<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
--
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
SUNRISE BANCORP
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(2) or Item 22(a)(2)
of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[x] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO OF SUNRISE BANCORP APPEARS HERE]
5 SIERRAGATE PLAZA
ROSEVILLE, CA 95678
August 29, 1996
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders (the
"Meeting") of Sunrise Bancorp, a California corporation ("Sunrise"), the
holding company for Sunrise Bank of California (the "Bank"), to be held at the
First Choice Inn located at 4420 Rocklin Road, Rocklin, California on
September 30, 1996, at 6:00 p.m., local time.
The attached Notice of Annual Meeting of Shareholders and Proxy Statement
describe the formal business to be transacted at the Meeting. The primary
purpose of the Meeting is to consider and vote on a proposal to approve and
adopt the Amended and Restated Agreement and Plan of Merger among Sunrise,
First Banks America, Inc., a Delaware corporation ("FBA"), and Sunlight
Holdings, Inc., a Nevada corporation and a wholly owned subsidiary of FBA
("Sunlight") (the "Merger Agreement") which provides for the merger of Sunrise
with and into Sunlight (the "Merger"). In the Merger, each share of Sunrise
common stock outstanding at the time of the Merger would be converted into the
right to receive $4.00 in cash (the "Merger Consideration"). Consummation of
the Merger is subject to certain conditions, including the approval of all
applicable regulatory authorities and the shareholders of Sunrise. The Board
of Directors has unanimously approved the Merger Agreement and the Merger and
believes that the Merger is in the best interests of Sunrise and its
shareholders. Accordingly, the Board of Directors unanimously recommends that
you vote FOR approval and adoption of the Merger Agreement.
At the Meeting, the shareholders will also consider and vote for the
election of directors of Sunrise. If any other matters are properly brought
before the Meeting, the persons named in the accompanying form of proxy will
vote the shares represented by such proxy upon such matters as determined by a
majority of the Board of Directors.
You are urged to carefully read the accompanying Proxy Statement, which
provides information regarding the Merger, the nominees for election as
directors, and related matters. Included as appendices to the accompanying
Proxy Statement are copies of Sunrise's Annual Report to Shareholders for the
year ended December 31, 1995 and Quarterly Report on Form 10-Q for the period
ended June 30, 1996.
Your vote is important, regardless of the number of Sunrise shares you own.
In order for the Merger to be consummated, the Merger Agreement must be
approved by the holders of at least a majority of the outstanding shares of
common stock entitled to vote. Consequently, a failure to vote or a vote to
abstain will have the same effect as a vote against the Merger Agreement. ON
BEHALF OF THE BOARD OF DIRECTORS, I URGE YOU TO SIGN, DATE AND RETURN THE
ENCLOSED PROXY AS SOON AS POSSIBLE EVEN IF YOU CURRENTLY PLAN TO ATTEND THE
MEETING. This will not prevent you from voting in person but will assure that
your vote is counted if you are not able to attend the Meeting.
Sincerely,
Sean McCarthy
Chairman of the Board
<PAGE>
SUNRISE BANCORP
5 SIERRAGATE PLAZA
ROSEVILLE, CA 95678
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 30, 1996
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Meeting") of Sunrise Bancorp, a California corporation ("Sunrise"), the
holding company for Sunrise Bank of California (the "Bank"), will be held at
the First Choice Inn located at 4420 Rocklin Road, Rocklin, California, on
September 30, 1996, at 6:00 p.m., local time. Sunrise's Proxy Statement and
form of proxy for the Meeting are enclosed.
The purpose of the Meeting is for the shareholders to consider and act upon:
1. A proposal to approve and adopt the Amended and Restated Agreement and
Plan of Merger, dated as of August 15, 1996, between Sunrise, First
Banks America, Inc., a Delaware corporation ("FBA"), and Sunlight
Holdings, Inc., a Nevada corporation and a wholly owned subsidiary of
FBA ("Sunlight") (the "Merger Agreement") pursuant to which (i) Sunrise
will merge with and into Sunlight (the "Merger") and (ii) each
outstanding share of Sunrise common stock would be converted into the
right to receive $4.00 in cash without interest (the "Merger
Consideration"), subject to the terms and conditions contained in the
Merger Agreement.
2. A proposal to elect the following persons as directors of Sunrise:
William Eames, Donald Leary, Leon Lewis, Sean McCarthy, Anthony
Pescetti, Ron Pitamber, Michael "Randy" Randazzo, M.D., Paul Wagner and
Doris Ward.
Under Chapter 13 of the California General Corporation Law, if holders of
Sunrise common stock owning an aggregate of at least 5% of the outstanding
shares as of the record date for the Meeting dissent and vote against approval
and adoption of the Merger Agreement and the Merger, they are entitled to
appraisal rights provided that they strictly comply with certain statutory
procedures explained in detail in the attached Proxy Statement. A copy of
Sections 1300 through 1304 of the California General Corporation Law is
attached as Appendix C to the attached Proxy Statement.
Section 15 of Sunrise's Bylaws provides for the nomination of directors as
follows:
"Nomination for election of members of the Board of Directors may be made
by the Board of Directors or by any shareholder of any outstanding class of
capital stock of the corporation entitled to vote for the election of
directors.
Notice of intention to make any nominations shall be made in writing and
shall be delivered or mailed to the President of the corporation not less
than twenty-one (21) days nor more than sixty (60) days prior to any
meeting of shareholders called for the election of directors; provided
however, that if less than twenty-one (21) days notice of the meeting is
given to shareholders, such notice of intention to nominate shall be mailed
or delivered to the President of the corporation not later than the close
of business on the tenth day following the day on which the notice of
meeting was mailed; provided further, that if notice of such meeting is
sent by third-class mail as permitted by Section 6 of these Bylaws, no
notice of intention to make nominations shall be required.
Such notification shall contain the following information to the extent
known to the notifying shareholder: (a) the name and address of each
proposed nominee; (b) the principal occupation of each proposed nominee;
(c) the number of shares of capital stock of the corporation owned by each
proposed nominee; (d) the name and residence address of the notifying
shareholder; and (e) the number of shares of capital stock of the
corporation owned by the notifying shareholder. Nominations not made in
accordance herewith may, in the discretion of the Chairman of the meeting,
be disregarded and upon the Chairman's instructions, the inspectors of
election can disregard all votes cast for each such nominee."
<PAGE>
Other than the proposals specified above, the Board of Directors is not
aware of any other business to come before the Meeting. If any other matters
are properly brought before the Meeting, the persons named in the accompanying
form of proxy will vote the shares represented by such proxy upon such matters
as determined by a majority of the Board of Directors.
Shareholders of record at the close of business on August 23, 1996 (the
"Record Date") are the shareholders entitled to vote at the Meeting and any
adjournments or postponements thereof.
You are requested to fill in and sign the enclosed proxy which is solicited
by the Board of Directors and to return it promptly in the enclosed envelope.
The proxy will not be used if you attend and vote at the Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
Sarah A. Thompson
Secretary
Roseville, California
August 29, 1996
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE SUNRISE THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE REQUIRED IF MAILED IN
THE UNITED STATES.
<PAGE>
PROXY STATEMENT
OF
SUNRISE BANCORP
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 30, 1996
This Proxy Statement is being furnished to the shareholders of Sunrise
Bancorp, a California corporation ("Sunrise") and the holding company for
Sunrise Bank of California (the "Bank"), in connection with the solicitation
of proxies by the Board of Directors of Sunrise from holders of outstanding
shares of common stock, no par value of Sunrise (the "Common Stock") for use
at the Annual Meeting of Shareholders to be held on September 30, 1996 at 6:00
p.m., local time, at the First Choice Inn, located at 4420 Rocklin Road,
Rocklin, California, and at any adjournments or postponements thereof (the
"Meeting"). This Proxy Statement and the related proxy are first being mailed
to shareholders on or about August 29, 1996.
At the Meeting, shareholders will consider and vote upon a proposal to
approve and adopt the Amended and Restated Agreement and Plan of Merger, dated
as of August 15, 1996 (the "Merger Agreement"), between Sunrise, First Banks
America, Inc., a Delaware corporation ("FBA"), and Sunlight Holdings, Inc., a
Nevada corporation and wholly owned subsidiary of FBA ("Sunlight") pursuant to
which (i) Sunrise will merge with and into Sunlight (the "Merger"), and (ii)
each outstanding share of Common Stock of Sunrise outstanding at the effective
time of the Merger (the "Effective Time") will be converted into the right to
receive $4.00 in cash, without interest (the "Merger Consideration"). Pursuant
to the guaranty (the "Guaranty") of First Banks, Inc., a Missouri corporation
which as of June 30, 1996, owns approximately 66% of the outstanding voting
stock of FBA ("First Banks"), if necessary to obtain regulatory approval of
the Merger, First Banks will cause FBA to transfer its ownership of Sunlight
before the Effective Time to First Banks in which case Sunlight will survive
as a wholly owned subsidiary of First Banks and First Banks will pay the
Merger Consideration. The Merger Agreement and Guaranty are included as
Appendices A and B hereto, respectively, and are incorporated by reference
herein.
Consummation of the Merger is conditioned upon, among other things, approval
and adoption of the Merger Agreement by the requisite vote of Sunrise
shareholders and the receipt of all requisite regulatory approvals and
consents. For further information concerning the terms and conditions of the
Merger, see "Proposal No. 1--The Merger."
At the Meeting, shareholders also will consider and vote for the election of
nine directors to hold office until their successors are qualified and
elected. If the Merger Agreement is approved and adopted by shareholders and
the Merger is consummated as contemplated in the Merger Agreement, the
directors' term of office will end upon the Effective Time of the Merger, as
defined in the Merger Agreement.
The Board of Directors knows of no additional matters that will be presented
for consideration at the Meeting. Execution of the accompanying proxy,
however, confers on the designated proxyholders discretionary authority to
vote the shares of Common Stock covered thereby in accordance with the
direction of a majority of the Board of Directors on such other business, if
any, that may properly come before the Meeting or any adjournments or
postponements thereof.
No persons have been authorized to give any information or to make any
representation other than those contained in this Proxy Statement in
connection with the solicitation of proxies made hereby, and, if given or
made, such information or representations must not be relied upon as having
been authorized by Sunrise or any other person.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY.................................................................... 4
The Merger............................................................... 4
Parties to the Merger.................................................... 4
The Meeting.............................................................. 5
Directors' Approval and Recommendation of the Merger..................... 5
Opinion of Financial Advisor............................................. 6
Effective Time........................................................... 6
Interests of Certain Persons in the Merger............................... 6
Treatment of Outstanding Stock Options and Warrants...................... 7
Certain Federal Income Tax Consequences.................................. 7
Method of Payment/Surrender of Stock Certificates........................ 7
Guaranty of First Banks, Inc............................................. 7
Conditions to Consummation of the Merger................................. 8
Termination; Liquidated Damages.......................................... 8
Regulatory Approvals..................................................... 8
Dissenters' Rights....................................................... 8
Accounting Treatment..................................................... 9
Market Prices and Dividends.............................................. 9
SELECTED CONSOLIDATED FINANCIAL DATA....................................... 10
ANNUAL MEETING OF SHAREHOLDERS............................................. 11
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES........................... 11
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF............................ 12
PROPOSAL NO. 1--THE MERGER................................................. 14
General.................................................................. 14
Background of the Merger................................................. 14
Reasons for the Merger and Recommendation of the Board of Directors...... 19
Opinion of Financial Advisor............................................. 20
Effective Time........................................................... 26
Interests of Certain Persons in the Merger............................... 26
Employee Matters and Impact on Employee Benefit Plans.................... 27
Treatment of Outstanding Warrants........................................ 27
Certain Proxies on Sunrise Shares........................................ 27
Certain Federal Income Tax Consequences.................................. 27
Surrender of Stock Certificates.......................................... 28
Guaranty of First Banks, Inc............................................. 28
Regulatory Approvals..................................................... 29
Representations and Warranties........................................... 29
Conditions to Consummation of the Merger................................. 29
Termination; Liquidated Damages.......................................... 30
Business Pending Consummation............................................ 31
Dissenters' Rights....................................................... 32
Expenses................................................................. 35
Accounting Treatment..................................................... 35
</TABLE>
2
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
MARKET PRICES AND DIVIDENDS OF SUNRISE COMMON STOCK....................... 35
INFORMATION REGARDING FIRST BANKS AMERICA, INC. AND FIRST BANKS, INC...... 35
PROPOSAL NO. 2--ELECTION OF DIRECTORS..................................... 36
Directors and Executive Officers........................................ 36
Committees of the Board of Directors, Meetings of the Board of Directors
and Committees Thereof................................................. 38
Compensation of Executive Officers and Directors........................ 39
Compliance with Section 16(a) of the Securities Exchange Act of 1934.... 40
Certain Relationships and Related Transactions.......................... 40
AVAILABLE INFORMATION..................................................... 41
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 41
INDEPENDENT AUDITORS...................................................... 42
SHAREHOLDER PROPOSALS..................................................... 42
OTHER MATTERS............................................................. 42
</TABLE>
APPENDIX A--AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
APPENDIX B--GUARANTY OF FIRST BANKS, INC.
APPENDIX C--SECTIONS 1300 ET SEQ. OF THE CALIFORNIA GENERAL CORPORATION LAW
APPENDIX D--OPINION OF SMITH & CROWLEY, INC.
APPENDIX E--QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1996
APPENDIX F--1995 ANNUAL REPORT TO SHAREHOLDERS
3
<PAGE>
SUMMARY
The following is a brief summary of certain information relating to the
Merger contained elsewhere in this Proxy Statement. This summary is not
intended to be a complete description of all material facts regarding FBA or
First Banks, Sunrise and the matters to be considered at the Meeting, and is
qualified in all respects by the more detailed information appearing elsewhere
herein and the Appendices hereto. Copies of the Merger Agreement and Guaranty
are set forth as Appendices A and B, respectively, to this Proxy Statement and
reference is made thereto for a complete description of the terms of the
Merger. For information regarding Sunrise, see Sunrise's Quarterly Report on
Form 10-Q for the period ended June 30, 1996, included herein as Appendix E
and Sunrise's 1995 Annual Report to Shareholders included herein as Appendix
F.
THE MERGER
The Merger Agreement provides for the merger of Sunrise with and into
Sunlight. Following the Merger, Sunrise will cease to exist as a separate
entity and Sunlight will be the surviving corporation (the "Surviving
Corporation") and will succeed to all of the assets and liabilities of
Sunrise. For a more detailed description of the Merger, see "Proposal No. 1--
The Merger."
At the Effective Time (as hereinafter defined) of the Merger, each of the
outstanding shares of Sunrise Common Stock outstanding immediately prior to
the Effective Time will be converted into the right to receive $4.00 per share
in cash, without interest (the "Merger Consideration"). As of August 23, 1996,
there were 4,263,298 shares of Sunrise Common Stock issued and outstanding
representing an aggregate Merger Consideration on that date of approximately
$17,053,192. The Merger Agreement permits Sunrise to redeem outstanding
options by paying to the holders of certain outstanding options with an
exercise price less than $4.00 per share an amount equal to the difference
between $4.00 per share and the per share exercise price upon surrender of
such options. At the Effective Time, all outstanding options which have not
been exercised or redeemed prior thereto will be canceled. The Merger
Agreement also permits Sunrise to pay to any warrantholder who surrenders his
or her warrants for voluntary redemption up to $.50 per warrant, or up to $.25
per share subject to purchase under the warrant. At the Effective Time,
warrants which have not been exercised or redeemed will remain outstanding
until they expire on December 31, 1997, and such warrants will represent the
right to receive $4.00 per share subject to the warrant upon the payment of an
exercise price of $4.54 per share. Upon completion of the Merger, the existing
shareholders of Sunrise will no longer own any stock or have any interest in
Sunrise nor will they receive, as a result of the Merger, any stock of FBA or
First Banks.
PARTIES TO THE MERGER
First Banks America, Inc. a Delaware corporation, is a bank holding company
registered with and subject to supervision by the Board of Governors of the
Federal Reserve System, with total assets at June 30, 1996, of approximately
$288,000,000. Sunlight Holdings, Inc., a Nevada corporation ("Sunlight"), is a
subsidiary of FBA formed specifically for the purpose of the acquisition of
Sunrise by merger. Through its wholly owned subsidiary, BankTEXAS N.A.,
headquartered in Houston, Texas, FBA offers a broad range of commercial and
personal banking services including certificate of deposit accounts,
individual retirement and other time deposit accounts, interest checking
accounts, savings accounts and money market accounts. Loans include
commercial, financial, agricultural, real estate construction and development,
residential real estate and consumer and installment loans. Other financial
services include credit-related insurance, automatic teller machines, and safe
deposit boxes. BankTEXAS N.A. is a national banking association regulated by
the Comptroller of the Currency. FBA does not engage in any business
activities other than ownership of BankTEXAS N.A. FBA's and BankTEXAS N.A.'s
principal executive offices are located at 8820 Westheimer Road, Houston,
Texas 77263-0369, and their telephone number is (713) 781-7171. FBA is a
majority owned subsidiary of First Banks, a multi-bank holding company
headquartered in St. Louis County, Missouri. See "Information Regarding First
Banks America, Inc. and First Banks, Inc."
4
<PAGE>
Sunrise Bancorp is a California corporation and a bank holding company
registered under the Bank Holding Company Act and subject to supervision by
the Board of Governors of the Federal Reserve System. Sunrise Bank of
California (the "Bank"), a wholly owned subsidiary of Sunrise, is a full
service commercial bank chartered by the State of California. The Bank's main
office is located at 5 SierraGate Plaza, Roseville, California. The Bank has
one branch office located in Citrus Heights, California and a loan production
office in San Francisco, California. The Bank conducts a commercial banking
business, which includes accepting demand, savings, and time deposits and IRA
accounts and making commercial, real estate and consumer loans. The Bank is a
member of the Federal Deposit Insurance Corporation ("FDIC") and the deposits
of each depositor are insured up to $100,000. Sunrise does not engage in any
business activities other than ownership of the Bank. The executive offices of
Sunrise and the Bank are located at 5 SierraGate Plaza, Roseville, California
95678 and the telephone number at that location is (916) 783-2800.
THE MEETING
PLACE, TIME AND DATE; PURPOSE. The Meeting will be held at 6:00 p.m., local
time, on September 30, 1996, at the First Choice Inn located at 4420 Rocklin
Road, Rocklin, California. The purposes of the Meeting are for the
shareholders to consider and vote upon proposals to approve and adopt the
Merger Agreement pursuant to which the Merger will be effected and to elect
directors of Sunrise.
RECORD DATE; SHARES ENTITLED TO VOTE. The presence in person or by proxy, of
the holders of at least a majority of the outstanding shares of Sunrise Common
Stock entitled to vote at the Meeting is required to constitute a quorum. The
close of business on August 23, 1996, has been fixed as the record date (the
"Record Date") for the determination of persons entitled to notice of and to
vote at the Meeting. As of the Record Date, there were 4,263,298 shares of
Sunrise Common Stock outstanding.
VOTE REQUIRED. Approval of the Merger will require the affirmative vote of
the holders of at least a majority of the outstanding shares of Sunrise Common
Stock entitled to be voted at the Meeting. Failure to vote for the Merger,
either by not returning the enclosed proxy or by checking the "Abstain" box on
the proxy, will have the same effect as a vote against the Merger. With
respect to the election of directors, the nine nominees receiving the highest
number of affirmative votes of the shares entitled to be voted at the Meeting
shall be elected as directors. Sunrise shareholders are entitled to one vote
at the Meeting for each share of Sunrise Common Stock held of record at the
close of business on the Record Date, except each shareholder has cumulative
voting rights for the election of directors if certain procedures are
followed. See "Solicitation, Voting and Revocability of Proxies."
As of the Record Date, the executive officers and directors of Sunrise,
together with their affiliates, beneficially owned 688,515 shares of Sunrise
Common Stock, or 15.95% of the outstanding shares, including 53,148 shares
subject to unexercised options and warrants held by such officers and
directors. The directors of Sunrise have granted to FBA irrevocable proxies
permitting FBA to vote the shares of Sunrise Common Stock beneficially owned
by the directors and their affiliates in favor of the Merger at the Meeting.
See "Proposal No. 1--The Merger--Certain Proxies on Sunrise Shares."
REVOCABILITY OF PROXIES. Shareholders (other than directors of Sunrise who
executed irrevocable proxies in connection with the Merger Agreement) who
execute proxies retain the right to revoke them at any time. Proxies may be
revoked by written notice to the Secretary of Sunrise, by the filing of a
later dated proxy prior to a vote being taken at the Meeting, or by attending
the Meeting and voting in person.
DIRECTORS' APPROVAL AND RECOMMENDATION OF THE MERGER
At the Board of Directors meeting held on June 18, 1996, after considering
the terms and conditions of the Agreement and Plan of Merger and obtaining the
advice of its financial advisor and legal counsel, the Board of Directors
unanimously approved the Agreement and Plan of Merger. The Agreement and Plan
of Merger was executed on behalf of Sunrise and FBA as of June 24, 1996. The
Agreement and Plan of Merger was
5
<PAGE>
subsequently amended to include Sunlight as a signatory effective as of August
15, 1996. At the meeting of the Board of Directors held on August 27, 1996,
the Board of Directors unanimously approved the Amended and Restated Agreement
and Plan of Merger dated August 15, 1996, and unanimously ratified the
execution and delivery of the Amended and Restated Agreement and Plan of
Merger (referred to as the "Merger Agreement" herein). The Board of Directors
believes that the consideration offered pursuant to the proposed transaction
is fair to the shareholders of Sunrise and that approval of the transaction is
in the best interests of the Sunrise shareholders, and, accordingly,
recommends that shareholders of Sunrise vote "FOR" approval of the Merger
Agreement and the Merger. For a discussion of the circumstances leading to
approval of the Merger Agreement and the factors considered by the Sunrise
Board of Directors in making its recommendation to the shareholders, see
"Proposal No. 1--The Merger--Background of the Merger" and "--Reasons for the
Merger and Recommendation of the Board of Directors."
Certain members of Sunrise's management and Sunrise's Board of Directors
have certain interests in the Merger that are in addition to their interests
as shareholders of Sunrise generally. See "Proposal No. 1--The Merger--
Interests of Certain Persons in the Merger."
OPINION OF FINANCIAL ADVISOR
The Board of Directors of Sunrise retained Smith & Crowley Inc., located in
San Francisco, California ("Smith & Crowley"), to assist in the negotiations
of the Merger Agreement and to act as financial advisor in connection
therewith. Smith & Crowley rendered to the Board of Directors of Sunrise its
opinion dated June 18, 1996 to the effect that the consideration offered
pursuant to the Merger Agreement is fair to Sunrise's shareholders from a
financial point of view. In addition, Smith & Crowley has rendered an updated
opinion to similar effect as of August 15, 1996. A copy of Smith & Crowley's
updated opinion is set forth as Appendix D hereto and should be read by
shareholders in its entirety. For further information regarding the opinion of
Smith & Crowley, see "Proposal No. 1--The Merger--Opinion of Financial
Advisor."
EFFECTIVE TIME
The Merger will become effective at the time a Certificate of Merger or
other appropriate documents (in any such case, the "Certificate of Merger")
related to the Merger is filed with the Nevada Secretary of State, in
accordance with Nevada corporate law ("Effective Time"). Assuming the timely
receipt of all regulatory approvals, the expiration of all statutory waiting
periods and the satisfaction or waiver of all conditions in the Merger
Agreement, it is currently anticipated that the Merger will be consummated in
the fourth quarter of 1996. See "Proposal No. 1--The Merger--Effective Time."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The directors and executive officers of Sunrise, together with their
affiliates, beneficially owned as of the Record Date a total of 688,515 shares
of Sunrise Common Stock, including 53,148 shares subject to unexercised
options and outstanding warrants. Upon the Effective Time of the Merger, the
directors and executive officers will receive the same consideration for their
shares as the other shareholders of Sunrise. Certain members of Sunrise's
management and the Board of Directors have certain interests in the Merger
that are in addition to their interests as shareholders of Sunrise generally.
As described below, the Merger will result in the accelerated vesting of stock
options held by executive officers. Outstanding options which have an exercise
price of less than $4.00 per share may be surrendered in exchange for the
payment of an amount equal to $4.00 per share minus the per share exercise
price. The Merger may also result in the payment of severance compensation to
certain executive officers if such officers are terminated without cause.
Assuming all options held by executive officers are surrendered in exchange
for a cash payment, the aggregate value of such payments together with
severance compensation would be approximately $346,150. In addition, as
described below, the Merger Agreement permits Sunrise to encourage the
voluntary redemption of outstanding warrants for up to $.50 per warrant, or up
to $.25 per share subject to each warrant. Chairman Sean McCarthy holds
warrants to purchase
6
<PAGE>
29,398 shares of Sunrise Common Stock. If Mr. McCarthy tenders his warrants to
Sunrise for voluntary redemption, he will receive up to $7,349.
After the Effective Time, the Surviving Corporation shall, to the full
extent permitted by law, indemnify all present and former directors, officers,
employees and agents of Sunrise and its subsidiaries against all liabilities
arising out of any actions or omissions in such capacities occurring on or
prior to the Effective Time, and to purchase and maintain in effect for three
years after the Effective Time liability insurance for such indemnified
parties. See "Proposal No. 1--Interests of Certain Persons in the Merger."
TREATMENT OF OUTSTANDING STOCK OPTIONS AND WARRANTS
Under Sunrise's 1981 Amended and Restated Stock Option Plan and 1991 Stock
Option Plan (collectively the "Stock Option Plans"), all outstanding stock
options will become fully vested and exercisable in connection with the
Merger. Pursuant to the terms of the Merger Agreement, outstanding stock
options which have an exercise price of less than $4.00 per share may be
surrendered prior to the Effective Time and optionees will be entitled to
receive from Sunrise a per share amount equal to $4.00 minus the exercise
price for the shares subject to the surrendered options. Executive officers of
Sunrise currently hold options to purchase an aggregate of 105,000 shares. If
all of such options are surrendered for cancellation such officers will
receive, net of the aggregate option exercise price, a total of approximately
$225,700. All outstanding stock options not exercised for shares or
surrendered for cash prior to the Effective Time shall terminate on the
Effective Time.
Currently exercisable warrants to purchase 296,206 shares of Sunrise Common
Stock at a per share exercise price of $4.54 are presently outstanding. The
Merger Agreement permits Sunrise to pay up to $.50 per warrant, or up to $.25
per share issuable upon exercise of the warrants, to redeem such warrants from
any holder who tenders outstanding warrants for redemption. Any such warrants
not redeemed will remain outstanding and available for exercise until December
31, 1997, the expiration date of the warrants. After the Effective Time, such
warrants will represent the right to receive $4.00 per share subject to the
warrant upon the payment of the warrant exercise price of $4.54 per share.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
As a result of the Merger, a shareholder of Sunrise will generally recognize
a gain or loss for federal income tax purposes measured by the difference
between the cash received pursuant to the Merger Agreement and such
shareholder's adjusted tax basis in the shares of Sunrise Common Stock
exchanged therefor. EACH SHAREHOLDER SHOULD CONSULT WITH HIS OR HER TAX
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER,
INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS. See "Proposal No. 1--Certain Federal Income Tax Consequences."
METHOD OF PAYMENT/SURRENDER OF STOCK CERTIFICATES
Within ten days after the Effective Time, Boatmen's Trust Company, which
will act as exchange agent, will mail instructions to each Sunrise shareholder
concerning the proper method of surrendering certificates formerly
representing Sunrise Common Stock in exchange for the Merger Consideration. DO
NOT SEND STOCK CERTIFICATES AT THIS TIME. See "Proposal No. 1--Surrender of
Stock Certificates."
GUARANTY OF FIRST BANKS, INC.
First Banks, Inc., a Missouri corporation, which owns as of June 30, 1996,
approximately 66% of the outstanding voting stock of FBA, has delivered to
Sunrise its amended guaranty dated August 15, 1996, for the benefit of Sunrise
and its shareholders, to pay the Merger Consideration to the Sunrise
shareholders if FBA should fail to do so. Further, in the event that
regulatory approval for FBA to acquire Sunrise through merger of Sunrise with
Sunlight as a wholly owned subsidiary of FBA appears unlikely or is denied,
First Banks will
7
<PAGE>
seek regulatory approval of the acquisition of Sunrise and, if such approval
is granted, the ownership of Sunlight will be transferred from FBA to First
Banks prior to the Merger. In such event First Banks, rather than FBA, will
pay the Merger Consideration to the Sunrise shareholders. A copy of First
Bank's amended guaranty is attached to this Proxy Statement as Appendix B. See
"Information Regarding First Banks America, Inc. and First Banks, Inc."
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of the parties to consummate the Merger are
subject to, among other things: (i) approval of the Merger Agreement by
Sunrise shareholders holding not less than a majority of the outstanding
shares of Sunrise Common Stock; (ii) receipt of all applicable regulatory
approvals; (iii) the absence of any court or administrative order prohibiting
consummation of the Merger; (iv) holders of not more than 20% of the
outstanding shares of Sunrise Common Stock shall have perfected the right to
dissent from the Merger, and (iv) the satisfaction or waiver of certain
additional conditions. For more information on conditions precedent to
consummation of the Merger and the regulatory approvals required, see
"Proposal No. 1--Regulatory Approvals" and "--Conditions to Consummation of
the Merger."
TERMINATION; LIQUIDATED DAMAGES
The Merger Agreement may be terminated at any time by mutual agreement of
the parties. The Merger Agreement will also be deemed terminated if any
regulatory application filed to obtain approval of the consummation of the
Merger is finally denied or disapproved by a regulatory authority and an
appeal is either not taken or is denied. The Merger Agreement may also be
terminated by either party if: (i) there is a material breach of the Merger
Agreement which remains uncured for 20 days (ii) if any of the conditions to a
party's obligations are not satisfied or waived on or prior to the Closing
Date or (iii) the Merger has not been consummated on or before February 28,
1997 through no fault of either party. The Merger Agreement may be terminated
by FBA if (i) as disclosed in one or more environmental reports delivered by
Sunrise to FBA, the cost of remedial and corrective actions and measures
required by applicable law or recommended or suggested by such report or
reports exceeds $400,000 or cannot be reasonably estimated to be $400,000 or
less, or (ii) Sunrise or the Bank shall become a party or subject to any new
or amended written agreement with a regulatory authority, memorandum of
understanding, cease and desist order or other regulatory order.
Each party is required to pay to the other party the sum of $1,000,000 as
liquidated damages if the conditions to consummation of the Merger have been
satisfied but one party fails to consummate the Merger or takes action to
breach the Merger Agreement which prevents the consummation of the Merger. In
addition, Sunrise is required to pay $1,000,000 to FBA as liquidated damages
if (i) Sunrise's Board of Directors fails to recommend to Sunrise shareholders
the approval of the Merger Agreement or (ii) all conditions to consummation of
the Merger have been satisfied except that Sunrise shareholders fail to
approve the Merger Agreement and Sunrise is acquired by, merged or
consolidated with a third party which transaction is announced before or
within one year after termination of the Merger Agreement and consummated
within two years after such termination.
REGULATORY APPROVALS
The Merger is subject to the approval of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") and the Superintendent of
the Banks of the State of California (the "Superintendent"). There can be no
assurance that such regulatory approvals will be obtained, and, if obtained,
there can be no assurance as to the date of any such approvals.
DISSENTERS' RIGHTS
Under California law, if holders of at least 5% of the Sunrise Common Stock
outstanding on the Record Date vote against the Merger and submit demands for
payment before the date of the Meeting, they are entitled to appraisal rights
provided that they strictly comply with certain statutory procedures. See
"Proposal No. 1--The Merger--Dissenters' Rights" and Section 1300 et seq. of
the California General Corporation Law attached as Appendix C for a more
complete description of the dissenters' rights.
8
<PAGE>
ACCOUNTING TREATMENT
The Merger will be accounted for using the purchase method of accounting.
Accordingly, under generally accepted accounting principles, the assets and
liabilities of Sunrise will be recorded on the books of the acquirer at their
respective fair values at the time of consummation of the Merger.
MARKET PRICES AND DIVIDENDS
The Common Stock of Sunrise is traded on the Nasdaq National Market ("NNM")
under the symbol "SRBC". The closing price per share for the Common Stock as
reported on the NNM on June 21, 1996, the last full trading day prior to the
announcement of the proposed Merger was $2.87. On August 23, 1996, there were
approximately 1,000 shareholders of record. See "Market Prices and Dividends
of Sunrise Common Stock."
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated historical data
regarding Sunrise's operating results and financial position for and at the
periods indicated. The information for, and as of the end of, the three years
ended December 31, 1995 is derived from and should be read in conjunction with
Sunrise's audited consolidated financial statements and the notes thereto,
included, with the auditor's report, in documents incorporated by reference in
this Proxy Statement. See "Incorporation of Certain Documents by Reference."
The information for, and as of the end of, the two years ended December 31,
1991 and 1992 and certain information for the year ended December 31, 1993, is
derived from Sunrise's audited financial statements for such years. The
audited consolidated financial statements as of December 31, 1995 and 1994,
and for each of the years in the three-year period ended December 31, 1995,
and report thereon, appear in Sunrise's Annual Report to Shareholders for the
1995 fiscal year (the "1995 Annual Report") furnished with this Proxy
Statement. The same data for the six months ended June 30, 1996 and 1995 are
derived from unaudited condensed consolidated financial statements contained
in Sunrise's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996
(the "Form 10-Q") also furnished herewith which, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the consolidated financial position and
results of operations for such periods. Results for the six month period ended
June 30, 1996 are not necessarily indicative of the results expected for the
full fiscal year ending December 31, 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
--------------------------- ---------------------------------------------------
JUNE 30, 1996 JUNE 30, 1995 1995 1994 1993 1992 1991
------------- ------------- -------- -------- -------- -------- --------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operations for the
period:
Total interest income.. $ 4,416 $ 5,338 $ 10,134 $ 12,200 $ 13,749 $ 15,697 $ 21,126
Total interest
expense............... 1,655 1,771 3,622 3,373 2,618 4,485 9,852
Net interest income.... 2,761 3,567 6,512 8,827 11,131 11,212 11,274
Provision for loan
losses................. -- -- -- (2,668) (7,700) (1,720) (1,250)
Non interest income(1).. 576 211 111 2,587 4,547 11,907 6,919
Non interest expenses... (3,200) (3,731) (8,142) (13,249) (15,211) (14,920) (13,684)
Provision for income
taxes.................. (57) (35) (1) 1,461 3,065 (2,876) (1,339)
Net income (loss)
before extraordinary
item and cumulative
effect of change in
accounting principle.. 80 12 (1,520) (3,042) (4,168) 3,603 1,920
Cumulative effect of a
change in accounting
principle(2)........... -- -- -- -- 250 -- --
Net income (loss)...... $ 80 $ 12 ($1,520) ($3,042) ($3,918) $ 3,603 $ 1,920
Per share amounts:......
Net income (loss) before
cumulative effect of
change in accounting
principal.............. $ 0.02 $ 0.00 ($0.36) ($0.71) ($0.98) $ 0.85 $ 0.49
Cumulative effect of a
change in accounting
principle(2)........... -- -- -- -- $ .06 -- --
Net income (loss)....... $ 0.02 $ 0.00 ($0.36) ($0.71) ($0.92) $ 0.85 $ 0.49
Cash Dividends per
share.................. -- -- -- -- -- -- --
Weighted average shares
outstanding............ 4,263 4,263 4,263 4,263 4,263 4,252 3,915
Balances at end of
period:
Interest bearing
deposits, federal
funds sold and
securities purchased
under agreement to
resell, and investment
securities............ $ 43,549 $ 64,746 $ 49,273 $ 54,040 $127,891 $ 96,862 $ 41,890
Mortgage loans held for
sale.................. -- -- -- -- $ 35,812 $ 163 $ 59,474
Net loans.............. $ 62,470 $ 72,167 $ 64,260 $ 77,189 $110,529 $116,957 $124,545
Total assets........... $113,540 $149,372 $120,984 $146,500 $307,155 $245,251 $268,662
Time deposits of
$100,000 or more...... $ 9,612 $ 10,819 $ 10,183 $ 7,637 $ 18,572 $ 6,161 $ 7,123
Total deposit
liabilities........... $ 96,582 $131,076 $103,883 $116,943 $284,869 $219,244 $203,401
Shareholders' equity... $ 16,569 $ 18,021 $ 16,489 $ 18,009 $ 21,051 $ 24,972 $ 21,129
Book value per share... $ 3.89 $ 4.23 $ 3.87 $ 4.22 $ 4.93 $ 5.87 $ 5.40
Financial ratios:
Return on average
assets................ 0.07% 0.01% (1.13%) (1.52%) (1.57%) 1.48% 0.84%
Return on average
equity................ 0.48% 0.07% (8.49%) (15.27%) (15.55%) 16.16% 10.26%
Net interest margin.... 4.94% 5.45% 5.16% 4.88% 5.14% 5.30% 5.40%
Average equity to
average assets........ 13.94% 12.71% 13.29% 9.93% 10.12% 9.19% 8.18%
Leverage ratio (Bank).. 12.77% 8.42% 10.98% 8.42% 6.71% 10.29% 9.21%
Net chargeoffs to
average loans......... 1.06% 0.62% 2.21% 3.98% 4.31% 0.42% 0.86%
Nonperforming loans to
total loans........... 3.53% 7.47% 4.97% 9.05% 4.57% 3.89% 3.01%
Allowance for loan
losses to total
loans................. 2.80% 4.83% 3.75% 6.11% 4.83% 2.67% 1.71%
Earnings to fixed
changes............... 2.50% 0.32% (18.67%) (22.96%) (25.76%) 24.15% 14.03%
</TABLE>
(1) In 1992, the Company sold its wholly owned subsidiary, Western Sunrise
Mortgage Corporation, recording a gain of $7,242,000 on the sale.
(2) Adoption of Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes."
10
<PAGE>
ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 30, 1996
At the Meeting, shareholders will be asked to consider and vote on a
proposal to approve and adopt the Merger Agreement. The Merger Agreement
provides for the merger of Sunrise with and into Sunlight. Sunlight, as the
Surviving Corporation, will either be a wholly owned subsidiary of FBA or a
wholly owned subsidiary of First Banks depending on whether regulatory
approval of the acquisition by FBA or First Banks is obtained. Pursuant to the
Merger Agreement, upon consummation of the proposed Merger, each share of
Sunrise Common Stock outstanding immediately prior to the Effective Time of
the Merger will be canceled and converted into the right to receive $4.00 per
share in cash, without any interest thereon. See "Proposal No. 1--The Merger"
and Appendix A. THE BOARD OF DIRECTORS OF SUNRISE BELIEVES THAT THE MERGER IS
IN THE BEST INTERESTS OF SUNRISE AND ITS SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
At the Meeting the shareholders will also vote for the election of nine
directors of Sunrise. The Sunrise Board of Directors unanimously recommends
that shareholders vote FOR the nominees listed on the proxy and in Proposal
No. 2 of this Proxy Statement.
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
As of the Record Date, 4,263,298 shares of Sunrise Common Stock were issued
and outstanding. At that date, such shares were held of record by
approximately 1,000 shareholders. The presence, in person or by proxy, of at
least a majority of all the outstanding shares of Sunrise Common Stock
entitled to vote at the Meeting is necessary to constitute a quorum at the
Meeting. Shareholders as of the Record Date are entitled to one vote for each
share of Sunrise Common Stock then held except that each shareholder has
cumulative voting rights for the election of directors. Cumulative voting
rights entitle each shareholder to cast that number of votes which equals the
number of shares held by such shareholder multiplied by the number of
directors to be elected. Each shareholder may cast all his or her votes for a
single candidate or distribute such votes among any or all of the candidates
as he or she chooses. However, no shareholder will be entitled to cumulate
votes (in other words, cast for any candidate a number of votes greater than
the number of shares of stock held by such shareholder) unless such
candidate's or candidates' name(s) have been placed in nomination prior to the
voting, and the shareholder has given notice at the Meeting prior to the
voting of the shareholder's intention to cumulate votes. If any shareholder
has given such notice, all shareholders may cumulate their votes for
candidates in nomination. An opportunity will be given at the Meeting prior to
the voting for any shareholder who desires to do so to announce his or her
intention to cumulate his or her votes. The proxyholders are given
discretionary authority, under the terms of the proxy, to cumulate votes
represented by shares for which they are named in the proxy.
The affirmative vote of the holders of at least a majority of the
outstanding shares of Sunrise Common Stock entitled to vote is required in
order to approve and adopt the Merger Agreement. Therefore, a failure to
return a properly executed proxy or to vote in person at the Meeting will have
the same effect as a vote against approval and adoption of the Merger
Agreement.
Abstentions will be counted as shares present at the Meeting for purposes of
determining the presence of a quorum. Under rules of the New York Stock
Exchange ("NYSE") applicable to brokerage firms which are members of the NYSE,
brokerage firms may not give a proxy to vote with respect to the proposal to
approve the Merger Agreement in the absence of voting instructions from their
clients who beneficially own the shares held of record by the brokerage firms.
Although such "broker non votes" will be considered present at the Meeting for
purposes of determining the presence of a quorum, they will not be considered
as voting at the Meeting. Abstentions and broker non-votes will have the same
effect as a vote against approval of the Merger Agreement.
As of the Record Date, the directors and executive officers of Sunrise and
their affiliates beneficially owned a total of 635,367 shares of Sunrise
Common Stock, or 14.90% of the outstanding shares, excluding 53,148
11
<PAGE>
shares subject to unexercised options and warrants held by such person, which
cannot be voted at the Meeting. The directors of Sunrise have granted to FBA
irrevocable proxies permitting FBA to vote their respective shares (and the
shares of their affiliates) in favor of the Merger at the Meeting. See
"Proposal No. 1--Certain Proxies on Sunrise Shares."
Shares of Sunrise Common Stock represented by properly executed proxies will
be voted in accordance with the instructions indicated on the proxies or, if
no instructions are indicated, they will be voted FOR approval and adoption of
the Merger Agreement and FOR the nominees for director listed. Properly
executed proxies will be voted by the proxyholders in accordance with the
direction of a majority of the Board of Directors as to any other matter which
may properly come before the Meeting or any adjournment or postponement
thereof. Shareholders who execute proxies retain the right to revoke them at
any time. Proxies may be revoked by written notice to the Secretary of
Sunrise, by the filing of a later dated proxy prior to a vote being taken at
the Meeting, or by attending the Meeting and voting in person. A proxy will
not be effective if a shareholder attends the Meeting and votes in person.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table shows the name, address, number of shares held, and
percentage of shares held as of August 23, 1996, by the only persons known to
Sunrise to be the beneficial owner of more than five percent of Sunrise's
Common Stock.
<TABLE>
<CAPTION>
AMOUNT OF PERCENT
NAME AND ADDRESS OWNERSHIP OF CLASS
---------------- --------- --------
<S> <C> <C>
Valarian Associates(1).................................... 265,482 6.23%
1726 Cedar Wood Drive
Minden, Nevada 89423
Oppenheimer-Spence........................................ 220,778 5.18%
Financial Services Partnership, LP(2)
119 West 57th St., Suite 1515
New York, New York 10019
</TABLE>
(1) Arthur Hall, in his capacity as the sole general partner of Valarian
Associates, has the power to vote and dispose of the shares owned by
Valarian Associates. Mr. Hall's business address is the same as that of
Valarian Associates.
(2) Philip V. Oppenheimer, John W. Spence III and P. Oppenheimer
Administrative Corp. a Delaware corporation, which is controlled by Philip
V. Oppenheimer, are the general partners of the partnership. The general
partners share voting and dispositive power with respect to the shares
directly owned by the partnership. The principal business address of
Philip V. Oppenheimer and P. Oppenheimer Administrative Corp. are the same
as the partnership and the principal business address of John W. Spence
III is 4712 Clendin, Nashville, Tennessee 37220.
12
<PAGE>
The following table sets forth certain information with respect to the
number and percentage of shares of Sunrise Common Stock beneficially owned as
of August 23, 1996, by (i) each of the directors and director-nominees of
Sunrise, (ii) Mr. Harold G. Giomi, the only executive officer of Sunrise and
the Bank named in the Summary Compensation Table appearing elsewhere in this
Proxy Statement, and (iii) all current directors and executive officers of
Sunrise and the Bank as a group.
<TABLE>
<CAPTION>
PERCENT
DIRECTOR OR AMOUNT OF OF
BENEFICIAL OWNER AGE OFFICER SINCE SHARES CLASS
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William Eames, Director 61 Feb. 20, 1996 141,137(/1/) 3.27%
Donald Leary, Director 53 1987 27,562(/2/) 0.64%
Leon Lewis, Director 71 1981 85,349(/3/) 1.98%
Sean McCarthy, Director 56 1991 78,745(/4/) 1.82%
Anthony Pescetti, Director 45 1995 0 0%
Ron Pitamber, Director 45 1986 73,867 1.71%
Michael "Randy" Randazzo, M.D., Di-
rector 73 1981 87,194(/5/) 2.02%
Paul Wagner, Director 74 1981 120,801(/6/) 2.80%
Doris Ward, Director 63 1981 50,110(/7/) 1.16%
Harold G. Giomi, President and CEO
of Sunrise
and the Bank 53 1994 20,000(/8/) 0
Current Directors and Executive
Officers as a Group
(11 in number) 688,515(/9/) 15.95%
</TABLE>
(1) Includes 141,137 shares held by Mr. Eames as trustee for the Eames Family
Trust, 1982.
(2) Includes 26,460 shares held by The Leary Living Trust, 551 shares held in
Mr. Leary's individual retirement account ("IRA"), and 551 shares held in
Mr. Leary's spouse's IRA.
(3) Includes 77,139 shares held by Bestway Investments, Ltd., as to which Mr.
Lewis has voting power, and 8,210 shares held in trust by Mr. Lewis as
trustee for his minor grandchildren. Mr. Lewis disclaims beneficial
ownership as to all such shares.
(4) Includes 29,398 shares subject to currently exercisable warrants.
(5) Includes 72,765 shares held by The M. "Randy" Randazzo, M.D., Inc.,
Retirement Trust; 11,466 shares in joint tenancy with his spouse, and 882
shares held by Dr. Randazzo's sons as to which he exercises voting
control.
(6) Includes 62,369 shares held by Mr. Wagner's IRA, 57,881 shares held by The
Paul C. Wagner 1976 Revocable Family Trust, and 551 shares held by Mr.
Wagner's spouse's IRA.
(7) Includes 7,607 shares held by The Melvin J. Ward, Inc., Profit Sharing
Plan, of which Ms. Ward is trustee.
(8) Includes 20,000 shares subject to options which are currently exercisable.
(9) Includes 23,750 shares subject to options which are currently exercisable
and 29,398 shares subject to warrants which are currently exercisable.
13
<PAGE>
PROPOSAL NO. 1--THE MERGER
The information concerning the Merger Agreement and the Merger appearing in
this Proxy Statement, insofar as it relates to matters contained in the Merger
Agreement, is qualified in its entirety by reference to the Merger Agreement
and the Guaranty, which are attached hereto as Appendices A and B,
respectively. Sunrise shareholders are urged to read the entire Merger
Agreement and Guaranty carefully.
GENERAL
Under the terms of the Merger Agreement, at the Effective Time, Sunrise will
merge with and into Sunlight. At the Effective Time, Sunlight, as the
Surviving Corporation, will be either a wholly-owned subsidiary of FBA or a
wholly owned subsidiary of First Banks depending on whether regulatory
approval of the acquisition by FBA or First Banks is obtained. As a result of
the Merger, Sunrise will cease to exist as a separate entity and Sunlight will
succeed to all of the assets and liabilities of Sunrise. Upon completion of
the Merger, shareholders of Sunrise will no longer own any shares of Sunrise
Common Stock and will not, as a result of the Merger, own any common stock of
FBA or First Banks.
At the Effective Time, each share of Sunrise Common Stock outstanding
immediately prior to the Effective Time will be converted into the right to
receive $4.00 per share in cash, without any interest thereon. As of the
Record Date, there were 4,263,298 shares of Sunrise Common Stock issued and
outstanding for an aggregate Merger Consideration on that date of
approximately $17,053,192, reflecting the total number of shares to be
exchanged times the purchase price. The Merger Agreement requires that within
10 days after the Effective Time, Boatmen's Trust Company, which will act as
exchange agent for the Merger (the "Exchange Agent"), will mail to holders of
record of Sunrise Common Stock, a letter of transmittal and instructions for
surrendering certificates evidencing Sunrise Common Stock. Upon delivery to
the Exchange Agent of a properly executed letter of transmittal and such share
certificates, a shareholder will receive a check for the shares of Sunrise
Common Stock represented by the certificates and the certificates so
surrendered will be canceled. No interest will be paid or accrued on the cash
amount to which the shareholder became entitled at the Effective Time. DO NOT
SEND STOCK CERTIFICATES AT THIS TIME.
