SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996 commission file number: 2-86902
TRANS PACIFIC BANCORP
(Exact name of registrant as specified in its charter)
California 94-2917713
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
46 Second Street, San Francisco, California 94105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 543-3377
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
Aggregate market value of the voting stock held by
non-affiliates of the registrant at February 28, 1997:
Common Stock, no par value,
$6,714,000
Number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date:
Class Outstanding at February 28, 1997
Common Stock, no par value 1,120,195
Documents Incorporated by Reference:
PARTS I, II, & IV - Annual Report to Shareholders for the year ended December
31, 1996("1996 Annual Report").
PART I
Item 1. Business
General
Trans Pacific Bancorp, a California Corporation ("Bancorp") is the Bank
holding company of Trans Pacific National Bank (the "Bank"), its wholly owned
subsidiary, a national bank conducting a commercial banking business which
opened for business on August 21, 1984. Other than acting as the holding
company for the Bank and as the lessee of the Bank's premises, Bancorp does
not currently conduct any other substantial activities. Accordingly, the
reported consolidated net income for 1996 resulted primarily from the Bank's
operations.
The Bank is headquartered in the "South of Market" area of the City of
San Francisco and is engaged in a wide variety of business operations
customarily conducted by independent commercial banks in California, including
the acceptance of checking and savings deposits, the issuance of certificates
of deposit, and the making of loans. The Bank's primary lending activities
are commercial loans, commercial lines of credit and short-term real estate-
related loans. Additionally, the Bank continues to provide credit to the
communities from which it draws deposits, with added emphasis on small
business loans in low and moderate income areas. To a lesser extent, the Bank
has engaged in consumer lending in the form of loans to individuals for
household, family and other personal expenditures. As of December 31, 1996,
the Bank had net loans totaling $47 million. Commercial loans and lines of
credit represent 39 percent of the Bank's total loan portfolio and real estate
loans represent 56 percent, and consumer and other loans 5 percent.
The Bank also offers safe deposit boxes, ATM cards, traveler's checks,
collection accounts and other customary bank services to its customers. The
Bank's customers are generally individuals who live or work in the vicinity of
the Bank's offices, small to medium size businesses and professional firms. As
of December 31, 1996, most of the Bank's deposits had been obtained from local
individuals, small businesses, professional firms, and state and local
governments. The Bank had approximately 2,000 accounts totaling over $68
million in deposits as of December 31, 1996. Demand deposits, both interest-
bearing and non-interest bearing represent 67 percent of the Bank's total
deposits portfolio, time deposits represent 31 percent, and savings deposits 2
percent.
In 1988, the Bank opened its International Department to provide banking
products for customers dealing in international trade. The International
Department provides a broad range of trade finance products, such as foreign
exchange and foreign drafts, import and export letters of credit, documentary
collections, standby letters of credit, and bankers acceptances. The
International Department provides the Bank with an opportunity to offer trade
finance services to U.S.-based small business and middle-market customers, a
service which is generally not offered by community banks. Bancorp's
headquarters location in San Francisco, a major international port city, is
ideally located for trade activity with Pacific Rim countries.
Also, in 1988, the Bank opened its second branch office, in downtown
Alameda, in order to expand into the East Bay market of Northern California.
To supplement the Alameda branch's deposit base, the Bank in 1990 acquired the
deposits of the Webster Street branch of Southern California Savings and Loan
in Alameda. This acquisition of a large base of retail time deposits and
savings accounts enabled the Bank to increase its market share and customer
base in Alameda and the surrounding areas.
Acquisition
On October 18, 1996, Bancorp entered into a definitive agreement
pursuant to which TRP Acquisition Corp. ("TRP"), a Delaware corporation owned
by a private investor group led by Chicago banker Denis Daly Sr. would merge
with and into Bancorp, with Bancorp the surviving corporation wholly owned by
the shareholders of TRP. On December 19, 1996, a special meeting of
shareholders of Bancorp was held at which a majority of the outstanding shares
of the corporation were represented, and the agreement was approved by the
shareholders in accordance with the requirements of the California
Corporations Code.
Subject to certain terms and conditions, each outstanding share of
Bancorp will be converted into the right to receive a cash payment of $8.19
per share at closing and possible additional payments from escrowed funds of
up to $0.42 per share following the resolution of certain pending
contingencies. The acquisition of Bancorp has been approved by both the
shareholders of Bancorp and the Federal Reserve Bank of San Francisco,
Bancorp's regulator. The transaction was completed on March 14, 1997.
The change in ownership is not expected to have an adverse effect on the
operations of Bancorp. The private investor group has indicated that it
intends to retain the current management, branch locations, and product lines.
Competition
The banking business in the Bank's market area, the San Francisco Bay
Area, is extremely competitive and has become increasingly so in recent years
as major California banks have entered the small-business loan market.
Additionally, the Bank competes with agencies of foreign banks, savings and
loans, credit unions, finance companies and other non-banking institutions,
such as brokerage firms, insurance companies and investment banking firms, all
who offer similar services to customers.
Among the competitive advantages that larger financial institutions have
are the resources and ability to conduct large-scale marketing campaigns and
to allocate investment assets, including loans, to regions of higher demand
and yield. The larger institutions also have higher lending limits available
to customers with large credit needs. The Bank's current maximum legal
lending limits to a single borrower and related parties was $1.1 million on an
unsecured basis and $1.9 million on a fully secured basis.
For borrowers requiring loans in excess of the Bank's legal lending
limits, the Bank has underwritten and will continue to underwrite such loans
on a participating basis with its correspondent banks and with other
independent banks, retaining that portion of such loans that is within its
lending limits.
The Bank believes it can continue to successfully compete by emphasizing
personal customer contact and by providing a higher degree of personalized
banking service to its customers. While Management believes that its service
approach can help build customer loyalty and can offset competitive
disadvantages resulting from legal and regulatory constraints due to its size,
no assurances can be given that the Bank will succeed in this extremely
competitive industry.
Federal Reserve Monetary Policy
The earnings of Bancorp are not only affected by general economic
conditions, but also by the policies of various governmental regulatory
authorities in the United States and abroad. In particular, the Federal
Reserve System exerts a significant influence on interest rates and credit
conditions, primarily through open market operations in US Government
securities, varying the discount rate on member bank borrowings and setting
reserve requirements against deposits. Federal Reserve monetary policies have
had a significant effect on the operating results of financial institutions in
the past and are expected to continue to do so in the future.
Supervision and Regulation
Under the Bank Holding Company Act (the Act), Bancorp is required to
file reports of its operations with the Board of Governors of the Federal
Reserve System (the Federal Reserve) and is subject to examination by
regulators. Further, the Act restricts activities in which Bancorp may engage
and the activities of any company in which the Bancorp owns more than 5
percent of the voting shares. Generally, permissible activities are limited
to banking, the business of managing and controlling banks and activities
closely related to banking as determined by the Federal Reserve.
The Bank, as a national bank, is subject to regulation and examination
by the Office of the Comptroller of the Currency (OCC), the Federal Reserve
and the Federal Deposit Insurance Corporation. Additionally, there are
numerous requirements and restrictions in the laws of the United States and
the State of California affecting the Bank and its operations including: the
requirement to maintain reserves against deposits; restrictions on the nature
and amount of loans that it may make; requirements for community reinvestment;
restrictions relating to its investments; restrictions relating to the places
at which it may operate branches and its ability to acquire other banks and
financial institutions. Throughout 1993 and for part of 1994, the Bank was
operating under a Formal Agreement with the OCC, which required specific
capital ratios and required management to implement certain steps to
strengthen the Bank's operations. The Formal Agreement was terminated in
September 1994, as the Bank had achieved full compliance with its terms.
Additionally, for part of 1993 and throughout 1994, Trans Pacific
Bancorp operated under a Memorandum of Understanding (MOU) with the Federal
Reserve Bank, which required filing of progress reports and restricted certain
operations, including the payment of cash dividends and issuance of
additional debt. This MOU was terminated in February, 1995.
Major regulatory changes affecting the Bank, and the financial services
industry in general have occurred in the last several years and can be
expected to occur increasingly in the future. The most significant recent
change affecting banks was the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA). In addition to providing for the
recapitalization of the Bank Insurance Fund, this law makes a number of far-
reaching changes in the legal environment for insured banks, including
reductions in insurance coverage for certain kinds of deposits, increases in
consumer-oriented requirements and disclosures, and major revisions to conform
the process of supervision and examination of depository institutions, with an
emphasis on risk-weighted capital levels.
Quantitative measures established by the regulators require that Bancorp
and the Bank maintain minimum ratios of capital to risk-weighted assets.
Under the guidelines, capital is compared to the relative risk related to the
balance sheet. The most recent notification from the OCC categorized the Bank
as well capitalized, the highest capital tier, under the FDICIA regulatory
framework for prompt corrective action.
It is expected that this law and any other current proposals for
regulatory change should not have a material effect on the operations, capital
resources or liquidity of Bancorp or the Bank.
Employees
The Bank employed 34 full time equivalent persons at December 31, 1996.
Management believes that its employee relations are excellent and that the
compensation and benefits provided by the Bank to its employees are
competitive. Benefits for Bank employees include stock options, an Employee
Stock Ownership Plan and a 401(k) plan. Bancorp had no salaried employees at
December 31, 1996.
STATISTICAL DISCLOSURES
I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest
Rates and Interest Differential
Information on the distribution of assets, liabilities, and stockholder
equity and on interest rates and interest differential is incorporated by
references from pages 5 and 6 of the 1996 Annual Report.
II. Investment Portfolio
Carrying Value of Investments, Maturity Ranges, Weighted Average Yield
The following table list the carrying value, in thousands, and yield by
expected remaining principal maturity date of the investment portfolio at
December 31, 1996. The weighted average yield is calculated based on the
amortized cost of securities.
Weighted
Average
Available for sale securities Amortized Cost Fair Value Yield
US Treasury securities
and other government agency:
Due within 1 year $ 2,004 $ 1,999 4.75%
Due after 1 year through 5 years 9,072 9,053 6.46%
Due after 5 years through 10 years 500 480 6.41%
11,576 11,532 6.16%
Mortgage-backed securities 4,552 4,539 6.43%
Other securities:
Due within 1 year 972 961 4.82%
Due after 1 year through 5 years - - -%
Due after 10 years 376 376 6.26%
1,348 1,337 5.27%
$ 17,476 $ 17,408 6.16%
Other securities consist principally of corporate bonds. Expected
remaining maturities may differ from remaining contractual maturities because
borrowers have the right to prepay certain obligations with or without
penalties.
Information regarding the amortized cost, unrealized gains and losses,
estimated fair value, and contractual maturity of investments at December 31,
1996 is incorporated by reference from pages 25 and 26 of the 1996 Annual
Report
III. Loan Portfolio
Loans Outstanding by Type
Information regarding types of domestic loans and loan concentrations at
December 31, 1996 and 1995 is incorporated by reference from pages 16, 26 and
27 of the 1996 Annual Report. The Bank had no foreign loans at December 31,
1996.
Maturities and Sensitivity to Changes in Interest Rates
Final loan maturities, in thousands, and rate sensitivities of the loan
portfolio at December 31, 1996 are as follows:
Within One-Five After
One Year Years Five Years Total
Loans at fixed interest rates:
Commercial $ 3,567 2,494 - 6,061
Real Estate 1,013 2,262 3,562 6,837
Installment 9 115 - 124
Other 11 - - 11
Total fixed interest-rate loans 4,600 4,871 3,562 13,033
Loans at variable interest rates:
Commercial 12,360 - - 12,360
Real Estate 14,612 5,375 - 19,987
Installment 47 - - 47
Preference Line 2,102 - - 2,102
Total variable interest-rate loans 29,121 5,375 - 34,496
Total $ 33,721 10,246 3,562 47,529
Non Performing Assets
Information on non-performing assets and risk elements is incorporated
by reference from pages 8 and 9 of the 1996 Annual Report.
IV. Summary of Loan Loss Experience
Allocation of the Allowance for Loan Losses
Information on the allocation of the allowance for loan losses by loan
type is incorporated by reference from pages 10 and 11 of the 1996 Annual
Report.
Annual Credit Loss Experience
Information on annual credit loss experience is incorporated by
reference from page 11 of the 1996 Annual Report.
V. Deposits
Average Amount and Rates Paid
Information on average deposits amounts and rates paid on domestic
deposits is incorporated by reference from page 6 of the 1996 Annual Report.
At December 31, 1996 and 1995, deposits of foreign depositors were not
material.
Time Certificates of Deposit Greater Than $100,000
Information on time certificates of deposits greater than $100,000 is
incorporated by reference from page 29 of the 1996 Annual Report.
VI. Return on Equity and Assets
Years ended December 31,
1996 1995 1994
Return on average assets 0.89% 0.73% 0.30%
Return on average equity 9.31% 7.14% 3.03%
Dividend payout ratio 14.13% - -
Equity to assets ratio 9.16% 10.08% 10.48%
VII. Short-Term Borrowings
Outstanding amounts, in thousands, of selected short-term borrowings
were as follows:
Years ended December 31,
1996 1995 1994
Federal funds purchased and
repurchase agreements:
Average amount outstanding $ 175 47 .3
Daily average rate 3.29% 6.43% 4.81%
Highest month-end balance $ 1,210 900 -
Year-end balance $ 204 - -
Rate on outstandings at year end 2.55 - -
Years ended December 31,
1996 1995 1994
Other borrowed funds:
Average amount outstanding $ 383 212 885
Daily average rate 5.30% 6.10% 5.22%
Highest month-end balance $ 527 454 1,329
Year-end balance $ 402 186 540
Rate on outstandings at year end 5.28% 5.24% 5.15%
Federal funds borrowed are repaid the following business day. Repurchase
agreements and other borrowed funds generally have original maturities not
exceeding 180 days.
Item 2. Properties
Bancorp and the Bank's headquarters are located at 46 Second Street in
San Francisco, California in the city's downtown Financial District. The
building, with 8,500 square feet of usable space, is under lease, which
expires in April, 2001, with a 3 year renewal option available under similar
terms.
The Bank maintains another branch at 1442 Webster Street in Alameda,
California. The premises, purchased by Bancorp in 1988 and sold to the Bank
in 1993, contains approximately 4,700 square feet.
Bancorp believes that its facilities are well maintained and are
generally adequate for its present and anticipated future needs.
Item 3. Legal Proceedings
The Company is involved in various claims and lawsuits incidental to its
business. In the opinion of management, after review with independent legal
counsel, the ultimate liability resulting from such claims and lawsuits will
not have a material adverse effect on the financial position, results of
operations, or liquidity of the Company.
There were no material proceedings adverse to the Bank or Bancorp to
which any director, officer, affiliate of the Bank or Bancorp, or 5 percent
shareholder of the Bank or Bancorp, or any associate of any such director,
officer, affiliate or 5 percent shareholder of the Bank or Bancorp, was a
party adverse to the Bank or Bancorp. Additionally, none of the above persons
had a material interest adverse to the Bank or Bancorp.
Additionally, the Bank has been notified of a potential unasserted claim
relating to a specific corporate deposit account. Independent legal counsel
has requested additional information from the underlying corporate entity and
the basis for any potential claim. Based on the information available at this
time, management is unable to determine what liability, if any, will result
from the resolution of this matter or whether any claim will be made. Bancorp
has considered this matter in the pricing and escrow structure in the
Agreement and Plan of Merger.
Item 4. Submission of Matters to a Vote of Security Holders
At the special meeting of shareholders held December 19, 1996, the
acquisition of all issued and outstanding shares of Bancorp by a private
investor group led by Chicago banker Denis Daly, Sr. was approved.
Votes For Votes Withheld Votes Abstained Broker non-votes
822,435 none 3,450 none
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Market Information
The common stock of Trans Pacific Bancorp (symbol: TPAE) is publicly
traded in limited and infrequent transactions on the NASDAQ Bulletin Board.
According to information made available to Bancorp, the range of high and low
bids for such common stock for each calendar quarter since January 1995 is as
follows:
Calendar Year 1996 High Low
First Quarter $ 5.25 4.50
Second Quarter 5.63 4.88
Third Quarter 6.50 5.25
Fourth Quarter 7.63 6.38
Calendar Year 1995 High Low
First Quarter $ 2.50 2.25
Second Quarter 2.75 2.25
Third Quarter 4.50 2.50
Fourth Quarter 4.88 4.50
The last bid price known to Bancorp for its common stock was $7.75.
There are no current plans to offer any common stock of Bancorp in a
public offering.
Holders
As of December 31, 1996, there were 300 holders of the common stock of
Bancorp. There are no other classes of common equity outstanding.
Dividends
Bancorp declared a special dividend of 8 cents per share to shareholders
of record March 8, 1996. The dividend was paid on March 29, 1996.
Item 6. Selected Financial Data
Selected financial data for the five years 1992 through 1996 is
incorporated by reference from page 3 of the 1996 Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion and Analysis of Financial Condition and Results
of Operations is incorporated by reference from pages 4 through 14 of the 1996
Annual Report.
Item 8. Financial Statements and Supplementary Data
The Report of Independent Auditors and the Consolidated Financial
Statements of Bancorp are incorporated by reference from pages 15 through 36
of the 1996 Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
During fiscal years 1996 and 1995, Bancorp neither changed its
accountants nor reported a disagreement on Form 8-K on any matter of
accounting principles or practices or financial statements disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth the names of and certain information with
respect to the Board of Directors and Executive Officers of Bancorp. Age and
other biographical data for each person as of December 31, 1996, is included.
Business Experience
Name Age Position During Past Five Years
James A. Babcock 61 Director and Chairman of Architect; President of
Bancorp and Director of Sandy and Babcock Inc.,
the Bank since 1983. San Francisco, since
1970.
Eddy S. F. Chan 49 Director of Bancorp and Banker; President, Chief
the Bank, and President Executive Officer of
and Chief Executive Bancorp since 1983;
Officer of Bancorp since Chairman of the Board of
1983; Chief Executive the Bank since 1983;
Officer of the Bank President and Chief
since 1984. Executive Officer of
the Bank since 1984.
Dennis B. Jang 33 Chief Financial Officer Banker; Chief Financial
of Bancorp and the Bank Officer of Bancorp and
since 1996. the Bank since 1996;
Vice President of the
Bank since 1994;
Assistant Vice
President of the Bank
since 1990.
Frankie G. Lee 52 Director of Bancorp and Civil Engineer; Executive
the Bank since 1983, Vice President and Chief
Vice Chairman of Bancorp Executive Officer, SOH &
since 1983. Associates, Structural
Engineers, San Francisco,
since 1969; Vice
President MTL
Construction, Richmond,
CA, 1983-1995; brother of
John K. Lee.
John K. Lee 46 Director of Bancorp and Certified Public
the Bank since 1983, Accountant; President,
Vice Chairman of the John K. Lee CPA, PC since
Bank since 1983. 1983; brother of Frankie
G. Lee.
Masayuki Nakahira 49 Director of Bancorp Architect; General
since 1983. Contractor, real estate
development; President
and Director, New Century
Investments Inc. since
1983.
John T. Stewart 55 Director of Bancorp and Attorney; Partner, Broad,
the Bank since 1983, Schulz, Larson & Wineberg,
Secretary of Bancorp and San Francisco 1973-1994;
a Vice Chairman of the Partner, Hovis, Larson,
Bank since 1983. Stewart, Lipscomb,
Cross since 1994.
Simon S. Teng 54 Director of Bancorp and Certified Public
the Bank since 1983; Accountant; Vice President
Treasurer, since 1983. John R. McKean,
Accountants, PC, San
Francisco since 1967.
Frank K. W. Wong 58 Director of Bancorp and Advertising and Visual
the Bank since 1983. Merchandising Director,
National Dollar Stores
Ltd., San Francisco from
1962 to 1995. Retail
consultant since 1996.
John K. Wong 48 Director of Bancorp Banker; Executive Vice
since 1983; Director of President/International
the Bank since 1984; Department of the Bank
Executive Vice since 1995. Senior Vice
President/International President of the Bank
Department of the Bank from 1989 to 1995.
since 1995.
Item 11. Executive Compensation
Cash Compensation
Bancorp and the Bank pay fees to directors to attend meetings of the
Boards of Directors and committees of the Board of Bancorp and the Bank. In
1996, directors were paid $225 per Board meeting attended. Non-employee
directors serving on committees also received $150 per meeting attended,
except for Loan Committee, which received $175 per meeting.
Bancorp had no full-time salaried employees during the fiscal year ended
December 31, 1996. No remuneration was paid to or accrued for the account of
any person serving in his or her capacity as an officer of Bancorp for
services rendered during the fiscal year ended December 31, 1996.
The following table sets forth the aggregate cash remuneration
(including bonuses and deferred compensation) paid to the following named
executive officers of the Bank for services provided during the fiscal year
ended December 31, 1996. No other executive officers' remuneration exceeded
$100,000.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
Name and
Principal Position Year Salary Bonus Other ESOP Options (#)
Eddy S. F. Chan 1996 $113,000 $ 66,447 * $ - -
President/CEO 1995 113,000 32,605 * 2,679 1,500
1994 110,500 - * 2,897 20,000
Robert A. Hinkle 1996 $ 84,000 $ 24,426 * $ - -
Executive Vice 1995 84,000 13,047 * 1,983 -
President 1994 82,000 - * 1,867 5,000
* Less than 10% of the total of salary and bonus reported for each named
executive officer.
Compensation Pursuant to Plans
Employee Stock Option Plan
In 1984, Bancorp adopted the Trans Pacific Bancorp Stock Option Plan
(the "Plan"), a stock option plan providing for the grant of options for up to
an aggregate of 100,000 shares of Bancorp's Common Stock to executive officers
and certain key employees of Bancorp and its subsidiaries, including the Bank.
Options are to be granted at not less than 100% of the fair market value of
the Common Stock on the date of grant of the option. Under the Plan, no option
may be granted after August 1994, the tenth anniversary of the Plan adoption.
Accordingly, no options were granted pursuant to this Plan in 1996.
The number of shares of Common Stock pursuant to options vested under
the Plan as of December 31, 1996 was 40,500. The exercise price of all
outstanding employee stock options is $5.00 per share.
Non Qualified Stock Option Plan
Certain executive officers also serve as directors of Bancorp or the
Bank and are eligible for grants under the Trans Pacific Bancorp 1990 Non-
Qualified Stock Option Plan. No options were granted under this plan in 1996.
Effects of Change in Control on Stock Option Plans
Under the agreement pursuant to which TRP Acquisition Corp. will acquire
all of the issued and outstanding shares of Bancorp, all outstanding stock
options will be converted into the right to receive a cash payment equal to
the difference between the strike price and $8.19 per share at closing and a
possible subsequent payment from escrowed funds of up to $0.42 per share
following the resolution of certain pending contingencies.
The following table sets forth aggregate stock options held by the
following named executive officers at December 31, 1996:
Number of Un- Value of Un-
Number of Exercised Exercised In-
Shares Options at End The-Money Options
Acquired of 1996 (Exer- at End of 1996*
Name of on Value cisable/Un- (Exercisable/Un-
Individual Exercise Realized Exercisable) Exercisable)
Eddy S. F. Chan none none 24,000 / none $63,125 / $0
Robert A. Hinkle none none 3,000 / 2,000 $ 7,875 / $5,250
* Based on an estimated market value of $7.625 for Bancorp Common Stock at
December 31, 1996.
Employee Stock Ownership Plan
In 1990, Bancorp adopted the Trans Pacific Bancorp Employee Stock
Ownership Plan and Trust (ESOP). The ESOP, sponsored by Bancorp for the
benefit of its employees and those of the Bank, is a non-contributory plan
intended to further the growth, development, and financial success of Bancorp
and its subsidiaries by providing additional incentives to employees of
Bancorp and its subsidiaries by assisting them to acquire shares of Common
Stock and to benefit directly from Bancorp's growth, development, and
financial success. The ESOP is designed to invest primarily in Bancorp Stock.
All employees who have worked for Bancorp or any of its subsidiaries for
a period of one year or more are eligible to participate in the ESOP. As of
December 31, 1996, there were thirty-two (32) employees eligible to
participate in the ESOP.
All amounts credited to an ESOP Participant's account will become
distributable to the Participant upon his or her retirement at age 65;
however, a participant may postpone retirement until a later date, in which
case the Participant may continue to participate in and receive allocations
under the ESOP. In the event of termination of the Participant's employment
for reasons other than death or disability, the Participant is entitled to
payment of the entire vested portion or his or her account on or after
December 31st following the termination of employment. Shares are vested under
a five year period. The ESOP was terminated in December 1996.
Annual Incentive Awards
In 1995, the Bank adopted the Management Incentive Plan. Under the plan,
executive officers receive cash awards based on a formula established by the
Board of Directors.
Other Compensation
Except as set forth above under the captions "Cash Compensation" and
"Compensation Pursuant to Plans", and below under "Termination of Employment
Arrangements", no other compensation was paid or distributed during the last
fiscal year to the named individuals specified above.
Termination of Employment Arrangements
There are no compensatory plans or arrangements, including payments to
be received from Bancorp, with respect to any individual named in the
paragraph captioned "Executive Compensation" herein for the last fiscal year
where such plan or arrangement results or will result from the resignation,
retirement, or any other termination of such individual's employment.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership Of Certain Beneficial Owners
The following table sets forth the security ownership as of February 28,
1997 of Bancorp's voting securities with respect to any person (including any
"group" as that term is used in section 13(d)(3) of the Exchange Act) who is
the beneficial owner of more than 5 percent of such voting securities
outstanding.
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
Common Stock James A. Babcock 57,583 shares (1) 5.12%
1349 Larkin Street
San Francisco, CA 94109
(1) Includes 32,083 shares held with sole voting and investment power;
20,000 shares held with shared voting and/or investment power; and 5,500
shares pursuant to options.
Security Ownership Of Management
The following table sets forth as of February 28, 1997 the ownership of
each class of Bancorp's equity securities of the directors and executive
officers, and each of the named executive officers as defined in Item
402(a)(3) of Regulation S-K, individually, and of the directors and executive
officers of Bancorp and the Bank as a group.
Amount and
Nature of
Beneficial Percent
Title of Class Name of Beneficial Owner Ownership of Class
Common Stock James A. Babcock 57,583 (1) 5.12%
Common Stock Eddy S. F. Chan 56,380 (2) 4.94%
Common Stock Robert A. Hinkle 11,085 (3) 0.99%
Common Stock Dennis B. Jang 5,659 (4) 0.50%
Common Stock Frankie G. Lee 28,833 (5) 2.57%
Common Stock John K. Lee 27,333 (6) 2.43%
Common Stock Masayuki Nakahira 25,833 (7) 2.30%
Common Stock John T. Stewart 24,683 (8) 2.20%
Common Stock Simon S. Teng 30,843 (9) 2.74%
Common Stock Frank K. W. Wong 26,833 (10) 2.39%
Common Stock John K. Wong 48,954 (11) 4.32%
Common Stock All Directors and Executive 344,019 28.59%
Officers as a Group (11
persons)
(1) Includes 32,083 shares held with sole voting and investment power;
20,000 shares held with shared voting and/or investment power; and 5,500
shares pursuant to options.
(2) Includes 25,233 shares held with sole voting and investment power; 2,250
shares held with shared voting and/or investment power; 24,000 shares
pursuant to options; and 4,897 shares allocated to the account of Eddy
S. F. Chan as a Participant in the Trans Pacific Bancorp Employee Stock
Ownership Plan ("ESOP") as of December 31, 1996.
(3) Includes 5,000 shares held with sole voting and investment power; 5,000
shares pursuant to options; and 1,085 shares allocated to the account of
Robert A. Hinkle as a Participant in the ESOP as of December 31, 1996.
(4) Includes 1,000 shares held with sole voting and investment power; 2,500
shares pursuant to options; and 2,159 shares allocated to the account of
Dennis B. Jang as a Participant in the ESOP as of December 31, 1996.
(5) Includes 23,333 shares held with shared voting and/or investment power;
and 5,500 shares pursuant to options.
(6) Includes 21,833 shares held with shared voting and/or investment power;
and 5,500 shares pursuant to options.
(7) Includes 21,333 shares held with sole voting and investment power; and
4,500 shares pursuant to options.
(8) Includes 19,183 shares held with sole voting and investment power; and
5,500 shares pursuant to options.
(9) Includes 18,583 shares held with sole voting and investment power; 6,760
shares held with shared voting and/or investment power; and 5,500 shares
pursuant to options.
(10) Includes 21,333 shares held with shared voting and/or investment power;
and 5,500 shares pursuant to options.
(11) Includes 2,833 shares held with sole voting and investment power; 29,300
shares held with shared voting and/or investment power; 14,000 shares
pursuant to options; and 2,821 shares allocated to the account of John
K. Wong as a Participant in the ESOP as of December 31, 1996.
Change in Control
Bancorp has entered into and the shareholders have approved the
principal terms of a definitive agreement pursuant to which TRP Acquisition
Corp., a Delaware corporation owned by a private investor group led by Chicago
banker, Denis Daly, Sr., would be merged with and into Bancorp with Bancorp as
the survivor and the shareholders of TRP being the sole shareholders of
Bancorp. The transaction was completed on March 14, 1997.
Item 13. Certain Relationships and Related Transactions
Indebtedness of Management
Bancorp, through its subsidiary Trans Pacific National Bank ("Bank"),
has had and expects to have in the future, banking transactions consisting of
loans made in the ordinary course of business with directors, officers,
Shareholders, and persons associated with them. In the opinion of management,
such loans to any such persons were made in the ordinary course of the Bank's
business on substantially the same terms, including interest rate and
collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than the usual risk of collectibility
or present other unfavorable features.
Transactions with Management and Others and Certain Business Relationships
There were no transaction or series of similar transactions since
January 1, 1996, nor are there any currently proposed transactions to which
Bancorp or the Bank is a party, in which any director or executive officer,
any 5 percent or more security holder or any member of the immediate family of
any such person had or will have a material interest, direct or indirect.
There are no business relationships regarding any director requiring
disclosure under 404(b) of Regulation S-K.
Compliance with Section 16(a) of the Exchange Act
Bancorp does not have a class of equity securities registered pursuant
to Section 12 of the Exchange Act (15 USC 781), nor is it a closed-end
investment company registered under the Investment Company Act of 1940 or a
holding company registered pursuant to the Public Utility Holding Company Act
of 1935. Accordingly its directors, officers, and beneficial owners of more
than 10 percent of any class of equity securities have no obligations pursuant
to Section 16(a) of the Exchange Act, including any obligation to file Forms
3, 4, or 5 pursuant thereto.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Document filed as part of this report:
1. Financial Statements
The Consolidated Financial Statements, Notes thereto, and
Independent Auditors' Report are incorporated herein by reference
from pages 15 through 36 of the 1996 Annual Report.
2. Financial Statement Schedules
All schedules for which provision is made in the applicable
accounting regulations of the Securities Exchange Commission are
not required under the related instructions or are not applicable
and, therefore, have been omitted.
3. Exhibits
EXHIBIT
NUMBER DESCRIPTION
3.1 Articles of Incorporation of Trans Pacific Bancorp, incorporated
by reference to Exhibit 3.1 to Bancorp's Registration Statement on
Form S-1 (No. 2-86902).
3.2 Amended By-Laws of Trans Pacific Bancorp, incorporated by
reference to Exhibit 3.2 to Bancorp's Registration Statement on
Form S-1 (No. 2-86902).
3.3 Amendment to Articles of Incorporation, incorporated by reference
to Exhibit 3.3 to Bancorp's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988.
3.4 Amendment to Articles of Incorporation, incorporated by reference
to Exhibit 3.4 to Bancorp's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988.
4.1 Specimen Stock Certificate, incorporated by reference to Exhibit
4.1 to Bancorp's registration Statement on Form S-1 (No. 2-86902).
10.2 Employee Stock Option Plan, incorporated by reference to Exhibit
10.2 to Bancorp's Registration Statement on Form S-1 (No. 2-
86902).
10.10 Amendment to Employee Stock Option Plan incorporated by reference
to Exhibit 10.10 to Bancorp's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987.
10.11 Amendment to Employee Stock Option Plan dated September 21, 1989
incorporated by reference to Exhibit 10.11 to Bancorp's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989.
10.12 Trans Pacific Bancorp Employee Stock Ownership Plan and Trust is
incorporated by reference to Exhibit 4.1 to Bancorp's Registration
Statement on Form S-8 (No. 33-39190).
10.13 Trans Pacific Bancorp Non Qualified Stock Option Plan is
incorporated by reference to Exhibit 4.1 to Bancorp's Registration
Statement on Form S-8 (No. 33-39191).
13 1996 Annual Report to Shareholders
22.1 Subsidiaries of the Registrant, incorporated by reference to
Exhibit 22.1 to Bancorp's Registration Statement on Form S-1 (No.
2-86902).
23 Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedule.
99.1 Proxy Statement dated November 15, 1996, filed as Supplmental
Information pursuant to the instructions on Form 10-K and
furnished to the Commission for its information only and shall not
be deemed to be "filed" with the Commission or otherwise subject
to the liabilities of Section 18 of the Securities and Exchange
Act of 1934, as amended.
(b) Reports on Form 8-K
On October 25, 1996, Bancorp filed a report on Form 8-K. The report
filed, pursuant to items 5 and 7 of the report, a copy of the Agreement
and Plan of Merger and a copy of the press release titled "Private
Investor Group Led by Chicago Banker Denis Daly, Sr. Announces Agreement
to Acquire Trans Pacific Bancorp."
On November 19, 1996, Bancorp filed a report on Form 8-K. The report
filed, pursuant to items 5 and 7 of the report, a copy of the press
release titled "Cyrus Tang Withdraws from Investor Group Formed by
Chicago Banker Denis Daly, Sr. which will Acquire Trans Pacific
Bancorp."
SIGNATURES
Pursuant to the requirements of Section 15 (c) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TRANS PACIFIC BANCORP
EDDY S.F. CHAN
(Eddy S.F. Chan) President
Date: March 10, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on the 10th day of March 1997.
Signature Title
JAMES A. BABCOCK Director and Chairman of the Board
(James A. Babcock)
EDDY S.F. CHAN Director, President and CEO
(Eddy S.F. Chan) (Principal Executive Officer)
JOHN T. STEWART Director and Secretary
(John T. Stewart)
SIMON S. TENG Director and Treasurer
(Simon S. Teng) (Principal Financial & Accounting Officer)
FRANKIE G. LEE Director and Vice Chairman
(Frankie G. Lee)
JOHN K. LEE Director
(John K. Lee)
MASAYUKI NAKAHIRA Director
(Masayuki Nakahira)
FRANK K.W. WONG Director
(Frank K.W. Wong)
JOHN K. WONG Director
(John K. Wong)
Exhibit 13
1996 Annual Report
About The Company
Trans Pacific Bancorp is the holding
company of Trans Pacific National
Bank, an independent commercial bank
with branches in San Francisco and
Alameda, California.
Trans Pacific National Bank has been
providing financial services to
local middle-market businesses,
professional companies, and
import/export companies since 1984.
Trans Pacific Bancorp is listed on
the NASDAQ Bulletin Board system
under the symbol TPAE.
TABLE OF CONTENTS
FINANCIAL HIGHLIGHTS 3
LETTER TO SHAREHOLDERS 4
FIVE YEAR FINANCIAL SUMMARY 5
RESULTS OF OPERATIONS 6
Net Interest Income 6
Provision for Loan Losses 9
Non-Interest Income 9
Non-Interest Expense 10
Provision for Income Taxes 10
ASSET QUALITY 11
ALLOCATION OF THE ALLOWANCE FOR LOAN
LOSSES 12
ASSET/LIABILITY MANAGEMENT 15
CAPITAL RESOURCES 17
REPORT OF THE INDEPENDENT AUDITORS 19
CONSOLIDATED FINANCIAL STATEMENTS 20
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS 26
TRANS PACIFIC BANCORP BOARD OF
DIRECTORS 47
TRANS PACIFIC NATIONAL BANK
PRINCIPAL OFFICERS 47
FINANCIAL HIGHLIGHTS
1996 1995 Increase
For the year
Net Income $ 633,052 $ 445,382 +42%
Earnings Per Share 0.57 0.40 +43%
At year end
Loans, Net $ 47,016,335 $ 38,340,437 +23%
Total Assets 77,133,275 64,826,520 +19%
Deposits 68,411,575 57,563,988 +19%
Shareholders' Equity 7,066,567 6,531,971 +8%
Ratios
Return on Average Equity 9.31% 7.14%
Return on Average Assets 0.89% 0.73%
Risk-Based Capital Ratio 14.17% 16.81%
LETTER TO SHAREHOLDERS
Financial Results
We are pleased to report that 1996 was a year of record earnings for Trans
Pacific Bancorp. In the best performance in our 12 year history, Bancorp had
net income of $633,052, or $0.57 per share. As discussed in detail under the
"Results of Operations" beginning on page 7, this 42 percent increase in
earnings was due to an increasing customer base and continued good asset
quality.
As always, our results have been a direct reflection of the trends in
California banking and the California economy, and 1996 was no exception. We
believe that the local economy will continue its slow and steady improvement
in 1997 and this will lead to further job growth, increased personal income
and additional capital spending by businesses, which is favorable for us.
Merger Agreement
As you are undoubtedly aware, Bancorp has entered into a definitive agreement
pursuant to which a private investor group led by Chicago banker Denis Daly,
Sr. will acquire all of the issued and outstanding shares of Bancorp. The
shareholders of Bancorp approved the acquisition in December 1996; the
acquisition of Bancorp is pending approval by regulatory authorities. We
expect the regulators to approve the agreement in the near future and that the
transaction will be completed by March 31, 1997.
Our new owners share our commitment to serving the needs of local businesses,
especially for smaller import/export companies. You can be assured that the
vision of personalized service for small business will continue under the
Trans Pacific National Bank name and under the current management team.
We would like thank all our shareholders, especially those who have been with
us since the beginning, for their support throughout the years.
James A. Babcock Eddy S.F. Chan
Chairman Chief Executive Officer
FIVE YEAR FINANCIAL SUMMARY
Summary of Consolidated Operations
Years ended December 31,
(in thousands except share data)
1996 1995 1994 1993 1992
Interest income $ 5,539 4,855 4,259 4,433 5,920
Interest expense 2,109 1,799 1,369 1,617 2,646
Net interest income 3,430 3,056 2,890 2,816 3,274
Provision (recovery) for
possible loan losses (40) 40 173 889 662
Other income 640 598 664 855 887
Other expense 3,037 2,962 3,088 3,567 3,579
Income (loss) before taxes 1,073 652 293 (785) (80)
Income tax expense (benefit) 440 207 113 (171) 20
Net income (loss) $ 633 445 180 (614) (100)
Net income (loss)
per share 0.57 0.40 0.16 (0.54) (0.09)
Average # of common shares
outstanding 1,119,094 1,118,195 1,127,305 1,143,195 1,141,247
Year-End Financial Position
Years Ended December 31,
(in thousands) 1996 1995 1994 1993 1992
Cash and cash equivalents $ 9,624 9,916 7,377 6,538 4,313
Investment securities 17,801 14,359 14,508 12,812 11,314
Loans, net 47,016 38,340 32,368 39,566 50,033
Premises and equipment, net 876 933 1,037 1,015 1,281
Other assets 1,816 1,279 1,481 5,078 5,430
Total assets $ 77,133 64,827 56,771 65,009 72,371
Deposits $ 68,412 57,564 49,800 57,823 63,916
Long Term Debt - - 26 71 116
Other Liabilities 1,654 731 994 1,188 1,863
Total liabilities 70,066 58,295 50,820 59,082 65,895
Stockholders' equity 7,067 6,532 5,951 5,927 6,476
Total liabilities and
equity $ 77,133 64,827 56,771 65,009 72,371
MANAGEMENT DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Bancorp earned $633 thousand in 1996. This represented an improvement over net
income in 1995 of $445 thousand, and of $180 thousand in 1994. The 1996 net
income reflects the effects of an improving California economy and the
strengthening financial condition of the Bank's customers, which led to
improved asset quality compared to previous years.
On a per share basis, the 1996 net income was $0.57, compared to net income of
$0.40 and of $0.16 in 1995 and 1994, respectively. In addition to the factors
discussed above, the improvement in 1996 reflects improved net interest
income, a decreased provision for loan losses and higher non-interest income.
The improvement in 1995 over 1994 was mostly due to higher net interest
income, a decreased provision for loan losses and lower non-interest expense.
Bancorp's return on average total assets (ROA) was 0.89 percent in 1996, an
increase from 0.73 percent and 0.30 percent in the previous two years. Return
on equity (ROE) in 1996 was 9.31 percent, compared with 7.14 percent in 1995
and 3.03 percent in 1994.
Components of Net Income
(percentage of average earning assets) 1996 1995 1994
Net interest income 5.45% 5.74% 5.35%
Recovery (provision) for loan losses 0.06 (0.08) (0.32)
Non-interest income 1.02 1.12 1.23
Non-interest expense (4.83) (5.55) (5.72)
Income tax expense (0.70) (0.39) (0.21)
Net income 1.00 0.84 0.33
Net income as a percentage of average total assets 0.89 0.73 0.30
Net Interest Income
Net interest income is the difference between interest income (which includes
yield-related net loan fees) and interest expense. The following table details
the components of net interest income:
Components of Net Interest Income
(in thousands) 1996 1995 1994
Interest Income $ 5,539 4,855 4,259
Interest Expense 2,109 1,799 1,369
Net interest income $ 3,430 3,056 2,890
Average earning assets $ 62,930 53,212 53,987
Net interest margin 5.45% 5.74% 5.35%
Net interest income in 1996 increased by $374 thousand, or 12 percent from
1995 to $3.4 million. Separately, interest income increased $684 thousand, or
14 percent, and interest expense increased $310 thousand, or 17 percent in
1996. The increase in interest expense was caused by an overall increase in
deposits and an increase in cost of funds due to competitive pressures in
market rates. The increase in interest income was due to increased earning
assets, net of the effects of a lower average prime rate in 1996. The net
interest margin, which represents the average net yield on earning assets was
5.45 percent for 1996 versus 5.74 percent and 5.35 percent for 1995 and 1994,
respectively.
The following table is a summary of the changes in net interest income
attributable to changes in either average balances or average rates for both
interest-earning assets and interest-bearing liabilities in thousands for the
years ended December 31, 1996 and 1995. Because of the numerous simultaneous
volume and rate changes during any period, it is not possible to precisely
allocate changes between volume and rate. For this table, the changes in
interest earned and interest paid due to both rate and volume have been
allocated to changes due to volume and rate in proportion to the relationship
of absolute dollar amounts in each.
Rate and Volume Analysis Years ended December 31,
1996 versus 1995 1995 versus 1994
Volume Rate Total Volume Rate Total
Increase (decrease) in interest income
due to interest earning assets:
Loans $ 710 (198) 512 56 489 545
Investment securities 69 22 91 73 10 83
Federal funds sold 85 (14) 71 (78) 59 (19)
Interest-bearing deposits with banks 8 2 10 (12) (1) (13)
Total interest-earning assets $ 872 (188) 684 39 557 596
Increase (decrease) in interest expense
due to interest-bearing liabilities:
Deposits:
Demand, interest-bearing $ 186 29 215 23 222 245
Savings (4) - (4) (11) 1 (10)
Time 64 25 89 (70) 295 225
Other short-term borrowings 15 (5) 10 (27) (3) (30)
Total interest-bearing liabilities $ 261 49 310 (85) 515 430
Net interest-earning assets $ 611 (237) 374 124 42 166
The following table lists the average amounts, in thousands, outstanding for
major categories of interest-earning assets (excluding non-accrual loans) and
interest-bearing liabilities and the average interest rates earned, including
loan fee income, and paid for the periods indicated.
Average Balances and Rates Years ended December 31,
1996 1995
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
Earning Assets:
Loans $42,762 4,355 10.18% $ 35,866 3,844 10.72%
Investment securities 13,859 831 5.99% 12,694 739 5.82%
Federal funds sold 5,816 320 5.50% 4,283 249 5.82%
Interest-bearing deposits
with banks 493 33 6.78% 369 23 6.29%
Total interest-earning
assets $ 62,930 5,539 8.80% $ 53,212 4,855 9.12%
Interest-Bearing Liabilities:
Deposits:
Demand, interest-bearing $ 28,768 1,003 3.49% $ 23,421 788 3.37%
Savings 999 23 2.25% 1,179 26 2.22%
Time 19,685 1,057 5.37% 18,481 969 5.24%
Other short-term borrowings 558 26 4.67% 251 16 6.36%
Total interest-bearing
liabilities $ 50,010 2,109 4.22% $ 43,332 1,799 4.15%
Net interest income $ 3,430 $ 3,056
Net interest-earning assets yield 5.45% 5.74%
1994
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning Assets:
Loans $ 35,275 3,299 9.35%
Investment securities 11,442 656 5.73%
Federal funds sold 6,722 268 3.99%
Interest-bearing deposits
with banks 548 36 6.57%
Total interest-earning
assets $ 53,987 4,259 7.89%
Interest-Bearing Liabilities:
Deposits:
Demand, interest-bearing $ 22,505 544 2.42%
Savings 1,680 36 2.14%
Time 20,616 743 3.60%
Other short-term borrowings 885 46 5.20%
Total interest-bearing
liabilities $ 45,686 1,369 3.00%
Net interest income $ 2,890
Net interest-earning assets yield 5.35%
Provision for Loan Losses
The level of the provision for loan losses during the past three years
reflects continuous efforts to improve loan quality by enforcing strict
underwriting and administration procedures and aggressively pursuing
collection efforts with troubled debtors. The determination of the provision
for loan losses and, correspondingly, the level of the allowance for loan
losses is based on evaluation of changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, prior
loan loss experiences and current economic conditions which may affect the
borrowers' ability to pay. The provision for loan losses was a net recovery of
$40 thousand in 1996, compared to a provision of $40 thousand in 1995 and of
$173 thousand in 1994. The decrease in the provision for loan losses reflected
the effects of improving asset quality, due in part to positive California
economic trends and recoveries of previously charged-off loans.
For further discussion related to the provision for loan losses, see the
section below entitled "Asset Quality".
Non-Interest Income
Components of Non-Interest Income
(in thousands) 1996 1995 1994
Deposit account fees $ 237 282 268
Other charges and fees 379 316 312
Other real estate - - 84
Gain on sale of loans 24 - -
$ 640 598 664
Non-interest income increased 7 percent in 1996 to $640 thousand. The
improvement was due mainly to higher commissions collected on export letters
of credit transactions.
In 1995, non-interest income decreased 10 percent from the previous year, due
mainly to zero income for other real estate owned, which includes rental
income and the net gain on sales of other real estate owned (OREO), as the
Bank had no foreclosed properties during 1995.
Non-Interest Expense
Components of Non-Interest Expense
(in thousands) 1996 1995 1994
Salaries and employee benefits $ 1,661 1,720 1,627
Occupancy 276 296 325
Data processing 107 120 119
Amortization of deposit premium 99 99 99
Furniture and equipment 71 97 95
Accounting and audit 110 85 81
Federal deposit insurance 2 58 142
Legal 147 36 38
Other real estate owned - - 107
Other expenses 564 450 456
$ 3,037 2,961 3,089
Non-interest expense increased to $3.04 million in 1996, an increase of 3
percent as compared to 1995. Salaries and employee benefits were down 3
percent during the year, as full time equivalent employees were down by 1 and
the salary expense offset of loan originating was up by 6 percent due to
higher loan origination activities in 1996. Also, no ESOP contribution was
made in 1996. These decreases in salary expense were offset by additional
expenses accrued for potential payments under a management incentive plan
which were higher than the previous year due to higher net income. Federal
deposit insurance was decreased to $2 thousand, a reduction of 97 percent over
the previous year, due to a decrease in premiums for banks classified as well
capitalized. Accounting and legal fees were increased by approximately $97
thousand due to the acquisition. Other operating expenses were $564 thousand,
up 25 percent compared to 1995, primarily due to approximately $81 thousand in
operations losses.
In 1995, non-interest expense decreased 4 percent as compared to 1994, due
primarily to a decrease in the Federal deposit insurance and in the expenses
related to other real estate owned properties. Salaries and employee benefits
rose 5.7 percent over 1994; which included incentive payments made under a
management incentive plan implemented in 1995. Occupancy and furniture and
equipment expense were lower by 12 percent and 24 percent, respectively, due
to reduced depreciation as certain assets became fully depreciated in 1995 and
1994.
Provision for Income Taxes
The 1996 income tax expense was $440 thousand compared to $207 thousand in
1995 and $113 thousand in 1994. The effective tax rate for 1996 was 41
percent, versus 32 percent in 1995 and 38 percent in 1994. The effective rate
in 1996 was higher due to merger-related expenses incurred in 1996, which are
not deductible for tax purposes, and the recognition of deferred tax assets.
ASSET QUALITY
Bancorp closely monitors the markets in which it conducts its lending
operations. The two primary areas of lending for Bancorp are commercial and
real estate loans, which in total comprise 95 percent of loans outstanding as
of December 31, 1996. To control its exposure and concentration in real estate
loans, Bancorp has established limits by type of collateral and purpose. To
increase diversification of credit risk in commercial loans, Bancorp monitors
commercial loans by business type and location.
Asset reviews are performed using grading standards and criteria similar to
those employed by bank regulatory agencies. Assets receiving lesser grades are
called classified assets and include all potential problem loans. These occur
when known information about possible credit problems of borrowers cause
management to have doubts as to the ability of such borrowers to comply with
loan repayment terms. These loans have varying degrees of uncertainty and may
become non-performing assets. While historically only a relatively small
amount of classified assets have resulted in losses, such assets receive an
elevated level of Management attention to ensure collection. All non-
performing assets are included in classified assets. Other classified assets
consist of other real estate owned and securities. Classified assets at
December 31, 1996, 1995 and 1994 are summarized below:
(in thousands) 1996 1995 1994
Classified loans $ 2,041 1,443 2,208
Other classified assets 303 - -
Total classified assets $ 2,344 1,443 2,208
Reserve for loan losses as a
percentage of classified loans 25% 28% 18%
During 1996, classified assets increased from $1.4 million to $2.3 million due
to one corporate bond downgraded to non-investment grade during 1996 and
higher classified loans at December 31, 1996 due primarily to one additional
large loan downgraded. During 1995, classified loans decreased from $2.2
million to $1.4 million, due to successful classified loan collections. The
performance of any individual loans can be impacted by external factors such
as the interest rate environment or factors particular to the borrower.
Non-Performing Assets and Restructured Loans
During the years ended December 31, 1996 and 1995 there were no other
restructuring of loans, foreign outstandings, loan concentrations or potential
problem loans except as discussed below or in the Consolidated Financial
Statements and related footnotes. See Note 1 of the Notes to Consolidated
Financial Statements for a discussion of the Bank's policy on non-accrual
loans.
Non-performing assets include non-accrual loans and other real estate owned.
Loans are placed on non-accrual status upon reaching 90 days or more
delinquent, unless the loan is well secured and in the process of collection.
Interest previously accrued on loans placed on non-accrual status is charged
against interest income. Loans secured by real estate, with temporarily
impaired values and commercial loans to borrowers experiencing financial
difficulties, may be placed on non-accrual status even if the borrowers
continue to repay the loans as scheduled. Such loans are reinstated to an
accrual status when all principal and interest amounts contractually due are
reasonably assured of repayment within a reasonable period, and there is a
sustained period of repayment performance in accordance with the contractual
terms. When the ability to fully collect non-accrual loan principal is in
doubt, cash payments received are applied against the principal balance of the
loans until such time as full collection of the remaining recorded balance is
expected, at which point any additional payments received are recorded as
interest income on a cash basis.
Loans 90 days or more past due and still accruing, restructured loans, and
non-performing assets are as follows for December 31, 1996, 1995, and 1994:
December 31,
(in thousands) 1996 1995 1994
Loans 90 days or more past due
and still accruing interest $ 3 - 66
Restructured loans 635 635 635
Non-performing assets:
Non-accrual loans 6 45 352
Other real estate owned - - -
$ 6 45 352
Total $ 644 680 1,053
The levels of non-performing assets has decreased over the past three years
due to both internal factors such as improved underwriting and monitoring of
loans, and external factors such as an improving Bay Area economy and more
stable real estate values. Non-performing assets were $6 thousand at December
31, 1996, down 87 percent from $45 thousand at December 31, 1995, due
primarily to the resolution of non-accrual loans during the year. At December
31, 1996, other real estate owned was $0 and there were no foreclosure
activity during the year.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The Bank has an established process to determine the adequacy of the allowance
for loan losses based upon the risk of loss inherent in its portfolio. This
process uses two complementary allocation procedures: Specific credit
allocations for problem loans; and an unallocated portion provided for the
remaining loan portfolio. While management has made specific and general
allocations to various portfolio segments, the total allowance for loan losses
is general in nature and is available for the portfolio in its entirety.
The Bank's determination of the level of the allowance rests upon various
judgments and assumptions, including portfolio composition and concentrations,
lending policies, delinquency trends and general economic conditions. The Bank
has a credit review and evaluation program which continuously reviews loan
quality, incorporating internal and external credit review. The results of
these reviews are reported to the Board of Directors. Such reviews also assist
management in establishing the level of the allowance.
The table below provides a breakdown of the allowance for loan losses by loan
category. Although management has allocated the allowance to specific loan
categories, the adequacy of the allowance must be considered in its entirety.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses.
Such agencies may require the Bank to recognize additions to the allowance
based on their judgement of information available to them at the time of their
examination.
December 31,
(in thousands) 1996 1995
Allowance % of Loans Allowance % of Loans
Domestic:
Commercial $ 260 1.41% 226 1.22%
Real Estate - Construction - - - -
Real Estate - Mortgage 108 0.40% 82 0.45%
Consumer 9 0.38% 9 0.40%
Foreign - - - -
Unallocated 142 - 87 -
$ 519 1.09% 404 1.04%
Effective January 1, 1995, Bancorp adopted Statement of Financial Accounting
Standards No. 114, Accounting by Creditors for Impairment of a Loan, (SFAS No.
114), as amended by Standard of Financial Accounting Standards No. 118,
Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures (SFAS No. 118). Under SFAS No. 114 a loan is considered impaired
when, based on current information and events, it is "probable" that a
creditor will be unable to collect all amounts due (principal and interest)
according to the contractual terms of the loan agreement. The measurement of
impairment may be based on (i) the present value of the expected cash flows of
the impaired loan discounted at the loan's original effective interest rate,
(ii) the observable market price of the impaired loans, or (iii) the fair
value of the collateral of a collateral-dependent loan. SFAS No. 114, as
amended by SFAS No. 118, does not apply to large groups of smaller balance
homogeneous loans that are collectively evaluated for impairment. Bancorp
generally identifies loans to be reported as impaired when such loans are in
non accrual status or are considered troubled debt restructurings due to the
granting of a below-market rate of interest or a partial forgiveness of
indebtedness on an existing loan.
In measuring impairment for the purpose of establishing specific loan loss
reserves, Bancorp reviews all impaired commercial and construction loans
classified "Substandard" and "Doubtful". All "loss" classified loans are fully
reserved under Bancorp's standard loan loss reserve methodology. Commercial
and real estate loans that are not classified, groups of non-classified,
smaller balance loans such as installment loans and preferred lines of credit,
are evaluated collectively for impairment under Bancorp's standard loan loss
reserve methodology and are, therefore, excluded from the specific evaluation
using SFAS No. 114.
The following summarizes Bancorp's impaired loans at December 31, 1996:
Non-Accrual Troubled Debt Total Impaired Specific
(in thousands) Loans Restructurings Loans Reserves
$ 6 - 6 1
The average balances of Bancorp's impaired loans for the year ended December
31, 1996 was $29 thousand. In general, Bancorp does not recognize any interest
income on loans that are classified as impaired.
Changes in the allowance for loan losses for the years 1996 and 1995 were as
follows:
(in thousands) 1996 1995
Balance, beginning of year $ 404 390
Charge-offs:
Domestic:
Commercial, financial and agricultural - 63
Real estate: construction - -
Real estate: mortgage - 221
Installment loans to individuals 4 -
Lease financing - -
Foreign - -
Total charge-offs 4 284
Recoveries:
Domestic:
Commercial, financial and agricultural 109 255
Real estate: construction - -
Real estate: mortgage 44 3
Installment loans to individuals 6 -
Lease financing - -
Foreign - -
Total Recoveries 159 258
Net recoveries (charge-offs) 155 (26)
Provision (recovery) for loan losses (40) 40
Balance at end of year $ 519 404
Ratio of net charge-offs (recoveries) during the year
to average loans outstanding during the year (0.36)% 0.08%
Bancorp has experienced reduced levels of chargeoffs over the past three year
period due to both internal factors such as improved underwriting and
monitoring of loans, and external factors such as an improving Bay Area
economy and more stable real estate values. Net recoveries in 1996 were $155
thousand or 0.36 percent of average total loans, compared with net chargeoffs
of $26 thousand or 0.08 percent in 1995 and $453 thousand or 1.24 percent in
1994. The decrease in net chargeoffs was due to successful efforts in
collecting previously charged off loans.
ASSET/LIABILITY MANAGEMENT
The fundamental objectives of Bancorp's asset/liability management policy are
to: (1) maintain liquidity and (2) minimize interest rate risk.
Liquidity
Liquidity is the ability to meet the present and future needs of customers for
funds, primarily the funding of loans and deposit withdrawals. Liquidity is
measured and managed at both the parent and banking subsidiary levels. Bancorp
is funded by dividend income from the Bank, as well as income from outside
sources and through the issuance of equity. Bancorp uses its proceeds
primarily to pay the Bank for administrative expenses.
In general, the primary source of liquidity for the Bank is the growth of core
deposits (particularly demand deposits), and the orderly repayment of the
Bank's loan portfolio. Because of the Bank's emphasis on relationship banking,
the establishment of both loan and deposit relationships with customers, the
Bank has a relatively stable, local deposit base, and brokering deposits is
not considered necessary. To supplement short-term liquidity needs, the Bank
maintains Fed Funds sold, time deposits with other financial institutions,
short-term money market and securities available for sale that totalled
approximately $23.6 million, or 31 percent of assets, at December 31, 1996.
Additionally, the Bank has established unsecured line of credits with
correspondent banks and reverse repurchase facilities with securities dealers.
These credit facilities are subject to periodic review.
As shown in the Consolidated Statements of Cash Flows, liquidity, or cash and
cash equivalents decreased to $9.6 million at December 31, 1996 compared to
$9.9 million at December 31, 1995. Net cash flows of $687 thousand, $843
thousand, and $896 thousand were provided by operating activities in 1996,
1995, and 1994, respectively. Net cash flows of $11.2 million and $7.4 million
were provided by financing activities in 1996 and 1995, respectively,
primarily due to increases in deposits, while $8.1 million was used in
financing activities in 1994, principally to fund customer withdrawals of time
deposits.
Net cash flows of $12.2 million and $5.7 million were used in investing
activities in 1996 and 1995, respectively, primarily due to the funding of
loans and purchases of investment securities. In 1994, $8.0 million was
provided by investing activities, primarily from loan principal repayments and
the sales of other real estate owned.
Interest Rate Risk
Bancorp evaluates its interest rate risk exposure by analyzing the interest
rate sensitivity of its balance sheet accounts. Interest rate sensitivity
measures the interval of time before interest-earning assets and interest-
bearing liabilities respond to changes in market rates of interest. The
difference between the amount of assets and amount of liabilities which may be
re-priced in the same time period is referred to as the "gap". If more assets
than liabilities are re-priced at a given time, net interest income tends to
improve in a rising rate environment and to decline with lower interest rates.
If more liabilities than assets are re-priced under the same conditions, the
opposite tends to prevail.
The table below shows the interest rate sensitivity of Bancorp based on asset
and liability repricing characteristics, excluding non-accruing loans, at
December 31, 1996 (in thousands). For this table, assets and liabilities are
assumed to reprice or mature according to contractual repricing or maturity
dates, except for market rate accounts which may be repriced at any time at
Bancorp's discretion.
Re-pricing Immediately 90 days 91-180 181-365 Over
Opportunity Adjustable or less days days 365 days Total
Rate sensitive assets:
Federal funds sold $ 6,200 - - - - 6,200
Interest-bearing deposits - 199 - - 194 393
Securities 165 1,545 797 2,292 12,609 17,408
Loans 27,019 3,574 1,531 1,597 13,808 47,529
Interest earning assets $ 33,384 5,318 2,328 3,889 26,611 71,530
Rate sensitive liabilities:
Market rate accounts $ 31,087 - - - - 31,087
Savings 1,074 - - - - 1,074
Time deposits 2,564 8,271 5,121 3,639 1,656 21,251
Other borrowed funds - 331 275 - - 606
Interest paying
liabilities $ 34,725 8,601 5,397 3,639 1,656 54,018
Gap $ (1,341) (3,283) (3,069) 250 24,955 17,512
Cumulative gap $ (1,341) (4,624) (7,693) (7,443) 17,512
The table indicates that overall, Bancorp re-prices more assets than
liabilities i.e., is asset-sensitive, and, therefore, generally earns a
greater interest spread as interest rates increase and earns a lower interest
spread as rates decrease. In the short-term, Bancorp reprices more liabilities
than assets, and is liability-sensitive.
Depending on interest rate trends and forecasts, Bancorp has the opportunity
to modify asset pricing or liability rates offered in a particular time frame
in order to reduce interest rate sensitivity. The ability to manage these
changes is affected by economic conditions, the competitive environment, and
the policies of governmental and regulatory authorities. Additionally, certain
assets and liabilities have option-like characteristics that may affect net
interest income through the exercise of those options as interest rates
change. Hedging strategies using interest rate futures and swaps, while
available, are generally not used by Bancorp.
CAPITAL RESOURCES
The capital position of Bancorp represents the level of capital needed to
support the operation and expansion of Bancorp and the Bank and to protect
depositors and the deposit insurance fund from potential losses. Management
regularly reviews capital adequacy to ensure that capital is consistent with
Bancorp's and the Bank's expected growth. On February 23, 1996, a special
dividend was declared to shareholders of record on March 8, 1996. The first-
ever dividend of 8 cents per share was paid on March 29, 1996 . Bancorp has no
current plans to pay regular dividends.
Stockholder's equity totalled $7.1 million at December 31, 1996, up from $6.5
million at December 31, 1995 and $5.95 million at December 31, 1994. The
increase in stockholder's equity was due to Bancorp's net income for 1996.
Bancorp and the Bank are subject to risk-based capital adequacy requirements
which call for a minimum 8 percent total risk-based capital ratio, including a
Tier 1 capital ratio of 4 percent. There are two categories of capital under
the guidelines. Tier 1 capital includes common stockholders' equity and
qualifying preferred stock, less certain intangible assets. Tier 2 capital
generally includes, subject to limitations, preferred stock not qualifying as
Tier 1 capital, mandatory convertible debt, subordinated and unsecured senior
debt and the allowance for loan losses. The risk-based capital ratio is
determined by weighing assets and off-balance sheet exposures according to
their relative credit risks.
The Federal Reserve has also established a minimum capital requirement ratio.
This ratio, Tier 1 capital to quarterly average total assets, operates in
conjunction with the risk-based capital guidelines and limits the amount of
leverage a bank can undertake. Currently, all banks must maintain at least a 3
percent leverage ratio. In general, however, only the top-ranked banking
organizations may operate at the minimum capital levels. Other institutions
will be expected to maintain ratios that are at least 100 to 200 basis points
above the minimum levels of capital. It is management's intent to maintain
capital ratios for Bancorp and the Bank above the regulatory well-capitalized
levels, which are 6 percent for the Tier 1 capital ratio, 10 percent for the
total risk-based capital ratio, and 5 percent for the Tier 1 leverage ratio.
Between December 1992 and September 1994, the Bank was required to maintain a
Tier 1 capital ratio of at least 10 percent, and a leverage ratio of at least
6 percent, levels higher than the regulatory minimum, under the terms of the
Bank's Formal Agreement with the Office of the Comptroller of the Currency.
The Formal Agreement was terminated in September 1994.
Bancorp's and the Bank's capital ratios continued to exceed the minimum levels
required and were above the regulatory well-capitalized levels throughout
1996. Bancorp's and the Bank's capital ratios for 1996, 1995, and 1994 were:
December 31,
Capital Ratios 1996 1995 1994
Trans Pacific Bancorp:
Tier 1 Capital Ratio 13.19% 15.81% 15.99%
Risk-Based Capital Ratio 14.17% 16.81% 17.06%
Leverage Ratio 9.39% 9.85% 9.80%
Trans Pacific National Bank:
Tier 1 Capital Ratio 13.48% 16.06% 16.08%
Risk-Based Capital Ratio 14.46% 17.05% 17.14%
Leverage Ratio 9.62% 10.03% 9.90%
The most recent notification from the OCC categorized the Bank as well
capitalized under the FDICIA regulatory framework for prompt corrective
action. Management believes that, as of December 31, 1996, Bancorp and the
Bank met all capital adequacy requirements to which they were subject.
There are no known trends, events, or uncertainties that will have or that are
reasonably likely to have a material effect on Bancorp's capital resources,
liquidity, asset quality, or results of operations.
REPORT OF THE INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Trans Pacific Bancorp:
We have audited the accompanying consolidated balance sheets of Trans Pacific
Bancorp and Subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of
Bancorp's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Trans
Pacific Bancorp and Subsidiary as of December 31, 1996 and 1995, and the
results of their operations and cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/KPMG Peat Marwick LLP
San Francisco, California
February 7, 1997
CONSOLIDATED FINANCIAL STATEMENTS
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
Assets 1996 1995
Cash and due from banks (note 2) $ 3,423,798 5,190,611
Federal funds sold 6,200,000 4,725,000
Interest-bearing deposits with banks 393,000 489,713
Securities available for sale, at fair value (note 3) 17,407,901 13,870,220
Loans, net (notes 4, 10 and 11):
Commercial 18,419,932 18,555,335
Real estate 26,829,533 17,982,782
Installment 171,892 167,443
Preference lines 2,102,342 1,997,955
Other 11,445 40,573
Total loans 47,535,144 38,744,088
Allowance for loan losses 518,809 403,651
Loans, net 47,016,335 38,340,437
Premises and equipment, net (note 5) 876,471 932,553
Customer acceptances outstanding 116,694 50,393
Deferred tax asset, net (note 6) 50,900 -
Intangible assets 338,167 437,141
Other assets 1,310,009 790,452
Total assets $ 77,133,275 64,826,520
continued . . .
