<PAGE> 1
As filed with the Securities and Exchange Commission on May 29, 1998
Registration No. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
UNITED SECURITY BANCORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
WASHINGTON 6022 91-1259511
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer identification no.)
incorporation or organization) classification code number)
</TABLE>
9506 NORTH NEWPORT HIGHWAY, SPOKANE, WASHINGTON 99218-1200 (509) 467-6949
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
----------
RICHARD C. EMERY
President and Chief Operating Officer
9506 North Newport Highway
Spokane, Washington 99218-1200
(509) 467-6949
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
-----------
Copies of communications to:
STEPHEN M. KLEIN, ESQ. P. THOMAS PARRISH
MARK C. LEWINGTON, ESQ. Gerrish & McCreary, P.C.
Graham & Dunn PC 700 Colonial Road, Suite 200
1420 Fifth Avenue, 33rd Floor Memphis, Tennessee 38124-2120
Seattle, Washington 98101
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC:
The date of mailing of the enclosed Prospectus/Proxy Statement to
stockholders of Grant National Bank.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==============================================================================================
Title of Each Proposed Maximum Proposed Maximum Amount of
Class of Securities Amount Being Offering Price Aggregate Registration
Being Registered Registered(1) Per Share(2)(3) Offering Price(3) Fee
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
No Par Value 470,000 $7.54 $3,544,160 $1,089.45
==============================================================================================
</TABLE>
(1) Represents the estimated maximum number of shares of United Security
Bancorporation's common stock, no par value ("USBN Common Stock"),
issuable in exchange for the 33,000 shares of Grant National Bank's
common stock, par value $25 per share ("GNB Common Stock"), that are
outstanding and the 1,000 shares of GNB Common Stock subject to
outstanding options, under the terms of the Agreement and Plan of
Consolidation described in this Registration Statement.
(2) Represents the maximum price per share of USBN Common Stock issuable in
exchange for GNB Common Stock, based on the Transaction exchange ratio.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2) under the Securities Act of 1933, as amended
("1933 Act"), on the basis of the per share book value of the GNB Common
Stock as at March 31, 1998.
---------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
FILES A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE 1933 ACT, OR UNTIL THIS REGISTRATION STATEMENT BECOMES EFFECTIVE ON SUCH
DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
<PAGE> 2
GRANT NATIONAL BANK
261 Basin SW
P.O. Box 880
Ephrata, Washington 98823
Telephone: (509) 754-5650
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of Grant National Bank ("GNB") to be held on July ___, 1998. The meeting will be
held at the main office of GNB at 261 Basin SW in Ephrata, Washington. The
meeting will begin promptly at 6:00 p.m. local time. The Notice of Special
Meeting of Shareholders and the Prospectus/Proxy Statement that appear on the
following pages describe the business that will take place at the meeting. At
the meeting, you will be asked to vote on an Agreement and Plan of Consolidation
dated as of March 24, 1998 (the "Transaction Agreement"). Pursuant to this
Transaction Agreement, GNB will be acquired by United Security Bancorporation of
Spokane, Washington ("USBN") by means of a consolidation of GNB with a special
purpose subsidiary that is being formed by USBN. As a result, GNB will become a
wholly-owned subsidiary of USBN.
The Transaction Agreement provides for the conversion and exchange of
each and every outstanding share of GNB Common Stock into shares of USBN Common
Stock. The exact conversion ratio will be computed at the time the Transaction
is consummated and is based on a formula that is described in the following
Prospectus/Proxy Statement and its attachments. You are urged to review
carefully the Prospectus/Proxy Statement, which contains a more complete
description of the terms of the Transaction Agreement. The Board of Directors of
GNB has unanimously approved the Transaction Agreement and recommends that the
shareholders vote FOR the approval of the Transaction Agreement. Approval of the
Transaction Agreement requires the affirmative vote of two-thirds of the
outstanding shares of GNB Common Stock.
It is very important that your shares be represented at the meeting,
regardless of whether you plan to attend in person. A failure to vote, either by
not returning the enclosed Proxy or checking the "abstain" box on the Proxy,
will have the same effect as a vote against approval of the Transaction
Agreement. To ensure that your shares are represented in voting on this very
important matter, please complete, sign, date and return the enclosed Proxy card
in the postage-prepaid envelope provided, whether or not you plan to attend the
meeting. If you do attend, you may, if you wish, revoke your Proxy and vote your
shares in person at the meeting.
The Board of Directors believes that this transaction is in the best
interest of GNB and its shareholders. On behalf of the Board of Directors, we
recommend that you vote FOR approval of the Transaction Agreement.
Date: June ___, 1998 Very truly yours,
Lawrence C. Mitson, President
and Chief Executive Officer
Grant National Bank
<PAGE> 3
GRANT NATIONAL BANK
Notice of Special Shareholders' Meeting
to be held on July ____, 1998
Notice is hereby given that a Special Meeting of Shareholders of
Grant National Bank ("GNB") will be held at GNB's main office located at 261
Basin SW, Ephrata, Washington 98823 on ________, July ___, 1998 at 6:00 p.m.
local time for the following purposes:
1. To consider and vote upon an Agreement and Plan of Consolidation
dated as of March 24, 1998 (the "Transaction Agreement") by and between GNB,
United Security Bancorporation ("USBN") and, upon its formation by USBN, New
Grant National Bank ("New Bank"). Under the Transaction Agreement and pursuant
to 12 U.S.C. Section 215, GNB will consolidate with New Bank under the Charter
of GNB, and the resulting consolidated national banking association will operate
under the name "Grant National Bank."
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The Transaction Agreement is set forth as Appendix A of the
accompanying Prospectus/Proxy Statement.
All stockholders of record at the close of business on June ___, 1998
are entitled to vote at the meeting. Proposal 1 above requires the affirmative
vote of two-thirds of the outstanding shares entitled to vote for approval.
Whether or not you plan to attend the meeting, please complete, date
and sign the enclosed Proxy and return it at once in the stamped return envelope
in order to assure that your shares will be represented at the meeting. You may
revoke your Proxy at any time prior to its exercise. Any shareholder present at
the meeting or any adjournments or postponements of the meeting may revoke his
or her Proxy and vote personally on each matter brought before the meeting.
By order of the Board of Directors,
June ___, 1998
----------------------------------------
Michael F. Moore, Secretary
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE TRANSACTION
AGREEMENT.
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT
PROMPTLY IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE.
GNB SHAREHOLDERS ARE ENTITLED TO DISSENT FROM THE TRANSACTION
AGREEMENT AND RECEIVE CASH FOR THEIR SHARES OF GNB COMMON STOCK RATHER THAN
SHARES OF USBN COMMON STOCK. SHAREHOLDERS MAY DISSENT BY FOLLOWING THE
PROCEDURES AND REQUIREMENTS SET FORTH IN SECTION 215 OF THE NATIONAL BANK ACT, A
COPY OF WHICH IS ATTACHED AS APPENDIX B.
<PAGE> 4
PROXY STATEMENT
GRANT NATIONAL BANK
PROSPECTUS
UNITED SECURITY BANCORPORATION
SHARES OF COMMON STOCK (NO PAR VALUE)
This Prospectus/Proxy Statement is being furnished to holders of
common stock, par value $25 per share ("GNB Common Stock") of Grant National
Bank ("GNB"), a national banking association, in connection with the
solicitation of proxies by the Board of Directors of GNB (the "GNB Board") for
use at the GNB Special Meeting of Shareholders to be held on July ___, 1998 at
6:00 p.m. local time, at 261 Basin SW, Ephrata, Washington, and at any
adjournments or postponements of such meeting. GNB stockholders will vote upon a
proposal to approve the consolidation (the "Transaction") of GNB with New Grant
National Bank ("New Bank"), a newly-formed interim national banking association
and wholly-owned subsidiary of United Security Bancorporation ("USBN"), a
Washington corporation, on the terms described in the Agreement and Plan of
Consolidation dated as of March 24, 1998 (the "Transaction Agreement") among
GNB, USBN and New Bank. Pursuant to the Transaction Agreement, New Bank will be
consolidated (i.e. merged) with GNB, and the resulting consolidated national
banking association will be GNB, operating as an independent subsidiary of USBN.
The Transaction Agreement is incorporated into this Prospectus/Proxy Statement
by reference and attached as Appendix A.
When the Transaction becomes effective, shares of the common stock of
USBN, no par value per share ("USBN Common Stock") with an aggregate value of
$10 million (subject to certain adjustments as set forth in the Transaction
Agreement) (as adjusted, the "Total Consideration") will be issued in exchange
for all outstanding shares of GNB Common Stock based on a floating exchange
ratio. See "THE TRANSACTION -- Basic Terms of the Transaction". The exchange
ratio (that is, the precise number of shares of USBN Common Stock to be
exchanged for each outstanding share of GNB Common Stock) will be determined by
dividing the amount of the Total Consideration by the number of GNB shares
outstanding, and dividing the quotient obtained by the Average Closing Price (as
defined) of USBN Common Stock. The Average Closing Price is the average trading
price of USBN Common Stock for the 25 trading days in which at least 2,000
shares of USBN Common Stock are traded in the period ending five days prior to
the closing of the Transaction. If, however, a deal is announced for USBN to
merge with or be acquired by a third party, the Average Closing Price will be
the average price of USBN Common Stock for the 15 trading days in which at least
2,000 shares of USBN Common Stock are traded in the period ending 90 days prior
to the closing of the Transaction. See "THE TRANSACTION -- Basic Terms of the
Transaction." Cash will be paid in lieu of fractional shares.
The aggregate number of shares of USBN Common Stock to be issued in
the Transaction cannot be determined until the Total Consideration and the
Average Closing Price are established. Accordingly, the exchange ratio will be
determined after the GNB Special Shareholders Meeting. Assuming, for
illustration purposes only, that the Total Consideration is $10,000,000, the
Average Closing Price is $23 and that 33,000 shares of GNB Common Stock are
outstanding and subject to exchange on the Effective Date, the exchange ratio
would be 13.18 (i.e., $10,000,000 divided by 33,000 shares = 303.03 (rounded);
303.03 divided by $23 = 13.18 (rounded)). Accordingly, the aggregate number of
shares of USBN Common Stock issued would be 434,783 (i.e., 13.18 x 33,000 =
434,783). Assuming that 434,783 shares of USBN Common Stock are issued in the
Transaction and 4,054,278 shares of USBN are outstanding after closing of the
Transaction (excluding shares to be issued to GNB stockholders), GNB
stockholders will hold approximately 9.68% of the outstanding USBN Common Stock.
USBN Common Stock trades on the Nasdaq National Market under the
symbol "USBN." The last reported sales price for the USBN Common Stock was $____
per share on _______, 1998, the most recent date for which it was practicable to
obtain information prior to the printing of this Prospectus/Proxy Statement. GNB
Common Stock does not trade on any market, thus no current market price is
available. See "STOCK PRICE AND DIVIDEND INFORMATION."
<PAGE> 5
This Prospectus/Proxy Statement also constitutes the Prospectus of
USBN filed as part of a Registration Statement on Form S-4 with the Securities
and Exchange Commission ("SEC") under the Securities Act of 1933, as amended
(the "1933 Act"), relating to shares of the USBN Common Stock to be issued in
the Transaction. When the Transaction becomes effective, all outstanding shares
of GNB Common Stock will be converted into the right to receive shares of USBN
Common Stock. Cash will be paid in lieu of fractional shares. See "THE
TRANSACTION --Basic Terms of the Transaction." Stockholders desiring to do so
may dissent from the Transaction and obtain payment for their shares in
accordance with the provisions of Section 215 of the United States Code, a copy
of which is included in this Prospectus/Proxy Statement as Appendix B. For a
description of certain significant considerations in connection with the
Transaction, see "THE TRANSACTION -- Basic Terms of the Transaction; " --
Dissenters' Rights of Appraisal"; " -- Conditions to the Transaction"; and " --
Interests of Certain Persons in the Transaction."
THIS PROSPECTUS/PROXY STATEMENT DOES NOT COVER ANY RESALE OF THE
SECURITIES TO BE RECEIVED BY STOCKHOLDERS OF GNB UPON CONSUMMATION OF THE
TRANSACTION, AND NO PERSON IS AUTHORIZED TO MAKE ANY USE OF THIS
PROSPECTUS/PROXY IN CONNECTION WITH ANY SUCH RESALE.
THE SHARES OF USBN COMMON STOCK ISSUABLE IN THE TRANSACTION ARE NOT
SAVINGS OR DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF A BANK AND ARE
NOT INSURED BY THE BANK INSURANCE FUND OF THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY OR
INSTRUMENTALITY.
THE SHARES OF USBN COMMON STOCK ISSUABLE IN THE TRANSACTION HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
The date of this Prospectus/Proxy Statement is ____________, 1998.
<PAGE> 6
AVAILABLE INFORMATION
USBN is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended ("1934 Act"). In accordance with the
1934 Act, USBN files reports, proxy statements, and other information with the
SEC. GNB is not subject to the information and reporting requirements of the
1934 Act.
Under the rules and regulations of the SEC, the solicitation of
stockholders to approve the Transaction constitutes an offering of the USBN
Common Stock to be issued in conjunction with the Transaction. USBN has filed a
Registration Statement with the SEC under the 1933 Act covering the USBN Common
Stock to be issued in connection with the Transaction. The Registration
Statement and the exhibits thereto, as well as the reports, proxy statements,
and other information filed with the SEC by USBN under the 1934 Act may be
inspected and copied at prescribed rates at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at 7
World Trade Center, Thirteenth Floor, New York, New York 10048, and at The
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials may also be obtained at prescribed rates from the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549. Copies of materials filed by USBN with the SEC may also be obtained
through the Commission's Internet address at http://www.sec.gov. In addition,
materials filed by USBN are available for inspection at the offices of The
Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006.
This Prospectus/Proxy Statement constitutes part of the Registration
Statement (File No. 333-_______) filed by USBN with the SEC under the 1933 Act.
This Prospectus/Proxy Statement omits certain information contained in the
Registration Statement in accordance with the rules and regulations of the SEC.
Reference is made hereby to the Registration Statement and related exhibits for
further information with respect to USBN and the USBN Common Stock. Statements
contained herein or in any document incorporated herein by reference as to the
contents of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement or such other document incorporated herein by reference. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by USBN with the SEC under the 1934 Act
are incorporated by reference herein:
1. USBN's Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 0-18561 ("USBN 1997 10-K");
2. USBN's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, File No. 0-18561 ("USBN March 31, 1998
10-Q");
3. USBN's Annual Meeting Proxy Statement for the 1998 Annual
Meeting of Shareholders ("USBN 1998 Proxy Statement").
4. USBN's Current Report on Form 8-K dated March 24, 1998.
All documents filed by USBN under Sections 13(a), 13(c), 14 and 15(d)
of the 1934 Act after the date of this Prospectus/Proxy Statement and before the
GNB Special Meeting are incorporated by reference and are a part of this
Prospectus/Proxy Statement from each document's date of filing. Any statement
contained in a document incorporated by reference as modified or superseded for
purposes hereof to the extent that a statement contained herein or in any other
subsequently filed document that also is incorporated by reference herein
modifies or supersedes that statement. Any statement so modified or superseded
will not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus/Proxy Statement.
<PAGE> 7
This Prospectus/Proxy Statement incorporates by reference documents
that are not presented herein or delivered herewith. These documents (other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into such documents) are available, without charge, to each person,
including any beneficial owner, to whom a copy of this Prospectus/Proxy
Statement is delivered. Requests for such copies should be directed to
Jacqueline A. Barnard, Secretary, United Security Bancorporation, 9506 North
Newport Highway, Spokane, Washington 99218-1200, (509) 467-6949.
-------------------
All information contained in this Prospectus/Proxy Statement relating
to USBN has been furnished by USBN, and GNB is relying upon the accuracy of that
information. All information contained in this Prospectus/Proxy Statement
relating to GNB has been furnished by GNB, and USBN is relying upon the accuracy
of that information.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY EITHER USBN OR GNB. THIS PROSPECTUS/PROXY STATEMENT DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER,
SOLICITATION OF AN OFFER, OR PROXY SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS/PROXY STATEMENT NOR ANY
DISTRIBUTION OF THE SECURITIES OFFERED UNDER THE TERMS OF THIS PROSPECTUS/PROXY
STATEMENT SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF GNB,
USBN OR ANY OF THEIR RESPECTIVE SUBSIDIARIES SINCE THE DATE OF THIS
PROSPECTUS/PROXY STATEMENT OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS/PROXY STATEMENT.
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
GLOSSARY OF CERTAIN KEY TERMS.....................................................................G-1
SUMMARY.............................................................................................1
Introduction................................................................................1
Parties to the Transaction..................................................................1
Special Stockholder Meeting - GNB...........................................................2
The Transaction; Exchange Ratio.............................................................2
Reasons for the Transaction; Recommendation of the GNB Board................................4
Opinion of Financial Advisor to GNB.........................................................4
Effective Date of the Transaction...........................................................4
Exchange of Stock Certificates..............................................................5
Conditions; Regulatory Approvals............................................................5
Amendment or Termination of the Transaction Agreement.......................................5
Directors and Executive Officers After the Transaction......................................5
Federal Income Tax Treatment of the Transaction.............................................6
Accounting Treatment........................................................................6
Dissenters' Rights of Appraisal.............................................................6
Interests of Certain Persons in the Transaction.............................................6
Comparison of Stockholders' Rights..........................................................7
Trading Markets.............................................................................7
STOCK PRICE AND DIVIDEND INFORMATION................................................................8
USBN........................................................................................8
GNB.........................................................................................8
Recent Stock Price Data.....................................................................9
EQUIVALENT PER COMMON SHARE DATA...................................................................10
Selected Historical Financial Data - GNB...................................................11
GNB SPECIAL SHAREHOLDER MEETING....................................................................13
Date, Time, Place and Purpose..............................................................13
Shares Outstanding and Entitled to Vote; Record Date.......................................13
Vote Required..............................................................................13
Voting, Solicitation, and Revocation of Proxies............................................13
BACKGROUND OF AND REASONS FOR THE TRANSACTION......................................................14
Background of the Transaction..............................................................14
Reasons for the Transaction - GNB..........................................................14
Recommendation of GNB Board of Directors...................................................15
Opinion of GNB Financial Advisor...........................................................15
USBN's Reasons for the Transaction.........................................................17
THE TRANSACTION....................................................................................18
Basic Terms of the Transaction.............................................................18
Mechanics of the Transaction...............................................................20
Effective Date of the Transaction..........................................................20
Exchange of GNB Stock Certificates.........................................................20
</TABLE>
i
<PAGE> 9
<TABLE>
<S> <C>
Conditions to Consummation of the Transaction; Regulatory Approvals........................21
Amendment or Termination...................................................................22
Conduct of Business Pending the Transaction................................................22
Directors and Executive Officers After the Transaction.....................................23
Employee Benefit Plans.....................................................................23
Interests of Certain Persons in the Transaction............................................23
Federal Income Tax Treatment of the Transaction............................................24
Accounting Treatment of the Transaction....................................................25
Dissenters' Rights of Appraisal............................................................25
Resale of USBN Common Stock................................................................26
No Solicitation............................................................................26
Expenses...................................................................................27
PRO FORMA COMBINED UNAUDITED FINANCIAL STATEMENTS..................................................27
NOTES TO PRO FORMA COMBINED UNAUDITED FINANCIAL STATEMENTS.........................................34
BUSINESSES OF THE PARTIES TO THE TRANSACTION.......................................................34
Information Concerning USBN................................................................34
Information Concerning GNB.................................................................35
Security Ownership of Certain Beneficial Owners and Management of GNB......................36
GNB MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS......................................................................37
General....................................................................................37
Financial Condition and Results of Operations for the Three Months Ended March 31, 1998 and
1997................................................................................37
Financial Condition and Results of Operations for the Years Ended
December 31, 1997 and 1996 ................................................................37
Loan Quality...............................................................................38
Year 2000 Issue............................................................................40
Quantitative and Qualitative Disclosure About Market Risk..................................40
MANAGEMENT OF USBN.................................................................................41
SUPERVISION AND REGULATION.........................................................................41
The Holding Company........................................................................41
Banks......................................................................................43
DESCRIPTION OF USBN CAPITAL STOCK..................................................................45
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF USBN AND GNB COMMON STOCK...............................46
CERTAIN LEGAL MATTERS..............................................................................49
EXPERTS............................................................................................49
OTHER MATTERS......................................................................................50
</TABLE>
ii
<PAGE> 10
<TABLE>
<S> <C>
APPENDIX A - Agreement and Plan of Consolidation
APPENDIX B - Section 215 of the National Banking Act (Dissenters'
Rights of Appraisal under federal law)
APPENDIX C - Opinion of Southard Financial
</TABLE>
iii
<PAGE> 11
GLOSSARY OF CERTAIN KEY TERMS
1933 Act ....................... The Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
1934 Act ....................... The Securities Exchange Act of 1934, as
amended, and related rules and regulations.
Average Closing Price .......... If no "Triggering Event" has occurred, the
average Daily Sales Price (average of bid and
ask prices per share) of USBN Common Stock for
the 25 consecutive trading days on which 2,000
shares are traded, with the last such trading
day being the fifth day preceding the Effective
Date. If a "Triggering Event" has occurred, the
Average Closing Price will be the average Daily
Sales Price of USBN Common Stock for the 15
consecutive trading days on which 2,000 shares
have traded, with the last such trading day
being the 90th day preceding the public
announcement of such Triggering Event.
BHCA ........................... The Bank Holding Company Act of 1956, as
amended.
Board .......................... Board of Directors.
Closing ........................ The closing of the Transaction contemplated in
the Transaction Agreement.
Code ........................... The Internal Revenue Code of 1986, as amended.
Dissenting Shares .............. Those shares of GNB Common Stock with respect
to which GNB's stockholders have perfected
their dissenters' rights under the National
Banking Act.
Effective Date ................. The date Closing of the Transaction will occur.
FDIC ........................... The Federal Deposit Insurance Corporation.
FRB ............................ The Board of Governors of the Federal Reserve
System.
GAAP ........................... Generally accepted accounting principles,
consistently applied.
GNB ............................ Grant National Bank, a national banking
association.
GNB Board ...................... Board of Directors of GNB.
GNB Common Stock ............... GNB's Common Stock, par value $25 per share.
GNB Financial Statements ....... GNB's (i) balance sheet as of December 31, 1997
(audited) and the related statements of income,
cash flows and stockholders' equity for each of
the years ended December 31, 1997 (audited) and
1996 (unaudited), and (ii) GNB's unaudited
balance sheet as of March 31, 1998, and the
related unaudited statements of income and cash
flows for the three months ended March 31, 1998
and 1997.
GNB Record Date ................ 5:00 p.m. on June __, 1998.
G-1
<PAGE> 12
GNB Special Meeting ............ Special meeting of GNB stockholders to be held
on July __, 1998.
Nasdaq ......................... Nasdaq National Market System.
New Bank ....................... New Grant National Bank, a new interim national
banking association to be formed by USBN to
facilitate the Transaction.
OCC ............................ The Office of the Comptroller of the Currency.
Prospectus/Proxy Statement ..... This Prospectus/Proxy Statement, filed with the
SEC by USBN and to be mailed to GNB's
stockholders, together with any amendments and
supplements.
Registration Statement ......... The Registration Statement on Form S-4, of
which this Prospectus/Proxy Statement forms a
part, filed with the SEC by USBN under the 1933
Act, for the purpose of registering the shares
of USBN Common Stock to be issued in the
Transaction.
SEC ............................ The Securities and Exchange Commission.
Southard Financial ............. Southard Financial, GNB's financial advisor.
Termination Date ............... December 31, 1998, the date after which each
party has the right to terminate the
Transaction Agreement, if the Closing has not
occurred by that date.
Transaction .................... The consolidation of GNB with and into New
Bank, a newly-formed interim national banking
association and wholly-owned subsidiary of
USBN, in accordance with the Transaction
Agreement and in accordance with 12 United
States Code Sections 215(a) through 215(g) and
12 Code of Federal Regulations Section 5.33.
Transaction Agreement .......... The Agreement and Plan of Consolidation, dated
as of March 24, 1998, between GNB, USBN and,
upon its formation by USBN, New Grant National
Bank.
Triggering Event ............... Generally means announcement of a deal or
proposal involving the sale of USBN. More
specifically, a "Triggering Event" means (i)
USBN's having authorized, recommended, or
proposed or announced an intention to authorize
or recommend an agreement with a third party to
effect a merger or similar transaction with
USBN, where present USBN shareholders will
control less than 50% of the surviving
institution ("USBN Transaction"); (ii) a third
party proposal (to USBN or its shareholders) to
engage in a USBN Transaction; (iii) the filing
by a third party of an application or notice,
with regulatory authorities, to engage in a
USBN Transaction; or (iv) the commencement by a
third party of a tender offer or exchange that
would result in the third party owning or
controlling 20% or more of USBN's Common Stock.
USBN ........................... United Security Bancorporation, a Washington
corporation and banking holding company.
USBN Board ..................... Board of Directors of USBN.
USBN Common Stock .............. USBN's Common Stock, no par value per share.
G-2
<PAGE> 13
USBN Financial Statements ...... USBN's (i) audited consolidated statements of
financial condition as of December 31, 1997 and
1996, and the related audited consolidated
statements of income, cash flows and
stockholders' equity for each of the years
ended December 31, 1997, 1996 and 1995, and
(ii) unaudited consolidated statement of
financial condition as of March 31, 1998, and
the related unaudited statement of income for
the three months then ended.
G-3
<PAGE> 14
SUMMARY
The following material summarizes certain information contained
elsewhere in this Prospectus/Proxy Statement. This summary is not intended to be
complete and is qualified in its entirety by reference to the more detailed
information contained elsewhere in this Prospectus/Proxy Statement (including
the appendices). Capitalized terms used in this Prospectus/Proxy Statement,
unless the context otherwise requires, have the meanings ascribed to them in the
Glossary of Certain Key Terms inside the front cover. Additionally, terms used
principally in particular sections of this Prospectus/Proxy Statement may be
defined in the sections where they are initially used.
INTRODUCTION
USBN and GNB propose to reorganize GNB as a wholly owned subsidiary
of USBN under the terms of the Transaction Agreement. If the Transaction
Agreement is approved by the stockholders of GNB and other conditions to closing
are satisfied, New Bank, a newly formed interim national banking association and
wholly owned subsidiary of USBN, will be consolidated (in effect, merged) with
and into GNB (the "Transaction"). Consequently, holders of GNB Common Stock
would become stockholders of USBN, and GNB would become a direct subsidiary of
USBN. After the Transaction is consummated, GNB stockholders will no longer own
any stock in GNB, and the resulting consolidated national banking association
will operate under the charter of GNB and under the name "Grant National Bank."
The respective Boards of Directors of USBN, New Bank and GNB have
unanimously approved the Transaction Agreement. The GNB Board recommends that
the stockholders of GNB vote to approve the Transaction Agreement. GNB's
stockholders, other than those that have perfected their dissenters' rights or
would otherwise be entitled to fractional shares of USBN Common Stock based on
the Transaction exchange ratio, will receive shares of USBN Common Stock in
exchange for their shares of GNB Common Stock. See "THE TRANSACTION -- Basic
Terms of the Transaction"; " -- Cash for Fractional Shares"; " -- Dissenters'
Rights of Appraisal."
PARTIES TO THE TRANSACTION
USBN. USBN is a multi-bank holding company headquartered in Spokane,
Washington. USBN owns three banks, United Security Bank, a Washington
state-chartered bank, ("USB"), Home Security Bank, a Washington state-chartered
bank ("HSB"); and Bank of Pullman, an Idaho state-chartered bank ("BOP")
(collectively, the "Banks"), and also owns USB Insurance (Washington) (an
insurance agency), USB Leasing (Washington) (a leasing company), and USB
Mortgage (Washington) (a mortgage company). The principal executive offices of
USBN are located at 9506 North Newport Highway, Spokane, Washington 99218-1200
and its telephone number is (509) 467-6949.
USBN conducts its banking business through 24 branches located in
communities throughout eastern Washington, including Spokane and a branch in
Moscow, Idaho. USBN focuses its banking and other services on individuals,
professionals, and small- to medium-sized businesses in diversified industries
throughout its service area. At December 31, 1997, USBN had total consolidated
assets of $350.4 million, net loans of $226.7 million and deposits of $307.6
million. USBN was founded in 1983 and has been profitable in every year since
its inception. See "BUSINESSES OF THE PARTIES TO THE TRANSACTION - Information
Concerning USBN." Additional information concerning USBN is included in the USBN
documents incorporated by reference in this Prospectus/Proxy Statement. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "AVAILABLE INFORMATION."
GNB. GNB was chartered as a national bank under the laws of the
United States on October 3, 1988 and conducts a commercial banking business in
Ephrata and Moses Lake, Washington. GNB offers a full line of commercial banking
services to its customers and the community providing personal and business
financial
1
<PAGE> 15
services to individuals and small businesses. Services include those
traditionally offered by commercial banks, such as checking and savings
accounts; commercial, real estate, agricultural, personal and other installment
and terms loan; travelers checks; safe deposit boxes; collection services; wire
transfers and notary services. GNB operates a main office in Ephrata and one
branch office in Moses Lake, Washington. GNB maintains its principal offices at
261 Basin SW, Ephrata, Washington 98823, and its telephone number is (509)
754-5650. See "BUSINESSES OF THE PARTIES TO THE TRANSACTION - Information
Concerning GNB."
New Bank. New Bank is a wholly-owned subsidiary of USBN which has
been organized by USBN to facilitate the Transaction.
SPECIAL STOCKHOLDER MEETING - GNB
Place, Time and Date; Purpose. The GNB Special Meeting will be held
on July __, 1998 at 6:00 p.m., local time at the principal offices of GNB, 261
Basin SW, Ephrata, Washington, for the purpose of considering and voting upon a
proposal to approve the Transaction Agreement attached as Appendix A. See "GNB
SPECIAL STOCKHOLDER MEETING."
Record Date; Shares Entitled to Vote. The GNB Board has fixed the
close of business on June __, 1998 as the record date (the "GNB Record Date")
for determining stockholders entitled to notice of and to vote at the GNB
Special Meeting. Only those holders of shares of GNB Common Stock of record on
the GNB Record Date will be entitled to notice of and to vote at the GNB Special
Meeting. Each share of GNB Common Stock will be entitled to one vote.
Stockholders who execute proxies retain the right to revoke them at any time
prior to being voted at the GNB Special Meeting. At the GNB Record Date, there
were _______ shares of GNB Common Stock outstanding and entitled to be voted at
the GNB Special Meeting. See "GNB SPECIAL STOCKHOLDER MEETING."
Vote Required. Approval of the Transaction Agreement requires the
affirmative vote of the holders of two-thirds of the outstanding shares of GNB
Common Stock. At the GNB Record Date, the directors and executive officers of
GNB beneficially owned _______ shares of GNB Common Stock, which represents
______% of the shares entitled to be voted at the GNB Special Meeting. All of
the directors of GNB have entered into an agreement with USBN pursuant to which
each director has agreed to vote his or her shares for approval of the
Transaction Agreement.
See "GNB SPECIAL STOCKHOLDER MEETING."
A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY
CHECKING THE "ABSTAIN" BOX THEREON, WILL HAVE THE SAME EFFECT AS A VOTE AGAINST
APPROVAL OF THE TRANSACTION AGREEMENT.
THE TRANSACTION; EXCHANGE RATIO
The Transaction Agreement provides for the consolidation of New Bank
with and into GNB, with the resulting consolidated national banking association
operating under the name "Grant National Bank." GNB will accordingly become a
wholly owned subsidiary of USBN and will succeed to all of the assets and
liabilities of New Bank. See "THE TRANSACTION -- Basic Terms of the
Transaction."
Upon consummation of the Transaction, each outstanding share of GNB
Common Stock (except for any "Excluded Shares", which are (i) Dissenting Shares
and (ii) any shares of stock held by USBN or GNB, other than in a fiduciary
capacity or in satisfaction of a debt previously contracted) will be
automatically converted into the right to receive shares of USBN Common Stock
based on a floating exchange ratio. See "THE TRANSACTION -- Basic Terms of the
Transaction."
2
<PAGE> 16
The aggregate value of USBN Common Stock to be exchanged for
outstanding shares of GNB Common Stock will be $10 million, subject to certain
adjustments as set forth in the Transaction Agreement (the value, as adjusted,
being the "Total Consideration"). The precise number of shares of USBN Common
Stock to be received for each share of GNB Common Stock will be based on the
exchange ratio, which will depend on (i) the amount of the Total Consideration,
(ii) the number of shares of GNB Common Stock outstanding, and (iii) the Average
Closing Price. See "THE TRANSACTION -- Basic Terms of the Transaction." The
exchange ratio, and thus the precise number of shares of USBN Common Stock to be
received for each share of GNB Common Stock, will not be known at the time that
GNB stockholders vote on the Transaction at the GNB Special Meeting.
See "THE TRANSACTION -- Basic Terms of the Transaction."
The Transaction Agreement provides that the Total Consideration will
be adjusted in certain circumstances:
- Total Consideration will be increased, dollar for dollar
(and additional shares of USBN Common Stock issued) to
reflect (i) any GAAP net income of GNB for the period
between January 1, 1998 and the Effective Date, and (ii)
the costs incurred by GNB in obtaining audited financial
statements for the purposes of the Transaction.
- Total Consideration will be decreased, dollar for dollar
(and fewer shares of USBN Common Stock issued) by the
amount that Transaction expenses incurred by GNB exceeds
$125,000.
The exchange ratio will be determined by dividing the Total
Consideration by the number of GNB shares outstanding, and dividing the quotient
obtained by the Average Closing Price of USBN Common Stock. The Average Closing
Price is the average trading price of USBN Common Stock for the 25 trading days
in which at least 2,000 shares of USBN Common Stock are traded in the period
ending five days prior to the closing of the Transaction (the "Average Closing
Price"). If, however, a deal is announced for USBN to merge with or be acquired
by a third party, the Average Closing Price will be the average price of USBN
Common Stock for the 15 trading days in which at least 2,000 shares of USBN
Common Stock are traded in the period ending 90 days prior to the closing of the
Transaction. See "THE TRANSACTION -- Basic Terms of the Transaction."
Assuming, for illustration purposes only, that the Total
Consideration is $10,000,000, the Average Closing Price is $23 and that 33,000
shares of GNB Common Stock are outstanding and subject to exchange on the
Effective Date, the exchange ratio would be 13.18 (i.e., $10,000,000 divided by
33,000 shares = 303.03 (rounded); 303.03 divided by $23 = 13.18 (rounded)).
Accordingly, in this illustration, the aggregate number of shares of USBN Common
Stock issued would be 434,783 (i.e., 13.18 x 33,000 = 434,783). Assuming that
434,783 shares of USBN Common Stock are issued in the Transaction and 4,054,278
shares of USBN are outstanding after closing of the Transaction (excluding
shares to be issued to GNB stockholders), GNB stockholders would hold
approximately 9.68% of the outstanding USBN Common Stock.
Each holder of GNB Common Stock who would otherwise be entitled to a
fractional share of USBN Common Stock will receive cash in lieu of such
fractional share, determined by multiplying such fraction by the Average Closing
Price. See "THE TRANSACTION -- Basic Terms of the Transaction." Upon completion
of the Transaction, stockholders of GNB will no longer own any GNB Common Stock.
GNB stockholders should note that although the actual number of
shares of USBN Common Stock they receive will continue to fluctuate depending on
the Average Closing Price, the value of such shares (i.e., the Total
Consideration) will not be subject to changes in market value. For a more
detailed discussion of the calculation of the number of shares of USBN Common
Stock to be received in exchange for GNB Common Stock, see "THE TRANSACTION --
Basic Terms of the Transaction."
3
<PAGE> 17
REASONS FOR THE TRANSACTION; RECOMMENDATION OF THE GNB BOARD
The GNB Board has unanimously determined that the Transaction
Agreement is fair to and in the best interests of GNB and its stockholders. In
making this determination, the GNB Board considered a variety of factors,
including the value of the USBN Common Stock that the stockholders of GNB will
receive in exchange for their shares of GNB Common Stock, the continued ability
of GNB to provide competitive and comprehensive services in the market in which
it operates, and the parties' shared commitment to personalized community
banking, which emphasizes responsiveness to local markets and the delivery of
personalized services to customers.
The GNB Board believes that the Transaction will allow GNB to provide
a wider array of products and services, while continuing to offer the advantages
of personalized community banking to GNB's current customers, and will also
allow GNB to realize a premium, thus enhancing stockholder value. The GNB Board
further anticipates that the Transaction will provide GNB with substantially
greater financial and technological resources, which will enable GNB to compete
more effectively in its market and better serve its customers and community.
Additionally, GNB stockholders would be able to obtain a premium over book value
for their shares of GNB Common Stock on a tax-deferred basis, while at the same
time enjoying the benefits of a more active trading market in the USBN Common
Stock.
THE GNB BOARD HAS UNANIMOUSLY APPROVED THE TRANSACTION AGREEMENT AS
BEING IN THE BEST INTERESTS OF GNB AND THE GNB STOCKHOLDERS AND RECOMMENDS THAT
THE STOCKHOLDERS OF GNB VOTE FOR APPROVAL OF THE TRANSACTION AGREEMENT.
For a discussion of the circumstances surrounding the Transaction and
the factors considered by the GNB Board in making its recommendation, see
"BACKGROUND OF AND REASONS FOR THE TRANSACTION." Approval of the Transaction
Agreement by GNB stockholders is required by law and is a condition to
consummation of the Transaction. See "THE TRANSACTION -- Conditions to
Consummation of the Transaction; Regulatory Approvals." For a description of
certain economic interests that directors of GNB may be deemed to have in the
Transaction, see "THE TRANSACTION -- Interests of Certain Persons in the
Transaction."
OPINION OF FINANCIAL ADVISOR TO GNB
Southard Financial, GNB's financial advisor, has delivered a written
opinion to the Board of Directors of GNB dated May 18, 1998, to the effect that
the terms of the Transaction are fair to GNB stockholders from a financial point
of view. A copy of Southard Financial's opinion, setting forth the assumptions
made, matters considered, procedures followed, and limits of its review, is
attached hereto as Appendix C and should be read by stockholders in its
entirety. See "THE TRANSACTION -- Opinion of Financial Advisor to GNB."
EFFECTIVE DATE OF THE TRANSACTION
Unless the parties agree upon another date, the Effective Date of the
Transaction will be the date ten business days after the fulfillment or waiver
of each of the conditions to the obligations of the parties to effect the
Transaction and the granting of all regulatory approvals. The parties presently
expect to consummate the Transaction by the third quarter of 1998, although the
timing is subject to the satisfaction of certain conditions (discussed below).
Either USBN or GNB may terminate the Transaction Agreement if the Effective Date
does not occur on or before December 31, 1998.
4
<PAGE> 18
EXCHANGE OF STOCK CERTIFICATES
As promptly as practicable after the Effective Date, USBN will send
to each record holder of GNB Common Stock transmittal materials for use in
exchanging GNB Common Stock certificates for USBN Common Stock certificates. All
shares of USBN Common Stock issued to GNB stockholders pursuant to the
Transaction will be deemed to have been issued as of the Effective Date. GNB
STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE THE LETTER
OF TRANSMITTAL AND INSTRUCTIONS. See "THE TRANSACTION -- Exchange of GNB Stock
Certificates."
CONDITIONS; REGULATORY APPROVALS
Consummation of the Transaction is subject to, among other things:
(i) approval of the Transaction Agreement by USBN as the sole stockholder of New
Bank, and by holders of not less than two-thirds of the outstanding shares of
GNB Common Stock; (ii) receipt of all applicable regulatory approvals without
any condition that, in the opinion of USBN, would deprive USBN of the material
economic or business benefits of the Transaction, (iii) receipt by USBN and GNB
of the opinion of Graham & Dunn PC, dated as of the Effective Date, as to
certain federal income tax consequences of the Transaction; (iv) the USBN Common
Stock to be issued to GNB stockholders having been approved for listing on the
Nasdaq National Market; (v) receipt by USBN of an agreement from each
"affiliate" of GNB restricting the resale of USBN Common Stock received by such
affiliate in the Transaction; (vi) the number of Dissenting Shares not exceeding
10% of the outstanding shares of GNB Common Stock; (vii) receipt by USBN of a
letter from USBN's certified public accountants to the effect that the
Transaction will qualify for pooling of interests accounting treatment; and
(viii) receipt by GNB of the opinion of Southard Financial regarding the
fairness of the Transaction to GNB's stockholders. An additional condition, Mr.
Lawrence Mitson's having entered into an employment agreement with GNB, has
already been satisfied. See "THE TRANSACTION -- Conditions to Consummation of
the Transaction; Regulatory Approvals."
AMENDMENT OR TERMINATION OF THE TRANSACTION AGREEMENT
The Transaction Agreement may be terminated before the Effective
Date, whether before or after its adoption by USBN, as the sole stockholder of
New Bank, or its adoption by the stockholders of GNB, by the mutual consent of
the respective majority votes of the USBN, New Bank, and GNB Boards. Each Board
may also terminate the Transaction Agreement by majority vote if the Transaction
is not consummated by December 31, 1998, or if any party (other than the
terminating party) has failed to cure a breach of the Transaction Agreement.
Under certain circumstances, if GNB stockholders fail to approve the Transaction
Agreement and GNB is subsequently acquired by a third party, GNB will pay USBN
$350,000. See "THE TRANSACTION -- No Solicitation." The Transaction Agreement
may be amended at any time before the Effective Date if the respective Boards of
USBN, New Bank and GNB approve, and USBN has the right, without the approval of
GNB, to change the method of its acquisition of GNB. However, no amendment may
under any circumstances change the consideration to be received by GNB
stockholders for their GNB Common Stock. See "THE TRANSACTION -- Amendment or
Termination."
DIRECTORS AND EXECUTIVE OFFICERS AFTER THE TRANSACTION
Upon consummation of the Transaction, the USBN Board will consist of
USBN's current directors plus one GNB director, and the GNB Board will consist
of GNB's current directors, plus two additional directors selected by USBN. The
executive officers of USBN in office immediately before the Effective Date will
remain unchanged following the Transaction. The executive officers of GNB will
remain unchanged immediately following the Transaction. Mr. Lawrence C. Mitson,
the President and Chief Executive Officer of GNB has executed an employment
agreement with GNB in anticipation of the Transaction. USBN will assume the
5
<PAGE> 19
employment agreement following the Transaction. See "THE TRANSACTION --
Interests of Certain Persons in the Transaction" and " -- Directors and
Executive Officers After the Transaction."
FEDERAL INCOME TAX TREATMENT OF THE TRANSACTION
Consummation of the Transaction is conditioned, among other things,
on receipt by USBN and GNB of an opinion of Graham & Dunn, P.C., special counsel
for USBN to the effect that no gain or loss will be recognized for federal
income tax purposes by stockholders of GNB who receive USBN Common Stock in
exchange for their shares of GNB Common Stock, other than with respect to cash
received in lieu of fractional share interests. See "THE TRANSACTION -- Federal
Income Tax Treatment of the Transaction."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE TRANSACTION MAY VARY
DEPENDING ON THE PARTICULAR CIRCUMSTANCES OF EACH STOCKHOLDER, EACH GNB
STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC
TAX CONSEQUENCES TO SUCH HOLDER OF THE TRANSACTION, INCLUDING THE SPECIFIC
APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS TO SUCH
STOCKHOLDER.
ACCOUNTING TREATMENT
It is anticipated that the Transaction will be accounted for as a
pooling of interests by USBN under generally accepted accounting principles. The
Transaction Agreement provides that a condition to USBN's obligation to
consummate the Transaction is the receipt by USBN of a letter from USBN's
certified public accountants, independent auditors, to the effect that such firm
concurs with management's conclusions as to the appropriateness of pooling of
interests accounting for the Transaction. See "THE TRANSACTION -- Conditions to
Consummation of the Transaction; Regulatory Approvals" and " -- Accounting
Treatment of the Transaction."
