<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1996
REGISTRATION NO. 333-12177
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CATHAY BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6712 95-4274680
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
777 NORTH BROADWAY, LOS ANGELES, CALIFORNIA 90012 (213) 625-4700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DUNSON K. CHENG, PRESIDENT AND CHAIRMAN CATHAY BANCORP, INC.
777 NORTH BROADWAY, LOS ANGELES, CALIFORNIA 90012, (213) 625-4700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPY TO:
STEVEN O. WEISE, ESQ.
HELLER EHRMAN WHITE & MCAULIFFE
601 SOUTH FIGUEROA STREET, 40TH FLOOR, LOS ANGELES, CALIFORNIA 90017-5758,
(213) 689-0200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
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 / /.
------------------------
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 WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT 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> 2
CATHAY BANCORP, INC.
CROSS REFERENCE SHEET
(PURSUANT TO ITEM 501(B) OF REGULATION S-K)
<TABLE>
<CAPTION>
LOCATION IN PROXY
ITEM NUMBER AND CAPTION OF FORM S-4 STATEMENT-PROSPECTUS
----------------------------------- --------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus........... Outside Front Cover Page of
Registration Statement; Forepart of
the Registration Statement; Cross
Reference Sheet; Front Cover Page of
Proxy Statement-Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front Cover Page of Proxy
Statement-Prospectus; Available
Information; Incorporation of Certain
Bancorp Information by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information............................ Outside Front Cover Page of
Registration Statement; Summary;
Regulatory and Economic Risk Factors
4. Terms of the Transaction......................... Outside Front Cover Page of Proxy
Statement-Prospectus; Incorporation
of Certain Bancorp Information by
Reference; Summary; The Merger
Proposal; Background and Reasons for
the Merger; The Merger; Comparison of
Certain Rights of Holders of First
Public Stock and Holders of Bancorp
Common Stock
5. Pro Forma Financial Information.................. Pro Forma Combined Financial
Information
6. Material Contracts with the Company Being
Acquired......................................... *
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... The Merger
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants...... Incorporation of Certain Bancorp
Information by Reference
11. Incorporation of Certain Information by
Reference........................................ Incorporation of Certain Bancorp
Information by Reference
12. Information with Respect to S-2 or S-3
Registrants...................................... *
13. Incorporation of Certain Information by
Reference........................................ *
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
LOCATION IN PROXY
ITEM NUMBER AND CAPTION OF FORM S-4 STATEMENT-PROSPECTUS
----------------------------------- --------------------
<S> <C> <C>
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants...................... *
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
LOCATION IN PROXY
ITEM NUMBER AND CAPTION OF FORM S-4 STATEMENT-PROSPECTUS
----------------------------------- --------------------
<S> <C> <C>
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
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-3 or S-2 Companies............................. Summary; Business and Financial
Information Regarding First Public;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Supervision and
Regulation
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited............... Front Cover Page of Proxy Statement-
Prospectus; Summary; Selected
Information Regarding First Public;
Dissenters' Rights; Incorporation of
Certain Bancorp Information by
Reference; The Merger Proposal;
Interests of Certain Persons in the
Merger; Shareholder Proposals;
Solicitation
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in an
Exchange Offer................................... *
</TABLE>
- ---------------
* Not Applicable
<PAGE> 5
LOGO
CORPORATE OFFICE - 977 North Broadway, Suite 308, Los Angeles,
CA 90012-1700 - (213) 346-0888 - (213) 620-0485 Fax
October 14, 1996
To our Stockholders:
Enclosed are a Notice of Meeting, a Proxy Statement-Prospectus and a form
of Proxy card for a Special Meeting of Shareholders (the "Special Meeting") of
First Public Savings Bank, F.S.B. ("First Public") to be held on November 12,
1996 at 3:00 p.m. local time at the Empress Pavilion Restaurant, 988 North Hill
Street, Los Angeles, California 90012, together with an Election Form and
Transmittal Instructions. The sole purpose of this Special Meeting is to
consider and vote upon a proposal to approve the Agreement and Plan of Merger
dated May 30, 1996 (the "Agreement") between First Public, Cathay Bancorp, Inc.
("Bancorp") and Cathay Bank, a California State-chartered bank, pursuant to
which First Public will merge with and into Cathay Bank and Cathay Bank will be
the surviving entity (the "Merger").
The Proxy Statement-Prospectus is furnished to holders of First Public
common stock ("First Public Stock") as of the Record Date, October 10, 1996 (the
"First Public Stockholders"), in connection with the solicitation by the Board
of Directors (the "Board") of proxies to be voted at the Special Meeting. The
Proxy Statement-Prospectus also serves as a prospectus for Bancorp under the
Securities Act of 1933, as amended, for the issuance by Bancorp of shares of the
common stock of Bancorp (the "Bancorp Common Stock") in the Merger.
Pursuant to an Election Form and Transmittal Instructions to be delivered
to First Public Stockholders together with this Proxy Statement-Prospectus, each
First Public Stockholder (other than holders of shares with respect to which
dissenters' appraisal rights are perfected ("Dissenting Shares")) may elect to
exchange their First Public Stock upon the consummation of the Merger for either
the Per Share Stock Consideration or the Per Share Cash Consideration, or may
make "no election", all as defined in the Agreement and described in the Proxy
Statement-Prospectus.
The total consideration in cash and Bancorp Common Stock (the "Total
Consideration Value") to be received by First Public Stockholders will be
$31,600,000 if the Bancorp Common Stock price stays within a range of $14.00 to
$20.00, but could range between $28,147,000 and $34,107,000 if the Bancorp
Common Stock price is outside this price range. However, the aggregate number of
shares of Bancorp Common Stock and the aggregate amount of cash to be received
by the First Public Stockholders individually are subject to the limitations and
the election and allocation procedures set forth in the Agreement and will be
determined based on a formula set forth in the Agreement which takes into
consideration the average of the high and low sale prices of the Bancorp Common
Stock for the twenty (20) trading days on which Bancorp Common Stock was traded
immediately before the date which is five business days before the closing date
(the "Closing Date") of the Merger (the "Calculation Date Bancorp Stock Price").
The formula and the allocation procedures provided in the Agreement implement a
limitation that 51% of the Total Consideration Value to be received by First
Public Stockholders shall be Bancorp Common Stock and 49% shall be cash in order
to assist characterization of the Merger as a reorganization under the Internal
Revenue Code.
LOGO LOGO
Los Angeles - Monterey Park - Alhambra - San Gabriel - Rowland Heights
<PAGE> 6
The federal income tax consequences of the proposed Merger on First Public
Stockholders are described generally in the Proxy Statement-Prospectus, but each
stockholder is advised to consult your tax advisor.
ALTHOUGH EACH FIRST PUBLIC STOCKHOLDER MAY ELECT ONLY TO RECEIVE ALL CASH
OR ALL BANCORP COMMON STOCK FOR ALL SUCH HOLDER'S SHARES OF FIRST PUBLIC STOCK
(OR MAY MAKE NO ELECTION), BECAUSE THE AGGREGATE NUMBER OF SHARES OF BANCORP
COMMON STOCK AND THE AGGREGATE AMOUNT OF CASH TO BE EXCHANGED IN THE MERGER WILL
BE FIXED UNDER THE FORMULA AND BY THE ALLOCATION PROCEDURES IN THE AGREEMENT, NO
ASSURANCE CAN BE GIVEN THAT AN ELECTION BY ANY GIVEN FIRST PUBLIC STOCKHOLDER
WILL BE HONORED. THUS, HOLDERS MAY NOT RECEIVE THEIR REQUESTED FORM OF
CONSIDERATION AND, IN SOME CASES, MAY RECEIVE BOTH CASH AND BANCORP COMMON
STOCK. SEE "THE MERGER -- ELECTION AND ALLOCATION PROCEDURES."
If the Calculation Date Bancorp Stock Price is within the range of $14.00
to $20.00, the First Public Stock issued and outstanding on the Closing Date
will, upon the consummation of the Merger, be converted into and represent the
right to receive an aggregate cash amount (the "Total Cash Consideration") of
$15,484,000 and shares of Bancorp Common Stock (the "Total Stock Consideration")
with a value of $16,116,000 for a Total Consideration Value of $31,600,000. If
the Calculation Date Bancorp Stock Price is less than $14.00, or more than
$20.00, but not greater than $23.00, the Total Cash Consideration will be
$15,484,000 and the Total Stock Consideration and the Total Consideration Value
will be reduced or will be increased as the Calculation Date Bancorp Stock Price
decreases below $14.00 or increases above $20.00 to $23.00. If the Calculation
Date Bancorp Stock Price is more than $23.00, the Total Cash Consideration will
be $16,668,330, the Total Stock Consideration will be $17,348,670 and the Total
Consideration Value will be $34,017,000. If the Merger is approved at the
Special Meeting and the Calculation Date Bancorp Stock Price is less than
$11.00, the Board shall have the option either to terminate the Agreement or to
consummate the Merger. To the extent required by applicable law, the Board would
seek approval of the First Public Stockholders at a new meeting prior to
consummating the Merger; however, the Board may elect to consummate the Merger
without seeking such approval even though the Calculation Date Bancorp Stock
Price is less than $11.00. In making this decision, the Board would consult with
counsel and consider information and factors such as it considered in approving
the Agreement. See "Background and Reasons for the Merger".
In all of the above cases, the Total Cash Consideration will equal 49% of
the Total Consideration Value, and the remaining 51% will be paid in Bancorp
Common Stock. Annex 2 to this Proxy Statement-Prospectus sets forth illustrative
calculations of the amount of cash and the number of shares of Bancorp Common
Stock to be issued in the Merger based on various assumed Calculation Date
Bancorp Stock Prices. Based on the average of the high and low sales prices for
Bancorp Common Stock reported on the Nasdaq National Market for the twenty (20)
trading days on which Bancorp Common Stock was traded prior to October 8, 1996
of $16.3375 per share, if the Closing Date of the Merger were October 13, 1996,
a First Public Stockholder who elects to receive the Per Share Cash
Consideration and receives only cash would receive $7.90 per share of First
Public Stock and a First Public Stockholder who elects to receive the Per Share
Stock Consideration and receives only Bancorp Common Stock would receive
approximately 0.4836 shares of Bancorp Common Stock for each share of First
Public Stock.
The following table summarizes the potential ranges of Total Consideration
Value and Consideration Value per Share of First Public Stock. The actual Total
Consideration Value and Consideration Value Per First Public Share will depend
on the Calculation Date Bancorp Stock Price. Please refer to Annex 2 for a
discussion of the possible Per Share Cash Consideration and Per Share Stock
Consideration that would result if the actual Calculation Date Bancorp Stock
Price is at any of the amounts assumed for purposes of that Annex. Please refer
to Annex 2 to this Proxy Statement-Prospectus and to "The
Merger -- Consideration" for additional detail.
<TABLE>
<CAPTION>
CONSIDERATION
CALCULATION DATE TOTAL CONSIDERATION VALUE PER FIRST
BANCORP STOCK PRICE VALUE (IN MILLIONS) PUBLIC SHARE
- ------------------- ------------------- ---------------
<S> <C> <C>
$11.00* - $14.00 $28.147 - $31.6 $7.04 - $7.90
$14.00 - $20.00 $31.6 $7.90
$20.00 and above $31.6 - $34.017 $7.90 - $8.50
</TABLE>
- ---------------
* If the Calculation Date Bancorp Stock Price is below $11.00, First Public has
the right to terminate the Agreement.
<PAGE> 7
THE BOARD OF DIRECTORS OF FIRST PUBLIC UNANIMOUSLY RECOMMENDS TO FIRST
PUBLIC STOCKHOLDERS THAT THEY VOTE FOR THE MERGER.
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AND VOTED AT THE SPECIAL
MEETING, WHETHER OR NOT YOU PLAN TO ATTEND. ACCORDINGLY, YOU ARE REQUESTED TO
SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE
ADDRESSED TO CHASE MELLON SHAREHOLDER SERVICES AS FIRST PUBLIC'S TRANSFER AGENT
AT YOUR EARLIEST CONVENIENCE. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS
VOTED BY GIVING WRITTEN NOTICE TO THE SECRETARY OF FIRST PUBLIC. IF YOU ATTEND
THE MEETING, YOU MAY VOTE IN PERSON, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR
EXECUTED PROXY.
THE COMPLETED FORM TO ELECT TO RECEIVE THE PER SHARE STOCK CONSIDERATION OR
THE PER SHARE CASH CONSIDERATION MUST BE SENT SEPARATELY TO AMERICAN STOCK
TRANSFER & TRUST COMPANY, THE EXCHANGE AGENT, IN THE POSTAGE PAID ENVELOPE
PROVIDED BY THE NOVEMBER 8, 1996 ELECTION DEADLINE DESCRIBED IN THE TRANSMITTAL
INSTRUCTIONS. DO NOT SEND THE ELECTION FORM OR ANY FIRST PUBLIC STOCK
CERTIFICATES TO FIRST PUBLIC.
Jack C. Lee
Chairman of the Board
Marina C. Wang
President, Chief Executive Officer
<PAGE> 8
LOGO
NOTICE OF SPECIAL MEETING
TO BE HELD ON NOVEMBER 12, 1996
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of First Public Savings Bank, F.S.B. ("First Public") will be held at
the Empress Pavilion Restaurant, 988 North Hill Street, Los Angeles, California
90012 on November 12, 1996 at 3:00 p.m. local time for the sole purpose of
considering and voting upon a proposal recommended by the Board of Directors of
First Public to approve (i) the Agreement and Plan of Merger dated May 30, 1996
between First Public, Cathay Bancorp, Inc. and Cathay Bank, a California
State-chartered bank; (ii) the merger of First Public with and into Cathay Bank,
with Cathay Bank as the surviving entity (the "Merger"); and (iii) any
adjournment of the Special Meeting for any purpose, including to permit further
solicitation of proxies in the event that there are insufficient votes at the
time of the Special Meeting to approve the Merger and the Agreement.
The Board of Directors of First Public has fixed the close of business on
October 10, 1996 as the record date for determination of stockholders entitled
to notice of, and to vote at, the Special Meeting or any adjournment or
postponement of the Special Meeting.
The attached Proxy Statement-Prospectus is furnished to holders of First
Public common stock in connection with the solicitation by the Board of
Directors of First Public of proxies to be voted at the Special Meeting. The
Proxy Statement-Prospectus also serves as a prospectus for Bancorp under the
Securities Act of 1933, as amended, for the issuance by Bancorp of shares of
Bancorp Common Stock in the Merger.
By Order of the Board of Directors
Edward Y. Ku
Secretary
Los Angeles, California
October 14, 1996
THE ATTACHED PROXY STATEMENT-PROSPECTUS SHOULD BE READ CAREFULLY.
STOCKHOLDERS ARE URGED TO SIGN, DATE AND MAIL THE ENCLOSED PROXY TO THE TRANSFER
AGENT IN THE ACCOMPANYING POSTAGE PAID PROXY ENVELOPE. YOU MAY REVOKE YOUR PROXY
AT ANY TIME BEFORE IT IS VOTED BY GIVING WRITTEN NOTICE TO THE SECRETARY OF
FIRST PUBLIC. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON, EVEN IF YOU
HAVE PREVIOUSLY RETURNED YOUR EXECUTED PROXY.
STOCKHOLDERS ARE ALSO URGED TO COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED
ELECTION FORM AND LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT IN THE
ACCOMPANYING POSTAGE PAID ELECTION FORM ENVELOPE.
<PAGE> 9
LOGO
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON NOVEMBER 12, 1996
------------------------
CATHAY BANCORP, INC.
PROSPECTUS
This Proxy Statement-Prospectus is being furnished to the stockholders of
First Public Savings Bank, F.S.B. ("First Public"), in connection with the
solicitation of proxies by the Board of Directors of First Public for use at the
Special Meeting of Shareholders of First Public ("Special Meeting") to be held
on November 12, 1996 at 3:00 p.m. local time at the Empress Pavilion Restaurant,
988 North Hill Street, Los Angeles, California 90012, including any adjournment
or postponement of the meeting. At the meeting or any adjournment or
postponement thereof, the stockholders of record of First Public as of the close
of business on October 10, 1996 ("First Public Stockholders") will be asked to
consider and vote on a proposal to approve a merger (the "Merger") between First
Public and Cathay Bank ("CB"), a subsidiary of Cathay Bancorp, Inc. ("Bancorp").
First Public would be merged with and into CB pursuant to the Agreement and
Plan of Merger dated May 30, 1996 by and among Bancorp, CB and First Public and
a form of Merger Agreement attached as Exhibit A (together, the "Agreement"). A
copy of the Agreement is attached to this Proxy Statement-Prospectus as Annex 1.
Pursuant to an Election Form and Transmittal Instructions to be delivered to
First Public Stockholders concurrently with this Proxy Statement-Prospectus,
each First Public Stockholder (other than holders of shares with respect to
which dissenters' appraisal rights are perfected ("Dissenting Shares")) (a) may
elect to exchange their common stock of First Public (the "First Public Stock")
upon the consummation of the Merger for either the Per Share Stock Consideration
payable in common stock of Bancorp, $0.01 par value per share (the "Bancorp
Common Stock"), or the Per Share Cash Consideration, and, in either event, may
chose whether that election will be subject to special allocation provisions or
to treatment as "no election" in the event the consideration payable to First
Public Stockholders who elect to receive cash is greater than the Total Cash
Consideration or the consideration payable to First Public Stockholders who
elect to receive Bancorp Common Stock exceeds the Total Stock Consideration or
(b) may make "no election", as provided in the Agreement.
The total consideration in cash and Bancorp Common Stock (the "Total
Consideration Value") to be received by First Public Stockholders will be
$31,600,000 if the Bancorp Common Stock price stays within a range of $14.00 to
$20.00, but could range between $28,147,000 and $34,107,000 if the Bancorp
Common Stock price is outside this price range. However, the aggregate number of
shares of Bancorp Common Stock and the aggregate amount of cash to be received
by the First Public Stockholders individually are subject to the limitations and
the election and allocation procedures in the Agreement and will be determined
based on a formula set forth in the Agreement which takes into consideration the
average of the high and low sale prices of the Bancorp Common Stock for the 20
trading days on which Bancorp Common Stock was traded immediately before the
date which is five business days before the closing date (the "Closing Date") of
the Merger (the "Calculation Date Bancorp Stock Price"). The formula implements
a limitation whereby, in all cases, 51% of the Total Consideration Value to be
received by First Public Stockholders shall be Bancorp Common Stock and 49%
shall be cash, to assist characterization of the Merger as a reorganization
under the Internal Revenue Code.
<PAGE> 10
The federal income tax consequences of the proposed Merger on First Public
Stockholders are described generally in the Proxy Statement-Prospectus, but each
First Public Stockholder is advised to consult your tax advisor.
ALTHOUGH EACH FIRST PUBLIC STOCKHOLDER MAY ELECT ONLY TO RECEIVE ALL CASH
OR ALL BANCORP COMMON STOCK FOR ALL SUCH HOLDER'S SHARES OF FIRST PUBLIC STOCK
(OR MAY MAKE NO ELECTION), BECAUSE THE AGGREGATE NUMBER OF SHARES OF BANCORP
COMMON STOCK AND THE AGGREGATE AMOUNT OF CASH TO BE EXCHANGED IN THE MERGER WILL
BE FIXED UNDER THE FORMULA AND BY THE ALLOCATION PROCEDURES IN THE AGREEMENT, NO
ASSURANCE CAN BE GIVEN THAT AN ELECTION BY ANY GIVEN FIRST PUBLIC STOCKHOLDER
WILL BE HONORED. THUS, HOLDERS MAY NOT RECEIVE THEIR REQUESTED FORM OF
CONSIDERATION AND, IN SOME CASES, MAY RECEIVE BOTH CASH AND BANCORP COMMON
STOCK. SEE "THE MERGER -- ELECTION AND ALLOCATION PROCEDURES."
If the Calculation Date Bancorp Stock Price is within the range of $14.00
to $20.00, the First Public Stock issued and outstanding on the Closing Date
will, upon the consummation of the Merger, be converted into and represent the
right to receive an aggregate cash amount (the "Total Cash Consideration") of
$15,484,000 and shares of Bancorp Common Stock (the "Total Stock Consideration")
with a value of $16,116,000 for a Total Consideration Value of $31,600,000. If
the Calculation Date Bancorp Stock Price is less than $14.00, or more than
$20.00, but not greater than $23.00, the Total Cash Consideration will be
$15,484,000 and the Total Stock Consideration and the Total Consideration Value
will be reduced or will be increased as the Calculation Date Bancorp Stock Price
decreases below $14.00 or increases above $20.00 to $23.00. If the Calculation
Date Bancorp Stock Price is more than $23.00, the Total Cash Consideration will
be $16,668,330, the Total Stock Consideration will be $17,348,670 and the Total
Consideration Value will be $34,017,000. If the Merger is approved at the
Special Meeting and the Calculation Date Bancorp Stock Price is less than
$11.00, the Board of Directors shall have the option to either terminate the
Agreement or to consummate the Merger. To the extent required by applicable law,
the Board would seek approval of the First Public Stockholders at a new meeting
prior to consummating the Merger; however, the Board may elect to consummate the
Merger without seeking such approval even though the Calculation Date Bancorp
Stock Price is less than $11.00. In making this decision, the Board would
consult with counsel and consider information and factors such as it considered
in approving the Agreement. See "Background and Reasons for the Merger".
In all of the above cases, the Total Cash Consideration will equal 49% of
the Total Consideration Value, and the remaining 51% will be paid in Bancorp
Common Stock. Annex 2 to this Proxy Statement-Prospectus sets forth illustrative
calculations of the amount of cash and the number of shares of Bancorp Common
Stock to be issued in the Merger per share of First Public Stock based on
various assumed Calculation Date Bancorp Stock Prices. Based on the average of
the high and low sales prices for Bancorp Common Stock reported on the Nasdaq
National Market for the twenty (20) trading days on which Bancorp Common Stock
was traded prior to October 8, 1996 of $16.3375 per share, if the Closing Date
of the Merger were October 13, 1996, a First Public Stockholder who elects to
receive the Per Share Cash Consideration and receives only cash would receive
$7.90 per share of First Public Stock and a First Public Stockholder who elects
to receive the Per Share Stock Consideration and receives only Bancorp Common
Stock would receive approximately 0.4836 shares of Bancorp Common Stock for each
share of First Public Stock.
The following table summarizes the potential ranges of Total Consideration
Value and Consideration Value per Share of First Public Stock. The actual Total
Consideration Value and Consideration Value Per First Public Share will depend
on the Calculation Date Bancorp Stock Price. Please refer to Annex 2 for a
discussion of the possible Per Share Cash Consideration and Per Share Stock
Consideration that would result if the actual Calculation Date Bancorp Stock
Price is at any of the amounts assumed for purposes of that
<PAGE> 11
Annex. Please refer to Annex 2 to this Proxy Statement-Prospectus and to the
"The Merger -- Consideration" for additional detail.
<TABLE>
<CAPTION>
CONSIDERATION
CALCULATION DATE TOTAL CONSIDERATION VALUE PER FIRST
BANCORP STOCK PRICE VALUE (IN MILLIONS) PUBLIC SHARE
- ------------------- ------------------- ---------------
<S> <C> <C>
$11.00* - $14.00 $28.147 - $31.6 $7.04 - $7.90
$14.00 - $20.00 $31.6 $7.90
$20.00 and above $31.6 - $34.017 $7.90 - $8.50
</TABLE>
- ---------------
* If the Calculation Date Bancorp Stock Price is below $11.00, First Public has
the right to terminate the Agreement.
This Proxy Statement-Prospectus also serves as a prospectus for Bancorp
under the Securities Act of 1933, as amended (the "Securities Act"), for the
issuance by Bancorp of shares of Bancorp Common Stock in the Merger.
This Proxy Statement-Prospectus and the accompanying Notice of Special
Meeting and Proxy card and Election Form and Transmittal Instructions are first
being mailed to First Public Stockholders on or about October 15, 1996.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT-
PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION.
STOCKHOLDERS ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY
THIS PROXY STATEMENT-PROSPECTUS IN ITS ENTIRETY.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
FIRST PUBLIC STOCKHOLDER WHO MAY RECEIVE BANCORP COMMON
STOCK, SEE "REGULATORY AND ECONOMIC RISK FACTORS".
THE SECURITIES OFFERED HEREBY BY BANCORP ARE NOT DEPOSITS, SAVINGS ACCOUNTS,
OR OTHER OBLIGATIONS OF A DEPOSITORY INSTITUTION AND ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION
INSURANCE FUND, THE BANK INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THE SECURITIES OFFERED HEREBY BY BANCORP HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE 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 15, 1996.
<PAGE> 12
AVAILABLE INFORMATION
Bancorp 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
Securities and Exchange Commission (the "SEC"). Copies of such reports, proxy
statements, and other information can be obtained, at prescribed rates, from the
SEC by addressing written requests for such copies to the Public Reference
Section at the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. In addition, such reports, proxy statements, and other information can be
inspected at the public reference facilities referred to above and at the
regional offices of the SEC at 7 World Trade Center, New York, New York 10048,
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661.
This Proxy Statement-Prospectus constitutes part of the Registration
Statement on Form S-4 of Bancorp (including any exhibits and amendments thereto,
the "Registration Statement") filed with the SEC under the Securities Act of
1933, as amended (the "Securities Act"), relating to the securities offered
hereby. This Proxy Statement-Prospectus does not include all of the information
in the Registration Statement, certain portions of which have been omitted
pursuant to the rules and regulations of the SEC. For further information about
Bancorp and the securities offered hereby, reference is made to the Registration
Statement. The Registration Statement may be inspected and copied, at prescribed
rates, at the SEC's public reference facilities at the addresses set forth
above.
Bancorp's Common Stock is traded on the Nasdaq National Market.
Accordingly, Bancorp is subject to the rules of the National Association of
Securities Dealers, Inc. (the "NASD") applicable to issuers with stock traded on
such market. In accordance with the Exchange Act and NASD rules, Bancorp files
reports and other information with the NASD. Copies of materials filed by
Bancorp with the NASD pursuant to the informational requirements of the Exchange
Act can be inspected without charge and copied at prescribed rates at the public
reference facilities maintained by the NASD at 1735 K Street N.W., Washington,
D.C. 20006-1506. The SEC also maintains a Web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically, including Bancorp, with the Commission at http://www.sec.gov.
First Public also is subject to the informational requirements of the
Exchange Act and in accordance therewith files reports, proxy statements, and
other information with the Office of Thrift Supervision (the "OTS"). Such
reports, proxy statements, and other information can be inspected and copied at
the Office of Public Information of the OTS, 1700 G Street, N.W., Washington,
D.C. 20552, and also can be obtained by written request from such office at
prescribed rates.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT-PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT
RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR
SOLICITATION IS NOT LAWFUL. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT-PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES BEING OFFERED
PURSUANT TO THIS PROXY STATEMENT-PROSPECTUS SHALL CREATE, UNDER ANY
CIRCUMSTANCES, ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
FIRST PUBLIC OR BANCORP SINCE THE DATE OF THIS PROXY STATEMENT-PROSPECTUS OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
<PAGE> 13
INCORPORATION OF CERTAIN BANCORP INFORMATION BY REFERENCE
The following documents filed with the SEC by Bancorp are incorporated in
this Proxy Statement-Prospectus by reference:
(a) Bancorp's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
(b) Bancorp's Quarterly Reports on Form 10-Q for the quarters ended
March 31 and June 30, 1996;
(c) Bancorp's Current Report on Form 8-K, dated May 30, 1996;
(d) Bancorp's Registration Statement on Form 8-A, filed June 29, 1990,
with respect to the description of Bancorp Common Stock contained therein
(and any amendment or report filed for the purpose of updating such
description);
(e) Upon filing of the same with the SEC, all documents filed by
Bancorp after the date of this Prospectus and on or prior to the date of
the Special Meeting pursuant to Section 13(a), 12(c), 14 or 15(d) of the
Exchange Act.
Any statement contained herein, in any supplement hereto, or in a document
incorporated or deemed to be incorporated by reference herein or attached hereto
shall be deemed to be modified or superseded for purposes of the Registration
Statement and this Proxy Statement-Prospectus to the extent that a statement
contained herein, in any supplement hereto, or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein or
attached hereto modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of the Registration Statement, this Proxy
Statement-Prospectus, or any supplement hereto.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS OF BANCORP
INCORPORATED HEREIN BY REFERENCE THAT ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH (EXCLUDING EXHIBITS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE INTO THE TEXT OF SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, TO
EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROXY
STATEMENT-PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO MONICA CHEN,
ASSISTANT SECRETARY, CATHAY BANK, 777 NORTH BROADWAY, LOS ANGELES, CALIFORNIA
90012, TELEPHONE NUMBER (213) 625-4700. IN ORDER TO ENSURE TIMELY DELIVERY OF
DOCUMENTS IN ADVANCE OF THE SPECIAL MEETING TO WHICH THIS PROXY
STATEMENT-PROSPECTUS RELATES, ANY SUCH REQUEST SHOULD BE MADE BY NOVEMBER 1,
1996.
The information contained or incorporated by reference in this Proxy
Statement-Prospectus with respect to Bancorp has been supplied by Bancorp. The
information contained herein with respect to First Public has been supplied by
First Public. Neither First Public nor Bancorp warrants the accuracy or
completeness of information relating to the other party.
<PAGE> 14
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
AVAILABLE INFORMATION
INCORPORATION OF CERTAIN BANCORP INFORMATION BY REFERENCE
SUMMARY............................................................................... 1
The Special Meeting................................................................. 1
The Merger Proposal and Consideration............................................... 1
Parties to the Merger............................................................... 2
Recommendation of Board of Directors and Reasons for the Merger..................... 2
Vote Required and Share Ownership................................................... 3
Effects of the Merger............................................................... 3
Terms of the Agreement.............................................................. 3
Risk Factors........................................................................ 4
Interests of Certain Persons in the Merger.......................................... 5
Dissenters' Rights.................................................................. 5
Market Prices and Dividends......................................................... 5
Comparative Per Share Data.......................................................... 7
Selected Historical Financial Data of First Public.................................. 9
Selected Pro Forma Combined Financial Information................................... 10
RISK FACTORS.......................................................................... 11
Regulatory Matters.................................................................. 11
Uncertainty of Future Results....................................................... 11
THE SPECIAL MEETING................................................................... 13
THE MERGER PROPOSAL................................................................... 13
BACKGROUND AND REASONS FOR THE MERGER................................................. 15
Background of the Agreement......................................................... 15
Recommendation of the Board of Directors and Reasons for the Merger................. 17
Opinion of Financial Advisor........................................................ 18
THE MERGER............................................................................ 21
General Effects..................................................................... 21
Consideration....................................................................... 21
Election and Allocation Procedures.................................................. 23
Fractional Shares................................................................... 25
Withholding Rights.................................................................. 25
Accounting Treatment................................................................ 26
Certain Federal Income Tax Consequences............................................. 26
Resales of Bancorp Common Stock..................................................... 29
Effective Time...................................................................... 29
Delivery and Payment of the Total Consideration..................................... 30
Post Effective Time................................................................. 30
Representations and Warranties of the Parties....................................... 30
Covenants........................................................................... 31
Additional Agreements............................................................... 32
Conditions to Consummation of the Merger............................................ 32
Indemnification..................................................................... 34
No Solicitation..................................................................... 34
Expenses............................................................................ 35
Termination......................................................................... 35
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Amendment and Waiver................................................................ 36
INTERESTS OF CERTAIN PERSONS IN THE MERGER............................................ 37
SELECTED INFORMATION REGARDING BANCORP AND CB......................................... 38
PRO FORMA COMBINED FINANCIAL INFORMATION.............................................. 40
BUSINESS AND FINANCIAL INFORMATION REGARDING FIRST PUBLIC............................. 54
Selected Consolidated Financial Data................................................ 54
Business-General.................................................................... 58
Business Strategy................................................................... 58
Market Area......................................................................... 59
Lending Activities.................................................................. 59
Allowance for Loan Losses........................................................... 64
Mortgage-Backed Securities.......................................................... 66
Investment Activities............................................................... 66
Sources of Funds.................................................................... 67
Offices............................................................................. 69
Competition......................................................................... 70
Employees........................................................................... 70
Legal Proceedings................................................................... 70
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 71
General............................................................................. 71
Interest Rate Risk Management....................................................... 71
Changes in Financial Condition...................................................... 72
Allowance for Loan Losses........................................................... 73
Results of Operations............................................................... 73
Liquidity and Capital Resources..................................................... 74
SUPERVISION AND REGULATION............................................................ 75
General Federal Regulation and Enforcement Authority................................ 75
Lending and Investment Authority and Limitations.................................... 75
FDICIA.............................................................................. 76
OTS Capital Requirements............................................................ 76
Prompt Corrective Action............................................................ 77
Insurance of Accounts and Regulation by the FDIC.................................... 78
Limitations on Dividends and Other Capital Distributions............................ 79
Liquidity........................................................................... 79
Qualified Thrift Lender Test........................................................ 79
Community Reinvestment Act.......................................................... 79
Federal Reserve System.............................................................. 80
Federal Home Loan Bank System....................................................... 80
Federal Taxation.................................................................... 80
SELECTED INFORMATION REGARDING FIRST PUBLIC........................................... 81
Ownership of Common Stock........................................................... 81
First Public Directors' Retirement Plan............................................. 82
DISSENTERS' RIGHTS.................................................................... 82
DESCRIPTION OF BANCORP CAPITAL STOCK.................................................. 83
Bancorp Common Stock................................................................ 83
Bancorp Preferred Stock............................................................. 83
</TABLE>
ii
<PAGE> 16
<TABLE>
<CAPTION>
PAGE
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<S> <C>
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF FIRST PUBLIC STOCK AND HOLDERS OF BANCORP
COMMON STOCK........................................................................ 84
General............................................................................. 84
Cumulative Voting and Classified Boards............................................. 84
Change in Number of Directors....................................................... 84
Removal of Directors................................................................ 84
Filling Vacancies on the Board of Directors......................................... 85
Amendment of Charter or Certificate................................................. 85
Amendment of Bylaws................................................................. 85
Dividends........................................................................... 86
Special Meeting of Shareholders and Action by Shareholders Without a Meeting........ 86
Indemnification and Limitation of Liability......................................... 86
Shareholder Vote for Mergers and Other Reorganizations.............................. 87
Shareholder Proposals............................................................... 87
Anti-Takeover Statutes.............................................................. 87
Shareholder Vote Required to Approve Certain Business Combinations -- "Fair Price"
Provision........................................................................ 87
Limitations on "Business Combinations".............................................. 88
Anti-Greenmail Provision............................................................ 88
Shareholder Rights Plan............................................................. 89
Dissenters' Rights.................................................................. 91
LEGAL MATTERS......................................................................... 91
EXPERTS............................................................................... 91
SOLICITATION.......................................................................... 92
SHAREHOLDER PROPOSALS................................................................. 92
OTHER MATTERS......................................................................... 92
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF FIRST PUBLIC............................ F-1
ANNEXES
ANNEX 1 -- Agreement and Plan of Merger and Merger Agreement (Exhibit A)
ANNEX 2 -- Illustrative Calculations of Per Share Cash Consideration and Per Share Stock
Consideration
ANNEX 3 -- Montgomery Securities Opinion
ANNEX 4 -- Office of Thrift Supervision Regulations, 12 C.F.R. 552.14 -- Dissenters' Rights
</TABLE>
iii
<PAGE> 17
SUMMARY
The following is a summary of certain of the 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 contained
elsewhere in this Proxy Statement-Prospectus and the Annexes hereto which
contain further information, some of which is not summarized below. STOCKHOLDERS
OF FIRST PUBLIC SAVINGS BANK ARE URGED TO REVIEW THE ENTIRE PROXY STATEMENT
CAREFULLY, INCLUDING THE ANNEXES INCLUDED HEREIN.
THE SPECIAL MEETING
A Special Meeting of Shareholders (the "Special Meeting") of First Public
Savings Bank, F.S.B. ("First Public"), will be held on November 12 at 3:00 p.m.
local time. The Special Meeting will be held at the Empress Pavilion Restaurant,
988 North Hill Street, Los Angeles, California 90012. Only holders of record of
First Public Stock ("First Public Stockholders") at the close of business on
October 10, 1996 (the "Record Date") will be entitled to notice of and to vote
at the Special Meeting. See "The Special Meeting."
THE MERGER PROPOSAL AND CONSIDERATION
At the Special Meeting, First Public Stockholders will consider and vote
upon a proposal to approve the Agreement and Plan of Merger dated May 30, 1996
(the "Agreement") among First Public, Cathay Bancorp, Inc. ("Bancorp") and its
subsidiary bank, Cathay Bank ("CB"), a copy of which is attached to this Proxy
Statement-Prospectus as Annex 1 and is incorporated herein by reference.
Pursuant to the Agreement, upon receiving stockholder approval and the required
regulatory approvals and subject to the satisfaction or waiver of certain other
conditions, the Merger will be consummated and legally effective at a time on
the Closing Date (the "Effective Time") whereupon: (i) First Public will merge
with and into CB, with CB as the surviving entity and (ii) shares of First
Public Stock will be converted into and represent the right to receive an
aggregate cash amount (the "Total Cash Consideration") of $15,484,000 and
aggregate shares (the "Total Stock Consideration") of the common stock, $0.01
stated value per share, of Bancorp (the "Bancorp Common Stock") with a value of
$16,116,000 for a "Total Consideration Value" of $31,600,000, subject to
adjustment if the "Calculation Date Bancorp Stock Price", as defined below and
in the Agreement, is less than $14.00 or more than $20.00. Additionally, if the
Calculation Date Bancorp Stock Price is less than $11.00, First Public has the
unilateral right to terminate the Agreement. See "The Merger Proposal."
The aggregate number of shares and the aggregate amount of cash to be paid
to the stockholders of First Public (the "First Public Stockholders") by Bancorp
will be determined based on a formula set forth in the Agreement which takes
into consideration the average of the high and low sale prices of Bancorp Common
Stock for the twenty (20) trading days on which Bancorp Common Stock was traded
immediately before the date which is five (5) business days before the Closing
Date (the "Calculation Date Bancorp Stock Price"). Each First Public Stockholder
(other than holders of "dissenting shares" with respect to which appraisal
rights are perfected) may elect to convert all First Public Stock owned as of
the Record Date into the right to receive either the Per Share Stock
Consideration or the Per Share Cash Consideration, as such terms are defined in
and subject to certain allocation procedures and limitations contained in the
Agreement. The formula set forth in the Agreement implements a limitation
whereby, in all cases, 51% of the Total Consideration Value to be received by
First Public Stockholders shall be Bancorp Common Stock and 49% shall be cash in
order to assist characterization of the Merger as a reorganization under the
Internal Revenue Code.
ALTHOUGH A FIRST PUBLIC STOCKHOLDER MAY ELECT ONLY TO RECEIVE ALL CASH OR
ALL BANCORP COMMON STOCK FOR ALL SUCH HOLDER'S SHARES OF FIRST PUBLIC STOCK (OR
MAY MAKE NO ELECTION), BECAUSE THE AGGREGATE NUMBER OF SHARES OF BANCORP COMMON
STOCK AND THE AGGREGATE AMOUNT OF CASH TO BE EXCHANGED IN THE MERGER WILL BE
FIXED UNDER THE FORMULA AND BY THE ALLOCATION PROCEDURES IN THE AGREEMENT, NO
ASSURANCE CAN BE GIVEN THAT AN ELECTION BY ANY GIVEN FIRST PUBLIC STOCKHOLDER
WILL BE HONORED. THUS, HOLDERS MAY NOT RECEIVE THEIR REQUESTED FORM OF
CONSIDERATION AND, IN SOME CASES, MAY RECEIVE BOTH CASH AND BANCORP COMMON
STOCK. SEE "THE MERGER -- ELECTION AND ALLOCATION PROCEDURES."
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<PAGE> 18
Annex 2 to this Proxy Statement-Prospectus sets forth illustrative
calculations of the amount of cash and the number of shares of Bancorp Common
Stock to be issued in the Merger per share of First Public Stock based on
various assumed Calculation Date Bancorp Stock Prices. Based on the average high
and low sales prices for Bancorp Common Stock reported on the Nasdaq National
Market for the twenty (20) trading days on which Bancorp Common Stock traded
prior to October 8, 1996 of $16.3375 per share, if the Closing Date of the
Merger were October 13, 1996, a First Public Stockholder who elects to receive
the Per Share Cash Consideration and receives only cash would receive $7.90 per
share and a First Public Stockholder who elects to receive the Per Share Stock
Consideration and receives only Bancorp Common Stock would receive approximately
0.4836 shares of Bancorp Common Stock for each share of First Public Stock.
The following table summarizes the potential ranges of Total Consideration
Value and Consideration Value per Share of First Public Stock. The actual Total
Consideration Value and Consideration Value Per First Public Share will depend
on the Calculation Date Bancorp Stock Price. Please refer to Annex 2 for a
discussion of the possible Per Share Cash Consideration and Per Share Stock
Consideration that would result if the actual Calculation Date Bancorp Stock
Price is at any of the amounts assumed for purposes of that Annex. Please refer
to Annex 2 to this Proxy Statement-Prospectus and to "The
Merger -- Consideration" for additional detail.
<TABLE>
<CAPTION>
CONSIDERATION
CALCULATION DATE TOTAL CONSIDERATION VALUE PER FIRST
BANCORP STOCK PRICE VALUE (IN MILLIONS) PUBLIC SHARE
- ------------------- ------------------- ---------------
<S> <C> <C>
$11.00* - $14.00 $28.147 - $31.6 $7.04 - $7.90
$14.00 - $20.00 $31.6 $7.90
$20.00 and above $31.6 - $34.017 $7.90 - $8.50
</TABLE>
- ---------------
* If the Calculation Date Bancorp Stock Price is below $11.00, First Public has
the right to terminate the Agreement.
PARTIES TO THE MERGER
First Public. First Public is a federally-chartered savings bank supervised
by the Office of Thrift Supervision (the "OTS") which converted from a
California-chartered savings bank, effective May 26, 1993. First Public
originally opened for business under its California State charter in August
1979. First Public's executive offices are located at 977 North Broadway, Suite
308, Los Angeles, California 90012, and its telephone number is (213) 346-0888.
See "Business and Financial Information Regarding First Public."
Bancorp and CB. Bancorp is a Delaware corporation and registered bank
holding company under the Bank Holding Company Act of 1956, as amended. Its
principal subsidiary is CB, which is licensed by the California Superintendent
of Banks (the "Superintendent") and has conducted the business of a commercial
bank since 1962. Bancorp and CB's executive offices are located at 777 North
Broadway, Los Angeles, California 90012. Its telephone number is (213) 625-4700.
See "Selected Information Regarding Bancorp and CB" and "Incorporation of
Certain Bancorp Information by Reference."
RECOMMENDATION OF BOARD OF DIRECTORS AND REASONS FOR THE MERGER
The Board of Directors of First Public (the "Board") unanimously approved
the Agreement and believes that the transactions contemplated thereby are fair
and in the best interests of the First Public Stockholders. The Board
unanimously recommends that the stockholders vote in favor of the Agreement. For
background information and a discussion of the reasons for the Merger, see
"Background and Reasons for the Merger."
The Agreement was entered into and the Total Consideration Value was
determined as a result of negotiations between Bancorp and a Negotiating
Committee appointed by the Board of Directors of First Public, and were later
unanimously approved by the full First Public Board. See "Background and Reasons
for the Merger."
If the Merger is approved at the Special Meeting and the Calculation Date
Bancorp Stock Price is less than $11.00, the Board of Directors shall have the
option either to terminate the Agreement or to consummate
2
<PAGE> 19
the Merger and, to the extent required by applicable law, the Board would seek
approval of the First Public Stockholders at a new meeting prior to consummating
the Merger.
VOTE REQUIRED AND SHARE OWNERSHIP
The affirmative vote of the holders of at least two-thirds of the
outstanding shares of First Public Stock is required to approve the Agreement
and the Merger. Approval of the Merger by Bancorp's stockholders is not
required. As of October 10, 1996, there were 4,000,000 shares of First Public
Stock outstanding and entitled to vote at the Special Meeting. Accordingly, at
least 2,666,667 shares of First Public Stock must vote in favor of the Merger
proposal for it to be approved. Holders of First Public Stock are entitled to
one vote per share. Only First Public Stockholders of record on the Record Date,
October 10, 1996, are entitled to notice of, and to vote at, the Special
Meeting. As of the Record Date, First Public had 412 stockholders of record. See
"The Special Meeting."
The directors and officers of First Public own or may be considered to
control approximately 39.3% of the outstanding shares of First Public Stock and
it is anticipated that all of such shares will be voted in favor of the Merger.
No common ownership over 1% of the outstanding shares of Bancorp Common Stock
and First Public Stock is believed to exist. See "Interests of Certain Persons
in the Merger" and "Selected Information Regarding First Public."
EFFECTS OF THE MERGER
First Public Stockholders. If the Merger is consummated, First Public will
cease to exist and holders of First Public Stock on the Closing Date will no
longer be First Public Stockholders as of the Effective Time, but will instead
have the right either to receive the Per Share Stock Consideration or the Per
Share Cash Consideration (or, if they elect to be subject to special allocation
procedures in certain cases, a combination of cash and stock) for their shares
as provided in the Agreement or to perfect their dissenters' rights as described
herein. See "The Merger -- Consideration" and "Dissenters' Rights".
Certain Federal Income Tax Consequences. Pursuant to an opinion of special
counsel to First Public to be received as of the Closing Date, First Public
Stockholders who receive solely Bancorp Common Stock in exchange for all of the
stockholder's First Public Stock will not recognize any gain or loss upon the
exchange for federal income tax purposes. Subject to certain limitations, in
general each First Public Stockholder who receives the Per Share Cash
Consideration will recognize capital gain or loss equal to the difference, if
any, between the Per Share Cash Consideration and the stockholder's adjusted
basis of each such share. First Public Stockholders who receive both Bancorp
Common Stock and cash pursuant to the election and allocation procedures may
recognize gain, which in some circumstances may be treated as ordinary income.
Whether the cash received by a particular First Public Stockholder is treated as
capital gain or ordinary income is determined by taking into account stock owned
by certain individuals and entities related to that holder. See "The
Merger -- Certain Federal Income Tax Consequences."
TERMS OF THE AGREEMENT
Election Procedures. First Public Stockholders will receive, together with
this Proxy Statement-Prospectus, an Election Form and Transmittal Instructions
to be used by each holder to elect to receive in the Merger either all cash or
all shares of Bancorp Common Stock in respect of all of such holder's shares of
First Public Stock. Because the number of shares of Bancorp Common Stock to be
issued and the amount of cash to be paid in the Merger will be determined
pursuant to the limitations and allocation procedures set forth in the
Agreement, the extent to which such elections will be accommodated will depend
upon the elections of First Public Stockholders. Accordingly, a First Public
Stockholder who elects to receive cash may instead receive shares of Bancorp
Common Stock (or if such shareholders further elect to be subject to the
proration allocation procedure, some Bancorp Common Stock and some cash) or a
First Public Stockholder who elects to receive shares of Bancorp Common Stock
may instead receive cash (or if such shareholders further elect to be subject to
the proration allocation procedure, some Bancorp Common Stock and some cash).
First Public Stockholders who do not timely submit properly completed election
forms will have no have no choice as to
3
<PAGE> 20
whether they receive Bancorp Common Stock or cash in the Merger. See "The
Merger -- Election and Allocation Procedures".
Effective Time. If the Agreement and the Merger are approved by the
requisite First Public Stockholder vote and if all other conditions set forth in
the Agreement are satisfied or waived, the Merger will be completed and become
effective on the Closing Date as provided in the Agreement (the "Effective
Time") once applicable regulatory waiting periods have expired. See "The
Merger -- Effective Time."
Conditions. The respective obligations of Bancorp, CB and First Public to
effect the Merger are subject to several conditions described in "The
Merger -- Conditions to Consummation of the Merger", including but not limited
to: (i) the requisite First Public Stockholder approval after Bancorp's
Registration Statement shall have become effective, (ii) the receipt by CB of
the requisite approvals from the Federal Deposit Insurance Corporation (the
"FDIC") and the Superintendent (both of which approvals have been obtained),
(iii) the absence of any restraining order or injunction that would prevent the
consummation of the Merger, (iv) the performance by each party of its
obligations under the Agreement and the continued accuracy in all material
respects of each party's representations and warranties contained therein, (v)
the receipt by Bancorp of an opinion from Pillsbury Madison & Sutro LLP, special
counsel to First Public, and the receipt by First Public of an opinion from
Heller Ehrman White & McAuliffe, special counsel to Bancorp, as to certain legal
matters, (vi) the receipt by Bancorp from Deloitte & Touche LLP of a comfort
letter including terms satisfactory to Bancorp, (vii) the receipt by First
Public of an opinion from Pillsbury Madison & Sutro LLP that the Merger as
contemplated will constitute a reorganization under Section 368(a) of the
Internal Revenue Code (the "Code") and (viii) the receipt by First Public of an
opinion from Montgomery Securities that the Total Consideration Value is fair
from a financial point of view to the First Public Stockholders. See "The
Merger -- Conditions to Consummation of the Merger."
Termination. The Agreement is subject to termination: upon the mutual
written consent of the parties; at the option of either party if the Merger is
not consummated by February 1, 1997; at the option of First Public if the
Calculation Date Bancorp Stock Price is not equal to at least $11.00; by First
Public under certain circumstances in the event there exists an "Acquisition
Proposal" as defined in the Agreement and, prior to that time, upon the
occurrence of certain events, including the failure to obtain the required FDIC,
Superintendent or First Public Stockholder approvals; and by one party upon a
material breach of the Agreement by the other. See "The Merger -- Termination."
RISK FACTORS
Bank regulatory authorities have been granted extensive discretion and
authority in connection with their supervisory and enforcement activities which
are intended to strengthen the financial condition of the banking industry,
including the classification of assets and requiring an increase in the
institution's allowance for loan losses, the imposition of restrictions and
requirements on the operation of an institution and the payment of dividends and
the denial or discouragement of applications. Such supervisory actions and
enforcement activities could have an adverse effect on the results of CB and
Bancorp's operations after the Merger. In 1996, the Board of Directors of
Bancorp and CB formulated and adopted a "Program of Responsive Action" (the
"Program") in consultation with their banking regulators which sets forth plans
for addressing certain credit quality and credit administration matters,
including a specific time schedule for reducing CB's level of classified assets.
Bancorp and CB believe they have satisfactorily completed all actions required
by the Program ahead of its schedule. Bancorp or CB's banking regulators have
discretion to determine whether all required actions have been completed, and
can require further actions. See "Risk Factors -- Regulatory Matters".
There are also special considerations that raise uncertainties as to the
future results of CB after the Merger. These include the ability of CB and First
Public effectively and efficiently to integrate their current operations and
personnel, the increasingly competitive market in which CB and First Public
compete, CB's ability to retain First Public's deposits, interest rate changes,
legislative developments, inflation, real estate values and other general
economic conditions in CB's market. See "Risk Factors -- Uncertainty of Future
Results."
4
<PAGE> 21
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Bancorp has agreed to indemnify the officers and directors of First Public
following the Merger for certain claims or losses arising out of their actions
while officers or directors and has agreed to allow directors to make certain
payment election options upon the termination of the First Public Directors'
Retirement Plan. The Board has approved the payment of special retention and
transition bonuses to certain employees. Director Martin Lee has been retained
by the Board to review, coordinate and organize the documents, work and
communications related to the Merger. See "Interests of Certain Persons in the
Merger" and "The Merger -- Indemnification."
DISSENTERS' RIGHTS
Holders of First Public Stock who exercise dissenters' rights with respect
to the Merger in accordance with the statutory procedures prescribed in the
rules and regulations of the OTS (the "OTS Regulations") shall be entitled to
receive cash in the amount of the appraised value of their stock if such
stockholders (i) do not vote in favor of the Merger, (ii) file demands for
appraisal, and (iii) otherwise act to perfect their rights as dissenting
stockholders pursuant to the OTS Regulations. For a description of dissenters'
rights under the OTS Regulations and the method of perfecting such rights, see
"Dissenters' Rights."
MARKET PRICES AND DIVIDENDS
First Public Stock is not actively traded in any established market;
therefore a market price for the First Public Stock cannot be determined.
Bancorp's stock trades on the National Market System of the Nasdaq Stock Market.
The following table sets forth the high and low sales prices and the trading
volume for Bancorp Common Stock for the periods indicated.
<TABLE>
<CAPTION>
BANCORP COMMON STOCK
SALES PRICES
-------------------- BANCORP
HIGH LOW TRADING VOLUME
------ ------ --------------
<S> <C> <C> <C>
1993
Quarter ended March 31................................. 18.75 17.00 47,035
Quarter ended June 30.................................. 18.25 13.50 227,840
Quarter ended September 30............................. 15.00 13.50 170,330
Quarter ended December 31.............................. 15.00 13.75 67,675
1994
Quarter ended March 31................................. 15.00 10.00 93,978
Quarter ended June 30.................................. 14.50 10.50 174,629
Quarter ended September 30............................. 14.00 11.50 64,213
Quarter ended December 31.............................. 14.00 11.50 132,146
1995
Quarter ended March 31................................. 14.25 11.50 178,731
Quarter ended June 30.................................. 14.00 11.25 212,019
Quarter ended September 30............................. 13.50 11.25 201,844
Quarter ended December 31.............................. 17.00 15.00 192,274
1996
Quarter ended March 31................................. 18.00 15.00 236,717
Quarter ended June 30.................................. 17.25 15.875 189,939
</TABLE>
The last reported sales prices per share of Bancorp Common Stock, reported
as described above, on May 30, 1996, the last trading day before the
announcement of the Agreement, and on October 9, 1996, the latest trading day
practicable before the printing of this Proxy Statement-Prospectus, were $16.50
and $17.00, respectively.
5
<PAGE> 22
First Public has paid regular semi-annual cash dividends of $0.125 per
share on First Public Stock on June 1 and December 1 since 1993, and,
additionally, in 1994 and 1995 distributed $500,000 and $8 million,
respectively, as special cash dividends. Bancorp has paid regular quarterly cash
dividends of $0.15 per share since 1993. The following table sets forth for the
periods indicated the per share cash dividends paid on First Public Stock and
Bancorp Common Stock. For information regarding provisions of the Agreement
affecting First Public's payment of dividends prior to the Effective Time, see
"The Merger -- Covenants" and "-- Additional Agreements."
BANCORP COMMON STOCK PER SHARE DIVIDENDS
<TABLE>
<S> <C>
1993
Quarter ended March 31............................................................ $ 0.15
Quarter ended June 30............................................................. 0.15
Quarter ended September 30........................................................ 0.15
Quarter ended December 31......................................................... 0.15
1994
Quarter ended March 31............................................................ 0.15
Quarter ended June 30............................................................. 0.15
Quarter ended September 30........................................................ 0.15
Quarter ended December 31......................................................... 0.15
1995
Quarter ended March 31............................................................ 0.15
Quarter ended June 30............................................................. 0.15
Quarter ended September 30........................................................ 0.15
Quarter ended December 31......................................................... 0.15
1996
Quarter ended March 31............................................................ 0.15
Quarter ended June 30............................................................. 0.15
FIRST PUBLIC STOCK PER SHARE DIVIDENDS
1993
Semi-annual period ended June 30.................................................. $ 0.125
Semi-annual period ended December 31.............................................. 0.125
1994
Semi-annual period ended June 30.................................................. 0.125
Special Cash Dividend on December 1............................................... 0.125
Semi-annual period ended December 31.............................................. 0.125
1995
Special Cash Dividend on February 15.............................................. 2.000
Semi-annual period ended June 30.................................................. 0.125
Semi-annual period ended December 31.............................................. 0.125
1996
Semi-annual period ended June 30.................................................. 0.125
</TABLE>
The holders of Bancorp Common Stock are entitled to receive dividends when
and if declared by the Board of Directors out of funds legally available
therefor. Although Bancorp currently intends to continue to pay quarterly cash
dividends on the Bancorp Common Stock, there can be no assurance that Bancorp's
dividend policy will remain unchanged after completion of the Merger. The
declaration and payment of
6
<PAGE> 23
dividends thereafter will depend upon business conditions, operating results,
capital requirements, and the Board of Directors' consideration of other
relevant factors. Additionally, Bancorp is a legal entity separate and distinct
from its subsidiaries and its revenues depend on the payment of dividends from
CB. CB is subject to certain legal restrictions on the amount of dividends that
it is permitted to pay. See "Incorporation of Certain Bancorp Information by
Reference."
COMPARATIVE PER SHARE DATA
The following unaudited financial information reflects certain comparative
per share data relating to net income, cash dividends, and book value per common
share on an historical basis for Bancorp and First Public, a pro forma combined
basis per share of Bancorp Common Stock giving effect to the Merger, and an
equivalent pro forma basis per share of First Public Stock giving effect to the
Merger. The pro forma combined information and the First Public pro forma
equivalent information give effect to the Merger on a purchase accounting basis
and reflect the Low Range, Medium Range and High Range assumed for the
Calculation Date Bancorp Stock Price as discussed in the unaudited pro forma
financial statements. There can be no assurance as to what the market price of
the Bancorp Common Stock will be if and when the Merger is consummated. See
"-- Market Prices and Dividends." For a description of purchase accounting with
respect to the Merger, see "The Merger -- Accounting Treatment." The information
shown below is for information purposes only and should be read in conjunction
with the historical consolidated financial statements of First Public and
Bancorp, including the respective notes thereto, which, in the case of First
Public, are attached to this Proxy Statement-Prospectus, and in the case of
Bancorp, are incorporated by reference in this Proxy Statement-Prospectus, and
the unaudited pro forma financial statements, including the notes thereto,
appearing elsewhere in this Proxy Statement-Prospectus. Results of First Public
and Bancorp for the six months ended June 30, 1996 are not necessarily
indicative of the results which may be expected for any other interim period or
for the year as a whole. The pro forma financial data are not necessarily
indicative of results that actually would have occurred had the Merger been
consummated on the dates indicated or that may be obtained in the future. See
"Incorporation of Certain Bancorp Information by Reference," "Pro Forma Combined
Financial Information," and "Index to Consolidated Financial Statements of First
Public."
7
<PAGE> 24
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS
ENDED AT OR FOR THE FISCAL
JUNE 30 YEARS
--------------- -------------------------
1996 1995 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE:
Bancorp historical......................................... $0.76 $0.69 $1.36 $1.23 $1.02
First Public historical.................................... 0.35 0.39 0.72 0.74 1.03
Calculation Date Bancorp Stock Price @ Low Range...........
Pro Forma combined(1).................................... 0.88 1.65
First Public pro forma equivalent(2)..................... 0.56 1.06
Calculation Date Bancorp Stock Price @ Medium Range........
Pro Forma combined(1).................................... 0.90 1.67
First Public pro forma equivalent(2)..................... 0.44 0.85
Calculation Date Bancorp Stock Price @ High Range..........
Pro Forma combined(1).................................... 0.92 1.71
First Public pro forma equivalent(2)..................... 0.34 0.63
CASH DIVIDENDS PAID
PER COMMON SHARE(3):
Bancorp historical......................................... 0.30 0.30 0.60 0.60 0.60
First Public historical.................................... 0.13 2.13 2.25 0.38 0.25
Calculation Date Bancorp Stock Price @ Low Range...........
Pro forma combined(4).................................... 0.26 0.51
Calculation Date Bancorp Stock Price @ Medium Range........
Pro forma combined(4).................................... 0.26 0.53
Calculation Date Bancorp Stock Price @ High Range..........
Pro forma combined(4).................................... 0.27 0.55
BOOK VALUE PER COMMON SHARE (END OF PERIOD):
Bancorp historical......................................... 12.07 11.46 12.02 10.95 10.44
First Public historical.................................... 5.64 5.47 5.74 5.21 6.81
Calculation Date Bancorp Stock Price @ Low Range...........
Pro forma combined(5).................................... 11.92
First Public pro forma equivalent(2)..................... 7.63
Calculation Date Bancorp Stock Price @ Medium Range........
Pro forma combined(5).................................... 12.53
First Public pro forma equivalent(2)..................... 6.09
Calculation Date Bancorp Stock Price @ High Range..........
Pro forma combined(5).................................... 13.02
First Public pro forma equivalent(2)..................... 4.81
</TABLE>
- ---------------
(1) Represents the pro forma combined information of Bancorp and First Public as
if the Merger were consummated on January 1, 1996, and January 1, 1995,
respectively, and accounted for as a purchase.
(2) Represents the pro forma combined information of Bancorp and First Public
multiplied by the exchange ratio of a share of Bancorp Common Stock for each
share of First Public Stock for the respective time period and the
Calculation Date Bancorp Stock Price as shown below.
<TABLE>
<CAPTION>
AT OR FOR THE FOR THE FISCAL
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
---------------- -----------------
<S> <C> <C>
Calculation Date Bancorp Stock Price
Low Range.......................... 0.6400 0.6400
Medium Range....................... 0.4862 0.5097
High Range......................... 0.3694 0.3694
</TABLE>
(3) See "-- Market Prices and Dividends."
(4) Represents the historical dividends paid by Bancorp divided by pro forma
shares outstanding including the First Public Stock which shall become
Bancorp Common Stock.
(5) Represents the pro forma combined information of Bancorp and First Public as
if the Merger were consummated on June 30, 1996 and accounted for as a
purchase.
8
<PAGE> 25
SELECTED HISTORICAL FINANCIAL DATA OF FIRST PUBLIC
The following table sets forth certain unaudited historical financial data
of First Public and is based on the consolidated financial statements of First
Public, including the respective notes thereto, which are attached to this Proxy
Statement-Prospectus and should be read in conjunction therewith. See "Index to
Consolidated Financial Statements of First Public."
FIRST PUBLIC SAVINGS BANK, F.S.B.
SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR THE SIX
MONTHS
ENDED JUNE 30 AT OR FOR THE YEAR ENDED DECEMBER 31
--------------------- ------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES, PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total Assets..................... $279,717 $259,535 $263,477 $260,759 $252,593 $244,081 $227,253
Loans Receivable, net............ 144,360 136,262 141,635 133,342 134,987 137,864 143,789
Investment Securities............ 65,626 65,537 63,422 60,755 40,483 30,541 7,373
Mortgage-Backed Securities....... 45,197 36,472 36,086 32,615 16,830 11,477 15,495
Deposit Investments in CD's...... 200 2,188 1,199 5,351 28,820 37,948 39,596
Cash and Cash Equivalents........ 15,987 14,271 12,727 24,081 27,354 22,249 17,160
Federal Home Loan Bank Stock..... 1,651 1,569 1,608 1,530 1,462 1,423 1,185
Deposits......................... 255,305 234,966 238,474 230,064 223,844 218,415 204,396
Stockholders' Equity(1).......... 22,557 21,871 22,961 20,836 27,236 24,101 21,387
Stockholders' Equity Per Share... 5.64 5.47 5.74 5.21 6.81 6.03 5.35
Operating Data:
Total Interest Income............ $ 9,757 $ 9,086 $ 18,628 $ 16,954 $ 17,205 $ 19,077 $ 19,946
Total Interest Expense........... 4,393 4,054 8,428 6,359 6,324 8,419 11,145
Provision for Loan Losses........ 112 85 301 246 2 174 21
-------- -------- -------- -------- -------- -------- --------
Net Interest Income After
Provision for Loan Losses...... 5,252 4,947 9,899 10,349 10,879 10,484 8,780
Other Income..................... 116 590 656 261 1,211 399 223
Other Expenses................... 3,010 2,847 5,669 5,514 5,049 4,560 3,887
-------- -------- -------- -------- -------- -------- --------
Income Before Income Taxes....... 2,358 2,690 4,886 5,096 7,041 6,323 5,116
Income Tax Expense............... 978 1,115 2,026 2,118 2,906 2,609 1,978
-------- -------- -------- -------- -------- -------- --------
Net Income....................... $ 1,380 $ 1,575 $ 2,860 $ 2,978 $ 4,135 $ 3,714 $ 3,138
======== ======== ======== ======== ======== ======== ========
Net Income Per Share............. $ 0.35 $ 0.39 $ 0.72 $ 0.74 $ 1.03 $ 0.93 $ 0.78
Cash Dividend Paid............... 500 8,500 9,000 1,500 1,000 560 440
Cash Dividend Per Share.......... 0.13 2.13 2.25 0.38 0.25 0.14 0.11
Dividend Payout Ratio(2)......... 36.23% 539.68% 314.69% 50.37% 24.18% 15.08% 14.02%
Other Data:
Return on Average Assets(3)...... 1.02% 1.21% 1.09% 1.16% 1.67% 1.58% 1.46%
Return on Average Equity(3)...... 12.13% 14.75% 13.06% 12.39% 16.11% 16.33% 15.66%
Equity to Assets(3).............. 8.06% 8.43% 8.71% 7.99% 10.78% 9.87% 9.41%
Interest Rate Spread (End of
Period)........................ 3.79% 3.55% 3.77% 3.65% 3.82% 3.87% 3.89%
Interest Earning Assets to
Interest Bearing Liabilities
(End of Period................. 106.94% 109.08% 107.63% 112.00% 111.66% 110.57% 109.88%
Non-Performing Assets (End of
Period)........................ $ 502 $ 659 $ 894 $ 819 $ 655 $ 90 $ 641
Non-Performing Assets to Total
Assets (End of Period)......... 0.18% 0.25% 0.34% 0.31% 0.26% 0.04% 0.28%
Non-Performing Loans (End of
Period)........................ $ 235 $ 464 $ 345 $ 819 $ 655 $ 90 $ 641
Allowance for Losses on Loans.... $ 617 $ 537 $ 517 $ 461 $ 322 $ 320 $ 146
Ratio of Allowance for Losses on
Loans to Period End Loans,
net............................ 0.43% 0.39% 0.37% 0.35% 0.24% 0.23% 0.10%
Ratio of Allowance for Losses on
Loans to Total Non-Performing
Loans.......................... 262.55% 115.73% 149.86% 56.29% 49.16% 355.56% 22.78%
Full Service Offices (End of
Period)........................ 5 5 5 5 5 4 4
</TABLE>
- ---------------
(1) 1992 beginning equity was restated by $440,101 due to the adoption of SFAS
No. 109, "Accounting for Income Taxes". Also, in 1994, the Board declared
two special cash dividends of $0.125 and $2.00 per share which reduced
equity by $8.5 million.
(2) Dividends paid per share divided by net income per share.
(3) Ratios are based on average assets and average equity. Average assets and
average equity are calculated by averaging the beginning and ending
balances.
9
<PAGE> 26
SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION
The following tables present selected pro forma combined financial data for
the year ended December 31, 1995 and the six months ended June 30, 1996 as if
the merger had been effective on December 31, 1995 and June 30, 1996,
respectively, after giving effect to the purchase accounting and other
Merger-related adjustments described in the respective Notes to Pro Forma
Condensed Combined Financial Information. See "Pro Forma Condensed Combined
Financial Information." The "Low", "Medium" and "High" Range Selected Pro Forma
Condensed Combined Financial Data, respectively, reflect the Merger being
completed at an assumed Calculation Date Bancorp Stock Price equal to $11.00 per
share, $16.25 per share, and $23.01 per share. Actual results within each of the
Low, Medium and High Ranges will vary from those presented if the Calculation
Date Bancorp Stock Price is other than those assumed in the tables. See "The
Merger -- Consideration" and Annex 2. The selected pro forma combined financial
data tables are intended for informational purposes only and are not necessarily
indicative of the future financial position or future results of operations of
Bancorp after the Merger or of the financial position or results of operations
that would have actually occurred had the Merger been in effect as of the dates
or for the periods presented.
<TABLE>
<CAPTION>
LOW RANGE(1) MEDIUM RANGE(1) HIGH RANGE(1)
---------------------------- ---------------------------- ----------------------------
AT OR FOR THE AT OR FOR THE AT OR FOR THE
SIX-MONTHS FOR THE SIX-MONTHS FOR THE SIX-MONTHS FOR THE
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
(DOLLARS IN THOUSANDS EXCEPT SHARE, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
PER SHARE DATA) 1996 1995 1996 1995 1996 1995
------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total Assets..................... $ 1,456,473 $ 1,458,234 $ 1,459,467
Loan Receivable, net............. 694,879 694,879 694,879
Investment Securities............ 501,039 499,347 498,163
Mortgage-Backed Securities....... 87,438 87,438 87,438
Deposit Investments in CD's...... 200 200 200
Cash and Cash Equivalents........ 36,820 36,820 36,820
Federal Home Loan Bank Stock..... 5,155 5,155 5,155
Deposits......................... 1,333,724 1,333,724 1,333,724
Stockholders' Equity............. 110,046 111,807 113,040
Statements of Income:
Total Interest Income............ $ 49,947 $ 94,065 $ 49,947 $ 94,065 $ 49,947 $ 94,065
Total Interest Expense........... 22,579 38,840 22,579 38,840 22,579 38,840
Provision for Loan Losses........ 1,912 7,602 1,912 7,602 1,912 7,602
---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income After
Provision for Loan Losses...... 25,456 47,623 25,456 47,623 25,456 47,623
Other income..................... 2,783 6,878 2,783 6,878 2,783 6,878
Other Expenses................... 15,187 30,411 15,302 30,700 15,383 30,861
---------- ---------- ---------- ---------- ---------- ----------
Income Before Income Taxes....... 13,052 24,090 12,937 23,801 12,856 23,640
Income Tax Expense............... 4,940 9,025 4,940 9,025 4,940 9,025
---------- ---------- ---------- ---------- ---------- ----------
Net Income....................... $ 8,112 $ 15,065 $ 7,997 $ 14,776 $ 7,916 $ 14,615
========== ========== ========== ========== ========== ==========
Cash Dividend Paid............... 2,862 13,704 2,862 13,704 2,862 13,704
========== ========== ========== ========== ========== ==========
Per Share Data:
Pro Forma Net Income Per Share... $ 0.88 $ 1.65 $ 0.90 $ 1.67 $ 0.92 $ 1.71
Cash Dividend Per Share.......... 0.26 0.51 0.26 0.53 0.27 0.55
Book Value Per Share............. 11.92 -- 12.53 -- 13.02 --
Pro Forma Equivalent Per Share
Net Income Per Share........... $ 0.56 $ 1.06 $ 0.44 $ 0.85 $ 0.34 $ 0.63
Cash Dividend Per Share.......... 0.17 0.33 0.13 0.27 0.10 0.20
Book Value Per Share............. 7.63 -- 6.09 -- 4.81 --
</TABLE>
- ---------------
(1) The Low Range, Medium Range and High Range pro forma results reflect a
Calculation Date Bancorp Stock Price equal to $11.00, $16.25 and $23.01,
respectively, to reflect the range of possible Total Consideration values
contemplated in the Merger Agreement. See Annex 2 and "Pro Forma Condensed
Combined Financial Information."
10
<PAGE> 27
RISK FACTORS
In deciding whether to approve the Merger or to elect to receive Bancorp
Common Stock or cash in exchange for their First Public Stock, First Public
Stockholders should consider the following risks, in addition to the other
matters set forth or incorporated by reference in this Proxy
Statement-Prospectus.
REGULATORY MATTERS
Regulatory Approvals. The receipt of the prior approval of the FDIC and the
Superintendent are conditions to the obligations and legal authority of the
parties to consummate the Merger. Certain aspects of the Merger will require
notifications to, or approvals from, certain other federal or state regulatory
authorities. CB has filed applications with the FDIC and the Superintendent
requesting approval of the Merger and filed a notice of the Merger with the OTS.
CB has obtained approval for the Merger from the Superintendent and the FDIC,
and the OTS has taken no objection to the Merger.
First Public and Bancorp are not aware of other material governmental
permits, approvals, consents or similar actions that are required for
consummation of the Merger. The Board of Governors of the Federal Reserve System
(the "Federal Reserve Board") has the authority under the Bank Holding Company
Act of 1956, as amended (the "BHCA"), to assert jurisdiction regarding the
acquisition by Bancorp, as a bank holding company, of a savings association. By
policy, the Federal Reserve Board generally waives such jurisdiction in mergers
subject to approval by the FDIC under the federal Bank Merger Act absent the
existence of a policy issue or other grounds for asserting its jurisdiction to
review and approve such an acquisition by merger. The Federal Reserve Bank of
San Francisco has advised Bancorp that it does not intend to assert its
jurisdiction under the BHCA with respect to the proposed Merger.
Supervisory Matters. Bank regulatory authorities have been granted
extensive discretion and authority in connection with their supervisory and
enforcement activities which are intended to strengthen the financial condition
of the banking industry, including the classification of assets and requiring an
increase in an institution's allowance for loan losses, the imposition of
restrictions and requirements on the operation of an institution and the payment
of dividends and the denial or discouragement of applications. Such supervisory
actions and enforcement activities could have an adverse effect on the results
of CB and Bancorp's operations after the Merger. In 1996, the Board of Directors
of Bancorp and CB formulated and adopted a "Program of Responsive Action" (the
"Program") in consultation with their banking regulators which sets forth plans
for addressing certain credit quality and credit administration matters,
including a specific time schedule for reducing CB's level of classified assets.
Bancorp and CB believe they have satisfactorily completed all actions required
by the Program ahead of its schedule. Bancorp or CB's banking regulators have
discretion to determine whether all required actions have been completed, and
can require further actions.
Antitrust Challenge. Under the Bank Merger Act, the Merger may not be
consummated until the 30th (and, with the FDIC's permission, the 15th) calendar
day after receipt of the FDIC's approval of the application, during which time
the United States Department of Justice may challenge the Merger on antitrust
grounds and stay the effectiveness of the FDIC's approval. Bancorp and First
Public believe the Merger does not raise any antitrust concerns; however, there
can also be no assurance that the Merger will not be challenged on antitrust
grounds.
UNCERTAINTY OF FUTURE RESULTS
The following special considerations raise uncertainties as to the future
results of CB after the Merger which should be considered by First Public
Stockholders in evaluating whether to approve the Agreement and the Merger.
These factors should be considered in conjunction with the other information
included and incorporated by reference in this Proxy Statement-Prospectus.
Integration Of Operations. Bancorp and First Public entered into the
Agreement with the expectation that the Merger will result in certain beneficial
synergies. These include the combination of certain of the administrative and
operational functions of the companies and their subsidiaries. Achieving these
anticipated benefits will depend in part on whether the operations of First
Public and CB can be integrated in an efficient
11
<PAGE> 28
and effective manner. There can be no assurance that such integration will
result in increased efficiency. The combination of the companies will require,
among other things, integration of the banks' respective computer and software
systems and coordination of the banks' marketing and customer service efforts.
The successful integration of operations will be significantly influenced by the
ability of the combined business to retain key management and other personnel.
In addition, the integration of operations following the Merger may temporarily
distract the attention of certain members of management from other
responsibilities. The inability of management successfully to integrate the
operations of the companies could have an adverse effect on the business and
future results of operations of CB.
Competition. The market in which CB and First Public compete is highly
competitive. As a result of certain recent mergers and acquisitions in the
banking industry, several of the banks with which CB competes are much larger,
have more branches, greater name recognition and financial resources and offer a
wider variety of financial products and services. Among the advantages which
these banks may have over CB and First Public are their ability to finance
advertising campaigns and to allocate their investment assets, including loans,
to regions of higher yield and demand. CB and First Public also compete for
loans and deposits with other community banks and savings and loan associations,
finance companies, money market funds, brokerage houses, credit unions and
non-financial institutions. Bancorp believes that CB will be more competitive
after the Merger as a result of, among other things, certain projected internal
cost savings, a projected increase in funds available for loans, and the
offering of more diversified home mortgage products and services. However, there
can be no assurance that Bancorp and CB will be able to compete as successfully
in its market as contemplated.
Factors That May Affect CB's Future Results. Bancorp and CB's management
have assumed that a substantial portion of First Public's deposits will remain
with CB after the Merger. Bancorp and CB's managements believe they have a
reasonable basis for that assumption, but can offer no assurances it will be
correct. A significant loss of those deposits would have an adverse effect on
CB. Bancorp's management believes that the allowance for loan losses is adequate
to cover reasonably expected losses from the loan portfolio. However, future
adjustments may be necessary if economic conditions differ substantially from
the assumptions used or adverse developments arise with respect to Bancorp's
non-performing or performing loans. Material increases in Bancorp's allowance
for loan losses would result in a decrease in Bancorp's net income and capital.
See also "Regulatory and Economic Risk Factors -- Regulatory Matters".
The financial statements and related financial data presented herein have
been prepared without considering changes in the relative purchasing power of
money over time due to inflation. The primary impact of inflation on the
operations of First Public and CB would be reflected in increased operating
costs. Almost all of the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact
on a financial institution's performance than the effects of general levels of
inflation. Interests rates do not necessarily move in the same direction or in
the same magnitude as the price of goods and services.
Income associated with CB's interest-earning assets and costs associated
with interest-bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates also may have a significant impact on CB's net interest income. Interest
rates on certain types of assets and liabilities may also fluctuate in advance
of changes in general market interest rates,
First Public's lending operations have been concentrated primarily in
Southern California and CB's in both Southern and Northern California. The
recent recession in California materially and adversely affected the ability of
some borrowers to repay their loans out of cash flow. Consequently, the market
value of real estate collateral securing these commercial and industrial loans
as a source of repayment has assumed greater importance. Such economic factors,
real estate tax rates, governmental regulations and acts of nature, including
earthquakes, are among other related factors which are beyond the control of the
management of First Public, Bancorp and CB.
The risks of making construction loans include the possibility of failure
by contractors to complete, or to complete on a timely basis, construction of
such properties, substantial cost overruns in excess of original estimates and
financing, market deterioration pending construction and the lack of permanent
take-out
12
<PAGE> 29
financing. Loans secured by such properties may also involve additional risk
because such properties have no operating history and because loan funds are
advanced upon the security of the project under construction, which is of
uncertain value prior to completion of construction, and the operating cash flow
to be generated by the project. There is no assurance that such properties will
be sold or leased so as to generate the cash flow anticipated by the borrower.
See "Business and Financial Information Regarding First Public -- Lending
Activities".
From time to time, legislation is proposed or enacted which has the effect
of increasing the cost of doing business, limiting permissible activities or
affecting the competitive balance between banks and other financial
institutions. It is impossible to predict the competitive impact these and other
changes in legislation will have on commercial banking in general or on the
business of Bancorp in particular. See "Supervision and Regulation -- Insurance
of Accounts and Regulation by the FDIC."
THE SPECIAL MEETING
This Proxy Statement-Prospectus, together with the accompanying form of
Proxy card, is being provided to the stockholders of First Public in connection
with the Special Meeting. The Board of Directors of First Public is soliciting
proxies for use at the Special Meeting.
Time and Place. The Special Meeting is scheduled to be held on Wednesday,
November 12, 1996 at 3:00 p.m. local time, at the Empress Pavilion Restaurant,
988 North Hill Street, Los Angeles, California 90012.
First Public Record Date and Voting Rights. Only holders of record of First
Public Stock at the close of business on October 10, 1996 (the "Record Date"),
will be entitled to notice of and to vote at the Special Meeting. Each share of
First Public Stock will entitle the holder thereof to one vote. At the close of
business on the Record Date, there were 4,000,000 shares of First Public Stock
outstanding and 412 First Public Stockholders, including five (5) who hold share
certificates not surrendered in connection with the 20-for-1 stock split in
1990.
Proxies. Each properly completed proxy returned in time for voting at the
Special Meeting will be voted in accordance with the instructions indicated on
the proxy, or, if no instructions are provided, will be voted FOR approval of
the Merger and may be voted for any adjournment of the Special Meeting for any
purpose. No matters other than those referred to in this Proxy
Statement-Prospectus will be brought before the Special Meeting.
A First Public Stockholder may revoke a proxy at any time before it is
voted by filing with the Secretary of First Public an instrument revoking the
proxy, by returning a duly executed proxy bearing a later date, or by attending
the Special Meeting and voting in person. Attendance at the Special Meeting will
not by itself constitute revocation of a proxy. Any filing should be made to the
attention of Edward Y. Ku, Secretary, First Public Savings Bank, 977 North
Broadway, Suite 308, Los Angeles, California 90012.
The shares of any First Public Stockholders who abstain from voting and
"broker nonvotes" (shares as to which brokerage firms have not received voting
instructions from their clients and therefore do not have the authority to vote
the shares at the Special Meeting) will be counted for purposes of determining a
quorum. Because the affirmative vote of at least two-thirds of the outstanding
shares of First Public Stock is required to approve the Merger, both abstentions
and broker nonvotes will have the same legal effect as votes "AGAINST" the
Merger.
THE MERGER PROPOSAL
At the Special Meeting, the First Public Stockholders will be asked to vote
on the Agreement. The approval of the Agreement by the holders of First Public
Stock will constitute approval of each of the transactions contemplated by the
Agreement, including the Merger. See "The Merger -- General Effects" and
"-- Consideration" and "Interests of Certain Persons in the Merger."
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Stockholders will be asked to approve the following resolution:
RESOLVED, that the stockholders of First Public Savings Bank, F.S.B.
("First Public") hereby approve and adopt the Agreement and Plan of Merger,
dated May 30, 1996, among Cathay Bancorp, Inc. ("Cathay Bancorp"), Cathay
Bank and First Public (the "Agreement") and all of the transactions
specified or contemplated by the Agreement, including the merger of First
Public with and into Cathay Bank (the "Merger") and the conversion of each
outstanding share of the common stock of First Public, $1.00 stated value
per share, other than dissenters' shares, into the right to receive the Per
Share Cash Consideration or the Per Share Stock Consideration of Cathay
Bancorp common stock in accordance with the election of each First Public
Stockholder and subject to the formula, limitations and election and
allocation procedures set forth in the Agreement.
THE BOARD HAS UNANIMOUSLY APPROVED THE AGREEMENT AND THE MERGER AS BEING
FAIR AND IN THE BEST INTERESTS OF FIRST PUBLIC AND ITS STOCKHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT THE FIRST PUBLIC STOCKHOLDERS VOTE FOR APPROVAL OF
THE RESOLUTION.
IT IS IMPORTANT THAT THE RECORD HOLDERS OF FIRST PUBLIC STOCK ARE
REPRESENTED AT THE SPECIAL MEETING EITHER IN PERSON OR BY PROXY. OTS regulations
require that the Agreement must be approved by the affirmative vote of the
holders of two-thirds of the outstanding shares of First Public Stock. As of
October 10, 1996, there were 4,000,000 shares of First Public Stock outstanding
and entitled to vote at the Special Meeting. Accordingly, 2,666,667 shares must
be voted in favor of the Merger for it to be approved. Holders of at least a
majority of the outstanding shares of Common Stock (2,000,001 shares) must be
represented at the Special Meeting, either in person or by proxy, for a quorum
to be present. The directors and executive officers of First Public own or may
be considered to control approximately 1,570,800 shares or approximately 39.3%
of the total outstanding shares of the First Public Stock and it is anticipated
that all of such shares will be voted in favor of the Agreement.
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BACKGROUND AND REASONS FOR THE MERGER
BACKGROUND OF THE AGREEMENT
The Board of Directors of First Public (the "Board") has periodically
reviewed First Public's future strategic options, including potential expansion
by merger or acquisition, and the fact that First Public periodically has
received expressions of interest and offers from potential acquirors because of
its consistent earnings history and unique customer base. Prior to 1993, the
Board had not adopted any formal policy with regard to such options and had not
authorized the solicitation of any acquisition proposals.
In early 1993, Chairman Jack Lee was contacted by a financial advisory
company on behalf of a potential acquiror to determine if First Public would be
available for an acquisition. With the Board's approval, preliminary exploratory
meetings were conducted with such party by certain directors and, in June, 1993,
the Board discussed the need to interview and retain an investment banking firm.
The Board received presentations by four investment banking and merger and
acquisition advisory firms. The Board considered the reputation, expertise and
experience of each firm in representing selling banks and savings banks and
these firms' views of the current market for such businesses and the potential
value of First Public in a sale. The Board also considered the fee proposals of
each advisory firm.
In July, 1993, the Board selected Montgomery Securities ("Montgomery") to
be First Public's financial adviser in connection with any potential sale of
First Public. The Board directed Montgomery to perform a study and report to the
Board on the prospects for interest by other potential buyers, a full valuation
of First Public and various aspects of a potential sale. Montgomery subsequently
presented its initial report, analyzing the factors an investor would consider
in evaluating First Public and comparing recent acquisitions. The Board also
appointed a special committee (the "Negotiating Committee"), consisting of
Chairman Jack Lee, Vice-Chairman Robert Gee and Director Kwan So, to negotiate
with potential acquirors.
The Board also considered presentations by law firms contacted for their
bank merger and acquisition expertise and selected Pillsbury Madison & Sutro LLP
to serve as its special counsel. Thereafter, Montgomery and special counsel held
discussions and negotiations with certain potential acquirors which eventually
resulted in the execution and announcement on February 14, 1994 of an Agreement
and Plan of Merger with GBC Bancorp, Inc. That Agreement and Plan of Merger was
mutually terminated in May, 1994 for reasons not related to First Public.
Since 1994, the Board has continued to consider three general strategic
options to maximize First Public Stockholder value: (i) continuing First
Public's present operations, considering its size, target market and staff
capabilities; (ii) restructuring First Public's operations and expertise to
grow, including possibly making acquisitions, in order to compete more
efficiently in an increasingly complex banking market; and (iii) entertaining
purchase offers in light of First Public's historical success and attractiveness
to potential acquirors. During this period, the Board considered both financial
and strategic restructuring options and growth and expansion opportunities. This
included making an aggregate $8,000,000 ($2.00 per share) special dividend in
1995 to return excess capital to First Public Stockholders and determining to
relocate the Head Office in 1997 to property acquired in Monterey Park. However,
since a sale of First Public remained a strategic alternative, the Board decided
Jack Lee, as Chairman of the Board and the Negotiating Committee, should also be
open to receiving and considering bona fide unsolicited inquiries as to First
Public's potential availability for sale if an apparent fair price or range were
indicated. From mid-1994 until mid-1995, Chairman Lee received four expressions
of interest from potential acquirors; however, none was considered likely to
offer First Public Stockholders a price the Board would recommend as well as
adequate assurances the potential acquiror could complete the acquisition.
In October, 1995, Chairman Jack Lee was first contacted by Dunson Cheng,
Chairman of the Board of Directors of Bancorp, regarding a potential
acquisition. Chairman Lee responded that First Public was not "for sale" but
that the Board would be obligated to consider any serious and firm offers. In
early December, 1995, Chairman Cheng requested certain public information and
proposed a meeting between representatives of both Boards to discuss a possible
merger.
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On December 7, 1995, the Chairmen and Vice Chairmen of both Bancorp and
First Public met and Bancorp delivered an initial letter of interest proposing
basic terms of a transaction and a combined cash and stock price structure with
a total consideration of $31 million. At a special meeting on December 11, 1995,
the Board determined Bancorp's letter of interest was serious and that an
investment banker would be needed to advise the Board of the fairness of the
offer and a fair price or range to fix the price of Bancorp Common Stock. The
Board again appointed Chairman Jack Lee, Vice-Chairman Robert Gee and Director
Kwan So to serve on a committee (the "Merger Committee") to represent First
Public and negotiate a possible merger with Bancorp, subject to the approval by
the Board of any agreement negotiated by the Merger Committee. The Board also
agreed that Montgomery and Pillsbury Madison & Sutro LLP were logical choices
again to represent First Public as financial advisor and special counsel,
respectively, as they had in the GBC Bancorp transaction.
