<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission Only
/X/ Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
Southwest Gas Corporation
- - - - - - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - - - - - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$190,700,000.00, pursuant to Rule 0-11(c)(2)
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$190,700,000.00
----------------------------------------------------------------------
(5) Total fee paid:
$38,140.00
----------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
LOGO
5241 SPRING MOUNTAIN ROAD - P.O. BOX 98510 - LAS VEGAS, NEVADA 89193-8510
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD TUESDAY, JULY 16, 1996
NOTICE IS HEREBY GIVEN that the Annual Meeting of shareholders of Southwest
Gas Corporation (the "Company") will be held on July 16, 1996, at 10:00 a.m., in
the auditorium of the Company's Headquarters office building, 5241 Spring
Mountain Road, Las Vegas, Nevada, for the following purposes:
(1) To elect 11 directors of the Company;
(2) To consider and vote on a proposal to approve the principal terms of
the sale of PriMerit Bank, Federal Savings Bank, to Norwest
Corporation;
(3) To consider and vote on a proposal to approve the 1996 Stock Incentive
Plan;
(4) To consider and vote on a proposal to amend the Restated Articles of
Incorporation of the Company to increase the authorized shares of
Common Stock from 30,000,000 shares to 45,000,000 shares;
(5) To consider and vote on a proposal to amend the Restated Articles of
Incorporation of the Company to authorize a new class of Preferred
Stock and to eliminate authority to issue shares of Preferred Stock
($50 par value), Cumulative Preferred Stock ($100 par value), Second
Preference Stock ($100 par value) and Special Common Stock;
(6) To consider and vote on a proposal to ratify the selection of Arthur
Andersen LLP as independent public accountants for the Company; and
(7) To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has established May 23, 1996, as the record date for
the determination of shareholders entitled to vote at the Annual Meeting and to
receive notice thereof.
Shareholders are cordially invited to attend the meeting in person. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE PAID
ENVELOPE.
Copies of the Summary Annual Report to Shareholders and Form 10-K Annual
Report for the year ended December 31, 1995, have been previously provided to
shareholders.
/s/ THOMAS J. TRIMBLE
-------------------------------------
Thomas J. Trimble
Senior Vice President/General Counsel
and Corporate Secretary
May 30, 1996
<PAGE> 3
May 30, 1996
[SOUTHWEST GAS CORPORATION LOGO]
Michael O. Maffie, President and CEO
Dear Shareholder:
You are cordially invited to the Annual Meeting of shareholders of
Southwest Gas Corporation scheduled to be held on Tuesday, July 16, 1996, in the
auditorium of the Company's Headquarters office building, 5241 Spring Mountain
Road, Las Vegas, Nevada, commencing at 10:00 a.m. Your Board of Directors looks
forward to greeting personally those shareholders able to attend.
The Annual Meeting, which is normally held during the second week of May of
each year, has been postponed this year to permit shareholders to consider and
approve the principal terms of the sale of PriMerit Bank, the Company's
financial services subsidiary, at the meeting. The Board of Directors approved
the sale of the Bank on January 8, 1996, subject to shareholder approval. The
Board of Directors has unanimously concluded that the sale of the Bank is in the
best interests of the Company and its shareholders, and unanimously recommends
that you vote FOR proposal 2, approval of the principal terms of the sale of the
Bank.
At the meeting you will also be asked to consider and approve (i) the
election of the 11 directors, (ii) the Company's proposed 1996 Stock Incentive
Plan, (iii) amendments to increase the authorized shares of Common Stock, create
a new class of Preferred Stock and eliminate the authority to issue shares of
Preferred Stock, Cumulative Preferred Stock, Second Preference Stock and Special
Common Stock, and (iv) the continued retention of Arthur Andersen LLP as the
Company's independent public accountants. The Board of Directors unanimously
recommends that you also vote FOR proposals 3, 4, 5, and 6.
It is important that your shares are represented and voted at the meeting
regardless of the number of shares you own and whether or not you plan to
attend. Accordingly, we request you to sign, date and mail the enclosed proxy at
your earliest convenience.
Your interest and participation in the affairs of the Company are sincerely
appreciated.
Sincerely,
[SIG]
<PAGE> 4
LOCATION OF 1996
ANNUAL MEETING OF SHAREHOLDERS
5241 SPRING MOUNTAIN ROAD
*SHAREHOLDER PARKING WILL
BE IN THE WEST PARKING LOT.
ATTENDANTS WILL BE AVAILABLE
TO PROVIDE ASSISTANCE.
(MAP)
<PAGE> 5
SOUTHWEST GAS CORPORATION
5241 SPRING MOUNTAIN ROAD - P.O. BOX 98510 - LAS VEGAS, NEVADA 89193-8510
PROXY STATEMENT
MAY 30, 1996
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of the Company of proxies representing Common Stock to be
voted at the Annual Meeting of shareholders of the Company to be held on July
16, 1996, and at any adjournment thereof. This Proxy Statement and accompanying
proxy card are being first mailed to shareholders on or about May 30, 1996.
A form of proxy is enclosed for your use. The Company will acknowledge
revocation of any proxy upon request of the record holder made in person or in
writing prior to the exercise of the proxy, or upon receipt of a valid proxy
bearing a later date. Delivery of said revocation or valid proxy bearing a later
date shall be made upon the Corporate Secretary of the Company. If a shareholder
executes two or more proxies with respect to the same shares, the proxy bearing
the most recent date will be honored if otherwise valid. All shares represented
by valid proxies received pursuant to this solicitation will be voted at the
Annual Meeting. Where a shareholder specifies by means of the proxy a choice
with respect to any matter to be acted upon, his or her other shares will be
voted in accordance with each specification so made.
The entire cost of soliciting proxies will be paid by the Company. In
following up the original mail solicitation of proxies, the Company will make
arrangements with brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy material to the beneficial owners of the
shares and will reimburse them for their expenses in so doing. Under an
agreement with the Company, Marrow & Co., Inc., will assist in obtaining proxies
from certain larger and other shareholders at an estimated cost of $6,000 plus
certain expenses.
The total number of shares of Common Stock outstanding at the close of
business on May 23, 1996, (the "Record Date") for the determination of
shareholders entitled to notice of and to vote at the Annual Meeting, was
26,265,569. Only holders of Common Stock on the Record Date are entitled to
notice of and to vote at the Annual Meeting of shareholders. The Company will
appoint one or three employees to function as inspectors of election in advance
of the meeting to tabulate votes, to ascertain whether a quorum is present and
to determine the voting results on all matters presented to shareholders. A
majority of all shares of Common Stock entitled to vote, represented in person
or by proxy, constitutes a quorum. Abstentions and broker non-votes are each
included in the determination of the number of shares present; however, they are
not counted for the purpose of determining the election of each nominee for
director.
Each share of Common Stock is entitled to one vote. Shareholders have
cumulative voting rights with respect to the election of directors, if certain
conditions are met. Any shareholder otherwise entitled to vote may cumulate his
or her votes for a candidate or candidates placed in nomination at the meeting
if, prior to the voting, he or she has given notice at the meeting, that he or
she intends to cumulate his or her votes. A shareholder electing to cumulate his
or her votes may cast as many votes as there are directors to be elected,
multiplied by the number of shares of Common Stock standing in his or her name
on the books of the Company at the close of business on the Record Date. A
shareholder may cast all of his or her votes for one candidate or allocate them
among two or more candidates in any manner he or she chooses. If any one
shareholder has given such notice at the meeting, all shareholders may cumulate
their votes for candidates in nomination.
<PAGE> 6
The persons named in the proxies solicited by the Board of Directors,
unless otherwise instructed, intend to vote the shares represented by such
proxies FOR each of the proposals set forth in the Notice of Annual Meeting of
Shareholders and, in the case of the election of directors, equally FOR each of
the 11 candidates for the office of director named in this Proxy Statement;
HOWEVER, if sufficient numbers of shareholders exercise cumulative voting rights
to elect one or more other candidates, the management proxies will (1) determine
the number of directors they are entitled to elect, (2) select such number from
among the named candidates, (3) cumulate their votes, and (4) cast their votes
for each candidate among the number they are entitled to elect.
TABLE OF CONTENTS
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SUMMARY.............................................................................. 5
ELECTION OF DIRECTORS.............................................................. 5
APPROVAL OF THE BANK SALE.......................................................... 5
Terms of the Bank Sale.......................................................... 5
Closing Date.................................................................... 6
Opinion of Financial Advisor.................................................... 6
Conduct of Business Pending Bank Sale........................................... 6
Regulatory Approvals............................................................ 7
Conditions to the Bank Sale..................................................... 7
Termination and Termination Fee................................................. 7
Indemnification Provisions...................................................... 8
Selected Pro Forma Financial Information........................................ 9
APPROVAL OF 1996 STOCK INCENTIVE PLAN.............................................. 9
APPROVAL OF AMENDMENTS TO RESTATED ARTICLES OF INCORPORATION....................... 10
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS........................................ 10
ELECTION OF DIRECTORS................................................................ 11
Names and Qualifications of Nominees............................................... 11
Securities Ownership by Nominees and Executive Officers............................ 15
GENERAL INFORMATION.................................................................. 15
Board of Directors................................................................. 15
Directors Compensation............................................................. 16
Committees of the Board............................................................ 16
EXECUTIVE COMPENSATION AND BENEFITS.................................................. 17
Executive Compensation Report...................................................... 17
Compensation Committee Interlocks and Insider Participation........................ 19
Summary Compensation Table......................................................... 20
Long-Term Incentive Plan Awards for 1995........................................... 21
Benefit Plans...................................................................... 22
Southwest Gas Basic Retirement Plan............................................. 22
Supplemental Retirement Plan.................................................... 22
The Bank Retirement Income Plan................................................. 22
PriMerit Bank Supplemental Executive Retirement Plan............................ 23
Change in Control Arrangement...................................................... 23
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PERFORMANCE GRAPH.................................................................... 24
Comparison of 5-Year Cumulative Total Returns...................................... 24
APPROVAL OF THE BANK SALE............................................................ 25
BACKGROUND OF THE BANK SALE.......................................................... 25
REASONS FOR THE BANK SALE............................................................ 28
OPINION OF FINANCIAL ADVISOR......................................................... 30
Summary of Proposal................................................................ 32
Discounted Dividend Stream Analysis................................................ 32
Analysis of Selected Thrift Merger Transactions.................................... 33
Comparison of Selected Companies................................................... 33
Mark-to-Market Analysis............................................................ 35
MARKET INFORMATION................................................................... 36
SELECTED FINANCIAL DATA.............................................................. 37
PRO FORMA FINANCIAL INFORMATION...................................................... 38
TERMS OF THE BANK SALE............................................................... 41
Consideration for the Bank Sale.................................................... 41
Retained Assets and Liabilities.................................................... 41
Representations and Warranties..................................................... 42
Conditions to the Bank Sale........................................................ 43
Regulatory Approvals............................................................... 44
Conduct of Business Pending Bank Sale.............................................. 44
Certain Covenants.................................................................. 45
Indemnification Provisions......................................................... 47
Tax Matters........................................................................ 48
Termination and Termination Fee.................................................... 48
Waiver and Amendment............................................................... 49
Expenses........................................................................... 49
APPROVAL OF 1996 STOCK INCENTIVE PLAN................................................ 49
Administration..................................................................... 49
Eligibility........................................................................ 50
Shares Available for Awards........................................................ 50
Vesting and Option Periods......................................................... 50
Transferability.................................................................... 50
Options That May Be Granted Under the 1996 Plan to Employees....................... 50
Other Miscellaneous Provisions..................................................... 51
Adjustments; Acceleration....................................................... 51
Termination of Employment....................................................... 51
Termination of or Changes to the 1996 Plan...................................... 51
Non-Employee Director Options................................................... 52
Federal Income Tax Consequences of Options Under the 1996 Plan..................... 52
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Nonqualified Stock Options...................................................... 52
Incentive Stock Options......................................................... 53
Special Rules Governing Persons Subject to Section 16(b)........................ 53
Accelerated Payments............................................................ 53
Section 162(m) Limits........................................................... 53
APPROVAL OF AMENDMENT TO RESTATED ARTICLES OF INCORPORATION TO INCREASE AUTHORIZED
SHARES OF COMMON STOCK............................................................. 54
APPROVAL OF AMENDMENT TO RESTATED ARTICLES OF INCORPORATION TO AUTHORIZE A NEW CLASS
OF PREFERRED STOCK AND TO ELIMINATE AUTHORITY TO ISSUE SHARES OF PREFERRED STOCK
($50 Par Value), CUMULATIVE PREFERRED STOCK ($100 Par Value), SECOND PREFERENCE
STOCK ($100 Par Value) AND SPECIAL COMMON STOCK.................................... 55
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS.......................................... 57
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................................... 57
OTHER MATTERS TO COME BEFORE THE MEETING............................................. 57
SUBMISSION OF SHAREHOLDER PROPOSALS.................................................. 58
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................... 58
APPENDICES
APPENDIX A Bank Sale Agreement
APPENDIX B Opinion of Financial Advisor
APPENDIX C 1996 Stock Incentive Plan
APPENDIX D Proposed Amendments to Article IV of The Restated Articles of
Incorporation
</TABLE>
4
<PAGE> 9
SUMMARY
The information below is qualified in its entirety by the more detailed
information appearing elsewhere in this Proxy Statement, including the
Appendices hereto and the documents incorporated herein by reference.
The Annual Meeting will be held on July 16, 1996, at 10:00 a.m. in the
auditorium of the Company's Headquarters office building, 5241 Spring Mountain
Road, Las Vegas, Nevada. Only holders of record of the Company's Common Stock at
the close of business on May 23, 1996, (the "Record Date") will be entitled to
vote at the Annual Meeting. At the close of business on the Record Date,
26,265,569 shares of the Company's Common Stock were issued and outstanding.
Each share of Common Stock is entitled to one vote. A majority of all shares of
Common Stock entitled to vote, represented in person or by proxy, constitutes a
quorum.
ELECTION OF DIRECTORS
The names of 11 nominees have been submitted for election to the Board of
Directors of the Company. Each of the 11 nominees was elected to his or her
present term of office at the last Annual Meeting on May 11, 1995. For further
information on the nominees, see "ELECTION OF DIRECTORS." The 11 nominees for
director receiving the highest number of votes will be elected to serve until
the next Annual Meeting. Shareholders have cumulative voting rights with respect
to the election of directors, if certain conditions are met.
APPROVAL OF THE BANK SALE
The Company, The Southwest Companies ("SC") and Norwest Corporation
("Norwest") entered into an Agreement, dated as of January 8, 1996, pursuant to
which SC would sell all of the outstanding stock of PriMerit Bank, Federal
Savings Bank ("Bank") to Norwest, provided that Norwest had the option to elect
to restructure the transaction as a purchase of substantially all of the assets
and liabilities of the Bank. On April 10, 1996, Norwest exercised that option
and the Company, SC, the Bank and Norwest entered into an Agreement, dated as of
April 10, 1996 (the "Bank Sale Agreement"), pursuant to which the Bank will sell
to a wholly owned subsidiary of Norwest substantially all the assets and
liabilities of the Bank (the "Bank Sale"). A copy of the Bank Sale Agreement,
without schedules, is set forth in Appendix A to this Proxy Statement.
Shareholders are being asked to approve the principal terms of the Bank Sale
Agreement. The affirmative vote of a majority of the shares of the Company's
Common Stock outstanding on the Record Date is required to approve the principal
terms of the Bank Sale Agreement.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY CONCLUDED THAT THE BANK SALE IS IN
THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS VOTE FOR THE PRINCIPAL TERMS OF THE
BANK SALE AGREEMENT. For discussion of the factors considered by the Board in
reaching its decision to approve the Bank Sale Agreement and recommend that
shareholders vote FOR approval of the principal terms of the Bank Sale
Agreement, see "APPROVAL OF THE BANK SALE -- REASONS FOR THE BANK SALE."
TERMS OF THE BANK SALE
Upon consummation of the Bank Sale, the Bank will sell to a subsidiary of
Norwest (the "Purchaser"), and the Purchaser will purchase from the Bank,
substantially all of the assets and liabilities of the Bank, other than certain
assets and liabilities relating to taxes and real estate development activities
formerly conducted by the Bank and certain recorded intangibles, in exchange for
$190,700,000 in cash, as such amount may be reduced by the after-tax amount of
any purchase price reduction or increased by the after-tax amount of any
purchase price increase. On or prior to the consummation of the Bank Sale, the
Company is required to pay Norwest a certain amount in cash determined in
accordance with the provisions of the Bank Sale Agreement in exchange for
certain deferred tax assets of the Bank which will be retained by the Company.
If the
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purchase of the Bank had occurred on March 31, 1996, the purchase price for
these assets would have been $616,510.
The Company will retain all real estate development assets of the Bank,
certain recorded intangibles, including general valuation allowances, deferred
profits and reserves related to the real estate development activities of the
Bank, and certain claims, refunds, credits or overpayments with respect to any
taxes paid or incurred by the Bank and its affiliates for periods ending prior
to the consummation of the Bank Sale. In addition, the Southwest Gas Corporation
Foundation will acquire the PriMerit Bank, Federal Savings Bank, Charitable
Foundation. The Company will also retain the real estate liabilities and all
liabilities for taxes imposed on the Bank and its subsidiaries for any taxable
period (or portion thereof) that ends on or before the consummation of the Bank
Sale. The net book value of the assets and liabilities of the Bank to be
retained, including the deferred tax assets of the Bank to be purchased by the
Company, was $(218,282) at March 31, 1996. See "APPROVAL OF THE BANK
SALE -- TERMS OF THE BANK SALE -- Consideration for the Bank Sale
and -- Retained Assets and Liabilities."
CLOSING DATE
The closing of the Bank Sale (the "Closing") will occur within ten business
days following the satisfaction or waiver of all conditions to the Bank Sale
Agreement, other than conditions relating to the delivery of certain closing
documents, or such other date as may be agreed to by the parties (the "Closing
Date"). It is anticipated that the Closing will occur during the third quarter
of 1996. The Bank Sale Agreement may be terminated by either party if the Bank
Sale has not been consummated by September 30, 1996.
OPINION OF FINANCIAL ADVISOR
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") has
rendered its written opinion to the Board of Directors dated January 8, 1996,
that the consideration to be received by the Company pursuant to the terms of
the Bank Sale Agreement was fair to the Company from a financial point of view.
This opinion was reconfirmed in writing as of the date of this Proxy Statement
by redelivery of an opinion dated as of the date of this Proxy Statement. A copy
of the opinion of Merrill Lynch is set forth in Appendix B to this Proxy
Statement. The opinion should be read in its entirety with respect to the
assumptions made, other matters considered and limitations on the reviews
undertaken in connection with such opinion. For additional information, see
"APPROVAL OF THE BANK SALE -- OPINION OF FINANCIAL ADVISOR."
CONDUCT OF BUSINESS PENDING BANK SALE
Pursuant to the Bank Sale Agreement, the Company has made certain covenants
relating to the conduct of the business of the Bank pending the consummation of
the Bank Sale. Among other things, the Company has agreed to conduct the
business of the Bank in the ordinary and usual manner, including the extension
of credit in accordance with existing lending policies, except that the Company
has agreed not to allow the Bank to make, without the prior written consent of
Norwest, any new loan or increase the principal amount of any outstanding loan
to a principal amount of $2,000,000 or more or make any commitment for any such
loan or increase. In addition, the Company has also agreed that it will not,
without the prior written consent of Norwest, permit the Bank to: (i) engage or
participate in any material transaction, or incur or sustain any material
obligation, except in the ordinary course of business; (ii) change its interest
rate or fee pricing policies; (iii) amend or cancel any lease or other material
contract of the Bank, or enter into any material contract other than as
specifically permitted by the Bank Sale Agreement; (iv) deviate from general
policies of the Bank existing on the date of the Bank Sale Agreement; (v) make
any capital expenditures not permitted by the Bank Sale Agreement in amounts
individually in excess of $50,000 or in the aggregate in excess of $100,000;
(vi) make any investments or enter into any derivative contracts, except in the
ordinary course of business; or (vii) declare or pay any cash or property
dividends, stock dividends or other distributions of capital stock, rights or
options, except
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as specifically provided for in the Bank Sale Agreement. See "APPROVAL OF THE
BANK SALE -- TERMS OF THE BANK SALE -- Conduct of Business Pending Bank Sale."
The Bank Sale Agreement permits the Bank to pay a cash dividend to the
Company in an amount not to exceed $375,000 for the quarter ending June 30,
1996, if the Bank Sale is not consummated by that date. In addition, the Bank
Sale Agreement permits the Bank to pay dividends to the Company at a rate equal
to $1,000,000 for the month ending July 31, 1996, and $1,250,000 for each of the
months ending August 31, 1996 and September 30, 1996, if the Bank Sale is not
consummated by such dates. The maximum amounts which may be dividended by the
Bank to the Company are prorated for each day after July 1, 1996, that the
Closing Date does not occur.
REGULATORY APPROVALS
Regulatory approvals, notices or filings must be obtained or made, as the
case may be, by the Company prior to the Closing Date with the Arizona
Corporation Commission (the "ACC"), the California Public Utilities Commission
(the "CPUC") and the Federal Home Loan Bank of San Francisco (the "FHLB").
Regulatory approvals or notices must also be obtained or made, as the case may
be, by Norwest prior to the Closing Date with the Federal Reserve Board, the
Nevada Commissioner of Financial Institutions and the Office of Thrift
Supervision (the "OTS"). Approvals of the Federal Reserve Board, the Nevada
Commissioner of Financial Institutions, the ACC and the OTS have been obtained.
See "APPROVAL OF THE BANK SALE -- TERMS OF THE BANK SALE -- Regulatory
Approvals."
In addition a number of other regulatory approvals must be obtained with
respect to certain post-closing matters, including approval from the CPUC of the
Company's obligation to reimburse SC in certain circumstances if SC is unable to
fulfill its indemnification obligations to Norwest. OTS approval with respect to
such post-closing matters has been obtained. See "APPROVAL OF THE BANK
SALE -- TERMS OF THE BANK SALE -- Indemnification Provisions."
CONDITIONS TO THE BANK SALE
The obligations of the parties to the Bank Sale Agreement to consummate the
Bank Sale are subject to various conditions, including, but not limited to: (i)
obtaining approval of the principal terms of the Bank Sale Agreement by the
affirmative vote of a majority of the outstanding shares of the Company's Common
Stock; (ii) obtaining all requisite regulatory approvals; (iii) obtaining all
approvals and consents of any third party required in order to consummate the
Bank Sale; and (iv) other customary closing conditions. In addition, no event
may have occurred or failed to occur after October 31, 1995 which has had or is
reasonably expected to have any material adverse effect on the Bank and certain
of the Bank's subsidiaries taken as a whole. See "APPROVAL OF THE BANK
SALE -- TERMS OF THE BANK SALE -- Conditions to the Bank Sale."
TERMINATION AND TERMINATION FEE
The Bank Sale Agreement provides that it may be terminated: (i) by the
mutual consent of the parties to the Bank Sale Agreement; (ii) by any of the
parties upon written notice to the other parties if any regulatory agency having
jurisdiction refuses to grant approval or consent to any material aspect of the
Bank Sale unless such decision is appealed or an application to such
governmental entity is resubmitted; and (iii) by either of the parties to the
other party upon written notice to the other party if an event occurs which
makes it impossible to satisfy by September 30, 1996, any of the conditions to
the obligations of such party.
The Bank Sale Agreement also provides that Norwest may terminate the Bank
Sale Agreement by written notice to the Company in the event: (i) (x) an
acquisition proposal (as defined) is made, (y) the Board of Directors fails to
recommend shareholder approval of the principal terms of the Bank Sale Agreement
or withdraws or modifies such recommendation in a manner adverse to Norwest, and
(z) either the principal terms of the Bank Sale Agreement are not approved by
the affirmative vote of a majority of the shares of the Company's Common Stock
or the meeting of shareholders of the Company at which approval of the principal
terms of the Bank Sale Agreement is sought does not occur by August 16, 1996; or
(ii) the consummation of an acquisition proposal
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(as defined) occurs prior to the termination of the Bank Sale Agreement. Upon
the giving of written notice of termination by Norwest pursuant to this
provision, the Company is required to pay to Norwest, within ten business days
after the receipt of such notice, the amount of $5,250,000 plus documented
expenses incurred by Norwest in connection with the Bank Sale Agreement up to
the amount of $1,250,000. See "APPROVAL OF THE BANK SALE -- TERMS OF THE BANK
SALE -- Termination and Termination Fee."
INDEMNIFICATION PROVISIONS
The Bank Sale Agreement provides for indemnification from the other party
for losses suffered to the extent arising out of: (i) any breach of any
representation or warranty; or (ii) a breach of any agreement to be performed.
The parties are not required to provide indemnification with respect to these
matters unless the aggregate of all amounts for which indemnity would otherwise
be payable exceeds $1,000,000 and will be responsible only for amounts in excess
of $1,000,000 and not exceeding $5,000,000. Except for covenants related to
post-closing matters, certain taxes and as otherwise described below, neither
party will have any liability for the breach of representations, warranties or
covenants after one year from the Closing Date.
SC and the Bank have agreed to indemnify Norwest and the Purchaser for any
loss relating to or arising out of certain real estate liabilities up to a
maximum amount equal to $175,000,000. The Bank Sale Agreement also provides that
Norwest and the Purchaser will indemnify the Company, SC and the Bank for any
loss arising out of the liabilities assumed by the Purchaser in a total amount
not exceeding $175,000,000 less any amounts paid by the Purchaser with respect
thereto. See "APPROVAL OF THE BANK SALE -- TERMS OF THE BANK
SALE -- Indemnification Provisions."
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SELECTED PRO FORMA FINANCIAL INFORMATION
The following sets forth selected pro forma financial information as if the
Bank Sale had been consummated as of March 31, 1996 and as if it had been
consummated at the beginning of the quarter ended March 31, 1996 and also at the
beginning of the year ended December 31, 1995. The following selected pro forma
financial information is not necessarily indicative of the effects on the
Company or the results of its operations had the Bank Sale occurred on such
dates.
The selected pro forma balance sheet information as of March 31, 1996
reflects a reduction of approximately $175 million related to the Company's
investment in the Bank, and the utilization of funds from the sale to pay
estimated taxes (including an additional $15.7 million in taxes estimated to be
due as a result of Norwest's election to consummate the Bank Sale as a purchase
of assets and assumption of liabilities) and other accrued costs associated with
the Bank Sale and retire long-term debt.
The pro forma income statement information for the quarter ended March 31,
1996 and the year ended December 31, 1995 reflect the estimated impact on
interest expense as if approximately $163 million of debt had been retired at
the beginning of each respective period by using the proceeds from the Bank
Sale. The historical consolidated statements of income already reflect an
allocation to the Bank for interest on debt associated with discontinued
operations. The amounts shown in the adjustments column for net interest
deductions are net of that allocation. Income taxes are provided at a rate of 40
percent.
SELECTED PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------------
(THOUSANDS OF DOLLARS)
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Total assets........................................ $1,533,217 $ (175,000) $1,358,217
Long-term debt, including current maturities........ $ 732,666 $ (163,000) $ 569,666
Other current liabilities........................... $ 59,668 $ (12,000) $ 47,668
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31, 1996
-----------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Net interest deductions............................. $ (12,953) $ 1,000 $ (11,953)
Income from continuing operations................... $ 14,859 $ 600 $ 15,459
Earnings per share from continuing operations....... $ 0.60 $ 0.03 $ 0.63
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Net interest deductions............................. $ (53,354) $ 4,000 $ (49,354)
Income from continuing operations................... $ 2,654 $ 2,400 $ 5,054
Earnings per share from continuing operations....... $ 0.10 $ 0.10 $ 0.20
</TABLE>
APPROVAL OF 1996 STOCK INCENTIVE PLAN
Shareholders are being asked to approve the Company's 1996 Stock Incentive
Plan (the "1996 Plan") which was adopted by the Board of Directors on March 5,
1996. Any officer or key employee of the Company or its subsidiaries, as
determined in the sole discretion of the subcommittee of the Nominating and
Compensation Committee of the Board appointed to administer the 1996 Plan, will
be eligible to be granted options. In addition, non-employee directors will
automatically be granted options under the Plan in the amounts described below.
The authority to grant new options under the 1996 Plan will terminate on March
4, 2006, unless earlier terminated by the Board.
The maximum number of shares which may be issued under the 1996 Plan is
1,500,000, subject to adjustment upon the occurrence of certain events. An
option granted to an employee may be either an incentive option or a
nonqualified option. With respect to each eligible employee, the
9
<PAGE> 14
maximum number of shares which may be subject to options granted to such
individual during any calendar year cannot exceed 100,000 shares. Non-employee
directors will be automatically granted nonqualified options to purchase 3,000
shares of the Company's Common Stock on the date of this Annual Meeting if the
1996 Plan is approved by the shareholders and 2,000 shares on each Annual
Meeting date during the term of the 1996 Plan thereafter; provided that the
maximum number of shares which may be covered by options granted to non-employee
directors will not exceed 350,000 shares. For further information on the 1996
Plan, see "APPROVAL OF 1996 STOCK INCENTIVE PLAN."
The affirmative vote of a majority of the shares represented at the Annual
Meeting in person or by proxy is necessary to approve the 1996 Plan. A copy of
the 1996 Stock Incentive Plan is attached as Appendix C to this Proxy Statement.
Shareholders should note that because outside Directors (subject to reelection
and CPUC and shareholder approval) may receive stock options under this
proposal, all current outside Directors of the Company may have a personal
interest in this proposal and its approval by shareholders.
APPROVAL OF AMENDMENTS TO RESTATED ARTICLES OF INCORPORATION
Shareholders are also being asked to approve two amendments to the Restated
Articles of Incorporation. The first amendment would increase the authorized
number of shares of Common Stock from 30,000,000 shares to 45,000,000 shares.
For further information regarding this amendment, see "APPROVAL OF AMENDMENT TO
RESTATED ARTICLES OF INCORPORATION TO INCREASE AUTHORIZED SHARES OF COMMON
STOCK." The second amendment would create a new class of Preferred Stock and
eliminate the authority to issue shares of currently authorized Preferred Stock,
Cumulative Preferred Stock, Second Preference Stock and Special Common Stock.
For further information regarding this amendment, see "APPROVAL OF AMENDMENT TO
RESTATED ARTICLES OF INCORPORATION TO AUTHORIZE A NEW CLASS OF PREFERRED STOCK
AND TO ELIMINATE AUTHORITY TO ISSUE SHARES OF PREFERRED STOCK ($50 Par Value),
CUMULATIVE PREFERRED STOCK ($100 Par Value), SECOND PREFERENCE STOCK ($100 Par
Value) AND SPECIAL COMMON STOCK." No change is being requested in the number of
shares of Preference Stock, all of which are reserved for issuance under the
Company's Shareholders Rights Plan. The affirmative vote of a majority of the
shares of the Company's Common Stock outstanding on the Record Date is required
to approve each amendment.
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Arthur Andersen LLP as independent
public accountants for the Company for the year ending December 31, 1996,
subject to ratification by the shareholders of the Company. For more
information, see "SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS."
