf of any Agent against any liability incurred by the
Agent in that capacity whether or not Western would have no power to indemnify
the Agent under the Western Bylaws.
DISSENTERS' APPRAISAL RIGHTS
In connection with the Merger, Western shareholders may be entitled to
Dissenters' Rights under Chapter 13 of the CGCL, the relevant provisions of
which are attached to this Proxy Statement/ Prospectus as Appendix C. The
description of Dissenters' Rights contained in this Proxy Statement/ Prospectus
is qualified in its entirety by reference to Chapter 13 of the CGCL. IN ORDER
FOR ANY WESTERN SHAREHOLDER TO EXERCISE DISSENTERS' RIGHTS, (1) A NOTICE OF THE
WESTERN SHAREHOLDER'S INTENTION TO EXERCISE HIS OR HER DISSENTERS' RIGHTS AS
PROVIDED IN THE CGCL MUST BE SENT BY THE WESTERN SHAREHOLDER AND RECEIVED BY
WESTERN ON OR BEFORE THE DATE OF THE ANNUAL MEETING, AND (2) THE WESTERN
SHAREHOLDER MUST VOTE AGAINST THE APPROVAL OF THE PRINCIPAL TERMS OF THE MERGER.
FAILURE TO SEND THIS NOTICE AND TO VOTE AGAINST THE PRINCIPAL TERMS OF THE
MERGER WILL RESULT IN A WAIVER OF THE WESTERN SHAREHOLDER'S DISSENTERS' RIGHTS.
Any demands, notices, certificates or other documents delivered to Western
prior to the Merger may be sent to Julius G. Christensen, Executive Vice
President, General Counsel and Secretary, Western Bancorp, 4100 Newport Place,
Suite 900, Newport Beach, California 92660. Thereafter, they
98
<PAGE>
may be sent to Corporate Secretary, U.S. Bancorp, U.S. Bank Place, 601 Second
Avenue South, Minneapolis, Minnesota 55402-4302.
If no instructions are indicated on proxies received by Western, the proxies
will be voted for the proposal to approve the principal terms of the Merger at
the Annual Meeting. THOSE WESTERN SHAREHOLDERS WHO RETURN THEIR PROXIES WITHOUT
INSTRUCTIONS, RESULTING IN A VOTE FOR THE APPROVAL OF THE PRINCIPAL TERMS OF THE
MERGER, WILL NOT BE ENTITLED TO DISSENTERS' RIGHTS.
In addition, because Western Common Stock is traded on the Nasdaq National
Market, Western shareholders will not have Dissenters' Rights unless holders of
5% or more of the outstanding shares of Western Common Stock make demands for
purchase in cash of their shares at their fair market value as of May 18, 1999,
without giving effect to any increase due to the Merger, pursuant to Section
1301 of the CGCL (each, a "DEMAND"). ANY DEMANDS MUST BE RECEIVED BY WESTERN OR
ITS TRANSFER AGENT NOT LATER THAN THE DATE OF THE ANNUAL MEETING. The address of
Western's transfer agent is: U.S. Stock Transfer Corporation, 1745 Gardena
Avenue, Suite 200, Glendale, California 91204-2991, Attention: William Garza.
In the event that Demands are made with respect to 5% or more of the
outstanding shares of Western Common Stock on or before the date of the Annual
Meeting, the Western shareholders who made Demands will be entitled to
Dissenters' Rights, provided that the Dissenters' Rights are perfected pursuant
to Chapter 13 of the CGCL. In the event that (1) the Merger is approved by the
Western shareholders and (2) Demands are made by holders of 5% or more of the
Western Common Stock, a holder of Western Common Stock who objects to the Merger
(a "DISSENTING SHAREHOLDER") will be entitled to payment in cash of the fair
market value as of May 18, 1999, the day before the public announcement of the
Merger, without giving effect to any appreciation or depreciation due to the
Merger of his or her shares of Western Common Stock ("DISSENTING SHARES"),
provided that:
- the shares were outstanding immediately prior to the date for the
determination of Western shareholders entitled to vote on the Merger;
- the Dissenting Shareholder voted his or her shares against the approval of
the principal terms of the Merger;
- the Dissenting Shareholder made a Demand; and
- the Dissenting Shareholder has submitted for endorsement certificates
representing his or her Dissenting Shares, in accordance with Section 1302
of the CGCL.
The Demand must:
- be a written demand to purchase the Dissenting Shares and make payment to
the Dissenting Shareholder in cash of their fair market value as of May
18, 1999;
- be received by Western on or before the date of the Annual Meeting;
- state the number and class of the shares held of record by the Dissenting
Shareholder that the Dissenting Shareholder demands that Western purchase;
and
- contain a statement of what the Dissenting Shareholder claims to be the
fair market value of his or her Dissenting Shares as of May 18, 1999.
The statement of the fair market value constitutes an offer by the Dissenting
Shareholder to sell his or her Dissenting Shares at that price. A Dissenting
Shareholder who has made this demand for payment may not withdraw the Demand
unless Western consents to the withdrawal. A PROXY OR VOTE AGAINST THE APPROVAL
OF THE PRINCIPAL TERMS OF THE MERGER DOES NOT IN ITSELF CONSTITUTE A DEMAND.
The Dissenting Shareholder must submit the certificates representing the
Dissenting Shares for endorsement as Dissenting Shares to Western at its
principal office or at the office of its transfer agent
99
<PAGE>
within 30 days after the date on which notice of approval of the Merger by
Western shareholders was mailed to any Dissenting Shareholder. If any Western
shareholder has Dissenters' Rights, Western will mail to each of these
Dissenting Shareholders a notice of the approval of the Merger by the Western
shareholders within ten days after the date of the approval accompanied by:
- a copy of Sections 1300, 1301, 1302, 1303 and 1304 of Chapter 13 of the
CGCL;
- a statement of the price determined by Western to represent the fair
market value as of May 18, 1999 of the Dissenting Shares (excluding any
appreciation or depreciation because of the Merger); and
- a brief description of the procedure to be followed if the shareholder
desires to exercise his or her Dissenters' Rights under the CGCL.
The statement of price constitutes an offer by Western to purchase the
Dissenting Shares.
If Western denies that shares submitted to it qualify as Dissenting Shares,
or if Western and a Dissenting Shareholder fail to agree on the fair market
value of the Dissenting Shares, either the Dissenting Shareholder or Western may
file a complaint in the superior court of the proper county in California
requesting that the court determine this issue. This complaint must be filed
within six months after the date on which notice of the approval of the Merger
is mailed to Dissenting Shareholders.
On the trial of a dissenters' rights action, the court will first determine
if the shares are Dissenting Shares, and if so determined, the court will either
determine the fair market value or appoint one or more impartial appraisers to
do so. If both Western and the Dissenting Shareholder fail to file a complaint
within six months after the date on which notice of the approval of the Merger
was mailed to the Dissenting Shareholders, the Dissenting Shareholder will lose
his or her Dissenters' Rights. IN ADDITION, IF THE DISSENTING SHAREHOLDER
TRANSFERS THE DISSENTING SHARES PRIOR TO THEIR SUBMISSION FOR THE REQUIRED
ENDORSEMENT, THE SHARES WILL LOSE THEIR STATUS AS DISSENTING SHARES.
FAILURE TO TAKE ANY NECESSARY STEP WILL RESULT IN A TERMINATION OR WAIVER OF
THE RIGHTS OF THE DISSENTING SHAREHOLDER UNDER CHAPTER 13 OF THE CGCL. A PERSON
HAVING A BENEFICIAL INTEREST IN WESTERN COMMON STOCK THAT IS HELD OF RECORD IN
THE NAME OF ANOTHER PERSON, SUCH AS A TRUSTEE OR NOMINEE, MUST ACT PROMPTLY TO
CAUSE THE RECORD HOLDER TO FOLLOW THE REQUIREMENTS OF CHAPTER 13 OF THE CGCL IN
A TIMELY MANNER IF THE PERSON ELECTS TO DEMAND PAYMENT OF THE FAIR MARKET VALUE
OF THE SHARES.
LEGAL MATTERS
The validity of the U.S. Bancorp Common Stock to be issued in connection
with the Merger will be passed upon by Dorsey & Whitney LLP.
EXPERTS
The consolidated financial statements of Western as of December 31, 1998 and
1997 and for each of the years in the three-year period ended December 31, 1998
have been included in this Proxy Statement/Prospectus in reliance upon the
reports of KPMG LLP, Deloitte & Touche LLP, Vavrinek, Trine, Day & Co., LLP, and
McGladrey & Pullen, LLP, independent certified public accountants, incorporated
by reference in this Proxy Statement/Prospectus, and upon the authority of said
firms as experts in accounting and auditing.
The consolidated financial statements of U.S. Bancorp appearing in U.S.
Bancorp's Annual Report (Form 10-K) for the year ended December 31, 1998, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report included in the Form 10-K and incorporated in this Proxy
Statement/Prospectus by reference. These consolidated financial statements are
incorporated in
100
<PAGE>
this Proxy Statement/Prospectus by reference in reliance upon the report given
upon the authority of such firm as experts in accounting and auditing.
The consolidated statements of operations, changes in shareholders' equity
and cash flows of California Commercial Bancshares and subsidiaries for the year
ended December 31, 1996, incorporated herein by reference from the Annual Report
on Form 10-K, for the year ended December 31, 1998, of Western have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report, which
is incorporated herein by reference, and has been so incorporated in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
The consolidated statements of operations, changes in shareholders' equity
and cash flows of SC Bancorp and subsidiary for the year ended December 31,
1996, incorporated herein by reference from the Annual Report on Form 10-K, for
the year ended December 31, 1998, of Western have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and has been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
SHAREHOLDER PROPOSALS
If the Merger is not completed, in order to be eligible for inclusion in
Western's proxy statement and proxy card for the next Annual Meeting of Western
shareholders pursuant to Rule 14a-8 under the Exchange Act, shareholder
proposals must be received by the Secretary of Western at its principal
executive offices no later than , 2000. However, in order for such
shareholder proposals to be eligible to be brought before the Western
shareholders at the next annual meeting of Western shareholders, the Western
shareholder submitting the proposals must also comply with the procedures,
including the deadlines, required by Article II of the Western Bylaws.
Shareholder nominations of directors are not shareholder proposals within the
meaning of Rule 14a-8 and are not eligible for inclusion in Western's proxy
statement.
OTHER MATTERS
Western does not know of any other business to be presented at the Annual
Meeting and does not currently intend to bring any other matters before the
Annual Meeting. However, if any other matters properly come before the Annual
Meeting, the persons named in the accompanying proxy are empowered, in the
absence of contrary instructions, to vote according to their best judgment.
WHERE YOU CAN FIND MORE INFORMATION
INFORMATION REGARDING U.S. BANCORP
U.S. Bancorp has filed with the SEC a registration statement under the
Securities Act that registers the distribution to Western shareholders of the
shares of U.S. Bancorp Common Stock to be issued in connection with the Merger.
The Registration Statement, including the attached exhibits and schedules,
contains additional relevant information about U.S. Bancorp and U.S. Bancorp
Common Stock. The rules and regulations of the SEC allow us to omit some
information included in the Registration Statement from this Proxy
Statement/Prospectus.
In addition, U.S. Bancorp files reports, proxy statements and other
information with the SEC under the Exchange Act. You may read and copy this
information at the following locations of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
101
<PAGE>
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. You may also obtain information from the SEC by
calling 1-800-SEC-0330.
The SEC also maintains an Internet world wide web site that contains
reports, proxy statements and other information about issuers, like U.S.
Bancorp, who file electronically with the SEC. The address of that site is
http://www.sec.gov.
You can also inspect reports, proxy statements and other information about
U.S. Bancorp at the offices of the NYSE, 20 Broad Street, New York, New York
10005.
The SEC allows U.S. Bancorp to "incorporate by reference" information into
this Proxy Statement/ Prospectus. This means that U.S. Bancorp can disclose
important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is considered
to be a part of this Proxy Statement/Prospectus, except for any information that
is superseded by information that is included directly in this document.
This Proxy Statement/Prospectus incorporates by reference the documents
listed below that U.S. Bancorp has previously filed with the SEC. These
documents contain important information about U.S. Bancorp and its financial
condition.
<TABLE>
<CAPTION>
U.S. BANCORP SEC FILINGS PERIOD
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Annual Report on Form 10-K.................... Year Ended December 31, 1998, as filed
February 26, 1999
Quarterly Report on Form 10-Q................. Quarter Ended March 31, 1999 as filed May 13,
1999
Current Reports on Form 8-K................... Filed July , 1999
Filed January 20, 1999
</TABLE>
U.S. Bancorp incorporates by reference additional documents that it may file
with the SEC between the date of this Proxy Statement/Prospectus and the date of
the Annual Meeting. These documents include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form
8-K, as well as proxy statements. Any of these additional documents may contain
information that supersedes information contained in this Proxy Statement/
Prospectus or a previously filed document that is incorporated by reference into
this Proxy Statement/ Prospectus.
INFORMATION REGARDING WESTERN
The Registration Statement, including the attached exhibits and schedules,
contains additional information about Western and Western Common Stock. The
rules and regulations of the SEC allow us to omit some information included in
the Registration Statement from this Proxy Statement/Prospectus.
In addition, Western files reports, proxy statements and other information
with the SEC under the Exchange Act. You may read and copy this information at
the following locations of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
102
<PAGE>
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. You may also obtain information from the SEC by
calling 1-800-SEC-0330.
The SEC also maintains an Internet world wide web site that contains
reports, proxy statements and other information about issuers, like Western, who
file electronically with the SEC. The address of that site is
http://www.sec.gov.
You can also inspect reports, proxy statements and other information about
Western at the offices of the National Association of Securities Dealers, Inc.,
Reports Section, 1735 K Street, N.W., Washington D.C. 20006.
The SEC allows Western to "incorporate by reference" information into this
Proxy Statement/ Prospectus. This means that Western can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered to be a part of
this Proxy Statement/Prospectus, except for any information that is superseded
by information that is included directly in this document.
This Proxy Statement/Prospectus incorporates by reference the documents
listed below that Western has previously filed with the SEC. These documents
contain important information about Western and its financial condition.
<TABLE>
<CAPTION>
WESTERN SEC FILINGS PERIOD
- ------------------------------------------------------------------ ------------------------------------
<S> <C>
Annual Report on Form 10-K........................................ Year Ended December 31, 1998, as
filed March 29, 1999
Quarterly Report on Form 10-Q..................................... Quarter Ended March 31, 1999, as
filed May 13, 1999
Current Reports on Form 8-K....................................... Filed July , 1999
Filed May 28, 1999
Filed April 29, 1999
Filed March 11, 1999
Filed January 14, 1999
The description of Western Common Stock contained in its
Registration Statement on Form 10 (File No. 2-85442) (See also
"DESCRIPTION OF U.S. BANCORP CAPITAL STOCK AND COMPARISON OF
SHAREHOLDER RIGHTS--Comparison of Rights of U.S. Bancorp
Stockholders and Western Shareholders")......................... Filed May 2, 1985
</TABLE>
Western incorporates by reference additional documents that it may file with the
SEC between the date of this Proxy Statement/Prospectus and the date of the
Annual Meeting. These documents include periodic reports, such as Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as proxy statements. Any of these additional documents may contain
information that supersedes information contained in this Proxy
Statement/Prospectus or a previously filed document that is incorporated by
reference into this Proxy Statement/Prospectus.
INFORMATION REGARDING U.S. BANCORP AND WESTERN
U.S. Bancorp has supplied all information contained or incorporated by
reference in this Proxy Statement/Prospectus relating to U.S. Bancorp, as well
as all pro forma financial information, and Western has supplied all such
information relating to Western.
103
<PAGE>
Documents incorporated by reference are available from the companies without
charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference as an exhibit in this Proxy
Statement/Prospectus. You can obtain documents incorporated by reference in this
Proxy Statement/Prospectus by requesting them in writing or by telephone from
the appropriate company at the following addresses:
<TABLE>
<S> <C>
U.S. BANCORP WESTERN
Investor Relations Investor/Public Relations
U.S. Bancorp Western Bancorp
U.S. Bank Place 4100 Newport Place, Suite 900
601 Second Avenue South Newport Beach, CA 92660
Minneapolis, Minnesota 55402-4302 Telephone (949) 863-2387
Telephone (612) 973-1111
</TABLE>
If you would like to request documents, please do so by , 1999
to receive them before the Annual Meeting. If you request any incorporated
documents from us, we will mail them to you by first class mail, or another
equally prompt means, within one business day after we receive your request.
We have not authorized anyone to give any information or make any
representation about the Merger or our companies that is different from, or in
addition to, that contained in this Proxy Statement/Prospectus or in any of the
materials that we have incorporated into this document. Therefore, if anyone
gives you information of this sort, you should not rely on it. If you are in a
jurisdiction where offers to exchange or sell, or solicitations of offers to
exchange or purchase, the securities offered by this document or the
solicitation of proxies is unlawful, or if you are a person to whom it is
unlawful to direct these types of activities, then the offer presented in this
Proxy Statement/ Prospectus does not extend to you. The information contained in
this Proxy Statement/Prospectus speaks only as of the date of this Proxy
Statement/Prospectus unless the information specifically indicates that another
date applies.
FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus (including information included or
incorporated by reference in this 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 U.S.
Bancorp and Western, as well as certain information relating to the Merger,
including, without limitation statements preceded by, followed by or that
include the words "believes," "expects," "anticipates," "estimates" or similar
expressions. These forward-looking statements involve risks and uncertainties.
Actual results may differ materially from those contemplated by such
forward-looking statements due to, among others, the following factors:
- increased competition among financial services companies;
- changes in interest rates that reduce interest margins;
- changes in general economic conditions, either internationally or
nationally or in the states or countries in which U.S. Bancorp or Western
is doing business, that occur or that are less favorable than expected;
- legislative or regulatory changes that adversely affect the Merger or
businesses in which U.S. Bancorp or Western are engaged;
- increased personal or commercial customers' bankruptcies; and
- technology-related changes, including "Year 2000" compliance.
See "WHERE YOU CAN FIND MORE INFORMATION."
104
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
1998 Private Placement............................................................ 70
1998 Private Placement Investors.................................................. 70
1998 Private Placement Shares..................................................... 70
1999 Amendment.................................................................... 70
Acquisition Transaction........................................................... 41
Affiliate......................................................................... 47
Agent............................................................................. 97
Agreement......................................................................... 15
Annual Meeting.................................................................... 15
Bank Merger....................................................................... 37
Bank Merger Act................................................................... 37
Banks............................................................................. 52
BHCA.............................................................................. 37
BKLA.............................................................................. 52
BKLA Acquisition.................................................................. 52
CCB............................................................................... 52
CCB Merger........................................................................ 52
CGCL.............................................................................. 81
Code.............................................................................. 32
Committee......................................................................... 72
Compensation...................................................................... 64
Corporate Partners................................................................ 84
CRA............................................................................... 37
CSFB.............................................................................. 23
Demand............................................................................ 98
Depositary Shares................................................................. 85
DFI............................................................................... 37
DGCL.............................................................................. 19, 81
Disqualified Individuals.......................................................... 78
Disqualifying Disposition......................................................... 77
Dissenting Shareholder............................................................ 98
Dissenting Shares................................................................. 98
DOJ............................................................................... 37
Effective Date.................................................................... 31
Effective Time.................................................................... 31
Eligible Participants............................................................. 71
EPS............................................................................... 25
ERISA............................................................................. 77
Exchange Act...................................................................... 17
Exchange Agent.................................................................... 30
Exchange Fund..................................................................... 30
Exchange Ratio.................................................................... 19
Exercise Termination Event........................................................ 42
Final Index Price................................................................. 39
Final Price....................................................................... 39
Florida Stock Purchase Agreement.................................................. 84
FRB............................................................................... 37
Fund.............................................................................. 68
</TABLE>
105
<PAGE>
<TABLE>
<S> <C>
Funds............................................................................. 68
GAAP.............................................................................. 34
Index Group....................................................................... 39
Initial Index Price............................................................... 39
Initial Triggering Event.......................................................... 41
Injunction........................................................................ 38
Interested Stockholder............................................................ 91
IRS............................................................................... 48
ISOs.............................................................................. 73
market/offer price................................................................ 42
Merger............................................................................ 18
NBSC.............................................................................. 52
Net Option Value.................................................................. 1, 19
Novation.......................................................................... 46
NSOs.............................................................................. 73
OCC............................................................................... 37
Offshore.......................................................................... 84
Option............................................................................ 40
Option Price...................................................................... 40
Option Shares..................................................................... 42
Partnerships...................................................................... 84
PNB Merger........................................................................ 52
PSPR.............................................................................. 84
Purchasers........................................................................ 84
Record Date....................................................................... 15
Reference Package................................................................. 82
Registration Statement............................................................ 35, 101
Replacement Warrant............................................................... 20
Repurchase Event.................................................................. 42
Restoration Options............................................................... 71
Restricted Period................................................................. 74
Restricted Shares................................................................. 77
Reverse Stock Split............................................................... 50
Risk Event Warrant................................................................ 85
ROE............................................................................... 24
Salary Continuation Agreement..................................................... 62
SARs.............................................................................. 60
SCB............................................................................... 52
SCB Merger........................................................................ 52
SEC............................................................................... 32
Securities Act.................................................................... 1, 35
Severance Plan.................................................................... 45, 62
Shareholder Proposal.............................................................. 79
Significant Subsidiary............................................................ 41
SMB............................................................................... 52
SMB Acquisition................................................................... 52
State Board....................................................................... 84
Stock Incentive Plan.............................................................. 15
Stock Option Agreement............................................................ 40
Stock Purchase Agreement.......................................................... 84
Stock-Based Compensation.......................................................... 61
</TABLE>
106
<PAGE>
<TABLE>
<S> <C>
Subsequent Triggering Event....................................................... 42
Substitution Option............................................................... 43
Superior Proposal................................................................. 34
Surrender Fee..................................................................... 43
Surviving Corporation............................................................. 19
Term Date......................................................................... 82
Term Participating Preferred Stock................................................ 81
Terminating Event................................................................. 75
Termination Fee................................................................... 40
Termination Shortfall Amount...................................................... 86
Twenty Day Calculation Period..................................................... 40
U.S. Bancorp Average Price........................................................ 39
U.S. Bancorp Board................................................................ 81
U.S. Bancorp Bylaws............................................................... 81
U.S. Bancorp Certificate.......................................................... 81
U.S. Bancorp Common Stock......................................................... 19
U.S. Bancorp Stockholders......................................................... 81
Value Shortfall................................................................... 86
Vesting Event..................................................................... 78
Voting Agreements................................................................. 43
Western Articles.................................................................. 84
Western Board..................................................................... 15
Western Bylaws.................................................................... 81
Western Common Stock.............................................................. 1, 19
Western Stock Option.............................................................. 19
Western Warrant................................................................... 20
</TABLE>
107
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 19, 1999
BETWEEN
U.S. BANCORP
AND
WESTERN BANCORP
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
RECITALS.................................................................................. A-1
ARTICLE I
CERTAIN DEFINITIONS....................................................................... A-1
1.01 Certain Definitions............................................................ A-1
ARTICLE II
THE MERGER................................................................................ A-5
2.01 The Merger..................................................................... A-5
2.02 Effective Date and Effective Time.............................................. A-5
ARTICLE III
MERGER CONSIDERATION; EXCHANGE PROCEDURES................................................. A-6
3.01 Merger Consideration........................................................... A-6
3.02 Rights as Shareholders; Stock Transfers........................................ A-6
3.03 Fractional Shares.............................................................. A-6
3.04 Exchange Procedures............................................................ A-6
3.05 Anti-Dilution Provisions....................................................... A-8
3.06 Options and Warrants........................................................... A-8
ARTICLE IV
ACTIONS PENDING ACQUISITION............................................................... A-9
4.01 Forbearances of Seller......................................................... A-9
4.02 Forbearances of Acquirer....................................................... A-11
ARTICLE V
REPRESENTATIONS AND WARRANTIES............................................................ A-11
5.01 Disclosure Schedule............................................................ A-11
5.02 Standard....................................................................... A-12
5.03 Representations and Warranties of Seller....................................... A-12
5.04 Representations and Warranties of Acquirer..................................... A-22
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE VI
COVENANTS................................................................................. A-25
6.01 Reasonable Best Efforts........................................................ A-25
6.02 Shareholder Approval........................................................... A-25
6.03 Registration Statement......................................................... A-25
6.04 Press Releases................................................................. A-26
6.05 Access; Information............................................................ A-26
6.06 Acquisition Proposals.......................................................... A-26
6.07 Affiliate Agreements........................................................... A-27
6.08 Stock Exchange Listing......................................................... A-27
6.09 Regulatory Applications........................................................ A-27
6.10 Indemnification; Directors' and Officers' Insurance............................ A-28
6.11 Takeover Laws; No Right Triggered.............................................. A-29
6.12 Notification of Certain Matters................................................ A-29
6.13 Certain Loans and Related Matters.............................................. A-29
6.14 Monthly Financial Statements................................................... A-30
6.15 Accountants' Letters........................................................... A-30
6.16 Tax Matters.................................................................... A-30
6.17 Establishment of Accruals...................................................... A-30
6.18 Coordination of Dividends...................................................... A-30
6.19 Updated Disclosure Schedule.................................................... A-30
6.20 Benefit Plans.................................................................. A-31
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER.................................................. A-32
7.01 Conditions to Each Party's Obligation to Effect the Merger..................... A-32
7.02 Conditions to Obligation of Seller............................................. A-32
7.03 Conditions to Obligation of Acquirer........................................... A-33
ARTICLE VIII
TERMINATION............................................................................... A-34
8.01 Termination.................................................................... A-34
8.02 Effect of Termination and Abandonment.......................................... A-36
8.03 Termination Expenses........................................................... A-36
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE IX
MISCELLANEOUS............................................................................. A-36
9.01 Survival....................................................................... A-36
9.02 Waiver; Amendment.............................................................. A-37
9.03 Counterparts................................................................... A-37
9.04 Governing Law; Waiver of Jury Trial............................................ A-37
9.05 Expenses....................................................................... A-37
9.06 Notices........................................................................ A-37
9.07 Entire Understanding; No Third Party Beneficiaries............................. A-38
9.08 Interpretation; Effect......................................................... A-38
9.09 Enforcement of Agreement....................................................... A-38
SIGNATURES................................................................................ A-39
Exhibit A Form of Merger Agreement..................................................... A-1
Exhibit B Form of Affiliate Agreement.................................................. B-1
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 19, 1999 (this "Agreement"),
between U.S. BANCORP ("Acquirer") and WESTERN BANCORP ("Seller").
