<PAGE>
As filed with the Securities and Exchange Commission on October 20, 1997
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
COMMUNITY FIRST BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 6022 46-0391436
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
520 Main Avenue
Fargo, North Dakota 58124-0001
(701) 298-5600
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive office)
-------------------------------
Donald R. Mengedoth
President
Community First Bankshares, Inc.
520 Main Avenue
Fargo, North Dakota 58124-0001
(701) 298-5600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
Copies to:
R. Neil Irwin, Esq.
Patrick Delaney, Esq. Mark P. Goss, Esq.
Martin R. Rosenbaum, Esq. Streich Lang P.A.
Lindquist & Vennum P.L.L.P. Renaissance One
4200 IDS Center 2 North Central Avenue
Minneapolis, Minnesota 55402 Phoenix, Arizona 85004-2391
Telephone: (612) 371-3211 Telephone: (602) 229-5200
Approximate date of commencement of proposed sale to public: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Maximum Maximum
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered Registered(1) Per Share Offering Price(2) Registration Fee
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value ............ 368,500 shares (2) $4,806,966 $1,457
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the approximate maximum number of shares issuable upon
consummation of the Merger as described in the Registration Statement.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2) of the Securities Act of 1933, as amended,
based upon the aggregate book value of the shares of common stock of
Republic National Bancorp, Inc. as of June 30, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT
<PAGE>
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
COMMUNITY FIRST BANKSHARES, INC.
Cross Reference Sheet Required by Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Item Number and Caption Heading in Prospectus
- -------------------------- ------------------------
<S> <C>
1. Forepart of Registration Statement and outside Front
Cover Page of Prospectus.............................. Facing Page of Registration Statement; Cover Page of Proxy
Statement-Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................ Inside Front Cover Page of the Proxy Statement-Prospectus;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information..................................... Summary; Special Considerations Regarding CFB
4. Terms of the Transaction.............................. Incorporation of Certain Information by Reference; The Merger;
Material Differences in Rights of Republic Shareholders
5. Pro Forma Financial Information....................... *
6. Material Contacts with the Company Being Acquired..... The Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters......... *
8. Interests of Named Experts and Counsel................ Legal Matters; Experts
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities........................ *
10. Information with Respect to S-3 Registrations......... Summary; Recent Developments Regarding CFB; Market Prices and
Dividend Policy
11. Incorporation of Certain Information by Reference..... Incorporation of Certain Information by Reference
12. Information with Respect to S-2 or S-3 Registrants.... *
13. Incorporation of Certain Information by Reference..... *
14. Information with Respect to Registrants Other Than
S-3 or S-2 Registrants................................ *
15. Information with Respect to S-3 Companies............. *
16. Information with Respect to S-2 or S-3 Companies...... *
17. Information with Respect to Companies Other than
S-2 or S-3 Companies.................................. Summary; Market Prices and Dividend Policy; Management's
Discussion and Analysis of Financial Operations; Business of
Republic; Republic's Principal Shareholders and Security
Ownership of Management; Index to Financial Statements
18. Information if Proxies, Consents or Authorizations
are to be Solicited................................... General Information; The Merger; Republic's Principal
Shareholders and Security Ownership of Management
19. Information if Proxies, Consents or Authorizations
are not to be Solicited in an Exchange Offer.......... *
</TABLE>
- -------------------------
* Not Applicable.
<PAGE>
REPUBLIC NATIONAL BANCORP, INC.
2020 North Central Avenue
Phoenix, Arizona 85004
(602) 258-5555
October __, 1997
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of Republic National Bancorp, Inc. ("Republic") to be held on November __,
1997, at __:00 a.m., local time, at 2020 North Central Avenue, Phoenix,
Arizona.
The purpose of the meeting is to seek your approval of the Restated
Agreement and Plan of Merger between Community First Bankshares, Inc. ("CFB")
and Republic National Bancorp, Inc. ("Republic"), dated as of August 28, 1997
(the "Merger Agreement") and the merger of Republic with and into CFB
contemplated thereby (the "Merger"). If the Merger is consummated, all
outstanding shares of common stock, no par value, of Republic ("Republic
Common Stock") (other than shares held by dissenting shareholders) will be
converted into 368,500 shares of common stock, par value $.01 per share, of
CFB ("CFB Common Stock"), as more fully described in the accompanying Proxy
Statement-Prospectus. Based on the number of shares of Republic Common Stock
outstanding as of October 15, 1997 and assuming the exercise prior to the
Closing Date of all outstanding options to purchase Republic Common Stock,
the Exchange Rate is expected to be 0.1043 shares of CFB Common Stock for each
outstanding share of Republic Common Stock. Fractional shares will not be
issued. Cash will be paid in lieu of fractional shares.
The accompanying Proxy Statement-Prospectus is a proxy statement for
the Special Meeting and a prospectus describing the shares of CFB Common
Stock to be issued in the Merger. The Proxy Statement-Prospectus and the
copy of the Merger Agreement attached as Appendix A describe the proposed
Merger more fully and include detailed information about Republic and CFB.
Please read this information carefully before voting on the proposed
Merger.
AFTER CAREFUL CONSIDERATION OF THE TERMS OF THE PROPOSED MERGER, YOUR
BOARD OF DIRECTORS HAS CONCLUDED THAT THE ACQUISITION OF REPUBLIC BY CFB IS
IN THE BEST INTERESTS OF REPUBLIC AND ITS SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MERGER.
Your Board believes that the Merger will, among other things, give
Republic shareholders a fair price for their Republic Common Stock and the
opportunity to convert their shares of Republic Common Stock on a tax-free
basis to shares in a larger, more diversified enterprise engaged in the
banking business in many areas, including our region. CFB Common Stock is
traded in the over-the-counter market on the Nasdaq National Market System.
Provided you are not an executive officer, director or significant
shareholder of Republic, your shares of CFB Common Stock will be freely
tradable upon the consummation of the Merger.
You should consult your own tax advisor concerning the federal income
tax consequences, and any applicable foreign, state, local or other tax
consequences, of the Merger.
We hope that you will be able to attend the Special Meeting. The
Merger Agreement must be approved by the holders of two-thirds of the
outstanding shares of Republic Common Stock. Whether or not you plan to
attend, we urge you to COMPLETE, SIGN, DATE AND RETURN the accompanying
proxy card to make certain that your shares will be represented at the
Special Meeting. If you decide to attend the Special Meeting and wish to
vote your shares personally, you may revoke your proxy at any time.
Sincerely,
John T. Katsenes
CHAIRMAN
<PAGE>
REPUBLIC NATIONAL BANCORP, INC.
2020 North Central Avenue
Phoenix, Arizona 85004
(602) 258-5555
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER __, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
Republic National Bancorp, Inc. ("Republic") will be held on November __,
1997, at __:00 a.m., local time, at 2020 North Central Avenue, Phoenix,
Arizona, for the following purposes:
1. To consider and vote upon a proposal to approve the Restated
Agreement and Plan of Merger dated as of August 28, 1997 (the "Merger
Agreement") between Community First Bankshares, Inc. ("CFB") and Republic,
a copy of which is attached to the accompanying Proxy Statement-Prospectus
as Appendix A, pursuant to which Republic will be merged with and into CFB
(the "Merger"). Upon consummation of the Merger, all outstanding shares of
common stock, no par value, of Republic ("Republic Common Stock") (other
than shares held by dissenting shareholders) will be converted into 368,500
shares of CFB common stock, as more fully described in the accompanying
Proxy Statement-Prospectus; and
2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
If the Merger is consummated, the shareholders of Republic who dissent
from the proposed Merger and comply with the requirements of Section
10-1302 of the Arizona Business Corporation Act (the "AZBCA") have the
right to seek appraisal for their shares. See "The Merger - Dissenters'
Rights" in the accompanying Proxy Statement-Prospectus for a statement of
the rights of dissenting shareholders and a description of the procedures
required to be followed by them to perfect their dissenters' rights. A
copy of Section 10-1302 of the AZBCA is attached as Appendix B to the
accompanying Proxy Statement-Prospectus.
The affirmative vote of two-thirds of the outstanding shares of
Republic Common Stock is required to approve the Merger Agreement.
Only holders of record of outstanding shares of Republic Common Stock
at the close of business on October __, 1997 will be entitled to notice
of, and to vote at, the Special Meeting or any adjournment thereof.
Shareholders will be able to revoke their proxies by submitting a
substitute proxy bearing a later date or by attending the meeting, revoking
their proxy and voting in person.
By Order of the Board of Directors
John T. Katsenes
CHAIRMAN
Phoenix, Arizona
October __, 1997
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND MAIL IT
PROMPTLY IN THE ENCLOSED RETURN ENVELOPE WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THE PROXY CARD.
<PAGE>
PROXY STATEMENT-PROSPECTUS
--------------------
PROXY STATEMENT FOR SPECIAL MEETING
OF
SHAREHOLDERS OF REPUBLIC NATIONAL BANCORP, INC.
TO BE HELD NOVEMBER __, 1997
-----------------------
PROSPECTUS OF COMMUNITY FIRST BANKSHARES, INC.
-----------------------
This Proxy Statement-Prospectus constitutes the Proxy Statement of
Republic National Bancorp, Inc. ("Republic") to be used in soliciting
proxies of Republic shareholders in connection with the Special Meeting of
Shareholders of Republic to be held on November , 1997. The purpose of
the Special Meeting is to consider and vote upon a proposal to approve the
Restated Agreement and Plan of Merger (the "Merger Agreement") between
Community First Bankshares, Inc. ("CFB") and Republic, pursuant to which
Republic will be merged with and into CFB (the "Merger").
This Proxy Statement-Prospectus also constitutes the Prospectus of CFB
with respect to a maximum of 368,500 shares of CFB common stock, par value
$.01 per share ("CFB Common Stock"), to be issued in connection with the
Merger. CFB has filed a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended (the "Securities Act"), covering such
shares of CFB Common Stock. When the Merger becomes effective, all
outstanding shares of Republic common stock, no par value ("Republic Common
Stock"), will be converted into 368,500 shares of CFB Common Stock, and cash
will be paid in lieu of fractional shares (cumulatively, the "Merger
Consideration"). Based on the number of shares of Republic Common Stock
outstanding as of October 15, 1997 and assuming the exercise prior to the
Closing Date of all outstanding options to purchase Republic Common Stock,
the Exchange Rate is expected to be 0.1043 shares of CFB Common Stock for each
outstanding share of Republic Common Stock. BECAUSE THE NUMBER OF SHARES OF
CFB COMMON STOCK TO BE ISSUED IN THE MERGER IS FIXED, A CHANGE IN THE MARKET
PRICE OF CFB COMMON STOCK BEFORE THE MERGER WILL AFFECT THE VALUE OF THE CFB
COMMON STOCK TO BE RECEIVED BY REPUBLIC SHAREHOLDERS IN THE MERGER. See "The
Merger -Conversion of Republic Common Stock".
The outstanding shares of CFB Common Stock are, and the shares of CFB
Common Stock offered hereby will be, traded on the Nasdaq National Market
System. The last reported sale price of CFB Common Stock on the Nasdaq
National Market System on October __, 1997 was $ ______________ per share.
This Proxy Statement-Prospectus and form of proxy are first being
mailed to shareholders of Republic on or about October __, 1997.
THE CFB COMMON STOCK TO BE ISSUED PURSUANT TO THE MERGER AND RECEIVED
BY REPUBLIC SHAREHOLDERS INVOLVES CERTAIN RISKS. SEE "SPECIAL
CONSIDERATIONS REGARDING CFB."
THE SECURITIES TO BE ISSUED PURSUANT TO THE MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this Proxy Statement-Prospectus is October __, 1997.
<PAGE>
AVAILABLE INFORMATION
CFB has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the offering of
CFB Common Stock to be issued in connection with the Merger, and this Proxy
Statement-Prospectus constitutes a prospectus of CFB filed as part of the
Registration Statement. This Proxy Statement-Prospectus does not contain
all of the information set forth in such Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of
the Commission.
CFB is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Reports, proxy statements and other information filed by CFB
can be inspected and copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Room 1024, Judiciary Plaza, Washington, D.C. 20549, and at
the following Regional Offices of the Commission: Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and New York Regional Office, 7 World Trade Center, Suite 1300, New
York, New York 10048. CFB's Common Stock is quoted on the Nasdaq National
Market System, and such reports, proxy statements and other information can
also be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 20006. The Commission also maintains an internet web site
at http://www.sec.gov containing reports, proxy and information statements
and other information regarding registrants, including the Company, that
file electronically with the Commission.
No person is authorized to give any information or make any
representation not contained in this Proxy Statement-Prospectus and if
given or made, such information or representation should not be relied
upon. This Proxy Statement-Prospectus shall not constitute an offer to
sell or a solicitation of an offer to buy any securities in any
jurisdiction in which it would be unlawful to make such offer or
solicitation. Neither the delivery of this Proxy Statement-Prospectus at
any time, nor any offer or solicitation made hereunder, shall under any
circumstances imply that the information set forth herein is correct as of
any time subsequent to its date.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by CFB with the Commission are
incorporated by reference in this Proxy Statement-Prospectus:
(i) CFB's Annual Report on Form 10-K for the year ended December 31,
1996, as amended on Form 10-K/A filed May 8, 1997;
(ii) CFB's Quarterly Reports on Form 10-Q for the quarters ended
March 31 and June 30, 1997;
(iii) CFB's Form 8-K report filed on July 29, 1997, as amended on
Form 8-K/A filed September 22, 1997;
(iv) CFB's Proxy Statement for the Annual Meeting of Shareholders
held on May 6, 1997 (except to the extent portions of such document are not
deemed incorporated by reference into any filing under the Securities Act
or the Exchange Act); and
(v) The description of CFB's securities set forth in CFB's Form
8-A Registration Statement filed with the Commission on April 7, 1994 and
amended on September 19, 1994 and in CFB's Form 8-A Registration Statement
filed with the Commission on January 9, 1995.
All documents filed by CFB pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act on or after the date of this Proxy
Statement-Prospectus and prior to the termination of this offering shall be
deemed to be incorporated by reference into this Proxy Statement-Prospectus
and to be a part hereof from the date of filing of such documents. Any
statement contained herein or in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Proxy Statement-Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed to
constitute a part of this Proxy Statement-Prospectus, except as so modified
or superseded.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE
AVAILABLE UPON REQUEST FROM MARK A. ANDERSON, SECRETARY, COMMUNITY FIRST
BANKSHARES, INC., 520 MAIN AVENUE, FARGO, NORTH DAKOTA 58124-0001;
TELEPHONE (701) 298-5600. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY OCTOBER __, 1997.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Information by Reference. . . . . . . . . . . . . . . . . . . . . . . 2
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Special Considerations Regarding CFB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Recent Developments Regarding CFB
Pending Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Recent Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Other Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
General Information
Purpose of the Special Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Vote Required; Shares Entitled to Vote. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Voting and Revocation of the Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Market Prices and Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Market For CFB Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Market for Republic Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Shareholder Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
CFB Common Stock Dividend Payment History and Restrictions. . . . . . . . . . . . . . . . 22
Republic Dividend Policy and Payment History. . . . . . . . . . . . . . . . . . . . . . . 22
The Merger
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Background of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Reasons for the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Opinion of Republic's Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . 25
Effective Time of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Consequences of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Conversion of Republic Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Indemnity and Escrow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Delivery of CFB Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . 30
Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Covenants; Conduct of Republic's Business
Pending the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Regulatory Approvals; Conditions to the Merger. . . . . . . . . . . . . . . . . . . . . . 34
Amendment; Waiver; Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Effect on Republic Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . 36
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Interests of Certain Persons; Certain Transactions. . . . . . . . . . . . . . . . . . . . 37
Resale of CFB Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Business of Republic
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Republic National Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Market Price of and Dividends on Republic Common Stock. . . . . . . . . . . . . . . . . . 39
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Directors and Executive Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Transactions with Officers, Directors and Other Affiliates. . . . . . . . . . . . . . . . 42
Supervision and Regulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3
<PAGE>
Management's Discussion and Analysis of Republic Operations. . . . . . . . . . . . . . . . . . 44
Basis of Presentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Republic Condition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Republic's Principal Shareholders and Security Ownership
of Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Material Differences in Rights of Republic Shareholders. . . . . . . . . . . . . . . . . . . . 62
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Appendices:
Appendix A: Restated Agreement and Plan of Merger dated as of August 28, 1997 between
Republic and CFB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Appendix B: Statutory Rights of Dissenting Shareholders (Section 10-1302 of the
Arizona Business Corporation Act) . . . . . . . . . . . . . . . . . . . . . . . B-1
Appendix C: Opinion of Hovde Financial, Inc. . . . . . . . . . . . . . . . . . . . . . . .. C-1
</TABLE>
4
<PAGE>
SUMMARY
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN INFORMATION CONTAINED
ELSEWHERE IN THIS PROXY STATEMENT-PROSPECTUS. REFERENCE IS MADE TO, AND
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION
AND FINANCIAL STATEMENTS CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS, THE
APPENDICES HERETO AND DOCUMENTS INCORPORATED BY REFERENCE HEREIN.
General. . . . . . . . . . . . CFB and Republic have entered into the
Merger Agreement which provides that
Republic will be merged with and into CFB,
and all outstanding shares of Republic
Common Stock, other than shares held by
shareholders who perfect statutory
dissenters' rights, will be converted at
the time the Merger becomes effective into
368,500 shares of CFB Common Stock, as more
fully described below. See "The Merger -
Conversion of Republic Common Stock."
Subject to the terms and conditions of the
Merger Agreement, the Merger will become
effective on the date a plan of merger and
articles of merger are filed with the
Arizona Corporation Commission and a
certificate of merger is filed with the
Delaware Secretary of State. It is
presently contemplated that the Merger will
become effective as soon as practicable
after shareholder approval of the Merger.
See "The Merger".
PARTIES TO THE MERGER:
Community First
Bankshares, Inc. . . . . . . . Community First Bankshares, Inc., a
Delaware corporation ("CFB"), is a
multi-bank holding company that as of
August 31, 1997 operated banks and bank
branches (the "CFB Banks") in 103
communities in Colorado, Iowa, Minnesota,
Nebraska, North Dakota, South Dakota,
Wisconsin and Wyoming and which had total
assets as of August 31, 1997 of $4.2
billion. In addition to the proposed Merger,
CFB has two other pending acquisitions. See
"Recent Developments Regarding CFB -- Pending
Acquisitions." CFB operates community banks
that provide a full range of commercial and
consumer banking services primarily to
individuals and businesses in small and
medium-sized communities and the
surrounding market areas. CFB's strategy
is to operate and continue to acquire banks
with approximately $20 million to $150
million in assets primarily in selected
communities with populations between 3,000
and 50,000 in its existing markets of
Colorado, Iowa, Minnesota, Nebraska, North
Dakota, South Dakota, Wisconsin and
Wyoming, and in the additional states of
Arizona, Kansas, Montana, Wyoming and Utah.
These communities are believed to provide
CFB with a stable, relatively low-cost
deposit base.
CFB provides the CFB Banks with the
advantages of affiliation with a multi-bank
holding company, such as data processing
services, credit policy formulation and
review, investment management and
specialized staff support, while granting
substantial autonomy to managers of the CFB
Banks with respect to day-to-day
operations, customer service decisions and
marketing. The CFB Banks are encouraged to
participate in community activities,
support local charities and community
development, and otherwise serve their
communities.
CFB's principal executive offices are
located at 520 Main Avenue, Fargo, North
Dakota 58124-0001 and its telephone number
is (701) 298-5600.
5
<PAGE>
Republic National
Bancorp, Inc.. . . . . . . . . Republic National Bancorp, Inc.
("Republic") was organized as a Arizona
corporation in 1983. It is registered as a
bank holding company under the Bank Holding
Company Act of 1956 (the "BHCA"). Republic
operates within the state of Arizona and
owns all of the outstanding capital stock
of Republic National Bank, Phoenix, Arizona
(the "Bank"). As of June 30, 1997,
Republic had consolidated total assets of
$52.95 million and total stockholders'
equity of $4.81 million. Following the
Merger, Republic will represent 1.65% of
the assets, 1.81% of the equity, 2.45% of
the revenues, 3.07% of the net income and
1.94% of the voting power of CFB, using
data as of June 30, 1997 and based upon the
assumptions set forth in "Summary - Actual
and Pro Forma Per Share Data."
The Bank, located in the central business
district of Phoenix, engages in the
commercial banking business serving the
metropolitan Phoenix area. The Bank's
primary focus is to engage in commercial
banking, serving small to middle size
businesses, professionals, the title and
escrow industry, business entrepreneurs and
individuals. Rather than concentrate on
any specific industry, the Bank has
solicited and attracted customers from a
wide variety of manufacturing, wholesaling
and service businesses, as well as
professionals of every type, including
attorneys, accountants, physicians and
dentists. The Bank extends various types
of loans, including short- and long-term
commercial real estate mortgage loans;
secured and unsecured commercial loans;
and indirect installment loans. For a
substantial portion of these loans, the
Bank participates in the Small Business
Administration loan programs and other
similar governmental guaranteed loan
programs. A substantial portion of the
Bank's earnings are derived from the sale
of the governmental guaranteed portions of
these loans on the secondary market. See
"Business of Republic."
Republic's main office is located at 2020
North Central Avenue, Phoenix, Arizona
85004, and its telephone number is (602)
258-5555.
SPECIAL MEETING OF REPUBLIC SHAREHOLDERS:
Time and Date. . . . . . . . . __:00 a.m., local time, on November __,
1997.
Place. . . . . . . . . . . . . 2020 North Central Avenue, Phoenix,
Arizona.
Purpose of Special Meeting. . To consider and vote upon a proposal to
approve the Merger Agreement attached
hereto as Appendix A, which provides for
the Merger of Republic with and into CFB.
Other terms and provisions related to the
Merger are set forth in the Merger
Agreement and are summarized in this Proxy
Statement-Prospectus. See "The Merger."
Required Vote For the
Proposals; Record Date . . . . Only holders of record of shares of
Republic Common Stock outstanding as of the
close of business on October __, 1997
(the "Record Date") are entitled to notice
of and to vote at the Republic Special
Meeting. Approval of the proposal will
require the affirmative vote of two-thirds
of the shares of Republic Common Stock
outstanding as of the close of business on
the Record Date. See "General Information
-Vote Required; Shares Entitled to Vote."
6
<PAGE>
Interests of
Certain Persons;
Certain Transactions . . . . . As of the Record Date, the officers and
directors of Republic and their affiliates
beneficially owned 2,337,719 shares (or
approximately 63.88%) of the outstanding
Republic Common Stock. Pursuant to the
Merger Agreement, the Board of Directors of
Republic has agreed to use its best efforts
to obtain the requisite shareholder
approval of the Merger. Certain members of
Republic management have entered into
employment and other agreements with CFB or
Republice contingent upon the consummation of
the Merger. See "The Merger - Interests of
Certain Persons; Certain Transactions" and
"Republic's Principal Shareholders and Security
Ownership of Management."
Dissenters' Rights . . . . . . Each shareholder of Republic has the right
to dissent from the Merger and obtain
payment of the fair value of such
shareholder's Republic Common Stock in cash
pursuant to Section 10-1302 of the Arizona
Business Corporation Act (the "AZBCA") in
lieu of receiving the Merger Consideration
in the Merger. Any Republic shareholder
contemplating exercising the right to
demand such payment should carefully review
Section 10-1302 of the AZBCA, a copy of
which is attached hereto as Appendix B, and
in particular the required procedural
steps for perfection of such rights. A
shareholder who fails to comply with these
procedural requirements will lose the
right to dissent and to obtain payment
of the fair value of such shareholder's
Republic Common Stock. See "The Merger -
Dissenters' Rights."
Special Considerations
Regarding CFB. . . . . . . . . For information regarding various risks and
other considerations associated with CFB
Common Stock, see "Special Considerations
Regarding CFB."
Opinion of Republic's
Financial Advisor Regarding
the Merger . . . . . . . . . . Republic's financial advisor, Hovde
Financial, Inc., has rendered an opinion to
the Republic Board of Directors that, as of
the date of its opinion, the Merger
Consideration to be received by the
shareholders of Republic is fair from a
financial point of view. See "The Merger -
Opinion of Republic's Financial Advisor"
and the opinion of Hovde Financial, Inc.
attached hereto as Appendix C.
Board Recommendation . . . . . THE BOARD OF DIRECTORS OF REPUBLIC
UNANIMOUSLY RECOMMENDS APPROVAL OF THE
MERGER.
TERMS OF THE MERGER:
Conversion of Republic
Shares . . . . . . . . . . . . Provided certain conditions are met, upon
consummation of the Merger, each outstanding
share of Republic Common Stock (other than
shares subject to dissenters' rights) will
be converted into shares of CFB Common Stock,
the number of which (the "Exchange Rate")
will be determined by dividing 368,500 by the
number of outstanding shares of Republic
Common Stock as of the closing date. Based on
the number of shares of Republic Common Stock
outstanding as of October 15, 1997 and
assuming the exercise prior to the Closing
Date of all outstanding options to purchase
Republic Common Stock, the Exchange Rate is
expected to be 0.1043 shares of CFB Common
Stock for each outstanding share of Republic
Common Stock. No fractional shares will be
issued in the Merger. Cash will be paid in
lieu of issuance of fractional shares in an
amount equal to such fraction multiplied by
the average per share closing price for the
CFB Common Stock as reported by the Nasdaq
National Market for the 20 trading days
ending at the end of the fourth trading day
immediately preceding the Closing Date (as
defined below under "- Effective Time of the
Merger") (the "Trading Value of CFB Common
Stock"). Under the terms of the Merger
Agreement, prior to the Closing Date,
Republic will either redeem all outstanding
shares of Republic Preferred Stock in
7
<PAGE>
cancellation thereof, or exchange all
outstanding shares of Republic Preferred
Stock for Republic Common Stock.
Background of Merger . . . . . The terms of the Merger were negotiated at
arm's length by the management personnel
and Boards of Directors of CFB and Republic
during the period from April 1997 through
August 1997. The Board of Directors of
Republic believes that the Merger is in the
best interests of its shareholders. In
reaching that conclusion, the Board
considered, among other things, the greater
size and geographic diversity of CFB, CFB's
access to capital and opportunities for
continued growth in its larger market area,
the economies to be achieved by integrating
the operations of the Bank with the CFB
Banks, the likelihood of increased
competition as the result of the rapidly
changing environment in the banking
industry with regard to branch banking, the
present market price being paid for bank
stocks as a whole and the liquidity of the
CFB Common Stock which is publicly traded
in the national over-the-counter market.
See "The Merger - Background of the Merger"
and "- Reasons for the Merger."
Conditions to the Merger;
Termination. . . . . . . . . . Consummation of the Merger is conditioned
upon the fulfillment of certain conditions
set forth in the Merger Agreement,
including the requirement that Republic's
net worth may not be less than $4,253,000.
In addition to the requirement of
regulatory approval, Republic shareholder
approval and certain other conditions, the
completion of the Merger is subject to the
continuing accuracy of the representations
of the parties made in the Merger
Agreement, the performance of the
obligations of each party under the Merger
Agreement and the absence of threatened or
pending litigation challenging the Merger.
In addition, the Merger Agreement may be
terminated by the mutual consent of the
Boards of Directors of CFB and Republic; by
Republic or CFB if any requisite regulatory
approval is denied or if any governmental
entity of competent jurisdiction issues a
final nonappealable order enjoining or
otherwise prohibiting the Merger; by either
Republic or CFB if the Merger is not
effective by January 30, 1998; and by
Republic or CFB if the other party
materially breaches any of the covenants
and agreements contained in the Merger
Agreement and such party does not cure such
breach within 20 business days after
receipt of proper notice of such breach.
Subject to certain limitations, CFB may
also terminate the Merger Agreement if CFB
objects to any exceptions in the title
insurance commitments for all real property
owned by Republic and such exceptions are
not eliminated by Republic, or if CFB does
not approve the Phase I Hazardous Waste
Assessment of all real properties owned by
Republic and Republic does not correct or
satisfy CFB's objections to such
Assessment. See "The Merger - Regulatory
Approvals; Conditions to the Merger" and
"- Amendment; Waiver; Termination."
Regulatory Approvals . . . . . The Merger is subject to prior approval by
the Federal Reserve Board and the
Department of Banking of the State of
Arizona. CFB filed the required
application with the Federal Reserve Board
on September 12, 1997 and received approval
on October 16, 1997. CFB filed the
required application with the Department of
Banking on September 22, 1997 and received
approval on October 2, 1997. See "The
Merger - Regulatory Approvals; Conditions
to the Merger."
Effective Time of the
Merger . . . . . . . . . . . . Subject to the terms and conditions of the
Merger Agreement, the Merger will be
effective upon the filing of a plan of
merger and articles of merger with the
8
<PAGE>
Arizona Corporation Commission and a
certificate of merger with the Delaware
Secretary of State (the "Effective Time
of the Merger"). Such filings shall be
made following the satisfaction or waiver
of the conditions set forth in the Merger
Agreement or on such other date upon which
the parties may agree (the "Closing Date").
The parties have agreed to use their best
efforts to cause the Merger to be completed
within thirty business days after the
satisfaction or waiver of the conditions
set forth in the Merger Agreement. The
parties expect the Merger to become effective
as soon as practicable following shareholder
approval of the Merger. See "The Merger -
Effective Time of the Merger."
Certain Federal Income
Tax Consequences . . . . . . . The Merger is intended to qualify as a
reorganization within the meaning of
Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). If the
Merger so qualifies, (i) no gain or loss
will be recognized by the holders of
Republic Common Stock upon their receipt of
CFB Common Stock in exchange for their
shares of Republic Common Stock, except
with respect to cash received in lieu of
fractional shares which will result in a
taxable gain or loss, (ii) the aggregate
income tax basis of the CFB Common Stock
received generally will be equal to the
aggregate income tax basis of the Republic
Common Stock surrendered, and (iii) the
holding period of the CFB Common Stock
received generally will include the holding
period of the Republic Common Stock
surrendered. Republic's obligation to
consummate the Merger is conditioned upon
its receipt of an opinion to the effect
that the Merger will qualify as a
reorganization within the meaning of
Section 368(a) of the Code. EACH HOLDER OF
REPUBLIC COMMON STOCK IS URGED TO CONSULT
SUCH HOLDER'S OWN TAX AND FINANCIAL
ADVISORS CONCERNING THE FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER, AS WELL AS ANY
APPLICABLE STATE, LOCAL, FOREIGN OR OTHER
TAX CONSEQUENCES, BASED UPON SUCH HOLDER'S
OWN PARTICULAR FACTS AND CIRCUMSTANCES.
See "The Merger - Certain Federal Income
Tax Consequences" and "- Regulatory
Approvals; Conditions to the Merger."
Accounting Treatment . . . . . The Merger will be accounted for as a
pooling of interests for financial
reporting purposes. CFB shall have
received a letter, prior to consummation,
from CFB's independent auditors regarding
such firm's concurrence with CFB
management's and Republic management's
conclusions, respectively, as to the
appropriateness of pooling of interests
accounting for the Merger under Accounting
Principles Board Opinion No. 16 if closed
and consummated in accordance with the
Merger Agreement. Among other
considerations, such letters will be
subject to the condition that less than 10%
of the Merger Consideration will consist of
cash, including (i) cash paid to holders of
outstanding shares of Republic Common
Stock who dissent from the proposed Merger
and receive cash for their shares of
Common Stock, and (ii) cash paid in the
Merger in lieu of fractional shares of
Republic Common Stock. See "The Merger -
Accounting Treatment."
Surrender of
Certificates . . . . . . . . . As soon as practicable after the Effective
Time of the Merger, a letter of transmittal
with instructions for submission of stock
certificates will be mailed to all Republic
shareholders of record as of the Closing
Date (other than Republic shareholders who
have exercised and not subsequently
withdrawn or lost statutory dissenters'
rights). SHAREHOLDERS SHOULD NOT SUBMIT
THEIR REPUBLIC STOCK CERTIFICATES UNTIL
SUCH TRANSMITTAL LETTER AND INSTRUCTIONS
ARE RECEIVED. See "The Merger - Delivery
of CFB Common Stock."
Resale of CFB
9
<PAGE>
Common Stock . . . . . . . . . The shares of CFB Common Stock issuable to
shareholders of Republic upon consummation
of the Merger will be registered under the
Securities Act. Such shares may be traded
freely and without restriction by those
shareholders not deemed to be "affiliates"
of CFB or Republic as that term is defined
in the rules under the Securities Act. CFB
Common Stock received by those shareholders
of Republic who are deemed to be
"affiliates" of Republic may be resold
without registration only as provided for
by Rule 145 under the Securities Act, or as
otherwise permitted under the Securities
Act, following the public release by CFB of
its financial results for a period that
includes thirty days of combined operations
following the Merger. See "The Merger -
Resale of CFB Common Stock."
Certain Differences in
Rights of Shareholders . . . . Upon consummation of the Merger, the
Republic shareholders will become CFB
stockholders. As a result, their rights as
shareholders, which are now governed by
Arizona state law and by the Articles of
Incorporation and the Bylaws of Republic,
will be governed by Delaware state law and
the Certificate of Incorporation and the
Bylaws of CFB. See "Material Differences
in Rights of Republic Shareholders" for a
summary of certain material differences
between the rights of holders of Republic
Common Stock and the rights of holders of
CFB Common Stock.
In addition, Delaware law substantially
restricts the ability of major stockholders
to effect business combinations with CFB in
the absence of prior approval by the Board
of Directors. Although this legislation
should not interfere with any merger or
other business combination approved by
CFB's Board of Directors, certain
stockholders may consider such legislation
to have disadvantageous effects. Such
provisions may deter the accumulation of
sizable equity interests in CFB and may
deprive stockholders of the benefits of
stock price increases typically associated
with hostile tender offers and other
contests for control. CFB also has adopted
a stockholder rights plan which could in
certain circumstances serve as a deterrent
against a change of control not approved by
CFB's Board of Directors. The existence of
such provisions and plan may, in turn,
depress the market price of CFB Common
Stock. See "Material Differences in Rights
of Republic Shareholders."
Market Prices. . . . . . . . . The CFB Common Stock is traded on the
Nasdaq National Market under the symbol
"CFBX", while the Republic Common Stock is
traded sporadically with no established
trading market. The first public
announcement of the proposed Merger was
made during the trading day on August 28,
1997. On that date and on ____________,
the closing sales price of the CFB Common
Stock was $40.00 and $___________,
respectively. For further market data, see
"Market Prices and Dividend Policy."
Republic shareholders are advised to obtain
current market quotations for CFB Common
Stock. The market price for CFB Common
Stock could fluctuate between the date of
this Proxy Statement-Prospectus and the
Effective Time of the Merger, which may be
a period of several weeks or months. As a
result, the market value of the CFB Common
Stock that Republic shareholders ultimately
receive in the Merger could be more or less
than its market value on the date of this
Proxy Statement-Prospectus or the date of
the Republic Special Meeting. No assurance
can be given concerning the market price of
CFB Common Stock before or after the
Effective Time of the Merger.
10
<PAGE>
HISTORICAL AND PRO FORMA COMPARATIVE UNAUDITED PER SHARE DATA
The following tables present selected comparative unaudited per share
data for CFB on a pro forma combined basis, and for Republic on a historical
and pro forma equivalent basis, giving effect to the Merger using the pooling
of interests method of accounting. See "The Merger - Accounting Treatment."
The pro forma combined per share data is based on an assumed Exchange Rate of
0.1043 and an assumed Closing Date of June 30, 1997.
The per share data should be read in conjunction with the historical and
consolidated financial statements and unaudited pro forma condensed combined
financial information (including the related notes thereto) and the selected
financial data regarding CFB and Republic presented elsewhere herein or
incorporated by reference herein. The per share data is not necessarily
indicative of the results of operations or combined financial position that
would have resulted had the Merger been consummated prior to the periods
indicated, nor is it necessarily indicative of the results of operations of
future periods or future combined financial position.
BOOK VALUE PER SHARE:
<TABLE>
<CAPTION>
June 30, 1997 December 31,1996
-------------- -----------------
<S> <C> <C>
CFB - Historical (A) $ 14.00 $12.92
Republic - Historical (B) 1.44 1.28
CFB and Republic pro forma (C) 13.98 12.89
Republic pro forma equivalent (D) 1.46 1.34
PRIMARY EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE BEFORE EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE:
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
1997 1996 1995 1994
--------- ----------------------------------------
<S> <C> <C> <C> <C>
CFB - Historical (E) $ 1.20 $ 1.85 $ 1.82 $ 1.48
Republic - Historical (F) 0.20 0.29 0.17 0.27
CFB and Republic pro forma (G) 1.21 1.87 1.82 1.51
Republic pro forma equivalent (H) 0.13 0.20 0.19 0.16
FULLY DILUTED EARNINGS PER COMMON AND COMMON
EQUIVILANT SHARE BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING CHANGE:
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
1997 1996 1995 1994
---------------- ------------------------------------------
<S> <C> <C> <C> <C>
CFB - Historical (I) $ 1.17 $ 1.79 $ 1.74 $ 1.42
Republic - Historical (J) 0.19 0.28 0.17 0.27
CFB and Republic pro forma (K) 1.18 1.81 1.74 1.45
Republic pro forma equivalent (L) 0.12 0.19 0.18 0.15
</TABLE>
11
<PAGE>
DIVIDENDS DECLARED PER SHARE:
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
1997 1996 1995 1994
------------- --------------------------------------
<S> <C> <C> <C> <C>
CFB - historical $ 0.32 $ 0.58 $ 0.48 $ 0.44
Republic - historical 0.05 0.10 0.10 0.05
CFB and Republic pro forma (M) 0.32 0.58 0.48 0.44
Republic pro forma equivalent (N) 0.03 0.06 0.05 0.05
</TABLE>
(A) Based on 18,672,914 and 17,151,874 shares of CFB Common Stock
outstanding as of June 30, 1997 and December 31, 1996, respectively .
(B) Based on 3,347,492 and 3,298,992 shares of Republic Common Stock
outstanding as of June 30, 1997 and December 31, 1996, respectively.
(C) Represents the pro forma combined net book value of CFB and Republic,
divided by the sum of (i) the number of shares of CFB Common Stock
outstanding as of June 30, 1997 or December 31, 1996, plus (ii) the
number of shares of CFB Common Stock issuable to the Merger at the
assumed Exchange Rate of 0.1043:1.
(D) Represents the amount computed pursuant to Note "C" above, multiplied
by the assumed Exchange Rate of 0.1043:1.
(E) Based on average shares of CFB Common Stock and Common Stock
equivalents outstanding of 18,343,078 for the six months ended June
30, 1997 and for the years ended December 31, 1996, 1995, and 1994 of
16,699,021, 15,543,129 and 14,580,309, respectively.
(F) Based on average shares of Republic Common Stock and Common Stock
equivalents outstanding of 3,495,559 for the six months ended June 30,
1997 and for the years ended December 31, 1996, 1995 and 1994 of
3,337,734, 3,191,776 and 2,855,604, respectively.
(G) Amount reflects net income per common share and common share
equivalents on a pro forma combined basis. Such amount is determined
by dividing pro forma combined net income by the weighted average
number of shares of CFB Common Stock and Common Stock equivalents
outstanding during the applicable period and the shares of CFB Common
Stock assumed to be issued pursuant to the Merger.
(H) Represents the amount computed pursuant to Note "G" above multiplied
by the assumed Exchange Rate of 0.1043:1.
(I) Based on average shares of CFB Common Stock and Common Stock
equivalents outstanding on a fully diluted basis of 18,773,723 for the
six months ended June 30, 1997 and for the years ended December 31,
1996, 1995 and 1994 of 18,154,966, 17,276,050 and 16,136,433,
respectively.
(J) Based on the average shares of Republic Common Stock and Common Stock
equivalents outstanding on a fully diluted basis of 3,531,694 for the
six months ended June 30, 1997 and for the years ended December 31,
1996, 1995 and 1994 of 3,372,935, 3,209,868 and 2,855,604,
respectively.
(K) Footnote "G" on a fully-diluted basis.
(L) Represents the amount computed pursuant to Note "K" above, multiplied by
the assumed Exchange Rate of 0.1043:1.
(M) The pro forma combined dividends declared assume no changes in the
historical dividends declared per share of CFB Common Stock.
(N) Represents the amount computed pursuant to Note "M" above multiplied
by the assumed Exchange Rate of 0.1043:1.
12
<PAGE>
CFB SELECTED FINANCIAL DATA
The following table sets forth certain consolidated financial data
concerning CFB. The selected financial data for each of the five years
ended December 31, 1996 is derived from the audited consolidated financial
statements of CFB, and related notes thereto, incorporated herein by
reference. The selected financial data as of and for the six months ended
June 30, 1997 and 1996 have been derived from CFB's unaudited consolidated
financial statements. The unaudited consolidated financial statements
reflect, in the opinion of management, all adjustments of a normal
recurring nature necessary for a fair presentation of financial condition
and results of operations. The results for the six months ended June 30,
1997 are not necessarily indicative of the results to be expected for the
entire year. The summary financial data should be read in conjunction with
the consolidated financial statements of CFB, and the related notes
thereto, and Management's Discussion and Analysis of Financial Condition
and Results of Operations incorporated by reference in CFB's Annual Report
on Form 10-K for the year ended December 31, 1996, which report is
incorporated herein by reference.
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
----------------------- -----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- --------- ---------- --------- ---------- --------- ---------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL OPERATING DATA:
Interest income. . . . . . . . . . . . . $126,903 $109,201 $229,426 $192,868 $143,237 $121,146 $115,309
Interest expense . . . . . . . . . . . . 51,089 45,522 95,234 82,891 53,468 47,271 50,870
--------- --------- --------- -------- ---------
Net interest income. . . . . . . . . . . 75,814 63,679 134,192 109,977 89,769 73,875 64,439
Provision for loan losses. . . . . . . . 5,032 2,331 6,757 2,711 1,839 2,149 2,433
---------- --------- --------- --------- --------- -------- ---------
Net interest income after
provision for loan losses . . . . . . 70,782 61,348 127,435 107,266 87,930 71,726 62,006
Noninterest income . . . . . . . . . . . 19,968 12,617 27,370 22,488 18,992 18,158 14,640
Noninterest expense. . . . . . . . . . . 57,716 46,657 104,288 82,593 70,241 60,854 52,992
---------- --------- --------- --------- --------- -------- ---------
Income before income taxes,
extraordinary item and
cumulative effect of
accounting change . . . . . . . . . . 33,034 27,308 50,517 47,161 36,681 29,030 23,654
Provision for income taxes . . . . . . . 11,102 9,439 18,007 17,208 13,952 10,775 8,546
---------- --------- --------- --------- --------- -------- ---------
Income before extraordinary
item and cumulative effect
of accounting change. . . . . . . . . 21,932 17,869 32,510 29,953 22,729 18,255 15,108
Extraordinary item, net of tax (1) . . . (265) -- -- -- -- -- --
Cumulative effect of accounting
change. . . . . . . . . . . . . . . . -- -- -- -- -- 359 --
---------- --------- --------- --------- --------- -------- ---------
Net income . . . . . . . . . . . . . . . 21,667 17,869 32,510 29,953 22,729 18,614 15,108
Dividends on preferred stock (2) . . . . -- 805 1,610 1,610 1,091 -- --
---------- --------- --------- --------- --------- -------- ---------
Net income applicable to common
equity. . . . . . . . . . . . . . . . $21,667 $17,064 $30,900 $28,343 $21,638 $18,614 $15,108
---------- --------- --------- --------- --------- -------- ---------
---------- --------- --------- --------- --------- -------- ---------
Earnings per common and common
equivalent share:
Primary earnings per share before
extraordinary item and cumulative
effect of accounting change. . . . $1.20 $1.04 $1.85 $1.82 $1.48 $1.29 $1.07
Extraordinary item, net of tax (1). . (0.02) -- -- -- -- -- --
Cumulative effect of accounting
change . . . . . . . . . . . . . . -- -- -- -- -- 0.03 --
Primary earnings per share. . . . . . $1.18 $1.04 $1.85 $1.82 $1.48 $1.32 $1.07
Fully diluted earnings per share
before extraordinary item and
cumulative effect of accounting
change . . . . . . . . . . . . . . $1.17 $1.00 $1.79 $1.74 $1.42 $1.27 $1.07
Extraordinary item, net of tax (1). . (0.02) -- -- -- -- -- --
Cumulative effect of accounting
change . . . . . . . . . . . . . . -- -- -- -- -- 0.03
Fully diluted earnings per share. . . $1.15 $1.00 $1.79 $1.74 $1.42 $1.30 $1.07
Average common and common equivalent
shares outstanding:
Primary . . . . . . . . . . . . . . 18,343,078 16,451,408 16,699,021 15,543,129 14,580,309 14,098,585 14,080,526
Fully diluted . . . . . . . . . . . 18,773,723 17,923,147 18,154,966 17,276,050 16,136,433 14,396,532 14,087,606
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- ------- ------ -------- -------- -------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL OPERATING RATIOS AND OTHER
DATA:
Return on average assets (3) . . . . . . . . 1.41% 1.30% 1.13% 1.24% 1.13% 1.10% 1.04%
Return on average common
shareholders' equity (3) . . . . . . . . . 18.22% 18.27% 15.69% 18.19% 16.77% 16.64% 15.10%
Net interest margin (3). . . . . . . . . . . 5.53% 5.24% 5.32% 5.06% 4.95% 4.74% 4.85%
Net charge-offs to average loans (3) . . . . 0.21% 0.12% 0.22% 0.17% 0.00% 0.08% 0.33%
HISTORICAL FINANCIAL CONDITION DATA
(END OF PERIOD):
Assets . . . . . . . . . . . . . . . . . . . $3,164,899 $2,818,818 $3,116,398 $2,769,976 $2,130,619 $1,883,794 $1,576,275
Loans. . . . . . . . . . . . . . . . . . . . 2,175,593 1,851,429 2,064,108 1,767,193 1,330,146 1,037,666 813,550
Investment securities (4). . . . . . . . . . 711,357 723,213 729,236 717,342 613,239 653,722 579,078
Deposits . . . . . . . . . . . . . . . . . . 2,470,691 2,322,394 2,537,440 2,359,716 1,794,565 1,627,989 1,374,859
Long-term debt . . . . . . . . . . . . . . . 78,566 39,086 46,750 81,288 38,092 48,354 18,015
Preferred shareholders' equity (2) . . . . . -- 23,000 22,988 23,000 23,000 -- --
Common shareholders' equity. . . . . . . . . 261,385 190,999 221,583 181,004 134,701 125,071 103,911
Book value per common share. . . . . . . . . 14.00 11.80 12.92 11.25 9.23 8.78 7.64
Tangible book value per
common share . . . . . . . . . . . . . . . 11.88 9.64 10.63 9.08 8.09 7.93 7.01
HISTORICAL FINANCIAL CONDITION RATIOS
(END OF PERIOD):
Nonperforming assets to total loans
and OREO . . . . . . . . . . . . . . . . . 0.77% 0.38% 0.70% 0.31% 0.34% 0.62% 1.13%
Allowance for loan losses to
total loans. . . . . . . . . . . . . . . . 1.39% 1.30% 1.27% 1.29% 1.30% 1.38% 1.38%
Allowance for loan losses to
nonperforming loans. . . . . . . . . . . . 203% 479% 201% 608% 537% 296% 224%
REGULATORY CAPITAL RATIOS
(END OF PERIOD):
Tier 1 capital . . . . . . . . . . . . . . . 11.26% 8.82% 8.88% 8.51% 10.64% 10.16% 10.97%
Total capital. . . . . . . . . . . . . . . . 15.34% 11.19% 11.10% 11.18% 13.46% 13.44% 12.47%
Leverage ratio . . . . . . . . . . . . . . . 8.89% 6.53% 6.62% 6.10% 7.12% 6.12% 6.40%
NET INCOME AND RATIOS EXCLUDING
GOODWILL AND OTHER INTANGIBLE ASSETS
AMORTIZATION AND BALANCES ("CASH"):
Net income applicable to common
equity . . . . . . . . . . . . . . . . . . $23,336 $18,365 $33,714 $30,522 $23,194 $19,948 $15,896
Fully diluted earnings per share . . . . . . $1.24 $1.07 $1.95 $1.86 $1.50 $1.39 $1.13
Return on average assets (3) . . . . . . . . 1.53% 1.41% 1.25% 1.34% 1.22% 1.18% 1.10%
Return on average common
shareholders' equity (3) . . . . . . . . . 19.62% 19.67% 17.12% 19.58% 17.98% 17.83% 15.89%
</TABLE>
- ------------------------------------
(1) Represents the loss from early extinguishment of debt, less applicable
income taxes of $159,000.