10
<PAGE> 15
ELECTION OF DIRECTORS
(ITEM 1 ON THE PROXY CARD)
NAMES AND QUALIFICATIONS OF NOMINEES
Each director elected at the Annual Meeting of shareholders will serve
until the next Annual Meeting (normally held on the second Thursday of May) and
until his or her successor shall be elected and qualified. The 11 nominees were
elected to their present term of office at the last Annual Meeting of
shareholders on May 11, 1995. The 11 nominees for director receiving the highest
number of votes will be elected to serve until the next Annual Meeting.
The names of the nominees for election to the Board of Directors, the
principal occupation of each nominee and his or her employer for the last five
years or longer, and the principal business of the corporation or other
organization, if any, in which such occupation or employment is carried on,
follow.
RALPH C. BATASTINI
Former President, Vice Chairman and Chief Financial Officer
The Dial Corp (Formerly The Greyhound Corporation)
Director Since: 1992
Board Committees: Audit (Chairman), Pension Plan Investment
Mr. Batastini, 66, received his undergraduate degree from Illinois State
University and his M.B.A. degree in finance from the University of Chicago. He
joined The Greyhound Corporation in 1957 and retired in 1984 as vice chairman
and chief financial officer. At the time of his retirement Mr. Batastini headed
Greyhound's financial group of companies involved in capital equipment leasing,
computer leasing, reinsurance, money orders, mortgage insurance and real estate.
He subsequently served as president of Batastini & Co. from 1985 until his
retirement in 1990. He currently is the president of the Barrow Neurological
Foundation and has been a director of PriMerit Bank since 1992.
MANUEL J. CORTEZ
President and Chief Executive Officer
Las Vegas Convention and Visitors Authority
Director Since: 1991
Board Committees: Nominating and Compensation, Pension Plan Investment
Mr. Cortez, 57, served four terms (1977-1990) on the Clark County
Commission and is a former chairman of the Commission. He has been active on
various boards, including the Environmental Quality Policy Review Board, the Las
Vegas Valley Water District Board of Directors and the University Medical Center
Board of Trustees, and served as chairman of the Liquor and Gaming Licensing
Board and the Clark County Sanitation District. He has also held leadership
roles with numerous civic and charitable organizations such as Boys and Girls
Clubs of Clark County, Lied Discovery Childrens Museum and Boys Town. Currently,
Mr. Cortez holds professional memberships in the American Society of Association
Executives, the Professional Convention Managers Association, the International
Association of Convention and Visitors Bureaus and the American Society of
Travel Agents. He has been a director of PriMerit Bank since 1991.
11
<PAGE> 16
LLOYD T. DYER
Retired President and Chief Executive Officer
Harrah's
Director Since: 1978
Board Committees: Executive, Nominating and Compensation
Mr. Dyer, 68, obtained a degree in banking and finance from the University
of Utah prior to his employment with Harrah's, a hotel/gaming corporation with
its principal facilities in Reno and Lake Tahoe, in 1957. He was elected
president and chief operating officer of Harrah's in 1975, and elected president
and chief executive officer in 1978. He remained in those positions with
Harrah's until his retirement in April 1980. Mr. Dyer has been a director of
PriMerit Bank since 1986. He is also a trustee of the William F. Harrah Trusts.
KENNY C. GUINN
Chairman of the Board
Southwest Gas Corporation and PriMerit Bank
Director Since: 1981
Board Committees: Executive (Chairman), Nominating and Compensation
Mr. Guinn, 59, was appointed President and Chief Operating Officer of
Southwest Gas Corporation in 1987, Chairman and Chief Executive Officer in 1988
and was elected Chairman of the Board of Directors in 1993. Mr. Guinn is
actively involved in numerous business, charitable and civic activities. He is
past chairman of the Las Vegas Metropolitan Police Fiscal Affairs Committee and
past chairman of the Board of Trustees for the University of Nevada, Las Vegas
Foundation. In May 1994 he was appointed Interim President of the University of
Nevada, Las Vegas and served in this capacity for approximately one year. He is
also a director for Oasis Residential, Inc., Boyd Gaming Corporation and Del
Webb Corporation. Mr. Guinn was elected a director of PriMerit Bank in 1980 and
has served as Chairman of the Board of Directors of PriMerit since 1987.
THOMAS Y. HARTLEY
President and Chief Operating Officer
Colbert Golf Design and Development
Director Since: 1991
Board Committees: Audit, Nominating and Compensation
Mr. Hartley, 62, obtained his degree in business from Ohio University in
1955, and was employed in various capacities by Deloitte Haskins & Sells from
1959 until his retirement as an area managing partner in 1988. Mr. Hartley is
actively involved in numerous business and civic activities. He is chairman of
the University of Nevada, Las Vegas Foundation and president of the Las Vegas
Founders Club. He has also held executive positions with the Nevada Development
Authority, the Las Vegas Founders Golf Foundation, the Las Vegas Chamber of
Commerce and the Boulder Dam Area Council of the Boy Scouts of America. He is a
director of Rio Hotel and Casino, Inc., Sierra Health Services, Inc. and has
been a director of PriMerit Bank since 1991.
MICHAEL B. JAGER
Private Investor
Director Since: 1989
Board Committees: Audit, Pension Plan Investment
Mr. Jager, 64, obtained a degree in petroleum geology from Stanford
University in 1955. After a four-year employment with the Richfield Oil
Corporation as a petroleum geologist, he joined the Frank H. Ayres & Son
Construction Company and was involved in the construction of subdivisions and
homes in southern California until 1979. Since that time he has consulted in the
single family
12
<PAGE> 17
residential development industry, and owns and manages a number of businesses in
Oregon and Nevada. He has been a director of PriMerit Bank since 1989.
LEONARD R. JUDD
Former President, Chief Operating Officer and Director
Phelps Dodge Corporation
Director Since: 1988
Board Committees: Audit, Nominating and Compensation (Chairman)
Mr. Judd, 57, former president, chief operating officer and director of
Phelps Dodge Corporation, joined Phelps Dodge in 1963 and worked at that
company's operations in Arizona, New Mexico and New York City. He was elected to
the Phelps Dodge board of directors in 1987, president of Phelps Dodge Mining
Company in 1988 and became president and chief operating officer of Phelps Dodge
in 1989. He remained in those positions until his retirement in 1991. Mr. Judd
is a member of various professional organizations and is active in numerous
civic groups. He serves as a director of the Kasler Holding Company, the Montana
College of Mineral Science and Technology Foundation, and has been a director of
PriMerit Bank since 1988.
JAMES R. LINCICOME
Retired Executive Vice President and General Manager,
Government Electronics Group, Motorola Corporation
Director Since: 1987
Board Committees: Audit, Executive, Nominating and Compensation
Mr. Lincicome, 70, was employed by Motorola in its Communications Division
in 1950. After progressing through positions in that Division, he transferred to
the Government Electronics Group, where from 1979 until his retirement in 1987,
he was General Manager responsible for various national defense, space
exploration and other government related programs. Mr. Lincicome is a member of
various professional organizations and is past chairman of the Arizona State
University Engineering Advisory Council, Junior Achievement of Central Arizona,
the Phoenix Urban League, United for Arizona and the Valley of the Sun United
Way. He has held a number of leadership roles in other civic and charitable
organizations in Arizona, including the Research Committee of the Arizona Town
Hall and Board Member of the Goldwater Institute, and was vice chairman of the
Government Division of the Electronic Industries Association in 1986. He has
been a director of PriMerit Bank since 1988.
MICHAEL O. MAFFIE
President and Chief Executive Officer
Southwest Gas Corporation
Director Since: 1988
Board Committees: Executive
Mr. Maffie, 48, joined the company in 1978 as Treasurer after seven years
with Arthur Andersen & Co. He was named Vice President/Finance and Treasurer in
1982, Senior Vice President and Chief Financial Officer in 1984, Executive Vice
President in 1987, President and Chief Operating Officer in 1988 and President
and Chief Executive Officer in 1993. He has been a director of PriMerit Bank
since 1993. He received his undergraduate degree in accounting and his M.B.A.
degree in finance from the University of Southern California. A member of
various professional organizations, he serves as a board member of the United
Way of Nevada, Nevada School of the Arts, Boys and Girls Clubs of Las Vegas, a
trustee of the Las Vegas Symphony Orchestra, the University of Nevada, Las Vegas
Foundation and the Nevada Development Authority. He also serves as a
Commissioner on the State of Nevada Commission on Substance Abuse Education,
Prevention, Enforcement and
13
<PAGE> 18
Treatment, and is a former president of the Allied Arts Council. He is a
director of the Pacific Coast Gas Association and a former director of the
American Gas Association.
CAROLYN M. SPARKS
Co-Founder
International Insurance Services, Ltd.
Director Since: 1988
Board Committees: Audit, Pension Plan Investment (Chairperson)
Mrs. Sparks, 54, graduated from the University of California at Berkeley in
1963, and with her husband, co-founded International Insurance Services, Ltd.,
in 1966 in Las Vegas. She has served on the University and Community College
System of Nevada Board of Regents since 1984, and in 1991 was elected to a
two-year term as Chairperson of the Board of Regents. Mrs. Sparks is actively
involved with numerous charitable and civic organizations, including founding
chairperson of the University Medical Center Foundation and the Children's
Miracle Network Telethon. She also served on the board for Bishop Gorman High
School and is currently chair of the board for the Las Vegas Center for
Children. She is a director of Showboat, Inc., a hotel/gaming corporation and
has been a director of PriMerit Bank since 1988.
ROBERT S. SUNDT
Retired President
Sundt Corp.
Director Since: 1987
Board Committees: Executive, Pension Plan Investment
Mr. Sundt, 69, has been associated with Sundt Corp. in a variety of
positions since 1948. He was named President of Sundt Corp. in 1983. He is now
retired and has no continuing association with Sundt Corp. He has been a
director of PriMerit Bank since 1988. He is a member of the American Institute
of Constructors, Consulting Constructors Council of America and a life director
of the Associated General Contractors of America. He is a member of the American
Arbitration Association and serves as an arbitrator on disputes concerning the
construction industry. He is past member of the Construction Industry Presidents
Forum. Mr. Sundt is affiliated with a number of community organizations and is
past chairman of the Tucson Metropolitan Chamber of Commerce.
14
<PAGE> 19
SECURITIES OWNERSHIP BY NOMINEES AND EXECUTIVE OFFICERS
The following table discloses all Common Stock of the Company beneficially
owned by the nominees for Directors and the executive officers of the Company,
as of May 8, 1996.
<TABLE>
<CAPTION>
NUMBER OF SHARES
DIRECTOR/EXECUTIVE OFFICER BENEFICIALLY OWNED(1)(2)
---------------------------------------------- ------------------------
<S> <C>
Ralph C. Batastini............................ 5,838
Manuel J. Cortez.............................. 1,731
Lloyd T. Dyer................................. 4,141
Kenny C. Guinn................................ 54,332
Thomas Y. Hartley............................. 7,687
Michael B. Jager.............................. 4,861(3)
Leonard R. Judd............................... 2,000
James R. Lincicome............................ 2,000
Michael O. Maffie............................. 33,957(4)
Carolyn M. Sparks............................. 2,343
Robert S. Sundt............................... 5,000
George C. Biehl............................... 14,613(4)
Dan J. Cheever................................ 3,434
L. Keith Stewart.............................. 7,430
Thomas J. Trimble............................. 11,091(4)
Other Executive Officers...................... 23,108
</TABLE>
- - - - - - ---------------
(1) As of May 8, 1996, the directors and executive officers of the Company
beneficially owned 183,566 shares, which represents less than 1 percent of
the outstanding shares of the Company's Common Stock. No investor owned more
than 5 percent of the outstanding voting stock of the Company as of April
30, 1996.
(2) The Common Stock holdings listed in this column include performance shares
granted to the Company's executive officers under the Company's Management
Incentive Plan for 1993, 1994 and 1995.
(3) Number of shares includes 3,000 shares held in trust for Margaret Jager,
over which Mr. Jager has no control.
(4) Number of shares does not include 6,618 shares held by the Southwest Gas
Corporation Foundation, which is a charitable trust. Messrs. Maffie,
Trimble, and Biehl are trustees of the Foundation but disclaim beneficial
ownership of said shares.
- - - - - - ---------------
The Company has adopted procedures to assist its directors and executive
officers in complying with Section 16(a) of the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), which includes assisting in the
preparation of forms for filing. For 1995, all the required reports were filed
timely.
GENERAL INFORMATION
BOARD OF DIRECTORS
The Board of Directors is responsible for the overall affairs of the
Company and for establishing broad corporate policies.
Regular meetings of the Board of Directors are scheduled for the third
Tuesdays of January, July, September and November, the first Tuesday of March
and the second Wednesday of May. An organizational meeting is also held
immediately following the Annual Meeting of shareholders. The Board held six
regular meetings and one organizational meeting in 1995. The Board also held
seven regular meetings as directors for PriMerit Bank, the Company's financial
services subsidiary. Each director attended more than 75 percent of the meetings
of the Board and standing committees on which he or she served during 1995.
15
<PAGE> 20
DIRECTORS COMPENSATION
Outside directors receive an annual retainer of $20,000, plus $900 for each
Board or committee meeting attended. Committee chairpersons receive an
additional $500 for each committee meeting they chair. The outside directors
also receive an annual retainer of $16,000 and fees for serving on the Board of
Directors of the Bank. Each director receives a fee of $700 for each Bank Board
or committee meeting attended, and the Bank committee chairpersons also receive
an additional $250 for each committee meeting they chair. The Chairman of the
Company's Board, Mr. Guinn, receives an additional $25,000 annually for serving
in that capacity. Directors who are full-time employees of the Company or its
subsidiaries receive no additional compensation for Board service.
Outside directors may defer their compensation until retirement or other
termination of status as a director. Amounts deferred accrue interest at 150
percent of the Moody's Seasoned Corporate Rate.
The Company also provides a retirement plan for its outside directors. With
a minimum of ten years of service, an outside director can retire and receive a
benefit equal to the annual retainer, at retirement, for serving on the
Company's Board of Directors. Directors who retire before age 65, after
satisfying the minimum service obligation, will receive retirement benefits upon
reaching age 65.
COMMITTEES OF THE BOARD
In order to assist it in discharging its duties, the Board of Directors has
established four permanent committees: (i) the Executive Committee; (ii) the
Audit Committee; (iii) the Nominating and Compensation Committee; and (iv) the
Pension Plan Investment Committee.
The Executive Committee meets, if necessary, during the months that the
full Board of Directors does not meet. The Executive Committee considers
corporate policy matters requiring timely action and recommends that certain
other matters be considered and acted upon by the Board. The Executive Committee
consists of Directors Guinn (Chairman), Dyer, Lincicome, Maffie and Sundt.
The Audit Committee, whose functions are discussed below under the caption
"SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS," consists of Directors Batastini
(Chairman), Hartley, Jager, Judd, Lincicome and Sparks.
The Nominating and Compensation Committee makes recommendations to the
Board of Directors on such matters as director fees, officer compensation and
benefit programs and compensation and benefit programs for all employees. The
Nominating and Compensation Committee also makes recommendations to the Board
regarding nominees to be proposed by the Board for election as directors. In
considering candidates for the Board, the Nominating and Compensation Committee
seeks to achieve an appropriate balance of expertise and diversity of interests
recognizing factors such as the character and quality of individuals,
experience, age, education, geographic location, anticipated participation in
Board activities and other personal attributes or special talents. The
Nominating and Compensation Committee will consider written suggestions from
shareholders regarding potential nominees for election as directors. To be
considered by the Nominating and Compensation Committee for inclusion in the
slate of nominees to be proposed by the Board, such suggestions should be
addressed to the Company's Corporate Secretary. The Nominating and Compensation
Committee consists of Directors Judd (Chairman), Cortez, Dyer, Guinn, Hartley
and Lincicome.
The Pension Plan Investment Committee establishes, monitors and oversees
asset investment policy and practices of the retirement plan on a continuing
basis. The Pension Plan Investment Committee consists of Directors Sparks
(Chairman), Batastini, Cortez, Jager and Sundt.
In 1995, no Executive Committee meetings were held, the Audit Committee
held three meetings, the Nominating and Compensation Committee held three
meetings and the Pension Plan Investment Committee held three meetings.
16
<PAGE> 21
EXECUTIVE COMPENSATION AND BENEFITS
EXECUTIVE COMPENSATION REPORT
The Nominating and Compensation Committee of the Board of Directors (the
"Committee") has prepared the following report on the Company's executive
compensation program.
Under the supervision of the Committee, the Company has developed and
implemented an executive compensation program with the objectives of: (i)
reasonableness; (ii) competitiveness; (iii) internal equity; and (iv)
performance. These objectives are addressed through an executive compensation
program established through industry-based compensation comparisons consisting
of annual salaries and a management incentive plan (the "Incentive Plan") that
focuses on specific annual and long-term Company financial and productivity
performance objectives.
The nature of the Company's operation has historically led to the
utilization of compensation systems widely used in industry, weighted for
utility companies, and accepted by various utility regulatory agencies.
Companies of comparable size used to establish the peer group index for the
"Performance Graph" were factored into the compensation review. Other utility
and general industry surveys were also used to assess the Company's compensation
program. Continued use of such systems is designed to address the first three
compensation objectives. A range of salaries that are comparable with industry
levels provides an objective standard to judge the reasonableness of the
Company's salaries, maintains the Company's ability to compete for and retain
qualified executive officers, and provides a means for ensuring that internal
responsibilities are properly rewarded. This same strategy is applied in
establishing executive officer salaries for the Bank.
The fourth compensation objective, performance, is addressed through the
Company's Incentive Plan. The Incentive Plan is designed to retain key
management employees and to focus on specific annual and long-term Company
financial and productivity performance objectives. Productivity factors were
added to the Incentive Plan in March 1995 to take into consideration shareholder
benefits resulting from customer growth and overall customer satisfaction. For
the Company's chief executive and chief financial officers, these objectives
include the Bank's performance.
Salaries for executive officers are set relative to the mid-point levels
for their positions based on the above-described industry comparisons.
Compensation above those levels is tied to achieving specific financial and
productivity performance objectives under the Incentive Plan. An incentive
opportunity, expressed as a percentage of salary, is established annually for
each participant. No performance awards are payable unless the Company's Common
Stock dividend equals or exceeds the prior year's dividend and the Company's
performance equals or exceeds a threshold percentage of the performance targets.
The maximum award opportunities cannot exceed 140 percent of the targeted awards
for meeting the performance objectives.
17
<PAGE> 22
Awards under the Incentive Plan are determined by comparing the annual
performance of the Company's utility operations annual performance to
return-on-equity, customers to employee ratios and customer service satisfaction
targets. The financial performance factors used to make this determination
involve the average of the Company's utility equity performance over the last
three years (which is weighted and adjusted for inflation), and the Company's
current utility return-on-equity performance in comparison to a peer group of
natural gas distribution companies. The productivity performance factors used to
make this determination involve an internal Company customer to employee ratio,
the actual customer to employee ratio in comparison to a peer group of natural
gas distribution companies, and customer service satisfaction experienced
throughout the Company's operating divisions as measured by an independent
outside entity. Each of the five factors is equally weighted, and if the
threshold percentage for any factor is achieved, a percentage of annual
performance awards will have been earned. The financial performance factors for
the Company's financial services subsidiary, which are outlined below, are also
taken into consideration in determining the annual award for the Company's chief
executive and chief financial officers.
If annual performance awards are earned, payment of the awards will be
subject to a possible downward adjustment depending on Incentive Plan
participants' satisfaction of individual performance goals. The Committee will
make the individual performance determination for the Company's chief executive
officer, who in turn will make such determination for the remaining Incentive
Plan participants. Further, the actual awards will be split, with 40 percent of
the awards paid in cash and the remaining 60 percent converted into performance
shares tied to the value of the Company's Common Stock on the date of the
awards. The performance shares will be restricted for a period of three years
and the ultimate payout in Company Common Stock will be subject to continued
employment and the Company's financial and productivity performance during the
subsequent three-year restriction period.
Separate peer groups of natural gas utility companies are used to assess
the Company's annual and long-term performance objectives. Natural gas
distribution utilities are used to assess the annual and long-term performance
of the Company's utility operations. Diversified natural gas distribution
utilities, consisting of the same companies used to assess the Company's
five-year performance reflected in the "Performance Graph" portion of this Proxy
Statement, have also been used to assess the Company's overall long-term
performance. If the pending sale of the Bank is completed, the peer group of
diversified natural gas distribution utilities will no longer be used to assess
the Company's long-term performance. The Committee will then establish other
measures to assess such performance.
The Bank provides performance-based incentive awards through its Executive
Compensation Program. Under the plan, separate incentive awards, each based on a
percentage of salary for each participant, are established for achieving annual
and long-term performance objectives. Annual performance is measured against a
return-on-equity target for core banking operations, while long-term performance
is measured against an average return-on-equity target for core banking
operations of a peer group of financial institutions. Annual awards are paid in
cash at the time performance is measured. Long-term awards, though measured
annually, are withheld for the three-year performance period. No performance
awards are payable under the plan unless actual performance exceeds a threshold
percentage return-on-equity for core banking operations for each performance
period. The maximum award opportunities cannot exceed 150 percent of the target
awards. If the pending sale of the Bank is consummated, the program will be
terminated and the long-term awards that have been earned through 1995 will be
paid to program participants.
The Company's performance during 1995 exceeded the threshold percentages
for each of the established productivity targets. The Company's utility
operation exceeded the target for the internal customer to employee ratio, the
customer to employee ratio in comparison to a peer group of natural gas
distribution companies, and the customer service satisfaction survey. The Bank
exceeded the threshold for its annual performance goal and exceeded its
long-term performance
18
<PAGE> 23
target for the second year of the 1994-1996 three-year performance period and
the first year of the 1995-1997 performance period.
Mr. Maffie's salary for 1995, as the Company's chief executive officer, was
set relative to the mid-point level for salaries paid to chief executive
officers of comparable companies, taking into consideration the length of
service in his current position. His performance award opportunities under the
Incentive Plan took into consideration the Company's utility and financial
services operations, weighted 88 percent and 12 percent, respectively. The
performance award opportunities ranged from 63 to 126 percent of his annualized
salary at December 31, 1995, not his actual salary shown in the Summary
Compensation Table.
Mr. Maffie's target performance award for 1995 was set equal to $382,500 or
90 percent of his annualized salary. Based on the Company's overall 1995
performance in relation to the established performance goals, Mr. Maffie earned
$307,510 or 80 percent of his target award. The performance of the Company's
utility operations accounted for 85.5 percent of Mr. Maffie's award, with 32
percent paid in cash and 68 percent in performance shares. The performance of
the Bank accounted for 14.5 percent of his award, which was paid in cash.
The Company does not anticipate that the compensation for any of its
executive officers will exceed the $1 million threshold in the near term;
therefore, shareholder approval necessary to maintain the tax deductibility of
compensation at or above that level is not being requested at this time. The
Committee will consider this matter if compensation levels approach this
threshold, in light of the tax laws then in effect.
The Nominating and Compensation Committee believes that the compensation
program addresses the Company's compensation objectives, enhances the commitment
of key management employees and strengthens long-term shareholder value.
NOMINATING AND COMPENSATION COMMITTEE
<TABLE>
<S> <C>
Leonard R. Judd, (Chairman) Kenny C. Guinn
Manuel J. Cortez Thomas Y. Hartley
Lloyd T. Dyer James R. Lincicome
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The above-named committee members served on the Company's Nominating and
Compensation Committee during 1995. Mr. Guinn retired as Chairman and Chief
Executive Officer of the Company on May 12, 1993, and retired as a full-time
employee of the Company on August 31,1993. Mr. Guinn became a member of the
Committee after his retirement as an officer of the Company.
19
<PAGE> 24
SUMMARY COMPENSATION TABLE
The following table provides for fiscal years ended December 31, 1993, 1994
and 1995, compensation earned by the Company's Chief Executive Officer and each
of the four other most highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------------
AWARDS
----------------------- PAYOUTS
RESTRICTED --------
ANNUAL COMPENSATION STOCK LTIP ALL OTHER
NAME AND ------------------------------ OTHER ANNUAL AWARD(S) OPTIONS/ PAYOUTS COMPENSATION($)
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(2) COMPENSATION($) ($)(2)(3)(4) SARS(#) ($)(5) (6)(7)(8)
- - - - - - ----------------------- ----- --------- ----------- --------------- ------------ -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael O. Maffie 1995 408,671 128,270 0 179,246 N/A N/A 40,481
President/C.E.O. 1994 370,616 73,149 0 51,098 N/A N/A 32,898
1993 316,904 48,510 0 48,510 N/A N/A 31,070
Dan J. Cheever 1995 255,135 95,000 0 N/A N/A N/A 23,037
President/C.E.O. 1994 226,770 69,913 0 N/A N/A N/A 12,484
PriMerit Bank 1993 208,725 75,000 0 N/A N/A N/A 4,497
Thomas J. Trimble 1995 212,367 40,114 0 60,172 N/A N/A 48,153
Senior Vice
President/ 1994 209,178 20,413 0 20,413 N/A N/A 39,404
General Counsel/ 1993 206,345 19,219 0 19,219 N/A N/A 38,223
Corporate Secretary
George C. Biehl 1995 197,326 41,448 0 56,523 N/A N/A 12,137
Senior Vice
President/ 1994 187,068 25,124 0 16,988 N/A N/A 9,148
Chief Financial
Officer 1993 175,449 16,632 0 16,632 N/A N/A 8,732
L. Keith Stewart 1995 162,142 30,929 0 46,389 N/A N/A 16,168
Senior Vice
President/ 1994 154,712 15,359 0 15,359 N/A N/A 11,650
Operations 1993 144,622 13,861 0 13,861 N/A N/A 11,170
</TABLE>
- - - - - - ---------------
(1) All compensation reflected in the Summary Compensation Table is reported on
an earned basis for each fiscal year.
(2) Bonuses and performance shares accrued for calendar years 1993, 1994 and
1995 were paid and awarded in 1994, 1995 and 1996, respectively.
(3) Dividends equal to the dividends paid on the Company's Common Stock will
accrue on the performance shares awarded under the long-term component of
the Company's Incentive Plan during the restriction period.
(4) Messrs. Maffie, Trimble, Biehl and Stewart were awarded performance shares
(restricted stock) under the Company's Incentive Plan. Mr. Cheever does not
participate in the Company's Incentive Plan. The total number of performance
shares granted in 1994 and 1995, for calendar years 1993 and 1994, and their
value based on the market price of Company Common Stock at December 29, 1995
for each individual are as follows:
<TABLE>
<CAPTION>
SHARES VALUE
------ --------
<S> <C> <C>
Mr. Maffie.................................................................... 6,457 $113,805
Mr. Trimble................................................................... 2,604 45,896
Mr. Biehl..................................................................... 2,206 38,881
Mr. Stewart................................................................... 1,922 33,875
</TABLE>
(5) If the impending sale of the Bank is consummated, the long-term performance
awards under both performance periods, or $94,959, will be paid to Mr.
Cheever at least one week prior to closing.
(6) For Messrs. Maffie, Trimble, Biehl and Stewart, the amounts shown in this
column for each year consist of above-market interest on deferred
compensation and matching contributions under the Company's executive
deferral plan. Under the plan, executive officers may defer up to 50 percent
of their annual compensation for payment at retirement or at some other
employment terminating event. Interest on such deferrals is set at 150
percent of the Moody's Seasoned Corporate Rate. As part of the plan, the
Company provides matching contributions that parallel the contributions made
under the Company's 401(k) plan, which is available to all Company
employees, equal to one-half of the deferred amount, up to six percent of
their annual salary.
(7) For Mr. Cheever, the amounts shown in this column consist of above-market
interest on deferred compensation and matching contributions under the
Bank's 401(k) and executive deferral plans. Under the Bank's executive
deferral plan which was adopted in 1994, Mr. Cheever may defer up to 50
percent of his annual salary and bonus for payment at retirement or at some
other employment terminating event. Interest on executive plan deferrals is
set at 150 percent of the Moody's Seasoned Corporate Rate. For 1994 and the
first two months of 1995, the Bank provided matching contributions equal to
the amount deferred under each plan, up to six percent of Mr. Cheever's
annual compensation. For the remainder of 1995, such matching contributions
were only provided to Mr. Cheever under the provisions of the Bank's
executive deferral plan.
20
<PAGE> 25
(8) All Other Compensation consists of matching contributions under the
Company's or the Bank's deferral plans and interest on such deferrals in
excess of 120 percent of the Applicable Federal Long-term [bond] Rate. The
breakdown of such compensation for each named executive officer is as
follows:
<TABLE>
<CAPTION>
INTEREST CONTRIBUTIONS
-------- -------------
<S> <C> <C>
Mr. Maffie................................................................ $ 28,239 $12,242
Mr. Cheever............................................................... 5,920 17,117
Mr. Trimble............................................................... 41,783 6,370
Mr. Biehl................................................................. 6,221 5,916
Mr. Stewart............................................................... 11,307 4,861
</TABLE>
- - - - - - ---------------
LONG-TERM INCENTIVE PLAN AWARDS FOR 1995
The following table summarizes the long-term cash incentive awards earned
by Dan Cheever under the Bank's performance-based executive compensation plan
for the three-year performance periods of January 1, 1994 through December 31,
1996 and January 1, 1995 through December 31, 1997. Of the named executive
officers, only Mr. Cheever was eligible to participate in the Bank plan. If the
pending sale of the Bank is consummated, the long-term performance awards under
both performance periods will be paid to Mr. Cheever at least one week prior to
closing and the Plan will be terminated.
LONG-TERM INCENTIVE PLAN TABLE
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUT UNDER
NUMBER OF PERFORMANCE NON-STOCK PRICE-BASED PLANS
SHARES, OR OTHER --------------------------------
UNITS PERIOD UNTIL MAXIMUM
OR OTHER MATURATION THRESHOLD TARGET ($ OR
NAME RIGHTS(#) OR PAYOUT ($ OR #) ($ OR #) #)
- - - - - - ----------------------------------------- --------- ------------ --------- -------- -------
<S> <C> <C> <C> <C> <C>
Dan Cheever.............................. N/A 1994-1997(1) $34,007 $ 34,007 $34,007
Dan Cheever.............................. N/A 1995-1998(2) $37,782 $ 37,782 $37,782
</TABLE>
- - - - - - ---------------
(1) The long-term performance award earned by Mr. Cheever for the first
performance period represents 30 percent or the second year's percentage of
such award. Mr. Cheever earned 20 percent, or $23,170, during the first year
of this performance period. This year's award is not subject to further
adjustment during the performance period, and if the pending sale of the
Bank is consummated, the awards earned through the end of 1995 will be paid
out to Mr. Cheever at least one week prior to closing.
(2) The long-term performance award earned by Mr. Cheever for the second
performance period represents 33 percent or the first year's percentage of
such award. This year's award is not subject to further adjustment during
the performance period, and if the pending sale of the Bank is consummated,
the award earned through the end of 1995 will be paid out to Mr. Cheever at
least one week prior to closing.
- - - - - - ---------------
21
<PAGE> 26
BENEFIT PLANS
Southwest Gas Basic Retirement Plan. The named executive officers, except
Mr. Cheever, participate in the Company's non-contributory, defined benefit
retirement plan, which is available to all employees of the Company and its
subsidiaries (except the Bank which has a separate plan). Benefits are based
upon an employee's years of service, up to a maximum of 30 years, and the
employee's highest five consecutive years salary within the final 10 years of
service.