RECITALS
A. ACQUIRER. Acquirer is a Delaware corporation, having its principal place of
business in Minneapolis, Minnesota.
B. SELLER. Seller is a California corporation, having its principal place of
business in Newport Beach, California.
C. INTENTIONS OF THE PARTIES. Acquirer and Seller intend that the merger (the
"Merger") contemplated by this Agreement shall qualify as a reorganization under
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code").
D. BOARD ACTION. The respective Boards of Directors of Seller and Acquirer
have determined that it is advisable and in the best interests of their
respective companies and their shareholders to consummate the Merger in
accordance with the terms provided for herein.
E. STOCK OPTION. As a condition to, and immediately after the execution of,
this Agreement, Acquirer and Seller are entering into the Stock Option Agreement
(the "Seller Option Agreement") in substantially the form attached hereto as
Exhibit A, pursuant to which Seller will grant Acquirer an option exercisable
upon the occurrence of certain events.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants,
representations, warranties and agreements contained herein, the parties agree
as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.01 CERTAIN DEFINITIONS. The following terms are used in this Agreement with
the meanings set forth below:
"1999 Bonus Amounts" has the meaning set forth in Section 6.20(b).
"Acquirer" has the meaning set forth in the preamble to this Agreement.
"Acquirer Average Price" has the meaning set forth in Section 8.01(h)(i).
"Acquirer Board" means the Board of Directors of Acquirer.
"Acquirer Common Stock" means the common stock, $1.25 par value per share, of
Acquirer.
"Acquirer Preferred Stock" has the meaning set forth in Section 5.04(b).
"Acquirer Regulatory Reports" has the meaning set forth in Section 5.04(i)(i).
"Agreement" means this Agreement, as amended or modified from time to time in
accordance with Section 9.02.
"CGCL" means the California General Corporation Law, as amended.
"Code" has the meaning set forth in the recitals.
"Compensation and Benefit Plans" has the meaning set forth in Section
5.03(p)(i).
"Confidentiality Agreement" has the meaning set forth in Section 6.05(b).
"Continuing Employee" has the meaning set forth in Section 6.20(a).
A-1
<PAGE>
"Costs" has the meaning set forth in Section 6.10(a).
"DFI" means the California Department of Financial Institutions.
"DGCL" means the Delaware General Corporation Law, as amended.
"DPC Shares" shall mean shares of Seller Common Stock held as a result of debts
previously contracted in good faith.
"Disclosure Schedule" has the meaning set forth in Section 5.01.
"Dissenting Shares" has the meaning set forth in Section 3.04(f).
"Effective Date" has the meaning set forth in Section 2.02.
"Effective Time" has the meaning set forth in Section 2.02.
"Environmental Law" has the meaning set forth in Section 5.03(s).
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"ERISA Affiliate" has the meaning set forth in Section 5.03(p)(iv).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder.
"Exchange Agent" has the meaning set forth in Section 3.04(a).
"Exchange Fund" has the meaning set forth in Section 3.04(a).
"Exchange Ratio" has the meaning set forth in Section 3.01(a).
"Execution Date Average Price" has the meaning set forth in Section 8.01(h)(i).
"FDIC" means the Federal Deposit Insurance Corporation.
"FRB" means the Board of Governors of the Federal Reserve System.
"Final Index Price" has the meaning set forth in Section 8.01(h)(ii)(D).
"Final Price" has the meaning set forth in Section 8.01(h)(ii)(C).
"GAAP" means United States generally accepted accounting principles,
consistently applied.
"Governmental Authority" means any court, administrative agency or commission or
other federal, state or local governmental authority or instrumentality.
"Hazardous Substance" has the meaning set forth in Section 5.03(s).
"Indemnified Parties" has the meaning set forth in Section 6.10(a).
"Index Group" has the meaning set forth in Section 8.01(h)(ii)(A).
"Initial Index Price" has the meaning set forth in Section 8.01(h)(ii)(B).
"Injunction" has the meaning set forth in Section 7.01(c).
"Insurance Amount" has the meaning set forth in Section 6.10(c).
"Latest Seller Balance Sheet" has the meaning set forth in Section 5.03(i).
"Leases" has the meaning set forth in Section 5.03(r)(ii).
"Liabilities" has the meaning set forth in Section 5.03(i).
A-2
<PAGE>
"Liens" means any charge, mortgage, pledge, security interest, restriction,
claim, lien or encumbrance other than liens for taxes not yet due and payable.
"Loans" has the meaning set forth in Section 5.03(w)(i).
"Material Adverse Effect" means, with respect to Acquirer or Seller, as the case
may be, any effect that: (i) is material and adverse to the financial position,
results of operations or business of Acquirer and its Subsidiaries, taken as a
whole, or Seller and its Subsidiaries, taken as a whole, or (ii) would
materially impair the ability of either Acquirer or Seller 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 any court or any
Governmental Authority, (b) changes in GAAP or regulatory accounting
requirements applicable to banks and their holding companies generally, (c) any
expenses incurred by a party hereto in connection with this Agreement or the
transactions contemplated hereby, or (d) any action or omission of Seller or any
of its Subsidiaries or Acquirer or any of its Subsidiaries taken with the prior
written consent of the other party hereto.
"Merger" has the meaning set forth in Section 2.01(a).
"Merger Consideration" has the meaning set forth in Section 2.01(a).
"Millennium Compliant" has the meaning set forth in Section 5.03(aa).
"Multiemployer Plans" has the meaning set forth in Section 5.03(p)(iii).
"NYSE" means the New York Stock Exchange.
"Net Option Value" has the meaning set forth in Section 3.06(a).
"New Certificates" has the meaning set forth in Section 3.04(a).
"OCC" means the Office of the Comptroller of the Currency.
"Old Certificates" has the meaning set forth in Section 3.04(a).
"Option Stock Consideration" has the meaning set forth in Section 3.06(a).
"OREO" means the "other real estate owned."
"Pension Plan" has the meaning set forth in Section 5.03(p)(iii).
"Person" means any individual, bank, corporation, partnership, association,
joint-stock company, business trust or other entity or unincorporated
organization.
"Plans" has the meaning set forth in Section 5.03(p)(iii).
"Previously Disclosed" by a party shall mean information set forth in its
Disclosure Schedule.
"Proxy Statement" has the meaning set forth in Section 6.03(a).
"Registration Statement" has the meaning set forth in Section 6.03(a).
"Regulatory Authorities" has the meaning set forth in Section 5.03(k)(i).
"Replacement Warrant" has the meaning set forth in Section 3.06(b).
"Rights" means, with respect to any Person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any Person any
right to subscribe for or acquire, or any options, calls or commitments relating
to, or any stock appreciation right or other instrument the value of which is
determined in whole or in part by reference to the market price or value of,
shares of capital stock of such Person.
A-3
<PAGE>
"SEC" means the Securities and Exchange Commission.
"SEC Documents" has the meaning set forth in Section 5.03(g).
"Sections 1300 et seq." has the meaning set forth in Section 3.04(f).
"Securities Act" means the Securities Act of 1933, as amended, and rules and
regulations thereunder.
"Seller" has the meaning set forth in the preamble to this Agreement.
"Seller Articles" means the Articles of Incorporation of Seller as in effect as
of the date hereof.
"Seller Board" means the Board of Directors of Seller.
"Seller By-Laws" means the By-Laws of Seller as in effect as of the date hereof.
"Seller Common Stock" means the common stock, no par value per share, of Seller.
"Seller Meeting" has the meaning set forth in Section 6.02.
"Seller Option Agreement" has the meaning set forth in the recitals to this
Agreement.
"Seller Plans" means those plans set forth on Schedule 5.03(p) in the Disclosure
Schedule.
"Seller Preferred Stock" has the meaning set forth in Section 5.03(b).
"Seller Regulatory Reports" has the meaning set forth in Section 5.03(k)(iii).
"Seller Stock Option" has the meaning set forth in Section 3.06(a).
"Seller Warrant" has the meaning set forth in Section 3.06(b).
"Subsidiary" and "Significant Subsidiary" have the meanings ascribed to them in
Rule 1-02 of Regulation S-X of the SEC.
"Superior Proposal" means a bona fide Takeover Proposal which a majority of the
disinterested members of the Seller Board determines in its reasonable good
faith judgment to be more favorable to the Seller's shareholders than the Merger
(after receiving the written opinion, with only customary qualifications, of the
Seller's independent financial advisor that the financial value of the
consideration provided for in such Takeover Proposal exceeds the financial value
of the Merger Consideration) and for which financing, to the extent required, is
then committed by a third party or which, in the reasonable good faith judgment
of a majority of such disinterested members (after receiving the written advice
of the Seller's independent financial advisor), is highly likely to be financed
by such third party.
"Surviving Corporation" has the meaning set forth in Section 2.01(a).
"Takeover Laws" has the meaning set forth in Section 5.03(bb).
"Takeover Proposal" means, with respect to any Person, any tender or exchange
offer, proposal for a merger, consolidation or other business combination
involving Seller or any of its Significant Subsidiaries, 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, Seller or any of its
Significant Subsidiaries, other than the transactions contemplated by this
Agreement and the Seller Option Agreement.
"Tax" and "Taxes" means all federal, state, local or foreign taxes, charges,
fees, levies or other assessments, however denominated, including, without
limitation, all net income, gross income, gains, gross receipts, sales, use, ad
valorem, goods and services, capital, production, transfer, franchise, windfall
profits, license, withholding, payroll, employment, disability, employer health,
excise, estimated, severance, stamp, occupation, property, environmental,
unemployment or other taxes, 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.
A-4
<PAGE>
"Tax Returns" means any return, amended return or other report (including
elections, declarations, disclosures, schedules, estimates and information
returns) required to be filed with respect to any Tax.
"Treasury Stock" shall mean shares of Seller Common Stock held by Seller or by
Acquirer or any of its Subsidiaries, in each case other than Trust Account
Shares and DPC Shares.
"Trust Account Shares" shall mean shares of Seller Common Stock held in a
fiduciary (including custodial or agency) capacity.
"Twenty Day Calculation Period" has the meaning set forth in Section
8.01(h)(ii)(E).
ARTICLE II
THE MERGER
2.01 THE MERGER.
(a) THE SURVIVING CORPORATION. At the Effective Time, Seller shall merge
with and into Acquirer (the "Merger"), the separate corporate existence of
Seller shall cease and Acquirer shall survive and continue to exist as a
Delaware corporation (Acquirer, as the surviving corporation in the Merger,
sometimes being referred to herein as the "Surviving Corporation"). Acquirer may
at any time prior to the Effective Time change the method of effecting the
combination with Seller (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 Seller directly with
and into a wholly-owned subsidiary of Acquirer, in which either Seller 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 Seller Common Stock as provided for in this Agreement (the "Merger
Consideration"), or the relative equity interest in the Surviving Corporation
represented thereby, (ii) adversely affect the tax treatment of Seller's
shareholders, as a result of the Merger, receiving the Merger Consideration, or
(iii) materially impede or delay consummation of the transactions contemplated
by this Agreement.
(b) EFFECTIVE DATE OF MERGER; EFFECTS OF 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 California of an
agreement of merger in accordance with Section 1103 of the CGCL 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 DGCL, or such later
date and time as may be set forth in such agreement and certificate. The Merger
shall have the effects prescribed in the CGCL and the DGCL.
(c) CERTIFICATE OF INCORPORATION AND BY-LAWS. The certificate of
incorporation and by-laws of the Surviving Corporation immediately after the
Effective Time shall be those of Acquirer as in effect immediately prior to the
Effective Time.
(d) DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The directors and
officers of the Surviving Corporation immediately after the Effective Time shall
be the directors and officers of Acquirer immediately prior to the Effective
Time, until such time as their successors shall be duly elected and qualified.
2.02 EFFECTIVE DATE AND EFFECTIVE TIME. 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 business day on which the last of the conditions set forth
in Sections 7.01, 7.02 and 7.03 shall have been satisfied or waived in
accordance with the terms of this Agreement (or, at the election of Acquirer, on
the last business day of the month in which such day occurs) or (ii) such other
date to which the parties hereto may agree in writing. The time on the Effective
Date when the Merger shall become effective is referred to as the "Effective
Time."
A-5
<PAGE>
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 Person:
(a) OUTSTANDING SELLER COMMON STOCK. Each share of Seller Common Stock,
excluding Treasury Stock, issued and outstanding immediately prior to the
Effective Time shall be converted, subject to Section 3.05, into 1.2915 shares
of Acquirer Common Stock (the "Exchange Ratio").
(b) OUTSTANDING ACQUIRER COMMON STOCK. Each share of Acquirer Common Stock
issued and outstanding immediately prior to the Effective Time shall remain
outstanding and unaffected and shall, together with the shares converted into
Acquirer Common Stock pursuant to Section 3.01(a), constitute all of the
then-issued and outstanding shares of common stock of the Surviving Corporation.
(c) TREASURY STOCK. Each of the shares of Seller Common Stock held as
Treasury Stock immediately prior to the Effective Time shall be canceled and
retired at the Effective Time and no consideration shall be issued in exchange
therefor.
3.02 RIGHTS AS SHAREHOLDERS; STOCK TRANSFERS. At the Effective Time, holders
of Seller Common Stock shall cease to be, and shall have no rights as,
shareholders of Seller, other than to receive any dividend or other distribution
with respect to Seller Common Stock with a record date occurring prior to the
Effective Date and the consideration provided under this Article III, including
any dissenter's rights provided in Section 3.04(f). After the Effective Time,
there shall be no transfers on the stock transfer books of Seller or the
Surviving Corporation of shares of Seller Common Stock.
3.03 FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of Acquirer Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in the Merger;
instead, Acquirer shall pay to each holder of Seller Common Stock who would
otherwise be entitled to a fractional share of Acquirer Common Stock (after
taking into account all of the shares of Seller Common Stock represented by all
of the Old Certificates delivered by such holder) an amount in cash (without
interest) determined by multiplying such fraction by the average of the closing
sale prices of Acquirer 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) DEPOSIT OF EXCHANGE FUND. At or prior to the Effective Time, Acquirer
shall deposit, or shall cause to be deposited, with such bank or trust company
as Acquirer shall elect (which may be a Subsidiary of Acquirer) (the "Exchange
Agent"), for the benefit of the holders of certificates formerly representing
shares of Seller Common Stock ("Old Certificates"), for exchange in accordance
with this Article III, certificates ("New Certificates") representing the shares
of Acquirer Common Stock and the cash in lieu of fractional shares (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 issued and paid pursuant to this
Article III in exchange for the shares of Seller Common Stock outstanding
immediately prior to the Effective Time.
(b) EXCHANGE OF CERTIFICATES. As promptly as practicable after the
Effective Date, Acquirer shall send or cause to be sent to each former holder of
record of shares of Seller Common Stock (other than Treasury Stock) immediately
prior to the Effective Time transmittal materials for use in exchanging such
shareholder's Old Certificates for the Merger Consideration set forth in this
Article III. Acquirer shall cause the New Certificates representing Acquirer
Common Stock into which shares of a shareholder's Seller Common Stock are
converted on the Effective Date and/or any check
A-6
<PAGE>
in respect of fractional share interests or dividends or distributions which
such Person shall be entitled to receive to be delivered to such shareholder
upon delivery to the Exchange Agent of Old Certificates representing such shares
of Seller Common Stock (or indemnity reasonably satisfactory to Acquirer and the
Exchange Agent, if any of such certificates are lost, stolen or destroyed) owned
of record immediately prior to the Effective Time by such shareholder. No
interest will be paid on any such cash to be paid in lieu of fractional share
interests or dividends or distributions which any such Person shall be entitled
to receive pursuant to this Article III upon such delivery.
(c) UNCLAIMED CERTIFICATES. If Old Certificates are not surrendered or the
consideration therefor is not claimed prior to the date on which such
consideration would otherwise escheat to or become the property of any
governmental unit or agency, the unclaimed consideration shall, to the extent
permitted by abandoned property and any other applicable law, become the
property of Acquirer (and to the extent not in its possession shall be paid over
to Acquirer), free and clear of all claims or interest of any Person previously
entitled to such claims. Notwithstanding the foregoing, neither the Exchange
Agent nor any party hereto shall be liable to any former holder of Seller Common
Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(d) DISTRIBUTIONS IN RESPECT OF UNCLAIMED CERTIFICATES. No dividends or
other distributions with respect to Acquirer 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 Seller Common Stock
converted in the Merger into the right to receive shares of such Acquirer Common
Stock until the holder thereof shall be entitled to receive New Certificates in
exchange therefor after having complied with the procedures set forth in this
Section 3.04, and no such shares of Acquirer Common Stock shall be eligible to
vote until the holder of Old Certificates is entitled to receive New
Certificates after having complied with the procedures set forth in this Section
3.04. After becoming so entitled and after having complied with this Section
3.04, the record holder thereof also shall be entitled to receive any such
dividends or other distributions, without any interest thereon, which
theretofore had otherwise become payable with respect to shares of Acquirer
Common Stock such holder had the right to receive upon surrender of the Old
Certificate.
(e) DISPOSITION OF UNCLAIMED EXCHANGE FUND. Any portion of the Exchange
Fund that remains unclaimed by the shareholders of Seller for six months after
the Effective Time shall be returned by the Exchange Agent to Acquirer. Any
shareholders of Seller who have not theretofore complied with this Article III
shall thereafter look only to Acquirer for payment of the shares of Acquirer
Common Stock, cash in lieu of any fractional shares of Acquirer Common Stock,
and unpaid dividends and distributions on Acquirer Common Stock deliverable in
respect of each share of Seller Common Stock such shareholder holds immediately
prior to the Effective Time, as determined pursuant to this Agreement, in each
case, without any interest thereon.
(f) DISSENTING SHARES. Notwithstanding anything in this Agreement to the
contrary, shares of Seller Common Stock which are outstanding immediately prior
to the Effective Time and which constitute "dissenting shares" as defined in
Section 1300 of the CGCL (such shares are referred to herein as "Dissenting
Shares") shall not be converted into shares of Acquirer Common Stock but,
instead, the holders thereof shall be entitled to receive payment of the fair
market value of such Dissenting Shares in accordance with the provisions of
Sections 1300-1312 ("Sections 1300 et seq.") of the CGCL; provided, however,
that (i) if any holder of Dissenting Shares shall subsequently withdraw, with
the consent of the Surviving Corporation, his or her demand for purchase of such
shares, or (ii) if any holder of Dissenting Shares fails to establish or perfect
or otherwise loses his or her entitlement to payment of the fair market value of
such shares as provided in Sections 1300 et seq. such holder or holders (as the
case may be) shall not be entitled to receive payment of the fair market value
of such shares of Seller Common Stock as contemplated by Sections 1300 et seq.,
and each of such shares shall
A-7
<PAGE>
thereupon be deemed to have been converted into shares of Acquirer Common Stock
and cash in lieu of fractional shares, without any interest thereon, as provided
in Article III hereof.
3.05 ANTI-DILUTION PROVISIONS. In the event Acquirer changes (or establishes a
record date for changing) the number of shares of Acquirer Common Stock issued
and outstanding prior to the Effective Date as a result of any stock split,
recapitalization, reclassification, combination, exchange of shares,
readjustment or similar transaction with respect to the outstanding Acquirer
Common Stock, or Acquirer declares a stock dividend or extraordinary cash
dividend, and the record date therefor shall be prior to the Effective Date, the
Exchange Ratio shall be proportionately adjusted.
3.06 OPTIONS AND WARRANTS.
(a) OPTIONS. Except as may be otherwise agreed in writing between Acquirer
and the holder of any option, at the Effective Time all outstanding options to
purchase shares of Seller Common Stock outstanding immediately prior to the
Effective Time under any of the Seller Plans (all such options of an option
holder having the same exercise price, a "Seller Stock Option") shall be
converted into the right to receive from Acquirer (i) that number of shares of
Acquirer Common Stock equal to the quotient obtained by dividing the Net Option
Value with respect to such Seller Stock Option (as defined below) by $35.62 plus
(ii) cash in lieu of any fractional shares in accordance with Section 3.03 (the
"Option Stock Consideration"). The "Net Option Value" shall be equal to the
amount obtained by multiplying the difference, if positive, between $46.00 less
the applicable exercise price of such Seller Stock Option times the number of
shares for which such Seller Stock Option is exercisable, such number of shares
and exercise prices as expressly stated in the applicable stock option agreement
relating to such Seller Stock Option. At or prior to the Effective Time, Seller
shall take all reasonable action as is necessary to fully advise holders of
Seller Stock Options of their rights under this Agreement and the Seller Stock
Options, to facilitate their timely exercise of such rights and to effectuate
the provisions of this Section 3.06(a). From and after the Effective Time, other
than as expressly set forth in this Section 3.06(a), no holder of a Seller Stock
Option shall have any other rights in respect thereof other than to receive the
consideration for his or her Seller Stock Options in the manner described above.
The surrender of a Seller Stock Option to Acquirer in exchange for the Option
Stock Consideration shall be deemed a release of any and all rights the option
holder had or may have had in respect of such Seller Stock Option.
(b) WARRANTS. At the Effective Time, all outstanding warrants to purchase
shares of Seller Common Stock (all such warrants of a warrant holder, a "Seller
Warrant") shall be converted into a warrant to acquire, on the same terms and
conditions as were applicable under such Seller Warrant, that number of shares
of Acquirer Common Stock equal to (a) the number of shares of Seller Common
Stock subject to the Seller Warrant, multiplied by (b) the Exchange Ratio (such
product rounded up to the nearest whole number) (all such new warrants of a
warrant holder, a "Replacement Warrant"), at an exercise price per share
(rounded up or down to the nearest whole cent) equal to (y) the aggregate
exercise price for the shares of Seller Common Stock which were purchasable
pursuant to such Seller Warrant divided by (z) the number of full shares of
Acquirer Common Stock subject to such Replacement Warrant in accordance with the
foregoing. At or prior to the Effective Time, Seller shall take all reasonable
action, if any, necessary with respect to the applicable warrants or warrant
agreements to permit the replacement of the outstanding Seller Warrants by
Acquirer pursuant to this Section 3.06(b).
(c) Prior to the Effective Time, Acquirer shall reserve for issuance the
number of shares of Acquirer Common Stock necessary to satisfy Acquirer's
obligations under this Section 3.06.
A-8
<PAGE>
ARTICLE IV
ACTIONS PENDING ACQUISITION
4.01 FORBEARANCES OF SELLER. From the date hereof until the Effective Time,
except as contemplated by this Agreement or the Seller Option Agreement, without
the prior written consent of Acquirer (which consent will not be unreasonably
withheld), Seller will not, and will cause each of its Subsidiaries not to:
(a) ORDINARY COURSE. Conduct the business of Seller and its Subsidiaries
other than in the ordinary and usual course in accordance in all material
respects with all applicable laws, rules and regulations and past practice, or,
to the extent consistent therewith, fail to use reasonable efforts to preserve
intact in all material respects the business organizations and assets and
maintain in all material respects its rights, franchises and existing relations
with customers, suppliers, employees and business associates.
(b) DELAY. Willfully take any action that Seller knows or should
reasonably know would materially and adversely affect or delay the ability of
Seller or Acquirer to perform any of their respective obligations under this
Agreement.
(c) CAPITAL STOCK. Other than pursuant to the 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.
(d) DIVIDENDS, ETC. (i) Except as Previously Disclosed, subject to the
provisions of Section 6.18, take, declare, pay or set aside for payment any
dividend on or in respect of, or declare or make any distribution on, any shares
of its capital stock, other than normal quarterly dividends not in excess of
$.225 per share of Seller Common Stock with record and payment dates consistent
with past practice, or (ii) directly or indirectly adjust, split, combine,
redeem, reclassify, purchase or otherwise acquire (except for the acquisition of
DPC Shares and Trust Account Shares), any shares of its capital stock or any
Rights with respect to Seller securities.