(2) The Company called its 7% Cumulative Convertible Preferred Stock for
redemption in March 1997. See "Recent Developments regarding CFB -- Other
Recent Developments."
(3) Annualized based on results for the six months ended June 30, 1997 and
1996.
(4) Includes available-for-sale securities and held-to-maturity securities.
14
<PAGE>
REPUBLIC SELECTED FINANCIAL DATA
The following table sets forth certain financial data concerning
Republic. The historical selected financial data for the three years ended
December 31, 1996 is derived from the audited consolidated financial
statements of Republic, including notes thereto. The financial data as of and
for the six months ended June 30, 1997 and 1996 are derived from the
unaudited consolidated financial statements of Republic. The unaudited
consolidated financial statements reflect, in the opinion of management, all
adjustments of a normal recurring nature necessary for a fair presentation of
financial condition and results of operations. The results for the six
months ended June 30, 1997 are not necessarily indicative of the results to
be expected for the entire year. This information should be read in
conjunction with the consolidated financial statements of Republic, and the
related notes thereto, and Management's Discussion and Analysis of Financial
Condition and Results of Operations, appearing elsewhere in this Proxy
Statement-Prospectus.
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
------------------ --------------------------------------
1997 1996 1996 1995 1994
-------- ------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share data)
HISTORICAL OPERATING DATA:
Interest income. . . . . . . . . . . . . $2,799 $2,150 $4,623 $3,579 $2,502
Interest expense . . . . . . . . . . . . 1,014 839 1,806 1,487 1,019
------- ------- -------- ------ ------
Net interest income. . . . . . . . . . . 1,785 1,311 2,817 2,092 1,483
Provision for loan losses. . . . . . . . 136 51 182 71 0
------- ------- -------- ------ ------
Net interest income after provision for loan losses 1,649 1,260 2,635 2,021 1,483
Noninterest income . . . . . . . . . . . 895 423 1,322 964 576
Noninterest expense. . . . . . . . . . . 1,365 1,051 2,334 2,081 1,467
------- ------- -------- ------ ------
Income before income taxes . . . . . . . 1,179 632 1,623 904 592
Provision for income taxes . . . . . . . 492 259 663 369 (185)
------- ------- -------- ------ ------
Net income . . . . . . . . . . . . . . . $687 $373 $960 $535 $777
------- ------- -------- ------ ------
------- ------- -------- ------ ------
Earnings per common and common
equivalent share:
Primary. . . . . . . . . . . . . . . . $.20 $.11 $.29 $.17 $.27
Fully diluted. . . . . . . . . . . . . .19 .11 .28 .17 .27
Average common shares outstanding:
Primary. . . . . . . . . . . . . . . . 3,495,559 3,287,259 3,337,734 3,191,776 2,855,604
Fully diluted. . . . . . . . . . . . . 3,531,694 3,305,351 3,372,935 3,209,868 2,855,604
HISTORICAL OPERATING RATIOS AND OTHER DATA:
Return on average assets . . . . . . . . 2.56 2.54 2.07 1.40 2.36
Return on average common shareholders' equity 32.55 31.70 29.40 17.84 31.73
Net interest margin. . . . . . . . . . . 5.59 6.24 6.55 6.01 5.07
Net charge-offs to average loans . . . . .11 .03 .08 .17 .07
HISTORICAL FINANCIAL CONDITION DATA:
Assets . . . . . . . . . . . . . . . . . $52,954 $48,787 $52,964 $42,620 $35,168
Loans. . . . . . . . . . . . . . . . . . 41,699 41,309 41,268 34,868 25,540
Investment securities(2) . . . . . . . . 1,801 1,970 1,941 2,025 2,191
Deposits . . . . . . . . . . . . . . . . 47,496 44,315 47,954 38,727 31,857
Long-term debt . . . . . . . . . . . . . - - - - 193
Preferred shareholders' equity . . . . . - - - - 19
Common shareholders' equity. . . . . . . 4,807 3,750 4,219 3,462 3,015
Book value per common share. . . . . . . 1.44 1.15 1.28 1.09 1.06
Tangible book value per common share . . 1.44 1.15 1.28 1.09 1.06
Cash Dividends per share . . . . . . . . .05 .05 .10 .10 .05
HISTORICAL FINANCIAL CONDITION RATIOS (END OF PERIOD):
Nonperforming assets to total loans and OREO 3.18% .25% .06% .07% .07%
Allowance for loan losses to total loans 1.23% .76% 1.03% .78% .99%
Allowance for loan losses to nonperforming loans 38.82% 305.88% 1,626.92% 1,178.26% 1,581.25%
REGULATORY CAPITAL RATIOS:
Tier 1 capital . . . . . . . . . . . . 11.40% 9.90% 10.68% 10.80% 12.07%
Total capital. . . . . . . . . . . . . 12.65% 10.74% 11.77% 11.60% 13.05%
Leverage ratio . . . . . . . . . . . . 9.47% 7.55% 7.69% 7.90% 8.88%
</TABLE>
15
<PAGE>
SPECIAL CONSIDERATIONS REGARDING CFB
IN ADDITION TO THE OTHER INFORMATION IN THIS PROXY STATEMENT-
PROSPECTUS, REPUBLIC'S SHAREHOLDERS SHOULD CONSIDER THE FOLLOWING
FACTORS REGARDING CFB. THIS PROXY STATEMENT-PROSPECTUS, INCLUDING THE
INFORMATION INCORPORATED BY REFERENCE HEREIN, CONTAINS FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF
1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. ACTUAL
RESULTS COULD DIFFER SIGNIFICANTLY FROM THOSE PROJECTED IN THE FORWARD-
LOOKING STATEMENTS AS A RESULT, IN PART, OF THE RISK FACTORS SET FORTH
BELOW. IN CONNECTION WITH THE FORWARD-LOOKING STATEMENTS WHICH APPEAR
IN THESE DISCLOSURES, SHOULD CAREFULLY REVIEW THE FACTORS SET FORTH BELOW.
RISKS INVOLVED IN ACQUISITION STRATEGY
CFB has grown and intends to continue to grow primarily through
acquisitions of banks and other financial institutions. Such acquisitions
involve risks of adversely changing results of operations, unforeseen
liabilities or asset quality problems of the acquired entity and other
conditions beyond the control of CFB, such as adverse personnel relations,
loss of customers because of change of identity and deterioration in local
economic conditions. In connection with the acquisition of financial
institutions, the Company may from time to time acquire new businesses that
are different from its core business and which present operating and
strategic risks different from those confronted in its core business. These
various acquisition risks can be heightened by the fact that KeyBank Wyoming
and Mountain Parks Financial Corp. are the largest institutions acquired to
date by CFB. The proposed acquisition of certain branches of banks currently
owned by Banc One Corporation (the "Bank One Branches") also represents a
large acquisition for CFB, and is expected to be consummated at about the
same time as CFB's acquisitions of Republic and First National Summit
Bankshares, Inc. These proposed acquisitions are subject to various
conditions, and there can be no assurance that they will be consummated. See
"Recent Developments --Pending Acquisitions."
Managing growth through acquisitions, including absorption and
training of personnel, combination of office and operations procedures
and related matters, is a difficult process. In connection with its
recent significant acquisitions, CFB has experienced challenges with
data and item processing conversion, management training, staffing and
other operational integration areas. These issues have resulted in the
need for management and support personnel to allocate increased time to
the integration process, in some cases slowing the acquired
institutions' marketing and business development efforts. Although CFB
has taken steps to address the issues resulting from recent
acquisitions, CFB may experience such issues in connection with future
acquisitions, and there can be no assurance that these problems will not
result in disruption or expense.
CFB's management believes future growth in the assets and earnings
of CFB will depend in significant part on consummation of further
acquisitions. The ability of CFB to pursue this strategy depends in
part on its capital position and, in the case of cash acquisitions, on
its cash assets or ability to acquire cash. Further, acquisition
candidates may not be available in the future on terms favorable to CFB.
CFB must compete with a variety of individuals and institutions,
including major regional bank holding companies, for suitable
acquisition candidates. Although CFB has focused its attention on
smaller markets, in which CFB believed there was less competition from
the money center banks and major regional bank holding companies, CFB
recently acquired operations in metropolitan areas. CFB may make
further acquisitions of companies with operations in metropolitan areas,
in which case it will face more competition for such acquisitions from
larger institutions. Further, certain regional holding companies have
focused on the smaller markets traditionally targeted by CFB, and there
can be no assurance that the acquisition activities of competitors in
these markets will not increase. Such competition is likely to affect
CFB's ability to make acquisitions, increase the price that CFB pays for
certain acquisitions and increase CFB's costs in analyzing possible
acquisitions.
NEED FOR ADDITIONAL FINANCING
CFB's ability to execute its business strategy depends to a
significant degree on its ability to obtain additional indebtedness and
equity capital. CFB is conducting an offering of $40 million of capital
securities of a business trust
16
<PAGE>
subsidiary and intends to offer $50 million of CFB Common Stock, both in
conjunction with the acquisition of the Bank One Branches. CFB has no
other commitments for additional borrowings or sales of equity capital
and there can be no assurance that CFB will be successful in
consummating any such future financing transactions on terms
satisfactory to CFB, if at all. Factors which could affect CFB's
access to the capital markets, or the costs of such capital, include
changes in interest rates, general economic conditions and the
perception in the capital markets of the CFB's business, results of
operations, leverage, financial condition and business prospects. Each
of these factors is to a large extent subject to economic, financial,
competitive and other factors beyond CFB's control. In addition,
covenants under CFB's current and future debt securities and credit
facilities may significantly restrict CFB's ability to incur additional
indebtedness.
REGULATION
As a bank holding company, CFB is subject to extensive regulation by the
Federal Reserve Board. This regulation limits the manner in which CFB and
the CFB Banks conduct their businesses and obtain financing and is designed
primarily to protect depositors and not to benefit holders of securities of
financial institutions. In addition, the CFB Banks are subject to extensive
regulation by various federal and state regulatory authorities. The banking
industry is subject to changing laws and regulations, many of which have
expanded the scope of services that may be offered by the banking industry
and have allowed additional competition in many geographic regions. In
September 1994, the Interstate Banking and Branching Efficiency Act of 1994
("IBBEA") was enacted. The IBBEA largely eliminated restrictions on
interstate banking and since June 1, 1997 has permitted interstate branching,
subject to certain options which states may enact by law. Certain aspects of
the IBBEA were clarified and amended in 1997, with the passage of the
Riegle-Neal Clarification Act. The Economics Growth and Regulatory Paperwork
Reduction Act of 1996 ("EGRPRA") streamlined application processes and eased
regulations in several areas, facilitating acquisitions and expansion of
non-banking activities. The IBBEA and EGRPRA may increase competition by
both out-of-state and in-state banking organizations or by other financial
institutions. There can be no assurance that implementation of and changes
in laws and regulations affecting banking will not adversely affect CFB. See
Item 1 of the CFB's Annual Report on Form 10-K for the year ended December
31, 1996, as amended, under the caption "Supervision and Regulation."
KEY PERSONNEL
Continued profitability of the CFB Banks and CFB are dependent on a
limited number of key persons, including Donald R. Mengedoth, the
President and Chief Executive Officer, Mark A. Anderson, the Executive
Vice President and Chief Financial Officer, Ronald K. Strand, the
Executive Vice President, Banking Group, and David E. Groshong, the
Executive Vice President, Financial Services, of CFB. None of these
officers has an employment agreement with CFB. There would likely be a
difficult transition period in case the services of any of these
individuals were lost to CFB because of death or other reasons. There
is no assurance that CFB will be able to retain its current key
personnel or attract additional qualified key persons as needed. The
inability to retain or attract additional qualified key persons as
needed could adversely affect management, asset quality and earnings of
CFB.
COMPETITION
Banking is a highly competitive industry. The CFB Banks compete
directly with other banks, and lending and financial institutions in
their local communities. The CFB Banks also compete indirectly with
regional and national financial institutions, especially in larger
metropolitan market areas in which CFB has increased its operations as a
result of recent acquisitions. Further, changes in government
regulation of banking, particularly recent legislation which removes
restrictions on interstate banking and permits interstate branching, are
likely to increase competition by out-of-state banking organizations or
by other financial institutions in CFB's smaller markets as well as its
metropolitan market areas.
STATUS OF CFB COMMON STOCK
CFB's Board of Directors is authorized, without stockholder
approval, to issue debt instruments or shares of classes or series of
preferred stock with terms and conditions to be determined by the Board
of Directors, subject
17
<PAGE>
to certain limitations. CFB is party to a shareholders' rights
agreement which could in certain circumstances serve as a deterrent
against a possible change of control not approved by CFB's Board of
Directors. See "Material Differences in Rights of Republic Shareholders
- -- Anti-Takeover Provisions."
18
<PAGE>
RECENT DEVELOPMENTS REGARDING CFB
PENDING ACQUISITIONS
CFB is in the process of completing the acquisitions described below.
FIRST NATIONAL SUMMIT BANKSHARES, INC. On August 22, 1997, CFB executed
an Agreement and Plan of Merger, including a First Amendment to the Agreement
and Plan of Merger (the "Summit Merger Agreement"), with First National
Summit Bankshares, Inc., Gunnison, Colorado ("Summit") and Summit Acquisition
Corporation. At June 30, 1997, Summit had offices in five locations in
Colorado and had total assets of approximately $86 million, total deposits of
approximately $77 million and total stockholders' equity of approximately $7
million. Pursuant to the Summit Merger Agreement, holders of Summit common
stock will receive shares of CFB Common Stock in exchange for their shares
and holders of Summit preferred stock will receive $100 per share surrendered
plus accrued but unpaid dividends to the effective time of the merger. On
completion of the merger, and subject to adjustments as set forth in the
Summit Merger Agreement, CFB expects to issue approximately 380,000 shares of
common stock to the former holders of Summit common stock. Consummation of
the Summit Merger Agreement is contingent upon regulatory approval, among
other things, and is anticipated to occur during the fourth quarter of 1997.
The acquisition is expected to be accounted for as a pooling of interests.
BANK ONE BRANCHES. On September 10, 1997, CFB entered into an Office
Purchase and Assumption Agreement (the "Branch Purchase Agreement") with
three subsidiary banks of Banc One Corporation. The Branch Purchase
Agreement generally provides for the conveyance of 37 branch banks (the "Bank
One Branches") located in Arizona (25 locations), Colorado (8 locations) and
Utah (4 locations). At June 30, 1997, the Bank One Branches had total
deposits of $639 million and loans of $70 million. Under the terms of the
Branch Purchase Agreement, CFB will pay a purchase price premium equal to 6%
of the deposits of the Bank One Branches at closing. The premium is
estimated to be $38.3 million, based upon deposit levels at June 30, 1997.
Consummation of the Branch Purchase Agreement is contingent upon regulatory
approval, among other things, and is anticipated to occur during the fourth
quarter of 1997. CFB intends to purchase the Arizona and Utah branches
through the Bank, and intends to purchase the Colorado branches through CFB's
Colorado subsidiary bank. The transaction will be accounted for as an
acquisition of assets and assumption of liabilities and will result in the
recognition by CFB of approximately $38.3 million in deposit based
intangibles.
CFB intends to capitalize the subsidiary banks that are acquiring the
Bank One Branches through two anticipated public offerings. First, CFB
intends to complete a public offering of CFB Common Stock with an aggregate
offering price of $50 million pursuant to a shelf registration statement
filed on October 9, 1997 covering up to $150 million in undesignated debt and
equity securities of CFB. Second, on October 9, 1997, CFB filed a
registration statement for a public offering of $40 million in stated value
of capital securities of a business trust subsidiary of CFB. The principal
purpose of these two offerings is to provide additional Tier 1 capital to CFB
to satisfy regulatory capital requirements in connection with the proposed
acquisition of the Bank One Branches.
SIGNIFICANT ACQUISITIONS
In 1997 and 1996, the Company completed the acquisitions described below.
KEYBANK WYOMING. On July 14, 1997, CFB purchased KeyBank National
Association, Cheyenne, Wyoming ("KeyBank Wyoming"), from KeyCorp, its parent
corporation, for a purchase price of $135 million. KeyBank Wyoming has been
renamed "Community First National Bank." As of June 30, 1997, KeyBank
Wyoming had total assets of approximately $1.1 billion and 28 banking offices
located in 24 communities in Wyoming, including Cheyenne, Laramie, Casper,
Sheridan and Jackson, providing a full range of commercial and consumer
banking services throughout the state. The transaction was accounted for as
a business combination using the purchase method of accounting and resulted
in the recognition of goodwill by CFB of approximately $60 million. CFB
believes its Wyoming banking network is the largest in Wyoming.
MOUNTAIN PARKS FINANCIAL CORP. On December 18, 1996, CFB acquired
Mountain Parks Financial Corp. ("Mountain Parks"), a bank holding company
that operated a state chartered bank with full service commercial banking
facilities in 17 Colorado communities. At September 30, 1996, Mountain Parks
had total assets of approximately $581.8 million and total stockholders'
equity of approximately $57.1 million. Upon completion of the merger, CFB
issued approximately 5.2 million shares of common stock to the former holders
of Mountain Parks common stock. The market value of the CFB's Common Stock
issued in the merger was approximately $142.2 million, based on the closing
price of CFB's Common Stock on the Nasdaq National Market on
19
<PAGE>
December 18, 1996. The transaction was accounted for as a pooling of
interests. The Mountain Parks banks are located in winter ski and summer
recreational areas in the Colorado mountains and in the greater
Denver/Boulder metropolitan area. Pursuant to commitments made with the
Federal Reserve to address resulting concentrations in certain Colorado
banking markets, CFB sold Mountain Parks banking offices in two Colorado
communities. Mountain Parks primary lending focus is on commercial loans,
real estate mortgage loans, residential real estate construction loans and,
to a lesser extent, consumer loans.
20
<PAGE>
GENERAL INFORMATION
This Proxy Statement-Prospectus is being furnished to the shareholders of
Republic in connection with the solicitation by the Board of Directors of
Republic of proxies to be voted at the Republic Special Meeting of Shareholders
to be held on _____________, 1997 at ____:00 a.m., local time, and at any
and all adjournments thereof. This Proxy Statement-Prospectus and the enclosed
form of proxy are first being sent to shareholders of Republic on or about
October , 1997.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, shareholders of Republic will be asked to consider
and vote upon the Merger Agreement providing for the Merger. A copy of the
Merger Agreement is attached hereto as Appendix A. If any other matters are
properly presented at the Special Meeting for consideration, including, among
other things, consideration of a motion to adjourn the Special Meeting to
another time or place, the persons named in the enclosed form of proxy and
acting thereunder will have discretion to vote on such matters in accordance
with their best judgment.
Pursuant to the Merger Agreement, each shareholder of Republic will be
entitled to receive, for each share of Republic Common Stock held at the
Effective Time of the Merger (other than shares held by dissenting
shareholders), a certain number of shares of CFB Common Stock, the number of
such shares to be determined pursuant to a formula described more fully below.
Cash will be paid in lieu of fractional shares. See "The Merger - Conversion of
Republic Common Stock," "- Dissenters' Rights" and Section 10-1302 of the AZBCA
attached hereto as Appendix B.
VOTE REQUIRED; SHARES ENTITLED TO VOTE
The presence in person or by proxy of the holders of a majority of the
outstanding shares of Republic Common Stock will constitute a quorum for the
transaction of business at the Republic Special Meeting. APPROVAL OF THE MERGER
WILL REQUIRE THE AFFIRMATIVE VOTE OF TWO-THIRDS OF THE OUTSTANDING SHARES OF
REPUBLIC COMMON STOCK. Holders of record of Republic Common Stock at the close
of business on October ____ 1997 are entitled to receive notice of, and to vote
at, the Republic Special Meeting. At the close of business on October _____,
1997, there were __________ shares of Republic Common Stock outstanding. Each
share of Republic Common Stock will be entitled to one vote.
As of the Record Date, directors and officers of Republic and their
affiliates owned beneficially an aggregate of 2,337,719 shares (or
approximately 63.88%) of the outstanding Republic Common Stock.
VOTING AND REVOCATION OF THE PROXIES
The Board of Directors of Republic has unanimously approved the Merger and
the Republic shareholders are solicited on behalf of the Board of Directors of
Republic to SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING
ENVELOPE. No postage is required if mailed within the United States. Shares
represented by proxies properly signed, dated and returned will be voted at the
applicable Special Meeting in accordance with the instructions set forth
therein. If a proxy is properly signed but contains no such instructions, the
shares represented thereby will be voted FOR the Merger and at the discretion of
the proxyholders as to any other matters which may properly come before the
Special Meeting. If an executed proxy card is returned by a broker holding
shares of Republic Common Stock in street name which indicates that the broker
does not have discretionary authority as to certain shares to vote on any
matter, or if a Republic shareholder abstains from voting on any proposal, the
shares represented by such proxy will be considered present at the Special
Meeting for purposes of determining a quorum and for purposes of calculating the
vote, but will not be voted with respect to such matter. Because the Merger
requires the affirmative vote of two-thirds of the total number of outstanding
shares of Republic
21
<PAGE>
Common Stock entitled to vote at the Special Meeting, abstentions and "broker
non-votes" will have the same effect as votes against the proposal.
Each proxy may be revoked at any time before it is voted by executing and
returning a proxy bearing a later date, by giving written notice of revocation
to the Secretary of the Special Meeting or by attending the Special Meeting and
voting in person.
REPUBLIC SHAREHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES WITH THEIR
PROXY CARDS. See "The Merger - Delivery of CFB Common Stock."
SOLICITATION OF PROXIES
Following the mailing of proxy soliciting materials, directors, officers
and employees of Republic (who will not be specifically compensated for such
services) may solicit proxies by mail, telephone, telegraph and personal
interviews. Republic will bear the expenses of proxy solicitation, including
reimbursement of reasonable out-of-pocket expenses incurred by brokerage houses
and other custodians, nominees and fiduciaries in forwarding proxy soliciting
material to the beneficial owners of stock held of record by such persons.
22
<PAGE>
MARKET PRICES AND DIVIDEND POLICY
MARKET FOR CFB COMMON STOCK
CFB Common Stock has been traded in the Nasdaq National Market System under
the symbol CFBX since its initial public offering on August 13, 1991. The first
public announcement of the proposed Merger was made during the trading day on
August 28, 1997. On that date and on ____________, 1997, the closing sales
price per share of CFB Common Stock as quoted on the Nasdaq National Market
System was $40.00 and $ ___________, respectively.
MARKET FOR REPUBLIC COMMON STOCK
Republic Common Stock is not traded on any established public trading
market or in the over-the-counter market. Republic is aware of only limited
transactions involving the sale of Republic Common Stock. The prices for
Republic Common Stock in such transactions are not considered indicative of
prices that could be obtained in an active market involving a substantial number
of shares.
SHAREHOLDER DATA
As of September 30, 1997, there were approximately 1,200 owners of record
of CFB Common Stock and an estimated 5,900 additional beneficial shareholders
whose stock was held in street name by brokerage houses.
At October 15, 1997, there were 75 owners of record of Republic Common
Stock. See "Republic's Principal Shareholders and Security Ownership of
Management."
CFB COMMON STOCK DIVIDEND PAYMENT HISTORY AND RESTRICTIONS
Since its initial public offering in August 1991, CFB has paid quarterly
cash dividends on the CFB Common Stock. The final determination of the timing,
amount and payment of dividends on the CFB Common Stock is at the discretion of
the CFB Board of Directors and will depend on conditions then existing,
including CFB's profitability, financial condition, capital requirements and
other relevant factors, including the restrictions described below. The
principal source of CFB's income (including the funds needed to pay dividends on
the CFB Common Stock) is dividends from the CFB Banks. The payment of dividends
by the CFB Banks is subject to certain restrictions imposed by federal and state
banking laws and regulations.
CFB's ability to pay cash dividends on the CFB Common Stock is also subject
to statutory restrictions and restrictions arising under the terms of its
outstanding securities. Under applicable law, cash dividends may be paid only
from surplus, or, if there is no surplus, from net profits earned in the current
and/or preceding fiscal year. Applicable federal regulation of bank holding
companies may also impose restrictions on the ability of a bank holding company
to pay dividends. CFB does not believe that Delaware corporate law, applicable
banking law, or the terms of its securities will materially inhibit its plans to
pay cash dividends on the CFB Common Stock for the foreseeable future.
REPUBLIC DIVIDEND POLICY AND PAYMENT HISTORY
Republic has paid semiannual dividends on its Common Stock since 1994.
The final determination of the timing, amount and payment of dividends on
Republic Common Stock has been at the discretion of the Republic Board of
Directors. The Merger Agreement prohibits Republic from declaring and paying
dividends (i) in excess of $400,000 in the aggregate or (ii) after the
Determination Date (as defined below under "The Merger - Conversion of
Republic Common Stock"). Republic declared a $.05 per share dividend in
February 1997.
23
<PAGE>
THE MERGER
THE FOLLOWING DESCRIPTION CONTAINS, AMONG OTHER INFORMATION, SUMMARIES OF
CERTAIN PROVISIONS OF THE MERGER AGREEMENT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT THEREOF, A COPY OF WHICH IS REPRODUCED AS APPENDIX A
TO THIS PROXY STATEMENT-PROSPECTUS AND INCORPORATED HEREIN BY REFERENCE.
GENERAL
CFB and Republic have entered into the Merger Agreement, which provides
that Republic will be merged with and into CFB, and each outstanding share of
Republic Common Stock, other than shares held by shareholders who perfect
statutory dissenters' rights, will be converted at the Effective Time of the
Merger into shares of CFB Common Stock, the number of which will be
determined by a formula set forth in the Merger Agreement and more fully
described below. See "The Merger - Conversion of Republic Common Stock."
Subject to the terms and conditions of the Merger Agreement, the Effective
Time of the Merger will be on the date a plan of merger and articles of
merger are filed with the Arizona Corporation Commission and a certificate of
merger is filed with the Delaware Secretary of State. It is presently
contemplated that the Effective Time of the Merger will be as soon as
practicable after shareholder approval of the Merger.
BACKGROUND OF THE MERGER
The terms and conditions of the Merger Agreement were determined through
arms-length negotiations between the managements and respective boards of
directors of CFB and Republic. The following is a brief summary of those
negotiations.
In the first week of January 1997, Republic issued a request for proposal
to three banking consultants/financial advisors (the "RFP"). The RFP
requested that each consultant meet with a committee of the board of
directors of Republic (the "Committee") to assess the opportunities available
for the sale of Republic. Each consultant was also asked to provide the
Committee with an estimate of the value of Republic and the Bank, and manners
and methods for marketing Republic and the Bank to potential acquirors. The
Committee selected Hovde Financial, Inc. ("Hovde") based on its recent
involvements with bank acquisitions and mergers, the extent and depth of its
analyses and market research on the potential value of Republic and the Bank
and its research on various mergers or acquisitions involving holding
companies similar in size to Republic.
Republic entered into a Consulting Agreement with Hovde dated February 7,
1997 (the "Consulting Agreement"). The Consulting Agreement contained a
specific timetable for actions, including a comprehensive due diligence review
of Republic and the Bank, preparation of materials to be provided to prospective
acquirors, selection of prospective acquirors, preparation of confidentiality
agreements and the obligation of Hovde to contact a number of financial
institutions with respect to the possible acquisition of or merger with Republic
and/or the Bank. The Consulting Agreement required Hovde to render a fairness
opinion upon the execution of any definitive acquisition agreement.
In the mid-spring and early summer of 1997, Hovde contacted approximately
twenty-eight financial institutions. As a result of such contacts,
substantive discussions took place with two companies regarding an
acquisition of Republic, one of which was CFB. During these discussions, it
was determined that there was a potential to reach agreement on a transaction
price acceptable to Republic and discussions were pursued with both CFB and
the other party regarding an acquisition of Republic.
Following these discussions, CFB executed the confidentiality agreement and
sent a letter of interest dated April 9, 1997. In furtherance of CFB's letter
of interest, CFB requested the opportunity to conduct extensive pre-agreement
due-diligence of Republic and the Bank. Republic granted CFB's request and CFB
from May 12, 1997 through May 16, 1997 conducted on-site due diligence and
document review of Republic and the Bank. After review of this due diligence
information by, and substantive discussions with, CFB, CFB was identified as the
most viable
24
<PAGE>
prospect. Based upon these discussions, CFB sent a modified letter of
interest dated June 3, 1997. In that letter, CFB set forth a specific number
of terms including loan loss reserve requirements of the Bank, the amount of
the minimum Republic value, a cap and collar on the transfer price to be
given for Republic Common Stock in exchange for CFB Common Stock and an
assumption of change of control agreements for certain officers and employees
of the Bank by CFB. A proposed form of Agreement and Plan of Merger was sent
for discussion purposes by Hovde to CFB and CFB's counsel on or about May 30,
1997. Based on that proposed form, CFB prepared and presented to Republic
and Republic's counsel a proposed form of Agreement and Plan of Merger on
June 20, 1997. Negotiations took place over the following weeks among
Hovde, Republic, Republic's counsel, CFB and CFB's counsel resulting in a
form of Merger Agreement which was approved by the Board of Directors of
Republic on August 14, 1997 and executed and announced on August 28, 1997.
The Merger Agreement was subsequently amended and restated effective as of
August 28, 1997.
REASONS FOR THE MERGER
The Republic Board of Directors believes the Merger with CFB is in the best
interests of the Republic shareholders. After careful consideration and review,
the Republic Board reached its decision based on an analysis of the following
critical factors. The Republic Board did not determine the relative weight of
these factors in concluding to recommend the approval of the Merger.
- A substantial percentage of the Republic shareholders desired
liquidity of their investment in Republic.
- Republic has concluded that additional capital was needed in order for
the Bank to grow in the Arizona market but access to additional
capital was hampered by the lack of liquidity and other avenues for
capital were found less attractive to Republic and its shareholders.
- With the rapidly changing environment in the banking industry,
Republic would benefit from an association with a larger banking
organization and its resources.
- A business combination with a larger bank holding company would likely
be the most advantageous method for maximizing shareholder value.
- CFB's offer provides greater economic value to Republic shareholders
than Republic would likely be able to generate in the foreseeable
future by remaining independent, which value the Republic Board deemed
greater than the other offers received by Republic.
- The Republic Board received the opinion of its financial advisor,
Hovde Financial, Inc., that the Merger Consideration to be received by
the shareholders of Republic is fair from a financial point of view.
- The Republic Board analyzed the possible impact of the pending changes
in the Arizona branch banking operation laws and the likelihood of an
impact of increased competition from lower cost, non-capitalized
branches operating in the markets of the Bank.
- The Republic Board analyzed the present market and price being paid
for bank stocks as a whole.
- The Republic Board analyzed the business, financial condition, results
of operations and prospects of Republic on a stand-alone basis and a
pro-forma basis, assuming a combination of Republic with CFB. The
combined basis appeared to the Republic Board to be favorable to the
Republic shareholders.
25
<PAGE>
- CFB's offer involved a merger on a tax-free basis, giving Republic
shareholders the option of either continuing to participate as a
shareholder in a larger, more geographically diverse regional banking
organization or liquidating their investment by selling their shares
of CFB Common Stock, which is publicly traded in the national
over-the-counter market, unlike Republic Common Stock, for which there
is no trading market.
- The Republic Board analyzed the combined strengths of Republic and CFB
in servicing the needs of the communities in Republic's markets, CFB's
management ability, and the compatibility of Republic's and CFB's
operating philosophies.
- Republic's Board also considered the current market price of CFB
Common Stock, CFB's dividend payment history, book value and recent
earnings, the terms of the Merger Agreement and other factors.
THE REPUBLIC BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF REPUBLIC
VOTE FOR APPROVAL OF THE MERGER.
OPINION OF REPUBLIC'S FINANCIAL ADVISOR
As described above under "The Merger - Background of the Merger," Republic
entered into the Consulting Agreement with Hovde, which contemplated the
issuance by Hovde of a fairness opinion. During the course of discussions by
the Republic Board regarding a potential transaction with CFB, Hovde was
requested to render its opinion to the Republic Board regarding the fairness,
from a financial point of view, to Republic shareholders of the Merger
Consideration, as such term is referred to in the Hovde fairness opinion. Based
upon and subject to the various considerations set forth in its written opinion
dated August 28, 1997, Republic delivered to the Republic Board its opinion that
the Merger Consideration is fair from a financial point of view to the
shareholders of Republic as of the date of its opinion. In requesting Hovde's
advice and opinion, no limitations were imposed by Republic upon Hovde with
respect to the investigations made or procedures followed by it in rendering its
opinion.
Hovde is an investment banking firm engaged, among other things, in the
valuation of businesses and their securities in connection with mergers and
acquisitions, underwriting and secondary distributions of securities, private
placements and valuations for estate, corporate and other purposes. Hovde was
selected to assist Republic in the sale of its business and to prepare a
fairness opinion based on its experience and expertise in transactions similar
to the Merger and its reputation in the financial services sector. Except as
set forth above and in "The Merger - Background of the Merger," Hovde has not
otherwise acted as financial advisor to Republic or the Republic Board in
connection with the Merger.
The full text of the opinion of Hovde, dated August 28, 1997, which
describes the procedures followed, assumptions made, matters considered and
limitations on the review undertaken, is attached hereto as Appendix C.
Shareholders of Republic should read this opinion in its entirety.
HOVDE'S OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE MERGER CONSIDERATION, AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY SHAREHOLDER OF REPUBLIC AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE
REPUBLIC SHAREHOLDER MEETING. THE SUMMARY OF THE OPINION OF HOVDE SET FORTH IN
THIS PROXY STATEMENT-PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION.
The following is a brief summary of the analyses performed by Hovde in
connection with its fairness opinion:
26
<PAGE>
During the course of its engagement, and as a basis for arriving at its
opinion, Hovde reviewed and analyzed material bearing upon the financial and
operating condition of CFB and Republic and material prepared in connection with
the Merger, including, among other things, the following: (i) the Merger
Agreement; (ii) certain publicly available information concerning Republic and
CFB, including the consolidated financial statements of Republic and CFB for
each of the three years ended December 31, 1994, 1995 and 1996, as well as
subsequent quarterly statements for the periods ended March 31, 1997 and June
30, 1997; (iii) the nature and terms of recent acquisition and merger
transactions involving banks and bank holding companies that Hovde considered
reasonably similar to Republic in size, financial character, operating
character, historical performance and geographic market; and (iv) financial and
other information provided to Hovde by the management of CFB and Republic.
Hovde also took into account its experience in other transactions as well as its
knowledge of the commercial banking industry and its general experience in
securities valuations.
In rendering its opinion, Hovde assumed, without independent verification,
the accuracy and completeness of the financial and other information and has
relied upon the accuracy of the representations of the parties contained in the
Merger Agreement. Hovde has not made any independent evaluation or appraisal of
any properties, assets or liabilities of Republic or CFB. Hovde assumed and
relied upon the accuracy and completeness of the publicly available and other
financial information provided to it, relied upon the representations and
warranties of CFB and Republic made pursuant to the Merger Agreement, and did
not independently attempt to verify any of such information.
In connection with its opinion, Hovde performed various analyses with
respect to Republic. The following is a brief summary of such analyses, certain
of which were presented to Republic's Board of Directors by Hovde on or before
the announcement date of August 28, 1997.
ANALYSIS OF THE MERGER CONSIDERATION. Hovde reviewed the value of the
Merger Consideration to be received by each Republic shareholder. Hovde
calculated that the Merger Consideration equated to approximately 278.4% of
Republic's fully diluted tangible book value at June 30, 1997, a multiple of
approximately 13.6 times Republic's earnings for the 12 months ended June 30,
1997, and a premium to core deposits of approximately 21.2%.
SUMMARY OF PROPOSALS. Hovde summarized the sales process, the parties
contacted, and the level of interest expressed by each party, including the
value of the aggregate consideration offered to the shareholders of Republic.
Hovde also compared the significant terms of the CFB proposal to that of
the other bidders submitting proposals, including the value of the consideration
offered. This analysis showed, among other things, that the value of the CFB
proposal at announcement of $14.5 million or $3.94 per fully diluted share for
all shares outstanding of Republic Common Stock was considered higher than the
value per share offered by the other bidders. Hovde examined the trading price
and volume for CFB Common Stock and the relationship between the trading
characteristics of the common stocks of the other companies, as well as to a
peer group of comparable companies.
ANALYSIS OF SELECTED MERGERS. As part of its analysis, Hovde reviewed a
comparable group of 29 bank acquisitions, which included all mergers
involving banks headquartered in the Southwest (e.g. Arizona, Colorado,
Nevada, New Mexico and Texas) announced after August 1, 1996 in which the
total assets of the seller were less than $100 million (the "Southwest
Mergers"). For each transaction, Hovde calculated the multiple of the offer
value to the acquired companies; (i) earnings per share ("EPS") for the 12
months preceding ("LTM") the announcement date of the transaction; (ii) book
value per share; (iii) tangible book value per share; and (iv) the tangible
book premium to core deposits.
The calculations of the Southwest Mergers yielded a range of multiples of
offer value to LTM EPS of 5.60 times to 36.00 times, with an average of 15.08
times and a median of 13.10 times; a range of multiples of offer value to book
value of 1.09 times to 2.84 times, with an average of 1.80 times and a median
of 1.69 times; a range of multiples of offer value to tangible book value of
1.09 times to 2.84 times, with an average of 1.81 times and a median
27
<PAGE>
of 1.70 times; and a range of tangible book premium to core deposits of
1.42% to 26.98%, with an average of 9.36% and a median of 8.77%.
Hovde compared these multiples with the corresponding multiples for the
Merger, valuing the shares of CFB Common Stock that would be received pursuant
to the Merger Agreement at $14.5 million or $3.94 per fully diluted share of all
shares outstanding of Republic Common Stock. In calculating the multiples for
the Merger, Hovde used Republic's EPS for the 12 months ended June 30, 1997,
book value per share and tangible book value per share as of June 30, 1997, and
Hovde calculated that Republic's LTM EPS, book value per share, tangible book
value per share and tangible book premium to core deposits were 13.64 times,
2.78 times, 2.78 times, and 21.15%, respectively.
No company or transaction used in the above analysis as a comparison is
identical to Republic, CFB or the Merger. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other facts that could affect the public
trading value of the companies to which they are being compared.
Although the summary set forth above does not purport to be a complete
description of the analysis performed by Hovde, the material analysis performed
by Hovde in rendering its opinion has been summarized above. However, the
preparation of a fairness opinion is not necessarily susceptible to partial
analysis or summary description. Hovde believes that its analysis and the
summary set forth above must be considered as a whole and that selecting
portions of its analysis, without considering all factors and analysis, would
create an incomplete view of the process underlying the analysis by which Hovde
reached its opinion. In addition, Hovde may have given various analyses more or
less weight than other analyses, but no analysis was given materially more
weight than any other analysis. Also, Hovde may have deemed various assumptions
more or less probable than other assumptions so that the ranges of valuations
resulting from any particular analysis described above should not be taken to be
Hovde's view of the actual value of Republic or the combined company.
In performing its analysis, Hovde made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Republic and CFB. The analysis
performed by Hovde is not necessarily indicative of actual value or actual
future results, which may be significantly more or less favorable than suggested
by each analysis. Such analysis was prepared solely as part of the Hovde's
analysis of the fairness of the Merger Consideration from a financial point of
view to the holders of Republic Common Stock. The analysis does not purport to
be an appraisal or to reflect the prices at which a company might actually be
sold or the prices at which any securities may trade at the present time or at
any time in the future. Hovde used in its analysis various projections of
future performance prepared by the management of Republic. The projections are
based on numerous variables and assumptions which are inherently unpredictable
and must be considered not certain of occurrence as projected. Accordingly,
actual results could vary significantly from those assumed in the projections
and any related analysis. Hovde's opinion does not address the relative merits
of the Merger as compared to any other business combination in which Republic
might engage. In addition, as described above, Hovde's opinion to the Republic
Board of Directors was one of many factors taken into consideration by the
Republic Board of Directors in making its determination to approve the Merger
Agreement.
Based upon the foregoing analyses and other investigations and assumptions
set forth in its opinions, without giving specific weightings to any one factor
or comparison, Hovde determined that the Merger Consideration was fair from a
financial point of view to the shareholders of Republic. Hovde's fairness
opinion does not take into account any adjustment to the Merger Consideration
that may be provided for in the Merger Agreement.
THE SUMMARY OF THE PRESENTATION BY HOVDE TO THE REPUBLIC BOARD OF DIRECTORS
AS SET FORTH ABOVE DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF SUCH
PRESENTATION. THE PREPARATION OF A FAIRNESS OPINION INVOLVES VARIOUS
DETERMINATIONS AS TO THE MOST APPROPRIATE AND RELEVANT METHODS OF FINANCIAL
ANALYSES AND THE APPLICATION OF THOSE METHODS TO THE PARTICULAR CIRCUMSTANCES,
AND, THEREFORE, SUCH AN OPINION IS NOT READILY SUSCEPTIBLE TO SUMMARY
DESCRIPTION.
28
<PAGE>
FURTHERMORE, IN ARRIVING AT ITS OPINION, HOVDE DID NOT ATTRIBUTE ANY
PARTICULAR WEIGHT TO ANY ANALYSIS OR FACTOR CONSIDERED BY IT, BUT RATHER MADE
QUALITATIVE JUDGMENTS AS TO THE SIGNIFICANCE AND RELEVANCE OF EACH ANALYSIS
AND FACTOR. ACCORDINGLY, HOVDE BELIEVES THAT ITS ANALYSES AND THE SUMMARY
SET FORTH ABOVE MUST BE CONSIDERED AS A WHOLE AND THAT SELECTING PORTIONS OF
ITS ANALYSES, WITHOUT CONSIDERING ALL FACTORS AND ANALYSES, COULD CREATE AN
INCOMPLETE VIEW OF THE PROCESS UNDERLYING THE ANALYSES SET FORTH IN ITS
REPORT TO THE REPUBLIC BOARD AND ITS FAIRNESS OPINION. IN PERFORMING ITS
ANALYSES, HOVDE MADE NUMEROUS ASSUMPTIONS WITH RESPECT TO INDUSTRY
PERFORMANCE, GENERAL BUSINESS AND ECONOMIC CONDITIONS AND OTHER MATTERS, MANY
OF WHICH ARE BEYOND THE CONTROL OF CFB AND REPUBLIC. THE ANALYSES PERFORMED
BY HOVDE ARE NOT NECESSARILY INDICATIVE OF ACTUAL VALUES OR ACTUAL FUTURE
PERFORMANCE.
Pursuant to the Consulting Agreement between Hovde and Republic, Hovde
will receive a fee of approximately $433,909 based upon the announced value
of the Merger, for services rendered in connection with advising Republic
regarding the Merger Agreement, including the fairness opinion, plus
reimbursement of out-of-pocket expenses. The fee to be paid to Hovde will
vary according to the value of the CFB Common Stock to be issued in the
Merger. As of the date of this Proxy Statement-Prospectus, Hovde has
received $113,823 of such fee.
EFFECTIVE TIME OF THE MERGER
Subject to the terms and conditions of the Merger Agreement, the
Effective Time of the Merger will be on the date a plan of merger and
articles of merger are filed with the Arizona Corporation Commission and a
certificate of merger is filed with the Delaware Secretary of State. Such
filing shall be made following the satisfaction or waiver of certain
conditions set forth in the Merger Agreement or on such other date upon which
the parties may agree. The parties expect the Merger to become effective as
soon as practicable following approval of the Merger by the shareholders of
Republic.
CONSEQUENCES OF THE MERGER
At the Effective Time of the Merger, Republic will merge with and into CFB.
The surviving corporation will be CFB and the separate existence of Republic
shall cease. The Certificate of Incorporation and Bylaws of CFB as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation and bylaws of CFB until each may be amended in accordance
with applicable law. CFB, as the holder of all the outstanding common stock of
CFB, shall continue as the sole shareholder of CFB, and CFB will elect
directors and officers of CFB following the Merger. At the Effective Time
of the Merger, the holders of certificates representing shares of Republic
Common Stock will cease to have any rights as shareholders of Republic except
such rights, if any, as they may have as a dissenter from the Merger and their
sole rights shall be their right to receive (i) the number of whole shares of
CFB Common Stock into which their shares of Republic Common Stock have been
converted in the Merger (as discussed below), and (ii) the cash value of any
fraction of a share of CFB Common Stock into which their shares of Republic
Common Stock have been converted. At or prior to the Effective Time of the
Merger, the holders of certificates representing shares of Republic Preferred
Stock will have either redeemed their certificates or converted their shares
into shares of Republic Common Stock to be exchanged in the Merger.