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
Liabilities and Stockholders' Equity 1996 1995
Liabilities:
Non-interest-bearing demand deposits $ 14,999,909 10,453,322
Interest-bearing demand deposits 31,086,544 26,913,507
Savings 1,073,892 1,023,815
Time deposits (note 7) 21,251,230 19,173,344
Total deposits 68,411,575 57,563,988
Accrued interest payable 204,792 178,430
Other short-term borrowings 606,086 186,432
Acceptances outstanding 116,694 50,393
Deferred tax liability, net (note 6) - 30,700
Other liabilities 727,561 284,606
Total liabilities 70,066,708 58,294,549
Commitments and contingencies (notes 11 and 16)
Stockholders' equity:
Common stock, no par value;
10,000,000 shares authorized, 1,120,195
and 1,118,195 shares issued and
outstanding (note 8) 5,794,323 5,784,323
Retained earnings 1,312,244 768,648
Net unrealized losses on securities
available for sale (note 3) (40,000) (21,000)
Total stockholders' equity 7,066,567 6,531,971
Total liabilities and stockholders' equity $ 77,133,275 64,826,520
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Interest income:
Loans $ 4,355,304 3,843,432 3,298,910
Investment securities, including dividends 830,661 739,133 655,848
Deposits with banks 33,411 23,240 36,481
Federal funds sold 320,101 249,237 268,166
Total interest income 5,539,477 4,855,042 4,259,405
Interest expense:
Deposits (note 7) 2,083,455 1,783,252 1,323,044
Other borrowed funds (note 9) 26,034 15,958 46,149
Total interest expense 2,109,489 1,799,210 1,369,193
Net interest income before provision
(recovery) for loan losses 3,429,988 3,055,832 2,890,212
Provision (recovery) for loan losses (note 4) (40,000) 40,000 173,000
Net interest income after provision
(recovery) for loan losses 3,469,988 3,015,832 2,717,212
Non-interest income:
Gain on sale of loans 23,625 - -
Service charges on deposit accounts 237,084 282,349 267,998
Other real estate owned - - 83,982
Other charges and fees 378,850 315,416 312,013
Total non-interest income 639,559 597,765 663,993
Non-interest expense:
Salaries and employee benefits (note 9) 1,660,556 1,719,503 1,626,665
Occupancy 275,550 295,734 325,051
Furniture and equipment 71,691 96,514 94,793
Other real estate owned - 214 106,885
Other operating 1,028,697 849,250 935,120
Total non-interest expense 3,036,494 2,961,215 3,088,514
Income before income taxes 1,073,052 652,382 292,691
Income tax expense (note 6) 440,000 207,000 112,500
Net income $ 633,052 445,382 180,191
Net income per share $ 0.57 0.40 0.16
Average common shares outstanding (note 8) 1,119,094 1,118,195 1,127,305
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1996, 1995 and 1994
Deferred Unrealized
Compensation- Gains (losses)
Employee on Securities Total
Stock Available Stock-
Common Stock Retained Ownership For Sale holder
Shares Amount Earnings Plan Net of Tax Equity
Balance at
Dec. 31,
1993 1,143,195 $5,834,827 $ 143,075 $ (71,250) $20,250 $5,926,902
Net income - - 180,191 - - 180,191
Repurchase of
common
stock (25,000) (50,504) - - - (50,504)
Debt reduction
of ESOP - - - 45,000 - 45,000
Change in
unrealized
gains (losses)
on securities
available
for sale,
net of tax - - - - (150,750) (150,750)
Balance at
Dec. 31,
1994 1,118,195 5,784,323 323,266 (26,250) (130,500) 5,950,839
Net income - - 445,382 - - 445,382
Debt reduction
of ESOP - - - 26,250 - 26,250
Change in
unrealized
gains (losses)
on securities
available for
sale, net of
tax - - - - 109,500 109,500
Balance at
Dec. 31,
1995 1,118,195 5,784,323 768,648 - (21,000) 6,531,971
Net income - - 633,052 - - 633,052
Dividends paid
($0.08 per
share) - - (89,456) - - (89,456)
Stock options
exercised 2,000 10,000 - - - 10,000
Change in
unrealized
gains (losses)
on securities
available for
sale, net of
tax - - - - (19,000) (19,000)
Balance at
Dec. 31,
1996 1,120,195 $5,794,323 $1,312,244 $ - $ (40,000) $7,066,567
Trans Pacific Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Cash flows from operating activities:
Net income $ 633,052 445,382 180,191
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 204,644 225,133 250,431
Provision (recovery) for loan losses (40,000) 40,000 173,000
Provision for real estate owned - - 75,000
Gain on sale of other real estate owned - - (48,135)
Deferred tax expense (benefit) (60,600) 37,700 -
Increase in accrued interest payable 26,362 71,267 11,183
Increase (decrease) in other liabilities 442,955 31,390 (45,734)
(Increase) decrease in other assets (519,557) (8,150) 300,556
Total adjustments 53,804 397,340 716,301
Net cash provided by operating activities 686,856 842,722 896,492
Cash flows from investing activities:
(Increase) decrease in loans funded,
net of principal collected (8,635,898) (6,012,070) 6,843,566
Proceeds from principal repayments and
matured investment securities 10,802,834 4,265,543 7,725,811
Purchase of securities held to maturity - - (8,031,885)
Purchase of securities available for sale (14,380,515) (4,169,277) (1,556,485)
Net decrease (increase) in
interest-bearing deposits with banks 96,713 197,304 (33,848)
Purchase of premises and equipment (49,588) (22,116) (173,409)
Proceeds from sale of other real estate owned - - 3,482,593
Purchase of other real estate owned - - (221,328)
Net cash (used in) provided by investing
activities (12,166,454) (5,740,616) 8,035,015
continued . . .
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
Cash flows from financing activities:
Net increase (decrease) in demand
deposits and savings $ 8,769,701 5,458,872 (1,650,467)
Net increase (decrease) in time deposits 2,077,886 2,304,879 (6,372,769)
Proceeds from other short-term borrowings 1,028,326 186,432 3,169,448
Repayment of other short-term borrowings (608,672) (513,917) (3,187,665)
Repurchase of common stock - - (50,504)
Dividends paid (89,456) - -
Proceeds from stock options exercised 10,000 - -
Net cash provided by (used in) financing
activities 11,187,785 7,436,266 (8,091,957)
Net (decrease) increase in cash and cash
equivalents (291,813) 2,538,372 839,550
Cash and cash equivalents at beginning of
year 9,915,611 7,377,239 6,537,689
Cash and cash equivalents at end of year $ 9,623,798 9,915,611 7,377,239
Supplemental Disclosures of Cash Flow Information
Non-cash investing and financing activities:
Real estate acquired in settlement of
loans $ - - 181,431
Reduction of guaranteed ESOP obligation - 26,250 45,000
Change in unrealized gains (losses) on
securities available for sale, net of
taxes (19,000) 109,500 150,750
Transfer of held-to-maturity securities
to available-for-sale - 6,594,663 -
Cash paid for:
Interest $ 2,933,591 1,799,210 1,358,010
Income taxes 152,400 147,400 800
Trans Pacific Bancorp and Subsidiary
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business and Significant Accounting Policies
Trans Pacific Bancorp, a registered banking holding company (Bancorp),
provides a full range of banking services to individual and corporate
customers in Northern California through its wholly-owned subsidiary bank,
Trans Pacific National Bank (the Bank). The Bank is subject to competition
from other financial institutions and to regulations of certain agencies and
undergoes periodic examinations by those regulatory agencies.
Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of Bancorp and the
Bank, and are prepared in conformity with generally accepted accounting
principles and general practices within the banking industry. The following is
a summary of significant policies used in the preparation of the accompanying
financial statements. In preparing the financial statements, Management has
made a number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of income and expenses for the periods
presented, in conformity with generally accepted accounting principles. Actual
results could differ from those estimates. Certain reclassifications have been
made to balances in preceding years to conform to the current year
presentation.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and federal funds sold. Generally, federal
funds are purchased and sold for a one day period.
Marketable Investment Securities
Marketable investment securities consist of US Treasury, mortgage-backed,
corporate debt securities, and Federal Reserve stock. Bancorp adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities at December
31, 1993. Under SFAS No. 115, Bancorp classifies its debt and marketable
equity securities in one of three categories: trading, available-for-sale or
held-to-maturity. Trading securities are bought and held principally for the
purpose of selling them in the near term. Held-to-maturity securities are
those securities in which Bancorp has the ability and intent to hold the
security until maturity. All other securities not included in trading or held-
to-maturity are classified as available-for-sale. The Bancorp engages in no
securities trading activities.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Available-for-sale
securities are recorded at fair value. Unrealized holding gains and losses,
net of the related tax effect, on available-for-sale securities are excluded
from earnings and are reported as a separate component of stockholders' equity
until realized. Unrealized gains and losses associated with transfer of
securities from held-to-maturity to available-for-sale are recorded as a
separate component of stockholders' equity.
Unrealized holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
separate component of stockholders' equity until realized.
Premiums and discounts are amortized or accreted over the life of the related
security as an adjustment to yield using the effective interest method.
Dividend and interest income are recognized when earned. Realized gains and
losses for securities classified as available-for-sale and held-to-maturity
are included in earnings and are derived using the specific identification
method for determining the cost of securities sold.
A decline in the market value of any available for sale or held to maturity
security below cost that is deemed other than temporary, results in a charge
to earnings and the establishment of a new cost basis for the security.
Loans and Allowance for Loan Losses
Loans are stated at the amount of unpaid principal, net of deferred fees, and
reduced by an allowance for loan losses. Accrual of interest is discontinued
on loans which are more than 90 days delinquent when Management believes,
after considering economic and business conditions and collection efforts,
that the borrower's financial condition is such that collection of interest is
doubtful unless the loans are well-secured and in the process of collection.
When a loan is placed on non-accrual status, all interest previously accrued
but not collected is charged against current period income. Income on such
loans is then recognized only to the extent that cash is received and where
the future collection of principal is probable.
Non-refundable fees and direct loan origination costs are deferred and
amortized to income or expense over the expected loan period using a method
that approximates the interest method.
The allowance for loan losses is established through periodic provisions for
possible loan losses. Loans are charged against the allowance for loan losses
when Management believes that the collectibility of the principal is unlikely.
The allowance is a reserve to absorb possible losses on existing loans that
may become uncollectible, based on evaluations of the collectibility of loans
and prior loan loss experience. The evaluations include consideration of
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions
that may affect the borrowers' ability to pay.
Management believes that the allowance for loans losses is adequate. While
Management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review Bancorp's allowance for loan
losses. Such agencies may require Bancorp to recognize additions to the
allowance based on their judgment of information available to them at the time
of their examination.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation, which
is computed using the straight-line method over the estimated useful lives of
the assets (3 to 20 years). Leasehold improvements are amortized over their
estimated useful lives or the terms of the respective leases, whichever is
shorter. Fully depreciated assets are removed from Bancorp's Balance Sheet.
Impairment of Long-Lived Assets
In 1995, the Financial Accounting Standard Board issued the Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Under the
provisions of SFAS No. 121, long-lived assets and certain identifiable
intangibles to be held and used by an entity are required to be reviewed for
impairment whenever events or changes indicate that the carrying amount of an
asset may not be recoverable. Bancorp implemented SFAS No. 121 in January
1996. The impact of the adoption of SFAS No. 121 was not material to Bancorp's
financial statements.
Stock Option Plan
Prior to January 1, 1996, Bancorp accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related Interpretations.
As such, compensation expense would be recorded on the date of grant only if
the current market price of the underlying stock exceeded the exercise price.
On January 1, 1996, Bancorp adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation,
which permits entities to recognize as expense over the vesting period, the
fair value of all stock-based awards on the date of grant. Alternatively, SFAS
No. 123 also allows entities to continue to apply the provisions of APB
Opinion No. 25 and related Interpretations, and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option grants
made in 1995 and future years as if the fair value based method defined in
SFAS No. 123 had been applied. Bancorp has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123. The results of the fair value based method defined
in SFAS No. 123 did not have a material impact on Bancorp's financial
statements.
Other Real Estate Owned
Other real estate owned, consisting of real estate acquired in the settlement
of loans is carried at the lower of cost or the fair value less estimated
selling costs. Fair value represents the amount that could be reasonably
expected in a current sale (other than a forced or liquidation sale) between a
willing buyer and a willing seller and is generally based upon an independent
property appraisal. When the property is acquired, any excess of the loan
balance over fair value of the property is charged to the related allowance
for loan losses. Subsequent write-downs due to the declines in independent
property appraisals, and routine holding costs are included in other real
estate owned expense.
Core Deposit Intangibles
Core deposit intangibles are amortized over the estimated average life (10
years) of the acquired deposit base using the straight line method which is a
basis that approximates the anticipated deposit runoff.
Net Income per Share
Net income per share is computed by dividing net income by the average number
of shares outstanding during the period. The impact of common stock
equivalents, primarily stock options, is not material.
Income Taxes
Bancorp and its subsidiaries file consolidated tax returns. For financial
reporting purposes, the income tax effects of transactions are recognized in
the year in which they enter into the determination of recorded income,
regardless of when they are recognized for income tax purposes. Accordingly,
the provisions for income taxes in the consolidated statements of income
include charges or credits for deferred income taxes relating to temporary
differences between the tax bases of assets and liabilities and their reported
amounts in the financial statements.
Note 2. Restricted Cash Balances
Federal Reserve Board regulations require reserve balances on deposits to be
maintained by the Bank with the Federal Reserve Bank. The required reserve
balances were $252,000 and $279,000 at December 31, 1996 and 1995,
respectively.
As compensation for check clearing and other services, compensating balances
of approximately $2,800,000 and $4,900,000 were maintained with correspondent
banks at December 31, 1996 and 1995, respectively.
Note 3. Investment Securities
The amortized cost, unrealized gains and losses, and estimated fair value of
major components of available for sale securities at December 31, 1996 and
1995 were as follows:
Amortized Unrealized Unrealized
1996 Cost Gains Losses Fair Value
Available for sale:
US Treasury securities $ 3,281,761 12,027 (5,429) 3,288,359
Government Agency securities 8,294,103 3,437 (54,111) 8,243,429
Mortgage-backed securities 4,552,100 21,698 (34,796) 4,539,002
Corporate debt securities 807,530 - (10,825) 796,705
Federal Reserve stock
and other securities 540,406 - - 540,406
$ 17,475,900 37,162 (105,161) 17,407,901
Amortized Unrealized Unrealized
1995 Cost Gains Losses Fair Value
Available for sale:
US Treasury securities $ 6,785,849 22,822 (9,687) 6,798,984
Government Agency securities 2,500,000 2,650 - 2,502,650
Mortgage-backed securities 2,690,646 24,340 (15,788) 2,699,198
Corporate debt securities 1,366,002 - (52,337) 1,313,665
Federal Reserve stock
and other securities 555,723 - - 555,723
$ 13,898,220 49,812 (77,812) 13,870,220
The amortized cost and estimated fair value of investment securities at
December 31, 1996 and 1995, by contractual maturity are shown below, except
for mortgage-based securities, Federal Reserve stock and other securities
which are presented in total. 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.
1996 Amortized Cost Fair Value
Due in one year or less $ 2,976,313 2,960,060
Due after one year through five years 9,071,686 9,053,039
Due after five years through ten years 500,000 480,000
Mortgage-backed securities 4,552,100 4,539,002
Federal Reserve Stock and other securities 375,800 375,800
$ 17,475,900 17,407,901
1995 Amortized Cost Fair Value
Due in one year or less $ 5,237,875 5,242,447
Due after one year through five years 5,605,299 5,564,175
Mortgage-backed securities 2,690,646 2,699,198
Federal Reserve Stock and other securities 364,400 364,400
$ 13,898,220 13,870,220
There were no sales of securities during 1996 or 1995. In November 1995, the
Financial Accounting Standards Board issued a special report, A Guide to
Implementation of Statement No. 115, on Accounting for Certain Investments in
Debt and Equity Securities -- Questions and Answers (the Special Report). The
Special Report allowed companies to reassess the appropriateness of the
classifications of all securities held and account for any resulting
reclassification at fair value. Bancorp adopted the reclassification provision
stated in the Special Report prior to December 31, 1995 and transferred
approximately $6.6 million of held-to-maturity securities into available-for-
sale. The unrealized pretax gain upon transfer was approximately $15,000 as of
December 31, 1995.
Investment securities with an amortized cost of approximately $2,740,000 and
$2,835,000 at December 31, 1996 and 1995, respectively, were pledged to secure
public deposits and for other purposes required or permitted by law.
Note 4. Loan Concentrations and Allowance for Loan Losses
The majority of the Bank's business is done with customers located in Northern
California, specifically in the San Francisco Bay Area. The Bank has a
significant amount of credit arrangements that are secured by real estate
collateral. Generally, the Bank attempts to maintain loan to value ratios no
greater than 65 percent on commercial and multi-family real estate loans and
no greater than 80 percent on single-family residential real estate loans. At
December 31, 1996 and 1995, the Bank had loans outstanding of approximately
$26,830,000 and $17,983,000 respectively, that were collateralized by local
real estate.
Changes in the allowance for loan losses were as follows:
1996 1995 1994
Balance, beginning of year $ 403,651 390,465 670,116
Provision (recovery) for loan losses (40,000) 40,000 173,000
Loan charge-offs (3,769) (284,860) (641,849)
Recoveries of loan charge-offs 158,927 258,046 189,198
Balance, end of year $ 518,809 403,651 390,465
Net loan chargeoffs (recoveries) as a
percentage of average total loans (0.36)% 0.08% 1.24%
Non-accrual loans were $6,199, $45,199, and $352,330, at December 31, 1996,
1995, and 1994, respectively. At December 31, 1996, there were no additional
loan commitments to borrowers whose loans were identified as non-accrual.
No loans were restructured during 1996, 1995, and 1994.
The following is a summary of interest foregone on non-accrual and
restructured loans for the years ended December 31:
(in thousands) 1996 1995 1994
Interest income that would have been
recognized had the loans performed
in accordance with their original
terms $ 2,774 4,474 18,837
Less: Interest income recognized on
non-accrual and restructured loans - - -
Interest foregone on non-accrual and
restructured loans $ 2,774 4,474 18,837
Bancorp adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 114, Accounting by Creditors for Impairment of Loan, as amended by
SFAS No. 118, Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures, effective January 1, 1995. SFAS No. 114 required
entities to measure certain impaired loans based on the present value of
future cash flows discounted at the loan's effective interest rate, or at the
loan's market value or the fair value of collateral if the loan is collateral
dependent. A loan is considered impaired when, based on current information
and events, it is probable that Bancorp will be unable to collect all amounts
due according to the contractual terms of the loan agreement, including
scheduled interest payments. Bancorp generally identifies loans to be reported
as impaired when such loans are in non accrual status or are considered
troubled debt restructurings due to the granting of a below-market rate of
interest or a partial forgiveness of indebtedness on an existing loan. If the
measurement of the impaired loans is less than the recorded investment in the
loan, impairment is recognized by creating or adjusting an existing allocation
of the allowance for loan losses. The adoption of SFAS No. 114 did not have a
material effect on Bancorp's financial statements, as Bancorp's policy of
measuring loan impairment was consistent with methods prescribed in these
standards. At December 31, 1996, the recorded investment in loans for which
impairment was recognized in accordance with SFAS No. 114 totaled $6,199, of
which there was a related reserve for loan losses of $1,240.
The average balances of Bancorp's impaired loans for the year ended December
31, 1996, was $29,177. In general, Bancorp does not recognize any interest
income on loans that are classified as impaired.
Note 5. Premises and Equipment
The following presents the cost of premises and equipment including leasehold
improvements and the related accumulated depreciation and amortization at
December 31:
1996 1995
Premises and leasehold improvements $ 2,142,446 2,142,446
Furniture, fixtures and equipment 871,951 822,368
3,014,397 2,964,814
Less accumulated depreciation and amortization (2,137,926) (2,032,261)
Premises and equipment, net $ 876,471 932,553
Depreciation and amortization expense related to premises and equipment
amounted to $103,026, $126,153, and $151,443 in 1996, 1995 and 1994,
respectively.
Note 6. Income Taxes
Income tax expense (benefit) for the years ended December 31, 1996, 1995, and
1994 consists of:
1996 1995 1994
Current: Federal $ 395,600 166,900 94,500
State 105,000 2,400 18,000
500,600 169,300 112,500
Deferred: Federal (77,600) (33,700) -
State 17,000 71,400 -
(60,600) 37,700 -
$ 440,000 207,000 112,500
A reconciliation of the tax computed at the Federal statutory tax rate to the
actual income tax rate on income is as follows:
1996 1995 1994
Income tax expense
at the statutory tax rate 34.0% 34.0% 34.0%
State income taxes, net 7.5 7.5 4.0
Merger-related expenses 3.2 - -
Other, net (0.6) 3.9 0.4
Change in deferred tax
asset valuation allowance (3.1) (13.7) -
41.0% 31.7% 38.4%
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
1995 are presented below:
1996 1995
Deferred tax assets:
Book provision for loan losses in excess of tax $ - 2,800
State taxes 42,600 800
Premises and equipment, principally due to
differences between depreciation and
amortization charged to income and
amount deducted for tax purposes 60,000 42,200
Adjustment for available-for-sale securities
market valuation 28,000 7,000
Other, net 11,700 8,000
142,300 60,800
Less: valuation allowance - (33,700)
Total deferred tax assets 142,300 27,100
Deferred tax liabilities:
Tax reserve in excess of book
provision for loan loss 15,800 -
Difference between accrual
and cash taxable income 75,600 57,800
Total deferred tax liabilities 91,400 57,800
Net deferred tax asset (liability) $ 50,900 (30,700)
Bancorp believes a valuation allowance is not needed to reduce the net
deferred tax assets as it is more likely than not that the net deferred tax
assets will be realized through recovery of taxes previously paid and/or
future taxable income.
Note 7. Deposits
Time deposits of $100,000 or more and their remaining maturities at
December 31 are approximately as follows:
1996 1995
Three months or less $ 6,419,000 6,992,000
Four through six months 3,416,000 1,971,000
Seven through twelve months 2,341,000 759,000
Over twelve months 408,000 967,000
$ 12,584,000 10,689,000
Interest expense on time deposits of $100,000 or more was approximately
$603,985, $578,000, and $437,000 for the years ended December 31, 1996, 1995
and 1994 respectively.
Note 8. Common Stock and Stock Options
Bancorp has adopted a qualified stock option plan for officers and key
employees (the Plan) under which a maximum of 100,000 shares of Bancorp's
common stock may be issued. The Plan calls for the exercise prices of the
options to be equal to or greater than the fair market value of the stock at
date of the grant. Since 1984, options for a total of 92,500 shares of common
stock have been granted with an option price of $5.00 per share, with full
vesting generally occurring within five to seven years of the grant date. The
expiration period of vested options ranges from the years 1997 through 2000,
or within six months of termination. The number of shares of common stock
subject to options and exercisable at December 31, 1996 was 40,500.
In 1990, Bancorp adopted a non-qualified stock option plan for certain of its
directors. Persons eligible to receive grants of options under this plan are
directors of Bancorp and the Bank. The amount of shares of stock that may be
subject to options granted under the plan is limited to 10% of the total
number of issued and outstanding shares of Bancorp stock. In October 1990,
stock options to acquire 35,000 shares of common stock were granted to the
directors with an option price of $5.25 per share. In December 1995, stock
options to acquire 28,750 shares of common stock were granted to the directors
with an option price of $4.50 per share. These options are immediately
exercisable and expire in ten years from the date of grant, or within six
months of resignation. No options were granted in 1996 and no options had been
exercised as of December 31, 1996. The number of shares of common stock
subject to these options and exercisable at December 31, 1996 was 56,250.
The following is a summary of transactions which occurred during 1994, 1995
and 1996:
Options Outstanding
Officers & Employees Directors
December 31, 1993 57,500 27,500
Options granted 35,000 -
Options expired/forfeited (30,000) -
December 31, 1994 62,500 27,500
Options granted - 28,750
Options expired/forfeited - -
December 31, 1995 62,500 56,250
Options granted - -
Options expired/forfeited (13,000) -
Options exercised (2,000) -
December 31, 1996 47,500 56,250
Options exercisable at December 31, 1996 40,500 56,250
On October 23, 1995, the Financial Accounting Standards Board issued Statement
No. 123, Accounting for Stock-Based Compensation, (SFAS No. 123). Bancorp
adopted this statement in 1996 and retained its current method of accounting
for stock compensation. Accordingly, no compensation cost has been recognized
for either plan. Bancorp did not issue any options in 1996. In 1995, Bancorp
issued 28,750 options under the non-qualified stock option plan. Had
compensation cost for Bancorp's stock-based compensation plans been determined
consistent with SFAS No. 123, Bancorp's net income and earnings per share
would have been $388,466 and $0.35, respectively, compared to the as reported
amounts of $445,382 and $0.40, respectively, for the year ended December 31,
1995.
The fair value of each option grant for 1995 was estimated on the date of
grant using an option pricing model with the following weighted average
assumptions: dividend yield of 0 percent, expected volatility of 36 percent,
risk-free interest rate of 7.9 percent, and expected life of 10 years. The
weighted average fair value of the options granted during 1995 was $2.90.
Under the definitive agreement pursuant to which a private investor group will
acquire all of the issued and outstanding shares of Bancorp discussed in Note
17, outstanding options will be converted into the right to receive a cash
payment equal to the difference between the strike price and $8.00 per share
at closing and a possible subsequent payment from escrowed funds of up to
$0.61 per share following the resolution of certain pending contingencies.
Note 9. Employee Stock Ownership Plan
In July, 1990, Bancorp created an Employee Stock Ownership Plan (ESOP) for the
benefit of all employees who have worked for the Bank for one or more years.
The ESOP borrowed $180,000 at a variable interest rate from a third party
financial institution, to be repaid over a 5 year period. The loan was paid
off in 1995. The proceeds from the borrowing were used to purchase 48,400
shares of Bancorp common stock for the ESOP which was pledged as collateral
for the borrowing. For the years ended December 31, 1996, 1995, and 1994, the
Bank provided cash contributions of $0, $26,250, and $45,000, respectively,
which were included in salaries and employee benefits. Interest expense on
ESOP debt was $0, $2,600, and $6,300 for 1996, 1995 and 1994, respectively.
The ESOP Plan was terminated in December 1996.
Note 10. Related Party Transactions
In the ordinary course of business, the Bank makes loans to directors,
officers, shareholders and their associates on substantially the same terms,
including interest rates, origination and commitment fees, and collateral, as
comparable transactions with unaffiliated persons, and such loans do not
involve more than the normal risk of collectibility. At December 31, 1996, no
related party loans were on non-accrual or classified for regulatory reporting
purposes.
Total loans made to or guaranteed by the Bank's directors and officers and
their related companies totaled $1,934,832 and $2,546,172 at December 31, 1996
and 1995, respectively. Activity related to loans to directors, officers and
principal shareholders and their associates for the year ended December 31,
1996 and 1995 is as follows:
1996 1995
Balance at December 31, 1995 $ 2,546,172 2,641,733
New loans or disbursements 1,145,162 276,500
Principal repayments (1,251,670) (372,061)
Loans of former related parties (504,832) -
Balance at December 31, 1996 $ 1,934,832 2,546,172
Note 11. Commitments and Contingencies
Bancorp leases certain banking premises under an operating lease that expires
April 1, 2001, with a renewal option under similar terms until April 1, 2004.
Minimum rental commitments for future years under this noncancelable lease are
as follows at December 31, 1996:
1997 $ 120,000
1998 120,000
1999 120,000
2000 120,000
2001 30,000
$ 510,000
The total rental expense was $120,000 for each of the years ended December 31,
1996, 1995, and 1994.
Additionally, the Bank is involved in various claims and lawsuits in the
normal course of its business. In the opinion of management, after review with
independent legal counsel, the ultimate liability resulting from such claims
and lawsuits will not have a material adverse effect on the financial
position, results of operations, or liquidity of the Bank.
Note 12. Financial Instruments with Off-Balance-Sheet Risk
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 customers.
These financial instruments include commitments to extend credit, 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 consolidated 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 and 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.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Bank upon extension of credit is based on
management's credit evaluation. Collateral held varies but may include cash,
securities, accounts receivable, inventory, property, plant and equipment,
residential real estate and income-producing commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. Financial instruments whose contract amounts represent credit risk
at December 31:
1996 1995
Commitments to extend credit $ 14,539,000 12,949,000
Standby letters of credit $ 1,258,000 775,000
Note 13. Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of
Bancorp's financial instruments at December 31, 1996. The fair value of
financial instruments does not represent actual amounts that may be realized
upon any sale or liquidation of the related assets or liabilities. In
addition, these values do not give effect to discounts to fair value which may
occur when financial instruments are sold in larger quantities. The fair
values presented represent Bancorp's best estimate of fair value using the
methodologies discussed below.
The respective carrying values of certain on-balance-sheet financial
instruments approximated their fair values. These financial instruments
include cash and due from banks, interest-bearing deposits in banks, federal
funds sold, customers' acceptance liability, accrued interest receivable,
other short-term borrowings, acceptances outstanding and accrued interest
payable. Carrying values were assumed to approximate fair values for these
financial instruments as they are short term in nature and their recorded
amounts approximate fair values or are receivable or payable on demand.
Bancorp does not use derivative financial instruments.
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial Assets
Securities available for sale $ 17,407,901 17,407,901 13,870,220 13,870,220
Loans 47,535,144 47,151,954 38,744,088 38,561,377
Financial Liabilities
Deposits $ 68,411,575 68,421,931 57,563,988 57,607,208
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Securities: The fair values of securities classified as available-for-sale are
based on quoted market prices at the reporting date for those or similar
investments.
Loans: The fair value of fixed rate loans is determined as the present value
of expected future cash flows discounted at the interest rate currently
offered by Bancorp, which approximates rates currently offered by local
lending institutions for loans of similar terms to companies with comparable
credit risk. Variable rate loans which reprice frequently with changes in
market rates, were valued using the outstanding principal balance. The
estimated fair value of loan commitments and contingent liabilities at
December 31, 1996, approximated current book values.
Deposits: The fair values of demand deposits, savings deposits, and money
market deposits without defined maturities were the amounts payable on demand.
For substantially all deposits with defined maturities, the fair values were
calculated using discounted cash flow models based on market interest rates
for different product types and maturity dates. For variable rate deposits
where Bancorp has the contractual right to change rates, carrying value was
assumed to approximate fair value. The discount rates used were based on rates
for comparable deposits.
Note 14. Condensed Financial Information of Trans Pacific Bancorp (Parent
Company Only)
Condensed Balance Sheets
December 31,
1996 1995
Assets:
Cash and due from banks $ 62,803 27,884
Investment in subsidiary 7,274,521 6,511,607
Total assets $ 7,337,324 6,539,491
Liabilities:
Other liabilities 65,625 7,520
Stockholders' Equity:
Common stock 5,794,323 5,784,323
Retained Earnings 1,517,376 768,648
Net unrealized losses on
available for sale securities (40,000) (21,000)
Total liabilities and stockholders' equity $ 7,337,324 6,539,491
Condensed Statements of Operations
Years Ended December 31,
1996 1995 1994
Income $ 978 1,363 2,932
Expenses 194,707 65,297 55,045
Net loss before equity in undistributed
loss of subsidiary (193,729) (63,934) (52,113)
Equity in undistributed income
of subsidiary 826,781 509,316 232,304
Net income $ 633,052 445,382 180,191
Condensed Statements of Cash Flows
Years ended December 31,
1996 1995 1994
Cash flows from operating activities:
Net income $ 633,052 445,382 180,191
Adjustments to reconcile net income
to net cash (used in) provided
by operating activities:
Decrease in other assets - 5,000 -
Increase (decrease) in other liabilities 58,105 (553) (2,533)
Equity in undistributed income
of subsidiary (826,781) (509,316) (232,304)
Total adjustments (768,676) (504,869) (234,837)
Net cash used in operating activities: (135,624) (59,487) (54,646)
Net cash provided by investing activities - - -
Cash flows from financing activities:
Repurchase of common stock - - (50,504)
Dividends paid (89,457) - -
Proceeds from stock options exercised 10,000 - -
Dividend from subsidiary 250,000 - -
Net cash provided by (used in)
financing activities 170,543 - (50,504)
Net increase (decrease) in cash and
cash equivalents 34,919 (59,487) (105,150)
Cash and cash equivalents at beginning
of year 27,884 87,371 192,521
Cash and cash equivalents at end
of year $ 62,803 27,884 87,371
Note 15. Capital Adequacy
Bancorp and the Bank are subject to various regulatory capital adequacy
requirements administered by the Federal Reserve Board (FRB) and the Office of
the Comptroller of the Currency (OCC), respectively. The Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA) required that the
federal regulatory agencies adopt regulations defining five capital tiers for
banks: well-capitalized, adequately capitalized, under capitalized,
significantly undercapitalized, and critically undercapitalized. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, would have
a direct material effect on Bancorp's financial statements.
Quantitative measures, established by the regulators to ensure capital
adequacy, require that Bancorp and the Bank maintain minimum ratios (set forth
in the table on the next page) of capital to risk-weighted assets. There are
two categories of capital under the guidelines. Tier 1 capital includes common
stockholders' equity and qualifying preferred stock less certain intangible
assets and certain other deductions. Tier 2 capital includes preferred stock
not qualifying as Tier 1 capital, mandatory convertible debt, subordinated
debt, certain unsecured senior debt issued by the Parent and the allowance for
loan losses, subject to limitations by the guidelines. Tier 2 capital is
limited to the amount of Tier 1 capital (i.e., at least half of the total
capital must be in the form of Tier 1 capital).
Under the guidelines, capital is compared to the relative risk related to the
balance sheet. To derive the risk included in the balance sheet, one of four
risk weights (0, 20, 50, and 100 percent) is applied to the different balance
sheet and off-balance sheet assets, primarily based on the relative credit
risk of the counterparty. The capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Management believes that, as of December 31, 1996, Bancorp and the Bank met
all capital adequacy requirements to which they were subject.
The most recent notification from the OCC categorized the Bank as well
capitalized under the FDICIA regulatory framework for prompt corrective
action. To be categorized as well capitalized, the institution must maintain a
total risk-based capital ratio as set forth in the following table and not be
subject to a capital directive order (such as a Formal Agreement). There are
no conditions or events since that notification that management believes have
changed the Bank's risk-based capital category.
To Be Well
Capitalized Under
the FDICIA
For Capital Prompt Corrective
(Amount in thousands) Actual Adequacy Purposes: Action Provisions:
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1996:
Total capital (to risk
weighted assets)
Bank 7,694 14.46% >= 4,257 >= 8.00% >= 5,322 >= 10.00%
Bancorp 7,486 14.17% >= 4,226 >= 8.00% >= 5,283 >= 10.00%
Tier 1 capital (to risk
weighted assets)
Bank 7,175 13.48% >= 2,129 >= 4.00% >= 3,193 >= 6.00%
Bancorp 6,967 13.19% >= 2,113 >= 4.00% >= 3,170 >= 6.00%
Tier 1 capital (to
average assets)
(Leverage ratio)
Bank 7,175 9.62% >= 2,982 >= 4.00%(1) >= 3,728 >= 5.00%
Bancorp 6,967 9.39% >= 2,966 >= 4.00%(1) >= 3,708 >= 5.00%
As of December 31, 1995:
Total capital (to risk
weighted assets)
Bank 6,915 17.05% >= 3,244 >= 8.00% >= 4,055 >= 10.00%
Bancorp 6,759 16.81% >= 3,216 >= 8.00% >= 4,020 >= 10.00%
Tier 1 capital (to risk
weighted assets)
Bank 6,511 16.06% >= 1,622 >= 4.00% >= 2,433 >= 6.00%
Bancorp 6,355 15.81% >= 1,608 >= 4.00% >= 2,412 >= 6.00%
Tier 1 capital (to
average assets)
(Leverage ratio)
Bank 6,511 10.03% >= 2,596 >= 4.00%(1) >= 3,245 >= 5.00%
Bancorp 6,355 9.85% >= 2,582 >= 4.00%(1) >= 3,227 >= 5.00%
(1) The leverage ratio consists of Tier 1 capital divided by quarterly
average assets, excluding intangible assets and certain other items. The
minimum leverage ratio guideline is 3% for banking organizations that do
not anticipate significant growth and that have well-diversified risk,
excellent asset quality, high liquidity, good earnings and, in general,
are considered top-rated, strong banking organizations.
Between December 1992 and September 1994, the Bank was required to maintain a
Tier 1 capital ratio of at least 10 percent, and a leverage ratio of at least
6 percent, levels higher than the regulatory minimums shown above, under the
terms of the Bank's Formal Agreement (see Note 16).
Note 16. Regulatory Matters
On December 17, 1992, the Bank entered into a Formal Agreement (the Agreement)
with the Office of the Comptroller of the Currency (OCC). The Formal Agreement
required the Bank to maintain Tier 1 capital of at least 10 percent of risk-
weighted assets and Tier 1 capital of at least 6 percent of adjusted total
assets. The Agreement also required the following of the Bank: (1) develop a
program to improve the effectiveness of Board supervision; (2) develop a
program to improve the Bank's loan administration and underwriting; (3)
develop and implement an asset review program to ensure the timely
identification of problem loans, other real estate owned and other assets; (4)
develop and implement a written program to collect or strengthen criticized
and classified loan assets; (5) submit a 3 year capital plan for OCC approval;
and (6) develop a plan to improve liquidity management. The Agreement also
restricted the Bank's ability to pay dividends to Bancorp. On September 8,
1994, the Bank's Formal Agreement with the OCC was terminated, as the Bank had
achieved full compliance with the Agreement. On July 22, 1993, Bancorp and the
Federal Reserve Bank, Bancorp's primary regulator, signed a Memorandum of
Understanding (MOU). This MOU required Bancorp to: (1) report on measures
taken to improve the financial condition of Trans Pacific National Bank, (2)
report on measures taken to improve the Directors' supervision of Trans
Pacific National Bank, and (3) furnish quarterly progress reports that shall
include financial statements and information detailing the form and manner of
all actions to attain compliance with the MOU. Additionally, Bancorp was
required to obtain Federal Reserve approval before: (1) paying cash dividends
to shareholders, (2) incurring additional debt, (3) repurchasing outstanding
stock, and (4) adding or replacing a Director or senior executive officer. On
February 27, 1995, Bancorp's MOU with the Federal Reserve Bank was terminated.
Under the National Bank Act, the Bank is subject to prohibitions on the
payment of dividends in certain circumstances and to restrictions on the
amount that can be paid to Bancorp without the prior approval of the Office of
the Comptroller of the Currency (OCC). Without the Comptroller's approval,
dividends for a given year cannot exceed the Bank's net profits, as defined by
national bank laws, for that year and retained from the preceding two years.
Under this formula, the Bank could have declared dividends to Bancorp of
$1,568,000. The Bank paid dividends of $250,000, $0, and $0 to Bancorp in
1996, 1995 and 1994, respectively.
Note 17. Merger Agreement
On October 18, 1996, Bancorp entered into a definitive agreement pursuant to
which a private investor group led by Chicago banker Denis Daly, Sr. will
acquire all of the issued and outstanding shares of Bancorp.
Subject to certain terms and conditions, each outstanding share of Bancorp
will be converted into the right to receive a cash payment of $8.00 per share
at closing and a possible subsequent payment from escrowed funds of up to
$0.61 per share following the resolution of certain pending contingencies.
The merger will be treated as a purchase for accounting purposes. The
shareholders of Bancorp approved the acquisition in December 1996; the
acquisition of Bancorp is now subject to approval by regulatory authorities.
The transaction is expected to be completed by March 31, 1997.
TRANS PACIFIC BANCORP
BOARD OF DIRECTORS
JAMES A. BABCOCK
President
Sandy & Babcock, Inc.
EDDY S.F. CHAN
Banker, Chairman
Trans Pacific National Bank
FRANKIE G. LEE
Partner, SOH & Associates
Structural Engineers
JOHN K. LEE
President, John K. Lee, C.P.A.
A Professional Corporation
BRUCE NAKAHIRA
President
New Century Investments, Inc.
JOHN T. STEWART
Attorney, Partner
Hovis, Larson, Stewart, Lipscomb,
Cross
SIMON S. TENG
Partner
John R. McKean Accountants
FRANK K.W. WONG
Private Investor
JOHN K. WONG
Banker, Executive Vice President
Trans Pacific National Bank
DIRECTORS EMERITI
MERLE S. KONIGSBERG
President (Retired)
Shaff Furniture Company
WARREN K. MILLER
Transportation Consultant
(Retired)
TRANS PACIFIC NATIONAL BANK
PRINCIPAL OFFICERS
EDDY S.F. CHAN
Chairman, President
Chief Executive Officer
Director
ROBERT A. HINKLE
Executive Vice President
Chief Lending Officer
INTERNATIONAL TRADE DIVISION
JOHN K. WONG
Executive Vice President
Senior Lending Officer
Director
BONNIE L. HAO
Senior Vice President
SAN FRANCISCO BRANCH
GRANT BARNEY SCHLEY
Senior Vice President
Regional Branch Manager
EAST BAY BUSINESS BANKING CENTER
LORRAINE S. BRAUD
Vice President
Branch Manager
TRANS PACIFIC NATIONAL BANK
SAN FRANCISCO BRANCH
COMMERCIAL AND
INTERNATIONAL TRADE DIVISIONS
46 Second Street
San Francisco, CA 94105-3440
Tel: (415) 543-3377
Fax: (415) 495-5154
E-mail [email protected]
Telex: RCA 210903 TPNB
EAST BAY BUSINESS BANKING CENTER
1442 Webster Street
Alameda, CA 94501-3339
Tel: (510) 769-1000
Fax: (510) 769-1180
ADMINISTRATION HEADQUARTERS
46 Second Street
San Francisco, CA 94105-3440
Tel: (415) 543-3377
Fax: (415) 495-5154
Telex: RCA 210903 TPNB
Exhibit 23
The Board of Directors
Trans Pacific Bancorp:
We consent to the incorporation by reference in the registration statement
(Form S-8 No. 33-39190) pertaining to the Trans Pacific Bancorp Employee Stock
Ownership Plan and Trust and in the registration statement (Form S-8 No. 33-
39191) pertaining to the Trans Pacific Bancorp Non Qualified Stock Option
Plan, of our report dated February 7, 1997, relating to the consolidated
balance sheets of Trans Pacific Bancorp and Subsidiary as of December 31,
1996, and 1995, and the related consolidated statements of operations, changes
in stockholders' equity, and cash flows for each of the years in the three-
year period ended December 31, 1996, which report appears in the December 31,
1996 annual report of Trans Pacific Bancorp incorporated by reference in this
annual report on Form 10-K for the year ended December 31, 1996.
/s/KPMG Peat Marwick LLP
San Francisco, California
March 10, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3423798
<INT-BEARING-DEPOSITS> 393000
<FED-FUNDS-SOLD> 6200000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17407901
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 47535144
<ALLOWANCE> 518809
<TOTAL-ASSETS> 77133275
<DEPOSITS> 68411575
<SHORT-TERM> 606086
<LIABILITIES-OTHER> 1049047
<LONG-TERM> 0
0
0
<COMMON> 5794323
<OTHER-SE> 1272244
<TOTAL-LIABILITIES-AND-EQUITY> 77133275
<INTEREST-LOAN> 4355304
<INTEREST-INVEST> 830661
<INTEREST-OTHER> 353512
<INTEREST-TOTAL> 5539477
<INTEREST-DEPOSIT> 2083455
<INTEREST-EXPENSE> 2109489
<INTEREST-INCOME-NET> 3429988
<LOAN-LOSSES> (40000)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3036494
<INCOME-PRETAX> 1073052
<INCOME-PRE-EXTRAORDINARY> 633052
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 633052
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.45
<LOANS-NON> 6000
<LOANS-PAST> 3000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 403651
<CHARGE-OFFS> 3769
<RECOVERIES> 158927
<ALLOWANCE-CLOSE> 518809
<ALLOWANCE-DOMESTIC> 376375
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 142434
</TABLE>
This proxy statement dated November 15, 1996, is filed as Supplemental
nformation pursuant to the instructions on Form 10-K and furnished to the
Commission for its information only and shall not be deemed to be "filed" with
the Commission or otherwise subject to the liabilities of Section 18 of the
Securities and Exchange Act of 1934, as amended.
November 14, 1996
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders
of Trans Pacific Bancorp ("Bancorp"), the parent company for Trans Pacific
National Bank, to be held at Bancorp's offices located at 46 Second Street,
San Francisco, California, on December 19, 1996, at 4:30 p.m., Pacific Time.
The primary purpose of the meeting is to consider and vote on a proposal
to approve and adopt the Agreement and Plan of Merger by and between Bancorp
and TRP Acquisition Corporation, a Delaware corporation, and the transactions
contemplated by these documents (the "Merger"). On completion of the Merger,
the existing shareholders of Bancorp will receive a cash payment of $8.00 per
share and a right to share, pro rata, in a possible additional distribution
from an escrow account of up to $0.61, and Bancorp will become wholly owned by
shareholders of TRP Acquisition Corporation.
Details of the proposed Merger and other important information are
described in the accompanying Notice of Special Meeting and Proxy Statement.
You are urged to give these important documents your prompt attention.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE
AGREEMENT AND PLAN OF MERGER.
Approval of the Agreement and Plan of Merger requires the affirmative
vote of at least a majority of the outstanding shares of Bancorp Common Stock.
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 Agreement and Plan of Merger.
IN ORDER TO ENSURE THAT YOUR VOTE IS REPRESENTED AT THE MEETING, THE
BOARD OF DIRECTORS URGES YOU TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE EVEN IF YOU
CURRENTLY PLAN TO ATTEND THE MEETING. THIS WILL NOT PREVENT YOU FROM VOTING
IN PERSON, BUT WILL ASSURE THAT YOUR VOTE IS COUNTED IF YOU ARE UNABLE TO
ATTEND THE MEETING.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
Your thoughtful attention to this Merger proposal and the support that
you have given us in the past are greatly appreciated.
Sincerely,
/s/ Eddy S.F. Chan
President and Chief Executive Officer
TRANS PACIFIC BANCORP
46 Second Street
San Francisco, CA 94105
(415) 543-3377
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 19, 1996
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders ("Meeting") of
TRANS PACIFIC BANCORP ("Bancorp" or the "Company") will be held at the offices
of Bancorp and its wholly owned subsidiary, Trans Pacific National Bank (the
"Bank"), located at 46 Second Street, San Francisco, California, on December
19, 1996, at 4:30 p.m., Pacific Time. A proxy card and a Proxy Statement for
the Meeting are enclosed. The Meeting is for the purpose of considering and
voting upon:
1. A proposal to approve and adopt the Agreement and Plan of Merger, dated
as of October 18, 1996 (the "Agreement"), by and between TRP ACQUISITION
CORP. ("TRP"), a Delaware corporation, and the Company, pursuant to
which (i) TRP would merge with and into Bancorp, with Bancorp surviving
that merger wholly owned by the shareholders of TRP; (ii) each
outstanding share of Bancorp common stock (other than certain shares for
which any dissenters' rights may have been perfected) would be converted
into the right to receive $8.00 in cash, without interest, plus possible
subsequent payments up to a maximum of $0.61 which are being held back
pending the resolution of certain bank loans and other contingencies. A
copy of the Agreement is attached as Appendix A to the Proxy Statement
(collectively these merger transactions are known as "the Merger"); and
2. Such other matters as may properly come before the Meeting or any
adjournments or postponements thereof.
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the proposed Merger and has received the opinion of Baxter,
Fentriss and Company ("Baxter Fentriss") as to the fairness of the Merger from
a financial point of view. The full text of the opinion of Baxter Fentriss is
attached to the Proxy Statement as Appendix E. Based on the opinion of Baxter
Fentriss, your Board of Directors believes that the Merger is fair from a
financial point of view and in the best interest of Bancorp shareholders, and
recommends that you vote "FOR" the approval of the Agreement and the Merger.
Any action may be taken on the foregoing proposal at the Meeting on the date
specified above or any adjournment or postponement thereof. Shareholders of
record at the close of business on October 31, 1996 are the shareholders
entitled to vote at the Meeting and any adjournment or postponement thereof.
The Board of Directors can authorize any adjournment or postponement of the
Meeting.
The Board of Directors is not aware of any other business to come before the
Meeting.
Upon completion of the Merger, Bancorp will be wholly owned by the
stockholders of TRP.
The affirmative vote of the holders of a majority of the outstanding shares of
Bancorp common stock is required to approve the proposal to adopt the
Agreement. You are requested to vote, sign and date the enclosed form of
proxy, which is solicited by the Board of Directors, and to mail it promptly
in the enclosed envelope. The proxy will not be used if you attend and vote at
the meeting in person.
Any shareholders who wish to perfect dissenters' appraisal rights for their
shares of Bancorp common stock must comply with the requirements of Sections
1300, 1301, 1302, 1303 and 1304 of Chapter 13 of the California General
Corporation Law ("CGCL"), which is set forth as Appendix F to the accompanying
Proxy Statement. See "DISSENTERS' APPRAISAL RIGHTS" for a summary of Sections
1300, 1301, 1302, 1303 and 1304 of the CGCL and Appendix F for a full
statement of Chapter 13 of the CGCL. A shareholder's failure to follow exactly
the procedures specified will result in a loss of such shareholder's
dissenter's appraisal rights, should they otherwise exist in the Merger.
San Francisco, California November 15, 1996
BY ORDER OF THE BOARD OF DIRECTORS:
Corporate Secretary
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE EXPENSE OF FURTHER
REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM. A POSTAGE PREPAID ENVELOPE
IS ENCLOSED FOR YOUR CONVENIENCE.
TRANS PACIFIC BANCORP
46 Second Street
San Francisco, California 94105
(415) 543-3377
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
December 19, 1996
INTRODUCTION
This Proxy Statement and the accompanying proxy card are being furnished to
the holders of common stock, no par value per share ("Bancorp Common Stock" or
"Common Stock" herein), of Trans Pacific Bancorp. ("Bancorp" or the "Company")
in connection with the solicitation of proxies by the Board of Directors of
Bancorp for use at a special meeting of shareholders ("Meeting") to be held on
December 19, 1996, or at any adjournment or postponement thereof. The Meeting
will be held at the offices of Bancorp and Trans Pacific National Bank (the
"Bank"), located at 46 Second Street, San Francisco, California on December
19, 1996, at 4:30 p.m., Pacific Time.
This Proxy Statement and the proxy card are first being mailed on or about
November 22, 1996 to shareholders of record on October 31, 1996 ("Record
Date").
At the Meeting, shareholders will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of
October 18, 1996 (together with the annexes thereto, the "Agreement"), by and
between Bancorp, a California corporation which is registered as a bank
holding company, and TRP Acquisition Corp. ("TRP"), a Delaware Corporation. A
copy of the Agreement is attached to this Proxy Statement as Appendix A.
Pursuant to the Agreement: (i) on the Effective Time, as hereinafter defined,
TRP will merge with and into Bancorp, with Bancorp being the Surviving
Corporation, wholly owned by the stockholders of TRP (the "Surviving
Corporation"); (ii) each share of Bancorp Common Stock outstanding at the
Effective Time of the Merger (other than certain shares, if any, that may be
held by TRP and shares for which possible dissenters' rights may have been
perfected) will be converted into the right to receive $8.00 in cash, without
interest; plus an amount equal to (a) a pro rata share of net collections
and/or recoveries between July 31, 1996 and the Closing (as hereinafter
defined), if any, on certain loans of the Bank identified in and pursuant to
the Escrow Agreement (as hereinafter defined), which amount, together with the
foregoing $8.00 is referred to herein as the "Cash Consideration"), and (b) a
pro rata share of the net collections and/or recoveries following the Closing,
if any, on certain loans of and a claim against the Bank, represented by the
Escrow Fund (as hereinafter defined), less costs incurred in connection with
the resolution of such loans, claims and account, payable to shareholders of
the Company pursuant to the terms of the Escrow Agreement between the Company
and TRP, dated October 18, 1996 (the "Escrow Agreement"). Collectively, the
Cash Consideration and the amount representing that pro rata share of the
Escrow Fund payable to each shareholder of the Company are referred to herein
as the "Merger Consideration." See "THE MERGER - Termination of Agreement"
for information regarding a possible increase in the Cash Consideration if the
Closing is delayed.
Subject to obtaining any necessary consents, each outstanding stock option
granted under plans maintained by Bancorp will be terminated, and each grantee
will be entitled to receive in lieu thereof payment in cash of the difference
between the Cash Consideration and the per share exercise price of such
option. Each grantee shall also be entitled to receive a pro rata share of
the Escrow Fund pursuant to the terms of the Escrow Agreement. See "THE
MERGER-Interests of Certain Persons in the Merger." For a more complete
description of the Agreement and the terms of the Merger, see "THE MERGER" and
Appendix A.
In addition, Bancorp and its Board of Directors and TRP have entered into
other agreements, namely the Voting Agreement and the Option Agreement
described below, which are material to the transaction describe herein.
THIS PROXY STATEMENT HAS 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 PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement is November 15, 1996.
TABLE OF CONTENTS
Page
SUMMARY OF PROXY STATEMENT 5
Parties to the Merger 5
The Meeting 6
The Merger 7
Directors' Approval and Recommendation of the Merger 8
Opinion of Financial Advisor 8
Effective Time 9
Interests of Certain Persons in the Merger 9
Certain Federal Income Tax Consequences 9
Surrender of Stock Certificates 10
Conditions to Consummation; Termination 10
Regulatory Approvals 10
No Solicitation of Alternative Transactions 11
Escrow Agreement 11
Voting Agreement 12
Option Agreement 12
Dissenters' Appraisal Rights 13
Accounting Treatment 13
Market Prices and Dividends on Bancorp Common Stock 13
SELECTED CONSOLIDATED FINANCIAL DATA FOR BANCORP 15
SPECIAL MEETING OF SHAREHOLDERS 15
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES 16
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF 18
Security Ownership of Management 18
Security Ownership of Certain Beneficial Owners 19
THE MERGER 20
General 20
Background of the Merger 22
Reasons for the Merger 25
Factors Considered by the Board of Directors of Bancorp 26
Opinion of Financial Advisor 27
Closing; Effective Time of the Merger 32
Interests of Certain Persons in the Merger 32
Certain Federal Income Tax Consequences 34
Surrender of Stock Certificates 37
Regulatory Approvals 39
Closing Conditions to the Merger 41
Representations and Warranties. 44
Business Pending Consummation 46
Waiver and Amendment 49
No Solicitation of Alternative Transactions 49
Liquidated Damages 50
Access to Information 51
Restructure of the Transaction 51
Termination of the Agreement 52
TABLE OF CONTENTS (cont.)
Page
THE ESCROW AGREEMENT 53
THE VOTING AGREEMENT 56
THE OPTION AGREEMENT 57
CERTAIN EFFECTS OF THE VOTING AND OPTION AGREEMENTS 61
DISSENTERS' APPRAISAL RIGHTS 62
EXPENSES 66
ACCOUNTING TREATMENT 67
OPERATIONS AFTER THE MERGER 67
BUSINESS OF THE PARTIES TO THE MERGER 67
Bancorp 67
TRP 68
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 68
CERTAIN INFORMATION REGARDING BANCORP 69
OTHER MATTERS 70
SUMMARY OF PROXY STATEMENT
The following is a brief summary of certain information relating to the Merger
contained elsewhere in this Proxy Statement. This summary is not intended to
be a complete description of all material facts regarding TRP or Bancorp and
the matters to be considered at the Meeting, and is qualified in all respects
by the more detailed information appearing elsewhere herein and the Appendices
hereto. A copy of the Agreement, the Escrow Agreement, the Voting Agreement
and the Option Agreement are set forth as Appendices to this Proxy Statement,
and reference is made thereto for a complete description of the terms of the
Merger.
Parties to the Merger
TRP. TRP is a closely held Delaware corporation incorporated on September 27,
1996 for the purpose of entering into the Merger. TRP will file an
application with the Federal Reserve System to become a bank holding company
for the Bank. See "THE MERGER - Regulatory Approvals." The principal and
controlling shareholder of TRP is Denis Daly, Sr., a Chicago banker. The
address and telephone number of TRP are: 803 Burr Ridge Club Drive, Burr
Ridge, Illinois 60521; (630) 789-0439. See "BUSINESS OF THE PARTIES TO THE
MERGER - TRP" for more information.
TRP has obtained a commitment from a Chicago bank for a loan slightly in
excess of $5 million, the proceeds of which will be used to finance a portion
of the Merger Consideration to be paid by TRP in connection with the Merger.
The remainder of the funds necessary to finance the Merger Consideration will
come from equity investments to be made in TRP prior to the Closing and
dividends from the Bank upon Closing.
Mr. Daly has guaranteed the obligations of TRP pursuant to the Agreement if
the Merger is not consummated for certain specified reasons, which obligations
are limited to a maximum of $150,000. See "THE MERGER - Liquidated Damages."
Bancorp. Bancorp, a California corporation, was organized on or about June 1,
1983, for the purpose of becoming the holding company for the Bank, which
transaction became effective on August 21, 1984. At September 30, 1996,
Bancorp had total assets of approximately $73 million, total deposits of
approximately $65 million, and shareholders' equity of approximately
$6.9 million. Bancorp's primary business activity is its investment in the
stock of the Bank. The address and telephone number of Bancorp are: 46
Second Street, San Francisco, CA 94105; telephone: (415) 543-3377.
The Bank. The Bank was organized in 1983 as a national bank and commenced
operations on August 21, 1984. The Bank is regulated by the Office of the
Comptroller of the Currency ("OCC"), and its deposits are insured by the Bank
Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation ("FDIC")
up to applicable limits permitted by the FDIC. The Bank also is a member of
the Federal Reserve Bank of San Francisco. The Bank operates offices in the
City and County of San Francisco and in the City of Alameda, County of
Alameda, California.
The Bank's business consists principally of attracting customer deposits from
the general public and investing those funds in business and industrial loans,
trade finance, and construction and commercial real estate loans. The
principal sources of funds for the Bank's lending and investment activities
are repayment of loans, loan sales, customer deposits and borrowed funds. See
"BUSINESS OF THE PARTIES TO THE MERGER" and "CERTAIN INFORMATION REGARDING
BANCORP."
The Meeting
Place, Time and Date; Purpose. The Meeting will be held at 4:30 p.m., Pacific
Time, on December 19, 1996, at the offices of the Company and the Bank located
at 46 Second Street, San Francisco, California. The purpose of the Meeting is
to consider and vote on a proposal to approve the Agreement and the Merger.
Record Date; Shares Entitled to Vote. The presence, in person or by proxy, of
the holders of a majority of the outstanding shares of Bancorp's Common Stock
is required for a quorum. As of the Record Date, which is October 31, 1996,
there were 1,120,195 shares of Bancorp Common Stock issued and outstanding and
entitled to vote. At such date, shares of Common Stock were held of record by
approximately 300 persons.
Vote Required. Approval of the Agreement will require the affirmative vote of
the holders of a majority of the outstanding shares of Bancorp Common Stock
entitled to vote. Shareholders who execute proxies retain the right to revoke
them at any time prior to their being voted at the Meeting. Bancorp
shareholders are entitled to one vote at the Meeting for each share of Bancorp
Common Stock held of record at the close of business on the Record Date. As of
the Record Date, the Directors and executive officers of Bancorp, together
with affiliates, beneficially owned 331,934 shares of Bancorp Common Stock, or
27.8% of the outstanding shares, including shares subject to outstanding
options exercisable within sixty days held by such persons.
The Directors of Bancorp, who beneficially own an aggregate of 27.4% of the
outstanding shares of Bancorp, have entered into an agreement (the "Voting
Agreement"), a copy of which is attached to this Proxy Statement as Appendix
C, whereby they have agreed to vote their shares of Bancorp "FOR" approval of
the Agreement and the Merger. See "THE VOTING AGREEMENT."
If a majority of the votes eligible to be cast do not vote in favor of the
Agreement, Bancorp will continue to act as a separate entity and a going
concern, with the Bank as its wholly owned subsidiary. 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
Agreement. Any shareholder of record who seeks to perfect dissenters'
appraisal rights must not cast a vote, in person or by proxy, in favor of the
approval of the Agreement. See "DISSENTERS' APPRAISAL RIGHTS".
Revocability of Proxies. Shareholders who execute proxies retain the right to
revoke them at any time. Proxies may be revoked by written notice to the
Corporate Secretary of Bancorp at 46 Second Street, San Francisco, California
94105, or, by the filing of a later dated proxy prior to a vote being taken at
the Meeting, or by attending the Meeting and voting in person.
The Merger
The Agreement, a copy of which is attached hereto as Appendix A and is hereby
incorporated by reference in this Proxy Statement, provides for the merger of
TRP with and into Bancorp, with Bancorp being the Surviving Corporation,
wholly owned by the stockholders of TRP. For a more detailed description of
the Merger, see "THE MERGER."
At the Effective Time (as hereinafter defined) of the Merger, each of the
shares of Bancorp Common Stock outstanding immediately prior to the Effective
Time (other than certain shares, if any, that may be held by TRP and shares
for which possible dissenters' rights have been perfected) will be converted
into the right to receive $8.00 in cash, without interest; plus an amount
equal to (a) a pro rata share of net collections and/or recoveries between
July 31, 1996 and the Closing (as hereinafter defined), if any, on certain
loans of the Bank identified in and pursuant to the Escrow Agreement (as
hereinafter defined), which amount, together with the foregoing $8.00 is
referred to herein as the "Cash Consideration", and (b) a pro rata share of
the net collections and/or recoveries following the Closing, if any, on
certain loans of and a claim against the Bank, represented by the Escrow Fund
(as hereinafter defined), less costs incurred in connection with the
resolution of such loans, claims and account, payable to shareholders of the
Company pursuant to the terms of the Escrow Agreement between the Company and
TRP, dated October 18, 1996 (the "Escrow Agreement"). Collectively, the Cash
Consideration and the amount representing that pro rata share of the Escrow
Fund payable to each shareholder of the Company are referred to herein as the
"Merger Consideration." See "THE MERGER - Termination of Agreement" for
information regarding a possible increase in the Cash Consideration if the
Closing is delayed.
As of the Record Date, there were 1,120,195 shares of Bancorp Common Stock
issued and outstanding and outstanding stock options to acquire 103,750 shares
of Bancorp Common Stock, for an aggregate maximum Merger Consideration on that
date of approximately $10.1 million. Upon completion of the Merger, Bancorp
will be wholly owned by the stockholders of TRP.
Directors' Approval and Recommendation of the Merger
At a Board of Directors meeting held on October 17, 1996, after considering
the terms and conditions of the Agreement and obtaining the advice of its
financial advisor, the Agreement was unanimously approved by Directors who
were present at the meeting. The Board of Directors recommends that
shareholders of Bancorp vote "FOR" approval of the Agreement. In addition each
of the Directors has signed the Voting Agreement discussed below, whereby each
such Director has agreed to vote his shares of Common Stock of the Company in
favor of the Agreement and the Merger. See "THE VOTING AGREEMENT" for more
information. For a discussion of the circumstances surrounding the Merger and
the factors considered by the Bancorp Board of Directors in making its
recommendation, see "THE MERGER - Background of the Merger," "THE MERGER -
Reasons for the Merger" and "THE MERGER - Factors Considered by the Board of
Directors" for more information.
Opinion of Financial Advisor
The Board of Directors of Bancorp retained the firm of Baxter Fentriss and
Company, Richmond, Virginia ("Baxter Fentriss") to assist in the negotiation
of the Merger and to act as financial advisor in connection therewith. Baxter
Fentriss rendered its opinion to the Board of Directors of Bancorp, that the
Merger Consideration is fair to Bancorp's shareholders from a financial point
of view. A copy of Baxter Fentriss' opinion dated November 15, 1996, is set
forth as Appendix E and should be read by shareholders in its entirety. For
further information regarding the opinion of Baxter Fentriss, see "THE MERGER-
Opinion of Financial Advisor."
Effective Time
The Merger will become effective at the time the form of Agreement of Merger
which is Exhibit B to the Agreement and a Certificate of Merger which is
Exhibit A to the Agreement are filed with the Secretary of State of the State
of California and the Secretary of State of the State of Delaware, or at such
other time as set forth in such Agreement of Merger and the Certificate of
Merger ("Effective Time"). Assuming the timely receipt of all regulatory and
shareholder approvals, the expiration of all statutory waiting periods and the
satisfaction or waiver of all conditions in the Agreement, it is currently
anticipated that the Merger will be consummated on approximately February 28,
1997.
Interests of Certain Persons in the Merger
In considering the recommendation of Bancorp's Board of Directors with respect
to the Merger, shareholders of Bancorp should be aware that certain officers
of Bancorp have interests in the Merger that are in addition to their
interests as shareholders generally. See "THE MERGER-Interests of Certain
Persons in the Merger."
Certain key employees of Bancorp and the Bank have been granted options to
purchase shares of Bancorp Common Stock under the 1984 Employee Stock Option
Plan and Nonqualified Stock Option Plan. The Agreement provides that, in
consideration of the cancellation of such options, each holder of an
outstanding option (whether or not then exercisable) will receive a lump sum
cash payment equal to the product of (i) the excess of the Cash Consideration
over the exercise price of such option and (ii) the number of shares subject
to such option; as well as a pro rata share, if any, of the Escrow Fund
pursuant to the Escrow Agreement.
Certain Federal Income Tax Consequences
The exchange of shares of Bancorp Common Stock for cash by a Bancorp
shareholder pursuant to the Merger (or, in the case of a dissenting
shareholder pursuant to any appraisal proceedings) will be a taxable
transaction to such shareholder for federal income tax purposes. As a result
of the Merger, a shareholder of Bancorp will generally recognize a gain or
loss equal to the difference, if any, between the fair market value of the
Merger Consideration to be received pursuant to the Agreement in exchange for
his or her shares of Bancorp Common Stock and such shareholder's adjusted tax
basis in such shares (except, in the case of any dissenting shareholders, for
any amount constituting interest, which will be taxable as ordinary income).
Any such gain or loss will be treated as a long-term capital gain or loss if
the shares of Bancorp Common Stock are held as a capital asset by the
shareholder, and at the Effective Time said shares have been held for more
than one year since their acquisition date.