At a special Board meeting on December 15, 1995, Montgomery made a
presentation to the Board with written materials which included valuation
materials regarding First Public, an analysis of Bancorp and CB based on public
information and an analysis of the initial price proposed by Bancorp under
various valuation methodologies. The Board approved the retention of Montgomery
as First Public's investment banker pursuant to an extension of the previous
engagement letter between First Public and Montgomery.
After a thorough review and discussion by the Board of all materials
presented by Montgomery and Bancorp and CB's management, shareholders, directors
and stock price, the Board unanimously agreed to advise Bancorp that the Board
considered the price offered to be in the range of a fair price and that the
parties' investment bankers should discuss details of the proposal. Thereafter,
Board meetings and telephone discussions ensued between the Merger Committee and
Montgomery and between Montgomery and Merrill Lynch & Co., financial advisor to
Bancorp, which occurred on January 6, 11, 17, 19, 24 and 29 and February 5, 1996
and addressed, among other things, the ability of Bancorp to offer all cash;
various fixed prices or a "collar" range for Bancorp Common Stock prices and the
determination thereof over twenty (20) or more actual trading days prior to a
merger; increases in the total consideration and expanding the collar range from
a range of $15 to $19 to a range of $14 to $20; the intent to achieve tax-free
reorganization treatment for the stock consideration to be received; and the
understanding that the Savings Association Insurance Fund ("SAIF") special
assessment, the deferred tax for bad debt deductions, the new Directors'
Retirement Plan and the payment of First Public's regular $500,000 dividend in
June, 1996 would not affect the total consideration to be paid by Bancorp.
Following the foregoing meetings and negotiations, the Board received an
additional letter of interest on January 28, 1996, and again on January 29 and
January 30, 1996, each with improved negotiated terms. On February 5, 1996, the
Board met to consider the "Preliminary Indication of Interest" letter from
Bancorp dated January 30, 1996 setting forth a transaction value of $32 million,
51% of which would be paid with Bancorp Common Stock and 49% of which would be
paid in cash, subject to certain adjustments depending on the Calculation Date
Bancorp Stock Price within or without a price collar of $14 to $20 per share, as
well as to discuss the due diligence to be conducted by Bancorp and its
advisors. Further, if the Calculation Date Bancorp Stock Price was below $11 per
share, First Public would have the right to terminate the Agreement. The Board
received an updated analysis of the consideration and price collar for the
Bancorp Common Stock from Montgomery and met with Pillsbury Madison & Sutro LLP
to review the Board's fiduciary duties, including the necessity of conducting
due diligence on Bancorp and the required proxy statement disclosure to First
Public Stockholders. After full consideration of the foregoing, the Board
authorized due diligence to proceed by and between the parties and their
financial advisors, special counsel and accountants pursuant to the mutual
execution of a confidentiality agreement and with the expectation that a
definitive agreement would be negotiated and executed. The Board also approved
the retention of Pillsbury Madison & Sutro LLP as special counsel for the
Bancorp transaction.
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From mid-February to mid-May, 1996, accounting, legal and business and
management due diligence was conducted by each of the parties and their advisors
upon the other. Director Martin Lee was also appointed by the Board to serve on
the Merger Committee. Additionally, drafts of definitive agreements with
provisions customary to such agreements and certain specific regulatory, tax and
corporate provisions were reviewed and negotiated by the Merger Committee and
Bancorp and their respective advisors. In addition to the structure of the
Merger (that is, that First Public would merge directly with CB and not be
acquired as a separate subsidiary of Bancorp), the negotiations concluded on the
basis that the Total Stock Consideration would be 51% of the Total Consideration
Value in order that the Merger would qualify for tax reorganization treatment
under the Internal Revenue Code (the "Code"). The final draft of the Agreement
provided for a total price, in stock and cash, of $31.6 million (if the
Calculation Date Bancorp Stock Price is between $14.00 and $20.00) to reflect
certain valuation adjustments agreed upon after the completion of Bancorp's due
diligence. On May 30, 1996, the Board reviewed the final negotiations with
Bancorp by its advisors and the Merger Committee; reviewed the Board's fiduciary
duties with special counsel; and received the written opinion of Montgomery that
the consideration to be received by the First Public Stockholders was fair to
such stockholders from a financial point of view, as of the date of such
opinion.
Following its review of, and based upon the information and advice received
from its advisors, on May 30, 1996, the Board approved the execution of the
Agreement and authorized its submission to First Public Stockholders for
approval.
RECOMMENDATION OF THE BOARD OF DIRECTORS AND REASONS FOR THE MERGER
The Board has determined that the Agreement and the Merger are in the best
interests of First Public and its stockholders, and unanimously recommends that
the First Public Stockholders approve the Agreement. In arriving at this
conclusion, the Board considered several factors, including those mentioned
above, although the Board did not assign any specific or relative weight to any
factor. The factors considered were:
(i) the significant cost of future growth and the competitive
challenges faced by First Public despite its successful earnings
history and unique customer base;
(ii) the current and prospective economic environment, and regulatory
burdens and constraints facing commercial banks and savings banks,
such as First Public, particularly in Southern California;
(iii) the current disparity in FDIC insurance rates between commercial
banks and savings banks and the uncertainty regarding the role and
competitiveness of savings banks in the future considering current
legislative proposals to restructure the banking industry;
(iv) the illiquid nature of First Public stock due to the lack of an
efficient trading market;
(v) the difficulty of establishing a market value for First Public stock
due in part to the lack of an efficient trading market for First
Public stock;
(vi) the fact that Bancorp's offer contained a premium in excess of
First Public's book value;
(vii) the opinion of Montgomery that the consideration to be received by
the First Public Stockholders in the Merger is fair, from a
financial point of view, to them; and
(viii) the fact that the consideration to be paid to First Public
Stockholders compared favorably with (a) prices in other comparable
thrift acquisitions reviewed by Montgomery, and (b) future
performance projections for First Public, recognizing its existing
narrow marketing focus and conservative growth preference.
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The Board has unanimously approved the Agreement as being fair to and in
the best interest of the First Public Stockholders. ACCORDINGLY, THE BOARD
UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE AGREEMENT.
OPINION OF FINANCIAL ADVISOR
Pursuant to an engagement letter dated July 21, 1993, as amended January
17, 1996 (the "Engagement Letter") between First Public and Montgomery, First
Public retained Montgomery as its financial advisor in connection with the
consideration by First Public's Board of Directors of a possible sale of First
Public. Montgomery is a nationally recognized firm and, as part of its
investment banking activities, is regularly engaged in the valuation of
businesses and their securities in connection with merger transactions and other
types of acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. First Public selected Montgomery as its financial adviser on
the basis of its experience and expertise in transactions similar to the Merger
and its reputation in the banking, savings and loan and investment communities.
At the May 30, 1996 meeting of First Public's Board of Directors,
Montgomery delivered its oral opinion, subsequently confirmed in writing as of
such date, that the Merger Consideration to be paid to the holders of First
Public Common Stock pursuant to the Merger was fair to First Public and its
stockholders, from a financial point of view, as of such date. No limitations
were imposed by First Public on Montgomery with respect to the investigations
made or procedures followed in rendering its opinion.
THE FULL TEXT OF MONTGOMERY'S WRITTEN OPINION TO THE FIRST PUBLIC BOARD OF
DIRECTORS DATED MAY 30, 1996, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS OF REVIEW BY MONTGOMERY, IS ATTACHED HERETO AS ANNEX
3 AND IS INCORPORATED HEREIN BY REFERENCE AND SHOULD BE READ CAREFULLY AND IN
ITS ENTIRETY IN CONNECTION WITH THIS PROXY STATEMENT-PROSPECTUS. THE FOLLOWING
SUMMARY OF MONTGOMERY'S OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF THE OPINION. MONTGOMERY'S OPINION IS ADDRESSED TO THE FIRST PUBLIC
BOARD ONLY AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF FIRST
PUBLIC AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SPECIAL MEETING. IN
FURNISHING ITS OPINION, MONTGOMERY DID NOT ADMIT THAT IT IS AN EXPERT WITHIN THE
MEANING OF THE TERM "EXPERT" AS USED IN THE SECURITIES ACT AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER, OR THAT ITS OPINION CONSTITUTES A REPORT OR
VALUATION WITHIN THE MEANING OF SECTION 11 OF THE SECURITIES ACT AND THE RULES
AND REGULATIONS PROMULGATED THEREUNDER, AND STATEMENTS TO SUCH EFFECT ARE
INCLUDED IN THE TEXT OF MONTGOMERY'S WRITTEN OPINION.
In connection with its opinion, Montgomery, among other things: (i)
reviewed certain publicly available financial and other data with respect to
First Public and Bancorp, including the consolidated financial statements of
First Public and Bancorp for recent years and interim periods to March 31, 1996
and certain other relevant financial and operating data relating to First Public
and Bancorp made available to Montgomery from published sources and from the
internal records of First Public and Bancorp, respectively; (ii) reviewed the
May 30, 1996 draft of the Merger Agreement; (iii) reviewed certain publicly
available information concerning the trading of, and the trading market for,
Bancorp Common Stock; (iv) compared First Public and Bancorp from a financial
point of view with certain other companies in the savings and loan and banking
industries which Montgomery deemed to be relevant; (v) considered the financial
terms, to the extent publicly available, of selected recent business
combinations in the savings and loan industry which Montgomery deemed to be
comparable, in whole or in part, to the Merger; (vi) reviewed and discussed with
representatives of the management of First Public and Bancorp certain
information of a business and financial nature regarding First Public and
Bancorp, respectively, furnished to Montgomery by First Public and Bancorp,
including financial forecasts and related assumptions of First Public and
Bancorp; (vii) made inquiries regarding and discussed the Merger and the Merger
Agreement and other matters related thereto with First Public's counsel; and
(viii) performed such other analyses and examinations as Montgomery deemed
appropriate.
In connection with its review, Montgomery relied upon the accuracy and
completeness of the forgoing information and did not assume any obligation
independently to verify such information. With respect to the
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financial forecasts for First Public and Bancorp provided to Montgomery by First
Public's management and Bancorp's management, Montgomery assumed for purposes of
its opinion that the forecasts were reasonably prepared on bases reflecting the
best available estimates and judgments of First Public's management and
Bancorp's management at the time of preparation as to the future financial
performance of First Public and Bancorp and that they provided a reasonable
basis upon which Montgomery could form its opinion. Montgomery also assumed that
there had been no material changes in First Public's or Bancorp's assets,
financial condition results of operations, business or prospects since the
respective dates of their last financial statements made available to
Montgomery. Montgomery relied on the advice provided to First Public and Bancorp
by their counsel and independent accountants as to all legal and financial
reporting matters with respect to First Public, Bancorp, the Merger and the
Merger Agreement. In rendering its opinion, Montgomery expressed no view with
respect to, nor did it consider the tax consequences of the Merger to any
shareholder of First Public. Montgomery assumed that the Merger will be
conducted in a manner that complies in all respects with the applicable
provisions of the Securities Act and the Exchange Act and all other applicable
federal and state statutes, rules and regulations. In addition, Montgomery is
not an expert in the valuation of loan portfolios for purposes of assessing the
adequacy of the allowances for losses with respect thereto and assumed, with
First Public's consent, that such allowances for each of First Public and
Bancorp are in the aggregate adequate to cover such losses. In addition,
Montgomery did not assume responsibility for reviewing any individual credit
files, or making an independent evaluation, appraisal or physical inspection of
any of the assets or liabilities (contingent or otherwise) of First Public or
Bancorp, nor was Montgomery furnished with any such appraisals. Finally,
Montgomery's opinion was based on economic, monetary and market and other
conditions as in effect on, and the information made available to Montgomery as
of, May 30, 1996. Accordingly, although subsequent developments might have
affected the opinion, Montgomery has not assumed any obligation to update,
revise or reaffirm the opinion.
Montgomery further assumed, with First Public's consent, that the Merger
will be consummated in accordance with the terms described in the Merger
Agreement, without any further amendments thereto, and without waiver by First
Public of any of the conditions to its obligations thereunder.
Set forth below is a brief summary of the report presented by Montgomery to
the First Public Board on May 30, 1996 in connection with its opinion.
Analysis of Selected Comparable Publicly Traded Companies. Montgomery
compared publicly available financial information of certain publicly traded
California savings & loans (the "Comparable Companies"), separated into large
and small capitalization groups. The large capitalization group included H.F.
Ahmanson & Company, Cal Fed Bancorp, Inc., Coast Savings Financial, Golden West
Financial, Glendale Federal Bank, FSB and Great Western Financial. The small
capitalization group included America First Financial Fund (Eureka), Bay View
Capital Corp., CENFED Financial Corp., California Financial Holdings, Downey
Financial Corp. and FirstFed Financial Corp. Montgomery calculated multiples for
the Comparable Companies of stock price to tangible book value, stock price to
latest twelve month ("LTM") earnings and stock price to 1995 earnings.
Montgomery noted that the median 1995 return on assets for the small
capitalization group and large capitalization groups were 0.26% and 0.45%,
respectively. First Public's return on assets for 1995 was 1.09%. The multiple
of stock price to LTM earnings was relatively high for the Comparable Companies
because earnings were low. This analysis showed median multiples of 1.2, 13.5
and 10.2, respectively, for all Comparable Companies, 1.38, 13.1 and 10.6,
respectively, for the large capitalization Comparable Companies and 1.05, 15.5
and 10.2, respectively, for the small capitalization Comparable Companies. In
comparison, based on an overall offer price of $8.00 per share, Montgomery
determined that the consideration to be received by the holders of First Public
Common Stock in the Merger represented multiples of 1.39, 11.2 and 10.7,
respectively.
Montgomery also calculated ratios of price to deposits and premium (i.e.
transaction price in excess of book value) to Core Deposits (defined as total
deposits minus certificates of deposit). This analysis showed median ratios
(expressed as a percentage) of 9.7% and 1.94%, respectively, for all Comparable
Companies, 9.4% and 3.08%, respectively, for large capitalization Comparable
Companies and 9.7% and 0.31%, respectively, for small capitalization Comparable
Companies. In comparison, based on an overall assumed offer price of $8.00 per
share (based upon Bancorp's closing stock price of $16.00 per share on May 29,
1996),
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Montgomery determined that the consideration to be received by the holders of
First Public Common Stock in the Merger represented ratios of 13.4% and 3.79%,
respectively.
Analysis of Selected Comparable Transactions. Montgomery reviewed the
financial terms of 9 California thrift mergers from 1995 and 18 California
thrift mergers between 1991 and 1995 which Montgomery deemed to be similar to
the Merger (the "Comparable Transactions"). For each group of Comparable
Transactions, Montgomery compiled figures illustrating, among other things, the
multiples of transaction price to tangible book value and transaction price to
LTM earnings (once again, Montgomery noted that this multiple is high because
the LTM earnings in Comparable Transactions were low), as well as the ratio of
price to deposits and premium to Core Deposits (expressed as a percentage).
The figures for 1995 and 1991-1995 Comparable Transactions produced: (i)
median multiples of transaction price to tangible book value of 1.22 and 1.20,
respectively, (ii) median multiples of transaction price to LTM earnings of 22.5
and 14.3, respectively, (iii) median ratios of transaction price to deposits
(expressed as a percentage) of 8.0% and 7.1%, respectively, and (iv) median
ratios of premium to Core Deposits (expressed as a percentage) of 1.94% and
1.30%, respectively. In comparison, based on an assumed overall offer price of
$8.00 per share, Montgomery determined that the consideration to be received by
the holders of First Public Common Stock in the Merger represented a multiple of
transaction price to tangible book value of l.39, a multiple of transaction
price to LTM earnings of 11.2, a ratio of transaction price to deposits
(expressed as a percentage) of 13.4% and a ratio of premium to Core Deposits
(expressed as a percentage) of 3.79%.
No other company or transaction used in the above analysis as a comparison
is identical to First Public, Bancorp 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 factors that could affect the public
trading volume of the companies to which First Public, Bancorp and the Merger
are being compared.
The summary set forth above does not purport to be a complete description
of the presentation by Montgomery to the First Public Board or of the analyses
performed by Montgomery. The preparation of a fairness opinion is not
necessarily susceptible to partial analysis or summary description. Montgomery
believes that its analyses and the summary set forth above must be considered as
a whole and that selecting portions of its analyses and of the factors
considered, without considering all analyses and factors, would create an
incomplete view of the process underlying the analyses set forth in its
presentation to the First Public Board. In addition, Montgomery may have given
various analyses more or less weight than other analyses, and may have deemed
various assumptions more or less probable than other assumptions, so that the
ranges of valuations resulting from any particular analysis described above
should not be taken to be Montgomery's view of the actual value of First Public
or the combined company. The fact that any specific analysis has been referred
to in the summary above is not meant to indicate that such analysis was given
greater weight than any other analysis.
In performing its analyses, Montgomery made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of First Public and Bancorp.
The analyses performed by Montgomery are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than those suggested by such analyses. Such analyses were prepared
solely as part of Montgomery's analysis of the fairness of the Merger to First
Public and were provided to the First Public Board in connection with the
delivery of Montgomery's opinion. The analyses do not purport to be appraisals
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. Montgomery used in its analyses various projections of future
performance prepared by the managements of First Public and Bancorp. 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 set forth in
such projections.
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As described above, Montgomery's opinion and presentation to the First
Public Board were among the many factors taken into consideration by the First
Public Board in making its determination to approve, and to recommend that its
stockholders approve, the Merger.
Pursuant to the Engagement Letter, First Public paid Montgomery a retainer
fee of $25,000 and a cash fee of $100,000 in 1994. In June, 1996, First Public
paid Montgomery a fee equal to $62,500 which was due upon the signing of the
Merger Agreement. Upon consummation of the Merger, First Public will pay
Montgomery an additional fee equal to $62,500. As a result, a significant
portion of Montgomery's fee will be contingent upon consummation of the Merger.
First Public has also agreed to reimburse Montgomery for its reasonable
out-of-pocket expenses, including legal fees. First Public has agreed to
indemnify Montgomery, its affiliates, and their respective partners, directors,
officers, agents, consultants, employees and controlling persons against certain
liabilities, including liabilities under the federal securities laws.
In the ordinary course of its business, Montgomery actively trades the
equity securities of Bancorp for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. Montgomery has also performed various investment banking
services for First Public.
THE MERGER
THE TERMS AND CONDITIONS OF THE MERGER ARE SET FORTH IN THE AGREEMENT
ATTACHED TO THIS PROXY STATEMENT-PROSPECTUS AS ANNEX 1 AND INCORPORATED HEREIN
BY REFERENCE. THE FOLLOWING SUMMARIZES AND REFERENCES THE MATERIAL TERMS THEREOF
AND FIRST PUBLIC STOCKHOLDERS ARE URGED TO REVIEW THE ENTIRE AGREEMENT.
GENERAL EFFECTS
At the Effective Time, First Public will merge with and into Cathay Bank
("CB"), its charter as a federal savings bank will be cancelled and returned to
the OTS and First Public will cease to exist. The holders of First Public Stock
(other than those holders exercising dissenters' rights) will no longer be
stockholders of First Public as of the Effective Time and instead will be
entitled to receive either cash or Bancorp Common Stock pursuant to the formula,
limitations and election and allocation procedures set forth in the Agreement.
The formula provided in the Agreement implements a limitation whereby, in all
cases, 51 percent (51%) of the consideration to be received by First Public
Stockholders shall be Bancorp Common Stock and 49 percent (49%) shall be the
cash necessary in order to assure the Merger qualifies as a reorganization under
the Code. See "-- Consideration" and "-- Certain Federal Income Tax
Consequences". Former First Public Stockholders who receive Bancorp Common Stock
will become shareholders of Bancorp by reason of the Merger. See "Comparison of
Certain Rights of Holders of First Public Stock and Holders of Bancorp Common
Stock".
CONSIDERATION
When the Merger is consummated, First Public Stockholders (other than those
holders exercising dissenters' rights) will be entitled to receive the Per Share
Stock Consideration or the Per Share Cash Consideration (or under certain
circumstances and upon election of the proration option, a combination of
Bancorp Common Stock and cash) pursuant to the terms of the Agreement and
elections which can be made by each stockholder. ALTHOUGH EACH FIRST PUBLIC
STOCKHOLDER MAY ONLY ELECT TO RECEIVE ALL CASH OR ALL BANCORP COMMON STOCK FOR
ALL SUCH HOLDER'S SHARES OF FIRST PUBLIC STOCK (OR MAY MAKE NO ELECTION),
BECAUSE THE AGGREGATE NUMBER OF SHARES OF BANCORP COMMON STOCK AND THE AGGREGATE
AMOUNT OF CASH TO BE EXCHANGED IN THE MERGER WILL BE FIXED UNDER THE FORMULA AND
BY THE ALLOCATION PROCEDURES SET FORTH IN THE AGREEMENT, NO ASSURANCE CAN BE
GIVEN THAT AN ELECTION BY ANY GIVEN FIRST PUBLIC STOCKHOLDER WILL BE HONORED.
THUS, HOLDERS MAY NOT RECEIVE THEIR REQUESTED FORM OF CONSIDERATION AND, IN SOME
CASES IF THEY MAKE A FURTHER PRORATION ALLOCATION ELECTION, MAY RECEIVE BOTH
CASH AND BANCORP COMMON STOCK. SEE "-- ELECTION AND ALLOCATION PROCEDURES."
As of the Effective Time, each share of First Public Stock, excluding
Dissenting Shares, which is outstanding immediately before the Effective Time
shall, by virtue of the Merger and without any action on
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the part of the holder thereof, be converted into the right to receive the Per
Share Cash Consideration or the Per Share Stock Consideration, respectively, as
calculated below and subject to the limitations and allocation procedures in the
Agreement.
The Total Consideration Value to be received by the First Public
Stockholders, excluding Dissenting Shares, shall be determined as set forth
below:
(i) If the Calculation Date Bancorp Stock Price is at least $14.00 but
not greater than $20.00, the Total Consideration Value shall be equal to
$31,600,000, the Total Cash Consideration shall be equal to $15,484,000 and
the Total Stock Consideration shall be equal to the quotient of (a)
$16,116,000 divided by (b) the Calculation Date Bancorp Stock Price.
(ii) If the Calculation Date Bancorp Stock Price is less than $14.00,
the Total Consideration Value shall be equal to the sum of (a) $15,484,000
plus (b) the product of the Calculation Date Bancorp Stock Price multiplied
by 1,151,143. The Total Cash Consideration shall be equal to 49% of the
Total Consideration Value. The Total Stock Consideration shall be equal to
the quotient of (x) 51% of the Total Consideration Value divided by (y) the
Calculation Date Bancorp Stock Price.
(iii) If the Calculation Date Bancorp Stock Price is greater than
$20.00 but not greater than $23.00, the Total Consideration Value shall be
equal to the sum of (a) $15,484,000 plus (b) the product of the Calculation
Date Bancorp Stock Price multiplied by 805,800. The Total Cash
Consideration shall be equal to 49% of the Total Consideration Value. The
Total Stock Consideration shall be equal to the quotient of (x) 51% of the
Total Consideration Value divided by (y) the Calculation Date Bancorp Stock
Price.
(iv) If the Calculation Date Bancorp Stock Price is greater than
$23.00, the Total Consideration Value shall be equal to $34,017,000. The
Total Cash Consideration shall be equal to $16,668,330 and the Total Stock
Consideration shall be equal to the quotient of (x) $17,348,670 divided by
(y) the Calculation Date Bancorp Stock Price.
Per Share Cash Consideration. The Per Share Cash Consideration shall be
equal to the quotient of (i) Total Cash Consideration divided by (ii) the sum of
the total number of shares of First Public Stock to be converted into to the
right to receive cash as determined under the limitations and the allocation
procedures set forth in the Agreement. See "-- Election and Allocation
Procedures".
Per Share Stock Consideration. The Per Share Stock Consideration shall be
equal to the quotient of (i) Total Stock Consideration divided by (ii) the sum
of the total number of shares of First Public Stock to be converted into the
right to receive Bancorp Common Stock as determined under the limitations and
the allocation procedures set forth in the Agreement. See "Election and
Allocation Procedures."
The Calculation Date Bancorp Stock Price shall be the quotient of (i) the
sum of each of the high and low sales prices of Bancorp Common Stock as reported
in The Wall Street Journal as Nasdaq National Market System transactions on each
of the twenty (20) days on which Bancorp Common Stock was traded immediately
before the date which is five business days before the Closing Date divided by
(ii) 40. In the event of any stock dividend, stock distribution, stock split,
reverse stock split, extraordinary dividend or partial or liquidating
distribution effected with respect to Bancorp Common Stock between the first of
such trading days and the Effective Time, appropriate adjustments will be made
in the foregoing formula.
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ELECTION AND ALLOCATION PROCEDURES
Election Procedures. An election form, with instructions and other
transmittal materials (collectively, the "Election Form"), is being mailed to
First Public Stockholders at the same time as, and together with, this Proxy
Statement-Prospectus. Subject to the limitations and the allocation procedures
in the Agreement, the Election Form permits each First Public Stockholder (or
the beneficial owner through appropriate and customary documentation and
instructions) to elect to receive only Bancorp Common Stock with respect to such
holder's First Public Stock ("Stock Election Shares"), to elect to receive only
cash with respect to such holder's First Public Stock ("Cash Election Shares")
or to indicate that such holder makes no election ("No Election Shares"). The
Election Form permits each First Public Stockholder to make a further election
as to whether, if all elections cannot be implemented within the limitations set
forth in the Agreement, the First Public Stockholder desires to have the
decision made on the same basis as if such holder had made no election (and such
shares were thus deemed No Election Shares) or in accordance with a "Proration
Allocation" as described below and in the Agreement.
An effective election shall have been properly made only if American Stock
Transfer & Trust Company, which has been selected by Bancorp and First Public as
the Exchange Agent (the "Exchange Agent"), shall have actually received a
properly completed Election Form by the Election Deadline. An Election Form
shall be deemed properly completed only if accompanied by one or more
certificates (or customary affidavits and indemnification regarding the loss or
destruction of such certificates or the guaranteed delivery of such
certificates) representing all shares of First Public Stock covered by such
Election Form, together with duly executed transmittal materials included in the
Election Form. Certificates will be accepted by the Exchange Agent for (i) First
Public Stock issued prior to the conversion of First Public to a federal savings
bank chartered in 1993 and not previously surrendered for reissue and (ii) stock
certificates not previously submitted for new certificates in connection with
the 1990 20-for-1 stock split of First Public Stock.
Any First Public Stock with respect to which the holder (or the beneficial
owner as the case may be) shall not have submitted to the Exchange Agent an
effective, properly completed Election Form on or before 5:00 p.m. (Pacific
Standard Time) on November 8, 1996 (the "Election Deadline") shall conclusively
be deemed to be No Election Shares. Any Election Form may be revoked or changed
by the person submitting such Election Form at or prior to the Election
Deadline. If an Election Form is revoked prior to the Election Deadline, the
shares of First Public Stock represented by such Election Form shall become No
Election Shares and the Exchange Agent shall return the certificates
representing First Public Stock as promptly as possible without charge to the
First Public Stockholders submitting the Election Form upon written request to
that effect from the holder who submitted the Election Form.
Subject to the terms of the Agreement and of the Election Form, the
Exchange Agent shall have reasonable discretion to determine whether any
election, revocation or change has been properly or timely made and to disregard
immaterial defects in the Election Forms, and any good faith decisions of the
Exchange Agent regarding such matters shall be binding and conclusive. Neither
Bancorp nor the Exchange Agent shall be under any obligation to notify any
person of any defect in an Election Form.
Allocation Procedures. IN THE EVENT THAT THE ELECTIONS RESULT IN AN
OVERSUBSCRIPTION FOR EITHER THE TOTAL STOCK CONSIDERATION OR THE TOTAL CASH
CONSIDERATION, THE PROCEDURES FOR ALLOCATING BANCORP COMMON STOCK AND CASH
PROVIDED IN THE AGREEMENT AND DESCRIBED BELOW WILL BE FOLLOWED BY THE EXCHANGE
AGENT. As of or as soon as practicable after the Effective Time, Bancorp shall
cause the Exchange Agent to effect the allocation among the holders of First
Public Stock of rights to receive Bancorp Common Stock or cash in the Merger in
accordance with the Election Forms as follows if the Stock Elections are either
less than or more than the Total Stock Consideration as determined under the
Agreement:
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Stock Election Shares Less Than Total Stock Consideration, If the number of
shares of Bancorp Common Stock that would be issued in the Merger upon
conversion of the Stock Election Shares is less than the Total Stock
Consideration, then:
(i) all Stock Election Shares shall be converted into the right to
receive Bancorp Common Stock;
(ii) the Exchange Agent shall select, by random selection, first, from
among the holders of No Election Shares and, second (if necessary), from
among holders of Cash Election Shares who have not further elected the
Proration Allocation (as described below and in the Agreement), a
sufficient number of such holders ("Stock Designees") until the number of
shares of Bancorp Common Stock that will be issued in the Merger equals as
closely as practicable (but not more than) the Total Stock Consideration,
and all shares held by the Stock Designees shall be converted into the
right to receive the Per Share Stock Consideration, provided that no
particular holder of Cash Election Shares shall be selected to be a Stock
Designee if such designation would prevent the satisfaction of any of the
conditions to Closing set forth in the Agreement;
(iii) after completion of the foregoing selection process, the Cash
Election Shares and No Election Shares not held by Stock Designees shall be
converted into the right to receive the Per Share Cash Consideration unless
the number of shares of Bancorp Common Stock that will be issued in the
Merger is still less than the Total Stock Consideration; and
(iv) if the number of shares of Bancorp Common Stock that will be
issued in the Merger is still less than the Total Stock Consideration after
the completion of the foregoing selection process, each holder of Cash
Election Shares who has further elected the Proration Allocation shall
receive the amount of cash determined under the Proration Allocation and
shall also receive the number of shares of Bancorp Common Stock equal to
the quotient of the amount by which (a) the product of the Per Share Cash
Consideration multiplied by the number of such holder's Cash Election
Shares exceeds (b) the cash to be received by such holder, divided by (2)
the Calculation Date Bancorp Stock Price.
Stock Election Shares More Than Total Stock Consideration. If the number of
shares of Bancorp Common Stock that would be issued in the Merger upon
conversion of the Stock Election Shares is greater than the Total Stock
Consideration, then:
(i) all Cash Election Shares shall be converted into the right to
receive Per Share Cash Consideration;
(ii) the Exchange Agent shall select, by random selection, first, from
among the holders of the No Election Shares and, second (if necessary),
from among holders of Stock Election Shares who have not further elected
the Proration Allocation, a sufficient number of such holders ("Cash
Designees") until the amount of cash that will be paid to First Public
Stockholders in the Merger equals as closely as practicable (but not less
than) the Total Cash Consideration, and all shares held by the Cash
Designees shall be converted into the right to receive the Per Share Cash
Consideration, provided that no particular holder of Stock Election Shares
shall be selected to be a Cash Designee if such designation would prevent
the satisfaction of any of the conditions to Closing set forth in the
Agreement;
(iii) after completion of the foregoing selection process, the Stock
Election Shares and No Election Shares not held by Cash Designees shall be
converted into the right to receive the Per Share Stock Consideration
unless the amount of cash that will be paid to First Public Stockholders in
the Merger is still less than the Total Cash Consideration; and
(iv) if the amount of cash that will be paid to First Public
Stockholders in the Merger is still less than the Total Cash Consideration
after the completion of the foregoing selection process, each holder of
Stock Election Shares who has further elected the Proration Allocation
shall receive the number of shares of Bancorp Common Stock determined under
the Proration Allocation and shall also receive the amount of cash equal to
the product of (1) the amount by which (a) the product of the Per Share
Stock Consideration multiplied by the number of such holder's Stock
Election Shares exceeds (b) the shares of
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Bancorp Common Stock to be received by such holder multiplied by (2) the
Calculation Date Bancorp Stock Price.
The random selection process to be used by the Exchange Agent shall consist
of such selection processes as Bancorp and First Public shall determine, after
consultation with the Exchange Agent, to be fair to the holders of First Public
Stock in giving each such holder an equal likelihood to be selected and
practicable to implement.
Proration Allocation. The Proration Allocation (if necessary) shall be
effected by the Exchange Agent in the following manner:
(i) If Stock Election Shares are less than the Total Stock
Consideration, the Exchange Agent shall allocate the portion of the Total
Cash Consideration payable hereunder among those holders of First Public
Stock who have elected both to receive cash and to be subject to the
Proration Allocation by allocating to each such First Public Stockholder an
amount equal to the Total Cash Consideration pursuant to the limitations
provided for in the Agreement (and after subtracting therefrom all amounts
payable in respect of Dissenting Shares and amounts paid in lieu of
fractional shares) multiplied by a fraction, the numerator of which is the
number of Cash Election Shares held by such holder and the denominator of
which is the total number of Cash Election Shares as to which the Proration
Allocation has been elected by the First Public Stockholders.
(ii) If Stock Election Shares are greater than the Total Stock
Consideration, the Exchange Agent shall allocate the portion of the Total
Stock Consideration payable hereunder among those holders of First Public
Stock who have both elected to receive Bancorp Common Stock and to be
subject to the Proration Allocation by allocating to each such First Public
Stockholder an amount equal to the Total Stock Consideration pursuant to
the limitations provided for in the Agreement multiplied by a fraction, the
numerator of which is the number of Stock Election Shares held by such
holder and the denominator of which is the total number of shares as to
which the Proration Allocation has been elected by the First Public
Stockholders.
If the application of the foregoing provisions would result in any person
receiving a number of shares of Bancorp Common Stock that would prevent the
satisfaction of any of the Closing conditions set forth in the Agreement, the
number of shares otherwise allocable to such person pursuant to the allocation
procedures shall be reduced by such number of shares (the "Excess Shares") as
shall be necessary to enable the satisfaction of all such conditions and cash
shall be paid to such person in lieu thereof in an amount equal to the Per Share
Cash Consideration for each such share. Any Excess Shares shall be reallocated
to and among the categories of holders of First Public Stock, in the order and
pursuant to the methods set forth in the Agreement. In no event shall the Total
Stock Consideration actually paid out to the First Public Stockholders be less
than 51% of the Total Consideration Value.
FRACTIONAL SHARES
To the extent provided by the Agreement, each holder of shares of First
Public Stock issued and outstanding at the Effective Time also shall receive,
upon surrender of the certificate or certificates representing such shares, cash
in lieu of any fractional shares of Bancorp Common Stock to which such holder
would otherwise be entitled. Such cash will be paid in lieu of issuing
fractional shares solely for the purpose of saving Bancorp the expense and
inconvenience of issuing fractional shares and is not consideration which was
separately bargained for.
WITHHOLDING RIGHTS
Bancorp and the Exchange Agent shall be entitled to deduct and withhold
from the consideration otherwise payable upon the Effective Time to former First
Public Stockholders such amounts as Bancorp or the Exchange Agent is required to
deduct and withhold with respect to the making of such payment under the Code,
or any provision of state, local or foreign tax law. To the extent that amounts
are so withheld by Bancorp or the Exchange Agent, such withheld amounts shall be
treated for all purposes of the Agreement as having
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been paid to the former First Public Stockholders in respect of which such
deduction and withholding was made by Bancorp or the Exchange Agent. See
"-- Certain Federal Income Tax Consequences."
ACCOUNTING TREATMENT
The Merger will be accounted for by Bancorp under the purchase method of
accounting in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations," as amended ("APB No. 16"). Under this method of
accounting, the purchase price will be allocated to assets acquired and
liabilities assumed based on their estimated fair values at the Effective Time.
Income of the combined company will not include income (or loss) of First Public
prior to the Effective Time. See "Pro Forma Condensed Combined Financial
Information."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS A SUMMARY DESCRIPTION OF THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER. THIS SUMMARY IS NOT A COMPLETE DESCRIPTION OF ALL
TAX CONSEQUENCES OF THE MERGER AND, IN PARTICULAR, MAY NOT ADDRESS FEDERAL
INCOME TAX CONSIDERATIONS THAT MAY AFFECT THE TREATMENT OF A STOCKHOLDER WHICH
IS A FOREIGN CORPORATION, A NONRESIDENT ALIEN, A TAX-EXEMPT ENTITY, A DEALER IN
SECURITIES OR A HOLDER WHO ACQUIRED FIRST PUBLIC STOCK IN CONNECTION WITH THE
PERFORMANCE OF SERVICES. EACH FIRST PUBLIC STOCKHOLDER'S INDIVIDUAL
CIRCUMSTANCES MAY AFFECT THE TAX CONSEQUENCES OF THE MERGER TO SUCH STOCKHOLDER.
IN ADDITION, NO INFORMATION IS PROVIDED HEREIN WITH RESPECT TO THE TAX
CONSEQUENCES OF THE MERGER UNDER APPLICABLE FOREIGN, STATE OR LOCAL LAWS.
CONSEQUENTLY, EACH FIRST PUBLIC STOCKHOLDER IS ADVISED TO CONSULT A TAX ADVISOR
AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER APPLICABLE TO THAT
STOCKHOLDER.
In general. It is intended that the Merger be treated as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), that each of First Public, Bancorp and CB be treated under
Code Section 368(b) as a "party to a reorganization" and that the exchange by
First Public Stockholders of their First Public Stock for Bancorp Common Stock
or cash have the tax treatment briefly summarized below.
Neither First Public nor Bancorp has requested or will request an advance
ruling from the Internal Revenue Service ("IRS") as to the tax consequences of
the Merger. A condition to First Public's obligation to complete the Merger is
its receipt of an opinion from its special counsel as to the material federal
income tax consequences of the Merger to holders of First Public Stock based on
certain customary factual assumptions set forth therein. The following
discussion is included for general information only and is based on the opinion
required by the terms of the Agreement and on the Code, as in effect on the date
of this Proxy Statement-Prospectus, without consideration of the particular
facts or circumstances of any First Public Stockholder.
The federal income tax consequences of the Merger to the First Public
Stockholders depend in part on the form of consideration received by them.
Receipt of All Bancorp Stock. A First Public Stockholder who receives
solely Bancorp Common Stock in exchange for all shares of First Public Stock
actually owned by such holder will not recognize any gain or loss upon such
exchange for federal income tax purposes. The aggregate tax basis of the Bancorp
Common Stock received in such exchange will be equal (except for the basis
attributable to any fractional share of Bancorp Common Stock described below) to
the aggregate basis of the First Public Stock surrendered in exchange therefor.
Provided the First Public Stock so surrendered was held as a capital asset at
the time of the exchange, the holding period of the Bancorp Common Stock
received will include the holding period of First Public Stock surrendered in
exchange therefor.
Receipt of All Cash. In general, a First Public Stockholder who receives
solely cash in exchange for all of such holder's shares of First Public Stock
will be treated as having redeemed such stock in exchange for the cash received.
Unless the Bancorp Common Stock held by another person is "attributed" to such
holder under Code Section 318 (see discussion below) or the holder owned Bancorp
Common Stock prior to the Merger, such holder should recognize a gain or loss
for federal income tax purposes equal to the difference between the cash
received and the holder's tax basis in the First Public Stock surrendered in
exchange therefor. Assuming such holder, at the time of the exchange, held the
First Public Stock as a capital asset, such gain or loss should be capital gain
or loss, and will be long-term capital gain or loss if the holder's holding
period at that time is
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more than one year. On the other hand, if any Bancorp Common Stock is held by
such holder prior to the Merger or is attributed to such holder under Code
Section 318, then no loss will be recognized and some or all of the cash
received may be treated as dividend income (see discussion below). ANY FIRST
PUBLIC STOCKHOLDER WHO RECEIVES ONLY CASH IN THE MERGER BUT IS ATTRIBUTED
BANCORP COMMON STOCK ACTUALLY OWNED BY A RELATED PARTY OR HOLDS BANCORP COMMON
STOCK PRIOR TO THE MERGER IS STRONGLY ADVISED TO CONSULT HIS OR HER OWN ADVISOR
RESPECTING THE TAX CONSEQUENCES OF THE MERGER ON THAT STOCKHOLDER.
Receipt of Part Cash, Part Bancorp Common Stock. The Agreement provides
that holders of First Public Stock are entitled to elect to receive either all
Bancorp Common Stock, or all cash, or to make no election. Nevertheless, such a
stockholder may receive in the Merger both Bancorp Common Stock and cash, due to
the limitations and the election and allocation procedures set forth in the
Agreement. Such a holder will recognize gain, if any, equal to the lesser of (i)
the amount of cash received or (ii) the amount of gain "realized" in the
transaction. The amount of gain a holder "realizes" will equal the amount by
which (a) the cash plus the fair market value at the Effective Time of the
Bancorp Common Stock received exceeds (b) the holder's basis in the First Public
Stock to be surrendered in the exchange therefor. The aggregate tax basis of the
shares of Bancorp Common Stock received by such holder will be the same as the
aggregate basis of the shares of First Public Stock surrendered in exchange
therefor, adjusted as provided in Section 358(a) of the Code for the cash
received in exchange for such shares of First Public Stock. The holding period
for shares of Bancorp Common Stock received by such holder will include such
holder's holding period for the First Public Stock surrendered in exchange
therefor, provided that such shares were held as capital assets of the holder at
the Effective Time. Depending upon the facts and circumstances pertaining to the
particular First Public Stockholder, the amount of gain recognized in the Merger
could be treated either (i) as capital gain or (ii) as a dividend up to that
holder's ratable share of the earnings and profits of First Public (and perhaps
CB as well) (see discussion below). However, no loss will be recognized in such
cases. AGAIN, EACH FIRST PUBLIC STOCKHOLDER RECEIVING CASH AND BANCORP COMMON
STOCK IS STRONGLY ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR RESPECTING THE
TAX CONSEQUENCES OF THE MERGER ON THAT STOCKHOLDER.
Constructive Ownership of Stock. The constructive ownership rules of
Section 318 of the Code are important in determining whether the cash received
in the Merger by a particular First Public Stockholder will be treated as
capital gain or dividend income. Those rules apply in certain specified
circumstances to "attribute" ownership of stock actually owned by one
stockholder to another person. Hence, a particular First Public Stockholder will
be treated as owning not only the stock actually owned by such holder but also
stock held by certain individuals, trusts, estates, partnerships and
corporations related to such holder. A detailed discussion of the constructive
ownership rules is beyond the scope of this Proxy Statement-Prospectus. Suffice
it to say, however, that each individual First Public Stockholder will be
treated as owning the Bancorp Common Stock owned by members of his or her
family, by any trust, estate, corporation and partnership in which he or she
holds an interest and by any other person which is subject to an option to
purchase by the particular First Public Stockholder, whether or not such Bancorp
Common Stock was acquired as a result of the Merger. Accordingly, in determining
whether the cash received in the Merger will be treated as capital gain or
dividend income below, each First Public Stockholder must take into account not
only the Bancorp Common Stock actually owned by the holder, but also any such
stock held by such related parties after the Merger. EACH FIRST PUBLIC
STOCKHOLDER IS STRONGLY URGED TO SEEK ADVICE FROM HIS OR HER TAX ADVISER AS TO
THE IMPACT OF THE CONSTRUCTION OWNERSHIP RULES ON THE TAXATION OF ANY CASH
RECEIVED BY THAT HOLDER IN THE MERGER.
Possible Dividend Treatment for Cash Received. The characterization of the
cash received by a particular First Public Stockholder in the Merger as capital
gain or dividend income depends upon principles developed under Code Section
356. That statute provides that such cash will be taxed as a dividend if the
Merger "has the effect of the distribution of a dividend" to the receiving First
Public Stockholder, taking the constructive ownership rules of Code Section 318
into account. Whether a particular cash distribution has the effect of a
dividend is determined by analogy to the rules governing the tax
characterization of redemption proceeds. In the case of the Merger, of course,
no redemption will actually occur. However, each First Public Stockholder who
receives cash will be treated as having received only Bancorp Common Stock (with
a transaction value equal to the cash and any stock actually received in the
Merger) and then having redeemed the portion of such stock equivalent to the
cash actually received. The holder then determines the extent to
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which such holder's proportionate interest in Bancorp Common Stock has been
reduced by the deemed redemption. In making this determination, the constructive
ownership rules of Code Section 318 apply. The various criteria set forth in
Code Section 302 (pertaining to redemptions) are then applied to the reduction
(if any) in the holder's proportionate interest in Bancorp which is deemed to
have occurred by virtue of the hypothetical redemption.
If the holder's proportionate interest after the hypothetical redemption
(including stock constructively owned) is zero, then none of the cash received
by that holder in the Merger will be treated as a dividend. Similarly, no
dividend treatment results where the holder's proportionate interest in Bancorp
is less than 80% of the proportionate interest in Bancorp immediately prior to
the hypothetical redemption (but after the Merger). For example, assume that a
particular First Public Stockholder receiving cash in the Merger would have
owned (actually and constructively) 5% of the outstanding Bancorp Common Stock
if he had received only stock in the Merger. After giving effect to the
hypothetical redemption, if the holder (actually and constructively) owns less
than 4% of the outstanding Bancorp Common Stock, then the cash received by that
holder should be accorded capital gain treatment (if the stock is held as a
capital asset).
In all other cases (i.e., where the reduction in interest due to the
hypothetical redemption is 20% or less), capital gain treatment will depend upon
whether there has been a "meaningful reduction" in the holder's proportionate
interest. There are no objective standards prescribed for determining whether a
meaningful reduction has occurred. However, dividend treatment should not occur
in the case of a minority Bancorp stockholder whose relative stock interest in
Bancorp is minimal, who exercises no control over the affairs of Bancorp and who
experiences a significant reduction in the stockholder's proportionate stock
interest (i.e., his or her voting rights, right to participate in current
earnings and accumulated surplus and right to share in net assets of Bancorp on
liquidation). Nevertheless, the "meaningful reduction" test has been subject to
varied and conflicting interpretations. In general, it can be expected that the
risk of dividend treatment among those First Public Stockholders receiving cash
will be the greatest for those whose proportionate interest in Bancorp is
reduced the least, and the risk should be the least for those whose interest is
reduced the most. Where the line is crossed between capital gain and dividend
treatment within this spectrum is not clear. ACCORDINGLY, EACH FIRST PUBLIC
STOCKHOLDER RECEIVING CASH IS STRONGLY ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE POSSIBLE DIVIDEND TREATMENT FOR CASH RECEIVED IN THE MERGER.
Cash Received in Lieu of Fractional Shares. First Public Stockholders who
hold First Public Stock as a capital asset and who receive in the Merger, in
exchange for such stock, Bancorp Common Stock and cash in lieu of a fractional
share interest in Bancorp Common Stock will be treated as having received such
fraction of a share of Bancorp Common Stock and then having received cash in
redemption by Bancorp of the fractional share interest. Under IRS guidelines,
since the cash is being distributed in lieu of fractional shares solely for the
purpose of saving Bancorp the expense and inconvenience of issuing and
transferring fractional shares, and is not separately bargained-for
consideration, the cash received will be treated as having been received in part
or full payment in exchange for the fractional share of stock redeemed, and not
as a dividend.
Backup Withholding. Unless an exemption applies, the Exchange Agent will be
required to withhold, and will withhold, 31% of any cash payments to which a
former First Public Stockholder or other payee is entitled pursuant to the
Merger, unless the stockholder or other payee provides his or her tax
identification number (social security number or employer identification number)
and certifies that such number is correct. Each First Public Stockholder and, if
applicable, each other payee are required to complete and sign the Substitute
Form W-9 that will be included with the instructions from the Exchange Agent and
the Election Form to avoid backup withholding (or W-8 if the stockholder is a
nonresident alien or foreign entity), unless an applicable exemption exists and
is proved in a manner satisfactory to Bancorp and the Exchange Agent.
SINCE THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO THE FIRST PUBLIC
STOCKHOLDERS DEPEND TO A GREAT EXTENT ON WHETHER THEY RECEIVE BANCORP COMMON
STOCK OR CASH, IT IS IMPORTANT THAT EACH FIRST PUBLIC STOCKHOLDER RETURNS THE
ELECTION FORM DISCUSSED BELOW TO THE EXCHANGE AGENT PROMPTLY AND AS DIRECTED BY
ITS INSTRUCTIONS, SO AS TO BE RECEIVED BEFORE THE ELECTION DEADLINE.
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RESALES OF BANCORP COMMON STOCK
Bancorp Common Stock to be issued to shareholders of First Public in
connection with the Merger will be registered under the Securities Act. All
shares of Bancorp Common Stock received by former First Public Stockholders, and
all shares of Bancorp Common Stock issued and outstanding immediately prior to
the Effective Time, upon consummation of the Merger will be freely transferable
by those former First Public Stockholders and Bancorp stockholders not deemed to
be "Affiliates" of First Public or Bancorp. "Affiliates" generally are defined
as persons or entities who control, are controlled by, or are under common
control with First Public or Bancorp (including, executive officers and
directors).
Rules 144 and 145 promulgated under the Securities Act restrict the sale of
Bancorp Common Stock received in the Merger by Affiliates and certain of their
family members and related interests. Generally speaking, the rules, as
currently in effect, provide that during the two years following the Effective
Time, Affiliates of First Public or Bancorp may resell publicly the Bancorp
Common Stock received by them in the Merger within certain limitations as to the
amount of Bancorp Common Stock sold in any three-month period and as to the
manner of sale. After the two-year period, such Affiliates of First Public who
are not Affiliates of Bancorp may resell their shares without restriction. The
volume limitation provisions of Rule 144 applicable to the resale of Rule 145
securities limits the number of shares which may be sold in any three-month
period to the greater of (i) 1% of the outstanding shares of the class of
securities being sold or (ii) the average weekly trading volume for the four
calendar weeks preceding the placing with a broker of an order to execute a sale
of the securities in reliance on Rule 145(d) or the execution with a market
maker of such a sale. A resale of Rule 145 securities under Rule 145(d)(1) must
be made in ordinary brokers' transactions or in transactions directly with a
"market maker," including "specialists."
The ability of Affiliates to resell shares of Bancorp Common Stock received
in the Merger under Rule 144 or 145 as summarized herein generally will be
subject to Bancorp's having satisfied its Exchange Act reporting requirements
for specified periods prior to the time of sale. Affiliates will receive
additional information regarding the effect of Rules 144 and 145 on their
ability to resell Bancorp Common Stock received in the Merger. The SEC has
proposed an amendment to Rule 144 that, if adopted, would reduce the holding
period to one year. Affiliates also would be permitted to resell Bancorp Common
Stock received in the Merger pursuant to an effective registration statement
under the Securities Act which expressly covers such shares or an available
exemption from the Securities Act registration requirements. This Proxy
Statement-Prospectus does not cover any resales of Bancorp Common Stock received
by persons who may be deemed to be Affiliates of First Public or Bancorp.
First Public has agreed to use its reasonable efforts to cause each person
who may be deemed to be an Affiliate of First Public to execute and deliver to
Bancorp not later than 40 days prior to the Effective Time an agreement (each,
an "Affiliate Agreement") providing that such Affiliate will not sell, pledge,
transfer, or otherwise dispose of any Bancorp Common Stock obtained as a result
of the Merger (i) except in compliance with the Securities Act and the rules and
regulations of the SEC thereunder and (ii) in any case, until after results
covering thirty (30) days of post-Merger operations of Bancorp have been
published. Certificates representing shares of First Public Stock surrendered
for exchange by any person who is an Affiliate of First Public for purposes of
Rule 145(c) under the Securities Act shall not be exchanged for certificates
representing shares of Bancorp Common Stock until Bancorp has received a written
Affiliate Agreement from such person. Prior to publication of such results,
Bancorp will not transfer on its books any shares of Bancorp Common Stock
received by an Affiliate pursuant to the Merger. The stock certificates
representing Bancorp Common Stock issued to Affiliates in the Merger may bear a
legend summarizing the foregoing restrictions. See "-- Conditions to
Consummation of the Merger."
EFFECTIVE TIME
The Merger will be consummated and legally effective and all the other
transactions contemplated by the Agreement will have been or will be completed
on the Closing Date, which shall occur, unless agreed otherwise, no later than
the fifteenth business day after the satisfaction or waiver of the last of the
conditions precedent to the parties' obligations to effect the Merger, including
Bancorp's receipt of all regulatory
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approvals, First Public's receipt of stockholder approval and both parties'
performance of certain covenants in the Agreement. The date and time of the
required filing on the Closing Date with the Superintendent of a copy of the
Agreement previously filed with and certified by the California Secretary of
State is referred to in the Agreement as the "Effective Time." See "Regulatory
and Economic Risk Factors" and "-- Conditions to Consummation of the Merger."
DELIVERY AND PAYMENT OF THE TOTAL CONSIDERATION
First Public Stockholders will also receive herewith an Election Form and
Transmittal Instructions (the "Election Form") from the Exchange Agent. See
"-- Election and Allocation Procedures." Bancorp will deliver the funds and
Bancorp Common Stock necessary to provide for payment of the Total Cash
Consideration and the Total Stock Consideration to the Exchange Agent no later
than the Effective Time (except for shares as to which dissenters' rights have
been exercised). See "-- Election and Allocation Procedures" and "Dissenters'
Rights."
CERTIFICATES FOR SHARES OF FIRST PUBLIC STOCK SHOULD BE FORWARDED TO THE
EXCHANGE AGENT AS PROVIDED IN THE ELECTION FORM. SHARE CERTIFICATES SHOULD NOT
BE RETURNED WITH THE ENCLOSED PROXY CARD WHICH IS TO BE RETURNED TO FIRST PUBLIC
IN THE SEPARATE ENVELOPE ENCLOSED FOR THAT DELIVERY.
First Public Stockholders who submit certificates issued prior to the
conversion of First Public to a federal savings bank charter in 1993 which were
not previously submitted for new certificates for shares in connection with the
1990 20-for-1 stock split shall nevertheless be entitled to payment as provided
herein upon proper presentation of certificates or any affidavit the Exchange
Agent may require.
If payment is to be made to a person other than one in whose name the
certificate representing the shares is registered, the Exchange Agent may
require as a condition of payment that the certificate surrendered be properly
endorsed (with such signatures guaranteed as may be required by the Exchange
Agent) or otherwise be in proper form for transfer, and that the person
requesting such payment either pay to the Exchange Agent any transfer or other
taxes required by reason of the payment to the person other than the registered
holder of the certificate surrendered, or establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not applicable.
POST EFFECTIVE TIME
Ninety (90) days after the Effective Time, Bancorp will receive any
remaining funds on deposit and any unissued Bancorp Common Stock with the
Exchange Agent that have not been paid to former First Public Stockholders.
Thereafter, any former First Public Stockholder, who had not previously
surrendered his or her certificates to the Exchange Agent, will be entitled to
receive payment for his or her shares, without interest, upon surrendering his
or her shares to Bancorp, subject to applicable escheat or abandoned property
laws.
After the Effective Time, there will be no further registration of
transfers on the records of First Public of shares of First Public Stock owned
prior to the Effective Time, and if a certificate formerly representing such
shares is presented to Bancorp, it will be held or forwarded to the Exchange
Agent, as appropriate, for cancellation and exchanged for the Per Share Cash
Consideration or the Per Share Stock Consideration due for such shares.
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
The Agreement contains customary representations and warranties relating to
the status and operations of First Public, Bancorp and CB, including, among
other things, representations as to (i) legal organization and corporate
authority; (ii) the authorization and enforceability of the Agreement; (iii)
capitalization and outstanding shares; (iv) the accuracy of information supplied
in this Proxy Statement-Prospectus; (v) loans, investments and other assets;
(vi) compliance with banking laws and regulations; (vii) the lack of any
material litigation; (viii) the accuracy and completeness of financial
statements; (ix) contract and lease obligations; (x) insurance coverage and
claims; (xi) tax filings; (xii) hazardous materials exposure; and (xiii)
employee compensation and benefits. See Annex 1.
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COVENANTS
The Agreement contains certain general and specific restrictions on the
conduct of First Public's business prior to the Effective Time unless Bancorp
otherwise consents in writing. Generally, First Public must conduct its affairs
only in the ordinary course of business consistent with past practice and in
material compliance with applicable laws, regulations, rules and directives, use
all reasonable efforts to preserve intact its present business organization, use
its best efforts to keep its assets and facilities in good repair, keep
available the services of its present officers and employees and preserve its
relationship and goodwill with all persons having business dealings with it.
Specifically, until the Effective Time, First Public must:
(a) Refrain from issuing or selling or obligating itself to issue or sell
any shares of its capital stock or any warrants, rights or options to acquire,
or any securities convertible into, any of its capital stock;
(b) Refrain from paying any dividends or making other distributions with
respect to its capital stock, except for the $500,000 semi-annual cash dividend
on June 1, 1996;
(c) Not amend its Federal Stock Charter or bylaws;
(d) Except as otherwise required by law or determined in good faith by its
Board of Directors to be required in order to discharge the Board's fiduciary
duties, refrain from entering into, or recommending the adoption by the First
Public Stockholders of, any agreements involving the possible merger or other
business combination of First Public or the acquisition of a substantial equity
interest in, or a substantial portion of the assets of, First Public by any
other person;
(e) Except as otherwise required by law or determined in good faith by the
Board of Directors of First Public to be required in order to discharge its
fiduciary duties, refrain from accepting or recommending to the First Public
Stockholders any tender offer to purchase any First Public Stock;
(f) Consult with and seek the advice of Bancorp with respect to basic
policies relating to branching, site location and relocation;
(g) Not enter into, amend or terminate any material contract or agreement,
except in the ordinary course of business;
(h) Not enter into, amend, terminate, extend or renew any lease for real
property;
(i) Refrain from hiring any employees, directors, officers (vice presidents
and more senior officers), agents, consultants or representatives (or increasing
the salary of, or benefits or any other compensation payable to, any of those
persons) or effecting, entering into or modifying any employment agreement,
bonus, pension, retirement, severance, insurance or other arrangement to or with
any person, except for the hiring of staff other than officers on a temporary
basis, and except for reasonable retention and transition bonuses payable at the
Closing;
(j) Not create or incur any mortgage, deed of trust, pledge, assessment,
security interest, adverse claim, charge or encumbrance of any kind or
conditional contract of sale or contract for any of the foregoing on any assets
owned, used or held for use in the conduct of the business of First Public;
(k) Not make capital expenditures or commitments therefor in excess of
$50,000 in the aggregate;
(l) Not incur or increase its indebtedness for borrowed money, except in
the ordinary course of business consistent with past practices;
(m) Not cancel or waive any claims or rights of substantial value, except
in the ordinary course of business consistent with past practices;
(n) Not make any payments to any affiliates of First Public other than
lease payments on property leased by First Public in amounts consistent with
past practices and other than the payment of ordinary directors' fees for
attendance at meetings of the Board of Directors of First Public, also in
amounts consistent with past practices;
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(o) Not fail in any material respect to comply with any regulation or
directive of the OTS or any other governmental authority;
(p) Not originate any new loans that would have an outstanding principal
amount in excess of $500,000, purchase or modify any existing loans, or modify
any material agreements; provided, however, that Bancorp's consent shall not be
required for First Public to modify any loan with an outstanding principal
amount of less than $500,000, if any such modification neither extends the loan
maturity by more than one year nor reduces First Public's regulatory capital in
any respect.
Bancorp may not unreasonably withhold its consent where required and its
consent shall be deemed given if not refused in writing within seven calendar
days after receipt by Bancorp of a written request by First Public (and Bancorp
must make reasonable efforts to reply sooner), provided that First Public
furnishes Bancorp with complete information and an opportunity to consult
concerning the subject of the consent as early as reasonably possible before
requesting the consent. See Annex 1.
ADDITIONAL AGREEMENTS
The Agreement contains additional covenants of each party to: (i) furnish
such information as may be required and otherwise cooperate in the preparation
of the necessary regulatory applications and this Proxy Statement-Prospectus;
and (ii) permit the other party and its representatives reasonable access to its
properties and books and records and to make its officers, directors, employees
and agents available for consultation. The Agreement also provides that the
Total Consideration Value will not be subject to adjustment or renegotiation as
the result of any of (a) legislation or regulations concerning bad debt reserve
recapture or federal deposit insurance assessments or exit fees; (b) the funding
of the First Public Directors' Retirement Plan; or (c) the cash dividends
expressly permitted by the Agreement. First Public has also agreed that prior to
or until the Closing Date it will: (i) submit the Agreement to the First Public
Stockholders for approval; (ii) use its best efforts to obtain so-called Rule
145 letters from its identified Affiliates at least forty (40) days before the
Closing Date (see "-- Resales of Bancorp Common Stock"); (iii) limit its
expenses for the previously planned relocation of its Head Office to acquired
property in Monterey Park to no more than $100,000 for preliminary planning
expenses; (iv) take action at the request of Bancorp to increase its reserve for
loan losses to be effective only immediately before the Effective Time; and (v)
terminate the First Public Directors' Retirement Plan and the First Public
401(k) Plan. Bancorp has, among other things, agreed to (i) use its best efforts
to file all necessary regulatory agency applications; (ii) refrain, prior to the
Effective Time, from issuing or selling or obligating itself to sell any Bancorp
Common Stock or any warrants, rights or options; (iii) honor and effect the
payment elections of directors vested under the First Public Directors'
Retirement Plan made in connection with its agreed termination; and (iv) comply
with any corrective action plan or program presented to its or CB's regulators.
See Annex 1.
CONDITIONS TO CONSUMMATION OF THE MERGER
Each party's obligation to effect the Merger is subject to various
conditions, unless waived, which include, in addition to other customary Closing
conditions, the following:
(a) First Public Stockholder Approval. The holders of more than two-thirds
of the outstanding shares of First Public Stock entitled to vote shall have
approved the Agreement and the Merger.
(b) Regulatory Approvals. All regulatory approvals for the transactions
contemplated by the Agreement shall have been obtained without the imposition of
any condition (i) which Bancorp in good faith determines to be materially
burdensome upon the conduct of the business of Bancorp or CB as the same is
being conducted at the time such approval is granted, or as the same is then
anticipated to be conducted in the future and (ii) with which determination
First Public concurs in writing (which concurrence shall not be unreasonably
withheld); such approvals shall be in effect and no proceedings shall have been
instituted or threatened with respect thereto; all applicable waiting periods
with respect to such approvals shall have expired; and all conditions and
requirements prescribed by law or by such regulatory approvals shall have been
satisfied.
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(c) Registration Statement. The Registration Statement, as it may have been
amended, required in connection with the shares of Bancorp Common Stock to be
issued to First Public Stockholders, shall have become effective and no stop
order suspending the effectiveness of such Registration Statement shall have
been issued and shall remain in effect, and no proceedings for that purpose
shall have been initiated or threatened by the SEC the basis for which shall
remain in effect.
(d) No Violation of Law. The transactions contemplated by the Agreement
shall not violate any order, decree or judgment or any court or governmental
body having competent jurisdiction, and no law, rule or regulation shall have
been adopted by any such body that prohibits or enjoins the action contemplated
by the Agreement. No action, suit or proceeding before any court or governmental
body shall be pending or threatened challenging the legality of the transactions
contemplated by the Agreement, or seeking to restrain their consummation.
(e) Federal Tax Opinion. First Public shall have received (and Bancorp
shall have received a copy of) an opinion of Pillsbury Madison & Sutro LLP in
form and substance reasonably satisfactory to First Public, including provisions
permitting reliance on the opinion by First Public, to the effect that for
federal income tax purposes: (i) the transactions contemplated by the Agreement
will constitute a reorganization within the meaning of Section 368(a) of the
Code; (ii) no gain or loss will be recognized by the First Public Stockholders
who receive solely Bancorp Common Stock in exchange for their First Public Stock
in the Merger; (iii) the tax basis of a shareholder in the Bancorp Common Stock
received in the Merger in exchange for his or her First Public Stock will be the
same as the tax basis of the First Public Stock surrendered in exchange
therefor; and (iv) the holding period of the shares of Bancorp Common Stock
received in the Merger by a former First Public Stockholder in exchange for his
or her First Public Stock will include the holding period of the shares of the
former First Public Stockholder in the First Public Stock surrendered therefor,
provided that such First Public Stock was held as a capital asset by such First
Public Stockholder. Said tax opinion shall rely upon customary representations
by the parties and/or shareholders (or assumptions) as to certain factual
matters, including (without limitation) a representation (or assumptions) that a
minimum of 50% of all currently outstanding First Public Stock will be exchanged
for Bancorp Common Stock in the Merger, with no intention to dispose of such
Bancorp Common Stock, and that substantially all of the assets of First Public
will be acquired by CB.
(f) Stock Listing. Nasdaq shall have confirmed to Bancorp that the shares
of Bancorp Common Stock expected to be issued in connection with the Merger are
authorized for listing on the Nasdaq National Market System.
In addition, the obligation of First Public to effect the Merger is subject
to the following additional conditions (any of which may be waived by First
Public):
(i) The representations and warranties of Bancorp and CB shall be true
and correct as of the date of the Agreement and as of the Closing Date;
(ii) Bancorp and CB shall have in all material respects performed all
obligations and complied with all covenants required to be performed by
them on or prior to the Closing Date;
(iii) Bancorp and CB shall each have delivered to First Public a
certificate, dated the Closing Date and signed by a duly authorized officer
of Bancorp and CB, to the effect that the conditions precedent set forth in
the Agreement, to the extent applicable to Bancorp and CB, have been
complied with;
(iv) First Public shall have received an opinion of Heller Ehrman
White & McAuliffe, special counsel to Bancorp, dated the Closing Date,
expressing the legal opinions, containing the qualifications and making the
assumptions that are customary for similar transactions;
(v) First Public shall have received an opinion of Montgomery to the
effect that the Total Consideration Value to be paid by Bancorp is fair,
from a financial point of view, to the First Public Stockholders receiving
such consideration; and
(vi) The Calculation Date Bancorp Stock Price shall be equal to at
least $11.00.
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IF THE MERGER IS APPROVED AT THE SPECIAL MEETING AND THE CALCULATION DATE
BANCORP STOCK PRICE IS LESS THAN $11.00, THE BOARD OF DIRECTORS SHALL HAVE THE
OPTION TO EITHER TERMINATE THE AGREEMENT OR TO CONSUMMATE THE MERGER. TO THE
EXTENT REQUIRED BY APPLICABLE LAW, THE BOARD WOULD SEEK APPROVAL OF THE FIRST
PUBLIC STOCKHOLDERS AT A NEW MEETING PRIOR TO CONSUMMATING THE MERGER; HOWEVER,
THE BOARD MAY ELECT TO CONSUMMATE THE MERGER WITHOUT SEEKING SUCH APPROVAL EVEN
THOUGH THE CALCULATION DATE BANCORP STOCK PRICE IS LESS THAN $11.00. IN MAKING
THIS DECISION, THE BOARD WOULD CONSULT WITH COUNSEL AND CONSIDER INFORMATION AND
FACTORS SUCH AS IT CONSIDERED IN APPROVING THE AGREEMENT. SEE "BACKGROUND AND
REASONS FOR THE MERGER".
In addition, the obligations of Bancorp and CB to effect the Merger are
subject to the following additional conditions (any of which may be waived by
Bancorp):
(i) The representations and warranties of First Public shall be true
and correct as of the date of the Agreement and as of the Closing Date;
(ii) First Public shall have in all material respects performed all
obligations and complied with all covenants required to be performed by it
on or prior to the Closing Date;
(iii) First Public shall have delivered to Bancorp and CB a
certificate, dated the Closing Date and signed by its Chairman of the
Board, to the effect that the conditions precedent set forth in the
Agreement, to the extent applicable to Bancorp, have been complied with;
(iv) Bancorp shall have received an opinion of Pillsbury Madison &
Sutro LLP, special counsel to First Public, dated the Closing Date,
expressing the legal opinions, containing the qualifications and making the
assumptions that are customary for similar transactions;
(v) Bancorp shall have received a "comfort" letter from Deloitte &
Touche LLP, the independent auditor for First Public, dated as of a date
not more than five (5) days before the Closing Date, containing the
opinions and qualifications and making the assumptions customary for such
letters in similar transactions; and
(vi) Dissenting Shares Limitation. Not more than 10% of the issued and
outstanding shares of First Public Stock shall be Dissenting Shares. See
Annex 1.
INDEMNIFICATION
First Public and Bancorp have agreed each would indemnify and hold harmless
the other and all of their respective affiliates, directors, officers, employees
and agents (collectively, the "Indemnitees") from and against any and all
claims, losses, judgments, liabilities, settlements, fines, penalties, interest,
costs and expenses (including all reasonable attorneys' fees and disbursements,
whether incurred in resolving indemnification issues between or among parties to
this Agreement or in defending third-party claims, and, collectively with such
claims, etc., "Losses") that constitute, result from, arise out of or are
connected: (a) with any of their obligations or liabilities, whether accrued,
absolute, contingent, known or unknown that were required to be, but were not,
disclosed in the Agreement, (b) any breach of any representation, warranty or
covenant set forth in the Agreement or (c) any material misstatement or omission
to state any fact which is required to be disclosed for purposes of the
inclusion of such information in any regulatory filing made for the purpose of
effecting the terms of the Agreement, including, but not limited to, the
Registration Statement, the Proxy Statement-Prospectus and any amendment thereto
and, further, agreed to pay all expenses in advance of the disposition of such
claims. Additionally, Bancorp and First Public have agreed to obtain coverage
for five years from the Effective Time for First Public's current officers and
directors (with at least as much dollar coverage as First Public's present
policy) for prior acts. See Annex 1.
NO SOLICITATION
Pursuant to the Agreement, First Public has agreed that, except as
otherwise required by law or determined in good faith by the Board of Directors
of First Public to be required in order to discharge its fiduciary duties, First
Public shall not, directly or indirectly, through any officer, director or agent
or otherwise,
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solicit, initiate, encourage, participate in any negotiation in respect of or
cooperate with (including by way of furnishing any nonpublic information
concerning the business, properties or assets of First Public) any Acquisition
Proposal. "Acquisition Proposal" means any (i) publicly announced proposal, (ii)
regulatory application or notice (whether in draft or final form), (iii)
agreement or understanding, (iv) disclosure of an intention to make a proposal,
or (v) amendment to any of the foregoing, made or filed on or after the date
hereof, in each case with respect to any of the following transactions with a
counterparty other than Bancorp or any of its subsidiaries: (A) a merger or
consolidation, or any similar transaction, involving First Public; (B) a
purchase, lease or other acquisition of all or substantially all of the assets
or deposits of First Public; or (C) a purchase or other acquisition (including
by way of merger, consolidation, share exchange or otherwise) of securities
representing 20% or more of the voting power of First Public.
First Public must notify Bancorp promptly by telephone, and thereafter
promptly confirm such notification in writing, if any such information is
requested from, or any Acquisition Proposal or inquiry with respect to any
Acquisition Proposal is received by, First Public.
EXPENSES
The Agreement provides, in general, that Bancorp and First Public each will
pay its own expenses in connection with the Merger and the transactions
contemplated thereby, including reasonable and customary legal, accounting and
advisory fees. However, in the event of a termination resulting from or
following a breach of a representation, warranty, covenant or undertaking, the
party committing such breach will be liable for all costs and expenses of both
parties without prejudice to any other remedies that may be available to the
other party.
TERMINATION
The Agreement may be terminated:
(a) By mutual written consent of the parties at any time whether or
not previously approved by the First Public Stockholders;
(b) By any party upon the expiration of fifteen (15) days after the
FDIC, the Superintendent or any other governmental authority having
jurisdiction over any of the transactions set forth herein, in writing
denies or refuses to grant any approval, consent, qualification or ruling
required to be obtained under applicable law or refuses to accept or
process further CB's application, or CB withdraws its application and does
not promptly resubmit the application;
(c) Immediately upon the expiration of thirty (30) days from the date
that Bancorp has given notice to First Public of First Public's material
misrepresentation in respect of or material breach of or failure to satisfy
any condition, warranty, representation or agreement herein; provided,
however, that no such termination shall take effect unless it is reasonably
evident that First Public cannot or will not fully and completely correct
the grounds for termination as specified in the aforementioned notice on or
before the Closing Date;
(d) Immediately upon the expiration of thirty (30) days from the date
that First Public has given notice to Bancorp of Bancorp's material
misrepresentation in respect of, or material breach of or failure to
satisfy any, condition, warranty, representation or agreement contained
herein; provided, however, that no such termination shall take effect
unless it is reasonably evident that Bancorp cannot or will not fully and
completely correct the grounds for termination as specified in the
aforementioned notice on or before the Closing Date;
(e) Prior to the approval of the Agreement by the requisite vote of
the First Public Stockholders, by the Board of Directors of First Public if
there exists at such time an Acquisition Proposal (as defined below) and
such Board of Directors, after having consulted with and considered the
advice of outside legal counsel, reasonably determines in good faith that
such action is necessary in the exercise of its fiduciary duties under
applicable laws;
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(f) By First Public if the Calculation Date Bancorp Stock Price is not
equal to at least $11.00; and
(g) Immediately by a party hereto that is not in default under the
Agreement, if the Closing has not occurred on or before February 1, 1997.
In the event of the termination of the Agreement by Bancorp or First
Public, the Agreement will become void, and there will be no liability or
obligation on the part of Bancorp or First Public or their respective officers
or directors other than under certain specified provisions of the Agreement
dealing with confidentiality agreements and the payment of expenses and other
than the liability of a breaching party giving rise to such termination. If the
Agreement is terminated prior to or concurrently with the occurrence of any of
the following events, First Public has agreed to pay to Bancorp a cash fee of
$875,000 in immediately available funds on or before the second business day
following such termination:
(i) First Public (or its Board of Directors) shall have entered into
an agreement with respect to, or authorized, approved, proposed or publicly
announced its intention to enter into, any Acquisition Proposal;
(ii) any person (together with its affiliates and associates) or group
(as such terms are used for purposes of Section 13(d) of the Exchange Act)
other than Bancorp shall have acquired beneficial ownership of 50% or more
of the then outstanding shares of the First Public Stock then entitled to
vote generally in the election of directors of First Public; or
(iii) following the making of an Acquisition Proposal, First Public
shall have breached any covenant or agreement contained in the Agreement
such that Bancorp would be entitled to terminate the Agreement (without
regard to any grace period provided for therein) unless such breach is
promptly cured without jeopardizing consummation of the Merger pursuant to
the terms of the Agreement.
AMENDMENT AND WAIVER
The Agreement may only be amended in writing by the mutual agreement of the
parties to the Agreement. In addition, either Bancorp or First Public may waive
compliance with provisions of the Agreement to be satisfied by the other party.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
Other than the right to receive indemnification from Bancorp for certain
actions as officers and directors of First Public (see "The
Merger -- Indemnification"), and excluding the right to receive the Per Share
Stock Consideration or the Per Share Cash Consideration for the shares of First
Public Stock held by them immediately prior to the Effective Time, which right
is identical to the rights of other First Public Stockholders, the officers,
directors and significant First Public Stockholders have no special or
additional arrangements or agreements arising out of, or resulting from, the
Agreement and the Merger, except as follows:
(i) Certain vested directors will have the right pursuant to the
Agreement to elect a payment option prior to the termination of the
Directors' Retirement Plan.
(ii) The Board has authorized the payment by First Public from
pre-Closing earnings of the following special cash retention and transition
bonuses to certain officers for their past services and their continued
assistance in consummating the Merger:
<TABLE>
<CAPTION>
NAME TITLE AMOUNT
---- ----- --------
<S> <C> <C>
Chris Chan Vice President/Independent Contractor* $ 37,380
Tholow D. Chan First Vice President 37,800
Claudia My Lu Vice President 25,410
Kaly Kan Lu Assistant Vice President 18,660
Lisa M. Nakamura Vice President 21,900
Marina C. Wang President/CEO 134,150
Eva Wong First Vice President 97,200
Maria Ching Yu Assistant Vice President 27,500
--------
Total Retention and Transition Bonuses $400,000
========
</TABLE>
* Mr. Chan resigned August 23, 1996 to accept other employment, but has been
engaged as an independent contractor in connection with the preparation of
the Proxy Statement-Prospectus and other matters relating to the Merger and
his prior duties.
(iii) The Board unanimously agreed at the regular April 1996 meeting
to retain Martin V. Lee of Famco Investments. Mr. Lee is an attorney and
certified public accountant and is a member of the Merger Committee for
First Public. Mr. Lee was retained to review, coordinate and organize the
documents, work and communications related to the merger between First
Public and CB. Chairman Jack C. Lee and Director Martin V. Lee abstained
from voting on this matter. The Board authorized and approved the payment
of a monthly retainer fee of $3,000 plus expenses, beginning with the month
of February 1996 until the closing of the transaction.
The executive officers, directors and significant stockholders of First
Public as a group beneficially or may be deemed to control 1,570,800 (39.3%) of
the issued and outstanding shares of First Public Stock. To the best of First
Public's knowledge, Bancorp does not beneficially own any shares of First Public
Stock. Certain directors and executive officers of Bancorp and First Public own,
respectively, shares of First Public Stock and Bancorp Common Stock, although
such directors and officers as a group have common ownership of less than 1% of
First Public Stock and Bancorp Common Stock.
37
<PAGE> 54
SELECTED INFORMATION REGARDING BANCORP AND CB
BANCORP
Bancorp is a Delaware corporation whose principal subsidiary is CB, a
California state-chartered bank. Bancorp had consolidated total assets of
approximately $1.09 billion as of December 31, 1995 and reported net earnings of
$10.6 million for 1995. Bancorp is a publicly traded company whose stock is
registered with the Securities and Exchange Commission ("SEC") and traded on the
Nasdaq National Market System. Bancorp is subject to the informational
requirements of the Securities Exchange Act and in accordance therewith files
reports and other information with the SEC which are available for inspection
and copying by the public. Bancorp is also a registered bank holding company
subject to regulation and supervision by the Federal Reserve Board pursuant to
the BHCA. See "Incorporation of Certain Bancorp Information By Reference."
CB
CB is a full-service commercial bank headquartered in Los Angeles with nine
(9) branches in Southern California and five (5) branches in Northern
California. CB is subject to regulation and supervision by the FDIC and the
Superintendent. The Merger will make Bancorp, through CB, one of the largest
Chinese-American community banking organizations in Southern California.
Both Bancorp and CB exceed the minimum leverage and risk-weighted capital
requirements established by their supervisory agencies. Bancorp has advised
First Public that it has sufficient funds available to pay the Per Share Cash
Consideration to First Public Stockholders in the Merger from current liquid
assets and anticipated cash dividends by CB. See "Incorporation of Certain
Bancorp Information By Reference."
38
<PAGE> 55
Selected Consolidated Financial Data regarding Bancorp and CB is set forth
below:
CATHAY BANCORP, INC. AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT SHARE, PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement
Interest income................. $ 40,627 $ 36,495 $ 76,223 $ 61,631 $ 55,573 $ 57,712 $ 63,286
Interest expense................ 18,621 14,073 31,282 20,033 18,652 22,849 31,575
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income before
provision for loan losses..... 22,006 22,422 44,941 41,598 36,921 34,863 31,711
Provision for loan losses....... 1,800 3,000 7,300 7,755 5,332 3,348 1,439
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses..... 20,206 19,422 37,641 33,843 31,589 31,515 30,272
Securities gains................ 22 140 611 63 444 2,027 1
Other non-interest income....... 2,645 2,885 5,610 5,781 5,508 4,902 4,762
Non-interest expense............ 13,585 13,785 27,617 26,139 25,305 22,363 19,308
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income tax
expense....................... 9,288 8,662 16,245 13,548 12,236 16,081 15,727
Income tax expense.............. 3,304 3,310 5,624 4,034 4,448 5,965 5,713
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income...................... $ 5,984 $ 5,352 $ 10,621 $ 9,514 $ 7,788 $ 10,116 $ 10,014
========== ========== ========== ========== ========== ========== ==========
Net income per common share
(3)........................... $ 0.76 $ 0.69 $ 1.36 $ 1.23 $ 1.02 $ 1.33 $ 1.35
Cash dividends paid per share... $ 0.30 $ 0.30 $ 0.60 $ 0.60 $ 0.60 $ 0.55 $ 0.50
Weighted average common shares
(3)........................... 7,894,413 7,774,963 7,805,339 7,724,752 7,670,454 7,580,112 7,442,718
---------- ---------- ---------- ---------- ---------- ---------- ----------
Statement of Condition
Securities available-for-sale... $ 300,435 $ 67,264 $ 243,252 $ 75,074 $ 45,870 $ 29,986 $ --
Securities held-to-maturity..... 187,566 205,740 159,376 180,082 144,352 82,022 110,542
Total net loans (1)............. 548,935 556,016 542,995 569,363 579,646 605,204 553,992
Total assets.................... 1,183,735 966,914 1,087,400 941,051 877,540 832,710 750,003
Deposits........................ 1,078,743 869,289 984,227 845,715 790,414 748,943 671,915
Other liabilities............... 9,301 7,859 8,644 9,951 6,601 8,034 9,973
Stockholders' equity............ 95,691 89,766 94,529 85,385 80,525 75,733 68,115
Common Stock Data
Shares of common stock
outstanding (3)................. 7,930,786 7,831,596 7,867,164 7,798,550 7,714,603 7,616,824 7,520,406
Book value per share (2)........ $ 12.07 $ 11.46 $ 12.02 $ 10.95 $ 10.44 $ 9.94 $ 9.06
---------- ---------- ---------- ---------- ---------- ---------- ----------
Profitability Ratios
Return on average assets........ 1.05% 1.12% 1.05% 1.06% 0.91% 1.27% 1.43%
Return on average stockholders'
equity.......................... 12.58 12.22 11.68 11.43 9.82 13.86 15.47
Dividend payout ratio........... 39.47 43.48 44.12 48.78 58.82 41.35 37.04
Equity to assets ratio.......... 8.08 9.28 8.69 9.07 9.18 9.09 9.08
---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
- ---------------
(1) Total net loans represents total loans net of loan participations sold,
unamortized deferred loan fees and the allowance for loan losses.
(2) Book value per share is calculated by dividing total stockholders' equity by
the number of common shares outstanding, adjusted for the effects of the May
15, 1992 six-for-five stock split.
(3) Shares outstanding, weighted average shares and earnings per share have been
retroactively adjusted for stock splits.
39
<PAGE> 56
PRO FORMA COMBINED FINANCIAL INFORMATION
The following sets of unaudited Pro Forma Condensed Combined Balance Sheets
as of June 30, 1996 combine the historical consolidated balance sheets of First
Public and Bancorp as if the Merger had been effective on June 30, 1996, after
giving effect to the purchase accounting and other Merger-related adjustments
described in the respective Notes to Pro Forma Condensed Combined Financial
Statements. The following sets of unaudited Pro Forma Condensed Combined
Statements of Income present the combined consolidated results of operations of
First Public and Bancorp for the six months ended June 30, 1996 and for the year
ended December 31, 1995 as if the Merger had been effective on January 1, 1996
and January 1, 1995, respectively, after giving effect to the purchase
accounting and other Merger-related adjustments described in the respective
accompanying notes.
Under the Merger Agreement, the Total Consideration Value will (a) be
$31,600,000 if the Calculation Date Bancorp Stock Price is between $14 and
$20.00 per share (the "Medium Range"), (b) range downward from $31,599,000 if
the Calculation Date Bancorp Stock Price is below $14.00 (the "Low Range") and
(c) range from $31,600,001 to a maximum of $34,017,000 if the Calculation Date
Bancorp Stock Price is greater than $20.00 (the "High Range"). The following
sets of unaudited Pro Forma Condensed Combined Financial Statements have been
prepared to reflect three specified scenarios, one in each of the Low Range, the
Medium Range and the High Range.
The Low Range Pro Forma Condensed Combined Financial Statements reflect the
purchase being completed at a Calculation Date Bancorp Stock Price equal to
$11.00 per share, a Total Consideration Value of $28,147,000 and a Total Stock
Consideration Value of $14,354,800. If the Calculation Date Bancorp Stock Price
were below $11.00 per share, First Public would have the right to terminate the
Agreement, without consideration. Accordingly, this Low Range scenario reflects
the lowest purchase price payable prior to First Public having a unilateral
right to terminate the Agreement.
The Medium Range Pro Forma Condensed Combined Financial Statements reflect
the purchase being completed at a Calculation Date Bancorp Stock Price equal to
$16.25 per share, the closing price of the Bancorp Common Stock on June 30,
1996, Total Consideration Value of $31,600,000 and Total Stock Consideration
Value of $16,116,000.
The High Range Pro Forma Condensed Combined Financial Statements reflect
the purchase being completed at a Calculation Date Bancorp Stock Price equal to
$23.01 per share, Total Consideration Value of $34,017,000 and Total Stock
Consideration Value of $17,349,000. The Total Consideration Value will not
increase as a result of any Calculation Date Bancorp Stock Price in excess of
$23.01.
Actual results within each of the Low, Medium and High Ranges will vary
from those presented if the Calculation Date Bancorp Stock Price is other than
those described above. Annex 2 contains illustrative calculations of Total
Consideration Value, Total Stock Consideration Value, Total Cash Consideration
and the number of shares of Bancorp Common Stock issuable for the assumed
Calculation Date Bancorp Stock Prices stated in such Annex.
The sets of unaudited pro forma combined financial statements and
accompanying notes reflect the application of the purchase method of accounting.
Under this method of accounting, the purchase price will be allocated to the
assets acquired and liabilities assumed based on their estimated fair values at
the Effective Time. As described in the accompanying notes, estimates of the
fair values of First Public's assets and liabilities have been combined with the
recorded values of the assets and liabilities of Bancorp. However, changes to
the adjustments included in the unaudited pro forma combined financial
statements are expected as evaluations of assets and liabilities are completed
and as additional information becomes available. See "The Merger -- Accounting
Treatment." In addition, the results of operations of First Public subsequent to
June 30, 1996 will affect the allocation of the purchase price. Accordingly, the
final pro forma combined amounts will differ from those set forth in the
unaudited pro forma combined financial statements. Additionally, the following
information includes pro forma adjustments relating to certain identified
expected future reductions in expenses.
40
<PAGE> 57
The sets of unaudited pro forma combined financial statements are intended
for informational purposes only and are not necessarily indicative of the future
financial position or future results of operations of the combined company, or
of the financial position or results of operations of the combined company that
would have actually occurred had the Merger been in effect as of the date or for
the periods presented. The unaudited pro forma condensed combined financial
statements should be read in conjunction with the historical consolidated
financial statements of First Public and Bancorp, including the respective notes
thereto, which, in the case of First Public, are attached to this Proxy
Statement-Prospectus, and in the case of Bancorp, are incorporated by reference
in this Proxy Statement-Prospectus, and the unaudited consolidated historical
and other pro forma financial information, including the notes thereto,
appearing elsewhere in this Proxy Statement-Prospectus. See "Incorporation of
Certain Bancorp Information by Reference," "Summary -- Comparative Per Share
Data," and "First Public Financial Statements."