PENSION PLAN TABLE(1)(2)
<TABLE>
<CAPTION>
YEARS OF SERVICE
ANNUAL -----------------------------------------------------------
COMPENSATION 10 15 20 25 30
- - - - - - ------------ ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 50,000 $ 8,750 $ 13,125 $ 17,500 $ 21,875 $ 26,250
100,000 17,500 26,250 35,000 43,750 52,500
150,000 26,250 39,375 52,500 65,625 78,750
200,000 35,000 52,500 70,000 87,500 105,000
250,000 43,750 65,625 87,500 109,375 131,250
300,000 52,500 78,750 105,000 131,250 157,500
350,000 61,250 91,875 122,500 153,125 183,750
400,000 70,000 105,000 140,000 175,000 210,000
450,000 78,750 118,125 157,500 196,875 236,250
500,000 87,500 131,250 175,000 218,750 262,500
</TABLE>
- - - - - - ---------------
(1) Years of service beyond 30 years will not increase benefits under the basic
retirement plan.
(2) For 1996, the maximum annual compensation that can be considered in
determining benefits under the plan is $150,000. For future years the
maximum annual compensation will be adjusted to reflect changes in the cost
of living as established by the Internal Revenue Service.
- - - - - - ---------------
Compensation covered under the basic retirement plan is based on salary
depicted in the Summary Compensation Table. As of December 31, 1995, the
credited years of service for the named executive officers shown in the Summary
Compensation Table are as follows: Mr. Maffie, 17 years; Mr. Biehl, 10 years;
Mr. Stewart, 11 years; and Mr. Trimble, 9 years.
Amounts shown in the pension plan table are straight-life annuity amounts
notwithstanding the availability of joint survivorship benefit provisions.
Benefits paid under the basic and supplemental retirement plans are not reduced
by any Social Security benefits received.
Supplemental Retirement Plan. The named executive officers, except Mr.
Cheever, also participate in the Company's supplemental retirement plan. Such
officers with 10 or more years of service may retire at age 55 or older and will
receive benefits under the plan. Such benefits, when added to benefits received
under the basic retirement plan, will equal 60 percent of their highest 12
months of compensation with the Company. The total benefit may be reduced if an
officer retires prior to age 60, depending upon his age and total years of
service with the Company. The cost to the Company for benefits under the
supplemental retirement plan for any one of the named executive officers cannot
be properly allocated or determined because of the overall plan assumptions and
options available.
The Bank Retirement Income Plan. Mr. Cheever, who is a named executive
officer, participates in the Bank's non-contributory, defined benefit retirement
plan, which is available to all employees of the Bank and its subsidiaries.
Through March 1994, benefits were based upon an employee's years of service, up
to a maximum of 15 years, and the employee's 60 highest paid consecutive months
of employment with the Bank. Commencing April 1, 1994, the plan was curtailed.
Employees hired on or after that date will not be able to participate in the
plan, while existing employees will not be able to increase benefits under the
plan through additional service with the Bank. Salary changes for existing
employees, however, will continue to affect plan benefits. If the pending sale
of the Bank is consummated, the plan will be merged with the defined benefit
retirement plan of Norwest.
22
<PAGE> 27
PENSION PLAN TABLE(1)(2)
<TABLE>
<CAPTION>
YEARS OF SERVICE
ANNUAL --------------------------------
COMPENSATION 5 10 15
- - - - - - ------------ ------- ------- --------
<S> <C> <C> <C>
$ 50,000 $ 5,833 $11,667 $ 17,500
100,000 11,667 23,333 35,000
150,000 17,500 35,000 52,500
200,000 23,333 46,667 70,000
250,000 29,167 58,333 87,500
300,000 35,000 70,000 105,000
</TABLE>
- - - - - - ---------------
(1) Prior to March 31, 1994, years of service beyond 15 years would not increase
benefits under the plan. With the curtailment of the plan, additional years
of service will no longer increase benefits under the plan.
(2) For 1996, the maximum annual compensation that can be considered in
determining benefits under the plan is $150,000. For future years, the
maximum annual compensation will be adjusted to reflect changes in the cost
of living as established by the Internal Revenue Service.
- - - - - - ---------------
Compensation covered under the Bank retirement plan is based on salary
depicted in the Summary Compensation Table. At the time the plan was curtailed,
Mr. Cheever had five years of service with the Bank. Only future salary changes
will affect Mr. Cheever's benefits under the plan.
Amounts shown in the pension plan table are straight life annuity amounts
notwithstanding the availability of joint survivorship benefit provisions.
Benefits paid under the Bank's basic and supplemental retirement plans are not
reduced by any Social Security benefits.
PriMerit Bank Supplemental Executive Retirement Plan. Mr. Cheever also
participates in the Bank's supplemental retirement plan. Participation in the
supplemental plan is limited to officers of the Bank selected by the Bank's
Board of Directors. Benefits under the plan, when added to benefits received
under the defined benefit retirement plan, will equal 60 percent of the
participant's average annual salary over the 60 highest paid consecutive months
of service. The total benefit will be reduced if a participant retires prior to
age 65, and with less than 15 years of service with the Bank. The cost to the
Bank for benefits under the supplemental retirement plan for Mr. Cheever cannot
be properly determined because of the overall plan assumptions and options
available. If the pending sale of the Bank is consummated, the plan will be
terminated and Mr. Cheever's accrued benefits, estimated to be $75,000, will be
paid prior to closing.
CHANGE IN CONTROL ARRANGEMENT
The Bank, during 1994, entered into an agreement with Mr. Cheever that is
designed to support his continued employment with the Bank. Under the terms of
the agreement, Mr. Cheever would be entitled to a lump sum benefit payment of
$500,000 if he is employed by the Bank at the time of a change in control of the
Bank. Such payment would become due and payable only after the occurrence of a
change in control. The agreement also provides that Mr. Cheever would be
entitled to a lump sum deferred compensation benefit equal to 200 percent of his
annual salary if his employment with the Bank is terminated (or his
responsibilities are substantially changed without his consent) within 12
calendar months of a change in control for other than cause, death, disability
or retirement. In addition, Mr. Cheever will be entitled to an additional
$169,959 under the Bank's Long-Term Incentive Plan and Supplemental Executive
Retirement Plan. (See "EXECUTIVE COMPENSATION AND BENEFITS -- Long-Term
Incentive Plan Awards for 1995" and "-- Benefit Plans -- Supplemental Executive
Retiremental Plan"). No officer or director of the Company will receive any
additional compensation upon consummation of the Bank Sale.
23
<PAGE> 28
PERFORMANCE GRAPH
The performance graph below compares the five-year cumulative total return
on the Company's Common Stock, assuming reinvestment of dividends, with the
total returns on the Standard & Poor's 500 Stock Composite Index (S&P 500) and
the Edward D. Jones Natural Gas Diversified Index, a peer-group index compiled
by Edward D. Jones & Company, consisting of the Company and 22 other diversified
natural gas distribution companies.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
E.D. JONES NATURAL
MEASUREMENT PERIOD SOUTHWEST GAS S&P 500 GAS DIVERSIFIED INDEX(1)(2)
- - - - - - ------------------ ------------- ------- ---------------------------
<S> <C> <C> <C>
1990 $100.0 $100.0 $100.0
1991 88.2 130.3 86.0
1992 120.2 140.3 91.4
1993 146.2 154.3 103.9
1994 135.2 156.4 90.3
1995 177.6 215.0 122.8
</TABLE>
- - - - - - ---------------
(1) The Company selected the Edward D. Jones Natural Gas Diversified Index as a
peer-group index because it provides a representative sample of natural gas
distribution companies with at least 30 percent, but less than 90 percent,
of their gross revenues from distribution operations. This index should be
available on a continuing basis; however, if the pending sale of the Bank is
consummated, another representative index will be assembled or selected.
(2) The Edward D. Jones Natural Gas Diversified Index, which is weighted by
year-end market capitalization, consists of the following companies;
Alabama/Tennessee Resources, Inc., Chesapeake Utilities Corp., Columbia Gas
System, Consolidated Natural Gas, Eastern Enterprises, Energen Corp.,
Enserch Corp., Equitable Resources, Inc., KN Energy, Inc., National Fuel Gas
Co., National Gas & Oil Co., Noram Energy Corp., Oneok, Inc., Pacific
Enterprises, Pennsylvania Enterprises, Inc., Questar Corp., South Jersey
Industries, Southwest Gas Corporation, Southwestern Energy Co., UGI Corp.,
Valley Resources, Inc., Washington Energy Company, and Wicor, Inc.
- - - - - - ---------------
24
<PAGE> 29
APPROVAL OF THE BANK SALE
(ITEM 2 ON THE PROXY CARD)
You are being asked to consider and vote upon a proposal to approve the
principal terms of the Agreement dated as of April 10, 1996, (the "Bank Sale
Agreement") among the Company, The Southwest Companies, a Nevada corporation
("SC"), the Bank and Norwest Corporation, a Delaware corporation ("Norwest"),
pursuant to which Norwest has agreed, subject to the satisfaction of certain
conditions, to purchase substantially all of the assets and liabilities of the
Bank for $190,700,000 in cash, subject to certain adjustments described below
(the "Bank Sale"). The Company will pay Norwest a certain amount in cash for the
Bank's deferred tax assets. If the purchase of the Bank occurred on March 31,
1996, the purchase price for these assets would have been $616,510. The Company
will retain all assets and liabilities of the Bank relating to the Bank's real
estate development activities, the tax assets and liabilities of the Bank and
certain recorded intangibles. The net book value of these assets and liabilities
as of March 31, 1996, was $(218,282). The affirmative vote of a majority of the
shares of the Company's Common Stock outstanding on the Record Date is required
to approve the principal terms of the Bank Sale Agreement. Shareholders are not
entitled to exercise dissenters' rights with respect to the Bank Sale.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE BANK
SALE AGREEMENT AS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY APPROVE THE
PRINCIPAL TERMS OF THE BANK SALE AGREEMENT.
The Closing of the Bank Sale (the "Closing") will occur within ten business
days following the satisfaction or waiver of all conditions to the Bank Sale
Agreement, other than conditions relating to the delivery of certain closing
documents, or such other date as may be agreed to by the parties (the "Closing
Date"). It is anticipated that the Closing will occur during the third quarter
of 1996. The Bank Sale Agreement may be terminated by either party if the Bank
Sale has not been consummated by September 30, 1996.
This section of the Proxy Statement provides information regarding the
material terms of the Bank Sale. The following description does not purport to
be complete and is qualified in its entirety by reference to the Bank Sale
Agreement, which is set forth in Appendix A to this Proxy Statement.
Shareholders are urged to read the Bank Sale Agreement in its entirety.
BACKGROUND OF THE BANK SALE
The enactment of the Financial Institutions Reform, Recovery and
Enforcement Act ("FIRREA") in August 1989 resulted in a fundamental change in
the rules under which thrift institutions, like the Bank, were required to
operate. One of the most fundamental changes was in minimum regulatory capital
requirements. Under FIRREA, a thrift institution was required to deduct from
regulatory capital goodwill and the amount of any investments in and loans to
subsidiaries engaged in an activity not permitted of national banks, such as
real estate investment. The Bank had $92.9 million of goodwill and $101 million
in real estate held for sale or development at September 30, 1989.
In October 1989, the management of the Company met with the management of
the Bank to discuss the anticipated changes in the business of the Bank
resulting from the enactment of FIRREA and the new capital regulations. They
determined that much more capital would be required in the business of the Bank
than before FIRREA. At the same time, the ability of the Company to raise
capital to be contributed to the Bank was constrained by public utility
legislation in California which became effective in 1988. During this general
time-frame, a decision was made to wind down the Bank's real estate development
activities and to cease construction of residential homes and multi-family
projects.
25
<PAGE> 30
As a result of these changes in the operating environment, management began
to consider the future of the Company's investment in the Bank. In September
1991, the Board of Directors invited a major investment banking firm to make a
presentation regarding options with respect to the Company's investment in the
Bank. The conclusion reached in the presentation was generally that the value of
the Company would be enhanced by the ultimate disposition of the Bank. It was
determined that the timing of such a disposition should take into account a
variety of factors. No decision was made to dispose of the Bank at this time.
As part of the ongoing review of the Company's investment in the Bank,
management made a presentation to the Board of Directors in September 1993
regarding the effect of the Bank on the Company's financial position and
operating results, noting that the Bank had recorded losses of $37.2 million and
$9.8 million in 1991 and 1992, respectively, but had become marginally
profitable in 1993. No representatives of investment banking firms participated
in the presentation, although it was based, in part, upon conclusions reached
during a series of meetings between management and investment bankers. At this
meeting no determinations were made with regard to the disposition of the
Company's investment in the Bank.
At the regular meeting of the Board of Directors held in May 1994, the
management of the Company, the Company's legal advisors and representatives of a
major investment banking firm made presentations to the Board regarding the
Company's investment in the Bank, its effect on the Company and strategic
alternatives available to the Company with regard to the Bank. At the
presentation, management expressed its opinion that the primary factors
affecting a decision whether to dispose of the Bank presented a stronger case
for a present sale of the Bank than at any other time since the Company's
acquisition of the Bank. The Board expressed a willingness to consider the sale
of the Bank as one possible alternative if certain parameters were met, but it
did not feel compelled to immediately dispose of the Bank.
Following this presentation, and after further discussion, the Board of
Directors unanimously approved a resolution to retain the investment banking
firm to advise the Company regarding strategic alternatives available to the
Company with respect to the Bank. The Board also approved the engagement of
legal counsel to advise the Company regarding legal matters.
After the regular meeting of the Board of Directors, a process was
conducted with a view to identifying parties with an interest in discussing an
acquisition of the Bank pursuant to the parameters under consideration by the
Board. Each of the identified parties was provided with information regarding
the Bank. After a review of this information, two parties, including Norwest,
expressed continued interest in a possible purchase. Both parties were provided
with additional information and given an opportunity to review materials with
management of the Bank and the Company. Negotiations were then commenced with
both parties.
During the course of the negotiations, it became apparent that the
parameters outlined by the Board of Directors for a possible sale of the Bank
would not be met. At this point, management terminated the process and
recommended to the Board at its regular meeting in August 1994 that a sale of
the Bank to the parties under consideration not be pursued at that time. The
Board concurred with the conclusions reached by management.
Management continued to discuss potential sale possibilities with the two
potential acquirors identified during the summer of 1994, as well as several
other financial institutions. These discussions were typically general in
nature, although one potential acquiror executed a confidentiality agreement in
December 1994, performed an extensive off-site analysis of the Bank's operations
and met with management for discussions during the summer of 1995.
At the regular meeting of the Board of Directors on September 18, 1995,
representatives of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), the management of the Company and the Company's legal advisors made
presentations to the Board regarding strategic alternatives available to the
Company with regard to the Bank. The presentation given by represent-
26
<PAGE> 31
atives of Merrill Lynch included discussions regarding: (i) recent merger and
acquisition activity among depository institutions; (ii) an overview and a
preliminary range of potential valuations of the Bank; (iii) potential acquirors
of the Bank; and (iv) strategies for determining potential interest of potential
acquirors in acquiring the Bank. Following the presentation, and after further
discussion, the Board unanimously approved a resolution to retain Merrill Lynch
to advise the Company regarding strategic alternatives available to the Company
with respect to the Bank.
After the regular meeting of the Board of Directors in September 1995, a
limited auction process was conducted with regard to the sale of the Bank.
Merrill Lynch contacted six financial institutions to determine whether they
might be interested in acquiring the Bank. In addition, another party contacted
Merrill Lynch directly and expressed an interest in the Bank. Three of these
institutions indicated that they had no interest in a transaction with the Bank.
During late September and early October 1995, the Company and the Bank provided
Norwest and three other potentially interested parties with financial and
business information after execution of confidentiality agreements. Following a
review of the information provided, Merrill Lynch requested each party to submit
a bid for the Bank. Two bids were received, including one from Norwest.
Management and the Company's financial and legal advisors reviewed the
terms of each of the bids. The other bid was for a lesser amount and was
accompanied by potential downward price adjustments for certain items. Both bids
satisfied the parameters set by the Board of Directors in May 1994, with one
exception. Neither bidder was willing to acquire the assets and liabilities of
the Bank relating to its real estate development activities due to lack of
familiarity with these assets and liabilities and the inherent difficulties in
quantifying unknown and contingent liabilities of a discontinued real estate
development business. The net book values of the real estate development assets
and liabilities at March 31, 1996 was $(835,000). (See "TERMS OF THE BANK
SALE -- Consideration for the Bank Sale" and "Retained Assets and Liabilities"
for a description of the real estate assets and liabilities retained).
On January 8, 1996, a special meeting of the Board of Directors was
convened for the purpose of considering management's recommendation to approve
the principal terms of the Bank Sale Agreement. Representatives from the
Company's financial and legal advisors were present at the meeting or
participated by conference telephone.
Management and the Company's legal and financial advisors made
presentations regarding the Bank, Norwest, the principal terms of the Bank Sale
Agreement and valuations of the Bank using different valuation techniques.
Merrill Lynch rendered an oral opinion (subsequently confirmed in writing) to
the Board of Directors to the effect that, as of such date and based upon and
subject to matters stated in such opinion, the consideration to be received by
the Company from Norwest pursuant to the terms of the Bank Sale Agreement was
fair to the Company from a financial point of view. (See "-- OPINION OF
FINANCIAL ADVISOR") Management also presented to the Board a summary of the
accounting and tax consequences of the Bank Sale.
After discussion, the Board of Directors unanimously approved terms of the
Bank Sale. The execution of the sale was publicly announced on January 8, 1996.
Under the provisions of the sales agreement, SC would sell all of the
outstanding stock of the Bank to Norwest, provided that Norwest had the option
to elect to restructure the transaction as a purchase of substantially all of
the assets and liabilities of the Bank, other than certain assets and
liabilities relating to taxes and real estate development activities formerly
conducted by the Bank and certain recorded intangibles. On April 10, 1996,
Norwest exercised that option and the Company, SC, the Bank and Norwest entered
into the Bank Sale Agreement dated as of April 10, 1996 pursuant to which the
Bank will sell to a wholly owned subsidiary of Norwest substantially all the
assets and liabilities of the Bank, other than certain assets and liabilities
relating to taxes and real estate development activities formerly conducted by
the Bank and certain recorded intangibles.
27
<PAGE> 32
REASONS FOR THE BANK SALE
The Board of Directors has unanimously concluded that the Bank Sale is in
the best interests of the Company and its shareholders and unanimously
recommends that shareholders approve the principal terms of the Bank Sale
Agreement. In reaching its determination to approve the Bank Sale Agreement, the
Board considered the following factors, which together with the process followed
by the Company in soliciting interest in the purchase of the Bank, constitute
all of the material factors considered by the Board:
(i) The Board's belief that a divestiture of the Bank would improve
the Company's equity valuation by (x) signaling a return of management's
attention to its core gas operations, (y) allowing capital to be redeployed
into its existing gas business and (z) reducing the Company's cost of
capital by eliminating the Bank's volatile earnings stream and reducing the
leverage in its capital structure.
(ii) The Board's belief that there was no longer a strategic fit
between the Company and the Bank in the post-FIRREA regulatory environment.
The Board also considered that proposed federal legislation would require
federally chartered savings institutions to either (x) convert to national
banks or state chartered depository institutions by January 1, 1998 and to
divest activities not permissible for national bank holding companies, such
as the gas utility business, or (y) surrender their charters and liquidate
by January 1, 1998.
(iii) The Board's assessment of the Bank's current operating
environment, including, but not limited to, the continued consolidation and
increasing competition in the banking and financial services industry
generally and in Nevada in particular and the need for additional
investment in technology, product development and marketing in order to
maintain the Bank's franchise value.
(iv) The Board's consideration, based in part upon information
provided by Merrill Lynch and the Company's management, of various
variables relevant to a determination of the optimal timing of a sale of
the Bank. The information provided included a review of the current
operating and regulatory environment for thrift institutions, an overview
of recent thrift acquisition premiums, the interest of potential acquirors
in the Bank and factors that might affect such interest, the Bank's ability
to maintain earnings growth and asset quality in an increasingly
competitive environment and the Bank's ability to originate loans, gather
deposits and increase fee income. Merrill Lynch provided an overview of the
mergers and acquisitions market for nationwide thrift/thrift and
bank/thrift deals with transaction values of $20 million or more for 1989
through August 28, 1995. Mergers and acquisitions for thrifts and banks
remained low in 1989, 1990 and 1991 with 18 transactions consummated in
1989 with an aggregate transaction value of $934 million, 9 transactions
consummated in 1990 with an aggregate transaction value of $802 million and
13 transactions consummated in 1991 with an aggregate transaction value of
$814 million. Mergers and acquisitions for thrifts and banks grew steadily
in 1992, 1993 and 1994 from 38 transactions with an aggregate transaction
value of $3.484 billion in 1992, to 57 transactions with an aggregate
transaction value of $5.323 billion in 1993 and 64 transactions with an
aggregate transaction value of $7.974 billion in 1994. Mergers and
acquisitions then showed a decline in 1995 from 1994 levels based on
activity through August 28, 1995 (36 transactions with an aggregate
transaction value of $4.361 billion). Merrill Lynch also provided
information on the mergers and acquisitions market in the Western region of
the United States. This overview showed that most recent thrift
acquisitions in the Western Region were by large financial institutions
seeking to build market share. Merrill Lynch also reviewed the transaction
multiples for Norwest's announced acquisition of AMFED Financial, a thrift
based in Nevada with approximately $1.6 billion in assets. With an
aggregate purchase price of approximately $197 million, the transaction
yielded a price to book value multiple of 1.42x, a price to tangible book
multiple of 1.69x and an implied deposit premium of 7%. Merrill Lynch also
provided a comparison of asset quality, capitalization and profitability
ratios and market
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share statistics for AMFED and the Bank. In addition, the Board considered
(x) that consolidation values for financial institutions might be reaching
a plateau, (y) the real and significant risk that the current value of the
Bank as an acquisition target might diminish given an extended period of
flat earnings at the current level, and (z) that the opportunity cost of
continuing to hold the Bank as an investment might be significant.
(v) The Board's consideration, based in part upon information provided
by Merrill Lynch and the Company's management, that the strategic value of
the Bank as the last remaining sizable community bank franchise in Nevada
could diminish because the willingness of potential buyers to acquire
moderately sized financial institutions might subside once larger financial
institutions achieved greater critical mass in the area, at which time the
remaining acquisition candidates, such as the Bank, might be considered not
to be a viable means of entering the Nevada market. In this regard, the
information provided included a review of other acquisition opportunities
in the State as well as the number of potential acquirors, the Bank's
market share in certain Nevada markets, the attractiveness of a thrift
franchise to potential acquirors in an uncertain regulatory environment and
the likelihood of continued consolidation in the banking industry and the
potential synergies between potential acquirors and the Bank. Market share
information provided by Merrill Lynch showed that large out-of-state
holding companies have a substantial presence in most Nevada banking
markets. As of June 30, 1994, the four largest out-of-state financial
institutions in Nevada (assuming the completion of pending acquisitions)
had 26.8%, 26.4%, 10.72% and 5.76% of total deposits in the state compared
to 9.4% for the Bank. The information also showed that substantial branch
overlap existed between the Bank and its larger in-market competitors,
creating a potential for cost savings.
(vi) The Board's consideration, based in part on information provided
by Merrill Lynch and the Company's management, of the value to the Company
of the Bank continuing as a stand-alone entity compared to its value to a
potential acquiror, such as Norwest, in light of the factors summarized
above and the current economic and financial environment. The information
provided included a review of the opportunity cost of receiving a sale
value for the Bank now as opposed to holding the Bank and realizing value
in the future. Merrill Lynch presented a break-even returns analysis based
on earnings projections for the Bank provided by the management of the Bank
and a range of hypothetical offer values for the Bank of $160 million to
$200 million. Using price to earnings multiples of 10x to 15x and a
discount rate of 15%, Merrill Lynch calculated that a compound annual
growth rate of earnings of between approximately 16% and 35% would be
needed by the Bank over a five year period to provide the Company with the
same value on a present value basis as hypothetical offer values of $160
million to $200 million. In this regard, the Board considered the Bank's
ability to generate a level of annual earnings growth during the next five
years sufficient to achieve a valuation equivalent to the Bank's present
sale value and the prospects for achieving such earnings growth.
(vii) The Board's consideration of the financial presentations of
Merrill Lynch (including the assumptions and methodologies underlying their
analyses), the results of the contacts and discussions between the Company,
its advisors and various third parties and the written opinion of Merrill
Lynch that, as of January 8, 1996, and based upon and subject to the
matters stated in such opinion, the consideration to be received by the
Company pursuant to the terms of the Bank Sale Agreement was fair to the
Company from a financial point of view. (See "-- OPINION OF FINANCIAL
ADVISOR")
The foregoing discussion of the information and factors considered by the
Board of Directors is not intended to be exhaustive, but constitutes the
material factors considered by the Board. In reaching its determination to
approve and recommend the principal terms of the Bank Sale Agreement, the Board
did not assign relative or specific weights to the foregoing factors or to the
process followed by the Company in soliciting interest from potential
purchasers, and individual directors may have weighed such factors and the
process differently. Throughout its deliberations,
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<PAGE> 34
the Board received the advice of Merrill Lynch and representatives of O'Melveny
& Myers, the firm retained as special counsel to the Company.
FOR THE REASONS SET FORTH ABOVE, THE BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE BANK SALE AGREEMENT AS IN THE BEST INTERESTS OF THE COMPANY AND ITS
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY
APPROVE THE PRINCIPAL TERMS OF THE BANK SALE AGREEMENT.
OPINION OF FINANCIAL ADVISOR
The Company has engaged Merrill Lynch to act as its financial advisor in
connection with matters related to the Bank. The Company selected Merrill Lynch
as its financial advisor on the basis of Merrill Lynch's experience and
qualifications in similar advisory capacities and its general familiarity with
the Company and the Bank and their businesses.
As part of its engagement, representatives of Merrill Lynch attended the
meeting of the Board of Directors held on January 8, 1996, at which the Board
considered the Bank Sale. On January 8, 1996, Merrill Lynch rendered its written
opinion to the Board to the effect that, as of such date, the consideration to
be received by the Company pursuant to the terms of the Bank Sale Agreement (the
"Consideration") was fair to the Company from a financial point of view. This
opinion was reconfirmed in writing as of the date of this Proxy Statement by
redelivery of an opinion dated as of the date of this Proxy Statement. No
limitations were imposed by the Company or the Bank on the scope of Merrill
Lynch's investigation or on the procedures followed by Merrill Lynch in
rendering its fairness opinion.
The full text of Merrill Lynch's written opinion dated as of the date of
this Proxy Statement is set forth in Appendix B to this Proxy Statement. The
description of the opinion set forth herein is qualified in its entirety by
reference to Appendix B, although it discloses all material elements of such
opinion. Shareholders are urged to read Merrill Lynch's opinion in its entirety
for a description of the procedures followed, assumptions made, matters
considered, and qualifications and limitations on the review undertaken by
Merrill Lynch in connection therewith.
MERRILL LYNCH'S OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF THE
COMPANY AND ADDRESSES ONLY THE FAIRNESS OF THE CONSIDERATION TO THE COMPANY. IT
DOES NOT ADDRESS THE COMPANY'S UNDERLYING BUSINESS DECISION TO PROCEED WITH THE
TRANSACTION OR THE RELATIVE MERITS OF THE TRANSACTION. THE OPINION DOES NOT
CONSTITUTE, NOR SHOULD IT BE CONSTRUED AS, A RECOMMENDATION TO ANY SHAREHOLDER
AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE ANNUAL MEETING.
Merrill Lynch has informed the Company that in arriving at its opinion,
Merrill Lynch has, among other things: (i) reviewed the Company's Annual
Reports, Forms 10-K and related audited financial information for the three
fiscal years ended December 31, 1995 and the Company's Quarterly Report on Form
10-Q and the related unaudited financial information for the quarterly period
ending March 31, 1996; (ii) reviewed the Bank's Annual Reports and related
audited financial information for the three fiscal years ended December 31, 1995
and unaudited financial information for the quarterly period ending March 31,
1996; (iii) reviewed certain information, including financial forecasts relating
to the business, earnings, assets and prospects of the Bank furnished to it by
the Bank; (iv) conducted discussions with members of senior management of the
Bank concerning the business and prospects of the Bank; (v) compared the results
of operations of the Bank with those of certain companies which it deemed to be
relevant; (vi) compared the proposed financial terms of the Bank Sale
contemplated by the Bank Sale Agreement with financial terms of certain other
mergers and acquisitions which it deemed to be relevant; (vii) reviewed the Bank
Sale Agreement; and (viii) performed such other financial studies and analyses
as it deemed necessary, none of
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<PAGE> 35
which were material, individually or in the aggregate, other than those
described below. Each of the material financial analyses performed by Merrill
Lynch are summarized below.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all financial and other information supplied or otherwise
made available to it for the purposes of its opinion, and it has not
independently verified such information or undertaken an independent evaluation
or appraisal of the assets or liabilities of the Bank or any of its subsidiaries
nor has it been furnished any such evaluation or appraisal. Merrill Lynch is not
an expert in the evaluation of allowances for loan losses and has not made an
independent evaluation of the adequacy of the allowances for loan losses of the
Bank nor has Merrill Lynch reviewed any individual credit files, and it has
assumed that the aggregate allowance for loan losses of the Bank is adequate to
cover such losses. Merrill Lynch has also assumed and relied upon the senior
management of the Bank as to the reasonableness and achievability of the
financial forecasts furnished by the Bank (and the assumptions and bases
therefor). Merrill Lynch's opinion is necessarily based on economic, market and
other conditions as in effect on, and the information made available to it as
of, the date of such opinion.
Merrill Lynch's opinion has been rendered without regard to the necessity
for, or the level of, any restrictions, obligations, undertakings or
divestitures which may be imposed or required in the course of obtaining
regulatory approvals for the Bank Sale.
In connection with rendering its opinion on January 8, 1996, Merrill Lynch
performed a variety of financial analyses, consisting of those summarized below.
The summary set forth below, which has been provided by Merrill Lynch, does not
purport to be a complete description of the analyses performed by Merrill Lynch
in this regard, although it included all material analyses performed by Merrill
Lynch. The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to a partial analysis or summary
description. Accordingly, notwithstanding the separate factors summarized below,
Merrill Lynch believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors considered by it, without
considering all analyses and factors, or attempting to ascribe relative weights
to some or all such analyses and factors, could create an incomplete view of the
evaluation process underlying Merrill Lynch's opinion. In addition, while
Merrill Lynch gave the various analyses approximately similar weight, it may
have used them for different purposes 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 below should not be taken to be
Merrill Lynch's view of the actual value of the Bank. The fact that any specific
analysis has been referred to in the summary below is not meant to indicate that
such analysis was given more weight than any other analysis.
In performing its analyses, Merrill Lynch took into account its assessment
of general economic, market and financial conditions, and its experience in
similar transactions, as well as its experience in securities valuation and its
knowledge of the banking industry generally. The analyses performed by Merrill
Lynch are not necessarily indicative of actual values or actual future results,
which may be significantly more or less favorable than suggested by such
analyses. Such analyses were prepared solely as part of Merrill Lynch's analysis
of the fairness of the Bank Sale to the Company and were provided to the Board
of Directors in connection with the delivery of Merrill Lynch's opinion on
January 8, 1996. With respect to the comparison of selected companies analysis
and the analysis of selected thrift merger transactions summarized below, no
public company utilized as a comparison is identical to the Bank and such
analyses necessarily involve complex considerations and judgments concerning the
differences in financial and operating characteristics of the companies and
other factors that could affect the public trading values of, or merger
transactions involving, the companies concerned. In addition, the analyses do
not purport to be appraisals or to reflect the prices at which any securities of
the Bank may trade at the present time or at any time in the future.