The Transaction is subject to the receipt of certain prior approvals
from the Board of Governors of the FRB. A Notice/Application for approval of the
Transaction will be filed with the FRB. There can be no assurance that such
approval will be obtained, and, if obtained, that it will not impose conditions
that, in the opinion of USBN, would deprive USBN of the economic and business
benefits of the Transaction so as to render it inadvisable in the judgment of
USBN to proceed with the Transaction. See "THE TRANSACTION -- Regulatory
Requirements."
DISSENTERS' RIGHTS OF APPRAISAL
GNB Stockholders have the right to dissent from the Transaction and
obtain payment of the fair value of their shares of GNB Common Stock under the
provisions of Section 215 of the United States Code (the "Appraisal Laws"). A
STOCKHOLDER'S FAILURE TO FOLLOW EXACTLY THE PROCEDURES IDENTIFIED IN THE
APPRAISAL LAWS WILL RESULT IN LOSS OF SUCH STOCKHOLDER'S DISSENTERS' RIGHTS.
Accordingly, GNB stockholders wishing to dissent from the Transaction are urged
to read carefully "THE TRANSACTION -- Dissenters' Rights of Appraisal" and the
copy of the Appraisal Laws set forth in Appendix B to this Prospectus/Proxy
Statement and to consult with their own legal advisors. If GNB stockholders
perfect dissenters' rights with respect to more than 10% of the outstanding
shares of GNB Common Stock, USBN may elect not to consummate the Transaction.
See "THE TRANSACTION -- Conditions to Consummation of the Transaction;
Regulatory Approvals."
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Certain members of GNB's management and the GNB Board may be deemed
to have interests in the Transaction in addition to their interests as
stockholders of GNB generally. These include, among other things, provisions in
the Transaction Agreement relating to indemnification, employment agreements and
conversion of the existing GNB options into USBN options.
6
<PAGE> 20
The Transaction Agreement provides that for the four year period
following the Effective Date, USBN will indemnify the directors, officers and
employees of GNB against certain liabilities to the extent that such persons
were entitled to indemnification under Washington and federal law and the
Articles of Association and Bylaws of GNB. Also, certain directors of GNB are
owners of GNB's main office facility which GNB leases from them under a lease
that expires in November, 1998. These directors have negotiated a renewal lease
with USBN. Also, following the Effective Date of the Transaction, USBN will
appoint a director from the GNB Board to serve as a member of the USBN Board.
See "THE TRANSACTION -- Interests of Certain Persons in the Transaction."
Lawrence C. Mitson, the President and Chief Executive Officer of GNB,
has entered into an employment agreement with GNB which will become effective
upon consummation of the Transaction. Pursuant to Mr. Mitson's agreement, he
will serve as President and Chief Executive Officer of GNB for a period of three
years beginning on the Effective Date of the Transaction. Mr. Mitson's base
salary under the agreement will be $98,600. Mr. Mitson is entitled to a
severance payment under certain conditions. See "THE TRANSACTION -- Interests of
Certain Persons in the Transaction."
COMPARISON OF STOCKHOLDERS' RIGHTS
Stockholders of GNB who receive shares of USBN Common Stock in
exchange for their shares of GNB Common Stock will be governed, with respect to
their rights as such stockholders, by USBN's Articles of Incorporation and
Bylaws. For a discussion of certain material differences in the rights of
stockholders of USBN and GNB and an explanation of certain possible
anti-takeover effects of certain provisions in USBN's Articles of Incorporation
and Bylaws, see "COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF USBN AND GNB COMMON
STOCK."
TRADING MARKETS
USBN Common Stock is listed on the Nasdaq National Market under the
symbol "USBN." GNB Common Stock does not trade on any exchange or market system.
See "STOCK PRICE AND DIVIDEND INFORMATION."
7
<PAGE> 21
STOCK PRICE AND DIVIDEND INFORMATION
USBN
The USBN Common Stock is listed on the Nasdaq National Market under
the symbol "USBN." The respective high and low sale prices of the USBN Common
Stock for the periods indicated are shown below. The prices below do not include
retail mark-ups, mark-downs or commissions, and may not represent actual
transactions. The per share information has been adjusted retroactively for all
stock dividends and split-ups previously issued. As of May 18, 1998, there were
approximately 1,200 holders of record of the USBN Common Stock.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1996
---------------------------- ----------------------------
Cash Cash
Dividends Dividends
Market Price Declared Market Price Declared
------------ -------- ------------ --------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $13.86 $11.57 $0 $11.15 $9.82 $0
2nd Quarter 13.18 11.59 0 11.15 9.71 0
3rd Quarter 16.94 12.62 0 12.40 9.71 0
4th Quarter 19.09 16.14 0 12.60 10.54 0
</TABLE>
Between December 31, 1997 and ________ __, 1998 (the most recent date
for which it was practicable to obtain information prior to the printing of this
Prospectus/Proxy Statement), the high sales price for USBN Common Stock was
$______ and the low was $______.
GNB
There is no established trading market for GNB Common Stock. Trades
are generally undertaken in private transactions. Thus, GNB management does not
have knowledge of the prices paid in all transactions involving its shares. The
following table sets forth management's best estimates of the high and low trade
prices for GNB Stock at the end of each quarter during the years 1997 and 1996.
<TABLE>
<CAPTION>
Stock Prices
------------
NO. OF
CALENDAR YEAR QUARTER SHARES TRADED HIGH LOW
- --------------------- ------------- ---- ---
<S> <C> <C> <C>
First Quarter 1996 770 $105 $100
Second Quarter 1996 240 105 100
Third Quarter 1996 1,394 105 100
Fourth Quarter 1996 90 105 100
First Quarter 1997 1,080 105 100
Second Quarter 1997 1,990 105 100
Third Quarter 1997 515 105 100
Fourth Quarter 1997 495 105 100
1998 (through _____________, 1998) 590 105 100
</TABLE>
Dividends paid on GNB Common Stock in 1997 and 1996, respectively,
were $1.50 per share and $-0- per share. GNB paid a dividend of $1.75 per share
to its shareholders on March 4, 1998.
8
<PAGE> 22
RECENT STOCK PRICE DATA
The following table sets forth the closing price per share of USBN
Common Stock, as reported on the Nasdaq National Market, and of GNB Common
Stock, in addition to the equivalent per share price for GNB Common Stock, on
March 23, 1998 (the last full trading day prior to the public announcement of
the execution of the Transaction Agreement) and on _______ __, 1998, the most
recent date for which it is practicable to obtain market price data prior to the
printing of this Prospectus/Proxy Statement. Holders of GNB Common Stock are
urged to obtain current market quotations for shares of USBN Common Stock.
<TABLE>
<CAPTION>
CLOSING PRICE PER SHARE: March 23, 1998 _______, 1998
<S> <C> <C>
USBN Common Stock $21.625 $
GNB Common Stock(1) $105.00 $
GNB Equivalent Pro Forma(2) $285.02 $
</TABLE>
(1) There are no publicly available quotations of GNB Common Stock, and
the market prices per share as of such dates (quoted above),
represent the purchase prices known to GNB's management to have been
paid for the GNB Common Stock in the last transaction prior to such
dates.
(2) Giving effect for the Transaction and computed by multiplying the
closing price per share of USBN Common Stock by the Exchange Ratio.
9
<PAGE> 23
EQUIVALENT PER COMMON SHARE DATA
The following table presents unaudited selected per common share data
for USBN on a historical and pro forma combined basis and for GNB, on a
historical and pro forma equivalent basis, after giving effect to the
Transaction on a pooling of interests basis. For a description of the pooling of
interests method of accounting with respect to the Transaction see "THE
TRANSACTION -- Accounting Treatment of the Transaction." The pro forma combined
financial data are not necessarily indicative of actual or future operating
results or the financial position that would have occurred had the Transaction
become effective prior to the period indicated or will occur upon consummation
of the Transaction. This data should be read in conjunction with the financial
statements and other financial data with respect to USBN and GNB included
elsewhere in this Prospectus/Proxy Statement or incorporated herein by
reference. The data is not necessarily indicative of the results of future
operations of the combined entity or the actual results that could have occurred
had the Transaction become effective prior to the periods indicated. The table
assumes an Exchange Ratio of 13.18 shares of USBN Common Stock for one share of
GNB Common Stock; the actual Exchange Ratio cannot be determined at this time
and will not be calculable until shortly before the Transaction. See "THE
TRANSACTION -- Basic Terms of the Transaction."
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
USBN GNB COMBINED EQUIVALENT
------ ------- --------- ----------
(2)(3) (2)(4) (2)(4)
<S> <C> <C> <C> <C>
BOOK VALUE (1) AS OF:
March 31, 1998 $8.52 $104.24 $8.46 $111.50
December 31, 1997 8.16 102.90 8.13 107.15
BASIC AND DILUTED EARNINGS PER SHARE (5)
Three months ended March 31, 1998 .34 2.97 .33 4.35
Three months ended March 31, 1997 .24 2.80 .29 3.82
Year Ended December 31, 1997 (Basic)(3) 1.20 12.97 1.32 17.40
Year Ended December 31, 1997 (Diluted)(3) 1.19 12.97 1.31 17.27
Year Ended December 31, 1996 .78 8.86 .96 12.65
Year Ended December 31, 1995 (3) 1.09 9.91 1.21 15.95
CASH DIVIDENDS DECLARED
Three months ended March 31, 1998 -0- 1.75 .01 .13
Three months ended March 31, 1997 -0- 1.50 .01 .13
Year Ended December 31, 1997 -0- 1.50 .01 .13
Year Ended December 31, 1996 -0- -0- --- ---
Year Ended December 31, 1995 -0- -0- --- ---
</TABLE>
- ---------------
(1) Book value per share is calculated by dividing the total actual
historical and pro forma equity as the date indicated by the actual
historical and pro forma number of shares outstanding as of the same
date.
(2) Effective October 1, 1997, USBN acquired BOP. The purchase method of
accounting was used for the transaction. Accordingly, prior period
financial statements for USBN have not been restated to reflect
combined accounts of BOP. The pro forma combined and equivalent
amounts include the accounts of BOP.
(3) In 1997 USBN received a recovery from its insurance provider related
to a theft by a former employee. After income taxes the recovery
improved basic earnings per share $.14 per share. In 1996 USBN
discovered the theft which reduced basic earnings per share $.14 per
share. Without the impact of the recovery and loss, annual basic
earnings per share would have been $1.06 for 1997 and $.92 for 1996.
In 1995 USBN received a death benefit from its insurance policy
related to the death of a key employee. Without the impact of the
death benefit, annual basic earnings per share would have been $.86
for 1995. See USBN's 1997 Annual Report on Form 10-K for further
discussion of these matters.
10
<PAGE> 24
(4) The pro forma combined book value per share of USBN Common Stock is
based upon the historical total combined shareholders' equity for
USBN and GNB divided by the total pro forma common shares of the
combined entities assuming conversion of the outstanding GNB Common
Stock at an assumed ratio (made for purpose of this calculation only)
of 13.18. The assumed Exchange Ratio is based upon total
consideration of $10 million and 434,783 shares of USBN Common Stock
issued to GNB shareholders, who hold 33,000 shares of GNB Common
Stock. This assumption is made solely for the purpose of calculating
the pro forma data and is not intended to be a representation or
approximation of the actual Exchange Ratio. USBN had 4,054,278 shares
of Common Stock outstanding as of March 31, 1998. The pro forma
equivalent amounts represent the pro forma combined amounts
multiplied by the assumed exchange ratio of 13.18.
(5) Basic and diluted earnings per share is calculated by dividing the
total actual historical and pro forma net income for the periods
ended by the actual historical and pro forma weighted average number
of shares of common stock and common stock equivalents for the period
indicated. The pro forma equivalent net income per share of GNB
Common Stock represents the pro forma combined net income per share
multiplied by the assumed Exchange Ratio described in note (4) above.
Earnings per share is retroactively adjusted for stock dividends and
split ups.
SELECTED HISTORICAL FINANCIAL DATA - GNB
The table on the following page sets forth selected historical
information data for GNB. The data has been derived in part from, and should be
read in conjunction with, the financial statements and notes thereto and other
fiscal information with regard to GNB set forth elsewhere in this prospectus,
and such data is qualified in their entirety by reference thereto.
11
<PAGE> 25
GRANT NATIONAL BANK
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
As of and for the Years Ended December 31,
------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Interest income $2,572,733 $2,185,845 $1,899,445 $1,849,869 $1,842,429
Interest expense 788,571 643,642 590,928 505,153 687,578
Net interest income before provision
for losses on loans 1,784,162 1,542,203 1,308,517 1,344,716 1,154,851
Provision for losses on loans --- 15,000 --- --- ---
Net interest income after provision
for losses on loans 1,784,162 1,527,203 1,308,517 1,344,716 1,154,851
Noninterest income 240,313 224,607 201,246 156,835 164,766
Noninterest expense 1,385,710 1,316,419 1,018,848 1,111,407 1,113,473
Income tax expense 210,886 143,000 164,348 126,300 51,000
Cumulative effect of change in
accounting --- --- --- --- 28,000
Net income 427,879 292,391 326,567 263,844 183,144
Basic and diluted net income per share 12.97 8.86 9.89 8.00 5.55
Cash dividends declared per share 1.50 --- --- --- ---
Weighted average basic and diluted
shares outstanding 33,000 33,000 33,000 33,000 33,000
STATEMENT OF CONDITION:
Total assets 33,789,772 28,694,730 22,985,638 21,613,613 25,021,855
Loans receivable 20,980,039 17,351,143 14,196,334 13,680,226 13,541,941
Deposits 30,218,354 25,599,148 20,150,328 18,051,019 22,766,651
Stockholders' equity 3,395,805 2,999,136 2,704,670 2,307,935 2,137,506
Book value per share 102.90 90.88 81.96 69.94 64.77
KEY PERFORMANCE RATIOS:
Return on average assets 1.37% 1.13% 1.46% 1.13% .71%
Return on average stockholders' equity 13.38% 10.25% 13.03% 11.87% 8.95%
Net interest margin 6.16% 6.36% 6.54% 6.17% 4.99%
</TABLE>
12
<PAGE> 26
GNB SPECIAL SHAREHOLDER MEETING
DATE, TIME, PLACE AND PURPOSE
The GNB Special Meeting will be held on July ___, 1998 at 6:00 p.m.,
local time, at the main office of the Bank at 261 Basin SW, Ephrata, Washington
98823. The purposes of the GNB Special Meeting are as follows: (i) to consider
and vote upon approval of the Transaction Agreement and (ii) to act upon other
matters, if any, that may properly come before the GNB Special Meeting. At the
time of the GNB Special Meeting, the precise number of shares of USBN to be
received for each share of GNB Common Stock will not be known, as it will be
determined by, among other things, the Average Closing Price of USBN Common
Stock for a brief period before the consummation of the Transaction, which is
expected to occur in the third quarter of 1998. See "THE TRANSACTION -- Basic
Terms of the Transaction."
SHARES OUTSTANDING AND ENTITLED TO VOTE; RECORD DATE
The GNB Board has fixed 5:00 p.m. on June ___, 1998 as the GNB Record
Date for determining the holders of shares of GNB Common Stock entitled to
notice of and to vote at the GNB Special Meeting. At the close of business on
the GNB Record Date, there were 33,000 shares of GNB Common Stock issued and
outstanding held by approximately 254 holders of record. Holders of record of
GNB Common Stock on the GNB Record Date are entitled to one vote per share and
are also entitled to exercise dissenters' rights under Appraisal Laws if certain
procedures are followed: See "THE TRANSACTION -- Dissenters' Rights of
Appraisal" and Appendix B.
VOTE REQUIRED
The affirmative vote of two-thirds of all shares of GNB Common Stock
outstanding on the GNB Record Date is required to approve the Transaction
Agreement. GNB stockholders are entitled to one vote for each share of GNB
Common Stock held. The presence of a majority of the outstanding shares of GNB
Common Stock in person or by Proxy is necessary to constitute a quorum of
stockholders for the GNB Special Meeting. For this purpose, abstentions and
broker non-votes (i.e. Proxies from brokers or nominees indicating that such
person has not received instructions from the beneficial owners or other persons
entitled to vote shares as to a matter with respect to which the broker or
nominees do not have discretionary power to vote) are counted in determining the
shares present at a meeting. For voting purposes, however, only shares
affirmatively voted for the approval of the Transaction Agreement, and neither
abstentions nor broker non-votes, will be counted as favorable votes in
determining whether the Transaction Agreement is approved by the holders of GNB
Common Stock. As a consequence, abstentions and broker non-votes will have the
same effect as votes against approval of the Transaction Agreement.
As of the GNB Record Date, directors and executive officers of GNB,
and their affiliates, owned and were entitled to vote _______ shares at the GNB
Special Meeting, representing approximately _____% of the outstanding shares of
GNB Common Stock. See "MANAGEMENT OF GNB --Security Ownership of Management and
Certain Beneficial Owners." Each director of GNB has agreed to vote all shares
of GNB Common Stock held or controlled by him or her (a total of 13,662 shares
or approximately 41.4% of the shares outstanding), in favor of approval of the
Transaction.
VOTING, SOLICITATION, AND REVOCATION OF PROXIES
If the enclosed proxy ("Proxy") is duly executed and received in time
for the GNB Special Meeting, it will be voted in accordance with the
instructions given. If no instruction is given, it is the intention of the
persons named in the Proxy to vote the shares represented by the Proxy FOR the
approval of the Transaction Agreement and in the Proxy's discretion on any other
matter coming before the meeting, unless otherwise
13
<PAGE> 27
directed by the Proxy. Any Proxy given by a stockholder may be revoked before
its exercise by written notice to the Secretary of GNB, or by a subsequently
dated Proxy, or in open meeting before the stockholder vote is taken. The shares
represented by properly executed, unrevoked Proxies, will be voted in accordance
with the instructions in the Proxy. Stockholders are entitled to one vote for
each share of GNB Common Stock held on the GNB Record Date.
The Proxy for the GNB Special Meeting is being solicited on behalf of
the GNB Board. GNB will bear the cost of solicitation of Proxies from its
stockholders. In addition to using the mails, Proxies may be solicited by
personal interview, telephone, and wire. Banks, brokerage houses, other
institutions, nominees, and fiduciaries will be requested to forward their Proxy
soliciting material to their principals and obtain authorization for the
execution of the Proxies. Officers and other employees of GNB may solicit
Proxies personally. GNB is not expected to pay any compensation for the
solicitation of Proxies, but will, upon request, pay the standard charges and
expenses of banks, brokerage houses, other institutions, nominees, and
fiduciaries for forwarding Proxy materials to and obtaining Proxies from their
principals.
BACKGROUND OF AND REASONS FOR THE TRANSACTION
BACKGROUND OF THE TRANSACTION
At a GNB Board planning retreat held on December 3, 1997, the Board
of Directors made a determination that it would be in the best interests of the
shareholders of GNB for GNB to operate as an independently-owned institution. At
that meeting, the Board of Directors directed management to proceed with the
formation of a bank holding company for GNB in furtherance of that goal. Prior
to the December 3, 1997 GNB Board planning retreat, the GNB Board had received
preliminary offers from two separate potential acquirors to acquire GNB. One of
the potential acquirors made its preliminary offer in August, 1997 and revised
its offer in September, 1997. At the September, 1997 meeting of the GNB Board,
the GNB Board rejected the offer as being inadequate and determined that
remaining independent would be in the best interests of the shareholders. In
November, 1997, USBN (the other potential acquiror) submitted its initial offer
to acquire GNB. The GNB Board discussed USBN's offer at its board planning
retreat on December 3, 1997 and the offer was rejected as being inadequate.
In late January, 1998, USBN President Richard Emery contacted GNB
President and Chief Executive Officer Lawrence C. Mitson and indicated that USBN
would be willing to acquire GNB at a price substantially in excess of USBN's
original offer submitted in November, 1997. Based on that discussion between Mr.
Emery and Mr. Mitson, USBN and GNB executed a confidentiality agreement on or
about February 5, 1998. On February 10, 1998, USBN submitted to GNB a term sheet
setting forth the principal terms of the proposed acquisition offer. At that
point, with the assistance of counsel, GNB continued negotiations with USBN
regarding the specific financial terms of the proposed Transaction as well as
employee and benefit issues. In March, 1998, the GNB Board retained the services
of Southard Financial to assist the Board in determining whether USBN's proposal
would be fair to GNB's shareholders from a financial point of view.
As a result of the negotiations, the terms of the Transaction were
incorporated into a definitive Transaction Agreement which was approved by the
USBN Board at a special meeting on March 24, 1998.
REASONS FOR THE TRANSACTION - GNB
In reaching its decision to approve the Transaction and the
Transaction Agreement, the GNB Board consulted with its counsel as well as with
GNB's management and considered a number of factors, including, without
limitation, the following, which constitute all of the material factors
considered by the GNB Board:
14
<PAGE> 28
- GNB Board's familiarity with and review of USBN's business,
operations, earnings and financial condition and future capital requirements;
- GNB Board's belief that the terms of the Transaction Agreement are
attractive and that the Transaction Agreement allows GNB stockholders to become
stockholders in USBN, an institution whose stock is quoted on the Nasdaq (and
whose recent earnings performance has been good);
- USBN's wide range of banking products and services;
- GNB Board's belief, based on analysis of the anticipated financial
effects of the Transaction, that USBN and its financial institution subsidiaries
would be well capitalized institutions, the financial positions of which would
be in excess of applicable regulatory capital requirements;
- The current and prospective economic and regulatory environment and
competitive restraints facing the banking industry and financial institutions in
GNB's market area;
- GNB Board's belief that, in light of the reasons discussed above,
USBN is the most attractive choice as a long-term affiliation partner of GNB;
and
- The expectation that the Transaction will generally be a tax-free
transaction to GNB and its stockholders.
The GNB Board did not assign any specific or relative weight to any
of the factors discussed above in their considerations.
RECOMMENDATION OF GNB BOARD OF DIRECTORS
FOR THE REASONS SET FORTH ABOVE, THE GNB BOARD HAS APPROVED THE
TRANSACTION AGREEMENT AS ADVISABLE AND IN THE BEST INTERESTS OF GNB AND GNB
SHAREHOLDERS AND RECOMMENDS THAT GNB SHAREHOLDERS VOTE FOR APPROVAL OF THE
TRANSACTION AGREEMENT.
OPINION OF GNB FINANCIAL ADVISOR
GNB retained Southard Financial, a Memphis, Tennessee financial
valuation consulting firm, to render its opinion as to the fairness from a
financial point of view to the holders of GNB Common Stock of the consideration
to be paid in the Transaction. In connection with this engagement, Southard
Financial evaluated the financial terms of the Transaction, but was not asked
to, and did not, recommend the exchange ratio formula between USBN and GNB's
respective Common Stocks and did not assist in the Transaction negotiations. The
ratio of exchange formula was determined by USBN and GNB after arm's-length
negotiations. GNB did not place any limitations on the scope of Southard
Financial's investigation or review.
Southard Financial provided the GNB Board with a fairness opinion
letter and supporting documentation. That fairness opinion letter has been
updated, and the full text of the updated opinion letter of Southard Financial,
dated May 18, 1998, which sets forth certain assumptions made, matters
considered and limitations on the review performed is attached as Appendix C and
is incorporated herein by reference. The summary of the opinion of Southard
Financial set forth in this Prospectus/Proxy Statement is qualified in its
entirety by reference to the opinion.
In arriving at its opinion, Southard Financial conducted interviews
with officers of USBN and GNB and reviewed the documents indicated in the
fairness letter. Southard Financial did not independently verify the
15
<PAGE> 29
accuracy and/or the completeness of the financial and other information reviewed
in rendering its opinion. Southard Financial did not, and was not requested to,
solicit third party indications of interest in acquiring any or all of the
assets of GNB.
In connection with rendering its opinion, Southard Financial
performed a variety of financial analyses which are summarized below. Southard
Financial believes that its analyses must be considered as a whole and that
considering only selected factors could create an incomplete view of the
analyses and the process underlying the opinion. In its analyses, Southard
Financial made numerous assumptions as to matters many of which are beyond the
control of GNB and USBN. Any estimates contained in the analyses prepared by
Southard Financial are not necessarily indicative of future results or values,
which may vary significantly from such estimates. Estimates of values of
companies do not purport to be appraisals or necessarily reflect the prices at
which companies or their securities may actually be sold. None of the analyses
performed by Southard Financial was assigned a greater significance than any
other.
The summary of Southard Financial's analysis set forth below is based
on an assumed exchange ratio of USBN Common Stock for shares of GNB Common
Stock. Under the Transaction Agreement, GNB shareholders are to receive USBN
shares which in the aggregate will have a value (based on their Average Closing
Price as of a time near the consummation date) of $10 million plus GNB's
undistributed net income, if any, during the period between January 1, 1998 and
the consummation date plus any fees and expenses paid by GNB in connection with
obtaining audited financial statements for purposes of consummating the
Transaction. Based on that formula, the number of USBN shares to be received for
each outstanding shares of GNB Common Stock will vary depending upon the Average
Closing Price of USBN stock and GNB's undistributed net income between January
1, 1998 and the consummation of the Transaction. The analysis below is based
upon an Average Closing Price for USBN Common Stock of $22.00, within the
trading range of $22.00 to $23.00 per share as of the date of the fairness
opinion. The analysis below also assumes total transaction value of $10.05
million. Based on the foregoing assumptions, the USBN would issue 13.84 of its
shares for each one share of GNB Common Stock.
Based upon the Transaction terms and the estimated purchase price,
GNB shareholders will receive about 292% of GNB book value at March 31, 1998,
23.2 times GNB earnings for the trailing twelve-month period ended March 31,
1998 and 31.6% of GNB assets at March 31, 1998. Based upon the review conducted
by Southard Financial, the pricing for GNB in the Transaction is at the higher
end of the range of multiples seen in recent bank acquisitions. Southard
Financial's conclusion was that the terms of the Transaction pursuant to the
Transaction Agreement are fair, from a financial view point, to the shareholders
of GNB.
Dividend Yield Analysis. In evaluating the impact of the proposed
Transaction on the shareholders of GNB, Southard Financial reviewed the dividend
paying histories of GNB and USBN. Based upon this review, given the lack of cash
dividends at USBN, the impact of the Transaction on dividends received by GNB
shareholders will be adverse.
Earnings Yield Analysis. In evaluating the impact of the proposed
Transaction on the shareholders of GNB, Southard Financial determined that,
based upon the assumed exchange ratio, the shareholders of GNB would have seen
an increase in their share of earnings during 1997 and during the trailing
twelve month period ending March 31, 1998.
Book Value Analysis. In evaluating the impact of the proposed
Transaction on the shareholders of GNB, Southard Financial determined that the
shareholders of GNB would have seen an increase in the book value of their
investment had the Transaction been consummated as of December 31, 1997 or March
31, 1998.
Fundamental Analysis. Southard Financial reviewed the financial
characteristics of GNB and USBN with respect to profitability, capital ratios,
liquidity, asset quality and other factors. Southard Financial compared GNB and
USBN to a universe of publicly traded banks and bank holding companies and to
peer groups prepared
16
<PAGE> 30
by the Federal Financial Institutions Examination Council. Southard Financial
found that the post-transaction combined entity will have capital ratios and
profitability ratios near those of the public peer group.
Liquidity. Unlike GNB stock, USBN shares are traded on Nasdaq.
Further, except in the case of certain officers, directors and significant
shareholders of GNB, USBN shares received will be freely tradeable with no
restrictions.
Southard Financial is a financial valuation consulting firm,
specializing in the valuation of closely-held companies and financial
institutions. Since its founding in 1987, Southard Financial has provided
approximately 2,000 valuation opinions for clients in 43 states. Further,
Southard Financial provides valuation services for approximately 120 financial
institutions annually. For rendering its opinion, Southard Financial received a
fee of $10,000, plus reasonable out-of-pocket expenses. Southard Financial has
never been engaged previously by GNB or USBN, and neither Southard Financial nor
its principals own an interest in the securities of GNB or USBN.
USBN'S REASONS FOR THE TRANSACTION
At a meeting on March 24, 1998 the USBN Board determined that the
Transaction Agreement is fair to and in the best interests of USBN and its
stockholders. In considering the Transaction, the USBN Board determined that the
Transaction would be consistent with USBN's strategic intent in expanding its
number of community banks, which operate under their own name and identity. USBN
can potentially provide customers and stockholders of GNB with certain
advantages of a community banking organization as well as a larger banking
organization.
USBN determined that the Transaction would advance USBN's strategic
plan because of its belief that the Transaction will add a financially sound
institution with complementary businesses and strategies to the USBN family of
community banks, thereby creating a stronger combined organization with greater
size, flexibility, efficiency, and profitability. The USBN Board believes that
(i) each institution is currently well managed, (ii) the companies have
compatible management philosophies and strategic focuses, (iii) GNB will
contribute complementary business strengths and community markets to USBN, (iv)
the Transaction would benefit the localities currently served by GNB by
providing additional lending capacity; and (v) both of the organizations will
continue to be well capitalized. The USBN Board also believes that the
Transaction will allow the combined organization to compete effectively in the
rapidly changing marketplace of banking and financial services and to take
advantage of opportunities for growth and diversification in Washington State.
In reaching its determination to adopt the Transaction Agreement, the
USBN Board considered a variety of factors, although it did not assign any
relative or specific weights to the factors considered. The factors considered
included the following:
- The USBN Board's knowledge and review of the financial
condition, results of operation, and business operations
and prospects of GNB;
- The USBN Board's analysis of the banking industry
environment, including the rapid consolidation and
increasing regional competition in the banking and
financial services industries and the need to respond
proactively to industry trends;
- The USBN Board's belief that the acquisition of GNB will
expand USBN's franchise family of community banks and
would be a logical extension for USBN into other
communities in Washington State and would be consistent
with the strategy of operating separate bank charters in
local communities;
17
<PAGE> 31
- The USBN Board's evaluation of the financial terms of the
Transaction and its effect on the stockholders of USBN and
the USBN Board's belief, supported by the advice of the
investment experts, that such terms are fair to USBN and
its stockholders;
- The USBN Board's belief is that GNB's management team will
strengthen USBN initiatives to develop business banking
for small businesses and professional service firms;
- The USBN Board's belief is that the Transaction would
allow USBN to expand its commercial, agricultural, small
business and consumer lending activity in Grant county
through GNB's existing branch network faster and more
efficiently than USBN could develop it on its own;
- The expectation that the Transaction will be a tax-free
transaction to USBN and will qualify for
pooling-of-interests accounting treatment (see "THE
TRANSACTION -- Federal Income Tax Treatment of the
Transaction; " -- Accounting Treating of the
Transaction"); and
- The USBN Board's belief, after consultation with its legal
counsel, that the required regulatory approvals could be
obtained to consummate the Transaction.
The foregoing discussion of the information and factors considered by
the USBN Board is not intended to be exhaustive but is believed to encompass all
material factors considered by the USBN Board. On the basis of the foregoing
factors, the USBN Board concluded that the terms of the Transaction are fair to
and in the best interests of USBN and its stockholders.
THE TRANSACTION
The following description of certain aspects of the Transaction does
not purport to be complete and is qualified in its entirety by reference to the
Transaction Agreement. GNB stockholders are being asked to approve the
Transaction in accordance with the terms of the Transaction Agreement, and are
urged to carefully read the Transaction Agreement, which is attached at Appendix
A.
BASIC TERMS OF THE TRANSACTION
Generally. The Transaction Agreement provides for the consolidation
of New Bank with and into GNB, with GNB as the resulting consolidated national
banking association that will continue after the closing of the Transaction. New
Bank is a newly-formed national banking association, formed by USBN in order to
facilitate the Transaction. After consummation of the Transaction, GNB will
operate under the name "Grant National Bank" as a wholly owned subsidiary of
USBN, and GNB stockholders will no longer own any stock in GNB. While USBN and
GNB believe that they will receive the requisite regulatory approvals for the
Transaction, there can be no assurance that such approvals will be received or,
if received, as to the timing of such approvals or as to the ability to obtain
such approvals on satisfactory terms. See " --Conditions to Consummation of the
Transaction; Regulatory Approvals."
Aggregate Value of Transaction. Upon consummation of the Transaction,
each outstanding share of GNB Common Stock (except Excluded Shares) will be
automatically converted into the right to receive USBN Common Stock. The total
value of all USBN Common Stock to be exchanged for outstanding shares of GNB
Common Stock (except Excluded Shares) is $10 million, subject in certain
circumstances to adjustment as described below (as adjusted, the "Total
Consideration"). The exact number of shares of USBN Common Stock that a holder
will receive for each share of GNB Common Stock will be equal to the exchange
ratio, as determined in the manner described below. The exchange ratio will not
be calculable at the date of the GNB Special Meeting, and thus holders of GNB
Common Stock will not know at the time they vote on the Transaction
18
<PAGE> 32
Agreement exactly how many shares of USBN Common Stock they will receive for
each share of GNB Common Stock.
Exchange Ratio Calculations. Upon consummation of the Transaction,
each GNB stockholder of record on the Effective Date will receive for each share
held, the number of USBN Common Stock shares calculated by dividing the Per
Share Consideration (defined below) by the Average Closing Price of USBN Common
Stock.
Per Share Consideration = Exchange Ratio
-----------------------
Average Closing Price
- Per Share Consideration. The Per Share Consideration is
calculated by dividing the Total Consideration (i.e., $10
million plus or, if applicable, minus any adjustments) by
33,000 (the number of outstanding GNB shares).
- Average Closing Price. The Average Closing Price is the
average trading price for 25 trading days in which at
least 2,000 shares of USBN Common Stock are traded in the
period ending 5 days prior to the Effective Date.
- Announcement of USBN Sale. If, before the Effective Date,
a "Triggering Event" occurs, the Average Closing Price
will be the average trading price for 15 trading days in
which at least 2,000 shares of USBN Common Stock are
traded in the period ending 90 days prior to the public
announcement.
Assuming, for illustration purposes only, that the Total
Consideration is $10,000,000, the Average Closing Price is $23 and that 33,000
shares of GNB Common Stock are outstanding and subject to exchange on the
Effective Date, the exchange ratio would be 13.18 (i.e., $10,000,000 divided by
33,000 shares = 303.03 (rounded); 303.03 divided by $23 = 13.18 (rounded)).
Accordingly, in this illustration, the aggregate number of shares of USBN Common
Stock issued would be 434,783 (i.e., 13.18 x 33,000 = 434,783). Assuming that
434,783 shares of USBN Common Stock are issued in the Transaction and 4,054,278
shares of USBN are outstanding after closing of the Transaction (excluding
shares to be issued to GNB stockholders), GNB stockholders would hold
approximately 9.68% of the outstanding USBN Common Stock.
For purposes of the discussion above, a "Triggering Event" generally
means announcement of a deal or proposal involving the sale of USBN. More
specifically, "Triggering Event" is defined to mean any one or more of the
following events: (i) USBN shall have authorized, recommended, publicly proposed
or publicly announced an intention to authorize, recommend or propose, or
entered into an agreement with, any third party to effect a merger,
consolidation or similar transaction involving USBN or any of its significant
subsidiaries, in which present USBN shareholders control less than 50% of the
voting power of the surviving institution (such transaction being a "USBN
Transaction"); (ii) a third party shall have made a proposal to USBN or its
stockholders to engage in an USBN Transaction; (iii) a third party, other than
in connection with a transaction to which GNB has given its prior written
consent, shall have filed an application or notice with any regulatory authority
for approval to engage in an USBN Transaction; and (iv) a third party shall have
commenced, or filed a registration statement with respect to, a tender offer or
exchange offer that would result in such third party owning or controlling 20%
or more of the then outstanding shares of USBN Common Stock.
Adjustments to Total Consideration.
The Total Consideration will be increased, dollar for dollar, and
additional shares of USBN Common Stock will be issued accordingly, to reflect
the following:
- Any GAAP net income of GNB for the period between January
1, 1998 and the Effective Date; and
19
<PAGE> 33
- Costs incurred by GNB in obtaining audited financial
statements for the purposes of the Transaction.
The Total Consideration will be reduced, dollar for dollar, by the
amount of any transaction expenses incurred by GNB in excess of $125,000.
Additionally, if before the Effective Date, a deal is announced for USBN to
merge with or be acquired by a third party, the exchange ratio will be
calculated so as to afford GNB's stockholders the benefit of such a sale or
merger (see the discussion of "Triggering Events" above).
Roll-Over of Options. Each option granted by GNB to purchase shares
of GNB Common Stock ("GNB Option") will be converted into and become an option
to purchase USBN Common Stock on the same terms and conditions as are in effect
with respect to the GNB Option immediately prior to the Effective Date.
On _____________, 1998, the most recent date for which it is
practicable to obtain information prior to the printing of this Prospectus/Proxy
Statement, the closing price per share of USBN Common Stock, as reported on
Nasdaq, was $________.
MECHANICS OF THE TRANSACTION
On the Effective Date, New Grant National Bank, a newly-formed
national banking association and a wholly-owned subsidiary of USBN, will be
consolidated with GNB. Consequently, holders of GNB Common Stock would become
stockholders of USBN, and GNB would become a direct subsidiary of USBN. After
the Transaction is consummated, GNB stockholders will no longer own any stock in
GNB, and the newly-formed national banking association will operate under the
name "Grant National Bank."
EFFECTIVE DATE OF THE TRANSACTION
Unless the parties agree upon another date, the Effective Date of the
Transaction will be the date ten business days after the fulfillment or waiver
of each of the conditions to the obligations of the parties to effect the
Transaction and the granting of all regulatory approvals. Subject to the
foregoing, it is currently anticipated that the Transaction will be consummated
in the third quarter of 1998. Either USBN or GNB may terminate the Transaction
Agreement if the Effective Date does not occur on or before December 31, 1998.
EXCHANGE OF GNB STOCK CERTIFICATES
As promptly as practicable after the Effective Date, USBN will send
or cause to be sent to each holder of record of GNB Common Stock transmittal
materials for use in exchanging all of such holder's certificates representing
GNB Common Stock for a certificate or certificates representing the USBN Common
Stock to which such holder is entitled and a check or checks for such holder's
fractional share interests, as appropriate. The transmittal materials will
contain information and instructions with respect to the surrender and exchange
of such certificates.
GNB STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS.
Upon surrender of all of the certificates for GNB Common Stock
registered in the name of a holder of such certificates (or indemnity
satisfactory to USBN and the exchange agent selected by USBN, if any of such
certificates are lost, stolen or destroyed), together with a properly completed
letter of transmittal, such exchange agent will mail to such holder a
certificate or certificates representing the number of shares of USBN Common
Stock to which such holder is entitled, together with all undelivered dividends
or distributions in respect of such shares and, where applicable, a check for
any fractional share interest (in each case, without interest).
20
<PAGE> 34
All shares of USBN Common Stock issued to the holders of GNB Common
Stock pursuant to the Transaction will be deemed issued as of the Effective
Date. USBN dividends having a record date after the Effective Date will include
dividends on all shares of USBN Common Stock issued in the Transaction, but no
dividend or other distribution payable to the holders of record of USBN Common
Stock at or as of any time after the Effective Date will be distributed to the
holder of any GNB Common Stock certificates until such holder physically
surrenders all such certificates as described above. Promptly after such
surrender, all undelivered dividends and other distributions and, where
applicable, a check for any fractional share interest, will be delivered to such
holder, in each case, without interest. After the Effective Date, the stock
transfer books of GNB will be closed, and there will be no transfers on the
transfer books of GNB of the shares of GNB Common Stock that were outstanding
immediately prior to the Effective Date.
CONDITIONS TO CONSUMMATION OF THE TRANSACTION; REGULATORY APPROVALS
The obligations of GNB, New Bank and USBN to consummate the
Transaction are subject to, among other things, the satisfaction of the
following conditions: (i) approval of the Transaction Agreement by the holders
of at least two-thirds of the outstanding shares of GNB Common Stock and by
USBN, as the sole stockholder of New Bank; (ii) receipt of all applicable
regulatory approvals without any condition that, in the opinion of USBN, would
deprive USBN of the material economic or business benefits of the Transaction;
(iii) no court or government or regulatory authority having taken any action
which enjoins or prohibits the Transaction; (iv) receipt by USBN and GNB of the
opinion of Graham & Dunn PC, dated as of the Effective Date, as to certain
federal income tax consequences of the Transaction; (v) the USBN Common Stock to
be issued to GNB stockholders having been approved for listing on Nasdaq; and
(vi) receipt by GNB of the opinion of Southard Financial regarding the fairness
of the Transaction to GNB's stockholders.
The obligations of USBN and New Bank are subject to the satisfaction
or waiver of certain additional conditions, including: (i) the delivery by GNB
of opinions of its legal counsel and certificates executed by certain of its
executive officers as to compliance with the Transaction Agreement; (ii) the
accuracy of the representations and warranties, and compliance in all material
respects with the agreements and covenants of GNB; (iii) the receipt by USBN of
an agreement from each "affiliate" of GNB restricting the sale of USBN Common
Stock received by such affiliate in the Transaction; (iv) the absence of any
material adverse change in the financial position or results of operations of
GNB; (v) the number of Dissenting Shares cannot exceed 10% of the outstanding
shares of GNB Common Stock; (vi) the receipt by USBN of a letter from its
certified public accountants to the effect that the Transaction will qualify for
pooling of interests accounting treatment, assuming the Transaction is
consummated in accordance with the Transaction Agreement; (vii) GNB's capital
must be at least $3,250,000 on the Effective Date; (viii) GNB's allowance for
possible loan and lease losses must be at least 1% of GNB's adjusted loans and
must be adequate to absorb anticipated losses; and (ix) Mr. Lawrence C. Mitson,
the President and Chief Executive Officer of GNB, shall have executed an
employment agreement with GNB; such employment agreement has been executed by
Mr. Mitson and GNB. See " -- Interests of Certain Persons in the Transaction."
The obligations of GNB are also subject to the satisfaction or waiver
of certain additional conditions, including: (i) the delivery by USBN of
opinions of its legal counsel and certificates executed by certain of its
executive officers as to compliance with the Transaction Agreement; (ii) the
accuracy of the representations and warranties, and compliance in all material
respects with the agreements and covenants of USBN; (iii) the absence of any
material adverse change in the financial position or results of operations of
USBN; and (iv) receipt by GNB of the opinion of Southard Financial regarding the
fairness of the Transaction to GNB's stockholders.
Regulatory Approvals. The Transaction is subject to approval by the
OCC under the National Bank Act and the FRB under the Bank Holding Company Act.
A Notice/Application for approval of the Transaction will be filed with the FRB
and the OCC, respectively. The approval of any application merely implies
satisfaction of regulatory criteria for approval, which do not include review of
the Transaction from the standpoint of the
21
<PAGE> 35
adequacy of the consideration to be received by, or fairness to, stockholders.
Regulatory approvals do not constitute an endorsement or recommendation of the
proposed Transaction.
USBN and GNB are not aware of any governmental approvals or
compliance with banking laws and regulations that are required for consummation
of the Transaction other than those described above. Should any other approval
or action be required, it is presently contemplated that such approval or action
would be sought. There can be no assurance that any such approval or action, if
needed, could be obtained and, if such approvals or actions are obtained, there
can be no assurance as to the timing thereof. The Transaction cannot proceed in
the absence of all requisite regulatory approvals. See " -- Effective Date of
the Transaction" and " -- Amendment or Termination."
The Transaction Agreement provides that if the Transaction has not
been consummated by December 31, 1998, the Transaction Agreement may be
terminated by USBN, New Bank, or GNB. Since there is the possibility that
regulatory approval may not be obtained for a substantial period of time after
approval of the Transaction Agreement by GNB's stockholders, there can be no
assurance that the Transaction will be consummated by December 31, 1998. In
addition, should regulatory approval require any material change, a
resolicitation of stockholders may be required if regulatory approval is
obtained after stockholder approval of the Transaction Agreement.
AMENDMENT OR TERMINATION
USBN may elect to modify the structure of the Transaction, but USBN
will not have the right to make any revision to the structure of the Transaction
which (i) changes the amount or kind of the consideration which the GNB
stockholders are entitled to receive or (ii) adversely affects the tax treatment
to GNB stockholders of receiving such consideration. Prior to the Effective Date
of the Transaction, any condition of the Transaction Agreement may (to the
extent allowed by law) be waived in writing by the party benefited by the
provision or may be amended or modified by an agreement in writing approved by
the Boards of Directors of USBN, New Bank and GNB. After approval of the
Transaction Agreement by the stockholders of GNB, the Transaction Agreement may
not, without further approval of such stockholders, be amended in any manner
that would alter the consideration to be received by GNB stockholders in
exchange for their GNB Common Stock.