(e) COMPENSATION; EMPLOYMENT AGREEMENTS; ETC. Except as expressly
contemplated by this Agreement, enter into or amend or renew any employment,
consulting, severance or similar agreements or arrangements with any director,
officer or employee of Seller or any of its Subsidiaries, or grant any bonus or
any salary or wage increase or establish or increase any employee benefit
(including incentive or bonus payments), except (i) for normal individual
increases in compensation and/or benefits to employees in the ordinary course of
business consistent with past practice, (ii) for other changes that are required
by applicable law, (iii) to satisfy Previously Disclosed contractual obligations
existing as of the date hereof, or (iv) for grants of awards to newly hired
employees consistent with past practice.
(f) BENEFIT PLANS. Except as Previously Disclosed or expressly
contemplated by this Agreement, enter into, establish, adopt or amend (except
(i) as may be required by applicable law or (ii) to satisfy Previously Disclosed
contractual obligations existing as of the date hereof) any pension, retirement,
stock option, stock purchase, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit, incentive or
welfare contract, plan or arrangement, or any trust agreement (or similar
arrangement) related thereto, in respect of any director, officer or employee of
Seller or any of its Subsidiaries, or take any action to accelerate the vesting
or exercisability of stock options, restricted stock or other compensation or
benefits payable thereunder.
(g) DISPOSITIONS. Sell, transfer, mortgage, encumber or otherwise dispose
of or discontinue any of the assets, deposits, business or properties of Seller
or any of its Subsidiaries except in the ordinary
A-9
<PAGE>
course of business; provided, that any such sale, transfer, mortgage,
encumbrance or disposition of any real property, other than OREO, shall not be
considered to be in the ordinary course of business.
(h) ACQUISITIONS. Acquire (other than by way of foreclosures or
acquisitions of control in a bona fide fiduciary capacity or in satisfaction of
debts previously contracted in good faith, in each case in the ordinary and
usual course of business consistent with past practice) all or any portion of
the assets, business, deposits or properties of any other entity except in the
ordinary course of business consistent with past practice and in a transaction
that is not material to Seller and its Subsidiaries, taken as a whole.
(i) CAPITAL EXPENDITURES. Except as Previously Disclosed, make any capital
expenditures other than capital expenditures in the ordinary course of business
consistent with past practice in amounts not exceeding $50,000 individually or
$500,000 in the aggregate.
(j) GOVERNING DOCUMENTS. Amend the Seller Articles or Seller By-Laws.
(k) ACCOUNTING METHODS. Implement or adopt any change in its financial
accounting principles, practices or methods, other than as may be required by
GAAP or regulatory accounting principles.
(l) CONTRACTS. Except as Previously Disclosed and except in the ordinary
course of business consistent with past practice, enter into, terminate or renew
any material contract or amend or modify in any material respect any of its
existing material contracts.
(m) ADVERSE ACTIONS.
(i) Take any action while knowing that such action would, or would be
reasonably likely to, prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368 of the Code; or
(ii) Knowingly take any action not otherwise specifically permitted by
this Agreement that is intended or is reasonably likely to result in (A) 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, (B) any of the conditions to the Merger set forth in Article
VII not being satisfied, or (C) a material violation of any provision of
this Agreement except, in each case, as may be required by applicable law or
regulation; provided, however, that nothing contained herein shall limit the
ability of Acquirer to exercise its rights under the Seller Option
Agreement.
(n) RISK MANAGEMENT. Except as required by applicable law or regulation
(a) implement or adopt any material change in its interest rate and other 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.
(o) INDEBTEDNESS; LIABILITIES. Except as Previously Disclosed, incur any
indebtedness for borrowed money in an amount exceeding $5,000,000 in the
aggregate or voluntarily incur or become subject to any material liability, in
each case other than in the ordinary course of business consistent with past
practice.
(p) DISCHARGE. Discharge or satisfy any material lien or encumbrance on
the properties or assets of Seller or any of its Subsidiaries or pay or cancel
any material debt, liability or claim of Seller or any of its Subsidiaries or
otherwise waive any rights of material value of Seller or any of its
Subsidiaries, except in the ordinary course of business.
(q) INSURANCE. Except as Previously Disclosed, permit the current
insurance policies of Seller or any of its Subsidiaries to be canceled or
terminated or any of the coverage thereunder to lapse, unless simultaneously
with such termination, cancellation or lapse, replacement policies providing
coverages
A-10
<PAGE>
substantially equal to the coverages under the canceled, terminated or lapsed
policies are in full force and effect.
(r) SETTLEMENTS. Except as Previously Disclosed, enter into any settlement
or similar agreement with respect to, or take any other significant action with
respect to the conduct of, any action, suit, proceeding, order or investigation
to which Seller or any of its Subsidiaries becomes a party after the date of
this Agreement, which settlement, agreement or action involves payment by Seller
or its Subsidiaries of amounts in excess of $100,000.
(s) EXTENSIONS OF CREDIT. Make any agreements or commitments binding it to
extend credit except in a manner consistent with past practice and in accordance
with the lending policies of the bank Subsidiaries of Seller or make any
agreement or commitment binding it to extend credit for any individual loan in
an amount in excess of $5,000,000 without submitting loan package information to
the chief credit officer of Acquirer for review with a right of comment at least
one full business day prior to taking such action.
(t) COMMITMENTS. Agree or commit to do any of the foregoing.
4.02 FORBEARANCES OF ACQUIRER. From the date hereof until the Effective Time,
except as expressly contemplated by this Agreement, without the prior written
consent of Seller (which consent will not be unreasonably withheld), Acquirer
will not, and will cause each of its Subsidiaries not to:
(a) DELAY. Willfully take any action Acquirer knows or should know would
materially adversely affect or delay the ability of Seller or Acquirer to
perform any of their respective obligations under this Agreement.
(b) ADVERSE ACTIONS.
(i) Take any action while knowing that such action would, or would be
reasonably likely to, prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368 of the Code.
(ii) Knowingly take any action not otherwise specifically permitted by
this Agreement that is intended or is reasonably likely to result in (A) 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, (B) any of the conditions to the Merger set forth in Article
VII not being satisfied, or (C) a material violation of any provision of
this Agreement except, in each case, as may be required by applicable law or
regulation.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01 DISCLOSURE SCHEDULE. On or prior to the date hereof, Seller has delivered
to Acquirer a schedule (the "Disclosure Schedule") setting forth, among other
things, items the disclosure of which is necessary either in response to an
express disclosure requirement contained in a provision hereof or as an
exception to one or more representations or warranties contained in Section
5.03; provided, that (a) no such item is required to be set forth in a
Disclosure Schedule as an exception to a representation or warranty if its
absence would not be reasonably likely to result in the related representation
or warranty being deemed untrue or incorrect under the standard established by
Section 5.02, and (b) the mere inclusion of an item in a Disclosure Schedule as
an exception to a representation or warranty shall not be deemed an admission by
a party that such item represents a material exception or fact, event or
circumstance or that such item has had or will have a Material Adverse Effect.
A-11
<PAGE>
5.02 STANDARD. No representation or warranty of Seller or Acquirer contained
in Section 5.03 or 5.04, respectively, shall be deemed untrue or incorrect for
any purpose under this Agreement, 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, event or circumstance,
individually or taken together with all other facts, events or circumstances
inconsistent with any representation or warranty contained in Section 5.03 or
5.04 has had or would be reasonably expected to have a Material Adverse Effect
on the party making such representation or warranty.
5.03 REPRESENTATIONS AND WARRANTIES OF SELLER. Subject to Sections 5.01 and
5.02 and except as Previously Disclosed, Seller hereby represents and warrants
to Acquirer:
(a) ORGANIZATION, STANDING AND AUTHORITY. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Seller is duly registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended. Seller is duly licensed and qualified
to do business and is in good standing in the states of the United States and
any foreign jurisdictions where its ownership or leasing of property or assets
or the conduct of its business requires it to be so licensed and qualified.
Seller 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. The copies of the Seller Articles
and Seller By-Laws which have been provided to Acquirer prior to the date of
this Agreement are correct and complete and reflect all amendments made thereto
through the date hereof. True and correct copies of the minute books of Seller
have been made available to Acquirer and fairly and accurately reflect all
material corporate action taken by the Seller Board and the shareholders of
Seller since December 31, 1996.
(b) SELLER CAPITAL STOCK. As of the date of this Agreement, the authorized
capital stock of Seller consists solely of 100,000,000 shares of Seller Common
Stock and 5,000,000 shares of preferred stock (the "Seller Preferred Stock"). As
of May 17, 1999, there were 21,110,800 shares of Seller Common Stock and no
shares of Seller Preferred Stock issued and outstanding. As of the date hereof
no shares of Seller Common Stock were held in treasury by Seller or otherwise
owned by Seller. As of the date of this Agreement, no shares of Seller Common
Stock were reserved for issuance, except (i) a total of 1,049,444 shares of
Seller Common Stock were reserved for issuance upon the exercise of outstanding
stock options pursuant to the Seller Plans, (ii) a total of 54,987 shares of
Seller Common Stock were reserved for issuance under stock options that may be
granted pursuant to the Seller Plans, (iii) 111,009 shares of Seller Common
Stock were reserved for issuance upon exercise of warrants, and (iv) the shares
of Seller Common Stock reserved for issuance pursuant to the Seller Stock
Option. All of the issued and outstanding shares of Seller Common Stock have
been duly authorized and validly issued and are fully paid, nonassessable and
free of preemptive rights. As of the date of this Agreement, except as referred
to above or as Previously Disclosed, Seller does not have any Rights issued or
outstanding with respect to any shares of Seller Common Stock or any other
equity securities of Seller. Other than as described above, Seller has not
authorized or issued any indebtedness, instrument, contract or other arrangement
that could be treated as equity of the Seller under United States federal income
tax law. Additionally, Seller has no outstanding stock, indebtedness,
instrument, contract or arrangement that Seller has treated as debt for United
States federal income tax purposes but not debt for other purposes.
(c) SUBSIDIARIES; OWNERSHIP OF OTHER SECURITIES.
(i) (A) Seller has Previously Disclosed a list of all of its
Subsidiaries together with the jurisdiction of incorporation of each such
Subsidiary, (B) Seller owns, directly or indirectly, all of the issued and
outstanding capital stock of each of its Subsidiaries, (C) no equity
securities of any of its 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 Subsidiaries is or may be bound to sell or otherwise transfer
any shares of the
A-12
<PAGE>
capital stock of any such 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 Subsidiary held by it or its Subsidiaries are fully paid
and (except pursuant to 12 U.S.C. Section 55 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) Other than in a bona fide fiduciary capacity or as a result of a
debt previously contracted, none of Seller or its Subsidiaries owns
beneficially, directly or indirectly, any equity securities or similar
interests of any Person, or any interest in a partnership or joint venture
of any kind, other than (i) its Subsidiaries or (ii) securities held
pursuant to the asset liability management policy of Seller.
(iii) Each of Seller's Subsidiaries has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
incorporation, 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 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. Each of Seller and its Subsidiaries has the corporate
power and authority to carry on its business as it is now being conducted and to
own all of its properties and assets; and Seller has the corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and the Seller Option Agreement and to consummate the transactions contemplated
hereby and thereby.
(e) CORPORATE AUTHORITY. Subject in the case of this Agreement to receipt
of the requisite approval by the holders of a majority of the outstanding shares
of Seller Common Stock entitled to vote thereon (which is the only shareholder
vote required thereon), this Agreement, the Seller Option Agreement and the
transactions contemplated hereby and thereby have been authorized by all
necessary corporate action of each of Seller and the Seller Board on or prior to
the date hereof and no other corporate proceedings on the part of Seller are
necessary to authorize this Agreement, the Seller Option Agreement and the
transactions contemplated hereby and thereby. Each of this Agreement and the
Seller Option Agreement is a valid and legally binding obligation of Seller,
enforceable in accordance with its respective terms (except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to or
affecting creditors' rights generally or by general equity principles). The
Seller Board has received the opinion of Credit Suisse First Boston Corporation
to the effect that as of the date hereof the Exchange Ratio to be received by
the holders of Seller Common Stock in the Merger is fair to the holders of
Seller Common Stock from a financial point of view.
(f) REGULATORY APPROVALS; NO DEFAULTS.
(i) Except as Previously Disclosed, no consents or approvals of, or
filings or registrations with, any Governmental Authority or any third party
are required to be made or obtained by Seller in connection with the
execution, delivery or performance by Seller of this Agreement or the Seller
Option Agreement or to consummate the transactions contemplated hereby and
thereby, except for: (A) any required filings of applications or notices
with the FRB and the DFI; (B) filings with the SEC and state securities
authorities; (C) the approval of this Agreement by the shareholders of
Seller; and (D) the filing of the agreement of merger and the certificate of
merger as contemplated in Section 2.01(b). As of the date hereof, Seller has
not been notified to the effect that the approvals set forth in Section
7.01(b) will not be received.
A-13
<PAGE>
(ii) Subject to receipt of the regulatory approvals referred to in the
preceding paragraph, and the expiration of related waiting periods, and
required filings under federal and state securities laws, the execution,
delivery and performance of this Agreement and the Seller Option Agreement
and the consummation of the transactions contemplated hereby and thereby do
not and will not:
(A) constitute a breach or violation of, or a default under, or give
rise to any Lien, any acceleration of remedies or any right of
termination under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license, or agreement, arrangement,
understanding, indenture or instrument of Seller or any of its
Subsidiaries or to which Seller or any of its Subsidiaries or any of
their respective properties is subject or bound,
(B) constitute a breach or violation of, or a default under, the
Seller Articles or the Seller By-Laws or the certificate of incorporation
or by-laws (or similar governing documents) of any of Seller's
Subsidiaries, or
(C) require any consent or approval under any such law, rule,
regulation, judgment, decree, order, governmental permit or license,
agreement, arrangement, understanding, indenture or instrument.
(g) FINANCIAL REPORTS AND SEC DOCUMENTS. The Annual Reports on Form 10-K
for the fiscal years ended December 31, 1998 and 1997, the Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999, and all other reports,
registration statements, definitive proxy statements or information statements
filed or to be filed subsequent to December 31, 1998 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 with the SEC (collectively, the "SEC Documents"), of Seller or
any of its Subsidiaries, 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 of Seller or any of its Subsidiaries, 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 shareholders' equity and
cash flows or equivalent statements in such SEC Documents of Seller or any of
its Subsidiaries (including any related notes and schedules thereto) fairly
presents and will fairly present the results of operations, changes in
shareholders' 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 GAAP 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.
(h) NO MATERIAL ADVERSE CHANGES. Except as Previously Disclosed, since
December 31, 1998, no event has occurred or circumstance arisen that,
individually or taken together with all other facts, circumstances and events
(described in any paragraph of this Section 5.03 or otherwise), has had or would
reasonably be expected to have a Material Adverse Effect with respect to Seller
and its Subsidiaries, taken as a whole.
(i) ABSENCE OF UNDISCLOSED LIABILITIES. All of the obligations or
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise,
whether due or to become due, and regardless of when asserted, including Taxes
with respect to or based upon transactions or events heretofore occurring
("Liabilities"), required to be reflected in the balance sheets of Seller and
its Subsidiaries in accordance with GAAP have been so reflected. Seller has no
Liabilities except (a) as reflected in the consolidated balance sheets of Seller
and its Subsidiaries as of March 31, 1999 contained in Seller's SEC Documents
(the "Latest Seller Balance Sheet"), (b) Liabilities which have arisen after the
date of the Latest Seller Balance Sheet in the ordinary course of business
(including, without limitation, deposit
A-14
<PAGE>
obligations), none of which (other than deposit obligations) is a material
uninsured liability, and (c) as otherwise Previously Disclosed.
(j) LITIGATION. No litigation, claim or other proceeding before any court
or Governmental Authority is pending against Seller or any of its Subsidiaries
and, to Seller's knowledge, no such litigation, claim or other proceeding has
been threatened. None of Seller or its Subsidiaries is subject to any
outstanding order, writ, injunction or decree.
(k) REGULATORY MATTERS.
(i) None of Seller or its Subsidiaries is a party to or 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 Governmental 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
DFI, the OCC, the FRB, the FDIC and/or any other state regulatory agencies)
(collectively, the "Regulatory Authorities").
(ii) None of Seller or 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.
(iii) Since December 31, 1996, each of Seller and its Subsidiaries has
filed each report or other filing that it was required to file with any
federal or state banking or other applicable Regulatory Authorities having
jurisdiction over it (together with all exhibits thereto, the "Seller
Regulatory Reports"). Seller has provided or made available to Acquirer
copies of all of the Seller Regulatory Reports. As of their respective dates
or as subsequently amended prior to the date hereof, each of the Seller
Regulatory Reports was true and correct and complied with the requirements
of the applicable form for each such Seller Regulatory Report.
(l) COMPLIANCE WITH LAWS; PERMITS. Each of Seller and its Subsidiaries:
(i) is in compliance with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders or
decrees applicable thereto or to the employees conducting such businesses on
behalf of Seller and its Subsidiaries, including, without limitation, to the
extent applicable if at all, the Equal Credit Opportunity Act, the Fair
Housing Act, the Community Reinvestment Act, the Occupational Safety and
Health Act of 1970, the Federal Deposit Insurance Act, as amended, the Real
Estate Settlement Procedures Act, the Federal Reserve Act, the Home Mortgage
Disclosure Act of 1975, the Home Owners Loan Act (each as amended) and all
other applicable fair lending laws and other laws relating to the business
practices of Seller's bank Subsidiaries;
(ii) has all permits, licenses, authorizations, orders and approvals of,
and has made all filings, applications and registrations with, all
Governmental Authorities that are required in order to permit it to own or
lease its properties and to conduct its businesses as presently conducted;
all such permits, licenses, certificates of authority, orders and approvals
are in full force and effect and, to Seller's knowledge, no suspension or
cancellation of any of them is threatened;
(iii) is in compliance with the provisions of its articles of
incorporation or association or similar governing document and its by-laws;
and
(iv) has received, since December 31, 1996, no notification or
communication from any Governmental Authority (A) asserting that Seller or
any of its Subsidiaries is not in compliance with any of the statutes,
regulations or ordinances which such Governmental Authority enforces, or (B)
threatening to revoke any license, franchise, permit or governmental
authorization.
A-15
<PAGE>
(m) MATERIAL CONTRACTS; DEFAULTS. Except for those agreements and other
documents filed as exhibits to their respective SEC Documents, none of Seller or
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 is a noncompetition (or comparable) agreement.
None of Seller or its Subsidiaries is in default and no circumstances exist
under which by notice or passage of time (or both) it would be in default under
any material contract, agreement, commitment, arrangement, lease or other
instrument to which it is a party, by which its assets, business, or operations
may be bound or affected, or under which it or its 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. To Seller's knowledge, there has been no default, cancellation or
breach by any other party to any material contract, agreement, commitment,
arrangement, lease, insurance policy or other instrument to which Seller or any
of its Subsidiaries is a party.
(n) NO BROKERS. No action has been taken by Seller or any of its
Subsidiaries 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, other than the fee to be paid
to Credit Suisse First Boston Corporation and Belle Plaine Partners, Inc. as
Previously Disclosed.
(o) EMPLOYEES. To Seller's knowledge, as of the date of this Agreement
there is no announced or anticipated resignation of any key employee of Seller
or any of its Subsidiaries. Seller has complied with all laws relating to the
employment of labor, including provisions thereof relating to wages, hours,
equal opportunity, collective bargaining and non-discrimination. For purposes of
this Section 5.03(o): (i) "key employee" shall mean any employee of Seller with
annual base compensation of $75,000 or more and (ii) "Seller's knowledge" shall
mean the knowledge of Seller's Chief Executive Officer, Chief Financial Officer,
General Counsel and Senior Vice President, Director of Human Resources.
(p) EMPLOYEE BENEFIT PLANS.
(i) Seller'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 Seller
or any of its Subsidiaries for the benefit of officers, former officers,
employees, former employees, directors, former directors, or the
beneficiaries of any of the foregoing (collectively, "Compensation and
Benefit Plans"). Under the applicable terms of the Compensation and Benefit
Plans, Seller may amend or terminate any such Compensation and Benefit Plans
at any time without incurring any liability thereunder.
(ii) True and complete copies of the 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 Acquirer.
(iii) Each of the 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 Seller and its Subsidiaries (its "Plans"),
to the extent subject to ERISA, are in material compliance with ERISA, the
Code, the Age
A-16
<PAGE>
Discrimination in Employment Act and other applicable laws. Each
Compensation and Benefit Plan of Seller or its Subsidiaries which is an
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA
(a "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, any voluntary employees' beneficiary association
used to fund Compensation and Benefit Plans has received an exemption letter
from the Internal Revenue Service, and Seller 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 Seller 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 Seller nor any of its present or former 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 Seller 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 Seller or any of its
Subsidiaries have been made. Neither any Pension Plan of Seller or any of
its Subsidiaries nor any single-employer plan of an ERISA Affiliate of
Seller 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 Seller 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 Seller 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) None of Seller or 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
employee welfare plan that have been fully provided for by insurance or
otherwise, or (D) benefits in the nature of severance pay.
(viii) Except as set forth in Seller's Disclosure Schedule, 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
A-17
<PAGE>
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.
(ix) Except as set forth in the Disclosure Schedule, no Compensation and
Benefit Plan, separately or in the aggregate, requires or would result in
the payment of any "excess parachute payments" within the meaning of Section
280G of the Code, and the consummation of the transactions contemplated by
this Agreement will not be a factor in causing payments to be made by
Acquirer or Seller that are not deductible (in whole or in part) under
Section 280G of the Code.
(q) LABOR MATTERS. None of Seller or its Subsidiaries is a party to nor
bound by any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is it the subject of
a proceeding asserting that it has committed an unfair labor practice (within
the meaning of the National Labor Relations Act) or seeking to compel it to
bargain with any labor organization as to wages or conditions of employment, nor
is there any strike or other labor dispute involving it or, to Seller's
knowledge, threatened, nor to Seller's knowledge is there any activity involving
any employee of Seller or any of its Subsidiaries seeking to certify a
collective bargaining unit or engaging in other organizational activity.
(r) PROPERTIES.
(i) Each of Seller and its Subsidiaries owns good and marketable title
to all of the real property and all of the personal property, fixtures,
furniture and equipment owned by it as reflected in the Latest Seller
Balance Sheet (other than real property reflected in the Latest Seller
Balance Sheet as OREO), free and clear of all liens and encumbrances, except
for (A) mortgages on real property as Previously Disclosed, (B) encumbrances
which do not materially affect the value of, or interfere with the past or
future use or ability to convey, the property subject thereto or affected
thereby, (C) liens for current taxes and special assessments not yet due and
payable, (D) leasehold estates with respect to multi-tenant buildings owned
by it, (E) mechanic's, materialman's and other liens imposed by operation of
law, and (F) property disposed of since the date of the Latest Seller
Balance Sheet in the ordinary course of business; PROVIDED, HOWEVER, that no
disposal of any fee interest in real property housing Seller branches, loan
offices or offices engaged in Seller operations shall be considered to be in
the ordinary course of business.
(ii) Seller has previously made available to Acquirer complete and
accurate copies of abstracts of each of the leases, setting forth the
fundamental terms of each of such leases, of Seller or any of its
Subsidiaries, including all amendments and modifications thereto (such
leases, as amended and modified, the "Leases"). As of the date of this
Agreement, the Leases are in full force and effect, and Seller or such
Subsidiary, as applicable, has valid and existing leasehold interests under
the Leases for the terms set forth therein. With respect to the Leases, none
of Seller or its Subsidiaries is in default, and, to Seller's knowledge,
none of the other parties to any of the Leases is in default, and, to
Seller's knowledge, no circumstances (not in the control of Seller) exist
which could result in such a default under any of such Leases.
(iii) The rent rolls previously made available to Acquirer are true and
correct in all material respects and describe all occupancies and the
material terms of each occupancy as of the dates thereof.
(iv) All of the buildings, fixtures, furniture and equipment necessary
for the conduct of the business of Seller and its Subsidiaries are in good
condition and repair, ordinary wear and tear excepted, and are usable in the
ordinary course of business. Each of Seller and its Subsidiaries owns, or
leases under valid leases, all buildings, fixtures, furniture, personal
property, land improvements and equipment necessary for the conduct of its
business as it is presently being conducted.
A-18
<PAGE>
(s) ENVIRONMENTAL MATTERS. To Seller's knowledge, neither the conduct nor
operation of Seller or any of its Subsidiaries nor any condition of any property
presently or previously owned, leased or operated by it (including, without
limitation, in a fiduciary or agency capacity), violates or violated
Environmental Laws and to Seller's knowledge, no condition has existed or event
has occurred with respect to it or any such property that, with notice or the
passage of time, or both, is reasonably likely to result in liability under
Environmental Laws. None of Seller or any of its Subsidiaries has received any
written notice from any Person that it or the operation or condition of any
property ever owned, leased, operated, or held as collateral or in a fiduciary
capacity by it is or was in violation of or otherwise is 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.
To Seller's knowledge, no Hazardous Substances (as defined below) have been
deposited or disposed of in, on or under Seller's or any Subsidiary's owned or
leased properties (including properties owned, managed or controlled by Seller
or any Subsidiary in connection with its lending or fiduciary operations). As
used herein, the term "Environmental Law" means any federal, state or local law,
regulation, order, decree, permit, authorization, opinion, common law or agency
requirement relating to:
(i) the protection or restoration of the environment, health, safety, or
natural resources;
(ii) the handling, use, presence, disposal, release or threatened
release of any Hazardous Substance; or
(iii) noise, odor, wetlands, indoor air, pollution, contamination or any
injury or threat of injury to persons or property in connection with any
Hazardous Substance.