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<PAGE> 36
Furthermore, Merrill Lynch's opinion is just one of the many factors taken into
consideration by the Board.
The projections furnished to Merrill Lynch and used by it in certain of its
analyses were prepared by the management of the Bank as part of its normal
budget process. The Bank does not publicly disclose internal management
projections of the type provided to Merrill Lynch in connection with its review
of the Bank Sale. Such projections were not prepared with a view towards public
disclosure. Merrill Lynch has assumed that such projections reflect the best
estimates and judgments of the Bank's management and that such projections would
be realized in the amounts and the time periods estimated by the management of
the Bank. Actual results could vary significantly from those set forth in such
projections.
The following is a summary of the selected analyses presented by Merrill
Lynch to the Board of Directors on January 8, 1996, in connection with the
delivery of its opinion on January 8, 1996, which, as indicated, was reconfirmed
as of the date hereof. Merrill Lynch's analyses were based upon a Consideration
value of $175 million which would have been the Consideration if the Bank Sale
had been consummated as a stock sale. The Company and Norwest estimated that the
Company will be required to pay an additional $15.7 million in income taxes by
virtue of consummating the Bank Sale as a purchase of assets and an assumption
of liabilities. In performing its analysis, Merrill Lynch assumed that the
Consideration of $190.7 million is the after tax economic equivalent to the
Company of a sale of stock of the Bank for $175 million.
Summary of Proposal. Merrill Lynch reviewed the terms of the proposed
transaction, including the Consideration and aggregate transaction value
determined in accordance with the proposed Bank Sale Agreement. Based on a value
of $175 million in the aggregate, the consideration to be received by the
Company upon consummation of the Bank Sale, equated to a price to book value
multiple of 0.96x, a price to tangible book value multiple of 1.47x, a price to
annualized earnings for the nine months ended September 30, 1995 multiple of
22.65x, a price to 1996 estimated earnings multiple of 16.46x, a price to 1997
estimated earnings multiple of 14.42x and an implied deposit premium (defined as
the difference between the transaction value and tangible book value divided by
total deposits, excluding mark-to-market adjustments) of 4.48 percent. All data
for the Bank, except for estimated earnings, was at or annualized for the
nine-month period ended September 30, 1995.
Discounted Dividend Stream Analysis. Using a discounted dividend stream
analysis, Merrill Lynch estimated the present value of the future streams of
after-tax cash flows that the Bank could produce on a stand-alone basis from
1996 through 2000 and distribute to shareholders ("dividendable net income"). In
this analysis, Merrill Lynch assumed that the Bank performed in accordance with
the earnings forecasts provided by the Bank's senior management and projected
the maximum dividends that would permit the Bank's tangible common equity to
asset ratio to be maintained at a minimum 6.76 percent level (the Bank's
then-current level at September 30, 1995). Merrill Lynch estimated the terminal
values for the Bank at 9.0, 10.0 and 11.0 times the Bank's year 2000 estimated
operating income (defined as net income before intangible amortization). The
dividendable net income streams and terminal values were then discounted to
present values using different discount rates ranging from 13 percent to 15
percent based upon a capital asset pricing model and chosen to reflect different
assumptions of required returns to holders or prospective buyers of the Bank's
Common Stock. The discounted dividend stream analysis indicated a reference
range of between $126.1 million to $156.0 million for the Bank. The analysis was
based upon the Bank's senior management's projections prepared as part of its
normal budget process. Actual results could vary significantly from those set
forth in these projections based upon factors beyond the control of the Bank.
Merrill Lynch noted that the discounted dividend analysis was included because
it is a widely used valuation methodology, but noted that the results of such
methodology are highly dependent upon the estimates of earnings growth rates
provided by senior management of the Bank and dividend payout rates, terminal
values, and discount rates described above. As indicated above, this analysis
did not purport to be indicative of actual future results.
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<PAGE> 37
Analysis of Selected Thrift Merger Transactions. Merrill Lynch reviewed
publicly available information regarding thrift merger transactions with a value
between $50 million and $500 million which had occurred in the Western region of
the United States since January 1, 1994. Merrill Lynch compared the price to
year-to-date annualized earnings, price to fully diluted book value and price to
fully diluted tangible book multiples and the implied deposit premium paid in
the contemplated transaction (assuming a Consideration value of $175 million)
with such selected thrift merger transactions. This analysis yielded a range of
price to earnings multiples of 7.71x to 20.04x with a mean of 13.54x and a
median 13.37x compared to a transaction multiple of 22.65x for the Bank (using
the Bank's annualized earnings for the nine months ended September 30, 1995), a
range of price to fully diluted book value multiples of 0.85x to 1.64x with a
mean of 1.36x and a median of 1.41x compared to a transaction multiple of 0.96x
for the Bank (using the fully diluted book value of the Bank as of September 30,
1995), a range of price to fully diluted tangible book multiples of
approximately 1.11x to 1.78x with a mean of 1.50x and a median of 1.45x compared
to a transaction multiple of 1.47x for the Bank (using the fully diluted
tangible book value of the Bank as of September 30, 1995) and a range of implied
deposit premiums paid of approximately 1.21 percent to 9.55 percent with a mean
of 5.40 percent and a median of 6.71 percent compared to a transaction premium
of 4.48 percent for the Bank. This analysis yielded an overall imputed reference
range of aggregate value of the Bank of $59.6 million to $298.2 million, and an
imputed reference range of aggregate value of the Bank of $103.3 million to
$256.4 million based on both the mean and median imputed ranges of the selected
transactions, compared to a transaction value of $175 million.
Merrill Lynch also reviewed publicly available information regarding thrift
merger transactions with a value between $50 million and $500 million which had
occurred in the United States since January 1, 1995. Merrill Lynch compared the
price to year-to-date annualized earnings, price to fully diluted book value and
price to fully diluted tangible book multiples and the implied deposit premium
paid in the contemplated transaction (assuming a Consideration value of $175
million) with such selected thrift merger transactions. This analysis yielded a
range of price to earnings multiples of 8.49x to 20.62x with a mean of 15.19x
and a median of 14.69x compared to a transaction multiple of 22.65x for the Bank
(using the Bank's annualized earnings for the nine months ended September 30,
1995), a range of price to fully diluted book value multiples of approximately
1.11x to 2.48x with a mean of 1.53x and a median of 1.46x compared to a
transaction multiple of 0.96x for the Bank (using the fully diluted book value
of the Bank as of September 30, 1995), a range of price to fully diluted
tangible book multiples of approximately 1.10x to 2.57x with a mean of 1.57x and
a median of 1.51x compared to a transaction multiple of 1.47x for the Bank
(using the fully diluted tangible book value of the Bank as of September 30,
1995) and a range of implied deposit premiums paid of approximately 2.84 percent
to 17.73 percent with a mean of 7.75 percent and a median of 8.44 percent
compared to a transaction premium of 4.48 percent for the Bank. This analysis
yielded an overall imputed reference range of aggregate value of the Bank of
$65.6 million to $451.0 million and an imputed reference range of aggregate
value of the Bank of $113.5 million to $278.2 million based on the mean and
median imputed ranges of selected transactions compared to a transaction value
of $175 million.
Comparison of Selected Companies. Merrill Lynch compared selected balance
sheet data, asset quality, capitalization and profitability ratios using
financial data at or for the twelve months ended September 30, 1995 and, as
appropriate, market data as of December 8, 1995 for the Bank to a group of
selected regional thrift holding companies which Merrill Lynch deemed to be
relevant, including CENFED Financial Corp., California Financial Holding
Company, First Republic Bancorp, Home Federal Financial Corp., InterWest Savings
Bank, Metropolitan Bancorp, Quaker City Banc., WesterFed Financial and Sterling
Financial Corp. (collectively, the "Regional Bank Composite"). This comparison
showed, among other things, that: (i) for the 12-month period ended September
30, 1995, the Bank's net interest margin was 3.03 percent compared to a mean of
2.55 percent for the Regional Bank Composite; (ii) for the 12-month period ended
September 30, 1995 the Bank's efficiency ratio (defined as non-interest expense
divided by the sum of non-interest income and net interest income before
provision for loan losses) was 61.18 percent compared to a mean of
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<PAGE> 38
66.45 percent for the Regional Bank Composite; (iii) for the 12-month period
ended September 30, 1995, the Bank's return on average assets was 0.39 percent
compared to a mean of 0.46 percent for the Regional Bank Composite; (iv) for the
12-month period ended September 30, 1995, the Bank's return on average equity
was 4.03 percent compared to a mean of 6.20 percent for the Regional Bank
Composite; (v) at September 30, 1995, the Bank's tangible equity to tangible
assets ratio was 6.76 percent compared to a mean of 7.35 percent for the
Regional Bank Composite; (vi) at September 30, 1995, the Bank's non-performing
loans to total loans ratio was 2.00 percent compared to a mean of 1.28 percent
for the Regional Bank Composite; (vii) at September 30, 1995, the Bank's
non-performing assets to total assets ratio was 1.31 percent compared to a mean
of 1.38 percent for the Regional Bank Composite; (viii) at September 30, 1995,
the Bank's loan loss reserves to non-performing assets ratio was 67.27 percent
compared to a mean of 55.62 percent for the Regional Bank Composite; (ix) at
September 30, 1995, the Bank's loan loss reserves to non-performing loans ratio
was 76.79 percent compared to a mean of 95.06 percent for the Regional Bank
Composite; (x) at September 30, 1995, the Bank's equity to assets ratio was 9.97
percent compared to a mean of 7.56 percent for the Regional Bank Composite; (xi)
at September 30, 1995, the Bank's Tier 1 capital ratio was 11.91 percent
compared to a mean of 13.15 percent for the Regional Bank Composite; (xii) at
September 30, 1995, the Bank's total risk based capital ratio was 13.11 percent
compared to a mean of 14.63 percent for the Regional Bank Composite; (xiii) at
December 8, 1995, the Regional Bank Composite's mean price per share to book
value per share at September 30, 1995 was 1.04x as compared to a transaction
multiple of 0.96x; (xiv) at December 8, 1995 the Regional Bank Composite's mean
price per share to tangible book value per share at September 30, 1995 was 1.10x
as compared to a transaction multiple of 1.47x; (xv) at December 8, 1995 the
Regional Bank Composite's mean price per share to latest twelve months earnings
per share at September 30, 1995 was 14.89x as compared to a transaction multiple
of 22.65x (using the Bank's annualized earnings for the nine months ended
September 30, 1995); and (xvi) at December 8, 1995, the Regional Bank
Composite's mean price per share to 1996 estimated earnings per share was 9.60x
as compared to a transaction multiple of 16.46x. The above comparisons showed
the Bank to have asset quality and capitalization ratios generally comparable to
the Regional Bank Composite and profitability ratios somewhat below the Regional
Bank Composite. Merrill Lynch did not compute any valuation or reference ranges
for the Bank based upon the trading multiples of the Regional Bank Composite.
In addition, Merrill Lynch compared selected balance sheet data, asset
quality, capitalization and profitability ratios using financial data at or for
the twelve months ended September 30, 1995 and, as appropriate, market data as
of December 8, 1995 for the Bank to a group of 67 selected nationwide thrift
holding companies which Merrill Lynch deemed to be relevant (collectively, the
"Nationwide Bank Composite"). This comparison showed, among other things, that:
(i) for the 12-month period ended September 30, 1995, the Bank's net interest
margin was 3.03 percent compared to a mean of 3.19 percent for the Nationwide
Bank Composite; (ii) for the 12-month period ended September 30, 1995 the Bank's
efficiency ratio (defined as non-interest expense divided by the sum of
non-interest income and net interest income before provision for loan losses)
was 61.18 percent compared to a mean of 58.50 percent for the Nationwide Bank
Composite; (iii) for the 12-month period ended September 30, 1995, the Bank's
return on average assets was 0.39 percent compared to a mean of 0.88 percent for
the Nationwide Bank Composite; (iv) for the 12-month period ended September 30,
1995, the Bank's return on average equity was 4.03 percent compared to a mean of
10.31 percent for the Nationwide Bank Composite; (v) at September 30, 1995, the
Bank's tangible equity to tangible assets ratio was 6.76 percent compared to a
mean of 8.95 percent for the Nationwide Bank Composite; (vi) at September 30,
1995, the Bank's non-performing loans to total loans ratio was 2.00 percent
compared to a mean of 1.93 percent for the Nationwide Bank Composite; (vii) at
September 30, 1995, the Bank's non-performing assets to total assets ratio was
1.31 percent compared to a mean of 1.38 percent for the Nationwide Bank
Composite; (viii) at September 30, 1995, the Bank's loan loss reserves to
non-performing assets ratio was 67.27 percent compared to a mean of 95.97
percent for the Nationwide Bank Composite;
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<PAGE> 39
(ix) at September 30, 1995, the Bank's loan loss reserves to non-performing
loans was 76.79 percent compared to a mean of 117.63 percent for the Nationwide
Bank Composite; (x) at September 30, 1995, the Bank's equity to assets ratio was
9.97 percent compared to a mean of 9.12 percent for the Nationwide Bank
Composite; (xi) at September 30, 1995, the Bank's Tier 1 capital ratio was 11.91
percent compared to a mean of 14.89 percent for the Nationwide Bank Composite;
(xii) at September 30, 1995, the Bank's total risk based capital ratio was 13.11
percent compared to a mean of 16.02 percent for the Nationwide Bank Composite;
(xiii) at December 8, 1995, the Nationwide Bank Composite's mean price per share
to book value per share at September 30, 1995 was 1.25x as compared to a
transaction multiple of 0.96x; (xiv) at December 8, 1995, the Nationwide Bank
Composite's mean price per share to tangible book value per share at September
30, 1995 was 1.29x as compared to a transaction multiple of 1.47x; (xv) at
December 8, 1995, the Nationwide Bank Composite's mean price per share to latest
twelve months earnings per share at September 30, 1995 was 13.87x as compared to
a transaction multiple of 22.65x (using the Bank's annualized earnings for the
nine months ended September 30, 1995); and (xvi) at December 8, 1995, the
Nationwide Bank Composite's mean price per share to 1996 estimated per share was
11.42x as compared to a transaction multiple of 16.46x. The above comparisons
showed the Bank to have asset quality and capitalization ratios generally
comparable to the Nationwide Bank Composite and profitability ratios somewhat
below the Nationwide Bank Composite. Merrill Lynch did not compute any valuation
or reference ranges for the Bank based upon the trading multiples of the
Nationwide Bank Composite.
No company or transaction used in the above analyses as a comparison is
identical to the Bank, or the contemplated transaction. Accordingly, an analysis
of the results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value or
merger and acquisition value of the companies to which they are being compared.
Mathematical analysis (such as determining the mean or median) is not, in
itself, a meaningful method of using comparable company or transaction data.
Mark-to-Market Analysis. Merrill Lynch evaluated the estimated market value
of key components of the Bank's balance sheet, including, among other things,
the Bank's investment securities and mortgage-backed securities portfolios and
loan portfolio. This analysis indicated a valuation of the Bank of approximately
$130.8 million before any adjustments for a premium related to deposits or
intangible assets not included on the Bank's balance sheet or any credit quality
related writedowns related to the portfolios analyzed.
In connection with its opinion dated as of the date of this Proxy
Statement, Merrill Lynch performed procedures to update, as necessary, certain
of the analyses described above. Merrill Lynch did not perform any analyses in
addition to those described above in connection with its issuance of its updated
opinion.
The Company and Merrill Lynch have entered into a letter agreement dated
September 22, 1995 relating to the services to be provided by Merrill Lynch in
connection with the Bank Sale. The Company has agreed to pay Merrill Lynch fees
as follows: (i) a cash retainer fee of $100,000 which was paid in September
1995; (ii) a cash fee of $500,000, which was paid upon execution of the Bank
Sale Agreement; and (iii) an additional cash fee equal to an amount based upon a
formula of 0.60 percent of the aggregate purchase price paid in the Bank Sale up
to $165 million plus 6 percent of the aggregate purchase price paid in the Bank
Sale above $165 million, excluding any additional taxes if the Bank Sale is
structured as a purchase of assets and an assumption of amounts attributable to,
less the fees paid pursuant to clauses (i) and (ii), payable at the Closing of
the Bank Sale. In such letter, the Company also agreed to reimburse Merrill
Lynch for its reasonable and necessary out-of-pocket expenses incurred in
connection with its advisory work, including the reasonable fees and
disbursements of its legal counsel, and to indemnify Merrill Lynch against
certain liabilities relating to or arising out of the Bank Sale, including
liabilities arising under the federal securities laws.
35
<PAGE> 40
Merrill Lynch has been retained by the Board of Directors as an independent
contractor to act as financial advisor to the Company with respect to the Bank
Sale. Merrill Lynch is a nationally recognized investment banking firm which,
among other things, regularly engages in the valuation of businesses and
securities, including banking institutions, in connection with mergers and
acquisitions. Merrill Lynch has in the past three years provided financial
advisory, investment banking and other services to the Company and Norwest and
has received customary fees for the rendering of such services. In addition, in
the ordinary course of its securities business, Merrill Lynch may actively trade
debt and/or equity securities of the Company and Norwest and their respective
affiliates for its own account and the accounts of its customers, and Merrill
Lynch, therefore, may from time to time hold a long or short position in such
securities.
MARKET INFORMATION
The high and low sales prices per share of the Company's Common Stock, as
reported on the New York Stock Exchange Composite Tape on January 8, 1996, the
last business day preceding public announcement of the Bank Sale Agreement and
on May 28, 1996, the last practicable date prior to the mailing of this Proxy
Statement, were $18.00 and $17.875 and $16.875 and $16.75, respectively.
36
<PAGE> 41
SELECTED FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial information for the Company. The income statement and balance sheet
data for the Company included in the selected financial data for each of the
five years in the period ended December 31, 1995, are derived from audited
consolidated financial statements for the Company for such five-year period. The
selected financial data for the twelve-month periods ended March 31, 1995 and
1996, are derived from the unaudited historical financial statements of the
Company. All financial information derived from unaudited financial statements
reflects, in the opinion of management of the Company, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such data. Results for the twelve months ended March 31, 1996,
are not necessarily indicative of the results that may be expected for any other
interim period or for the year as a whole. This information should be read in
conjunction with the consolidated financial statements of the Company and the
related notes thereto, included in documents incorporated herein by reference.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
SUMMARY CONSOLIDATED SELECTED FINANCIAL DATA
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------------- -------------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues... $ 548,333(1) $ 595,492 $ 563,502(2) $ 599,553 $ 539,105 $ 534,390 $ 565,010
Operating expenses... 488,211(1) 517,555 505,090(2) 510,863 461,423 448,815 498,753
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income..... $ 60,122(1) $ 77,937 $ 58,412(2) $ 88,690 $ 77,682 $ 85,575 $ 66,257
========== ========== ========== ========== ========== ========== ==========
Income from
continuing
operations......... $ 3,064(1) $ 16,240 $ 2,654(2) $ 23,524 $ 13,751(3) $ 32,214 $ 18,291
Income (loss) from
discontinued
operations,
net of tax......... (17,732)(4) 1,997 (17,536)(4) 2,777 1,655 (14,553)(5) (32,466)(5)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss).... $ (14,668) $ 18,237 $ (14,882) $ 26,301 $ 15,406 $ 17,661 $ (14,175)
========== ========== ========== ========== ========== ========== ==========
Net income (loss)
applicable to
common stock....... $ (14,880) $ 17,770 $ (15,189) $ 25,791 $ 14,665 $ 16,610 $ (15,500)
========== ========== ========== ========== ========== ========== ==========
Total assets at
period end......... $1,533,217 $1,443,860 $1,532,527 $1,453,582 $1,362,861 $1,265,380 $1,268,321
========== ========== ========== ========== ========== ========== ==========
Capitalization at
period end
Common equity...... $ 370,159 $ 362,284 $ 356,050 $ 348,556 $ 335,117 $ 329,444 $ 327,149
Preferred and
preference
stocks........... -- 4,000 -- 4,000 8,058 15,316 22,574
Trust originated
preferred
securities....... 60,000 -- 60,000 -- -- -- --
Long-term debt,
net.............. 612,666 682,286 607,945 678,263 568,600 589,883 464,042
---------- ---------- ---------- ---------- ---------- ---------- ----------
$1,042,825 $1,048,570 $1,023,995 $1,030,819 $ 911,775 $ 934,643 $ 813,765
========== ========== ========== ========== ========== ========== ==========
Common stock data
Return on average
common equity.... (4.0)% 5.2% (4.1)% 7.6% 4.4% 5.1% (4.6)%
Earnings (loss) per
share
Continuing
operations..... $ 0.12 $ 0.75 $ 0.10 $ 1.09 $ 0.63 $ 1.51 $ 0.83
Discontinued
operations..... (0.74) 0.09 (0.76) 0.13 0.08 (0.70) (1.59)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) per
share............ $ (0.62) $ 0.84 $ (0.66) $ 1.22 $ 0.71 $ 0.81 $ (0.76)
========== ========== ========== ========== ========== ========== ==========
Dividends paid per
share............ $ 0.82 $ 0.81 $ 0.82 $ 0.80 $ 0.74 $ 0.70 $ 1.05
Payout ratio....... N/A 96% N/A 66% 104% 86% N/A
Book value per
share at period
end.............. $ 14.97 $ 16.83 $ 14.55 $ 16.38 $ 15.96 $ 15.99 $ 15.88
Market value per
share at period
end.............. $ 17.25 14.75 $ 17.63 $ 14.13 $ 16.00 $ 13.75 $ 10.63
Market value per
share to book
value per
share............ 115% 88% 121% 86% 100% 86% 67%
</TABLE>
- - - - - - ---------------
(1) Record warm weather experienced in the southwest region of the country
during the 1995/1996 winter heating season reduced operating margin
approximately $29 million, pretax, compared to expected normal weather
results.
(2) Record-breaking warm weather in the Company's service territories during
1995 reduced operating margin approximately $28 million, pretax, compared to
expected normal weather results.
(3) In 1993, the Company wrote off $15.9 million in gross plant related to
Arizona pipe replacement programs. The impact of this write-off, net of
accumulated depreciation, tax benefits and other related items, was a
noncash reduction to consolidated net income and income from continuing
operations of $9.3 million, or $0.44 per share.
(4) Includes a $13 million, net of tax, loss on disposal recorded in 1995 and
$7.2 million, net of tax, for a proposed deposit insurance assessment.
(5) The Bank incurred pretax losses from real estate activities of $50.5 million
in 1991 and $15.3 million in 1992. The Bank no longer invests in real estate
held for development and has substantially divested its real estate
development portfolio.
- - - - - - ---------------
37
<PAGE> 42
PRO FORMA FINANCIAL INFORMATION
In January 1996, the Company entered into an agreement to sell all of the
outstanding common stock of the Bank to Norwest Corporation for $175 million. In
April 1996, Norwest elected to structure the acquisition as a purchase of
substantially all of the assets and liabilities of the Bank, rather than a stock
purchase, for approximately $191 million pursuant to an option in the original
agreement. It is estimated that the Company will be required to pay an
additional $16 million in income taxes by virtue of consummating the Bank Sale
as a purchase of assets and an assumption of liabilities. The consideration of
$191 million is therefore the economic equivalent to the Company of a sale of
stock of the Bank for $175 million.
The following Pro Forma Consolidated Balance Sheet reflects the financial
position of the Company as if the Bank Sale had been consummated as of March 31,
1996. The Pro Forma Consolidated Statements of Income reflect the operations of
the Company as if the Bank Sale had been consummated at the beginning of the
quarter ended March 31, 1996 and as if it had been consummated at the beginning
of the year ended December 31, 1995. The following pro forma financial
information is not necessarily indicative of the effects on the Company or the
results of its operations had the proceeds from the Bank Sale actually been
received on such dates.
The pro forma balance sheet reflects the receipt of $191 million, payment
of additional income taxes of $16 million, and the sale of net Bank assets of
$175 million and the distribution of the remaining proceeds of $175 million
($191 million gross sales price less additional income taxes of $16 million)
assuming such proceeds are utilized to pay previously accrued taxes and other
costs associated with the Bank Sale of $12 million and retire long-term debt
($120 million of current maturities and $43 million of other long-term debt at
March 31, 1996).
38
<PAGE> 43
The pro forma income statements reflect the estimated impact on interest
expense as if approximately $163 million of debt had been retired at the
beginning of each period by using the net proceeds from the Bank Sale. The
historical consolidated statements of income already reflect an allocation to
the Bank for interest on debt associated with discontinued operations. The
amount shown in the adjustments column for net interest deductions is net of
that allocation. Income taxes are provided at a rate of 40 percent.
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Utility plant
Gas plant............................................. $1,604,299 $ -- $1,604,299
Less: accumulated depreciation........................ (476,960) -- (476,960)
Acquisition adjustments............................... 6,189 -- 6,189
Construction work in progress......................... 25,888 -- 25,888
----------- --------- -----------
Net utility plant................................... 1,159,416 -- 1,159,416
----------- --------- -----------
Current assets
Cash and cash equivalents............................. 5,932 -- 5,932
Accounts receivable, net of allowances................ 43,446 -- 43,446
Accrued utility revenue............................... 28,071 -- 28,071
Deferred tax benefit.................................. 17,022 -- 17,022
Prepaids and other current assets..................... 27,300 -- 27,300
Net assets of discontinued operations................. 175,118 (175,000) 118
----------- --------- -----------
Total current assets................................ 296,889 (175,000) 121,889
----------- --------- -----------
Deferred charges and other assets....................... 76,912 -- 76,912
----------- --------- -----------
Total assets............................................ $1,533,217 $(175,000) $1,358,217
=========== ========= ===========
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock.......................................... $ 26,355 $ -- $ 26,355
Additional paid-in capital............................ 316,720 -- 316,720
Retained earnings..................................... 27,084 -- 27,084
----------- --------- -----------
Total common equity................................. 370,159 -- 370,159
Company-obligated mandatorily redeemable preferred
securities of Southwest Gas Capital I............... 60,000 -- 60,000
Long-term debt, less current maturities............... 612,666 (43,000) 569,666
----------- --------- -----------
Total capitalization................................ 1,042,825 (43,000) 999,825
----------- --------- -----------
Current liabilities
Current maturities of long-term debt.................. 120,000 (120,000) --
Short-term debt....................................... -- -- --
Accounts payable...................................... 49,294 -- 49,294
Accrued taxes......................................... 45,866 -- 45,866
Deferred purchased gas costs.......................... 34,900 -- 34,900
Other current liabilities............................. 59,668 (12,000) 47,668
----------- --------- -----------
Total current liabilities........................... 309,728 (132,000) 177,728
----------- --------- -----------
Deferred income taxes and other credits
Deferred income taxes and investment tax credits...... 140,044 -- 140,044
Other deferred credits................................ 40,620 -- 40,620
----------- --------- -----------
Total deferred income taxes and other credits....... 180,664 -- 180,664
----------- --------- -----------
Total capitalization and liabilities.................... $1,533,217 $(175,000) $1,358,217
=========== ========= ===========
</TABLE>
39
<PAGE> 44
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31, 1996
------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Gas operating revenues................................................. $188,352 $ -- $188,352
Net cost of gas........................................................ 78,469 -- 78,469
-------- ------- --------
Operating margin..................................................... 109,883 -- 109,883
-------- ------- --------
Operating expenses:
Operations and maintenance........................................... 47,211 -- 47,211
Depreciation and amortization........................................ 16,539 -- 16,539
Taxes other than income taxes........................................ 7,594 -- 7,594
-------- ------- --------
Total operating expenses........................................... 71,344 -- 71,344
-------- ------- --------
Operating income....................................................... 38,539 -- 38,539
-------- ------- --------
Other income and (expenses):
Net interest deductions.............................................. (12,953) 1,000(1) (11,953)
Preferred securities distributions................................... (1,369) -- (1,369)
Other income (deductions), net....................................... 79 -- 79
-------- ------- --------
Total other income and (expenses).................................. (14,243) 1,000 (13,243)
-------- ------- --------
Income from continuing operations before income taxes.................. 24,296 1,000 25,296
Income tax expense..................................................... 9,437 400(2) 9,837
-------- ------- --------
Income from continuing operations...................................... $ 14,859 $ 600 $ 15,459
======== ======= ========
Earnings per share from continuing operations.......................... $ 0.60 $ 0.03 $ 0.63
======== ======= ========
Average number of common shares outstanding............................ 24,604 24,604 24,604
======== ======= ========
</TABLE>
- - - - - - ---------------
(1) Reflects the impact of a reduction in average debt outstanding during the
quarter of approximately $163 million, offset by interest costs previously
accrued for discontinued operations.
(2) Income tax effect, at 40 percent, of the pro forma adjustments.
- - - - - - ---------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Gas operating revenues................................................. $563,502 $ -- $563,502
Net cost of gas........................................................ 227,456 -- 227,456
-------- ------- --------
Operating margin..................................................... 336,046 -- 336,046
-------- ------- --------
Operating expenses:
Operations and maintenance........................................... 187,969 -- 187,969
Depreciation and amortization........................................ 62,492 -- 62,492
Taxes other than income taxes........................................ 27,173 -- 27,173
-------- ------- --------
Total operating expenses........................................... 277,634 -- 277,634
-------- ------- --------
Operating income....................................................... 58,412 -- 58,412
-------- ------- --------
Other income and (expenses):
Net interest deductions.............................................. (53,354) 4,000(1) (49,354)
Preferred securities distributions................................... (913) -- (913)
Other income (deductions), net....................................... (652) -- (652)
-------- ------- --------
Total other income and (expenses).................................. (54,919) 4,000 (50,919)
-------- ------- --------
Income from continuing operations before income taxes.................. 3,493 4,000 7,493
Income tax expense..................................................... 839 1,600(2) 2,439
-------- ------- --------
Income from continuing operations...................................... $ 2,654 $ 2,400 $ 5,054
======== ======= ========
Preferred stock dividend requirements.................................. $ 307 $ -- $ 307
======== ======= ========
Earnings per share from continuing operations.......................... $ 0.10 $ 0.10 $ 0.20
======== ======= ========
Average number of common shares outstanding............................ 23,167 23,167 23,167
======== ======= ========
</TABLE>
- - - - - - ---------------
(1) Reflects the impact of a reduction in average debt outstanding during the
year of approximately $163 million, offset by interest costs previously
allocated to discontinued operations.
(2) Income tax effect, at 40 percent, of the pro forma adjustments.
- - - - - - ---------------
40
<PAGE> 45
TERMS OF THE BANK SALE
Upon consummation of the Bank Sale, the Bank will sell to a wholly owned
thrift subsidiary of Norwest (the "Purchaser"), and the Purchaser will purchase
from the Bank, substantially all of the assets and liabilities of the Bank,
other than certain assets and liabilities relating to taxes and real estate
development activities formerly conducted by the Bank and certain recorded
intangibles in exchange for the consideration described below.
