<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission file number 0-19368
-----------
COMMUNITY FIRST BANKSHARES, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware 46-0391436
------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
520 Main Avenue
Fargo, ND 58124
------------------------------- -------------------------------------
(Address of principal executive offices) (Zip Code)
(701) 298-5600
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicated 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
----- -------
At May 8, 1996, 11,448,856 shares of Common Stock were outstanding.
---------------------------------------------------------
<PAGE>
COMMUNITY FIRST BANKSHARES, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
INDEX
PART I - FINANCIAL INFORMATION: PAGE
Item 1. Condensed Consolidated Financial Statements and Notes ..... 3-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................. 9-13
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings ......................................... 14
Item 2. Changes in Securities ..................................... 14
Item 3. Defaults Upon Senior Securities ........................... 14
Item 4. Submission of Matters to a Vote of Security Holders ....... 14
Item 5. Other Information ......................................... 14
Item 6. Exhibits and Reports on Form 8-K .......................... 14
SIGNATURES .............................................................. 15
2
<PAGE>
COMMUNITY FIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks. . . . . . . . . . . . . . . .$ 74,453 $ 106,882
Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . 12,200 10,220
Interest-bearing deposits. . . . . . . . . . . . . . . 2,220 3,065
Available-for-sale securities. . . . . . . . . . . . . 409,400 405,127
Held-to-maturity securities (fair values: $215,914 and
$222,227, respectively) . . . . . . . . . . . . . . . 216,065 221,417
Loans. . . . . . . . . . . . . . . . . . . . . . . . . 1,491,568 1,495,450
Less: Allowance for loan losses. . . . . . . . . . . (20,072) (19,549)
- --------------------------------------------------------------------------------
Net loans. . . . . . . . . . . . . . . . . . . . . 1,471,496 1,475,901
Bank premises and equipment. . . . . . . . . . . . . . 42,003 35,737
Accrued interest receivable. . . . . . . . . . . . . . 24,692 25,525
Other assets . . . . . . . . . . . . . . . . . . . . . 18,720 20,089
Intangible assets. . . . . . . . . . . . . . . . . . . 22,454 22,824
- --------------------------------------------------------------------------------
Total assets . . . . . . . . . . . . . . . . . . .$2,293,703 $ 2,326,787
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing. . . . . . . . . . . . . . . . .$ 246,127 $ 280,292
Interest-bearing . . . . . . . . . . . . . . . . . . 1,710,074 1,709,649
- --------------------------------------------------------------------------------
Total deposits . . . . . . . . . . . . . . . . . . 1,956,201 1,989,941
Federal funds purchased and securities sold under
agreements to repurchase . . . . . . . . . . . . . . 43,039 42,932
Other short-term borrowings. . . . . . . . . . . . . . 56,913 40,779
Long-term debt . . . . . . . . . . . . . . . . . . . . 49,770 69,788
Capital lease obligations. . . . . . . . . . . . . . . 3,388 1,364
Accrued interest payable . . . . . . . . . . . . . . . 14,469 14,864
Other liabilities. . . . . . . . . . . . . . . . . . . 8,900 10,104
- --------------------------------------------------------------------------------
Total liabilities. . . . . . . . . . . . . . . . . 2,132,680 2,169,772
Minority interest. . . . . . . . . . . . . . . . . . . 898 956
Shareholders' equity:
Preferred stock. . . . . . . . . . . . . . . . . . . 23,000 23,000
Common stock . . . . . . . . . . . . . . . . . . . . 115 115
Capital surplus. . . . . . . . . . . . . . . . . . . 43,342 42,177
Retained earnings. . . . . . . . . . . . . . . . . . 95,234 91,831
Common stock in treasury, at cost --
March 31, 1996 -- 37,477 shares, December 31,
1995 -- 78,624 shares. . . . . . . . . . . . . . . (566) (1,064)
- --------------------------------------------------------------------------------
Total equity . . . . . . . . . . . . . . . . . . . 160,125 156,059
- --------------------------------------------------------------------------------
Total liabilities and equity . . . . . . . . . . .$2,293,703 $2,326,787
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
COMMUNITY FIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
(Dollars in thousands, except per share data) (restated)
(Unaudited) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Loans. . . . . . . . . . . . . . . . . . . . . . . . $ 34,509 $ 25,749
Investment securities. . . . . . . . . . . . . . . . 9,229 8,065
Interest-bearing deposits. . . . . . . . . . . . . . 34 92
Federal funds sold and resale agreements . . . . . . 283 172
- --------------------------------------------------------------------------------
Total interest income. . . . . . . . . . . . . . . 44,055 34,078
Interest expense:
Deposits . . . . . . . . . . . . . . . . . . . . . . 17,784 13,179
Short-term and other borrowings. . . . . . . . . . . 885 1,398
Long-term debt . . . . . . . . . . . . . . . . . . . 1,077 536
- --------------------------------------------------------------------------------
Total interest expense . . . . . . . . . . . . . . 19,746 15,113
- --------------------------------------------------------------------------------
Net interest income. . . . . . . . . . . . . . . . . . 24,309 18,965
Provision for loan losses. . . . . . . . . . . . . . . 847 519
- --------------------------------------------------------------------------------
Net interest income after provision for loan losses. . 23,462 18,446
- --------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts. . . . . . . . . 2,138 1,620
Fees from fiduciary activities . . . . . . . . . . . 609 536
Insurance commissions. . . . . . . . . . . . . . . . 937 678
Net loss on sales of available-for-sale securities . - (38)
Other. . . . . . . . . . . . . . . . . . . . . . . . 819 956
- --------------------------------------------------------------------------------
Total noninterest income:. . . . . . . . . . . . . 4,503 3,752
- --------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits . . . . . . . . . . . 9,805 7,452
Net occupancy. . . . . . . . . . . . . . . . . . . . 2,655 2,048
FDIC expense . . . . . . . . . . . . . . . . . . . . 62 872
Legal and accounting . . . . . . . . . . . . . . . . 385 373
Other professional service . . . . . . . . . . . . . 368 521
Data processing. . . . . . . . . . . . . . . . . . . 164 204
Acquisitions . . . . . . . . . . . . . . . . . . . . 5 166
Minority interest. . . . . . . . . . . . . . . . . . 39 37
Amortization of intangibles. . . . . . . . . . . . . 574 323
Other. . . . . . . . . . . . . . . . . . . . . . . . 3,619 2,604
- --------------------------------------------------------------------------------
Total noninterest expense. . . . . . . . . . . . . 17,676 14,600
Income before income taxes . . . . . . . . . . . . . . 10,289 7,598
Income taxes . . . . . . . . . . . . . . . . . . . . . 3,503 2,799
- --------------------------------------------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . $ 6,786 $ 4,799
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dividends on preferred stock . . . . . . . . . . . . . 402 402
- --------------------------------------------------------------------------------
Net income applicable to common equity . . . . . . . . $ 6,384 $ 4,397
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Earnings per common and common equivalent share:
Primary earnings per share . . . . . . . . . . . . . $0.55 $0.39
Fully diluted earnings per share . . . . . . . . . . $0.52 $0.37
Average common and common equivalent shares:
Primary. . . . . . . . . . . . . . . . . . . . . . .11,610,116 11,408,685
Fully diluted. . . . . . . . . . . . . . . . . . . .13,069,899 12,858,082
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common dividends declared. . . . . . . . . . . . . . . $0.14 $0.12
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
COMMUNITY FIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
(Dollars in thousands) (restated)
(Unaudited) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . $ 6,786 $ 4,799
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses. . . . . . . . . . . . . 847 519
Depreciation . . . . . . . . . . . . . . . . . . . 1,259 668
Amortization of intangibles. . . . . . . . . . . . 574 323
Amortization of premium. . . . . . . . . . . . . . 539 514
Increase in interest receivable. . . . . . . . . . 833 797
(Decrease) increase in interest payable. . . . . . (395) 1,139
Other - net. . . . . . . . . . . . . . . . . . . . 709 (4,741)
- --------------------------------------------------------------------------------
Net cash provided by operating activities. . . . . . . 11,152 4,018
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in interest-bearing deposits. . . . . . . 845 569
Purchases of available-for-sale securities . . . . . . (73,850) (8,839)
Maturities of available-for-sale securities. . . . . . 67,254 16,381
Purchases of held-to-maturity securities . . . . . . . (1,641) (3,221)
Maturities of held-to-maturity securities. . . . . . . 6,855 9,618
Sales of available-for-sale securities, net of losses. - 996
Net decrease in loans. . . . . . . . . . . . . . . . . 3,558 7,878
Net increase in bank premises and equipment. . . . . . (7,525) (224)
Net decrease in minority interest. . . . . . . . . . . (58) (4,680)
- --------------------------------------------------------------------------------
Net cash (used in) provided by investing activities. . (4,562) 18,478
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits, NOW accounts and
savings accounts . . . . . . . . . . . . . . . . . . (49,431) (73,647)
Net increase in time accounts. . . . . . . . . . . . . 15,691 66,969
Net increase (decrease) in short-term and other
borrowings . . . . . . . . . . . . . . . . . . . . . 16,241 (17,898)
Net decrease in long-term debt . . . . . . . . . . . . (17,994) (2,362)
Purchase of common stock held in treasury. . . . . . . (160) (56)
Sale of common stock held in treasury. . . . . . . . . 620 372
Preferred stock dividends paid . . . . . . . . . . . . (402) (402)
Common stock dividends paid. . . . . . . . . . . . . . (1,604) (1,271)
- --------------------------------------------------------------------------------
Net cash used in financing activities. . . . . . . . . (37,039) (28,295)
- --------------------------------------------------------------------------------
Net decrease in cash and cash equivalents. . . . . . . (30,449) (5,799)
Cash and cash equivalents at beginning of period . . . 117,102 85,005
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period . . . . . . $ 86,653 $ 79,206
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
COMMUNITY FIRST BANKSHARES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements,
which include the accounts of Community First Bankshares, Inc. (the "Company"),
its wholly-owned data processing, credit origination and insurance agency
subsidiaries, and its thirteen majority-owned subsidiary banks, have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting solely of normal recurring accruals) considered
necessary for fair presentation have been included.
The Company acquired Minowa Bancshares, Inc. ("Minowa"), on February 22,
1995, and First Community Bankshares, Inc. ("First Community"), on July 3, 1995,
in transactions accounted for as poolings of interests. Accordingly, the
consolidated financial information has been restated for all periods prior to
the acquisitions to include the accounts and operations of these institutions.
The acquisitions of Minowa and First Community resulted in the addition of
approximately $224 million and $153 million in assets, respectively.
EARNINGS PER COMMON SHARE
Primary earnings per common share is calculated by dividing net income,
after reduction for preferred stock dividends declared, by the weighted average
number of common shares and equivalents outstanding. Common share equivalents
included in the computation represent the number of shares of common stock
issuable upon assumed exercise of stock options and warrants during each period.
On a fully diluted basis, both net income and common shares outstanding are
adjusted to assume the conversion of convertible preferred stock outstanding
from the beginning of the period or date of issuance, if later. Such
adjustments to the weighted average number of shares of common stock outstanding
are made only when such adjustments dilute earnings per share.
NOTE B - BUSINESS COMBINATIONS
On March 8, 1996, the Company signed a definitive merger agreement with
Financial Bancorp, Inc. ("Financial Bancorp"), which owns 100% of the
outstanding capital stock of the Trinidad National Bank, Trinidad, Colorado.
Upon completion of the merger, the Company will issue shares of common stock to
holders of Financial Bancorp common stock. Financial Bancorp has total assets
of approximately $68 million. The completion of this transaction is subject to
approval by the shareholders of Financial Bancorp and other conditions. This
transaction is expected to be completed in the third quarter of 1996 and is
expected to be accounted for using the pooling of interests method of
accounting.
6
<PAGE>
NOTE C - INVESTMENTS
The following is a summary of available-for-sale and held-to-maturity
securities at March 31, 1996 (in thousands):
<TABLE>
<CAPTION>
Available-for-Sale Securities
- ------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States Treasury............. $123,445 $ 424 $ (531) $123,338
United States Government agencies.. 46,655 188 (341) 46,502
Mortgage-backed securities......... 177,111 1,494 (1,025) 177,580
Collateralized mortgage
obligations...................... 54,457 317 (281) 54,493
Other securities 7,503 58 (74) 7,487
- ------------------------------------------------------------------------------------------
$409,171 $ 2,481 $(2,252) $409,400
<CAPTION>
Held-to-Maturity Securities
- ------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States Government agencies.. $ 688 $ - $ - $ 688
Mortgage-backed securities......... 101,625 702 (1,661) 100,666
State and political................ 50,735 927 (121) 51,541
Other securities................... 63,017 2 - 63,019
- ------------------------------------------------------------------------------------------
$216,065 $ 1,631 $ (1,782) $215,914
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
Proceeds from the sale of available-for-sale securities during the three
months ended March 31, 1996 and 1995, were $0 and $960,000, respectively. No
gains were realized on sales during 1996 and 1995. Gross losses of $0 and
$36,000 were realized on these sales during 1996 and 1995, respectively. Gains
and losses at disposition of these securities were computed using the specific
identification method.