As used herein, the term "Hazardous Substance" means any substance in any
concentration that is:
(i) listed, classified or regulated pursuant to any Environmental Law;
(ii) any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
materials or radon; or
(iii) any other substance which is or may be the subject of regulatory
action by any Governmental Authority in connection with any Environmental
Law.
(t) TAX MATTERS. Each of Seller and its Subsidiaries and all members of
any consolidated, affiliated, combined or unitary group of which Seller or any
of its Subsidiaries is a member have filed or will file all Tax Returns required
to be filed (taking into account permissible extensions) by them on or prior to
the Effective Time, and have paid (or have accrued or will accrue, prior to the
Effective Time, amounts for the payment of) all Taxes relating to the time
periods covered by such returns and reports. The accrued taxes payable accounts
for Taxes reflected on the Latest Seller Balance Sheet (or the notes thereto)
are sufficient for the payment of all unpaid Taxes of Seller and its
Subsidiaries accrued for or applicable to all periods ended on or prior to the
date of the Latest Seller Balance Sheet or which may subsequently be determined
to be owing with respect to any such period. None of Seller or its Subsidiaries
has waived any statute of limitations with respect to Taxes or agreed to any
extension of time with respect to an assessment or deficiency for Taxes. Each of
Seller and its Subsidiaries has paid or will pay in a timely manner and as
required by law all Taxes due and payable by it or which it is obligated to
withhold from amounts owing to any employee or third party. All Taxes which will
be due and payable, whether now or hereafter, for any period ending on or prior
to the Effective Time, shall have been paid by or on behalf of Seller and its
Subsidiaries or shall be reflected on the books of Seller and its Subsidiaries
as an accrued Tax liability determined in a manner which is consistent with past
practices and the Latest Balance Sheets, without taking account of the Merger.
There are no unresolved questions, claims or disputes asserted by any relevant
taxing authority concerning the liability for Taxes of Seller or any of its
Subsidiaries. None of Seller or its Subsidiaries
A-19
<PAGE>
has made an election under Section 341(f) of the Code for any taxable years not
yet closed for statute of limitations purposes. In the five years prior to the
date of this Agreement, no demand or claim has been made against Seller or any
of its Subsidiaries with respect to any Taxes arising out of membership or
participation in any consolidated, affiliated, combined or unitary group of
which Seller or any of its Subsidiaries was at any time a member. As of the date
hereof, Seller 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 of the Code.
(u) RISK MANAGEMENT INSTRUMENTS. All interest rate swaps, caps, floors,
option agreements, futures and forward contracts and other similar risk
management arrangements, whether entered into for Seller's or any of its
Subsidiaries' own account, or for the account of one or more of its customers
(all of which are listed on Seller's Disclosure Schedule), if any, were entered
into:
(i) in accordance with prudent business 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 the
other party thereto enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights generally or by general
equity principles) and is in full force and effect. None of Seller or its
Subsidiaries, or to Seller's knowledge, any other party thereto, is in breach of
any of its obligations under any such agreement or arrangement.
(v) BOOKS AND RECORDS. The books and records of each of Seller and its
Subsidiaries prepared on or after December 31, 1996, have been fully, properly
and accurately maintained in all material respects, and there are no material
inaccuracies or discrepancies of any kind contained or reflected therein.
(w) LOAN PORTFOLIO.
(i) None of Seller or its Subsidiaries is a party to any written or oral
(A) loan agreement, note or borrowing arrangement (including, without
limitation, leases, credit enhancements, commitments, guarantees and
interest-bearing assets) reflected as an asset in the Seller's audited
financial statements for the year ended December 31, 1998 (collectively,
"Loans"), other than Loans the unpaid unguaranteed principal balance of
which does not exceed $500,000, under the terms of which the obligor was, as
of December 31, 1998, over 90 days delinquent in payment of principal or
interest, or (B) Loan with any director, executive officer or five percent
or greater shareholder of Seller or any of its Subsidiaries, or to Seller's
knowledge, any Person controlling, controlled by or under common control
with any of the foregoing. Seller's Disclosure Schedule sets forth (x) all
of the Loans with original unguaranteed principal amounts in excess of
$100,000 of Seller or any of its Subsidiaries that as of December 31, 1998,
were classified by any bank examiner (whether regulatory or internal) as
"Other Loans Specially Mentioned", "Special Mention", "Substandard",
"Doubtful", "Loss", "Classified", "Criticized", "Credit Risk Assets",
"Concerned Loans", "Watch List" or words of similar import, together with
the principal amount of each such Loan and the identity of the borrower
thereunder, (y) by category of Loan (i.e., commercial, consumer, etc.), all
of the other Loans of Seller or any of its Subsidiaries that as of December
31, 1998, were classified as such, together with the aggregate principal
amount of such Loans by category and (z) each asset of Seller that as of
December 31, 1998, was classified as "Other Real Estate Owned" and the book
value thereof.
(ii) The documentation relating to each Loan and relating to all
security interests, mortgages and other liens with respect to all collateral
for each such Loan, taken as a whole, is adequate for the enforcement of the
material terms of each such Loan and of the related security interests,
A-20
<PAGE>
mortgages and other Liens. The terms of each such Loan and of the related
security interests, mortgages and other Liens comply in all material
respects with all applicable laws, rules and regulations (including, without
limitation, laws, rules and regulations relating to the extension of
credit).
(x) INSURANCE. Seller's Disclosure Schedule lists each insurance policy
maintained by Seller or any of its Subsidiaries with respect to its properties
and assets. Prior to the date hereof, Seller has provided or made available to
Acquirer complete and accurate copies of each of the insurance policies
described on Seller's Disclosure Schedule. All such insurance policies are in
full force and effect, and Seller is not in default with respect to its
obligations under any of such insurance policies.
(y) AFFILIATE TRANSACTIONS. None of Seller or its Subsidiaries nor any of
their respective executive officers or directors, or, to Seller's knowledge, any
member of the immediate family of any such executive officer or director (which
for the purposes hereof shall mean a spouse, minor child or adult child living
at the home of any such executive officer or director), or, to Seller's
knowledge, any entity which any of such persons "controls" (within the meaning
of Regulation O of the FRB), has any agreement with Seller or any of its
Subsidiaries (other than employment arrangements or deposit account
relationships) or any interest in any property, real, personal or mixed,
tangible or intangible, used in or pertaining to the business of Seller or any
of its Subsidiaries.
(z) ADMINISTRATION OF FIDUCIARY ACCOUNTS. Each of Seller and its
Subsidiaries has properly administered, in all respects material and which could
reasonably be expected to be material to the business, operations or financial
condition of Seller and its Subsidiaries, taken as a whole, all accounts for
which it acts as a fiduciary, including but not limited to accounts for which it
serves as a trustee, agent, custodian, personal representative, guardian,
conservator or investment advisor, in accordance with the terms of the governing
documents and applicable state and federal law and regulation and common law.
None of Seller or its Subsidiaries nor any of their respective officers or
directors has committed any breach of trust with respect to any such fiduciary
account which is material to or could reasonably be expected to be material to
the business, operations or financial condition of Seller and its Subsidiaries,
taken as a whole, and the accountings for each such fiduciary account are true
and correct in all material respects and accurately reflect the assets of such
fiduciary account in all material respects.
(aa) MILLENNIUM COMPLIANCE. All hardware and software, whether embedded or
otherwise, used or licensed for use in the business of Seller and its
Subsidiaries as presently conducted is Millennium Compliant or will be
Millennium Compliant by a date so that the business, operations or financial
condition of Seller and its Subsidiaries or the Surviving Corporation will not
be adversely affected. Seller is undertaking all reasonable efforts necessary to
determine whether any third party with whom Seller has a material business
relationship has software that is Millennium Compliant and to replace all such
material business relationships where, in the judgment of Seller, software that
is Millennium Compliant is not present and will not be present in time to avoid
processing failures or errors that would have a detrimental impact on such third
party that could be detrimental to Seller and its Subsidiaries or the Surviving
Corporation.
As used in this Agreement, "Millennium Compliant" shall mean that neither
performance nor functionality is affected by data manipulation concerning dates
prior to, during, spanning, or after January 1, 2000, and shall include, but not
be limited to: (i) accurately processing (including, but not limited to,
calculating, comparing and sequencing) date/time data from, into and between the
twentieth and twenty-first centuries and the years 1999 and 2000 and leap year
calculations; (ii) functioning without error, interruption, or decreased
performance relating to such date/time data; (iii) accurately processing such
date/time data when used in combination with other technology; (iv) accurate
date/time data century recognition; (v) calculations that accurately use same
century and multi-century formulas and date/time values; (vi) date/time
interface values that reflect the correct century; and
A-21
<PAGE>
(vii) processing, storing, receiving and outputting all date/time data in a
format that accurately indicates the century of the date/time data.
(bb) TAKEOVER LAWS. Seller has taken all action required to be taken by it
in order to exempt this Agreement and the Seller Option Agreement and the
transactions contemplated hereby and thereby from the requirements of any
applicable "moratorium", "control share", "fair price" or other antitakeover
laws and regulations of any state (collectively, "Takeover Laws").
5.04 REPRESENTATIONS AND WARRANTIES OF ACQUIRER. Subject to Section 5.02,
Acquirer hereby represents and warrants to Seller as follows:
(a) ORGANIZATION, STANDING AND AUTHORITY. Acquirer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Acquirer is duly registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended. Acquirer and each of its Significant
Subsidiaries is duly licensed and qualified to do business and is in good
standing in the states of the United States and any foreign jurisdictions where
its ownership or leasing of property or assets or the conduct of its business
requires it to be so licensed and qualified. Acquirer 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) ACQUIRER CAPITAL STOCK. As of the date of this Agreement, the
authorized capital stock of Acquirer consists solely of 1,500,000,000 shares of
Acquirer Common Stock and 50,000,000 shares of preferred stock, par value $1.00
per share ("Acquirer Preferred Stock"). As of March 31, 1999, there were
744,797,857 shares of Acquirer Common Stock and 56,539 shares of Acquirer
Preferred Stock issued and outstanding. As of the date hereof, 18,428,964 shares
of Acquirer Common Stock were held in treasury by Acquirer or otherwise owned by
Acquirer. As of the date of this Agreement, no shares of Acquirer Common Stock
or Acquirer Preferred Stock were reserved for issuance, except that 60,090,134
shares of Acquirer Common Stock were reserved for issuance pursuant to
Acquirer's employee and director stock purchase and option plans and dividend
reinvestment plan, 89,108 shares were reserved for issuance under outstanding
warrants to purchase Acquirer Common Stock and 45,000,000 shares were reserved
for issuance upon exercise of the Periodic Stock Purchase Rights and Risk Event
Warrants of Acquirer. As of March 31, 1999, 12,750 shares of Acquirer Preferred
Stock were reserved for issuance. All of the issued and outstanding shares of
Acquirer Common Stock have been duly authorized and validly issued and are fully
paid, nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. As of the date of this Agreement, except as
referred to above, Acquirer does not have any Rights issued or outstanding with
respect to any shares of Acquirer Common Stock or Acquirer Preferred Stock or
any other equity securities of Acquirer. The shares of Acquirer Common Stock to
be issued pursuant to the Merger will be duly authorized and validly issued and,
at the Effective Time, all such shares will be fully paid, nonassessable and
free of preemptive rights, with no personal liability attaching to the ownership
thereof.
(c) CORPORATE POWER. Each of Acquirer and its Subsidiaries has the
corporate power and authority to carry on its business as it is now being
conducted and to own all of its properties and assets; and Acquirer has the
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and to consummate the transactions contemplated hereby.
(d) CORPORATE AUTHORITY. This Agreement and the transactions contemplated
hereby have been authorized by all necessary corporate action of each of
Acquirer and the Acquirer Board on or prior to the date hereof and no other
corporate proceedings on the part of Acquirer are necessary to authorize this
Agreement and the transactions contemplated hereby. This Agreement is a valid
and legally binding agreement of Acquirer, enforceable in accordance with its
terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar laws of
general applicability relating to or affecting creditors' rights or by general
equity principles).
A-22
<PAGE>
(e) REGULATORY APPROVALS; NO DEFAULTS.
(i) No consents or approvals of, or filings or registrations with, any
Governmental Authority or any third party are required to be made or
obtained by Acquirer or any of its Subsidiaries in connection with the
execution, delivery or performance by Acquirer of this Agreement or to
consummate the transactions contemplated hereby except for: (A) any required
filings of applications or notices with the FRB and the DFI; (B) filings
with the SEC and state securities authorities and the approval of the
listing on the NYSE of Acquirer Common Stock to be issued in the Merger; and
(C) the filing of the agreement of merger and the certificate of merger as
contemplated in Section 2.01(b). As of the date hereof, Acquirer is not
aware of any reason why the approvals set forth in Section 7.01(b) will not
be received.
(ii) Subject to receipt of the regulatory approvals referred to in the
preceding paragraph and the expiration of related waiting periods, and
required filings under federal and state securities laws, the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby do not and will not:
(A) constitute a breach or violation of, or a default under, or give
rise to any Lien, any acceleration of remedies or any right of
termination under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license, or agreement, indenture or
instrument of Acquirer or of any of its Subsidiaries or to which Acquirer
or any of its Subsidiaries or any of their respective properties is
subject or bound;
(B) constitute a breach or violation of, or a default under, the
certificate of incorporation or by-laws (or similar governing documents)
of Acquirer or any of its Subsidiaries; or
(C) require any consent or approval under any such law, rule,
regulation, judgment, decree, order, governmental permit or license,
agreement, indenture or instrument.
(f) FINANCIAL REPORTS AND SEC DOCUMENTS. The SEC Documents of Acquirer or
any of its Subsidiaries, 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 of Acquirer or any of its Subsidiaries, 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 shareholders' equity and
cash flows or equivalent statements in such SEC Documents of Acquirer or any of
its Subsidiaries (including any related notes and schedules thereto) fairly
presents and will fairly present the results of operations, changes in
shareholders' 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 GAAP 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.
(g) NO MATERIAL ADVERSE CHANGES. Except as Previously Disclosed, since
December 31, 1998, no event has occurred or circumstance arisen that,
individually or taken together with all other facts, circumstances and events
(described in any paragraph of this Section 5.04 or otherwise), has had or would
reasonably be expected to have a Material Adverse Effect with respect to
Acquirer and its Subsidiaries, taken as a whole.
(h) TAX MATTERS. As of the date hereof, Acquirer 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 of the Code.
A-23
<PAGE>
(i) REGULATORY MATTERS.
(i) Since December 31, 1996, each of Acquirer and its Subsidiaries has
filed each report or other filing that it was required to file with any
federal or state banking or other applicable Regulatory Authorities having
jurisdiction over it (together with all exhibits thereto, the "Acquirer
Regulatory Reports"). As of their respective dates or as subsequently
amended prior to the date hereof, each of the Acquirer Regulatory Reports
was true and correct and complied with the requirements of the applicable
form for each such Acquirer Regulatory Report.
(ii) None of Acquirer or its Subsidiaries or any of their 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 Regulatory
Authority.
(iii) None of Acquirer or 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.
(j) LITIGATION. No litigation, claim or other proceeding before any court
or Governmental Authority is pending against Acquirer or any of its Subsidiaries
and, to Acquirer's knowledge, no such litigation, claim or other proceeding has
been threatened. None of Acquirer or its Subsidiaries is subject to any
outstanding order, writ, injunction or decree.
(k) COMPLIANCE WITH LAWS; PERMITS. Each of Acquirer and its Subsidiaries:
(i) is in compliance with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders or
decrees applicable thereto or to the employees conducting such businesses on
behalf of Acquirer and its Subsidiaries;
(ii) has all permits, licenses, authorizations, orders and approvals of,
and has made all filings, applications and registrations with, all
Governmental Authorities that are required in order to permit it to own or
lease its properties and to conduct its businesses as presently conducted;
all such permits, licenses, certificates of authority, orders and approvals
are in full force and effect and, to Acquirer's knowledge, no suspension or
cancellation of any of them is threatened; and
(iii) is in compliance with the provisions of its articles of
incorporation or association or similar governing document and its by-laws.
(l) MILLENNIUM COMPLIANCE. All hardware and software, whether embedded or
otherwise, used or licensed for use in the business of Acquirer and its
Subsidiaries as presently conducted is Millennium Compliant or will be
Millennium Compliant by a date so that the business, operations or financial
condition of Acquirer and its Subsidiaries will not be adversely affected.
Acquirer is undertaking all reasonable efforts necessary to determine whether
any third party with whom Acquirer has a material business relationship has
software that is Millennium Compliant and to replace all such material business
relationships where, in the judgment of Acquirer, software that is Millennium
Compliant is not present and will not be present in time to avoid processing
failures or errors that would have a detrimental impact on such third party that
could be detrimental to Acquirer and its Subsidiaries.
A-24
<PAGE>
ARTICLE VI
COVENANTS
6.01 REASONABLE BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each of Seller and Acquirer agrees to use its reasonable best efforts
in good faith to take, or cause to be taken, all actions, and to do, or cause to
be done, all things necessary, proper or desirable, or advisable under
applicable laws, so as to permit consummation of 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 SHAREHOLDER APPROVAL. Seller shall take, in accordance with applicable
law, applicable stock exchange or Nasdaq rules and the Seller Articles and the
Seller By-Laws, all action necessary to convene, an appropriate meeting of
shareholders of Seller to consider and vote upon (i) the approval of the
principal terms of this Agreement and (ii) any other matters required to be
approved by the shareholders of Seller for consummation of the Merger (including
any adjournment or postponement, the "Seller Meeting"), as promptly as
practicable after the Registration Statement is declared effective. Seller Board
shall recommend such approval, and Seller shall take all reasonable lawful
action to solicit such approval by its shareholders. The Seller Board may not
withdraw or modify its recommendation except as expressly permitted by Section
6.06(b).
6.03 REGISTRATION STATEMENT.
(a) REGISTRATION STATEMENT. Acquirer and Seller agree to cooperate in the
preparation of a registration statement on Form S-4 or other applicable form
(the "Registration Statement") to be filed by Acquirer with the SEC in
connection with the issuance of Acquirer Common Stock in the Merger (including
the proxy statement and prospectus and other proxy solicitation materials of
Seller constituting a part thereof (the "Proxy Statement") and all related
documents). Seller agrees to file the Proxy Statement in preliminary form with
the SEC as soon as reasonably practicable, and Acquirer agrees to file the
Registration Statement with the SEC as soon as reasonably practicable after any
SEC comments with respect to the preliminary Proxy Statement are resolved. Each
of Seller and Acquirer 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. Acquirer 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. Seller agrees to furnish to Acquirer all information
concerning Seller, its officers, directors and shareholders as may be reasonably
requested in connection with the foregoing.
(b) QUALITY OF INFORMATION. Each of Seller and Acquirer agrees 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 any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
(ii) the Proxy Statement and any amendment or supplement thereto will,
at the date of mailing to shareholders and at the time of the Seller
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 Proxy Statement or any amendment or supplement thereto.
A-25
<PAGE>
Each of Seller and Acquirer further agrees that if it shall become aware prior
to the Effective Date of any information furnished by it that would cause any of
the statements in the Proxy Statement to be false or misleading with respect to
any material fact, or that it has omitted to state any material fact necessary
to make the statements therein not false or misleading, it shall promptly inform
the other party thereof and to take the necessary steps to correct the Proxy
Statement.
(c) NOTICES REGARDING REGISTRATION. Acquirer agrees to advise Seller,
promptly after Acquirer 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 Acquirer Common Stock for offering or sale in any jurisdiction,
of the initiation or threat of any proceeding for any such purpose, or of any
request by the SEC for the amendment or supplement of the Registration Statement
or for additional information.
6.04 PRESS RELEASES. Each of Seller and Acquirer agrees that it will not,
without the prior approval of the other party, issue any press release or
written statement for general circulation relating to the transactions
contemplated hereby, except as otherwise required by applicable law or
regulation or rules of the stock market where its securities are traded
(provided that the issuing party shall nevertheless provide the other party with
notice of, and the opportunity to review, any such press release or written
statement).
6.05 ACCESS; INFORMATION.
(a) ACCESS. Seller agrees that upon reasonable notice, it shall afford
Acquirer and Acquirer's officers, employees, counsel, accountants and other
authorized representatives, such access during normal business hours throughout
the period prior to the Effective Time to the books, records (including, without
limitation, tax returns and work papers of independent auditors), properties,
personnel and to such other information (including, without limitation, Seller's
or any of its Subsidiaries' Year 2000 contingency plan) as Acquirer may
reasonably request and, during such period, Seller shall furnish promptly to
Acquirer (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 Acquirer may reasonably request. Seller shall not be required
to provide access or to disclose information where such access or disclosure
would violate or prejudice the rights of its customers, jeopardize any
attorney-client privilege or contravene any law, rule, regulation, order,
judgment, decree, fiduciary duty or binding agreement entered into prior to the
date of this Agreement. The parties hereto will make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply.
(b) CONFIDENTIALITY. All information furnished to Acquirer pursuant to
Section 6.05(a) shall be subject to, and Acquirer shall hold all such
information in confidence in accordance with, the provisions of the
confidentiality agreement dated April 14, 1999 (the "Confidentiality Agreement")
between Acquirer and Seller. Seller shall have the same obligations to Acquirer
with respect to information furnished to Seller by Acquirer.
(c) INVESTIGATION. No investigation by either party of the business and
affairs of the other party shall affect or be deemed to modify or waive any
representation, warranty, covenant or agreement in this Agreement, or the
conditions to either party's obligation to consummate the transactions
contemplated by this Agreement.
6.06 ACQUISITION PROPOSALS.
(a) Seller 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. Seller shall
immediately cease and
A-26
<PAGE>
cause to be terminated any activities, discussions or negotiations conducted
prior to the date of this Agreement with any parties other than Acquirer with
respect to any of the foregoing. Seller shall promptly (within 24 hours) advise
Acquirer following the receipt by Seller of any Takeover Proposal and the
substance thereof (including the identity of the person making such Takeover
Proposal), and advise the Acquirer of any developments with respect to such
Takeover Proposal immediately upon the occurrence thereof. Notwithstanding the
first sentence of this Section 6.06(a), in the event that, prior to the date of
the Seller Meeting, the Seller Board determines in good faith and in conformity
with the written advice of outside counsel, after Seller has received an
unsolicited Takeover Proposal that is a Superior Proposal, that the failure to
do so would result in a breach of Seller Board's fiduciary duties to Seller's
shareholders, Seller may, in response to an unsolicited request therefor,
furnish information with respect to the Seller to, and enter into discussions
with, the party making the Superior Proposal pursuant to a customary
confidentiality agreement.
(b) Except as expressly permitted by this Section 6.06(b), the Seller Board
may not (i) withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to Acquirer, the approval or recommendation by the Seller Board
of the Merger or this Agreement, (ii) approve or recommend, or propose publicly
to approve or recommend, any Takeover Proposal, or (iii) cause or authorize
Seller to enter into any letter of intent, agreement in principle, acquisition
agreement or other similar agreement related to any Takeover Proposal.
Notwithstanding the foregoing, in the event that prior to the date of the Seller
Meeting, the Seller Board determines in good faith, after the Seller has
received a Superior Proposal and in conformity with the written advice of
outside counsel, that failure to do so would result in a breach of its fiduciary
duties to the Seller's shareholders under applicable law, the Seller Board may
upon not less than three business days notice to Acquirer of Seller Board's
intention to do so withdraw or modify or propose publicly to withdraw or modify
its approval or recommendation of the Merger or this Agreement. Such withdrawal
or modification shall not affect the Seller's obligation to convene the Seller
Meeting as required by Section 6.02.
6.07 AFFILIATE AGREEMENTS. Seller shall use its reasonable best efforts to
cause each director, executive officer and other Person who as of the date of
the Seller Meeting to Seller's knowledge is reasonably likely to be an
"affiliate" (for purposes of Rule 145 under the Securities Act) of Seller to
execute and deliver to Acquirer on or before the date of mailing of the Proxy
Statement a written agreement in the form of Exhibit B hereto.
6.08 STOCK EXCHANGE LISTING. Acquirer agrees to use its reasonable best
efforts to list, prior to the Effective Date, on the NYSE, subject to official
notice of issuance, the shares of Acquirer Common Stock to be issued to the
holders of Seller Common Stock in the Merger.
6.09 REGULATORY APPLICATIONS.
(a) COOPERATION WITH FILINGS. Seller and Acquirer 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 FRB, the DFI and any other applicable Regulatory
Agencies and (ii) to cause the Merger to be consummated as expeditiously as
reasonably practicable. Provided Seller has cooperated as required above,
Acquirer agrees to file the requisite applications to be filed by it with the
FRB, the DFI and any other applicable Regulatory Agencies, as promptly as
reasonably practicable. Each of Acquirer and Seller 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
A-27
<PAGE>
will consult with the other party hereto with respect to the obtaining of all
material permits, consents, approvals and authorizations of all third parties
and Regulatory Authorities necessary or advisable to consummate the transactions
contemplated by this Agreement and each party will keep the other party
appraised of the status of material matters relating to completion of the
transactions contemplated hereby.