CONSIDERATION FOR THE BANK SALE
Upon consummation of the Bank Sale, Norwest will pay to the Bank
$190,700,000 in cash, as such amount may be reduced by the after tax amount of
any purchase price reduction or increased by the after tax amount of any
purchase price increase. The amount of any purchase price reduction will be
determined by adding: (i) the amount of any Real Estate Liabilities paid in the
aggregate by the Bank or any subsidiary of the Bank which is not a Real Estate
Subsidiary (collectively, the "Bank Subsidiaries") subsequent to November 30,
1995 but on or prior to the Closing Date in excess of $1,205,000; and (ii) the
amount of any taxes paid by the Bank or any of the Bank Subsidiaries subsequent
to October 31, 1995 (other than for any taxes related to operations during that
period) in excess of $2,700,000. The amount of any purchase price increase will
be determined by adding: (i) any amounts received by the Bank or any of the Bank
Subsidiaries with respect to Margarita Village residential real estate
development project ("Margarita Village") or a parcel of vacant land located in
Reno, Nevada ("Stead Property") subsequent to November 30, 1995 and prior to the
Closing Date in excess of $530,428; and (ii) any amounts received by the Bank or
any of the Bank Subsidiaries subsequent to October 31, 1995 but on or prior to
the Closing Date with respect to tax refunds attributable to periods on or prior
to October 31, 1995 in excess of $2,568,921. As of the date of this Proxy
Statement, there would be no purchase price reduction or increase as a result of
these provisions.
The term "Real Estate Liabilities" is defined in the Bank Sale Agreement to
include all liabilities or obligations of the Bank or any of its subsidiaries
arising out of any real estate development activities of the Bank or any of its
affiliates, any real estate held for development, any Real Estate Subsidiary or
the ownership or operation of any Real Estate Subsidiary. The term "Real Estate
Subsidiary" is defined in the Bank Sale Agreement to include any interest or
investment of the Bank (whether in the form of debt, equity or otherwise) or any
subsidiary of the Bank that had engaged in real estate development activities.
On or prior to the Closing Date, the Company is required to pay Norwest a
certain amount in cash determined in accordance with the provisions of the Bank
Sale Agreement in exchange for certain deferred tax assets of the Bank which
will be retained by the Company. If the purchase of the Bank had occurred on
March 31, 1996, the purchase price for these assets would have been $616,510.
RETAINED ASSETS AND LIABILITIES
The Company will retain all real estate development assets of the Bank,
including Margarita Village, the Stead Property and the Real Estate
Subsidiaries, certain recorded intangibles, including general valuation
allowances, deferred profits and reserves related to the real estate development
activities of the Bank, and certain claims, refunds, credits or overpayments
with respect to any taxes paid or incurred by the Bank and its affiliates for
periods ending prior to the Closing Date. In addition, the Southwest Gas
Corporation Foundation will acquire the PriMerit Bank, Federal Savings Bank
Charitable Foundation.
The Company will also retain the Real Estate Liabilities and all
liabilities for taxes imposed on the Bank and its subsidiaries for any taxable
period (or portion thereof) that ends on or before the Closing Date.
The net book value of the assets and liabilities of the Bank to be retained
by the Company, including deferred tax assets, was $(218,282) at March 31, 1996.
41
<PAGE> 46
REPRESENTATIONS AND WARRANTIES
In the Bank Sale Agreement the Company makes representations and warranties
to Norwest regarding, among other things: (i) the corporate organization and
existence of the Company, SC, the Bank and each of the Bank Subsidiaries; (ii)
the ownership of the Bank stock by SC; (iii) insurance of branch deposits by the
Savings Association Insurance Fund; (iv) the corporate power and authority of
the Bank and each of the Bank Subsidiaries to carry on their respective
businesses as now being conducted and to own, lease and operate their respective
properties; (v) all equity interests of the Bank Subsidiaries being owned free
and clear of any encumbrances; (vi) the authorized capital stock of the Bank;
(vii) the corporate power and authority of the Company, SC and the Bank to
execute and deliver the Bank Sale Agreement and to consummate the transactions
contemplated thereby; (viii) the Bank Sale Agreement and the transactions
contemplated thereby not violating in any material respect applicable law,
contracts or the articles, charter or bylaws of the Company, SC and the Bank;
(ix) consents and approvals necessary in connection with the Bank Sale
Agreement; (x) title to the property used in the operation of the businesses of
the Bank and each of the Bank Subsidiaries; (xi) furniture, fixtures and
equipment of the Bank and each of the Bank Subsidiaries; (xii) leases and
contracts entered into by the Bank and each of the Bank Subsidiaries; (xiii)
environmental matters and liabilities; (xiv) the accuracy of certain financial
statements delivered to Norwest; (xv) the absence of violations of certain
material contracts; (xvi) the absence of undisclosed litigation or other
proceedings; (xvii) the absence of undisclosed liabilities; (xviii) the accuracy
of all filings made with governmental entities; (xix) the absence of certain
changes in the conduct of the business of the Bank and each of the Bank
Subsidiaries or any event since October 31, 1995 having or reasonably likely to
have a material adverse effect on the Bank and the Bank Subsidiaries taken as a
whole; (xx) the filing of all tax returns and payment or provision for payment
of all taxes incurred and the absence of any matter in controversy with respect
to payment of taxes that is reasonably likely to result in a determination
materially adverse to the Bank and the Bank Subsidiaries; (xxi) compliance with
applicable laws; (xxii) accuracy of disclosure of insurance policies and
indemnity bonds; (xxiii) the absence of agreements between the Company and
regulatory agencies; (xxiv) absence of undisclosed affiliate transactions; (xxv)
accuracy of disclosure regarding intellectual property owned by the Bank or any
of the Bank Subsidiaries and their unrestricted right to use the same; (xxvi)
the accuracy of the disclosure of loans or leases made or entered into by the
Bank and their status as legal, valid and binding obligations of the obligor
thereunder; (xxvii) the existence of all certifications, authorizations,
licenses, permits and other approvals necessary to conduct the business of the
Bank; (xxviii) accuracy of articles of incorporation, bylaws and minute books
delivered to Norwest; (xxix) employee benefit plans, employment and labor
contracts and related matters; (xxx) accuracy of disclosure regarding
investments of the Bank and each of the Bank Subsidiaries; (xxxi) absence of any
broker's or finder's fees other than that of Merrill Lynch; (xxxii) accuracy of
information provided to Norwest regarding bank accounts; and (xxxiii) absence of
any brokered deposits.
In the Bank Sale Agreement Norwest makes representations and warranties to
the Company regarding, among other things: (i) the corporate organization and
existence of Norwest and the Purchaser; (ii) the corporate power and authority
of Norwest and the Purchaser to execute and deliver the Bank Sale Agreement and
to consummate the transactions contemplated thereby; (iii) the Bank Sale
Agreement and the transactions contemplated thereby not violating in any
material respect applicable law, contracts or the certificate of incorporation
or bylaws of Norwest or the Purchaser; (iv) consents and approvals necessary in
connection with the Bank Sale Agreement; (v) sufficiency of funds of Norwest or
the Purchaser to enable it to carry out its obligations under the Bank Sale
Agreement; and (vi) the absence of any broker's or finder's fees.
Except for covenants relating to obligations to be performed after the
Closing and as otherwise described below, the respective representations,
warranties and covenants of the parties will survive for one year after the
Closing Date. The representations, warranties and covenants of the parties with
respect to taxes, insurance claims and the obligation of the Company to
reimburse SC
42
<PAGE> 47
and the Bank if SC or the Bank is unable to fulfill its indemnification
obligations will survive until expiration of the applicable statute of
limitations period (including any extensions thereof). Following termination of
the representations, warranties and covenants, no party will have any liability
to the other with respect thereto.
CONDITIONS TO THE BANK SALE
The obligations of the Company, SC, the Bank, Norwest and the Purchaser to
consummate the Bank Sale are subject to various conditions, including, but not
limited to: (i) the absence of any legal administrative, arbitration,
investigatory or other proceedings instituted (or pending) by any governmental
entity which prevents the consummation of the Bank Sale; (ii) the absence of any
injunctive order or decree of a court of competent jurisdiction restraining or
prohibiting the Bank Sale; (iii) the obtaining of all requisite regulatory
approvals described below; (iv) the satisfaction of all statutory or regulatory
requirements for valid consummation of the Bank Sale; (v) the obtaining of all
approvals and consents of any third party required in order to consummate the
Bank Sale; and (vi) the obtaining of approval of the principal terms of the Bank
Sale Agreement by the affirmative vote of the outstanding shares of the
Company's Common Stock.
The obligation of the Company and the Bank to consummate the Bank Sale is
subject to the satisfaction of the following conditions: (i) the representations
and warranties of Norwest contained in the Bank Sale Agreement being true in all
material respects as of the date thereof and on the Closing Date; (ii) Norwest
and the Purchaser having performed all obligations and complied with all
material covenants and conditions required by the Bank Sale Agreement to be
performed or complied with at or prior to the Closing Date; (iii) Norwest having
delivered to the Company a certificate dated the Closing Date and signed on
Norwest's behalf by its chief executive and principal financial officer to the
effects described in clauses (i) and (ii) above; (iv) Norwest having delivered
to the Company an opinion of counsel covering certain matters described in the
Bank Sale Agreement; (v) there not being imposed on the Company any conditions
to the consummation of the transactions contemplated by the Bank Sale Agreement
imposed by any governmental entity that are, individually or together with any
other condition, reasonably deemed by the Company in good faith to be
unreasonably burdensome upon the Company; and (vi) the Purchaser shall have duly
authorized, executed and delivered to the Bank an Assumption Agreement in the
form attached as an exhibit to the Bank Sale Agreement and such other documents
as may be required by the Bank Sale Agreement. The Company may waive
satisfaction of certain of the foregoing conditions.
The obligations of Norwest and the Purchaser to consummate the Bank Sale
are subject to the satisfaction of the following conditions: (i) the
representations and warranties of the Company and SC contained in the Bank Sale
Agreement being true in all material respects as of the date thereof and on the
Closing Date; (ii) the Company, SC and the Bank having performed all obligations
and complied with all material covenants and conditions required by the Bank
Sale Agreement to be performed or complied with at or prior to the Closing Date;
(iii) the Company, SC and the Bank having delivered to Norwest and the Purchaser
a certificate dated the Closing Date and signed on their respective behalf by
their respective chief executive officer and principal financial officer to the
effects described in clauses (i) and (ii) above; (iv) the Company having
delivered to Norwest opinions of counsel covering certain matters described in
the Bank Sale Agreement; (v) there not being imposed on Norwest any conditions
to the consummation of the transactions contemplated by the Bank Sale Agreement
imposed by any governmental entity that are, individually or together with any
other condition, reasonably deemed by Norwest in good faith to be unreasonably
burdensome upon Norwest; and (vi) the Bank having duly authorized, executed and
delivered to the Purchaser a Bill of Sale in the form attached as an exhibit to
the Bank Sale Agreement and such other documents as may be required by the Bank
Sale Agreement. Norwest may waive satisfaction of certain of the foregoing
conditions.
In addition, no event may have occurred or failed to occur after October
31, 1995 which has had or is reasonably expected to have any material adverse
effect on the Bank and the Bank Subsidiaries taken as a whole. A material
adverse effect will not be deemed to have occurred for
43
<PAGE> 48
these purposes as a result of: (i) any change in law, generally accepted
accounting principles or regulatory accounting principles, or the interpretation
thereof, that affects the thrift industry generally; (ii) any change in the
general level of interest rates, unless such change affects the Bank to a
materially greater extent than thrift institutions generally; (iii) any
assessment imposed on the Bank in connection with the recapitalization of the
Savings Association Insurance Fund or the Federal Deposit Insurance Corporation
("FDIC"); and (iv) the write-off of any goodwill on the books of the Bank and
the Bank Subsidiaries as a result of the execution of the Bank Sale Agreement.
REGULATORY APPROVALS
The following regulatory approvals, consents or filings must be obtained or
made, as the case may be, by the Company in connection with the Bank Sale prior
to the Closing Date: (i) approval from the Arizona Corporation Commission (the
"ACC") of the divestiture of the Bank; (ii) filing of notice of sale of the Bank
with the CPUC; (iii) consent of the FHLB to the Purchaser's assumption of FHLB
advances made to the Bank; and (iv) approval from the FHLB of an application to
permit transfer of FHLB capital stock owned by the Bank to the Purchaser. ACC
approval has been obtained.
The following regulatory notices, approvals, consents or filings must be
obtained or made, as the case may be, by Norwest in connection with the Bank
Sale prior to the Closing Date: (i) notice to the Federal Reserve Board of a
bank holding company to acquire control of a savings association; (ii) notice to
the Nevada Commissioner of Financial Institutions to acquire control of a Nevada
depository institution; (iii) notifications required under the Hart-Scott-Rodino
Antitrust Improvements Act; and (iv) approval from the OTS for a company
proposing to merge, consolidate with or acquire the assets of two or more
savings associations. Approvals of the Federal Reserve Board, the Nevada
Commissioner of Financial Institutions and the OTS have been obtained.
The following regulatory approvals, releases, consents or filings must be
obtained or made, as the case may be, by the Company in connection with the Bank
Sale after the Closing Date: (i) approval from the CPUC of the Company's
obligation to reimburse SC in certain circumstances if SC is unable to fulfill
its indemnification obligations to Norwest (see "-- Indemnification"); (ii)
approval from the FHLB for withdrawal or removal of the Bank as a member of the
FHLB; (iii) approval from the FDIC of voluntary termination of insured status of
the Bank; (iv) approval from the OTS of a voluntary dissolution plan of the
Bank; and (v) filing with the OTS of a request for release of the Company and SC
from registration as savings and loan holding companies. In addition, Norwest
must file a certificate of assumption of liability with the FDIC within 30 days
after the Closing Date. OTS approval of the Bank's voluntary plan of dissolution
has been obtained.
The approval of any application merely implies satisfaction of regulatory
criteria for approval, which does not include review of the Bank Sale from the
standpoint of the adequacy of the consideration to be received by, or fairness
to, shareholders. Regulatory approvals do not constitute an endorsement or
recommendation of the proposed Bank Sale.
Norwest and the Company are not aware of any governmental approvals or
compliance with banking or public utility laws and regulations that are required
for consummation of the Bank Sale other than those described above. Should any
other approval or action be required, it is presently contemplated that such
approval or action would be sought. There can be no assurance that any such
approval or action, if needed, could be obtained and, if such approvals or
actions, are obtained, there can be no assurance as to the timing thereof. The
Bank Sale cannot proceed in the absence of all requisite regulatory approvals
required to be obtained prior to the Closing Date.
CONDUCT OF BUSINESS PENDING BANK SALE
The Company has agreed in the Bank Sale Agreement to maintain its corporate
existence in good standing and to conduct the Bank's business in the ordinary
and usual manner, including the extension of credit in accordance with existing
lending policies, except that the Company has agreed not to allow the Bank to
make, without the prior written consent of Norwest, any new loan or
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increase the principal amount of any outstanding loan to a principal amount of
$2,000,000 or more or make any commitment for any such loan or increase. In the
Bank Sale Agreement, the Company has also agreed, among other things, that it
will not, without the prior written consent of Norwest, allow the Bank to: (i)
engage or participate in any material transaction, or incur or sustain any
material obligation, except in the ordinary course of business; (ii) except for
a branch to be constructed at Crossroads, in Henderson, Nevada, open, close or
relocate any branch or operating site, or acquire or sell or agree to acquire or
sell any branch or operating site; (iii) change its interest rate or fee pricing
policies, or materially alter the mix of rate, terms and account types, with
respect to branch deposits, other than in the ordinary course of business; (iv)
make or agree to make any improvements to its branches or operating sites,
except with respect to commitments made on or before the date of the Bank Sale
Agreement and normal maintenance and refurbishing made in the ordinary course of
business; (v) amend or cancel, or take any other action that may result in an
amendment or cancellation of, any lease or other material contract of the Bank
or any Bank Subsidiary, or enter into any material contract other than as
specifically permitted by the Bank Sale Agreement; (vi) foreclose upon or
acquire real property securing a loan except in accordance with the Bank's
customary policy; (vii) deviate from general policies of the Bank existing on
the date of the Bank Sale Agreement; (viii) change the Bank's method of
accounting except as required by applicable law or generally acceptable
accounting principles; (ix) except as required by applicable law, adopt, amend,
renew or terminate any employee benefit plan or employee program or increase or
modify the compensation of any officer, director or other employee except in the
ordinary course of business; (x) terminate or unilaterally fail to renew any
existing insurance coverage or bonds; (xi) amend or modify its charter or
bylaws; (xii) declare or pay any cash or property dividends, stock dividends or
other distributions of capital stock, rights or options, except as specifically
provided for in the Bank Sale Agreement; (xiii) merge or consolidate with any
other person; (xiv) make any redemption, purchase or acquisition of any of its
equity interests; (xv) make any capital expenditures not permitted by the Bank
Sale Agreement in amounts individually in excess of $50,000 or in the aggregate
in excess of $100,000; (xvi) make any investments or enter into any derivative
contracts, except in the ordinary course of business; (xvii) authorize or incur
any long term debt, except in the ordinary course of business; (xviii) mortgage
or pledge any of its assets, except in the ordinary course of business; (xix)
sell or dispose of assets of the Bank or the Bank Subsidiaries, except in the
ordinary course of business; or (xx) make any capital contribution to any
subsidiary of the Bank. Norwest Mortgage, Inc., a subsidiary of Norwest, will
commence the servicing of the Bank's loan portfolio on June 1, 1996.
The Bank Sale Agreement permits the Bank to pay a cash dividend to the
Company in an amount not to exceed $375,000 for the quarter ending June 30,
1996, if the Bank Sale is not consummated by that date. In addition, the Bank
Sale Agreement permits the Bank to pay dividends to the Company at a rate equal
to $1,000,000 for the month ending July 31, 1996, and $1,250,000 for each of the
months ending August 31, 1996 and September 30, 1996, if the Bank Sale is not
consummated by such dates. The maximum amounts which may be dividended by the
Bank to the Company are prorated for each day after July 1, 1996, that the
Closing Date does not occur.
CERTAIN COVENANTS
The Bank Sale Agreement provides that prior to the Closing Date, the
Company will or will cause the Bank to, as the case may be: (i) provide Norwest
and its representatives with reasonable access to all properties, documents,
accounts, books and records of the Bank and its subsidiaries and furnish Norwest
with any information reasonably requested; (ii) provide Norwest with reasonable
access to the Company's and the Bank's officers, employees, accountants, counsel
and other representatives; (iii) except as otherwise agreed by the Company and
Norwest, provide Norwest with Phase I environmental reports for each parcel of
real property owned by the Bank (all of which have been provided); (iv) obtain a
survey and assessment of all potential asbestos containing material in owned
properties and deliver a written report to Norwest (all of which have been
delivered); (v) cooperate with Norwest in preparing, submitting and filing
applications for, and taking required actions with respect to, all requisite
regulatory approvals in connection with the
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transactions contemplated by the Bank Sale Agreement (see "Regulatory
Approvals"); (vi) cooperate in obtaining consents or approvals of third parties
necessary or advisable to consummate the transactions contemplated by the Bank
Sale Agreement; (vii) furnish any information reasonably requested regarding
subsidiaries, directors, officers, shareholders and such other matters as may be
reasonably necessary or advisable in connection with any statement, filing,
notice or application; (viii) use reasonable efforts to obtain all approvals,
waivers and consents required to consummate the transactions contemplated by the
Bank Sale Agreement; (ix) consult with Norwest before issuing any press release
or otherwise making any public statements with respect to the Bank Sale
Agreement and the transactions contemplated thereby; (x) do all things
reasonably necessary or desirable and within its control to effect the
consummation of the transactions contemplated by the Bank Sale Agreement; (xi)
give prompt notice of the occurrence, or failure to occur, of any event, or the
existence of any condition, that would be likely to cause any of its
representations or warranties contained in the Bank Sale Agreement to be untrue;
(xii) give prompt notice of any material failure on the part of the Company to
comply with any covenant, condition or agreement contained in the Bank Sale
Agreement; (xiii) promptly furnish Norwest with copies of the minutes of each
meeting of the shareholder or directors of the Bank or the Bank Subsidiaries and
any material contract entered into by the Bank; (xiv) promptly provide Norwest
with copies of all regularly prepared monthly board reports and quarterly
financial statements of the Bank and the Bank Subsidiaries; (xv)at or prior to
the Closing, deliver to Norwest all records of the Bank and the Bank
Subsidiaries not otherwise located at a branch or other operating site; (xvi)
obtain the resignations, to be effective at the Closing, of the directors of the
Bank Subsidiaries; (xvii)use reasonable efforts to terminate certain employee
benefit plans and obtain consent of participants for any necessary lump sum
distributions in connection with such termination, at the sole cost and expense
of Norwest; (xviii) use reasonable efforts to amend or terminate certain
contracts as described in the Bank Sale Agreement, at the sole cost and expense
of Norwest; and (xix) call a meeting of the shareholders of the Company at which
the Board of Directors shall recommend shareholder approval of the principal
terms of the Bank Sale Agreement, and use its best efforts to solicit proxies in
favor thereof, except to the extent the Board determines that to do so would or
is likely to violate its fiduciary duty under applicable law.
The Company has agreed in the Bank Sale Agreement that neither it nor any
of its subsidiaries, nor any director, officer, representative, or agent of the
Company or any of its subsidiaries, will solicit, authorize the solicitation of,
or, except to the extent, based on advice of counsel, legally advisable for the
discharge of the fiduciary duties of the Board of Directors under applicable
law, enter into any discussions with any party other than Norwest concerning any
offer or possible offer (i) to purchase any shares of common stock, any option
or warrant to purchase any shares of common stock, any securities convertible
into any shares of such common stock, or any other equity security of the Bank;
(ii) to purchase, lease or otherwise acquire the assets of the Bank or any of
the Bank Subsidiaries except in the ordinary course of business; or (iii) to
merge, consolidate or otherwise combine with the Bank or any of the Bank
Subsidiaries (each an "Acquisition Event"). If any entity makes an offer or
inquiry to the Company or the Bank or any of the Bank Subsidiaries concerning
any of the foregoing, such offer or inquiry, including the terms thereof, must
be disclosed to Norwest.
The Bank Sale Agreement also provides that, prior to the Closing Date,
Norwest will or will cause the Purchaser to, as the case may be: (i) cooperate
with the Company, SC and the Bank in preparing, submitting and filing
applications for, and taking required actions with respect to, all requisite
regulatory approvals in connection with the transactions contemplated by the
Bank Sale Agreement (see "-- Regulatory Approvals"); (ii) cooperate with the
Company, SC and the Bank with respect to obtaining consents or approvals of
third parties necessary or advisable to consummate the transactions contemplated
by the Bank Sale Agreement; (iii) furnish to the Company all information
concerning Norwest required for inclusion in any application made by the Company
in connection with obtaining any requisite regulatory approvals; (iv) furnish
any information reasonably requested regarding subsidiaries, directors,
officers, shareholders and such other matters as
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may be reasonably necessary or advisable in connection with any statement,
filing, notice or application; (v) cooperate in obtaining consents or approvals
of third parties necessary or advisable to consummate the transactions
contemplated by the Bank Sale Agreement; (vi) consult with the Company before
issuing any press release or otherwise making any public statements with respect
to the Bank Sale Agreement and the transactions contemplated thereby; (vii) do
all things reasonably necessary or desirable and within its control to effect
the consummation of the transactions contemplated by the Bank Sale Agreement;
(viii) give prompt notice of the occurrence, or failure to occur, of any event,
or the existence of any condition, that would be likely to cause any of its
representations or warranties contained in the Bank Sale Agreement to be untrue;
(ix) give prompt notice of any material failure to comply with any covenant,
condition or agreement contained in the Bank Sale Agreement; and (x) employ each
employee who is employed by the Bank on the day before the Closing Date.
INDEMNIFICATION PROVISIONS
The Bank Sale Agreement provides that each of the Company, SC and the Bank,
as the case may be, will indemnify: (i) Norwest and the Purchaser for any loss
that Norwest may suffer to the extent arising out of any breach of any
representation or warranty made by the Company and SC pursuant to the Bank Sale
Agreement; and (ii) Norwest and the Purchaser for any loss that Norwest may
suffer to the extent arising out of any breach of any agreement to be performed
by the Company, SC and the Bank pursuant to the Bank Sale Agreement. The
Company, SC or the Bank, as the case may be, will not be required to indemnify
Norwest or the Purchaser with respect to these matters unless the aggregate of
all amounts for which indemnity would otherwise be payable exceed $1,000,000 and
will be responsible only for amounts in excess of $1,000,000 and not exceeding
$5,000,000. In addition, SC and the Bank have agreed to indemnify Norwest and
the Purchaser for any loss relating to or arising out of the Real Estate
Liabilities up to a maximum amount equal to $175,000,000.
The Bank Sale Agreement provides that Norwest and the Purchaser will
indemnify the Company, SC and the Bank: (i) for any loss that the Company, SC or
the Bank may suffer to the extent arising out of any breach of any
representation or warranty made by Norwest pursuant to the Bank Sale Agreement;
(ii) for any loss that the Company, SC or the Bank may suffer to the extent
arising out of any breach of any agreement to be performed by Norwest or the
Purchaser pursuant to the Bank Sale Agreement; and (iii) for any loss arising
out of the liabilities assumed by the Purchaser. Norwest and the Purchaser will
not be required to indemnify the Company, SC or the Bank in the circumstances
described in clauses (i) and (ii) above unless the aggregate of all amounts for
which indemnity would otherwise be payable exceed $1,000,000 and will be
responsible only for amounts in excess of $1,000,000 and not exceeding
$5,000,000. The obligations of Norwest described in clause (iii) above will in
no event exceed $175,000,000 less any amounts paid by the Purchaser with respect
thereto.
With regard to tax liabilities, the Bank Sale Agreement provides that SC
and, to the extent permitted by law, the Company and the Bank will indemnify
Norwest and the Purchaser against all taxes imposed with respect to the
purchased assets: (i) for any taxable year or period that ends on or before the
Closing Date; or (ii) with respect to any taxable year or period beginning
before and ending after the Closing Date, the portion of such taxable year or
period ending on and including the Closing Date, except to the extent such taxes
are accrued on the balance sheet of the Bank and the Bank Subsidiaries contained
in the financial statements as of October 31, 1995 and adjusted to reflect
certain payments, refunds or accruals.
The Company has agreed to reimburse SC or the Bank for any amount which SC
or the Bank is required to pay to Norwest under the terms of the Bank Sale
Agreement, but which SC or the Bank is unable to pay due to: (i) the payment of
a dividend or loan by SC or the Bank to the Company; (ii) the sale of SC or
transfer, merger, consolidation or dissolution of SC other than to or with the
Bank; or (iii) the encumbrance or disposition or any of SC's or the Bank's
assets in circumstances
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in which the proceeds of such sale, encumbrance or disposition are not retained
by SC or the Bank or used by SC or the Bank to satisfy their obligations.
In addition, the Bank Sale Agreement provides that Norwest will indemnify
the Company, SC and the Bank against all taxes imposed with respect to the
purchased assets for: (i) any taxable year or period that begins after the
Closing Date; and (ii) with respect to any taxable year or period beginning
before and ending after the Closing Date, the portion of such taxable year
beginning on the day after the Closing Date.
Except for covenants related to post-closing matters, certain taxes, Real
Estate Liabilities and liabilities assumed by the Purchaser, neither party will
have any liability for the breach of representations, warranties or covenants
after one year from the Closing Date.
TAX MATTERS
The Bank Sale Agreement provides that Norwest will be entitled to receive
any tax refunds related to the Bank or the Bank Subsidiaries which constitute
tax receivables accrued on the balance sheets of the Bank and the Bank
Subsidiaries as of October 31, 1995, with certain adjustments as provided in the
Bank Sale Agreement. Norwest is obligated to make payments for taxes accrued on
the balance sheets of the Bank and the Bank Subsidiaries as of October 31, 1995,
with certain adjustments as provided in the Bank Sale Agreement. All stamp,
transfer, documentary, sales, use, registration and other like taxes and fees
incurred in connection with the Bank Sale are required to be paid by Norwest.
The Bank Sale Agreement also provides that Norwest and the Purchaser will
cooperate with the Company with respect to tax matters arising prior to the
Closing Date in connection with: (i) preparation for audits of or disputes with
taxing authorities; (ii) provision of information reasonably requested by the
Company; and (iii) timely notice to the Company of pending or threatened audits.
In addition, Norwest, the Purchaser, the Bank, the Company and SC have agreed to
cooperate with each other in the preparation of tax returns and the sharing of
correspondence received from taxing authorities.
TERMINATION AND TERMINATION FEE
The Bank Sale Agreement provides that it may be terminated (i) by the
mutual consent of the parties to the Bank Sale Agreement; (ii) by the Company,
SC, the Bank or Norwest upon written notice to the other parties if any
regulatory agency or governmental entity having jurisdiction over the Bank Sale
refuses to grant approval or consent to any material aspect of the Bank Sale
unless such decision is appealed or an application to such governmental entity
is resubmitted; (iii) by the Company, SC or the Bank upon written notice to
Norwest if Norwest has not filed applications with the applicable governmental
entity for approval of the Bank Sale by March 22, 1996; (iv) by the Company, SC
and the Bank upon written notice to Norwest if an event occurs which makes it
impossible to satisfy by September 30, 1996, any of the conditions to the
obligations of the Company; (v) by Norwest upon written notice to the Company,
SC and the Bank if an event occurs which makes it impossible to satisfy by
September 30, 1996, any of the conditions to the obligations of Norwest; and
(vi) by Norwest upon written notice to the Company, SC and the Bank if the Bank
has not filed or attempted in good faith to file certain applications with
governmental entities by March 22, 1996.
The Bank Sale Agreement also provides that Norwest may terminate the Bank
Sale Agreement by written notice to the Company in the event: (i) (x) an
Acquisition Proposal is made, (y) the Board of Directors fails to recommend
shareholder approval of the principal terms of the Bank Sale Agreement or
withdraws or modifies such recommendation in a manner adverse to Norwest, and
(z) either the principal terms of the Bank Sale Agreement are not approved by
the affirmative vote of a majority of the shares of the Company's Common Stock
or the meeting of shareholders of the Company at which approval of the principal
terms of the Bank Sale Agreement is sought does not occur by August 16, 1996; or
(ii) the consummation of an Acquisition Proposal occurs prior to the termination
of the Bank Sale Agreement. Upon the giving of written notice of termination by
Norwest, the Company is required to pay to Norwest, within ten business days
after the receipt of
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such notice, the amount of $5,250,000 plus documented expenses incurred by
Norwest in connection with the Bank Sale Agreement up to the amount of
$1,250,000.
WAIVER AND AMENDMENT
The parties may, in writing, give any consent, amend the Bank Sale
Agreement or waive any inaccuracies in the representations and warranties of the
other party or compliance by the other party with any of the covenants and
conditions in the Bank Sale Agreement.
EXPENSES
Except as otherwise described below, Norwest and the Company will each pay
their own expenses in connection with the Bank Sale, including fees and expenses
of their respective accountants and counsel. The Bank Sale Agreement provides
that Norwest will reimburse the Company and SC for (i) any additional costs
incurred in connection with any transaction contemplated by Norwest after the
Bank Sale; and (ii) any documented out-of-pocket expenses incurred by the the
Company, SC or the Bank, with respect to the termination of any employee benefit
plans of the Bank or the modification, amendment or termination of any other
contracts of the Bank. In addition, Norwest has also agreed to pay the
additional costs incurred by the Company, SC or the Bank in connection with the
consummation of the Bank Sale as a purchase of assets and assumption of
liabilities rather than as a stock sale. Upon consummation of the Bank Sale, Mr.