NOTE D - LOANS
The composition of the loan portfolio at March 31, 1996, was as follows (in
thousands):
Real estate $ 572,726
Commercial 449,816
Agricultural 206,446
Consumer and other 262,580
----------
1,491,568
Less allowance for loan losses 20,072
----------
Net loans $1,471,496
----------
----------
NOTE E - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Company is party to financial
instruments with off-balance sheet risk to meet the financing needs of its
customers and to manage its interest rate risk. These financial instruments
include commitments to extend credit and letters of credit. The contract or
notional amounts of these financial instruments at March 31, 1996, were as
follows (in thousands):
Commitments to extend credit $282,023
Letters of credit 7,136
7
<PAGE>
NOTE F - SUBORDINATED NOTES
Long-term debt at March 31, 1996, included $23 million in subordinated
notes issued in April 1993. These notes are due April 15, 2000, and bear an
interest rate of 7.75%, with interest payable monthly. At March 31, 1996, $18.4
million of the notes qualified as Tier 2 capital.
NOTE G - INCOME TAXES
The Company's effective tax rate has declined due to expansion into
additional states and implementation of certain tax strategies.
The reconciliation between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate was as follows (in
thousands):
March 31, 1996
--------------
35% of pretax income 3,601
State income tax, net of Federal tax benefit 372
Minority interest 14
Tax-exempt interest (666)
Amortization of goodwill 113
Other 69
---------
Provision for Income Taxes 3,503
NOTE H- SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three months ended March 31 (in thousands) 1996 1995
- ------------------------------------------------------------------------
Unrealized loss on available-for-sale securities $1,922 $ 3,577
NOTE I - CONTINGENT LIABILITIES
As a result of certain legal proceedings related to the May 1995 purchase
of Alliance, the Company retained a portion of the purchase price in the form of
a contingency reserve. Upon resolution of various proceedings, associated
balances may be remitted to the former Abbott Bank Group shareholders. At March
31, 1996, the reserve balance was $1.3 million. All remaining issues subject to
the reserve are expected to be resolved within a two-year period. It is
management's expectation that resolution of the remaining issues will not exceed
the current reserve balance.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BASIS OF PRESENTATION
The following is a discussion of the Company's financial condition as of
March 31, 1996, and December 31, 1995, and its results of operations for the
three month periods ended March 31, 1996 and 1995. The Company completed seven
acquisitions during 1995, and, as of March 31, 1996, the Company had one pending
bank acquisition. Each of these acquisitions has had, or will have, an effect
upon the Company's results of operations and financial condition.
During 1995, the Company made the following acquisitions of banks or
associated holding companies:
Total Assets
at Date of
Month and Holding Company or Acquisition
Year Location of Bank (In Millions)
---------------------------------------------------------------
October 1995 Craig, Colorado $ 31
October 1995 Beach, North Dakota 44
July 1995 First Community (Colorado) 153
May 1995 Alliance, Nebraska 293
May 1995 Hankinson, North Dakota 8
February 1995 Minowa 224
January 1995 Vail, Colorado *
*The Company's acquisition consists of a 24.75% interest in the holding company
that owns 100% of the Vail Bank, which had total assets of $82 million.
The Minowa and First Community acquisitions were accounted for using the pooling
of interests method. Accordingly, the consolidated financial information has
been restated to reflect the results of operations of the three companies on a
combined basis for all periods presented. Each of the other acquisitions
described in the above table is reflected in the Company's results of operations
for all periods following the acquisition and is reflected in the Company's
statement of financial condition at all dates subsequent to the acquisition.
OVERVIEW
For the three months ended March 31, 1996, net income was $6.8 million, an
increase of $2.0 million, or 41.7%, from the $4.8 million earned during the 1995
period. The increase was primarily due to the contribution to earnings of $1.1
million provided by the Company's acquisitions completed during 1995. The
Company's primary earnings per common share for the first quarter of 1996 were
$0.55, compared to $0.39 in 1995. Fully diluted earnings per common share for
the first quarter of 1996 were $0.52. Net income applicable to common equity
for first quarter 1996 was reduced by $402,000 due to dividends paid on
preferred stock.
Return on average assets was 1.19% for the first quarter of 1996, compared
with 1.06% for the 1995 period. Return on average common shareholders' equity
for the 1996 and 1995 periods was 19.10% and 15.76%, respectively. Factors
contributing to these changes included incremental net income provided by
entities acquired in 1995 and an increase in net interest margin.
Total assets were $2,294 million and $2,327 million at March 31, 1996 and
December 31, 1995, respectively. The decrease of $33 million was due primarily
to a reduction in cash and due from banks
9
<PAGE>
as a result of a corresponding decrease in the Company's noninterest-bearing
deposit accounts.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income for the three months ended March 31, 1996, was $24.3
million, an increase of $5.3 million, or 27.9%, from the net interest income of
$19.0 million earned during the 1995 period. The increase was principally due
to the increased asset base associated with the acquisitions completed during
1995. In addition, net interest margin increased to 4.83% during the first
quarter of 1996, from 4.63% during the 1995 period.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended March 31, 1996,
was $847,000, an increase of $328,000, or 63.2%, from the $519,000 provision
during the 1995 period. This increase reflects the Company's objective of
maintaining adequate reserve levels in recognition of significant loan growth,
including acquisitions completed during 1995.
NONINTEREST INCOME
Noninterest income for the three months ended March 31, 1996, was $4.5
million, an increase of $751,000, or 20.0%, from the 1995 level of $3.8 million.
The increase was due primarily to the combination of an increase of $586,000 as
a result of the banks acquired in 1995, an increase of $228,000 in the existing
bank deposit service charges and a $259,000 increase in insurance commissions,
offset by a decrease in miscellaneous bank fees of $367,000.
NONINTEREST EXPENSE
Noninterest expense for the three months ended March 31, 1996, was $17.7
million, an increase of $3.1 million, or 21.2%, from the level of $14.6 million
during the 1995 period. The increase was principally due to an increase of $2.4
million, or 32.0%, in salaries and employee benefits, a significant portion
resulting from banks acquired in 1995. Net occupancy increased $607,000, or
29.6% from $2.1 million in the period ended March 31, 1995, to $2.7 million at
the end of the current period, principally from banks acquired during 1995.
FDIC expense of $62,000 for the period ended March 31, 1996, decreased $810,000
from the $872,000 for the same period in 1995, reflecting a significant decrease
in deposit premiums. The first quarter of 1995 also included $166,000 in
acquisition-related expenses connected with the Company's merger with Minowa
Bancshares, Inc. Amortization of intangibles increased $251,000, or 77.7%, from
$323,000 in the period ended March 31, 1995, to $574,000 in the current period,
due principally to 1995 acquisitions.
PROVISION FOR INCOME TAXES
The provision for income taxes for the three months ended March 31, 1996,
was $3.5 million, an increase of $704,000, or 25.2%, from the 1995 level of $2.8
million, due primarily to the increase in pre-tax income resulting from
acquisitions completed since March, 1994.
FINANCIAL CONDITION
LOANS
10
<PAGE>
At March 31, 1996, total loans were $1,492 million, a decrease of $3
million, or .2%, from the December 31, 1995, level of $1,495 million.
The following table presents the Company's balance of each major category
of loans:
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
------------------------------------------------------
PERCENT OF PERCENT OF
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Loan category:
Real estate . . . . . . . . . . . . $ 572,726 38.40% $ 573,700 38.36%
Commercial. . . . . . . . . . . . . 449,816 30.16% 443,878 29.68%
Agricultural. . . . . . . . . . . . 206,446 13.84% 223,796 14.97%
Consumer and other. . . . . . . . . 262,580 17.60% 254,076 16.99%
- -----------------------------------------------------------------------------------------------
Total loans . . . . . . . . . . . . 1,491,568 100.00% 1,495,450 100.00%
------- -------
------- -------
Less allowance for loan losses . . . 20,072 19,549
---------- ----------
Total. . . . . . . . . . . . . . . . $1,471,496 $1,475,901
---------- ----------
---------- ----------
</TABLE>
NONPERFORMING ASSETS
At March 31, 1996, nonperforming loans were $4.7 million, an increase of
$1.5 million, or 46.9%, from the $3.2 million level at December 31, 1995. The
increase was principally due to transferring selected commercial and
agricultural loans throughout the banks to nonaccrual status as a result of
regularly scheduled loan reviews completed during the first quarter of 1996,
principally at banks acquired during 1995. At March 31, 1996, nonperforming
loans as a percent of total loans was .31%, up from the December 31, 1995 level
of .22%. OREO was $1.7 million at March 31, 1996, and December 31, 1995.
Nonperforming assets of the Company are summarized in the following table:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Loans:
Nonaccrual loans. . . . . . . . . . . . . . . . . . . $4,004 $2,740
Restructured loans. . . . . . . . . . . . . . . . . . 662 481
- --------------------------------------------------------------------------------
Nonperforming loans . . . . . . . . . . . . . . . . . 4,666 3,221
Other real estate owned. . . . . . . . . . . . . . . . 1,736 1,701
- --------------------------------------------------------------------------------
Nonperforming assets . . . . . . . . . . . . . . . . . $6,402 $4,922
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Loans 90 days or more past due but still accruing. . . $3,414 $ 779
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Nonperforming loans as a percentage of total loans . . .31% .22%
Nonperforming assets as a percentage of total assets . .28% .21%
Nonperforming assets as a percentage of loans and OREO .43% .33%
</TABLE>
ALLOWANCE FOR LOAN LOSSES
At March 31, 1996, the allowance for loan losses was $20.1 million, an
increase of $523,000 from the December 31, 1995 level of $19.5 million. Net
charge-offs during the 1996 period were $12,000 more than those incurred during
the three months ended March 31, 1995.
At March 31, 1996, the allowance for loan losses as a percentage of total
loans was 1.35%, a
11
<PAGE>
decrease from the March 31, 1995, level of 1.37%. During the three months ended
March 31, 1996, charge-offs were $594,000, an increase of $162,000, or 37.5%
from the $432,000 charged off during the 1995 period. These charge-offs related
to the Company conforming the credit practices of the acquired institutions to
those of its own and the continued periodic review of the existing loan
portfolios.
The following table sets forth the Company's allowance for loans losses:
<TABLE>
<CAPTION>
MARCH 31,
1996 1995
- --------------------------------------------------------------------------------
(RESTATED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period . . . . . . . . . . . . $19,549 $15,482
Charge-offs:
Commercial. . . . . . . . . . . . . . . . . . . . . . 126 103
Real estate . . . . . . . . . . . . . . . . . . . . . 48 77
Agricultural. . . . . . . . . . . . . . . . . . . . . 60 129
Consumer and other. . . . . . . . . . . . . . . . . . 360 123
- --------------------------------------------------------------------------------
Total charge-offs . . . . . . . . . . . . . . . . . 594 432
- --------------------------------------------------------------------------------
Recoveries:
Commercial. . . . . . . . . . . . . . . . . . . . . . 33 59
Real estate . . . . . . . . . . . . . . . . . . . . . 139 5
Agricultural. . . . . . . . . . . . . . . . . . . . . 39 16
Consumer and other. . . . . . . . . . . . . . . . . . 59 40
- --------------------------------------------------------------------------------
Total recoveries. . . . . . . . . . . . . . . . . . 270 120
- --------------------------------------------------------------------------------
Net charge-offs. . . . . . . . . . . . . . . . . . . . 324 312
Provision charged to operations. . . . . . . . . . . . 847 519
- --------------------------------------------------------------------------------
Balance at end of period . . . . . . . . . . . . . . . $20,072 $15,689
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Allowance as a percentage of total loans . . . . . . . 1.35% 1.37%
Annualized net charge-offs to average loans
outstanding. . . . . . . . . . . . . . . . . . . . . 0.09% 0.11%
</TABLE>
INVESTMENTS
The investment portfolio, including available-for-sale securities and held-
to-maturity securities, decreased $2 million, or .3%, to $625 million at March
31, 1996, from $627 million at December 31, 1995. At March 31, 1996, the
investment portfolio represented 27.3% of total assets, compared with 26.9% at
December 31, 1995. In addition to investment securities, the Company had
investments in interest-bearing deposits of $2 million at March 31, 1996, a $1
million decrease from the $3 million at December 31, 1995.
DEPOSITS
Total deposits at March 31, 1996, were $1,956 million, a decrease of $34
million, or 1.7%, from $1,990 million at December 31, 1995. Noninterest-bearing
deposits at March 31, 1996, were $246 million, a decrease of $34 million, or
12.1%, from $280 million at December 31, 1995. The Company's core deposits as a
percent of total deposits were 90.6% and 91.4% as of March 31, 1996, and
December 31, 1995, respectively. Interest-bearing deposits at March 31, 1996,
and December 31, 1995, were $1,710 million. The shift in the Company's deposit
mix from noninterest-bearing deposits to interest-bearing deposits was due to
seasonality of noninterest-bearing deposits, which were at relatively high year-
end levels, and an increase in time deposits in response to a rising interest
rate environment.
12
<PAGE>
BORROWINGS
Short-term borrowings of the Company were $57 million as of March 31, 1996,
as compared to $41 million at December 31, 1995, an increase of $16 million, or
39.0%. The increase is a result of the Company's replacing selected long-term
debt with short-term debt.
Long-term debt of the Company was $50 million as of March 31, 1996, a
decrease of $20 million, or 28.6%, from the $70 million as of December 31, 1995.