41
<PAGE> 58
LOW RANGE
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
DR (CR)
BANCORP FIRST PUBLIC PRO FORMA PRO FORMA
(DOLLAR IN THOUSAND(S) HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
- ---------------------- ----------- ------------ -------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks...................... $ 30,140 $ 3,393 $ (500) $ 33,033
Interest-bearing deposits in other banks..... -- 3,787 -- 3,787
Investment securities........................ 444,980 74,633 (13,792) 506,394
897
(324)
Mortgage-backed securities................... 43,021 45,197 (780) 87,438
Loans receivable, net........................ 548,935 144,360 1,584 694,879
Other assets................................. 116,659 8,347 (1,238) 123,768
Goodwill.....................................
7,174 7,174
---------- -------- -------- ----------
Total assets....................... $1,183,735 $279,717 $ (6,979) $1,456,473
========== ======== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits................................... $1,078,743 $255,305 $ 324 $1,333,724
Accrued interest payable and other
liabilities............................. 9,301 1,854 (1,548) 12,703
---------- -------- -------- ----------
Total liabilities.................. 1,088,044 257,159 (1,224) 1,346,427
---------- -------- -------- ----------
SHAREHOLDERS' EQUITY
Common stock: 9,235,763 pro forma shares
outstanding................................ 80 4,000 3,987 93
Capital in excess of par value............... 43,049 -- (14,342) 57,391
Net unrealized (loss) on securities.......... (2,093) (897) (897) (2,093)
Retained earnings............................ 54,655 19,455 19,455 54,655
---------- -------- -------- ----------
Total shareholders' equity......... 95,691 22,558 8,203 110,046
---------- -------- -------- ----------
Total liabilities and shareholders'
equity........................... $1,183,735 $279,717 $ 6,979 $1,456,473
========== ======== ======== ==========
Book value per common share.................. $ 12.07 $ 5.64 $ -- $ 11.92
========== ======== ======== ==========
</TABLE>
42
<PAGE> 59
LOW RANGE
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE FISCAL YEAR
JUNE 30, 1996 ENDED DECEMBER 31, 1995
------------------------------------------- --------------------------------------------
ADJUST- ADJUST-
FIRST MENTS PRO FORMA FIRST MENTS PRO FORMA
(IN THOUSANDS) PUBLIC BANCORP DR(CR) REF COMBINED PUBLIC BANCORP DR(CR) REF COMBINED
-------------- ------ ------- ------- --- --------- ------- ------- ------- --- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest income.... $9,757 $40,627 $ 437 (a) $49,947 $18,627 $76,223 $ 785 (a) $94,065
Total interest expense... 4,392 18,621 (434) (b) 22,579 8,428 31,281 (869) (b) 38,840
------ ------- ------- ------- ------- ------- ------- -------
Net interest income...... 5,365 22,006 3 27,368 10,199 44,942 (84) 55,225
Provision for loan
losses................. 112 1,800 -- 1,912 301 7,301 -- 7,602
------ ------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan
losses................. 5,253 20,206 3 25,456 9,898 37,641 (84) 47,623
Non-interest income...... 116 2,667 -- 2,783 657 6,221 -- 6,878
Non-interest expense
Salaries and employee
benefits............. 1,604 6,197 (1,064) (c) 6,737 2,926 12,912 (2,203) (c) 13,635
Other expenses......... 1,407 7,388 (345) (c) 8,450 2,743 14,705 (672) (c) 16,776
------ ------- ------- ------- ------- ------- ------- -------
Income before taxes...... 2,358 9,288 (1,406) 13,052 4,886 16,245 (2,959) 24,090
Income taxes............. 978 3,304 658 (d) 4,940 2,026 5,624 1,375 (d) 9,025
------ ------- ------- ------- ------- ------- ------- -------
Net income............... $1,380 $ 5,984 $ (748) $ 8,112 $ 2,860 $10,621 $(1,584) $15,065
====== ======= ======= ======= ======= ======= ======= =======
Net income per common
share(e)............... $ 0.35 $ 0.76 $ -- $ 0.88 $ 0.72 $ 1.36 $ -- $ 1.65
====== ======= ======= ======= ======= ======= ======= =======
</TABLE>
43
<PAGE> 60
NOTES TO THE UNAUDITED LOW RANGE
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
BALANCE SHEET
Assuming the Calculation Date Bancorp Stock Price is $11.00, the Total
Consideration Value is $28,147,000, with Total Cash Consideration not to exceed
49% and the balance, 51%, in Bancorp Common Stock.
The cash payment of $13,792,000 will be paid with proceeds from securities
due to mature in the second half of 1996. Bancorp will issue new stock to settle
the remaining balance of the purchase price, $14,355,000. The number of shares
to be tendered will be contingent upon the Calculation Date Bancorp Stock Price
which is the quotient of (i) the sum of each of the high and low sales prices of
Bancorp Stock as reported in The Wall Street Journal as Nasdaq National Market
System transactions on each of the twenty (20) days on which Bancorp Common
Stock was traded immediately before the date which is five business days before
the Closing Date divided by (ii) 40. For the purpose of the Low Range Pro Forma
Financial Statements, the capital in excess of par of $14,342,000 reflects the
issuance of 1,304,977 shares of Bancorp Common Stock which is computed based on
a market price of $11.00 and a par value of $0.01 per share.
The purchase price of $30,195,000, which includes $2,048,000 of expenses
directly attributed to the acquisition, is allocated to the assets acquired and
the liabilities assumed based on their estimated fair values at June 30, 1996 in
accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations," as amended ("APB No. 16"). The table below reflects the
adjustment of certain assets and liabilities to estimated fair value and the
resultant goodwill. Total goodwill of approximately $7,174,000 is expected to be
amortized over 15 years.
<TABLE>
<CAPTION>
ADJUSTMENTS RELATED
ASSETS/LIABILITIES TO ACQUISITION
------------------ ----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cash................................................ $ (500)
Investment securities............................... 573
Mortgage-backed securities.......................... (780)
Loans receivable, net............................... 1,584
Premises and Equipment.............................. (1,238)
Time deposits....................................... 324
Other liabilities................................... (1,548)
-------
Remaining unallocated purchase price (Goodwill)..... $ 7,174
=======
</TABLE>
Included in the purchase price is $500,000 in direct costs to be paid at
Closing and an additional $1,548,000 liability incurred in connection with the
termination of contracts and leases, existing severance packages and Directors'
Retirement Plan payouts and one-time charges related to First Public.
STATEMENT OF INCOME
(a) Decrease in securities interest income is due to proceeds from the
maturity of $15,000,000 in U.S. Treasury notes being used to pay for the
purchases. The loss in interest income is estimated to be $437,000 and $785,000
for the six-month and 12-month period beginning January 1, 1996 and January 1,
1995, respectively.
(b) The decrease in interest expense paid on the deposits from First Public
is based on an estimated 20% runoff over the course of the first 12-month period
after the Merger. The decrease in interest expense for the six-month and
12-month periods beginning January 1, 1996 and January 1, 1995, $434,000 and
$869,000, respectively, was computed using First Public's cost of funds as of
December 31, 1995 (3.644%), assuming that runoff will occur evenly over the
period.
(c) Non-interest expense includes the projected direct cost savings from
the Merger; and the amortization of goodwill for the six-month period and the
12-month periods beginning January 1, 1996 and January 1,
44
<PAGE> 61
1995, respectively, based on an estimated 15-year amortization period. The
expected savings in merging First Public's operation include reductions in
salaries and employee benefits; occupancy; office and equipment and other
redundant expenses. The estimated direct expense savings for the six-month and
12-month period beginning January 1, 1996 and January 1, 1995, are as follow:
<TABLE>
<CAPTION>
DEBIT (CREDIT) DEBIT (CREDIT)
SIX-MONTH 12-MONTH
PERIOD PERIOD
-------------- --------------
<S> <C> <C>
Salaries and employee benefits................... $(1,064,000) $(2,203,000)
Other expenses
Occupancy...................................... (233,000) (466,000)
Office and equipment........................... (17,000) (35,000)
Other operating................................ (334,000) (650,000)
Goodwill amortization.......................... 239,000 479,000
----------- -----------
$ (345,000) $ (672,000)
=========== ===========
</TABLE>
(d) Additional income tax expense is computed using a 40% tax rate. The tax
attributes of First Public will carry over to CB including all assets and
liabilities and are recorded at amounts previously reflected, adjusted for
purchase price allocations. The goodwill is not tax deductible.
(e) The pro forma combined net income per common share data are based on
(i) combined historical income of First Public and Bancorp assuming the Merger
is accounted for as a purchase and (ii) pro forma combined equivalent of the
First Public Stock converted (as adjusted for an exchange ratio of 0.6400 of a
share of Bancorp Common Stock for each share of First Public Stock) and Bancorp
Common Stock as of June 30, 1996 and December 31, 1995.
45
<PAGE> 62
MEDIUM RANGE
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST DR(CR)
BANCORP PUBLIC PRO FORMA PRO FORMA
(DOLLARS IN THOUSANDS) HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
- ---------------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks........................... $ 30,140 $ 3,393 $ (500) $ 33,033
Interest-bearing deposits in other banks.......... -- 3,787 -- 3,787
Investment securities............................. 444,980 74,633 (15,484) 504,702
897
(324)
Mortgage-backed securities........................ 43,021 45,197 (780) 87,438
Loans receivable, net............................. 548,935 144,360 1,584 694,879
Other assets...................................... 116,659 8,347 (1,238) 123,768
Goodwill.......................................... 10,627 10,627
---------- -------- -------- ----------
Total assets............................ $1,183,735 $279,717 $ (5,218) $1,458,234
========== ======== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits.......................................... $1,078,743 $255,305 $ 324 $1,333,724
Accrued interest payable and other liabilities.... 9,301 1,854 (1,548) 12,703
---------- -------- -------- ----------
Total liabilities....................... 1,088,044 257,159 (1,224) 1,346,427
---------- -------- -------- ----------
SHAREHOLDERS' EQUITY
Common stock: 8,922,540 pro forma shares
outstanding..................................... 80 4,000 3,990 90
Capital in excess of par value.................... 43,049 -- (16,106) 59,155
Net unrealized (loss) on securities............... (2,093) (897) (897) (2,093)
Retained earnings................................. 54,655 19,455 19,455 54,655
---------- -------- -------- ----------
Total shareholders' equity.............. 95,691 22,558 6,442 111,807
---------- -------- -------- ----------
Total liabilities and shareholders'
equity................................ $1,183,735 $279,717 $ 5,218 $1,458,234
========== ======== ======== ==========
Book value per common share....................... $ 12.07 $ 5.64 $ -- $ 12.53
========== ======== ======== ==========
</TABLE>
46
<PAGE> 63
MEDIUM RANGE
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE FISCAL YEAR
JUNE 30, 1996 ENDED DECEMBER 31, 1995
------------------------------------------- --------------------------------------------
ADJUST- ADJUST-
FIRST MENTS PRO FORMA FIRST MENTS PRO FORMA
(IN THOUSANDS) PUBLIC BANCORP DR(CR) REF COMBINED PUBLIC BANCORP DR(CR) REF COMBINED
-------------- ------ ------- ------- --- --------- ------- ------- ------- --- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest
income............... $9,757 $40,627 $ 437 (a) $49,947 $18,627 $76,223 $ 785 (a) $94,065
Total interest
expense.............. 4,392 18,621 (434) (b) 22,579 8,428 31,281 (869) (b) 38,840
------ ------- ------- ------- ------- ------- ------- -------
Net interest income.... 5,365 22,006 3 27,368 10,199 44,942 (84) 55,225
Provision for loan
losses............... 112 1,800 -- 1,912 301 7,301 -- 7,602
------ ------- ------- ------- ------- ------- ------- -------
Net interest income
after provision for
loan losses.......... 5,253 20,206 3 25,456 9,898 37,641 (84) 47,623
Non-interest income.... 116 2,667 -- 2,783 657 6,221 -- 6,878
Non-interest expense
Salaries and employee
benefits........... 1,604 6,197 (1,064) (c) 6,737 2,926 12,912 (2,203) (c) 13,635
Other expenses....... 1,407 7,388 (230) (c) 8,565 2,743 14,705 (383) (c) 17,065
------ ------- ------- ------- ------- ------- ------- -------
Income before taxes.... 2,358 9,288 (1,291) 12,937 4,886 16,245 (2,670) 23,801
Income taxes........... 978 3,304 658 (d) 4,940 2,026 5,624 1,375 (d) 9,025
------ ------- ------- ------- ------- ------- ------- -------
Net income............. $1,380 $ 5,984 $ (633) $ 7,997 $ 2,860 $10,621 $(1,295) $14,776
====== ======= ======= ======= ======= ======= ======= =======
Net income per common
share(e)............. $ 0.35 $ 0.76 $ -- $ 0.90 $ 0.72 $ 1.36 $ -- $ 1.67
====== ======= ======= ======= ======= ======= ======= =======
</TABLE>
47
<PAGE> 64
NOTES TO THE UNAUDITED MEDIUM RANGE
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
BALANCE SHEET
Assuming the Calculation Date Bancorp Stock Price is at least $14.00 but
not greater than $20.00, the Total Consideration Value is $31,600,000, with
Total Cash Consideration not to exceed 49% and the balance, 51%, in Bancorp
Common Stock.
The cash payment of $15,484,000 will be paid with proceeds from securities
due to mature in the second half of 1996. Bancorp will issue new stock to settle
the remaining balance of the purchase price, $16,116,000. The number of shares
to be tendered will be contingent upon the Calculation Date Bancorp Stock Price
which is the quotient of (i) the sum of each of the high and low sales prices of
Bancorp Common Stock as reported in The Wall Street Journal as Nasdaq National
Market System transactions on each of the twenty (20) days on which Bancorp
Common Stock was traded immediately before the date which is five business days
before the Closing date divided by (ii) 40. For the purpose of the Medium Range
Pro Forma Financial Statements, the capital in excess of par of $16,106,000
reflects the issuance of 991,754 shares of Bancorp Common Stock which is
computed based on a market price of $16.25 (the closing price as of June 28,
1996) and a par value of $0.01 per share.
The purchase price of $33,648,000, which includes $2,048,000 of expenses
directly attributed to the acquisition, is allocated to the assets acquired and
the liabilities assumed based on their estimated fair values at June 30, 1996 in
accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations," as amended ("APB No. 16"). The table below reflects the
adjustment of certain assets and liabilities to estimated fair value and the
resultant goodwill. Total Goodwill of approximately $10,627,000 is expected to
be amortized over 15 years.
<TABLE>
<CAPTION>
ADJUSTMENTS RELATED
TO ACQUISITION
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
ASSETS/LIABILITIES
Cash.................................................... $ (500)
Investment securities................................... 573
Mortgage-backed securities.............................. (780)
Loans receivable, net................................... 1,584
Premises and equipment.................................. (1,238)
Time deposits........................................... 324
Other liabilities....................................... (1,548)
-------
Remaining unallocated purchase price (Goodwill)......... $10,627
========
</TABLE>
Included in the purchase price is $500,000 in direct costs to be paid at
Closing and an additional $1,548,000 liability incurred in connection with the
termination of contracts and leases, existing severance packages and Directors'
Retirement Plan payouts and one-time charges related to First Public.
STATEMENT OF INCOME
(a) Decrease in securities interest income is due to proceeds from the
maturity of $15,000,000 in U.S. Treasury notes being used to pay for the
purchase. The loss in interest income is estimated to be $437,000 and $785,000
for the six-month and 12-month periods beginning January 1, 1996 and January 1,
1995, respectively.
(b) The decrease in interest expense paid on the deposits from First Public
is based on an estimated 20% runoff over the course of the first 12-month
periods after the Merger. The decrease in interest expense for the six-month and
12-month periods beginning January 1, 1996 and January 1, 1995, $434,000 and
$869,000, respectively, was computed using First Public's cost of funds as of
December 31, 1995 (3.644%), assuming that runoff will occur evenly over the
period.
48
<PAGE> 65
(c) Non-interest expense includes the projected direct cost savings from
the Merger; and the amortization of goodwill for the six-month period and the
12-month periods beginning January 1, 1996 and January 1, 1995, respectively,
based on an estimated 15-year amortization period. The expected savings in
merging First Public's operation include reductions in salaries and employee
benefits; occupancy; office and equipment and other redundant expenses. The
estimated expenses for the six-month and 12-month periods beginning January 1,
1996 and January 1, 1995 are as follows:
<TABLE>
<CAPTION>
DEBT (CREDIT) DEBIT (CREDIT)
SIX-MONTH 12-MONTH
PERIOD PERIOD
------------- --------------
<S> <C> <C>
Salaries and employee benefits................. $(1,064,000) $(2,203,000)
Other expenses
Occupancy.................................... (233,000) (466,000)
Office and equipment......................... (17,000) (35,000)
Other operating.............................. (334,000) (650,000)
Goodwill amortization........................ 354,000 768,000
----------- -----------
$ (230,000) $ (383,000)
=========== ===========
</TABLE>
(d) Additional income tax expense is computed using a 40% tax rate. The tax
attributes of First Public will carry over to CB, including all assets and
liabilities, and are recorded at amounts previously reflected, adjusted for
purchase price allocations. The goodwill is not tax deductible.
(e) The pro forma combined net income per common share data are based on
(i) combined historical income of First Public and Bancorp assuming the Merger
is accounted for as a purchase and (ii) pro forma combined equivalent of the
First Public Stock converted (as adjusted for an exchange ratio of 0.4862 and
0.5097 of a share of Bancorp Common Stock for each share of First Public Stock)
and Bancorp Common Stock as of June 30, 1996 and December 31, 1995,
respectively.
49
<PAGE> 66
HIGH RANGE
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
DR(CR)
BANCORP FIRST PUBLIC PRO FORMA PRO FORMA
(DOLLAR IN THOUSANDS) HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
- --------------------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks.......................... $ 30,140 $ 3,393 $ (500) $ 33,033
Interest-bearing deposits in other banks......... -- 3,787 -- 3,787
Investment securities............................ 444,980 74,633 (16,668) 503,518
897
(324)
Mortgage-backed securities....................... 43,021 45,197 (780) 87,438
Loans receivable, net............................ 548,935 144,360 1,584 694,879
Other assets..................................... 116,659 8,347 (1,238) 123,768
Goodwill......................................... 13,044 13,044
---------- -------- -------- ----------
Total assets........................... $1,183,735 $279,717 $ (3,985) $1,459,467
========== ======== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits......................................... $1,078,743 $255,305 $ 324 $1,333,724
Accrued interest payable and other liabilities... 9,301 1,854 (1,548) 12,703
---------- -------- -------- ----------
Total liabilities...................... 1,088,044 257,159 (1,224) 1,346,427
---------- -------- -------- ----------
SHAREHOLDERS' EQUITY
Common stock: 8,684,763 pro forma shares
outstanding.................................... 80 4,000 3,989 91
Capital in excess of par value................... 43,049 -- (17,338) 60,387
Net unrealized (loss) on securities.............. (2,093) (897) (897) (2,093)
Retained earnings................................ 54,655 19,455 19,455 54,655
---------- -------- -------- ----------
Total shareholders' equity............. 95,691 22,558 5,209 113,040
---------- -------- -------- ----------
Total liabilities and shareholders'
equity............................... $1,183,735 $279,717 $ 3,985 $1,459,467
========== ======== ======== ==========
Book value per common share...................... $ 12.07 $ 5.64 $ -- $ 13.02
========== ======== ======== ==========
</TABLE>
50
<PAGE> 67
HIGH RANGE
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE FISCAL YEAR
JUNE 30, 1996 ENDED DECEMBER 31, 1995
------------------------------------------- --------------------------------------------
ADJUST- ADJUST-
FIRST MENTS PRO FORMA FIRST MENTS PRO FORMA
(IN THOUSANDS) PUBLIC BANCORP DR(CR) REF COMBINED PUBLIC BANCORP DR(CR) REF COMBINED
-------------- ------ ------- ------- --- --------- ------- ------- ------- --- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest
income............... $9,757 $40,627 $ 437 (a) $49,947 $18,627 $76,223 $ 785 (a) $94,065
Total interest
expense.............. 4,392 18,621 (434) (b) 22,579 8,428 31,281 (869) (b) 38,840
------ ------- ------- ------- ------- ------- ------- -------
Net interest income.... 5,365 22,006 3 27,368 10,199 44,942 (84) 55,225
Provision for loan
losses............... 112 1,800 -- 1,912 301 7,301 -- 7,602
------ ------- ------- ------- ------- ------- ------- -------
Net interest income
after provision for
loan losses.......... 5,253 20,206 3 25,456 9,898 37,641 (84) 47,623
Non-interest income.... 116 2,667 -- 2,783 657 6,221 -- 6,878
Non-interest expense
Salaries and employee
benefits........... 1,604 6,197 (1,064) (c) 6,737 2,926 12,912 (2,203) (c) 13,635
Other expenses....... 1,407 7,388 (149) (c) 8,646 2,743 14,705 (222) (c) 17,226
------ ------- ------- ------- ------- ------- ------- -------
Income before taxes.... 2,358 9,288 (1,210) 12,856 4,886 16,245 (2,509) 23,640
Income taxes........... 978 3,304 658 (d) 4,940 2,026 5,624 1,375 (d) 9,025
------ ------- ------- ------- ------- ------- ------- -------
Net income............. $1,380 $ 5,984 $ (552) $ 7,916 $ 2,860 $10,621 $(1,134) $14,615
====== ======= ======= ======= ======= ======= ======= =======
Net income per common
share(e)............. $ 0.35 $ 0.76 -- $ 0.92 $ 0.72 $ 1.36 $ -- $ 1.71
====== ======= ======= ======= ======= ======= ======= =======
</TABLE>
51
<PAGE> 68
NOTES TO THE UNAUDITED HIGH RANGE
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
BALANCE SHEET
Assuming the Calculation Date Bancorp Stock Price is above $23.00, the
Total Consideration Value is $34,017,000, with Total Cash Consideration not to
exceed 49% and the balance, 51%, in Bancorp Common Stock.
The cash payment of $16,668,000 will be paid with proceeds from securities
due to mature in the second half of 1996. Bancorp will issue new stock to settle
the remaining balance of the purchase price, $17,349,000. The number of shares
to be tendered will be contingent upon the Calculation Date Bancorp Stock Price
which is the quotient of (i) the sum of each of the high and low sales prices of
Bancorp Stock as reported in The Wall Street Journal as Nasdaq National Market
System transactions on each of the twenty (20) days on which Bancorp Common
Stock was traded immediately before the date which is five business days before
the Closing Date divided by (ii) 40. For the purpose of the High Range Pro Forma
Financial Statements, the capital in excess of par of $17,341,000 reflects the
issuance of 753,977 shares of Bancorp Common Stock which is computed based on a
market price of $23.01 and a par value of $0.01 per share.
The purchase price of $36,065,000, which includes $2,048,000 of expenses
directly attributed to the acquisition, is allocated to the assets acquired and
the liabilities assumed based on their estimated fair values at June 30, 1996 in
accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations," as amended ("APB No. 16"). The table below reflects the
adjustment of certain assets and liabilities to estimated fair value and the
resultant goodwill. Total Goodwill of approximately $13,044,000 is expected to
be amortized over 15 years.
<TABLE>
<CAPTION>
ADJUSTMENTS RELATED
ASSETS/LIABILITIES TO ACQUISITION
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cash............................................... $ (500)
Investment securities.............................. 573
Mortgage-backed securities......................... (780)
Loans receivable, net.............................. 1,584
Premises and equipment............................. (1,238)
Time deposits...................................... 324
Other liabilities.................................. (1,548)
--------
Remaining unallocated purchase price (Goodwill).... $ 13,044
========
</TABLE>
Included in the purchase price above is $500,000 in direct costs to be paid
at Closing and an additional $1,548,000 liability incurred in connection with
the termination of contracts and leases, existing severance packages and
Directors' Retirement Plan payouts and one-time charges related to First Public.
STATEMENT OF INCOME
(a) Decrease in securities interest income is due to proceeds from the
maturity of $15,000,000 in U.S. Treasury notes being used to pay for the
purchase. The loss in interest income is estimated to be $437,000 and $785,000
for the six-month and 12-month periods beginning January 1, 1996 and January 1,
1995, respectively.
(b) The decrease in interest expense paid on the deposits from First Public
is based on an estimated 20% runoff over the course of the first 12-month period
after the Merger. The decrease in interest expense for the six-month and
12-month periods beginning January 1, 1996 and January 1, 1995, $434,000 and
$869,000, respectively, was computed using First Public's cost of funds as of
December 31, 1995 (3.644%), assuming that runoff will occur evenly over the
period.
52
<PAGE> 69
(c) Non-interest expense includes the projected direct cost savings from
the Merger; and the amortization of goodwill for the six-month period and the
12-month periods beginning January 1, 1996 and January 1, 1995 respectively,
based on an estimated 15-year amortization period. The expected savings in
merging First Public's operation include reductions in salaries and employee
benefits; occupancy; office and equipment and other redundant expenses. The
estimated expenses for the six-month and 12-month periods beginning January 1,
1996 and January 1, 1995 are as follows:
<TABLE>
<CAPTION>
DEBIT (CREDIT) DEBIT (CREDIT)
SIX-MONTH 12-MONTH
PERIOD PERIOD
-------------- --------------
<S> <C> <C>
Salaries and employee benefits........................... $(1,064,000) $(2,203,000)
Other expenses
Occupancy.............................................. (233,000) (466,000)
Office and equipment................................... (17,000) (35,000)
Other operating........................................ (334,000) (650,000)
Goodwill amortization.................................. 435,000 929,000
----------- -----------
$ (149,000) $ (222,000)
=========== ===========
</TABLE>
(d) Additional income tax expense is computed using a 40% tax rate. The tax
attributes of First Public will carry over to CB including all assets and
liabilities and are recorded at amounts previously reflected, adjusted for
purchase price allocations. The goodwill is not tax deductible.
(e) The pro forma combined net income per common share data are based on
(i) combined historical income of First Public and Bancorp assuming the Merger
is accounted for as a purchase and (ii) pro forma combined equivalent of the
First Public Stock converted (as adjusted for an exchange ratio of 0.3694 of a
share of Bancorp Common Stock for each share of First Public Stock) and Bancorp
Common Stock as of June 30, 1996 and December 31, 1995.
53
<PAGE> 70
BUSINESS AND FINANCIAL INFORMATION REGARDING FIRST PUBLIC
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain historical financial data for First
Public at or for the six-month periods ended June 30, 1996 and 1995 (unaudited)
and at or for the years ended December 31, 1991 through December 31, 1995
(audited). Such information has been derived from and should be read in
conjunction with the consolidated financial statements of First Public,
including the respective notes thereto and management's discussion and analysis
of financial condition and results of operations, which are provided as a part
of this Proxy Statement-Prospectus. The selected historical financial
information for First Public for the six-month periods ended June 30, 1996 and
1995 include, in the opinion of the management of First Public, all adjustments
(comprising only normal recurring accruals) necessary for a fair presentation of
the consolidated operating results and financial position of First Public for
such interim periods. Results for the interim periods are not necessarily
indicative of results for the full year or any other period. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business -- General" and "First Public Financial Statements."
54
<PAGE> 71
FIRST PUBLIC SAVINGS BANK, F.S.B.
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR THE SIX
MONTHS
ENDED JUNE 30 AT OR FOR THE YEAR ENDED DECEMBER 31
--------------------- ------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES, PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total Assets......................... $279,717 $259,535 $263,477 $260,759 $252,593 $244,081 $227,253
Loans Receivable, net................ 144,360 136,262 141,635 133,342 134,987 137,864 143,789
Investment Securities................ 65,626 65,537 63,422 60,755 40,483 30,541 7,373
Mortgage-Backed Securities........... 45,197 36,472 36,086 32,615 16,830 11,477 15,495
Deposit Investments in CD's.......... 200 2,188 1,199 5,351 28,820 37,948 39,596
Cash and Cash Equivalents............ 15,987 14,271 12,727 24,081 27,354 22,249 17,160
Federal Home Loan Bank Stock......... 1,651 1,569 1,608 1,530 1,462 1,423 1,185
Deposits............................. 255,305 234,966 238,474 230,064 223,844 218,415 204,396
Stockholders' Equity(1).............. 22,557 21,871 22,961 20,836 27,236 24,101 21,387
Stockholders' Equity Per Share....... 5.64 5.47 5.74 5.21 6.81 6.03 5.35
Operating Data:
Total Interest Income................ $ 9,757 $ 9,086 $ 18,628 $ 16,954 $ 17,205 $ 19,077 $ 19,946
Total Interest Expense............... 4,393 4,054 8,428 6,359 6,324 8,419 11,145
Provision for Loan Losses............ 112 85 301 246 2 174 21
-------- -------- -------- -------- -------- -------- --------
Net Interest Income After Provision
for Loan Losses.................... 5,252 4,947 9,899 10,349 10,879 10,484 8,780
Other Income......................... 116 590 656 261 1,211 399 223
Other Expenses....................... 3,010 2,847 5,669 5,514 5,049 4,560 3,887
-------- -------- -------- -------- -------- -------- --------
Income Before Income Taxes........... 2,358 2,690 4,886 5,096 7,041 6,323 5,116
Income Tax Expense................... 978 1,115 2,026 2,118 2,906 2,609 1,978
-------- -------- -------- -------- -------- -------- --------
Net Income........................... $ 1,380 $ 1,575 $ 2,860 $ 2,978 $ 4,135 $ 3,714 $ 3,138
======== ======== ======== ======== ======== ======== ========
Net Income Per Share................. $ 0.35 $ 0.39 $ 0.72 $ 0.74 $ 1.03 $ 0.93 $ 0.78
Cash Dividend Paid................... 500 8,500 9,000 1,500 1,000 560 440
Cash Dividend Per Share.............. 0.13 2.13 2.25 0.38 0.25 0.14 0.11
Dividend Payout Ratio(2)............. 36.23% 539.68% 314.69% 50.37% 24.18% 15.08% 14.02%
Other Data:
Return on Average Assets(3).......... 1.02% 1.21% 1.09% 1.16% 1.67% 1.58% 1.46%
Return on Average Equity(3).......... 12.13% 14.75% 13.06% 12.39% 16.11% 16.33% 15.66%
Equity to Assets..................... 8.06% 8.43% 8.71% 7.99% 10.78% 9.87% 9.41%
Interest Rate Spread (End of
Period)............................ 3.79% 3.55% 3.77% 3.65% 3.82% 3.87% 3.89%
Interest Earning Assets to Interest
Bearing Liabilities (End of
Period............................. 106.94% 109.08% 107.63% 112.00% 111.66% 110.57% 109.88%
Non-Performing Assets (End of
Period)............................ $ 502 $ 659 $ 894 $ 819 $ 655 $ 90 $ 641
Non-Performing Assets to Total Assets
(End of Period).................... 0.18% 0.25% 0.34% 0.31% 0.26% 0.04% 0.28%
Non-Performing Loans (End of
Period)............................ $ 235 $ 464 $ 345 $ 819 $ 655 $ 90 $ 641
Allowance for Losses on Loans........ $ 617 $ 537 $ 517 $ 461 $ 322 $ 320 $ 146
Ratio of Allowance for Losses on
Loans to Period End Loans, net..... 0.43% 0.39% 0.37% 0.35% 0.24% 0.23% 0.10%
Ratio of Allowance for Losses on
Loans to Total Non-Performing
Loans.............................. 262.55% 115.73% 149.86% 56.29% 49.16% 355.56% 22.78%
Full Service Offices (End of
Period)............................ 5 5 5 5 5 4 4
</TABLE>
- ---------------
(1) 1992 beginning equity was restated by $440,101 due to the adoption of SFAS
No. 109, "Accounting for Income Taxes". Also, in 1994, the Board declared
two special cash dividends of $0.125 and $2.00 per share which reduced
equity by $8.5 million.
(2) Dividends paid per share divided by net income per share.
(3) Ratios are based on average assets and average equity. Average assets and
average equity are calculated by averaging the beginning and ending
balances.
55
<PAGE> 72
The table below sets forth consolidated average daily balances of each
principal category of assets, liabilities and stockholders' equity, interest on
interest-earning assets, and interest on interest-bearing liabilities, and the
average yields earned or rates paid thereon for the periods indicated. The table
also shows the net interest earnings and the net yield on average earning
assets. Averages were computed based upon averages of monthly average balances.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
-----------------------------------------------------------
1996 1995
---------------------------- ----------------------------
INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID BALANCE EXPENSE PAID
-------- ------- ------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Gross Loans(1)(2)............................. $143,633 $5,922 8.08% $134,286 $5,418 7.91%
Investment securities......................... 102,893 3,369 6.60 98,103 3,114 6.34
Federal funds sold and other.................. 16,228 423 5.24 20,110 520 5.64
-------- ------- ------- -------- ------- -------
Total interest-earning assets............. $262,754 $9,714 7.33 $252,499 $9,052 7.12
FHLB Stock.................................... 1,640 43 5.47 1,560 34 4.42
Allowance for possible loan losses............ (587) (525)
Nonearning assets:
Cash and due from banks..................... 2,113 2,074
Premises and equipment, net................. 3,476 408
Accrued interest receivable................. 2,158 2,069
Other assets................................ 895 623
-------- --------
Total average assets...................... $272,449 $258,708
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Transaction accounts........................ $ 26,432 $ 137 1.04% $ 24,863 $ 167 1.34%
Regular Deposit............................. 41,673 389 1.87 42,093 442 2.10
Money Market Accounts....................... 35,896 407 2.27 40,902 465 2.28
Certificates................................ 141,352 3,460 4.96 123,730 2,980 4.99
-------- ------- ------- -------- ------- -------
Total savings deposits.................... 218,921 4,256 3.93 206,725 3,887 3.86
-------- ------- ------- -------- ------- -------
Total deposits............................ 245,353 4,393 3.60 231,588 4,054 3.59
Non-interest bearing liabilities
Transaction accounts........................ 1,817 1,637
Other liabilities........................... 2,508 3,900
-------- --------
Total liabilities......................... 249,678 237,125
-------- --------
Total stockholder's equity................ 22,771 21,583
Total average liabilities and
stockholder's equity.................... $272,449 $258,708
========= =========
Net interest income....................... $5,364 $5,032
======== ========
Net interest rate spread.................. 3.73% 3.53%
======== ========
</TABLE>
- ---------------
(1) Nonaccrual loans are included in the average balance column; however only
collected interest is included in the interest column.
(2) Loan origination fees are included in interest on loans.
56
<PAGE> 73
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------------------------------------
1995 1994 1993
---------------------------- ---------------------------- ----------------------------
INTEREST RATE INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID BALANCE EXPENSE PAID BALANCE EXPENSE PAID
-------- ------- ------- -------- ------- ------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Gross Loans(1)(2)................ $136,939 $11,178 8.02% $134,004 $10,831 7.77% $136,593 $11,984 8.31%
Investment securities............ 99,973 6,394 6.43 73,906 4,290 5.79 52,028 3,038 5.95
Federal funds sold and other..... 16,986 976 5.74 42,776 1,750 4.02 56,573 2,125 3.82
-------- ------- ------- -------- ------- ------- -------- ------- -------
Total interest-earning
assets..................... $253,898 $18,548 7.24 $250,686 $16,871 6.55 $245,194 $17,147 6.77
FHLB Stock....................... 1,579 80 4.72 1,502 83 4.76 1,439 58 4.02
Allowance for possible loan
losses......................... (567) (312) 0
Nonearning assets:
Cash and due from banks........ 1,884 3,488 2,238
Premises and equipment, net.... 1,178 492 441
Accrued interest receivable.... 2,120 1,841 1,783
Other assets................... 1,042 454 484
-------- -------- --------
Total average assets......... $261,134 $258,151 $251,579
-------- -------- --------
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Interest-bearing liabilities:
Transaction accounts........... $ 25,291 $ 309 1.22% $ 26,600 $ 359 1.35% $ 26,272 $ 422 1.61%
Regular Deposit................ 41,734 856 2.05 44,331 953 2.15 42,458 983 2.32
Money Market Accounts.......... 39,795 905 2.27 48,364 1,103 2.28 51,013 1,298 2.55
Certificates................... 127,269 6,358 5.07 106,290 3,944 3.76 100,814 3,621 3.47
-------- ------- ------- -------- ------- ------- -------- ------- -------
Total savings deposits....... 208,798 8,119 3.93 198,985 6,000 3.04 194,285 5,902 2.97
-------- ------- ------- -------- ------- ------- -------- ------- -------
Total deposits............... 234,089 8,428 3.62 225,585 6,359 2.83 220,557 6,324 2.81
Non-interest bearing liabilities
Transaction accounts........... 1,573 1,890 1,881
Other liabilities.............. 3,436 2,400 3,048
-------- -------- --------
Total liabilities............ 239,098 229,875 225,486
-------- -------- --------
Total stockholder's equity... 22,036 28,276 26,093
Total average liabilities and
stockholder's equity....... $261,134 $258,151 $251,579
========= ========= =========
Net interest income.......... $10,200 $10,595 $10,881
======== ======== ========
Net interest rate spread..... 3.62% 3.72% 3.96%
======== ======== =======
</TABLE>
- ---------------
(1) Nonaccrual loans are included in the average balance column; however, only
collected interest is included in the interest column.
(2) Loan origination fees are included in interest on loans.
57
<PAGE> 74
Rate and Volume Variances. The following table sets forth a summary of the
changes in average assets and liability balances (volume) and changes in average
interest rates for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31
---------------------- ----------------------------------------------------
1996 COMPARED TO 1995 1995 COMPARED TO 1994 1994 COMPARED TO 1993
---------------------- ------------------------- ------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ----- ----- ------- ------ ------ ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
NET INTEREST INCOME VARIANCE
ANALYSIS:
Increase (decrease) in interest
income:
Loans........................... $384 $ 120 504 $ 140 $ 207 $ 347 $(260 ) $(893) $(1,153)
Investment securities........... 138 117 255 1,600 504 2,104 1,336 (84) 1,252
Federal funds sold and other.... (71) (26) (97) (2,620) 1,846 (774) (476 ) 101 (375)
----- ----- ---- ------- ------ ------ ------ ----- ------
Total.................... $451 $ 211 $662 $ (880) $2,557 $1,677 $ 600 $(876) $ (276)
Interest-bearing transaction
accounts...................... $ 11 $ (41) $(30) $ (17) $ (33) $ (50) $ 5 $ (68) $ (63)
Savings accounts................ (4) (49) (53) (54) (43) (97) 48 (78) (30)
Money Market Accounts........... (57) (1) (58) (195) (3) (198) (65 ) (130) (195)
Total certificates of deposit... 503 (23) 480 873 1,541 2,414 128 195 323
----- ----- ---- ------- ------ ------ ------ ----- ------
Total.................... $453 $(114) $339 $ 607 $1,462 $2,069 $ 116 $ (81) $ 35
Increase (decrease) in net
interest income................. $ (2) $ 325 $323 $(1,487) $1,095 $ (392) $ 484 $(795) $ (311)
</TABLE>
The above table sets forth information regarding changes in interest income
and expense for the Bank for the periods indicated. For each category of
interest-earning asset and interest-bearing liability, information is provided
on changes attributable to: (i) changes in rate (changes in rate multiplied by
old volume) and (ii) changes in volume (changes in volume multiplied by old
rate). Interest-earning asset and interest-bearing liability balances in the
calculations are computed using monthly average balances. The changes due to
rate and volume have been allocated to rate and volume in proportion to the
relationship between their absolute dollar amounts.
BUSINESS-GENERAL
First Public's principal business consists of attracting deposits from the
communities it serves through a variety of deposit programs and originating
loans secured primarily by single-family and multi-family residential
properties, and, to a small extent, commercial real estate.
First Public derives its income principally from interest earned on loans,
mortgage-backed securities, U.S. Treasury and government agency securities and
other investments. First Public's principal expenses are interest expenses on
deposits, salaries and employee benefits, office occupancy expenses and other
miscellaneous expenses. Funds for these activities are provided principally by
repayments of outstanding loans, deposit growth and operating revenues.
BUSINESS STRATEGY
First Public's business plan has been premised on providing high-quality,
full service community banking to its customers. First Public's intent has been
to provide a wide range of banking services to its customers through the
establishment and maintenance of long-term, full-service relationships. First
Public's strategies have included providing a full line of loans secured by both
residential and commercial properties. First Public also has invested in high
quality assets such as U.S. government treasury and government agency mortgage-
backed securities.
First Public's business strategy has been to pursue growth while
maintaining a "well capitalized" status. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." A key element of First Public's business plan has been to
grow with the following objectives: (1) achieve a larger asset size to maximize
operating efficiency and achieve economies of scale; and (2) provide better
service and a wider array of products to customers in First Public's market. The
focus
58
<PAGE> 75
of such growth has been in the area of core deposits to lower First Public's
average cost of funds and enhance the ability to cross-sell other products and
services offered by First Public. Management's most important objective has been
to build a long-term banking relationship with customers. First Public
anticipates continued growth in the immigrant population in its market area and
believes that there are opportunities for expansion. First Public believes that
smaller, well capitalized local financial institutions, such as First Public,
can provide fast, efficient and more personalized community banking services to
its customers than can the regional, super-regional and national financial
institutions.
MARKET AREA
First Public's primary market area consists of the Los Angeles Chinatown
area and the greater San Gabriel Valley area. First Public's corporate office is
located in Los Angeles, California, and it has five full service branch offices
in Los Angeles' Chinatown, Monterey Park, Alhambra, San Gabriel and Rowland
Heights. First Public explores additional branching opportunities as they arise.
LENDING ACTIVITIES
Loan Portfolio Composition. First Public's net loan portfolio, excluding
mortgage-backed securities, totaled $141.6 million at December 31, 1995,
representing 53.7% of total assets and $144.4 million, or 51.6% of total assets,
at June 30, 1996. First Public's policy has been to concentrate its lending
activities within its primary market area. Single-family residential loans
comprise the largest group of loans in First Public's loan portfolio, amounting
to $74.3 million, or 51.8% of the total loan portfolio, at December 31, 1995,
and $75.2 million, or 51.4% of total loans, at June 30, 1996. Mortgage-backed
securities, which consist of interests in single-family residential loans,
totaled $36.1 million, or 13.7% of total assets, at December 31, 1995 and $45.2
million, or 16.2% of total assets, at June 30, 1996. For a discussion of First
Public's mortgage-backed securities, see "-- Mortgage-Backed Securities." In
addition, multifamily loans amounted to $52.1 million, or 36.3% of the total
loan portfolio, at December 31, 1995, and $54.5 million, or 37.2% of total
loans, at June 30, 1996. Commercial and industrial real estate loans amounted to
$16.4 million, or 11.4% of the total loan portfolio, at December 31, 1995, and
$15.5 million, or 10.6% of total loans, at June 30, 1996. Total real estate
loans amounted to $146.3 million at June 30, 1996, $143.5 million at December
31, 1995 and $135.1 million at December 31, 1994. This represents increases of
$2.9 million, or 2.0%, and $8.4 million, or 6.2%, respectively, from the prior
period. For a discussion of First Public's competition, see "-- Competition".
First Public also originates loans secured by deposits. At December 31,
1995, loans secured by deposits amounted to $433,807, or 0.3% of the total loan
portfolio. At June 30, 1996, these loans totaled $696,754, or 0.5% of total
loans. First Public also made a small number of automobile loans and consumer
loans. At December 31, 1995, these loans totaled $298,212, or 0.2% of the total
loan portfolio. At June 30, 1996, these loans totaled $465,964, or 0.3% of total
loans.
59
<PAGE> 76
The following table sets forth information concerning First Public's loan
portfolio by loan type at the dates indicated:
<TABLE>
<CAPTION>
AT JUNE % OF AT DECEMBER % OF AT DECEMBER % OF
30, 1996 TOTAL 31, 1995 TOTAL 31, 1994 TOTAL
-------- ------ ----------- ------ ----------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Single-family residential
loans...................... $ 75,208 51.39 $ 74,289 51.78 $ 68,780 50.92
Multi-family Loans........... 54,486 37.23 52,109 36.32 49,493 36.65
Commercial and Industrial
Loans...................... 15,480 10.58 16,350 11.40 16,213 12.00
Loans Secured by Deposit
Accounts................... 697 0.48 433 0.30 455 0.34
Other Loans.................. 466 0.32 298 0.20 117 0.09
-------- ------ -------- ------ -------- ------
Total Loans................ $146,337 100.00% $143,479 100.00% $135,058 100.00%
-------- ------ -------- ------ -------- ------
Less:
Allowance for Loan Losses
(general & specific).... (617) (517) (461)
Deferred Loan Fees......... (1,361) (1,328) (1,255)
-------- -------- --------
Net Loans.................. $144,359 $141,634 $133,342
-------- -------- --------
</TABLE>
The following table sets forth maturity distribution as of the dates
indicated for loans with fixed and adjustable interest rates. Adjustable-rate
loans have been included in the first period in which a rate adjustment is
scheduled to occur. The amounts shown for each period do not take into account
loan prepayments and normal amortization of First Public's loan portfolio and
include non-performing loans.
<TABLE>
<CAPTION>
AT JUNE 30, 1996
--------------------------------------------
FIXED ADJUSTABLE
RATE RATE TOTAL
----------- ------------ -----------
<S> <C> <C> <C>
(IN THOUSANDS)
1 year or less......................... $ 0 $88,873 $ 88,873
After 1 year through 5 years........... 739 1,761 2,500
After 5 years.......................... 54,964 0 54,964
------- ------- --------
$55,703 $90,634 $146,337
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
--------------------------------------------
FIXED ADJUSTABLE
RATE RATE TOTAL
----------- ------------ -----------
<S> <C> <C> <C>
(IN THOUSANDS)
1 year or less......................... $ 0 $89,259 $ 89,259
After 1 year through 5 years........... 1,789 913 2,702
After 5 years.......................... 51,518 0 51,518
------- ------- --------
$53,307 $90,172 $143,479
======= ======= ========
</TABLE>
Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of loans is substantially less than
their average contractual terms because of prepayments. The average life of
mortgage loans tends to increase, however, when current mortgage loan rates are
substantially higher than rates on existing mortgage loans and, conversely,
decrease when rates on existing mortgages are substantially higher than current
mortgage loan rates.
Origination, Purchase and Sale of Loans. First Public has general authority
to originate loans secured by real estate located throughout the United States.
Consistent with its emphasis on being a community-oriented financial
institution, First Public generally has concentrated its lending activities
within its primary market area. As of December 31, 1995, 73.8% of original loan
balances were located within First Public's assessment area. As of June 30,
1996, 76.3% of original loan balances were located within First Public's
assessment area.
60
<PAGE> 77
All loans are originated by First Public Loan Department staff. Residential
mortgage loan origination is attributable to depositors, walk-in customers,
advertising and referrals from real estate brokers and builders. All of First
Public's loan applications are evaluated by First Public to ensure compliance
with First Public's underwriting standards. See "Loan Underwriting Policies."
The following table sets forth total loans secured by real estate
originated, purchased, repaid and sold by First Public during the periods
indicated.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED -------------------------------
JUNE 30, 1996 1995 1994 1993
------------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Loan Origination................................. $ 9,243 $17,897 $17,649 $37,904
Loans Purchased.................................. 0 1,029 0 0
Principal Loan Reductions and Loan Payoffs....... (6,649) (10,482) (20,136) (39,599)
------ ------ ------ ------
Increase/(Decrease) in Loans Receivables....... $ 2,594 $ 8,444 $(2,487) $(1,695)
====== ====== ====== ======
</TABLE>
Loan Underwriting Policies. First Public's lending activities are subject
to its written, non-discriminatory underwriting standards and loan origination
procedures prescribed by First Public's Board of Directors and its management.
Detailed loan applications are obtained to determine the borrower's ability to
repay, and the more significant items are verified through the use of credit
reports, financial statements and confirmations. Property valuations are
performed by qualified, independent outside appraisers who are approved by First
Public's Board. All loans must be approved by the appropriately authorized loan
committee based on the loan amount. The authorities of the loan committees are
established by the Board.
First Public's policy has been to have its mortgage loans secured by a
valid lien on the real property and to obtain a title insurance policy which
ensures that the property is free of prior encumbrances. Borrowers must also
obtain hazard insurance policies prior to funding. When the properties are in
flood plains, as designated by the Department of Housing and Urban Development,
flood insurance policies must also be obtained. Borrowers, in certain cases, are
also required to advance funds on a monthly basis, together with each payment of
principal and interest, to a mortgage escrow account from which First Public
makes disbursements for items such as real estate taxes and hazard insurance
premiums.
Federal law directs the OTS to implement appraisal standards consistent
with the practices of the bank regulatory agencies. Pursuant to this directive,
the OTS has a regulation requiring management to develop written appraisal
policies meeting certain minimum standards, to develop guidelines for the hiring
of appraisers and to review the performance of such appraisers at least
annually. In addition, the OTS has adopted a policy statement providing more
detailed guidance on the form and content of appraisals. The OTS has issued
supplemental guidelines with respect to appraisals in accordance with the
provisions of the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"). First Public has revised its appraisal policy to ensure its
compliance with both the policy statement as well as the supplemental
guidelines.
First Public is permitted to lend up to 95% of the appraised value of the
real property securing a 1 to 4 unit mortgage loan. However, if the amount of a
residential loan exceeds 80% of the appraised value, First Public is required by
federal regulations to obtain private mortgage insurance on that portion of the
principal amount of the loan that exceeds 80% of the appraised value or the
purchase price, whichever is lower. In December 1995, First Public adopted a
policy which limited the maximum loan-to-value percentages of all its first
position mortgage loans to 95%, and its second mortgage loans to 70% (including
the amount of the first mortgage on the property). With respect to construction
loans originated in connection with the providing of the permanent financing,
First Public will lend up to 70% of the cost of the improved property or 60% of
the appraised value on an as completed basis, whichever is lower.
As a result of FIRREA, since 1989 the permissible amount of
loans-to-one-borrower made by savings banks like First Public is the same as for
national banks. The new rule generally does not permit loans-to-one-borrower to
exceed 15% of First Public's unimpaired capital and surplus. Additional loans in
an amount equal
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<PAGE> 78
to 10% of unimpaired capital and surplus also may be made to a borrower if the
additional loans are fully secured by readily marketable collateral. Real estate
is not included in the definition of readily marketable collateral. At June 30,
1996, First Public did not have loans outstanding to any one borrower, including
related entities, which exceeded applicable loans-to-one-borrower limitations.
Federal regulations also permit First Public to invest up to four times its
regulatory capital in loans secured by non-residential and commercial real
estate. At December 31, 1995, First Public was allowed to invest in
non-residential and commercial real estate loans in an aggregate amount up to
$90.3 million. Loans in First Public's loan portfolio secured by commercial real
estate (excluding multi-family) totaled $16.4 million at such date. At June 30,
1996, First Public was allowed to invest in aggregate up to $93.8 million in
said loans. Loans at such date totaled $15.5 million.
Interest rates charged by First Public on loans are determined principally
by competitive factors, the demand for such loans and the supply of funds
available for lending purposes. These factors are, in turn, affected by general
economic conditions, monetary policies of the federal government, including the
Federal Reserve Bank, legislative tax policies and government budgetary matters.
Residential Real Estate Lending. First Public is an originator of
single-family residential real estate loans secured by properties generally
located within its primary market area. First Public currently originates
fixed-rate mortgages and adjustable-rate mortgages ("ARMs") for terms of up to
30 years. At December 31, 1995, $74.3 million, or 51.8% of First Public's total
loan portfolio, consisted of single-family residential real estate loans. At
June 30, 1996, single-family residential loans totaled $75.2 million, or 51.4%
of total loans. In addition, the majority of First Public's single-family
residential loans are originated with loan-to-value ratios of less then 80%.
First Public originates real estate loans for its own portfolio as well as
loans that conform to Federal Home Loan Mortgage Corporation ("FHLMC")
guidelines for potential resale. First Public's policy is to retain all
fixed-rate mortgage loans and ARMs it originates for its portfolio. First
Public's ARMs generally adjust semi-annually or annually and are indexed to
either the 11th District Federal Home Loan Bank cost of funds or the one-year
constant maturity treasury ("CMT").
Adjustable-rate mortgage loans decrease the risk associated with changes in
interest rates, but involve another risk, because as interest rates increase,
the underlying payments by the borrower increase, increasing the potential for
default. This risk is somewhat mitigated since most of the ARMs underwritten by
First Public have an annual or semi-annual payment cap to limit the payment and
interest rate adjustments.
Construction Lending. First Public offers construction loans for the
construction of single family and multi-family dwellings, as well as commercial
properties. It has been First Public's policy to lend up to 70% of the total
cost of construction or 60% of the appraised value, whichever is lower. At June
30, 1996 and December 31, 1995, First Public did not have any construction
loans. Prior to making a commitment to fund a construction loan, First Public
performs an analysis of the feasibility and viability of the construction
project. First Public also evaluates the borrower's financial condition and
resources. First Public requires an appraisal of the property by independent
appraisers approved by the Board of Directors. A third party disbursement firm
is used to control the disbursement of construction funds on a voucher system.
Funds are disbursed only when the appropriate material and labor lien releases
are secured. The disbursement company makes inspections of the construction in
progress before funds are disbursed.
Construction financing has a higher degree of risk than long-term financing
on improved real estate. Construction loan risk is dependent largely upon the
accuracy of the estimates of the property's value upon completion of
construction and cost (including interest) of construction. During construction,
several factors can result in delays and cost overruns. If an estimate of
construction cost proves to be too low, First Public makes the determination
whether to advance additional funds on a case by case basis. If an estimate of
value proves to be too high, First Public may be confronted with collateral
having a value which is insufficient to assure full repayment.
Commercial and Multi-family Residential Real Estate Lending. The commercial
and multi-family residential real estate loans (exclusive of construction loans)
made by First Public are primarily secured by
62
<PAGE> 79
other income-producing commercial properties and amounted to $68.5 million, or
47.7% of the loan portfolio, at December 31, 1995, and $70.0 million, or 47.8%
of total loans, at June 30, 1996.
Commercial real estate lending is significantly riskier than residential
property lending. Repayment is typically dependent on the successful operation
of the real estate collateral. This risk can be significantly impacted by the
supply and demand for office and retail space. As such, commercial real estate
lending may be more subject to adverse conditions in the economy generally. To
minimize these risks, First Public generally has made loans only in its primary
market area and only to borrowers which have substantial commercial real estate
experience.
First Public evaluates all aspects of commercial and multi-family
residential real estate loan transactions in order to minimize risk. To this
end, permanent commercial and multi-family residential real estate loans
generally are made at an initial loan-to-value ratio of 65% or less.
Consideration is given to the collateral property's operating history, future
operating projections, current and projected occupancy, position in the local
market, location and physical condition. The underwriting analysis also includes
credit checks and a review of the financial condition of the borrower.
Loan Fee Income. In addition to interest earned on loans, First Public
receives income through fees in connection with loan origination, loan
modifications and late payments and for miscellaneous services related to its
loans. Income from these activities varies from period to period with the volume
and type of loans originated, which, in turn, is dependent on prevailing
mortgage interest rates and their effect on the demand for loans in the market
served by First Public.
Loan origination fees and certain direct origination costs are deferred and
amortized over the contractual life of the related loan as an adjustment of
yield using the interest method. If a loan is prepaid or refinanced, all
remaining deferred fees with respect to such loan are taken into income at such
time.
Nonperforming Loans and Other Real Estate Owned. When a borrower fails to
make a payment on a loan, First Public attempts to collect the payment by
contacting the borrower. If a payment on a loan has not been received by the end
of the applicable grace period, initial notices are generally made five (5) days
later, with follow-up contacts made thereafter. In most cases, the delinquencies
are cured promptly. If the delinquency exceeds sixty (60) days, First Public
generally institutes stronger measures to remedy the default, including the
commencement of foreclosure proceedings.
Loans are placed on non-accrual status when, in the judgment of management,
the probability of collection of interest is insufficient to warrant further
accrual. When a loan is placed on non-accrual status, previously accrued but
unpaid interest is deducted from interest income. As a matter of policy, First
Public does not accrue interest on loans past due ninety (90) days or more.
Real estate acquired by First Public as a result of foreclosure or by
deed-in-lieu-of-foreclosure is classified as other real estate owned until it is
sold. When such property is acquired, it is recorded at the lower of cost (the
unpaid loan balance and interest) or fair value, less estimated selling costs.
Any write-down is charged to the allowance for losses.
63
<PAGE> 80
The following table sets forth certain information regarding First Public's
loans more than ninety (90) days past due and still accruing interest,
non-accrual loans, total nonperforming loans and total nonperforming assets,
which includes nonperforming loans and other real estate owned. First Public did
not have any accruing loans more than ninety (90) days delinquent nor did it
have any "troubled debt restructuring" at any of the dates presented.
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------------------
1996 1995 1994
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Nonperforming Assets
Nonaccrual loans............................... $ 235 $ 345 $ 819
Restructured loans............................. 0 0 0
----------- ----------- -----------
Nonperforming loans.................... 235 345 819
Other real estate owned (OREO)................. 267 549 0
----------- ----------- -----------
Total nonperforming assets............. $ 502 $ 894 $ 819
=========== =========== ===========
Accruing loans 90 days past due.................. $ 0 $ 0 $ 0
Nonperforming loans to total loans............... 0.163% 0.244% 0.614%
Nonperforming assets:
To total loans......................... 0.348% 0.631% 0.614%
To total assets........................ 0.179% 0.339% 0.314%
TOTAL LOANS....................... $144,359,636 $141,634,857 $133,341,659
TOTAL ASSETS...................... $279,716,733 $263,477,235 $260,759,168
</TABLE>
Under federal regulations, all problem assets are subject to classification
in one of three categories: "substandard", "doubtful" and "loss". For assets
classified as "substandard" and "doubtful", the institution is required to
establish prudent general loan loss reserves in accordance with GAAP. Assets
classified as "loss" must be either completely written off or supported by a
100% specific reserve. Assets designated "special mention" are assets which do
not require problem asset classification, but which have potential weaknesses or
risk characteristics that could result in future problems. An institution is
required to develop an in-house program to periodically classify assets and to
set aside appropriate loss reserves on the bases of such classifications. The
Board of Directors has established an Internal Asset Review Committee to review
the assets of First Public. At June 30, 1996 and June 30, 1995, First Public's
classified loans totaled $1,627,621 and $1,774,180, respectively, all of which
were classified as "substandard". No assets were classified as "doubtful" or
"loss". In addition, First Public had designated as "special mention" assets
valued at $264,762 and $527,046 as of June 30, 1996 and June 30, 1995,
respectively. Assets designated "special mention" consisted of residential and
multi-family real estate loans and other secured loans.
ALLOWANCE FOR LOAN LOSSES
The Internal Asset Review Committee reviews the assets of First Public to
evaluate the adequacy of the allowance for loan losses. In addition, the Board
reviews the adequacy of First Public's allowance, adjusting the allowance as
necessary, based on the recommendation of the Internal Asset Review Committee,
to maintain the allowance at an adequate level. The allowance for loan losses is
maintained at a level believed adequate by management to absorb potential losses
in the loan portfolio. Management's determination of the adequacy of the
allowance is based on an evaluation of the portfolio, past loan loss experience,
economic conditions, volume, growth and net realizable value of underlying
collateral, and other relevant factors. The allowance is increased by provisions
for loan losses which are charged against income.
64
<PAGE> 81
The following table sets forth an analysis of activity in First Public's
allowance for loan losses, including charge-offs and recoveries by loan
categories, during the periods indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year............................... $ 517 $ 461 $ 322
Provision for possible loan losses......................... 112 301 246
Charge-offs
Commercial............................................... 0 0 0
Real estate -- construction.............................. 0 0 0
Real estate -- mortgage
Real estate -- other..................................... 12 245 107
Installment.............................................. 0 0 0
Other.................................................... 0 0 0
-------- -------- --------
Total charge-offs................................ 12 245 107
Recoveries:
Commercial............................................... 0 0 0
Real estate -- construction.............................. 0 0 0
Real estate -- mortgage.................................. 0 0 0
Real estate -- other..................................... 0 0 0
Installment.............................................. 0 0 0
Other.................................................... 0 0 0
-------- -------- --------
Total recoveries................................. 0 0 0
Net charge-offs............................................ 12 245 107
-------- -------- --------
Balance at end of period................................... $ 617 $ 517 $ 461
======== ======== ========
Loans outstanding at period end............................ $146,337 $142,151 $133,802
======== ======== ========
Average loans.............................................. $143,633 $136,939 $134,004
======== ======== ========
Net charge-offs during the period to average loans......... 0.01% 0.18% 0.08%
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
------------------ ------------------ ------------------
ALLOWANCE % OF ALLOWANCE % OF ALLOWANCE % OF
FOR LOSSES LOANS FOR LOSSES LOANS FOR LOSSES LOANS
---------- ----- ---------- ----- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loan Categories:
Commercial, Financial and Agribusiness.... 0 0 0 0 0 0
Real Estate -- Construction............... 0 0 0 0 0 0
Real Estate -- Mortgage................... 617 100% 517 100% 461 100%
Real Estate -- Other...................... 0 0 0 0 0 0
Installment............................... 0 0 0 0 0 0
Loans Sold With Recourse.................. 0 0 0 0 0 0
--- ---- --- ---- --- ----
Total............................. 617 100% 517 100% 461 100%
=== ==== === ==== === ====
</TABLE>
65
<PAGE> 82
The following table sets forth certain information regarding First Public's
allocation of the allowance for loan losses.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
JUNE 30, 1996 1995 1994
------------------- ------------------- -------------------
ALLOWANCE % OF ALLOWANCE % OF ALLOWANCE % OF
FOR LOSSES LOANS FOR LOSSES LOANS FOR LOSSES LOANS
---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Loan Categories:
Single-family residential loan....... $ 92,797 15.05% $ 97,247 18.83% $ 72,276 15.68%
Multi-family loans................. 326,657 52.98 280,725 54.34 327,835 71.11
Non-residential loans.............. 54,182 8.79 59,199 11.46 57,076 12.38
Other loans........................ 6,109 0.99 5,104 0.99 2,058 0.44
Excess Loss Reserves............... 136,822 22.19 74,292 14.38 1,785 0.39
-------- ------ -------- ------ -------- ------
Total...................... $ 616,567 100.00% $ 516,567 100.00% $ 461,030 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1993 1992 1991
------------------- ------------------- -------------------
ALLOWANCE % OF ALLOWANCE % OF ALLOWANCE % OF
FOR LOSSES LOANS FOR LOSSES LOANS FOR LOSSES LOANS
---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Loan Categories:
Single-family residential loan....... $ 73,003 22.67% $ 72,815 22.75% $ 63,061 43.34%
Multi-family loans................. 150,558 46.76 136,190 42.56 37,397 25.70
Non-residential loans.............. 67,380 20.93 70,947 22.17 16,320 11.22
Other loans........................ 5,233 1.62 5,270 1.65 5,037 3.46
Excess Loss Reserves............... 25,826 8.02 34,778 10.87 23,690 16.28
-------- ------ -------- ------ -------- ------
Total...................... $ 322,000 100.00% $ 320,000 100.00% $ 145,505 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
Although management believes that First Public's allowance for loan losses
was adequate as of June 30, 1996, First Public's provisions were based on the
then current operating conditions, causing these estimates to be susceptible to
changes that could result in material adjustments to results of operations.
Recovery of the carrying value of such loans is dependent to a great extent on
economic, operating and other conditions that are beyond First Public's control.
Therefore, actual losses in future periods could differ materially from amounts
provided and could result in material adjustments to future results of
operations.
MORTGAGE-BACKED SECURITIES
First Public invests in mortgage-backed securities (fixed and adjustable)
issued by the Government National Mortgage Association ("GNMA") and the Federal
Home Loan Mortgage Corporation ("FHLMC"). GNMA certificates are guaranteed as to
principal and interest by the full faith and credit of the United States
government. FHLMC certificates are not directly backed by the United States
government. Mortgage-backed securities generally are of higher quality than
First Public's other assets by virtue of the guarantees that back them, are more
liquid than mortgage loans and may be used to collateralize borrowings or other
obligations of First Public, if needed. First Public's investment in
mortgage-backed securities was $36.1 million at December 31, 1995 and $45.2
million at June 30, 1996.
INVESTMENT ACTIVITIES
First Public is permitted by federal regulations to invest in certain
securities that qualify as liquid assets under OTS regulations. Such securities
may include obligations issued or fully guaranteed by the U.S. government,
certain federal agency obligations and certain time deposits. First Public is
required to own stock of the Federal Home Loan Bank ("FHLB") of San Francisco.
First Public classifies its debt and marketable equity securities into one of
two categories: available for sale or held to maturity. Held to maturity
securities are those securities which First Public has the ability and intent to
hold until maturity. All other securities are
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<PAGE> 83
classified as available for sale. The following table sets forth the carrying
amount and amortized cost of securities for the periods indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------
1996 1995(1) 1994(1)
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Securities Available For Sale
(At Market Value):
U.S. Treasury securities.................................... $ 0 $ 0 $ 4,873
U.S. Government agencies.................................... 26,540 24,229 0
U.S. Government mortgage-backed security.................... 41,506 31,775 0
FHLMC Stock................................................. 0 0 314
------- ------- -------
Carrying amount............................................. $ 68,046 $56,004 $ 5,187
======= ======= =======
Amortized cost.............................................. $ 69,579 $54,343 $ 4,958
======= ======= =======
Securities Held To Maturity:
U.S. Treasury securities.................................... $ 34,086 $39,193 $53,580
U.S. Government agencies.................................... 5,000 0 1,988
U.S. Government mortgage-backed security.................... 3,691 4,312 32,615
------- ------- -------
Carrying amount............................................. $ 42,777 $43,505 $88,183
======= ======= =======
Fair value.................................................. $ 42,710 $43,756 $85,445
======= ======= =======
</TABLE>
- ---------------
(1) The Bank transferred securities with a book value of $24,650,797 from
held-to-maturity to available for sale on December 29, 1995.
Summary yield and maturity information regarding First Public's investment
securities available for sale and investment securities held-to-maturity
portfolios at June 30, 1996, are set forth in the following table:
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN WITHIN FIVE WITHIN TEN YEARS AFTER
ONE YEAR YEARS TEN YEARS TOTAL
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------- ------ ------- ------ ------- ------ ------- ------ -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities Available for Sale
U.S. Treasury securities........ $ 0 0.00% $ 0 0.00% $ 0 0.00% $ 0 0.00% $ 0 0.00%
U.S. Government Agencies........ 5,059 7.04 18,588 6.40 2,893 6.90 0 0.00 26,540 6.57
U.S. Government Mortgage-backed
securities.................... 0 0.00 0 0.00 0 0.00 41,506 7.25 41,506 7.25
------- ---- ------- ---- ------ ---- ------- ---- -------- ----
Total $5,059 7.04% $18,588 6.40% $2,893 6.90% $41,506 7.25% $ 68,046 6.98%
======= ==== ======= ==== ====== ==== ======= ==== ======== ====
Securities Held-to-Maturity
U.S. Treasury securities........ $16,092 5.68% $17,994 6.10% $ 0 0.00% $ 0 0.00% $ 34,086 5.90%
U.S. Government Agencies........ 0 0.00 5,000 6.63 0 0.00 0 0.00 5,000 6.63
U.S. Government Mortgage-backed
securities.................... 0 0.00 3,691 7.66 0 0.00 0 0.00 3,691 7.66
------- ---- ------- ---- ------ ---- ------- ---- -------- ----
Total $16,092 5.68% $26,685 6.41% $ 0 0.00% $ 0 0.00% $ 42,777 6.14%
======= ==== ======= ==== ====== ==== ======= ==== ======== ====
Total investment
securities $21,151 6.01% $45,273 6.41% $2,893 6.90% $41,506 7.25% $110,823 6.66%
======= ==== ======= ==== ====== ==== ======= ==== ======== ====
</TABLE>
SOURCES OF FUNDS
General. Deposits are the primary source of First Public's funds for
lending and other general business purposes. In addition, First Public obtains
funds from loan amortization and prepayments, and from operations. Contractual
loan payments are a stable source of funds, while deposit inflows and outflows
and loan prepayments are significantly influenced by general market interest
rates and economic conditions. Borrowings may also be used on a short-term basis
to compensate for seasonal or other reductions in normal sources of funds. First
Public did not have any borrowings throughout 1995 and has not had any
borrowings as of June 30, 1996.
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<PAGE> 84
Deposits. First Public has several programs designed to attract both
short-term and long-term deposits from the communities which it serves. The bank
provides various types of accounts and rates. These programs include passbook
accounts, negotiable order of withdrawals ("NOW") accounts, money market demand
accounts ("MMDA"), and certificates of deposit ranging from thirty (30) days to
thirty-six (36) months.
First Public's deposits are obtained primarily from residents in its
primary market area. The principal methods used by First Public to attract
deposit accounts include offering a wide variety of services and accounts with
competitive interest rates. First Public does not accept brokered deposits.
The following table shows the distribution of, and certain other
information relating to, First Public's deposits by type as of the dates
indicated:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------
1996 1995
--------------------------- ---------------------------
AVERAGE % OF AVERAGE % OF
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
-------- -------- ----- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
(AVERAGES IN THOUSANDS)
Interest-bearing transaction accounts..... $ 28,249 11.43 1.036% $ 26,501 11.36 1.342%
Savings accounts.......................... 41,673 16.86 1.867 42,093 18.05 2.100
Money Market Dep.......................... 35,896 14.52 2.270 40,902 17.54 2.275
Certificates of Deposits and other time
deposits:
less than $100,000..................... 102,121 41.32 4.829 96,928 41.56 4.884
more than $100,000..................... 39,231 15.87 5.291 26,802 11.49 5.337
-------- ------ ----- -------- ------ -----
Total Deposits:................. $247,170 100.00 3.598% $233,226 100.00 3.576%
======== ====== ===== ======== ====== =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1995 1994
--------------------------- ---------------------------
AVERAGE % OF AVERAGE % OF
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
-------- -------- ----- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
(AVERAGES IN THOUSANDS)
Interest-bearing transaction accounts..... $ 26,864 11.40 1.223% $ 28,489 12.52 1.358%
Savings accounts.......................... 41,734 17.71 2.050 44,331 19.49 2.150
Money Market Dep.......................... 39,795 16.89 2.271 48,364 21.26 2.280
Certificates of Deposits and other time
deposits:
less than $100,000..................... 97,726 41.46 4.972 77,283 33.97 3.654
more than $100,000..................... 29,543 12.54 5.773 29,008 12.76 3.982
-------- ------ ----- -------- ------ -----
Total Deposits:................. $235,662 100.00 3.621% $227,475 100.00 2.822%
======== ====== ===== ======== ====== =====
</TABLE>
A portion of the deposits which First Public receives are in the form of
certificates of deposit with balances in excess of $100,000. These deposits are
often considered to possess more liquidity risk than many other types of
deposits because the amounts in excess of $100,000 are not insured by the FDIC
and the depositors are more likely to move their funds in response to changes in
interest rates. The following table summarizes the amount of certificates of
deposit in excess of $100,000 outstanding at June 30, 1996 by maturity:
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------
(IN THOUSANDS)
---------------
<S> <C>
REMAINING MATURITY:
Three months or less................................ $18,495
Over three through six months....................... 10,467
Over six through 12 months.......................... 12,026
Over 12 months...................................... 204
-------
Total:...................................... $41,192
=======
</TABLE>
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<PAGE> 85
The variety of deposit accounts offered by First Public has increased its
ability to retain deposits and to be competitive in obtaining new funds.
Nevertheless, the threat of funds flowing away from savings institutions, such
as First Public, into alternative investment vehicles (such as mutual funds,
stocks and government and corporate securities) still exists. First Public's
ability to attract and retain deposits and maintain its favorable cost of funds
has been, and will continue to be, significantly affected by market conditions.
Management of First Public periodically reviews rates on deposits offered
by other financial institutions in its market area and, when deemed appropriate,
will adjust its rates as necessary to remain competitive with such institutions.
The following table sets forth the net deposit flows of First Public during
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -----------------
JUNE 30, 1996 1995 1994
------------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Increase (Decrease)
Before Interest Credit..................... $12,769 $ (49) $ 38
Interest Credited............................ 4,062 8,459 6,182
------- ------ ------
Net Deposit Increase......................... $16,831 $8,410 $6,220
======= ====== ======
</TABLE>
OFFICES
As of June 30, 1996, First Public conducted its business from its Corporate
Office and five branch offices. The following table sets forth certain
information with respect to the offices of First Public as of June 30, 1996.
NET BOOK VALUE OF PREMISES INVESTMENTS
<TABLE>
<CAPTION>
LEASEHOLD FIXED TOTAL
OFFICE LOCATION IMPROVEMENTS ASSETS TOTAL DEPOSITS
--------------- ------------ -------- -------- ------------
<S> <C> <C> <C> <C>
Corporate Office $ 678 $ 28,664 $ 29,342 $ n/a
977 N. Broadway, Suite 308
Los Angeles, CA 90012
(213) 346-0888
Temporary Additional Corporate Office 8,150 0 8,150 n/a
988 N. Hill Street, Suite 110
Los Angeles, CA 90012
Chinatown Main Office 25,621 24,157 49,778 130,698,057
800 N. Hill Street
Los Angeles, CA 90012
(213) 680-3596
Monterey Park Branch 3,927 7,042 10,969 56,841,398
757 W. Garvey Avenue
Monterey Park, CA 91754
(818) 307-0707
Alhambra Branch 5,542 3,062 8,604 31,222,566
43 E. Valley Blvd.
Alhambra, CA 91801
(818) 576-7600
San Gabriel Branch 6,085 6,150 12,235 21,550,246
420 W. Valley Blvd.
San Gabriel, CA 91776
(818) 300-0668
Rowland Heights Branch 59,088 54,713 113,801 14,992,586
18320 Colima Road
Rowland Heights, CA 91748
(818) 810-8866
-------- -------- -------- ------------
Total........................... $109,091 $123,788 $232,879 $255,304,853
======== ======== ======== ============
</TABLE>
69
<PAGE> 86
First Public also owns property at 500-540 W. Garvey Avenue, Monterey Park,
California, which was scheduled for development of a new Head Office in 1997 and
is recorded at its cost of $3.2 million. Bancorp has indicated it presently does
not intend to develop the property, if the Merger is consummated.
COMPETITION
First Public opened for business in August 1979 to provide for the banking
needs of the Chinese American community and the growing number of Chinese
immigrants. First Public faces strong competition both in its lending activities
and in attracting deposits. Competition in originating loans comes primarily
from other savings banks, savings and loan associations, commercial banks and
mortgage bankers. First Public competes for loans principally on the basis of
the interest rates and loan fees it charges, the types of loans it originates
and the quality of services it provides borrowers.
First Public competes for deposits by offering a variety of deposit
accounts at competitive rates and by maintaining convenient business hours and
retail banking office locations with interbranch deposit and withdrawal
privileges at each office. All branch offices are open seven days a week. Since
the majority of First Public customers are Chinese American, First Public
competes by providing its customers with bilingual service. First Public faces
substantial competition for deposits from other savings banks, savings and loan
associations, commercial banks, money market mutual funds, credit unions and
other financial institutions, especially from financial institutions with
branches in its service area and which cater to the Chinese American population.
The ability of First Public to attract and retain deposits depends on its
ability to provide investment opportunities meeting the requirements of
investors as to rate of return, liquidity, risk and other factors.
EMPLOYEES
As of June 30, 1996, First Public had 69 full-time employees and 37
part-time employees. None of these employees is represented by a collective
bargaining agent or union, and First Public believes its relations with its
personnel to be good.
LEGAL PROCEEDINGS
First Public is not involved in any legal proceedings not in the ordinary
course of business or which could have a material adverse effect on its
business.
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<PAGE> 87
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion, and management's beliefs set forth in other
sections of this Proxy StatementProspectus (see, for example, "Business and
Financial Information Regarding First Public -- Allowance for Loan Losses"), are
intended to provide information to facilitate the understanding and assessment
of the consolidated financial condition of First Public as reflected in the
financial statements and footnotes included elsewhere in this Proxy
Statement-Prospectus and should be read and considered in conjunction therewith.
These discussions include statements regarding First Public management's
beliefs, projections and assumptions with respect to future operations. These
forward-looking statements are not projections of future results. Actual results
for any period may vary from past results discussed herein for numerous reasons,
some of which may or may not be foreseen by management. See "Regulatory and
Economic Risk Factors -- Uncertainty of Future Results."
GENERAL
First Public's business is that of a financial intermediary and consists
primarily of attracting deposits from the general public and using such deposits
and other funds to make mortgage loans secured by residential and commercial
real estate located in Southern California. Additionally, First Public also
invests in mortgage-backed securities and other permissible investments.
First Public is regulated by the OTS and the FDIC which, through the SAIF,
insures the deposit accounts of institutions, such as First Public. Originally
chartered as a California savings and loan association in 1977, First Public
converted to its current status as a federally-chartered savings bank in 1993
without any material impact on its financial condition or results of operations.
First Public is a member of the FHLB of San Francisco.
The profitability of First Public depends primarily on its net interest
income, which is the difference between interest income on interest-earning
assets, principally loans, mortgage-backed securities and investment securities,
and interest expense on interest-bearing deposits. First Public's net earnings
are also dependent, to a lesser extent, on the level of its other income,
including loan related fees and servicing charges and the level of its general,
administrative and other expenses, such as employee compensation and benefits,
occupancy and equipment expense, deposit insurance premiums and miscellaneous
other expenses, as well as federal and state income tax expense.
The discussion herein is based upon the unaudited consolidated financial
statements as of and for the six months ended June 30, 1996 and 1995 and audited
consolidated financial statements as of and for the years ended December 31,
1995, 1994 and 1993. See "First Public Financial Statements.
INTEREST RATE RISK MANAGEMENT
The OTS estimates an institution's net portfolio value ("NPV") under a
range of interest rate scenarios. The larger the percentage change in net
portfolio value, the higher the exposure an institution has to interest rate
risk, and vice versa.
71
<PAGE> 88
The following table sets forth certain information at the dates indicated
relating to First Public's percentage change in net portfolio value as reported
by the OTS.
<TABLE>
<CAPTION>
% NPV CHANGE AT
% NPV CHANGE DECEMBER 31,
AT JUNE 30, -------------------
INTEREST RATE CHANGE 1996 1995 1994
--------------------------------------- ------------ ------ ------
<S> <C> <C> <C>
+400 basis points...................... -40.86% -18.10% -17.10%
+300 basis points...................... -30.24 -12.63 -11.91
+200 basis points...................... -19.61 -7.45 -7.19
+100 basis points...................... -9.27 -3.02 -3.18
0 basis points....................... 0 0 0
-100 basis points...................... 7.59 4.74 2.20
-200 basis points...................... 13.57 9.11 3.22
-300 basis points...................... 21.59 14.30 3.59
-400 basis points...................... 31.25 22.40 9.46
</TABLE>
First Public is required to provide the OTS each quarter with certain data
on its loan portfolio, investments, deposits and other balance sheet items. The
OTS then processes the data in its interest rate risk model along with the OTS'
assumptions of interest rates and other factors. Management believes that the
OTS interest rate risk model used to evaluate First Public's exposure to changes
in interest rates could vary substantially, if data with greater detail is
required by the OTS or different assumptions were used.
CHANGES IN FINANCIAL CONDITION.
Assets. At December 31, 1995, First Public's assets were $263.5 million, as
compared to $260.8 million at December 31, 1994. This represents an increase of
$2.7 million, or 1.0%, from the prior year. Total real estate loans amounted to
$141.6 million at December 31, 1995 and 133.3 million at December 31, 1994. This
represents an increase of $8.3 million, or 6.2%, from the prior year. For a
discussion of First Public's loan portfolio, see "Business and Financial
Information Regarding First Public -- Lending Activities". Investment in time
deposits in other financial institutions decreased from $5.4 million at December
31, 1994 to $1.2 million at December 31, 1995, representing a decrease of $4.2
million, or 77.6%. The decrease is attributed directly to the low interest rate
environment and the many alternative investments currently available in the
marketplace. Accordingly, investment in U.S. Treasury and government agency
securities increased $2.7 million, or 4.4%, from $60.8 million at December 31,
1994 to $63.4 million at December 31, 1995. Investment in GNMA and FHLMC
mortgage-backed securities amounted to $36.1 million at December 31, 1995 and
$32.6 million at December 31, 1994. This represents an increase of $3.5 million,
or 10.6%, from the prior year. Investment in overnight federal funds at December
31, 1995 was $6.5 million as compared to $17.0 million at December 31, 1994.
This represents a decrease of $10.5 million, or 61.7%, from the prior year.
Total assets at June 30, 1996 and June 30, 1995 were $279.7 million and
$259.5 million, respectively. This represents an increase of $20.2 million, or
7.8%. Total loans increased from $136.3 to $144.4 million representing an
increase of $8.1 million, or 5.9%, during this same period. During this same
period, investment securities was relatively unchanged from $65.5 million to
$65.6 million. Mortgage-backed securities increased from $36.5 million at June
30, 1995 to $45.2 million at June 30, 1996, representing an increase of $8.7
million, or 23.9%.
Deposits. Deposits at First Public increased by $8.4 million, or 3.7%, from
December 31, 1994 to December 31, 1995. For a discussion of First Public's
deposits, see "Business and Financial Information Regarding First
Public -- Sources of Funds -- Deposits".
Total deposits at June 30, 1996 and June 30, 1995 were $255.3 million and
$235.0 million, respectively. This represents an increase of $20.3 million, or
8.7%.
Stockholders' Equity. Total stockholders' equity amounted to $23.0 million
at December 31, 1995, compared to $20.8 million at December 31, 1994,
representing an increase of $2.1 million, or 10.2%. In 1994,
72
<PAGE> 89
First Public declared special dividends totalling $8.5 million, of which
$500,000 was paid in 1994 and $8.0 million was paid in 1995.
Total stockholders' equity at June 30, 1996 and June 30, 1995 was $22.6
million and $21.9 million, respectively. The increase of only $686,154, or 3.1%,
was primarily due to the unrealized loss on sale of securities available for
sale.
ALLOWANCE FOR LOAN LOSSES
First Public's allowance for loan losses was $516,567 and $461,030 at
December 31, 1995 and 1994, respectively, representing an increase of $55,537,
or 12.0%. Provisions for possible loan losses are charged against earnings to
bring the total allowance to a level deemed appropriate by management based on
historical experience, the volume and type of lending conducted by First Public,
industry standards, the amount of non-performing assets, general economic
conditions, particularly as they relate to First Public's market area, and other
factors related to the collectability of First Public's loan portfolio.
The Bank's allowance for loan losses increased from $536,998 at June 30,
1995 to $616,567 at June 30, 1996, representing an increase of $79,569, or
14.8%.
RESULTS OF OPERATIONS
First Public had net income of $2.9 million for the year ended December 31,
1995, compared to net income of $3.0 million for the year ended December 31,
1994. The slight decrease in net income during the 1995 period was due primarily
to a lower spread between First Public's interest-earning assets and interest-
bearing liabilities.
Net income decreased $1.2 million, or 28.0%, from December 31, 1993 to
December 31, 1994. Net income in 1993 included a one-time business tax refund
and other non-recurring income totaling $857,029. See "Other Income (Expense)."
In addition, net income in 1994 included $248,808 in expenses pertaining to the
proposed merger/acquisition by GBC Bancorp, Inc. The provision for loan losses
in 1995, 1994 and 1993 was $300,682, $246,200 and $2,000, respectively.
Net income for the six months ended June 30, 1996 and June 30, 1995 totaled
$1.4 million and $1.6 million, respectively. This represents a decrease of
$194,324, or 12.3%. Net income during the first six months of 1995 included
$414,879 in gain on sale of securities available for sale.
Net Interest Income. First Public's net interest income is determined by
its interest rate spread (i.e., the difference between the yields earned on its
interest-earning assets and the rates paid on its interest-bearing liabilities)
and its relative amounts of interest-earning assets and interest-bearing
liabilities. Total interest income of $18.6 million increased by $1.7 million,
or 9.9%, in the year ended December 31, 1995 compared to the year ended December
31, 1994. A $1.2 million and a $1.0 million increase in interest income from
U.S. government securities and government agency mortgage-backed securities,
respectively, in the 1995 period more than offset the decrease of $723,747 in
interest income from time deposits with other financial institutions.
Total interest expense of $8.4 million increased by $2.1 million, or 32.5%,
for the year ended December 31, 1995, compared to the year ended December 31,
1994. The increase during the year ended December 31, 1995, primarily was the
result of the increase in the average rate paid on deposits during the period
which more than offset an increase in the average balance of deposits.
Total interest income decreased $250,428, or 1.5%, from December 31, 1993
to December 31, 1994. During this same period, total interest expense increased
slightly from $6,324,147 to $6,359,405, or $35,258, which results in a decrease
in net interest income of $285,686, or 2.6%.
Total interest income for the six months ended June 30, 1996 and June 30,
1995 totaled $9.8 million and $9.1 million, respectively. During this same
period, total interest expense was $4.4 million and $4.1 million, respectively.
Net interest income for the six months ended June 30, 1996 totaled $5.4 million,
and net interest income for the six months ended June 30, 1995 totaled $5.0
million. This represents an increase of $332,172,
73
<PAGE> 90
or 6.6%. The increase is directly attributed to the increasing interest rate
environment in 1996, hence the increased margin between the Bank's yield on
interest-earning assets and its cost of funds during the six months ended June
30, 1996.
Other Income (Expense). Other income amounted to $656,810 at December 31,
1995, compared to $260,862 at December 31, 1994. The substantial increase from
the prior year consisted primarily of $445,343 from gain on sale of securities.
Excluding this item, other income decreased $49,395, or 18.9%, from the prior
year.
Other income in 1993 totaling $1,210,750 included non-recurring income of
$857,029. Excluding the non-recurring items, other income decreased $92,859, or
26.3%, from December 31, 1993 to December 31, 1994.
Other income for the six months ended June 30, 1996 and June 30, 1995
totaled $115,691 and $589,656, respectively. The substantial decrease is
directly attributed to $414,879 from the gain on sale of securities available
for sale in 1995. Excluding this item, the decrease totaled $59,086, or 33.8%.
General and Administrative Expenses. General and administrative expenses
totaled $5.7 million for the year ended December 31, 1995 and $5.5 million for
the year ended December 31, 1994. The primary reason for the $155,658, or 2.8%,
increase from the prior year was the increase in salaries and costs of employee
benefits.
General and administrative expenses increased $465,013, or 9.2%, from
December 31, 1993 to December 31, 1994; however, 1994 included $248,808 in
expenses pertaining to the proposed merger/acquisition by General Bank.
Excluding this item, the increase would total $216,205, or 4.3%, during this
period.
General and administrative expenses for the six months ended June 30, 1996
and June 30, 1995 totaled $3.0 million and $2.8 million, respectively. This
represents an increase of $163,828, or 5.8%. The increase is primarily due to an
increase in staffing and related employee benefits, and to a lesser degree the
additional expense pertaining to the lease of additional space for the corporate
offices.
Provision for Income Taxes. First Public's provision for income taxes
amounted to $2.0 million at December 31, 1995 and $2.1 million at December 31,
1994. The primary reason for the decrease from the prior year was due to the
decrease in net income of First Public.