Cheever will be entitled to certain payments to be made by Norwest, and such
payments will constitute expenses incurred by Norwest in connection with the
Bank Sale. For further information regarding such payments, see "EXECUTIVE
COMPENSATION AND BENEFITS -- Long-Term Incentive Plan Awards for 1995,"
"-- Benefit Plans" and "Change in Control Arrangement."
APPROVAL OF 1996 STOCK INCENTIVE PLAN
(ITEM 3 ON THE PROXY CARD)
At the Annual Meeting, shareholders will be asked to approve the Southwest
Gas Corporation 1996 Stock Incentive Plan (the "1996 Plan"), which was adopted
by the Board of Directors on March 5, 1996. The purpose of the 1996 Plan is to
promote the success of the Company and its subsidiaries by providing an
additional means through the grant of stock options to attract, retain, motivate
and reward key employees (including officers, whether or not directors) of the
Company and its related subsidiaries by providing incentives related to equity
interests in and the financial performance of the Company. In addition, the 1996
Plan includes an automatic award feature to attract, motivate and retain
experienced and knowledgeable outside directors through the grant of fixed
nonqualified stock options to them. The affirmative vote of a majority of the
shares represented at the Annual Meeting in person or by proxy is necessary to
approve the 1996 Plan.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE 1996 STOCK INCENTIVE
PLAN AS SET FORTH IN APPENDIX C TO THIS PROXY STATEMENT AS IN THE BEST INTEREST
OF THE COMPANY AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF THE COMPANY APPROVE THE 1996 STOCK INCENTIVE PLAN.
The material features of the 1996 Plan are summarized below. The following
summary is qualified in its entirety by reference to the full text of the 1996
Plan, which is set forth in Appendix C to this Proxy Statement. Capitalized
terms used herein and not otherwise defined have the meanings given to them in
the 1996 Plan.
ADMINISTRATION
The 1996 Plan will be administered by a subcommittee of the Nominating and
Compensation Committee (the "Committee") of the Board of Directors, which
consists of three or more members of the Board, each of whom is a
"Disinterested" director as such term is defined for purposes of Rule 16b-3
under the Exchange Act or "outside" as such term is defined for purposes of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
The Committee will have the authority to determine the specific terms and
conditions of such Options, including,
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without limitation, the number of shares subject to each Option, the price to be
paid for the shares and any other vesting criteria. The Committee will make all
other determinations necessary or advisable for the administration of the 1996
Plan.
ELIGIBILITY
Any officer (whether or not a director) or key employee of the Company or
its subsidiaries, as determined in the sole discretion of the Committee, is
eligible to be granted Options under the 1996 Plan.
The 1996 Plan also provides that each director who is not an officer or
employee of the Company or one of its subsidiaries (a "Non-Employee Director")
is automatically granted fixed nonqualified stock options described below (see
"-- Non-Employee Director Options").
SHARES AVAILABLE FOR AWARDS
The Committee determines the number of shares subject to each Option
granted to an employee and the terms and conditions of such Options, including
the price (if any) to be paid for the shares. The maximum number of shares of
Common Stock which may be delivered pursuant to Options granted during any
calendar year to any employee may not exceed 100,000 shares. In addition, the
maximum number of shares of Common Stock that may be delivered to Non-Employee
Directors pursuant to fixed awards may not exceed 350,000 shares.
The number and kind of shares available under the 1996 Plan are subject to
adjustment in the event of (i) certain reorganizations, mergers, combinations,
recapitalizations, stock splits, stock dividends, or other similar events which
change the number or kind of shares outstanding; or (ii) extraordinary dividends
or distribution of property to the shareholders. Shares relating to Options
which are not exercised or which expire or are canceled will again become
available for regrant and award purposes under the 1996 Plan to the extent
permitted by law.
The Company estimates that all officers of the Company will be among those
eligible to receive awards, subject to the discretion of the Committee to
determine the particular individuals who, from time to time, will be selected to
receive awards. The number of key employees of the Company and its Subsidiaries
who will be eligible to receive awards has not been determined at this time. In
addition, neither the individuals who are to receive awards, nor the number of
awards that will be granted to any individual or group of individuals have been
determined at this time.
VESTING AND OPTION PERIODS
Except as may be provided in an applicable Option Agreement, no Option made
under the 1996 Plan may be exercisable or may vest until at least six months
after the initial Option Date, and once exercisable an Option will remain
exercisable until the expiration or earlier termination of the Option. Each
Option made to an employee will expire on such date as is determined by the
Committee, but not later than ten years after the Option Date.
TRANSFERABILITY
The 1996 Plan provides, with limited exceptions, that rights or benefits
under any Option are not assignable or transferable except by will or the laws
of descent and distribution, and that only the participant (or, if the
participant has suffered a disability, his or her legal representative) may
exercise the Option during the participant's lifetime.
OPTIONS THAT MAY BE GRANTED UNDER THE 1996 PLAN TO EMPLOYEES
An Option is the right to purchase shares of Common Stock at a future date
at a specified price (the "Option Price"). The Option Price is generally the
closing price for a share of Common Stock ("Fair Market Value") reported on the
date of grant. On May 28, 1996, the closing price for a share of Common Stock as
reported on the New York Stock Exchange Composite Tape was $16.75.
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An Option granted to an employee may either be an incentive stock option,
as defined in the Code, or a nonqualified stock option. An incentive stock
option may not be granted to a person who owns more than 10 percent of the total
combined voting power of all classes of stock of the Company and its
Subsidiaries unless the Option Price is at least 110 percent of the Fair Market
Value of shares of Common Stock subject to the Option and such Option by its
terms is not exercisable after expiration of five years from the date such
Option is granted. The aggregate Fair Market Value of shares of Common Stock
(determined at the time the Option is granted) for which incentive stock options
may be first exercisable by an Option holder during any calendar year under the
1996 Plan or any other plan of the Company or its Subsidiaries may not exceed
$100,000.
Full payment for shares purchased on the exercise of any Option must be
made at the time of such exercise in: (i) cash; (ii) subject to the Committee's
approval, in shares of Common Stock having a Fair Market Value equal to the
Option Price; or (iii) by notice and third party payment in such manner as may
be authorized by the Committee. In addition, Option holders may be permitted to
offset or surrender stock or deliver already owned stock in satisfaction of
applicable tax withholding requirements.
OTHER MISCELLANEOUS PROVISIONS
ADJUSTMENTS; ACCELERATION
The 1996 Plan contains provisions relating to adjustments for changes in
the Common Stock upon certain specified events. The number and kind of shares
available under the 1996 Plan, as well as the number, kind and price of shares
subject to outstanding Options, is subject to adjustment in the event of a
reorganization, merger, sale of assets, recapitalization, stock split, stock
dividend, exchange offer or similar event.
The 1996 Plan also provides for full vesting and acceleration of Options
(subject to certain limitations) in the event of a "Change in Control Event"
affecting the Company. The Committee, however, prior to the Change in Control
Event, may determine that there will be no such acceleration of benefits. A
Change in Control Event is generally defined to include an acquisition by one
person (or group of persons) of at least 20 percent of the ownership of the
Company, the replacement of the majority of the members of the incumbent Board
of Directors (excluding replacement directors nominated by the incumbent Board),
or mergers and similar transactions which result in a 50 percent change in
ownership, subject to certain exceptions.
TERMINATION OF EMPLOYMENT
The Committee will establish in respect of each Option granted under the
1996 Plan to an employee the effect of a termination of employment on the rights
and benefits thereunder and in so doing may make distinctions based upon the
cause of termination.
TERMINATION OF OR CHANGES TO THE 1996 PLAN
The authority to grant new Options under the 1996 Plan will terminate on
March 4, 2006, unless the 1996 Plan is terminated prior to that time by the
Board of Directors. Such termination typically will not affect rights of
participants which accrued prior to such termination. The Board may, without
shareholder approval, suspend or amend the 1996 Plan at any time, and the
Committee may, with the consent of a holder, substitute Options or modify the
terms and conditions of an outstanding Option, to, among other changes, extend
the term (subject to maximum term limits), accelerate exercisability or vesting
or preserve benefits of the Option. However, the Committee may not, without
prior shareholder approval, reprice outstanding Options, or cancel and replace
such Options with Options having a lower exercise price. In addition, without
shareholder approval, the Board may not increase the maximum number of shares
which may be delivered pursuant to Options granted under the 1996 Plan,
materially increase the benefits accruing to participants under the 1996 Plan or
materially change the requirements as to the eligibility to participate in the
1996 Plan. Amendment of the 1996 Plan will not, without the consent of the
participant, adversely affect such person's rights under an Option previously
granted, unless the Option itself otherwise expressly so provides.
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NON-EMPLOYEE DIRECTOR OPTIONS
If the 1996 Plan is approved by the Company's shareholders, each person who
is then a Non-Employee Director will be granted automatically a nonqualified
stock option to purchase 3,000 shares of the Company's Common Stock. Each
Non-Employee Director who subsequently becomes a member of the Board of
Directors will also be granted a nonqualified stock option to purchase that
number of shares of Common Stock determined by multiplying 2,000 by a fraction,
the numerator of which is the number of days between the Option Date and the
next Annual Meeting of shareholders, and the denominator of which is 365. In
addition, on the date of each Annual Meeting of shareholders occurring during
the term of the 1996 Plan, commencing with the Annual Meeting of shareholders
occurring during 1997, each person who is a Non-Employee Director as of such
date will, subject to the limitations on shares available for Non-Employee
Director Awards described above, be granted automatically a nonqualified stock
option to purchase 2,000 shares of the Company's Common Stock.
The purchase price per share of Common Stock covered by each such Option
granted to a Non-Employee Director, payable in cash or shares of Common Stock,
will be the Fair Market Value of the Common Stock on the date the Option is
granted. Any previously owned shares used in payment of the exercise price must
have been owned by the Non-Employee Director at least six months prior to the
date of exercise. The Options will become exercisable in three installments as
follows: (i) 40 percent on the first anniversary of the Option Date; (ii) 30
percent on the second anniversary of the Option Date; and (iii) 30 percent on
the third anniversary of the Option Date. Unless earlier terminated, the Options
will expire 10 years after the date they are granted. The specific number of
shares specified above and the shares subject to outstanding Options (as well as
the exercise price) are subject to adjustment in certain circumstances specified
in the 1996 Plan. If an Option under the 1996 Plan is not exercised prior to the
time certain of such circumstances occur, the Option will terminate as provided
in the 1996 Plan.
In the event that a Non-Employee Director's service as a member of the
Board of Directors is terminated for any reason other than retirement, any
portion of an Option granted pursuant to Article 5 of the 1996 Plan which is not
exercisable will terminate and any portion of such Option which is then
exercisable will remain exercisable for two years after such service terminates
or until the expiration of the stated term of such Option, whichever occurs
first. If a Non-Employee Director retires (terminates service on or after age 65
and after ten years of service as a Director), all Options granted shall become
exercisable and may be exercised for two years after the date of retirement or
until the expiration of the stated term, whichever first occurs.
FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS UNDER THE 1996 PLAN
The federal income tax consequences of the 1996 Plan under current federal
law, which is subject to change, are summarized in the following discussion,
which deals with the general tax principles applicable to the 1996 Plan. State
and local tax consequences are beyond the tax scope of this summary.
NONQUALIFIED STOCK OPTIONS
No taxable income will be realized by an Option holder upon the grant of a
Nonqualified Stock Option under the 1996 Plan. When the holder exercises the
Nonqualified Stock Option, however, he or she will generally recognize ordinary
income equal to the difference between the Option price and the fair market
value of the shares at the time of exercise. The Company is generally entitled
to a corresponding deduction at the same time and in the same amounts as the
income recognized by the Option holder. Upon a subsequent disposition of the
Common Stock, the Option holder will realize short-term or long-term capital
gain or loss, depending on how long the Common Stock is held. The Company will
not be entitled to any further deduction at that time.
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INCENTIVE STOCK OPTIONS
An employee who is granted an Incentive Stock Option under the 1996 Plan
does not recognize taxable income either on the date of its grant or on the date
of its exercise, provided that, in general, the exercise occurs during
employment or within three months after termination of employment. However, any
appreciation in value of the Common Stock after the date of the grant will be
includable in the participant's federal alternative minimum taxable income at
the time of exercise in determining liability for the alternative minimum tax.
If Common Stock acquired pursuant to an Incentive Stock Option is not sold or
otherwise disposed of within two years from the date of grant of the Option nor
within one year after the date of exercise, any gain or loss resulting from
disposition of the Common Stock will be treated as long-term capital gain or
loss. If stock acquired upon the exercise of an Incentive Stock Option is
disposed of prior to the expiration of such holding periods (a "Disqualifying
Disposition"), the participant generally will recognize ordinary income at the
time of such Disqualifying Disposition equal to the difference between the
exercise price and the fair market value of the Common Stock on the date the
Incentive Stock Option is exercised or, if less, the excess of the amount
realized on the Disqualifying Disposition over the exercise price. Any remaining
gain or net loss is treated as a short-term or long-term capital gain or loss,
depending upon how long the Common Stock is held. Unlike the case in which a
Nonqualified Stock Option is exercised, the Company is not entitled to a tax
deduction upon either the grant or exercise of an Incentive Stock Option or upon
disposition of the Common Stock acquired pursuant to such exercise, except to
the extent that the employee recognizes ordinary income in a Disqualifying
Disposition.
SPECIAL RULES GOVERNING PERSONS SUBJECT TO SECTION 16(B)
Under the federal tax law, special rules may apply to participants in the
1996 Plan who are subject to the restrictions on resale of the Company's Common
Stock under Section 16(b) of the Exchange Act. These rules, which effectively
take into account the Section 16(b) restrictions, apply in limited circumstances
and may impact the timing or amount of income recognized by these persons with
respect to Options under the 1996 Plan.
ACCELERATED PAYMENTS
If, as a result of certain changes in control of the Company, a
participant's Options become immediately exercisable, the additional economic
value, if any, attributable to the acceleration may be deemed a "parachute
payment." The additional value generally will be deemed a parachute payment if
such value, when combined with the value of other payments which are deemed to
result from the change in control, equals or exceeds a threshold amount equal to
300 percent of the participant's average annual taxable compensation over the
five calendar years preceding the year in which the change in control occurs. In
such case, the excess of the total parachute payments over such participant's
average annual taxable compensation will be subject to a 20 percent non-
deductible excise tax in addition to any income tax payable. The Company will
not be entitled to a deduction for that portion of any parachute payment which
is subject to the excise tax.
SECTION 162(M) LIMITS
Notwithstanding the foregoing discussion with respect to the deductibility
of compensation under the 1996 Plan by the Company, Section 162(m) of the Code
would render non-deductible to the Company certain compensation to certain
employees required to be named in the Summary Compensation Table (i.e., the
Chief Executive Officer or one of the four other most highly compensated
executive officers of the Company, the "Executive Officers") in excess of
$1,000,000 in any year unless such excess compensation is "performance-based"
(as defined in the Code) or is otherwise exempt from these new limits on
deductibility. The applicable conditions of an exemption for performance-based
compensation plans include, among others, a requirement that the shareholders
approve the material terms of the plan. The Company believes that Options
granted (to the extent granted at a price not less than market price on the date
of grant) are exempt
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from such limits as performance-based compensation. However, in light of
uncertainties regarding its ultimate interpretation, no assurances can be given
that all compensation intended to so qualify will in fact be deductible, if the
nonqualifying amount should, together with other non-exempt compensation paid to
an Executive Officer, exceed $1,000,000. As of the date of this Proxy Statement,
no Executive Officer of the Company has ever received compensation in excess of
$1,000,000 in any year.
Shareholders should note that because Non-Employee Directors (subject to
re-election and CPUC and shareholder approval) may receive stock options under
this proposal, all current Non-Employee Directors of the Company may have a
personal interest in the proposal and its approval by shareholders. However, the
members of the Board of Directors believe that the Plan is in the best interests
of the Company and its shareholders.
APPROVAL OF AMENDMENT TO RESTATED ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
(ITEM 4 ON THE PROXY CARD)
At the Annual Meeting, shareholders will be asked to approve an amendment
to Article IV of the Company's Restated Articles of Incorporation increasing the
number of shares of Common Stock which the Company has the authority to issue
from 30,000,000 shares to 45,000,000 shares and, increasing the par value of
said number of shares which the Company is authorized to issue by $15,000,000.
The affirmative vote of a majority of the shares of the Company's Common Stock
outstanding on the Record Date is required to approve the proposed amendment.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AMENDMENT TO THE
COMPANY'S RESTATED ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK AS IN THE BEST INTERESTS OF THE COMPANY AND
ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY
APPROVE THIS AMENDMENT TO THE COMPANY'S RESTATED ARTICLES OF INCORPORATION.
As of May 23, 1996, there were 26,265,569 shares of Common Stock
outstanding and an aggregate of 1,265,109 shares of Common Stock reserved for
issuance under the Company's dividend reinvestment and stock purchase plan,
management incentive plan and the defined contribution pension plans offered by
the Company and its subsidiaries. Further, if the proposed 1996 Stock Incentive
Plan is adopted by shareholders at this Annual Meeting, an additional 1,500,000
shares of Common Stock will be reserved for issuance upon exercise of options
which may be granted thereunder.
The proposal to increase the number of shares of authorized Common Stock is
designed to ensure that the Company has the ability to issue Common Stock to
meet a portion of its ongoing capital requirements. The Company is one of the
fastest growing natural gas distribution companies in the country. The Company
desires to finance a portion of the additional plant and equipment to provide
service to its growing customer base through the issuance of Common Stock. The
increase in authorized shares of Common Stock will also ensure that shares would
be available, if needed, for issuance in connection with stock splits, stock
dividends, options, warrants, rights, acquisitions and other corporate purposes.
The Board of Directors believes that the availability of additional shares for
such purposes without delay or the necessity for a special shareholders meeting
would be beneficial to the Company.
No further action or authorization by the Company's shareholders would be
necessary prior to the issuance of the additional shares of Common Stock unless
required by applicable law or regulatory agencies or by the rules of any stock
exchange on which the Company's securities are listed. A shareholder vote is
generally required in connection with any transaction which requires an
amendment to the Company's Restated Articles of Incorporation, any merger or
sale of substantially all of the assets of the Company or any reorganization in
which the Company's shareholders would own less than five-sixths of the voting
power of the surviving corporation.
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The holders of any of the additional shares of Common Stock issued in the
future would have the same rights and privileges as the holders of the shares of
Common Stock currently authorized and outstanding. Those rights include
cumulative voting rights with respect to the election of directors, if certain
conditions are met, and exclude preemptive rights with respect to the future
issuance of any such additional shares.
Although the Board of Directors has no present intention of doing so, it
could issue shares of Common Stock that could make it more difficult or
discourage an attempt to obtain control of the Company by means of merger,
tender offer, proxy contest or other means. Such shares could be used to create
voting or other impediments or to discourage persons seeking to gain control of
the Company. Other measures previously approved by shareholders and the Board of
Directors that are designed to address change in control attempts are discussed
in Proposal 5 in this Proxy Statement. The nature of the Company's business,
which could also affect any change in control attempts, is also discussed in
Proposal 5.
While the Company may consider effecting an equity offering of Common Stock
in the proximate future for purposes of raising additional capital or otherwise,
the Company, as of the date hereof, has no immediate plans, arrangements,
commitments or understandings with respect to the issuance of any shares of such
stock.
APPROVAL OF AMENDMENT TO RESTATED ARTICLES OF INCORPORATION
TO AUTHORIZE A NEW CLASS OF PREFERRED STOCK
AND TO ELIMINATE AUTHORITY TO ISSUE SHARES OF PREFERRED STOCK
($50 PAR VALUE), CUMULATIVE PREFERRED STOCK ($100 PAR VALUE),
SECOND PREFERENCE STOCK ($100 PAR VALUE) AND SPECIAL COMMON STOCK
(ITEM 5 ON THE PROXY CARD)
At the Annual Meeting, the shareholders will be asked to approve a further
amendment to Article IV of the Company's Restated Articles of Incorporation to
create 5,000,000 shares of a new class of Preferred Stock and to eliminate
authority to issue shares of Preferred ($50 par value), Cumulative Preferred
Stock ($100 par value), Second Preference Stock ($100 par value) and Special
Common Stock. The complete text of the proposed amendment to Article IV,
including the increase in the number of shares of Common Stock discussed in
Proposal 4, is set forth in Appendix D to this Proxy Statement. No change is
being requested in the authorized number of shares of Preference Stock, all of
which are reserved for issuance under the Company's Shareholder Rights Plan, as
hereinafter described. The affirmative vote of a majority of the shares of the
Company's Common Stock outstanding on the Record Date is required to approve the
proposed amendment.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AMENDMENT TO THE
COMPANY'S RESTATED ARTICLES OF INCORPORATION AS SET FORTH IN APPENDIX D TO THIS
PROXY STATEMENT TO AUTHORIZE A NEW CLASS OF PREFERRED STOCK AND TO ELIMINATE
AUTHORITY TO ISSUE SHARES OF PREFERRED STOCK ($50 PAR VALUE), CUMULATIVE
PREFERRED STOCK ($100 PAR VALUE), SECOND PREFERENCE STOCK ($100 PAR VALUE) AND
SPECIAL COMMON STOCK AS IN THE BEST INTERESTS OF THE COMPANY AND ITS
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY
APPROVE THIS AMENDMENT TO THE COMPANY'S RESTATED ARTICLES OF INCORPORATION.
The creation of the new class of Preferred Stock is designed to provide
maximum flexibility to the Board of Directors to issue preferred stock to meet a
portion of the ongoing capital requirements of the Company. The Company is one
of the fastest growing natural gas distribution companies in the country. The
Company desires to finance a portion of the additional plant and equipment to
provide service to its growing customer base through the issuance of Preferred
Stock. Such stock would also ensure that Preferred Stock will be available, if
needed, for issuance in connection with stock splits, stock dividends, options,
warrants, rights, acquisitions and other corporate purposes.
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The designation, preferences, conversion rights, cumulative, relative,
participating, optional or other rights, including voting rights,
qualifications, limitations, or restrictions of the new class of Preferred Stock
are determined by the Board of Directors at the time of issuance. Except for the
preference over the Preference Stock and Common Stock, the Board will be
entitled to authorize the creation and issuance of 5,000,000 shares of Preferred
Stock in one or more series with such limitations and restrictions as may be
determined in the Board's sole discretion.
No further action or authorization by the Company's shareholders would be
necessary prior to the issuance of the shares of Preferred Stock, unless
required by applicable law or regulatory agencies or by the rules of any stock
exchange on which the Company's securities may be listed. A shareholder vote is
generally required in connection with any transaction which requires an
amendment to the Company's Restated Articles of Incorporation, any merger or
sale of substantially all of the assets of the Company or any reorganization in
which the Company's shareholders would own less than five-sixths of the voting
power of the surviving corporation.
Authority to issue 5,000,000 shares of the new class of Preferred Stock
eliminates the need for the continued authorization to issue shares of Preferred
($50 par value), Cumulative Preferred Stock ($100 par value), Second Preference
Stock ($100 par value) and Special Common Stock and simplifies the Company's
capital structure. Since there are no shares of such stock outstanding,
withdrawing the authorization to issue such stock will have no effect other than
the elimination of the designation and preference limitations that currently
exist.
Although the Board of Directors has no present intention of doing so, it
could issue shares of Preferred Stock that could, depending on the terms of such
series, make it more difficult or discourage an attempt to obtain control of the
Company by means of merger, tender offer, proxy contest or other means. Such
shares could be used to create voting or other impediments or to discourage
persons seeking to gain control of the Company. The existence of the additional
shares could have the effect of discouraging unsolicited change in control
attempts. As of this date, the Board is unaware of any specific effort to
accumulate the Company's shares or to obtain control of the Company by means of
merger, tender offer, solicitation in opposition to management or otherwise.
Other measures are designed specifically to address change in control
attempts. Article IV-A of the Restated Articles of Incorporation requires an
affirmative vote of the holders of not fewer than 85 percent of the outstanding
shares of the Company's Common Stock to approve or authorize any business
combination of the Company with any shareholder who beneficially owns 10 percent
or more of the outstanding shares of the Company's Common Stock, unless the
business combination is approved by the requisite vote of the Board. The Board
has also adopted a Shareholder Rights Plan (the "Rights Plan"), a summary of
which has been provided to shareholders of record on April 15, 1996 and included
in the Form 8-K filed by the Company on March 13, 1996. Exercise of the rights
granted under the Rights Plan to all shareholders could cause substantial
dilution to the beneficial owner of 20 percent or more of the Company's Common
Stock who is attempting to acquire the Company. Both measures are designed to
require such shareholders to negotiate with the Board in order to avoid the
supermajority voting requirements of Article IV-A of the Restated Articles of
Incorporation and the distribution of rights under the Shareholder Rights Plan.
Any attempt to acquire control of the Company would also be subject to
state and federal regulatory approvals. Since the Company is a regulated
utility, prior regulatory approvals would be required before any sale, merger or
consolidation of the Company could occur. The regulatory approval process,
though not designed to protect shareholder interests, would require disclosures
regarding the proposed sale, merger or consolidation and provide additional
opportunities to shareholders to evaluate any such action.
While the Company may consider effecting an equity offering of Preferred
Stock in the proximate future for purposes of raising additional capital or
otherwise, the Company, as of the date hereof, has no immediate plans,
arrangements, commitments or understandings with respect to the
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issuance of any shares of such stock. Therefore, the restrictions and
limitations of any series of Preferred Stock subject to this proposal cannot be
stated or estimated at this time.
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
(ITEM 6 ON THE PROXY CARD)
The Board of Directors has selected Arthur Andersen LLP as independent
public accountants for the Company for the year ending December 31, 1996,
subject to ratification by the shareholders. Arthur Andersen LLP has served as
independent public accountants for the Company since 1957. To the knowledge of
the Company, at no time has Arthur Andersen LLP had any direct or indirect
financial interest in or any connection with the Company or any of its
subsidiaries other than in connection with services rendered to the Company as
described below. The affirmative vote of a majority of the shares represented at
the Annual Meeting in person or by proxy is necessary to ratify the selection of
Arthur Andersen LLP as independent public accountants for the Company.
The selection of Arthur Andersen LLP by the Board of Directors was based on
the recommendation of the Audit Committee, which is composed wholly of outside
directors. The Audit Committee meets periodically with the Company's internal
auditors and independent public accountants to review the scope and results of
the audit function and the policies relating to auditing procedures. In making
its annual recommendation, the Audit Committee reviews both the audit scope and
estimated fees for the coming year. If the shareholders do not ratify this
appointment, other firms of certified public accountants will be considered by
the Board upon recommendation of the Audit Committee.
During 1995 the Company paid Arthur Andersen LLP for: (i) the examination
of the annual financial statements; (ii) reviews of unaudited quarterly
financial information; (iii) assistance and consultation in connection with
preparing various Securities and Exchange Commission ("SEC") filings; (iv) the
examination of the annual financial statements of the Company's employee benefit
plans; (v) consultation in connection with various tax and accounting matters;
and (vi) certain other professional services.
The Audit Committee approved the audit and other professional services and
considered the costs of all such services and what effect, if any, performance
of the other professional services might have on the independence of the
accountants.
Representatives of Arthur Andersen LLP will be present at the Annual
Meeting of shareholders. They will have the opportunity to make statements, if
they are so inclined, and will be available to respond to appropriate questions.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1995 some directors and executive officers of the Company were
depositors of, and had transactions with the Bank. These transactions were on
the same terms (including interest rates, repayment terms and collateral) as
those prevailing at the time for comparable transactions with other persons of
similar credit and, in the opinion of the Board of Directors of the Bank, do not
involve more than a normal risk of collectibility or other unfavorable
characteristics.
OTHER MATTERS TO COME BEFORE THE MEETING
If any business not described herein should come before the meeting for
shareholder action, it is intended that the shares represented by proxies will
be voted in accordance with the best judgment of the persons voting them. At the
time this proxy statement was mailed, the Company knew of no other matters which
might be presented for shareholder action at the meeting.
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SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholders are advised that any shareholder proposal intended for
consideration at the 1997 Annual Meeting must be received in writing by the
Company on or before December 2, 1996, to be considered for inclusion in the
proxy materials for the 1997 Annual Meeting. All proposals must comply with
applicable SEC rules. It is recommended that shareholders submitting proposals
direct them to the Corporate Secretary of the Company and utilize Certified
Mail-Return Receipt Requested in order to ensure timely delivery.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT INCORPORATES BY REFERENCE DOCUMENTS THAT ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS, EXCLUDING EXHIBITS,
UNLESS SPECIFICALLY INCORPORATED THEREIN, ARE AVAILABLE WITHOUT CHARGE, UPON
WRITTEN OR ORAL REQUEST, TO GEORGE C. BIEHL, SENIOR VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER, SOUTHWEST GAS CORPORATION, 5241 SPRING MOUNTAIN ROAD, P.O.
BOX 98510, LAS VEGAS, NEVADA 89193-8510, TELEPHONE NUMBER (702) 876-7237. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
JULY 9, 1996.
The following documents filed with the SEC by the Company (File No. 1-7850)
pursuant to the Exchange Act are incorporated by reference in this Proxy
Statement.
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1995;
2. The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996; and
3. The Company's Current Reports on Form 8-K dated January 8, 1996,
February 14, 1996, March 5, 1996 and May 2, 1996.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14, or 15(d) of the Exchange Act subsequent to the date hereof and
prior to the meeting shall be deemed to be incorporated by reference herein and
to be a part hereof from the date of such filing. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes hereof to the extent that a
statement contained herein or in any other subsequently filed document that also
is, or is deemed to be, incorporated by reference herein modifies or supersedes
such statement. Any such statement as modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part hereof.