(b) AGREEMENT TO FURNISH INFORMATION. Each party agrees, upon request, to
furnish the other party with all information concerning itself, its
Subsidiaries, directors, officers and shareholders and such other matters as may
be reasonably necessary or advisable in connection with any filing, notice or
application made by or on behalf of such other party or any of its Subsidiaries
to any third party or Regulatory Authority. Any such information that is not
ultimately included in any publicly available filing, notice or application
shall be kept confidential in accordance with Section 6.05(b).
6.10 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) INDEMNIFICATION BY ACQUIRER. From and after the Effective Time,
Acquirer agrees to indemnify and hold harmless each present and former director
and officer of Seller and its Subsidiaries determined as of the Effective Time
(the "Indemnified Parties"), against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
(collectively, "Costs") incurred in connection with any actual or threatened
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing or occurring at
or prior to the Effective Time (including with respect to this Agreement or any
of the transactions contemplated hereby) to the fullest extent permitted by law.
Acquirer shall also advance expenses as incurred to the fullest extent permitted
under Delaware law, upon receipt of any undertaking required by applicable law.
(b) INDEMNIFICATION PROCEDURE. Any Indemnified Party wishing to claim
indemnification under Section 6.10(a), upon learning of any such claim, action,
suit, proceeding or investigation, shall as promptly as possible notify Acquirer
thereof, but the failure to so notify shall not relieve Acquirer of any
liability it may have to such Indemnified Party if such failure does not
materially prejudice Acquirer. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time):
(i) Acquirer shall have the right to assume the defense thereof and
Acquirer shall not be liable to such Indemnified Parties for any legal
expenses of other counsel or any other expenses subsequently incurred by
such Indemnified Parties in connection with the defense thereof, except that
if Acquirer elects not to assume such defense or counsel for the Indemnified
Parties advises in writing that there are issues which raise conflicts of
interest between Acquirer and the Indemnified Parties, the Indemnified
Parties may retain counsel satisfactory to them, and Acquirer shall pay the
reasonable fees and expenses of one such counsel for the Indemnified Parties
in any jurisdiction promptly as statements thereof are received;
(ii) the Indemnified Parties will cooperate in the defense of any such
matter; and
(iii) Acquirer shall not be liable for any settlement effected without
its prior written consent (which consent shall not be unreasonably
withheld); and provided, further, that Acquirer shall not have any
obligation hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination
shall have become final and nonappealable, that the indemnification of such
Indemnified Party in the manner contemplated hereby is not permitted or is
prohibited by applicable law.
(c) DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. For a period of six
years after the Effective Date, Acquirer shall use its best efforts to provide
that portion of directors' and officers' liability insurance that serves to
reimburse officers and directors of Seller or any of its Subsidiaries
(determined as of the Effective Time) with respect to claims against such
officers and directors arising from facts or events
A-28
<PAGE>
which occurred on or before the Effective Time of at least the same coverage and
amounts, and containing terms and conditions no less advantageous, as that
coverage currently provided by Seller; provided, however, that in no event shall
Acquirer be required to expend more than 200% per annum of the current amount
expended by Seller (the "Insurance Amount") to maintain or procure such
directors and officers insurance coverage; provided, further, that if Acquirer
is unable to obtain the insurance called for by this Section 6.10(c), Acquirer
shall use its reasonable best efforts to obtain as much comparable insurance as
is available for the Insurance Amount; and provided, further, that officers and
directors of Seller or any of its Subsidiaries may be required to make
application and provide customary representations and warranties to Acquirer's
insurance carrier for the purpose of obtaining such insurance; and provided,
further, that such coverage will have a single aggregate for such six-year
period in an amount not less than the annual aggregate of such coverage
currently provided by Seller.
(d) SUCCESSOR LIABILITY. If Acquirer or any of its successors or assigns
(i) shall consolidate with or merge into any other corporation or entity and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) shall transfer all or substantially all of its
properties and assets to any individual, corporation or other entity, then and
in each such case, proper provision shall be made so that the successors and
assigns of Acquirer shall assume the obligations set forth in this Section 6.10.
6.11 TAKEOVER LAWS; NO RIGHT TRIGGERED.
(a) No party shall take any action that would cause the transactions
contemplated by this Agreement and the Seller Option Agreement to be subject to
requirements imposed by any Takeover Law and each of them shall take all
necessary steps within its control to exempt (or ensure the continued exemption
of) the transactions contemplated by this Agreement and the Seller Option
Agreement from, or if necessary challenge the validity or applicability of, any
applicable Takeover Law, as now or hereafter in effect that purport to apply to
this Agreement, the Seller Option Agreement or the transactions contemplated
hereby or thereby.
(b) Seller shall take all reasonable steps necessary to ensure that the
entering into of this Agreement and the Seller 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 the Seller Articles or the Seller 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 the Seller Plans or (B) the
Seller Option Agreement, as applicable).
6.12 NOTIFICATION OF CERTAIN MATTERS. Each of Seller and Acquirer shall give
prompt notice to the other of any fact, event or circumstance known to it that:
(i) individually or taken together with all other facts, events and
circumstances known to it, has had or is reasonably likely to have a
Material Adverse Effect, or
(ii) would cause or constitute a material breach of any of its
representations, warranties, covenants or agreements contained herein.
6.13 CERTAIN LOANS AND RELATED MATTERS. Seller will furnish to Acquirer a
complete and accurate list as of the end of each calendar month after March 31,
1999, within 15 business days after the end of each such calendar month, of (a)
all of the periodic internal credit quality reports prepared during such
calendar month (which reports will be prepared in a manner consistent with past
practices) of Seller or any of its Subsidiaries, (b) all loans of Seller or any
of its Subsidiaries classified as non-accrual, as restructured, as 90 days past
due, as still accruing and doubtful of collection or any comparable
classification, (c) all OREO, including in-substance foreclosures and real
estate in judgment, (d) any current repurchase obligations of Seller or any of
its Subsidiaries with respect to any loans, loan
A-29
<PAGE>
participations or state or municipal obligations or revenue bonds and (e) any
standby letters of credit issued by Seller or any of its Subsidiaries.
6.14 MONTHLY FINANCIAL STATEMENTS. Seller shall furnish Acquirer with the
balance sheets of Seller and each of its Subsidiaries as of the end of each
calendar month after March 31, 1999 and the related statements of income, within
15 business days after the end of each such calendar month. Such financial
statements shall be prepared on a basis consistent with the SEC Documents and on
a consistent basis during the periods involved and shall fairly present the
financial positions of Seller and its Subsidiaries as of the dates thereof and
the results of operations of Seller and its Subsidiaries for the periods then
ended.
6.15 ACCOUNTANTS' LETTERS. Each of Seller and Acquirer 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 or letters
from each party's independent auditors as are customarily required,
respectively, 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.
6.16 TAX MATTERS. Seller shall file (or cause to be filed) at its own expense,
on or prior to the due date, all Tax returns of Seller and its Subsidiaries,
including all Compensation and Benefit Plan returns and reports, for all Tax
periods ending on or before the Effective Time where the due date for such
returns or reports (taking into account valid extensions of the respective due
dates) falls on or before the Effective Time; PROVIDED, HOWEVER, that Seller
shall not file (and shall cause not to be filed) any such Tax returns, or other
returns, elections or information statements with respect to any liabilities for
Taxes (other than federal, state or local sales, use, withholding or employment
tax returns or statements), or consent to any adjustment or otherwise compromise
or settle any matters with respect to Taxes, without prior consultation with
Acquirer; PROVIDED, FURTHER, that Seller shall not make (and shall cause not to
be made) any election or take any other discretionary position with respect to
Taxes, in a manner inconsistent with past practices, without the prior written
approval of Acquirer.
6.17 ESTABLISHMENT OF ACCRUALS. If requested by Acquirer, on the business day
immediately prior to the Effective Time, Seller shall, consistent with GAAP,
establish such additional accruals and reserves as may be necessary to conform
its and its Subsidiaries accounting and credit loss reserve practices and
methods to those of Acquirer (as such practices and methods are to be applied to
Seller and its Subsidiaries from and after the Effective Time) and reflect
Acquirer's plans with respect to the conduct of Seller's and its Subsidiaries'
business following the Merger and to provide for the costs and expenses relating
to the consummation by Seller of the transactions contemplated by this
Agreement. The establishment of such accruals and reserves shall not, in and of
itself, constitute a breach of any representation or warranty of Seller
contained in this Agreement or constitute a material adverse change in the
business, operations or financial condition of Seller and its Subsidiaries,
taken as a whole.
6.18 COORDINATION OF DIVIDENDS. Until the Effective Time, Seller shall
coordinate with Acquirer the declaration of any dividends or other distributions
with respect to the Seller Common Stock and the record dates and payment dates
relating thereto, it being the intention of the parties that holders of shares
of Seller Common Stock shall not receive more than one dividend, or fail to
receive one dividend, for any single calendar quarter on their shares of Seller
Common Stock (including any shares of Acquirer Common Stock received in exchange
therefor in the Merger).
6.19 UPDATED DISCLOSURE SCHEDULE. On a date 15 business days prior to the
Effective Date and on the Effective Date, Acquirer and Seller shall modify their
respective Disclosure Schedules to this Agreement for the purpose of making the
representations and warranties to which any such Disclosure Schedule relates
true and correct in all material respects as of such date, whether to correct
any misstatement or omission in any Schedule or to reflect any additional
information obtained by Acquirer
A-30
<PAGE>
or Seller subsequent to the date any Disclosure Schedule was previously
delivered. Notwithstanding the foregoing, the updated Disclosure Schedule shall
not have the effect of making any representation or warranty contained in this
Agreement true and correct in all material respects for purposes of Sections
7.02(a) and 7.03(a) hereof.
6.20 BENEFIT PLANS.
(a) Acquirer shall, for two years after the Effective Time, provide former
employees of Seller and its Subsidiaries who remain as employees of Acquirer or
the Surviving Corporation ("Continuing Employee") with compensation and employee
benefit plans no less favorable in the aggregate than those provided to
similarly situated employees of Acquirer. From time to time after the Effective
Time, Acquirer may, at its sole discretion, discontinue all or any Compensation
and Benefit Plans maintained by Seller and its Subsidiaries for the benefit of
employees of the Seller and its Subsidiaries so long as it replaces them with
compensation and employee benefit plans of Acquirer as offered to similarly
situated employees of Acquirer and its Subsidiaries. If any employee of Seller
or its Subsidiaries becomes a participant in any employee benefit plan, practice
or policy of Acquirer or the Surviving Corporation, such employee shall be given
credit under such plan, practice or policy for all service with Seller or its
Subsidiaries from the employee's most recent date of hire by Seller or its
Subsidiaries (as provided by Seller to Acquirer prior to the Effective Date) and
prior to the Effective Time for purposes of eligibility and vesting, but not for
the purposes of determining benefit accruals or the rate of benefit accruals,
for which such service is taken into account or recognized, provided that there
be no duplication of such benefits as are provided under any employee benefit
plans, practices, or policies of Seller or any of its Subsidiaries that continue
in effect following the Effective Time.
(b) Acquirer shall pay to Continuing Employees the amounts payable under
Seller's incentive plans as Previously Disclosed for the year ended December 31,
1999 in accordance with the terms thereof ("1999 Bonus Amounts"). Prior to the
Effective Date, the Chief Executive Officer of Seller, after prior consultation
with Acquirer, shall determine the 1999 Bonus Amounts payable pursuant to the
terms of the applicable incentive plans of Seller. Acquirer shall also pay to
employees of Seller and its Subsidiaries whose employment is terminated by
Acquirer or its Subsidiaries (other than by reason of such employee's
misconduct, nonperformance of duties or violations of other rules and policies
of Acquirer or its Subsidiaries, including confidentiality obligations) after
the Effective Time and prior to the date such 1999 Bonus Amounts have been paid
an amount equal to the 1999 Bonus Amount to which they would otherwise have been
entitled. Such 1999 Bonus Amounts shall be paid upon such termination.
(c) Employees covered under Seller's Employee Severance Plan as of the
Effective Date who are terminated by the Acquirer within 12 months after the
Effective Time shall be eligible for severance, if any, under the terms of
Seller's Employee Severance Plan except that the required release shall be in
the form and manner required by the Acquirer. During such 12 month period, such
employees shall be excluded from coverage from Acquirer's severance plans or
programs but shall not be excluded from coverage under Acquirer's Change In
Control Severance Pay Programs provided such employees meet the coverage
requirements set forth in such Change In Control Severance Pay Programs. If a
change in control of Acquirer occurs during such 12 month period said employees
will cease to be eligible for severance under Seller's Employee Severance Plan
if they are covered employees under Acquirer's Change In Control Severance Pay
Programs.
(d) Employees eligible for severance payments under Seller's Executive
Severance Plan shall be excluded from coverage from Acquirer's severance plans
or programs including Acquirer's Change In Control Severance Pay Plan or
Programs so long as such employee is covered by Seller's Executive Severance
Plan. Acquirer further agrees that the "target bonus" for purposes of the
Executive Severance Plan shall mean the maximum target bonus payable under the
applicable incentive plan in the event that the applicable "target bonus" is
expressed as a range. Schedule 6.20(d) sets forth the
A-31
<PAGE>
employees currently covered by Seller's Executive Severance Plan. Seller shall
provide Acquirer with an updated schedule of employees covered under Seller's
Executive Severance Plan prior to the Effective Date.
(e) This Section 6.20 is an agreement solely between Seller and Acquirer.
Nothing in this Section 6.20, whether express or implied, shall be considered to
be a contract between Seller or Acquirer or any other person or shall confer
upon any employee of Seller or Acquirer or any other person, any rights or
remedies that such person did not already have including, but not limited to (i)
any right to employment or recall, (ii) any right to continued employment of any
specified person or (iii) any right to claim any particular compensation,
benefit or aggregation of benefits of any kind or nature whatsoever.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each of Acquirer and Seller to consummate the Merger is
subject to the fulfillment or written waiver by Acquirer and Seller prior to the
Effective Time of each of the following conditions:
(a) SHAREHOLDER APPROVAL. The principal terms of this Agreement and the
Merger shall have been duly adopted by the requisite vote of the shareholders of
Seller.
(b) REGULATORY APPROVALS. All regulatory approvals required to consummate
the Merger and the other transactions contemplated hereby shall have been
obtained and shall remain in full force and effect and all statutory waiting
periods in respect thereof shall have expired.
(c) NO INJUNCTION. No Governmental Authority of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute, rule
or regulation, or any judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) (an "Injunction") which is in effect and
prohibits consummation of the transactions contemplated by this Agreement.
(d) REGISTRATION STATEMENT; NYSE. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
The Acquirer Common Stock to be issued in the Merger shall have been approved
for listing on the NYSE, subject to official notice of issuance.
(e) BLUE SKY APPROVALS. All permits and other authorizations under state
securities laws necessary to consummate the transactions contemplated hereby and
to issue the shares of Acquirer Common Stock to be issued in the Merger shall
have been received and be in full force and effect.
(f) NO PENDING GOVERNMENTAL ACTIONS. No proceeding initiated by any
Governmental Authority seeking an Injunction shall be pending.
7.02 CONDITIONS TO OBLIGATION OF SELLER. The obligation of Seller to
consummate the Merger is also subject to the fulfillment or written waiver by
Seller prior to the Effective Time of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. (i) Subject to Section 5.02, the
representations and warranties of Acquirer set forth in this Agreement shall be
true and correct as of the date of this Agreement and as of the Effective Date
as though made on and as of the Effective Date (except that representations and
warranties that by their terms speak only as of the date of this Agreement or
some other date shall be true and correct as of such date); and (ii) Seller
shall have received a certificate, dated the Effective Date, signed on behalf of
Acquirer by the Chief Financial Officer of Acquirer to such effect.
A-32
<PAGE>
(b) PERFORMANCE OF OBLIGATIONS OF ACQUIRER. Acquirer shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Effective Time, and Seller shall have received
a certificate, dated the Effective Date, signed on behalf of Acquirer by the
Chief Financial Officer of Acquirer to such effect.
(c) OPINION OF SELLER'S COUNSEL. Seller shall have received an opinion
from Irell & Manella LLP, counsel to Seller, dated as of the Effective Time,
substantially to the effect that, on the basis of the facts, representations and
assumptions set forth in such opinion 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 Acquirer or Seller as a result
of the Merger;
(ii) No gain or loss will be recognized by the shareholders of Seller
who exchange their Seller Common Stock for Acquirer Common Stock pursuant to
the Merger (except with respect to cash received in lieu of a fractional
share interest in Acquirer Common Stock);
(iii) The tax basis of the Acquirer Common Stock received by the
shareholders who exchange all of their Seller Common Stock in the Merger
will be the same as the tax basis of the Seller Common Stock surrendered in
exchange therefor; and
(iv) The holding period of the Acquirer Common Stock received by a
shareholder of Seller pursuant to the Merger will include the period during
which the Seller Common Stock surrendered therefor was held, provided the
Seller Common Stock is a capital asset in the hands of the shareholder of
Seller at the time of the Merger.
In rendering such opinion, such counsel may require and rely upon
representations and covenants including those contained in certificates of
officers of Acquirer, Seller and others.
(d) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there shall
have been no material adverse change in, and no event, occurrence or development
in the business of Acquirer or any of its Subsidiaries that, taken together with
other events, occurrences and developments with respect to such business, would
have or would reasonably be expected to have a Material Adverse Effect with
respect to Acquirer and its Subsidiaries, taken as a whole.
7.03 CONDITIONS TO OBLIGATION OF ACQUIRER. The obligation of Acquirer to
consummate the Merger is also subject to the fulfillment or written waiver by
Acquirer prior to the Effective Time of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. (i) Subject to Section 5.02, the
representations and warranties of Seller set forth in this Agreement shall be
true and correct as of the date of this Agreement and as of the Effective Date
as though made on and as of the Effective Date (except that representations and
warranties that by their terms speak only as of the date of this Agreement or
some other date shall be true and correct as of such date); and (ii) Acquirer
shall have received a certificate, dated the Effective Date, signed on behalf of
Seller by the Chief Financial Officer of Seller to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF SELLER. Seller shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Effective Time; provided that Seller shall have
performed its agreements contained in Sections 4.01(c) and (d) in all respects;
and Acquirer shall have received a certificate, dated the Effective Date, signed
on behalf of Seller by the Chief Financial Officer of Seller to such effect.
(c) OPINION OF ACQUIRER'S COUNSEL. Acquirer shall have received an opinion
from Dorsey & Whitney LLP, Minneapolis, Minnesota, counsel to Acquirer, dated as
of the Effective Time, substantially to the effect that, on the basis of the
facts, representations and assumptions set forth in
A-33
<PAGE>
such opinion 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 Acquirer or Seller as a result
of the Merger;
(ii) No gain or loss will be recognized by the shareholders of Seller
who exchange their Seller Common Stock for Acquirer Common Stock pursuant to
the Merger (except with respect to cash received in lieu of a fractional
share interest in Acquirer Common Stock);
(iii) The tax basis of the Acquirer Common Stock received by the
shareholders of Seller who exchange all of their Seller Common Stock in the
Merger will be the same as the tax basis of the Seller Common Stock
surrendered in exchange therefor; and
(iv) The holding period of the Acquirer Common Stock received by a
shareholder of Seller pursuant to the Merger will include the period during
which the Seller Common Stock surrendered therefor was held, provided the
Seller Common Stock is a capital asset in the hands of the shareholder of
Seller at the time of the Merger.
In rendering such opinion, such counsel may require and rely upon
representations and covenants including those contained in certificates of
officers of Acquirer, Seller, and others.
(d) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there shall
have been no material adverse change in, and no event, occurrence or development
in the business of Seller or any of its Subsidiaries that, taken together with
other events, occurrences and developments with respect to such business, would
have or would reasonably be expected to have a Material Adverse Effect with
respect to Seller and its Subsidiaries, taken as a whole.
ARTICLE VIII
TERMINATION
8.01 TERMINATION. This Agreement may be terminated, and the Merger may be
abandoned, whether before or after approval of the matters presented in
connection with the Merger by the shareholders of Seller.
(a) MUTUAL CONSENT. At any time prior to the Effective Time, by the mutual
consent of Acquirer and Seller.
(b) BREACH. At any time prior to the Effective Time, by Acquirer or
Seller, upon written notice to the other party, 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, provided that such breach (whether under (i) or (ii)) individually
or in the aggregate with other breaches, has had or is reasonably expected
to have a Material Adverse Effect on the breaching party.
(c) DELAY. At any time prior to the Effective Time, by Acquirer or Seller,
in the event that the Merger is not consummated by December 31, 1999, except to
the extent that the failure of the Merger then to be consummated arises out of
or results from the failure of the party seeking to terminate pursuant to this
Section 8.01(c) to perform or observe the covenants and agreements of such party
set forth herein.
A-34
<PAGE>
(d) NO APPROVAL. By Seller or Acquirer, in the event:
(i) the approval of any Governmental Authority required for consummation
of the Merger and the other transactions contemplated by this Agreement
shall have been denied by final nonappealable action of such Governmental
Authority, or
(ii) the shareholder approval required by Section 7.01(a) herein is not
obtained at the Seller Meeting.
(e) FAILURE TO RECOMMEND, ETC. At any time prior to the Seller Meeting, by
Acquirer if the Seller Board shall have failed to make its recommendation
referred to in Section 6.02, withdrawn such recommendation or modified or
changed such recommendation in a manner adverse in any respect to the interests
of Acquirer.
(f) FAILURE OF CONDITION. By either Acquirer or Seller, if any of the
conditions to such party's obligation to consummate the transactions
contemplated in this Agreement shall have become impossible to satisfy.
(g) SELLER OPTION AGREEMENT. By Acquirer, at any time after 6:00 a.m. New
York City time on May 20, 1999, if the Seller Option Agreement shall not have
been executed and delivered by Seller to Acquirer prior to such termination.
(h) ACQUIRER SIGNIFICANT STOCK DECLINE. By Seller, on either of the two
trading days immediately after the Twenty Day Calculation Period (as defined
below), if both of the following conditions are satisfied:
(i) the average of the daily closing prices of a share of Acquirer
Common Stock as reported on the consolidated tape of the NYSE during the
Twenty Day Calculation Period (the "Acquirer Average Price") is less than
$28.38; and
(ii) the number obtained by dividing the Acquirer Average Price by
$35.4792 is less than the number obtained by dividing the Final Index Price
(as defined below) by the Initial Index Price (as defined below) and
subtracting .20 from such quotient;
PROVIDED, HOWEVER, that Seller shall not be permitted to terminate this
Agreement pursuant to the provisions of this Section 8.01(h) if Acquirer agrees
to adjust the Exchange Ratio in such a manner as to provide the shareholders of
Seller with Merger Consideration per share of Seller Common Stock with a value
(using the Acquirer Average Price) greater than or equal to $36.80. For purposes
of this Section 8.01(h):
(A) The "Index Group" shall mean all of those companies listed on
Schedule 8.01(h), the common stock of which is publicly traded and as to
which there is no pending publicly announced proposal at any time during
the Twenty Day Calculation Period for such company to be acquired. In the
event that any such company or companies are so removed from the Index
Group, the weights attributed to the remaining companies shall be
adjusted proportionately.
(B) The "Initial Index Price" shall mean the weighted average
(weighted in accordance with the factors listed on Schedule 8.01(h)) of
the closing prices for the period from and including May 6, 1999 to and
including May 18, 1999 of the companies comprising the Index Group.
(C) The "Final Price" of any company belonging to the Index Group
shall mean the average of the daily closing sale prices of a share of
common stock of such company, as reported on the consolidated transaction
reporting system for the market or exchange on which such common stock is
principally traded, during the Twenty Day Calculation Period.
A-35
<PAGE>
(D) The "Final Index Price" shall mean the weighted average (weighted
in accordance with the factors listed on Schedule 8.01(h)) of the Final
Prices for all of the companies comprising the Index Group.
(E) The "Twenty Day Calculation Period" shall mean the 20
consecutive trading days ending at the end of the third business day
prior to the Effective Date.
(F) If Acquirer or any company belonging to the Index Group declares
a stock dividend or effects a reclassification, recapitalization,
split-up, combination, exchange of shares or similar transaction between
the date of this Agreement and the date three days prior to the Effective
Date, the closing prices for the common stock of such company shall be
appropriately adjusted for the purposes of the definitions above so as to
be comparable to the price on the date of this Agreement.
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 Seller Option Agreement.
8.03 TERMINATION EXPENSES.
(a) In the event of termination of this Agreement and the abandonment of the
Merger at any time (a) by Acquirer pursuant to Sections 8.01(b), 8.01(e) or
8.01(g) or (b) by Acquirer or Seller pursuant to Section 8.01(d)(ii) as a result
of the failure to receive the shareholder approval at the Seller Meeting
contemplated by Section 6.02 (but only in the event that it shall have been
publicly announced that any Person (other than Acquirer) shall have made, or
disclosed an intention to make, a Takeover Proposal) and in order to compensate
Acquirer for the expenses associated with the negotiation of this Agreement and
the other matters contemplated hereby, Seller shall, within one business day
following such termination, pay Acquirer a fee of $5,000,000 in immediately
available funds. Acquirer'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
shareholders of Seller. Upon and after payment of such fee to Acquirer, Seller
shall not have any liability to Acquirer for any breach (including a willful
breach) by Seller specified in Section 8.01(b).