CAPITAL MANAGEMENT
Shareholders' equity increased $4 million, or 2.6%, to $160 million at
March 31, 1996, from $156 million at December 31, 1995. At March 31, 1996, the
Company's Tier 1 capital, total risk-based capital and leverage ratios were
8.25%, 10.55% and 6.04%, respectively, compared to minimum required levels of
4%, 8% and 3%, respectively (subject to change and the discretion of regulatory
authorities to impose higher standards in individual cases). At March 31, 1996,
the Company had risk-weighted assets of $1,677 million.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None.
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:
None.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
2.1 Agreement and Plan of Merger dated as of March 8, 1996
between Financial Bancorp, Inc., the Company and Trinidad
Acquisition Corporation.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNITY FIRST BANKSHARES, INC.
Date: May 13, 1996 /s/ Mark A. Anderson
----------------------------------------
Mark A. Anderson
Executive Vice President, Chief
Financial Officer, Treasurer, Secretary
(Principal Financial and Accounting
Officer)
15
<PAGE>
RESTATED AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 8, 1996 (the "Agreement"),
by and among Community First Bankshares, Inc., a Delaware corporation ("CFB"),
Trinidad Acquisition Corporation, a Colorado corporation ("Acquisition
Subsidiary") and Financial Bancorp, Inc., a Colorado corporation ("Financial").
WHEREAS, the Boards of Directors of CFB, Acquisition Subsidiary and
Financial have approved, and deem it advisable and in the best interests of
their respective companies and their stockholders to consummate the business
combination transaction provided for herein in which Acquisition Subsidiary will
be merged with and into Financial (the "Merger");
WHEREAS, CFB and Financial desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger; and
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE 1
THE MERGER
1.1 EFFECTIVE TIME OF THE MERGER. Subject to the provisions of this
Agreement, a certificate of merger (the "Certificate of Merger") in
substantially the form as attached hereto as EXHIBIT A shall be duly prepared,
executed and acknowledged by CFB, Acquisition Subsidiary and Financial and
thereafter delivered for filing to the Secretary of State of the State of
Colorado, as provided in the Colorado Business Corporation Act (the "Colorado
Act"), on the Closing Date (as defined in Section 1.2). The Merger shall become
effective upon the filing of the Certificate of Merger with the Secretary of
State of Colorado or at such other time as CFB and Financial may agree in
writing to provide in the Certificate of Merger (the "Effective Time").
Notwithstanding the immediately preceding sentence, however, the parties intend
that the effective date and time of the Closing, as defined in Section 1.2
below, for both financial and tax reporting purposes, shall be as of the close
of business on the Closing Date.
1.2 CLOSING. Subject to the terms and conditions hereof, the closing of
the Merger (the "Closing") will take place after the satisfaction or waiver
(subject to applicable law) of the latest to occur of the conditions set forth
in Article 6 hereof (the "Closing Date"), at the offices of
<PAGE>
Lindquist & Vennum, P.L.L.P., in Denver, Colorado, unless another time, date or
place is agreed to in writing by the parties hereto. Each of the parties agrees
to use its best efforts to cause the Merger to be completed within thirty
(30) business days after the satisfaction or waiver of the conditions set forth
in Article 6 of this Agreement.
1.3 EFFECTS OF THE MERGER.
(a) At the Effective Time: (i) the separate existence of the
Acquisition Subsidiary shall cease and the Acquisition Subsidiary shall be
merged with and into Financial; (ii) the Articles of Incorporation of the
Acquisition Subsidiary, as in effect immediately prior to the Effective Time
shall be the Articles of Incorporation of the Surviving Corporation until duly
amended in accordance with applicable law; (iii) the By-laws of the Acquisition
Subsidiary, as in effect immediately prior to the Effective Time shall be the
By-laws of the Surviving Corporation until amended in accordance with applicable
law; (iv) CFB, as the holder of all of the outstanding common stock of the
Acquisition Subsidiary, shall continue as sole shareholder of the Surviving
Corporation; and (v) the holders of certificates representing shares of
Financial Common Stock (as defined in Section 2.1(a) below) shall cease to have
any rights as shareholders of Financial, except such rights, if any, as they may
have pursuant to Article 113 of the Colorado Act, and their sole right shall be
the right to receive (A) the number of whole shares of CFB Common Stock (as
defined in Section 2.1(a) below) into which their shares of Financial Common
Stock have been converted in the Merger as provided herein (together with any
dividend payments with respect thereto, to the extent provided in Section 2.2(c)
below), and (B) the cash value of any fraction of a share of CFB Common Stock
into which their shares of Financial Common Stock have been converted as
provided herein.
(b) As used in this Agreement, the term "Constituent Corporations"
shall mean Financial and the Acquisition Subsidiary. The term "Surviving
Corporation" shall mean Financial, after giving effect to the Merger.
(c) At and after the Effective Time, the Merger will have the effects
set forth in Section 7-111-106 of the Colorado Act.
1.4 CALCULATION OF FINANCIAL SHARE VALUE. Subject to the provisions of
Section 4.1(k), as of the last day of the month immediately preceding the
Effective Time (the "Determination Date"), Financial shall prepare a
consolidated balance sheet of Financial in accordance with generally accepted
accounting principles, excluding any footnotes that might be required to be
included with such financial statements (the "Determination Date Balance
Sheet"), together with a consolidated statement of income (the "Interim Income")
for the period from January 1, 1996 to the Determination Date (the "Interim
Income Statement"), such consolidated statement of income shall be prepared in
accordance with generally accepted accounting principles and excluding any
footnotes that might be required to be included with such statements (the
"Determination Date Balance Sheet and Interim Income Statement are herein
referred to as the "Determination Date Financial Statements"). The
Determination Date Financial Statements shall
-2-
<PAGE>
be delivered to CFB as soon as they are prepared. For purposes of this
Agreement, the "Financial Share Value" shall be the sum of (i) the Net Worth (as
hereinafter defined) of Financial, as reflected on the Determination Date
Balance Sheet, plus (ii) Three Million Nine Thousand Four Hundred Seventy-Four
Dollars ($3,009,474.00), divided by (iii) the number of shares of Financial
Common Stock outstanding. "Net Worth" shall be equal to the total consolidated
assets of Financial minus the sum of (i) the total consolidated liabilities of
Financial, as reflected on the Determination Date Balance Sheet, prepared in
accordance with this Section 1.4. "Net Worth" shall be adjusted by the
following adjustments to the Determination Date Balance Sheet as follows: (i)
excluding the effect of any FASB 115 adjustment; (ii) the elimination of any
loss on the sale of securities permitted by Section 4.3(f); and (iii) the amount
of the Loan Loss Reserve which exceeds the required level as provided in
Section 4.1(k)(xxiv) shall increase Net Worth (after tax effect, if any). Total
consolidated liabilities of Financial shall include, without limitation,
provisions for taxes and the expenses of the preparation of final tax return for
Financial.
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 EFFECT ON CAPITAL STOCK.
(a) CONVERSION. At the Effective Time, by virtue of the Merger and
without any action on the part of any holder of shares of common stock, no par
value, of Financial ("Financial Common Stock"), subject to Section 2.2(e), each
issued and outstanding share of Financial Common Stock, other than shares of
Financial Common Stock held by persons who have taken all steps required to
perfect their right to be paid the fair value of such shares under Article 113
of the Colorado Act, shall be converted into validly issued, fully paid and
nonassessable shares of common stock of CFB, $.01 par value ("CFB Common
Stock"). The number of shares of CFB Common Stock exchanged for shares of
Financial Common Stock shall be calculated in accordance with Section 2.1(b).
All such shares of Financial Common Stock shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist. Each
Financial shareholder's certificate or certificates previously representing
shares of Financial Common Stock (each a "Financial Certificate") shall be
aggregated (if a single stockholder holds more than one Financial Certificate)
and exchanged for a certificate representing whole shares of CFB Common Stock
and cash in lieu of any fractional share issued in consideration therefor upon
the surrender of such Financial Certificates in accordance with Section 2.2,
without any interest thereon. In the event that, subsequent to the date of this
Agreement but prior to the Effective Time, the outstanding shares of CFB Common
Stock shall have been increased, decreased, changed into or exchanged for a
different number or kind of shares or securities through a reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other similar change in CFB's capitalization, then an appropriate and
proportionate adjustment shall be made to the "Exchange Rate", as hereinafter
-3-
<PAGE>
defined, so that the number of shares of CFB Common Stock into which a share of
Financial Common Stock shall be converted will equal the number of shares of CFB
Common Stock that the holders of shares of Financial Common Stock would have
received pursuant to such reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split or other similar change had the
record date therefor been immediately following the Closing Date.
(b) EXCHANGE RATE. Subject to the adjustments provided in Section
2.1(a) above, the number of shares of CFB Common Stock to be exchanged for each
share of Financial Common Stock (the "Exchange Rate") shall be as determined
below.
(i) if the "CFB Trading Value" (as hereinafter defined) of the
CFB Common Stock is less than $19.50 the Exchange Rate shall be $19.50,
provided that the Board of Directors of Financial have determined, at their
sole discretion, that it is in the best interest of Financial and its
shareholders to complete the transaction contemplated by this agreement;
and
(ii) if the Trading Value of the CFB Common Stock is greater than
or equal to $19.50 the Exchange Rate shall be determined by dividing the
Financial Share Value by the CFB Trading Value.
For purposes of this Agreement, the "CFB Trading Value" of the CFB Common
Stock shall be the average of the per share closing price for the CFB Common
Stock as reported by the NASDAQ National Market System for the 20 trading days
ending at the end of the fourth trading day immediately preceding the Closing
Date (as appropriately and proportionately adjusted in the event that, between
the date hereof and the termination of such twenty trading day period, shares of
CFB Common Stock shall be changed into a different number of shares or a
different class of shares by reason of any reclassification, recapitalization,
split-up, combination, exchange of shares or readjustment or stock dividend).
Calculations will be rounded to three decimal places. Any fractional share of
CFB Common Stock will be paid in cash in accordance with Section 2.2(e).
Illustrations of the above Exchange Rate calculations are attached as EXHIBIT
2.1(B) hereto and incorporated herein by reference.
(c) SHAREHOLDERS' RIGHT OF DISSENT. Any holder of shares of
Financial Common Stock who does not vote in favor of the Merger at the meeting
of shareholders of Financial and has given notice in writing to the presiding
officer prior to the Merger vote that he or she intends to demand payment for
his or her shares of Financial Common Stock if the Merger is effectuated, shall
be entitled to receive the value of the Financial Common Stock so held by him or
her in accordance with Article 113 of the Colorado Act and his or her shares of
Financial stock shall be deemed subject to the provisions of Article 113 of the
Colorado Act.
-4-
<PAGE>
2.2 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. At the Closing, CFB shall deposit with Norwest
Bank Minnesota, N.A. or such other bank or trust company acceptable to the
parties (the "Exchange Agent"), for the benefit of the holders of shares of
Financial Common Stock, certificates dated the Closing Date representing the
shares of CFB Common Stock and the cash to be paid in lieu of fractional shares
(such cash and certificates for shares of CFB Common Stock together with any
dividends or distributions with respect thereto, being hereinafter referred to
as the "Exchange Fund") to be issued and paid pursuant to Section 2.1 in
exchange for the outstanding shares of Financial Common Stock.
(b) EXCHANGE PROCEDURES. Within five (5) business days after the
Closing Date, CFB shall cause the Exchange Agent to mail to each holder of
record of a Financial Certificate or Financial Certificates (i) a letter of
transmittal which shall specify that delivery shall be effective, and risk of
loss and title to the Financial Certificate(s) shall pass, only upon delivery of
the Financial Certificate(s) to the Exchange Agent and which shall be in such
form and have such other provisions as CFB and Financial may reasonably specify
not later than five business days before the Closing Date and (ii) instructions
for use in effecting the surrender of the Financial Certificate(s) in exchange
for a certificate representing shares of CFB Common Stock and the cash to be
paid in lieu of any fractional share. Within five(5) business days of the
surrender of a shareholder's Financial Certificate or Financial Certificates (or
affidavit and indemnification as provided in Section 2.2(g)) for cancellation to
the Exchange Agent together with such letter of transmittal, duly executed, the
holder of such Financial Certificate(s) shall be entitled to receive in exchange
therefor (1) a certificate representing the number of whole shares of CFB Common
Stock and (2) a check representing the amount of the cash to be paid in lieu of
a fractional share, if any, and unpaid dividends and distributions, if any,
which such holder has the right to receive in respect of the Financial
Certificate(s) surrendered, as provided in Section 2.2(c) below, and the
Financial Certificate(s) so surrendered shall forthwith be canceled. No
interest will be paid on the cash in lieu of fractional shares and unpaid
dividends and distributions, if any, payable to holders of Financial
Certificates. In the event of a transfer of ownership of Financial Common Stock
which is not registered in the transfer records of Financial, a CFB Certificate
representing the proper number of shares of CFB Common Stock, together with a
check for the cash to be paid in lieu of a fractional share, may be issued to
such a transferee if the Financial Certificate representing such Financial
Common Stock is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer. Any applicable stock transfer
taxes shall be paid by CFB.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES; VOTING. The
Exchange Agent shall receive and hold, for distribution without interest to the
first record holder of the certificate or certificates representing shares of
Financial Common Stock, all dividends and other distributions paid on shares of
CFB Common Stock held in the Exchange Agent's name as agent. Holders of
unsurrendered Financial Certificates shall not be entitled to vote after
-5-
<PAGE>
the Closing Date at any meeting of CFB shareholders until they have exchanged
their Financial Certificates.