By Order of the Board of Directors
[SIG]
Thomas J. Trimble
Senior Vice President/General Counsel
and Corporate Secretary
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APPENDIX A
AGREEMENT
BETWEEN
SOUTHWEST GAS CORPORATION, A CALIFORNIA CORPORATION
THE SOUTHWEST COMPANIES, A NEVADA CORPORATION
PRIMERIT BANK, FEDERAL SAVINGS BANK, A FEDERAL SAVING BANK
AS SELLERS
AND
NORWEST CORPORATION, A DELAWARE CORPORATION
AS BUYER
DATED AS OF
APRIL 10, 1996
<PAGE> 64
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1. DEFINITIONS.......................................................... A-1
1.1 Definitions.......................................................... A-1
1.2 Construction and Interpretation...................................... A-8
ARTICLE 2. PURCHASE AND ASSUMPTION.............................................. A-8
2.1 Assets to Be Sold.................................................... A-8
2.2 Assumed Liabilities.................................................. A-8
2.3 Purchase and Assumption Price........................................ A-8
ARTICLE 3. THE CLOSING.......................................................... A-10
3.1 Closing.............................................................. A-10
3.2 Deliveries by Sellers and Bank....................................... A-10
3.3 Deliveries by Buyer and Purchaser.................................... A-10
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF SELLERS............................ A-10
4.1 Organization and Related Matters..................................... A-10
4.2 Authority; No Violation.............................................. A-11
4.3 Consents and Approvals............................................... A-12
4.4 Title to Property.................................................... A-12
4.5 Financial Statements................................................. A-12
4.6 Material Contracts................................................... A-13
4.7 Legal or Other Proceedings........................................... A-13
4.8 Undisclosed Liabilities.............................................. A-13
4.9 Reports and Filings.................................................. A-13
4.10 Absence of Certain Changes or Events................................. A-14
4.11 Taxes and Tax Returns................................................ A-14
4.12 Compliance with Applicable Law....................................... A-15
4.13 Insurance............................................................ A-15
4.14 Agreements with Regulatory Agencies.................................. A-15
4.15 Affiliate Transactions............................................... A-15
4.16 Intellectual Property................................................ A-15
4.17 Loan Portfolio....................................................... A-15
4.18 Mortgage Banking Licenses and Qualifications......................... A-16
4.19 Payment of Taxes, Insurance Premiums, etc. .......................... A-16
4.20 Minute Books......................................................... A-16
4.21 Employee Benefit Plans and Employment and Labor Contracts............ A-16
4.22 Investments.......................................................... A-17
4.23 Broker's or Finder's Fees............................................ A-17
4.24 Bank Accounts........................................................ A-18
4.25 Deposits............................................................. A-18
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF BUYER.............................. A-18
5.1 Organization and Related Matters..................................... A-18
5.2 Authority; No Violation.............................................. A-18
5.3 Consents and Approvals............................................... A-19
5.4 Financing; Capital................................................... A-19
5.5 Broker's or Finder's Fees............................................ A-19
5.6 Proxy Statement...................................................... A-19
</TABLE>
A-i
<PAGE> 65
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 6. COVENANTS............................................................ A-19
6.1 Access............................................................... A-19
6.2 Conduct of Business of Bank.......................................... A-20
6.3 Regulatory Approvals; Consents of Third Parties...................... A-22
6.4 Public Announcements................................................. A-23
6.5 Further Assurances................................................... A-23
6.6 Notification of Certain Matters...................................... A-23
6.7 Corporate Records, Contracts and Financial Statements................ A-24
6.8 Delivery of Records at Closing....................................... A-24
6.9 Shareholder Approval................................................. A-24
6.10 Resignations......................................................... A-24
6.11 Taxes................................................................ A-24
6.12 Termination and Amendment of Certain Employee Benefit Plans.......... A-25
6.13 Amendment of Contracts............................................... A-25
6.14 Employees............................................................ A-25
ARTICLE 7. CONDITIONS TO CLOSING................................................ A-25
7.1 Reciprocal Conditions................................................ A-25
7.2 Conditions to Buyer's Obligations.................................... A-26
7.3 Conditions to Sellers' Obligations................................... A-26
ARTICLE 8. TAX MATTERS.......................................................... A-27
8.1 Liability for Taxes.................................................. A-27
8.2 Survival............................................................. A-27
8.3 Transfer Taxes....................................................... A-27
8.4 Tax Cooperation...................................................... A-28
ARTICLE 9. TERMINATION/SURVIVAL/INDEMNIFICATION/TERMINATION FEE................. A-28
9.1 Termination.......................................................... A-28
9.2 Survival of Representations and Warranties........................... A-29
9.3 Indemnification...................................................... A-29
9.4 Confidentiality Agreement............................................ A-30
9.5 Limitations on Dividends from SC, Etc................................ A-30
9.6 Insurance Claims..................................................... A-30
9.7 Termination Fee...................................................... A-31
ARTICLE 10. EMPLOYEE BENEFIT PLANS............................................... A-31
ARTICLE 11. MISCELLANEOUS........................................................ A-32
11.1 Expenses; Attorneys' Fees............................................ A-32
11.2 Amendments........................................................... A-33
11.3 Schedules; Exhibits.................................................. A-33
11.4 Integration.......................................................... A-33
11.5 Governing Law........................................................ A-33
11.6 Notices.............................................................. A-33
11.7 No Assignment........................................................ A-34
11.8 Headings............................................................. A-34
11.9 Counterparts......................................................... A-34
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
11.10 Severability......................................................... A-34
11.11 Alternative Dispute Resolution....................................... A-34
EXHIBITS
Exhibit A Assumption Agreement
Exhibit B Bill of Sale
Exhibit C-1 Matters to be Covered in Opinion of O'Melveny & Myers
Exhibit C-2 Matters to be Covered in Opinion of Counsel to Sellers
Exhibit D Matters to be Covered in Opinion of Counsel to Buyer
</TABLE>
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AGREEMENT
This AGREEMENT (this "Agreement"), dated as of April 10, 1996, is entered
into by and among SOUTHWEST GAS CORPORATION, a California corporation
("Parent"), THE SOUTHWEST COMPANIES, a Nevada corporation ("SC"), PRIMERIT BANK,
FEDERAL SAVINGS BANK, a federal savings bank ("Bank"), and NORWEST CORPORATION,
a Delaware corporation ("Buyer"). SC and Parent are collectively referred to
herein as "Sellers" and sometimes individually as a "Seller."
R E C I T A L S :
A. Parent owns all the capital stock of SC.
B. SC owns all of the capital stock of Bank.
C. Buyer desires to acquire certain of the assets, properties and business
of the Bank and assume certain liabilities of the Bank related to such assets,
all of which assets and liabilities, taken together, constitute substantially as
an entirety a going concern, pursuant to and in accordance with the terms and
conditions of this Agreement and Sellers desire to cause Bank to sell and
transfer to a wholly-owned bank or thrift subsidiary of Buyer to be acquired or
to be formed by Buyer after the date hereof (the "Purchaser") certain of the
assets, properties and business of the Bank, pursuant to and in accordance with
the terms and conditions of this Agreement (such asset purchase and liability
assumption pursuant to the terms of this Agreement being referred to as the
"Purchase and Assumption").
In consideration of the mutual promises and covenants contained herein, and
of other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
ARTICLE 1.
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following definitions
shall apply:
"ACQUISITION AGREEMENT" means the Agreement, dated as of January 8, 1996,
among Parent, Bank and Buyer to which this Agreement is attached as Appendix A.
"ACQUISITION EVENT" has the meaning given such term in Section 6.9.
"ACQUISITION PROPOSAL" has the meaning given such term in Section 6.9.
"AFFILIATE" means any Person directly or indirectly controlling, controlled
by, or under common control with, the subject entity through the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such entity whether through the ownership of voting
securities, by contract or otherwise. Without limiting the foregoing, the
ownership, direct or indirect, of a 25 percent interest in such entity shall be
deemed to be control.
"AFFILIATED GROUP" means any affiliated group within the meaning of Section
1504 of the Code or any similar group defined under a similar provision of
state, local or foreign law, including any consolidated, unitary or combined
group of companies.
"AGENCY" means HUD, FHA, VA, GNMA, FNMA or FHLMC, as applicable.
"AGREEMENT" means this Agreement by and among Sellers, Bank and Buyer, as
amended or supplemented, together with all Exhibits and Schedules, incorporated
by reference or referred to herein.
"APPLICABLE LAW" means any domestic, federal, state or local statute, law,
ordinance, rule, administrative interpretation, regulation, order, writ,
injunction, directive, judgment, decree, policy, guideline or other requirement
of any Governmental Entity applicable to Buyer, Purchaser, Sellers, Bank or the
Subsidiaries.
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"ASSUMED LIABILITIES" means all Branch Deposits and all other obligations
and liabilities, whether actual or contingent, or known or unknown, of Bank as
of the Closing Date (except Retained Liabilities).
"ASSUMPTION AGREEMENT" means the assumption agreement in substantially the
form of Exhibit A.
"ATM" means all automated teller machines owned and currently being used by
Bank.
"BANK REGULATOR" means, one or more of the following, as applicable: the
OTS, the FDIC, the Federal Reserve Board, the Office of the Comptroller of the
Currency and the Nevada Commissioner of Financial Institutions.
"BANK SUBSIDIARIES" means PriMerit Investor Services, BSF Trustee, First
Nevada Company, and Home Trustee, Inc.
"BILL OF SALE" means the bill of sale in substantially the form of Exhibit
B.
"BRANCH DEPOSITS" mean all deposits as defined in Section 3(1) of the
Federal Deposit Insurance Act, as amended (12 USC sec. 1831(1)), at the
Branches.
"BRANCHES" mean each of the branches, loan production offices, other
banking offices and ATMs of Bank, all of which are listed on Schedule 1.1(a).
"BUSINESS DAY" means any day other than a Saturday, a Sunday, or a day on
which banks in the state of Nevada or Minnesota are generally closed for regular
banking business.
"CLOSING" means the consummation of the transactions contemplated by this
Agreement.
"CLOSING DATE" means the date and time of the Closing.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement dated
November 29, 1995, between Parent and Buyer.
"CONTRACT" or "CONTRACTS" means any rights and interests arising under or
in connection with any agreement, arrangement, bond, commitment, franchise,
guarantee, indemnity, indenture, instrument, lease, license or understanding,
whether written or oral that will be included in the Purchased Assets.
"DPC PROPERTY" means any voting securities, other personal property or real
property acquired by Bank or a Bank Subsidiary by foreclosure or otherwise, in
the ordinary course of collecting a debt previously contracted in good faith,
retained with the object of sale for a period not longer than the applicable
statutory holding period and recorded in Bank's business records as such.
"EMPLOYEE BENEFIT PLANS" mean all employee benefit plans (as defined in
Section 3(3) of ERISA) maintained or contributed to by Bank and in which the
Employees participate, all of which are listed on Schedule 1.1(b).
"EMPLOYEE PROGRAMS" mean all of Bank's payroll practices, personnel
policies, contracts, plans, and arrangements, if any, providing for bonuses,
deferred compensation, retirement payments, profit sharing, incentive pay,
commissions, vacation pay or other benefits in which any Employees or their
dependents participate, and all employment, severance or other agreements with
any director of the Bank or any Bank Subsidiary or any Employee, all of which
are listed on Schedule 1.1(b).
"EMPLOYEES" mean employees of Bank and the Bank Subsidiaries (including any
such employees on leave or disability who return to work within three months
after the initial date of leave or disability).
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"ENCUMBRANCE" means any lien, pledge, security interest, claim, charge,
easement, limitation, commitment, encroachment, restriction or encumbrance of
any kind or nature whatsoever.
"ENVIRONMENTAL LAW" means the federal Clean Water Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Superfund Amendment and Reauthorization Act,
the Safe Drinking Water Act and the Toxic Substances Control Act, each as
amended to the date hereof or any regulations thereunder, or any other
Applicable Law relating to (a) the discharge, spill, disposal, emission, or
other release of any Hazardous Substance; (b) any injury to or death of
individuals or damage to or loss of property caused by or resulting from the
presence of Hazardous Substances; or (c) the generation, storage, handling,
location, disposal or arranging for disposal of Hazardous Substances.
"EQUITY INTERESTS" mean capital stock, partnership interests (limited or
general), joint venture interests or other equity interests or any securities or
other equity interests convertible into or exchangeable for any of the foregoing
or any other rights, warrants or options to acquire or vote any of the
foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCLUDED ASSETS" means collectively: (i) any claims, refunds, credits or
overpayments with respect to any Taxes paid or incurred by the Bank and its
Affiliates, or any related interest received from the relevant taxing authority
for periods ending prior to the Closing Date, and the appropriately prorated
portion thereof for periods commencing prior to the Closing Date and ending on
or after the Closing Date; (ii) the rights of the Sellers and Bank under this
Agreement and the Related Documents, including but not limited to the right to
receive the Purchase Price; (iii) any tax sharing agreement between Bank on the
one hand and Sellers or the Real Estate Subsidiaries on the other hand and any
other Contract (except depository contracts between the Bank or the Bank
Subsidiaries and Sellers and the Real Estate Subsidiaries) between the Bank on
the one hand and Sellers and the Subsidiaries (other than the Bank Subsidiaries)
on the other hand and any claims of the Bank or the Bank Subsidiaries
thereunder; (iv) the Real Estate Subsidiaries; (v) the recorded intangibles
reflected on Schedule 1.1(c); (vi) the Margarita Village Lien, the Stead Real
Property described on Schedule 1.1(d) and the assets and liabilities reflected
on Schedule 1.1(e); (vii) the assets of PriMerit Bank, Federal Savings Bank
Charitable Foundation; and (viii) the Bank's charter, non-transferable
franchises, licenses, permits, authorizations and memberships, corporate seals,
minute books, stock books and other corporate records having to do with the
corporate organization and capitalization of Bank and all income tax records;
provided, however, that copies of such corporate and tax reports shall be
provided to Buyer at Buyer's request; (ix) Bank's books of accounts; provided,
however, that copies of such books of accounts shall be provided to Buyer at
Buyer's request; and (x) all corporate records of Bank with respect to the
Excluded Assets set forth in clauses (i) through (ix) hereof.
"FEDERAL RESERVE BOARD" means the Board of Governors of the Federal Reserve
System.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHA" means the Federal Housing Administration.
"FHA LOANS" mean Loans which satisfy all applicable rules and requirements
to be insured by FHA and which are insured by FHA.
"FHLB" means the Federal Home Loan Bank of San Francisco.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"FILINGS" mean all reports, returns, registrations and statements, together
with any amendments required to be made with respect thereto, that were required
to be filed with (a) the OTS, including, but not limited to, thrift financial
reports, annual reports and proxy statements, (b) the FDIC, and (c) any other
applicable Governmental Entity, including taxing authorities, except where the
failure to file such reports, returns, registrations and statements has not had
and is not reasonably expected to have a material adverse effect on Bank and the
Bank Subsidiaries taken as a whole.
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"FINAL TERMINATION DATE" means September 30, 1996.
"FINANCIAL STATEMENTS" mean the financial statements of Bank and the
Subsidiaries described in Section 4.5.
"FNMA" means the Federal National Mortgage Association.
"GAAP" means generally accepted accounting principles as used in the United
States of America as in effect at the time any applicable financial statements
were prepared or any act requiring the application of GAAP was performed.
"GNMA" means the Government National Mortgage Association.
"GOVERNMENTAL ENTITY" means any court, administrative agency or commission
or other governmental authority or instrumentality, including, without
limitation, each Bank Regulator, the SEC, the California Public Utilities
Commission and the Arizona Corporation Commission.
"HAZARDOUS SUBSTANCES" mean (a) substances that are defined or listed in,
or otherwise classified pursuant to, any Applicable Laws as "hazardous
substances," "hazardous materials," "hazardous wastes," "toxic substances," or
any other formulation intended to define, list or classify substances by reason
of deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, reproductive toxicity, or "EP Toxicity;" (b) oil petroleum or
petroleum derived substances and drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources; (c) any flammable substances or
explosives, any radioactive materials, any hazardous wastes or substances, any
toxic wastes or substances or any other materials or pollutants which pose a
hazard to DPC Property or any other property of Bank or any Bank Subsidiary or
to persons on or about such property; and (d) asbestos, other than non-friable
asbestos, or electrical equipment which contains any oil or dielectric fluid
containing levels of polychlorinated biphenyls in excess of 50 parts per
million.
"HUD" means the Department of Housing and Urban Development.
"INSURER" means a Person who insures or guarantees all or any portion of
the risk of loss upon borrower default on any of the Serviced Mortgage Loans,
including, without limitation the FHA, the VA and any private mortgage insurer,
and providers of life, flood, hazard, disability, title or other insurance with
respect to any of the Serviced Mortgage Loans or the property securing any such
Serviced Mortgage Loan.
"INTELLECTUAL PROPERTY" means all Marks used in connection with the conduct
of business in the ordinary course at any Branch or Operating Site and listed on
Schedule 1.1(f).
"INVESTOR" means any Person who owns (beneficially or of record) a Serviced
Mortgage Loan, or the servicing rights or master servicing rights to a Serviced
Mortgage Loan, subserviced, serviced or master serviced by Bank or any Bank
Subsidiary pursuant to a Mortgage Servicing Agreement.
"IRS" means the Internal Revenue Service.
"LEASE" means any of the real estate leases, or a sublease of Bank's
interest thereunder, for a Branch or any Operating Site.
"LOANS" mean loans originated by Bank or any Bank Subsidiary or purchased
by Bank or any Bank Subsidiary, including loan commitments and the unfunded
portion of existing commitments.
"LOSS" means any actual cost, expense or liability, including but not
limited to penalties, fines, damages, legal and other professional fees and
expenses reasonably incurred in the investigation, collection, prosecution and
defense of claims and amounts paid in settlement, that are imposed upon or
otherwise incurred or suffered by the relevant party.
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"MARGARITA VILLAGE LIEN" means the superpriority lien and associated loan
on the project described on Schedule 1.1(g).
"MARK" means any brand name, copyright, patent, service mark, trademark,
trade name, state or federal common law usages and all registrations or
applications for registration of any of the foregoing.
"MATERIAL CONTRACTS" mean all Contracts or offers that would become binding
upon acceptance by a third party (a) that obligate Bank or any Bank Subsidiary
to pay or forego receipt of an amount of $50,000 or more in any 12-month period,
other than (i) any Branch Deposit or (ii) any Loan made in the ordinary course
of business; (b) that bind Bank or any Bank Subsidiary and contain a covenant by
Bank or such Bank Subsidiary not to compete; (c) that bind Bank or any Bank
Subsidiary or any of its properties and contain a right of first refusal in
favor of a third party; (d) that relate to Technology Systems; (e) that grant a
power of attorney or similar authorization to act on behalf of Bank or any Bank
Subsidiary to any Person; (f) any agreement or commitment with respect to the
Community Reinvestment Act or similar law with any state or Federal regulatory
authority or any other party; or (g) that are otherwise material to Bank and the
Bank Subsidiaries taken as a whole. All Material Contracts as of the date hereof
are listed on Schedule 1.1(h).
"MORTGAGE" means, with respect to a Mortgage Loan or a Serviced Mortgage
Loan, a mortgage, deed of trust or other security instrument creating a lien
upon real property and any other property described therein which secures a
Mortgage Note, together with any assignment, reinstatement, extension,
endorsement or modification of any thereof.
"MORTGAGE LOAN" means any interest in a Loan secured by a Mortgage.
"MORTGAGE LOAN REGULATIONS" mean (a) all Applicable Laws with respect to
the origination, insuring, purchase, sale, pooling, servicing, subservicing,
master servicing or filing of claims in connection with a Loan, (b) the
responsibilities and obligations set forth in any agreement between Bank or any
of the Bank Subsidiaries and an Investor or private mortgage insurer (including,
without limitation, Mortgage Servicing Agreements and selling and servicing
guides), (c) all Applicable Laws and other requirements of an Agency, and all
rules, regulations and other requirements of an Investor, private mortgage
insurer, public housing program or Investor program with respect to the
origination, insuring, purchase, sale, pooling, servicing, subservicing, master
servicing or filing of claims in connection with a Serviced Mortgage Loan, and
(d) the terms and provisions of the Serviced Mortgage Loan documents.
"MORTGAGE NOTE" means, with respect to a Mortgage Loan or a Serviced
Mortgage Loan, a promissory note or notes, or other evidence of indebtedness,
with respect to such Mortgage Loan or Serviced Mortgage Loan secured by a
Mortgage or Mortgages, together with any assignment, reinstatement, extension,
endorsement or modification thereof.
"MORTGAGE SERVICING AGREEMENTS" mean all contracts or arrangements between
Bank or any of the Bank Subsidiaries and an Investor pursuant to which Bank or
any of the Bank Subsidiaries subservices, services or master services Serviced
Mortgage Loans for such Investor.
"OPERATING SITES" mean the headquarters building, warehouse and other
non-Branch offices of Bank or any of the Bank Subsidiaries, all of which are
listed on Schedule 1.1(i).
"OTS" means the Office of Thrift Supervision.
"PERMITTED ENCUMBRANCES" mean all Encumbrances that are:
(a) disclosed in any title reports, opinions or insurance binders
delivered or made available to Buyer prior to the execution of this
Agreement;
(b) for Taxes or assessments, special or otherwise, either not due and
payable or being contested in good faith and fully accrued or adequately
provided for;
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(c) representing mechanics', materialmen's, carriers', warehousemen's,
landlords' and other similar or statutory liens arising in the ordinary
course of business and fully accrued or adequately provided for; or
(d) rights of parties lawfully in possession and any other defect,
exception to title or easement or claim of easement which in all cases does
not materially impair the use, operation or value of the property to which
it relates.
"PERSON" means any individual, corporation, company, partnership (limited
or general), joint venture, association, limited liability company, trust or
other entity.
"PURCHASE AND ASSUMPTION PURCHASE PRICE" OR "PURCHASE PRICE" means the
purchase price set forth in Section 2.3.
"PURCHASED ASSETS" means all of the assets, properties, rights and business
of the Bank of every type and description, real, personal and mixed, tangible
and intangible, wherever located and whether or not reflected on the books and
records of the Bank, other than the Excluded Assets. Such assets and property
shall include, without limitation, all right, title and interest of the Bank in
all lands, branches, offices, buildings (together with improvements,
appurtenances, licenses and permits), motor vehicles, equipment, furniture and
fixtures, supplies, stationery, cash, loans, the allowance for loan losses ,
accrued interest, securities, certificates of deposit, accounts receivable, cash
management accounts, servicing rights, leases of real and personal property,
prepaid expenses, deposits, licenses and permits, agreements and contracts,
claims against third parties (including warranty claims relating to goods,
equipment or real property sold to the Bank), authorizations and approvals of
any third party, the right to receive mail, payments on loans and accounts
receivable and other communications, prepaid FDIC insurance and assessments and
other prepaid expenses incurred in the ordinary course of business and not
related to the Excluded Assets, computer software used in connection with
personal computers (the "Software"), other files and business records,
advertising materials, customer application forms, the right to use the Bank's
ABA transit numbers and other intangible properties and rights to, refunds and
prepayments under Contracts, Marks and the capital stock and assets of the Bank
Subsidiaries, and the payment referred to in Section 6.11, but shall not include
the Excluded Assets.
"REAL ESTATE LIABILITIES" means all liabilities or obligations (absolute or
contingent) of Bank or any Subsidiary to the extent arising out of any real
estate development activities (past or present) of Bank or any of its
Affiliates, all real estate held for development, all Real Estate Subsidiaries,
the ownership or operation of the Real Estate Subsidiaries by Bank or any
Subsidiary, including without limitation, (i) claims of persons who have
purchased properties or assets from Real Estate Subsidiaries or any partnership,
joint venture, association, project or development in which any of the Real
Estate Subsidiaries may have participated at any time, (ii) contractual
obligations, performance bonds, undertakings, guarantees, suretyship
arrangements, or other obligations of Bank or the Subsidiaries with respect to
the business or obligations of the Real Estate Subsidiaries, and (iii)
liabilities or obligations arising out of the ownership, operation, formation,
dissolution, sale or disposition of any Real Estate Subsidiary.
"REAL ESTATE SUBSIDIARIES" means the entities identified on Schedule 1.1(j)
hereto and all interests or investments (equity, debt, or otherwise) of the Bank
or any Subsidiary, direct or indirect, in any of such entities.
"REAL PROPERTY" means all real property of Bank or any Bank Subsidiary,
including fee, leasehold and other interests in real property (including real
property that is DPC Property, but excluding any interest in real property held
solely as a trustee or beneficiary under a deed of trust or mortgagee under a
mortgage).
"RECORDS" mean all records and original documents which pertain to and are
utilized by Bank to administer, reflect, monitor, evidence or record information
respecting the business or conduct of Bank and the Bank Subsidiaries, including
all such records maintained on electronic or magnetic media in the Technology
Systems.
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"REGULATORY AGREEMENT" means, with respect to Bank or any Bank Subsidiary,
any cease-and-desist or other order issued by, or any written agreement, consent
agreement or memorandum of understanding with, or any order or directive by, or
any extraordinary supervisory letter from, or any board resolutions adopted at
the request of any Bank Regulator or other Governmental Entity that restricts
the conduct of Bank's or any Bank Subsidiary's business or that in any manner
relates to its capital adequacy, its credit policies, its management or its
business.
"RELATED DOCUMENTS" means the Bill of Sale and the Assumption Agreement.
"REQUISITE REGULATORY APPROVALS" mean all approvals or consents of or
filings with any Governmental Entity required in order to consummate the
transactions contemplated by this Agreement, all of which are listed in Schedule
1.1(k).
"RETAINED LIABILITIES" means all obligations and liabilities of Bank,
whether actual or contingent, or known or unknown, consisting of or arising out
of (i) the Real Estate Subsidiaries or any assets or obligations or liabilities
thereof; (ii) Real Estate Liabilities; (iii) any liabilities or obligations
consisting of or arising out of the Excluded Assets; and (iv) all Taxes imposed
on Sellers, Bank and the Subsidiaries (either directly or by virtue of joint and
several liabilities) (A) for any taxable year or period that ends on or before
the Closing Date or (B) with respect to any taxable year or period beginning
before and ending after the Closing Date, the portion of such taxable year or
period ending on and including the Closing Date; and any liabilities or
obligations consisting of, arising out of, or related to acts occurring after
the Closing Date.
"SEC" means the United States Securities and Exchange Commission.
"SERVICED MORTGAGE LOAN" means any closed Mortgage Loan, whether or not
such Mortgage is included in a securitized portfolio, which is subserviced,
serviced or master serviced by Bank or any of the Bank Subsidiaries pursuant to
Mortgage Servicing Agreements.
"SOFTWARE" means all computer programs, software, firmware and related
documentation used in the operation of the Technology Systems.
"SUBSIDIARY" means any Person, more than 50 percent of the voting power of
which is owned directly or indirectly by Bank or any Person more than 50 percent
of the Equity Interests of which is owned directly or indirectly by Bank, all of
which are listed on Schedule 1.1(l).
"TAXES" means all federal, provincial, territorial, state, municipal,
local, foreign or other taxes, imposts, rates, levies, assessments and other
charges including, without limitation, all income, franchise, gains, capital,
real property, goods and services, transfer, value added, gross receipts,
windfall profits, severance, ad valorem, personal property, production, sales,
use, license, stamp, documentary stamp, mortgage recording, excise, employment,
payroll, social security, unemployment, disability, estimated or withholding
taxes, and all customs and import duties, together with any interest, additions,
fines or penalties with respect thereto or in respect of any failure to comply
with any requirement regarding Tax Returns and any interest in respect of such
additions, fines or penalties.
"TAX RETURN" means any return, report, information statements, schedule or
other document (including any related or supporting information) with respect to
Taxes, including any document required to be retained or provided to any
Governmental Entity pursuant to 31 USC sections 5311-5328 and regulations
promulgated thereunder.
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"TECHNOLOGY SYSTEMS" mean all electronic data processing, communications,
telecommunications, disaster recovery services and other computer systems which
are material to the operation of the Branches and the Operating Sites, and to
the servicing of the Loans and Serviced Mortgage Loans and, including (a) any
computer hardware and Software owned, leased or licensed by Bank that is used in
the operation of the Technology Systems, and (b) any Contracts pursuant to which
Bank is granted rights which are used in the operation of the Technology
Systems, including Software licenses and similar agreements.
"VA" means the Veterans Administration.
"VA LOANS" mean Loans which satisfy all applicable rules and regulations to
be guaranteed by the VA and which are guaranteed by the VA.
1.2 Construction and Interpretation.
(a) When used to modify a statement with respect to the Bank or a Bank
Subsidiary, "material," "materially," or similar phrases refer to matters which
are material to the business, condition (financial or otherwise) or operations
of Bank and the Bank Subsidiaries, taken as a whole; provided, however, that
such terms shall not include (i) changes in Applicable Law, GAAP, or regulatory
accounting principles, or thrift laws or regulations, or interpretations
thereof, that affect the thrift industry generally or changes in the general
level of interest rates unless such change affects Bank to a materially greater
extent than thrift institutions generally (ii) any assessment imposed on the
Bank in connection with the recapitalization of the Savings Association
Insurance Fund of the FDIC; or (iii) the writeoff of any goodwill on the books
of Bank and the Bank Subsidiaries as a result of the execution of delivery of
this Agreement.
(b) Any reference to the "ordinary course of business" shall refer to the
ordinary course of the business of Bank and the Subsidiaries prior to October
31, 1995.
ARTICLE 2.
PURCHASE AND ASSUMPTION
2.1 Assets to Be Sold. Subject to the terms and conditions of this
Agreement, at the Closing, the Bank will sell to Purchaser, and Purchaser will
purchase from the Bank the Purchased Assets. Such sale, conveyance, assignment,
transfer and delivery shall be effected by delivery by the Bank to the Purchaser
at the Closing of (i) the duly executed Bill of Sale, (ii) good and sufficient
deeds, in recordable or registrable form, with respect to all Real Property
owned by the Bank and included among the Purchased Assets, (iii) assignments of
mortgages or deeds of trust, security agreements and security interests and
assignments of notes, in recordable form, if applicable, relating to the
Purchased Assets, and (iv) such other instruments of conveyance and transfer as
the Purchaser shall reasonably request.
2.2 Assumed Liabilities. On the Closing Date Purchaser shall assume the
obligations and liabilities of Bank other than the Retained Liabilities. Such
assumption shall be effected by delivery by the Purchaser to the Bank at the
Closing of (i) the duly executed Assumption Agreement, and (ii) such other
instruments and supporting documents as Sellers, Bank or any applicable third
party may reasonably request. The Purchaser shall not assume or be liable for
the Retained Liabilities.
2.3 Purchase and Assumption Price. (a) The Purchase and Assumption
Purchase Price shall be an amount equal to $190,700,000. The Purchase Price
shall be reduced by the after tax amount of any Purchase Price reduction and
increased by the after tax amount of any Purchase Price increase. The amount of
any Purchase Price reduction shall be determined by adding (x) the amount of
Real Estate Liabilities paid in the aggregate by the Bank or any of the Bank
Subsidiaries subsequent to November 30, 1995 but on or prior to the Closing Date
in excess of $1,205,000, and (y) the amount of Taxes paid by the Bank or any of
the Bank Subsidiaries subsequent to October 31, 1995 but on or prior to the
Closing Date (other than for Taxes related to operations
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subsequent to October 31, 1995 and prior to the Closing Date) in excess of the
amount of Taxes accrued on the balance sheet of the Bank contained in the
Financial Statements as of October 31, 1995. The amount of any Purchase Price
increase shall be determined by adding (x) any amounts received by the Bank or
any of the Bank Subsidiaries with respect to the Margarita Village Lien or the
Stead Real Property described in Schedule 1.1(d) subsequent to November 30, 1995
and prior to the Closing Date in excess of $200,000, plus the book value of the
Margarita Village Lien and the Stead Real Property on the Bank's Financial
Statements at November 30, 1995, and (y) any amounts received by the Bank or any
of the Bank Subsidiaries subsequent to October 31, 1995 but on or prior to the
Closing Date with respect to Tax refunds attributable to periods on or prior to
October 31, 1995 except for Tax receivables accrued on the balance sheets of the
Bank contained in the Financial Statements of October 31, 1995.
(b) Bank shall prepare an interim closing statement as of a date no more
than five Business Days prior to the Closing Date and as if the Closing had
occurred on such date setting forth the amount of the Purchase Price. The
interim closing statement shall be delivered by Bank to Buyer and Purchaser no
less than two Business Days prior to the Closing Date. The Purchase Price paid
by the Buyer on the Closing Date shall be the Purchase Price set forth on the
interim closing statement.
(c) Not more than 30 calendar days after the Closing Date, Bank shall
deliver to Buyer and Purchaser a final closing statement setting forth its final
calculation of the amount of the Purchase Price.