All shareholders should read carefully the discussion in "THE MERGER-Certain
Federal Income Tax Consequences" of this Proxy Statement. EACH SHAREHOLDER
SHOULD CONSULT WITH HIS OR HER TAX ADVISOR AS TO THE SPECIFIC CONSEQUENCES TO
THE SHAREHOLDER OF THE MERGER UNDER STATE, LOCAL, FOREIGN AND OTHER APPLICABLE
TAX LAWS.
Surrender of Stock Certificates
Promptly after consummation of the Merger, an Exchange Agent selected by TRP
will mail instructions to each Bancorp shareholder concerning the proper
method of surrendering certificates formerly representing shares of Bancorp
Common Stock in exchange for the Merger Consideration. DO NOT SEND STOCK
CERTIFICATES AT THIS TIME.
Conditions to Consummation; Termination
The respective obligations of the parties to consummate the Merger are subject
to, among other things: (i) approval of the Agreement by Bancorp's
shareholders holding not less than a majority of the outstanding shares of
Bancorp Common Stock; (ii) receipt of all necessary regulatory approvals,
consents or waivers; (iii) satisfaction of all other necessary requirements
prescribed by law; and (iv) the absence of any order prohibiting Bancorp or
TRP to consummate the Merger. See "THE MERGER - Closing Conditions to the
Merger" and "-Regulatory Approvals."
The Agreement may be terminated at any time by mutual consent of TRP and
Bancorp and may also be terminated by either Bancorp or TRP if the Merger is
not consummated by March 31, 1997 (subject to extension for a period not to
exceed June 30, 1997 if certain regulatory approvals have not been obtained
and provided that, in such event, the Cash Consideration shall, under certain
circumstances, be increased by $0.07 per share for each full month which
elapses between March 31, 1997 and the Closing), or if certain conditions set
forth in the Agreement are not met. See "THE MERGER - Termination of the
Agreement." Under certain circumstances termination of the Merger may give
rise to the payment of liquidated damages either by the Company or TRP. See
"THE MERGER - Liquidated Damages."
Regulatory Approvals
The Merger is subject to approval by the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board" herein) pursuant to sections 3 and
4 of the Bank Holding Company Act ("the BHC Act") and any other bank
regulatory authority that may be necessary or appropriate (the Federal Reserve
Board, Office of the Comptroller of the Currency, and any other bank
regulatory agency that may be necessary or appropriate are collectively
referred to herein as "Regulatory Authorities").
In reviewing the merger, the Regulatory Authorities will consider various
factors, including possible anti-competitive effects of the Merger, and will
examine the financial and managerial resources and future prospects of TRP and
the combined organization. There can be no assurance that the requisite
regulatory approvals will be granted or as to the timing of such approvals.
SEE "THE MERGER - Regulatory Approvals."
No Solicitation of Alternative Transactions
The Agreement provides that Bancorp and the Bank will not directly or
indirectly initiate, solicit or encourage any inquiries, proposals or offers
with respect to a merger, consolidation or certain similar transactions
involving Bancorp or the Bank or engage in any negotiations concerning or
discussions with or provide information to any person relating to such a
transaction, except if Bancorp's Board of Directors, upon written advice from
its counsel, determines that it is required to do so in the discharge of each
Director's fiduciary duty with respect to an unsolicited offer from a third
party. See "THE MERGER - No Solicitation of Alternative Transactions" for more
information.
Escrow Agreement
The Escrow Agreement has been entered into between Bancorp, the Bank and TRP
and sets forth the requirements for retention and ultimate distribution of
escrow funds to the shareholders and/or TRP of amounts of not less than $ 0.00
and not more (subject to adjustment for gain or loss on investment) than
$740,626. See "THE ESCROW AGREEMENT" for more information regarding the
Escrow Agreement. The purpose of the Escrow Agreement is to set aside funds
to cover certain possible losses in the Bank's loan portfolio (which may be
offset by net collections and/or recoveries, if any, on certain designated
loans and claims of the Bank) and with respect to possible losses with respect
to a certain deposit account carried on the books of the Bank as of the date
of the Agreement.
To the extent that such recoveries exceed the sum of (i) loan write-offs and
attendant costs, and (ii) losses on that certain account and costs attendant
thereto (or if there are no further write-offs, losses, costs or liabilities
with respect to such loans and deposit account), any remaining funds in such
escrow net of any income or loss incurred arising from investment of escrow
funds, will be distributed to the shareholders and option holders at specified
dates in the future. However, there can be no assurance that all or any
portion of the escrow funds will ultimately be payable to the shareholders and
option holders. See "THE ESCROW AGREEMENT" for more information about the
terms of the Escrow.
Voting Agreement
As an inducement to TRP to enter into the contemplated transactions, each
member of Bancorp's Board of Directors has individually entered into a Voting
Agreement dated as of October 18, 1996 (the "Voting Agreement") wherein they
have agreed to vote the outstanding shares held by them in favor of the
Agreement and the Merger. See "THE VOTING AGREEMENT" for more information.
The Voting Agreement constitutes a personal obligation of each of the
Directors signing it with respect to each such Director's personal shares, and
is not a commitment of the Board to take any action which would be in
violation of its fiduciary duty to take steps which are in the best interest
of all the shareholders. The Voting Agreement is intended to increase the
likelihood that the shareholders of Bancorp will approve the Agreement and the
Merger. See "CERTAIN EFFECTS OF THE VOTING AND OPTION AGREEMENTS."
Option Agreement
As a condition to TRP's entering into the Agreement, Bancorp entered into a
Option Agreement with TRP ("Option Agreement"), dated as of October 18, 1996,
pursuant to which Bancorp granted to TRP an option to purchase up to 19.9% of
the issued and outstanding shares of Bancorp Common Stock, at an exercise
price of $8.00 per share, subject to the terms and conditions set forth
therein. The exercise price of the stock option is equal to the fixed $8.00
portion of the Cash Consideration, subject to any adjustments thereto
described elsewhere in the Option Agreement. The option may be exercised in
whole or in part, in the event that certain conditions have occurred. The
Option Agreement may discourage competing offers for Bancorp and is intended
to increase the likelihood that the Merger is consummated in accordance with
the terms of the Agreement. See "THE OPTION AGREEMENT" and "CERTAIN EFFECTS
OF THE VOTING AND OPTION AGREEMENTS" for more information. A copy of the
Option Agreement is attached to this Proxy Statement as Appendix D.
Dissenters' Appraisal Rights
Chapter 13 of the California General Corporation Law ("CGCL"), which is set
forth as Appendix F to this proxy statement, provides that shareholders of
record who do not vote in favor of the approval of the Agreement, in person or
by proxy, at the meeting and who have filed a written demand that has actually
been received by Bancorp or its transfer agent not later than 30 days after
the date on which a notice of approval of the Agreement and Merger by the
outstanding shares was mailed to the shareholder, for payment of a specified
number of shares at a specific price which the shareholder claims to be the
fair market value of those shares, as of October 18, 1996, may be entitled to
dissenters' appraisal rights, provided that such written demands are properly
given (and received by Bancorp). Thereupon, dissenters' appraisal rights will
be created with respect to the Merger under the provisions of Sections 1300
and 1301 of the CGCL and be available to such shareholders of record as to
such shares, if their rights are further perfected as required by the terms of
Sections 1302, 1303 and 1304 of the CGCL. See "DISSENTERS' APPRAISAL RIGHTS"
and Appendix F for a more complete description of dissenters' rights that may
be applicable to the Merger. A shareholder's failure to follow exactly the
procedures specified will result in a loss of such shareholder's dissenter's
rights. In view of the complicated nature of the California law pertaining to
dissenters' rights, shareholders desiring to perfect those rights should
consult their own legal advisors.
Accounting Treatment
The Merger will be treated as a purchase for accounting purposes. Accordingly,
under generally accepted accounting principles, the assets and liabilities of
Bancorp will be recorded on the books of TRP at their respective fair values
at the time of consummation of the Merger.
Market Prices and Dividends on Bancorp Common Stock
Bancorp Common Stock is listed on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") Bulletin Board under the symbol
"TPAE." The table below sets forth, for the quarters indicated, the high and
low sales prices of Bancorp Common Stock as reported on the NASDAQ Bulletin
Board (and, prior to June 1995, as reported on the NASDAQ "Pink Sheets") and
the dividends paid per share on Bancorp Common Stock in each such quarter.
Prices Cash Dividends
High Low Paid Per Share
Fiscal Year Ended December 31, 1994
First Quarter ..................... $2.00 $2.00 none
Second Quarter .................... $2.00 $2.00 none
Third Quarter ..................... $2.00 $2.00 none
Fourth Quarter .................... $2.25 $2.00 none
Fiscal Year Ended December 31, 1995
First Quarter ..................... $2.50 $2.25 none
Second Quarter .................... $2.75 $2.25 none
Third Quarter ..................... $4.50 $2.50 none
Fourth Quarter .................... $4.88 $4.50 none
Fiscal Year Ended December 31, 1996
First Quarter...................... $5.25 $4.50 $0.08
Second Quarter..................... $5.63 $4.88 none
Third Quarter...................... $6.50 $5.25 none
The closing asking price per share for Bancorp Common Stock as reported on the
NASDAQ Bulletin Board on October 18, 1996, the last full trading day prior to
the public announcement of the execution of the Agreement, was $6.25. On
November 15, 1996, which is the most recent date for which it was practical to
obtain market data prior to the printing of this Proxy Statement, the closing
asking price of Bancorp Common Stock was $7.625. Holders of Bancorp Common
Stock are urged to obtain current market quotations.
SELECTED CONSOLIDATED FINANCIAL DATA FOR BANCORP
The following table sets forth certain information concerning the consolidated
financial position and results of operations of Bancorp at the dates and for
the periods indicated. This information is qualified in its entirely by
reference to the detailed information in the Consolidated Financial Statements
and Notes thereto appearing in Bancorp's Annual Report on Form 10-K for the
year ended December 31, 1995 and in Bancorp's Form 10-Q for the quarter ended
September 30, 1996 included as Appendix G to this Proxy Statement.
Selected Financial Data*
(unaudited)
At September 30 At December 31
Description 1996 1995 1995 1994 1993 1992 1991
Financial Condition:
Total Assets $ 73,482 64,490 64,827 56,771 65,009 72,371 78,788
Securities, held to
maturity - 6,628 - 9,743 8,829 9,162 10,021
Securities, available
for sale 15,202 6,189 13,870 4,078 3,329 1,504 -
Loans receivable, net 42,923 37,567 38,340 32,368 39,566 50,033 54,165
Deposits 64,701 57,346 57,564 49,800 57,823 63,916 68,398
Long-term debt - - - 26 71 116 161
Stockholders' Equity 6,908 6,394 6,532 5,951 5,927 6,476 6,509
(unaudited)
Nine Months Ended
September 30 Year Ended December 31
1996 1995 1995 1994 1993 1992 1991
Operations:
Interest income $ 4,020 3,500 4,855 4,259 4,433 5,920 7,550
Interest expense 1,549 1,284 1,799 1,369 1,617 2,646 4,183
Net interest income 2,471 2,216 3,056 2,890 2,816 3,274 3,367
Provision (recovery)
for loan losses (40) 40 40 173 889 662 349
Non-interest income 499 429 598 664 855 887 866
Non-interest expense 2,168 2,151 2,962 3,088 3,567 3,579 3,458
Income (loss) before
taxes 842 454 652 293 (785) (80) 426
Income tax expense
(benefit) 339 139 207 113 (171) 20 228
Net income (loss) 503 315 445 180 (614) (100) 198
Earnings (loss) per
share $ 0.45 0.28 0.40 0.16 (0.54) (0.09) 0.17
Cash dividends declared
per share $ 0.08 none none none none none none
* In thousands, except per share data.
SPECIAL MEETING OF SHAREHOLDERS
This Proxy Statement is being furnished in connection with the solicitation of
proxies by the Board of Directors of Bancorp to be used at the Meeting to be
held at the offices of Bancorp and the Bank, located at 46 Second Street, San
Francisco, California, on December 19, 1996 at 4:30 p.m., Pacific Time, and at
any adjournment or postponement thereof. The accompanying Notice of Special
Meeting of Shareholders and this Proxy Statement are first being mailed to
shareholders on or about November 22, 1996.
At the Meeting, shareholders will be asked to consider and vote on a proposal
to approve the Agreement. The Agreement provides for the merger of TRP with
and into Bancorp with Bancorp being the Surviving Corporation, wholly owned by
the shareholders of TRP. Pursuant to the Agreement, each share of Bancorp
Common Stock outstanding immediately prior to the Effective Time of the Merger
will be canceled and converted into the right to receive the Merger
Consideration, without any interest thereon. See "THE MERGER" and Appendix A.
The Board of Directors of Bancorp has concluded that the Merger is in the best
interest of Bancorp and its shareholders and recommends that shareholders vote
"FOR" approval and adoption of the Agreement and the transactions contemplated
thereby.
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
Shareholders of record as of the close of business on the Record Date are
entitled to one vote for each share then held. As of the Record Date,
1,120,195 shares of Bancorp Common Stock were issued and outstanding. At that
date, such shares were held of record by approximately 300 shareholders. The
presence, in person or by proxy, of at least a majority of the total number of
outstanding shares of Bancorp Common Stock entitled to vote is necessary to
constitute a quorum at the Meeting.
The affirmative vote of the holders of a majority of the outstanding shares of
Bancorp Common Stock is required in order to approve and adopt the Agreement.
A failure to return a properly executed proxy card or to vote in person at the
Meeting will have the same effect as a vote against approval of the Agreement.
Abstentions will be counted as shares present at the Meeting for purposes of
determining the presence of a quorum and will have the same effect as a vote
against approval of the Agreement. Broker nonvotes will not be considered
present at the Meeting and will have the same effect as a vote against
approval of the Agreement. The foregoing does not pertain to perfection of any
dissenters' rights, which are described in the Proxy Statement under
"DISSENTERS' APPRAISAL RIGHTS" and in Appendix F hereto.
As of the Record Date, the Directors and executive officers of Bancorp (10
persons) together with their affiliates, beneficially owned a total of 254,934
shares of Bancorp Common Stock, or 24.5% of the outstanding shares of
Bancorp's Common Stock, not including 77,000 shares of Bancorp Common Stock
subject to outstanding options held by such persons exercisable within 60 days
of the Record Date.
Except with respect to the Voting Agreement described elsewhere herein there
are no agreements or understandings among TRP, Directors or executive officers
of Bancorp or any beneficial owner of more than 5% of Bancorp Common Stock as
to how their shares will be voted. See "THE VOTING AGREEMENT" for more
information.
To the best knowledge of Bancorp, as of the Record Date, other than the right
to purchase shares of Common Stock of the Company pursuant to the Option
Agreement discussed below, the Directors and executive officers of TRP and its
subsidiaries did not own of record or beneficially any outstanding shares of
Bancorp Common Stock. See "THE OPTION AGREEMENT" for more information
regarding the right of TRP to acquire shares of the Company under certain
circumstances.
Shares of Bancorp Common Stock represented by properly executed proxies will
be voted in accordance with the instructions indicated on the proxies or, if
no instructions are indicated, will be voted FOR approval of the Agreement.
Properly executed proxies will be voted in accordance with the determination
of the proxy holders as to any other matter which may properly come before the
Meeting or any adjournment or postponement thereof; however, proxies voting
against approval of the Agreement will not be voted in favor of adjournment of
the Meeting. Shareholders who execute proxies retain the right to revoke them
at any time. Proxies may be revoked by written notice to the Corporate
Secretary of Bancorp, by the filing of a later dated proxy prior to a vote
being taken at the Meeting or by attending the Meeting and voting in person. A
proxy will not be voted if a shareholder attends the Meeting and votes in
person.
Eddy S.F. Chan and James A. Babcock have been appointed by the Board of
Directors as proxy holders.
The cost of solicitation of proxies will be borne by Bancorp. In addition to
solicitations by mail, Directors, officers and employees of Bancorp may
solicit proxies personally or by telegraph or telephone without additional
compensation. Bancorp will request persons, firms and corporations holding
shares in their names or in the names of their nominees, which shares are
beneficially owned by others, to send proxy materials to, and to obtain
proxies from, such beneficial owners and will reimburse such holders for their
reasonable expenses in doing so.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Security Ownership of Management
The following table sets forth as of the time of preparation of this Proxy
Statement the ownership of each class of Bancorp's equity securities of the
Directors, and each of the named executive officers, individually, and of the
directors and executive officers of Bancorp as a group, without naming them.
Amount and
Name of Beneficial Nature of
Owner and Beneficial Percent
Title of Class Position with Company Ownership of Class
Common Stock James A. Babcock, 57,583 (1) 5.12%
Director and Chairman
Common Stock Eddy S. F. Chan, Director, 56,380 (2) 4.94%
President and CEO
Common Stock Frankie G. Lee, Director 28,833 (3) 2.57%
and Vice-Chairman
Common Stock John K. Lee, Director 27,333 (4) 2.43%
Common Stock Masayuki Nakahira, 25,833 (5) 2.30%
Director
Common Stock John T. Stewart, 24,683 (6) 2.20%
Director and Secretary
Common Stock Simon S. Teng, Director 30,843 (7) 2.74%
and Treasurer
Common Stock Frank K. W. Wong, Director 26,833 (8) 2.39%
Common Stock John K. Wong, Director 48,954 (9) 4.32%
Common Stock All Directors and 331,934 27.77%
Executive Officers as a
Group (10 persons)
(1) Includes 32,083 shares held with sole voting and investment power;
20,000 shares held with shared voting and/or investment power; and 5,500
shares pursuant to options.
(2) Includes 25,233 shares held with sole voting and investment power; 2,250
shares held with shared voting and/or investment power; 24,000 shares
pursuant to options; and 4,897 shares allocated to the account of Eddy
S. F. Chan as a Participant in the Trans Pacific Bancorp Employee Stock
Ownership Plan ("ESOP") as of October 31, 1996.
(3) Includes 23,333 shares held with shared voting and/or investment power;
and 5,500 shares pursuant to options.
(4) Includes 21,833 shares held with shared voting and/or investment power;
and 5,500 shares pursuant to options.
(5) Includes 21,333 shares held with sole voting and investment power; and
4,500 shares pursuant to options.
(6) Includes 19,183 shares held with sole voting and investment power; and
5,500 shares pursuant to options.
(7) Includes 18,583 shares held with sole voting and investment power; 6,760
shares held with shared voting and/or investment power; and 5,500 shares
pursuant to options.
(8) Includes 21,333 shares held with shared voting and/or investment power;
and 5,500 shares pursuant to options.
(9) Includes 2,833 shares held with sole voting and investment power; 29,300
shares held with shared voting and/or investment power; 14,000 shares
pursuant to options; and 2,821 shares allocated to the account of John
K. Wong as a Participant in the ESOP as of October 31, 1996.
Security Ownership of Certain Beneficial Owners
The following table sets forth the security ownership as of the time of
preparation of these materials of Bancorp's voting securities with respect to
any person (including any "group" as that term is used in section 13(d)(3) of
the Exchange Act) who is the beneficial owner of more than 5% of such voting
securities outstanding.
Amount and
Nature of
Name and Address of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
Common Stock Arthur M. Auerbach, MD 73,000 shares (1) 6.53%
3300 Webster Street
Oakland, CA 94609
James A. Babcock 57,583 shares (2) 5.12%
1349 Larkin Street
San Francisco, CA 94109
(1) Includes 72,000 shares held with sole voting and investment power and
1,000 held with shared voting and/or investment power.
(2) Includes 32,083 shares held with sole voting and investment power;
20,000 shares held with shared voting and/or investment power; and 5,500
shares pursuant to options.
THE MERGER
The following information concerning the Merger, insofar as it relates to
matters contained in the Agreement, the Escrow Agreement, the Voting Agreement
and the Option Agreement, is qualified in its entirety by reference to those
agreements, which are attached hereto as Appendices A through D respectively.
Bancorp shareholders are urged to read these agreements carefully.
General
The Agreement provides that TRP will be merged with and into Bancorp, with
Bancorp being the Surviving Corporation, wholly owned by the shareholders of
TRP. Each share of Bancorp Common Stock outstanding at the Effective Time
(other than (i) shares for which any dissenters' rights are perfected and (ii)
shares, if any, which may be held directly or indirectly by TRP (which will be
canceled), will be automatically converted into the right to receive the Cash
Consideration, without interest plus the holder's pro rata share of the Escrow
Fund (as hereinafter defined), if any, payable to stockholders of the Company
pursuant to the terms of the Escrow Agreement (which amounts in cash and
escrow shall hereinafter be collectively referred to as the "Merger
Consideration").
Until surrendered, certificates for the shares of Bancorp Common Stock shall
represent the right to receive the Merger Consideration. The maximum Merger
Consideration to be paid to Bancorp shareholders and option holders in the
Merger is approximately $10.1 million. This amount is based on the total
number of shares of Bancorp Common Stock outstanding as of the Record Date and
the consideration to be paid in respect of options on Bancorp Common Stock
outstanding on that date, assuming the entire Escrow Fund is paid to the
former stockholders and Option Holders of Bancorp. See "THE MERGER - Interests
of Certain Persons in the Merger."
The Merger is subject to (i) approval by the holders of at least a majority of
the outstanding shares of Bancorp Common Stock; (ii) the receipt of all
necessary regulatory approvals, consents and waivers; (iii) satisfaction of
all necessary requirements prescribed by law; and (iv) the absence of any
order prohibiting Bancorp or TRP to consummate the Merger. See "THE MERGER -
Regulatory Approvals" and "THE MERGER - Closing Conditions to the Merger."
The Agreement provides that TRP may elect to specify that, before or after the
merger, Bancorp, TRP and any subsidiary or affiliate of Bancorp or TRP shall
enter into other transactions in order to effect the Merger, provided,
however, that TRP shall not have the right to require any such transaction
that will result in any change in the Merger Consideration or alter the tax
treatment of the transactions contemplated or otherwise materially adversely
effect the rights and obligations of any party to the Agreement.
Promptly after the Effective Time, an exchange agent ("the Exchange Agent")
selected by TRP will mail to holders of Bancorp Common Stock a letter of
transmittal and instructions for surrendering certificates evidencing Bancorp
Common Stock. Upon delivery to the Exchange Agent of a properly executed
letter of transmittal and such certificates, a shareholder will receive a
check for the Cash Consideration for the shares of Bancorp Common Stock
represented by the certificates and the certificates so surrendered will be
canceled. No interest will be paid or accrued on the Cash Consideration to
which the shareholder became entitled at the Effective Time. DO NOT SEND STOCK
CERTIFICATES AT THIS TIME.
At the Effective Time as defined herein, TRP will deposit in trust with the
Bank as Escrow Agent, cash in an amount equal to $740,626, allocated to Fund A
($300,000) and to Fund B ($440,626) less any recoveries which will increase
the Cash Consideration paid to shareholders. Funds A and B will be held and
maintained by the Escrow Agent pending resolution regarding certain loans and
a deposit account of the Bank on its books as of the date of the Agreement.
Upon resolution of such account, or the running of applicable statutes of
limitations, and upon the resolution of such loans (but in no event more than
three years from the Effective Time of the Merger), the Escrow Agent shall pay
(i) out of Fund A to TRP an amount equal to any amount assessed against or any
liability charged to the Bank relating to the account, net of Tax Effect (as
defined in the Escrow Agreement) and costs incurred by TRP or the Bank in
resolution of the account, net of Tax Effect, and the balance of Fund A shall
be paid to the former stockholders and option holders; (ii) out of Fund B to
TRP an amount equal to (x) gross loan charge-offs - in excess of amounts
previously reserved and certain payments on loan guarantees actually received
- - during the term of Fund B on certain loans identified in Exhibit C to the
Escrow Agreement, net of Tax Effect, less the aggregate gross amount of loans
collected or recovered by the Bank, net of Tax Effect, from the Closing to the
third anniversary thereof for loans previously charged off and listed on
Exhibit B to the Escrow Agreement and (y) all fees, costs and expenses
incurred by TRP or the Bank in connection therewith, net of Tax Effect, and
the balance shall be paid to the former stockholders and former option
holders; and (iii) in the case of Funds A and B, the amount paid to the former
shareholders and former option holders shall be increased by any income
received on investment of amounts held in such funds and reduced by any losses
more information.
Background of the Merger
Sales Negotiations with TRP
During 1995, officers and the Board of Directors of Bancorp had discussions
with at least four investment banking firms regarding a possible merger or
acquisition transaction involving the Company. In May 1995, representatives of
Bancorp met with representatives of Baxter Fentriss and Company ("Baxter
Fentriss" herein), an investment banking and financial services consulting
firm to discuss strategic options presently available to Bancorp and the Bank.
Following the meeting with representatives of the Company, Baxter Fentriss was
invited to speak with the Board of Directors in May, 1995, at which time
Baxter Fentriss provided its views regarding strategic options, including sale
and discussed the approach Baxter Fentriss might take to market the
institution. Thereafter, Bancorp selected Baxter Fentriss as its financial
advisor because of Baxter Fentriss' reputation and substantial experience in
transactions such as the Merger. The Board of Directors also considered the
range of possible values to Bancorp shareholders that could potentially be
achieved by remaining independent and realizing possible future earnings.
Factors considered by the Board of Directors which could affect those values
include the following: the increasing competitiveness for loan originations
and deposit funds within the Bank's marketplace; the general health and long
term well being of California's economy; the volatility of interest rates and
capital markets in general affecting Bancorp's stock price; the entrance into
California of large financial institutions and unregulated financial
intermediaries with greater resources than the Bank that are able to price a
wide range of financial products significantly below existing competition; and
the increasing consolidation of financial institutions on a national, regional
and local level.
Following completion of these discussions and deliberations, the Board of
Directors approved the retention of Baxter Fentriss and entered into an
Agreement with Baxter Fentriss on June 12, 1995 (the "Engagement Letter")
permitting Baxter Fentriss to conduct a discreet and targeted marketing
effort. Pursuant to the Engagement Letter, Bancorp agreed to pay Baxter
Fentriss a fee (the "Merger Fee") of one and one half (1.5%) percent of the
total Merger Consideration. The Merger Fee is payable upon consummation of
the Merger.
In addition, Bancorp agreed to reimburse Baxter Fentriss for all reasonable
travel, legal and other out of pocket expenses incurred in connection with its
engagement. The Engagement Letter also contains provisions relating to an
indemnity of Baxter Fentriss against liabilities related to or arising out of
Baxter Fentriss' engagement or the Merger, unless any claim, loss or expense
arose from Baxter Fentriss' negligence or willful misconduct in performing its
services.
During the period between July 1995 and September 1995, Baxter Fentriss
prepared an offering memorandum (the "Offering Memorandum") and contacted over
90 potential acquirers of Bancorp. Potential buyers were contacted on a "no
names" basis to protect the confidentiality of Bancorp. Those potential
buyers that expressed an interest, and had the financial capacity to acquire,
executed a confidentiality agreement (the "Confidentiality Agreement") and
received a copy of the Offering Memorandum.
Between October 1995 and June 1996, Baxter Fentriss received four offers to
acquire the Company. Following extensive negotiations with each such party
and following a preliminary financial investigation of the ability of each of
such offerors to complete the transactions contemplated, Baxter Fentriss
concluded that a group led by Denis Daly, Sr., a Chicago banker and
businessman and including Cyrus Tang, a Chicago businessman and industrialist
(the "Daly Group" herein) had the most potential to provide a favorable
proposal to the Company's shareholders. Following execution of the Agreement,
Mr. Tang and Mr. Daly had discussions regarding the structuring of their
ownership of TRP, as a result of which Mr. Tang has withdrawn from the Daly
Group. As discussed elsewhere herein, Mr. Daly has made other arrangements to
finance TRP in order to finance the purchase of the Company. See "SUMMARY OF
PROXY STATEMENT - Parties to the Merger" and "BUSINESS OF THE PARTIES TO THE
MERGER - TRP" for more information.
In response to a request from Baxter Fentriss for an updated and detailed
proposal outlining price, consideration type, organizational issues and other
relevant issues, which letter requested a response no later than June 6, 1996,
legal counsel to the Daly Group, by letter dated June 3, 1996, set out a
proposal to buy the outstanding shares of the Company for a multiple of the
book value of the Company within a range of 1.4 to 1.6 times book value. This
was a nonbinding letter of intent and preliminary proposal, not intended to
bind the Company or the Daly Group.
On July 1, 1996, at the invitation of the Daly Group, Eddy S.F. Chan,
President and Chief Executive Officer of Bancorp, visited Chicago in order to
meet with the principals of the Daly Group. Following this meeting further
negotiations were conducted among representatives of the Company, Baxter
Fentriss and representatives of the Daly Group. Toward the end of July, a
specific price per share was proposed by the Daly Group and on August 1, 1996,
the Board of Directors of the Company met to consider the proposal and to give
direction to Baxter Fentriss regarding further negotiation of the Agreement.
Baxter Fentriss recommended to the Board of Directors on August 1, 1996, that
the Daly Group be permitted to conduct a preliminary due diligence examination
of the Bank and the Company. Following the conduct of such due diligence by
representatives of the Daly Group, Baxter Fentriss met with representatives of
the Daly Group on August 21, 1996 to conduct further negotiations and to seek
to improve the terms of the proposal.
Following this meeting, the Daly Group conducted additional due diligence and
began preparation of a definitive agreement which was delivered in draft form
to the Board of Directors and its legal counsel on September 19, 1996. On
October 3, 1996, Baxter Fentriss met with the Board and Bancorp's legal
counsel for the purpose of reviewing the preliminary definitive agreement and
in order to obtain direction from the Board regarding further negotiation of
the terms of the agreement.
At that meeting, Baxter Fentriss delivered in oral and draft written form, a
preliminary Fairness Opinion, stating that the terms of the preliminary draft
of the definitive agreement were fair to the shareholders of Bancorp from a
financial point of view. See "THE MERGER - Opinion of the Financial Advisor"
for more information regarding Baxter Fentriss' analysis of the proposed
transaction. At that meeting the Board directed Baxter Fentriss to seek to
increase the per share price offered and to seek to resolve certain open
issues.
Concurrent with negotiation of pricing and other issues, and pursuant to the
terms of the Confidentiality Agreement and certain timing constraints imposed
by the Daly Group, Baxter Fentriss, the Board and the Daly Group also
negotiated the Escrow Agreement, which sets forth the terms and conditions
under which a certain portion of the Merger Consideration would be held back
pending the resolution of certain matters regarding loans and a certain
deposit account of the Bank; the Voting Agreement, pursuant to which the
Directors would agree to vote their shares for the Merger; and the Option
Agreement, which would grant an option to the Daly Group to buy shares of
Bancorp under certain circumstances. See the following sections of "THE
MERGER" for more information on the terms and conditions of the Agreement; see
"THE ESCROW AGREEMENT" for more information on the terms and conditions of the
Escrow Agreement; see "THE VOTING AGREEMENT" for more information on the terms
and conditions of the Voting Agreement; and see "THE OPTION AGREEMENT" for
more information on the terms and conditions of the Option Agreement.
Between October 3 and October 17, 1996, negotiation of issues related to price
and terms of the Agreement, the Escrow Agreement, the Option Agreement and the
Voting Agreement continued among representatives of the Company and the Daly
Group and on October 17, 1996, revised, final drafts of the above agreements
were delivered to representatives of the Company for review and consideration
by the Board of Directors.
On October 17, 1996, the Board of Directors met and reviewed the terms and
conditions of final draft versions of the Agreement, the Escrow Agreement, the
Voting Agreement and the Option Agreement with legal counsel and considered a
presentation by Baxter Fentriss in which Baxter Fentriss confirmed its
preliminary Fairness Opinion.
Thereafter the Board of Directors approved the Agreement and the related
agreements and authorized Mr. Chan to proceed with signatures. The Directors
present at the meeting each executed the Voting Agreement and execution copies
of the Agreement, the Escrow Agreement, and the Option Agreement were signed
on Friday, October 18, 1996 by Mr. Chan. The transaction was publicly
announced on the same date, following the close of the NASDAQ markets.
Reasons for the Merger
Prior to having authorized Baxter Fentriss to initiate negotiations with
prospective merger candidates, the issue of whether to remain independent was
evaluated by the Bank and Bancorp's Boards of Directors. The Board reviewed
Bancorp's and the Bank's Business Plan projections and updates, actual 1995
operating results and prospective earnings forecasts for 1996 through 1998.
That review led to the conclusion that although improved earnings during the
three year period were indicated, they would not, when compared to other
investment opportunities, reach the level sufficient to support enhanced
shareholder value. While the Bank is categorized by OCC as a "well
capitalized" institution, longer term forces operating in the Bank's
marketplace, such as the expanding array of alternative investment
opportunities for depositors' funds and, as noted previously, the increasingly
competitive market for new loan originations have had and will continue to
have an impact on the Bank' asset growth and profitability.
While Bancorp currently has the capital resources to realistically consider
the acquisition of or merger with one or more suitably sized and profitable
financial institutions as a means to gain assets and improve earnings, such an
acquisition or merger would require extensive restructuring of the
institution's method of doing business and would not assure any increase of
shareholder value.
After review and evaluation of these and other factors (see "Factors
Considered by the Board of Directors of Bancorp" below) as well as the opinion
of Baxter Fentriss, it was the Board of Directors' conclusion that in the long
term there is reasonable doubt that Bancorp could produce shareholder value in
excess of that represented by the Merger Consideration, and that the Merger
Consideration was fair, from a financial point of view, to the shareholders of
Bancorp. Accordingly, the Board of Directors determined that the Merger was in
the best interests of Bancorp's shareholders and approved the Agreement and
the transactions contemplated thereby. THEREFORE, THE BOARD OF DIRECTORS OF
BANCORP RECOMMENDS THAT THE SHAREHOLDERS OF BANCORP VOTE FOR APPROVAL AND
ADOPTION OF THE AGREEMENT.
Factors Considered by the Board of Directors of Bancorp
The terms of the proposed Merger are the result of arms-length negotiations.
In arriving at its decision to approve and recommend the Agreement, the Board
of Directors of Bancorp considered a number of factors, including, but not
limited to, the following:
(i) The general economic and competitive conditions of the market in which the
Bank operates and trends in the consolidation of banking institutions. These
conditions relate largely to excess capacity in the banking industry and
active competition from nonbanking entities for deposits and loan products.
(ii) The volatility in levels of interest rates and the impact of such changes
on the Bank's earnings performance and other prospects.
(iii) The costs of restructuring the Bank with no indication that a major
restructuring would significantly alter current profitability or provide
assurance of achieving higher stockholder value long term.
(iv) The managerial and financial resources of TRP and the likelihood of
receiving the requisite regulatory approvals in a timely manner.
(v) The fact that the Merger would be a taxable transaction to the
shareholders of Bancorp.
(vi) The opinion of Baxter Fentriss in draft form, and orally confirmed by
Baxter Fentriss at the Board meeting on October 17, 1996, that the Merger
Consideration per share is fair, from a financial point of view, to the
holders of Bancorp Common Stock, and considering current market values, book
values, earnings per share, and the prices and premiums paid in certain other
similar transactions involving financial institutions. See "-Opinion of
Financial Advisor."
(vii) The Directors' views that it was not likely that a better offer could be
obtained in the short-term and that there could be no assurance that the TRP
principals would not withdraw their proposal if Bancorp were to continue
soliciting other potential acquirers, or that any other offers would be better
than TRP's offer.
(viii) The interests of certain officers, which are discussed in another
section of this Proxy Statement under "THE MERGER - Interests of Certain
Persons in the Merger".
(ix) The facts and circumstances set forth above in this section entitled "THE
MERGER - Background of the Merger".
In reaching its determination to approve and recommend the Merger, the Board
of Directors of Bancorp did not assign any relative or specific weights to the
foregoing factors, and individual Directors may have given different weights
to different factors.
Opinion of Financial Advisor
Baxter Fentriss has acted as financial advisor to Bancorp in connection with
the acquisition. Baxter Fentriss assisted Bancorp in identifying prospective
acquirers. See "THE MERGER - Background of the Merger - Sales Negotiations
with TRP" for more information in this regard. On October 3, 1996, and
updated and confirmed as of November 15, 1996, Baxter Fentriss delivered to
Bancorp its opinion that on the basis of matters referred to therein, the
offer is fair, from a financial point of view, to the holders of Bancorp
Common Stock (such opinion and update are referred to collectively as the
"Fairness Opinion" herein.)
In rendering its opinion, Baxter Fentriss consulted with the management of
Bancorp and the Daly Group; reviewed the Agreement and certain publicly
available information on the parties; and reviewed certain additional
materials made available by management of the respective parties.
In addition, Baxter Fentriss discussed with the management of the Company and
the Daly Group their respective businesses and outlook. Baxter Fentriss was
involved in the negotiations with the Daly Group and initiated merger
discussions at the request of Bancorp. No limitations were imposed by
Bancorp's Board of Directors upon Baxter Fentriss with respect to the
investigation made or procedures followed by it in rendering its opinion. The
full text of Baxter Fentriss' written opinion is attached as Appendix E to
this Proxy Statement and should be read in its entirety with respect to the
procedures followed, assumptions made, matters considered and qualifications
and limitations on the review undertaken by Baxter Fentriss in connection
therewith.
Baxter Fentriss' opinion is directed to the Company's Board of Directors only,
and is directed only to the fairness, from a financial point of view, of the
consideration received. It does not address the Company's underlying business
decision to effect the proposed transaction, nor does it constitute a
recommendation to any shareholder as to how such shareholder should vote with
respect to the Agreement and the Merger or as to any other matter.
Baxter Fentriss' opinion was one of several factors taken into consideration
by the Company's Board of Directors in making its determination to approve the
Agreement and the Merger, and the receipt of Baxter Fentriss' opinion is a
condition precedent to the Company's consummation of the Merger. The opinion
of Baxter Fentriss does not address the relative merits of the Merger as
compared to any alternative business strategies that might exist for Bancorp
or the effect of any other business combination in which Bancorp might engage.
Baxter Fentriss, as part of its investment banking business, is continually
engaged in the valuation of financial institutions and their securities in
connection with mergers and acquisitions and valuations for estate, corporate
and other purposes. Baxter Fentriss is a nationally recognized advisor to
firms in the financial service industry on mergers and acquisitions. The
Company selected Baxter Fentriss as its financial advisor because Baxter
Fentriss is an investment banking firm focusing on banking transactions, and
because of the firm's extensive experience and expertise in transactions
similar to the Merger. Baxter Fentriss is not affiliated with the Daly Group
or Bancorp.
In connection with the rendering of its opinion, Baxter Fentriss performed a
variety of financial analyses. In conducting its analyses and arriving at its
opinion, Baxter Fentriss considered such financial and other factors as it
deemed appropriate under the circumstances, including, among others, the
following (i) the historical and current financial condition and results of
operations of the Company including interest income, interest expense,
interest sensitivity, noninterest income, noninterest expense, earnings, book
value, return on assets and equity, capitalization, the amount and type of
nonperforming asset, the impact of holding certain nonearning real estate
assets, the reserve for loan losses and possible tax consequences resulting
from the transaction; (ii) the business prospects of the Company and the Daly
Group; (iii) the economies of the Company's market areas; (iv) the historical
and current market for Bancorp Common Stock; and (v) the nature and terms of
certain other merger transactions that it believes to be relevant.
Baxter Fentriss also considered its assessment of general economic, market,
financial and regulatory conditions, as well as its knowledge of the financial
institutions industry, its experience in connection with similar transactions,
its knowledge of securities valuation generally, and its knowledge of merger
transactions in California.
In connection with rendering its opinion, Baxter Fentriss reviewed (i) the
Agreement; (ii) drafts of this Proxy Statement; (iii) the Annual Reports to
shareholders, including the audited financial statements of the Company for
the years ended December 31, 1993, 1994 and 1995, and the unaudited quarterly
report of the Company for the nine month period ended September 30, 1996; and
(iv) certain additional financial and operating information with respect to
the business, operations, and prospects of the Daly Group and the Company as
it deemed appropriate.
Baxter Fentriss also (a) held discussions with members of senior management of
the Company regarding the historical and current business operation, financial
condition and future prospects of their respective companies; (b) reviewed
the historical market prices and trading activity for the Common Stock of the
Company; (c) compared the results of operations of the Company with that of
certain banking companies that it deemed to be relevant; (d) analyzed the pro
forma financial impact of the Merger on the Company; and (e) conducted such
other studies, analyses, inquiries and examinations as Baxter Fentriss deemed
appropriate.
The preparation of the Fairness Opinion involved various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Moreover, the evaluation of fairness from a financial point of
view of the Merger Consideration to the shareholders of Bancorp Common Stock
was to some extent a subjective one based on the experience and judgment of
Baxter Fentriss and not merely the result of mathematical analysis of
financial data.
Accordingly, notwithstanding the separate factors summarized below, Baxter
Fentriss believes that its analysis must be considered as a whole and that
selecting portions of its analysis and of the factors considered by it,
without considering all analyses and factors, could create an incomplete view
of the evaluation process underlying its opinion. The ranges of valuation
resulting from any particular analysis described below should not be taken to
be Baxter Fentriss' view of the actual value of the Company.
In performing its analysis, Baxter Fentriss made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of the Company or the Daly
Group. The analyses performed by Baxter Fentriss are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by the analysis. Additionally, analyses
relating to the values of businesses do not purport to be appraisals or to
reflect the prices at which businesses actually may be sold. In rendering its
opinion, Baxter Fentriss assumed that, in the course of obtaining the
necessary regulatory approvals of the Merger, no conditions will be imposed
that will have a material adverse effect on the contemplated benefits of the
Merger, on a pro forma basis, to Bancorp.
The following is a summary of selected analyses performed by Baxter Fentriss
in connection with its opinion:
(i) Stock Price History. Baxter Fentriss studied the history of the trading
prices and volume for Bancorp Common Stock and compared that to publicly
traded banks in California and to the price offered by the Daly Group. As of
September 30, 1996, the Company's fully diluted book value was $5.64 and its
tangible fully diluted book value was $5.35;
(ii) Comparative Analysis. Baxter Fentriss compared the price to earnings
multiple, price to book multiple, and price to assets multiple of the Daly
Group offer with other comparable merger and acquisition transactions in
California, after considering the Company's nonperforming assets and other
variables. The comparative multiples included both bank and savings and loan
association sales during the last three years;
(iii) Discounted Cash Flow Analysis. Baxter Fentriss performed a discounted
cash flow analysis to determine hypothetical present values for a share of
Bancorp's Common Stock as a five and ten year investment. Under this
analysis, Baxter Fentriss considered various scenarios for the performance
of the Common Stock using a range from six percent (6%) to twelve percent
(12%) in the growth of the Company's earnings and dividends, and a range from
eight times to sixteen times earnings as the terminal value of Bancorp Common
Stock. A range of discount rates from 12% to 15% was applied to these
alternative growth and terminal value scenarios. These ranges of discount
rates, growth alternatives, and terminal values were chosen based upon what
Baxter Fentriss, in its judgment, considered to be appropriate taking into
account, among other things, the Company's past and current performance, the
general level of inflation, rates of return for fixed income and equity
securities in the marketplace generally and for companies of similar risk
profiles. In most of the scenarios considered, the present value of the
Bancorp Common Stock was calculated at less than the value of the Daly Group
offer. Thus, Baxter Fentriss' discounted cash flow analysis indicated that
Bancorp shareholders would be in a better financial position by receiving the
Merger Consideration rather than continuing to hold Bancorp Common Stock.
Baxter Fentriss has relied, without any independent verification, upon the
accuracy and completeness of all financial and other information reviewed.
Baxter Fentriss has assumed that all estimates, including those as to possible
economies of scale, were reasonably prepared by management, and reflect their
best current judgments. Baxter Fentriss did not make an independent appraisal
of the assets or liabilities of either the Company or the Daly Group, and had
not been furnished such an appraisal.
Baxter Fentriss will be paid an amount equal to 1.5% of the Merger
Consideration plus reasonable out-of-pocket expenses for its services.
Bancorp has agreed to indemnify Baxter Fentriss against certain liabilities,
including, to the extent permitted by applicable law, certain liabilities
under the federal securities laws.
THE FULL TEXT OF THE OPINION OF BAXTER FENTRISS DATED AS OF THE DATE OF THIS
PROXY STATEMENT, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITS ON THE REVIEW UNDERTAKEN BY BAXTER FENTRISS, IS ATTACHED HERETO AS
APPENDIX E. SHAREHOLDERS ARE URGED TO READ THIS OPINION IN ITS ENTIRETY.
BAXTER FENTRISS' OPINION IS DIRECTED ONLY TO THE CONSIDERATION TO BE RECEIVED
IN THE MERGER BY THE HOLDERS OF BANCORP COMMON STOCK AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT
THE SPECIAL MEETING. THE SUMMARY OF THE OPINION OF BAXTER FENTRISS SET FORTH
IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
Closing; Effective Time of the Merger
The closing of the transactions contemplated by the Agreement shall take place
at the offices of Bell, Boyd & Lloyd, legal counsel to TRP, 70 West Madison
Street, Chicago, Illinois, at 10:00 a.m., local time, on the last business day
of the month following the day on which the latest of the following occurs:
(i) the date of the stockholders' meeting at which the stockholders of Bancorp
vote on the Agreement or (ii) the day on which the last of the conditions set
forth in Article Six of the Agreement is fulfilled or waived, or at such other
time and place and on such other date as Bancorp and TRP agree ("Closing").The
Merger will become effective upon the filing of a certificate of merger and
such other documents as are required by the Delaware General Corporation Law
("DGCL") to be filed and the agreement of merger and such other documents as
are required by the California General Corporation Law ("CGCL") to be filed
(the "Effective Time").
If the Closing has not occurred on or before March 31, 1997 (unless due to a
delay in regulatory approval, including but not limited to the Justice
Department or the FRB, in which case the Cash Consideration shall be increased
by $0.07 per month for each full month which elapses between March 31, 1997
and the Closing), the Agreement shall be terminated and the Merger shall be
abandoned. The right to terminate the Agreement and the right to receive
additional Cash Consideration shall not be available to any party whose
material breach of the Agreement has been the cause of, or resulted in, the
failure of the Merger to occur on or before March 31, 1997, and in no event
shall the Agreement remain in effect if the Closing has not occurred on or
before June 30, 1997.
Interests of Certain Persons in the Merger
The Directors and executive officers of Bancorp (ten persons) together with
their affiliates, beneficially owned a total of 331,934 shares of Bancorp
Common Stock (representing 27.8% of all outstanding shares of Bancorp Common
Stock) on October 31, 1996. The Directors and executive officers will receive
the same consideration for their shares, including any shares which they may
acquire prior to the Effective Time pursuant to the exercise of stock options,
as the other shareholders of Bancorp. See "-Stock Options" discussed below.
Certain members of Bancorp's management have certain interests in the Merger
that are in addition to their interests as shareholders of Bancorp generally.
The Board of Directors was aware of these interests and considered them, among
other matters, in approving the Agreement and the transactions contemplated
thereby.
Employment Agreements. Neither the Bank nor the Company has employment
agreements with its executive officers. However as a condition to the
Agreement, TRP has represented and warranted that it will enter into
employment agreements with Eddy S.F. Chan, the Bank's Chairman, Chief
Executive Officer and President, and Chief Executive Officer and President of
Bancorp, and with John K. Wong, Executive Vice President of the Bank and a
Director of Bancorp prior to the Effective Time of the Merger. Negotiation of
these agreements had not been completed at the time of preparation of the
Proxy Statement; however, the parties anticipate that such agreements will be
for a period of years and contain a compensation package at a level comparable
to the employees' existing compensation, including salary, stock options and
other benefits.
Stock options. Certain key employees of Bancorp and the Bank have been granted
options to purchase shares of Bancorp Common Stock under the Bancorp 1984
Employee Stock Option Plan, as amended. In addition, each of the Directors of
Bancorp has been granted an option or options under the Non Qualified Stock
Option Plan. The aggregate number of shares of Bancorp purchasable upon
exercise of such options is 103,750 shares of Common Stock. The Agreement
provides that, in consideration of the cancellation of such options, each
holder of an outstanding option (whether or not then exercisable) will receive
in settlement thereof, a cash payment from the Surviving Corporation in an
amount equal to the product of (i) the excess of the Cash Consideration over
the per share exercise price of such option and (ii) the total number of
shares of Company Common Stock which the Option Holder is entitled to purchase
under such option (the "Number of Options"); whereupon such options to
purchase shares shall be canceled. The Option Holders shall also be entitled
to receive a pro rata share of any amount payable pursuant to the terms of the
Escrow Agreement.
The following table sets forth the number of shares subject to options held by
each Director and executive officer of Bancorp and the Bank and the aggregate
value to be received by all option holders upon cancellation.
# shares aggregate
subject to cancellation
Name Title options amount ($8.00)*
Eddy S.F. Chan President, CEO and Director,
Bancorp 24,000 $ 72,125
John K. Wong Executive Vice President, Bank
and Director, Bancorp 14,000 $ 42,125
James A. Babcock Director, Chairman, Bancorp 5,500 $ 17,375
Frankie G. Lee Director, Vice-Chair, Bancorp 5,500 $ 17,375
John K. Lee Director, Bancorp 5,500 $ 17,375
John T. Stewart Director, Secretary, Bancorp 5,500 $ 17,375
Simon S. Teng Director, Treasurer, Bancorp 5,500 $ 17,375
Frank K.W. Wong Director, Bancorp 5,500 $ 17,375
Robert A. Hinkle Executive Vice President, Bank 5,000 $ 15,000
Bruce Nakahira Director, Bancorp 4,500 $ 13,875
G. Barney Schley Senior Vice President, Bank 2,500 $ 7,500
Kiran C. Mehta Senior Vice President, Bank 2,500 $ 7,500
Bonnie L. Hao Senior Vice President, Bank 2,500 $ 7,500
Crystal Z. Hundahl Vice President, Bank 2,500 $ 7,500
Dennis B. Jang Vice President, CFO, Bank and
Bancorp 2,500 $ 7,500
Daniel Y. Lee Director, Bank 750 $ 2,625
93,750 $ 287,500
Directors and Executive Officers of Bancorp as a
group:
10 persons 78,000
Other officers and employees of Bancorp and the
Bank as a group**:
8 persons 25,750
Total:
18 persons 103,750
* Does not include additional consideration that may be received from the
Escrow Fund.
** Includes Directors Emeritus.
Certain Federal Income Tax Consequences
The following discussion of material federal income tax consequences of the
Merger to certain holders of Bancorp Common Stock is based on present law and
does not purport to be a complete analysis of all tax consequences that may be
relevant to any particular shareholder. The state, local, foreign, estate and
alternative minimum tax consequences to shareholders of Bancorp are not
discussed. Certain holders (including, but not limited to, insurance
companies, tax exempt organizations, financial institutions, securities
dealers, broker dealers, employee shareholders, foreign corporations, persons
who are not citizens or residents of the United States and persons who
acquired shares of Bancorp Common Stock as part of a straddle or conversion
transaction) may be subject to special rules not discussed below. The
discussion assumes that each shareholder holds shares of Bancorp Common Stock
as a capital asset. However, certain shareholders who are employees or
Directors may not be entitled to treat certain of the shares which they may
have acquired from Bancorp as capital assets and may be required to report any
gain on the sale of the shares as taxable compensation from Bancorp. The
discussion is based on laws, regulations, rulings, practice and judicial
decisions now in effect, all of which are subject to change (possibly with
retroactive effect) by legislation, administrative action or judicial
decision.
The receipt of the Merger Consideration for Bancorp Common Stock pursuant to
the Merger or, in the case of any dissenting shareholder, pursuant to any
appraisal proceedings, if written demands for payment of fair market value are
made therefor by record holders thereof (see "DISSENTERS' APPRAISAL RIGHTS"),
will be treated as a sale or exchange of those shares for federal income tax
purposes. A holder of Bancorp Common Stock (and if dissenters' rights exist
following the meeting, including a dissenting shareholder) will recognize a
gain or loss for federal income tax purposes generally in an amount equal to
the difference, if any, between (a) the Merger Consideration, consisting of
the cash received plus the fair market value of the shareholder's pro rata
share of the Escrow Fund distributions, if any, and (b) the adjusted tax basis
of his, her or its shares of Bancorp Common Stock surrendered (except, in the
case of dissenting shareholders, if any, for any amount constituting interest,
which will be taxable as ordinary income). Except for gain attributable to
certain shares owned by employees or Directors of Bancorp, as described above,
gain or loss on the sale of the shares will be long term capital gain or loss
if the shares of Bancorp Common Stock have been held by the shareholder for
one year or more and were capital assets in the hands of the shareholder.
The receipt of the Merger Consideration by a shareholder of Bancorp may not be
reported as an installment sale since the Bancorp Common Stock is considered
to be traded on an "established securities market" and is thus not eligible
for such tax reporting method. Instead, the shareholder may report the
receipt of Merger Consideration, for the taxable year encompassing the
Effective Time, either by (a) determining the fair market value of the pro
rata share of the expected Escrow Fund distributions and adding it to the Cash
Consideration or (b) only reporting the Cash Consideration by determining that
the Escrow Fund distributions are so contingent and speculative so as to make
it impossible to value them, and thus qualifying for the "open transaction"
doctrine under Burnet v. Logan, 283 U.S. 404 (1931).
If the shareholder reports the Merger Consideration under the former method
(valuing the expected Escrow Fund distributions) to the extent that the actual
distributions from the Escrow Fund differ from their estimated value, the
shareholder will be required to report a loss or a gain in future year(s)
depending on whether the actual amounts were less than, or in excess of, their
original estimated value. If the shareholder reports the receipt of Merger
Consideration under the "open transaction" method, the Cash Consideration
received at the Effective Time would be reported, reduced by the total
adjusted tax basis in the stock surrendered. The amounts that thereafter may
be received from the Escrow Fund distributions are reportable, under the "open
transaction" method, when received in subsequent year(s). It is possible that
the Internal Revenue Service ("Service") may not agree that the "open
transaction" method is available and assess penalties and interest, plus
additional taxes for the year of receipt of the Merger Consideration.
Accordingly, any shareholder contemplating the use of the "open transaction"
method of reporting to the Service should consult with his, her or its tax
advisor in order to determine which tax reporting method to use.
It is also possible that the Service may attempt to recharacterize the $0.07
per month additional amount to be added to the Cash Consideration if the
Closing has not occurred by March 31, 1997, as an item of interest income and
thus not subject to the potentially smaller long-term capital gain rates. If
so recharacterized, the shareholder will potentially incur a greater tax than
if characterized as part of the Cash Consideration for the shares.
The Escrow Fund may earn taxable income while held by the Escrow Agent and
prior to distributions, if any, to the shareholders. Such income, net of
expenses and investment losses, will be taxable to the Escrow Fund and not to
the shareholders. The shareholders may only be taxed on the Escrow Fund
distributions, if any, as explained above.
The cash payments due the holders of Bancorp Common Stock upon the exchange of
such Bancorp Common Stock pursuant to the Merger (other than certain exempt
persons or entities) will be subject to "backup withholding" for federal
income tax purposes unless certain requirements are met. Under federal law,
the third party Exchange Agent must withhold 31% of the cash payments to
holders of Bancorp Common Stock to whom backup withholding applies, and the
federal income tax liability of such persons will be reduced by the amount so
withheld.
To avoid backup withholding, a holder of Bancorp Common Stock must provide the
third party Exchange Agent with his or her taxpayer identification number and
complete a form in which he or she certifies that he or she has not been
notified by the Internal Revenue Service that he or she is subject to backup
withholding as a result of a failure to report interest and dividends. The
taxpayer identification number of an individual is his or her Social Security
number. It is expected that each shareholder will be requested by the
Exchange Agent, at the appropriate time to complete the necessary form.
No ruling has been or will be requested from the Internal Revenue Service as
to any of the tax effects to Bancorp's shareholders of the transactions
discussed in this Proxy Statement, and no opinion of counsel has been or will
be rendered to Bancorp's shareholders with respect to any of the tax effects
of the Merger to shareholders.
THE TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE PARTICULAR
CIRCUMSTANCES OF EACH SHAREHOLDER; THEREFORE, EACH SHAREHOLDER IS URGED TO
CONSULT HIS OR HER TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES OF
THE MERGER TO SUCH HOLDER, INCLUDING THOSE RELATING TO STATE AND/OR LOCAL
TAXES.
Surrender of Stock Certificates
At the Effective Time, TRP will deposit in trust with a bank or trust company
designated by it (the "Exchange Agent") cash in an aggregate amount equal to
the product of (i) the number of shares of Company Common Stock issued and
outstanding at the Effective Time (excluding such shares owned beneficially or
of record by TRP, shares held by any subsidiary of the Company and shares
which are Dissenting Shares [as defined herein]), and (ii) the Cash
Consideration (such amount being herein defined as the "Exchange Fund").
As soon as practicable after the Effective Time, TRP shall deposit in trust in
the Exchange Fund in cash such further aggregate amount equal to the product
of (i) the number of shares of Company Common Stock as to which the holders
thereof forfeited the right to demand purchase pursuant to the exercise of
their dissenters' rights and (ii) the Cash Consideration. The Exchange Agent
shall, pursuant to irrevocable instructions, make the Cash Consideration
payments provided under the Agreement out of the Exchange Fund. The Exchange
Fund shall not be used for any other purpose.
In addition, at the Effective Time, TRP shall deposit in trust with the Escrow
Agent (as defined in the Escrow Agreement) cash in an amount equal to
$740,626, less the amount by which the escrow deposit may be reduced pursuant
to the provisions of the Escrow Agreement (the "Escrow Reduction Amount"). The
$740,626 less the Escrow Reduction Amount (the "Escrow Fund") shall be divided
into two separate funds pursuant to the Escrow Agreement. The Bank, as escrow
agent, will administer the Escrow Fund and release, in cash, portions of the
Escrow Fund promptly as such amounts become payable pursuant to the terms of
the Escrow Agreement.
Promptly after the Effective Time, the Exchange Agent shall mail to each
record holder as of the Effective Time (other than TRP and any subsidiary of
the Company), of an outstanding certificate or certificates which immediately
prior to the Effective Time represented shares of Company Common Stock (the
"Certificates") a form letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange
Agent) and instructions for use in effecting the surrender of the Certificates
for payment therefor.
Upon surrender by such record holder to the Exchange Agent of a Certificate,
together with such letter of transmittal duly executed, the holder of the
Certificate (the "Former Stockholder") shall be entitled to receive in
exchange therefor cash in an amount equal to the product of (i) the number of
shares of Company Common Stock represented by such Certificate and (ii) the
Cash Consideration, and such Certificate shall forthwith be canceled. No
interest will be paid or accrued on the cash payable on surrender of the
Certificates. Former Stockholders will also be entitled to receive any
amounts payable pursuant to the terms of the Escrow Agreement.
SHAREHOLDERS OF BANCORP ARE REQUESTED NOT TO SURRENDER THEIR CERTIFICATE(S)
FOR EXCHANGE UNTIL THEY HAVE RECEIVED SUCH INSTRUCTIONS AND LETTER OF
TRANSMITTAL AND HAVE COMPLETED THE TRANSMITTAL MATERIALS ACCORDINGLY.
If payment is to be made to a person other than the person in whose name the
Certificate surrendered is registered, it shall be a condition of payment that
the Certificate so surrendered shall be properly endorsed or otherwise in
proper form for transfer and that the person requesting such payments shall
pay any transfer or other taxes required by reason of the payment to a person
other than the registered holder, or such person shall establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is
inapplicable.
Until surrender in accordance with the foregoing, each Certificate (other than
Certificates representing shares owned beneficially or of record by TRP,
Certificates representing shares held by any subsidiary of Bancorp and
Certificates representing Dissenting Shares) shall represent, for all
purposes, the right to receive the Merger Consideration in cash multiplied by
the number of shares evidenced by such Certificate, without interest.
From and after the Effective Time, there will be no transfers on the stock
transfer records of Bancorp of shares of Bancorp Common Stock that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, a certificate representing such shares is presented to TRP, the
certificate shall be canceled and exchanged for the Merger Consideration
deliverable in respect thereof in accordance with the procedures set forth in
the Agreement.
In the event that a Certificate is lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming such Certificate, the
Surviving Corporation will pay or cause to be paid in exchange therefor, the
Merger Consideration deliverable with respect thereof. In connection
therewith, the Board of Directors of the Surviving Corporation may require the
owner to give the Surviving Corporation a bond in such sum as it may direct in
indemnity against any claim that may be made against the Surviving Corporation
with respect thereto.
Any portion of the aggregate Merger Consideration or the proceeds of any
investments thereof that remain unclaimed by the shareholders of Bancorp for
18 months after the Effective Time shall be repaid by the Exchange Agent to
the Surviving Corporation. Any shareholders of Bancorp who have not
theretofore complied with the procedures regarding payment for shares in
accordance with the Agreement shall thereafter, subject to applicable escheat
and other laws, look only to the Surviving Corporation for payment of the
Merger Consideration deliverable in respect of each share of Bancorp Common
Stock such shareholder holds as determined pursuant to the Agreement without
any interest thereon.
Regulatory Approvals
The Merger is subject to approval by the Federal Reserve Board under Sections
3 and 4 of the BHC Act. As a new bank holding company, TRP is subject to
regulation under the BHC Act. The Merger cannot proceed in the absence of the
requisite regulatory approvals. There can be no assurance that such requisite
regulatory approvals will be obtained, and, if obtained, there can be no
assurance as to the date of such approvals.
Regulations under the BHC Act provide that actions processed by the local
Federal Reserve Bank will normally be acted upon within a thirty calendar day
period after the application has been accepted as informationally complete,
although the applicable Federal Reserve Bank may at any time determine to
refer the application to the Federal Reserve Board, in which case the
processing of the application could be extended an additional thirty days or
longer. Assuming Federal Reserve Board approval, the Merger may not be
consummated until thirty days after such approval, during which time the
Department of Justice may challenge the Merger on antitrust grounds. With the
approval of the Federal Reserve Board and Department of Justice, the waiting
period may be reduced to no less than 15 days.
In reviewing TRP's application in connection with the Merger under applicable
provisions of the BHC Act, the Federal Reserve Board will consider the
financial and managerial resources of TRP, the Company and Bank and the
convenience and needs of the communities to be served. As part of, or in
addition to, consideration of the above factors it is anticipated the Federal
Reserve Board will consider the overall capital structure and leverage of TRP,
the Company and the Bank, and any special dividends that the Bank may pay upon
Closing to finance a portion of the Merger Consideration. See "BUSINESS OF
THE PARTIES TO THE MERGER - TRP." The Federal Reserve Board in examining the
future prospects of TRP, the Company, and the Bank has the authority to deny
an application if it concludes the combined organization would have inadequate
regulatory capital.
The Federal Reserve Board will furnish notice and a copy of the application
for approval of the Merger to the Office of the Comptroller of the Currency
and the Federal Deposit Insurance Corporation. These agencies have thirty
days to submit their views and recommendations to the Federal Reserve Board.
Furthermore, the BHC Act and Federal Reserve Board Regulations require
publication of, and the opportunity for public comment on, the application
submitted by TRP. Any such comments provided by third parties could prolong
the period during which the application is subject to review by the Federal
Reserve Board.
TRP's right to exercise its option under the Option Agreement is also subject
to the prior approval of the Federal Reserve Board to the extent that the
exercise of the option under the Option Agreement would result in TRP owning
more than 5 percent of the outstanding shares of Common Stock. In considering
whether to approve TRP's right to exercise it option, including its right to
purchase more than 5 percent of the outstanding shares of Common Stock, the
Federal Reserve Board would generally apply the same statutory criteria it
would apply to its consideration of approval of the Merger.
The Company and TRP are not aware of any other governmental approvals or
actions that are required for approval of the Merger. Should any such
approvals or actions be required, it is currently contemplated that such
approvals or actions would be sought, but there can be no assurance that such
other approvals, if any, would be received. Should the Merger not be
consummated, Bancorp and the Bank will continue as separate going concerns.
Assuming shareholder approval, it is anticipated that the Merger will be
consummated on or about February 28, 1997.
The Agreement provides that either party may terminate the Agreement if the
Merger has not been consummated by March 31, 1997, unless, due to a delay in
regulatory approval, in which case the Cash Consideration shall be increased.
In no event shall the Agreement remain in effect if the Closing has not
occurred on or before June 30, 1997. See "THE MERGER-Termination of the
Agreement."
Closing Conditions to the Merger
Consummation of the Merger is subject to various specific conditions in the
Agreement. While it is anticipated that all such conditions will be satisfied
or (when permissible) be waived, there can be no such assurance.
Conditions to Each Party's Obligations. The respective obligations of each
party to effect the Merger are subject to the satisfaction or waiver prior to
the Effective Time of the following conditions: (i) the Agreement and the
transactions contemplated thereby shall have been approved by vote of the
holders of at least a majority of the outstanding shares of Common Stock of
Bancorp in accordance with applicable law; (ii) all necessary regulatory
approvals, consents and waivers required to consummate the transactions
contemplated by the Agreement shall have been obtained and all statutory
waiting periods in respect thereof shall have expired; (iii) Baxter Fentriss
shall have rendered its written opinion to the Company that the Merger
Consideration is fair to the Stockholders of the Company (other than those
persons owning, or holding a right to acquire TRP shares immediately prior to
or immediately after the Effective Time) from a financial point of view; (iv)
neither TRP, the Company nor the Bank shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the Merger; and the Closing shall take place on
or before March 31, 1997.