(d) TRANSFERS. After the Effective Time, there shall be no transfers
on the stock transfer books of Financial of the shares of Financial Common Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Financial Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged for the shares of CFB Common
Stock and cash, in an amount as determined in accordance with the provisions of
Section 2.1(a) and this Section 2.2, deliverable in respect thereof pursuant to
this Agreement. Financial Certificates surrendered for exchange by any person
constituting an "affiliate" of Financial for purposes of Rule 145(c) under the
Securities Act of 1933, as amended (the "Securities Act"), shall not be
exchanged until CFB has received a written agreement from such person as
provided in Section 5.5.
(e) FRACTIONAL SHARES. No fractional shares of CFB Common Stock
shall be issued pursuant hereto. In lieu of the issuance of any fractional
share, cash adjustments will be paid to holders in respect of any fractional
share of CFB Common Stock that would otherwise be issuable, and the amount of
such cash adjustment shall be equal to such fractional proportion of the Trading
Value of a share of CFB Common Stock. For purposes of calculating fractional
shares, a holder of Financial Common Stock with more than one Financial
Certificate shall receive cash only for the fractional share remaining after
aggregating all of its, his or her Financial Common Stock to be exchanged.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
(including the proceeds of any investments thereof and any CFB Common Stock)
that remains unclaimed by the shareholders of Financial for twelve months after
the Closing Date shall be paid to CFB. The Exchange Agent shall give notice to
shareholders of Financial for whom Exchange Funds are held thirty (30) days
prior to the date upon which the Exchange Fund shall be paid to CFB. Any
shareholders of Financial who have not theretofore complied with this Article 2
prior to the payment of the Exchange Fund to CFB shall thereafter look only to
CFB for payment of their shares of CFB Common Stock, and cash in an amount as
determined in accordance with the provisions of Section 2.1(a) and this Section
2.2, without any interest thereon. Notwithstanding the foregoing, none of CFB,
Financial, the Exchange Agent nor any other person shall be liable to any former
holder of shares of Financial Common Stock for any amount properly delivered to
a public official pursuant to applicable abandoned property, escheat or similar
laws.
(g) LOST OR DESTROYED SHARES. In the event any Financial Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Financial Certificate to be lost, stolen
or destroyed and indemnification to CFB for any loss or expense incurred by CFB
arising by reason of the lost, stolen or destroyed certificate, the Exchange
Agent will issue in exchange for such lost, stolen or destroyed Financial
Certificate the shares of CFB Common Stock, and cash in an amount as determined
in accordance with the
-6-
<PAGE>
provisions of Section 2.1(a) and this Section 2.2, deliverable in respect
thereof pursuant to this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF FINANCIAL. In order to induce CFB
to enter into this Agreement, Financial represents and warrants to CFB, in all
material respects, as of the date of this Agreement (except as otherwise
expressly provided), as follows, except as disclosed on the attached EXHIBIT B
(the "Financial Disclosure Schedule") and the schedules thereunder which are
numbered to correspond to the representations set forth below:
(a) BANK SUBSIDIARY ORGANIZATION. Trinidad National Bank (the
"Bank") is a national banking association duly organized and validly existing
and in good standing under the laws of the United States with an authorized
capital of $600,000, consisting of 6,000 shares of one class of common stock,
par value $100.00 per share. All of the shares of stock of the Bank which are
presently issued and outstanding, have been validly issued, fully paid and,
subject to 12 U.S.C. Section 55 (1982), non-assessable, and there are no stock
options or other commitments outstanding pursuant to which the Bank is obligated
to issue additional shares of such stock or purchase or redeem any outstanding
shares of such stock.
(b) FINANCIAL ORGANIZATION. Financial is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado, with authorized capital stock consisting of 50,000 shares of common
stock, no par value per share, of which 6,000 shares are issued and outstanding.
Financial has all requisite power, authority, charters, licenses and franchises
necessary or required by law to carry on the business activity in which it is
presently engaged, except where the failure to have any such power, authority,
charters, licenses or franchises would not reasonably be expected to have a
material adverse effect on Financial. Financial is registered as a bank holding
company under Section 1841 of Title 12, United States Code, as amended (the
"Bank Holding Company Act"). Financial has no direct or indirect subsidiaries
except the Bank and is not a partner to any partnership. Except as set forth in
Section 3.1(b) of the Financial Disclosure Schedule, Financial owns all of the
shares of Bank stock, free and clear of any liens or encumbrances.
(c) ENFORCEABILITY. Subject to the required approval of the Merger
by the shareholders of Financial, Financial has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder. The execution, delivery and performance of this Agreement by
Financial and the consummation of the transactions contemplated hereby have been
duly authorized by the Board of Directors of Financial. Subject to approval by
the Financial shareholders and of government agencies and other governing bodies
having regulatory authority over Financial or the Bank as may be required by
statute or regulation, this Agreement
-7-
<PAGE>
constitutes a valid and binding obligation of Financial, enforceable against it
in accordance with its terms.
(d) LIMITATION OF BANK'S POWERS. There are no proceedings or actions
pending by any federal or state regulatory body having authority over the Bank
to limit or impair any of the Bank's powers, rights and privileges, to terminate
deposit insurance or to dissolve the Bank.
(e) CORPORATE RECORDS. Financial's Articles of Incorporation and
Bylaws, and the Bank's Articles of Association and Bylaws are each unchanged
from the form in which they were delivered to CFB on or before the date of this
Agreement. The minute books of Financial and the Bank contain reasonably
complete and accurate records of all meetings and corporate actions of each of
their respective shareholders and Boards of Directors.
(f) INSURED STATUS OF BANK. The Bank is an insured bank under the
provisions of Chapter 16 of Title 12, United States Code Annotated, known as the
"Federal Deposit Insurance Act," and no act or default on the part of any of the
Bank exists that could reasonably be expected to have a material adverse effect
on Bank's status as an insured bank thereunder. The Bank possesses and is in
full compliance with all licenses, franchises, permits and other governmental
authorizations that are legally required to hold its properties or conduct its
business, except where the failure to possess any such licenses, franchises,
permits or other governmental authorizations would not reasonably be expected to
have a material adverse effect on Financial.
(g) NO DEFAULT; CREATION OF LIENS. Neither the execution and
delivery of this Agreement, nor the consummation of the Merger will (i) conflict
with, result in the breach of, constitute a default under or accelerate the
performance provided by the terms of (A) any judgment, order or decree of any
court or other governmental agency to which Financial or the Bank may be
subject, (B) any of the "Material Contracts," as hereinafter defined, or (C) the
Articles of Incorporation/Association or Bylaws of Financial or the Bank, or
(ii) constitute an event that, with the lapse of time or action by a third
party, would result in a default under any of the foregoing or result in the
creation of any lien, charge or encumbrance upon the Financial Common Stock or
any of the Bank's capital stock.
(h) FINANCIAL STATEMENTS. The following financial statements of the
Bank and Financial (the "Financial Statements") have been delivered to CFB and
are incorporated by reference herein:
(i) The Consolidated Reports of Condition and Income of the Bank
as of December 31 for each of the years 1993, 1994 and 1995 as filed with
the Office of the Comptroller of Currency; and
(ii) The audited financial statements of Bank, prepared in
accordance with generally accepted auditing principles for each of the
years ended December 31,
-8-
<PAGE>
1993, 1994, and 1995 compiled financial statements of Financial for
each of the years ended December 31, 1993, 1994, and 1995.
Each of the aforementioned financial statements is, and the Determination Date
Balance Sheet will be (when delivered pursuant to Section 1.4), true and correct
in all material respects, and together they fairly present, in accordance with
generally accepted accounting principles (applied on a consistent basis except
as disclosed in the footnotes thereto and except that the unaudited financial
statements are subject to any adjustments which might be required as a result of
an examination of independent accountants) the financial position and results of
operation of each of the respective Bank and Financial as of the dates and for
the periods therein set forth. To the knowledge of Financial, such financial
statements did not, as of the date of the preparation thereof, exclude any
material assets or omit to state any material liability, absolute or contingent,
the inclusion or omission of which renders such financial statements, in light
of the circumstances in which they were made, misleading in any material
respect. Since December 31, 1995, there has been no material adverse change in
the financial condition, results of operation or business of the Bank and
Financial, taken as a whole (other than changes in banking laws or regulations,
changes in generally accepted accounting principles or interpretations thereof
that affect the banking industry generally, or changes in general economic
conditions that affect the banking industry on a nationwide basis, including
changes in the general level of interest rates). Materiality, for the purpose
of this Agreement, shall be deemed to be an amount which impacts earnings by
three percent (3%) or more.
(i) FIDELITY INSURANCE. The Bank is insured under a Banker's Blanket
Bond which is in full force and effect and the Bank has not received notice of
cancellation or non-renewal thereof, or filed any claim thereunder during the
past five years. There are no unresolved claims.
(j) EMPLOYMENT CONTRACTS. Except as set forth in Section 3.1(j) of
the Financial Disclosure Schedule, neither Financial nor the Bank is a party to
or bound by any written or oral (i) employment or consulting contract that is
not terminable without penalty by Financial or the Bank on 30 days' or less
notice or (ii) any collective bargaining agreement covering employees.
(k) EMPLOYEE BENEFITS. Section 3.1(k) of the Financial Disclosure
Schedule lists every employee benefit plan within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which
the Bank or Financial maintain or to which the Bank or Financial contribute on
behalf of current or former employees of the Bank or Financial. All of the
plans and programs listed in Section 3.1(k) of the Financial Disclosure Schedule
(hereinafter referred to as the "Plans") are in compliance in all material
respects with all applicable requirements of ERISA and all other applicable
federal and state laws. Each of the Plans that is a defined benefit pension
plan has assets with an aggregate value that exceeds the present value of its
liability for accrued benefits, all as determined on a termination basis. None
of the Plans has, engaged in a "prohibited transaction", within the meaning of
Section 4975 of the
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Code or Section 406 of ERISA, none of the Plans which is subject to Title IV of
ERISA or any trust created thereunder has been terminated nor have there been
any "reportable events" as that term is defined in Section 4043 of ERISA with
respect to any Plan and none of the Plans has incurred an accumulated funding
deficiency within the meaning of Section 412(a) of the Code.
(l) LITIGATION. No claims have been asserted by written notice to
Financial and no relief has been sought against Financial, the Bank or any of
the Plans in any pending litigation or governmental proceedings or otherwise.
Neither Financial nor the Bank is a party to any unsatisfied order, judgment or
decree which is adverse to Financial or the Bank, and neither Financial nor the
Bank (i) is the subject of any cease and desist order, or other formal or
informal enforcement action by any regulatory authority; or (ii) has made any
commitment to or entered into any agreement with any regulatory authority that
restricts or adversely affects its operations or financial condition. To the
knowledge of Financial, there do not exist facts that would reasonably be
expected to give rise to a material claim against Financial or the Bank after
the Closing Date.
(m) TAXES. Each of Financial and the Bank have filed all federal and
state income tax returns and all other returns with respect to any taxes, either
federal, state or local, which it is required to have filed; said returns have
been correctly and accurately prepared; all taxes reflected thereon have been
paid or adequately accrued for; no notice of any deficiency, assessments or
additions to tax have been received by Financial or the Bank; neither Financial
nor the Bank has waived any statute of limitations with respect to any taxes
reflected on said returns; and deferred taxes have been properly reflected on
the Financial Statements. Except as set forth in Section 3.1(m) of the
Financial Disclosure Schedule, there are no other taxes of any kind or character
for which either Financial or the Bank is or may be liable which are now past
due, delinquent and/or unpaid.
(n) TITLE TO PROPERTY. The Bank has good and marketable title to all
material assets and properties, whether real or personal, that it purports to
own, including without limitation all real and personal assets and properties
reflected in its Consolidated Reports of Condition and Income as of December 31,
1995, or acquired subsequent thereto (except to the extent that such assets and
properties have been disposed of for fair value in the ordinary course of
business since December 31, 1995) subject to no liens, mortgages, security
interests, encumbrances or charges of any kind, except (i) as noted in said
Consolidated Reports or the Schedules thereto; (ii) statutory liens for taxes
not yet delinquent; (iii) security interests granted to secure deposits of funds
by federal, state or other governmental agencies; (iv) minor defects and
irregularities in title and encumbrances that do not materially impair the use
thereof for the purposes for which they are held by the Bank as of the date
hereof; and (v) such liens, mortgages, security interests, encumbrances and
charges that are not in the aggregate material to the assets and properties of
such Bank.
(o) INSURANCE POLICIES. Financial has delivered to CFB true,
accurate and complete copies of all insurance policies of Financial and the Bank
as of the date of this
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Agreement. Each such policy is in full force and effect, with all premiums due
thereon on or prior to the date of this Agreement having been paid as and when
due.