CONVERSION OF REPUBLIC COMMON STOCK
At the Effective Time of the Merger, each share of Republic Common Stock
which is not owned by a shareholder exercising dissenter's rights will be
converted at the Exchange Rate into a certain number of shares of CFB Common
Stock, determined as described in this section.
Under the terms of the Merger Agreement, all of the issued and outstanding
shares of Republic Common Stock and any outstanding options, warrants or other
rights to Republic Common Stock shall be exchanged for 368,500 shares of CFB
Common Stock. On or before the Effective Time, all stock options and other
rights with respect to Republic Common Stock shall be (i) accelerated and
exercised by the holder thereof in accordance with
29
<PAGE>
the terms of the applicable stock option plan or Agreement or (ii) released
and terminated by written acknowledgment and agreement by the holder thereof,
obtained by Republic not less than 10 business days prior to the Closing
Date. Based on the number of shares of Republic Common Stock outstanding as
of October 15, 1997 and assuming the exercise prior to the Closing Date of
all outstanding options to purchase Republic Common Stock, the Exchange Rate
is expected to be 0.1043 shares of CFB Common Stock for each outstanding
share of Republic Common Stock.
The Merger Agreement provides that if, between the date of the Merger
Agreement and the Effective Time of the Merger, CFB shall declare a stock
dividend or distribution upon or subdivide, split, reclassify or combine its
shares of CFB Common Stock or declare a dividend or make a distribution on the
CFB Common Stock or any security convertible into CFB Common Stock or
exercisable to purchase CFB Common Stock (including, without limitation,
distribution of any rights under CFB's Shareholder Rights Plan after a
Distribution Date, as defined in such Plan), appropriate adjustments will be
made in the Exchange Rate.
No fractional shares of CFB Common Stock will be issued in connection with
the Merger, but in lieu thereof each holder of shares of Republic Common Stock
otherwise entitled to a fraction of a share of CFB Common Stock will be paid in
cash. The amount paid for a fractional share shall be an amount equal to such
fraction multiplied by the Trading Value of the CFB Common Stock. The "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 for the
20 trading days ending at the end of the fourth trading day immediately
preceding the Closing Date. No shareholder will be entitled to voting or other
rights in respect of any fractional share.
INDEMNITY AND ESCROW
The Merger Agreement provides for certain limited indemnification by CFB,
from and after the Effective Time of the Merger and for a period of six years
after the Effective Time, of each present and former director, officer and
employee of Republic and the Bank and each officer or employee of Republic and
the Bank that is serving or has served as a director or trustee of another
entity expressly at Republic's or the Bank's request or direction (each, an
"Indemnified Party"), against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, and whether or not the
Indemnified Party is a party thereto, arising out of matters existing or
occurring at or prior to the Effective Time (including transactions contemplated
by the Merger Agreement), whether asserted or claimed prior to, at or after the
Effective Time, to the fullest extent then permitted under Arizona law and
regulation. CFB has further agreed, subject to any prohibition or restriction
under Arizona law or regulation, to advance any such costs to each Indemnified
Party as they are from time to time incurred.
DELIVERY OF CFB COMMON STOCK
Within five business days after the Closing Date, letters of transmittal
will be mailed to each holder of Republic Common Stock. Each such holder will
be requested to complete the letter of transmittal and return such letter,
together with the stock certificates representing all of the shares of Republic
Common Stock previously owned by such holder, to the exchange agent designated
in the letter of transmittal (the "Exchange Agent"). The letter of transmittal
will specify that delivery shall be effective and risk of loss and title to
Republic Common Stock certificates shall pass only upon delivery of the
certificates to the Exchange Agent and shall include instructions for effecting
the surrender of the Republic Common Stock certificates in exchange for a
certificate representing shares of CFB Common Stock and the cash to be paid in
lieu of any fractional share. Certificates for CFB Common Stock will be
delivered to or for the account of a holder of Republic Common Stock only after
the Merger is consummated and the holder has surrendered to the Exchange Agent
the old certificates for such holder's Republic Common Stock, accompanied by a
duly executed letter of transmittal in proper form.
At the Closing, CFB shall deposit with the Exchange Agent, for the benefit
of the holders of shares of Republic 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 to be issued and paid in exchange for the
outstanding shares of Republic Common Stock.
If CFB declares a dividend or makes any other distribution declared or made
with respect to shares of CFB Common Stock to be issued or transferred to
holders of Republic Common Stock, no such dividend or distribution will be paid
or made to persons otherwise entitled to receive them until the certificates for
their Republic Common
30
<PAGE>
Stock have been surrendered following the Closing Date. The Exchange Agent
shall receive and hold such distributions in its name as agent. No interest
will be paid on the cash in lieu of fractional shares and unpaid dividends
and distributions, if any, payable to Republic shareholders. Holders of
unsurrendered Republic Common Stock certificates shall not be entitled to
vote after the Closing Date at any meeting of CFB shareholders until they
have exchanged their Republic Common Stock certificates.
No transfer taxes will be payable by Republic's shareholders in connection
with the exchange of old certificates representing Republic Common Stock for new
certificates representing CFB Common Stock except that if any new certificate is
to be issued in a name other than that in which the Republic certificate
surrendered in exchange therefor is registered, it will be a condition of such
exchange that the person requesting such exchange pay to the Exchange Agent any
transfer or other taxes required in connection therewith or satisfy the Exchange
Agent that such tax has been paid or is not applicable. At the Effective Time
of the Merger, the stock transfer books of Republic will be closed and no
transfer of Republic Common Stock will thereafter be made on such books.
REPUBLIC SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
CFB and Republic expect that the Merger will be treated as a tax-free
reorganization within the meaning of Section 368(a)(1)(A) of
the Code and that for federal income tax purposes, no gain or loss will be
recognized by any shareholder of Republic upon receipt of CFB Common Stock
pursuant to the Merger, except upon receipt of cash in lieu of any fractional
share interests of CFB Common Stock or the exercise of dissenters' rights. The
Internal Revenue Service (the "Service") has not been and will not be asked to
rule upon the tax consequences of the Merger. However, it is a condition to the
consummation of the Merger that Republic receive the opinion of tax counsel that
the Merger will qualify as a tax-free reorganization. The opinion is being
supplied by Streich Lang P.A., counsel to Republic, and will be addressed to
Republic and CFB. The following summary of the material United States federal
income tax consequences of the Merger is set forth in reliance upon that
opinion. The conclusions discussed herein are based, in part, upon certain
representations made by Republic and CFB. These conclusions also are based upon
the Code, regulations now in effect thereunder, current administrative rulings
practiced, and judicial authority, all of which are subject to change. An
opinion of counsel is not binding upon the Service, and there can be no
assurance, and none is hereby given, that the Service will not take a position
contrary to one or more of the positions reflected herein or that the opinion
will be upheld by the courts if challenged by the Service. EACH HOLDER OF
REPUBLIC COMMON STOCK IS URGED TO CONSULT HIS OR HER OWN TAX AND FINANCIAL
ADVISORS AS TO THE EFFECT OF SUCH FEDERAL INCOME TAX CONSEQUENCES ON HIS OR HER
OWN PARTICULAR FACTS OR CIRCUMSTANCES AND ALSO AS TO ANY STATE, LOCAL, FOREIGN
OR OTHER FEDERAL TAX CONSEQUENCES ARISING OUT OF THE MERGER.
Based upon the facts and representations provided to it, and subject to
various assumptions and qualifications, Streich Lang P.A. will opine
substantially to the effect that, with regard to the shareholders of Republic,
the following federal income tax consequences will result from the Merger:
(a) The Merger will qualify as a reorganization within the meaning of
Section 368(a)(1)(A) of the Code;
(b) No gain or loss will be recognized by shareholders of Republic upon
the exchange of their Republic Common Stock solely for CFB Common Stock
(but see clause (e) below for the tax consequences of payments in lieu of
fractional share interests);
(c) The aggregate income tax basis of CFB Common Stock received by each
shareholder of Republic will be equal to the aggregate income tax basis of
the Republic Common Stock surrendered by such shareholder in exchange
therefor, less any amount of the basis allocable to any fractional share
interest for which cash is received, as described in (e), below;
31
<PAGE>
(d) The holding period of CFB Common Stock received by each shareholder of
Republic (including any fractional share interest) will include the period
during which the Republic Common Stock surrendered therefor was held,
provided that such Republic Common Stock was held as a capital asset at the
Effective Time of the Merger; and
(e) Each shareholder of Republic receiving cash in lieu of any fractional
share interest of CFB Common Stock will be treated as having received the
fractional share interest in the Merger and then having received the cash
payment as a distribution in full payment in exchange for the fractional
share interest as provided in Section 302(a) of the Code, resulting in a
taxable gain or loss equal to the amount of the cash received less the tax
basis allocated to the fractional share interest.
No opinion will be given regarding the income tax consequences of the
redemption or exchange of any outstanding shares of preferred stock of
Republic.
The foregoing is only a general description of certain federal income tax
consequences of the Merger and does not discuss all the tax considerations that
may be relevant to particular Republic shareholders in light of their personal
investment circumstances, or to certain types of shareholders that may be
entitled to special treatment under the Code (such as insurance companies,
dealers in securities, exempt organizations or foreign holders) or to
shareholders of Republic who acquired their Republic Common Stock pursuant to
the exercise of employee stock options or otherwise as compensation. The
summary set forth above does not purport to be a complete analysis of all
potential tax facts of the transactions contemplated by the Merger Agreement or
the Merger itself. No information is provided herein with respect to the tax
consequences, if any, of the Merger under state, local, foreign or other tax
laws.
DISSENTERS' RIGHTS
Any holder of Republic Common Stock may, as an alternative to receiving the
consideration specified in the Merger Agreement, dissent from the Merger and
obtain the fair value of such shareholder's Republic Common Stock pursuant to
Section 10-1302 of the AZBCA. "Fair Value" with respect to a dissenter's shares
means the value of the shares immediately before the Effective Time of the
Merger, excluding any appreciation or depreciation in anticipation of the
corporate action unless exclusion would be inequitable. Any Republic
shareholder contemplating exercising the right to demand such payment should
carefully review Section 10-1302 of the AZBCA, a copy of which is included as
Appendix B to this Proxy Statement-Prospectus, and in particular the required
procedural steps. A SHAREHOLDER WHO FAILS TO COMPLY WITH THESE PROCEDURAL
REQUIREMENTS MAY LOSE THE RIGHT TO DISSENT.
Set forth below, to be read in conjunction with the full text of Section
10-1302 of the AZBCA, is a summary of the procedures relating to the exercise of
dissenter's rights. The following summary does not purport to be complete and
is qualified in its entirety by reference to Appendix B. As used in the
following discussion, "Republic" means Republic before the Effective Time of the
Merger and "CFB" as Republic's successor after the Effective Time of the Merger.
Section 10-1303 of the AZBCA provides that a record shareholder may assert
dissenter's rights as to fewer than all of the shares registered in his name
only if such shareholder dissents with respect to all shares beneficially owned
by any one person and notifies the corporation in writing of the name and
address of each person on whose behalf such shareholder asserts dissenter's
rights. In that event, such shareholder's rights shall be determined as if the
shares as to which such shareholder dissents and such shareholder's other shares
were registered in the name of different shareholders. A beneficial shareholder
may assert dissenter's rights as to shares held on such shareholder's behalf
only if such shareholder submits to the corporation a written consent by the
record holder to the dissent not later than the time the beneficial shareholder
asserts dissenter's rights and such shareholder does so with respect to all
shares of which the shareholder is the beneficial owner or over which such
shareholder has power to direct the vote.
32
<PAGE>
Any Republic shareholder who wishes to dissent must deliver to Republic,
prior to the vote on the Merger Agreement, a written notice of intent to
demand payment for such shareholder's shares if the Merger is effected. In
addition, the shareholder must refrain from voting in favor of the Merger
Agreement. A shareholder who fails to deliver the notice on time or who
votes in favor of the Merger Agreement will not have any dissenter's rights.
If a shareholder returns a signed proxy but does not specify a vote against
approval of the Merger Agreement or a direction to abstain, the proxy will be
voted for approval of the Merger Agreement, which will have the effect of
waiving that shareholder's dissenter's rights. If the Merger Agreement is
approved by the required vote, Republic is required to deliver written
dissenter's notice to all shareholders who timely gave notice of intent to
demand payment and who did not vote in favor of the Merger Agreement. The
notice must be sent no later than ten (10) days after the Merger Agreement is
approved and must (i) state where the payment demand must be sent and where
and when certificates for certificated shares must be deposited, (ii) inform
shareholders of uncertificated shares to what extent transfer of the shares
will be restricted after payment is received, (iii) supply a form for
demanding payment that includes the date of the first announcement to news
media or to shareholders of the terms of the proposed corporate action and
that requires the person asserting dissenter's rights to certify whether or
not such shareholder acquired beneficial ownership of the shares before that
date, (iv) set a date by which Republic must receive the payment demand and
certificates for certificated shares, which date shall not be less than 30
days after the date the required dissenter's notice is given, (v) may require
that, when a record shareholder dissents with respect to the shares held by
any one or more beneficial shareholder, each such beneficial shareholder must
certify to Republic that the beneficial shareholder and the record
shareholder or record shareholders of all of the shares owned beneficially by
the beneficial shareholder have asserted, or will timely assert, dissenter's
rights as to all such shares as to which there is no limitation on the
ability to exercise dissenter's rights, and (vi) be accompanied by a copy of
Section 10-1302 of the AZBCA.
A shareholder who is sent the dissenter's notice described above must
demand payment, certify whether the shareholder acquired beneficial ownership of
the shares before the date required to be set forth in the dissenter's notice,
and deposit such shareholder certificates in accordance with the terms of the
notice. A shareholder who does not demand payment or deposit certificates where
and when required is not entitled to payment for such shareholder's shares. A
shareholder who demands payment and deposits his certificates as requested by
the dissenter's notice retains all rights of a shareholder until such shares are
canceled or modified by the consummation of the Merger. Republic may restrict
the transfer of uncertificated shares from the date of demand for payment until
the Merger is consummated; however, the holder of uncertificated shares retains
all other rights of a shareholder until those rights are canceled or modified by
the consummation of the Merger. Except as provided in the following paragraph,
as soon as the Merger is effected or upon receipt of the payment demand,
Republic must pay each shareholder who has complied with the foregoing
requirements the amount Republic estimates to be the Fair Value of the
dissenter's shares, plus accrued interest. The payment must be accompanied by
certain financial information concerning Republic, a statement of Republic's
estimate of the Fair Value of the shares, an explanation of how the interest was
calculated, a statement of the dissenter's rights to demand payment if the
dissenter is dissatisfied with the payment or offer (as further described in the
next paragraph), and a copy of Section 10-1302 of the AZBCA. If the Merger does
not occur within 60 days after the date set in the dissenter's notice for
demanding payment and depositing certificates, Republic must return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares. Notwithstanding the foregoing, Republic may elect to
withhold payment from any dissenter with respect to shares which the dissenter
or the person on whose behalf the dissenter acts was not the beneficial owner
before August 28, 1997 the date of the first announcement to news media of the
terms of the Merger. If Republic elects to withhold such payments, after the
consummation of the Merger, Republic must estimate the Fair Value of the shares,
plus accrued interest, and pay this amount to each dissenter who agrees to
accept it in full satisfaction of his demand. Republic must send with its offer
a statement of its estimate of Fair Value of the shares, an explanation of how
the interest was calculated, a statement of the dissenter's right to demand
payment if the dissenter is dissatisfied with the offer.
A dissenter may notify Republic in writing of the dissenter's own estimate
of the Fair Value of the dissenter's shares and the amount of interest with
respect thereto and may demand payment of the dissenter's estimate, less any
previous payments or reject Republic's offer and demand payment of the Fair
Value of the dissenter's shares and the interest due if (i) the dissenter
believes the amount paid or offered is less than the Fair Value of the
dissenter's shares or that the interest due is incorrectly calculated, (ii)
Republic fails to make payment within 60 days after the date set
33
<PAGE>
for demanding payment, or (iii) Republic, having failed to effect the Merger,
does not return the deposited certificates or release the transfer
restrictions on uncertificated shares within 60 days after the date set for
demanding payment. A dissenter waives the right to demand payment unless the
dissenter notifies the corporation of his demand in writing within 30 days
after Republic made or offered payment for the dissenter's shares.
Within 60 days after such subsequent demand is submitted by a
shareholder, if such demand remains unsettled, Republic is required to file
in an appropriate court in Arizona a petition to determine the Fair Value of
the shares and accrued interest. If Republic does not commence the
proceeding within the 60-day period, it is to pay each dissenter whose demand
remains unsettled the amount demanded. Each dissenter made a party to the
proceeding is entitled to judgment for the amount, if any, by which the court
finds the Fair Value of the dissenter's shares, plus interest, exceeds the
amount paid by Republic or for the Fair Value, plus accrued interest, of the
dissenter's after-acquired shares for which Republic elected to withhold
payment. The costs and expenses of any such court proceedings will be
assessed against Republic, except that the court may access any part of those
costs as an expense against all or some of the dissenters who are party to
the proceeding and whose action in demanding payment in addition to that
offered by Republic, the court finds to be arbitrary vexatious or not in good
faith. The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable,
against Republic and in favor of any or all of the dissenters if the court
finds that Republic failed to comply substantially with the statutory
requirements or against either Republic or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith. If the
court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and should not be
assessed against Republic, it may award to the counsel reasonable fees to be
paid out of the amount awarded to the dissenters who are benefitted.
Republic shareholders considering exercising dissenter's rights should bear
in mind that the Fair Value of their Republic Common Stock determined under
Section 10-1302 of the AZBCA could be more than, the same as, or less than the
value of consideration they will receive pursuant to the Merger Agreement if
they do not exercise their dissenter's rights.
REPRESENTATIONS AND WARRANTIES
Republic and CFB have made customary warranties and representations to each
other regarding, among other things, their businesses, assets, liabilities,
financial condition and results of operations. Generally, warranties,
representations and covenants will have no continuing legal effect after the
Merger is consummated.
COVENANTS; CONDUCT OF REPUBLIC'S BUSINESS PENDING THE MERGER
Republic has agreed, among other things, that prior to the Effective Time
of the Merger, Republic and the Bank will carry on their respective businesses
in the usual and ordinary course. Republic has further agreed that neither it
nor any of the Bank will, among other things, (i) enter into any new material
line of business, (ii) increase or decrease the current number of the directors
of Republic and the Bank, (iii) change its or the Bank' lending, investment,
liability management or other material banking policies in any respect that is
material to such party; or (iv) incur or commit to any capital expenditures (or
any obligations of liabilities in connection therewith) other than certain
budgeted capital expenditures (and obligations or liabilities in connection
therewith). Republic has also agreed that, on or before the Effective Time, it
shall (i) redeem all outstanding shares of its preferred stock in cancellation
thereof or (ii) exchange all outstanding shares of such preferred stock for
Republic Common Stock.
In addition, Republic has also agreed to refrain from taking certain
actions, except with the prior written consent of CFB, including the
following: (i) selling any shares of its capital stock; (ii) redeeming any
shares of its capital stock; (iii) certain reclassifications of its capital
stock; (iv) borrowing or guaranteeing a material amount; (v) discharging any
lien or encumbrance on any properties of Republic or the Bank other than in
the ordinary course of business; (vi) amending its or the Bank's articles of
association or bylaws; (vii) declaring or paying any dividends (a) in excess
of $400,000 in the aggregate or (b) after the Determination Date; (viii)
mortgaging, pledging or subjecting 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 or interfere with the current
use or ability to convey the property subject thereto or effected thereby;
(ix) selling, assigning or transferring any tangible or intangible assets
with a book value greater than $10,000 except in the ordinary course of
business; (x) entering 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; (xi) canceling any material debt or claim or waiving any
right of material value except in the ordinary course of business; (xii)
repurchasing or entering into any agreement to repurchase all or any portion
of any loan previously participated in any other financial institution other
than loans repurchased in compliance with applicable laws and regulations;
(xiii) originating any loan which is thereafter participated to another
financial institution providing for payment upon default on any basis other
than pro rata; (xiv) making or committing 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 the Bank's officers or directors,
unless the Bank is under a legal obligation to do so; (xv) (a) making or
agreeing to make, any fully secured loan or increasing any existing fully
secured loan for an amount in excess of $250,000 to any one borrower, unless
such loan is made pursuant to a properly documented and legally enforceable
commitment of the Bank to the borrower made prior to the date of the Merger
Agreement; (b) making, or agreeing to make, any unsecured loan or increasing
any unsecured loan by $50,000 or more, unless such loan is made pursuant to a
properly documented and legally enforceable commitment of the Bank to the
borrower made prior to the date of the Merger Agreement; (c) making, or
agreeing to make, any new loan or advance on any existing loan except in
conformity with the Bank's current loan policies; or (d) making any change
with respect to the terms of any existing loan, except in the ordinary course
of business; with certain additional provisions applicable to CFB's approval
or disapproval of any such loans; (xvi) making or agreeing to make any loan
to any director or executive officer of Republic or the Bank, any holder of
10% or more of the capital stock of Republic or any person in violation of
any state or federal law or regulation; (xvii) incurring any obligation or
liability with respect to capital expenditures which
34
<PAGE>
exceed $10,000 for any single matter or $50,000 in the aggregate except for
certain budgeted capital expenditures; (xviii) failing to timely pay and
discharge all federal and state taxes and other accounts payable for which it
is liable; (xix) paying or committing to pay any additional salary or other
compensation to any of the banks, officers, directors or employees except as
provided in certain employee plans; (xx) entering into, adopting, amending,
terminating, making or granting any increase above current funding levels in
any of Republic's or the Bank's plans, except as otherwise required under the
Merger Agreement; (xxi) purchasing or selling any bonds or other investment
securities without written consent of CFB or make or agreeing to make any
investment in violation of any federal law or regulation, except that the
Bank may purchase U.S. Treasury or agency securities with maturity dates of
24 months or less; (xxii) failing to charge and pay interest rates on loans
and deposits, respectively, not materially inconsistent with practices in the
Bank's marketplace; (xxiii) failing to use its reasonable efforts to comply
with any law, rule, regulation or order applicable to the Bank and/or
Republic if such failure would have a material adverse effect upon Republic;
(xxiv) failing to make all appropriate and required transfers of the Bank's
loan loss reserves based upon existing policies of the Bank or at the request
of any regulatory agency; (xxv) changing 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 confirm
with accounting standards; or (xxvi) failing to use reasonable efforts to
obtain the consent or approvals required in order to permit a succession by
Republic following the Merger to any obligation, right or interest of
Republic or the Bank under any loan or credit agreement, note, mortgage,
indenture, lease, license or other agreement or instrument.
Republic has also agreed with CFB that it will: (i) hold a special
shareholder meeting to approve the Merger Agreement not later than forty-five
(45) days following the effective date of the Registration Statement; (ii)
recommend by the affirmative vote of a majority of the Republic Board a vote in
favor of approval of the Merger Agreement and use its best efforts to solicit
proxies from its shareholders in favor of the Merger Agreement; (iii) provide
relevant information for, and cooperate in the preparation of, the Registration
Statement; (iv) hold in confidence all information concerning CFB furnished to
Republic; (v) take certain actions with respect to its employee benefit plans
and employee compensation; (vi) with certain exceptions, not acquire a
substantial equity interest or a substantial portion of the assets of another
entity; (vii) maintain its current insurance coverage through the Effective
Date; (viii) not take any action which would disqualify the Merger as a pooling
of interests for accounting purposes; (ix) prepare and submit certain financial
statements to CFB; and (x) not solicit any inquiries or proposals from any
person or entity for the merger, consolidation or acquisition of all or
substantially all the assets of, or a substantial equity interest in, Republic,
or participate in any discussions or negotiations, or provide third parties with
any nonpublic information, relating to any such inquiry or proposal. Republic
is required to notify CFB promptly upon receiving any such oral or written
offer, giving all relevant details of such offer. Republic has received no such
oral or written offer as of the date hereof.
Republic and CFB have also agreed that between the date of the Merger
Agreement and the Effective Time of the Merger, with certain exceptions, (i)
neither party will amend its Certificate or Articles of Incorporation or Bylaws;
(ii) neither party shall take any action that is intended to result in any of
the representations or warranties in the Merger Agreement being untrue or that
would adversely affect the ability of the parties to obtain the requisite
regulatory approvals; (iii) Republic will have delivered to CFB within 90 days
of the Merger Agreement, title insurance commitments for all Republic property
located in the State of Arizona and (iv) Republic will have engaged at its
expense an independent, qualified environmental engineering firm acceptable to
CFB for the purpose of conducting Phase I Hazardous Waste Assessments of all
real properties owned or controlled by the Bank, with such assessments to be
completed within 30 days after the date of the Merger Agreement. CFB and
Republic have agreed to cooperate with each other in obtaining the requisite
regulatory approvals and generally to afford to each other access to their books
and records during each party's normal business hours. In addition, Republic
and CFB must use their reasonable best efforts to cause each director, executive
officer or other person who may be deemed an "affiliate" (for purposes of Rule
145 under the Securities Act) of Republic or CFB to deliver to the other party
at least 32 days prior to the Closing Date, a written agreement providing that
the affiliate will not engage in certain transactions with respect to Republic
Common Stock or CFB Common Stock held by the affiliate.
35
<PAGE>
REGULATORY APPROVALS; CONDITIONS TO THE MERGER
The Merger must be approved by applicable federal and state banking
regulators and by the affirmative vote of two-thirds of the outstanding shares
of Republic Common Stock. Pursuant to the requirements of Section 3 of the Bank
Holding Company Act of 1956, as amended, CFB submitted its application for
approval of the Merger to the Federal Reserve Board on September 12, 1997 and
received approval on October 16, 1997. Pursuant to the requirements of the
Arizona Interstate Banking Act, CFB filed its application with the Division of
Banking of the State of Arizona on September 22, 1997, and received approval on
October 2, 1997. The approvals of these agencies reflect only the regulators'
view that the transaction does not contravene the competitive standards of the
law and is consistent with regulatory concerns relating to bank management and
to the safety and soundness of the subject banking organizations and banks.
Such approvals are not to be interpreted as an opinion by such regulators that
the Merger is favorable to the shareholders of CFB or Republic from a financial
point of view or that the regulators have considered the adequacy of the
Exchange Rate. Such regulatory approvals in no way constitute an endorsement or
recommendation of the Merger by such regulators.
CFB and Republic's obligations to consummate the Merger are further subject
to various other conditions set forth in the Merger Agreement, including, but
not limited to: (i) the shares of CFB Common Stock issuable to the Republic
shareholders pursuant to the Merger shall have been approved for listing on the
Nasdaq National Market; (ii) 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 pursuant to the Merger Agreement (other than immaterial Consents)
shall have been filed, occurred or been obtained; (iii) the Registration
Statement of which this Proxy Statement-Prospectus is a part shall have become
effective under the Securities Act, and no stop order suspending the
effectiveness of such Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
Commission; (iv) 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 pursuant to the Merger Agreement shall be in effect, nor shall any
proceeding by any governmental entity seeking any such Injunction be pending,
and 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; (v) 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 pursuant to the Merger Agreement, by any federal or state
governmental entity which, in connection with the grant of a permit, consent or
authorization by a governmental entity necessary to consummate the Merger (a
"Requisite Regulatory Approval"), imposes any condition or restriction upon CFB,
Republic, or any of their subsidiaries which would so materially adversely
impact the economic or business benefits of the transaction contemplated by the
Merger Agreement as to render inadvisable, in the reasonable business judgment
of the Board of Directors of either CFB or Republic, the consummation of the
Merger.
The obligation of CFB to consummate the Merger is also subject to certain
additional conditions set forth in the Merger Agreement, including but not
limited to: (i) the continued accuracy of the representations and warranties of
Republic set forth in the Merger Agreement; (ii) the performance by Republic in
all material respects of its obligations required to be performed under the
Merger Agreement; (iii) the net worth of Republic as of the Determination Date
shall not be less than $4,253,000; (iv) CFB shall have received a letter from
Ernst & Young LLP expressing an opinion that the Merger shall qualify as a
"pooling of interests" in accordance with generally accepted accounting
principles (see "Accounting Treatment" below); (v) CFB shall have received the
opinion of Streich Lang, P.A. to the effect that the Merger will qualify as a
tax-free reorganization; (vi) CFB and each of (a) Thomas Euen, (b) Peter
Homenick, (c) Patrick Havey, (d) Donna Rau, (e) Mike Wanegar, (f) Vanessa
Buonagurio, (g) Beverly Rankin and (h) Gene Chandler (collectively, the
"Republic Employees") shall have executed and delivered employment agreements in
certain prescribed forms; and (vi) the Republic Employees shall have canceled
and terminated their respective change of control agreements as of the Effective
Time. See "The Merger - Interests of Certain Persons; Certain Transactions."
The obligation of Republic to consummate the Merger is also subject to
certain additional conditions set forth in the Merger Agreement, including but
not limited to: (i) the continued accuracy of the representations and
36
<PAGE>
warranties of CFB set forth in the Merger Agreement; (ii) the performance by CFB
in all material respects of its obligations to be performed pursuant to the
Merger Agreement; (iii) CFB shall have obtained the consent or approval of each
person whose consent or approval shall be required in connection with the
transactions contemplated thereby 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 Republic, individually or in the aggregate, have a
material adverse effect on CFB or upon the consummation of the transactions
contemplated pursuant to the Merger Agreement; (iv) Republic shall have received
the opinion of tax counsel to the effect that the Merger will be treated for
Federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code, and that CFB and Republic will each be a party to that
reorganization within the meaning of Section 368(b) of the Code and that
shareholders of Republic who exchange their shares of the Republic Common Stock
for shares of CFB Common Stock will not recognize a gain or loss, for purposes
of federal income tax, except to the extent of the cash received in lieu of
fractional shares, and that Republic will not recognize gain or loss, for
purposes of federal income tax, as a result of consummation of the Merger; and
(v) Republic shall have received an opinion of CFB's legal counsel, Lindquist &
Vennum P.L.L.P., confirming the due incorporation and good standing of CFB and
authority to consummate the transaction and that, when issued, the shares will
be legally issued, fully paid and non-assessable.
AMENDMENT; WAIVER; TERMINATION
The Merger Agreement may be amended by written instrument in such manner as
may be agreed upon by the parties, whether before or after approval of the
Merger by the shareholders of Republic, and any provision of the Merger
Agreement may be waived by the party entitled to the benefit thereof; provided,
however, that after the Special Meeting, no amendment may be made which by law
requires further approval of Republic or CFB's shareholders. Notice of any
material amendment or modification will be sent to Republic and CFB's
shareholders.
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time of the Merger, notwithstanding approval of
Republic's shareholders, only in the following circumstances: (i) the mutual
consent of the Board of Directors of CFB and Republic; (ii) by either party if
(a) any Requisite Regulatory Approval shall have been denied or (b) any
governmental entity of competent jurisdiction shall have issued a final
nonappealable order enjoining or otherwise prohibiting the Merger; (iii) by
either party if the Effective Time of the Merger has not occurred by January 30,
1998, unless such failure of consummation is due to the failure of the party
seeking termination to perform or observe in all material respects the covenants
and agreements to be performed or observed by it under the Merger Agreement;
(iv) by either party if the other party shall have materially breached any of
the covenants and agreements contained in the Merger Agreement and such party
does not cure such breach before the earliest of the Closing Date or within
twenty (20) business days following receipt by the breaching party of written
notice of such breach from the other party; or (v) by CFB in the event (a) CFB
objects to certain exceptions in the attorney's title opinion or title insurance
commitments delivered to CFB by Republic for all real property owned by Republic
or the Bank and such objected to exceptions are not eliminated or
satisfied to the reasonable satisfaction of CFB or (b) CFB does not approve the
Phase I Hazardous Waste Assessment of all real property owned by Republic or
the Bank and Republic does not correct or satisfy CFB's objections to the
Assessment. Upon termination, the Merger Agreement shall become null and void
and, with certain exceptions, shall have no effect, provided that no party will
be relieved from liabilities arising out of a willful breach of the Merger
Agreement.
EFFECT ON REPUBLIC EMPLOYEE BENEFIT PLANS
Each person who is an employee of the Bank as of the Effective
Time of the Merger ("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 any of the Bank to the extent such
service is presently given credit under the current benefit plans of the
Bank, 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 of the Merger 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
37
<PAGE>
taken by a Bank Employee in the year in which the Merger occurs will be
deducted from the total CFB benefit. Each Bank Employee shall be eligible
for participation, as a new employee, in the CFB Pension Plan under the terms
thereof.
EXPENSES
CFB and Republic will pay their own expenses in connection with the Merger
and the transactions contemplated thereby, including professional fees.
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for using the pooling of
interests method of accounting. CFB shall have received a letter, prior to
consummation, from Ernst & Young LLP regarding such firm's concurrence with
CFB management's and Republic management's conclusions, respectively, as to
the appropriateness of pooling of interests accounting for the merger under
Accounting Principles Board Opinion No. 16 if closed and consummated in
accordance with the Merger Agreement. Among other considerations, such
letter will be subject to receipt by Ernst & Young LLP and CFB of a letter
from McGladrey & Pullen, LLP, Republic's accountants, in form and substance
erasonably satisfactory to Ernst & Young, related to the eligibility of
Republic to qualify for pooling treatment, and to the condition that less
than 10% of the Merger Consideration will consist of cash, including (i) cash
paid to holders of outstanding shares of Republic Common Stock who dissent
from the proposed Merger and received cash for their shares of Republic
Common Stock, and (ii) cash paid in the merger in lieu of fractional shares
of Republic Common Stock. In order to satisfy certain conditions precedent
for the qualification of the Merger as a pooling of interests for accounting
purposes, the affiliates of Republic will enter into agreements with CFB
providing that each such person will not sell or otherwise reduce his or her
risk relative to any shares of the CFB Common Stock received pursuant to the
Merger until financial results covering at least 30 days of post-Merger
combined operations are published or until such later time as such person is
notified by CFB so as to ensure that the Merger qualifies as a pooling of
interests for accounting purposes. Pursuant to the Merger Agreement,
Republic has agreed that neither it nor the Bank shall take any action, with
certain exceptions, which would disqualify the Merger as a pooling of
interests for accounting purposes.
Under pooling of interests accounting, as of the Effective Time of the
Merger, the assets and liabilities of Republic will be added to those of CFB at
their recorded book values and the shareholders' equity account of Republic will
be included on CFB's consolidated balance sheet. The Merger will have an
immaterial impact on the consolidated financial statements of CFB. Accordingly,
the consolidated financial statements for preceding periods will not be
restated.
INTERESTS OF CERTAIN PERSONS; CERTAIN TRANSACTIONS
The Board of Directors of Republic is aware of the agreements and interests
of certain persons in the Merger described below and considered them, among
other matters, in recommending approval of the Merger and the transactions
contemplated thereby.
As of June 30, 1997, the officers and directors of Republic beneficially
owned 2,337,719 shares (or approximately 63.88%) of Republic Common Stock.
Pursuant to the Merger Agreement, the Board of Directors of Republic has agreed
to use its best efforts to obtain the requisite shareholder approval. See
"Principal Shareholders and Security Ownership of Management."
As a condition of CFB's obligation to consummate the Merger, it will have
entered into employment agreements (the "Employment Agreements") with eight
officers of Republic, including Thomas Euen, Peter Homenick, Patrick Havey
and Gene Chandler, who are the executive officers of Republic. These
Employment Agreements generally provide for employment at will, with the
employees eligible to participate in CFB's employee benefit plans and other
programs as they may exist from time-to-time. Mr. Euen's contract also
entitles him to a company vehicle in accordance with CFB's vehicle policy and
payment of country club dues. All of the agreements other than Mr. Euen's
call for a severance payment equal to the lesser of (i) one-eighth of the
employee's aggregate compensation from Republic for the fiscal year
immediately preceding the date of the Merger multiplied by the number of full
years that employee has been employed by the Bank and Republic or (ii) the
employee's aggregate compensation from Republic for the fiscal year
immediately preceding the date of the Merger if, prior to August 8, 1998,
such employee's employment with the bank is terminated in certain
circumstances. These circumstances include termination of employment other
than for "cause" (as defined) and the resignation by such employee following
either a material and significant reduction in such employee's authority,
duties and responsibilities or a reduction in such employee's aggregate
compensation of more than 40%. Mr. Euen's severance rights under a prior
agreement are being separately terminated, contingent upon the Merger, through
payment of approximately $275,000 in cash and property to Mr. Euen.
38
<PAGE>
From and after the Effective Time of the Merger through the sixth
anniversary of the Effective Time, CFB has agreed to indemnify the directors,
officers and employees of Republic and the Bank (the "Indemnified Parties")
against any cost or expense incurred in connection with any claim arising out of
matters existing at or occurring prior to the Effective Time, to the fullest
extent then permitted under applicable law and regulation.
RESALE OF CFB COMMON STOCK
The shares of CFB Common Stock issuable to shareholders of Republic upon
consummation of the Merger have been registered under the Securities Act of
1933, as amended (the "Securities Act"). Such shares may be traded without
restriction on transferability by those shareholders not deemed to be
"affiliates" of Republic or CFB as that term is defined in the rules under the
Securities Act. "Affiliates" are generally defined as persons who control, are
controlled by or are under common control with Republic or CFB at the time of
the determination. Accordingly, "affiliates" generally will include directors
and executive officers of Republic. CFB Common Stock received by those
shareholders of Republic who are deemed to be "affiliates" of Republic or CFB
may be resold without registration as provided for by Rules 144 and 145, or as
otherwise permitted under the Securities Act; PROVIDED, that no such resale will
be permitted until the public release by CFB of its financial results for a
period that includes thirty days of combined operations following the Merger.
Assuming CFB continues to be subject to, and complies with, the Exchange Act
reporting requirements, Rule 145(d) allows limited resales by such affiliates
without registration if the holder: (i) has held the shares of CFB Common Stock
for one year and is not an affiliate of CFB at the time of sale; or (ii) has
held the shares of CFB Common Stock for two years and has not been an affiliate
of CFB for at least three months; or (iii) sells the shares in a Rule 144
brokers' transaction in the manner and subject to the quantity limitations of
such rule. This Proxy Statement-Prospectus does not cover any resales of CFB
Common Stock received by affiliates of Republic, their family members or related
interests. CFB Common Stock is traded in the Nasdaq National Market System
under the symbol "CFBX." EACH SHAREHOLDER WHO MAY BE DEEMED TO BE AN AFFILIATE
IS URGED TO CONSULT INDEPENDENT COUNSEL CONCERNING APPLICABLE RESTRICTIONS ON
RESALE.
BUSINESS OF REPUBLIC
GENERAL
Republic is a one-bank holding company that owns all of the outstanding
capital stock of the Bank. Republic was organized as an Arizona corporation in
1983 and received approval from the Federal Reserve Board in 1985 to become a
bank holding company under the provisions of the Bank Holding Company Act of
1956, as amended. At June 30, 1997, Republic had consolidated total assets of
approximately $52.95 million and total shareholders' equity of approximately
$4.81 million.
Republic derives substantially all of its revenues from cash dividends paid
to it by the Bank. Dividend payments by the Bank are determined on an
individual basis considering the Bank's earnings, deposit growth, expenses and
capital requirements.
Republic operates no significant independent business other than its
banking business conducted by the Bank.
REPUBLIC NATIONAL BANK
The Bank, located in the central business district of Phoenix, engages in
the commercial banking business serving the metropolitan Phoenix area. The
Bank's primary focus is to engage in commercial banking, serving small to middle
size businesses, professionals, the title and escrow industry, business
entrepreneurs and individuals. Rather than concentrate on any specific
industry, the Bank has solicited and attracted customers from a wide variety of
manufacturing, wholesaling and service businesses, as well as professionals of
every type, including attorneys, accountants, physicians and dentists. For a
substantial portion of its loans, the Bank participates in the Small Business
Administration ("SBA") loan programs and other similar governmental guaranteed
loan programs. A substantial
39
<PAGE>
portion of the Bank's earnings are derived from the sale of the governmental
guaranteed portions of these loans on the secondary market. The Bank
attracts customers and deposits by offering a personalized approach and a
high degree of service. The key to the Bank's increase in deposits is
personal contacts, services and rate competition. The directors of both the
Bank and Republic are Arizona citizens with a diversity of business and
management experience. The directors have recruited key members of the
Bank's management for their experience in operating independent banks. The
strategy of the Bank's management is to continue its growth with its
objectives of customer service, asset quality and protection of capital.
The Bank is a national banking association and a member of the Federal
Reserve System. The deposit accounts are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to the applicable $100,000 limit. The Bank
offers a wide variety of credit and deposit services to its customers. Deposits
which the Bank offers include personal and business checking accounts, savings
accounts, money market deposit accounts, interest bearing negotiable orders of
withdrawal ("NOW") accounts, time certificates of deposit and IRA accounts. The
Bank has not requested and does not have regulatory approval to offer trust
services. The Bank does not have any present intention to seek such approval.
Continued development of a diversified commercial oriented deposit base is
a priority of the Bank. Time and demand deposits are actively solicited by the
directors, officers and employees of the Bank, and the directors and officers of
Republic. The executive and senior officers of the Bank are experienced in
soliciting bank deposits and in serving the comprehensive banking needs of small
and mid-size businesses. The various backgrounds and business relations of the
individual directors of the Bank and Republic have benefited the Bank in the
solicitation of business.
COMPETITION. The Bank competes for its deposit and loan business with
other financial institutions, such as savings and loan associations, credit
unions, investment companies and money market funds, as well as other
institutions entering the financial services market. Major banks dominate
commercial banking in Arizona generally, as well as the Phoenix metropolitan
area. By virtue of their larger capital, such banks have substantially greater
lending limits than the Bank and perform certain functions for their customers,
including trust services, investment services and international banking, which
the Bank does not offer directly.
EMPLOYEES. The Bank has twenty-seven employees, including nine officers.
Most of the employees have been associated with the bank for a minimum of one
and one half years, and nine employees have been associated with the bank for
five years or longer.
PROPERTIES. The physical assets of the Bank consist of a banking facility
located in leased space at 2020 North Central Avenue, Phoenix, Arizona 85004.
This facility consists of 8,500 square feet on the ground floor of a twelve
story commercial office building in central Phoenix for which it makes annual
rent payments of $178,878.
INVESTMENT ACTIVITIES. The Bank has minimal investment activity in SBA
loan pools, mortgage backed securities and government securities.
MARKET PRICE OF AND DIVIDENDS ON REPUBLIC COMMON STOCK
There is no established trading market for the Republic Common Stock.
Republic is aware of only limited transactions involving the sale of Republic
Common Stock. The prices for Republic Common Stock in such transactions are
not considered indicative of prices that could be attained on an active
market involving a substantial number of shares. There were 75 shareholders
of record of Republic Common Stock as of October 15, 1997. Republic declared
its most recent cash dividend of $165,000 ($.05 per share) in February 1997.
LEGAL PROCEEDINGS
Neither Republic nor the Bank are presently involved in any material
pending litigation except that the Bank is currently involved in defending a
lawsuit wherein a surety for a borrower of the Bank that paid off its loan and
subsequently filed for bankruptcy protection under Chapter 11 has alleged that
the borrower had no authority or right to pay off the $400,000 loan and has made
claim to that payment. Republic and the Bank's ultimate loss exposure
40
<PAGE>
(exclusive of attorneys' fees and court costs) on the amount paid by the
Borrower with the disputed check would be limited to the portion of this loan
(25%) not guaranteed by the SBA.
41
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of Republic and the Bank:
<TABLE>
<CAPTION>
Name Age Positions With Republic (Tenure) Position with Bank (Tenure)
- --------------- -------- --------------------------------- ---------------------------------------
<S> <C> <C> <C>
Harry T. Goss 68 Vice Chairman of the Board Chairman of the Board
Thomas J. Euen 57 President/Director President/Director
John T. Katsenes 67 Chairman of the Board Vice Chairman of the Board
Marianne B. Fannin 64 Director Director
A. Leroy Ellison 60 Director Director
Bonnye McFarland 64 Director Director
William P. Gresser 56 Director Director
Donald E. Oglesby 66 Director Director
John A. Vanderway 64 Director Director
Gene W. Chandler 58 Senior Vice President/Cashier
Patrick F. Havey 39 Senior Vice President
Peter D. Homenick 46 Senior Vice President
</TABLE>
JOHN T. KATSENES has been general manager of Katsenes Enterprises, LLC,
a real estate development and investment company, since 1982. Since 1987, he
has been a director of Capstone Financial Services of Houston, Texas, a money
management company. Mr. Katsenes is a former Phoenix City Councilman and
former member of the Maricopa County Board of Supervisors. He has been a
director of and serves as Chairman of Republic and Vice Chairman of the Bank.
He is a member of the Phoenix Thunderbirds, a civic organization. Mr.
Katsenes has a degree in accounting from Arizona State University.
MARIANNE B. FANNIN has been a partner of Western Diversified, a real
estate investment company, since 1973. She had served as Vice Chairman of
Republic from June 1986 until April 1991, and Chairman of the Bank since its
organization in 1985 until April 1991. She is Chairman of The Arizona Health
Facility Authority, serves on the Arizona State Hospital Advisory Board, is
past president of Maricopa Community College Foundation Board and is
currently active in fund raising.
THOMAS J. EUEN has been President of Republic since 1985 and President
of the Bank and President and C.E.O. of the Bank since it began operations.
He served as an officer of Larkin Bank in Elgin, Illinois from 1969 to 1985,
becoming President and Chief Executive Officer of the Larkin Bank in February
1980. He is a graduate of The American Institute of Banking and Illinois
Bankers Association Graduate School of Banking at Southern Illinois
University. He has been employed in the banking industry since 1958.
A. LEROY ELLISON was founder and president of Capex Corporation from
1969 to 1982, when Computer Associates International acquired Capex. From
1983 through 1989 he served on the boards of directors of several
technology-based companies, and for three of these companies he served as
turnaround CEO. During the mid-1980s he also taught entrepreneurship at
Arizona State University and served as interim director of the Hahn
Institute. In 1990 he became CEO of VIASOFT, retiring from management in
1994. Mr. Ellison earned an A.B. in mathematics from Harvard. He is a board
member of Enterprise Network (a non-profit corporation which offers
educational programs for entrepreneurs), the Crisis Nursery Foundation (which
manages the endowment for a Phoenix shelter for abused children), and the
Paradise Valley Municipal Property Corporation (which oversees application of
municipal bond proceeds).
42
<PAGE>
BONNYE MCFARLAND is a land owner and a partner in McFarland Farms, a
cotton producing concern which she started in 1975. She is also the
principal of Paradise Investments, a sole proprietorship which invests in
real estate. She obtained her Bachelor of Science degree in accounting from
the University of Arizona. She serves on the Boards of Directors for the
Phoenix Baptist Hospital and Medical Center, The Arizona Kidney Foundation,
the Maricopa Community College Foundation and the Friends of the Arizona
Cancer Center.