California law may provide for certain dissenters' rights to the holders of
Sunrise Common Stock in connection with the Merger. See "--Dissenters' Rights"
for more information.
BACKGROUND OF THE MERGER
The past several years have been a period of substantial and rapid change
and consolidation in the banking industry. In addition to community banks,
Sunrise competes with larger regional and national bank holding companies with
access to capital and resources substantially greater than Sunrise's. The
increasing disparity in resources between such larger bank holding companies
and Sunrise may impede Sunrise's future ability to continue to provide its
customers with competitive and cost-effective services and products and
attract and retain talented officers and employees. Over the years, the
Sunrise Board of Directors (the "Sunrise Board") has considered various issues
related to the competitive and regulatory environments for financial
institution holding companies and their bank subsidiaries, such as Sunrise and
the Bank, and the costs and difficulties of raising capital and expanding
operations under such circumstances. Also, from time to time Sunrise has
entertained various expressions of interests from third parties regarding a
possible combination involving Sunrise.
In late 1994, senior management of Sunrise and the Sunrise Board held
discussions regarding Sunrise's business and the possible strategic
alternatives available to it to increase shareholder value, including, without
limitation, earnings growth, dividends and share liquidity, in light of the
current banking environment and the trend toward strategic consolidation in
the banking industry. At the time, Sunrise was still subject to regulatory
agreements with each of the Federal Deposit Insurance Corporation, the
California State Banking Department, and the Federal Reserve Board. During
early 1995, senior management of Sunrise and representatives of Smith &
Crowley discussed with the Sunrise Board Sunrise's strategic plans to increase
shareholder value, and the trend
14
<PAGE>
toward consolidation in the banking industry generally. The Sunrise Board also
discussed the reasons for such consolidation and in particular the importance
of achieving institutional scale in order to realize appropriate levels of
long-term profitability and service and product delivery to customers. In
light of such trends and events and of Sunrise's goal of positioning Sunrise
to maximize long-term shareholder value, Smith & Crowley then described for
the Sunrise Board certain strategic alternatives available to Sunrise,
including both continued independence, and a possible combination with another
banking institution capable of achieving the advantages previously discussed
as desirable by the Sunrise Board. After deliberations on the matter, the
Sunrise Board engaged Smith & Crowley in May 1995 for the purpose of
initiating exploratory contacts regarding potential interest in a business
combination transaction with Sunrise.
At the Board's request, Smith & Crowley initiated a process of exploring and
evaluating general business and capital raising strategies available to
Sunrise and began an analysis, evaluation, and possible exploration of
specific merger or acquisition options for Sunrise. In the following months,
Sunrise's management and Smith & Crowley contacted several financial
institutions who had earlier expressed interest in discussing a possible
combination with Sunrise. Several institutions, including ValliCorp Holdings,
Inc. ("ValliCorp") and First Banks, Inc. executed confidentiality agreements
related to their due diligence review of Sunrise. First Banks, Inc. completed
its initial due diligence review of Sunrise in February 1996.
At Sunrise's Board meeting held on March 5, 1996, which was attended by
attorneys from Bronson, Bronson & McKinnon LLP ("Bronson"), legal counsel to
Sunrise, Smith & Crowley reported to the Board on the status of discussions
with the various financial institutions that had executed confidentiality
agreements. Of these institutions, Smith & Crowley reported that discussions
were continuing only with ValliCorp and First Banks. The Board was also
informed that First Banks wanted to structure any possible transaction through
its affiliate, First Banks America, Inc. ("FBA"). Smith & Crowley informed the
directors that FBA had expressed an interest in a merger transaction at a
consideration of $1.90 per share in cash, and $1.90 in market value of FBA's
common stock subject to possible adjustment for various contingencies. The
Board was also advised that ValliCorp had expressed interest in a stock for
stock transaction valued at between $4.25 and $4.75 per share of Sunrise
Common Stock. Smith & Crowley recommended continuing discussions with both FBA
and ValliCorp while urging ValliCorp to perform a due diligence examination of
Sunrise. The directors authorized Smith & Crowley and Sunrise management to
discuss with FBA the possibility of an all-cash transaction and the removal of
some contingencies in the proposed structure. The Sunrise Board also
authorized Smith & Crowley to continue negotiations with ValliCorp.
At a special Board meeting held on March 14, 1996, at which representatives
of Smith & Crowley and Bronson were present, Smith & Crowley distributed the
revised indications of interest Sunrise management had received from ValliCorp
and FBA. Smith & Crowley noted that FBA had revised their expression of
interest as requested by the Sunrise Board to make it an all cash transaction
at an increased value of $4.25 per share and had removed some contingencies.
ValliCorp's expression of interest was revised to increase the per share value
to $4.45, payable in cash and ValliCorp stock. After studying the revised
indications of interest and the updated financial analyses of Sunrise and the
Bank prepared and distributed by Smith & Crowley at the meeting, the Sunrise
Board instructed Smith & Crowley to obtain more information from ValliCorp and
FBA and report back to the Board at its next regularly scheduled meeting. At
the regular Board meeting held on March 19, 1996, at which representatives of
Smith & Crowley and Bronson were present, the directors reviewed various
analyses prepared by Smith & Crowley of the revised indications of interest
received from ValliCorp and FBA. After discussion of the two revised
indications of interest, the Board instructed Smith & Crowley to request that
FBA submit its proposed form of definitive agreement no later than April 2,
1996, and allow Sunrise ten days to review it, to advise ValliCorp that it
must complete its due diligence of Sunrise by April 5, 1996, to present a form
of proposed definitive agreement by April 8, 1996, and to allow Sunrise four
days to review such form.
At the Board meeting held on March 26, 1996, at which representatives from
Smith & Crowley and Bronson were present, copies of FBA's form of a proposed
merger agreement and a term sheet from ValliCorp, which indicated an increased
value of $4.55 per share consisting of cash and ValliCorp stock, were
distributed to the directors. Smith & Crowley also presented to the Board its
financial analyses of the proposals received from
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ValliCorp and FBA. After studying in detail FBA's draft agreement, ValliCorp's
term sheet and the analyses presented by Smith & Crowley, the Board authorized
Smith & Crowley and Sunrise management to continue their negotiations with
both ValliCorp and FBA.
At its next Board meeting held on April 1, 1996, the Board reviewed the
discussions that had occurred between management of ValliCorp and FBA and
Sunrise management since the March 26, 1996, Board meeting. Sunrise Chairman
McCarthy informed the Board that ValliCorp had submitted a proposed form of
merger agreement providing for consideration valued at $4.55 per share,
payable in cash and ValliCorp stock, subject to ValliCorp's additional due
diligence review, to Sunrise management, Smith & Crowley, and Bronson. This
draft agreement from ValliCorp was distributed to and reviewed by the
directors at the meeting. Smith & Crowley also distributed to the directors a
comparison of various aspects of the two forms of competing draft merger
agreements which the directors reviewed and discussed in detail. Mr. McCarthy
also indicated that two other institutions had approached Sunrise management
to indicate their desire to perform a due diligence review of Sunrise in
connection with a possible combination. The Board authorized Smith & Crowley
to discuss with the representatives of these financial institutions their
expressions of interest and authorized Smith & Crowley to offer these
institutions the opportunity to execute confidentiality agreements.
On April 5, 1996, both ValliCorp and FBA submitted to Sunrise an executed
letter of intent, each proposing an acquisition of Sunrise. ValliCorp's letter
of intent provided for each share of Sunrise Common Stock to be converted into
a right to receive ValliCorp common stock or cash (cash to constitute no more
than 50% of the consideration) aggregating $20,600,000 ($4.55 per share) for
all outstanding shares of Sunrise, subject to completion of satisfactory due
diligence, shareholder and regulatory approvals, among other conditions. The
letter of intent specified certain conditions relating to Sunrise's loan
portfolio, loan loss reserve and capital, that had to be met before the
transaction would be completed. The letter of intent required both parties to
negotiate in good faith to complete a definitive merger agreement, and was
subject to the payment by ValliCorp of a $250,000 "good faith" deposit,
prohibited Sunrise from discussing a potential sale with any other party and
from soliciting or entertaining competing offers from third parties until June
1, 1996, unless in the opinion of Sunrise's counsel such discussions or
negotiations were required to fulfill fiduciary obligations of Sunrise's
directors.
FBA's letter of intent proposed a merger of Sunrise with a subsidiary of FBA
pursuant to which the Sunrise shareholders would receive $4.25 per share in
cash for all the outstanding shares of Sunrise Common Stock (aggregating
$18,119,000), subject to shareholder and regulatory approvals, among other
conditions. The letter of intent contained provisions prohibiting Sunrise from
soliciting, initiating or participating in discussions or negotiations with
respect to competing offers from third parties to acquire Sunrise until June
1, 1996. The letter of intent also contained a provision requiring either
party who failed or refused to consummate the proposed merger for any reason,
other than the other party's breach of its obligations under the letter of
intent or the material inaccuracy of a representation by the other party, to
pay the other party $1,000,000 in liquidated damages.
At a Board meeting held in the evening of April 5, 1996, at which
representatives of Smith & Crowley and Bronson were present, Smith & Crowley
distributed to the directors copies of the executed non-binding letters of
intent from FBA and ValliCorp received earlier in the day. Each of the letters
of intent was reviewed and discussed in detail and the directors noted that
each letter of intent terminated on April 8, 1996, and during their pendency,
restricted Sunrise from considering or negotiating alternative acquisition
proposals subject to the fiduciary duties of the directors. It was discussed
among the directors that although the ValliCorp offer, valued at $4.55 in cash
and ValliCorp stock, could potentially be more beneficial to the shareholders
than an acquisition by FBA at an all cash value of $4.25 per share,
ValliCorp's proposal was subject to substantial contingencies because
ValliCorp had not completed its due diligence on the Bank. After reviewing (i)
management's reports concerning the Bank's current levels of classified
assets/non-accruals, (ii) a memorandum from ValliCorp indicating its concerns
regarding selected non-accrual assets of the Bank, and (iii) Sunrise's
response to certain of ValliCorp's concerns regarding the status of certain
loans, the Board unanimously adopted resolutions instructing the Chairman to
execute the form of letter of intent with ValliCorp and to publicly announce
the execution and content of the letter of intent, establishing a negotiation
committee and appointing Directors Sean
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McCarthy, Ronald Pitamber, Donald Leary, and Anthony Pescetti, and Hal Giomi
as ex-officio member, to such committee. The Board further instructed
management to inform FBA that the Board declined to authorize the execution of
its letter of intent.
Also at the meeting held on April 5, 1996, Smith & Crowley reported that the
two institutions who had recently expressed an interest in Sunrise no longer
desired to pursue a potential transaction under the time constraints and value
parameters required in light of the status of discussions with FBA and
ValliCorp. It was reported that although one of the institutions had executed
a confidentiality agreement, neither institution performed any due diligence
of Sunrise.
Late on April 5, 1996, Sunrise executed and delivered to ValliCorp the
letter of intent. On April 8, 1996, Sunrise and ValliCorp issued a joint press
release announcing the signing of the non-binding letter of intent. Pursuant
to the executed letter of intent, ValliCorp paid to Sunrise a deposit of
$250,000. On April 29, 1996, ValliCorp began its in depth due diligence review
of Sunrise. On May 3, 1996, the Bank applied to the Superintendent of Banks
for a negotiating permit, pursuant to California Financial Code Section 690 et
seq., in order to participate with Sunrise in further negotiations with
ValliCorp. A negotiating permit was issued to the Bank on May 7, 1996.
On May 13, 1996, representatives of ValliCorp informed Chairman McCarthy
that as a result of its due diligence, ValliCorp was no longer interested in
pursuing a transaction with Sunrise. At the request of Mr. McCarthy, a meeting
was immediately scheduled with representatives of ValliCorp to discuss the
reasons for ValliCorp's termination of its letter of intent. On May 14, 1996,
Sunrise Chief Executive Officer Hal Giomi, Chief Financial Officer Sarah
Thompson, Chairman Sean McCarthy, Director Paul Wagner and representatives of
Smith & Crowley attended a meeting with ValliCorp's management in ValliCorp's
offices in Fresno, California. At this meeting, management of ValliCorp
expressed concerns regarding Sunrise's cost of deposits, homeowner's
association deposits and credit quality. Upon ValliCorp's reiteration of its
decision not to proceed, Mr. McCarthy and Mr. Giomi requested and received
from ValliCorp a release from the provision in the executed letter of intent
which restricted Sunrise's ability to hold discussions with other potential
purchasers. The termination of the letter of intent was announced in a press
release issued by ValliCorp on May 15, 1996. Subsequently, on May 31, 1996,
Sunrise sent a letter to ValliCorp stating that ValliCorp had forfeited its
$250,000 deposit in accordance with the terms of the letter of intent.
On the evening of May 14, 1996, after the meeting with ValliCorp's
management concluded, Smith & Crowley contacted management of FBA at the
direction of Chairman Sean McCarthy to determine if FBA were still interested
in pursuing a possible transaction with Sunrise. Then, at the Sunrise Board
meeting held on May 22, 1996, attended by Bronson representatives, Smith &
Crowley reported to the directors that FBA had expressed an interest in re-
establishing merger discussions and that representatives from FBA had visited
Sunrise during the week of May 20, 1996 to update FBA's due diligence
examination. Representatives from FBA advised Smith & Crowley and Sunrise
management that any offer would likely be in the $4.00 per share range. Smith
& Crowley reminded the directors that in their opinion the price of $3.80 to
$4.25 per share was fair from a financial point of view to Sunrise
shareholders. The Board authorized renewed discussions to continue with FBA.
At its next Board meeting held on May 30, 1996, which was attended by
representatives of Bronson and Smith & Crowley, copies of FBA's letter dated
May 30, 1996, were distributed to all directors. The letter set forth the
general terms of a possible acquisition of Sunrise by FBA for cash
consideration of $4.00 per share. Smith & Crowley reported to the directors
that FBA indicated that the reduced value from their initial offer of $4.25 to
$4.00 per share was due to the following factors: an erosion of the deposit
base, the reduced value of the bond portfolio, and a lack of profitability in
1996 year-to-date. Representatives of Smith & Crowley and Bronson discussed
with the directors the various terms contained in the May 30 letter, including
permission for Sunrise to pay cash to redeem outstanding stock options and
warrants should the option or warrant holders tender such options or warrants
for payment, the $1,000,000 "break-up" provision, a "no-solicitation"
provision, the target closing date of October 31, 1996, and an outside closing
date in early 1997. Also, Smith & Crowley distributed and discussed an updated
valuation analysis of Sunrise in connection with the FBA expression of
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interest. Smith & Crowley indicated that FBA had completed its due diligence
and was familiar with the financial condition of the Bank. After discussion,
the directors unanimously authorized Smith & Crowley to respond to FBA to
express Sunrise's interest in proceeding with discussions regarding a possible
merger transaction as outlined in FBA's letter of May 30, 1996. At this
meeting, the Board also established and appointed the members of the
negotiating committee to negotiate the terms of a possible merger agreement
with FBA. The following directors were appointed to the negotiating committee:
William Eames, Donald Leary, Sean McCarthy, Anthony Pescetti, Ron Pitamber,
Paul Wagner, and Chief Executive Officer Hal Giomi.
FBA submitted a draft merger agreement to Sunrise on June 5, 1996. On June
12, 1996, the Bank applied to the Superintendent of Banks for a negotiating
permit, pursuant to California Financial Code Section 690 et seq., in order to
participate with Sunrise in further negotiations with FBA. A negotiating
permit was issued to the Bank on June 13, 1996. Then, on June 14, 1996, the
Bank applied to the Superintendent of Banks for an order of exemption,
pursuant to California Financial Code Section 708, in order to allow the
possible execution of an agreement with FBA that would lead to a change in the
ownership of the Bank. An order of exemption was issued to the Bank on June
18, 1996.
A special meeting of the Sunrise Board was held on June 13, 1996, at which
representatives from Smith & Crowley and Bronson were present. At this
meeting, copies of the proposed agreement and plan of merger between Sunrise
and FBA were distributed to the directors. The draft distributed at the
meeting indicated revisions made to a prior draft reviewed by the Board as a
result of negotiations between the negotiating committee and FBA management.
Smith & Crowley presented an analysis which included fairness evaluation data
concerning the terms of the proposed $4.00 per share all cash offer and the
provision permitting Sunrise to pay up to $.50 per outstanding warrant to
redeem such warrants should the warrantholders voluntarily surrender their
warrants for redemption. The proposed agreement of merger was discussed in
detail with the directors by representatives of Bronson. The directors then
instructed that management request a guarantee of FBA's obligation to pay the
merger consideration from First Banks, Inc.
At a regular Board meeting held on June 18, 1996, at which representatives
from Smith & Crowley and Bronson were present, copies of the most recent draft
of an agreement and plan of merger with FBA were presented and reviewed by the
directors, along with a draft of the guaranty by First Banks, Inc. to pay the
merger consideration if FBA should fail to do so. Smith & Crowley and Bronson
highlighted the changes in the agreement since the previous draft the
directors had reviewed but noted that the cash consideration of $4.00 per
share was unchanged. The directors requested that the agreement be further
revised to change the latest closing date from April 1, 1997 to January 31,
1997. During a recess in the meeting, representatives of FBA were contacted by
Mr. McCarthy and Mr. Giomi regarding the proposed changes to the terms of the
agreement. After the meeting was reconvened, it was reported that
representatives of FBA had agreed to all the proposed changes, except the
January 31, 1997 closing date. Representatives from Smith & Crowley
distributed various financial material relating to the proposed offer and
summarized their various presentations which had previously been given to the
Board of Directors, which included an analysis of comparable transactions,
peer group performance data, and valuation analysis reports. Smith & Crowley
confirmed to the directors their opinion that the proposed merger transaction
was fair from a financial point of view to the Sunrise shareholders. Smith &
Crowley executed a letter confirming their opinion as to the fairness of the
proposed transaction which was thereupon unanimously accepted by the Board of
Directors. The directors unanimously agreed that the transaction contemplated
by the proposed agreement and plan of merger would be in the best interests of
Sunrise's shareholders. After further discussion, the Board unanimously
approved the proposed agreement and plan of merger and authorized and directed
the Chairman, Sean McCarthy and the President, Hal Giomi, to use their best
efforts to negotiate the final terms of the definitive agreement and plan of
merger with FBA regarding certain issues concerning indemnification, and
authorized such officers to execute the agreement in substantially the form
presented to the Board of Directors.
After further negotiations among Sunrise management and FBA management, the
Agreement and Plan of Merger was executed as of June 24, 1996, and First Banks
delivered its guaranty on June 24, 1996. FBA and Sunrise issued a joint press
release on June 24, 1996 announcing the execution and delivery of a
definitive
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Agreement and Plan of Merger. The Agreement and Plan of Merger was amended as
of August 15, 1996, in order to make Sunlight Holdings, Inc., a wholly owned
subsidiary of FBA, a signatory. On August 15, 1996, First Banks delivered its
amended guaranty which provides that if it appears unlikely that FBA will
obtain regulatory approval to acquire Sunrise or if such regulatory approval
is denied, First Banks will diligently seek regulatory approval for First
Banks to acquire Sunrise. In such event, First Banks would be responsible to
pay the Merger Consideration. On August 27, 1996, the Sunrise Board
unanimously ratified and approved the execution and delivery of the Amended
and Restated Agreement and Plan of Merger dated August 15, 1996, among
Sunrise, FBA and Sunlight Holdings, Inc.
REASONS FOR THE MERGER AND RECOMMENDATION OF THE BOARD OF DIRECTORS
The Sunrise Board believes that the terms of the Merger Agreement, which are
the product of arm's length negotiations between representatives of FBA and
Sunrise, are fair and in the best interests of Sunrise and its shareholders.
In the course of reaching its determination, the Sunrise Board consulted with
legal counsel with respect to its legal duties, the terms of the Merger
Agreement and the issues related thereto; with its financial advisor with
respect to the financial aspects and fairness of the transaction; and with
senior management regarding, among other things, operational matters.
In reaching its determination to approve the Merger Agreement, the Sunrise
Board considered all factors it deemed material, including the following:
(a) The Sunrise Board analyzed information with respect to the financial
condition, results of operations, cash flow, business and prospects of
Sunrise. In this regard, the Sunrise Board considered the recent
performance trends of Sunrise which included, among other things, a
decrease in net income as set forth in the financial statements
incorporated by reference into this Proxy Statement. The Sunrise Board
analyzed the options of selling Sunrise or continuing on a stand-alone
basis under the business strategies which could be reasonably implemented
by Sunrise.
(b) The Sunrise Board considered the written opinion of Smith & Crowley
that, as of June 18, 1996, and as reconfirmed on August 15, 1996, the
Merger Consideration to be received by holders of Sunrise Common Stock
pursuant to the Merger Agreement was fair to Sunrise shareholders from a
financial point of view. See "--Opinion of Financial Advisor." The Sunrise
Board reviewed the assumptions and results of the various valuation
methodologies employed by Smith & Crowley in arriving at the Smith &
Crowley opinion and found those assumptions and results to be reasonable
and complete. In addition, the Sunrise Board considered the relationship of
the purchase price of $4.00 per share to the recent and then current market
value. In particular, the $4.00 purchase price represented a 39% premium to
the closing price of $2.87 per share of Sunrise Common Stock on the last
full trading day prior to the public announcement of the proposed Merger.
(c) The Sunrise Board considered the current operating environment,
including but not limited to, the continued consolidation and increasing
competition in the banking and financial services industries, the prospect
for further changes in these industries, federal regulatory agency
consolidation and the importance of being able to capitalize on developing
opportunities in these industries. This information had been periodically
reviewed by the Sunrise Board at its regular Board meetings and was also
discussed between Sunrise's Board and Sunrise's various advisors.
(d) The Sunrise Board considered the various terms of the Merger
Agreement, including the taxable nature of the Merger Consideration.
(e) The Sunrise Board considered the detailed financial analyses, pro
forma and other information with respect to the financial condition,
results of operations, cash flow, businesses and prospects of Sunrise as
well as the Board's own knowledge of Sunrise, FBA, First Banks and their
respective businesses. In this regard, the latest financial and other
information regarding Sunrise was analyzed, including a comparison of
Sunrise's current and anticipated future operating results to publicly-
available financial and other information for other similar sized banking
institutions in Northern California. The Sunrise Board also considered the
current and prospective economic and competitive conditions facing banking
institutions generally and Sunrise in particular.
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(f) The Sunrise Board considered the likelihood of the Merger being
approved by the appropriate regulatory authorities, including factors such
as market share analyses, and the estimated pro forma financial impact of
the Merger on FBA. See "--Regulatory Approvals."
(g) The Sunrise Board considered the ability of FBA to pay the aggregate
Merger Consideration and the availability of a guaranty of FBA's obligation
to pay the Merger Consideration from FBA's majority stockholder, First
Banks. Sunrise's Board reviewed FBA's liquidity and capital position in
evaluating the ability of FBA to pay the aggregate Merger Consideration.
The Sunrise Board also reviewed the liquidity and capital position of First
Banks in evaluating the ability of First Banks to pay the Merger
Consideration pursuant to its guaranty.
(h) The Sunrise Board considered the fact that the Merger Agreement
prohibits Sunrise from initiating, soliciting, or encouraging discussions
with third parties relating to alternative transactions.
(i) The Sunrise Board considered the fact that ValliCorp had terminated
its letter of intent and that other informal expressions of interest which
Smith & Crowley had discussed with the Board were not within the Board's
required value parameters.
The foregoing discussion of the information and factors considered by the
Sunrise Board is not intended to be exhaustive, but constitutes the principal
factors considered by the Sunrise Board. In reaching its determination to
approve and recommend the Merger Agreement, the Sunrise Board did not assign
any relative or specific weights to the foregoing factors, and individual
directors may have weighed factors differently. After deliberating with
respect to the Merger and the other transactions contemplated by the Merger
Agreement, considering, among other things, the matters discussed above and
the opinion of Smith & Crowley referred to above, the Sunrise Board
unanimously approved and adopted the Merger Agreement and the transactions
contemplated thereby as being in the best interests of Sunrise and its
shareholders. In reaching its determination, the Sunrise Board was aware of
the interests of certain Sunrise insiders in the Merger, and considered such
interests, among other factors, in approving the Merger Agreement. See
"Interests of Certain Persons in the Merger."
FOR THE REASONS SET FORTH ABOVE, THE SUNRISE BOARD HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND THE MERGER AS ADVISABLE AND IN THE BEST INTERESTS OF
SUNRISE AND ITS SHAREHOLDERS AND RECOMMENDS THAT THE SHAREHOLDERS OF SUNRISE
VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
OPINION OF FINANCIAL ADVISOR
GENERAL. Pursuant to an engagement letter dated May 17, 1995, and
subsequently amended November 22, 1995, and March 27, 1996 (the "Engagement
Letter"), Sunrise engaged Smith & Crowley to act as its financial advisor in
connection with its evaluation of strategic alternatives, including the
possible acquisition of Sunrise and/or the Bank by another financial
institution or an investor group. Smith & Crowley is an investment banking
firm specializing in California commercial banks, savings and loan
associations, savings banks, and other financial intermediaries, and, as part
of its investment banking activities, is called upon to advise clients in
mergers, acquisitions, valuations, and business strategies involving financial
institutions. Sunrise selected Smith & Crowley as its financial advisor on the
basis of the experience and expertise of Smith & Crowley and its principals in
such banking-related transactions.
Representatives of Smith & Crowley attended a special meeting of the Sunrise
Board of Directors on June 18, 1996, at which the Sunrise Board considered and
approved the Merger Agreement. At this meeting, Smith & Crowley rendered its
written and oral opinion to the Sunrise Board that, as of such date, the
Merger Consideration to be received for each share of Sunrise Common Stock was
fair to the shareholders of Sunrise from a financial point of view. Smith &
Crowley's opinion was reconfirmed in writing as of August 15, 1996. No
limitations were imposed by Sunrise on Smith & Crowley with respect to the
investigations made or procedures followed in rendering its opinion. The full
text of Smith & Crowley's updated written opinion to the
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Sunrise Board of Directors, which sets forth the assumptions made, matters
considered, and limitations of the review by Smith & Crowley, is attached
hereto as Appendix D and this summary is qualified in its entirety by
reference to the full text of said opinion, which should be read carefully and
in its entirety in connection with this Proxy Statement. Smith & Crowley's
opinion is addressed to the Sunrise Board of Directors, is directed only to
the financial consideration to be received in the Merger and does not
constitute a recommendation to any shareholder of Sunrise as to how such
shareholder should vote at the Meeting and does not address any other aspect
of the Merger or any related transaction.
Sunrise paid Smith & Crowley a non-refundable retainer of $15,000 upon the
execution of the above-referenced Engagement Letter. The Engagement Letter
provides for Smith & Crowley to receive a contingent transaction fee, which in
this Merger would approximate $116,344, of which $37,500 is payable upon
receipt of the later of regulatory or shareholder approval of the Merger with
the remainder due at the close of the Merger. Under the Engagement Letter,
Sunrise also agreed to reimburse Smith & Crowley for certain out-of-pocket
expenses related to its services.
In connection with its opinion, Smith & Crowley, among other things: (i)
reviewed certain publicly available financial and other data with respect to
Sunrise and the Bank, FBA, and First Banks, certain annual and quarterly
reports on Form 10-K and Form 10-Q, respectively, of Sunrise, and certain
other relevant financial and operating data relating to Sunrise and the Bank,
FBA and First Banks, made available to Smith & Crowley from published sources
and from the internal records of and/or communications with the management of
Sunrise and the Bank, FBA and First Banks; (ii) reviewed the form of the
Merger Agreement and made inquiries regarding and discussed the Merger, the
Merger Agreement and other matters related thereto with Sunrise's and the
Bank's management and counsel; (iii) compared Sunrise and the Bank, FBA and
First Banks, from a financial point of view with certain other companies and
groups of companies in the banking industry that were deemed to be relevant;
(iv) considered the financial terms, to the extent publicly available, of
selected recently proposed business combinations of companies in the banking
industry, which were deemed to be comparable, in whole or in part, to the
Merger; (v) reviewed and discussed with representatives of the management of
Sunrise and the Bank certain information of a business and financial nature
regarding Sunrise and the Bank furnished to Smith & Crowley by them, including
lease agreements, credit quality data, loan and deposit trends and
composition, business prospects, forecasts and related assumptions of Sunrise
and the Bank; (vi) reviewed and discussed with representatives of the
management of FBA and First Banks, certain information of a business and
financial nature regarding those companies, their relationships and financial
and organizational structures, including current financial condition, credit
quality data, other transactions, and general business plans; (vii) reviewed
the price history, trading volume and valuation of FBA common stock and that
of Sunrise, (viii) met with various officers, directors and consultants of
Sunrise and the Bank, FBA and First Banks, to discuss the foregoing, as well
as other matters believed relevant to the Smith & Crowley analyses; and (ix)
considered such other information, financial data and analyses, and economic
and market criteria and performed such other analyses and examinations as were
deemed appropriate.
In connection with its review, Smith & Crowley relied without independent
verification upon the accuracy and completeness of all of the financial and
other information made available to and reviewed by Smith & Crowley for
purposes of its opinion. With respect to the latest financial data, financial
forecasts and discussions of financial prospects concerning Sunrise provided
to Smith & Crowley by Sunrise's management, Smith & Crowley assumed for
purposes of its opinion that such information was accurate and reasonably
prepared on bases reflecting the best available data, estimates and judgments
available to Sunrise's management at the time of preparation. Smith & Crowley
also assumed that there were no material changes in Sunrise's assets,
financial condition, results of operations, business or prospects since the
respective dates of the last financial statements made available to Smith &
Crowley. Smith & Crowley relied on counsel to Sunrise for advice to the
Sunrise Board as to all legal matters with respect to Sunrise, the Merger and
the Merger Agreement. Smith & Crowley is not expert in the evaluation of loan
portfolios for purposes of assessing the adequacy of the allowance for losses
with respect thereto and assumed for purposes of its opinion that such
allowances for Sunrise are in the aggregate adequate to cover such losses. In
addition, Smith & Crowley did not review any individual credit files, did not
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make an independent evaluation, appraisal or physical inspection of the assets
or individual properties of Sunrise, and was not furnished with any such
appraisals. Further, Smith & Crowley's opinion was based on economic,
monetary, market and other conditions as in effect on, and the information
made available to Smith & Crowley as of, the date of the opinion, and on the
assumption that the Merger will be consummated in accordance with its terms,
without any amendment thereto and without waiver by FBA or Sunrise of any of
the conditions to their obligations thereunder.
Set forth below is a brief summary of certain analyses made by Smith &
Crowley in conjunction with its opinion, which has been delivered in written
form as of August 15, 1996, and a copy of which is attached hereto as Appendix
D.
COMPARABLE COMPANY ANALYSES. Using public and other available information
including FDIC call report data for the Bank (the only active subsidiary of
Sunrise), Smith & Crowley compared certain financial ratios of the Bank
(including the ratio of net income to average total assets ("return on average
assets" or "ROA"), the ratio of net income to average total equity ("return on
average equity" or "ROE"), certain capital adequacy ratios, certain credit
quality ratios, certain revenue and cost control ratios and percentage
dependence on certain large denomination and non-core deposit sources) for
1993, 1994 and 1995 to five proxy groups: 1) 421 large commercial banking
companies nationally; 2) 325 California independent banks; 3) 243 California
independent banks with total assets under $200 million; 4) 92 Northern
California independent banks with assets under $200 million; and 5) 13
commercial banks based in the Greater Sacramento Area. When compared to the
proxy groups for the years 1993, 1994 and 1995, the Bank ranked below all
proxy group averages in most time periods in most categories. These
comparisons are discussed below.
In 1995, the Bank reported a return on assets of -0.99% and a return on
equity of -8.10%. Comparable data for the proxy groups were: Banks nationally,
1.12% and 11.48%; California independents, 0.97% and 10.10%; California
independents under $200 million, 0.60% and 6.55%; Northern California
independents under $200 million, 0.76% and 8.25%; and the Sacramento-based
banks, 0.39% and 4.81%. Similarly, in 1994, the Bank reported a return on
assets of -1.41% and a return on equity of -15.95%. Comparable data for the
proxy groups were: Banks nationally, 1.00% and 11.47%; California
independents, 0.61% and 6.66%; California independents under $200 million,
0.05% and 0.59%; Northern California independents under $200 million, 0.23%
and 2.52%; and the Sacramento-based banks, -0.28% and -3.71%. Likewise, in
1993, the Bank registered a return on assets of -1.40% and a return on equity
of -18.29%. Comparable data for the proxy groups were: Banks nationally, 0.91%
and 10.52%; California independents, 0.24% and 2.77%; California independents
under $200 million, -0.21% and -2.47%; Northern California independents under
$200 million, 0.37% and 4.27%; and the Sacramento-based banks, 0.25% and
3.29%. Analyses of California bank profits also showed that Sunrise Bank was
one of only 16 California independent banks statewide that reported net losses
each year from 1992 to 1995.
In terms of capital adequacy measures (Tier 1 Capital/Risk Assets, Total
Capital/Risk Assets, Leverage Ratio, and Average Equity/Average Capital), the
Bank and Sunrise's capital ratios were comparable to modestly below most proxy
group averages in 1993; however, between 1993 and 1995, the Bank's assets
declined from $319 million to $120 million and its deposits declined from $288
million to $105 million, the Bank's capital ratios rose to levels well above
proxy group averages. At year-end 1995, the Bank's ratios of Tier 1
Capital/Risk Assets, Total Capital/Risk Assets, Leverage Ratio, and Average
Equity/Average Assets were 18.19%, 19.46%, 11.70% and 12.77%, respectively.
Comparable data for the proxy groups were: Banks nationally, 11.92%, 13.60%,
7.87% and 9.00%; California independents, 13.93%, 15.25%, 9.50% and 10.19%;
California independents under $200 million, 13.62%, 14.89%, 9.25% and 9.07%;
Northern California independents under $200 million, 13.22%, 14.54%, 9.05% and
8.90%; and the Sacramento-based banks, 10.70%, 12.56%, 7.72% and 8.40%.
Analyses of the Bank's key credit quality ratios (the ratio of net loan
charge-offs to average loans, allowance for loan losses as a percentage of
total loans, nonperforming assets as a percent of total loans plus other real
estate owned, and the allowance for loan losses as a percentage of loans on
which interest is not being accrued--
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so-called "nonaccrual" loans) as compared with the proxy groups showed these
general characteristics: net loan charge-offs ratios substantially exceeded
all groups in each year examined; loan loss reserve ratios (allowance as a
percentage of total loans) exceeded all other peer groups by moderate to
substantial amounts; nonperforming asset ratios (nonperforming assets as a
percent of total loans plus other real estate owned) substantially exceeded
all proxy groups in 1994 and 1995, due in part to rising problem asset levels
and in part to shrinking loan totals, and in 1993, exceeded three proxy groups
(national, Northern California independents under $200 million and Sacramento-
area banks) and were below the two others (all California independents and
California independents under $200 million, both of which reflected
substantial credit problems in the weak Southern California economy); in terms
of reserve coverage of nonaccrual loans, because of the Bank's high level of
nonperforming loans in 1994 and 1995, its reserve coverage was substantially
below all proxy groups in both years; in 1993, its nonaccrual coverage was
below the national proxy group, but exceeded all other proxy groups. More
specifically, in 1995, the Bank's ratios of net loan charge-offs to average
loans, its allowance for loan losses as a percentage of total loans, its
nonperforming assets as a percent of total loans plus other real estate owned,
and its allowance for loan losses as a percentage of loans on nonaccrual were
2.15%, 2.96%, 7.52% and 77.60%, respectively. Comparable data for the proxy
groups were as follows: Banks nationally, 0.35%, 1.84%, 1.44%, 254.49%; all
California independents, 0.87%, 2.54%, 4.71% and 105.39%; California
independents under $200 million, 0.89%, 2.17%, 4.83% and 97.62%; Northern
California independents under $200 million, 0.62%, 2.00%, 2.86% and 144.48%;
and Sacramento-based banks, 0.70%, 2.04%, 2.23% and 131.84%. In 1994, the
Bank's ratios of net loan charge-offs to average loans, its allowance for loan
losses as a percentage of total loans, its nonperforming assets as a percent
of total loans plus other real estate owned, and its allowance for loan losses
as a percentage of loans on nonaccrual were 3.61%, 4.48%, 11.01% and 56.51%,
respectively. Comparable data for the proxy groups were as follows: Banks
nationally, 0.39%, 1.92%, 1.83% and 264.59%; all California independents,
1.00%, 2.68%, 5.52% and 95.46%; California independents under $200 million,
1.27%, 2.29%, 5.86% and 87.15%; Northern California independents under $200
million, 0.82%, 2.05%, 3.71% and 120.00%; and Sacramento-area banks, 0.97%,
2.11%, 3.20% and 96.72%. In 1993, the Bank's ratios of net loan charge-offs to
average loans, its allowance for loan losses as a percentage of total loans,
its nonperforming assets as a percent of total loans plus other real estate
owned, and its allowance for loan losses as a percentage of loans on
nonaccrual were 3.74%, 3.46%, 5.45% and 106.00%. Comparable data for the proxy
groups were as follows: Banks nationally, 0.58%, 2.09%, 2.61% and 201.30%; all
California independents, 1.35%, 2.78%, 6.62% and 83.67%; California
independents under $200 million, 1.46%, 2.38%, 7.30% and 68.94%; Northern
California independents under $200 million, 0.96%, 2.02%, 4.83% and 85.09%;
and Sacramento-based banks, 0.94%, 1.85%, 4.87% and 57.04%.
In terms of revenue and cost control ratios, the Bank has been, and
continues to be, burdened by an unusually high proportion of noninterest
expenses, due in significant measure to the high lease costs of its
headquarters building (which lease extends to May 1999) and the sizable
expenses that have accompanied its problem assets. In addition, the Bank's
noninterest income from recurrent core sources has been quite low in relation
to the proxy groups. Its net interest margin, restrained by above average
nonperforming asset levels, has been moderately below most proxy groups in
most of the periods examined. Among noninterest revenue and cost control
comparisons made by Smith & Crowley, the Bank was compared to the proxy groups
based on its net interest margin (interest income less interest expense as a
percent of average earning assets), net expense ratio (noninterest expenses
minus noninterest income as a percent of average total assets), and efficiency
ratio (noninterest expenses taken as a percent of the sum of net interest
income plus noninterest income). In 1995, the Bank's net interest margin, net
expense ratio and efficiency ratio were 5.08%, 5.51% and 119.93%,
respectively. Comparable proxy group data were as follows: Banks nationally,
4.82%, 2.37% and 63.45%; all California independents, 5.68%, 3.19% and 69.72%;
California independents under $200 million, 5.93%, 3.92% and 78.98%; Northern
California independents under $200 million, 5.74%, 3.57%, and 74.04%; and
Sacramento-based banks, 4.74%, 3.13% and 79.46%. In 1994, the Bank's net
interest margin, net expense ratio and efficiency ratio were 4.81%, 5.10% and
114.90%, respectively. Comparable proxy group data were as follows: Banks
nationally, 4.82%, 2.52%, 65.58%; all California independents, 5.57%, 3.43%
and 75.34%; California independents under $200 million, 5.73%, 4.10% and
84.53%; Northern California independents under $200 million, 5.69%, 3.91% and
80.41%; and Sacramento-based banks, 4.71%, 3.67% and 90.38%. In 1993, the
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Bank's net interest margin, net expense ratio and efficiency ratio were 4.37%,
3.52% and 90.97%. Comparable proxy group data were as follows: Banks
nationally, 4.74%, 2.45% and 66.15%; all California independents, 5.09%, 3.43%
and 79.36%; California independents under $200 million, 5.27%, 3.93% and
85.51%; Northern California independents under $200 million, 5.11%, 3.47% and
78.71%; and Sacramento-based banks, 4.57%, 3.33% and 85.37%. In a more
specific analysis of noninterest income and noninterest expense sources in the
most recent full year (1995), the Bank compared with each of the four
California proxy groups as follows: Noninterest income (excluding securities
gains/losses) as a percent of average assets--the Bank, 0.45%; all California
independents, 1.34%; California independents under $200 million, 1.53%;
Northern California independents under $200 million, 1.26%; and Sacramento-
based banks, 1.32%; Occupancy and fixed assets costs as a percent of average
assets--the Bank, 1.37%; all California independents, 0.67%; California
independents under $200 million, 0.80%; Northern California independents under
$200 million, 0.71%; and Sacramento-based banks, 0.61%; "Other" noninterest
expenses (excluding staff and occupancy costs) as a percent of average
assets--the Bank, 2.44%; all California independents, 1.74%; California
independents under $200 million, 2.21%; Northern California independents under
$200 million, 1.98%; and Sacramento-based banks, 2.04%.
No company used in the analyses is identical to Sunrise or the Bank, and
there are differences between the Bank and the proxy groups of other banking
companies. The analyses necessarily involved complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies.
ANALYSES OF SELECTED BANK MERGER TRANSACTIONS. Smith & Crowley reviewed the
proposed terms of recently announced transactions whereby certain banks were
to be acquired. While Smith & Crowley reviewed the median and average terms of
1,329 proposed transactions involving acquisitions of banks in the United
States announced between year end 1992 and August 13, 1996 (the "National Bank
Transactions") and of 143 proposed transactions involving acquisitions of
banks in the Western Region of the United States ("Western Bank Acquisitions)
announced during the same time period, Smith & Crowley believes that factors
unique to California, particularly the comparatively weak economic, business
and financial environment, have impacted the value of bank merger
transactions; therefore, Smith & Crowley placed particular emphasis on 39
proposed transactions involving acquisitions of California banks with assets
under $250 million, announced since year end 1994 (the "California Bank
Transactions"). The transactions analyzed were: CalFed Bancorp/First Citizens
Bank, BanPonce Corporation/COMBANCORP, First National Bank/Bank of Southern
California, ValliCorp Holdings, Inc./Sunrise Bancorp, Valley Independent
Bank/Bank of the Desert, N.A. (April 1996), ValliCorp Holdings, Inc./Auburn
Bancorp, Dartmouth Capital Group, LP/Commerce Security Bank, Bank of Yorba
Linda/Bank of Westminster, FP Bancorp/RB Bancorp (January 1996), Union Safe
Deposit Bank/Great Valley Bank, CVB Financial Corporation/Citizens Commercial
Trust & Savings Bank of Pasadena, Bank of Santa Maria/Citizens Bank of Paso
Robles, Pacific Bank, NA/Burlingame Bancorp, Central Coast Bancorp/Cypress
Coast Bank, Pacific Business Bank/Santa Fe National Bank, Shinhan Bank/Marine
National Bank, FP Bancorp/RB Bancorp (August 1995), FP Bancorp /Rancho Santa
Fe NB, Dartmouth Capital Group, LP/Liberty National Bank of California, First
Banks, Inc./First Commercial Bancorp, Viejas Bank of Kumeyaay Indians/Borrego
Springs Bank, Valley Independent Bank/Bank of the Desert, N.A. (July 1995),
ValliCorp Holdings, Inc./CoBank Financial Corporation, California State
Bank/Landmark Bancorp, Community First Financial Group/Peninsula National
Bank, Dartmouth Capital Group, LP/SDN Bancorp, Eldorado Bancorp/Mariners
Bancorp, Peninsula Banking/Bay Cities NB, ValliCorp Holdings Inc./El Capitan
Bancshares, Bank of Los Angeles/World Trade Bank NA, California
Bancshares/Centennial Bank, CU Bancorp/Corporate Bank, Bank of Santa
Maria/Templeton National Bank, United Security Bank, N.A./Golden Oak Bank,
First Banks, Inc./QCB Bancorp, Western Bank/Bank of Encino, Pacific Capital
Bancorp/South Valley Bancorp, Bank of Los Angeles/American West Bank, and FBOP
Corporation/SDNB Financial Bancorp. For each bank proposed to be acquired in
such transactions, Smith & Crowley compiled figures, where available,
illustrating, among other things, the purchase price to market value, purchase
price to book value and purchase price to latest twelve-months ("LTM")
earnings, and the premium (i.e., purchase price in excess of book value) as a
percentage of so-called "core" deposits (excluding certain deposit categories,
including accounts with balances over $100,000).
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The figures for the National Bank Transactions, the Western Bank
Transactions and California Bank Transactions produced: (i) an average
percentage of premium of acquisition price to market price (utilizing, where
available, market price five business days before announcement of the
transaction) of 26.87%, 28.77% and 39.38%, respectively; a high of 135.29%,
66.67% and 60.00%, respectively; and a low of -87.50%, 1.95% and 12.90%,
respectively; (ii) an average purchase price to book value of 174%, 162% and
149%, respectively; a high of 373%, 311% and 250%, respectively; a low of 27%,
63% and 100%, respectively; (iii) an average purchase price to LTM earnings of
15.2x, 17.7x and 20.5x, respectively; a high of 68.5x, 68.5x and 60.7x,
respectively; and a low of 2.2x, 5.2x and 7.4x, respectively, and (iv) an
average premium (price in excess of book value) on core deposits of 7.73%,
5.74% and 5.46%; a high of 28.85%, 24.54% and 15.40%, respectively; and a low
of -10.63%, -6.1% and 0.00%, respectively. In comparison, assuming as of
August 13, 1996, that the consideration to be paid in the Merger for each
share of Sunrise Common Stock equals $4.00, Smith & Crowley determined that
the consideration to be received by the holders of the Sunrise Common Stock in
the Merger represented a percentage premium to market price ($2.50 per share
on June 11, 1996) of 60.00%, a purchase price to fully-diluted book value at
July 31, 1996, of 105%, and purchase price to LTM earnings that was not
measurable because Sunrise Bancorp posted a loss of $0.34 per share during the
twelve months ended June 30, 1996; a premium on core deposits as of June 30,
1996 of 1.08% to 1.96% depending upon whether the Bank's $39.7 million of
homeowners' association deposits are included in or excluded from core deposit
totals.
DISCOUNTED PRESENT VALUE AND OTHER ANALYSES. Smith & Crowley was not able to
perform a useful discounted present value analysis on Sunrise because
management did not have earnings projections beyond year-end 1996, and 1996
projections anticipated a loss after exclusion of one-time or nonrecurring
gains. Smith & Crowley also performed certain other analyses, including
evaluation, based on Sunrise financial data, of the possible premiums and
discounts attributable to certain assets, liabilities and off-balance sheet
obligations and values of Sunrise that might add to or detract from the value
of its net worth. Under these analyses, the consideration to be received was
also deemed fair. Smith & Crowley also analyzed the ability to pay of FBA and
its majority stockholder, First Banks, including their respective capital
positions and performance in completing previous transactions in California
and elsewhere in the United States.
No other company or transaction used in the above analyses as a comparison
is identical to Sunrise or the Merger. Accordingly, any analyses of the
results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the
public trading value of the companies to which Sunrise and the Merger are
being compared.
The summary set forth above does not purport to be a complete description of
the analyses performed by Smith & Crowley. The preparation of a fairness
opinion necessarily is not susceptible to partial analyses or summary
description. Smith & Crowley believes that its analyses and the summary set
forth above must be considered as a whole and that selecting a portion of
these analyses and factors would create an incomplete view of the process
underlying the analyses. In addition, Smith & Crowley may have given certain
analyses more or less weight than other analyses and may have deemed various
assumptions more or less probable than other assumptions, so that the ranges
of valuations resulting from any particular analyses described above should
not be taken to be Smith & Crowley's view of the actual value of Sunrise or
the combined companies. The fact that any specific analysis has been referred
to in the summary above is not meant to indicate that such analysis was given
greater weight than any other analyses.
In performing its analyses, Smith & Crowley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Sunrise. The analyses
performed by Smith & Crowley are not necessarily indicative of actual values
or actual future results, which may be significantly more or less favorable
than suggested by such analyses. Such analyses were prepared solely as part of
Smith & Crowley's analyses of the consideration to be received by the Sunrise
shareholders in the Merger. The analyses do not purport to be appraisals or to
reflect the prices at which a company might be sold or the prices at which any
securities may trade at the present time or any time in the future.