(p) BANK PROPERTY. All buildings, structures, fixtures, and
appurtenances comprising the premises of the Bank are in good condition subject
to ordinary wear and tear. Except for the facts set forth in the Assessment (as
hereinafter defined), Financial and the Bank are, and have been at all times, in
substantial compliance with all applicable Environmental Laws (as defined
below), and have not engaged in any activity resulting in a material violation
of any applicable Environmental Law. To the best knowledge of Financial, there
is no legal, administrative, or other proceeding, claim, investigation (with
respect to which Financial is aware), inquiry, order, hearing or action of any
nature seeking to impose, or that would reasonably be expected to result in the
imposition, on Financial or the Bank, of any liability arising from any
violation of or obligation under any local, state or federal environmental
statute, regulation or ordinance including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("Environmental Laws"), pending or, to the knowledge of Financial,
threatened against Financial or the Bank; to the knowledge of Financial and
except for the facts set forth in the Assessment, there is no reasonable basis
for any such proceeding, claim, investigation, inquiry, order, hearing or
action; and neither Financial nor the Bank is subject to any agreement, order,
judgment, or decree by or with court, governmental authority or third party
imposing any such environmental liability. No claims have been made by any
governmental authority or third party against Financial since it was
incorporated, or the Bank during the past ten (10) years relating to damage,
contribution, cost recovery, compensation, loss or inquiry resulting from any
violation of or obligation under any Environmental Laws.
(q) CONDUCT OF BUSINESS. Except for the facts set forth in the
Assessment, the Bank and Financial are in compliance in all material respects
with all laws, regulations and orders (including zoning ordinances) applicable
to them and to the conduct of their business, including without limitation, all
statutes, rules and regulations pertaining to the conduct of the Bank's banking
activities (including the exercise of fiduciary and trust powers), except where
the failure to comply would not reasonably be expected to have a material
adverse effect on Financial.
(r) LOAN ALLOWANCE AND DOCUMENTATION. Financial's consolidated
allowance for losses on loans included in the Financial Statements as of
September 30, 1995 was $522,726, representing 2.09% of its total consolidated
loans held in portfolio. The amount of such allowance for losses on loans was
adequate to absorb reasonably expectable losses in the loan portfolio of the
Bank and there are no facts which would cause it to increase the level of such
allowance for losses on loans. The loan portfolio of the Bank as of September
30, 1995 in excess of such reserves is, to the knowledge and belief of the
executive officers of the Bank based on past loan loss experience, fully
collectible in accordance with the terms of the documentation relating to the
loans in such portfolio. The documentation relating to loans made by the Bank
and relating to all security interests, mortgages and other liens with respect
to all collateral for
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such loans, taken as a whole, is adequate for the enforcement of the material
terms of such loans and of the related security interests, mortgages and other
liens; the terms of such loans and of the related security interests, mortgages
and other liens comply in all material respects with all applicable laws, rules
and regulations (including laws, rules and regulations relating to the extension
of credit). There are no loans, leases, other extensions of credit or
commitments to extend credit of the Bank that have been or should in accordance
with generally acceptable accounting principles, have been classified by the
Bank as nonaccrual, as restructured, as 90 days past due, as still accruing and
doubtful of collection or any comparable classification. Financial has provided
to CFB true, correct and complete in all material respects such written
information concerning the loan portfolios of the Bank as CFB has requested.
(s) LEASES AND CONTRACTS. Except as set forth in Section 3.1(s) of
the Financial Disclosure Schedule, neither the Bank nor Financial is a party to
or bound by any written or oral (i) lease or license with respect to any
property, real or personal, with a value in excess of $20,000, whether as a
lessor, lessee, licensor or licensee; (ii) contract or commitment for capital
expenditures in excess of $20,000 for any one project or $50,000 in the
aggregate; (iii) contract or commitment for total expenses in excess of $20,000
made in the ordinary course of business for the purchase of materials, supplies,
or for the performance of services for a period of more than 180 days from the
date of this Agreement; or (iv) contract or option for the purchase or sale of
any real or personal property other than in the ordinary course of business (all
such agreements, contracts, and commitments collectively are herein referred to
as the "Material Contracts"). The Bank and Financial have performed in all
material respects all obligations required to be performed by them to date, and
are not in material default under, and no event has occurred which, with the
lapse of time or action by a third party, could result in a material default
under any of the Material Contracts to which the Bank or Financial is a party or
by which the Bank or Financial is bound. Each of the Material Contracts is a
valid and legally binding obligation of the Bank and the other party or parties
thereto, subject to (i) all applicable bankruptcy, insolvency, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
(ii) the application of equitable principles if equitable remedies are sought.
(t) SHAREHOLDER LISTS. Financial has furnished to CFB a current
shareholder list as of the date set forth therein that (i) sets forth the record
name and number of shares held by each holder of common stock of Financial and
(ii) identifies each shareholder who is an officer or director of the Bank or
Financial.
(u) BANK PRINCIPALS. No director or executive officer of Financial
or the Bank, nor any holder of ten percent or more of the outstanding capital
stock of Financial, nor any affiliate of such person as that term is defined
under 12 U.S.C. Section 371(c) ("Bank Principal") (i) is or has during the
period subsequent to December 31, 1995, been a party (other than as a depositor)
to any transaction with the Bank, whether as a borrower or otherwise, which
(a) was made other than in the ordinary course of business; (b) was made on
other than substantially the same terms, including interest rate and collateral,
as those prevailing at the time for comparable transactions for other persons;
or (c) involves more than the normal risk of collectibility or
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presents other unfavorable features; or (ii) is a party to any loan or loan
commitment, whether written or oral, from the Bank involving an amount in excess
of $10,000. Except as set forth in Section 3.1(u) of the Financial Disclosure
Schedule, no Bank Principal holds any position with any depository organization
other than the Bank or Financial. For the purposes of this provision, the term
"depository organization" means a commercial bank (including a private bank), a
savings bank, a trust company, a savings and loan association, a homestead
association, a cooperative bank, an industrial bank, a credit union, or a
depository holding company.
(v) INFORMATION SUPPLIED. None of the information supplied in
writing or to be supplied in writing by Financial or the Bank for inclusion or
incorporation by reference in (i) the "Registration Statement" (as hereinafter
defined) will, at the time the Registration Statement becomes effective under
the Securities Act of 1993, as amended (the "Securities Act"), contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they are made, not misleading except to the extent
specified in writing by Financial prior to the Registration Statement becoming
effective and (ii) the "Prospectus-Proxy Statement" (as hereinafter defined) and
any amendment or supplement thereto will, at the date of mailing to the CFB and
Financial stockholders and at the times of the meetings of stockholders of
Financial and CFB to be held in connection with the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. Financial will use its reasonable best efforts to cause those
portions of the Registration Statement supplied by Financial in writing to
comply in all material respects with applicable law.
(w) AGREEMENTS WITH BANK REGULATORS. Except as set forth in Section
3.1(w) of the Financial Disclosure Schedule, neither Financial nor the Bank:
(i) is a party to any written agreement or memorandum of understanding with;
(ii) is subject to any order or directive by; (iii) is subject to any
extraordinary supervisory letter from; or (iv) has adopted any board resolutions
at the request of, federal or state governmental entities charged with the
supervision or regulation of Bank or bank holding companies or engaged in the
insurance of bank deposits ("Bank Regulators"), nor has Financial been advised
by any Bank Regulators that it is contemplating issuing or requesting any such
order, directive, written agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter, board resolutions or similar undertaking.
3.2 REPRESENTATIONS AND WARRANTIES OF CFB. CFB represents and warrants to
Financial, in all material respects, as of the date of this Agreement (except as
otherwise expressly provided) as follows:
(a) CFB ORGANIZATION. CFB is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, with
authorized capital stock consisting of 14,000,000 shares of common stock, par
value of $.01 per share, of which 11,396,072 shares were issued and outstanding
as of September 30, 1995 and 900,000 shares of
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preferred stock, of which 230,000 shares of 7% cumulative convertible preferred
stock, stated value $100.00 per share, were issued and outstanding as of
September 30, 1995. CFB has all requisite power, authority, charters, licenses
and franchises necessary or required by law to carry on the business activity in
which it is presently engaged. CFB is registered as a corporation under
Section 1841 of Title 12, United States Code, as amended (the "Bank Holding
Company Act").
(b) REPORTS. CFB and the CFB Subsidiaries have filed all reports,
registrations and statements, together with any required amendments thereto,
that they were required to file with (i) the Securities and Exchange Commission
("SEC"), including, but not limited to, Forms 10-K, Forms 10-Q and proxy
statements, (ii) the Federal Reserve Board, (iii) the FDIC, (iv) the Comptroller
and (v) any applicable state securities or banking authorities. All such
reports and statements filed with any such regulatory body or authority are
collectively referred to herein as the "CFB Reports." As of their respective
dates, the CFB Reports complied in all material respects with all the rules and
regulations promulgated by the SEC, the Federal Reserve Board, the FDIC, the
Comptroller and any applicable state securities or banking authorities, as the
case may be, and did not contain any untrue statement of 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. CFB has timely filed with the SEC all reports, statements and
forms required to be filed pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
(c) ENFORCEABILITY. The execution, delivery and performance of this
Agreement by CFB and the consummation of the transactions contemplated hereby
have been duly authorized by the Board of Directors of CFB. Subject to approval
by the government agencies and other governing bodies having regulatory
authority over CFB as may be required by statute or regulation, this Agreement
constitutes a valid and binding obligation of CFB, enforceable against it in
accordance with its terms. This Agreement does not require the approval of CFB
shareholders. CFB has no knowledge of any facts or circumstances which would
lead a reasonably prudent person to conclude that regulatory approval of this
transaction might be denied.
(d) NO DEFAULT; CREATION OF LIENS. Neither the execution and
delivery of this Agreement nor the consummation of the transaction contemplated
hereby will conflict with, result in the breach of, constitute a default under
or accelerate the performance provided by the terms of any judgment, order or
decree of any court or other governmental agency to which CFB or any of the CFB
Subsidiaries may be subject, or any contract, agreement or instrument to which
CFB or any of the CFB Subsidiaries is a party or by which CFB or any of the CFB
Subsidiaries is bound or committed, or the Articles of Incorporation or Bylaws
of CFB, or constitute an event that, with the lapse of time or action by a third
party, could result in a default under any of the foregoing or result in the
creation of any lien, charge or encumbrance upon the CFB Common Stock or the
capital stock of any of the CFB Subsidiaries.
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<PAGE>
(e) INFORMATION SUPPLIED. None of the information supplied or to be
supplied by CFB or the CFB Subsidiaries for inclusion or incorporation by
reference in (i) the Registration Statement will, at the time the Registration
Statement becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading and (ii) the
Prospectus-Proxy Statement and any amendment or supplement thereto will, at the
date of mailing to CFB and Financial stockholders and at the times of the
meetings of stockholders of Financial and CFB to be held in connection with the
Merger, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. The Registration Statement will comply as to
form in all material respects with applicable law.
(f) NO PLAN TO TRANSFER ASSETS. CFB has no plan or intention to sell
or otherwise dispose of any of the assets of Financial to be acquired in the
Merger, except for dispositions in the ordinary course of business or transfers
to controlled subsidiaries as described in Section 368(a)(2)(C) of the Code.
(g) FUTURE FILING REQUIREMENTS. CFB will make any and all filings
which are required to satisfy the requirements of Rule 145(d)(1) and Rule 144(c)
(or any amendments, supplements, or successors to such rules) on or before the
dates on which such filings are required to be made to comply with applicable
requirements of law, and will include in its reports, both quarterly and annual,
the statement that CFB has filed all reports required to be filed by Section 13
or 15(d) of the Securities and Exchange Act of 1934 during the preceding
12 months.
ARTICLE 4
COVENANTS OF FINANCIAL AND CFB
4.1 COVENANTS OF FINANCIAL. During the period from the date of this
Agreement and continuing until the Effective Time, Financial agrees as follows:
(a) ORDINARY COURSE. Except as otherwise required under this
Agreement, Financial and the Bank shall carry on their respective businesses in
the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and use all reasonable efforts to preserve intact their
present business organizations, maintain their rights and franchises and
preserve their relationships with customers, suppliers and others having
business dealings with them to the end that their goodwill and ongoing
businesses shall not be impaired in any material respect. Financial shall not,
nor shall it permit the Bank to (i) enter into any new material line of
business, (ii) increase or decrease the current number of the directors of
Financial and the Bank except through resignation or retirement, (iii) change
its or the Bank's lending, investment, liability management or other material
banking policies in any respect that is
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material to such party; or (iv) incur or commit to any capital expenditures (or
any obligations or liabilities in connection therewith) other than capital
expenditures (and obligations or liabilities in connection therewith) incurred
or committed to in the ordinary course of business consistent with past
practices.
(b) SHAREHOLDER MEETING. Financial will cause to be duly called, and
will cause to be held not later than forty-five (45) days following the
effective date of the Registration Statement, a meeting of its shareholders and
will direct that this Agreement be submitted to a vote at such meeting.
Financial will (i) cause proper notice of such meeting to be given to its
shareholders in compliance with the Colorado Act and other applicable laws and
regulations; (ii) recommend by the affirmative vote of a majority of the Board
of Directors a vote in favor of approval of this Agreement consistent with
fiduciary duties of the Board of Directors to the shareholders; and (iii) use
its best efforts to solicit from its shareholders proxies in favor thereof.
(c) REGISTRATION STATEMENT. Financial will furnish or cause to be
furnished to CFB all of the information concerning Financial and the Bank
required for inclusion in, and will cooperate with CFB in the preparation of,
the Registration Statement and Prospectus-Proxy Statement (including audited
financial statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement and
Prospectus-Proxy Statement or any statement or application made by CFB to any
governmental body in connection with the Merger. Financial agrees promptly to
advise CFB if at any time prior to the Effective Date of the Merger, any written
information provided by or on behalf of Financial becomes incorrect or
incomplete in any material respect and to provide the information needed to
correct such inaccuracy or omission.