The Transaction Agreement may be terminated prior to the Effective
Date of the Transaction, either before or after approval by the GNB
stockholders, as follows: (i) by the mutual consent of the parties; (ii) by
either party if the other party has committed a material breach that cannot be
or has not been cured within 30 days after the giving of written notice of such
breach; (iii) by either party if the Closing Date shall not have occurred by
December 31, 1998; and (iv) by either party if the stockholders of GNB (or USBN,
as the sole stockholder of New Bank) fail to approve the Transaction Agreement.
In the event of the valid termination of the Transaction Agreement by
either USBN or GNB, the obligations of the parties to the Transaction Agreement
will terminate and there will be no liability on the part of either party or
their officers or directors except for liability for breach of the Transaction
Agreement or for any misstatement or misrepresentation made prior to such
termination. Under certain circumstances, if GNB stockholders fail to approve
the Transaction Agreement and GNB is subsequently acquired by a third party, GNB
will pay USBN $350,000. See " -- No Solicitation."
CONDUCT OF BUSINESS PENDING THE TRANSACTION
GNB has agreed in the Transaction Agreement not to take certain
actions without the prior approval of USBN relating to its operations pending
consummation of the Transaction. Among other things, GNB may not (i) issue or
sell any GNB Common Stock; (ii) pay any dividends; (iii) incur any indebtedness
for borrowed money or becoming liable for the obligations of any other entity
other than in the ordinary course of business;
22
<PAGE> 36
(iv) change its lending, investment, liability management or other material
banking policies in any respect; (v) impose any lien on any share of stock held
by GNB; (vi) enter into or amend any employment agreements or any employee
benefit plans or grant any increases (other than in the ordinary course of
business and excluding the employment agreement with Mr. Lawrence C. Mitson, the
President and Chief Executive Officer of GNB); (vii) dispose of any material
portion of its assets or acquire any material portion of the business or
property of any other entity; (viii) amend its articles of incorporation or
bylaws; (ix) settle any claims involving any liability for material money
damages; (x) enter into, terminate or change any material agreements, except for
those agreements that may be terminated by GNB without penalty upon not more
than 60 days' prior written notice; and (xi) extend credit other than in
accordance with existing lending policies, with specific exceptions granted to
GNB. Moreover, GNB is required, among other things, to operate its businesses in
the usual, regular and ordinary course and to use its best efforts to preserve
its business relationships and to retain key employees.
DIRECTORS AND EXECUTIVE OFFICERS AFTER THE TRANSACTION
Upon consummation of the Transaction, the USBN Board will consist of
USBN's current directors plus one GNB director, and the GNB Board will consist
of GNB's current directors, plus two additional directors selected by USBN. The
executive officers of USBN in office immediately before the Effective Date will
remain unchanged following the Transaction. The executive officers of GNB will
also remain unchanged immediately following the Transaction. Mr. Lawrence C.
Mitson, the President and Chief Executive Officer of GNB has executed an
employment agreement with GNB in anticipation of the Transaction.
As a condition to the execution of the Transaction Agreement, each
member of the GNB Board has executed a Director NonCompetition Agreement with
USBN. The Director NonCompetition Agreement prohibits the directors from
competing with USBN or any of its subsidiaries for two years after the Effective
Date within Grant County, Washington.
EMPLOYEE BENEFIT PLANS
The Transaction Agreement confirms USBN's intention to allow the
employees of GNB who continue as employees after the Transaction to participate
in certain USBN employee benefit plans, on substantially the same terms as
employees of USBN and its other subsidiaries. For the purposes of determining
eligibility to participate in such plans, and the vesting of benefits under such
plans (but not the accrual of benefits under such plans) USBN will give effect
to years of service with GNB as though such service were with USBN. On the
Effective Date, all outstanding and unexercised options to purchase GNB Common
Stock will be converted into options to purchase USBN Common Stock, adjusted as
to both number of shares and price using the Exchange Ratio.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
The directors and executive officers of GNB, together with their
affiliates, beneficially owned a total of _______ shares of GNB Common Stock
(representing _____% of all outstanding shares of GNB Common Stock) as of the
Record Date. The directors and executive officers will receive the same
consideration in the Transaction for their shares, including any shares which
they may acquire prior to the Effective Date pursuant to the exercise of stock
options, as the other shareholders of GNB. Lawrence C. Mitson, the President and
Chief Executive Officer of GNB, and GNB's Board have certain interests in the
Transaction as described below that are in addition to their interest as
shareholders of GNB generally. GNB's Board was aware of these interests and
considered them, among other matters, in approving the Transaction Agreement and
the transactions contemplated thereby.
Directors' and Officers' Liability. The Transaction Agreement
provides that for the four-year period following the Effective Date, USBN will
indemnify the directors, officers and employees of GNB against certain
liabilities to the extent that such persons were entitled to indemnification
under federal or Washington law and
23
<PAGE> 37
the Articles of Association and Bylaws of GNB. The indemnification provisions
applicable to such persons prior to the Effective Date are summarized at
"COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF USBN AND GNB COMMON STOCK
- --Indemnification and Limitation of Liability."
Employment Agreement. USBN will adopt and ratify an employment
agreement previously entered into between GNB and Lawrence C. Mitson, President
and Chief Executive Officer and a director of GNB. Mr. Mitson's agreement is for
a term of 36 months commencing on the Effective Date. Mr. Mitson's initial base
salary under the agreement will be $98,600. The agreement further provides that
Mr. Mitson will receive all benefits that are generally provided to similarly
situated full-time employees of USBN. Mr. Mitson will also receive certain
fringe benefits, including, the right to participate in USBN's Supplemental
Executive Retirement Plan. If Mr. Mitson is terminated without cause or Mr.
Mitson terminates his employment for a legitimate reason as defined in his
agreement before the end of the term of the agreement, Mr. Mitson is entitled to
receive his base salary for the remaining term of the agreement. The agreement
also provides for a restriction on Mr. Mitson's ability to compete with USBN or
GNB following his termination from employment (voluntary or otherwise).
Director Non-Competition Agreements. Each director of GNB has signed
an agreement which restricts each director's ability to compete with USBN or any
of its subsidiaries or affiliates within Grant County, Washington for a period
of 2 years after the Effective Date of the Transaction.
Renewal of Lease of GNB's Main Office Facility. A Washington general
partnership consisting of certain directors of GNB owns the main office facility
out of which GNB conducts its banking operations in Ephrata, Washington. GNB
presently leases this facility from the partnership pursuant to a lease which
expires in November, 1998. As part of the negotiations leading up the execution
of the Transaction Agreement, USBN negotiated with the owners of GNB's main
office facility and reached an agreement regarding a renewal lease which will
become effective at the expiration of the current lease. The renewal lease has a
ten-year term, expiring in November of 2008, with monthly rent of $7,000, which
will be adjusted based on the Consumer Price Index beginning with the 6th year
of the lease term. USBN has the option to renew the lease for an additional
five-year term, with rent adjusted based on the Consumer Price Index. USBN also
has a right of first refusal to purchase the facility at any time during the
lease term or, if the option to renew the lease is exercised, during the option
term, so long as it is not in default of the lease. USBN and GNB believe that
the renewal lease on GNB's main office facility reflects the results of
arm's-length negotiations and does not bestow upon the owners of the building
any additional benefits or income by virtue of their status as directors of GNB.
Position on the USBN Board. The Transaction Agreement provides that
USBN will appoint one current member of the GNB Board to the USBN Board
following the Effective Date of the Transaction.
FEDERAL INCOME TAX TREATMENT OF THE TRANSACTION
The following is a discussion of the material federal income tax
consequences of the Transaction that are generally applicable to GNB
stockholders. This discussion is based on currently existing provisions of the
Internal Revenue Code of 1986, as amended ("Code"), existing regulations
thereunder (including final, temporary or proposed), and current administrative
rulings and court decisions, all of which are subject to change. Any such
change, which may or may not be retroactive, could alter the tax consequences
described herein. The following discussion is intended only as a summary of the
material federal income tax consequences of the Transaction and does not purport
to be a complete analysis or listing of all of the potential tax effects
relevant to a decision on whether to vote in favor of approval of the
Transaction Agreement.
The Transaction is expected to qualify as a reorganization under
Section 368(a) of the Code. As parties to reorganization, neither USBN, New Bank
nor GNB will recognize gain or loss as a result of the Transaction.
24
<PAGE> 38
Except for cash received in lieu of a fractional share interest in USBN Common
Stock, holders of shares of GNB Common Stock will recognize no gain or loss on
the receipt of USBN Common Stock.
Consummation of the Transaction is conditioned upon the receipt by
USBN and GNB of an opinion of Graham & Dunn PC, special counsel to USBN, to the
effect that if the Transaction is consummated in accordance with the term set
forth in the Transaction Agreement, the Transaction will constitute a
reorganization within the meaning of Section 368(a) of the Code, no gain or loss
will be recognized by GNB stockholders who exchange all of their GNB Common
Stock solely for shares of USBN Common Stock (except for cash received in lieu
of fractional shares).
The opinion of counsel, which will be delivered on the Closing Date,
is filed as an exhibit to the Registration Statement, and the foregoing is only
a summary of such tax consequences as described in the opinion. An opinion of
counsel only represents counsel's best legal judgment, and has no binding effect
or official status of any kind, and no assurance can be given that contrary
positions may not be taken by the Internal Revenue Service (the "IRS") or a
court considering the issues. Neither GNB nor USBN has requested or will request
a ruling from the IRS with regard to the federal income tax consequences of the
Transaction.
THE FOREGOING IS A GENERAL SUMMARY OF THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE TRANSACTION TO GNB STOCKHOLDERS, WITHOUT REGARD TO THE
PARTICULAR FACTS AND CIRCUMSTANCES OF EACH STOCKHOLDER'S TAX SITUATION AND
STATUS. IN ADDITION, THERE MAY BE RELEVANT STATE, LOCAL OR OTHER TAX
CONSEQUENCES, NONE OF WHICH IS DESCRIBED ABOVE. BECAUSE CERTAIN TAX CONSEQUENCES
OF THE TRANSACTION MAY VARY DEPENDING UPON THE PARTICULAR CIRCUMSTANCES OF EACH
STOCKHOLDER, EACH GNB STOCKHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING SUCH STOCKHOLDER'S SPECIFIC TAX SITUATION AND STATUS, INCLUDING THE
SPECIFIED APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN LAWS TO SUCH
STOCKHOLDER AND THE POSSIBLE EFFECT OF CHANGE IN FEDERAL AND OTHER TAX LAWS.
ACCOUNTING TREATMENT OF THE TRANSACTION
It is expected that the pooling of interests method of accounting
will be used to reflect the Transaction. As required by generally accepted
accounting principles, under pooling of interests accounting, as of the
Effective Date of the Transaction, the assets and liabilities of GNB would be
added to those of USBN at their recorded book values and the stockholders'
equity accounts of USBN and GNB would be combined on USBN's consolidated balance
sheet. On a pooling of interests accounting basis, income and other financial
statements of USBN issued after consummation of the Transaction would be
restated retroactively to reflect the consolidated combined financial position
and results of operations of USBN and GNB as if the Transaction had taken place
prior to the periods covered by such financial statements. In order for the
Transaction to qualify for pooling of interests accounting treatment, among
other things, substantially all (90% or more) of the outstanding GNB Common
Stock must be exchanged for USBN Common Stock.
DISSENTERS' RIGHTS OF APPRAISAL
GNB shareholders who vote against the Transaction are entitled to
dissenters' rights under the National Bank Act. Section 215 of the National Bank
Act provides that a shareholder of GNB wishing to perfect his or her right to
dissent from the Transaction must either vote against the Transaction or give
notice in writing at or prior to the GNB Special Meeting to the presiding
officer that he or she dissents from the Transaction. Additionally, a dissenting
shareholder of GNB must make written request to GNB for the fair value of his or
her Common Stock at any time within 30 days after the Effective Date of the
Transaction. The written request must be accompanied by the surrender of such
shareholder's stock certificates. The statute provides that the value of the
shares of any dissenting shareholder of GNB as of the Effective Date of the
Transaction will be determined by an appraisal made by a committee of three
persons including (1) one person selected by the vote of the holders of a
majority of GNB Common Stock, the owners of which are dissenting shareholders,
thus entitled to payment
25
<PAGE> 39
in cash, (ii) one person selected by the directors of GNB, and (iii) one person
selected by the two persons so selected. The valuation agreed upon by any two of
the three appraisers shall govern. If the value so fixed is not satisfactory to
any dissenting shareholder who has requested payment, that shareholder may,
within five days after being notified of the appraised value of such shares as
determined by the committee appeal to the OCC, who shall then cause a
reappraisal to be made, which will be final and binding as to the value of the
shares of such shareholder. If within 90 days from the Effective Date of the
Transaction, for any reason, one or more of the appraisers is not selected as
provided above or the appraisers fail to determine a value for such shares, the
OCC will, upon written request of any interested party, cause an appraisal to be
made which will be final and binding upon all parties.
THE INFORMATION SET FORTH ABOVE REGARDING DISSENTERS' RIGHTS OF
APPRAISAL IS A SUMMARY AND IS NOT A COMPLETE STATEMENT OF ALL APPLICABLE
REQUIREMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE APPRAISAL
LAWS, THE FULL TEXT OF WHICH IS SET FORTH IN APPENDIX B. IN VIEW OF THE
COMPLEXITY OF THE APPRAISAL LAWS, SHAREHOLDERS OF GNB WHO MAY WISH TO DISSENT
FROM THE TRANSACTION AND PURSUE APPRAISAL RIGHTS SHOULD CONSULT THEIR LEGAL
ADVISORS. A SHAREHOLDER WHO DOES NOT FOLLOW STRICTLY THE REQUIREMENTS OF THE
APPRAISAL LAWS WILL LOSE THE RIGHT TO EXERCISE DISSENTERS' RIGHTS.
RESALE OF USBN COMMON STOCK
The USBN Common Stock to be issued in the Transaction will be
transferable free of restrictions under the 1933 Act, except for shares received
by persons, including directors and executive officers of GNB, who may be deemed
to be "affiliates" of GNB, as that term is used in (i) paragraphs (c) and (d) of
Rule 145 under the 1933 Act and/or (ii) Accounting Series Releases 130 and 135,
as amended, of the SEC. Affiliates may not sell their shares of USBN Common
Stock acquired in the Transaction, except (a) pursuant to an effective
registration statement under the 1933 Act covering those shares, (b) in
compliance with Rule 145, or (c) in accordance with an opinion of counsel
reasonably satisfactory to USBN, under other applicable exemptions from the
registration requirements of the 1933 Act. SEC guidelines further indicate that
the pooling of interests method of accounting will generally not be challenged
on the basis of sales by affiliates of the acquiring or acquired company if such
affiliates do not dispose of any of the shares of the acquiring or acquired
company they owned before the consummation of a merger or shares of the
acquiring corporation they receive in connection with the merger during the
period beginning 30 days before the Effective Date and ending when financial
results covering at least 30 days of post-merger operations of the combined
organization have been published. USBN will obtain customary agreements with all
GNB directors, officers, and affiliates of GNB and USBN, under which such
persons have represented that they will not dispose of their shares of USBN
Common Stock received in the Transaction or the shares of GNB Common Stock or
USBN Common Stock held by them before the Transaction, except (i) in compliance
with the 1933 Act and the rules and regulations promulgated thereunder, and (ii)
in a manner that would not adversely affect the ability of USBN to treat the
Transaction as a pooling of interests for financial reporting purposes. This
Prospectus/Proxy Statement does not cover any resales of the USBN Common Stock
received by affiliates of GNB.
NO SOLICITATION
GNB has agreed in the Transaction Agreement that, except as required
by law, neither it nor any of its officers or directors will (i) solicit,
initiate or encourage inquiries or proposals for the acquisition of the shares
or assets of GNB (an "Acquisition Proposal"), (ii) enter into discussions
concerning any such acquisition, or (iii) furnish any nonpublic information
relating to an Acquisition Proposal.
If (i) there is an Acquisition Proposal prior to the GNB Special
Meeting, (ii) the Transaction is not approved by two-thirds of the outstanding
shares of GNB at the GNB Special Meeting, and (iii) prior to July 31,
26
<PAGE> 40
1999, GNB is acquired by a third party, then unless the representations and
warranties of USBN in the Transaction Agreement were false in any material
respect as of the date of the GNB Special Meeting or USBN was in material
default of its covenants in the Transaction Agreement as of such date, GNB must
promptly pay to USBN $350,000.
EXPENSES
The Transaction Agreement provides that USBN and GNB will each pay
their own expenses in connection with the Transaction Agreement and the
transactions contemplated by the Transaction Agreement.
PRO FORMA COMBINED UNAUDITED FINANCIAL STATEMENTS
The following pro forma combined unaudited financial statements give
effect to the Transaction on a pooling of interests basis. The unaudited pro
form combined statements of financial condition are presented on the basis that
the Transaction took place on March 31, 1998. The unaudited condensed pro forma
combined statements of income are presented on the basis that the Transaction
was consummated as of the beginning of the first period presented.
Effective October 1, 1997, USBN acquired the Bank of Pullman,
Pullman, Washington ("BOP"). The purchase method of accounting was used for the
transaction. Accordingly, prior period financial statements for USBN have not
been restated to reflect the combined accounts of BOP. The pro forma unaudited
financial statements included in this document include the accounts of BOP.
These pro forma combined unaudited financial statements should be
read in conjunction with the historical financial statements and the related
notes thereto for USBN and GNB included or incorporated into this
Prospectus/Joint Proxy Statement by reference. See "AVAILABLE INFORMATION,"
"INFORMATION INCORPORATED BY REFERENCE" and the USBN 1997 10-K, the USBN March
31, 1998 10-Q and the USBN 1998 Proxy Statement.
The pro forma unaudited statements of operations are not necessarily
indicative of operating results, which would have been achieved had the
Transaction been consummated as of the beginning of the first period presented
and should not be construed as representative of future results.
27
<PAGE> 41
UNITED SECURITY BANCORPORATION AND GRANT NATIONAL BANK PRO FORMA COMBINED
UNAUDITED STATEMENT OF FINANCIAL CONDITION AT MARCH 31, 1998.
<TABLE>
<CAPTION>
PRO FORMA
USBN GNB COMBINED
-------- ------- ---------
(Dollars in thousands)
Assets
<S> <C> <C> <C>
Cash and due from banks $16,787 $1,596 $18,383
Overnight interest bearing deposits with other banks 1,351 1,739 3,090
Federal funds sold 1,785 1,785
-------- ------- --------
Cash and cash equivalents 19,923 3,335 23,258
Securities 65,161 6,879 72,040
Loans, net 238,803 20,472 259,275
Accrued interest receivable 3,150 316 3,466
Premises and equipment, net 8,627 695 9,322
Foreclosed assets 1,023 39 1,062
Life insurance and salary continuation assets 2,798 2,798
Intangible assets 6,814 6,814
Other assets 579 42 621
-------- ------- --------
Total assets $346,878 $31,778 $378,656
======== ======= ========
Liabilities
Noninterest bearing - demand deposits $60,099 $4,591 $64,690
Interest bearing:
NOW and savings accounts 127,446 18,401 145,847
Time, $100,000 and over 29,182 1,032 30,214
Other time 84,381 4,144 88,525
-------- ------- --------
Total deposits 301,108 28,168 329,276
Notes payable 6,507 6,507
Capital lease obligations 727 727
Accrued interest payable 880 113 993
Other liabilities 3,118 57 3,175
-------- ------- --------
Total liabilities 312,340 28,338 340,678
Stockholders' Equity
Common stock 28,388 1,996 30,384
Retained earnings 6,162 1,443 7,605
Accumulated other comprehensive income, net of tax (12) 1 (11)
-------- ------- --------
Total stockholders' equity 34,538 3,440 37,978
-------- ------- --------
Total liabilities and stockholders' equity $346,878 $31,778 $378,656
======== ======= ========
</TABLE>
See Notes to Pro Forma Combined Unaudited Financial Statements
28
<PAGE> 42
UNITED SECURITY BANCORPORATION AND GRANT NATIONAL BANK PRO FORMA COMBINED
UNAUDITED INCOME STATEMENT FOR THE QUARTER ENDED MARCH 31, 1998.
<TABLE>
<CAPTION>
PRO FORMA
USBN GNB COMBINED
--------- ------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans and leases $6,303 $540 $6,843
Interest on securities 1,034 97 1,131
Other interest income 189 26 215
--------- ------- ---------
Total interest income 7,526 663 8,189
--------- ------- ---------
Interest expense:
Interest on deposits 2,962 207 3,169
Interest on borrowings 169 169
--------- ------- ---------
Total interest expense 3,131 207 3,338
--------- ------- ---------
Net interest income 4,395 456 4,851
Provision for loan losses 184 184
--------- ------- ---------
Net interest income after provision for loan losses 4,211 456 4,667
--------- ------- ---------
Noninterest income:
Fees and service charges 366 64 430
Insurance commissions 284 284
Securities gains/(losses) 41 41
Other 538 538
--------- ------- ---------
Total noninterest income 1,229 64 1,293
--------- ------- ---------
Noninterest expense:
Salaries and employee benefits 2,072 172 2,244
Occupancy expense, net 261 24 285
Equipment expense 294 18 312
Other operating expense 784 162 946
--------- ------- ---------
Total noninterest expense 3,411 376 3,787
--------- ------- ---------
Income before taxes 2,029 144 2,173
Income tax expense 639 46 685
--------- ------- ---------
Net income $1,390 $98 $1,488
========= ======= =========
Basic and diluted earnings per share $0.34 $0.23 $0.33
Weighted average shares outstanding 4,052,610 434,783 4,487,393
</TABLE>
See Notes to Pro Forma Combined Unaudited Financial Statements
29
<PAGE> 43
UNITED SECURITY BANCORPORATION, BANK OF PULLMAN AND GRANT NATIONAL BANK PRO
FORMA COMBINED UNAUDITED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31,
1997.
<TABLE>
<CAPTION>
PRO FORMA
USBN BOP(1) GNB COMBINED
--------- ------ -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans and leases $21,501 $2,678 $2,070 $26,249
Interest on securities 2,065 868 338 3,271
Other interest income 1,109 58 165 1,332
--------- ------ -------- ---------
Total interest income 24,675 3,604 2,573 30,852
--------- ------ -------- ---------
Interest expense:
Interest on deposits 9,463 1,284 789 11,536
Interest on borrowings 432 16 448
--------- ------ -------- ---------
Total interest expense 9,895 1,300 789 11,984
--------- ------ -------- ---------
Net interest income 14,780 2,304 1,784 18,868
Provision for loan losses 752 7 759
--------- ------ -------- ---------
Net interest income after provision
for loan losses 14,028 2,297 1,784 18,109
--------- ------ -------- ---------
Noninterest income:
Fees and service charges 1,322 191 241 1,754
Insurance commissions 1,125 2 1,127
Insurance proceeds 796 796
Securities gains/(losses), net (21) 3 (18)
Other 495 50 545
--------- ------ -------- ---------
Total noninterest income 3,717 246 241 4,204
--------- ------ -------- ---------
Noninterest expense:
Salaries and employee benefits 6,481 989 664 8,134
Occupancy expense, net 732 125 99 956
Equipment expense 832 196 67 1,095
Other operating expense 2,583 426 556 3,565
--------- ------ -------- ---------
Total noninterest expense 10,628 1,736 1,386 13,750
--------- ------ -------- ---------
Income before taxes 7,117 807 639 8,563
Income tax expense 2,253 186 211 2,650
--------- ------ -------- ---------
Net income $4,864 $621 $428 $5,913
========= ====== ======== =========
Basic earnings per share $1.20 $0.98 $1.32
Diluted earnings per share $1.19 $0.98 $1.31
Weighted average shares outstanding 4,051,961 434,783 4,486,744
</TABLE>
(1) First nine months of 1997. Effective October 1, 1997, USBN acquired
the Bank of Pullman ("BOP"). The purchase method of accounting was
used for the transaction.
See Notes to Pro Forma Combined Unaudited Financial Statements
30
<PAGE> 44
UNITED SECURITY BANCORPORATION, BANK OF PULLMAN AND GRANT NATIONAL BANK PRO
FORMA UNAUDITED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1997.
<TABLE>
<CAPTION>
USBN &
BOP PRO FORMA
USBN BOP(1) COMBINED GNB COMBINED
---- ------ -------- --- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans and leases $4,786 $841 $5,627 $457 $6,084
Interest on securities 295 310 605 74 679
Other interest income 241 26 267 56 323
------ ---- ------ ---- ------
Total interest income 5,322 1,177 6,499 587 7,086
------ ---- ------ ---- ------
Interest expense:
Interest on deposits 2,037 416 2,453 175 2,628
Interest on borrowings 75 4 79 79
------ ---- ------ ---- ------
Total interest expense 2,112 420 2,532 175 2,707
------ ---- ------ ---- ------
Net interest income 3,210 757 3,967 412 4,379
Provision for loan losses 153 7 160 160
------ ---- ------ ---- ------
Net interest income after provision
for loan losses 3,057 750 3,807 412 4,219
------ ---- ------ ---- ------
Noninterest income:
Fees and service charges 265 79 344 59 403
Insurance commissions 288 288 288
Securities gains/(losses) (25) 2 (23) (23)
Other 104 6 110 110
------ ---- ------ ---- ------
Total noninterest income 632 87 719 59 778
------ ---- ------ ---- ------
Noninterest expense:
Salaries and employee benefits 1,455 303 1,758 161 1,919
Occupancy expense, net 145 81 226 25 251
Equipment expense 167 167 19 186
Other operating expense 457 161 618 135 753
------ ---- ------ ---- ------
Total noninterest expense 2,224 545 2,769 340 3,109
------ ---- ------ ---- ------
Income before taxes 1,465 292 1,757 131 1,888
Income tax expense 476 85 561 38 599
------ ---- ------ ---- ------
Net income $989 $207 $1,196 $93 $1,289
====== ==== ====== === ======
Basic and diluted earnings per share $0.24 $0.30 $0.21 $0.29
Weighted average shares outstanding 4,050,575 4,050,575 434,783 4,485,358
</TABLE>
(1) Effective October 1, 1997, USBN acquired BOP. The purchase method of
accounting was used for the transaction.
See Notes to Pro Forma Combined Unaudited Financial Statements
31
<PAGE> 45
UNITED SECURITY BANCORPORATION, BANK OF PULLMAN AND GRANT NATIONAL BANK PRO
FORMA UNAUDITED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1996.
<TABLE>
<CAPTION>
PRO FORMA
USBN BOP(1) GNB COMBINED
--------- ------ ------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans and leases $18,765 $3,415 $1,780 $23,960
Interest on securities 1,246 1,155 226 2,627
Other interest income 708 93 180 981
--------- ------ ------- ---------
Total interest income 20,719 4,663 2,186 27,568
--------- ------ ------- ---------
Interest expense:
Interest on deposits 7,850 1,653 644 10,147
Interest on borrowings 297 33 330
--------- ------ ------- ---------
Total interest expense 8,147 1,686 644 10,477
--------- ------ ------- ---------
Net interest income 12,572 2,977 1,542 17,091
Provision for loan losses 1,006 15 1,021
--------- ------ ------- ---------
Net interest income after provision
for loan losses 11,566 2,977 1,527 16,070
--------- ------ ------- ---------
Noninterest income:
Fees and service charges 1,109 242 224 1,575
Insurance commissions 1,200 1,200
Securities gains/(losses) 53 53
Other 619 137 756
--------- ------ ------- ---------
Total noninterest income 2,981 379 224 3,584
--------- ------ ------- ---------
Noninterest expense:
Salaries and employee benefits 5,960 1,192 624 7,776
Occupancy expense, net 618 139 107 864
Equipment expense 701 180 102 983
Operational loss 860 860
Other operating expense 1,733 671 483 2,887
--------- ------ ------- ---------
Total noninterest expense 9,872 2,182 1,316 13,370
--------- ------ ------- ---------
Income before taxes 4,675 1,174 435 6,284
Income tax expense 1,513 321 143 1,977
--------- ------ ------- ---------
Net income $3,162 $853 $292 $4,307
========= ====== ======= =========
Basic and diluted earnings per share $0.78 $0.67 $0.96
Weighted average shares outstanding 4,042,811 434,783 4,477,594
</TABLE>
(1) Effective October 1, 1997, USBN acquired BOP. The purchase method of
accounting was used for the transaction.
See Notes to Pro Forma Combined Unaudited Financial Statements
32
<PAGE> 46
UNITED SECURITY BANCORPORATION, BANK OF PULLMAN AND GRANT NATIONAL BANK PRO
FORMA UNAUDITED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995.
<TABLE>
<CAPTION>
PRO FORMA
USBN BOP(1) GNB COMBINED
--------- ------ ------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans and leases $14,976 $3,551 $1,538 $20,065
Interest on securities 1,647 1,019 300 2,966
Other interest income 433 127 58 618
--------- ------ ------- ---------
Total interest income 17,056 4,697 1,896 23,649
--------- ------ ------- ---------
Interest expense:
Interest on deposits 6,901 1,930 585 9,416
Interest on borrowings 113 32 6 151
--------- ------ ------- ---------
Total interest expense 7,014 1,962 591 9,567
--------- ------ ------- ---------
Net interest income 10,042 2,735 1,305 14,082
Provision for loan losses 317 65 382
--------- ------ ------- ---------
Net interest income after provision
for loan losses 9,725 2,670 1,305 13,700
--------- ------ ------- ---------
Noninterest income:
Fees and service charges 887 235 200 1,322
Insurance commissions 1,255 1,255
Securities gains/(losses) 53 53
Life insurance proceeds 1,030 1,030
Other 540 106 5 651
--------- ------ ------- ---------
Total noninterest income 3,765 341 205 4,311
--------- ------ ------- ---------
Noninterest expense:
Salaries and employee benefits 4,980 1,097 497 6,574
Occupancy expense, net 488 140 145 773
Equipment expense 579 207 786
Operational loss 379 379
Other operating expense 1,988 676 377 3,041
--------- ------ ------- ---------
Total noninterest expense 8,414 2,120 1,019 11,553
--------- ------ ------- ---------
Income before taxes 5,076 891 491 6,458
Income tax expense 1,325 265 164 1,754
--------- ------ ------- ---------
Net income $3,751 $626 $327 $4,704
========= ====== ======= =========
Basic and diluted earnings per share $1.09 $0.75 $1.21
Weighted average shares outstanding 3,441,502 434,783 3,876,285
</TABLE>
(1) Effective October 1, 1997, USBN acquired BOP. The purchase method of
accounting was used for the transaction.
See Notes to Pro Forma Combined Unaudited Financial Statements
33
<PAGE> 47
NOTES TO PRO FORMA COMBINED UNAUDITED FINANCIAL STATEMENTS
1. ADJUSTMENTS
The pro forma combined unaudited statement of financial condition
reflects the assumed issuance of 434,783 shares of USBN common stock, to GNB
shareholders using the exchange ratio of 13.18. These shares were derived using
the respective outstanding shares of GNB at March 31, 1998, not including shares
subject to exercise of stock options. Total consideration to GNB stockholders
was assumed to be $10 million.
The issuance of shares for the Transaction is based upon an exchange
ratio of 13.18 resulting from an assumed average closing price for USBN stock of
$23.00 per share and that 33,000 shares of GNB common stock are outstanding and
subject to exchange on the Effective Date. This assumption is made solely for
the purpose of calculating the pro forma data and is not intended to be a
representation or approximation of the actual exchange ratio.
2. RECENT MERGER
Effective October 1, 1997, USBN acquired BOP. The purchase method of
accounting was used for the transaction. Accordingly, prior period financial
statements for USBN have not been restated to reflect combined accounts of BOP.
The pro forma unaudited financial statements included in this document include
the accounts of BOP.
3. BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share is computed on the weighted
average number of basic and diluted common shares outstanding during the periods
presented. Diluted common shares outstanding include common stock equivalents
computed using the treasury stock method. Common stock equivalents include
shares issuable upon exercise of common stock options. Pro forma basic and
diluted earnings per share for the periods presented is computed based on the
respective exchange ratio for GNB common stock described in Note 1. Pro forma
basic and diluted earnings per share amounts may vary due to potential changes
in the exchange ratio.
BUSINESSES OF THE PARTIES TO THE TRANSACTION
INFORMATION CONCERNING USBN
USBN. USBN is a multi-bank holding company headquartered in Spokane,
Washington. USBN owns three banks, United Security Bank, a Washington bank, Home
Security Bank, a Washington bank; and Bank of Pullman, an Idaho bank, and also
owns USB Insurance (Washington) (an insurance agency), USB Leasing (Washington)
(a leasing company), and USB Mortgage (Washington) (a mortgage company). The
principal executive offices of USBN are located at 9506 North Newport Highway,
Spokane, Washington 99218-1200 and its telephone number is (509) 467-6949.
USBN conducts its banking business through 24 branches located in
communities throughout eastern Washington, including Spokane and a branch in
Moscow, Idaho. USBN focuses its banking and other services on individuals,
professionals, and small to medium-sized businesses in diversified industries
throughout its service area. At December 31, 1997, USBN had total consolidated
assets of $350.4 million, net loans of $226.7 million and deposits of $307.6
million. USBN was founded in 1983 and has been profitable in every year since
its inception. Additional information concerning USBN is included in the USBN
documents incorporated by reference in this Prospectus/Proxy Statement. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "AVAILABLE INFORMATION."
34
<PAGE> 48
Year 2000 Issue. USBN is reviewing its automated systems and business
processes to identify and correct any date-related problems that may arise with
the change of the century at December 31, 1999. The provider of USBN's mainframe
computer applications will provide a Year 2000 software compliance update. USBN
intends to install and test the update by September 30, 1998. The installation
will also upgrade the mainframe operating systems. USBN is also reviewing its PC
hardware and software and its major automated systems suppliers for Year 2000
compliance. A small number of PCs and PC systems will require upgrades. USBN's
subsidiary banks are each incorporating Year 2000 issues into their standards of
creditworthiness for new and renewed loans and are reviewing significant
existing borrowers for Year 2000 risk. Review in this area will continue through
1999. The cost of complying with the Year 2000 issues is presently estimated to
be $150,000 including staff time costs.
In addition, it is anticipated that after the closing of the
Transaction, GNB will be converted to USBN's mainframe and software systems. It
is estimated that the conversion will be fully completed and tested no later
than the fall of 1999.
This discussion above with regards to the century date change for the
year 2000 includes certain "forward looking statements" concerning the future
operations of USBN. It is USBN's desire to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. This
statement is for the express purpose of availing USBN of the protections of such
safe harbor with respect to all "forward looking statements". Management's
ability to predict results of the effect of future plans is inherently
uncertain, and is subject to factors that may cause actual results to differ
materially from those projected. Factors that could affect the actual results
include the possibility that systems modifications will not operate as intended,
unexpected costs, and the uncertainty associated with the impact of the century
change on USBN's customers, vendors and third party service providers.
Financial and other information relating to USBN, including
information relating to USBN's directors and executive officers, is set forth in
USBN's 1997 10-K, USBN's March 31, 1998 10-Q, and USBN's 1998 Proxy Statement,
copies of which may be obtained from USBN as indicated under "AVAILABLE
INFORMATION."
INFORMATION CONCERNING GNB
Business. GNB was chartered as a national bank under the laws of the
United States on October 3, 1988 and conducts a commercial banking business in
Ephrata and Moses Lake, Washington. GNB offers a full line of commercial banking
services to its customers and the community providing personal and business
financial services to individuals and small businesses. Services include those
traditionally offered by commercial banks, such as checking and savings
accounts; commercial, real estate, agricultural, personal and other installment
and terms loan; travelers checks; safe deposit boxes; collection services; wire
transfers and notary services. GNB operates a main office in Ephrata and one
branch office in Moses Lake, Washington. See "Facilities."
Competition. The primary service area of GNB is Grant County in
Washington. Grant County covers 2,660 square miles and includes the cities of
Ephrata, Moses Lake, and Quincy. This area has a population of approximately
68,300 persons. With approximately 12 financial institutions (including
commercial banks, savings and loans, and credit unions) serving this population,
competition in GNB's primary service area is relatively high. GNB has
competition within its service area from many well-established financial
institutions. Many of GNB competitors are larger and more substantially
capitalized than GNB. They have established positions in Grant County and have
resources greater than GNB for lending and to pay for advertising, physical
facilities, personnel and interest on deposited funds. The primary factors
affecting competition for deposits are interest rates, the quality and range of
financial services offered and the convenience of office location and office
hours. The primary factors in competing for loans are interest rates, loan
origination fees and the quality and range of lending services offered. Other
factors which affect competition include the general availability of
35
<PAGE> 49
lendable funds and credit, general and local economic conditions and the quality
of service provided to customers.
GNB relies substantially on local promotional activity, personal
contacts by its officers, directors, employees and shareholders, extended hours,
personalized service, and flexible product mix and its reputation in the
community to compete effectively. At December 31, 1998, GNB was the fifth
largest of the seven commercial banks in its primary service area based on
assets.
Facilities. GNB operates out of two offices. Its main office is
located at 261 Basin SW in Ephrata, Washington. GNB leases this facility which
has 6,000 square feet located on the main floor and in a finished basement. The
main office facility has 4 teller windows, one drive up window and an ATM.
The Moses Lake branch is located at 322 South Division Street. This
facility, which has 2,200 square feet, is owned by GNB. The Moses Lake branch
facility has four teller windows, one drive up window and an ATM.
Employees. As of April 30, 1998, GNB employed 19 employees with 17
persons working full-time and 2 working part-time. GNB provides a variety of
benefits to its employees and believes employee relations are good. GNB's
employees are not parties to any collective bargaining agreement.
Legal Proceedings. There is no material pending litigation to which
GNB is a party.
Voting Securities and Principal Holders Thereof. The following table
sets forth information with respect to the beneficial ownership of GNB Common
Stock as of April 30, 1998, by (i) each person known by GNB to own beneficially
more than 5% of GNB Common Stock, (ii) each current director of GNB, and (iii)
all executive officers and directors of GNB as a group. Except as otherwise
indicated, each of the persons named below has sole voting and investment power
with respect to GNB Common Stock owned by him or her.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF GNB
<TABLE>
<CAPTION>
Amount and Nature of Percentage of
Name of Shareholder Position with GNB Beneficial Ownership(1) Shares Outstanding
- ------------------- ----------------- ----------------------- ------------------
<S> <C> <C> <C>
J.D. Blair Director 602 1.82%
William B. Davis Director 1,364 4.13%
Glen Estes Director 1,343 4.07%
Gary T. House Director 1,534 4.65%
Pamp G. Maiers Director 2,536 7.68%
Lawrence C. Mitson Director, President and CEO 1,304 3.84%
Michael Moore Director 776 2.35%
Gerry Ramm Director 2,008 6.08%
Dianne Recknagel Director 1,653 5.01%
Donald H. Swartz Director 1,542 4.67%
Executive Officers and Directors and
Executive Officers as a Group
(11 Persons)
14,762 43.42%
</TABLE>
- ------------------
(1) In accordance with Rule 13d-3 under the 1934 Act, a person is deemed
to be beneficial owner, for purposes of this table, of any shares of
GNB Common Stock if he or she has voting and/or investment power with
respect to such security. The table includes shares owned by spouses,
other immediate family members in trust, shares held in
36
<PAGE> 50
retirement accounts or funds for the benefit of named individuals,
and other forms of ownership, over which shares the persons named in
the table possess voting and/or investment power. The amounts also
include the following amounts of GNB Common Stock which the indicated
individual has the right to acquire within 60 days of the GNB Record
Date through the exercise options: Mr. Mitson, 1,000 shares.
GNB MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The discussion presented below analyzes major factors and trends
regarding the financial condition and results of GNB's operations for the three
months ended March 31, 1998 and 1997, and for the years ended December 31, 1997
and 1996. GNB is chartered as a national bank and operates through its offices
located in Ephrata and Moses Lake, Washington. GNB's primary source of revenue
is derived from providing loans to customers, who are predominantly small and
middle market businesses and middle-income individuals. A substantial portion of
GNB's loan portfolio represents loans to customers directly or indirectly
involved in the agribusiness industry in the region served by GNB.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH
31, 1998 AND 1997
Overview. GNB's total assets of $31.8 million at March 31, 1998,
represents a 5% increase over total assets of $30.3 million at March 31, 1997.
Most of this net increase resulted from increases in loans. The growth was
funded primarily by increases in deposits and retained earnings.
Net Income. For the three months ended March 31, 1998 and 1997, net
income was $98,000 and $93,000, respectively, an increase of $5,000, or 5.4% in
1998 compared with 1997. The increase in net income is due in part to increased
net interest income and non-interest income, less the increase in non-interest
expenses. Basic earnings per share for the three-month periods ended March 31,
1998 and 1997, were $2.97 and $2.80, respectively.
Net Interest Income. Net interest income for the three months ended
March 31, 1998, was $456,000, an increase of $44,000, or 10.7%, compared to the
three months ended March 31, 1997. This increase resulted primarily from an
increase in earning assets (primarily loans) during the period, less the effect
of an increase in interest-bearing liabilities.
Noninterest Expenses. Noninterest expenses for the three months ended
March 31, 1998, increased $36,000, or 10.6%, from the three month period ended
March 31, 1997. The increase in expenses was primarily related to increases in
compensation and outside services.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31,
1997 AND 1996
Overview. GNB's total assets of $33.8 million at December 31, 1997,
represent a $5.1 million, or 17.8% increase over total assets of $28.7 million
at December 31, 1996. Most of the growth is a result of increases in loans and
securities, primarily funded by increases in deposits and retained earnings.
Net Income. For the years ended December 31, 1997 and 1996, GNB's net
income was $428,000 and $292,000, respectively, an increase of $136,000, or
46.6%, in 1997 as compared with 1996. The increase in net income was primarily
due to increased net interest income, partially offset by increased noninterest
expenses and income taxes. Basic earnings per share for the years ended December
31, 1997 and 1996, were $12.97 and $8.86, respectively.
37
<PAGE> 51
Net Interest Income. Net interest income of $1,784,000 for the year
ended December 31, 1997, increased $242,000, or 15.7%, compared to $1,542,000
for the year ended December 31, 1996. The increase in net interest income was
primarily due to increases in GNB's earning assets, particularly its loan and
securities portfolios. GNB's net yield on earning assets totaled 6.16% and 6.36%
for the years ended December 31, 1997 and 1996, respectively.
Noninterest Expenses. Noninterest expenses for the year ended
December 31, 1997, increased $70,000, or 5.3%, from the year ended December 31,
1996. The increase was primarily related to increased employee compensation and
data processing fees, less the effects of the 1996 closure of GNB's Soap Lake
branch.
LOAN QUALITY
Overview. Loans totaled $20,805,000 at March 31, 1998, as compared to
$21,314,000 at December 31, 1997, and $17,681,000 at December 31, 1996. GNB's
loan growth of $3,633,000, or 20.5% from 1996 to 1997 can be attributed to
increased loan demand and market conditions, particularly in the Moses Lake
area. Real estate mortgages and contracts represent the largest portion of this
increase.
Allowance for Loan Losses. The allowance for loan losses represents
management's current estimate of amounts required to absorb credit losses on
existing loans. The allowance of $252,000 at March 31, 1998 and December 31,
1997, is a $9,000 or 3.5% decrease from the $261,000 allowance at December 31,
1996. The allowance represents 1.2% of loans at March 31, 1998 and December 31,
1997, as compared to 1.5% at December 31, 1996.
The allowance for loan losses is increased by provisions charged to
operations and reduced by loans charged off, net of recoveries. The allowance is
based on management's periodic evaluation of potential losses in the portfolio
after consideration of historical loss experience, adverse situations that may
affect the borrower's ability to repay, the estimated value of any collateral,
economic conditions, and other risks inherent in the portfolio.