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As described above, Smith & Crowley's written and verbal fairness opinion
received by the Sunrise Board of Directors was among the many factors taken
into consideration by the Board in making its determination to approve the
Merger Agreement and the Merger. Smith & Crowley has had no prior business
relationships with either party to this proposed Merger.
EFFECTIVE TIME
As soon as practicable on the Closing Date hereinafter defined, a
Certificate of Merger shall be duly prepared, executed, acknowledged and filed
by the parties in accordance with Nevada corporate law with the Nevada
Secretary of State. The Closing will take place at 10:00 a.m. on either (i)
one of the last five business days of the month or (ii) the first business day
of the month following the month, in each case, during which each of the
conditions required by the Merger Agreement is satisfied or waived by the
appropriate party, unless another time, date or place is agreed to in writing
by Sunrise and FBA (the "Closing Date"). Assuming the timely receipt of all
regulatory approvals, the expiration of all statutory waiting periods and the
satisfaction or waiver of all conditions in the Merger Agreement, it is
currently anticipated that the Merger will be consummated in the fourth
quarter of 1996. Either Sunrise or FBA may terminate the Merger Agreement if
the Merger is not consummated by February 28, 1997 or for certain other
reasons specified in the Merger Agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The directors and executive officers of Sunrise together with their
affiliates, beneficially owned a total of 688,515 shares of Sunrise Common
Stock, including 53,148 shares subject to options and warrants, representing
15.95% of all outstanding shares of Sunrise Common Stock as of August 23,
1996. As discussed below, the executive officers may surrender their options
which have exercise prices of less than $4.00 per share and warrants prior to
the Effective Time and receive an amount equal to $4.00 per share minus the
per share exercise price of the surrendered options and up to $.50 per warrant
for warrants voluntarily surrendered for redemption to Sunrise. The directors
and executive officers will receive the same consideration for their shares,
options and warrants as the other shareholders, optionholders or
warrantholders of Sunrise. Certain members of Sunrise's management and the
Board of Directors have certain interests in the Merger as described below
that are in addition to their interest as shareholders of Sunrise generally.
The Board of Directors was aware of these interests and considered them, among
other matters, in approving the Merger Agreement and the transactions
contemplated thereby.
EMPLOYMENT AND SEVERANCE AGREEMENTS. Harold G. Giomi, President and Chief
Executive Officer of Sunrise and the Bank, has an employment agreement with
Sunrise and the Bank which provides that if Mr. Giomi's employment with
Sunrise or the Bank is terminated without cause he will be entitled to receive
severance compensation equal to six months' salary. Sarah A. Thompson, Senior
Vice President and Chief Financial Officer of Sunrise and the Bank, is also
entitled to severance compensation equal to six months' salary if her
employment with Sunrise or the Bank is terminated without cause.
DIRECTORS' AND OFFICERS' INDEMNIFICATION. For a period of six years
following the Effective Time, FBA shall cause the Surviving Corporation to
indemnify, defend and hold harmless the present and former officers,
directors, employees or agents of Sunrise and the Bank (the "Indemnified
Parties") against all losses, expenses, claims, damages or liabilities for
acts or omissions occurring on or prior to the Effective Time to the full
extent permitted by the applicable corporate law and the respective articles
of incorporation or bylaws of Sunrise or the Bank as in effect on the date of
the Merger Agreement. FBA has also agreed, subject to certain conditions, to
cause the Surviving Corporation to purchase and maintain in effect for a
period of three years from the Effective Time Sunrise's current insurance and
indemnification policy insuring the Indemnified Parties against such losses,
expenses, claims, damages or liabilities.
STOCK OPTION PLANS; WARRANTS. Under the Stock Option Plans, options to
purchase 269,629 shares of Sunrise Common Stock have been issued to officers
and key employees of Sunrise. Under the terms of the Stock Option Plans, all
outstanding options will become fully vested and exercisable in connection
with the Merger.
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The Merger Agreement permits Sunrise to redeem outstanding options which have
an exercise price of less than $4.00 per share by paying the optionees who
surrender such options to Sunrise before the Effective Time an amount equal to
$4.00 per share minus the per share option exercise price. Sunrise executive
officers currently hold options to purchase an aggregate of 105,000 shares at
exercise prices which range from $1.62 to $3.00 per share. If all of the
executive officers surrender their options, such officers will receive, net of
the option exercise price per share, a total of approximately $225,700.
Sunrise Chairman McCarthy holds warrants to purchase 29,398 shares of Sunrise
Common Stock at an adjusted exercise price of $4.54 per share. Under the
Merger Agreement, Sunrise is permitted to redeem Mr. McCarthy's warrants and
all other outstanding warrants for a purchase price of up to $.50 per warrant
if the warrantholder voluntarily surrenders his or her warrants to Sunrise for
redemption. If Mr. McCarthy tenders his warrants for redemption, he will
receive up to $7,349.
EMPLOYEE MATTERS AND IMPACT ON EMPLOYEE BENEFIT PLANS
FBA has no obligation to retain any employee or to refrain from reassigning
any employee as FBA shall determine is necessary or appropriate. Employees of
Sunrise who are retained after the Closing Date will be entitled to
participate in the employee benefit, welfare and related plans and programs of
FBA's subsidiaries, to the extent eligible or, if required by the applicable
plan, selected for participation, and will receive past service credit for
their employment with Sunrise or the Bank.
The Stock Options Plans and all outstanding stock options will terminate at
the Effective Time. All such options may be exercised in full regardless of
any vesting schedule specified in the particular stock option agreement during
a specified time period prior to the Effective Time. In lieu of receiving
shares of Sunrise Common Stock upon exercise, an optionee may surrender his or
her options which have an exercise price less than $4.00 per share prior to
the Effective Time in exchange for an amount equal to the difference between
$4.00 per share and the applicable per share exercise price of the shares
subject to the option. In addition, it is intended that Sunrise's 401(k) plan
will be merged into the 401(k) plan of either FBA or First Banks. Upon such
merger, all participants in Sunrise's 401(k) plan will be deemed fully vested
and all account balances will be automatically rolled over into the successor
plan. There should be no tax consequences to the participants in Sunrise's
401(k) plan as a result of the rollover.
TREATMENT OF OUTSTANDING WARRANTS
As of August 23, 1996, there were outstanding currently exercisable warrants
to purchase an aggregate of 296,206 shares of Sunrise Common Stock at an
exercise price of $4.54 per share. These warrants will expire on December 31,
1997. Under the Merger Agreement, Sunrise is permitted to redeem outstanding
warrants for a purchase price of up to $.50 per warrant if the warrantholder
voluntarily surrenders his or her warrants to Sunrise for redemption. Warrants
which are not surrendered for redemption will remain outstanding until their
expiration date, December 31, 1997. After the Effective Time such warrants
will represent the right to receive $4.00 for each share subject to the
warrant upon payment of the warrant exercise price of $4.54 per share.
CERTAIN PROXIES ON SUNRISE SHARES
The following directors of Sunrise constituting the entire Board, pursuant
to the requirements of the Merger Agreement, have granted to FBA irrevocable
proxies permitting FBA to vote their respective Sunrise shares (and the
Sunrise shares of their respective affiliates) in favor of the Merger at the
Meeting: William Eames, Donald Leary, Leon Lewis, Sean McCarthy, Anthony
Pescetti, Ron Pitamber, Michael Randazzo, Paul Wagner and Doris Ward. Such
proxies cover an aggregate of 635,367 shares or 14.90% of the outstanding
shares of Sunrise Common Stock, excluding 29,398 shares subject to outstanding
warrants held by Chairman McCarthy.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash for Sunrise Common Stock pursuant to the Merger will be
a taxable transaction for federal income tax purposes to shareholders
receiving such cash (and may be a taxable transaction for state, local and
foreign tax purposes as well). A holder of Sunrise Common Stock will recognize
a gain or loss measured by
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the difference between such shareholder's tax basis for the Sunrise Common
Stock owned by him or her at the Effective Time and the amount of cash
received therefor. Such gain or loss will be a capital gain or loss if the
stock is a capital asset in the hands of the shareholder. If the shares have
been held for more than one year, the gain will be long term capital gain. If
the shares have been held for less than one year, the gain will be short term
capital gain.
The cash payments due the holders of Sunrise Common Stock upon the exchange
of such Sunrise Common Stock pursuant to the Merger (other than certain exempt
persons or entities) will be subject to "backup withholding" for federal
income tax purposes unless certain requirements are met. Under federal law,
the third-party paying agent must withhold 31% of the cash payments to holders
of Sunrise Common Stock to whom backup withholding applies, and the federal
income tax liability of such persons will be reduced by the amount so
withheld. To avoid backup withholding, a holder of Sunrise Common Stock must
provide the Exchange Agent with his or her taxpayer identification number and
complete a form in which he or she certifies that he or she has not been
notified by the Internal Revenue Service (the "IRS") that he or she is subject
to backup withholding as a result of a failure to report interest and
dividends. The taxpayer identification number of an individual is his or her
Social Security number.
No ruling has been or will be requested from the IRS as to any of the tax
effects to Sunrise's shareholders of the transactions discussed in this Proxy
Statement, and no opinion of counsel has been or will be rendered to Sunrise's
shareholders with respect to any of the tax effects of the Merger to
shareholders.
THE TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE PARTICULAR
CIRCUMSTANCES OF EACH SHAREHOLDER. THEREFORE, EACH SHAREHOLDER IS URGED TO
CONSULT HIS OR HER TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES OF
THE MERGER TO SUCH HOLDER, INCLUDING THOSE RELATING TO STATE, LOCAL AND/OR
OTHER TAXES.
SURRENDER OF STOCK CERTIFICATES
Promptly after the Effective Time of the Merger, the Exchange Agent will
mail a form of transmittal letter and instructions concerning the surrender of
stock certificates to each record holder of shares of Sunrise Common Stock
outstanding at the Effective Time. The transmittal material will contain
instructions with respect to the proper method of surrender of certificates
formerly representing shares of Sunrise Common Stock in exchange for the
Merger Consideration. SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES AT THIS
TIME.
Upon delivery to the Exchange Agent of certificates formerly representing
shares of Sunrise Common Stock for cancellation, together with a properly
completed transmittal letter, a Sunrise shareholder will receive a check from
the Exchange Agent in payment of the Merger Consideration for the shares of
Sunrise Common Stock represented by such surrendered certificates. Sunrise
shareholders will not be entitled to receive interest on any cash to be
received in the Merger.
GUARANTY OF FIRST BANKS, INC.
FBA intends to borrow a portion of the Merger Consideration from First
Banks. First Banks has delivered to Sunrise its guaranty for the benefit of
Sunrise and its shareholders, to pay the Merger Consideration to the Sunrise
shareholders if FBA should fail to do so. In addition, First Banks has agreed
that if it appears unlikely that FBA will obtain regulatory approval, or if
regulatory approval for FBA to obtain Sunrise is denied, First Banks will
diligently seek the approval of the Federal Reserve Board for First Banks to
acquire Sunrise. This would be accomplished by a transfer of the ownership of
Sunlight from FBA to First Banks, and First Banks would then be responsible
for paying the Merger Consideration.
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REGULATORY APPROVALS
The Merger is subject to the approvals of the Federal Reserve Board and the
Superintendent. Federal Reserve Board approval is required under the Bank
Holding Company Act (the "BHC Act") and the regulations thereunder. The BHC
Act provides generally that the Federal Reserve Board may not approve any
transaction that would result in a monopoly or that would be in furtherance of
any combination or conspiracy to monopolize or attempt to monopolize the
business of banking in any part of the United States, or the effect of which
may be to substantially lessen competition or create a monopoly in any section
of the country, or otherwise to be in restraint of trade. In reviewing any
application for approval, the Federal Reserve Board is required to consider
the financial and managerial resources and future prospects of the companies
and banks involved and the convenience and needs of the communities to be
served. The BHC Act provides generally that a transaction such as the Merger,
once approved by the Federal Reserve Board, may not be consummated for fifteen
days after approval. During that period the Justice Department may commence
legal action challenging the transaction under the antitrust laws. The BHC Act
also provides for publication of notice and the opportunity for administrative
hearings relating to an application and authorizes the Federal Reserve Board
to permit interested parties to intervene in the proceeding.
An application for approval of the Merger must also be submitted to the
Superintendent of Banks. The California Financial Code provides that the
Superintendent of Banks shall approve the application unless he finds that (a)
the effect of the proposed acquisition of control would be to substantially
lessen competition, (b) the financial condition of the acquirer is such as
might jeopardize the financial stability of the acquired bank or prejudice the
interests of the depositors, creditors or shareholders of the acquired bank or
acquirer, or (c) the proposed acquisition is unfair, unjust or inequitable to
the acquired bank or acquirer. The Superintendent of Banks may, in approving a
proposal to acquire control of a state-chartered bank, impose such conditions
as he deems reasonable or necessary or advisable in the public interest.
Applications for approval of the Merger have been filed by FBA and First
Banks with the Federal Reserve Board and the Superintendent of Banks and are
pending. While there is no assurance that such applications will be approved
or when they will be acted upon, FBA and First Banks anticipate that approvals
will be forthcoming in time for the Merger to be completed during the fourth
quarter of 1996.
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement, Sunrise and FBA have made certain representations
and warranties to each other. Sunrise has represented and warranted, among
other things, as to its organization and capitalization, its authority to
enter into the Merger Agreement and to consummate the Merger; material
compliance with all applicable laws; the accuracy of its financial statements,
documents filed with the SEC, regulatory reports and public reports; the
absence of material changes from its reported financial condition; the
accuracy of information supplied to FBA; the absence of any prohibited
activities; legal proceedings against it; title to its properties; its
contractual rights and duties; its tax returns and taxes; employee matters and
compliance with ERISA; certain environmental laws; its loan portfolio; its
investment portfolio; and other matters relating to its business, assets,
liabilities and operations. FBA has represented and warranted to Sunrise,
among other things, as to its organization, its authority to enter into the
Merger Agreement and to consummate the Merger; the accuracy and completeness
of the information regarding its business operations which is contained in
this Proxy Statement; the receipt of regulatory approvals prior to the
Effective Time; the absence of material changes from its reported financial
condition; the absence of any litigation or other circumstances that would
impair the ability of FBA to perform its obligations under the Merger
Agreement; and the availability of funds necessary to pay the Merger
Consideration. Reference is made to the Merger Agreement attached as Appendix
A to this Proxy Statement which contains all the representations that Sunrise
and FBA have made to each other.
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of Sunrise to consummate the Merger are subject to the
satisfaction or waiver of certain conditions, including: (i) approval of the
Merger Agreement by Sunrise's shareholders holding at least a majority
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of the outstanding shares of Sunrise Common Stock; (ii) receipt of all
required consents, approvals and waivers from third parties and governmental
agencies; (iii) the accuracy and truthfulness of the representations and
warranties of FBA; (iv) the absence of any order, decree or injunction which
enjoins or prohibits the consummation of the Merger; and (v) the performance
of all obligations of FBA under the Merger Agreement and the delivery of all
documents by FBA required under the Merger Agreement to the reasonable
satisfaction of Bancorp.
The obligations of FBA and Sunlight are subject to the satisfaction or
waiver of certain conditions, including: (i) the truthfulness in all material
respects of the representations and warranties made by Sunrise; (ii) Sunrise
shall have performed and complied in all material respects with its
obligations under the Merger Agreement; (iii) the receipt of all required
consents, approvals and waivers from governmental agencies; (iv) the absence
of any order, decree or injunction which enjoins or prohibits the consummation
of the Merger; (v) the delivery by Sunrise to FBA of certain environmental
reports required by the Merger Agreement; (vi) Sunrise shareholder approval of
the Merger Agreement; (vii) holders of no more than 20% of the Sunrise Common
Stock shall have perfected the right to dissent from the Merger; and (viii)
Sunrise's financial statements shall not be inaccurate in any material
respect.
Prior to the Effective Time, any condition of the Merger Agreement (to the
extent allowed by law) may be waived by the party benefited by the provision.
TERMINATION; LIQUIDATED DAMAGES
The Merger Agreement may be terminated at any time prior to the Closing
Date, either before or after approval by Sunrise shareholders, as follows: (i)
by the mutual consent of the parties; or (ii) by either FBA or Sunrise at any
time if (a) the other party materially breaches any of its representations,
warranties and agreements made under the Merger Agreement and the breach is
not cured within 20 days after written notice has been provided to the
breaching party, (b) the conditions to the obligations of a party are not
satisfied or waived prior to the Closing Date and if the applicable 20 day
cure period has lapsed, after written notice has been provided by such party
to the other party; or (c) the Effective Time has not occurred prior to
February 28, 1997.
In addition, the Merger Agreement will be deemed to have terminated if
regulatory approval of the Merger has not been obtained. FBA may also
terminate the Merger Agreement (i) within ten days after FBA's receipt of the
environmental report(s) required to be delivered by Sunrise to FBA which
indicate that the cost of corrective or remedial action will be more than
$400,000 or if such report(s) indicate that such costs cannot be reasonably
estimated to be $400,000 or less, or (ii) Sunrise or the Bank become a party
to or subject to any new or amended written agreement, memorandum, cease and
desist order seeking or imposing civil money penalties or other written
regulatory enforcement action or formal legal proceeding of any federal or
state regulatory authority.
If the conditions to consummation of the Merger have been satisfied,
including the approval of the Merger Agreement by the shareholders of Sunrise,
but Sunrise fails to consummate the Merger or Sunrise's Board of Directors
fails to recommend to the shareholders the approval of the Merger Agreement,
or Sunrise takes any action in breach of the Merger Agreement which prevents
the consummation of the Merger, then Sunrise is required to pay to FBA the sum
of $1,000,000 as liquidated damages. If the Sunrise shareholders fail to
approve the Merger Agreement but the other conditions to consummation of the
Merger have been satisfied, Sunrise will nevertheless be required to pay to
FBA the sum of $1,000,000 as liquidated damages if another party acquires,
merges or consolidates with Sunrise if such a transaction is announced before
or within one year after termination of the Merger Agreement and is
consummated within two years following such termination.
If the conditions to consummation of the Merger Agreement have been
satisfied, but FBA fails to consummate the Merger or takes any action in
breach of the Merger Agreement which prevents the consummation of the Merger,
FBA is required to pay to Sunrise the sum of $1,000,000 as liquidated damages.
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BUSINESS PENDING CONSUMMATION
Pursuant to terms of the Merger Agreement, Sunrise and the Bank are required
to conduct their business only in the ordinary and usual course consistent
with past practices. Furthermore, the Merger Agreement contains certain
restrictions upon the conduct of Sunrise's and the Bank's business pending
consummation of the Merger. In particular, the Merger Agreement provides that,
neither Sunrise or the Bank will (i) declare or pay any dividend or make any
other distribution to shareholders, whether in cash, stock or other property;
(ii) issue any common stock or other capital stock or any options, warrants,
or other rights to subscribe for or purchase common stock or any other capital
stock or any securities convertible into or exchangeable for any capital stock
(except for the issuance of common stock pursuant to the valid exercise of
outstanding stock options and warrants to purchase Sunrise Common Stock);
(iii) directly or indirectly redeem, purchase or otherwise acquire any common
stock or any other capital stock of Sunrise or the Bank; or (iv) effect a
reclassification, recapitalization, split-up, exchange of shares, readjustment
or other similar change in or to any capital stock, or otherwise reorganize or
recapitalize; (v) change its articles of incorporation or bylaws nor, subject
to the fiduciary duties of the directors of Sunrise under the California
Corporations Code, enter into any agreement to merge or consolidate with, or
sell a significant portion of its assets to, any person or entity.
The Merger Agreement further provides that without the prior written consent
of FBA which shall not be unreasonably withheld, neither Sunrise nor the Bank
will: (i) grant any increase (other than ordinary and normal increases
consistent with past practices) in the compensation payable or to become
payable to officers or employees, grant any stock options or, except as
required by law, adopt or make any change in any employee benefit plan,
agreement, payment or arrangement made to, for or with any such officers or
employees; (ii) borrow or agree to borrow any amount of funds except in the
ordinary course of business, or directly or indirectly guarantee or agree to
guarantee any obligations of others; (iii) make or commit to make any new loan
or letter of credit or any new or additional discretionary advance under any
existing line of credit, in principal amounts in excess of $200,000 or that
would increase the aggregate credit outstanding to any one borrower (or group
of affiliated borrowers) to more than $400,000 (excluding for this purpose any
accrued interest or overdrafts), (iv) purchase or otherwise acquire any
investment security for its own account having an average remaining life to
maturity greater than five years or any asset-backed securities other than
those issued or guaranteed by the Government National Mortgage Association,
the Federal National Mortgage Association or the Federal Home Loan Mortgage
Corporation; (v) enter into any agreement, contract or commitment having a
term in excess of three (3) months other than letters of credit, loan
agreements, deposit agreements, and other lending, credit and deposit
agreements and documents made in the ordinary course of business; (vi) except
in the ordinary course of business, place on any of its assets or properties
any mortgage, pledge, lien, charge, or other encumbrance; (vii) except in the
ordinary course of business, cancel or accelerate any material indebtedness
owing to Sunrise or the Bank or any claims which Sunrise or the Bank may
possess, or waive any material rights of substantial value; (viii) sell or
otherwise dispose of any real property or any material amount of any tangible
or intangible personal property, other than properties acquired in foreclosure
or otherwise in the ordinary collection of indebtedness to Sunrise and the
Bank; or (ix) foreclose upon or otherwise take title to or possession or
control of any real property (other than single family, non-agricultural
residential property of one acre or less) without first obtaining a phase one
environmental report thereon which indicates that the property is free of
pollutants, contaminants or hazardous or toxic waste materials; or (x) commit
any act or fail to do any act which will cause a breach of any agreement,
contract or commitment and which will have a material adverse effect on the
business, financial condition or earnings of Sunrise and the Bank, taken as a
whole; or (xi) violate any law, statute, rule, governmental regulation or
order, which violation might have a material adverse effect on the business,
financial condition, or earnings of Sunrise or the Bank; or (xii) purchase any
real or personal property or make any other capital expenditure where the
amount paid or committed therefor is in excess of $25,000; or (xiii) increase
or decrease the rate of interest paid on time deposits or on certificates of
deposit, except in a manner consistent with past practices.
The Merger Agreement also prohibits Sunrise from soliciting, encouraging or
holding discussions or negotiations with or provide information to, any person
or entity in connection with any proposal for the acquisition of all or any
substantial portion of the business, assets, shares of Sunrise Common Stock or
other
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securities or assets of Sunrise or the Bank, subject to the fiduciary duties
of the directors of Sunrise under the California Corporations Code. Sunrise is
also required to use its best efforts to perform and fulfill all conditions
and obligations on its part to be performed or fulfilled under the Merger
Agreement and to effect the Merger in accordance with the terms and provisions
thereof. The Merger Agreement requires Sunrise to furnish to FBA in a timely
manner all information, data and documents requested by FBA as may be required
to obtain any necessary regulatory or other approvals of the Merger. Under the
Merger Agreement, Sunrise is required to deliver to FBA the monthly unaudited
consolidated balance sheets and profit and loss statements of Sunrise prepared
for its internal use, the report of condition and income of the Bank for each
quarterly period completed prior to the Closing Date, and all other financial
reports or statements submitted to regulatory authorities after June 24, 1996.
Sunrise is also required to provide to FBA each month beginning in June, 1996
a copy of the internal review and analysis of its reserve for possible loan
and lease losses and the appropriate amount to be included in its provision
for loan and lease losses, and Sunrise will consider in good faith FBA's
reasonable analysis of the reserve and provision and any reasonable
suggestions made by FBA with respect to the appropriate level of the provision
to be made each month.
The Merger Agreement also requires Sunrise to deliver to FBA a report of
phase one environmental investigation on all real property owned, leased or
operated by Sunrise or the Bank as of June 24, 1996, and within 10 days after
the acquisition or lease of any real property acquired or leased by Sunrise or
the Bank after June 24, 1996, subject to certain limitations. If required by
the phase one investigation in FBA's reasonable opinion, Sunrise is required
to provide to FBA a report of a phase two investigation on properties
requiring such additional study. The Merger Agreement provides that FBA will
have 15 business days from the receipt of any such phase two investigation
report to notify Sunrise of any objection to the contents of such report. If
the costs of taking all remedial and corrective actions and measures required
by applicable law or recommended or suggested by such report or reports, or
prudent in light of serious life, health or safety concerns, in the aggregate,
exceeds $400,000 as reasonably estimated by an environmental expert retained
for such purpose by FBA and reasonably acceptable to Sunrise, or if the costs
of such actions and measures cannot be so reasonably estimated to be $400,000
or less with a reasonable degree of certainty, then FBA will have the right
pursuant to the Merger Agreement for a period of 10 business days following
receipt of such estimate or indication that the costs of such actions and
measures cannot be so reasonably estimated, to terminate the Merger Agreement.
Sunrise submitted the required phase one environmental investigation reports
to FBA on August 27, 1996.
DISSENTERS' RIGHTS
Pursuant to Section 1300 of the California General Corporation Law ("CGCL"),
any holder of Sunrise Common Stock who does not wish to accept the
consideration to be paid pursuant to the Merger Agreement may dissent from the
Merger and elect to have the fair market value of his or her shares of Common
Stock (exclusive of any element of value arising from the accomplishment or
expectation of the Merger) judicially determined and paid to him or her in
cash, provided that he or she complies with the provisions of Sections 1300 to
1304 of the CGCL and provided that demands for payment are filed with respect
to five percent or more of the outstanding shares of Common Stock.
The following is a brief summary of the statutory procedures to be followed
by a holder of Common Stock in order to dissent from the Merger and perfect
appraisal rights under the CGCL. THIS SUMMARY IS NOT INTENDED TO BE COMPLETE
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTIONS 1300 TO 1304 OF THE
CGCL, THE TEXTS OF WHICH ARE ATTACHED AS APPENDIX C TO THIS PROXY STATEMENT.
If any holder of Common Stock elects to exercise his or her right to dissent
from the Merger and demand appraisal, such shareholder must satisfy each of
the following conditions:
(i) such shareholder must deliver a written demand for appraisal of his
or her shares to Sunrise not later than the date of the shareholders'
meeting with respect to the Merger Agreement (this written demand
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<PAGE>
for appraisal must be in addition to and separate from any proxy or vote
against the Merger Agreement; neither voting against, abstaining from
voting nor failing to vote on the Merger Agreement will constitute a demand
for appraisal within the meaning of Section 1300);
(ii) such shareholder must vote against the Merger in person or by proxy
(the return of a signed proxy which does not specify a vote against
approval and adoption of the Merger Agreement, will constitute a waiver of
such shareholder's right of appraisal and will nullify any previously filed
written demand for appraisal); and
(iii) such shareholder must, within 30 days of the mailing of a notice to
shareholders of the approval of the Merger, submit the certificates for
such dissenting shares to Sunrise to be stamped or endorsed with a
statement that the shares are dissenting shares.
If any shareholder fails to comply with any of these conditions and the
Merger becomes effective, he or she will be entitled to receive the
consideration provided in the Merger Agreement, but will have no appraisal
rights with respect to his or her shares of Common Stock.
All written demands for appraisal should be addressed to: Sarah A. Thompson,
Senior Vice President and Chief Financial Officer, Sunrise Bancorp, 5
SierraGate Plaza, Roseville, California 95678, before the taking of the vote
concerning the Merger at the Meeting, and should be executed by, or on behalf
of, the holder of record. Such demand must reasonably inform Sunrise of the
identity of the shareholder and that such shareholder is thereby demanding
appraisal of his or her shares.
TO BE EFFECTIVE, A DEMAND FOR APPRAISAL MUST BE EXECUTED BY OR FOR THE
SHAREHOLDER OF RECORD WHO HELD SUCH SHARES ON THE DATE OF MAKING SUCH DEMAND,
AND WHO CONTINUOUSLY HOLDS SUCH SHARES THROUGH THE TIME THE CERTIFICATES FOR
SUCH SHARES ARE SUBMITTED TO SUNRISE FOR ENDORSEMENT AS DISSENTING SHARES,
FULLY AND CORRECTLY, AS SUCH SHAREHOLDER'S NAME APPEARS ON HIS OR HER STOCK
CERTIFICATE(S) AND CANNOT BE MADE BY THE BENEFICIAL OWNER IF HE OR SHE DOES
NOT ALSO HOLD THE SHARES OF RECORD. THE BENEFICIAL OWNER MUST, IN SUCH CASE,
HAVE THE REGISTERED OWNER SUBMIT THE REQUIRED DEMAND IN RESPECT OF SUCH
SHARES.
If Common Stock is owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of a demand for appraisal should be
made in such capacity. If Common Stock is owned of record by more than one
person, as in a joint tenancy or tenancy in common, such demand must be
executed by or for all joint owners. An authorized agent, including one of two
or more joint owners, may execute the demand for appraisal for a shareholder
of record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, he or she is acting
as agent for the record owner. A record owner, such as a broker, who holds
Common Stock as a nominee for others may exercise his or her right of
appraisal with respect to the shares held for one or more beneficial owners,
while not exercising such right for other beneficial owners. In such case, the
written demand should set forth the number of shares as to which the record
owner dissents. Where no number of shares is expressly mentioned, the demand
will be presumed to cover all shares of Common Stock in the name of such
record owner.
If the Merger is approved by the shareholders, Sunrise or the Surviving
Corporation will give written notice that the Merger has been approved within
ten days after the Meeting to each shareholder who so filed a written demand
for appraisal and voted against the Merger. Any shareholder entitled to
appraisal rights must, in order to perfect its appraisal rights, within 30
days after the date of mailing of the notice, submit the certificates
representing any shares which the shareholder demands that Sunrise purchase.
If Sunrise or the Surviving Corporation and a dissenting shareholder agree
that the shares are dissenting shares and agree upon the price of the shares,
the dissenting shareholder is entitled to the agreed price with interest
thereon at the legal rate on judgment from the date of the agreement. Subject
to applicable legal limits
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on distributions to shareholders, payment of the fair market value of
dissenting shares shall be made within 30 days after the amount thereof has
been agreed or within 30 days after any statutory or contractual conditions to
the Merger are satisfied, whichever is later, subject to surrender of the
certificates therefor.
If Sunrise or the Surviving Corporation denies that the shares are
dissenting shares, or Sunrise or the Surviving 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 may, within six months
after the date on which notice of the approval by the outstanding shares was
mailed to the shareholder, but not thereafter, 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.
Inasmuch as Sunrise or the Surviving Corporation has no obligation to file
such a petition, the failure of a shareholder to do so within the period
specified could nullify such shareholder's previous written demand for
appraisal. In any event, at any time with the written consent of Sunrise or
the Surviving Corporation any shareholder who has demanded appraisal has the
right to withdraw the demand and to accept payment of the Merger
Consideration.
After determination of the shareholders entitled to an appraisal, the
superior court will appraise (or commission the appraisal of) the shares of
Common Stock, determining their fair market value exclusive of any element of
value arising from the accomplishment or expectation of the Merger. When the
value is so determined, the court will direct the payment by Sunrise or the
Surviving Corporation of such value, with interest thereon at the legal rate
from the date judgment is entered, to the shareholders entitled to receive the
same, upon surrender to Sunrise or the Surviving Corporation by such
shareholders of the certificates representing such Common Stock. In
determining the fair market value, the superior court will take into account
all factors the court considers relevant.
Section 1300 provides that fair market value is to be determined as of the
day before the first announcement of the proposed Merger and is to exclude
"any appreciation or depreciation in consequence of the proposed action."
Shareholders considering seeking appraisal should bear in mind that the fair
market value of their shares of Common Stock determined under Section 1300
could be more than, the same as or less than the consideration they are to
receive pursuant to the Merger Agreement if they do not seek appraisal of
their shares of Common Stock, and that an opinion of an investment banking
firm as to the fairness is not an opinion as to fair market value under
Section 1300.
Costs of the appraisal proceeding may be assessed against the parties
thereto (i.e., Sunrise or the Surviving Corporation and the shareholders
participating in the appraisal proceeding) by the court as the court deems
equitable in the circumstances, but if the appraisal exceeds the Merger
Consideration, Sunrise or the Surviving Corporation shall pay the costs,
including at the discretion of the court, attorneys and witness fees and
interest if the value of the award exceeds such amount by more than 25%.
However, if no petition for appraisal is filed within six months of the date
the notice of approval of the Merger was mailed to dissenting shareholders or
if such shareholder delivers a written withdrawal of his or her demand for an
appraisal and an acceptance of the Merger Consideration with the written
approval of Sunrise or the Surviving Corporation, then the right of such
shareholder to an appraisal will cease. Notwithstanding the foregoing, no
appraisal proceeding in the superior court will be dismissed as to any
shareholder without the approval of the Court, and such approval may be
conditioned upon such terms as the court deems just.
FAILURE TO COMPLY WITH THESE PROCEDURES WILL CAUSE THE SHAREHOLDER TO LOSE
HIS OR HER RIGHTS. CONSEQUENTLY, ANY SHAREHOLDER WHO DESIRES TO EXERCISE HIS
OR HER DISSENTERS' RIGHTS IS URGED TO CONSULT A LEGAL ADVISOR BEFORE
ATTEMPTING TO EXERCISE SUCH RIGHTS.
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EXPENSES
The Merger Agreement provides that FBA and Sunrise will each pay their own
expenses in connection with the Merger Agreement and the transactions
contemplated thereby.
ACCOUNTING TREATMENT
The Merger, if completed as proposed, will be recorded as a purchase in
accordance with generally accepted accounting principles. Accordingly, the
assets and liabilities of Sunrise will be recorded on the books of the
acquirer at their respective fair values at the time of consummation of the
Merger.
MARKET PRICES AND DIVIDENDS OF SUNRISE COMMON STOCK
Sunrise Common Stock is quoted on the Nasdaq National Market ("NNM") under
the symbol "SRBC." The table below sets forth, or each quarter during the last
two fiscal years ended December 31, 1995 and subsequent interim periods, the
high and low closing prices of Common Stock as reported on the NNM.
<TABLE>
<CAPTION>
COMMON
STOCK
-----------
HIGH LOW
----- -----
<S> <C> <C>
FISCAL 1994
First Quarter $3.75 $3.25
Second Quarter 3.38 2.50
Third Quarter 2.78 2.00
Fourth Quarter 2.25 1.50
FISCAL 1995
First Quarter 2.00 1.50
Second Quarter 2.88 1.63
Third Quarter 3.63 2.50
Fourth Quarter 3.00 2.25
FISCAL 1996
First Quarter 3.25 2.50
Second Quarter 5.00 2.50
Third Quarter (through August 23, 1996) 3.88 3.50
</TABLE>
The closing price per share for the Common Stock as reported on the NNM on
June 21, 1996, the last full trading day prior to the public announcement of
the proposed Merger, was $2.87. On August 23, 1996, which is the most recent
date for which it was practicable to obtain market data prior to the printing
of the Proxy Statement, the closing price per share of Common Stock was $3.75.
Holders of Common Stock are urged to obtain current market quotations. On
August 23, 1996, there were approximately 1,000 shareholders of record of the
Common Stock. Sunrise has not paid any cash dividends on its Common Stock
since 1984.
INFORMATION REGARDING FIRST BANKS AMERICA, INC.
AND FIRST BANKS, INC.
Both FBA and First Banks are subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith file proxy statements, reports and other information with
the Securities and Exchange Commission (the "Commission").
FBA, a Delaware corporation, is a bank holding company registered with and
subject to the supervision of the Board of Governors of the Federal Reserve
System, with assets at June 30, 1996, of approximately $288,000,000. Through
its wholly owned subsidiary, BankTEXAS N.A., headquartered in Houston, Texas,
FBA
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offers a broad range of commercial and personal banking services including
certificate of deposit accounts, individual retirement and other time deposit
accounts, interest checking accounts, savings accounts and money market
accounts. Loans include commercial, financial, agricultural, real estate
construction and development, residential real estate and consumer and
installment loans. Other financial services include credit-related insurance,
automatic teller machines, and safe deposit boxes. BankTEXAS N.A. is a
national banking association regulated by the Comptroller of the Currency. FBA
does not engage in any business activities other than ownership of BankTEXAS
N.A.
First Banks, is a multi-bank holding company registered with and subject to
the supervision of the Board of Governors of the Federal Reserve System, with
assets at June 30, 1996, of approximately $3,500,000,000. First Banks is a
Missouri corporation with principal executive offices located at 135 North
Meramac, Clayton, Missouri, 63105. As of June 30, 1996, it owned approximately
66% of the outstanding voting stock of FBA. Through its bank subsidiaries,
First Banks offers a broad range of commercial and personal banking services
including certificate of deposit accounts, individual retirement and other
time deposit accounts, interest checking and other demand deposit accounts,
interest checking accounts, savings accounts and money market accounts. Loans
include commercial, financial, agricultural, municipal and industrial
development, real estate construction and development, residential real estate
and consumer and installment loans. Other financial services include mortgage
banking, discount brokerage, credit-related insurance, automatic teller
machines, safe deposit boxes, and trust services offered by certain of First
Banks' subsidiary banks.
PROPOSAL NO. 2--ELECTION OF DIRECTORS
The Bylaws of Sunrise provide a procedure for shareholder nomination for
election of members of the Board of Directors, which is printed in full in the
Notice of Annual Meeting of Shareholders accompanying this Proxy Statement.
Nominations not made in accordance with this procedure may be disregarded by
the Chairman of the Meeting and, upon his or her instruction, the inspectors
of election may disregard all votes cast for such nominee(s).
The authorized number of directors to be elected at the Meeting is nine (9).
On February 20, 1996, the Board of Directors approved a resolution increasing
the authorized number of directors from eight to nine, and appointed William
Eames as a director to fill the resulting vacancy, subject to regulatory
authority. On February 20, 1996, final regulatory authority for Mr. Eames to
serve as a director was received.
Each director will hold office until the next Annual Meeting of Shareholders
and until his or her successor is elected and qualified. However, if the
Merger Agreement is approved, the directors' term of office will end upon the
Effective Time after which Sunrise will cease to exist. Each nominee named
below has consented to be named as a nominee and to serve as a director if
elected. All nominees are incumbent directors. If any nominee should
unexpectedly be unable to act as a director for any reason, the proxies may be
voted for a substitute nominee designated by the Board.
The nine nominees receiving the highest number of affirmative votes of the
shares entitled to be voted of them shall be elected as directors. Only votes
cast for a nominee will be counted in determining whether that nominee has
been elected as a director. All proxies will be voted "FOR" the election of
the following nine nominees recommended by the Board unless authority to vote
for one or more nominees has been withheld. Shareholders may withhold
authority from the proxyholders to vote for the entire slate as nominated, or
by writing the name of an individual nominee in the space provided in the
proxy card, withhold authority to vote for any individual nominees.
Instructions on the proxy card to withhold authority to vote for one or more
of the nominees will result in such nominee(s) receiving fewer votes. For a
description of cumulative voting procedures applicable in the election of
directors, see "Solicitation, Voting and Revocability of Proxies."
DIRECTORS AND EXECUTIVE OFFICERS
The following information regarding the persons nominated to serve as
directors of Sunrise has been furnished by the respective named individuals.
Except for the Bank, none of the corporations or organizations
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discussed below is an affiliate of Sunrise. All of the directors of Sunrise
are also directors of the Bank. The Board of Directors recommends a vote "FOR"
each of the nominees listed below.
WILLIAM EAMES was employed by Bill's Drugs, a chain of drug stores in
Northern California, as Chairman, President and Chief Executive Officer from
1963 to 1986, and as Chairman and Chief Executive Officer from 1987 to 1993.
Since 1993, he has been Chairman of William M. Eames & Associates, providing
management consulting services to retail businesses. He has been a director of
the Rod McLellan Company from 1991 to present. He was a member of the Contra
Costa Grand Jury from 1995 until July 1, 1996. He is the Chairman of the Tri
Valley Junior Achievement, and he is a member of Lafayette Rotary.
DONALD LEARY has been Assistant to the President of Progressive Circuit
Products, Inc., a manufacturer of circuit boards for the electronics industry,
since 1985. From 1983 to 1985, he was a consultant for McClellan Air Force
Base where he trained personnel and developed policies and procedures for
printed circuit operation. From 1978 to 1983, he was Vice President of
Operations for Progressive Circuit Products, Inc.
LEON LEWIS has been the Secretary-Treasurer of Bestway Investments, Ltd., a
financial management firm, since 1991, and he has owned Bestway Travel since
1977. He started an insurance agency in 1964 which is now known as Albano,
Dale, Dunn & Lewis Insurance Services, Inc. In 1993, Mr. Lewis retired from
active management of Albano, Dale, Dunn & Lewis.
SEAN MCCARTHY, ESQ., Chairman of the Board of the Company and the Bank, is a
partner in the law firm of Washburn, Briscoe & McCarthy. His legal practice
focuses on legislative and regulatory matters, major civil litigation
pertaining to wetlands, and the formation and licensing of underwritten title
companies. Prior to joining the law firm in 1985, he served as Executive Vice
President and Counsel for the California Land Title Association in Sacramento.
ANTHONY PESCETTI has served on the Board of the Sacramento Municipal
Utilities District ("SMUD") since January 1993. In 1995, he served a one-year
term in the additional capacity of President of SMUD. Since January 1994, he
has been a principal of the Joan Milke Flores Group, a corporate consulting
firm specializing in local and state government relations as well as community
relations. From 1987 to 1994 he was the Chief of Staff at the Division of the
State Architect, a Governor's Appointee office.
RON PITAMBER is the owner and operator of the Heritage Inn in Roseville and
other hotels. He has been associated with the hotel industry for the past
seventeen years.
MICHAEL "RANDY" RANDAZZO, M.D., is a retired physician. From 1982 to 1989,
he was the Medical Director and Administrator of the San Juan Surgery Center.
PAUL WAGNER was the President of Richardson-Wagner Corporation, a retail
clothing chain, from 1972 through 1992. He currently acts as a consultant to
Richardson-Wagner Corporation, which is managed by Mr. Wagner's sons.
DORIS WARD was an owner of W.F. Ward's Furnishings, a retail furniture
business, from 1980 until her retirement in 1994. Ms. Ward has been Secretary-
Treasurer of Melvin J. Ward, Inc., a general contracting firm, since 1969.
No director or nominee for director of the Company is a director of any
other company with a class of securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended, or subject to the
requirements of Section 15(d) of such Act or of any company registered as an
investment company under the Investment Company Act of 1940, as amended.
37
<PAGE>
The following information regarding the executive officers of Sunrise and/or
the Bank has been furnished by the respective named individuals.
HAROLD G. GIOMI has been President and Chief Executive Officer of the Bank
since November of 1994, and he was appointed to the additional positions of
President and Chief Executive Officer of Sunrise effective April of 1995.
Prior to joining the Bank, he was the Chief Credit Officer of Pacific Valley
National Bank in Modesto. He has over 27 years of experience in banking,
including positions of CEO, President, Senior Vice President, Senior Credit
Administrator, and other positions in banking. He is a graduate of the Senior
Management Program at Lloyd's Bank Staff College of London, and holds a degree
in business administration and agricultural business management from
California State Polytechnic University in San Luis Obispo.
SARAH A. THOMPSON has been Senior Vice President, Chief Financial Officer
and Secretary of Sunrise and the Bank since March of 1995. Ms. Thompson worked
at Pacific Valley National Bank for over 13 years, where she was promoted from
Assistant Cashier to Controller and then Chief Financial Officer.
No director or executive officer of Sunrise or the Bank has any family
relationship with any other director or executive officer of Sunrise or the
Bank.
COMMITTEES OF THE BOARD OF DIRECTORS, MEETINGS OF THE BOARD OF DIRECTORS AND
COMMITTEES THEREOF
Sunrise has standing audit, nominating, and compensation committees of the
Board of Directors. The members of the Audit Committee during 1995 were Donald
Leary (Chairman), Leon Lewis, Michael Randy Randazzo, M.D., and Doris Ward.
The Audit Committee reviews both internal audit controls and regulatory audit
reports and meets with Sunrise's independent accountants concerning audit
procedures and controls.
The members of the Nominating Committee during 1995 were Donald Leary and
Sean McCarthy. The Nominating Committee recommends to the Board of Directors
candidates to be nominated for election as directors at each Annual Meeting of
Shareholders and candidates to fill interim vacancies on the Board of
Directors.
The members of the Compensation Committee during 1995 were Paul Wagner
(Chairman), Donald Leary, and Ron Pitamber. The Compensation Committee reviews
compensation policies and makes recommendations regarding compensation to the
Board of Directors. The Compensation Committee also acts as the Stock Option
Committee which administers the Stock Option Plans.
During 1995, the full Board of Directors met twenty three times, the Audit
Committee met eleven times, the Nominating Committee did not meet (as the full
Board performed the functions of the Nominating Committee), and the
Compensation Committee met three times. Each director who was a member of the
Board of Directors during 1995 attended at least 75% of the aggregate of the
total number of regularly scheduled and special meetings of the Board and the
total number of meetings of the committee(s) on which he or she served.
38
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth for the last three fiscal years ended
December 31, 1993, 1994, and 1995, the compensation paid for services rendered
to the Company and the Bank to Harold G. Giomi, who has been President and
Chief Executive Officer of the Bank since November 1, 1994, and President and
Chief Executive Officer of the Company since April 7, 1995. Mr. Giomi is the
only executive officer at December 31, 1995, whose salary and bonus in 1995
exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
=================================================================================================
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
- -------------------------------------------------------------------------------------------------
NAME AND
PRINCIPAL SECURITIES UNDERLYING ALL OTHER
POSITION YEAR SALARY(1) OPTIONS/SARS(#) COMPENSATION
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 $149,164 0 $3,313(2)
Hal Giomi, President and 1994 $ 23,750(3) 80,000 $ 0
Chief Executive Officer
of Sunrise and the Bank 1993 NA NA NA
=================================================================================================
</TABLE>
(1) Amounts shown include cash and non-cash compensation earned and received
and amounts earned but deferred at the election under Sunrise's 401(k)
Plan.
(2)In 1995, Sunrise matched deferrals to the 401(k) Plan on behalf of Mr.
Giomi in the amount of $3,313.
(3) Mr. Giomi commenced employment as President and Chief Executive Officer of
Sunrise Bank of California on November 1, 1994, and assumed the same
positions for Sunrise Bancorp on April 7, 1995. The amount shown in the
table for 1994 represents two months' salary. Mr. Giomi's 1996 salary in
all capacities is $152,496.
The following table sets forth information concerning the aggregate value of
all unexercised options held by Mr. Giomi, the only officer listed in the
Summary Compensation Table as of December 31, 1995. Sunrise has never granted
stock appreciation rights to its directors or executive officers. No stock
options were granted to nor exercised by any executive officer named in the
Summary Compensation Table during 1995. In connection with the Merger, all
options will become fully vested and exercisable.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
=====================================================================================
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS/SARS AT FISCAL FISCAL
NAME YEAR END (#) YEAR END ($)
- --------------------------------------------------------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hal Giomi 20,000 60,000 $17,400 $52,200
======================================================================================
</TABLE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS. Harold G. Giomi was appointed President and Chief Executive
Officer of the Bank in November of 1994, and to the additional positions of
President and Chief Executive Officer of Sunrise effective April of 1995. In
October of 1995, Sunrise and the Bank entered into an agreement with Mr. Giomi
providing for his continued employment as the President and Chief Executive
Officer of Sunrise and the Bank (the "Agreement"). The commencement of the
Agreement was retroactive to November 1, 1994, and continued until February
28, 1995; and on February 28, 1995, it was continued until February 28, 1996;
thereafter, the Agreement is deemed extended for an additional year, unless
notice of nonrenewal is provided by Sunrise prior to February 28. The
Agreement
39
<PAGE>
provided for base salary in the amount of $11,875 per month until May 1, 1995,
when Mr. Giomi's salary was increased to $12,708 per month. The issue of
salary level and/or salary increases is subject to negotiation during February
of each year. The Agreement provides for an automobile allowance for Mr. Giomi
of $625 per month. The Agreement also provides for Mr. Giomi's participation
in employee benefit programs sponsored by Sunrise, and severance pay in the
event of termination of Mr. Giomi's employment contract without cause equal to
six months' salary at Mr. Giomi's rate of annual base salary in effect
immediately preceding such termination, among other provisions. See "Proposal
No. 1--The Merger--Interest of Certain Persons in the Merger."