HARRY T. GOSS was a practicing attorney from 1953 until 1969 when he
began a career with Combined Communications Corporation, a multi-media
advertising company. He was employed by Combined Communications Corporation
until 1979 and subsequently with Gannett Co., Inc. after its acquisition of
Combined Communications Corporation in 1979. He retired in 1986 as President
of Gannett Outdoor Group, a division of Gannett Co., Inc. supervising all
United States and Canadian outdoor operations. He has been a director of the
Bank and Republic since 1985 and currently serves as Chairman of the Bank and
Vice Chairman of Republic. Mr. Goss holds an LLB degree from the University
of Arizona.
WILLIAM P. GRESSER, with his wife Judy, is the co-founder and owner of
Papa-San Rice Bowl, Inc. Japanese fast foods restaurants. Papa-San Rice Bowl
opened its first location in Yuma, Arizona in 1993 and its second in
Flagstaff, Arizona in 1996. Prior to establishing his own company, Mr.
Gresser was president of American Greyhound Racing, Inc., a division of The
Delaware North Companies, which owns and operates several greyhound race
tracks in Arizona. He is a past Chairman of the Valley of the Sun United Way
Fund Drive, and was a director of the Arizona Community Foundation, The
Phoenix Symphony, The Arizona Museum of Science and Technology, The Yuma
County Chamber of Commerce and the Yuma Orchestra Association. Mr. Gresser
holds a B.A. degree from Niagara University and attended the Program for
Management Development at Harvard Graduate School of Business.
DONALD E. OGLESBY is Chairman and C.E.O. of Four Peaks Performance
Center, a corporate training company. He had served as Chairman of the Board
of Three Phoenix Company, a corporation which manufactures equipment that
certifies computer disks, and as President and Chief Executive Officer of The
Phoenix Company from 1973 to 1984. He has been active in various civic and
business organizations within the Phoenix area including the Thunderbird
Rotary, the Association for Corporate Growth and the Desert Mission, a unit
of Lincoln Health Resources. Mr. Oglesby is a graduate of Michigan State
University.
JOHN A. VANDERWAY was born and educated in the Netherlands. His
education specialized in accounting, mathematics and physics. He is a
citizen of the United States. He has extensive experience in agribusiness in
the area of growing crops and dairy farming in the greater Phoenix area.
RAYMOND A. QUADT s a retired metallurgical engineer with degrees from
Rutgers University, Columbia University and Stevens Institute of Technology.
He has been director of research, president or chairman of several metals
production companies specializing in aluminum, titanium and the reactive
metals used in the atomic energy field. Quadt has been biographed in Who's
Who in America since 1949 and continued his business activities on several
corporate boards including involvement in the funding of two successful
commercial banks in Arizona. Community activities included extensive service
on the Board of Directors of the Boys and Girls Clubs of Metropolitan Phoenix.
GENE W. CHANDLER is a Senior Vice President and Cashier of the Bank. He
is responsible for operations, administration and accounting and has been
with the Bank since January 1996. Mr. Chandler's banking experience consists
of 34 years in Indiana and Arizona. He has been in senior management for
over 30 years. He is a graduate of the Graduate School of Banking at the
University of Wisconsin.
PATRICK F. HAVEY is a Senior Vice President with the Bank. He is
responsible for loan administration and has been with the Bank since 1988.
He has also held various lending positions with Chase Bank of Arizona
(1988-1993), Tri-City National Bank of Oak Creek (1981-1983) and Bank of
American, New York (1980-1981). Mr. Harvey earned a B.S. degree in business
administration from Trinity University, San Antonio, Texas. He has been on
the board of the Scottsdale YMCA and on the National Alumni Board of Trinity
University.
PETER D. HOMENICK is a Senior Vice President with the Bank. He jointed
the Bank in February 1992 and is responsible for business development in the
Small Business Lending Department. Mr. Homenick serves as Chairman
43
<PAGE>
of the Friendly House Foundation and is a member of the City of Scottsdale
Endowment Board and the City of Phoenix Small Business Capital Task Force.
He is a graduate of Arizona State University.
TRANSACTIONS WITH OFFICERS, DIRECTORS AND OTHER AFFILIATES
From time to time the Bank has entered into loan agreements with
officers and directors and other affiliated entities. All of such loan
transactions have been upon the same terms and conditions, and based upon the
same credit-risk analysis required of any of the Bank's customers. At
September 30, 1997, there are only 3 loans outstanding to any officers,
directors or affiliates, consisting of a secured loan in the principal amount
of $12,344.44, a secured loan in the principal amount of $93,000.00 and an
unsecured loan in the principal amount of $16,100.
SUPERVISION AND REGULATION
To the extent the information below consists of summaries of certain
statutory provisions, it is qualified in its entirety by reference to the
statutory provisions so described.
HOLDING COMPANY. Republic is subject to provisions of the Bank Holding
Company Act of 1956, as amended (the "BHCA"), which requires a bank holding
company to register with the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board") and be subject to its supervision. As a bank
holding company, Republic's activities are subject to the BHCA and Regulation
Y of the Federal Reserve Board. Transactions between Republic and the Bank
are subject to certain restrictions under the BHCA, the Federal Reserve Act
and certain other banking statutes.
As a bank holding company, the acquisition of control of Republic by an
individual or company is subject to the prior approval of the Federal Reserve
Board. The term "company" is broadly defined to include any corporation,
partnership, association or trust or similar organization, while the
definition of "control" for these purposes may be met by (i) the ownership or
control or power to vote 25% or more of the outstanding shares of any class
of voting stock of Republic, directly or indirectly, (ii) control over the
election of a majority of the directors of Republic, or (iii) the power to
exercise directly or indirectly a controlling influence over the management
or policies of Republic. In addition, under certain circumstances, the
ownership, control or power to vote 10% or more, but less than 25%, of the
shares of any class of voting securities of Republic, directly or indirectly,
may require prior notice to the Federal Reserve Board under the BHCA and
Regulation Y.
The BHCA requires prior approval by the Federal Reserve Board of the
acquisition by a bank holding company of more than 5% of the voting stock or
substantially all of the assets of any bank, but does not require prior
approval before acquisition of any additional shares in banks, the majority
of the shares of which are already controlled by such bank holding company.
A bank holding company is prohibited, with certain limited exceptions, from
acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company that is not a bank and from engaging in
activities other than those of banking or of managing or controlling banks
and other authorized subsidiaries and providing services to its subsidiaries.
One of the exceptions to this prohibition permits ownership of the shares of
a company, the activities of which the Federal Reserve Board determines to be
so closely related to the business of banking or of managing or controlling
banks as to be a proper incident thereto. Republic does not currently engage
in any non-banking activities.
Republic is required to file periodic reports with the Federal Reserve
Board and such other information as may be required to keep the Federal
Reserve Board informed regarding Republic's compliance with the provisions of
BHCA and the rules, regulations and orders issued thereunder. The reports
consist primarily of financial and management information regarding Republic
and the Bank. Because the consolidated assets of Republic and the Bank are
less than $150 million, Republic is not subject to separate capital
requirements in addition to those imposed upon the Bank, discussed below.
The Federal Reserve Board examines Republic periodically.
BANK. The Bank, as a national bank, is subject to the supervision and
regulation of, and is regularly examined by the Comptroller of the Currency (the
"Comptroller"). The Bank is also a member of the Federal Reserve. Among the
requirements and restrictions imposed upon national banks are the requirements
to maintain reserves against deposits, restrictions of nature and amounts of
loans that may be made, restrictions relating to investments, opening of bank
offices, and other activities. Federal law limits or prohibits the payment of
dividends by national banks if such dividends would impair the bank's capital
or the bank's surplus is not equal to its common capital. In addition, prior
approval of the Comptroller is required prior to payment of dividends by the
bank if the dividends declared in any year exceed the total
44
<PAGE>
of net profits for that year combined with retained net profits for the
preceding two years, less any required transfers to surplus or to a fund for
the retirement of preferred stock.
The Bank is required to comply with capital adequacy standards. There
are two basic measures of capital adequacy: a risk-based measure and a
tier-one leverage measure.
The risk-based capital measure was adopted to assist in the assessment
of capital adequacy of financial institutions by (i) making regulatory
capital requirements more sensitive to differences in risk portfolios among
organizations, (ii) introducing off-balance sheet items into the assessment
of capital adequacy, (iii) reducing disincentives to holding liquid, low-risk
assets, and (iv) achieving greater consistency in evaluation of capital
adequacy of major banking organizations throughout the world. The risk-based
measures include both a definition of capital and a framework for calculating
risk-weighted assets by assigning assets and off-balance sheet items to
broad-risk categories. An institution's risk-based capital ratio is
calculated by dividing its qualifying capital by its risk-weighted assets.
The current minimum ratio of qualifying capital to risk-weighted assets is 8%.
An important component of qualifying capital is the core capital or
tier-one capital. Tier-one capital for a national bank generally consists of
(i) common shareholders equity, (ii) non-cumulative perpetual preferred stock
and related surplus, and (iii) minority interest in the equity accounts of
consolidated subsidiaries, less (iv) good will. The tier-one component of an
institution's qualifying capital must represent at least 50% of the
qualifying total capital. Supplementary capital (tier-two capital) consists
of such additional capital elements as (i) allowance for loan losses (subject
to limitations); (ii) cumulative perpetual preferred stock, convertible
preferred stock, and (iii) any related surplus (subject to certain
conditions); (iv) hybrid capital instruments and mandatory convertible debt
securities; and (v) long term subordinated debt and intermediate term
preferred stock (subject to limitations). The maximum amount of tier-two
capital that may be included in qualifying total capital is limited to 100%
of tier-one capital (net of good will).
The Bank's risk-based capital ratios are reviewed by the Comptroller by
analysis of the Bank's quarterly financial reports, review of any
applications filed by the Bank and through the examination process. Although
the risk-based capital ratio focuses on broad categories of credit risk and,
to a lesser extent, interest rate and market risk, the risk-based ratio does
not incorporate other factors that can affect an organization's financial
condition. These factors include overall interest rate exposure, liquidity,
funding, and market risks; the quality and level of earnings; investment or
loan portfolio concentration; the quality of loans and investments; the
effectiveness of loan and investment policy; and management's ability to
monitor and control financial and other operational risks.
The primary federal regulatory agencies have also adopted a minimum
leverage ratio, defined as a ratio of tier-one capital to adjusted total
assets, which is intended to be used as a supplement to the risk-based
capital measure. An institution must meet both capital adequacy standards to
be in compliance. Banking organizations considered to be among the most
highly rated, based upon examination results, must maintain a minimum
leverage ratio of 3% and a minimum risk-based capital ratio of 8%. Banks
that are not the most highly rated are expected to maintain a leverage ratio
of at least 100 to 200 basis points above the minimum 3% levels.
The primary federal regulatory agencies have additional enforcement
authority over undercapitalized depository institutions. The Comptroller is
generally required to take action to restrict the activities of an
"undercapitalized institution," generally defined to be one with less than
minimum capital ratios. Any such bank must submit a capital restoration plan
(which must include a performance guarantee from any company controlling the
bank), and until such plan is approved by the Comptroller, may not increase
its assets, acquire another institution, establish a branch or engage in any
new activities, and generally may not make capital distributions or pay
management fees. The Comptroller is authorized to impose the additional
restrictions and take additional actions if the bank fails to comply with its
capital restoration plan or becomes "significantly undercapitalized" or
"critically undercapitalized".
The Bank is in compliance with all capital standards currently
applicable to it.
The deposits of the Bank are insured under the provisions of the Federal
Deposit Insurance Act. The Bank is also subject to the supervision and
examination by the Federal Deposit Insurance Corporation (the "FDIC"). The
Bank is subject to assessments by the FDIC.
45
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF REPUBLIC
BASIS OF PRESENTATION
The following is Republic's management discussion and analysis of the
results of operations and the historical financial condition of Republic and
its consolidated subsidiary. This should be read in conjunction with
Republic's audited financial statements and accompanying footnotes and other
selected financial data presented elsewhere herein.
The financial information discussed below reflects the operation of the
Bank along with Republic's operations. Republic began operations in 1985 as
the holding company of the Bank.
RESULTS OF OPERATIONS
EARNINGS PERFORMANCE. Republic earned $960,000 in 1996, $535,000 in
1995, and $777,000 in 1994. The increase in earnings from 1995 to 1996 is
primarily attributed to increased loans and fee income derived from sale of
SBA loans on the secondary market. Earnings from 1994 to 1995 decreased
$242,000. The decrease is primarily attributed to changes in the amount of
revenue recognized from the sale of SBA loans for a 90-day period prior to
year end. The increase in net interest income during these years reflects
the decreasing interest rate environment at that time and an aggressive
search for quality loan growth. Net interest income increased 35 % from 1995
to 1996.
The following is a condensed summary of the consolidated statement of
operations (dollars in thousands), along with selected profitability ratios:
REPUBLIC NATIONAL BANCORP, INC.
ANALYSIS OF NET INCOME
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
--------------------- -------------------------------------
1997 1996 1996 1995 1994
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net interest income. . . . . . . . . $1,785 $1,311 $2,817 $2,092 $1,483
Provision for loan losses. . . . . . 136 51 182 71 -
Other operating income . . . . . . . 96 65 196 194 404
Net gains on sales
of SBA loans. . . . . . . . . . . . 799 358 1,126 770 172
Other operating expense. . . . . . . 1,365 1,051 2,334 2,081 1,467
Net income . . . . . . . . . . . . . 687 373 960 535 777
Return on average assets . . . . . . 2.56% 2.54% 2.07% 1.40% 2.36%
Return on average equity . . . . . . 32.55% 31.70% 29.40% 17.84% 31.73%
Dividend payout ratio. . . . . . . . 24.02% 31.56% 33.96% 57.94% 18.40%
Equity to assets . . . . . . . . . . 9.06% 7.67% 7.97% 8.12% 8.62%
</TABLE>
46
<PAGE>
NET INTEREST INCOME. Net interest income is affected by changes in both
interest rates and the volume of average earning assets and interest-bearing
liabilities. The following table presents Republic's average balance sheets,
interest earned or paid, and the related yields and rates on major categories
of Republic's earning assets and interest-bearing liabilities for the periods
indicated:
REPUBLIC NATIONAL BANCORP, INC.
ANALYSIS OF AVERAGE RATES AND BALANCES
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------- ------------------------------ -----------------------------
Interest Interest Interest Interest Interest Interest
Average Income/ Yields and Average Income/ Yields and Average Income/ Yields and
Balance Expense Rates (1) Balance Expense Rates (1) Balance Expense Rates (1)
-------- ------- --------- ------- ------- --------- -------- ------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans (1). . . . . . . . . . . . . . $38,661 $4,375 11.32% $30,549 $3,320 10.87% $23,970 $2,300 9.60%
Investment securities . . . . . . . 1,977 126 6.37 2,120 135 6.37 2,081 83 3.99
Other earning assets . . . . . . . . 2,358 122 5.17 2,166 124 5.72 3,216 119 3.70
------- ------ ------ ------- ------ ------ ------- ------ ------
Total interest earning assets. . . 42,996 4,623 10.75 34,835 3,579 10.27 29,267 2,502 8.55
Noninterest earning assets . . . . 3,451 3,427 3,613
------- ------- -------
Total assets . . . . . . . . . . $46,447 $38,262 $32,880
------- ------- -------
------- ------- -------
LIABILITIES
Savings/int. bearing checking. . . . $12,087 $396 3.28% $10,563 $340 3.22% $11,099 $279 2.50%
Time deposits. . . . . . . . . . . . 23,657 1,408 5.95 18,736 1,146 6.12 14,316 723 5.05
Short-term borrowings. . . . . . . . 36 2 5.56 17 1 5.88 - - -
Long-term borrowings . . . . . . . . - - - 97 - - 215 17 7.91
------- ------ ------ ------- ------ ------ ------- ------ ------
Total interest bearing liabilities 35,780 1,806 5.05 29,413 1,487 5.06 25,630 1,019 3.98
Noninterest bearing liabilities. . . 7,402 5,840 4,782
Preferred Shareholders' equity . . . - 10 19
Common shareholders' equity. . . . . 3,265 2,999 2,449
------- ------- -------
Total liabilities & equity . . . $46,447 $38,262 $32,880
------- ------- -------
------- ------- -------
Net interest income. . . . . . . . . $2,817 $2,092 $1,483
------- ------- ------
------- ------- ------
Net interest spread. . . . . . . . . 5.70% 5.21% 4.57%
------ ------ ------
------ ------ ------
Net interest margin(2) . . . . . . . 6.55% 6.01% 5.07%
------ ------ ------
------ ------ ------
</TABLE>
- -----------------------
(1) Includes nonaccrual loans and loan fees.
(2) Net interest margin is the net yield on interest earning assets computed by
dividing net interest income by average interest earning assets.
47
<PAGE>
REPUBLIC NATIONAL BANCORP, INC.
ANALYSIS OF AVERAGE RATES AND BALANCES
SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
1997 1996
----------------------------- ------------------------------
Interest Interest Interest Interest
Average Income/ Yields and Average Income/ Yields and
Balance Expense Rates (1) Balance Expense Rates (1)
------- ------- ---------- ------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans (1). . . . . . . . . . . . . . $42,524 $2,190 10.39% $36,221 $1,969 10.93%
Investment securities. . . . . . . . 1,923 63 6.61 2,009 63 6.31
Other earning assets . . . . . . . . 5,547 145 5.27 1,320 35 5.33
------- ------- ---------- ------- ------- --------
Total interest earning assets. . . 49,994 2,398 9.67 39,550 2,067 10.51
Noninterest earning assets . . . . 4,175 3,653
------- -------
Total assets . . . . . . . . . . $54,169 $43,203
------- -------
------- -------
LIABILITIES
Savings/int. bearing checking. . . . $15,382 $ 263 3.45% $10,322 $ 164 3.18%
Time deposits. . . . . . . . . . . . 25,479 750 5.94 21,776 673 6.18
Short-term borrowings. . . . . . . . - - - 37 2 10.82
Long-term borrowings . . . . . . . . - - - - - -
------- ------- ---------- ------- ------- --------
Total interest bearing liabilities 40,861 1,013 5.00 32,135 839 5.25
Noninterest bearing liabilities. . . 9,052 7,611
Common shareholders' equity. . . . . 4,256 3,457
------- -------
Total liabilities & equity . . . $54,169 $43,203
------- -------
------- -------
Net interest income. . . . . . . . . $1,385 $1,228
------- -------
------- -------
Net interest spread. . . . . . . . . 4.67% 5.26%
------- -------
------- -------
Net interest margin. . . . . . . . . 5.59% 6.24%
------- -------
------- -------
</TABLE>
- -------------------
(1) Includes nonaccrual loans and loan fees.
(2) Net interest margin is the net yield on interest earning assets computed by
dividing net interest income by average interest earning assets.
48
<PAGE>
The following table reflects changes in interest income and expense
attributable to changes in volume and interest rates of significant interest-
bearing assets and liabilities (in thousands):
REPUBLIC NATIONAL BANCORP, INC.
ANALYSIS OF VOLUME AND INTEREST RATES
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997
Compared to 1996 Period 1995 Compared to 1996 1995 Compared to 1994
------------------------ --------------------- ---------------------
Attributable to Change Attributable to change Attributable to change
---------------------- ---------------------- ----------------------
Total in in Total in in Total in in
Change Volume Rate Change Volume Rate Change Volume Rate
------ ------- ------- ------- ------- ----- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans. . . . . . . . . . . . . . $221 $349 $(128) $1,055 $883 $172 $1,020 $631 $389
Investment securities. . . . . . - (3) 3 (9) (9) - 52 2 50
Other interest earning assets. . 110 113 (3) (2) 11 (13) 5 (39) 44
------ ------- ------- ------- ------- ----- -------- ------- ------
Total interest income. . . . . 331 459 (128) 1,044 885 159 1,077 594 483
Interest Expense:
Savings/interest bearing deposits $ 99 $ 84 $ 15 $ 56 $ 51 $ 5 $ 61 $(13) $74
Time deposits. . . . . . . . . . 77 117 (40) 262 302 (40) 423 224 199
Short term borrowings. . . . . . (2) (2) - 1 1 - 1 - 1
Long term borrowings . . . . . . - - - - - - (17) (9) (8)
------ ------- ------- ------- ------- ----- -------- ------- ------
Total interest expense . . . . 174 199 (25) 319 354 (35) 468 202 266
Increase (decrease) in net
interest income. . . . . . . . $157 $260 $(103) $ 725 $531 $194 $ 609 $392 $217
------ ------- ------- ------- ------- ----- -------- ------- ------
------ ------- ------- ------- ------- ----- -------- ------- ------
</TABLE>
The change in interest income/expense attributable to volume
reflects the change in volume times the prior year's rate and the change
in interest income/expense attributable to rate reflects the change in
rates times the current year's volume.
Net interest income in 1996 increased due to increasing interest rates
on the interest earning assets at a rate greater than the increase on the
interest bearing liabilities.
PROVISION FOR LOAN LOSSES. Republic made a provision to its "loan loss
reserve" in 1996 and 1995 of $182,000 and $71,000, respectively, and with no
provision in 1994. The provisions were determined based on management's
assessment of an adequate reserve for possible loan losses.
Management continually assesses the adequacy of the loan loss reserve by
evaluating the collectability of loans. This process includes assigning risk
ratings to loans and reserving percentages of these balances according to
reserve allocation formulas. This valuation process takes into consideration
such factors as changes in the nature and volume of Republic's loan
portfolio, prior loan loss experience, overall loan portfolio quality, review
of specific problem loans, current and anticipated economic conditions that
may affect a borrower's ability to pay and other factors that in management's
judgment, deserve recognition. For the year 1996, as with previous years,
management utilized this process in evaluating the adequacy of the allowance
for loan loss.
49
<PAGE>
NON-INTEREST INCOME. The following table presents a summary of non-
interest income (in thousands):
REPUBLIC NATIONAL BANCORP, INC.
ANALYSIS OF NON-INTEREST INCOME
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
------------------- -------------------------------------
1997 1996 1996 1995 1994
----- ---- ----- ----- ----
<S> <C> <C> <C> <C>
Service charges. . . . . . . . . . $ 73 $ 53 $ 160 $151 $241
Net gains on sales
of SBA loans. . . . . . . . . . . 799 358 1,126 770 172
Other. . . . . . . . . . . . . . . 23 12 36 43 163
---- ---- ----- ----- ----
Total . . . . . . . . . . . . . . $895 $423 $1,322 $964 $576
---- ---- ----- ----- ----
---- ---- ----- ----- ----
</TABLE>
Non-interest income continues to be a significant source of revenues for
Republic and increased $358,000 or 37% in 1996 over 1995 and $389,000 or 68% in
1995 over 1994. The increase in 1996 and 1995 is attributed to fluctuations in
gain recognized on sale of SBA loans.
NON-INTEREST EXPENSE. The following table presents a summary of non-
interest expense (in thousands):
REPUBLIC NATIONAL BANCORP, INC.
ANALYSIS OF NON-INTEREST EXPENSE
Six Months
Ended June 30, Year Ended December 31,
--------------- -----------------------
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
Salaries and benefits. . . . . . . $ 785 $ 566 $1,401 $1,072 $ 748
Premises and equipment . . . . . . 154 128 269 249 204
Other expenses . . . . . . . . . . 426 357 664 760 515
------ ------ ------ ------ ------
Total . . . . . . . . . . . . . . $1,365 $1,051 $2,334 $2,081 $1,467
----- ----- ------ ------ ------
----- ----- ------ ------ ------
Total non-interest expense increased to $2.3 million in 1996 from $2.1
million in 1995 and $1.5 million in 1994. The increase in 1996 is largely
attributable to salaries, wages and profit sharing plan contributions.
Increase or other expense during the six months ended June 30, 1997 relates
to the expense related to the proposed merger.
INCOME TAXES. Republic's income tax provision for 1996 was $663,000
compared with $369,000 in 1995, and $185,000 in 1994. The effective tax
rates were 40.8% in 1996, 40.8% in 1995, and 31.3% in 1994. The effective
tax rate differs from the federal statutory rate primarily as a result of
state taxes in 1996 and 1995 and the decline in a valuation allowance on a
deferred tax asset in 1994.
REPUBLIC CONDITION
OVERVIEW. Republic's total consolidated assets were $53 million, $43
million and $35 million for the years ending December 31, 1996, 1995 and
1994, respectively. Republic's assets increased 23% from 1995 to 1996 and
increased 23% from 1994 to 1995. The increase in 1996 and 1995 is primarily
attributed to an increase in loan volume.
50
<PAGE>
LOANS. The following table presents the balance of each major category of
loans at the dates indicated:
REPUBLIC NATIONAL BANCORP, INC.
ANALYSIS OF LOANS
<TABLE>
<CAPTION>
June 30, December 31,
------------------------------------------ ------------------------------------------------------------
1997 1996 1996 1995 1994
-------------------- ------------------ ------------------- ---------------- --------------------
% of % of % of % of % of
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------- -------- ------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loan Category:
Commercial . . . . . $11,270 27.03% $11,153 27.00% $12,028 29.15% $ 9,215 26.43% $ 2,905 11.37%
Real estate:
Construction . . . 6,531 15.66% 5,613 13.59% 6,915 16.76% 4,482 12.85% 2,968 11.62%
Residential. . . . 45 .11% 74 .18% 47 .11% 441 1.26% 372 1.46%
Other. . . . . . . 2,845 6.82% 1,494 3.62% 1,325 3.21% 1,526 4.38% 1,621 6.35%
Consumer/other . . . 21,008 50.38% 22,975 55.62% 20,953 50.77% 19,204 55.08% 17,674 69.20%
------- -------- ------- -------- ------- ------- ------- ------- ------- -------
Total Loans. . . . 41,699 100.00% 41,309 100.00% 41,268 100.00% 34,868 100.00% 25,540 100.00%
Less allowance for
loan losses . . . 514 1.23% 312 .76% 423 1.03% 271 .78% 253 .99%
------- -------- ------- -------- ------- ------- ------- ------- ------- -------
Total net loans. . . $41,185 $40,997 $40,845 $34,597 $25,287
------- -------- ------- ------- -------
------- -------- ------- ------- -------
</TABLE>
A principal component of Republic's earning assets is its loan
portfolio. On December 31, 1996, total loans totaled $42 million. This
represented a 17% increase over December 31, 1995 total loans of $35 million.
December 31, 1995 total loans increased 35% over December 31, 1994 loans of
$26 million. The increase in 1996 is mainly attributable to an
increase in SBA loan activity.
COMMERCIAL LOANS. Loans in this category are principally composed of
loans to service, wholesale and manufacturing businesses.
REAL ESTATE LOANS. The majority of Republic's real estate loan
portfolio consists of commercial construction loans partially guaranteed by
the SBA. These loans are primarily adjustable rate term mortgages. The
practice has been to sell the guaranteed portion of such loans on the
secondary market.
CONSUMER/OTHER LOANS. Loans classified as consumer and other consist
primarily of loans secured by automobiles.
NON-PERFORMING ASSETS. Republic follows regulatory guidelines with
respect to placing loans on non-accrual status. When a loan is placed on
non-accrual status, all previously accrued and uncollected interest is
reversed. Certain non-performing assets of Republic are summarized (in
thousands) in the following table:
REPUBLIC NATIONAL BANCORP, INC.
NONACCRUAL, RESTRUCTURED AND PAST DUE LOANS
June 30, December 31,
--------------- ----------------------
1997 1996 1996 1995 1994
------ ---- ---- ---- ----
Nonaccrual loans . . . . . . . . . . $1,320 $95 $26 $23 $16
Restructured loans . . . . . . . . . - - - - -
Loans past due 90 days or more . . . 4 7 - - -
Interest which would have been
earned on nonaccrual loans if
they were on accrual basis. . . . . 34 7 2 2 1
51
<PAGE>
ALLOWANCE FOR LOAN LOSSES. Republic's loan loss reserve is available to
absorb future loan losses. The current level of the loan loss reserve is a
result of management's assessment of the risk within the loan portfolio based
on the information revealed in the credit reporting processes. Republic
utilizes a risk-rating system on loans and a monthly credit review and
reporting process which results in the calculation of the guideline reserves
based on the risk within the portfolio. This assessment of risk takes into
account the composition of the loan portfolio, review of specific problem
loans, previous loan experience, current and anticipated economic conditions
and other factors that, in management's judgment, deserve recognition.
The increase in nonaccrual loans from December 31, 1996 to June 30, 1997
reflects the inclusion of three commercial real estate loan foreclosures
which had, as of June 30, 1997, not been converted to OREO assets. The
amount reflected as of June 30, 1997 includes the full amount of the real
estate loans even though 70% of such amounts are guaranteed by the federal
government under the SBA loan program.
The following table sets forth changes in Republic's loan loss reserve
as of the dates indicated (dollars in thousands):
REPUBLIC NATIONAL BANCORP, INC.
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
Six Months
Ended June 30, Year Ended December 31,
-------------- -----------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
Balance beginning of period. . . $423 $271 $271 $253 $269
Provision for loan losses. . . . 136 51 182 71 -
Charge-offs:
Commercial . . . . . . . . . . 3 11 28 29 15
Consumer . . . . . . . . . . . 66 2 11 37 12
Real estate. . . . . . . . . . - - - - -
Other. . . . . . . . . . . . . 11 - - - 3
---- ---- ---- ---- ----
Total loan losses. . . . . . . 80 13 39 66 30
Recoveries:
Commercial . . . . . . . . . . 13 1 4 7 5
Consumer . . . . . . . . . . . 22 2 5 6 9
Real estate. . . . . . . . . . - - - - -
Other. . . . . . . . . . . . . - - - - -
---- ---- ---- ---- ----
Total loan recoveries. . . . 35 3 9 13 14
---- ---- ---- ---- ----
Net charge-offs. . . . . . . 45 10 30 53 16
Increase in allowance for loan
losses. . . . . . . . . . . . . 91 41 152 18 16
---- ---- ---- ---- ----
Balance end of Period. . . . . . $514 $312 $423 $271 $253
---- ---- ---- ---- ----
---- ---- ---- ---- ----
Allowance for loan losses to:
Total loans at Period. . . . . 1.21% .76% 1.00% .76% .97%
Net charge-offs to
Average loans. . . . . . . . . .11% .03% .08% .17% .07%
The loan loss reserve at June 30, 1997 was $514,000. Management
believes such amount is sufficient to cover any possible losses from
nonaccrual loans as well as the remainder of the loan portfolio.
52
<PAGE>
The following table allocates the loan loss reserve based on management's
judgment of potential losses in the respective areas. While management has
allocated reserves to various portfolio segments for purposes of this table, the
reserve is general in nature and is available for the portfolio in its entirety.
REPUBLIC NATIONAL BANCORP, INC.
ALLOCATION OF ALLOWANCE OF LOAN LOSSES
(Dollars in thousands)
<TABLE>
<CAPTION>
Real
Commercial Estate Consumer Unallocated Total
---------- ------ -------- ----------- -------
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30,
1997
Allowance for loan losses. . . . . . . . . . . $ 349 $ 11 $ 73 $ 81 $ 514
% of loans in each category to total loans . . 27.03% 15.66% 50.38% 6.93% 100.00%
1996
Allowance for loan losses. . . . . . . . . . . $ 184 $ 16 $ 80 $ 32 $ 312
% of loans in each category to total loans . . 27.00% 13.59% 55.62% 3.79% 100.00%
DECEMBER 31,
1996
Allowance for loan losses. . . . . . . . . . . $ 246 $ 16 $ 73 $ 88 $ 423
% of loans in each category to total loans . . 29.15% 16.76% 50.77% 3.32% 100.00%
1995
Allowance for loan losses. . . . . . . . . . . $ 161 $ 24 $ 68 $ 18 $ 271
% of loans in each category to total loans . . 26.43% 12.85% 55.08% 5.64% 100.00%
1994
Allowance for loan losses. . . . . . . . . . . $ 93 $ 23 $ 100 $ 37 $ 253
% of loans in each category to total loans . . 11.37% 11.62% 69.20% 7.81% 100.00%
</TABLE>
53
<PAGE>
INVESTMENT PORTFOLIO. The investment activities of Republic are designed
to assist in maximizing income consistent with quality and liquidity
requirements, supply collateral to secure public funds, provide a means for
balancing market and credit risks, and provide consistent income and market
value throughout changing economic times.
Republic's portfolio consists entirely of obligations of U.S. government,
mortgage backed loan pools and SBA backed loan pools. Republic's investment
portfolio does not contain concentration of investments in any one issuer in
excess of 10% of Republic's total investment portfolio. Exempt from this
calculation are securities of the U.S. government and U.S. government agencies.
The following table sets forth the composition of Republic's investment
portfolio at the dates indicated:
REPUBLIC NATIONAL BANCORP, INC.
INVESTMENT PORTFOLIO
(Dollars in thousands)
June 30, December 31,
------------- -------------------------
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
U.S. Treasuries. . . . . . . . . . $1,004 $1,102 $1,103 $1,097 $1,098
SBA pooled securities. . . . . . . 246 256 252 261 289
Mortgage backed securities . . . . 461 524 496 579 716
Other. . . . . . . . . . . . . . . 90 88 90 88 88
------ ------ ------ ------ ------
Total investments. . . . . . . . $1,801 $1,970 $1,941 $2,025 $2,191
------ ------ ------ ------ ------
------ ------ ------ ------ ------
For the investment portfolio as of December 31, 1996, the following
table sets forth a summary of yield and maturities:
REPUBLIC NATIONAL BANCORP, INC.
ANALYSIS OF INVESTMENT YIELDS AND MATURITIES
DECEMBER 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
One year or Less One year through 5 Over 5 years through 10 Over Ten years Total
----------------- ------------------ ----------------------- ------------------ ----------------
Weighted Weighted Weighted Weighted Weighted
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ -------- ------ -------- ------ -------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasuries. . . $ 97 5.75% $1,006 5.72% $ - % $ - - % $1,103 5.72%
Other securities . . - - % - - % - - % 90 6.00% 90 6.00%
---- ---- ------ ---- ---- ---- ---- --- ------ ----
Total. . . . . . . $ 97 5.75% $1,006 5.72% - - % $ 90 6.00% $1,193 5.74%
---- ---- ------ ---- ---- ---- ---- --- ------ ----
---- ---- ------ ---- ---- ---- ---- --- ------ ----
</TABLE>
SBA pooled securities and mortgage backed securities, in the amount of
$252 and $496, respectively, are not included in the above maturity
categories because the underlying securities may be called or prepaid without
any penalties.
54
<PAGE>
For the investment portfolio as of June 30, 1997, the following
table sets forth a summary of yield and maturities:
REPUBLIC NATIONAL BANCORP, INC.
ANALYSIS OF INVESTMENT YIELDS AND MATURITIES
JUNE 30, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
One year or Less One year through 5 Over 5 years through 10 Over Ten years Total
----------------- ------------------ ----------------------- ---------------- ----------------
Weighted Weighted Weighted Weighted Weighted
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ -------- ------- -------- ------ -------- ------ -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasuries. . . . $1,004 5.72% $- - $- - % $- - % $1,004 5.72%
Other securities . . . - - % - - % - - % 90 6.00% 90 6.00%
------ --- --- --- ------
Total. . . . . . . . $1,004 5.72% - - - - % $90 6.00 $1,094 5.74%
------ --- --- --- ------
------ --- --- --- ------
</TABLE>
SBA pooled securities and mortgage backed securities, in the amount of $246
and $461, respectively, are not included in the above maturity categories
because the underlying securities may be called or prepaid without any
penalties.
In May of 1993, the FASB issued Statement of Financial Accounting Standards
No. 115 (SFAS No. 115), ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES. This statement addresses the accounting and reporting for
investments that have readily determinable fair market values. Those
investments are to be classified in three categories and accounted for as
follows:
1. Debt securities that the enterprise has the positive intent and
ability to hold to maturity are classified as held-to-maturity
securities and reported at amortized cost.
2. Debt and equity securities that are bought and held principally for
the purpose of selling them in the near term are classified as trading
securities and reported at fair market value, with unrealized gains
and losses included in earnings.
3. Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
securities and reported at fair market value, with unrealized gains
and losses excluded from earnings and reported in a separate component
of shareholders' equity.
The Statement does not apply to unsecuritized loans. However, after
mortgage loans are converted to mortgage-backed securities, they are subject to
its provisions. The Statement supersedes SFAS No. 12, ACCOUNTING FOR CERTAIN
MARKETABLE SECURITIES, and amends SFAS No. 65, ACCOUNTING FOR CERTAIN MORTGAGE
BANKING ACTIVITIES, to eliminate mortgage-backed securities from its scope.
SFAS No. 115 is effective for fiscal years beginning after December 15, 1993.
Republic implemented SFAS No. 115 on January 1, 1994 by properly
classifying all securities into held-to-maturity investment accounts.
55
<PAGE>
DEPOSITS. The following table sets forth a summary of Republic's
average deposits as of the dates indicated and the maturity of time
deposits over $100,000:
REPUBLIC NATIONAL BANCORP, INC.
ANALYSIS OF DEPOSITS
(Dollars in thousands)
Six Months
Ended June 30, Years Ended December 31,
---------------- ----------------------------
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
Noninterest bearing. . . . . $ 8,022 $ 6,970 $ 6,971 $ 5,583 $ 4,636
Interest bearing:
Savings and NOW. . . . . . 15,388 10,581 12,087 10,564 11,065
Time Deposits
< $100M . . . . . . . . 19,220 17,031 18,939 15,308 11,123
Time Deposits > $100M. . . 6,328 4,092 4,718 3,429 3,259
------- ------- ------- ------- -------
Total Deposits . . . . . $49,958 $38,664 $42,535 $34,834 $30,083
------- ------- ------- ------- -------
------- ------- ------- ------- -------
REPUBLIC NATIONAL BANCORP, INC.
MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
(Dollars in thousands)
< 3 months 3-6 months 6-12 months > 12 months Total
---------- ---------- ----------- ----------- ------
June 30, 1997. . . . $ 910 $ 619 $1,833 $2,045 $5,407
December 31, 1996. . $1,811 $2,244 $ 913 $1,530 $6,498
Year-end deposits for 1996 were $47,954,000 as compared to $38,727,000
for year-end 1995 and $31,857,000 for year-end 1994. At June 30, 1997, total
deposits were $47,497,000. The increase in total deposits from 1994 to 1995
was attributable to an increase in noninterest bearing deposits and in time
deposits under $100,000. The increase in total deposits from 1995 to 1996
was attributable to increases in savings and NOW deposits and in time
deposits under $100,000. The increase in total deposits for the period ended
June 30, 1997 was primarily the result of an increase in savings and NOW
deposits.
CAPITAL. Bank regulatory agencies measure capital adequacy through
standardized risk-based capital guidelines which compare different levels of
capital (as defined by such guidelines) to risk-weighted asset and
off-balance sheet obligations. Banks are required to maintain a minimum
risk-based capital ratio of 8%. Banking organizations considered to be among
the most highly rated, based upon examination results also must maintain a
minimum leverage ratio of 3% and a minimum risk-based capital ratio of 8%.
Banks that are not the most highly rated are expected to maintain a capital
leverage ratio of at least 100 to 200 basis points above the minimum 3%
levels. See "Business of Republic--Supervision and Regulation" for a
detailed discussion of these capital requirements.
56
<PAGE>
The following table presents regulatory capital requirements and risk-based
capital levels:
REGULATORY CAPITAL REQUIREMENTS:
Tier 1 Total Leverage
Capital Risk-Based Capital Ratio
------- ------------------ --------
DECEMBER 31, 1996
Adequate . . . . . . . . 4.00% 8.00% 4.00%
Well capitalized . . . . 6.00% 10.00% 5.00%
Actual . . . . . . . . . 10.68% 11.77% 7.69%
JUNE 30, 1997
Adequate . . . . . . . . 4.00% 8.00% 4.00%
Well capitalized . . . . 6.00% 10.00% 5.00%
Actual . . . . . . . . . 11.40% 12.65% 9.47%
REPUBLIC NATIONAL BANCORP, INC.
RISK BASED CAPITAL
(Dollars in thousands)
June 30, 1997 December 31, 1996
------------------- ----------------------
Amount Ratio Amount Ratio
------- ------ ------- ------
Capital Category:
Tier 1 Capital . . . . . . $ 4,681 11.40% $ 4,133 10.68%
Total Capital. . . . . . . 5,194 12.65% 4,555 11.77%
Total risk weight assets . . 41,062 38,713
Leverage ratio . . . . . . . 9.47% 7.69%
As of June 30, 1997, Republic exceeded each of the capital requirements
set forth by federal banking regulatory agencies.
LIQUIDITY AND FUNDS MANAGEMENT. Liquidity management requires an
ability to meet financial commitments when contractually due and to respond
to other requirements for funds. The Bank has an Asset/Liability Management
Committee (ALCO) responsible for managing balance sheet and off-balance sheet
commitments to meet the needs of customers while achieving Republic's
financial objectives. The Bank's ALCO meets regularly to review funding
capacities, current and forecasted loan demand, and investment opportunities.
Asset liquidity is provided by regular maturities of loans and by
maintaining federal funds.
57
<PAGE>
INTEREST RATE SENSITIVITY. Significant changes in interest rates affect
the composition, yield and cost of balance sheet components. The rate
sensitivity of these assets and liabilities is monitored and matched to control
the risk associated with movements in rates. The ALCO for the Bank meets monthly
to monitor and formulate strategies and policies to provide sufficient levels of
net interest income while maintaining acceptable levels of interest rate
sensitivity, risk and liquidity. The primary object of rate sensitivity
management is to ensure earnings stability by minimizing the sensitivity of net
interest income to fluctuations in interest rates. The Bank uses gap and other
systems to measure, monitor and adapt to changing interest rate environments.
The following table sets forth Republic's interest rate sensitivity
analysis by contractual repricing or maturity at December 31, 1996:
REPUBLIC NATIONAL BANCORP, INC.
INTEREST RATE SENSITIVITY
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
Repricing or Maturing in
-------------------------------------
1 Year Over 1 to Over 5
or Less 5 Years Years Total
------- ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Rate Sensitive Assets:
Loans. . . . . . . . . . . . . . . . . . . . $19,037 $16,530 $5,701 $41,268
Investment securities. . . . . . . . . . . . 439 1,006 496 1,941
Other interest-bearing assets. . . . . . . . 4,500 - - 4,500
------- ------- ------ -------
Total rate sensitive assets. . . . . . . . 23,976 17,536 6,197 47,709
Rate Sensitive Liabilities:
Savings/interest
bearing checking . . . . . . . . . . . . . 14,034 - - 14,034
Time deposits. . . . . . . . . . . . . . . . 18,196 7,546 - 25,742
Total rate sensitive liabilities . . . . . 32,230 7,546 - 39,776
Rate sensitive gap . . . . . . . . . . . . . . (8,254) 9,990 6,197 7,933
Cumulative rate sensitive gap. . . . . . . . . (8,254) 1,736 7,933 7,933
Rate sensitive gap % . . . . . . . . . . . . . (34.4)% 56.9% 100.0% 16.6%
Cumulative rate sensitive gap %. . . . . . . . (34.4)% 4.2% 16.6% 16.6%
</TABLE>
58
<PAGE>
The following table sets forth Republic's interest rate sensitivity
analysis by contractual repricing or maturity at June 30, 1997:
REPUBLIC NATIONAL BANCORP, INC.
INTEREST RATE SENSITIVITY
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
Repricing or Maturing in
-------------------------------------
1 Year Over 1 to Over 5
or Less 5 Years Years Total
------- ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Rate Sensitive Assets:
Loans. . . . . . . . . . . . . . . . . . . $19,237 $17,908 $4,554 $41,699
Investment securities. . . . . . . . . . . 1,340 - 461 1,801
Other interest-bearing assets. . . . . . . 5,300 - - 5,300
------- ------- ------ -------
Total rate sensitive assets. . . . . . . 25,877 17,908 5,015 48,800
Rate Sensitive Liabilities:
Savings/interest
bearing checking . . . . . . . . . . . . 15,634 - - 15,634
Time deposits. . . . . . . . . . . . . . . 13,184 9,900 - 23,084
Short term borrowings. . . . . . . . . . . - - - -
Long term borrowings . . . . . . . . . . . - - - -
------- ------- ------ -------
Total rate sensitive liabilities . . . . 28,818 9,900 - 38,718
Rate sensitive gap . . . . . . . . . . . . . (2,941) 8,008 5,015 10,082
Cumulative rate sensitive gap. . . . . . . . (2,941) 5,067 10,082 10,082
Rate sensitive gap % . . . . . . . . . . . . (11.4)% 44.7% 100% 20.7%
Cumulative rate sensitive gap %. . . . . . . (11.4)% 11.6% 20.7% 20.7%
</TABLE>
The following tables set forth Republic's interest rate sensitivity
analysis at the dates indicated with respect to individual categories of loans
and provides separate analyses with respect to fixed interest rate loans and
floating interest rate loans (in thousands):
REPUBLIC NATIONAL BANCORP, INC.
LOAN REPRICING OR MATURING
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
Repricing or Maturing in
-------------------------------------
1 Year Over 1 to Over 5
or Less 5 Years Years Total
------- ------- ------ -------
<S> <C> <C> <C> <C>
Loan Category
Commercial . . . . . . . . . . . . . . $12,246 $ 3,074 $ - $15,320
Real Estate. . . . . . . . . . . . . . 6,915 - - 6,915
Consumer and Other . . . . . . . . . . 311 14,762 4,980 19,033
------- ------- ------ -------
Total Loans. . . . . . . . . . . . . 19,472 17,836 4,980 41,268
Rate Sensitive Loans
Fixed Interest Rate Loans. . . . . . . 2,394 16,816 4,980 24,190
Floating Interest Rate Loans . . . . . 2,205 2,734 12,139 17,078
------- ------- ------ -------
Total Loans. . . . . . . . . . . . . 4,599 19,550 17,119 41,268
</TABLE>
59
<PAGE>
REPUBLIC NATIONAL BANCORP, INC.