Provision for income taxes decreased $786,937, or 27.1%, from December 31,
1993 to December 31, 1994. The decrease is directly due to decreased income in
1994.
Provision for income taxes for the six months ended June 30, 1996 and June
30, 1995 totaled $977,535 and $1.1 million, respectively. The decrease of
$137,615, or 12.3%, is primarily due to the decrease in earnings before income
taxes.
LIQUIDITY AND CAPITAL RESOURCES
First Public is required under applicable federal regulations to maintain
specified levels of "liquid" investments in qualifying types of U.S. government,
federal agency and other investments having maturities of five years or less.
OTS regulations require that First Public maintain liquid assets of not less
than 5% of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less, of which short-term liquid assets must
consist of no less than 1%. Monetary penalties may be imposed for failure to
meet applicable liquidity requirements. First Public's liquid assets were $91.1
million, or 34.6% of total assets, at December 31, 1995, and $99.0 million, or
35.4% of total assets, at June 30, 1996. This represented $79.2 million and
$86.5 million, respectively, in excess of the OTS minimum.
First Public had outstanding commitments to fund loans of $1.1 million and
commitments for unused lines of credit under terms of outstanding loan
agreements of approximately $1.0 million at December 31, 1995. At June 30, 1996,
the Bank had outstanding commitments to fund loans and commitments of unused
lines of credit of $354,500 and $1.0 million, respectively. First Public
believes that it has adequate resources to fund all of its commitments. If First
Public requires funds beyond its internal funding capabilities, advances
74
<PAGE> 91
from the FHLB of San Francisco are available totaling approximately $46.4
million as of December 31, 1995 and $47.1 million as of June 30, 1996.
Under OTS regulations, a "well capitalized" institution is defined as one
having a core capital ratio of at least 5.0% of total assets, tangible capital
of at least 6.0% of adjusted total assets and total "risk based" capital of at
least 10.0% of total risk-weighted assets. As of December 31, 1995, First Public
was a "well capitalized" institution, with core, tangible and risk-weighted
capital ratios of 8.57%, 8.57% and 23.77%, respectively. As of June 30, 1996,
First Public remained a "well capitalized" institution with core, tangible and
risk-weighted capital ratios of 8.39%, 8.39%, and 25.34%, respectively. See
"Supervision and Regulation -- OTS Capital Requirements."
SUPERVISION AND REGULATION
GENERAL FEDERAL REGULATION AND ENFORCEMENT AUTHORITY
First Public is a federally chartered savings bank, the deposits of which
are federally insured and backed by the full faith and credit of the United
States government. Accordingly, First Public is subject to broad federal
regulation and oversight extending to all of its operations. First Public is
chartered, supervised and examined by the OTS pursuant to the provisions of the
Home Owners' Loan Act of 1933 (the "HOLA"). First Public is a member of the SAIF
and the deposits of First Public are insured by the FDIC. As a result, the FDIC
has certain regulatory and examination authority over savings associations such
as First Public. First Public is a member of the Federal Home Loan Bank (the
"FHLB") of San Francisco and is subject to certain limited regulation by the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board").
The OTS has extensive authority over the operations of savings
associations. As part of this authority, First Public is required to file
periodic reports with the OTS and is subject to periodic examinations by the
OTS, as well as potentially the FDIC. The OTS' enforcement authority over
savings associations is comparable in scope and authority to that which the
other federal bank regulatory agencies have with respect to commercial banks.
This enforcement authority includes, among other things, the ability to assess
civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound banking
practices. Other actions or inactions may provide the basis for formal or
informal enforcement actions (such as memoranda of understanding or supervisory
letters), including filing inaccurate or untimely reports or non-compliance with
other regulations and policies. Except under certain circumstances, public
disclosure of final formal enforcement actions by the OTS is required.
LENDING AND INVESTMENT AUTHORITY AND LIMITATIONS
The investment, lending and branching authority of a savings association is
prescribed by federal laws, and an association is prohibited from engaging in
any activities not permitted by such laws. Under the HOLA, First Public's
ability to invest in certain types of loans and other assets is subject to
certain restrictions, including: (i) a limit of 400% of its capital on the
aggregate amount of loans secured by nonresidential real estate property; (ii) a
limit of 10% of its assets on commercial loans; and (iii) a limit of 35% of its
assets on consumer loans and acquisitions of certain debt securities; and (iv) a
prohibition on investments in non-investment grade corporate debt securities.
An association's general permissible lending limit for
loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired
capital and surplus (except for loans fully secured by certain readily
marketable collateral, in which case this limit is increased to 25% of
unimpaired capital and surplus). At June 30, 1996, First Public's lending limit
under this restriction was $3.51 million. First Public is in compliance with the
loans-to-one-borrower limitation. See "Business and Financial Information
Regarding First Public -- Lending Activities."
Federal savings institutions are also generally allowed to branch
nationwide. First Public, however, only has branches in Southern California.
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FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") made extensive changes to the federal banking laws. These included
extensive changes in existing rules regarding audits, examinations and
accounting. FDICIA generally requires annual on-site, full scope examinations by
each bank's primary federal regulator. It also imposes new responsibilities on
management, the independent audit committee and outside accountants to develop
or approve reports regarding the effectiveness of internal controls, legal
compliance and off-balance-sheet liabilities and assets.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, internal controls and audit systems, interest
rate risk exposure and compensation and other employee benefits. Any institution
which fails to comply with these standards must submit a compliance plan. A
failure to submit a plan or to comply with an approved plan will subject the
institution to further enforcement action.
OTS CAPITAL REQUIREMENTS
The OTS has established capital standards, including a tangible capital
requirement, a leverage ratio (or core capital) requirement and a risk-based
capital requirement applicable to savings associations. These capital
requirements must be generally as stringent as the comparable capital
requirements for national banks. The OTS is also authorized to impose capital
requirements in excess of these standards on individual associations on a
case-by-case basis. The minimum capital ratios and First Public's ratios at June
30 1996 and December 31, 1995 are set out below:
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
------------------- ------------------- -------------------
FIRST MINIMUM FIRST MINIMUM MINIMUM
PUBLIC CAPITAL PUBLIC CAPITAL BANK CAPITAL
RATIOS RATIOS RATIOS RATIOS RATIOS RATIOS
------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Capital Ratios:
Core capital to adjusted total
assets....................... 8.39% 3.00% 8.57% 3.00% 7.94% 3.00%
Tangible capital to adjusted
total asset.................. 8.39 1.50 8.57 1.50 7.94 1.50
Total capital to risk-weighted
assets....................... 25.34 8.00 23.77 8.00 23.23 8.00
Capital component (in thousands):
Core Capital.................... $23,455 $8,392 $22,574 $7,904 $12,891 $ 7,8
Tangible capital................ 23,455 4,196 22,574 3,952 16,802 3,911
Risk-based capital.............. 23,869 7,545 22,929 7,718 13,883 7,292
</TABLE>
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by OTS regulations). Tangible capital
generally includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with
this requirement. At June 30, 1996, First Public had tangible capital of $23.45
million, or 8.39% of adjusted total assets, which was approximately $19.27
million above the minimum requirement of 1.5% of adjusted total assets in effect
on that date.
The capital standards also require core capital equal to at least 3.0% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions discussed
below, however, a savings association must maintain a core capital ratio of at
least 4.0% to be considered adequately capitalized unless its supervisory
condition is such to allow it to maintain a 3.0% ratio. At June 30, 1996, First
Public had no intangibles which were subject to these tests. At June 30, 1996,
First Public had core capital equal to $23.45 million, or 8.39% of adjusted
total assets, which was $15.06 million above the minimum leverage ratio
requirement of 3.0% as in effect on that date.
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<PAGE> 93
The OTS risk-based requirement requires savings associations to have total
capital of at least 8.0% of risk weighted assets. Total capital consists of core
capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At June 30, 1996, First Public had
no capital instruments that qualify as supplementary capital and $617,000 of
general loss reserves, which was less than 1.25% of risk weighted assets.
Certain exclusions from capital and assets are require to be made for the
purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. First Public had no such
exclusions from capital and assets at June 30, 1996.
In determining the amount of risk-weighted assets, all assets, including
certain off-balance-sheet items, will be multiplied by a risk weight, ranging
from 0% to 100%, based on the risk inherent in the type of asset. For example,
the OTS has assigned a risk weight of 50% for prudently underwritten permanent
one to four family first lien mortgage loans not more than ninety (90) days
delinquent and having a loan-to-value ratio of not more than 80% at origination
unless insured to such ratio by an insurer approved by the FNMA or FHLMC. On
June 30, 1996, First Public had total capital of $23.87 million, risk-weighted
assets of $94.21 million, and a total capital to risk-weighted assets ratio of
25.34%, or $16.33 million above the 8.0% requirement in effect on that date.
PROMPT CORRECTIVE ACTION
FDICIA-instituted changes to the supervisory process include provisions
that mandate certain regulatory agency actions against undercapitalized
institutions within specified time limits. The prompt corrective action
provisions of FDICIA require the federal banking regulators to assign each
insured institution to one of five capital categories ("well capitalized,"
"adequately capitalized" or one of three "undercapitalized" categories) and to
take progressively more restrictive actions based on the capital categorization,
as specified below. All institutions, regardless of their capital levels, are
restricted from making any capital distribution or paying any management fees
that would cause the institution to fail to satisfy the minimum levels for any
relevant capital measure. An institution that fails to meet the minimum level
for any relevant capital measure (an "undercapitalized institution") may be: (i)
subject to increased monitoring by the appropriate federal banking regulator;
(ii) required to submit an acceptable capital restoration plan within forty-five
(45) days; (iii) subject to asset growth limits; and (iv) required to obtain
prior regulatory approval for acquisitions, branching and new lines of business.
The capital restoration plan must include a guarantee by the institution's
holding company (under which the holding company would be liable up to the
lesser of 5% of the institution's total assets or the amount necessary to bring
the institution into capital compliance as of the date it failed to comply with
its capital restoration plan) that the institution will comply with the plan
until it has been adequately capitalized on average for four consecutive
quarters.
Any savings association that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less than 3.0% or a risk-based capital ratio of less than 6.0%) must be made
subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2.0% or less)
is subject to further mandatory restrictions on its activities in addition to
those applicable to significantly undercapitalized associations. In addition,
the OTS must appoint a receiver (or conservator with the concurrence of the
FDIC) for the savings association, with certain limited exceptions, within
ninety (90) days after it becomes critically undercapitalized. Any
undercapitalized association is also subject to the general enforcement
authority of the OTS and the FDIC, including the appointment of a conservator or
a receiver. The OTS is also generally authorized to reclassify an association
into a lower capital category and impose the restrictions applicable to
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such category if the institution is engaged in unsafe or unsound practices or is
in an unsafe or unsound condition.
INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC
First Public is a member of the SAIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC. As insurer, the FDIC
imposes deposit insurance premiums and is authorized to conduct examinations of
and to require reporting by FDIC-insured institutions. The FDIC also may
prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious risk to the FDIC. The FDIC
also has the authority to initiate enforcement actions against savings
associations, after giving the OTS an opportunity to take such action, and may
terminate the institution's deposit insurance if it determines that the
institution has engaged in unsafe or unsound practices, or is in an unsafe or
unsound condition.
The FDIC has adopted a risk-based premium schedule. Under this schedule,
the annual premiums initially ranged from $.23 to $.31 for every $100 of
deposits. Each financial institution is assigned to one of three capital
groups -- well capitalized, adequately capitalized or undercapitalized -- and
further assigned to one of three subgroups within a capital group, on the basis
of supervisory evaluations by the institution's primary federal and, if
applicable, state supervisors and on the basis of other information relevant to
the institution's financial condition and the risk posed to the applicable
insurance fund. The actual assessment rate applicable to a particular
institution will, therefore, depend in part upon the risk assessment
classification so assigned to the institution by the FDIC.
Legislation adopted in 1989 to provide for the resolution of insolvent
savings associations also required the FDIC to establish separate deposit
insurance funds -- the Bank Insurance Fund ("BIF") for banks and the SAIF for
savings associations. The law required the FDIC to set deposit insurance
assessments at such levels as will cause BIF and SAIF to reach their "designated
reserve ratios" of 1.25% of the deposits insured by them within a reasonable
period of time. Due to the lower costs of resolving bank insolvencies than those
involving savings associations in the last few years, BIF reached its designated
reserve ratio in May 1995. As a result, the FDIC has since lowered deposit
insurance assessment rates on all banks by revising the range to $.03 to $.27
for every $100 of deposits and, effective January 1, 1996, eliminated deposit
insurance assessments (except for a minimum $2,000 payment required by law) for
banks that are well capitalized and well managed. Savings associations continue
to pay $0.23 for every $100 of deposits.
The balance in SAIF was not expected to reach the designated reserve ratio
until about the year 2002, as the law provided that a significant portion of the
costs of resolving past insolvencies of savings associations must be paid from
this source. Accordingly, it was likely that the SAIF rates would be
substantially higher than the BIF rates in the future absent changes in the law.
On September 30, 1996, President Clinton signed an omnibus appropriations
bill for fiscal year 1997, which provides for the immediate implementation of a
special SAIF assessment based upon SAIF-insured deposits as of March 31, 1995.
Ongoing assessments for payments on the Financial Corporation bonds used to
finance the 1989 legislation will be shared by BIF and SAIF members for the next
three years, estimated at 1.29 and 6.44 basis points for BIF and SAIF assessable
deposits, respectively. The special assessment payment, which is tax deductible
and due no later than 60 days after enactment, must be accrued by SAIF-insured
institutions as of September 30, 1996. First Public had accrued a pre-tax amount
of $1.5 million for the special assessment at September 30, 1996.
The new legislation also directs the Treasury Department to conduct a study
and report to Congress by March 31, 1997 on the issues surrounding the proposed
combination of the bank and savings association charters as a prelude to merging
the SAIF into the BIF. It is uncertain at this time what effect this new
assessment legislation, the proposed merger of the SAIF and BIF and a
combination of the bank and savings association charters may have on the
immediate and long-term role and competitiveness of savings associations.
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<PAGE> 95
LIMITATIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS
First Public is subject to the OTS' regulations governing dividend payments
and other capital distributions. Under those regulations, a savings association
that, like First Public, is well capitalized is permitted to declare dividends
of up to the greater of (i) the sum of 100% of its current net income plus
one-half of its capital in excess of the minimum regulatory requirements or (ii)
75% of its net income during the most recent four-quarter period, provided that
an association is not permitted to pay dividends if its shareholders' equity
would be reduced below the amount required for its liquidation account pursuant
to OTS regulations. First Public's declaration of dividends is also dependent
upon tax considerations and general economic conditions. In addition, under
FDICIA, a federal savings bank may not pay any dividend if payment would cause
it to become undercapitalized or if it already is undercapitalized.
LIQUIDITY
All savings associations, including First Public, are required to maintain
an average daily balance of liquid assets equal to a certain percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. This liquid asset ratio requirement may
vary from time to time (between 4% and 10%) depending upon economic conditions
and savings flows of all savings associations. At the present time, the minimum
liquid asset ratio is 5%. In addition, short-term liquid assets (e.g., cash,
certain time deposits, certain bankers acceptances and short-term United States
Treasury obligations) currently must constitute at least 1% of the association's
average daily balance of net withdrawable deposit accounts and current
borrowings. Penalties may be imposed upon associations for violations of either
liquid asset ratio requirement. At June 30, 1996, First Public was in compliance
with both requirements, with an overall liquid assets ratio of 39.61% and a
short-term liquid assets ratio of 14.77%. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
QUALIFIED THRIFT LENDER TEST
All savings associations, including First Public, are required to meet a
qualified thrift lender ("QTL") test to avoid certain potential restrictions on
their operations. This test requires a savings association to have at least 65%
of its portfolio assets (which consists of total assets less intangibles,
properties used to conduct the savings association's business and liquid assets
not exceeding 20% of total assets) in qualified thrift investments on a monthly
average for nine out of every twelve (12) months on a rolling basis. Such assets
primarily consist of residential housing related loans and investments. If a
savings association fails to meet the QTL test, among other things, the
association may be ineligible to receive any new FHLB borrowings and is subject
to national bank limits for payment of dividends.
COMMUNITY REINVESTMENT ACT
Under the Community Reinvestment Act ("CRA"), every FDIC-insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. Under the new CRA regulations effective January 1, 1996, the prior
process-based CRA assessment factors have been replaced with a new evaluation
system that rates institutions based on their actual performance in meeting
community credit needs. The evaluation system used to judge an institution's CRA
performance consists of three tests: a lending test; an investment test; and a
service test.
The CRA requires the federal regulatory agencies to assess the
institution's record of meeting the credit needs of its community in connection
with the examination of an association and, also, to take such record into
account in its evaluation of certain applications, such as the merger
application to be filed by CB to merge with First Public. Unsatisfactory CRA
ratings may be used as the basis for the denial of an application unless an
applicant with a "satisfactory" or "outstanding" CRA rating demonstrates it can
maintain or
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<PAGE> 96
improve its rating after a merger with an institution which has received a
"needs to improve" or "substantial non-compliance" CRA rating. First Public was
examined for CRA compliance in April, 1996 and received a "satisfactory" rating.
CB was last examined in January, 1996 and received a "satisfactory" rating.
Generally, transactions between a savings association and its "affiliates"
are required to be on terms as favorable to the association as transactions with
non-affiliates. In addition, certain of these transactions, such as loans to
affiliates, are restricted to a percentage of the association's capital. First
Public has no affiliates within the meaning of these restrictions and defined
terms. First Public's only subsidiary, F.P. Service Corporation, is not deemed
an affiliate. However, the OTS has the discretion to treat subsidiaries of
savings associations as affiliates on a case-by-case basis.
Certain transactions with directors, officers or controlling persons are
also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals. See "Interests of Certain Persons in the Merger."
FEDERAL RESERVE SYSTEM
The Federal Reserve Board requires all depository institutions to maintain
non-interest bearing reserves at specified levels against their transaction
accounts (primarily checking, NOW and Super NOW checking accounts). At June 30,
1996, First Public was in compliance with these reserve requirements. The
balances maintained to meet the reserve requirements imposed by the Federal
Reserve Board may be used to satisfy liquidity requirements that may be imposed
by the OTS. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources." Savings associations
are authorized to borrow from the Federal Reserve Bank "discount window," but
Federal Reserve Board regulations require associations to exhaust other
reasonable alternative sources of funds, including FHLB borrowings, before
borrowing from the Federal Reserve Bank.
FEDERAL HOME LOAN BANK SYSTEM
First Public is a member of the FHLB of San Francisco, which is one of 12
regional FHLBs that administer the home financing credit function of savings
associations. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures established
by the board of directors of the FHLB, which are subject to the oversight of the
Federal Housing Finance Board. All advances from the FHLB are required to be
fully secured by sufficient collateral as determined by the FHLB. In addition,
all long-term advances are required to provide funds for residential home
financing.
As a member of the FHLB of San Francisco, First Public is required to
purchase and maintain stock in the FHLB of San Francisco. At June 30, 1996,
First Public had $1.65 million in FHLB stock, which was in compliance with this
requirement. First Public has received dividends on its FHLB stock, which have
averaged 4.21% over the past five calendar years and were 4.90% for calendar
year 1995. Under federal law, the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately-priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of First Public's FHLB stock may result in a corresponding
reduction in First Public's capital.
FEDERAL TAXATION
Savings associations are generally subject to federal taxation in the same
manner as other types of corporations. For taxable years beginning prior to
January 1, 1996, however, savings associations that met
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certain definitional and other tests ("qualified institutions") could, unlike
other corporations, use the reserve (versus specific charge-off) method to
compute their deduction for bad debt losses.
Under the reserve method, qualifying institutions were generally allowed to
use either of two alternative computations. Under the "percentage of taxable
income" method computation, qualifying institutions could claim a bad debt
deduction computed as a percentage of taxable income adjusted for certain items.
Alternatively, a qualifying institution could elect to utilize its own bad debt
loss experience to compute its annual addition to its bad debt reserves (the
"experience method").
Under Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes, savings associations were not required to provide a federal
deferred tax liability for the bad debt reserves that arose in tax years
beginning before January 1, 1988. Such reserves were, however, subject to
recapture in whole or in part upon the occurrence of certain events, such as
failure to remain a qualified institution, distributions to shareholders in
excess of the association's current and accumulated earnings and profits, a
redemption of shares, or upon a partial or complete liquidation of the
association. Upon the occurrence of such events, the association would be
required to provide federal deferred taxes in its financial statements for the
recaptured portion of the tax reserve.
Recently enacted legislation repealed the special bad debt rules applicable
to savings associations for taxable years beginning after December 31, 1995.
Under the new provisions, savings associations will follow the same rules for
purposes of computing allowable bad debt deductions as banks. To the extent the
bad debt reserve of the savings association exceeds the allowable reserve as
computed under the rules applicable to banks, such excess will be subject to
recapture. An exception is provided in the new provisions that effectively
grandfather the bad debt reserve as of December 31, 1987 from the current
recapture provisions.
Under the newly enacted law, if a savings association converts to a bank or
is merged into a bank, the association's bad debt reserve will not automatically
be subject to recapture. Recapture of the grandfathered bad debt reserve would
still occur in the event of certain distributions, redemptions or partial
liquidations, as previously discussed. As of June 30, 1996, First Public's tax
bad debt reserve grandfathered under the new law for which federal deferred
taxes have not been provided totaled approximately $3.37 million.
SELECTED INFORMATION REGARDING FIRST PUBLIC
OWNERSHIP OF COMMON STOCK
The following table sets forth as of June 30, 1996 the beneficial ownership
of Common Stock by (i) each person who owns beneficially more than 5% of the
outstanding Common Stock, (ii) each First Public director, and (iii) all First
Public directors and executive officers as a group. No common ownership of over
1 percent (1%) of the outstanding shares of Bancorp Common Stock and First
Public Stock is believed to exist.
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY SHARES
NAME OWNED* OUTSTANDING
---- ------------ -------------
<S> <C> <C>
Jack and Betty Lee Family Limited Partnership**..................... 351,200 8.780%
Robert M.F. Gee..................................................... 300,000 7.500
Marina C. Wang...................................................... 3,000 .075
Poy F. Wong......................................................... 207,000 5.175
Davis L. Chen....................................................... 200,000 5.000
Edward Y. Ku........................................................ 100,000 2.500
Richard Y. Chau..................................................... 25,000 .625
Martin V. Lee....................................................... 129,600 3.240
Kwan L. So.......................................................... 255,000 6.375
Tommy K. Leung...................................................... 0 .000
Tholow D. Chan...................................................... 0 .000
Eva Wong............................................................ 0 .000
--------- ------
All directors and executive officers as a group
(11 persons and 1 entity)......................................... 1,570,800 39.270%
========= ======
</TABLE>
- ---------------
* There are no outstanding stock options, warrants or other rights to purchase
capital stock of First Public.
** Jack C. Lee is Chairman of the Board.
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FIRST PUBLIC DIRECTORS' RETIREMENT PLAN
Under the First Public Savings Bank Directors' Retirement Plan adopted in
1995 (the "Directors' Retirement Plan"), directors who remain on the Board for
ten years or more become fully vested. The maximum benefit payable to a director
under this plan is $10,000 per year ($15,000 in the case of the founding
Chairman and Vice Chairman of the Board), for a term equal to the number of
years served, not to exceed 15 years following the director's retirement from
the Board. No payments have been made to any director under this plan.
The Directors' Retirement Plan provides that if there is a merger or change
in control of First Public, each director may choose a payout option (lump sum,
annual, etc.) for the benefits payable. Pursuant to the Agreement, Bancorp will
honor the payment election option each vested director selects before the
Closing Date.
DISSENTERS' RIGHTS
If the Merger is consummated, any holder of First Public Stock may, by
complying with 12 C.F.R. sec.552.14 promulgated by the OTS, be entitled to an
appraisal and payment of the "fair" or appraised value of such holder's stock in
lieu of electing either the Per Share Stock Consideration or the Per Share Cash
Consideration. The following discussion is not a complete statement of the law
relating to dissenters' rights of the First Public Stockholders, and is
qualified in its entirety by reference to 12 C.F.R. sec.552.14 which is set
forth as Annex 4 to this Proxy Statement and incorporated herein by reference.
This discussion and 12 C.F.R. sec.552.14 should be reviewed carefully by any
holder who wishes to exercise dissenters' rights or wishes to preserve the right
to do so. Failure to comply with the required procedures will result in the loss
of such rights.
Holders of First Public Stock may require Bancorp to repurchase their
shares at a price equal to the fair market value of such shares determined as of
the Effective Time, excluding any element of value arising from the
accomplishment or expectation of the Merger. Shares of First Public Stock must
satisfy each of the following requirements to qualify: (i) the shares must have
been outstanding on the Record Date for the determination of the holders of
First Public Stock entitled to vote on the Merger; (ii) the shares must not have
been voted in favor of the Merger; (iii) the holder of such shares must deliver
to First Public before the Special Meeting a written notice identifying himself
or herself and stating his or her intention to demand appraisal of and payment
for his or her shares (which notice must be in addition to and separate from any
proxy or vote against the Merger); and (iv) the holder of such shares must
submit his or her share certificates to the Transfer Agent for First Public
Stock, Wells Fargo Bank, Corporate Trust Department, 707 Wilshire Boulevard,
11th Floor, Los Angeles, California 90017, for notation thereon that an
appraisal and payment have been demanded and appraisal proceedings are pending.
A vote by proxy or in person against the Merger does not constitute a demand for
appraisal.
Within ten (10) days after the Effective Time, Bancorp shall mail to each
person who made a demand (a "Qualifying Dissenting Stockholder") and did not
vote in favor of the Merger a notice specifying: (i) the Effective Time; (ii) a
written offer to pay for such person's shares at a price deemed by Bancorp to be
the fair value of such shares; and (iii) the procedures to be followed by such
person to enforce his or her dissenters' rights and that they must be satisfied
within sixty (60) days of the Effective Time. The notice shall be accompanied by
a balance sheet and statement of income of First Public for the 1995 fiscal
year, together with interim financial statements for the most recent quarter of
1996.
If, within sixty (60) days of the Effective Time, Bancorp and a Qualifying
Dissenting Stockholder agree on the fair value of such shares, Bancorp shall
make payment for such shares within ninety (90) days of the Effective Time. If,
within sixty (60) days of the Effective Time, Bancorp and a Qualifying
Dissenting Stockholder do not agree on the fair value of the shares, then the
Qualifying Dissenting Stockholder may file a petition with the OTS, with a copy
by registered or certified mail to Bancorp, demanding a determination of the
fair market value of the stock. A FAILURE BY A QUALIFYING DISSENTING STOCKHOLDER
TO FILE SUCH A PETITION SHALL BE DEEMED TO BE AN ACCEPTANCE OF THE MERGER TERMS.
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If a Qualifying Dissenting Stockholder has complied with the foregoing,
then one or more independent persons or staff members of the OTS shall be
appointed by the Director of the OTS to appraise the shares to determine their
fair value. A staff member of the OTS shall review and provide an opinion on any
appraisal prepared by independent persons as to the suitability of the appraisal
methodology and the adequacy of the analysis and supportive data. The Director
of the OTS, if he or she concurs in such valuation, will then direct payment by
Bancorp of the appraised fair market value of the shares (together with interest
thereon), upon surrender of the certificates representing the shares. The costs
and expenses of such proceeding may be apportioned and assessed by the Director
of the OTS as he or she deems equitable.
Notwithstanding the foregoing, a Qualifying Dissenting Stockholder may
withdraw his or her demand for appraisal and accept the terms of the Merger at
any time within sixty (60) days after the Effective Time. Dissenting
Stockholders are not entitled to vote their stock for any purpose nor are they
entitled to the payment of dividends or other distributions on the stock.
Any demands, notices, certificates or other documents required to be
delivered to First Public by a stockholder exercising dissenters' rights prior
to the Effective Time may be sent by mail to First Public Savings Bank, F.S.B.,
Attention: Edward Y. Ku, Secretary, or delivered in person, Attention: Corporate
Secretary, to First Public Savings Bank, F.S.B., 977 North Broadway, Suite 308,
Los Angeles, California 90012. After the Effective Time, any such documents
should be sent by mail or delivered in person, Attention: Monica Chen, Assistant
Secretary to Cathay Bank, 777 North Broadway, Los Angeles, California 90012.
DESCRIPTION OF BANCORP CAPITAL STOCK
BANCORP COMMON STOCK
See "Incorporation of Certain Bancorp Information by Reference."
BANCORP PREFERRED STOCK
Bancorp has 10,000,000 shares of authorized preferred stock (the "Bancorp
Preferred Stock") of which no shares are issued and outstanding. See
"Incorporation of Certain Bancorp Information by Reference." The Bancorp
Preferred Stock may be issued from time to time by the Board of Directors of
Bancorp as shares of one or more classes or series. As provided by the Delaware
General Corporation Law ("DGCL"), the Board of Directors of Bancorp will be
authorized by adopting resolutions to establish the number of shares to be
included in each class or series and to fix the designations and relative
powers, preferences, rights, qualifications, and limitations or restrictions
thereof, including the dividend rate, terms of redemption, convertibility,
voting rights and any obligation to retire the shares or series pursuant to a
sinking fund. If and when issued, Bancorp Preferred Stock is likely to rank
prior to the Bancorp Common Stock as to dividend rights, liquidation
preferences, or both and may have full or limited voting rights. The Bancorp
Board of Directors has no present intention to issue any of the Bancorp
Preferred Stock. Because of its broad discretion with respect to the creation
and issuance of any series of Bancorp Preferred Stock without shareholder
approval, the Bancorp Board of Directors could affect adversely the voting power
of the holders of Bancorp Common Stock, and, by issuing shares of Bancorp
Preferred Stock with certain voting, conversion, and/or redemption rights, could
discourage any attempt to obtain control of Bancorp in any transaction not
approved by Bancorp's Board of Directors.
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COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF
FIRST PUBLIC STOCK AND HOLDERS OF BANCORP COMMON STOCK
GENERAL
Bancorp is a Delaware corporation and, accordingly, is governed by the DGCL
and its Delaware Certificate of Incorporation (the "Bancorp Certificate") and
Bylaws (the "Bancorp Bylaws"). First Public is a federally-chartered savings
bank and, accordingly, has been and will be, through the Effective Time,
governed by the HOLA and the regulations of the OTS and by its Federal Stock
Charter (the "First Public Charter") and its Bylaws (the "First Public Bylaws").
The holders of First Public Stock who receive the Per Share Stock Consideration
will, upon the exchange of their shares of First Public Stock for shares of
Bancorp Common Stock pursuant to the Merger, become shareholders of Bancorp, and
their rights as such will be governed by the DGCL and the Bancorp Certificate
and the Bancorp Bylaws.
The following is a general comparison of material differences between the
rights of First Public Stockholders under the First Public Charter, the First
Public Bylaws and the HOLA, on the one hand, and the rights of Bancorp
shareholders under the Bancorp Certificate, the Bancorp Bylaws and the DGCL, on
the other. This discussion is only a summary of certain provisions and does not
purport to be a complete description of such similarities and differences, and
is qualified in its entirety by reference to the DGCL and the HOLA and the
regulations of the OTS, the common law thereunder, and the full text of the
Bancorp Certificate, Bancorp Bylaws, First Public Charter and First Public
Bylaws, as well as those of CB and the federal and California state laws and
regulations applicable to CB.
CUMULATIVE VOTING AND CLASSIFIED BOARDS
First Public's Bylaws provide for cumulative voting and for three classes
of directors divided as nearly equal in number as possible, and each class has a
term of three years. Under the DGCL, the shareholders of Bancorp are not
entitled to cumulate their votes in the election of directors unless the Bancorp
Certificate so provides. The Bancorp Certificate does not provide for cumulative
voting but does provide for three classes of directors also each with three-year
terms. As a result, the holders of shares representing a majority of the votes
entitled to be cast in an election of directors for Bancorp will be able to
elect all directors then being elected. The absence of cumulative voting could
have the effect of preventing representation of minority shareholders on the
Board of Directors of Bancorp.
CHANGE IN NUMBER OF DIRECTORS
First Public's Charter provides for a Board of not fewer than five (5) or
more than fifteen (15) members, except when a greater number is approved by the
Board. The First Public Bylaws provide that the Board of Directors shall consist
of nine (9) members.
Under the DGCL, the number of directors is fixed by, or in the manner
provided in, the bylaws, unless the certificate of incorporation fixes the
number of directors, in which case a change in the number of directors may be
made only by amendment to the certificate. Under the Bancorp Bylaws, the number
of members of the Board of Directors will be determined by resolution of the
Board of Directors or by the shareholders at the annual meeting. The Bancorp
Certificate provides for a range of not less than three (3) or more than twenty-
five (25) directors; the exact number of the Board of Directors is currently set
at twelve (12).
REMOVAL OF DIRECTORS
Pursuant to the First Public Bylaws, at a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. If less than the entire Board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of the
shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or directors
so elected,
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to the vote of the holders of the outstanding shares of that class and not to
the vote of the outstanding shares as a whole.
Under the DGCL, any or all directors may be removed, with or without cause,
by the holders of a majority of the shares entitled to vote at an election of
directors. In the case of a corporation whose board of directors is classified,
shareholders may remove directors only for cause, and in the case of a
corporation having cumulative voting, if less than the entire board is to be
removed, no director may be removed without cause if the votes cast against his
removal would be sufficient to elect him if then cumulatively voted at an
election of the entire board of directors. The Bancorp Certificate does not
currently provide for cumulative voting.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
The First Public Bylaws provide that any vacancy occurring on the Board of
Directors may be filled by the affirmative vote of a majority of the remaining
directors although less than a quorum of the Board of Directors. A director
elected to fill a vacancy shall be elected to serve until the next election of
directors by the shareholders. Any directorship to be filled by reason of an
increase in the number of directors may be filled by election by the Board of
Directors for a term of office continuing only until the next election of
directors by the shareholders.
The Bancorp Bylaws provide that a vacancy on the Board of Directors,
including a vacancy created by an increase in the number of directors, may be
filled by a majority of the directors then in office, though less than a quorum,
or by a sole remaining director. The directors so chosen shall hold office until
the next annual election and until their successors are duly elected and shall
qualify or until their earlier resignations or removals. Under the DGCL,
however, if, at the time of filling any vacancy or newly created directorship,
the directors then in office constitute less than a majority of the entire Board
of Directors as constituted immediately prior to any such increase, the Delaware
Court of Chancery may, under certain circumstances, order an election to be held
to fill any such vacancies or newly created directorships or to replace the
directors chosen by the directors then in office. Additionally, when a director
has been removed from office with or without cause by the shareholders, the
shareholders have the right to fill such vacancy by the affirmative vote of at
least a majority of the voting power of the then outstanding stock. If the
shareholders fail to fill such vacancy, the Board may then do so as set forth
above.
AMENDMENT OF CHARTER OR CERTIFICATE
Except for the issuance of authorized shares as provided in the First
Public Charter, no amendment, addition, alteration, change or repeal of this
charter shall be made, unless such is first proposed by the Board of Directors
and then is preliminarily approved by the OTS, which preliminary approval may be
granted by the OTS pursuant to regulations specifying pre-approved charter
amendments, and thereafter approved by the shareholders by a majority of the
total votes eligible to be cast at a legal meeting. Any amendment, addition,
alteration, change, or repeal so acted upon shall be effective upon filing with
the OTS in accordance with regulatory procedures or on such other date as the
OTS may specify in its preliminary approval.
Under the DGCL, the Bancorp Certificate may be amended if such amendment is
approved by the Board of Directors and by a majority of the shareholders (except
for amendments to certain articles which require an 80% vote). In addition, if
Bancorp were to have more than one class of stock outstanding, amendments that
would adversely affect the rights of any class would require the vote of a
majority of the shares of that class.
AMENDMENT OF BYLAWS
Pursuant to the DGCL, the regulations of the OTS, the First Public Bylaws
and the Bancorp Bylaws, the shareholders and the directors of both Bancorp and
First Public have the power to adopt, amend or repeal bylaws.
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DIVIDENDS
First Public is subject to the regulations of the OTS governing dividend
payments and other capital distributions. See "Supervision and
Regulation -- Limitations on Dividends and Other Capital Distributions."
The DGCL provides that a corporation may, unless otherwise restricted by
its certificate of incorporation, declare and pay dividends out of surplus, or
if no surplus exists, out of net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year (provided that the amount
of capital of the corporation following the declaration and payment of the
dividend is not less than the aggregate amount of the capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets). The Bancorp Certificate places no restriction on the
declaration or payment of dividends. The DGCL also provides that a corporation
may redeem or repurchase its shares only out of surplus. The ability of a
Delaware corporation to pay dividends on, or to make repurchases or redemptions
of, its shares is dependent on the financial status of the corporation standing
alone and not on a consolidated basis. In addition to the restrictions on
dividends imposed under the DGCL, Bancorp and CB are subject to the same federal
regulatory restrictions on dividends that apply to savings associations and then
parent holding companies. See "Supervision and Regulation -- Restrictions on
Dividends and Other Capital Distributions."
SPECIAL MEETING OF SHAREHOLDERS AND ACTION BY SHAREHOLDERS WITHOUT A MEETING
The DGCL provides that a special meeting may be called by the board of
directors or such other persons as may be authorized by the certificate of
incorporation or bylaws. The Bancorp Bylaws provide that a special meeting may
also be called by the Chairman of the Board or by the President, and shall be
called by the Chairman of the Board, the President or the Secretary at the
request in writing of the majority of the Board of Directors, or at the request
in writing of shareholders owning a majority of the outstanding shares entitled
to vote.
The First Public Bylaws are the same, unless otherwise prescribed by OTS
regulations, except that a special meeting must be called upon the request in
writing of one-tenth or more of the outstanding shares entitled to vote at the
meeting.
Under the DGCL (unless otherwise provided in the certificate of
incorporation), any action which is required to be taken or may be taken at a
meeting of shareholders, may be taken by a written consent signed by the holders
of outstanding stock having not less than the minimum number of votes that would
be necessary to take such action at a meeting. The Bancorp Certificate does not
provide otherwise.
The First Public Bylaws are the same except that any action taken without a
meeting requires the written consent of all First Public Stockholders entitled
to vote with respect to the subject matter.
INDEMNIFICATION AND LIMITATION OF LIABILITY
Federal savings associations are required by an OTS Regulation to indemnify
their directors, officers, and employees against any action brought or
threatened because that person is or was a director, officer, or employee for:
(i) any amount for which such person becomes liable under a judgment in such
action, and (ii) reasonable costs and expenses, including reasonable attorney's
fees, actually paid or incurred by that person in defending or settling such
action or in enforcing such person's rights under the applicable regulation if
he or she attains a favorable judgment in such enforcement action.
Indemnification shall be made to such person only if: (i) final judgment on the
merits is in such person's favor, or (ii) in the case of: (a) settlement, (b)
final judgment against such person, or (c) final judgment in such person's
favor, other than on the merits, if a majority of the disinterested directors of
the savings association determine that such person was acting in good faith
within the scope of such person's employment or authority as such person could
reasonably have perceived it under the circumstances and for a purpose such
person could reasonably have believed under the circumstances was in the best
interests of the savings association or its shareholders. No indemnification
shall be made unless the association gives the OTS at least sixty (60) days'
notice of its intentions to make such indemnification and if the OTS, within
such notice period, advises the association in writing of its objection thereto.
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The DGCL provides that, to the extent a director, officer, employee or
agent of a corporation is successful on the merits or otherwise in defense of
any action, suit or proceeding to which such person is a party or is threatened
to be made a party by reason of his or her service on behalf of the corporation,
or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and reasonable
incurred by the agent in connection therewith. However, the DGCL does not
require indemnification in any other circumstance. The DGCL permits
indemnification of expenses incurred in the defense or settlement of a
derivative or third party action, provided there is a determination that a
person seeking indemnification acted in good faith and in a manner reasonably
believed to be in the best interests of the corporation or not opposed to the
best interests of the corporation. The DGCL provides that rights to
indemnification and advancement of expenses need not be limited to those
expressly provided by statute. As a result, both the Bancorp Certificate and the
Bancorp Bylaws may be broader than the DGCL.
SHAREHOLDER VOTE FOR MERGERS AND OTHER REORGANIZATIONS
OTS regulations require that the mergers, consolidations or sales of all or
substantially all of the assets of a federal savings bank must be approved by
the vote of at least two-thirds of the outstanding stock entitled to vote.
Neither the Bancorp Certificate nor the DGCL requires a vote of more than a
majority on such mergers. The DGCL also does not require a shareholder vote of
the surviving constituent corporation in a merger if (a) the merger agreement
does not amend the existing certificate of incorporation, (b) each outstanding
share of the surviving corporation before the merger is unchanged after the
merger, and (c) the merger involves the issuance of no more than 20% of the
shares of the surviving corporation outstanding immediately prior to such
issuance.
The California Financial Code requires the approval by a majority of the
shareholders of the surviving bank, in this case, CB (which is wholly-owned by
Bancorp), in a merger of a federal savings association with and into a
California state bank.
SHAREHOLDER PROPOSALS
The First Public Bylaws provide that any new business proposals by
shareholders must be submitted in writing to the Secretary at least five days
before the date of the original meeting.
The Bancorp Bylaws provide that shareholder proposals must be submitted
between sixty (60) and ninety (90) days prior to the annual meeting in order to
be included in the proxy solicitation materials.
ANTI-TAKEOVER STATUTES
A number of provisions of the Bancorp Certificate and Bylaws discussed
below deal with matters of corporate governance and rights of shareholders.
Certain of these provisions relating to stock ownership and transfer, the Board
of Directors and business combinations, may be deemed to have an "anti-takeover"
effect, and may discourage takeover attempts not first approved by the Directors
(including takeovers that certain shareholders, or even a majority of
shareholders, might deem to be in their interests). The First Public Charter and
Bylaws do not have comparable provisions. These provisions also may make it more
difficult to remove members of Bancorp's management.
SHAREHOLDER VOTE REQUIRED TO APPROVE CERTAIN BUSINESS COMBINATIONS -- "FAIR
PRICE" PROVISION
The Bancorp Certificate contains a so-called "fair price" provision
pursuant to which any Business Combination (as defined in the Bancorp
Certificate) involving an Interested Stockholder (as defined in the Bancorp
Certificate) and Bancorp or any subsidiary would require approval by the
affirmative vote of the holders of at least eighty percent of all shares of
voting stock of Bancorp and a majority vote of all shareholders other than the
Interested Stockholder. The fair price provision of the Bancorp Certificate
provides that the 80% shareholder vote is not required if the Business
Combination is approved by a majority of the Continuing Directors (as defined in
the Bancorp Certificate) or if certain procedures and price requirements are
met. This
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provision is designed in part to discourage certain types of two-tiered tender
offers for the stock of a corporation. In the first step, a tender offer is made
for less than all of the outstanding shares of the corporation. The acquiring
company then attempts, through a "business combination," to force the remaining
shareholders to sell their stock at a reduced price. The "fair price" provision
requires an eighty percent shareholder vote of all shareholders and a majority
vote of all shareholders other than the Interested Stockholder to approve the
"business combination," unless shareholders who are divested of their equity
interest in the corporation in the business combination receive not less than
the highest of (a) the highest per share price paid by the Interested
Stockholder for a share of stock in connection with the acquisition by the
Interested Stockholder of the stock (i) within the two-year period immediately
before the date the tender offer was announced or (ii) in a transaction or
series of related transactions in which the Interested Stockholder became an
Interested Stockholder, whichever is higher; (b) the fair market value per share
of the stock (i) on the day the tender offer was announced or (ii) the day that
the Interested Stockholder became such, whichever is higher; and (c) the highest
preferential amount per share, if any, to which the holders of the stock would
be entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the corporation.
This provision is intended to provide the Board of Directors with the
ability to negotiate the best price possible in the event of an offer for the
purchase of Bancorp and to prevent shareholders from coming under pressure to
sell their shares at less than a "fair price."
LIMITATIONS ON "BUSINESS COMBINATIONS"
Delaware law prohibits a Delaware corporation, such as Bancorp, from
engaging in a "business combination" with an "interested stockholder" for three
years following the date that a person becomes an interested stockholder. An
"interested stockholder" is a person who owns 15% or more of the corporation's
outstanding voting stock, or an affiliate or associate of the corporation who
owned 15% in the previous three years, and his or her affiliates and associates.
Generally, a "business combination" is defined broadly to include (i)
mergers with or caused by an interested stockholder, (ii) sales or other
dispositions of assets of the corporation or a subsidiary equal to 10% or more
of the value of the corporation's consolidated assets or its outstanding stock,
(iii) transfers of stock of the corporation or a subsidiary to the interested
stockholder (except for transfers in a conversion or exchange or a pro rata
distribution which does not increase the interested stockholder's proportionate
ownership of a class or series) or any receipt by the interested stockholder
(except proportionately as a shareholder) of any loans, advances, guarantees,
pledges or other financial benefits.
The three-year moratorium imposed on business combinations does not apply
if:
1. prior to a person becoming an interested stockholder, the Board of
Directors approves the business combination or the transaction which
resulted in the person becoming an interested stockholder, or
2. the interested stockholder owns at least 85% of the corporation's
voting stock outstanding upon consummation of the transaction which made
him or her an interested stockholder (excluded from shares outstanding for
purposes of this calculation are shares owned by Directors who are also
officers and shares held by ESOP's or other employee stock plans which do
not permit employees to decide confidentially whether to accept a tender
offer), or
3. on or after the date a person becomes an interested stockholder,
the board approves the business combination and it is also approved at a
shareholder's meeting by two-thirds of the voting stock not owned by the
interested stockholder.
ANTI-GREENMAIL PROVISION
This provision of the Bancorp Certificate prohibits Bancorp from purchasing
any shares of Bancorp Common Stock at a price greater than the then fair market
value of the shares from an Interested Stockholder
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(as defined in the Bancorp Certificate) who has been an Interested Stockholder
for a period of less than two years before the date of the purchase or agreement
to purchase.
The purchase may be permitted, however, if it is approved by a majority of
the outstanding voting securities of Bancorp, excluding the shares of the
Interested Stockholder, or if the same offer is made to all other holders of the
same kind of securities of Bancorp.
SHAREHOLDER RIGHTS PLAN
Pursuant to the Bancorp Certificate and action by its Board of Directors,
each shareholder of Bancorp Common Stock also has one Right for each outstanding
share of Bancorp Common Stock pursuant to Bancorp Shareholder Rights Plan (the
"Rights Plan"). Each Right entitles the registered holder to purchase from
Bancorp one one-hundredth (1/100) of a share of Series A Junior Participating
Preferred Stock of Bancorp (the "Series A Preferred Stock") at a Purchase Price
of $55.00. The terms and conditions of the Rights are contained in a Rights
Agreement entered into between Bancorp and an unaffiliated agent (the "Rights
Agent"). The material provisions of the Rights Agreement are summarized below.
This summary is qualified in its entirety by reference to the full text of the
form of Rights Agreement which is filed as an exhibit to Bancorp's Registration
Statement incorporated herein by reference.
As discussed below, initially the Rights will not be exercisable,
certificates for the Rights will not be issued, and the Rights will
automatically trade with the Common Stock.
Until the close of business on the Distribution Date, which will occur on
the earlier of (i) the tenth (10th) day following the public announcement that a
person or group of affiliated or associated persons ("Acquiring Person") other
than Bancorp, any subsidiary of Bancorp or any employee benefit plan or employee
stock plan of Bancorp or of any subsidiary of Bancorp ("Exempt Person") has
acquired, or obtained the right to acquire, beneficial ownership of 15% or more
of the outstanding Common Stock (the "Stock Acquisition Date") or (ii) the
nineteenth (19th) business day following the commencement by any person (other
than an Exempt Person) of, or the announcement of the intention to commence, a
tender or exchange offer that would result in the ownership of 20% or more of
the outstanding Bancorp Common Stock (the earlier of the dates in clauses (i)
and (ii) being called the "Distribution Date"), the Rights will be evidenced,
with respect to any of the Bancorp Common Stock certificates outstanding as of
Rights Record Date by the Bancorp Common Stock certificate, together with a copy
of the Summary of Rights, in the form of Exhibit B to the Rights Plan. The
Rights Agreement provides that the Distribution Date may be extended by the
Board of Directors of Bancorp prior to the expiration of the time periods
referred to in clauses (i) and (ii) of the preceding sentence. The Rights Plan
further provides that, until the Distribution Date (or earlier redemption or
expiration of the Rights), the Rights will be represented by and transferred
with, and only with, the Bancorp Common Stock. Until the Distribution Date (or
the earlier redemption or expiration of the Rights), the surrender for transfer
of any Bancorp Common Stock certificates, with or without the legend described
above or a copy of the Summary of Rights attached thereto, will also constitute
the transfer of the Rights associated with the Bancorp Common Stock represented
by the certificates. As soon as practicable following the Distribution Date,
separate Rights Certificates will be mailed to holders of record of Bancorp
Common Stock at the close of business on the Distribution Date, and thereafter
the Right Certificates alone will evidence the Rights, and Rights will be
transferable separate and apart from the Bancorp Common Stock.
The Rights are not exercisable until the Distribution Date. The Rights will
expire at the close of business on the tenth anniversary of the Rights Record
Date unless redeemed or exchanged earlier as described below.
The Series A Preferred Stock will be nonredeemable and, unless otherwise
provided in connection with the creation of a subsequent series of preferred
stock, subordinate to all other series of Bancorp's preferred stock. The Series
A Preferred Stock may not be issued except upon exercise or exchange of Rights.
Each share of Series A Preferred Stock will be entitled to receive, when, as and
if declared, a quarterly dividend in an amount equal to the greater of $1.00 per
share or 100 times the quarterly cash dividend declared on Bancorp Common Stock.
In addition, the Series A Preferred Stock is entitled to 100 times any noncash
dividends (other than dividends payable in equity securities) declared on the
Bancorp Common Stock, in like kind. In the event of the liquidation, dissolution
or winding up of Bancorp, the holders of Series A Preferred
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Stock will be entitled to receive a liquidation payment in an amount equal to
the greater of $100 per share or 100 times the liquidation payment made per
share of Bancorp Common Stock. Each share of Series A Preferred Stock will have
one hundred votes, voting together with the Bancorp Common Stock. In the event
of any merger, consolidation or other transaction in which common shares are
exchanged, each share of Series A Preferred Stock will be entitled to receive
100 times the amount received per share of Bancorp Common Stock. The rights of
the Series A Preferred Stock as to dividends, liquidation and voting are
protected by antidilution provisions.
The Purchase Price payable and the number of shares of Series A Preferred
Stock or other securities or property issuable upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Series A Preferred Stock, (ii) upon the grant to holders of the Series A
Preferred Stock of certain rights or warrants to subscribe for Series A
Preferred Stock or convertible securities at less than the current market price
of the Series A Preferred Stock or (iii) upon the distribution to holders of the
Series A Preferred Stock of evidences of indebtedness or assets (excluding
regular cash dividends and dividends payable in Series A Preferred Stock) or of
subscription rights or warrants.
If any Person (other than an Exempt Person) becomes the beneficial owner of
15% or more of the then outstanding shares of Bancorp Common Stock (other than
pursuant to a tender offer or exchange offer for all outstanding shares of
Bancorp Common Stock approved by the Bancorp Board of Directors after taking
into account the long-term value of Bancorp and all other factors that it deems
relevant ("Permitted Tender Offer")), each holder of a Right, other than the
Acquiring Person, will have the right to receive, upon payment of the Purchase
Price, in lieu of Series A Preferred Stock, a number of shares of Bancorp Common
Stock having a market value equal to twice the Purchase Price. If insufficient
shares of Bancorp Common Stock are available for the exercise in full of the
Rights, Bancorp shall, in lieu of issuing shares of Bancorp Common Stock upon
exercise of Rights, issue cash, property or other securities of Bancorp (which
may be accompanied by a reduction in the Purchase Price), in proportions
determined by Bancorp, so that the aggregate value of such cash, property or
other securities received is equal to twice the Purchase Price. Rights are not
exercisable following the acquisition of shares of Bancorp Common Stock by an
Acquiring Person as described in this paragraph until the expiration of the
period during which the Rights may be redeemed as described below.
Notwithstanding the foregoing, after the acquisition of shares of Bancorp Common
Stock by an acquiring person as described in this paragraph, Rights that are
(or, under certain circumstances, Rights that were) beneficially owned by an
Acquiring Person will be null and void.
The Bancorp Board of Directors may, at its option, at any time after a
person becomes an Acquiring Person (other than pursuant to a Permitted Tender
Offer) exchange all or part of the then outstanding and exercisable Rights for
shares of Bancorp Common Stock at an exchange ratio of one share of Bancorp
Common Stock per Right, provided, however, that the Board of Directors may not
effect such exchange after the time that any Person (other than an Exempt
Person) becomes the beneficial owner of 50% or more of the Bancorp Common Stock
then outstanding.
Unless the Rights are redeemed earlier, if, after the Stock Acquisition
Date, Bancorp is acquired in a merger or other business combination (in which
any shares of the Bancorp Common Stock are changed into or exchanged for other
securities or assets) or more than 50% of the assets or earning power of Bancorp
and its subsidiaries (taken as a whole) are sold or transferred in one or a
series of related transactions, the Rights Agreement provides that proper
provision shall be made so that each holder of record of a Right will from and
after that time have the right to receive, upon payment of the Purchase Price,
that number of shares of common stock of the acquiring company which has a
current market price at the time of such transaction equal to twice the Purchase
Price. The right to purchase stock of an acquiring company would not apply to a
transaction with a person who became an Acquiring Person pursuant to a Permitted
Tender Offer if the form of consideration paid to holders of Bancorp Common
Stock in the transaction is the same as the form of consideration paid in the
Permitted Tender Offer and the price paid to holders of Bancorp Common Stock in
the transaction is not less than the price paid in the Permitted Tender Offer.
90
<PAGE> 107
Interests in fractions of shares of Series A Preferred Stock may, at the
election of Bancorp, be evidenced by depositary receipts. Bancorp may also issue
cash in lieu of fractional shares of Series A Preferred Stock that are not
integral multiples of one one-hundredth of a share.
At any time until ten days following the Stock Acquisition Date (subject to
extension by the Board of Directors), the Board of Directors may cause Bancorp
to redeem the Rights in whole, but not in part, at a price of $.01 per Right,
subject to adjustment. Immediately upon the effective time of the redemption
authorized by the Board of Directors, the right to exercise the Rights will
terminate, and the holders of Rights will only be entitled to receive the
Redemption Price without any interest thereon.
As long as the Rights are redeemable, Bancorp may, except with respect to
the redemption price or date of expiration of the Rights, amend the Rights in
any manner, including an amendment to extend the time period in which the Rights
may be redeemed. At any time when the Rights are not redeemable, Bancorp may
amend the Rights in any manner that does not adversely affect the interests of
holders of the Rights as such.
Until a Right is exercised, the holder, as such, will have no rights as a
shareholder of Bancorp, including without limitation the right to vote or to
receive dividends.
The First Public Charter and the First Public Bylaws do not have any
comparable provisions.
DISSENTERS' RIGHTS
See "Dissenters' Rights" and Annex 4 regarding the First Public
Stockholders' Dissenters' Rights.
Under Delaware law, appraisal rights are generally available for the shares
of any class or series of stock of a corporation in a merger or consolidation;
provided that no appraisal rights are available for the shares of any class or
series of stock which, at the record date for the meeting held to approve such
transaction, were either (i) listed on a national securities exchange or (ii)
held of record by more than 2,000 stockholders; and further provided that no
appraisal rights are available to stockholders of the surviving corporation if
the merger did not require their approval. Appraisal rights are, however,
available for such class or series if the holders thereof receive in the merger
or consolidation anything except: (i) shares of stock of the corporation
surviving or resulting from such merger or consolidation; (ii) shares of stock
of any other corporation which at the effective date of the merger or
consolidation is either listed on a national securities exchange or held of
record by more than 2,000 stockholders; (iii) cash in lieu of fractional shares;
or (iv) any combination of the foregoing.
LEGAL MATTERS
Heller Ehrman White & McAuliffe, counsel to Bancorp, will deliver its
opinion dated as of the Closing Date as required by the Agreement and to the
effect that the Bancorp Common Stock to be issued to the holders of First Public
Stock in connection with the Merger, when issued as contemplated in the
Agreement, will be validly issued, fully paid and nonassessable. Members of
Heller Ehrman White & McAuliffe own shares of Bancorp Common Stock. Pillsbury
Madison & Sutro LLP will deliver its opinion dated as of the Closing Date as
required by the Agreement and a separate opinion dated as of the Closing Date as
required by the Agreement concerning the federal income tax consequences of the
Merger. See "The Merger -- Federal Income Tax Consequences."
EXPERTS
The consolidated financial statements of Bancorp incorporated in this Proxy
Statement-Prospectus by reference from Bancorp's Annual Report on Form 10-K for
the year ended December 31, 1995 have been incorporated by reference herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, which report is incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing. The report of KPMG
Peat Marwick LLP covering the December 31, 1995 financial statements contains an
explanatory paragraph that discusses the adoption of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 114,
"Accounting
91
<PAGE> 108
by Creditors for Impairment of a Loan" as amended on January 1, 1995 by
Statement of Financial Accounting Standards No. 118, "Accounting by Creditors
for Impairment of a Loan -- Income Recognition and Disclosures".
The consolidated financial statements of First Public as of December 31,
1995 and 1994 and for each of the three years in the period ended December 31,
1995, included in this Proxy Statement-Prospectus, have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report appearing herein,
and are included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
SOLICITATION
In addition to solicitation by mail, proxies may be solicited by the
officers, directors and employees of First Public by telephone, facsimile,
telegram or in person. Such directors, officers and employees will not be
compensated additionally for such solicitation but may be reimbursed for
out-of-pocket expenses incurred in connection therewith. Brokerage houses,
nominees, fiduciaries and other custodians will be requested to forward
solicitation materials to beneficial owners and will be reimbursed for their
reasonable out-of-pocket expenses incurred in connection therewith. All other
expenses associated with soliciting proxies will be borne by the party incurring
the same, except for the expenses of printing, filing, and mailing this Proxy
Statement-Prospectus, which will be shared equally by Bancorp and First Public.
SHAREHOLDER PROPOSALS
If the Merger is consummated, First Public will no longer exist as a legal
entity and First Public Stockholders who receive Bancorp Common Stock will
become Bancorp shareholders. As disclosed in the proxy statement sent to
stockholders in connection with the 1996 Annual Meeting of Stockholders of
Bancorp, stockholders wishing to present a proposal for inclusion in Bancorp's
1997 proxy solicitation materials must set forth the proposal in writing and
file it with the Secretary of Bancorp on or before January 1, 1997 for
consideration by Bancorp for possible inclusion in such proxy materials.
If the Merger is not consummated, First Public Stockholders shall receive a
subsequent Notice of Annual Meeting or Notice of Special Meeting and other
shareholder communication as appropriate.
OTHER MATTERS
The Board is not aware of any business to come before the Special Meeting
other than those matters described above in this Proxy Statement-Prospectus.
However, if any other matter should properly come before the Special Meeting, it
is intended that holders of the proxies will act in accordance with their best
judgment.
92
<PAGE> 109
FIRST PUBLIC SAVINGS BANK, F.S.B.
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AS OF JUNE 30, 1996 (UNAUDITED) AND
DECEMBER 31, 1995................................................................... F-2
CONSOLIDATED STATEMENTS OF EARNINGS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)......................................................................... F-3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1995
AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED).............................. F-4
CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)......................................................................... F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
1995 (UNAUDITED).................................................................... F-6
INDEPENDENT AUDITORS' REPORT.......................................................... F-10
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AS OF DECEMBER 31, 1995 AND 1994....... F-11
CONSOLIDATED STATEMENTS OF EARNINGS FOR EACH OF THE YEARS ENDED DECEMBER 31, 1995,
1994 AND 1993....................................................................... F-12
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR EACH OF THE YEARS ENDED DECEMBER
31, 1995, 1994 AND 1993............................................................. F-13
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR EACH OF THE YEARS ENDED DECEMBER 31, 1995,
1994 AND 1993....................................................................... F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR EACH OF THE YEARS ENDED DECEMBER 31,
1995, 1994 AND 1993................................................................. F-16
</TABLE>
F-1
<PAGE> 110
FIRST PUBLIC SAVINGS BANK, F.S.B.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1996 AND DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash............................................................ $ 6,979,526 $ 6,217,404
Federal funds sold.............................................. 9,007,554 6,509,096
------------ ------------
Cash and cash equivalents.................................. 15,987,080 12,726,500
Time deposits in other financial institutions................... 200,000 1,199,000
Investment securities........................................... 65,625,620 63,422,382
Loans receivable, net........................................... 144,359,636 141,634,857
Mortgage-backed securities...................................... 45,197,445 36,086,423
Other real estate owned, net.................................... 266,793 548,997
Accrued interest and dividends receivable....................... 2,655,753 2,493,853
Investment in Federal Home Loan Bank stock, at cost............. 1,651,400 1,608,300
Land, premises and equipment, net............................... 3,463,211 3,508,280
Other assets.................................................... 309,795 248,640
------------ ------------
Total assets.......................................... $279,716,733 $263,477,232
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits...................................................... $255,304,853 $238,473,974
Accrued expenses and other liabilities........................ 290,150 425,064
Income taxes:
Current.................................................... 344,564 151,571
Deferred................................................... 1,219,757 1,465,581
------------ ------------
Total liabilities..................................... $257,159,324 $240,516,190
============ ============
STOCKHOLDERS' EQUITY:
Common stock, stated value $1 per share....................... $ 4,000,000 $ 4,000,000
Unrealized (loss) gain on securities available for sale, net
of tax..................................................... (897,166) 386,824
Retained earnings............................................. 19,454,575 18,574,218
------------ ------------
Total stockholders' equity............................ $ 22,557,409 $ 22,961,042
============ ============
Total liabilities and stockholders' equity.................... $279,716,733 $263,477,232
============ ============
Book value per share.......................................... $ 5.64 $ 5.74
============ ============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 111
FIRST PUBLIC SAVINGS BANK, F.S.B.
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
FOR THE SIX-MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
FOR THE SIX-MONTHS ENDED
JUNE 30,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Interest income:
Interest on loans................................................. $5,921,860 $5,417,595
Interest on U.S. government securities............................ 1,846,249 1,919,599
Interest on mortgage-backed securities............................ 1,522,656 1,137,270
Interest on time deposits in other financial institutions......... 75,309 135,906
Interest on other investments..................................... 391,077 475,743
---------- ----------
Total interest income..................................... 9,757,151 9,086,113
Total interest expense on deposits.................................. 4,392,513 4,053,647
---------- ----------
Net interest income....................................... 5,364,638 5,032,466
Provision for estimated loan losses................................. 112,000 85,682
---------- ----------
Net interest income after provision for estimated loan losses..... 5,252,638 4,946,784
---------- ----------
Other income:
Gain on sale of securities available for sale..................... -- 414,879
Fee and service charges........................................... 115,691 174,777
---------- ----------
Total other income........................................ 115,691 589,656
Other expenses:
Salaries and employee benefits.................................... 1,603,611 1,443,840
Premises and occupancy expense.................................... 361,546 370,482
FDIC deposit insurance premiums................................... 272,298 271,821
OREO expense...................................................... 1,746 29,182
Other operating and administrative expense........................ 771,236 731,285
---------- ----------
Total other expenses...................................... 3,010,437 2,846,610
---------- ----------
Earnings before income taxes........................................ 2,357,892 2,689,830
Provision for income taxes.......................................... 977,535 1,115,150
---------- ----------
Net earnings........................................................ $1,380,357 $1,574,680
========== ==========
Net earnings per share.............................................. $ 0.35 $ 0.39
========== ==========
Cash dividend per share............................................. $ 0.13 $ 2.13
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 112
FIRST PUBLIC SAVINGS BANK, F.S.B.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE SIX-MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN (LOSS)
ON
SECURITIES TOTAL
COMMON AVAILABLE RETAINED STOCKHOLDERS'
STOCK FOR SALE EARNINGS EQUITY
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995..................... $4,000,000 $ 122,488 $16,713,778 $20,836,266
Cash dividends............................. -- -- (1,000,000) (1,000,000)
Net earnings............................... -- -- 2,860,440 2,860,440
Net change in unrealized gain (loss) on
securities available for sale........... -- 264,336 -- 264,336
---------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995................... 4,000,000 386,824 18,574,218 22,961,042
---------- ----------- ----------- -----------
Cash dividends (unaudited)................. -- -- (500,000) (500,000)
Net earnings (unaudited)..................... -- -- 1,380,357 1,380,357
Net change in unrealized gain (loss) on
securities available for sale
(unaudited)................................ -- (1,283,990) -- (1,283,990)
---------- ----------- ----------- -----------
BALANCE, JUNE 30, 1996 (unaudited)........... $4,000,000 $ (897,166) $19,454,575 $22,557,409
========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 113
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings........................................................... $ 1,380,357 $ 1,574,680
----------- -----------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Amortization of deferred loan origination fees......................... (88,391) (69,391)
Net amortization of premiums/accretion of discounts on investment
securities and mortgage-backed securities........................... 165,667 183,349
Provision for estimated loan losses.................................... 112,000 85,682
Gain on sale of securities available for sale.......................... (414,879)
Net change in deferred taxes........................................... 663,469 (58,484)
Depreciation and amortization of premises and equipment................ 83,041 80,250
FHLB stock dividend received........................................... (43,100) (38,700)
Increase in accrued interest and dividends receivable.................. (161,900) (105,914)
Increase in other assets............................................... (61,155) (112,628)
Increase in income tax liabilities..................................... 192,993 597,912
(Decrease) increase in accrued expenses and other liabilities.......... (134,914) 346,934
----------- -----------
Total adjustments.............................................. 727,710 494,131
----------- -----------
Net cash provided by operating activities...................... 2,108,067 2,068,811
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans receivable....................................... (3,019,231) (2,942,342)
Loan origination fees received......................................... 4,050 5,350
Proceeds from sale of other real estate owned.......................... 548,997
Purchase of investment securities held to maturity..................... (15,028,150) (2,991,563)
Purchase of investment securities available for sale................... (19,999,375) (12,074,844)
Maturities of investment securities held to maturity................... 15,000,000 10,000,000
Maturities of investment securities available for sale................. 17,000,000
Maturities of mortgage-backed securities held to maturity.............. 1,061,631
Proceeds from sale of mortgage-backed securities available for sale.... 4,973,953
Proceeds from sale of investment securities available for sale......... 404,040
Principal payments on mortgage-backed securities held to maturity...... 623,487
Principal payments on mortgage-backed securities available for sale.... 2,718,027 56,203
Purchase of mortgage-backed securities available for sale.............. (13,987,199) (9,924,579)
Net decrease in time deposits in other financial institutions.......... 999,000 3,163,000
Purchases of land, premises and equipment.............................. (37,972) (12,052)
----------- -----------
Net cash used in investing activities.......................... (15,178,366) (8,281,203)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits............................................... 16,830,879 4,902,259
Cash dividends paid.................................................... (500,000) (8,500,000)
----------- -----------
Net cash provided by (used in) financing activities............ 16,330,879 (3,597,741)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................... 3,260,580 (9,810,133)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................... 12,726,500 24,080,729
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................. $15,987,080 $14,270,596
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest............................................................ $ 4,061,087 $ 3,742,820
=========== ===========
Income taxes........................................................ $ 751,982 $ 493,223
=========== ===========
Transfers of loans to other real estate owned.......................... $ 266,793 $ 194,279
=========== ===========
Loans related to sales of other real estate owned...................... $ 346,500
===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 114
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First Public Savings Bank, F.S.B.
and subsidiary (the "Bank") conform to generally accepted accounting principles
and general practices within the savings and loan industry. At periodic
intervals, the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation routinely examine the Bank and its financial reporting as part of
their legally prescribed oversight of the savings and loan industry.
During 1993, the Bank converted its state charter to a Federal Stock
Charter, thus its name changed to First Public Savings Bank, F.S.B. from First
Public Savings Bank. The new charter assigns a stated value of $1 per share. The
appropriate amounts have been reclassified from additional paid-in capital and
retained earnings to properly reflect the common stock carrying value due to
this change.
NATURE OF OPERATIONS -- The Bank maintains a branch network of five
locations serving individuals and small to medium-sized businesses in the Los
Angeles and surrounding areas. The operations are primarily in the savings and
loan industry, and include the acceptance of deposits and the lending and
investing of funds.
SUBSIDIARY -- The accompanying consolidated financial statements include
the accounts of the Bank and its wholly owned subsidiary, F.P. Service
Corporation, which currently provides trustee services for real estate loans
originated by the Bank.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES -- Securities are
classified into three categories as follows:
Held-to-Maturity Securities -- Debt securities that the Bank has the
positive intent and ability to hold to maturity. These securities are
reported at cost, adjusted for the accretion of discounts and amortization
of premiums, which are recognized as adjustments to interest income.
Trading Securities -- Debt and equity securities that are bought and
held principally for the purpose of selling them in the near term. These
securities are reported at fair value, with unrealized gains and losses
included in earnings.
Available-for-Sale Securities -- Debt and equity securities not
classified as either held-to-maturity or trading securities. These
securities are reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of
stockholders' equity (net of tax effects). Gains or losses are recognized
only upon sale using the specific identification method.
LOANS -- Loans are stated at the amount of unpaid principal, reduced by an
allowance for loan losses and deferred loan fees. Interest on loans is
calculated using the simple-interest method on daily balances of the principal
amount outstanding. Accrual of interest is discontinued on a loan when
management believes, after considering economic and business conditions and
collection efforts, that the borrower's financial condition is such that
collection of interest is doubtful. Generally, loans are placed on nonaccrual
status when they become 90 days past due.
LOAN FEES -- Nonrefundable fees and direct costs associated with the
origination or purchase of loans are deferred and netted against outstanding
loan balances. The deferred net loan fees and costs are recognized in interest
income over the loan term using the effective interest method.
ALLOWANCE FOR LOAN LOSSES -- A provision for loan losses is based on
management's evaluation of the estimated losses in the loan portfolio. Such
evaluation, which includes a review of all loans for which full collectibility
may not be reasonably assured, considers among other matters the net realizable
value of the underlying collateral.
F-6
<PAGE> 115
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) (CONTINUED)
On January 1, 1995, the Bank adopted Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan,"
as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosures." This statement prescribes that a
loan is impaired when it is probable that a creditor will be unable to collect
all amounts due (principal and interest) according to the contractual terms of
the loan agreement and provides guidance concerning the measurement of
impairment on such loans and the recording of the related reserves, which are
included in the allowance for loan losses. The adoption of this statement did
not have a material effect on the financial position of the Bank on January 1,
1995 or the result of operations for 1995 and through the six months ended June
30, 1996 taken as a whole.
OTHER REAL ESTATE OWNED -- Other real estate owned ("OREO") represents real
estate acquired through foreclosure in satisfaction of commercial and real
estate loans and is stated at the lower of the cost or the fair value of the
real estate, less estimated selling costs. Loan balances in excess of fair value
of the real estate acquired at the date of acquisition are charged against the
allowance for loan losses. Any subsequent operating expenses or income,
reduction in estimated values, and gains or losses on disposition of such
properties are charged to current operations. Revenue recognition upon
disposition of the property is dependent on the sale having met certain criteria
relating to the buyer's net investment in the property sold.
LAND, PREMISES AND EQUIPMENT -- Land is carried at cost. Premises and
equipment are stated at cost, less accumulated depreciation and amortization.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the assets. Estimated useful lives are as follows:
<TABLE>
<S> <C>
Furniture, fixtures and equipment...................................... 3 to 10 years
Leasehold improvements................................................. Life of lease
</TABLE>
EARNINGS PER SHARE -- Earnings per share calculations are based upon the
weighted average number of shares outstanding during the period. For each of the
six months ended June 30, 1996 and 1995, the amount of earnings per share was
based on 4,000,000 shares, which was the weighted average outstanding during
each of the six months periods ended June 30, 1996 and 1995.
STATEMENTS OF CASH FLOWS -- For the purposes of reporting cash flows, cash
and cash equivalents include cash and federal funds sold.
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 disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. INVESTMENT SECURITIES
The cost and estimated market value of investment securities at June 30,
1996 is as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Held to Maturity
U.S. Treasury and agency
securities.................... $39,085,577 $ 73,444 $ (170,618) $38,988,403
=========== ======= =========== ===========
Available for Sale
U.S. agency..................... $27,021,009 $ 37,569 $ (518,535) $26,540,043
=========== ======= =========== ===========
</TABLE>
F-7
<PAGE> 116
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) (CONTINUED)
The maturity distribution of investment securities at June 30, 1996 is as
follows:
<TABLE>
<CAPTION>
ESTIMATED
MARKET
COST VALUE
----------- -----------
<S> <C> <C>
Held to Maturity --
U.S. Treasury and agency securities:
Less than one year........................... $16,091,877 $16,087,504
One to five years............................ 22,993,700 22,900,899
----------- -----------
$39,085,577 $38,988,403
=========== ===========
Available for Sale --
U.S. agency securities:
Less than one year........................... $ 5,021,306 $ 5,058,875
One to five years............................ 18,994,703 18,587,772
After five within ten years.................. 3,005,000 2,893,396
----------- -----------
$27,021,009 $26,540,043
=========== ===========
</TABLE>
3. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
Loans receivable consist of the following at June 30, 1996:
<TABLE>
<CAPTION>
JUNE 30,
1996
------------
<S> <C>
Single-family residential loans................................ $ 75,208,150
Multifamily loans.............................................. 54,485,711
Nonresidential loans........................................... 15,480,500
Loans secured by savings accounts.............................. 696,754
Other Loans.................................................... 465,964
-----------
Total loans receivable......................................... 146,337,079
Allowance for loan losses...................................... (616,567)
Deferred loan fees............................................. (1,360,876)
-----------
Loans receivable, net.......................................... $144,359,636
===========
</TABLE>
The following is a summary of the activity in the allowance for loan losses
for the six-month periods ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Balance beginning of year.............................. $516,567 $461,030
Provision for estimated loan losses.................... 112,000 85,682
Loans charge off....................................... (12,000) (10,000)
-------- --------
Balance................................................ $616,567 $536,712
======== ========
</TABLE>
F-8
<PAGE> 117
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) (CONTINUED)
4. ANALYSIS OF MORTGAGE-BACKED SECURITIES
The cost and estimated market value of mortgage-backed securities at June
30, 1996 is as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Held to Maturity -- FHLMC....... $ 3,691,428 $ 30,464 $ 0 $ 3,721,892
=========== ======= =========== ===========
Available for Sale:
GNMA............................ $40,702,151 $ 218,025 $(1,224,619) $39,695,557
FHLMC........................... 1,855,418 0 (44,958) 1,810,460
----------- ------- ----------- -----------
$42,557,569 $ 218,025 $(1,269,577) $41,506,017
=========== ======= =========== ===========
</TABLE>
5. LAND, PREMISES AND EQUIPMENT
Land, premises and equipment consists of the following at June 30, 1996:
<TABLE>
<CAPTION>
JUNE 30,
1996
---------
<S> <C>
Land................................................................... $3,166,769
Furniture, fixtures and equipments..................................... 1,309,789
Leasehold improvements................................................. 812,706
Construction in progress............................................... 71,713
----------
Total........................................................ 5,360,977
Accumulated depreciation and amortization.............................. (1,897,766)
----------
Land, premises and equipment, net...................................... $3,463,211
==========
</TABLE>
6. DEPOSITS
The following information relates to deposits as of June 30, 1996:
<TABLE>
<CAPTION>
1996
------------
<S> <C>
Balance by interest rate:
NOW accounts (1.00% in 1996)......................................... $ 29,833,519
Passbook (1.80% in 1996)............................................. 41,162,701
------------
$ 70,996,220
Money market savings account (weighted average rate of 2.270% in
1996)............................................................. $ 34,302,974
Certificates of deposit and IRAs (weighted average rate of 4.881% in
1996)............................................................. $150,005,659
------------
$255,304,853
============
Contractual maturity of certificate accounts:
Up to 12 months...................................................... $148,343,277
More than 12 months and up to 24 months.............................. 1,638,591
Over 24 months....................................................... 23,791
------------
$150,005,659
============
</TABLE>
The aggregate amount of certificates of deposit of $100,000 and over was
$41,192,480 at June 30, 1996. Interest expense on the certificates of deposit of
$100,000 and over amounted to $1,046,400 and $730,165 for the periods ended June
30, 1996 and 1995.
F-9
<PAGE> 118
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
First Public Savings Bank, F.S.B.:
We have audited the accompanying consolidated statements of financial
condition of First Public Savings Bank, F.S.B. and subsidiary (the "Bank") as of
December 31, 1995 and 1994 and the related consolidated statements of earnings,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, such consolidated financial statements present fairly, in
all material respects, the financial position of First Public Savings Bank,
F.S.B. and subsidiary at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in accordance with generally accepted accounting principles.
March 1, 1996
Los Angeles, California
F-10
<PAGE> 119
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Cash............................................................ $ 6,217,404 $ 7,080,729
Federal funds sold.............................................. 6,509,096 17,000,000
------------ ------------
Cash and cash equivalents..................................... 12,726,500 24,080,729
Time deposits in other financial institutions................... 1,199,000 5,351,000
Investment securities (Note 2):
Held to maturity -- at amortized cost (approximate market
value of $39,363,000 in 1995 and $54,284,000 in 1994)...... 39,192,968 55,568,089
Available for sale -- at fair value (unrealized gain of
approximately $191,000 in 1995 and $229,000 in 1994)....... 24,229,414 5,186,876
Loans receivable, net (Note 3).................................. 141,634,857 133,341,659
Mortgage-backed securities (Note 4):
Held to maturity -- at amortized cost (approximate market
value of $4,394,000 in 1995 and $31,161,000 in 1994)....... 4,311,630 32,614,947
Available for sale -- at fair value (unrealized gain of
approximately $470,000 in 1995)............................ 31,774,793
Other real estate owned, net.................................... 548,997
Accrued interest and dividends receivable....................... 2,493,853 2,334,317
Investment in Federal Home Loan Bank of San Francisco
stock -- at cost.............................................. 1,608,300 1,530,000
Land, premises and equipment, net (Note 5)...................... 3,508,280 448,297
Other assets.................................................... 248,640 303,254
------------ ------------
TOTAL................................................. $263,477,232 $260,759,168
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits (Note 6)............................................. $238,473,974 $230,063,878
Accrued expenses and other liabilities (Note 10).............. 425,064 578,280
Dividends payable (Note 7).................................... 8,000,000
Income taxes (Note 8):
Current.................................................... 151,571
Deferred................................................... 1,465,581 1,280,744
------------ ------------
Total liabilities..................................... 240,516,190 239,922,902
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY (Notes 8 and 11):
Common stock, stated value $1 per share; 10,000,000 shares
authorized; 4,000,000 shares issued and outstanding........ 4,000,000 4,000,000
Unrealized gain on securities available for sale, net of
tax........................................................ 386,824 122,488
Retained earnings............................................. 18,574,218 16,713,778
------------ ------------
Total stockholders' equity............................ 22,961,042 20,836,266
------------ ------------
TOTAL................................................. $263,477,232 $260,759,168
============ ============
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE> 120
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME:
Interest on loans................................. $11,177,900 $10,830,986 $11,983,686
Interest on U.S. government securities............ 3,880,903 2,715,495 2,103,802
Interest on mortgage-backed securities............ 2,513,002 1,516,433 934,043
Interest on time deposits in other financial
institutions................................... 238,682 962,429 1,452,513
Interest on other investments..................... 817,023 929,036 730,763
----------- ----------- -----------
Total interest income..................... 18,627,510 16,954,379 17,204,807
INTEREST EXPENSE ON DEPOSITS (Note 6)............... 8,428,167 6,359,405 6,324,147
----------- ----------- -----------
NET INTEREST INCOME................................. 10,199,343 10,594,974 10,880,660
PROVISION FOR ESTIMATED LOAN LOSSES
(Note 3).......................................... 300,682 246,200 2,000
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR ESTIMATED
LOAN LOSSES....................................... 9,898,661 10,348,774 10,878,660
----------- ----------- -----------
OTHER INCOME:
Gain on sale of securities available for sale..... 445,343
L.A. City business tax refund..................... 307,379
Fee and service charges........................... 197,920 197,353 353,721
Other............................................. 13,547 63,509 549,650
----------- ----------- -----------
Total other income 656,810 260,862 1,210,750
----------- ----------- -----------
OTHER EXPENSES:
Salaries and employee benefits.................... 2,926,015 2,698,421 2,399,692
Premises and occupancy expense (Note 9)........... 585,803 565,802 538,060
FDIC deposit insurance premiums................... 529,887 512,590 500,296
Merger expense (Note 13).......................... 248,808
OREO expense...................................... 134,733
Other operating and administrative expense........ 1,492,900 1,488,059 1,610,619
----------- ----------- -----------
Total other expenses...................... 5,669,338 5,513,680 5,048,667
----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES........................ 4,886,133 5,095,956 7,040,743
PROVISION FOR INCOME TAXES (Note 8)................. 2,025,693 2,118,399 2,905,336
----------- ----------- -----------
NET EARNINGS........................................ $ 2,860,440 $ 2,977,557 $ 4,135,407
=========== =========== ===========
NET EARNINGS PER SHARE.............................. $ 0.72 $ 0.74 $ 1.03
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE> 121
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN (LOSS) ON TOTAL
SECURITIES STOCK-
COMMON AVAILABLE RETAINED HOLDERS'
STOCK FOR SALE EARNINGS EQUITY
---------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993.................... 2,000,000 500,000 21,600,814 24,100,814
Cash dividends............................ (1,000,000) (1,000,000)
Conversion to federal stock charter
(Note 1)............................... 2,000,000 (500,000) (1,500,000)
Net earnings.............................. 4,135,407 4,135,407
---------- --------- ----------- -----------
BALANCE, DECEMBER 31, 1993.................. 4,000,000 23,236,221 27,236,221
Net unrealized gain on investment
securities available for sale upon
adoption of SFAS No. 115 at January 1,
1994................................... 143,422 143,422
Cash dividends (Note 7)................... (9,500,000) (9,500,000)
Net earnings.............................. 2,977,557 2,977,557
Net change in unrealized gain (loss) on
securities available for sale, net of
tax.................................... (20,934) (20,934)
---------- --------- ----------- -----------
BALANCE, DECEMBER 31, 1994.................. 4,000,000 122,488 16,713,778 20,836,266
Cash dividends............................ (1,000,000) (1,000,000)
Net earnings.............................. 2,860,440 2,860,440
Net change in unrealized gain (loss) on
securities available for sale, net of
tax.................................... 264,336 264,336
---------- --------- ----------- -----------
BALANCE, DECEMBER 31, 1995.................. $4,000,000 $ 386,824 $18,574,218 $22,961,042
========== ========= =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE> 122
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................................. $ 2,860,440 $ 2,977,557 $ 4,135,407
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Amortization of deferred loan origination fees............ (162,859) (250,941) (481,542)
Net amortization of premiums/accretion of discounts on
investment securities and mortgage-backed securities.... 369,290 783,070 866,174
Provision for estimated loan losses....................... 300,682 246,200 2,000
Provision for other real estate owned..................... 105,286
Gain on sale of other real estate owned................... (3,310) (11,364) 36,634
Gain on sale of securities available for sale............. (445,343)
Provision for deferred taxes.............................. 17,368 75,329 53,849
Depreciation and amortization of premises and equipment... 162,234 168,941 161,855
FHLB stock dividend received.............................. (78,300) (68,500) (39,000)
Increase in accrued interest and dividends receivable..... (159,536) (433,899) 71,125
Decrease (increase) in other assets....................... 30,610 (87,832) 21,669
Increase (decrease) in income tax liabilities............. 175,575 (16,723) (191,735)
(Decrease) increase in accrued expenses and other
liabilities............................................. (153,216) 181,183 85,934
-------------- -------------- -------------
- - -
Total adjustments.................................... 158,481 585,464 586,963
-------------- -------------- -------------
- - -
Net cash provided by operating activities............ 3,018,921 3,563,021 4,722,370
-------------- -------------- -------------
- - -
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in loans receivable.................. (9,527,116) 963,284 2,434,064
Loan origination fees received............................... 236,322 218,455 520,879
Proceeds from sale of other real estate owned................ 208,800 480,177 364,956
Purchase of investment securities held to maturity........... (2,991,563) (38,665,403) (11,679,687)
Purchase of investment securities available for sale......... (29,072,343) (4,894,765)
Maturities of investment securities held to maturity......... 19,000,000 23,000,000 1,000,000
Maturities of investment securities available for sale....... 10,000,000
Proceeds from sale of mortgage-backed securities available
for sale.................................................. 8,085,800
Proceeds from sale of investment securities available for
sale...................................................... 403,591
Principal payments on mortgage-backed securities held to
maturity.................................................. 3,652,520 3,072,889 4,755,378
Principal payments on mortgage-backed securities available
for sale.................................................. 319,928
Purchase of mortgage-backed securities available for sale.... (15,028,968) (19,124,178) (10,212,222)
Net decrease in time deposits in other financial
institutions.............................................. 4,152,000 23,469,000 9,128,000
Purchases of land, premises and equipment.................... (3,222,217) (75,384) (357,621)
-------------- -------------- -------------
- - -
Net cash used in investing activities................ (13,783,246) (11,555,925) (4,046,253)
-------------- -------------- -------------
- - -
</TABLE>
F-14
<PAGE> 123
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits..................................... 8,410,096 6,220,088 5,428,677
Cash dividends paid.......................................... (9,000,000) (1,500,000) (1,000,000)
------------ ------------ -----------
Net cash (used in) provided by financing
activities......................................... (589,904) 4,720,088 4,428,677
------------ ------------ -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........... (11,354,229) (3,272,816) 5,104,794
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................... 24,080,729 27,353,545 22,248,751
------------ ------------ -----------
CASH AND CASH EQUIVALENTS, END OF YEAR......................... $ 12,726,500 $24,080,729 $27,353,545
============ =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest.................................................. $ 8,426,906 $ 5,924,896 $ 6,323,694
============ =========== ===========
Income taxes.............................................. $ 1,878,233 $ 2,088,927 $ 2,603,121
============ =========== ===========
Transfers of loans to other real estate owned................ $ 1,083,773 $ 468,813 $ 401,590
============ =========== ===========
Loans related to sales of other real estate owned............ $ 224,000
============
Cash dividends payable....................................... $ 8,000,000
===========
Transfer of securities from held-to-maturity to
available-for-sale (Note 4)............................... $ 24,650,797
============
</TABLE>
See notes to consolidated financial statements.
F-15
<PAGE> 124
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First Public Savings Bank, F.S.B.
and subsidiary (the "Bank") conform to generally accepted accounting principles
and general practices within the savings and loan industry. At periodic
intervals, the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation routinely examine the Bank and its financial reporting as part of
their legally prescribed oversight of the savings and loan industry.