The Stock Option Plans provide that outstanding options will become fully
exercisable on a Change in Control which is defined as a change in control of
a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") or in response to any other form to the Securities and
Exchange Commission or any stock exchange on which the Sunrise's shares are
listed which requires the reporting of a change in control. A Change in
Control is deemed to have occurred if (i) any "person" (as defined in the
Exchange Act) is or becomes the beneficial owner of any securities of Sunrise
representing 20% or more of the voting power of Sunrise's then outstanding
voting securities; or (ii) in any one-year period, individuals who at the
beginning of such period constitute the Board of Directors of Sunrise cease
for any reason to constitute at least a majority thereof, unless the election,
or the nomination for election by Sunrise's shareholders, of each new director
is approved by a vote of at least three quarters of the directors then in
office or who were directors at the beginning of the period; or (iii) a
majority of the Board of Directors of Sunrise in office prior to the happening
of any event determines in its sole discretion that as a result of such event
there has been a Change in Control.
As the Merger will result in a Change in Control, all outstanding stock
options will become vested in full and may be exercised before the Effective
Time. The Merger Agreement permits Sunrise to redeem outstanding options which
have an exercise price less than $4.00 per share by paying to the optionees of
such options an amount equal to $4.00 per share minus the per share option
exercise price of the shares subject to the option upon surrender of such
options to Sunrise before the Effective Time. At the Effective Time, all
outstanding options which have not been exercised or redeemed will terminate
and the optionees shall have no further rights in respect of the terminated
options. See "Proposal No. 1--The Merger."
COMPENSATION OF DIRECTORS. All directors of Sunrise are also directors of
the Bank. During 1995, directors were entitled to receive $650 for attendance
at each regular meeting and $350 for each special meeting of the Board of
Directors of Sunrise and the Bank. Directors who serve on committees of the
Board also were entitled to receive payments of $150 for each committee
meeting which they attended. The total amount of fees paid to or deferred by
all directors of Sunrise and the Bank during 1995 was $111,800.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires Sunrise's directors, its
executive officers, and any persons holding more than ten percent of Sunrise
Common Stock, to file reports with the Securities and Exchange Commission
disclosing their initial beneficial ownership of Sunrise Common Stock and any
subsequent changes in their beneficial ownership and to send copies of these
reports to Sunrise. To Sunrise's knowledge, which is based upon a review of
the copies of the reports and written representations of its directors and
executive officers that such reporting requirements have been complied with,
all of these filing requirements were satisfied in the fiscal year ended
December 31, 1995.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Sunrise paid $112,699 in premiums during 1995 for the purchase of fidelity,
liability and workers compensation insurance coverage from Albano, Dale, Dunn
& Lewis Insurance Services, Inc. Although Director Leon Lewis retired from
active management of Albano, Dale, Dunn & Lewis Insurance Services, Inc. in
1993, his son is an officer of the company. There were no other material
transactions since January 1, 1995, nor are there any currently proposed
transactions, to which Sunrise or any of its subsidiaries was or is to be a
party, in
40
<PAGE>
which the amount involved exceeds $60,000 and in which any director, executive
officer, nominee as a director, 5% shareholder, or member of the immediate
family of any of the foregoing persons had, or will have, a direct or indirect
material interest. Some of the directors and executive officers of Sunrise and
members of their immediate families and the companies with which they have
been associated have been customers of and have had banking transactions with
the Bank in the ordinary course of business since January 1, 1995. Loans to
such persons were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons and did not involve more than the normal risk
of collectibility or present other unfavorable features.
AVAILABLE INFORMATION
Sunrise is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements, and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilitates of
the Commission at Room 1024, 450 Fifth Street, NW, Judiciary Plaza,
Washington, DC 20549, and the Commission's Regional Offices, Seven World Trade
Center, 13th Floor, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can also be obtained at prescribed rates by writing to the Public
Reference Section of the Commission at 450 Fifth Street, NW, Washington, DC,
20549.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Sunrise with the Commission are
incorporated into this Proxy Statement by reference:
1. Sunrise's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, filed pursuant to the Exchange Act;
2. Sunrise's Quarterly Reports on Form 10-Q of the quarters ended March
31, 1996 and June 30, 1996, filed pursuant to the Exchange Act;
3. Sunrise's Current Reports on Form 8-K dated April 15, 1996 and June
24, 1996, filed pursuant to the Exchange Act; and
4. Portions of Sunrise's Annual Report to Shareholders for the fiscal
year ended December 31, 1995 (only page 4 (Selected Consolidated Financial
Data), pages 5 through 14 (Management's Discussion and Analysis of
Financial Condition and Results of Operations), page 31 (Market for
Registrant's Common Stock and Related Shareholders Matters and Selected
Quarterly Financial Data). Portions of the Annual Report to Shareholders
which are not incorporated by reference are the front and back covers, the
information on pages 1 and 2, the President's Message on page 3, the
financial statements, notes thereto and independent auditor's report (which
appear in Sunrise's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, incorporated herein by reference) on pages 15-30, and
the information on page 32.
All documents or reports subsequently filed by Sunrise pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior
to the date of the Meeting shall be deemed to be incorporated by reference
into this Proxy Statement and to be a part of this Proxy Statement from the
date of filing of such document. Any statement contained herein, or in a
document all or a portion of which is incorporated or deemed to be
incorporated by reference herein, shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as
modified or superseded, to constitute a part of this Proxy Statement.
Sunrise's Quarterly Report on Form 10-Q for the period ended June 30, 1996
and Annual Report to Shareholders for the year ended December 31, 1995 are
attached to this Proxy Statement as Appendices E and F, respectively.
41
<PAGE>
Sunrise will provide without charge to any person to whom this Proxy
Statement is delivered, upon the written or oral request of such person, a
copy of any or all of the foregoing documents incorporated by reference (other
than exhibits not specifically incorporated by reference into the texts of
such documents). Requests for such documents should be directed to the
Assistant Secretary of Sunrise Bancorp, 5 SierraGate Plaza, Roseville,
California 95678 (telephone (916) 783-2800).
INDEPENDENT AUDITORS
Deloitte & Touche LLP serves as Sunrise's independent auditors. A
representative of Deloitte & Touche LLP will be at the Meeting to answer
questions by shareholders and will have the opportunity to make a statement if
he or she desires.
The consolidated financial statements of Sunrise Bancorp and its
subsidiaries as of December 31, 1995 and 1994 and for each of the years in the
three-year period ended December 31, 1995 that are incorporated by reference
in this Proxy Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report dated February 9, 1996.
SHAREHOLDER PROPOSALS
Shareholder proposals for inclusion in the proxy statement and form of proxy
for Sunrise's 1997 Annual Meeting of Shareholders must be submitted a
reasonable time before the 1997 annual meeting. All proposals should be
submitted by certified mail, return receipt requested, to the Secretary,
Sunrise Bancorp, 5 SierraGate Plaza, Roseville, California 95678. Any such
proposals shall be subject to the requirements of the proxy rules adopted
under the Exchange Act. However, if the Merger is consummated as contemplated
by the Merger Agreement, Sunrise will no longer exist as a separate legal
entity and there will be no 1997 Annual Meeting of Shareholders.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Meeting other than those matters described above in this Proxy Statement.
However, if any other matter should properly come before the Meeting, it is
intended that holders of the proxies will act in accordance with the direction
of a majority of the Board of Directors.
The cost of solicitation of proxies will be borne by Sunrise. Sunrise will
reimburse brokerage firms and other custodians, nominees and fiduciaries for
reasonable expenses incurred by them in sending proxy materials to the
beneficial owners of the Sunrise Common Stock. Sunrise has retained Corporate
Investor Communications, Inc. ("CIC") to assist in the solicitation of proxies
and to send proxy materials to brokerage houses and other custodians, nominees
and fiduciaries for transmittal to beneficial holders of Sunrise Common Stock
for a fee of $3,500 plus expenses. In addition to solicitation by mail,
directors, officers and regular employees of Sunrise and the Bank may solicit
proxies personally or by telegraph or telephone without additional
compensation.
42
<PAGE>
Appendix A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
by and among
SUNRISE BANCORP,
a California corporation,
FIRST BANKS AMERICA, INC.,
a Delaware corporation
and
SUNLIGHT HOLDINGS, INC.,
a Nevada corporation
August 15, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE ONE - TERMS OF THE MERGER & CLOSING
<TABLE>
<CAPTION>
<S> <C>
Section 1.01. The Merger.............................................. 1
Section 1.02. Effect of the Merger.................................... 1
Section 1.03. Conversion of Shares.................................... 1
Section 1.04. The Closing............................................. 2
Section 1.05. Closing Date............................................ 2
Section 1.06. Actions At Closing...................................... 2
Section 1.07. Exchange Procedures; Surrender of Certificates.......... 3
ARTICLE TWO - REPRESENTATIONS OF BANCORP
Section 2.01. Organization and Capital Stock.......................... 4
Section 2.02. Authorization; No Defaults.............................. 5
Section 2.03. Subsidiaries............................................ 5
Section 2.04. Financial Information................................... 6
Section 2.05. Absence of Changes...................................... 6
Section 2.06. Regulatory Enforcement Matters.......................... 7
Section 2.07. Tax Matters............................................. 7
Section 2.08. Litigation.............................................. 7
Section 2.09. Properties, Contracts, Employee Benefit Plans and Other
Agreements.............................................. 7
Section 2.10. Reports................................................. 8
Section 2.11. Investment Portfolio.................................... 9
Section 2.12. Loan Portfolio.......................................... 9
Section 2.13. Employee Matters and ERISA.............................. 9
Section 2.14. Title to Properties; Insurance.......................... 11
Section 2.15. Environmental Matters................................... 11
Section 2.16. Compliance with Law..................................... 12
Section 2.17. Brokerage............................................... 12
Section 2.18. No Undisclosed Liabilities.............................. 12
Section 2.19. Statements True and Correct............................. 12
Section 2.20. Commitments and Contracts............................... 13
Section 2.21. Material Interest of Certain Persons.................... 13
Section 2.22. Conduct to Date......................................... 14
Section 2.23. Irrevocable Proxies..................................... 14
Section 2.24. Disclosures in Disclosure Schedule...................... 14
</TABLE>
i
<PAGE>
ARTICLE THREE - REPRESENTATIONS OF FBA
<TABLE>
<CAPTION>
<S> <C>
Section 3.01. Organization........................................... 15
Section 3.02. Authorization.......................................... 15
Section 3.03. Absence of Changes..................................... 15
Section 3.04. Litigation............................................. 15
Section 3.05. Statements True and Correct............................ 15
Section 3.06. Availability of Cash Consideration..................... 16
ARTICLE FOUR - AGREEMENTS OF BANCORP
Section 4.01. Business in Ordinary Course............................ 16
Section 4.02. Breaches............................................... 19
Section 4.03. Submission to Shareholders............................. 19
Section 4.04. Consummation of Agreement.............................. 19
Section 4.05. Environmental Reports.................................. 19
Section 4.06. Access to Information.................................. 20
Section 4.07. Consents to Contracts and Leases....................... 20
Section 4.08. Subsequent Financial Statements........................ 21
Section 4.09. Reserve and Provisions for Loan Losses................. 21
ARTICLE FIVE - AGREEMENTS OF FBA
Section 5.01. Regulatory Approvals................................... 21
Section 5.02. Breaches............................................... 21
Section 5.03. Consummation of Agreement.............................. 21
Section 5.04. Indemnification and Insurance.......................... 22
Section 5.05. Employee Benefits...................................... 22
Section 5.06. Payment for Stock Options and Warrants................. 23
Section 5.07. Access to Information.................................. 23
Section 5.08. Proxy Statement........................................ 23
ARTICLE SIX - CONDITIONS PRECEDENT TO MERGER
Section 6.01. Conditions to Obligations of FBA and Holdings.......... 24
Section 6.02. Conditions to Bancorp's Obligations.................... 25
</TABLE>
ii
<PAGE>
ARTICLE SEVEN - TERMINATION OR ABANDONMENT
<TABLE>
<CAPTION>
<S> <C>
Section 7.01. Mutual Agreement............................................ 26
Section 7.02. Breach of Agreements........................................ 26
Section 7.03. Failure of Conditions....................................... 26
Section 7.04. Approval Denial............................................. 26
Section 7.05. Environmental Reports....................................... 26
Section 7.06. Regulatory Enforcement Matters.............................. 26
Section 7.07. Automatic Termination....................................... 27
ARTICLE EIGHT - LIABILITY ON TERMINATION
Section 8.01. Liquidated Damages.......................................... 27
Section 8.02. Liability on Termination.................................... 28
ARTICLE NINE - GENERAL
Section 9.01. Confidential Information.................................... 28
Section 9.02. Publicity................................................... 28
Section 9.03. Return of Documents......................................... 28
Section 9.04. Notices..................................................... 28
Section 9.05. Nonsurvival of Representations, Warranties and Agreements... 29
Section 9.06. Costs and Expenses.......................................... 30
Section 9.07. Entire Agreement............................................ 30
Section 9.08. Headings and Captions....................................... 30
Section 9.09. Waiver, Amendment or Modification........................... 30
Section 9.10. Rules of Construction....................................... 30
Section 9.11. Counterparts 30
Section 9.12. Successors and Assigns...................................... 30
Section 9.13. Governing Law; Assignment................................... 30
</TABLE>
iii
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
This is an AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this
"Agreement") made August 15, 1996, by and among SUNRISE BANCORP, a California
corporation ("Bancorp"), FIRST BANKS AMERICA, INC., a Delaware corporation
("FBA") and SUNLIGHT HOLDINGS, INC., a Nevada corporation ("Holdings").
On June 24, 1996, Bancorp and FBA entered into an Agreement and Plan of
Merger (the "Original Agreement") providing for the acquisition of Bancorp by
FBA pursuant to a merger between Bancorp and a subsidiary of FBA, subject to the
terms and conditions set forth therein. The Original Agreement provided, inter
alia, that FBA had the option of designating a corporate affiliate other than a
subsidiary of FBA to be the corporation with which Bancorp would merge. FBA has
organized a subsidiary, Holdings, for the purpose of merging with Bancorp, and
Bancorp, FBA and Holdings desire to amend and restate the Original Agreement in
order to provide specifically for Holdings's role in the Merger (as defined
herein). It is therefore agreed that the Original Agreement is amended and
restated to read as set forth in this Agreement; provided, however, that the
parties agree and acknowledge that the provisions of Articles Two and Three
hereof are identical to the corresponding articles of the Original Agreement and
that the representations and warranties set forth in such Articles are made as
of June 24, 1996.
In consideration of the premises and the mutual terms and provisions set
forth in this Agreement, the parties agree as follows:
ARTICLE ONE
TERMS OF THE MERGER & CLOSING
Section 1.01. The Merger. Pursuant to the terms and provisions of this
------------ ----------
Agreement and the applicable corporation laws governing the merger of Bancorp
with Holdings ("Corporate Laws"), Bancorp shall merge with Holdings in a
transaction in which Holdings will be the surviving corporation (the "Merger").
Section 1.02. Effect of the Merger. The Merger shall have all of the
------------ --------------------
effects provided by the Corporate Laws and this Agreement, and the separate
corporate existence of Bancorp shall cease on consummation of the Merger and be
combined in Holdings.
Section 1.03. Conversion of Shares.
------------ --------------------
(a) At the Effective Time (as defined in Section 1.05 below), each share of
common stock, no par value, of Bancorp ("Bancorp Common") issued and outstanding
immediately prior to the Effective Time shall be converted into the right to
receive cash from FBA in the amount of Four Dollars (the "Merger
Consideration").
<PAGE>
(b) At the Effective Time, all of the shares of Bancorp Common, by virtue
of the Merger and without any action on the part of the holders thereof, shall
no longer be outstanding and shall be canceled and retired and shall cease to
exist, and each holder of any certificate or certificates which immediately
prior to the Effective Time represented outstanding shares of Bancorp Common
(the "Certificate") shall cease to have any rights with respect to such shares,
except the right of the holder to receive, without interest, the Merger
Consideration upon the surrender of the Certificate in accordance with Section
1.07(b) hereof.
(c) At the Effective Time, each share of Bancorp Common, if any, held in
the treasury of Bancorp or by any direct or indirect subsidiary of Bancorp
(other than shares held in trust accounts for the benefit of others or in other
fiduciary, nominee or similar capacities) immediately prior to the Effective
Time shall be canceled.
(d) If holders of Bancorp Common are entitled to dissent from the Agreement
and Merger and demand payment of the fair market value of their shares under
applicable Corporate Law, issued and outstanding shares of Bancorp held by a
dissenting holder shall not be converted as described in this Section 1.03, but
from and after the Effective Time shall represent only the right to receive such
consideration as may be determined to be due pursuant to applicable Corporate
Law; provided, however, that each share of Bancorp Common outstanding
immediately prior to the Effective Time and held by a dissenting holder who
shall, after the Effective Time, withdraw his demand for appraisal or lose his
right of appraisal shall have only such rights as are provided under applicable
Corporate Law.
Section 1.04. The Closing. The closing of the Merger (the "Closing")
------------ -----------
shall take place at the location mutually agreeable to the parties hereto at
10:00 A.M. local time on the Closing Date described in Section 1.05 of this
Agreement.
Section 1.05. Closing Date. At FBA's election, the Closing shall take
------------ ------------
place on either (i) one of the last five (5) business days of the month, or (ii)
the first business day of the month following the month, in each case, during
which each of the conditions in Sections 6.01(d) and 6.02(d) is satisfied or
waived by the appropriate party or on such other date as Bancorp and FBA may
agree (the "Closing Date"). The Merger shall take effect upon the filing of
articles of merger with the Secretary of State of the State of Nevada (the
"Effective Time"). The parties shall use their best efforts to cause such
filing to occur on the Closing Date.
Section 1.06. Actions At Closing.
------------ ------------------
(a) At the Closing, Bancorp shall deliver to FBA:
(i) a certified copy of the Articles of Incorporation and Bylaws of
Bancorp and each of its subsidiaries;
(ii) a Certificate signed by an appropriate officer of Bancorp stating
that (A) each of the representations and warranties contained in Article
Two is true and correct
2
<PAGE>
in all material respects at the time of the Closing with the same force and
effect as if such representations and warranties had been made at the
Closing, and (B) all of the conditions set forth in Sections 6.01(b) and
6.01(g) have been satisfied or waived as provided therein;
(iii) certified copies of the resolutions of Bancorp's Board of
Directors and shareholders, establishing the requisite approvals under
applicable Corporate Law of this Agreement and the consummation of the
Merger and the other transactions contemplated hereby;
(iv) A Certificate of the Secretary of State of the State of
California, dated a recent date, stating that Bancorp is in good standing;
and
(v) a legal opinion from counsel for Bancorp as to the matters set
forth on Exhibit 1.06(a) hereto, in form reasonably satisfactory to FBA's
counsel.
(b) At the Closing, FBA shall deliver to Bancorp:
(i) a Certificate signed by an appropriate officer of FBA stating that
(A) each of the representations and warranties contained in Article Three
is true and correct in all material respects at the time of the Closing
with the same force and effect as if such representations and warranties
had been made at the Closing, and (B) all of the conditions set forth in
Section 6.02(d) (but only with respect to approvals other than by the
Bancorp's shareholders) have been satisfied;
(ii) certified copies of the resolutions of FBA's Board of Directors
and of the Board of Directors (and, if legally required, the shareholder)
of Holdings establishing the requisite approvals under applicable Corporate
Law of this Agreement and the consummation of the Merger and the other
transactions contemplated hereby; and
(iii) a legal opinion from counsel for FBA as to the matters set
forth on Exhibit 1.06(b), in form reasonably satisfactory to Bancorp's
counsel.
Section 1.07. Exchange Procedures; Surrender of Certificates.
------------ ----------------------------------------------
(a) Boatmen's Trust Company, St Louis, Missouri, shall act as Exchange
Agent in the Merger (the "Exchange Agent"). All fees and expenses of the
Exchange Agent shall be borne by FBA.
(b) The agreement between FBA and the Exchange Agent (the "Exchange
Agreement") shall require that, as soon as reasonably practicable and in any
event within ten (10) days after the Effective Time, the Exchange Agent shall
mail to each record holder of any Certificate or Certificates whose shares were
converted into the right to receive the Merger Consideration a letter of
transmittal (which shall specify that delivery shall be effected, and risk
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of loss and title to the Certificates shall pass, only upon proper delivery of
the Certificates to the Exchange Agent and shall be in such form and have such
other provisions as the Exchange Agent may reasonably specify) (each such
letter, the "Letter of Transmittal") and instructions for use in effecting the
surrender of the Certificates in exchange for the Merger Consideration. Upon
surrender to the Exchange Agent of a Certificate, together with a Letter of
Transmittal duly executed and any other required documents, the holder of a
Certificate shall be entitled to receive in exchange therefor solely the Merger
Consideration, and the Exchange Agreement shall require that the Exchange Agent
transmit the Merger Consideration to each holder not later than five (5)
business days after the receipt of a Certificate and any other documents
required by the Exchange Agent. Such Merger Consideration shall be transmitted
by wire at the request of any shareholder of Bancorp if such consideration
exceeds $25,000. No interest on the Merger Consideration shall be paid or
accrued for the benefit of holders of Certificates. If the Merger Consideration
is to be paid to a person other than a person in whose name a surrendered
Certificate is registered, it shall be a condition of payment of the Merger
Consideration that the surrendered Certificate shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
payment shall pay to the Exchange Agent any required transfer or other taxes or
establish to the satisfaction of the Exchange Agent that such taxes have been
paid or are not applicable.
(c) At any time following six months after the Effective Time, FBA shall be
entitled to terminate the Exchange Agent relationship, and thereafter holders of
Certificates shall be entitled to look only to FBA (subject to abandoned
property, escheat or other similar laws) with respect to the Merger
Consideration payable upon surrender of Certificates.
ARTICLE TWO
REPRESENTATIONS OF BANCORP
Bancorp hereby makes the following representations and warranties to FBA:
Section 2.01. Organization and Capital Stock.
------------ ------------------------------
(a) Bancorp is a corporation duly organized, validly existing and in good
standing under the laws of the State of California and has the corporate power
to own all of its property and assets, to incur all of its liabilities and to
carry on its business as now being conducted.
(b) As of the date hereof, the authorized capital stock of Bancorp consists
of 20,000,000 shares of Preferred Stock, no par value, none of which is issued
and outstanding, and 20,000,000 shares of Bancorp Common, of which 4,263,298
shares are outstanding, duly and validly issued, fully paid and non-assessable.
None of the outstanding shares of Bancorp Common has been issued in violation
of any preemptive rights of the current or past shareholders of Bancorp.
Bancorp has granted and outstanding (i) stock options representing the right to
acquire an aggregate of 269,629 shares of Bancorp Common for the aggregate
exercise
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price of $624,789 (the "Bancorp Stock Options") and (ii) warrants representing
the right to acquire an aggregate of 296,209 shares of Bancorp Common for the
aggregate price of $1,341,827 (the"Bancorp Warrants"). Except as disclosed in
Section 2.01(b) of that certain document delivered by Bancorp to FBA and
executed by both Bancorp and FBA concurrently with the execution and delivery of
this Agreement (the "Disclosure Schedule"), each Certificate representing shares
of Bancorp Common issued by Bancorp in replacement of any Certificate
theretofore issued by it which was claimed by the record holder thereof to have
been lost, stolen or destroyed was issued by Bancorp only upon receipt of an
affidavit of lost stock certificate and a bond sufficient to indemnify Bancorp
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such Certificate or the issuance of such replacement
Certificate.
(c) Except as disclosed in Section 2.01(b), there are no shares of capital
stock or other equity securities of Bancorp issued or outstanding and no
outstanding options, warrants, rights to subscribe for, calls or commitments of
any character whatsoever relating to, or securities or rights convertible into
or exchangeable for, shares of the capital stock of Bancorp or contracts,
commitments, understandings or arrangements by which Bancorp is or may be
obligated to issue additional shares of its capital stock or options, warrants
or rights to purchase or acquire any additional shares of its capital stock.
Section 2.02. Authorization; No Defaults. Bancorp's Board of Directors
------------ --------------------------
has by all requisite action approved this Agreement and the Merger and
authorized the execution hereof on its behalf by its duly authorized officers
and the performance by Bancorp of its obligations hereunder. Nothing in the
Articles of Incorporation or Bylaws of Bancorp or any other agreement,
instrument, decree, proceeding, law or regulation (except as specifically
referred to in or contemplated by this Agreement) by or to which Bancorp or any
of its subsidiaries is bound or subject would prohibit or inhibit Bancorp from
entering into and consummating this Agreement and the Merger on the terms and
conditions herein contained, nor will the execution, delivery and performance of
this Agreement by Bancorp result in the loss of any material benefit under any
of the foregoing documents, laws or regulations. This Agreement has been duly
and validly executed and delivered by Bancorp and constitutes a legal, valid and
binding obligation of Bancorp, enforceable against Bancorp in accordance with
its terms, except as such enforcement may be limited by bankruptcy, insolvency,
moratorium or similar laws affecting California corporations or bank holding
companies generally or by general principles of equity. Bancorp and its
subsidiaries are neither in default under nor in violation of any provision of
their respective articles of incorporation, bylaws, or any promissory note,
indenture or any evidence of indebtedness or security therefor, lease, contract,
purchase or other commitment or any other agreement which is material to Bancorp
and its subsidiaries taken as a whole.
Section 2.03. Subsidiaries. Each of Bancorp's direct and indirect
------------ ------------
subsidiaries (hereinafter referred to collectively as the "Subsidiaries"), the
names and jurisdictions of incorporation of which are disclosed in Section 2.03
of the Disclosure Schedule, is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, and each of
the Subsidiaries has the corporate power to own its properties and
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assets, to incur its liabilities and to carry on its business as now being
conducted. The number of issued and outstanding shares of capital stock of each
Subsidiary is set forth in Section 2.03 of the Disclosure Schedule, and all of
such shares (except as may be otherwise there specified) are owned by Bancorp or
a Subsidiary, free and clear of all liens, encumbrances, rights of first
refusal, options or other restrictions of any nature whatsoever, except as may
be disclosed in Section 2.03 of the Disclosure Schedule. There are no options,
warrants or rights outstanding to acquire any capital stock of any Subsidiary,
and no person or entity has any other right to purchase or acquire any unissued
shares of stock of any Subsidiary, nor does any Subsidiary have any obligation
of any nature with respect to its unissued shares of stock. Except as may be
disclosed in Section 2.03 of the Disclosure Schedule, neither Bancorp nor any
Subsidiary is a party to any partnership or joint venture or owns an equity
interest in any other business or enterprise.
Section 2.04. Financial Information. The audited consolidated balance
------------ ---------------------
sheets of Bancorp and the Subsidiaries as of December 31, 1995 and related
consolidated income statements and statements of changes in shareholders' equity
and of cash flows for the three years ended December 31, 1995, together with the
notes thereto, included in Bancorp's Annual Report on Form 10-K for the year
ended December 31, 1995, as currently on file with the Securities and Exchange
Commission (the "S.E.C."); the unaudited consolidated balance sheets of Bancorp
and the Subsidiaries as of March 31, 1996 and related consolidated income
statements and statements of changes in shareholders' equity and of cash flows
for the three months ended March 31, 1996, together with the notes thereto,
included in Bancorp's Quarterly Report on Form 10-Q for the three months ended
March 31, 1996 as currently on file with the S.E.C.; and the year-end and
quarter-end Reports of Condition and Reports of Income of Bancorp's bank
subsidiary, Sunrise Bank of California, a bank chartered by the State of
California ("Sunrise Bank") the deposits of which are insured by the Federal
Deposit Insurance Corporation (the "F.D.I.C.") for 1995 and for the three month
period ending March 31, 1996, respectively, as filed with the State Banking
Department of the State of California (the "State Banking Department") (such
financial statements and notes collectively referred to herein as the "Bancorp
Financial Statements"), have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may be disclosed
therein and except for regulatory reporting differences required by Sunrise
Bank's reports) and fairly present the consolidated financial position and the
consolidated results of operations, changes in shareholders' equity and cash
flows of the respective entity and its respective consolidated subsidiaries as
of the dates and for the periods indicated.
Section 2.05. Absence of Changes. Except as reflected in Section 2.05 of
------------ ------------------
the Disclosure Schedule, since March 31, 1996 there has not been any material
adverse change in the financial condition, the results of operations or the
business or prospects of Bancorp and the Subsidiaries taken as a whole, nor have
there been any events or transactions having such a material adverse effect
which should be disclosed in order to make the Bancorp Financial Statements not
misleading. Since September 30, 1995, the date of the most recent examination of
Sunrise Bank by the State Banking Department and/or the FDIC, there has been no
material adverse change in the financial condition, the results of operations or
the business of Sunrise Bank except for
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any such changes as may be disclosed in Sunrise Bank's Reports of Condition and
Income filed with the F.D.I.C. since such date.
Section 2.06. Regulatory Enforcement Matters. Except as reflected in
------------ ------------------------------
Section 2.06 of the Disclosure Schedule, neither Bancorp nor any of the
Subsidiaries is subject to, or has received any notice or advice that it may
become subject to, any order, agreement, memorandum of understanding or other
regulatory enforcement action or proceeding with or by any federal or state
agency charged with the supervision or regulation of banks or bank holding
companies or engaged in the insurance of bank deposits or any other governmental
agency having supervisory or regulatory authority with respect to Bancorp or any
of the Subsidiaries.
Section 2.07. Tax Matters. Except as reflected in Section 2.07 of the
------------ -----------
Disclosure Schedule, Bancorp and the Subsidiaries have filed all federal, state
and local income, franchise, excise, sales, use, real and personal property and
other tax returns required to be filed. All such returns fairly reflect the
information required to be presented therein. All provisions for accrued but
unpaid taxes contained in the Bancorp Financial Statements were made in
accordance with generally accepted accounting principles and in the aggregate do
not materially fail to provide for potential tax liabilities.
Section 2.08. Litigation. Except as may be disclosed in Section 2.08 of
------------ ----------
the Disclosure Schedule, there is no litigation, claim or other proceeding
pending or, to the knowledge of Bancorp, threatened, against Bancorp or any of
the Subsidiaries, or of which the property of Bancorp or any of the Subsidiaries
is or would be subject.
Section 2.09. Properties, Contracts, Employee Benefit Plans and Other
------------ -------------------------------------------------------
Agreements. Section 2.09 of the Disclosure Schedule lists or describes the
- ----------
following:
(a) All real property owned by Bancorp or the Subsidiaries and the
principal buildings and structures located thereon, together with a legal
description of such real estate, and each lease of real property to which
Bancorp or any of the Subsidiaries is a party, identifying the parties thereto,
the annual rental payable, the expiration date thereof and a brief description
of the property covered;
(b) All loan and credit agreements, conditional sales contracts or other
title retention agreements or security agreements relating to money borrowed by
Bancorp or the Subsidiaries, exclusive of deposit agreements with customers of
Sunrise Bank entered into in the ordinary course of business, agreements for the
purchase of federal funds and repurchase agreements;
(c) All agreements, loans, contracts, leases, guaranties, letters of
credit, lines of credit or commitments of Bancorp or the Subsidiaries not
referred to elsewhere in this Section 2.09 which:
(i) involve payment by Bancorp or the Subsidiaries (other than loans,
loan commitments or letters of credit) of more than $75,000;
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<PAGE>
(ii) involve payments based on profits of Bancorp or the
Subsidiaries;
(iii) relate to the future purchase of goods or services in excess of
the requirements of its respective business at current levels
or for normal operating purposes;
(iv) were not made in the ordinary course of business; or
(v) materially affect the business or financial condition of
Bancorp or the Subsidiaries.
(d) All contracts, agreements, plans and arrangements by which any profit
sharing, group insurance, hospitalization, stock option, pension, retirement,
bonus, deferred compensation, stock bonus, stock purchase, collective bargaining
agreements, contracts or arrangements under which pensions, deferred
compensation or other retirement benefits is being paid, or plans or
arrangements established or maintained, sponsored or undertaken by Bancorp or
any Subsidiary for the benefit of officers, directors or employees, including
each trust or other agreement with any custodian or any trustee for funds held
under any such agreement, plan or arrangement, and in respect to any of them,
the latest reports or forms, if any, filed with the Department of Labor and
Pension Benefit Guaranty corporation under ERISA (as defined below), any current
financial or actuarial reports and any currently effective IRS private ruling or
determination letters obtained by or for the benefit of Bancorp or any
Subsidiary;
(e) All leases or licenses with respect to personal property, whether as
lessee or licensee, with annual rental or other payments due thereunder in
excess of $5,000;
(f) All agreements for the employment, retention or engagement, or with
respect to the severance, of any officer, employee, agent, consultant or other
person or entity which by its terms is not terminable by Bancorp or such
Subsidiary on thirty (30) days written notice or less without any payment by
reason of such termination; and
(g) The name and annual salary as of January, 1, 1996 of each director or
employee of Bancorp or any Subsidiaries with a salary in excess of $80,000.
Copies of each document, plan or contract listed and described in Section
2.09 of the Disclosure Schedule are appended to such Schedule and constitute a
part of the Disclosure Schedule.
Section 2.10. Reports. Except as may be disclosed in Section 2.10 of the
------------ -------
Disclosure Schedule, Bancorp and each Subsidiary have filed all reports and
statements, together with any amendments required to be made with respect
thereto, that it was required to file with (i) the S.E.C.; (ii) the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"); (iii) the
F.D.I.C.; (iv) any state securities or banking authorities; and (v) any other
governmental authority with jurisdiction over Bancorp or any Subsidiary. As of
the dates
8
<PAGE>
indicated thereon, each of such reports and documents, including any financial
statements, exhibits and schedules thereto, complied in all material respects
with the relevant statutes, rules and regulations enforced or promulgated by the
regulatory authority with which they were filed, and did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
Section 2.11. Investment Portfolio. All United States Treasury
------------ --------------------
securities, obligations of other United States Government agencies and
corporations, obligations of States and political subdivisions of the United
States and other investment securities held by Bancorp and the Subsidiaries, as
reflected in the latest consolidated balance sheet of Bancorp included in the
Bancorp Financial Statements, are carried in accordance with generally accepted
accounting principles.
Section 2.12. Loan Portfolio. Except as may be disclosed in Section 2.12
------------ --------------
of the Disclosure Schedule, (i) all loans and discounts shown on the Bancorp
Financial Statements at March 31, 1996 or which were or will be entered into
after March 31, 1996 but before the Closing Date were and will be made in all
material respects for good, valuable and adequate consideration in the ordinary
course of the business of Bancorp and the Subsidiaries, in accordance in all
material respects with sound lending practices, and they are not subject to any
material known defenses, setoffs or counterclaims, including without limitation
any such as are afforded by usury or truth in lending laws, except as may be
provided by bankruptcy, insolvency or similar laws or by general principles of
equity; (ii) the notes and other evidences of indebtedness evidencing such loans
and all forms of pledges, mortgages and other collateral documents and security
agreements are and will be in all material respects enforceable (except as may
be limited by bankruptcy, insolvency or similar laws or by general principles of
equity), valid, true and genuine and what they purport to be; and (iii) Bancorp
and the Subsidiaries have complied and will prior to the Closing Date comply
with all laws and regulations relating to such loans, or to the extent there has
not been such compliance, such failure to comply will not materially interfere
with the collection of any loan. All loans and loan commitments extended by
Sunrise Bank and any extensions, renewals or continuations of such loans and
loan commitments were made in accordance with its customary lending standards in
the ordinary course of business. Such loans are evidenced by appropriate and
sufficient documentation based upon customary and ordinary past practices of
Sunrise Bank. The reserve for possible loan and lease losses shown on the
Report of Condition and Income of Sunrise Bank as of March 31, 1996 is adequate
in all material respects under the requirements of generally accepted accounting
principles to provide for possible losses, net of recoveries relating to loans
previously charged off, on loans outstanding (including, without limitation,
accrued interest receivable) as of March 31, 1996.
Section 2.13. Employee Matters and ERISA.
------------ --------------------------
(a) Except as may be disclosed in Section 2.13 (a) of the Disclosure
Schedule, neither Bancorp nor any Subsidiary has entered into any collective
bargaining agreement with any labor
9
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organization with respect to any group of employees of Bancorp or any
Subsidiary, and to the knowledge of Bancorp there is no present effort nor
existing proposal to attempt to unionize any group of employees of Bancorp or
any Subsidiary.
(b) Except may be disclosed in Section 2.13 (b) of the Disclosure Schedule,
(i) Bancorp and the Subsidiaries are and have been in material compliance with
all applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, including, without limitation, any
laws respecting employment discrimination and occupational safety and health
requirements, and neither Bancorp nor any of the Subsidiaries is engaged in any
unfair labor practice; (ii) there is no material unfair labor practice complaint
against Bancorp or any Subsidiary pending or, to the knowledge of Bancorp,
threatened before the National Labor Relations Board; (iii) there is no labor
dispute, strike, slowdown or stoppage actually pending or, to the knowledge of
Bancorp, threatened against or directly affecting Bancorp or any Subsidiary; and
(iv) neither Bancorp nor any Subsidiary has experienced any material work
stoppage or other material labor difficulty during the past five years.
(c) Except as may be disclosed in Section 2.13(c) of the Disclosure
Schedule, neither Bancorp nor any Subsidiary maintains, contributes to or
participates in or has any liability under any employee benefit plans, as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or any nonqualified employee benefit plans or deferred
compensation, bonus, stock or incentive plans, or other employee benefit or
fringe benefit programs for the benefit of former or current employees of
Bancorp or any Subsidiary (collectively, the "Employee Plans"). To the knowledge
of Bancorp, no present or former employee of Bancorp or any Subsidiary has been
charged with breaching nor has breached a fiduciary duty under any Employee
Plan. Neither Bancorp nor any Subsidiary participates in, nor has it in the past
five years participated in, nor has it any present or future obligation or
liability under, any multiemployer plan (as defined at Section 3(37) of ERISA).
Except as may be separately disclosed in Section 2.13(c) of the Disclosure
Schedule, neither Bancorp nor any Subsidiary maintains, contributes to, or
participates in any plan that provides health, major medical, disability or life
insurance benefits to former employees of Bancorp or any Subsidiary.
(d) All liabilities of the Employee Plans have been funded on the basis of
consistent methods in accordance with sound actuarial assumptions and practices,
and no Employee Plan, at the end of any plan year, or at March 31, 1996, had an
accumulated funding deficiency. No actuarial assumptions have been changed
since the last written report of actuaries on the Employee Plans. All insurance
premiums (including premiums to the Pension Benefit Guaranty Corporation) have
been paid in full, subject only to normal retrospective adjustments in the
ordinary course. Except as may be noted on the Bancorp Financial Statements,
Bancorp and the Subsidiaries have no contingent or actual liabilities under
Title IV of ERISA. No accumulated funding deficiency (within the meaning of
Section 302 of ERISA or Section 412 of the Internal Revenue Code of 1986, as
amended (the "Code")) has been incurred with respect to any Employee Plan,
whether or not waived. No reportable event (as defined in Section 4043 of ERISA)
has occurred with respect to any Employee Plan as to which a notice would be
required to be filed with the Pension Benefit Guaranty Corporation. No claim is
pending, threatened or imminent with respect to any Employee Plan (other than a
routine claim for benefits for which
10
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plan administrative review procedures have not been exhausted) for which Bancorp
or any Subsidiary would be liable, except as is reflected in the Bancorp
Financial Statements. After December 31, 1993, Bancorp and the Subsidiaries have
no liability for excise taxes under Sections 4971, 4975, 4976, 4977, 4979 or
4980B of the Code or for a fine under Section 502 of ERISA with respect to any
Employee Plan. All Employee Plans have in all material respects been operated,
administered and maintained in accordance with the terms thereof and in
compliance with the requirements of all applicable laws, including, without
limitation, ERISA.
Section 2.14. Title to Properties; Insurance. Except as may be
------------ ------------------------------
disclosed in Section 2.14 of the Disclosure Schedule: (i) Bancorp and the
Subsidiaries have marketable title, insurable at standard rates, free and clear
of all liens, charges and encumbrances (except taxes which are a lien but not
yet payable and liens, charges or encumbrances reflected in the Bancorp
Financial Statements and easements, rights-of-way, and other restrictions which
are not material, and further excepting in the case of other Real Estate Owned
("OREO"), as such real estate is internally classified on the books of Bancorp
or any Subsidiary, rights of redemption under applicable law) to all of their
real properties; (ii) all leasehold interests for real property and any material
personal property used by Bancorp and the Subsidiaries in their businesses are
held pursuant to lease agreements which are valid and enforceable in accordance
with their terms; (iii) all such properties comply in all material respects with
all applicable private agreements, zoning requirements and other governmental
laws and regulations relating thereto, and there are no condemnation proceedings
pending or, to the knowledge of Bancorp, threatened with respect to any of such
properties; (iv) Bancorp and the Subsidiaries have valid title or other
ownership rights under licenses to all material intangible personal or
intellectual property used by Bancorp or any Subsidiary in its business, free
and clear of any material claim, defense or right of any other person or entity,
subject only to rights of the licensors pursuant to applicable license
agreements, which rights do not materially and adversely interfere with the use
of such property; and (v) all material insurable properties owned or held by
Bancorp and the Subsidiaries are adequately insured by financially sound and
reputable insurers in such amounts and against fire and other risks insured
against by extended coverage and public liability insurance, as is customary
with bank holding companies of similar size.
Section 2.15. Environmental Matters. As used in this Agreement,
------------ ---------------------
"Environmental Laws" means all local, state and federal environmental, health
and safety laws and regulations in all jurisdictions in which Bancorp or any
Subsidiary has done business or owned, leased or operated property, including,
without limitation, the Federal Resource Conservation and Recovery Act, the
Federal Comprehensive Environmental Response, Compensation and Liability Act,
the Federal Clean Water Act, the Federal Clean Air Act, and the Federal
Occupational Safety and Health Act.
Except as may be disclosed in Section 2.15 of the Disclosure Schedule,
neither the conduct nor operation of Bancorp or any Subsidiary nor any
condition of any property presently or previously owned, leased or operated by
any of them on their own behalf or in a fiduciary capacity violates or violated
any Environmental Law in any respect material to the business of Bancorp and the
Subsidiaries taken as a whole, and no condition or event has occurred with
11
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respect to any of them or any property that, with notice or the passage of time,
or both, would constitute a violation material to the business of Bancorp and
the Subsidiaries taken as a whole of any Environmental Law or obligate (or
potentially obligate) Bancorp or any Subsidiary to remedy, stabilize, neutralize
or otherwise alter the environmental condition of any property, where the
aggregate cost of such actions would be material to Bancorp and the Subsidiaries
taken as a whole. Except as may be disclosed in Section 2.15 of the Disclosure
Schedule, neither Bancorp nor any Subsidiary has received notice from any person
or entity that Bancorp or any Subsidiary, or the operation or condition of any
property ever owned, leased or operated by any of them on their own behalf or in
a fiduciary capacity, are or were in violation of any Environmental Law, or that
Bancorp or any Subsidiary is responsible (or potentially responsible) for
remedying, or the cleanup of, any pollutants, contaminants, or hazardous or
toxic wastes, substances or materials at, on or beneath any such property.
Section 2.16. Compliance with Law. Bancorp and the Subsidiaries have all
------------ -------------------
licenses, franchises, permits and other governmental authorizations that are
legally required to enable them to conduct their respective businesses in all
material respects and are in compliance in all material respects with all
applicable laws and regulations.
Section 2.17. Brokerage. Except for fees payable by Bancorp to Smith &
------------ ---------
Crowley, Inc., there are no existing claims or agreements for brokerage
commissions, finders' fees, or similar compensation in connection with the
transactions contemplated by this Agreement payable by Bancorp or any
Subsidiary.
Section 2.18. No Undisclosed Liabilities. Bancorp and the Subsidiaries do
------------ --------------------------
not have any material liability, whether known or unknown, asserted or
unasserted, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, and whether due or to become due (and there is no past or present
fact, situation, circumstance, condition or other basis for any present or
future action, suit or proceeding, hearing, charge, complaint, claim or demand
against Bancorp or any Subsidiary giving rise to any such liability), except (i)
for liabilities set forth in the Bancorp Financial Statements, and (ii) for
liabilities of the same type incurred in the ordinary course of business of
Bancorp and the Subsidiaries since March 31, 1996, and (iii) as may be disclosed
in Section 2.18 of the Disclosure Schedule.
Section 2.19. Statements True and Correct. None of the information
------------ ---------------------------
supplied or to be supplied by Bancorp for inclusion in any document to be filed
with the S.E.C. or any banking or other regulatory authority in connection with
the transactions contemplated hereby will, at the respective times such
documents are filed, and, in the case of Bancorp's proxy statement, when first
mailed to the shareholders of Bancorp and at the time of the Shareholders'
Meeting (as defined in Section 4.03 hereof), be false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
are made, not misleading, or omit to state any material fact required to be
stated, in the light of the circumstances under which a statement is made, in
order to correct such statement in any earlier communication with respect to the
solicitation of any proxy for the Shareholders' Meeting. All documents that
Bancorp is responsible for filing with
12
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the S.E.C. or any other regulatory authority in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
provisions of applicable law and the applicable rules and regulations
thereunder.
Section 2.20. Commitments and Contracts.
------------ -------------------------
(a) Except as set forth in Section 2.20 of the Disclosure Schedule (and
with a true and correct copy of the document or other item in question having
been made available to FBA for inspection), neither Bancorp nor any of the
Subsidiaries is a party or subject to any of the following (whether written or
oral, express or implied):
(i) any agreement, arrangement or commitment not made in the ordinary
course of business;
(ii) any agreement, indenture or other instrument not reflected in the
Bancorp Financial Statements relating to the borrowing of money by Bancorp or
any of the Subsidiaries or the guarantee by Bancorp or any of the Subsidiaries
of any obligation (other than trade payables or instruments related to
transactions entered into in the ordinary course of business by Bancorp or any
of the Subsidiaries, such as deposits, Fed Funds borrowings and repurchase
agreements), other than such agreements, indentures or instruments providing for
annual payments of less than $10,000;
(iii) any contract containing covenants which limit the ability of Bancorp
to compete in any line of business or with any person or containing any
restriction of the geographical area in which, or method by which, Bancorp or
any of the Subsidiaries may carry on its business (other than as may be required
by law or any applicable regulatory authority); or
(iv) any lease with annual rental payments aggregating $25,000 or more.
Section 2.21. Material Interest of Certain Persons. Except as set forth
------------ ------------------------------------
in Section 2.21 of the Disclosure Schedule:
(a) No officer or director of Bancorp or any "associate" (as such term is
defined in Rule 14a-1 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of any such officer or director, has any material interest in
any material contract or property (real or personal, tangible or intangible),
used in or pertaining to the business of Bancorp and any Subsidiary.
(b) All outstanding loans from Sunrise Bank to any present officer,
director, employee or any associate or related interest of any such person which
was or would be required under any rule or regulation to be approved by or
reported to Sunrise Bank's Board of Directors ("Insider Loans") were approved by
or reported to the Board of Directors in accordance with all applicable laws and
regulations.
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Section 2.22. Conduct to Date. Except as set forth in Section 2.22 of the
------------ ---------------
Disclosure Schedule, from and after March 31, 1996 through the date of this
Agreement, neither Bancorp nor any Subsidiary has (i) failed to conduct its
business in the ordinary and usual course consistent with past practices; (ii)
issued, sold, granted, conferred or awarded any common or other stock, or any
corporate debt securities which would be classified under generally accepted
accounting principles applied on a consistent basis as long-term debt on the
balance sheets of Bancorp or any Subsidiary; (iii) effected any stock split or
adjusted, combined, reclassified or otherwise changed its capitalization; (iv)
declared, set aside or paid any dividend or other distribution in respect of its
capital stock, or purchased, redeemed, retired, repurchased, or exchanged, or
otherwise directly or indirectly acquired or disposed of any of its capital
stock; (v) incurred any material obligation or liability (absolute or
contingent), except normal trade or business obligations or liabilities incurred
in the ordinary course of business, or subjected to lien any of its assets or
properties other than in the ordinary course of business consistent with past
practice; (vi) discharged or satisfied any material lien or paid any material
obligation or liability (absolute or contingent), other than in the ordinary
course of business; (vii) sold, assigned, transferred, leased, exchanged, or
otherwise disposed of any of its properties or assets other than for a fair
consideration in the ordinary course of business; (viii) except as required by
contract or law, (A) increased the rate of compensation of, or paid any bonus
to, any of its directors, officers, or other employees, except merit or
promotion increases in accordance with existing policy, (B) entered into any
new, or amended or supplemented any existing, employment, management,
consulting, deferred compensation, severance, or other similar contract, (C)
entered into, terminated or substantially modified any of the Employee Plans, or
(D) agreed to do any of the foregoing; (ix) suffered any material damage,
destruction, or loss, whether as the result of fire, explosion, earthquake,
accident, casualty, labor trouble, requisition, or taking of property by any
regulatory authority, flood, windstorm, embargo, riot, act of God or the enemy,
or other casualty or event, and whether or not covered by insurance; (x)
canceled or compromised any debt, except for debts charged off or compromised in
accordance with past practice; (xi) entered into any material transaction,
contract or commitment outside the ordinary course of its business or (xii) made
or guaranteed any loan to any of the Employee Plans.