LOAN REPRICING OR MATURING
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
Repricing or Maturing in
-------------------------------------
1 Year Over 1 to Over 5
or Less 5 Years Years Total
------- ------- ------ -------
<S> <C> <C> <C> <C>
Loan Category
Commercial . . . . . . . . . . . . $13,204 $ 1,819 $ 35 $15,058
Real Estate. . . . . . . . . . . . 6,531 - - 6,531
Consumer and Other . . . . . . . . 280 15,311 4,519 20,110
------- ------- ------ -------
Total Loans. . . . . . . . . . . 19,400 17,130 4,554 41,699
Rate Sensitive Loans
Fixed Interest Rate Loans. . . . . 1,450 17,745 4,554 23,749
Floating Interest Rate Loans . . . 1,692 2,481 13,777 17,950
------- ------- ------ -------
Total Loans. . . . . . . . . . . 3,142 20,226 18,331 41,699
</TABLE>
CURRENT ACCOUNTING PRONOUNCEMENTS:
The Financial Accounting Standards Board ("FASB") has issued Statement
No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENT OF LIABILITIES (the "Statement"), which became effective for
transactions occurring after December 31, 1996. The Statement does not permit
earlier or retroactive application. The Statement distinguishes transfers of
financial assets that are sales from transfers that are secured borrowings.
A transfer of financial assets in which the transferor surrenders control
over those assets is accounted for as a sale to the extent that consideration
other than beneficial interests in the transferred assets is received in
exchange. The Statement also establishes standards on the initial
recognition and measurement of servicing assets and other retained interests
and servicing liabilities, and their subsequent measurement.
The Statement requires that debtors reclassify financial assets pledged
as collateral and that secured parties recognize those assets and their
obligation to return them in certain circumstances in which the secured party
has taken control of those assets. In addition, the Statement requires that
a liability be derecognized only if the debtor is relieved of its obligation
through payment to the creditor or by being legally released from being the
primary obligor under the liability either judicially or by the creditor.
In December 1996, the FASB issued Statement No. 127 which amended
Statement No. 125 by delaying the effective date of certain portions of the
statement for one year.
Effective for financial statements issued after December 15, 1997,
Republic will be required to implement FASB Statement No. 128, EARNINGS PER
SHARE. The Statement establishes standards for computing and presenting
earnings per share ("EPS") and applies to entities with publicly held common
stock or potential common stock. It represents the presentation of primary
EPS with a presentation of basic EPS and also requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities
with complex capital structures. Republic has not determined what effect the
adoption of this Statement will have on its earnings per share calculations.
The FASB has issued Statement No. 130, REPORTING COMPREHENSIVE INCOME.
Statement No. 130 requires that an enterprise (a) classify items of other
comprehensive income (as defined in the Statement) by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid in
capital in the equity section of the statement of financial position.
Management does not believe the application of this Statement will materially
affect Republic's financial reporting.
60
<PAGE>
The FASB has also issued Statement NO. 131, DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION. Statement No. 131 modifies the
disclosure requirements for reportable segments and is effective for
Republic's year ending December 31, 1998. Republic has not determined the
effect of the adoption of this Statement would have on Republic's financial
statements.
Management does not believe the application of the Statement to
transactions of the Bank that have been typical in the past will
materially affect the Bank's financial position and results of
operations.
Year 2,000 Compliance Issues:
The Bank is actively analyzing its areas of exposure related to year 2,000
compliance issues. Analysis to date has addressed issues related to
information processed by the Bank's service center and issues related to the
Bank's in house applications. The Bank is actively participating in and
monitoring the progress made in this area by its service center and will
continue to prepare its in house applications to insure year 2,000 readiness.
The Bank does not believe the cost to become year 2,000 compliant will be
material.
61
<PAGE>
REPUBLIC'S PRINCIPAL SHAREHOLDERS AND
SECURITY OWNERSHIP OF MANAGEMENT
Set forth below are the names and addresses and the number of shares of
Republic Common Stock held as of the Record Date by the officers and
directors of Republic and each person known to the officers and directors to
be the beneficial owners of more than 5% of the outstanding Republic Common
Stock:
<TABLE>
<CAPTION>
Name and Address Position Held Number of Shares(1) Percent
- ------------------------------------ ------------------------ ------------------- --------
<S> <C> <C> <C>
Harry T. Goss (2) Vice Chairman/Director 527,676 15.55%
7370 E. McLellan Blvd.
Scottsdale, Arizona 85251
A. Leroy Ellison Director 397,189 11.87%
6121 North 5125 Place
Paradise Valley, Arizona 85253
Peter W. Nauert 390,692 11.67%
Howe & Co. and Booth & Co.
T.I.#: 36-6032297
c/o The Northern Trust Company
P.O. Box 92303
Chicago, IL 60675
John T. Katsenes (3) Chairman 298,939 8.90%
824 E. Indian School Road
Phoenix, Arizona 85014
William P. Gresser Director 225,143 6.73%
1315 W. Ridgeview Drive
Yuma Arizona 85264
Thomas J. Euen (4) President/Director 213,000 6.04%
1201 E. Drake Drive
Tempe, Arizona 85253
Arizona Lodge #2, F.&A.M. 197,273 5.89%
345 W. Monroe
Phoenix, AZ 85003
John A. Vanderway Director 183,787 5.49%
2241 E. Colter Street
Phoenix, Arizona 85016
Raymond A. Quadt Director 122,223 3.65%
6454 South Willow Drive
Tempe, Arizona 85283
Marianne B. Fannin (5) Director 122,328 3.64%
77 East Missouri, #23
Phoenix, Arizona 85012
62
<PAGE>
Bonnye McFarland Director 110,745 3.31%
202 West Kaler
Phoenix, Arizona 85021
Donald E. Oglesby Director 60,689 1.81%
c/o Four Peaks Performance Center
23623 North Scottsdale Road, Suite D-3
Scottsdale, Arizona 85255
Peter D. Homenick (6) Senior Vice President 38,500 1.14%
12009 East Ironwood Drive of the Bank
Scottsdale, Arizona 85259
Patrick F. Havey (7) Senior Vice President 37,500 1.11%
6910 East Gelding Drive of the Bank
Scottsdale, Arizona 85254
Officers and Directors as a 2,337,719 63.88%
group (12 persons) (8)
- -----------------
</TABLE>
(1) The number of shares shown in the table includes where applicable, shares
owned of record by such person's spouse and by other related individuals
and entities over whose shares of Republic Common Stock such person has
custody, voting control or power of disposition.
(2) Includes shares held in the Harry and Anne Goss Family Trust (294,686), the
Harry T. Goss IRA (104,844), the Harry T. Goss IRRA (41,000), the Goss
Family Trust (20,000) and by Harry T. Goss as voting trustee for M. Goss
(20,000). Also includes options to purchase 47,000 shares of Republic
Common Stock which are currently exercisable.
(3) Includes shares held in the John T. Katsenes IRA (47,735), by Katsenes
Enterprises Ltd. (87,002), the Katsenes Family Trust (137,056) and by Karyn
M. Katsenes (17,000). Also includes options to purchase 10,000 shares of
Republic Common Stock which are currently exercisable.
(4) Includes options to purchase 180,000 shares of Republic Common Stock which
are currently exercisable.
(5) Includes shares held by the Thomas N. Fannin IRA (22,336). Also includes
options to purchase 10,000 shares of Republic Common Stock which are
currently exercisable.
(6) Includes shares in the Homenick Family Trust (6,000). Also includes
options to purchase 32,500 shares of Republic Common Stock which are
currently exercisable.
(7) Includes options to purchase 32,500 shares of Republic Common Stock which
are currently exercisable.
(8) Includes options to purchase 312,000 shares of Republic Common Stock which
are currently exercisable.
63
<PAGE>
MATERIAL DIFFERENCES IN RIGHTS OF REPUBLIC SHAREHOLDERS
The rights of Republic shareholders are governed by the Articles of
Incorporation (the "Republic Articles") and Bylaws (the "Republic Bylaws") of
Republic and the laws of the State of Arizona. The rights of CFB
stockholders are governed by the Certificate of Incorporation (the "CFB
Certificate") and Bylaws of CFB (the "CFB Bylaws") and the laws of the State
of Delaware. After the Merger becomes effective, the rights of Republic
shareholders who become CFB stockholders will be governed by the CFB
Certificate, the CFB Bylaws and the laws of the State of Delaware. In
certain respects, rights of Republic shareholders and CFB stockholders are
similar. While it is not practical to describe all changes in the rights of
Republic shareholders that will result from the application of Delaware law
in lieu of Arizona law and the differences between the Republic Articles and
Bylaws and the CFB Certificate and Bylaws, the following is a summary of
certain significant differences. It should be understood that such
description of the differences is a summary only and does not purport to be a
complete description of the differences between Delaware and Arizona
corporation laws.
CAPITAL STOCK
The Republic Articles authorize the issuance of 5,000,000 shares of
preferred stock, $1.00 par value per share, and 5,000,000 shares of common
stock, no par value per share. Republic currently has outstanding only 306
shares of preferred stock and one class of common stock. Accordingly, all
shareholders of Republic common stock have equal rights and preferences with
respect to dividends and distributions upon liquidation.
The CFB Certificate authorizes the issuance of 30,000,000 shares of
common stock, par value $.01 per share ("CFB Common Stock"), and 2,000,000
shares of Preferred Stock, $.01 par value per share ("CFB Preferred Stock").
The Board of Directors of CFB has designated 150,000 shares of Series A
Junior Participating Preferred Stock, par value $.01 per share (which may
only be issued upon a triggering event under the Rights Agreement described
under "Recent Developments Regarding CFB - Rights Agreement") and 270,000
shares of 7% Cumulative Convertible Preferred Stock, par value $.01 per
share, all of which were redeemed in March 1997. See "Recent Developments
Regarding CFB - Other Recent Developments." As of October 13, 1997,
18,676,373 shares of CFB Common Stock were outstanding and at June 30, 1997,
$60,000,000 of company obligated mandatorily redeemable preferred securities
(the "Capital Securities") of CFB Capital I, a wholly-owned business trust of
CFB, were outstanding.
Holders of CFB Preferred Stock have certain rights and preferences with
respect to dividends and upon liquidation that are superior to those of
holders of CFB Common Stock. The relative rights and preferences of any CFB
preferred stock issued in the future may be established by the CFB Board of
Directors without stockholder action, and such shares, when and if issued,
could have dividend, liquidation, voting, and other rights superior to those
of CFB Common Stock.
SHAREHOLDERS' ACTION WITHOUT A MEETING
Delaware law provides that, unless otherwise provided in the certificate
of incorporation, any action which may be taken at any annual or special
meeting of stockholders of a corporation may be taken without a meeting,
without prior notice, and without a vote, if a consent or consents in
writing, setting forth the actions so taken, shall be signed by the holders
of outstanding stock having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted.
Arizona law also permits written actions by shareholders, but requires
that a written consent be signed by all of the shareholders entitled to vote
thereon.
64
<PAGE>
ANNUAL MEETING OF SHAREHOLDERS
If a Delaware corporation fails to hold an annual meeting for a period
of thirteen months after its last annual meeting, the Court of Chancery may
summarily order a meeting to be held upon the application of any stockholder
or director. The shares of stock represented at such meeting, either in
person or by a proxy, and entitled to vote thereat, shall constitute a quorum
for the purpose of such meeting.
Arizona law provides that if an annual meeting of shareholders has not
been held within the earlier of three months after the date specified for the
annual meeting in the corporation's bylaws or fifteen months after its last
annual meeting, a shareholder may demand an annual meeting of shareholders by
written notice of demand to the court in the county where the corporation's
known place of business is located.
SPECIAL MEETING OF SHAREHOLDERS
Delaware law provides that special meetings of the stockholders may be
called by the board of directors or by such person or persons as may be
authorized by the certificate of incorporation or by the bylaws. The CFB
Bylaws authorize the Chairman of the Board of Directors, the President or by
any two or more directors to call a special meeting of shareholders.
Arizona law provides that special meetings of the shareholders may be
called by any of the following: the President; the Secretary; any two
directors; a person authorized in the articles of incorporation or bylaws to
call special meetings; if, by reason of death or resignation, there are no
directors in office, any officer of shareholder; or a shareholder or
shareholders holding 10% or more of the voting power of all shares entitled
to vote; or in respect of an action relating to a business combination or
change in the composition of the Board of Directors, 25% or more of the
voting power of all shares entitled to vote. The Republic Bylaws authorize
Republic's President, a shareholder or shareholders having 20% or more of the
voting power of all shares entitled to vote, or the Board of Directors to
call a special meeting of shareholders.
PROXIES
Both Delaware and Arizona law permit proxies of indefinite duration. In
the event that the proxy is indefinite as to its duration, Arizona law
provides that it will be valid for 11 months and Delaware law provides that
it will be valid for 3 years.
PREEMPTIVE RIGHTS
Under Delaware law, no stockholder shall have any preemptive right to
subscribe to an additional issue of stock or to any security convertible into
such stock unless, and to the extent that, such right is expressly granted in
the certificate of incorporation. The CFB Certificate does not grant
preemptive rights to CFB stockholders.
Under Arizona law, the shareholders of a corporation have no preemptive
right to acquire unissued shares except to the extent such right s are
granted in the corporation's articles of incorporation. The Republic
Articles do not provide for preemptive rights to acquire unissued shares.
CUMULATIVE VOTING
Under Delaware law, stockholders do not have cumulative voting rights
unless the rights are granted to them in the corporation's certificate of
incorporation. If cumulative voting is provided for in the certificate or
articles of incorporation, each holder of stock shall be entitled to as many
votes as shall equal the number of votes which he or she would be entitled to
cast for the election of directors with respect to his or her shares of stock
multiplied by the number of directors to be elected by him or her, and that
he or she may cast all such votes for a single director or may
65
<PAGE>
distribute them among the number to be voted for, or for any two or more of
them as he or she may see fit. The CFB Certificate provides for cumulative
voting.
Under Arizona law, cumulative voting is mandatory for the election of
directors unless specifically prohibited in the corporation's articles of
incorporation. Republic's Articles do not prohibit cumulative voting.
DISSOLUTION
A Delaware corporation may be dissolved by the voluntary action of the
holders of a majority of the outstanding stock of the corporation entitled to
vote thereon. Additionally, a Delaware corporation may be dissolved without
the action of the directors if all of the stockholders entitled to vote
thereon shall consent in writing. An Arizona corporation may be dissolved
upon a proposal of the corporation's board of directors and the affirmative
vote of the holders of a majority of the voting power of all shares entitled
to vote. Additionally, an Arizona corporation may be dissolved without action
of the directors or shareholders on exercise of a dissolution option provided
to any investor in the articles of incorporation and effective upon 30 days'
written notice of the exercise of such option to all other investors.
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
Under Delaware law, the vote of a simple majority of the outstanding
shares of CFB Common Stock entitled to vote thereon is required to approve a
merger or consolidation, or the sale, lease, or exchange of substantially all
of CFB's corporate assets. With respect to a merger, no vote of the
stockholders of CFB is required if CFB is the surviving corporation and (i)
the related agreement of merger does not amend the CFB Certificate, (ii) each
share of stock of CFB outstanding immediately before the merger is an
identical outstanding or treasury share of CFB after the merger, and (iii)
the number of shares of CFB stock to be issued in the merger (or to be
issuable upon conversion of any convertible instruments to be issued in the
merger) does not exceed 20% of the shares of CFB Common Stock outstanding
immediately before the merger.
The AZBCA generally requires the affirmative vote of the holders of a
majority of the outstanding shares of each class entitled to vote to approve
a merger or share exchange. In certain circumstances, the holders of
outstanding shares of a class of capital stock of a Arizona corporation are
entitled to vote as a separate voting group, regardless of whether the
articles of incorporation provide that such shares of capital stock are
entitled to vote. However, no vote of shareholders of a Arizona corporation
is required to approve a merger if (i) that corporation is the surviving
corporation of the merger, (ii) the articles of incorporation of the
surviving corporation, with certain exceptions, will not differ from its
articles of incorporation before the merger, (iii) each shareholder of the
surviving corporation whose shares are outstanding immediately before the
merger will hold the same number of shares, with identical designations,
preferences, limitations, and relative rights, immediately after the merger,
and (iv) the number of voting shares or participatory shares, as defined by
statute, of the corporation to be issued in the merger, or to be issuable
upon conversion of any convertible instruments to be issued in the merger,
does not exceed 20% of the voting stock of that corporation outstanding
immediately before the merger.
In addition to being subject to the laws of Arizona and Delaware,
respectively, both Republic and CFB, as bank holding companies, are subject
to various provisions of federal law with respect to mergers, consolidations
and certain other corporate transactions.
DISSENTERS' RIGHTS
Under Delaware law, a stockholder is generally entitled to receive
payment of the appraised value of such stockholder's shares if the
stockholder dissents from a merger or consolidation. However, appraisal
rights are not available to holders of (i) shares listed on a national
securities exchange or held of record by more than 2,000 persons or (ii)
shares of the corporation surviving a merger, if the merger did not require
the approval of the stockholders of such corporation, unless in either case,
the holders of such stock are required by the terms of the merger to accept
66
<PAGE>
anything other than (a) shares of stock of the surviving corporation, (b)
shares of stock of another corporation which are also listed on the national
securities exchange or held by more than 2,000 holders, or (c) cash in lieu
of fractional shares of such stock. Appraisal rights are not available for a
sale of assets or an amendment to the CFB Certificate of Incorporation.
Because shares of CFB Common Stock are traded in the Nasdaq National Market
System, its stockholders are not, subject to the aforementioned exceptions,
entitled to any rights of appraisal in connection with mergers or
consolidations involving CFB.
Under the AZBCA, any shareholder of a corporation is entitled to receive
payment of the fair value of such shareholder's shares of capital stock if such
shareholder properly dissents from (i) any merger, share exchange or
consummation of a sale or exchange of all or substantially all of the assets of
the corporation not made in the regular course of business for which a vote of
such shareholder is required, (ii) any corporate action that results in an
amendment of the articles of incorporation, which materially and adversely
affects rights with respect to a dissenter's shares because it alters or
abolishes a preferential right of the shares, creates, alters or abolishes a
right in respect of redemption, alters or abolishes a preemptive right of the
holder of the shares, excludes or limits the right of the shares to be voted on
any matter or to cumulate votes, or reduces the number of shares owned by the
shareholder to a fraction of a share if the fractional share so created is to be
acquired for cash, (iii) any other corporate action taken pursuant to a
shareholder vote to the extent the articles of incorporation, the bylaws or a
resolution of the board of directors provide that voting or nonvoting
shareholders are entitled to dissent and to obtain payment for their shares.
See the more detailed discussion of the procedures for asserting dissenters
rights under "The Merger - Dissenters' Rights."
CONFLICTS OF INTEREST
Under Delaware law, a contract or transaction between a corporation and one
or more of its directors or officers, or between a corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, shall not be void or voidable solely for that reason, or solely
because the director or officer was present at or participated in the meeting of
the board or committee thereof which authorized the contract or transaction, or
solely because his or her vote was counted for such purpose, provided that the
contract or transaction is (i) authorized in good faith by the board of
directors, or (ii) ratified by the corporation's stockholders, or (iii) fair to
the corporation. Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the board which authorizes the contract
or transaction.
In general, Arizona's conflicts of interest statute is the same as
Delaware's statute, except that Arizona's conflict of interest statute does not
cover transactions between the corporation and its officers.
DIVIDENDS AND DISTRIBUTIONS
A Delaware corporation may make repurchases or redemptions that do not
impair capital and may pay dividends out of any surplus account (generally the
stockholders' equity of the corporation less the par value of the capital stock
outstanding) or, if there exists no surplus, out of net profits of the current
and preceding fiscal years (provided that certain provisions must be made for
preferences of outstanding stock having a liquidation preference). To determine
the surplus, assets and liabilities are valued at their current fair market
value. Assuming that such assets have a fair market value greater than their
book value and that liabilities have not increased in value to a greater extent,
such revaluation will increase the surplus of the corporation and thereby permit
the corporation to pay an increased dividend and/or to repurchase a greater
number of shares.
Distributions to shareholders of an Arizona corporation may not be made if
any such distribution would render the corporation unable to meet its
liabilities in the ordinary course of business or, if as a result of such
distribution, the excess of the corporation's assets over its liabilities would
be less than the liquidation preference of all shares having a preference on
liquidation over the class or series to which the distribution is made.
67
<PAGE>
Republic and CFB are also subject to the policies of federal regulatory
authorities regarding payment of dividends, which generally limit dividends to
operating earnings. See "Business of Republic - Supervision and Regulation."
ANTI-TAKEOVER PROVISIONS
Pursuant to Delaware's Business Combinations Statute, if a person acquires
15% or more of the voting stock of a Delaware corporation, that person is
designated an "interested stockholder" and the corporation may not engage in
certain business combinations with such person for a period of three years.
However, an otherwise prohibited business combination may be permitted if one of
these conditions is met: (1) if prior to the date the person became an
interested stockholder, the board of directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (2) the tender offer or other transaction by which the
person acquires 15% stock ownership is attractive enough that he is able to
acquire ownership in the same transaction of at least 85% of the outstanding
voting stock; or (3) the business combination is approved by the board and
authorized at an annual or special meeting of stockholders by the affirmative
vote of two-thirds of the outstanding voting shares held by uninterested
stockholders. A business combination is defined to include any of the
following: any merger or consolidation with the interested stockholder; any
sale, transfer or other disposition of assets to the interested stockholder if
the assets have a market value equal to or greater than 10% of the aggregate
market value of all of the corporation's assets; any transfer of stock of the
corporation to the interested stockholder, except for transfers in a conversion
or exchange or a pro rata distribution; and any receipt by the interested
stockholder of any loans, advances, guarantees, pledges or other financial
benefits, except for a pro rata transfer.
Under Arizona's Business Combinations Statute, a person who acquires 10% or
more of the voting stock of an 'issuing public corporation' is designated an
interested shareholder and, with certain exceptions, an 'issuing public
corporation' or its authorized subsidiary, may not engage in certain business
combinations with such person for three years. An "issuing public corporation"
is defined in the Arizona Statutes as a corporation that has a class of equity
securities registered pursuant to Section 12 or is subject to Section 15(d) of
the Securities Exchange Act of 1934 or has elected to be subject to all or part
of the Arizona Business Combination Statute. However, an otherwise prohibited
business combination may be permitted if one of these conditions is met: (1)
the issuing public corporation, by amendment of its articles of incorporation,
has specifically elected not to be subject to the provisions of the Arizona
Business Combination Statute, or (2) if prior to the date the person became an
interested shareholder, a committee of the board of directors approved either
the business combination or the transaction which resulted in the shareholder
becoming an interested shareholder. A business combination is defined to
include any of the following: any merger, consolidation or plan of exchange
between the issuing public corporation, the interested shareholder, or any
corporation or entity that is or after the transaction would be, an affiliate or
associate of the interested shareholder; any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of assets of the issuing public
corporation, or any subsidiary, to the interested shareholder or its affiliate
if the assets have a market value equal to or greater than 10% of the aggregate
market value of either all of the issuing public corporation's assets or all of
its outstanding shares, or the assets represent 10% or more of either the
revenues or net income of the issuing public corporation; any transfer of stock
of the issuing public corporation to the interested shareholder, except for
transfers pursuant to the exercise of warrants or rights to purchase shares
offered or a dividend or distribution paid or made pro rata to all shareholders
of the issuing public corporation; the adoption of any plan or proposal of
liquidation or dissolution of the issuing public corporation, or its
reincorporation in another state, proposed by, on behalf of, or pursuant to an
agreement with the interested shareholder; any reclassification of securities,
recapitalization, merger or consolidation with a subsidiary effected in any
manner by the interested shareholder and which results in an increase in the
number of shares or rights to acquire shares of the issuing public corporation
held by the interested shareholder; and any receipt by the interested
shareholder of any loans, advances, guarantees, pledges or other financial
assistance or any tax credits or other tax advantages provided by or through the
issuing public corporation.
CFB is party to a stockholders' rights agreement which could in certain
circumstances serve as a deterrent against a possible change of control not
approved by CFB's Board of Directors. Under the agreement, upon the occurrence
of certain events which result in a change of control as defined by the
agreement, registered holders of
68
<PAGE>
shares of CFB Common Stock are entitled to purchase one-hundredth of a share
of junior participating preferred stock of Republic at a stated price, or to
purchase shares of common stock in the acquiring entity with a market value
equal to two times the exercise price. The rights may be redeemed by CFB in
certain circumstances and expire in 2005. Republic does not have a
shareholders' rights plan.
CHARTER AMENDMENTS
Delaware law does not provide for stockholders, independently from the
board, to propose amendments to the certificate of incorporation. Delaware
law generally requires that, absent a greater requirement in the certificate
or articles of incorporation, a majority of the outstanding stock entitled to
vote thereon, and a majority of the outstanding stock of each class entitled
to vote as a class, must vote in favor of the amendment.
Arizona law does not provide for shareholders, independently from the
board, to propose amendments to the certificate of incorporation. Arizona
law also generally requires that, absent a greater requirement in the
corporation's articles of incorporation, a majority of the outstanding stock
entitled to vote thereon, and a majority of the outstanding stock of each
class entitled to vote as a class, must vote in favor of the amendment.
AMENDMENT OF BYLAWS
Delaware law provides that the power to adopt, amend or repeal bylaws
shall be in the stockholders entitled to vote; provided, however, any
corporation may, in its certificate of incorporation, confer the power to
adopt, amend, or repeal bylaws upon the directors. The fact that such power
has been so conferred upon the directors shall not divest the stockholders,
nor limit their power to adopt, amend or repeal bylaws.
Generally, Arizona law provides that the board may amend or repeal the
bylaws unless the articles reserve the power exclusively to the shareholders
or the bylaw expressly provides that the board shall not amend or repeal that
bylaw. A corporation's shareholders may amend or repeal the corporation's
bylaws even though the bylaws may also be amended or repealed by its board of
directors.
LEGAL MATTERS
The validity of the CFB Common Stock to be issued to the shareholders of
Republic in connection with the Merger will be passed upon for CFB by
Lindquist & Vennum P.L.L.P., Minneapolis, Minnesota. Patrick Delaney, a
partner of Lindquist & Vennum P.L.L.P., is a director of CFB and an owner of
CFB Common Stock and options to purchase CFB Common Stock. Certain federal
income tax consequences in connection with this Merger will be passed upon by
Streich Lang P.A., Phoenix, Arizona.
EXPERTS
The consolidated financial statements of CFB at December 31, 1996 and
1995, and for each of the three years in the period ended December 31, 1996,
incorporated by reference in this Proxy Statement-Prospectus which
constitutes a proxy statement of Republic and a prospectus and registration
statement of CFB have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference, which (i) as to the years 1995 and 1994,
are based in part on the reports of Arthur Andersen LLP, formerly independent
auditors for Mountain Parks Financial Corp., and (ii) as to the year 1994,
are based in part on the reports of Hacker, Nelson & Co., P.C. and Fortner,
Bayens, Levkulich and Co., P.C., formerly independent auditors for Minowa
Bancshares, Inc., and First Community Bankshares, Inc., respectively. As of
the date of their reports and during the periods covered by the financial
statements on which they reported, each of the foregoing accounting firms
were independent certified public accountants with respect to CFB, Mountain
Parks Financial Corp., Minowa Bancshares, Inc. and First Community
Bankshares, Inc., as the case may be, within the meaning of the Securities
Act and the applicable published rules and regulations thereunder. CFB has
agreed to indemnify Hacker, Nelson & Co., P.C., its officers, directors and
employees from any and all damages, fines, legal costs and expenses that may
be incurred by the parties being indemnified in successfully defending their
audit to any person, corporation or governmental entity relying upon the
69
<PAGE>
audit, provided that such indemnification will not apply to any claim, legal
expense, or costs incurred if Hacker, Nelson & Co., P.C. has been found
guilty of professional malpractice with respect to such audit. The
consolidated financial statements referred to above are incorporated herein
by reference in reliance upon such reports given upon the authority of such
firms as experts in accounting and auditing.
The financial statements of KeyBank Wyoming as of and for the year ended
December 31, 1996 appearing in CFB's Current Report on Form 8-K/A filed on
September 22, 1997 with the Securities and Exchange Commission have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance on such report given
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Republic as of December 31, 1996
and 1995 and for each of the years in the three-year period ended December
31, 1996 included herein have been included herein in reliance upon the report
of McGladrey & Pullen, LLP, independent auditors, appearing elsewhere herein,
and given upon the authority of such firm as experts in accounting and auditing.
70
<PAGE>
INDEX TO REPUBLIC STATEMENTS
The following financial statements of Republic are included in this Proxy
Statement-Prospectus:
<TABLE>
<CAPTION>
Page
----
<S> <C>
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994:
Independent Auditors' Report on the Consolidated Financial
Statements for the years ended December 31, 1996, 1995 and 1994. . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of June 30, 1997
(unaudited) and December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Income for the six months ended June 30, 1997 and
1996 (unaudited) and the years ended December 31, 1996, 1995 and 1994. . . . . . . . . . . . . F-5
Consolidated Statement of Stockholders' Equity for the six months ended June 30,
1997 (unaudited) and the years ended December 31, 1996, 1995 and 1994. . . . . . . . . . . . . F-6
Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and
1996 (unaudited) and the years ended December 31, 1996, 1995 and 1994. . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Republic National Bancorp, Inc.
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of Republic
National Bancorp, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Bancorp's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Republic National
Bancorp, Inc. and Subsidiary as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
MCGLADREY AND PULLEN, LLP
Phoenix, Arizona
January 15, 1997
F-2
<PAGE>
REPUBLIC NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(INFORMATION RELATED TO JUNE 30, 1997 IS UNAUDITED)
<TABLE>
<CAPTION>
June 30 December 31
-----------------------------------------
ASSETS 1997 1996 1995
(unaudited)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks (NOTES 2 AND 9) $ 2,743,527 $ 4,031,834 $ 3,203,805
Federal funds sold (NOTE 9) 5,300,000 4,500,000 1,200,000
-----------------------------------------
Cash and cash equivalents 8,043,527 8,531,834 4,403,805
Held to maturity securities (market value
1997 $1,833,902; 1996 $1,966,178;
1995 $2,046,867) (NOTE 3) 1,801,273 1,941,148 2,025,059
Loans, net of allowance for credit losses
1997 $514,104; 1996 $422,579;
1995 $271,464 (NOTES 4, 9, AND 10) 41,184,764 40,845,671 34,597,467
Bank premises and equipment, net (NOTE 5) 443,843 159,080 150,492
Accrued interest receivable 279,028 337,454 237,525
Other assets (NOTE 6) 1,201,414 1,149,074 1,205,671
------------------------------------------
$ 52,953,849 $ 52,964,261 $ 42,620,019
-----------------------------------------
-----------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
June 30 December 31
-----------------------------------------
LIABILITIES AND STOCKHOLDERS' 1997 1996 1995
EQUITY (unaudited)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES
Deposits:
Noninterest bearing, demand $ 8,778,528 $ 8,177,537 $ 8,085,443
Interest bearing:
NOW accounts 8,911,013 8,269,352 5,457,321
Savings and money market 6,722,801 5,765,011 5,125,485
Time certificates $100,000 and over
(NOTE 7) 5,406,873 6,497,996 3,881,973
Time certificates under $100,000
(NOTE 7) 17,677,497 19,243,633 16,177,204
-----------------------------------------
47,496,712 47,953,529 38,727,426
Accrued interest payable and
other liabilities 650,171 792,140 430,249
-----------------------------------------
Total liabilities 48,146,883 48,745,669 39,157,675
-----------------------------------------
COMMITMENTS AND CONTINGENCIES
(NOTE 9)
STOCKHOLDERS' EQUITY (NOTES 13 AND 14)
Convertible preferred stock, $1 par value;
authorized 100,000 shares; none issued
and outstanding (Note 12)
- - -
Common stock, no par value; authorized
500,000 shares; issued and outstanding
1997, 3,347,492 shares, 1996, 3,298,992
shares, 1995 3,189,867 shares 3,547,871 3,481,276 3,358,794
Surplus 173,665 173,665 173,665
Retained earnings (deficit) 1,085,430 563,651 (70,115)
-----------------------------------------
Total stockholders' equity 4,806,966 4,218,592 3,462,344
-----------------------------------------
$52,953,849 $52,964,261 $ 42,620,019
-----------------------------------------
-----------------------------------------
</TABLE>
F-4
<PAGE>
REPUBLIC NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(INFORMATION RELATED TO THE PERIODS ENDED JUNE 30, 1997 AND 1996 IS UNAUDITED)
<TABLE>
<CAPTION>
June 30 December 31
-----------------------------------------------------------------------
1997 1996 1996 1995 1994
(unaudited) (unaudited)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income:
Loans $ 2,590,950 $ 2,052,893 $ 4,374,457 $ 3,320,318 $ 2,299,028
Securities held to maturity 62,869 62,233 126,090 134,621 83,480
Federal funds sold 144,914 34,704 122,276 124,363 119,419
-----------------------------------------------------------------------
2,798,733 2,149,830 4,622,823 3,579,302 2,501,927
-----------------------------------------------------------------------
Interest expense:
Borrowed funds - - - 489 17,050
Deposits (NOTE 11) 1,013,801 838,779 1,806,179 1,486,670 1,001,520
-----------------------------------------------------------------------
1,013,801 838,779 1,806,179 1,487,159 1,018,570
-----------------------------------------------------------------------
Net interest income 1,784,932 1,311,051 2,816,644 2,092,143 1,483,357
Provision for credit losses (NOTE 4) 136,000 51,000 182,000 70,500 -
-----------------------------------------------------------------------
Net interest income after
provision for credit losses 1,648,932 1,260,051 2,634,644 2,021,643 1,483,357
-----------------------------------------------------------------------
Other income:
Customer service fees 73,510 54,066 159,572 150,727 241,199
Gain on sale of SBA loans 799,370 358,783 1,126,546 770,059 172,265
Other income 22,029 10,824 35,717 43,309 162,013
-----------------------------------------------------------------------
894,909 423,673 1,321,835 964,095 575,477
-----------------------------------------------------------------------
Other expenses:
Salaries and wages 659,063 442,181 1,152,368 864,186 587,883
Employee benefits 126,976 124,023 248,614 208,294 160,047
Occupancy (NOTE 9) 154,309 128,093 269,387 248,858 204,239
Data processing 68,259 53,062 111,970 107,111 105,310
Professional fees 38,926 53,496 26,972 141,399 67,203
Supplies, printing and advertising 52,478 77,827 223,366 233,681 107,811
Other 265,101 172,602 301,190 277,957 234,729
-----------------------------------------------------------------------
1,365,112 1,051,284 2,333,867 2,081,486 1,467,222
-----------------------------------------------------------------------
Income before income tax 1,178,729 632,440 1,622,612 904,252 591,612
Income tax expense (NOTE 8) 492,000 259,000 663,000 369,262 (185,000)
-----------------------------------------------------------------------
Net income $ 686,729 $ 373,440 $ 959,612 $ 534,990 $ 776,612
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Earnings per common share:
Primary $ .20 $ .21 $ .29 $ .17 $ .27
Fully diluted $ .19 $ .11 $ .28 $ .17 $ .27
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Weighted average common shares
outstanding:
Primary $ 3,495,559 $ 3,287,259 $ 3,337,734 $ 3,191,776 $ 2,885,604
Fully diluted $ 3,531,694 $ 3,305,351 $ 3,372,935 $ 3,209,868 $ 2,842,183
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
REPUBLIC NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(INFORMATION RELATED TO THE PERIOD ENDED JUNE 30, 1997 IS UNAUDITED)
<TABLE>
<CAPTION>
Preferred stock Common stock Common stock subscribed
-------------------------------------------------------------------
Retained
Shares Amount Shares Amount Shares Amount Surplus Earnings Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 19,297 $ 19,297 2,758,475 $ 3,509,418 5,870 $ 5,870 $ 173,665 $(1,381,717) $2,326,533
Stock subscribed - - - - 49,748 49,748 - - 49,748
Common stock issued - - 83,825 76,582 (52,351) (52,351) - - 24,231
Net income - - - - - - - 776,612 776,612
Capital dividend paid - - - (143,074) - - - - (143,074)
------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 19,297 19,297 2,842,300 3,442,926 3,267 3,267 173,665 (605,105) 3,034,050
Stock subscribed - - - - 186,779 186,779 - - 186,779
Common stock issued - - 193,191 207,060 (190,046) (190,046) - - 17,014
Net income - - - - - - - 534,990 534,990
Conversion of preferred
stock to common stock
(NOTE 12) (19,297) (19,297) 154,376 19,297 - - - - -
Capital dividend paid - - - (310,489) - - - - (310,489)
------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 - - 3,189,867 3,358,794 - - 173,665 (70,115) 3,462,344
Common stock issued - - 109,125 122,482 - - - - 122,482
Net income - - - - - - - 959,612 959,612
Cash dividend paid - - - - - - - (325,846) (325,846)
------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 - - 3,298,992 3,481,276 - - 173,665 563,651 4,218,592
Common stock issued - - 48,500 66,595 - - - - 66,595
Net income - - - - - - - 686,729 686,729
Cash dividend paid - - - - - - - (164,950) (164,950)
------------------------------------------------------------------------------------------------------
Balance, June 30, 1997
(unaudited) - $ - 3,347,492 $ 3,547,871 - $ - $ 173,665 $1,085,430 $4,806,966
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
F-6
<PAGE>
REPUBLIC NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(INFORMATION RELATED TO THE PERIODS ENDED JUNE 30, 1997 AND 1996 IS UNAUDITED)
<TABLE>
<CAPTION>
June 30 December 31
------------------------------------------------------------------------
1997 1996 1996 1995 1994
(unaudited) (unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 686,729 $ 373,440 $ 959,612 $ 534,990 $ 776,612
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 30,385 25,526 52,971 69,221 56,872
Provision for loan losses 136,000 51,000 182,000 70,500 -
Amortization of premium 3,178 2,579 3,010 8,367 48,382
Deferred income tax expense (benefit) - - 75,000 163,834 (185,000)
Provision for loss on other real estate owned - - - 15,000 -
Loss (gain) on sale of other real estate owned - - (18,091) 16,748 (72,466)
Origination of loans available for sale (8,220,090) (4,016,711) (11,172,598) (5,887,500) (5,507,295)
Proceeds from sale of loans available for sale 9,019,460 4,375,494 12,417,033 4,891,995 2,484,783
Changes in assets and liabilities:
Other assets (52,340) (268,876) (89,865) (352,017) 56,120
Accrued interest receivable 58,426 (25,800) (99,929) (61,145) (45,641)
Accrued interest payables and other liabilities (141,969) 291,371 361,891 346,290 (31,786)
-------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 1,519,779 808,023 2,671,034 (183,717) (2,419,419)
-------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of held to maturity 136,697 147,029 1,082,601 252,122 -
securities
Purchase of held to maturity securities
- (94,500) (1,001,700) (94,722) (620,094)
Proceeds from sale of other real estate owned
- - 163,781 129,252 246,442
Loans made to customers, net
(1,274,463) (5,941,897) (7,748,867) (8,385,868) (402,243)
Purchase of bank premises and equipment
(315,148) (35,695) (98,906) (35,193) (118,546)
Proceeds from sale of bank premises and equipment - - 37,347 - -
-------------------------------------------------------------------------
Net cash (used in) investing activities (1,452,914) (5,925,063) (7,565,744) (8,134,409) (894,441)
-------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (456,817) 5,587,841 9,226,103 6,870,374 2,420,629
Payments on borrowed funds - - - (193,402) (43,005)
Proceeds from issuance of common stock 66,595 76,530 122,482 203,793 73,979
Dividends paid (164,950) (161,993) (325,846) (310,489) (143,074)
-------------------------------------------------------------------------
Net cash provided by (used in) financing (555,172) 5,502,328 9,022,739 6,570,276 2,308,529
-------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents (488,307) 385,288 4,128,029 (1,747,850) (1,005,331)
Cash and cash equivalents:
Beginning 8,531,834 4,403,805 4,403,805 6,151,655 7,156,986
-------------------------------------------------------------------------
Ending $ 8,043,527 $ 4,789,093 $ 8,531,834 $ 4,403,805 $ 6,151,655
-------------------------------------------------------------------------
-------------------------------------------------------------------------
</TABLE>
F-7
<PAGE>
REPUBLIC NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(INFORMATION RELATED TO THE PERIODS ENDED JUNE 30, 1997 AND 1996 IS UNAUDITED)
<TABLE>
<CAPTION>
June 30 December 31
----------------------------------------------------------------------
1997 1996 1996 1995 1994
(unaudited) (unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors $1,032,659 $837,010 $1,786,270 $1,454,478 $1,015,829
----------------------------------------------------------------------
----------------------------------------------------------------------
Interest paid on borrowed funds $ - $ - $ - $ 1,529 $ 12,713
----------------------------------------------------------------------
----------------------------------------------------------------------
Income taxes $1,007,958 $284,651 $ 144,872 $ 10,428 $ -
----------------------------------------------------------------------
----------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Preferred stock converted to common stock $ - $ - $ - $ 19,297 $ -
----------------------------------------------------------------------
----------------------------------------------------------------------
Other real estate acquired in settlement of loan $ - $ - $ 74,228 $ - $ -
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
REPUBLIC NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE I. NATURE OF BANKING ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BANKING ACTIVITIES:
Republic National Bancorp, Inc. (the Bancorp) is a holding company which owns
100% of the stock of Republic National Bank (the Bank). The Bank provides a
full range of banking service to its commercial, SBA, residential and consumer
customers from it's facilities located in the Phoenix Metropolitan area.
The Bank grants commercial, residential and consumer loans to customers located
primarily in the Phoenix Metropolitan area.
The loans are expected to be repaid from cash flows or proceeds from the sale of
selected assets of the borrowers. The Bank's policy requires that collateral be
obtained on substantially all loans. Such collateral is primarily first trust
deeds on property.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent asset and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
BASIS OF CONSOLIDATION:
The consolidated financial statements include all the accounts of the Bancorp
and the Bank. All material intercompany accounts and transactions have been
eliminated.
UNAUDITED INTERIM FINANCIAL STATEMENTS:
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the requirements for presentation of interim financial
statements and, therefore, do not include all information and footnotes
necessary for a fair presentation of financial position, results of operations,
and cash flows in conformity with generally accepted accounting principles. In
the opinion of management, all adjustments consisting only of normal recurring
adjustments that are necessary for a fair presentation for interim periods
presented have been reflected. The results for the six months ended June 30,
1997 are not necessarily indicative of the results which will be reported for
the entire year.
F-9
<PAGE>
NOTE 1. NATURE OF BANKING ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
CASH AND CASH EQUIVALENTS:
For purposes of reporting cash flows, cash and cash equivalents includes cash on
hand, amounts due from banks (including cash items in process of clearing) and
federal funds sold. Cash flows from loans originated by the Bank, deposits, and
federal funds purchased are reported net.
The Bancorp and Bank maintains amounts due from banks which, at times, may
exceed federally insured limits. No losses have been experienced in such
accounts.
HELD TO MATURITY SECURITIES:
Securities classified as held to maturity are those debt securities the Bank has
both the intent and ability to hold to maturity regardless of changes in market
conditions, liquidity needs or changes in general economic conditions. These
securities are carried at cost adjusted for amortization of premium and
accretion of discount, computed by the interest method over their contractual
lives.
The sale of a security within three months of maturity date or after at least 85
percent of the principal outstanding has been collected is considered a maturity
for purposes of classification and disclosure.
LOANS:
Loans are stated at the amount of unpaid principal, reduced by deferred loan
fees, net of costs and an allowance for credit losses.
The allowance for credit losses is established through a provision for credit
losses charged to expense. Loans are charged against the allowance for credit
losses when management believes that collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb estimated losses on existing loans that may become uncollectible,
based on evaluation of the collectibility of loans and prior loan loss
experience. This evaluation also takes into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrower's ability to pay. While management uses the best
information available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic or other
conditions. In addition, the Office of the Comptroller of the Currency (OCC),
as an integral part of their examination process, periodically reviews the
Bank's allowance for credit losses, and may require the Bank to make additions
to the allowance based on their judgment about information available to them at
the time of their examinations.
Impaired loans are measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. A loan is impaired when it is
probable the creditor will be unable to collect all contractual principal and
interest payments due in accordance with the terms of the loan agreement.
F-10
<PAGE>
NOTE 1. NATURE OF BANKING ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INTEREST AND FEES ON LOANS:
Interest on loans is recognized over the terms of the loans and is calculated on
principal amounts outstanding. The accrual of interest on impaired loans is
discontinued when, in management's opinion, the borrower may be unable to meet
payments as they become due. When interest accrual is discontinued, all unpaid
accrued interest is reversed. Interest income is subsequently recognized only
to the extent cash payments are received.
Loan origination and commitment fees and certain direct loan origination costs
are deferred and the net amount amortized as an adjustment of the related loan's
yield. The Bank is generally amortizing these amounts over the contractual
life.
SALES OF LOANS:
The Bank sells the guaranteed portion of Small Business Administration ("SBA")
loans in the secondary market to provide funds for additional lending and to
generate servicing income. Under such agreements, the Bank continues to service
the loans and the buyer receives the principal collected together with interest.
Loans held for sale are valued at the lower of cost or market value.
Gains and losses on sales of loans are calculated on a predetermined formula in
compliance with, EMERGING ISSUES TASK FORCE 88-11, based on the difference
between the selling price and the book value of the loans sold. Any inherent
risk of loss on loans is transferred to the buyer at the date of sale on the
portion of the loan sold. However, the Bank maintains the risk on the portion
retained.
The Bank has issued various representations and warranties associated with the
sale of loans. These representations and warranties may require the Bank to
repurchase loans for a period of 90 days after the date of sale as defined in
the applicable sales agreement. The Bank experienced no losses regarding these
representations and warranties.
OTHER REAL ESTATE OWNED:
Included in other assets is other real estate owned (OREO) consisting of
property which has been acquired through foreclosure. The property is carried
at the lower of the recorded investment in the property or its fair value. At
acquisition, the value of the underlying loan is written down to the fair market
value of the real estate, if necessary, by a credit to the allowance for credit
losses. Any subsequent write-down is charged against operating expenses of such
properties, net of related income. Gain and losses on disposition are included
in other expenses.
PREPAID DEALER RESERVE:
Prepaid dealer reserve represents the unearned portion of a percentage of the
finance charges, paid to the dealer at the origination of the loan. The prepaid
amount is amortized over the life of the loan.
F-11
<PAGE>
NOTE 1. NATURE OF BANKING ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
BANK PREMISES AND EQUIPMENT:
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed principally by the straight-line method over the
following estimated useful lives:
Years
-----
Leasehold improvements 10
Automobile, furniture and equipment 2 - 10
INCOME TAXES:
The Bancorp and the Bank file consolidated federal and state income tax returns.
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
EARNINGS PER COMMON SHARE:
Earnings per common share were computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding. The number of common shares was increased by the number of shares
issuable upon exercise of the stock options described in Note 13 to the
financial statements.