During 1993, the Bank converted its state charter to a Federal Stock
Charter; thus its name changed to First Public Savings Bank, F.S.B. from First
Public Savings Bank. The new charter assigns a stated value of $1 per share to
the Bank's common stock. The appropriate amounts have been reclassified from
additional paid-in capital and retained earnings to properly reflect the common
stock carrying value due to this change.
NATURE OF OPERATIONS -- The Bank maintains a branch network of five
locations serving individuals and small to medium-sized businesses in the Los
Angeles and surrounding areas. The operations are primarily in the savings and
loan industry, and include the acceptance of deposits and the lending and
investing of funds.
SUBSIDIARY -- The accompanying consolidated financial statements include
the accounts of the Bank and its wholly owned subsidiary, F. P. Service
Corporation, which currently provides trustee services for real estate loans
originated by the Bank.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES -- Securities are
classified into three categories as follows:
Held-to-Maturity Securities -- Debt securities that the Bank has the
positive intent and ability to hold to maturity. These securities are
reported at cost, adjusted for the accretion of discounts and amortization
of premiums, which are recognized as adjustments to interest income.
Trading Securities -- Debt and equity securities that are bought and
held principally for the purpose of selling them in the near term. These
securities are reported at fair value, with unrealized gains and losses
included in earnings.
Available-for-Sale Securities -- Debt and equity securities not
classified as either held-to-maturity or trading securities. These
securities are reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of
stockholders' equity (net of tax effects). Gains or losses are recognized
only upon sale using the specific identification method.
LOANS -- Loans are stated at the amount of unpaid principal, reduced by an
allowance for loan losses and deferred loan fees. Interest on loans is
calculated using the simple-interest method on daily balances of the principal
amount outstanding. Accrual of interest is discontinued on a loan when
management believes, after considering economic and business conditions and
collection efforts, that the borrower's financial condition is such that
collection of interest is doubtful. Generally, loans are placed on nonaccrual
status when they become 90 days past due.
LOAN FEES -- Nonrefundable fees and direct costs associated with the
origination or purchase of loans are deferred and netted against outstanding
loan balances. The deferred net loan fees and costs are recognized in interest
income over the loan term using the effective interest method.
ALLOWANCE FOR LOAN LOSSES -- A provision for loan losses is based on
management's evaluation of the estimated losses in the loan portfolio. Such
evaluation, which includes a review of all loans for which full collectibility
may not be reasonably assured, considers among other matters the net realizable
value of the underlying collateral.
F-16
<PAGE> 125
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
On January 1, 1995, the Bank adopted Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan,"
as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures." This statement prescribes that a loan is
impaired when it is probable that a creditor will be unable to collect all
amounts due (principal and interest) according to the contractual terms of the
loan agreement and provides guidance concerning the measurement of impairment on
such loans and the recording of the related reserves, which are included in the
allowance for loan losses. The adoption of this statement did not have a
material effect on the financial position of the Bank on January 1, 1995 or the
results of operations for 1995 taken as a whole.
OTHER REAL ESTATE OWNED -- Other real estate owned ("OREO") represents real
estate acquired through foreclosure in satisfaction of commercial and real
estate loans and is stated at the lower of the cost or the fair value of the
real estate, less estimated selling costs. Loan balances in excess of fair value
of the real estate acquired at the date of acquisition are charged against the
allowance for loan losses. Any subsequent operating expenses or income,
reduction in estimated values, and gains or losses on disposition of such
properties are charged to current operations. Revenue recognition upon
disposition of the property is dependent on the sale having met certain criteria
relating to the buyer's net investment in the property sold.
LAND, PREMISES AND EQUIPMENT -- Land is carried at cost. Premises and
equipment are stated at cost, less accumulated depreciation and amortization.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the assets. Estimated useful lives are as follows:
<TABLE>
<S> <C>
Furniture, fixtures and equipment..................... 3 to 10 years
Leasehold improvements................................ Life of lease
</TABLE>
EARNINGS PER SHARE -- Earnings per share calculations are based upon the
weighted average number of shares outstanding during the period. For the years
ended December 31, 1995, 1994 and 1993 the amount of earnings per share was
based on 4,000,000 shares, which was the weighted average outstanding during
each of the three years in the period ended December 31,1995.
STATEMENTS OF CASH FLOWS -- For the purposes of reporting cash flows, cash
and cash equivalents include cash and federal funds sold.
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 disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS -- Certain reclassifications were made to prior years'
presentations to conform to the current year's presentation.
F-17
<PAGE> 126
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
2. INVESTMENT SECURITIES
The cost and estimated market value of investment securities at December
31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Held to Maturity:
U.S. Treasury and agency securities.... $39,192,968 $196,938 $27,406 $39,362,500
=========== ======== ======= ===========
Available for Sale:
U.S. Treasury securities............... $24,038,654 $190,760 $ -- $24,229,414
=========== ======== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Held to Maturity:
U.S. Treasury and agency
securities........................ $55,568,089 $ -- $1,284,229 $54,283,860
=========== ======== ========== ===========
Available for Sale:
U.S. Treasury securities............. $ 4,933,556 $ 60,588 $ 4,872,968
FHLMC stock.......................... 24,362 $289,546 -- 313,908
----------- -------- ---------- -----------
$ 4,957,918 $289,546 $ 60,588 $ 5,186,876
=========== ======== ========== ===========
</TABLE>
The maturity distribution of investment securities at December 31, 1995 is
as follows:
<TABLE>
<CAPTION>
ESTIMATED
MARKET
COST VALUE
----------- -----------
<S> <C> <C>
Held to Maturity --
U.S. Treasury and agency securities:
Less than one year...................................... $22,116,188 $22,158,750
One to five years.................................... 17,076,780 17,203,750
----------- -----------
$39,192,968 $39,362,500
=========== ===========
Available for Sale --
U.S. Treasury:
Less than one year................................... $ 2,000,303 $ 2,003,750
One to five years.................................... 22,038,351 22,225,664
----------- -----------
$24,038,654 $24,229,414
=========== ===========
</TABLE>
F-18
<PAGE> 127
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
3. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
Loans receivable consist of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Single-family residential loans................. $ 74,288,339 $ 68,779,577
Multifamily loans............................... 52,109,187 49,492,646
Nonresidential loans............................ 16,350,044 16,213,279
Loans secured by savings accounts............... 433,807 455,028
Other loans..................................... 298,212 116,861
------------ ------------
Total loans receivable........................ 143,479,589 135,057,391
Allowance for loan losses....................... (516,567) (461,030)
Deferred loan fees.............................. (1,328,165) (1,254,702)
------------ ------------
Loans receivable, net......................... $141,634,857 $133,341,659
============ ============
</TABLE>
The following is a summary of the activity in the allowance for loan losses
for the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
Balance, beginning of year............... $ 461,030 $ 322,000 $320,000
Provision for estimated loan losses...... 300,682 246,200 2,000
Loans charged off........................ (245,145) (107,170)
--------- --------- --------
Balance, end of year..................... $ 516,567 $ 461,030 $322,000
========= ========= ========
</TABLE>
At December 31, 1995, the Bank had classified $1,389,927 of its loans as
impaired, with a related specific reserve of $162,042 against those loans, and
$119,099 of its loans as impaired with no related specific loss reserve. The
average recorded investment in impaired loans during the year ended December 31,
1995 was $1,305,512. The Bank continues to recognize interest income on loans
that are considered to be impaired, until the loan is placed on nonaccrual
status. The Bank collected cash and recognized interest income of $111,243 on
impaired loans during the year ended December 31, 1995.
At December 31, 1995 and 1994, the Bank had nonaccrual loans of $344,929
(included as impaired loans above) and $818,748, respectively. Interest foregone
on these loans was $10,752 and $24,601 for 1995 and 1994, respectively.
At December 31, 1995 and 1994, the Bank was servicing loans for others
amounting to approximately $2,679,000 and $3,175,000, respectively. Servicing
loans for others generally consists of collecting mortgage payments, maintaining
escrow accounts, disbursing payments to investors, and foreclosure processing.
Loan servicing income is recorded on the accrual basis and includes servicing
fees from investors and certain charges collected from borrowers, such as late
payment fees.
It has been the Bank's policy to make loans to customers in its immediate
service area. Therefore, the Bank has a natural geographic concentration of
borrowers in the Southern California region. It is management's opinion that the
Bank has no undue risk in concentration as it pertains to one geographic area or
individual borrowers.
Loans originated to officers, employees and directors aggregated
approximately $509,000 and $1,226,000 during 1995 and 1994, respectively. The
outstanding balance of such loans aggregated approximately $2,388,000 and
$3,381,000 as of December 31, 1995 and 1994, respectively.
F-19
<PAGE> 128
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The Bank originates both adjustable and fixed interest rate loans. At
December 31, 1995, the composition of net loans was as follows:
<TABLE>
<CAPTION>
FIXED RATE ADJUSTABLE RATE
----------------------------------- -----------------------------------
APPROXIMATE TERM TO RATE APPROXIMATE
TERM TO MATURITY BOOK VALUE ADJUSTMENT BOOK VALUE
---------------------- ----------- ---------------------- -----------
<S> <C> <C> <C>
Less than 1 year...... $ 124,000 1 mo. - 1 yr.......... $82,406,000
1 yr. - 5 yrs....... 11,352,000 1 yr. - 5 yrs......... 6,060,000
5 yrs. - 10 yrs..... 11,165,000
over 10 yrs......... 30,528,000
----------- -----------
$53,169,000 $88,466,000
=========== ===========
</TABLE>
The adjustable rate loans have interest rate adjustment limitations and are
generally indexed to the FHLB's 11th District Cost of Funds rate. Future market
factors may affect the correlation of the interest adjustment with the rates the
Bank pays on the short-term deposits that have been primarily utilized to fund
these loans.
4. MORTGAGE-BACKED SECURITIES
The cost and estimated market value of mortgage-backed securities at
December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Held to Maturity -- FHLMC.............. $ 4,311,630 $ 82,080 $ -- $ 4,393,710
=========== ======== ========== ===========
Available for Sale:
GNMA................................. $29,373,278 $ 434,001 $29,807,279
FHLMC................................ 1,931,512 36,002 $ 1,967,514
----------- -------- ---------- -----------
$31,304,790 $ 470,003 $ -- $31,774,793
=========== ======== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Held to Maturity:
GNMA................................. $27,688,319 $ 25,738 $1,402,591 $26,311,467
FHLMC................................ 4,926,628 622 77,411 4,849,838
----------- -------- ---------- -----------
$32,614,947 $ 26,360 $1,480,002 $31,161,305
=========== ======== ========== ===========
</TABLE>
In November 1995, the Financial Accounting Standards Board ("FASB") issued
the "Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities: Questions and Answers" (the "Guide").
The Guide allows for a one-time reassessment of the classification of all
securities and, in connection with such reassessment, permits the
reclassification of securities from the held-to-maturity classification to the
available-for-sale classification as of a single date no later than December 31,
1995, without calling into question management's intent to hold to maturity the
remaining securities classified as held-to-maturity. On December 29, 1995, the
Bank transferred securities with a book
F-20
<PAGE> 129
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
value of $24,650,797 from the held-to-maturity to the available-for-sale
classification for the purpose of asset and liability management. Such
securities had an unrealized gain of $279,291 on the date of transfer.
5. LAND, PREMISES AND EQUIPMENT
Land, premises and equipment at December 31, 1995 and 1994 are summarized
as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land.............................................. $ 3,166,769
Furniture, fixtures and equipment................. 1,309,789 $ 1,291,044
Leasehold improvements............................ 812,706.... 812,706
Construction in progress.......................... 33,741
---------- ----------
Total........................................... 5,323,005 2,103,750
Accumulated depreciation and amortization......... (1,814,725) (1,655,453)
---------- ----------
Land, premises and equipment, net............... $ 3,508,280 $ 448,297
========== ==========
</TABLE>
In 1995, the Bank purchased land for the purpose of building a corporate
headquarters facility and branch office.
6. DEPOSITS
The following information relates to deposits as of December 31, 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Balance by interest rate:
Variable rate NOW account (1.06% and 1.37% in
1995 and 1994, respectively)............... $ 27,121,615 $ 27,990,598
Passbook (2.00% and 2.15% in 1995 and 1994,
respectively............................... 42,274,936 44,041,215
------------ ------------
69,396,551 72,031,813
Money market savings account (weighted average
rate of 2.27% and 2.28% in 1995 and 1994,
respectively............................... 37,429,135 43,921,913
Certificates of deposit and IRAs (weighted
average rate of 5.09% and 4.40% in 1995 and
1994, respectively......................... 131,648,288 114,110,152
------------ ------------
$238,473,974 $230,063,878
============ ============
Contractual maturity of certificate accounts:
Up to 12 months............................... $ 99,911,417 $106,876,388
More than 12 months and up to 24 months....... 30,777,524 6,242,840
Over 24 months................................ 959,347 990,924
------------ ------------
$131,648,288 $114,110,152
============ ============
</TABLE>
The aggregate amount of certificates of deposit of $100,000 and over was
$33,445,254 and $30,811,722 at December 31, 1995 and 1994, respectively.
Interest expense on certificates of deposit of $100,000 and over amounted to
$1,814,837, $1,491,762 and $978,000 for the years ended December 31, 1995, 1994
and 1993, respectively.
F-21
<PAGE> 130
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
7. DIVIDENDS PAYABLE
In addition to the recurring cash dividends paid in 1994, the Bank declared
a capital distribution of $2 per share in the form of cash dividends. The
distribution was made on February 15, 1995.
8. INCOME TAXES
In computing taxes on income, savings and loan associations that meet
certain definitional tests and other conditions prescribed by the Internal
Revenue Code (the "Code") are allowed to deduct, within limitations, a bad debt
deduction. The Bank's deduction was based upon the method as defined by the Code
and amounted to 8% of the taxable income in 1995 and 1994. This deduction
differs from the bad debt accounting method used for financial accounting
purposes. Under the provisions of SFAS No. 109, a deferred tax liability is not
required and has not been provided for tax bad debt and loan loss reserves that
arose in tax years prior to December 31, 1987. The Bank had $3,368,000 of such
reserves for which $1,179,000 of taxes has not been provided based on a current
income tax rate of 35%. If these reserves are used for any purpose other than to
absorb bad debt losses, federal taxes would have to be provided for at the
then-current income tax rate. It is not contemplated that the accumulated
reserves will be used in a manner that will create a tax liability. Taxes have
been provided for on the difference between the Bank's tax accounting bad debt
deduction for years after December 31, 1987 and financial accounting bad debt
deduction, as is required under SFAS No. 109.
The provision (benefit) for income taxes consists of the following for the
years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- -------- ----------
<S> <C> <C> <C>
1995:
Federal............................... $1,428,294 $ 45,266 $1,473,560
State................................. 580,031 (27,898) 552,133
---------- ---------- ----------
$2,008,325 $ 17,368 $2,025,693
========== ========== ==========
1994:
Federal............................... $1,449,966 $ 83,927 $1,533,893
State................................. 593,104 (8,598) 584,506
---------- ---------- ----------
$2,043,070 $ 75,329 $2,118,399
========== ========== ==========
1993:
Federal............................... $2,052,418 $ 77,943 $2,130,361
State................................. 799,069 (24,094) 774,975
---------- ---------- ----------
$2,851,487 $ 53,849 $2,905,336
========== ========== ==========
</TABLE>
F-22
<PAGE> 131
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Income tax liability (asset) comprised the following (current income tax
receivable is included in other assets in 1994):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Current:
Federal........................................... $ 28,026 $ 41,194
State............................................. 123,545 (65,198)
---------- ----------
$ 151,571 $ (24,004)
========== ==========
Deferred:
Federal........................................... $1,292,216 $1,100,378
State............................................. 173,365 180,366
---------- ----------
$1,465,581 $1,280,744
========== ==========
</TABLE>
The components of the net deferred tax liabilities (assets) are as follows:
<TABLE>
<CAPTION>
FEDERAL 1995 1994
------- ---------- ----------
<S> <C> <C>
Deferred tax asset:
California franchise tax.......................... $ (212,435) $ (256,318)
Depreciation...................................... (96,129) (87,181)
Nonaccrual interest............................... (11,023) (7,367)
Environment tax................................... (756)
---------- ----------
Total deferred tax asset.................. (319,587) (351,622)
---------- ----------
Deferred tax liabilities:
Bad debt.......................................... 743,117 752,737
Loan fees......................................... 378,006 382,903
FHLB stock dividend............................... 258,514 231,892
Real estate owned................................. 4,997 3,871
Net unrealized gain on securities available for
sale........................................... 227,169 80,597
---------- ----------
Total deferred tax liabilities............ 1,611,803 1,452,000
---------- ----------
Net deferred tax liability................ $1,292,216 $1,100,378
========== ==========
</TABLE>
<TABLE>
<CAPTION>
STATE
-----
<S> <C> <C>
Deferred tax asset:
Bad debts......................................... $ (82,951) $ (48,674)
Nonaccrual interest............................... (3,663) (2,448)
---------- ----------
Total deferred tax asset.................. (86,614) (51,122)
---------- ----------
Deferred tax liabilities:
Loan fees......................................... 125,631 127,259
FHLB stock dividends.............................. 85,918 77,070
Real estate owned................................. 1,660 1,286
Net unrealized gain on securities available....... 46,770 25,873
---------- ----------
Total deferred tax liabilities............ 259,979 231,488
---------- ----------
Net deferred tax liability................ $ 173,365 $ 180,366
========== ==========
</TABLE>
F-23
<PAGE> 132
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Income tax expense in the accompanying consolidated financial statements
has been provided at an effective rate of 41.4%, 41.6%, and 41.0% for the years
ended December 31, 1995, 1994 and 1993, respectively. These rates are higher
than the statutory rates for federal income tax of 35%, 35% and 34% for the
years ended December 31, 1995, 1994 and 1993, respectively. The reasons for
these differences and the tax effect of each are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- -----------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
---------- ---- ---------- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Taxes at the federal statutory
tax rate.................... $1,710,147 35.0% $1,783,585 35.0% $2,393,853 34.0%
State franchise tax, net of
federal income tax
benefit.................. 364,408 7.4% 385,774 7.6% 516,086 7.3%
Other, net.................. (48,862) (1.0)% (50,960) (1.0)% (4,603) 0.0%
---------- ---- ---------- ---- ---------- ----
$2,025,693 41.4% $2,118,399 41.6% $2,905,336 41.3%
========== ==== ========== ==== ========== ====
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
The Bank is a party to various legal proceedings arising in the normal
course of business. While it is difficult to predict the ultimate outcome of
such litigation, the Bank, after consultation with legal counsel, does not
expect that such litigation will have a material adverse effect on its financial
statements.
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit. The Bank had
outstanding commitments of $1,135,000 and $100,000 at December 31, 1995 and
1994, respectively.
At December 31, 1995, the Bank had a commitment to fund a line of credit of
$1,000,000.
The Bank uses the same credit policies in making commitments as it does for
extending loan facilities to customers. 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 counterparty. Collateral held varies but may include
accounts receivable; inventory; property, plant and equipment; and
income-producing commercial properties.
The Bank is obligated under noncancelable operating leases on the Bank
premises. Rental expense under these leases was $423,569, $396,862 and $376,206
in 1995, 1994 and 1993, respectively. Rental commitments at December 31, 1995
under these noncancelable leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
-----------
<S> <C>
1996.................................................... $402,524
1997.................................................... 305,963
1998.................................................... 113,433
1999.................................................... 110,545
2000.................................................... 57,571
Thereafter.............................................. 4,813
--------
$994,849
========
</TABLE>
Congress has proposed legislation that would impose a one-time special
assessment on financial institutions in order to recapitalize the Savings
Association Insurance Fund ("SAIF"). As proposed, the
F-24
<PAGE> 133
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
legislation would require SAIF member institutions to pay a special assessment
of approximately 85 basis points on all assessable deposits as of a certain
date.
While the outcome of the legislation cannot be predicted with certainty, it
is likely that some kind of legislative or regulatory action will be taken that
will impact the Bank's insured deposits. A one-time special assessment of 85
basis points on the deposit balance at March 31, 1995 would result in the Bank's
paying approximately $2 million in additional SAIF premiums, before
consideration of related tax benefits. The enactment of such legislation may
have the effect of immediately reducing the regulatory capital of SAIF member
institutions by the amount of the fee. Due to the general uncertainty of the
legislative process, management cannot predict whether legislation imposing a
special one-time assessment will be adopted or, if adopted, the amount of the
assessment, if any, that would be imposed on the Bank.
10. DIRECTORS' RETIREMENT PLAN
In 1995, the Bank adopted the Directors' Retirement Plan (the "Plan"). The
Plan is a nonqualified defined benefit retirement plan, not subject to the
Employee Retirement Income Security Act of 1974, and provides retirement income
benefit to directors serving on the Board of Directors of the Bank.
The benefits are based on completed years of service during the director's
last ten years of service. Costs are funded using the accrued-benefit method. No
specific assets are set aside for the designated purpose of satisfying the
Bank's obligation under the terms of the Plan.
Net periodic pension cost allocable to the Bank at December 31, 1995
includes the following components:
<TABLE>
<S> <C>
Service cost.............................................. $ 5,100
Interest cost............................................. 45,100
Net amortization of transition obligation................. 58,900
--------
Net periodic pension cost................................. $109,100
========
</TABLE>
The status of the Plan at December 31, 1995 is as follows:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefits......................................... $585,804
Nonvested benefits...................................... 3,401
--------
Accumulated benefit obligation............................ $589,205
========
Projected benefit obligation.............................. $589,205
========
</TABLE>
The actuarial data presented above assumes an 8% discount rate on benefit
obligations for 1995.
The Bank accrued $50,000 under the Plan and paid out no amount for the year
ended December 31, 1995.
11. REGULATORY MATTERS
Under the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") and the implementing Office of Thrift Supervision ("OTS")
regulatory capital regulations, the Bank must maintain minimum capital ratios
for adequacy purposes as set forth in the table below.
Insured institutions, under FIRREA risk-based capital guidelines, are
required to assign risk-adjusted weightings to assets (including commitments to
acquire/fund assets) based upon varying degrees of risk associated with such
assets.
F-25
<PAGE> 134
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Management believes that, under the current regulations, the Bank will
continue to meet its minimum capital requirements for the foreseeable future.
A reconciliation between regulatory capital requirements under FIRREA and
the capital reported in the accompanying consolidated financial statements at
December 31, 1995 is shown as follows:
<TABLE>
<CAPTION>
TANGIBLE CAPITAL CORE CAPITAL RISK-BASED CAPITAL
--------------------- --------------------- ---------------------
BALANCE % BALANCE % BALANCE %
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Total stockholders'
equity per the
accompanying
consolidated financial
statements............. $22,961,042 $22,961,042 $22,961,042
Unrealized gain on
securities available
for sale, net of tax... (386,824) (386,824) (386,824)
General loan valuation
allowance.............. 354,525
----------- ----------- -----------
Regulatory capital -- as
reported to the OTS.... 22,574,218 8.57% 22,574,218 8.57% 22,928,743 23.77%
Minimum capital
requirements........... 3,952,159 1.50% 7,904,317 3.00% 7,717,729 8.00%
----------- ----- ----------- ----- ----------- -----
Regulatory capital
excess................. $18,622,059 7.07% $14,669,901 5.57% $15,211,014 15.77%
=========== ===== =========== ===== =========== =====
</TABLE>
Under the Federal Deposit Insurance Corporation Improvement Act ("FDICIA"),
which supplemented FIRREA, the OTS has issued "prompt corrective action"
regulations with specific capital ranking tiers for thrift institutions. The
qualifying tiers are set forth below.
<TABLE>
<CAPTION>
RATIO OF RATIO OF
CORE CAPITAL TOTAL CAPITAL
RATIO OF TO RISK- TO RISK-
CORE CAPITAL WEIGHTED WEIGHTED
TO TOTAL ASSETS ASSETS ASSETS
--------------- ------------ -------------
<S> <C> <C> <C>
Well capitalized..................... 5% or above 6% or above 10% or above
Adequately capitalized............... 4% or above 4% or above 8% or above
Under-capitalized.................... under 4% under 4% under 8%
</TABLE>
The Bank's ratios at December 31, 1995 are set forth below:
<TABLE>
<S> <C>
Ratio of core capital to total assets (leverage ratio).............. 8.57%
Ratio of core capital to risk-weighted assets....................... 23.40%
Ratio of total capital to risk-weighted assets...................... 23.77%
</TABLE>
Based upon the foregoing, the Bank is classified as a well-capitalized
institution.
12. FAIR VALUE INFORMATION
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Bank using available market
information and appropriate valuation methodologies. However, considerable
judgment is required to interpret market data to develop the estimate of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the
F-26
<PAGE> 135
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
amounts the Bank could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1995 1994
-------------------- --------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents........................... $ 12,727 $ 12,727 $ 24,081 $ 24,081
Time deposits in other financial institutions 1,199... 1,199 5,351 5,351
Investment securities:
Held to maturity.................................... 39,193 39,363 55,568 54,284
Available for sale.................................. 24,229 24,229 5,187 5,187
Loans, net of allowance for loan losses............... 141,635 147,364 133,342 128,312
Mortgage-backed securities:
Held to maturity.................................... 4,312 4,394 32,615 31,161
Available for sale.................................. 31,775 31,775
Federal Home Loan Bank stock.......................... 1,608 1,608 1,530 1,530
Liabilities --
Deposits............................................ $238,474 $ 239,697 $230,064 $ 228,377
</TABLE>
CASH AND TIME DEPOSITS IN OTHER FINANCIAL INSTITUTIONS -- The carrying
amounts approximate fair values due to the short-term nature of these
instruments.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES -- The fair value of
investment securities and mortgage-backed securities are generally obtained from
market bids for similar or identical securities, or are obtained from
independent securities brokers or dealers.
LOANS -- Fair values are estimated for portfolios of loans with similar
financial characteristics, primarily fixed and adjustable rate interest terms.
The fair values of fixed rate loans are based upon discounted cash flows
utilizing the current rate offered for similar fixed rate loans and the
assumption that these loans mature at the end of the contractual terms. The fair
values of adjustable rate loans are deemed to approximate the carrying values,
as these loans have rates that adjust to current market rates periodically.
No adjustments have been made for changes in credit within the loan
portfolio. It is management's opinion that the allowance for loan losses
pertaining to performing and nonperforming loans results in a fair valuation of
such loans.
The fair value of nonperforming loans with a recorded book value of
approximately $345,000 and $819,000 at December 31, 1995 and 1994, respectively,
was not estimated because it is not practicable to reasonably assess the credit
adjustment that would be applied in the marketplace for such loans.
FEDERAL HOME LOAN BANK STOCK -- The carrying amount approximates fair
value, as the stocks may be sold back to the Federal Home Loan Bank at carrying
value.
DEPOSITS -- The fair values of deposits are estimated based upon the type
of deposit products. Demand accounts, which include passbook, money market
savings and NOW accounts, are presumed to have equal book and fair values, since
the interest rates paid on these accounts are based on prevailing market rates.
The estimated fair values of time deposits are determined by discounting the
cash flows of segments of deposits
F-27
<PAGE> 136
FIRST PUBLIC SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
having similar maturities and rates, utilizing a yield curve that approximates
the prevailing rates offered to depositors as of the reporting date.
COMMITMENTS TO EXTEND CREDIT -- The fair values of commitments to extend
credit are based on fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the counterparties
credit standing. At December 31, 1995, the fair values for commitments to extend
credit are deemed to be immaterial.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1995 and 1994. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date, and
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
13. TERMINATION OF MERGER AGREEMENT
In February 1994, the Board of Directors of the Bank entered into a
definitive agreement with GBC Bancorp ("GBC") under which GBC would have
acquired the outstanding shares of the Bank for cash and thereafter operate the
Bank as a subsidiary of GBC. In May 1994, the Bank and GBC announced that they
had agreed to terminate their merger agreement principally because a federal
supervisory agency for GBC recommended that GBC not acquired the Bank but
instead focus its management and financial resources on its subsidiary, General
Bank.
F-28
<PAGE> 137
ANNEX 1
AGREEMENT AND PLAN OF MERGER
AMONG
CATHAY BANCORP, INC.
CATHAY BANK
AND
FIRST PUBLIC SAVINGS BANK, F.S.B.
DATED AS OF MAY 30, 1996
<PAGE> 138
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. THE MERGER........................................................................ 1
1.1 Merger Agreement.............................................................. 1
1.2 Consideration................................................................. 1
1.3 Dissenters.................................................................... 6
1.4 Return of Share Certificates.................................................. 6
1.5 No Liability.................................................................. 6
1.6 Withholding Rights............................................................ 6
2. THE CLOSING....................................................................... 6
2.1 Effective Time................................................................ 6
2.2 Procedure..................................................................... 7
3. REPRESENTATIONS AND WARRANTIES OF FPSB............................................ 7
3.1 Due Organization............................................................. 7
3.2 Binding Effect............................................................... 7
3.3 Capitalization............................................................... 8
3.4 Financial Statements and Reports............................................. 8
3.5 Books and Records; Other Information......................................... 8
3.6 Properties: Contracts........................................................ 9
3.7 Compliance with Laws......................................................... 10
3.8 Material Contract Defaults................................................... 10
3.9 Absence of Certain Changes................................................... 10
3.10 Litigation................................................................... 11
3.11 Contingent Liabilities....................................................... 11
3.12 Taxes........................................................................ 11
3.13 Employee Benefit Plans; ERISA................................................ 12
3.14 Broker's and Finder's Fees................................................... 13
3.15 Labor Relations.............................................................. 13
3.16 Registration Statement and Regulatory Applications........................... 13
3.17 Insurance.................................................................... 14
3.18 Employment and Similar Agreements; Obligations Upon Change in Control........ 14
3.19 Hazardous Materials.......................................................... 14
3.20 Certain Interests............................................................ 15
3.21 Fairness Opinion............................................................. 15
3.22 Materiality.................................................................. 15
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4. REPRESENTATIONS AND WARRANTIES OF BANCORP......................................... 15
4.1 Organization.................................................................. 15
4.2 Binding Effect................................................................ 16
4.3 Capitalization................................................................ 16
4.4 Financial Statements and Reports.............................................. 16
4.5 Books and Records; Other Information.......................................... 17
4.6 Compliance with Laws.......................................................... 17
4.7 Material Contract Defaults.................................................... 18
4.8 Absence of Certain Changes.................................................... 18
4.9 Litigation.................................................................... 18
4.10 Contingent Liabilities....................................................... 19
4.11 Taxes........................................................................ 19
4.12 Registration Statement and Regulatory Applications........................... 19
4.13 Hazardous Materials.......................................................... 20
4.14 Materiality.................................................................. 20
5. COVENANTS OF FPSB AND BANCORP..................................................... 20
5.1 Preparation of Registration Statement and Applications for Required
Consents.......................................................................... 20
5.2 Pursuit of Approvals.......................................................... 21
5.3 Other Consents................................................................ 21
5.4 Activities Pending Closing.................................................... 22
5.5 Monterey Park Project......................................................... 23
5.6 Access to Information......................................................... 23
5.7 Confidentiality............................................................... 23
5.8 Meeting of Shareholders....................................................... 24
5.9 Compliance with Regulatory Authorities........................................ 24
5.10 Bancorp Stock Listing........................................................ 24
5.11 Notification................................................................. 24
5.12 No Shopping.................................................................. 24
5.13 Future Information........................................................... 24
5.14 Directors' and Officers' Liability Insurance................................. 24
5.15 Further Assurances........................................................... 25
5.16 Affiliates................................................................... 25
5.17 Benefit Plans................................................................ 25
5.18 Bancorp Stock................................................................ 25
5.19 Loan Loss Reserve............................................................ 25
6. CONDITIONS TO CLOSING............................................................. 26
6.1 Mutual Conditions to Parties' Obligation to Close............................. 26
6.2 Conditions to FPSB's Obligation to Close...................................... 26
6.3 Conditions to Bancorp's Obligation to Close................................... 27
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7. INDEMNIFICATION................................................................... 29
7.1 Indemnification of Bancorp Indemnitees........................................ 29
7.2 Indemnification of FPSB Indemnitees........................................... 29
7.3 Diminution.................................................................... 29
7.4 Indemnification Procedure for Third-Party Claims.............................. 29
7.5 Survival...................................................................... 30
8. TERMINATION....................................................................... 30
8.1 Termination................................................................... 30
8.2 Effect of Termination......................................................... 30
9. MISCELLANEOUS..................................................................... 32
9.1 Notices....................................................................... 32
9.2 Governing Law................................................................. 32
9.3 Entire Agreement.............................................................. 32
9.4 Amendments and Waivers........................................................ 32
9.5 Severability.................................................................. 33
9.6 Counterparts.................................................................. 33
9.7 Headings...................................................................... 33
9.8 Expenses...................................................................... 33
9.9 Certain Definitions........................................................... 33
9.10 Attorneys' Fees.............................................................. 33
9.11 Publicity.................................................................... 34
9.12 Binding Effect............................................................... 34
9.13 Third Party.................................................................. 34
9.14 Gender; Number............................................................... 34
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AGREEMENT AND PLAN OF MERGER
THIS IS AN AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of May
30, 1996 by and among CATHAY BANCORP, INC., a Delaware corporation ("Bancorp"),
CATHAY BANK, a California state banking corporation ("CB"), and FIRST PUBLIC
SAVINGS BANK, F.S.B., a United States federal stock savings bank ("FPSB").
RECITALS
A. The parties desire to effect a business combination pursuant to which
FPSB will be merged with and into CB, CB shall be the surviving bank and the
shareholders of FPSB (the "Shareholders") will receive the consideration
provided for herein (the "Merger"). The Merger shall be accomplished by an
agreement of merger which contains such provisions as are required by applicable
law and all regulatory authorities having jurisdiction over the transaction,
consistent with the terms specified herein.
B. The parties intend that for federal income tax purposes the transactions
contemplated hereby will constitute a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code").
C. The Merger requires certain board of directors, shareholder and
regulatory approvals as described herein. The Merger will be effected only after
the necessary approvals have been obtained.
Accordingly, the parties agree as follows:
1. THE MERGER
1.1 MERGER AGREEMENT. The terms of the Merger are set forth in a Merger
Agreement attached hereto as Exhibit A (the "Merger Agreement"). At the
Effective Time (as defined in Section 2.2), the Merger Agreement will be filed
as provided in the Merger Agreement and the transactions contemplated by this
Agreement will be consummated. As provided in the Merger Agreement, each share
of FPSB's common stock, $1.00 par value per share ("FPSB Stock"), outstanding
immediately before the Effective Time shall, without any action on the part of
the holder thereof, be cancelled and converted into the right to receive the
cash and the number of shares of Bancorp's common stock, $0.01 par value per
share ("Bancorp Stock"), determined as provided in Section 1.2.
1.2 CONSIDERATION.
(a) Right to Receive Per Share Cash Consideration. As of the Effective
Time, each share of FPSB Stock that is to be converted into the right to receive
the Per Share Cash Consideration (as defined in Section 1.2(d)), excluding
Dissenting Shares (as defined in Section 1.3), outstanding immediately before
the Effective Time shall, by virtue of the Merger and without any action on the
part of the holder hereof, be converted into the right to receive the Per Share
Cash Consideration, subject to Section 1.2(g).
(b) Right to Receive Per Share Stock Consideration. As of the Effective
Time, each share of FPSB Stock that is to be converted into the right to receive
the Per Share Stock Consideration (as defined in Section 1.2(e)), excluding
Dissenting Shares, outstanding immediately before the Effective Time shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into the right to receive the Per Share Stock Consideration,
subject to Section 1.2(g).
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(c) Total Cash Consideration and Total Stock Consideration.
(i) If the Calculation Date Bancorp Stock Price (as defined in Section
1.2(f)) is at least $14.00 but not greater than $20.00, the Total Cash
Consideration shall be equal to $15,484,000 and the Total Stock
Consideration shall be equal to the quotient of (A) $16,116,000 divided by
(B) the Calculation Date Bancorp Stock Price. The Total Consideration Value
shall be equal to $31,600,000.
(ii) If the Calculation Date Bancorp Stock Price is less than $14.00
the Total Consideration Value shall be equal to the sum of (A) $15,484,000
(B) the Calculation Date Bancorp Stock Price multiplied by 1,151,143. The
Total Cash Consideration shall be equal to 49 percent of the Total
Consideration Value. The Total Stock Consideration shall be equal to the
quotient of (X) 51 percent of the Total Consideration Value divided by (Y)
the Calculation Date Bancorp Stock Price.
(iii) If the Calculation Date Bancorp Stock Price is greater than
$20.00 but not greater than $23.00, the Total Consideration Value shall be
equal to the sum of (A) $15,484,000 plus (B) the Calculation Date Bancorp
Stock Price multiplied by 805,800. The Total Cash Consideration shall be
equal to 49 percent of the Total Consideration Value. The Total Stock
Consideration shall be equal to the quotient of (X) 51 percent of the Total
Consideration Value divided by (Y) the Calculation Date Bancorp Stock
Price.
(iv) If the Calculation Date Bancorp Stock Price is greater than
$23.00, the Total Consideration Value shall be equal to $34,017,000. The
Total Cash Consideration shall be equal to $16,668,330 and the Total Stock
Consideration shall be equal to the quotient of (X) $17,348,670 divided by
(Y) the Calculation Date Bancorp Stock Price.
(v) Total Cash Consideration shall in no event exceed 49 percent of
the Total Consideration Value.
(vi) The Total Consideration Value will not be subject to adjustment
or renegotiation as the result of any of the following: (A) legislation or
regulations concerning bad debt reserve recapture or federal deposit
insurance assessments (with respect to either the Bank Insurance Fund or
the Savings Association Insurance Fund) or exit fees; (B) the retirement
plan for directors of FPSB described in the FPSB Schedule (defined in
Article 3); or (C) the cash dividends expressly permitted by Section
5.4(c).
(d) Per Share Cash Consideration. Per Share Cash Consideration shall be
equal to the quotient of (i) Total Cash Consideration divided by (ii) the sum of
the total number of shares of FPSB Stock to be converted to the right to receive
cash as determined under Section 1.2(g) and Dissenting Shares.
(e) Per Share Stock Consideration. Per Share Stock Consideration shall be
equal to the quotient of (i) Total Stock Consideration divided by (ii) the sum
of the total number of shares of FPSB Stock to be converted to the right to
receive Bancorp Stock as determined under Section 1.2(g).
(f) The "Calculation Date Bancorp Stock Price" shall be the quotient of (i)
the sum of each of the high and low sales prices of Bancorp Stock as reported in
The Wall Street Journal as Nasdaq National Market System transactions on each of
the 20 days on which Bancorp Stock was traded immediately before the date which
is five business days before the Closing Date divided by (ii) 40. In the event
of any stock dividend, stock distribution, stock split, reverse stock split,
extraordinary dividend or partial or liquidating distribution effected with
respect to Bancorp Stock between the first of such trading days and the
Effective Time, appropriate pro rata adjustments will be made in the foregoing
numbers. Nothing in the preceding sentence shall apply to any regular cash
dividend declared or paid during such periods provided no other cash dividend
has been declared and paid during the same calendar quarter.
(g) Election Procedures. An election form and other appropriate and
customary transmittal materials (which shall specify that delivery shall be
effected, and risk of loss and title to the certificates theretofore
representing shares of FPSB Stock shall pass, only upon proper delivery of such
certificates to the agent mutually selected by Bancorp and FPSB to effect the
exchange of FPSB Stock for Bancorp Stock and cash (the "Exchange Agent")) in
such form as Bancorp and FPSB shall mutually agree ("Election Form") shall be
mailed to the Shareholders at the same time as, and together with, the
Prospectus/Proxy Statement or on such other date as FPSB and Bancorp shall
mutually agree ("Mailing Date") to each holder of record of
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FPSB Stock as of the record date for the meeting of Shareholders ("Election Form
Record Date").
Each Election Form shall permit the holder (or the beneficial owner through
appropriate and customary documentation and instructions) to elect to receive
only Bancorp Stock with respect to such holder's FPSB Stock ("Stock Election
Shares"), to elect to receive only cash with respect to such holder's FPSB Stock
("Cash Election Shares") or to indicate that such holder makes no election ("No
Election Shares").
The Election Form shall further permit each holder to make a further
election as to whether, if not all elections can be implemented within the
limitations set forth in Section 1.2(c), such holder desires to have the
decision made on the same basis as if such holder had made no election (and such
holder's shares were thus deemed No Election Shares) or in accordance with a
"Proration Allocation" (as described in Section 1.2(g)(iv)).
Any FPSB Stock with respect to which the holder (or the beneficial owner,
as the case may be) shall not have submitted to the Exchange Agent an effective,
properly completed Election Form on or before 5:00 p.m. on the day before the
date of the meeting of Shareholders (or such other time and date as Bancorp and
FPSB may mutually agree) (the "Election Deadline") shall also be deemed to be No
Election Shares.
Bancorp shall make available one or more Election Forms as may be
reasonably requested by all persons who become holders (or beneficial owners) of
FPSB Stock between the Election Form Record Date and close of business on the
business day prior to the Election Deadline, and FPSB shall provide to the
Exchange Agent all information reasonably necessary for it to perform as
specified herein.
Any such election shall have been properly made only if the Exchange Agent
shall have actually received a properly completed Election Form by the Election
Deadline. An Election Form shall be deemed properly completed only if
accompanied by one or more certificates (or customary affidavits and
indemnification regarding the loss or destruction of such certificates or the
guaranteed delivery of such certificates) representing all shares of FPSB Stock
covered by such Election Form, together with duly executed transmittal materials
included in the Election Form. Any Election Form may be revoked or changed by
the person submitting such Election Form at or prior to the Election Deadline.
If an Election Form is revoked prior to the Election Deadline, the shares of
FPSB Stock represented by such Election Form shall become No Election Shares and
Bancorp shall cause the certificates representing FPSB Stock to be promptly
returned without charge to the Shareholder submitting the Election Form upon
written request to that effect from the holder who submitted the Election Form.
Subject to the terms of this Agreement and of the Election Form, the Exchange
Agent shall have reasonable discretion to determine whether any election
revocation or change has been properly or timely made and to disregard
immaterial defects in the Election Forms, and any good faith decisions of
Bancorp regarding such matters shall be binding and conclusive. Neither Bancorp
nor the Exchange Agent shall be under any obligation to notify any person of any
defect in an Election Form.
As of or as soon as practicable after the Effective Time, Bancorp shall
cause the Exchange Agent to effect the allocation among the holders of FPSB
Stock of rights to receive Bancorp Stock or cash in the Merger in accordance
with the Election Forms as follows:
(i) Stock Elections Less Than Total Stock Consideration. If the number
of shares of Bancorp Stock that would be issued in the Merger upon
conversion of the Stock Election Shares is less than the Total Stock
Consideration, then:
(A) all Stock Election Shares shall be converted into the right to
receive Bancorp Stock;
(B) the Exchange Agent shall select, by random selection, first,
from among the holders of No Election Shares and then (if necessary)
from among holders of Cash Election shares who have not further elected
the Proration Allocation, a sufficient number of such holders ("Stock
Designees") until the number of shares of Bancorp Stock that will be
issued in the Merger equals as closely as practicable the Total Stock
Consideration, and all shares held by the Stock Designees shall be
converted into the right to receive Bancorp Stock, provided that no
particular holder of Cash Election Shares shall be deemed to be a Stock
Designee if such designation would prevent the satisfaction of any of
the conditions set forth in Article 6;
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(C) After completion of the foregoing selection process, the Cash
Election Shares and No Election Shares not held by Stock Designees shall
be converted into the right to receive cash unless the number of shares
of Bancorp Stock that will be issued in the Merger is still less than
the Total Stock Consideration; and
(D) If the number of shares of Bancorp Stock that will be issued in
the Merger is less than the Total Stock Consideration after the
completion of the foregoing selection process, the holders of Cash
Election Shares who have further elected the Proration Allocation will
receive an amount of cash determined under Section 1.2(g)(iv). Such
holders shall also receive the number of shares of Bancorp Stock equal
to the quotient of (1) the amount by which (a) the product of the Per
Share Cash Consideration multiplied by the number of Cash Election
Shares as to which a Proration Allocation election has been made exceeds
(b) the cash to be received by such holders, divided by (2) the
Calculation Date Bancorp Stock Price.
(ii) Stock Elections More Than Total Stock Consideration. If the
number of shares of Bancorp Stock that would be issued in the Merger upon
conversion of the Stock Election Shares is greater than the Total Stock
Consideration, then:
(A) all Cash Election Shares shall be converted into the right to
receive cash;
(B) the Exchange Agent shall select, by random selection, first
from among the holders of the No Election Shares and then (if necessary)
from among holders of Stock Election Shares who have not further elected
the Proration Allocation, a sufficient number of such holders ("Cash
Designees") until the amount of cash that will be paid to Shareholders
in the Merger equals as closely as practicable the Total Cash
Consideration, and all shares held by the Cash Designees shall be
converted into the right to receive cash, provided that no particular
holder of Stock Election Shares shall be deemed to be a Cash Designee if
such designation would prevent the satisfaction of any of the conditions
set forth in Article 6;
(C) After completion of the foregoing selection process, the Stock
Election Shares and No Election Shares not held by Cash Designees shall
be converted into the right to receive Bancorp Stock unless the amount
of cash that will be paid to Shareholders in the Merger is still less
than the Total Cash Consideration; and
(D) If the amount of cash that will be paid to Shareholders in the
Merger is less than the Total Cash Consideration after the completion of
the foregoing selection process, the holders of Stock Election Shares
who have further elected the Proration Allocation will receive the
number of shares of Bancorp Stock determined under Section 1.2(g)(iv).
Such holders shall also receive the amount of cash equal to the product
of (1) the amount by which (a) the product of the Per Share Stock
Consideration multiplied by the number of Stock Election Shares as to
which a Proration Allocation has been made exceeds (b) the shares of
Bancorp Stock to be received by such holders, multiplied by (2) the
Calculation Date Bancorp Stock Price.
(iii) The random selection processes referred to above shall consist
of such selection processes as Bancorp and FPSB shall determine, after
consultation with the Exchange Agent, to be fair to the holders of FPSB
Stock in giving each such holder an equal likelihood to be selected and
practicable to implement.
(iv) Proration Allocation as referred to above in this Section 1.2
shall be effected by the Exchange Agent in the following manner:
(A) With respect to Section 2.1(g)(i), the Exchange Agent shall
allocate the portion of the Total Cash Consideration payable hereunder
among those holders of FPSB Stock who have elected both to receive cash
and to be subject to Proration Allocation by allocating to each such
Shareholder an amount equal to the Total Cash Consideration pursuant to
the limitations provided for in Section 1.2 (after subtracting amounts
payable in respect of Dissenting Shares and amounts paid in lieu of
fractional shares) multiplied by a fraction, the numerator of which is
the number of shares
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held by such holder as to which an election to be subject to Proration
Allocation has been made and the denominator of which is the total
number of shares as to which Proration Allocation has been elected by
all holders of FPSB Stock.
(B) With respect to Section 1.2(g)(ii), the Exchange Agent shall
allocate the portion of the Total Stock Consideration payable hereunder
among those holders of FPSB Stock who have both elected to receive
Bancorp Stock and to be subject to Proration Allocation by allocating to
each such Shareholder an amount equal to the Total Stock Consideration
pursuant to the limitations provided for in Section 1.2 multiplied by a
fraction, the numerator of which is the number of shares held by such
holder as to which an election to be subject to Proration Allocation has
been made and the denominator of which is the total number of shares as
to which Proration Allocation has been elected by all holders of FPSB
Stock.
(v) Notwithstanding any other provision of this Agreement, if the
application of the provisions of this Section 1.2(g) would result in any
person receiving a number of shares of Bancorp Stock that would prevent the
satisfaction of any of the conditions set forth in Article 6 hereof, the
number of shares otherwise allocable to such person pursuant to this
Section 1.2(g) shall be reduced by such number of shares (the "Excess
Shares") as shall be necessary to enable the satisfaction of all such
conditions and cash shall be paid to such person in lieu thereof in an
amount equal to the Per Share Cash Consideration for each such share. Any
Excess Shares shall be reallocated to and among the following categories of
holders of FPSB Stock, in the order and pursuant to the methods indicated
in the following clauses of this sentence: (A) first, by random selection
from among any holders of FPSB Stock who made a Stock Election, but were
initially selected as Cash Designees; (B) second, by random selection from
among the holders of No Election Shares who would otherwise receive cash
for their shares; (C) third, by random selection from among the holders of
Cash Election Shares who did not further elect the Proration Allocation
method and who would otherwise receive cash for their shares; and (D)
fourth, any remaining Excess Shares shall be apportioned among those
holders of FPSB Stock who have elected Proration Allocation, pro rata in
accordance with the number of shares of FPSB Stock held by each, with the
amount of cash otherwise payable to such holders as a result of Proration
Allocation being correspondingly reduced.
(h) Promptly after the Effective Time, Bancorp and FPSB shall cause the
Exchange Agent to mail appropriate and customary transmittal materials (which
shall specify that delivery shall be effected, and risk of loss and title to the
certificates theretofore representing shares of FPSB Stock shall pass, only upon
proper delivery of such certificates to the Exchange Agent) to the Shareholders
of record who have not previously submitted properly completed Election Form
accompanied by all certificates or other appropriate documentation. After
completion of the allocation procedure set forth in Section 1.2(g), each holder
of a certificate formerly representing FPSB Stock who surrenders or has
surrendered such certificate (or customary affidavits and indemnification
regarding the loss or destruction of such certificate), together with duly
executed transmittal materials included in the Election Form, to the Exchange
Agent shall, upon acceptance thereof, be entitled to a certificate representing
the Bancorp Stock or cash into which the shares of FPSB stock shall have been
converted pursuant hereto. Bancorp shall cause the Exchange Agent to accept such
certificate upon compliance with such reasonable and customary terms and
conditions as the Exchange Agent may impose to effect an orderly exchange
thereof in accordance with normal practices. Until surrendered as contemplated
by this Section 1.2(h), each certificate representing FPSB Stock shall be deemed
at any time after the Effective Time to evidence only the right to receive upon
such surrender the consideration specified under this Section 1.2.
(i) Upon the later to occur of the Effective Time and the completion of the
allocation procedure set forth in Section 1.2(g), Bancorp shall issue to the
Exchange Agent the number of shares of Bancorp Stock issuable in the Merger and
the amount of cash payable in the Merger; provided, however, that
notwithstanding any other provision of this Agreement, Bancorp shall not issue
to the Exchange Agent Bancorp Stock or cash payable with respect to shapes of
FPSB Stock unless and until share certificates and the required transmittal
materials pursuant to Section 1.2 have been received in proper form by the
Exchange Agent. The Exchange Agent shall not be entitled to vote or exercise any
rights of ownership with respect to Bancorp Stock held by it
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from time to time hereunder, except that it shall receive and hold all dividends
or other distributions paid or distributed with respect to such shares for the
account of the persons entitled thereto.
(j) To the extent provided by Section 1.2(g) of this Agreement, each holder
of shares of FPSB Stock issued and outstanding at the Effective Time also shall
receive, upon surrender of the certificate or certificates representing such
shares, cash in lieu of any fractional shares of Bancorp Stock to which such
holder would otherwise be entitled. Bancorp shall not be obligated to deliver
the consideration to which any former holder of FPSB Stock is entitled as a
result of the Merger until such holder surrenders that holder's certificate or
certificates representing shares of FPSB Stock for exchange as provided in this
Section 1.2. In addition, certificates surrendered for exchange by any person
constituting an "affiliate" of FPSB for purposes of Rule 145 under the
Securities Act of 1933, as amended (the "Securities Act"), shall not be
exchanged for certificates representing whole shares of Bancorp Stock until
Bancorp has received a written agreement from such person as provided in Section
5.15. If any certificate for shares of Bancorp Stock, or any check representing
cash or declared but unpaid dividends, is to be issued in a name other than that
in which a certificate surrendered for exchange is issued, the certificate so
surrendered shall be properly endorsed and otherwise in proper form for transfer
and the person requesting such exchange shall affix any requisite stock transfer
tax stamps to the certificate surrendered or provide funds for their purchase or
establish to the satisfaction of the Exchange Agent that such taxes are not
payable.
1.3 DISSENTERS. A "Dissenter" is a Shareholder who is entitled to dissent
from corporate action under 12 C.F.R. Section 552.14 and who exercises that
right when and in the manner required by that regulation. Each outstanding share
of FPSB Stock that is held by a Dissenter (a "Dissenting Share") shall be
converted into the right to receive payment pursuant to 12 C.F.R. Section
552.14.
1.4 RETURN OF SHARE CERTIFICATES. If this Agreement is terminated under
Article 8, Bancorp will cause the Exchange Agent to use its commercially
reasonable efforts to effect the prompt return of stock certificates
representing shares of FPSB Stock submitted with Election Forms. Certificates
representing shares of FPSB Stock held directly by holders of FPSB Stock will be
returned by registered mail. Bancorp will, and will cause the Exchange Agent to,
use its commercially reasonable efforts to cooperate with FPSB and holders of
FPSB Stock to facilitate return of certificates representing shares of FPSB
Stock in the event of such termination, provided, that return of such
certificates other than by registered mail will only be made at the expense
written direction and risk of the applicable holders of FPSB Stock and only if
such holders submit at the time of the Election Deadline a pre-paid,
pre-addressed courier envelope to be used for such purpose (except if such
holders arrange to pick up their certificates in person).
1.5 NO LIABILITY. Neither Bancorp nor FPSB shall be liable to any holder
of shares of FPSB Stock for any such shares of Bancorp Stock (or dividends or
distributions with respect thereto) or cash delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
1.6 WITHHOLDING RIGHTS. Bancorp and the Exchange Agent shall be entitled
to deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of FPSB Stock such amounts as Bancorp or the
Exchange Agent is required to deduct and withhold with respect to the making of
such payment under the Code (as defined in Section 3.13(g)) or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld by
Bancorp or the Exchange Agent, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the shares of
FPSB Stock in respect of which such deduction and withholding was made by
Bancorp or the Exchange Agent.
2. THE CLOSING
2.1 EFFECTIVE TIME. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place on a date to which Bancorp and
FPSB may agree (the "Closing Date"), provided that in the absence of an
agreement by the parties to the contrary such Closing Date shall be the
fifteenth business day after the latest to occur of satisfaction of the
conditions to Closing set forth in Article 6 (unless such condition has been
waived by the appropriate party).
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2.2 PROCEDURE. On or before the Closing Date, the Merger Agreement shall
be executed and filed for approval with the California Superintendent of Banks
(the "Superintendent") and then filed and certified by the California Secretary
of State. The certified Merger Agreement shall then be filed with the
Superintendent. The date and time of such filing of the certified Merger
Agreement is referred to in this Agreement as the "Effective Time." The Closing
shall be held at the offices of Heller, Ehrman, White & McAuliffe, 601 South
Figueroa Street, Los Angeles, California, or at such other place as to which the
parties shall agree.
3. REPRESENTATIONS AND WARRANTIES OF FPSB
FPSB makes the following representations and warranties to Bancorp and CB,
except as otherwise disclosed to Bancorp and CB in a schedule dated the date
hereof and delivered by FPSB to Bancorp and CB concurrently with the execution
of this Agreement, which schedule in each case specifically refers to the
section or sections of this Agreement to which an exception applies (the "FPSB
Schedule"):
3.1 DUE ORGANIZATION.
(a) FPSB is a United States federal savings bank, duly organized, validly
existing and in good standing under the federal laws of the United States of
America. FPSB has all requisite corporate power and authority to carry on its
businesses as now conducted and is qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which such
qualification is necessary under applicable law, except to the extent that the
failure to have such power or authority or to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect. The deposit
accounts of FPSB are insured by the Federal Deposit Insurance Corporation (the
"FDIC") to the fullest extent permitted under applicable law. FPSB has paid all
premiums and assessments and filed all required reports in connection with the
insurance of its deposits. FPSB is a member in good standing of the Federal Home
Loan Bank of San Francisco.
(b) FPSB has only one subsidiary, F.P. Service Corporation ("FPSC"), and
has made available to Bancorp true and complete copies of the Articles of
Incorporation and Bylaws of FPSC. FPSC is authorized to issue 10,000 shares of
common stock, without par value, all of which issued and outstanding shares are
owned directly by FPSB, free and clear of all security interests, liens, charges
and encumbrances. There are no other classes of capital stock of, or equity or
other ownership interests in, FPSC, and none of the shares of common stock are
held in treasury. FPSB has no direct or indirect equity interest in any other
firm, corporation, partnership, joint venture or business enterprise, except as
set forth in the FPSB Schedule. The ownership interest of FPSB in FPSC is not
subject to any legal, contractual or other limitations or restrictions. There
are no outstanding options, warrants or other rights to subscribe for or
purchase from FPSB or FPSC, or any plans, contracts or commitments providing for
the issuance of, or the granting of rights to acquire, (a) any capital stock of
or other ownership interest in FPSC or (b) any securities convertible into or
exchangeable for any capital stock of or other ownership interest in FPSC. All
of the outstanding shares of the capital stock of FPSC have been validly
authorized and issued, are fully paid and nonassessable and were not issued in
violation of any preemptive rights. FPSC is duly organized, validly existing and
in good standing under the laws of California and functions solely as the
trustee under deeds of trust assigned as collateral to FPSB. FPSC has all
requisite corporate power and authority to own or lease all of its properties
and assets and to carry on its business as now conducted. FPSC is duly licensed
or qualified to do business and is in good standing in each jurisdiction in
which its ownership or leasing of property or the conduct of its business
requires such licensing or qualification and where the failure to be so
licensed, qualified or in good standing would have a Material Adverse Effect on
the financial condition, results of operations, business or prospects of FPSC.
3.2 BINDING EFFECT. Subject to approval of the Shareholders, this
Agreement has been duly and validly authorized, executed and delivered by FPSB
and constitutes the valid and binding obligation of FPSB, enforceable against
FPSB in accordance with its terms, except as may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting the rights of
creditors generally, by the availability of equitable remedies, and by the
discretion of the court or arbitrator before whom a proceeding may be brought.
Neither the execution and delivery of this Agreement by FPSB, nor the
consummation by it of the transactions contemplated hereby, nor compliance by it
with any of the provisions hereof will (a) conflict with
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or result in a breach of any provision of the FPSB's Federal Stock Charter or
Bylaws, or (b) constitute or result in the breach of any term, condition or
provision of, or constitute a default under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any lien, charge or encumbrance upon any property or assets of FPSB
pursuant to any note, bond, mortgage, indenture, license, agreement, lease or
other instrument or obligation to which FPSB is a party or by which any of its
properties or assets may be bound, except such notes bonds, mortgages,
indentures, licenses, agreements, leases and other instruments or obligations
the violation of which would not have, individually or in the aggregate, a
Material Adverse Effect, or (iii) violate any order, writ, injunction, judgment,
decree, statute, rule or regulation applicable to FPSB or any of its properties
or assets, subject to obtaining the requisite Regulatory Approvals (as defined
in Section 5.2).
3.3 CAPITALIZATION. The authorized capital stock of FPSB consists solely
of 10,000,000 shares of FPSB Stock, of which 4,000,000 shares are issued and
outstanding. FPSB has no stock appreciation or similar rights outstanding. All
of the issued and outstanding shares of FPSB Stock have been validly authorized
and issued, are fully paid and nonassessable and were not issued in violation of
any preemptive rights. There are no outstanding subscriptions, options, rights,
warrants, convertible securities or other agreements or commitments obligating
FPSB to issue any additional shares of FPSB's capital stock, and no unissued
shares of FPSB Stock are subject to any preemptive rights. There are no
outstanding contractual obligations of FPSB to repurchase, redeem or otherwise
acquire any outstanding shares of capital stock of or other ownership interest
in FPSB. Except as set forth in the FPSB Schedule, as of the date hereof no
person holds of record, or to the best knowledge of FPSB, beneficially, five
percent or more of the outstanding shares of FPSB Stock.
3.4 FINANCIAL STATEMENTS AND REPORTS.
(a) FPSB has delivered to Bancorp FPSB's audited statements of financial
condition as of December 31, 1995, 1994 and 1993, and its statements of
earnings, changes in financial position (or cash flows, as applicable) and
shareholders' equity for the years ended December 31, 1995, 1994 and 1993
(collectively, the "Financial Statements"). The Financial Statements have been
prepared from the books and records of FPSB, present fairly the financial
condition and operating results of FPSB as of the dates and during the periods
indicated and have been prepared in accordance with generally accepted
accounting principles and with the regulations promulgated by applicable
regulatory authorities, to the extent then applicable, consistently applied
throughout the periods covered, except as stated therein, and disclose all
liabilities required to be disclosed therein except liabilities which are not,
individually or in the aggregate, material to FPSB. Since December 31, 1995,
there has not been any material adverse change in the business, operations,
prospects, properties, assets or condition (financial or otherwise) of FPSB.
(b) Since January 1, 1991, no registration statement, offering circular,
proxy statement, schedule or report prepared by or on behalf of FPSB (whether or
not filed with the OTS), contained any untrue statement of a material fact or
omitted 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. Since January 1, 1991, FPSB and any predecessor has filed
all documents required to be filed by FPSB with the OTS, except to the extent
that all failures so to file would not, individually or in the aggregate, have a
Material Adverse Effect; and all such documents, as finally amended or
corrected, complied in all material respects as to form with applicable
requirements of law. Except to the extent stated therein all financial
statements and related schedules included in the documents referred to in the
preceding sentence were prepared in accordance with generally accepted
accounting principles or such other regulatory accounting requirements as were
applicable thereto (except that unaudited interim financial statements were
condensed and omitted normal footnote disclosures), consistently applied
throughout the periods covered, and fairly presented the information purported
to be shown therein. FPSB Stock is not required to be registered under Section
12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (as
applied to FPSB by 12 C.F.R. Section 563d.1), and FPSB is not required to file
periodic reports with the OTS pursuant to Section 13 or 15(d) of the Exchange
Act (as applied to FPSB by 12 C.F.R. Section 563d.1).
3.5 BOOKS AND RECORDS; OTHER INFORMATION. The minute books of FPSB
constitute materially true and accurate records of all meetings and actions
taken by the Board of Directors and shareholders of FPSB. The
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copies of the Federal Stock Charter and Bylaws of FPSB and amendments thereto,
delivered to Bancorp are true and complete copies, and such Charter and Bylaws
are in full force and effect. All documents and other information as to existing
facts relating to FPSB provided to Bancorp by FPSB are, taken as a whole,
accurate and complete in all material respects.
3.6 PROPERTIES: CONTRACTS.
(a) FPSB has good and marketable title to, or a leasehold interest in, or a
contract vendee's interest in, the real properties (including, but not limited
to, all offices, branches and automated teller machine facilities) used in the
business of FPSB, including the real properties reflected in the December 31,
1995 balance sheet constituting part of the Financial Statements free and clear
of all security interests, liens, charges or other encumbrances, except those
related to real property taxes, local improvement district assessments (if any),
easements, covenants, restrictions and other matters of record which do not
individually or in the aggregate materially adversely affect the use and
enjoyment of the relevant real property, and except real properties that have
been disposed of since December 31, 1995 in the ordinary course of business. The
FPSB Schedule lists all real properties owned or leased by FPSB. Except as set
forth in the FPSB Schedule, FPSB does not maintain any other office or conduct
business at any other location, whether through an automated teller machine or
otherwise, nor has FPSB applied for or received permission to open any
additional branches or operate at any other location.
(b) All properties and assets held by FPSB under lease are held under valid
instruments enforceable in accordance with their terms, except as may be limited
by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting
the rights of creditors generally or equitable principles limiting the right to
obtain specific performance, and except as to such provisions the
unenforceability of which would not have a Material Adverse Effect. The FPSB
Schedule lists all personal property assets held by FPSB under lease, and a true
and correct copy of each such lease has been delivered to Bancorp.
(c) The FPSB Schedule lists all unfunded loan commitments entered into
after December 31, 1995 and outstanding as of the date hereof. The FPSB Schedule
sets forth a complete and correct list of all of the agreements and other
documents in the following classifications to which FPSB is a party or by which
FPSB or any material amount of its assets is bound; complete and correct copies
(in the case of any of the following that are in writing) or descriptions (in
the case of any of the following that are not in writing) of each of such
agreements and documents, as in effect on the date hereof, have been made
available to Bancorp:
(i) any plan, contract or arrangement providing for insurance for any
officer, consultant, director or employee of FPSB or members of their
families (other than directors and officers' liability policies);
(ii) except for deposit documentation, any contract, agreement or
instrument evidencing or relating to any outstanding indebtedness of FPSB
for borrowed money or the deferred purchase price of property, or any
direct or indirect guarantee by FPSB of any such indebtedness in any such
case, in an amount in excess of $50,000, or under which FPSB has the right
or obligation to incur any such indebtedness or guarantee in an amount in
excess of $50,000;
(iii) any secrecy, noncompetition or other agreement that (A)
restricts the right of FPSB to engage in any place in any line of business
or (B) would restrict the right of Bancorp or any of its affiliates or
direct or indirect subsidiaries to engage in any place in any line of
business after the Closing;
(iv) any license, sublicense or other agreement to which FPSB is a
party (whether as licensor or licensee) relating to "Intellectual Property"
that is used in and material to the business of FPSB. "Intellectual
Property" means patents, patent applications, trade names, trademarks
(whether or not registered), trademark applications, service marks (whether
or not registered), copyrights (whether registered or unpublished),
copyright applications, inventions, processes and other trade secret and
proprietary intellectual property, including without limitation proprietary
computer software, whether in object or source form;
(v) any contract, commitment or agreement that involves (A) capital
expenditures by FPSB after December 31, 1995 of more than $50,000 in the
aggregate or (B) disposition after December 31, 1995 of
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any material amount of the assets of FPSB not in the ordinary course of
business consistent with past practice; or
(vi) any other contract, agreement, plan, commitment or instrument not
of a type covered by or specifically excluded from the coverage of any of
the other items of this Section 3.6(c) (other than agreements entered into
with counsel and other advisers related to the Merger) and (A) involving
future payment by or to FPSB of more than $50,000 in the aggregate or (B)
having a remaining term of more than 12 months and not terminable on less
than 90 days notice.
There is no breach, violation or default, or allegation or assertion of
such, by FPSB or by any other party under any such contract listed in the FPSB
Schedule pursuant to this Section 3.6(c).
(d) All buildings and other facilities used in the business of FPSB are
adequately maintained and are free from defects which could materially interfere
with the current or future use of such facilities. All water, sewer, gas,
electricity, telephone and other utilities required by law or necessary for the
operations of such business are supplied to such buildings and facilities and
are presently installed and operating, and all installation and connection
charges have been paid in full or accrued. All material assessments for public
improvements that have been made against the properties of FPSB have been paid
or provided for, except that in the case of any assessments that are payable in
installments, all installments due as of the date hereof have been paid or
accrued.
3.7 COMPLIANCE WITH LAWS.
(a) FPSB is in compliance with all laws, regulations, reporting and
licensing requirements and orders applicable to its business or properties or
any of its employees (because of such employee's activities on behalf of it),
including, without limitation, those relating to wage and hour, labor and
employment practices, equal opportunity, affirmative action and the Immigration
Reform and Control Act, the breach or violation of which could, individually or
in the aggregate, have a Material Adverse Effect.
(b) FPSB has not received any notification from any agency or department of
any federal, state, local or foreign government or any regulatory authority or
the staff thereof asserting that FPSB is not presently in compliance with any of
the statutes, regulations or ordinances that such governmental or regulatory
authority enforces, noncompliance with which could have, individually or in the
aggregate, a Material Adverse Effect, nor is FPSB aware of any basis for any
such assertion. FPSB is not subject to any agreement with any regulatory
authority with respect to its assets or business that imposes any material
restriction on the conduct of its business. FPSB has no material uncorrected
deficiency from any federal or state banking regulatory examination report,
except with respect to matters that have been disclosed in writing to Bancorp.
(c) Since January 1, 1991, FPSB has materially complied with all applicable
California laws and regulations (i) regarding charges, and the waiver of such,
for checking account overdrafts or checks returned due to insufficient funds,
and (ii) regarding the calculation of interest on loans and deposits.
3.8 MATERIAL CONTRACT DEFAULTS. FPSB is not in default under any contract,
agreement, indenture, mortgage, deed of trust, loan instrument, commitment,
arrangement, lease, insurance policy or other instrument to which it is a party
or by which its respective properties or assets may be bound or affected or
under which it or its respective business, properties or assets receive
benefits, which default would be likely, individually or in the aggregate for
all such defaults, to have a Material Adverse Effect, and, to the best knowledge
of FPSB, there has not occurred any event that with the lapse of time or the
giving of notice or both would constitute such a default.
3.9 ABSENCE OF CERTAIN CHANGES. There has not been since December 31,
1995:
(a) any change in the business, financial condition, results of
operations or prospects of FPSB that has had or may reasonably be expected
to have, together with all other such changes, a Material Adverse Effect;
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(b) any direct or indirect redemption purchase or other acquisition of
shares of FPSB's capital stock, convertible securities or securities
exercisable for capital stock of FPSB by FPSB or any declaration, setting
aside or payment of any dividend;
(c) any increase in the compensation payable or to become payable by
FPSB to any of its respective officers, employees or agents, other than in
accordance with past practices or as set forth in employment agreements,
the forms of which have been delivered to Bancorp together with a list of
those persons who are parties thereto, and normal cost-of-living, merit and
regularly scheduled increases;
(d) any amendment or termination of any note, bond, mortgage,
indenture, license, agreement, lease or other instrument or obligation to
which FPSB is a party or by which any of its properties or assets may be
bound, other than amendments or terminations which do not and will not,
individually or in the aggregate, have a Material Adverse Effect;
(e) any establishment of any new or material modification of any
currently existing Plan (as defined in Section 3.13), except as set forth
in the FPSB Schedule;
(f) any amendment to the Federal Stock Charter or Bylaws of FPSB;
(g) any change by FPSB in accounting principles or methods, except as
required by Financial Accounting Standards Board to comply with generally
accepted accounting principles or by OTS regulations;
(h) any pledge, disposition or acquisition by FPSB of an asset or
assets material to FPSB, except sales of foreclosed properties in the
ordinary course of business;
(i) any discharge or satisfaction of a material liability of FPSB or
FPSC; or
(j) any damage, destruction or other casualty loss (whether or not
covered by insurance) which has or can reasonably be expected to have a
Material Adverse Effect.
3.10 LITIGATION.
(a) There are no pending or, to the best knowledge of FPSB, threatened
private or governmental suits, claims, actions, proceedings, arbitrations or
investigations against FPSB, including without limitation those relating to
unfair labor practice charges, complaints of discrimination, workers'
compensation or unemployment claims, except for normal regulatory examinations
and visits (with respect to which FPSB is not aware of any material matters
under discussion with any of the relevant governmental authorities) and except
for matters arising in the ordinary course of business that are not expected to
have a Material Adverse Effect.
(b) Neither FPSB nor, to the best knowledge of FPSB, any officer, director
or employee, has been permanently or temporarily enjoined by any order, judgment
or decree of any court or other tribunal or any governmental or regulatory
agency, authority or body from engaging in or continuing any conduct or practice
in connection with the business, assets or properties of FPSB.
(c) There is no order, judgment or decree of any court or other tribunal or
any governmental or regulatory agency, authority or body ordering FPSB to take
any action of any kind with respect to its business assets or properties or
otherwise involving FPSB or any of its assets or properties.
3.11 CONTINGENT LIABILITIES. FPSB is not subject to any material
contingent liabilities of any nature (whether or not required to be disclosed
under Financial Accounting Standards Board Statement No. 5) other than those
reflected in or adequately reserved against in FPSB's Financial Statements.
3.12 TAXES.
(a) Definitions. For purposes of this Section 3.12, the following
definitions shall apply:
(1) The term "Group" shall mean, individually and collectively, (i)
FPSB and (ii) any individual, trust, corporation, partnership or any other
entity as to which FPSB is liable for Taxes incurred by such individual or
entity either as a transferee, or pursuant to Treasury Regulations Section
1.1502-6, or pursuant to any other provision of federal, territorial,
state, local or foreign law or regulations.
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(2) The term "Taxes" shall mean all taxes, however denominated,
including any interest, penalties or other additions that may become
payable in respect thereof, imposed by any federal, territorial, state,
local or foreign government or any agency or political subdivision of any
such government, which taxes shall include, without limiting the generality
of the foregoing, all income or profits taxes (including, but not limited
to, federal income taxes and state income taxes), payroll and employee
withholding taxes, unemployment insurance, social security taxes, sales and
use taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts
taxes, business license taxes, occupation taxes, real and personal property
taxes, stamp taxes, environmental taxes, transfer taxes, workers'
compensation, Pension Benefit Guaranty Corporation premiums and other
governmental charges, and other obligations of the same or of a similar
nature to any of the foregoing, which the Group is required to pay withhold
or collect.
(3) The term "Returns" shall mean all reports, estimates, declarations
of estimated tax, information statements and returns, whether consolidated
or unconsolidated, relating to, or required to be filed in connection with,
any Taxes.
(b) The Group has timely filed all Returns required to be filed, and the
information contained in each such Return is complete and accurate in all
material respects.
(c) The Group has paid, or has set up adequate reserves for the payment of,
all Taxes required to be paid in respect of the periods covered by such Returns
and has set up adequate reserves for the payment of all other Taxes payable in
respect of the period subsequent to the last of such periods and the Group has
no material liability for such Taxes (and, to the best knowledge of FPSB there
is no potential material liability in respect of deductions, costs or other
allowances taken for federal income tax purposes likely to be disallowed in any
audit by the Internal Revenue Service) in excess of the amounts so paid or
reserves so established.
(d) The Group is not delinquent in the payment of any Taxes, and it has not
requested any extension of time within which to file any Returns that have not
since been filed, and no material deficiencies for any Taxes have been claimed,
proposed or assessed. Since December 31, 1990, the Group has not agreed to any
extension of time for the assessment or payment of any Taxes payable by it.
(e) There are no pending or, to the best of the Group's knowledge,
threatened tax audits, investigations or claims for or relating to any material
liability in respect of Taxes, and there are no matters under discussion with
any governmental authorities with respect to Taxes that are likely to result in
a material further tax liability.
(f) Since January 1, 1990, the Group's federal income tax returns have not
been audited by the Internal Revenue Service, and its California tax returns
have not been audited by the Franchise Tax Board of the State of California.
(g) Since FPSB's inception, it has been a "domestic building and loan
association" as defined in Section 7701(a)(19) of the Code. Bancorp is not
required to withhold tax on the purchase of FPSB Stock by reason of Section 1445
of the Code. No member of the Group is a "consenting corporation" under Section
341(f) of the Code. The Group has not entered into any compensatory agreements
with respect to the performance of services under which any payment would result
in a nondeductible expense to the Group pursuant to Section 280G of the Code or
an excise tax to the recipient of such payment pursuant to Section 4999 of the
Code. FPSB has not, for 1996, received an "express determination letter" from
the OTS that would support FPSB's use of the "conformity method" in connection
with its deductions for bad debts for purposes of the Code. FPSB has taken all
actions, or by the Closing will have taken all actions, necessary to terminate
any election to use the conformity method.
3.13 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Except as set forth in the FPSB Schedule, FPSB is not a party to (i)
any "employee benefit plan" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) any profit
sharing, pensions, deferred compensation, bonus, stock option, stock purchase,
severance, retainer, consulting, "cafeteria" benefits under Section 125 of the
Code, health, welfare or incentive plan or agreement, whether legally binding or
not, including any post-employment benefits, (iii) any plan,
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agreement, contract, program, arrangement, or policy providing for "fringe
benefits" to its employees, including but not limited to vacation, paid
holidays, personal leave, employee discount, educational benefit or similar
programs, or (iv) any employment agreement (individually a "Plan", and
collectively the "Plans").
(b) FPSB(i) has not made any contributions to, (ii) has never been a member
of a controlled group which contributed to, and (iii) has never been under
common control with an employer that contributed to any "multiemployer plan" as
that term is defined in Section 3(37) of ERISA.
(c) All contributions to each Plan for all periods ending prior to the
Closing Date (including periods from the first day of the current plan year to
the date immediately preceding the Closing Date) will be made prior to the
Closing Date by FPSB in accordance with past practice and the recommended
contribution in any applicable actuarial report.
(d) All insurance premiums have been paid in full, subject only to normal
retrospective adjustments in the ordinary course, with regard to the Plans for
policy years or other applicable policy periods ending before the Closing Date
and have been paid as required under the policies for policy years or other
applicable policy periods beginning on or before the Closing Date and ending on
or after the Closing Date.
(e) With respect to each Plan:
(i) it has been administered in accordance with its terms and
applicable laws and regulations, and no event has occurred which, through
the passage of time or the giving of notice, or both, would constitute a
default of a term or condition thereunder or would cause the acceleration
of any obligation of any party thereto;
(ii) no action or claims (other than routine claims for benefits made
in the ordinary course of Plan administration for which Plan administrative
review procedures have not been exhausted) are pending, threatened or
imminent against or with respect to the plan, any employer who is
participating (or who has participated) in any Plan or any fiduciary of the
Plan; and
(iii) FPSB has no any knowledge of any facts which could give rise to
any such action or claim.
(f) True, correct and complete copies of all documents creating or
evidencing any Plan have been delivered to Bancorp. There are no negotiations,
demands or proposals which are pending or have been made which concern matters
now covered, or that would be covered, by the type of agreements that would be
Plans as defined in Section 3.13(a).
(g) All expenses and liabilities relating to all of the Plans have been,
and will on the Closing Date be, fully and properly accrued on FPSB's books and
records.
3.14 BROKER'S AND FINDER'S FEES. Except with respect to the engagement of
Montgomery Securities, neither FPSB nor anyone acting on its behalf has or will
have any liability to any broker, finder, agent or other person (other than
legal and accounting advisers), nor have any of them agreed to pay any brokerage
fee, finder's fee or commission, with respect hereto or to the transactions
contemplated hereby.
3.15 LABOR RELATIONS. FPSB is not a party to and is not affected by or
threatened with any collective bargaining agreement or any dispute or
controversy with a union or with respect to unionization or collective
bargaining involving it. There are no union organizing or election activities
which have occurred or, to the knowledge of FPSB, are contemplated relating to
FPSB as of the date hereof. As of the date hereof, no material labor dispute,
strike or other work stoppage has occurred and is continuing or has been
threatened with respect to FPSB.
3.16 REGISTRATION STATEMENT AND REGULATORY APPLICATIONS.
(a) When the Prospectus/Proxy Statement referred to in Section 5.1, or any
amendment or supplement thereto, shall be mailed to the Shareholders, and at all
times after such mailing up to and including the date on which the Shareholders
will consider the Merger and related matters ("FPSB Meeting Date"), (i) such
Prospectus/Proxy Statement and all amendments or supplements thereto, with
respect to all information set forth therein provided by, and relating to, FPSB
and in respect of this Agreement, will comply in all material
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respects with the provisions (to the extent applicable) of the Securities Act,
the Exchange Act and the rules and regulations of the SEC and the Office of
Thrift Supervision ("OTS") thereunder, and (ii) the information relating to FPSB
and in respect of this Agreement set forth in the Prospectus/Proxy Statement as
filed with the SEC and OTS under the Securities Act and the Exchange Act and the
Registration Statement as filed with the SEC under the Securities Act, will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein not misleading or to correct any earlier communication with respect to
the same meeting or subject matter.
(b) When each of the applications for the Regulatory Approvals is filed, or
amended or supplemented, the information provided by, and relating to, FPSB and
in respect of this Agreement will comply in all material respects with the
relevant laws and regulations 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 therein not misleading or to correct any
earlier statements with respect to the same application or subject matter.
(c) The execution, delivery and performance of this Agreement by FPSB do
not, and the consummation by FPSB of the Merger will not, require any filing by
FPSB with or approval, consent authorization or other action with respect to
FPSB by, any governmental agency, other than (i) the filing of the articles of
merger with the OTS and the Secretary of State of California and (ii) any filing
approval, consent, authorization or action that would not generally be required
if persons other than Bancorp were to acquire FPSB pursuant to the terms of this
Agreement.
3.17 INSURANCE. FPSB is insured against all risks normally insured against
by institutions in similar lines of business. All such insurance policies and
bonds maintained by FPSB are listed in the FPSB Schedule and in full force and
effect. As of the date hereof, FPSB has not received any notice of cancellation
or material amendment of any such insurance policy or bond, is not in default
under any such policy or bond, no coverage thereunder is being disputed, and all
material claims thereunder have been filed in timely fashion.
3.18 EMPLOYMENT AND SIMILAR AGREEMENTS; OBLIGATIONS UPON CHANGE IN
CONTROL. Except as set forth in the FPSB Schedule, there are no employment,
consulting, severance or indemnification arrangements, agreements or
understandings ("Employee Agreements") between FPSB and any officer (including
"executive officers" as defined under the Exchange Act) or employee of FPSB or
any other party. Except as set forth in the FPSB Schedule, there are no such
Employee Agreements or other arrangements, and agreements (i) under which the
change in control resulting from the Merger will require any payment by FPSB or
Bancorp to any director, officer (including executive officers) or employee of
FPSB or any other party, or (ii) under which there will occur any acceleration
or change in the award, grant, vesting or determination of options warrants,
rights, severance payments, or other contingent obligations of any nature
whatsoever of FPSB in favor of any such parties. Without limiting the foregoing,
no payment to be made by FPSB prior to or after the Closing pursuant to the
Employment Agreements will be characterized as an "excess parachute payment"
within the meaning of Section 280G(b)(l) of the Code. Except as set forth in the
FPSB Schedule, FPSB has no knowledge of any agreements or understandings with
any employee, which are inconsistent with the status of all employees, including
officers of FPSB, being at-will.
3.19 HAZARDOUS MATERIALS. None of FPSB, any current or former subsidiary,
or any other person having an interest in property that FPSB, or such
subsidiary, owns or leases or has owned or leased or in which FPSB or any
subsidiary holds any security interest, mortgage, or other lien or interest
("Property") has engaged in the generation, use, manufacture, treatment,
transportation, storage in tanks or otherwise, or disposal of Hazardous Material
(as defined below) on or from such Property, and no (a) presence, release,
threatened release, discharge, spillage or migration of Hazardous Material, (b)
condition that could result in any use, ownership or transfer restriction, or
(c) condition of nuisance has occurred on or from such Property, which,
individually or in the aggregate, would constitute a Material Adverse Effect,
and neither FPSB nor any such subsidiary has received notice of, or has reason
to know of, a condition that could give rise to any private or governmental
suit, claim, action, proceeding or investigation against FPSB, any such
subsidiary, any other person or such Property as a result of any of the
foregoing events. With respect to any Property in which FPSB or a subsidiary
holds a security interest, mortgage or other lien or interest and which neither
FPSB nor any
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current or former subsidiary has owned or leased, FPSB makes the foregoing
representation and warranty to the best of its knowledge. "Hazardous Material"
shall mean any substance, chemical, waste or other material which is listed,
defined or otherwise identified as hazardous, toxic or dangerous under any
applicable law, regulation or order of any governmental body; as well as any
asbestos, petroleum, petroleum product or by-product, crude oil, natural gas,
natural gas liquids, liquefied natural gas, or synthetic gas useable for fuel,
and "source," "special nuclear," and "by-product" material as defined in the
Atomic Energy Act of 1985, 42 U.S C. sec.sec. 3011 et seq.
3.20 CERTAIN INTERESTS. Except in arm's-length transactions pursuant to
normal commercial terms and conditions, no officer, director or employee of
FPSB, or any affiliate thereof, has any material interest in any property, real
or personal, tangible or intangible, used in or pertaining to the business of
FPSB; no such person is indebted to FPSB except for normal business expense
advances; and FPSB is not indebted to any such person except for amounts due
under normal salary or reimbursement of ordinary business expenses. As used in
this Section, "affiliate" means the spouse and children of a person, and any
relative of the person or the spouse living in the person's home, and any
corporation, partnership or other entity of which the person is an officer,
director, general partner or the owner of five percent or more of the voting
stock or other equity interest, directly or indirectly.
3.21 FAIRNESS OPINION. FPSB has received an opinion of Montgomery
Securities that the proposed Total Consideration Value to be received by the
Shareholders is fair from a financial point of view to the Shareholders who
would receive such consideration.
3.22 MATERIALITY. All representations and warranties made by FPSB in and
pursuant to this Agreement are agreed to be based on the best knowledge of the
directors and executive officers of FPSB and, where applicable, to be based upon
actions taken and decisions within their informed business judgment and
consistent with past practices. Furthermore, no representation or warranty shall
be deemed untrue or incorrect, and FPSB shall not be deemed to have breached any
such representation or warranty on account of the existence of any fact,
circumstance or event unless, as a consequence of such fact, circumstance or
event, individually or taken together with all other facts, circumstances or
events inconsistent with any such representation or warranty as applicable,
there is reasonably likely to occur a Material Adverse Effect.
4. REPRESENTATIONS AND WARRANTIES OF BANCORP
(a) Bancorp and CB make the following representations and warranties to
FPSB, except as otherWise disclosed to FPSB in a schedule dated the date hereof
and delivered by Bancorp to FPSB concurrently with the execution of this
Agreement, which schedule in each case specifically refers to the section or
sections of this Agreement to which an exception applies (the "Bancorp
Schedule"):
4.1 ORGANIZATION.
(a) Bancorp is a corporation duly organized, validly existing and in good
standing under the laws of the state of Delaware. Bancorp has all requisite
corporate power and authority to carry on its businesses as now conducted and is
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which such qualification is necessary under applicable law,
except to the extent that the failure to have such power or authority or to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect. Bancorp has the corporate power and authority to execute and
deliver this Agreement and perform its obligations hereunder.
(b) CB is a California banking corporation, duly organized, validly
existing and in good standing under the laws of the state of California. CB has
all requisite corporate power and authority to carry on its businesses as now
conducted and is qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which such qualification is necessarily
under applicable law, except to the extent that the failure to have such power
or authority or to be so qualified would not, individually or in the aggregate,
have a Material Adverse Effect. The deposit accounts of CB are insured by the
FDIC to the fullest extent permitted under applicable law. CB has paid all
premiums and assessments and filed all required reports in connection
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with the insurance of its deposits. Subject to approval by its sole shareholder,
CB has the corporate power and authority to execute and deliver this Agreement
and perform its obligations hereunder.
(c) CB has only one subsidiary, Cathay Investment Company ("CIC") and has
made available to FPSB true and complete copies of the Articles of Incorporation
and Bylaws of CIC. Bancorp owns directly or indirectly all of the outstanding
capital stock of, and all other ownership interests in, CB. CB owns directly or
indirectly all of the outstanding capital stock of, and all other ownership
interests in, CIC. There are no outstanding options, warrants or other rights to
subscribe for or purchase the capital stock of CB or CIC. All of the outstanding
shares of the capital stock of CB and CIC have been validly authorized and
issued, are full paid and nonassessable and were not issued in violation of any
preemptive rights. CIC is duly organized, validly existing and in good standing
under the laws of California. CIC has all requisite corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as now conducted. CIC is duly licensed or qualified to do business and
is in good standing in each jurisdiction in which its ownership or leasing of
property or the conduct of its business requires such licensing or qualification
and where the failure to be so licensed, qualified or in good standing would
have a Material Adverse Effect on the financial condition, results of
operations, business or prospects of CIC.