Conditions to the Obligations of TRP. The obligations of TRP to effect the
Merger shall be subject to the satisfaction or waiver prior to the Effective
Time of the following conditions:
(i) each of the agreements, covenants and obligations of the Company
required to be performed by it prior to the Closing pursuant to the terms of
the Agreement shall have been duly performed and complied with in all material
respects, and the representations and warranties of the Company in the
Agreement shall be true and correct in all material respects as of the date of
the Agreement and as of the Effective Time as though made at and as of the
Effective Time (except as to any representation or warranty which specifically
relates to an earlier date) and TRP shall have received a certificate to that
effect signed by the president and senior financial officer of the Company;
(ii) there shall not have occurred after the date of the Agreement, any
Material Adverse Change (as defined herein) in the business, operations,
properties, prospects, condition, assets, liabilities or reserves of the
Company and the Bank taken as a whole or of the Bank taken individually;
(iii) all action required to be taken by or on the part of the Company to
authorize execution, delivery and performance of the Agreement by the Company
and the consummation by the Company of the transactions contemplated thereby
shall have been duly and validly taken by the Board of Directors of the
Company and the Stockholders of the Company, and TRP shall have received
certified copies of the resolutions evidencing such authorization;
(iv) any and all permits, consents, waivers, clearances, approvals and
authorizations of all third parties and governmental bodies required to be
obtained by the Company or the Bank shall have been obtained by the Company
and the Bank which are necessary in connection with the consummation of the
Merger and the other transactions contemplated thereby. None of such
approvals shall contain any term or condition which would materially impair
the value of the Company and the Bank taken as a whole or of the Bank
individually;
(v) TRP shall have received an opinion, dated as to the Closing in form
satisfactory to TRP from Nossaman, Guthner, Knox & Elliott, LLP, counsel to
the Company;
(vi) stockholders of Dissenting Shares shall hold no more than 10% of the
outstanding shares of the Company;
(vii) TRP shall have received written resignations of each of the Company's
and Bank's Directors and the written resignation of each of the Company's
officers, effective as of the Closing;
(viii) TRP shall have received current Phase I and Phase II environmental
assessments of the properties of the Company and the Bank satisfactory to it
in its sole discretion;
(ix) the Directors of the Company shall have executed the Voting Agreement
substantially in the form of Exhibit D to the Agreement;
(x) the Company shall have delivered an option agreement (the "Option
Agreement") substantially in the form of Exhibit E to the Agreement;
(xi) the Company shall have delivered to TRP audited financial statements as
of and for the year ended December 31, 1996, which financial statements (a)
will be prepared in accordance with generally accepted accounting principles
consistently applied, (b) fairly reflect the Company's consolidated financial
position as of such date, and the consolidated results of operations and cash
flows, for the period then ended;
(xii) the Company shall have delivered to TRP surveys and a satisfactory title
policy insuring title to all real property;
(xiii) the Company shall have delivered a list, certified by the Secretary of
the Company, of loans which have been collected and have been recovered
pursuant to the Escrow Agreement;
(xiv) the Company shall have received a Fairness Opinion of Baxter Fentriss
that the terms of the Merger are fair to the stockholders of the Company from
a financial point of view.
As defined in the Agreement, "Material Adverse Change" or "Material Adverse
Effect" means any change in or effect on the business, operations, prospects,
properties, assets, or liabilities of the Company and the Bank taken as a
whole or the Bank taken individually on one hand, or TRP or the other hand,
that would be materially adverse to the business, operations, properties,
prospects, condition (financial or otherwise), assets or liabilities of the
Company and the Bank taken as a whole or of the Bank taken individually on one
hand, or TRP on the other hand, respectively.
Conditions to the Obligations of Bancorp. The obligations of Bancorp to effect
the Merger shall be subject to the satisfaction or waiver prior to the
Effective Time of the following additional conditions:
(i) each of the agreements, covenants and obligations of TRP required to be
performed by it prior to the Closing shall have been duly performed and
complied with in all material respects, and the representations, warranties
and covenants of TRP contained in the Agreement shall be true and correct
(subject to an exception generally for any condition, event, change or
occurrence that would not have a Material Adverse Effect on Bancorp) as of the
date of the Agreement and as of the Effective Time (as though made at and as
of the Effective Time except as to any representation or warranty which
specifically relates to an earlier date) and the Company shall have received a
certificate to that effect signed by the president and chief financial officer
of TRP;
(ii) there shall not have occurred after the date of the Agreement any
Material Adverse Change in the business, operations, properties, prospects,
condition (financial or otherwise), assets, liabilities or reserves of TRP;
(iii) all action required to be taken by, or on the part of, TRP to authorize
the execution, delivery and performance of the Agreement by TRP and the
consummation by it of the transactions contemplated thereby, shall have been
duly and validly taken by the Board of Directors of TRP and the Company shall
have received certified copies of the resolutions evidencing such
authorizations;
(iv) any and all permits, consents, waivers, clearances, approvals and
authorizations of all third parties and governmental bodies required to be
obtained by TRP shall have been obtained which are necessary in connection
with the consummation of the Merger and the other transactions contemplated
thereby;
(v) the Company shall have received an opinion of Bell, Boyd & Lloyd, as
counsel to TRP, in form satisfactory to the Company dated the date of the
Closing;
(vi) the Company shall have received the Fairness Opinion.
Representations and Warranties.
Bancorp, on the one hand, and TRP, on the other hand, have made certain
representations and warranties to each other in the Agreement.
Representations and Warranties of the Company
Pursuant to the Agreement, the Company has made representations and warranties
as to, among other things, the organization and good standing of Bancorp and
the Bank, the authorization to own properties and carry on their business; the
authorization of the Company to execute and deliver and to perform its
obligations under the Agreement, and potential conflicts with other agreements
and obligations; the capitalization of the Company, the number of outstanding
shares of the Company, and any agreements or other commitments to issue
additional shares by way of option or otherwise; the ownership of any
subsidiaries of the Company, including the Bank; the existence and status of
consents and approvals required to consummate the transactions contemplated by
the Agreement; the delivery of financial statements and the status thereof.
In addition, the Company has made representations and warranties as to the
agreement to deliver copies of proxy statements and other reports filed with
regulators and the accuracy and completeness of such reports; the accuracy and
completeness of the Proxy Statement; the absence of undisclosed liabilities of
the Company and the Bank; the absence of certain changes from August 31, 1996
to the Closing; the maintenance of and any claims against certain fidelity
bonds, Directors' and officers' liability insurance and general liability
insurance; the existence and terms of agreements and memoranda of
understanding with the Company's and the Bank's regulators; the promptness and
accuracy of reports filed by the Company and the Bank with their respective
regulators; the obtaining and the terms of the Fairness Opinion; the existence
and status of litigation or administrative proceedings involving or threatened
against the Company or the Bank which may reasonably have a Material Adverse
Effect; the status of title to all properties and other assets of the Company
and the Bank and the existence of liens or other encumbrances against such
properties and assets; the effect of the transactions contemplated by the
Agreement on the Articles of Incorporation or Association and Bylaws of the
Company and the Bank and on any contracts, instruments, mortgages, notes,
security agreements, leases, agreements or other understandings.
The Company has also made representations and warranties as to the existence
and status of employee benefit plans of the Company and the Bank; the
existence and status of tax returns filed by the Company and of tax liens
against the Company; the existence and status of any actions, claims, demands,
liability, investigation, notice or other pending or threatened action arising
from or related to federal, state or local environmental, health or safety
laws or regulations with respect to properties owned by the Company or the
Bank; compliance with applicable laws and regulations; the existence and
status of any labor difficulties; the status of transactions with affiliates
of the Company and the Bank; the status of the Bank's loan portfolio; the
status of the Company as a reporting company pursuant to Section 15(d) of the
Securities Exchange Act of 1934; and the accuracy and completeness of the
disclosures made by the Company to TRP in connection with the transactions
contemplated by the Agreement.
Representations and Warranties of TRP
Pursuant to the Agreement, TRP has made representations and warranties as to,
among other things, the organization and good standing of TRP, and the
authorization to own properties and carry on its business; the authorization
to execute and deliver and to perform its obligations under the Agreement, and
potential conflicts with other agreements and obligations; the existence and
status of consents and approvals required to consummate the transactions
contemplated by the Agreement; the accuracy and completeness of information
provided by TRP to be included in this Proxy Statement; its commitment to
enter into employment agreements with Eddy S.F. Chan and John K. Wong prior to
the Effective Time; and the accuracy and completeness of the disclosures made
to the Company by TRP in connection with the transactions contemplated by the
Agreement.
The representations and warranties of the parties generally are subject to an
exception for any condition, event, change or occurrence that would not have a
Material Adverse Effect on the party making such representation or warranty.
The representations and warranties of the parties do not survive beyond the
Effective Time if the Merger is consummated unless otherwise stated, and, if
the Agreement is terminated without consummation of the Merger, there will be
no liability on the part of any party or its respective officers or Directors,
provided, however, that such termination may give rise to liquidated damages
("Liquidated Damages") as discussed herein. See "THE MERGER - Liquidated
Damages."
Business Pending Consummation
Pursuant to the Agreement, Bancorp has agreed that during the period from the
date of the Agreement to the Effective Time (except as expressly provided in
the Agreement or as disclosed to TRP pursuant to the Agreement or as agreed to
by TRP), Bancorp shall and shall cause the Bank to conduct its business and
maintain its books and records in the usual, regular and ordinary course
consistent with past practice, use its reasonable efforts to maintain and
preserve intact its business organization, assets, prospects, and advantageous
business relationships, keep available the services of its officers and
employees and maintain satisfactory relationships with suppliers, contractors,
customers and others having business relationships with the Company or the
Bank.
In addition, pursuant to the Agreement, during the period from the date of the
Agreement to the Effective Time (except as otherwise specifically provided in
the Agreement or the Option Agreement or as disclosed to TRP pursuant to the
Agreement), Bancorp has agreed that it shall not, and shall not permit the
Bank to, without the prior written consent of TRP, take certain actions,
including the following:
(i) split, combine or reclassify any share of its capital stock, declare,
pay or set aside for payment any dividend or other distribution in respect of
its capital stock or redeem, purchase or otherwise acquire any shares of its
capital stock;
(ii) authorize for issuance, issue, sell, pledge, dispose of or encumber,
deliver, or agree or commit to do any of the foregoing with respect to any
stock of any class of the Company or the Bank or any securities convertible or
exchangeable for such stock, other than shares issuable upon exercise of
currently outstanding options of the Company exercisable for up to 103,750
shares;
(iii) take any action to cause the shares of the Company to cease to be quoted
on the NASDAQ Bulletin Board, or fail to promptly notify TRP as to any
notification received by the Company to the effect that action has been or is
intended to be taken to terminate authorization for quotation;
(iv) incur any liability or obligation or assume, guarantee, endorse or
otherwise as an accommodation become responsible for the obligations of any
other individual or entity other than in the usual course of business, or
issue any debt securities or change any assumption underlying, or method of
calculation of any bad debt, contingency or other reserve, except as required
by generally accepted accounting principles or applicable law;
(v) adopt or amend any bonus, profit sharing, compensation, stock option,
pension, retirement or similar employee benefit plan, or grant or become
obligated to grant any increase in compensation, except for increases in the
ordinary course of business consistent with past practices, or make any change
in any such plan or other employee benefit or welfare arrangement, or enter
into any similar arrangement;
(vi) acquire by merger or other means, any corporation, partnership or other
business organization or division thereof, or acquire any equity interest in
any such business organization, except for such interests acquired in a
fiduciary capacity or in the ordinary course of business consistent with past
practice;
(vii) except as required to consummate the Merger, pay, discharge or satisfy
any claim or liability, other than in the ordinary course of business and
consistent with past practices, of liabilities reflected or reserved against
on the balance sheet included in interim financial statements or incurred in
the ordinary course of business and consistent with past practices since the
date thereof;
(viii) except as contemplated by the Agreement, amend the Articles of
Incorporation of Bylaws of the Company;
(ix) make any capital expenditure other than in the ordinary course of
business and consistent with past practices except for capital expenditures
which do not individually exceed $25,000;
(x) waive, release, terminate, grant or transfer any material rights arising
under any material credit agreement or lease or take any such action with
respect to any right of material value or modify or change in any material
respect any other existing material license, contract or document, or enter
into a material contract or agreement other than in the usual course of
business and consistent with past practice;
(xi) allow any material insurance policy to be canceled or terminated except
in the ordinary course;
(xii) make any change in accounting principle, methods or practices except as
may be required by generally accepted accounting principles or applicable law;
(xiii) agree to take or omit to take any of the foregoing actions or any
action which would make any representation or warranty undertaken by the
Company untrue or incorrect in any material respect;
(xiv) make or commit to make, any loan or extension of credit in excess of
$250,000 except for renewal loans to existing borrowers, and home equity loans
made in accordance with the Company's published standards. No extensions may
be granted to classified borrowers other than renewals not to exceed six
months in connection with workouts conducted in the ordinary course of
business and approved by TRP;
(xv) declare or pay any dividend or make any other distribution in respect of
the Company's Common Stock;
(xvi) make any borrowing for more than one year, other than certificates of
deposit and other time deposits maintained at the Company by customers of the
Company, consistent with past practice;
(xvii) lower the loan loss reserve of the Bank below 1%; or
(xviii) sell, discount or otherwise dispose of any loan (excluding loans
listed on Exhibit B to the Escrow Agreement, but including loans listed on
Exhibit C to the Escrow Agreement) for an amount less than the outstanding
balance on the books of the Bank as of the date of such sale, discount,
settlement or disposal.
Waiver and Amendment
Prior to the Effective Time, any condition of the Agreement (to the extent
allowed by law) may be waived by the party benefited by the provision or may
be amended or modified (including the structure of the transaction) by an
agreement in writing approved by the Boards of Directors of TRP and Bancorp;
except that, after the vote by the shareholders of Bancorp, no amendments may
be made that reduce the amount of the Merger Consideration or which adversely
effect the Company's stockholders (other than one which eliminates any or all
of the Escrow Fund, prior to closing, in exchange for an increase in the Cash
Consideration, to the extent permitted by law) without approval of such
shareholders.
No Solicitation of Alternative Transactions
Bancorp has agreed that neither it nor the Bank nor any of their respective
officers and Directors shall, (and Bancorp will direct and use its best
efforts to cause its employees, agents and representatives not to), directly
or indirectly, initiate, solicit, or encourage, subject to fiduciary duties,
any inquiries or the making of any proposal or offer (including, without
limitation, any proposal or offer to shareholders of Bancorp) with respect to
a merger, consolidation or similar transaction involving, or any purchase of
all or any substantial portion of the assets, deposits or 10% or more of any
equity securities of, Bancorp or the Bank (any such proposal or offer being an
"Acquisition Proposal").
However, Bancorp may engage in any negotiations concerning, or provide any
confidential information or data to, or have discussions with, any person
relating to an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal, if Bancorp's Board of
Directors, after consultation with, and based on the written advice of its
counsel with respect to an unsolicited offer from a third party, determines in
the exercise of its fiduciary duties that such discussions, negotiations or
actions are legally required. Bancorp has agreed to notify TRP immediately if
any such inquiries, proposals or offers are received by, any such information
is requested from, or any such negotiations or discussions are sought to be
initiated or continued with Bancorp or the Bank.
Liquidated Damages
The Agreement provides that if it is not consummated for specified reasons,
the party terminating the Agreement shall be entitled to liquidated damages in
a fixed amount, which shall be the limit of liability for the other party
under the Agreement.
Liquidated Damages Payable to TRP
In the event that the Merger is not consummated for one of the following
reasons and TRP has not failed in any material respect to perform its
obligations under the Agreement, the Company will pay TRP the sum of $250,000:
(i) there has been a breach by the Company of any material representation,
warranty or covenant; (ii) any person or "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange Act"), other
than TRP, becomes the beneficial owner of more than 20% of the shares of
Company Common Stock; (iii) the Company withdraws, modifies or amends in any
respect adverse to TRP its recommendation of the Merger or fails to reconfirm
its recommendation of the Merger within a reasonable time after formal
request; or (iv) the Board of Directors of the Company or the Bank resolves
to take any action than would result in any of the foregoing; and such event
occurs on or prior to the date of termination.
In the event that the Merger is not consummated and one of the following
events occurs within four (4) months thereafter and TRP has not failed in any
material extent to perform its obligations under the Agreement, the Company
shall pay to TRP the sum of $250,000: (i) the Company or the Bank enters into
an agreement or plan of merger, consolidation, reorganization, exchange,
recapitalization or other similar agreement or plan, including an agreement in
principal or letter of intent, other than with TRP; (ii) the Company or the
Bank enters into one or more agreements or plans which, individually or in the
aggregate would result in the sale of more than 25% of its total assets or
earning power; or (iii) the Board of Directors of the Company or the Bank
resolves to take any action that would result in any of the foregoing.
Liquidated Damages Payable to Bancorp
In the event that the Merger is not consummated because there is a breach by
TRP of any material representation, warranty or covenant contained in the
Agreement on or prior to the date of termination and Company has not failed to
any material extent to perform its obligations under the Agreement, TRP shall
pay the Company the sum of $150,000. Payment of such liquidated damages has
been personally guaranteed by Mr. Daly.
Manner of Payment
The party owing liquidated damages shall make the payment to the other party
in immediately available funds within 30 days following the date on which the
other party notifies the party owing liquidated damages that the event has
occurred. No payment shall be due if the Agreement is terminated by mutual
consent, if the Merger is prevented by court or administrative action or if
the Closing has not taken place by March 31, 1997 (unless extended as provided
in the Agreement to a date not later than June 30, 1997, in which case, in the
event that the Closing has not occurred by such date, no liquidated damages
shall be payable.) The payment of liquidated damages by either party for any
of the reasons set forth above shall be a one time event, r(ix) make any capital
expenditure other than in the ordinary course of business and consistent with
past practices except for capital expenditures which do not individually
exceed $25,000;
(x) waive, release, terminate, grant or transfer any material rights arising
date of the Agreement to the Closing, the Company will give TRP access to the
properties and books and records of the Company and the Bank and will allow TRP
and its authorized representatives to make such investigations and inspections
as it may require, provided that the representations and warranties made by the
Company shall not be deemed waived by such investigations. Information provided
is to be kept confidential by TRP and shall be used only in connection with the
transactions contemplated by the Agreement.
Restructure of the Transaction
If necessary to expedite or facilitate the Closing and any other transactions
contemplated in connection therewith, the parties have agreed that they will
take or perform such additional reasonably necessary or advisable steps to
restructure the transaction, provide that such restructuring will not result
in any change in the Merger Consideration or alter the tax treatment of the
transactions contemplated hereunder or otherwise materially adversely effect
the rights and obligations of any party.
Termination of the Agreement
The Agreement sets forth the circumstances under which both or one or other of
the parties may terminate.
The Agreement may be terminated, and the Merger abandoned, prior to the
Effective Time either before or after its approval by the shareholders of
Bancorp and TRP:
(i) by the mutual consent of the Boards of Directors of Bancorp and TRP;
(ii) by TRP if (a) the Company shall have withdrawn or modified in a manner
adverse to TRP, its approval or recommendation of the Agreement or the Merger,
the Company's Board of Directors shall have formally resolved to do any of the
foregoing, or, upon a written request to reaffirm the Company's approval or
recommendation of the Agreement or the Merger, the Board fails or refuses to
do so within two (2) days of the request; or (b) if the Company fails to
perform in any material respect any of its material obligations under the
Agreement and such failure has not been remedied within three days after
receipt of notice specifying the nature of the breach and requesting that it
be remedied;
(iii) by the Company if TRP fails to perform in any material respect any of
its material obligations under the Agreement and such failure shall not have
been remedied within three business days after receipt by TRP of notice in
writing from the Company specifying the nature of the breach and requesting
that it be remedied;
(iv) by either the Company or TRP: (a) if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission has issued
an order, decree or ruling or taken any other action in each case permanently
restraining, enjoining, or otherwise prohibiting the transactions contemplated
by the Agreement, and such order, decree, ruling or other action has become
final and nonappealable; (b) if the Closing has not occurred on or before
March 31, 1997 unless due to a delay in regulatory approval, in which case the
Cash Consideration shall be increased by $0.07 per month for each full month
which elapses between March 31, 1997 and the Closing; provided that the right
to terminate the Agreement and the right to receive additional Cash
Consideration shall not be available to any party whose material breach of the
Agreement was the cause of, or resulted in, the failure of the Merger to occur
on or before March 31, 1997, and provided further, that in no event shall the
Agreement remain in effect if the Closing has not occurred on or before June
30, 1997; or (c) if the Company's stockholders fail to approve the Merger by
the affirmative vote of a majority of the outstanding shares of Company Common
Stock at the meeting held for that purpose.
THE ESCROW AGREEMENT
This is a summary of the provisions of the Escrow Agreement dated October 18,
1996 between Bancorp, TRP and Trans Pacific National Bank (the "Escrow Agent"
or "Bank" herein), which governs the manner in which the Escrow Consideration
(as hereinafter defined) shall be held, invested and, if applicable,
distributed to shareholders and option holders (referred to herein as "Former
Stockholders" and "Option Holders" respectively) after the Closing. The
description which follows is qualified in its entirety by the Escrow Agreement
which is attached to this Proxy Statement as Appendix B (Exhibit C to the
Agreement.)
Establishment of the Escrow Funds
At the Effective Time, TRP will deposit in trust with the Escrow Agent cash in
an amount equal to the sum of $300,000 ("Fund A") and $440,626 less any and
all Recoveries (as defined in the Escrow Agreement) ("Fund B"). The funds
held in trust and available for the purposes described below collectively the
"Escrow Funds" or the "Escrow Consideration") consist of the initial amounts
in cash deposited with the Escrow Agent by TRP, plus the income earned thereon
net of tax effect at an effective Federal and State tax rate of 39% (the "Tax
Effect") less the amount of any payment from the Escrow Funds and any
investment losses net of Tax Effect.
Recoveries shall equal the sum of the aggregate gross amount of loans
collected or recovered by the Bank from July 31, 1996 to the Closing, net of
Tax Effect, for those loans previously charged off on the books and records of
the Bank and listed on Exhibit B to the Escrow Agreement and any principal
payments, net of Tax Effect, made to the Bank, from the date of the Escrow
Agreement to the Closing, on any or all loans identified on Exhibit C to the
Escrow Agreement. Such Recoveries shall increase the amount of Cash
Consideration received by holders of the Company's Common Stock and Options
pursuant to the Agreement.
Investment and Accounting for Escrow Funds
The Escrow Agent will hold and maintain Funds A and B in its name as Escrow
Agent under the Escrow Agreement. The Escrow Agent shall separately invest and
reinvest Funds A and B in its sole discretion in any one or more of the
following: (i) marketable obligations of or guaranteed by the United States;
or (ii) a savings account in, or certificates of deposit or bankers
acceptances issued by, any national bank, including the Bank. The maturity
date of any investment shall not extend beyond 60 days from the date of the
investment.
Events Giving Rise to Escrow Payments and Payments to TRP.
Upon the complete resolution of the status of Account No. 01-212456
carried on the books of the Bank on the date of the Agreement (the "Account"),
the Escrow Agent shall pay out of Escrow Fund A to TRP or its assignee an
amount equal to any judgment, settlement or award assessed against or other
liability charged to the Bank relating to the Account, net of the Tax Effect,
and any costs which TRP or the Bank shall have reasonably incurred in the
resolution of the matter, net of Tax Effect. Upon such resolution, the Escrow
Agent shall pay to the Former Stockholders and Option Holders, Fund A, less
amounts paid to TRP.
Upon the running of all applicable statutes of limitations[if not previously
resolved as set forth above], the Escrow Agent shall pay out of Fund A to TRP
or its assignees an amount equal to any judgment, settlement or award assessed
against or other liability charged to the Bank relating to the Account net of
Tax Effect, and any costs which TRP or Bank has reasonably incurred in the
resolution or settlement of the matter, net of Tax Effect. Upon the running
of the statute of limitations, the Escrow Agent shall pay to the Former
Stockholder and Option Holders, Fund A less liabilities and costs paid to TRP.
Within 30 days of the third anniversary of the Closing, the Escrow Agent shall
pay out of Fund B to TRP or its assignees an amount equal to (i) gross loan
chargeoffs -- in excess of the amount previously reserved as of July 31, 1996
as shown on Exhibit C to the Escrow Agreement, and those payments on
associated loan guarantees actually received -- as recorded on the books and
records of the Bank, during the term of Fund B, on any or all loans identified
on Exhibit C to the Escrow Agreement, net of Tax Effect, less the aggregate
gross amount of loans collected or recovered by the Bank, net of Tax Effect,
from the Closing until the third anniversary thereof, for those loans
previously charged off and listed on Exhibit B and (ii) all fees, costs and
expenses incurred by TRP and the Bank relating to the collection, recovery or
attempt thereof of the loans identified in Exhibit B and C, net of Tax Effect.
Within 30 days after the third anniversary of the Closing, the Escrow Agent
shall pay to the Former Stockholders and Option Holders, Fund B, less those
amounts paid to TRP.
Illustrative examples of calculations are attached to the Escrow Agreement to
assist in the payment calculation, however the language of the Escrow
Agreement shall take precedence over the examples in all circumstances.
Escrow Payments to Former Stockholders and Option Holders
Escrow Payments are payable to Former Stockholders and Option Holders in the
following proportions: (i) the Former Stockholders shall receive that portion
determined by multiplying the Escrow Payment by a fraction the numerator of
which is the number of shares of Company Common Stock Owned by all Former
Stockholders ("Number of Shares") and the denominator of which is the Number
of Shares plus the sum of all the Number of Options held by all the Option
Holders (the "Former Stockholder Sum"); and (ii) the Option Holders shall
receive that portion equal to the Escrow Payment less the Former Stockholder
Sum (the "Option Holder Sum").
Upon the occurrence of an event giving rise to an Escrow Payment, the Escrow
Agent shall disburse to each Former Stockholder a pro rata share of the
Former Stockholders Sum determined by multiplying the Former Stockholders Sum
by a fraction the numerator of which is the number of shares of Company Common
Stock owned by the Former Stockholder and the denominator of which is the
Number of Shares.
Upon the occurrence of an event giving rise to an Escrow Payment, the Escrow
Agent shall disburse to each Option Holder a pro rata share of the Option
Holders Sum determined by multiplying the Option Holders Sum by a fraction the
numerator of which is the Number of Options held by the Option Holder and
denominator of which is the sum of all the Number of Options held by all the
Option Holders.
Periodic Reports
For so long as any of the Escrow Funds remain in effect, TRP shall, not less
than annually, provide a written report to the Former Stockholders regarding
the status of judgments, settlements or awards assessed against the Bank
pursuant to the Account and collections, recoveries, write-offs and write
downs on the loans identified in Exhibits B and C to the Escrow Agreement.
The first such report shall be due within 30 days after the first anniversary
of the Closing and thereafter within 30 days of any subsequent anniversary.
Each report shall be certified by the Chief Financial Officer and the Senior
Loan Officer of the Bank as true and correct. At the written request of
Former Stockholders who, in the aggregate, held a minimum of 20% of the
outstanding shares of Company Common Stock, the cost of which shall be charged
against Fund B, TRP shall retain an independent loan analyst not otherwise
retained by or affiliated with TRP or the Bank to review and report to Former
Stockholders on the status of the loans in Exhibits B and C. No more than one
such request need be honored by TRP in a 12 month period.
Fees and Expenses, Best Efforts and Intended Beneficiaries
Fees and expenses of the Escrow Agent shall be paid by the Surviving
Corporation. TRP and the Bank agree to use their best efforts, consistent
with reasonable and fiscally prudent collection practices, to collect the
maximum amount on loans identified in Exhibit C to the Escrow Agreement and to
maximize recoveries on loans listed in Exhibit B. The Escrow Agreement
specifically provides that it is intended to be for the primary benefit of the
Former Stockholders and it is agreed that it may be enforced by the Former
Stockholders or any one or more of them.
A copy of the Escrow Agreement and Exhibits thereto is attached hereto as
Appendix B (Exhibit C to the Agreement.)
THE VOTING AGREEMENT
This is a summary of the provisions of the Voting Agreement entered into among
TRP and each of the Directors of Bancorp and dated as of October 18, 1996
(the "Voting Agreement"), whereby the Directors of Bancorp have agreed to vote
their shares of Common Stock of the Company in favor of the Merger and the
Agreement.
Each of the Directors who has signed the Voting Agreement has agreed to vote
all shares of the Company's Common Stock held by him or controlled by him in
favor of the Merger and the Agreement at the meeting of shareholders of the
Company called and held for the purpose of voting on the Agreement and Merger
or with respect to the solicitation of written consents for such purpose.
Each of such Directors has agreed further not to vote his shares in favor of
any acquisition of stock or of all or substantially all the assets of the
Company by any party other than TRP prior to termination of the Agreement.
Each of the Directors agrees that none of his shares will be transferred to a
third party unless as a condition of such transfer, the third party agrees to
execute a voting agreement in form satisfactory to TRP. Subject to the
Director's fiduciary duty as a Director, at TRP's request, each Director will
use his best efforts to cause a necessary meeting of stockholders of the
Company to be called and held for the purpose of approving the Agreement and
Merger.
The Voting Agreement will terminate on the earlier of the date of termination
of the Agreement or the Effective Time. A copy of the Voting Agreement is
attached hereto as Appendix C (Exhibit D to the Agreement.)
THE OPTION AGREEMENT
The following is a summary of the material provisions of the Option Agreement,
entered into between Bancorp and TRP, dated October 18, 1996 (the "Option
Agreement") whereby Bancorp grants an option to TRP to buy shares of Bancorp
Common Stock in an amount up to 19.9% of the total outstanding shares at time
of grant of the Option (the "Option"). The following summary is qualified in
its entirety by reference to the Option Agreement, a copy of which is appended
hereto as Appendix D. Execution of the Option Agreement was a condition to
TRP's willingness to enter into the transactions contemplated by the
Agreement.
Grant of Option.
Pursuant to the Option Agreement, Bancorp has granted TRP an unconditional,
irrevocable option to purchase up to 229,919 fully paid and nonassessable
shares of Common Stock of the Company, which number of shares equals 19.9% of
the number of outstanding shares of Common Stock at the date of grant of the
Option, at the price of $8.00 per share (the "Initial Price"), provided that
if the Company issues or agrees to issue additional Common Stock at a price
less than the Initial Price (other than any shares issued upon exercise of
current options for up to 103,750 shares), such price shall be the lesser
price (such price, as adjusted if applicable, is the "Option Price").
Exercise of Option
TRP may exercise the Option in whole or part at any time following the
occurrence of a Purchase Event (as defined below); provided that the Option
will terminate and be of no further force and effect upon the earliest to
occur of the following: (i) the time immediately prior to the Effective Time;
(ii) 12 months after the first occurrence of a Purchase Event; (iii) upon the
termination of the Agreement in accordance with its terms prior to a Purchase
Event (other than a termination of the Agreement by TRP under certain
conditions; or (iv) 12 months after the termination of the Agreement by TRP as
a result of any material breach of the Agreement by Company. Each of the
foregoing is an "Exercise Termination Event."
Purchase Events
Each of the following events which occurs after the date of the Option
Agreement and prior to an Exercise Termination Event, and which is not a
violation of the Company's Articles of Incorporation, is a Purchase Event:
(i) the Company without TRP's prior consent, has entered into a letter of
intent or definitive agreement to engage in an Acquisition Transaction (as
defined below) with any person other than TRP or any of its subsidiaries or
the Board of Directors of the Company has recommended that its stockholders
approve or accept any Acquisition Transaction with a person (as defined in
Section 3(a)9 and Section 13(d)3 of the Securities Exchange Act of 1934 (the
"Exchange Act") and the rules and regulations thereunder) other than TRP or
its subsidiaries. Acquisition Transaction means a merger, consolidation or
other business combination involving the Company or the Bank; a purchase,
lease or other acquisition of more than 25% of the consolidated assets of the
Company and the Bank, in a single transaction or series thereof; or a purchase
or other acquisition of Beneficial Ownership (as defined in Regulation 13d-
3(a) of the Exchange Act, except that for purposes of the Option, such term
shall not include voting stock held by a reporting person meeting the
requirements for filing under Schedule 13G of the Exchange Act) of securities
representing 20% or more of the voting power of the Company or the Bank;
(ii) any person (other than TRP or any subsidiary thereof) has acquired
beneficial ownership of 20% or more of the outstanding shares of the Company
Common Stock or the voting stock of the Bank ("Bank Stock");
(iii) any person (other than TRP or any subsidiary) has made a Bona Fide
proposal to the Company, or by a public announcement or written communication
that is or becomes the subject of public disclosure, to the Company's
stockholders to engage in an Acquisition Transaction, or shall have made a
filing under applicable law, with respect to a tender offer or exchange offer
to purchase any shares of Company Common Stock such that, upon consummation of
such offer, such person would have beneficial ownership of 20% or more of the
then outstanding shares of Company Common Stock;
(iv) the meeting of the holders of Company Common Stock of the purpose of
voting on the Agreement shall not have been held or shall have been canceled
prior to termination of the Agreement, or Company's Board of Directors has
withdrawn or modified in a manner adverse to TRP the recommendation that the
stockholders approve the Agreement; or
(v) any person (other than TRP or its subsidiaries) has filed an application
or notice in draft or final form with the FRB for approval to engage in an
Acquisition Transaction.
Company shall notify TRP promptly in writing of the occurrence of any Purchase
Event, provided that the giving of such notice is not a condition to TRP's
right to exercise the Option.
Manner of Exercise of the Option; Payment and Closing.
In the event that TRP is entitled to and wishes to exercise the Option, it
shall send to the Company a written notice (the "Option Notice") the date of
which is referred to herein as the "Notice Date", specifying the total number
of shares it intends to purchase; the time (which shall be not less than three
and not more than ten business days from the date of the Option Notice) on
which the closing of the purchase shall take place (the "Option Closing
Date"); such closing to take place at the principal office of the Company,
provided that if prior notification or approval of any governmental authority
is required (a "Notification" or "Approval"), TRP will promptly file and
process the required notice or application.
In the event that any such Notification or Approval is required, the Option
Closing Date shall be a date which is not less than three and not more than
ten days from the date of approval and the expiration of any applicable
waiting period. On or prior to the Option Closing Date, TRP shall have the
right to revoke its exercise of the Option by written notice to the Company
given not less than three days prior to the Option Closing Date.
At the Option Closing Date TRP shall pay the Company the aggregate purchase
price for the number of shares specified in the Option Notice in immediately
available funds by wire transfer to a bank account designated by the Company,
provided that the failure or refusal of the Company to designate such an
account shall not preclude TRP from exercising the Option.
At such closing, simultaneously with the delivery of immediately available
funds, the Company shall deliver to TRP a certificate or certificates
representing the number of shares of Common Stock specified in the Option
Notice, and if the Option is exercised in part only, a new Option evidencing
the right to purchase the balance of the shares purchasable under the Option.
The certificate or certificates shall contain a legend restriction stating
that the shares are subject to resale restrictions.
Upon the exercise of the Option and the tender of the purchase price of the
shares in accordance with the foregoing, unless prohibited by applicable law,
TRP shall be deemed to be the holder of record of the purchased shares,
notwithstanding that the stock transfer books shall then be closed, or that
the certificate or certificates shall not then be actually delivered.
Reservation of Shares for Issuance Upon Exercise of Option.
The Company has agreed that at all times until termination of the Option, that
it shall have reserved for issuance upon exercise of the Option, sufficient
shares to issue the maximum number of shares issuable upon exercise of the
Option and that upon issuance in accordance with the Option Agreement, such
shares shall be fully paid, non-assessable and delivered free and clear of
claims, liens and encumbrances and not subject to any preemptive rights. The
Company in the Option Agreement has further agreed not, by amendment to the
Articles of Incorporation or through reorganization, consolidation, merger,
dissolution or sale of assets, or otherwise, to avoid or seek to avoid the
observation of the covenants and agreements to be performed by it under the
Option Agreement, and to cooperate with TRP in the preparation and providing
of information in connection with any approval required to issue the Option
shares.
The Option Agreement is exchangeable by TRP for other agreements providing for
Options of different denominations entitling the holder to purchase the same
number of shares under the same terms and conditions as set forth in the
Option Agreement. If the Option Agreement is subject to loss, theft,
destruction or mutilation, upon receipt of satisfactory indemnification, the
Company, upon surrender or cancellation of the Agreement, will execute and
deliver a new agreement of like tenor and date.
The number of shares of Company Common Stock purchasable on exercise of the
Option will be subject to adjustment in the event of any change in the Common
Stock by reason of stock dividend, split-up, merger or recapitalization or
similar event (other than pursuant to an exercise of the Option or pursuant to
the exercise of presently outstanding options to purchase up to 103,750 shares
of the Common Stock) such that the number of shares subject to the Option
equals 19.9% of the number of shares of Common Stock outstanding immediately
following such event. In such event, the purchase price of the shares shall
also be appropriately adjusted.
Piggy-back Registration Rights.
Following the occurrence of a Purchase Event that occurs prior to an Exercise
Termination Event, the Company shall notify TRP in the event that the Company
is in the process of registration with respect to an underwritten public
offering of Common Stock, and TRP or any permitted assignee shall have the
right to have any shares issued and issuable pursuant to the Option included
in the registration statement with respect to such offering, in order to
permit the sale or other disposition of any shares of the Common Stock issued
upon a total or partial exercise of the Option, provided that if in the good
faith judgment of the managing underwriter or managing underwriters of such
offering, the inclusion of the Option shares in such registration would
interfere materially with the successful marketing of the shares offered by
the Company, the number of Option shares otherwise covered in the registration
statement may be reduced, provided, however that after any such required
reduction the number of Option share to be included in such offering for the
account of TRP shall constitute at least 20% of the total number of shares of
TRP and the Company covered in the offering.
TRP shall provide all information reasonably requested by the Company for
inclusion in the registration statement. If requested by TRP, TRP and the
Company shall become parties to the underwriting agreement relating to the
sale of such shares, but only to the extent of obligating themselves in
respect of representations, warranties, indemnities and other agreements
customarily included in such underwriting agreements. The expenses of any
such registrations, except for underwriting discounts, brokers' fees, and
commissions and fees and disbursements of TRP's counsel related thereto, shall
be paid by the Company.
A copy of the Option Agreement is attached hereto as Appendix D (Exhibit E to
the Agreement.)
CERTAIN EFFECTS OF THE VOTING AND OPTION AGREEMENTS
The Voting Agreement and the Option Agreement are intended to increase the
likelihood that the Merger will be consummated in accordance with the terms of
the Agreement. Consequently, certain aspects of these agreements may have the
effect of discouraging persons who might now or prior to the Effective Time be
interested in acquiring all of, or a significant interest in, Bancorp from
considering or proposing such an acquisition, even if such persons were
prepared to pay a higher price per share for Bancorp Common Stock than the
then current market price of such shares. The acquisition of, or an interest
in, Bancorp, or an agreement to do either, could cause the Option to become
exercisable. The Voting Agreement makes it less likely the shareholders will
reject the Agreement and the Merger in favor of another transaction, and the
existence of the Option Agreement could significantly increase the cost to a
potential acquirer of acquiring Bancorp compared to its cost had the Option
Agreement not been entered into. Such increased cost might discourage a
potential acquirer from considering or proposing an acquisition or might
result in a potential acquirer proposing to pay a lower per share price to
acquire Bancorp than it might otherwise have proposed to pay.
DISSENTERS' APPRAISAL RIGHTS
Under the California General Corporation Law ("CGCL"), rights are created
under limited circumstances and subject to specific conditions to allow a
Bancorp shareholder of record not voting in favor of the Agreement and the
Merger, to seek judicial appraisal of and/or purchase by Bancorp of his or her
shares at their fair market value, determined as of the day before the first
public announcement of the proposed Merger (exclusive of any appreciation or
depreciation in consequence of the proposed Merger), rather than accept the
Merger Consideration. Such rights are known as "dissenters' appraisal rights."
If any shareholder seeks to perfect dissenters' rights and demand purchase by
Bancorp or judicial appraisal of his or her shares, rather than accept the
Merger Consideration:
(i) the record shareholder must deliver and Bancorp or its transfer agent must
have received not later than 30 days after the date on which the notice of
approval of the Agreement and Merger by the outstanding shares was mailed to
the shareholder (Section 1301 of the CGCL) a written demand which must state
the number of shares held of record by the shareholder which the shareholder
demands that Bancorp purchase and contain a statement of what such shareholder
claims to be the fair market value of those shares as of the day before the
public announcement by Bancorp of the proposed Merger. The statement of fair
market value constitutes an offer by the shareholder to sell the shares to
Bancorp at such price (Section 1301(b) and (c)). The date of the public
announcement of the proposed Merger by Bancorp was Friday, October 18, 1996.
(ii) the shareholder of record must not vote in favor of the Merger. An
abstention or failure to vote will satisfy this requirement. (Section
1300(b)(2)(B)).
If any shareholder of record fails to comply exactly with either of these
conditions and the Merger becomes effective, the shareholder will be entitled
to receive the Merger Consideration as provided for in the Agreement but will
have no dissenters' appraisal rights with respect to Bancorp shares, even if
dissenters' appraisal rights are otherwise applicable.
All written demands for payment by shareholders of record under Section 1301
of the CGCL should be addressed to the Corporate Secretary, Trans Pacific
Bancorp, 46 Second Street, San Francisco, California 94105, or to the transfer
agent at the address below, and must be received by Bancorp or its transfer
agent within 30 days after the date on which the notice of the approval of the
Agreement and the Merger by the outstanding shares was mailed to the
shareholder. (Section 1301(b)). If written demands are being delivered to the
transfer agent, they should be addressed to ChaseMellon Shareholder Services,
LLC, 50 California Street, 10th Floor, San Francisco, California 94111;
attention: Joseph W. Thatcher, Jr.
To be effective, a demand for payment for Bancorp shares must be made by the
record holder, fully and correctly, as the shareholder's name appears on his
or her stock certificate(s) and cannot be made by the beneficial owner if he
or she does not also hold the shares of record. The beneficial holder must, in
such cases, have the record owner submit the required demand in respect of
such shares. (Section 1300(c)).
If shares are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, execution of a demand for payment should be made in
such capacity; and if the shares are owned of record by more than one person,
as in a joint tenancy or tenancy in common, the demand should be executed by
or for all joint owners. An authorized agent, including one for two or more
joint owners, may execute the demand for payment for a shareholder of record;
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, he or she is acting as agent
for the record owner.
A record owner, such as a broker, who holds shares as a nominee for others,
may file a demand for payment with respect to all or a portion of the shares
held for one or more beneficial owners, while not demanding payment for other
beneficial owners or other shares of a beneficial owner on behalf of whom a
demand for payment is made. In such case, the written demand must state the
number of shares held of record as to which the demand is made and a statement
of what such record holder claims to be the fair market value of those shares
as of the day before the public announcement by Bancorp of the proposed
Merger.
Persons who hold their shares of Bancorp Common Stock in brokerage accounts or
in other nominee forms and who wish to make the demand for payment should
consult with their brokers or such other nominees to determine the appropriate
procedures for the making of a demand by such nominee.
Within ten (10) days after the approval of the Agreement by a majority of the
outstanding Common Stock of Bancorp at the Meeting or any adjournment thereof,
Bancorp must mail to each Bancorp shareholder of record a notice of the
approval of the Merger, accompanied by a copy of Sections 1300, 1301, 1302,
1303 and 1304 of Chapter 13 of the CGCL, a statement of the price determined
by Bancorp to represent the fair market value of the dissenting shares, and a
brief description of the procedure to be followed if the shareholder desires
to exercise the shareholder's right under such sections. Such statement of
price will constitute an offer by Bancorp to purchase at the price stated any
dissenting shares as defined by Section 1300(b), unless they lose their status
as dissenting shares under Section 1309.
Within 30 days after the date on which notice by Bancorp is mailed to
dissenting shareholders (if any) of the approval of the Agreement by at least
a majority of the outstanding shares of Common Stock of Bancorp, each
dissenting shareholder shall submit to Bancorp at the office of its transfer
agent, ChaseMellon Shareholder Services, LLC, 50 California Street, 10th
Floor, San Francisco, California 94111, attention: Joseph W. Thatcher, Jr.,
the shareholder's certificates representing the shares which that shareholder
demands that Bancorp purchase, to be stamped or endorsed with a statement that
the shares are dissenting shares or to be exchanged for certificates of
appropriate denomination so stamped or endorsed (Section 1302, CGCL).
If Bancorp and the dissenting shareholder agree that the shares are dissenting
shares and agree upon the price of the shares, the dissenting shareholder is
entitled to the agreed price with interest thereon at the legal rate on
judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between Bancorp and the holders
thereof shall be filed with the corporate secretary of Bancorp.
If any such agreement is arrived at between Bancorp and a shareholder, payment
of the fair market value of such dissenting shares shall be made within the
later of 30 days after the amount thereof has been agreed or 30 days after all
statutory and contractual conditions to the Agreement are satisfied, and
subject to surrender of the certificates therefor unless provided otherwise by
agreement (Section 1303, CGCL).
If Bancorp denies that shares are properly dissenting shares, or Bancorp and
the shareholder do not agree upon the fair market value of shares, then the
shareholder who has demanded purchase of such shares as dissenting shares or
Bancorp, within six months after the date of the mailing of notice to
dissenting shareholders of the approval of the Agreement by the requisite
majority of the outstanding Common Stock of Bancorp, but not thereafter, may
file a complaint in the superior court of the proper county requesting the
court to determine whether the shares are dissenting shares or the fair market
value of the dissenting shares or both or may intervene in any action pending
on such a complaint.
Bancorp does not presently intend to file such a complaint in the event there
are dissenting shareholders and has no obligation to do so. Accordingly, the
failure of a shareholder to file such a complaint within the period specified
could nullify such shareholder's previously written demands for payment
(Section 1304, CGCL).
The court shall determine the issues on the trial of the action, and if the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value is in issue, the court shall
determine, or shall appoint one or more impartial appraisers to determine the
fair market value of the shares.
If the court appoints an appraiser or appraisers, they will determine the fair
market value per share and make a report to the court. The court may confirm
the report if it finds it to be reasonable. Judgment shall then be rendered
against Bancorp for payment of the fair market value in favor of any
dissenting shareholder who is a party in the suit, or who has intervened, with
interest thereon from the date of entry of the judgment. Payment of the
judgment is due upon endorsement and delivery of certificates for the shares.
Any party may appeal such a judgment (Section 1305, CGCL).
Shareholders considering seeking appraisal should be aware that the fair
market value of their shares as determined by the court could be more, the
same or less than the value of the Merger Consideration they are entitled to
receive pursuant to the Agreement if they do not seek appraisal of their
shares.
The cost of the appraisal action, including reasonable compensation to the
appraisers, shall be assessed or apportioned as the court considers equitable,
but, if the appraisal exceeds the price offered by Bancorp, it shall pay the
costs (including in the discretion of the court attorneys' fees, fees of
expert witnesses and interest from the date of compliance by a shareholder
with Sections 1300,1301 and 1302 of the CGCL if the value awarded by the court
for the shares is more than 125 percent of the price offered by Bancorp in its
notice that was mailed to dissenting shareholders not more than 10 days
following the approval of the Agreement and the Merger by the outstanding
Common Stock of Bancorp) (Section 1305, CGCL).
Holders of dissenting shares continue to have all the rights and privileges
incident to their shares, until the fair market value of their shares is
agreed upon or determined. A dissenting shareholder may not withdraw a demand
for payment unless Bancorp consents thereto. Any cash dividends declared and
paid by Bancorp upon any dissenting shares after the date of approval of the
Agreement and the Merger by the requisite majority of the outstanding Common
Stock of Bancorp and prior to payment by Bancorp for the shares are credited
against the total amount to be paid by Bancorp therefor (Sections 1307 and
1308 of CGCL).
If no complaint for appraisal is filed in superior court within six months of
the date notice was mailed to dissenting shareholders of the approval of the
Agreement and the Merger, or if a dissenting shareholder, with the consent of
Bancorp, withdraws the shareholder's demand for payment by Bancorp, or Bancorp
or TRP terminates the proposed Merger (in which event, Bancorp is required to
pay on demand to any dissenting shareholder who has initiated proceedings in
good faith all necessary expenses incurred in such proceedings and reasonable
attorneys' fees), or the dissenting shares are transferred prior to their
submission for endorsement within 30 days after the date of mailing of the
notice to dissenting shareholders of approval of the Agreement and the Merger,
the dissenting shares lose their status as dissenting shares and cease to be
entitled to require their purchase by Bancorp, and such shareholder will be
entitled to receive the Merger Consideration without any interest thereon
(Section 1309, CGCL).
The foregoing is intended as a summary of the material provisions of the
California statutory procedures required to be followed by a Bancorp
shareholder in order to dissent from the Merger and obtain any dissenters'
appraisal rights. This summary, however, is not a complete statement of all
applicable requirements and is qualified in its entirety by reference to
Chapter 13 of the CGCL, the full text of which is set forth in Appendix F
hereto.
In view of the complexity of Chapter 13 of the CGCL, shareholders of Bancorp
who may wish to dissent from the Merger and pursue possible appraisal rights
should consult their legal advisors.
EXPENSES
The Agreement provides that TRP and Bancorp will each pay their own expenses
in connection with the Agreement and the transactions contemplated thereby.
ACCOUNTING TREATMENT
The Merger, if completed as proposed, will be treated as a purchase in
accordance with generally accepted accounting principles. Accordingly, the
consolidated assets and liabilities of Bancorp will be recorded on the books
of the Surviving Corporation at their respective fair values at the time of
consummation of the Merger.
OPERATIONS AFTER THE MERGER
At the Effective Time, TRP will merge with and into Bancorp, with Bancorp
being the Surviving Corporation. All assets and property (real, personal and
mixed, tangible and intangible, chooses in actions, rights and credits) then
owned by Bancorp and the Bank shall immediately become the property of the
Surviving Corporation which shall be deemed to be a continuation of Bancorp,
the rights and obligations of which shall become the rights and obligations of
the Surviving Corporation, including the duties and liabilities connected
therewith.
BUSINESS OF THE PARTIES TO THE MERGER
Bancorp
Bancorp, a California stock corporation, was organized in June, 1983 for the
purpose of becoming a holding company for the Bank. At September 30, 1996,
Bancorp, on a consolidated basis, had total assets of $73 million, total
deposits of $65 million, and stockholders equity of $6.9 million. Bancorp's
primary business activity is its investment in the stock of the Bank.
Bancorp's executive offices are located at 46 Second Street, San Francisco, CA
94105; its telephone number is (415) 543-3377.
The Bank, a national banking association, was organized in 1983 and commenced
operations as a wholly owned subsidiary of Bancorp on August 21, 1984. The
Bank is regulated by the Office of Comptroller of the Currency, and its
deposits are insured to the applicable limits under the BIF of the FDIC. The
Bank is also a member of the Federal Reserve System.
The Bank's business consists principally of attracting customer deposits from
the general public and investing those funds in business and industrial loans,
trade finance, and construction and commercial real estate loans. The
principal sources of funds for the Bank's lending and investment activities
are repayment of loans, loan sales, customer deposits and borrowed funds. The
Bank operates branches in the cities of San Francisco and Alameda, California.
For a more detailed discussion of the business of Bancorp and the Bank, see
Bancorp's Annual Report on SEC Form 10-K for the year ended December 31, 1995
included as Appendix G hereto.
TRP
TRP. TRP is a closely held Delaware corporation incorporated on September 27,
1996 for the purpose of entering into the Merger. TRP will file an
application with the Federal Reserve System to become a bank holding company
for the Bank. See "THE MERGER - Regulatory Approval." The principal and
controlling shareholder of TRP is Denis Daly, Sr., a Chicago banker. The
address and telephone number of TRP are: 803 Burr Ridge Club Drive, Burr
Ridge, Illinois 60521; (630) 789-0439.
TRP has obtained a commitment from a Chicago bank for a loan slightly in
excess of $5 million, the proceeds of which will be used to finance a portion
of the merger consideration to be paid by TRP in connection with the Merger.
The remainder of the funds necessary to finance the merger consideration will
come from equity investments to be made in TRP prior to the Closing and
dividends from the Bank upon Closing.
Mr. Daly has guaranteed the obligations of TRP pursuant to the Agreement if
the Merger is not consummated for certain specified reasons, which obligations
are limited to a maximum of $150,000. See "THE MERGER - Liquidated Damages."
Mr. Daly is presently a 22% owner of a control group of the Pullman Group, a
bank holding company, which owns two Illinois state chartered banks, Pullman
Bank & Trust Company and Pullman Bank of Commerce and Industry, both of
Chicago, Illinois. Mr. Daly is Chairman of the Executive Committees of the
Boards of Directors of both banks. Mr. Daly is also a member of the Board of
Directors of Rosary College, Oak Park, Illinois, and is a member of the
Operating Committee of the Loyola Medical Center, Hinsdale, Illinois. Prior
to 1994, Mr. Daly was a majority owner of Suburban Trust and Savings Bank, Oak
Park, Illinois and Chairman of the Board and Chief Executive Officer of the
bank and its holding company, Acorn Financial.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
A representative of KPMG Peat Marwick LLP, Bancorp's independent certified
public accountants, is expected to be present at the Meeting, will have an
opportunity to make a statement if he or she desires to do so, and will be
available to respond to questions raised at the Meeting.
CERTAIN INFORMATION REGARDING BANCORP
Bancorp is subject to the informational requirements of the Exchange Act
pursuant to Section 15(d) thereof, and in accordance therewith files reports
and other information with the SEC. Copies of such reports and other
information can be obtained, upon payment of prescribed fees, from the SEC at
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. In addition,
such reports and other information can be inspected at the SEC's facilities
referred to above and at the SEC's Regional Offices at 7 World Trade Center
(13th Floor), New York, New York 10048, the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 5670 Wilshire
Boulevard, 11th Floor, Los Angeles, California 90036.
Bancorp's Annual Report on Form 10K for the year ended December 31, 1995,
which incorporates and includes Bancorp's 1995 Annual Report to shareholders
(together, Appendix G hereto), includes the audited consolidated statements of
financial condition of Bancorp as of December 31, 1995 and 1994 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three year period ended December 31, 1995
and notes thereto, together with Management's Discussion and Analysis of
Financial Condition and Results of Operations. Appendix G hereto also includes
Bancorp's Quarterly Report on Form 10Q at and for the period ended September
30, 1996. Such Appendix G (excluding any documents incorporated by reference
therein or exhibits thereto) is a part of this Proxy Statement and should be
carefully reviewed for the information regarding Bancorp contained therein.
OTHER MATTERS
The Bancorp Board of Directors is not aware of any business to come before the
Meeting other than those matters described in this Proxy Statement. However,
if any other matters should properly come before the 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.
While there is no present intention or need to do so, the Board is empowered
to adjourn the Meeting from time to time.
BY ORDER OF THE BOARD OF DIRECTORS
Corporate Secretary
AGREEMENT AND PLAN OF MERGER
By and Between
TRP Acquisition Corp.
and
Trans Pacific Bancorp
TABLE OF CONTENTS
Page
ARTICLE I - THE MERGER 1
SECTION 1.01 THE MERGER 1
SECTION 1.02 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION 1
SECTION 1.03 BYLAWS OF THE SURVIVING CORPORATION 1
SECTION 1.04 BOARD OF DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION 1
SECTION 1.05 EFFECTIVE TIME OF THE MERGER 2
SECTION 1.06 SUPPLEMENTARY ACTION 2
ARTICLE II - CONVERSION OF SHARES AND ESCROW PROVISIONS 2
SECTION 2.01 COMPANY COMMON STOCK 2
SECTION 2.02 DISSENTING SHARES 3
SECTION 2.03 ACQUISITION COMMON STOCK 3
SECTION 2.04 EXCHANGE OF SHARES 4
SECTION 2.05 TREATMENT OF EMPLOYEE STOCK OPTIONS 5
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY 6
SECTION 3.01 CORPORATE ORGANIZATION 6
SECTION 3.02 AUTHORIZATION: NO VIOLATION 6
SECTION 3.03 CAPITALIZATION OF THE COMPANY 7
SECTION 3.04 SUBSIDIARIES 7
SECTION 3.05 CONSENTS AND APPROVALS 8
SECTION 3.06 FINANCIAL STATEMENTS 8
SECTION 3.07 REPORTS 9
SECTION 3.08 PROXY STATEMENT 9
SECTION 3.09 ABSENCE OF UNDISCLOSED LIABILITIES 9
SECTION 3.10 ABSENCE OF CERTAIN CHANGES 10
SECTION 3.11 FIDELITY BONDS AND INSURANCE 10
SECTION 3.12 AGREEMENTS WITH BANKING AUTHORITIES 10
SECTION 3.13 REPORTS 10
SECTION 3.14 FAIRNESS OPINION 11
SECTION 3.15 LITIGATION 11
SECTION 3.16 TITLE TO PROPERTIES: ENCUMBRANCES 11
SECTION 3.17 CONTRACTS AND LEASES 12
SECTION 3.18 EMPLOYEE BENEFIT PLANS 12
SECTION 3.19 TAXES 14
SECTION 3.20 ENVIRONMENTAL PROTECTION 15
SECTION 3.21 COMPLIANCE WITH APPLICABLE LAW 16
SECTION 3.22 LABOR DIFFICULTIES 16
SECTION 3.23 TRANSACTIONS WITH AFFILIATES 16
SECTION 3.24 LOAN PORTFOLIO: REPORTS 17
SECTION 3.25 REPORTING COMPANY STATUS 17
SECTION 3.26 DISCLOSURE 17
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF ACQUISITION 17
SECTION 4.01 ORGANIZATION 17
SECTION 4.02 AUTHORIZATION: NO VIOLATION 18
SECTION 4.03 CONSENTS AND APPROVALS 18
SECTION 4.04 PROXY STATEMENT 19
SECTION 4.05 EMPLOYMENT AGREEMENT. 19
SECTION 4.06 DISCLOSURE 19
ARTICLE V - COVENANTS AND OTHER AGREEMENTS 19
SECTION 5.01 CONDUCT OF BUSINESS OF THE COMPANY 19
SECTION 5.02 NO SOLICITATION 22
SECTION 5.03 LIQUIDATED DAMAGES 22
SECTION 5.04 ACCESS TO INFORMATION 23
SECTION 5.05 PUBLIC ANNOUNCEMENTS 23
SECTION 5.06 PROXY STATEMENT 24
SECTION 5.07 OTHER REGULATORY MATTERS 24
SECTION 5.08 QUALITY OF INFORMATION SUPPLIED IN CONNECTION WITH OTHER REGULATORY
FILINGS 25
SECTION 5.09 CURRENT INFORMATION 25
SECTION 5.10 APPROVAL OF COMPANY STOCKHOLDERS 25
SECTION 5.11 DISCLOSURE SUPPLEMENTS 25
SECTION 5.12 RESTRUCTURE OF TRANSACTION 26
SECTION 5.13 FAIRNESS OPINION 26
SECTION 5.14 ADDITIONAL AGREEMENTS 26
SECTION 5.15 NOTICES 26
SECTION 5.16 EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST 26
ARTICLE VI - CLOSING CONDITIONS 26
SECTION 6.01 CONDITIONS TO EACH PARTY'S OBLIGATIONS UNDER THIS AGREEMENT 26
SECTION 6.02 CONDITIONS TO THE OBLIGATIONS OF ACQUISITION UNDER THIS AGREEMENT
27
SECTION 6.03 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY UNDER THIS AGREEMENT
29
ARTICLE VII - CLOSING 30
SECTION 7.01 CLOSING 30
SECTION 7.02 DELIVERIES AT THE CLOSING 30
SECTION 7.03 FILINGS AT THE CLOSING 30
ARTICLE VIII - TERMINATION AND ABANDONMENT 30
SECTION 8.01 TERMINATION 30
SECTION 8.02 PROCEDURE AND EFFECT OF TERMINATION 31
ARTICLE IX - MISCELLANEOUS PROVISIONS 32
SECTION 9.01 OFFICERS OF THE SUBSIDIARY AFTER THE EFFECTIVE TIME 32
SECTION 9.02 INVESTIGATION: SURVIVAL OF WARRANTIES 32
SECTION 9.03 WAIVER OF COMPLIANCE: CONSENTS 32
SECTION 9.04 VALIDITY 32
SECTION 9.05 BROKERAGE FEES AND COMMISSIONS 32
SECTION 9.06 EXPENSES AND OBLIGATIONS 33
SECTION 9.07 OPTION AGREEMENT 33
SECTION 9.08 PARTIES IN INTEREST 33
SECTION 9.09 NOTICES 33
SECTION 9.10 GOVERNING LAW 34
SECTION 9.11 COUNTERPARTS 34
SECTION 9.12 HEADINGS 34
SECTION 9.13 CERTAIN DEFINITIONS 34
SECTION 9.L4 SPECIFIC PERFORMANCE 35
SECTION 9.15 ENTIRE AGREEMENT: ASSIGNMENT 35
SECTION 9.16 AMENDMENT AND MODIFICATION 35
SECTION 9.17 ARBITRATION 35
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of Friday October 18, 1996 (the
"Agreement"), between TRP Acquisition Corp., a Delaware corporation
("Acquisition"), and Trans Pacific Bancorp, a California corporation (the
"Company").
WHEREAS, the Boards of Directors of the Company and Acquisition deem it
advisable and in the best interests of the stockholders of such corporations
to effect a merger of Acquisition and the Company (the "Merger") pursuant to
the terms of this Agreement; and
WHEREAS, the Boards of Directors of the Company and Acquisition have
approved the transactions provided for in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements herein contained, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the provisions of the Delaware General
Corporation Law (the "DGCL") and the California Corporation Code (the "CCC"),
Acquisition shall be merged with and into the Company on the date of the
Closing (as hereinafter defined). Following the merger, the separate
existence of Acquisition shall cease, and the Company shall continue as the
surviving corporation in the Merger (the "Surviving Corporation").
SECTION 1.02 Articles of Incorporation of the Surviving Corporation.
The Articles of Incorporation of the Company shall be the Articles of
incorporation of the Surviving Corporation.
SECTION 1.03 Bylaws of the Surviving Corporation. At the Effective
Time (as defined in Section 1.05) the Bylaws of the Company shall be the
Bylaws of the Surviving Corporation and thereafter may be amended or repealed
in accordance with their terms, the Articles of Incorporation of the Surviving
Corporation and as provided by law.
SECTION 1.04 Board of Directors and Officers of the Surviving
Corporation. At the Effective Time, the directors and officers of Acquisition
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation. Each of such directors and officers shall hold
office in accordance with the Articles of Incorporation and Bylaws of the
Surviving Corporation.
SECTION 1.05 Effective Time of the Merger. Company will cause a
certificate of merger, attached as Exhibit A and such other documents as are
required by the DGCL to be duly filed with the Secretary of State of the State
of Delaware and an agreement of merger, attached as Exhibit B and such other
documents as are required by the CCC to be duly filed with the Secretary of
State of the State of California. The Merger shall become effective upon the
filing of the certificate of merger and such other documents as are required
by the DGCL to be filed and the certificate of merger and such other
documents as are required by the CCC to be filed (the time of completion of
such filings being the "Effective Time").
SECTION 1.06 Supplementary Action. If at any time after the Effective
Time, any further assignments or assurances in law or any other things are
necessary or desirable to vest or to perfect or to confirm of record or to
otherwise secure in the Surviving Corporation the title to any property or
rights of Company or to carry out the provisions of this Agreement, the
officers and directors of the Surviving Corporation are hereby authorized and
empowered on behalf of the Company, in the name of and on behalf of the
Company, to execute and deliver any and all things necessary or proper to vest
or to perfect or to confirm title to such property or rights in the Surviving
Corporation, and otherwise to carry out the purposes and provisions of this
Agreement.
ARTICLE II
CONVERSION OF SHARES AND ESCROW PROVISIONS
SECTION 2.01 Company Common Stock. (a) Each share of common stock, no
par value per share, of the Company (the "Company Common Stock") issued and
outstanding immediately prior to the Effective Time (except for shares of
Company Common Stock then owned beneficially or of record by Acquisition,
shares held by any subsidiary of the Company and any shares which are
Dissenting Shares (as hereinafter defined) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive $8.00 in cash, plus an amount equal to (i) the Escrow
Reduction Amount (as hereinafter defined), divided by (ii) the sum of (x) the
total number of shares issued and outstanding immediately prior to the Closing
and (z) the Number of Options (as hereinafter defined) (such $8.00 plus the
increase, if any, from the Escrow Reduction Amount per share shall be referred
to as the "Cash Consideration") payable to the holder thereof, without
interest thereon, upon surrender of the certificate representing such share,
and such holder's pro rata share of the Escrow Fund (as hereinafter defined),
if any, payable to stockholders of the Company pursuant to the terms of the
Escrow Agreement between the Company and Acquisition, dated the date hereof
(the "Escrow Agreement"), attached as Exhibit C (such amounts in cash and
escrow shall be hereinafter collectively referred to as the "Merger
Consideration").
(b) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time which is then owned beneficially or of
record by Acquisition shall, by virtue of the Merger and without any action on
the part of the holder thereof, be canceled and retired and cease to exist,
without any conversion thereof.
(c) Each share of Company Common Stock held by any subsidiary of the
Company immediately prior to the Effective Time shall, by virtue of the
Merger, be canceled and retired and cease to exist, without any conversion
thereof.
SECTION 2.02 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock which are
outstanding immediately prior to the Effective Time and which are held by
stockholders (other than Acquisition) who shall not have voted such shares in
favor of the Merger and who shall deliver to the Company a written demand for
purchase of such shares of Company Common Stock in the manner provided in
Section 1301 of the California Corporation Code ("CCC") (such shares to be
referred to as "Dissenting Shares") shall not be converted into or be
exchangeable for the right to receive the consideration provided in Section
2.01 (a) of this Agreement, but the holders thereof shall be entitled to
payment of the fair market value of such shares in accordance with the
provisions of Section 1303 and 1304 of the CCC; provided, however, that (i) if
any holder of Dissenting Shares shall subsequently deliver a written
withdrawal of his demand for purchase of such shares (with the written
approval of the Company), or (ii) if any holder fails to establish the status
of his shares of Company Common Stock as "dissenting shares" as provided in
such Section 1300, or (iii) if the Company denies that the shares are
Dissenting Shares, or the Company or any Stockholder fail to agree upon the
fair market value of the shares, and neither any holder of Dissenting Shares
nor any interested corporation has filed a complaint demanding a determination
of the fair market value of the Dissenting Shares within the time provided in
Section 1304 of the CCC, such holder or holders (as the case may be) shall
forfeit the right to demand purchase of such shares and such shares shall
thereupon be deemed to have been converted into and to have become
exchangeable for, as of the Effective Time, the right to receive the
consideration provided in Section 2.01(a) of this Agreement, without any
interest thereon (and such shares shall not, for purposes hereof, be deemed to
be "Dissenting Shares").
SECTION 2.03 Acquisition Common Stock. Each share of common stock, par
value $0.01 per share, of Acquisition (the "Acquisition Common Stock"), issued
and outstanding immediately prior to the Effective Time shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into and exchangeable for one fully paid and non-assessable share of
common stock, no par value per share, of the Surviving Corporation (the
"Surviving Corporation Common Stock") or such other number of shares of
Surviving Corporation Common Stock as Acquisition shall determine prior to the
Effective Time of the Merger. From and after the Effective Time, each
outstanding certificate theretofore representing shares of Acquisition Common
Stock shall be deemed, for all purposes, to evidence ownership of and to
represent the number of shares of Surviving Corporation Common Stock into
which such shares of Acquisition Common Stock shall have been converted.