OTHER OFF-BALANCE-SHEET INSTRUMENTS:
In the ordinary course of business, the Bank has entered into off-balance-sheet
financial instruments consisting of commitments to extend credit, commercial
letters of credit and standby letters of credit. Such financial instruments are
recorded in the financial statements when they are funded.
Fair value of financial instruments:
The carrying value of financial instruments other than investments
approximates the fair value of those instruments.
F-12
<PAGE>
NOTE 1. NATURE OF BANKING ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
CURRENT ACCOUNTING PRONOUNCEMENTS:
The Financial Accounting Standards Board (FASB) has issued Statement No. 125,
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF
LIABILITIES, which becomes effective for transactions occurring after December
31, 1996. The Statement does not permit earlier or retroactive application. In
December 1996, the FASB issued Statement No. 127 which amended Statement No. 125
by delaying the effective date of certain portions of the statement for one
year. The Statement distinguishes transfers of financial assets that are sales
from transfers that are secured borrowings. A transfer of financial assets in
which the transferor surrenders control over those assets is accounted for as a
sale to the extent that consideration other than beneficial interests in the
transferred assets is received in exchange. The Statement also establishes
standards on the initial recognition and measurement of servicing assets and
other reined interests and servicing liabilities, and their subsequent
measurement.
The Statement requires that debtors reclassify financial assets pledged as
collateral and that secured parties recognize those assets and their obligation
to return them in certain circumstances in which the secured party has taken
control of those assets. In addition, the Statement requires that a liability
be derecognized only if the debtor is relieved of its obligation through payment
to the creditor or by being legally released from being the primary obligor
under the liability either judicially or by the creditor.
Management does not believe the application of the Statement to transactions of
the Bank that have been typical in the past will materially affect the Bank's
financial position and results of operations.
Effective for financial statements issued after December 15, 1997, the Company
will be required to implement FASB Statement No. 128, EARNINGS PER SHARE. The
Statement establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock or potential
common stock. It represents the presentation of primary EPS with a presentation
of basic EPS and also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures.
The Company has not determined what effect the adoption of this Statement will
have on its earnings per share calculations.
The FASB has issued Statement No. 130, REPORTING COMPREHENSIVE INCOME.
Statement No. 130 requires that an enterprise (a) classify items of other
comprehensive income (as defined in the Statement) by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid in
capital in the equity section of the statement of financial position.
Management does not believe the application of this Statement will materially
affect the Company's financial reporting.
The FASB has also issued Statement No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. Statement No. 131 modifies the disclosure
requirements for reportable segments and its effective for the Company's year
ending December 31, 1998. The Company has not determined the effect of the
adoption of this Statement would have on the Company's financial statements.
F-13
<PAGE>
NOTE 2. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain reserve balances with Federal Reserve Banks.
The total of those reserve balances was approximately, $0, $210,000 and $425,000
at June 30, 1997 (unaudited), December 31, 1996 and 1995.
NOTE 3. INVESTMENT SECURITIES
Carrying amounts and fair values of held to maturity securities as of June 30,
1997 (unaudited), December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1997
(unaudited)
-------------------------------------------------------
Amortized Gross Gross Fair
cost unrealized unrealized value
-------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of United States
Government Agencies:
GNMA Pooled Securities $ 168,965 $15,766 $ - $ 184,731
FHLMC Pooled Securities 292,195 10,988 - 303,183
SBA Pooled Securities 246,233 5,850 - 252,083
US Treasury Securities 1,003,730 - (605) 1,003,125
Other 90,150 - - 90,150
-------------------------------------------------------
$1,801,273 $32,604 $(605) $1,833,272
-------------------------------------------------------
-------------------------------------------------------
1996
-------------------------------------------------------
Amortized Gross Gross Fair
cost unrealized unrealized value
-------------------------------------------------------
Obligations of United States
Government Agencies:
GNMA Pooled Securities $ 189,136 $ 9,660 $(1,692) $ 197,104
FHLMC Pooled Securities 307,221 13,962 - 321,183
SBA Pooled Securities 251,710 2,274 - 253,984
US Treasury Securities 1,102,931 1,027 (201) 1,103,757
Other 90,150 - - 90,150
-------------------------------------------------------
$1,941,148 $26,923 $(1,893) $1,966,178
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
F-14
<PAGE>
NOTE 3. INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
1995
-------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
-------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of United States
Government Agencies:
GNMA Pooled Securities $ 215,237 $ 8,671 $ - $ 223,908
FHLMC Pooled Securities 362,750 13,135 - 375,885
SBA Pooled Securities 261,300 1,912 - 263,212
US Treasury Securities 1,097,322 - (1,910) 1,095,412
Other 88,450 - - 88,450
-------------------------------------------------------
$2,025,059 $23,718 $(1,910) $2,046,867
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
These were no realized gains or losses on the sale of securities during the six
months ended June 30, 1997 and 1996 (unaudited), or the years ended December 31,
1996, 1995 and 1994.
Securities with a carrying amount of approximately $1,296,000, $1,404,000 and
$1,463,000 at June 30, 1997 (unaudited), December 31, 1996 and 1995 were pledged
as collateral on public deposits and for other purposes as required by law.
The amortized cost and fair values of securities at June 30, 1997 (unaudited)
and December 31, 1996 by contractual maturities are shown below. Maturities may
differ from contractual maturities in SBA, GNMA and FHLMC pooled securities
because the notes underlying the securities may be called or prepaid without any
penalties. Therefore, these securities are not included in the maturity
categories in the following maturity summary.
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
(unaudited)
-------------------------------------------------------
Amortized Fair Amortized Fair
cost value cost value
-------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $1,003,730 $1,003,125 $ 97,708 $ 97,507
Due after one year through five years - - 1,005,223 1,006,250
Due after five years through ten years - - - -
Due after ten years 90,150 90,150 90,150 90,150
GNMA and FHLMC pooled securities 461,160 487,914 496,357 518,287
SBA pooled securities 246,233 252,083 251,710 253,984
-------------------------------------------------------
$1,801,273 $1,833,272 $1,941,148 $1,966,178
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
F-15
<PAGE>
NOTE 4. LOANS
Loans consist of the following:
June 30 December 31
----------------------------------------------
1997 1996 1995
(unaudited)
----------------------------------------------
Commercial $ 21,485,916 $ 21,121,830 $ 16,423,594
Installment 20,142,085 20,068,340 18,369,183
----------------------------------------------
41,628,001 41,190,170 34,792,777
Add (deduct):
Deferred loan fees,
net of costs 70,867 78,080 76,154
Allowance for credit losses (514,104) (422,579) (271,464)
----------------------------------------------
$ 41,184,764 $ 40,845,671 $ 34,597,467
----------------------------------------------
----------------------------------------------
At June 30, 1997 (unaudited), December 31, 1996 and 1995, the total of Small
Business Administration (SBA) loans serviced for others amounted to
approximately, $43,097,000, $20,821,000 and $11,537,000.
At December 31, 1996 and 1995 and for the periods then ended, there were no
loans classified as impaired in conformity with FASB Statement No. 114 as
amended by FASB Statement No. 118. In addition, loans on nonaccrual status
totaled $26,000 and $23,000, at December 31, 1996 and 1995.
Changes in the allowance for credit losses is as follows:
<TABLE>
<CAPTION>
6 months ended
June 30 Years ended December 31
---------------------------------------------------------------------
1997 1996 1995 1994
(unaudited)
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, beginning $ 422,579 $ 271,464 $ 252,956 $ 269,065
Provision charged to operating expense 136,000 182,000 70,500 -
Recoveries of amounts charged off 35,701 8,570 13,599 10,879
---------------------------------------------------------------------
594,280 462,034 337,055 279,944
Amounts charged off (80,176) (39,455) (65,591) (26,988)
---------------------------------------------------------------------
Balance, ending $ 514,104 $ 422,579 $ 271,464 $ 252,956
---------------------------------------------------------------------
---------------------------------------------------------------------
</TABLE>
F-16
<PAGE>
NOTE 5. BANK PREMISES AND EQUIPMENT
The major classes of bank premises and equipment and the total accumulated
depreciation are as follows:
June 30 December 31
----------------------------------------
1997 1996 1995
(unaudited)
----------------------------------------
Leasehold improvements $ 318,744 $ 120,603 $ 120,603
Automobile, furniture and equipment 378,485 504,422 483,265
----------------------------------------
697,229 625,025 603,868
Less accumulated depreciation 253,386 (465,945) (453,376)
----------------------------------------
$ 443,843 $ 159,080 $ 150,492
----------------------------------------
----------------------------------------
NOTE 6. OTHER ASSETS
Other assets consist of the following:
June 30 December 31
----------------------------------------
1997 1996 1995
(unaudited)
----------------------------------------
Other real estate owned $ - $ - $ 71,462
Prepaid dealer reserve 704,950 720,908 678,718
Deferred taxes (NOTE 8) 96,166 96,166 171,166
Prepaid expenses and deposits 400,298 332,000 284,325
----------------------------------------
$ 1,201,414 $ 1,149,074 $ 1,205,671
----------------------------------------
----------------------------------------
Changes in other real estate owned are as follows:
June 30 December 31
----------------------------------------
1997 1996 1995
(unaudited)
----------------------------------------
Balance, beginning $ - $ 71,462 $ 232,462
Other real estate acquired in
settlement of loan - 74,228 -
Write down of property - - (15,000)
Sale of other real estate owned - (145,690) (146,000)
----------------------------------------
Balance, ending $ - $ - $ 71,462
----------------------------------------
----------------------------------------
F-17
<PAGE>
NOTE 7. TIME CERTIFICATES OF DEPOSIT
Aggregate maturities of time certificates are as follows:
<TABLE>
<CAPTION>
June 30, 1997 (unaudited)
-----------------------------------------------------
Over $100,000 Under $100,000 Total
-----------------------------------------------------
<S> <C> <C> <C>
Three months or less $ 910,309 $ 1,919,786 $ 2,830,095
Three through six months 619,107 3,498,806 4,117,913
Six through twelve months 1,832,449 4,398,886 6,231,335
Over twelve months 2,045,008 7,860,019 9,905,027
-----------------------------------------------------
$ 5,406,873 $ 17,677,497 $ 23,084,370
-----------------------------------------------------
-----------------------------------------------------
<CAPTION>
December 31, 1996
-----------------------------------------------------
Over $100,000 Under $100,000 Total
-----------------------------------------------------
Three months or less $ 1,810,559 $ 3,261,298 $ 5,071,857
Three through six months 2,244,075 6,179,743 8,423,818
Six through twelve months 913,450 3,782,392 4,695,842
Over twelve months 1,529,912 6,020,200 7,550,112
-----------------------------------------------------
$ 6,497,996 $ 19,243,633 $ 25,741,629
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
F-18
<PAGE>
NOTE 8. INCOME TAX MATTERS
Net deferred tax assets consist of the following components at:
June 30 December 31
--------------------------------------------
1997 1996 1995
(unaudited)
--------------------------------------------
Deferred tax asset:
Reserve for credit losses $ 112,000 $ 112,000 $ 83,000
Deferred gain of sale
of SBA loans 57,000 57,000 66,000
Cash basis of accounting 98,000 98,000 94,000
--------------------------------------------
267,000 267,000 243,000
--------------------------------------------
Deferred tax liability:
Cash basis of accounting (157,834) (157,834) (64,834)
Bank Premises and equipment (13,000) (13,000) (7,000)
--------------------------------------------
(170,834) (170,834) (71,834)
--------------------------------------------
96,166 96,166 171,166
--------------------------------------------
--------------------------------------------
No valuation allowance is considered necessary in order to reduce the deferred
tax asset to its net realizable amount at June 30, 1997, December 31, 1996 and
1995.
Taxable temporary differences giving rise to the deferred tax liabilities are
related to bank premises, deferred loan fees and the cash basis of accounting.
Deductible differences giving rise to the deferred tax assets are related to the
reserve for credit losses and deferred gain on the sale of SBA loans.
Realization of deferred tax assets is dependent upon sufficient taxable income
during the period that deductible temporary differences are expected to be
available to reduce taxable income. The Bank's management projects that its
income for the period ended June 30, 1998 will be at least equal to earnings in
the period ended June 30, 1997.
There have been no changes in the deferred tax components through June 30, 1997.
The provision for income taxes charged to operations consists of the following:
<TABLE>
<CAPTION>
June 30 June 30 December 31
-----------------------------------------------------------------
1997 1996 1996 1995 1994
(unaudited) (unaudited)
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current income tax expense $ 492,000 $ 259,000 $ 588,000 $ 205,428 $ -
Deferred income tax
expense (benefit) - 75,000 163,834 (185,000)
-----------------------------------------------------------------
$ 492,000 $ 259,000 $ 663,000 $ 369,262 $(185,000)
-----------------------------------------------------------------
-----------------------------------------------------------------
</TABLE>
F-19
<PAGE>
NOTE 8. INCOME TAX MATTERS (CONTINUED)
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income due to the following:
<TABLE>
<CAPTION>
Six months ended Years ended December 31
June 30
------------------------------------------------------------------------------------
1997 1996 1996 1995 1994
(unaudited) (unaudited)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Computed "expected" federal $ 413,000 $ 221,000 $ 568,000 $ 316,000 $ 213,000
tax expense
Increase in income taxes resulting
from the following:
State income taxes 79,000 38,000 95,000 45,000 31,000
Benefit of net operating loss
carryforwards - - - - (244,000)
Valuation allowance - - - - (185,000)
Other - - - 8,262 -
------------------------------------------------------------------------------------
$ 492,000 $ 259,000 $ 663,000 $ 369,262 $ (185,000)
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</TABLE>
NOTE 9. COMMITMENTS AND CONTINGENCIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments consist of commitments to extend credit. These
instruments involve, to varying degrees, elements of credit risk in excess of
the amount recognized in the balance sheets.
F-20
<PAGE>
NOTE 9. COMMITMENTS (CONTINUED)
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments is represented by the
contractual amount of those instruments. The Bank uses the same credit policies
in making commitments to extend credit as they do for on-balance-sheet
instruments. The Bank's commitments are as follows:
June 30 December 31
------------------------------------------
1997 1996 1995
(unaudited)
------------------------------------------
Commitments to extend credit $ 7,291,000 $ 8,144,000 $ 4,650,000
------------------------------------------
------------------------------------------
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. In
addition, the guaranteed portion of the loan that may result from a commitment
to extend credit under the terms of loans subject to government guarantees may
be sold on the secondary market. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the party. Collateral held varies, but may include
accounts receivable, inventory, property and equipment, residential real estate
and income-producing commercial properties.
CONCENTRATIONS OF CREDIT RISK:
All of the Bank's loans and commitments to extend credit have been granted to
customers in the Bank's market area. The distribution of commitments to extend
credit approximates the distribution of loans outstanding. The Bank, as a
matter of policy, does not extend credit to any single borrower or group of
related borrowers in excess of the Bank's legal lending limit. Although the
Bank has a diversified loan portfolio, as of June 30, 1997 (unaudited) and
December 31, 1996, the Bank has approximately $9,421,000 and $8,295,000 of
commercial loans which have real estate as a source of collateral. Loans are
expected to be repaid from cash flow from operations or proceeds from the sale
of the collateral.
CONCENTRATION BY GEOGRAPHIC LOCATION:
The Bank makes loans to customers primarily in Metropolitan Phoenix, Arizona. A
substantial portion of the Bank's customers abilities to honor their contracts
is dependent on the business economy in Maricopa, County and the surrounding
area.
F-21
<PAGE>
NOTE 9. COMMITMENTS (CONTINUED)
CONCENTRATION BY INSTITUTION:
The bank has a concentration of funds on deposit at Norwest Banks as follows:
June 30 December 31
------------------------------
1997 1997
(unaudited)
------------------------------
Noninterest bearing accounts $ 2,325,081 $ 3,586,665
Federal funds sold 5,300,000 4,000,000
------------------------------
$ 7,625,081 $ 7,586,665
------------------------------
------------------------------
LEASE COMMITMENTS (unaudited):
On January 28, 1997, the Bank amended its lease as a result of its facility
renovation project. The terms of the new noncancellable lease call for monthly
payments beginning March 1997 in the amount of $14,982 and increasing to $17,457
in March 2005. This lease expires February 2006.
At December 31, 1996, approximate future minimum lease payments under this
agreement are as follows:
Years
-----
1997 $ 130,570
1998 182,878
1999 186,591
2000 190,304
2001 194,017
Years thereafter 848,114
-----------
$ 1,732,474
-----------
-----------
Rent expense totaled approximately $100,000 and $83,000 for the six months ended
June 30, 1997 and 1996 (unaudited) $182,000, $155,000 and $128,000 for the years
ended December 31, 1996, 1995 and 1994 and is included in occupancy expense.
F-22
<PAGE>
NOTE 9. COMMITMENTS (CONTINUED)
INTEREST RATE RISK:
The Bank assumes interest rate risk (the risk that general interest rate levels
will change) as a result of its normal operations. Management attempts to match
maturities of assets and liabilities to the extent believed necessary to
minimize interest rate risk. However, borrowers with fixed rate obligations are
more likely to prepay in a falling rate environment and less likely to repay in
a rising rate environment. Conversely, depositors who are receiving fixed rates
are more likely to withdraw funds before maturity in a rising rate environment
and less likely to do so in a falling rate environment. Management monitors
rates and maturities of assets and liabilities and attempts to minimize interest
rate risk by adjusting terms of new loans and deposits and by investing in
securities with terms that mitigate the Bank's overall interest rate risk.
CONTINGENCIES:
In the normal course of business, the Bank is involved in various legal
proceedings. In the opinion of management, any liability resulting from such
proceedings would not have a material adverse effect on the Bancorp's financial
statements.
UNAUDITED INTERIM INFORMATION:
In September 1997, a lawsuit was filed on behalf of a surety for a borrower of
the Bank in the amount of $400,000. The borrower paid off its loan and
subsequently filed for bankruptcy protection under Chapter 11. The surety has
alleged that the borrower had no authority or right to payoff the loan and has
made claim to that payment. Republic's and the Bank's ultimate exposure
(exclusive of attorney's fees and court costs) on the amount paid by the
borrower with the disputed check would be limited to the portion of this loan
(25%) not guaranteed by the SBA.
NOTE 10. TRANSACTIONS WITH RELATED PARTIES
The Bank has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors, principal
officers, their immediate families and affiliated companies in which they are
principal stockholders (commonly referred to as related parties), all of which
have been, in the opinion of management, on the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with others.
Aggregate loan transactions with related parties were as follows:
Six months ended
June 30 Years ended December 31
------------------------------------------
1997 1996 1995
(unaudited)
------------------------------------------
Balance, beginning $ 139,662 $ 96,548 $ 91,639
New loans - 79,865 5,953
Repayments (23,999) (36,751) (1,044)
------------------------------------------
Balance, ending $ 115,663 $ 139,662 $ 96,548
------------------------------------------
------------------------------------------
F-23
<PAGE>
NOTE 11. INTEREST ON DEPOSITS
The components of interest on deposits are as follows:
<TABLE>
<CAPTION>
Six months ended
June 30 Years ended December 31
----------------------------------------------------------------------
1997 1996 1996 1995 1994
(unaudited)
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NOW, savings and money market deposits $ 263,137 $165,865 $ 398,290 $ 341,252 $ 278,513
Time certificates of deposit $100,000
and over
179,886 122,325 278,636 198,436 127,791
Certificates under $100,000 523,412 505,885 1,036,361 863,972 548,165
IRA accounts 47,366 44,704 92,892 83,010 47,051
----------------------------------------------------------------------
$1,013,801 $838,779 $1,806,179 $1,486,670 $1,001,520
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
NOTE 12. PREFERRED STOCK
In June 1989, Bancorp created a series of serial preferred stock designated as
$10 Convertible Preferred Stock, Series A (Series A). The holders of shares of
Series A have the right, at their option, to convert all or any part of such
shares into shares of common stock of Bancorp after June 30, 1991. Each share
of Series A is initially convertible into approximately 4.149 shares of common
stock. The initial conversion price of $2.41 per share of common stock shall be
subject to adjustment based upon certain prescribed conditions. At December 31,
1994 there were 19,297 shares issued and outstanding. As of December 31, 1995
all shares had been converted to common stock.
F-24
<PAGE>
NOTE 13. STOCK OPTIONS AND DIVIDEND
The Bancorp has an incentive stock option agreement for key employees and a
nonstatutory stock option agreement for the officers and directors. Options
are granted at the discretion of the Board of Directors. Options are granted
with an exercise price not less than the fair market value of the common
stock at the date the options are granted. All options expire ten years form
the date of grant and are 100% vested and available for exercise at the date
of grant. The Bancorp has reserved 500,000 shares of common stock for
exercise of options under these plans. At June 30, 1997 (unaudited), and
December 31, 1996 and 1995, there were 274,300, 281,800 and 192,500
options outstanding or committed to be issued under these plans at prices
ranging from $1.00 to $1.75 per share with 192,800 options available for
future grants. The options granted expire during 2001 through 2006. The
following table is presented to summarize stock option activity:
<TABLE>
<CAPTION>
June 30, 1997 1996 1995
(unaudited)
----------------------------------------------------------------------------------
Weighted Weighted Weighted
Shares average Shares average Shares average
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning 251,800 $ 1.24 192,500 1.09 135,200 $ 1.49
Options:
Granted - - 104,500 1.53 67,500 1.15
Exercised (6,900) (1.27) (15,200) (1.25) - -
Canceled (600) (1.26) - (10,200) (6.88)
------- ------- -------
Balance, ending 274,300 $ 1.24 281,800 $ 1.24 192,500 $ 1.09
------- ------- -------
------- ------- -------
</TABLE>
As permitted under generally accepted accounting principles, grants to
employees under the Plan described above are accounted for following APB
Opinion No. 25 and related interpretations. Accordingly, no compensation
cost is recognized for grants in which the fair value per share exceeds the
exercise price per share. No compensation was charged to expense for any
period presented. Had compensation cost for all of the stock-based
compensation plans been determined based on the grant date fair values of
awards (the method described in FASB Statement No. 123), reported net income
for 1996, 1995 and the six months ended June 30, 1997 (unaudited) would have
been decreased by approximately $30,000, $15,000 and $ 0, respectively.
In determining the pro forma amount above, the value of each grant was estimated
at the grant date using the minimum value method prescribed in Statement No.
123, with the following weighted-average assumptions: risk-free interest rate
of 7%, expected lives of 10 years and a 10% dividend rate.
During 1991, the Bancorp granted to the Bank's Chairman 150,000 shares of common
stock at $1.00 per share under a nonstatutory stock option plan. During 1995
and 1996, 6,000 and 62,000, respectively, of these options were exercised. An
additional 20,000 of these options were exercised during the six months ended
June 30, 1997. At June 30, 1997 47,000, options remain available to be
exercised.
F-25
<PAGE>
NOTE 13. STOCK OPTIONS AND DIVIDEND (CONTINUED)
Dividends:
Subsequent to December 31, 1996, the Board of Directors of the Bancorp
authorized a $.05 per share cash dividend for stockholders of record as of
January 15, 1997 to be paid February 3, 1997. The total amount of the dividend
was $164,950.
NOTE 13. REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve qualitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to total
assets (as defined). Management believes, as of June 30, 1997 and December 31,
1996, that the Bank meets all capital adequacy requirements to which it is
subject.
As of the most recent regulatory examination, notification from the OCC
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios
as set forth in the table. There are no conditions or events since that
management believes have changed the institution's category.
F-26
<PAGE>
NOTE 14. REGULATORY CAPITAL REQUIREMENTS (CONTINUED)
The Bank's actual capital amounts and ratios are presented in the following
table:
<TABLE>
<CAPTION>
To Be Well Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
-----------------------------------------------------------
<S> <C> <C> <C>
As of June 30, 1997 (unaudited):
Total Capital (to Risk Weighted Assets) 12.7% 8.0% 10.0%
Tier I Capital (to Risk Weighted Assets) 11.4% 4.0% 6.0%
Tier I Capital (to Total Assets) 9.5% 4.0% 5.0%
As of December 31, 1996:
Total Capital (to Risk Weighted Assets) 11.8% 8.0% 10.0%
Tier I Capital (to Risk Weighted Assets) 10.7% 4.0% 6.0%
Tier I Capital (to Total Assets) 7.7% 4.0% 5.0%
As of December 31, 1995:
Total Capital (to Risk Weighted Assets) 11.6% 8.0% 10.0%
Tier I Capital (to Risk Weighted Assets) 10.8% 4.0% 6.0%
Tier I Capital (to Total Assets) 7.9% 4.0% 5.0%
</TABLE>
NOTE 15. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information of the Company (parent only) is provided below:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
June 30 December 31
----------------------------------------------------
1997 1996 1995
(unaudited)
----------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash on account
$ 106,264 $ 66,231 $ 4,487
Investment in bank
4,680,702 4,132,362 3,437,857
Other assets
20,000 20,000 20,000
----------------------------------------------------
Total assets $ 4,806,966 $ 4,218,593 $ 3,462,344
----------------------------------------------------
----------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ - $ - $ -
Stockholders' equity 4,806,966 4,218,593 3,462,344
----------------------------------------------------
Total liabilities and stockholders' equity $ 4,806,966 $ 4,218,593 $ 3,462,344
----------------------------------------------------
----------------------------------------------------
</TABLE>
F-27
<PAGE>
NOTE 16. PARENT FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
For the six months ended
June 30 For the years ended December 31
-----------------------------------------------------------------------
1997 1996 1996 1995 1994
(unaudited) (unaudited)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Equity in undistributed income $ 713,289 $ 382,589 $ 974,352 $ 541,811 $ 793,913
Interest on lease 529 571 1,064 1,223 859
Interest expense - - - 489 17,050
Other expense 27,089 9,720 15,804 7,555 1,110
-----------------------------------------------------------------------
Net income $ 686,729 $ 373,440 $ 959,612 $ 534,990 $ 776,612
-----------------------------------------------------------------------
-----------------------------------------------------------------------
CONDENSED STATEMENTS OF
CASH FLOWS
For the six months ended
June 30 For the years ended December 31
-----------------------------------------------------------------------
1997 1996 1996 1995 1994
(unaudited) (unaudited)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Reconciliation of net income to net
cash provided by operating
activities:
Net income
$ 686,729 $ 373,440 $ 959,612 $ 534,990 $ 776,612
Undistributed income
(548,341) (266,596) (638,504) (235,662) (661,654)
-----------------------------------------------------------------------
Net cash provided by
operating activities 138,388 106,844 321,108 299,328 144,958
-----------------------------------------------------------------------
Cash flows from financing activities
Dividends paid/capital distributions
distribution
(164,950) (161,993) (325,846) (310,489) (143,074)
Capital contribution to subsidiary
- - (56,000) - -
Issuance of common stock
66,595 76,530 122,482 203,792 73,929
Principal payments on borrowed funds
funds
- - - (193,402) (43,005)
-----------------------------------------------------------------------
Net cash (used in) financing
activities (98,355) (85,463) (259,364) (300,099) (112,150)
-----------------------------------------------------------------------
Net increase (decrease) in cash 40,033 21,381 61,744 (771) 2,808
Cash, beginning 66,231 4,487 4,487 5,258 2,450
-----------------------------------------------------------------------
Cash, ending $ 106,264 $ 25,868 $ 66,231 $ 4,487 $ 5,258
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
F-28
<PAGE>
NOTES 17. UNAUDITED SUBSEQUENT EVENT
On August 28, 1997, the Bancorp entered into an Agreement and Plan of Merger
with Community First Bancshares, Inc. Under the terms of the agreement,
shareholders of Bancorp will be entitled to receive 368,500 shares of Community
First Bancshares, Inc. common stock.
This agreement is subject to the approval of the shareholders of the Bancorp as
well as approval of certain regulatory agencies.
F-29
<PAGE>
APPENDIX A
RESTATED AGREEMENT AND PLAN OF MERGER
dated as of August 28, 1997
between
COMMUNITY FIRST BANKSHARES, INC.,
and
REPUBLIC NATIONAL BANCORP, INC.
<PAGE>
INDEX TO RESTATED AGREEMENT AND PLAN OF MERGER
Page
RESTATED AGREEMENT AND PLAN OF MERGER. . . . . . . . . . . . . . . . . . 1
ARTICLE 1 THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Effective Time of the Merger . . . . . . . . . . . . . . . . . 1
1.2 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Effects of the Merger. . . . . . . . . . . . . . . . . . . . . 2
1.4 Calculation of Republic Value. . . . . . . . . . . . . . . . . 2
ARTICLE 2 EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES . . . . . . . . . 3
2.1 Effect on Capital Stock. . . . . . . . . . . . . . . . . . . . 3
(a) Conversion of Common Stock. . . . . . . . . . . . . . . . 3
(b) Exchange Rate; Options. . . . . . . . . . . . . . . . . . 3
(c) Shareholders' Right of Dissent. . . . . . . . . . . . . . 4
2.2 Exchange of Certificates . . . . . . . . . . . . . . . . . . . 4
(a) Exchange Agent. . . . . . . . . . . . . . . . . . . . . . 4
(b) Exchange Procedures . . . . . . . . . . . . . . . . . . . 4
(c) Distributions with Respect to Unexchanged Shares; Voting. 5
(d) Transfers . . . . . . . . . . . . . . . . . . . . . . . . 5
(e) Fractional Shares . . . . . . . . . . . . . . . . . . . . 5
(f) Termination of Exchange Fund. . . . . . . . . . . . . . . 5
(g) Lost or Destroyed Shares. . . . . . . . . . . . . . . . . 6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . 6
3.1 Representations and Warranties of Republic . . . . . . . . . . 6
(a) Organization. . . . . . . . . . . . . . . . . . . . . . . 6
(b) Capital Structure . . . . . . . . . . . . . . . . . . . . 6
(c) Authority . . . . . . . . . . . . . . . . . . . . . . . . 7
(d) Shareholder Approval. . . . . . . . . . . . . . . . . . . 7
(e) No Violations . . . . . . . . . . . . . . . . . . . . . . 7
(f) Consents. . . . . . . . . . . . . . . . . . . . . . . . . 8
(g) Financial Statements and Reports. . . . . . . . . . . . . 8
(h) Absence of Certain Changes or Events. . . . . . . . . . . 9
(i) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(j) Absence of Claims . . . . . . . . . . . . . . . . . . . .10
(k) Absence of Regulatory Actions . . . . . . . . . . . . . .10
A-2-
<PAGE>
(1) Agreements. . . . . . . . . . . . . . . . . . . . . . . .10
(m) Labor Matters . . . . . . . . . . . . . . . . . . . . . .11
(n) Employee Benefit Plans. . . . . . . . . . . . . . . . . .11
(o) Title to Assets . . . . . . . . . . . . . . . . . . . . .13
(p) Fees. . . . . . . . . . . . . . . . . . . . . . . . . . .13
(q) Compliance with Laws. . . . . . . . . . . . . . . . . . .13
(r) Environmental Matters . . . . . . . . . . . . . . . . . .14
(s) Loans and Investments . . . . . . . . . . . . . . . . . .15
(t) Allowance for Loan Losses . . . . . . . . . . . . . . . .15
(u) Material Interests of Certain Persons . . . . . . . . . .16
(v) Insurance . . . . . . . . . . . . . . . . . . . . . . . .16
(w) Investment Securities . . . . . . . . . . . . . . . . . .17
(x) Registration Obligations. . . . . . . . . . . . . . . . .17
(y) Books . . . . . . . . . . . . . . . . . . . . . . . . . .17
(z) Corporate Documents . . . . . . . . . . . . . . . . . . .17
(aa) Absence of Knowledge. . . . . . . . . . . . . . . . . . .17
(bb) Accounting and Tax Treatment. . . . . . . . . . . . . . .17
(cc) SEC and Regulatory Filings. . . . . . . . . . . . . . . .17
(dd) Derivative Contracts. . . . . . . . . . . . . . . . . . .18
(ee) Deposits. . . . . . . . . . . . . . . . . . . . . . . . .18
3.2 Representations and Warranties of CFB. . . . . . . . . . . . .18
(a) CFB Organization . . . . . . . . . . . . . . . . . . . .18
(b) Reports . . . . . . . . . . . . . . . . . . . . . . . . .18
(c) Enforceability. . . . . . . . . . . . . . . . . . . . . .19
(d) No Default; Creation of Liens . . . . . . . . . . . . . .19
(e) Absence of Certain Changes or Events. . . . . . . . . . .19
(f) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . .19
(g) Absence of Claims . . . . . . . . . . . . . . . . . . . .19
(h) Absence of Regulatory Actions . . . . . . . . . . . . . .20
(i) Compliance with Laws. . . . . . . . . . . . . . . . . . .20
(j) Absence of Knowledge. . . . . . . . . . . . . . . . . . .20
(k) Accounting and Tax Treatment. . . . . . . . . . . . . . .20
(l) Information Supplied. . . . . . . . . . . . . . . . . . .20
(m) No Plan to Transfer Assets. . . . . . . . . . . . . . . .21
ARTICLE 4 COVENANTS OF REPUBLIC AND CFB . . . . . . . . . . . . . . . .21
4.1 Covenants of Republic. . . . . . . . . . . . . . . . . . . . .21
(a) Ordinary Course . . . . . . . . . . . . . . . . . . . . .21
(b) Republic Preferred Stock. . . . . . . . . . . . . . . . .21
(c) Shareholder Meeting . . . . . . . . . . . . . . . . . . .21
(d) Registration Statement. . . . . . . . . . . . . . . . . .22
(e) Confidential Information . . . . . . . . . . . . . . . .22
(f) Benefit Plans . . . . . . . . . . . . . . . . . . . . . .22
A-3-
<PAGE>
(g) No Solicitations. . . . . . . . . . . . . . . . . . . . .23
(h) No Acquisitions . . . . . . . . . . . . . . . . . . . . .24
(i) Insurance . . . . . . . . . . . . . . . . . . . . . . . .24
(j) Pooling Restrictions. . . . . . . . . . . . . . . . . . .24
(k) Financial Statements. . . . . . . . . . . . . . . . . . .24
(l) Additional Covenants of Republic. . . . . . . . . . . . .24
4.2 Covenants of CFB . . . . . . . . . . . . . . . . . . . . . . .27
(a) Ordinary Course . . . . . . . . . . . . . . . . . . . . .27
(b) Application . . . . . . . . . . . . . . . . . . . . . . .27
(c) Cooperation . . . . . . . . . . . . . . . . . . . . . . .28
(d) Registration Statement. . . . . . . . . . . . . . . . . .28
(e) Listing . . . . . . . . . . . . . . . . . . . . . . . . .28
(f) Shares to be Issued . . . . . . . . . . . . . . . . . . .28
(g) Blue Sky. . . . . . . . . . . . . . . . . . . . . . . . .29
(h) Confidential Information . . . . . . . . . . . . . . . .29
(i) Registration Statement. . . . . . . . . . . . . . . . . .29
(j) Indemnification . . . . . . . . . . . . . . . . . . . . .29
(k) Tax Treatment of Merger . . . . . . . . . . . . . . . . .30
4.3 Covenants of Republic and CFB. . . . . . . . . . . . . . . . .30
(a) Governing Documents . . . . . . . . . . . . . . . . . . .30
(b) Other Actions . . . . . . . . . . . . . . . . . . . . . .30
(c) Advice of Changes; Government Filings . . . . . . . . . .30
(d) Title to Property . . . . . . . . . . . . . . . . . . . .30
(e) Environmental Assessment. . . . . . . . . . . . . . . . .31
ARTICLE 5 ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . .31
5.1 Loan Loss Reserve. . . . . . . . . . . . . . . . . . . . . . .31
5.2 Regulatory Matters . . . . . . . . . . . . . . . . . . . . . .31
5.3 Letters of Republic Officers . . . . . . . . . . . . . . . . .32
5.4 Access to Information. . . . . . . . . . . . . . . . . . . . .32
5.5 Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . .32
5.6 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . .33
5.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .33
5.8 Additional Agreements; Reasonable Efforts. . . . . . . . . . .33
ARTICLE 6 CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . .33
6.1 Conditions to Each Party's Obligation to Effect the Merger . .33
(a) Stockholder Approval. . . . . . . . . . . . . . . . . . .33
(b) NASDAQ Listing . . . . . . . . . . . . . . . . . . . . .34
(c) Other Approvals . . . . . . . . . . . . . . . . . . . . .34
(d) Registration Statement. . . . . . . . . . . . . . . . . .34
(e) No Injunctions or Restraints; Illegality. . . . . . . . .34
A-4-
<PAGE>
(f) No Unduly Burdensome Condition. . . . . . . . . . . . . .34
6.2 Conditions to Obligations of CFB . . . . . . . . . . . . . . .34
(a) Representations and Warranties. . . . . . . . . . . . . .34
(b) Performance of Obligations of Republic. . . . . . . . . .35
(c) Minimum Republic Value. . . . . . . . . . . . . . . . . .35
(e) Legal Opinion . . . . . . . . . . . . . . . . . . . . . .35
(f) Employment Agreements . . . . . . . . . . . . . . . . . .35
(g) Change of Control Agreements. . . . . . . . . . . . . . .35
6.3 Conditions to Obligations of Republic. . . . . . . . . . . . .35
(a) Representations and Warranties. . . . . . . . . . . . . .35
(b) Performance of Obligations of CFB . . . . . . . . . . . .36
(c) Consents Under Agreements . . . . . . . . . . . . . . . .36
(d) Tax Opinion . . . . . . . . . . . . . . . . . . . . . . .36
(e) Legal Opinion . . . . . . . . . . . . . . . . . . . . . .36
ARTICLE 7 TERMINATION AND AMENDMENT . . . . . . . . . . . . . . . . . .36
7.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . .36
7.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . .37
7.3 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . .37
7.4 Extension; Waiver. . . . . . . . . . . . . . . . . . . . . . .37
ARTICLE 8 GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . .38
8.1 Non-Survival of Representations and Warranties.. . . . . . . .38
8.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . .38
8.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . .38
8.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . .38
8.5 Entire Agreement: Third Party Beneficiaries; Rights of . . . .39
Ownership
8.6 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . .39
8.7 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . .39
8.8 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . .39
8.9 Enforcement of Agreement . . . . . . . . . . . . . . . . . . .39
A-5-
<PAGE>
RESTATED AGREEMENT AND PLAN OF MERGER
RESTATED AGREEMENT AND PLAN OF MERGER, dated as of August 28, 1997 (the
"Agreement"), by and between Community First Bankshares, Inc., a Delaware
corporation ("CFB"), and Republic National Bancorp, Inc., an Arizona corporation
("Republic").
WHEREAS, the Boards of Directors of CFB and Republic 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 Republic will be merged with and into CFB (the "Merger");
WHEREAS, CFB and Republic 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(a) 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, on the Closing Date (as defined in Section 1.2), articles of merger
(the "Articles of Merger") in substantially the form as attached hereto as
EXHIBIT A1 shall be duly prepared, executed and acknowledged by CFB and Republic
and thereafter delivered for filing to the Corporation Commission of the State
of Arizona, as provided in the Arizona Business Corporation Act (the "Arizona
Act") and a certificate of merger (the "Certificate of Merger") in substantially
the form as attached hereto as EXHIBIT A2 shall be duly prepared, executed and
acknowledged by CFB and Republic and thereafter delivered for filing to the
Secretary of State of the State of Delaware, as provided in the Delaware General
Corporation Law (the "Delaware Law"). The Merger shall become effective at the
effective time and date of the Articles of Merger and 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, in Minneapolis, Minnesota, unless another time, date or
place is agreed to in writing by the parties hereto.
1.3 EFFECTS OF THE MERGER.
(a) At the Effective Time: (i) the separate existence of Republic
shall cease and Republic shall be merged with and into CFB: (ii) the Certificate
of Incorporation of CFB, as in effect immediately prior to the Effective Time
shall be the Certificate of Incorporation of the Surviving Corporation until
duly amended in accordance with applicable law; (iii) the By-laws of CFB, 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)
holders of certificates representing shares of capital stock of CFB shall
continue as shareholders of the Surviving Corporation; and (v) the holders of
certificates representing shares of Republic Common Stock (as defined in Section
2.1(b) below) shall cease to have any rights as shareholders of Republic, except
such rights, if any, as they may have pursuant to Chapter 13 of the Arizona 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(b) below) into which their
shares of Republic 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 Republic Common Stock have
been converted as provided herein.
(b) As used in this Agreement, the term "Constituent Corporations"
shall mean Republic and CFB. The term "Surviving Corporation" shall mean CFB,
after giving effect to the Merger.
1.4 CALCULATION OF REPUBLIC VALUE. As of the last day of the month
immediately preceding the Effective Time (the "Determination Date"), Republic
shall prepare a consolidated balance sheet of Republic in accordance with
generally accepted accounting principles ("GAAP"), but excluding the effects of
any adjustments otherwise required by FASB 115 and 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 March 31, 1997 to the
Determination Date (the "Interim Income Statement"), such consolidated statement
of income being prepared in accordance with GAAP, but excluding the effects of
any adjustments otherwise required by FASB 115 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 be delivered to CFB as soon as they are prepared so that CFB
and its accountants may review and confirm their accuracy. For purposes of
this Agreement, the "Republic Value" shall be equal to the total consolidated
assets of Republic minus the total consolidated liabilities of Republic, all as
reflected on the Determination Date Balance Sheet, prepared in accordance with
this Section 1.4.
A-7-
<PAGE>
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 OF COMMON STOCK. 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 per share, of Republic ("Republic Common Stock"), but
subject to Section 2.2(e) hereof, each issued and outstanding share of Republic
Common Stock, other than shares of Republic 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 Chapter 13 of the Arizona Act, shall be converted into
shares of validly issued, fully paid and nonassessable shares of common stock of
CFB, $.01 par value ("CFB Common Stock"). All such shares of Republic Common
Stock shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist. Each Republic shareholder's certificate or
certificates previously representing shares of Republic Common Stock (each a
"Republic Certificate") shall be aggregated (if a single stockholder holds more
than one Republic 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 Republic Certificates in
accordance with Section 2.2, without any interest thereon. In accordance with
the terms and conditions of the CFB Shareholder Rights Agreement dated January
19, 1995 (the "Rights Plan") there shall be included with each share of CFB
Common Stock exchanged in the Merger one CFB Right. Prior to the Effective Time
all references in this Agreement to the CFB Common Stock to be received pursuant
to the Merger shall be deemed to include the CFB Rights. 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 defined, so that the number of shares of
CFB Common Stock into which a share of Republic Common Stock shall be converted
will equal the number of shares of CFB Common Stock that the holders of shares
of Republic 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; OPTIONS. Subject to the adjustments provided in
Section 2.1(a) above, all of the issued and outstanding shares of Republic
Common Stock and any outstanding options, warrants or other rights to Republic
Common Stock shall be exchanged for Three Hundred Sixty-Eight Thousand Five
Hundred (368,500) shares of CFB Common Stock (the aforementioned exchange rate
is hereinafter referred to the "Exchange Rate"). On or before the Effective
Time, all stock options and other rights with respect to Republic Common Stock
shall be (i) accelerated and exercised by the holder thereof, in accordance with
the terms of the stock
A-8-
<PAGE>
option plan or agreement, or (ii) released and terminated by written
acknowledgment and agreement by the holder thereof, obtained by Republic not
less than ten (10) business days prior to the Closing Date.
(c) SHAREHOLDERS' RIGHT OF DISSENT. Any holder of shares of Republic
Common Stock who does not vote in favor of the Merger at the meeting of
shareholders of Republic 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 Republic Common Stock if the Merger is effectuated, shall
be entitled to receive the value of the Republic Common Stock so held by him or
her in accordance with Chapter 13 of the Arizona Act.
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
Republic 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
to be issued and paid pursuant to Section 2.1(a) in exchange for the outstanding
shares of Republic Common Stock. (Such cash and certificates for shares of CFB
Common Stock together with any dividends or distributions with respect thereto,
are hereinafter referred to as the "Exchange Fund.")
(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 Republic Certificate or Republic Certificates (i) a letter of
transmittal which shall specify that delivery shall be effective, and risk of
loss and title to the Republic Certificate(s) shall pass, only upon delivery of
the Republic Certificate(s) to the Exchange Agent and which shall be in such
form and have such other provisions as CFB and Republic may reasonably specify
not later than five business days before the Closing Date and (ii) instructions
for use in effecting the surrender of the Republic 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. Upon surrender of a shareholder's
Republic Certificate or Certificates for cancellation to the Exchange Agent
together with such letter of transmittal, duly executed, the holder of such
Republic 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 Republic Certificate(s) surrendered,
as provided in Section 2.2(c) below, and the Republic 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 Republic Certificates. In the event of a transfer of
ownership of Republic Stock which is not registered in the transfer records of
Republic, a CFB Certificate representing the proper number of shares of CFB
Common Stock, and/or a check for the cash to be paid, may be issued to such a
transferee if the Republic Certificate representing such Republic Common Stock
is
A-9-
<PAGE>
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
Republic 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 Republic Certificates shall not be entitled to vote after the
Closing Date at any meeting of CFB shareholders until they have exchanged their
Republic Certificates.
(d) TRANSFERS. After the Effective Time, there shall be no transfers
on the stock transfer books of Republic of the shares of Republic Common Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Republic Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged for the shares of CFB Common
Stock and cash, in amounts as determined in accordance with the provisions of
Sections 2.1(a), and this Section 2.2, deliverable in respect thereof pursuant
to this Agreement. Republic Certificates surrendered for exchange by any person
constituting an "affiliate" of Republic 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 Republic Common Stock with more than one Republic
Certificate shall receive cash only for the fractional share remaining after
aggregating all of its, his or her Republic Common Stock to be exchanged.
For purposes of this Agreement, the "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.
(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 Republic for twelve months after
the Closing Date shall be paid to CFB. Any shareholders of Republic who have
not theretofore complied with this Article 2 shall thereafter look only to CFB
for payment of their shares, and cash in an amount as determined in
A-10-
<PAGE>
accordance with the provisions of Section 2.1(a) and this Section 2.2, without
any interest thereon. Notwithstanding the foregoing, none of CFB, the Exchange
Agent nor any other person shall be liable to any former holder of shares of
Republic 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 Republic Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Republic Certificate to be lost, stolen or
destroyed and, if required by the Exchange Agent, the posting by such person of
a bond in such amount as CFB may direct as indemnity against any claim that may
be made against it with respect to such Republic Certificate, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed Republic Certificate
the shares of CFB Common Stock, and/or cash in an amount as determined in
accordance with the provisions of Sections 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 REPUBLIC. In order to induce CFB to
enter into this Agreement, Republic 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 "Republic Disclosure Schedule") and the schedules thereunder which are
numbered to correspond to the representations set forth below:
(a) ORGANIZATION. Republic is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Arizona and is a
bank holding company duly registered under the Bank Holding Company Act of 1956,
as amended (the "BHCA"). Republic National Bank of Arizona, National
Association ("Bank"), is a national banking association duly organized, validly
existing and in good standing under the laws of the United States. Republic and
the Bank each have the corporate power and authority to carry on its business as
it is now conducted and to own, lease and operate its properties, and is duly
qualified to do business and is in good standing in each jurisdiction in which
the nature of the business conducted or the properties or assets owned or leased
by it makes such qualification necessary, except where the absence thereof,
would not, individually or in the aggregate, have a Material Adverse Effect as
herein as defined in 3.1(h), below. The Bank's deposits are insured by the Bank
Insurance Fund ("BIF") of the FDIC to the maximum extent permitted by law.