Section 2.23. Irrevocable Proxies. Bancorp has delivered to FBA
------------ -------------------
concurrently with the execution of this Agreement the valid and binding
irrevocable proxies of all of its directors (the "Proxies"), in the form of
Exhibit 2.23.
Section 2.24. Disclosures in Disclosure Schedule. Any information which
------------ ----------------------------------
is set forth or specifically referred to in a section of the Disclosure Schedule
shall be deemed to be disclosed to FBA for the purpose of the representations
and warranties of Bancorp set forth in the section of this Agreement to which
such section of the Disclosure Schedule relates.
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ARTICLE THREE
REPRESENTATIONS OF FBA
FBA hereby makes the following representations and warranties to Bancorp:
Section 3.01. Organization. FBA is a corporation duly organized, validly
------------ ------------
existing, and in good standing under the laws of the State of Delaware and has
the corporate power to carry on its business as it is now being conducted.
Section 3.02. Authorization. The execution and delivery of this Agreement
------------ -------------
and the consummation of the Merger have been duly authorized by all necessary
action on the part of FBA. Nothing in the Certificate of Incorporation or
Bylaws of FBA or any other agreement, instrument, decree, proceeding, law or
regulation (except as specifically referred to in or contemplated by this
Agreement) by or to which FBA or any of its subsidiaries is bound or subject
would prohibit or inhibit FBA from entering into and consummating this Agreement
and the Merger on the terms and conditions herein contained, nor will the
execution, delivery and performance of this Agreement by FBA result in the loss
of any material benefit under any of the foregoing documents, laws or
regulations. This Agreement has been duly and validly executed and delivered by
FBA and constitutes a legal, valid and binding obligation of FBA, enforceable
against FBA in accordance with its terms except as may be limited by bankruptcy,
insolvency or similar laws or by general principles of equity, and no other
corporate acts or proceedings are required to be taken by FBA to authorize the
execution, delivery and performance of this Agreement. Except for the requisite
approval of the Federal Reserve Board and the State Banking Department, no
notice to, filing with, authorization by, or consent or approval of, any federal
or state regulatory authority is necessary for the execution and delivery of
this Agreement or consummation of the Merger by FBA. To the best of FBA's
knowledge, the regulatory approvals required for the consummation of the Merger
by FBA will be received prior to the Effective Time. The approval of the Merger
by the stockholders of FBA is not legally required in order to permit FBA to
execute and deliver this Agreement or to consummate the Merger.
Section 3.03. Absence of Changes. Since March 31, 1996 there has not been
------------ ------------------
any material adverse change in the financial condition or the business of FBA
that would prevent FBA from consummating this Agreement and the Merger.
Section 3.04. Litigation. There is no litigation, claim or other
------------ ----------
proceeding pending, or, to the knowledge of FBA threatened, against FBA or any
of its subsidiaries which would prohibit FBA from consummating the Merger.
Section 3.05. Statements True and Correct. None of the information
------------ ---------------------------
supplied or to be supplied by FBA for inclusion in any documents to be filed
with the S.E.C. or any banking or other regulatory authority in connection with
the transactions contemplated hereby will, at the respective times such
documents are filed, and, in the case of Bancorp's proxy statement, when
15
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first mailed to the shareholders of Bancorp and at the time of the Shareholders'
Meeting, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they are made, not misleading, or omit to state
any material fact required to be stated, in the light of the circumstances under
which a statement is made, in order to correct such statement in any earlier
communication with respect to the solicitation of any proxy for the
Shareholders' Meeting. All documents that FBA is responsible for filing with
any regulatory authority in connection with the transactions contemplated by
this Agreement will comply as to form in all material respects with the
provisions of applicable law and the applicable rules and regulations
thereunder.
Section 3.06. Availability of Cash Consideration. FBA has available cash
------------ ----------------------------------
or cash equivalents in amounts necessary to fund its obligations under Section
1.03(a) hereof. First Banks, Inc., a Missouri corporation which owns 2,500,000
shares of Class B Common Stock of FBA, has provided to Bancorp a written
guarantee (the "Guarantee") in the form of Exhibit 3.06.
ARTICLE FOUR
AGREEMENTS OF BANCORP
Section 4.01. Business in Ordinary Course.
------------ ---------------------------
(a) Bancorp shall, and shall cause each Subsidiary to, continue to carry on
after the date hereof its respective business and the discharge or incurrence of
obligations and liabilities only in the usual, regular and ordinary course of
business, as heretofore conducted, and by way of amplification and not
limitation, Bancorp and each Subsidiary will not:
(i) declare or pay any dividend or make any other distribution to
shareholders, whether in cash, stock or other property; or
(ii) issue any common stock or other capital stock or any options,
warrants, or other rights to subscribe for or purchase common stock or any
other capital stock or any securities convertible into or exchangeable for
any capital stock (except for the issuance of common stock pursuant to the
valid exercise of Bancorp Stock Options and Bancorp Warrants described in
Section 2.01(b) hereof); or
(iii) directly or indirectly redeem, purchase or otherwise acquire any
common stock or any other capital stock of Bancorp or any Subsidiary; or
(iv) effect a reclassification, recapitalization, splitup, exchange of
shares, readjustment or other similar change in or to any capital stock, or
otherwise reorganize or recapitalize; or
16
<PAGE>
(v) change its articles of incorporation or bylaws nor, subject to the
fiduciary duties of the directors of Bancorp under the California
Corporations Code, enter into any agreement to merge or consolidate with,
or sell a significant portion of its assets to, any person or entity.
(b) Bancorp and each Subsidiary will not, without the prior written consent
of FBA (which shall not be unreasonably withheld):
(i) grant any increase (other than ordinary and normal increases consistent
with past practices) in the compensation payable or to become payable to
officers or salaried employees, grant any stock options or, except as
required by law, adopt or make any change in any bonus, insurance, pension,
or other Employee Plan, agreement, payment or arrangement made to, for or
with any of such officers or employees; provided, however, that FBA has
given its approval for Bancorp to adopt a compensation program to encourage
officers and employees designated by Bancorp to continue their employment
through the date which is sixty (60) days after the Effective Time,
provided that Bancorp will consult with FBA regarding the structure of such
program and the aggregate cost thereof does not exceed $150,000; or
(ii) borrow or agree to borrow any amount of funds except in the ordinary
course of business, or directly or indirectly guarantee or agree to
guarantee any obligations of others; or
(iii) make or commit to make any new loan or letter of credit or any new
or additional discretionary advance under any existing line of credit, in
principal amounts in excess of $200,000 or that would increase the
aggregate credit outstanding to any one borrower (or group of affiliated
borrowers) to more than $400,000 (excluding for this purpose any accrued
interest or overdrafts), without the prior written consent of FBA; or
(iv) purchase or otherwise acquire any investment security for its own
account having an average remaining life to maturity greater than five
years or any asset-backed securities other than those issued or guaranteed
by the Government National Mortgage Association, the Federal National
Mortgage Association or the Federal Home Loan Mortgage Corporation; or
(v) enter into any agreement, contract or commitment having a term in
excess of three (3) months other than letters of credit, loan agreements,
deposit agreements, and other lending, credit and deposit agreements and
documents made in the ordinary course of business; or
(vi) except in the ordinary course of business, place on any of its assets
or properties any mortgage, pledge, lien, charge, or other encumbrance; or
17
<PAGE>
(vii) except in the ordinary course of business, cancel or accelerate any
material indebtedness owing to Bancorp or any Subsidiary or any claims
which Bancorp or any Subsidiary may possess, or waive any material rights
of substantial value; or
(viii) sell or otherwise dispose of any real property or any material
amount of any tangible or intangible personal property, other than
properties acquired in foreclosure or otherwise in the ordinary collection
of indebtedness to Bancorp and the Subsidiaries; or
(ix) foreclose upon or otherwise take title to or possession or control of
any real property without first obtaining a phase one environmental report
thereon which indicates that the property is free of pollutants,
contaminants or hazardous or toxic waste materials; provided, however, that
neither Bancorp nor a Subsidiary shall be required to obtain such a report
with respect to single family, non-agricultural residential property of one
acre or less to be foreclosed upon unless it has reason to believe that
such property might contain any such waste materials or otherwise might be
contaminated; or
(x) commit any act or fail to do any act which will cause a breach of any
agreement, contract or commitment and which will have a material adverse
effect on the business, financial condition or earnings of Bancorp and the
Subsidiaries, taken as a whole; or
(xi) violate any law, statute, rule, governmental regulation or order,
which violation might have a material adverse effect on the business,
financial condition, or earnings of Bancorp or a Subsidiary; or
(xii) purchase any real or personal property or make any other capital
expenditure where the amount paid or committed therefor is in excess of
$25,000; or
(xiii) increase or decrease the rate of interest paid on time deposits or
on certificates of deposit, except in a manner consistent with past
practices.
Bancorp and FBA shall promptly devise a procedure to assure that, if
Bancorp makes a request for FBA's written consent to take one or more of such
actions, the request will be promptly reviewed and a response promptly given by
FBA.
(c) Bancorp and the Subsidiaries shall not, without the prior written
consent of FBA, engage in any transaction or take any action that would render
untrue in any material respect any of the representations and warranties of
Bancorp contained in Article Two hereof, if such representations and warranties
were given as of the date of such transaction or action.
(d) Bancorp shall promptly notify FBA of the occurrence of any matter or
event known to and directly involving Bancorp that is materially adverse to the
business, operations, properties, assets, or condition (financial or otherwise)
of Bancorp and the Subsidiaries taken as a whole.
18
<PAGE>
(e) Subject to the fiduciary duties of the directors of Bancorp under the
California Corporations Code, Bancorp shall not solicit or encourage, or hold
discussions or negotiations with or provide information to, any person or entity
in connection with any proposal for the acquisition of all or any substantial
portion of the business, assets, shares of Bancorp Common or other securities or
assets of Bancorp or any Subsidiary. Bancorp shall promptly advise FBA of its
receipt of any such proposal or inquiry concerning any possible such proposal
and the substance of such proposal or inquiry.
Section 4.02. Breaches. Bancorp shall, in the event it has knowledge of
------------ --------
the occurrence, or impending or threatened occurrence, of any event or condition
which would cause or constitute a breach (or would have caused or constituted a
breach had such event occurred or been known prior to the date hereof) of any of
its representations or agreements contained or referred to herein, give prompt
written notice thereof to FBA and use its best efforts to prevent or promptly
remedy the same.
Section 4.03. Submission to Shareholders. Bancorp shall cause to be duly
------------ --------------------------
called and held, as soon as practicable, a meeting of its shareholders (such
meeting together with any adjournments thereof referred to as the "Shareholders'
Meeting") for submission of this Agreement and the Merger for approval of such
shareholders as required by applicable Corporate Law.
In connection with the Shareholders' Meeting, Bancorp shall prepare and
file with the S.E.C., no more than sixty (60) days after the date of this
Agreement, at its sole cost and expense, a Proxy Statement (the "Proxy
Statement"), and Bancorp shall thereafter take all actions reasonably required
in order to permit the Proxy Statement to be mailed to the shareholders of
Bancorp. The Board of Directors of Bancorp shall unanimously recommend to its
shareholders the approval of the Agreement and the Merger, mail the Proxy
Statement to its shareholders, and use its best efforts to obtain such
shareholder approval; provided, however, that the Board of Directors of Bancorp
shall not be obligated to make such recommendation or use its best efforts to
obtain shareholder approval if, having consulted and considered the advice of
outside legal counsel, the Board has reasonably determined in good faith that
the making of such recommendation would constitute a breach of the fiduciary
duties of the members of the Board of Directors under applicable law.
Section 4.04. Consummation of Agreement. Bancorp shall use its best
------------ -------------------------
efforts to perform and fulfill all conditions and obligations on its part to be
performed or fulfilled under this Agreement and to effect the Merger in
accordance with the terms and provisions hereof. Bancorp shall furnish to FBA in
a timely manner all information, data and documents in the possession of Bancorp
requested by FBA as may be required to obtain any necessary regulatory or other
approvals of the Merger and shall otherwise cooperate fully with FBA to carry
out the purpose and intent of this Agreement.
Section 4.05. Environmental Reports. Bancorp shall provide to FBA, as
------------ ---------------------
soon as reasonably practical, but not later than sixty (60) days after the date
hereof, a report of a phase
19
<PAGE>
one environmental investigation on all real property owned, leased or operated
by Bancorp or any Subsidiary as of the date hereof (other than the loan
production office of Sunrise Bank located at 220 Sansome Street, San Francisco,
California, single-family non-agricultural residential property of one acre or
less with respect to which Bancorp has not received any notice of the type
referred to in Section 2.15 hereof, and space in retail and similar
establishments leased by Bancorp for automatic teller machines) and within ten
days after the acquisition or lease of any real property acquired or leased by
Bancorp or any Subsidiary after the date hereof (other than the loan production
office of Sunrise Bank referred to above, single-family non-agricultural
residential property of one acre or less, and space in retail and similar
establishments leased or operated by the Bancorp for automatic teller machines),
except as otherwise provided in Section 4.01(b)(ix). If required by the phase
one investigation in FBA's reasonable opinion Bancorp shall provide to FBA a
report of a phase two investigation on properties requiring such additional
study. FBA shall have 15 business days from the receipt of any such phase two
investigation report to notify Bancorp of any objection to the contents of such
report. Should the cost of taking all remedial and corrective actions and
measures (i) required by applicable law, or (ii) recommended or suggested by
such report or reports or prudent in light of serious life, health or safety
concerns, in the aggregate, exceed the sum of Four Hundred Thousand Dollars
($400,000) as reasonably estimated by an environmental expert retained for such
purpose by FBA and reasonably acceptable to Bancorp,or if the cost of such
actions and measures cannot be so reasonably estimated by such expert to be
$400,000 or less with a reasonable degree of certainty, then FBA shall have the
right pursuant to Section 7.05 hereof, for a period of 10 business days
following receipt of such estimate or indication that the cost of such actions
and measures can not be so reasonably estimated, to terminate this Agreement,
which shall be FBA's sole remedy in such event.
Section 4.06. Access to Information. Bancorp shall permit FBA reasonable
------------ ---------------------
access in a manner which will avoid undue disruption or interference with
Bancorp's normal operations to its properties and shall disclose and make
available to FBA all books, documents, papers and records relating to its
assets, stock ownership, properties, operations, obligations and liabilities,
including, but not limited to, all books of account (including the general
ledger), tax records, minute books of directors' and shareholders' meetings,
organizational documents, material contracts and agreements, loan files, filings
with any regulatory authority, accountants' workpapers (if available and subject
to the respective independent accountants' consent), litigation files, plans
affecting employees, and any other business activities or prospects in which FBA
may have a reasonable and legitimate interest in furtherance of the transactions
contemplated by this Agreement. FBA will hold any such information which is
nonpublic in confidence in accordance with the provisions of Section 9.01
hereof.
Section 4.07. Consents to Contracts and Leases. Bancorp shall use its
------------ --------------------------------
best efforts to obtain all necessary consents with respect to all interests of
Bancorp and the Subsidiaries in any material leases, licenses, contracts,
instruments and rights which require the consent of another person for the
Merger.
20
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Section 4.08. Subsequent Financial Statements. As soon as available after
------------ -------------------------------
the date hereof, Bancorp shall deliver to FBA the monthly unaudited consolidated
balance sheets and profit and loss statements of Bancorp prepared for its
internal use, the Report of Condition and Income of Sunrise Bank for each
quarterly period completed prior to the Closing, and all other financial reports
or statements submitted to regulatory authorities after the date hereof, to the
extent permitted by law (collectively, the "Subsequent Company Financial
Statements"). The Subsequent Company Financial Statements shall be prepared on
a basis consistent with past accounting practices and shall fairly present the
financial condition and results of operations for the dates and periods
presented. The Subsequent Company Financial Statements will not include any
material assets or omit to state any material liabilities, absolute or
contingent, or other facts, which inclusion or omission would render such
financial statements misleading in any material respect.
Section 4.09. Reserve and Provisions for Loan Losses. Bancorp will
------------ --------------------------------------
provide to FBA each month, beginning in June, 1996 a copy of the internal review
and analysis of its reserve for possible loan and lease losses and the
appropriate amount to be included in its provision for loan and lease losses,
and Bancorp will consider in good faith FBA's reasonable analysis of the reserve
and provision and any reasonable suggestions made by FBA with respect to the
appropriate level of the provision to be made each month.
ARTICLE FIVE
AGREEMENTS OF FBA
Section 5.01. Regulatory Approvals. FBA shall as soon as reasonably
------------- --------------------
practicable and no more than sixty (60) days after the date of this Agreement
file all regulatory applications required in order to consummate the Merger,
including but not limited to the necessary application for the prior approval of
the Federal Reserve Board. FBA shall keep Bancorp reasonably informed as to the
status of such applications and make available to Bancorp, upon reasonable
request by Bancorp from time to time, copies of such applications and any
supplementally filed materials.
Section 5.02. Breaches. FBA shall, in the event it has knowledge of the
------------ --------
occurrence, or impending or threatened occurrence, of any event or condition
which would cause or constitute a breach (or would have caused or constituted a
breach had such event occurred or been known prior to the date hereof) of any of
its representations or agreements contained or referred to herein, give prompt
written notice thereof to Bancorp and use its best efforts to prevent or
promptly remedy the same.
Section 5.03. Consummation of Agreement. FBA shall use its best efforts
------------ -------------------------
to perform and fulfill all conditions and obligations on its part to be
performed or fulfilled under this Agreement and to effect the Merger in
accordance with the terms and conditions of this Agreement.
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Section 5.04. Indemnification and Insurance.
------------ -----------------------------
(a) For six years after the Effective Time, FBA shall (i) cause the
surviving corporation of the Merger of Bancorp and Holdings (the "Surviving
Corporation") to indemnify, defend and hold harmless the present and former
officers, directors, employees and agents of Bancorp and the Subsidiaries (each,
an "Indemnified Party") against all losses, expenses, claims, damages or
liabilities arising out of actions or omissions occurring on or prior to the
Effective Time (including, without limitation, the transactions contemplated by
this Agreement) to the full extent then permitted under applicable Corporate Law
and by the Articles of Incorporation and Bylaws of Bancorp and Sunrise Bank as
in effect on the date hereof; and (ii) purchase and maintain in effect for a
three year period insurance in the form of an extension of coverage under
Bancorp's existing insurance policy Number 04 DO 00227-3 issued by California
Bankers Assurance Company insuring the Indemnified Parties against such losses,
expenses, claims, damages or liabilities; provided, however, that FBA shall not
be obligated to purchase or maintain such insurance if the total cost thereof
for the three year period exceeds $75,000.
(b) If after the Effective Time Sunrise Bank, the Surviving Corporation or
any of their respective 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 Sunrise Bank or
the Surviving Corporation, as the case may be, shall assume any remaining
obligations set forth in this Section 5.04. If Sunrise Bank or the Surviving
Corporation shall liquidate, dissolve or otherwise wind up its business, then
FBA shall indemnify, defend and hold harmless each Indemnified Party to the same
extent and on the same terms that Sunrise Bank or the Surviving Corporation, as
the case may be, was so obligated.
Section 5.05. Employee Benefits. FBA shall, with respect to each person
------------ -----------------
who remains an employee of Bancorp or any Subsidiary following the Closing Date
(each a "Continued Employee"), provide the benefits described in this Section
5.05. Subject to the right of subsequent amendment, modification or termination
in FBA's sole discretion, each Continued Employee shall be entitled, as a new
employee of a subsidiary of FBA, to participate in such employee benefit plans,
as defined in Section 3(3) of ERISA, or any non-qualified employee benefit plans
or deferred compensation, stock option, bonus or incentive plans, or other
employee benefit or fringe benefit programs that may be in effect generally for
employees of all of FBA's subsidiaries (the "FBA Plans"), if and as a Continued
Employee shall be eligible and, if required, selected for participation therein
under the terms thereof and otherwise shall not be participating in a similar
plan which is maintained by the Bancorp or a Subsidiary after the Effective
Time. Bancorp employees shall participate therein on the same basis as
similarly situated employees of other subsidiaries of FBA. All such
participation shall be subject to the terms of such plans as may be in effect
from time to time, and this Section 5.05 is not intended to give Continued
Employees any rights or privileges superior to those of other employees of
22
<PAGE>
subsidiaries of FBA. FBA may terminate or modify all Employee Plans, and FBA's
obligation under this Section 5.05 shall not be deemed or construed so as to
provide duplication of similar benefits but, subject to that qualification, FBA
shall, for purposes of vesting and any age or period of service requirements for
commencement of participation with respect to any FBA Plans in which Continued
Employees may participate, credit each Continued Employee with his or her term
of service with Bancorp and the Subsidiaries.
Section 5.06. Payment for Stock Options and Warrants. (a) Any Bancorp
------------ --------------------------------------
Stock Options and Bancorp Warrants outstanding immediately prior to the
Effective Time may be exercised and surrendered to Bancorp at the Closing, and
FBA shall permit Bancorp to pay the holder of each such option and warrant
having an exercise price of less than $4.00 per share of Bancorp Common an
amount equal to the difference between $4.00 per share and the applicable per
share exercise price of such Stock Option (without the necessity of the tender
of the exercise price of such Stock Option by such holder thereof).
(b) Bancorp and FBA shall cooperate in arranging for the disposition of
all Bancorp Warrants having an exercise price of $4.00 or more per share of
Bancorp Common. FBA will agree to pay or permit Bancorp to pay up to twenty-
five cents ($0.25) per share, or fifty cents ($0.50) per warrant, to redeem such
outstanding warrants from any holders who desire to dispose of same.
Section 5.07. Access to Information. FBA shall permit Bancorp reasonable
------------ ---------------------
access in a manner which will avoid undue disruption or interference with FBA's
normal operations to its properties and shall disclose and make available to
Bancorp all books, documents, papers and records relating to its operations,
obligations and liabilities, including, but not limited to, minute books of
directors' and stockholders' meetings, organizational documents, material
contracts and agreements, filings with any regulatory authority, plans affecting
employees, and any other business activities or prospects in which Bancorp may
have a reasonable and legitimate interest in furtherance of the transactions
contemplated by this Agreement. Bancorp will hold any such information which is
nonpublic in confidence in accordance with the provisions of Section 9.01
hereof.
Section 5.08. Proxy Statement. FBA will cooperate with Bancorp in the
------------ ---------------
preparation and filing of the Proxy Statement and furnish to Bancorp all
financial and other information concerning FBA and its affiliates which is
required for the preparation and filing of the Proxy Statement.
23
<PAGE>
ARTICLE SIX
CONDITIONS PRECEDENT TO MERGER
Section 6.01. Conditions to Obligations of FBA and Holdings. The
------------ ---------------------------------------------
obligations of FBA and Holdings to effect the Merger and the other transactions
contemplated by this Agreement shall be subject to the satisfaction (or waiver
by FBA and Holdings) prior to or on the Closing Date of the following
conditions:
(a) The representations and warranties made by Bancorp in this Agreement
shall be true in all material respects on and as of the Closing Date with the
same effect as though such representations and warranties had been made or given
on and as of the Closing Date;
(b) Bancorp shall have performed and complied in all material respects with
all of its obligations and agreements required to be performed prior to the
Closing Date under this Agreement;
(c) No temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger shall be in
effect, nor shall any proceeding by any regulatory authority or other person
seeking any of the foregoing be pending. There shall not be any action taken,
or any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger which makes the consummation of the Merger illegal;
(d) All necessary approvals, consents and authorizations required by law
for consummation of the Merger, including the requisite approval of the
shareholders of Bancorp and all required regulatory approvals, shall have been
obtained, and all waiting periods required by law shall have expired;
(e) FBA shall have received the environmental reports required by Section
4.05 hereof and shall not have elected pursuant to Section 7.05 hereof to
terminate this Agreement;
(f) FBA shall have received all documents required to be received from
Bancorp on or prior to the Closing Date, all in form and substance reasonably
satisfactory to FBA;
(g) Shareholders of Bancorp Common owning no more than twenty percent (20%)
of the outstanding Bancorp Common shall have perfected the right to dissent from
the Merger; and
(h) The Bancorp Financial Statements shall not be inaccurate in any
material respect.
24
<PAGE>
Section 6.02. Conditions to Bancorp's Obligations. Bancorp's obligation
------------ -----------------------------------
to effect the Merger and the other transactions contemplated by this Agreement
shall be subject to the satisfaction (or waiver by Bancorp) prior to or on the
Closing Date of the following conditions:
(a) The representations and warranties made by FBA in this Agreement shall
be true in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made or given on
the Closing Date;
(b) FBA shall have performed and complied in all material respects with all
of its obligations and agreements hereunder required to be performed prior to
the Closing Date under this Agreement;
(c) No temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger shall be in
effect, nor shall any proceeding by any bank regulatory authority or other
person seeking any of the foregoing be pending. There shall not be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger which makes the consummation of the Merger or
the other transactions contemplated hereby illegal;
(d) All necessary approvals, consents and authorizations required by law
for consummation of the Merger, including the requisite approval of the
shareholders of Bancorp and all required regulatory approvals, shall have been
obtained, and all waiting periods required by law shall have expired;
(e) Bancorp shall have received all documents required to be received from
FBA on or prior to the Closing Date, all in form and substance reasonably
satisfactory to Bancorp;
(f) Bancorp shall have obtained within thirty (30) days after the date of
this Agreement a fairness opinion of Bancorp's financial advisor to the effect
that the Merger is fair to the shareholders of Bancorp from a financial point of
view, and such fairness opinion shall not have been withdrawn by such financial
advisor on or before the date of mailing of the Proxy Statement to the
shareholders of Bancorp; and
(g) All documents relating to the procedures for surrender and exchange of
certificates representing shares of Bancorp Common, including the Exchange
Agreement, shall be reasonably satisfactory to Bancorp.
25
<PAGE>
ARTICLE SEVEN
TERMINATION OR ABANDONMENT
Section 7.01. Mutual Agreement. This Agreement may be terminated by the
------------ ----------------
mutual written agreement of the parties at any time prior to the Closing Date,
regardless of whether shareholder approval of this Agreement and the Merger by
the shareholders of Bancorp shall have been previously obtained.
Section 7.02. Breach of Agreements. In the event that there is a material
------------ --------------------
breach in any of the representations and warranties or agreements of FBA or
Bancorp, which breach is not cured within twenty (20) days after notice to cure
such breach is given to the breaching party by the non-breaching party, then the
non-breaching party, regardless of whether shareholder approval of this
Agreement and the Merger shall have been previously obtained, may terminate and
cancel this Agreement by providing written notice of such action to the other
party hereto.
Section 7.03. Failure of Conditions. In the event that any of the
------------ ---------------------
conditions to the obligations of either party are not satisfied or waived on or
prior to the Closing Date, and if any applicable cure period provided in Section
7.02 hereof has lapsed, then such party may, regardless of whether shareholder
approval of the transactions contemplated by this Agreement shall have been
previously obtained, terminate and cancel this Agreement by delivery of written
notice of such action to the other party.
Section 7.04. Approval Denial. If any regulatory application filed
------------ ---------------
pursuant to Section 5.01 hereof should be finally denied or disapproved by a
regulatory authority, then this Agreement thereupon shall be deemed terminated
and canceled; provided, however, that a request for additional information or
undertaking by FBA, as a condition for approval, shall not be deemed to be a
denial or disapproval so long as FBA diligently provides the requested
information or undertaking. In the event an application is denied pending an
appeal, petition for review, or similar such act on the part of FBA (hereinafter
referred to as the "Appeal") then the application will be deemed denied unless
FBA prepares and timely files an Appeal and continues the appellate process for
purposes of obtaining the necessary approval.
Section 7.05. Environmental Reports. FBA may terminate this Agreement to
------------ ---------------------
the extent provided in Section 4.05 and this Section 7.05 by giving written
notice to Bancorp.
Section 7.06. Regulatory Enforcement Matters. In the event that Bancorp
------------ ------------------------------
or any Subsidiary shall become a party or subject to any new or amended written
agreement, memorandum of understanding, cease and desist order, order seeking or
imposing civil money penalties or other written regulatory enforcement action or
formal legal proceeding of any federal or state agency charged with the
supervision or regulation of banks or bank holding companies after the date of
this Agreement, then FBA may terminate this Agreement.
26
<PAGE>
Section 7.07. Automatic Termination. If the Closing Date does not occur
------------ ---------------------
on or prior to February 28, 1997, then this Agreement may be terminated by
either party by giving written notice to the other.
ARTICLE EIGHT
LIABILITY ON TERMINATION
Section 8.01. Liquidated Damages. (a)(1) In the event that the
------------ ------------------
conditions set forth in Section 6.02 have been satisfied and (i) Bancorp fails
to consummate the Merger following the receipt of notice from FBA that FBA has
obtained all required regulatory approvals and is prepared to consummate the
Merger in accordance with the terms of this Agreement; (ii) the Board of
Directors of Bancorp fails to make the recommendation contemplated by Section
4.03 or withdraws or modifies such recommendation in a manner adverse to FBA
(whether or not such failure, withdrawal or modification is excused by the last
clause of Section 4.03); or (iii) Bancorp takes any action in breach of any
provision of this Agreement which prevents the consummation of the Merger, then
Bancorp shall, within two (2) business days following the receipt of a written
demand from FBA, pay to FBA in immediately available funds the sum of one
million dollars ($1,000,000) as liquidated damages. Payment under this Section
8.01(a)(1) shall discharge any obligation under Section 8.01(a)(2).
(2) In the event that Section 8.01(a)(1) is inapplicable solely because
the approval of the Merger by Bancorp's shareholders has not been obtained (but
the other conditions in Section 6.02 have been satisfied), and a Triggering
Event (as defined in the following sentence) has occurred, then Bancorp shall,
within two (2) business days following the receipt of a written demand from FBA,
pay to FBA in immediately available funds the sum of one million dollars
($1,000,000) as liquidated damages. As used herein, the term "Triggering Event"
means the consummation of any transaction announced before or within one (1)
year following the termination of this Agreement and consummated within two (2)
years after such termination, whereby a third party has acquired, merged or
consolidated with Bancorp, purchased all or a substantial part of the assets of
Bancorp or directly or indirectly acquired beneficial ownership of forty percent
(40%) or more of the outstanding shares of voting stock of Bancorp. Payment
under this Section 8.01(a)(2) shall discharge any obligation under Section
8.01(a)(1).
(b) In the event that the conditions set forth Section 6.01 have been
satisfied and (i) FBA fails to consummate the Merger following the receipt of
notice from Bancorp that Bancorp is prepared to do so in accordance with the
terms of this Agreement; or (ii) FBA takes any action in breach of any provision
of this Agreement which prevents the consummation of the Merger, then FBA shall,
within two (2) business days following the receipt of a written demand from
Bancorp, pay to Bancorp in immediately available funds the sum of one million
dollars ($1,000,000) as liquidated damages.
27
<PAGE>
Section 8.02. Liability on Termination. In the event that this Agreement
------------ ------------------------
is terminated or the Merger is abandoned pursuant to Section 7.02 and Section
8.01 is inapplicable, then the non-breaching party shall be entitled to
institute an action for appropriate damages against the breaching party.
ARTICLE NINE
GENERAL
Section 9.01. Confidential Information. The parties acknowledge the
------------ ------------------------
confidential and proprietary nature of the "Information" (as herein described)
which has heretofore been exchanged and which will be received from each other
hereunder and agree to hold and keep the same confidential. Such Information
will include any and all financial, technical, commercial, marketing, customer
or other information concerning the business, operations and affairs of a party
that may be provided to the other, irrespective of the form of the
communications, by such party's employees or agents. Such Information shall not
include information which is or becomes generally available to the public other
than as a result of a disclosure by a party or its representatives in violation
of this Agreement. The parties agree that the Information will be used solely
for the purposes contemplated by this Agreement and that such Information will
not be disclosed to any person other than employees and agents of a party who
are directly involved in evaluating the transaction. The Information shall not
be used in any way detrimental to a party, including use directly or indirectly
in the conduct of the other party's business or any business or enterprise in
which such party may have an interest, now or in the future, and whether or not
now in competition with such other party.
Section 9.02. Publicity. FBA and Bancorp shall cooperate with each other
------------ ---------
in the development and distribution of all news releases and other public
disclosures concerning this Agreement and the Merger. Neither party shall issue
any news release or make any other public disclosure without the prior consent
of the other party, unless such is required by law upon the written advice of
counsel or is in response to published newspaper or other mass media reports
regarding the transaction contemplated hereby, in which latter event the parties
shall consult with each other to the extent practicable regarding such
responsive public disclosure.
Section 9.03. Return of Documents. Upon termination of this Agreement
------------ -------------------
without the Merger becoming effective, each party shall deliver to the other
originals and all copies of all Information made available to such party and
will not retain any copies, extracts or other reproductions, in whole or in
part, of such Information.
Section 9.04. Notices. Any notice or other communication shall be in
------------ -------
writing and shall be deemed to have been given or made on the date of delivery,
in the case of hand delivery, or three (3) business days after deposit in the
United States Registered Mail, postage prepaid, or upon receipt if transmitted
by facsimile telecopy or any other means, addressed (in any case) as follows:
28
<PAGE>
(a) if to FBA: First Banks America, Inc. c/o First Banks, Inc.
11901 Olive Boulevard
Creve Coeur, MO 63141
Attention: Mr. Allen H. Blake
Facsimile: (314) 567-3490
with a copy to: John S. Daniels
Attorney at Law
8117 Preston Road, Suite 800
Dallas, Texas 75225
Facsimile: (214) 692-0508
If to Holdings: Sunlight Holdings, Inc.
1325 Airmotive Way, Suite 130
Reno, Nevada 89502
with a copy to: John S. Daniels
Attorney at Law
8117 Preston Road, Suite 800
Dallas, Texas 75225
Facsimile: (214) 692-0508
(b) if to Bancorp: Harold G. Giomi, President and CEO
Sunrise Bancorp
Five SierraGate Plaza
Roseville, California 95678
Facsimile: (916) 783-2650
with a copy to: Victor J. Bacigalupi, Esquire
Bronson, Bronson & McKinnon LLP
505 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 982-1394
or to such other address as any party may from time to time designate by notice
to the others.
Section 9.05. Nonsurvival of Representations, Warranties and Agreements.
------------ ---------------------------------------------------------
Except for and as provided in this Section 9.05, no representation, warranty or
agreement contained in this Agreement shall survive the Closing Date or the
earlier termination of this Agreement. The agreements set forth in Sections
5.04, 5.05 and 5.06 shall survive the Closing Date and the agreements set forth
in Sections 8.01, 8.02, 9.01, 9.03 and 9.13 shall survive the Closing Date or
the earlier termination of this Agreement.
29
<PAGE>
Section 9.06. Costs and Expenses. Except as may be otherwise provided
------------- ------------------
herein, each party shall pay its own costs and expenses incurred in connection
with this Agreement and the matters contemplated hereby, including without
limitation all fees and expenses of attorneys, accountants, brokers, financial
advisors and other professionals.
Section 9.07. Entire Agreement. This Agreement, the Guarantee and the
------------ ----------------
Proxies together constitute the entire agreement among the parties and
supersede and cancel any and all prior discussions, negotiations, undertakings,
agreements in principle and other agreements between the parties relating to the
subject matter hereof.
Section 9.08. Headings and Captions. The captions of Articles and
------------ ---------------------
Sections hereof are for convenience only and shall not control or affect the
meaning or construction of any of the provisions of this Agreement.
Section 9.09. Waiver, Amendment or Modification. The conditions of this
------------ ---------------------------------
Agreement which may be waived may only be waived by written notice to the other
party waiving such condition. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect the right
at a later time to enforce the same. This Agreement may not be amended or
modified except by a written document duly executed by the parties hereto;
provided, however, that after approval of this Agreement and the Merger by the
shareholders of Bancorp, no amendment shall be made which is required by law to
be approved by such shareholders without such further approval.
Section 9.10. Rules of Construction. Unless the context otherwise
------------ ---------------------
requires: (a) a term has the meaning assigned to it; (b) an accounting term not
otherwise defined has the meaning assigned to it in accordance with generally
accepted accounting principles; (c) "or" is not exclusive; and (d) words in the
singular may include the plural and in the plural include the singular.
Section 9.11. Counterparts. This Agreement may be executed in two or more
------------ ------------
counterparts, each of which shall be deemed an original and all of which shall
be deemed one and the same instrument.
Section 9.12. Successors and Assigns. This Agreement shall be binding
------------ ----------------------
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Except following the consummation of the Merger as
provided in Sections 5.04, 5.05 and 5.06, there shall be no third party
beneficiaries hereof. Except as provided in Section 1.01, this Agreement shall
not be assigned by either party, by operation of law or otherwise, without the
prior written consent of the other party.
Section 9.13. Governing Law; Assignment. This Agreement shall be governed
------------ -------------------------
by the laws of the State of Delaware and any applicable federal laws and
regulations.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
SUNRISE BANCORP
By: /s/ Harold G. Giomi
____________________________________
Harold G. Giomi
President and CEO
By: /s/ Sean E. McCarthy
____________________________________
Sean E. McCarthy
Chairman of the Board of Directors
FIRST BANKS AMERICA, INC.
By: /s/ Allen H. Blake
____________________________________
Allen H. Blake
Vice President
SUNLIGHT HOLDINGS, INC.
By: /s/ Allen H. Blake
____________________________________
Allen H. Blake
Vice President
31
<PAGE>
Exhibit 1.06(a)
_______________, 1996
First Banks America, Inc.
c/o First Banks, Inc.
11901 Olive Boulevard
Creve Coeur, MO 63141
Gentlemen:
We have acted as counsel to Sunrise Bancorp, a California corporation
("Bancorp") and Sunrise Bank of California, a California banking corporation
(the "Bank"), in connection with the merger of Bancorp with and into
___________________________ ("AcquisitionCo") pursuant to that certain Agreement
of Merger dated as of ________, 1996, between Bancorp and AcquisitionCo (the
"Merger Agreement") and that certain Agreement and Plan of Merger dated as of
June 24, 1996 (the "Agreement") by and between Bancorp and First Banks America,
Inc., a Delaware corporation ("FBA"). The Merger Agreement and the Agreement are
collectively referred to herein as the "Agreements."
This opinion is delivered to you pursuant to Section 1.06(a)(v) of the
Agreement. All capitalized terms used herein shall, unless otherwise defined
herein or the context otherwise requires, have the meanings assigned to them in
the Agreement.
In our capacity as counsel to Bancorp and the Bank, we have examined
such corporate instruments, documents, proceedings and certificates of corporate
officers as we have deemed appropriate in rendering the opinions set forth
below. We have assumed the authenticity of all documents submitted to us as
originals and the conformity to original documents of all documents submitted to
us as copies. We have also assumed, without investigation, the accuracy of
representations and statements as to factual matters made to us by the officers
and employees of Bancorp and the Bank and the accuracy of statements by
government officials, and that FBA's representations made in the Agreement are
true and accurate.
As used in our opinions herein, the expression "to the best of our
knowledge" or "to our knowledge" means that solely after an inquiry of attorneys
in this firm who perform legal services for Bancorp and the Bank, receipt of a
certificate executed by one or more officers and/or directors of Bancorp and the
Bank covering such matters as are encompassed by our opinions, and such other
investigation, research and review as we have performed in the course of our
services for Bancorp and the Bank in connection with the preparation of the
<PAGE>
First Banks America, Inc.
__________________,1996
Page 2
Agreements, no information has come to the attention of the attorneys in this
firm who have rendered legal services in connection with this transaction which
would give us current actual knowledge that our opinions are incorrect, but
beyond that, we have made no independent factual investigation for the purpose
of rendering the opinions. No inference as to our knowledge of any matters
bearing on the accuracy of such information should be drawn from the fact of our
representation of Bancorp and the Bank in other matters in which such attorneys
are not involved.
Our opinions are subject to the following qualifications:
Our opinion in paragraph (e) below is subject to (a) the effect of
bankruptcy, insolvency, reorganization, moratorium and other similar laws now or
hereafter in effect affecting creditors' rights; and (b) general principles of
equity, including, without limitation, the effect of federal or state laws,
rules or regulations and court decisions upon the enforceability of the remedies
provisions contained in the Agreements and the effect of court decisions which
have held that certain covenants and provisions of agreements are unenforceable
where: (i) the breach of such covenants or provisions imposes restrictions or
burdens upon a party and it cannot be demonstrated that the enforcement of such
restrictions or burdens is reasonably necessary for the protection of the other
party; (ii) a party's enforcement of such covenants or provisions under the
circumstances would violate such party's implied covenants of good faith and
fair dealing; or (iii) the effect of statutes and rules of law which cannot be
waived prospectively by an obligor.
1. In making our examination of documents and instruments executed by
persons or entities other than Bancorp and the Bank, we have assumed, without
investigation, the power and legal capacity of each such person or other entity
to enter into and perform all its obligations under such documents and
instruments, the due authorization by each such other person or entity of such
documents and instruments, and the due execution and delivery by each such other
person or entity of such documents and instruments.
2. As used in our opinions, the term "material" means material to the
assets, properties, business, or financial condition of Bancorp and the Bank,
taken as a whole.
<PAGE>
First Banks America, Inc.
__________________, 1996
Page 3
3. Our opinions are subject to and qualified by the items listed in the
Disclosure Schedule delivered by Bancorp to FBA pursuant to the Agreement. We
express no opinion regarding the accuracy, completeness or correctness of any
matter contained or described in the Disclosure Schedule and the effect,
individually and/or in the aggregate, upon the transactions contemplated
pursuant to the Agreements or upon any opinion given herein by us with respect
to any matter affected by the Disclosure Schedule and the content thereof,
including, without limitation, any misstatements or omissions relating
thereto.
4. Our opinions are limited to the matters expressly set forth in this
opinion letter, and no opinion is to be implied or may be inferred beyond the
matters expressly so stated.
5. This opinion letter relates only to events that exist as of the date
hereof. We disclaim any obligation to update this opinion letter for any
events, and any changes in law or the interpretation thereof, occurring after
the date of this opinion letter.
6. Our opinions relating to the valid issuance (and consequently the due
authorization) of the outstanding shares of Bancorp and Bank common stock are
based solely on representations by Bancorp and the Bank to us, as to which we
have made no independent review, inquiry or analysis.
7. We have not verified, and are not passing upon and do not assume any
responsibility for, the accuracy, completeness, or fairness of the statements
contained in Bancorp filings with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended.
Based upon and subject to the foregoing, we are of the opinion that:
(a) Bancorp is a bank holding company registered under the Bank
Holding Company Act of 1956, as amended. The Bank is a California State-
chartered commercial bank. Each of Bancorp and the Bank is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California.
(b) Each of Bancorp and the Bank has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted.
(c) The authorized, issued and outstanding capital stock of Bancorp
conforms to the description thereof contained in Section 2.01(b) of the
Agreement. All shares of Bancorp capital stock outstanding as of the
Closing (including shares issued pursuant to the exercise of stock options
or warrants) are validly issued, fully paid and
<PAGE>
First Banks America, Inc.
__________________, 1996
Page 4
nonassessable and not subject to any preemptive rights. To the best of
our knowledge, other than as described in Section 2.01(b) of the Agreement,
there are no options, warrants, calls, rights, commitments or agreements
obligating Bancorp or the Bank to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or any voting
debt securities of Bancorp or the Bank or obligating Bancorp or the Bank to
grant, extend or enter into any such option, warrant, call, right,
commitment or agreement. To the best of our knowledge, there are no
outstanding contractual obligations of Bancorp or the Bank to repurchase,
redeem or otherwise acquire any shares of capital stock of Bancorp or the
Bank.
(d) The Bank has fifty (50) shares of common stock, no par value,
issued and outstanding. All of the outstanding shares of common stock of,
and all other ownership interests in, the Bank (i) are validly issued,
fully paid and, except as provided in the California Financial Code,
nonassessable and free of any preemptive rights, and (ii) to the best of
our knowledge, are owned of record and beneficially by Bancorp free and
clear of all liens, claims, pledges, agreements, voting or other
restrictions, charges or other encumbrances. To our knowledge, there are
no outstanding or authorized options, warrants, calls, rights, commitments
or agreements of any character to which the Bank is a party or by which it
is bound obligating the Bank to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of its capital stock or any
voting debt securities of the Bank or obligating it to grant, extend or
enter into any such option, warrant, call, right, commitment or agreement.
(e) Bancorp has all requisite corporate power and authority to enter
into the Agreements and to consummate the transactions contemplated
thereby. The execution and delivery of the Agreements and the consummation
of the transactions contemplated thereby have been duly authorized by all
necessary corporate action on the part of Bancorp. The Agreements have
been duly executed and delivered by Bancorp and each constitutes a valid
and binding obligation of Bancorp.
(f) The execution of the Agreement by Bancorp and the consummation
of the Merger and the other transactions contemplated in the Agreement do
not violate or cause a default under the articles of incorporation or
bylaws of Bancorp or, to the best of our knowledge, any statute, regulation
or rule or any judgment, order or decree against or any material agreement
binding upon Bancorp.
(g) All consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any governmental entity
required to be made, obtained or given by Bancorp or the Bank, for the
execution and delivery of the Agreements by Bancorp or the consummation by
Bancorp of the transactions contemplated by the
<PAGE>
First Banks America, Inc.
- ------------------, 1996
Page 5
Agreement, have, as appropriate, been made, obtained or given, except for
those consents, approvals, orders or authorizations of, or registrations,
declarations or filings with any governmental entity, the failure to obtain
which would not be likely to have a material adverse effect.
(h) To our knowledge, there are no material actions, suits,
proceedings, orders, investigations or claims pending or threatened against
or affecting Bancorp or the Bank which, if adversely determined, would have
a material adverse effect upon the properties or assets of Bancorp and the
Bank, taken as a whole, or the transactions contemplated by the Agreement.
(i) To our knowledge, except as disclosed in documents filed by
Bancorp with the Commission prior to the date of the Agreement or as
disclosed in the Disclosure Schedule, the business of Bancorp and the Bank
is not being conducted in violation of any law, ordinance or regulation of
any governmental entity where such violation has had, or is reasonably
likely to have, a material adverse effect. Except for routine examinations
by bank regulatory agencies, and except as set forth in the Disclosure
Schedule, to our knowledge, no investigation by any governmental entity
with respect to Bancorp or the Bank is pending or threatened which is
reasonably likely to have a material adverse effect.
We are members of the State Bar of the State of California and we do not
express any opinion herein concerning any law other than the law of the State of
California and the federal law of the United States.
This opinion letter is intended solely for your benefit and is not to be
relied upon by any other person or entity. This opinion letter may not be
furnished by you to any other person or entity, or quoted by you in any
document, instrument or other writing, without our prior written consent.
Very truly yours,
JXM/eps
<PAGE>
EXHIBIT 1.06(b)
, 1996
----------------------- ----
Sunrise Bancorp
Five SierraGate Plaza
Roseville, California 95678
Gentlemen:
I have acted as counsel for First Banks America, Inc., a Delaware
corporation ("FBA"), in connection with the Agreement and Plan of Merger dated
June __, 1996 by and between Sunrise Bancorp, a California corporation
("Bancorp"), and FBA (the "Agreement"), and the Merger Agreement dated
_________________ ___, 1996 by and between Bancorp and _______________________,
a ___________ corporation ("AcquisitionCo") (the "Merger Agreement").
Capitalized terms which are used in this letter, but not defined herein, are
intended to have the meanings assigned to such terms in the Agreement, except as
otherwise indicated herein.