Promptly after the Effective Time, the Surviving Corporation shall issue, on a
share-for-share basis, to the stockholders of Acquisition a stock certificate
or certificates representing shares of Surviving Corporation Common Stock upon
tender of the certificate or certificates which formerly represented shares of
Acquisition Common Stock, which shall be canceled.
SECTION 2.04 Exchange of Shares. (a). At the Effective Time,
Acquisition shall deposit in trust with a bank or trust company designated by
it (the "Exchange Agent"), cash in an aggregate amount equal to the product of
(i) the number of shares of Company Common Stock issued and outstanding at the
Effective Time (excluding such shares owned beneficially or of record by
Acquisition, shares held by any subsidiary of the Company and share which are
Dissenting Shares), and (ii) the Cash Consideration (such amount being
hereinafter referred to as the "Exchange Fund"). As soon as practicable after
the Effective Time, Acquisition shall deposit in trust in the Exchange Fund in
cash such further aggregate amount equal to the product of (i) the number of
shares of Company Common Stock as to which the holders thereof forfeited the
right to demand purchase pursuant to the provisions of Section 2.02 of this
Agreement and (ii) the Cash consideration. The Exchange Agent shall, pursuant
to irrevocable instructions, make the payments provided for in Section 2.01
(a) of this Agreement out of the Exchange Fund. The Exchange Fund shall not
be used for any other purpose, except as provided in this Agreement.
(b) At the Effective Time, Acquisition shall deposit in trust with the
Escrow Agent (as defined in the Escrow Agreement) cash in an amount equal to
$740,626, less the amount by which the escrow deposit may be reduced pursuant
to the provisions of the Escrow Agreement between the date hereof and the
Closing (the "Escrow Reduction Amount"). The $740,626 less the Escrow
Reduction Amount (the "Escrow Fund") shall be divided into two separate funds
pursuant to the Escrow Agreement. The Subsidiary (as hereinafter defined), as
escrow agent, will administer the Escrow Fund and release, in cash, portions
of the Escrow Fund promptly as such amounts become payable pursuant to the
terms of the Escrow Agreement.
(c) Promptly after the Effective Time, the Exchange Agent shall mail to
each record holder as of the Effective Time (other than Acquisition and any
subsidiary of the Company), of an outstanding certificate or certificates
which immediately prior to the Effective Time represented shares of Company
Common Stock (the "Certificates") a form letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent) and instructions for use in effecting the surrender of the
Certificates for payment therefor. Upon surrender by such record holder to
the Exchange Agent of a Certificate, together with such letter of transmittal
duly executed, the holder of such Certificate (the "Former Stockholder" and
all such Former Stockholders collectively to be referred to as the "Former
Stockholders") shall be entitled to receive in exchange therefor cash in an
amount equal to the product of (i) the number of shares of Company Common
Stock represented by such Certificate and (ii) the Cash Consideration, and
such Certificate shall forthwith be canceled. No interest will be paid or
accrued on the cash payable upon the surrender of the Certificates. If
payment is to be made to a person other than the person in whose name the
Certificate surrendered is registered, it shall be a condition of payment that
the Certificate so surrendered shall be properly endorsed or otherwise in
proper form for transfer and that the person requesting such payment shall pay
any transfer or other taxes required by reason of the payment to a person
other than the registered holder of the Certificate surrendered or such person
shall establish to the satisfaction of the Surviving Corporation that such tax
has been paid or is not applicable. Until surrendered in accordance with the
provisions of this Section 2.04, each Certificate (other than Certificates
representing shares owned beneficially or of record by Acquisition,
Certificates representing shares held by any subsidiary of the Company and any
Certificates representing Dissenting Shares) shall represent, for all
purposes, the right to receive the Merger Consideration in cash multiplied by
the number of shares evidenced by such Certificate, without any interest
thereon.
(d) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed, the Surviving Corporation
will pay or cause to be paid in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration deliverable in respect thereof as
determined in accordance with this Article II. When authorizing such payment
of the Merger Consideration in exchange therefor, the Board of Directors of
the Surviving Corporation may, in its discretion and as a condition precedent
to the payment thereof, require the owner of such lost, stolen or destroyed
Certificate to give the Surviving Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Surviving
Corporation with respect to the Certificate alleged to have been lost, stolen
or destroyed.
(e) After the Effective Time there shall be no transfers on the stock
transfer books of the Surviving Corporation of the shares of Company Common
Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged for cash as provided in this
Article II.
(f) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of the Company for eighteen months after the Effective Time shall
be repaid to the Surviving Corporation, upon demand, and any stockholders of
the Company who have not theretofore complied with Section 2.04(b) shall
thereafter look, subject to applicable escheat and other laws, only to the
Surviving Corporation for payment of their claim for the Merger Consideration,
without any interest thereon. The Exchange Agent shall retain the right to
invest and reinvest the Exchange Fund on behalf of the Surviving Corporation
in securities issued or guaranteed by the United States government or any
agency or instrumentality thereof and the Surviving Corporation shall receive
the interest earned thereon.
SECTION 2.05 Treatment of Employee Stock Options. At the Effective
Time, each holder of then outstanding options (the "Option Holder") to
purchase up to 103,750 shares of Company Common Stock, heretofore granted
under either the Company's Employee Stock Option Plan, as amended (the "Option
Plan") or the Company's Non Qualified Stock Option Plan (the "Non Qualified
Plan"), will receive (whether such option is immediately exercisable or not),
in settlement thereof, a cash payment from the Surviving Corporation in an
amount equal to the product of (i) the excess of the Cash Consideration over
the per share exercise price of such option and (ii) the total number of
shares of the Company Common Stock which the Option Holder is entitled to
purchase under such option (the "Number of Options"); whereupon such options to
purchase shares of Company Common Stock shall be canceled.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Acquisition that:
SECTION 3.01 Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and is a duly registered bank holding
company under the Bank Holding Company Act of 1956, as amended, (the "Holding
Company Act"), with all requisite power and authority to own, operate and
lease its properties and to carry on its business as it is now being
conducted, and is qualified or licensed to do business and is in good standing
in each jurisdiction in which the ownership or leasing of property by it or
the conduct of its business requires such licensing or qualification, except
for such failures to be so qualified or licensed which would not, individually
or in the aggregate, have a Material Adverse Effect (as hereinafter defined).
The Company's acquisition of the capital stock of the Subsidiary was duly
approved by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") pursuant to applicable sections of the Holding Company Act.
The Company has delivered to Acquisition complete and correct copies of its
Articles of Incorporation and Bylaws.
SECTION 3.02 Authorization: No Violation. The Company has full
corporate power and authority to execute and deliver this Agreement and to
carry out its obligations hereunder. The execution and delivery of this
Agreement by the Company, the performance by the Company of its obligations
hereunder and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by the Company's Board of Directors and no
other corporate proceeding on the part of the Company is necessary to
authorize this Agreement or to consummate the transactions contemplated hereby
(other than the approval of the principle terms of this Agreement by
stockholders holding at least a majority of the outstanding Company Common
Stock entitled to vote thereon). This Agreement has been duly and validly
executed and delivered by the Company and constitutes a valid and binding
obligation of the Company, enforceable against it in accordance with its
terms, except to the extent that such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights, and the remedy of
specific performance and injunctive and other forms of equitable relief, may
be subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought. Neither the execution and
delivery of this Agreement by the Company and the performance by the Company
of its obligations hereunder nor the consummation by the Company of the
transactions contemplated hereby will (i) conflict with or result in any
breach of any provision of the Articles of Incorporation or Bylaws of the
Company or the Subsidiary, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default
under, or permit the termination of, or require the consent of any other party
to, or result in the acceleration of, or entitle any party to accelerate
(whether as a result of a change in control of the Company or otherwise) or
give rise to the creation of any lien, charge, security interest or
encumbrance upon any of the respective properties or assets of the Company or
the Subsidiary under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which the Company or the Subsidiary is a party or
by which either of them or any of their respective properties or assets may be
bound or affected or (iii) violate any order, writ, judgment, injunction,
decree, statute, rule or regulation of any court or governmental authority
applicable to the Company or the Subsidiary or any of their respective
properties or assets, excluding from the foregoing clauses (ii) and (iii)
violations, breaches or defaults which in the aggregate would not have a
Material Adverse Effect and will not materially prevent or delay the
consummation of the transactions contemplated hereby.
SECTION 3.03 Capitalization of the Company. The authorized capital
stock of the Company consists of 10,000,000 shares of no par value common
stock. As of the date hereof, there were issued and outstanding 1,120,195
shares of the Company Common Stock, and options outstanding which are
convertible into 103,750 shares of the Company Common Stock; and as of such
date, no shares of common stock were held in the Company's treasury. All of
the outstanding shares of common stock have been validly issued, were not
issued in violation of any person's preemptive rights and are fully paid and
nonassessable with no personal liability attaching to the ownership thereof.
Since July 19, 1996 the Company has not issued any shares of its capital
stock. Except as set forth above, there are not now, and at the Effective
Time there will not be, any shares of capital stock issued or outstanding or
any option, warrant, subscription, conversion or other rights, agreements or
commitments obligating the Company to issue any additional shares of the
capital stock or any other securities convertible into, exchangeable for or
evidencing the right to subscribe for any shares of the capital stock of the
Company. Following the Merger, the Company will have no obligation to issue
any shares of its capital stock pursuant to any employee benefit plan or
otherwise.
SECTION 3.04 Subsidiaries. (a) The Company owns 100% of the
outstanding capital stock of Trans Pacific National Bank (the "Subsidiary").
All such capital stock is owned free and clear of liens, claims, security
interests, charges or other encumbrances. All such capital stock is validly
issued, fully paid and nonassessable and was not issued in violation of any
preemptive rights. There are not now, and at the Effective Time there will
not be, any option, warrant, subscription, conversion or other rights,
agreements or commitments obligating the Subsidiary to issue any additional
shares of the capital stock or any other securities convertible into,
exchangeable for or evidencing the right to subscribe for any shares of the
capital stock of the Subsidiary. The Subsidiary is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and possesses full power and authority to carry on its business
as it is now being conducted and to own, lease and operate its properties.
The Company and the Subsidiary do not possess, directly or indirectly, any
equity interest in any other corporation, joint venture or partnership, except
for (i) equity interests held by the Company or the Subsidiary in a fiduciary
capacity, and (ii) equity interests held in the investment portfolios of the
Company and the Subsidiary.
(b) The Company owns 100% of the outstanding capital stock of Trans
Pacific Mortgage Corp., a California corporation (the "Shell Subsidiary").
All such capital stock is owned free and clear of liens, claims, security
interests, charges or other encumbrances. All such capital stock is validly
issued, fully paid and nonassessable and was not issued in violation of any
preemptive rights. There are not now, and at the Effective Time there will not
be, any assets or liabilities on the books, records or otherwise of the Shell
Subsidiary and it is not in the process of carrying on any business. The
Shell Subsidiary shall remain inactive until the Effective Time. There are
not now, and at the Effective Time there will not be, any option, warrant,
subscription, conversion or other rights, agreements or commitments obligating
the Shell Subsidiary to issue any additional shares of the capital stock or
any other securities convertible into, exchangeable for or evidencing the
right to subscribe for any shares of the capital stock of the Shell
Subsidiary. The Shell Subsidiary is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization.
SECTION 3.05 Consents and Approvals. Except for consents and approvals
of or filings or registrations with the Federal Reserve Board, applicable
requirements of the Office of the Comptroller of the Currency, the Securities
and Exchange Commission (the "SEC"), the filing of a certificate of merger
pursuant to the DGCL, the filing of a certificate of merger pursuant to the
CCC, and requirements of federal and state securities laws, no filing or
registration with, no notice to and no permit, authorization, consent or
approval of any third party or any public or governmental body or authority is
necessary for the consummation by the Company of the transactions contemplated
by this Agreement or to enable the Company and the Subsidiary to continue to
conduct its business after the Effective Time in a manner which is consistent
with that in which it is presently conducted, except as set forth on
Disclosure Schedule 3.05 or where the failure to make such filing or to obtain
such permit, authorization, consent or approval will not in the aggregate have
a Material Adverse Effect.
SECTION 3.06 Financial Statements. The Company has heretofore
delivered to Acquisition (i) audited consolidated Statements of Condition as
of December 31, 1991, 1992, 1993, 1994 and 1995 and the related consolidated
statements of income and changes in stockholders' equity and changes in
financial position or statement of cash flows for the periods then ended (the
"Audited Financial Statements"), and (ii) an unaudited consolidated Statement
of Condition as of August 31, 1996, and related consolidated statements of
income and changes in stockholders' equity and changes in financial position
or statement of cash flows for the period then ended (the "Interim Financial
Statements," and, together with the Audited Financial Statements, the
"Financial Statements"). Such Financial Statements (i) were prepared in
accordance with generally accepted accounting principles consistently applied
(subject to exceptions, if any, specified in such Financial Statements or in
the notes thereto and, in the case of the balance sheet included in the
Interim Financial Statements subject to normal, recurring year-end
adjustments), and (ii) fairly reflect the respective financial positions of
the Company and the Subsidiary, as of such dates, the respective results of
operations of the Company and the Subsidiary, for the periods then ended on
such dates, and (iii) reflect in accordance with generally accepted accounting
principles consistently applied, adequate provision for, or reserves against,
the possible loan losses of the Company and the Subsidiary, as of such dates.
The books and records of the Company have been, and are being, maintained in
accordance with applicable legal and accounting requirements and reflect only
actual transactions.
SECTION 3.07 Reports. The Company will promptly furnish Acquisition
with an accurate and complete copy of each registration statement, report and
proxy statement filed by the Company with the SEC since June 30, 1993. The
Company has filed all reports, statements, forms and documents with the SEC
that it was required to file since June 30, 1993 (the "SEC Reports"). All of
the documents filed by the Company with the SEC have complied when filed in
all material respects with all applicable requirements of the Securities Act
of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Except to the extent corrected by a subsequent filing, as of
its date, each such report, statement, form or document, including, without
limitation, any financial statements or schedules included therein, did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. No subsidiary of the Company is required to file any reports,
statements, forms or other documents with the SEC.
SECTION 3.08 Proxy Statement. None of the information relating to the
Company and the Subsidiary included in any proxy statement, letter to
stockholders, notice of meeting and form of proxy which is mailed to the
stockholders of the Company in connection with any meeting of stockholders
convened in accordance with Section 5.10 (collectively, the "Proxy Statement")
will, (i) at the time the Proxy Statement is mailed, (ii) at the time of the
meeting of stockholders to which the Proxy Statement relates or (iii) at the
Effective Time, as then amended or supplemented, be false or misleading with
respect to any material fact, or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein not
misleading.
SECTION 3.09 Absence of Undisclosed Liabilities. To the best of the
Company's and the Subsidiary's knowledge, there are no liabilities of the
Company or the Subsidiary of any kind whatsoever (whether absolute, accrued,
contingent, or otherwise, and whether due or to become due), and the Company
knows of no valid basis for the assertion of any such liabilities, whether or
not accrued and whether or not contingent or absolute, determined or
determinable, nor any existing condition, situation or set of circumstances
which is reasonably likely to result in such a liability, other than:
(a) liabilities adequately reflected or reserved against on the
Financial Statements referred to in Section 3.06;
(b) liabilities disclosed in Disclosure Schedule 3.09 hereto;
(c) normal liabilities incurred in the ordinary course of business
consistent with past practice since August 31, 1996; or
(d) liabilities which are not material to the business, operations,
prospects, properties or assets of the Company and of the Subsidiary taken as
a whole or of the Subsidiary taken individually.
SECTION 3.10 Absence of Certain Changes. Except as disclosed in
Disclosure Schedule 3.10, there has not been since August 31, 1996 any
material adverse change in the business, operations, prospects, properties,
assets or financial condition of the Company and of the Subsidiary taken as a
whole or of the Subsidiary taken individually, and no condition exists which
is known to the Company and may reasonably be expected to cause such a
material adverse change in the future (excluding changes from factors
generally affecting the industry in which the Company or the Subsidiary
operates).
SECTION 3.11 Fidelity Bonds and Insurance. Since January 1, 1993, the
Company and the Subsidiary have continuously maintained (i) fidelity bonds
insuring against acts of dishonesty by employees, (ii) directors' and
officers' liability insurance, and (iii) general liability insurance in such
amounts as have been heretofore disclosed in writing to Acquisition. Except
as disclosed in Disclosure Schedule 3.11, since January 1, 1993, there have
been no claims in excess of $25,000 with respect to the Subsidiary or the
Company under such bonds or insurance and the Company and the Subsidiary are
not aware of any acts of dishonesty or losses which would form the basis of a
material claim under such bonds or insurance coverage. The Company and the
Subsidiary have not been notified that their fidelity or insurance coverage
will not be renewed by their carrier or continued on substantially the same
terms (exclusive of increases in premium terms) as their existing coverage.
SECTION 3.12 Agreements with Banking Authorities. The Company and the
Subsidiary are not parties to any current agreement or memorandum of
understanding with any federal or state governmental entity charged with the
supervision or regulation of banks or bank holding companies or engaged in the
insurance of bank deposits which restricts the conduct of their business, or
in any manner relates to their capital adequacy, their credit policies or
their management.
SECTION 3.13 Reports. Since January 1, 1993, the Company and the
Subsidiary have filed all reports and statements, together with any amendments
required to be made with respect thereto, that they were required to file with
(i) Office of the Comptroller of the Currency, (ii) the Federal Reserve Board,
(iii) the Federal Deposit Insurance Corporation, and (iv) any other
governmental or regulatory authority or agency having jurisdiction over their
operations. Each of such reports and documents, including the Financial
Statements, exhibits and schedules thereto, did not contain any statement
which, at the time and in light of the circumstances under which it was made,
was false or misleading with respect to any material fact or which omitted to
state any material fact necessary in order to make the statements contained
therein not false or misleading. The Company has previously delivered or made
available to Acquisition accurate and complete copies of such reports.
SECTION 3.14 Fairness Opinion. Baxter Fentriss & Company has orally
advised the Board of Directors of the Company in substance satisfactory to the
Board of Directors of the Company that the Merger Consideration is fair to the
holders of Company Common Stock from a financial point of view.
SECTION 3.15 Litigation. Except as set forth in Disclosure Schedule
3.15, as of the date hereof there is no action, suit, set of related actions
or suits concerning a common issue, judicial or administrative proceeding or
investigation pending or, to the best knowledge of the Company, threatened
against or involving the Company, the Subsidiary, or any of their properties
or rights before any court, arbitrator or administrative or governmental body,
nor is there any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against the Company. As of the Closing Date, except as set forth
in Disclosure Schedule 3.15 and except for dissenters rights exercised
pursuant to applicable law, there will be no action, suit, set of related
actions or suits concerning a common issue, judicial or administrative
proceeding or investigation pending or, to the best knowledge of the Company,
threatened against or involving the Company, the Subsidiary, or any of their
properties or rights before any court, arbitrator or administrative or
governmental body, nor will there be any judgment, decree, injunction, rule or
order of any court, governmental department, commission, agency,
instrumentality or arbitrator outstanding against the Company which may
reasonably be expected to have a Material Adverse Effect. The Company and the
Subsidiary are not in violation of any term of any judgments, decrees,
injunctions or orders outstanding against them. There are no actions, suits
or proceedings pending or, to the best knowledge of the Company, threatened
against the Company or the Subsidiary arising out of or in any way related to
this Agreement, the Merger or any of the transactions contemplated hereby or
thereby.
SECTION 3.16 Title to Properties: Encumbrances. (a) The Company and
the Subsidiary each has good, valid and marketable title to all properties and
assets (real, personal and mixed, tangible and intangible) which it purports
to own, including, without limitation, all properties and assets reflected on
the Interim Financial Statement or acquired after the date thereof, except for
investments, loans or equipment sold since the date of the Interim Financial
Statement in the ordinary course of business and consistent with past practice
or except as set forth in Disclosure Schedule 3.16. Except as set forth in
Disclosure Schedule 3.16, all properties and assets owned by the Company and
the Subsidiary are free and clear of all title defects, liens, pledge claims,
security interests, restrictions, mortgages, options or encumbrances of any
kind (collectively, "Liens") and are not, in the case of real property,
subject to any rights of way, building use restrictions, exceptions,
variances, reservations or limitations of any nature whatsoever except, with
respect to all such properties and assets, (a) statutory Liens not yet
delinquent or the validity of which are being contested in good faith by
appropriate actions, (b) Liens for taxes not yet delinquent or the validity of
which are being contested in good faith by appropriate actions, (c) Liens
reflected in the Financial Statements and (d) Liens which in the aggregate do
not materially detract from the value or impair the use of the property of or
otherwise materially impair the operations of the Company and the Subsidiary
taken as a whole or of the Subsidiary taken individually.
(b) Disclosure Schedule 3.16 hereto contains a list and description of
all real property owned by the Company or the Subsidiary. The Company has
delivered to Acquisition existing, effective policies of title insurance
insuring the fee simple title in the Company or the Subsidiary of all real
property owned by the Company or the Subsidiary, with copies of current
available surveys, if any, for each such parcel, certified by a registered
land surveyor.
(c) Except as set forth in Disclosure Schedule 3.16, there are no
proceedings, claims, disputes or conditions affecting any of the real property
or leasehold interests of the Company or the Subsidiary which could reasonably
be expected to materially curtail or interfere with the use of such property,
nor is an action of eminent domain or condemnation pending or threatened for
all or any portion of such property owned, leased or used by the Company or
the Subsidiary.
SECTION 3.17 Contracts and Leases. (a) Neither the Company nor the
Subsidiary is in violation of any provision of its Articles of Incorporation
or its Articles of Association, respectively, or their By-laws.
(b) Except as set forth in Disclosure Schedule 3.17, each of the
contracts, instruments, mortgages, notes, security agreements, leases,
agreements or understandings, whether written or oral, to which the Company or
the Subsidiary is a party which relates to or affects the assets or operations
of the Company or the Subsidiary or to which the Company or the Subsidiary or
their respective assets or operations may be bound or subject is valid and
binding and in full force and effect, except where in the aggregate the
failure to be in full force and effect would not have a Material Adverse
Effect; there are no existing defaults by the Company or the Subsidiary
thereunder or, to the best knowledge of the Company, any other party thereto,
which default would likely result in a Material Adverse Effect; and no event
of default has occurred which (whether with or without notice, lapse of time
or the happening or occurrence of any other event) would constitute a default
by the Company or the Subsidiary thereunder or, to the best knowledge of the
Company, any other party thereto which default would likely result in a
Material Adverse Effect; provided, however, that there shall be deemed to be a
Material Adverse Effect if a default or event of default has occurred with
respect to any indebtedness of the Company or the Subsidiary for borrowed
money, whether by cross-default or otherwise.
(c) Except as set forth in Disclosure Schedule 3.17, neither the Company
nor the Subsidiary is a party to or bound by any contract, agreement or
arrangement for the employment (including as a consultant) or severance from
employment (except any at will employment arrangements), of any director,
officer or employee of the Company or the Subsidiary or any "change in
control" agreement.
SECTION 3.18 Employee Benefit Plans. (a) Disclosure Schedule 3.18
hereof sets forth a true and complete list of each employee benefit plan,
arrangement or agreement (other than employment, consulting and severance
agreements set forth in Disclosure Schedule 3.17) that is maintained or
contributed to, or was maintained or contributed to at any time during the
three (3) calendar years preceding the date of this Agreement (the "Plans"),
by the Company or by any trade or business, whether or not incorporated (an
"ERISA Affiliate"), which together with the Company would be deemed a "single
employer" within the meaning of Section 4001 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). A copy of each Plan as currently
in effect and, if available, the most recent annual report, actuarial report,
summary plan description, trust agreement and determination letter for each
Plan have heretofore been made available to Acquisition. Neither the Company
nor the Subsidiary has any material liability (including any material
contingent liability) with respect to any plan, arrangement or agreement that
would be described in this section 3.18(a) but for the fact that it was not
maintained or contributed to within three calendar years preceding the date of
this Agreement.
(b) None of the Plans is a "multiemployer plan," as such term is defined
in Section (3) (37) of ERISA; except as disclosed on Disclosure Schedule 3.18,
each of the Plans that is subject to ERISA is in substantial compliance with
ERISA; each of the Plans intended to be "qualified" within the meaning of
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code")
is so qualified; no Plan has an accumulated or waived funding deficiency
within the meaning of Section 412 of the Code; neither the Company nor an
ERISA Affiliate has incurred directly or indirectly, any liability (including
any material contingent liability) to or on account of a Plan pursuant to
Title IV of ERISA; no proceedings have been instituted to terminate any Plan
that is subject to Title IV of ERISA; no "reportable event," as such term is
defined in Section 4043(b) of ERISA, has occurred with respect to any Plan;
and no condition exists that presents a material risk to the Company or an
ERISA Affiliate of incurring a liability to or on account of a Plan pursuant
to Title IV of ERISA.
(c) The current value of the assets of each of the Plans that are
subject to Title IV of ERISA is equal to or exceeds the present value of the
accrued benefits under each such Plan, taking into account projected salary
increases and based upon the actuarial assumptions used for funding purposes
in the most recent actuarial report prepared for such Plans; and all
contributions or other amounts payable by the Company or its Subsidiaries as
of the Effective Time with respect to each Plan in respect of current or prior
plan years as of the Effective Time have been or will be either paid or
accrued on the financial statements of the Company. To the knowledge of the
Company or the Subsidiary, there are no pending, threatened or anticipated
claims (other than routine claims for benefits) by, on behalf of or against
any of the Plans or any trusts related thereto.
(d) Except as disclosed in Disclosure Schedule 3.18, consummation of the
transactions contemplated hereby will neither cause any amounts to become
vested or payable under any of the Plans nor cause any amounts payable under
the Plans to fail to be deductible for Federal income tax purposes by virtue
of Section 280G of the Code.
(e) Except for employment, consulting and severance agreements set forth
in Disclosure Schedule 3.17, no Plan provides benefits, including without
limitation death or medical benefits (whether or not insured), with respect to
current or former employees for periods extending beyond their retirement or
other termination of service (other than (i) coverage mandated by applicable
law, (ii) death benefits or retirement benefits under any "employee pension
plan," as that term is defined in Section 3(2) of ERISA, (iii) deferred
compensation benefits accrued as liabilities on the books of the Company or
the ERISA Affiliates or (iv) benefits the full cost of which is borne by the
current or former employees (or their beneficiaries)).
SECTION 3.19 Taxes. (a) The Company and the Subsidiary will timely
file, or have timely filed (including permitted extensions) all returns,
declarations, reports, information returns and statements (collectively,
"Returns") required to be filed by them in respect to any Taxes (as defined in
Section 3.19(k)). Except as set forth in Disclosure Schedule 3.19, (A) as of
the time of filing, including the reserve for Taxes set forth in the Financial
Statements, the foregoing Returns correctly reflected in all material respects
the facts regarding the income, business, assets, operations, activities and
status of the Company and the Subsidiary or any other information required to
be shown thereon; and (B) the Company and the Subsidiary have not requested an
extension of time within which to file any Return which Return has not since
been filed.
(b) The Company and the Subsidiary have timely paid and reserved on the
respective Financial Statements of the Company and the Subsidiary all Taxes
that are required to be shown as due and payable on their Returns and are not
delinquent in the payment of any Taxes. The Company and the Subsidiary have
established (and until the Effective Time will establish), on the books and
records, reserves that are adequate for the payment of any Taxes not yet due
and payable. The Company and the Subsidiary have made all payments of
estimated taxes when due in amounts sufficient to avoid the imposition of any
penalty.
(c) The Company and the Subsidiary are not (nor will they become)
parties to any tax indemnity or tax sharing agreement other than any tax
indemnity or tax sharing agreement between the Company and the Subsidiary.
(d) There are no liens for Taxes upon assets of the Company and the
Subsidiary except liens for Taxes not yet due and liens for Taxes, if any,
which are being contested in good faith by appropriate actions as set forth in
Disclosure Schedule 3.19.
(e) The Company and the Subsidiary are not parties to any agreement,
contract, arrangement or Plan that could result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code.
(f) All transactions, if any, which could give rise to an understatement
of Federal income tax (within the meaning of Section 6662 of the Code) were
adequately disclosed (or, with respect to Returns filed before the Closing,
will be adequately disclosed) on the Returns required in accordance with
Section 6662(d)(2)(B) of the Code.
(g) The Company and the Subsidiary have not filed (nor will they file) a
consent pursuant to Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of any asset owned by the
Company or the Subsidiary.
(h) After the date hereof, the Company and the Subsidiary will not make
or agree to make any election for Federal income tax purposes, or for state,
local or foreign income tax purposes if such election could reasonably be
expected to have a Material Adverse Effect, without written consent of
Acquisition.
(i) The statute of limitations for the assessment of Federal and
California income taxes, respectively, has expired for all income tax returns
of the Company and the Subsidiary through and including December 31, 1992
(Federal), and December 31, 1991 (California), and there are no outstanding
waivers regarding the application of the statute of limitations with respect
to any Taxes or Returns. With respect to any taxable year for which the
statute of limitations has not expired, no issues have been raised by any
taxing authority, either in writing or by oral statement of such taxing
authority to an officer of the Company that such taxing authority may take a
position contrary to the Company's position with respect to any particular tax
issue which could result in additional material Taxes, or that could give rise
to a material change in the taxable income of the Company and the Subsidiary
for any taxable year. No deficiency for any Taxes has been proposed, asserted
or assessed against the Company and the Subsidiary which has not been resolved
and paid in full.
(j) Except as set forth in Disclosure Schedule 3.19, neither the Company
nor the Subsidiary is required for the 1996 tax year or any tax year ended
after the date of the Closing to include in income any adjustment pursuant to
Section 481(a) of the Code by reason of a voluntary change in accounting
method initiated by the Company or the Subsidiary or as a result of the Tax
Reform Act of 1986, and the Company and the Subsidiary do not have knowledge
that the Internal Revenue Service has proposed any such adjustment or change
in accounting method which will affect the 1996 tax year or any tax year ended
after the date of the Closing.
(k) As used herein, "Taxes" means (A) all net income, gross income,
gross receipts, sales, use, ad valorem, transfer, franchise, profits, license,
lease, service, service use, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property or windfall profits taxes,
customs duties or other taxes, fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any taxing authority (domestic or foreign) upon
the Company and the Subsidiary and/or (B) any liability of the Company and the
Subsidiary for the payment of any amounts of the type described in the
immediately preceding clause (A) as a result of being a member of an
affiliated, consolidated, combined or unitary group, but only (C) with respect
to all periods or portions thereof ending on or before the date of the
Effective Time.
SECTION 3.20 Environmental Protection. (a) As of the date hereof,
there is no civil, criminal or administrative action, claim, demand,
liability, investigation, notice or other proceeding or suit pending or, to
the best of the Company's and the Subsidiary's knowledge, threatened arising
from or relating to Federal, state or local environmental, health or safety
laws or regulations with respect to properties owned by the Company or the
Subsidiary, or properties which the Company or the Subsidiary has acquired or
is in the process of acquiring by means of foreclosure or similar action. To
the best of the Company's and the Subsidiary's knowledge, except as set forth
in Disclosure Schedule 3.20, there are no past, present or future actions,
activities, circumstances, incidents or practices known to the Company or the
Subsidiary which could give rise to such an action, claim, demand, liability,
investigation, notice or other proceeding. As of the Closing Date, no civil,
criminal or administrative action, claim, demand, liability, investigation,
notice or other proceeding or suit will be pending or, to the best of the
Company's and the Subsidiary's knowledge, threatened which arises from or
relates to federal, state or local environmental, health or safety laws or
regulations with respect to properties owned by the Company or the Subsidiary,
or properties which the Company or the Subsidiary has acquired or is in the
process of acquiring by means of foreclosure or similar action, which may
reasonably be expected to have a Material Adverse Effect.
(b) With respect to properties owned by the Company or the Subsidiary or
properties which the Company or the Subsidiary have acquired or are in the
process of acquiring by means of foreclosure or similar action, the Company
and the Subsidiary each are in material compliance with all permits,
conditions, limitations, obligations, prohibitions and other requirements
contained in applicable Federal, state or local environmental, health or
safety laws or regulations, non-compliance with which could reasonably be
expected to result in a Material Adverse Effect.
SECTION 3.21 Compliance with Applicable Law. The Company and the
Subsidiary each holds, and at all times has held, all licenses, franchises,
permits and authorizations necessary for the lawful conduct of its business
under and pursuant to, and the business of each of the Company and the
Subsidiary is not being conducted, nor has it ever been conducted, in
violation of any provision of any Federal, state, local or foreign statute
(including, without limitation, 31 U.S.C. Section 5311 et seq.), law,
ordinance, rule (including, without limitation, the Financial Institutions
Regulatory and Interest Rate Control Act of 1978 and 31 C.F.R. Part 103),
regulation, judgment, decree, order, concession, grant, franchise, permit or
license or other governmental authorization or approval applicable to the
Company or the Subsidiary, except to the extent that the failure to hold any
such licenses, franchises, permits or authorization, or any such violation,
did not or may not reasonably be expected to have a Material Adverse Effect.
SECTION 3.22 Labor Difficulties. Except to the extent set forth in
Disclosure Schedule 3.22 (i) each of the Company and the Subsidiary is in
material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours
and is not engaged in any unfair labor practice; (ii) there is no unfair labor
practice complaint against the Company or the Subsidiary pending before the
National Labor Relations Board; (iii) there is no labor strike, dispute,
slowdown or stoppage actually pending or, to the best knowledge of the
Company, threatened against or affecting the Company or the Subsidiary; (iv)
to the best of Company's or Subsidiary's knowledge, no representation question
exists respecting the employees of the Company or the Subsidiary; (v) no
grievance or any arbitration proceeding arising out of or under collective
bargaining agreements is pending, and no claim therefor exists; and (vi)
neither the Company nor the Subsidiary is a party to or bound by any
collective bargaining agreement, union contract or agreement with any labor
union.
SECTION 3.23 Transactions with Affiliates. Except as disclosed in
Disclosure Schedule 3.23 and except for loans and commitments to loan which
individually involve amounts not exceeding $25,000 made by the Subsidiary on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons
and which, in the opinion of management of the Subsidiary, did not involve
more than a normal risk of collectability and except for normal employment
compensation, no officer or director of the Company or the Subsidiary, or any
member of the immediate family of any such person (i) has any direct or
indirect ownership interest in (A) any entity which does business with the
Company or the Subsidiary, or (B) any property or asset which is owned or used
by either the Company or the Subsidiary in the conduct of its business, (ii)
has any financial, business, or contractual relationship or arrangements with
the Company or the Subsidiary other than such relationship as attaches to
being such officer or director.
SECTION 3.24 Loan Portfolio: Reports. As of the date hereof, except as
set forth in Disclosure Schedule 3.24, all evidences of indebtedness reflected
as assets in the Company's books and records are in all respects binding
obligations of the respective obligors named therein and, to the best of the
Company's knowledge, no material amount thereof is subject to any defenses
which may be asserted against the Company or the Subsidiary except to the
extent that the assertion of such defenses, individually or in the aggregate
would not have a Material Adverse Effect.
SECTION 3.25 Reporting Company Status. The Company is a reporting
company pursuant to Section 15(d) of the Exchange Act and is not subject to
the terms of Sections 13(d), 13(e) or 14 of the Exchange Act.
SECTION 3.26 Disclosure. No representations or warranties by the
Company in this Agreement and no statement contained in any document
including, without limitation, financial statements, and the Disclosure
Schedules, certificates or other writing furnished or to be furnished by the
Company to Acquisition or any of its representatives pursuant to the
provisions hereof or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of material fact or omits or
will omit to state any material fact necessary, in light of the circumstances
under which it was made, in order to make the statements herein or therein not
misleading, it being understood that as used in this Section 3.26 "material"
with respect to the Company means material to the Company and the Subsidiary
taken as a whole or with respect to the Subsidiary means material to the
Subsidiary taken individually.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUISITION
Acquisition hereby represents and warrants to the Company that:
SECTION 4.01 Organization. Acquisition is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware. Acquisition has all requisite power and authority to own, lease
and operate its properties and to carry on its business as it is now being
conducted. Acquisition is duly authorized and in good standing to do business
in each jurisdiction in which the property owned, leased or operated by it, or
the nature of the business conducted by them, makes such qualification
necessary, except for such failures to be so qualified which would not,
individually or in the aggregate, have a Material Adverse Effect. Acquisition
has delivered to the Company complete and correct copies of its Certificate of
Incorporation and Bylaws.
SECTION 4.02 Authorization: No Violation. Acquisition has full
corporate power and authority to execute and deliver this Agreement and to
carry out their obligations hereunder. The execution and delivery of this
Agreement by Acquisition, the performance by Acquisition of its obligations
hereunder and the consummation by Acquisition of the transactions contemplated
hereby have been duly authorized by Acquisition's Board of Directors and
stockholders and no other corporate proceeding on the part of Acquisition is
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Acquisition and constitutes a valid and binding obligation of
Acquisition, enforceable against it in accordance with its terms, except to
the extent that such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights, and the remedy of specific performance and
injunctive and other forms of equitable relief, may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought. Neither the execution and delivery of this Agreement
by Acquisition and the performance by Acquisition of its obligations hereunder
nor the consummation by Acquisition of the transactions contemplated hereby
will (i) conflict with or result in any breach of any provision of the
Certificate of Incorporation or Bylaws of Acquisition, (ii) except as set
forth in Disclosure Schedule 4.02, result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default
under, or permit the termination of, or require the consent of any other party
to, or result in the acceleration of, or entitle any party to accelerate or
give rise to the creation of any lien, charge, security interest or
encumbrance upon any of the respective properties or assets of Acquisition
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which Acquisition is a party or by which it or any of its
properties for assets may be bound or affected or (iii) violate any order,
writ, judgment, injunction, decree, statute, rule or regulation of any court
or governmental authority applicable to Acquisition or any of its properties
or assets, excluding from the foregoing clauses (ii) and (iii) violations,
breaches or defaults which in the aggregate would not have a Material Adverse
Effect and will not materially prevent or delay the consummation of the
transactions contemplated hereby.
SECTION 4.03 Consents and Approvals. Except for consents and approvals
of or filings or registrations with the Federal Reserve Board, the Office of
the Comptroller of the Currency, the SEC, and the filing of a certificate of
merger pursuant to the DGCL and requirements of federal and state securities
laws, no filing or registration with, no notice to and no permit,
authorization, consent or approval of any third party or any public or
governmental body or authority is necessary for the consummation by
Acquisition of the transactions contemplated by this Agreement, except as set
forth on Disclosure Schedule 4.03 or where the failure to make such filing or
to obtain such permit, authorization, consent or approval will not in the
aggregate have a Material Adverse Effect.
SECTION 4.04 Proxy Statement. None of the information supplied or to
be supplied, in either case in writing by Acquisition for inclusion in the
Proxy Statement will, at the time the Proxy Statement is mailed be false or
misleading with respect to any material fact, or omit to state any material
fact required to be stated therein or necessary in order to make the statement
therein not misleading. Acquisition will advise the Company if prior to the
time of the meeting of stockholders to which the Proxy Statement relates or
the Effective Time it is necessary to amend or supplement the Proxy Statement
to correct any statement supplied by Acquisition for inclusion in the Proxy
Statement which has become false or misleading.
SECTION 4.05 Employment Agreement. Acquisition represents and warrants
that it will enter into Employment Agreements with Eddy S.F. Chan and John K.
Wong prior to the Effective Time.
SECTION 4.06 Disclosure. No representations or warranties by
Acquisition in this Agreement and no statement contained in any document
including, without limitation, financial statements, and the Disclosure
Schedules, certificates or other writing furnished or to be furnished by
Acquisition to the Company or any of its representatives pursuant to the
provisions hereof or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of material fact or omits or
will omit to state any material fact necessary, in light of the circumstances
under which it was made, in order to make the statements herein or therein not
misleading.
ARTICLE V
COVENANTS AND OTHER AGREEMENTS
SECTION 5.01 Conduct of Business of the Company. Except as expressly
contemplated by this Agreement, during the period from the date of this
Agreement to the Effective Time, the Company will and will cause the
Subsidiary to conduct its operations only in the ordinary and usual course of
business and consistent with past practice, and the Company will and will
cause the Subsidiary to use its reasonable efforts to preserve intact its
business organization, assets, prospects and advantageous business
relationships, to keep available the services of its officers and employees
and to maintain satisfactory relationships with suppliers, contractors,
customers and others having business relationships with the Company and the
Subsidiary. Without limiting the generality of the foregoing, prior to the
Effective Time, the Company will not, and will cause the Subsidiary not to,
without the prior written consent of Acquisition:
(a) split, combine or reclassify any shares of its capital stock,
declare, pay or set aside for payment any dividend or other distribution in
respect of its capital stock, or directly or indirectly, redeem, purchase or
otherwise acquire any shares of its capital stock or other securities;
(b) authorize for issuance, issue, sell, pledge, dispose of or encumber,
deliver or agree or commit to issue, sell, pledge or deliver (whether through
the issuance or granting of any options, warrants, commitments, subscriptions,
rights to purchase or otherwise) any stock of any class of the Company or the
Subsidiary or any securities convertible into or exercisable or exchangeable
for shares of stock of any class of the Company or the Subsidiary, other than
shares issuable upon exercise of currently outstanding options of the Company
exercisable for an aggregate amount of 103,750 shares of the Company Common
Stock;
(c) take any action to cause shares of Company Common Stock to cease to
be quoted on the National Association of Securities Dealers Automatic
Quotation Bulletin Board, or fail to notify promptly Acquisition by telephone,
and thereafter promptly follow such notification with confirmation in writing,
or any oral or written notice received by the Company to the effect that the
National Association of Securities Dealers has taken or intends to take any
action to cease the authorization for quotation of the shares of Company
Common Stock;
(d) incur any liability or obligation (absolute, accrued, contingent or
otherwise) or assume, guarantee, endorse or otherwise as an accommodation
become responsible for the obligations of any other individual or entity other
than in the ordinary and usual course of business and consistent with past
practice, or issue any debt securities or change any assumption underlying, or
methods of calculating, any bad debt, contingency or other reserve except as
may be required by generally accepted accounting principles or applicable law;
(e) adopt or amend any bonus, profit-sharing, compensation, stock
option, pension, retirement, deferred compensation, employment or other
employee benefit plan (including, but not limited to vacation policy),
agreement, trust, plan, fund or other arrangement, (collectively,
"Compensation Plans"); grant, or become obligated to grant, any increase in
the compensation of officers or employees (including any such increase
pursuant to any Compensation Plan), except for increases in compensation in
the ordinary course of business consistent with past practice with respect to
employees other than officers; institute any new employee benefit, welfare
program or Compensation Plan; make any change in any Compensation Plan or
other employee welfare or benefit arrangement; or enter into any employment or
similar agreement or arrangement with any employee (except any at will
employment arrangements);
(f) acquire (by merger, consolidation or acquisition of stock or assets)
any corporation, partnership or other business organization or division
thereof or acquire, directly or indirectly, any equity interest in any
corporation, partnership or joint venture, except for equity interests
acquired (i) in a fiduciary capacity or (ii) in the ordinary course of
business consistent with past practice;
(g) except as required by the consummation of the Merger, pay, discharge
or satisfy any claims or liabilities, other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practice of liabilities reflected or reserved against on the balance sheet
included in the Interim Financial Statements or incurred in the ordinary
course of business and consistent with past practice since the date thereof;
(h) except as contemplated by this Agreement, amend the Articles of
Incorporation or Bylaws of the Company;
(i) make any capital expenditure other than in the ordinary course of
business and consistent with past practice except for capital expenditures
which, individually, do not exceed $25,000;
(j) waive, release, terminate, grant or transfer any material rights
arising under any material credit agreement or lease, or waive, release,
terminate, grant or transfer any rights of material value or modify or change
in any material respect any other existing material license, contract or other
document, or enter into any material contract or agreement other than in the
ordinary course of business and consistent with past practice and shall use
all reasonable efforts to enforce the terms of any such contract, agreement,
arrangement or understanding;
(k) allow or permit any material insurance policy naming it as a
beneficiary or a loss payable payee to be canceled or terminated except in the
ordinary course of business;
(l) make any change in accounting methods, principles or practices
except as may be required by generally accepted accounting principles or
applicable law;
(m) agree to take or omit to take, in writing or otherwise, any of the
foregoing actions or any action which would make any representation or
warranty in Article Three hereof untrue or incorrect in any material respect;
(n) make, or commit to make, any loan or other extension of credit in
excess of $250,000 except for (1) renewal loans to borrowers who were
customers of the Company on the date hereof and (2) home equity loans made in
accordance with the terms of the Company's standard published brochure
describing its home equity loan program. Extensions of credit will not be
made to classified borrowers other than renewals of not more than six (6)
months made in connection with workouts conducted in the ordinary course of
business and approved by Acquisition;
(o) declare or pay any dividends on or make other distributions in
respect of the Company Common Stock;
(p) make any long-term (more than one year) borrowings (exclusive of
certificates of deposit issued by the Company and other time deposits
maintained at the Company by customers of the Company, in either case
consistent with past practice);
(q) lower the loan loss reserve of the Subsidiary below 1% of its loans
then outstanding (excluding unfunded loan commitments and unfunded letters of
credit); or
(r) sell, discount, settle or otherwise dispose of any loan (excluding
those loans listed on Exhibit B of the Escrow Agreement but including those
loans listed on Exhibit C of the Escrow Agreement), for an amount less than
the outstanding balance on the books of the Subsidiary as of the date of such
sale, discount, settlement or disposal.
SECTION 5.02 No Solicitation. The Company shall not, and shall cause
the Subsidiary not to, and each shall use its best efforts to cause its
affiliates and each of its officers, directors, employees, representatives and
agents not to, directly or indirectly, encourage, solicit, initiate, engage or
participate in discussions or negotiations with, or provide any information
to, any corporation, partnership, person or other entity or group other than
Acquisition or their affiliates (a "Third Party") concerning the Company or
the Subsidiary or concerning the business of the Company or this Subsidiary in
connection with any tender offer (including a self-tender offer), exchange
offer, merger, consolidation, sale of all or any substantial amount of assets,
sale of securities, acquisition of beneficial ownership of or to vote
securities representing 10% or more of the total voting power of the Company
or the Subsidiary, liquidation, dissolution or similar transactions involving
the Company or the Subsidiary, or any division of the Company or the
Subsidiary (such proposals, announcements or transactions being referred to
herein as "Acquisition Proposals"); provided, that the Board of Directors of
the Company (the "Board") may furnish or cause to be furnished information and
may engage or participate in such discussions or negotiations and may take any
other actions if Nossaman, Guthner, Knox & Elliott, counsel to the Company,
advises the Board, in writing, that the failure to provide such information or
engage or participate in such discussions or negotiations will involve the
members of the Board in a breach of their fiduciary duties. The Company shall
promptly inform Acquisition of any inquiry (including the terms thereof and
the identity of the Third Party making such inquiry) which it may receive in
respect of an Acquisition Proposal and furnish to Acquisition a copy of any
such written inquiry.
SECTION 5.03 Liquidated Damages. (a) In the event that the Merger is
not consummated by reason of one of the following events and Acquisition has
not failed to any material extent to perform its obligations under this
Agreement, the Company shall pay to Acquisition, as liquidated damages, the
sum of $250,000: (i) there is a breach by the Company of any material
representation, warranty or covenant contained herein; (ii) any person or
"group" as defined in Section 13(d)(3) of the Exchange Act, other than
Acquisition, becomes the beneficial owner after the date hereof of more than
20% of the shares of Company Common Stock; (iii) the Company withdraws or
modifies or amends in any respect adverse to Acquisition its recommendation of
the Merger or fails to reconfirm its recommendation of the Merger within a
reasonable period of time after a formal request; or (iv) the Board of
Directors of the Company or the Subsidiary resolves to take any action that
would result in any of the foregoing; and such event occurs on or prior to the
date of termination.
(b) In the event that the Merger is not consummated and one of the
following events occurs within four months thereafter and Acquisition has not
failed to any material extent to perform its obligations under this Agreement,
the Company shall pay to Acquisition, as liquidated damages, the sum of
$250,000: (i) the Company or the Subsidiary enters into an agreement or plan
of merger, consolidation, reorganization, exchange, recapitalization or other
similar agreement or plan, including without limitation an agreement in
principle or letter of intent, other than with Acquisition; (ii) the Company
or the Subsidiary enters into one or more agreements or plans which,
individually or in the aggregate would result in the sale of more than 25% of
its total assets or earning power; or (iii) the Board of Directors of the
Company or the Subsidiary resolves to take any action that would result in any
of the foregoing.
(c) In the event that the Merger is not consummated because there is a
breach by Acquisition of any material representation, warranty or covenant
contained herein on or prior to the date of termination and Company has not
failed to any material extent to perform its obligations under this agreement,
Acquisition shall pay to the Company, as liquidated damages, the sum of
$150,000.
(d) The party owing liquidated damages ("Paying Party") shall make such
payment to that party which is owed liquidated damages ("Receiving Party") in
immediately available funds within 30 days following the day on which the
Receiving Party properly notifies the Paying Party in writing that one of the
events described in Section 5.03(a), (b) or (c) hereof has occurred. The
Paying Party shall make such payment as compensation and liquidated damages
for the loss suffered by Receiving Party as a result of the failure of the
Merger to be consummated and to avoid the difficulty of determining damages in
that circumstance.
(e) No payment shall be due under this Section 5.03 if this Agreement is
terminated pursuant to Section 8.01(a), (d)(i) or (d)(ii) hereof.
(f) The payment of liquidated damages to either the Company, pursuant to
Section 5.03(c), or to Acquisition, pursuant to Section 5.03(a) or (b), shall
be a one time payment regardless of the number of times an event occurs or the
number of events which occur that would trigger payments.
SECTION 5.04 Access to Information. (a) To the extent that it may
lawfully do so, between the date of this Agreement and the Effective Time, the
Company will give Acquisition and its authorized representatives full access
during normal business hours to all personnel, offices and other facilities
and to all books and records of the Company and the Subsidiary and will permit
Acquisition to make such inspections as it may require and will cause its
officers to furnish Acquisition such financial and operating data and other
information with respect to the business and properties of the Company and the
Subsidiary as Acquisition may from time to time reasonably request. The
representations and warranties of the Company contained herein or in any
certificate or other documents delivered to Acquisition shall not be deemed
waived or otherwise affected by any such investigation made by Acquisition or
any of its representatives.
(b) Until the Effective Time, any information and documentation
furnished by one party to the other and treated as confidential by the party
furnishing the information (the "Confidential Information") shall be kept
confidential by the representatives of the other and shall be used by the
examining party only in connection with the Agreement and the transactions
contemplated thereby, except to the extent the Confidential Information (i)
was already known to the representatives of the examining party when received,
(ii) hereafter becomes lawfully obtainable from other sources, or (iii) is
disclosed by Acquisition or the Company in any document filed with any
government agency or authority and such document is available for public
inspection.
SECTION 5.05 Public Announcements. Acquisition and the Company will
consult with each other before issuing any press release or otherwise making
any public statements with respect to the Merger or this Agreement and shall
not issue any such press release or make any such public statement prior to
such consultation, except as may be required by law. The Company shall cause
the Subsidiary to comply with this Section 5.05.
SECTION 5.06 Proxy Statement. (a) In connection with the Special
Meeting (as defined in Section 5.10), the company shall prepare and
Acquisition shall cooperate with the Company in the preparation of the Proxy
Statement. The Proxy Statement shall contain the recommendation of the Board
of Directors of the Company in favor of the Merger; provided, however, that
notwithstanding the foregoing provisions of this sentence, the Board of
Directors of the Company shall be free to take any position and any action
which it determines upon advice of counsel to be required to ensure compliance
with the fiduciary obligations of the Board under applicable law.
(b) If, at any time prior to the Special Meeting, any event should occur
which should be set forth in an amendment of, or a supplement to, the Proxy
Statements so as to correct the information included therein or to avoid such
proxy Statement being false or misleading in any material respect, Company and
Acquisition, upon learning of such event, each shall promptly inform the other
party and promptly cooperate with the other party in the preparation of any
required amendment or supplement and the appropriate party shall mail such
amendment or supplement.
SECTION 5.07 Other Regulatory Matters. (a) Acquisition and the Company
each will cooperate with one another and use their best efforts to prepare all
necessary documentation, to effect all necessary filings and to obtain all
necessary permits, consents, approvals and authorizations of all third parties
and governmental bodies necessary to consummate the transactions contemplated
by this Agreement. Acquisition and the Company each shall have the right to
review and approve in advance all characterizations of the information
relating to Acquisition or the Company, as the case may be, and any of their
respective subsidiaries, which appear in any filing made in connection with
the transactions contemplated by this Agreement with any governmental body.
In exercising the foregoing right, each of Acquisition and the Company shall
act as promptly as practicable, recognizing that time is of the essence to the
transactions contemplated by this Agreement.
(b) Acquisition and the Company will furnish each other with all
information concerning itself, their subsidiaries, directors, officers and
stockholders and such other matters as may be necessary or advisable in
connection with such registration statement or proxy statement, filings under
any state Blue Sky laws or any other statement or application made by or on
behalf of Acquisition or the Company to any governmental body in connection
with the Merger and the other transactions contemplated by this Agreement.
(c) Each party will keep the other party apprised of the status of any
inquiries made of such party by the Federal Trade Commission, the Antitrust
Division of the U.S. Department of Justice or any other governmental agency or
authority or members of their respective staffs with respect to this Agreement
or the transactions contemplated hereby.
SECTION 5.08 Quality of Information Supplied in Connection with Other
Regulatory Filings. Each of the Company and Acquisition agree as to
themselves (and in the case of the Company, as to the Subsidiary) that all
information pertaining to the Company and the Subsidiary and to Acquisition,
which is proposed to be set forth in any other documents to be filed with or
submitted to any federal or state regulatory agency, in connection with the
transactions contemplated herein will (a) be true and correct in all material
respects, (b) comply in all material respects to the extent relevant with the
requirements of all securities laws, and the Holding Company Act, the
applicable rules and regulations of the Federal Reserve Board thereunder and
any other applicable filing requirement, and (c) not include any statement
which, on the date made, is false or misleading with respect to any material
fact, or omit to include any material fact necessary to make the statements
set forth therein not false or misleading.
SECTION 5.09 Current Information. From the date of this Agreement to
the Effective Time, the Company will cause one or more of its designated
representatives to confer on a regular and frequent basis (not less than semi-
monthly) with representatives of Acquisition and to report the general status
of its ongoing consolidated operations and to deliver to Acquisition (not less
than monthly) unaudited consolidated Statements of Condition and related
consolidated Statements of Income, changes in stockholders' equity and changes
in financial position for the period since the last such report. The Company
will promptly notify Acquisition of any material change in the normal course
of business or in the operation of the properties of the Company or the
Subsidiary.
SECTION 5.10 Approval of Company Stockholders. The Company will (a) on
or before December 31, 1996 take all steps necessary to duly call, give notice
of, convene and hold a meeting of its stockholders for the purpose of
approving this Agreement and the transactions contemplated hereby and for such
other purposes as may be necessary or desirable (the "Special Meeting"), (b)
subject to the fiduciary duties of the Company's Board of Directors as advised
by counsel, recommend to its stockholders the adoption and approval of this
Agreement and the transactions contemplated hereby and such other matters as
may be submitted to its stockholders in connection with this Agreement at the
Special Meeting and (c) cooperate and consult with Acquisition with respect to
each of the foregoing matters. Subject to the fiduciary duties of the
Company's Board of Directors as advised by counsel, the Company will use its
best efforts to obtain the necessary approvals by its stockholders of this
Agreement and the transactions contemplated hereby.
SECTION 5.11 Disclosure Supplements. From time to time prior to the
Effective Time, the Company will promptly supplement or amend the Disclosure
Schedules delivered in connection herewith with respect to any matter
hereafter arising which, if existing, occurring or known at the date of this
Agreement, would have been required to be set forth or described in such
Disclosure Schedules or which is necessary to correct any information in such
Disclosure Schedules which has been rendered inaccurate thereby. No
supplement or amendment to such Disclosure Schedules shall have any effect for
the purpose of determining satisfaction of the conditions set forth in Section
6.02(a) or 6.03(a) hereof, as the case may be, or the compliance by the
Company with the covenants set forth in Section 5.01 hereof.
SECTION 5.12 Restructure of Transaction. If necessary to expedite or
facilitate the Closing of the Merger and any other transactions contemplated
by this Agreement, the parties agree that each will take or perform any
additional reasonably necessary or advisable steps to restructure the
transaction, provided that any such restructuring will not result in any
change in the Merger Consideration or alter the tax treatment of the
transactions contemplated hereunder or otherwise materially adversely effect
the rights and obligations of any party hereto.
SECTION 5.13 Fairness Opinion. The Company undertakes that, as of the
date of the Proxy Statement, Baxter Fentriss & Company, the investment banking
firm engaged by it, will render a written opinion as to the fairness of the
Merger to the stockholders of the Company from a financial point of view.
SECTION 5.14 Additional Agreements. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective as promptly as practicable the transactions contemplated by
this Agreement.
SECTION 5.15 Notices. Each party hereto shall promptly notify the
other in writing of any outstanding or threatened claims, legal,
administrative or other proceedings, suits, investigations, complaints,
notices of violation or other process, or other judgments, orders, directives,
injunctions or restrictions of which any executive officer thereof, after due
inquiry, has knowledge, against or involving Acquisition, the Company or the
Subsidiary or any material or against or involving any officer, director,
employee, consultant or stockholder thereof, which could result in a Material
Adverse Effect.
SECTION 5.16 Employee Stock Ownership Plan and Trust. The Company shall
terminate its Employee Stock Ownership Plan and Trust (the "Ownership Plan")
at a time reasonably believed to be sufficient to wind up the affairs of the
Ownership Plan prior to the Closing. The Company agrees that as of the date
of this Agreement the Company will not issue any further securities of the
Company under the Ownership Plan.
ARTICLE VI
CLOSING CONDITIONS
SECTION 6.01 Conditions to Each Party's Obligations under this
Agreement. The respective obligations of each party to consummate the Merger
shall be subject to the fulfillment at or prior to the Effective Time of the
following conditions:
(a) This Agreement and the transactions contemplated hereby shall have
been approved by the affirmative vote of the holders of outstanding shares of
Company Common Stock in accordance with applicable law.
(b) All necessary regulatory approvals required to consummate the
transactions contemplated hereby shall have been obtained and shall remain in
full force and effect and all statutory waiting periods in respect thereof
shall have expired.
(c) Baxter Fentriss & Company shall have rendered it written opinion to
the Company that the Merger Consideration is fair to the stockholders of the
Company (other than those persons owning, or holding a right to acquire, stock
of Acquisition immediately prior to or immediately after the Effective Time)
from a financial point of view.
(d) Neither Acquisition, the Company nor the Subsidiary shall be subject
to any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits the consummation of the Merger.
(e) The closing of this transaction shall take place on or before March
31, 1997.
SECTION 6.02 Conditions to the Obligations of Acquisition under this
Agreement. The obligations of Acquisition to consummate the Merger shall be
further subject to the satisfaction, at or prior to the Effective Time, of the
following conditions, any one or more of which may be waived by Acquisition:
(a) Each of the agreements, covenants and obligations of the Company
required to be performed by it at or prior to the Closing pursuant to the
terms of this Agreement shall have been duly performed and complied with in
all material respects, and the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Effective Time as though made
at and as of the Effective Time (except as to any representation or warranty
which specifically relates to an earlier date), and Acquisition shall have
received a certificate to that effect signed by the president and the senior
financial officer of the Company.
(b) There shall have not occurred after the date hereof any Material
Adverse Change in the business, operations, properties, prospects, condition
(financial or otherwise), assets, liabilities or reserves of the Company and
the Subsidiary taken as a whole or of the Subsidiary taken individually.
(c) All action required to be taken by or on the part of the Company to
authorize the execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby shall have been duly and validly taken by the Board of Directors and
stockholders of the Company, and Acquisition shall have received certified
copies of the resolutions evidencing such authorization.
(d) Any and all permits, consents, waivers, clearances, approvals and
authorizations of all third parties and governmental bodies required to be
obtained by the Company or the Subsidiary shall have been obtained by the
Company and the Subsidiary which are necessary in connection with the
consummation of the Merger and the other transactions contemplated hereby.
None of the approvals contained in Section 6.01(b) hereof shall contain any
term or condition which would materially impair the value of the Company and
the Subsidiary taken as a whole or of the Subsidiary individually to
Acquisition.
(e) Acquisition shall have received an opinion, dated the date of the
Closing in form satisfactory to Acquisition from Nossaman, Guthner, Knox &
Elliott, counsel to the Company, to the effect set forth in the form of
opinion delivered to Acquisition by the Company on the date hereof.
(f) The Company shall have caused to be delivered to Acquisition letters
from independent public accountants, with respect to the Company, dated the
date on which the Proxy Statement is mailed to the stockholders of the
Company, and dated the date of the Closing, and addressed to Acquisition, the
Company and the Subsidiary, covering such matters as Acquisition shall
reasonably request with respect to facts concerning the Company's financial
condition.
(g) Stockholders of Dissenting Shares shall hold no more than 10% of the
outstanding shares of Company Common Stock.
(h) Acquisition shall have received, the written resignations of each of
the Company's and Subsidiary's directors and the written resignation of each
of the Company's officers, effective as of the date of the Closing.
(i) Acquisition shall have received current Phase I and Phase II
environmental assessments of the properties of the Company and subsidiary
satisfactory to it in its sole discretion.
(j) The Directors of the Company shall have executed and delivered to
Acquisition a form of Voting Agreement substantially in the form of Exhibit D
attached hereto.
(k) The Company shall have executed and delivered to Acquisition the
Option Agreement substantially in the form of Exhibit E attached hereto.
(l) The Company shall have delivered to Acquisition audited consolidated
financial statements as of and for the fiscal year ended December 31, 1996,
which financial statement (i) will be prepared in accordance with generally
accepted accounting principles consistently applied, (ii) will fairly reflect
the respective financial positions of the Company and the Subsidiary, as of
such date, and the respective results of operation of the Company and the
Subsidiary, for the period then ended on such date, and (iii) reflect in
accordance with generally accepted accounting principles consistently applied,
adequate provisions for, or reserves against, the possible loan losses of the
Company and the Subsidiary, as of such date.
(m) The Company shall have delivered to Acquisition a satisfactory title
policy insuring title to all real property and Acquisition shall have received
a survey or surveys of all real property reasonably satisfactory to
Acquisition.
(n) The Company shall deliver a list, certified by the secretary
thereof, of those loans which have been collected and are considered recovered
pursuant Section 3 of the Escrow Agreement between the Company and Acquisition
dated the date hereof.
(o) The Company shall have received a written opinion from Baxter
Fentriss & Company (the "Fairness Opinion") that the terms of the Merger are
fair to the stockholders of the Company from a financial point of view.
The Company will furnish Acquisition with such other certificates of its
officers or others and such other documents to evidence fulfillment of the
conditions set forth in this Section 6.02 as Acquisition may reasonably
request.
SECTION 6.03 Conditions to the Obligations of the Company under this
Agreement. The obligations of the Company to consummate the Merger shall be
further subject to the satisfaction, at or prior to the Effective Time, of the
following conditions, any one or more of which may be waived by the Company:
(a) Each of the agreements, covenants and obligations of Acquisition
required to be performed by it at or prior to the Closing pursuant to the
terms of this Agreement shall have been duly performed and complied with in
all material respects, and the representations and warranties of Acquisition
contained in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Effective Time as though made
at and as of the Effective Time (except as to any representation or warranty
which specifically relates to an earlier date), and the Company shall have
received a certificate to that effect signed by the president and chief
financial officer of Acquisition.
(b) There shall not have occurred after the date hereof any Material
Adverse Change in the business, operations, properties, prospects, condition
(financial or otherwise), assets, liabilities or reserves of Acquisition.
(c) All action required to be taken by, or on the part of, Acquisition
to authorize the execution, delivery and performance of this Agreement by
Acquisition and the consummation by Acquisition of the transactions
contemplated hereby shall have been duly and validly taken by the Board of
Directors of Acquisition and the Company shall have received certified copies
of the resolutions evidencing such authorizations.
(d) Any and all permits, consents, waivers, clearances, approvals and
authorizations of all third parties and governmental bodies required to be
obtained by Acquisition shall have been obtained by Acquisition which are
necessary in connection with the consummation of the Merger and the other
transactions contemplated hereby.
(e) The Company shall have received an opinion from Bell, Boyd & Lloyd
in form satisfactory to the Company dated the date of the Closing, to the
effect set forth in the forms of opinion delivered to the Company by
Acquisition on the date hereof.
(f) The Company shall have received the Fairness Opinion from Baxter
Fentriss & Company in form satisfactory to its Board of Directors as to the
fairness from a financial point of view to the stockholders of the Company of
the transactions contemplated by this Agreement.
Acquisition will furnish the Company with such certificates of their
officers or others and such other documents to evidence fulfillment of the
conditions set forth in this Section 6.03 as the Company may reasonably
request.
ARTICLE VII
CLOSING
SECTION 7.01 Closing. The closing of the transactions contemplated by
this Agreement shall take place at the offices of Bell, Boyd & Lloyd, 70 West
Madison Street, Suite 3200, Chicago, Illinois 60602, at 10:00 a.m., local
time, on the last business day of the month following the day on which the
latest of the following occur: (i) the date of the stockholders' meeting
referred to in Section 5.10 or (ii) the day on which the last of the
conditions set forth in Article Six is fulfilled or waived, or at such other
time and place and on such other date as Acquisition and the Company shall
agree (the "Closing").
SECTION 7.02 Deliveries at the Closing. Subject to the provisions of
Articles Six and Eight hereof, at the Closing there shall be delivered to
Acquisition and the Company the opinions, certificates and other documents and
instruments to be delivered under Article Six hereof.
SECTION 7.03 Filings at the Closing. Subject to the provisions of
Articles Six and Eight hereof, Acquisition and the Company shall immediately
after the closing cause a certificate of merger to be filed and recorded in
accordance with the provisions of Section 251 of the DGCL, cause an agreement
of merger to be filed and recorded in accordance with the provisions of
Section 1103 of the CCC, and shall take any and all other lawful actions and
do any and all other lawful things necessary to cause the Merger to become
effective.