(b) In the event of termination of this Agreement and the abandonment of the
Merger at any time by Seller pursuant to Section 8.01(b) and in order to
compensate Seller for the expenses associated with the negotiation of this
Agreement and the other matters contemplated hereby, Acquirer shall, within one
business day following such termination, pay Seller a fee of $5,000,000 in
immediately available funds. Seller'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 shareholders of Acquirer. Upon and after payment of such fee to Seller,
Acquirer shall not have any liability to Seller for any breach (other than a
willful breach) by Acquirer specified in Section 8.01(b).
ARTICLE IX
MISCELLANEOUS
9.01 SURVIVAL. No representations, warranties, agreements and covenants
contained in this Agreement shall survive the Effective Time (other than those
covenants and agreements which by their terms apply in whole or in part after
the Effective Time, and this Article IX which shall survive the Effective Time)
or the termination of this Agreement (other than Sections 6.05(b), 8.02 and
8.03, and this Article IX, each of which shall survive such termination).
A-36
<PAGE>
9.02 WAIVER; AMENDMENT.
(a) At any time prior to the Effective Time, each of the parties hereto, by
action taken or authorized by its Board of Directors, may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations or
other acts of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions of the other party contained herein. Any agreement on
the part of a party hereto to any such extension or waiver shall be valid only
if set forth in a written instrument signed on behalf of such party, but such
extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
(b) Prior to the Effective Time, any provision of this Agreement may be
amended or modified at any time, by an agreement in writing between the parties
hereto executed in the same manner as this Agreement, except that after the
Seller Meeting, this Agreement may not be amended if it would violate the CGCL
or reduce the amount or change the form of the consideration to be received by
Seller shareholders in the Merger.
9.03 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to constitute an original.
9.04 GOVERNING LAW; WAIVER OF JURY TRIAL. This Agreement shall be governed by,
and interpreted in accordance with, the laws of the State of Delaware applicable
to contracts made and to be performed entirely within such State (except to the
extent that mandatory provisions of Federal law apply). Each of the parties
hereto irrevocably waives any and all right to trial by jury in any legal
proceeding arising out of or related to this Agreement or the transactions
contemplated thereby.
9.05 EXPENSES. Except as otherwise provided in Section 8.03 hereof, each party
hereto will bear all expenses incurred by it in connection with this Agreement
and the transactions contemplated hereby.
9.06 NOTICES. All notices, requests and other communications hereunder to a
party shall be in writing and shall be deemed given if personally delivered,
telecopied (with confirmation) or mailed by registered or certified mail (return
receipt requested) to such party at its address set forth below or such other
address as such party may specify by notice to the parties hereto.
<TABLE>
<S> <C>
If to Seller, to: Western Bancorp
4100 Newport Place
Suite 900
Newport Beach, California 92660
Attention: Julius G. Christensen, Esq.
Facsimile: (949) 757-5844
With a copy to: Irell & Manella LLP
333 South Hope Street, Suite 3300
Los Angeles, California 90071-3042
Attention: Ken Ikari, Esq.
Facsimile: (213) 229-0515
</TABLE>
A-37
<PAGE>
<TABLE>
<S> <C>
If to Acquirer, to: U.S. Bancorp
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402
Attention: Lee R. Mitau, Esq.
Facsimile: (612) 973-4333
With a copy to: Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
Attention: Jay L. Swanson, Esq.
Elizabeth C. Hinck, Esq.
Facsimile: (612) 340-8738
</TABLE>
9.07 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Agreement
represents the entire understanding of the parties hereto with reference to the
transactions contemplated hereby and thereby and this Agreement supersedes any
and all other oral or written agreements heretofore made, in each case other
than the Seller Option Agreement and the Confidentiality Agreement. Except as
otherwise expressly provided herein, nothing in this Agreement is intended to
confer upon any Person, other than the parties hereto or their respective
successors, any rights, remedies, obligations or liabilities under or by reason
of this Agreement.
9.08 INTERPRETATION; EFFECT. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of, or
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and are not part of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." The phrases "the date of this
Agreement", "the date hereof" and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to May 19, 1999.
9.09 ENFORCEMENT OF AGREEMENT. The parties hereto agree that irreparable
damage would occur in the event that the provisions contained in Section 6.05(b)
of this Agreement were not performed in accordance with their respective
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
Section 6.05(b) of this Agreement and to enforce specifically the terms and
provisions thereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
A-38
<PAGE>
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.
<TABLE>
<S> <C> <C>
WESTERN BANCORP
By
-----------------------------------------
Name: Matthew P. Wagner
Title: President and Chief Executive
Officer
U.S. BANCORP
By
-----------------------------------------
Name: Susan E. Lester
Title: Executive Vice President and
Chief Financial Officer
</TABLE>
A-39
<PAGE>
SCHEDULE 8.01(h)
This Schedule has been excerpted from the Disclosure Schedule delivered by
Western Bancorp to U.S. Bancorp on May 19, 1999. This schedule is included
solely for informational purposes in connection with the discussion of "THE
MERGER--Termination of the Agreement" in the Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
INITIAL
AVG PRICE INDEX
INDEX GROUP 5/16-5/18 WEIGHTING PRICE
- ------------------------- ----------- ------------ ---------
<S> <C> <C> <C>
Bank of New York 37.5764 8.815% 3.3122
Bank One Corp 60.4508 6.064% 3.6657
Comerica Inc. 65.1389 5.500% 3.5827
Fifth Third Banc 72.6424 4.598% 3.3400
First Union Corp 53.7153 6.874% 3.6923
Firstar Corp 29.0556 9.839% 2.8589
Fleet Financial Group 42.9653 8.167% 3.5088
Keycorp 33.7917 9.270% 3.1324
Mellon Bank Corp 64.5382 5.572% 3.5963
National City Corp 70.7639 4.824% 3.4135
PNC Bank Corp 56.8958 6.491% 3.6933
Summit Bancorp 42.3264 8.243% 3.4891
Suntrust Banks 69.5903 4.965% 3.4551
Wachovia Corp 89.8403 2.530% 2.2727
Wells Fargo Co. 42.2847 8.248% 3.4878
----------- ------------ ---------
831.5758 100.00% 50.5008
</TABLE>
A-40
<PAGE>
APPENDIX B
OPINION OF CREDIT SUISSE FIRST BOSTON CORPORATION
May 19, 1999
Board of Directors
Western Bancorp
1251 Westwood Boulevard
Los Angeles, CA 90024
Ladies and Gentlemen:
You have asked us to advise you with respect to the fairness to the
stockholders of Western Bancorp (the "Company") from a financial point of view
of the consideration to be received by such stockholders pursuant to the terms
of the Agreement and Plan of Merger, dated as of May 19, 1999 the ("Acquisition
Agreement"), between the Company and U.S. Bancorp (the "Acquiror"). The
Acquisition Agreement provides for the merger (the "Merger") of the Company with
the Acquiror, or a wholly owned subsidiary of the Acquiror pursuant to which the
Company will become a wholly owned subsidiary of the Acquiror, and each
outstanding share of common stock, no par value per share, of the Company will
be converted into 1.2915 shares of the Acquiror's common stock, par value $1.25
per share (the "Exchange Ratio").
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company and the Acquiror, as
well as the Acquisition Agreement. We have also reviewed certain other
information, including financial forecasts, provided to us by the Company, and
have met with the Company's and the Acquiror's management to discuss the
business and prospects of the Company and the Acquiror.
We have also considered certain financial and stock market data of the
Company and the Acquiror, and we have compared those data with similar data for
other publicly held companies in businesses similar to the Company and the
Acquiror and we have considered 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 (including the estimate of future cost savings and revenue
enhancements), we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the Company's
and the Acquiror's management as to the future financial performance of the
Company and the Acquiror. In addition, we have not been requested to make, and
have not made, an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Company or the Acquiror, nor have
we been furnished with any such evaluations or appraisals. Our opinion is
necessarily based upon 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 Acquiror common stock when issued to the Company's
stockholders pursuant to the Merger or the prices at which such Acquiror common
stock will trade subsequent to the Merger.
B-1
<PAGE>
We have acted as financial advisor to Board of Directors in connection with
the Merger and will receive a fee for our services, which is contingent upon the
consummation of the Merger.
In the ordinary course of our business, we and our affiliates may actively
trade the debt and equity securities of both the Company and the Acquiror for
our and such affiliates' own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of the Company in connection with its consideration of the Merger,
does not constitute a recommendation to any stockholder as to how such
stockholder should vote on 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 of the
date hereof, the Exchange Ratio is fair to the stockholders of the Company from
a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
By: __________________________________
B-2
<PAGE>
APPENDIX C
CALIFORNIA CORPORATION CODE SECTIONS DEALING WITH DISSENTERS' RIGHTS
SECTION 1300. REORGANIZATION OR SHORT-FORM MERGER; DISSENTING SHARES; CORPORATE
PURCHASE AT FAIR MARKET VALUE; DEFINITIONS.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the
corporation entitled to vote on the transaction and each shareholder of a
subsidiary corporation in a short-form merger may, by complying with this
chapter, require the corporation in which the shareholder holds shares to
purchase for cash at their fair market value the shares owned by the
shareholder which are dissenting shares as defined in subdivision (b).
The fair market value shall be determined as of the day before the first
announcement of the terms of the proposed reorganization or short-form
merger, excluding any appreciation or depreciation in consequence of the
proposed action, but adjusted for any stock split, reverse stock split,
or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o)
of Section 25100 or (B) listed on the list of OTC margin stocks
issued by the Board of Governors of the Federal Reserve System, and
the notice of meeting of shareholders to act upon the reorganization
summarizes this section and Sections 1301, 1302, 1303 and 1304;
provided, however, that this provision does not apply to any shares
with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares
described in subparagraph (A) or (B) if demands for payment are filed
with respect to 5 percent or more of the outstanding shares of that
class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not
voted in favor of the reorganization or, (B) if described in
subparagraph (A) or (B) of paragraph (1) (without regard to the
provisos in that paragraph), were voted against the reorganization,
or which were held of record on the effective date of a short-form
merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the
approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
C-1
<PAGE>
SECTION 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR FAIR
MARKET VALUE; LIMITATION; JOINDER; CONSOLIDATION; DETERMINATION OF ISSUES;
APPOINTMENT OF APPRAISERS.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value
of the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after
the date on which notice of the approval by the outstanding shares
(Section 152) or notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, but not thereafter, may file a complaint in
the superior court of the proper county praying the court to determine
whether the shares are dissenting shares or the fair market value of the
dissenting shares or both or may intervene in any action pending on such
a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting
shares is in issue, the court shall determine, or shall appoint one or
more impartial appraisers to determine, the fair market value of the
shares.
C-2
<PAGE>
APPENDIX D
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of May 19, 1999, between U.S. BANCORP, a
Delaware corporation ("Grantee"), and WESTERN BANCORP, a California corporation
("Issuer").
WITNESSETH:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger (the "Merger Agreement") immediately prior to the execution and delivery
hereof;
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, 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 on or prior to the date hereof:
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein 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
4,201,049 fully paid and nonassessable shares of the common stock, no par value,
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 May 17, 1999; 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, however, 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 are subject to adjustment as herein
set forth.
(b) In the event that any additional shares of Common Stock are issued
or otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement and other than pursuant to an event described in
Section 5(a)), 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 (e) of this Section 2) within
six months following the occurrence of the 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 (unless the breach by Issuer giving rise to such right of termination
is non-volitional); or (iii) the passage of 18 months (or such longer period as
provided in Section 10) after
D-1
<PAGE>
termination of the Merger Agreement if such termination is concurrent with or
follows the occurrence of an Initial Triggering Event or is a termination by
Grantee pursuant to Section 8.01(b) of the Merger Agreement (unless the breach
by Issuer giving rise to such right of termination is non-volitional). 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
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, that 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 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, in each such case, 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;
(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,
D-2
<PAGE>
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 non-frivolous 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 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 25% 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 25%.
(d) 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.
(e) 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, however, 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 periods shall have
passed. Any exercise of the Option shall be deemed to occur on the Notice Date
relating thereto.
D-3
<PAGE>
(f) At the closing referred to in subsection (e) 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.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) 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 Stock Option Agreement evidencing the rights of
the Holder thereof to purchase the balance of the shares purchasable hereunder.
(h) 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.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) 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 As assignee,
transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued 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 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
D-4
<PAGE>
amended (the "BHCA"), 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) is 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 without giving effect to any shares subject or
issued pursuant to the Option.
(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 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 effective in
order to permit the sale or other disposition of any shares of Common Stock
issued upon total or
D-5
<PAGE>
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. 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 sale of the Option Shares would interfere with the successful
marketing of the shares of Common Stock offered by Issuer, Grantee agrees to
delay the sale of such Option Shares for such period as may be reasonably
requested by such managing or sole underwriter(s); provided, however, that if
such a delay occurs, then Issuer shall maintain the effectiveness of the
registration statement or file a new registration statement as promptly as
practicable thereafter covering such Option Shares as to which no further delay
pursuant to this Section 6 shall be permitted or occur and the Holder shall
thereafter be entitled to one additional registration and the 12 month period
referred to in the first sentence of this section shall be increased to 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 more than two
registrations pursuant to this Section 8 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 last sale 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 reasonably acceptable to Issuer, divided
D-6
<PAGE>
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 ten 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%.
D-7
<PAGE>
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
D-8
<PAGE>
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 (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 and
reasonably acceptable to the Substitute Option 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 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 such number
of the Substitute Shares as the Substitute Share Owner shall designate at a
price (the "Substitute Share Repurchase Price") equal to (x) the Highest Closing
Price multiplied by the number of Substitute Shares so designated plus (y)
Grantee's Out-of-Pocket Expense. 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 ten 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
D-9
<PAGE>
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 reasonable 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 it 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 14 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 reasonable best 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 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, and
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
D-10
<PAGE>
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 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 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) 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 14 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 $35,000,000 (i) plus, if applicable, Grantee's purchase
price with respect to any Option Shares then held by it and (ii) minus, if
applicable, the excess of (A) the net cash amounts, if any, received by Grantee
pursuant to any sale of Option Shares (or any other securities into which such
Option Shares were converted or exchanged) to any 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 14 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 14 and (ii) the Surrender Price. The Surrender Price
shall be payable in immediately available funds on or before the fifth 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 14 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
D-11
<PAGE>
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 14(c) (during
which period Grantee may exercise any of its rights hereunder, including any and
all rights pursuant to this Section 14).
(d) Grantee shall have rights substantially identical to those set forth
in paragraphs (a), (b) and (c) of this Section 14 with respect to the Substitute
Option and the Substitute Option Issuer during any period in which the
Substitute Option Issuer would be required to repurchase the Substitute Option
pursuant to Section 9.
15. 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.
16. 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.
17. 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.
18. This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, without regard to the conflict of law principles
thereof.
19. 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.
20. 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.
21. Except as otherwise expressly provided herein 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.
22. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
D-12
<PAGE>
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.
<TABLE>
<S> <C> <C>
U.S. BANCORP
By
-----------------------------------------
Name: Susan E. Lester
Title: Executive Vice President and
Chief Financial Officer
WESTERN BANCORP
By
-----------------------------------------
Name: Matthew P. Wagner
Title: President and Chief Executive
Officer
</TABLE>
D-13
<PAGE>
APPENDIX E
WESTERN BANCORP STOCK INCENTIVE PLAN
WESTERN BANCORP
STOCK INCENTIVE PLAN
(ADOPTED MARCH 16, 1993 AS THE MONARCH
BANCORP 1993 STOCK OPTION PLAN)
(AMENDED MAY 23, 1995)
(AMENDED MAY 15, 1996)
(AMENDED MARCH 19, 1998)
(AMENDED _________, 1999)
1. PURPOSE. The purpose of the Western Bancorp Stock Incentive Plan (the
"Plan") is to strengthen Western Bancorp (the "Corporation") and those
corporations which are or hereafter become subsidiary corporations by providing
an additional means of attracting and retaining competent managerial personnel
and by providing to participating directors, officers, and key employees added
incentives for high levels of performance and for unusual efforts to increase
the earnings of the Corporation and any Subsidiary as defined herein; and to
allow consultants, business associates and others with business relationships
with the Corporation, an opportunity to participate in the ownership of the
Corporation and thereby have an interest in the success and increased value of
the Corporation. The Plan seeks to accomplish these purposes and achieve these
results by providing a means whereby such directors, officers, key employees,
consultants, business associates and others may purchase shares of Common Stock
as defined herein of the Corporation pursuant to Stock Options or Stock Awards
as defined herein granted in accordance with this Plan.
Stock Options granted pursuant to this Plan are intended to be, Incentive
Stock Options as defined herein or Non-Qualified Stock Options as defined
herein, as shall be determined and designated by the Stock Option Committee as
defined herein upon the grant of each Stock Option hereunder. The provisions of
the Plan as amended shall apply to all Options previously issued pursuant to the
Plan.
2. DEFINITIONS, ETC. For the purposes of this Plan, the following terms
shall have the following meanings:
(a) "COMMON STOCK." This term shall mean shares of the Corporation's no
par value common stock, subject to adjustment pursuant to Section 15
(Adjustment Upon Changes in Capitalization) hereunder.
(b) "CORPORATION." This term shall mean Western Bancorp, a California
corporation.
(c) "ELIGIBLE PARTICIPANT." This term shall mean:
(i) all directors of the Corporation or any Subsidiary;
(ii) all full time officers (whether or not they are also directors)
of the Corporation or any Subsidiary;
(iii) all full time key employees (as such persons may be determined
by the Stock Option Committee from time to time) of the Corporation or
any Subsidiary; and
(iv) consultants, business associates or others with important
business relationships with the Corporation.
(d) "FAIR MARKET VALUE." This term shall mean, as of any date, the fair
market value of the Corporation's Common Stock determined as follows:
E-1
<PAGE>
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation, the National
Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, the Fair Market Value of a share
of Common Stock shall be the closing sales price for such stock (or the
closing bid, if no sales are reported) as quoted on such system or
exchange (or the exchange with the greatest volume of trading in the
Common Stock) on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other
source as the Stock Option Committee deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not on
the National Market System thereof) or is regularly quoted by recognized
securities dealers but selling prices are not reported, the Fair Market
Value of a share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day
prior to the day of determination, as reported in the Wall Street journal
or such other source as the Stock Option Committee deems reliable;
(iii) In the absence of any established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the Stock
Option Committee.
(e) "GRANTEE." This term shall mean (i) any Optionee or (ii) any
Eligible Participant to whom a Stock Award has been granted pursuant to this
Plan, provided that at least part of the Stock Award is outstanding and
unvested.
(f) "INCENTIVE STOCK OPTION." This term shall mean a Stock Option which
is an "Incentive Stock Option" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
(g) "NON-QUALIFIED STOCK OPTION." This term shall mean a Stock Option
which is not an Incentive Stock Option.
(h) "OPTION SHARES." This term shall mean shares of Common Stock which
are covered by and subject to any outstanding unexercised Stock Option
granted pursuant to this Plan.
(i) "OPTIONEE." This term shall mean any Eligible Participant to whom a
stock option has been granted pursuant to this Plan, provided that at least
part of the Stock Option is outstanding and unexercised.
(j) "PLAN." This term shall mean the Western Bancorp Stock Incentive
Plan (originally adopted as the Monarch Bancorp 1993 Stock Option Plan) as
embodied herein and as may be amended from time to time in accordance with
the terms hereof and applicable law.
(k) "STOCK AWARD." This term shall mean a grant by the Corporation of a
specified number of shares of Common Stock upon terms and conditions
determined by the Stock Option Committee.
(l) "STOCK OPTION." This term shall mean the right to purchase from the
Corporation a specified number of shares of Common Stock under the Plan at a
price and upon terms and conditions determined by the Stock Option
Committee.
(m) "STOCK OPTION COMMITTEE." The Board of Directors of the Corporation
may select and designate a stock option committee consisting of at least two
and not more than five persons, at least two of whom are directors, having
full authority to act in the matters. Regardless of whether a Stock Option
Committee is selected, the Board of Directors may act as the Stock Option
Committee and any action taken by the Board of Directors as such shall be
deemed to be action taken by the Stock Option Committee. All references in
the Plan to the "Stock Option Committee" shall be deemed references to the
Board of Directors acting as a stock option
E-2
<PAGE>
committee and to a duly appointed Stock Option Committee, if there be one.
In the event of any conflict between any action taken by the Board of
Directors acting as a Stock Option Committee and any action taken by a duly
appointed Stock Option Committee, the action taken by the Board of Directors
shall be controlling and the action taken by the duly appointed Stock Option
Committee shall be disregarded.
(n) "SUBSIDIARY." This term shall mean any subsidiary corporation of
the Corporation as such term is defined in Section 424(f) of the Internal
Revenue Code of 1986, as amended.
(o) "TERMINATING EVENT." This term shall mean:
(i) the consummation of a plan of dissolution or liquidation of the
Corporation;
(ii) the individuals who, as of the 1998 Annual Meeting of
Shareholders of the Corporation, are members of the Board of Directors of
the Corporation ("Incumbent Board"), cease for any reason to constitute
at least two-thirds of the members of the Board; provided, however, that
if the election, or nomination for election by the Corporation's
shareholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes
of this Plan, be considered as a member of the Incumbent Board; provided,
further, however, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result
of either an actual or threatened "Election Contest" (as described in
Rule 14a-11 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) or other actual or threatened solicitation
of proxies or consents by or on behalf of a "Person" (as the term person
is used for purposes of Section 13(d) or 14(d) of the Exchange Act) other
than the Board of Directors (a "Proxy Contest") including by reason of
any agreement intended to avoid or settle any Election Contest or Proxy
Contest;
(iii) the consummation of a plan of reorganization, merger or
consolidation involving the Corporation, except for a reorganization,
merger or consolidation where (A) the shareholders of the Corporation
immediately prior to such reorganization, merger or consolidation own
directly or indirectly at least 70% of the combined voting power of the
outstanding voting securities of the corporation resulting from such
reorganization, merger or consolidation (the "Surviving Corporation") in
substantially the same proportion as their ownership of voting securities
of the Corporation immediately prior to such reorganization, merger or
consolidation, and (B) the individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement providing for
such reorganization, merger or consolidation constitute at least two-
thirds of the members of the board of directors of the Surviving
Corporation, or a corporation beneficially directly or indirectly owning
a majority of the voting securities of the Surviving Corporation;
(iv) the sale of all or substantially all the assets of the
Corporation to another Person; or
(v) the acquisition of beneficial ownership of stock representing
more than fifty percent (50%) of the voting power of the Corporation then
outstanding by another Person.
(p) "VESTING EVENT." This term shall mean the approval by the
shareholders of the corporation of any matter, plan or transaction which
would constitute a Terminating Event, or if any Terminating Event occurs
without shareholder approval, the occurrence of such Terminating Event. In
addition, all share numbers are stated in this Plan after giving effect to
the adjustment required by Section 15 hereof to reflect the 8.5 for 1
reverse stock split effected by the Corporation on June 3, 1997.
E-3
<PAGE>
3. ADMINISTRATION.
(a) STOCK OPTION COMMITTEE. This Plan shall be administered by the
Stock Option Committee. The Board of Directors of the Corporation shall have
the right, in its sole and absolute discretion, to remove or replace any
person from or on the Stock Option Committee at any time for any reason
whatsoever.
(b) ADMINISTRATION OF THE PLAN. Any action of the Stock Option
Committee with respect to the administration of the Plan shall be taken
pursuant to a majority vote, or pursuant to the unanimous written consent,
of its members. Any such action taken by the Stock Option Committee in the
administration of this Plan shall be valid and binding, so long as the same
is in conformity with the terms and conditions of this Plan. Subject to
compliance with each of the terms, conditions and restrictions set forth in
this Plan, including, but not limited to, those set forth in Section 6(a)
hereof, the Stock Option Committee shall have the exclusive right, in its
sole and absolute discretion, to establish the terms and conditions of any
Stock Options granted under the Plan, including, without limitation, the
power to:
(i) establish the number of Stock Options or Stock Awards, if any,
to be granted hereunder, in the aggregate and with regard to any
individual Eligible Participant;
(ii) determine the time or times when such Stock Options or Stock
Awards, or any parts thereof, may vest or be exercised;
(iii) determine and designate which Stock Options granted under the
Plan shall be Incentive Stock Options and which shall be Non-Qualified
Stock Options;
(iv) determine the Eligible Participants, if any, to whom Stock
Options or Stock Awards are granted;
(v) determine the duration and purposes, if any, of leaves of
absence which may be permitted to holders of unexercised, unexpired Stock
Options without such constituting a termination of employment under the
Plan;
(vi) prescribe and amend the terms, provisions and form of any
instrument or agreement setting forth the terms and conditions of every
Stock Option or Stock Award granted hereunder (such terms and conditions
to include, without limitation, the exercise price, the time or times
when Stock Options or Stock Awards may vest or be exercised (which may be
based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any
Stock Option, Stock Award or the Option Shares or Common Stock relating
thereto); and
(vii) make loans to or guarantee any obligations of any Optionees,
except directors, in connection with the exercise of Stock Options as
specified in Section 8(c) hereof, whenever the Stock Option Committee
determines that such loan or guarantee may reasonably be expected to
benefit the corporation, subject to the provisions of Section 315(b) of
the California General Corporations Law of 1977, as amended and subject
to Regulations G, U and T promulgated by the Board of Governors of the
Federal Reserve System pursuant to Section 7 of the Securities Exchange
Act of 1934, if the Option Shares are listed on a stock exchange or are
contained in the list of over-the-counter margin securities published by
the Federal Reserve Board.