The following table presents an analysis of GNB's loan loss
experience for the years ended December 31, 1997 and 1996:
38
<PAGE> 52
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996
---- ----
<S> <C> <C>
Balance, beginning of year $261 $203
--- ---
Loans charged off:
Real estate loans 0 0
Installment loans 20 0
Credit cards 2 9
Commercial loans 0 2
-- --
Total charge-offs 22 11
-- --
Recoveries:
Real estate loans 0 0
Installment loans 4 1
Credit cards 0 1
Commercial loans 9 52
-- --
Total recoveries 13 54
-- --
Net (charge-offs) recoveries (9) 43
Provision charged to operations 0 15
Balance, end of year $252 $261
--- ---
Ratio of net charge-offs (recoveries) during the year to
average loans outstanding during the year .05% (.27%)
</TABLE>
Risk Elements. Risk elements include accruing loans past due 90 days
or more, nonaccrual loans, and loans that have been restructured to provide a
reduction or deferral of interest or principal for reasons related to the
borrower's financial difficulties, potential problem loans, and loan
concentrations. The following table states GNB's nonaccrual loans as of March
31, 1998, December 31, 1997, and December 31, 1996. There were no restructured
loans on these dates.
<TABLE>
<CAPTION>
December 31,
----------------------------------
March 31, 1998 1997 1996
-------------- ------- -------
<S> <C> <C> <C>
Nonaccrual loans $ -0- $39,000 $15,000
Loans accruing past due 90 days -0- -0- 3,000
</TABLE>
The accrual of interest on loans is discontinued when, in
management's opinion, the borrower may be unable to meet payment requirements as
they become due. When interest accrual is discontinued, all unpaid accrued
interest is reversed against current interest income. Interest income is
subsequently recognized only to the extent payments are received.
At March 31, 1998, GNB was not aware of any loans that should not
continue to accrue interest or that management reasonably expects will have a
materially negative impact on future operating results. GNB's management is not
aware of any information concerning any material loans, other than those
discussed as risk
39
<PAGE> 53
elements above, that cause it to have doubts as to the ability of the borrowers
to comply with the terms of the loans.
YEAR 2000 ISSUE
GNB management has identified the steps the bank must take to cause
GNB's information systems to be Year 2000 compliant. At this time, pending the
consummation of the Transaction, GNB will not be taking any additional measures
to become Year 2000 compliant since GNB's information systems will be merged
into USBN's information systems following the consummation of the Transaction.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk is considered by GNB's management to be the exposure to
loss resulting from changes in interest rates (interest rate risk). GNB's
interest rate risk arises from the instruments and transactions entered into for
purposes other than trading. They include loans, investment securities, and
deposit liabilities. All of GNB's financial instruments and transactions are
denominated in U.S. dollars. GNB does not use derivative financial instruments
for management of market risk or asset/liability management. Interest rate risk
occurs when assets and liabilities reprice at different times ass interest rates
change. GNB's interest rate risk management includes supervision by the Board's
ALCO committee, a Board policy on interest rate risk, and monthly review and
monitoring of the amount of interest rate risk being taken by GNB. By policy we
limited GNB's earnings exposure due to interest rate risk by setting limits on
positive and negative gaps within the next 12 months. These limits are set so
that this year's profits will not be unduly impacted no matter what happens to
interest rates during the year. Approximately 22% of GNB's loan portfolio
consists of loans having floating interest rates. Fixed rate loans are generally
made within a term of five years or less.
The following table discloses the balances of financial instruments
including the fair value as of December 31, 1997. The expected maturities are
stated final dates and do not take into consideration historical and estimated
principal prepayments for loans and securities. The roll-off rates for
noninterest bearing deposits, interest-bearing demand deposits and savings
deposits are 15%, 25%, and 20%, respectively. The interest rates disclosed are
based on rates from 1997 results. Fair values are based on calculations used in
accordance with generally accepted accounting principles.
<TABLE>
<CAPTION>
GRANT NATIONAL BANK Expected Maturity
Year ended December 31, 1997
($ in thousands) There- Fair
1998 1999 2000 2001 2002 after Total value
------ ------ ------ ------ ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash & Due from Banks $2,032 $ 2,032 $ 2,032
Overnight interest-bearing deposits
with other banks $2,900 $ 2,900 $ 2,900
weighted average interest rate 5.38%
Securities $2,835 $1,204 $1,438 $ 225 $ 235 $ 880 $ 6,817 $ 6,813
weighted average interest rate 5.72%
Fixed rate loans $3,340 $2,157 $2,157 $3,945 $3,945 $1,009 $16,553 $16,308
weighted average interest rate 9.71%
Variable rate loans $4,064 $ 92 $ 92 $ 92 $ 92 $ 247 $ 4,679 $ 4,679
weighted average interest rate 10.38%
</TABLE>
40
<PAGE> 54
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL LIABILITIES
Noninterest bearing deposits $ 913 $ 913 $ 913 $ 913 $ 913 $1,521 $ 6,086 $ 6,086
Interest bearing demand deposits $3,548 $3,548 $3,548 $3,548 $14,193 $14,193
weighted average interest rate 2.95%
Savings deposits $ 868 $ 868 $ 868 $ 868 $ 868 $ 4,338 $ 4,338
weighted average interest rate 3.00%
Time Deposits $5,025 $ 311 $ 195 $ 69 $ 5,600 $ 5,600
weighted average interest rate 5.42%
</TABLE>
The above table presents information about the Bank's interest
sensitivity, it does not predict future earnings. The Bank uses budgeting and
earnings projections to forecast earnings under different interest rate
projections. It requires significant assumptions about the projection of loan
prepayments, loan originations and liability funding sources, which may be
inaccurate. Weighted average interest rates by expected maturity is not
available.
MANAGEMENT OF USBN
Information regarding the names, ages, positions and business
backgrounds of the executive officers and directors of USBN, as well as
additional information, including executive compensation, security ownership of
certain beneficial owners and management and certain relationships and related
transactions, is incorporated by reference to USBN's 1997 10-K (which
incorporates portions of USBN's 1998 Proxy Statement). See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE." Stockholders desiring copies of such documents
may contact USBN at the addresses or phone numbers indicated under "AVAILABLE
INFORMATION."
SUPERVISION AND REGULATION
THE HOLDING COMPANY
USBN, by virtue of its ownership of United Security Bank, Home
Security Bank, and Bank of Pullman (collectively, the "Banks"), is a bank
holding company subject to regulation under Bank Holding Company Act of 1956, as
amended (the "BHCA"), and the examination and reporting requirements of the
BHCA. Under the BHCA, a bank holding company may not directly or indirectly
acquire the ownership or control of more than 5% of the voting shares or
substantially all of the assets of any company, including a bank or savings and
loan association, without the prior approval of the Federal Reserve Board. In
addition, bank holding companies are generally prohibited under the BHCA from
engaging in nonbanking activities, subject to certain exceptions. The Economic
Growth and Regulatory Paperwork Reduction Act of 1996 ("Economic Growth Act")
amended the BHCA to eliminate the requirement that bank holding companies seek
approval of the Board of Governors of the Federal Reserve ("FRB") before
engaging de novo in permissible nonbanking activities if the holding company is
well-capitalized and meets certain other specified criteria. A bank holding
company meeting those specifications need only notify the FRB within 10 business
days after beginning the activity. The Economic Growth Act also established an
expedited procedure for well-capitalized bank holding companies meeting certain
criteria to obtain FRB approval to acquire smaller companies that engage in
permissible non-banking activities pre-approved by FRB order.
USBN and the Banks are subject to supervision and examination by
applicable federal and state banking agencies. The earnings of USBN's
subsidiaries, and therefore the earnings of USBN, are affected by general
economic conditions, management policies and the legislative and governmental
actions of various regulatory authorities, including the Federal Reserve Board,
the FDIC, the Department of Financial Institutions and various other state
financial institution regulatory agencies. In addition, there are numerous
governmental requirements and regulations that affect the activities of USBN and
its subsidiaries.
41
<PAGE> 55
Certain Transactions with Affiliates. There are various legal
restrictions on the extent to which a bank holding company and certain of its
nonbank subsidiaries can borrow or otherwise obtain credit from its bank
subsidiaries. In general, these restrictions require that any such extensions of
credit must be on nonpreferential terms and secured by designated amounts of
specified collateral and be limited, as to any one of the holding company or
such nonbank subsidiaries, to 10% of the lending bank's capital stock and
surplus, and as to the holding company and all such nonbank subsidiaries in the
aggregate, to 20% of such capital stock and surplus.
Tie-In Arrangements. USBN and its subsidiaries cannot engage in
certain tie-in arrangements relating to any extension of credit, sale or lease
of property or furnishing of services. For example, with certain exceptions,
neither USBN nor its subsidiaries may condition an extension of credit to a
customer on either (1) a requirement that the customer obtain additional
services provided by it or (2) an agreement by the customer to refrain from
obtaining other services from a competitor. In April of 1997, the FRB adopted
significant amendments to its anti-tying rules that: (1) removed FRB-imposed
anti-tying restrictions on bank holding companies and their non-bank
subsidiaries; (2) allowed banks greater flexibility to package products with
their affiliates; and (3) established a safe harbor from the tying restrictions
for certain foreign transactions. These amendments are designed to enhance
competition in banking and nonbanking products and allow banks and their
affiliates to provide more efficient, lower cost service to their customers.
However, the impact of the amendments on USBN and its subsidiaries is unclear at
this time.
Capital Adequacy. The Federal Reserve Board has issued standards for
measuring capital adequacy for bank holding companies. These standards are
designed to provide risk-responsive capital guidelines and to incorporate a
consistent framework for use by financial institutions operating in major
international financial markets. The banking regulators have issued standards of
banks that are similar to, but not identical with, the standards of bank holding
companies. In general, the risk-related standards require financial institutions
and financial institution holding companies to maintain capital levels based on
"risk adjusted" assets, so that categories of assets with potentially higher
credit risk will require more capital backing than categories with lower credit
risk. In addition, financial institutions and financial institution holding
companies are required to maintain capital to support off-balance sheet
activities such as loan commitments.
Dividends. Dividends paid to USBN by its banking subsidiaries are a
material source of USBN's cash flow. Various federal and state statutory
provisions limit the amount of dividends USBN's banking subsidiaries are
permitted to pay to USBN, without regulatory approval. FRB policy further limits
the circumstances under which bank holding companies may declare dividends. For
example, a bank holding company should not continue its existing rate of cash
dividends on its common stock unless its net income is sufficient to fully fund
each dividend and its prospective rate of earnings retention appears consistent
with its capital needs, asset qualify, and overall financial condition.
Support of Subsidiary Banks. Under Federal Reserve Board policy, USBN
is expected to act as a source of financial strength to the Banks and to commit
resources to support the Banks in circumstances where it may not choose to do so
absent such a policy. This support may be required at times when USBN may not
find itself able to provide it. In addition, any capital loans by USBN to the
Banks would also be subordinate in right of payment to deposits and certain
other indebtedness of such subsidiary. Consistent with this policy regarding
bank holding companies serving as a source of financial strength for their
subsidiary banks, the Federal Reserve Board has stated that, as a matter of
prudent banking, a bank holding company generally should not maintain a rate of
cash dividends unless its net income available to common shareholders has been
sufficient to fully fund the dividends and the prospective rate of earnings
retention appears consistent with the bank holding company's capital needs,
asset quality and overall financial condition.
Securities Registration and Reporting. The common stock of USBN is
registered as a class with the SEC under the 1934 Act and thus is subject to the
periodic reporting and proxy solicitation requirements and the insider-trading
restrictions of that Act. The periodic reports, proxy statements, and other
information filed by
42
<PAGE> 56
USBN under that Act can be inspected and copied at or obtained from the office
of the SEC in Washington, D.C. In addition, the securities issued by USBN are
subject to the registration requirements of the 1933 Act and applicable state
securities laws unless exemptions are available.
BANKS
As a national banking association, GNB is subject to extensive
supervision and regulation by the OCC. USBN's wholly-owned subsidiaries, United
Security Bank and Home Security Bank, as Washington state-chartered banks, and
Bank of Pullman, as an Idaho state-chartered bank, are subject to supervision
and regulation by, respectively, the Washington Department of Financial
Institutions and the Idaho Department of Finance. Applicable federal and state
statutes and regulations governing a bank's operations relate, among other
matters, to capital requirements, required reserves against deposits,
investments, loans, legal lending limits, certain interest rates payable,
mergers and consolidations, borrowings, issuance of securities, payment of
dividends (see below), establishment of branches, and dealings with affiliated
persons. The FDIC has authority to prohibit banks under their supervision from
engaging in what they consider to be an unsafe and unsound practice in
conducting their business.
FDIC Insurance Assessments. GNB and the subsidiary depository
institutions of USBN are subject to FDIC deposit insurance assessments. The FDIC
has adopted a risk-based premium schedule. Each financial institution is
assigned to one of three capital groups--well capitalized, adequately
capitalized or undercapitalized--and further assigned to one of three subgroups
within a capital group, on the basis of supervisory evaluations by the
institution's primary federal and, if applicable, state supervisors, and on the
basis of other information relevant to the institution's financial condition and
the risk posed to the applicable insurance fund. The actual assessment rate
applicable to a particular institution will, therefore, depend in part upon the
risk assessment classification so assigned to the institution by the FDIC. See "
- -- FIRREA and FDICIA."
The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"). FIRREA was adopted in August 1989 to provide for the resolution
of insolvent savings associations, required the FDIC to establish separate
deposit insurance funds--the Bank Insurance Fund ("BIF") for bank and the
Savings Association Insurance Fund ("SAIF") for savings associations. FIRREA
also required the FDIC to set deposit insurance assessments at such levels as
would cause BIF and SAIF to reach their "designated reserve ratios" of 1.25
percent of the deposits insured by them within a reasonable period of time. Due
to low costs of resolving bank insolvencies in the last few years, BIF reached
its designated reserve ratio in May 1995. As a result, effective January 1,
1996, the FDIC eliminated deposit insurance assessments (except for the minimum
$2,000 payment required by law) for banks that are well capitalized and well
managed and reduced the deposit insurance assessments for all other banks. With
the enactment of the Deposit Insurance Funds Act of 1996 ("Funds Act"), for the
three-year period beginning in 1997, BIF-insured deposits such as those of the
Banks and GNB are subject to a Financing Corporation ("FICO") premium assessment
on domestic deposits at one-fifth the premium rate (roughly 1.3 basis points)
imposed on SAIF-insured deposits (roughly 6.5 basis points). Beginning in the
year 2000, BIF-insured institutions like the Banks and GNB will be required to
pay the FICO obligations on a pro-rata basis with all thrift institutions;
annual assessments are expected to equal approximately 2.4 basis points until
2017, to be phased out completely by 2019. The Funds Act provides for the merger
of the BIF and SAIF on January 1, 1999, only if no thrift institutions exist on
that date.
FIRREA and FDICIA. FIRREA contains a cross-guarantee provision which
could result in insured depository institutions owned by USBN being assessed for
losses incurred by the FDIC in connection with assistance provided to, or the
failure of, any other insured depository institution owned by USBN. Under
FIRREA, failure to meet the capital guidelines could subject a banking
institution to a variety of enforcement remedies available to federal regulatory
authorities, including the termination of deposit insurance by the FDIC.
43
<PAGE> 57
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") made extensive changes to the federal banking laws. FDICIA instituted
certain changes to the supervisory process, including provisions that mandate
certain regulatory agency actions against undercapitalized institutions within
specified time limits. FDICIA contain various other provisions that may affect
the operations of banks and savings institutions.
The prompt corrective action provision of FDICIA requires the federal
banking regulators to assign each insured institution to one of five capital
categories ("well capitalized," "adequately capitalized" or one of three
"undercapitalized" categories) and to take progressively more restrictive
actions based on the capital categorization, as specified below. Under FDICIA,
capital requirements would include a leverage limit, a risk-based capital
requirement and any other measure of capital deemed appropriate by the federal
banking regulators for measuring the capital adequacy of an insured depository
institution. All institutions, regardless of their capital levels, are
restricted from making any capital distribution or paying any management fees
that would cause the institution to fail to satisfy the minimum levels for any
relevant capital measure.
The FDIC and the Federal Reserve Board adopted capital-related
regulations under FDICIA. Under those regulations, a bank will be well
capitalized if it: (i) had a risk-based capital ratio of 10% or greater; (ii)
had a ratio of Tier 1 capital to risk-weighted assets of 6% or greater; (iii)
had a Tier 1 capital to average assets of 5% or greater and (iv) was not subject
to an order, written agreement, capital directive or prompt correction action
directive to meet and maintain a specific capital level for any capital measure.
A bank will be adequately capitalized if it was not "well capitalized" and: (i)
had a risk-based capital ratio of 8% or greater; (ii) had a ratio of Tier 1
capital to risk-weighted assets of 4% or greater; and (iii) had a ratio of Tier
1 capital to average assets of 4% or greater (except that certain associations
rated "Composite 1" under the federal banking agencies' CAMEL rating system may
be adequately capitalized if their ratios of core capital to adjusted total
assets were 3% or greater). FDICIA also makes extensive changes in existing
rules regarding audits, examinations and accounting. It generally requires
annual on-site, full scope examinations by each bank's primary federal
regulatory. It also imposes new responsibilities on management, the independent
audit committee and outside accountants to develop or approve reports regarding
the effectiveness of internal controls, legal compliance and off-balance sheet
liabilities and assets.
Depositor Preference Statute. Legislation enacted in August 1993
provides a preference for deposits and certain claims for administrative
expenses and employee compensation against an insured depository institution, in
the liquidation or other resolution of such an institution by any receiver. Such
obligations would be afforded priority over other general unsecured claims
against such an institution, including federal funds and letters of credit, as
well as any obligation to shareholders of such an institution in their capacity
as such.
Interstate Banking and Community Development Legislation. In
September 1994, legislation was enacted that is expected to have a significant
effect in restructuring the banking industry in the United States. The
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Riegle-Neal") facilitates the interstate expansion and consolidation of
banking organizations by permitting (i) bank holding companies that are
adequately capitalized and managed, one year after enactment of the legislation,
to acquire banks located in states outside their home states regardless of
whether such acquisitions are authorized under the law of the host state, (ii)
the interstate merger of banks after June 1, 1997, subject to the right of
individual states to "opt in" or to "opt out" of this authority before that
date, (iii) banks to establish new branches on an interstate basis provided that
such action is specifically authorized by the law of the host state, (iv)
foreign banks to establish, with approval of the regulators in the United
States, branches outside their home states to the same extent that national or
state banks located in the home state would be authorized to do so, and (v)
banks to receive deposits, renew time deposits, close loans, service loans and
receive payments on loans and other obligations as agent for any bank or thrift
affiliate, whether the affiliate is located in the same state or a different
state. One effect of Riegle-Neal is to permit USBN to acquire banks located in
any state and to permit bank holding companies located in any state to acquire
banks and bank holding companies in Washington. Under recent banking agency
regulations,
44
<PAGE> 58
banks are prohibited from using their interstate branches primarily for deposit
production. The FDIC and other banking agencies have accordingly implemented a
loan-to-deposit ratio screen to ensure compliance with this prohibition.
Overall, Riegle-Neal is likely to have the effects of increasing competition and
promoting geographic diversification in the banking industry.
Loans to One Borrower. GNB and each of USBN's banking subsidiaries
are subject to limitations on the aggregate amount of loans that they can make
to any one borrower, including related entities. Applicable regulations
generally limit loans-to-one borrower to 15 to 20% of unimpaired capital and
surplus. As of March 31, 1998, GNB and each of USBN's banking subsidiaries were
in compliance with applicable loans-to-one borrower requirements.
Dividends. Under the National Bank Act, GNB may not pay dividends
without advance approval of the OCC if the total of all dividends declared by it
in any calendar year will exceed the sum of its net profits (as defined by
statute) for that year plus its retained profits for the preceding two calendar
years, less any required transfers to surplus. The National Bank Act also
prohibits national banks from paying dividends that would be in an amount
greater than net profits then on hand (as defined by statute) after deducting
losses and bad debts (as defined by statute). The amount available for dividend
distribution by GNB as of March 31, 1998, was approximately $711,063. Washington
and Idaho state banking laws also limit the amount of dividends payable by
USBN's banking subsidiaries.
DESCRIPTION OF USBN CAPITAL STOCK
USBN is authorized to issue 15,000,000 shares of Common Stock, no par
value per share. At March 24, 1998, the date the Transaction Agreement was
executed, 4,052,278 shares of USBN Common Stock were issued and outstanding. A
total of 194,328 shares are subject to options under USBN stock option plans;
108,863 of such options are fully vested and exercisable. USBN Common Stock is
listed for trading on Nasdaq under the symbol "USBN." Each share of USBN Common
Stock has the same relative rights and is identical in all respects with every
other share of USBN Common Stock. The following summary describes the material
aspects of the USBN Common Stock, but does not purport to be a complete
description of the applicable provisions of the USBN Articles of Incorporation
and Bylaws or of applicable statutory or other law, and is qualified in its
entirety by reference thereto. See "AVAILABLE INFORMATION."
VOTING RIGHTS
The holders of USBN Common Stock possess exclusive voting rights in
USBN. Each holder of USBN Common Stock is entitled to one vote for each share
held of record on all matters submitted to a vote of holders of USBN Common
Stock. Holders of shares of USBN Common Stock are not entitled to cumulate votes
for the election of directors.
DIVIDENDS
The holders of USBN Common Stock are entitled to such dividends as
the USBN Board may declare from time to time out of funds legally available
therefor. Dividends from USBN depend upon the receipt to USBN of dividends from
The Banks because USBN has no source of income other than dividends from The
Banks. Accordingly, the dividend restrictions imposed on The Banks by statute or
regulation may effectively limit the amount of dividends USBN can pay. See
"SUPERVISION AND REGULATION -- Dividend Restrictions."
45
<PAGE> 59
LIQUIDATION
In the event of liquidation, dissolution or winding up of USBN, the
holders of shares of USBN Common Stock are entitled to share ratably in all
assets remaining after payment of all debts and other liabilities of USBN.
OTHER CHARACTERISTICS
Holders of USBN Common Stock do not have any preemptive, conversion
or other subscription rights with respect to any additional shares of USBN
Common Stock which may be issued. Therefore, the USBN Board may authorize the
issuance and sale of shares of capital stock of USBN without first offering them
to existing stockholders of USBN. USBN Common Stock is not subject to any
redemption or sinking fund provisions. The outstanding shares of USBN Common
Stock are, and the shares to be issued in the Transaction will be, fully paid
and non-assessable.
COMPARISON OF CERTAIN RIGHTS OF HOLDERS
OF USBN AND GNB COMMON STOCK
GENERAL
USBN is incorporated under the laws of the State of Washington and,
accordingly, the rights of USBN's stockholders are governed by USBN's Articles
of Incorporation, Bylaws and the WBCA. GNB, on the other hand, is a national
banking association organized under the laws of the United States and,
accordingly, the rights of GNB's stockholders are governed by GNB's Articles of
Association, Bylaws and the National Bank Act.
Upon consummation of the Transaction, stockholders of GNB will become
stockholders of USBN, and as such, their rights will be governed by USBN's
Articles of Incorporation, Bylaws and the WBCA. The following is a summary of
material differences between the Articles of Incorporation and Bylaws of USBN
and the Articles of Association and Bylaws of GNB as well as the WBCA and the
National Bank Act. This discussion is not intended to be a complete statement of
the differences affecting the rights of stockholders and is qualified in its
entirety by reference to the governing laws and the Articles and Bylaws of each
entity.
DIVIDEND RIGHTS
USBN. Under Washington law, dividends may be paid only if, after
giving effect to the dividend, USBN will be able to pay its debts as they become
due in the ordinary course of business and USBN's total assets will not be less
than the sum of its total liabilities plus the amount that would be needed, if
USBN were to be dissolved at the time of the dividend, to satisfy the
preferential rights of persons whose right to payment is superior to those
receiving the dividend.
GNB. The National Bank Act provides that GNB may make dividend
payments to its shareholders provided that until its surplus fund equals its
common capital account, no dividends may be declared unless there has been
carried to the surplus fund no less than one-tenth of GNB's net income of the
preceding half year in the case of quarterly or semi-annual dividends or
one-tenth of net income of the preceding two consecutive years in the case of
annual dividends. The National Bank Act further provides that the approval of
the OCC is required if the total of all dividends declared in any calendar year
exceeds the total of GNB's net income for that year combined with its retained
net income for the preceding two years, less an required transfers to surplus.
VOTING RIGHTS
USBN. USBN's Articles of Incorporation eliminate cumulative voting.
Cumulative voting entitles each stockholder to cast a number of votes in the
election of directors equal to the number of such stockholders' shares
46
<PAGE> 60
of common stock multiplied by the number of directors to be elected, and to
distribute such votes among one or more of the nominees to be elected. The
absence of cumulative voting rights limits the ability of minority stockholders
to obtain representation on the USBN Board. All voting rights are vested in the
holders of USBN Common Stock, with each share being entitled to one vote.
GNB. All voting rights are vested in the holders of GNB Common Stock
with each share being entitled to one vote. The National Bank Act allows for
cumulative voting in the election of directors of a national bank.
PREEMPTIVE RIGHTS
USBN. USBN's stockholders do not have preemptive rights to subscribe
to any additional securities that may be issued.
GNB. Shareholders of GNB have preemptive rights to subscribe to any
additional shares of GNB that may be issued except for up to 6,000 of authorized
but unissued GNB Common Stock that may be issued from time to time for the
implementation of any stock option plan.
LIQUIDATION RIGHTS
USBN. If USBN is liquidated, the holders of USBN Common Stock are
entitled to share, on a pro rata basis, USBN's remaining assets after payment of
or provision for all debts and other liabilities of USBN.
GNB. Similarly, if GNB is liquidated, holders of GNB Common Stock are
entitled to share, on a pro rata basis, GNB's remaining assets after payment of
or provision for all debts and other liabilities of GNB.
ASSESSMENTS
USBN. All shares of USBN Common Stock are fully paid and
nonassessable.
GNB. All outstanding shares of GNB Common Stock are fully paid and
non-assessable except for assessability as may be permitted under 12 U.S.C.
Section 55.
STOCK REPURCHASES
USBN. Under Washington law, a corporation may acquire shares of its
own stock. Therefore, USBN may repurchase shares of its own capital stock.
GNB. Only under very limited circumstances may GNB repurchase any of
its outstanding shares of Common Stock under the National Bank Act and
interpretations of the National Bank Act by the OCC.
AMENDMENT OF ARTICLES AND BYLAWS
USBN. USBN's Articles of Incorporation may be amended by the vote of
the holders of a majority of the outstanding shares of USBN Common Stock. The
Bylaws of USBN may be amended by a majority vote of the Board of Directors or by
the holders of at least a majority of the outstanding shares of USBN.
GNB. The Articles of Association of GNB may be amended by obtaining
the affirmative vote of the holders of a majority of the outstanding shares of
GNB Common Stock. The Bylaws of GNB may be amended by a vote of a majority of
all directors.
47
<PAGE> 61
APPROVAL OF CERTAIN TRANSACTIONS
USBN. The Articles of Incorporation and Bylaws of USBN do not require
any increased shareholder vote to approve a business combination that may have
the effect of foreclosing reorganization, consolidations, sale of substantially
all assets or dissolution which a majority of shareholders deem desirable and
place the power to prevent such a reorganization or combination in the hands of
a minority of shareholders.
GNB. The National Bank Act provides that merger or consolidation
transactions involving national banks be approved by the holders of at least
two-thirds of the outstanding shares of the merging or consolidating bank(s).
DISSENTERS' RIGHTS
USBN. Under the WBCA, stockholders of USBN will generally have
dissenter's appraisal rights in connection with (i) a plan of merger to which
USBN is a party; (ii) a plan of share exchange to which USBN is a party as the
corporation whose shares will be acquired; (iii) certain sales or exchanges of
all, or substantially all, of USBN's property other than in the regular course
of business; and (iv) amendments to USBN's Articles of Incorporation effecting a
material reverse stock split. However, stockholders generally will not have such
dissenters' rights if stockholder approval is not required by the WBCA for the
corporate action. Approval of the Transaction by the holders of USBN Common
Stock is not required under the WBCA; therefore stockholders of USBN do not have
dissenters' rights in connection with the Merger.
GNB. GNB shareholders who vote against a merger or consolidation
transaction are entitled to dissenters' rights as provided under the National
Bank Act. As far as the Transaction Agreement is concerned, GNB shareholders are
entitled to dissenters' rights under Section 215 of the National Bank Act. See
"THE TRANSACTION -- Dissenters' Rights of Appraisal."
BOARD OF DIRECTORS
USBN. USBN's Articles of Incorporation provide that its Board of
directors shall consist of not less than five nor more than 25 members, with the
current number set at ten by a resolution of the Board of Directors of USBN. The
Articles of Incorporation of USBN provide that the Board of directors or the
shareholders may change the authorized number of directors within the stated
range by resolution. Changes in the size of the range may be made by an
amendment to USBN's Articles of Incorporation, which must be approved by a
majority of the outstanding shares entitled to vote. The Bylaws of USBN provide
that any vacancy on the Board of Directors may be filled by the affirmative vote
of a majority of the remaining directors, and any director so appointed is to
serve for an unexpired term of his or her predecessor.
GNB. GNB's Articles of Association provides that its Board of
Directors shall consist of not fewer than 5 nor more than 25 shareholders, the
exact number to be fixed and determined from time to time by resolution of a
majority of the full Board of Directors or by resolution of the shareholders at
any annual or special meeting. The Articles and Bylaws of GNB make no provision
for the procedure to remove a director, and the National Bank Act provides no
specific procedures for removing a director. If a vacancy occurs on the Board of
Directors the remaining Board of Directors may appoint a director to fill such
vacancy.
INDEMNIFICATION AND LIMITATION OF LIABILITY
USBN. Pursuant to USBN's Bylaws, USBN will indemnify the officers,
directors and employees of USBN with respect to expenses, settlements,
judgements and fines in suits in which such person has made a party by reason of
the fact that he or she is or was an officer, director or employee of USBN. No
such indemnification may be given if the acts or omissions of the person are
adjudged to be negligent or in bad faith. In addition,
48
<PAGE> 62
USBN's Bylaws provide that neither a director or officer will be liable for
negligence or bad faith in the performance of his or her duties as director or
officer if he or she acted in good faith for a purpose which he or she
reasonably believed to be in the best interests of the corporation of and had no
reasonable cause to believe that his or her conduct was unlawful.
GNB. Pursuant to GNB's Articles of Association, GNB may indemnify the
officers, directors and employees of GNB for reasonable expenses actually
incurred in connection with any suit or proceeding in which such a person has
been made a party by reason of that person serving as a director, officer or
employee of GNB. According to the Articles, no such person shall be indemnified
in any suit or proceeding in which that person is adjudged to have been guilty
or liable for gross negligence, willful misconduct or criminal acts in the
performance of his or her duties to GNB.
POTENTIAL ANTI-TAKEOVER PROVISIONS
Neither USBN's or GNB's Articles and Bylaws contain provisions that
are specifically intended to have an anti-takeover effect on the transaction.
CERTAIN LEGAL MATTERS
The validity of the USBN Common Stock to be issued in the Transaction
is being passed upon for USBN by Graham & Dunn PC, Seattle, Washington. Graham &
Dunn PC will also deliver an opinion concerning certain federal income tax
consequences of the Transaction.
EXPERTS
The consolidated statement of financial condition of USBN as of
December 31, 1997 and the related consolidated statements of income,
stockholders' equity and cash flows for the year then ended, incorporated by
reference in USBN's Annual Report on Form 10-K for the year ended December 31,
1997 have been audited by Moss Adams LLP, independent auditors, as set forth in
their report thereon incorporated by reference therein and incorporated herein
by reference. Such consolidated statements are incorporated herein by reference
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated statements of financial condition of USBN as of
December 31, 1996 and December 31, 1995 and the related consolidated statements
of income, stockholders' equity and cash flows for the years then ended, (and
not presented separately or incorporated separately by reference herein), have
been audited by McFarland & Alton P.S., independent certified public
accountants, as stated in their report, which is incorporated by reference from
USBN's Annual Report on Form 10-K for the year ended December 31, 1997. Such
consolidated statements are incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of GNB as of and for the year ended December
31, 1997 included in this Prospectus/Proxy Statement and in the Registration
Statement have been audited by LeMaster & Daniels PLLC, independent certified
public accountants, to the extent and for the periods set forth in their report
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of said firm as experts in auditing and accounting.
49
<PAGE> 63
OTHER MATTERS
The GNB Board is not aware of any business to come before the GNB
Special Meeting other than those matters described above in this
Prospectus/Proxy Statement. However, if any other matters should properly come
before the GNB Special Meeting, it is intended that proxies in the accompanying
form will be voted in respect thereof in accordance with the judgment of the
person or persons voting the proxies.
50
<PAGE> 64
GRANT NATIONAL BANK
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Balance sheets F-3-4
Statements of income F-5
Statements of stockholders' equity F-6
Statements of cash flows F-7-8
Notes to financial statements F-9-18
</TABLE>
F-1
<PAGE> 65
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Grant National Bank
Ephrata, Washington
We have audited the accompanying balance sheet of Grant National Bank as of
December 31, 1997, and the related statements of income, stockholders' equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Grant National Bank as of
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Spokane, Washington
March 31, 1998
F-2
<PAGE> 66
GRANT NATIONAL BANK
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CASH AND DUE FROM BANKS $ 4,931,783 $ 3,334,720
----------- -----------
SECURITIES AVAILABLE-FOR-SALE 6,813,447 6,879,422
----------- -----------
LOANS:
Commercial 4,353,012 4,276,533
Agricultural 3,569,284 3,679,432
Real estate mortgage and contracts 10,910,546 10,413,967
Installment 2,259,779 2,171,769
Credit cards 208,578 232,668
Other 12,307 30,157
----------- -----------
Total loans 21,313,506 20,804,526
Less:
Deferred loan fees 78,445 78,191
Unearned income 3,204 3,037
Allowance for loan losses 251,818 251,743
----------- -----------
20,980,039 20,471,555
----------- -----------
PREMISES AND EQUIPMENT 704,200 694,793
----------- -----------
ACCRUED INTEREST RECEIVABLE 321,834 315,591
----------- -----------
OTHER ASSETS 38,469 81,664
----------- -----------
$33,789,772 $31,777,745
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 67
GRANT NATIONAL BANK
BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Interest bearing:
Demand $ 14,193,256 $ 13,642,925
Savings 4,744,013 4,758,449
Time (including deposits over $100,000 of $1,180,000
and $1,032,000, respectively) 5,194,198 5,175,286
Noninterest-bearing demand 6,086,887 4,590,741
------------ ------------
Total deposits 30,218,354 28,167,401
Accrued interest payable 115,179 113,113
Other liabilities 60,434 57,393
------------ ------------
Total liabilities 30,393,967 28,337,907
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock--250,000 shares, $25 par value, authorized;
33,000 shares issued and outstanding 825,000 825,000
Surplus 1,170,650 1,170,650
Retained earnings 1,403,037 1,443,330
Accumulated other comprehensive income:
Unrealized (loss) gain on securities available-for-sale,
less applicable deferred income tax (2,882) 858
------------ ------------
Total stockholders' equity 3,395,805 3,439,838
------------ ------------
$ 33,789,772 $ 31,777,745
============ ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 68
GRANT NATIONAL BANK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31,
-------------------------- --------------------------
1997 1996 1998 1997
---------- ---------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $2,070,232 $1,779,860 $ 540,003 $ 456,727
Interest and dividends on investment securities:
Taxable 315,584 217,128 91,903 68,231
Tax-exempt 21,969 8,574 5,004 5,841
Interest on deposits with Federal Home Loan Bank 164,948 180,283 26,213 56,131
---------- ---------- ---------- ----------
2,572,733 2,185,845 663,123 586,930
INTEREST EXPENSE:
Interest on deposits 788,571 643,642 207,521 175,158
---------- ---------- ---------- ----------
Net interest income 1,784,162 1,542,203 455,602 411,772
PROVISION FOR LOAN LOSSES -- 15,000 -- --
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,784,162 1,527,203 455,602 411,772
---------- ---------- ---------- ----------
NONINTEREST INCOME:
Service charges on deposit accounts 180,636 162,720 48,464 45,033
Other 59,677 61,887 15,919 13,460
---------- ---------- ---------- ----------
240,313 224,607 64,383 58,493
---------- ---------- ---------- ----------
NONINTEREST EXPENSES:
Salaries and wages 566,608 534,482 146,695 135,709
Employee benefits 97,244 89,762 25,528 25,273
Occupancy expense 98,925 106,568 24,133 24,839
Equipment expense 66,821 102,295 18,350 18,610
Other operating 556,112 483,312 161,507 135,436
---------- ---------- ---------- ----------
1,385,710 1,316,419 376,213 339,867
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAX 638,765 435,391 143,772 130,398
FEDERAL INCOME TAX 210,886 143,000 45,729 37,892
---------- ---------- ---------- ----------
NET INCOME $ 427,879 $ 292,391 $ 98,043 $ 92,506
========== ========== ========== ==========
BASIC AND DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 12.97 $ 8.86 $ 2.97 $ 2.80
SHARES OUTSTANDING DURING THE YEARS/PERIODS 33,000 33,000 33,000 33,000
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 69
GRANT NATIONAL BANK
YEARS ENDED DECEMBER 31, 1997 AND 1996
STATEMENTS OF STOCKHOLDERS' EQUITY AND THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Accumulated
Other
Compre-
Common Stock Retained hensive
Shares Amount Surplus Earnings Income Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1995--
unaudited 33,000 $ 825,000 $ 1,170,650 $ 732,267 $ (23,247) $ 2,704,670
ADD--unaudited:
Comprehensive income:
Net income for 1996 -- -- -- 292,391 -- 292,391
Other comprehensive income:
Unrealized gain on securities
available-for-sale, net of
applicable deferred income
tax of $1,069 -- -- -- -- 2,075 2,075
-----------
Comprehensive income 294,466
----------- ----------- ----------- ----------- ----------- -----------
BALANCES, DECEMBER 31, 1996 33,000 825,000 1,170,650 1,024,658 (21,172) 2,999,136
ADD (DEDUCT):
Comprehensive income:
Net income for 1997 -- -- -- 427,879 -- 427,879
Other comprehensive income:
Unrealized gain on securities
available-for-sale, net of
applicable deferred income
tax of $9,422 -- -- -- -- 18,290 18,290
-----------
Comprehensive income 446,169
Dividend paid, $1.50 per share -- -- -- (49,500) -- (49,500)
----------- ----------- ----------- ----------- ----------- -----------
BALANCES, DECEMBER 31, 1997 33,000 825,000 1,170,650 1,403,037 (2,882) 3,395,805
ADD (DEDUCT)--unaudited:
Comprehensive income:
Net income for three months ended
March 31, 1998 -- -- -- 98,043 -- 98,043
Other comprehensive income:
Unrealized gain on securities
available-for-sale, net of
applicable deferred income
tax of $1,927 -- -- -- -- 3,740 3,740
-----------
Comprehensive income 101,783
Dividend paid, $1.75 per share -- -- -- (57,750) -- (57,750)
----------- ----------- ----------- ----------- ----------- -----------
BALANCES, MARCH 31, 1998--
unaudited 33,000 $ 825,000 $ 1,170,650 $ 1,443,330 $ 858 $ 3,439,838
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 70
GRANT NATIONAL BANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31,
-------------------------- --------------------------
1997 1996 1998 1997
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and fees received on loans and
investments $ 2,487,800 $ 2,171,283 $ 669,532 $ 588,552
Other fees and commissions received 240,313 224,607 64,383 58,493
Interest paid (752,816) (654,910) (209,587) (175,303)
Cash paid to suppliers and employees (1,333,959) (1,249,991) (365,217) (317,861)
Income taxes paid (130,215) (174,798) (51,173) (9,000)
----------- ----------- ----------- -----------
Net cash provided by operating
activities 511,123 316,191 107,938 144,881
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (2,984,623) (2,011,091) (1,157,700) (1,490,464)
Proceeds from sales or maturities of available-
for-sale securities 1,108,400 2,265,157 1,096,805 459,869
Net decrease (increase) in loans (3,641,619) (3,184,290) 469,754 361,163
Purchase of premises and equipment (15,931) (480,197) (5,157) (4,843)
----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities (5,533,773) (3,410,421) 403,702 (674,275)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 4,619,206 5,448,820 (2,050,953) 1,491,347
Dividends paid (49,500) -- (57,750) --
----------- ----------- ----------- -----------
Net cash provided by financing
activities 4,569,706 5,448,820 (2,108,703) 1,491,347
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
DUE FROM BANKS (452,944) 2,354,590 (1,597,063) 961,953
CASH AND DUE FROM BANKS, BEGINNING
OF YEAR/PERIOD 5,384,727 3,030,137 4,931,783 5,384,727
----------- ----------- ----------- -----------
CASH AND DUE FROM BANKS, END
OF YEAR/PERIOD $ 4,931,783 $ 5,384,727 $ 3,334,720 $ 6,346,680
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 71
GRANT NATIONAL BANK
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31,
---------------------- ----------------------
1997 1996 1998 1997
--------- --------- --------- ---------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 427,879 $ 292,391 $ 98,043 $ 92,506
--------- --------- --------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan loss -- 15,000 -- --
Depreciation and amortization 58,444 66,916 14,564 14,902
Amortization of investment security discounts (40,822) (28,805) (2,344) (3,842)
Accretion of investment security premiums 13,314 22,311 2,931 1,870
(Increase) decrease in assets:
Accrued interest receivable (70,148) (22,549) 6,243 10,368
Deferred loan fees 13,437 15,228 (254) (6,597)
Unearned income (714) (747) (167) (177)
Other assets 30,566 (9,360) (5,529) 5,189
(Decrease) increase in liabilities:
Accrued interest payable 35,755 (11,268) (2,066) (145)
Other liabilities 43,412 (22,926) (3,483) 30,807
--------- --------- --------- ---------
Total adjustments 83,244 23,800 9,895 52,375
--------- --------- --------- ---------
Net cash provided by operating
activities $ 511,123 $ 316,191 $ 107,938 $ 144,881
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 72
GRANT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (unaudited for 1996 and March 31, 1998)
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization:
Grant National Bank (the Bank) was incorporated in 1989 under federal laws as a
national banking association. It has bank facilities in Ephrata and Moses Lake,
Washington. In 1996, the Bank closed operations of a branch in Soap Lake,
Washington, and commenced operations of a new branch in Moses Lake, Washington.
The accounting policies followed by the Bank conform with generally accepted
accounting principles and with prevailing practices of the banking industry.
Summary of Significant Accounting Policies:
a. Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and 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. Significant estimates used in
preparing these financial statements are those assumed in determining the
allowance for loan losses and the fair values of investment securities.
Actual results could differ from those estimates.
b. Securities available-for-sale -- Debt and equity securities not classified
as either held-to-maturity securities or trading securities are reported
at fair value. Unrealized holding gains and losses, net of taxes, are
excluded from earnings and reported in a separate component of
stockholders' equity. Gains and losses on the sale of available-for-sale
securities are determined using the specific identification method.
Premiums and discounts are recognized in interest income using the
interest method over the period to maturity.
Trading securities -- Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are reported
at fair value, with unrealized gains and losses included in earnings.
There are no securities classified as trading securities.
Securities held to maturity -- Debt securities for which the Bank has the
positive intent and ability to hold to maturity are reported at cost,
adjusted for premiums and discounts that are recognized in interest income
using the interest method over the period to maturity. There are no
securities classified as held-to-maturity securities.
c. Loans and allowances for loan losses -- All loans are stated at principal
outstanding less allowance for possible loan losses. Interest is credited
to income based on the principal outstanding at appropriate rates of
interest.
Loans are placed on a nonaccrual status when, in the opinion of
management, the collection of additional interest is questionable.
Thereafter, no interest is taken into income unless received in cash or
until such time as the borrower demonstrates the ability to resume
payments of principal and interest. Interest previously accrued but not
collected is generally reversed and charged against income at the time the
loan is placed on nonaccrual status.