ARTICLE VIII
TERMINATION AND ABANDONMENT
SECTION 8.01 Termination. This Agreement may be terminated and the
Merger contemplated hereby may be abandoned at any time prior to the Effective
Time, whether before or after approval of the Merger by the stockholders of
the Company:
(a) by mutual consent of the Board of Directors of Acquisition and of
the Company,
(b) by Acquisition:
(i) if (A) the Company shall have withdrawn or modified, in a
manner adverse to Acquisition, its approval or recommendation of this
Agreement or the Merger, (B) the Board of Directors of the Company shall have
formally resolved to do any of the foregoing or (C) upon a written request to
reaffirm the Company's approval or recommendation of this Agreement or the
Merger, the Board of Directors of the Company shall fail to do so within two
business days after such request is made; or
(ii) if the Company fails to perform in any material respect any
of its material obligations under this Agreement and such failure shall not
have been remedied within three business days after receipt by the Company of
notice in writing from Acquisition specifying the nature of such breach and
requesting that it be remedied;
(c) by the Company if Acquisition fails to perform in any material
respect any of its material obligations under this Agreement and such failure
shall not have been remedied within three business days after receipt by
Acquisition of notice in writing from the Company specifying the nature of
such breach and requesting that it be remedied; or
(d) by either Acquisition or the Company:
(i) if a court of competent jurisdiction or governmental, regulatory or
administrative agency or commission shall have issued an order, decree or
ruling or taken any other action (which order, decree or ruling the parties
hereto shall use their best efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated
by this Agreement, and such order, decree, ruling or other action shall have
become final and nonappealable;
(ii) if the Closing has not occurred on or before March 31, 1997
unless due to a delay in regulatory approval, including but not limited to,
the Justice Department, the Federal Reserve Board or the Office of the
Comptroller of the Currency, in which case the Cash Consideration shall be
increased by $0.07 per month for each full month which elapses between March
31, 1997 and the Closing; provided, that the right to terminate this Agreement
and the right to receive the additional Cash Consideration shall not be
available to any party whose material breach of this Agreement has been the
cause of, or resulted in, the failure of the Merger to occur on or before
March 31, 1997; and, provided further, that in no event shall this Agreement
remain in effect if the Closing has not occurred on or before June 30, 1997;
or
(iii) if the Company's stockholders fail to approve the Merger by
the affirmative vote of a majority of the outstanding shares of Company Common
Stock at the meeting held for that purpose.
SECTION 8.02 Procedure and Effect of Termination. In the event of
termination and abandonment of the Merger by the Company or Acquisition or
each of them pursuant to Section 8.01 hereof, written notice thereof shall
forthwith be given to the other and this Agreement shall terminate and the
Merger shall be abandoned, without further action by any of the parties
hereto. If this Agreement is terminated as provided herein:
(a) upon request therefor, each party will redeliver all documents, work
papers and other material of any other party relating to the transactions
contemplated hereby, whether obtained before or after the execution hereof, to
the party furnishing the same; and
(b) No party hereto shall have any liability or further obligation to
any other party to this Agreement, other than for liquidated damages provided
pursuant to Section 5.03 hereof.
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.01 Officers of the Subsidiary After the Effective Time. Upon
the Merger becoming effective, all of the officers and employees of the
Subsidiary shall continue in the same positions except as otherwise expressly
agreed herein.
SECTION 9.02 Investigation: Survival of Warranties. The respective
representations and warranties of Acquisition and the Company contained herein
or in any certificates or other documents delivered prior to or at the Closing
shall not be deemed waived or otherwise affected by any investigation made by
any party hereto. Each and every such representation and warranty shall
expire with, and be terminated and extinguished by, the Merger. This Section
9.02 shall have no effect upon any other obligation of the parties hereto,
whether to be performed before or after the Closing.
SECTION 9.03 Waiver of Compliance: Consents. Any failure of
Acquisition, on the one hand, or the Company, on the other hand, to comply
with any obligation, covenant, agreement or condition contained herein may be
waived in writing by the Company or Acquisition, respectively, but such waiver
or failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. Whenever this Agreement requires
or permits consent by or on behalf of any party hereto, such consent shall be
given in writing in a manner consistent with the requirements for a waiver of
compliance as set forth in this Section 9.03.
SECTION 9.04 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
SECTION 9.05 Brokerage Fees and Commissions. The Company hereby
represents and warrants to Acquisition with respect to the Company, and
Acquisition hereby represents and warrants to the Company with respect to
Acquisition, that no person or entity is entitled to receive from the Company,
on the one hand, or Acquisition, on the other hand, respectively, any
investment banking, brokerage or finder's fee or fees for financial consulting
or advisory services in connection with this Agreement or the transactions
contemplated hereby, except for fees owed Baxter Fentriss & Company which fees
shall be paid by Company and shall not exceed $170,000 and the fees owed Peter
Behr and Dan Hyland which fees shall be paid by Acquisition.
SECTION 9.06 Expenses and Obligations. The parties agree that
Acquisition and the Company shall each be responsible for its own costs and
expenses relating to the negotiation and consummation of this Agreement
whether the transaction is or is not closed; provided, however, that the
Company covenants to Acquisition that only costs which are reasonable and
necessary shall be incurred in connection with the consummation of this
Agreement, including fees for attorneys, accountants or advisors or others;
and provided further that Acquisition shall pay the costs of the Phase I and
Phase II environmental assessments referred to in Section 6.02(i).
SECTION 9.07 Option Agreement. Acquisition and the Company confirm
that the execution and delivery of the Option Agreement (referred to in
Section 6.02 (k)) constitutes a material inducement to them to enter into this
Agreement and that absent the execution and delivery of the Option Agreement
they would not enter into this Agreement on the terms and subject to the
conditions contained herein.
SECTION 9.08 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 9.09 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, by
telegram or telex or by facsimile transmission (upon receipt of confirmation
of delivery thereof) or two business days after mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Acquisition, or to the Company after the Effective Time, to:
TRP Acquisition Corp.
803 Burr Ridge Club Drive
Burr Ridge, Illinois 60521
Attention: Denis Daly
Telecopy: (630) 789-0439
with a copy to: Bell, Boyd & Lloyd
Suite 3200
70 West Madison Street
Chicago, Illinois 60602
Attention: James F. X. Fahy
Telecopy: (312) 372-2098
(b) if to the Company prior to the Effective Time, to:
Trans Pacific Bancorp
44 Second Street
San Francisco, California 94105
Attention: Eddy S.F. Chan
Telecopy:
with a copy to: Nossaman, Guthner, Knox & Elliott
50 California, 34th Floor
San Francisco, California 94111
Attention: Stanley S. Taylor
Telecopy: (415) 398-2438
SECTION 9.10 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without
regard to the conflicts-of-laws rules thereof.
SECTION 9.11 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
SECTION 9.12 Headings. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties, and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.13 Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" means a person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common control
with, another person; and
(b) "person" shall mean an individual, corporation, partnership,
association, trust, unincorporated organization or, as applicable, any other
entity; and
(c) "Material Adverse Change" or "Material Adverse Effect" shall mean
any change in or effect on the business, operations, prospects, properties,
assets or liabilities of the Company and the Subsidiary taken as a whole or of
the Subsidiary taken individually on one hand, or Acquisition on the other
hand, as applicable, that would be materially adverse to the business,
operations, properties, prospects, condition (financial or otherwise), assets
or liabilities of the Company and the Subsidiary taken as a whole or of the
Subsidiary taken individually on one hand, or Acquisition on the other hand,
respectively.
SECTION 9.l4 Specific Performance. The parties hereto agree that, if
for any reason any party hereto shall have failed to perform its obligations
under this Agreement, then any other party hereto seeking to enforce this
Agreement against such non-performing party shall be entitled to specific
performance and injunctive and other equitable relief. This provision is
without prejudice to any other rights that any party hereto may have against
any other party hereto for any failure to perform its obligations under this
Agreement.
SECTION 9.15 Entire Agreement: Assignment. This Agreement, including
the exhibits hereto and the documents and instruments referred to herein
embody the entire agreement and understanding of the parties hereto in respect
of the subject matter contained herein or therein. There are no agreements,
restrictions, promises, representations, warranties, covenants or undertakings
other than those expressly set forth or referred to herein or therein. This
Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter. This Agreement shall not be
assigned by operation of law or otherwise, except that it may be assigned
(other than the obligations in Article Two) by Acquisition to one or more of
its wholly-owned subsidiaries which agree in writing to be bound by the
provisions hereof, provided that Acquisition remains obligated under this
Agreement.
SECTION 9.16 Amendment and Modification. This Agreement may be amended
by the Company and Acquisition at any time before or after the adoption of
this Agreement by the stockholders of the Company, but after any such
approval, no amendment shall be made which reduces the amount of the Merger
Consideration or which adversely affects the Company's stockholders hereunder
without the approval of such stockholders (other than one which eliminates any
or all of the Escrow Fund, prior to closing, in exchange for an increase in
the Cash Consideration, to the extent permitted by law). Any such amendment
must be accomplished by an instrument in writing signed on behalf of all the
parties.
SECTION 9.17 Arbitration. Any dispute arising out of or in connection
with the liquidated damages provisions of Section 5.03, including any question
regarding its interpretation or validity, shall be referred to and
definitively resolved by binding arbitration pursuant to the California Code
of Civil Procedures Section 1280, et. seq., and in accordance with the
commercial arbitration procedures of the American Arbitration Association,
which procedures are deemed to be incorporated by reference into this Section
9.17. Discovery may be obtained by any party in accordance with the
California Code of Civil Procedure Section 1283.05. The place of arbitration
shall be San Francisco, California. The Judgment of the arbitration tribunal
shall be accompanied by a written statement of the basis for such judgment and
may be enforced by any court having proper jurisdiction. The provisions of
this Section 9.17 shall survive the termination of this Agreement.
* * * SIGNATURES ON FOLLOWING PAGE * * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
TRP ACQUISITION CORP., a Delaware
corporation
By: /s/ Denis Daly, Sr.
Name:
Title: President
TRANS PACIFIC BANCORP, a California
corporation
By: /s/ Eddy S. F. Chan
Name:
Title: President
CERTIFICATE OF MERGER
OF
TRP ACQUISITION, CORP.
AND
TRANS PACIFIC BANCORP
It is hereby certified that:
1. The constituent business corporations participating in the merger are:
(i) TRP Acquisition, Corp., which is incorporated under the laws of the
State of Delaware; and
(ii) Trans Pacific Bancorp which is incorporated under the laws of the
State of California.
2. An agreement and plan of merger has been approved, adopted, certified,
executed, and acknowledged by each of the constituent corporations in
accordance with the provisions of subsection (c) of Section 252 of the
Delaware General Corporation Law.
3. The name of the surviving corporation in the merger is Trans Pacific
Bancorp which will continue its existence under its present name upon the
effective date of the merger pursuant to the provisions of the California
Corporation Code.
4. The Articles of Incorporation of the Trans Pacific Bancorp will be the
articles of incorporation of the surviving corporation until amended and
changed in accordance with the provisions of the California Corporation Code.
5. The executed agreement and plan of merger between the constituent
corporations is on file at the principal place of business of the surviving
corporation, the address of which is as follows:
Trans Pacific Bancorp
44 Second Street
San Francisco, CA 94105
6. The surviving corporation will furnish a copy of the agreement and plan of
merger, on request and without cost, to any stockholder of the constituent
corporations.
7. Trans Pacific Bancorp agrees that it may be served with process in the
State of Delaware in any proceeding for enforcement of any obligation of any
constituent corporation of the State of Delaware, as well as for enforcement
of any obligation of the surviving or resulting corporation arising from the
merger or consolidation, including any suit or other proceeding to enforce
the right of any stockholders as determined in appraisal proceedings pursuant to
the provisions of 262 of the Delaware General Corporation Law, and irrevocably
appoints the Secretary of State as its agent to accept service of process in any
suit or other proceedings and specifies that its address to which a copy of such
process shall be mailed by the Secretary of State of Delaware is: Trans Pacific
Bancorp, 44 Second Street, San Francisco, CA 94105.
Dated: March __, 1997.
TRP ACQUISITION, CORP., a Delaware
corporation
By:
Denis J. Daly, Sr.
President
Dated: March __, 1997.
TRANS PACIFIC BANCORP, a California
corporation
By:
Eddy S.F. Chan
President
AGREEMENT OF MERGER
OF
TRP ACQUISITION CORP
(a Delaware corporation)
AND
TRANS PACIFIC BANCORP
(a California corporation)
THIS AGREEMENT OF MERGER is made and entered into as of this ___th day
of March, 1997, by and between TRP ACQUISITION CORP, a Delaware corporation
("Acquisition"), and TRANS PACIFIC BANCORP, a California corporation (the
"Company").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors and shareholders of
Acquisition and the Company have approved as desirable and in the best
interests of each corporation that Acquisition be merged with and into the
Company by a statutory merger upon the terms and conditions hereinafter set
forth.
NOW, THEREFORE IT IS AGREED AS FOLLOWS:
FIRST: Acquisition shall be merged with and into the Company by a
statutory merger (the "Merger") in accordance with the General Corporation Law
of California and on the terms and conditions hereinafter expressed. At the
Effective Time of the Merger (as hereinafter defined), the separate existence
of Acquisition shall cease and the Company shall be the surviving corporation
(the "Surviving Corporation").
SECOND: The Merger shall be effective (the "Effective Time") as of
March 14, 1997 or on such day and at such time as soon as possible thereafter
on which this Agreement of Merger and appropriate certificates of its approval
and adoption shall have been filed with the Secretary of State of the State of
California in accordance with Section 1103 of the General Corporation Law of
the State of California.
THIRD: The manner of converting the shares of the capital stock of
Acquisition upon the Merger shall, by virtue of the Merger and without any
action on the part of the holders thereof, be as follows:
(a) Each share of common stock, no par value per share, of the Company
(the "Company Common Stock") issued and outstanding immediately prior to the
Effective Time (except for shares of Company Common Stock then owned
beneficially or of record by Acquisition, shares held by any subsidiary of the
Company and any shares which are dissenting shares shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive $8.00 in cash, plus an amount equal to (i) the
Escrow Reduction Amount (as hereinafter defined), divided by (ii) the sum of
(x) the total number of shares issued and outstanding immediately prior to the
Closing and (z) the number of options outstanding, payable to the holder
thereof, without interest thereon, upon surrender of the certificate
representing such share, and such holder's pro rata share of the Escrow Fund
(as hereinafter defined), if any, payable to stockholders of the Company
pursuant to the terms of the Escrow Agreement between the Company and
Acquisition, dated as of October 18, 1996 (the "Escrow Agreement").
(b) Each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time which is then owned beneficially or of record by
Acquisition shall, by virtue of the Merger and without any action on the
part of the holder thereof, be canceled and retired and cease to exist,
without any conversion thereof.
(c) Each share of Company Common Stock held by any subsidiary of the
Company immediately prior to the Effective Time shall, by virtue of the
Merger, be canceled and retired and cease to exist, without any conversion
thereof.
(d) Each share of common stock of Acquisition issued and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into one share of the common stock of the Surviving Corporation.
(e) At the Effective Time, Acquisition shall deposit in trust with the
Escrow Agent (as defined in the Escrow Agreement) cash in an amount equal to
$740,626, less the amount by which the escrow deposit may be reduced pursuant
to the provisions of the Escrow Agreement between the date hereof and the
Closing (the "Escrow Reduction Amount"). The $740,626 less the Escrow
Reduction Amount (the "Escrow Fund") shall be divided into two separate funds
pursuant to the Escrow Agreement. Trans Pacific National Bank, a wholly owned
subsidiary of the Company, as escrow agent, will administer the Escrow Fund
and release, in cash, portions of the Escrow Fund promptly as such amounts
become payable pursuant to the terms of the Escrow Agreement.
(f) If the Closing has not occurred on or before March 31, 1997 unless
due to a delay in regulatory approval, including but not limited to, the
Justice Department, the Federal Reserve Board or the Office of the Comptroller
of the Currency, in which case the Cash Consideration shall be increased by
$0.07 per month for each full month which elapses between March 31, 1997 and
the Closing; provided, that the right to terminate this Agreement and the
right to receive the additional Cash Consideration shall not be available to
any party whose material breach of this Agreement has been the cause of, or
resulted in, the failure of the Merger to occur on or before March 31, 1997.
FOURTH: At the Effective Time of the Merger, the Articles of Incorporation of
the Surviving Corporation shall be amended in its entirety to read in full as
set forth on Exhibit A attached hereto and made a part hereof.
FIFTH: Denis J. Daly, Sr, John H. Daly and James F.X. Fahy shall be the
directors of the Surviving Corporation, each of whom shall serve until his
death, resignation, removal, or until his successor shall be elected in
accordance with law and the Articles of Incorporation and By-Laws of the
Surviving Corporation.
SIXTH: The shareholders of the Company have approved this Agreement of
Merger in accordance with the General Corporation Law of the State of
California.
SEVENTH: Prior to the filing of this Agreement of Merger with the
Secretary of State of the State of California, this Agreement of Merger may be
terminated by the agreement of the Boards of Directors of Acquisition and the
Company notwithstanding approval of this Agreement of Merger by the
shareholders of the Company.
* * * SIGNATURE ON FOLLOWING PAGE * * *
IN WITNESS WHEREOF, Acquisition and the Company pursuant to the approval
and authority duly given by resolutions adopted by their respective Boards of
Directors, have caused these presents to be executed by the Chairman of the
Board, President or Vice-President and by the Assistant Secretary or Secretary
of each party hereto.
TRP ACQUISITION CORP.
By
President
By
Secretary
TRANS PACIFIC BANCORP
By
President
By
Secretary
CERTIFICATE OF APPROVAL OF
AGREEMENT OF MERGER
The undersigned hereby certify as follows:
(1) They are the President and Secretary, respectively, of TRP Acquisition
Corp., a Delaware corporation ("Acquisition").
(2) The Agreement of Merger in the form attached was duly approved by the
board of directors of Acquisition.
(3) The shareholder approval of the principal terms of the Agreement of Merger
in the form attached was by unanimous written consent of the shareholders held
on due notice, by the holders of the outstanding shares of Acquisition having
an aggregate number of votes which exceed the number of votes required for
approval of the Agreement of Merger.
(4) Acquisition has outstanding only one class of common stock, $0.01 par
value, and the number of shares outstanding is 2,000, all of which were entitled
to vote on the Agreement of Merger. Such class is the only class of acquisition
stock entitled to vote on the Agreement of Merger. The percentage vote of such
shareholders required to approve such Agreement of Merger is 50% plus one vote.
President
Secretary
The undersigned declare under penalty of perjury that the matters
set forth in the foregoing certificate are true of their own knowledge.
Executed in the City of Chicago, County of Cook on __________,
199__.
President
Secretary
CERTIFICATE OF APPROVAL OF
AGREEMENT OF MERGER
The undersigned hereby certify as follows:
(1) They are the President and Secretary, respectively, of Trans Pacific
Bancorp, a California corporation (the "Company").
(2) The Agreement of Merger in the form attached was duly approved by the board
of directors of the Company.
(3) The shareholder approval of the principal terms of the Agreement of Merger
in the form attached was by a meeting of the shareholders held on due notice,
by the holders of the outstanding shares of the Company having an aggregate
number of votes which exceed the number of votes required for approval of the
Agreement of Merger.
(4) The Company has outstanding only one class of common stock, no par value,
and the number of shares outstanding is 1,120,195, all of which were entitled
to vote on the Agreement of Merger. Such class is the only class of Company
stock entitled to vote on the Agreement of Merger. The percentage vote of such
shareholders required to approve such Agreement of Merger is 50% plus one vote.
President
Secretary
The undersigned declare under penalty of perjury that the matters
set forth in the foregoing certificate are true of their own knowledge.
Executed in the City of San Francisco, County of San Francisco on
__________, 199__.
President
Secretary
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made this 18th day of
October, 1996, by and among Trans Pacific Bancorp, a California corporation
(the "Company"), TRP Acquisition Corp., a Delaware corporation
("Acquisition"), and Trans Pacific National Bank, as escrow agent (the "Escrow
Agent" or "Bank").
Recitals
WHEREAS the Company and Acquisition have entered into an Agreement and
Plan of Merger dated the same date hereof (the "Merger Agreement"). A copy of
the Merger Agreement is attached as Exhibit A, and is incorporated by this
reference into, and thereby made a part of this Agreement.
WHEREAS pursuant to the Merger Agreement Acquisition shall be merged
with and into the Company on the date of the Closing. Following the merger,
the separate existence of Acquisition shall cease, and the Company shall
continue as the Surviving Corporation in the Merger.
WHEREAS pursuant to the terms of the Merger Agreement each share of
Company Common Stock issued and outstanding immediately prior to the Effective
Time (except for shares of Company Common Stock then owned beneficially or of
record by Acquisition, shares held in the Company's treasury or by any
subsidiary of the Company and any shares which are Dissenting Shares) shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be converted into the right to receive the Cash Consideration and the
Escrow Consideration (as hereinafter defined).
Covenants
In consideration of the mutual representations, warranties and covenants
and subject to the conditions herein contained, the parties hereto agree as
follows:
SECTION 1 Preamble; Recitals. The Preamble and Recitals set forth
above are hereby incorporated in and made a part of this Agreement.
SECTION 2 Definitions. Capitalized terms used in this Agreement,
unless otherwise defined, shall have the same meaning as in the Merger
Agreement.
SECTION 3 Establishment of Escrow; Escrow Fund. (a) At the Effective
Time, Acquisition shall deposit in trust with the Escrow Agent cash in an
amount equal to the sum of (i) $300,000 ("Fund A") and (ii) $440,626 less any
and all Recoveries as defined in subsection (b) of this Section 3 below ("Fund
B"), and any such reduction shall increase the consideration received by those
holders of Company Common Stock immediately prior to the Closing pursuant to
Section 2.01 of the Merger Agreement and the Option Holders pursuant to
Section 2.05 of the Merger Agreement. The funds held in trust and available
for the purposes hereinafter described (collectively the "Escrow Funds" or the
"Escrow Consideration") shall consist of the initial amounts in cash deposited
with the Escrow Agent by Acquisition, plus the income earned thereon net of
the tax effect at an effective Federal and State tax rate of 39 percent (the
"Tax Effect") less the amount of (i) any payment from the Escrow Funds made
pursuant to this Agreement and (ii) any investment losses net of the Tax
Effect.
(b) Recoveries shall equal the sum of (i) the aggregate gross amount of
loans collected or recovered by the Bank from July 31, 1996 until the Closing,
net of the Tax Effect, for those loans previously charged off on the books and
records of the Bank and listed on Exhibit B, attached hereto, and (ii) any
principal payments, net of a 39% reduction, made to the Bank, from the date
hereof until the Closing, on any or all of the loans identified on Exhibit C,
attached hereto.
SECTION 4 Investment of and Accounting for Escrow Funds. The Escrow
Agent shall hold and maintain Escrow Funds A and B in its name as Escrow Agent
under this Agreement. The Escrow Agent shall separately invest and reinvest
the Escrow Funds A and B in its sole discretion in any one or more of the
following:
(i) Marketable obligations of or guaranteed by the United States of
America, or
(ii) A savings account in, or certificates of deposit or banker's
acceptances issued by, any national bank including the Escrow
Agent.
The maturity date of any investment shall not extend beyond 60 days from the
date of the investment.
SECTION 5 Events Giving Rise to Escrow Payments and Payments to
Acquisition. (a) Upon the complete resolution of the status of Account
numbered 01-212456 on the books of the bank on the date hereof (the
"Account"), whether by litigation, settlement or otherwise, the Escrow Agent
shall pay out of Escrow Fund A to Acquisition or its assignees an amount equal
to (i) any judgment, settlement or award assessed against or any other
liability charged to the Subsidiary relating to the Account net of the Tax
Effect and (ii) any costs which Acquisition or the Subsidiary shall have
reasonably incurred in the resolution or settlement of the above matter, such
cost shall include, but are not limited to, reasonable legal, accounting,
investigative support, and other fees and expenses net of the Tax Effect.
Upon such resolution the Escrow Agent shall pay to the Former Stockholders and
Option Holders, pursuant to Section 6, Escrow Fund A, less those liabilities,
costs, fees and expenses paid to Acquisition pursuant to the forgoing
sentence.
(b) Upon the running of all statute of limitations applicable to any and
all claims related to the Account, the Escrow Agent shall pay out of Escrow
Fund A to Acquisition or its assignees an amount equal to (i) any judgment,
settlement or award assessed against or any other liability charged to the
Subsidiary relating to the Account net of the Tax Effect and (ii) any costs
which Acquisition or the Subsidiary shall have reasonably incurred in the
resolution or settlement of the above matter, such cost shall include, but are
not limited to, reasonable legal, accounting, investigative support, and other
fees and expenses net of the Tax Effect. Upon the running of such statutes of
limitation the Escrow Agent shall pay to the Former Stockholders and Option
Holders, pursuant to Section 6, Escrow Fund A, less those liabilities, costs,
fees and expenses paid to Acquisition pursuant to the forgoing sentence.
(c) Within 30 days after the third anniversary of the Closing, the
Escrow Agent shall pay out of Escrow Fund B to Acquisition or its assignees an
amount equal to (i) gross loan charge-offs -- in excess of (x) the amount
previously reserved as of July 31, 1996, as shown on Exhibit C, and (y) those
payments on associated loan guarantees actually received (with the maximum
amount of such guarantees shown on Exhibit C) -- as recorded on the books and
records of the Bank, during the term of Escrow Fund B, on any or all of the
loans identified on Exhibit C, net of the Tax Effect; less the aggregate gross
amount of loans collected or recovered by the Bank, net of the Tax Effect,
from the Closing until the third anniversary thereof, for those loans
previously charged off on the books and records of the Bank and listed on
Exhibit B, and (ii) all fees, costs and expenses reasonably incurred by
Acquisition or the Subsidiary relating to the collection, recovery, or attempt
thereof, of the loans identified on Exhibit B and C, net of the Tax Effect.
Within 30 days after the third anniversary of the Closing, the Escrow Agent
shall pay to the Former Stockholders and Option Holders, pursuant to Section
6, Escrow Fund B, less those amounts paid to Acquisition pursuant to the
forgoing sentence.
(d) Illustrative examples of calculations have been attached hereto to
assist in the preparation of payment calculations, however the language of
this Agreement shall take precedence over such examples in all circumstances.
SECTION 6 Escrow Payment to Former Stockholders and Option Holders.
(a) Each Escrow Payment shall be payable to the Former Stockholders and the
Option Holders in the following portions:
(i) The Former Stockholders shall receive that portion determined by
multiplying the Escrow Payment by a fraction the numerator of
which is (A) number of shares of Company Common Stock owned by all
the Former Stockholders ("Number of Shares") and the denominator
of which is (B) the Number of Shares plus the sum of all the
Number of Options held by all the Option Holders (the "Former
Stockholders Sum");
(ii) The Option Holders shall receive that portion equal to the Escrow
Payment less the Former Stockholders Sum (the "Option Holders Sum").
(b) Upon the occurrence of an event giving rise to an Escrow Payment,
the Escrow Agent shall disburse to each Former Stockholder a pro rata share of
the Former Stockholders Sum determined by multiplying the Former Stockholders
Sum by a fraction the numerator of which is (A) the number of shares of
Company Common Stock owned by the a Former Stockholder and the denominator of
which is (B) the Number of Shares.
(c) Upon the occurrence of an event giving rise to an Escrow Payment,
the Escrow Agent shall disburse to each Option Holder a pro rata share of the
Option Holders Sum determined by multiplying the Option Holders Sum by a
fraction the numerator of which is (A) the Number of Options held by an Option
Holder and the denominator of which is (B) the sum of all the Number of
Options held by all the Option Holders.
SECTION 7 Periodic Reports to Former Stockholders. For so long as any
of the Escrow Funds provided for herein remain in effect, Acquisition shall,
not less than annually, provide a written report to the Former Stockholders
regarding the status of judgments, settlements or awards assessed against the
Bank pursuant to the Account and collections, recoveries, write offs and write
downs of the loans identified on Exhibits B and C hereof. The first such
report shall be due within thirty days after the first anniversary of the
Closing and thereafter within 30 days of any subsequent anniversary. Reports
shall be mailed to each Former Stockholder at the last address of record at
the Bank. Each such report shall be certified by the Chief Financial Officer
and the Senior Lending Officer of the Bank as true and correct in all material
respects. At the written request of Former Stockholders who, in the
aggregate, held a minimum of 20% of the outstanding shares of the Company
Common Stock, the cost of which shall be charged against Escrow Fund B as an
expense of the escrow, Acquisition shall retain an independent loan analyst
not otherwise retained by or affiliated with Acquisition or any affiliate
thereof, to review and report to the Former Stockholders, on the status of the
loans identified on Exhibit B and C, on the efforts of Acquisition and the
Subsidiary to maximize recoveries and collection of such loans, and on the
reasonableness of expenses incurred by Acquisition and the Subsidiary in
connection therewith. No more than one such request need be honored by
Acquisition in any 12 month period.
SECTION 8 Limitations on Liability of Escrow Agent; Indemnification.
(a) The Escrow Agent shall have no responsibility or liability for any
diminution of the Escrow Funds which may result from any investment made
pursuant to Section 3 above.
(b) The Escrow Agent shall not be responsible for the genuineness of
any signature or document presented to it pursuant to this Agreement and may
rely conclusively upon and shall be protected in acting upon any arbitration
or judicial order or decree, certificate, notice, request, consent, statement,
instruction or other instrument believed by it in good faith to be genuine or
to be signed or presented by the proper person hereunder, or duly authorized
by such person or properly made. The Escrow Agent may require such evidence,
documents, certificates or opinions as it deems appropriate.
(c) Before taking any action under this Agreement if in doubt regarding
its obligations, the Escrow Agent may file an appropriate action with, and
seek instruction from, an arbitrator or any court of competent jurisdiction in
the State of California (the "Court") in accordance with the terms and
provisions of this Agreement.
(d) The Escrow Agent may retain counsel and act in reliance upon the
advice of such counsel in all matters pertaining to this Agreement and shall
not be liable for any action taken or omitted by it in good faith in
accordance with such advice.
(e) The duties and obligations of the Escrow Agent under this Agreement
shall be governed solely by the provisions of this Agreement. The Escrowee
shall have no duties other than the duties expressly imposed upon it in this
Agreement and shall not be required to take any action other than in
accordance with the terms hereof.
(f) In the event of any controversy or dispute under this Agreement or
with respect to any question as to the construction of this Agreement, or any
action to be taken by the Escrow Agent hereunder, the Escrow Agent shall incur
no liability for any action taken or suffered in good faith. The Escrow Agent
shall be liable only for gross negligence or willful misconduct on its part.
(g) The parties hereto jointly and severally shall forever indemnify,
defend and hold harmless the Escrowee from and against any costs, losses,
expenses (including reasonable attorneys' fees), damages, liabilities and
judgments incurred by the Escrow Agent as a consequence of any action taken or
omitted to be taken by it in the performance of its obligations under this
Agreement, with the exception of any costs, losses, expenses, liabilities and
damages arising from the Escrow Agent's gross negligence or willful
misconduct.
SECTION 9 Fees and Expenses of Escrowee. The Escrow Agent's fees shall
be paid by the Surviving Corporation. The expense of an audit or review
requested by the Former Stockholders, pursuant to Section 7, shall be paid for
out of Escrow Fund B.
SECTION 10 Notices and Communications. Any notice or other
communication under this Agreement shall be in writing or by written
telecommunication. A notice or other communication to a party shall be deemed
to have been duly given or made on the earlier of (a) the date of receipt or
(b) 4 business days after the date posted by registered or certified mail,
return receipt requested, in any post office in the United States of America,
postage prepaid, and addressed to the party at the address set forth in
Section 9.08 of the Merger Agreement or at such other address as such party
shall designate by written notice to the other parties.
SECTION 11 Term; Amendments; Successors. This Agreement shall continue
until the date on which all of the Escrow Funds have been distributed as
provided in Sections 5 and 6 hereof. This Agreement may be amended only in
writing by an instrument signed by all parties and shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns.
SECTION 12 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same instrument. In making proof of
this Agreement it shall be necessary to produce or account for only one such
counterpart signed by or on behalf of the party sought to be charged herewith.
SECTION 13 Entire Agreement. This Agreement contains the entire
agreement and understanding of the parties with respect to the transactions
contemplated hereby. No prior agreement, either written or oral, shall be
construed to change, amend, alter, repeal or invalidate this Agreement.
SECTION 14 Best Efforts. Acquisition and the Subsidiary agree to use
their best efforts, consistent with reasonable and fiscally prudent collection
practices, to collect the maximum feasible amount of the loans identified in
Exhibit C and to maximize the amount of recoveries on the loans identified in
Exhibit B.
SECTION 15 Intended Beneficiaries. This Agreement is intended to be for
the primary benefit of the Former Stockholders, and it is expressly
acknowledged and agreed by the parties hereto that its provisions may be
enforced by such Former Stockholders, or any one or more of them, in
accordance with its provisions.
SECTION 16 Miscellaneous. (a) The headings set forth in this
Agreement are for convenience of reference only and do not, and shall not be
construed to, limit or otherwise define the terms or provisions of this
Agreement or otherwise have any substantive effect.
(b) As used in this Agreement, where appropriate, the singular shall
include the plural, and the masculine, the feminine and neuter genders, and
vice versa.
(c) If any term or provision of this Agreement is held to be invalid as
applied to any fact or circumstance, it shall be modified to the minimum
extent necessary to render it valid and in any event shall not affect the
validity of any other term or provision or of the same term or provision as
applied to any other fact or circumstance.
(d) This Agreement is made in, and shall be construed and enforced in
accordance with, the internal (and not the conflicts) laws of the State of
California.
(e) The parties are entering into this Agreement in a spirit of good
faith and shall cooperate with one another in making effective all the terms
and provisions of this Agreement. Before, at and, as the case may be, after
closing each party shall execute, acknowledge and deliver such documents and
take any and all other actions necessary or proper to render all the terms and
provisions of this Agreement effective and to enable the party requesting the
cooperation to exercise and enjoy the rights granted to it in or contemplated
by this Agreement.
(f) No delay or failure (or repeated delays or failures) in exercising
any right, power or privilege under this Agreement shall operate as a waiver
of the right, power or privilege (or of any other right, power or privilege).
No waiver of a breach of a provision shall constitute a waiver of a breach of
any other provision or of a prior or subsequent breach of the same provision.
No extension of time of performance of an act or obligation under this
Agreement shall constitute an extension of time of performance of any other
act or obligation.
* * * SIGNATURES APPEAR ON FOLLOWING PAGE * * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
TRP ACQUISITION CORP., a Delaware
corporation
By: /s/ Denis Daly, Sr.
Name:
Title: President
TRANS PACIFIC BANCORP, a California
corporation
By: /s/ Eddy S. F. Chan
Name:
Title: President
TRANS PACIFIC BANK, N.A., a National
Banking corporation
By:
Name:
Title:
Exhibit A: AGREEMENT AND PLAN OF MERGER is attached above to this Proxy
Statement as Appendix A
Exhibit B
Certain Loans Previously Charged Off on the
Books and Records of the Bank
NET AMOUNT TO BE
RECOVERED AS OF
LOAN NUMBER JULY 31, 1996
1801736-3 22,962
1800469-7 6,186
1901059 4,440
1803475-6 92,818
1804235-9 101,094
1803611-2 106,169
1800180-9 and 10 437,194
Exhibit C
Certain Loans Presently Outstanding on the
Books and Records of the Bank
LOAN LOSS
RESERVES
BALANCED OWED ALLOCATED GUARANTEED
LOAN NUMBER JULY 31, 1996 JULY 31, 1996 PORTION
1800055-14 635,000 (127,847)
1802904-1 200,000 (1,500) 80,000
1804158-2 and 5 289,179 (14,815)
Examples
Illustrative Examples of Escrow
Payment Calculation
Example 1:
Charge-offs (Exhibit C), net of reserves & taxes: $200,000
Recoveries, net of tax (from Exhibit B loans): $200,000
Expenses incurred, net of tax: $50,000
Escrow Payment Calculation:
To Acquisition:
Charge-offs less recoveries plus expenses
$200,000 - $200,000 + $50,000 = $50,000
Payment to Acquisition is $50,000.
To Former Stockholders and Option Holders:
Escrow Fund B less payment to Acquisition
$440,626 +/- any interest income or loss - $50,000 = $390,626 +/-
any interest income or loss
Payment to Former Stockholders and Option Holders is $390,626 +/-
any interest income or loss
Example 2:
Charge-offs (Exhibit C), net of reserves & taxes: $200,000
Recoveries, net of tax (from Exhibit B loans): $250,000
Expenses incurred, net of tax: $75,000
Escrow Payment Calculation:
To Acquisition:
Charge-offs less recoveries plus expenses
$200,000 - $250,000 + $75,000 = $25,000
Payment to Acquisition is $25,000.
To Former Stockholders and Option Holders:
Escrow Fund B less payment to Acquisition
$440,626 +/- any interest income or loss - $25,000 = $415,626 +/-
any interest income or loss -
Payment to Former Stockholders and Option Holders is $415,626 +/-
any interest income or loss
Example 3:
Charge-offs (Exhibit C), net of reserves & taxes: $100,000
Recoveries, net of tax (from Exhibit B loans): $300,000
Expenses incurred, net of taxes: $50,000
Escrow Payment Calculation:
To Acquisition:
Charge-offs less recoveries plus expenses
$100,000 - $300,000 + $50,000 = -$150,000
Payment to Acquisition is $0.
To Former Stockholders and Option Holders:
Escrow Fund B less payment to Acquisition
$440,626 +/- any interest income or loss - - $0 = $440,626 +/- any
interest income or loss -
Payment to Former Stockholders and Option Holders is $440,626 +/-
any interest income or loss
APPENDIX C - VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") dated as of the 18th day of
October, 1996, is by and among TRP Acquisition Corp., an Delaware corporation
("Acquisition") and each of the shareholders and directors of Trans Pacific
Bancorp, a California Corporation (the "Company") who has executed the
signature page attached hereto (individually, the "Shareholder," and
collectively, the "Shareholders").
R E C I T A L S:
WHEREAS, as of the date hereof, there are 1,120,195 shares of voting
stock of the Company, no par value per share (the "Company Common Stock"),
issued and outstanding and each of the Shareholders is the owner of the number
of shares of the Company Common Stock as is set forth opposite such
Shareholder's name on the signature page attached hereto and such number of
shares represents approximately the percentage of the issued and outstanding
shares of the capital stock of the Company which is also set forth thereon
opposite such Shareholder's name;
WHEREAS, Acquisition desires to acquire the Company by means of a merger
(the "Merger") with and into the Company pursuant to an Agreement and Plan of
Merger dated as of the date herewith (the "Merger Agreement");
WHEREAS, Acquisition is unwilling to expend the substantial time, effort
and expense necessary to implement the proposed Merger, including applying for
and obtaining necessary approvals of federal banking authorities, unless each
of the Shareholders enters into this Agreement; and
WHEREAS, each of the Shareholders believes it is in his or her best
interests as well as the best interests of the Company for the Merger to be
consummated.
A G R E E M E N T S:
In consideration of the covenants and agreements of the parties herein
contained and as an inducement to Acquisition to incur the expenses associated
with the Merger, the parties hereto, intending to be legally bound, agree as
follows:
SECTION 1 Representations and Warranties. Each of the Shareholders
represents and warrants that as of the date hereof he or she owns beneficially
and of record the number of shares of the Company Common Stock as is set forth
opposite such Shareholder's name on the signature page of this Agreement, and
that as of the Closing (as defined in the Merger Agreement), all of such
shares will be free and clear of all liens, pledges, security interests,
claims, encumbrances, options and agreements to sell. Each of the
Shareholders represents and warrants that such Shareholder has the sole voting
power with respect to such shares of the Company Common Stock.
SECTION 2 Voting Agreement. Each of the Shareholders hereby agrees to
vote all shares of the Company Common Stock now or at any time hereafter owned
or controlled by him or her (the "Subject Shares") in favor of the Merger
Agreement and the Merger at any meeting of shareholders of the Company called,
or in connection with the solicitation of any written shareholders' consents,
for the purpose of approving the Merger Agreement and the Merger. Each of the
Shareholders further agrees not to vote his or her Subject Shares in favor of
any acquisition of stock or of all or substantially all of the assets of the
Company by any party other than Acquisition or any wholly-owned subsidiary of
Acquisition prior to the termination of this Agreement. Each of the
Shareholders agrees that none of his or her Subject Shares shall be
transferred to a third party transferee unless as a condition of such transfer
the third party transferee shall execute a voting agreement in form acceptable
to Acquisition (and substantially in the form of this Agreement) and such
voting agreement shall be deemed a supplement to this Agreement to which all
shares of the Company Common Stock then or thereafter acquired by the third
party transferee shall be subject. Subject to the Shareholder's fiduciary
duty as a director and as set forth in Section 5.02 of the Merger Agreement,
at Acquisition's request, each of the Shareholders shall use his or her best
efforts to cause any necessary meeting of shareholders of the Company to be
duly called and held or any necessary consents of shareholders to be obtained
for the purpose of approving the Merger Agreement and the Merger.
SECTION 3 No Ownership Interest. Nothing contained in this Agreement
shall be deemed to vest in Acquisition or any of its Affiliates (as such term
is defined in Rule 144 promulgated under the Securities Act of 1933, as
amended) any direct or indirect ownership or incidence of ownership of or with
respect to any shares of the Company Common Stock. All rights, ownership and
economic benefits of and relating to the Subject Shares owned by each of the
Shareholders shall remain and belong to each such Shareholder and neither
Acquisition nor any of its Affiliates shall have any authority pursuant to
this Agreement to manage, direct, superintend, restrict, regulate, govern or
administer any of the policies or operations of the Company or exercise any
power or authority to direct any of the Shareholders in the voting of any of
the shares of the Company Common Stock, except as otherwise expressly provided
herein and in the Merger Agreement, or in the performance of his or her duties
or responsibilities as a shareholder of the Company.
SECTION 4 Amendment and Modification. This Agreement may be amended,
modified or supplemented at any time by written approval of such amendment,
modification or supplement by the Company, Acquisition and the Shareholders.
SECTION 5 Entire Agreement. This Agreement evidences the entire
agreement among the parties with respect to the matters provided for herein,
superseding all prior oral or written agreements or understandings. There
have been and are no promises, restrictions, agreements or understandings
among the parties with respect to the subject matter hereof other than those
set forth herein and in the Merger Agreement and written agreements related
thereto. Except for the Merger Agreement and the other written agreements
contemplated therein, this Agreement supersedes any agreements among any of
the Company, its shareholders, or Acquisition concerning the acquisition,
disposition or control of the Company Common Stock.
SECTION 6 Remedies. Each of the Shareholders understands and
acknowledges that if he or she should breach any of his or her covenants
contained in this Agreement, the damage to Acquisition would be indeterminable
in view of the inability to measure the ultimate value and benefit to
Acquisition resulting from its contemplated future ownership and control of
the Company, and that Acquisition therefore would not have an adequate remedy
at law in respect of any such breach. Each of the Shareholders therefore
agrees that in addition to any other remedy available to Acquisition at law or
in equity, Acquisition shall be entitled to specific performance of this
Agreement by such Shareholder upon application to any court having
jurisdiction over the parties.
SECTION 7 Severability. If any provision of this Agreement shall be
deemed invalid or inoperative, or in the event a court of competent
jurisdiction determines that any of the provisions of this Agreement
contravene public policy in any way, this Agreement shall be construed so that
the remaining provisions shall not be affected, but shall remain in full force
and effect, and any such provisions which are invalid or inoperative or which
contravene public policy shall be deemed, without further action or deed on
the part of any person, to be modified, amended and/or limited, but only to
the extent necessary to render the same valid and enforceable.
SECTION 8 Successors; Assignment. This Agreement shall be binding upon
and inure to the benefit of the Company and Acquisition, and their successors
and permitted assigns, and each of the Shareholders and such Shareholder's
spouse and their respective executors, personal representatives,
administrators, heirs, legatees, guardians and other legal representatives.
This Agreement shall survive the death or incapacity of any Shareholder. This
Agreement may be assigned only by Acquisition, and then only to an Affiliate
of Acquisition. Nothing in this Agreement, expressed or implied, is intended
to confer upon any person other than a party to this Agreement any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 9 Waiver of Compliance; Consents. Any failure of Acquisition
on the one hand, or the Shareholders, on the other hand, to comply with any
obligation, covenant, agreement or condition herein may be waived in writing
by the party entitled to the performance of such obligation, but such waiver
or failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. Whenever this Agreement requires
or permits consent by or on behalf of any party hereto, such consent shall be
given in writing in a manner consistent with the requirements for a waiver of
compliance as set forth above.
SECTION 10 Headings; Counterparts. The headings in this Agreement are
for convenience only and shall not be considered a part of or affect the
meaning, construction or interpretation of any provision of this Agreement.
This Agreement may be executed in several counterparts each of which shall be
deemed an original and shall bind the signatory, but all of which together
shall constitute but one and the same instrument.
SECTION 11 Governing Law. The validity, construction, enforcement and
effect of this Agreement shall be governed by the internal laws of the State
of California.
SECTION 12 Termination. Notwithstanding any other provision of this
Agreement, this Agreement shall automatically terminate on the earlier of:
(a) the date of termination of the Merger Agreement as set forth in Article 8
thereof, as such termination provisions may be amended by the Company and
Acquisition from time to time; or (b) the Effective Time, as defined in the
Merger Agreement.
* * * SIGNATURES ON FOLLOWING PAGE * *
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TRP ACQUISITION CORP., a Delaware
corporation
By: /s/ Denis Daly, Sr.
Name:
Title: President
***SIGNATURES OF SHAREHOLDERS APPEARS ON FOLLOWING PAGES***
PERCENTAGE
SHAREHOLDER SHARES OWNED OWNERSHIP
52,083 4.65%
(Signature)
James A. Babcock
(Typed or Printed Name)
27,483 2.45%
(Signature)
Eddy S.F. Chan
(Typed or Printed Name)
23,333 2.08%
(Signature)
Frankie G. Lee
(Typed or Printed Name)
21,833 1.95%
(Signature)
John K. Lee
(Typed or Printed Name)
21,333 1.90%
(Signature)
Masayuki Nakahira
(Typed or Printed Name)
19,183 1.71%
(Signature)
John T. Stewart
(Typed or Printed Name)
25,343 2.26%
(Signature)
Simon S. Teng
(Typed or Printed Name)
PERCENTAGE
SHAREHOLDER SHARES OWNED OWNERSHIP
21,333 1.90%
(Signature)
Frank K. W. Wong
(Typed or Printed Name)
32,133 2.87%
(Signature)
John K. Wong
(Typed or Printed Name)
APPENDIX D - OPTION AGREEMENT
THE TRANSFER OF THE OPTION GRANTED
BY THIS AGREEMENT IS SUBJECT TO RESALE RESTRICTIONS
OPTION AGREEMENT, dated as of October 18, 1996 (the "Agreement"),
between TRANS PACIFIC BANCORP., a California corporation ("Issuer"), and TRP
ACQUISITION CORP., a Delaware corporation ("Grantee").
WITNESSETH:
WHEREAS, Issuer and Grantee have entered into a Merger Agreement, dated
as of October 18, 1996 (the "Merger Agreement"), which was executed by the
parties hereto prior to the execution of this Agreement; and
WHEREAS, as a condition and inducement to Grantee's entering into the
Merger Agreement and in consideration therefor, Issuer has agreed to grant
Grantee the Option (as defined below).
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
SECTION 1. Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to 222,919 fully paid and non-assessable shares of common stock, no par value
per share of Issuer ("Issuer Common Stock") (which number of shares is equal
to 19.9% of the number of outstanding shares of Issuer Common Stock on the
date hereof), at a price of $8.00 per share (the "Initial Price"); PROVIDED,
HOWEVER, that in the event Issuer issues or agrees to issue any additional
shares of Issuer Common Stock at a price less than the Initial Price (other
than up to 103,750 shares pursuant to existing stock options), as adjusted
pursuant to Section 5(b) hereof, such price shall be equal to such lesser
price (such price, as adjusted, is hereinafter referred to as the "Option
Price"). The number of shares of Issuer Common Stock that may be received
upon the exercise of the Option and the Option Price are subject to adjustment
as herein set forth.
SECTION 2. (a) Grantee may exercise the Option, in whole or part, at
any time and from time to time following the occurrence of a Purchase Event
(as defined below); PROVIDED that the Option shall terminate and be of no
further force and effect upon the earliest to occur of (i) the time
immediately prior to the effective time of the Merger pursuant to Section 1.05
of the Merger Agreement, (ii) 12 months after the first occurrence of a
Purchase Event, (iii) upon the termination of the Merger Agreement in
accordance with the terms thereof prior to the occurrence of a Purchase Event
(other than a termination of the Merger Agreement by Grantee pursuant to
Sections 8.01(b) thereof), or (iv) 12 months after the termination of the
Merger Agreement by Grantee pursuant to Sections 8.01(b) thereof as a result
of any material breach of the Merger Agreement by Issuer. The events
described in clauses (i) - (iv) in the preceding sentence are hereinafter
collectively referred to as an "Exercise Termination Event."
(b) The term "Purchase Event" shall mean any of the following events
or transactions occurring on or after the date hereof and prior to an Exercise
Termination Event, and which are not in violation of Issuer's articles of
incorporation:
(i) Issuer without having received Grantee's prior written
consent, shall have entered into any letter of intent or definitive
agreement to engage in an Acquisition Transaction (as defined below)
with any person (as defined below) other than Grantee or any of its
subsidiaries (each a "Grantee Subsidiary") or the Board of Directors of
Issuer shall have recommended that the stockholders of Issuer approve or
accept any Acquisition Transaction with any Person (as the term "person"
is defined in Section 3(a)9 and 13(d)(3) of the Securities Exchange Act
of 1934 (the "Exchange Act") and the rules and regulations thereunder)
other than Grantee or any Grantee Subsidiary. For purposes of this
Agreement, "Acquisition Transaction" shall mean (x) a merger,
consolidation or other business combination involving Issuer or
Subsidiary (as defined in the Merger Agreement), (y) a purchase, lease
or other acquisition of more than 25% of the consolidated assets of
Issuer and Subsidiary, in a single transaction or series of
transactions, or (z) a purchase or other acquisition (including by way
of merger, consolidation, share exchange or otherwise) of Beneficial
Ownership (as the term "beneficial ownership" is defined in Regulation
13d-3(a) of the Exchange Act, except that for purposes of this Agreement
such term shall not include voting stock held by a reporting person
meeting the requirements for a filing under Schedule 13G of the Exchange
Act) of securities representing 20% or more of the voting power of
Issuer or Subsidiary;
(ii) Any Person (other than Grantee or any Grantee Subsidiary)
shall have acquired Beneficial Ownership of 20% or more of the
outstanding shares of Issuer Common Stock or the voting stock of
Subsidiary ("Bank Stock");
(iii) Any Person (other than Grantee or any Grantee Subsidiary)
shall have made a BONA FIDE proposal to Issuer or, by a public
announcement or written communication that is or becomes the subject of
public disclosure, to Issuer's stockholders to engage in an Acquisition
Transaction (including, without limitation, any situation in which any
Person other than Grantee or any Grantee Subsidiary shall have commenced
(as such term is defined in Rule 14d-2 under the Exchange Act), or shall
have made a filing under applicable securities laws, with respect to a
tender offer or exchange offer to purchase any shares of Issuer Common
Stock such that, upon consummation of such offer, such person would have
Beneficial Ownership of 20% or more of the then outstanding shares of
Issuer Common Stock (such an offer being referred to herein as a "Tender
Offer" or an "Exchange Offer", respectively));
(iv) The meeting of the holders of Issuer Common Stock for the
purpose of voting on the Merger Agreement, shall not have been held or
shall have been canceled prior to termination of the Merger Agreement,
or Issuer's Board of Directors shall have withdrawn or modified in a
manner adverse to Grantee the recommendation of Issuer's Board of
Directors that Issuer's stockholders approve the Merger Agreement; or
(v) Any Person (other than Grantee or any Grantee Subsidiary)
shall have filed an application or notice in draft or final form with
the Office of the Comptroller of the Currency ("OCC"), or the Board of
Governors of The Federal Reserve System ("FRB") for approval to engage
in an Acquisition Transaction.
(c) Issuer shall notify Grantee promptly in writing of the occurrence
of any Purchase Event; PROVIDED, HOWEVER, that the giving of such notice by
Issuer shall not be a condition to the right of Grantee to exercise the
Option.
(d) In the event that Grantee is entitled to and wishes to exercise
the Option, it shall send to Issuer a written notice (the "Option Notice" and
the date of which being hereinafter referred to as the "Notice Date")
specifying (i) the total number of shares of Issuer Common Stock it will
purchase pursuant to such exercise and (ii) the time (which shall be on a
business day that is not less than three nor more than ten business days from
the Notice Date) on which the closing of such purchase shall take place (the
"Closing Date"); such closing to take place at the principal office of the
Issuer; PROVIDED, THAT, if prior notification to or approval of the OCC, the
FRB, the Federal Deposit Insurance Corporation ("FDIC") or any other
Governmental Authority is required in connection with such purchase (each, a
"Notification" or an "Approval," as the case may be), (a) Grantee shall
promptly file the required notice or application for approval
("Notice/Application"), (b) Grantee shall expeditiously process the
Notice/Application and (c) for the purpose of determining the Closing Date
pursuant to clause (ii) of this sentence, the period of time that otherwise
would run from the Notice Date shall instead run from the later of (x) in
connection with any Notification, the date on which any required notification
periods have expired or been terminated and (y) in connection with any
Approval, the date on which such approval has been obtained and any requisite
waiting period or periods shall have expired. For purposes of Section 2(a)
hereof, any exercise of the Option shall be deemed to occur on the Notice Date
relating thereto. On or prior to the Closing Date, Grantee shall have the
right to revoke its exercise of the Option by written notice to the Issuer
given not less than three business days prior to the Closing Date.
(e) At the closing referred to in Section 2(d) hereof, Grantee shall
pay to Issuer the aggregate purchase price for the number of shares of Issuer
Common Stock specified in the Option Notice in immediately available funds by
wire transfer to a bank account designated by Issuer; PROVIDED, HOWEVER, that
failure or refusal of Issuer to designate such a bank account shall not
preclude Grantee from exercising the Option.
(f) At such closing, simultaneously with the delivery of immediately
available funds as provided in Section 2(e) hereof, Issuer shall deliver to
Grantee a certificate or certificates representing the number of shares of
Issuer Common Stock specified in the Option Notice and, if the Option should
be exercised in part only, a new Option evidencing the rights of Grantee
thereof to purchase the balance of the shares of Issuer Common Stock
purchasable hereunder.
(g) Certificates for Issuer Common Stock delivered at a closing
hereunder shall be endorsed with a restrictive legend substantially as
follows:
The transfer of the shares represented by this certificate
is subject to resale restrictions arising under applicable federal
and state securities laws and to certain provisions of a Merger
Agreement by and between Trans Pacific Bancorp and TRP Acquisition
Corp. dated as of October 18, 1996. A copy of such agreement is
on file at the principal office of Trans Pacific Bancorp and will
be provided to the holder hereof without charge upon receipt by
Trans Pacific Bancorp of a written request therefor.
It is understood and agreed that: (i) the reference to the resale
restrictions in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if Grantee shall have delivered to
Issuer a copy of a letter from the staff of the Securities and Exchange
Commission or the Governmental Authority responsible for administering any
applicable state securities laws or an opinion of counsel reasonably
satisfactory to Issuer to the effect that such legend is not required for
purposes of applicable federal or state securities laws; (ii) the reference to
the provisions of this Agreement in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the shares
have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(h) Upon the giving by Grantee to Issuer of an Option Notice and the
tender of the applicable purchase price in immediately available funds on the
Closing Date, unless prohibited by applicable law, Grantee shall be deemed to
be the holder of record of the number of shares of Issuer Common Stock
specified in the Option Notice, notwithstanding that the stock transfer books
of Issuer shall then be closed or that certificates representing such shares
of Issuer Common Stock shall not then actually be delivered to Grantee. Issuer
shall pay all expenses and other charges that may be payable in connection
with the preparation, issuance and delivery of stock certificates under this
Section 2 in the name of Grantee.
SECTION 3. Issuer agrees: (i) that it shall at all times until the
termination of this Agreement have reserved for issuance upon the exercise of
the Option that number of authorized and reserved shares of Issuer Common
Stock equal to the maximum number of shares of Issuer Common Stock at any time
and from time to time issuable hereunder, all of which shares will, upon
issuance pursuant hereto, be duly authorized, validly issued, fully paid, non-
assessable, and delivered free and clear of all claims, liens, encumbrances
and security interests and not subject to any preemptive rights; (ii) that it
will not, by amendment of its articles of incorporation or through
reorganization, consolidation, merger, dissolution or sale of assets, or by
any other voluntary act, avoid or seek to avoid the observance or performance
of any of the covenants, stipulations or conditions to be observed or
performed hereunder by Issuer; (iii) promptly to take all reasonable action as
may from time to time be requested by the Grantee, at Grantee's expense
(including (x) complying with all premerger notification, reporting and
waiting period requirements specified in 15 U.S.C. Section 18a and regulations
promulgated thereunder and (y) in the event prior approval of or notice to the
OCC, the FRB, the FDIC or any other Governmental Authority, under the National
Banking Act, the Bank Holding Company Act, the Change in Bank Control Act, or
any other applicable federal or state banking law, is necessary before the
Option may be exercised, cooperating with Grantee in preparing such
applications or notices and providing such information to each such
Governmental Authority as it may require in order to permit Grantee to
exercise the Option and Issuer duly and effectively to issue shares of Issuer
Common Stock pursuant hereto; and (iv) to take all action provided herein to
protect the rights of Grantee against dilution.
SECTION 4. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of Grantee, upon presentation and
surrender of this Agreement at the principal office of Issuer, for other
agreements providing for Options of different denominations entitling the
holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of shares
of Issuer Common Stock purchasable hereunder. The terms "Agreement" and
"Option" as used herein include any agreements and related Options and options
for which this Agreement (and the Option granted hereby) may be exchanged.
Upon receipt by Issuer of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Agreement, and (in the case of loss,
theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Agreement, if mutilated, Issuer will
execute and deliver a new Agreement of like tenor and date.
SECTION 5. The number of shares of Issuer Common Stock purchasable upon
the exercise of the Option shall be subject to adjustment from time to time as
follows:
(a) In the event of any change in the Issuer Common Stock by reason of
stock dividends, split-ups, mergers, recapitalizations, combinations,
subdivisions, conversions, exchanges of shares or the like, the type and
number of shares of Issuer Common Stock purchasable upon exercise hereof shall
be appropriately adjusted and proper provision shall be made so that, in the
event that any additional shares of Issuer Common Stock are to be issued or
otherwise become outstanding as a result of any such change (other than
pursuant to an exercise of the Option or pursuant to the exercise of options
for up to 103,750 shares of Issuer Common Stock pursuant to presently
outstanding stock options), the number of shares of Issuer Common Stock that
remain subject to the Option shall be increased so that, after such issuance
and together with shares of Issuer Common Stock previously issued pursuant to
the exercise of the Option (as adjusted on account of any of the foregoing
changes in the Issuer Common Stock), it equals 19.9% of the number of shares
of Issuer Common Stock then issued and outstanding.
(b) Whenever the number of shares of Issuer Common Stock purchasable
upon exercise hereof is adjusted as provided in this Section 5, the Option
Price shall be adjusted by multiplying the Option Price by a fraction, the
numerator of which shall be equal to the number of shares of Issuer Common
Stock purchasable prior to the adjustment and the denominator of which shall
be equal to the number of shares of Issuer Common Stock purchasable after the
adjustment.
SECTION 6. (a) Following the occurrence of a Purchase Event that
occurs prior to an Exercise Termination Event, Issuer shall notify Grantee
promptly in the event that Issuer is in the process of registration with
respect to an underwritten public offering of shares of Issuer Common Stock,
and Grantee (whether on its own behalf or on behalf of any subsequent holder
of the Option (or part thereof) or of any of the shares of Issuer Common Stock
issued pursuant hereto) shall have the right to have any shares issued and
issuable pursuant to the Option included in the registration statement with
respect to such offering, in order to permit the sale or other disposition of
any shares of Issuer Common Stock issued upon total or partial exercise of the
Option ("Option Shares") in accordance with any plan of disposition requested
by Grantee; PROVIDED, HOWEVER, that if in the good faith judgment of the
managing underwriter or managing underwriters, or, if none, the sole
underwriter or underwriters, of such offering, the inclusion of the Option
Shares in such registration would interfere materially with the successful
marketing of the shares of Issuer Common Stock offered by Issuer, the number
of Option Shares otherwise to be covered in the registration statement
contemplated hereby may be reduced; PROVIDED, HOWEVER, that after any such
required reduction the number of Option Shares to be included in such offering
for the account of Grantee shall constitute at least 20% of the total number
of shares of Grantee and Issuer covered in such registration statement.
Grantee shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. In connection
with any such registration, Issuer and Grantee shall provide each other with
representations, warranties, indemnities and other agreements customarily
given in connection with such registrations. If requested by Grantee in
connection with such registration, Issuer and Grantee shall become a party to
any underwriting agreement relating to the sale of such shares, but only to
the extent of obligating themselves in respect of representations, warranties,
indemnities and other agreements customarily included in such underwriting
agreements.
(b) Concurrently with the filing of a registration statement under
Section 6(a) hereof, Issuer shall also make all filings required to comply
with state securities laws in such states as Grantee may reasonably request.
(c) The expenses of any registration or state securities law
compliance under this Section 6, except for underwriting discounts, broker's
fees and commissions and fees and disbursements of Grantee's counsel related
thereto, shall be borne by Issuer.
SECTION 7. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has the requisite corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly approved by the Board of
Directors of Issuer and no other corporate proceedings on the part of Issuer
are necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly executed and delivered by, and
constitutes a valid and binding obligation of, Issuer, enforceable against
Issuer in accordance with its terms, subject to any required Governmental
Approval, and except as enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding
may be brought.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Issuer Common Stock equal to the maximum number of shares of Issuer
Common Stock at any time and from time to time issuable hereunder, and all
such shares, upon issuance pursuant hereto, will be duly authorized, validly
issued, fully paid, non-assessable, and will be delivered free and clear of
all claims, liens, encumbrances and security interests and not subject to any
preemptive rights.
(c) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not, conflict with
or violate any provision of the certificate of incorporation or By-laws of
Issuer or the equivalent organizational documents of the Subsidiary of Issuer
or, subject to obtaining any of the Regulatory Approvals, violate, conflict
with or result in any breach of any provisions of, constitute a default (or an
event which with notice or lapse of time or both would constitute a default)
under, result in the termination of, accelerate the performance required by,
or result in the creation of any lien, security interest, charge or other
encumbrance upon any of the respective properties or assets of the Issuer or
such Subsidiary under any of the terms, conditions or provisions of any note,
bond, capital note, debenture, mortgage, indenture, deed of trust, license,
lease, agreement, obligation, instrument, permit, concession, franchise,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Issuer or such Subsidiary or their respective properties or
assets.
SECTION 8. (a) Neither of the parties hereto may assign any of its
rights or delegate any of its obligations under this Agreement or the Option
created hereunder to any other Person without the express written consent of
the other party, except that Grantee may assign this Agreement to a wholly
owned subsidiary of Grantee and Grantee may assign its rights hereunder in
whole or in part after the occurrence of a Purchase Event. The term "Grantee"
as used in this Agreement shall also be deemed to refer to Grantee's permitted
assigns.
(b) Any assignment of rights of Grantee to any permitted assignee of
Grantee hereunder shall bear the restrictive legend at the beginning thereof
substantially as follows:
The transfer of the option represented by this assignment
and the related option agreement is subject to resale restrictions
arising under applicable federal and state securities laws and to
certain provisions of a Merger Agreement by and between Trans
Pacific Bancorp and TRP Acquisition Corp. dated as of October 18,
1996. A copy of such agreement is on file at the principal office
of Trans Pacific Bancorp and will be provided to any permitted
assignee of the Option without charge upon receipt of a written
request therefor.
SECTION 9. Each of Grantee and Issuer will use its reasonable efforts
to make all filings with, and to obtain consents of, all third parties and
Governmental Authorities necessary to the consummation of the transactions
contemplated by this Agreement, including, without limitation, applying to the
OCC, the FRB, the FDIC and any other Governmental Authority for approval to
acquire the shares issuable hereunder.
SECTION 10. The parties hereto acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party hereto and
that the obligations of the parties hereto shall be enforceable by either
party hereto through injunctive or other equitable relief. Both parties
further agree to waive any requirement for the securing or posting of any bond
in connection with the obtaining of any such equitable relief and that this
provision is without prejudice to any other rights that the parties hereto may
have for any failure to perform this Agreement.
SECTION 11. If any term, provision, covenant or restriction contained in
this Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated.
SECTION 12. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when
delivered in person, by cable, telegram, telecopy or telex, or by registered
or certified mail (postage prepaid, return receipt requested) at the
respective addresses of the parties set forth in the Merger Agreement.
SECTION 13. This Agreement, the rights and obligations of the parties
hereto, and any claims or disputes relating thereto shall be governed by and
construed in accordance with the laws of the State of California (but not
including the choice of law rules thereof).
SECTION 14. This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one and the same agreement and shall be effective at the time of
execution and delivery.
SECTION 15. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder.
SECTION 16. Except as otherwise expressly provided herein or in the
Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, written or
oral. The terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
SECTION 17. Capitalized terms used in this Agreement and not defined
herein but defined in the Merger Agreement shall have the meanings assigned
thereto in the Merger Agreement.
SECTION 18. Nothing contained in this Agreement shall be deemed to
authorize or require Issuer or Grantee to breach any provision of the Merger
Agreement or any provision of law applicable to the Grantee or Issuer.
SECTION 19. In the event that any selection or determination is to be
made by Grantee or the Owner hereunder and at the time of such selection or
determination there is more than one Grantee or Owner, such selection shall be
made by a majority in interest of such Grantees or Owners.
SECTION 20. In the event of any exercise of the option by Grantee,
Issuer and such Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in
order to consummate the transactions provided for by such exercise.
SECTION 21. Except to the extent Grantee exercises the Option, Grantee
shall have no rights to vote or receive dividends or have any other rights as
a shareholder with respect to shares of Issuer Common Stock covered hereby.
* * * SIGNATURES ON FOLLOWING PAGE * * *
IN WITNESS WHEREOF, each of the parties has caused this Option Agreement
to be executed on its behalf by their officers thereunto duly authorized, all
as of the date first above written.