4.2 BINDING EFFECT. Subject to the approval of the sole shareholder of CB,
this Agreement has been duly and validly authorized, executed and delivered by
Bancorp and CB and constitutes the valid and binding obligation of Bancorp and
CB, enforceable against Bancorp and CB in accordance with its terms, except as
may be limited by bankruptcy, insolvency, moratorium, reorganization or similar
laws affecting the rights of creditors generally, by the availability of
equitable remedies, and by the discretion of the court or arbitrator before whom
a proceeding may be brought. In addition, enforceability may be limited by
considerations of public policy under the Securities Act and the Exchange Act,
because of the inclusion of Article 7 in the Agreement. Neither the execution
and delivery of this Agreement by Bancorp and CB, nor the consummation by them
of the transactions contemplated hereby, nor compliance by them with any of the
provisions hereof will (a) conflict with or result in a breach of any provision
of Bancorp's Certificate of Incorporation or Bylaws or CB's Articles of
Incorporation or Bylaws, or (b) constitute or result in the breach of any term,
condition or provision of, or constitute a default under, or give rise to any
right of termination, cancellation or acceleration with respect to, or result in
the creation of any lien, charge or encumbrance upon any property or assets of
Bancorp or CB pursuant to any note, bond, mortgage, indenture, license,
agreement, lease or other instrument or obligation to which Bancorp or CB is a
party or by which any of their properties or assets may be bound, except such
notes, bonds, mortgages, indentures, licenses, agreements, leases and other
instruments or obligations the violation of which would not have, individually
or in the aggregate, a Material Adverse Effect, or (c) violate any order, writ,
injunction, judgment, decree, statute, rule or regulation applicable to Bancorp
or CB or any of their respective properties or assets, subject to obtaining the
requisite Regulatory Approvals.
4.3 CAPITALIZATION. The authorized capital stock of Bancorp consists of
10,000,000 shares of preferred stock, $0.01 par value per share, of which no
shares were issued and outstanding on March 31, 1996, and 25,000,000 shares of
Bancorp Stock, of which 7,880,102 shares were issued and outstanding as of March
31, 1996. The Bancorp Stock to be issued to the Shareholders pursuant to the
provisions of this Agreement has been duly authorized, will be validly issued,
fully paid and nonassessable and will not be issued in violation of any
preemptive rights. Except as disclosed in Bancorp's Form 10-K for the year ended
December 31, 1995 and except for Bancorp's Employee Stock Ownership Plan and
Trust and Dividend Reinvestment Plan, there are no outstanding subscriptions,
options, rights, warrants, convertible securities or other agreements or
commitments obligating Bancorp to issue any additional shares of Bancorp's
capital stock, and no unissued shares of Bancorp Stock are subject to any
preemptive rights. There are no outstanding contractual obligations of Bancorp
to repurchase, redeem or otherwise acquire any outstanding shares of capital
stock of or other ownership interest in Bancorp. The Bancorp Stock is registered
under Section 12(g) of the Exchange Act and Bancorp is subject to the periodic
reporting requirements of Section 13 of the Exchange Act.
4.4 FINANCIAL STATEMENTS AND REPORTS.
(a) Bancorp has delivered to FPSB Bancorp's audited consolidated balance
sheets as of December 31, 1995, 1994 and 1993, and its statements of earnings,
changes in financial position (or cash flows, as
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applicable) and stockholders' equity for the years ended December 31, 1995, 1994
and 1993. Such financial statements have been prepared from the books and
records of Bancorp and its subsidiaries, present fairly the financial condition
and operating results of Bancorp and its subsidiaries as of the dates and during
the periods indicated and have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
covered, except as stated therein, and disclose all liabilities required to be
disclosed therein except liabilities which are not, individually or in the
aggregate, material to Bancorp. Since December 31, 1995, there has not been any
material adverse change in the business, operations, prospects, properties,
assets or condition (financial or otherwise) of Bancorp.
(b) Since January 1, 1991, no registration statement, offering circular
proxy statement, schedule or report prepared by or on behalf of Bancorp,
contained any untrue statement of a material fact or omitted 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. Since
January 1, 1991, Bancorp has timely filed all Securities and Exchange Commission
("SEC") reports or such other communications required by the SEC to be filed by
it under the Securities Act and the Exchange Act, and, as of their respective
dates, all such SEC reports and communications complied as to form in all
material respects with the published rules and regulations of the SEC with
respect thereto. Since January 1, 1991, Bancorp, CB and any predecessor has
filed all documents required to be filed by Bancorp or CB with the FDIC or the
Board of Governors of the Federal Reserve System or the Federal Reserve Bank of
San Francisco ("FRB") except to the extent that all failures so to file would
not, individually or in the aggregate, have a Material Adverse Effect; and all
such documents, as finally amended or corrected, complied in all material
respects as to form with applicable requirements of law. Except to the extent
stated therein, all financial statements and related schedules included in the
documents referred to in the preceding sentence were prepared in accordance with
generally accepted accounting principles or such other regulatory accounting
requirements as were applicable thereto (except that unaudited interim financial
statements were condensed and omitted normal footnote disclosures), consistently
applied throughout the periods covered, and fairly presented the information
purported to be shown therein.
4.5 BOOKS AND RECORDS; OTHER INFORMATION. The minute books of Bancorp and
CB constitute materially true and accurate records of all meetings and actions
taken by the Board of Directors and shareholders of Bancorp and CB. The copies
of the Certificate of Incorporation and Articles of Incorporation, as
applicable, and Bylaws of Bancorp and CB and amendments thereto delivered to
FPSB are true and complete copies, and such Certificate of Incorporation,
Articles of Incorporation and Bylaws are in full force and effect. All documents
and other information as to existing facts relating to Bancorp and CB provided
to FPSB by Bancorp and CB are, taken as a whole, accurate and complete in all
material respects.
4.6 COMPLIANCE WITH LAWS.
(a) Bancorp and CB are in compliance with all laws, regulations, reporting
and licensing requirements and orders applicable to their business or properties
or any of their employees (because of such employee's activities on behalf of
them), including, without limitation, those relating to wage and hour, labor and
employment practices, equal opportunity affirmative action and the Immigration
Reform and Control Act, the breach or violation of which could, individually or
in the aggregate, have a Material Adverse Effect.
(b) Neither Bancorp nor CB has received any notification from any agency or
department of any federal, state, local or foreign government or any regulatory
authority or the staff thereof asserting that Bancorp or CB is not presently in
compliance with any of the statutes, regulations or ordinances that such
governmental or regulatory authority enforces, noncompliance with which could
have, individually or in the aggregate, a Material Adverse Effect, nor is
Bancorp or CB aware of any basis for any such assertion. Bancorp and CB are not
subject to any agreement with any regulatory authority with respect to their
assets or business that imposes any material restriction on the conduct of their
business. Bancorp and CB have no material uncorrected deficiency from any
federal or state banking regulatory examination report, except with respect to
matters that have been disclosed in writing to FPSB.
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(c) Since January 1, 1991, Bancorp and CB have materially complied with all
applicable California laws and regulations (i) regarding charges, and the waiver
of such, for checking account overdrafts or checks returned due to insufficient
funds, and (ii) regarding the calculation of interest on loans and deposits.
4.7 MATERIAL CONTRACT DEFAULTS. Bancorp and CB are not in default under
any contract, agreement, indenture, mortgage, deed of trust, loan instrument,
commitment, arrangement, lease, insurance policy or other instrument to which
they are a party or by which their respective properties or assets may be bound
or affected or under which they or their respective business, properties or
assets receive benefits, which default would be likely, individually or in the
aggregate for all such defaults, to have a Material Adverse Effect, and, to the
best knowledge of Bancorp, there has not occurred any event that with the lapse
of time or the giving of notice or both would constitute such a default.
4.8 ABSENCE OF CERTAIN CHANGES. There has not been since December 31,
1995:
(a) any change in the business, financial condition, results of
operations or prospects of Bancorp or CB that has had or may reasonably be
expected to have, together with all other such changes, a Material Adverse
Effect;
(b) any direct or indirect redemption, purchase or other acquisition
of shares of Bancorp's capital stock, convertible securities or securities
exercisable for capital stock of Bancorp by Bancorp or any declaration,
setting aside or payment of any dividend other than the payment of
Bancorp's regular quarterly cash dividend on Bancorp Stock equal to $.15
per share per quarter;
(c) any amendment or termination of any note, bond, mortgage,
indenture, license, agreement, lease or other instrument or obligation to
which Bancorp or is a party or by which any of its properties or assets may
be bound, other than amendments or terminations which do not and will not,
individually or in the aggregate, have a Material Adverse Effect;
(d) any amendment to the Certificate of Incorporation, Articles of
Incorporation or Bylaws of Bancorp and CB;
(e) any change by Bancorp or CB in accounting principles or methods,
except as required by Financial Accounting Standards Board to comply with
generally accepted accounting principles or by FRB or FDIC regulations;
(f) any pledge, disposition or acquisition by Bancorp or CB of an
asset or assets material to Bancorp or CB, except sales of foreclosed
properties in the ordinary course of business;
(g) any discharge or satisfaction of a material liability of Bancorp
or CB; or
(h) any damage, destruction or other casualty loss (whether or not
covered by insurance) which has or can reasonably be expected to have a
Material Adverse Effect.
4.9 LITIGATION.
(a) There are no pending or, to the best knowledge of Bancorp, threatened
private or governmental suits. claims, actions. proceedings, arbitrations or
investigations against Bancorp or CB, including without limitation those
relating to unfair labor practice charges, complaints of discrimination,
workers' compensation or unemployment claims, except for normal regulatory
examinations and visits (with respect to which Bancorp is not aware of any
material matters under discussion with any of the relevant governmental
authorities) and except for matters arising in the ordinary course of business
that are not expected to have a Material Adverse Effect.
(b) Neither Bancorp nor, to the best knowledge of Bancorp, any officer,
director or employee, has been permanently or temporarily enjoined by any order,
judgment or decree of any court or other tribunal or any governmental or
regulatory agency, authority or body from engaging in or continuing any conduct
or practice in connection with the business, assets or properties of Bancorp or
CB.
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(c) There is no order, judgment or decree of any court or other tribunal or
any governmental or regulatory agency, authority or body ordering Bancorp or CB
to take any action of any kind with respect to their business assets or
properties or otherwise involving Bancorp or CB or any of their assets or
properties.
4.10 CONTINGENT LIABILITIES. Bancorp and CB are not subject to any
material contingent liabilities of any nature (whether or not required to be
disclosed under Financial Accounting Standards Board Statement No. 5) other than
those reflected in or adequately reserved against in Bancorp's and CB's
financial statements identified in Section 4.4(a).
4.11 TAXES.
(a) Definitions. For purposes of this Section 4.11, the following
definitions shall apply:
(1) The term "Group" shall mean, individually and collectively, (i)
Bancorp and (ii) any individual, trust, corporation, partnership or any
other entity as to which Bancorp is liable for Taxes incurred by such
individual or entity either as a transferee, or pursuant to Treasury
Regulations Section 1.1502-6, or pursuant to any other provision of
federal, territorial, state local or foreign law or regulations.
(2) The term "Taxes" shall have the meaning given to that term in
Section 3.12(a).
(3) The term "Returns" shall have the meaning given to that term in
Section 3.12(a).
(b) The Group has timely filed all Returns required to be filed, and the
information contained in each such Return is complete and accurate in all
material respects.
(c) The Group has paid, or has set up adequate reserves for the payment of,
all Taxes required to be paid in respect of the periods covered by such Returns
and has set up adequate reserves for the payment of all other Taxes payable in
respect of the period subsequent to the last of such periods and the Group has
no material liability for such Taxes (and, to the best knowledge of Bancorp,
there is no potential material liability in respect of deductions, costs or
other allowances taken for federal income tax purposes likely to be disallowed
in any audit by the Internal Revenue Service) in excess of the amounts so paid
or reserves so established.
(d) The Group is not delinquent in the payment of any Taxes, and it has not
requested any extension of time within which to file any Returns that have not
since been filed. and no material deficiencies for any Taxes have been claimed,
proposed or assessed. Since December 31, 1990, the Group has not agreed to any
extension of time for the assessment or payment of any Taxes payable by it.
(e) There are no pending or, to the best of the Group's knowledge,
threatened tax audits, investigations or claims for or relating to any material
liability in respect of Taxes, and there are no matters under discussion with
any governmental authorities with respect to Taxes that are likely to result in
a material further tax liability.
(f) Since January 1, 1990, the Group's federal income tax returns have not
been audited by the Internal Revenue Service, and its California tax returns
have not been audited by the Franchise Tax Board of the State of California.
4.12 REGISTRATION STATEMENT AND REGULATORY APPLICATIONS.
(a) When the Prospectus/Proxy Statement referred to in Section 5.1, or any
amendment or supplement thereto, shall be mailed to the Shareholders, and at all
times after such mailing up to and including the FPSB Meeting Date, (i) such
Prospectus/Proxy Statement and all amendments or supplements thereto, with
respect to all information, set forth therein relating to Bancorp and its
subsidiaries will comply in all material respects with the provisions (to the
extent applicable) of the Securities Act and the Exchange Act and the rules and
regulations of the SEC thereunder, and (ii) the information relating to Bancorp
and its subsidiaries set forth in the Prospectus/Proxy Statement as filed with
the SEC under the Securities Act and the Exchange Act and the Registration
Statement as filed with the SEC under the Securities Act, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein not
misleading.
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(b) When each of the applications for the Regulatory Approvals (as defined
in Section 5.2) is filed, or amended or supplemented, the information relating
to Bancorp and its subsidiaries and in respect of this Agreement will comply in
all material respects with the relevant laws and regulations 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 therein not
misleading or to correct any earlier statements with respect to the same
application or subject matter. Bancorp and CB at this time have a reasonable
basis to believe that each of the Regulatory Approvals (as defined in Section
5.2(a)) should be obtained; provided, however, that FPSB acknowledges that there
can be no assurances that all Regulatory Approvals will be obtained.
(c) The execution, delivery and performance of this Agreement by Bancorp
and CB, as applicable, do not, and the consummation by Bancorp and CB of the
Merger and the transactions contemplated hereby will not, require any filing by
Bancorp or CB with, or approval, consent, authorization or other action with
respect to Bancorp or CB by, any governmental agency, other than (i) filings
with and/or approval by the FRB, (ii) filings with and approval by the FDIC,
(iii) filings with and approval by the Superintendent, (iv) filing with and
declaration of effectiveness by the SEC, (v) filing with the OTS, (vi) filings
with, and approvals, qualifications or exemptions by, authorities administering
the Blue Sky laws of the jurisdictions in which the Shareholders reside, (vii)
the filing of the properly approved Merger Agreement with the California
Secretary of State, and (viii) any filing, approval, consent, authorization or
action that would not generally be required in connection with the acquisition
by Bancorp of a federal savings bank pursuant to the terms of this Agreement.
4.13 HAZARDOUS MATERIALS. None of Bancorp, any current or former
subsidiary, or any other person having an interest in property that Bancorp, or
such subsidiary, owns or leases or has owned or leased or in which Bancorp or
any subsidiary holds any security interest, mortgage, or other lien or interest
("Property") has engaged in the generation, use, manufacture, treatment,
transportation, storage in tanks or otherwise, or disposal of Hazardous Material
(as defined in Section 3.19) on or from such Property, and no (a) presence,
release, threatened release, discharge, spillage or migration of Hazardous
Material, (b) condition that could result in any use, ownership or transfer
restriction, or (c) condition of nuisance has occurred on or from such Property,
which, individually or in the aggregate, would constitute a Material Adverse
Effect, and neither Bancorp nor any such subsidiary has received notice of, or
has reason to know of, a condition that could give rise to any private or
governmental suit, claim, action, proceeding or investigation against Bancorp,
any such subsidiary, any other person or such Property as a result of any of the
foregoing events. With respect to any Property in which Bancorp or a subsidiary
holds a security interest, mortgage or other lien or interest and which neither
Bancorp nor any current or former subsidiary has owned or leased, Bancorp makes
the foregoing representation and warranty to the best of its knowledge.
4.14 MATERIALITY. All representations and warranties made by Bancorp in
and pursuant to this Agreement are agreed to be based on the best knowledge of
the directors and executive officers of Bancorp and CB and, where applicable, to
be based upon actions taken and decisions within their informed business
judgment and consistent with past practices. Furthermore no representation or
warranty shall be deemed untrue or incorrect, and Bancorp or CB shall not be
deemed to have breached any such representation or warranty, on account of the
existence of any fact, circumstance or event unless, as a consequence of such
fact, circumstance or event, individually or taken together with all other
facts, circumstances or events inconsistent with any such representation or
warranty, as applicable, there is reasonably likely to occur a Material Adverse
Effect.
5. COVENANTS OF FPSB AND BANCORP
5.1 PREPARATION OF REGISTRATION STATEMENT AND APPLICATIONS FOR REQUIRED
CONSENTS. FPSB and Bancorp contemplate that a Registration Statement on Form S-4
(the "Registration Statement") will be filed with the SEC under the Securities
Act for registration of the Bancorp Stock to be issued in connection with the
transactions contemplated hereby and that the parties will prepare a related
Prospectus/Proxy Statement (the "Prospectus/Proxy Statement") to be mailed to
the Shareholders. The parties will cooperate with each other in preparing such
Registration Statement and Prospectus/Proxy Statement. The parties will use
their best efforts to obtain the clearance of the SEC, and any other required
Regulatory Approvals, to issue such Prospectus/Proxy Statement. Without limiting
the generality of the foregoing, nothing shall be contained in
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the Prospectus/Proxy statement or any proxy soliciting materials unless approved
in advance by Bancorp, which approval shall not be unreasonably withheld, and
nothing shall be contained in the Registration Statement or the Prospectus/Proxy
Statement with respect to FPSB unless approved in advance by FPSB, which
approval shall not be unreasonably withheld.
5.2 PURSUIT OF APPROVALS.
(a) Subject to Section 6.1(a), the parties shall use their best efforts to
obtain all necessary governmental approvals required to consummate the Merger,
including approval by:
(i) the FRB;
(ii) the FDIC; and
(iii) the Superintendent.
In addition, the consummation of the transactions contemplated hereby are
subject to:
(x) the expiration of any waiting period required (including any
extensions thereof) pursuant to any of the foregoing approvals;
(y) the declaration of effectiveness of the Registration Statement,
which on the Closing Date must not be the subject of a stop order or
threatened stop order; and
(z) the shares of Bancorp Stock being delivered by Bancorp to the
Shareholders in exchange for their shares of FPSB Stock having been
qualified or registered for offering and sale under the securities or Blue
Sky laws of each jurisdiction in which the Shareholders reside (or exempted
therefrom); provided that Bancorp shall not be obligated to execute or file
any general consent to service of process or to qualify as a foreign
corporation in any jurisdiction in which it Is not so qualified.
Such approvals, together with any other governmental approvals that are
necessary to effectuate the Mergers, are referred to herein as the "Regulatory
Approvals."
(b) Subject to Section 6.1(a), the parties hereto shall cooperate and shall
use their reasonable best efforts to obtain all the Regulatory Approvals and to
do all other things which are or may be reasonably necessary to consummate the
Merger, Bancorp shall have primary responsibility for the preparation of all
applications and filings required in connection with subparagraphs (a) (i), (ii)
and (iii) above and shall use its best efforts to file all necessary
applications within 50 days of the date hereof. Each party shall cooperate with
the other in preparation of all applications for such Regulatory Approvals and
will furnish promptly upon request all documents, information, financial
statements or other materials as may be required in order to complete such
applications. In addition, Bancorp shall furnish FPSB and its counsel with
copies of the non-confidential portions of all such applications after they are
filed. Should the appearance of any of the officers, directors, employees or
counsel of any of the parties hereto be requested by any of the parties or by
any governmental agency at any hearing or otherwise in connection with any such
application, such party shall promptly use its best efforts to arrange for those
appearances. Each party hereto shall afford the others reasonable opportunity to
review all such applications and all amendments and supplements thereto before
filing and each party's prior consent shall be required (and not unreasonably
withheld) as to all information and data submitted by another party which
pertains to the party whose consent is required. Notwithstanding anything to the
contrary implied in this Agreement, Bancorp and CB shall not be required to
accept any term or condition imposed by any governmental authority in connection
with any of the transactions contemplated by this Agreement or the operation of
Bancorp or its subsidiaries after the Closing which Bancorp or CB reasonably and
in good faith determines to be unduly burdensome, provided that Bancorp and CB
may not withdraw any application for the Regulatory Approvals based on such
determination unless FPSB shall concur in writing as provided in Section
6.1(a)(ii).
5.3 OTHER CONSENTS. FPSB agrees to apply for and diligently seek to obtain
all written consents and approvals of other persons in connection with its
leases and other agreements. the benefits of which cannot be retained upon the
consummation of the transactions contemplated hereby without the written consent
of such persons.
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5.4 ACTIVITIES PENDING CLOSING. From the date hereof to and including the
Effective Time, unless Bancorp otherwise consents in writing or except as
otherwise provided or anticipated herein, FPSB shall:
(a) Conduct its affairs only in the ordinary course of business
consistent with past practice (including, but not limited to, its
provisions for possible loan losses) and in material compliance with
applicable laws, regulations, rules and directives, use all reasonable
efforts to preserve intact its present business organization and use its
best efforts to keep its assets and facilities in good repair, keep
available the services of its present officers and employees and preserve
its relationship and goodwill with all persons having business dealings
with it;
(b) Refrain from issuing or selling or obligating itself to issue or
sell any shares of its capital stock or any warrants, rights or options to
acquire, or any securities convertible into, any of its capital stock;
(c) Refrain from paying any dividends or making other distributions
with respect to the capital stock of FPSB, except for a $500,000
semi-annual cash dividend payable on June 1, 1996;
(d) Not amend its Federal Stock Charter or Bylaws;
(e) Except as otherwise required by law or determined in good faith by
the Board of Directors of FPSB to be required in order to discharge its
fiduciary duties, refrain from entering into, or recommending the adoption
by the Shareholders of, any agreements involving the possible merger or
other business combination concerning FPSB or the acquisition of a
substantial equity interest in, or a substantial portion of the assets of,
FPSB by any other person not party to this Agreement;
(f) Except as otherwise required by law or determined in good faith by
the Board of Directors of FPSB to be required in order to discharge its
fiduciary duties, refrain from accepting or recommending to the
Shareholders any tender offer to purchase any of FPSB's outstanding shares
of FPSB Stock;
(g) Consult with and seek the advice of Bancorp with respect to basic
policies relating to branching, site location and relocation;
(h) Not enter into, amend or terminate any material contract or
agreement, except in the ordinary course of business;
(i) Not enter into, amend, terminate, extend or renew any lease for
real property;
(j) Refrain from hiring any employees, directors, officers (Vice
Presidents and more senior officers), agents, consultants or
representatives (or increasing the salary of, or benefits or any other
compensation payable to, any of those persons) or effecting, entering into
or modifying any employment agreement, bonus, pension, retirement,
severance, insurance or other arrangement to or with any person, except for
the hiring of staff other than officers on a temporary basis, and except
for reasonable retention and transition bonuses payable at the Closing;
(k) Not create or incur any mortgage, deed of trust, pledge,
assessment, security interest, adverse claim, charge or encumbrance of any
kind or conditional contract of sale or contract for any of the foregoing
on any assets owned, used or held for use in the conduct of the business of
FPSB;
(l) Not make capital expenditures or commitments therefor in excess of
$50,000 in the aggregate;
(m) Not incur or increase its indebtedness for borrowed money, except
in the ordinary course of business consistent with past practices;
(n) Not cancel or waive any claims or rights of substantial value,
except in the ordinary course of business consistent with past practices;
(o) Not make any payments to any affiliates of FPSB other than lease
payments on Property leased by FPSB in amounts consistent with past
practices and other than the payment of ordinary directors' fees for
attendance at meetings of the Board of Directors of FPSB, also in amounts
consistent with past practices;
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(p) Not fail in any material respect to comply with any regulation or
directive of the OTS or any other governmental authority;
(q) Not originate any new loans that would have an outstanding
principal amount in excess of $500,000, purchasing or modifying any
existing loans, or modifying any material agreements; provided, however,
that Bancorp's consent shall not be required for FPSB to modify any loan
with an outstanding principal amount of less than $500,000, if any such
modification neither extends the loan maturity by more than one year nor
reduces FPSB's regulatory capital in any respect;
(r) Not agree, in writing or otherwise, to do any of the foregoing;
and
(s) Not cause or permit any of the things listed in Sections 3.11(b)
through (q) to occur.
For purposes of this Section 5.4, Bancorp shall not unreasonably withhold its
consent and its consent shall be deemed given if not refused in writing within
seven calendar days after receipt by Bancorp of a written request by FPSB (and
Bancorp will make reasonable efforts to reply sooner), provided that FPSB
furnishes Bancorp with complete information and an opportunity to consult
concerning the subject of the consent as early as reasonably possible before
requesting the consent.
5.5 MONTEREY PARK PROJECT. Notwithstanding the representations and
covenants in Sections 5.4 and elsewhere in this Agreement, Bancorp and FPSB
agree that reasonable preliminary planning expenses may be incurred and paid as
reasonably necessary by FPSB (including but not limited to demolition,
engineering, architectural and other planning and design services) with respect
to contingent plans to construct a new Head Office in Monterey Park: provided
that (a) such total expenses incurred or paid between the date hereof and the
Closing related to this project shall not exceed $100,000 and (b) FPSB shall not
undertake or commit to undertake or pay for any activities related to the
project other than such preliminary planning matters without the prior written
consent of Bancorp.
5.6 ACCESS TO INFORMATION. During the period of this Agreement and until
the Effective Time, FPSB shall furnish and use its best efforts to cause its
independent auditor and any service bureau under contract to it to furnish, to
Bancorp or its authorized representatives, on reasonable notice and during
ordinary business hours, full access to its premises and all of its books,
records and properties, including, but not limited to, all loan, investment,
accounting, tax and property records and files including, without limitation,
all files, computer records and customer information, whether held by FPSB, the
independent auditor or any service bureau. FPSB shall provide reasonable access
to allow Bancorp to communicate with FPSB's employees. FPSB shall provide
Bancorp and its authorized representatives with access to any and all real
properties securing loans made by it, to the extent legally permissible. Such
examination shall be made in a manner that will not unreasonably interfere with
the conduct of the business of the party being examined and shall not affect any
of the representations and warranties hereunder. FPSB shall provide and use its
best efforts to cause its independent auditor and any service bureau to provide,
adequate space and facilities and the cooperation of their personnel, including
copying facilities to the end that such examination shall be completed
expeditiously, completely and accurately. Without limitation of the foregoing,
Bancorp or its authorized representatives shall be specifically entitled to
conduct environmental reviews, investigation and testing as to the presence of
Hazardous Materials in or on any Property.
5.7 CONFIDENTIALITY. Except as contemplated by this Agreement or as
necessary to carry out the transactions contemplated herein, all information or
documents furnished hereunder by any party to any other party shall be kept
confidential by the party to whom it is furnished, and shall not use the same
for its advantage until such time as such information becomes publicly
available, except to the extent (a) it was known by such other party when
received, or (b) it is or thereafter becomes lawfully obtainable from other
sources (except through a breach by a party), or (c) it is necessary or
appropriate to disclose the same to any regulatory authority having jurisdiction
over the parties or their subsidiaries or as otherwise may be required by law or
(d) such duty of confidentiality is waived by the other party. If such
transactions are not consummated, each party shall return to the other all
information and documents furnished hereunder and shall return or destroy all
summaries and excerpts therefrom. Without limiting the foregoing, information
and documents furnished by FPSB hereunder may be disclosed by Bancorp to the
FRB, FDIC, the OTS, the Superintendent
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and any other governmental agency whose approval, consent, authorization or
other action is necessary for the consummation of the Merger and the
transactions contemplated hereby.
5.8 MEETING OF SHAREHOLDERS. FPSB shall duly call a meeting of its
Shareholders for the purpose of obtaining the approval by the Shareholders of
the Merger, this Agreement, the Merger Agreement and all other matters necessary
to consummate the transactions contemplated by this Agreement, which meeting
shall be held not later than 45 days following the date upon which the
Registration Statement shall have been declared effective. In connection with
such meeting, the Board of Directors of FPSB shall, to the extent consistent
with their fiduciary duties, recommend approval of the transactions contemplated
by this Agreement and indicate the determination by the Board of Directors that
the Merger is in the best interests of the Shareholders. Notice of the meeting
to be held by FPSB shall be accompanied by the Prospectus/Proxy Statement. Prior
to mailing the Prospectus/Proxy Statement, FPSB shall deliver to Bancorp a
comfort letter from its accountants to the effect set forth in Section 6.3(d),
and dated as of a date not earlier than five days prior to the date of such
mailing of the Prospectus/Proxy Statement.
5.9 COMPLIANCE WITH REGULATORY AUTHORITIES. In obtaining the approval of
Shareholders referred to in Section 5.8, FPSB and its officers and directors
will, in all respects, comply with the provisions of and the rules and
regulations under the Securities Act and the Exchange Act and other applicable
laws and regulations of the OTS. In connection with that approval of
Shareholders, Bancorp and its officers will, in all respects, comply with the
provisions of and the rules and regulations under the Securities Act and the
Exchange Act and other applicable laws and regulations of the FRB, FDIC and
State of California. Bancorp and CB shall not fail in any material respect to
comply with any regulation or directive of, or any commitments made or any
corrective action plans or program presented to, the FRB, FDIC, or the
Superintendent.
5.10 BANCORP STOCK LISTING. Bancorp shall use its best efforts to list,
prior to the Effective Time, on the Nasdaq National Market System, subject only
to official notice of issuance, the shares of Bancorp Stock to be issued
pursuant to the Merger.
5.11 NOTIFICATION. Each party to this Agreement shall notify each other
party promptly after becoming aware of the occurrence of, or the impending or
threatened occurrence of, any event that would constitute a breach on its part
of any obligation under this Agreement or the occurrence of any event that would
cause any representation or warranty made by it herein to be false or
misleading, or if it becomes a party or is threatened with becoming a party to
any legal or equitable proceeding or governmental investigation or upon the
occurrence of any event that in each case would result in a material change in
the circumstances of such party described in the representations and warranties
contained herein.
5.12 NO SHOPPING. Except as otherwise required by law or determined in good
faith by the Board of Directors of FPSB to be required in order to discharge its
fiduciary duties, FPSB shall not, directly or indirectly, through any officer,
director or agent or otherwise, solicit, initiate, encourage, participate in any
negotiation in respect of or cooperate with (including by way of furnishing any
nonpublic information concerning the business, properties or assets of FPSB) any
Acquisition Proposal (as defined in Section 8.2(c)). FPSB will notify Bancorp
promptly by telephone, and thereafter promptly confirm such notification in
writing, if any such information is requested from, or any Acquisition Proposal
or inquiry with respect to any Acquisition Proposal is received by, FPSB.
5.13 FUTURE INFORMATION. FPSB shall provide to Bancorp as soon as
practicable and to the extent permitted by law, but in no event later than 30
days following the end of each calendar month from the date hereof through the
Closing Date, copies of all financial statements and other written information
provided to the Board of Directors of FPSB, and all reports filed with federal
or state regulatory agencies.
5.14 DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. FPSB will use its best
efforts to obtain insurance coverage for five years from the Effective Date
(with at least as much dollar coverage as FPSB's directors and officers have
under their current policy) for prior acts for all current and former directors
of FPSB; provided, however, that FPSB, Bancorp and CB shall not be obligated to
make premium payments for such insurance to the extent such annual premium
payments would exceed 200 percent of the annual premium payments of FPSB for
such insurance during the year prior to the Effective Time. If such coverage is
not available,
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Bancorp and CB will use their best efforts to purchase "prior acts" coverage for
such five-year period and will maintain FPSB's current and former directors and
officers as "Additional Insureds" on Bancorp's or CB's "prior acts" coverage
also for such five-year period; provided, however, that Bancorp and CB shall not
be obligated to make premium payments for such insurance to the extent such
annual premium payments would exceed 200 percent of the annual premium payments
of CB for such insurance during the year prior to the Effective Time.
5.15 FURTHER ASSURANCES. At the request of Bancorp, including after the
Closing and without payment or any additional consideration other than
reimbursement for authorized and documented out-of-pocket expenses, FPSB's
directors and officers shall execute and deliver such further documents and take
such further actions as may be reasonably requested by Bancorp in order to give
effect to the provisions of this Agreement or to assist Bancorp in connection
with any lawsuit, inquiry, proceeding or other matter, whether or not currently
pending, which arises out of events or circumstances that precede the Closing.
5.16 AFFILIATES. At least 40 days before the Closing Date, FPSB shall
deliver to Bancorp a letter identifying all persons who are, at the time this
Agreement is submitted for approval to the Shareholders, "affiliates" of FPSB
for purposes of Rule 145 under the Securities Act. FPSB shall use its best
efforts to cause each person named on the letter delivered by it to deliver to
Bancorp at least 30 days before the Closing Date a written agreement
substantially in the form provided to FPSB by Bancorp relating to compliance
with the requirements of Rule 145.
5.17 BENEFIT PLANS. Before the Closing Date, FPSB shall terminate or cause
the termination of any Plan in which members of the Boards of Directors of FPSB
or FPSC participate, provided that after the Closing, Bancorp and CB agree to
honor and effect the payment election option that each vested FPSB director
under the FPSB Directors' Retirement Plan shall select before the Closing Date.
Before the Closing Date, FPSB shall terminate or cause the termination of any
401(k) Plan maintained for employees of FPSB or FPSC. FPSB shall consult with
Bancorp in connection with such terminations and shall comply with applicable
law and all related reasonable limitations specified by Bancorp. Bancorp agrees
that with respect to any pension, savings, vacation, health and welfare,
disability benefits, compensation, incentive and bonus arrangements of Bancorp
or CB, including the "Cathay Employee Incentive Stock Ownership Plan and Trust,"
Bancorp shall recognize, or cause CB to recognize, under its or CB's employee
benefit plans and compensation arrangements, the service of any employee of FPSB
with FPSB (counted from the original date of hire) if employed by Bancorp or CB
after the Effective Time for purposes of participation, eligibility and vesting,
but not for purposes of benefit accrual or calculation.
5.18 BANCORP STOCK. From the date hereof to and including the Effective
Time, unless FPSB otherwise consents in writing (which shall not be unreasonably
or untimely withheld) Bancorp shall refrain from issuing or selling or
obligating itself to issue or sell any shares of its capital stock or any
warrants, rights or options to acquire or any securities convertible into, any
of its capital stock (other than pursuant to this Agreement and other than
pursuant to Bancorp's existing option and purchase arrangements and dividend
reinvestment plan), and shall neither take or agree to take any action before or
after the Effective Time that would prevent the transactions contemplated by
this Agreement from qualifying as a reorganization within the meaning of Section
368(a) of the Code.
5.19 LOAN LOSS RESERVE. After the receipt of all Regulatory Approvals
(subject to the expiration of any applicable waiting periods) and the approval
of the Merger by the Shareholders, and effective immediately before the Closing,
FPSB shall increase its reserve for possible loan losses by the amount specified
by Bancorp, provided that such action (a) shall not be deemed to have a Material
Adverse Effect and (b) shall not be deemed to be a determination by the Board of
Directors of FPSB that FPSB's reserve for possible loan losses is not adequate.
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6. CONDITIONS TO CLOSING
6.1 MUTUAL CONDITIONS TO PARTIES' OBLIGATION TO CLOSE. The respective
obligations of Bancorp, CB and FPSB to consummate the transactions contemplated
by this Agreement are subject to the satisfaction or waiver on or before the
Closing Date (or as otherwise provided below) of all of the following
conditions:
(a) Regulatory Approvals. All the Regulatory Approvals for the
transactions contemplated by this Agreement shall have been obtained
without the imposition of any condition (i) which Bancorp in good faith
determines to be materially burdensome upon the conduct of the business of
Bancorp or CB as the same is being conducted at the time such approval is
granted, or as the same is then anticipated to be conducted in the future
and (ii) with which determination FPSB concurs in writing (which
concurrence shall not be unreasonably withheld); such approvals shall be in
effect and no proceedings shall have been instituted or threatened with
respect thereto; all applicable waiting periods with respect to such
approvals shall have expired; and all conditions and requirements
prescribed by law or by such Regulatory Approvals shall have been
satisfied.
(b) Registration Statement. The Registration Statement, as it may have
been amended, required in connection with the shares of Bancorp Stock to be
issued to Shareholders pursuant to Section 1.2 and as described in Section
5.1, shall have become effective and no stop order suspending the
effectiveness of such Registration Statement shall have been issued and
shall remain in effect, and no proceedings for that purpose shall have been
initiated or threatened by the SEC the basis for which shall remain in
effect.
(c) No Violation of Law. The transactions contemplated by this
Agreement shall not violate any order, decree or judgment of any court or
governmental body having competent jurisdiction. and no law, rule or
regulation shall have been adopted by any such body that prohibits or
enjoins the actions contemplated by this Agreement. No action, suit or
proceeding before any court or governmental body shall be pending or
threatened challenging the legality of the transactions contemplated by
this Agreement, or seeking to restrain their consummation.
(d) Federal Tax Opinion. FPSB shall have received (and Bancorp shall
have received a copy of) an opinion of Pillsbury Madison & Sutro LLP,
special counsel to FPSB, in form and substance reasonably satisfactory to
FPSB, including provisions permitting reliance on the opinion by FPSB, to
the effect that for federal income tax purposes: (i) the transactions
contemplated hereby will constitute a reorganization within the meaning of
Section 368(a) of the Code; (ii) no gain or loss will be recognized by the
Shareholders who receive solely Bancorp Stock in exchange for their FPSB
Stock in the Merger; (iii) the tax basis of a Shareholder in the Bancorp
Stock received in the Merger in exchange for his or her FPSB Stock will be
the same as the tax basis of the FPSB Stock surrendered in exchange
therefor; and (iv) the holding period of the shares of Bancorp Stock
received in the Merger by a Shareholder in exchange for his or her FPSB
Stock will include the holding period of the shares of the FPSB Stock
surrendered therefor provided that such FPSB Stock was held as a capital
asset by such Shareholder. The parties understand and agree that said tax
opinion shall rely upon customary representations by the parties and/or the
Shareholders (or assumptions) as to certain factual matters, including
(without limitation) a representation (or assumption) that a minimum of 50
percent of all currently outstanding FPSB Stock will be exchanged for
Bancorp Stock in the Merger, with no intention to dispose of such Bancorp
Stock and that substantially all of the assets of FPSB will be acquired by
CB.
(e) Stock Listing. Nasdaq shall have confirmed to Bancorp that the
shares of Bancorp Stock expected to be issued in connection with the Merger
are authorized for listing on the Nasdaq National Market System.
6.2 CONDITIONS TO FPSB'S OBLIGATION TO CLOSE. The obligation of FPSB to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction or waiver on or before the Closing Date (or as otherwise provided
below) of all of the following conditions:
(a) Continued Accuracy of Warranties and Representations. All
representations and warranties of Bancorp and CB contained in this
Agreement shall be true in all material respects on and as of the Closing
Date with the same effect as though such representations and warranties had
been made on and
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as of the Closing Date (except to the extent such representations and
warranties expressly speak as of an earlier date); Bancorp and CB shall
have performed and satisfied in all material respects all covenants and
conditions required by this Agreement to be performed and satisfied by
either of them at or prior to the Closing Date; and there shall have been
delivered to FPSB on the Closing Date, a certificate executed by a duly
authorized officer of Bancorp and CB, certifying, to the best of the
officer's knowledge, compliance with all the provisions of this Section
6.2(a).
(b) Board and Shareholder Approval.
(i) The Shareholders of more than two-thirds of the outstanding
shares of FPSB Stock entitled to vote shall have approved this Agreement
the Merger the Merger Agreement and the transactions contemplated hereby
and
(ii) Bancorp shall have furnished FPSB with:
(A) a certified copy of each of the resolutions duly adopted by
the Boards of Directors of Bancorp and CB approving this Agreement,
the Merger, the Merger Agreement and the transactions contemplated
hereby; and
(B) a certified copy of resolutions duly adopted by Bancorp, as
the sole holder of the outstanding shares of CB entitled to vote
thereon, approving this Agreement the Merger, the Merger Agreement
and the transactions contemplated hereby.
(c) Opinion of Counsel. FPSB shall have received an opinion addressed
to it of Heller, Ehrman, White & McAuliffe, counsel to Bancorp, dated the
Closing Date, expressing the legal opinions, containing the qualifications
and making the assumptions that are customary for similar transactions.
(d) Calculation Date Bancorp Stock Price. The Calculation Date Bancorp
Stock Price shall be equal to at least $11.00.
(e) Fairness Opinion. FPSB shall have received the opinion of
Montgomery Securities in form and substance reasonably satisfactory to FPSB
to the effect that the Total Consideration Value to be received by the
Shareholders is fair from a financial point of view to the Shareholders
receiving such consideration.
6.3 CONDITIONS TO BANCORP'S OBLIGATION TO CLOSE. The obligation of Bancorp
and CB to consummate the transactions contemplated by this Agreement is subject
to the satisfaction or waiver on or before the Closing Date (or as otherwise
provided below) of all of the following conditions:
(a) Continued Accuracy of Warranties and Representations. All
warranties and representations of FPSB contained in this Agreement shall be
true in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and
as of the Closing Date (except to the extent such representations and
warranties expressly speak as of an earlier date); FPSB shall have
performed and satisfied in all material respects all covenants and
conditions required by this Agreement to be performed and satisfied by it
at or prior to the Closing Date; and there shall have been delivered to
Bancorp and CB on the Closing Date a certificate executed by the Chairman
of the Board of Directors of FPSB certifying, to the best of such officer's
knowledge, compliance with all the provisions of this Section 6.3(a).
(b) Board and Shareholder Approval.
(i) FPSB shall have furnished Bancorp and CB with:
(A) a certified copy of the resolutions duly adopted by the
Board of Directors of FPSB approving this Agreement, the Merger, the
Merger Agreement and the transactions contemplated hereby and
directing the submission thereof to a vote of the Shareholders; and
(B) a certified copy of resolutions duly adopted by the holders
of more than two-thirds of the outstanding shares of FPSB entitled to
vote thereon approving this Agreement, the Merger, the Merger
Agreement and the transactions contemplated hereby.
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(ii) The conditions described in Section 6.2(b)(ii)(A) and (B)
shall have been fulfilled.
(c) Opinion of Counsel. Bancorp and CB shall have received an opinion
addressed to them of Pillsbury Madison & Sutro LLP, counsel to FPSB, dated
the Closing Date, expressing the legal opinions, containing the
qualifications and making the assumptions that are customary for similar
transactions.
(d) Comfort Letter. Bancorp shall have received a "comfort" letter
from the independent auditor for FPSB, dated as of a date not more than
five days before the Closing Date, in form and substance satisfactory to
Bancorp and substantially to the effect that:
(i) it is an independent public accounting firm with respect to
FPSB within the meaning of the Securities Act and the Exchange Act and
the rules and regulations of the SEC thereunder, and the information
appearing in the Registration Statement as it relates to such firm is
correct;
(ii) in its opinion the audited financial statements of FPSB
examined by it and included in the Registration Statement or
incorporated therein by reference comply as to form in all material
respects with the applicable requirements of the Securities Act and the
Exchange Act and the applicable published rules and regulations of the
SEC thereunder with respect to registration statements on the form
employed;
(iii) on the basis of specified procedures, which do not constitute
an examination in accordance with generally accepted auditing standards
but which do include a reading of the unaudited financial statements, if
any, of FPSB, included or incorporated by reference in such Registration
Statement and of the latest available unaudited financial statements of
FPSB, inquiries of officers responsible for financial and accounting
matters of FPSB and a reading of the minutes of meetings of shareholders
and the Board of Directors of FPSB, nothing has come to its attention
that causes it to believe (A) that the unaudited financial statements,
if any, of FPSB included or incorporated by reference in such
Registration Statement do not comply as to form in all material respects
with the applicable accounting requirements of the Securities Act and
the Exchange Act and the rules and regulations of the SEC thereunder,
(B) that the unaudited financial statements of FPSB from which any
unaudited quarterly financial information set forth in such Registration
Statement has been derived and the then latest available unaudited
financial statements of FPSB are not fairly presented in conformity with
generally accepted accounting principles on a basis substantially
consistent with that of prior audited financial statements, or (C) that,
as of a designated date not more than five business days prior to the
Closing Date, there has been any change in the capital stock of FPSB, or
any decrease in excess of five percent in total shareholders' equity
(excluding any costs associated with the Merger) of FPSB, in each case
in comparison with the amounts shown for each of the foregoing items in
the most recent information presented in the Registration Statement and
in the Financial Statements; and
(iv) it has compared with the general accounting records of FPSB
and other data prepared by FPSB to the extent specified in such letter,
certain information of an accounting financial or statistical nature
(which is limited to accounting, financial or statistical information
derived from general accounting records of FPSB) set forth in the
Registration Statement and, except as set forth in such letter, has
found such amounts and percentages constituting such information to be
in agreement.
(e) Dissenting Shares Limitation. Not more than 10 percent of the
issued and outstanding shares of FPSB Stock at the Effective Time shall be
Dissenting Shares.
(f) Benefit Plans. The Plans required by Section 5.17 to be terminated
shall have been terminated in accordance with applicable law and the
reasonable limitations specified by Bancorp.
(g) Loan Loss Reserve. As required by Section 5.19, FPSB shall have
increased its reserve for possible loan losses by the amount specified by
Bancorp.
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7. INDEMNIFICATION
7.1 INDEMNIFICATION OF BANCORP INDEMNITEES. FPSB shall indemnify and hold
harmless Bancorp and all of its affiliates, directors, officers, employees and
agents (collectively, the "Bancorp Indemnitees") from and against any and all
claims, losses, judgments, liabilities, settlements, fines, penalties, interest,
costs and expenses (including all reasonable attorneys' fees and disbursements,
whether incurred in resolving indemnification issues between or among parties to
this Agreement or in defending third-party claims, and collectively with such
claims, etc., "Losses") that constitute, result from, arise out of or are
connected: (a) with any obligations or liabilities of FPSB, whether accrued,
absolute, contingent, known or unknown that were required to be, but were not,
disclosed in this Agreement, (b) any breach of any representation, warranty or
covenant of FPSB set forth in this Agreement or (c) any material misstatement or
omission to state any fact which is required to be disclosed for purposes of the
inclusion of such information in any regulatory filing made on behalf of the
parties hereto for the purpose of effecting the terms of this Agreement,
including, but not limited to, the Registration Statement, the Prospectus/Proxy
Statement and any amendment thereto.
7.2 INDEMNIFICATION OF FPSB INDEMNITEES.
(a) Bancorp shall indemnify and hold harmless FPSB and all of its
affiliates, directors, officers, employees and agents (collectively, the "FPSB
Indemnitees") from and against all Losses that constitute, result from, arise
out of or are connected with any breach of any representation, warranty or
covenant of Bancorp forth in this Agreement and from and against all Losses that
constitute, result from, arise out of or are connected: (a) with any obligations
or liabilities of Bancorp or CB, whether accrued, absolute, contingent, known or
unknown that were required to be, but were not, disclosed in this Agreement, (b)
any breach of any representation, warranty or covenant of Bancorp or CB set
forth in this Agreement or (c) any material misstatement or omission to state
any fact which is required to be disclosed for purposes of the inclusion of such
information in any regulatory filing made on behalf of the parties hereto for
the purpose of effecting the terms of this Agreement, including, but not limited
to, the Registration Statement, the Prospectus/Proxy Statement and any amendment
thereto.
(b) In addition to the covenants and obligations in Section 5.14, from and
after the Effective Time, until the fifth anniversary of the Effective Time,
Bancorp will, to the fullest extent permitted by then applicable law, indemnify
current and former directors and officers of FPSB (also "FPSB Indemnitees") as
though they had been directors and/or officers of Bancorp, for all Losses
arising out of acts or omissions occurring prior to, and including, the
Effective Time and, to the extent consistent with the Certificate of
Incorporation, Articles of Incorporation and Bylaws of Bancorp and CB, shall pay
all reasonable expenses in advance of the final disposition of any such claims
or potential liabilities, which payments must be immediately repaid by the FPSB
Indemnitee if such payments are later deemed not required by this Agreement or
are not allowed by law. Notwithstanding the foregoing, no FPSB Indemnitee shall
be entitled to indemnification for any conduct which involved: (i) intentional
misconduct, (ii) a knowing violation of law by the FPSB Indemnitee, (iii)
conduct or circumstances where indemnification would not be permitted under
Section 317 of the California Corporations Code (as if such statute applied) or
(iv) any transaction from which the FPSB Indemnitee has personally received a
benefit in money, property or services to which the FPSB Indemnitee was not
legally entitled.
7.3 DIMINUTION. It is expressly understood that "Losses" may include a
diminution in value even absent a claim by another person against any Bancorp
Indemnitees or FPSB Indemnitees (collectively, the "Indemnitees" or,
individually, an "Indemnitee").
7.4 INDEMNIFICATION PROCEDURE FOR THIRD-PARTY CLAIMS. If any action or
claim (a "Third-Party Claim") is or shall be commenced against any Indemnitee in
respect of which an Indemnitee seeks or will seek indemnification from one or
more of the indemnitors under Section 7.1 or 7.2 (collectively, as appropriate,
the "Indemnitors"), the Indemnitee shall notify the Indemnitor in writing and
summarize the nature of the Third-Party Claim and the basis upon which it
appears to have been asserted. Any delay in giving such a notice shall not
affect the rights of the Indemnitee under this Article 7 unless the Indemnitor
demonstrates that such delay materially prejudiced the rights of the Indemnitor
with respect to the Third-Party Claim. Within 10 business days after an
Indemnitee gives such a notice, the Indemnitor shall notify the Indemnitee in
writing whether
29
<PAGE> 170
the Indemnitor will defend the Third-Party Claim. If the Indemnitor elects to
defend, it will not settle or compromise the Third-Party Claim without the
Indemnitee's prior written consent. That consent shall not be unreasonably
withheld. If the Indemnitor does not defend the Third-Party Claim, the
Indemnitee shall be entitled, but not obligated, to defend the Third-Party
Claim. Whether or not the Indemnitor defends, the Indemnitor shall pay and shall
currently fund all costs and expenses of the defense. Moreover, if the
Indemnitor does not timely elect to defend or does so elect but does not defend
the Third Party Claim in good faith, the Indemnitee, after giving the Indemnitor
at least 10 business days' prior written notice of its intention to proceed with
a settlement, need not consult the Indemnitor regarding any settlement or
compromise.
7.5 SURVIVAL. The representations and warranties contained in this
Agreement shall not survive the Closing. The representations and warranties
shall be of no further force and effect after the Closing, unless and to the
extent that a claim (or claims) for indemnification has been asserted in writing
to the Indemnitor on or before the Closing. The covenants of the parties shall
survive until fully performed or discharged. The Merger Agreement shall survive
the Closing.
8. TERMINATION
8.1 TERMINATION. This Agreement and the obligations of the parties
hereunder may be terminated:
(a) By mutual written consent of the parties at any time whether or
not previously approved by the Shareholders;
(b) By any party upon the expiration of 15 days after the FRB, FDIC,
the Superintendent, OTS or any other governmental authority having
jurisdiction over any of the transactions set forth herein, in writing
denies or refuses to grant any approval, consent, qualification or ruling
required to be obtained under applicable law or refuses to accept or
process further Bancorp's or CB's application, or Bancorp or CB withdraws
its application and does not promptly resubmit the application;
(c) Immediately upon the expiration of 30 days from the date that
Bancorp has given notice to FPSB of FPSB's material misrepresentation in
respect of or material breach of or failure to satisfy any condition,
warranty, representation or agreement herein; provided, however, that no
such termination shall take effect unless it is reasonably evident that
FPSB cannot or will not fully and completely correct the grounds for
termination as specified in the aforementioned notice on or before the
Closing Date;
(d) Immediately upon the expiration of 30 days from the date that FPSB
has given notice to Bancorp of Bancorp's material misrepresentation in
respect of or material breach of or failure to satisfy any condition,
warranty, representation or agreement contained herein; provided, however,
that no such termination shall take effect unless it is reasonably evident
that Bancorp cannot or will not fully and completely correct the grounds
for termination as specified in the aforementioned notice on or before the
Closing Date;
(e) Prior to the approval of this Agreement by the requisite vote of
the Shareholders, by the Board of Directors of FPSB if there exists at such
time an Acquisition Proposal (as defined below) and such Board of
Directors, after having consulted with and considered the advice of outside
legal counsel, reasonably determines in good faith that such action is
necessary in the exercise of its fiduciary duties under applicable laws;
(f) By FPSB if the Calculation Date Bancorp Stock Price is not equal
to at least $11.00; and
(g) Immediately by a party hereto that is not in default hereunder, if
the Closing has not occurred on or before February 1, 1997.
8.2 EFFECT OF TERMINATION.
(a) If this Agreement is terminated under Section 8.1, this Agreement shall
become void, and there shall be no liability on the part of any party or any of
such party's directors, officers, employees or agents to the other party or such
other party's shareholders; provided that the obligations of Sections 5.7,
8.2(b), 9.8 and 9.10 and Article 7 shall survive the termination of this
Agreement; and provided further that a termination
30
<PAGE> 171
under Section 8.1(c) or (d) shall not relieve any party of any liability for
breach of this Agreement or for any misrepresentation hereunder or be deemed to
constitute a waiver of any remedy available for such breach or
misrepresentation.
(b) If this Agreement is terminated prior to or concurrently with the
occurrence of any of the following events, FPSB shall pay to Bancorp a cash fee
of $875,000 in immediately available funds on or before the second business day
following such termination:
(i) FPSB (or its Board of Directors) shall have entered into an
agreement with respect to, or authorized, approved, proposed or publicly
announced its intention to enter into, any Acquisition Proposal;
(ii) any person (together with its affiliates and associates) or group
(as such terms are used for purposes of Section 13(d) of the Exchange Act)
(other than Bancorp) shall have acquired beneficial ownership of 50 percent
or more of the then outstanding shares of the FPSB Stock then entitled to
vote generally in the election of directors of FPSB; or
(iii) following the making of an Acquisition Proposal, FPSB shall have
breached any covenant or agreement contained in this Agreement such that
Bancorp would be entitled to terminate this Agreement under Section 8.1(c)
thereof (without regard to any grace period provided for therein) unless
such breach is promptly cured without jeopardizing consummation of the
Merger pursuant to the terms of this Agreement.
FPSB acknowledges that its obligations under this Section 8.2(b) are necessary
in order to induce Bancorp to enter into this Agreement and Bancorp's
undertaking of efforts in furtherance of the Merger.
(c) "Acquisition Proposal" shall mean any (i) publicly announced proposal,
(ii) regulatory application or notice (whether in draft or final form), (iii)
agreement or understanding, (iv) disclosure of an intention to make a proposal,
or (v) amendment to any of the foregoing, made or filed on or after the date
hereof, in each case with respect to any of the following transactions with a
counterparty other than Bancorp or any of its subsidiaries: (A) a merger or
consolidation, or any similar transaction, involving FPSB; (B) a purchase, lease
or other acquisition of all or substantially all of the assets or deposits of
FPSB or (C) a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing 20
percent or more of the voting power of FPSB.
31
<PAGE> 172
9. MISCELLANEOUS
9.1 NOTICES. Any notice or other communication required or permitted
hereunder shall be made in writing and shall be delivered personally or sent by
an overnight delivery or courier service, by certified or registered mail
(postage prepaid), by telegraph or by facsimile transmission as follows:
<TABLE>
<S> <C>
To Bancorp or CB Cathay Bancorp, Inc.
777 North Broadway
Los Angeles, CA 90012
Attn: Dunson K. Cheng
Chairman and President
Fax: (213) 625-1368
With a copy to: Heller, Ehrman, White & McAuliffe
601 South Figueroa Street
Los Angeles, CA 90017-5758
Attn: Steven O. Weise, Esq.
Fax: (213) 614-1868
To FPSB: First Public Savings Bank, F.S.B.
977 North Broadway, Suite 308
Los Angeles, CA 90012
Attn: Jack C. Lee
Chairman
Fax: (213) 620-0485
With a copy to: Pillsbury Madison & Sutro LLP
725 S. Figueroa Street, Suite 1200
Los Angeles, CA 90017-5443
Attn: T. J. Grasmick, Esq.
Fax: (213) 629-1033
</TABLE>
Such notice or other communication shall be deemed given when so delivered
personally, telegraphed or sent by facsimile transmission, or, if sent by
overnight delivery or courier service, the day after sent from within the United
States, or if mailed, four days after the date of deposit in the United States
mail.
9.2 GOVERNING LAW. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the internal laws
of the State of California without taking into account provisions regarding
choice of law, except to the extent certain matters may be governed as a matter
of law by the law of the State of Delaware (as the state of incorporation of
Bancorp).
9.3 ENTIRE AGREEMENT. The parties intend that the terms of this Agreement
shall be the final expression of their agreement with respect to the subject
matter hereof and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement shall
constitute the complete and exclusive statement of its terms and that no
extrinsic evidence whatsoever may be introduced in any judicial, administrative
or other legal proceeding involving this Agreement. This Agreement, including
all schedules and exhibits hereto, constitutes the entire agreement between the
parties and supersedes all prior negotiations, undertakings, representations and
agreements, if any, of the parties hereto.
9.4 AMENDMENTS AND WAIVERS. This Agreement may not be amended except upon
the written consent of all parties hereto. By an instrument in writing, any
party may waive compliance by any other party with any term or provision of this
Agreement that such other party was or is obligated to comply with or perform;
provided, however, that such waiver shall not operate as a waiver of, or
estoppel with respect to, any other or subsequent failure. No failure to
exercise and no delay in exercising any right, remedy or power hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy or power hereunder preclude any other or further exercise thereof
or the exercise of any other right, remedy or power provided herein or by law or
in equity. The waiver by any party of the time for performance of any act or
condition hereunder does not constitute a waiver of the act or condition itself.
32
<PAGE> 173
9.5 SEVERABILITY. If any provision of this Agreement, or the application
thereof to any person, place or circumstance, shall be held by a court of
competent jurisdiction to be invalid, unenforceable or void, the remainder of
this Agreement and such provisions as applied to other persons, places and
circumstances shall remain in full force and effect.
9.6 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall constitute one and the same instrument.
9.7 HEADINGS. The article, section and other headings used in this
Agreement are for reference purposes only and shall not constitute a part hereof
or affect the meaning or interpretation of this Agreement.
9.8 EXPENSES. Subject to Section 8.2 hereof, the parties agree that fees
and out-of-pocket expenses incurred by the parties in connection with the
transactions contemplated by this Agreement shall be paid as follows:
(a) Fees and disbursements of counsel, consultants and accountants
(including the fees and disbursements in connection with the accountant's
comfort letters required by Sections 5.7 and 6.3(d) hereof) shall be paid
by the party employing such persons. FPSB shall arrange for such persons to
render statements for such fees and disbursements not less frequently than
monthly and final statements no later than five days after the Closing
Date. FPSB shall pay for its own reasonable costs, fees and expenses. FPSB
agrees not to incur unnecessary or unreasonable costs, fees and expenses
not otherwise customary for comparable transactions and not within the
business judgment and fiduciary responsibilities of the Board of Directors
of FPSB in satisfying FPSB's obligations under this Agreement.
(b) Other expenses in connection with any necessary qualifications of
Bancorp Stock under state securities or Blue Sky laws shall be paid by
Bancorp.
(c) Except as otherwise provided above, expenses in connection with
the printing of this Agreement and related documents and the Registration
Statement and Prospectus/Proxy Statement shall be divided equally between
FPSB and Bancorp, except that legal expenses and the expenses referred to
in clause (a) above shall be paid by the party incurring such expenses.
(d) All other fees and out-of-pocket expenses incurred in connection
with the transactions contemplated hereby shall be paid by the party
incurring such expenses.
(e) For purposes of this Section 9.8, the term "costs, fees and
expenses" do not include damages that may otherwise be recoverable by any
party as a result of the material breach of this Agreement by any other
party.
9.9 CERTAIN DEFINITIONS.
(a) "Material Adverse Effect" shall mean any change in or effect on the
business of FPSB or Bancorp, as the case may be, that is materially adverse to
the business, operations, properties or financial condition of FPSB taken as a
whole or Bancorp taken as a whole, as the case may be, or that is materially
adverse to the ability of such entity to perform its obligations under this
Agreement in a timely manner; provided, however, that Material Adverse Effect
shall not include such changes resulting from market and economic conditions
that generally affect the bank or savings bank industries as a whole or any
legislation or regulations relating to bad debt reserve recapture, federal
deposit insurance assessments or exit fees.
(b) A "subsidiary" of an entity shall mean any corporation, a majority of
the outstanding voting securities of which are owned directly or indirectly by
such entity.
(c) The term "person" shall include any individual, partnership, joint
venture, corporation, trust or unincorporated organization, any other business
entity and any government or any department or agency thereof, whether acting in
an individual, fiduciary or other capacity.
9.10 ATTORNEYS' FEES. If any legal action or other formal proceeding, or
any informal effort is brought or made for the enforcement of this Agreement or
because of an alleged dispute, breach or default in connection with this
Agreement, the party that substantially prevails shall be entitled to recover
reasonable attorneys' fees
33
<PAGE> 174
and other costs incurred in such action, proceeding or effort in addition to any
other relief to which it may be entitled, from the party or parties that do not
substantially prevail.
9.11 PUBLICITY. The parties hereto will consult with each other with
regard to the terms and substance of any and all press releases, announcements
or other public statements with respect to the transactions contemplated hereby.
The parties agree further that none of them will release any such press release,
announcement or other public statement without the prior approval of the other
parties, unless such release is required by law and the parties cannot approve a
mutually acceptable form of release, in which event the party releasing the
information, announcement or public statement shall not be deemed to be in
breach of this Agreement. The parties agree further that such approval will not
be unreasonably withheld, and they pledge to make a good faith effort to reach
agreement expeditiously on the terms of any such press release, announcement or
other public statement.
9.12 BINDING EFFECT. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that this Agreement may not be assigned by any party
without the prior written consent of the other parties.
9.13 THIRD PARTY. Except as specifically provided herein, each party
intends that this Agreement shall not benefit or create any right or cause of
action in any person other than the parties to this Agreement.
9.14 GENDER; NUMBER. Whenever the context of this Agreement requires, the
masculine gender shall include the feminine or neuter, and the singular number
shall include the plural, and vice versa.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
CATHAY BANCORP, INC.
By
----------------------------------
Dunson K. Cheng
President and Chairman of
the Board of Directors
CATHAY BANK
By
----------------------------------
Dunson K. Cheng
President and Chairman of
the Board of Directors
FIRST PUBLIC SAVINGS BANK, F.S.B.
By
----------------------------------
Jack C. Lee
Chairman of the Board
of Directors
34
<PAGE> 175
EXHIBIT A TO AGREEMENT
AND PLAN OF MERGER
MERGER AGREEMENT
THIS IS A MERGER AGREEMENT (this "Merger Agreement") dated as of
, 1996 by and among CATHAY BANCORP, INC., a Delaware corporation ("Bancorp")
CATHAY BANK, a California state banking corporation ("CB"), with its principal
place of business at 777 North Broadway, Los Angeles, California 90012, and
FIRST PUBLIC SAVINGS BANK, F.S.B., a United States federal stock savings bank
("FPSB"), with its principal place of business at 977 North Broadway Los
Angeles, California 90012.
RECITALS
WHEREAS, Bancorp, CB and FPSB have entered into an Agreement and Plan of
Merger (the "Agreement"), dated as of May , 1996, providing for the merger of
FPSB into CB on the terms and conditions provided in the Agreement and this
Merger Agreement and in accordance with Sections 4880 through 4891 of the
California Financial Code and 12 C.F.R. Sections 303.3, 552.13 and 563.22 (the
"Merger");
WHEREAS, FPSB has authorized capital stock of 10,000,000 shares of common
stock, $1.00 par value per share ("FPSB Stock"), of which at the date hereof
[4,000,000] shares are outstanding; and
WHEREAS, CB has authorized capital stock of [ ] shares of common
stock, $ par value per share, of which at the date hereof [ ]
shares are outstanding;
WHEREAS, Bancorp has authorized capital stock of 25,000,000 shares of
common stock, $0.01 par value per share ("Bancorp Stock"), of which at the date
hereof [ ] shares are outstanding, and 10,000,000 shares of preferred
stock, $0.01 par value per share, of which at the date hereof no shares are
outstanding and
WHEREAS, the directors, or a majority of them, of each constituent entity,
respectively, deem it advisable and in the best interests of the respective
constituent banks and their respective shareholders or shareholder that the
Merger be so consummated.
NOW, THEREFORE, Bancorp, CB and FPSB, subject to the conditions set forth
in the Agreement, in consideration of the premises and of the mutual covenants
and agreements contained therein and herein and of the benefits to accrue to
them, hereby agree that the constituent banks be merged into a single bank which
shall be CB and hereby agree, prescribe and set forth (among other provisions)
the terms and conditions of the Merger, the mode of carrying the same into
effect and the manner and basis of converting the shares of each constituent
bank as follows:
ARTICLE 1.
MERGER
1.1 Subject to the conditions set forth in the Agreement, FPSB shall be
merged into CB in accordance with the applicable provisions of Sections 4880
through 4891 of the California Financial Code and 12 C.F.R. Sections 552.13 and
563.22 upon the filing of this Merger Agreement with the Superintendent, after
approval by the California State Superintendent of Banks (the "Superintendent")
and certification by the California Secretary of State. The date and time of
such filing is referred to as the "Effective Time." At the Effective Time, the
separate existence of FPSB shall cease except to the extent provided by law in
the case of a corporation after its merger into another corporation and CB shall
continue under the laws of California as the surviving bank (the "surviving
bank").
1.2 The name of the surviving bank shall be "Cathay Bank."
<PAGE> 176
1.3 The home office of the surviving bank shall be 777 North Broadway, Los
Angeles, California 90012.
ARTICLE 2.
ARTICLES OF INCORPORATION AND
BYLAWS OF SURVIVING BANK
2.1 The Articles of Incorporation of CB as in effect immediately before
the Effective Time shall continue in full force and effect as the Articles of
Incorporation of the surviving bank until thereafter duly amended.
2.2 The Bylaws of CB as in effect immediately before the Effective Time
shall continue in full force and effect as the Bylaws of the surviving bank
until thereafter duly amended.
ARTICLE 3.
BOARD OF DIRECTORS AND
OFFICERS OF SURVIVING BANK
3.1 All directors of CB serving immediately before the Effective Time
shall continue to serve for the terms to which they were elected before the
Effective Time.
3.2 All officers of CB serving immediately before the Effective Time shall
continue to serve for the terms to which they were elected before the Effective
Time.
ARTICLE 4.
MANNER OF CONVERTING SHARES
OF STOCK OF CONSTITUENT BANKS
4.1 As of the Effective Time, each share of FPSB Stock, excluding
Dissenting Shares (as defined in Section 4.2), outstanding immediately before
the Effective Time shall, by virtue of the Merger and without any action on the
part of the holders of the FPSB Stock, be converted into the right to receive
cash and shares of Bancorp Stock as provided in Section 1.2 of the Agreement.
4.2 A "Dissenter" is a Shareholder who is entitled to dissent from
corporate action under 12 C.F.R. Section 552.14 and who exercises that right
when and in the manner required by that regulation. Each outstanding share of
FPSB Stock that is held by a Dissenter (a "Dissenting Share") shall be converted
into the right to receive payment pursuant to 12 C.F.R. Section 552.14.
ARTICLE 5.
SUBMISSION TO SHAREHOLDERS AND EFFECTIVENESS
5.1 This Merger Agreement shall be submitted for consideration and vote by
the shareholders of each constituent bank as required by the California
Financial Code and the regulations of the OTS. If adopted by the requisite votes
of the shareholders of each constituent bank, subject to the conditions set
forth in the Agreement, this Merger Agreement shall be delivered to the
Superintendent, the California Secretary of State and the OTS for filing. The
officers of the constituent bank shall execute all such other documents and
shall take all such other actions as may be necessary to effect the Merger in
accordance with this Merger Agreement.
-2-
<PAGE> 177
ARTICLE 6.
TRANSFER OF ASSETS AND LIABILITIES
6.1 Upon and after the Effective Time, the surviving bank shall possess
all the rights, privileges, powers and franchises, of a public as well as of a
private nature, and be subject to all the restrictions, disabilities and duties,
of the constituent banks; and all the rights, privileges, powers and franchises
of the constituent banks, and all property, real, personal and mixed, and all
debts due to either constituent bank on whatever account, as well for stock
subscriptions as all other things in action or belonging to each constituent
bank shall be vested in the surviving bank; and all property, rights,
privileges, powers and franchises, and all and every other interest, shall be
thereafter as effectually the property of the surviving bank as they were
constituent banks, and the title to any real estate vested by deed or otherwise
in either constituent bank shall not revert or be in any way impaired by reason
of the Merger; but all rights of creditors and all liens upon any property of
either constituent bank shall be preserved unimpaired, and all debts,
liabilities and duties of the constituent banks shall thenceforth attach to the
surviving bank, and may be enforced against it to the same extent as if said
debts, liabilities and duties had been incurred or contracted by it.
6.2 If at any time after the Effective Time the surviving bank shall
consider or be advised that any further deeds, assignments or assurances in law
or any other things are necessary desirable or proper to vest, perfect or
confirm, of record or otherwise, in the surviving bank, the title to any
property or rights of the constituent banks acquired or to be acquired by reason
of, or as a result of, the Merger, the constituent banks agree that the
surviving bank and its proper officers and directors shall execute and deliver
all such property, deeds, assignments and assurances in law and do all things
necessary, desirable or proper to vest, perfect or confirm title to such
property or rights in the surviving bank and otherwise to carry out the purposes
of this Merger Agreement, and that the proper officers and directors of the
constituent banks and the proper officers and directors of the surviving bank
are fully authorized in the name of the constituent banks or otherwise to take
any and all such action.
ARTICLE 7.
TERMINATION OF AGREEMENT AND ABANDONMENT OF MERGER
7.1 This Merger Agreement and the Merger contemplated hereby may be
terminated and abandoned, as provided in the Agreement, at any time before this
Merger Agreement has been filed as provided herein, whether before or after
approval of this Merger Agreement by the shareholders of FPSB or CB, or both of
them, and shall automatically terminate without further action by either of the
parties hereto if the Agreement is terminated in accordance with its terms.
7.2 At any time before the filing of this Merger Agreement as provided
herein, the parties hereto may, by written agreement approved by their Boards of
Directors and subject to Article 8 of the Agreement, (i) extend the time for the
performance of any of the obligations or other acts of the parties hereto, (ii)
waive compliance with any of the conditions, covenants or agreements contained
in this Merger Agreement or (iii) amend or modify any of the provisions of this
Merger Agreement.
7.3 If for any reason this Merger Agreement ceases to be binding upon the
constituent banks because of termination as provided herein or otherwise, it
shall thereafter be void without further action by the shareholders of either
constituent bank.
ARTICLE 8.
MISCELLANEOUS
8.1 This Merger Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all of which counterparts collectively
shall constitute one instrument representing the Merger Agreement.
-3-
<PAGE> 178
8.2 Except as otherwise provided in this Merger Agreement, nothing herein
expressed or implied is intended, or shall be construed. to confer upon or give
any person firm or bank, other than the constituent banks and their respective
security holders and their successors and assigns, any rights or remedies under
or by reason of this Merger Agreement.
8.3 This Merger Agreement and the legal relations between the parties shall
be governed by and construed in accordance with the internal laws of the State
of California without taking into account provisions regarding choice of law,
except to the extent certain matters may be governed as a matter of law by the
law of the State of Delaware (as the state of incorporation of Bancorp).
IN WITNESS WHEREOF, Bancorp, CB and FPSB have caused this Merger Agreement
to be signed as of the date first above written.
CATHAY BANCORP, INC.
<TABLE>
<S> <C>
Attest:
- -------------------------------------------- By ----------------------------------------
Secretary Dunson K. Cheng
President and Chairman of the Board of
Directors
CATHAY BANK
- --------------------------------------------
Secretary By ----------------------------------------
Dunson K. Cheng
President and Chairman of the Board of
Directors
FIRST PUBLIC SAVINGS BANK. F.S.B.
- --------------------------------------------
Secretary By ----------------------------------------
Jack C. Lee
Chairman of the Board of Directors
</TABLE>
-4-
<PAGE> 179
ANNEX 2
ILLUSTRATIVE CALCULATIONS OF TOTAL CONSIDERATION VALUE AND PER SHARE VALUE FOR
ASSUMED CALCULATION DATE BANCORP COMMON STOCK PRICES
For a Calculation Date Bancorp Stock Price of $14 to $20, the number of
Bancorp Common Stock shares floats and the Total Cash Consideration, Total Stock
Consideration and Total Consideration Value are fixed at $15,484,000,
$16,116,000 and $31,600,000, respectively. Below $14 and between $20 and $23,
the calculation of Total Consideration Value assumes an initial fixed number of
Bancorp Common Stock shares (1,151,153 shares if the Calculation Date Bancorp
Stock Price is below $14 and 805,800 shares if it is between $20 and $23) to be
received for the First Public Stock and a fixed amount of cash. If the
Calculation Date Bancorp Stock Price falls below $11, First Public has the right
to terminate the Agreement or to consummate the Merger for a lower Total
Consideration Value. Above $23, the number of Bancorp Common Stock shares
floats, the Total Cash Consideration, Total Stock Consideration and Total
Consideration Value are fixed at $16,668,000, $17,349,000 and $34,017,000,
respectively. Thus, the number and pro forma percentage of shares of Bancorp
Common Stock received will decrease if the Calculation Date Bancorp Stock Price
rises above $23. (Dollars are in millions except per share data; 7,880,102
shares of Bancorp Common Stock are assumed outstanding at Effective Time and
calculations do not consider Dissenting Shares.) The final Total Stock
Consideration and Total Cash Consideration amounts are determined by adjusting
the initial amounts to achieve a 51%/49% Total Stock Consideration/Total Cash
Consideration ratio. THERE CAN BE NO ASSURANCE AS TO WHAT THE CALCULATION DATE
BANCORP STOCK PRICE WILL BE OR WHAT THE VALUE OF THE BANCORP COMMON STOCK TO BE
ISSUED IN THE MERGER WILL BE AT OR FOLLOWING THE EFFECTIVE TIME. ALSO, THERE CAN
BE NO ASSURANCE THAT EACH FIRST PUBLIC STOCKHOLDER WILL RECEIVE THE FORM OF
CONSIDERATION ELECTED ON THE ELECTION FORM. SEE "THE MERGER -- CONSIDERATION AND
ELECTION AND ALLOCATION PROCEDURES."
<TABLE>
<CAPTION>
INITIAL TOTAL CONSIDERATION VALUES
- ---------------------------------------------------------------------------------------
CALCULATION
DATE
BANCORP TOTAL PER NUMBER CALCULATION CALCULATION
STOCK CONSIDERATION SHARE OF CASH STOCK
PRICE VALUE VALUE SHARES PORTION PORTION
- ----------- ------------- ----- ----------- ----------- -----------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
$ 11.00 $28.147 $7.04 1,151,243 $15.484 $12.663
$ 11.50 $28.722 $7.18 1,151,143 $15.484 $13.238
$ 12.00 $29.298 $7.32 1,151,143 $15.484 $13.814
$ 12.50 $29.873 $7.47 1,151,143 $15.484 $14.389
$ 13.00 $30.449 $7.61 1,151,143 $15.484 $14.965
$ 13.50 $31.024 $7.76 1,151,143 $15.484 $15.540
$ 14.00 $31.600 $7.90 1,151,143 $15.484 $16.116
$ 14.50 $31.600 $7.90 1,111,449 $15.484 $16.116
$ 15.00 $31.600 $7.90 1,074,400 $15.484 $16.116
$ 15.50 $31.600 $7.90 1,039,742 $15.484 $16.116
$ 16.00 $31.600 $7.90 1,007,250 $15.484 $16.116
$ 16.50 $31.600 $7.90 976,727 $15.484 $16.116
$ 17.00 $31.600 $7.90 948,000 $15.484 $16.116
$ 17.50 $31.600 $7.90 920,915 $15.484 $16.116
$ 18.00 $31.600 $7.90 895,334 $15.484 $16.116
$ 18.50 $31.600 $7.90 871,138 $15.484 $16.116
$ 19.00 $31.600 $7.90 848,211 $15.484 $16.116
$ 19.50 $31.600 $7.90 826,462 $15.484 $16.116
$ 20.00 $31.600 $7.90 805,800 $15.484 $16.116
$ 20.50 $32,003 $8.00 805,800 $15.484 $16,519
$ 21.00 $32.406 $8.10 805,800 $15.484 $16.922
$ 21.50 $32.809 $8.20 805,800 $15.484 $17.325
$ 22.00 $33.212 $8.30 805,800 $15.484 $17.728
$ 22.50 $33.615 $8.40 805,800 $15.484 $18.131
$ 23.00 $34.017 $8.50 805,800 $15.484 $18.533
(over
$ 23.00) $34.017 $8.50 (decreases) $16.668 $17.349
<CAPTION>
- ----------- ADJUSTED TOTAL CONSIDERATION VALUES
CALCULATION -----------------------------------------------------------------------------------------
DATE ADJUSTED ADJUSTED
BANCORP TOTAL TOTAL CASH TOTAL STOCK SHARES PRO FORMA
STOCK CONSIDERATION CONSIDERATION CONSIDERATION TO BE % OF BANCORP
PRICE VALUE 49% 51% RECEIVED COMMON STOCK
- ----------- ------------- ------------- ------------- ----------- ------------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
$ 11.00 $28.147 $ 13.7918 $ 14.3548 1,304,977 14.22 %
$ 11.50 $28.722 $ 14.0739 $ 14.6483 1,273,765 13.93 %
$ 12.00 $29.298 $ 14.3559 $ 14.9418 1,245,153 13.66 %
$ 12.50 $29.873 $ 14.6379 $ 15.2354 1,218,830 13.41 %
$ 13.00 $30.449 $ 14.9199 $ 15.5289 1,194,532 13.18 %
$ 13.50 $31.024 $ 15.2020 $ 15.8225 1,172,034 12.95 %
$ 14.00 $31.600 $ 15.4840 $ 16.1160 1,151,143 12.76 %
$ 14.50 $31.600 $ 15.4840 $ 16.1160 1,111,449 12.38 %
$ 15.00 $31.600 $ 15.4840 $ 16.1160 1,074,400 12.01 %
$ 15.50 $31.600 $ 15.4840 $ 16.1160 1,039,742 11.67 %
$ 16.00 $31.600 $ 15.4840 $ 16.1160 1,007,250 11.35 %
$ 16.50 $31.600 $ 15.4840 $ 16.1160 976,727 11.04 %
$ 17.00 $31.600 $ 15.4840 $ 16.1160 948,000 10.75 %
$ 17.50 $31.600 $ 15.4840 $ 16.1160 920,915 10.48 %
$ 18.00 $31.600 $ 15.4840 $ 16.1160 895,334 10.22 %
$ 18.50 $31.600 $ 15.4840 $ 16.1160 871,136 9.97 %
$ 19.00 $31.600 $ 15.4840 $ 16.1160 848,211 9.73 %
$ 19.50 $31.600 $ 15.4840 $ 16.1160 826,462 9.50 %
$ 20.00 $31.600 $ 15.4840 $ 16.1160 805,800 9.29 %
$ 20.50 $32.003 $ 15.6814 $ 16.3215 796,170 9.19 %
$ 21.00 $32.406 $ 15.8788 $ 16.5270 786,998 9.09 %
$ 21.50 $32.809 $ 16.0763 $ 16.7324 778,253 9.00 %
$ 22.00 $33.212 $ 16.2737 $ 16.9379 769,905 8.91 %
$ 22.50 $33.615 $ 16.4771 $ 17.1434 761,929 8.83 %
$ 23.00 $34.017 $ 16.6683 $ 17,3487 754,299 8.75 %
(over
$ 23.00) $34.017 $ 16.6683 $ 17,3487 (decreases) (decreases)
</TABLE>
-5-
<PAGE> 180
ANNEX 3
MONTGOMERY OPINION
May 30, 1996
Board of Directors
First Public Savings Bank
988 N. Hill Street, Suite 206
Los Angeles, California 90012
Gentlemen:
We understand that First Public Savings Bank, F.S.B., a United States
federal stock savings bank ("Seller"), Cathay Bancorp, Inc., a Delaware
corporation ("Buyer"), and Cathay Bank, a California state banking corporation
and a wholly owned subsidiary of Buyer ("Bank"), propose to enter into an
Agreement and Plan of Merger dated as of May 30, 1996 (the "Merger Agreement"),
pursuant to which Seller will be merged with and into Bank (the "Merger").
Pursuant to the Merger, as more fully described in the May 30, 1996 draft of the
Merger Agreement provided to us by Seller and as further described to us by
management of Seller, we understand that all of the outstanding shares of the
common stock, $1.00 par value per share, of Seller ("Seller Common Stock") will
be converted into the right to receive an aggregate of $15,484,000 cash (the
"Cash Consideration") and shares of common stock, $0.01 stated value per share,
of Buyer ("Buyer Common Stock") with a value of $16,116,000 (the "Stock
Consideration," and together with the Cash Consideration, the "Aggregate
Consideration"), based on the average of the high and low sale prices of Buyer
Common Stock for the 20 trading days ending 5 trading days prior to the closing
date of the Merger (the "Calculation Price"), subject to adjustment if the
Calculation Price is less than $14 or more than $20. Each holder of Seller
Common Stock may elect to convert such stock into the right to receive either
Stock Consideration or Cash Consideration, subject to certain procedures and
limitations contained in the Merger Agreement.
You have asked for our opinion as investment bankers as to whether the
Aggregate Consideration to be received by the holders of Seller Common Stock
pursuant to the Merger is fair to such shareholders from a financial point of
view, as of the date hereof. You have not asked for, and we express no opinion
with respect to the election by the holders of Seller Common Stock to receive
either Stock Consideration or Cash Consideration.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available financial and other data with respect to Seller and
Buyer, including the consolidated financial statements of Seller and Buyer for
recent years and interim periods to March 31, 1996 and certain other relevant
financial and operating data relating to Seller and Buyer made available to us
from published sources and from the internal records of Seller and Buyer,
respectively, (ii) reviewed the May 30, 1996 draft of the Merger Agreement
provided to us; (iii) reviewed certain publicly available information concerning
the trading of, and the trading market for, Buyer Common Stock; (iv) compared
Seller and Buyer from a financial point of view with certain other companies in
the savings and loan and banking industries which we deemed to be relevant; (v)
considered the financial terms, to the extent publicly available, of selected
recent business combinations in the savings and loan industry which we deemed to
be comparable, in whole or in part, to the Merger; (vi) reviewed and discussed
with representatives of the management of Seller and Buyer certain information
of a business and financial nature regarding Seller and Buyer, respectively,
furnished to us by them, including financial forecasts and related assumptions
of Seller and Buyer; (vii) made inquiries regarding and discussed the Merger and
the Merger Agreement and other matters related thereto with Seller's counsel;
and (viii) performed such other analyses and examinations as we have deemed
appropriate.
In connection with our review, we have relied upon the accuracy and
completeness of the foregoing information and have not assumed any obligation
independently to verify such information. With respect to
<PAGE> 181
the financial forecasts for Seller and Buyer provided to us by Seller's
management and Buyer's management, we have assumed for purposes of our opinion
the forecasts have been reasonably prepared on bases reflecting the best
available estimates and judgment of Seller's management and Buyer's management
at the time of preparation as to the future financial performance of Seller and
Buyer and that they provide a reasonable basis upon which we can form our
opinion. We have also assumed that there have been no material changes in
Seller's or Buyer's assets, financial condition, results of operations, business
or prospects since the date of the last financial statements made available to
us. We have relied on advice of counsel and independent accounts to Seller and
Buyer as to all legal and financial reporting matters with respect to Seller,
Buyer, the Merger and the Merger Agreement. In rendering our opinion, we express
no view with respect to, nor have we considered the tax consequences of the
Merger to any shareholder of Seller. We have assumed that the Merger will be
consummated in a manner that complies in all respects with the applicable
provisions of the Securities Act of 1933, as amended (the "Securities Act"), the
Securities Exchange Act of 1934 and all other applicable federal and state
statutes, rules and regulations. We are not experts in the valuation of loan
portfolios for purposes of assessing the adequacy of the allowances for losses
with respect thereto and have assumed, with your consent, that such allowances
for Seller and Buyer are in the aggregate adequate to cover such losses. In
addition, we have not assumed responsibility for reviewing any individual credit
files, or making an independent evaluation, appraisal or physical inspection of
any of the assets or liabilities (contingent or otherwise) of Seller or Buyer,
nor have we been furnished with any such appraisals. Finally, our opinion is
based on economic, monetary and market and other conditions as in effect on, and
the information made available to us as of, the date hereof. Accordingly,
although subsequent developments may effect this opinion, we have not assumed
any obligation to update, revise or reaffirm this opinion.
We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the Merger Agreement,
without any further amendments, thereto, and without waiver by Seller of any of
the conditions to its obligations thereunder.
We have acted as financial advisor to Seller in connection with the Merger
and will receive a fee for our services, including rendering this opinion.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Aggregate Consideration to be received by the
holders of Seller Common Stock pursuant to the Merger is fair to such
shareholders from a financial point of view, as of the date hereof.
This opinion is furnished pursuant to our engagement letter dated July 21,
1993, as amended January 17, 1996. This opinion is addressed to the Board of
Directors of Seller and is not intended to be and shall not be deemed to be a
recommendation to any shareholder as to how such shareholder should vote with
respect to the Merger. Except as provided in such engagement letter, this
opinion may not be used or referred to by Seller, or quoted or disclosed to any
person in any manner, without our prior written consent.
Very truly yours,
MONTGOMERY SECURITIES
-2-
<PAGE> 182
ANNEX 4
OFFICE OF THRIFT SUPERVISION REGULATIONS
SECTION 552.14
DISSENTERS' RIGHTS
(a) Right to demand payment of fair or appraised value. Except as provided
in paragraph (b) of this section, any stockholder of a Federal stock association
combining in accordance with sec.552.13 of this part shall have the right to
demand payment of the fair or appraised value of his stock: Provided, That such
stockholder has not voted in favor of the combination and complies with the
provisions of paragraph (c) of this section.
(b) Exceptions. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section to
demand payment of the stock's fair or appraised value, if such stock was listed
on a national securities exchange or quoted on the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") on the date of the
meeting at which the combination was acted upon or stockholder action is not
required for a combination made pursuant to sec. 552.13(H)(2) of this part.
"Qualified consideration" means cash, shares of stock of any association or
corporation which at the effective date of the combination will be listed on a
national securities exchange or quoted on NASDAQ, or any combination of such
shares of stock and cash.