In reaching the conclusions expressed in this opinion, I have examined and
relied upon such documents, corporate records and other instruments, including
certificates of public officials and officers of FBA and AcquisitionCo, and I
have made such further investigation and inquiry relevant to the Agreement and
the Merger Agreement as I have deemed necessary to the opinions expressed
herein. I have assumed that all signatures on all documents submitted to me are
genuine, that all documents submitted to me as originals are accurate and
complete, and that all documents submitted to me as copies are true, correct and
complete copies of the originals thereof. With regard to factual matters that
relate to the opinions expressed herein, I have not undertaken any independent
inquiry to determine the existence or accuracy of such facts but have relied
solely upon the documents referred to in the first sentence of this paragraph,
and I have further assumed that the representations and warranties set forth in
Article III of the Agreement are true and correct.
As used herein, the phrase "to the best of my knowledge" means that, solely
as a result of the legal services that I have provided to FBA and AcquisitionCo
and without conducting any independent factual investigation for the purpose of
the Agreement, the Merger Agreement or the opinions expressed herein, no
information has come to my attention that has given me current actual knowledge
that the opinions expressed herein are incorrect.
Based solely on the foregoing, subject to the comments and exceptions
hereinafter stated, and limited in all respects to the general corporation laws
of the State of Delaware, the laws of the State of Texas and the United States
of America, it is my opinion that:
<PAGE>
Sunrise Bancorp
, 1996
- ----------------------- ----
Page 2
1. FBA and AcquisitionCo are corporations duly organized, validly existing
and in good standing under the laws of the states of their incorporation,
Delaware and _____________________, respectively. FBA has the requisite
corporate power and authority to enter into the Agreement and to consummate the
transactions contemplated thereby, and AcquisitionCo has the requisite corporate
power and authority to enter into the Merger Agreement and to consummate the
transactions contemplated thereby.
2. The execution, delivery and performance of the Agreement have been duly
authorized by all requisite corporate action on the part of FBA, and the
execution, delivery and performance of the Merger Agreement have been duly
authorized by all requisite corporate action on the part of AcquisitionCo. The
Agreement has been duly executed and delivered by FBA, and the Merger Agreement
has been duly executed and delivered by AcquisitionCo. The Agreement
constitutes the valid and binding obligation of FBA, and the Merger Agreement
constitutes the valid and binding obligation of AcquisitionCo, in each case
enforceable against such corporation in accordance with its terms, except as (i)
enforcement thereof may be limited by bankruptcy, insolvency, moratorium,
reorganization, fraudulent conveyance, or other similar laws affecting
creditors' rights generally or the availability of equitable remedies; and (ii)
any forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which proceedings therefor may be brought.
3. Neither the execution or delivery of the Agreement by FBA nor the
consummation of the transactions contemplated therein, nor the execution or
delivery of the Merger Agreement by AcquisitionCo nor the consummation of the
transactions contemplated therein, conflicts with, results in a breach of,
constitutes a default under, results in the acceleration of or creates in any
party the right to accelerate, terminate, modify or cancel, or violates, any
provision in the respective Certificates of Incorporation or By-laws of FBA or
AcquisitionCo or any statute, regulation or rule or, to the best of my
knowledge, any judgment, order or decree binding upon FBA or AcquisitionCo.
4. Except as have been obtained, filed or given, there are, to the best of
my knowledge, no consents, approvals, orders or authorizations of, or
registrations, declarations or filings with or notices to, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, or any other person or entity required to
be obtained, filed or given by FBA or AcquisitionCo in connection with the
execution and delivery of the Agreement or the Merger Agreement or the
consummation of the transactions contemplated thereby.
The opinions expressed herein are based on the law in effect on the date
hereof, and I do not assume any obligation hereby to revise, supplement or
update such opinions in the future.
<PAGE>
Sunrise Bancorp
, 1996
- ----------------------- ----
Page 3
This opinion is provided to you solely for the purpose of complying with
Section 1.06(b)(iii) of the Agreement and, without my prior written consent,
this opinion may not be quoted in whole or in part or otherwise referred to in
any report or document or furnished to any person or entity other than your
counsel, except in response to a valid subpoena or other lawful process.
Sincerely,
John S. Daniels
<PAGE>
EXHIBIT 2.23
June ___, 1996
First Banks America, Inc.
c/o First Banks America, Inc.
11901 Olive Boulevard
Creve Coeur, Missouri 63141
Attention.: Mr. Allen H. Blake
Gentlemen:
This letter sets forth the agreement between the undersigned, a member of
the Board of Directors of Sunrise Bancorp, Inc., a California corporation
("Bancorp"), First Banks America, Inc., a Delaware corporation ("FBA") and
Bancorp. This agreement (the "Agreement") is entered into concurrently with the
Agreement and Plan of Merger of even date herewith by and between Bancorp and
FBA (the "Merger Agreement"). Capitalized terms which are used but not defined
herein shall have the meanings assigned to such terms in the Merger Agreement,
unless the context otherwise requires.
FBA desires to obtain the proxies of all of the directors of Bancorp in
consideration of the time, effort, money and resources which FBA has expended
and will expend in furtherance of the Merger. The undersigned director
acknowledges that FBA's agreement to the terms and provisions of the Merger
Agreement is conditioned on the execution of this Agreement by all of the
directors of Bancorp including the undersigned and that, in the absence of this
Agreement, FBA would not execute the Merger Agreement. The undersigned is
executing this Agreement in order to induce FBA to enter into the Merger
Agreement and to obtain as a shareholder of Bancorp the benefits of the Merger.
Section 4.03 of the Merger Agreement provides in part that "[t]he Board of
Directors of Bancorp shall unanimously recommend to its shareholders the
approval of the Agreement and the Merger, mail the Proxy Statement to its
shareholders, and use its best efforts to obtain such shareholder approval;
provided, however, that the Board of Directors of Bancorp shall not be obligated
to make such recommendation or use its best efforts to obtain shareholder
approval if, having consulted and considered the advice of outside legal
counsel, the Board has reasonably determined in good faith that the making of
such recommendation would constitute a breach of the fiduciary duties of the
members of the Board of Directors under applicable law." The undersigned
agrees that, subject to the final clause of such Section 4.03, he will join in
unanimously recommending the approval of the Merger Agreement and the Merger and
use his best efforts to cause Bancorp to comply with the provisions of such
Section which are applicable to Bancorp.
The undersigned represents and warrants to FBA that (1) he has the power to
vote the number of shares of Bancorp Common identified on Exhibit A to this
Agreement, and (2) this
<PAGE>
First Banks America, Inc.
June __, 1996
Page 2
Agreement is a legal, valid and binding obligation of such director, enforceable
against him in accordance with its terms (except as may be limited by
bankruptcy, insolvency or similar laws or by general principles of equity). In
order to secure the performance of the duties undertaken herein, the undersigned
hereby appoints _______________________________, ___________________________ and
_____________________________, and each of them individually, as proxies,
attorneys and agents of the undersigned, with full power of substitution, to
vote in the name and on behalf of the undersigned for the approval of the
Merger, and against any other proposal relating to the acquisition or change in
control of Bancorp, at all meetings of shareholders of Bancorp (including all
adjournments thereof) and to exercise, in the name of the undersigned, the
power to consent to actions of the shareholders in approving the Merger and
against any other proposal relating to the acquisition or change in control of
Bancorp with respect to all the shares of Bancorp Common which the undersigned
would be entitled to vote or consent if personally present (including all of the
shares identified on Exhibit A), with all the powers the undersigned would
possess if he were voting such shares.
The proxy granted herein is irrevocable during the term of this Agreement,
which shall commence on the date hereof and end on the earlier to occur of the
Effective Time or February 28, 1997. For so long as this Agreement is in
effect, the undersigned agrees that he will not sell, transfer, assign or
otherwise dispose of any of the shares of Bancorp Common to which this Agreement
applies, nor will he grant any other proxy to any person other than FBA.
Bancorp represents to FBA that it has no reason to believe that any
provision of this Agreement is unenforceable or that any person other than the
undersigned director has any right to vote the shares of Bancorp Common
identified on Exhibit A, and Bancorp joins in this Agreement for the purpose of
evidencing (1) its knowledge of the terms hereof and (2) its agreement that it
will recognize the validity of the proxies granted herein at any meeting of the
shareholders held during the term hereof.
This Agreement may not be amended except by a written instrument executed
by all of the parties hereto. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
be deemed one and the same instrument.
<PAGE>
First Banks America, Inc.
June __, 1996
Page 3
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
---------------------------------------
[Director]
FIRST BANKS AMERICA, INC.
By:
----------------------------------------
Allen H. Blake
Vice President
SUNRISE BANCORP, INC.
By:
--------------------------------------
Harold G. Giomi
President and CEO
<PAGE>
EXHIBIT A
CERTIFICATE NUMBER NUMBER OF SHARES
<PAGE>
EXHIBIT 3.06
FIRST BANKS, INC.
135 North Meramec
Clayton, Missouri 63105
August ___, 1996
Sunrise Bancorp
Five SierraGate Plaza
Roseville, California 95678
Gentlemen:
This letter is delivered to Sunrise Bancorp concurrently with the execution
and delivery by First Banks America, Inc., a Delaware corporation ("FBA"), of
the Amended and Restated Agreement and Plan of Merger of even date herewith by
and among Sunrise Bancorp, a California corporation ("Bancorp"), FBA and
Sunlight Holdings, Inc., a Nevada corporation (the "Amended Agreement").
Capitalized terms which are used but not defined herein are intended to have the
meanings assigned to them in the Amended Agreement, unless otherwise stated
herein.
The Amended Agreement contemplates that Bancorp will merge into Holdings,
and that Holdings will be the surviving corporation of the Merger. Holdings is
a wholly-owned subsidiary of FBA. FBA and First Banks, Inc. intend that, at the
Effective Time, Holdings will continue to be a wholly-owned subsidiary of FBA,
in which case FBA will provide the Merger Consideration. If, however, First
Banks, Inc. determines that regulatory approval of the Merger with the foregoing
structure is not likely to be obtained, or if such approval is denied, then
First Banks, Inc. intends to seek the approval of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") for First Banks, Inc.,
rather than FBA, to acquire Bancorp. In that event, if the Merger is then
approved by the Federal Reserve Board, FBA and First Banks, Inc. will cause the
ownership of Holdings to be transferred from FBA to First Banks, Inc., and First
Banks, Inc. will pay the Merger Consideration.
In light of the foregoing, Bancorp has requested that First Banks, Inc.
agree, and First Banks, Inc. hereby agrees, as follows:
In order to induce Bancorp to execute and deliver the Amended
Agreement, First Banks, Inc. hereby unconditionally guarantees to Bancorp,
for the benefit of Bancorp and its shareholders, that: (1) First Banks,
Inc. will diligently seek the approval of the Federal Reserve Board for the
acquisition of Bancorp by FBA or, if that approval is determined by First
Banks, Inc. to be unlikely to be obtained or is denied, by First Banks,
Inc.; (2) if FBA becomes obligated to pay the Merger Consideration pursuant
to Section 1.03 of the Amended Agreement, FBA will do so, and if FBA fails
to do so, First Banks, Inc. will pay the Merger Consideration to the
44
<PAGE>
shareholders of Bancorp; and (3) if First Banks, Inc. determines that
regulatory approval of the Merger is unlikely to be obtained or if such
approval is denied, in either case because the Federal Reserve Board does
not approve of the acquisition of Bancorp by FBA, then First Banks, Inc.
will seek the Federal Reserve Board's approval to acquire Bancorp by
acquiring the stock of Holdings from FBA, and First Banks, Inc. will pay
the Merger Consideration.
First Banks, Inc. further guarantees that, in the event that the
consent or approval of First Banks, Inc. or a subsidiary of First Banks,
Inc. (in either case in its capacity as the shareholder of Holdings) is
required in order to approve the Merger, First Banks, Inc. will either give
the consent or approval or cause the appropriate subsidiary to do so.
First Banks, Inc. represents and warrants to Bancorp that (1) this letter
has been duly and validly executed and delivered by First Banks, Inc. and
constitutes the legal, valid and binding obligation of First Banks, Inc.,
enforceable in accordance with its terms except as the enforcement hereof may be
limited by bankruptcy, insolvency or similar laws or by general principles of
equity, and no other corporate acts or proceedings are required to be taken by
First Banks, Inc. to authorize the execution, delivery and performance hereof;
and (2) First Banks, Inc. is the legal and beneficial owner of a majority of the
outstanding voting stock of FBA and has a material interest in FBA and in the
consummation of the Merger.
This guaranty amends and supersedes the guaranty contained in the letter
dated June 24, 1996 to Sunrise Bancorp executed by First Banks, Inc.
Sincerely,
James F. Dierberg
Chairman of the Board and Chief
Executive Officer
45
<PAGE>
Appendix B
FIRST BANKS, INC.
135 North Meramec
Clayton, Missouri 63105
August 15, 1996
Sunrise Bancorp
Five SierraGate Plaza
Roseville, California 95678
Gentlemen:
This letter is delivered to Sunrise Bancorp concurrently with the execution
and delivery by First Banks America, Inc., a Delaware corporation ("FBA"), of
the Amended and Restated Agreement and Plan of Merger of even date herewith by
and among Sunrise Bancorp, a California corporation ("Bancorp"), FBA and
Sunlight Holdings, Inc., a Nevada corporation (the "Amended Agreement").
Capitalized terms which are used but not defined herein are intended to have the
meanings assigned to them in the Amended Agreement, unless otherwise stated
herein.
The Amended Agreement contemplates that Bancorp will merge into Holdings,
and that Holdings will be the surviving corporation of the Merger. Holdings is
a wholly-owned subsidiary of FBA. FBA and First Banks, Inc. intend that, at the
Effective Time, Holdings will continue to be a wholly-owned subsidiary of FBA,
in which case FBA will provide the Merger Consideration. If, however, First
Banks, Inc. determines that regulatory approval of the Merger with the foregoing
structure is not likely to be obtained, or if such approval is denied, then
First Banks, Inc. intends to seek the approval of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") for First Banks, Inc.,
rather than FBA, to acquire Bancorp. In that event, if the Merger is then
approved by the Federal Reserve Board, FBA and First Banks, Inc. will cause the
ownership of Holdings to be transferred from FBA to First Banks, Inc., and First
Banks, Inc. will pay the Merger Consideration.
In light of the foregoing, Bancorp has requested that First Banks, Inc.
agree, and First Banks, Inc. hereby agrees, as follows:
In order to induce Bancorp to execute and deliver the Amended
Agreement, First Banks, Inc. hereby unconditionally guarantees to Bancorp,
for the benefit of Bancorp and its shareholders, that: (1) First Banks,
Inc. will diligently seek the approval of the Federal Reserve Board for the
acquisition of Bancorp by FBA or, if that approval is determined by First
Banks, Inc. to be unlikely to be obtained or is denied, by First Banks,
Inc.; (2) if FBA becomes obligated to pay the Merger Consideration pursuant
to Section 1.03 of the Amended Agreement, FBA will do so, and if FBA fails
to do so, First Banks, Inc. will pay the Merger Consideration to the
shareholders of Bancorp; and (3) if First Banks, Inc. determines that
regulatory approval of the Merger is unlikely to be obtained or if such
approval is denied, in
<PAGE>
Sunrise Bancorp
August 15, 1996
Page 2
either case because the Federal Reserve Board does not approve of the
acquisition of Bancorp by FBA, then First Banks, Inc. will seek the Federal
Reserve Board's approval to acquire Bancorp by acquiring the stock of
Holdings from FBA, and First Banks, Inc. will pay the Merger Consideration.
First Banks, Inc. further guarantees that, in the event
that the consent or approval of First Banks, Inc. or a
subsidiary of First Banks, Inc. (in either case in its
capacity as the shareholder of Holdings) is required in order
to approve the Merger, First Banks, Inc. will either give the
consent or approval or cause the appropriate subsidiary to do
so.
First Banks, Inc. represents and warrants to Bancorp that (1) this letter
has been duly and validly executed and delivered by First Banks, Inc. and
constitutes the legal, valid and binding obligation of First Banks, Inc.,
enforceable in accordance with its terms except as the enforcement hereof may be
limited by bankruptcy, insolvency or similar laws or by general principles of
equity, and no other corporate acts or proceedings are required to be taken by
First Banks, Inc. to authorize the execution, delivery and performance hereof;
and (2) First Banks, Inc. is the legal and beneficial owner of a majority of the
outstanding voting stock of FBA and has a material interest in FBA and in the
consummation of the Merger.
This guaranty amends and supersedes the guaranty contained in the letter
dated June 24, 1996 to Sunrise Bancorp executed by First Banks, Inc.
Sincerely,
/s/ James F. Dierberg
James F. Dierberg
Chairman of the Board and Chief
Executive Officer
<PAGE>
Appendix C
CALIFORNIA CORPORATIONS CODE SECTIONS 1300 - 1304
SECTION 1300. CORPORATE PURCHASE OF DISSENTING SHARES
(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.
1
<PAGE>
SECTION 1301. NOTICE TO DISSENTING SHAREHOLDERS; DEMAND FOR PURCHASE OF SHARES
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. SHAREHOLDER CERTIFICATES OR NOTICE; TIME LIMIT FOR SUBMISSION
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
2
<PAGE>
SECTION 1303. AGREED PRICE; INTEREST; FILING OF AGREEMENTS; TIME FOR PAYMENT
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
SECTION 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING OR TO DETERMINE
FAIR MARKET VALUE
(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.
3
<PAGE>
Appendix D
[LETTERHEAD OF SMITH & CROWLEY APPEARS HERE]
Sunrise Bancorp
August 15, 1996
Page 1
Board of Directors
Sunrise Bancorp
#5 SierraGate Plaza
Roseville, California 95678
Members of the Board:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, no par value per share (the "Shares"), of
Sunrise Bancorp (the "Company") of the cash purchase price of $4.00 offered by
First Banks America to be received for each Share (the "Purchase Price")
pursuant to the merger (the "Merger") contemplated by the Amended and Restated
Agreement and Plan of Merger dated as of August 15, 1996, between First Banks
America ("FBA"), Sunlight Holdings, Inc., and the Company (the "Agreement").
Smith & Crowley Inc. ("SCI") is an investment banking firm specializing in
commercial banks, savings and loan associations, savings banks, and other
financial intermediaries, and, as part of its investment banking activities, is
called upon to advise clients in mergers, acquisitions, valuations, and business
activities involving financial institutions. SCI has acted as the Company's
financial advisor in connection with, and has participated in certain of the
negotiations leading to, the Agreement. In its capacity as advisory to the
Company, SCI will receive a fee based on the value of the Merger.
You have asked for our opinion as to whether the purchase price to be
received by the stockholders of the Company pursuant to the Merger is fair to
such stockholders of the Company from a financial point of view, as of the date
hereof.
In connection with our opinion, we have, among other things:
(i) reviewed certain publicly available financial and other data with
respect to the Company and First Banks America, including the annual
audited consolidated financial statements for 1991 through 1995, unaudited
interim periods to June 30, 1996, and certain other relevant financial and
operating data relating to the Company and First Banks America made
available to us from published sources and from the internal records of
and/or communications with the Company and First Banks America;
(ii) reviewed the form of the Merger Agreement and made inquiries regarding
and discussed the Merger, the Merger Agreement and other matters related
thereto with the Company's management and counsel;
(iii) compared the Company and First Banks America from a financial point
of view with certain other companies and groups of companies in the banking
industry that we deemed to be relevant;
(iv) considered the financial terms, to the extent publicly available, of
selected recent business combinations of companies in the banking industry,
which we deemed to be comparable, in whole or in part, to the Merger;
(v) reviewed and discussed with representatives of the management of the
Company certain information of a business and financial nature regarding
the Company, furnished to us by them, including legal matters, lease
agreements, credit quality data, financial forecasts and related
assumptions of the Company;
<PAGE>
[LETTERHEAD OF SMITH & CROWLEY APPEARS HERE]
Sunrise Bancorp
August 15, 1996
Page 2
(vi) reviewed and discussed with representatives of the management of First
Banks America certain information of a business and financial nature
regarding First Banks America, furnished to us by them concerning the
holding company and its principal affiliates and subsidiaries, including
current financial condition, credit quality data, other pending
transactions, and general business plans;
(vii) reviewed the price history, trading volume and valuation of First
Banks America common stock and that of the Company as well;
(viii) met with various officers, directors and consultants of the Company
and First Banks America to discuss the foregoing, as well as other matters
we believe relevant to our analysis; and
(ix) considered such other information, financial data and analyses, and
economic and market criteria and performed such other analyses and
examinations as we have deemed appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. We are not experts in the evaluation of loan and
lease portfolios for the purposes of assessing the adequacy of the allowances
for losses with respect thereto and have assumed, with your consent, that such
allowances for each of the Company and First Banks America are in the aggregate
adequate to cover all such losses. In addition, we have not reviewed the
individual credit files nor have we made an independent evaluation or appraisal
of the assets and liabilities of the Company or First Banks America or any of
their subsidiaries and we have not been furnished with any such evaluation or
appraisal.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Purchase Price pursuant to the Agreement is fair from a financial point of view
to holders of the Shares.
Respectfully submitted,
SMITH & CROWLEY INC.
By: /s/ Donald K. Crowley
_________________________
Donald K. Crowley
Managing Director
<PAGE>
Appendix E
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
- -----
Act of 1934 For the Period Ended: June 30, 1996
Transition Report pursuant to Section 13 or 15(d) of the Securities
- -----
Exchange Act of 1934
For the Transition Period from to .
------ ------
Commission File Number: 0-10773
SUNRISE BANCORP
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-2819328
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Sierragate Plaza, Roseville, CA 95678
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(916) 783-2800
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--------- ---------
Number of shares of Common Stock issued and outstanding as of July 29, 1996:
4,263,298
1
<PAGE>
SUNRISE BANCORP
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page No.
----------
PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Condensed Statements of Condition June 30,
1996, and December 31, 1995 3
Consolidated Condensed Statements of Operations for the
three and six months ended June 30, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flows for the
six months ended June 30, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
<PAGE>
ITEM 1 FINANCIAL STATEMENTS
SUNRISE BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CONDITION
JUNE 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
---------- -----------
<S> <C> <C>
ASSETS
- ------
Cash and due from banks $ 3,395 $ 3,726
Federal funds sold and repurchase agreements 24,500 29,000
Investment securities held to maturity 19,049 20,273
(market value $18,111 at June 30, 1996 and $19,944 at December 31, 1995)
Loans 64,272 66,765
Less allowance for loan losses 1,802 2,505
-------- --------
Net loans 62,470 64,260
-------- --------
Premises and equipment 668 873
Other real estate owned 1,230 692
Other assets 2,228 2,160
-------- --------
$113,540 $120,984
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposit liabilities:
Noninterest bearing $ 13,573 $ 13,808
Interest bearing 83,009 90,075
-------- --------
Total deposit liabilities 96,582 103,883
Borrowings -- --
Other liabilities 389 612
-------- --------
Total liabilities 96,971 104,495
Shareholders' equity:
Preferred stock, no par value. Authorized 20,000,000 shares; none
issued -- --
Common stock, no par value. Authorized 20,000,000 shares; issued
4,263,298 shares in 1996 and 1995 18,327 18,327
Retained earnings (1,758) (1,838)
-------- --------
Total shareholders' equity 16,569 16,489
-------- --------
$113,540 $120,984
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
SUNRISE BANCORP AND SUBSIDIARY
Consolidated Condensed Statements Of Operations
For the three and six months ended June 30, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
Three months Six months
(dollar amounts in thousands, except per share data) ended June 30 ended June 30
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $1,562 $1,850 $3,152 $ 3,768
Interest on investment securities 267 713 542 1,450
Interest on federal funds sold and repos 312 96 722 120
------ ------ ------ -------
Total interest income 2,141 2,659 4,416 5,338
------ ------ ------ -------
Interest expense:
Interest on deposit liabilities 798 891 1,655 1,653
Interest on other borrowings -- 1 118
------ ------ ------ -------
Total interest expense 798 892 1,655 1,771
------ ------ ------ -------
Net interest income 1,343 1,767 2,761 3,567
Provision for loan losses -- -- -- --
------ ------ ------ -------
Net interest income after provision for loan losses 1,343 1,767 2,761 3,567
------ ------ ------ -------
Other income:
Service charges and fees 76 113 162 209
Loan sales -- -- -- --
Other 338 5 414 2
------ ------ ------ -------
Total other income 414 118 576 211
------ ------ ------ -------
Other expenses:
Salaries and employee benefits 680 758 1,347 1,523
Occupancy 280 331 543 606
Furniture and equipment 107 147 211 299
Other 639 693 1,099 1,303
------ ------ ------ -------
Total other expenses 1,706 1,929 3,200 3,731
------ ------ ------ -------
Net income (loss) before provision for income taxes 51 (44) 137 47
Provision (benefit) for income taxes 12 (3) 57 35
------ ------ ------ -------
Net income (loss) $ 39 ($41) $ 80 $ 12
====== ====== ====== =======
Net income (loss) per share $ 0.01 ($0.01) $ 0.02 $ 0.00
====== ====== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
SUNRISE BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
(DOLLAR AMOUNTS IN THOUSANDS) ENDED JUNE 30,
1996 1995
------- --------
<S> <C> <C>
Operating activities:
Net Income $ 80 $ 12
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Accretion of deferred loan fees and costs (1) (93)
Provision for loan and other real estate owned
losses -- 150
Depreciation and amortization 238 380
Net change in other assets (68) 1,627
Net change in other liabilities (223) (725)
------- --------
Net cash provided by operating activities 26 1,351
------- --------
Investing activities:
Purchases of investment securities -- --
Maturities and repayments of investment securities 1,192 6,175
Net (increase) decrease in loans 363 5,115
Net sales of other real estate owned 889 1,744
Net purchases of premises and equipment -- --
------- --------
Net cash provided by investing activities 2,444 13,034
------- --------
Financing activities:
Increase (decrease) in deposit liabilities (7,301) 14,133
Decrease in other borrowing -- (10,548)
------- --------
Net cash provided (used) by financing
activities (7,301) 3,585
------- --------
(Decrease) increase in cash and cash equivalents (4,831) 17,970
Cash and cash equivalents at beginning of period 32,726 6,367
------- --------
Cash and cash equivalents at end of period $27,895 $ 24,337
======= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,685 $ 1,790
======= ========
Income taxes paid (refunded) $ 2 ($1,373)
======= ========
Supplemental schedule of noncash investing and
financing activities:
Other real estate owned acquired through
foreclosure on assets securing loans $ 1,427 $ 456
======= ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
1) Financial Statement Presentation
--------------------------------
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for
the six months ended June 30, 1996, are not necessarily indicative of the
results that may be expected for the year ended December 31, 1996.
The consolidated condensed financial statements include the accounts of
Sunrise Bancorp (the "Company") and its wholly-owned subsidiary, Sunrise
Bank of California (the "Bank"), with all material intercompany accounts and
transactions eliminated. For further information refer to the financial
statements and notes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1995.
2) Contingent Liabilities
----------------------
The Company and its subsidiary are at times subject to threatened or filed
legal actions with regard to matters arising out of the conduct of their
businesses. It is the opinion of management, after consulting with legal
counsel, that the resulting liability, if any, as a result of these legal
actions are not currently anticipated to materially affect the consolidated
financial condition of the Company.
3) Merger Agreement
----------------
On June 24, 1996, the Company agreed to merge with a subsidiary of First
Banks America, Inc., subject to approval of the Company's shareholders and
regulatory approval.
4) Subsequent Event
----------------
On July 25, 1996, as a result of an examination of the Company conducted by
the Federal Reserve Bank ("FRB") as of December 31, 1995, the FRB terminated
the memorandum of Understanding between the FRB and the Company which had
been in effect since 1993.
6
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information concerns the consolidated financial condition and
results of operations of the Company and relates primarily to the Bank. This
information should be read in conjunction with the Consolidated Financial
Statements and the 1995 Annual Report on Form 10-K.
LIQUIDITY
The objective of liquidity management is to maintain sufficient cash flow to
satisfy both changes in loan demand and deposit fluctuations while maximizing
the yield available from the instruments being used. Liquidity is managed from
both sides of the balance sheet. Liquid assets consist of cash and due from
banks, federal funds sold, securities purchased under repurchase agreements and
investment securities that can be used as collateral for other borrowings. On
the liability side of the balance sheet, liquidity is provided by core deposits,
lines of credit, and other borrowings.
Cash and cash equivalents equaled $27,895,000, at June 30, 1996, and $32,726,000
at December 31, 1995, and investment securities equaled $19,049,000 and
$20,273,000, respectively. The decrease in cash and cash equivalents was due to
the funding of maturing certificates of deposits, and other deposit
relationships.
As an additional source of liquidity, the Bank is eligible to borrow funds on an
overnight basis from the Federal Reserve Bank of San Francisco and several
broker/dealers. The maximum available advance is dependent upon the amount of
the Bank's investment securities and loans pledged to collateralize such
borrowings. At June 30, 1996, the Bank had no borrowings against these lines of
credit.
INTEREST RATE SENSITIVITY
Interest rate sensitivity is a measure of the relationship between a change in
market interest rates and a resultant change in net interest income due to the
repricing and/or maturity characteristics of the assets and liabilities of the
Company. As a result of industry deregulation, the Bank can vary the rates and,
to a limited degree, the terms of the deposits it offers in order to acquire the
funds necessary for lending and other operations. The rates the Bank pays on
these deposits vary, but generally are set at a slight premium over the rates
paid by large commercial banks. While the Bank cannot match each of its assets
with specific funding sources, it does monitor the aggregate maturities and
interest rate sensitivities of all its investments, loans and deposits within
specified time frames.
Management attempts to adjust the interest rates paid on various rate-sensitive
deposits in order to regulate the volume of such deposits in maturity ranges
that correspond to the Bank's needs and interest rate expectations. In
developing strategies to minimize interest rate risk and maximize the net
interest margin, management considers such external factors as current and
projected economic conditions.
The following table illustrates the cumulative repricing/maturity intervals of
all interest earning assets and interest bearing liabilities over several time
frames and the cumulative gap at June 30, 1996. The table does not include
noninterest-bearing accounts as they involve no explicit payment of interest.
The table does not necessarily indicate the impact of general interest rate
movement on net interest income since the repricing of various categories of
assets and liabilities is subject to competitive pressures. Interest earning
assets include variable rate instruments which are presented in time frames that
correspond to the earlier of initial repricing dates or scheduled principal
amortization maturity dates, and fixed rate
7
<PAGE>
instruments which are presented in time frames that correspond to scheduled
principal amortization or maturity dates. All interest bearing liabilities,
other than time deposits, have variable rates of interest that are repriceable
immediately. Time deposits are presented in timeframes that correspond to
scheduled maturity dates.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
3 MONTHS 3-12 1-5 AFTER
JUNE 30, 1996 ONE DAY OR LESS MONTHS YEARS 5 YEARS TOTALS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans $ 37,386 10,854 4,338 10,785 1,081 64,444
Investment securities 0 450 1,350 17,249 0 19,049
Federal funds sold and repurchase agreements 5,500 19,000 0 0 0 24,500
-------- ------ ------- ------ ------ -------
Total interest earning assets $ 42,886 30,304 5,688 28,034 1,081 107,993
======== ====== ======= ====== ====== =======
Interest bearing liabilities:
Savings accounts $ 955 0 0 0 0 955
Interest checking accounts 32,347 0 0 0 0 32,347
Money market deposit accounts 19,787 0 0 0 0 19,787
Time deposits of $100,000 or more 0 4,109 4,916 587 0 9,612
Other time deposits 0 7,509 11,017 1,782 0 20,308
Other borrowings 0 0 0 0 0 0
-------- ------ ------- ------ ------ -------
Total interest bearing liabilities $ 53,089 11,618 15,933 2,369 0 83,009
======== ====== ======= ====== ====== =======
Current gap (10,203) 18,686 (10,245) 25,665 1,081 24,984
======== ====== ======= ====== ====== =======
Cumulative gap $(10,203) 8,483 (1,762) 23,903 24,984 24,984
======== ====== ======= ====== ====== =======
</TABLE>
CAPITAL RESOURCES
The Federal Reserve Board and the FDIC established final risk-based and leverage
capital guidelines for bank holding companies and banks. These guidelines
created a framework wherein balance sheet assets and certain off-balance sheet
commitments are weighted by risk and compared to capital. Capital is assigned to
tiers with common equity included in Tier 1 capital and a portion of the
allowance for credit losses included in Tier 2 capital or total capital. On June
30, 1996, the minimum required ratio for qualifying total capital was 8.0%, of
which 4.0% must be Tier 1 capital. Additionally, a 3% minimum leverage ratio of
Tier 1 capital to average total assets for the most recent quarter must be
maintained. Banking organizations anticipating significant asset growth or which
are not highly rated by their primary federal regulators are expected to
maintain leverage ratios 1% to 2% in excess of the minimum. Capital ratios for
both the Company and the Bank at June 30, 1996, exceeded the current regulatory
requirements.
8
<PAGE>
The following table illustrates various capital ratios of the Bank and the
Company (on a consolidated basis) as of June 30, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996 AS OF DECEMBER 31, 1995
BANK COMPANY BANK COMPANY
------- ------- ------- -------
<S> <C> <C> <C> <C>
Leverage ratio 12.77% 13.74% 10.98% 11.75%
Tier 1 Capital to 19.21% 20.70% 15.69% 17.05%
risk-weighted assets
Total Capital to
risk-weighted assets 20.46% 21.95% 16.95% 18.31%
</TABLE>
On April 15, 1996, the Company reported on a Current Report on Form 8-K (dated
April 8, 1996) that the Company and ValliCorp Holdings, Inc. ("ValliCorp")
jointly announced that they had signed a nonbinding letter of intent calling for
the Company to merge into ValliCorp. On May 15, 1996, ValliCorp and the Company
jointly announced that they were terminating further discussion concerning a
possible merger. Pursuant to the letter of intent Vallicorp's deposit of
$250,000 paid to the Company has been forfeited and is included in the Company's
other income.
On July 3, 1996, the Company reported on a Current Report on Form 8-K (dated
June 24, 1996) that the Company and First Banks America, Inc. ("FBA"), entered
into an Agreement and Plan of Merger pursuant to which the Company will merge
with a wholly-owned subsidiary or other corporate affiliate of FBA, subject to
approval of the Company's shareholders and regulatory approval. Smith and
Crowley Inc., the Company's investment banking firm, have rendered their opinion
that the consideration to be received in the merger, of $4.00 per share, is fair
from a financial point of view. The Board of Directors believes the merger is in
the best interest of the shareholders.
REGULATORY MATTERS
On July 25, 1996, as a result of an examination of the Company conducted by the
Federal Reserve Bank ("FRB") as of December 31, 1995, the FRB terminated the
Memorandum of Understanding between the FRB and the Company which had been in
effect since 1993.
RESULTS OF OPERATIONS
The Company recorded consolidated net income of $39,000 ($.01 per share) for the
three months ended June 30, 1996, compared to a net loss of $41,000 ($.01 per
share) for the three months ended June 30, 1995.
The Company recorded consolidated net income of $80,000 ($.02 per share) for the
six months ended June 30, 1996, compared to net income of $12,000 ($.00 per
share) for the six months ended June 30, 1995.
9
<PAGE>
The following table illustrates the net income of the Company and the Bank on a
stand-alone basis for the three months and six months ended June 30, 1996 and
1995:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------- ---------------
(DOLLAR AMOUNTS IN THOUSANDS) 1996 1995 1996 1995
------- ------- ------- ------
<S> <C> <C> <C> <C>
Company $ 98 $(45) $78 $(39)
Bank (59) 4 2 51
---- ---- --- ----
Consolidated net income (loss) $ 39 $(41) $80 $ 12
==== ==== === ====
</TABLE>
The increased net income for the three and six months ended June 30, 1996, over
the same period in 1995 was primarily due to increased non-recurring other
income, and decreased other expenses, which more than offset the decrease in net
interest income.
NET INTEREST INCOME
Net interest income, the difference between interest earned on loans and other
investments and interest paid on deposits and other borrowings, is the most
significant component of the Company's revenues. The Company's net interest
income before provision for loan losses was $2,761,000 in the six months ended
June 30, 1996, compared to $3,567,000 for the six months ended June 30, 1995,
which is a $806,000 (or 23%) decrease. The decrease in net interest income was
the result of a decrease in average earning assets (see table on next page) of
the Company of $18,931,000, or 14%, and a decrease in the net interest margin
from 5.45% to 4.94%.
10
<PAGE>
The following table sets forth average assets, major deposit categories, other
liabilities and shareholders' equity; interest income earned and interest
expense paid; average rates earned and expensed and the net interest margin for
the six months ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
(dollar amounts in thousands) BALANCE INTEREST YIELD BALANCE INTEREST YIELD
--------- -------- ------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Loans (1) $ 66,445 $3,152 9.59% $ 78,618 $3,768 9.67%
Investment securities 19,775 542 5.54% 49,220 1,450 5.94%
Federal funds sold and securities
purchased under agreements to resell 26,761 722 5.46% 4,074 120 5.94%
Interest bearing deposits 0 0 0.00% 0 0 0.00%
-------- -------- -------- --------
Total interest earning assets 112,981 $4,416 7.90% 131,912 $5,338 8.16%
-------- --------
Allowance for loan losses (2,387) (4,004)
Cash and due from banks 4,057 6,788
Premises and equipment and other assets 3,852 6,802
$118,503 $141,498
======== ========
Liabilities and Shareholders' Equity:
Interest bearing liabilities:
Savings accounts $ 1,059 $ 13 2.48% $ 1,007 $ 13 2.60%
Interest checking accounts 33,675 459 2.76% 35,252 478 2.73%
Money market deposit accounts 22,944 347 3.06% 28,338 429 3.05%
Time deposits 30,232 836 5.59% 26,580 733 5.56%
Other borrowings 0 0 0.00% 4,344 118 5.48%
-------- -------- -------- --------
Total interest bearing liabilities 87,910 1,655 3.81% 95,521 1,771 3.74%
-------- --------
Demand deposits 13,576 27,311
Other liabilities 497 686
-------- --------
Total liabilities 101,983 123,518
Shareholders' equity 16,520 17,980
-------- --------
$118,503 $141,498
======== ========
Net interest income and margin (2) $2,761 4.94% $3,567 5.45%
======== ========
</TABLE>
(1) Average loans include nonaccrual loans.
(2) Net interest margin is computed by dividing net interest income by total
average interest earning assets and is annualized.
11
<PAGE>
The following table shows the approximate effect on net interest of volume
and rate changes for the six months ended June 30, 1996 and 1995. Changes
which are the combined result of volume and rate changes are allocated in
proportion to the volume and rate changes.
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN THOUSANDS) 1996 VS. 1995
--------------------
VOLUME RATE TOTAL
------ ---- -----
<S> <C> <C> <C>
Increase (decrease) in interest income:
Loans ($587) ($29) ($616)
Investment securities (816) (92) (908)
Federal funds sold 613 (11) 602
Interest bearing deposits 0 0 0
----- ---- -----
(790) (132) (922)
----- ---- -----
Increase (decrease) in interest expense:
Savings accounts 1 (1) 0
Interest checking accounts (23) 4 (19)
Money market deposit accounts (83) 1 (82)
Time deposits 99 4 103
Other borrowings (59) (59) (118)
----- ---- -----
(65) (51) (116)
----- ---- -----
Change in net interest income ($725) ($81) ($806)
===== ==== =====
</TABLE>
12
<PAGE>
PROVISION FOR LOAN LOSSES AND ASSET QUALITY
At June 30, 1996, the allowance for loan losses was $1,802,000 or 2.80% of
outstanding loans. Due to the decrease in total loans and nonaccrual loans, no
provision was added to the allowance for loan losses for the six months ended
June 30, 1996 or June 30, 1995.
The following unaudited table sets forth certain information concerning
nonaccrual, past due and other real estate owned:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
(dollar amounts in thousands, except percentages) 1996 1995 1995
-------- ------------ ---------
<S> <C> <C> <C>
Nonaccrual loans $1,982 $3,228 $5,665
Accruing loans past due 90 days or more 285 89 2
Other real estate owned 1,403 692 1,314
------ ------ ------
Total nonperforming assets $3,670 $4,009 $6,981
====== ====== ======
Percentage of average assets 3.10% 2.98% 4.93%
====== ====== ======
</TABLE>
As of June 30, 1996, nonaccrual loans are comprised of loans to 13 borrowers.
Two of the nonaccrual loans totaling $630,900, or 32% of total nonaccrual loans,
are real estate secured. Five of the nonaccrual loans totaling $1,110,300, or
56% of total nonaccrual loans, consist of commercial loans, secured by real
estate or other commercial assets. The remaining six loans were comprised of
five consumer loans totaling $63,900 and one mortgage loan totaling of $176,600.
Accruing loans 90 days or more past due as of June 30, 1996 consists of two real
estate secured loan. One totaling $66,000 which was paid in full on July 2, 1996
and the other loan secured by real estate, totaling $219,000, received a
$145,000 payment in July and is expected to be paid in full in August 1996.
The California economy and the Sacramento region, appear to be coming out of a
recession and the Bank's loan portfolio, which includes approximately
$33 million in real estate loans representing approximately 51% of the
portfolio, could be adversely affected if California economic conditions and the
real estate market in the Bank's market area weaken. The effect of such events,
although uncertain at this time, could result in an increase in the level of
nonperforming loans and the level of the allowance for loan losses which could
adversely affect the Company's and the Bank's future growth and profitability.
At June 30, 1996, the Company's recorded investment in loans for which an
impairment has been recognized totaled $2,988,600. Included in this amount were
$25,000 of impaired loans for which an allowance of $25,000 is included in the
allowance for loan losses, as well as $2,963,600 of impaired loans that as a
result of write downs on the fair value of collateral, did not have an
allowance. The average recorded investment in impaired loans was $4,247,600 for
the six months ended June 30, 1996. Except for impaired loans on non-accrual,
interest may be recognized on impaired loans when cash is received and the
future collection of principal is considered by management to be probable. The
amount so recognized was immaterial to operations during the first six months of
1996.
Other real estate owned consists of one medical building, one commercial office
condominium, and one undeveloped parcel of land.
13
<PAGE>
OTHER INCOME
Other income for the three months ended June 30, 1996 increased $296,000 (250%),
and $365,000 (173%) for the six months ended June 30, 1996, as compared to the
same periods in 1995. This increase is due primarily to non-recurring income of
$250,000 from a deposit forfeited by ValliCorp and a $70,000 deposit forfeited
from a contract to purchase other real estate owned, which was not fulfilled and
$91,000 in gains recognized on the sale of other real estate owned. Other income
also includes service charges on deposit accounts, and other customer service
fees. The decrease in service charges in 1996 resulted from the decreased number
of demand deposit accounts.
OTHER EXPENSES
Salaries and employee benefit expense decreased $78,000 (10%) for the three
months ended June 30, 1996, and $176,000 (12%) for the six months ended June 30,
1996, as compared to the same periods in 1995. This decrease in employee
expense is principally due to the decrease in the number of employees and
related decreases in benefit costs.
Occupancy expense and equipment expense decreased $91,000 (19%) for the three
months ended June 30, 1996 and $151,000 (17%) for the six months ended June 30,
1996, as compared to the same periods in 1995. These decreases are due primarily
to decreased rental and depreciation expense resulting from the Company's
decision to sublease a portion of its administrative offices.
Other expenses decreased $54,000 (8%) and $204,000 (16%) for the three and six
months ended June 30, 1996 as compared to the same periods in 1995. The
components of other expenses are provided in the table below for the three and
six months ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
Three months Six months
ended ended
(dollar amounts in thousands) June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Stationery and supplies $ 38 $ 24 $ 79 $ 54
Communications 65 65 130 121
Professional fees 216 105 345 181
Deposit insurance assessments 48 81 98 175
Outside service fees 101 193 185 345
Loan collection and OREO expense 51 116 72 223
Other 120 109 190 204
---- ---- ------ ------
$639 $693 $1,099 $1,303
==== ==== ====== ======
</TABLE>
The principal reasons for the decrease in other expenses between 1996 and 1995
relates to decreased deposit insurance assessment, decreased other outside
service fees and decreased OREO expense related to a $75,000 reserve valuation
allowance taken in both the first and second quarter of 1995. Professional fees
increased in both the first and second quarter of 1996 over 1995 due to
increased legal expenses.
14
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(a) Exhibits
Exhibit No. 2 Agreement and Plan of Merger between Sunrise Bancorp and First
Banks America, Inc., dated June 24, 1996, filed as exhibit
99.2 to the Registrant's Current Report on Form 8-K dated June
24, 1996, is hereby incorporated by reference.
(b) Reports on Form 8-K
A Current Report on Form 8-K dated April 8, 1996, was filed on April 15, 1996,
reporting under Item 5 - Other Events the signing of a nonbinding letter of
intent between for the Company and ValliCorp.
A Current Report on Form 8-K dated June 24, 1996, was filed on July 3, 1996,
reporting under Item 5 - Other Events the signing of an Agreement and Plan of
Merger between the Company and First Banks America, Inc.
15
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUNRISE BANCORP
Date: August 2, 1996 BY: /S/SARAH THOMPSON
-------------- -----------------------------------
Sarah Thompson
Senior Vice President and Chief Financial
Officer
(Signing on behalf of the registrant and as
principal financial officer and chief accounting
officer).
16
<PAGE>
APPENDIX F
Sunrise Bancorp
[LOGO OF SUNRISE BANCORP APPEARS HERE]
ANNUAL REPORT
1995
<PAGE>
Sunrise Bancorp
<TABLE>
<CAPTION>
Contents
<S> <C>
Financial Highlights................................... 2
President's Message.................................... 3
Selected Consolidated Financial Data................... 4
Management's Discussion and Analysis...................
of Financial Condition and Results of Operations.. 5
Consolidated Financial Statements...................... 15
Notes to Consolidated Financial Statements............. 19
Independent Auditors' Report........................... 30
Market for Registrant's Common Equity..................
and Related Shareholder Matters................... 31
Selected Quarterly Financial Data...................... 31
Corporate Information.................................. 32
</TABLE>
<PAGE>
Sunrise Bancorp
Financial Highlights
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
(amounts in thousands, except per share) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For The Year
Net income (loss) ($1,520) ($3,042) ($3,918) $ 3,603 $ 1,920
Net income (loss) per average
common share (0.36) (0.71) (0.92) 0.85 0.49
Return on average assets (1.13%) (1.52%) (1.57%) 1.48% 0.84%
Return on average shareholders equity (8.49%) (15.27%) (15.55%) 16.16% 10.26%
Net interest margin 5.16% 4.88% 5.14% 5.30% 5.40%
---------------------------------------------------------------------------------------------------
At Year End
Total assets $120,984 $146,500 $307,155 $245,251 $268,662
Total deposits 103,883 116,943 284,869 219,244 203,401
Loans, net 64,260 77,189 110,529 116,957 124,546
Shareholders' equity 16,489 18,009 21,051 24,972 21,129
Book value per common share 3.87 4.22 4.93 5.87 5.40
- ----------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
Sunrise Bancorp
President's Message
April 15, 1996
- --------------------------------------------------------------------------------
Dear Shareholders:
On April 8, 1996, ValliCorp Holdings, Inc., and Sunrise Bancorp jointly
announced their intention to merge. The companies have signed a letter of intent
calling for ValliCorp to acquire the outstanding shares of Sunrise. Under the
terms of the letter of intent, Sunrise shareholders would receive ValliCorp
common stock and cash aggregating $20.6 million, approximately 1.25 times the
book value of Sunrise at December 31, 1995 ($4.55 per share). The proposed
transaction is planned to be structured as a tax-free exchange and to be
accounted for using the purchase method. The parties intend to complete the
merger by the end of December 1996. Completion of the merger is subject to,
among other things, execution of a definitive agreement and Sunrise shareholder
and regulatory approval. ValliCorp Holdings, Inc., is the largest supercommunity
banking company based in Central California with assets of $1.3 billion and 54
full-service branches.
Notwithstanding the above announcement regarding the letter of intent to merge,
1995 was my first full year with Sunrise Bancorp and Sunrise Bank of California.
Although the Company reports losses for 1995, several improvements and positive
trends were achieved.
Sunrise Bancorp had a net loss of $1.5 million for 1995. This compares with
losses of $3.0 million in 1994 and $3.9 million in 1993. The loss reflects
management's decision to write down or dispose of certain assets and to take
various steps to reduce on-going expense levels. Most significantly, noninterest
expense included $1.0 million of additional reserves on foreclosed real estate
and $334,000 attributable to losses on sales of investment securities.