TRP ACQUISITION CORP., a Delaware
corporation
By: /s/ Denis Daly, Sr.
Name:
Title: President
TRANS PACIFIC BANCORP, a California
corporation
By: /s/ Eddy S. F. Chan
Name:
Title: President
APPENDIX E
FAIRNESS OPINION
The Following is on the Letterhead of
Baxter Fentriss and Company, Richmond, Virginia.
November 15, 1996
The Board of Directors
Trans Pacific Bancorp
46 Second Street
San Francisco, CA 94105-3440
Dear Members of the Board:
Trans Pacific Bancorp, San Francisco, California ("TPB") and Denis Daly
Private Investor Group, Chicago, Illinois ("Investor Group") have entered into
an Agreement providing for the acquisition of TPB by Investor Group
("Acquisition"). The terms of the Acquisition are set forth in the Agreement
and Plan of Merger dated October 18, 1996.
The terms of the Acquisition provide that, with the possible exception of
those shares as to which dissenters' rights may be perfected, each common
share of TPB will be converted into the right to receive $8.61 cash subject to
certain escrow arrangements ("Consideration").
You have asked our opinion as to whether the proposed transaction pursuant to
the terms of the Acquisition are fair to the respective shareholders of TPB
from a financial point of view.
In rendering our opinion, we have evaluated the consolidated financial
statements of TPB available to us from published sources. In addition, we
have, among other things: (a) to the extent deemed relevant, analyzed
selected public information of certain other financial institutions and
compared TPB from a financial point of view to the other financial
institutions; (b) considered the historical market price of the common stock
of TPB; (c) compared the terms of the Acquisition with the terms of certain
other comparable transactions to the extent information concerning such
acquisitions was publicly available; (d) reviewed the Agreement and Plan of
Merger and related documents; and (e) made such other analyses and
examinations as we deemed necessary. We have met with various senior officers
of TPB and Investor Group to discuss the foregoing as well as other matters
that may be relevant.
We have not independently verified the financial and other information
concerning TPB, or Investor Group or other data which we have considered in
our review. We have assumed the accuracy and completeness of all such
information; however, we have no reason to believe that such information is
not accurate and complete. Our conclusion is rendered on the basis of
securities market conditions prevailing as of the date hereof and on the
conditions and prospects, financial and otherwise, of TPB and Investor Group
as they exist and are known to us as of September 30, 1996.
We have acted as financial advisor to TPB in connection with the Acquisition
and will receive from TPB a fee for our services, a significant portion of
which is contingent upon the consummation of the Acquisition.
It is understood that this opinion may be included in its entirety in any
communication by TPB or the Board of Directors to the stockholders of TPB.
The opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent.
Based on the foregoing, and subject to the limitations described above, we are
of the opinion that the consideration is fair to the shareholders of TPB from
a financial point of view.
Very truly yours,
(signed)
Baxter Fentriss and Company
APPENDIX F
CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW
CHAPTER 13
Dissenters' Rights
Section 1300. Shareholder in short-form merger; Purchase at fair market value;
"Dissenting shares"; "Dissenting shareholder"
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the
corporation entitled to vote on the transaction and each shareholder of a
subsidiary corporation in a short form merger may, by complying with this
chapter, require the corporation in which the shareholder holds shares to
purchase for cash at their fair market value the shares owned by the
shareholder which are dissenting shares as defined in subdivision (b).
The fair market value shall be determined as of the day before the first
announcement of the terms of the proposed reorganization or short-form
merger, excluding any appreciation or depreciation in consequence of the
proposed action, but adjusted for any stock split, reverse stock split,
or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified
by the Commissioner of Corporations under subdivision (o) of Section
25100 or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of
meeting of shareholders to act upon the reorganization summarizes this
section and Sections 1301, 1302, 1303 and 1304; provided, however,
that this provision does not apply to any shares with respect to which
there exists any restriction on transfer imposed by the corporation or
by any law or regulation; and provided, further, that this provision
does not apply to any class of shares described in subparagraph (A) or
(B) if demands for payment are filed with respect to 5 percent or more
of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not
voted in favor of the reorganization or, (B) if described in
subparagraph (A) or (B) of paragraph (1) (without regard to the
provisos in that paragraph), were voted against the reorganization, or
which were held of record on the effective date of a short-form
merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the
approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
Section 1301. Notice to holder of dissenting shares of reorganization
approval; Demand for purchase of shares; Contents of demand
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs
(3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its
outstanding shares (Section 152) within 10 days after the date of such
approval, accompanied by a copy of Sections 1300, 1302, 1303, 1304 and
this section, a statement of the price determined by the corporation to
represent the fair market value of the dissenting shares, and a brief
description of the procedure to be followed if the shareholder desires to
exercise the shareholder's right under such sections. The statement of
price constitutes an offer by the corporation to purchase at the price
stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section
1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and
who desires the corporation to purchase such shares shall make written
demand upon the corporation for the purchase of such shares and payment
to the shareholder in cash of their fair market value. The demand is not
effective for any purpose unless it is received by the corporation or any
transfer agent thereof (1) in the case of shares described in clause (i)
or (ii) of paragraph (1) of subdivision (b) of Section 1300 (without
regard to the provisos in that paragraph), not later than the date of the
shareholders' meeting to vote upon the reorganization, or (2) in any
other case within 30 days after the date on which the notice of the
approval by the outstanding shares pursuant to subdivision (a) or the
notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to
be the fair market value of those shares as of the day before the
announcement of the proposed reorganization or short-form merger. The
statement of fair market value constitutes an offer by the shareholder to
sell the shares at such price.
Section 1302. Stamping or endorsing dissenting shares
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section
1110 was mailed to the shareholder, the shareholder shall submit to the
corporation at its principal office or at the office of any transfer
agent thereof, (a) if the shares are certificated securities, the
shareholder's certificates representing any shares which the shareholder
demands that the corporation purchase, to be stamped or endorsed with a
statement that the shares are dissenting shares or to be exchanged for
certificates of appropriate denomination so stamped or endorsed or (b) if
the shares are uncertificated securities, written notice of the number of
shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the
corporation, the new certificates, initial transaction statement, and
other written statements issued therefor shall bear a like statement,
together with the name of the original dissenting holder of the shares.
Section 1303. Dissenting shareholder entitled to agreed price with interest
thereon; When price to be paid
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the
legal rate on judgments from the date of the agreement. Any agreements
fixing the fair market value of any dissenting shares as between the
corporation and the holders thereof shall be filed with the secretary of
the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or
contractual conditions to the reorganization are satisfied, whichever is
later, and in the case of certificated securities, subject to surrender
of the certificates therefor, unless provided otherwise by agreement.
Section 1304. Action by dissenters to determine whether shares are dissenting
shares or fair market value of dissenting shares or both; Joinder of
shareholders; Consolidation of actions; Determination of issues;
Appointment of appraisers
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value
of the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after
the date on which notice of the approval by the outstanding shares
(Section 152) or notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, but not thereafter, may file a complaint in
the superior court of the proper county praying the court to determine
whether the shares are dissenting shares or the fair market value of the
dissenting shares or both or may intervene in any action pending on such
a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting
shares is in issue, the court shall determine, or shall appoint one or
more impartial appraisers to determine, the fair market value of the
shares.
Section 1305. Duty and report of appraisers; Court's confirmation of report;
Determination of fair market value by court; Judgment and payment;
Appeal; Costs of action
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time
fixed by the court, the appraisers, or a majority of them, shall make and
file a report in the office of the clerk of the court. Thereupon, on the
motion of any party, the report shall be submitted to the court and
considered on such evidence as the court considers relevant. If the
court finds the report reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the
court, the court shall determine the fair market value of the dissenting
shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market
value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has
intervened, is entitled to require the corporation to purchase, with
interest thereon at the legal rate from the date on which judgment was
entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities,
only upon the endorsement and delivery to the corporation of the
certificates for the shares described in the judgment. Any party may
appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as
the court considers equitable, but, if the appraisal exceeds the price
offered by the corporation, the corporation shall pay the costs
(including in the discretion of the court attorneys' fees, fees of expert
witnesses and interest at the legal rate on judgments from the date of
compliance with Sections 1300, 1301, and 1302 if the value awarded by the
court for the shares is more than 125 percent of the price offered by the
corporation under subdivision (a) of Section 1301).
Section 1306. Prevention of payment to holders of dissenting shares of fair
market value: Effect
To the extent that the provision of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall
become creditors of the corporation for the amount thereof together with
interest at the legal rate on judgments until the date of payment, but
subordinate to all other creditors in any liquidation proceedings, such
debt to be payable when permissible under the provisions of Chapter 5.
Section 1307. Disposition of dividends upon dissenting shares
Cash dividends declared and paid by the corporation upon the dissenting shares
after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the
corporation shall be credited against the total amount to be paid by
corporation therefor.
Section 1308. Rights and privileges of dissenting shares: Withdrawal of demand
for payment
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined.
A dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
Section 1309. When dissenting shares lose their status
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of
any of the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this
chapter all necessary expenses incurred in such proceedings and
reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into
shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of
the shares, and neither files a complaint or intervenes in a pending
action as provided in Section 1304, within six months after the date on
which notice of the approval by the outstanding shares or notice pursuant
to subdivision (i) of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
Section 1310. Suspension of proceedings for compensation or valuation pending
litigation
If litigation is instituted to test the sufficiency or regularity of the votes
of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination
of such litigation.
Section 1311. Shares to which chapter inapplicable
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
Section 1312. Attack on validity of reorganization or short-form merger;
Rights of shareholders; Burden of proof
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have
any right at law or in equity to attack the validity of the
reorganization or short-form merger, or to have the reorganization or
short-form merger set aside or rescinded, except in an action to test
whether the number of shares required to authorize or approve the
reorganization have been legally voted in favor thereof; but any holder
of shares of a class whose terms and provisions specifically set forth
the amount to be paid in respect to them in the event of a reorganization
or short-form merger is entitled to payment in accordance with those
terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to
payment in accordance with the terms and provisions of the approved
reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, of under common control with,
another party to the reorganization or short-form merger, subdivision (a)
shall not apply to any shareholder of such party who has not demanded
payment of cash for such shareholder's shares pursuant to this chapter;
but if the shareholder institutes any action to attack the validity of
the reorganization or short-form merger or to have the reorganization or
short-form merger set aside or rescinded, the shareholder shall not
thereafter have any right to demand payment of cash for the shareholder's
shares pursuant to this chapter. The court in any action attacking the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10
days' prior notice to the corporation and upon a determination by the
court that clearly no other remedy will adequately protect the
complaining shareholder or the class of shareholders of which such
shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with,
another party to the reorganization or short-form merger, in any action
to attack the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded, (1)
a party to a reorganization or short-form merger which controls another
party to the reorganization or short-form merger shall have the burden of
proving that the transaction is just and reasonable as to the
shareholders of the controlled party, and (2) a person who controls two
or more parties to a reorganization shall have the burden of proving that
the transaction is just and reasonable as to the shareholders of any
party so controlled.
APPENDIX G
TRANS PACIFIC BANCORP
FORM 10-K, FINANCIAL STATEMENTS AND FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995 ommission file number: 2-86902
TRANS PACIFIC BANCORP
(Exact name of registrant as specified in its charter)
California 94-2917713
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
46 Second Street, San Francisco, California 94105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 543-3377
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Aggregate market value of the voting stock held by
non-affiliates of the registrant at February 29, 1996:
Common Stock, no par value,
$3,900,000
Number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date:
Class Outstanding at February 29, 1996
Common Stock, no par value 1,118,195
Documents Incorporated by Reference:
PARTS I, II, & IV - Annual Report to Shareholders for the year ended December
31, 1995 ("1995 Annual Report").
PART III - The Proxy Statement for the Annual Meeting of Stockholders will be
filed by registrant within 120 days after the end of the fiscal year covered
by this report.
PART I
Item 1. Business
General
Trans Pacific Bancorp, a California Corporation ("Bancorp") is the Bank
holding company of Trans Pacific National Bank (the "Bank"), its wholly owned
subsidiary, a national bank conducting a commercial banking business which
opened for business on August 21, 1984. Other than acting as the holding
company for the Bank and as the lessee of the Bank's premises, Bancorp does
not currently conduct any other substantial activities. Accordingly, the
reported consolidated net income for 1995 resulted primarily from the Bank's
operations.
The Bank is headquartered in the "South of Market" area of the City of
San Francisco and is engaged in a wide variety of business operations
customarily conducted by independent commercial banks in California, including
the acceptance of checking and savings deposits, the issuance of certificates
of deposit, and the making of loans. The Bank's primary lending activities
are commercial loans, commercial lines of credit and short-term real estate-
related loans. Additionally, the Bank continues to provide credit to the
communities from which it draws deposits, with added emphasis on small
business loans in low and moderate income areas. To a lesser extent, the Bank
has engaged in consumer lending in the form of loans to individuals for
household, family and other personal expenditures. As of December 31, 1995,
the Bank had net loans totalling $38.3 million. Commercial loans and lines of
credit represent 48 percent of the Bank's total loan portfolio and real estate
loans represent 46 percent, and consumer and other loans 6 percent.
The Bank also offers safe deposit boxes, ATM cards, traveler's checks,
collection accounts and other customary bank services to its customers. The
Bank's customers are generally individuals who live or work in the vicinity of
the Bank's offices, small to medium size businesses and professional firms. As
of December 31, 1995, most of the Bank's deposits had been obtained from local
individuals, small businesses, professional firms, and state and local
governments. The Bank had approximately 2,000 accounts totalling over $57
million in deposits as of December 31, 1995. Demand deposits, both interest-
bearing and non-interest bearing represent 65 percent of the Bank's total
deposits portfolio, time deposits represent 33 percent, and savings deposits 2
percent.
In 1988, the Bank opened its International Department to provide banking
products for customers dealing in international trade. The International
Department provides a broad range of trade finance products, such as foreign
exchange and foreign drafts, import and export letters of credit, documentary
collections, standby letters of credit, and bankers acceptances. The
International Department provides the Bank with an opportunity to offer trade
finance services to U.S.-based small business and middle-market customers, a
service which is generally not offered by community banks. Bancorp's
headquarters location in San Francisco, a major international port city, is
ideally located for trade activity with Pacific Rim countries.
Also, in 1988, the Bank opened its second branch office, in downtown
Alameda, in order to expand into the East Bay market of Northern California.
To supplement the Alameda branch's deposit base, the Bank in 1990 acquired the
deposits of the Webster Street branch of Southern California Savings and Loan
in Alameda. This acquisition of a large base of retail time deposits and
savings accounts enabled the Bank to increase its market share and customer
base in Alameda and the surrounding areas.
Competition
The banking business in the Bank's market area, the San Francisco Bay
Area, is extremely competitive and has become increasingly so in recent years
as major California banks have entered the small-business loan market.
Additionally, the Bank competes with agencies of foreign banks, savings and
loans, credit unions, finance companies and other non-banking institutions,
such as brokerage firms, insurance companies and investment banking firms, all
who offer similar services to customers.
Among the competitive advantages that larger financial institutions have
are the resources and ability to conduct large-scale marketing campaigns and
to allocate investment assets, including loans, to regions of higher demand
and yield. The larger institutions also have higher lending limits available
to customers with large credit needs. The Bank's current maximum legal
lending limits to a single borrower and related parties was $1 million on an
unsecured basis and $1.7 million on a fully secured basis.
For borrowers requiring loans in excess of the Bank's legal lending
limits, the Bank has underwritten and will continue to underwrite such loans
on a participating basis with its correspondent banks and with other
independent banks, retaining that portion of such loans that is within its
lending limits.
The Bank believes it can continue to successfully compete by emphasizing
personal customer contact and by providing a higher degree of personalized
banking service to its customers. While Management believes that its service
approach can help build customer loyalty and can offset competitive
disadvantages resulting from legal and regulatory constraints due to its size,
no assurances can be given that the Bank will succeed in this extremely
competitive industry.
Federal Reserve Monetary Policy
The earnings of Bancorp are not only affected by general economic
conditions, but also by the policies of various governmental regulatory
authorities in the United States and abroad. In particular, the Federal
Reserve System exerts a significant influence on interest rates and credit
conditions, primarily through open market operations in U.S. Government
securities, varying the discount rate on member bank borrowings and setting
reserve requirements against deposits. Federal Reserve monetary policies have
had a significant effect on the operating results of financial institutions in
the past and are expected to continue to do so in the future.
Supervision and Regulation
Under the Bank Holding Company Act (the Act), Bancorp is required to file
reports of its operations with the Board of Governors of the Federal Reserve
System (the Federal Reserve) and is subject to examination by regulators.
Further, the Act restricts activities in which Bancorp may engage and the
activities of any company in which the Bancorp owns more than 5 percent of the
voting shares. Generally, permissible activities are limited to banking, the
business of managing and controlling banks and activities closely related to
banking as determined by the Federal Reserve.
The Bank, as a national bank, is subject to regulation and examination by
the Office of the Comptroller of the Currency (OCC), the Federal Reserve and
the Federal Deposit Insurance Corporation. Additionally, there are numerous
requirements and restrictions in the laws of the United States and the State
of California affecting the Bank and its operations including: the requirement
to maintain reserves against deposits; restrictions on the nature and amount
of loans that it may make; requirements for community reinvestment;
restrictions relating to its investments; restrictions relating to the places
at which it may operate branches and its ability to acquire other banks and
financial institutions. Throughout 1993 and for part of 1994, the Bank was
operating under a Formal Agreement with the OCC, which required specific
capital ratios and required management to implement certain steps to
strengthen the Bank's operations. The Formal Agreement was terminated in
September 1994, as the Bank had achieved full compliance with its terms.
Additionally, for part of 1993 and throughout 1994, Trans Pacific Bancorp
operated under a Memorandum of Understanding (MOU) with the Federal Reserve
Bank, which required filing of progress reports and restricted certain
operations, including the payment of cash dividends and issuance of
additional debt. This MOU was terminated in February, 1995.
Major regulatory changes affecting the Bank, and the financial services
industry in general have occurred in the last several years and can be
expected to occur increasingly in the future. The most significant recent
change affecting banks was the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA). In addition to providing for the
recapitalization of the Bank Insurance Fund, this law makes a number of far-
reaching changes in the legal environment for insured banks, including
reductions in insurance coverage for certain kinds of deposits, increases in
consumer-oriented requirements and disclosures, and major revisions to conform
the process of supervision and examination of depository institutions, with an
emphasis on risk-weighted capital levels. It is expected that this law and
any other current proposals for regulatory change should not have a material
effect on the operations, capital resources or liquidity of Bancorp or the
Bank.
Employees
The Bank employed 35 full time equivalent persons at December 31, 1995.
Management believes that its employee relations are excellent and that the
compensation and benefits provided by the Bank to its employees are
competitive. Benefits for Bank employees include stock options, an Employee
Stock Ownership Plan and a 401(k) plan. Bancorp had no salaried employees at
December 31, 1995.
STATISTICAL DISCLOSURES
I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest
Rates and Interest Differential
Information on the distribution of assets, liabilities, and stockholder
equity and on interest rates and interest differential is incorporated by
references from pages 8 and 9 of the 1995 Annual Report.
II. Investment Portfolio
Carrying Value of Investments, Maturity Ranges, Weighted Average Yield
The following table list the carrying value, in thousands, and yield by
expected remaining principal maturity date of the investment portfolio at
December 31, 1995. The weighted average yield is calculated based on the
amortized cost of securities.
Weighted
Average
Available for sale securities Amortized Cost Fair Value Yield
US Treasury securities
and other government agency:
Due within 1 year $ 4,511 $ 4,519 5.86%
Due after 1 year through 5 years 4,775 4,784 5.75%
9,286 9,303 5.80%
Mortgage-backed securities 2,692 2,699 6.65%
Other securities:
Due within 1 year 727 725 4.70%
Due after 1 year through 5 years 830 780 4.86%
Due after 10 years 365 365 4.96%
1,922 1,870 4.96%
$ 13,900 $ 13,872 5.85%
Other securities consist principally of corporate bonds. Expected
remaining maturities may differ from remaining contractual maturities because
borrowers have the right to prepay certain obligations with or without
penalties.
Information regarding the carrying value of investments at December 31,
1994 is incorporated by reference from pages 30 and 31 of the 1995 Annual
Report.
III. Loan Portfolio
Loans Outstanding by Type
Information regarding types of domestic loans and loan concentrations at
December 31, 1995 and 1994 is incorporated by reference from pages 21, 32 and
33 of the 1995 Annual Report. The Bank had no foreign loans at December 31,
1995.
Maturities and Sensitivity to Changes in Interest Rates
Final loan maturities, in thousands, and rate sensitivities of the loan
portfolio at December 31, 1995 are as follows:
Within One-Five After
One Year Years Five Years Total
Loans at fixed interest rates:
Commercial $ 5,124 2,753 - 7,877
Real Estate 18 2,552 500 3,070
Installment 7 140 - 147
Other 40 - - 40
Total fixed interest-rate loans 5,189 5,445 500 11,134
Loans at variable interest rates:
Commercial 10,620 - - 10,620
Real Estate 12,627 2,345 - 14,972
Installment 20 - - 20
Preference Line 1,998 - - 1,998
Total variable interest-rate loans 25,265 2,345 - 27,610
Total $ 30,454 7,790 500 38,744
Non Performing Assets
Information on non-performing assets and risk elements is incorporated
by reference from pages 12 and 13 of the 1995 Annual Report.
IV. Summary of Loan Loss Experience
Allocation of the Allowance for Loan Losses
Information on the allocation of the allowance for loan losses by loan
type is incorporated by reference from pages 13 through 15 of the 1995 Annual
Report.
Annual Credit Loss Experience
Information on annual credit loss experience is incorporated by
reference from pages 15 and 16 of the 1995 Annual Report.
V. Deposits
Average Amount and Rates Paid
Information on average deposits amounts and rates paid on domestic
deposits is incorporated by reference from page 9 of the 1995 Annual Report.
At December 31, 1995 and 1994, deposits of foreign depositors were not
material.
Time Certificates of Deposit Greater Than $100,000
Information on time certificates of deposits greater than $100,000 is
incorporated by reference from page 36 of the 1995 Annual Report.
VI. Return on Equity and Assets
Years ended December 31,
1995 1994 1993
Return on average assets 0.73% 0.30% (.89)%
Return on average equity 7.14% 3.03% (9.90)%
Dividend payout ratio - - -
Equity to assets ratio 10.08% 10.48% 9.12 %
VII. Short-Term Borrowings
Outstanding amounts, in thousands, of selected short-term borrowings
were as follows:
Years ended December 31,
1995 1994 1993
Federal funds purchased and
repurchase agreements:
Average amount outstanding $ 47 .3 293
Daily average rate 6.43% 4.81% 3.31%
Highest month-end balance $ 900 - 2,049
Year-end balance $ - - -
Rate on outstandings at year end - - -
Other borrowed funds:
Average amount outstanding $ 212 885 623
Daily average rate 6.10% 5.22% 5.46%
Highest month-end balance $ 454 1,329 1,006
Year-end balance $ 186 540 603
Rate on outstandings at year end 5.24% 5.15% 4.61%
Federal funds borrowed are repaid the following business day. Repurchase
agreements and other borrowed funds generally have original maturities not
exceeding 180 days.
Item 2. Properties
Bancorp and the Bank's headquarters are located at 46 Second Street in
San Francisco, California in the city's downtown Financial District. The
building, with 8,500 square feet of usable space is under lease, which expires
in April, 2001, with a 3 year renewal option available under similar terms.
The Bank maintains another branch at 1442 Webster Street in Alameda,
California. The premises, purchased by Bancorp in 1988 and sold to the Bank
in 1993, contains approximately 4,700 square feet.
Bancorp believes that its facilities are well maintained and are
generally adequate for its present and anticipated future needs.
Item 3. Legal Proceedings
The Company is involved in various claims and lawsuits incidental to its
business. In the opinion of management, after review with independent legal
counsel, the ultimate liability resulting from such claims and lawsuits will
not have a material adverse effect on the financial position, results of
operations, or liquidity of the Company.
There were no material proceedings adverse to the Bank or Bancorp to
which any director, officer, affiliate of the Bank or Bancorp, or 5 percent
shareholder of the Bank or Bancorp, or any associate of any such director,
officer, affiliate or 5 percent shareholder of the Bank or Bancorp, was a
party adverse to the Bank or Bancorp. Additionally, none of the above persons
had a material interest adverse to the Bank or Bancorp.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of Bancorp's fiscal year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Market Information
The common stock of Trans Pacific Bancorp (symbol: TPAE) is publicly
traded in limited and infrequent transactions on the NASDAQ Bulletin Board.
According to information made available to Bancorp, the range of high and low
bids for such common stock for each calendar quarter since January 1994 is as
follows:
Calendar Year 1995 High Low
First Quarter $ 2.50 2.25
Second Quarter 2.75 2.25
Third Quarter 4.50 2.50
Fourth Quarter 4.88 4.50
Calendar Year 1994 High Low
First Quarter $ 2.00 2.00
Second Quarter 2.00 2.00
Third Quarter 2.00 2.00
Fourth Quarter 2.25 2.00
The last bid price known to Bancorp for its common stock was $4.75.
There are no current plans to offer any common stock of Bancorp in a
public offering.
Holders
As of December 31, 1995, there were 301 holders of the common stock of
Bancorp. There are no other classes of common equity outstanding.
Dividends
Through December 31, 1995, Bancorp had never paid a cash dividend to
stockholders. On February 23, 1996 a special dividend was declared to
shareholders of record March 8, 1996. Bancorp has no current plans to pay
regular dividends.
Item 6. Selected Financial Data
Selected financial data for the five years 1991 through 1995 is
incorporated by reference from page 6 of the 1995 Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion and Analysis of Financial Condition and Results
of Operations is incorporated by reference from pages 7 through 19 of the 1995
Annual Report.
Item 8. Financial Statements and Supplementary Data
The Report of Independent Auditors and the Consolidated Financial
Statements of Bancorp are incorporated by reference from pages 20 through 44
of the 1995 Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
During fiscal years 1995 and 1994, Bancorp neither changed its
accountants nor reported a disagreement on Form 8-K on any matter of
accounting principles or practices or financial statements disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning directors and persons nominated to become
directors of Bancorp is incorporated by reference to the text under the
captions "Item 1: Election of Directors", "Security Ownership of Management",
and "Executive Compensation" in the Proxy Statement for the May 23, 1996
Annual Meeting of Shareholders of Bancorp.
Information concerning executive officers of the Bank as of March 1,
1996 is set forth below.
Name Age Position with Registrant
Eddy S.F. Chan 48 President and Chief Executive Officer
Robert A. Hinkle 51 Executive Vice President and Chief
Lending Officer
John K. Wong 47 Executive Vice President
Bonnie L. Hao 48 Senior Vice President
Kiran C. Mehta 46 Senior Vice President
Grant B. Schley 54 Senior Vice President
Dennis B. Jang 33 Vice President and Chief Financial
Officer
Crystal Z. Hundahl 38 Vice President
Lorraine S. Braud 50 Vice President
Eddy S.F. Chan was appointed President and Chief Executive Officer of Bancorp
on January 1, 1984. He was appointed Chairman of the Bank on January 1, 1983
and President and Chief Executive Officer of the Bank on January 1, 1984.
Robert A. Hinkle was appointed Executive Vice President on April 1, 1995 in
addition to his title of Chief Lending Officer. He had served as Senior Vice
President and Chief Lending Officer of the Bank since December 1, 1992.
Previously, he served as Executive Vice President and Chief Operating Officer
of Century Bank, San Francisco from 1987 to 1992.
John K. Wong was appointed Executive Vice President on April 1, 1995.
Previously he was a Senior Vice President of the Bank, appointed on January 1,
1989. He was elected as a director of Bancorp in 1983 and as a director of the
Bank in 1984.
Bonnie L. Hao was appointed Senior Vice President of the Bank on April 1,
1995. Previously, she was Vice President of the Bank from 1992 to 1995, and
was Vice President of California National Bank, San Francisco from 1989 to
1992.
Kiran C. Mehta was appointed Senior Vice President, Credit Administration of
the Bank on January 1, 1989.
Grant B. Schley was appointed Senior Vice President of the Bank on January 1,
1994. From 1992 to 1994, he was the Regional Branch Manager. Previously, he
served as Vice President of Financial Center Bank, San Francisco from 1985 to
1990.
Dennis B. Jang was appointed Chief Financial Officer on March 1, 1996, in
addition to his title as Vice President and Corporate Secretary. He was
appointed Vice President on January 1, 1994. Previously, he was Assistant
Vice President of the Bank from 1990 to 1994.
Crystal Z. Hundahl was appointed Vice President of the Bank on January 1,
1994, in addition to her title as Controller. Previously, she was Assistant
Vice President of the Bank from 1988 to 1994.
Lorraine S. Braud was appointed Vice President of the Bank on February 16,
1995. Previously, she served as Vice President of Bank of San Francisco from
1986 to 1993.
All Executive Officers serve at the pleasure of the Board. Crystal Z. Hundahl
is the niece of Eddy S.F. Chan. There are no other family relationships
between any other officers.
Item 11. Executive Compensation
Information concerning executive compensation is incorporated by
reference from the text under the captions, "Item 1: Election of Directors"
and "Executive Compensation" in the Proxy Statement for the May 23, 1996
Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning ownership of equity stock of the Parent by
certain beneficial owners and management is incorporated by reference from the
text under the captions, "Security Ownership of Certain Beneficial Owners" and
"Security Ownership of Management" in the Proxy Statement for the May 23, 1996
Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions
with officers and directors is incorporated by reference from the text under
the caption, "Item 1: Election of Directors" in the Proxy Statement for the
May 23, 1996 Annual Meeting of Shareholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Document filed as part of this report:
1. Financial Statements
The Consolidated Financial Statements, Notes thereto, and
Independent Auditors' Report are incorporated herein by reference
from pages 20 through 44 of the 1995 Annual Report.
2. Financial Statement Schedules
All schedules for which provision is made in the applicable
accounting regulations of the Securities Exchange Commission are
not required under the related instructions or are not applicable
and, therefore, have been omitted.
3. Exhibits
EXHIBIT DESCRIPTION
NUMBER
3.1 Articles of Incorporation of Trans Pacific Bancorp, incorporated
by reference to Exhibit 3.1 to Bancorp's Registration Statement on
Form S-1 (No. 2-86902).
3.2 Amended By-Laws of Trans Pacific Bancorp, incorporated by
reference to Exhibit 3.2 to Bancorp's Registration Statement on
Form S-1 (No. 2-86902).
3.3 Amendment to Articles of Incorporation, incorporated by reference
to Exhibit 3.3 to Bancorp's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988.
3.4 Amendment to Articles of Incorporation, incorporated by reference
to Exhibit 3.4 to Bancorp's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988.
4.1 Specimen Stock Certificate, incorporated by reference to Exhibit
4.1 to Bancorp's registration Statement on Form S-1 (No. 2-86902).
10.2 Employee Stock Option Plan, incorporated by reference to Exhibit
10.2 to Bancorp's Registration Statement on Form S-1 (No. 2-
86902).
10.10 Amendment to Employee Stock Option Plan incorporated by reference
to Exhibit 10.10 to Bancorp's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987.
10.11 Amendment to Employee Stock Option Plan dated September 21, 1989
incorporated by reference to Exhibit 10.11 to Bancorp's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989.
10.12 Trans Pacific Bancorp Employee Stock Ownership Plan and Trust is
incorporated by reference to Exhibit 4.1 to Bancorp's Registration
Statement on Form S-8 (No. 33-39190).
10.13 Trans Pacific Bancorp Non Qualified Stock Option Plan is
incorporated by reference to Exhibit 4.1 to Bancorp's Registration
Statement on Form S-8 (No. 33-39191).
22.1 Subsidiaries of the Registrant, incorporated by reference to
Exhibit 22.1 to Bancorp's Registration Statement on Form S-1 (No.
2-86902).
23 Consent of KPMG Peat Marwick LLP.
(b) No reports on Form 8-K were filed by Bancorp during the fourth quarter
of 1995.
SIGNATURES
Pursuant to the requirements of Section 15 (c) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TRANS PACIFIC BANCORP
EDDY S.F. CHAN
(Eddy S.F. Chan) President
Date: March 21, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on the 21st day of March 1996.
Signature Title
JAMES A. BABCOCK Director and Chairman of the Board
(James A. Babcock)
EDDY S.F. CHAN Director, President and CEO
(Eddy S.F. Chan) (Principal Executive Officer)
JOHN T. STEWART Director and Secretary
(John T. Stewart)
SIMON S. TENG Director and Treasurer
(Simon S. Teng) (Principal Financial & Accounting Officer)
FRANKIE G. LEE Director and Vice Chairman
(Frankie G. Lee)
JOHN K. LEE Director
(John K. Lee)
MASAYUKI NAKAHIRA Director
(Masayuki Nakahira)
FRANK K.W. WONG Director
(Frank K.W. Wong)
JOHN K. WONG Director
(John K. Wong)
1995 Annual Report
About The Company
Trans Pacific Bancorp is the holding
company of Trans Pacific National
Bank, an independent commercial bank
with branches in San Francisco and
Alameda, California.
Trans Pacific National Bank has been
providing financial services to
local middle-market businesses,
professional companies, and
import/export companies since 1984.
Trans Pacific Bancorp is listed on
the NASDAQ Bulletin Board system
under the symbol TPAE.
TABLE OF CONTENTS
FINANCIAL HIGHLIGHTS 3
LETTER TO SHAREHOLDERS 4
FIVE YEAR FINANCIAL SUMMARY 6
RESULTS OF OPERATIONS 7
Net Interest Income 7
Provision for Loan Losses 10
Non-Interest Income 10
Non-Interest Expense 11
Provision for Income Taxes 11
ASSET QUALITY 11
ALLOCATION OF THE ALLOWANCE FOR LOAN
LOSSES 13
ASSET/LIABILITY MANAGEMENT 16
CAPITAL RESOURCES 18
REPORT OF THE INDEPENDENT AUDITORS 21
CONSOLIDATED FINANCIAL STATEMENTS 22
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS 28
TRANS PACIFIC BANCORPBOARD OF
DIRECTORS 46
TRANS PACIFIC NATIONAL BANKPRINCIPAL
OFFICERS 46
FINANCIAL HIGHLIGHTS
1995 1994 Increase
For the year
Net Income $ 445,382 $ 180,191 +147%
Earnings Per Share 0.40 0.16 +150
At year end
Loans 38,340,437 32,368,367 +18
Total Assets 64,826,520 56,770,772 +14
Deposits 57,563,988 49,800,237 +16
Shareholders' Equity 6,531,971 5,950,839 +10
Ratios
Return on Average Equity 7.14% 3.03%
Return on Average Assets 0.73% 0.30%
Risk-Based Capital Ratio 16.81% 17.06%
LETTER TO SHAREHOLDERS
Financial Results
We are pleased to report that 1995 was a year of record earnings for Trans
Pacific Bancorp. In the best performance in our 11 year history, the Company
had net income of $445,382, or $0.40 per share. As discussed in detail under
the "Financial Review" beginning on page 7, the improvement in financial
results was due to higher net interest income, a reduced provision for loan
losses, and reduced non-interest operating expenses. Improved asset quality
also continues to contribute positively to our financial results.
Over the years, our results have been a direct reflection of the trends in
California banking and the California economy, and 1995 was no exception.
During the year, we are pleased to note a positive turnaround in results for
many of the state's financial institutions, including local independent banks
in the San Francisco Bay Area, which had previously been heavily burdened by
asset quality problems.
We were also pleased to note that California's economy as a whole has improved
for local middle-market businesses, professional companies, and import/export
companies, all our traditional sources of business. We believe that the local
economy will continue to improve in 1996 and this will lead to further job
growth, increased personal income and additional capital spending by
businesses, which is favorable for us.
Special Dividend
In order to provide our shareholders with a return, the Board has declared a
special dividend of 8 cents per share to shareholders of record March 8, 1996.
The dividend will be paid on March 29, 1996. While we have no immediate plans
to begin paying regular dividends, we may pay dividends in the future based on
our meeting certain profitability and capital goals.
Prospects for the Future
Our Corporate division will continue to its commitment to serve our core
customers, middle-market businesses and professional companies. In 1995,
Trans Pacific began to fund loans in conjunction with the Small Business
Administration and we seek to increase our participation during 1996.
For our International division, we continue to see tremendous opportunity in
the expansion of international trade in the Bay Area. We see international
trade continuing to be a significant part of California's economy and growing
over the next decade, with the Pacific Rim providing the biggest markets for
the state's exports. We continue to be active in trade groups, seeking to
outreach to emerging import/export entrepreneurs.
Around us, banking in California as we know it is going through significant
changes as we go forward. The move towards consolidation continues with two
significant local transactions: the acquisition of First Interstate Bank by
Wells Fargo, and the acquisition of California Bancshares by U.S. Bancorp. In
the past, these types of consolidations create great business development
opportunities for companies such as Trans Pacific who emphasize customer
satisfaction and quality service.
Despite the temporary industry upheaval, our plan is to continue to steadily
focus on our goal to seek the best for our shareholders, employees and clients
by striving for consistent growth in performance, profitability and
opportunity.
Acknowledgements
As a final note, we would like to acknowledge the following individuals:
Peter Da Roza played a key part in establishing our International department
in 1988. Peter passed away on January 19, 1996, after a lengthy illness. He
was truly a pioneer in the area of trade finance and he will be missed not
only by his co-workers here, but throughout the Bay Area banking community.
Daniel Y. Lee, the Bank's President, left the Company in February 1996 to
become the controller of Wind River Systems in Alameda. In his 10 years at
the Bank, Dan provided us with great leadership, especially during our most
difficult times. We wish him the best of success in the future.
Merle S. Konigsberg and Warren K. Miller, two of the Company's founding
directors, retired from the Board at the end of 1995, becoming our first two
Directors Emeriti. Their hard work, wisdom and dedication to locally-owned,
independent banking contributed greatly to the beginning and continued success
of the Company.
James A. Babcock
Chairman
Eddy S.F. Chan
Chief Executive Officer
FIVE YEAR FINANCIAL SUMMARY
Summary of Consolidated Operations
Years ended December 31,
(in thousands except share data) 1995 1994 1993 1992 1991
Interest income $ 4,855 4,259 4,433 5,920 7,550
Interest expense 1,799 1,369 1,617 2,646 4,183
Net interest income 3,056 2,890 2,816 3,274 3,367
Provision for possible
loan losses 40 173 889 662 349
Other income 598 664 855 887 866
Other expense 2,962 3,088 3,567 3,579 3,458
Income (loss) before taxes 652 293 (785) (80) 426
Income tax expense (benefit) 207 113 (171) 20 228
Net income (loss) $ 445 180 (614) (100) 198
Net income (loss)
per share $ 0.40 0.16 (0.54) (0.09) 0.17
Average common shares
outstanding 1,118,195 1,127,305 1,143,195 1,141,247 1,138,795
Year-End Financial Position
Years Ended December 31,
(in thousands) 1995 1994 1993 1992 1991
Cash and cash equivalents $ 9,916 7,377 6,538 4,313 8,416
Investment securities 14,359 14,508 12,812 11,314 11,743
Loans, net 38,340 32,368 39,566 50,033 54,165
Premises and equipment, net 933 1,037 1,015 1,281 1,484
Other assets 1,279 1,481 5,078 5,430 2,980
Total assets $ 64,827 56,771 65,009 72,371 78,788
Deposits $ 57,564 49,800 57,823 63,916 68,398
Long Term Debt - 26 71 116 161
Other Liabilities 731 994 1,188 1,863 3,720
Total liabilities 58,295 50,820 59,082 65,895 72,279
Stockholders' equity 6,532 5,951 5,927 6,476 6,509
Total liabilities and
equity $ 64,827 56,771 65,009 72,371 78,788
MANAGEMENT DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The Company earned $445 thousand in 1995. This represented an improvement
over net income in 1994 of $180 thousand, and the loss of $614 thousand in
1993. The 1995 net income reflects the effects of an improving California
economy. Two major results were: More stable real estate values which enabled
the sale of other real estate owned; and the strengthening financial condition
of the Bank's customers, which led to improved asset quality compared to
previous years.
On a per share basis, the 1995 net income was $0.40, compared to net income of
$0.16 and net loss of ($0.54) in 1994 and 1993, respectively. In addition to
the factors discussed above, the improvement in 1995 reflected improved net
interest income, a decreased provision for loan losses and lower non-interest
expense. The improvement in 1994 over 1993 was mostly due to a decreased
provision for loan losses and lower non-interest expense. The Company's return
on average total assets (ROA) was 0.73 percent in 1995, from 0.30 percent and
(0.89) percent in the previous two years. Return on equity (ROE) in 1995 was
7.14 percent, compared with 3.03 percent in 1994 and (9.90) percent in 1993.
Components of Net Income (Loss)
(percentage of average earning assets) 1995 1994 1993
Net interest income 5.74% 5.35% 4.93%
Provision for loan losses (0.08) (0.32) (1.56)
Non-interest income 1.12 1.23 1.50
Non-interest expense (5.55) (5.72) (6.24)
Taxes (0.39) (0.21) 0.30
Net income (loss) 0.84 0.33 (1.07)
Net income (loss) as a percentage of
average total assets 0.73 0.30 (0.89)
Net Interest Income
Net interest income is the difference between interest income (which includes
yield-related net loan fees) and interest expense. The following table
details the components of net interest income:
Components of Net Interest Income
(in thousands) 1995 1994 1993
Interest Income $ 4,855 4,259 4,433
Interest Expense 1,799 1,369 1,617
Net interest income $ 3,056 2,890 2,816
Average earning assets $ 53,212 53,987 57,121
Net interest margin 5.74% 5.35% 4.93%
Net interest income in 1995 increased by $166 thousand, or 6 percent from 1994
to $3.1 million. Separately, interest income increased $596 thousand, or 14
percent, and interest expense increased $430 thousand, or 31 percent in 1995.
The increase in interest expense was caused by an increase in cost of funds of
116 basis points due to competitive pressures in market rate and time
deposits. The increase in interest income was due to the continued shift in
the mix of the Bank's earning assets to higher-yielding loans from shorter
term, lower-yielding investment securities, due to increased loan demand. The
net interest margin, which represents the average net yield on earning assets,
rose in 1995; for 1995 the net interest margin was 5.74 percent, a 39 basis
point improvement over 1994. In 1994, the net interest margin was 5.35
percent, which was a 42 basis point improvement over 1993, as deposit rates
were slower to rise than loan rates, due to competitive pressures.
The following table is a summary of the changes in net interest income
attributable to changes in either average balances or average rates for both
interest-earning assets and interest-bearing liabilities in thousands for the
years ended December 31, 1995 and 1994. Because of the numerous simultaneous
volume and rate changes during any period, it is not possible to precisely
allocate changes between volume and rate. For this table, the changes in
interest earned and interest paid due to both rate and volume have been
allocated to changes due to volume and rate in proportion to the relationship
of absolute dollar amounts in each.
Rate and Volume Analysis Years ended December 31,
1995 versus 1994 1994 versus 1993
Volume Rate Total Volume Rate Total
Increase (decrease) in interest income
due to Interest Earning Assets:
Loans $ 56 489 545 (651) 244 (407)
Investment securities 73 10 83 271 (102) 169
Federal funds sold (78) 59 (19) 20 61 81
Interest-bearing deposits with banks (12) (1) (13) (8) (9) (17)
Total interest-earning assets $ 39 557 596 (368) 194 (174)
Increase (decrease) in interest expense
due to Interest-Bearing Liabilities:
Deposits:
Demand, interest-bearing $ 23 223 246 4 (26) (22)
Savings (11) 1 (10) 5 (2) 3
Time (70) 296 226 (192) (39) (231)
Other short-term borrowings (27) (3) (30) (2) 4 2
Total interest-bearing liabilities $ (85) 517 432 (185) (63) (248)
Net interest-earning assets $ 124 40 164 (183) 257 74
The following table lists the average amounts, in thousands, outstanding for
major categories of interest-earning assets (excluding non-accrual loans) and
interest-bearing liabilities and the average interest rates earned, including
loan fee income, and paid for the periods indicated.
Average Balances and Rates
Years ended December 31,
1995 1994
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
Earning Assets:
Loans $ 35,866 3,844 10.72% 35,275 3,299 9.35%
Investment securities 12,694 739 5.82% 11,442 656 5.73%
Federal funds sold 4,283 249 5.81% 6,722 268 3.99%
Interest-bearing
deposits with banks 369 23 6.23% 548 36 6.57%
Total interest-earning
assets $ 53,212 4,855 9.12% 53,987 4,259 7.89%
Interest-Bearing Liabilities:
Deposits:
Demand, interest-bearing $ 23,421 789 3.37% 22,505 544 2.42%
Savings 1,179 26 2.21% 1,680 36 2.14%
Time 18,481 968 5.24% 20,616 743 3.60%
Other short-term borrowings 251 16 6.37% 885 46 5.20%
Total interest-bearing
liabilities $ 43,332 1,799 4.16% 45,686 1,369 3.00%
Net interest income $ 3,056 $ 2,890
Net interest-earning assets yield 5.74% 5.35%
1993
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning Assets:
Loans $ 43,430 3,706 8.53%
Investment securities 6,939 487 7.02%
Federal funds sold 6,110 187 3.06%
Interest-bearing deposits
with banks 642 53 8.26%
Total interest-earning
assets $ 57,121 4,433 7.76%
Interest-Bearing Liabilities:
Deposits:
Demand, interest-bearing $ 22,354 566 2.53%
Savings 1,437 33 2.30%
Time 25,421 974 3.83%
Other short-term borrowings 916 44 4.80%
Total interest-bearing
liabilities $ 50,128 1,617 3.23%
Net interest income $ 2,816
Net interest-earning
assets yield 4.93%
Provision for Loan Losses
The level of the provision for loan losses during the past three years
reflects continuous efforts to improve loan quality by enforcing strict
underwriting and administration procedures and aggressively pursuing
collection efforts with troubled debtors. The determination of the provision
for loan losses and, correspondingly, the level of the allowance for loan
losses is based on evaluation of changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, prior
loan loss experiences and current economic conditions which may affect the
borrowers' ability to pay. The provision for loan losses was $40 thousand in
1995, compared with $173 thousand in 1994 and $889 thousand in 1993. The
decrease in the provision for loan losses reflected the effects of improving
asset quality, due in part to positive California economic trends.
For further discussion related to the provision for loan losses, see the
section below entitled "Asset Quality".
Non-Interest Income
Components of Non-Interest Income
(in thousands) 1995 1994 1993
Deposit account fees $ 282 268 275
Other charges and fees 316 312 404
Other real estate - 84 146
Gain on sale of securities - - 30
$ 598 664 855
Non-interest income decreased 10 percent in 1995 to $598 thousand. The
decline was due to zero income for other real estate owned, which includes
rental income and the net gain on sales of other real estate owned (OREO), as
the Bank had no foreclosed properties during 1995. Deposit account and other
charges and fees were consistent with 1994 levels.
In 1994, non-interest income decreased 22 percent from the previous year, due
mainly to reduced commissions on letters of credit earned. Income for other
real estate owned, which includes rental income and the net gain on sales of
OREO, was lower as those properties were sold during the year.
Non-Interest Expense
Components of Non-Interest Expense
(in thousands) 1995 1994 1993
Salaries and employee benefits $ 1,720 1,627 1,587
Occupancy 296 325 430
Data processing 120 119 111
Amortization of deposit premium 99 99 99
Furniture and equipment 97 95 120
Accounting 85 81 85
Federal deposit insurance 58 142 147
Legal fees and costs 36 38 71
Other real estate owned - 107 459
Other expenses 450 456 458
$ 2,961 3,089 3,567
Non-interest expense decreased to $2.96 million in 1995, a drop of 4 percent
as compared to 1994, due primarily to a decrease in federal deposit insurance
and in the expenses related to other real estate owned properties. Salaries
and employee benefits rose 5.7 percent during the year, which includes
incentive payments made under a management incentive plan implemented in 1995.
In 1994, non-interest expense decreased 13 percent versus 1993, due primarily
to a decrease in the expenses related to other real estate owned properties
sold in 1994. Salaries and employee benefits rose 2.5 percent over 1993;
occupancy and furniture and equipment expense were lower by 24 percent and 21
percent, respectively, due to reduced depreciation as certain assets became
fully depreciated in 1994.
Provision for Income Taxes
The 1995 income tax expense was $207 thousand compared to $113 thousand income
tax expense in 1994 and $171 thousand benefit in 1993. The effective tax rate
for 1995 was 32 percent, versus 38 percent in 1994 and (22) percent in 1993.
The effective rate decreased in 1995 was due to a reduction in the valuation
allowance for deferred tax assets. In 1993, the Company recognized a tax
benefit due to the pretax loss which was carried back to recover prior years'
taxes paid. Effective January 1, 1993, the Company adopted SFAS 109. There
was no impact on the Company's net income from the adoption of SFAS 109.
ASSET QUALITY
The Company closely monitors the markets in which it conducts its lending
operations. The two primary areas of lending for the Company are commercial
and real estate loans, which in total comprise 94 percent of loans outstanding
as of December 31, 1995. To control its exposure and concentration in real
estate loans, the Company has established limits by type of collateral and
purpose. To increase diversification of credit risk in commercial loans, the
Company monitors commercial loans by business type and location.
Asset reviews are performed using grading standards and criteria similar to
those employed by bank regulatory agencies. Assets receiving lesser grades
are called classified assets and include all potential problem loans. These
occur when known information about possible credit problems of borrowers cause
management to have doubts as to the ability of such borrowers to comply with
loan repayment terms. These loans have varying degrees of uncertainty and may
become non-performing assets. While historically only a relatively small
amount of classified assets have resulted in losses, such assets receive an
elevated level of Management attention to ensure collection. All non-
performing assets are included in classified assets. Other classified assets
consist of other real estate owned. Classified assets at December 31, 1995,
1994 and 1993 are summarized below:
(in thousands) 1995 1994 1993
Classified loans $ 1,443 2,208 4,024
Other classified assets - - 3,107
Total classified assets $ 1,443 2,208 7,131
Reserve for loan losses as a
percentage of classified loans 28% 18% 17%
Classified assets at December 31, 1995 decreased to $1.4 million from $2.2
million at prior year-end. This decrease reflects the successful collection
efforts on many loans previously classified. These efforts were aided by an
improving Bay Area real estate market where prices began to stabilize and
improved borrowers' financial conditions. During 1994, classified decreased
from $7.1 million to $2.2 million as the Company sold all foreclosed real
estate during the year and from successful classified loan collections. The
performance of any individual loans can be impacted by external factors such
as the interest rate environment or factors particular to the borrower.
Non-Performing Assets and Restructured Loans
As of December 31, 1995 and 1994 there were no other restructured loans,
foreign outstandings, loan concentrations or potential problem loans except as
discussed below or in the Consolidated Financial Statements and related
footnotes. See Note 1 of the Notes to Consolidated Financial Statements for a
discussion of the Bank's policy on non-accrual loans.
Non-performing assets include non-accrual loans and other real estate owned.
Loans are placed on non-accrual status upon reaching 90 days or more
delinquent, unless the loan is well secured and in the process of collection.
Interest previously accrued on loans placed on non-accrual status is charged
against interest income. Loans secured by real estate, with temporarily
impaired values and commercial loans to borrowers experiencing financial
difficulties, may be placed on non-accrual status even if the borrowers
continue to repay the loans as scheduled. Such loans are reinstated to an
accrual status when all principal and interest amounts contractually due are
reasonably assured of repayment within a reasonable period, and there is a
sustained period of repayment performance in accordance with the contractual
terms. When the ability to fully collect non-accrual loan principal is in
doubt, cash payments received are applied against the principal balance of the
loans until such time as full collection of the remaining recorded balance is
expected, at which point any additional payments received are recorded as
interest income on a cash basis.
Loans 90 days or more past due and still accruing, restructured loans, and
non-performing assets are as follows for December 31, 1995, 1994, and 1993:
December 31,
(in thousands) 1995 1994 1993
Loans 90 days or more past due
and still accruing interest $ - 66 118
Restructured loans 635 635 635
Non-performing assets:
Non-accrual loans 45 352 1,281
Other real estate owned - - 3,107
$ 45 352 4,388
Total $ 680 1,053 5,141
The levels of non-performing assets has decreased significantly over the past
three years due to both internal factors such as improved underwriting and
monitoring of loans, and external factors such as an improving Bay Area
economy and more stable real estate values. Non-performing assets were $45
thousand at December 31, 1995, down 87 percent from $352 thousand at December
31, 1994, due primarily to the resolution of non-accrual loans during the
year. At December 31, 1995, other real estate owned was $0 and there were no
foreclosure activity during the year.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The Bank has an established process to determine the adequacy of the allowance
for loan losses based upon the risk of loss inherent in its portfolio. This
process uses two complementary allocation procedures: Specific credit
allocations for problem loans; and an unallocated portion provided for the
remaining loan portfolio. While management has made specific and general
allocations to various portfolio segments, the total allowance for loan losses
is general in nature and is available for the portfolio in its entirety.
The Bank's determination of the level of the allowance rests upon various
judgments and assumptions, including portfolio composition and concentrations,
lending policies, delinquency trends and general economic conditions. The
Bank has a credit review and evaluation program which continuously reviews
loan quality, incorporating internal and external credit review. The results
of these reviews are reported to the Board of Directors. Such reviews also
assist management in establishing the level of the allowance.
The table below provides a breakdown of the allowance for loan losses by loan
category. Although management has allocated the allowance to specific loan
categories, the adequacy of the allowance must be considered in its entirety.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses.
Such agencies may require the Bank to recognize additions to the allowance
based on their judgement of information available to them at the time of their
examination.
December 31,
(in thousands) 1995 1994
Allowance % of Loans Allowance % of Loans
Domestic:
Commercial $ 226 1.22% 180 1.20%
Real Estate - Construction - - - -
Real Estate - Mortgage 82 0.45% 99 0.62%
Consumer 9 0.40% - -
Foreign - - - -
Unallocated 87 - 111 -
$ 404 1.04% 390 1.19%
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, Accounting by Creditors for Impairment of a
Loan, (SFAS 114), as amended by Standard of Financial Accounting Standards No.
118, Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures (SFAS 118). Under SFAS 114 a loan is considered impaired when,
based on current information and events, it is "probable" that a creditor will
be unable to collect all amounts due (principal and interest) according to the
contractual terms of the loan agreement. The measurement of impairment may be
based on (i) the present value of the expected cash flows of the impaired loan
discounted at the loan's original effective interest rate, (ii) the observable
market price of the impaired loans, or (iii) the fair value of the collateral
of a collateral-dependent loan. SFAS 114, as amended by SFAS 118, does not
apply to large groups of smaller balance homogeneous loans that are
collectively evaluated for impairment. The Company generally identifies loans
to be reported as impaired when such loans are in non accrual status or are
considered troubled debt restructurings due to the granting of a below-market
rate of interest or a partial forgiveness of indebtedness on an existing loan.
In measuring impairment for the purpose of establishing specific loan loss
reserves, the Company reviews all impaired commercial and construction loans
classified "Substandard" and "Doubtful". All "loss" classified loans are
fully reserved under the Company's standard loan loss reserve methodology.
Commercial and real estate loans that are not classified, groups of non-
classified, smaller balance loans such as installment loans and preferred
lines of credit, are evaluated collectively for impairment under the Company's
standard loan loss reserve methodology and are, therefore, excluded from the
specific evaluation using SFAS 114.
The following summarizes the Company's impaired loans at December 31, 1995:
Non-Accrual Troubled Debt Total Impaired Specific
(in thousands) Loans Restructurings Loans Reserves
$ 45 - 45 5
The average balances of the Company's impaired loans for the year ended
December 31, 1995 was $838 thousand. In general, the Company does not
recognize any interest income on loans that are classified as impaired.
Changes in the allowance for loan losses for the years 1995 and 1994 were as
follows:
(in thousands) 1995 1994
Balance, beginning of year $ 390 670
Charge-offs:
Domestic:
Commercial, financial and agricultural 63 117
Real estate: construction - -
Real estate: mortgage 221 504
Installment loans to individuals - 21
Lease financing - -
Foreign - -
Total charge-offs 284 642
Recoveries:
Domestic:
Commercial, financial and agricultural 255 157
Real estate: construction - -
Real estate: mortgage 3 32
Installment loans to individuals - -
Lease financing - -
Foreign - -
Total Recoveries 258 189
Net charge-offs 26 453
Provision for possible loan losses 40 173
Balance at end of year $ 404 390
Ratio of net charge-offs during the year to
average loans outstanding during the year 0.08% 1.24%
The Company has experienced reduced levels of chargeoffs over the past three
year period due to both internal factors such as improved underwriting and
monitoring of loans, and external factors such as an improving Bay Area
economy and more stable real estate values. Net chargeoffs in 1995 were $27
thousand or 0.08 percent of average total loans, compared with $453 thousand
or 1.24 percent in 1994 and $1 million or 2.23 percent in 1993. During 1993,
the increase in net loan chargeoffs reflected the chargeoff of certain problem
loans caused by a combination of the weak local economy and falling real
estate values in the Bay Area.
ASSET/LIABILITY MANAGEMENT
The fundamental objectives of the Company's asset/liability management policy
are to: (1) maintain liquidity and (2) minimize interest rate risk.
Liquidity
Liquidity is the ability to meet the present and future needs of customers for
funds, primarily the funding of loans and deposit withdrawals. Liquidity is
measured and managed at both the parent and banking subsidiary levels.
Bancorp is funded by dividend income from the Bank, as well as income from
outside sources and through the issuance of equity. Bancorp uses its proceeds
primarily to pay the Bank for administrative expenses.
In general, the primary source of liquidity for the Bank is the growth of core
deposits (particularly demand deposits), and the orderly repayment of the
Bank's loan portfolio. Because of the Bank's emphasis on relationship
banking, the establishment of both loan and deposit relationships with
customers, the Bank has a relatively stable, local deposit base, and brokering
deposits is not considered necessary. To supplement short-term liquidity
needs, the Bank maintains Fed Funds sold, time deposits with other financial
institutions, short-term money market and securities available for sale that
totalled approximately $19.1 million, or 29 percent of assets, at December 31,
1995. Additionally, the Bank has established unsecured line of credits with
correspondent banks and reverse repurchase facilities with securities dealers.
These credit facilities are subject to periodic review.
As shown in the Consolidated Statements of Cash Flows, liquidity, or cash and
cash equivalents increased to $9.9 million at December 31, 1995 compared to
$7.4 million at December 31, 1994. Net cash flows of $843 thousand, $896
thousand and $943 thousand were provided by operating activities in 1995,
1994, and 1993, respectively. Net cash flows of $7.4 million in 1995 were
provided by financing activities, primarily due to increases in deposits,
while $8.1 million and $6.5 million were used in financing activities in 1994
and 1993, respectively, principally to fund customer withdrawals of time
deposits.
Net cash flows of $5.7 million were used in investing activities in 1995,
primarily funding of loans. In 1994 and 1993, $8.0 million and $7.8 million,
respectively, were provided by investing activities, primarily from loan
principal repayments and in 1994, the sales of other real estate owned.
Interest Rate Risk
Bancorp evaluates its interest rate risk exposure by analyzing the interest
rate sensitivity of its balance sheet accounts. Interest rate sensitivity
measures the interval of time before interest-earning assets and interest-
bearing liabilities respond to changes in market rates of interest. The
difference between the amount of assets and amount of liabilities which may be
re-priced in the same time period is referred to as the "gap". If more assets
than liabilities are re-priced at a given time, net interest income tends to
improve in a rising rate environment and to decline with lower interest rates.
If more liabilities than assets are re-priced under the same conditions, the
opposite tends to prevail.
The table below shows the interest rate sensitivity of Bancorp based on asset
and liability repricing characteristics, excluding non-accruing loans, at
December 31, 1995 (in thousands). For this table, assets and liabilities are
assumed to reprice or mature according to contractual repricing or maturity
dates, except for market rate accounts which may be repriced at any time at
the Company's discretion.
Re-pricing Immediately 90 days 91-180 181-365 Over
Opportunity Adjustable or less days days 365 days Total
Rate sensitive assets:
Federal funds sold $ 4,725 - - - - 4,725
Interest-bearing
deposits - - 196 95 199 490
Securities 191 3,486 1,174 1,972 7,047 13,870
Loans 21,958 4,303 2,935 281 9,223 38,700
Interest earning assets $ 26,874 7,789 4,305 2,348 16,469 57,785
Rate sensitive liabilities:
Market rate accounts $ 26,914 - - - - 26,914
Savings 1,024 - - - - 1,024
Time deposits 2,294 8,629 3,577 1,768 2,905 19,173
Other borrowed funds - 71 115 - - 186
Interest paying
liabilities $ 30,232 8,700 3,692 1,768 2,905 47,297
Gap $ (3,358) (911) 613 580 13,564 10,488
Cumulative gap $ (3,358) (4,269) (3,656) (3,076) 10,488
The table indicates that overall, Bancorp re-prices more assets than
liabilities i.e., is asset-sensitive, and, therefore, generally earns a
greater interest spread as interest rates increase and earns a lower interest
spread as rates decrease. In the short-term, Bancorp reprices more
liabilities than assets, and is liability-sensitive.
Depending on interest rate trends and forecasts, Bancorp has the opportunity
to modify asset pricing or liability rates offered in a particular time frame
in order to reduce interest rate sensitivity. The ability to manage these
changes is affected by economic conditions, the competitive environment, and
the policies of governmental and regulatory authorities. Additionally,
certain assets and liabilities have option-like characteristics that may
affect net interest income through the exercise of those options as interest
rates change. Hedging strategies using interest rate futures and swaps, while
available, are generally not used by Bancorp.
CAPITAL RESOURCES
The capital position of Bancorp represents the level of capital needed to
support the operation and expansion of the Company and the Bank and to protect
depositors and the deposit insurance fund from potential losses. Management
regularly reviews capital adequacy to ensure that capital is consistent with
Bancorp's and the Bank's expected growth. Through December 31, 1995, Bancorp
had never paid a cash dividend to stockholders. On February 23, 1996, a
special dividend was declared to shareholders of record March 8, 1996.
Bancorp has no current plans to pay regular dividends.
Stockholder's equity totalled $6.5 million at December 31, 1995, up from $5.95
million at December 31, 1994 and $5.93 million at December 31, 1993. The
increase in stockholder's equity was due to Bancorp's net income for 1995, the
payoff of debt held by Bancorp's Employee Stock Ownership Plan and a decrease
in the level of unrealized losses in the Bank's available-for-sale securities.
Bancorp and the Bank are subject to risk-based capital adequacy requirements
which call for a minimum 8 percent total risk-based capital ratio, including a
Tier 1 capital ratio of 4 percent. There are two categories of capital under
the guidelines. Tier 1 capital includes common stockholders' equity and
qualifying preferred stock, less certain intangible assets. Tier 2 capital
generally includes, subject to limitations, preferred stock not qualifying as
Tier 1 capital, mandatory convertible debt, subordinated and unsecured senior
debt and the allowance for possible loan losses. The risk-based capital ratio
is determined by weighing assets and off-balance sheet exposures according to
their relative credit risks.
The Federal Reserve has also established a minimum capital requirement ratio.
This ratio, Tier 1 capital to quarterly average total assets, operates in
conjunction with the risk-based capital guidelines and limits the amount of
leverage a bank can undertake. Currently, all banks must maintain at least a
3 percent leverage ratio. In general, however, only the top-ranked banking
organizations may operate at the minimum capital levels. Other institutions
will be expected to maintain ratios that are at least 100 to 200 basis points
above the minimum levels of capital. It is management's intent to maintain
capital ratios for Bancorp and the Bank above the regulatory well-capitalized
levels, which are 6 percent for the Tier 1 capital ratio, 10 percent for the
total risk-based capital ratio, and 5 percent for the Tier 1 leverage ratio.
Between December 1992 and September 1994, the Bank was required to maintain a
Tier 1 capital ratio of at least 10.00%, and a leverage ratio of at least
6.00%, levels higher than the regulatory minimum, under the terms of the
Bank's Formal Agreement with the Office of the Comptroller of the Currency.
The Formal Agreement was terminated in September 1994.
Bancorp's and the Bank's capital ratios continued to exceed the minimum levels
required and were above the regulatory well-capitalized levels throughout
1995. Bancorp's and the Bank's capital ratios for 1995, 1994, and 1993 were:
December 31,
Capital Ratios 1995 1994 1993
Trans Pacific Bancorp:
Tier 1 Capital Ratio 15.81% 15.99% 12.05%
Risk-Based Capital Ratio 16.81% 17.06% 13.32%
Leverage Ratio 9.85% 9.80% 8.26%
Trans Pacific National Bank:
Tier 1 Capital Ratio 16.06% 16.08% 11.97%
Risk-Based Capital Ratio 17.05% 17.14% 13.23%
Leverage Ratio 10.03% 9.90% 8.23%
There are no known trends, events, or uncertainties that will have or that are
reasonably likely to have a material effect on the Company's capital
resources, liquidity, asset quality, or results of operations.