Other than the Bank, Republic has no direct or indirect subsidiaries.
(b) CAPITAL STRUCTURE.
(i) The authorized capital stock of the Republic consists of
5,000,000 shares of Republic Common Stock, no par value per share (the
"Republic Common Stock") and 306 shares of Republic Preferred Stock, par
value $1.00 per share (the "Republic
A-11-
<PAGE>
Preferred Stock" and, with the Republic Common Stock, the "Republic
Stock"). As of August 22, 1997: (A) 3,356,658 shares of Republic Common
Stock were issued and outstanding, (B) 312,134 shares of Republic Common
Stock were subject to outstanding stock option awards, and (C) 306 shares
of Republic Preferred Stock were issued and outstanding. All outstanding
shares of Republic Stock are validly, issued, fully paid and nonassessable
and not subject to any preemptive rights. Section 3.1(b) of the Republic
Disclosure Schedule sets forth a complete and accurate list of all options
to purchase Republic Stock outstanding, including the dates of grant,
exercise prices, dates of vesting, dates of termination and shares subject
to option for each grant.
(ii) Except as provided in Section 4.1(b) as of the date of this
Agreement, except for this Agreement and as set forth in Section 3.1(b) of
the Republic Disclosure Schedule, Republic is not a party to or bound by
any outstanding subscriptions, options, warrants, calls, rights,
convertible securities, commitments or agreements of any character
obligating Republic to issue, deliver or sell, or cause to be issued,
delivered or sold, any additional shares of capital stock of Republic or
obligating Republic to grant, extend or enter into any such option,
warrant, call, right, convertible securities, commitments or agreements.
As of the date hereof, there are no outstanding contractual obligations of
Republic or the Bank to repurchase, redeem or otherwise acquire any shares
of capital stock of Republic or the Bank, respectively.
(c) AUTHORITY. Each of Republic and the Bank has all requisite corporate
power and authority to enter into this Agreement and, subject to approval of
this Agreement by the requisite vote of the shareholders of Republic and
approval of Regulatory Agencies (as defined in Section 3.1(g)(ii)), to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement, and, subject to the approval of this Agreement by the requisite
vote of the shareholders of the Republic and approval of Regulatory Agencies,
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Republic and the
Bank. This Agreement has been duly executed and delivered by Republic and the
Bank, assuming due execution and delivery by CFB, constitutes a valid and
binding obligation of Republic and the Bank, enforceable in accordance with its
terms subject to applicable conservatorship, receivership, bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, whether
applied in a court of law or a court of equity.
(d) SHAREHOLDER APPROVAL. The affirmative vote of two-thirds of the
outstanding shares of Republic Common Stock is required for approval of this
Agreement and to consummate the transactions contemplated hereby. The Board of
Directors of Republic has received the opinion of Hovde Financial, Inc. to the
effect that the Exchange Rate is fair, from a financial point of view, to
Republic shareholders.
(e) NO VIOLATIONS. Subject to approval of this Agreement by Republic's
shareholders and the Regulatory Agencies, the execution, delivery and
performance of this Agreement by Republic and the Bank does not, and the
consummation of the transactions contemplated hereby
A-12-
<PAGE>
by Republic and the Bank will not, constitute (i) a breach or violation of, or a
default under, any law, rule or regulation or any judgment, decree, order,
governmental permit or license, or agreement, indenture or instrument of
Republic or the Bank or to which Republic or the Bank (or any of their
respective properties) is subject, which breach, violation or default would,
individually or in the aggregate, have a Material Adverse Effect on Republic or
the Bank either individually or considered as a whole, (ii) a breach or
violation of, or a default under, the articles of incorporation/association or
bylaws of Republic or the Bank or (iii) a breach or violation of, or a default
under (or an event which with due notice or lapse of time or both would
constitute a default under), or result in the termination of, accelerate the
performance required by, or result in the creation of any lien, pledge, security
interest, charge or other encumbrance upon any of the properties or assets of
Republic or the Bank under, any of the terms, conditions or provisions of any
note, bond, indenture, deed of trust, loan agreement or other agreement,
instrument or obligation to which Republic or the Bank is a party, or to which
any of their respective properties or assets may be bound or affected, except
for, in the case of (iii) any of the foregoing that, individually or in the
aggregate, would not have a Material Adverse Effect on Republic considered as a
whole.
(f) CONSENTS. Except as referred to herein or in connection, or in
compliance, with the provisions of the Securities Act of 1933, as amended (the
"Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the BHCA, the rules and regulations of the Board of Governors
of the Federal Reserve System (the "FRB"), the Office of the Comptroller of the
Currency (the "OCC") and the Federal Deposit Insurance Corporation (the "FDIC"),
as applicable, and the environmental, corporation, securities or "blue sky" laws
or regulations of the various states, no filing or registration with, or
authorization, consent or approval of, any public body or authority is necessary
for the consummation by Republic of the Merger or the other transactions
contemplated by this Agreement.
(g) FINANCIAL STATEMENTS AND REPORTS.
(i) As of their respective dates, neither Republic's Financial
Statements (as defined below), nor any subsequent Republic Financial
Statements (including the Determination Date Financial Statements) prepared
subsequent to March 31, 1997 (collectively the "Financial Statements"),
contained or will contain any untrue statement of a material fact or
omitted or will omit to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading; provided, that no
representation is made herein with respect to any exhibits to the Financial
Statements that are not specifically incorporated by reference therein.
Each of the balance sheets of Republic contained or specifically
incorporated by reference in the Financial Statements (including in each
case any related notes and schedules) fairly presented the financial
position of the entity or entities to which it relates as of its date and
each of the statements of income and of changes in shareholders equity and
of cash flows of Republic, contained or specifically incorporated by
reference in the Financial Statements (including in each case any related
notes and schedules) fairly presented the results of operations,
shareholders' equity and
A-13-
<PAGE>
cash flows, as the case may be, of the entity or entities to which it
relates for the periods set forth therein (subject, in the case of
unaudited interim statements. to normal year-end audit adjustments), in
each case in all material respects in accordance with generally accepted
accounting principles ("GAAP") consistently applied during the period
involved, except as may be noted therein.
(ii) Republic has filed all material reports, registrations and
statements together with any amendments required to be made with respect
thereto, that it was required to file since March 31, 1997 with the
Securities and Exchange Commission ("SEC"), the FDIC, the Federal Reserve
Board ("FRB") or the Office of the Comptroller of the Currency ("OCC")
(collectively, the "Regulatory Agencies") and has paid all fees and
assessments due and payable in connection therewith, except for those
reports, registrations and statements and those fees and assessments that
would not have a Material Adverse Effect on Republic.
(h) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in Section
3.1(h) of the Republic Disclosure Schedule, (i) from March 31, 1997 to the date
hereof, Republic and the Bank have not incurred any liability, other than in the
ordinary course of its business consistent with past practice, and (ii) since
March 31, 1997, there has not been any condition. event, change or occurrence
that, individually or in the aggregate, has had, or is reasonably likely to
have, a Material Adverse Effect on Republic taken as a whole. "Material Adverse
Effect," with respect to a party to this Agreement, means a material adverse
effect upon (A) the business, properties, assets, financial condition or results
of operations of such party, and (B) the ability of such party to consummate the
transactions contemplated by this Agreement; it being understood that a Material
Adverse Effect shall not include: (i) a change with respect to, or effect on, a
party resulting from a change in law, rule, regulation, generally accepted
accounting principles or regulatory accounting principles; (ii) subject to the
minimum Republic Value condition of Section 6.2(c) hereof, a change with
respect to, or effect on, a party resulting from expenses (such as legal,
accounting and investment bankers' fees) incurred in connection with this
Agreement or the transactions contemplated hereby; or (iii) a material change
with respect to, or effect on, a party resulting from any other matter affecting
depository institutions generally.
(i) TAXES. All federal, state, and local tax returns required to be filed
by or on behalf of Republic and the Bank have been timely filed or requests for
extensions have been timely filed (and any such extension shall have been
granted and not have expired). All taxes, shown on such returns, all taxes
required to be shown on returns for which extensions have been granted, and any
penalties, interest or other governmental charges related thereto have been paid
in full or adequate provision has been made for any such taxes on Republic's
balance sheet as of March 31, 1997 (in all material respects in accordance with
GAAP). Neither Republic nor the Bank has ever been audited by the Internal
Revenue Service or the applicable taxing authority of the State of Arizona. As
of the date of this Agreement, there is no audit examination, deficiency, claim,
or refund litigation with respect to any taxes of Republic or the Bank that
could reasonably be expected to result in a Material Adverse Effect on Republic
A-14-
<PAGE>
or the Bank, and no claim or assessment that could reasonably be expected to
result in a Material Adverse Effect on Republic or the Bank has been made by any
authority in a jurisdiction where Republic or the Bank does not file tax returns
and Republic or the Bank is subject to taxation. All taxes, interest,
additions, and penalties due with respect to completed and settled examinations
or concluded litigation relating to Republic or the Bank have been paid in full
or adequate provision has been made for any such taxes on Republic's balance
sheet as of March 31, 1997 (in all material respects in accordance with GAAP).
Except as set forth in Section 3.1(i) of the Republic Disclosure Schedule,
neither Republic nor the Bank has executed an extension or waiver of any statute
of limitations on the assessment or collection of any material tax due that is
currently in effect. Except as set forth in Section 3.1(i) of the Republic
Disclosure Schedule, Republic and the Bank have withheld and paid all taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, shareholder or other third
party, and Republic and the Bank have timely complied with all applicable
information reporting requirements under Part III, Subchapter A of Chapter 61 of
the Code and similar applicable state and local information reporting
requirements, except in each case for such failure to withhold, pay or comply
that would not, individually or in the aggregate result in a Material Adverse
Effect on Republic taken as whole. Neither Republic nor the Bank is responsible
for the taxes of any person other than Republic or the Bank under Treasury
Regulation 1.1502-6 or any similar provision of federal, state or foreign law.
(j) ABSENCE OF CLAIMS. Except as set forth in Section 3.1(j) of the
Republic Disclosure Schedule, neither Republic, the Bank or any of its
respective directors and officers, in their respective capacities as directors
and officers, is a party to any pending litigation, legal, administrative,
arbitration or other proceeding, before any court or governmental agency
("Claim"), and to the knowledge of the executive officers of Republic and the
Bank, there is no threatened Claim against Republic or the Bank, in either case
which is reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect on Republic when taken as a whole.
(k) ABSENCE OF REGULATORY ACTIONS. Except as set forth in Section 3.1(k)
of the Republic Disclosure Schedule, neither Republic nor the Bank is a party to
any cease and desist order, written agreement or memorandum of understanding
with, or a party to any commitment letter or similar written undertaking to, or
is subject to any order or directive by, or is a recipient of any extraordinary
supervisory letter from, federal or state governmental authorities charged with
the supervision or regulation of depository institutions or depository
institution holding companies or engaged in the insurance of bank deposits
("Regulatory Authority") nor has either been advised by any Regulatory Authority
that it is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, directive, written
agreement, memorandum of understanding, extraordinary supervisory letter,
commitment letter or similar written undertaking.
(l) AGREEMENTS. Except for this Agreement and as contemplated thereby and
except as disclosed in Section 3.1(l) of the Republic Disclosure Schedule,
neither Republic nor the Bank is a party to a written or, to Republic's or to
the Bank's knowledge, oral (A) agreement not terminable on thirty (30) days' or
less notice, and providing for payments in excess of $25,000,
A-15-
<PAGE>
(B) agreement with any executive officer or other key employee of Republic or
the Bank the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving Republic of
the nature contemplated by this Agreement, (C) agreement with respect to any
executive officer or key employee of Republic or the Bank providing for other
than at-will employment, (D) agreement or plan, including any stock option plan,
stock appreciation rights plan, restricted stock plan, stock purchase plan, or
any other non-qualified compensation plan, any of the benefits of which will be
increased. or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement, or (E) agreement containing
covenants that limit the ability of Republic or the Bank to compete in any line
of business or with any person, or that involve any restriction on the
geographic area in which or method by which, Republic or the Bank (including any
successor thereof) may carry on its business (other than as may be required by
law or any regulatory agency). The Bank and Republic 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 aforedescribed agreements to which the Bank or Republic is a
party or by which the Bank or Republic is bound. Each of the aforedescribed
agreements 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.
(m) LABOR MATTERS. Neither Republic nor the Bank is a party to, or is
bound by, any collective bargaining agreement, contract, or other agreement or
understanding with a labor union or labor organization with respect to its
employees. Neither Republic nor the Bank is the subject of any proceeding
asserting that it has committed an unfair labor practice or seeking to compel it
to bargain with any labor organization as to wages and conditions of employment,
nor is the management of Republic or the Bank aware of any strike, other labor
dispute or organizational effort involving Republic or the Bank that is pending
or threatened that individually or in the aggregate would result in a Material
Adverse Effect on Republic or the Bank.
(n) EMPLOYEE BENEFIT PLANS.
(i) Section 3.1(n) of the Republic Disclosure Schedule contains a
complete list of all employee, retiree or director pension, retirement,
stock option, stock purchase, restricted stock, stock ownership, savings,
stock appreciation right, profit sharing, deferred compensation,
supplemental income, supplemental retirement, consulting, bonus, group
insurance, key executive officer insurance, severance and any other benefit
plans, employment contracts (providing termination, change in control, or
severance payments), agreements, arrangements, or policies including, but
not limited to, employee benefit plans, as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
incentive and welfare policies, contracts, plans and
A-16-
<PAGE>
arrangements and all trust agreements related thereto, maintained at the
date hereof or at any time within three (3) years prior to the date hereof
with respect to any present or former directors, officers, or other
employees of Republic and the Bank (hereinafter referred to collectively as
the "Employee Plans"), except for any agreements contemplated by this
Agreement. All of the Employee Plans comply in all material respects with
all applicable requirements of ERISA, the Code and other applicable laws
and have been operated in material compliance with their terms. Neither
Republic nor the Bank has engaged in a "prohibited transaction" (as defined
in Section 406 of ERISA or Section 4975 of the Code) with respect to any
Employee Plan which is likely to result in any material penalties or taxes
to Republic or the Bank under Section 502(i) of ERISA or Section 4975 of
the Code. Neither Republic nor any entity which is considered one employer
with Republic under Section 4001 of ERISA or Section 414 of the Code (an
"ERISA Affiliate") has ever maintained, or contributed to any plan subject
to either Title IV of ERISA or Section 412 of the Code. Each Employee Plan
of Republic and the Bank which is an employee "pension benefit plan" (as
defined in Section 3(2) of ERISA) and which is intended to be qualified
under Section 401(a) of the Code (a "Qualified Plan") has received a
favorable determination letter from the Internal Revenue Service (the
"IRS") that the pension benefit plan complies with all applicable
legislative and regulatory requirements for tax qualification that were in
effect at the time that the determination letter was issued and Republic is
not aware of any circumstances likely to result in revocation of any such
favorable determination letter. No Employee Plan is an "employee stock
ownership plan" (as defined in Section 4975(e)(7) of the Code).
(ii) There is no pending or, to Republic's or the Bank's knowledge,
threatened litigation, administrative action or proceeding relating to any
Employee Plan. There has been no announcement or commitment by Republic to
create an additional Employee Plan or to amend an Employee Plan except for
amendments required by applicable law which do not materially increase the
cost of such Employee Plan and neither Republic nor the Bank have any
obligations for post-retirement or post-employment benefits under any
Employee Plan (exclusive of any coverage mandated by the Consolidated
Omnibus Reconciliation Act of 1986 ("COBRA"), as amended.
(iii) With respect to each Employee Plan to the extent applicable,
Republic has supplied to Buyer a true and complete copy of (A) the annual
report on the applicable form of the Form 5500 series filed with the IRS
with all the attachments filed for 1994, 1995 and 1996 plan years, (B) such
Employee Plan, including amendments thereto (or a copy of the substantive
provisions of each Employee Plan for which no plan document exists), (C)
each trust agreement and insurance contract relating to such Employee Plan,
including amendments thereto, (D) the most recent summary plan description
for such Employee Plan, including amendments thereto, if the Employee Plan
is subject to Title I of ERISA, (E) any material written communication to
employees relating to Employee Plans and (F) the most recent determination
letter issued by the IRS if such Employee Plan is a Pension Plan and
Qualified Plan.
A-17-
<PAGE>
(o) TITLE TO ASSETS. Except as set forth in Section 3.1(o) of the
Republic Disclosure Schedule, Bank has 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 March 31, 1997 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 March
31, 1997) 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. Liens shall mean
any claim, encumbrance, or charge on property for payment of a debt, obligation
or duty.
(p) FEES. Except as set forth in Section 3.1(p) of the Republic
Disclosure Schedule and other than financial advisory services performed for
Republic by Hovde Financial, Inc., the terms of which are set forth in
Section 3.1(p) of the Republic Disclosure Schedule, neither Republic nor the
Bank, nor to Republic's or the Bank's knowledge any of its respective officers,
directors, employees or agents, has employed any broker or finder or incurred
any liability for any financial advisory fees, brokerage fees, commissions, or
finder's fees, and no broker or finder has acted directly or indirectly for
Republic or the Bank, in connection with this Agreement or the transactions
contemplated hereby. CFB shall not be liable for any financial services fees
incurred by Republic or the Bank, all of which shall be paid or fully accrued as
of the Determination Date Financial Statements. Neither Republic nor the Bank
shall be liable for any financial services advisory fees incurred by CFB.
(q) COMPLIANCE WITH LAWS. Republic and the Bank hold all licenses,
certificates, permits, franchises and rights from all appropriate federal, state
or other public authorities necessary for the conduct of its and their business
as it is presently conducted except where the absence thereof would not,
individually or in the aggregate, have a Material Adverse Effect on (a) Republic
and the Bank in their individual corporate capacities, (b) Republic, taken as a
whole, or (c) delay the Merger. Each of Republic and the Bank has conducted its
business so as to comply in all respects with all applicable federal, state and
local statutes, ordinances, regulations or rules, except for possible violations
which would not, individually or in the aggregate, have a Material Adverse
Effect on Republic taken as a whole; and neither Republic nor the Bank is
presently charged with, or, to Republic's or the Bank's knowledge, under
governmental investigation with respect to, any actual or alleged material
violations of any statute, ordinance, regulation or rule, and neither Republic
nor the Bank is the subject of any pending or, to Republic's or the Bank's
knowledge, threatened material proceeding by any regulatory authority having
jurisdiction over its business, properties or operations.
A-18-
<PAGE>
(r) ENVIRONMENTAL MATTERS.
(i) For purposes of this Agreement, the following terms shall have
the following respective meanings:
(a) "Environmental Law(s)" means any law, regulation, rule,
ordinance or similar requirement which governs or protects the
environment enacted by the United States, any state, or any county,
city or agency or subdivision of the United States or any state.
(b) "Hazardous Material(s)" means any material or substance: (1)
which is a "hazardous substance," "pollutant," or "contaminant,"
pursuant to the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA") (42 U.S.C. 9601 et seq.) as amended and
regulations promulgated thereunder; (2) containing gasoline, oil,
diesel fuel or other petroleum products; (3) which is "hazardous
waste" pursuant to the Federal Resource Conservation and Recovery Act
("RCRA") (42 U.S.C. Section 6901 et seq.) as amended and regulations
promulgated thereunder; (4) containing polychlorinated biphenyls
(PCBs); (5) containing asbestos; (6) which is radioactive; (7) the
presence of which requires investigation or remediation under any
Environmental Law (defined above); or (8) which is defined or
identified as a "hazardous waste," "hazardous substance," "pollutant,"
"contaminant," or "biologically Hazardous Material" under any
Environmental Law.
(c) "Properties" means (1) the real estate owned or leased by
Republic or the Bank and used as a banking related facility; (2) other
real estate owned ("OREO") by Republic or the Bank as defined by any
other federal or state financial institution regulatory agency with
regulatory authority for Republic or the Bank; (3) real estate that is
in the process of pending foreclosure or forfeiture proceedings
conducted by Republic or the Bank; (4) real estate that is held in
trust for others by Republic or the Bank; and (5) real estate owned or
leased by a partnership or joint venture in which Republic or the Bank
has an ownership interest.
(ii) Except as disclosed in Schedule 3.1(r) of the Republic Disclosure
Schedule, there are no present conditions on the Properties, involving or
resulting from a past or present storage, spill, discharge, leak, emission,
injection, escape, dumping, release or migration of any Hazardous Materials
or from any generation, transportation, treatment, storage, disposal, use
or handling of any Hazardous Materials, that may reasonably be expected to
result in a Material Adverse Effect on Republic, taken as a whole.
(iii) Republic and the Bank are in substantial compliance with all
applicable Environmental Laws. Neither Republic nor the Bank has received
notice of, nor are there outstanding or pending, any public or private
claims, lawsuits, citations, penalties, unsatisfied abatement obligations
or notices or orders of non-compliance relating to the
A-19-
<PAGE>
environmental condition of the Properties or Republic or Bank's compliance
with Environmental Laws, which have or may have a Material Adverse Effect
on Republic, taken as a whole.
(iv) No Properties are currently undergoing or are scheduled to
undergo remediation or clean-up of Hazardous Materials or other
environmental conditions, the actual or estimated cost of which may have a
Material Adverse Effect on Republic, taken as a whole.
(v) Republic and the Bank have all governmental permits, licenses,
certificates of inspection and other authorizations governing or protecting
the environment necessary to conduct its present business, and are and at
all times have been in material compliance therewith.
(s) LOANS AND INVESTMENTS.
(i) (A) Except as set forth in Section 3.1(s) of the Republic
Disclosure Schedule, and (B) except for matters outside the reasonable
knowledge of senior officers of Republic and the Bank, as of the date
hereof, which would not have a Material Adverse Effect on Republic or
the Bank, each outstanding loan of the Bank as of the date hereof is
evidenced by appropriate and sufficient documentation and constitutes
the legal, valid and binding obligation of the obligor named therein,
enforceable in accordance with its terms except to the extent that the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles
affecting the rights of creditors generally. Except as set forth in
Section 3.1(s) of the Republic Disclosure Schedule, no obligor named
therein is seeking to avoid the enforceability of the terms of any
loan under any such laws or equitable principles and no loan is
subject to any defense, offset or counterclaim. 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 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.
(ii) In originating, underwriting, servicing, and discharging
loans, mortgages, land contracts, and other contractual obligations,
either for their own account or for the account of others, the Bank
has complied with all applicable terms and conditions of such
obligations and with all applicable laws, regulations, rules,
contractual requirements, and procedures. 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).
(t) ALLOWANCE FOR LOAN LOSSES. Republic's consolidated allowance for
losses on loans included in the Financial Statements as of March 31, 1997 was
$457,156.05, representing 1.07%
A-20-
<PAGE>
of its total consolidated loans held in portfolio. In Republic's reasonable
judgment, the amount of such allowance for losses on loans was adequate to
absorb reasonably expectable losses in the loan portfolio of the Bank. To the
knowledge of Republic, there are no facts which would cause it to increase the
level of such allowance for losses on loans. Except as disclosed in
Section 3.1(t) of the Republic Disclosure Schedule, the loan portfolio of the
Bank as of March 31, 1997 in excess of such reserves is, to the best knowledge
and belief of the executive officers of the Bank after due inquiry as to
potential losses, and based on past loan loss experience, fully collectible in
accordance with the terms of the documentation relating to the loans in such
portfolio. 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. Republic and the Bank have
disclosed to Buyer in writing prior to the date hereof the amounts of all loans,
leases, advances, credit enhancements, other extensions of credit, commitments
and interest-bearing assets of the Bank that have been classified as of March
31, 1996 as "Other Loans Specially Mentioned," "Special Mention," "Substandard,"
"Doubtful," "Loss," "Classified, "Criticized," "Delinquent Loans," "Credit Risk
Assets," "Concerned Loans" (in the latter two cases, to the extent available) or
words of similar import. Republic has provided to CFB such written information
concerning the loan portfolios of the Bank as CFB has requested, which
information is true, correct and complete in all material respects. From and
after the date hereof, Republic and the Bank promptly will provide Buyer with a
copy of each quarterly classified asset report and a delinquency trend report it
provides to its Board of Directors. The REO included in any non-performing
assets of Republic is carried net of reserves at the lower of cost or fair
value.
(u) MATERIAL INTERESTS OF CERTAIN PERSONS. Except as set forth in
Section 3.1(u) of the Republic Disclosure Schedule, no director or executive
officer of Republic or the Bank, nor any holder of ten percent or more of the
outstanding capital stock of Republic, nor any affiliate of such person as that
term is defined under 12 USC 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 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 Republic Disclosure Schedule, no Bank
Principal holds any position with any depository organization other than the
Bank or Republic. 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
organization holding company.
(v) INSURANCE. Republic and the Bank are presently insured, and since
March 31, 1997 each has been insured, for reasonable amounts with financially
sound and reputable insurance companies, against such risks as companies engaged
in a similar business located in the State of
A-21-
<PAGE>
Arizona would, in accordance with good business practice, customarily be
insured. Republic has delivered to CFB true, accurate and complete copies of
all insurance policies of Republic and the Bank as of the date of this
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. The Bank has not filed any claim under its bankers blanket bond during the
past five years. There are no unresolved claims.
(w) INVESTMENT SECURITIES. Except for investments in the Federal Reserve
Bank of San Francisco, none of the investments reflected in the balance sheet of
Republic as of March 31, 1997, and none of such investments with face value of
in excess of $100,000 made by it since March 31, 1997 is subject to any
restriction (contractual or statutory), other than applicable securities laws,
that would materially impair the ability of the entity holding such investment
freely to dispose of such investment at any time, except to the extent any such
investments are pledged in the ordinary course of business (including in
connection with hedging arrangements or programs or reverse repurchase
arrangements) consistent with prudent banking practice to secure obligations of
Republic and the Bank, as applicable.
(x) REGISTRATION OBLIGATIONS. Republic is not under any obligation,
contingent or otherwise, to register any of its securities under the Securities
Act or any state securities laws.
(y) BOOKS. The books and records of Republic and the Bank are complete
and accurate in all material respects and have been, and are being, maintained
in accordance with applicable legal and accounting requirements.
(z) CORPORATE DOCUMENTS. Republic and the Bank have delivered to Buyer
true and complete copies of their respective certificate of incorporation,
charter and bylaws, as amended to date, which are currently in full force and
effect.
(aa) ABSENCE OF KNOWLEDGE. As of the date hereof, Republic is not aware of
any, reason why it would be unable to obtain all the necessary approvals
required in order to consummate the transactions contemplated by this Agreement.
(bb) ACCOUNTING AND TAX TREATMENT. To the knowledge of Republic, Republic
has not engaged in any act that would preclude or adversely affect the Merger
from qualifying as a tax-free reorganization under Section 368 of the Code or
from using the pooling of interests method of accounting for this transaction.
(cc) SEC AND REGULATORY FILINGS. None of the information regarding
Republic or the Bank which is prepared by or reviewed by Republic or the Bank
for inclusion or included in (i) the proxy or information statement to be mailed
to shareholders of Republic (the "Proxy Statement"), (ii) the registration
statement on Form S-4 to be filed with the SEC by CFB for the purpose of
registering the shares of CFB Common Stock to be exchanged for shares of
Republic Common Stock pursuant to the provisions of this Agreement, if
applicable (the "Registration Statement") or (iii) any other documents to be
filed with the SEC or any Regulatory Agencies in
A-22-
<PAGE>
connection with the transactions contemplated hereby will, at the respective
times such documents are filed with the SEC or any Regulatory Agencies and, in
the case of the Registration Statement, if applicable, when it becomes effective
and, with respect to the Proxy Statement, when mailed, be false or misleading
with respect to any material fact, or omit to state any material fact necessary
in order to make the statements therein not misleading or, in the case of the
Proxy Statement or any amendment thereof or supplement thereto, at the time of
the meeting of Republic stockholders referred to in Section 4.1(b), be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for such meeting.
(dd) DERIVATIVE CONTRACTS. Neither Republic nor the Bank is a party to or
has agreed to enter into an exchange-traded or over-the-counter swap, forward,
future, option, cap, floor or collar financial contract or agreement, or any
other contract or agreement not included in Financial Statements of Republic
which is a financial derivative contract (including various combinations
thereof) ("Derivative Contracts"), except for those Derivatives Contracts set
forth in Section 3.1(dd) of the Republic Disclosure Schedule.
(ee) DEPOSITS. None of the deposits of the Bank is subject to any
encumbrances, legal restraint or other legal process. and no portion of any such
deposits of the Bank represents a deposit of any affiliate of the Bank, except
as set forth in Section 3.1(ee) of the Republic Disclosure Schedule.
3.2 REPRESENTATIONS AND WARRANTIES OF CFB. CFB represents and warrants to
Republic, 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 C (the "CFB Disclosure Schedule") and the schedules thereunder which are
numbered to correspond to the representations set forth below:
(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 30,000,000 shares of common stock, par
value of $.01 per share, of which 18,658,951 shares were issued and outstanding
as of March 31, 1997 and 2,000,000 shares of preferred stock, none of which were
issued and outstanding as of March 31, 1997. 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 the BHCA.
(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 SEC, including, but not limited to,
Forms 10-K, Forms 10-Q and proxy statements, (ii) the FRB, (iii) the FDIC,
(iv) the OCC 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 FRB, the FDIC, the OCC and any
applicable state securities or banking authorities, as the case may be,
A-23-
<PAGE>
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 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.
(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 may be subject, or
any contract, agreement or instrument to which CFB is a party or by which CFB 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.
(e) ABSENCE OF CERTAIN CHANGES OR EVENTS. From March 31, 1997 to the
date hereof, CFB has not incurred any liability, other than in the ordinary
course of its business consistent with past practice, and since March 31, 1997,
there has not been any condition, event, change or occurrence that, individually
or in the aggregate, has had, or is reasonably likely to have, a Material
Adverse Effect on CFB taken as a whole.
(f) TAXES. All federal, state, and local tax returns required to be
filed by or on behalf of CFB have been timely filed or requests for extensions
have been timely filed (and any such extension shall have been granted and not
have expired). All taxes, shown on such returns, all taxes required to be shown
on returns for which extensions have been granted, and any penalties, interest
or other governmental charges related thereto have been paid in full or adequate
provision has been made for any such taxes on CFB's balance sheet as of March
31, 1997 (in all material respects in accordance with GAAP).
(g) ABSENCE OF CLAIMS. Neither CFB nor any of its directors and
officers, in their capacities as directors and officers, is a party to any
pending litigation, legal, administrative, arbitration or other proceeding,
before any court or governmental agency ("Claim"), and to the knowledge of the
executive officers of CFB, there is no threatened Claim against CFB which is
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on CFB when taken as a whole.
A-24-
<PAGE>
(h) ABSENCE OF REGULATORY ACTIONS. CFB is not a party to any cease
and desist order, written agreement or memorandum of understanding with, or a
party to any commitment letter or similar written undertaking to, or is subject
to any order or directive by, or is a recipient of any extraordinary supervisory
letter from any Regulatory Authority, nor has it been advised by any Regulatory
Authority that it is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, directive, written
agreement, memorandum of understanding, extraordinary supervisory letter,
commitment letter or similar written undertaking.
(i) COMPLIANCE WITH LAWS. CFB and its subsidiaries hold all
licenses, certificates, permits, franchises and rights from all appropriate
federal, state or other public authorities necessary for the conduct of its and
their business as it is presently conducted except where the absence thereof
would not, individually or in the aggregate, have a Material Adverse Effect on
CFB, taken as a whole, or delay the Merger. CFB has conducted its business so
as to comply in all respects with all applicable federal, state and local
statutes, ordinances, regulations or rules, except for possible violations which
would not, individually or in the aggregate, have a Material Adverse Effect on
CFB taken as a whole; and CFB is not presently charged with, or, to CFB's
knowledge, under governmental investigation with respect to, any actual or
alleged material violations of any statute, ordinance, regulation or rule, and
CFB is not the subject of any pending or, to CFB's knowledge, threatened
material proceeding by any Regulatory Authority having jurisdiction over its
business, properties or operations.
(j) ABSENCE OF KNOWLEDGE. As of the date hereof, CFB is not aware of
any reason why it would be unable to obtain all the necessary approvals required
in order to consummate the transactions contemplated by this Agreement.
(k) ACCOUNTING AND TAX TREATMENT. To the knowledge of CFB, CFB has
not engaged in any act that would preclude or adversely affect the Merger from
qualifying as a tax-free reorganization under Section 368 of the Code or from
using the pooling of interests method of accounting for this transaction.
(l) INFORMATION SUPPLIED. None of the information supplied or to be
supplied by CFB 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 Proxy Statement and
any amendment or supplement thereto will, at the date of mailing to Republic
stockholders and at the times of the meeting of stockholders of Republic 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.
A-25-
<PAGE>
(m) NO PLAN TO TRANSFER ASSETS. CFB has no plan or intention to sell
or otherwise dispose of any of the assets of Republic 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.
ARTICLE 4
COVENANTS OF REPUBLIC AND CFB
4.1 COVENANTS OF REPUBLIC. During the period from the date of this
Agreement and continuing until the Effective Time, Republic agrees as follows:
(a) ORDINARY COURSE. Except as otherwise required under this
Agreement or by CFB, Republic 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. Republic 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
Republic and the Bank, (iii) change its or the Bank's lending, investment,
liability management or other material banking policies in any respect that is
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) provided
for in the budget attached hereto as Section 4.1(a) of the Republic Disclosure
Schedule.
(b) REPUBLIC PREFERRED STOCK. On or before the Effective Time,
Republic shall (i) redeem all outstanding shares of Republic Preferred stock, in
cancellation thereof, or (ii) exchange all outstanding shares of Republic
Preferred Stock for Republic Common Stock, which shall be subject to conversion
as set forth in Section 2.1, above. In order to accomplish the foregoing
redemption or exchange, Republic shall be entitled to issue additional shares of
Republic Preferred stock as shall be necessary to secure a majority class
approval to the Merger and all transactions contemplated hereby.
(c) SHAREHOLDER MEETING. Republic 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.
Republic will (i) cause proper notice of such meeting to be given to its
shareholders in compliance with the Arizona 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; and (iii) use its
best efforts to solicit from its shareholders proxies in favor thereof.
A-26-
<PAGE>
(d) REGISTRATION STATEMENT. Republic will promptly furnish or cause
to be furnished to CFB all of the information concerning Republic and the Bank
required for inclusion in, and will cooperate with CFB in the preparation of,
the Registration Statement and Proxy Statement (including audited financial
statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement and
Proxy Statement), or any statement or application made by CFB to any
governmental body in connection with the Merger. Republic agrees promptly to
advise CFB if at any time prior to the Effective Date of the Merger, any
information provided by or on behalf of Republic becomes incorrect or incomplete
in any material respect and to provide the information needed to correct such
inaccuracy or omission. At the time the Registration Statement becomes
effective, the Registration Statement and the 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 Republic shareholders, at the time of Republic shareholders' meeting
referred to in Section 4.1(c) hereof and at the Effective Time of the Merger,
the 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 Republic 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 Proxy Statement made in reliance upon and in
conformity with information furnished by CFB for use in the Registration
Statement or the Proxy Statement.
(e) CONFIDENTIAL INFORMATION. Republic will hold in confidence all
documents and nonpublic information concerning CFB and its subsidiaries
furnished to Republic 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 Republic'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 Republic, in the public domain, or later
acquired by Republic from other legitimate sources) and, upon request, all such
documents, any copies thereof and extracts therefrom shall immediately
thereafter be returned to CFB.
(f) BENEFIT PLANS. Republic 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 Revenue
A-27-
<PAGE>
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 Republic Disclosure Schedule,
and except as otherwise required pursuant to this Section 4.1(e), Republic
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 Republic or any of the Bank
and one or more of its directors or officers; provided, however, that Republic
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 Republic
shall accrue on its Determination Date Financial Statements the amount by which
any of the Plans are underfunded; (ii) except for the incentive compensation for
all Bank employees for calendar year 1997 and bonus program for the President of
the Bank for calendar years 1997 (all as set forth in Section 3.1(k) of the
Republic Disclosure Schedule), which amounts have already been accrued and
expensed as of the date hereof, 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 Republic in excess of
105% of that in effect as of December 31, 1996, 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 Republic or the Bank of compensation or
benefits contingent, or the terms of which are materially altered, upon the
occurrence of the Merger. Notwithstanding the foregoing, CFB acknowledges and
accepts the contemplated transfer of motor vehicle sedan to the President of the
Bank.
(g) NO SOLICITATIONS. Republic 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. Republic 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 Republic or any proposal
or offer to acquire in any manner a substantial equity interest in, or a
substantial portion of the assets of Republic other than the transactions
contemplated or permitted by this Agreement.
A-28-
<PAGE>
(h) NO ACQUISITIONS. Other than (i) acquisitions described in
Section 4.1(h) of Republic Disclosure Schedule, or (ii) acquisitions which may
be mutually agreed to by the parties, Republic 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 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 Republic
assets in each case in the ordinary course of business.
(i) INSURANCE. Republic and the Bank shall maintain the insurance
coverage (or coverage of a like kind and amount) referenced in Section 3.1(v)
through the Effective Time.
(j) POOLING RESTRICTIONS. From and after the date of this Agreement,
neither Republic nor the Bank shall take any action which, with respect to
Republic, would disqualify the Merger as a "pooling of interests" for accounting
purposes.
(k) FINANCIAL STATEMENTS. Republic shall prepare, file and submit to
CFB all quarterly and management prepared financial statements for any periods
ending at least 30 days before the Closing Date.
(l) ADDITIONAL COVENANTS OF REPUBLIC. From the date of this
Agreement to the Closing Date or the earlier termination of this Agreement,
Republic, EXCEPT WITH THE PRIOR WRITTEN CONSENT OF CFB (except as otherwise
specifically provided in clauses (xiv) and (x) 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 may be required by Section 4.1(b) or Section
6.2(c) hereof, issue, sell or commit to issue or sell any shares of
capital stock of Republic or the Bank, securities convertible into or
exchangeable for capital stock of Republic 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 Republic;
(ii) Redeem, purchase or otherwise acquire (except for trust
account shares) directly or indirectly, any shares of capital stock of
Republic or the Bank or any securities convertible or exercisable for
any shares of capital stock of Republic or the Bank;
(iii) Split, combine or reclassify any of capital stock of
Republic 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 Republic or the Bank;
A-29-
<PAGE>
(iv) Borrow, assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of any other
individual, corporation or other entity, any material amount;
(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 (which includes the sale of the guaranteed portions of
government guaranteed loans);
(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 Republic's Articles of Association,
Articles of Incorporation, Bylaws or other governing documents;
(x) Cancel any material debt or claim or waive any right of
material value, except in the ordinary course of business;
(xi) 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;
(xii) Originate any loan which is thereafter participated to
another financial institution providing for payment upon default on
any basis other than pro rata;
(xiii) 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;
(xiv) (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, 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
A-30-
<PAGE>
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; or
(D) make any change with respect to the terms of any existing loan,
except in the ordinary course of business (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);
PROVIDED, HOWEVER, for any loan requiring CFB's approval, CFB will
agree to be commercially reasonable in approving or disapproving such
loan and will provide its decision within five (5) business days of
submittal and, in the event of a disapproval, CFB shall furnish its
reason for such response (if CFB fails to approve or disapprove any
loan within said five business day period, the loan shall be deemed
approved); and, PROVIDED FURTHER, HOWEVER, if the Effective Date has
not occurred within ninety (90) days of the date of this Agreement,
the loan approval amount would double; i.e., five hundred thousand
($500,000) in the event more than ten percent (10%) of loans submitted
to CFB for approval have been denied during said 90-day period;
(xv) 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;
(xvi) 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
4.1(l)(xvi) of Republic Disclosure Schedule;
(xvii) 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;
(xviii) Except as provided in the Employee Plans set forth in
Section 3.1(n) of the Republic Disclosure Schedule, pay or commit to
pay any additional salary or other compensation to any of the Bank's
officers, directors or employees;
(xix) 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;
A-31-
<PAGE>
(xx) Purchase or sell any bonds or other investment securities
without prior written 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 twenty-four (24) months or less;
(xxi) Fail to charge and pay interest rates on loans and
deposits, respectively, not materially consistent with practices in
the Bank's marketplace;
(xxii) Fail to use its reasonable efforts to comply with any law,
rule, regulation or order applicable to the Bank and/or Republic if
such failure would have a Material Adverse Effect upon Republic;
(xxiii) 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;
(xxiv) 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;
(xxv) Declare or pay any dividends or distributions with respect
to its Common Stock (i) in excess of $400,000 in the aggregate or (ii)
after the Determination Date; or
(xxvi) Fail to use its reasonable 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 Republic 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 Republic and
its affiliates, CFB shall use its reasonable 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. CFB shall provide
A-32-
<PAGE>
Republic, through its counsel, copies of all applications as filed and any
non-confidential correspondence exchanged with appropriate federal and state
regulatory agencies.
(c) COOPERATION. CFB will furnish to Republic all the information
concerning CFB required for inclusion in, and will cooperate in the preparation
of, the Proxy Statement to be sent to the shareholders of Republic. CFB agrees
promptly to advise Republic if at any time prior to the Effective Date of the
Merger, any information provided by CFB in the 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 "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
Republic promptly when the Registration Statement has become effective and of
any supplements or amendments thereto, and CFB shall furnish Republic with
copies of all such documents. At the time the Registration Statement becomes
effective, the Registration Statement and the 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 Republic shareholders, at the time of Republic shareholders' meeting
referred to in Section 4.1(b) hereof and at the Effective Time of the Merger,
the 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 Republic 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 Proxy Statement made in reliance upon and in
conformity with information furnished by Republic or the Bank for use in the
Registration Statement or the Proxy Statement. CFB shall bear the costs of all
SEC filing fees with respect to the Registration Statement, the costs of
printing the 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 Republic pursuant to this Agreement will, upon
such issuance and delivery to said shareholders pursuant to the Agreement, be
duly authorized, validly issued, fully paid and
A-33-
<PAGE>
nonassessable. The shares of CFB Common Stock to be delivered to the
shareholders of Republic 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 Republic 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 Republic (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 Republic.
(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 Republic in the preparation
of the Registration Statement, or any statement or application made by Republic
to any governmental body in connection with the transactions contemplated by
this Agreement. CFB agrees to advise Republic 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.
(j) INDEMNIFICATION. From and after the Effective Time through the
sixth anniversary of the Effective Time, CFB shall indemnify and hold harmless
each present and former director, officer and employee of Republic and the Bank
and each officer or employee of Republic and the Bank that is serving or has
served as a director or trustee of another entity expressly at Republic's or the
Bank's request or direction (each, an "Indemnified Party"), against any costs or
expenses (including reasonable attorneys' fees), judgment, fines, losses,
claims, damages or liabilities (collectively, the "Costs") incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, and whether or not the
Indemnified Party is a party thereto, arising out of matters existing or
occurring at or prior to the Effective Time (including the transactions
contemplated by this Agreement), whether asserted or claimed prior to, at or
after the Effective Time, to the fullest extend then permitted under applicable
law and regulation. Subject to any prohibition or restriction under applicable
law or regulation, CFB further agrees to advance any such costs to each
Indemnified Party as they are from time to time incurred (subject to receipt of
an
A-34-
<PAGE>
undertaking to repay such advances if it is ultimately judicially determined
that such Indemnified Party is not entitled to indemnification).
(k) TAX TREATMENT OF MERGER. CFB shall not engage in any act that
would preclude or adversely affect the Merger from qualifying as a tax-free
reorganization under Section 368(a) of the Code.
4.3 COVENANTS OF REPUBLIC AND CFB. During the period from the date of
this Agreement and continuing until the Effective Time, Republic 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 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 Republic copies of all such reports promptly after the same are
filed. CFB, Republic and each subsidiary of CFB or Republic that is a bank
shall file all reports with the appropriate Regulatory Agencies and all other
reports, applications and other documents required to be filed with the
appropriate Regulatory Agencies 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 TO PROPERTY. Republic agrees to deliver to CFB (at
Republic's expense) within thirty (30) days of the date hereof, a title
insurance commitment for all real property owned by Republic or the Bank in the
State of Arizona (including property held as OREO) (the "Title Commitment") CFB
shall have thirty (30) days after receipt by CFB's counsel of said Title
Commitment within which to notify Republic, in writing, of CFB's objection to
any exceptions (other than any exception of the type described in
Section 3.1(o)) to the title shown in said Title Commitment. In the event of
any such objection, then Republic shall have thirty (30) days from the date of
such objection within which to attempt to eliminate such objected to exceptions
to
A-35-
<PAGE>
title from the Title Commitment. 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. Republic 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 thirty (30)
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 Republic 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 Republic corrects or satisfies such
objections, or indemnifies CFB against loss, liability or expense, to the
reasonable satisfaction of CFB.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 LOAN LOSS RESERVE. On or before the Determination Date, Republic
shall cause the Bank to supplement its reserve for losses on loans by a transfer
in the amount of $400,000.
5.2 REGULATORY MATTERS.
(a) CFB shall use its reasonable efforts to have the Registration
Statement declared effective under the Securities Act as promptly as practicable
after such filing, and, following the record date for the stockholder meeting of
Republic, thereafter mail the Proxy Statement to the stockholders of Republic.
(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"). Republic 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 Republic or CFB, as the case may
be, and any of their respective subsidiaries, which appear in
A-36-
<PAGE>
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) Republic and CFB shall promptly furnish each other with copies of
written communications received by Republic 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.
5.3 LETTERS OF REPUBLIC OFFICERS. Republic shall cause to be delivered to
CFB a letter of Republic's chief financial officer in substantially the form
shown on EXHIBIT 5.3A 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 Republic a letter of CFB's chief
financial officer in substantially the form shown on EXHIBIT 5.3B 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 Republic.