We were able to restructure and shorten the investment portfolio in December of
1995. At the end of 1994, the market value of the investment portfolio was $4.2
million less than the amortized costs; by disposing of some longer-termed
investments at a $334,000 loss to the Bank, the Bank's investment portfolio was
significantly enhanced. At year end 1995, the Bank's investments totaled $20
million and had an average maturity of less than five years, and the portfolio's
market value was only $329,000 lower than the Bank's carrying value, with all
securities classified as "held to maturity."
By the end of 1995, nonperforming assets declined to $4.0 million from $10.6
million at year-end 1994. This compares with a peak level of $16.3 million in
August of 1994. Similarly, the Bank's internally classified assets at 1995 year-
end were $6.1 million, including foreclosed property (net of reserves). This
compares with year-end 1994 levels of $24.9 million and the previous high of
$35.5 million in August of 1994.
Sunrise Bank is fortunate to have an above-average capital position, which has
permitted us to work on improving our credit quality at the same time that we
have addressed other internal issues, such as our investment portfolio, our
efficiency of operations, and the excess leased space in our headquarters
building. The Bank also reduced its size and reliance on certain high-cost and
potentially volatile deposit sources.
As of December 31, 1995, Sunrise Bancorp had total assets of $121 million and
common equity of $16 million. Tier 1 and risk based capital ratios were 17.05%
and 18.31%, respectively. Sunrise is considered "well-capitalized" under federal
bank regulatory definitions. Sunrise Bancorp's book value per share at 1995
year-end was $3.87.
As a result of a joint examination by the Federal Deposit Insurance Corporation
and the Superintendent of Banks of the State of California in December of 1995,
the Memorandum of Understanding with the FDIC and the Agreement with the
Superintendent were terminated. The Memorandum of Understanding with the Federal
Reserve Bank remains in effect and unchanged. We are pleased that the FDIC and
Superintendent have released the Bank from these agreements as we believe it
reflects increased regulatory confidence in the Bank.
The leadership of the Company has been enhanced by the addition of two new
directors. Anthony Pescetti joined the Company as a new director in May of 1995,
and William Eames was appointed as a director in February of 1996. Sarah
Thompson has been an energetic source of strength as our new Senior Vice
President, Chief Financial Officer and Corporate Secretary. Regional Senior Vice
President Michael Kennedy has managed the Community Association Bank Services
division for another successful year. Senior Vice President and Manager of Real
Estate Lending Judy Duvall has brought new business to the Bank while improving
the quality of the existing real estate loan portfolio. Working together, the
Board of Director and the management team have made steady progress in many
areas.
Thank you for your continuing confidence and support.
Sincerely,
/s/ Hal Giomi
- ----------------------------------------
Hal Giomi
President and Chief Executive Officer
3
<PAGE>
Sunrise Bancorp
Sunrise Bancorp and Subsidiaries
Selected Consolidated Financial Data
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(dollar amounts in thousands, except per share amounts) (1995) (1994) 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations for the period:
Total interest income $ 10,134 $ 12,200 $ 13,749 $ 15,697 $ 21,126
Total interest expense 3,622 3,373 2,618 4,485 9,852
- --------------------------------------------------------------------------------------------------------------------------
Net interest income 6,512 8,827 11,131 11,212 11,274
Provision for loan losses -- (2,668) (7,700) (1,720) (1,250)
Non Interest income (1) 111 2,587 4,547 11,907 6,919
Non Interest expenses (8,142) (13,249) (15,211) (14,920) (13,684)
Provision for income taxes (1) 1,461 3,065 (2,876) (1,339)
- --------------------------------------------------------------------------------------------------------------------------
Net income (loss) before
extraordinary item and cumulative effect
of change in accounting principle (1,520) (3,042) (4,168) 3,603 1,920
Cumulative effect of a change in
accounting principle (2) -- -- (250) -- --
Net income (loss) ($ 1,520) ($ 3,042) ($ 3,918) 3,603 1,920
- --------------------------------------------------------------------------------------------------------------------------
Per share amounts:
Net income (loss) before cumulative effect
of change in accounting principle ($ 0.36) ($ 0.71) ($ 0.98) $ 0.85 $ 0.49
Net income (loss) ($ 0.36) ($ 0.71) ($ 0.92) $ 0.85 $ 0.49
- --------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 4,263 4,263 4,263 4,252 3,915
- --------------------------------------------------------------------------------------------------------------------------
Balances at end of period:
Interest bearing deposits,
federal funds sold and
securities purchased under
agreement to resell, and
investment securities $ 49,273 $ 54,040 $127,891 $ 96,862 $ 41,890
- --------------------------------------------------------------------------------------------------------------------------
Mortgage loans held for sale -- -- $ 35,812 $ 163 $ 59,474
- --------------------------------------------------------------------------------------------------------------------------
Net loans $ 64,260 $ 77,189 $110,529 $116,957 $124,546
- --------------------------------------------------------------------------------------------------------------------------
Total assets $120,984 $146,500 $307,155 $245,251 $268,662
- --------------------------------------------------------------------------------------------------------------------------
Time deposits of $100,000 or more $ 10,183 $ 7,637 $ 18,572 $ 6,161 $ 7,123
- --------------------------------------------------------------------------------------------------------------------------
Total deposit liabilities $103,883 $116,943 $284,869 $219,244 $203,401
- --------------------------------------------------------------------------------------------------------------------------
Shareholders' equity $ 16,489 $ 18,009 $ 21,051 $ 24,972 $ 21,129
- --------------------------------------------------------------------------------------------------------------------------
Book value per share $ 3.87 $ 4.22 $ 4.93 $ 5.87 $ 5.40
- --------------------------------------------------------------------------------------------------------------------------
Financial ratios:
Return on average assets (1.13)% (1.52)% (1.57)% 1.48% 0.84%
Return on average equity (8.49)% (15.27)% (15.55)% 16.16% 10.26%
Net interest margin 5.16% 4.88% 5.14% 5.30% 5.40%
Average equity to average assets 13.29% 9.93% 10.12% 9.19% 8.18%
Leverage ratio (Bank) 0.00% 8.42% 6.71% 10.29% 9.21%
Net chargeoffs to average loans 2.21% 3.98% 4.31% 0.42% 0.86%
Non performing loans to total loans 4.97% 9.05% 4.57% 3.89% 3.01%
Allowance for loan losses to
total loans 3.75% 5.11% 4.83% 2.67% 1.71%
Earnings to fixed changes (18.67)% (22.96)% (25.76)% 24.15% 14.03%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In 1992 the Company sold its wholly-owned subsidiary Western Sunrise
Mortgage Corporation, gain of $7,242,000 on the sale.
(2) Adoption of Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes"
4
<PAGE>
Sunrise Bancorp
Management's Discussion and Analysis of Financial
Condition and Results of Operations
================================================================================
Overview
The following information concerns the consolidated financial condition and
results of operations of Sunrise Bancorp and its subsidiary (together the
"Company") for the years ended December 31, 1995, 1994 and 1993. Sunrise
Bancorp's wholly-owned subsidiary is Sunrise Bank of California ("Bank"). This
information should be read in conjunction with the Selected Consolidated
Financial Data and the Consolidated Financial Statements and Notes thereto set
forth in this report.
Summary of Operations
The Company recorded a consolidated net loss of $1,520,000 ($0.36 per share),
for the year ended December 31, 1995, as compared to a net loss of $3,042,000
($0.71 per share) in 1994, and a net loss of $3,918,000 ($0.92 per share) in
1993. The pretax net loss of $1,520,000 in 1995, as compared to $4,503,000 in
1994, was due to a reduction in non interest expenses of $5,107,000, a reduction
in the provision for loan losses of $2,668,000, offset by a decrease in net
interest income of $2,315,000 and a decrease in interest income of $2,476,000.
The decrease in pretax net loss of $2,730,000 in 1994 from 1993 was due to a
reduction in the provision for loan losses of $5,032,000, offset by a decrease
in net interest income of $2,304,000, a decrease in non interest income of
$1,960,000 and a decrease in non interest expenses of $1,962,000.
The following table illustrates the net income (loss) of the Company and the
Bank on a stand-alone basis for the years ended December 31, 1995, 1994 and
1993:
<TABLE>
<CAPTION>
================================================================================
(dollar amounts in thousands) 1995 1994 1993
================================================================================
<S> <C> <C> <C>
Sunrise Bancorp $(73) $(49) $(125)
Sunrise Bank of California (1,447) (2,993) (3,793)
================================================================================
</TABLE>
Net Interest Income
Net interest income, the difference between interest earned by the Company on
its earning assets, and interest paid on deposits and other borrowings, is the
most significant component of the Company's revenue.
Net interest income decreased $2,315,000, or 26% between 1995 and 1994. This
decrease was the result of a decrease in total interest income of $2,066,000 and
an increase in interest expense of $249,000. In 1994, net interest income
decreased by $2,304,000, or 21%, over 1993. This decrease was the result of a
decrease in total interest income of $1,549,000 and a decrease in interest
expense of $1,867,000.
The decrease in total interest income of $2,066,000 in 1995 from 1994 was
comprised of approximately $3,984,000 attributable to the $54,940,000 decrease
in average interest earning assets in 1995. This was offset by a $1,918,000
increase attributable to increased yields on interest earning assets of 130
basis points (100 basis points is equal to 1%). The decrease in total interest
income of $1,549,000 in 1994 over 1993 consisted of a $2,516,000 decrease
associated with a $35,540,000 decrease in average interest earning assets and a
increase of $967,000 associated with the increase in yield of 40 basis points.
The total yield on average earning assets in 1995 was 8.0% compared to 6.7% in
1994 and 6.3% in 1993. In 1995, average loans, including mortgage loans held
for sale, were 59% of average earning assets compared to 62% in 1994 and 68% in
1993. In 1995 and 1994, average loans declined as a percentage of earning assets
as a result of decreased mortgage banking activities, a concentrated effort to
reduce problem loans and generally weak loan demand.
In 1995, the Bank restructured its deposit mix. The increase of $249,000 in
total interest expense in 1995 over 1994 was comprised of a $380,000 decrease
related to the $10,715,000 decrease in total average interest bearing
liabilities and an increase of $629,000 related to an increase of 60 basis
points in the effective interest costs on deposits. In 1994 total interest
expense increased by $755,000 from 1993. This increase was comprised of a
$787,000 increase related to the $25,594,000 increase in average interest
bearing liabilities and a decrease of 10 basis points or $32,000 related to the
effective interest costs on deposits. The average balances of noninterest
bearing deposits decreased to $21,004,000 in 1995, from $73,332,000 in 1994, and
from $142,855,000 in 1993. The decreases in noninterest bearing deposits are
mainly due to decreases in balances of entities that by nature of their
businesses have fluctuations in their deposits, such as title companies.
Also impacting interest income was the relatively high level of nonperforming
assets which amounted to $4,009,000 at December 31, 1995, compared to
$10,563,000 at December 31, 1994, and $8,100,000 at December 31, 1993. The
negative impact of the Company's nonperforming assets resulted in a reduction in
interest income as interest foregone on nonperforming assets totaled $340,000 in
1995, $516,000 in 1994, and $603,000 in 1993.
5
<PAGE>
Sunrise Bancorp
================================================================================
Analysis of Interest Earnings
The following table sets forth average assets, major deposit categories, other
liabilities and shareholders' equity; interest income earned and interest
expense paid; average rates earned and expensed and the net interest margin for
the years ended December 31, 1995, 1994, and 1993:
<TABLE>
<CAPTION>
==================================================================================================================================
(dollar amounts in thousands) 1995 1994 1993
- --------------------------------------- ----------------------------- ---------------------------- ----------------------------
Average Average Average Average Average Average
Balance Interest Yield Balance Interest Yield Balance Interest Yield
- --------------------------------------- -------- --------- ------- -------- --------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Loans (1) $ 74,341 $ 7,110 9.6% $103,916 $ 8,120 7.9% $122,639 $ 9,203 7.5%
Mortgage loans held for sale -- -- -- 8,436 519 6.2 24,400 1,616 6.6
Investment securities 46,830 2,747 5.9 57,281 3,161 5.6 42,651 2,127 5.0
Federal funds sold and
securities purchased under
agreements to resell 4,949 277 5.6 11,367 398 3.6 26,823 799 3.0
Interest bearing deposits -- -- -- 60 2 3.4 87 4 4.6
- --------------------------------------- -------- --------- ------- -------- --------- ------- -------- --------- -------
Total interest
earning assets 126,120 10,134 8.0% 181,060 12,200 6.7 216,600 13,749 6.3
- --------------------------------------- ------- ------- --------- -------
Allowance for loan losses (3,624) (5,795) (3,256)
Cash and due from banks 5,700 15,743 27,703
Premises and equipment
and other assets 6,520 9,718 8,003
- --------------------------------------- -------- -------- --------
$134,716 $200,726 $249,050
==================================================================================================================================
Liabilities and
Shareholders' Equity:
Interest bearing liabilities:
Savings accounts $ 1,037 $ 28 2.7% $ 1,801 $ 48 2.7% $ 1,894 $ 62 3.3%
Interest checking accounts 35,227 960 2.7 24,966 694 2.8 4,292 90 2.1
Money market
deposit accounts 28,049 862 3.1 45,154 1,131 2.6 45,789 1,288 2.8
Time deposits of
$100,000 or more 9,355 549 5.9 11,675 481 4.2 13,182 531 4.0
Other time deposits 19,447 1,104 5.7 14,971 623 4.2 13,654 591 4.3
Other borrowings 2,155 119 5.5 7,418 396 5.4 1,580 56 3.5
- --------------------------------------- -------- --------- ------- -------- --------- ------- -------- --------- -------
Total interest
bearing liabilities 95,270 3,622 3.8 105,985 3,373 3.2 80,391 2,618 3.3
- --------------------------------------- ------- ------- --------- -------
Demand deposits 21,004 73,332 142,855
Other liabilities 536 1,484 603
- --------------------------------------- -------- -------- --------
Total liabilities 116,810 180,801 223,849
Shareholders' equity 17,906 19,925 25,201
- --------------------------------------- -------- -------- --------
$134,716 $200,726 $249,050
==================================================================================================================================
Net interest income
and margin (2) $ 6,512 5.2% $ 8,827 4.9% $ 11,131 5.1%
==================================================================================================================================
</TABLE>
(1) Average loans includes nonaccrual loans.
(2) Net interest margin is computed by dividing net interest income by total
average interest earning assets.
6
<PAGE>
Sunrise Bancorp
================================================================================
The following table shows the approximate effect of volume and rate changes on
net interest income for the years ended December 31, 1995, 1994, and 1993.
Changes which are the combined result of volume and rate changes are allocated
proportion to the volume and rate changes.
<TABLE>
<CAPTION>
===========================================================================================================
(dollar amounts in thousands) 1995 vs. 1994 1994 vs. 1993
- --------------------------------------- ---------------------------- -----------------------------
Volume Rate Total Volume Rate Total
- --------------------------------------- -------- ------- -------- -------- ------- --------
Increase (decrease) in interest income:
<S> <C> <C> <C> <C> <C> <C>
Loans ($ 2,587) $ 1,577 ($ 1,010) ($ 1,663) $ 580 ($ 1,083)
Mortgage loans held for sale (519) -- (519) (1,004) (93) (1,097)
Investment securities (586) 172 (414) 766 268 1,034
Federal funds sold and securities
purchased under agreements to resell (290) 169 (121) (614) 213 (401)
Interest bearing deposits (2) -- (2) (1) (1) (2)
- --------------------------------------- -------- ------- -------- -------- ------- --------
(3,984) 1,918 (2,066) (2,516) 967 (1,549)
- --------------------------------------- -------- ------- -------- -------- ------- --------
Increase (decrease) in interest expense:
Savings accounts (20) -- (20) (3) (11) (14)
Interest checking accounts 291 (25) 266 566 38 604
Money Market deposit accounts (478) 209 (269) (26) (131) (157)
Time deposits of $100,000 or more (108) 176 68 (88) 38 (50)
Other time deposits 219 262 481 42 (10) 32
Other borrowings (284) 7 (277) 296 44 340
- --------------------------------------- -------- ------- -------- -------- ------- --------
(380) 629 249 787 (32) 755
- --------------------------------------- -------- ------- -------- -------- ------- --------
Change in net interest income ($ 3,604) $ 1,289 ($ 2,315) ($ 3,303) $ 999 ($ 2,304)
============================================================================================================
</TABLE>
7
<PAGE>
Sunrise Bancorp
- -------------------------------------------------------------------------------
Provision for Loan Losses
At December 31, 1995, the allowance for loan losses was $2,505,000 or 3.75% of
outstanding loans. Due to the decrease in total loans and improved asset
quality, no provisions were added to the allowance for loan losses in 1995.
Provisions for loan losses amounted to $2,668,000 in 1994 and $7,700,000 in
1993. Net charge-offs of $1,646,000 were recognized in 1995 as compared to
$4,132,000 in 1994 and $5,290,000 in 1993. For further discussion of the Bank's
loan portfolio, see "Loan Portfolio Risk Elements and Summary of Loan Loss
Experience".
Non Interest Income
Non interest income is comprised of service charges and fees and various
non-recurring items. Service charges and fees and other income decreased
$242,000 or 35% in 1995 compared to a decrease of $684,000 or 50% in 1994. These
decreases were primarily due to decreased deposit accounts. In 1993, other
income included $614,000 in non-recurring income relating to a settlement
between the Company and its former independent auditors.
Prior to 1995, the Company's mortgage banking operations generated gains on
sales of mortgage loans and loan servicing income. Due to the decline in real
estate refinancing activity in California, the Company strategically chose to
cease these operations in 1994. Total mortgage loans originated in 1994 were
$123,537,000, total mortgage loans sold were $162,168,000 and the total gains
on the sale of these mortgage loans and their servicing were $1,828,000. These
same totals for 1993 were $334,633,000, $281,908,000 and $2,888,000,
respectively.
Losses on sales of investment securities were $334,000 for 1995, none for 1994,
and there was a gain of $228,000 in 1993. The losses in 1995 were due to the
sale of $28,000,000 in investment securities. The sale of these long-term
mortgage backed securities in 1995 was a strategic decision to restructure the
investment portfolio. The Company is now able to manage the balance sheet with
greater flexibility and improved interest rate risk and liquidity positions.
Non Interest Expense
Non interest expense is comprised of salaries and employee benefits, occupancy,
furniture and fixture and other overhead related expenses. Total non interest
expense decreased $5,107,000 or 39% in 1995 when compared to 1994, and decreased
$1,962,000 or 13% in 1994 when compared to 1993.
Salaries and employee benefit expenses represent one of the largest components
of non interest expense. In 1995, salaries and employee benefits expense
decreased $2,366,000 or 44% over 1994. In 1994, salaries and employee benefits
costs decreased $1,184,000 or 18% when compared to 1993. The decreases in both
1995 and 1994, were due to the restructuring of the Bank's mortgage banking
operations and other reductions in personnel costs.
Occupancy expense increased by $115,000 or 10% in 1995, when compared to 1994.
This increase is attributable to the write-down to market value on office spaces
subleased to outside parties. In 1994, occupancy expense decreased $123,000 or
9% when compared to 1993, which decrease was related to the restructuring of
the Bank's mortgage banking operations.
Furniture and equipment expense decreased $384,000 or 40% in 1995 when compared
to 1994, attributable to decreased depreciation expense and decreased equipment
maintenance and repairs. In 1994, furniture and equipment expense increased by
$26,000 or 3% when compared to 1993, attributable to increased equipment
maintenance.
Other expense decreased by $2,472,000 or 43% in 1995 compared to 1994. All
categories of other expenses, except other real estate owned expenses, decreased
due to an aggressive expense reduction plan and the decreased asset size of the
Bank. Other real estate owned expenses increased $343,000 due to increasing a
valuation allowance for possible other real estate owned losses. Other expense
decreased by $681,000 or 10% in 1994 compared to 1993. The major components of
this decrease include a decrease of $975,000 or 55% in professional fees which
included legal, accounting and consulting fees, and an increase of $166,000 or
10% in other expenses mainly due to increased expenses on other real estate
owned.
8
<PAGE>
Sunrise Bancorp
================================================================================
Income Taxes
Due to limitation on the utilization of tax benefits, no tax benefit was
recorded for 1995. The Company's effective tax rate (benefit) was zero in 1995,
(32.47%) in 1994 and (42.4%) in 1993.
The 1994 income tax benefit was attributable to a loss of $4,503,000 before
income taxes. In 1993, the income tax benefit was attributable to a loss of
$7,233,000 before income taxes and the cumulative effect of a change in
accounting principle. As more fully discussed in Notes 2 and 11 to the
Consolidated Financial Statements, the Company adopted Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes", on a prospective
basis in 1993. Included within the Consolidated Statement of Operations for the
year ended December 31, 1993 is a tax benefit of $250,000 which represents the
cumulative effect of this change in accounting principle.
Loan Portfolio Risk Elements and Summary of Loan Loss Experience
The risk of loss is intrinsic to the lending process. While management
endeavors to minimize this risk, management also recognizes that loan losses
will be experienced and that the amount of losses will fluctuate depending upon
economic conditions and other factors. The Company manages the risk of its loan
portfolio through various control procedures. In addition to the initial credit
evaluation of an individual borrower, risk is monitored and controlled by the
ongoing review of the portfolio by lending officers, the credit administration
department and senior management. Risk is further mitigated through the
application of lending procedures such as the holding of adequate collateral,
establishment of contractual guarantees and maintenance of compensating
balances.
The allowance for loan losses is maintained at a level that management of the
Bank considers to be adequate to provide for losses that reasonably can be
anticipated. The allowance is increased by charges to operating expense and
reduced by net charge-offs. The level of the allowance for loan losses is based
on management's evaluation of potential losses in the loan portfolio, as well as
prevailing and anticipated economic conditions. Ongoing internal and external
reviews of the loan portfolio are designed to identify problem loans and to
periodically reevaluate the adequacy of the allowance. The reviews take into
consideration both current and anticipated developments applicable to the
borrowers and to the economy. In its quarterly evaluation of the adequacy of
the allowance, the Board of Directors, in consultation with senior management,
considers the conclusions reached in these reviews and also considers the
results of examinations made by regulatory agencies and the reviews of the
Company's independent public accountants.
Management's judgement as to the adequacy of the allowance is necessarily based
upon approximation of factors which are beyond the control of the Bank,
including economic conditions. In assessing adequacy and the allocation of
reserves to loan categories, management considers the Bank's historical loan
loss experience, the amount of past due and non-performing loans, internal loan
status reports, the current size and composition of the loan portfolio,
evaluations made by Bank regulatory authorities, expectations of future economic
conditions and their impact on particular industries and specific borrowers, and
evaluation of the collateral underlying secured loans. Set forth below is an
analysis of the allowance for loan losses for each of the last five years ending
December 31, 1995.
9
<PAGE>
Sunrise Bancorp
<TABLE>
<CAPTION>
========================================================================================
(dollar amounts in thousands) 1995 1994 1993 1992 1991
- -------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 4,151 $ 5,615 $ 3,205 $ 2,174 $ 2,129
Charge-offs:
Commercial 17 1,482 2,426 239 602
Real estate:
Construction and land developement 1,266 1,894 2,291 686 441
Mortgage 301 132 442 20 --
Other -- 512 -- 179 --
Consumer installment 208 161 175 120 259
Direct lease financing -- -- -- -- 1
Other loans 29 15 21 34 17
- -------------------------------------- -------- -------- -------- -------- --------
Total charge-offs 1,821 4,196 5,355 1,278 1,320
- -------------------------------------- -------- -------- -------- -------- --------
Recoveries:
Commercial 24 6 -- 472 110
Real estate - Construction and land
development 51 36 30 90 3
Consumer installment 100 21 28 40 1
Other loans -- 1 7 2 1
- -------------------------------------- -------- -------- -------- -------- --------
Total recoveries 175 64 65 604 115
- -------------------------------------- -------- -------- -------- -------- --------
Net charge-offs 1,646 4,132 5,290 674 1,205
Provision charged to operations -- 2,668 7,700 1,720 1,250
Allowance disposed in sale of Western -- -- -- (15) --
- -------------------------------------- -------- -------- -------- -------- --------
Balance at end of period $ 2,505 $ 4,151 $ 5,615 $ 3,205 $ 2,174
========================================================================================
Net chargeoffs as a percentage of
average loans 2.22% 3.98% 4.31% 0.42% 0.86%
========================================================================================
Allowance for loan losses as a
percentage of total outstanding loans 3.75% 5.11% 4.83% 2.67% 1.71%
========================================================================================
</TABLE>
10
<PAGE>
Sunrise Bancorp
================================================================================
The table below sets forth the allocation of the allowance for loan losses by
loan type as of December 31 for the year specified. The allocation to
individual categories of loans includes amounts applicable to specifically
identified as well as unidentified losses inherent in that segment of the loan
portfolio and will necessarily change whenever management determines that the
risk characteristics of the loan portfolio have changed. Management believes
that any breakdown or allocation of the allowance for loan losses into loan
categories lends an appearance of exactness which does not exist, in that the
allowance is utilized as a single unallocated allowance available for all loans
and undisbursed commitments. The allocation above should not be interpreted as
an indication of the specific amounts of loan categories in which future
charge-offs may occur.
<TABLE>
<CAPTION>
============================================================================================================================
(dollar amounts in thousands) 1995 1994 1993 1992 1991
% of loans % of loans % of loans % of loans % of loans
in each in each in each in each in each
Amount category Amount category Amount category Amount category Amount category
- --------------------------- ------- --------- ------- --------- ------- --------- ------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance
applicable to:
Commercial, consumer
installment, direct lease
financing and other loans $ 898 46.7% $ 1,432 49.6% $ 3,406 55.5% $ 2,125 49.1% $ 728 30.7%
Real estate loans
(including mortgage
loans held for sale) 1,473 53.3% 2,521 50.4% 1,883 44.5% 530 50.9% 336 69.3%
Unallocated 134 -- 198 -- 326 -- 550 -- 1,110 --
- --------------------------- -------- --------- ------- --------- ------- --------- ------- --------- ------- ----------
$ 2,505 100.0% $ 4,151 100.0% $ 5,615 100.0% $ 3,205 100.0% $2,174 100.0%
============================================================================================================================
</TABLE>
Interest income on loans is normally accrued on the principal balance
outstanding. When reasonable doubt arises as to the ability of the borrowers to
meet their contractual interest payment schedule, the Bank's policy is generally
to discontinue the accrual of interest and reverse any accrued but unpaid
amounts not viewed as ultimately collectible. Loans, where payments are past
due ninety days or more, continue to accrue interest only when management
believes collectability of principal and interest is probable, and the loan is
well collateralized and in the process of collection. Loans are restored to an
accrual basis only when the borrower has demonstrated the ability to make
future payments of principal and interest.
The following table sets forth certain information concerning all nonperforming
assets at December 31 for each of the last five years:
<TABLE>
<CAPTION>
============================================================================================================================
(dollar amounts in thousands) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 3,228 $ 7,347 5,300 4,504 3,310
Loans past due 90 days or more and still accruing interest 89 8 10 171 515
- ----------------------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Total nonperforming loans $ 3,317 $ 7,355 $ 5,310 $ 4,675 $ 3,825
================================================================= ========== ========== ========== ========== ==========
Nonperforming loans as a percentage of total loans 4.97% 9.05% 4.57% 3.89% 3.02%
Other real estate owned $ 692 $ 3,208 $ 2,790 $ 4,785 $ 7,535
============================================================================================================================
</TABLE>
At December 31, 1995, nonaccrual loans were comprised of loans to 19 borrowers.
Five of the nonaccrual loans totaling $2,409,000 or 75% of total nonaccrual
loans are secured by real estate. Four nonaccruing commercial loans total
$210,000, or 6% of all nonaccrual loans. One real estate secured commercial loan
in the amount of $145,000, or 69% of the commercial nonaccruing loans, was
transferred to other real estate owned ("OREO") and liquidated with no loss of
principal subsequent to 1995 year end. The remaining 10 loans totaling $609,000
or 19% of nonaccrual loans consist of loans to non-related borrowers. Of these
loans, five totaling $540,000, are secured by residential real estate, of which
one for $125,000 was transferred to OREO and liquidated with no loss of
principal subsequent to 1995 year end. The remaining loans are to borrowers none
of whose individual aggregate liability exceeds $30,000.
11
<PAGE>
Sunrise Bancorp
- --------------------------------------------------------------------------------
The balance of OREO consists of three single family residences, one commercial
office condominium, and one undeveloped parcel of land.
The classification of a loan as nonaccrual does not necessarily indicate that
the ultimate collection of the principal and interest is doubtful, particularly
among secured real estate and commercial loans. However, management recognizes
the lower quality and above-normal risk characteristics of these loans and
therefore considers the potential risk of principal loss included in this
category in evaluating the adequacy of the allowance for loan losses.
Liquidity
The objective of liquidity management is to maintain sufficient cash flow to
satisfy both changes in loan demand and deposit fluctuations while maximizing
the yield available from the instruments being used. Liquidity is managed from
both sides of the balance sheet. Liquid assets consist of cash and due from
banks, federal funds sold, securities purchased under repurchase agreements and
investment securities, that can be used as collateral for other borrowings. On
the liability side of the balance sheet, liquidity is provided by core deposits,
lines of credit, and other borrowings.
Cash and cash equivalents equaled $32,726,000 and $6,367,000 at December 31,
1995 and 1994, and investment securities equaled $20,273,000 and $54,040,000
respectively. The increase in cash and cash equivalents in 1995 over 1994 was
due to the sale of long-term mortgage-backed securities which enabled the
Company greater flexibility to manage the balance sheet and improved interest
rate risk and liquidity positions.
One of the most important sources of the Bank's liquidity is its access to low
cost demand deposits of businesses and consumers. These deposits totaled
$13,808,000 and $29,206,000 at December 31, 1995 and 1994, and averaged
$21,004,000 and $73,332,000 during 1995 and 1994, respectively. The decrease in
core deposits is mainly due to decreases in average balances of entities that by
the nature of their businesses have fluctuations in the amounts of core
deposits, such as title companies.
As an additional source of liquidity, the Bank is eligible to borrow funds on an
overnight basis from the Federal Reserve Bank of San Francisco and several
broker/dealers. The maximum available advance is dependent upon the amount of
the Bank's investment securities and loans pledged to collateralize such
borrowings. At December 31, 1994 the Bank had $10,548,000 borrowed against
these lines. There were no borrowings against these lines at December 31, 1995.
Interest Rate Sensitivity
Interest rate sensitivity is a measure of the relationship between a change in
market interest rates and a resultant change in net interest income due to the
repricing and/or maturity characteristics of the assets and liabilities of the
Company. As a result of industry deregulation, banks can vary the rates and, to
a limited degree, the terms of the deposits they offer in order to acquire the
funds necessary for lending and other operations. The rate the Bank pays on
these deposits varies, but generally is set at a slight premium over the rates
paid by large commercial banks. While the Bank cannot match each of its assets
with specific funding sources, it does monitor the aggregate maturities and
interest rate sensitivities of all its investments, loans and deposits within
specific time frames.
Management attempts to adjust the interest rates paid on various rate-sensitive
deposits in order to regulate the volume of such deposits in maturity ranges
that correspond to the Bank's needs and interest expectations. In developing
strategies to minimize interest rate risk and maximize the net interest margin,
management considers such external factors as current and projected economic
conditions.
The following table illustrates the repricing/maturity intervals of all interest
earning assets and interest bearing liabilities over several timeframes. The
table does not include noninterest-bearing accounts as they involve no explicit
payment of interest. The table does not necessarily indicate the impact of
general interest rate movement on net interest income since the repricing of
various categories of assets and liabilities is subject to competitive
pressures. Interest earning assets include (i) variable rate instruments which
are presented in timeframes that correspond to the earlier of initial repricing
dates or scheduled principal amortization maturity dates and (ii) fixed rate
instruments which are presented in timeframes that correspond to scheduled
principal amortization or maturity dates. All interest bearing liabilities other
than time deposit carry variable rates of interest that are repriceable
immediately. Time deposits are presented in timeframes that correspond to
scheduled maturity dates.
12
<PAGE>
Sunrise Bancorp
<TABLE>
<CAPTION>
====================================================================================================================
(dollar amounts in thousands)
3 months 3 - 12 1 to 5 after
December 31, 1995 One day or less months years 5 years Totals
- ------------------------------------ ------------ ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans $ 34,491 $ 18,052 $ 1,345 $ 9,347 $ 3,702 $ 66,937
Investment securities -- 506 1,350 18,417 -- $ 20,273
Federal funds sold and securities
purchased under resale agreement 5,000 24,000 -- -- -- 29,000
- ------------------------------------ ------------ ------------ ----------- ----------- ----------- -----------
Total interest earning assets $ 39,491 $ 42,558 $ 2,695 $ 27,764 $ 3,702 $116,210
- --------------------------------------------------------------------------------------------------------------------
Interest bearing liabilities:
Savings accounts $ 1,131 -- -- -- -- $1,131
Interest checking accounts 33,062 -- -- -- -- 33,062
Money market deposit accounts 25,721 -- -- -- -- 25,721
Time deposits of $100,000 or more -- 5,755 3,437 991 -- 10,183
Other time deposits -- 7,268 10,057 2,653 -- 19,978
Other borrowings -- -- -- -- -- --
- ------------------------------------ ------------ ------------ ----------- ----------- ----------- -----------
Total interest bearing liability $ 59,914 $ 13,023 $ 13,494 $ 3,644 -- $ 90,075
Current gap ($ 20,423) $ 29,535 ($ 10,799) $ 24,120 $ 3,702 $ 26,135
- ------------------------------------ ------------ ------------ ----------- ----------- ----------- -----------
Cumulative gap ($ 20,423) $ 9,112 ($ 1,687) $ 22,433 $ 26,135 $ 26,135
====================================================================================================================
Maturities and interest sensitivities of the loan portfolio at December 31, 1995, are summarized below:
====================================================================================================================
<CAPTION>
One Year After one Greater
or less year but than
before five five years Total
- ---------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fixed and Floating Rate Loans
Fixed rate $ 1,691 $ 9,347 $ 3,702 $ 14,740
Variable rate 52,197 -- -- $ 52,197
- ---------------------------------------------------------------- ----------- ----------- ----------- -----------
Total $ 53,888 $ 9,347 $ 3,702 $ 66,937
====================================================================================================================
</TABLE>
Impact of Inflation
The consolidated financial statements and related financial information have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and results of operations in terms
of historical dollars without regard to changes in the relative purchasing power
of money over time. Unlike most industrial companies, all of the Company's
assets and liabilities, other than premises and equipment, are monetary, and the
Company has an excess of monetary assets over liabilities.
While inflation causes a loss of purchasing power in the value of shareholders'
equity for all banking organizations, of greater importance is the ability of a
company, financial or industrial, to earn a real return on equity. The
short-term monetary nature of the Company's assets and liabilities allows
flexibility to adjust its required return on equity in relation to the level of
inflation. Management does not believe that inflation has had a substantial
impact on the Company's operations to date.
Capital Resources
The Federal Reserve Board established final risk-based and leverage capital
guidelines for bank holding companies effective September 7, 1990. These
guidelines are substantially similar to the regulations published by the Federal
Deposit Insurance Corporation (the "FDIC") in March 1989 for state nonmember
banks such as the Bank. The Federal Reserve Board ("FRB") guidelines and FDIC
regulations created a framework wherein balance sheet assets and certain
off-balance sheet commitments are weighted by risk and compared to capital.
Capital is assigned to tiers with common equity
13
<PAGE>
Sunrise Bancorp
================================================================================
included in Tier 1 capital and a portion of the allowance for credit losses
included in Tier 2 capital or total capital. On December 31, 1995, the minimum
required ratio for qualifying total capital was 8.0%, of which 4.0% must be
Tier 1 capital. As of December 31, 1995, the Company's total capital and Tier 1
capital to risk-weighted asset ratios were 18.31% and 17.05%, respectively.
As a supplement to the risk-based capital guidelines, the FRB and the FDIC
adopted a 3% minimum leverage ratio of Tier 1 capital to average total assets.
Banking organizations anticipating significant asset growth or which are not
highly rated by their regulators are expected to maintain leverage ratios 1% to
2% in excess of minimum requirements. At December 31, 1995, the leverage ratios
of the Company and the Bank were 11.75% and 10.98%, respectively.
During 1992 and 1991, the Company issued 328,002 shares of common stock and
warrants to purchase 218,668 shares of common stock through a private offering.
On December 31, 1991, the Bank acquired the assets of an escrow accounting
concern in exchange for 75,000 shares of common stock of the Company and
warrants to purchase 50,000 shares of common stock of the Company. After
adjusting for stock dividends, there are 296,206 shares subject to outstanding
warrants at an exercise price of $4.54 per share. All the outstanding warrants
expire on December 31, 1997. See Note 15 to the Consolidated Financial
Statements for further discussion of these transactions.
The Board of Directors is continuing to consider various strategies designed to
enhance shareholder value, relating to a possible sale, merger or consolidation
transaction with a third party. Smith and Crowley Inc., an investment banking
firm, consultants and other professionals advise the Board of Directors in the
process of determining the best interests of the Company and the Company's
shareholders with respect to such possible transactions. The Company is
currently engaged in discussions of expressions of interest from third parties
relative to a possible sale, merger or consolidation transaction.
Regulatory Matters.
On April 14, 1993, the Bank entered into a Memorandum of Understanding with the
Federal Deposit Insurance Corporation (the "FDIC") and the Superintendent of
Banks of the State of California (the "Superintendent") to address various
matters arising from an examination of the Bank conducted by the FDIC as of
October 5, 1992. This Memorandum of Understanding superseded the previous
Memorandum of Understanding with the Bank dated July 16, 1991. As a result of a
joint examination of the Bank conducted by the FDIC and the Superintendent as of
the close of business October 25, 1993, and the conclusion of the FDIC and the
Superintendent that the Bank was not in compliance with the requirements of the
Memorandum of Understanding dated April 14, 1993, the Bank entered into a
revised Memorandum of Understanding with the FDIC on May 17, 1994 (the "FDIC
Memorandum") and the Bank entered into a regulatory agreement with the
Superintendent on May 24, 1994, as amended on October 31, 1994 (the "State
Agreement"). (The FDIC Memorandum and the State Agreement are referred to
collectively as the "Agreements."). As a result of a joint examination of the
Bank conducted by the FDIC and the Superintendent as of the close of business
December 18, 1995, both Agreements were terminated.
As a result of an examination of the Company conducted by the Federal Reserve
Bank ("Reserve Bank") as of December 31, 1993, the Company entered into a
Memorandum of Understanding with the Reserve Bank on September 2, 1994 (the
"Reserve Bank Memorandum"). The Reserve Bank Memorandum requires the Company:
(i) to submit a policy for receiving dividends from the Bank; (ii) to submit a
capital plan to improve and maintain an adequate capital position for the
Company and the Bank; (iii) to submit a plan to manage the Company's and the
Bank's growth; (iv) to submit annual budgets for the Company and the Bank;
(v) to submit an explanation of certain management and service fees and other
payments assessed or paid by the Bank to the Company since January 1, 1993, and
adopt a policy addressing inter-corporate management and service fees and other
payments and make any reimbursements to the Bank as may be required by the
Reserve Bank; (vi) to obtain prior approval to declare or pay any dividends,
engage in certain financial transactions, increase borrowings or incur debt,
increase director fees, pay executive bonuses or execute renew or modify any
employment or service contracts with executive officers, or otherwise acquire
any of its shares of common stock; and (vii) to submit quarterly written
progress reports and certain financial statements. The Reserve Bank Memorandum
also requires the Company's Board of Directors; (i) to review performance on a
quarterly basis, and to submit such reviews to the Reserve Bank; (ii) to submit
a plan to improve the condition of the Bank and the Company; and (iii) to
complete a study of employment contracts and executive officer compensation paid
during 1993 and 1994. As a result of an examination of the Company conducted by
the Reserve Bank as of December 31, 1994, the Reserve Bank memorandum remains in
effect and unchanged. Management believes the Company is in substantial
compliance with the terms and conditions of the Reserve Bank Memorandum.
14
<PAGE>
Sunrise Bancorp
Consolidation Statements of Condition
December 31, 1995 and December 31, 1994
<TABLE>
- ---------------------------------------------------------------------------------------------------
December 31, December 31,
(dollar amounts in thousands) 1995 1994
- -------------------------------------------------------- ---------------- --------------------
<S> <C> <C>
Assets:
Cash and due from banks $ 3,726 $ 6,367
Federal funds sold 1,000 -
Securities purchased under agreements to resell 28,000 -
- -------------------------------------------------------- ---------------- --------------------
Total cash and cash equivalents 32,726 6,367
Investment securities held to maturity
(market value of $19,944 in 1995 and $49,803 in 1994) 20,273 54,040
Loans 66,765 81,340
Less allowance for loan losses 2,505 4,151
- -------------------------------------------------------- ---------------- --------------------
Net loans 64,260 77,189
- -------------------------------------------------------- ---------------- --------------------
Premises and equipment 873 1,406
Other real estate owned 692 3,208
Other assets 2,160 4,290
- -------------------------------------------------------- ---------------- --------------------
$ 120,984 $ 146,500
Liabilities and Shareholders' Equity
===================================================================================================
Deposit liabilities:
Noninterest bearing $ 13,808 $ 29,206
Interest bearing 90,075 87,737
- -------------------------------------------------------- ---------------- --------------------
Total deposit liabilities 103,883 116,943
Borrowings - 10,548
Other liabilities 612 1,000
- -------------------------------------------------------- ---------------- --------------------
Total liabilities 104,495 128,491
Shareholders' equity:
Preferred stock, no par value. Authorized 20,000,000
shares; none issued - -
Common Stock, no par value. Authorized 20,000,000 shares;
issued 4,263,298 shares in 1995 and 1994 18,327 18,327
Deficit (1,838) (318)
- -------------------------------------------------------- ---------------- --------------------
Total shareholders' equity 16,489 18,009
- -------------------------------------------------------- ---------------- --------------------
$ 120,984 $ 146,500
===================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
Sunrise Bancorp
Consolidated Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
=============================================================================================
(dollar amounts in thousands,
except per share data) 1995 1994 1993
- ----------------------------------------------------------- -------- -------- ---------
<S> <C> <C> <C>
Interest income:
Interest on loans $ 7,110 $ 8,120 $ 9,203
Interest on mortgage loans held for sale -- 519 1,616
Interest on investment securities 2,747 3,161 2,127
Interest on Federal funds sold and repurchase agreements 277 400 803
- ----------------------------------------------------------- -------- -------- ---------
Total interest income 10,134 12,200 13,749
- ----------------------------------------------------------- -------- -------- ---------
Interest expense:
Interest on deposit liabilities 3,503 2,977 2,566
Interest on other borrowings 119 396 52
- ----------------------------------------------------------- -------- -------- ---------
Total interest expense 3,622 3,373 2,618
- ----------------------------------------------------------- -------- -------- ---------
Net interest income 6,512 8,827 11,131
Provision for loan losses -- 2,668 7,700
- ----------------------------------------------------------- -------- -------- ---------
Net interest income after provision for loan 6,512 6,159 3,431
- ----------------------------------------------------------- -------- -------- ---------
Other income:
Gain on sale of mortgage loans and servicing -- 1,828 2,888
Service charges and fees 402 584 747
Loan servicing income -- 72 60
(Loss) gain on sale of investment securities (334) -- 228
Other 43 103 624
- ----------------------------------------------------------- -------- -------- ---------
Total other income 111 2,587 4,547
- ----------------------------------------------------------- -------- -------- ---------
Other expenses:
Salaries and employee benefits 2,954 5,320 6,504
Occupancy 1,306 1,191 1,314
Furniture and equipment 579 963 937
Other 3,303 5,775 6,456
- ----------------------------------------------------------- -------- -------- ---------
Total other expenses 8,142 13,249 15,211
- ----------------------------------------------------------- -------- -------- ---------
Net loss before provision for income taxes (1,519) (4,503) (7,233)
Provision (benefit) for income taxes 1 (1,461) (3,065)
- ----------------------------------------------------------- -------- -------- ---------
Net loss before cumulative effect of a change
in accounting principle (1,520) (3,042) (4,168)
Cumulative effect of a change in accounting principle -- -- 250
- ----------------------------------------------------------- -------- -------- ---------
Net loss ($1,520) ($3,042) ($3,918)
=============================================================================================
Net loss per share before cumulative effect of a
change in accounting principle ($ 0.36) ($ 0.71) ($ 0.98)
Cumulative effect of a change in accounting principle -- -- 0.06
- ----------------------------------------------------------- -------- -------- ---------
Net loss per share ($ 0.36) ($ 0.71) ($ 0.92)
=============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
Sunrise Bancorp
Consolidated Statements of Shareholders' Equity
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
========================================================================================
Number of Total
Shares Common Shareholders'
(dollar amounts in thousands) Outstanding Stock Deficit Equity
- -------------------------------------- ----------- --------- ------- ---------------
<S> <C> <C> <C> <C>
Balances at December 31, 1992 4,060,637 $ 17,770 $ 7,202 $ 24,972
Common Stock Dividend including
cash in lieu of fractional shares 202,661 557 (560) (3)
Net loss -- -- (3,918) (3,918)
- -------------------------------------- ----------- --------- ------- ---------------
Balances at December 31, 1993 4,263,298 18,327 2,724 21,051
Net loss -- -- (3,042) (3,042)
- -------------------------------------- ----------- --------- ------- ---------------
Balances at December 31, 1994 4,263,298 18,327 (318) 18,009
Net loss -- -- (1,520) (1,520)
- -------------------------------------- ----------- --------- ------ --------------
Balances at December 31, 1995 4,263,298 $ 18,327 ($ 1,838) $ 16,489
========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
Sunrise Bancorp
Consolidated Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
==========================================================================================================
(dollar amounts in thousands) Years Ended 1995 1994 1993
- -------------------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) ($ 1,520) ($ 3,042) ($ 3,918)
Adjustments to reconcile net
income to net cash provided (used) by
operating activities:
Accretion of deferred loan
fees and costs (104) (144) (209)
Mortgage loans originated
for sale -- (123,537) (314,669)
Proceeds from sale of
mortgage loans -- 162,168 281,908
Gain on sale of mortgage
loans -- (1,828) (2,888)
Loss on sale of available
for sale securities 348 -- (223)
Gain on sale of OREO (121) -- --
Provision for loan and
other real estate owned
losses 1,005 3,168 7,840
Depreciation and
amortization 770 1,124 10,143
Net change in other assets 2,130 2,348 (3,900)
Net change in other
liabilities (388) (235) 204
- -------------------------------------------------------- ------------- ------------- -------------
Net cash provided (used)
by operating activities 2,120 40,022 (25,712)
- -------------------------------------------------------- ------------- ------------- -------------
Investing activities:
Purchases of investment
securities -- (4,000) (67,569)
Proceeds for sales of available
for sale securities 24,040 -- 17,292
Proceeds from maturities of
held to maturities securities 9,142 7,484 9,278
Net decrease (increase) in loans 9,450 29,091 (4,017)
Sale of other real estate owned 5,215 807 4,809
Net purchases of premises and
equipment -- (85) (750)
- -------------------------------------------------------- ------------- ------------- -------------
Net cash used in (provided
by) investing activities 47,847 33,297 (40,957)
- -------------------------------------------------------- ------------- ------------- -------------
Financing activities:
(Decrease) Increase in deposit
liabilities (13,060) (167,926) 65,625
Increase (decrease) in other
borrowings (10,548) 10,548 --
Cash paid in lieu of fractional
shares -- -- (3)
- -------------------------------------------------------- ------------- ------------- -------------
Net cash provided by (used
in) financing activities (23,608) (157,378) 65,622
- -------------------------------------------------------- ------------- ------------- -------------
Increase (decrease) in cash and
cash equivalents 26,359 (84,059) (1,052)
Cash and cash equivalents at
beginning of period 6,367 90,426 91,478
- -------------------------------------------------------- ------------- ------------- -------------
Cash and cash equivalents at end
of period $ 32,726 $ 6,367 $ 90,426
==========================================================================================================
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest 3,607 3,343 2,619
==========================================================================================================
Income taxes paid (refunded) ($ 1,320) ($ 2,503) $ 3
==========================================================================================================
Supplemental schedule of noncash
investing and financing
activities:
Other real estate owned acquired
through foreclosure on assets
securing loans $ 3,583 $ 1,788 $ 2,954
==========================================================================================================
Stock Dividend 557
==========================================================================================================
Transfer of securities from
held to maturity to available
for sale $ 24,388 $ -- $ --
==========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
Sunrise Bancorp
Notes To Consolidated Financial Statements
================================================================================
(1) Nature of Operations
Sunrise Bancorp (the Company) is a bank holding company headquartered in
Roseville, California. Sunrise Bank of California (the Bank), a wholly-owned
subsidiary of the Company, is a full-service commercial bank chartered by the
State of California with branches in Roseville and Citrus Heights and a loan
production office in San Francisco. The Bank's business plan emphasizes service
to the central California counties of Sacramento, Placer, Yolo and El Dorado.