F-9
<PAGE> 73
GRANT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (unaudited for 1996 and March 31, 1998)
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
Summary of Significant Accounting Policies (continued):
An allowance for possible losses on loans is maintained at a level deemed
by management to be adequate to provide for potential loan losses through
charges to operating expense. The allowance is based upon a continuing
review of loans which includes consideration of actual net loan loss
experienced, changes in size and character of the loan portfolio,
identification of individual problem situations which may affect the
borrower's ability to repay, and evaluation of current economic
conditions. Loan losses are recognized through charges to the allowance.
d. Deferred loan fees -- Loan origination fees and certain direct costs are
capitalized and recognized as an adjustment of the yield on the related
loans.
e. Premises and equipment -- Premises and equipment, including leasehold
improvements, are stated at cost less accumulated depreciation over
estimated useful lives (or the respective lease terms) which range from 3
to 31.5 years. Depreciation is computed using straight-line and
accelerated methods. Modified accelerated depreciation methods are used
for federal income tax purposes. Normal costs of maintenance and repairs
are charged to expense.
f. Income tax -- Income tax is provided for the tax effects of transactions
reported in the financial statements and consists of tax currently due
plus deferred tax related to differences between the basis of assets and
liabilities for financial and income tax reporting. The deferred tax
assets and liabilities represent the future tax return consequences of
those differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled. The differences relate
principally to depreciation of premises and equipment, allowance for loan
losses, loan fee recognition, and the market value adjustment for
investments available-for-sale (see note 7).
g. Earnings per share -- Earnings per share have been calculated on the basis
of the number of shares outstanding during each year, as the effects of
potential common stock (options) are not material. Although the Bank
adopted SFAS No. 128, "Earnings Per Share," in 1997, only basic earnings
per share have been presented. Diluted earnings per share are not
materially different from basic earnings per share.
h. Cash equivalents -- Cash equivalents include amounts due from banks and,
when applicable, federal funds sold. Generally, federal funds are
purchased and sold for one-day periods.
i. Comprehensive income -- At March 31, 1998, the Bank adopted SFAS No. 130,
"Reporting Comprehensive Income," which requires presentation of
comprehensive income and its components. As required, the accompanying
financial statements have been reclassified for all periods to conform
with such presentation.
F-10
<PAGE> 74
GRANT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (unaudited for 1996 and March 31, 1998)
NOTE 2 -- FEDERAL FUNDS:
The Bank is required to maintain legal cash reserves in a minimum amount,
computed by applying a prescribed percentage to the various types of deposits.
When the Bank's cash reserves are in excess of that required, it may lend the
excess to other banks on a daily basis. Conversely, when cash reserves are less
than required, the Bank borrows funds on a daily basis. The Bank had no federal
funds sold or purchased during 1997.
In lieu of federal funds sold at March 31, 1998 and December 31, 1997, the Bank
had $1,739,200 and $2,899,622, respectively, of daily interest deposits and
demand plus interest accounts with the Federal Home Loan Bank. Such deposits are
included with due from banks in the accompanying balance sheets.
NOTE 3 -- SECURITIES AVAILABLE-FOR-SALE:
Securities have been classified in the balance sheets according to management's
intent. The carrying amount of securities and their approximate fair values at
the balance-sheet dates were as follows:
<TABLE>
<CAPTION>
Amortized Gross Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1997:
U.S. Treasury securities and obligations
of U.S. government agencies $4,900,784 $ 2,944 $ (5,778) $4,897,950
Obligations of state and political subdivisions 460,000 6,498 -- 466,498
Mortgage-backed securities 651,812 362 (7,656) 644,518
Corporate obligations 300,669 -- (738) 299,931
Federal Reserve Bank and Federal Home
Loan Bank stock 504,550 -- -- 504,550
---------- ---------- ---------- ----------
Totals $6,817,815 $ 9,804 $ (14,172) $6,813,447
========== ========== ========== ==========
March 31, 1998:
U.S. Treasury securities and obligations
of U.S. government agencies $5,101,617 $ -- $ (1,445) $5,100,172
Obligations of state and political subdivisions 460,000 9,000 -- 469,000
Mortgage-backed securities 604,000 -- (6,000) 598,000
Corporate obligations 200,254 -- (254) 200,000
Federal Reserve Bank and Federal Home
Loan Bank stock 512,250 -- -- 512,250
---------- ---------- ---------- ----------
Totals $6,878,121 $ 9,000 $ (7,699) $6,879,422
========== ========== ========== ==========
</TABLE>
F-11
<PAGE> 75
GRANT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (unaudited for 1996 and March 31, 1998)
NOTE 3 -- SECURITIES AVAILABLE-FOR-SALE (CONTINUED):
The following is a summary of maturities of debt securities available-for-sale
as of December 31, 1997 (there were no securities held-to-maturity). Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Securities
Available-for-Sale
--------------------------------
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
Amounts maturing in:
One year or less $ 3,997,190 $ 3,991,598
After one year through five years 1,664,263 1,672,781
-------------- --------------
5,661,453 5,664,379
Mortgage-backed securities 651,812 644,518
-------------- --------------
Totals $ 6,313,265 $ 6,308,897
============== ==============
</TABLE>
Investment securities with a fair value of $945,550 at December 31, 1997, were
pledged to secure public deposits and as collateral on potential Federal Reserve
Bank loans.
During 1997, securities available-for-sale matured for total proceeds of
approximately $1,108,000 ($2,265,000 in 1996) resulting in no gross realized
losses. The specific identification method is used when calculating realized
gains and losses.
Federal Reserve Bank and Federal Home Loan Bank stock is carried at cost. It
does not have a readily determinable fair value because its ownership is
restricted and lacks a market. It can only be sold back to the Federal Reserve
Bank or Federal Home Loan Bank or another member institution at its par value of
$100.
NOTE 4 -- RELATED-PARTY TRANSACTIONS:
The Bank has entered into transactions with its directors, officers, employees,
and their affiliates (related parties). The aggregate amount of loans
outstanding to such related parties at December 31, 1997, was approximately
$566,000. During 1997, new loans to such related parties amounted to
approximately $334,000 and repayments amounted to approximately $254,000.
Directors' fees of $60,150 and $40,650 were paid during 1997 and 1996,
respectively.
F-12
<PAGE> 76
GRANT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (unaudited for 1996 and March 31, 1998)
NOTE 5 -- ALLOWANCE FOR LOAN LOSSES:
Changes in the allowance for loan losses were as follows at the balance-sheet
dates:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ ---------
<S> <C> <C>
Balance, beginning of year/period $261,000 $251,818
Loans charged off (22,324) (3,075)
Recoveries 13,142 3,000
-------- --------
Balance, end of year/period $251,818 $251,743
======== ========
</TABLE>
NOTE 6 -- PREMISES AND EQUIPMENT:
Major classifications of premises and equipment at the balance-sheet dates are
summarized as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ ---------
<S> <C> <C>
Building $397,165 $397,165
Furniture and fixtures 82,993 82,993
Equipment 378,664 383,821
Leasehold improvements 16,269 16,269
-------- --------
875,091 880,248
Less accumulated depreciation 307,391 321,955
-------- --------
567,700 558,293
Land 136,500 136,500
-------- --------
Totals $704,200 $694,793
======== ========
</TABLE>
F-13
<PAGE> 77
GRANT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (unaudited for 1996 and March 31, 1998)
NOTE 7 -- FEDERAL INCOME TAX:
The components of the net deferred tax asset included in other assets at the
balance-sheet dates are as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ ---------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 35,000 $ 35,000
Deferred loan fees 28,000 28,000
Securities 2,000 --
-------- --------
65,000 63,000
-------- --------
Deferred tax liabilities:
Premises and equipment (21,000) (21,000)
Securities (32,000) (32,000)
-------- --------
(53,000) (53,000)
-------- --------
Net deferred tax assets $ 12,000 $ 10,000
======== ========
</TABLE>
The provision for federal income tax consisted of:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Current tax $ 181,500 $ 155,000
Deferred tax (benefit) 29,386 (12,000)
--------- ---------
Totals $ 210,886 $ 143,000
========= =========
</TABLE>
The effective tax rate differs from the statutory federal tax rate for the years
presented as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Federal income tax at statutory rate $ 217,000 $ 148,000
Effect of tax-exempt interest income (11,000) (5,500)
Effect of nondeductible expenses and other, net 4,886 500
--------- ---------
Total federal income tax provision $ 210,886 $ 143,000
========= =========
</TABLE>
F-14
<PAGE> 78
GRANT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (unaudited for 1996 and March 31, 1998)
NOTE 8 -- LEASE COMMITMENT:
The Bank leases its Ephrata operating facilities under an operating lease
agreement with certain stockholders/directors of the Bank. The minimum rental
commitments under this lease at December 31, 1997, exclusive of taxes and other
charges, are $5,000 per month through November 3, 1998.
Rent expense on the above lease (and a related-party lease for the Soap Lake
branch through 1996) was $60,000 and $73,200 for 1997 and 1996, respectively.
NOTE 9 -- CREDIT CONCENTRATIONS AND FINANCIAL INSTRUMENTS:
The Bank is engaged in lending activities with borrowers in a variety of
industries. A substantial portion of lending is concentrated in the agribusiness
industry in the region in which the Bank is located. Collateral on loans, loan
commitments, and standby letters of credit vary and may include accounts
receivable, inventories, investment securities, real estate, equipment, and
vehicles. The amount and nature of collateral required are based on credit
evaluations of the individual customers.
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its banking customers.
These financial instruments generally include commitments to extend credit,
credit card arrangements, standby letters of credit, and financial guarantees.
Those instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheets. The contract
amounts of those instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit, credit card
arrangements, standby letters of credit, and financial guarantees written is
represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.
The contract amounts of these financial instruments representing credit risk at
December 31, 1997, were as follows:
<TABLE>
<S> <C>
Commitments to extend credit $3,888,000
Credit card arrangements 629,000
Standby letters of credit 10,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
F-15
<PAGE> 79
GRANT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (unaudited for 1996 and March 31, 1998)
NOTE 9 -- CREDIT CONCENTRATIONS AND FINANCIAL INSTRUMENTS (CONTINUED):
Standby letters of credit are issued on behalf of customers in connection with
contracts between the customers and third parties. Under a standby letter of
credit, the Bank assures that the third party will receive specified funds if a
customer fails to meet his contractual obligation. The liquidity risk to the
Bank arises from its obligation to make payment in the event of a customer's
contractual default. The credit risk involved in issuing letters of credit and
the Bank's management of that credit risk are the same as for loans.
The Bank maintains due from bank accounts at several financial institutions
located in the Northwest. Accounts at each institution are insured by the
Federal Deposit Insurance Corporation up to $100,000, and there were no
uninsured balances at December 31, 1997.
NOTE 10 -- REGULATORY MATTERS:
Restrictions on dividends:
The Bank, as a national bank, is subject to the dividend restrictions set forth
by the Comptroller of the Currency. Under such restrictions, the Bank may not,
without the prior approval of the Comptroller of the Currency, declare dividends
in excess of the sum of the current year's earnings (as defined) plus the
retained earnings (as defined) from the prior two years.
Capital requirements:
Grant National Bank is subject to federal regulatory requirements. Regulated by
the Federal Deposit Insurance Corporation (FDIC) and the Office of Comptroller
of the Currency (OCC), the Bank is required to maintain minimum levels of
regulatory capital as a percentage of regulatory assets. The Bank's total
regulatory capital must equal 8% of risk-weighted assets, and one-half of that
8% must consist of core capital. Failure to meet minimum capital requirements
can result in actions by regulators that, if taken, could materially affect the
financial statements.
Management believes that under the current regulations, the Bank meets and will
continue to meet all regulatory capital requirements in the foreseeable future.
However, events beyond the Bank's control, such as a downturn in the economy of
the region, could adversely affect future earnings and regulatory capital.
FDIC regulations establish the amount of capital required for each classified
category of institution. Depending on the Bank's category, regulators may
restrict certain activities of the Bank, including acceptance of brokered
deposits or offering interest rates on deposits that are greater than prevailing
interest rates.
As of January 6, 1997, the most recent notification from the OCC categorized the
Bank as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the Bank must maintain minimum
total risk-based, Tier I risk-based, Tier I leverage ratios as set forth in the
table. There are no conditions or events since that notification that management
believes have changed the institution's category. The Bank's actual capital
amounts and ratios are also presented in this table.
F-16
<PAGE> 80
GRANT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (unaudited for 1996 and March 31, 1998)
NOTE 10 -- REGULATORY MATTERS (CONTINUED):
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total capital (to risk-weighted > >
assets) $3,650,000 16.2% $1,802,000 - 8% $2,253,000 - 10%
Tier I capital (to risk-weighted > >
assets) 3,399,000 15.1 901,000 - 4 1,352,000 - 6
> >
Tier I capital (to average assets) 3,399,000 11.2 1,210,000 - 4 1,513,000 - 5
As of March 31, 1998:
Total capital (to risk-weighted > >
assets) $3,691,000 16.9% $1,749,000 - 8% $2,186,000 - 10%
Tier I capital (to risk-weighted > >
assets) 3,439,000 15.7 874,000 - 4 1,909,000 - 6
> >
Tier I capital (to average assets) 3,439,000 10.8 1,273,000 - 4 1,591,000 - 5
</TABLE>
NOTE 11 -- PROFIT SHARING PLAN:
The Bank sponsors a 401(k) profit sharing plan covering employees meeting
minimum eligibility requirements. Employee contributions are voluntary, and the
Bank may make elective contributions to match up to 75% of employee
contributions up to 4% of eligible compensation. Profit sharing expense totalled
approximately $10,500 and $9,000 for 1997 and 1996, respectively.
NOTE 12 -- STOCK OPTIONS:
The Bank has set aside 6,000 of its common shares for possible issuance to
officers and employees under stock option or grant arrangements. In 1994, the
Bank entered into a nonqualified stock option agreement with the president in
which options for 200 shares annually are granted from 1994 through 1998,
totalling 1,000 shares. The options are exercisable through December 31, 2003,
at $75 per share. Options for a total of 800 shares had been granted and none
had been exercised through December 31, 1997.
F-17
<PAGE> 81
GRANT NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (unaudited for 1996 and March 31, 1998)
NOTE 12 -- STOCK OPTIONS (CONTINUED):
The Bank accounts for this stock option plan under APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, no compensation was required to be recognized with respect to the
optioned shares. In 1996, the Bank adopted the disclosure provisions of
Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation
(FAS 123). The effects of applying the fair value method of recognizing
compensation expense for stock-based compensation plans under FAS 123 are not
material.
NOTE 13 -- PENDING ACQUISITION:
On March 24, 1998, the Bank entered into an agreement and plan of merger with
United Security Bancorporation, pursuant to which the Bank will be merged into
United Security Bancorporation. The merger agreement provides that the Bank's
common stock will be exchanged for shares of United Security Bancorporation
common stock pursuant to a specified exchange ratio. Consummation of the
acquisition is subject to several conditions, including receipt of applicable
regulatory and stockholder approval.
NOTE 14 -- UNAUDITED INFORMATION:
The accompanying unaudited financial statements as of March 31, 1998, for the
year ended December 31, 1996, and for the three-month periods ended March 31,
1998 and 1997, have been prepared on the same basis as the Bank's audited
financial statements as of and for the year ended December 31, 1997. In the
opinion of management, all adjustments consisting of normal, recurring accruals
necessary for a fair presentation of the Bank's financial position, results of
operations, and cash flows in the unaudited financial statements have been
included. The interim period unaudited financial statements do not include all
of the disclosures required by generally accepted accounting principles for
complete financial statements. The results of operations and cash flows for the
three months ended March 31, 1998, are not necessarily indicative of the results
expected for the year ending December 31, 1998.
F-18
<PAGE> 82
APPENDIX A
================================================================================
AGREEMENT AND PLAN OF CONSOLIDATION
BETWEEN
GRANT NATIONAL BANK
AND
NEW GRANT NATIONAL BANK
UPON ITS FORMATION BY
UNITED SECURITY BANCORPORATION
================================================================================
DATED AS OF MARCH 24, 1998
<PAGE> 83
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. CONSOLIDATION.....................................................................6
1.1 THE CONSOLIDATION.............................................................6
1.2 EFFECTIVE DATE................................................................7
1.3 EFFECT OF CONSOLIDATION.......................................................7
ARTICLE II. CONSOLIDATION CONSIDERATION.....................................................7
2.1 CONSIDERATION.................................................................7
2.2 SHAREHOLDER RIGHTS; STOCK TRANSFERS...........................................7
2.3 FRACTIONAL SHARES.............................................................8
2.4 EXCHANGE PROCEDURES...........................................................8
2.5 EXCHANGE RATIO ADJUSTMENTS....................................................8
2.6 EXCEPTION SHARES..............................................................8
2.7 DISSENTING SHARES.............................................................8
2.8 RESERVATION OF RIGHT TO REVISE TRANSACTION....................................8
2.9 OPTIONS.......................................................................9
ARTICLE III. ACTIONS PENDING CONSUMMATION...................................................9
3.1 CAPITAL STOCK.................................................................9
3.2 DISTRIBUTIONS.................................................................9
3.3 LIABILITIES...................................................................9
3.4 OPERATIONS....................................................................9
3.5 LIENS AND ENCUMBRANCES.......................................................10
3.6 EMPLOYMENT ARRANGEMENTS......................................................10
3.7 BENEFIT PLANS................................................................10
3.8 CONTINUANCE OF BUSINESS......................................................10
3.9 AMENDMENTS...................................................................10
3.10 CLAIMS.......................................................................10
3.11 CONTRACTS....................................................................10
3.12 LOANS........................................................................10
3.13 TRANSACTION EXPENSES.........................................................10
ARTICLE IV. REPRESENTATIONS AND WARRANTIES.................................................11
4.1 THE BANK'S REPRESENTATIONS AND WARRANTIES....................................11
4.2 USBN'S AND NEW BANK'S REPRESENTATIONS AND WARRANTIES.........................18
4.3 EXCEPTIONS TO REPRESENTATIONS................................................20
ARTICLE V. COVENANTS.......................................................................21
5.1 BEST EFFORTS.................................................................21
5.2 THE PROXY....................................................................21
5.3 REGISTRATION STATEMENT -- COMPLIANCE WITH SECURITIES LAWS....................21
5.4 REGISTRATION STATEMENT EFFECTIVENESS.........................................21
5.5 PRESS RELEASES...............................................................21
5.6 ACCESS; INFORMATION..........................................................22
5.7 TERMINATION FEE..............................................................22
5.8 REGISTRATION STATEMENT PREPARATION; REGULATORY
APPLICATIONS PREPARATION.....................................................22
5.9 APPOINTMENT OF DIRECTORS.....................................................23
5.10 BLUE-SKY FILINGS.............................................................23
</TABLE>
A-i
<PAGE> 84
<TABLE>
<S> <C>
5.11 AFFILIATE AGREEMENTS.........................................................23
5.12 CERTAIN POLICIES OF THE BANK.................................................23
5.13 TAKEOVER LAW.................................................................23
5.14 NO RIGHTS TRIGGERED..........................................................23
5.15 SHARES LISTED................................................................24
5.16 FORMATION OF NEW BANK; REGULATORY APPLICATIONS...............................24
5.17 REGULATORY DIVESTITURES......................................................24
5.18 CURRENT INFORMATION..........................................................24
5.19 INDEMNIFICATION..............................................................24
5.20 DIRECTOR AGREEMENTS REGARDING REAL ESTATE....................................25
ARTICLE VI. CONDITIONS TO CONSUMMATION OF THE CONSOLIDATION................................25
6.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS.......................................25
6.2 CONDITIONS TO OBLIGATIONS OF USBN AND NEW BANK...............................26
6.3 CONDITIONS TO OBLIGATIONS OF THE BANK........................................27
ARTICLE VII. TERMINATION...................................................................28
7.1 EVENTS OF TERMINATION........................................................28
7.2 CONSEQUENCES OF TERMINATION..................................................28
ARTICLE VIII. OTHER MATTERS................................................................28
8.1 SURVIVAL.....................................................................28
8.2 WAIVER; AMENDMENT............................................................28
8.3 COUNTERPARTS.................................................................29
8.4 GOVERNING LAW................................................................29
8.5 EXPENSES.....................................................................29
8.6 CONFIDENTIALITY..............................................................29
8.7 NOTICES......................................................................29
8.8 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES...........................29
8.9 BENEFIT PLANS................................................................30
8.10 HEADINGS.....................................................................30
</TABLE>
EXHIBITS
Exhibit A Approval by Directors of Grant National Bank
Exhibit B Director Agreements
Exhibit C Affiliate Undertakings and Agreements
Exhibit D Employment Agreement of Lawrence C. Mitson
Exhibit E Main Office Property Lease
Exhibit F Summary of Opinions to be provided by Gerrish & McCreary, P.C.
Exhibit G Legal Opinion of Graham & Dunn, P.C.
A-ii
<PAGE> 85
SCHEDULES
Bank Disclosures
Schedule 2.9 Outstanding Options
Schedule 3.4 Changes to Line of Business, Operating Procedures, etc.
Schedule 3.6 New or Changes to Compensation, Employment
Agreements; Number of Full Time Employees
Schedule 3.7 New or Modifications to Benefit Plans
Schedule 3.11 New or Changes to Material Contracts
Schedule 4.1(C) Shares Outstanding
Schedule 4.1(G) No Defaults - Agreements Requiring Third Party Consent
Schedule 4.1(H) Financial Reports
Schedule 4.1(J) No Events Causing Material Adverse Effect
Schedule 4.1(L) Litigation, Regulatory Action
Schedule 4.1(M) Compliance with Laws
Schedule 4.1(N) Material Contracts
Schedule 4.1(Q)(1) List of Employee Benefit Plans
Schedule 4.1(Q)(2) Employee Benefit Plans Not Qualified Under ERISA
Schedule 4.1(Q)(6) Obligations for Retiree Health and Life Benefits
Schedule 4.1(Q)(7) Agreements Resulting in Payments to Employees Under Any
Compensation and Benefit Plan with Respect to Proposed
Transaction
Schedule 4.1(T) Asset Classification
Schedule 4.1(V) Insurance
Schedule 4.1(W) Affiliates
Schedule 4.1(Y) Plan's Effect on Rights Under Articles, Bylaws or
Agreements
Schedule 4.1(Z)(2) Pending Proceedings with Respect to Environmental
Matters
Schedule 4.1(Z)(3) Pending Proceedings with Respect to Environmental
Matters Involving Loan/Fiduciary Property
Schedule 4.1(Z)(4) Pending Proceedings with Respect to Environmental
Matters Listed in Sections 4.1(Z)(2) or (3)
Schedule 4.1(Z)(5) Actions During Ownership Which Could Have Material
Adverse Effect with Respect to Environmental Matters
Schedule 4.1(Z)(6) Actions Prior to Ownership Which Could Have Material
Adverse Effect with Respect to Environmental Matters
Schedule 4.1(AA) Tax Reports Matters
Schedule 4.1(CC) Derivative Contracts
Schedule 4.1(EE)(1) Employment Contracts Requiring Payment in Connection
with Termination
Schedule 4.1(EE)(2) Leases with Aggregate Annual Rent Exceeding $10,000
Schedule 4.1(EE)(3) Material Contracts with Affiliates
A-iii
<PAGE> 86
USBN Disclosures
Schedule 4.2(C) Shares
Schedule 4.2(F) No Defaults
Schedule 4.2(G) Financial Reports
Schedule 4.2(H) No Events Causing Material Adverse Effect
Schedule 4.2(I) Litigation, Regulatory Action
A-iv
<PAGE> 87
AGREEMENT AND PLAN OF CONSOLIDATION
AGREEMENT AND PLAN OF CONSOLIDATION, dated as of the 24th day of March
1998 (this "Plan"), is between GRANT NATIONAL BANK (the "Bank") and UNITED
SECURITY BANCORPORATION ("USBN") acting on its own behalf and on behalf of a
national banking association to be formed by it under the title NEW GRANT
NATIONAL BANK ("New Bank").
PREAMBLE
The management and boards of directors of USBN and the Bank believe,
respectively, that the consolidation of New Bank with the Bank under the charter
of the Bank, pursuant to 12 USC Section 215(a) and the terms and conditions set
forth in this Agreement, is in the best interests of USBN and the Bank's
shareholders.
RECITALS
(A) THE BANK. The Bank is a national banking association duly organized
and existing in good standing under the laws of the United States, with its
principal executive offices located in Ephrata, Washington. As of the date of
this Agreement, the Bank has 250,000 authorized shares of common stock, $25 par
value per share ("Bank Common Stock") (no other class of capital stock being
authorized), of which 33,000 shares of Bank Common Stock are issued and
outstanding and of which 1,000 shares are Bank Options reserved for issuance.
(B) USBN. USBN is a corporation duly organized and validly existing
under Washington law and is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended. USBN's principal executive offices are
located in Spokane, Washington. As of the date of this Agreement, USBN has
15,000,000 authorized shares of common stock, no par value per share ("USBN
Common Stock") (no other class of capital stock being authorized), of which
4,052,775 shares of USBN Common Stock are issued and outstanding and of which
300,000 shares are USBN Options reserved for issuance.
(C) NEW BANK. New Bank will be organized by persons designated by USBN
who will, upon execution of this Agreement by the Bank and USBN, apply for
preliminary approval of the Office of the Comptroller of the Currency ("OCC")
for New Bank to become a new national banking association. Upon such preliminary
approval, New Bank will become a body corporate and will execute this Agreement,
thereby becoming a party hereto and ratifying all prior actions taken on its
behalf by USBN. All of the capital stock of New Bank will be subscribed for
solely by USBN, and the consideration for such stock will be paid in before the
Effective Date.
(D) DIRECTOR AND OFFICER AGREEMENTS. As a condition and an inducement to
USBN's willingness to enter into this Plan, the directors of the Bank have
entered into agreements in the forms attached to this Plan as Exhibit A and
Exhibit B, pursuant to which, among other things, each director has agreed to
vote his or her shares of Bank Common Stock in favor of approval of the actions
contemplated by this Plan at the Meeting (as defined below) and to refrain from
competing with USBN and the Consolidated Association (as defined below).
(E) APPROVALS. At meetings of the respective Boards of Directors of the
Bank and USBN, each such Board has approved and authorized the execution of this
Plan in counterparts.
(F) INTENTION OF THE PARTIES. The parties intend the Consolidation to
qualify, for accounting purposes, as a "pooling of interests." The parties
intend the Consolidation to qualify, for
A-1
<PAGE> 88
federal income tax purposes, as a tax-free reorganization under Section 368 of
the Internal Revenue Code of 1986, as amended. For federal banking law purposes,
the parties intend the Consolidation to qualify as a "consolidation" under 12
USC Section 215(a).
In consideration of their mutual promises and obligations, the Parties
agree as follows:
DEFINITIONS
(A) DEFINITIONS. Capitalized terms used in this Plan have the following
meanings:
"Acquisition Proposal" has the meaning assigned in Section 5.7(A).
"Appraisal Laws" has the meaning assigned in Section 2.7.
"Asset Classification" has the meaning assigned in Section 4.l(T).
"Average Closing Price" means: (a) if no Triggering Event has occurred,
the price equal to the average (rounded to the nearest penny) of each Daily
Sales Price of USBN Common Stock for the twenty-five (25) consecutive trading
days on which 2,000 shares of USBN Common Stock are traded, with the last such
trading day being the fifth day preceding the Effective Date; and (b) if a
Triggering Event has occurred, the price equal to the average (rounded to the
nearest penny) of each Daily Sales Price of USBN Common Stock for the fifteen
(15) consecutive trading days on which 2,000 shares of USBN Common Stock are
traded, with the last such trading day being the ninetieth day preceding the
public announcement of such Triggering Event.
"Bank" means Grant National Bank, a national banking association.
"Bank Common Stock" has the meaning assigned in Recital (A).
"Bank Financial Reports" has the meaning assigned in Section 4.1(H).
"Bank Option" has the meaning assigned in Section 2.9.
"Bank Regulatory Reports" has the meaning assigned in Section 4.1(H).
"Capital" means capital stock, surplus and retained earnings determined
in accordance with GAAP, the calculation of which will exclude gains or losses
on securities available for sale, net of taxes.
"Code" has the meaning assigned in Section 4.1(Q)(2).
"Compensation and Benefit Plans" has the meaning assigned in Section
4.1(Q)(1).
"Consolidated Association" has the meaning assigned in Section 1.1.
"Consolidation" has the meaning assigned in Section 1.1.
"Daily Sales Price" for any trading day means the average of the bid and
ask prices per share of all market makers quoting both bid and asked prices, as
reported on Bloomberg Financial Markets, of USBN Common Stock on the NASDAQ
Stock Market reporting system.
"Derivatives Contract" means an exchange-traded or over-the-counter
swap, forward, future, option, cap, floor or collar financial contract or any
other contract that (1) is not included on the balance
A-2
<PAGE> 89
sheet of the Bank Financial Reports or the USBN Financial Reports, as the case
may be, and (2) is a derivative contract (including various combinations of the
foregoing).
"Dissenting Shares" means the shares of Bank Common Stock or New Bank
Common Stock, as appropriate, held by those shareholders of, respectively, the
Bank or New Bank, who have timely and properly exercised their dissenters'
rights in accordance with the Appraisal Laws.
"Effective Date" has the meaning assigned in Section 1.2.
"Eligible Bank Common Stock" means shares of Bank Common Stock validly
issued and outstanding on the Effective Date other than Exception Shares and
Dissenting Shares.
"Employment Agreement" means Exhibit D.
"Environmental Law" means (1) any federal, state, and/or local law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, legal doctrine, order, judgment, decree, injunction,
requirement or agreement with any governmental entity, relating to (a) the
protection, preservation or restoration of the environment (including air, water
vapor, surface water, groundwater, drinking water supply, surface land,
subsurface land, plant and animal life or any other natural resource) or human
health or safety, or (b) the exposure to, or the use, storage, recycling,
treatment, generation, transportation, processing, handling, labeling,
production, release or disposal of Hazardous Material, in each case as amended
and as now in effect, including the Federal Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act, the Federal Water Pollution Control Act of 1972, the
Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste
Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic
Substances Control Act, and the Federal Insecticide, Fungicide and Rodenticide
Act, the Federal Occupational Safety and Health Act of 1970, and (2) any common
law or equitable doctrine (including injunctive relief and tort doctrines such
as negligence, nuisance, trespass and strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Material.
"ERISA" has the meaning assigned in Section 4.1(Q)(2).
"ERISA Affiliate" has the meaning assigned in Section 4.1(Q)(3).
"ERISA Plans" has the meaning assigned in Section 4.1(Q)(2).
"Exception Shares" means shares held by the Bank or by USBN or any of
its Subsidiaries, in each case other than in a fiduciary capacity or as a result
of debts previously contracted.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated under such statute.
"Exchange Agent" has the meaning assigned in Section 2.4.
"Exchange Ratio" has the meaning assigned in Section 2.1(B).
"FDIC" means the Federal Deposit Insurance Corporation.
"Financial Reports" has the meaning assigned in Section 4.1(H).
A-3
<PAGE> 90
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System.
"GAAP" means generally accepted accounting principles consistently
applied.
"Group" has the meaning assigned in Section 5.20.
"Hazardous Material" means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous, or
otherwise regulated, under any Environmental Law, whether by type or quantity,
including any oil or other petroleum product, toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous waste, special
waste or petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos, asbestos containing material, urea formaldehyde foam
insulation, lead and polychlorinated biphenyl.
"Indemnified Party" has the meaning assigned in Section 5.19 (A).
"Loan/Fiduciary Property" means any property owned or controlled by the
Bank or in which the Bank holds a security or other interest, and, where
required by the context, includes any such property where the Bank constitutes
the owner or operator of such property, but only with respect to such property.
"Main Office Property" has the meaning assigned in Section 5.20.
"Material Adverse Effect" means, with respect to any Party, an event,
occurrence or circumstance (including (i) the making of any provisions for
possible loan and lease losses, write-downs of other real estate owned and
taxes, and (ii) any breach of a representation or warranty contained in this
Plan by such Party) that (a) has or is reasonably likely to have a material
adverse effect on the financial condition, results of operations, business or
prospects of such Party and its Subsidiaries, taken as a whole, or (b) would
materially impair such Party's ability to perform its obligations under this
Plan or the consummation of any of the transactions contemplated by this Plan.
"Meeting" has the meaning assigned in Section 5.2.
"Multiemployer Plans" has the meaning assigned in Section 4.l(Q)(2).
"NASDAQ" means the National Association of Securities Dealers Automated
Quotations system.
"New Bank" means New Grant National Bank, a new national banking
association to be formed by USBN.
"OCC" means the Office of the Comptroller of the Currency.
"Participation Facility" means any facility in which the Bank
participates in the management and, where required by the context, includes the
owner or operator of such facility.
"Party" means a party to this Plan.
"Pension Plan" has the meaning assigned in Section 4.l(Q)(2).
"Per Share Consideration" means the quotient, rounded to two decimals
(rounding down if the third decimal is four or less and rounding up if the third
decimal is five or more) of the Total Consideration divided by 33,000.
A-4
<PAGE> 91
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, governmental
body, or other entity.
"Plan" means this Agreement and Plan of Consolidation.
"Previously Disclosed" with respect to information, means that the
information is provided by a Party in a Schedule that is delivered
contemporaneously with the execution of this Plan.
"Proxy Statement" has the meaning assigned in Section 5.2.
"Registration Statement" has the meaning assigned in Section 5.2.
"Regulatory Authorities" means federal or state governmental agencies,
authorities or departments charged with the supervision or regulation of
depository institutions or engaged in the insurance of deposits.
"Rights" means securities or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire, or
any options, calls or commitments relating to, shares of capital stock.
"Securities Act" means the Securities Act of 1933, as amended, together
with the rules and regulations promulgated under such statute.
"SEC" means the Securities and Exchange Commission.
"Subsidiary" means, with respect to any entity, each partnership,
limited liability company, or corporation the majority of the outstanding
partnership interests, membership interests, capital stock or voting power of
which is (or upon the exercise of all outstanding warrants, options and other
rights would be) owned, directly or indirectly, at the time in question by such
entity.
"Tax Returns" has the meaning assigned in Section 4.1(AA).
"Taxes" means federal, state, local or foreign income, gross receipts,
windfall profits, severance, property, production, sales, use, license, excise,
franchise, employment, withholding or similar taxes imposed on the income,
properties or operations of the respective Party or its Subsidiaries, together
with any interest, additions, or penalties relating to such taxes and any
interest charged on those additions or penalties.
"Third Party" means a person within the meaning of Sections 3(a)(9) and
13(d)(3) of the Exchange Act, excluding (1) the Bank, and (2) USBN or any
Subsidiary of USBN.
"Total Consideration" means the sum of (A) $10 million plus (B) the
Bank's undistributed net income, if any, (determined in accordance with GAAP)
during the period between January 1, 1998 and the Effective Date, plus (C) any
fees and expenses paid by the Bank in connection with obtaining audited
financial statements for the purposes of the Consolidation and certified in
accordance with Section 6.2 of this Plan.
A-5
<PAGE> 92
"Triggering Event" means any one or more of the following events:
(1) USBN's authorization, recommendation, public proposal or
public announcement of an intention to authorize, recommend or propose,
or entering into an agreement with any Third Party to effect a USBN
Transaction.
(2) Any Third Party's making of a bona fide proposal to USBN or
its shareholders by public announcement, or by written communication
that is or becomes the subject of public disclosure, to engage in a USBN
Transaction.
(3) Any Third Party's, other than in connection with a
transaction to which the Bank has given its prior written consent,
filing of an application or notice with the Federal Reserve Board, or
other federal or state bank regulatory authority, for approval to engage
in a USBN Transaction.
(4) Any Third Party's commencement of (as such term is defined in
Rule 14d-2 under the Exchange Act) or filing of a registration statement
under the Securities Act with respect to a tender offer or exchange
offer to purchase any shares of USBN Common Stock such that, upon
consummation of such offer, the Third Party would own or control 20% or
more of the then outstanding shares of USBN Common Stock.
"USBN" means United Security Bancorporation, a Washington corporation.
"USBN Common Stock" has the meaning assigned in Recital B.
"USBN Option" has the meaning assigned in Section 2.9.
"USBN Transaction" means a merger, consolidation, share exchange or
similar transaction involving USBN or any of its significant banking
Subsidiaries, in which present shareholders of USBN control less than 50% of the
voting power of the surviving institution.
(B) GENERAL INTERPRETATION. Except as otherwise expressly provided in
this Plan or unless the context clearly requires otherwise, the following rules
of interpretation apply: (i) the terms defined in this Plan include the plural
as well as the singular; (ii) the phrase "in this Plan" and other words of
similar import refer to this Plan as a whole and not to any particular Article,
Section or other subdivision; and (iii) references in this Plan to Articles,
Sections, Schedules, and Exhibits refer to Articles and Sections of and
Schedules and Exhibits to this Plan. Whenever the words "include," "includes,"
or "including" are used in this Plan, they will be deemed to be followed by the
words "without limitation." Unless otherwise stated, references to Subsections
refer to the Subsections of the Section in which the reference appears. All
pronouns used in this Plan include the masculine, feminine and neuter gender, as
the context requires. All accounting terms used in this Plan that are not
expressly defined in this Plan have the respective meanings given to them in
accordance with GAAP.
ARTICLE I. CONSOLIDATION
1.1 THE CONSOLIDATION. Subject to the provisions of this Plan and in
accordance with the terms of 12 USC Sections 215(a) through 215(g) and 12 CFR
Section 5.33, on the Effective Date, New Bank will consolidate with the Bank,
under the charter of the Bank (the "Consolidation"), and the resulting
consolidated national banking association will operate under the name "Grant
National Bank" (the "Consolidated Association"). The Consolidated Association
will be a separate direct subsidiary of USBN as a result of the Consolidation.
After the Effective Date, the Board of Directors of the
A-6
<PAGE> 93
Consolidated Association will consist of the directors of the Bank immediately
preceding the Effective Date plus two additional directors to be designated by
USBN.
1.2 EFFECTIVE DATE. Unless the Parties agree upon another date, the
"Effective Date" will be the tenth business day after the fulfillment or waiver
of each condition precedent set forth in, and the granting of each approval (and
expiration of any waiting period) required by, Article VI. A business day is any
day other than a Saturday, Sunday, or legal holiday in the State of Washington.
If the Consolidation is not consummated in accordance with this Plan on or prior
to December 31, 1998, the Bank or USBN may terminate this Plan in accordance
with Article VII.
1.3 EFFECT OF CONSOLIDATION. On the Effective Date, the corporate
existence of each of the Bank and New Bank will be merged into and continued in
the Consolidated Association. The Consolidated Association will be deemed to be
the same corporation as each of the Bank and New Bank. All rights, franchises
and interests of each of the Bank and New Bank in and to every type of property
(real, personal and mixed) and choses in action will be transferred to and
vested in the Consolidated Association by virtue the Consolidation without any
deed or other transfer. The Consolidated Association, upon the Effective Date
and without any order or other action on the part of any court or otherwise,
will hold and enjoy all rights of property, franchises, and interests in the
same manner and to the same extent as such rights, franchises and interests were
held or enjoyed by each of the Bank and New Bank immediately prior to the
Effective Date, subject to the conditions of 12 USC Sections 215(a) through
215(g).
ARTICLE II. CONSOLIDATION CONSIDERATION
2.1 CONSIDERATION. Subject to the provisions of this Plan, on the
Effective Date:
(A) OUTSTANDING USBN COMMON STOCK. The shares of USBN Common Stock
issued and outstanding immediately prior to the Effective Date will, on and
after the Effective Date, remain as issued and outstanding shares of USBN Common
Stock.
(B) OUTSTANDING BANK COMMON STOCK. Except as provided below in
Section 2.7, each share of Eligible Bank Common Stock issued and outstanding
immediately prior to the Effective Date will, by virtue of the Consolidation,
automatically and without any action on the part of the holder of the share, be
converted into the right to receive a number of shares of USBN Common Stock
determined according to a ratio (the "Exchange Ratio"). The Exchange Ratio is
the number of shares of USBN Common Stock to be exchanged for each share of
Eligible Bank Common Stock and will be calculated by dividing the Per Share
Consideration by the Average Closing Price and rounding the quotient to two
decimals (rounding down if the third decimal is four or less and rounding up if
the third decimal is five or more).
(C) OUTSTANDING NEW BANK COMMON STOCK. Each share of New Bank Common
Stock issued and outstanding immediately prior to the Effective Date will, on
and after the Effective Date, remain issued and outstanding, and the
Consolidated Association will issue to USBN additional shares of the common
stock of the Consolidated Association to cause the number of shares then
outstanding to equal the number of shares of Bank Common Stock issued and
outstanding immediately prior to the Effective Date.
2.2 SHAREHOLDER RIGHTS; STOCK TRANSFERS. On the Effective Date, all
shares, other than Dissenting Shares, of Bank Common Stock issued and
outstanding immediately prior to the Effective Date will be converted on the
Effective Date into shares of USBN Common Stock in accordance with Section
2.1(B) by virtue of the Consolidation. After the Effective Date, there will be
no
A-7
<PAGE> 94
transfers on the stock transfer books of the Bank of the shares of Bank Common
Stock that were issued and outstanding immediately prior to the Effective Date.
2.3 FRACTIONAL SHARES. Notwithstanding any other provision of this Plan,
no fractional shares of USBN Common Stock and no certificates or scrip or other
evidence of ownership of such fractional shares, will be issued in the
Consolidation. USBN will pay to each holder of Bank Common Stock who would
otherwise be entitled to a fractional share an amount in cash determined by
multiplying such fraction by the Average Closing Price.
2.4 EXCHANGE PROCEDURES. As promptly as practicable after the Effective
Date, USBN will send or cause to be sent to each former shareholder of the Bank
of record immediately prior to the Effective Date transmittal materials for use
in exchanging such shareholder's certificates for Bank Common Stock for the
consideration set forth in this Article II. The certificates representing the
shares of USBN Common Stock for which shares of such shareholder's Bank Common
Stock are exchanged on the Effective Date, any fractional share checks that such
shareholder will be entitled to receive, and any dividends paid on such shares
of USBN Common Stock for which the record date for determination of shareholders
entitled to such dividends is on or after the Effective Date, will be delivered
to such shareholder only upon delivery to USBN's exchange agent (the "Exchange
Agent") of the certificates representing all of such shares of Bank Common Stock
(or indemnity satisfactory to USBN and the Exchange Agent, in their judgment, if
any of such certificates are lost, stolen or destroyed). No interest will be
paid on any such fractional share checks or dividends to which the holder of
such shares will be entitled to receive upon such delivery. Certificates
surrendered for exchange by any person constituting an "affiliate" of the Bank
for purposes of Rule 145 of the Securities Act will not be exchanged for
certificates representing USBN Common Stock until USBN has received a written
agreement from such person as specified in Section 5.11.
2.5 EXCHANGE RATIO ADJUSTMENTS. If, prior to the Effective Date, USBN
changes the number of shares of USBN Common Stock issued and outstanding as a
result of a stock split, stock dividend, recapitalization or similar transaction
(excluding increases in number due to issuances of shares upon exercise of any
outstanding USBN Options), the Exchange Ratio will be proportionately adjusted
to the extent necessary to preserve the economic terms of the Consolidation.
2.6 EXCEPTION SHARES. Each of the Exception Shares of Bank Common Stock
will be canceled and retired upon consummation of the Consolidation, and no
consideration will be issued in exchange for any Exception Shares.
2.7 DISSENTING SHARES. Notwithstanding anything to the contrary in this
Plan, each Dissenting Share whose holder, as of the Effective Date of the
Consolidation, has not effectively withdrawn or lost his dissenters' rights
under 12 USC Sections 215(b) through 215(d) (the "Appraisal Laws") will not
be converted into or represent a right to receive USBN Common Stock or
Consolidated Association stock, as applicable, but the holder of such Dissenting
Share will be entitled only to such rights as are granted by the Appraisal Laws.
Each holder of Dissenting Shares who becomes entitled to payment for his Bank
Common Stock or, as applicable, Consolidated Association common stock pursuant
to the provisions of the Appraisal Laws will receive payment for such Dissenting
Shares from the Consolidated Association or USBN (but only after the amount of
payment is agreed upon or finally determined pursuant to the Appraisal Laws).