REPORT OF THE INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Trans Pacific Bancorp:
We have audited the accompanying consolidated balance sheets of Trans Pacific
Bancorp and Subsidiary (the Company) as of December 31, 1995 and 1994, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended December
31, 1995. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Trans
Pacific Bancorp and Subsidiary as of December 31, 1995 and 1994, and the
results of their operations and cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
San Francisco, California
January 26, 1996
CONSOLIDATED FINANCIAL STATEMENTS
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
Assets 1995 1994
Cash and due from banks (note 2) $ 5,190,611 3,127,239
Federal funds sold 4,725,000 4,250,000
Interest-bearing deposits with banks 489,713 687,017
Securities held to maturity, at amortized cost, (fair
value of $9,518,140 as of December 31, 1994
(note 3) - 9,742,510
Securities available for sale, at fair value (note 3) 13,870,220 4,077,976
Loans, net (notes 4, 10 and 11):
Commercial 18,555,335 14,965,760
Real estate 17,982,782 15,905,639
Installment 167,443 279,054
Preference lines 1,997,955 1,594,057
Other 40,573 14,322
Total loans 38,744,088 32,758,832
Allowance for loan losses 403,651 390,465
Loans, net 38,340,437 32,368,367
Premises and equipment, net (note 5) 932,553 1,036,590
Customer acceptances outstanding 50,393 119,150
Deferred tax asset, net (note 6) - 46,000
Intangible assets 437,141 536,121
Other assets 790,452 779,802
Total assets $ 64,826,520 56,770,772
Continued
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
Liabilities and Stockholders' Equity 1995 1994
Liabilities:
Non-interest-bearing demand deposits $ 10,453,322 11,355,927
Interest-bearing demand deposits 26,913,507 20,352,897
Savings 1,023,815 1,222,948
Time deposits (note 7) 19,173,344 16,868,465
Total deposits 57,563,988 49,800,237
Accrued interest payable 178,430 107,163
Other short-term borrowings 186,432 513,917
Borrowings for Employee Stock Ownership Plan (note 9) - 26,250
Acceptances outstanding 50,393 119,150
Deferred tax liability, net (note 6) 30,700 -
Other liabilities 284,606 253,216
Total liabilities 58,294,549 50,819,933
Commitments and contingencies (notes 12 and 16)
Stockholders' equity:
Common stock, no par value;
10,000,000 shares authorized, 1,118,195
shares issued and outstanding (note 8) 5,784,323 5,784,323
Retained earnings 768,648 323,266
Deferred compensation - Employee Stock
Ownership Plan (note 9) - (26,250)
Net unrealized losses on securities
available for sale (note 3) (21,000) (130,500)
Total stockholders' equity 6,531,971 5,950,839
Total liabilities and stockholders' equity $ 64,826,520 56,770,772
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
Interest income:
Loans $ 3,843,432 3,298,910 3,706,545
Investment securities, including dividends 739,133 655,848 486,651
Deposits with banks 23,240 36,481 52,871
Federal funds sold 249,237 268,166 187,400
Total interest income 4,855,042 4,259,405 4,433,467
Interest expense:
Deposits (note 7) 1,783,252 1,323,044 1,573,470
Other borrowed funds (note 9) 15,958 46,149 43,696
Total interest expense 1,799,210 1,369,193 1,617,166
Net interest income 3,055,832 2,890,212 2,816,301
Provision for possible loan losses (note 4) 40,000 173,000 889,000
Net interest income after provision
for possible loan losses 3,015,832 2,717,212 1,927,301
Non-interest income:
Gain on sale of securities - - 30,324
Service charges on deposit accounts 282,349 267,998 275,430
Other real estate owned - 83,982 145,452
Other charges and fees 315,416 312,013 403,490
Total non-interest income 597,765 663,993 854,696
Non-interest expense:
Salaries and employee benefits (note 9) 1,719,503 1,626,665 1,586,516
Occupancy 295,734 325,051 429,981
Furniture and equipment 96,514 94,793 120,221
Other real estate owned 214 106,885 458,509
Other operating 849,250 935,120 971,539
Total non-interest expense 2,961,215 3,088,514 3,566,766
Income (loss) before income taxes 652,382 292,691 (784,769)
Income tax expense (benefit) (note 6) 207,000 112,500 (170,800)
Net income (loss) $ 445,382 180,191 (613,969)
Net income (loss) per share $ 0.40 0.16 (0.54)
Average common shares outstanding (note 8) 1,118,195 1,127,305 1,143,195
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1995, 1994 and 1993
Deferred
Compensation- Unrealized
Employee Gains (losses) Total
Stock on Securities Stock-
Common Stock Retained Ownership Available holder
Shares Amount Earnings Plan For Sale Equity
Balance at
Dec. 31, 1992 1,143,195 $5,834,827 $757,044 $(116,250) $ - $6,475,621
Net loss - - (613,969) - - (613,969)
Debt reduction
of ESOP - - - 45,000 - 45,000
Unrealized gains
on securities
available
for sale,
net of tax - - - - 20,250 20,250
Balance at
Dec. 31, 1993 1,143,195 5,834,827 143,075 (71,250) 20,250 5,926,902
Net income - - 180,191 - - 180,191
Repurchase of
common stock (25,000) (50,504) - - - (50,504)
Debt reduction
of ESOP - - - 45,000 - 45,000
Change in
unrealized
losses on
securities
available
for sale,
net of tax - - - - (150,750) (150,750)
Balance at
Dec. 31, 1994 1,118,195 5,784,323 323,266 (26,250) (130,500) 5,950,839
Net income - - 445,382 - - 445,382
Debt reduction
of ESOP - - - 26,250 - 26,250
Change in
unrealized
gains on
securities
available
for sale,
net of tax - - - - 109,500 109,500
Balance at
Dec. 31, 1995 1,118,195 $5,784,323 $768,648 $ - $ (21,000) $ 6,531,971
Trans Pacific Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
Cash flows from operating activities:
Net income (loss) $ 445,382 180,191 (613,969)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 225,133 250,431 373,121
Provision for loan losses 40,000 173,000 889,000
Provision for real estate owned - 75,000 346,451
Loss (gain) on sale of other real estate owned - (48,135) 28,083
Gain on sale of securities held for sale - - (30,324)
Deferred tax expense 37,700 - 141,600
Increase (decrease) in accrued interest payable 71,267 11,183 (7,053)
Increase (decrease) in other liabilities 31,390 (45,734) (66,274)
(Increase) decrease in other assets (8,150) 300,556 (117,767)
Total adjustments 397,340 716,301 1,556,837
Net cash provided by operating activities 842,722 896,492 942,868
Cash flows from investing activities:
(Increase) decrease in loans funded,
net of principal collected (6,012,070) 6,843,566 9,356,173
Proceeds from principal repayments and
matured investment securities 4,265,543 7,725,811 5,491,052
Proceeds from sale of securities held for sale - - 1,533,935
Purchase of securities held to maturity - (8,031,885) (8,461,151)
Purchase of securities available for sale (4,169,277) (1,556,485) -
Net decrease (increase) in
interest-bearing deposits with banks 197,304 (33,848) (5,000)
Purchase of premises and equipment (22,116) (173,409) (21,220)
Proceeds from sale of other real estate owned - 3,482,593 336,666
Purchase of other real estate owned - (221,328) (437,994)
Net cash (used in) provided by investing
activities (5,740,616) 8,035,015 7,792,461
continued . . .
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Cash flows from financing activities:
Net increase (decrease) in demand
deposits and savings $ 5,458,872 (1,650,467) (2,379,313)
Net increase (decrease) in time deposits 2,304,879 (6,372,769) (3,713,158)
Proceeds from other short-term borrowings 186,432 3,169,448 2,322,122
Repayment of other short-term borrowings (513,917) (3,187,665) (2,739,955)
Repurchase of common stock - (50,504) -
Net cash provided by (used in) financing
activities 7,436,266 (8,091,957) (6,510,304)
Net increase in cash and cash equivalents 2,538,372 839,550 2,225,025
Cash and cash equivalents at beginning
of year 7,377,239 6,537,689 4,312,664
Cash and cash equivalents at end of year $ 9,915,611 7,377,239 6,537,689
Supplemental Disclosures of Cash Flow Information
Non-cash investing and financing activities:
Real estate acquired in settlement of loans $ - 181,431 221,705
Reduction of guaranteed ESOP obligation 26,250 45,000 45,000
Change in unrealized gains (losses) on
securities available for sale, net of taxes 109,500 150,750 -
Transfer of held-to-maturity securities
to available-for-sale 6,594,663 - -
Cash paid for:
Interest $ 1,799,210 1,358,010 1,624,219
Income taxes 147,400 800 25,800
Trans Pacific Bancorp and Subsidiary
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business and Significant Accounting Policies
Trans Pacific Bancorp, a registered banking holding company (Bancorp),
provides a full range of banking services to individual and corporate
customers in Northern California through its wholly-owned subsidiary bank,
Trans Pacific National Bank (the Bank). The Bank is subject to competition
from other financial institutions and to regulations of certain agencies and
undergoes periodic examinations by those regulatory agencies.
Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of Bancorp and the
Bank (the Company), and are prepared in conformity with generally accepted
accounting principles and general practices within the banking industry. The
following is a summary of significant policies used in the preparation of the
accompanying financial statements. In preparing the financial statements,
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of income and expenses
for the periods presented, in conformity with generally accepted accounting
principles. Actual results could differ from those estimates. Certain
reclassifications have been made to balances in preceding years to conform to
the current year presentation.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and federal funds sold. Generally, federal
funds are purchased and sold for a one day period.
Marketable Investment Securities
Marketable investment securities consist of US Treasury, mortgage-backed,
corporate debt securities, and Federal Reserve stock. The Company adopted the
provisions of Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities (Statement 115) at
December 31, 1993. Under Statement 115, the Company classifies its debt and
marketable equity securities in one of two categories: available-for-sale or
held-to-maturity. Held-to-maturity securities are those securities in which
the Company has the ability and intent to hold the security until maturity.
All other securities not included in held-to-maturity are classified as
available-for-sale. The Company engages in no securities trading activities.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Available-for-sale
securities are recorded at fair value. Unrealized holding gains and losses,
net of the related tax effect, on available-for-sale securities are excluded
from earnings and are reported as a separate component of stockholders' equity
until realized. Unrealized gains and losses associated with transfers of
securities from held-to-maturity to available-for-sale are recorded as a
separate component of stockholders' equity.
Premiums and discounts are amortized or accreted over the life of the related
security as an adjustment to yield using the effective interest method.
Dividend and interest income are recognized when earned. Realized gains and
losses for securities classified as available-for-sale and held-to-maturity
are included in earnings and are derived using the specific identification
method for determining the cost of securities sold.
A decline in the market value of any available for sale or held to maturity
security below cost that is deemed other than temporary, results in a charge
to earnings and the establishment of a new cost basis for the security.
Loans and Allowance for Loan Losses
Loans are stated at the amount of unpaid principal, net of deferred fees, and
reduced by an allowance for loan losses. Accrual of interest is discontinued
on loans which are more than 90 days delinquent when Management believes,
after considering economic and business conditions and collection efforts,
that the borrower's financial condition is such that collection of interest is
doubtful unless the loans are well-secured and in the process of collection.
When a loan is placed on non-accrual status, all interest previously accrued
but not collected is charged against current period income. Income on such
loans is then recognized only to the extent that cash is received and where
the future collection of principal is probable.
Non-refundable fees and direct loan origination costs are deferred and
amortized to income or expense over the expected loan period using a method
that approximates the interest method.
The allowance for loan losses is established through periodic provisions for
possible loan losses. Loans are charged against the allowance for loan losses
when Management believes that the collectibility of the principal is unlikely.
The allowance is a reserve to absorb possible losses on existing loans that
may become uncollectible, based on evaluations of the collectibility of loans
and prior loan loss experience. The evaluations include consideration of
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions
that may affect the borrowers' ability to pay.
Management believes that the allowance for loans losses is adequate. While
Management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance for
loan losses. Such agencies may require the Company to recognize additions to
the allowance based on their judgment of information available to them at the
time of their examination.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation, which
is computed using the straight-line method over the estimated useful lives of
the assets (3 to 20 years). Leasehold improvements are amortized over their
estimated useful lives or the terms of the respective leases, whichever is
shorter. Fully depreciated assets are removed from the Company's Balance
Sheet.
Impairment of Long-Lived Assets
In 1995, the Financial Accounting Standard Board issued the Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of (SFAS 121). Under the
provisions of SFAS 121, long-lived assets and certain identifiable intangibles
to be held and used by an entity are required to be reviewed for impairment
whenever events or changes indicate that the carrying amount of an asset may
not be recoverable. The Company will implement SFAS 121 in January 1996.
Management believes that the adoption of this statement will not have a
material impact on the Company's financial condition.
Other Real Estate Owned
Other real estate owned, consisting of real estate acquired in the settlement
of loans is carried at the lower of cost or the fair value less estimated
selling costs. Fair value represents the amount that could be reasonably
expected in a current sale (other than a forced or liquidation sale) between a
willing buyer and a willing seller and is generally based upon an independent
property appraisal. When the property is acquired, any excess of the loan
balance over fair value of the property is charged to the related allowance
for loan losses. Subsequent write-downs due to the declines in independent
property appraisals, and routine holding costs are included in other real
estate owned expense.
Core Deposit Intangibles
Core deposit intangibles are amortized over the estimated average life (10
years) of the acquired deposit base using the straight line method.
Net Income (Loss) per Share
Net income (loss) per share is computed by dividing net income (loss) by the
average number of shares outstanding during the period. The impact of common
stock equivalents, primarily stock options, is not material.
Income Taxes
The Company and its subsidiaries file consolidated tax returns. For financial
reporting purposes, the income tax effects of transactions are recognized in
the year in which they enter into the determination of recorded income,
regardless of when they are recognized for income tax purposes. Accordingly,
the provisions for income taxes in the consolidated statements of income
include charges or credits for deferred income taxes relating to temporary
differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements.
Note 2. Restricted Cash Balances
Federal Reserve Board regulations require reserve balances on deposits to be
maintained by the Bank with the Federal Reserve Bank. The required reserve
balances were $279,000 and $306,000 at December 31, 1995 and 1994,
respectively.
As compensation for check clearing and other services, compensating balances
of approximately $4,900,000 and $2,800,000 were maintained with correspondent
banks at December 31, 1995 and 1994, respectively.
Note 3. Investment Securities
The amortized cost, unrealized gains and losses and estimated fair value of
major components of available for sale securities and held to maturity
securities at December 31, 1995 and 1994 were as follows:
Amortized Unrealized Unrealized
1995 Cost Gains Losses Fair Value
Available for sale:
US Treasury securities $ 6,785,849 22,822 (9,687) 6,798,984
Government Agency securities 2,500,000 2,650 - 2,502,650
Mortgage-backed securities 2,690,646 24,340 (15,788) 2,699,198
Corporate debt securities 1,366,002 - (52,337) 1,313,665
Federal Reserve stock
and other securities 555,723 - - 555,723
$13,898,220 49,812 (77,812) 13,870,220
Amortized Unrealized Unrealized
1994 Cost Gains Losses Fair Value
Held to maturity:
US Treasury securities $ 8,285,393 949 (187,896) 8,098,446
Mortgage-backed securities 1,457,117 8,472 (45,895) 1,419,694
$ 9,742,510 9,421 (233,791) 9,518,140
Available for sale:
US Treasury securities 1,505,500 - (32,398) 1,473,102
Mortgage-backed securities $ 992,725 4,853 (56,056) 941,522
Corporate debt securities 1,410,357 - (90,399) 1,319,958
Federal Reserve stock
and other securities 343,394 - - 343,394
$ 4,251,976 4,853 (178,853) 4,077,976
The amortized cost and estimated fair value of investment securities at
December 31, 1995 and 1994, by contractual maturity are shown below. 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.
1995 Amortized Cost Fair Value
Available for sale:
Due in one year or less $ 5,237,875 5,242,447
Due after one year through five years 5,605,299 5,564,175
Mortgage-backed securities
2,690,646 2,699,198
Federal Reserve Stock and other securities 364,400 364,400
$ 13,898,220 13,870,220
1994 Amortized Cost Fair Value
Held to maturity:
Due in one year or less $ 4,447,696 4,422,490
Due after one year through five years 3,837,697 3,675,956
Mortgage-backed securities 1,457,117 1,419,694
$ 9,742,510 9,518,140
Available for sale:
Due in one year or less $ 132,894 132,894
Due after one year through five years 2,915,857 2,793,060
Mortgage-backed securities 992,725 941,522
Federal Reserve Stock and other securities 210,500 210,500
$ 4,251,976 4,077,976
There were no sales of securities during 1995 or 1994. In November 1995, the
Financial Accounting Standards Board issued a special report, A Guide to
Implementation of Statement No. 115, on Accounting for Certain Investments in
Debt and Equity Securities -- Questions and Answers (the Special Report). The
Special Report allowed companies to reassess the appropriateness of the
classifications of all securities held and account for any resulting
reclassification at fair value. Reclassifications from this one-time
reassessment will not call into question the intent of an enterprise to hold
other debt securities to maturity in the future, provided that it was
performed by December 31, 1995. The Company adopted the reclassification
provision stated in the Special Report prior to December 31, 1995 and
transferred approximately $6.6 million of held-to-maturity securities into
available-for-sale. The unrealized pretax gain upon transfer was
approximately $15,000 as of December 31, 1995.
Investment securities with an amortized cost of approximately $2,835,000 and
$1,896,000 at December 31, 1995 and 1994, respectively, were pledged to secure
public deposits and for other purposes required or permitted by law.
Note 4. Loan Concentrations and Allowance for Loan Losses
The majority of the Bank's business is done with customers located in Northern
California, specifically in the San Francisco Bay Area. The Bank has a
significant amount of credit arrangements that are secured by real estate
collateral. Generally, the Bank attempts to maintain loan to value ratios no
greater than 65 percent on commercial and multi-family real estate loans and
no greater than 80 percent on single-family residential real estate loans. At
December 31, 1995 and 1994, the Bank had loans outstanding of approximately
$17,983,000 and $15,906,000 respectively, that were collateralized by local
real estate.
Changes in the allowance for loan losses were as follows:
1995 1994 1993
Balance, beginning of year $ 390,465 670,116 795,251
Provision for possible loan losses 40,000 173,000 889,000
Loan charge-offs (284,860) (641,849) (1,026,106)
Recoveries of loan charge-offs 258,046 189,198 11,971
Balance, end of year $ 403,651 390,465 670,116
Net loan chargeoffs, as a percentage
of average total loans 0.08% 1.24% 2.23%
Non-accrual loans were $45,199, $352,330, and $1,281,321, at December 31,
1995, 1994, and 1993, respectively. At December 31, 1995, there were no
additional loan commitments to borrowers whose loans were identified as non-
accrual.
Loans that were restructured were $0, $0, and $635,000, at December 31, 1995,
1994, and 1993, respectively. At December 31, 1995, there were no additional
loan commitments to borrowers whose loans were identified as restructured.
The following is a summary of interest foregone on non-accrual and
restructured loans for the years ended December 31:
(in thousands) 1995 1994 1993
Interest income that would have been
recognized had the loans performed
in accordance with their original
terms $ 4,474 18,837 176,978
Less: Interest income recognized on
non-accrual and restructured loans - - (73,121)
Interest foregone on non-accrual and
restructured loans $ 4,474 18,837 103,857
The Company adopted the provisions of Statement of Financial Accounting
Standard No. 114, Accounting by Creditors for Impairment of Loan, as amended
by SFAS No. 118, Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures, effective January 1, 1995. SFAS 114 required
entities to measure certain impaired loans based on the present value of
future cash flows discounted at the loan's effective interest rate, or at the
loan's market value or the fair value of collateral if the loan is secured. A
loan is considered impaired when, based on current information and events, it
is probable that the Company will be unable to collect all amounts due
according to the contractual terms of the loan agreement, including scheduled
interest payments. If the measurement of the impaired loans is less than the
recorded investment in the loan, impairment is recognized by creating or
adjusting an existing allocation of the allowance for loan losses. The
adoption of SFAS 114 did not have a material effect on the Company's financial
statements, as the Company's policy of measuring loan impairment was
consistent with methods prescribed in these standards. At December 31, 1995,
the recorded investment in loans for which impairment was recognized in
accordance with SFAS 114 totaled $45,199, of which there was a related reserve
for loan losses of $4,520.
The average balances of the Company's impaired loans for the year ended
December 31, 1995, was $838,282. In general, the Company does not recognize
any interest income on loans that are classified as impaired.
Note 5. Premises and Equipment
The following presents the cost of premises and equipment including leasehold
improvements and the related accumulated depreciation and amortization at
December 31:
1995 1994
Premises and leasehold improvements $ 2,142,446 2,142,446
Furniture, fixtures and equipment 822,368 1,126,971
2,964,814 3,269,417
Less accumulated depreciation and amortization (2,032,261) (2,232,827)
Premises and equipment, net $ 932,553 1,036,590
Depreciation and amortization expense related to premises and equipment
amounted to $126,153, $151,443, and $287,766, in 1995, 1994 and 1993,
respectively.
Note 6. Income Taxes
Income tax expense (benefit) for the years ended December 31, 1995, 1994, and
1993 consists of:
1995 1994 1993
Current:
Federal $ 166,900 94,500 (314,000)
State 2,400 18,000 1,600
169,300 112,500 (312,400)
Deferred:
Federal (33,700) - 119,290
State 71,400 - 22,310
37,700 - 141,600
$ 207,000 112,500 (170,800)
A reconciliation of the tax computed at the Federal statutory tax rate to the
actual income tax rate on income is as follows:
1995 1994 1993
Income tax expense (benefit)
at the statutory tax rate 34.0% 34.0% (34.0)%
State income taxes, net 7.5 4.0 3.0
Current year benefit derived from previously
capitalized expenses - - (6.6)
Other, net 3.9 0.4 0.3
Change in deferred tax
asset valuation allowance (13.7) - 15.6
31.7% 38.4% (21.7)%
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1995 and
1994 are presented below:
1995 1994
Deferred tax assets:
Book provision for loan losses in excess of tax $ 2,800 39,900
State taxes 800 800
Net operating loss - 87,750
Premises and equipment, principally due to
differences between depreciation and
amortization charged to income and
amount deducted for tax purposes 42,200 26,600
Adjustment for available-for-sale securities
market valuation 7,000 46,000
Other, net 8,000 2,800
60,800 203,850
Less: valuation allowance (33,700) (122,950)
Total deferred tax assets 27,100 80,900
Deferred tax liabilities:
Difference between accrual
and cash taxable income 57,800 34,900
Total deferred tax liabilities 57,800 34,900
Net deferred tax (liability) asset $ (30,700) 46,000
Note 7. Deposits
Time deposits of $100,000 or more and their remaining maturities at
December 31 are approximately as follows:
1995 1994
Three months or less $ 6,992,000 5,866,000
Four through six months 1,971,000 2,161,000
Seven through twelve months 759,000 1,763,000
Over twelve months 967,000 400,000
$ 10,689,000 10,190,000
Interest expense on time deposits of $100,000 or more was approximately
$578,000, $437,000, and $557,000 for the years ended December 31, 1995, 1994
and 1993 respectively.
Note 8. Common Stock and Stock Options
Bancorp has adopted a qualified stock option plan for officers and key
employees (the Plan) under which a maximum of 100,000 shares of the Bancorp's
common stock may be issued. The Plan calls for the exercise prices of the
options to be equal to or greater than the fair market value of the stock at
date of the grant. Since 1984, options for a total of 92,500 shares of common
stock have been granted with an option price of $5.00 per share, with full
vesting generally occurring within five to seven years of the grant date. The
expiration period of vested options ranges from the years 1997 through 2000,
or within six months of termination. The number of shares of common stock
subject to options and exercisable at December 31, 1995 was 45,400.
In 1990, Bancorp adopted a non-qualified stock option plan for certain of its
directors. Persons eligible to receive grants of options under this plan are
directors of Bancorp and the Bank. The amount of shares of stock that may be
subject to options granted under the plan is limited to 10% of the total
number of issued and outstanding shares of Bancorp stock. In October 1990,
stock options to acquire 35,000 shares of common stock were granted to the
directors with an option price of $5.25 per share. In December 1995, stock
options to acquire 28,750 shares of common stock were granted to the directors
with an option price of $4.50 per share. These options are immediately
exercisable and expire in ten years from the date of grant, or within six
months of resignation. No options had been exercised as of December 31, 1995.
The number of shares of common stock subject to these options and exercisable
at December 31, 1995 was 56,250.
The following is a summary of transactions which occurred during 1993, 1994
and 1995:
Options Outstanding
Officers & Employees Directors
December 31, 1992 35,000 35,000
Options granted 22,500 -
Options expired/forfeited - (7,500)
December 31, 1993 57,500 27,500
Options granted 35,000 -
Options expired/forfeited (30,000) -
December 31, 1994 62,500 27,500
Options granted - 28,750
Options expired/forfeited - -
December 31,1995 62,500 56,250
Options exercisable at December 31, 1995 45,400 56,250
On October 23, 1995, the Financial Accounting Standards Board issued Statement
No. 123, Accounting for Stock-Based Compensation, (SFAS 123). The recognition
provisions and disclosure requirements of SFAS 123 are effective January 1,
1996. SFAS 123 allows an entity to either (i) retain the current method of
accounting for stock compensation (principally APB Opinion No. 25) for
purposes of preparing its basic financial statements, or (ii) adopt a new fair
value based method that is established by the provisions of SFAS 123. The
Company plans to retain its current method of accounting for stock
compensation when it adopts this statement in 1996, and thus, it will not have
an impact on the Company's results of operations.
Note 9. Employee Stock Ownership Plan
In July, 1990, the Bancorp created an Employee Stock Ownership Plan (ESOP) for
the benefit of all employees who have worked for the Bank for one or more
years. The ESOP borrowed $180,000 at a variable interest rate from a third
party financial institution, to be repaid over a 5 year period. The loan was
paid off in 1995. The proceeds from the borrowing were used to purchase
48,400 shares of Bancorp common stock for the ESOP which was pledged as
collateral for the borrowing. For the years ended December 31, 1995, 1994,
and 1993, the Bank provided cash contributions of $26,250, $45,000 and
$45,000, respectively, which were included in salaries and employee benefits.
Interest expense on ESOP debt was $2,600, $6,300, and $8,200 for 1995, 1994
and 1993, respectively.
Note 10. Related Party Transactions
In the ordinary course of business, the Bank makes loans to directors,
officers, shareholders and their associates on substantially the same terms,
including interest rates, origination and commitment fees, and collateral, as
comparable transactions with unaffiliated persons, and such loans do not
involve more than the normal risk of collectibility. At December 31, 1995, no
related party loans were on non-accrual or classified for regulatory reporting
purposes.
Total loans made to or guaranteed by the Bank's directors and officers and
their related companies totaled $2,546,172 and $2,641,733 at December 31, 1995
and 1994, respectively. Activity related to loans to directors, officers and
principal shareholders and their associates for the year ended December 31,
1995 and 1994 is as follows:
1995 1994
Balance at December 31, 1994 $ 2,641,733 2,751,070
New loans or disbursements 276,500 424,189
Principal repayments (372,061) (533,526)
Balance at December 31, 1995 $ 2,546,172 2,641,733
Note 11. Commitments and Contingencies
Bancorp leases certain banking premises under an operating lease that expires
April 1, 2001, with a renewal option under similar terms until April 1, 2004.
Minimum rental commitments for future years under these noncancelable leases
are as follows at December 31, 1995:
1996 $ 120,000
1997 120,000
1998 120,000
1999 120,000
2000 120,000
thereafter 30,000
$ 630,000
The total rental expense was $120,000 for each of the years ended December 31,
1995, 1994, and 1993.
Additionally, the Bank is involved in various claims and lawsuits in the
normal course of its business. In the opinion of management, after review
with independent legal counsel, the ultimate liability resulting from such
claims and lawsuits will not have a material adverse effect on the financial
position, results of operations, or liquidity of the Bank.
Note 12. Financial Instruments with Off-Balance-Sheet Risk
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 customers.
These financial instruments include commitments to extend credit, 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 consolidated 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 and 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.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained if deemed necessary by the Bank upon extension of credit
is based on management's credit evaluation. Collateral held varies but may
include cash, securities, accounts receivable, inventory, property, plant and
equipment, residential real estate and income-producing commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. Financial instruments whose contract amounts represent credit risk
at December 31:
1995 1994
Commitments to extend credit $ 12,949,000 12,124,000
Standby letters of credit $ 775,000 1,968,000
Note 13. Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1995. The fair value of
financial instruments does not represent actual amounts that may be realized
upon any sale or liquidation of the related assets or liabilities. In
addition, these values do not give effect to discounts to fair value which may
occur when financial instruments are sold in larger quantities. The fair
values presented represent the Company's best estimate of fair value using the
methodologies discussed below.
The respective carrying values of certain on-balance-sheet financial
instruments approximated their fair values. These financial instruments
include cash and due from banks, interest-bearing deposits in banks, federal
funds sold, customers' acceptance liability, accrued interest receivable,
other short-term borrowings, acceptances outstanding and accrued interest
payable. Carrying values were assumed to approximate fair values for these
financial instruments as they are short term in nature and their recorded
amounts approximate fair values or are receivable or payable on demand. The
Company does not use derivative financial instruments.
1995
Carrying Fair
Amount Value
Financial Assets
Securities available for sale 13,870,220 13,870,220
Loans 38,744,088 38,561,377
Financial Liabilities
Deposits 57,563,988 57,607,208
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Securities: The fair values of securities classified as available-for-sale
are based on quoted market prices at the reporting date for those or similar
investments.
Loans: The fair value of fixed rate loans is determined as the present value
of expected future cash flows discounted at the interest rate currently
offered by the Company, which approximates rates currently offered by local
lending institutions for loans of similar terms to companies with comparable
credit risk. Variable rate loans which reprice frequently with changes in
market rates, were valued using the outstanding principal balance.
Deposits: The fair values of demand deposits, savings deposits, and money
market deposits without defined maturities were the amounts payable on demand.
For substantially all deposits with defined maturities, the fair values were
calculated using discounted cash flow models based on market interest rates
for different product types and maturity dates. For variable rate deposits
where the Company has the contractual right to change rates, carrying value
was assumed to approximate fair value. The discount rates used were based on
rates for comparative deposits.
Note 14. Condensed Financial Information of Trans Pacific Bancorp (Parent
Company Only)
Condensed Balance Sheets
December 31,
1995 1994
Assets:
Cash and due from banks $ 27,884 87,371
Investment in subsidiary 6,511,607 5,892,791
Other assets - 5,000
Total assets $ 6,539,491 5,985,162
Liabilities:
Borrowings for Employee Stock Ownership Plan - 26,250
Other liabilities 7,520 8,073
Stockholders' Equity:
Common stock 5,784,323 5,784,323
Retained Earnings 768,648 323,266
Deferred Compensation - Employee Stock
Ownership Plan - (26,250)
Net unrealized losses on
available for sale securities (21,000) (130,500)
Total liabilities and stockholders' equity $ 6,539,491 5,985,162
Condensed Statements of Operations
Years Ended December 31,
1995 1994 1993
Income:
Gain on sale of premises $ - - 314,382
Other income 1,363 2,932 56,126
1,363 2,932 370,508
Expenses 65,297 55,045 118,410
Income (loss) before taxes and equity in
undistributed income
(loss) of subsidiary (63,934) (52,113) 252,098
Income tax expense (benefit) - - -
Net income (loss) before equity in
undistributed ncome (loss) of subsidiary (63,934) (52,113) 252,098
Equity in undistributed income (loss)
of subsidiary 509,316 232,304 (866,067)
Net income (loss) $ 445,382 180,191 (613,969)
Condensed Statements of Cash Flows
Years ended December 31,
1995 1994 1993
Cash flows from operating activities:
Net income (loss) $ 445,382 180,191 (613,969)
Adjustments to reconcile net income
(loss) to net cash (used in) provided
by operating activities:
Depreciation and amortization - - 18,932
Gain on sale of premises and leasehold - - (314,382)
Decrease in other assets 5,000 - -
(Decrease) increase in other liabilities (553) (2,533) 10,184
Increase (decrease) in due to subsidiary - - (103,917)
Equity in undistributed income (loss)
of subsidiary (509,316) (232,304) 866,067
Total adjustments (504,869) (234,837) 476,884
Net cash used in operating activities: (59,487) (54,646) (137,085)
Cash flows from investing activities:
Investment in subsidiary - - (350,000)
Proceeds from sale of premises and leasehold - - 1,146,204
Net cash provided by investing activities - - 796,204
Cash flows from financing activities:
Repurchase of common stock - (50,504) -
Repayment of note payable - - (489,832)
Net cash used in financing activities - (50,504) (489,832)
Net (decrease) increase in cash and
cash equivalents (59,487) (105,150) 169,287
Cash and cash equivalents at beginning
of year 87,371 192,521 23,234
Cash and cash equivalents at end
of year $ 27,884 87,371 192,521
Note 15. Capital Adequacy
The capital position of Bancorp represents the level of capital needed to
support the operation and expansion of the Company and to protect Bank
depositors and the Federal deposit insurance fund from potential losses.
Bancorp and the Bank are subject to minimum regulatory ratios for risk-based
capital and were in compliance with such requirements throughout 1995. Both
Bancorp's and the Bank's capital ratios are as follows, at December 31:
Regulatory
Minimum at
1995 1994 1995 & 1994
Bancorp:
Tier 1 capital ratio 15.81% 15.99% 4.00%
Total capital ratio 16.81% 17.06% 8.00%
Leverage ratio 9.85% 9.80% 3.00%
Bank:
Tier 1 capital ratio 16.06% 16.08% 4.00%
Total capital ratio 17.05% 17.14% 8.00%
Leverage ratio 10.03% 9.90% 3.00%
Between December 1992 and September 1994, the Bank was required to maintain a
Tier 1 capital ratio of at least 10.00%, and a leverage ratio of at least
6.00%, levels higher than the regulatory minimums shown above, under the terms
of the Bank's Formal Agreement (see Note 16).
Note 16. Regulatory Matters
On December 17, 1992, the Bank entered into a Formal Agreement (the Agreement)
with the Office of the Comptroller of the Currency (OCC). The Formal
Agreement required the Bank to maintain Tier 1 capital of at least 10.00% of
risk-weighted assets and Tier 1 capital of at least 6.00% of adjusted total
assets.
The Agreement also required the following of the Bank: (1) develop a program
to improve the effectiveness of Board supervision; (2) develop a program to
improve the Bank's loan administration and underwriting; (3) develop and
implement an asset review program to ensure the timely identification of
problem loans, other real estate owned and other assets; (4) develop and
implement a written program to collect or strengthen criticized and classified
loan assets; (5) submit a 3 year capital plan for OCC approval; and (6)
develop a plan to improve liquidity management. The Agreement also restricted
the Bank's ability to pay dividends to Bancorp.
On September 8, 1994, the Bank's Formal Agreement with the OCC was terminated,
as the Bank had achieved full compliance with the Agreement.
On July 22, 1993, Bancorp and the Federal Reserve Bank, Bancorp's primary
regulator, signed a Memorandum of Understanding (MOU). This MOU required
Bancorp to: (1) report on measures taken to improve the financial condition of
Trans Pacific National Bank, (2) report on measures taken to improve the
Directors' supervision of Trans Pacific National Bank, and (3) furnish
quarterly progress reports that shall include financial statements and
information detailing the form and manner of all actions to attain compliance
with the MOU.
Additionally, Bancorp was required to obtain Federal Reserve approval before:
(1) paying cash dividends to shareholders, (2) incurring additional debt, (3)
repurchasing outstanding stock, and (4) adding or replacing a Director or
senior executive officer.
On February 27, 1995, Bancorp's MOU with the Federal Reserve Bank was
terminated.
Under the National Bank Act, the Bank is subject to prohibitions on the
payment of dividends in certain circumstances and to restrictions on the
amount that can be paid to Bancorp without the prior approval of the Office of
the Comptroller of the Currency (OCC). Without the Comptroller's approval,
dividends for a given year cannot exceed the Bank's net profits, as defined by
national bank laws, for that year and retained from the preceding two years.
Under this formula, the Bank could have declared dividends to Bancorp of
$203,000. No dividends were paid by the Bank to Bancorp in 1993, 1994 and
1995, respectively.
TRANS PACIFIC BANCORP
BOARD OF DIRECTORS
JAMES A. BABCOCK
President
Sandy & Babcock, Inc.
EDDY S.F. CHAN
Banker, Chairman
Trans Pacific National Bank
FRANKIE G. LEE
Partner, SOH & Associates
Structural Engineers
JOHN K. LEE
President, John K. Lee, C.P.A.
A Professional Corporation
BRUCE NAKAHIRA
President
New Century Investments, Inc.
JOHN T. STEWART
Attorney, Partner
Hovis, Larson, Stewart, Lipscomb,
Cross
SIMON S. TENG
Partner
John R. McKean Accountants
FRANK K.W. WONG
Adv & Visual Merchandising Director
National Dollar Store, Ltd.
JOHN K. WONG
Banker, Executive Vice President
Trans Pacific National Bank
DIRECTORS EMERITI
MERLE S. KONIGSBERG
President (Retired)
Shaff Furniture Company
WARREN K. MILLER
Transportation Consultant
(Retired)
TRANS PACIFIC NATIONAL BANK
PRINCIPAL OFFICERS
EDDY S.F. CHAN
Chairman, President
Chief Executive Officer
Director
ROBERT A. HINKLE
Executive Vice President
Chief Lending Officer
INTERNATIONAL TRADE DIVISION
JOHN K. WONG
Executive Vice President
Senior Lending Officer
Director
BONNIE L. HAO
Senior Vice President
SAN FRANCISCO BRANCH
GRANT BARNEY SCHLEY
Senior Vice President
Regional Branch Manager
EAST BAY BUSINESS BANKING CENTER
LORRAINE S. BRAUD
Vice President
Branch Manager
ANNUAL MEETING
The annual meeting of shareholders
will be held Thursday, May 23, 1996
at 4:30 p.m., local time
46 Second Street
San Francisco, California
CERTIFIED PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP
San Francisco, California
COMMON STOCK
Stock transactions are facilitated
by
Van Kasper & Company
San Francisco, California
Hoefer & Arnett
San Francisco, California
PRINCIPAL TRANSFER AGENT
AND REGISTRAR
First Interstate Bank of California
San Francisco, California
GENERAL COUNSEL
Nossaman, Guthner, Knox & Elliott
San Francisco, California
TRANS PACIFIC NATIONAL BANK
SAN FRANCISCO BRANCH
COMMERCIAL AND
INTERNATIONAL TRADE DIVISIONS
46 Second Street
San Francisco, CA 94105-3440
Tel: (415) 543-3377
Fax: (415) 495-5154
Telex: RCA 210903 TPNB
EAST BAY BUSINESS BANKING CENTER
1442 Webster Street
Alameda, CA 94501-3339
Tel: (510) 769-1000
Fax: (510) 769-1180
ADMINISTRATION HEADQUARTERS
46 Second Street
San Francisco, CA 94105-3440
Tel: (415) 543-3377
Fax: (415) 495-5154
Telex: RCA 210903 TPNB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended: September 30, 1996 Commission file number: 2-86902
TRANS PACIFIC BANCORP
(Exact name of registrant as specified in its charter)
California 94-2917713
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
46 Second Street, San Francisco, California 94105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 543-3377
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
Number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Class: Outstanding at: October 31, 1996
Common Stock, no par value 1,120,195
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION 3
ITEM 1: UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 3
Consolidated Balance Sheets 3
Consolidated Statements Of Operations 5
Consolidated Statements Of Changes In Stockholders' Equity 6
Consolidated Statement Of Cash Flows 7
Notes to Unaudited Interim Consolidated Financial Statements 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 10
PART II 18
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 2. CHANGES IN SECURITIES 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
ITEM 5. OTHER INFORMATION 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES 20
Part I - Financial Information
Item 1: Unaudited Interim Consolidated Financial Statements
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
(unaudited)
Assets September 30, September 30, December 31,
1996 1995 1995
Cash and due from banks $ 4,121,885 4,689,706 5,190,611
Federal funds sold 8,200,000 6,530,000 4,725,000
Interest-bearing deposits with banks 488,000 390,713 489,713
Securities held to maturity (fair
value of $6,622,000) - 6,628,458 -
Securities available for sale,
at fair value 15,202,337 6,188,824 13,870,220
Loans:
Commercial 17,977,104 18,593,603 18,555,335
Real estate 22,835,213 17,415,260 17,982,782
Preference lines 2,217,916 1,807,599 1,997,955
Installment and other loans 319,267 173,034 208,016
Total Loans 43,349,500 37,989,496 38,744,088
Allowance for possible loan losses 426,530 422,629 403,651
Loans, net 42,922,970 37,566,867 38,340,437
Premises and equipment, net 883,907 977,538 932,553
Customer acceptance liabilities 361,944 277,604 50,393
Core deposit intangibles 362,910 461,887 437,141
Accrued interest receivable and
other assets 937,984 778,876 790,452
$ 73,481,937 64,490,475 64,826,520
See accompanying notes to the unaudited interim consolidated financial
statements.
continued . . .
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS - continued
(unaudited)
Liabilities and Stockholders' Equity
September 30, September 30, December 31,
1996 1995 1995
Liabilities:
Non-interest-bearing demand deposits $ 10,965,190 11,360,340 10,453,322
Interest-bearing demand deposits 32,315,018 25,677,836 26,913,507
Savings 852,070 1,106,954 1,023,815
Time deposits 20,569,147 19,200,755 19,173,344
Total deposits 64,701,425 57,345,884 57,563,988
Accrued interest payable 184,475 168,379 178,430
Other borrowed funds 667,789 87,887 186,432
Acceptances outstanding 361,944 277,604 50,393
Other liabilities 658,471 216,928 315,306
Total liabilities 66,574,104 58,096,681 58,294,549
Commitments and contingencies
Stockholders' Equity:
Common stock, no par value;
10,000,000 shares authorized,
1,120,195, 1,118,195 and
1,118,195 shares outstanding 5,794,323 5,784,323 5,784,323
Retained Earnings 1,181,760 637,971 768,648
Net unrealized losses on securities
available for sale (68,250) (28,500) (21,000)
Total Stockholders' Equity 6,907,833 6,393,794 6,531,971
$ 73,481,937 64,490,475 64,826,520
See accompanying notes to the unaudited interim consolidated financial
statements.
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
3 months ended September 30, 9 months ended September 30,
1996 1995 1996 1995
Interest income:
Loans $ 1,106,910 963,758 3,179,037 2,793,181
Investment securities 207,222 176,989 588,574 539,532
Deposits with banks 7,272 6,784 26,632 15,863
Federal funds sold 108,967 82,029 225,349 151,069
Total interest income 1,430,371 1,229,560 4,019,592 3,499,645
Interest expense:
Deposits 545,528 492,822 1,529,738 1,269,507
Other borrowed funds 10,088 696 18,988 14,127
Total interest expense 555,616 493,518 1,548,726 1,283,634
Net interest income
before provision 874,755 736,042 2,470,866 2,216,011
(recovery)for loan losses
Provision (recovery) for (40,000) - (40,000) 40,000
loan losses
Net interest income
after provision
(recovery) for
loan losses 914,755 736,042 2,510,866 2,176,011
Non-interest income:
Service charges on deposit
accounts 47,330 78,505 194,838 208,324
Gain on loan sale - - 23,625 -
Other charges and fees 107,358 82,773 280,243 220,839
Total non-interest income 154,688 161,278 498,706 429,163
Non-interest expense:
Salaries and employee
benefits 416,682 377,486 1,192,552 1,203,599
Occupancy expense 62,819 72,337 203,747 218,865
Furniture and equipment
expense 19,362 25,348 55,975 75,694
Other operating expenses 215,151 199,507 715,730 653,311
Total non-interest expense 714,014 674,678 2,168,004 2,151,469
Income before income taxes 355,429 222,642 841,568 453,705
Income tax expense 142,000 68,000 339,000 139,000
Net income $ 213,429 154,642 502,568 314,705
Average shares outstanding 1,119,777 1,118,195 1,118,722 1,118,195
Net income per share
(note 2) $ 0.19 0.14 0.45 0.28
Dividend declared per
share $ - - 0.08 -
See accompanying notes to the unaudited interim consolidated financial
statements.
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
Deferred Unrealized
Compensation- Gain (loss)
Employee on Total
Stock Securities Stock-
Common Stock Retained Ownership Available holders'
Shares Amount Earnings Plan For Sale Equity
Balance at
Dec. 31, 1994 1,118,195 $5,784,323 $ 323,266 $(26,250) $(130,500) $5,950,839
Net income - - 314,705 - - 314,705
Debt reduction
of ESOP - - - 26,250 - 26,250
Change in
unrealized
loss on
securities
available
for sale,
net of tax - - - - 102,000 102,000
Balance at
Sep. 30, 1995 1,118,195 5,784,323 637,971 - (28,500) 6,393,794
Net income - - 130,677 - - 130,677
Change in
unrealized
loss on
securities
available
for sale,
net of tax - - - - 7,500 7,500
Balance at
Dec. 31, 1995 1,118,195 5,784,323 768,648 - (21,000) 6,531,971
Net income - - 502,568 - - 502,568
Dividends paid - - (89,456) - - (89,456)
Stock options
exercised 2,000 10,000 - - - 10,000
Change in
unrealized
loss on
securities
available
for sale,
net of tax - - - - (47,250) (47,250)
Balance at
Sep. 30, 1996 1,120,195 $5,794,323 $1,181,760 $ - $ (68,250) $6,907,833
See accompanying notes to the unaudited interim consolidated financial
statements.
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
9 months ended September 30,
1996 1995
Cash flows from operating activities:
Net income $ 502,568 314,705
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 152,664 171,725
Provision (recovery) for loan losses (40,000) 40,000
Increase in accrued interest payable 6,045 61,216
Increase (decrease) in other liabilities 358,917 (33,788)
(Increase) decrease in accrued interest
receivable and other assets (147,532) 10,422
Total adjustments 330,094 249,575
Net cash provided by operating activities 832,662 564,280
Cash flows from investing activities:
Increase in loans funded, net of principal
collected (4,542,533) (5,238,500)
Net decrease in deposits with banks 1,713 296,304
Purchase of securities available for sale (9,621,239) (2,386,236)
Proceeds from principal repayments and maturity
of securities 8,226,122 3,525,440
Purchase of fixed assets (29,789) (38,439)
Net cash used in investing activities (5,965,726) (3,841,431)
Cash flows from financing activities:
Net increase in demand deposits and savings 5,741,634 5,213,358
Net increase in time deposits 1,395,803 2,332,290
Proceeds from other borrowed funds 860,326 223,400
Repayment of other borrowed funds (378,969) (649,430)
Dividends paid (89,456) -
Stock options exercised 10,000 -
Net cash provided by financing activities 7,539,338 7,119,618
Net increase in cash and cash equivalents 2,406,274 3,842,467
Cash and cash equivalents at beginning of period 9,915,611 7,377,239
Cash and cash equivalents at end of period $ 12,321,885 11,219,706
See accompanying notes to the unaudited interim consolidated financial
statements.
continued . . .
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS - continued
(unaudited)
9 months ended September 30,
1996 1995
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,542,681 1,222,418
Income taxes 107,400 137,400
Non-cash investing and financing activities:
Reduction of guaranteed ESOP obligation - 26,250
Change in unrealized loss on securities
available for sale, net of income taxes (47,250) 102,000
Disclosure of accounting policy:
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, and federal funds sold. Generally, federal funds
are sold for one-day periods.
See accompanying notes to the unaudited interim consolidated financial
statements.
Note 1. Basis of Presentation
The financial information of Trans Pacific Bancorp (Bancorp) and its
wholly-owned subsidiary, Trans Pacific National Bank (the Bank), included
herein is unaudited; however, such information reflects all adjustments, which
are, in the opinion of management, necessary for a fair presentation of
financial condition, results of operations and cash flows in conformity with
generally accepted accounting principles for the interim periods. These
adjustments are all normal and recurring in nature.
The results of operations for the nine month and three month periods
ended September 30, 1996 are not necessarily indicative of the results to be
expected for the full year. This report should be read in conjunction with
Bancorp's annual report on Form 10-K for the year ended December 31, 1995.
Certain amounts in prior periods have been reclassified to conform to
the current period presentation.
Note 2. Net Income per Share
Net income per share is computed by dividing the net income by the
average number of shares outstanding during the periods. The dilutive effect
of stock options is not material and has been excluded from the per share
presentation.
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
When used in the following discussion, the words "believes",
"anticipates" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties
which could cause actual results to differ materially from those projected,
including, but not limited to, those set forth in the sections entitled "Asset
Quality", "Asset/Liability Management", "Capital Resources", and "Legal
Proceedings" below. Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date hereof. Bancorp
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
I. Overview
Trans Pacific Bancorp reported earnings of $213,429, or $0.19 per share,
in the third quarter of 1996, compared to earnings of $154,642, or $0.14 per
share, in the third quarter of 1995. Net income for the first nine months of
1996 was $502,568 or $0.45 per share, compared to a net income of $314,705, or
$0.28 per share, in the first nine months of 1995.
Return on average assets, or ROA, was 1.21 percent for the third quarter
of 1996, versus 0.98 percent in the same period for 1995. For the first nine
months of 1996, ROA was 0.97 percent, compared to 0.69 percent for the first
nine months of 1995. Return on average equity, or ROE, was 12.61 percent for
the third quarter of 1996, versus 9.80 percent in the same period for 1995.
For the first nine months of 1996, ROE was 9.97 percent, compared to 6.80
percent for the first nine months of 1995.
The third quarter 1996 results reflect the Bank's increased business
development efforts and the improved San Francisco Bay Area economy.
Accordingly, 1996 earnings were higher compared to the 1995 results.
At September 30, 1996, total assets were $73.5 million, up 13 percent
from December 31, 1995, and up 14 percent from September 30, 1995. Total
deposits were $64.7 million at September 30, 1996 up 12 and 13 percent from
December 31, 1995 and September 30, 1995, respectively, while total loans were
$43.3 million, up 12 and 14 percent from December 31, 1995 and September 30,
1995, respectively.
II. Results of Operations
The following details the components of net income for the nine months
ended September 30, 1996 and 1995:
(as a percentage of average earning assets) 1996 1995
Net interest income 5.41% 5.73%
Provision (recovery)for loan losses 0.09 (0.10)
Non-interest income 1.09 1.11
Non-interest expense (4.75) (5.57)
Income tax expense (0.74) (0.36)
Net income 1.10% 0.81%
Net interest income was $2.5 million for the first nine months of 1996,
up 12 percent from $2.2 million for the same period ending September 1995.
Separately, for the first nine months of 1996, interest income increased $520
thousand, or 15 percent, and interest expense increased $265,000, or 21
percent compared to the first nine months of 1995. The increase in interest
income was due to the increase in the volume of earning assets, primarily
loans, but was offset slightly by a lower prime rate in 1996. The increase in
interest expense was due to both the 17 percent increase in average interest-
paying liabilities, and the 14 basis point increase in cost of funds due to
higher time deposit rates.
As shown below, the average net yield on interest-earning assets, or net
interest margin, was 5.41 percent for the first nine months of 1996, lower
than the 5.73 percent in the first nine months of 1995. For the third quarter,
net interest-earning assets yield was 5.38 percent in 1996, versus 5.40
percent in the same period of 1995, and 5.47 percent in the second quarter of
1996.
The following table lists the average amounts, in thousands, outstanding
for major categories of interest-earning assets (excluding non-accrual loans)
and interest-bearing liabilities and the average interest rates earned
(including loan fee income) and paid for the periods indicated
Average Balances and Rates Three months ended September 30,
1996 1995
Interest Average Interest Average
Average Income/ Yield Average Income/ Yield/
Balance Expense Rates Balance Expense Rate
Earning Assets:
Loans $ 43,218 1,107 10.24% 36,236 964 10.64%
Investment securities 13,546 207 6.12% 12,230 177 5.79%
Federal funds sold 7,814 109 5.58% 5,662 82 5.79%
Interest-bearing deposits
with banks 440 7 6.60% 391 7 6.95%
Total interest-earning
assets $ 65,018 1,430 8.80% 54,519 1,230 9.02%
Interest-Bearing Liabilities:
Deposits:
Demand, interest-bearing $ 30,682 271 3.53% 25,467 226 3.55%
Savings 939 5 2.26% 1,142 6 2.19%
Time 20,159 269 5.35% 18,715 261 5.56%
Other short-term borrowings 845 10 4.77% 54 1 5.12%
Total interest-bearing
liabilities $ 52,625 555 4.22% 45,378 494 4.35%
Net interest income $ 875 $ 736
Net interest-earning
assets yield 5.38% 5.40%
Average Balances and Rates Nine months ended September 30,
1996 1995
Interest Average Interest Average
Average Income/ Yield Average Income/ Yield/
Balance Expense Rates Balance Expense Rate
Earning Assets:
Loans $ 41,705 3,179 10.16% 35,294 2,793 10.55%
Investment securities 13,240 589 5.93% 12,463 540 5.77%
Federal funds sold 5,462 225 5.50% 3,406 151 5.91%
Interest-bearing deposits
with banks 517 27 6.87% 360 16 5.87%
Total interest-earning
assets $ 60,924 4,020 8.80% 51,523 3,500 9.06%
Interest-Bearing Liabilities:
Deposits:
Demand, interest-bearing $ 28,203 734 3.47% 22,373 551 3.29%
Savings 1,015 17 2.25% 1,225 21 2.22%
Time 19,354 779 5.36% 18,171 698 5.12%
Other short-term borrowings 532 19 4.76% 289 14 6.51%
Total interest-bearing
liabilities $ 49,104 1,549 4.21% 42,058 1,284 4.07%
Net interest income $ 2,471 $ 2,216
Net interest-earning
assets yield 5.41% 5.73%
Non-interest income for the first nine months of 1996 was $499 thousand,
compared to $429 thousand for the same period in 1995, an increase of 16
percent. Non-interest income was $155 thousand in the third quarter of 1996,
compared to $161 thousand in the third quarter of 1995, a decrease of 4
percent. The decrease was caused by lower deposit account service charges,
collections fees and letter of credit commissions in 1996. Also included in
the non-interest income was the $24 thousand gain on sale of a loan in the
first quarter of 1996.
Non-interest expense for the first nine months of 1996 was $2.17
million, compared to $2.15 million for the same period of 1995. Personnel
expense in 1996 remained at relatively the same level as in 1995. Although
full-time equivalent employees were reduced by two and no ESOP contribution
was made in 1996, these savings were offset by expenses accrued for payments
under a management incentive plan. Occupancy and furniture and equipment
expense decreased by 12 percent in 1996 as some equipment became fully
depreciated in 1995. For the first nine months of 1996, other operating
expenses were $716 thousand, up 10 percent compared to the first nine months
of 1995. The increase was primarily due to increased branch operations losses
totaling $71 thousand, and increased legal expenses. However, the FDIC
insurance premium decreased to $2 thousand in the first nine months of 1996,
from $53 thousand in the same period of 1995, which lowered non-operating
expense.
Tax expense was $339 thousand for the first nine months of 1996 versus
tax expense of $139 thousand for the same nine months of 1995. The effective
tax rate for 1996 was 40 percent, versus 31 percent in 1995. The lower
effective tax rate in 1995 was primarily due to the reduction of the valuation
allowance which increased the net deferred tax asset to an amount that was
more likely than not to be realized. The increase in the deferred tax asset
in 1995 had the corresponding effect of reducing tax expense in that year. The
anticipated reduction of the remaining valuation allowance in 1996 will not
have a significant effect on the effective tax rate accrual through September
30, 1996.
III. Asset Quality
Asset quality continued to be maintained at satisfactory levels during
the third quarter of 1996. Classified assets totaled $1.7 million at September
30, 1996, compared to $1.4 million at December 31, 1995 and $2.7 million at
September 30, 1995. Non-performing assets, comprised of non-accrual loans,
totaled $21 thousand at September 30, 1996, compared to $45 thousand at
December 31, 1995 and $1.0 million at September 30, 1995. There was no real
estate owned as of September 30, 1996.
Due to the continued satisfactory levels of asset quality, there was no
addition to the provision for loan losses in the first nine months of 1996.
However, there was a reduction of $40,000 in provision for loan losses in the
third quarter of 1996 due to recovery of a previously charged-off loan. In
1995, the provision for loan losses were $0 and $40,000 in the third quarter
of 1995 and the first nine months of 1995, respectively. The determination of
the provision for loan losses and, correspondingly, the level of the allowance
for loan losses is based on evaluations of changes in the nature and volume of
the loan portfolio, overall portfolio quality, review of specific problem
loans, prior loan loss experiences and current economic conditions that may
affect the borrower's ability to pay.
The following table summarizes the provision for loan losses, net credit
recoveries and allowance for loan loss activity for the periods indicated:
(in thousands) For the three months For the nine months
ended September 30, ended September 30,
1996 1995 1996 1995
Balance, beginning of period $ 417 536 404 390
Provision (recovery) for loan losses (40) - (40) 40
Credit losses - (130) (4) (236)
Credit loss recoveries 50 17 67 229
Net credit recoveries (losses) 50 (113) 63 (7)
Balance, end of period $ 427 423 427 423
Ratio of net credit recoveries (losses)
to average loans outstanding 0.46% (1.21)% 0.21% (0.03)%
The allowance for possible loan losses increased to $427 thousand, or
0.98 percent of total loans at September 30, 1996 compared to $404 thousand at
December 31, 1995, which was 1.04 percent of total loans at 1995 year end, and
$423 thousand, which 1.11 percent of total loans at September 30, 1995. The
increase in the allowance was the result of recoveries during 1996 of loans
previously charged off.
The table below provides a breakdown of the allowance for loan losses by
loan category as of September 30, 1996 and 1995, and December 31, 1995.
Although management has allocated the allowance to specific loan categories,
the adequacy of the allowance must be considered in its entirety. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to recognize additions to the allowance based on their
judgment of information available to them at the time of their examination.
(in thousands) Sept. 30, 1996 Sept. 30, 1995 Dec. 31, 1995
% of % of % of
Allowance Loans Allowance Loans Allowance Loans
Commercial $ 264 1.47% $ 236 1.27% $ 226 1.22%
Real Estate - Construction - - - - - -
Real Estate - Mortgage 99 0.43% 100 0.58% 82 0.45%
Consumer 9 0.36% - - 9 0.40%
Unallocated 55 - 87 - 87 -
$ 427 0.98% $ 423 1.11% $ 404 1.04%
IV. Asset/Liability Management
The fundamental objectives of the asset/liability management policy of
Bancorp and the Bank are to: (1) maintain liquidity and (2) minimize interest
rate risk.
Liquidity: Liquidity is the Bank's and Bancorp's ability to meet the
present and future needs of its customers for funds, primarily the funding of
loans and deposit withdrawals. Liquidity is measured and managed at both the
parent and banking subsidiary levels. Bancorp is funded by dividend income
from the Bank and uses its proceeds primarily to pay the Bank for
administrative expenses.
In general, the growth of core deposits and the orderly repayment of the
Bank's loan portfolio are the primary sources of liquidity. Also, because of
its emphasis on relationship banking, the Bank has a relatively stable, local
deposit base, and customer deposits and withdrawals have been and are expected
to continue to be orderly and manageable. To support short-term liquidity
needs, the Bank maintains Fed Funds sold, time deposits with other financial
institutions, short-term money market instruments and securities available for
sale that totaled approximately $23.9 million, or 33 percent of assets at
September 30, 1996. Additionally, the Bank has established unsecured lines of
credit with its correspondent banks and reverse repurchase facilities with
securities dealers. These credit facilities are subject to periodic review.
As shown in the unaudited interim Consolidated Statement of Cash Flows,
cash and cash equivalents increased to $12.3 million at September 30, 1996,
compared to $9.9 million as of December 31, 1995 and $11.2 million as of
September 30, 1995. Cash was provided primarily from customers deposits and
used primarily to fund loans during the first nine months of 1996.
Interest Rate Risk: Bancorp evaluates its interest rate risk exposure
by analyzing the interest rate sensitivity of the Bank's balance sheet
accounts. Interest rate sensitivity measures the interval of time before
interest earning assets and interest bearing liabilities respond to changes in
market rates of interest.
The "gap" is defined by the Bank as the difference between the amount of
assets and amount of liabilities which may be re-priced in the same time
period. If more assets than liabilities are re-priced at a given time, net
interest income tends to improve in a rising rate environment and to decline
with lower rates. If more liabilities than assets are re-priced under the same
conditions, the opposite tends to prevail. In general, the Bank re-prices more
assets than liabilities and, therefore earns greater interest spread as
interest rates, particularly the Bank's prime rate, increase and earns a
lesser interest spread as rates decrease. To minimize exposures to declines in
net interest margin and economic value due to "gap" mismatches, the Bank's
policy is that within certain defined repricing periods, levels of assets and
liabilities repricing should be relatively similar.
At September 30, 1996, due to the increase in interest-bearing demand
deposits, the Bank will re-price more liabilities than assets within the next
twelve months, which differs from the Bank's typical repricing patterns, but
still acceptable under the Bank's policy. Approximately $45.9 million, or 68
percent of the Bank's total interest rate sensitive assets and $53.0 million,
or 98 percent of the Bank's total rate sensitive liabilities mature or reprice
within twelve months.
V. Capital Resources
The capital position of Bancorp represents the level of capital needed
to support the operation and expansion of Bancorp and the Bank and to protect
depositors and the deposit insurance fund from potential losses.
The risk-based capital adequacy requirements established by the Federal
Reserve Board calls for a minimum 8 percent total risk-based capital ratio,
including core (Tier 1) capital of 4 percent. The ratio is determined by
weighing assets and off-balance sheet exposures according to their relative
credit risks.
A leverage ratio has also been established by the Office of the
Comptroller of the Currency (OCC) for its minimum capital requirement ratio
for banks. This ratio, Tier 1 capital to adjusted average total assets,
operates in conjunction with the risk-based capital guidelines and limits the
amount of leverage a bank can undertake. Currently all banks must maintain at
least a 3 percent leverage ratio. In general, however, only the top-ranked
banking organizations may operate at the minimum leverage levels. Other
institutions will be expected to maintain leverage ratios that are at least
100 to 200 basis points above the minimum levels.
Bancorp's and the Bank's capital ratios at September 30, 1996 and 1995,
and December 31, 1995 are as follows:
Sept. 30, Sept. 30, Dec. 31, Regulatory
1996 1995 1995 Minimum
Bancorp:
Tier 1 capital ratio 13.71% 15.43% 15.81% 4.00%
Total capital ratio 14.56% 16.45% 16.81% 8.00%
Leverage ratio 9.67% 10.46% 9.85% 3.00%
Bank:
Tier 1 capital ratio 14.04% 15.22% 16.06% 4.00%
Total capital ratio 14.90% 16.24% 17.05% 8.00%
Leverage ratio 9.91% 10.28% 10.03% 3.00%
Bancorp's and the Bank's capital and leverage ratios were in compliance
with the regulatory minimums as of September 30, 1996. Capital ratios were
slightly lower at September 30, 1996 as risk-weighted assets, principally
loans, grew at a faster rate than capital during the first nine months of
1996
VI. Recent Accounting Pronouncements
During 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
Accounting for Stock-Based Compensation. This established a new fair value
based accounting method for stock-based compensation plans and encourages (but
does not require) employers to adopt the new accounting method in place of the
provisions of Accounting Principles Board Opinion ("APB 25"), Accounting for
Stock Issued to Employees. In accordance with SFAS No. 123, Bancorp has
decided to continue to apply the accounting provisions of APB 25 in
determining net income; however it will apply the disclosure requirements of
SFAS No. 123 in the 1996 Annual Report. Management does not expect the
application of the disclosure requirements of SFAS No. 123 to be material to
Bancorp's financial statements.
In June 1996, the FASB issued Statement of Financial Accounting
Standards No. 125 ("SFAS No. 125"), Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. This statement
establishes standards under which, after a transfer of financial assets, an
entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has
been surrendered, and derecognizes liabilities when extinguished. SFAS No.
125 shall be effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and shall be
applied prospectively. Management does not expect the adoption of SFAS No.
125 to be material to Bancorp's financial statements.
Part II
Item 1. Legal Proceedings
The Bank is involved in various claims and lawsuits in the normal course of
its business. In the opinion of management, after review with independent
legal counsel, the ultimate liability resulting from such claims and lawsuits
will not have a material adverse effect on the financial position, results of
operations, or liquidity of Bancorp or the Bank.
Additionally, the Bank has been notified of a potential unasserted claim
relating to a specific corporate deposit account. Independent legal counsel
has requested additional information from the underlying corporate entity and
the basis for any potential claim. Based on the information available at this
time, management is unable to determine what liability, if any, will result
from the resolution of this matter or whether any claim will be made. As
discussed in Item 5 below, Bancorp has considered this matter in the pricing
and escrow structure in the Agreement and Plan of Merger.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Definitive Agreement Signed: On October 18, 1996, Bancorp entered into a
definitive agreement pursuant to which a private investor group led by Chicago
banker Denis Daly, Sr. will acquire all of the issued and outstanding shares
of Bancorp.
Subject to certain terms and conditions, each outstanding share of Bancorp
will be converted into the right to receive a cash payment of $8.00 per share
at closing and a possible subsequent payment from escrowed funds of up to
$0.61 per share following the resolution of certain pending contingencies. The
acquisition of Bancorp is subject to approval by regulatory authorities as
well as shareholders of Bancorp. The transaction is expected to be completed
by March 31, 1997.
Stock Option Plan: In 1984, Bancorp adopted the Trans Pacific Bancorp Stock
Option Plan (the "Plan"), which provided for the issuance of options to
employees of Bancorp and the Bank. The Plan was a qualified plan under the
provisions of Section 422 of the Internal Revenue Code. The Plan allowed the
grant of options to qualified employees for up to ten years after the date of
the adoption of the Plan. The Plan was submitted to and approved by the
shareholders of Bancorp in accordance with applicable law. The Plan remains in
effect until all options granted under the Plan have either been exercised or
have expired under the terms of the Plan.
In 1989, the Board of Directors approved proposed amendments to the Plan to,
among other things, shorten the period within which options could be granted
to qualified employees, from ten to seven years. Under the terms of the Plan,
any material amendment to the Plan required submission to the shareholders of
Bancorp prior to its effectiveness. No determination was made whether the
proposed amendment was a material amendment of the Plan and the proposed Plan
amendment was not submitted to the shareholders for approval. In 1993, options
were granted to certain eligible employees, for an aggregate of 27,500 shares
of Common Stock of Bancorp.
In September, 1996, it was determined that the proposed Plan amendment to
shorten the period within which options could be granted under the Plan was a
material amendment, and as such, required prior submission to the shareholders
and thus was ineffective. Accordingly, the Board has rescinded the proposed
Plan amendment retroactive to the date of its approval by the Board. Prior
filings of the Company will be amended as appropriate.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 2.2 Agreement and Plan of Merger, incorporated by
reference from Bancorp's 8-K filing dated October 25,
1996
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K:
After the third quarter of 1996, Bancorp filed a report on Form 8-K on
October 25, 1996. The report filed, pursuant to items 5 and 7 of the report, a
copy of the Agreement and Plan of Merger and a copy of the press release
titled "Private Investor Group Led by Chicago Banker Denis Daly, Sr. Announces
Agreement to Acquire Trans Pacific Bancorp".
Signatures
Pursuant to the requirements of Section 15(c) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
TRANS PACIFIC BANCORP
/s/ Eddy S.F. Chan
Eddy S.F. Chan, President
/s/ Dennis B. Jang
Dennis B. Jang, Chief Financial Officer
Date: November 12, 1996