The Bank has concentrated on servicing middle market companies including those
in the title insurance business and homeowner association management companies.
One of the Bank's primary target markets is small to medium sized businesses,
"small" is defined as revenues of less than $2.5 million, "medium" is defined as
businesses with revenues between $2.5 million and $10 million. The Company
itself does not engage in any business activities other than the ownership of
the Bank.
(2) Summary of Significant Accounting Policies
The accounting and reporting policies of the Company conform with generally
accepted accounting principles and prevailing practices within the banking
industry. The Company follows the accrual method of accounting. Such principles
require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. The following is a summary of the most significant of the
policies.
(a) Financial Statement Presentation
The consolidated financial statements include the accounts of Sunrise Bancorp
and its wholly-owned subsidiary, Sunrise Bank of California. All intercompany
accounts and transactions have been eliminated in consolidation. Certain
reclassifications to the 1994 and 1993 financial statements were made to conform
to the classifications used in the 1995 financial statements.
(b) Investment Securities
The Company accounts for investments in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115 "Accounting for Certain Investments in
Debt and Equity Securities". This standard requires investment securities to be
classified as either held to maturity, trading or available for sale. Management
determines the appropriate classification of investment securities at the time
of purchase and reevaluates such designation as of each balance sheet date. Debt
securities are classified as held to maturity when the Company has the intent
and ability to hold the securities to maturity. Held to maturity securities are
stated at cost, adjusted for amortization of premiums and accretion of
discounts. Such amortization together with interest earned is included in
interest income. Debt and equity securities that are bought and held for the
purpose of selling them in the near term are classified as trading securities
and are reported at fair value, with unrealized gains and losses included in
income. Debt and equity securities not classified as either held to maturity or
trading securities are classified as available for sale securities and are
reported at fair value, with unrealized gains and losses included as a separate
component of shareholders' equity, net of tax. Gain or loss on sale of
investment securities is recognized based on the specific identification method.
(c) Loans, Loan Fees and Interest Income
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their outstanding
principal balances reduced by any charge-offs and net of any deferred fees or
costs or unamortized premiums or discounts on purchased loans.
Interest on loans is accrued as earned except where reasonable doubt exists as
to the collectability of the interest, in which case the accrual of income is
discontinued and any interest accrued but unpaid is reversed against current
income. Interest on loans with principal past due ninety days or more continues
to accrue only when management believes collectability of principal and interest
is certain. Cash payments received on non-accrual loans are recognized as income
only where the future collection of the recorded value of the loan is considered
by management to be probable.
The Company defers loan fees and certain direct loan origination costs, and
subsequently recognizes such fees and costs as an adjustment of yield by the
interest method based on the contractual terms of the loans.
(d) Allowance for Loan Losses
The allowance for loan losses is established through a provision charged to
expense. Loans are charged off against the allowance when management believes
the collection of loan principal is unlikely. The allowance is maintained at a
level which management estimates to be adequate to provide for losses that can
be reasonably anticipated, although ultimate losses may vary from estimates. In
evaluating the adequacy of this allowance and in determining the provision to be
charged to operating expense for each period, management considers such factors
as historical loan loss experience, known problem loans, evaluations made by
bank regulatory authorities and the assessment of economic conditions and other
appropriate data to identify the risks in the loan portfolio.
19
<PAGE>
Sunrise Bancorp
================================================================================
The Company adopted SFAS No. 114 "Accounting by Creditors for Impairment of a
Loan" and SFAS 118 "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosure" on January 1, 1995. SFAS No. 114 requires that
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or as a practical
expedient at the loan's observable market rate or the fair value of the
collateral if the loan is collateral dependent. SFAS No. 118 amends SFAS No. 114
to allow a creditor to use existing methods for recognizing interest income on
impaired loans and requires certain information to be disclosed. Because the
Company had previously calculated its allowance for loan and lease losses using
methods approximating those prescribed in SFAS 114, the adoption of this
standard did not have a material impact on the Company's financial position or
results of operations.
(e) Premises and Equipment
Premises and equipment owned are stated at cost, less accumulated depreciation
and amortization. Depreciation is computed on a straight-line basis over the
estimated useful lives of three to ten years.
(f) Other Real Estate Owned
Property acquired by the Company through foreclosure is initially recorded at
the lower of (i) estimated fair market value less the cost to sell or (ii) cost
at the date of foreclosure. At the time a property is acquired if the fair
market value is less than the outstanding loan amount, any difference is charged
against the allowance for possible loan losses. After acquisition, valuations of
the properties are periodically performed and, if the carrying value of the
property exceeds the fair market value less estimated costs to sell, a valuation
allowance is established by a charge to operations. Subsequent increases in the
fair market value may reduce or eliminate the allowance.
Operating costs on foreclosed real estate are expensed as incurred. Costs
incurred for physical improvements to foreclosed real estate are capitalized if
the value is recoverable through a future sale.
(g) Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". The cumulative effect of adopting SFAS No. 109 on
the Company's financial statements as of January 1, 1993 was to increase income
from continuing operations by $250,000 ($.06 per share).
SFAS 109 applies the asset and liability method in accounting for income taxes.
The provision for income tax is comprised of the current year tax expense and
the net change in deferred tax assets and liabilities as of the balance sheet
date. Deferred tax assets and liabilities are calculated by applying the income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted through the provision
for income taxes. Deferred tax assets are reduced by a valuation allowance for
any tax benefits to the extent that, in the opinion of management, are unlikely
to be realized.
(h) Net Loss Per Share
Net loss per share is computed based on the weighted average number of shares of
common stock outstanding. The total number of shares of outstanding common stock
was 4,263,298 as of December 31, 1995, 1994, and 1993 respectively. Weighted
average shares have been adjusted retroactively to give effect to the 5% stock
dividend in 1993. The inclusion of stock options and warrants as common stock
equivalents have no effect on the earnings per share calculations as they are
antidilutive.
(i) New Accounting Pronouncements
Accounting for the Impairment of Long-lived Assets - In March 1995, the FASB
issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". SFAS No. 121 establishes standards for
accounting for the impairment of long-lived assets, certain identifiable
intangibles and goodwill. It does not apply to financial instruments, long-term
customer relationships of a financial institution (e.g. core deposit
intangibles), mortgage and other servicing rights, or deferred tax assets. This
standard will be effective for the Company beginning January 1, 1996. The
Company has determined that the effect of adoption of this standard will not be
material.
Mortgage Servicing Rights - In May 1995, the FASB issued SFAS No. 122,
"Accounting for Mortgage Servicing Rights," which must be adopted by the Company
effective January 1, 1996. SFAS No. 122 requires that the Company recognize as
separate assets rights to service mortgage loans for others, whether those
servicing rights are originated or purchased. Previously, only purchased
servicing rights were capitalizable as an asset whereas internally originated
rights were expensed. SFAS No. 122 also requires that capitalized servicing
rights be assessed for impairment based on fair market value, rather than an
estimate of undiscounted future cash flows. The Company has determined that the
effect of adoption of this standard will not be material.
20
<PAGE>
Sunrise Bancorp
================================================================================
Accounting for Stock-Based Compensation - In October 1995, the FASB issued SFAS
No. 123, "Accounting for Stock-Based Compensation." The new standard defines a
fair market value method of accounting for stock options and other equity
instruments, such as stock purchase plans. Under this method, compensation costs
are measured based on the fair value of the stock award when granted and are
recognized as an expense over the service period, which is usually the vesting
period. This standard will be effective for the Company beginning January 1,
1996, and requires measurement of awards made beginning in 1995.
The new standard permits companies to account for equity transactions with
employees under existing accounting rules, but requires disclosure in a note to
the financial statements of the pro forma net income and earnings per share as
if the Company had applied the new method of accounting. The Company intends to
follow these disclosure requirements for its stock option plans. Adoption of the
new standard will not impact reported earnings or earnings per share, and will
have no effect on the Company's cash flows.
(3) Cash and Due From Banks
The Bank maintains balances at the Federal Reserve Bank to comply with reserve
requirements set forth by Regulation D of the Federal Reserve Act, as amended.
At December 31, 1995 and 1994, the Bank was required to maintain average
balances of approximately $1,199,000 and $5,902,800 respectively, to comply with
these regulations. For the purposes of reporting cash flows, cash and cash
equivalents on the Consolidated Statements of Cash Flows include cash and due
from banks, interest bearing deposits with maturities of 90 days or less,
federal funds sold, and securities purchased under agreements to resell.
(4) Securities Purchased Under Agreement To Resell
The Company purchases securities under agreements to resell to invest excess
liquidity. The purchases are typically collateralized by U.S. Treasury
securities, U.S. government securities, mortgage-backed securities or whole
loans. These agreements generally mature on the next business day. There were
$28,000,000 in outstanding securities purchased under agreements to resell as of
December 31, 1995. Securities purchased under agreements to resell averaged
$1,641,000, $8,530,000, and $19,652,000 during 1995, 1994 and 1993; and the
maximum amounts outstanding at any month end during the years ended December 31,
1995, 1994 and 1993 were $28,000,000, $24,500,000, and $49,000,000,
respectively.
(5) Investment Securities
The amortized cost, unrealized gains and losses, and estimated market value of
investment securities are as follows:
<TABLE>
<CAPTION>
=============================================================================
(dollar amounts in thousands)
Estimated
Amortized Unrealized Unrealized Market
Cost, Gains, (Losses), Value
- ----------------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1995:
U.S. treasury
securities $ 999 $ -- ($ 1) $ 998
Mortgage-backed
securities 19,274 -- (328) 18,946
- ----------------------------- --------- ---------- ---------- ---------
Total Investment
Securities $ 20,273 $ -- ($ 329) $ 19,944
=============================================================================
December 31, 1994:
U.S. treasury
securities $ 4,998 $ -- ($ 59) $ 4,939
Mortgage-backed
securities 49,037 -- (4,197) 44,840
Other securities 5 19 -- 24
- ----------------------------- --------- ---------- ---------- ---------
Total Investment
Securities $ 54,040 $ 19 ($ 4,256) $ 49,803
=============================================================================
</TABLE>
The following is a summary of the estimated maturities of investment securities
which are principally mortgage-backed securities held as of December 31, 1995:
<TABLE>
<CAPTION>
=============================================================================
(dollar amounts in thousands)
Amortized Fair
Cost Value Yield
- ---------------------------------------- ---------- ---------- ---------
<S> <C> <C> <C>
Due in One Year or Less $ 2,136 $ 2,099 5.62%
Due in One Year
Through Five Years 18,137 17,845 5.60%
- ---------------------------------------- ---------- ---------- ---------
$ 20,273 $ 19,944 5.60%
=============================================================================
</TABLE>
Maturities of mortgage-backed securities are classified in accordance with
contractual repayment schedules. Actual maturities may differ from the
contractual maturities reported above because debt security issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
21
<PAGE>
Sunrise Bancorp
================================================================================
Proceeds from the sale of investment securities amounted to $28,057,000, $0, and
$17,292,000 in 1995, 1994 and 1993 respectively, which resulted in a gross
realized loss of $334,000 in 1995 and a gross realized gain of $228,000 in 1993.
Investment securities with an amortized cost of $400,000 at December 31, 1995,
and $12,037,000 at December 31, 1994, were pledged to secure treasury tax and
loan accounts and other borrowing facilities.
In November 1995, the FASB issued additional implementation guide lines
regarding previously issued SFAS No. 115. In accordance with this guidance and
prior to December 31, 1995, companies were allowed a one-time reassessment of
their classification of securities and were required to account for any
resulting transfers at fair value. Transfers from the held to maturity category
that result from this one-time reassessment will not call into question the
intent to hold other securities to maturity in the future. The Company
transferred approximately $24,388,000 of securities from the held to maturity
portfolio to the available for sale portfolio. These securities were then sold
and resulted in a net loss of $348,000. This transfer was made to allow the
Company greater flexibility in managing its interest rate risk and liquidity.
(6) Loans and Allowance For Loan Losses
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
===========================================================================
(dollar amounts in thousands) December 31,
1995 1994
- -------------------------------------------------- --------- ---------
<S> <C> <C>
Commercial $ 26,359 $ 34,635
Agricultural 1,375 --
Real Estate:
Construction and land development 4,383 5,997
Mortgage 31,267 35,165
Consumer installment 3,149 5,268
Other loans 404 551
- -------------------------------------------------- --------- ---------
66,937 81,616
Deferred fees and costs (172) (276)
- -------------------------------------------------- --------- ---------
Net Loans $ 66,765 $ 81,340
===========================================================================
</TABLE>
The Bank's customers are located throughout Northern California with the
majority concentrated in the greater Sacramento and San Francisco Bay regions.
The Bank's real estate construction and land development loans, which represent
approximately 7% of total loans, consist primarily of loans made to finance
residential projects in Placer, El Dorado and Sacramento counties. The Company's
real estate mortgage loans, which represent 47% and 43% of total loans as of
December 31, 1995 and 1994, consist mainly of loans made to finance owner
occupied and commercial income property in Placer, El Dorado, and Sacramento
counties. A significant portion of these residential real estate mortgage loans
resulted from the Bank providing take-out financing on the Bank's construction
and land development loan portfolio.
At December 31, 1995, approximately 93% of the total loans were collateralized.
Generally, real estate loans are secured by real property while commercial and
other loans are secured by bank deposits, real property, business assets, or
personal assets. Repayment is generally expected from the sale of the related
property for real estate construction loans, and from cash flow of the borrower
for other loans.
Changes in the allowance for loan losses for each of the three years ended
December 31, 1995, 1994 and 1993 are summarized as follows:
<TABLE>
<CAPTION>
=============================================================
(dollars amounts in thousands) 1995 1994 1993
- -------------------------------- ------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year $ 4,151 $ 5,615 $ 3,205
Provision for loan losses -- 2,668 7,700
Loan chargeoffs (1,821) (4,196) (5,355)
Loan recoveries 175 64 65
- -------------------------------- ------- ------- -------
Balance at end of year $ 2,505 $ 4,151 $ 5,615
=============================================================
</TABLE>
Nonaccrual loans totaled $3,228,000, $7,347,000 and $5,300,000 at December 31,
1995, 1994 and 1993. Additional interest income that would have been recognized
from nonaccrual loans had they performed in accordance with their original
contractual terms, totaled $340,000, $516,000 and $603,000 in 1995, 1994 and
1993 respectively.
At December 31, 1995, the Company's recorded investment in loans for which an
impairment has been recognized totaled $5,248,000. Included in this amount were
$3,008,000 of impaired loans for which a SFAS 114 allowance of $484,500 is
included in the allowance for loan losses, as well as $2,240,000 of impaired
loans that as a result of write downs on the fair value of collateral, did not
have a SFAS 114 allowance. The average recorded investment in impaired loans was
$5,746,500 for 1995. Except for non-accrual loans, interest is recognized on
impaired loans when cash is received and the future collection of principal is
considered by management to be probable. For the year ended December 31, 1995,
the Company recognized $127,500 in interest on such loans.
22
<PAGE>
================================================================================
(7) Premises and Equipment
The major classifications of premises and equipment are as follows:
<TABLE>
<CAPTION>
=====================================================
(dollar amounts in thousands) December 31,
1995 1994
- ----------------------------------- ------- -------
<S> <C> <C>
Furniture, fixtures and equipment $ 2,146 $ 3,567
Leasehold improvements 1,199 1,331
- ----------------------------------- ------- -------
3,345 4,898
Accumulated depreciation
and amortization 2,472 3,492
- ----------------------------------- ------- -------
$ 873 $ 1,406
=====================================================
</TABLE>
Depreciation and amortization of $521,000, $745,000 and $742,000 was recorded
for the years ended December 31, 1995, 1994 and 1993 respectively.
(8) Other Real Estate Owned
Other real estate owned was $692,000 and $3,208,000 at December 31, 1995 and
1994 respectively. These balances are net of the allowance for losses on other
real estate owned of $1,113,000 and $392,000 respectively. During 1995,
$1,005,000 was added as a provision and $284,000 was charged off. During 1994,
$500,000 was added as a provision and $248,000 was charged off.
(9) Deposit Liabilities
Time deposits of $100,000 or more amounted to $9,610,000 and $7,637,000 at
December 31, 1995 and 1994 respectively. Interest expense on time deposits of
$100,000 or more totaled $549,000, $482,000 and $531,000 for 1995, 1994 and 1993
respectively. As of December 31, 1995 and 1994 deposits included $38,693,000 and
$34,063,000 or 37% and 29% of total deposits of homeowner association management
companies.
(10) Borrowings
Sunrise Bank of California is eligible to borrow funds on a secured basis from
the Federal Reserve Bank of San Francisco and several broker/dealers. The
maximum available advance is dependent upon the dollar total of the Bank's
investment securities and loans pledged to collateralize such borrowings. As of
December 31, 1994, the Bank had $10,548,000 in short term borrowings and had
$12,037,000 in securities pledged under these borrowing facilities. As of
December 31, 1995, there were no amounts outstanding under these arrangements.
There were average borrowings for the years ended December 31, 1995 and 1994 of
$2,155,000 and $7,418,000 respectively with average interest rates of 5.5% and
5.4% respectively.
(11) Income Taxes
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
=====================================================================
(dollar amounts in thousands) 1995 1994 1993
- ------------------------------- -------- --------- ---------
<S> <C> <C> <C>
Current:
Federal $ 70 ($ 838) ($ 2,251)
State 85 (83) 2
- ------------------------------- -------- --------- ---------
155 (921) (2,249)
- ------------------------------- -------- --------- ---------
Deferred:
Federal (70) (526) (466)
State (84) (14) (350)
- ------------------------------- -------- --------- ---------
(154) (540) (816)
- ------------------------------- -------- --------- ---------
$ 1 ($ 1,461) ($ 3,065)
=====================================================================
</TABLE>
The total income tax rate differs from the amount computed by applying the U.S.
Federal statutory income tax rate to income before income taxes and the
cumulative effect of adopting SFAS No. 109. A reconciliation of the statutory
income tax rate to the effective income tax rate of the Company is as follows:
<TABLE>
<CAPTION>
=====================================================================
(dollar amounts in thousands) 1995 1994 1993
- ------------------------------- -------- --------- ---------
<S> <C> <C> <C>
Statutory rate (35.0%) (35.0%) (35.0%)
State franchise tax rate
(net of federal income
tax benefit) .1% (1.8%) (7.3%)
Reversal of tax reserves
provided in previous years
no longer required -- -- (8.1%)
Limitation on the utilization
of tax benefits 34.1% 3.2% 6.1%
Other .8% 1.2% 1.9%
- ------------------------------- -------- --------- ---------
Effective rate .0% (32.47%) (42.4%)
=====================================================================
</TABLE>
At December 31, 1995, the Company had operating loss carryforwards for federal
tax purposes of approximately $1,303,000 which expire in 2009. In addition, the
Company
23
<PAGE>
Sunrise Bancorp
===============================================================================
had operating loss carryforwards for state tax purposes of approximately
$5,819,000 which begin to expire in 1998. Federal and state operating loss
carryforward differ primarily because the State of California disallows the
carryback of operating losses and limits carryforward amounts to 50% of the
reported tax loss.
The Tax Reform Act of 1986, as amended and the California Conformity Act of 1987
impose substantial restrictions on the utilization of net operating loss
carryforwards in the event of an "ownership change," as defined by the Internal
Revenue Code. If there should be a significant ownership change of Sunrise
Bancorp, the ability to utilize the stated federal and state loss carryforwards
could be significantly reduced.
Deferred income taxes reflect the tax effect of temporary differences existing
between the financial statement basis and tax basis of assets and liabilities
recognized in the financial statements. Under SFAS No. 109, deferred tax assets
are reduced by a valuation allowance when it has been determined that is
unlikely such assets will be realized.
The Company has recorded a net deferred tax asset of $2,492,000 with a
corresponding valuation allowance of $1,267,000 for a net carrying value of
$1,225,000. This asset is primarily attributable to loss carryforwards, which
expire between 1998 and 2009, and timing differences. For the loss
carryforwards, realization is dependent on generating sufficient taxable income
prior to expiration of loss carryforwards. In addition, upon reversal of timing
differences, if sufficient taxable income is unavailable, additional loss
carryforwards would be created. Therefore, the ultimate realization of the
carrying value of the deferred tax asset is dependent on generating sufficient
taxable income in the future. Although realization is not assured, management
believes it is more likely than not that the net carrying value of the deferred
tax asset will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income are reduced.
The tax effect of the principal temporary items creating the Company's net
deferred tax benefit included in other assets at December 31, 1995 and 1994 are
as follows:
<TABLE>
<CAPTION>
===============================================================================
(dollar amounts in thousands) 1995 1994
- -------------------------------------------------------- -------- -----------
<S> <C> <C>
Writedown of investments ($ 136) ($ 1,483)
Allowance for loan losses 702 1,468
Loan origination costs (39) (71)
California franchise tax (134) (132)
Premises and equipment 91 54
California net operating loss 658 548
Other real estate owned 526 178
Federal net operating loss 443 1,096
Alternative minimum tax credit 291 137
Other 90 (64)
- -------------------------------------------------------- -------- -----------
2,492 1,731
Less valuation allowance 1,267 660
- -------------------------------------------------------- -------- -----------
Total net deferred tax benefit $ 1,225 $ 1,071
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
(12) Other Expenses
The composition of other operating expenses for the years
ended December 31, 1995, 1994, and 1993 respectively is
set forth below:
===============================================================================
(dollar amounts in thousands) 1995 1994 1993
- -------------------------------------------- -------- ---------- -----------
<S> <C> <C> <C>
Stationery and supplies $ 79 $ 229 $ 308
OREO expense 977 634 562
Communications 234 565 540
Professional fees 586 801 1,776
State Banking Department and
FDIC insurance assessments 317 712 667
Other outside service fees 599 1,041 976
Other 511 1,793 1,627
- -------------------------------------------- -------- ---------- -----------
$3,303 $ 5,775 $ 6,456
===============================================================================
</TABLE>
Included within other outside service fees are amounts incurred for outside
vendors to perform various banking services for depositors that are in real
estate related industries. Their services include data processing, courier, and
other deposit related services. Total amounts paid to outside vendors amounted
to $297,000, $592,000 and $709,000 in 1995, 1994, and 1993, respectively. These
services were discontinued with the reduction of title company deposits.
24
<PAGE>
Sunrise Bancorp
===============================================================================
(13) Commitments and Contengencies
Lease Commitments
The future minimum lease payments for noncancelable operating leases, and the
minimum sublease rental receipts for noncancelable subleases, with remaining
terms in excess of one year are as follows:
<TABLE>
<CAPTION>
====================================================
(dollar amounts in thousands) Leases Subleases
- ------------------------------ -------- ----------
<S> <C> <C>
Year ending December 31,
1996 818 163
1997 715 163
1998 715 163
1999 299 68
Later years -- --
- ------------------------------ -------- ----------
$2,547 $557
====================================================
</TABLE>
Net rental expense aggregated $844,000, $760,000 and $789,000 in 1995, 1994, and
1993, respectively.
Commitments to Extend Credit
In the ordinary course of business, the Company enters into transactions which
involve financial instruments which are not reflected in the consolidated
financial statements. These financial instruments consist of undisbursed loan
commitments of $9,987,000 and stand-by letters of credit of $510,000 at December
31, 1995. The Company applies the same credit policies in making these "off
balance sheet" commitments as it does for "on balance sheet" instruments. The
Bank's exposure to credit loss in the event of nonperformance by the other party
to the financial instrument for loan commitments and stand-by letters of credit
is equal to the contractual amount of those instruments. The undisbursed loan
commitments relate primarily to undisbursed portions of commercial lines of
credit.
The loan commitments are typically contingent upon the borrower meeting certain
financial requirements and other covenants, and such commitments typically have
fixed expiration dates and require payment of a fee. Since a portion of these
commitments are expected to expire without being drawn upon, the total
commitments do not necessarily represent future cash requirements. The Bank
evaluates each potential borrower and the necessary collateral on an individual
basis. Collateral varies, but may include real property, bank deposits, debt or
equity securities or business assets.
Stand-by letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk is
similar to that involved in extending loan commitments to customers, and the
Bank accordingly uses evaluation and collateral requirements similar to those
for loan commitments. At December 31, 1995, $500,000 of the standby letters of
credit were unsecured.
Litigation
The Company and the Bank are at times subject to threatened or filed legal
actions with regard to matters arising out of the course of their businesses. It
is the opinion of management, after consulting with legal counsel, that the
resulting liability, if any, as a result of these legal actions will not
materially affect the consolidated financial position of the Company.
(14)Employee Benefit Plans
The Company has two Stock Option Plans (the "Plans") for full-time salaried
officers and employees who have significant responsibility for the successful
operation of the Company and the Bank. The Plans provide for the grant of
incentive and nonstatutory stock options. The options may be granted to purchase
up to a remaining aggregate of 778,649 shares (as adjusted for stock dividends)
of the Company's authorized but unissued common stock. The exercise price of all
options granted under the Plans may not be less than 100% of the fair market
value of the Company's common stock on the date of the grant, and must be paid
in full in cash or shares of the Company's common stock at the time the option
is exercised. Under the Plans, all options expire no later than ten years after
the date of the grant.
A summary of changes in outstanding options follows:
<TABLE>
<CAPTION>
====================================================
Average
Number of Price per
Shares Share
<S> <C> <C>
- ------------------------------ --------- ---------
Balance at December 31, 1992 410,949 $3.39
Granted 231,534 3.27
Canceled 249,596 3.35
- ------------------------------ --------- ---------
Balance at December 31, 1993 392,887 3.35
Granted 217,000 2.65
Canceled 96,162 3.55
- ------------------------------ --------- ---------
Balance at December 31, 1994 513,725 3.35
Granted 75,000 1.56
Canceled 329,097 3.40
- ------------------------------ --------- ---------
Balance at December 31, 1995 259,628 $2.29
====================================================
</TABLE>
Options covering 85,629 shares, at an average price of $2.98 per share, were
exercisable at December 31, 1995.
25
<PAGE>
Sunrise Bancorp
===============================================================================
The Company has a 401(k) tax deferred savings plan under which eligible
employees may elect to defer a portion of their salary as a contribution to the
plan. The Company matches the employee contributions at a rate set by the board
of directors (currently 50% of the first 6% of deferral of an individual's
salary). The matching contribution vests ratably over six years. The Company
contributed $51,000, $47,000 and $69,000 in 1995, 1994 and 1993.
(15) Shareholders Equity
The Company commenced a private offering of its common stock in 1991. Under the
offering, a total of 328,002 shares valued at $5.00 per share were issued and
warrants to purchase a total of 218,668 shares of common stock of the Company at
$5.00 per share were issued. Proceeds received under this offering, net of costs
incurred, amount to $1,529,000. On December 31, 1991, the Company acquired the
assets of an escrow accounting company in exchange for 75,000 shares of common
stock of the Company and warrants to purchase 50,000 shares of common stock of
the Company at $5.00 per share. This asset purchase was valued at $375,000.
Warrants issued in connection with these transactions became exercisable on July
2, 1993 and expire on December 31, 1997. Total shares exercisable under these
warrants amount to 296,206 at a price of $4.54 per share after adjusting for
1992 and 1993 stock dividends.
(16) Related Party Transactions
The Company has granted in the ordinary course of business, loans to certain of
its directors, executive officers, and to associates of such persons
(collectively referred as "related parties"). The aggregate dollar amount of
loans to related parties was $1,732,000 and $2,228,000 at December 31, 1995 and
1994. During 1995, $224,000 of new loans to related parties were advanced and
principal repayments totaled $720,000. During 1994, $1,097,000 of new loans to
related parties were advanced and principal repayments totaled $616,000. None of
the loans outstanding at December 31, 1995 and 1994 were contractually past due
as to principal or interest, nor were they classified as nonperforming or
potential problem loans.
(17) Regulatory Matters
Regulatory Agreements
On April 14, 1993, the Bank entered into a Memorandum of Understanding with the
Federal Deposit Insurance Corporation (the "FDIC") and the Superintendent of
Banks of the State of California (the "Superintendent") to address various
matters arising from an examination of the Bank conducted by the FDIC as of
October 5, 1992. This Memorandum of Understanding superseded the previous
Memorandum of Understanding with the Bank dated July 16, 1991. As a result of a
joint examination of the Bank conducted by the FDIC and the Superintendent as of
the close of business October 25, 1993, and the conclusion of the FDIC and the
Superintendent that the Bank was not in compliance with the requirements of the
Memorandum of Understanding dated April 14, 1993, the Bank entered into a
revised Memorandum of Understanding with the FDIC on May 17, 1994 (the "FDIC
Memorandum") and the Bank entered into a regulatory agreement with the
Superintendent on May 24, 1994, as amended on October 31, 1994 (the "State
Agreement"). (The FDIC Memorandum and the State Agreement are referred to
collectively as the "Agreements.") As a result of a joint examination of the
Bank conducted by the FDIC and the Superintendent as of the close of business
December 18, 1995, both Agreements were terminated.
As a result of an examination of the Company conducted by the Federal Reserve
Band ("Reserve Bank") as of December 31, 1993, the Company entered into a
Memorandum of Understanding with the Reserve Bank on September 2, 1994 (the
"Reserve Bank Memorandum"). The Reserve Bank Memorandum requires the Company:
(i) to submit a policy for receiving dividends from the Bank; (ii) to submit a
capital plan to improve and maintain an adequate capital position for the
Company and the Bank; (iii) to submit a plan to manage the Company's and the
Bank's growth; (iv) to submit annual budgets for the Company and the Bank; (v)
to submit an explanation of certain management and service fees and other
payments assessed or paid by the Bank to the Company since January 1, 1993, and
adopt a policy addressing inter-corporate management and service fees and other
payments and make any reimbursements to the Bank as may be required by the
Reserve Bank; (vi) to obtain prior approval to declare or pay any dividends,
engage in certain financial transactions,
26
<PAGE>
Sunrise Bancorp
===============================================================================
increase borrowings or incur debt, increase director fees, pay executive bonuses
or execute renew or modify any employment or service contracts with executive
officers, or otherwise acquire any of its shares of common stock; and (vii) to
submit quarterly written progress reports and certain financial statements. The
Reserve Bank Memorandum also requires the Company's Board of Directors; (i) to
review performance on a quarterly basis, and to submit such reviews to the
Reserve Bank; (ii) to submit a plan to improve the condition of the Bank and the
Company; and (iii) to complete a study of employment contracts and executive
officer compensation paid during 1993 and 1994. As a result of an examination of
the Company conducted by the Reserve Bank as of December 31, 1994, the Reserve
Bank memorandum remains in effect and unchanged. Management believes the Company
is in substantial compliance with the terms and conditions of the Reserve Bank
Memorandum.
Capital Guidelines
The Company and the Bank are subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. The regulations require
the Company and the Bank to meet specific capital adequacy guidelines that
involve quantitative measures of assets, liabilities and certain "off balance
sheet" items as calculated under regulatory accounting practices. The Company's
and the Bank's capital classifications are also subject to qualitative
judgements by the regulators about components, risk weightings and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum ratios of total and Tier 1 capital (as
defined in the regulations) to risk-weighted assets (as defined) and a minimum
leverage ratio of Tier 1 capital to average assets (as defined). Management
believes, as of December 31, 1995, that the Company meets all capital adequacy
requirements to which it is subject.
<TABLE>
<CAPTION>
The following table shows the Company's and the Bank's capital ratios at
December 31, as well as the minimum regulatory capital ratios:
==============================================================================
Minimum
Capital
Capital Ratios: 1995 1994 Ratios
- ---------------------------------------------------- ------ ------ --------
<S> <C> <C> <C>
Company:
Total risk-based capital ratio 18.31% 17.27% 8.00%
Tier 1 capital to
risk-weighted assets 17.05% 16.02% 4.00%
Leverage ratio 11.75% 8.98% 4.00%
- ---------------------------------------------------- ------ ------ --------
Bank:
Total risk-based capital ratio 16.95% 16.28% 8.00%
Tier 1 capital to
risk-weighted assets 15.69% 15.04% 4.00%
Leverage ratio 10.98% 8.42% 4.00%
==============================================================================
</TABLE>
Dividend Limitations
California law restricts the amount of net profits of the Bank available for
distribution to the Company in the form of cash dividends to the lesser of
retained earnings or the Bank's net income for its last three fiscal years (less
any distributions to shareholders made during such period). Where this test is
met, cash dividends may, with the prior approval of the California
Superintendent of Banks, be paid in an amount which does not exceed the greater
of (i) the retained earnings of the Bank, (ii) the net income of the Bank. As of
December 31, 1995, the Bank had no retained earnings for its current fiscal
year. As of December 31, 1995, the Bank had no retained earnings.
27
<PAGE>
Sunrise Bancorp
================================================================================
(18) Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS 107, "Disclosures About Fair
Value of Financial Instruments." The estimated fair value amounts have been
determined by using available market information and appropriate valuation
methodologies. However, considerable judgement is required to interpret market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that could be
realized in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
The following estimates and assumptions were used on December 31, 1995 to
estimate the fair value of each class of financial instruments for which such an
estimation was practicable.
Cash and Cash Equivalents - For cash and equivalents, the carrying amount is a
reasonable estimate of fair value.
Investment Securities - The fair value of investment securities is based on
quoted market prices, dealer quotes, and prices obtained from independent
pricing services.
Loans - The fair value of performing loans is estimated by discounting the
future cash flows using the current interest rates at which similar loans would
be made to borrowers with similar credit ratings and for the same remaining
maturities. The fair value of nonperforming loans of approximately $2,684,000
and $6,115,000 at December 31, 1995 and 1994, was based on estimated net
realizable value.
Demand deposits and time deposits - The fair value of demand deposits, savings
accounts, and certain money market deposits is the amount payable on demand at
the reporting date. The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits with similar remaining
maturities.
Commitment to extend credit and standby letters of credit - The fair value of
commitments and letters of credit is estimated using the fees currently charged
to enter into similar agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates. The
difference between the carrying value of commitments to fund loans or standby
letters of credit and their fair value is not significant and therefore not
included in the following table.
<TABLE>
<CAPTION>
The summaries of these financial instruments and their related fair values at
December 31, 1995 and 1994 are as follows
(in thousands):
===============================================================================
1995 1994
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- ------------------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash and
cash equivalents $32,726 $ 32,726 $ 6,367 $ 6,367
Investment
and securities $20,273 $ 19,944 $ 54,040 $ 49,803
Loans $64,260 $ 63,360 $ 77,189 $ 75,045
Liabilities:
Noninterest-
bearing deposits $13,808 $ 13,808 $ 29,206 $ 29,206
Interest-
bearing deposits $90,075 $ 89,969 $ 87,737 $ 87,768
Other borrowings $ -- $ -- $ 10,548 $ 10,548
==============================================================================
</TABLE>
28
<PAGE>
Sunrise Bancorp
================================================================================
(19) Sunrise Bancorp (Parent Company Only)
Condensed Statements of Condition
December 31, 1995 and 1994
<TABLE>
<CAPTION>
==============================================================================
(dollar amounts in thousands) 1995 1994
- ----------------------------------------------------- -------- --------
<S> <C> <C>
Cash and interest bearing deposits $ 894 $ 1,449
Investment in bank subsidiary 15,430 16,877
Premises and equipment, net 40 65
Other assets 138 208
- ----------------------------------------------------- -------- --------
$ 16,502 $ 18,599
==============================================================================
Other liabilities 13 590
Shareholders' equity 16,489 18,009
- ----------------------------------------------------- -------- --------
$ 16,502 $ 18,599
==============================================================================
<CAPTION>
Condensed Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
==============================================================================
(dollar amounts in thousands) 1995 1994 1993
- ------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Income:
Interest $ 27 $ 23 $ 48
Other 49 98 -
- ------------------------------------ -------- -------- --------
76 121 48
- ------------------------------------ -------- -------- --------
Expenses:
Salaries and benefits 26 65 272
Net occupancy expense -- 31 192
Other 122 86 692
Income tax (benefit) provision 1 (12) (983)
- ------------------------------------ -------- -------- --------
149 170 173
- ------------------------------------ -------- -------- --------
Loss before equity
in undistributed income
of subsidiary (73) (49) (125)
Equity in undistributed
loss of subsidiary (1,447) (2,993) (4,043)
Cumulative effect of
a change in accounting
principle of subsidiary -- -- 250
- ------------------------------------ -------- -------- -------
Net Loss ($1,520) ($3,042) ($3,918)
==============================================================================
<CAPTION>
Condensed Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
==============================================================================
(dollar amounts in thousands) 1995 1994 1993
- ------------------------------------ -------- ------- -------
<S> <C> <C> <C>
Operating activities:
Net loss ($1,520) ($3,042) ($3,918)
Adjustments to reconcile
net loss to net cash provided
by operating activities:
Undistributed loss
of subsidiaries 1,447 2,993 3,793
Gain on sale of investments (17) -- --
Depreciation and
amortization 24 34 34
Net change in other
assets and liabilities (512) 462 (1,312)
- ------------------------------------ -------- ------- -------
Net cash (used) provided
by operating activities (578) 447 (1,403)
- ------------------------------------ -------- ------- -------
Investing activities:
Proceeds from sale
of investments 23 -- --
Acquisition of premises
and equipment -- (11) (1)
- ------------------------------------ -------- ------- -------
Net cash provided (used)
by investing activities 23 (11) (1)
- ------------------------------------ -------- ------- -------
Financing activities:
Cash paid in lieu of
fractional shares -- -- (3)
- ------------------------------------ -------- ------- -------
Net cash used by
financing activities -- -- (3)
(Decrease) increase in cash
and cash equivalents (555) 436 (1,407)
Cash and cash equivalents
at beginning of year 1,449 1,013 2,420
Cash and cash equivalents
at end of year $ 894 $ 1,449 $ 1,013
==============================================================================
</TABLE>
29
<PAGE>
Sunrise Bancorp
Independent Auditors Report
- --------------------------------------------------------------------------------
Board of Directors and Shareholders
Sunrise Bancorp
Roseville, California
We have audited the accompanying consolidated statements of condition of Sunrise
Bancorp and Subsidiary (Company) as of December 31, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
materials respects, the financial position of Sunrise Bancorp and Subsidiary at
December 31, 1995 and 1994 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
As discussed in Note 17 to the consolidated financial statements, the Company is
subject to a Memorandum of Understanding with the Federal Reserve Board.
As discussed in Note 2 to the consolidated financial statements, effective
January 1, 1994, the Company changed its method of accounting for investment
securities to conform with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
/s/ Deloitte & Touche LLP
Sacramento, California
February 9, 1996
<PAGE>
Sunrise Bancorp
Market for Registrant's Common Equity
and Related Shareholders Matters
================================================================================
The Company's common stock (symbol: "SRBC") is traded on the Nasdaq National
Market (NNM). The common stock was first included in the Nasdaq stock market in
1989. The prices shown below are high and low sale prices.
<TABLE>
<CAPTION>
Price of Common Stock
=========================================
1995 1994
- --------------- ------------- -----------
Quarter High Low High Low
- --------------- ------- ----- ------ ----
<S> <C> <C> <C> <C>
First $2.00 1.50 $3.75 3.25
Second 2.88 1.63 3.38 2.50
Third 3.63 2.50 2.75 2.00
Fourth 3.00 2.25 2.25 1.50
=========================================
</TABLE>
At December 31, 1995, there were approximately 1,000 holders of record of the
Company's common stock.
The Company has not paid any cash dividend on its common stock since 1984. The
shareholders of the Company are entitled to receive dividends when and as
declared by its Board of Directors, out of funds legally available therefor,
subject to the restrictions set forth in the California General Corporation Law
("Corporation Law"). The Corporation Law provides that a corporation may make a
distribution to its shareholders if the corporation's retained earnings equal at
least the amount of the proposed distribution. The Corporation Law further
provides that, if sufficient retained earnings are not available for the
proposed distribution, a corporation may nevertheless make a distribution to its
shareholders if it meets two conditions, which generally stated are as follows:
(i) the corporation's assets equal at least 1 1/4 times its liabilities; and
(ii) the corporation's current assets equal at least its current liabilities or,
if the average of the corporation's earnings before taxes on income and before
interest expense for the two preceding fiscal years was less than the average of
the corporation's interest expense for such fiscal years, then the corporation's
current assets must equal at least 1 1/4 times its current liabilities.
Selected Quarterly Financial Data
(Unaudited)
================================================================================
(Dollar Amounts in Thousands) For the quarter ended
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
03/31/95 06/30/95 09/30/95 12/31/95
- -------------------------------------- ---------- ---------- ------------ ----------
Interest income $ 2,679 $ 2,659 $ 2,505 $ 2,291
Interest expense 879 892 940 911
- -------------------------------------- ---------- ----------- ------------ ----------
Net interest income 1,800 1,767 1,565 1,380
Provision for loan losses -- -- -- --
Other income 93 118 117 117
Other expense (1) 1,802 1,929 1,827 2,918
- -------------------------------------- ---------- ----------- ------------ ----------
Income (loss) before provision
for income taxes and
cummulative effect of a change
in accounting principle 91 (44) (145) (1,421)
Provision (Benefit) for income taxes 38 (3) (34) --
Net income (loss) $ 53 ($41) ($111) ($1,421)
- -------------------------------------- ---------- ----------- ------------ ----------
Net Income (loss) per share $0.01 ($0.01) ($0.03) ($0.33)
<CAPTION>
(Dollar Amounts in Thousands) For the quarter ended
<S> <C> <C> <C> <C>
03/30/94 06/30/94 09/30/94 12/31/94
- -------------------------------------- ---------- ----------- ------------ ----------
Interest income $ 3,439 $ 3,213 $ 2,842 $ 2,705
Interest expense 750 760 923 940
- -------------------------------------- ---------- ----------- ------------ ----------
Net interest income 2,689 2,453 1,919 1,765
Provision for loan losses 401 2,007 100 160
Other income 1,187 688 664 48
Other expense (1) 3,909 3,285 3,810 2,245
- -------------------------------------- ---------- ----------- ------------ ----------
Income (loss) before provision
for income taxes and
cummulative effect of a change
in accounting principle (434) (2,151) (1,326) (592)
Provision (Benefit) for income taxes (179) (777) (420) (85)
Net income (loss) ($255) ($1,374) ($906) ($507)
- -------------------------------------- ---------- ----------- ------------ ----------
Net Income (loss) per share ($0.06) ($0.32) ($0.21) ($0.12)
</TABLE>
================================================================================
(1) The increase in other expenses for the quarter ended 12-31-95 was
attributable to a valuation reserve of $705,000 on other real estate owned
and a loss on securities sold of $348,000.
31
<PAGE>
Sunrise Bancorp
================================================================================
Form 10-K
The annual report of Sunrise Bancorp, as filed to the Securities and Exchange
Commission on Form 10-K for the year ended December 31,1995, is available free
of charge by writing to: Sarah Thompson Senior Vice President, Chief Financial
Officer and Corporate Secretary Sunrise Bancorp 5 Sierragate Plaza Roseville,
California 95678
Stock Transfer Agent
and Registrar
First National Bank of Boston
Mail Stop 45-02-09
P.O. Box 644
Boston, MA 02102-0644
(617) 575-2000
Principal Market Makers
A.G. Edwards & Sons, Inc.
2180 Howard Street, Ste. 500
Sacramento, CA 95815
(800) 458-6006
Hoefer & Arnett, Incorporated
100 Pine Street, Fifth Floor
San Francisco, CA 94111
(415) 362-7111
Sandler O'Neill
Two World Trade Center, 104th Floor
New York, NY 10048
(800) 466-7700
Corporate Counsel
Bronson, Bronson & McKinnon
505 Montgomery Street
San Francisco, CA 94111
Independant Public Accountants
Deloitte & Touche
400 Capitol Mall, Suite 2000
Sacramento, CA 95814
Board of Directors Sunrise
Bancorp and Sunrise Bank
of California
Sean E. McCarthy, Esq.
Chairman of the Board of
Sunrise Bancorp and Sunrise Bank
of California
Partner, Washburn, Briscoe & McCarthy
Donald Leary
Vice Chairman of the Board of
Sunrise Bancorp
Assistant to President, Progressive
Circuit Products, Inc.
(electronics manufacturing)
Paul Wagner
Vice Chairman of the Board of
Sunrise Bank of California
Consultant, Richardson-Wagner
Corporation
(retail clothing sales)
William M. Eames
Chairman, William M. Eames
& Associates
(retail industries consultant)
Leon Lewis
Secretary - Treasurer, Bestway
Investments, Ltd
(financial management)
Anthony Pescetti
Principal of Joan Milke Flores Group
(government relations consulting)
Ron Pitamber
Hotel Owner
M. Randy Randazzo, M.D.
Retired, Physician
Doris Ward
Retired, Retail Furniture Sales
Officers Sunrise Bancorp
and Sunrise Bank of California
Hal Giomi
President and Chief Executive
Officer
Sarah Thompson
Senior Vice President,
Chief Financial Officer
and Corporate Secretary
Janet Buchmeier
Vice President and Assistant
Corporate Secretary
32
<PAGE>
Corporate Headquarters
Sunrise Bancorp
#5 SierraGate Plaza
Roseville, CA 95678
(916) 783-2800
Sunrise Bank of California
Roseville
#5 SierraGate Plaza
Roseville, CA 95678
(916) 783-2800
Citrus Heights
7777 Sunrise Blvd.
Citrus Heights, CA 95610
(916) 745-0700
San Francisco
Loan Production Office
220 Sansome Street
San Francisco, CA 94104
(415) 834-3500
Member FDIC
<PAGE>
SUNRISE BANCORP
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED BY AND ON BEHALF OF THE BOARD OF DIRECTORS OF SUNRISE
BANCORP
The undersigned appoints Hal Giomi and Sarah Thompson and each of them as
proxies for the undersigned, with full power of substitution to represent and
vote all of the shares of Sunrise Bancorp Common Stock standing in the name of
the undersigned at the Annual Meeting of Shareholders of Sunrise Bancorp to be
held on Monday, September 30, 1996, and at any adjournment or postponement
thereof, on the following matters as described in the Proxy Statement
accompanying the Notice of Annual Meeting, receipt of which is hereby
acknowledged, and according to the direction of a majority of the Board of
Directors on all other matters that may properly be presented for action at the
meeting and at any adjournment or postponement thereof. The proxyholders are
also given discretionary authority to cumulate votes represented by the shares
covered by this proxy in the election of directors. The undersigned may revoke
this proxy at any prior to its exercise.
This proxy, when properly executed, will be voted as directed. If no direction
is given, this proxy will be voted FOR Proposal No. 1 and FOR the election of
the nominees named on the reverse as directors.
[REVERSE SIDE]
1. Proposal to approve and adopt the Amended and Restated Agreement and Plan of
Merger dated August 15, 1996, pursuant to which Sunrise Bancorp will merge
with and into Sunlight Holdings, Inc. which at the time of the merger will be a
wholly owned subsidiary of either First Banks America, Inc. or First Banks,
Inc., the majority stockholder of First Banks America, Inc.
FOR [_] AGAINST [_] ABSTAIN [_]
2. Proposal to elect as directors the following nominees recommended by the
Board of Directors:
William Eames, Donald Leary, Leon Lewis, Sean McCarthy, Anthony Pescetti,
Ron Pitamber, Michael "Randy" Randazzo, M.D., Paul Wagner and Doris Ward
FOR [_] WITHHELD [_]
To withhold authority to vote for one or more nominees, write the
nominee(s) name(s) in the following space:
---------------------------------
Dated: ,1996
---------------------------
-------------------------------------
-------------------------------------
Signature(s) of Shareholder
Please sign exactly as the name(s)
appear in this proxy. If the shares
are issued in the names of two or more
persons, all of them should sign the
proxy. A proxy executed by a
corporation should be signed in its
name by an authorized officer.
Executors, administrators and trustees
should so indicate when signing.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTPAID RETURN ENVELOPE.