2.8 RESERVATION OF RIGHT TO REVISE TRANSACTION. In its sole discretion,
and notwithstanding any other provision in this Plan to the contrary, USBN or
New Bank may at any time change the method of effecting its acquisition of the
Bank; but no such change will (A) change the amount or kind of consideration to
be issued to holders of Bank Common Stock as provided for in this
A-8
<PAGE> 95
Plan, or (B) adversely affect the tax treatment to the Bank shareholders as a
result of receiving such consideration. If USBN or New Bank elects to change the
method of acquisition, the Bank will cooperate with and assist USBN and/or New
Bank with any necessary amendment to this Plan, and with the preparation and
filing of such applications, documents, instruments and notices as may be
necessary or desirable, in the opinion of counsel for USBN, to obtain all
necessary shareholder approvals and approvals of any regulatory agency,
administrative body or other governmental entity.
2.9 OPTIONS. On the Effective Date, by virtue of the Consolidation, and
without any action on the part of any holder of an option, each option granted
by the Bank to purchase shares of Bank Common Stock ("Bank Option") that is then
outstanding and unexercised will be converted into and become an option to
purchase USBN Common Stock ("USBN Option") on the same terms and conditions as
are in effect with respect to the Bank Option immediately prior to the Effective
Date, except that (A) each such USBN Option may be exercised solely for shares
of USBN Common Stock, (B) the number of shares of USBN Common Stock subject to
such USBN Option will be equal to the number of shares of Bank Common Stock
subject to such Bank Option immediately prior to the Effective Date multiplied
by the Exchange Ratio, the product being rounded, if necessary, up or down to
the nearest whole share, and (C) the per-share exercise price under each such
USBN Option will be adjusted by dividing the per-share exercise price of the
Bank Option by the Exchange Ratio, and rounding up or down to the nearest cent.
The number of shares of Bank Common Stock that are issuable upon exercise of
Bank Options as of the date of this Plan are Previously Disclosed in Schedule
2.9. Following the Effective Date, USBN will use its best efforts to prepare and
file with the SEC a registration statement on Form S-8 covering shares of USBN
Common Stock to be issued upon the exercise of stock options assumed by USBN
pursuant to this Section 2.9.
ARTICLE III. ACTIONS PENDING CONSUMMATION
Unless otherwise agreed to in writing by USBN or New Bank, the Bank will
conduct its business in the ordinary and usual course consistent with past
practice and will use its best efforts to maintain and preserve its business
organization, employees and advantageous business relationships and retain the
services of its officers and key employees identified by USBN, and the Bank,
without the prior written consent of USBN or New Bank, will not:
3.1 CAPITAL STOCK. Except for or as otherwise expressly permitted in
this Plan or as Previously Disclosed in Schedule 4.1(C), issue, sell or
otherwise permit to become outstanding any additional shares of capital stock of
the Bank, or any Rights with respect to its capital stock, or enter into any
agreement to do any of the foregoing, or permit any additional shares of Bank
Common Stock to become subject to grants of employee stock options, stock
appreciation rights or similar stock-based employee compensation rights.
3.2 DISTRIBUTIONS. Make, declare or pay any dividend on or in respect
of, or declare or make any distribution on, or directly or indirectly combine,
redeem, reclassify, purchase or otherwise acquire, any shares of its capital
stock or authorize the creation or issuance of, or issue, any additional shares
of its capital stock or any Rights with respect to its capital stock.
3.3 LIABILITIES. Other than in the ordinary course of business
consistent with past practice, incur any indebtedness for borrowed money,
assume, guarantee, endorse or otherwise as an accommodation become responsible
or liable for the obligations of any other individual corporation or other
entity.
3.4 OPERATIONS. Except as may be directed by any regulatory agency, (A)
change its lending, investment, liability management or other material banking
policies in any material respect,
A-9
<PAGE> 96
except such changes as are in accordance and in an effort to comply with Section
5.12, or (B) commit to incur any further capital expenditures beyond those
Previously Disclosed in Schedule 3.4 other than in the ordinary course of
business and not exceeding $25,000 individually or $50,000 in the aggregate.
3.5 LIENS AND ENCUMBRANCES. Impose, or suffer the imposition, on any
shares of stock of any of its Subsidiaries, any lien, charge or encumbrance, or
permit any such lien, charge or encumbrance to exist.
3.6 EMPLOYMENT ARRANGEMENTS. Except as Previously Disclosed in Schedule
3.6, hire any new employees of the rank of Assistant Vice President or higher,
increase the number of full time employees Previously Disclosed in Schedule 3.6,
enter into or amend any employment, severance or similar agreement or
arrangement with any of its directors (except the employment agreement with
Lawrence C. Mitson, in the form attached as Exhibit D) officers or employees, or
grant any salary or wage increase, amend the terms of any Bank Option or
increase any employee benefit (including incentive or bonus payments), except
normal individual increases in regular compensation to employees in the ordinary
course of business consistent with past practice.
3.7 BENEFIT PLANS. Except as Previously Disclosed in Schedule 3.7, enter
into or modify (except as may be required by applicable law) any pension,
retirement, stock option, stock purchase, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
related thereto, in respect of any of its directors, officers or other
employees, including taking any action that accelerates the vesting or exercise
of any benefits payable thereunder.
3.8 CONTINUANCE OF BUSINESS. Dispose of or discontinue any portion of
its assets, business or properties, that is material to the Bank taken as a
whole, or merge or consolidate with, or acquire all or any portion of, the
business or property of any other entity that is material to the Bank taken as a
whole (except foreclosures or acquisitions by the Bank in its fiduciary
capacity, in each case in the ordinary course of business consistent with past
practice).
3.9 AMENDMENTS. Amend its articles of association or bylaws.
3.10 CLAIMS. Settle any claim, litigation, action or proceeding
involving any liability for material money damages or restrictions upon the
operations of the Bank.
3.11 CONTRACTS. Except as Previously Disclosed on Schedule 3.11, enter
into, renew, terminate or make any change in any material contract, agreement or
lease, except in the ordinary course of business consistent with past practice
with respect to contracts, agreements and leases that are terminable by it
without penalty on no more than 60 days prior written notice.
3.12 LOANS. Extend credit or account for loans and leases other than in
accordance with existing lending policies and accounting practices. With regard
to any new extension of credit in excess of $200,000, the Chief Executive
Officer or Chief Credit Officer of the Bank will report to the Chief Operating
Officer or Chief Financial Officer of USBN, as expeditiously as possible, the
substance and nature of the transaction for the purpose of keeping USBN abreast
of the ongoing credit quality at the Bank.
3.13 TRANSACTION EXPENSES. If the Bank's Transaction Expenses exceed
$125,000, then before the Exchange Ratio is calculated, the Total Consideration
will be reduced by the amount of Transaction Expenses exceeding $125,000.
"Transaction Expenses" means all costs and expenses incurred by the Bank or owed
or paid by the Bank to third parties in connection with the preparation,
A-10
<PAGE> 97
negotiation and execution of this Plan and all related documents and the
consummation of the Consolidation, including expenses incurred by the Bank in
connection with obtaining approvals for the Consolidation from regulators and
shareholders, excluding (i) exercise of options, (ii) expenses related to
obtaining audited financial statements for the purposes of the Consolidation,
and (iii) payment of Lawrence C. Mitson's severance, pursuant to the Severance
Agreement dated May 18, 1994 and amended as of January 26, 1996, between the
Bank and Mitson.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
4.1 THE BANK'S REPRESENTATIONS AND WARRANTIES. The Bank hereby
represents and warrants to USBN and New Bank as follows:
(A) RECITALS. The facts set forth in the Recitals of this Plan with
respect to the Bank are true and correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. The Bank is duly qualified
to do business and is in good standing in the States of the United States and
foreign jurisdictions where the failure to be duly qualified, individually or in
the aggregate, is reasonably likely to have a Material Adverse Effect on it. The
Bank has in effect all federal state, local and foreign governmental
authorizations necessary for it to own or lease its properties and assets and to
carry on its business as it is now conducted. The Bank is an "insured depository
institution" as defined in the Federal Deposit Insurance Act, as amended, and
applicable regulations under such statute, and its deposits are insured by the
Bank Insurance Fund of the FDIC.
(C) SHARES. The outstanding shares of the Bank's capital stock are
validly issued and outstanding, fully paid and nonassessable, except as provided
in 12 USC Section 55, and except as provided by the Bank's Articles of
Association, are not subject to preemptive rights of the Bank's shareholders.
Except as Previously Disclosed in Schedule 4.1(C), there are no shares of
capital stock or other equity securities of the Bank outstanding and no
outstanding Rights with respect to its capital stock or other equity securities.
(D) SUBSIDIARIES. The Bank has no Subsidiaries.
(E) CORPORATE POWER. The Bank has the corporate power and authority
to carry on its business as it is now being conducted and to own all its
material properties and assets.
(F) CORPORATE AUTHORITY. Subject to any necessary receipt of
approval by its shareholders referred to in Section 6.1, this Plan has been
authorized by all necessary corporate action of the Bank, and this Plan is a
valid and binding agreement of the Bank, enforceable against the Bank in
accordance with its terms, subject to bankruptcy, insolvency and other laws of
general applicability relating to or affecting creditors' rights and to general
equitable principles.
(G) NO DEFAULTS. Subject to the approval by its shareholders
referred to in Section 6.1, the required regulatory approvals referred to in
Section 6.1, and the required filings under federal and state securities laws,
and except as Previously Disclosed in Schedule 4.1(G), the execution, delivery
and performance of this Plan and the consummation by the Bank of the
transactions contemplated by this Plan does not and will not (1) constitute a
breach or violation of, or a default under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, or agreement, indenture
or instrument of the Bank or to which the Bank or its properties is subject or
bound, (2) constitute a breach or violation of, or a default under its articles
of association, charter or bylaws, or (3) require any consent or approval under
any such law, rule, regulation, judgment, decree, order,
A-11
<PAGE> 98
governmental permit or license or the consent or approval of any other party to
any such agreement, indenture or instrument.
(H) FINANCIAL REPORTS. Except as Previously Disclosed in Schedule
4.1(H), its unaudited statements of financial condition and the related
unaudited statements of income, changes in shareholders' equity and cash flows
for the fiscal years ended December 31, 1996, and 1995, and its audited
statements of financial condition and the related audited statements of income,
changes in shareholders' equity and cash flows for the fiscal year ended
December 31, 1997 (collectively, the "Bank Financial Reports"), and its call
reports for the fiscal years ended December 31, 1997, 1996, and 1995, and all
other financial reports filed or to be filed subsequent to December 31, 1997, in
the form filed with the FDIC and the OCC (in each case, the "Bank Regulatory
Reports" and together with the Bank Financial Reports, the "Financial Reports")
did not and will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading; and each of the balance sheets in or incorporated by
reference into the Financial Reports (including the related notes and schedules
thereto) fairly presents and will fairly present the financial position of the
entity or entities to which it relates as of its date, and each of the
statements of income and changes in shareholders' equity and cash flows or
equivalent statements in the Bank Regulatory Reports (including any related
notes and schedules thereto) fairly presents and will fairly present the results
of operations, changes in shareholders' equity and cash flows, as the case may
be, of the entity or entities to which it relates for the periods set forth
therein, in the case of the 1995 and 1996 financial reports in accordance with
regulatory accounting principles, and in the case of the 1997 financial reports
in accordance with GAAP, except in each case as may be noted therein, subject to
normal and recurring year-end audit adjustments in the case of unaudited
statements.
(I) ABSENCE OF UNDISCLOSED LIABILITIES. The Bank has no obligation
or liability (contingent or otherwise) except (1) as reflected in its Bank
Financial Reports prior to the date of this Plan, and (2) for commitments and
obligations made, or liabilities incurred, in the ordinary course of business
consistent with past practice since December 31, 1997. Since December 31, 1994,
the Bank has not incurred or paid any obligation or liability (including any
obligation or liability incurred in connection with any acquisitions in which
any form of direct financial assistance of the federal government or any of its
agencies have been provided to the Bank).
(J) NO EVENTS. Except as Previously Disclosed on Schedule 4.1(J),
since December 31, 1994, no event has occurred that, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect on it.
(K) PROPERTIES. Except as reserved against in its Bank Financial
Reports, the Bank has good and marketable title, free and clear of all liens,
encumbrances, charges, defaults, or equities of any character, to all of the
properties and assets, tangible and intangible, reflected in its Financial
Reports as being owned by the Bank as of the dates of the Financial Reports,
except those sold or otherwise disposed of in the ordinary course of business.
All buildings and all material fixtures, equipment, and other property and
assets that are held under leases or subleases by the Bank are held under valid
leases or subleases enforceable in accordance with their respective terms.
(L) LITIGATION. Except as Previously Disclosed in Schedule 4.l(L),
before the date of this Plan:
(1) no criminal or administrative investigations or hearings,
before or by any Regulatory Authorities, or civil, criminal or administrative
actions, suits, claims or proceedings, before or by any person (including any
Regulatory Authority) are pending or, to the knowledge of its executive
A-12
<PAGE> 99
officers, threatened, against it (including under the Truth in Lending Act, the
Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment
Act, the Home Mortgage Disclosure Act, or any fair lending law or other law
relating to discrimination); and
(2) neither it nor any of its officers, directors, controlling
persons, nor any of its properties is a party to or is subject to any order,
decree, agreement, memorandum of understanding or similar arrangement with, or a
commitment letter or similar submission to, any Regulatory Authority charged
with the supervision or regulation of depository institutions or engaged in the
insurance of deposits (including the FDIC) or the supervision or regulation of
the Bank, and it has not been advised by any such Regulatory Authority that such
Regulatory Authority is contemplating issuing or requesting (or is considering
the appropriateness of issuing or requesting) any such order, decree, agreement,
memorandum of understanding, commitment letter or similar submission.
(M) COMPLIANCE WITH LAWS. Except as Previously Disclosed in Schedule
4.1(M), the Bank:
(1) is in compliance, in the conduct of its business, with all
applicable federal, state, local, and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders or decrees, including the Bank Secrecy Act,
the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Housing
Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act and all
applicable fair lending laws or other laws relating to discrimination;
(2) has all permits, licenses, certificates of authority,
orders, and approvals of, and has made all filings, applications, and
registrations with, federal, state, local, and foreign governmental or
regulatory bodies that are required in order to permit it to carry on its
business as it is presently conducted;
(3) has received since January 1, 1994, no notification or
communication from any Regulatory Authority (including any bank, insurance and
securities regulatory authorities) or its staff (1) asserting a failure to
comply with any of the statutes, regulations or ordinances that such Regulatory
Authority enforces, (2) threatening to revoke any license, franchise, permit or
governmental authorization, or (3) threatening or contemplating revocation or
limitation of, or that would have the effect of revoking or limiting, FDIC
deposit insurance (nor do any grounds for any of the foregoing exist);
(4) is not required to notify any federal banking agency before
adding directors to its board of directors or employing senior executives
(except notifications required as a result of the Consolidation); and
(5) has adopted and is implementing a program to address any
problems associated with the capacity of the computer software operated by the
Bank and its vendors to properly process transactions after December 31, 1999.
(N) MATERIAL CONTRACTS. Except as Previously Disclosed in Schedule
4.1(N), neither the Bank nor its assets, businesses or operations, is a party
to, or bound or affected by, or receives benefits under, any material contract
or agreement or amendment to such contract or agreement. The Bank is not in
default under any contract, agreement, commitment, arrangement, lease, insurance
policy or other instrument to which it is a party, by which its assets, business
or operations may be bound or affected or under which it or its respective
assets, business or operations receives benefits, and there has not occurred any
event that, with the lapse of time or the giving of notice or both, would
constitute such a default. Except as Previously Disclosed in Schedule 4.1(N),
the Bank is not subject to or bound
A-13
<PAGE> 100
by any contract containing covenants that limit the ability of the Bank to
compete in any line of business or with any Person or that involve any
restriction of geographical area in which, or method by which, the Bank may
carry on its business (other than as may be required by law or any applicable
Regulatory Authority).
(O) REPORTS. Since January 1, 1993, the Bank has filed all reports
and statements, together with any required amendments, that it was obligated to
file with (1) the OCC, (2) the FDIC, and (4) any other Regulatory Authorities
having jurisdiction over the Bank. As of their respective dates (and without
giving effect to any amendments or modifications filed after the date of this
Plan with respect to reports and documents filed before the date of this Plan),
each of such reports and documents, including the financial statements, exhibits
and schedules to the financial statements, complied with all of the statutes,
rules and regulations enforced or promulgated by the Regulatory Authority with
which they were filed and did not contain any untrue statement of fact or omit
to state any fact necessary in order to make the statements, in light of the
circumstances under which they were made, not misleading.
(P) NO BROKERS. All negotiations relative to this Plan and the
transactions contemplated by this Plan have been carried on by it directly with
the other Parties and no action has been taken by it that would give rise to any
valid claim against any Party for a brokerage commission, finder's fee or other
like payment.
(Q) EMPLOYEE BENEFIT PLANS.
(1) Schedule 4.1(Q)(1) contains a complete list of all bonus,
deferred compensation, pension, retirement, profit-sharing, thrift savings,
employee stock ownership, stock bonus, stock purchase, restricted stock and
stock option plans, all employment or severance contracts, all medical, dental,
health and life insurance plans, all other employee benefit plans, contracts or
arrangements and any applicable "change of control" or similar provisions in any
plan, contract or arrangement maintained or contributed to by the Bank for the
benefit of employees, former employees, directors, former directors or their
beneficiaries (the "Compensation and Benefit Plans"). True and complete copies
of all Compensation and Benefit Plans of the Bank, including any trust
instruments and/or insurance contracts, if any, forming a part of such plans,
and all related amendments, have been supplied to the other Parties.
(2) All "employee benefit plans" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), other than "multiemployer plans" within the meaning of Section 3(37)
of ERISA ("Multiemployer Plans"), covering employees or former employees of the
Bank (the "ERISA Plans"), to the extent subject to ERISA, are in substantial
compliance with ERISA. Except as Previously Disclosed in Schedule 4.1(Q)(2) each
ERISA Plan which is an "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA ("Pension Plan") and which is intended to be qualified
under Section 401(a) of the Internal Revenue Code of 1986 (as amended, the
"Code") has received a favorable determination letter from the Internal Revenue
Service, and the Bank is not aware of any circumstances reasonably likely to
result in the revocation or denial of any such favorable determination letter or
the inability to receive such a favorable determination letter. There is no
material pending or, to its knowledge, threatened litigation relating to the
ERISA Plans. The Bank has not engaged in a transaction with respect to any ERISA
Plan that could subject the Bank to a tax or penalty imposed by either Section
4975 of the Code or Section 502(i) of ERISA.
(3) No liability under Subtitle C or D of Title IV of ERISA has
been or is expected to be incurred by the Bank with respect to any ongoing,
frozen or terminated "single-employer plan," within the meaning of Section
4001(a)(15) of ERISA, currently or formerly maintained by it, or the
single-employer plan of any entity which is considered one employer with the
Bank under Section
A-14
<PAGE> 101
4001(a)(15) of ERISA or Section 414 of the Code (an "ERISA Affiliate"). The Bank
does not presently contribute to a Multiemployer Plan, nor has it contributed to
such a plan within the past five calendar years. No notice of a "reportable
event," within the meaning of Section 4043 of ERISA for which the 30-day
reporting requirement has not been waived, has been required to be filed for any
Pension Plan or by any ERISA Affiliate within the past 12-month period.
(4) All contributions required to be made under the terms of any
ERISA Plan have been timely made. Neither any Pension Plan nor any
single-employer plan of an ERISA Affiliate has an "accumulated funding
deficiency"(whether or not waived) within the meaning of Section 412 of the Code
or Section 302 of ERISA. The Bank has not provided, or is not required to
provide, security to any Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
(5) Under each Pension Plan which is a single-employer plan, as
of the last day of the most recent plan year, the actuarially determined present
value of all "benefit liabilities," within the meaning of Section 4001(a)(16) of
ERISA (as determined on the basis of the actuarial assumptions contained in the
plan's most recent actuarial valuation) did not exceed the then current value of
the assets of such plan, and there has been no material change in the financial
condition of such plan since the last day of the most recent plan year.
(6) The Bank has no obligations for retiree health and life
benefits under any plan, except as set forth in Schedule 4.1(Q)(6). There are no
restrictions on the rights of the Bank to amend or terminate any such plan
without incurring any liability under the plan.
(7) Except as Previously Disclosed in Schedule 4.l(Q)(7),
neither the execution and delivery of this Plan nor the consummation of the
transactions contemplated by this Plan will (a) result in any payment (including
severance, unemployment compensation, golden parachute or otherwise) becoming
due to any director or any employee of the Bank under any Compensation and
Benefit Plan or otherwise from the Bank, (b) increase any benefits otherwise
payable under any Compensation and Benefit Plan, or (c) result in any
acceleration of the time of payment or vesting of any such benefit.
(R) NO KNOWLEDGE. The Bank knows of no reason why the regulatory
approvals referred to in Section 6.1 will not be obtained.
(S) LABOR AGREEMENTS. The Bank is neither a party to nor bound by
any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is the Bank the
subject of a proceeding asserting that it has committed an unfair labor practice
(within the meaning of the National Labor Relations Act) or seeking to compel it
to bargain with any labor organization as to wages and conditions of employment,
nor is there any strike or other labor dispute involving it pending or, to the
best of its knowledge, threatened, nor is it aware of any activity involving its
employees seeking to certify a collective bargaining unit or engaging in any
other organization activity.
(T) ASSET CLASSIFICATION. The Bank has Previously Disclosed in
Schedule 4.1(T) a list, accurate and complete in all material respects, of the
aggregate amounts of loans, extensions of credit or other assets of the Bank
that have been classified by it as of December 31, 1997 (the "Asset
Classification"); and no amounts of loans, extensions of credit or other assets
that have been classified as of December 31, 1997 by any regulatory examiner as
"Other Loans Specially Mentioned," "Substandard," "Doubtful" "Loss," or words of
similar import are excluded from the amounts disclosed
A-15
<PAGE> 102
in the Asset Classification, other than amounts of loans, extensions of credit
or other assets that were charged off by the Bank prior to December 31, 1997.
(U) ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for possible
loan losses shown on the consolidated balance sheets in the December 31, 1997,
Bank Financial Reports and the December 31, 1997, Bank Regulatory Reports was,
and the allowance for possible loan losses to be shown on subsequent Bank
Financial Reports was and will be, adequate in the opinion of the Board of
Directors of the Bank to provide for possible losses, net of recoveries relating
to loans previously charged off, on loans outstanding (including accrued
interest receivable) as of the dates noted.
(V) INSURANCE. The Bank has taken all requisite action (including
the making of claims and the giving of notices) pursuant to its directors' and
officers' liability insurance policy or policies in order to preserve all rights
under the policy or policies. Set forth in Schedule 4.l(V) is a list of all
insurance policies maintained by or for the benefit of the Bank and its
directors, officers, employees or agents.
(W) AFFILIATES. Except as Previously Disclosed in Schedule 4.1(W),
there is no person who, as of the date of this Plan, may be deemed to be an
"affiliate" of the Bank as that term is used in Rule 145 under the Securities
Act.
(X) TAKEOVER LAWS, ARTICLES OF ASSOCIATION. The Bank has taken all
necessary action to exempt this Plan and the transactions contemplated by this
Plan from, and this Plan and such transactions are exempt from (1) any
applicable takeover laws, and (2) any takeover-related provisions of the Bank's
articles of association.
(Y) NO FURTHER ACTION. The Bank has taken all action so that the
entering into of this Plan and the consummation of the transactions contemplated
by this Plan (including the Consolidation) or any other action or combination of
actions, or any other transactions, contemplated by this Plan do not and will
not (1) require a vote of shareholders (other than as set forth in Section 6.1),
or (2) except as Previously Disclosed in Schedule 4.1(Y), result in the grant of
any rights to any Person under the articles of association, charter or bylaws of
the Bank or under any agreement to which the Bank is a party, or (iii) restrict
or impair in any way the ability of the other Parties to exercise the rights
granted under this Plan.
(Z) ENVIRONMENTAL MATTERS.
(1) To the Bank's knowledge, the Participation Facilities and
the Loan/Fiduciary Properties are, and have been, in compliance with all
Environmental Laws.
(2) There is no proceeding pending or, to the Bank's knowledge,
threatened before any court, governmental agency or board or other forum in
which the Bank or any Participation Facility has been, or with respect to
threatened proceedings, reasonably would be expected to be, named as a defendant
or potentially responsible party (a) for alleged noncompliance (including by any
predecessor) with any Environmental Law, or (b) relating to the release or
threatened release into the environment of any Hazardous Material, whether or
not occurring at or on a site owned, leased or operated by the Bank or any
Participation Facility, except for such proceedings pending or threatened that
have been Previously Disclosed in Schedule 4.1(Z)(2).
(3) There is no proceeding pending or, to the Bank's knowledge,
threatened before any court, governmental agency or board or other forum in
which any Loan/Fiduciary Property (or the Bank in respect of any Loan/Fiduciary
Property) has been, or with respect to threatened proceedings,
A-16
<PAGE> 103
reasonably would be expected to be, named as a defendant or potentially
responsible party (a) for alleged noncompliance (including by any predecessor)
with any Environmental Law, or (b) relating to the release or threatened release
into the environment of any Hazardous Material, whether or not occurring at or
on a Loan/Fiduciary Property, except for such proceedings pending or threatened
that have been Previously Disclosed in Schedule 4.1(Z)(3).
(4) To the Bank's knowledge, there is no reasonable basis for
any proceeding of a type described in subparagraph (2) or (3) of this paragraph
(Z), except as has been Previously Disclosed in Schedule 4.1(Z)(4).
(5) To the Bank's knowledge, during the period of (a) ownership
or operation by the Bank of any of its current properties, (b) participation in
the management of any Participation Facility by the Bank, or (c) holding of a
security or other interest in a Loan/Fiduciary Property by the Bank, there have
been no releases of Hazardous Material in, on, under or affecting any such
property, Participation Facility or Loan/Fiduciary Property, except for such
releases that have been Previously Disclosed in Schedule 4.1(Z)(5).
(6) To the Bank's knowledge, prior to the period of (a)
ownership or operation by the Bank of any of its current properties, (b)
participation in the management of any Participation Facility by the Bank, or
(c) holding of a security or other interest in a Loan/Fiduciary Property by the
Bank, there were no releases of Hazardous Material in, on, under or affecting
any such property, Participation Facility or Loan) Fiduciary Property, except
for such releases that have been Previously Disclosed in Schedule 4.1(Z)(6).
(AA) TAX REPORTS. Except as Previously Disclosed in Schedule
4.1(AA), (1) all reports and returns with respect to Taxes that are required to
be filed by or with respect to the Bank, including consolidated federal income
tax returns of the Bank (collectively, the "Tax Returns"), have been duly filed,
or requests for extensions have been timely filed and have not expired, for
periods ended on or prior to the most recent fiscal year-end, and such Tax
Returns were true, complete and accurate, (2) all Taxes shown to be due on the
Tax Returns have been paid in full, (3) the Tax Returns have been examined by
the Internal Revenue Service or the appropriate state, local or foreign taxing
authority, or the period for assessment of the Taxes in respect of which such
Tax Returns were required to be filed has expired, (4) all Taxes due with
respect to completed and settled examinations have been paid in full, (5) no
issues have been raised by the relevant taxing authority in connection with the
examination of any of the Tax Returns except as reserved against in the Bank
Financial Reports, and (6) no waivers of statutes of limitations (excluding such
statutes that relate to years under examination by the Internal Revenue Service)
have been given by or requested with respect to any Taxes of the Bank.
(BB) ACCURACY OF INFORMATION. The statements with respect to the
Bank contained in this Plan, the Schedules and any other written documents
executed and delivered by or on behalf of the Bank or any other Party pursuant
to the terms of or relating to this Plan are true and correct, and such
statements and documents do not omit any fact necessary to make the statements,
in light of the circumstances under which they were made, not misleading.
(CC) DERIVATIVES CONTRACTS. The Bank is not a party to nor has it
agreed to enter into a Derivatives Contract or to own securities that are
referred to as "structured notes" except for those Derivatives Contracts and
structured notes Previously Disclosed in Schedule 4.1(CC). Schedule 4.1(CC)
includes a list of any assets of the Bank that are pledged as security for each
such Derivatives Contract.
A-17
<PAGE> 104
(DD) ACCOUNTING CONTROLS. The Bank has devised and maintained
systems of internal accounting controls sufficient to provide reasonable
assurances that (1) all transactions are executed in accordance with
management's general or specific authorization, (2) all transactions are
recorded as necessary to permit the preparation of financial statements in
conformity with GAAP, and to maintain proper accountability for items, (3)
access to the material property and assets of the Bank is permitted only in
accordance with management's general or specific authorization, and (4) the
recorded accountability for items is compared with the actual levels at
reasonable intervals and appropriate action is taken with respect to any
differences.
(EE) COMMITMENTS AND CONTRACTS. The Bank is not a party or subject
to any of the following (whether written or oral, express or implied):
(1) except as Previously Disclosed in Schedule 4.1(EE)(1), any
employment contract or understanding (including any understandings or
obligations with respect to severance or termination pay liabilities or fringe
benefits) with any present or former officer, director or employee (other than
those which are terminable at will by the Bank without any obligation on the
part of the Bank to make any payment in connection with such termination);
(2) except as Previously Disclosed in Schedule 4.1(EE)(2), any
real or personal property lease with annual rental payments aggregating $10,000
or more; or
(3) except as Previously Disclosed in Schedule 4.1(EE)(3), any
material contract with any affiliate.
4.2 USBN'S AND NEW BANK'S REPRESENTATIONS AND WARRANTIES. USBN and as
appropriate, New Bank, hereby represent and warrant to the Bank as follows:
(A) RECITALS. The facts set forth in the Recitals of this Plan with
respect to USBN and New Bank are true and correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. USBN is, and New Bank will
be, duly qualified to do business and in good standing in the States of the
United States and foreign jurisdictions where the failure to be duly qualified,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on it. Each of USBN and its Subsidiaries has or, in the case of
New Bank, will have, in effect all federal state, local, and foreign
governmental authorizations necessary for it to own or lease its properties and
assets and to carry on its business as it is now or may be conducted.
(C) SHARES. The outstanding shares of USBN's capital stock are
validly issued and outstanding, fully paid and nonassessable, and subject to no
preemptive rights. Except as Previously Disclosed in Schedule 4.2(C), there are
no shares of capital stock or other equity securities of it or its Subsidiaries
outstanding and no outstanding Rights with respect to such shares.
(D) CORPORATE POWER. USBN has, and New Bank will have, the corporate
power and authority to carry on its business as it is now being conducted or
will be conducted and to own all its material properties and assets.
(E) CORPORATE AUTHORITY. This Plan has been authorized by all
necessary corporate action of USBN and will so be authorized by all necessary
action of New Bank, is (or in the case of New Bank, will be) a valid and binding
agreement of USBN and New Bank, enforceable against USBN and New Bank in
accordance with its terms, subject to bankruptcy, insolvency and other laws of
general applicability relating to or affecting creditors' rights and to general
equity principles. As of the
A-18
<PAGE> 105
date of this Plan, no approval by USBN's shareholders of this Plan is required.
USBN, as the sole shareholder of New Bank, will be required to approve this
Plan.
(F) NO DEFAULTS. Subject to receipt of the required regulatory
approvals referred to in Section 6.1, and the required filings under federal and
state securities laws, and except as Previously Disclosed in Schedule 4.2(F),
the execution, delivery and performance of this Plan and the consummation by
USBN and each of its Subsidiaries that is a Party of the transactions
contemplated by this Plan does not and will not (1) constitute a breach or
violation of, or a default under, any law, rule or regulation or any judgment,
decree, order, governmental permit or license, or agreement, indenture or
instrument of USBN or of any of its Subsidiaries or to which USBN or any of its
Subsidiaries or its or their properties is subject or bound, (2) constitute a
breach or violation of, or a default under, the articles of incorporation,
charter or bylaws of its or any of its Subsidiaries, or (3) require any consent
or approval under any such law, rule, regulation, judgment, decree, order,
governmental permit or license or the consent or approval of any other party to
any such agreement, indenture or instrument.
(G) FINANCIAL REPORTS. Except as Previously Disclosed in Schedule
4.2(G), in the case of USBN, its Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, and all other documents filed or to be filed subsequent
to December 31, 1997 under Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act, in the form filed with the SEC (in each such case, the "USBN Financial
Reports"), did not and will not contain any untrue statement of fact or omit to
state a fact required to be stated or necessary to make the statements made, in
light of the circumstances under which they were made, not misleading; and each
of the balance sheets in or incorporated by reference into the USBN Financial
Reports (including the related notes and schedules thereto) fairly presents and
will fairly present the financial position of the entity or entities to which it
relates as of its date, and each of the statements of income and changes in
shareholders' equity and cash flows or equivalent statements in the USBN
Financial Reports (including any related notes and schedules thereto) fairly
presents and will fairly present the results of operations, changes in
shareholders, equity and changes in cash flows, as the case may be, of the
entity or entities to which it relates for the periods set forth therein, in
each case in accordance with GAAP, except as may be noted therein, subject to
normal and recurring year-end audit adjustments in the case of unaudited
statements.
(H) NO EVENTS. Except as Previously Disclosed on Schedule 4.2(H),
since December 31, 1997, no event has occurred which is reasonably likely to
have a Material Adverse Effect on it.
(I) LITIGATION; REGULATORY ACTION. Except as Previously Disclosed in
Schedule 4.2(I) no litigation, proceeding or controversy before any court or
governmental agency is pending that alleges claims under any fair lending law or
other law relating to discrimination, including the Equal Credit Opportunity
Act, the Fair Housing Act, the Community Reinvestment Act and the Home Mortgage
Disclosure Act, and no such litigation, proceeding or controversy has been
threatened; and except as Previously Disclosed in Schedule 4.2(I), neither USBN
nor any of its Subsidiaries or any of its or their material properties or their
officers, directors or controlling persons is a party to or is subject to any
order, decree, agreement, memorandum of understanding or similar arrangement
with, or a commitment letter or similar submission to, any Regulatory Authority,
and neither USBN nor any of its Subsidiaries has been advised by any of such
Regulatory Authorities that such authority is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, decree, agreement, memorandum or understanding, commitment letter or
similar submission.
(J) REPORTS. Since December 31, 1994, each of USBN and its
Subsidiaries has filed all reports and statements, together with any amendments
required to be made with respect thereto, that it was required to file with (1)
the FDIC, (2) the Federal Reserve Board, and (3) any other
A-19
<PAGE> 106
Regulatory Authorities having jurisdiction with respect to USBN and its
Subsidiaries. As of their respective dates (and without giving effect to any
amendments or modifications filed after the date of this Plan with respect to
reports and documents filed before the date of this Plan), each of such reports
and documents, including the financial statements, exhibits and schedules
thereto, complied in all material respects with all of the statutes, rules and
regulations enforced or promulgated by the Regulatory Authority with which they
were filed and did not contain any untrue statement of fact or omit to state any
fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
(K) ACCURACY OF INFORMATION. The statements with respect to USBN and
its Subsidiaries and New Bank contained in this Plan, the Schedules and any
other written documents executed and delivered by or on behalf of USBN or any
other Party pursuant to the terms of this Plan are true and correct, and such
statements and documents do not omit any material fact necessary to make the
statements, in light of the circumstances under which they were made, not
misleading.
(L) ABSENCE OF UNDISCLOSED LIABILITIES. Neither USBN nor any of its
Subsidiaries has any obligation or liability (contingent or otherwise) except
(1) as reflected the USBN Financial Reports prior to the date of this Plan, and
(2) for commitments and obligations made, or liabilities incurred, in the
ordinary course of business consistent with past practice since December 31,
1997. Since December 31, 1997, neither USBN nor any of its Subsidiaries has
incurred or paid any obligation or liability (including any obligation or
liability incurred in connection with any acquisitions in which any form of
direct financial assistance of the federal government or any of its agencies
have been provided to any Subsidiary) that, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on it.
4.3 EXCEPTIONS TO REPRESENTATIONS.
(A) DISCLOSURE OF EXCEPTIONS. Each exception set forth in a Schedule
is disclosed only for purposes of the representations referenced in that
exception; but the following conditions apply:
(1) no exception is required to be set forth in a Schedule if
its absence would not result in the related representation being found untrue or
incorrect under the standard established by Section 4.3(B); and
(2) the mere inclusion of an exception in a Schedule is not an
admission by a party that the exception represents a material fact, material set
of facts, or material event or would result in a Material Adverse Effect with
respect to that party.
(B) NATURE OF EXCEPTIONS. No representation contained in this
Article IV will be found untrue or incorrect and no party to this Plan will have
breached a representation due to the following: the existence of any fact, set
of facts, or event, if the fact or event individually or taken together with
other facts or events would not, or, in the case of Article IV is not reasonably
likely to, have a Material Adverse Effect with respect to such party.
ARTICLE V. COVENANTS
The Bank hereby covenants to USBN and New Bank, and USBN and New Bank
each hereby covenants to the Bank, that:
5.1 BEST EFFORTS. Subject to the terms and conditions of this Plan and
to the exercise by its Board of Directors of such Board's fiduciary duties, it
will use its best efforts in good faith to take,
A-20
<PAGE> 107
or cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or desirable, or advisable under applicable laws, so as to
permit consummation of the Consolidation as soon as practicable and to otherwise
enable consummation of the transactions contemplated by this Plan and will
cooperate fully with the other Parties to that end (it being understood that any
amendments to the Registration Statement or a resolicitation of proxies as a
consequence of a USBN Transaction will not violate this covenant).
5.2 THE PROXY. The Bank will promptly assist USBN in the preparation of
a proxy statement (the "Proxy Statement") to be mailed to the holders of the
Bank Common Stock in connection with the transactions contemplated by this Plan
and to be filed by USBN in a registration statement (the "Registration
Statement") with the SEC as provided in Section 5.8, which will conform to all
applicable legal requirements, and it will call a meeting (the "Meeting") of the
holders of Bank Common Stock to be held as soon as practicable for purposes of
voting upon the transactions contemplated by this Plan and the Bank will use its
best efforts to solicit and obtain votes of the holders of Bank Common Stock in
favor of the transactions contemplated by this Plan and, subject to the exercise
of its fiduciary duties, the Board of Directors of the Bank will recommend
approval of such transactions by such holders.
5.3 REGISTRATION STATEMENT -- COMPLIANCE WITH SECURITIES LAWS. When the
Registration Statement or any post-effective amendment or supplement to the
Registration Statement becomes effective, and at all times subsequent to such
effectiveness, up to and including the date of the Meeting, such Registration
Statement, and all amendments or supplements thereto, with respect to all
information set forth therein furnished or to be furnished by or on behalf of
the Bank relating to the Bank and by or on behalf of USBN relating to USBN or
its Subsidiaries, (A) will comply in all material respects with the provisions
of the Securities Act and any other applicable statutory or regulatory
requirements, and (B) will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements contained therein not misleading. But, no Party will be
liable for any untrue statement of a material fact or omission to state a
material fact in the Registration Statement made in reliance upon, and in
conformity with, written information concerning another Party furnished by or on
behalf of such other Party specifically for use in the Registration Statement.
5.4 REGISTRATION STATEMENT EFFECTIVENESS. USBN will advise the Bank,
promptly after USBN receives any notice of the time when the Registration
Statement has become effective or any supplement or amendment has been filed, of
the issuance of any stop order or the suspension of the qualification of the
USBN Common Stock for offering or sale in any jurisdiction, of the initiation or
threat of any proceeding for any such purpose, or of any request by the SEC for
the amendment or supplement of the Registration Statement or for additional
information.
5.5 PRESS RELEASES. The Bank will not, without the prior approval of
USBN, and neither USBN nor New Bank will, without the prior approval of the
Bank, issue any press release or written statement for general circulation
relating to the transactions contemplated by this Plan, except as otherwise
required by law.
5.6 ACCESS; INFORMATION.
(A) Upon reasonable notice, the Bank will afford USBN and its
officers, employees, counsel, accountants and other authorized representatives,
access, during normal business hours throughout the period up to the Effective
Date, to all of the properties, books, contracts, commitments and records of the
Bank and, during such period, the Bank will promptly furnish (and cause its
accountants and other agents to promptly furnish) to USBN (1) a copy of each
material report, schedule and other document filed by the Bank with any
Regulatory Authority, (2) such representations and
A-21
<PAGE> 108
certifications as are necessary for purposes of the pooling letter described in
Section 6.2(F), and (3) all other information concerning the business,
properties and personnel of the Bank as USBN may reasonably request, provided
that no investigation pursuant to this Section 5.6 will affect or be deemed to
modify or waive any representation or warranty made by the Bank in this Plan or
the conditions to the obligations of the Bank to consummate the transactions
contemplated by this Plan; and
(B) Neither USBN nor New Bank will use any information obtained
pursuant to this Section 5.6 for any purpose unrelated to the consummation of
the transactions contemplated by this Plan and, if this Plan is terminated, will
hold all confidential information and documents obtained pursuant to this
paragraph in confidence (as provided in Section 8.6) unless and until such time
as such information or documents become publicly available other than by reason
of any action or failure to act by USBN or New Bank or as it is advised by
counsel that any such information or document is required by law or applicable
stock exchange rule to be disclosed, and in the event of the termination of this
Plan, USBN and New Bank will, upon request by the Bank, deliver to the Bank all
documents so obtained by USBN or destroy such documents and, in the case of
destruction, will certify such fact to the Bank.
5.7 TERMINATION FEE.
(A) Without the prior written consent of USBN, the Bank will not
solicit, initiate or encourage inquiries or proposals with respect to, or,
except as required by the fiduciary duties of the Board of Directors of the Bank
(as advised in writing by its outside counsel), furnish any nonpublic
information relating to or participate in any negotiations or discussions
concerning, any acquisition or purchase of all or a substantial portion of the
assets of, or a substantial equity interest in, the Bank or any merger or other
business combination with the Bank other than as contemplated by this Plan
("Acquisition Proposal"); it will instruct its officers, directors, agents,
advisors and affiliates to refrain from doing any of the foregoing; and it will
notify USBN immediately if any such inquiries or proposals are received by, or
any such negotiations or discussions are sought to be initiated with, the Bank.
(B) If (1) an Acquisition Proposal occurs prior to the Meeting, (2)
the Bank shareholder approval contemplated by Section 6.1 is not obtained at the
Meeting, and (3) prior to July 31, 1999, a Third Party acquires control of the
Bank by merger, purchase of assets, acquisition of stock or otherwise, then
unless the representations and warranties of USBN in this Plan were false in any
material respect as of the date of such Meeting or USBN was in material default
of its covenants in this Plan as of such date, the Bank will promptly pay to
USBN the amount of $350,000. For the purposes of this Subsection (B), a Third
Party will be deemed to have acquired control of the Bank when the Third Party
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of the Bank, whether through the ownership of voting
interests, by contract, or otherwise.
5.8 REGISTRATION STATEMENT PREPARATION; REGULATORY APPLICATIONS
PREPARATION. USBN will, as promptly as practicable following the date of this
Plan, prepare and file the Registration Statement with the SEC with respect to
the shares of USBN Common Stock to be issued to the holders of Bank Common Stock
pursuant to this Plan, and USBN will use its best efforts to cause the
Registration Statement to be declared effective as soon as practicable after the
filing of the Registration Statement. USBN will, as promptly as practicable
following the date of this Plan, prepare and file all necessary notices or
applications with Regulatory Authorities having jurisdiction with respect to the
transactions contemplated by this Plan.
A-22
<PAGE> 109
5.9 APPOINTMENT OF DIRECTORS.
(A) Immediately after the Effective Date, the Consolidated
Association will cause the appointment of two USBN directors to the Board of
Directors of the Consolidated Association to hold office until such time as his
or her successor is elected and qualified; and
(B) Immediately after the Effective Date, USBN will cause the
appointment of a Bank director to the Board of Directors of USBN to hold office
until such time as his or her successor is elected and qualified.
5.10 BLUE-SKY FILINGS. USBN will use its best efforts to obtain, prior
to the effective date of the Registration Statement, any necessary state
securities laws or "blue sky" permits and approvals, provided that USBN will not
be required as a result to submit to general jurisdiction in any state.