(d) CONFIDENTIAL INFORMATION. Financial will hold in confidence all
documents and nonpublic information concerning CFB and its subsidiaries
furnished to Financial and its representatives in connection with the Merger and
will not release or disclose such information to any other person, except as
required by law and except to Financial's outside professional advisers in
connection with this Agreement, with the same undertaking from such professional
advisers. If the Merger contemplated by this Agreement shall not be
consummated, such confidence shall be maintained and such information shall not
be used in competition with CFB (except to the extent that such information can
be shown to be previously known to Financial, in the public domain, or later
acquired by Financial from other legitimate sources) and, upon request, all such
documents, any copies thereof and extracts therefrom shall immediately
thereafter be returned to CFB.
(e) BENEFIT PLANS. Financial and the Bank will, to the extent
legally permissible, take all action necessary or required (i) to terminate or
amend, if requested by CFB and at CFB's cost, all qualified pension and welfare
benefit plans and all non-qualified benefit plans and compensation arrangements
as of the Effective Time; (ii) to amend the Plans to comply with the provisions
of the Tax Reform Act of 1986, as amended, and regulations thereunder and other
applicable law as of the Effective Time; and (iii) to submit application to the
Internal
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Revenue Service for a favorable determination letter for each of the Plans which
is subject to the qualification requirements of Section 401(a) of the Code prior
to the Effective Time.
Except as set forth in Section 3.1(k) of the Financial Disclosure Schedule,
and except as otherwise required pursuant to this Section 4.1(e), Financial
agrees as to itself and the Bank that it will not, without the prior written
consent of CFB, (i) enter into, adopt, amend (except as may be required by law)
or terminate any Plan, as the case may be, or any other employee benefit plan or
any agreement, arrangement, plan or policy between Financial or any of the Bank
and one or more of its directors or officers; provided, however, that Financial
or the Bank may amend any of the Plans to reduce or eliminate a requirement of
mandatory periodic contributions provided that if any of the Plans do not have
assets with an aggregate value that exceeds the present value of its liability
for accrued benefits, all as determined on a termination basis, then Financial
shall accrue on its Determination Date Financial Statements the amount by which
any of the Plans are under funded; (ii) except for normal increases in the
ordinary course of business consistent with past practice that in the aggregate
do not result in aggregate annual base compensation expense to Financial in
excess of 109% of that in effect as of December 31, 1995, increase in any manner
the compensation of any director, officer, or employee, or pay any benefit not
required by any plan and arrangement as in effect as of the date hereof
(including, without limitation, the granting of stock options, stock
appreciation rights, restricted stock, restricted stock units or performance
units or shares) or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing; or (iii) enter into or renew any
contract, agreement, commitment or arrangement providing for the payment to any
director, officer or employee of Financial or the Bank of compensation or
benefits contingent, or the terms of which are materially altered, upon the
occurrence of the Merger.
(f) NO SOLICITATIONS. Financial shall not permit the Bank to, nor
shall it authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative or agent retained by it or the Bank to solicit, or take any other
action to facilitate, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any takeover proposal (as
defined below), or agree or endorse any takeover proposal, or participate in any
discussions or negotiations, or provide third parties with any nonpublic
information, relating to any such inquiry or proposal. Financial shall promptly
advise CFB orally and in writing of any such inquiries or proposals, including
all of the material terms thereof. As used in this Agreement, "takeover
proposal" shall mean any tender or exchange offer, proposal for a merger,
consolidation or other business combination involving Financial or any proposal
or offer to acquire in any manner a substantial equity interest in, or a
substantial portion of the assets of Financial other than the transactions
contemplated or permitted by this Agreement.
(g) NO ACQUISITIONS. Other than (i) acquisitions described in
Section 4.1(g) of the Financial Disclosure Schedule, as the case may be, or
(ii) acquisitions which may be mutually agreed to by the parties, Financial
shall not, nor shall permit the Bank to, acquire or agree to acquire, by merging
or consolidating with, or by purchasing a substantial equity interest
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in or a substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or division thereof or
otherwise acquire or agree to acquire any substantial amount of assets in each
case; PROVIDED, however, that the foregoing shall not prohibit (i) internal
reorganizations, consolidations or dissolutions involving only the Bank as
permitted or directed by this Agreement, (ii) foreclosures and other
acquisitions related to previously contracted debt, in each case in the ordinary
course of business, or (iii) acquisitions of financial assets in each case in
the ordinary course of business.
(h) INSURANCE. Financial and the Bank shall maintain the insurance
coverage (or coverage of a like kind and amount) referenced in Section 3.1(o)
through the Effective Time.
(i) POOLING RESTRICTIONS. From and after the date of this Agreement,
neither Financial nor the Bank shall take any action which, with respect to
Financial, would disqualify the Merger as a "pooling of interests" for
accounting purposes.
(j) FINANCIAL STATEMENTS. Financial shall have prepared, filed and
submitted to CFB all quarterly and management prepared financial statements for
any periods ending at least 30 days before the Closing Date.
(k) ADDITIONAL COVENANTS OF FINANCIAL. From the date of this
Agreement to the Closing Date or the earlier termination of this Agreement,
Financial, except with the prior consent of CFB (except as otherwise
specifically provided in clauses (xiv) and (xv) of this Section 4.1(k)), or as
specifically required under the Agreement, shall not, nor shall it allow the
Bank to:
(i) Except as set forth in Section 4.1(g) of the Financial
Disclosure Schedule, issue, sell or commit to issue or sell any shares of
capital stock of Financial or the Bank, securities convertible into or
exchangeable for capital stock of Financial or the Bank, warrants, options
or other rights to acquire such stock, or enter into any agreement with
respect to the foregoing other than issuance by the Bank of capital stock
to Financial;
(ii) Redeem, purchase or otherwise acquire (except for trust
account shares) directly or indirectly, any shares of capital stock of
Financial or the Bank or any securities convertible or exercisable for any
shares of capital stock of Financial or the Bank;
(iii) Split, combine or reclassify any of capital stock of
Financial or the Bank or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of, or in substitution for shares
of capital stock of Financial or the Bank;
(iv) Borrow, assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of any other
individual,
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corporation or other entity, any material amount except in the ordinary
course of business of the Bank;
(v) Other than in the ordinary course of business,
discharge or satisfy any material lien or encumbrance on the properties or
assets of the Bank or pay any material liability;
(vi) Mortgage, pledge or subject to any lien or other
encumbrance any of its assets, except (A) in the ordinary course of
business, (B) liens and encumbrances for current property taxes not yet due
and payable, and (C) liens and encumbrances which do not materially affect
the value or interfere with the current use or ability to convey the
property subject thereto or affected thereby;
(vii) Sell, assign or transfer any tangible or intangible
assets with a book value greater than $10,000, except in the ordinary
course of business;
(viii) Enter into any individual employment, agency or other
contract or arrangement for the performance of personal services for an
amount in excess of $10,000 (except for service agreements in the ordinary
course of business);
(ix) Amend the Bank' or Financial's Articles of Association,
Articles of Incorporation, Bylaws or other governing documents;
(x) Fail to maintain a reserve for loss and cost associated
with those litigation matters reflected in Section 3.1(l) of the Financial
Disclosure Schedule to the extent required by generally accepted accounting
principles;
(xi) Cancel any material debt or claim or waive any right of
material value, except in the ordinary course of business;
(xii) Repurchase or enter into any agreement to repurchase
all or any portion of any loan previously participated to any other
financial institution other than loans repurchased in compliance with all
applicable laws and regulations ;
(xiii) Originate any loan which is thereafter participated to
another financial institution providing for payment upon default on any
basis other than pro rata;
(xiv) Make or commit to make any further advances on any loan
which is either in default or classified, whether such classification is a
result of a federal or state bank regulatory examination or internal
classification of substandard or lower by Bank's officers or directors,
unless the Bank is under a legal obligation to do so;
(xv) (A) make, or agree to make, any fully secured loan or
increase any existing fully secured loan for an amount in excess of
$250,000, to any one borrower,
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unless said loan is made pursuant to a properly documented and legally
enforceable commitment of the Bank to the borrower made prior to the date
of this Agreement; (B) make, or agree to make, any unsecured loan or
increase any unsecured loan by $50,000 or more, unless said loan is made
pursuant to a properly documented and legally enforceable commitment of the
Bank to the borrower made prior to the date of this Agreement; (C) make, or
agree to make any new loan or advance on any existing loan, except in
conformity with the Bank's current loan policies; (D) make any change with
respect to the terms of any existing loan, except in the ordinary course of
business; (E) with respect to any CFB consent required by this
Section 4.1(k)(xv), CFB shall provide advice of its consent within three
business days after CFB has received the request for consent and
accompanying information necessary for CFB to consider the request (the
provisions of parts A and B of this section shall not apply to renewals of
existing loans, advances under existing loans or increases to existing
loans for an amount below the applicable limit set forth in parts A and B);
(xvi) Make or agree to make any loan to any Bank Principal or
any person, corporation or entity in violation of any state or federal law
or regulation;
(xvii) Incur any obligation or liability with respect to
capital expenditures which exceeds $10,000 for any single matter or $50,000
in the aggregate, except for capital expenditures described in Section
3.1(s) of the Financial Disclosure Schedule;
(xviii) Fail to timely pay and discharge all federal and state
taxes and other accounts payable for which it is liable, provided, that the
Bank may deposit an amount equal to any such taxes, in lieu of the payment
thereof, into a reserve account, determined consistently with prior
practices, from which such taxes will be paid when and to the extent they
are found to be properly due and payable;
(xix) Pay or commit to pay any additional salary or other
compensation to any of the Bank's officers, directors or employees;
(xx) Except as otherwise required pursuant to Section
4.1(e), enter into, adopt, amend (except as may be required by law),
terminate or make or grant any increase above current funding levels in any
of the Plans (other than normal premium increases on current health care
insurance) or arrangement;
(xxi) Except as to the permitted securities sales described
in Section 4.3(f) and Schedule 4.1(k)(xxi), purchase or sell any bonds or
other investment securities without prior consent of CFB or make or agree
to make any investment in violation of any federal law or regulation except
that the Bank may purchase U.S. Treasury or Agencies securities with
maturity dates of 36 months or less;
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(xxii) Fail to charge and pay interest rates on loans and
deposits, respectively, not materially consistent with practices in the
Bank's marketplace;
(xxiii) Fail to use its reasonable best efforts to comply with
any law, rule, regulation or order applicable to the Bank and/or Financial
if such failure would have a material adverse effect upon Financial;
(xxiv) Fail to make all appropriate and required transfers to
the Bank's loan loss reserves based upon existing policies of the Bank or
at the request of any regulatory agency or, in any event, fail to maintain
a loan loss reserve of at least equal to the greater of (A) $250,000, or
(B) one percent of the outstanding loans as of the Determination Date or on
the Determination Date after charging off the credits identified on
Schedule 4.1(k)(xxiv). By the Closing Date, the shareholders may purchase
the scheduled loans for book value after any loan charge off;
(xxv) Change any accounting methods, practices or procedures
with respect to the accumulation and presentation of financial information,
except as directed by applicable law or regulation or to conform with
accounting standards;
(xxvi) Declare or pay any dividends or distributions with
respect to its stock (i) after the Determination Date or (ii) which are
not consistent with the prior payment history of the Bank or Financial; or
(xxvii) Fail to use its reasonable best efforts to obtain the
consent or approval of each person (other than the government authorities
referred to in Section 6.1(c)) whose consent or approval is required in
order to permit a succession by the Surviving Corporation pursuant to the
Merger to any obligation, right or interest of Financial or the Bank under
any loan or credit agreement, note, mortgage, indenture, lease, license or
other agreement or instrument.
4.2 COVENANTS OF CFB. During the period from the date of this Agreement
and continuing until the Effective Time, CFB agrees as follows:
(a) ORDINARY COURSE. Except as set forth in Section 4.2(a) of the
CFB Disclosure Schedule, CFB shall carry on its business in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted.
(b) APPLICATION. Subject to the required cooperation of Financial
and its affiliates, CFB shall use its reasonable best efforts to prepare and
submit within thirty (30) days of the date hereof an application to the Federal
Reserve Bank of Minneapolis for prior approval pursuant to Section 3(a)(5) of
the Bank Holding Company Act of 1956, as amended, of the proposed transaction,
and to prosecute all required federal and state applications.
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(c) COOPERATION. CFB will furnish to Financial all the information
concerning CFB required for inclusion in, and will cooperate in the preparation
of, the Prospectus-Proxy Statement to be sent to the shareholders of Financial.
CFB agrees promptly to advise Financial if at any time prior to the Effective
Date of the Merger, any information provided by CFB in the Prospectus-Proxy
Statement becomes incorrect or incomplete in any material respect and to provide
the information needed to correct such inaccuracy or omission.