(c) Procedure -- (1) Notice. Each constituent Federal stock association
shall notify all stockholders entitled to rights under this section, not less
than twenty (20) days prior to the meeting at which the combination agreement is
to be submitted for stockholder approval, of the right to demand payment of
appraised value of shares, and shall include in such notice a copy of this
section. Such written notice shall be mailed to stockholders of record and may
be part of management's proxy solicitation for such meeting.
(2) Demand for appraisal and payment. Each stockholder electing to make a
demand under this section shall deliver to the Federal stock association, before
voting on the combination, a writing identifying himself or herself and stating
his or her intention thereby to demand appraisal of and payment for his or her
shares. Such demand must be in addition to and separate from any proxy or vote
against the combination by the stockholder.
(3) Notification of effective date and written offer.Within ten (10) days
after the effective date of the combination, the resulting association shall:
(i) Give written notice by mail to stockholders of constituent Federal
stock associations who have complied with the provisions of paragraph
(c)(2) of this section and have not voted in favor of the combination, of
the effective date of the combination;
(ii) Make a written offer to each stockholder to pay for dissenting
shares at a specified price deemed by the resulting association to be the
fair value thereof; and
(iii) Inform them that, within sixty (60) days of such date, the
respective requirements of paragraphs (c)(5) and (c)(6) of this section
(set out in the notice) must be satisfied.
The notice and offer shall be accompanied by a balance sheet and
statement of income of the association the shares of which the dissenting
stockholder holds, for a fiscal year ending not more than sixteen months
before the date of notice and offer, together with the latest available
interim financial statements.
(4) Acceptance of Offer. If within sixty (60) days of the effective date of
the combination the fair value is agreed upon between the resulting association
and any stockholder who has complied with the provisions of paragraph (c)(2) of
this section, payment therefor shall be made within ninety (90) days of the
effective date of the combination.
(5) Petition to be filed if offer not accepted. If within sixty (60) days
of the effective date of the combination of the effective date of the
combination the resulting association and any stockholder who has complied with
the provisions of paragraph (c)(2) of this section do not agree as to the fair
value, then any such stockholder may file a petition with the Office, with a
copy by registered or certified mail to the resulting
<PAGE> 183
association, demanding a determination of the fair market value of the stock of
all such stockholders. A stockholder entitled to file a petition under this
section who fails to file such petition within sixty (60) days of the effective
date of the combination shall be deemed to have accepted the terms offered under
the combination.
(6) Stock certificates to be noted. Within sixty (60) days of the effective
date of the combination, each stockholder demanding appraisal and payment under
this section shall submit to the transfer agent his certificates of stock for
notation thereon that an appraisal and payment have been demanded with respect
to such stock and that appraisal proceedings are pending. Any stockholder who
fails to submit his or her stock certificates for such notation shall no longer
be entitled to appraisal rights under this section and shall be deemed to have
accepted the terms offered under the combination.
(7) Withdrawal of demand. Notwithstanding the foregoing, at any time within
sixty days after the effective date of the combination, any stockholder shall
have the right to withdraw his or her demand for appraisal and to accept the
terms offered upon the combination.
(8) Valuation and payment. The Director shall, as he or she may elect,
either appoint one or more independent persons or direct appropriate staff of
the Office to appraise the shares to determine their fair market value, as of
the effective date of the combination, exclusive of any element of value arising
from the accomplishment or expectation of the combination. Appropriate staff of
the Office shall review and provide an opinion on appraisals prepared by
independent persons as to the suitability of the appraisal methodology and the
adequacy of the analysis and supportive data. The Director after consideration
of the appraisal report and the advice of the appropriate staff shall, if he or
she concurs in the valuation of the shares, direct payment by the resulting
association of the appraised fair market value of the shares, upon surrender of
the certificates representing such stock. Payment shall be made, together with
interest from the effective date of the combination, at a rate deemed equitable
by the Director.
(9) Costs and expenses. The costs and expenses of any proceeding under this
section may be apportioned and assessed by the Director as he or she may deem
equitable against all or some of the parties. In making this determination the
Director shall consider whether any party has acted arbitrarily, vexatiously, or
not in good faith in respect to the rights provided by this section.
(10) Voting and distribution. Any stockholder who has demanded appraisal
rights as provided in paragraph (c)(2) of this section shall thereafter neither
be entitled to vote such stock for any purpose nor be entitled to the payment of
dividends or other distributions on the stock (except dividends or other
distribution payable to, or a vote to be taken by stockholders of record at a
date which is on or prior to, the effective date of the combination): Provided,
That if any stockholder becomes unentitled to appraisal and payment of appraised
value with respect to such stock and accepts or is deemed to have accepted the
terms offered upon the combination, such stockholder shall thereupon be entitled
to vote and receive the distributions described above.
(11) Status. Shares of the resulting association into which shares of the
stockholders demanding appraisal rights would have been converted or exchanged,
had they assented to the combination, shall have the status of authorized and
unissued shares of the resulting association.
-2-
<PAGE> 184
PART II
INFORMATION NOT REQUIRED
IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS AND DIRECTORS
The Bylaws of Bancorp provide that Directors and officers of Bancorp shall
be, and at the discretion of the Board of Directors, non-officer employees may
be, indemnified by Bancorp against all expenses and liabilities reasonably
incurred in connection with service for or on behalf of Bancorp, to the maximum
extent permitted under Delaware law.
As permitted by the Delaware General Corporation Law, Directors and
officers, as well as other employees and individuals, may be indemnified against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with specified actions, suits or proceedings, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation (i.e., a "derivative action")), if they acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the stockholders and, with respect to any criminal action
or proceeding, had no reasonable cause to believe their conduct was unlawful. A
similar standard of care is applicable in the case of derivative actions, except
that indemnification extends only to expenses (including attorneys' fees)
incurred in connection with defense or settlement of such an action. Delaware
law permits a corporation to advance expenses to Directors or officers upon the
corporation's receipt of an undertaking by such persons to repay the advance in
the event of a specific determination that such person was not entitled to
indemnification.
Delaware law requires court approval before there may be any
indemnification where the person seeking indemnification has been found liable
to the corporation in a derivative action by reason of the fact that he is or
was a director, officer, employee or agent of the corporation. Delaware law,
however, provides that the termination of any proceeding (other than an action
by or in the right of the corporation) by judgment, order, settlement,
conviction or upon a plea of nolo contendere does not create a presumption
adverse to the director, officer or other person.
Bancorp's Bylaws provide that each person who is involved in any litigation
or other proceeding because he or she is or was a Director or officer of Bancorp
or among other things of another related entity shall be indemnified by Bancorp
to the fullest extent authorized by Delaware law (but, in the case of any future
amendment to Delaware law, the right to indemnification shall be adjusted only
to the extent that such amendment permits Bancorp to provide broader
indemnification rights than prior to such amendment), against all expense,
liability or loss reasonably incurred by such persons in connection therewith.
The Bylaws also provide that indemnification to Directors and officers is a
contract right and the right includes the right to be paid the expenses incurred
in defending any proceeding in advance of its final disposition; provided,
however, that the advancement of the expenses will be made only after the person
delivers an undertaking to Bancorp to repay any amounts advanced if it is
ultimately determined that he or she is not entitled to indemnification. The
purpose of providing that the right of indemnification is a contract right is to
provide an indemnified party with an enforceable claim that may not be
unilaterally affected by actions taken by Bancorp (e.g., there would be a claim
under contract law to indemnification as to conduct which occurred while this
provision of the Bylaws was in effect, regardless of subsequent changes to the
Bylaws). If Bancorp does not pay a proper claim for indemnification in full
within thirty (30) days after a written claim for indemnification is received by
Bancorp, the Bylaws authorize the claimant to bring a suit against Bancorp and
prescribe what does and does not constitute a defense to such action. This right
to indemnification and advancement of expenses also may be conferred upon any
employee or agent of Bancorp if, and to the extent, authorized by Bancorp's
Bylaws or its Board of Directors. Bancorp's Bylaws provide that indemnification
may be available to employees and agents.
In any action by a person seeking indemnification, it is a defense that
such person has not met any applicable standard for indemnification as set forth
in Delaware General Corporation Law. However, neither the failure of Bancorp to
have made a determination that the applicable standard has been satisfied, or an
actual determination by Bancorp that the person has not satisfied the applicable
standard, creates a
II-1
<PAGE> 185
presumption that the standard was not satisfied, or is a defense to such action.
The burden of proving that the applicable standard of conduct has not been
satisfied, and that the person is not entitled to indemnification, is on
Bancorp.
The Bylaws further state that the right to indemnification and the
advancement of expenses conferred by the Bylaws is not exclusive of any other
right which any person may have or later acquire under any statute or any
provision of Bancorp's Certificate or Bylaws, by vote of the stockholders or
disinterested Directors, or otherwise. In addition, the Bylaws authorize Bancorp
to maintain insurance, at its expense, to protect itself and certain
individuals, including officers and Directors of Bancorp, against any expense,
liability, or loss, whether or not Bancorp would have the power to indemnify the
person under Delaware law.
The foregoing indemnification provisions are included in Bancorp's Bylaws
in recognition of the need to protect Directors and officers of Bancorp so as to
attract and retain the best persons available to serve in those capacities. In
light of the complexities and pressures placed on directors of publicly held
corporations, and especially companies involved in the complex and fast-changing
financial services industry, the Board of Directors believes that the time,
effort and talent of officers and Directors of Bancorp and its subsidiaries
should be directed toward managing Bancorp's business, rather than being forced
to act defensively out of concern over costly personal litigation. By including
these indemnification provisions in Bancorp's Bylaws, Directors and officers of
Bancorp have the assurance that they will be indemnified for actions taken in
good faith and in a manner believed to be in the best interest of the
stockholders.
In May 1991, Bancorp entered into indemnity agreements with its directors
and certain of its officers. These indemnity agreements permit Bancorp to
indemnify an officer or director to the maximum extent permitted under Delaware
law and prohibit Bancorp from terminating its indemnification obligations as to
acts of any officer or director that occur before the termination. Bancorp
believes the indemnity agreements will assist it in attracting and retaining
qualified individuals to serve as directors and officers of Bancorp. Bancorp's
Certificate of Incorporation also provides for certain limitations on the
liability of directors, as permitted by Delaware law. The indemnifications and
limitations on liability permitted by the certificate of incorporation, bylaws
and the indemnity agreements are subject to the limitations set forth by
Delaware law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ -------
<C> <S>
2.1 Agreement and Plan of Merger dated May 30, 1996 among First Public, Bancorp and CB
(included as Annex 1 to the Proxy Statement-Prospectus)
3.1 Restated Certificate of Incorporation of Cathay Bancorp, Inc. Previously filed with
the Securities and Exchange Commission as an exhibit to Registration Statement No.
33-33767 and incorporated herein by reference.
3.2 Restated Bylaws, as amended, of Cathay Bancorp, Inc. Previously filed with the
Securities and Exchange Commission as an exhibit to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990 and incorporated herein by
reference.
4.1 Stockholders' Rights Plan, as amended. Previously filed with the Securities and
Exchange Commission as an exhibit to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990 and incorporated herein by reference.
5.1 Opinion of Heller, Ehrman, White & McAuliffe as to the legality of the securities
registered hereunder.
8.1 Form of opinion of counsel with respect to material tax matters.
10.1 Form of Indemnity Agreements between Registrant and its directors and certain
officers. Previously filed with the Securities and Exchange Commission as an
exhibit to Registration Statement No. 33-33767 and incorporated herein by
reference.
</TABLE>
II-2
<PAGE> 186
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ -------
<C> <S>
10.2 Employee Stock Ownership Trust of Registrant, and First Amendment thereto.
Previously filed with the Securities and Exchange Commission as an exhibit to
Registration Statement No. 33- 33767 and incorporated herein by reference.
10.3 Dividend Reinvestment Plan of Registrant. Previously filed with the Securities and
Exchange Commission as an exhibit to Registration Statement No. 33-33767 and
incorporated herein by reference.
10.4 Second Amendment to Registrant's Employee Stock Ownership Trust. Previously filed
with the Securities and Exchange Commission as an exhibit to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by
reference.
10.5 Amended and Restated Employee Stock Ownership Plan of Registrant and First and
Second Amendments thereto.
13.1 Annual Report on Form 10-K of Bancorp for the fiscal year ended December 31, 1995.
Previously filed with the Securities and Exchange Commission and incorporated
herein by reference.
13.2 Current Report on Form 10-Q of Bancorp for the quarter ended March 31, 1996.
Previously filed with the Securities and Exchange Commission and incorporated
herein by reference.
13.3 Current Report on Form 10-Q of Bancorp for the quarter ended June 30, 1996.
Previously filed with the Securities and Exchange Commission and incorporated
herein by reference.
21.1 Subsidiaries of Registrant. Previously filed with the Securities and Exchange
Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by reference.
23.1 Consent of Pillsbury Madison & Sutro LLP (included at Exhibit 8.1).
23.2 Consent of Heller Ehrman White & McAuliffe (included at Exhibit 5.1).
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of KPMG Peat Marwick LLP.
23.5 Consent of Montgomery Securities.
24.1 Power of Attorney (included on Page II-5 to this Registration Statement).
99.1 Form of Election Form and Letter of Transmittal.
99.2 Form of Proxy Card.
99.3 Opinion of Montgomery Securities (included as Annex 3 to the Proxy
Statement-Prospectus).
</TABLE>
- ---------------
(b) FINANCIAL STATEMENT SCHEDULES: Inapplicable
II-3
<PAGE> 187
ITEM 22. UNDERTAKINGS
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) 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; and
(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.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each 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 the time
shall be deemed to be the initial bona fide offering thereof.
(3) 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.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, as amended, each filing of the registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934, as amended, 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.
B. Insofar as indemnification for liabilities arising under Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
C. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
D. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 188
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on the day of , 1996.
CATHAY BANCORP, INC.
By: /s/ DUNSON K. CHENG
--------------------------------
Dunson K. Cheng
President, Chairman and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ DUNSON K. CHENG President, Chairman and , 1996
- --------------------------------------------- Director (principal
Dunson K. Cheng executive officer)
* Executive Vice , 1996
- --------------------------------------------- President, Chief
Anthony M. Tang Financial
Officer/Treasurer and
Director (principal
financial officer)
(principal accounting
officer)
* Director , 1996
- ---------------------------------------------
Ralph Roy Buon-Cristiani
* Director , 1996
- ---------------------------------------------
Kelly L. Chan
* Director , 1996
- ---------------------------------------------
Michael M. Y. Chang
* Director , 1996
- ---------------------------------------------
George T. M. Ching
* Director , 1996
- ---------------------------------------------
Gerald T. Deal
* Director , 1996
- ---------------------------------------------
Wing K. Fat
* Director , 1996
- ---------------------------------------------
Patrick S. D. Lee
</TABLE>
II-5
<PAGE> 189
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
* Director , 1996
- ---------------------------------------------
Chi-Hung Joseph Poon
* Director , 1996
- ---------------------------------------------
Thomas G. Tartaglia
* Director , 1996
- ---------------------------------------------
Wilbur K. Woo
*By /s/ DUNSON K. CHENG
------------------------------------------
Dunson K. Cheng
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 190
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ------------ ----------- ----
<S> <C> <C>
2.1 Agreement and Plan of Merger dated May 30, 1996 among First Public,
Bancorp and CB (included as Annex 1 to the Proxy
Statement-Prospectus)..................................................
3.1 Restated Certificate of Incorporation of Cathay Bancorp, Inc.
Previously filed with the Securities and Exchange Commission as an
exhibit to Registration Statement No. 33-33767 and incorporated herein
by reference...........................................................
3.2 Restated Bylaws, as amended, of Cathay Bancorp, Inc. Previously filed
with the Securities and Exchange Commission as an exhibit to
Registrant's Annual Report on Form 10-K for the year ended December 31,
1990 and incorporated herein by reference..............................
4.1 Stockholder Rights Plan, as amended. Previously filed with the
Securities and Exchange Commission as an exhibit to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference.......................................
5.1 Opinion of Heller, Ehrman, White & McAuliffe as to the legality of
securities issued hereunder............................................
8.1 Form of opinion of counsel with respect to material tax matters........
10.1 Form of Indemnity Agreements between Registrant and its directors and
certain officers. Previously filed with the Securities and Exchange
Commission as an exhibit to Registration Statement No. 33-33767 and
incorporated herein by reference.......................................
10.2 Employee Stock Ownership Plan and Trust of Registrant, and First
Amendment thereto. Previously filed with the Securities and Exchange
Commission as an exhibit to Registration Statement No. 33-33767 and
incorporated herein by reference.......................................
10.3 Dividend Reinvestment Plan of Registrant. Previously filed with the
Securities and Exchange Commission as an exhibit to Registration
Statement No. 33-33767 and incorporated herein by reference............
10.4 Second Amendment to Registrant's Employee Stock Ownership Trust.
Previously filed with the Securities and Exchange Commission as an
exhibit to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991 and incorporated herein by reference.................
10.5 Amended and Restated Employee Stock Ownership Plan of Registrant and
First and Second Amendments thereto....................................
13.1 Annual Report on Form 10-K of Bancorp for the fiscal year ended
December 31, 1995. Previously filed with the Securities and Exchange
Commission and incorporated herein by reference........................
13.2 Current Report on Form 10-Q of Bancorp for the quarter ended March 31,
1996. Previously filed with the Securities and Exchange Commission and
incorporated herein by reference.......................................
13.3 Current Report on Form 10-Q of Bancorp for the quarter ended June 30,
1996. Previously filed with the Securities and Exchange Commission and
incorporated herein by reference.......................................
21.1 Subsidiaries of Registrant. Previously filed with the Securities and
Exchange Commission as an exhibit to Registrant's Annual Report on Form
10-K for the year ended December 31, 1995 and incorporated herein by
reference..............................................................
23.1 Consent of Pillsbury Madison & Sutro LLP (included at Exhibit 8.1).....
</TABLE>
<PAGE> 191
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ------------ ----------- -----
<S> <C> <C>
23.2 Consent of Heller, Ehrman, White & McAuliffe
(included at Exhibit 5.1)..............................................
23.3 Consent of Deloitte & Touche LLP.......................................
23.4 Consent of KPMG Peat Marwick LLP.......................................
23.5 Consent of Montgomery Securities.......................................
24.1 Power of Attorney (included on page II-5 to this Registration
Statement).............................................................
99.1 Form of Election Form and Letter of Transmittal........................
99.2 Form of Proxy Card.....................................................
99.3 Opinion of Montgomery Securities (included as Annex 3 to Proxy
Statement-Prospectus)..................................................
</TABLE>
- ---------------
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF HELLER EHRMAN WHITE & MCAULIFFE]
October 1, 1996
Cathay Bancorp, Inc.
777 North Broadway
Los Angeles, California 90012
Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel to Cathay Bancorp, Inc., a Delaware
corporation (the "Company"), in connection with the Registration Statement on
Form S-4 (Registration No. 333-12177) filed with the Securities and Exchange
Commission on September 17, 1996 (the "Registration Statement") for the purpose
of registering under the Securities Act of 1933, as amended, up to 1,003,331
shares of the Company's Common Stock, par value $.01 per share (the "Shares"),
to be issued in connection with the proposed merger (the "Merger") of First
Public Savings Bank, F.S.B. ("First Public") with and into Cathay Bank, a
California chartered bank and a wholly-owned subsidiary of the Company ("CB")
pursuant to an Agreement and Plan of Merger dated May 30, 1996 (the "Agreement")
and related Merger Agreement among the Company, First Public and CB.
In connection with this opinion, we have assumed the authenticity of
all records, documents and instruments submitted to us as originals, the
genuineness of all signatures, the legal capacity of natural persons and the
conformity to the originals of all records, documents and instruments submitted
to us as copies. We have based our opinion upon our review of the following
records, documents, instruments and certificates:
(a) The Restated Certificate of Incorporation of the Company,
certified by the Secretary of State of the State of Delaware as
of July 29, 1996, and further certified to us by an officer of
the Company as being complete and in full force and effect as of
the date of this opinion;
(b) The Restated Bylaws of the Company certified to us by an officer
of the Company as being complete and in full force and effect as
of the date of this opinion;
<PAGE> 2
Cathay Bancorp, Inc.
October 1, 1996 Page 2
(c) A Certificate of the Secretary of the Company: (i) certifying
that copies of all records of proceedings and actions of the
Board of Directors of the Company, including any committee
thereof, relating to the Merger have been provided to us; and
(ii) certifying as to certain factual matters;
(d) The Registration Statement;
(e) The Agreement;
(f) Merger Agreement included as Exhibit A to the Agreement; and
(g) A Certificate of American Stock Transfer and Trust Company,
Transfer Agent to the Company, to the effect that, as of
September 26, 1996, there were 7,950,981 shares of Common Stock
issued and outstanding.
This opinion is limited to the general corporate laws of the State of
Delaware, and we disclaim any opinion as to the laws of any other jurisdiction.
We further disclaim any opinion as to any other statute, rule, regulation,
ordinance, order or other promulgation of any other jurisdiction or any regional
or local governmental body or as to any related judicial or administrative
opinion.
Based upon the foregoing and our examination of such questions of law
as we have deemed necessary or appropriate for the purpose of this opinion, and
assuming that: (i) the Registration Statement becomes and remains effective
during the period when the Shares are offered and sold; (ii) the currently
unissued Shares to be sold by the Company are issued, delivered and paid for in
accordance with the terms of the Registration Statement, the Agreement and the
Merger Agreement; (iii) the Merger Agreement is executed in the form contained
in Exhibit A to the Agreement; (iv) the shareholders of First Public approve the
Merger; and (v) all applicable securities laws are complied with, it is our
opinion that the Shares, when issued by the Company, will be legally issued,
fully paid and nonassessable.
This opinion is rendered to you in connection with the Registration
Statement and is solely for your benefit. This opinion may not be relied upon by
you for any other purpose, or relied upon by any other person, firm, corporation
or other entity for any purpose, without our prior written consent. We disclaim
any obligation to advise you of any developments that come to our attention
after the date of this opinion.
<PAGE> 3
Cathay Bancorp, Inc.
October 1, 1996 Page 3
We hereby consent to the filing of this opinion as an exhibit to, and
our being named under the heading "Legal Matters" in, the Registration
Statement.
Very truly yours,
HELLER EHRMAN WHITE & MCAULIFFE
<PAGE> 1
EXHIBIT 8.1
Draft Form of Tax Opinion
[PM&S LLP LETTERHEAD]
[Closing Date]
First Public Savings Bank, F.S.B.
Corporate Office
977 North Broadway, Suite 308
Los Angeles, CA 90012
Ladies/Gentlemen:
We have acted as special counsel to First Public Savings Bank, F.S.B. ("First
Public"), in connection with the proposed merger (the "Merger") of First Public
with and into Cathay Bank, a California state banking corporation ("CB"), upon
the terms and conditions set forth in the Agreement and Plan of Merger dated as
of May 30, 1996 (the "Agreement") by and among First Public, CB and CB's
parent, Cathay Bancorp, Inc., a Delaware corporation ("Bancorp"). At your
request, in connection with the closing of the Merger, we are rendering our
opinion concerning certain federal income tax consequences of the Merger.
For purposes of the opinion set forth below, we have relied, with the consent
of First Public, CB and Bancorp, upon the accuracy and completeness of the
statements and representations (which statements and representations we have
neither investigated nor verified) contained, respectively, in the certificates
of the officers of First Public, CB and Bancorp (copies of which are attached
hereto and which are incorporated herein by reference), and have assumed that
such certificates will be complete and accurate as of the Effective Time. We
have also relied upon the accuracy of the Registration Statement on Form S-4
(the "Registration Statement") and the Proxy Statement-Prospectus filed with
the Securities Exchange Commission on September 17, 1996 in connection with the
Merger, as amended through the date hereof. Any capitalized term used and not
defined herein has the meaning given to it in the Proxy Statement-Prospectus or
the annexes thereto (including the Agreement).
We have also assumed that the transactions contemplated by the Agreement will
be consummated in accordance therewith and as described in the Proxy
Statement-Prospectus and that the Merger will qualify as a statutory merger
under the applicable laws of the State of California and under federal law.
Without limiting the generality of the immediately preceding sentence, this
opinion assumes that no more than 49% of the total consideration
<PAGE> 2
First Public Savings Bank, F.S.B.
November __, 1996
Page 2
received by the First Public shareholders as a result of the Merger (including
amounts received by First Public shareholders exercising their dissenters'
rights) will consist of cash or property other than Bancorp Common Stock.
Based upon and subject to the foregoing, it is our opinion that, under currently
applicable law, the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and that First Public, CB and Bancorp will each be a party to that
reorganization within the meaning of Section 368(b) of the Code, and that,
accordingly, the following will be certain federal income tax consequences of
the Merger:
(i) No gain or loss will be recognized by the First Public
shareholders on the exchange of their shares of First Public
Stock solely for shares of Bancorp Common Stock pursuant to
the terms of the Merger to the extent of such exchange.
(ii) A First Public shareholder who receives cash in exchange for
all of his shares of First Public Stock and who owns no
Bancorp Common Stock, actually or constructively under Code
Section 318, after the Merger should recognize gain or loss
equal to the difference between the cash received and the
shareholder's adjusted tax basis in the First Public Stock
surrendered in the Merger. If such shareholder's First Public
Stock is a capital asset at the time of the Merger, such gain
or loss should be capital gain or loss.
(iii) A First Public shareholder who receives cash and Bancorp
Common Stock in exchange for his First Public Stock (or who
receives only cash in the Merger but holds Bancorp Common
Stock, actually or constructively under Code Section 318,
after the Merger) will recognize gain (but not loss) equal to
the lesser of (x) the amount by which the sum of the fair
market value of the Bancorp Common Stock and cash received in
the Merger exceeds his adjusted tax basis in the First Public
Stock exchanged therefor, or (y) the cash received in the
Merger. Except for the cash received in lieu of fractional
shares, such gain may be treated, in whole or in part, as
dividend income pursuant to Section 356 of the Code.
<PAGE> 3
First Public Savings Bank, F.S.B.
November __, 1996
Page 3
(iv) The aggregate federal income tax basis of the shares of
Bancorp Common Stock received in exchange for First Public
Stock in the Merger will be the same as the aggregate basis of
the First Public Stock exchanged therefor, increased by any
gain and dividend income recognized in the transaction and
decreased by any cash received.
(v) A First Public shareholder's holding period for the Bancorp
Common Stock received in exchange for First Public Stock in
the Merger will include the period that such First Public
Stock was held by such shareholder, provided such First Public
Stock was a capital asset of such shareholder.
(vi) The receipt of cash in lieu of any fractional share of Bancorp
Common Stock by a First Public shareholder will be treated as
if the fractional share was distributed as part of the
exchange and then was redeemed by Bancorp.
This opinion may not be applicable to any First Public shareholder who
received First Public Stock pursuant to the exercise of employee stock options
or otherwise as compensation, who is not a citizen or resident of the United
States, who is a tax-exempt entity or who is a dealer in securities. No
opinion is rendered with respect to other issues of federal tax law arising out
of the transaction contemplated in the Agreement or with respect to any issues
arising under foreign, state or local tax laws.
We hereby consent to the reference to us under the heading "Certain
Federal Income Tax Consequences" in the Proxy Statement-Prospectus and the
filing of this opinion as an exhibit to the Form S-4 Registration Statement
filed on September 17, 1996 with the Securities and Exchange Commission.
Very truly yours,
PILLSBURY MADISON & SUTRO LLP
<PAGE> 1
EXHIBIT 10.5
SECOND AMENDMENT
TO THE
AMENDED AND RESTATED
CATHY BANK
EMPLOYEE STOCK OWNERSHIP PLAN
Cathay Bancorp, Inc. (the "Company") hereby amends Section 2.4(d) of
the above-named plan, effective on and from January 1, 1987, to read as follows:
"(d) In addition to the foregoing, in the case of any Employee
who incurs a Break in Service before satisfying the Plan's eligibility
requirements, such Employee's Years of Service that were completed before
such Break in Service shall not be counted. Further, a Participant who is
re-employed shall participate immediately upon the date of his or her
re-employment."
The Company has signed this Amendment on April 20, 1995.
"Company"
CATHAY BANCORP, INC.
By DUNSON CHENG
--------------------------
DUNSON CHENG, President
-1-
<PAGE> 2
FIRST AMENDMENT
TO THE
CATHAY BANK
EMPLOYEE STOCK OWNERSHIP PLAN
Cathay Bancorp, Inc. (the "Company") hereby amends Section 9.4(b) of
the above-named plan, effective on and from January 1, 1994, to read as follows:
"(b) Definitions. For the purposes of this Section, the following
definitions shall apply:
(i) 'Qualified Participant' shall mean a Participant who
has attained age 55 and who has completed at least 10 years of
participation in the Plan.
(ii) 'Qualified Election Period' shall mean, with respect to
any Participant, the six Plan Year period beginning with the first Plan
Year in which the Participant first became a Qualified Participant."
The Company has signed this Amendment on October 27, 1994.
"Company"
CATHAY BANCORP, INC.
By DUNSON CHENG
------------------------
DUNSON CHENG, President
<PAGE> 3
AMENDED AND RESTATED CATHAY BANK
EMPLOYEE STOCK OWNERSHIP PLAN
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I NAME, DEFINITIONS & FUNDING POLICY.............................................................. 1
Section 1.1: Full Name............................................................................ 1
Section 1.2: Definitions.......................................................................... 1
Section 1.3: Other Definitions.................................................................... 11
Section 1.4: Funding Policy....................................................................... 12
ARTICLE II PARTICIPATION.................................................................................. 12
Section 2.1: Eligibility Requirements............................................................. 12
Section 2.2: Application For Participation And Beneficiary Designation............................ 12
Section 2.3: Participation ....................................................................... 13
Section 2.4: Break In Service Rules For Eligibility Purposes...................................... 13
ARTICLE III CONTRIBUTIONS................................................................................. 14
Section 3.1: Company Contributions............................................................... 14
Section 3.2: Payment Of Contributions To The Trustee............................................. 14
Section 3.3: Participant Contributions............................................................ 14
Section 3.4: No Requirement For Profits........................................................... 14
ARTICLE IV ALLOCATIONS TO PARTICIPANTS' ACCOUNTS.......................................................... 14
Section 4.1: Stock Account........................................................................ 14
Section 4.2: Cash Account......................................................................... 15
Section 4.3: Unallocated Stock Account............................................................ 15
Section 4.4: Allocation Of Gains And Losses....................................................... 15
Section 4.5: Allocation Of Contributions.......................................................... 15
Section 4.6: Allocation Of Cash Dividends On Stock................................................ 16
Section 4.7: Allocation Of Stock Dividends........................................................ 16
Section 4.8: Release And Allocation Of Leveraged Stock............................................ 16
Section 4.9: Notice Of Allocations................................................................ 17
Section 4.10: Miscellaneous Allocation Rules...................................................... 18
Section 4.11: Valuation Of Stock.................................................................. 19
Section 4.12: Accounts In General................................................................. 19
Section 4.13: Limitation On Annual Additions...................................................... 20
ARTICLE V VESTING......................................................................................... 23
</TABLE>
-i-
<PAGE> 5
<TABLE>
<S> <C>
Section 5.1: Vesting In Accounts.................................................................. 23
ARTICLE VI DISTRIBUTION OF BENEFITS....................................................................... 23
Section 6.1: Distribution Of Benefits............................................................. 23
Section 6.2: Methods Of Distribution.............................................................. 23
Section 6.3: Timing Of Distributions.............................................................. 25
Section 6.4: Postponed Retirement................................................................. 27
Section 6.5: Distributions Due Missing Persons.................................................... 27
Section 6.6: Transfers To Another Qualified Plan.................................................. 28
ARTICLE VII SALE OF STOCK................................................................................. 28
Section 7.1: Option To Sell Shares Of Stock....................................................... 28
Section 7.2: Right Of First Refusal............................................................... 30
ARTICLE VIII TOP-HEAVY PLAN LIMITATIONS................................................................... 30
Section 8.1: Application Of Top-Heavy Rules....................................................... 30
Section 8.2: Definitions ....................................................................... 30
Section 8.3: 60% Test - Special Rules............................................................. 34
Section 8.4: Minimum Vesting Requirement.......................................................... 35
Section 8.5: Minimum Contribution Requirement..................................................... 35
ARTICLE IX INVESTMENTS.................................................................................... 36
Section 9.1: Investment Of Company Contributions.................................................. 36
Section 9.2: Leveraged Stock Authorized........................................................... 36
Section 9.3: Certain Nonterminable Provisions..................................................... 39
Section 9.4: Diversification Of Stock............................................................. 39
Section 9.5: Voting Of Stock...................................................................... 40
ARTICLE X THE COMMITTEE................................................................................... 41
Section 10.1: Members............................................................................. 41
Section 10.2: Committee Action.................................................................... 41
Section 10.3: Rights And Duties................................................................... 42
Section 10.4: Information......................................................................... 44
Section 10.5: Compensation, Indemnity And Liability............................................... 44
Section 10.6: Administrative Expenses Of The Plan................................................. 44
ARTICLE XI AMENDMENT AND TERMINATION...................................................................... 44
Section 11.1: Amendments.......................................................................... 44
</TABLE>
-ii-
<PAGE> 6
<TABLE>
<S> <C>
Section 11.2: Discontinuance Of Plan.............................................................. 45
Section 11.3: Failure To Contribute............................................................... 46
ARTICLE XII CLAIMS PROCEDURE.............................................................................. 46
Section 12.1: Presentation Of Claim............................................................... 46
Section 12.2: Notification Of Decision............................................................ 46
Section 12.3: Review Of A Denied Claim............................................................ 47
Section 12.4: Decision On Review.................................................................. 47
ARTICLE XIII MISCELLANEOUS................................................................................ 48
Section 13.1: Contributions Not Recoverable....................................................... 48
Section 13.2: Limitation On Participants' Rights.................................................. 48
Section 13.3: Receipt Or Release.................................................................. 49
Section 13.4: Nonassignability.................................................................... 49
Section 13.5: Governing Law....................................................................... 49
Section 13.6: Headings ....................................................................... 49
Section 13.7: Counterparts ....................................................................... 50
Section 13.8: Successors And Assigns.............................................................. 50
Section 13.9: Gender And Number................................................................... 50
Section 13.10: Merger, Consolidation Or Transfer Of Plan Assets................................... 50
Section 13.11: Joinder Of Parties................................................................. 50
Section 13.12: The Trust ....................................................................... 50
Section 13.13: Participation By Affiliated Companies.............................................. 50
</TABLE>
-iii-
<PAGE> 7
AMENDED AND RESTATED CATHAY BANK
EMPLOYEE STOCK OWNERSHIP PLAN
CATHAY BANCORP, INC. has adopted the following complete amendment and
restatement of its employee stock ownership plan that evidences the plan portion
of an employee stock ownership plan and trust for the benefit of the qualified
employees of the Company. The terms of the Plan are as follows:
ARTICLE I
NAME, DEFINITIONS & FUNDING POLICY
Section 1.1: Full Name. This plan shall be known as the:
CATHAY BANK
EMPLOYEE STOCK OWNERSHIP PLAN
It is hereby designated as constituting a defined contribution plan intended to
qualify as a stock bonus plan under Code Section 401 and to constitute an
employee stock ownership plan as described in ERISA Section 407(d)(6)(A) and
Code Section 4975(e)(7). The Plan is designed to invest primarily in qualifying
employer securities as defined in Code Section 409(l). The Trust established in
connection with the Plan shall be known as the:
CATHAY BANK
EMPLOYEE STOCK OWNERSHIP TRUST
Section 1.2: Definitions. As used in this document and in the Trust,
the following words and phrases shall have the following meanings, unless a
different meaning is specified or clearly indicated by the context:
"Accounts" shall mean, collectively, the Stock Account and the Cash
Account that may be established under the Plan for a Participant. If both of
such Accounts are not established for a Participant, then, as to such a
Participant, "Accounts" shall mean the one of such Accounts that is established
for such Participant.
-1-
<PAGE> 8
"Adjustment Factor" shall mean the cost of living adjustment factor
prescribed by the Secretary of the Treasury under Code Section 415(d) for years
beginning after December 31, 1987, as applied to such items and in such manner
as the Secretary of the Treasury shall provide.
"Affiliated Company" shall mean:
(a) a member of a controlled group of corporations of which the
Company is a member;
(b) an unincorporated trade or business that is under common
control with the Company, as determined in accordance with Code Section
414(c) and the applicable Regulations;
(c) a member of an affiliated service group of which the Company
is a member, as determined in accordance with Code Section 414(m) and the
applicable Regulations; or
(d) any other entity required to be aggregated with the Company
pursuant to the Regulations under Code Section 414(o).
For these purposes, a "controlled group of corporations" shall mean a controlled
group of corporations as defined in Code Section 1563(a), determined without
regard to Code Sections 1563(a)(4) and 1563(e)(3)(C).
"Anniversary Date" shall mean the last day of each Plan Year.
"Article" shall mean an Article of the Plan.
"Beneficiary" shall mean the person or persons, as the context
requires, last designated by a Participant to receive any benefit specified in
the Plan that is payable upon such Participant's death. If there is no
designated Beneficiary or surviving Beneficiary, the Beneficiary shall be the
Participant's surviving spouse; or, if none, the Participant's surviving
descendants (including adopted persons), who shall take on the principle of
representation; or, if none, the Participant's estate; or, if there is no legal
representative appointed to represent the Participant's estate and if the
Participant's vested interest does not exceed $2,000, a person (or the persons)
selected by the Committee who is related to the Participant by blood, adoption
or marriage.
-2-
<PAGE> 9
"Board of Directors" shall mean the Board of Directors of the Company.
"Break in Service" shall mean a computation period in which an Employee
has failed to complete more than 500 Hours of Service (unless due to an
authorized, unpaid leave of absence granted by the Company in a
nondiscriminatory manner). The computation period shall be, for eligibility and
vesting purposes, the same computation period used in determining an Employee's
Years of Service. Solely for purposes of determining whether a Break in Service
has occurred in any computation period, an individual who is absent from work
for maternity or paternity reasons shall receive credit for the Hours of Service
which would otherwise have been credited to such individual but for such absence
(or, in any case in which such Hours of Service cannot be determined, 8 Hours of
Service per work day of such absence). An absence from work for maternity or
paternity reasons means an absence (i) by reason of the pregnancy of the
individual, (ii) by reason of a birth of a child of the individual, (iii) by
reason of the placement of a child with the individual in connection with the
adoption of such child by such individual, or (iv) for purposes of caring for
such child for a period beginning immediately following such birth or placement.
The Hours of Service credited under this provision shall in no event exceed 501
hours, and they shall be credited (1) in the computation period in which the
absence begins if such crediting is necessary to prevent a Break in Service in
that period, or (2) in all other cases, in the following computation period.
"Cash Account" shall mean the Account maintained by the Committee for
each Participant that is to be credited with such Participant's share of the
Trust's assets (other than Stock) that are allocated to Participants.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
its successors.
"Committee" shall mean the Committee appointed pursuant to Article X.
"Company" shall mean CATHAY BANCORP, INC.
"Compensation" shall mean a Participant's Earnings during the Plan
Year, plus any amount that is contributed by the Company pursuant to a salary
reduction agreement and that is not includable in such Participant's gross
income
-3-
<PAGE> 10
under Code Sections 125, 402(e)(3), 402(h) or 403(b). Despite any other
provisions of the Plan, the maximum amount of Compensation of any Participant
for any Plan Year that shall be considered for all purposes of the Plan shall be
$200,000, as such amount may be adjusted by the Adjustment Factor. In addition
to other applicable limitations set forth in the Plan, and despite any other
provision of the Plan, for Plan Years beginning on or after January 1, 1994, the
Compensation of each Participant shall not exceed the Compensation Limitation
(defined below). The Compensation Limitation is $150,000, as adjusted for
increases in the cost of living in accordance with Code Section 401(a)(17)(B).
The cost-of-living adjustment in effect for a calendar year applies to any
period, not exceeding 12 months, over which Compensation is determined beginning
in such calendar year. If such a determination period consists of fewer than 12
months, the Compensation Limitation will be multiplied by a fraction, the
numerator of which is the number of months in such determination period, and the
denominator of which is 12. For Plan Years beginning on or after January 1,
1994, any reference in the Plan to the limitation under Code Section 401(a)(17)
shall mean the Compensation Limitation. If Compensation for any prior
determination period is taken into account in determining a Participant's
benefits accruing in the current Plan Year, the Compensation for such prior
determination period is subject to the Compensation Limitation in effect for
such prior determination period. For this purpose, for determination periods
beginning before the first day of the first plan year beginning or after January
1, 1994, the Compensation Limitation is $150,000. In applying the $200,000 or
$150,000 limit, as the case may be, the family of a "highly compensated
employee" (as defined in Code Section 414(q)) who is either (i) a 5% owner of
the Company or any Affiliated Company, or (ii) one of the 10 Employees who
received the most Compensation during the Plan Year, shall be treated as a
single Participant. For purposes of the foregoing, a Participant's "family"
shall include the Participant's spouse and lineal descendants who have not
attained age 19 by the close of the Plan Year. If the $200,000 or $150,000
limit, as the case may be, is exceeded as a result of these family aggregation
rules, then such limit shall be allocated among such family members in
proportion to each family member's Compensation.
"Current Obligation" shall mean any obligation of the Trust arising
from the extension of credit to the Trust in connection with the purchase by the
Trust of Stock and that is either (a) payable in cash within one year from the
date of reference pursuant to the terms of the applicable credit agreement, or
(b) designated by the Committee as subject to current payment with Trust assets
available therefore pursuant to the terms of the Plan.
"Defined Benefit Plan" and "Defined Contribution Plan" shall have the
same meanings as given these terms under ERISA.
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<PAGE> 11
"Earnings" shall mean a Participant's annual "compensation", as that
term is defined in Code Section 415, that is actually paid or made available to
the Participant within the Plan Year. A Participant's Earnings shall include
such Participant's wages, salaries, fees for professional services and other
amounts received (without regard to whether or not an amount is paid in cash)
for personal services actually rendered in the course of employment with the
Company or any Affiliated Company to the extent that the amounts are includable
in gross income under the Code (including, but not limited to, commissions paid
salesmen, compensation for services on the basis of a percentage of profits,
commissions on insurance premiums, tips, bonuses, fringe benefits,
reimbursements, and expense allowances). "Earnings" shall not include:
(a) Any contribution made by the Company to a plan of deferred
compensation to the extent that, before the application of the Code Section
415 limitations to that plan, the contributions are not includable in the
gross income of the Participant for the taxable year in which contributed.
In addition, the Company's contributions, if any, made on behalf of a
Participant to a simplified employee pension plan described in Code Section
408(k) are not considered Earnings for the taxable year in which
contributed to the extent such contributions are deductible by the
Participant under Code Section 219(b)(7). Additionally, any distributions
from a plan of deferred compensation are not considered Earnings,
regardless of whether such amounts are includable in the gross income of
the Participant when distributed. However, any amount received by a
Participant pursuant to an unfunded non-qualified plan may be considered
Earnings in the year such amounts are includable in the gross income of the
Participant.
(b) Any amount realized from the exercise of a non-qualified
stock option, or when restricted stock (or property) held by a Participant
either becomes freely transferable or is no longer subject to a substantial
risk of forfeiture.
(c) Any amount realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option.
(d) Any other amount that receives special tax benefits, such as
premiums for group term life insurance (but only to the extent that the
premiums are not includable in the gross income of the Participant), or
contributions made by the Company (whether or not under a salary reduction
agreement) towards the purchase of an annuity contract described in Code
Section 403(b) (whether or not the contributions are excludable from the
gross income of the Participant).
(e) Despite the foregoing, "Earnings" with respect to a
Participant who is a non-resident alien (within the meaning of Section
7701(b)
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<PAGE> 12
of the Code) shall mean wages within the meaning of Section 3401(a) of the
Code, but determined without regard to any rules that limit the
remuneration included in wages based on the nature or location of the
employment or the services performed.
"Effective Date" shall mean, except as otherwise expressly provided,
January 1, 1987.
"Eligibility Computation Period" for each Employee shall mean a 12
consecutive month period beginning on such Employee's Employment Commencement
Date.
"Employee" shall mean every common law employee of the Company and any
Affiliated Company that has adopted the Plan with the permission of the Board of
Directors who is classified in the payroll records of the Company or any such
Affiliated Company as a salaried employee. The term "Employee" shall not include
any leased employee of the Company (within the meaning of Code Section
414(n)(2)).
"Employer" shall mean, with respect to an Employee, the Company, any
Predecessor Employer, and any Affiliated Company.
"Employment Commencement Date" for each Employee shall mean the date
such Employee is first credited with an Hour of Service.
"Entry Date" shall mean the first day of the first month or the first
day of the seventh month (whichever applies) of each Plan Year.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and its successors.
"Fiduciary" shall mean a person who:
(a) exercises any discretionary authority, discretionary control,
or discretionary responsibility respecting the management or administration
of the Plan;
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<PAGE> 13
(b) exercises any authority or control respecting management or
disposition of the Plan's assets; or
(c) renders investment advice for a fee or other compensation,
direct or indirect, with respect to any asset of the Plan, or has any
authority or responsibility to do so.
"Financial Institution" shall mean a bank, trust company, or other
financial institution that is regulated by the United States or any State.
"Freely Tradable Stock" shall mean Stock that, at the time of
reference, is readily tradable on an established market.
"Hour of Service" shall mean:
(a) Each hour for which an Employee was paid by, or entitled to
payment from, an Employer. Hours under this Subsection (a) shall be
credited to an Employee for the computation period or periods in which the
services were performed. Generally, Hours of Service shall be determined
from the Employer's employment records. Despite the foregoing, if an
Employee's Compensation is not determined on the basis of certain amounts
for each hour worked (such as salaried, commission or piece-work employees)
and if his or her hours are not required to be counted and recorded by any
federal law (such as the Fair Labor Standards Act), such Employee's Hours
of Service need not be determined from employment records. Instead, such
Employee may be credited with 190 Hours of Service for each month in which
he or she would be credited with at least one Hour of Service pursuant to
this Subsection (a);
(b) Each hour for which an Employee was paid by, or entitled to
payment from, an Employer on account of a period during which no services
were performed (irrespective of whether the employment relationship had
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence. No more
than 501 Hours of Service shall be credited under this Subsection (b) for
any single continuous period (whether or not such period occurs in a single
computation period);
(c) Each hour for which back pay (irrespective of mitigation of
damages) is either awarded against, or agreed to by, an Employer. The same
Hours of Service shall not be credited under either Subsection (a) or (b),
whichever is applicable, and under this Subsection (c). Hours of
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<PAGE> 14
Service under this Subsection (c) shall be credited for the computation
period(s) to which the award or agreement pertains, rather than the
computation period in which the award, agreement or payment is made; and
(d) Hours under Subsections (a) through (c) above shall be
calculated and credited pursuant to Section 2530.200b-2 of the Department
of Labor Regulations, which is incorporated here by reference.
"Individual Medical Benefit Account" shall have the same meaning as is
given that term under Code Section 415(l)(2).
"Investment Manager" shall mean a person or entity who (that) is (a)
registered as an investment advisor under the Investment Adviser's Act of 1940,
(b) defined as a bank under that Act, or (c) an insurance company qualified
under the laws of more than one state to manage, acquire and dispose of trust
assets, and who has acknowledged in writing that he (she or it) is a Fiduciary
with respect to the Plan.
"Leveraged Stock" shall mean any Stock that is acquired by the Trustee
on an installment contract from, or with the proceeds of a loan made or
guaranteed by, the Company or other disqualified person within the meaning of
Code Section 4975(e)(2).
"Named Fiduciary" shall have the same meaning as under Section 402(a)
of ERISA and shall be determined as provided in Section 10.3.
"Net Profits" shall mean, with respect to any Plan Year, the Company's
net income or profit for such Plan Year, as determined on the basis of the
Company's books of account in accordance with generally accepted accounting
principles, before reduction for income taxes or contributions made by the
Company to the Plan.
"Non-allocation Period" shall mean, with respect to a transaction for
which an election under Code Section 1042(a) is made, the period beginning on
the date of the sale of the Stock and ending on the later of (1) the date that
is 10 years after the date of the purchase of the Company Stock, or (2) the date
of the Plan allocation attributable to the final payment of acquisition
indebtedness incurred in connection with such sale.
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<PAGE> 15
"Normal Retirement Age" shall mean a Participant's sixty-fifth (65th)
birthday.
"Normal Retirement Date" shall mean the first day of the month that
coincides with or immediately follows a Participant's Normal Retirement Age.
"Participant" shall mean any Employee who becomes eligible for
participation in accordance with the provisions of the Plan, and, unless the
context indicates otherwise, includes former Participants.
"Plan" shall mean this document and the plan created by this document
(including, unless the context indicates to the contrary, the Trust established
in connection with the Plan), as it may be amended from time to time.
"Plan Year" shall mean the 12 month period that ends on December 31.
The Plan Year shall be the "limitation year" for the Plan as defined in the
Code.
"Predecessor Employer" shall mean any predecessor employer of an
Employee that maintained the Plan.
"Prohibited Allocation Group" shall mean all persons who, with respect
to a transaction for which an election under Code Section 1042(a) is made, are
within any one or more of the following categories:
(1) During the Non-allocation Period, the seller of the Stock.
(2) During the Non-allocation Period, any person who is related
to such seller (within the meaning of Section 267(b) of the Code), except
that it shall not include any lineal descendant of such seller if 5% or
less of the shares of Stock (or other assets of the Plan in lieu thereof)
attributable to such shares is allocated to all such lineal descendants. If
the allocation provisions of Article IV would result in more than such 5%
being so allocated, the Committee may limit such allocation to such 5% so
that such lineal descendants are not included in the Prohibited Allocation
Group.
(3) Any other person who owns (after the application of Section
318(a) of the Code) more than 25% of (A) any class of outstanding stock of
the Company or any Affiliated Company, or (B) the total value of any
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<PAGE> 16
class of outstanding stock of the Company or any Affiliated Company. For
this purpose, such person shall be deemed to own all Stock allocated to him
or her in this or any other qualified employee benefit plan. Such person
shall be included in the Prohibited Allocation Group if he or she meets
such test either (i) at any time during the 1 year period ending on the
date of purchase of the Company Stock by the Trust, or (ii) on the date as
of which such Stock is allocated to Participants.
"Qualified Holder" shall mean (a) any Participant or any
Beneficiary(ies) or personal representative of a deceased Participant who has
received a distribution of Stock from the Plan), (b) any other party to whom
such Stock is transferred by gift or by reason of death, and (c) any trustee of
an individual retirement account (as defined under Code Section 408) to which
all or any portion of such distributed Stock is transferred pursuant to a
Rollover Contribution.
"Regulations" shall mean the regulations issued under the Code or
ERISA, or both of them, as well as under any other legislation that applies to
the Plan.
"Rollover Contribution" shall mean a qualified rollover contribution as
defined (before January 1, 1993) in Code Sections 402(a)(5), 402(a)(6),
402(a)(7), 403(a)(4), 408(d)(3) and 409(b)(3)(C), or (after December 31, 1992)
in Code Sections 402(c), 403(a)(4), and 408(d)(3), but shall not include a
rollover contribution that is attributable to contributions made on behalf of a
Key Employee in a Top-heavy Plan, unless such a rollover contribution is
permissible under the Code or applicable Regulations.
"Section" shall mean, when used in conjunction with some other
reference (such as the Code or ERISA), a section of such other reference. When
not used in conjunction with some other reference, Section shall refer to a
section of the Plan or Trust, as the context requires. References to a Section
include future amendments, and successors, to it.
"Secretary" shall mean the Secretary or an Assistant Secretary of the
Committee.
"Secretary of the Treasury" shall mean the Secretary of the Treasury,
as defined in Code Section 7701(a)(11).
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<PAGE> 17
"Signature Page" shall mean the page(s) at the end of the Plan entitled
"Signature Page."
"Stock" shall mean common stock issued by the Company (or by a
corporation that is a member of the same controlled group of corporations)
having a combination of voting power and dividend rights equal to or in excess
of:
(A) that class of common stock of the Company (or of any
other such corporation) having the greatest voting power, and
(B) that class of common stock of the Company (or of any
other such corporation) having the greatest dividend rights.
"Stock Account" shall mean the account maintained by the Committee for
each Participant that is to be credited which such Participant's share of the
Stock held in the Trust that is allocated to Participants.
"Total Disability" or "Totally Disabled" shall each refer to a physical
or mental impairment that, in the Committee's opinion, (a) is expected to be
either of indefinite duration or result in death, and (b) renders a Participant
unable to satisfactorily perform his or her duties for the Company or the duties
of such other position or job that the Company makes available to such
Participant and for which such Participant is qualified by reason of his or her
training, education or experience. The Committee's opinion must be supported by
the opinion of a qualified physician designated or approved by the Committee.
"Trust" shall mean the trust established in connection with the Plan,
as it may be amended from time to time.
"Trustee" shall mean the person(s) or entity, or combination of them,
serving from time to time as the trustee(s) of the Trust.
"Unallocated Stock Account" shall mean the account maintained by the
Committee for the purpose of holding any Leveraged Stock (until such Stock is
released and allocated pursuant to the applicable provisions of the Plan).
"Welfare Benefit Fund" shall have the same meaning as is given that
term in Code Section 419(e).
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<PAGE> 18
"Year of Service" shall mean a computation period in which an Employee
has completed at least 1,000 Hours of Service. The initial computation period
shall be an Employee's Eligibility Computation Period, and shall thereafter be
the 12 consecutive month period beginning on the annual anniversary date of such
Employee's Employment Commencement Date.
Section 1.3: Other Definitions. As used in this document and in the
Trust, the following words and phrases shall have the meanings set forth in the
indicated Sections, unless a different meaning is specified or clearly indicated
by the context:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
"Aggregate Account"........................................... 8.2
"Aggregation Group"........................................... 8.2
"Annual Addition"............................................. 4.13
"Claimant".................................................... 12.1
"Committee"................................................... 10.1
"Defined Benefit Plan Fraction"............................... 4.13
"Defined Contribution Plan Fraction".......................... 4.13
"Determination Date".......................................... 8.2
"Eligible Participant"........................................ 4.5
"Eligible Retirement Plan".................................... 6.6
"Eligible Rollover Distribution".............................. 6.6
"Key Employee"................................................ 8.2
"Non-Key Employee"............................................ 8.2
"Present Value of Accrued Benefit"............................ 8.2
"Qualified Election Period"................................... 9.4
"Qualified Participant"....................................... 9.4
"Top-heavy Group"............................................. 8.2
"Top-heavy Plan".............................................. 8.2
"Total Distribution".......................................... 7.1
"Valuation Date".............................................. 8.2
"1.0 Rule".................................................... 4.13
"1% Owner".................................................... 8.2
"5% Owner".................................................... 8.2
</TABLE>
Section 1.4: Funding Policy. The Plan is to be funded primarily through
the Company's contributions as provided for in the Plan. The Trust's assets
shall be invested as provided for in the trust document in an effort to safely
maximize potential retirement benefits, which shall be paid to Participants and
Beneficiaries as provided for in the Plan.
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<PAGE> 19
ARTICLE II
PARTICIPATION
Section 2.1: Eligibility Requirements.
(a) Effective January 1, 1989, each Employee shall become eligible to
participate in the Plan on the Entry Date coincident with or next following the
date on which such Employee shall have completed two Years of Service, provided
that he or she is still an Employee on such Entry Date.
(b) Despite any other provision of the Plan, any Participant who is
included in a unit of employees covered by a collective bargaining agreement
wherein retirement benefits were the subject of good faith bargaining (within
the meaning of Code Section 410(b)(3)(A)) shall for the Plan Year(s) of such
inclusion, cease to share in future contributions to the Plan, unless such
collective bargaining agreement expressly provides for participation in the
Plan; provided, however, that as to any benefits already earned, such
Participant shall remain a Participant, subject to all the terms of the Plan.
Section 2.2: Application For Participation And Beneficiary Designation.
(a) Each Employee who becomes eligible to participate in the Plan shall
be given an application for participation. That application shall (i) specify
the beginning date of such Employee's participation, (ii) contain such
Employee's acceptance of the benefits of the Plan and Trust and his or her
agreement to be bound by the terms of the Plan and Trust, and (iii) allow such
Employee to designate the Beneficiary whom he or she desires to receive benefits
in the event of his or her death. A Participant may, from time to time, change
his or her designated Beneficiary by filing a new written designation with the
Committee. The Company, the Trustee, and the Committee may rely upon the
designation of a Beneficiary that was last filed in accordance with the Plan.
(b) Despite the provisions of Subsection (a) above, a married
Participant's Beneficiary shall in all events be such Participant's surviving
spouse, unless such spouse consents to such Participant's designation of a
Beneficiary other than such spouse. A spouse's consent to such a designation
must satisfy the following requirements: (i) it must be in writing; (ii) it must
acknowledge the effect of the Participant's designation of a Beneficiary other
than the spouse; and (iii) it must be witnessed by a designated Plan
representative or a notary public.
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<PAGE> 20
Section 2.3: Participation. The participation of a Participant in the
Plan shall begin as of his or her Entry Date and shall continue until the
Participant's entire benefit has been distributed in accordance with the Plan's
terms. A Participant (or his or her Beneficiary) may not receive any
distribution of benefits except as provided for in the Plan.
Section 2.4: Break In Service Rules For Eligibility Purposes.
(a) Except as otherwise provided in this Section, all Years of Service
of an Employee shall be counted in determining such Employee's eligibility to
participate in the Plan.
(b) In the case of any Employee who has incurred a Break in Service,
such Employee's Years of Service that were completed before such Break in
Service shall not be counted until he or she has completed a Year of Service
after such Break in Service.
(c) This subsection shall apply to any Participant who does not have
any nonforfeitable right to any accrued benefit that is attributable to the
Company's contributions. Such a Participant's Years of Service before any period
of consecutive Breaks in Service shall not be counted if the number of such
consecutive Breaks in Service within such period equals or exceeds the greater
of (i) 5 or (ii) the aggregate number of such Participant's Years of Service
before such period. Such aggregate number of Years of Service shall not include
any Year of Service that is disregarded under the preceding sentence by reason
of such Participant's prior Breaks in Service.
(d) In addition to the foregoing, in the case of any Employee who
incurs a Break in Service before satisfying the Plan's eligibility requirements,
such Employee's Years of Service that were completed before such Break in
Service shall not be counted.
ARTICLE III
CONTRIBUTIONS
Section 3.1: Company Contributions. The Company has previously made
substantial contributions to the Trust. Subject to the Plan's other provisions,
for each Plan Year in which the Plan is in effect, the Company shall contribute
to the Trust, out of its current or accumulated Net Profits, such amount, if
any, as shall be determined by the Company. Despite the foregoing, the Company
shall be obligated to contribute such amount as shall be necessary to provide
the Trust with funds sufficient to pay any Current Obligation (including
principal, interest, and any
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<PAGE> 21
acquisition charges) incurred for the purpose of acquiring Stock. The Company's
contribution shall be paid in cash, Stock, or such other assets as the Company
may determine; provided, however, that the Company shall contribute sufficient
cash assets to the extent necessary to pay any Current Obligation. Furthermore,
despite the foregoing, the Company's contributions are conditioned upon their
deductibility under the Code.
Section 3.2: Payment Of Contributions To The Trustee. All payments of
the Company's contributions shall be made directly to the Trustee and may be
made on any date(s) selected by the Company. Despite the foregoing, the
Company's total contribution for each Plan Year must be paid on or before the
date on which the Company's federal income tax return is due, including any
extensions of time obtained for the filing of such return.
Section 3.3: Participant Contributions. A Participant may not make
nondeductible, voluntarily contributions to the Plan. Similarly, a Participant
may not make a Rollover Contribution to the Plan or a trustee-to-trustee
transfer described in Code Section 401(a)(31).
Section 3.4: No Requirement For Profits. Despite any other provision of
the Plan, the Company may make all contributions to the Plan for any Plan Year
without regard to whether the Company has any Net Profits for the taxable year
or years ending with or within such Plan Year.
ARTICLE IV
ALLOCATIONS TO PARTICIPANTS' ACCOUNTS
Section 4.1: Stock Account. The Committee shall open and maintain a
Stock Account in the name of each Participant, and it shall be credited or
charged with any Stock allocable to such Participant as set forth below.
Section 4.2: Cash Account. The Committee shall open and maintain a Cash
Account in the name of each Participant, and it shall be credited or charged
with any amount allocable to such Participant (other than Stock) as set forth
below.
Section 4.3: Unallocated Stock Account. At such time as any Leveraged
Stock is held in the Trust, the Committee shall open and maintain an
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<PAGE> 22
Unallocated Stock Account, and it shall be credited with any unallocated
Leveraged Stock until such Stock is released and allocated as set forth below.
Section 4.4: Allocation Of Gains And Losses. Subject to 4.5(a)(i)
below, as of each Anniversary Date (but before any allocation is made of the
Company's contributions, if any, for the Plan Year ending on such Anniversary
Date, if, and to the extent, made prior to such date), the Committee shall
credit any income and investment gains (whether realized or unrealized) of the
Trust other than with respect to Stock, and shall charge any losses (whether
realized or unrealized) from such assets and unallocated expenses of the Trust,
to the Participants' Cash Accounts in the same proportion that the balance in
each such Cash Account as of such Anniversary Date bears to the total balance in
all Cash Accounts as of such Anniversary Date. In determining the unrealized
investment gains and losses to be credited or charged as of each Anniversary
Date pursuant to this Section, the Trustee shall value the assets of the Trust
at their fair market value as of each such Anniversary Date.
Section 4.5: Allocation Of Contributions.
(a) Subject to the limitations contained elsewhere in the Plan, as of
each Anniversary Date, the Company's contribution (if any) made on account of
the Plan Year ending on such Anniversary Date shall be allocated as follows:
(i) Any cash contribution shall be applied first to pay any
Current Obligation of the Trust (as it becomes due) incurred for the
purpose of acquiring Stock, and any excess remaining after such application
(and any other asset contributed that is not Stock) shall, at the election
of the Committee, either (A) be used to prepay any loan obligation of the
Trust that arose in connection with the Trust's purchase of Stock, or (B)
be allocated to the Cash Accounts of the Eligible Participants in
accordance with the allocation formula set forth in Subsection (c) below.
Subject to Section 4.6 below, for the purpose of determining the method of
allocation of the excess, the Current Obligation shall be deemed to have
been paid first with cash dividends, and, if any portion of the Current
Obligation shall remain unpaid after the application of all the cash
dividends, the balance due shall be deemed paid with Company cash
contributions for the Plan Year.
(ii) Any contribution of Stock shall be allocated to the Stock
Accounts of the Eligible Participants in accordance with the allocation
formula set forth in Subsection (c) below.
(b) For purposes of this Article, "Eligible Participant" shall mean, as
of any Anniversary Date, (i) each Participant who has completed 1000 Hours of
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<PAGE> 23
Service on such Anniversary Date, and (ii) any Participant who ceased to be an
Employee during the Plan Year ending with such Anniversary Date by reason of his
or her death, Total Disability, or retirement on or after his or her Normal
Retirement Date.
(c) For purposes of this Article, any item to be allocated pursuant to
the formula set forth in this Subsection (c) shall be allocated to the Cash
Accounts, or Stock Accounts, as the case may be, of the Eligible Participants in
the same ratio as each Eligible Participant's number of Units bears to the total
number of Units of all such Eligible Participants. For purposes of this
Subsection (c), each Eligible Participant shall be credited with one Unit for
each full $100 of Compensation and with one Unit for each Year of Service.
Section 4.6: Allocation Of Cash Dividends On Stock. Any cash dividends
received by the Trustee on account of the Stock shall, at the discretion of the
Committee, either (a) be used to make any payment on any installment contract or
loan used to acquire Leveraged Stock, or (b) be allocated to the Participant's
Cash Accounts and the Unallocated Stock Account in proportion to the shares of
Stock held in the Participant's Stock Accounts and the Unallocated Stock
Account, respectively, as of the record date of such dividend.
Section 4.7: Allocation Of Stock Dividends. Any Stock received by the
Trustee as a stock dividend (or stock split or as a result of a reorganization
or other recapitalization of the Company) shall be credited to the Participants'
Stock Accounts and to the Unallocated Stock Account in proportion to the shares
of Stock held therein as of the record date of such dividend. Any cash received
by the Trustee in lieu of fractional shares in connection with such a stock
dividend shall be allocated as provided in Section 4.6 above.
Section 4.8: Release And Allocation Of Leveraged Stock.
(a) All Leveraged Stock acquired by the Trust shall be held in the
Unallocated Stock Account until released and allocated in accordance with the
provisions of this Section. On each Anniversary Date, Leveraged Stock acquired
in a particular transaction shall be released from the Unallocated Stock Account
as follows:
(i) Subject to the requirements of Treasury Regulation Section
54.4975-7(b)(8)(ii) and Subsection (ii) below, for each Plan Year until any
loan or installment obligation that was incurred to purchase Leveraged
Stock (a "loan") is fully repaid, the number of shares of Leveraged Stock
released from the Unallocated Stock Account shall equal
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<PAGE> 24
the number of unreleased shares immediately before such release for the
then current Plan Year multiplied by a fraction, the numerator of which is
the amount of principal paid on such loan during such Plan Year and the
denominator of which is the sum of such numerator plus the principal to be
paid on such loan in all future years during the duration of the term of
such loan (determined without reference to any possible extensions of
renewals thereof). Despite the foregoing, in the event such loan shall be
repaid with the proceeds of a subsequent loan, such repayment shall not
operate to release all such Leveraged Stock but rather such release shall
be effected pursuant to the foregoing provisions of this Section on the
basis of payments of principal on such substitute loan.
(ii) To the extent that Subsection (i) is not applicable by
reason of Treasury Regulation Section 54.4975-7(b)(8)(ii), or if the
Committee irrevocably so elects at the time of the first payment on any
loan, then Subsection (i) shall be applied with respect to all payments on
such loan by deeming all references to "principal" therein to be references
to "principal and interest."
(b) The Committee shall specify, and advise the Trustee with respect
to:
(i) the amount (if any) of the Company's contribution that is to
be applied (together with the earnings thereon) to pay any Current
Obligation, and
(ii) the amount (if any) of cash dividends held pursuant to
Section 4.6 that is to be applied to pay any Current Obligation.
(c) As of the end of each Plan Year, the value of any Leveraged Stock
released from the Unallocated Stock Account for such Plan Year shall be
allocated among the Eligible Participants in the same proportion as such
Participants would have received allocations pursuant to Section 4.5, as if such
released Stock had been contributed during such Plan Year.
(d) It is intended that the preceding provisions shall be applied and
construed in a manner consistent with the requirements and provisions of
Treasury Regulation Section 54.4975-7(b)(8).
Section 4.9: Notice Of Allocations. After the close of each Plan Year,
the Committee shall notify each Participant as to the allocations made during
the Plan Year pursuant to this Article IV, which notice shall include the
following:
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(a) The balance in the Participant's Cash Account and the number of
shares held in the Participant's Stock Account as of the most recent Anniversary
Date;
(b) The amount of Company Contributions and Leveraged Stock (if any)
allocated to the Participant's Accounts for that Plan Year;
(c) The adjustment to the Participant's Accounts to reflect the
Participant's share of undistributed dividends held at year end (if any) and the
net income (or loss) of the Trust for that Plan Year;
(d) The new balance in the Participant's Cash Accounts and the number
of shares held in the Participant's Stock Account, as of the Anniversary Date of
that Plan Year; and
(e) Such other information as may be required by the applicable
regulations.
Section 4.10: Miscellaneous Allocation Rules.
(a) Allocations of all assets other than Stock shall be made on the
basis of, and expressed in terms of, dollar value. Allocations of Stock shall be
made on the basis of the number of shares of Stock (including fractional
shares).
(b) The Committee may establish accounting procedures for the purpose
of making the allocations, valuations and adjustments to Participants' Accounts
provided for in this Article IV. From time to time, the Committee may modify
such accounting procedures for the purpose of achieving equitable,
nondiscriminatory, and administratively feasible allocations among the Accounts
of Participants in accordance with the general concepts of the Plan and the
provisions of this Article IV.
(c) Despite any other provision of the Plan, if shares of Stock are
purchased by the Trust in a transaction for which an election pursuant to Code
Section 1042(a) is made, none of such shares, nor any other assets of the Plan
in lieu thereof, shall accrue for the benefit of or be allocated, directly or
indirectly, under this Plan or any other qualified employee benefit plan of the
Company or any Affiliated Company, to the Accounts of any member of the
Prohibited Allocation Group. In the event that any member of the Prohibited
Allocation Group is a Participant in the Plan, (i) if there are no Company
contributions to be allocated as of an Anniversary Date other than shares of
Stock and/or other assets which are subject to this provision, such Participant
shall receive no allocation thereof, (ii) no portion of the Cash Account balance
of such Participant may be used to acquire shares of Stock and/or other assets
which are subject to this provision, and (iii) if
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there are Company contributions to be allocated as of an Anniversary Date and
such includes both shares of Stock and/or other assets which are subject to this
provision and share and/or other assets which are not subject to this provision,
the allocation shall be made so that such Participant receives no allocation of
Stock or other assets whatsoever to the extent of the percentage of Compensation
received by the other Participants attributable to Stock and/or other assets
which are subject to this provision, provided that if there is additional Stock
and/or other assets to be allocated, then such additional allocations shall be
made to all Participants as otherwise provided in the Article IV. All
allocations of Stock and other assets shall in all respects comply with the
provisions of Section 409(n) of the Code and the Regulations thereunder, all of
which are incorporated herein by reference.
Section 4.11: Valuation Of Stock.
(a) If, on any Anniversary Date or other valuation date required under
the terms of the Plan, Trust, or Regulation Section 54.4975-11(d)(5), the Stock
is not Freely Tradable Stock, the Company shall furnish the Committee with a
certificate of value setting forth the fair market value of the Stock as of such
date. Such valuation shall be made (i) in good faith and in accordance with
Regulation Section 54.4975-11(d)(5) and ERISA Section 3(18); and (ii) by an
independent appraiser who satisfies the requirements of the Regulations under
Code Section 170(a)(1). The Committee shall use such value for all purposes
under the Plan until a new certificate of value is furnished to the Committee,
or until the Stock becomes Freely Tradable Stock. If the Stock is Freely
Tradable Stock, the Committee shall use the market price of the Stock as its
value. This certificate of value shall be furnished to Qualified Holders of
Stock that has been distributed to a terminated Participant or a Beneficiary.
(b) Any Stock acquired by the Trust with cash shall be valued initially
at the purchase price paid by the Trust. All such initial valuations are subject
to revaluation as of any subsequent date of valuation that may apply pursuant to
the terms of this Plan and/or applicable law.
Section 4.12: Accounts In General.
(a) The credits made to a Participant's Accounts shall not vest in such
Participant any right, title or interest in the Trust, except to the extent, at
the time or times, and upon the terms and conditions set forth in the Plan.
Neither the Company, the Trustee, nor the Committee, to any extent, warrant,
guarantee or represent that the value of any Participant's Accounts at any time
will equal or exceed the amount previously allocated or contributed to such
Accounts.
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(b) If at any time there shall be allocated to a Participant's Stock
Accounts more than one class of Stock, the Committee shall direct the Trustee
with respect to whether sub-accounts for each such class of stock shall be
maintained, and if so, all references in this Plan to Stock Accounts shall
include and refer to all such sub-accounts.
Section 4.13: Limitation On Annual Additions.
(a) The following limitations shall apply to the allocations to each
Participant's Accounts in any Plan Year:
(i) As used in the Plan, a Participant's "Annual Addition"
shall mean the sum for any Plan Year of:
(A) Such Participant's share of the Company's
contributions; plus
(B) Such Participant's share of any forfeiture; plus
(C) Such Participant's allocable share of the Company's
contributions to any Individual Medical Benefit Account; and plus
(D) With respect to any Participant who is a Key Employee,
any amount derived from the Company's contributions paid or accrued
after December 31, 1985 in taxable years ending after such date, and
that is attributable to post-retirement medical benefits allocated to
such Participant's account under a Welfare Benefit Fund maintained by
the Company.
(ii) Despite the forgoing, if, for any Plan Year, (A) there is
Leveraged Stock and (B) no more than one-third of the Company's
contributions are allocated to highly compensated employees (as defined in
Code Section 414(q)), then the Annual Addition of a Participant shall not
include (A) his or her share of the Company's contributions for such Plan
Year that are deductible under Code Section 404(a)(9)(B), (ii) his or her
share of forfeitures of Stock acquired with the proceeds of a loan or
installment obligation described in Code Section 404(a)(9)(A), or (iii)
Leveraged Stock that is released from the Unallocated Stock Account in
accordance with Section 4.8.
(iii) Any excess amount applied under Subsection (c) below in a
Plan Year to reduce the Company's contributions on behalf of any
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Participant shall be considered to be an Annual Addition for such
Participant for such Plan Year.
(iv) Subject to the adjustments set forth below, during any Plan
Year the maximum Annual Addition for any Participant shall in no event
exceed the lesser of:
(A) $30,000, or, if greater, one-fourth (1/4th) of the
defined benefit dollar limitation set forth in Code Section 415(b)(1)
as in effect for the Plan Year; or
(B) 25% of the Participant's Earnings for such Plan Year.
(v) The earnings limitation referred to in Subsection
(a)(iv)(B) above shall not apply to (A) any contribution for medical
benefits (within the meaning of Code Section 419A(f)(2)) after separation
from service that is otherwise treated as an Annual Addition, or (B) any
amount otherwise treated as an Annual Addition under Code Section
415(l)(1).
(b) The following additional limitations shall apply to any Participant
when such Participant, in addition to his or her participation in the Plan (and
any Welfare Benefit Fund), is also a participant in a Defined Benefit Plan
maintained by the Company or an Affiliated Company:
(i) The amount of (A) the Annual Additions to such
Participant's account(s) or (B) such Participant's normal retirement
benefit in any such plan(s) shall be reduced by each such plan's committee
to the extent necessary to prevent the sum of the Defined Benefit Plan
Fraction (defined below) and the Defined Contribution Plan Fraction
(defined below) for any such year from exceeding 1.0 (the "1.0 Rule")
(benefits under Welfare Benefit Funds shall be reduced first, then benefits
under profit sharing plans, then benefits under other Defined Contribution
Plans, and, finally, benefits under Defined Benefit Plans).
(ii) For the purpose of applying the 1.0 Rule, the Defined
Benefit Plan Fraction and the Defined Contribution Plan Fraction shall be
applied in a manner consistent with the provisions of Code Section 415 and
the Regulations under it.
(iii) As used above, "Defined Benefit Plan Fraction" shall mean a
fraction, the numerator of which is the Participant's projected annual
benefit under the Defined Benefit Plan (determined as of the end of the
plan year for such plan), and the denominator of which is the lesser of:
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(A) 1.25 multiplied by the dollar limitation in effect for
such plan year (determined under Code Section 415(b)(1)(A)); or
(B) 1.4 multiplied by 100% of such Participant's average
Earnings for his or her highest 3 consecutive years, including such
plan year (determined under Code Section 415(b)(1)(B)).
(iv) As used above, "Defined Contribution Plan Fraction" shall
mean a fraction, the numerator of which is the sum of the annual additions
to the Participant's account(s) as of the end of the Plan Year, and the
denominator of which is the sum of the lesser of the following amounts
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determined for such Plan Year and for each of such Participant's prior
years of service with the Company:
(A) 1.25 multiplied by the dollar limitation in effect for
such Plan Year (determined under Code Section 415(c)(1)(A), but without
regard to Code Section 415(c)(6)); or
(B) 1.4 multiplied by 25% of such Participant's Earnings
for such Plan Year (determined under Code Section 415(c)(1)(B), or Code
Section 415(c)(7), if applicable).
(c) If, for any Plan Year, it is necessary to limit the Annual Addition
of any Participant pursuant to Subsections (a) or (b) above, the following
reallocations shall be made:
(i) First, the amount of such Participant's nondeductible,
voluntary contributions for that Plan Year that are included in his or her
Annual Addition shall be refunded to him or her;
(ii) Second, the amount of the Company's contributions,
inclusive of forfeitures, that is allocable to such Participant and that
cause such Participant's Annual Addition to exceed the applicable
limitation shall, instead, be allocated to all other Participants who are
not subject to this limitation, in proportion to their Compensation for
such Plan Year; and
(iii) Third, if the amount of the Company's contributions,
inclusive of forfeitures, is so great as to cause all Participants for such
Plan Year to be subject to the limitations of this Section, then the excess
of the Company's contributions that cannot be allocated for such Plan Year
shall be held in a suspense account and applied against and reduce the
Company's future contributions.
(d) If a suspense account is in existence at any time during a Plan
Year pursuant to Subsection (c)(iii) above, it shall not participate in the
Trust's income, gains and losses.
(e) The limitations of this Section with respect to any Participant
who, at any time, has been a participant in any other Defined Contribution Plan
(whether or not terminated) or in more than one Defined Benefit Plan (whether or
not terminated) maintained by the Company or by an Affiliated Company shall
apply as if all such Defined Contribution Plans or all such Defined Benefit
Plans in which the Participant has been a participant were one plan.
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ARTICLE V
VESTING
Section 5.1: Vesting In Accounts. Each Participant shall at all times
be 100% vested in his or her Accounts.
ARTICLE VI
DISTRIBUTION OF BENEFITS
Section 6.1: Distribution Of Benefits.
(a) Benefits become distributable to a Participant or to the
Beneficiary of a deceased Participant upon the first to occur of (i) the
Anniversary Date that coincides with or first follows such Participant's Normal
Retirement Date, Total Disability, or death, or (ii) the fifth Anniversary Date
following the Anniversary Date that coincides with or first follows the date a
Participant ceases to be an Employee prior to his or her Normal Retirement Date
for a reason other than Total Disability or death. Such benefits shall be the
vested amounts credited to his or her Accounts as of the Anniversary Date that
coincides with or immediately precedes the first distribution of his or her
benefits, adjusted as of such Anniversary Date if required by Article IV.
However, a Participant (or the Beneficiary of a deceased Participant) must make
a claim for such Participant's benefits prior to any distribution. Despite the
foregoing, the Committee, in its sole discretion, may waive the claim
requirement if such Participant or Beneficiary is unable to submit a claim.
(b) Despite the foregoing provisions, the Committee may, in its sole
discretion, elect to pay a Participant who ceases to be an Employee prior to his
or her Normal Retirement Date for a reason other than his or her death or Total
Disability an immediate lump sum distribution of the amount specified in
subsection (a) above. The Participant's consent to such a distribution is
required if the portion of such distribution representing the vested portion in
his or her Accounts is (or ever has been) in excess of $3,500.
Section 6.2: Methods Of Distribution.
(a) When a Participant's benefits become distributable, the Committee
shall with reasonable promptness direct the Trustee to distribute such
Participant's benefit as follows:
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(i) If a Participant's benefits become distributable by reason
of his or her death, the benefit shall be distributed to such deceased
Participant's Beneficiary as an immediate lump sum.
(ii) If a Participant's benefits become distributable for a
reason other than his or her death, the benefit shall be distributed with
such Participant's consent as an immediate lump sum or in installments as
set forth below.
(A) The Participant may elect, by completing an appropriate
form furnished by the Committee, that his or her benefits be
distributed as follows:
(1) The Participant may elect that his or her benefits
be distributed in up to 5 equal or nearly equal annual
installments.
(2) If the fair market value of a Participant's Stock
Account exceeds $500,000 multiplied by the Adjustment Factor as
of the date distribution is required to begin under Section 6.3
below, the Participant may elect that his or her benefits be
distributed in substantially equal annual payments over a period
of 5 years plus an additional one year (up to an additional 5
years) for each $100,000 increment (or fraction of such
increment) by which the value of the Participant's Stock Account
exceeds $500,000.
(3) In addition, the Participant may elect that his or
her benefits shall be paid in equal or nearly equal monthly,
quarterly, semi-annual, or annual installments over a period not
exceeding the life expectancy of the Participant, or the joint
life and last survivor expectancy of the Participant and his or
her Beneficiary. The expected return multiples of Section 1.72-9
of the Regulations under the Code shall be used to determine such
life expectancy.
(B) Despite the foregoing, if the vested amount credited to
such Participant's Accounts is not (nor ever has been) in excess of
$3,500, the Committee may direct the Trustee to distribute such benefit
as an immediate lump sum, without such Participant's consent.
(iii) If a Participant's benefits become distributable for a
reason other than his or her death, and if such Participant dies before his
or her entire benefits have been distributed, his or her Beneficiary shall
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receive a death benefit equal to the balance of the remaining installments
(if any) or deferred lump sum (if any) due such deceased Participant.
(iv) Despite any other provision of the Plan, the benefits in the
Participant's Stock Account shall be distributed in the form of Stock.
(v) Despite the foregoing provisions, the Committee may at any
time, with the consent of a Participant or his or her Beneficiary, direct
the Trustee to accelerate any installment payment to such Participant or
Beneficiary or to reduce the period over which future installments are to
be made, in which latter event the Trustee shall adjust the amount of such
installments accordingly. In addition, a Participant may at any time
withdraw any or all of his or her undistributed benefit, and a
Participant's Beneficiary shall, unless such Participant provided
otherwise, have a similar withdrawal right. If less than all of the
undistributed benefit is withdrawn, the remaining installment payments
shall be adjusted accordingly.
(b) The complete distribution of a Participant's benefit as provided
for above shall constitute full payment and satisfaction of any obligation of
the Company, the Trustee or the Committee to such Participant or to the
Beneficiary of a deceased Participant.
(c) If a distribution is one to which Code Sections 401(a)(11) and 417
do not apply, such distribution may commence fewer than 30 days after the notice
required under Section 1.411(a)-11(c) of the Regulations under the Code is
given, provided that:
(i) the Committee clearly informs the Participant that the
Participant has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution
(and, if applicable, a particular distribution option), and
(ii) the Participant, after receiving the notice, affirmatively
elects a distribution.
Section 6.3: Timing Of Distributions.
(a) The following provisions shall govern the timing of the
distribution of a Participant's benefit.
(b) If a Participant's benefits become distributable because of his or
her death or Total Disability, such benefits shall begin to be distributed as
soon as is administratively practical following the Committee's receipt of
written proof of
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such Participant's death or Total Disability. If a Participant's benefits become
distributable for a reason other than his or her death or Total Disability, such
Participant's benefits shall begin to be distributed as soon as is
administratively practical after the date on which such Participant's benefits
became distributable. Despite the foregoing, and subject to Subsections (c) and
(d) below, a Participant's benefit must begin to be distributed no later than 60
days after the latest of the close of the Plan Year in which:
(i) the Participant attained age 65 (or Normal Retirement Age,
if earlier);
(ii) occurred the 10th anniversary of the year in which the
Participant began participation in the Plan; or
(iii) the Participant ceased to be an Employee.
Despite the foregoing, a Participant may elect a later date on which the
distribution of his or her benefit is to begin, in a manner consistent with the
applicable Regulations. Any failure by a Participant (or, if he or she is
married, such Participant's spouse in the event of such Participant's death) to
consent to an immediate distribution of his or her benefit (provided that such
benefit is otherwise then immediately distributable pursuant to the foregoing
provisions) shall be deemed to be an election to defer distribution to the later
of age 62 or such Participant's Normal Retirement Age.
(c) Despite any other provision of the Plan, one of the following
provisions shall apply:
(i) A Participant's benefit shall be distributed to him or her
not later than April 1 of the calendar year following the calendar year in
which the Participant attains age 70-1/2; or
(ii) Alternatively, distributions to a Participant must begin no
later than the date determined under Subsection (c)(i) above and must be
made, in accordance with the applicable Regulations, over the life of the
Participant or over the lives of such Participant and his or her designated
Beneficiary (or over a period not extending beyond the life expectancy of
the Participant or the life expectancy of the Participant and his or her
designated Beneficiary).
(d) If a Participant dies before his or her entire interest has been
distributed to him or her, the remaining portion of such Participant's interest
must be distributed at least as rapidly as under the method of distribution
being used as of the date of the Participant's death.
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(e) If a Participant dies before distribution of his or her benefit has
begun, the entire benefit of such Participant must be distributed within 5 years
after his or her death.
(f) For purposes of subsection (e) above, any portion of a
Participant's benefit that is payable to or for the benefit of his or her
Beneficiary shall be treated as distributed on the date on which such
distribution begins if:
(a) such portion will be distributed in accordance with the
applicable Regulations over such Beneficiary's life (or over a period not
extending beyond such Beneficiary's life expectancy), and
(b) such distribution must begin not later than the date that is 1
year after the date of such Participant's death (or such later date as the
Secretary of the Treasury may by Regulations prescribe). However, if such
Beneficiary is the Participant's surviving spouse, then the date on which
the distribution is required to begin shall be not later than the date on
which the Participant would have attained age 70-1/2, and if such spouse
dies before the distribution to him or her begins, this subsection shall be
applied as if such spouse were the Participant.
(g) For purposes of subsection (f) above, the life expectancy of a
Participant and his or her spouse (other than in the case of life annuity) may
be redetermined on an annual or less frequent basis, and under Regulations
prescribed by the Secretary of the Treasury, any amount paid to a child of a
Participant shall be treated as if it had been paid to such Participant's
surviving spouse if such amount will become payable to such spouse upon such
child attaining majority (or any other designated event permitted under the
applicable Regulations).
(h) Despite the foregoing provisions, the Committee shall not permit
any Participant to receive his or her benefits under a method of distribution
that violates the incidental benefit rule.
Section 6.4: Postponed Retirement. If a Participant continues to be an
Employee beyond his or her Normal Retirement Date, his or her corresponding
participation in the Plan shall likewise continue. In such a case, to the extent
permitted by law and the applicable Regulations, the distribution of such
Participant's benefits will be postponed until he or she actually ceases to be
an Employee. Such Participant's benefits will become payable as of the first day
of the month next following his or her actually ceasing to be an Employee.
Section 6.5: Distributions Due Missing Persons. If the Trustee is
unable to distribute any benefit due to a Participant or Beneficiary, the
Trustee shall
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(i) so advise the Committee and (ii) hold such benefit as a segregated part of
the Trust, in which event such benefit shall participate in the income, gains
and losses realized by such segregated Trust fund. The Committee shall then send
a written notice to such Participant or Beneficiary at his or her last known
address, as reflected in the Company's or Committee's records. If such
Participant or Beneficiary shall not have presented himself or herself to the
Company or to the Committee within 3 years of the date of such written notice,
any undistributed benefit (and any income, gains and losses realized by such
segregated part) may be applied against and reduce the Company's future
contributions to the Plan. Despite the foregoing, if at any subsequent time a
valid claim for any undistributed benefit is presented to the Committee, such
benefit that was so applied (and any income, gains and losses realized by such
segregated part) shall be paid directly by the Company to such claimant.
Section 6.6: Transfers To Another Qualified Plan. If a Participant who
is a distributee of any Eligible Rollover Distribution (as defined below) elects
to have such distribution paid directly to an Eligible Retirement Plan and who
specifies the Eligible Retirement Plan to which such distribution is to be paid
(in such form and at such time as the Committee may prescribe), then such
distribution shall be made in the form of a direct trustee-to-trustee transfer
to such Eligible Retirement Plan, provided that such Eligible Retirement Plan
accepts such a transfer. The foregoing sentence shall apply only to the extent
that such Eligible Rollover Distribution would be includable in gross income if
not transferred as provided in such sentence (determined without regard to Code
Sections 402(c) and 403(a)(4)). For purposes of the foregoing:
(i) "Eligible Rollover Distribution" shall have the same meaning as
when used in Code Section 402(f)(2)(A).