5.11 AFFILIATE AGREEMENTS. The Bank will use its best efforts to induce
each person who may be deemed to be an "affiliate" of the Bank for purposes of
Rule 145 under the Securities Act to execute and deliver to USBN on or before
the mailing of the Proxy Statement for the Meeting an agreement in the form
attached hereto as Exhibit C restricting the disposition of such affiliate's
shares of the Bank Common Stock and the shares of USBN Common Stock to be
received by such person in exchange for such person's shares of Bank Common
Stock. In the case of USBN: USBN agrees to use its best efforts to maintain the
availability of Rule 145 for use by such "affiliates".
5.12 CERTAIN POLICIES OF THE BANK. The Bank will, at USBN's request,
modify and change its loan, litigation and other reserve and real estate
valuation policies and practices (including loan classifications and levels of
reserves), and generally conform its operating, lending and compliance policies
and procedures, immediately prior to the Effective Date so as to be consistent
on a mutually satisfactory basis with those of USBN and GAAP; provided, however,
that prior to any such modification or change, USBN will certify that the
conditions to the obligation of USBN under Section 6.1 and 6.2 to consummate the
transactions contemplated by this Plan, other than the condition set forth in
Section 6.1(G), have been satisfied or waived. The Bank's representations,
warranties and covenants contained in this Plan will not be deemed to be untrue
or breached in any respect for any purpose as a consequence of any modifications
or changes undertaken pursuant to this Section 5.12.
5.13 TAKEOVER LAW. The Bank will not take any action that would cause
the transactions contemplated by this Plan to be subject to any applicable
takeover statute, and the Bank will take all necessary steps to exempt (or
ensure the continued exemption of) the transactions contemplated by this Plan
from, or, if necessary, challenge the validity or applicability of, any
applicable takeover law.
5.14 NO RIGHTS TRIGGERED. Except for those consents of Third Parties
Previously Disclosed on Schedule 4.1(G), the Bank will take all necessary steps
to ensure that the entering into of this Plan and the consummation of the
transactions contemplated by this Plan (including the Consolidation) and any
other action or combination of actions, or any other transactions contemplated
by this Plan, do not and will not (A) result in the grant of any rights to any
Person under the articles of association or bylaws of the Bank or under any
agreement to which the Bank is a party, or (B) restrict or impair in any way the
ability of USBN to exercise the rights granted under this Plan.
5.15 SHARES LISTED. USBN will use its best efforts to cause to be
listed, prior to the Effective Date, on the NASDAQ National Market upon official
notice of issuance the shares of USBN Common Stock to be issued to the holders
of Bank Common Stock.
A-23
<PAGE> 110
5.16 FORMATION OF NEW BANK; REGULATORY APPLICATIONS. USBN and its
designated representatives, upon execution of this Plan by USBN and the Bank,
will use their best efforts to promptly prepare and file with the OCC and
Regulatory Authorities such applications and documents as may be appropriate to
secure all necessary approvals for New Bank to become a new national banking
association and for the consummation of the Consolidation as described in this
Plan.
5.17 REGULATORY DIVESTITURES. Effective on or before the Effective Date,
the Bank will cease engaging in such activities as USBN will advise the Bank in
writing are not permitted to be engaged in by USBN under applicable law
following the Effective Date and, to the extent required by any Regulatory
Authority as a condition of approval of the transactions contemplated by this
Plan, the Bank will cease engaging in any activities or holding assets that are
impermissible for USBN or its Subsidiaries, on terms and conditions agreed to by
USBN; provided, however, that prior to taking such action, USBN will certify
that the conditions to the obligations of USBN under Sections 6.1 and 6.2 to
consummate the transactions contemplated by this Plan, other than the condition
set forth in Section 6.1(G), have been satisfied or waived.
5.18 CURRENT INFORMATION.
(A) During the period from the date of this Plan to the Effective
Date, each of the Bank and USBN will, and will cause its representatives to,
confer on a regular and frequent basis with representatives of the other.
(B) Each of the Bank and USBN will promptly notify the other of (1)
any material change in the business or operations of it or its Subsidiaries, (2)
any material complaints, investigations or hearings (or communications
indicating that the same may be contemplated) of any Regulatory Authority
relating to it or its Subsidiaries, (3) the initiation or threat of material
litigation involving or relating to it or its Subsidiaries, or (4) any event or
condition that might reasonably be expected to cause any of its representations
or warranties set forth in this Plan not to be true and correct in all material
respects as of the Effective Date or prevent it or its Subsidiaries from
fulfilling its or their obligations under this Plan.
5.19 INDEMNIFICATION.
(A) For a period of four years from and after the Effective Date,
USBN will indemnify, defend and hold harmless the present and former directors
and officers of the Bank (each, an "Indemnified Party") against all costs or
expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages or liabilities incurred in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, and arising out of matters existing or occurring at or prior to
the Effective Date (including the transactions contemplated by this Plan),
whether asserted or claimed prior to, at or after the Effective Date, to the
fullest extent that the Bank would have been permitted under Washington and
federal law and its articles of association or bylaws in effect on the date of
this Plan to indemnify such person (and USBN will also advance expenses as
incurred to the fullest extent permitted under applicable law so long as the
person to whom expenses are advanced provides an undertaking to repay such
advances within a reasonable period of time if it is ultimately determined that
applicable law does not allow for such indemnification).
(B) Any Indemnified Party wishing to claim indemnification under
paragraph (A) of this Section 5.19, upon learning of such claim, action, suit,
proceeding or investigation, will promptly notify USBN of the same, provided,
however, that the failure so to notify will not affect the obligations of USBN
under paragraph (A) of this Section 5.19 (unless such failure materially and
adversely increases USBN's liability under such paragraph (A)). In the event of
any such claim, action, suit, proceeding or
A-24
<PAGE> 111
investigation (whether arising before or after the Effective Date), (1) USBN
will have the right to assume the defense and USBN will pay all reasonable fees
and expenses of such counsel for the Indemnified Parties promptly as statements
for payment are received; provided, however, that USBN will be obligated
pursuant to this paragraph (B) to pay for only one firm of counsel for all
Indemnified Parties in any jurisdiction for any single action, suit or
proceeding, (2) the Indemnified Parties will cooperate in the defense of any
such matter, and (3) USBN will not be liable for any settlement effected without
its prior written consent.
(C) If USBN or any of its successors or assigns will consolidate
with or merge into any other entity and will not be the continuing or surviving
entity of such consolidation or merger or will transfer all or substantially all
of its assets to any entity, then and in each case, proper provision will be
made so that the successors and assigns of USBN will assume the obligations set
forth in this Section 5.19.
(D) USBN will pay all expenses, including attorneys' fees, that may
be incurred by any Indemnified Party in enforcing the indemnity and other
obligations provided for in this Section 5.19. The rights of each Indemnified
Party under this Section 5.19 will be in addition to any other rights such
Indemnified Party may have under the articles of association or bylaws of the
Bank or under applicable Washington and federal law.
5.20 DIRECTOR AGREEMENTS REGARDING REAL ESTATE. The main office of the
Bank (located at 261 Basin Southwest, Ephrata, Washington) and the land on which
the main office is located (the office and land, collectively, the "Main Office
Property") are owned in their entirety by G.N.B. Associates, a partnership
consisting of seven of the Bank's directors (the "Group"). Each Bank director
who is a member of the Group agrees to cause the Group to lease the Main Office
Property to USBN or its designee, pursuant to the form of lease attached to this
Plan as Exhibit E.
ARTICLE VI. CONDITIONS TO CONSUMMATION OF THE CONSOLIDATION
6.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations
of each Party to consummate the transactions contemplated by this Plan are
subject to the written waiver by such Party or the fulfillment on or prior to
the Effective Date of each of the following conditions:
(A) SHAREHOLDER VOTE. This Plan will have been duly approved by the
requisite vote of the Bank's shareholders and New Bank's shareholder under
applicable law and the articles of association and bylaws of, respectively, the
Bank and New Bank.
(B) REGULATORY APPROVALS. The Parties will have procured all
necessary regulatory consents and approvals by the appropriate Regulatory
Authorities, any waiting periods relating to such consents and approvals will
have expired, and no such approval or consent will have imposed any condition or
requirement that, in the opinion of USBN, would deprive USBN of the material
economic or business benefits of the transactions contemplated by this Plan.
(C) NO INJUNCTION. There will not be in effect any order, decree or
injunction of any court or agency of competent jurisdiction that enjoins or
prohibits consummation of any of the transactions contemplated by this Plan.
(D) EFFECTIVE REGISTRATION STATEMENT. The Registration Statement
will have become effective and no stop order suspending the effectiveness of the
Registration Statement will have been issued and no proceedings for that purpose
will have been initiated or threatened by the SEC or any other Regulatory
Authority.
A-25
<PAGE> 112
(E) BLUE-SKY PERMITS. USBN will have received all state securities
laws and "blue sky" permits necessary to consummate the Consolidation.
(F) TAX OPINION. USBN and the Bank will have received an opinion
from Graham & Dunn, P.C. to the effect that (1) the Consolidation constitutes a
reorganization under Section 368 of the Code, and (2) no gain or loss will be
recognized by shareholders of the Bank who receive shares of USBN Common Stock
in exchange for their shares of the Bank Common Stock, except that gain or loss
may be recognized as to cash received in lieu of fractional share interests,
and, in rendering their opinion, Graham & Dunn may require and rely upon
representations contained in certificates of officers of USBN, the Bank and
others.
(G) NASDAQ LISTING. The shares of USBN Common Stock to be issued
pursuant to this Plan will have been approved for listing on the NASDAQ National
Market subject only to official notice of issuance.
(H) FAIRNESS OPINION. The Bank will have received, immediately prior
to the mailing of the Proxy Statement to the Bank's shareholders, an opinion of
Southard Financial to the effect that the financial terms of the Consolidation
are fair from a financial point of view to the Bank's shareholders.
6.2 CONDITIONS TO OBLIGATIONS OF USBN AND NEW BANK. The obligations of
USBN and New Bank to consummate the transactions contemplated by this Plan also
are subject to the written waiver by USBN and/or New Bank or the fulfillment on
or prior to the Effective Date of each of the following conditions:
(A) LEGAL OPINION. USBN will have received an opinion, dated the
Effective Date, of Gerrish & McCreary, P.C., counsel for the Bank, incorporating
the opinions set forth in Exhibit F.
(B) OFFICERS' CERTIFICATE. (1) Each of the representations and
warranties contained in this Plan of the Bank will be true and correct as of the
date of this Plan and upon the Effective Date with the same effect as though all
such representations and warranties had been made on the Effective Date, except
for any such representations and warranties that specifically relate to an
earlier date, which will be true and correct as of such earlier date, and (2)
the chief executive officers, chief financial officers, and chief lending
officers of the Bank will sign a certificate, dated the Effective Date,
certifying (A) that each and all of the agreements and covenants of the Bank to
be performed and complied with pursuant to this Plan on or prior to the
Effective Date have been duly performed and complied with in all material
respects, (B) the amount of Transaction Expenses incurred and (C) the costs of
obtaining audited financial statements for the purposes of the Consolidation.
(C) RECEIPT OF AFFILIATE AGREEMENTS. USBN will have received from
each affiliate of the Bank the agreement referred to in Section 5.11.
(D) ADVERSE CHANGE. During the period from December 31, 1997 to the
Effective Date, there will not have been any material adverse change in the
financial position or results of operations of the Bank nor will the Bank have
sustained any loss or damage to its properties, whether or not insured, that
materially affects its ability to conduct its business; and USBN will have
received a certificate dated the Effective Date signed by the Chief Executive
Officer of the Bank to such effect.
(E) DISSENTERS' RIGHTS. The number of shares of Bank Common Stock
for which cash is to be paid because dissenters' rights of appraisal under the
Appraisal Laws will have been
A-26
<PAGE> 113
effectively preserved as of the Effective Date or because of the payment of cash
in lieu of fractional shares of USBN Common Stock, will not exceed in the
aggregate 10% of the outstanding shares of Bank Common Stock.
(F) POOLING LETTER. USBN will have received a letter dated as of the
Effective Date, in form and substance acceptable to USBN, from Moss Adams, LLP,
to the effect that the Consolidation will qualify for pooling-of-interests
accounting treatment.
(G) CAPITAL. The Bank's Capital will not be less than $3.25 million
on the Effective Date.
(H) ALLOWANCE FOR LOAN AND LEASE LOSSES. The Bank's allowance for
possible loan and lease losses will not be less than 1.00% of the Bank's total
outstanding loans and leases and will be adequate to absorb the Bank's
anticipated loan and lease losses.
(I) EMPLOYMENT AGREEMENT. The Employment Agreement attached as
Exhibit D will have been duly executed and delivered by the parties to such
Employment Agreement.
6.3 CONDITIONS TO OBLIGATIONS OF THE BANK. The obligations of the Bank
to consummate the transactions contemplated by this Plan also are subject to the
written waiver by the Bank or the fulfillment on or prior to the Effective Date
of each of the following conditions:
(A) LEGAL OPINION. The Bank will have received an opinion, dated the
Effective Date, of Graham & Dunn, special counsel for USBN, in the form of
Exhibit G.
(B) OFFICER'S CERTIFICATE. (1) Each of the representations and
warranties of USBN contained in this Plan will be true and correct as of the
date of this Plan and upon the Effective Date with the same effect as though all
such representations and warranties had been made on the Effective Date, except
for any such representations and warranties that specifically relate to an
earlier date, which will be true and correct as of such earlier date, and (2)
each and all of the agreements and covenants of USBN to be performed and
complied with pursuant to this Plan on or prior to the Effective Date will have
been duly performed and complied with in all material respects, and the Bank
will have received a certificate signed by an executive officer of USBN dated
the Effective Date, to such effect.
(C) ADVERSE CHANGE. During the period from December 31, 1997 to the
Effective Date, there will not have been any material adverse change in the
financial position or results of operations of USBN nor will USBN have sustained
any loss or damage to its properties, whether or not insured, that materially
affects its ability to conduct its business; and the Bank will have received a
certificate dated the Effective Date signed by an executive officer of USBN to
such effect.
(D) FAIRNESS OPINION. The Bank will have received, immediately prior
to the mailing of the Proxy Statement to the Bank's shareholders, an opinion of
Southard Financial to the effect that the financial terms of the Consolidation
are fair from a financial point of view to the Bank's shareholders.
ARTICLE VII. TERMINATION
7.1 EVENTS OF TERMINATION. This Plan may be terminated prior to the
Effective Date, either before or after receipt of required shareholder
approvals:
A-27
<PAGE> 114
(A) MUTUAL CONSENT. By the mutual consent of USBN, New Bank and the
Bank, if the Board of Directors of each so determines by vote of a majority of
the members of its entire board.
(B) BREACH. By USBN, New Bank, or the Bank, if its Board of
Directors so determines by vote of a majority of the members of its entire
Board, in the event of (A) a material breach by any other Party of any
representation or warranty in this Plan, which breach cannot be or has not been
cured within 30 days after written notice of the breach has been given to the
breaching Party, or (B) a material breach by any other Party of any of the
covenants or agreements in this Plan, which breach cannot be or has not been
cured within 30 days after written notice of the breach has been given to the
breaching Party.
(C) DELAY. By USBN, New Bank, or the Bank, if its Board of Directors
so determines by vote of a majority of the members of the entire board, in the
event that the Consolidation is not consummated by December 31, 1998; provided,
however, that no Party that is in material breach of any of the provisions of
this Plan will be entitled to terminate this Plan pursuant to this Section
7.1(C).
(D) NO SHAREHOLDER APPROVAL. By New Bank or the Bank, if its Board
of Directors so determines by a vote of a majority of the members of its entire
Board, if the shareholder approval contemplated by Section 6.1 is not obtained
at the Meeting or any adjournment(s) of the Meeting.
7.2 CONSEQUENCES OF TERMINATION.
(A) GENERAL CONSEQUENCES. Subject to Section 5.7 (Termination Fee),
in the event of the termination or abandonment of this Plan pursuant to the
provisions of Section 7.1, this Plan will become void and have no force or
effect, without any liability on the part of the Parties or any of their
respective directors or officers or shareholders with respect to this Plan.
(B) OTHER CONSEQUENCES. Notwithstanding anything in this Plan to the
contrary, no termination of this Plan will relieve any party of any liability
for any breach of this Plan or for any misrepresentation under this Plan or be
deemed to constitute a waiver of any remedy available for such breach or
misrepresentation. In any action or proceeding in connection with such breach or
misrepresentation, the prevailing party will be entitled to reasonable
attorneys' fees and expenses.
ARTICLE VIII. OTHER MATTERS
8.1 SURVIVAL. Only those agreements and covenants in this Plan that by
their express terms apply in whole or in part after the Effective Date will
survive the Effective Date. All other representations, warranties, and covenants
will be deemed only to be conditions of the Consolidation and will not survive
the Effective Date. If the Consolidation is abandoned and this Plan is
terminated, the provisions of Article VII will apply and the agreements of the
Parties in Sections 5.7(A), 5.7(B), 8.5 and 8.6 will survive such abandonment
and termination.
8.2 WAIVER; AMENDMENT. Prior to the Effective Date, any provision of
this Plan may be (A) waived in writing by the Party benefited by the provision,
or (B) amended or modified at any time (including the structure of the
transactions contemplated by this Plan) by an agreement in writing among the
Parties approved by their respective Boards of Directors and executed in the
same manner as this Plan, except that, after the vote by the shareholders of the
Bank, the consideration to be received by the shareholders of the Bank for each
share of Bank Common Stock will not thereby be altered. Nothing contained in
this Section 8.2 is intended to modify USBN's rights pursuant to Section 2.8.
A-28
<PAGE> 115
8.3 COUNTERPARTS. This Plan may be executed in one or more facsimile
counterparts, each of which will be deemed to constitute an original. This Plan
will become effective when one counterpart has been signed by each Party.
8.4 GOVERNING LAW. This Plan will be governed by, and interpreted in
accordance with, the laws of the State of Washington, except as federal law may
be applicable.
8.5 EXPENSES. Each Party will bear all expenses incurred by it in
connection with this Plan and the transactions contemplated by this Plan.
8.6 CONFIDENTIALITY. Except as otherwise provided in Section 5.6(B),
each of the Parties and their respective agents, attorneys and accountants will
maintain the confidentiality of all information provided in connection herewith
which has not been publicly disclosed.
8.7 NOTICES. All notices, requests and other communications hereunder to
a "Party" will be in writing and will be deemed to have been duly given when
delivered by hand, telegram, certified or registered mail, overnight courier,
telecopier or telex (confirmed in writing) to such Party at its address set
forth below or such other address as such Party may specify by notice to the
Parties.
USBN or New Bank United Security Bancorporation
N 9506 Newport Hwy
Spokane, WA 99218
Attn: Richard C. Emery
with a copy to: Stephen M. Klein, Esq.
Graham & Dunn, P.C.
1420 Fifth Avenue, 33rd Floor
Seattle, WA 98101-2390
Bank Grant National Bank
261 Basin Southwest
Ephrata, WA 98823
Attn: Lawrence C. Mitson
with a copy to: Jeffrey C. Gerrish, Esq.
Gerrish & McCreary, P.C.
700 Colonial Road, Suite 200
Memphis, TN 38117
8.8 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Plan
represents the entire understanding of the Parties with reference to
transactions contemplated by this Plan and supersedes any and all other oral or
written agreements previously made. Nothing in this Plan, expressed or implied,
is intended to confer upon any Person, other than the Parties or their
respective successors, any rights, remedies, obligations or liabilities under or
by reason of this Plan.
8.9 BENEFIT PLANS. Upon consummation of the Consolidation, all employees
of the Bank will be deemed to be at-will employees of the Consolidated
Association except for Lawrence C. Mitson who is a party to the Employment
Agreement. From and after the Effective Date, employees of the Bank, including
Lawrence C. Mitson, will generally be entitled to employee benefit programs
that, in the aggregate, are generally no less favorable to such employees than
those presently being provided to
A-29
<PAGE> 116
employees of the Bank. For the purpose of determining eligibility to participate
in such plans and the vesting of benefits under such plans (but not for the
accrual of benefits under such plans), USBN will give effect to years of service
with the Bank as if such service were with USBN or its Subsidiaries.
8.10 HEADINGS. The headings contained in this Plan are for reference
purposes only and are not part of this Plan.
IN WITNESS WHEREOF, the Parties have caused this instrument to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
GRANT NATIONAL BANK
By: /s/ Lawrence C. Mitson
-----------------------------------------
NAME: LAWRENCE C. MITSON
TITLE: PRESIDENT AND CHIEF EXECUTIVE OFFICER
UNITED SECURITY BANCORPORATION
By: /s/ Richard C. Emery
-----------------------------------------
NAME: RICHARD C. EMERY
TITLE: PRESIDENT, CHIEF OPERATING OFFICER
A-30
<PAGE> 117
STATE OF WASHINGTON )
) ss.
COUNTY OF GRANT )
On this 24th day of March, 1998, before me personally appeared LAWRENCE
C. MITSON, to me known to be the President and Chief Executive Officer of GRANT
NATIONAL BANK, the banking association that executed the foregoing instrument,
who acknowledged said instrument to be the free and voluntary act and deed of
said association, for the uses and purposes mentioned there, and who stated on
oath that he was authorized to execute said instrument, and that the seal
affixed (if any) was the official seal of said corporation.
IN WITNESS OF THE FOREGOING, I have set my hand and official seal to
this document as of the day and year first written above.
_________________________________________
NOTARY PUBLIC in and for the State of
Washington
_________________________________________
Print Name
Residing at______________________________
My commission expires:___________________
STATE OF WASHINGTON )
) ss.
COUNTY OF ____________)
On this 24th day of March, 1998, before me personally appeared RICHARD
C. EMERY, to me known to be the President and Chief Operating Officer of UNITED
SECURITY BANCORPORATION, the corporation that executed the foregoing instrument,
who acknowledged said instrument to be the free and voluntary act and deed of
said corporation, for the uses and purposes mentioned there, and who stated on
oath that he was authorized to execute said instrument, and that the seal
affixed (if any) was the official seal of said corporation.
IN WITNESS OF THE FOREGOING, I have set my hand and official seal to
this document as of the day and year first written above.
_________________________________________
NOTARY PUBLIC in and for the State of
Washington
_________________________________________
Print Name
Residing at______________________________
Title:___________________________________
My commission expires:___________________
A-31
<PAGE> 118
APPROVAL AND RATIFICATION BY
NEW GRANT NATIONAL BANK
The foregoing Agreement and Plan of Consolidation is hereby ratified and
confirmed in all respects.
NEW GRANT NATIONAL BANK
By________________________
Name: Richard C. Emery
Title: President and COO
STATE OF WASHINGTON )
) ss.
COUNTY OF ___________ )
On this ____ day of March , 1998, before me personally appeared RICHARD
C. EMERY, to me known to be the President and Chief Operating Officer of NEW
GRANT NATIONAL BANK, the banking association that executed the foregoing
instrument, who acknowledged said instrument to be the free and voluntary act
and deed of said association, for the uses and purposes mentioned there, and who
stated on oath that he was authorized to execute said instrument, and that the
seal affixed (if any) was the official seal of said corporation.
IN WITNESS OF THE FOREGOING, I have set my hand and official seal to
this document as of the day and year first written above.
_________________________________________
NOTARY PUBLIC in and for the State of
Washington
_________________________________________
Print Name
Residing at______________________________
My commission expires:___________________
A-32
<PAGE> 119
APPENDIX B
SECTION 215 OF THE NATIONAL BANKING ACT
(DISSENTING RIGHTS OF APPRAISAL UNDER FEDERAL LAW)
DISSENTING SHAREHOLDERS
(b) If a merger shall be voted for at the called meetings by the
necessary majorities of the shareholders of each association or State bank
participating in the plan of merger, and thereafter the merger shall be approved
by the Comptroller, any shareholder of any association or State bank to be
merged into the receiving association who has voted against such merger at the
meeting of the association or bank of which he is a stockholder, or has given
notice in writing at or prior to such meeting to the presiding officer that he
dissents from the plan of merger, shall be entitled to receive the value of the
shares so held by him when such merger shall be approved by the Comptroller upon
written request made to the receiving association at any time before thirty days
after the date of consummation of the merger, accompanied by the surrender of
his stock certificates.
VALUATION OF SHARES
(c) The value of the shares of any dissenting shareholder shall be
ascertained, as of the effective date of the merger, by an appraisal made by a
committee of three persons, composed of (1) one selected by the vote of the
holders of the majority of the stock, the owners of which are entitled to
payment in cash; (2) one selected by the directors of the receiving association;
and (3) one selected by the two so selected. The valuation agreed upon by any
two of the three appraisers shall govern. If the value so fixed shall not be
satisfactory to any dissenting shareholder who has requested payment, that
shareholder may, within five days after being notified of the appraised value of
his shares, appeal to the Comptroller, who shall cause a reappraisal to be made
which shall be final and binding as to the value of the shares of the appellant.
APPLICATION TO SHAREHOLDERS OF MERGING ASSOCIATIONS:
APPRAISAL BY COMPTROLLER; EXPENSES OF RECEIVING ASSOCIATION;
SALE AND RESALE OF SHARES; STATE APPRAISAL AND MERGER LAW
(d) If, within ninety days from the date of consummation of the merger,
for any reason one or more of the appraisers is not selected as herein provided,
or the appraisers fail to determine the value of such shares, the Comptroller
shall upon written request of any interested party cause an appraisal to be made
which shall be final and binding on all parties. The expenses of the Comptroller
in making the reappraisal or the appraisal, as the case may be, shall be paid by
the receiving
B-1
<PAGE> 120
association. The value of the shares ascertained shall be promptly paid to the
dissenting shareholders by the receiving association. The shares of stock of the
receiving association which would have been delivered to such dissenting
shareholders had they not requested payment shall be sold by the receiving
association at an advertised public auction, and the receiving association shall
have the right to purchase any of such shares at such public auction, if it is
the highest bidder therefor, for the purpose of reselling such shares within
thirty days thereafter to such person or persons and at such price not less than
par as its board of directors by resolution may determine. If the shares are
sold at public auction at a price greater than the amount paid to the dissenting
shareholders, the excess in such sale price shall be paid to such dissenting
shareholders. The appraisal of such shares of stock in any State bank shall be
determined in the manner prescribed by the law of the State in such cases,
rather than as provided in this section, if such provision is made in the State
law; and no such merger shall be in contravention of the law of the State under
which such bank is incorporated. The provisions of this subsection shall apply
only to shareholders of (and stock owned by them in) a bank or association being
merged into the receiving association.
B-2
<PAGE> 121
APPENDIX C
FAIRNESS OPINION
MERGER BY AND BETWEEN
UNITED SECURITY BANCORPORATION
AND
GRANT NATIONAL BANK
REPORT DATED
May 18, 1998
<PAGE> 122
May 18, 1998
Board of Directors
Grant National Bank
Ephrata, Washington
RE: FAIRNESS OPINION RELATIVE TO PROPOSED AGREEMENT OF GRANT
NATIONAL BANK, EPHRATA, WASHINGTON, TO MERGE WITH AND INTO
UNITED SECURITY BANCORPORATION, SPOKANE, WASHINGTON
Gentlemen:
The Board of Directors of Grant National Bank ("GNB") retained Southard
Financial, in its capacity as a financial valuation and consulting firm, to
render its opinion of the fairness, from a financial viewpoint, of the
acquisition of GNB by United Security Bancorporation ("USBN"). Southard
Financial and its principals have no past, present, or future contemplated
financial, equity, or other interest in either GNB or USBN. This opinion is
issued based upon financial data as of March 31, 1998.
APPROACH TO ASSIGNMENT
The approach to this assignment was to consider the following factors:
- A review of the financial performance and position of GNB and
the value of its common stock;
- A review of the financial performance and position of USBN and
the value of its common stock;
- A review of recent Bank merger transactions in the United States
and in Washington and surrounding states;
- A review of the current and historical market prices of bank
holding companies in Washington and surrounding states;
- A review of the investment characteristics of the common stock
of GNB and USBN;
- An evaluation of the impact of the merger on the expected return
to the current shareholders of GNB; and,
- An evaluation of other factors as was considered necessary to
render this opinion.
It is Southard Financial's understanding that the merger and resulting exchange
of the stock of USBN for the outstanding common stock of GNB constitutes a
non-taxable exchange for federal income tax purposes.
C-1
<PAGE> 123
Board of Directors
Grant National Bank
Page 2
DUE DILIGENCE REVIEW PROCESS
In performing this assignment, Southard Financial reviewed the documents
specifically outlined in Exhibit 1 pertaining to GNB and in Exhibit 2 pertaining
to USBN.
REVIEW OF GRANT NATIONAL BANK
Southard Financial visited with the management of GNB. Discussions included
questions regarding the current and historical financial position and
performance of GNB, its outlook for the future, and other pertinent factors.
Details pertaining to GNB are contained in Southard Financial's file.
REVIEW OF UNITED SECURITY BANCORPORATION
Southard Financial visited with the management of USBN in Spokane, Washington.
Discussions included questions regarding the current and historical financial
position and performance of USBN and its operating subsidiaries, its outlook for
the future, and other pertinent factors. Details pertaining to USBN are
contained in Southard Financial's file.
MERGER DOCUMENTATION
Southard Financial reviewed the Agreement and Plan of Consolidation dated March
24, 1998 by and between GNB and USBN (the "Agreement"). Southard Financial also
reviewed the merger terms with the management of GNB and with legal counsel for
GNB. The analysis in this opinion reflects the proposed merger terms as outlined
below. (See Exhibit 3, Terms of the Agreement.)
Southard Financial did not independently verify the information reviewed, but
relied on such information as being complete and accurate in all material
respects. Southard Financial did not make any independent evaluation of the
assets of USBN or GNB, but reviewed data supplied by the management of both
institutions.
MAJOR CONSIDERATIONS
Numerous factors were considered in the overall review of the proposed merger.
The review process included considerations regarding GNB, USBN, and the proposed
merger. The major considerations are as follows:
GRANT NATIONAL BANK
- Historical earnings;
- Historical dividend payments;
C-2
<PAGE> 124
Board of Directors
Grant National Bank
Page 3
- Outlook for future performance, earnings, and dividends;
- Economic conditions and outlook in GNB's market;
- The competitive environment in GNB's market;
- Comparisons with peer banks;
- Potential risks in the loan and securities portfolios;
- Recent minority stock transactions in GNB's common stock; and,
- Other such factors as were deemed appropriate in rendering this
opinion.
UNITED SECURITY BANCORPORATION
- Historical earnings;
- Historical dividend payments;
- Outlook for future performance, earnings, and dividends;
- Economic conditions and outlook in USBN's market;
- The competitive environment in USBN's market;
- Comparisons with peer banks;
- Potential risks in the loan and securities portfolios;
- Recent minority stock transactions in USBN's common stock; and,
- Other such factors as were deemed appropriate in rendering this
opinion.
COMMON FACTORS
- Historical and current bank merger pricing; and,
- Current market prices for minority blocks of common stocks of
regional bank holding companies in Washington and surrounding
states.
THE PROPOSED MERGER
- The terms of the Agreement as described herein;
- The specific pricing of the merger;
- Adequacy of the consideration paid to the shareholders of GNB;
- The assumption that the merger will be treated as a tax-free
exchange;
- The amount of debt and goodwill on the balance sheet of USBN and
the impact of the merger of GNB on USBN's capital and liquidity
positions;
- The historical dividend payments of USBN and the likely impact
on the dividend income of the current shareholders of GNB
(equivalency of cash dividends);
C-3
<PAGE> 125
Board of Directors
Grant National Bank
Page 4
- Pro-forma combined income statements for USBN post merger and
the expected returns to GNB shareholders (equivalency of
earnings yield);
- The market for minority blocks of USBN common stock; and,
- Other such factors as deemed appropriate.
OVERVIEW OF FAIRNESS ANALYSIS
In connection with rendering its opinion, Southard Financial performed a variety
of financial analyses, which are summarized below. Southard Financial believes
that its analyses must be considered as a whole and that considering only
selected factors could create an incomplete view of the analyses and the process
underlying the opinion. The preparation of a fairness opinion is a complex
process involving subjective judgments and is not susceptible to partial
analyses.
In its analyses, Southard Financial made numerous assumptions, many of which are
beyond the control of GNB and USBN. Any estimates contained in the analyses
prepared by Southard Financial are not necessarily indicative of future results
or values, which may vary significantly from such estimates. Estimates of value
of companies do not purport to be appraisals or necessarily reflect the prices
at which companies or their securities may actually be sold. None of the
analyses performed by Southard Financial was assigned a greater significance
than any other.
Based upon the merger terms and the estimated purchase price, GNB shareholders
will receive about 292.2% of GNB book value at March 31, 1998, 23.2 times GNB
earnings for the trailing twelve month period ended March 31, 1998, and 31.6% of
GNB assets at March 31, 1998. Based upon the review conducted by Southard
Financial, the pricing for GNB in the merger is at the higher end range or above
the multiples seen in recent bank acquisitions. Based upon the fairness analysis
performed by Southard Financial, the impact of the merger on the shareholders of
GNB is expected to be favorable.
OVERVIEW OF SUPPLEMENTAL ANALYSES
In addition to the fairness analysis, the following analyses are provided for
the benefit of the shareholders of GNB.
DIVIDEND YIELD ANALYSIS
In evaluating the impact of the proposed merger on the shareholders of GNB,
Southard Financial reviewed the dividend paying histories of GNB and USBN. Based
upon this review, given the lack of cash dividends at USBN, the impact of the
merger on the dividends received by GNB shareholders will be adverse.
C-4
<PAGE> 126
Board of Directors
Grant National Bank
Page 5
EARNINGS YIELD ANALYSIS
In evaluating the impact of the proposed merger on the shareholders of GNB,
Southard Financial determined that, based upon the proposed exchange ratio, the
shareholders of GNB would have seen an increase in earnings per share (defined
as post merger combined earnings per share times the exchange ratio), had the
merger been consummated by March 31, 1998. The analysis also suggests expected
higher earnings yields for GNB shareholders in subsequent years if the merger is
consummated.
BOOK VALUE ANALYSIS
In evaluating the impact of the proposed merger on the shareholders of GNB,
Southard Financial determined that the shareholders of GNB would have
experienced a positive impact on the book value of their investment had the
merger been consummated prior to March 31, 1998. Further, it is important to
note that the market price of USBN stock was approximately 260% of USBN's book
value at March 31, 1998.
FUNDAMENTAL ANALYSIS
Southard Financial reviewed the financial characteristics of GNB and USBN with
respect to profitability, capital ratios, liquidity, asset quality, and other
factors. Southard Financial compared GNB and USBN to a universe of publicly
traded banks and bank holding companies and to peer groups prepared by the
Federal Financial Institutions Examination Council (FFIEC). Southard Financial
found that the post-merger combined entity will have capital ratios and
profitability ratios near those of the public peer group and the FFIEC peer
group (predominantly non-publicly traded banks).
Further, the merger will result in the shareholders of GNB owning stock in a
company with more geographically diverse operations and with a more diversified
loan portfolio. Typically, diversification results in a lower risk investment.
Finally, the outlook is for continued USBN earnings growth at rates that exceed
the growth expected for GNB.
LIQUIDITY
Unlike GNB stock, USBN shares are traded on the NASDAQ market system. Further,
except in the case of certain officers, directors, and significant shareholders
of GNB, USBN shares received will be freely tradable with no restrictions.
C-5
<PAGE> 127
Board of Directors
Grant National Bank
Page 6
SUMMARY OF ANALYSES
The summary set forth does not purport to be a complete description of the
analyses performed by Southard Financial. The analyses performed by Southard
Financial are not necessarily indicative of actual values, which may differ
significantly from those suggested by such analyses. Southard Financial did not
appraise any individual assets or liabilities of GNB or USBN. Throughout the due
diligence process, all information provided by GNB, USBN, and third party
sources was relied upon by Southard Financial without independent verification.
Based upon the analyses discussed above and other analyses performed by Southard
Financial, the impact of the merger on the shareholders of GNB is expected to be
favorable.
FAIRNESS OPINION
Based upon the analyses of the foregoing and such matters as were considered
relevant, it is the opinion of Southard Financial that the terms of the offer
for the acquisition of Grant National Bank by United Security Bancorporation
pursuant to the Agreement and Plan of Consolidation are fair, from a financial
viewpoint, to the shareholders of Grant National Bank.
Thank you for this opportunity to be of service to the shareholders of Grant
National Bank.
Sincerely yours,
/s/ Southard Financial
SOUTHARD FINANCIAL
Attachments:
Exhibit 1: Grant National Bank, Document Review List
Exhibit 2: United Security Bancorporation, Document Review List
Exhibit 3: Terms of the Agreement and Plan of Consolidation
Exhibit 4: Comparison of the Merger Pricing to Public Market Transactions
Exhibit 5: Expected Impact of the Merger on the Shareholders of Grant
National Bank
C-6
<PAGE> 128
EXHIBIT 1
GRANT NATIONAL BANK
DOCUMENT REVIEW LIST
1. Consolidated Reports of Condition and Income ("Call Report") of Grant
National Bank for the period ended December 31, 1997.
2. Uniform Bank Performance Report ("UBPR") of Grant National Bank for the
periods ended December 31, 1996, and September 30, 1997.
3. Financial statements of Grant National Bank for the quarter ended March
31, 1998, contained in the draft of Form S-4 Registration Statement of
United Security Bancorporation, dated May 14, 1998.
4. Additional pertinent information deemed necessary to render this
opinion.
C-7
<PAGE> 129
EXHIBIT 2
UNITED SECURITY BANCORPORATION
DOCUMENT REVIEW LIST
1. Bank Holding Company Performance Report ("BHCPR") of United Security
Bancorporation for the periods ended December 31, 1996, and September
30, 1997.
2. SEC Form 10-KSB of United Security Bancorporation for the years ended
December 31, 1995-96, and a draft copy of SEC Form 10-KSB for the year
ended December 31, 1997.
3. SEC Form 10-QSB of United Security Bancorporation for the quarters ended
March 31, June 30, and September 30, 1996.
4. SEC Form 10-Q of United Security Bancorporation for the quarters ended
March 31, June 30, and September 30, 1997.
5. Annual Reports of United Security Bancorporation and Subsidiary for the
years ended December 31, 1992-96, including audited consolidated
financial statements prepared by McFarland & Alton, P.S., certified
public accountants, Spokane, Washington.
6. Analyst reports on United Security Bancorporation by Pacific Crest
Securities and Len Cereghino & Co.
7. Financial statements of United Security Bancorporation for the quarter
ended March 31, 1998, contained in the draft of Form S-4 Registration
Statement of United Security Bancorporation, dated May 14, 1998.
8. Additional pertinent information deemed necessary to render this
opinion.
C-8
<PAGE> 130
EXHIBIT 3
TERMS OF THE
AGREEMENT AND PLAN OF CONSOLIDATION
The discussion below is based upon our understanding of the key financial terms
that are contained in the Agreement and Plan of Consolidation by and between
United Security Bancorporation and Grant National Bank (the "Agreement").
In exchange for each share of GNB common stock outstanding, GNB shareholders
will receive newly issued shares of USBN common stock. No fractional shares
will be issued by USBN. GNB shareholders that would otherwise have been
entitled to fractional shares will be paid in cash based upon the Average
Closing Price of USBN stock (defined below). The exchange of cash for
fractional shares may have tax consequences
The Purchase Price shall be the sum of $10,000,000 plus the net undistributed
income of GNB from January 1, 1998 until closing plus any fees and expenses
paid by GNB in connection with obtaining audited financial statements as
requested by USBN. The net income of GNB will reflect any merger-related
expenses and the payment of Larry Mitson's severance agreement. Based upon
discussions with the parties to the merger, the total consideration is
expected to be approximately $10,050,000, or $304.55 per share for the 33,000
shares of GNB stock outstanding at closing.
The Average Closing Price is defined as the average trading price of USBN
common stock for the twenty-five trading days in which at least 2,000 shares
of USBN stock traded in the period ending five days prior to closing. There
is not a maximum or minimum Average Closing Price for USBN common stock for
purposes of the Agreement.
Each shareholder of GNB stock shall be entitled to receive, in exchange for
their shares, that number of shares of USBN stock calculated by dividing the
Purchase Price by the Average Closing Price, and by further dividing that
result by the number of shares of GNB stock that are issued and outstanding
at the effective date. All unexercised options to purchase GNB stock will be
converted into options for the purchase of USBN stock and will not effect the
price received by GNB shareholders.
In the unanticipated event of a sale of USBN prior to the consummation of the
merger, the exchange ratio will be locked in at the $10.0 million purchase
price based upon the average trading price of USBN common stock for an agreed
upon period prior to the public announcement of any such sale.
The parties intend for the merger to qualify as a "reorganization" under the
Internal Revenue Code. Thus, the exchange of GNB stock for USBN stock is
expected to qualify as a tax-free exchange for Federal income tax purposes.
C-9
<PAGE> 131
EXHIBIT 4
COMPARISON OF THE MERGER PRICING
TO PUBLIC MARKET TRANSACTIONS
Southard Financial compared the pricing terms of the Agreement to the pricing of
recent acquisitions of banks and bank holding companies across the United
States, and to the minority interest prices of publicly traded banks and bank
holding companies in the Northwest.
Pricing data for recent acquisitions of banks and bank holding companies
(nationwide and in Washington and contiguous states) is summarized as follows:
<TABLE>
<CAPTION>
# of Price/ Price/ Price/ Ret on
Transactions Announced in 1997(1) Banks Earnings Book Assets Equity
--------------------------------- ----- -------- ---- ------ ------
<S> <C> <C> <C> <C> <C>
All Transactions 119 23.2x 2.246x 22.38x 11.70%
Assets $0-$100 Million 48 23.9 2.054 23.17 10.22
Assets $100-$300 Million 41 21.8 2.420 22.40 13.12
Assets $300-$500 Million 15 20.6 2.181 20.31 13.95
Equity/Assets 6%-8% 28 21.5 2.585 19.15 14.30
Equity/Assets 8%-10% 46 22.5 2.235 19.78 11.60
Equity/Assets 10%-12% 25 20.7 2.278 24.63 12.54
ROA 0.00%-0.75% 21 31.3 1.843 16.57 6.41
ROA 0.75%-1.00% 29 27.7 2.263 22.69 9.42
ROA 1.00%-1.50% 55 19.8 2.380 23.33 13.13
Washington Banks 5 21.5 2.470 20.38 11.95
</TABLE>
<TABLE>
<CAPTION>
Transactions Announced in 1998(2)
---------------------------------
<S> <C> <C> <C> <C> <C>
All Transactions 33 23.3x 2.809x 27.76x 13.44%
Washington Banks 2 26.8 2.134 24.90 8.32
GNB(3) 23.2 2.922 31.63 12.59
</TABLE>
(1) Through December 31; only includes transactions for Banks with
assets under $1 billion for which sufficient data was available
(2) Through March 31; only includes transactions for Banks with
assets under $1 billion for which sufficient data was available
(3) Based upon Purchase Price of $10,050,000, GNB shares outstanding
of 33,000, GNB trailing 12-month earnings of $13.12 per share,
GNB March 31, 1998 book value of $104.24 per share, and GNB
assets of $31.778 million at March 31, 1998.
Based upon the assumptions noted in the table above, the merger of GNB into USBN
will take place at 23.2 times GNB trailing twelve month earnings, 292.2% of
March 31, 1998 GNB book value, and 31.63% of GNB assets at March 31, 1998. The
price/book value ratio, price/earnings ratio, and price/assets multiple are all
near the top or above the range of recent market multiples.
C-10
<PAGE> 132
EXHIBIT 4
COMPARISON OF THE MERGER PRICING
TO PUBLIC MARKET TRANSACTIONS
(CONTINUED)
In determining the attractiveness of owning USBN stock, it is important to
examine USBN's recent pricing in comparison with recent pricing multiples for
publicly traded banks and bank holding companies. This pricing data is presented
below as of March 31, 1998, the most recent quarter-end for the banking
industry.