(d) REGISTRATION STATEMENT. As promptly as practicable after the
execution of this Agreement, CFB will file with the SEC a registration statement
on Form S-4 under the Securities Act (the "Registration Statement") and any
other applicable documents, which will include a prospectus and joint proxy
statement (the "Prospectus-Proxy Statement"), and will use its best efforts to
cause the Registration Statement to become effective under the Securities Act
and applicable state securities laws as soon as practicable. CFB shall advise
Financial promptly when the Registration Statement has become effective and of
any supplements or amendments thereto, and CFB shall furnish Financial with
copies of all such documents. At the time the Registration Statement becomes
effective, the Registration Statement and the Prospectus-Proxy Statement will
comply in all material respects with the provisions of the Securities Act and
the published rules and regulations thereunder, and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances under which they are made, not misleading. At the time of
mailing thereof to the Financial shareholders, at the time of the Financial
shareholders' meeting referred to in Section 4.1(b) hereof and at the Effective
Time of the Merger, the Prospectus-Proxy Statement included as part of the
Registration Statement or any amendment thereof or supplement thereto, will not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements contained therein, in light of the
circumstances under which they are made, not misleading or omit to state a
material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of any proxy for the Financial shareholders'
meeting; PROVIDED, HOWEVER, that none of the provisions of this subparagraph
shall apply to statements in or omissions from the Registration Statement or the
Prospectus-Proxy Statement made in reliance upon and in conformity with written
information furnished by Financial or any of the Bank for use in the
Registration Statement or the Prospectus-Proxy Statement. CFB shall bear the
costs of all SEC filing fees with respect to the Registration Statement, the
costs of printing the Prospectus-Proxy Statement, and the costs of qualifying
the shares of CFB Common Stock under state blue sky laws as necessary.
(e) LISTING. CFB will file all documents required to be filed to
obtain approval for listing the CFB Common Stock to be issued pursuant to the
Merger on the NASDAQ National Market System and use its best efforts to effect
said listing.
(f) SHARES TO BE ISSUED. The shares of CFB Common Stock to be issued
by CFB to the shareholders of Financial pursuant to this Agreement will, upon
such issuance and delivery to said shareholders pursuant to the Agreement, be
duly authorized, validly issued, fully
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paid and nonassessable and listed on the NASDAQ National Market System. The
shares of CFB Common Stock to be delivered to the shareholders of Financial
pursuant to this Agreement are and will be free of any preemptive rights of the
stockholders of CFB.
(g) BLUE SKY. CFB will file all documents required to obtain prior
to the Effective Time of the Merger all necessary Blue Sky permits and
approvals, if any, required to carry out the transactions contemplated by this
Agreement, will pay all expenses incident thereto and will use its best efforts
to obtain such permits and approvals.
(h) CONFIDENTIAL INFORMATION. CFB will hold in confidence all
documents and information concerning Financial and the Bank furnished to it and
its representatives in connection with the transactions contemplated by this
Agreement and will not release or disclose such information to any other person,
except as required by law and except to its outside professional advisers in
connection with this Agreement, with the same undertaking from such professional
advisers. If the transactions contemplated by this Agreement shall not be
consummated, such confidence shall be maintained and such information shall not
be used in competition with Financial (except to the extent that such
information can be shown to be previously known to CFB, in the public domain, or
later acquired by CFB from other legitimate sources) and, upon request, all such
documents, copies thereof or extracts therefrom shall immediately thereafter be
returned to Financial.
(i) REGISTRATION STATEMENT. CFB will furnish or cause to be
furnished all of the information concerning CFB and the CFB Subsidiaries
required for inclusion in, and will cooperate with Financial in the preparation
of the Registration Statement, or any statement or application made by Financial
to any governmental body in connection with the transactions contemplated by
this Agreement. CFB agrees to advise Financial if at any time prior to the
Effective Time, any information provided by or on behalf of CFB becomes
incorrect or incomplete in any material respect and to provide the information
needed to correct such inaccuracy or omission.
4.3 COVENANTS OF FINANCIAL AND CFB. During the period from the date of
this Agreement and continuing until the Effective Time, Financial and CFB agree
as to themselves and their subsidiaries that, except as expressly contemplated
or permitted by this Agreement, or to the extent that the parties shall
otherwise consent in writing:
(a) GOVERNING DOCUMENTS. No party shall amend its Certificate or
Articles of Incorporation or Bylaws.
(b) OTHER ACTIONS. Unless such action is required by law or sound
banking practice, no party knowingly and intentionally shall, or shall permit
any of its Subsidiaries to, take any action that (i) is intended to result in
any of its representations and warranties set forth in this Agreement being or
becoming untrue in any material respect, or in any of the conditions to the
Merger set forth in Article VI not being satisfied or in a violation of any
provision of this
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Agreement, or (ii) would adversely affect the ability of any of them to obtain
any of the Requisite Regulatory Approvals (as defined in Section 6.1(c)) without
imposition of a condition or restriction of the type referred to in Section
6.1(f) hereof except, in every case, as may be required by applicable law or
this Agreement.
(c) ADVICE OF CHANGES; GOVERNMENT FILINGS. Each party shall promptly
advise the other orally and in writing of any change or event constituting a
material breach of any of the representations, warranties or covenants of such
party contained herein. CFB shall file all reports required to be filed by it
with the SEC between the date of this Agreement and the Effective Time and shall
deliver to Financial copies of all such reports promptly after the same are
filed. CFB, Financial and each subsidiary of CFB or Financial that is a bank
shall file all Call Reports with the appropriate Bank Regulators and all other
reports, applications and other documents required to be filed with the
appropriate Bank Regulators between the date hereof and the Closing Date and
shall make available to the other party copies of all such reports promptly
after the same are filed.
(d) TITLE OF PROPERTY. Financial agrees to deliver to CFB (at
Financial's expense) within 90 days of the date hereof, a title insurance
commitment for all real property owned by Financial or the Bank in the State of
Colorado (other than property held as OREO) (the "Title Opinions"). CFB shall
have 30 days after receipt by CFB's counsel of said Title Opinions within which
to notify Financial, in writing, of CFB's objection to any exceptions (other
than any exception of the type described in Section 3.1(n)(i) through (iv)) to
the title shown in said Title Opinions. In the event of any such objection,
then Financial shall have 30 days from the date of such objection within which
to attempt to eliminate such objected to exceptions to title from the Title
Opinion. In the event such objected to exceptions are not eliminated or
satisfied to the reasonable satisfaction of CFB, CFB may terminate this
Agreement pursuant to Section 7.1 hereof and such termination shall be the sole
and exclusive remedy for the failure to eliminate or satisfy such exceptions.
(e) ENVIRONMENTAL ASSESSMENT. Financial shall engage at its expense
an independent, qualified environmental engineering firm, acceptable to CFB for
the purpose of conducting a Phase I Hazardous Waste Assessment (the
"Assessment") of all real properties owned or controlled by the Bank. The
Assessment shall satisfy ASTM's E-1527 Standard Practice and shall include a
record review of publicly available federal, state and local sources of
environmental records. The Assessment shall be completed within sixty (60) days
after the date hereof. CFB shall have a period of thirty (30) days from the
date of receipt of such Assessment to review such Assessment and give written
notice to Financial stating either that (i) such Assessment is approved by CFB
or (ii) such Assessment is not approved by CFB and the reasons therefor.
If CFB gives a notice pursuant to (ii) above which sets forth specific
objections to the Assessment, then CFB may, at its option, terminate this
Agreement as of the date which is sixty (60) days after the date of such notice
unless during such sixty (60) day period Financial
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corrects or satisfies such objections, or indemnifies CFB against loss,
liability or expense, to the reasonable satisfaction of CFB.
(f) SALE OF DESIGNATED SECURITIES. CFB and Financial acknowledge
there is an unrealized potential loss in the value of certain securities owned
by Bank, which securities are identified and listed in Schedule 4.1(k)(xxi) (the
"Designated Securities") which loss if and when realized could constitute a
material adverse change in the condition of the Bank. It is agreed by CFB and
Financial that the Bank shall cause the Designated Securities to be sold when
requested by CFB. The proceeds from the sale of the Designated Securities shall
be invested according to the provisions of Section 4.1(k)(xxi). Any loss
incurred in the sale of the Designated Securities shall not be reflected in the
Determination Date Balance Sheet notwithstanding any other provisions in this
Agreement.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 REGULATORY MATTERS.
(a) CFB shall use its reasonable best efforts to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing, and, following the respective record dates for
the stockholder meetings of each of Financial and CFB, thereafter mail the
Prospectus-Proxy Statement to the stockholders of Financial and CFB.
(b) The parties hereto shall cooperate with each other and use their
reasonable best efforts to promptly prepare and file all necessary
documentation, to effect all necessary applications, notices, petitions, filings
and other documents, and to obtain as promptly as practicable all necessary
permits, consents, and authorizations of all governmental entities necessary to
consummate the Merger ("Requisite Regulatory Approvals"). Financial and CFB
shall have the right to review in advance, and to the extent practicable each
will consult the other on, subject to applicable laws relating to the exchange
of information, all the information relating to Financial or CFB, as the case
may be, and any of their respective subsidiaries, which appear in any filing
made with, or written materials submitted to any governmental entity in
connection with the Merger. In exercising the foregoing right, each of the
parties hereto shall act reasonably and as promptly as practicable.
(c) Financial and CFB shall promptly furnish each other with copies
of written communications received by Financial or CFB, as the case may be, or
any of their respective Subsidiaries, Affiliates or Associates (as such items
are defined in Rule 12b-2 under the Exchange Act as in effect on the date
hereof) from, or delivered by any of the foregoing to, any governmental entity
in respect of the Merger.
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5.2 LETTERS OF FINANCIAL OFFICERS. Financial shall cause to be delivered
to CFB a letter of Financial's President in substantially the form shown on
EXHIBIT 5.2A dated (i) the date on which the Registration Statement shall become
effective and (ii) the business day prior to the Closing Date, and addressed to
CFB.
CFB shall cause to be delivered to Financial a letter of CFB's chief
financial officer in substantially the form shown on EXHIBIT 5.2B dated (i) the
date on which the Registration Statement shall become effective and (ii) the
business day prior to the Closing Date, and addressed to Financial.
5.3 ACCESS TO INFORMATION. Upon reasonable notice and subject to
applicable laws relating to the exchange of information, Financial and CFB shall
each (and cause each of its subsidiaries to) afford to the officers, employees,
accountants, counsel and other representatives of CFB, access during normal
business hours during the period prior to the Effective Time, to all its
properties, books, contracts, commitments and records for the purpose of
updating any review of such items performed prior to the date of this Agreement
and, during such period, Financial and CFB shall (and shall cause each of its
subsidiaries to) make available to the other: (a) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of federal or state securities
laws or federal or state banking laws (other than reports or documents which
either party is not permitted to disclose under applicable law); and (b) all
other information concerning its business, properties and personnel as either
party may reasonably request. It is the intention of the parties that CFB shall
conduct an examination of Financial and the Bank prior to the Closing Date in
order to confirm compliance with the representations, warranties and covenants
set forth in this Agreement.
5.4 AFFILIATES. Each of Financial and CFB shall use its reasonable best
efforts to cause each director, executive officer and other person who is an
"affiliate" (for purposes of Rule 145 under the Securities Act) of Financial or
CFB to deliver to the other party hereto, as soon as practicable after the date
hereof, and at least 32 days prior to the Closing Date, a written agreement
substantially in the form of EXHIBIT 5.5.
5.5 EMPLOYEE BENEFIT PLANS. Each person who is an employee of the Bank as
of the Effective Time ("Bank Employees") shall be participants in the employee
welfare plans, and shall be eligible for participation in the pension plans of
CFB, as in effect from time to time, subject to any eligibility requirements
(with full credit for years of past service to any of the Bank, or to any
predecessor-in-interest of the Bank to the extent such service is presently
given credit under the Plans of the Bank described in Section 3.1(k) hereof, for
the purpose of satisfying any eligibility and vesting periods) applicable to
such plans (but not subject to any pre-existing condition exclusions) and shall
enter each welfare plan immediately after the Effective Time and shall enter
each pension plan not later than the first day of the calendar quarter which
begins at least 32 days after the Effective Time. For the purpose of
determining each Bank Employee's benefit for the year in which the Merger occurs
under the CFB vacation program, vacation taken by a Bank Employee in the year in
which the Merger occurs will be deducted
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from the total CFB benefit. Each Bank Employee shall be eligible for
participation, as a new employee with the credit for past service described
above, in the CFB Plans under the terms thereof.
5.6 EXPENSES. Except as otherwise stated herein, whether or not the
Merger is consummated, all costs and expenses incurred in connection with this
Agreement, and the transactions contemplated hereby shall be paid by the party
incurring such expense, except as may be permitted by Section 7.2. All of the
expenses (including but not limited to professional fees) incurred or to be
incurred by Financial in connection with the Merger shall be paid or accrued as
expenses on the Determination Date Balance Sheet.
5.7 ADDITIONAL AGREEMENTS; BEST EFFORTS. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use its
reasonable best efforts to take all action and to do all things necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, cooperating fully with the other party hereto, providing the other
party hereto with any appropriate information and making all necessary filings
in connection with the Requisite Regulatory Approvals.
ARTICLE 6
CONDITIONS PRECEDENT
6.1 COVENANT NOT TO COMPETE. CFB shall ratify and accept in writing the
covenant not to compete by and between Eugene Aiello and CFB attached hereto as
EXHIBIT 5.3.
6.2 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Effective Time of the following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement shall have been approved
and adopted by the affirmative vote of the holders of 66-2/3% of the outstanding
shares of Financial Common Stock entitled to vote thereon.