(ii) "Eligible Retirement Plan" shall have the meaning given such term
by Code Section 402(c)(8)(B).
ARTICLE VII
SALE OF STOCK
Section 7.1: Option To Sell Shares Of Stock. If a Qualified Holder
receives a distribution consisting in whole or in part of Stock that is not
Freely Tradable Stock at the time of distribution, then such distributed Stock
shall be subject to a put option in the hands of the Qualified Holder, according
to the following provisions:
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(a) During the 60-day period following any distribution of such Stock,
a Qualified Holder shall have the right to require the Company to purchase all
or any portion of such distributed Stock held by such Qualified Holder. A
Qualified Holder shall exercise such right by giving written notice to the
Company of the number of shares of distributed Stock that the Qualified Holder
intends to sell to the Company. Such notice must be given within such 60-day
period. The purchase price to be paid for any such option Stock shall be its
fair market value determined as of the most recent valuation according to the
valuation rules specified in Article IV.
(b) If a Qualified Holder fails to exercise his or her put option right
under Subsection (a), he or she shall have an additional right to exercise such
option in the first 60-day period of the next following Plan Year. If a
Qualified Holder fails to exercise his or her put option in this 60-day period,
such option right shall expire and the Qualified Holder shall have no further
right to require the Company to purchase such distributed Stock.
(c) In the application of Subsection (a) and (b), the period during
which a put option is exercisable does not include any time when a distributee
is unable to exercise it because the party bound by the put option is prohibited
from honoring it by applicable federal or state law.
(d) In the event that a Qualified Holder shall exercise a put option
under this Section, then the Company shall pay the purchase price of such Stock
as follows:
(i) If Stock is distributed to a Qualified Holder as part of a
Total Distribution, then the Company shall pay the purchase price of such
Stock in substantially equal installment payments made no less frequently
than annually for no more than 5 years. The first such payment shall be
made within 30 days after the date such put option is exercised. If the
purchase price of the Stock is paid under this installment method, then the
Company shall, at a minimum, (A) provide adequate security, and (B) state a
reasonable rate of interest (at least equal to the imputed compound rate in
effect as of the Exercise Date pursuant to the Regulations under Code
Section 483 or 1274, whichever shall be applicable) for the full unpaid
balance of the option price.
(ii) If Stock is distributed to a Qualified Holder other than as a
Total Distribution (i.e., on an installment basis), then the Company shall
pay the purchase price of such Stock within 30 days after the date the put
option is exercised.
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(iii) "Total Distribution" shall mean a distribution to a
Participant or a Beneficiary, within one taxable year, of the Participant's
entire Account balance to the credit of the Participant.
(e) The protections and rights provided in this Section are
nonterminable and continue to exist despite (i) the repayment of any loan, the
proceeds of which are used to purchase Leveraged Stock, and (ii) the cessation
of the Plan's status as an employee stock ownership plan.
(f) The foregoing put options under Subsections (a) and (b) shall be
effective solely against the Company and shall not obligate the Plan or the
other Company in any manner; provided, however, that with the Company's consent,
the Plan or the other Company may elect to purchase any Stock that otherwise
must be purchased by the Company pursuant to a Qualified Holder's exercise of
any such option.
(g) At the time of distribution of Stock that is not Freely Tradable
Stock to a Qualified Holder, the Company shall furnish to such Qualified Holder
the most recent certificate of value prepared by the Company with respect to
such Stock. In addition, the Company shall furnish to such Qualified Holder a
copy of each subsequent certificate of value until the put options provided for
in this Section with respect to such distributed Stock expire.
(h) Except as is expressly provided above with respect to any
distributed Stock that is not Freely Tradable Stock, no Participant shall have
any put option rights with respect to Stock distributed under this Plan, and
neither the Company nor this Plan shall have any obligation whatsoever to
purchase any such distributed Stock from any Participant or other Qualified
Holder.
Section 7.2: Right Of First Refusal. In the event a Qualified Holder
holds Stock that is not Freely Tradable Stock, the Qualified Holder may not
transfer, assign or otherwise dispose of any Stock unless the Qualified Holder
has given the Company the right of first refusal in accordance with the
following provisions:
(a) The Qualified Holder must give written notice to the Company that
the Qualified Holder has received an offer by a third party to purchase the
Stock. The Company's right of first refusal shall lapse 14 days after the
Qualified Holder gives such notice to the Company.
(b) The selling price of the Stock and other terms under the right of
first refusal must not be less favorable to the Qualified Holder than the
greater of (i) the value of the security as determined under Regulation Section
54.4975- 11(d)(5), or (ii) the purchase price and other terms offered by a buyer
(other than the Employer or the Plan) making a good faith offer to purchase the
Stock.
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(c) The Company may require that a Participant or Beneficiary entitled
to a distribution of Stock sign an appropriate stock transfer agreement (that
evidences the right of first refusal) prior to receiving a certificate for
Stock.
ARTICLE VIII
TOP-HEAVY PLAN LIMITATIONS
Section 8.1: Application Of Top-Heavy Rules. If the Plan is or becomes
a Top-heavy Plan, the limitations and requirements contained in this Article
shall apply and shall supersede any conflicting provision of the Plan.
Section 8.2: Definitions.
(a) Top-heavy Plan. A "Top-heavy Plan" shall mean, with respect to any
plan year, (i) any Defined Benefit Plan maintained by the Company or an
Affiliated Company if, as of the Determination Date, the total Present Value of
Accrued Benefits under such plan for Key Employees exceeds 60% of the total
Present Value of Accrued Benefits under such plan for all participants in such
plan; and (ii) any Defined Contribution Plan maintained by the Company or an
Affiliated Company if, as of the Determination Date, the total Aggregate
Accounts of Key Employees under the plan exceeds 60% of the total Aggregate
Accounts of all participants under such plan. Each plan of the Company required
to be included in an Aggregation Group shall be treated as a Top-heavy Plan if
the Aggregation Group is a Top-heavy Group.
(b) Top-heavy Group. A "Top-heavy Group" shall mean any Aggregation
Group if the sum of (i) the total Present Value of Accrued Benefits for Key
Employees under all Defined Benefit Plans included in the Aggregation Group
(determined as of the Determination Date for each such plan), and (ii) the total
of the Aggregate Accounts of Key Employees under all Defined Contribution Plans
included in the Aggregation Group (determined as of the Determination Date for
each such plan) exceeds 60% of a similar sum determined for all participants in
such plans. For purposes of determining whether the plans in a Top-heavy Group
exceed the foregoing 60% test, the plans shall be aggregated by adding together
the results for each plan as of the Determination Dates for such plans that fall
within the same calendar year.
(c) Aggregation Group. An "Aggregation Group" shall mean each plan of
the Company or of an Affiliated Company in which a Key Employee is a
participant, and each plan of the Company or of an Affiliated Company that
enables the plan(s) containing a Key Employee to meet the antidiscrimination
requirements
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of Code Sections 401(a)(4) or 410, including terminating or terminated plans
maintained within the last 5 years ending on the Determination Date that would,
but for such termination, be part of the Aggregation Group. The Company can
elect to include in the Aggregation Group any plan not otherwise required to be
included, if such group, after such election, would continue to meet the
antidiscrimination requirements of Code Sections 401(a)(4) and 410; provided,
however, that any such plan will not be otherwise deemed a Top-heavy Plan by
reason of such election.
(d) Determination Date. With respect to any plan year, "Determination
Date" shall mean the last day of the preceding plan year or, in the case of the
first plan year of any plan, the last day of such plan year.
(e) Present Value of Accrued Benefit: A participant's "Present Value of
Accrued Benefit" as of any Determination Date shall be calculated:
(i) as of the most recent valuation date ("Valuation Date") which
is within the 12-month period ending on such Determination Date;
(ii) for the first plan year, as if (A) the participant terminated
service as of the Determination Date, or (B) the participant terminated
service as of the Valuation Date, but taking into account the estimated
Present Value of Accrued Benefit as of the Determination Date;
(iii) for any other plan year, as if the participant terminated
service as of the Valuation Date; and
(iv) using the interest rate and mortality assumptions set forth
in the Defined Benefit Plan.
(v) Solely for the purposes of determining if the Plan, or any
other plan included in the Aggregation Group, is a Top-heavy Plan, the
accrued benefit of a Non-Key Employee shall be determined under (1) the
method, if any, that uniformly applies for accrual purposes under all plans
maintained by the Company and all Affiliated Companies, or (2) if there is
no such method, as if such benefit accrued not more rapidly than the
slowest accrual rate permitted under the fractional accrual rate of Code
Section 411(b)(1)(C).
For the foregoing purposes, the Valuation Date must be the same valuation date
used for computing the defined benefit plan minimum funding costs, regardless of
whether a valuation is performed that year.
(f) Aggregate Account: A participant's "Aggregate Account" shall be
determined as follows:
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(i) For Defined Contribution Plans not subject to the minimum
funding requirements of Code Section 412, a participant's Aggregate
Account as of any Determination Date shall be the sum of:
(A) such participant's account balance as of the most recent
valuation date ("Valuation Date") occurring within the 12-month period
ending on such Determination Date; plus
(B) an adjustment for contributions due as of such
Determination Date. Such adjustment is generally the amount of any
contributions actually made after the Valuation Date but before the
Determination Date. In the first plan year, such adjustment shall also
reflect any contributions actually made after the Determination Date
that are allocated as of a date in that first plan year.
(ii) For Defined Contribution Plans subject to the minimum funding
requirements of Code Section 412, a participant's Aggregate Account as of
any Determination Date shall be the sum of:
(A) such participant's account balance as of the most recent
valuation date ("Valuation Date") occurring within the 12-month period
ending on such Determination Date, including contributions that would
be allocated as of a date not later than such Determination Date; plus
(B) an adjustment for contributions due as of such
Determination Date. Such adjustment shall reflect the amount of any
contribution actually made (or due to be made) after the Valuation Date
but before the expiration of the extended payment period described in
Code Section 412(c)(10).
(g) Key Employee. "Key Employee" shall mean any participant of any plan
maintained by the Company or an Affiliated Company who, at any time during the
plan year or any of the 4 preceding plan years, was:
(i) an officer of the Company or an Affiliated Company whose
annual Compensation exceeds 50% of the amount in effect under Code Section
415(b)(1)(A) for any such plan year (provided, however, that no more than
50 employees (or, if lesser, the greater of 3 employees or 10% of all
employees) shall be treated as officers; provided further, however, that if
the total number of officers exceeds this numerical limitation, only the
highest compensated officers shall be included);
(ii) one of the 10 employees who (1) has annual Compensation for a
plan year greater than the dollar limitation in effect under
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Code Section 415(c)(1)(A) for the calendar year in which such plan year
ends, and (2) owns (or is considered to own under Code Section 318) both
more than a 1/2 percent interest and the largest interests in the Company
or an Affiliated Company;
(iii) a 5% owner (defined below) of the Company or an Affiliated
Company; or
(iv) a 1% owner (defined below) of the Company or an Affiliated
Company whose annual Compensation exceed $150,000, or such other amount as
may be allowed under Code Section 416(i) and the applicable Regulations.
A participant shall be deemed a "5% owner" if (i) he or she owns more than 5% of
the outstanding stock (or owns stock possessing more than 5% of the total
combined voting power of all classes of stock), if the Company (or the
Affiliated Company, whichever applies) is a corporation; or (ii) he or she owns
more than 5% of the capital or profit interest in the Company (or the Affiliated
Company, whichever applies), if the Company (or the Affiliated Company,
whichever applies) is not a corporation. A similar rule shall apply to the
determination of a "1% owner." In making this determination, (i) the Code
Section 318(a)(2) corporate attribution rules, as modified by Code Section
416(i)(1)(B)(iii), shall apply, and (ii) the business aggregation rules of Code
Section 414 shall not apply. For purposes of the foregoing definition, (i) the
beneficiary of a Key Employee shall be treated as a Key Employee, and (ii) the
beneficiary of a former Key Employee shall be treated as a former Key Employee.
(h) Non-Key Employee. "Non-Key Employee" shall mean any Participant who
is not a Key Employee, including any Participant who is a former Key Employee.
Section 8.3: 60% Test - Special Rules. For purposes of applying the 60%
test described in Section 8.2(a), the following special rules shall apply:
(a) Participant Contributions. Benefits derived from both participant
contributions (whether voluntary or mandatory, but not deductible contributions)
and the Company's contributions shall be considered.
(b) Previous Distributions. In determining the Present Value of Accrued
Benefit or the Aggregate Account of any participant under any plan (or plans
that form the Aggregation Group), such present value or account shall be
increased by the aggregate of distributions made to such participant from such
plan (or plans forming the Aggregation Group) during the 5-year period ending on
the Determination Date. For this purpose, "participant" shall include an
employee who
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is no longer employed by the Company or an Affiliated Company. Despite the
foregoing, any distribution to a participant that is made after the Valuation
Date and before the Determination Date for any plan year shall not be considered
a distribution to the extent it is already included in such participant's
Present Value of Accrued Benefit or Aggregate Account as of such Valuation Date.
(c) Rollover Contributions. Rollover contributions shall be treated as
follows:
(i) The following rules shall apply to related rollovers and
plan-to-plan transfers (ones either not initiated by the participant or
made to a plan maintained by the Company or any Affiliated Company). If the
plan provides such rollover or plan-to-plan transfer, it shall not be
counted as a distribution for purposes of this Section 8.3. If the plan
receives such rollover or plan-to-plan transfer, it shall consider such
rollover or plan-to-plan transfer as part of the participant's Present
Value of Accrued Benefit or Aggregate Account, regardless of the date on
which such rollover or plan-to-plan transfer was received.
(ii) The following rules apply to unrelated rollovers and plan-
to-plan transfers (ones which are both initiated by a participant and made
from a plan maintained by one employer to a plan maintained by another
employer). If the plan provides such rollover or plan-to-plan transfer, it
shall always consider such rollover or plan-to-plan transfer as a
distribution for purposes of this Section 8.3. If the plan receives such
rollover or plan-to- plan transfer, it shall not consider such rollover or
plan-to-plan transfer as part of the participant's Present Value of Accrued
Benefit or Aggregate Account if it was accepted after December 31, 1983.
(d) Change Of Status. The accrued benefit or account of a participant
who was formerly a Key Employee, but who ceased to be a Key Employee in any plan
year, will not be taken into account for such plan year.
(e) No Service For Last 5 Years. If any individual has not performed
services for any employer maintaining the plan during the 5-year period ending
on the Determination Date, the accrued benefit or account of such individual
shall not be taken into account.
Section 8.4: Minimum Vesting Requirement. As the Plan's normal vesting
schedule equals or exceeds the top-heavy vesting schedule, the normal vesting
schedule shall continue to apply if the Plan becomes a Top-heavy Plan.
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Section 8.5: Minimum Contribution Requirement.
(a) If the Plan is a Top-heavy Plan, then in no event shall the
Company's annual contribution on behalf of any Non-Key Employee be less than 3%
of such Participant's Compensation. This minimum contribution shall be made even
though, under the other provisions of the Plan, the Participant would not
otherwise be entitled to a contribution on his or her behalf, or would have
received a lesser contribution for the Plan Year, because of (i) the
Participant's failure to complete 1,000 Hours of Service, (ii) the Participant's
failure to make mandatory employee contributions to the Plan, or (iii) the
Participant's exclusion from the Plan because such Participant's Compensation is
less than the Plan's stated amount. Despite the foregoing, no minimum
contribution needs to be made under this Section on behalf of a Participant who
was not an Employee on the last day of the Plan Year.
(b) For Plan Years beginning on or after January 1, 1985, any Company
contribution that is attributable to a salary reduction or similar arrangement
shall be considered for purposes of satisfying the minimum contribution required
by this Section. For Plan Years beginning on or after January 1, 1989, elective
contributions under Code Section 401(k) on behalf of Key Employees are taken
into account in determining the minimum required contribution under Code Section
416(c)(2), but such contributions on behalf of Non-Key Employees may not be
treated as employer contributions for purposes of the minimum contribution or
benefit requirements of Code Section 416.
(c) If the Company maintains one or more qualified plans in addition to
the Plan, and if the Plan is a Top-heavy Plan, then in accordance with the
applicable Regulations, only one such plan need be designated by the Company to
provide the minimum benefit provided for in this Section. However, if such
multiple plans, including the Plan, include a Defined Benefit Plan and a Defined
Contribution Plan, the 1.0 Rule (as it may be modified by the top-heavy plan
transitional rule under Code Section 416(h)(3)) shall be in effect if, and only
if, the following two requirements are satisfied:
(i) Minimum Benefit Requirement. The "3%" set forth in this
Section shall be replaced by "4%".
(ii) The 90% Test. The sum of the Present Value of Accrued Benefits
plus the Aggregate Accounts held for all Key Employees under the plans
cannot exceed 90% of a similar sum determined for all participants.
For purposes of the 1.0 Rule, all references to "1.25" shall be replaced by
"1.0," if either of the above additional requirements is not met.
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ARTICLE IX
INVESTMENTS
Section 9.1: Investment Of Company Contributions. The Plan is designed
to invest primarily in Stock, and the Trustee is specifically authorized to
invest up to 100% of the Trust's assets in Stock. All purchases of Stock shall
be made at prices that, in the Committee's judgment, do not exceed the fair
market value of the Stock, determined as required by Section 4.11 above. The
Trustee may purchase Stock for cash or on terms, as directed by the Committee.
Despite the foregoing, sufficient liquidity shall be maintained to meet the
reasonably anticipated requirements of the Trust for payment of expenses of
administration, investment and management and for distribution of benefits to
Participants and Beneficiaries. To the extent the Trustee is not directed to
acquire Stock, the Trustee may, subject to the direction of the Committee,
invest and reinvest the Trust's assets, together with the income therefrom, in
assets other than Stock to the extent consistent with preserving the Plan's
status as an employee stock ownership plan as defined under Code Section
4975(e)(7).
Section 9.2: Leveraged Stock Authorized. The Committee shall have the
power to direct the Trustee to borrow or raise money, in such amounts and under
such conditions and terms as directed by the Committee, for the purpose of
purchasing or otherwise acquiring Stock. Any such borrowing may be made from the
Company, any shareholder in the Company, or from any other party. In connection
with any such borrowing, and subject to any applicable margin requirement rule,
regulation or statute, the Committee may direct the Trustee to issue its
promissory note on behalf of the Trust. No person lending money to the Trustee
shall be obligated to see to the application of the money lent or to inquire
into the validity, expediency or propriety of such borrowing. Any such borrowing
from the Company, or from any other "disqualified person" (as defined in Code
Section 4975(e)(2)), or any other "party in interest" (as defined in ERISA
Section 3(14)), shall be subject to the following provisions:
(a) The proceeds of the loan shall be used (within a reasonable period
of time after receipt) only to acquire Stock, to pay any charges or fees
incurred in connection with the stock acquisition or loan, and/or to make
payments under any such loan (including prior loans).
(b) Other than the categories of assets specified in Subsection (c)
below, the loan shall be without recourse against the Plan or Trust. The only
Trust assets which may be used as collateral for the loan shall be the Stock
acquired with the proceeds of the loan or Stock used as collateral on a prior
loan that was repaid with the current outstanding loan.
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(c) No person entitled to payment under the loan shall have any
recourse, for any payments due under the loan, against any Plan assets other
than the following categories of assets:
(i) Unallocated Leveraged Stock (whether or not collateralized)
acquired with the proceeds of the loan and held in the Unallocated Stock
Account (but only prior to the release therefrom and allocation to
Participants' Accounts as provided under this Plan);
(ii) Company contributions (other than contributions of Stock)
made to meet obligations under the loan;
(iii) Earnings attributable to the unallocated Leveraged Stock
while held in the Unallocated Stock Account (including dividends thereon
while held in the Unallocated Stock Account); and
(iv) Earnings attributable to the investment of the Company
Contributions made to meet obligations under the loan.
Recourse against such assets shall be permissible to the extent allowed under
applicable law governing creditor's remedies, but in no event to an extent
greater than permitted under Subsection (d) below or such other applicable
limitations as may be required in order for such loan transaction to qualify for
the prohibited transaction exemption provided under Code Section 4975(d)(3).
(d) The provisions of this Subsection (d) shall apply in case of a
default in the repayment of the loan:
(i) In the event of a default, the value of Plan assets
transferred to the lender in satisfaction of such loan shall not exceed the
amount of the default.
(ii) If the lender is a disqualified person (as defined in Code
Section 4975(e)(2)), a transfer of Plan assets upon default shall be made
only upon and to the extent of the failure of the Plan to meet the payment
schedule of the loan.
(iii) For purposes of this Subsection (d), the making of a
guarantee by the Company shall not be deemed to make the Company a lender;
provided, however, that this provision shall not impose any personal
liability on the Trustee.
(e) The terms of the loan must provide that shares of Stock purchased
with the proceeds of the loan shall be placed in the Unallocated Stock Account.
The shares in the Unallocated Stock Account shall be released from the
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Unallocated Stock Account (and allocated to the Stock Accounts) as set forth
above. Despite the foregoing, in addition to or in lieu of pledging the acquired
Stock as collateral for the repayment of any loan, the Company may guarantee the
repayment and/or may use Company assets to secure the repayment, and nothing
herein shall require that the repayment of the loan be secured by Stock acquired
with the proceeds thereof.
(f) If the proceeds of a loan are used to acquire Leveraged Stock, the
following items shall be accounted for separately in the books of account of the
Plan until the loan is repaid:
(i) The contributions (other than contributions of Stock) that
are made under the Plan to meet obligations under the loan;
(ii) The earnings attributable to unallocated Leveraged Stock
(purchased with the proceeds of the loan) while held in the Unallocated
Stock Account (including dividends thereon); and
(iii) Earnings attributable to the investment of the contributions
made to meet obligations under the loan.
(g) In the event that there shall be more than one class of Stock, the
class or classes of Leveraged Stock acquired by the Trustee with the proceeds of
the loan, and the relative proportions of the classes of Stock held by the
Trustee, shall comply with any applicable requirements established pursuant to
Regulations under Code Section 4975 so as to insure that the loan and/or the
acquisition of Leveraged Company does not constitute a prohibited transaction
within the meaning of the applicable provisions of the Code and ERISA.
(h) The loan shall be primarily for the benefit of Participants and
their Beneficiaries and shall bear no more than a reasonable rate of interest.
(i) The Committee shall determine, and advise the Trustee with respect
to, the amount of interest charges that are due from time to time by reason of
any variable interest rate (or other similar provision) under any loan used by
the Trustee to acquire Leveraged Stock. The Trustee may rely on the Committee's
determination and directions with respect to the amount of the interest charges,
and the Trustee shall be released from any and all liability attributable to its
reliance thereon.
(j) Any loan entered into by the Plan to purchase Stock shall be for a
definite term, and shall not be payable upon demand of any person, except where
there has been a default. Any such payment upon default shall be subject to the
rules of Subsection (d) above.
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Section 9.3: Certain Nonterminable Provisions. Except as is expressly
provided in the Plan with respect to any distributed Leveraged Stock that is not
Freely Tradeable Stock, no such Leveraged Stock shall be subject to a put, call,
or other option, or buy-sell or similar arrangement while held by and when
distributed from the Plan, whether or not at such time the Plan constitutes an
employee stock ownership plan. The provisions of this Section shall not
terminate notwithstanding that the loan used to acquire such Leveraged Stock
shall be repaid or that the Plan ceases at any time to constitute an employee
stock ownership plan.
Section 9.4: Diversification Of Stock.
(a) Election By Qualified Participant. Despite any other provision of
the Plan, each Participant who is a Qualified Participant may direct the
Committee to distribute 25% of the value of the Participant's Stock Account
balance, reduced by the amount of assets for which a prior election under this
Section has been made. Such direction must be made within 90 days after the last
day of each Plan Year during the Participant's Qualified Election Period. Within
90 days after the close of the last Plan Year in the Participant's Qualified
Election Period, a Qualified Participant may direct the Committee to distribute
50% of the value of such account balance, reduced by the amount of assets for
which a prior election under this Section has been made. The Qualified
Participant's direction (i) shall be provided to the Committee in writing, and
(ii) shall be effective no later than 180 days after the close of the Plan Year
to which the direction applies.
(b) Definitions. For the purposes of this Section, the following
definitions shall apply:
(i) "Qualified Participant" shall mean a Participant who has
attained age 55 and who has completed at least 10 Years of Service after
January 1, 1985.
(ii) "Qualified Election Period" shall mean, with respect to any
Participant, the six Plan Year period that begins on the later of (A) the
first day of the Plan Year in which the Participant attains age 55, or (B)
the Plan Year after the Plan Year in which the Participant first becomes a
Qualified Participant.
(c) Timing Of Distributions. At the election of the Qualified
Participant, the Committee shall direct the Trustee to distribute the portion of
the Participant's account that is covered by the election within 90 days after
the last day of the period during which the election can be made. Such
distribution shall be subject to the put option and right of first refusal
requirements set forth in Article VII. This Subsection (c) shall apply despite
any other provision of the Plan; provided,
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however, that if any distribution pursuant to this Section is in excess of
$3,500, the Participant must consent to such distribution as set forth in the
Plan.
Section 9.5: Voting Of Stock.
(a) Effective January 18, 1991, if the Trustee holds any Stock with
voting rights, the Trustee shall vote such stock as follows:
(i) When notice of a stockholders' meeting concerning such a
corporate matter must be mailed to stockholders, the Committee shall cause
to be prepared and delivered to each Participant and Beneficiary who has
Stock allocated to his or her Account, a notice that:
(A) states the full number of shares of Stock allocated to
the Participant's Account, and
(B) instructs the Trustee as to how the Trustee shall vote
the shares at the meeting or adjournment concerning each such matter.
The Committee shall instruct each Participant and Beneficiary to complete and
return the notice to the Trustee.
(ii) The Trustee shall vote all shares of Company stock allocated
to the Accounts of Participants as instructed in the notice.
(iii) Regarding Stock for which the Trustee has not received a
notice that sets forth a Participant's or Beneficiary's instructed votes
within five days prior to such meeting, including all fractional shares of
Stock and all shares of Stock held in the Unallocated Stock Account, the
Trustee shall vote such shares as directed by the Committee.
(b) The Committee shall in no event make any recommendation to any
Participant regarding the exercise of the Participant's voting rights or any
other rights under the provisions of this Section, nor shall the Committee make
any recommendation as to whether any such rights should or should not be
exercised by the Participant.
(c) All rights (other than voting rights) of Stock held in the Trust
shall be exercised in the same manner and to the same extent as provided above
with respect to the voting rights of the Stock.
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ARTICLE X
THE COMMITTEE
Section 10.1: Members.
(a) The Committee shall consist of six members. Its members shall serve
at the pleasure of the Board of Directors. A person so appointed shall become a
member by filing a written notice of acceptance with the Board of Directors. A
member of the Committee may resign by delivering a written notice of resignation
to the Board of Directors. The Board of Directors may remove any member of the
Committee by delivering a written notice of such removal to him or her. A
resignation or removal shall be effective on the date specified in such notice
or resolution. The Trustee shall be promptly notified by the Board of Directors
of any change in the membership of the Committee, and shall be supplied with
specimen signatures of each Committee member.
(b) Vacancies in the membership of the Committee shall be filled
promptly by the Board of Directors. If the Company is not in existence when a
vacancy in the Committee membership arises, such vacancy shall be filled as
follows, in the indicated order of priority:
1st: The remaining member(s) of the Committee shall appoint new
member(s) to fill all vacancies.
2nd: A majority of the adults then entitled to benefits from the Plan
shall appoint new member(s) to fill all vacancies. If such an
adult is not able to participate in such appointment, then his or
her spouse, if any, shall act for him or her. If there is no such
spouse, then such adult's guardian or conservator shall act for
him or her.
3rd: If vacancies on the Committee are not filled pursuant to the
foregoing, then a court of competent jurisdiction shall fill such
vacancies. The Trust shall pay the expenses incurred in
connection with such court appointment.
Section 10.2: Committee Action.
(a) The Committee shall choose a Secretary and an Assistant Secretary
(either of whom is referred to below as the "Secretary") who shall keep minutes
of the Committee's proceedings and all records and documents pertaining to the
Committee's administration of the Plan. Any action of the Committee shall be
taken pursuant to the vote of a majority, or pursuant to the written consent of
a
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majority, of its members. A quorum of the Committee shall consist of two
members. The Secretary may sign any certificate or other document on behalf of
the Committee. The Trustee and all other persons dealing with the Committee may
conclusively rely upon any certificate or other document that is signed by the
Secretary and that purports to have been duly authorized by the Committee.
(b) A member of the Committee shall not vote or act upon any matter
that relates solely to himself or herself as a Participant. If a matter arises
affecting one member of the Committee as a Participant and the other members of
the Committee are unable to agree on the disposition of such matter, the Board
of Directors shall appoint a substitute member of the Committee in the place and
stead of the affected member, for the sole purpose of passing upon and deciding
that particular matter. If the Company is not in existence then, such substitute
member of the Committee shall be appointed in the manner provided for in this
Article when there is a vacancy in the Committee's membership.
Section 10.3: Rights And Duties.
(a) Except as otherwise set forth in Subsections (b), (c) and (d)
below, all fiduciary responsibility respecting the management or administration
of the Plan and its assets are vested in the Committee, and the Committee shall
be the Named Fiduciary with respect to the Plan's assets, and the
"administrator" of the Plan as defined in Section 3(16)(A) of ERISA.
(b) The Trustee shall (i) have custody of the Plan's assets, (ii) have
the powers designated in the trust document, and (iii) be the Named Fiduciary
with respect to the custody of the Plan's assets.
(c) The Committee may designate one or more Investment Managers
(including the Trustee, if the Trustee is authorized to be an Investment
Manager) to manage the investment of the Plan's assets, and such Investment
Manager(s) shall be the Named Fiduciary with respect to the management and
investment of the Plan's assets.
(d) The Committee may designate one or more persons or entities to
carry out any of its functions under the Plan, other than those of managing and
controlling the Plan's assets, which may only be done pursuant to Subsections
(b) or (c) immediately above.
(e) The Committee, on behalf of the Participants and their
Beneficiaries, shall enforce the Plan in accordance with its terms, and shall be
charged with the general administration of the Plan, except to the extent that
powers are retained by the Company. The Committee shall have the discretion and
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authority to interpret the Plan. The Committee's powers shall include (without
limitation) the power:
(i) to determine all questions relating to the eligibility of
Employees to participate in the Plan;
(ii) to determine, compute and certify to the Trustee the amount
and kind of benefits payable to the Participants and their Beneficiaries;
(iii) to authorize all disbursements by the Trustee from the Trust;
(iv) to direct the Trustee with respect to all investments of the
principal or income of the Trust and with respect to other matters
concerning the Trust's assets;
(v) to maintain all the necessary records for the administration
of the Plan, other than those maintained by the Trustee; and
(vi) to adopt, amend and interpret rules for the regulation of the
Plan that are not inconsistent with its terms and the applicable law and
Regulations.
(f) Members of the Committee and other Fiduciaries shall discharge
their duties with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person, acting in a like capacity
and familiar with such matters, would use in the conduct of an enterprise of a
like character and with like aims. Subject to any right of Participants to
direct how their Accounts will be invested and other provisions of the Plan, the
Committee shall diversify the Plan's investments so as to minimize the risk of
large losses, unless, under the circumstances, it is clearly prudent not to do
so, or unless the Plan specifically provides for the acquisition and holding of
qualifying employer real property or securities, as defined in Sections
407(d)(4) and (5) of ERISA.
(g) A member of the Committee or other Fiduciary shall be liable for a
breach of fiduciary responsibility of another member or another Fiduciary only
if:
(i) such member or Fiduciary participates knowingly in, or
knowingly undertakes to conceal, an act or omission of such other member or
Fiduciary, knowing that such act or omission is a breach;
(ii) such member or Fiduciary has enabled such other member or
Fiduciary to commit a breach by virtue of his or her failure to
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comply with the duty of care set forth above in the administration of such
member's or Fiduciary's own responsibilities as a Fiduciary; or
(iii) such member or Fiduciary has knowledge of a breach by such
other member or Fiduciary, unless such member or Fiduciary makes reasonable
efforts under the circumstances to remedy such breach.
Section 10.4: Information. To enable the Committee to perform its
functions, the Company shall supply complete and timely information to the
Committee on all matters relating to the compensation of all Participants, their
employment, their retirement, death, or the cause for termination of employment,
and such other pertinent information as the Committee may require. The Committee
shall advise the Trustee of such of the foregoing information as may be
pertinent to the Trustee's administration of the Trust.
Section 10.5: Compensation, Indemnity And Liability.
(a) The members of the Committee shall serve without compensation for
their services. No member of the Committee or other Fiduciary need be bonded,
except as required by federal or state law or regulation. The Committee is
authorized to employ such legal counsel or other persons as it may deem
advisable to assist it in the performance of its duties under the Plan.
(b) The Company shall indemnify and hold each member of the Committee
harmless against any and all expenses and liabilities arising out of membership
on the Committee, excepting only expenses and liabilities arising out of such
member's own willful misconduct or gross negligence.
Section 10.6: Administrative Expenses Of The Plan. All expenses of
administering the Plan shall by paid by the Trustee and shall be a charge
against the trust estate, except to the extent that such expenses may be paid by
the Company. The expense of maintaining errors and omissions liability
insurance, if any, covering members of the Committee, the Trustee, or any other
Fiduciary shall be paid by the Company.
ARTICLE XI
AMENDMENT AND TERMINATION
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Section 11.1: Amendments. The Company, through its Board of Directors,
may amend the Plan from time to time, and may amend or cancel any such
amendment. Each amendment must be set forth in a document that is signed by the
Company, and the Plan shall be deemed to have been amended in the manner and at
the time set forth in such document, and all Participants shall be bound by it.
Despite the foregoing, any such amendment shall be subject to the following
provisions:
(a) No amendment shall be effective that attempts to cause any asset of
the Plan to be used for, or diverted to, purposes other than for the exclusive
benefit of the Participants or their Beneficiaries, except for such changes, if
any, that are required to permit the Plan to meet the applicable requirements of
the Code, or as may be made to assure the deductibility for tax purposes of any
contribution by the Company.
(b) No amendment shall have any retroactive effect that would deprive
any Participant of any benefit already vested, nor shall the vesting provisions
of the Plan be amended, unless each Participant with at least 3 Years of Service
is permitted to elect to continue to have the prior vesting provisions apply to
him or her, except for such changes, if any, that are required to permit the
Plan to meet applicable requirements of the Code, or as may be made to assure
the deductibility for tax purposes of any contribution by the Company. Any such
election must be made during the period beginning with the date the amendment is
adopted and ending 60 days after the latest of:
(i) the date the amendment is adopted;
(ii) the date the amendment becomes effective; or
(iii) the date on which the Participant receives written notice of
the amendment from the Company or the Committee.
(c) No amendment shall create or effect any discrimination in favor of
Participants who are highly compensated Employees.
(d) No amendment shall increase the duties or liabilities of the
Trustee without the Trustee's written consent.
(e) No amendment shall decrease any Participant's account balance or
eliminate an optional form of distribution.
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Section 11.2: Discontinuance Of Plan.
(a) The Company expect that the Plan and the contributions under it
will be continued indefinitely, and the Trust is irrevocable. However,
continuance of the Plan is not assumed as a contractual obligation of the
Company, and the Company, through their respective boards of directors, reserve
the right to reduce, temporarily suspend, or discontinue contributions under the
Plan if, and to the extent, permitted under ERISA or the Code. Upon a complete
discontinuance of contributions, the interest of each Participant in each of his
or her Accounts shall become 100% vested, if it is not already fully vested. In
addition, upon a partial termination (within the meaning of Code Section
411(d)(3)), the interest of each affected Participant in each of his or her
Accounts shall become 100% vested, if it is not already fully vested.
(b) The Company, through its Board of Directors, may terminate the Plan
at any time upon delivering a written notice to the Trustee. Upon the Plan's
termination, the interest of each Participant in each of his or her Accounts
shall become 100% vested, if it is not already fully vested. Then the Trustee,
at the direction of the Committee, shall, as is necessary, liquidate the Stock
in the Unallocated Stock Account and use the net proceeds of such liquidation to
pay any loan or installment obligation that was incurred to purchase Leveraged
Stock. The net proceeds in excess of the amount used to repay such loan shall be
allocated to the Participants' Cash Accounts as set forth in Section 4.5(a)(i).
The Trustee, at the direction of the Committee, shall also liquidate the Trust's
assets other than Stock and allocate the net proceeds of such liquidated assets
to the Participants' Cash Accounts, as set forth in Section 4.5(a)(i).
(c) The Plan shall automatically terminate upon the happening of any of
the following events:
(i) adjudication of the Company as a bankrupt;
(ii) general assignment by the Company to or for the benefit of
creditors; or
(iii) dissolution of the business of the Company,
provided, however, that the Plan may be continued by any successor business
organization or any business organization into which the Company is merged or
consolidated that employs some or all of the Participants, if such business
organization agrees with the Trustee in writing to accept the obligations of the
Plan and to continue it in full force and effect in accordance with Section
13.10.
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Section 11.3: Failure To Contribute. The Company's failure to
contribute to the Trust for any Plan Year shall not, of itself, be a
discontinuance of contributions to the Plan.
ARTICLE XII
CLAIMS PROCEDURE
Section 12.1: Presentation Of Claim. Any Participant or Beneficiary of
a deceased Participant (such Participant or Beneficiary being referred to below
as a "Claimant") may deliver to the Committee a written claim for a
determination with respect to the amounts (i) credited to (or deducted from)
such Claimant's Participant's Account(s), or (ii) distributable to such Claimant
from the Plan. If such a claim relates to the contents of a notice received by
the Claimant, the claim must be made within 60 days after such notice was
received by the Claimant. The claim must state with particularity the
determination desired by the Claimant.
Section 12.2: Notification Of Decision. The Committee shall consider a
Claimant's claim within a reasonable time, and shall notify the Claimant in
writing:
(a) that the Claimant's requested determination has been made, and that
the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole or
in part, to the Claimant's requested determination, and such notice must set
forth in a manner calculated to be understood by the Claimant:
(i) the specific reason(s) for the denial of the claim, or any
part of it;
(ii) specific reference(s) to pertinent provisions of the Plan
upon which such denial was based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an explanation of why
such material or information is necessary; and
(iv) an explanation of the claim review procedure set forth in
Section 12.3.
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Section 12.3: Review Of A Denied Claim. Within 60 days after receiving
a notice from the Committee that a claim has been denied, in whole or in part, a
Claimant (or the Claimant's duly authorized representative) may file with the
Board of Directors a written request for a review of the denial of the claim.
Thereafter, but not later than 30 days after the review procedure began, the
Claimant (or the Claimant's duly authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Board of Directors, in its
discretion, may grant.
Section 12.4: Decision On Review. The Board of Directors shall render
its decision on review promptly, and not later than 60 days after the review
procedure begins, unless a hearing is held or other special circumstances
require additional time, in which case the Board of Directors' decision must be
rendered within 120 days after the review procedure. Such decision must be
written in a manner calculated to be understood by the Claimant, and it must
contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon which
the decision was based; and
(c) such other matters as the Board of Directors deems relevant.
ARTICLE XIII
MISCELLANEOUS
Section 13.1: Contributions Not Recoverable. Subject to the next two
sentences, it shall be impossible for any part of the Trust's principal or
income to be used for, or diverted to, purposes other than the exclusive benefit
of the Participants or their Beneficiaries. Despite any other provision of the
Plan, the Company shall be entitled to recover (within one year of the specified
event):
(a) any contribution made to the Trust if (i) the Commissioner of
Internal Revenue, or his delegate, determines that the Plan and the Trust do not
meet the applicable requirements of the Code upon their initial qualification,
with the result that the Trust is not exempt from federal income tax, (ii) such
contribution
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was conditioned on such initial qualification of the Plan and Trust, (iii) the
application for determination of such initial qualification was made within the
time prescribed by law for filing the Company's tax return for the taxable year
in which the Plan and Trust was adopted, or such later date as the Secretary of
the Treasury may prescribe, and (iv) such contribution is returned to the
Company within one year after the date the initial qualification is denied;
(b) any contribution by the Company that was made by a mistake of fact,
provided that such a contribution is returned to the Company within one year of
the contribution;
(c) any contribution by the Company (or any portion of it) that was
disallowed by the Internal Revenue Service as a deduction, provided that such
contribution (or such portion of it), to the extent disallowed, is returned to
the Company within one year of the disallowance of the deduction; and
(d) upon termination of the Plan, any assets held in a suspense account
pursuant to Section 4.6(c)(iii).
Subsections (b) and (c) above shall be operative only if, and to the extent,
expressly authorized by the applicable Regulations, or a Revenue Ruling, Revenue
Procedure, or other official promulgation of the Internal Revenue Service.
Section 13.2: Limitation On Participants' Rights. Participation in the
Plan and Trust shall not give any Employee the right to be retained in the
Company's employ or any right or interest in the Trust other than as provided in
the Plan. The Company reserves the right to dismiss any Employee without any
liability for any claim against the Trust (except to the extent provided in the
Plan) or against the Company. All benefits payable under the Plan shall be
provided solely from the assets of the Trust.
Section 13.3: Receipt Or Release. Any payment to any Participant or
Beneficiary pursuant to the Plan shall, to the extent of it, be in full
satisfaction of all claims against the Trustee, the Committee, the Board of
Directors, and the Company, and the Committee may require such Participant or
Beneficiary, as a condition precedent to such payment, to sign a receipt and
release to such effect.
Section 13.4: Nonassignability.
(a) None of the benefits, payments, proceeds or claims of any
Participant or Beneficiary shall be subject to any claim of any creditor and, in
particular, they shall not be subject to attachment or garnishment or other
legal
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<PAGE> 59
process by any creditor. In addition, no Participant or Beneficiary shall have
any right to alienate, anticipate, commute, pledge, encumber or assign any of
the benefits or payments or proceeds that he or she may expect to receive,
contingently or otherwise, under the Plan.
(b) Any restriction or prohibition against the assignment or alienation
of benefits under the Plan shall not apply to a "qualified domestic relations
order" ("QDRO"), as that term is defined in Code Section 414(p). To the extent
provided in any QDRO, a former spouse of a Participant shall be treated as the
spouse or surviving spouse of such Participant for all purposes under the Plan.
Notwithstanding any other provision in this Plan, a lump sum distribution may be
made to an alternate payee under a QDRO at any time after the Committee has
determined that such QDRO satisfies the requirements of Code Section 414(p) and
Section 206(d) of ERISA, and regardless of whether or not the Participant who is
a party to such QDRO is then eligible to receive a distribution under the Plan.
Section 13.5: Governing Law. The Plan and the Trust shall be construed,
administered, and governed in all respects under and by applicable federal law
and, if they are not inconsistent with federal law, the laws of the State of
California. If any provision is susceptible to more than one interpretation, the
controlling interpretation shall be the one that is consistent with the Plan
being a qualified plan under Code Section 401. If any provision of the Plan is
held by a court of competent jurisdiction to be invalid or unenforceable, the
other provisions shall continue to be fully effective.
Section 13.6: Headings. Headings and subheadings in the Plan are
inserted for convenience of reference only, and they are not to be considered in
construing the provisions of the Plan.
Section 13.7: Counterparts. This Agreement may be signed in
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute but one and the same document, which may be
sufficiently evidenced by any one counterpart.
Section 13.8: Successors And Assigns. This Agreement shall inure to the
benefit of, and be binding upon, the parties to it, and their successors and
assigns.
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<PAGE> 60
Section 13.9: Gender And Number. As used in the Plan, the masculine,
feminine and neuter gender, and the singular and plural number, each include the
other(s), unless the context indicates otherwise.
Section 13.10: Merger, Consolidation Or Transfer Of Plan Assets. The
Plan shall not be merged or consolidated with, nor shall its assets or
liabilities be transferred to, any other plan (the "new plan") unless each
Participant would receive in such new plan a benefit immediately after such
merger, consolidation or transfer, if such new plan were then terminated, that
is equal to, or greater than, the benefit he or she would have been entitled to
receive immediately before such merger, consolidation or transfer, if the Plan
had been terminated then.
Section 13.11: Joinder Of Parties. In any action or other judicial
proceeding affecting the Plan, it shall be necessary to join as parties only the
Trustee, the Committee and the Company, and no Participant or other person
having an interest in the Plan shall be entitled to any notice or service of
process.
Section 13.12: The Trust. This Plan and the Trust are both part of and
constitute a single integrated employee benefit plan and trust and shall be
construed together.
Section 13.13: Participation By Affiliated Companies. Upon the written
consent of the Board of Directors, any Affiliated Company may adopt the Plan.
Any Affiliated Company that executes the Signature Page of the Plan shall,
without the need for any further act, be deemed to have adopted the Plan with
the consent of the Board of Directors.
* * * * * * * * *
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<PAGE> 61
The Company has signed the Plan on the date indicated below, to be
effective as of the Effective Date.
"Company"
Dated: June 21, 1994. CATHAY BANCORP, INC.
By DUNSON CHENG
-------------------------------
Its President
Dated: June 21, 1994. CATHAY BANK
By DUNSON CHENG
-------------------------------
Its President
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<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement of Cathay Bancorp,
Inc. on Form S-4 of our report on the consolidated financial statements of First
Public Savings Bank, F.S.B. and subsidiary dated March 1, 1996, appearing in the
Proxy Statement-Prospectus, which is part of this Registration Statement, and to
the reference to us under the heading "Experts" in such Proxy
Statement-Prospectus.
DELOITTE & TOUCHE LLP
Los Angeles, California
October 10, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Cathay Bancorp, Inc.
We consent to the incorporation by reference in the registration statement
on Form S-4 of Cathay Bancorp, Inc. of our report dated January 29, 1996, on the
consolidated financial statements of Cathay Bancorp, Inc., and subsidiary as of
December 31, 1995 and 1994 and for each of the years in the three-year period
ended December 31, 1995 which report appears in the December 31, 1995, annual
report on Form 10-K of Cathay Bancorp, Inc., incorporated herein by reference,
and to the reference to our Firm under the heading "EXPERTS" in the Prospectus.
Our report dated January 29, 1996, contains an explanatory paragraph that states
that Cathay Bancorp, Inc. and subsidiary adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan" as amended by Statement
of Financial Accounting Standards No. 118, "Accounting by Creditors for
Impairment of a Loan -- Income Recognition and Disclosure" on January 1, 1995.
KPMG PEAT MARWICK LLP
Los Angeles, California
October 10, 1996
<PAGE> 1
EXHIBIT 23.5
CONSENT OF MONTGOMERY SECURITIES
October 9, 1996
Members of the Board of Directors
First Public Savings Bank
988 North Hill Street, Suite 206
Los Angeles, CA 90012
Gentlemen:
We hereby consent to the use of our opinion letter dated May 30, 1996 to
the Board of Directors of First Public Savings Bank, attached as Annex 3 to the
Proxy Statement-Prospectus which forms part of the Registration Statement on
Form S-4 of Cathay Bancorp, Inc., and to the references therein to our firm and
to such opinion under the heading "Background and Reason for the
Merger -- Opinion of Financial Advisor." In giving such consent, we do not admit
and we hereby disclaim (i) that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended
(the "Act"), or the rules and regulations of the Securities and Exchange
Commission thereunder, and (ii) that we are experts with respect to any part of
such Registration Statement within the meaning of the term "experts" as used in
the Act or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
MONTGOMERY SECURITIES
<PAGE> 1
FIRST PUBLIC SAVINGS BANK, F.S.B.
ELECTION FORM AND LETTER OF TRANSMITTAL
TO ACCOMPANY CERTIFICATES REPRESENTING SHARES OF COMMON STOCK, STATED VALUE
$1.00, OF FIRST PUBLIC SAVINGS BANK, F.S.B. ("FIRST PUBLIC") ("FIRST PUBLIC
STOCK" OR "FIRST PUBLIC SHARES") WHEN SUBMITTED PURSUANT TO AN ELECTION WHICH
MAY BE MADE BY EACH RECORD HOLDER OF FIRST PUBLIC STOCK TO EITHER RECEIVE STOCK
CONSIDERATION OR CASH CONSIDERATION FROM CATHAY BANCORP, INC. ("BANCORP") IN
CONNECTION WITH THE PROPOSED MERGER OF FIRST PUBLIC WITH AND INTO CATHAY BANK OR
TO MAKE NO ELECTION.
PLEASE READ THE INSTRUCTIONS ACCOMPANYING THIS ELECTION FORM AND LETTER OF
TRANSMITTAL CAREFULLY BEFORE THIS ELECTION FORM AND LETTER OF TRANSMITTAL ARE
COMPLETED. THIS ELECTION FORM AND LETTER OF TRANSMITTAL IS FIRST BEING MAILED ON
OCTOBER 15, 1996.
5:00 P.M., LOS ANGELES TIME, ON NOVEMBER 8, 1996 IS THE ELECTION DEADLINE
BY WHICH DATE A COMPLETED ELECTION FORM AND LETTER OF TRANSMITTAL, TOGETHER WITH
YOUR FIRST PUBLIC STOCK CERTIFICATES, MUST BE RECEIVED BY THE EXCHANGE AGENT IN
ORDER FOR ANY ELECTION CONTAINED HEREIN TO BE CONSIDERED.
Nominee record holders, which include a nominee, trustee or any other
person that holds shares of First Public Stock in any capacity whatsoever on
behalf of another person or entity ("Nominees"), are directed to Instruction 14
and, if submitting more than one election, must complete Box A below. Each
record holder, unless such record holder is a Nominee, should indicate such
holder's election in the boxes immediately under "ELECTIONS" below.
Bancorp will regard any record holder of First Public Stock who has
delivered a written demand for appraisal and who subsequently delivers an
Election Form and Letter of Transmittal to the Exchange Agent as having
withdrawn such demand for appraisal.
The tax consequences to each holder of First Public Stock ("First Public
Stockholder or First Public Stockholders") will vary depending upon, among other
things, whether a stock election or cash election is made. For information as to
the federal income tax consequences of receiving shares of Bancorp Common Stock
or cash in exchange for your shares of First Public Stock, see "THE
MERGER -- Certain Federal Income Tax Consequences" in the Proxy
Statement-Prospectus dated October 14, 1996 (the "Proxy Statement-Prospectus")
delivered herewith. You are urged, in addition, to consult with your tax
advisor.
IF YOUR STOCK CERTIFICATE(S) HAS BEEN EITHER LOST, STOLEN OR DESTROYED AND YOU
REQUIRE ASSISTANCE IN REPLACING IT (THEM), CONTACT MARINA WANG AT FIRST PUBLIC
(213-346-0888) IMMEDIATELY TO RECEIVE INSTRUCTIONS REGARDING REPLACEMENT. SEE
INSTRUCTION 13 BELOW. YOU CANNOT SUBMIT AN EFFECTIVE ELECTION FORM AND LETTER OF
TRANSMITTAL WITHOUT ATTACHING YOUR STOCK CERTIFICATES HERETO. CERTIFICATES
REPRESENTING SHARES OF FIRST PUBLIC HELD BY YOU WHICH WERE NOT SURRENDERED
PURSUANT TO THE 1991 20 FOR 1 STOCK SPLIT MUST BE ATTACHED HERETO BUT SHALL THEN
BE ADJUSTED INTO THE CORRESPONDING NUMBER OF FIRST PUBLIC SHARES AFTER GIVING
EFFECT TO THE 20 FOR 1 STOCK SPLIT.
<PAGE> 2
To American Stock Transfer & Trust Company:
In connection with the merger (the "Merger") of First Public with and into
Cathay Bank and pursuant to the Agreement and Plan of Merger dated as of May 30,
1996 by and between Bancorp, Cathay Bank and First Public (the "Agreement"), the
undersigned hereby makes the election or elections set forth herein and
surrenders to you for cancellation, as exchange agent (the "Exchange Agent"),
certificates representing all of the undersigned's shares of First Public Stock
listed below in exchange for the right to receive the Per Share Cash
Consideration or the Per Share Stock Consideration as provided in the Agreement.
The Per Share Cash Consideration shall be equal to the quotient of (i) Total
Cash Consideration divided by (ii) the sum of the total number of shares of
First Public Stock to be converted to the right to receive cash as determined
under the limitations and allocation procedures in the Agreement. The Per Share
Stock Consideration shall be equal to the quotient of (i) Total Stock
Consideration divided by (ii) the sum of the total number of shares of First
Public Stock to be converted to the right to receive Bancorp Common Stock as
determined under the limitations and the allocation procedures in the Agreement.
The Total Consideration Value to be received by the First Public
Stockholders, excluding Dissenting Shares, shall be determined as set forth
below:
(i) If the Calculation Date Bancorp Stock Price is at least $14.00 but
not greater than $20.00, the Total Cash Consideration shall be equal to
$15,484,000 and the Total Stock Consideration shall be equal to the
quotient of (a) $16,116,000 divided by (b) the Calculation Date Bancorp
Stock Price. The Total Consideration Value shall be equal to $31,600,000.
(ii) If the Calculation Date Bancorp Stock Price is less than $14.00,
the Total Consideration Value shall be equal to the sum of (a) $15,484,000
plus (b) the Calculation Date Bancorp Stock Price multiplied by 1,151,143.
The Total Cash Consideration shall be equal to 49 percent of the Total
Consideration Value. The Total Stock Consideration shall be equal to the
quotient of (x) 51 percent of the Total Consideration Value divided by (y)
the Calculation Date Bancorp Stock Price.
(iii) If the Calculation Date Bancorp Stock Price is greater than
$20.00 but not greater than $23.00, the Total Consideration Value shall be
equal to the sum of (a) $15,484,000 plus (b) the Calculation Date Bancorp
Stock Price multiplied by 805,800. The Total Cash Consideration shall be
equal to 49 percent of the Total Consideration Value. The Total Stock
Consideration shall be equal to the quotient of (x) 51 percent of the Total
Consideration Value divided by (y) the Calculation Date Bancorp Stock
Price.
(iv) If the Calculation Date Bancorp Stock Price is greater than
$23.00, the Total Consideration Value shall be equal to $34,017,000. The
Total Cash Consideration shall be equal to $16,668,330 and the Total Stock
Consideration shall be equal to the quotient of (x) $17,348,670 divided by
(y) the Calculation Date Bancorp Stock Price.
In addition, it is understood that the Exchange Agent will pay cash in lieu of
any fractional shares of the Stock Consideration in connection with the Merger.
As used herein, the term "Total Consideration" refers to the Stock
Consideration, the Cash Consideration and any cash payable in lieu of fractional
shares to which each First Public Stockholder is entitled pursuant to this
Election Form and Letter of Transmittal.
The undersigned understands that the election referred to above is subject
to certain terms, conditions, limitations and the election and allocation
procedures set forth in the Agreement, the Instructions on the reverse side
hereof and the Proxy Statement-Prospectus. Among other conditions, the Agreement
and the Merger must be approved at a Special Meeting of Shareholders of First
Public. Furthermore, if the Calculation Date Bancorp Stock Price is less than
$11.00, the Board of Directors of First Public shall have the option to either
terminate the Agreement or to consummate the Merger. The Agreement is included
as Annex 1 to the Proxy Statement-Prospectus. Extra copies of this Election Form
and Letter of Transmittal and the Proxy Statement-Prospectus may be requested
from American Stock Transfer & Trust Company, as Exchange Agent, at the
addresses or phone number shown below. The filing of this Election Form and
Letter of Transmittal is acknowledgment of the receipt of the Proxy
Statement-Prospectus.
2
<PAGE> 3
The undersigned hereby represents and warrants that the undersigned is as
of the date hereof, and will be as of the effective date of the Merger, the
registered holder of the First Public Shares, with good title to the
above-described First Public Shares and full power and authority to sell, assign
and transfer the First Public Shares represented by the enclosed certificates,
free and clear of all liens, claims and encumbrances, and not subject to any
adverse claims. The undersigned will, upon request, execute any additional
documents necessary or desirable to complete the surrender and exchange of such
First Public Shares. The undersigned hereby irrevocably appoints the Exchange
Agent, as agent of the undersigned, to effect the exchange pursuant to the
Agreement and the Instructions on the reverse side hereof. All authority
conferred or agreed to be conferred in this Election Form shall be binding upon
the successors, assigns, heirs, executors, administrators and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned.
ELECTIONS
Check the appropriate box below to make one of the following elections: (i)
to have each of your shares of First Public Stock converted into the right to
receive a number of shares of common stock of Bancorp, par value $0.01 per share
("Bancorp Common Stock"), equal to the quotient of (a) Total Stock Consideration
divided by (b) the sum of the total number of shares of First Public Stock to be
converted to the right to receive Bancorp Stock as determined under the
limitations and the allocation procedures in the Agreement (a "Stock Election"),
OR (ii) to have each of your shares of First Public Stock converted into the
right to receive an amount in cash without interest equal to the quotient of (a)
Total Cash Consideration divided by (b) the sum of the total number of shares of
First Public Stock to be converted to the right to receive cash as determined
under the limitations and allocation procedures in the Agreement (a "Cash
Election"), OR (iii) to indicate no election.
Additionally, if you elect either the "Stock Election" or the "Cash
Election," you may further elect below to be subject to "Proration Allocation,"
as described in the Proxy Statement-Prospectus in the event the Stock Elections
are either more than or less than the Total Stock Consideration. If the
elections result in an oversubscription of either the Stock Consideration or the
Cash Consideration, the procedures for allocating Bancorp Common Stock and cash
set forth in the Agreement and described in the Proxy Statement-Prospectus will
be followed by the Exchange Agent. Although a First Public Stockholder may only
elect to receive all cash or all Bancorp Common Stock for all such holder's
First Public Shares (or may make no election), because the aggregate number of
shares of Bancorp Common Stock and the aggregate amount of cash to be exchanged
in the Merger will be fixed under the formula any by the allocation procedures
in the Agreement, no assurance can be given that an election by any given First
Public Stockholder will be honored. Thus, holders may not receive their
requested form of consideration and, in some cases, may receive both cash and
Bancorp Common Stock. See "THE MERGER -- Election and Allocation Procedures" in
the Proxy Statement-Prospectus and Instruction 3 hereto.
<TABLE>
<S> <C>
TO BE COMPLETED BY ALL CHECK ONLY ONE BOX:
HOLDERS EXCEPT NOMINEES
HOLDING SHARES ON / / STOCK ELECTION
BEHALF OF MORE THAN ONE / / CASH ELECTION
PERSON OR ENTITY. SUCH / / NO ELECTION
NOMINEES MUST USE BOX A
BELOW TO MAKE VALID
ELECTIONS.
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C>
AN ADDITIONAL PRORATION CHECK ONLY ONE BOX:
ALLOCATION ELECTION MAY PRORATION ALLOCATION
BE MADE IF YOU CHECKED
STOCK ELECTION OR CASH / / YES
ELECTION / / NO
</TABLE>
AMERICAN STOCK TRANSFER & TRUST COMPANY, ACTING AS EXCHANGE AGENT, RESERVES
THE RIGHT TO DEEM THAT YOU HAVE CHECKED THE "NO ELECTION" BOX AND/OR THAT YOU
HAVE NOT ELECTED TO BE SUBJECT TO THE PRORATION ALLOCATION IF:
A. NO CHOICE IS INDICATED IN THE RESPECTIVE BOX ABOVE;
B. YOU FAIL TO FOLLOW THE INSTRUCTIONS ON THIS ELECTION FORM (INCLUDING
SUBMISSION OF YOUR FIRST PUBLIC STOCK CERTIFICATES) OR OTHERWISE FAIL
TO PROPERLY MAKE AN ELECTION; OR
C. A COMPLETED ELECTION FORM (INCLUDING SUBMISSION OF YOUR FIRST PUBLIC
STOCK CERTIFICATES) IS NOT ACTUALLY RECEIVED BY THE ELECTION DEADLINE.
The Calculation Date Bancorp Stock Price shall be the quotient of (i) the
sum of each of the high and low sales prices of Bancorp Common Stock as reported
in The Wall Street Journal as Nasdaq National Market System transactions on each
of the twenty (20) days on which Bancorp Common Stock was traded immediately
before the date which is five (5) business days before the Closing Date divided
by (ii) 40. The Calculation Date Bancorp Stock Price will not be determined as
of the Election Deadline.
Prior to the Election Deadline (specified in Instruction 1 hereto), this
Election Form and Letter of Transmittal should be (i) completed and signed in
the space provided below and on the Substitute Form W-9 or the Substitute Form
W-8 and (ii) mailed or delivered with your certificates representing shares of
First Public Stock to the Exchange Agent at either of the following addresses:
<TABLE>
<S> <C> <C>
By Mail: For Information Call: By Hand/Overnight Courier:
American Stock Transfer & (800) 937-5449 American Stock Transfer &
Trust Company Trust Company
40 Wall Street 6201 15th Avenue
New York, NY 10005 Brooklyn, NY 11219
</TABLE>
The method of delivery of the certificates representing the First Public
Shares and all other required documents is at the election and risk of the
owner; however, if the stock certificates are sent by mail, it is recommended
that they be sent by certified mail, appropriately insured, with return receipt
requested.
4
<PAGE> 5
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF FIRST PUBLIC STOCK ENCLOSED
- ------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF REGISTERED HOLDER(S) CERTIFICATE(S) ENCLOSED
(PLEASE COMPLETE EXACTLY AS NAME (PLEASE LIST BELOW --
APPEARS ON CERTIFICATE(S)) ATTACH ADDITIONAL LIST IF NECESSARY)
------------------------------------------------------------------------------------------------------------------
<S> <C>
CERTIFICATE NUMBER OF
NUMBER(S) SHARES
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
TOTAL NUMBER OF SHARES:
------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
BOX A: TO BE COMPLETED ONLY BY NOMINEES SUBMITTING MULTIPLE ELECTIONS.
FOR SUCH PURPOSES, A NOMINEE INCLUDES A NOMINEE, TRUSTEE OR ANY
OTHER PERSON THAT HOLDS SHARES OF FIRST PUBLIC STOCK IN ANY CAPACITY
WHATSOEVER ON BEHALF OF MORE THAN ONE PERSON OR ENTITY.
IF THIS BOX A IS COMPLETED, THE UNDERSIGNED, ACTING FOR ITSELF AND AS NOMINEE, TRUSTEE OR
IN ANOTHER REPRESENTATIVE CAPACITY ON BEHALF OF ANOTHER PERSON OR ENTITY, HEREBY SUBMITS THE FOLLOWING
ELECTIONS AND ATTACHES SHARE CERTIFICATES FOR ALL SHARES HELD OF RECORD BY THE UNDERSIGNED (ATTACH
ADDITIONAL SHEETS IF NECESSARY).
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CHECK ONLY ONE ELECTION FOR EACH PERSON/ENTITY. CHECK YES
OR NO FOR PRORATION ALLOCATION ONLY IF YOU CHECK
CASH ELECTION OR STOCK ELECTION.
PRORATION
NUMBER OF PERSONS OR ENTITY AND TOTAL NUMBER OF FIRST ALLOCATION
ELECTIONS(S) PUBLIC SHARES SUBJECT TO ELECTION CASH ELECTION STOCK ELECTION NO ELECTION YES NO
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
1
------------------------------------------------------------------------------------------------------------------
2
------------------------------------------------------------------------------------------------------------------
3
------------------------------------------------------------------------------------------------------------------
4
------------------------------------------------------------------------------------------------------------------
5
------------------------------------------------------------------------------------------------------------------
6
------------------------------------------------------------------------------------------------------------------
7
------------------------------------------------------------------------------------------------------------------
</TABLE>
Unless otherwise indicated below under "SPECIAL ISSUANCE AND PAYMENT
INSTRUCTIONS," in exchange for the enclosed certificates, the undersigned
requests delivery of the Total Consideration. Similarly, unless otherwise
indicated under "SPECIAL DELIVERY INSTRUCTIONS," the undersigned requests that
the Total Consideration be mailed to the undersigned at the address shown above.
In the event that both the "SPECIAL DELIVERY INSTRUCTIONS" and the "SPECIAL
ISSUANCE AND PAYMENT INSTRUCTIONS" are completed, please issue the Total
Consideration, as the case may be, in the name of, and mail the Total
Consideration to, the person or entity so indicated at the address so indicated.
Appropriate signature guarantees have been included with respect to First Public
Shares for which Special Delivery Instructions and/or Special Issuance and
Payment Instructions have been given.
5
<PAGE> 6
In the event that the Agreement is terminated, the Exchange Agent will
promptly return stock certificates representing shares of First Public Stock
previously submitted with Election Forms and Letters of Transmittal. The
Exchange Agent and Bancorp have agreed to use their commercially reasonable
efforts to cooperate with First Public and First Public Stockholders to
facilitate return of certificates representing shares of First Public Stock in
the event of such termination, but return other than by registered mail will
only be made at the expense, written direction and risk of First Public
Stockholders, accompanied by a pre-paid, pre-addressed return courier envelope
sent to the Exchange Agent.
SPECIAL ISSUANCE AND
PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 4, 5 AND 10)
To be completed ONLY if the certificate representing the Stock Consideration or
the check representing the Cash Consideration or cash in lieu of fractional
shares, as the case may be, is to be issued in the name of and mailed to someone
other than the undersigned. NOTE: THE PERSON NAMED IN THESE SPECIAL ISSUANCE AND
PAYMENT INSTRUCTIONS MUST BE THE PERSON WHO COMPLETES THE SUBSTITUTE FORM W-9.
IF ALL PERSONS NAMED QUALIFY AS EXEMPT FOREIGN PERSONS, ALL PERSONS NAMED MUST
COMPLETE THE SUBSTITUTE FORM W-8. Attach additional completed copies of this
page for multiple payment instructions.
Issue the certificate representing the Stock Consideration or the check
representing the Cash Consideration or cash in lieu of fractional shares to:
Name
- --------------------------------------------------------------------------------
(Please Print)
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
6
<PAGE> 7
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 4 AND 10)
To be completed ONLY if the certificate representing the Stock Consideration or
the check representing the Cash Consideration or cash in lieu of fractional
shares, as the case may be, issued in the name of the undersigned is to be sent
to someone other than the undersigned or to the undersigned at an address other
than that shown above.
MAIL THE CERTIFICATE REPRESENTING THE STOCK CONSIDERATION OR THE CHECK
REPRESENTING THE CASH CONSIDERATION OR CASH IN LIEU OF FRACTIONAL SHARES TO:
Name
- --------------------------------------------------------------------------------
(Please Print)
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
The undersigned represents and warrants that the undersigned has full power
and authority to transfer the First Public Shares surrendered hereby and that
the transferee will acquire good and unencumbered title thereto, free and clear
of all liens, restrictions, charges and encumbrances and not subject to any
adverse claim when the shares are accepted for exchange by the Exchange Agent.
The undersigned will, upon request, execute and deliver any additional documents
deemed by the Exchange Agent or Bancorp to be necessary and desirable to
complete the transfer of the First Public Shares surrendered hereby.
Dated: ____________________, 1996
PLEASE SIGN HERE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature(s) of registered holder(s) must be EXACTLY as name(s) appear(s) on the
box headed "Description of Shares of First Public Stock Enclosed" or on a stock
assignment authorizing transfer.
If signed by an attorney, trustee, executor, administrator, guardian, officer or
other person acting in a fiduciary or representative capacity, the capacity of
the person signing should be indicated. (See Instruction 8.)
Dated: ____________________, 1996
Name(s):
- --------------------------------------------------------------------------------
(Please Print)
Capacity:
- --------------------------------------
Area Code and
Telephone Number:
- -----------------------------------------------------------------------------
THE EXCHANGE AGENT HAS BEEN INSTRUCTED NOT TO MAKE ANY EXCHANGE OF YOUR SHARES
UNTIL THIS ELECTION FORM AND LETTER OF TRANSMITTAL HAS BEEN EXECUTED AND
DELIVERED TO THE EXCHANGE AGENT.
7
<PAGE> 8
PAYER'S NAME: [EXCHANGE AGENT]
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR -------------------------------
FORM W-9 TAXPAYER IDENTIFICATION NUMBER Social Security Number
(SEE INSTRUCTION 7) IN THE BOX AT RIGHT AND CERTIFY -------------------------------
PLEASE FILL IN YOUR NAME AND BY SIGNING AND DATING BELOW. See Employer Identification Number
ADDRESS BELOW the endorsed "Guidelines for
Certificates of Taxpayer Status"
for instructions.
-----------------------------------------------------------------------
Name (if joint names, list first and PART 2 -- CERTIFICATION -- UNDER
circle the name of the person or PENALTIES OF PERJURY, I CERTIFY PART 3 -- Awaiting TIN / /
entity whose name is entered in Part THAT:
1)
---------------------------------
- --------------------------------- (1) The number shown on this
Address (number and street) form is my correct Taxpayer PART 4 -- Exempt / /
Identification Number (or I ---------------------------------
am waiting for a number to
be issued to me) and
- --------------------------------- (2) I am not subject to backup
City, State and Zip Code withholding because (a) I am
exempt from backup
withholding or (b) I have
not been notified by the
Internal Revenue Service
("IRS") that I am subject to
backup withholding as a
result of a failure to
report all interest or
dividends, or (c) the IRS
has notified me that I am no
longer subject to backup
withholding.
------------------------------------------------------------------
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) in Part
DEPARTMENT OF THE TREASURY 2 above if you have been notified by the IRS that you are subject
INTERNAL REVENUE SERVICE to backup withholding because of under-reporting interest or
dividends on your tax return. However, if after being notified by
the IRS that you are subject to backup withholding you received
another notification from the IRS stating that you are no longer
subject to backup withholding, do not cross out item (2). If you
are exempt from backup withholding, check the box in Part 4
above.
------------------------------------------------------------------
PAYER'S REQUEST FOR TAXPAYER Signature _______________________ Date ____________________, 1996
IDENTIFICATION NUMBER (TIN)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS ELECTION FORM AND LETTER OF
TRANSMITTAL INCLUDING THE SUBSTITUTE FORM W-9, MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE MERGER OF
FIRST PUBLIC WITH AND INTO CATHAY BANK. PLEASE REVIEW THE ENCLOSED
"GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER" FOR
ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number within 60
days, 31% of all reportable payments made to me thereafter will be withheld
until I provide such number.
- -------------------------------------------------------------------------, 1996
Signature Date
8
<PAGE> 9
CERTIFICATE OF FOREIGN STATUS
SUBSTITUTE FORM W-8
PAYER'S NAME: AMERICAN STOCK TRANSFER & TRUST COMPANY
List the names and non-U.S. permanent addresses of all persons who are
neither citizens or residents of the United States nor entities organized in the
United States who are shown on the certificate(s) for First Public Shares. If at
least one joint owner is a citizen or resident of the United States, do not
complete this form. Instead, complete Substitute Form W-9 for the first joint
owner having this status. (Also see the enclosed Guidelines for Certification of
Taxpayer Status.)
Name of Owner
- --------------------------------------------------------------------------------
Foreign Permanent Address
- --------------------------------------------------------------------------------
City, Province or State, Postal Code and Country
------------------------------------------------------------
Name of Owner
- --------------------------------------------------------------------------------
Foreign Permanent Address
- --------------------------------------------------------------------------------
City, Province or State, Postal Code and Country
------------------------------------------------------------
Name of Owner
- --------------------------------------------------------------------------------
Foreign Permanent Address
- --------------------------------------------------------------------------------
City, Province or State, Postal Code and Country
------------------------------------------------------------
CERTIFICATION -- Under penalty of perjury, I (we) certify that I am an (we
are) exempt foreign person(s) as set forth in the Guidelines for Certification
of Taxpayer Status.
<TABLE>
<S> <C>
- ------------------------------------------------------ -----------------------------------
Signature Date
- ------------------------------------------------------ -----------------------------------
Signature Date
- ------------------------------------------------------ -----------------------------------
Signature Date
</TABLE>
9
<PAGE> 10
SIGNATURE GUARANTEE
(REQUIRED ONLY IN CASES SPECIFIED IN INSTRUCTION 5)
The undersigned hereby guarantees the signature(s) which appear(s) on this
Election Form and Letter of Transmittal:
- --------------------------------------------------------------------------------
(Name of Firm Providing Signature Guarantee)
(Please Print)
- --------------------------------------------------------------------------------
(Authorized Signature/Medallion Stamp)
Dated: ____________________, 1996
10
<PAGE> 11
INSTRUCTIONS
Until the certificates representing First Public Shares owned by such
stockholders are received by the Exchange Agent at one of the addresses set
forth on the front hereof, together with such documents as the Exchange Agent
may require and until the same are processed for exchange by the Exchange Agent,
First Public Stockholders will not receive (i) any certificates representing
shares of the Stock Consideration or a check representing the Cash Consideration
or cash in lieu of fractional shares (if any) in exchange for their certificates
representing First Public Shares or (ii) any dividends payable on such shares of
Bancorp Common Stock comprising the Stock Consideration. No interest will accrue
on the Cash Consideration, the cash in lieu of fractional shares or such
dividends. If your stock certificate(s) is lost, stolen or destroyed, please
refer to Instruction 13 below.
UNLESS THE SPECIAL CIRCUMSTANCES DESCRIBED BELOW IN INSTRUCTION 14 APPLY, A
HOLDER OF FIRST PUBLIC STOCK MUST CHECK ONE BOX ON THE REVERSE HEREOF
IMMEDIATELY UNDER THE CAPTION "ELECTION" TO MAKE AN EFFECTIVE ELECTION.
You should understand that your election is subject to certain terms,
conditions, limitations and the election and allocation procedures in the
Agreement and that have been set out in the Proxy Statement-Prospectus and
herein. The Agreement is included as Annex A to the Proxy Statement-Prospectus
herein and any terms used in this Election Form and Letter of Transmittal shall
have the same meanings as defined in the Agreement. Extra copies of the Proxy
Statement-Prospectus may be requested from the Exchange Agent, at the addresses
or phone number shown on the front of these Instructions. The filing of this
Election Form and Letter of Transmittal is acknowledgment of the receipt of the
Proxy Statement-Prospectus.
1. Election Deadline. For any election contained herein to be considered,
this Election Form and Letter of Transmittal, properly completed, and the
related First Public Stock certificates, must be received by the Exchange Agent
at one of the addresses on the front of this Election Form and Letter of
Transmittal no later than 5:00 p.m., Pacific Standard Time, on November 8, 1996.
The Exchange Agent will determine whether any Election Form and Letter of
Transmittal is received on a timely basis and whether an Election Form and
Letter of Transmittal has been properly completed.
2. Revocation or Change of Election Form and Letter of Transmittal. Any
Election Form and Letter of Transmittal may be revoked or changed by written
notice from the person submitting such Election Form and Letter of Transmittal
to the Exchange Agent, but to be effective such notice must be received by the
Exchange Agent at or prior to the Election Deadline. The Exchange Agent will
have reasonable discretion to determine whether any revocation or change is
received on a timely basis and whether any such revocation or change has been
properly made.
3. Election Procedures/Allocation. If the elections result in an
oversubscription of either the Stock Consideration or the Cash Consideration,
the procedures for allocating Bancorp Common Stock and cash set forth in the
Agreement and described in the Proxy Statement-Prospectus will be followed by
the Exchange Agent. Thus, an election made by you may not be honored in certain
circumstances. Although a First Public Stockholder may only elect to receive all
cash or all Bancorp Common Stock for such holder's First Public Shares (or may
make no election), because the aggregate number of shares of Bancorp Common
Stock and the aggregate amount of cash to be exchanged in the Merger will be
fixed under the formula and allocation procedures in the Agreement, no assurance
can be given that an election by any given First Public stockholder will be
honored. Thus, holders may not receive their requested form of consideration
and, in some cases, may receive both cash and Bancorp Common Stock. See "THE
MERGER -- Election and Allocation Procedures" in the Proxy Statement-Prospectus.
4. No Fractional Interests. No certificate representing a fraction of a
full share of Bancorp Common Stock will be issued. In lieu thereof, the Exchange
Agent will remit on Bancorp's behalf cash without interest in an amount equal to
the product of (i) such fraction of a share of Bancorp Common Stock, if any, to
which any First Public Stockholder would otherwise be entitled and (ii) the
Calculation Date Bancorp Stock Price.
11
<PAGE> 12
No such holder shall be entitled to dividends, voting rights or any other rights
in respect to any fractional share.
5. Guarantee of Signatures. Signatures on this Election Form and Letter of
Transmittal must be guaranteed in accordance with Rule 17 Ad-15 promulgated
under the Securities Exchange Act of 1934 by a firm that is a member of a
registered national securities exchange, a member of the National Association of
Securities Dealers, Inc., by a commercial bank or trust company having an office
or correspondent in the United States or by an international bank, securities
dealer, securities broker or other financial institution licensed to do business
in its home country (an "Eligible Institution") unless (i) the Election Form and
Letter of Transmittal is signed by the registered holder(s) of the First Public
Shares tendered therewith and such holder(s) have not completed the "Special
Issuance and Payment Instructions" above or (ii) the First Public Shares
described above are delivered for the account of an Eligible Institution. IN ALL
OTHER CASES ALL SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION. Public
notaries cannot execute acceptable guarantees of signatures.
6. Delivery of Election Form and Certificates. This Election Form and
Letter of Transmittal, properly completed and duly executed, together with the
certificate(s) representing the First Public Shares, should be delivered to the
Exchange Agent at one of the addresses set forth on the front hereof.
The method of delivery of the certificates representing the First Public
Shares and all other required documents is at the election and risk of the
owner; however, if the stock certificates are sent by mail, it is recommended
that they be sent by certified mail, appropriately insured, with return receipt
requested.
7. Inadequate Space. If the space provided herein is inadequate, the stock
certificate numbers and the numbers of First Public Shares represented thereby
should be listed on additional sheets attached hereto.
8. Signatures on Election Form, Stock Powers and Endorsements.
(a) All signatures must correspond exactly with the name written on the
face of the stock certificate(s) without alteration, variation or any change
whatsoever.
(B) IF THE STOCK CERTIFICATE(S) SURRENDERED HEREBY IS OWNED OF RECORD BY
TWO OR MORE JOINT OWNERS, EACH OWNER OF RECORD MUST SIGN THIS ELECTION FORM AND
LETTER OF TRANSMITTAL.
(c) If any surrendered First Public Shares are registered in different
names on several stock certificates, it will be necessary to complete, sign and
submit as many separate Election Forms and Letters of Transmittal as there are
different registrations of stock certificates.
(d) If this Election Form is signed by a person(s) other than the
registered holder(s) of the certificates listed (other than as set forth in
paragraph (e) below), the certificates must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name of the
registered holder(s) appears on the certificate.
(e) If the Election Form and Letter of Transmittal is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity and such person is
not the registered stockholder, he or she must indicate the capacity when
signing and must submit proper evidence of his or her authority to act.
9. Stock Transfer Taxes. In the event that any transfer or other taxes
become payable by reason of the issuance of the Total Consideration in any name
other than that of the record holder, such transferee or assignee must pay such
tax to the Exchange Agent or must establish to the satisfaction of the Exchange
Agent that such tax has been paid.
10. Special Issuance and Delivery Instructions. Indicate the name and/or
address of the person(s) to whom the Stock Consideration or the check
representing the Cash Consideration or cash in lieu of fractional shares (if
any) is to be issued and sent, if different from the name and/or address of the
person(s) signing this Election Form and Letter of Transmittal.
12
<PAGE> 13
11. Withholding. Each surrendering stockholder is required to provide the
Exchange Agent with such holder's correct Taxpayer Identification Number ("TIN")
on the Substitute Form W-9 on the front hereof and to certify whether the
stockholder is subject to backup withholding. Failure to provide the information
on the form may subject the surrendering stockholder to 31% federal income tax
withholding on payments made to such surrendering stockholder with respect to
the First Public Shares and on future dividends paid by Bancorp. A holder must
cross out item (2) in the Certification box in Part 2 of Substitute Form W-9 if
such holder has been notified by the Internal Revenue Service that such holder
is currently subject to backup withholding. The box in Part 3 of the form should
be checked if the surrendering holder has not been issued a TIN and has applied
for a TIN or intends to apply for a TIN in the near future. If the box in Part 3
is checked and the Exchange Agent is not provided with a TIN within 60 days
thereafter, Bancorp will withhold 31% of all such payments and dividends until a
TIN is provided to the Exchange Agent. If the owners of the First Public Shares
are all exempt foreign persons, reporting to the IRS is not required. However,
in order to be exempt from the reporting and backup withholding requirements,
each owner of the First Public Shares must sign the Substitute Form W-8 as set
forth on this Letter of Transmittal and certify, under penalties of perjury,
their exempt foreign status.
12. Certificates for Shares not Previously Submitted for the First Public
20 To 1 Stock Split. Certificates representing shares of First Public held by
you which were not surrendered pursuant to the 1991 20 for 1 stock split must be
attached hereto but shall then be adjusted into the corresponding number of
First Public Shares after giving effect to the 20 for 1 stock split.
13. Lost, Stolen or Destroyed Certificates. If your stock certificate(s)
has been either lost, stolen or destroyed, a completed affidavit of loss must be
submitted to the Exchange Agent prior to the Election Deadline in order for you
to make a valid election. You are urged to contact Marina Wang at First Public
(213-346-0888) immediately to receive instructions as to the steps you must take
in order to effect an exchange of your shares of First Public Stock.
14. Holders who are Nominees, Trustees or Other Representatives. Each
holder of record is entitled to make an election and submit an Election Form
covering all shares of First Public Stock actually held of record by such
holder. Nominee record holders, which include nominees, trustees or any other
person that holds shares of First Public Stock in any capacity whatsoever on
behalf of more than one person or entity, are entitled to make an election for
such nominee record holders as well as an election on behalf of each beneficial
owner of shares of First Public Stock held through such nominee record holders,
but such elections must be made on one Election Form. Beneficial owners who are
not record holders are not entitled to submit Election Forms. Persons submitting
an Election Form and Letter of Transmittal on behalf of a registered stockholder
as trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or acting in another fiduciary or representative capacity should
refer to Instruction 8 above.
15. Miscellaneous. Neither Bancorp nor the Exchange Agent is under any
duty to give notification of defects in any Election Form and Letter of
Transmittal. Bancorp and the Exchange Agent shall not incur any liability for
failure to give such notification, and each of Bancorp and the Exchange Agent
has the absolute right to reject any Election Form and Letter of Transmittal not
in proper form or to waive any irregularities in any Election Form and Letter of
Transmittal.
16. Information and Additional Copies. Information and additional copies
of this Election Form and Letter of Transmittal may be obtained by writing to
American Stock Transfer & Trust Company, __________, Attention: __________, or
by telephoning toll-free __________.
13
<PAGE> 14
IMPORTANT TAX INFORMATION
Under the Federal income tax law, the Exchange Agent is required to file a
report with the Internal Revenue Service ("IRS") disclosing any payments of cash
being made to each holder of certificates formerly representing First Public
Shares pursuant to the Restated Agreement and Plan of Merger and to impose 31%
backup withholding if required. If the correct certifications on Substitute Form
W-9 or Substitute Form W-8 are not provided, a $50 penalty may be imposed by the
IRS and payments made for First Public Shares or for surrender of fractional
certificate(s) may be subject to backup withholding of 31%. Withholding is also
required if the IRS notifies the recipient that they are subject to backup
withholding as a result of a failure to report interest and dividends.
In order to avoid backup withholding of Federal income tax resulting from a
failure to provide a correct certification, a United States (U.S.) citizen or
resident or other U.S. entity must, unless an exemption applies, provide the
Exchange Agent with his correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9 as set forth on this Letter of Transmittal. Such person must
certify under penalties of perjury that such number is correct and that such
holder is not otherwise subject to backup withholding. The TIN that must be
provided is that of the registered holder of the certificate(s) or of the last
transferee appearing on the transfers attached to or endorsed on the
certificate(s) (or, if a check is made payable to another person as provided in
the box entitled "SPECIAL ISSUANCE AND PAYMENT INSTRUCTIONS," then the TIN of
such person). If the owners of First Public Shares are all exempt foreign
persons, reporting to the IRS is not required. However, in order to be exempt
from the reporting and backup withholding requirements, each owner of the First
Public Shares must sign the Substitute Form W-8 as set forth on this Letter of
Transmittal and certify, under penalties of perjury, their exempt foreign
status.
Backup withholding is not an additional Federal income tax. Rather, the
federal income tax liability of a person subject to backup withholding will be
the amount of tax withheld. If backup withholding results in an overpayment of
taxes, a refund may be obtained from the IRS.
Please read the enclosed Guidelines for Certification of Taxpayer Status
for additional important information on how to complete the Substitute Form W-9
and the Substitute Form W-8.
14
<PAGE> 1
PROXY PROXY
FIRST PUBLIC SAVINGS BANK, F.S.B.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) Jack C. Lee and Robert M.F. Gee, or either
one of them, each with full power of substitution and revocation, as the
proxyholder(s) of the undersigned to represent the undersigned and vote all
shares of the Common Stock of First Public Savings Bank, F.S.B. ("First Public")
which the undersigned would be entitled to vote if personally present at the
Special Meeting of Shareholders of First Public to be held on _______________,
1996, as follows and for any adjournments or postponements of that meeting as
further provided below:
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 2
Please mark your votes as indicated in this example. / X /
FOR AGAINST ABSTAIN
/ / / / / /
RESOLVED, that the stockholders of First Public Savings Bank, F.S.B. ("First
Public") hereby approve and adopt the Agreement and Plan of Merger, dated May
30, 1996 among Cathay Bancorp, Inc. ("Cathay Bancorp"), Cathay Bank and First
Public (the "Agreement") and all of the transactions specified or contemplated
by the Agreement, including the merger of First Public with and into Cathay Bank
(the "Merger") and the conversion of each outstanding share of the common stock
of First Public, $1.00 stated value per share, other than dissenting shares,
into the right to receive the Per Share Cash Consideration or the Per Share
Stock Consideration of Cathay Bancorp common stock per the election of each
First Public stockholder and subject to the formula, limitations and election
and allocation procedures set forth in the Agreement.
IF ANY OTHER MATTERS ARE PROPERLY PRESENTED FOR CONSIDERATION AT THE SPECIAL
MEETING (OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF), INCLUDING, AMONG OTHER
THINGS, CONSIDERATION OF A MOTION TO ADJOURN OR POSTPONE THE SPECIAL MEETING TO
ANOTHER TIME AND/OR PLACE (INCLUDING, WITHOUT LIMITATION, FOR THE PURPOSE OF
SOLICITING ADDITIONAL PROXIES IF, FOR EXAMPLE, AN INSUFFICIENT NUMBER OF VOTES
ARE CAST TO APPROVE THE PLAN OF MERGER AND THE MERGER), THE PERSONS NAMED HEREIN
WILL VOTE IN ACCORDANCE WITH THEIR JUDGMENT ON SUCH MATTERS.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE PAID ENVELOPE.
Signature(s)_____________________________________________Dated:____________,1996
Please date and sign exactly as name(s) appear(s) hereon. If shares are held
jointly, each holder should sign.
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