<TABLE>
<CAPTION>
Price/ Price/ Current Current
Publicly Traded Banks(1) Earnings Book Val ROAE Yield
------------------------ -------- -------- ------ -----
<S> <C> <C> <C> <C>
All Banks (156) 19.11x 247.6% 11.88% 1.69%
Banks Under $100MM Mkt Cap (51) 18.24 214.0 10.93 1.30
Washington Banks (1) 20.52 313.0 11.29 1.37
USBN-3/31/98 Price ($21.75) 18.59(2) 255.3(3) 15.8(6) 0.00
USBN-5/14/98 Price ($22.25) 14.83(4) 261.2(5) 15.8(6) 0.00
</TABLE>
(1) As of March 31, 1998; subject to certain screens performed by
Southard Financial
(2) Based upon adjusted trailing 12-month USBN earnings through
March 31, 1998 of $1.17 per share
(3) Based upon reported March 31, 1998 USBN book value of $8.52 per
share
(4) Based upon estimated 1998 USBN adjusted earnings of $1.50 per
share
(5) Based upon reported March 31, 1998 USBN book value of $8.52 per
share
(6) Unadjusted for extraordinary expenses
Based upon an analysis of the data provided above, USBN's price/book value
multiple and return on average equity are both above the range of other publicly
traded banks. However, unlike many of its peers, USBN does not pay cash
dividends to its shareholders. Based upon adjusted trailing twelve month
earnings of $1.17 per share, the price/earnings multiple is within the range of
other public banks; however, based on projected 1998 earnings of $1.50 per
share, USBN stock is priced at or below the level of other publicly traded
banks.
C-11
<PAGE> 133
EXHIBIT 5
EXPECTED IMPACT OF THE MERGER
ON THE SHAREHOLDERS OF
GRANT NATIONAL BANK
The following is a summary of the various analyses undertaken in conjunction
with this fairness opinion. This summary is not intended to represent all
analyses performed by Southard Financial, but is presented here for the
convenience of GNB and its shareholders.
Shares of USBN common stock had been trading in the range of $22.00 to $23.00
per share as of the date of this fairness opinion. Assuming for illustration
purposes only, if $22.00 is used as the Average Closing Price in the merger, GNB
shareholders would receive 13.84 shares of USBN stock for each share of GNB
stock exchanged under the Agreement. This is determined as follows: the Purchase
Price ($10,050,000) divided by the Average Closing Price of USBN stock (assumed
to be $22.00 per share) divided by the number of GNB shares outstanding (33,000)
equals 13.84 shares of USBN stock.
EARNINGS GNB reported earnings of $12.97 per share in 1997. USBN reported
earnings of $1.20 per share in 1997. However, reported USBN earnings
do not reflect the impact of a recovery from a prior period
embezzlement. Adjusted for the impact of the embezzlement, USBN
earnings were $1.07 per share. Based upon the exchange ratio as
derived above, had the merger been consummated prior to January 1,
1997, each former GNB share would have earned $14.81 in 1997 (USBN
1997 adjusted earnings of $1.07 times 13.84 equivalent shares). This
represents a 14.2% increase over GNB's reported earnings for 1997.
GNB's trailing twelve-month earnings for the period ended March 31,
1998 was $13.12 per share, while USBN earned $1.30 per share over
the same period. Adjusted for the impact of the embezzlement
recovery, USBN earnings were $1.17 per share. Based upon the
exchange ratio as derived above, had the merger been consummated
prior to April 1, 1997, each former GNB share would have earned
$16.19 in the twelve months ended March 31, 1998 (USBN adjusted
trailing twelve month earnings of $1.17 times 13.84 equivalent
shares). This represents a 23.4% increase over GNB's trailing
twelve-month earnings for period ended March 31, 1998.
GNB's management projects earnings of $15.15 per share in 1998,
while USBN is expected to earn approximately $1.50 per share in 1998
on a pro-forma consolidated basis (as if the proposed transaction
had occurred as of January 1, 1998). Based upon the exchange ratio
as derived above, had the merger been consummated prior to January
1, 1998, each former GNB share would be expected to earn $20.76
(USBN expected 1998 earnings of $1.50 times 13.84 equivalent
shares). This represents an increase of 37.0% over GNB's expected
1998 earnings.
C-12
<PAGE> 134
EXHIBIT 5
EXPECTED IMPACT OF THE MERGER
ON THE SHAREHOLDERS OF
GRANT NATIONAL BANK
(CONTINUED)
DIVIDENDS The shareholders of GNB received cash dividends of $1.50 per share
in 1997, while USBN shareholders received no cash dividends. Thus,
the impact of the merger on the cash dividends to be received by GNB
shareholders is adverse.
BOOK VALUE Reported book value of GNB was $102.91 per share at December
31, 1997. Reported book value of USBN at December 31, 1997 was $8.16
per share. Had the merger been consummated prior to December 31,
1997, each former GNB share would have book value of $112.93 (USBN
book value of $8.16 per share times 13.84 equivalent shares). This
represents an increase of 9.7% over of GNB's book value at December
31, 1997.
Reported book value of GNB was $104.24 per share at March 31, 1998.
Reported book value of USBN at March 31, 1998 was $8.52 per share.
Had the merger been consummated prior to March 31, 1998, each former
GNB share would have book value of $117.92 (USBN book value of $8.52
per share times 13.84 equivalent shares). This represents an
increase of 13.1% over of GNB's book value at March 31, 1998.
The favorable impact on the book value of GNB shares reflects the
fact that the proposed transaction is at 270% of GNB's year-end book
value and about 290% of book value as of March 31, 1998, while USBN
common shares are trading at approximately 260% of book value.
LIQUIDITY Unlike GNB stock, USBN shares are registered with the SEC, and are
traded on the NASDAQ market. Further, except in the case of
officers, directors, and certain significant shareholders
(Affiliates) of GNB, USBN shares received will be freely tradable
with no restrictions. It should be noted that the market for USBN
shares is relatively thinly traded, with average daily trading
volume of about 2,900 shares during the first three months of 1998.
Further, in a typical month there are a few days when no trades take
place.
Based upon the analysis discussed above, and other analyses performed by
Southard Financial, the impact of the merger on the shareholders of GNB Bank is
expected to be favorable.
C-13
<PAGE> 135
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 23B.08.500 through 23B.08.600 RCW contain specific
provisions relating to indemnification of directors and officers of Washington
corporations. In general, the statute provides that (i) a corporation must
indemnify a director or officer who is wholly successful in his defense of a
proceeding to which he is a party because of his status as such, unless limited
by the articles of incorporation, and (ii) a corporation may indemnify a
director or officer if he is not wholly successful in such defense, if it is
determined as provided in the statute that the director meets a certain standard
of conduct, provided when a director is liable to the corporation, the
corporation may not indemnify him. The statute also permits a director or
officer of a corporation who is a party to a proceeding to apply to the courts
for indemnification or advance of expenses, unless the articles of incorporation
provide otherwise, and the court may order indemnification or advance of
expenses under certain circumstances set forth in the statute. The statute
further provides that a corporation may in its articles of incorporation or
bylaws or by resolution provide indemnification in addition to that provided by
the statute, subject to certain conditions set forth in the statute.
Pursuant to USBN's Bylaws, USBN will indemnify the officers,
directors and employees of USBN with respect to expenses, settlements,
judgments, and fines in suits in which such person has been made a party by
reason of the fact that he or she is or was an officer, director or employee of
USBN. No such indemnification may be given if the acts or omissions of the
person are adjudged to have been taken (or failed to have been taken) in
negligence or bad faith.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The exhibits are listed on the accompanying "Exhibit Index."
(b) Financial Statement Schedules. None.
(c) The opinion of the financial advisor is set forth as Appendix C
to this Prospectus/Proxy Statement.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of
the 1933 Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement; and
II-1
<PAGE> 136
(iii) Include any additional or changed information on the
plan of distribution;
(2) For determining liability under the 1933 Act, to treat each
such post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering.
(3) To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE> 137
SIGNATURES
Pursuant to the requirements of the 1933 Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Spokane, Washington on May 26, 1998.
UNITED SECURITY BANCORPORATION
Date: May 26, 1998 By: /s/ WILLIAM C. DASHIELL
---------------------------------------
William C. Dashiell
Chief Executive Officer
By: /s/ RICHARD C. EMERY
---------------------------------------
Richard C. Emery, President and
Chief Operating Officer
POWER OF ATTORNEY
Each person whose individual signature appears below hereby
authorizes and appoints William C. Dashiell and Richard C. Emery, and each of
them, with full power of substitution and full power to act without the other,
as his true and lawful attorney-in-fact and agent to act in his name, place and
stead and to execute in the name and on behalf of each person, individually and
in each capacity stated below, and to file any and all amendments to this
Registration Statement, including any and all post-effective amendments.
Pursuant to the requirements of the 1933 Act, this Power of Attorney
has been signed by the following persons in the capacities indicated, on the
26th day of May, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ WILLIAM C. DASHIELL Chairman and Chief Executive Officer
- -----------------------------
William C. Dashiell (Principal Executive Officer)
/s/ RICHARD EMERY President, Chief Operating Officer and Director
- -----------------------------
Richard Emery
/s/ CHAD GALLOWAY Vice President & Chief Financial Officer
- -----------------------------
Chad Galloway (Principal Financial Officer)
/s/ RAND ELLIOTT Director
- -----------------------------
Rand Elliott
</TABLE>
II-3
<PAGE> 138
<TABLE>
<S> <C>
/s/ ROBERT J. GARDNER Director
- -----------------------------
Robert J. Gardner
/s/ ROBERT L. GOLOB Director
- -----------------------------
Robert L. Golob
/s/ KEITH P. SATTLER Director
- -----------------------------
Keith P. Sattler
/s/ DANN SIMPSON Director
- -----------------------------
Dann Simpson
/s/ NORMAN J. TRAAEN Director
- -----------------------------
Norman J. Traaen
/s/ RONALD WACHTER Director
- -----------------------------
Ronald Wachter
</TABLE>
II-4
<PAGE> 139
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
<S> <C>
2.1 Agreement and Plan of Consolidation between USBN and GNB dated as of
March 24, 1998, (included in this Registration Statement as Appendix A
to the Prospectus/Proxy Statement).
5.1 Opinion of Graham & Dunn PC as to the legality of securities.
8.1 Form of Opinion of Graham & Dunn PC as to federal income tax
consequences.
10.1 Employment Agreement between GNB and Lawrence T. Mitson dated as of
March 24, 1998.
10.2 NonCompetition Agreement between USBN and Directors of GNB dated as of
March 24, 1998.
10.3 Voting Agreement of GNB Directors.
21.1 Subsidiaries of USBN.
23.1 Consent of Graham & Dunn PC, as to its legality of securities opinion
(contained in its opinion filed as Exhibit 5.1).
23.2 Consent of Graham & Dunn PC as to its tax opinion (contained in its
opinion filed as Exhibit 8.1).
23.3 Consent of Moss Adams LLP, USBN's Independent Auditors.
23.4 Consent of McFarland & Alton P.S., USBN's former Independent Auditors.
23.5 Consent of LeMaster & Daniels PLLC, GNB's Independent Auditors.
23.6 Consent of Southard Financial
24.1 Power of Attorney (included in the signature page of this Registration
Statement)and certified resolutions of the USBN Board.
99.1 Opinion of Southard Financial (included as Appendix C to the
Prospectus/Proxy Statement).
99.2 Form of proxy to be mailed to the stockholders of GNB.
</TABLE>
II-5
<PAGE> 1
EXHIBIT 5.1
May 29, 1998
The Board of Directors of
United Security Bancorporation
9506 North Newport Highway
Spokane, Washington 99218-1200
RE: ISSUANCE OF SECURITIES BY UNITED SECURITY BANCORPORATION
Ladies and Gentlemen:
We are acting as counsel for United Security Bancorporation ("USBN"), a
Washington corporation and bank holding company, in connection with the
registration under the Securities Act of 1933, as amended (the "Act"), of up to
470,000 shares of USBN common stock, no par value per share (the "Shares"), to
be issued in accordance with the Agreement and Plan of Consolidation dated as
of March 24, 1998 (the "Plan") between USBN and Grant National Bank (the
"Bank"). A Registration Statement on Form S-4 (the "Registration Statement") is
being filed under the Act with respect to the offering of the Shares pursuant
to the Plan.
In connection with the offering of the Shares, we have examined: (i) the
Plan; (ii) the Registration Statement; and (iii) such other documents as we have
deemed necessary to form the opinion expressed below. As to various questions of
fact material to such opinion, where relevant facts were not independently
established, we have relied upon statements of officers of USBN or
representations and warranties of USBN contained in the Plan.
Based and relying solely upon the foregoing, we advise you that in our
opinion, the Shares, or any portion thereof, when issued pursuant to the Plan,
after the Registration Statement has become effective under the Act, will be
validly issued under the laws of the State of Washington and will be fully paid
and nonassessable.
<PAGE> 2
May 29, 1998
Page 2
Consent is hereby given to the filing of this opinion as an exhibit to
the Registration Statement and to the legal reference to this firm under the
caption "Certain Legal Matters" as having passed upon the validity of the
Shares. In giving this consent, we do not admit that we are experts within the
meaning of the Act.
Very truly yours,
GRAHAM & DUNN
<PAGE> 1
EXHIBIT 8.1
_______________, 1998
United Security Bancorporation Grant National Bank
9506 North. Newport Highway 261 Basin S.W.
Spokane, Washington 99218-1200 Ephrata, Washington 98823
RE: CONSOLIDATION -- TAX CONSEQUENCES
Ladies and Gentlemen:
This letter responds to your request for our opinion as to certain of
the federal income tax consequences of the proposed consolidation (the
"Consolidation") of New Grant National Bank ("New Bank"), a wholly owned
subsidiary of United Security Bancorporation ("USB"), with Grant National Bank
("Grant"), pursuant to which each outstanding share of common stock of Grant
will be exchanged for shares of common stock of USB and Grant will become a
wholly owned subsidiary of USB.
We have acted as legal counsel to USB in connection with the
Consolidation. For the purpose of rendering this opinion, we have examined and
relied upon originals, certified copies, or copies otherwise identified to our
satisfaction as being true copies of the originals of, the following documents,
including all exhibits and schedules attached to them:
a. The Agreement and Plan of Consolidation, dated as of March 24,
1998, between Grant and USB on behalf of New Bank (the "Plan");
b. Form S-4 Registration Statement of USB filed with the Securities
and Exchange Commission on May ___, 1998;
c. The Proxy Statement of Grant (included as part of the
Registration Statement);
d. The factual representations set forth in a letter from Grant and
USB; and
e. Such other documents, instruments, records and information
pertaining to the Consolidation as we have deemed necessary for
rendering our opinion.
We have assumed, without independent investigation or review, the
accuracy and completeness of the facts and representations and warranties
contained in those documents or otherwise made known to us, and that the
Consolidation will be effected in accordance with the terms of the Plan.
<PAGE> 2
United Security Bancorporation
Grant National Bank
_______________, 1998
Page 2
We have assumed that in connection with the Consolidation and pursuant
to the Plan, each share of Grant's voting common stock will be exchanged for
____ shares of USB's voting common stock, and USB will become the sole
shareholder of the consolidated entity. No fractional shares will be involved.
Shareholders of Grant who perfect their dissenters rights under state law will
be paid the cash value for their Grant shares. Such payments will be made by
Grant without reimbursement by USB. Upon the consummation of the Consolidation,
the consolidated entity will continue business under the name of Grant National
Bank and using substantially all of its assets.
Based upon our review of the facts described above and our analysis of
the law, and subject to the qualifications and limitations set forth herein, and
the completion of the transactions described in the matter contemplated, it is
our opinion that:
1. The consolidation of New Bank and Grant solely for USB voting
common stock, as described above, will constitute a
reorganization within the meaning of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "Code"). Grant,
New Bank and USB will each be a "party to a Consolidation"
within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by Grant shareholders upon
the receipt of USB voting common stock solely in exchange for
their shares of Grant stock, pursuant to Section 354(a)(1) of
the Code.
3. The basis of the shares of USB voting common stock received by
Grant shareholders will be the same as the basis of Grant stock
surrendered in exchange therefor, pursuant to Section 358(a)(1)
of the Code.
4. The holding period of the shares of USB voting common stock
received by Grant shareholders will include the holding period
during which Grant stock surrendered in exchange therefor was
held, provided that the shares of Grant stock were held as a
capital asset in the hands of the exchanging shareholders on the
date of the exchange, pursuant to Section 1223(1) of the Code.
5. Where cash is received by any dissenting shareholder of Grant in
exchange for the surrender of all of such shareholder's Grant
stock, the cash will be treated as received by the shareholder
as a distribution in redemption of his or her Grant stock,
subject to the provisions and limitations of Section 302 of the
Code.
6. No gain or loss will be recognized by New Bank upon the transfer
of its assets to the consolidated entity, pursuant to Sections
361 and 357(a) of the Code.
<PAGE> 3
United Security Bancorporation
Grant National Bank
_______________, 1998
Page 3
7. The basis of the assets of New Bank acquired by the consolidated
entity will be the same as the basis of New Bank in the assets
immediately before the Consolidation, pursuant to Section 362(b)
of the Code.
8. The holding period of New Bank assets acquired by the
consolidated entity will include the period such assets were
held by New Bank, pursuant to Section 1223(2) of the Code.
9. No gain or loss will be recognized by the consolidated entity
upon the receipt by the consolidated entity of the assets of New
Bank and Grant, as described above.
Our opinion represents only our best legal judgment as to the probable
federal income tax consequences of the transaction described, based upon
existing law. Our opinion is not intended to be a conclusive statement as to all
of the tax consequences of the transaction and is expressly limited to the
matters addressed. Further, our opinion is not binding upon the Internal Revenue
Service (the "IRS") or any court and has no official status of any kind, and no
private ruling regarding the matters discussed has been or will be requested
from the IRS. The IRS has ruled in a number of private rulings that transactions
substantially identical to the Consolidation result in tax consequences
consistent with those described in this opinion. Although such rulings do not
constitute authority on which we can rely in expressing our opinion, such
rulings generally do reflect the position of the IRS. Each shareholder, however,
is urged to consult with his or her own tax advisor with respect to their
individual tax situation. Our opinion is intended solely for the benefit of
Grant, USB and the shareholders of Grant, and may not be relied upon for any
other purpose or by any other person or entity or made available to any other
person or entity without our prior written consent.
Very truly yours,
GRAHAM & DUNN
<PAGE> 1
EXHIBIT 10.1
GRANT NATIONAL BANK
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of March 24, 1998,
between GRANT NATIONAL BANK ("Bank") and LAWRENCE C. MITSON ("Officer") takes
effect on the effective date of the Consolidation ("Effective Date").
RECITALS
A. UNITED SECURITY BANCORPORATION ("USBN") has entered into a Plan and
Agreement of Consolidation (the "Plan") on its own behalf and on behalf of a
national banking association to be formed by it under the title "New Grant
National Bank" ("New Bank") with the Bank, pursuant to which New Bank will be
consolidated with the Bank under the charter of the Bank ("Consolidation"). As a
result of the Consolidation, the Bank will be a wholly owned subsidiary of USBN.
B. Before the Consolidation, Officer has served as President and CEO of
the Bank.
C. USBN and the Bank desire Officer to continue his employment at the
Bank under the terms and conditions of this Agreement, and Officer desires to
continue his employment at the Bank under the terms and conditions of this
Agreement.
AGREEMENT
The parties agree as follows.
1. EMPLOYMENT. The Bank agrees to employ Officer and Officer accepts
employment by the Bank on the terms and conditions set forth in this Agreement.
Officer's title will be "President and Chief Executive Officer" of the Bank.
During the Term of this Agreement, Officer will serve as a director of the Bank.
2. EFFECTIVE DATE AND TERM.
(a) Effective Date. This Agreement is effective as of the Effective
Date.
(b) Term. The term of this Agreement ("Term") is three (3) years,
beginning on the Effective Date.
(c) Abandonment or Termination of the Consolidation. If the Plan
terminates before closing of the Consolidation, this Agreement
will not become effective and will be void.
3. DUTIES. The Bank will employ Officer as its President and Chief
Executive Officer. In the event that USBN elects to merge the Bank into an
affiliate of USBN, then the title and duties of Executive with respect to the
entity surviving such merger shall be determined by the Chief Executive or
Operating Office of USBN or his or her designee. Officer will faithfully and
diligently perform his assigned duties, which are as follows:
(a) Bank Performance. Officer will be responsible for all aspects
of the Bank's performance, including without limitation, directing that
daily operational and managerial matters are performed in a manner
consistent with USBN's and the Bank's policies. Officer will exert his
best efforts and devote all his working time and attention to Bank's
affairs. Officer may delegate responsibility for the day-to-day
operation of Bank's business to the Executive Vice
1
<PAGE> 2
President subject to the general direction and control of Bank's board
of directors; however, he will continue to hold ultimate responsibility
for the Bank's performance. Officer will perform the duties of President
consistent with the Bank's bylaws and the direction of its board of
directors.
(b) Integration with USBN. Officer will participate in the
integration of the Bank's commercial banking activities with USBN's
existing operations.
(c) Development and Preservation of Business. Officer will be
responsible for the development and preservation of banking
relationships and other business development efforts (including
appropriate civic and community activities) in Grant County, Washington.
(d) Report to Board. Officer will report directly to the Chief
Operating Officer of USBN and to the Board of Directors of the Bank. The
Bank's board of directors may, from time to time, modify Officer's title
or add, delete, or modify Officer's performance responsibilities to
accommodate management succession, as well as any other management
objectives of the Bank or of USBN. Officer will assume any additional
positions, duties, and responsibilities as may reasonably be requested
of him with or without additional compensation, as appropriate and
consistent with Sections 3(a), 3(b) and 3(c) of this Agreement.
4. EXTENT OF SERVICES. Officer will at all times faithfully, industriously,
and to the best of his ability, experience and talents, perform all the duties
that may be required of and from the Bank's President under this Agreement. To
the extent that such activities do not interfere with his duties under Section
3, Officer may participate in other businesses as a passive investor, but (a)
Officer may not actively participate in the operation or management of those
businesses, and (b) Officer may not, without the Bank's prior written consent,
make or maintain any investment in a business with which the Bank and/or USBN
has an existing competitive or commercial relationship.
5. SALARY. Initially, Officer will receive a salary of $98,600 per year,
to be paid monthly in accordance with the Bank's regular payroll schedule. The
Bank will annually review Officer's compensation, in connection with the advice
and recommendations of the Chief Operating Officer of USBN.
6. INCENTIVE COMPENSATION. Each year during the Term, the Bank's board of
directors, subject to ratification by USBN's board of directors, will determine
the amount of bonus, if any, to be paid by the Bank to Officer for that year. In
making this determination, the Bank's board of directors will consider factors
such as Officer's performance of his duties and the safety, soundness and
profitability of the Bank. Officer's bonus, if any, will reflect Officer's
contribution to the performance of the Bank during the year, also taking into
account the nature and extent of incentive bonuses paid to comparable senior
officers at USBN and its banking subsidiaries. This bonus will be paid to
Officer no later than January 31 of the year following the year in which the
bonus is earned by Officer.
7. BENEFITS. Officer will be entitled to participate in any group life
insurance, disability, health and accident insurance plans, profit sharing and
pension plans and in other employee fringe benefit programs the Bank or USBN may
have in effect from time to time for its similarly situated employees, in
accordance with and subject to any policies adopted by the Bank's or USBN's
board of directors with respect to the plans or programs. Such programs may
include without limitation, any incentive or employee stock option plan,
deferred compensation plan, 401(k) plan, Supplemental Executive Retirement Plan
(SERP), and USBN's senior management salary continuation program. Neither the
Bank nor USBN through this Agreement obligates itself to make any particular
benefits available to its employees.
2
<PAGE> 3
8. BUSINESS EXPENSES. The Bank will provide Officer with a monthly car
allowance of $500. The Bank will reimburse Officer for ordinary and necessary
expenses (including, without limitation, travel, entertainment, and similar
expenses) incurred in performing and promoting the Bank's business. Officer will
present from time to time itemized accounts of these expenses, subject to any
limits of Bank policy or the rules and regulations of the Internal Revenue
Service.
9. TERMINATION OF EMPLOYMENT.
(a) Termination By Bank for Cause. If the Bank terminates
Officer's employment for Cause (defined below) or Officer terminates his
employment without Good Reason (defined below) before the Term of this
Agreement expires, the Bank will pay Officer the salary earned and
expenses reimbursable under this Agreement incurred through the date of
his termination. Officer will have no right to receive compensation or
other benefits for any period after termination under this Section 9(a),
and Officer will be subject to the noncompetition and nonsolicitation
requirements of Section 11 through the remainder of the Term and for the
12-month period following the Term.
(b) Other Termination By Bank. If the Bank terminates Officer's
employment without Cause or Officer terminates his employment for Good
Reason (defined below) before the Term of this Agreement expires, the
Bank will pay Officer for the remainder of the Term the compensation and
other benefits he would have been entitled to if his employment had not
terminated, and Officer will be subject to the noncompetition and
nonsolicitation requirements of Section 11 through the remainder of the
Term only.
(c) Death or Disability. This Agreement terminates (1) if Officer
dies or (2) if Officer is unable to perform his duties and obligations
under this Agreement for a period of 90 days as a result of a physical
or mental disability arising at any time during the term of this
Agreement, unless with reasonable accommodation Officer could continue
to perform his duties under this Agreement and making these
accommodations would not require the Bank to expend any funds. If
termination occurs under this Section 9(c), Officer or his estate will
be entitled to receive all compensation and benefits earned and expenses
reimbursable through the date Officer's employment terminated.
(d) Return of Bank Property. If and when Officer ceases, for any
reason, to be employed by the Bank, Officer must return to the Bank all
keys, pass cards, identification cards and any other property of the
Bank or USBN. At the same time, Officer also must return to the Bank all
originals and copies (whether in hard copy, electronic or other form) of
any documents, drawings, notes, memoranda, designs, devices, diskettes,
tapes, manuals, and specifications which constitute proprietary
information or material of the Bank or USBN. The obligations in this
paragraph include the return of documents and other materials which may
be in his desk at work, in his car, in place of residence, or in any
other location under his control.
(e) Cause. "Cause" means any one or more of the following:
(i) Willful misfeasance or gross negligence in the
performance of Officer's duties;
(ii) Conviction of a crime in connection with his
duties;
(iii) Conduct demonstrably and significantly harmful
to the Bank, as reasonably determined on the
advice of legal counsel by the USBN's or the
Bank's board of directors; or
3
<PAGE> 4
(iv) Permanent disability, meaning a physical or
mental impairment which renders Officer
incapable of substantially performing the duties
required under this Agreement, and which is
expected to continue rendering Officer so
incapable for the reasonably foreseeable future.
(f) Good Reason. "Good Reason" means only any one or more of
the following:
(i) Reduction, without Officer's consent, of
Officer's salary or reduction or elimination of
any compensation or benefit plan benefiting
Officer, unless the reduction or elimination is
generally applicable to substantially all Bank
employees (or employees of a successor or
controlling entity of the Bank) formerly
benefitted;
(ii) The assignment to Officer without his consent of
any authority or duties materially inconsistent
with Officer's position as of the date of this
Agreement or the substantive diminishment of his
duties; or
(iii) A relocation or transfer of Officer's principal
place of employment that would require Officer
to commute on a regular basis more than 30 miles
each way from Ephrata, Washington.
10. CONFIDENTIALITY. Officer will not, after the date this Agreement is
signed, including during and after its Term, use for his own purposes or
disclose to any other person or entity any confidential business information
concerning the Bank or USBN or their business operations, unless (1) the Bank or
USBN consents to the use or disclosure of their respective confidential
information; (2) the use or disclosure is consistent with Officer's duties under
this Agreement or (3) disclosure is required by law or court order. For purposes
of this Agreement, confidential business information includes, without
limitation, various confidential information concerning all aspects of current
and future operations, nonpublic information on investment management practices,
marketing plans, pricing structure and technology of either the Bank or USBN,
whether or not such information qualifies as a "trade secret" under applicable
laws. Officer will also treat the terms of this Agreement as confidential
business information.
11. NONCOMPETITION. Subject to the restrictions in Sections 9(a) and 9(b)
above, during the Term and the terms of any extensions or renewals of this
Agreement (the "Employment Period") and for the 12-month period following
termination of the Employment Period, Officer will not, directly or indirectly,
as a shareholder, "founder," director, officer, employee, partner, agent,
consultant, lessor, creditor or otherwise:
(a) provide management, supervisory or other services to any
person or entity engaged or, in the case of a business to be formed or
in formation, that will engage in any business in Grant County,
Washington which is competitive with the business of the Bank or USBN or
any of their subsidiaries as conducted during the Employment Period;
(b) persuade or entice, or attempt to persuade or entice, any
employee of the Bank or USBN to terminate his/her employment with the
Bank or USBN or to participate in any manner in the formation of any
business referenced under Section 11(a); or
(c) persuade or entice or attempt to persuade or entice, any
person or entity to terminate, cancel, rescind or revoke its business or
contractual relationships with the Bank or USBN.
4
<PAGE> 5
12. ENFORCEMENT.
(a) The Bank and Officer stipulate that, in light of all of the
facts and circumstances of the relationship between Officer and the
Bank, the agreements referred to in Sections 10 and 11 (including
without limitation their scope, duration and geographic extent) are fair
and reasonably necessary for the protection of the Bank's and USBN's
confidential information, goodwill and other protectable interests. If a
court of competent jurisdiction should decline to enforce any of those
covenants and agreements, Officer and the Bank will request the court to
reform these provisions to restrict Officer's use of confidential
information and Officer's ability to compete with the Bank and USBN to
the maximum extent, in time, scope of activities, and geography, the
court finds enforceable.
(b) Officer acknowledges the Bank and USBN will suffer immediate
and irreparable harm that will not be compensable by damages alone if
Officer repudiates or breaches any of the provisions of Sections 10 or
11 or threatens or attempts to do so. For this reason, under these
circumstances, the Bank, in addition to and without limitation of any
other rights, remedies or damages available to it at law or in equity,
will be entitled to obtain temporary, preliminary and permanent
injunctions in order to prevent or restrain the breach, and the Bank
will not be required to post a bond as a condition for the granting of
this relief.
13. COVENANTS. Officer specifically acknowledges the receipt of adequate
consideration for the covenants contained in Sections 10 and 11 and that the
Bank is entitled to require him to comply with these Sections. These Sections
will survive termination of this Agreement. Officer represents that if his
employment is terminated, whether voluntarily or involuntarily, Officer has
experience and capabilities sufficient to enable Officer to obtain employment in
areas which do not violate this Agreement and that the Bank's or USBN's
enforcement of a remedy by way of injunction will not prevent Officer from
earning a livelihood.
14. ARBITRATION.
(a) Arbitration. At either party's request, the parties must
submit any dispute, controversy or claim arising out of or in connection
with, or relating to, this Agreement or any breach or alleged breach of
this Agreement, to arbitration under the American Arbitration
Association's rules then in effect (or under any other form of
arbitration mutually acceptable to the parties). A single arbitrator
agreed on by the parties will conduct the arbitration. If the parties
cannot agree on a single arbitrator, each party must select one
arbitrator and those two arbitrators will select a third arbitrator.
This third arbitrator will hear the dispute. The arbitrator's decision
is final (except as otherwise specifically provided by law) and binds
the parties, and either party may request any court having jurisdiction
to enter a judgment and to enforce the arbitrator's decision. The
arbitrator will provide the parties with a written decision naming the
substantially prevailing party in the action. This prevailing party is
entitled to reimbursement from the other party for its costs and
expenses, including reasonable attorneys' fees.
(b) Governing Law. All proceedings will be held at a place
designated by the arbitrator in Grant County, Washington. The
arbitrator, in rendering a decision as to any state law claims, will
apply Washington law.
(c) Exception to Arbitration. Notwithstanding the above, if
Officer violates Section 10 or 11, the Bank will have the right to
initiate the court proceedings described in Section 12(b), in lieu of an
arbitration proceeding under this Section 14.
5
<PAGE> 6
15. MISCELLANEOUS PROVISIONS.
(a) Entire Agreement. This Agreement constitutes the entire
understanding and agreement between the parties concerning its subject
matter and supersedes all prior agreements, correspondence,
representations, or understandings between the parties relating to its
subject matter, including the personnel agreement between Officer and
the Bank dated as of May 18 1994 and amended as of January 26, 1996.
(b) Binding Effect. This Agreement will bind and inure to the
benefit of the Bank's, USBN's and Officer's heirs, legal
representatives, successors and assigns.
(c) Litigation Expenses. If either party successfully seeks to
enforce any provision of this Agreement or to collect any amount claimed
to be due under it, this party will be entitled to reimbursement from
the other party for any and all of its out-of-pocket expenses and costs
including, without limitation, reasonable attorneys' fees and costs
incurred in connection with the enforcement or collection.
(d) Waiver. Any waiver by a party of its rights under this
Agreement must be written and signed by the party waiving its rights. A
party's waiver of the other party's breach of any provision of this
Agreement will not operate as a waiver of any other breach by the
breaching party.
(e) Assignment. The services to be rendered by Officer under this
Agreement are unique and personal. Accordingly, Officer may not assign
any of his rights or duties under this Agreement.
(f) Amendment. This Agreement may be modified only through a
written instrument signed by both parties and approved in writing by
USBN.
(g) Severability. The provisions of this Agreement are severable.
The invalidity of any provision will not affect the validity of other
provisions of this Agreement.
(h) Governing Law and Venue. This Agreement will be governed by
and construed in accordance with Washington law, except to the extent
that certain matters may be governed by federal law. The parties must
bring any legal proceeding arising out of this Agreement in Grant
County, Washington.
(i) Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
taken together will constitute one and the same document.
(j) Independent Legal Counsel. Officer acknowledges that he has
had the opportunity to consult with independent legal counsel with
respect to the negotiation, preparation, and execution of this
Agreement.
6
<PAGE> 7
Signed March 24, 1998:
GRANT NATIONAL BANK
By: /s/ Gary House
-----------------------------------
Its: Chairman of the Board
LAWRENCE C. MITSON, individually
/s/ Lawrence C. Mitson
--------------------------------------
Lawrence C. Mitson
Ratified March 24, 1998: UNITED SECURITY BANCORP, INC.
By: /s/ Richard C. Emery
-----------------------------------
Richard C. Emery
Its: President and COO
7
<PAGE> 8
Ratified May _____, 1998: UNITED SECURITY BANCORP, INC.
By: /s/ William C. Dashiell
-----------------------------------
William C. Dashiell
Its: Chief Executive Officer
7-A
<PAGE> 1
EXHIBIT 10.2
DIRECTOR NONCOMPETITION AGREEMENT
This Director Noncompetition Agreement ("Director Agreement"), dated as
of March 24, 1998, is between GRANT NATIONAL BANK (the "Bank"), UNITED SECURITY
BANCORPORATION ("USBN"), and the undersigned, each of whom is a director
("Director") of the Bank.
RECITALS
A. USBN, on its own behalf and on behalf of a national banking
association to be formed by it under the title "New Grant National Bank," (the
"New Bank") and the Bank have entered into a Plan and Agreement of Consolidation
("Consolidation Agreement"), dated as of March 24, 1998, under which New Bank
will be consolidated with and into the Bank (the "Consolidated Association").
B. The obligation of USBN to consummate the transactions contemplated by
the Consolidation Agreement are conditioned on its receipt of noncompetition
agreements from all directors of the Bank.
C. USBN, the Bank, and Director believe that the future success and
profitability of the Consolidated Association require that existing directors of
the Bank be available to continue to serve as directors of the Bank and not be
affiliated in any substantial way with a Competing Business for a reasonable
period of time after Closing.
D. Capitalized terms not otherwise defined in this Director Agreement
have the meanings assigned to such terms in the Plan.
AGREEMENT
In consideration of USBN's performance under the Plan, Director agrees
that for a period of two years after the Effective Date, as defined in the Plan,
he or she will not, directly or indirectly, become involved in, as a principal
shareholder, director or officer, "founder," organizer, employee, or other agent
of, any financial institution or trust company that competes or will compete
with USBN, the Consolidated Association, or any of their subsidiaries or
affiliates, within Grant County, Washington State (the "County").
Director also agrees that during this two year period, Director will not
directly or indirectly solicit or attempt to solicit (1) any employees of USBN,
the Consolidated Association, or any of their subsidiaries or affiliates, to
leave their employment or (2) any customers of USBN, the Consolidated
Association, or any of their subsidiaries or affiliates to remove their business
from the Consolidated Association, USBN, or any of their subsidiaries or
affiliates, or to participate in any manner in any financial institution or
trust company that competes or will compete with the USBN, the Consolidated
Association, or any of their subsidiaries or affiliates, within the County.
Solicitation prohibited under this section includes solicitation by any means,
including, without limitation, meetings, telephone calls, letters or other
mailings, electronic communication of any kind, and internet communications.
During and after the Term of this Director Agreement, Director will not
disclose any confidential information of USBN, the Bank, the Consolidated
Association or any of their Subsidiaries, obtained by the Director while serving
as a director of the Bank, the Consolidated Association, USBN, or any of their
Subsidiaries.
<PAGE> 2
For purposes of this Director Agreement, the term "principal
shareholder" means any person who owns, directly or indirectly, five percent
(5%) or more of the outstanding shares of any class of equity security of a
company.
Director recognizes and agrees that any breach of this Director
Agreement by Director will entitle USBN and any of its successors or assigns to
injunctive relief and/or specific performance, as well as any other legal or
equitable remedies to which such entities may otherwise be entitled.
This Director Agreement is governed by Washington State law. If any
court determines that the restrictions set forth in this Director Agreement are
unenforceable, the maximum restrictions, term, scope or geographical area that
is enforceable will be substituted in place of the unenforceable provisions.
The parties may execute this Director Agreement in one or more facsimile
counterparts. All the counterparts will be construed together and will
constitute one agreement.
SIGNED as of March 24, 1998:
Director:
/s/ Jay D. Bair /s/ William B. Davis, D.C.
- ---------------------------- -----------------------------------------
Jay D. Bair William B. Davis, D.C.
/s/ Glenn E. Estes /s/ Gary T. House
- ---------------------------- -----------------------------------------
Glenn E. Estes Gary T. House
/s/ Pamp G. Maiers /s/ Lawrence C. Mitson
- ---------------------------- -----------------------------------------
Pamp G. Maiers Lawrence C. Mitson
/s/ Michael F. Moore /s/ Gerry W. Ramm
- ---------------------------- -----------------------------------------
Michael F. Moore Gerry W. Ramm
/s/ Dianne M. Recknagel /s/ Donald H. Swartz III
- ---------------------------- -----------------------------------------
Dianne M. Recknagel Donald H. Swartz III
<PAGE> 3
GRANT NATIONAL BANK
By /s/ Lawrence C. Mitson
-------------------------------
Name: Lawrence C. Mitson
Title: President and CEO
UNITED SECURITY BANCORPORATION
By /s/ Richard C. Emery
-------------------------------
Name: Richard C. Emery
Title: President and COO
<PAGE> 4
UNITED SECURITY BANCORPORATION
By /s/ William C. Dashiell
-------------------------------
Name: William C. Dashiell
Title: Chief Executive Officer
<PAGE> 1
EXHIBIT 10.3
APPROVAL BY DIRECTORS OF
GRANT NATIONAL BANK
The undersigned, all of the members of the Board of Directors of Grant
National Bank (the "Bank"), approve the Agreement and Plan of Consolidation
dated as of March 24, 1998, between the Bank and New Grant National Bank (upon
its formation by United Security Bancorporation) (the "Plan") and, except as
otherwise required by applicable law, including, without limitation, their
fiduciary duties to the Bank's shareholders, agree to (a) vote all of the shares
of capital stock that they own or over which they exercise voting control in
favor of the transactions contemplated by the Plan, (b) recommend to the
shareholders of the Bank that they approve the Plan, and (c) refrain from any
actions or omissions inconsistent with such transactions or recommendation.
/s/ Jay D. Bair /s/ William B. Davis, D.C.
- ---------------------------- -----------------------------------
Jay D. Bair William B. Davis, D.C.
/s/ Glenn E. Estes /s/ Gary T. House
- ---------------------------- -----------------------------------
Glenn E. Estes Gary T. House
/s/ Pamp G. Maiers /s/ Lawrence C. Mitson
- ---------------------------- -----------------------------------
Pamp G. Maiers Lawrence C. Mitson
/s/ Michael E. Moore /s/ Gerry W. Ramm
- ---------------------------- -----------------------------------
Michael F. Moore Gerry W. Ramm
/s/ Dianne M. Recknagel /s/ Donald H. Swartz II
- ---------------------------- -----------------------------------
Dianne M. Recknagel Donald H. Swartz II
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF
UNITED SECURITY BANCORPORATION
United Security Bank, a Washington state-chartered bank
Home Security Bank, a Washington state-chartered bank
Bank of Pullman, an Idaho state-chartered bank
USB Insurance, a Washington corporation
USB Leasing, a Washington corporation
USB Mortgage, a Washington corporation
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
As independent public accountants and auditors, we hereby consent to the
incorporation by reference in this registration statement on Form S-4 of our
report dated January 29, 1998 included in United Security Bancorporation's
Annual Report on Form 10-K for the year ended December 31, 1997.
/s/ Moss Adams LLP
--------------------------------------
Everett, Washington
May 28, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in the
Prospectus/Proxy Statement of United Security Bancorporation and Grant National
Bank that is made a part of this Registration Statement (Form S-4) and to the
incorporation by reference therein of our report dated February 26, 1997, with
respect to the consolidated financial statements of United Security
Bancorporation included in its Annual Report (Form 10-K) for the year ended
December 31, 1997, filed with the Securities and Exchange Commission.
/s/ McFARLAND & ALTON, P.S.
Spokane, Washington
May 27, 1998
<PAGE> 1
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of United Security
Bancorporation on Form S-4 of our report dated March 31, 1998, relating to the
financial statements of Grant National Bank, appearing in the Proxy
Statement/Prospectus, which is a part of this Registration Statement, and to the
reference to us under the heading "Experts" in such Proxy Statement/Prospectus.
/s/ LeMaster & Daniels PLLC
May 29, 1998
Spokane, Washington
<PAGE> 1
EXHIBIT 23.6
CONSENT OF SOUTHARD FINANCIAL
We hereby consent to the inclusion in this registration statement on Form S-4 of
our opinion dated May 18, 1998 and to all references to our firm in the
registration statement.
/s/ Southard Financial
May 29, 1998
<PAGE> 1
REVOCABLE PROXY OF GRANT NATIONAL BANK
- --------------------------------------------------------------------------------
SPECIAL MEETING OF SHAREHOLDERS
JULY ____, 1998
- --------------------------------------------------------------------------------
The undersigned hereby appoints ______________ and _____________ and
each of them (with full power to act alone) as proxies, with full power of
substitution, and hereby authorizes them to represent and to vote, as designated
below, all the shares of common stock, $25.00 par value, of Grant National Bank
held of record by the undersigned on __________, 1998, at the Special Meeting of
Shareholders to be held at the Bank's main office, 261 Basin SW, Ephrata,
Washington, on _________, __________, 1998, AT 6:00 P.M., local time, and at any
and all adjournments of such Meeting, as follows:
1. A proposal to approve the consolidation of Grant
National Bank and InterWest Bancorp, Inc., pursuant
to the Agreement and Plan of Consolidation dated as
of March 24, 1998.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. Whatever other business may properly be brought before the Special
Meeting or any adjournment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ABOVE PROPOSAL.
- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE PROPOSITION STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY
IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING. HOWEVER, IF ANY OTHER MATTERS ARE
PROPERLY PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
THE RECOMMENDATIONS OF MANAGEMENT.
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Special
Meeting or at any adjournment thereof, and after notifying the Secretary of
Grant National Bank at or prior to the Special Meeting of your decision to
terminate this proxy, then the power of said attorneys and proxies shall be
deemed terminated and of no further force and effect.
The undersigned acknowledges receipt from Grant National Bank prior to
the execution of this proxy of Notice of the Meeting and the Prospectus/Proxy
Statement dated __________, 1998.
(Sign on reverse side)
<PAGE> 2
-----------------------------------------
NAME OF SHAREHOLDER(S)
(As it appears on Stock Certificate)
- ------------------------- ----------------------------
SIGNATURE OF SHAREHOLDER SIGNATURE OF SHAREHOLDER
Dated: ___________________, 1998
* * * * *
Please sign exactly as your name appears on this proxy card. When
signing as attorney, executor, administrator, trustee or guardian,
please give your full title. If shares are held jointly, each holder
must sign.
-----------------------------------------------------------------
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE
ENCLOSED, POSTAGE-PREPAID ENVELOPE.
-----------------------------------------------------------------