(b) NASDAQ LISTING. The shares of CFB Common Stock issuable to the
Financial stockholders pursuant to this Agreement shall have been approved for
listing on the NASDAQ National Market System, upon notice of issuance.
(c) OTHER APPROVALS. Other than the filing provided for by Section
1.1, all consents, orders or approvals of, or declarations or filings with, and
all expirations of waiting periods imposed by, any governmental entity
(collectively, the "Consents") which are prescribed by law as necessary for the
consummation of the Merger and the other transactions contemplated hereby (other
than immaterial Consents) shall have been filed, occurred or been obtained and
all such Requisite Regulatory Approvals shall be in full force and effect.
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(d) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
(e) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No order, injunction
or decree issued by any court or agency of competent jurisdiction or other legal
restraint or prohibition (an "Injunction") preventing the consummation of the
Merger or any of the transactions contemplated hereby shall be in effect, nor
shall any proceeding by any governmental entity seeking any such Injunction be
pending. No statute, rule, regulation, order, injunction or decree shall have
been enacted, entered, or enforced by any governmental entity which prohibits,
restricts or makes illegal consummation of the Merger.
(f) NO UNDULY BURDENSOME CONDITION. There shall not be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger or any of the transactions contemplated hereby,
by any federal or state governmental entity which, in connection with the grant
of a Requisite Regulatory Approval, imposes any condition or restriction upon
CFB, Financial, or any of their Subsidiaries which would so materially adversely
impact the economic or business benefits of the transactions contemplated by
this Agreement as to render inadvisable, in the reasonable business judgment of
the Board of Directors of either CFB or Financial, the consummation of the
Merger.
(g) CFB and Eugene Aiello shall have executed the Covenant Not to
Compete attached hereto as EXHIBIT 5.3.
6.3 CONDITIONS TO OBLIGATIONS OF CFB. The obligation of CFB to effect the
Merger are also subject to the satisfaction or waiver by CFB prior to the
Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Financial set forth in this Agreement shall be true and correct in
all material respects as of the date of the Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on the Closing Date, except where the failure to be
true and accurate in all material respects would not have or would not be
reasonably expected to have a material adverse effect on Financial, and CFB
shall have received a certificate signed on behalf of Financial by the Chairman
of Financial to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF FINANCIAL. Financial shall have
performed in all materials respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and CFB shall have
received a certificate signed on behalf of Financial by the Chairman of
Financial to such effect.
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(c) MINIMUM NET WORTH. The Net Worth of Financial as of the
Determination Date shall not be less than $7,990,526. The confirmation of the
minimum Net Worth shall be made pursuant to the procedures set forth in
Section 1.4.
(d) POOLING LETTER. CFB shall have letters from Ernst & Young,
(prepared with respect to CFB) and from Financial's accountants (prepared with
respect to Financial), each in the form and substance reasonably satisfactory to
CFB and Financial, approving the accounting treatment of the Merger as a
"pooling of interests" in accordance with generally accepted accounting
principles, as of a date no more than five business days prior to the Closing
Date.
(e) LEGAL OPINION. CFB shall have received the opinion of McKenna &
Cuneo, L.L.P., counsel to Financial, dated the Closing Date, in substantially
the form shown on Exhibit 6.2, and such opinion shall not have been withdrawn
prior to the Effective Time.
6.4 CONDITIONS TO OBLIGATIONS OF FINANCIAL. The obligation of Financial
to effect the Merger is also subject to the satisfaction or waiver by Financial
prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of CFB set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on the Closing Date, except as otherwise
contemplated by this Agreement, and Financial shall have received a certificate
signed on behalf of CFB by the Chairman and Chief Executive Officer and by the
Chief Financial officer of CFB to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF CFB. CFB and the Acquisition
Subsidiary shall have performed in all material respects all obligations
required to be performed by either of them under this Agreement at or prior to
the Closing Date, and Financial shall have received a certificate signed on
behalf of CFB and the Acquisition Subsidiary by the Chairman and Chief Executive
Officer and by the Chief Financial Officer of CFB to such effect.
(c) CONSENTS UNDER AGREEMENTS. CFB shall have obtained the consent
or approval of each person (other than the Governmental Entities referred to in
Section 6.1(c)) whose consent or approval shall be required in connection with
the transactions contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or instrument to which
CFB or any of its subsidiaries is a party or is otherwise bound, except those
for which failure to obtain such consents and approvals would not, in the
reasonable opinion of Financial, individually or in the aggregate, have a
material adverse effect on CFB or upon the consummation of the transactions
contemplated hereby.
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(d) TAX OPINION. Financial shall have received the opinion of
counsel to Financial, dated the Closing Date, to the effect that (i) the Merger
will be treated for Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, (ii) CFB and Financial will each be a
party to that reorganization within the meaning of Section 368(b) of the Code,
(iii) shareholders of Financial who exchange their shares of Financial Common
Stock for shares of CFB Common Stock will not recognize gain or loss, for
purposes of federal income tax, except to the extent of the cash received in
lieu of fractional shares, and (iv) Financial will not recognize gain or loss,
for purposes of federal income tax, as a result of consummation of the Merger.
(e) LEGAL OPINION. Financial shall have received the opinion of
Lindquist and Vennum, P.L.L.P., counsel to CFB, dated the Closing Date, in
substantially the form shown on Exhibit 6.3, and such opinion shall not have
been withdrawn prior to the Effective Time.
ARTICLE 7
TERMINATION AND AMENDMENT
7.1 TERMINATION. This Agreement may be terminated in writing at any time
prior to the Effective Time, whether before or after approval of the Merger by
the stockholders of Financial or CFB, only in the following circumstances:
(a) by mutual consent of CFB and Financial in a written instrument,
if the Board of Directors of each so determines by a vote of a majority of the
members of its entire Board;
(b) by either CFB or Financial if (i) any Requisite Regulatory
Approval shall have been denied; or (ii) any governmental entity of competent
jurisdiction shall have issued a final nonappealable order enjoining or
otherwise prohibiting the consummation of the transactions contemplated by this
Agreement;
(c) by either CFB or Financial if the Merger shall not have been
consummated on or before September 30, 1996, unless the failure of consummation
shall be due to the failure of the party seeking to terminate to perform or
observe in all material respects the covenants and agreements hereunder to be
performed or observed by such party; or
(d) by either CFB or Financial if there shall have been a material
breach of any of the covenants or agreements set forth in this Agreement on the
part of the other party, which breach shall not have been cured before closing
or within twenty (20) business days following receipt by the breaching party of
written notice of such breach from the other party, whichever occurs first.
(e) Except as provided in Section 2.1(b)(i) by either CFB or
Financial if the CFB Trading Value shall be less than $19.50;
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(f) by CFB pursuant to the terms of Section 4.3(d) or 4.3(e), as
applicable.
7.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
by either CFB or Financial as provided in Section 7.1, this Agreement shall
forthwith become void and have no effect except that the obligations under
Sections 4.1(d), 4.2(h), 5.7, and 7.2 shall survive termination of this
Agreement; provided, however, that no party shall be relieved or released from
any liabilities or damages arising out of the willful breach by such party of
any provision of this Agreement.
7.3 AMENDMENT. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the stockholders of Financial and CFB, provided, however, that after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders, without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
7.4 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto;
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any of the Schedules; and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party.
ARTICLE 8
GENERAL PROVISIONS
8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. No representation,
warranty, covenant or agreement contained in this Agreement shall survive the
Merger or the termination of this Agreement, except that Sections 3.2, 4.2(c),
4.2(d), 4.2(e), 4.2(f), 4.2(h), 4.2(i), 5.6, 8.6 and 8.10 shall survive the
Merger, and Sections 4.1(d) and 4.2(h), 5.7 and 7.2 shall survive the
termination of this Agreement.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given when received by the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to CFB or Acquisition
Subsidiary, to: Community First Bankshares, Inc.
Attn: Donald R. Mengedoth, President
520 Main Avenue
Fargo, ND 58124
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<PAGE>
with copies to: Steven J. Johnson, Esq.
Lindquist & Vennum P.L.L.P.
4200 IDS Center
80 South 8th Street
Minneapolis, MN 55402-2205
and
(b) if to Financial, to: Financial Bancorp Inc.
Attn: Eugene Aiello, Chairman
125 N. Commercial Street
Trinidad, CO 81082
with copies to: I. Thomas Bieging, Esq.
McKenna & Cuneo, L.L.P.
370 17th Street, Suite 4800
Denver, CO 80202
8.3 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
8.4 COUNTERPARTS. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
8.5 ENTIRE AGREEMENT: THIRD PARTY BENEFICIARIES; RIGHTS OF OWNERSHIP. This
Agreement (including the documents and the instruments referred to herein)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof. This Agreement is not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder, except that
Sections 3.2 and 4.2(i) are intended for the benefit of the Financial
shareholders; and Section 5.6 is intended for the benefit of employees of the
Bank. CFB shall be liable to such third-party beneficiaries for damages caused
by the breach of such Sections. No party shall have the right to acquire or
shall be deemed to have acquired shares of common stock of the other party
pursuant to the Merger until consummation thereof.
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<PAGE>
8.6 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Colorado.
8.7 PUBLICITY. Except as otherwise required by law or the rules of the
NASDAQ or the National Association of Securities Dealers, so long as this
Agreement is in effect, neither CFB nor Financial shall, nor shall either of
them permit any of its subsidiaries to, issue or cause the publication of any
press release or other public announcement with respect to the transactions
contemplated by this Agreement without the consent of the other party, which
consent shall not be unreasonably withheld.
8.8 ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
8.9 ENFORCEMENT OF AGREEMENT. Each of the parties hereto agrees that it
will not object if the other party seeks to obtain an injunction to prevent
breaches of this Agreement or to enforce specifically the terms and provision
hereof in any court in the United States or any state have jurisdiction. The
enforcing party shall be entitled to recover its attorneys fees incurred in the
successful enforcement of the terms and provisions of this Agreement.
8.10 INDEMNIFICATION OF FINANCIAL OFFICERS AND DIRECTORS. CFB will
indemnify the officers and directors of Financial and Bank for all actions they
take in the performance of their duties as required by this Agreement to the
same extent that CFB indemnifies its officers and directors for all actions they
take in the performance of their duties as required by this Agreement.
IN WITNESS WHEREOF, CFB, Acquisition Subsidiary and Financial have caused
this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first above written.
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<PAGE>
COMMUNITY FIRST BANKSHARES, INC.
By: /s/ Donald R. Mengedoth
----------------------------------------
Name: Donald R. Mengedoth
Title: Chairman and President
Attest:
By: /s/ Jerome B. Woods
--------------------------------
Jerome B. Woods
Senior Vice President
TRINIDAD ACQUISITION CORPORATION
By: /s/ Donald R. Mengedoth
----------------------------------------
Name: Donald R. Mengedoth
Title: President
Attest:
By: /s/ Jerome B. Woods
--------------------------------
Jerome B. Woods
Senior Vice President
FINANCIAL BANCORP, INC.
By: /s/ Eugene Aiello
----------------------------------------
Name: Eugene Aiello
Title: President
Attest:
By:
--------------------------------
Name:
Title: Secretary
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<PAGE>
TABLE OF EXHIBITS
EXHIBIT A - Articles of Merger
EXHIBIT B - Financial Disclosure Schedule
SCHEDULE 4.1(k)(xxi) - Designated Securities
EXHIBIT 2.1(b) - Illustrations of Exchange Rate Calculations
EXHIBIT 5.3 - Aiello Covenant Not to Compete
EXHIBIT 5.5 - Affiliate Agreement
EXHIBIT 6.2 - McKenna & Cuneo, L.L.P., Opinion
EXHIBIT 6.3 - Lindquist & Vennum, P.L.L.P., Opinion
-35-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S QUARTERLY REPORT IN FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 74,453
<INT-BEARING-DEPOSITS> 2,220
<FED-FUNDS-SOLD> 12,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 409,400
<INVESTMENTS-CARRYING> 216,065
<INVESTMENTS-MARKET> 215,914
<LOANS> 1,491,568
<ALLOWANCE> 20,072
<TOTAL-ASSETS> 2,293,703
<DEPOSITS> 1,956,201
<SHORT-TERM> 56,913
<LIABILITIES-OTHER> 69,796
<LONG-TERM> 49,770
0
23,000
<COMMON> 115
<OTHER-SE> 160,010
<TOTAL-LIABILITIES-AND-EQUITY> 2,293,703
<INTEREST-LOAN> 34,509
<INTEREST-INVEST> 9,229
<INTEREST-OTHER> 317
<INTEREST-TOTAL> 44,055
<INTEREST-DEPOSIT> 17,784
<INTEREST-EXPENSE> 19,746
<INTEREST-INCOME-NET> 24,309
<LOAN-LOSSES> 847
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 17,676
<INCOME-PRETAX> 10,289
<INCOME-PRE-EXTRAORDINARY> 6,786
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,786
<EPS-PRIMARY> .55
<EPS-DILUTED> .52
<YIELD-ACTUAL> 0
<LOANS-NON> 4,004
<LOANS-PAST> 3,414
<LOANS-TROUBLED> 662
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 19,549
<CHARGE-OFFS> 594
<RECOVERIES> 270
<ALLOWANCE-CLOSE> 20,072
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