(c) DECISIONS AND DETERMINATIONS. Subject to the express provisions of
the Plan, the Stock Option Committee shall have the authority to construe
and interpret the Plan, to define the terms used therein, to prescribe,
amend, and rescind rules, regulations and policies relating to the
administration of the Plan, and to make all other determinations necessary
or advisable for administration of the Plan. Determinations of the Stock
Option Committee on matters referred to
E-4
<PAGE>
in this Section 3 shall be final and conclusive so long as the same are in
conformity with the terms of this Plan.
4. SHARES SUBJECT TO THE PLAN. Subject to adjustments as provided in
Section 15 hereof, the maximum number of shares of Common Stock which may be
issued upon exercise of Stock Options or pursuant to Stock Awards granted under
this Plan shall be 1,500,000 shares in the aggregate (including the shares of
Common Stock issuable upon exercise of Stock Options previously granted under
the Plan). If any Stock Option or Stock Award shall be canceled, surrendered, or
expire for any reason without having been exercised or received in full, the
unpurchased Common Stock represented thereby shall again be available for grants
under this Plan.
5. ELIGIBILITY. Only Eligible Participants shall be eligible to receive
grants of Stock Options and Stock Awards under this Plan.
6. GRANTS OF STOCK OPTIONS.
(a) GRANT. Subject to the express provisions and limitations of the
Plan, the Stock Option Committee, in its sole and absolute discretion, may
grant Stock Options to Eligible Participants exercisable, for a number of
Option Shares, at the price(s) and time(s), on the terms and conditions and
to such Eligible Participants as it deems advisable and specifies in the
respective grants. Subject to the limitations and restrictions set forth in
the Plan, an Eligible Participant who has been granted a Stock Option or
Stock Award may, if otherwise eligible, be granted additional Stock Options
if the Stock Option Committee shall so determine. The Stock Option Committee
shall designate in each grant of a Stock Option whether the Stock Option is
an Incentive Stock Option or a Non-Qualified Stock Option. No Eligible
Participant shall be granted in any fiscal year of the Corporation Stock
Options to purchase more than 100,000 Option Shares. If a Stock Option
expires or terminates for any reason without having been exercised in full,
the unpurchased shares subject to such expired or terminated option will
continue to count against the maximum number of shares for which Stock
Options may be granted to an Eligible Participant in any fiscal year of the
Corporation or portion thereof. The limitations set forth in the two
preceding sentences are intended to satisfy the requirements applicable to
Stock Options such that they qualify as "performance-based compensation"
(within the meaning of Section 162(m) of the Internal Revenue Code of 1986,
as amended).
(b) DATE OF GRANT AND RIGHTS OF OPTIONEE. The determination of the
Stock Option Committee to grant a Stock Option shall not in any way
constitute or be deemed to constitute an obligation of the Corporation, or a
right of the Eligible Participant who is the proposed subject of the grant,
and shall not constitute or be deemed to constitute the grant of a Stock
Option hereunder unless and until both the Corporation and the Eligible
Participant have executed and delivered the form of stock option agreement
then required by the Stock Option Committee as evidencing the grant of the
Stock Option, together with such other instruments as may be required by the
Stock Option Committee pursuant to this Plan; provided, however, that the
Stock Option Committee may fix the date of grant as any date on or after the
date of its final determination to grant the Stock Option (or if no such
date is fixed, then the date of grant shall be the date on which the
determination was made by the Stock Option Committee to grant the Stock
Option), and such date shall be set forth in the stock option agreement. The
date of grant as so determined shall be deemed the date of grant of the
Stock Option for purposes of this Plan.
(c) SHAREHOLDER-EMPLOYEES. Notwithstanding anything to the contrary
contained elsewhere herein, an Incentive Stock Option shall not be granted
hereunder to an Eligible Participant who owns, directly or indirectly, at
the date of the grant of the Incentive Stock Option, more than ten percent
(10%) of the total combined voting power of all classes of capital stock of
the Corporation or a Subsidiary corporation, unless the purchase price of
the Option Shares
E-5
<PAGE>
subject to said Incentive Stock Option is at least one hundred and ten
percent (110%) of the Fair Market Value of the Option Shares, determined as
of the date said Stock Option is granted.
(d) MAXIMUM VALUE OF INCENTIVE STOCK OPTIONS. To the extent that the
aggregate Fair Market Value (determined at the time the Stock Option is
granted) of Option Stock which are designated as Incentive Stock Options are
exercisable for the first time by an Eligible Participant pursuant to the
terms of the Plan during any calendar year exceeds One Hundred Thousand
Dollars ($100,000), such excess Stock Options shall be treated as
Non-Qualified Stock Options.
(e) NON-QUALIFIED STOCK OPTIONS. All Stock Options granted by the Stock
Option Committee which: (i) are designated at the time of grant as Incentive
Stock Options but do not so qualify under the provisions of Section 422 of
the Code or any regulations or rulings issued by the Internal Revenue
Service for any reason; (ii) are in excess of the Fair Market Value
limitation set forth in Section 6(d); or (iii) are designated at the time of
grant as Non-Qualified Stock Options, shall be deemed Non-Qualified Stock
Options under this Plan. Non-Qualified Stock Options granted or substituted
hereunder shall be so designated in the stock option agreement entered into
between the Corporation and the Optionee.
(f) AWARD OF RESTORATION OPTIONS. In the event that any Optionee
delivers to the Corporation, or has withheld from the Option Shares
otherwise issuable upon exercise of an Option, shares of Common Stock in
payment of the exercise price of, or income tax withholding in respect of,
any Option, the Stock Option Committee shall have the right to provide for
the grant of a "Restoration Option" to such Optionee. The grant of a
Restoration Option shall be subject to the satisfaction of such conditions
and criteria as the Stock Option Committee in its sole discretion shall
establish from time to time. A Restoration Option shall entitle the holder
thereof to purchase a number of shares of Common Stock not to exceed the
number of shares delivered or withheld upon exercise of the original Option
plus the number of shares, if any delivered or withheld by the Corporation
to satisfy any withholding tax liability arising in connection with the
exercise of the original Option. A Restoration Option shall have a per share
exercise price of not less than 100% of the per share Fair Market Value of
the Common Stock on the date of grant of such Restoration Option, a term not
longer than the term of the original Option at the time of exercise thereof,
and such other terms and conditions as the Committee in its sole discretion
shall determine.
7. STOCK OPTION EXERCISE PRICE.
(a) MINIMUM PRICE. The exercise price of any Stock Options for Option
Shares shall be determined by the Stock Option Committee, in its sole and
absolute discretion, upon the grant of a Stock Option. Except as provided
elsewhere herein, said exercise price shall not be less than one hundred
percent (100%) of the Fair Market Value of the Common Stock represented by
the Option Share on the date of grant of the related Stock Option.
(b) EXCHANGED STOCK OPTIONS. Where the outstanding shares of stock of
another corporation are changed into or exchanged for shares of Common Stock
of the Corporation without monetary consideration to that other corporation,
then, subject to the approval of the Board or Directors of the Corporation,
Stock Options may be granted in exchange for unexercised, unexpired stock
options of the other corporation, and the exercise price of the Option
Shares subject to each Stock Option so granted may be fixed at a price less
than one hundred percent (100%) of the Fair Market Value of the Common Stock
at the time such Stock Option is granted if said exercise price has been
computed to be not less than the exercise price set forth in the stock
option of the other corporation, with appropriate adjustment to reflect the
exchange ratio of the shares of stock of the other corporation into the
shares of Common Stock of the Corporation.
E-6
<PAGE>
8. EXERCISE OF STOCK OPTIONS.
(a) EXERCISE. Except as otherwise provided elsewhere herein, each Stock
Option shall be exercisable in such increments, which need not be equal, and
upon such contingencies as the Stock Option Committee shall determine at the
time of grant of the Stock Option; provided, however, (i) that if an
Optionee shall not in any given period exercise any part of a Stock Option
which has become exercisable during that period, the Optionee's right to
exercise such part of the Stock Option shall continue until expiration of
the Stock Option or any part thereof as may be provided in the related stock
option agreement, and (ii) a minimum of twenty percent (20%) of the Stock
Option shall be exercisable in each year over a five year period from the
date the Stock Option is granted. No Stock Option or part thereof shall be
exercisable except with respect to whole shares of Common Stock, and
fractional share interests shall be disregarded except that they may be
accumulated.
(b) NOTICE AND PAYMENT. Stock Options granted hereunder shall be
exercised by written notice delivered to the Corporation specifying the
number of Option Shares with respect to which the Stock Option is being
exercised, together with concurrent payment in full of the exercise price as
hereinafter provided in Section 8(c) hereof. If the Stock Option is being
exercised by any person or persons other than the Optionee, said notice
shall be accompanied by proof, satisfactory to counsel for the Corporation,
of the right to such person or persons to exercise the Stock Option. The
Corporation's receipt of a notice of exercise without concurrent receipt of
the full amount of the exercise price shall not be deemed an exercise of a
Stock Option by an Optionee, and the Corporation shall have no obligation to
an Optionee for any Option Shares unless and until full payment of the
exercise price is received by the Corporation in accordance with Section
8(c) hereof, and all of the terms and provisions of the Plan and the related
stock option agreement have been complied with.
(c) PAYMENT OF EXERCISE PRICE. The exercise price of any Stock Option
for Option Shares purchased upon the proper exercise of a Stock Option shall
be paid in full at the time of each exercise of a Stock Option in cash
and/or, with the prior written approval of the Stock Option Committee, in
Common Stock of the Corporation (provided that such shares of Common Stock
have been held by the Eligible Participant for at least six months) which,
when added to the cash payment, if any, has an aggregate Fair Market Value
equal to the full amount of the exercise price of the Stock Option, or part
thereof, then being exercised and/or, with the prior written approval of the
Stock Option Committee, on a deferred basis evidenced by a promissory note,
containing such terms and subject to such security as the Stock Option
Committee shall determine to be fair and reasonable from time to time, for
the total option price for the number of Option Shares so purchased. In
addition, the Stock Option Committee may include in a stock option agreement
provisions permitting an Optionee, upon the exercise of the Stock Option, to
surrender for cancellation a portion of the Stock Option to the Company for
the number of shares (the "Surrendered Shares") specified in the holder's
notice of exercise, by delivery to the Company with such notice written
instructions from such holder to apply the Appreciated Value (as defined
below) of the Surrendered Shares to payment of the exercise price for Option
Shares subject to this Stock Option that are being acquired upon such
exercise. The term "Appreciated Value" for each Option Share subject to a
Stock Option shall mean the excess of the Fair Market Value thereof over the
exercise price then in effect. No director, consultant or business associate
may purchase any Stock Option on a deferred basis unless evidenced by a
promissory note. Unless payment is on a deferred basis, payment by an
Optionee as provided herein shall be made in full concurrently with the
Optionee's notification to the Corporation of his intention to exercise all
or part of a Stock Option. If all or part of payment is made in shares of
Common Stock as heretofore provided, such payment shall be deemed to have
been made only upon receipt by the Corporation
E-7
<PAGE>
of all required share certificates, and all stock powers and other required
transfer documents necessary to transfer the shares of Common Stock to the
Corporation.
(d) REORGANIZATION. Notwithstanding any provision in any stock option
agreement pertaining to the time of exercise of a Stock Option, or part
thereof, upon the occurrence of a Vesting Event, the Stock Option shall
become immediately exercisable as to all Option Shares (whether or not
previously vested).
(e) MINIMUM EXERCISE. Not less than ten (10) Option Shares may be
purchased at any one time upon exercise of a Stock Option unless the number
of shares purchased is the total number which remains to be purchased under
the Stock Option.
9. STOCK AWARDS.
(a) GRANT. Subject to the express provisions and limitations of the
Plan, the Stock Option Committee, in its sole and absolute discretion, may
grant Stock Awards to Eligible Participants for a number of shares of Common
Stock on the terms and conditions and to such Eligible Participants as it
deems advisable and specifies in the respective grants. Subject to the
limitations and restrictions set forth in the Plan, an Eligible Participant
who has been granted a Stock Option or Stock Award may, if otherwise
eligible, be granted additional Stock Options or Stock Awards if the Stock
Option Committee shall so determine.
(b) RESTRICTIONS. The Stock Option Committee, in its sole and absolute
discretion, may impose restrictions in connection with any Stock Award,
including without limitation, (i) imposing a restricted period during which
all or a portion of the Common Stock subject to the Stock Award may not be
sold, assigned, transferred, pledged or otherwise encumbered (the
"Restricted Period"), (ii) providing for a vesting schedule with respect to
such Common Stock such that if a Grantee ceases to be an Eligible
Participant during the Restricted Period, some or all of the shares of
Common Stock subject to the Stock Award shall be immediately forfeited and
returned to the Corporation. The Stock Option Committee may, at any time,
reduce or terminate the Restricted Period. Each certificate issued in
respect of shares of Common Stock pursuant to a Stock Award which is subject
to restrictions shall be registered in the name of the Grantee, shall be
deposited by the Grantee with the Company together with a stock power
endorsed in blank and shall bear an appropriate legend summarizing the
restrictions imposed with respect to such shares of Common Stock.
(c) REORGANIZATION. Notwithstanding any provision in any agreement
pertaining to a Stock Award, or part thereof, upon the occurrence of a
Vesting Event, all shares of Common Stock subject to the Stock Award shall
become immediately vested.
(d) RIGHTS AS SHAREHOLDER. Subject to the terms of any agreement
governing a Stock Award, the Grantee of a Stock Award shall have all the
rights of a shareholder with respect to the Common Stock issued pursuant to
a Stock Award, including the right to vote such shares; provided, however,
that dividends or distributions paid with respect to any such shares which
have not vested shall be deposited with the Company and shall be subject to
forfeiture until the underlying shares have vested unless otherwise released
by the Stock Option Committee in its sole discretion. A Grantee shall not be
entitled to interest with respect to the dividends or distributions so
deposited.
10. COMPLIANCE WITH LAW. No shares of Common Stock shall be issued by the
Corporation pursuant to a Stock Award or upon exercise of any Stock Option, and
a Grantee shall have no rights or claim to such shares, unless and until: (a)
with respect to a Stock Option, payment in full as provided in Section 8(c)
hereof has been received by the Corporation; (b) in the opinion of the counsel
for the Corporation, all applicable registration requirements of the Securities
Act of 1933, all applicable listing requirements of securities exchanges or
associations on which the Corporation's Common Stock is then
E-8
<PAGE>
listed or traded, and all other requirements of law and of regulatory bodies
having jurisdiction over such issuance and delivery, have been fully complied
with; and (c) if required by federal or state law or regulation, the Grantee
shall have paid to the Corporation the amount, if any, required to be withheld
on the amount deemed to be compensation to the Grantee as a result of the
exercise of his or her Stock Option or his or her Stock Award, or made other
arrangements satisfactory to the Corporation, in its sole discretion, to satisfy
applicable income tax withholding requirements.
11. NONTRANSFERABILITY OF STOCK OPTIONS. Each Stock Option shall, by its
terms, be nontransferable by the Optionee other than by will or the laws of
descent and distribution, and shall be exercisable during the Optionee's
lifetime only by the Optionee or his or her guardian or legal representative.
12. CESSATION OF EMPLOYMENT. Except as provided in Sections 13, 14 or 16
hereof, if, for any reason, an Optionee's status as an Eligible Participant is
terminated, the Stock Options granted to such Optionee shall expire on the
expiration dates specified for said Stock Options at the time of their initial
grant, or three (3) months after the Optionee's status as an Eligible
Participant is terminated, whichever is earlier. During such period Stock
Options shall be exercisable only as to those increments, if any, which had
become exercisable as of the date on which such Optionee's status as an Eligible
Participant terminated, and any Stock Options or increments which had not become
exercisable as of such date shall expire and terminate automatically on such
date.
13. DEATH OF OPTIONEE. If an Optionee loses his status as an Eligible
Participant by reason of death, or if an Optionee dies during the three-month
period referred to in Section 12 hereof, the Stock Options granted to such
Optionee shall expire on the expiration dates specified for said Stock Options
at the time of their initial grant, or one (1) year after the date of such
death, whichever is earlier. After such death but before such expiration,
subject to the terms and provisions of the Plan and the related stock option
agreements, the person or persons to whom such Optionee's rights under the Stock
Options shall have passed by will or by the applicable laws of descent and
distribution, or the executor or administrator of the Optionee's estate, shall
have the right to exercise such Stock Options to the extent that increments, if
any, had become exercisable as of the date on which the Optionee died.
14. DISABILITY OF OPTIONEE. If an Optionee is disabled while employed by or
while serving as a director of the Corporation or a Subsidiary or during the
three-month period referred to in Section 12 hereof, the Stock Options granted
to such Optionee shall expire on the expiration dates specified for said Stock
Options at the time of their initial grant, or one (1) year after the date of
such disability, whichever is earlier. After such disability but before such
expiration, the Optionee or a guardian or conservator of the Optionee's estate,
as duly appointed by a court of competent jurisdiction, shall have the right to
exercise such Stock Options to the extent that increments, if any, had become
exercisable as of the date on which the Optionee became disabled or ceased to be
employed by the Corporation or a Subsidiary as a result of the disability. For
the purpose of this Section 14, an Optionee shall be deemed to have become
"disabled" if it shall appear to the Stock Option Committee, upon written
certification delivered to the Corporation by a qualified licensed physician,
that the Optionee has become permanently and totally unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death, or which has lasted
or can be expected to last for a continuous period of not less than twelve (12)
months.
15. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. If the outstanding shares of
Common Stock of the Corporation are increased, decreased, or changed into or
exchanged for a different number or kind of shares or securities of the
Corporation, through a reorganization, merger, recapitalization,
reclassification, stock split, stock dividend, stock consolidation, or
otherwise, without consideration to the Corporation, an appropriate and
proportionate adjustment shall be made in the
E-9
<PAGE>
number and kind of shares as to which Stock Options and Stock Awards may be
granted. A corresponding adjustment changing the number or kind of Option Shares
and Stock Awards and the exercise prices per share allocated to unexercised
Stock Options, or portions thereof, which shall have been granted prior to any
such change, shall likewise be made. Any such adjustment, however, in an
outstanding Stock Option shall be made without change in the total price
applicable to the unexercised portion of the Stock Option, but with a
corresponding adjustment in the price for each Option Share subject to the Stock
Option. Any adjustment under this Section shall be made by the Stock Option
Committee, whose determination as to what adjustments shall be made, and the
extent thereof, shall be final and conclusive. No fractional shares of stock
shall be issued or made available under the Plan on account of any such
adjustment, and fractional share interests shall be disregarded and the
fractional share interest shall be rounded down to the nearest whole number.
16. TERMINATING EVENTS. Not less than thirty (30) days prior to the
occurrence of any Terminating Event, the Stock Option Committee or the Board of
Directors shall notify each Grantee of the pendency of the Terminating Event.
Upon the effective date of the Terminating Event, the Plan shall automatically
terminate and all Stock Options theretofore granted shall terminate and all
unvested Stock Awards shall be cancelled and the underlying Common Stock
forfeited and returned to the Company, unless provision is made in connection
with such transaction for the continuance of the Plan and/or assumption of Stock
Options and unvested Stock Awards theretofore granted, or substitution for such
Stock Options and unvested Stock Awards with new stock options and awards
covering stock of a successor employer corporation, or a parent or subsidiary
corporation thereof, solely at the discretion of such successor corporation, or
parent or subsidiary corporation, with appropriate adjustments as to number and
kind of shares and prices, in which event the Plan, options and awards
theretofore granted shall continue in the manner and under the terms so
provided. If the Plan and unexercised Stock Options shall terminate pursuant to
the foregoing sentence, all persons shall have the right to exercise the Stock
Options then outstanding and not exercised (including those vested pursuant to
Section 8(d) hereof) at such time prior to the consummation of the transaction
causing such termination as the Corporation shall designate, unless the Board of
Directors shall have provided for the cancellation of such Stock Options in
exchange for a cash payment equal to the excess of the Fair Market Value of the
Common Stock as of the date of the Terminating Event over the exercise price of
such Stock Options.
17. AMENDMENT AND TERMINATION. The Board of Directors of the Corporation
may at any time and from time-to-time suspend, amend, or terminate the Plan and
may, with the consent of a Grantee, make such modifications of the terms and
conditions of a Stock Option or Stock Award as it shall deem advisable; provided
that, except as permitted under the provisions of Section 16 hereof, no
amendment or modification may be adopted without the Corporation having first
obtained all necessary regulatory approvals and approval of the holders of a
majority of the Corporation's shares of Common Stock present, or represented,
and entitled to vote at a duly held meeting of shareholders of the Corporation
if the amendment or modification would: (a) increase the number of Shares of
Common Stock which may be issued under the Plan; (b) change any provision of the
Plan which would affect the qualification as an Incentive Stock Option under the
Plan; or (c) make any other change for which shareholder approval is required
pursuant to the provisions of Section 162(m) of the Internal Revenue Code of
1986, as amended. No Stock Option or Stock Award may be granted during any
suspension of the Plan or after termination of the Plan. Amendment, suspension,
or termination of the Plan shall not (except as otherwise provided in Section
8(d) or Section 16 hereof), without the consent of the Grantee, alter or impair
any rights or obligations under any Stock Option or Stock Award theretofore
granted.
18. RIGHTS OF PARTICIPANTS. Neither any Eligible Participant, any Grantee
or any other person shall have any claim or right to be granted any Stock Option
or Stock Award under this Plan, and neither this Plan nor any action taken
hereunder shall be deemed or construed as giving any Eligible Participant,
Grantee, Optionee or any other person any right to be retained in the employ of
E-10
<PAGE>
the Corporation or any subsidiary of the Corporation. Without limiting the
generality of the foregoing, there is no vesting of any right in the
classification of any person as an Eligible Participant, such classification
being used solely to define and limit those persons who are eligible for
consideration of the grant of Stock Options or Stock Awards under the Plan.
19. PRIVILEGES OF STOCK OWNERSHIP: SECURITIES LAW COMPLIANCE: NOTICE OF
SALE. No Grantee shall be entitled to the privileges of stock ownership as to
any Common Stock not actually issued and delivered. No Option Shares may be
purchased upon the exercise of a Stock Option and no Common Stock may be
delivered pursuant to a Stock Award unless and until all then applicable
requirements of all regulatory agencies having jurisdiction and all applicable
requirements of securities exchanges upon which the stock of the Corporation is
listed (if any) shall have been fully complied with. The Corporation will
diligently endeavor to comply with all applicable securities laws before any
options are granted under the Plan and before any stock is issued pursuant to
options or Stock Awards. The Grantee shall, not more than five (5) days after
each sale or other disposition of shares of Common Stock acquired pursuant to
the exercise of Stock Options or pursuant to Stock Awards, give the Corporation
notice in writing of such sale or other disposition.
20. EFFECTIVE DATE OF THE PLAN. The Plan was originally adopted as of March
16, 1993. The Plan was adopted as amended on March , 1999, and shall be
effective immediately, subject to approval of the Plan by the holders of at
least a majority of the corporation's outstanding shares of Common Stock.
21. TERMINATION. Unless previously terminated as aforesaid, the Plan shall
terminate ten (10) years from the earliest date of (i) adoption of the Plan by
the Board of Directors, or (ii) approval of the Plan by holders of at least a
majority of the Corporation's outstanding shares of Common Stock. No Stock
Options or Stock Awards shall be granted under the Plan thereafter, but such
termination shall not affect any Stock Option or Stock Award theretofore
granted.
22. AGREEMENT. Each Stock Option or Stock Award granted under the Plan
shall be evidenced by a written agreement executed by the Corporation and the
Grantee, and shall contain each of the provisions and agreements herein
specifically required to be contained therein, and such other terms and
conditions as are deemed desirable by the Stock Option Committee and are not
inconsistent with the Plan.
23. STOCK OPTION PERIOD. Each Stock Option and all rights and obligations
thereunder shall expire on such date as the Stock Option Committee may
determine, but not later than ten (10) years from the date such Stock Option is
granted, and shall be subject to earlier termination as provided elsewhere in
the Plan.
24. EXCULPATION AND INDEMNIFICATION OF STOCK OPTION COMMITTEE. In addition
to such other rights of indemnification which they may have as officers or
members of the board of directors of the Corporation or as members of any
committee thereof, the present and former members of the Stock Option Committee,
shall be indemnified by the Corporation in accordance with Article Six of the
Restated Articles of Incorporation and to the full extent permitted under
Article VI of the Bylaws and Section 317 of the California General Corporation
Law. The Corporation has the power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, agent or employee of the
Corporation, including members of the Stock Option Committee , whether or not
the Corporation would have the power to indemnify such person under the
provisions of Article VI of the Bylaws. The provisions of this Section shall
apply to the estate, executor and administrator of each member of the Stock
Option Committee.