5.4 ACCESS TO INFORMATION. Upon reasonable notice and subject to
applicable laws relating to the exchange of information, Republic 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, Republic 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 Republic and the Bank prior to the Closing Date in
order to confirm compliance with the representations, warranties and covenants
set forth in this Agreement. No investigation by either party shall affect the
representations and warranties set forth herein or waive any right or remedy
hereunder.
5.5 AFFILIATES. Each of Republic and CFB shall use its reasonable efforts
to cause each director, executive officer and other person who is an "affiliate"
(for purposes of Rule 145 under the Securities Act) of Republic 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.
A-37-
<PAGE>
5.6 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(n) 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 year 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 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.
5.7 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. All of the expenses (including but not limited to
professional fees) incurred or to be incurred by Republic in connection with the
Merger shall be accrued as expenses on the Determination Date Balance Sheet.
5.8 ADDITIONAL AGREEMENTS; REASONABLE EFFORTS. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use its
reasonable 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 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 two-thirds of the
outstanding shares of Republic Common Stock entitled to vote thereon.
A-38-
<PAGE>
(b) NASDAQ LISTING. The shares of CFB Common Stock issuable to
Republic 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.
(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, Republic, 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 Republic, the consummation of the
Merger.
6.2 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 Republic 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 Republic, and CFB shall
have received a certificate
A-39-
<PAGE>
signed on behalf of Republic by the Chief Executive Officer and Chief Financial
Officer of Republic to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF REPUBLIC. Republic 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 Republic by the Chief Executive
Officer and Chief Financial Officer of Republic to such effect.
(c) MINIMUM REPUBLIC VALUE. The Republic Value as of the
Determination Date shall not be less than Four Million Two Hundred Fifty-Three
Thousand and no/100 Dollars ($4,253,000.00). The confirmation of the minimum
Republic Value shall be made pursuant to the procedures set forth in
Section 1.4. Republic shall use its best efforts to assure such minimum
Republic Value, including, but not limited to, obtaining shareholder capital
contributions or issuing additional shares of Republic Common Stock as necessary
to increase Republic Value.
(d) POOLING LETTER. CFB shall have received a letter from Ernst &
Young, in form and substance reasonably satisfactory to CFB, 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; in support of the Ernst & Young pooling
letter, Ernst & Young and CFB shall have received a letter from Republic's
accountants, in form and substance reasonably satisfying to Ernst & Young,
confirming certain facts on behalf of Republic.
(e) LEGAL OPINION. CFB shall have received the opinion of Streich
Lang P.A., counsel to Republic, dated the Closing Date, in substantially the
form attached as EXHIBIT 6.2(e), and such opinion shall not have been withdrawn
prior to the Effective Time.
(f) EMPLOYMENT AGREEMENTS. CFB and each of (i) Thomas Euen, (ii)
Peter Homenick, (iii) Patrick Havey, (iv) Donna Rau, (v) Mike Wanegar, (vi)
Vanessa Buonagurio, (vii) Beverly Rankin and (viii) Gene Chandler (collectively,
the "Republic Employees") shall have executed and delivered Employee Agreements
in substantially the forms attached as EXHIBIT 6.2(F).
(g) CHANGE OF CONTROL AGREEMENTS. The Republic Employees shall have
canceled and terminated their respective Change of Control Agreements, as of the
Effective Time.
6.3 CONDITIONS TO OBLIGATIONS OF REPUBLIC. The obligation of Republic to
effect the Merger is also subject to the satisfaction or waiver by Republic
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
A-40-
<PAGE>
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 Republic shall have
received a certificate signed on behalf of CFB by the Chairman and Chief
Executive Officer and by the Chief Financial Officer to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF CFB. CFB shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and Republic shall have received a
certificate signed on behalf of CFB by the Chairman and Chief Executive Officer
and by the Chief Financial Officer 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 Republic, individually or in the aggregate, have a
material adverse effect on CFB or upon the consummation of the transactions
contemplated hereby.
(d) TAX OPINION. CFB and Republic shall have received the opinion of
Streich Lang P.A., counsel to Republic, 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
Republic will each be a party to that reorganization within the meaning of
Section 368(b) of the Code, (iii) shareholders of Republic who exchange their
shares of Republic 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) Republic will not
recognize gain or loss, for purposes of federal income tax, as a result of
consummation of the Merger.
(e) LEGAL OPINION. Republic 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 Republic or CFB, only in the following circumstances:
(a) by mutual consent of CFB and Republic 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 Republic if (i) any Requisite Regulatory
Approval shall have been denied; or (ii) any governmental entity of competent
jurisdiction shall have issued a final
A-41-
<PAGE>
nonappealable order enjoining or otherwise prohibiting the consummation of the
transactions contemplated by this Agreement;
(c) by either CFB or Republic if the Merger shall not have been
consummated on or before January 30, 1998; provided, however, that all parties
shall use their respective reasonable efforts to consummate the transaction as
soon as practicable, it being the desire of Republic that the transaction be
completed by December 31, 1997. This right of termination shall be unavailable
to a part if 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;
(d) by either CFB or Republic 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; or
(e) 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 Republic 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. As used herein, with respect to Republic, a
failure of any of the representations and warranties set forth in Section 3.1
shall not constitute a "willful breach" of the Agreement, unless within the
actual knowledge of Thomas J. Euen as of the date hereof.
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 Republic 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.
A-42-
<PAGE>
ARTICLE 8
GENERAL PROVISIONS
8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. No representation or
warranty contained in this Agreement shall survive the Merger or 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, to: Community First Bankshares, Inc.
Attn: Donald R. Mengedoth, President
520 Main Avenue
Fargo, ND 58124
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 Republic, to: Republic National Bancorp, Inc.
Attn: Thomas J. Euen, President
Harry T. Goss, Chairman
2020 North Central Avenue
Phoenix, AZ 85004
with copies to: R. Neil Irwin, Esq.
Streich Lang P.A.
Renaissance One
2 North Central Avenue
Phoenix, AZ 85004-2391
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.
A-43-
<PAGE>
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, 4.2(i) and 4.2(k) are intended for the benefit of Republic
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.
8.6 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Arizona.
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 Republic 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.
A-44-
<PAGE>
IN WITNESS WHEREOF, CFB and Republic have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first above written.
COMMUNITY FIRST BANKSHARES, INC.
Attest: By: /s/ Donald R. Mengedoth
---------------------------------
Name: Donald R. Mengedoth
Title: Chairman and President
/s/ Mark A. Anderson
- ---------------------------------
Name: Mark A. Anderson
Title: Executive Vice President
REPUBLIC NATIONAL BANCORP, INC.
By: /s/ Thomas J. Euen
---------------------------------
Attest: Name: Thomas J. Euen
----------------------------
Title: President
/s/ Gene W. Chandler
- ---------------------------------
Name: Gene W. Chandler
Title: Secretary
A-45-
<PAGE>
TABLE OF EXHIBITS
EXHIBIT A -- Articles of Merger
EXHIBIT B -- Republic Disclosure Schedule
EXHIBIT C -- CFB Disclosure Schedule
EXHIBIT 5.3 -- Letters of Chief Financial Officers
EXHIBIT 5.5 -- Affiliate Agreement
EXHIBIT 6.2(c) -- Streich Lang Opinion
EXHIBIT 6.2(f) -- Employment Agreements
EXHIBIT 6.3 -- Lindquist & Vennum Opinion
<PAGE>
APPENDIX B
CHAPTER 13
DISSENTERS' RIGHTS
ARTICLE 1. DISSENT AND PAYMENT FOR SHARES
10-1301 DEFINITIONS.--In this article, unless the context otherwise
requires:
1. "Beneficial shareholders" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
2. "Corporation" means the issuer of the shares held by a dissenter
before the corporate action or the surviving or acquiring corporation by
merger or share exchange of that issuer.
3. "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 10-1302 and who exercises that right when and
in the manner required by article 2 of this chapter.
4. "Fair value" with respect to a dissenter's shares means the value of
the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion is inequitable.
5. "Interest" means interest from the effective date of the corporate
action until the date of payment at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under the circumstances.
6. "Record shareholder" means the person in whose names shares are
registered in the records of a corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with a
corporation.
7. "Shareholder" means the record shareholder or the beneficial
shareholder.
10-1302 RIGHT TO DISSENT.--A. A shareholder is entitled to dissent from
and obtain payment of the fair value of the shareholder's shares in the event
of any of the following corporate actions:
1. Consummation of a plan of merger to which the corporation is a party
either:
(a) Shareholder approval is required for the merger by Section 10-1103 or
the articles of incorporation and if the shareholder is entitled to vote on
the merger.
(b) The corporation is a subsidiary that is merged with its parent under
Section 10-1104.
2. Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan.
3. Consummation of a sale or exchange of all or substantially all of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to a court
order or a sale for cash pursuant to a plan by which all or substantially all
of the net proceeds of the sale will be distributed to the shareholders
within one year after the date of sale.
4. An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it either:
(a) Alters or abolishes a preferential right of the shares.
(b) Creates, alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares.
B-1
<PAGE>
ARIZONA BUSINESS CORPORATION ACT
(c) Alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities.
(d) Excludes or limits the right of the shares to vote on any matter or
to cumulate votes other than a limitation by dilution through issuance of
shares or other securities with similar voting rights.
(e) Reduces the number of shares owned by the shareholder to a fraction
of a share if the fractional share so created is to be acquired for cash
under Section 10-604.
5. Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, the bylaws or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his shares
under this chapter may not challenge the corporate action creating the
shareholder's entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
C. This section does not apply to the holders of shares of any class or
series if the shares of the class or series are redeemable securities issued
by a registered investment company as defined pursuant to the investment
company act of 1940 (15 United States Code Section 80a-1 through 80a-64).
D. Unless the articles of incorporation of the corporation provide
otherwise, this section does not apply to the holders of shares of a class or
series if the shares of a class or series were registered on a national
securities exchange, were listed on the national market systems of the
national association of securities dealers automated quotation system or were
held of record by at least two thousand shareholders on the date fixed to
determine the shareholders entitled to vote on the proposed corporation
action.
10-1303 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.--A. A record
shareholder may assert dissenters' rights as to fewer than all of the shares
registered in the record shareholder's name only if the record shareholder
dissents with respect to all shares beneficially owned by any one person and
notifies the corporation in writing of the name and address of each person on
whose behalf the record shareholder assets dissenters' rights. The rights of
a partial dissenter under this subsection are determined as if the shares as
to which the record shareholder dissents and the record shareholder's other
share were registered in the names of different shareholders.
B. A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if both:
1. The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights.
2. The beneficial shareholder does so with respect to all shares of which
the beneficial shareholder is the beneficial shareholder or over which the
beneficial shareholder has power to direct the vote.
ARTICLE 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
10-1320 NOTICE OF DISSENTERS' RIGHTS.--A. If proposed corporation action
creating dissenter's rights under Section 10-1302 is submitted to a vote at a
shareholders' meeting, the meeting notice shall state that shareholders are
or may be entitled to assert dissenters' rights under this article and shall
be accompanied by a copy of this article.
B. If corporate action creating dissenters' rights under Section 10-1302
is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' right that the action
was taken and shall send them the dissenters' notice described in Section
10-1322.
10-1321 NOTICE OF INTENT TO DEMAND PAYMENT.--A. If proposed corporate
action creating dissenters' rights under Section 10-1302 is submitted to a
vote at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights shall both:
1. Deliver to the corporation before the vote is taken written notice of
the shareholder's intent to demand payment for the shareholder's shares if
the proposed action is effectuated.
B-2
<PAGE>
ARIZONA BUSINESS CORPORATION ACT
2. Not vote the shares in favor of the proposed action.
B. A shareholder who does not satisfy the requirements of subsection A of
this section is not entitled to payment for the shares under this article.
10-1322 DISSENTERS' NOTICE.--A. If proposed corporate action creating
dissenters' rights under Section 10-1302 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of Section 10-1321.
B. The dissenters' notice shall be sent no later than ten days after the
corporate action is taken and shall:
1. State where the payment demand must be sent and where and when
certificates for certificated shares shall be deposited.
2. Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received.
3. Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and that requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date.
4. Set a date by which the corporation must receive the payment demand,
which date shall be at least thirty but not more than sixty days after the
date the notice provided by subsection A of this section is delivered.
5. Be accompanied by a copy of this article.
10-1323 DUTY TO DEMAND PAYMENT.--A. A shareholder sent a dissenters'
notice described in Section 10-1322 shall demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before the date
required to be set forth in the dissenters' notice pursuant to Section
10-1322, subsection B, paragraph 3 and deposit the shareholder's certificates
in accordance with the terms of the notice.
B. A shareholder who demands payment and deposits the shareholder's
certificates under subsection A of this section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
C. A shareholder who does not demand payment or does not deposit the
shareholder's certificates if required, each by the date set in the
dissenters' notice, is not entitled to payment for the shareholder's shares
under this article.
10-1324 SHARE RESTRICTIONS.--A. The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment
is received until the proposed corporate action is taken or the restrictions
are released under Section 10-1326.
B. The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporation
action.
10-1325 PAYMENT.--A. Except as provided in Section 10-1327, as soon as
the proposed corporate action is taken, or if such action is taken without a
shareholder vote, on receipt of a payment demand, the corporation shall pay
each dissenter who complied with Section 10-1323 the amount the corporation
estimates to be the fair value of the dissenter's shares plus accrued
interest.
B. The payment shall be accompanied by all of the following:
1. The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the date of payment, an income statement
for that year, a statement of changes in shareholders' equity for that year
and the latest available interim financial statements, if any.
2. A statement of the corporation's estimate of the fair value of the
shares.
3. An explanation of how the interest was calculated.
4. A statement of the dissenter's right to demand payment under Section
10-1328.
5. A copy of this article.
B-3
<PAGE>
ARIZONA BUSINESS CORPORATION ACT
10-1326 FAILURE TO TAKE ACTION.--A. If the corporation does not take the
proposed action within sixty days after the date set for demanding payment
and depositing share certificates, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
B. If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under Section 10-1322 and shall repeat the payment demand
procedure.
10-1327 AFTER-ACQUIRED SHARES.--A. A corporation may elect to withhold
payment required by Section 10-1325 from a dissenter unless the dissenter was
the beneficial owner of the shares before the date set forth in the
dissenters' notice as the date of the first announcement to news media or to
shareholders of the terms of the proposed corporate action.
B. To the extent the corporation elects to withhold payment under
subsection A of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares plus accrued interest and shall
pay this amount to each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer a
statement of its estimate of the fair value of the shares, an explanation of
how the interest was calculated and a statement of the dissenters' right to
demand payment under Section 10-1328.
10-1328 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER.--A. A dissenter may notify the corporation in writing of the
dissenter's own estimate of the fair value of the dissenter's shares and
amount of interest due and either demand payment of the dissenter's estimate,
less any payment under Section 10-1325, or reject the corporation's offer
under Section 10-1327 and demand payment of the fair value of the dissenter's
shares and interest due, if either:
1. The dissenter believes that the amount paid under Section 10-1325 or
offered under Section 10-1327 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated.
2. The corporation fails to make payment under Section 10-1325 within
sixty days after the date set for demanding payment.
3. The corporation, having failed to take the proposed action, does not
return the deposited certificates or does not release the transfer
restrictions imposed on uncertificated shares within sixty days after the date
set for demanding payment.
B. A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection A of this section within thirty days after the
corporation made or offered payment for the dissenter's shares.
ARTICLE 3. JUDICIAL APPRAISAL OF SHARES
10-1330 COURT ACTION.--A. If a demand for payment under Section 10-1328
remains unsettled, the corporation shall commence a proceeding within sixty
days after receiving the payment demand and shall petition the court to
determine the fair value of the shares and accrued interest. If the
corporation does not commence the proceeding within the sixty day period, it
shall pay each dissenter whose demand remains unsettled the amount demanded.
B. The corporation shall commence the proceeding in the court in the
county where a corporation's principal office or, if none in this state, its
known place of business is located. If the corporation is a foreign
corporation without a known place of business in this state, it shall
commence the proceeding in the county in this state where the known place of
business of the domestic corporation was located.
C. The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares, and all parties shall be served with a copy of
the petition. Nonresidents may be served by certified mail or by publication
as provided by law or by the Arizona rules of civil procedure.
B-4
<PAGE>
ARIZONA BUSINESS CORPORATION ACT
D. The jurisdiction of the court in which the proceeding is commenced
under subsection B of this section is plenary and exclusive. There is no
right to trial by jury in any proceeding brought under this section. The
court may appoint a master to have the powers and authorities as are
conferred on masters by law, by the Arizona rules of civil procedure or by
the order of appointment. The master's report is subject to exceptions to be
heard before the court, both on the law and the facts. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
E. Each dissenter made a party to the proceeding is entitled to judgment
either:
1. For the amount, if any, by which the court finds the fair value of his
shares plus interest exceeds the amount paid by the corporation.
2. For the fair value plus accrued interest of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under Section 10-1327.
10-1331 COURT COSTS AND ATTORNEY FEES.--A. The court in an appraisal
proceeding commenced under Section 10-1330 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of any master
appointed by the court. The court shall assess the costs against the
corporation, except that the court shall assess costs against all or some of
the dissenters to the extent the court finds that the fair value does not
materially exceed the amount offered by the corporation pursuant to Sections
10-1325 and 10-1327 or that the dissenters acted arbitrarily, vexatiously or
not in good faith in demanding payment under Section 10-1328.
B. The court may also assess the fees and expenses of attorneys and
experts for the respective parties in amounts the court finds equitable
either:
1. Against the corporation and in favor of any or all dissenters if the
court finds that the corporation did not substantially comply with the
requirements of article 2 of this chapter.
2. Against the dissenter and in favor of the corporation if the court
finds that the fair value does not materially exceed the amount offered by
the corporation pursuant to Sections 10-1325 and 10-1327.
3. Against either the corporation or a dissenter in favor of any other
party if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously or not in good faith with respect
to the rights provided by this chapter.
C. If the court finds that the services of an attorney for any dissenter
were of substantial benefit to other dissenters similarly situated and that
the fees for those services should not be assessed against the corporation,
the court may award to these attorneys reasonable fees to be paid out of the
amounts awarded the dissenters who were benefitted.
B-5
<PAGE>
APPENDIX C
[HOVDE LETTERHEAD]
August 28, 1997
Board of Directors
Republic National Bancorp, Inc.
2020 North Central Avenue
Phoenix, AZ 85004
Members of the Board:
We have reviewed the Restated Agreement and Plan of Merger dated as of the
date hereof between Community First Bankshares, Inc. ("CFB") and Republic
National Bancorp, Inc. ("Republic") pursuant to which, among other things,
Republic shall be merged with and into CFB and Republic will become a wholly-
owned subsidiary of CFB. As is set forth [IN] the Merger Agreement, all of the
issued and outstanding shares, including options, warrants or other rights with
respect thereto, shall be exchanged for 368,500 shares of CFB, subject to
adjustment as provided for in the Agreement.
Hovde Financial, Inc. ("Hovde") specializes in providing investment banking
and financial advisory services to commercial bank and thrift institutions. Our
principals are experienced in the independent valuation of securities in
connection with negotiated underwritings, subscription and community offerings,
private placements, merger and acquisition transactions and recapitalizations.
Pursuant to a Consulting Agreement dated February 6, 1997 between Republic and
Hovde, Hovde was engaged to assist Republic in exploring various strategic
options, including a potential affiliation of Republic with a larger financial
institution. Therefore, we are familiar with Republic, having acted as its
financial advisor in connection with the proposed transaction, and having
participated in the negotiations leading to the Agreement.
During the course of our engagement, we reviewed and analyzed material
bearing upon the financial and operating conditions of Republic and CFB and
material prepared in connection with the proposed transaction, including the
following: the Agreement; certain publicly available information concerning
Republic and CFB, including consolidated financial statements for each of the
three years ended December 31, 1996, respectively, as well as subsequent
quarterly statements for the periods ended June 30, 1997 for Republic and
CFB, respectively; the nature and terms of recent sale and merger
transactions involving banks and bank holding companies that we consider
relevant; historical
C-1
<PAGE>
and current market data for the common stock of Republic and CFB; and financial
and other information provided to us by the managements of Republic and CFB.
In addition, we have conducted meetings with members of the senior
management of Republic and CFB for the purpose of reviewing the future prospects
of both companies. In this regard, we considered the net present value of
future cash flows attributable to each share of Republic and compared this to
the per share value of the Merger Consideration. We also took into account our
assessment of general economic, market and financial conditions and our
experience in other similar transactions, as well as our overall knowledge of
the banking industry and our general experience in securities valuations.
In rendering this opinion, we have assumed, without independent
verification, the accuracy and completeness of the financial and other
information and representations contained in the materials provided to us by
Republic and CFB, and in the discussions with Republic's management.
Based on the foregoing and our experience as investment bankers, we are of
the opinion that, as of the date hereof, the Merger consideration to be received
by the shareholders of Republic as described in the agreement is fair from a
financial point of view.
Sincerely,
HOVDE FINANCIAL, INC.
C-2
<PAGE>
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
CFB's Bylaws require indemnification of directors and officers of CFB to
the fullest extent permitted by Delaware law. Section 145 of the Delaware
General Corporation Law generally provides that any person who was or is a
director or officer may be indemnified against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with the defense or settlement of any threatened, pending
or completed legal proceedings in which he or she is involved by reason of the
fact that he or she is or was a director or officer if he or she acted in good
faith and in a manner that he or she reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, if he or she had no reasonable cause to believe that his
or her conduct was unlawful. However, if the legal proceeding is by or in the
right of the corporation, the director or officer may not be indemnified in
respect of any claim, issue or matter as to which he or she shall have been
adjudged to be liable to the corporation unless the court in which such action
was brought deems it proper.
CFB currently has in effect policies of insurance which provide insurance
protection to its directors and officers against some liabilities which may be
incurred by them on account of their services to CFB. CFB has also entered into
indemnification agreements with each of its directors and officers, which
agreements provide for indemnification to the fullest extent permitted by
Delaware law, except that with respect to an action commenced by an indemnitee
against CFB or by the indemnitee as a derivative action by or in the right of
CFB, such indemnitees shall be indemnified at the discretion of the Board of
Directors. Subject to certain limitations, the agreements also provide for
indemnification against any and all expenses (including attorneys fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by the indemnitee in connection with any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (including, without limitation, any derivative action by or in
the right of CFB) to which the indemnitee is, was, or at any time becomes a
party or is threatened to be made a party by reason of the fact that the
indemnitee is or was at any time a director, officer, employee, or agent of CFB
or is or was serving or at any time serves at the request of CFB as a director,
officer, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
2.1 Restated Agreement and Plan of Merger, dated as of August 28, 1997, between
the Registrant and Republic National Bancorp, Inc. (included as Appendix
A to the Proxy Statement-Prospectus contained herein).
3.1 Restated Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993 (the "1993 Form 10-K")).
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1 (File No. 33-41246) as
declared effective by the Commission on August 13, 1991 (the "1991 S-1")).
4.1 Certificate of Designations, Preferences and Rights of 7% Cumulative
Convertible Preferred Stock of the Registrant (incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form S-3 (File
No. 33-77398) as declared effective by the Securities and Exchange
Commission on May 4, 1994 (the "1994 Form S-3")).
II-1
<PAGE>
4.2 Deposit Agreement dated as of May 4, 1994 by and among the Registrant,
Norwest Bank Minnesota, National Association, as Depositary, and the
Holders from time to time of the Depositary Receipts (incorporated by
reference to Exhibit 4.2 to the 1994 Form S-3).
4.3 Certificate of Designations, Preferences and Rights of Series A Junior
Participating Preferred Stock (incorporated by reference to Exhibit A to
Exhibit 1 to the Registrant's Registration Statement on Form 8-A filed with
the Commission on January 9, 1995 (the "Form 8-A")).
4.4 Form of Rights Agreement dated as of January 5, 1995 by and between the
Registrant and Norwest Bank Minnesota, N.A. (incorporated by reference to
Exhibit 1 to the Form 8-A).
5.1 Opinion and Consent of Lindquist & Vennum P.L.L.P., counsel to the
Registrant.
8.1 Form of Opinion and Consent of Streich Lang P.A., special tax counsel, as
to certain tax matters.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of McGladrey & Pullen, LLP.
23.3 Consent of Streich Lang P.A.
23.4 Consent of Lindquist & Vennum P.L.L.P. (see Exhibit 5.1 above).
23.5 Consent of Fortner, Bayens, Levkulich & Co., P.C.
23.6 Consent of Hacker, Nelson & Co., P.C.
23.7 Consent of Arthur Andersen LLP.
23.8 Consent of Hovde Financial, Inc.
24.1 A Power of Attorney is set forth on the signature pages of this
Registration Statement.
99.1 Form of proxy for Special Meeting of Shareholders of Republic National
Bancorp, Inc.
99.2 Report of Arthur Andersen LLP regarding financial statements of
Mountain Parks Financial Corp. (incorporated by reference to Exhibit
99.1 to the Registrant's Registration Statement on Form S-3 (File
No. 333-19921), as filed with Amendment No. 1 to such Registration
Statement filed with the Commission on January 30, 1997).
(b) Financial Schedules
Not applicable.
ITEM 22. UNDERTAKINGS.
The Registrant hereby undertakes:
II-2
<PAGE>
1. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
2. (a) To file, during any period in which offers or sales are being
made, a post-effective amendment to the Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of a prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
3. That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
4. To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this Form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
II-3
<PAGE>
5. To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
6. To to deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3
under the Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X are not set
forth in the prospectus, to deliver, or cause to be delivered to each person to
whom the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such interim
financial information.
7. That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
8. That every prospectus: (i) that is filed pursuant to paragraph 7
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, any such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Fargo,
State of North Dakota, on October 15, 1997.
COMMUNITY FIRST BANKSHARES, INC.
By: /s/ Donald R. Mengedoth
-------------------------------
Donald R. Mengedoth
President, Chief Executive Officer and
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below
hereby constitutes and appoints Donald R. Mengedoth and Mark A. Anderson, and
each of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting upon said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or either of them, or their or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below on the 15th day of October,
1997, by the following persons in the capacities indicated.
Signature Title
- --------- -----
/s/ Donald R. Mengedoth President, Chief Executive Officer and Chairman of
- -------------------------- the Board of Directors and Director
Donald R. Mengedoth (principal executive officer)
/s/ Mark A. Anderson Executive Vice President, Chief Financial Officer,
- -------------------------- Secretary and Treasurer (principal financial and
Mark A. Anderson accounting officer)
/s/ Patricia A. Adam Director
- --------------------------
Patricia A. Adam
/s/ James T. Anderson Director
- --------------------------
James T. Anderson
II-5
<PAGE>
/s/ Patrick E. Benedict Director
- --------------------------
Patrick E. Benedict
/s/ Patrick Delaney Director
- --------------------------
Patrick Delaney
/s/ John H. Flittie Director
- --------------------------
John H. Flittie
/s/ Dennis M. Mathisen Director
- --------------------------
Dennis M. Mathisen
/s/ Dean E. Smith Director
- --------------------------
Dean E. Smith
/s/ Thomas C. Wold Director
- --------------------------
Thomas C. Wold
/s/ Harvey L. Wollman Director
- --------------------------
Harvey L. Wollman
II-6
<PAGE>
EXHIBIT 5.1
[Lindquist & Vennum P.L.L.P. Letterhead]
October 15, 1997
Community First Bankshares, Inc.
520 Main Avenue
Fargo, North Dakota 58124
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-4 filed by
Community First Bankshares, Inc. (the "Company") with the Securities and
Exchange Commission on October 15, 1997 relating to the registration of 368,500
shares of Common Stock, $.01 par value (the "Shares"), to be issued by the
Company in connection with the proposed merger of Republic National Bancorp,
Inc., an Arizona corporation, with and into the Company (the "Merger"), please
be advised that as counsel to the Company, upon examination of such corporate
documents and records as we have deemed necessary or advisable for the purposes
of this opinion, it is our opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
2. All necessary corporate action on the part of the Company has been
taken to authorize the issuance of the Shares to be issued in connection with
the Merger and, when issued pursuant to the Merger and paid for as contemplated
by the Registration Statement, the Shares will be legally issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the headings "The
Merger - Regulatory Approvals; Conditions to the Merger" and "Legal Matters" in
the Proxy Statement-Prospectus comprising a part of the Registration Statement.
Very truly yours,
/s/ LINDQUIST & VENNUM P.L.L.P.
cc: Galen O. Skarphol
Mark P. Gross, Esq.
Steven J. Johnson, Esq.
<PAGE>
EXHIBIT 8.1
[Letterhead]
__________, 1997
The Board of Directors
COMMUNITY FIRST BANKSHARES, INC.
520 Main Avenue
Fargo, North Dakota 58124
The Board of Directors
REPUBLIC NATIONAL BANCORP, INC.
2020 North Central Avenue
Phoenix, Arizona 85004
Ladies and Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the proposed merger of Republic National Bancorp, Inc., an
Arizona corporation ("Republic") with and into Community First Bankshares, Inc.,
a Delaware corporation ("CFB").
Our opinions are based upon the Internal Revenue Code of 1986, as amended
through the date hereof, including the Taxpayer Relief Act of 1997 (the "Code"),
the regulations promulgated by the Treasury Department (the "Regulations") and
the various interpretations of the Code and Regulations by the Courts and the
Internal Revenue Service (the "Service") as of the date of this letter. The
Code, the Regulations and the various interpretations of the Service are subject
to change at any time, in some circumstances with retroactive effect. No
assurances can be given that such changes will not be forthcoming which would
make it impossible for us to render these opinions in the future.
We understand that you intend to rely upon our opinions and that you do not
intend to request a ruling from the Service on any matters that are the subject
of this letter. You should be aware in this regard that our opinions are not
binding upon the Service and do not guarantee a particular tax treatment.
FACTS
CFB is a multi-bank holding company that operates banks and bank
branches (the "CFB Banks") in approximately 63 communities in Colorado, Iowa,
Minnesota, Nebraska, North Dakota, South Dakota and Wisconsin with total assets
in excess of $2 billion.
<PAGE>
CFB provides the CFB Banks with the advantages of affiliation with a
multi-bank holding company, such as data processing services, credit policy
formulation and review, investment management and specialized staff support,
while granting substantial autonomy to managers of the CFB Banks with respect to
day-to-day operations, customer service decisions and marketing. The CFB Banks
are encouraged to participate in community activities, support local charities
and community development, and otherwise to serve their communities.
Republic is a bank holding company that owns all of the shares of the
outstanding shares of Republic National Bank, N.A. with full service commercial
banking facilities in Maricopa County, Arizona (the bank is referred to as the
"Republic Bank"). Republic Bank has total assets in excess of $40 million.
The Republic Bank offers a full range of commercial and consumer
banking services. Its primary lending focus has been on commercial loans, real
estate mortgage loans, residential real estate construction loans and, to a
lesser extent, consumer loans. Its operating strategy is to provide a high
level of personal and professional commercial service and to promote employee
participation in community affairs in order to build long-term relationships
with established businesses and individual customers in its market areas.
The terms of the proposed merger (the "Merger") are contained in the
Agreement and Plan of Merger dated as of August 28, 1997, as the same has been
amended and restated pursuant to the terms of the Restated Agreement and Plan of
Merger dated as of August 28, 1997 (the "Plan of Merger"). Terms not otherwise
defined in this letter shall have the meanings assigned to them in the Plan of
Merger.
The Plan of Merger provides that Republic will be merged with and into
CFB in accordance with the applicable provisions of the Arizona and Delaware
General Corporation Laws.
The Merger also is subject to approval by the Republic shareholders.
The proposed Merger also is subject to the approval and authorization by certain
regulatory agencies, the receipt of this opinion letter and the fulfillment
(unless waived) of certain other conditions set forth in the Plan of Merger.
We understand Republic will have no shares of capital stock issued or
outstanding other than its Common Stock upon the Effective Time. Holders of
Republic Common Stock are entitled to exercise appraisal or dissenters rights
with respect to the Merger.
The shares of CFB Common Stock necessary to consummate the Merger will
be properly authorized by CFB immediately before the Merger. Under the Plan of
Merger and upon the Effective Time, (i) Republic will be merged into CFB, (ii)
all assets and liabilities of Republic will be transferred by operation of law
to CFB, (iii) the separate corporate existence of Republic will cease, and (iv)
the shares of Republic Common Stock then outstanding will, by virtue of the
Merger and without any action on the part of the holders thereof, be converted
into [368,500] shares of CFB Common Stock subject to adjustment, if any, as
provided in the Plan of Merger. CFB will be the
<PAGE>
surviving corporation, and each outstanding share of Common Stock of Republic
will be converted upon the Merger into Common Stock of CFB. Accordingly, when
the Merger becomes effective, the former shareholders of Republic will
immediately become holders of shares of CFB Common Stock.
You have directed us to assume in preparing this opinion that (1) the
Merger will be consummated in accordance with the terms, conditions and other
provisions of the Plan of Merger, and (2) all of the factual information,
descriptions, representations and assumptions set forth or referred to in this
letter, in the Officers' Certificates from Republic and CFB dated respectively
October, _____, 1997 and _______________, 1997 (the "Certificates"), and in the
Registration Statement of CFB and Republic dated October _____, 1997 (the
ARegistration Statement@), and mailed to Republic's shareholders are accurate
and complete and will be accurate and complete at the Effective Time. We have
not independently verified any factual matters relating to the Merger and,
accordingly, our opinion does not take into account any matters not set forth in
this letter which might have been disclosed by independent verification.
We have relied with your permission on the following representations
and/or assumptions:
1. The Merger will be a statutory merger under the applicable
provisions of the Arizona and Delaware General Corporation Laws. CFB will, by
operation of law, acquire all of the assets of Republic and assume, or take
subject to, all of the liabilities of Republic pursuant to the Merger. The
Merger will be carried out strictly in accordance with the Plan of Merger and as
described in the Joint Proxy Statement/Prospectus.
2. The ratio for the exchange of shares of stock of Republic for
Common Stock of CFB in the Merger was negotiated through arm's length
bargaining. The fair market value of the CFB Common Stock and any cash in lieu
of a fractional share received by each Republic shareholder will be
approximately equal to the fair market value of the Republic Common Stock
surrendered pursuant to the Merger.
3. All shares of CFB Common Stock into which shares of Republic
Common Stock will be converted pursuant to the Merger will be newly issued or
treasury shares, and will be issued (or reissued) by CFB directly to the
exchanging Republic shareholders in the Merger. No holder of Republic Common
Stock will receive in exchange for such stock, in connection with the Merger,
any consideration other than CFB Common Stock and cash paid in lieu of a
fractional share of CFB Common Stock. The payment of cash in lieu of fractional
shares of stock of CFB was not separately bargained for consideration and is
being made for the purpose of saving CFB the expense and inconvenience of
issuing fractional shares. The total cash consideration that will be paid in
the Merger to Republic shareholders in lieu of issuing fractional shares of CFB
Common Stock will not exceed one percent of the total consideration that will be
issued in the Merger to the Republic shareholders in exchange for their shares
of Republic Common Stock. The fractional share interests of each Republic
shareholder will be aggregated, and no Republic shareholder will receive cash in
an amount equal to or greater than the value of one full share of CFB Common
Stock.
<PAGE>
4. There is no plan or intention by the shareholders of Republic who
own one percent or more of the Republic Common Stock, and there is no plan or
intention on the part of the remaining shareholders of Republic, to sell,
exchange or otherwise dispose of a number of shares of CFB Common Stock received
in the Merger that would reduce the Republic shareholders' ownership of the CFB
Common Stock received in the Merger to a number of shares having an aggregate
value, as of the Effective Time, of less than 50 percent of the value of all of
the formerly outstanding Republic Common Stock as of the same date. For
purposes of this paragraph, shares of Republic Common Stock exchanged for cash
in lieu of fractional shares of CFB Common Stock will be treated as outstanding
Republic Common Stock as of the Effective Time. Moreover, shares of Republic
Common Stock or CFB Common Stock that are sold, redeemed, or disposed of prior
or subsequent to the Merger and in contemplation or as part of the Merger are
considered for purposes of this paragraph.
5. Neither CFB nor any affiliate of CFB has any plan or intention to
reacquire any of the CFB Common Stock to be issued in the Merger. Following the
Merger, any acquisitions of CFB Common Stock pursuant to any stock repurchase
program of CFB will be directed to CFB shareholders generally and will not be
directed specifically to Republic shareholders who receive CFB Common Stock
pursuant to the Merger.
6. CFB has no plan or intention to sell or otherwise dispose of any
of the assets of Republic acquired in the transaction except for dispositions
made in the ordinary course of business or transfers described in Section
368(a)(2)(C) of the Code.
7. The liabilities of Republic (if any) assumed by CFB pursuant to
the Merger and the liabilities to which the transferred assets of Republic are
subject were incurred by Republic in the ordinary course of its business. The
assumption by CFB of the liabilities of Republic pursuant to the Merger is for a
bona fide business purpose and the principal purpose of such assumption is not
the avoidance of federal income tax on the transfer of assets of Republic to CFB
pursuant to the Merger.
8. Following the Merger, CFB will continue the historic business of
Republic or use a significant portion of Republic's historic business assets in
a business.
9. CFB, Republic and the shareholders of Republic will pay their
respective expenses, if any, incurred in connection with the Merger, except that
all printing, mailing and filing expenses with respect to the Registration
Statement will be paid by CFB.
10. There is no intercorporate indebtedness existing between CFB and
Republic that was issued, acquired or will be settled at a discount.
11. On the effective date of the Merger, the fair market value of the
assets of Republic transferred to CFB will equal or exceed the sum of the
liabilities of Republic, plus the amount of liabilities, if any, to which the
transferred assets of Republic are subject.
12. None of the CFB Common Stock received pursuant to the Merger by
any shareholder of Republic in exchange for his shares of Republic Common Stock
is or will be in exchange for, or in consideration of, any employment,
consulting or similar arrangement between
<PAGE>
such shareholder and CFB or any affiliate thereof for services rendered or to be
rendered by such shareholder. Any compensation paid or to be paid to any
Republic shareholder who will be an employee of or perform advisory services for
CFB or any affiliate thereof after the Merger, and any amount paid to a Republic
shareholder as consideration for agreements not to disclose confidential
information about, or compete with, CFB or any affiliate thereof, will be in
consideration of services or agreements actually performed or to be performed,
will be in commensurate with amounts paid to third parties bargaining at arm's
length for similar services or agreements, and has been or will be bargained for
independent of negotiations specifically regarding the consideration to be paid
for the Republic Common Stock.
13. Neither CFB nor Republic is an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of 1986, as
amended.
14. Republic is not under the jurisdiction of a court in a title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
15. The Merger is being effected for bona fide business reasons as
described in the Joint Proxy Statement/Prospectus.
OPINION
Assuming that the Merger is consummated in accordance with the terms
and conditions set forth in the Plan of Merger and based on the facts set forth
or referred to in the Registration Statement, the Certificates and this letter
including all assumptions and representations in any such documents, and subject
to the qualifications and other matters set forth herein, it is our opinion that
for federal income tax purposes:
1. The Merger will qualify as a reorganization within the meaning of
Section 368(a)(1)(A) of the Code. Republic and CFB will each be a party to the
reorganization as defined in Section 368(b).
2. Republic will not recognize gain or loss, for purposes of federal
income tax, as a result of consummation of the Merger.
3. The shareholders of Republic who exchange their shares of
Republic Common Stock for shares of CFB Common Stock will not recognize gain or
loss as a result of the Merger for purposes of federal income tax, except to the
extent of the cash received in lieu of a fractional share.
4. The tax basis of the CFB Common Stock received by Republic
stockholders who exchange all of their Republic Common Stock solely for CFB
Common Stock pursuant to the Merger will be the same as the tax basis of the
Republic Common Stock surrendered therefor (reduced by any amount allocable to a
fractional share interest in CFB Common Stock for which cash is received).
<PAGE>
5. Any cash received by a holder of Republic Common Stock in lieu of
a fractional share interest in CFB Common Stock will be treated as received in
exchange for such fractional share, gain or loss generally will be recognized
for federal income tax purposes measured by the difference between the amount of
cash received and the portion of the basis of the shares of Republic Common
Stock allocable to such fractional share.
6. The holding period of the CFB Common Stock received pursuant to
the Merger in exchange solely for Republic Common Stock generally will include
the holding period of the Republic Common Stock surrendered therefor if such
Republic Common Stock was a capital asset in the hands of the exchanging
stockholder immediately before the Merger.
Our opinions are limited to the foregoing federal income tax
consequences of the Merger, which are the only matters as to which you have
requested our opinion. We do not address any other federal income tax
consequences of the Merger or other matters of federal law and have not
considered matters (including state or local tax consequences) arising under the
laws of any jurisdiction other than matters of federal law arising under the
laws of the United States.
Our opinions are based on the understanding that the relevant facts
are, and will be as of the Effective Time, as set forth or referred to in this
letter. If this understanding is incorrect or incomplete in any respect, our
opinion could be affected.
Our opinion is also based on the Code, Regulations, case law, and
Service rulings as of the date of this letter. These authorities are all
subject to change and such change may be made with retroactive effect. We can
give no assurance that after any such change, our opinion would not be
different. Moreover, our opinion will not be binding on the IRS or the courts.
We specifically except and express no opinion with respect to the
federal income tax consequences of the redemption and retirement of all then
outstanding shares of Republic Preferred Stock, immediately prior and incident
to the Merger.
We undertake no responsibility to update or supplement our opinion.
Only Republic and CFB may rely on this opinion, and only with respect to the
proposed Merger described above.
We consent to the inclusion of a copy of this letter in the
Registration Statement.
Very truly yours,
STREICH LANG,
A Professional Association
By:_______________________
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Accounting Treatment" and in the Registration Statement (Form S-4) and
related Prospectus of Community First Bankshares, Inc. and related Proxy
Statement-Prospectus of Republic National Bancorp, Inc. for the registration
of 368,500 shares of Community First Bankshares, Inc. common stock and to the
incorporation by reference therein of our report dated January 23, 1997,
except for Note 3, as to which the date is February 28, 1997, with respect to
the consolidated financial statements of Community First Bankshares, Inc.
incorporated by reference in its Annual Report (Form 10-K) for the year ended
December 31, 1996, filed with the Securities and Exchange Commission.
We also consent to the reference to our firm under the caption "Experts"
and to the use of our report dated September 19, 1997, with respect to the
financial statements of Key Bank National Association (Wyoming), incorporated
by reference in the Registration Statement (Form S-4) and related Prospectus
of Community First Bankshares, Inc. for the registration of 368,500 shares of
its Common Stock.
Minneapolis, Minnesota
October 15, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our audit report dated January 15, 1997, with respect to the
consolidated financial statements of Republic National Bancorp, Inc. and
subsidiaries incorporated by reference in the Registration Statement (Form
S-4) (filed on or about October 17, 1997) and related Prospectus of Community
First Bankshares, Inc. (the "Company") with respect to the registration of up
to 368,500 shares of common stock of the Company.
McGLADREY & PULLEN, LLP
Phoenix, Arizona
October 17, 1997
<PAGE>
EXHIBIT 23.3
[Letterhead of Streich Lang]
October 16, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Consent of Streich Lang, P.A.
Ladies and Gentlemen:
This firm is counsel to Republic National Bancorp, Inc., an Arizona
corporation. We acknowledge that we are referred to under the heading "Legal
Matters" of the Prospectus which is a part of the Registration Statement and
we hereby consent to the use of our name in such Registration Statement. We
further consent to the filing of our "Tax Matters Opinion" as a part of this
Registration Statement.
Sincerely,
/s/ Mark P. Goss
Mark P. Goss
For the Firm
MPG:fk
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our audit report dated January 26, 1995, with respect to the
consolidated financial statements of First Community Bankshares, Inc. and
subsidiaries incorporated by reference in the Registration Statement (Form S-4)
and related Proxy Statement-Prospectus of Community First Bankshares, Inc. for
the registration of up to 368,500 shares of its Common Stock.
Fortner, Bayens, Levkulich and Co., P.C.
Denver, Colorado
October 15, 1997
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS OF
MINOWA BANCSHARES, INC. AND SUBSIDIARIES
To the Board of Directors
Minowa Bancshares, Inc. and Subsidiaries
Decorah, Iowa
We consent to the reference to our firm under the caption "Experts" and to
the use of our audit report dated February 1, 1995, with respect to the
consolidated financial statements of Minowa Bancshares, Inc. and Subsidiaries
incorporated by reference in the Registration Statement (Form S-4) and related
Proxy Statement-Prospectus of Community First Bankshares, Inc. for the
registration of up to 368,500 shares of its Common Stock.
Hacker, Nelson & Co., P.C.
Decorah, Iowa
October 15, 1997
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
October 15, 1997
<PAGE>
EXHIBIT 23.8
CONSENT OF HOVDE FINANCIAL, INC.
We hereby consent to the use of our opinion in the Prospectus/Proxy
Statement included in this Registration Statement and to all references to our
firm included in or made a part of this Registration Statement.
HOVDE FINANCIAL, INC.
Phoenix, Arizona
October 14, 1997
<PAGE>
EXHIBIT 99.1
REPUBLIC NATIONAL BANCORP, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR A SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON NOVEMBER , 1997
The undersigned hereby appoints John T. Katsenes and Thomas J. Euen, or
either of them, as proxies, with full power of substitution to vote all the
shares of common stock which the undersigned would be entitled to vote if
personally present at the Special Meeting of Shareholders of Republic National
Bancorp, Inc., to be held on _____________, November __, 1997, at __:00
a.m., local time, at 2020 North Central Avenue, Phoenix, Arizona 85004, or at
any adjournments thereof, upon any and all matters which may properly be brought
before the meeting or adjournments thereof, hereby revoking all former proxies.
The undersigned authorizes and directs said proxies to vote as follows:
1. Proposal to approve the Restated Agreement and Plan of Merger dated as of
August 28, 1997 between Republic National Bancorp, Inc. and Community First
Bankshares, Inc.
/ / FOR / / AGAINST
2. In their discretion upon such other matters as may properly come before the
meeting.
-----------------------------------
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
(CONTINUED FROM PREVIOUS SIDE)
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
"FOR" PROPOSAL NUMBER ONE SUMMARIZED ON THE
REVERSE SIDE OF THIS CARD UNLESS OTHERWISE
SPECIFIED.
Number of Shares:
---------------------------
Dated , 1997
----------------------
----------------------------------
Signature
----------------------------------
Signature if held jointly
Please date and sign exactly as your name(s)
appears at left indicating, where proper, official
position or representative capacity in which you
are signing. When signing as executor,
administrator, trustee or guardian, give full
title as such; when shares have been issued in
names of two or more persons, all should sign.