25. AGREEMENT AND REPRESENTATIONS OF GRANTEE. Unless the shares of Common
Stock covered by this Plan have been registered with the Securities and Exchange
Commission pursuant to Section 5 of the Securities Act of 1933, each Grantee
shall by and upon accepting a Stock Option or
E-11
<PAGE>
Stock Award, represent and agree in writing, for himself or herself and his or
her transferees by will or the laws of descent and distribution, that all shares
of Common Stock acquired pursuant thereto will be acquired for investment
purposes and not for resale or distribution. Upon the exercise of a Stock
Option, or a part thereof, and upon issuance of a Stock Award, Grantee shall,
unless waived by the Corporation, furnish evidence satisfactory to the
Corporation, including written and signed representations, to the effect that
the Common Stock issued thereunder is being acquired for investment purposes and
not for resale or distribution. Furthermore, the Corporation, at its sole
discretion, to assure itself that any sale or distribution by the Grantee
complies with this Plan and any applicable federal or state securities laws, may
take all reasonable steps, including placing stop transfer instructions with the
corporation's transfer agent prohibiting transfers in violation of the Plan and
affixing the following legend (and/or such other legend or legends as the Stock
Option Committee shall require) on certificates evidencing the shares: "IT IS
UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST
THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES." and "THE SHARES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH
RESPECT TO THEM UNDER THE ACT OR A DETERMINATION BY WESTERN BANCORP (OR ANY
SUCCESSOR ENTITY) THAT REGISTRATION IS NOT REQUIRED." At any time that Grantee
contemplates the disposition of any Common Stock acquired pursuant to this Plan
(whether by sale, exchange, gift or other form of transfer) he or she shall
first notify the Corporation of such proposed disposition and shall thereafter
cooperate with the Corporation in complying with all applicable requirements of
law which, in the opinion of counsel for the Corporation, must be satisfied
prior to the making of such disposition. Before consummating such disposition,
the Corporation (or any successor entity) shall determine that such disposition
will not result in a violation of any state or federal securities law or
regulations. The Corporation shall remove any legend affixed to certificates
representing Common Stock pursuant to this Section if and when all of the
restrictions on the transfer of the Common Stock, whether imposed by this Plan
or federal or state law, have terminated. A Grantee who thereafter sells or
disposes of his shares of Common Stock will be required to notify the
Corporation of such sale or disposition within five (5) days after the sale or
disposition.
26. NOTICES. All notices and demands of any kind which the Stock Option
Committee, any Grantee, or any other person may be required or desires to serve
under the terms of this Plan shall be in writing and shall be served by personal
service upon the respective person or by leaving a copy of such notice or demand
at the address of such person as may be reflected in the records of the
Corporation, or in the case of the Stock Option Committee, with the Secretary of
the Corporation, or by mailing a copy thereof by certified or registered mail,
postage prepaid, with return receipt requested. In the case of service by mail,
it shall be deemed complete at the expiration of the third day after the day of
mailing, except for notice of the exercise of any Stock Option and payment of
the Stock Option exercise price, both of which must be actually received by the
Corporation.
27. LIMITATION OF OBLIGATIONS OF THE CORPORATION. Any obligation of the
Corporation arising under or as a result of this Plan or any Stock Option or
Stock Award granted hereunder shall constitute the general unsecured obligation
of the Corporation, and not of the Board of Directors of the Corporation, or any
members thereof, the Stock Option Committee, or any member thereof, any officer
of the Corporation, or any other person or any Subsidiary, and none of the
foregoing, except the Corporation, shall be liable for any debt, obligation,
cost or expense hereunder.
E-12
<PAGE>
28. LIMITATION OF RIGHTS. The Stock Option Committee, in its sole and
absolute discretion, is entitled to determine who, if anyone, is an Eligible
Participant under this Plan, and which, if any, Eligible Participant shall
receive any grant of a Stock Option or Stock Award. No oral or written agreement
by any person on behalf of the Corporation relating to this Plan or any Stock
Option or Stock Award granted hereunder is authorized, and such agreement may
not bind the Corporation or the Stock Option Committee to grant any Stock Option
or Stock Award to any person.
29. SEVERABILITY. If any provision of this Plan as applied to any person or
to any circumstances shall be adjudged by a court of competent jurisdiction to
be void, invalid, or unenforceable, the same shall in no way effect any other
provision hereof, the application of any such provision in any other
circumstances, or the validity of enforceability hereof.
30. CONSTRUCTION. Where the context or construction requires, all words
applied in the plural shall be deemed to have been used in the singular and vice
versa, and the masculine gender shall include the feminine and the neuter.
31. HEADINGS. The headings of the several paragraphs of this Plan are
inserted solely for convenience of reference and are not intended to form a part
of and are not intended to govern, limit or aid in the construction of any term
or provision hereof.
32. SUCCESSORS. This Plan shall be binding upon the respective successors,
assigns, heirs, executors, administrators, guardians and personal
representatives of the Corporation and any Optionee.
33. GOVERNING LAW. This Plan shall be governed by and construed in
accordance with the laws of the State of California.
34. CONFLICT. In the event of any conflict between the terms and provisions
of this Plan, and any other document, agreement or instrument, including,
without limitation, any stock option agreement, the terms and provisions of this
Plan shall control.
E-13
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Delaware law, U.S. Bancorp will indemnify its directors and officers
under certain circumstances against all expenses and liabilities incurred by
them as a result of suits brought against them as such directors and officers.
The indemnified directors and officers must act in good faith and in a manner
they reasonably believe to be in the best interests of U.S. Bancorp, and, with
respect to any criminal action or proceeding, have no reasonable cause to
believe their conduct was unlawful. U.S. Bancorp will not indemnify directors
and officers for expenses in respect of any matter as to which the indemnified
directors and officers shall have been adjudged to be liable to U.S. Bancorp,
unless the court in which such action or suit was brought shall otherwise
determine. U.S. Bancorp may indemnify officers and directors only as authorized
in each specific case upon a determination by the stockholders or disinterested
directors that indemnification is proper because the indemnitee has met the
applicable statutory standard of conduct.
Article Nine of the U.S. Bancorp Restated Certificate of Incorporation, as
amended, provides that a director shall not be liable to U.S. Bancorp or its
stockholders for monetary damages for a breach of fiduciary duty as a director,
except for liability: (i) for any breach of the director's duty of loyalty to
U.S. Bancorp or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under the Delaware statutory provision making directors personally liable for
unlawful payment of dividends or unlawful stock repurchases or redemptions, or
(iv) for any transaction from which the directors derived an improper personal
benefit.
The Bylaws of U.S. Bancorp provide that the officers and directors of U.S.
Bancorp shall be indemnified to the full extent permitted by Delaware law, as
amended from time to time. The U.S. Bancorp Board of Directors has discretion to
indemnify any employee of U.S. Bancorp for actions arising by reason of the
employee's employment with U.S. Bancorp. U.S. Bancorp shall pay expenses
incurred by officers and directors in defending actions in advance of any final
disposition if such officer or director agrees to repay such amounts if it is
ultimately determined that he or she is not entitled to be indemnified under
Delaware law. U.S. Bancorp maintains a standard policy of officers' and
directors' liability insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<C> <S>
(A) EXHIBITS.
2.1 Agreement and Plan of Merger dated May 19, 1999, by and between U.S. Bancorp and
Western. (Included in Proxy Statement/Prospectus as Appendix A.) The registrant agrees
to furnish a supplemental copy of omitted schedules to the Security and Exchange
Commission upon request.
3.1 Bylaws of U.S. Bancorp, as amended. (Incorporated by reference to Exhibit 3.1 to the
report on Form 10-Q for the quarter ended June 30, 1998.)
4.1 Certificate of Designation and Terms of Term Participating Preferred Stock of U.S.
Bancorp. (Incorporated by reference to Exhibit 4.1 to the report on Form S-4, filed
April 2, 1999, file number 333-75603.)
4.2 Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, copies of instruments defining
the rights of holders of long-term debt are not filed. U.S. Bancorp agrees to furnish
a copy thereof to the Securities and Exchange Commission upon request.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
4.3 Warrant Agreement, dated as of October 2, 1995, between U.S. Bancorp and First Chicago
Trust Company of New York, as Warrant Agent and Form of Warrant. (Incorporated by
reference to Exhibits 4.18 and 4.19 to Registration Statement on Form S-3, File No.
33-61667.)
4.4 Warrant Agreement, dated as of November 20, 1990, between Metropolitan Financial
Corporation and American Stock Transfer and Trust Company, as Warrant Agent;
Supplemental Warrant Agreement, dated as of January 24, 1995, between U.S. Bancorp and
American Stock Transfer and Trust Company, as Warrant Agent; and Form of Warrant.
(Incorporated by reference to Exhibit 4E to report on Form 10-K for the year ended
December 31, 1996.)
5.1* Opinion of Dorsey & Whitney LLP, as to legality of the securities being registered.
8.1* Tax opinion of Dorsey & Whitney LLP.
8.2* Tax opinion of Irell & Manella LLP.
23.1 Consent of Dorsey & Whitney LLP (included in Exhibit 5.1)
23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 8.1).
23.3 Consent of Irell & Manella LLP (included in Exhibit 8.2).
23.4 Consent of Ernst & Young LLP (relating to financial statements of U.S. Bancorp).
23.5 Consent of KPMG LLP (relating to financial statements of Western).
23.6 Consent of Vavrinek, Trine, Day & Co., LLP (relating to financial statements of BKLA).
23.7* Consent of Deloitte & Touche LLP (relating to financial statements of California
Commercial Bankshares).
23.8* Consent of Deloitte & Touche LLP (relating to financial statements of SC Bancorp).
23.9* Consent of McGladrey & Pullen, LLP (relating to financial statements of PNB Financial
Group, Inc.).
24.1 Power of Attorney.
27.1 Financial Data Schedule. (Incorporated by reference to Exhibit 27 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 1998.)
27.2 Financial Data Schedule. (Incorporated by reference to Exhibit 27 to the registrant's
Quarterly report on Form 10-Q for the quarter ended March 31, 1999.)
99.1 Form of Proxy for Annual Meeting of Shareholders of Western.
99.2 Consent of Credit Suisse First Boston Corporation.
</TABLE>
- ------------
* To be filed by amendment.
<TABLE>
<C> <S>
(B) FINANCIAL STATEMENT SCHEDULES.
None.
(C) REPORTS, OPINIONS AND APPRAISALS.
None.
</TABLE>
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to its articles, bylaws or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933, and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis, State of Minnesota, on July 9, 1999.
<TABLE>
<S> <C> <C>
U.S. BANCORP
By: /s/ JOHN F. GRUNDHOFER
-----------------------------------------
John F. Grundhofer
CHAIRMAN, PRESIDENT, CHIEF EXECUTIVE
OFFICER AND DIRECTOR
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE AND TITLE DATE
- ------------------------------------------------ ----------------------
<S> <C>
/s/ JOHN F. GRUNDHOFER July 9, 1999
--------------------------------------
John F. Grundhofer
Chairman, President, Chief Executive
Officer, and Director
(principal executive officer)
/s/ SUSAN E. LESTER July 9, 1999
--------------------------------------
Susan E. Lester
Executive Vice President and
Chief Financial Officer
(principal financial officer)
/s/ TERRANCE R. DOLAN July 9, 1999
--------------------------------------
Terrance R. Dolan
Senior Vice President and Controller
(principal accounting officer)
* July 9, 1999
--------------------------------------
Linda L. Ahlers
Director
* July 9, 1999
--------------------------------------
Harry L. Bettis
Director
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE AND TITLE DATE
- ------------------------------------------------ ----------------------
<S> <C>
* July 9, 1999
--------------------------------------
Arthur D. Collins, Jr.
Director
* July 9, 1999
--------------------------------------
Peter H. Coors
Director
* July 9, 1999
--------------------------------------
Robert L. Dryden
Director
* July 9, 1999
--------------------------------------
Joshua Green III
Director
* July 9, 1999
--------------------------------------
Delbert W. Johnson
Director
* July 9, 1999
--------------------------------------
Joel W. Johnson
Director
* July 9, 1999
--------------------------------------
Jerry W. Levin
Director
* July 9, 1999
--------------------------------------
Edward J. Phillips
Director
* July 9, 1999
--------------------------------------
Paul A. Redmond
Director
* July 9, 1999
--------------------------------------
Richard G. Reiten
Director
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE AND TITLE DATE
- ------------------------------------------------ ----------------------
<S> <C>
* July 9, 1999
--------------------------------------
S. Walter Richey
Director
* July 9, 1999
--------------------------------------
Warren R. Staley
Director
*By: /s/ TERRANCE R. DOLAN July 9, 1999
-----------------------------------
Terrance R. Dolan
Pro se and as Attorney-in-Fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
(A) EXHIBITS
2.1 Agreement and Plan of Merger dated May 19, 1999, by and between U.S. Bancorp and Western. (Included
in Proxy Statement/Prospectus as Appendix A.) The registrant agrees to furnish a supplemental copy
of omitted schedules to the Security and Exchange Commission upon request.
3.1 Bylaws of U.S. Bancorp, as amended. (Incorporated by reference to Exhibit 3.1 to the report on Form
10-Q for the quarter ended June 30, 1998.)
4.1 Certificate of Designation and Terms of Term Participating Preferred Stock of U.S. Bancorp.
(Incorporated by reference to Exhibit 4.1 to the report on Form S-4, filed April 2, 1999, file
number 333-75603.)
4.2 Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, copies of instruments defining the rights of
holders of long-term debt are not filed. U.S. Bancorp agrees to furnish a copy thereof to the
Securities and Exchange Commission upon request.
4.3 Warrant Agreement, dated as of October 2, 1995, between U.S. Bancorp and First Chicago Trust Company
of New York, as Warrant Agent and Form of Warrant. (Incorporated by reference to Exhibits 4.18 and
4.19 to Registration Statement on Form S-3, File No. 33-61667.)
4.4 Warrant Agreement, dated as of November 20, 1990, between Metropolitan Financial Corporation and
American Stock Transfer and Trust Company, as Warrant Agent; Supplemental Warrant Agreement, dated
as of January 24, 1995, between U.S. Bancorp and American Stock Transfer and Trust Company, as
Warrant Agent; and Form of Warrant. (Incorporated by reference to Exhibit 4E to report on Form 10-K
for the year ended December 31, 1996.)
5.1* Opinion of Dorsey & Whitney LLP, as to legality of the securities being registered.
8.1* Tax opinion of Dorsey & Whitney LLP.
8.2* Tax opinion of Irell & Manella LLP.
23.1 Consent of Dorsey & Whitney LLP (included in Exhibit 5.1)
23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 8.1).
23.3 Consent of Irell & Manella LLP (included in Exhibit 8.2).
23.4 Consent of Ernst & Young LLP (relating to financial statements of U.S. Bancorp).
23.5 Consent of KPMG LLP (relating to financial statements of Western).
23.6 Consent of Vavrinek, Trine, Day & Co., LLP (relating to financial statements of BKLA).
23.7* Consent of Deloitte & Touche LLP (relating to financial statements of California Commercial
Bankshares).
23.8* Consent of Deloitte & Touche LLP (relating to financial statements of SC Bancorp).
23.9* Consent of McGladrey & Pullen, LLP (relating to financial statements of PNB Financial Group, Inc.).
24.1 Power of Attorney.
27.1 Financial Data Schedule. (Incorporated by reference to Exhibit 27 to the registrant's Annual Report
on Form 10-K for the year ended December 31, 1998.)
27.2 Financial Data Schedules. (Incorporated by reference to Exhibit 27 to the registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999.)
99.1 Form of Proxy for Annual Meeting of Shareholders of Western.
99.2 Consent of Credit Suisse First Boston Corporation.
</TABLE>
- ------------
* To be filed by amendment.
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of U.S. Bancorp
dated July 9, 1999 and to the incorporation by reference therein of our
report dated January 20, 1999, with respect to the consolidated financial
statements of U.S. Bancorp included in its Annual Report (Form 10-K) for the
year ended December 31, 1998, filed with the Securities and Exchange
Commission.
Minneapolis, Minnesota
July 6, 1999
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Western Bancorp:
We consent to the incorporation by reference in the U.S. Bancorp
registration statement on Form S-4 of our report dated February 3, 1999,
relating to the consolidated balance sheets of Western Bancorp as of December
31, 1998 and 1997, and the related consolidated statements of operations,
comprehensive income, changes in shareholders' equity and cash flows for each of
the years in the three-year period ended December 31, 1998, which report appears
in the December 31, 1998, annual report on Form 10-K of Western Bancorp, and to
the reference to our firm under the heading "Experts" in the Proxy
Statement/Prospectus. Our report, dated February 3, 1999, contains explanatory
paragraphs indicating that: (i) We did not audit the 1996 consolidated financial
statements of California Commercial Bankshares or SC Bancorp. Those statements
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for California Commercial
Bankshares and SC Bancorp in the 1996 consolidated financial statements of
Western Bancorp, is based on the reports of the other auditors; (ii) We did not
audit either the 1996 or 1997 financial statements of Bank of Los Angeles. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Bank of Los
Angeles in the 1996 and 1997 consolidated financial statements of Western
Bancorp, is based solely on the report of the other auditors; and (iii) We did
not audit either the 1996, 1997, or 1998 consolidated financial statements of
PNB Financial Group. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to
amounts included for PNB Financial Group in the 1996, 1997 and 1998 consolidated
financial statements of Western Bancorp, is based solely on the report of the
other auditors.
KPMG LLP
Los Angeles, California
July 8, 1999
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our Independent Auditor's Report dated
January 23, 1998 regarding the balance sheets of Bank of Los Angeles as of
December 31, 1997 and 1996 and the related statements of operations, changes in
shareholder's equity and cash flows for each of the three years in the period
ending December 31, 1997, in the Form 10-K filed by Western Bancorp with the
Securities and Exchange Commission, and incorporated by reference in the
Registration Statement on Form S-4 filed by U.S. Bancorp, and the reference to
our firm as experts.
VAVRINEK, TRINE, DAY & CO., LLP
Rancho Cucamonga, CA
July 9, 1999
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Lee R. Mitau, Susan E. Lester
and Terrance R. Dolan and each of them, his or her true and lawful
attorneys-in-fact and agents, each acting alone, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign one or more Registration
Statements on Form S-4 of U.S. Bancorp, and any and all amendments thereto,
including post-effective amendments, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, may lawfully do or
cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John F. Grundhofer Chairman, President, Chief --------------, 1999
- ------------------------- Executive Officer and
John F. Grundhofer Director (principal executive
officer)
- ------------------------- Executive Vice President and --------------, 1999
Susan E. Lester Chief Financial Officer
(principal financial officer)
- ------------------------- Senior Vice President and --------------, 1999
Terrance R. Dolan Controller
(principal accounting officer)
/s/ Linda L. Ahlers Director June 14 , 1999
- ------------------------- --------------
Linda L. Ahlers
/s/ Harry L. Bettis Director June 16 , 1999
- ------------------------- --------------
Harry L. Bettis
/s/ Arthur D. Collins, Jr. Director June 14 , 1999
- ------------------------- --------------
Arthur D. Collins, Jr.
/s/ Peter H. Coors Director June 14 , 1999
- ------------------------- --------------
Peter H. Coors
<PAGE>
<S> <C> <C>
/s/ Robert L. Dryden Director June 11 , 1999
- ------------------------- --------------
Robert L. Dryden
/s/ Joshua Green III Director May 11 , 1999
- ------------------------- --------------
Joshua Green III
/s/ Delbert W. Johnson Director , 1999
- ------------------------- --------------
Delbert W. Johnson
/s/ Joel W. Johnson Director June 14 , 1999
- ------------------------- --------------
Joel W. Johnson
/s/ Jerry W. Levin Director June 15 , 1999
- ------------------------- --------------
Jerry W. Levin
/s/ Edward J. Phillips Director June 14 , 1999
- ------------------------- --------------
Edward J. Phillips
/s/ Paul A. Redmond Director , 1999
- ------------------------- --------------
Paul A. Redmond
/s/ Richard G. Reiten Director June 11 , 1999
- ------------------------- --------------
Richard G. Reiten
/s/ S. Walter Richey Director , 1999
- ------------------------- --------------
S. Walter Richey
/s/ Warren R. Staley Director June 14 , 1999
- ------------------------- --------------
Warren R. Staley
</TABLE>
<PAGE>
PLEASE SIGN AND DATE BELOW
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT-PROSPECTUS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE OF "FOR" PROPOSAL 1, PROPOSAL 2 AND
PROPOSAL 3. THE PROXY CONFERS AUTHORITY TO AND SHALL BE VOTED "FOR" PROPOSAL 1,
PROPOSAL 2 AND PROPOSAL 3 UNLESS "AGAINST" OR "ABSTAIN" IS INDICATED, IN WHICH
CASE THE PROXY SHALL BE VOTED IN ACCORDANCE WITH SUCH INSTRUCTIONS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE OF "AGAINST" PROPOSAL 4. THE PROXY
CONFERS AUTHORITY TO AND SHALL BE VOTED "AGAINST" PROPOSAL 4 UNLESS "FOR" OR
"ABSTAIN" IS INDICATED, IN WHICH CASE THE PROXY SHALL BE VOTED IN ACCORDANCE
WITH SUCH INSTRUCTIONS. IF ANY OTHER BUSINESS IS PRESENTED AT THE ANNUAL
MEETING, THIS PROXY SHALL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF A
MAJORITY OF THE BOARD OF DIRECTORS.
Please sign exactly as name appears on stock certificates. When shares are
held by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please sign in full corporate name by
president or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
<TABLE>
<CAPTION>
<S> <C>
Number of Shares ----------------------------- Date: ----------------------------------------
----------------------------- Signature
----------------------------- Signature,
if held jointly.
I (we) do [ ] do not [ ] expect to attend the
Annual Meeting.
Number of persons-----------------------------
</TABLE>
PLEASE MARK, DATE AND SIGN THIS PROXY, AND RETURN IT PROMPTLY USING THE ENCLOSED
RETURN ENVELOPE.
<PAGE>
REVOCABLE PROXY
WESTERN BANCORP
ANNUAL MEETING OF SHAREHOLDERS-- , 1999
The undersigned shareholder(s) of Western Bancorp ("Western") hereby
nominate(s), constitute(s) and appoint(s) Hugh S. Smith, Jr. and Matthew P.
Wagner, and each of them, the attorney, agent, and proxy of the undersigned,
with full power of substitution, to vote all stock of Western that the
undersigned is entitled to vote at the Annual meeting of Shareholders (the
"Annual Meeting") of Western, to be held at 4100 Newport Place, Third Floor,
Newport Beach, California 92660 on , 1999 at and any and all
adjournments thereof, as fully and with the same force and effect as the
undersigned might or could do if personally present thereat, in the manner
indicated below on any other matters properly brought before the Annual Meeting
or any adjournments thereof, as set forth in the Proxy Statement-Prospectus as
follows:
Please mark your choice in the / / in blue or black ink.
1. To consider and vote on a proposal to approve the principal terms of the
proposed merger of Western with and into U.S. Bancorp pursuant to the
Agreement and Plan of Merger.
<TABLE>
<S> <C> <C>
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
2. To consider and approve the election of twelve persons to the Western
Board of Directors to serve until the Merger is consummated or, if the
Merger is not consummated, until the 2000 Annual Meeting of Shareholders
at which their successors will be elected and duly qualified. The
following persons are the nominees:
/ / FOR all nominees listed below (except as marked to the contrary below),
including discretionary authority to cumulate votes.
/ / WITHHOLD AUTHORITY to vote for all nominees listed below
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE
BOX NEXT TO THE NOMINEE'S NAME BELOW.)
<TABLE>
<S> <C> <C>
/ / Adriana M. Boeka / / Rice E. Brown / / John M. Eggemeyer
/ / William C. / / Arnold C. Hahn / / Robert L. McKay
Greenbeck
/ / David I. Rainer / / Bernard E. / / Hugh S. Smith, Jr.
Schneider
/ / Mark H. Stuenkel / / Matthew P. Wagner / / Dale E. Walter
</TABLE>
3. To approve the amendment and restatement of Western's Stock Incentive
Plan (the "Plan") to: (a) increase the maximum number of shares that may
be issued pursuant to the Plan from 1,004,405 shares to 1,500,000 shares
in the aggregate; (b) permit the award of shares of common stock of
Western to participants in the Plan; (c) provide for the grant of
restoration options to participants; and (d) make other technical
changes.
4. To approve a shareholder proposal regarding disclosure of financial
information from current directors and prospective director nominees.
5. To transact such other business as may properly come before the Annual
Meeting or any postponement or adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE
REVOKED PRIOR TO ITS EXERCISE.
PLEASE SIGN AND DATE ON REVERSE SIDE.
<PAGE>
EXHIBIT 99.2
CONSENT
OF
CREDIT SUISSE FIRST BOSTON CORPORATION
Board of Directors
Western Bancorp
1251 Westwood Boulevard
Los Angeles, CA 90024
Members of the Board:
We hereby consent to the inclusion of our opinion letter, dated May 19, 1999, to
the Board of Directors of Western Bancorp (the "Company") as Appendix B to the
Registration Statement of U.S. Bancorp on Form S-4 (the "Registration
Statement") relating to the proposed Agreement and Plan of Merger involving the
Company and U.S. Bancorp and references made to such opinion in the Registration
Statement. In giving such consent, we do not admit that we come within the
category of persons whose consent is required under, nor do we admit that we are
"experts" for purposes of, the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ ANDREW C. ROSENBURGH
--------------------------------------------
Name: Andrew C. Rosenburgh
Title: Director
July 9, 1999