(d) If within 30 calendar days after delivery of the final closing
statement to Buyer and Purchaser, the Buyer and Purchaser determine in good
faith that the Purchase Price set forth on the final closing statement was
inaccurate, Buyer and Purchaser shall give notice of such determination to
Sellers and Bank setting forth the amount of the Purchase Price as determined by
Buyer and Purchaser and specifying in reasonable detail the Buyer's and
Purchaser's basis for its disagreement with Bank's determination of the Purchase
Price. The failure by Buyer and Purchaser so to express its disagreement within
such 30-day period shall constitute acceptance of the Purchase Price by Buyer
and Purchaser. If the parties are unable to resolve their disagreement, the
items in dispute shall be referred to KPMG Peat Marwick, LLP ("KPMG") and Arthur
Andersen, LLP ("AA") for determination. KPMG and AA shall make a determination
as to the matter in dispute, which determination shall be in writing, furnished
to each of the parties as promptly as practicable after the matter in dispute
has been referred to KPMG and AA and shall be final, conclusive and binding upon
each of the parties hereto. If KPMG and AA cannot agree, KPMG and AA will
jointly designate another accounting firm to make the determination, which
determination shall be final, conclusive and binding upon each of the parties
hereto. The final closing statement shall thereupon be modified in accordance
with the determination of KPMG and AA. Each of the parties shall pay the fees
and expenses of its accountants and, if a third accountant is appointed as set
forth above, the Sellers, on the one hand, and the Buyer on the other hand shall
share equally the expenses of such third accountant.
(e) If the amount of the Purchase Price paid by Buyer and Purchaser was
less than that set forth on the final closing statement, Buyer and Purchaser
shall, subject to the provisions of Section 2.3(d), promptly pay the difference
to Bank together with interest thereon for each day after the Closing Date to
the date of such payment at the rate of the closing Federal Funds rate per annum
as set forth in the Western Edition of The Wall Street Journal published on the
day prior to the date of payment (the "Interest Rate"). If the amount of the
Purchase Price paid by Buyer and Purchaser was greater than that set forth on
the final closing statement, Bank shall, subject to the provisions of Section
2.3(d), promptly pay the difference to Buyer, together with interest thereon for
each day after the Closing Date to the Date of such payment at the Interest
Rate.
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ARTICLE 3.
THE CLOSING
3.1 Closing. The Closing shall take place (a) at the offices of Buyer,
Norwest Center, Sixth and Marquette, Minneapolis, MN 55479 within ten (10)
Business Days following the satisfaction or waiver of all of the conditions in
Article 7 (other than those designating instruments, opinions, certificates or
other documents to be delivered at the Closing), or (b) at such other place and
time as the parties hereto shall agree.
3.2 Delivery by Sellers and Bank. On the Closing Date Sellers and Bank
shall deliver or cause to be delivered the following to Buyer and Purchaser:
(a) copies of resolutions duly adopted by the Board of Directors and
shareholders of each Seller and Bank authorizing this Agreement and the
transactions contemplated hereby, certified as of the Closing Date by the
Secretary or Assistant Secretary of such party; and
(b) the documents required to be delivered by Sellers and Bank
pursuant to Section 7.2 and such other documentation as may be required by
this Agreement.
3.3 Deliveries by Buyer and Purchaser. On the Closing Date, Buyer and
Purchaser shall deliver or cause to be delivered the following to Bank and
Sellers:
(a) copies of resolutions duly adopted by the Board of Directors and
(if applicable) shareholders of Buyer and Purchaser authorizing this
Agreement and the transactions contemplated hereby, certified as of the
Closing Date by a Secretary or Assistant Secretary of such party;
(b) an amount equal to the Purchase and Assumption Purchase Price by
wire transfer in immediately available funds to an account designated in
writing to Buyer and Purchaser by Bank; and
(c) the documents required to be delivered by Buyer and Purchaser
pursuant to Section 7.3 and such other documents as may be required by this
Agreement.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers represent and warrant to Buyer as follows:
4.1 Organization and Related Matters.
(a) Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of California. SC is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada. All of the Bank Stock is owned by SC, beneficially and of record, free
and clear of all Encumbrances, other than net worth maintenance and similar
obligations to Bank Regulators, and there are no other outstanding Equity
Interests of Bank.
(b) Bank is a federal savings bank duly organized, validly existing and in
good standing under the provisions of the Home Owners' Loan Act, as amended (12
USC sec. 1461), and is a member in good standing of the Federal Home Loan Bank
System through the FHLB. The Branch Deposits are insured to applicable limits by
the Savings Association Insurance Fund of the FDIC. Bank has the corporate power
and authority to carry on its business as now being conducted and to own, lease
and operate its properties.
(c) Except as set forth on Schedule 4.1, all of the Equity Interests of the
Bank Subsidiaries are owned beneficially and of record directly or indirectly by
Bank, free and clear of any Encumbrances. Except for the Subsidiaries and as set
forth on Schedule 4.1, neither Bank nor any Bank Subsidiary has a direct or
indirect Equity Interest in any Person, other than DPC Property.
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(d) The Bank Subsidiaries are duly organized, validly existing and in good
standing under the laws of the jurisdiction of their organization. Each of the
Bank Subsidiaries has the corporate power and authority to carry on its
respective business as now being conducted and to own, lease and operate its
respective properties. Each of the Bank Subsidiaries is duly qualified and
licensed and in good standing to do business as a foreign corporation in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so organized or existing or to have
such power and authority or to be so qualified or licensed would not have a
material adverse effect on Bank and the Bank Subsidiaries taken as a whole. None
of the Bank Subsidiaries has engaged in the real estate development business as
an owner, operator, developer, contractor or otherwise.
(e) Bank is not a party to, and is not obligated by, any commitment, plan
or arrangement to issue or to sell any Equity Interests of Bank or the Bank
Subsidiaries or to sell or otherwise transfer any significant portion of their
assets, except the transactions contemplated by this Agreement and there are no
outstanding subscriptions, contracts, conversion privileges, options, warrants,
calls or preemptive or other rights requiring Bank to sell, dispose of,
purchase, redeem or otherwise acquire the capital stock of the Bank.
4.2 Authority; No Violation.
(a) Each Seller and Bank has full corporate power and authority to execute
and deliver this Agreement and the Related Documents to which it is a party and
to consummate the transactions contemplated hereby. Except for the approval of a
majority of the outstanding shares of Parent's common stock, the execution and
delivery of this Agreement and the Related Documents to which it is a party and
the consummation of the transactions contemplated hereby have been or will be
duly and validly approved by all requisite corporate action on the part of
Sellers and Bank, and, except for a meeting of the shareholders of Parent and
corporate actions to be taken in connection with the transfer of the Bank
Subsidiaries, no other corporate proceedings on the part of Sellers or Bank are
necessary to approve this Agreement and the Related Documents to which it is a
party and to consummate the transactions contemplated hereby. This Agreement and
the Related Documents to which it is a party have been or will be duly and
validly executed and delivered by Sellers and Bank and (assuming the due
authorization, execution and delivery of this Agreement by Buyer and the Related
Documents by Purchaser) constitute a valid and binding obligation of Sellers and
Bank, enforceable against Sellers and Bank in accordance with their respective
terms, except as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting creditors' rights generally and except
as may be limited by general principles of equity whether applied in a court of
law or a court of equity.
(b) Neither the execution and delivery of this Agreement by Sellers and
Bank or the Related Documents to which they are a party nor the consummation by
Sellers and Bank of the transactions contemplated hereby, nor compliance by
Sellers and Bank with any of the terms or provisions hereof, will (i) violate
any provision of the respective articles of incorporation or charter and By-Laws
of Sellers or Bank or (ii) assuming that the Requisite Regulatory Approvals and
the consents and approvals referred to in Section 4.3 are duly obtained, (x)
violate in any material respect any Applicable Law with respect to either Bank,
Sellers or any Bank Subsidiary, or (y) violate, conflict with, result in a
breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Encumbrance upon any of the respective properties
or assets of either Seller, Bank or any of the Bank Subsidiaries under, any of
the terms, conditions or provisions of any Contract to which either Seller, Bank
or any of the Bank Subsidiaries is a party, or by which either Seller, Bank or
any of the Bank Subsidiaries, or any of their respective properties or assets,
may be bound or affected, except for (i) such violations which arise from the
legal or regulatory status of Buyer or its Affiliates or the businesses in which
they are or propose to be engaged and
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(ii) such consents and approvals the failure of which to obtain will not,
individually or in the aggregate, have a material adverse effect on the Sellers
and their Subsidiaries taken as a whole or the Bank and the Bank Subsidiaries
taken as a whole.
4.3 Consents and Approvals. Except for the Requisite Regulatory Approvals
to be obtained by Sellers and Buyer, the consents and approvals to be obtained
by Buyer and Purchaser and the matters set forth on Schedule 4.3, no consents or
approvals of or filings, notices or registrations with any Governmental Entity
or with any Person who is a party to a Material Contract are necessary in
connection with the execution and delivery by Sellers and Bank of this Agreement
or the consummation by Sellers and Bank of the transactions contemplated hereby
(including, without limitation the consummation of the Purchase and Assumption).
4.4 Title to Property.
(a) Bank and the Bank Subsidiaries own or have the right to use all
property used in the operation of their business. Sellers have furnished to
Buyer Schedule 4.4(a) that sets forth a description (including the character of
the interest of Bank and each Bank Subsidiary) of all Real Property. Except as
set forth on Schedule 4.4(a), Bank and each Bank Subsidiary has good and
marketable title to all Real Property owned in fee and all material items of
personal property reflected as owned on its books, in each case free and clear
of all Encumbrances, except Permitted Encumbrances.
(b) All furniture, fixtures and equipment of Bank and each Bank Subsidiary
that are material to the business, financial condition, results of operations or
prospects of Bank and the Bank Subsidiaries taken as a whole, are in a good
state of maintenance and repair, except for ordinary wear and tear, and are
adequate for the conduct of the business of Bank and each Bank Subsidiary as
presently conducted. Except as set forth in Schedule 4.4(a), (i) neither Bank
nor any Bank Subsidiary has entered into any Contract containing a material
obligation to improve any Real Property, (ii) to Seller's knowledge, each Lease
and other Contract under which Bank or any Bank Subsidiary is a lessee or holds
or operates any material property (real, personal or mixed) owned by any third
party is in full force and effect and is a valid and legally binding obligation
of Bank or such Bank Subsidiary and, to Sellers' knowledge, each other party
thereto; (iii) Bank or such Bank Subsidiary and, to Sellers' knowledge, each
other party to any such Lease or other Contract have performed in all material
respects all the obligations required to be performed by them to date under such
Lease or other Contract and are not in default in any material respect under any
such Lease or other Contract and, to Sellers' knowledge, there is no pending or
threatened proceeding that would interfere with the quiet enjoyment of such
leasehold or such material property by Bank or any Bank Subsidiary; (iv) to
Seller's knowledge, there has not been any generation, use, handling,
transportation, treatment, storage, release or disposal of any Hazardous
Substance in connection with the conduct of the business of Bank or such Bank
Subsidiary and there has never been a use of any of the Real Property or any of
the real property formerly owned by the Bank or any Bank Subsidiary for which
the Bank or a Bank Subsidiary has any indemnification obligations that has
created or might reasonably be expected to result in any liability under any
Environmental Law; (v) to Seller's knowledge, no underground storage tanks are
on or in the Real Property; and (vi) to Seller's knowledge, no Hazardous
Substances exist on any real property at any time directly or indirectly owned
or operated, whether as beneficial owner or in a fiduciary capacity, by Bank or
any Bank Subsidiary in a manner that could reasonably be expected to expose Bank
or such Bank Subsidiary as a former owner or operator of such real property to
any liability under any Environmental Law.
(c) Sellers have provided Buyer access to copies of all Leases included on
Schedule 4.4(a) and all appraisals and title insurance policies relating to Real
Property.
4.5 Financial Statements. Sellers have previously delivered to Buyer: (a)
the audited consolidated statement of financial condition of Bank and the
Subsidiaries as of December 31, 1994 and related audited consolidated statements
of operations and cash flows for the year ended on such date, including in each
case the related notes and schedules thereto, together with the related opinion
of Arthur Andersen, LLP, independent certified public accountants to Bank; and
(b) the
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unaudited consolidated statement of financial condition of Bank and the
Subsidiaries as of October 31, 1995. The Financial Statements referred to in
clause (a) above (including the related notes and schedules thereto), subject to
qualifications, if any, noted in the accompanying opinion, have been prepared in
accordance with GAAP or applicable regulatory accounting principles consistently
applied during the periods involved and fairly present the consolidated
financial condition, consolidated results of operations and consolidated changes
in financial position of Bank and the Subsidiaries as of the date thereof and
for the periods covered thereby. Except for changes in the financial accounting
standards as set forth in Schedule 4.5, the Financial Statements referred to in
clause (b) above have been prepared on a consolidated basis in accordance with
GAAP or applicable regulatory accounting principles applied on a basis
consistent with those at December 31, 1994, except for the omission of normal
recurring year-end audit adjustments (if any) and notes thereto and fairly
present the consolidated financial condition of Bank and the Subsidiaries as of
the date thereof.
4.6 Material Contracts. Except as set forth on Schedules 1.1(h) or 4.4(a),
(a) each Material Contract is a valid and binding obligation of Bank or a Bank
Subsidiary; (b) Bank and each Bank Subsidiary has duly performed all material
obligations under the Material Contracts to be performed by it to the extent
that such obligations to perform have accrued; and (c) to Sellers' knowledge,
there are no breaches, violations or defaults or allegations or assertions of
such by any party under any Material Contract. True copies of all Material
Contracts, including all amendments and supplements thereto, have been made
available to Buyer.
4.7 Legal or Other Proceedings. Except as set forth in Schedule 4.7, as of
the date of this Agreement, neither Bank nor any of the Bank Subsidiaries is a
party to any, and there are no pending or, to Sellers' knowledge, threatened,
legal, administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature against or affecting
Bank, any of the Bank Subsidiaries or any of their respective properties or
assets or challenging the validity or propriety of the transactions contemplated
by this Agreement and there is no injunction, order, judgment or decree imposing
ongoing obligations upon Bank, any of the Bank Subsidiaries or the properties or
assets of Bank or any of the Bank Subsidiaries. Except for customary ongoing
quality control reviews or as set forth in Schedule 4.7, no audit,
investigation, complaint or inquiry of Bank or any of the Bank Subsidiaries by
any Agency, Investor or Insurer is pending or, to the knowledge of Sellers,
threatened.
4.8 Undisclosed Liabilities. Sellers have furnished to Buyer Schedule 4.8
which sets forth all liabilities of Bank or any of the Subsidiaries that are
material to Bank and the Subsidiaries taken as a whole, contingent or otherwise,
that are not reflected or reserved against in the Financial Statements dated as
of October 31, 1995, except for liabilities incurred or accrued since October
31, 1995 in the ordinary course of business, none of which, individually or in
the aggregate, has had or may reasonably be expected to have a material adverse
effect on Bank and the Subsidiaries taken as a whole.
4.9 Reports and Filings. Since January 1, 1993, Bank and each Bank
Subsidiary has filed all Filings. Bank has made available to Buyer all Filings
filed by Bank or any Bank Subsidiary since January 1, 1993, together with copies
of any orders or other administrative actions taken in connection with such
Filings to the extent permitted to do so by Applicable Law. As of their
respective dates, each of such Filings (a) was true and complete in all material
respects (or was amended so as to be so following discovery of any discrepancy);
(b) complied in all material respects with Applicable Law (or was amended so as
to be so following discovery of any such noncompliance); and (c) did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Any
Financial Statement contained in any of such Filings that was intended to
present the financial position of Bank or any Bank Subsidiary fairly presented
the financial position of Bank or such Bank Subsidiary and was prepared in
accordance with GAAP or applicable regulatory accounting principles consistently
applied, except
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as stated therein, required by Applicable Law during the periods involved or as
otherwise set forth in Section 4.5.
4.10 Absence of Certain Changes or Events. Except as contemplated by
Section 6.2(l) or as set forth on Schedule 4.10, since October 31, 1995, Bank
has not declared, set aside or paid any dividend or other distribution with
respect to, or repurchased any Equity Investments in, Bank. Except as set forth
in Schedule 4.10 or as consented to by Buyer in writing, during the period from
October 31, 1995 to the Closing Date, (a) neither Bank nor the Bank Subsidiaries
has: (i) mortgaged, pledged or subjected to any Encumbrance or lease any of the
Real Property, or permitted or suffered any such asset to be subjected to any
Encumbrance or lease, except in the ordinary course of business; (ii) other than
in the ordinary course of business, (A) increased the wages, salaries,
compensation, pension, or other fringe benefits or perquisites payable to any
executive officer, Employee, or director from the amount in effect as of October
31, 1995, or granted any severance or termination pay, (B) entered into any
contract to make or grant any severance or termination pay, or (C) paid any
bonus to any such person; (iii) suffered any strike, work stoppage, slow-down,
or other labor disturbance at the Branches or Operating Sites; (iv) amended,
canceled or terminated any agreement relating to Technology Systems, Software or
Intellectual Property, except in the ordinary course of business; (v) changed
its accounting principles, practices or methods except as required by any change
in Applicable Law, GAAP or regulatory accounting principles; (vi) engaged in any
material sale or purchase of assets, entered into, amended, or terminated any
Material Contract, or engaged in any other material transaction other than for
fair value in the ordinary course of business; or (vii) incurred any damage,
destruction or loss to any of the assets of Bank and the Bank Subsidiaries which
has had or may be reasonably expected to have, individually or in the aggregate,
a material adverse effect on Bank and the Bank Subsidiaries taken as a whole;
and (b) no event has occurred or has failed to occur which has had or is
reasonably expected to have, individually or in the aggregate with any other
event(s), a material adverse effect on Bank and the Subsidiaries taken as a
whole, provided, however, that for purposes of this Section 4.10, no such
material adverse effect shall be deemed to have occurred as a result of (i) any
change in Applicable Law, GAAP or regulatory accounting principles, (ii) changes
in thrift laws or regulations, or interpretations thereof, that affect the
thrift industry generally or changes in the general level of interest rates
unless such change affects Bank to a materially greater extent than thrift
institutions generally, (iii) or any assessment imposed on the Bank in
connection with the recapitalization of the Savings Association Insurance Fund
of the FDIC, or (iv) the write-off of any goodwill on the books of Bank and the
Bank Subsidiaries as a result of the execution and delivery of this Agreement.
4.11 Taxes and Tax Returns.
(a) Except as reflected in Schedule 4.11, or otherwise disclosed, Bank and
each Subsidiary, and any Affiliated Group of which any such entity was a member,
has duly filed all Tax Returns required to be filed by it on or prior to the
date of this Agreement (all such returns being accurate and complete in all
material respects), has duly paid or made provisions for the payment of all
Taxes that have been incurred or are due or claimed to be due from it by any
taxing authority on or prior to the date of this Agreement other than Taxes
which are not yet delinquent or are being contested in good faith (and which are
set forth in Schedule 4.11) and has not executed an extension or waiver of any
statute of limitations on the assessment or collection of any Taxes that is
currently in effect. Except as set forth in Schedule 4.11, there is no audit,
examination, deficiency, refund litigation, tax claim, notice of assessment,
notice of proposed assessment or any other matter in controversy with respect to
any Taxes that is reasonably likely to result in a determination materially
adverse to Bank and the Bank Subsidiaries taken as a whole.
(b) No election under Section 341(f) of the Code has been or hereafter
shall be made to treat Bank or any Bank Subsidiary as a consenting corporation
(as defined in Section 341(f) of the Code).
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4.12 Compliance with Applicable Law. Bank and each of the Bank
Subsidiaries hold, and have at all times held, all material licenses,
franchises, permits and other authorizations necessary for the lawful ownership
and use of their respective assets and the conduct of their respective
businesses and have complied with and are not in default in any material respect
under any Applicable Law material to Bank and the Bank Subsidiaries taken as a
whole.
4.13 Insurance. All insurance policies and indemnity bonds as of the date
of this Agreement providing coverage for Bank and the Bank Subsidiaries are
listed on Schedule 4.13. As of the date hereof each such insurance policy or
bond is in full force and effect, and, as of the date hereof neither Bank nor
any of the Bank Subsidiaries has received written notice or any other indication
from any insurer or agent of any intent to cancel any such insurance policy or
bond.
4.14 Agreements with Regulatory Agencies. Neither Bank nor any of the Bank
Subsidiaries is currently subject to any Regulatory Agreement, nor has Bank or
any of the Bank Subsidiaries been advised by any Bank Regulator or other
Governmental Entity that it is considering issuing or requesting any Regulatory
Agreement.
4.15 Affiliate Transactions. Except as set forth on Schedule 4.15, no
Person who is an executive officer, director or Affiliate of Bank is an obligor
or guarantor on any Loan, a lessor with respect to any Lease, or otherwise has
any interest in any asset of, Bank or the Bank Subsidiaries. Except as set forth
on Schedule 4.15, Bank and the Bank Subsidiaries on a consolidated basis do not
have any other liabilities or obligation of any kind to either Seller or any
Affiliate, other than Bank or a Bank Subsidiary. Except as set forth on Schedule
4.15, there are no intercompany payables owed by or intercompany receivables
owed to Bank and the Bank Subsidiaries on a consolidated basis to or from
Sellers or their Affiliates (other than the Bank and the Bank Subsidiaries).
4.16 Intellectual Property.
(a) Schedule 1.1(f) contains a true and complete list of all Intellectual
Property owned by Bank or any Bank Subsidiary and any licenses or similar
agreements pursuant to which Bank or any Bank Subsidiary is granted rights with
respect to Intellectual Property.
(b) Except as set forth in Schedule 1.1(f), Bank or any Bank Subsidiary has
the unrestricted right to use the Intellectual Property, free and clear of any
claims, by any Person (other than the claims of any licensors under licensing or
similar agreements), and the consummation of the transactions contemplated by
this Agreement will not alter or impair any such right. No claims have been
asserted to either Sellers, Bank or any Bank Subsidiary by any Person with
respect to the use by Bank or any Bank Subsidiary of any Intellectual Property
or challenging or questioning the validity or effectiveness of any license or
similar agreement with respect thereto, and, to the knowledge of Sellers, there
is no basis for any such claim. Except as set forth in Schedule 1.1(f), no
Intellectual Property is subject to any outstanding order, judgment, decree,
stipulation or agreement restricting the use thereof by Bank or any Bank
Subsidiary.
4.17 Loan Portfolio.
(a) Schedule 4.17 sets forth a description, as of October 31, 1995, of (i)
by type and classification, if any, each Loan or lease by Bank in excess of
$500,000; and (ii) by type and classification, all Loans or leases of Bank of
$500,000 or more, that have been classified by its bank examiners, auditors
(external or internal), or credit administration personnel as "Special Mention,"
"Substandard," "Doubtful," "Loss" or any comparable classification.
(b) To Seller's knowledge, each Loan or Serviced Mortgage Loan owned or
held by Bank complied at the time it was made or, if such Loan or Serviced
Mortgage Loan was acquired and not originated by Bank, complied at the time it
was originated, and remains in compliance, in all material respects with
Applicable Law, including the federal Truth-in-Lending Act and other consumer
protection laws, usury, equal credit opportunity, disclosure and recording laws.
(c) Except in the case of Loans which individually and in the aggregate are
not material or for deficiencies which can be cured without the incurrence of
unreasonable expenditures in the
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circumstances, to Sellers' knowledge, each Loan included in the Financial
Statements as of October 31, 1995, or acquired since that date (i) is the legal,
valid and binding obligation of the obligor thereunder, enforceable in
accordance with its terms, except (A) as enforcement may be limited by
bankruptcy, insolvency, moratorium, reorganization or other similar laws
affecting creditors' rights generally and except as may be limited by general
principles of equity whether applied in a court of law or a court of equity, and
(B) to the extent Applicable Law requires the holder of the note with respect to
the Loan to foreclose against the collateral for such note before seeking
recovery on such note, or prohibits a deficiency judgment or other recovery on
such note against the mortgagor or the grantor of such security interest or any
guarantor of such Loan, (ii) arose in the ordinary course of business and (iii)
is secured by a valid and legally enforceable security interest to the extent
reflected in the loan records with respect thereto except (x) as enforcement may
be limited by bankruptcy, insolvency, moratorium, reorganization or other
similar laws affecting creditors' rights generally and except as may be limited
by general principles of equity whether applied in a court of law or a court of
equity, and (y) subject to any requirement of Applicable Law that the holder of
the note with respect to the Loan foreclose against the collateral for such note
before seeking recovery on such note, or prohibiting a deficiency judgment or
other recovery on such note against the mortgagor or the grantor of such
security interest or any guarantor of such Loan.
4.18 Mortgage Banking Licenses and Qualifications. Bank (a) is qualified
and or authorized, as appropriate (i) by FHA as a mortgagee and servicer for FHA
Loans, (ii) by VA as a lender and servicer for VA Loans, (iii) by FNMA and FHLMC
as a seller/servicer of first mortgages to FNMA and FHLMC, and (iv) by GNMA as
an authorized issuer and servicer of GNMA-guaranteed mortgage-backed securities;
and (b) has all other certifications, authorizations, licenses, permits and
other approvals necessary to conduct its current business, and is in good
standing under all Applicable Laws and Mortgage Loan Regulations as a mortgage
lender and servicer.
4.19 Payment of Taxes, Insurance Premiums, etc. To Seller's knowledge, the
responsibilities of Bank and all prior servicers and originators of the Serviced
Mortgage Loans with respect to all applicable Taxes (including tax reporting for
the period prior to the Closing), special assessments, ground rents, flood
insurance premiums, hazard insurance premiums and mortgage insurance premiums
that are related to the Serviced Mortgage Loans have been met in all material
respects.
4.20 Minute Books. The copies of the articles of incorporation and bylaws,
including amendments, of Bank and each Bank Subsidiary which have been delivered
to Buyer are true, correct and complete. The minute books of Bank and each Bank
Subsidiary made available to Buyer are true, correct and complete and accurately
reflect all material actions duly taken to date by its respective shareholder or
owner, board of directors and committees.
4.21 Employee Benefit Plans and Employment and Labor Contracts.
(a) Sellers have furnished to Buyer Schedule 1.1(b) that sets forth all
Employee Benefit Plans and any collective bargaining agreements, labor contracts
and Employee Programs in which Bank or any Bank Subsidiary participates, or by
which it is bound. Except as set forth in Schedule 1.1(b), (i) Bank and each
Bank Subsidiary is in compliance in all material respects with the applicable
provisions of ERISA and the regulations and published authorities thereunder
currently in effect with respect to all such Employee Benefit Plans and Employee
Programs; (ii) Bank and each Bank Subsidiary has performed all of its
obligations under all such plans and programs; and (iii) there are no actions,
suits or claims (other than routine claims for benefits) pending or, to the
knowledge of Sellers, threatened against any such employee benefit plans or the
assets of such plans, and to the knowledge of Sellers, no facts exist which
could give rise to any actions, suits or claims (other than routine claims for
benefits) against such plans or the assets of such plans that might have a
material adverse effect on such plans. True copies of all of the Employee
Benefit Plans and Employee Programs referred to in Schedule 1.1(b), including
all amendments and supplements thereto, and all related summary plan
descriptions have been made available to Buyer.
(b) The Employee Benefit Plans have been duly authorized by the board of
directors of Bank. Each such plan and associated trust intended to be qualified
under Section 401(a) of the Code has
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received a favorable determination letter from the Internal Revenue Service and
Sellers have no knowledge of any circumstances likely to result in revocation of
any such determination letter. No event has occurred that will or could subject
any such Employee Benefit Plans to tax under Section 511 of the Code. All costs
of any Employee Benefit Plans subject to Title IV of ERISA have been provided
for on the basis of consistent methods in accordance with actuarial assumptions
and practices. Subject to amendments that are required by the Tax Reform Act of
1986 and later legislation, since the last valuation date for each Employee
Benefit Plan subject to Title IV of ERISA, there has been no amendment or change
to such Employee Benefit Plan that would increase the amount of benefits
thereunder. Sellers have made available to Buyer for each of the Employee
Benefit Plans, to the extent applicable, (i) a copy of the Form 5500 which was
filed in each of the most recent three plan years, including, without
limitation, all schedules thereto and all financial statements with attached
opinions of independent accountants; (ii) the most recent determination letter
from the IRS; (iii) the statement of assets and liabilities as of the most
recent valuation date; and (iv) the statement of changes in fund balance and in
financial position or the statement of changes in net assets available for
benefits under each Employee Benefit Plan for the most recently ended plan year.
The documents referred to in subdivisions (iii) and (iv) fairly present the
financial condition of each of said Employee Benefit Plans as at such dates and
the results of operations of each of said plans, all in accordance with GAAP or
applicable regulatory accounting principles applied on a consistent basis.
(c) Neither Bank nor any entity with which Bank has been treated as a
single employer under Section 4001(b) of ERISA sponsors or participates, or has
sponsored or participated, in any Employee Benefit Plan that is a "multiemployer
plan" (within the meaning of Section 3(37) of ERISA) that would subject such
Person to any liability with respect to any such Employee Benefit Plan.
(d) All group health plans of Bank (within the meaning of Section
5000(b)(1) of the Code) have been operated in compliance in all material
respects with the group health plan continuation coverage requirements of
Section 4980B of the Code and Section 601 through 609 of ERISA, to the extent
such requirements are applicable.
(e) There have been no acts or omissions by Bank that have given rise to or
may give rise to fines, penalties, taxes, or related charges under Sections
502(c), 502(i), 502(1) or 4071 of ERISA or Chapter 43 of the Code which would be
material to Bank and the Bank Subsidiaries taken as a whole.
(f) Schedule 1.1(b) sets forth the name of each director, officer or
employee of Bank or any Bank Subsidiaries entitled to receive any benefit or any
payment of any amount (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) under any existing employment
agreement, severance plan or other benefit plan as a result of the consummation
of any transaction contemplated in this Agreement, and with respect to each such
person, the nature of such benefit or the amount of such payment, the event
triggering the benefit or payment, and the date of, and parties to, such
employment agreement, severance plan or other benefit plan.
4.22 Investments. Sellers have furnished to Buyer Schedule 4.22 that,
except for investments that have matured or been sold, sets forth all of the
investments reflected in the consolidated balance sheet of Bank and the Bank
Subsidiaries, contained in the Financial Statements dated October 31, 1995, and
all of the investments made since October 31, 1995 to January 8, 1996. Except as
set forth in Schedule 4.22, (i) all such investments are legal investments under
Applicable Law for federal savings associations, and (ii) none of such
investments is subject to any restriction, contractual, statutory or other, that
would materially impair the ability of the Bank or any Bank Subsidiary holding
such investment to dispose freely of any such investment at any time, except
restrictions on the public distribution or transfer of such investments under
the Securities Act of 1933, as amended, or state securities laws.
4.23 Broker's or Finder's Fees. Except for the fees of Merrill, Lynch &
Co. to be paid by Parent, no agent, broker, investment or commercial banker, or
other Person acting on behalf of
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either Seller, will have any claims against Buyer, Bank or Purchaser for any
broker's or finder's fee or any other commission or similar fee directly or
indirectly in connection with any of the transactions contemplated in this
Agreement.
4.24 Bank Accounts. Schedule 4.24 sets forth an accurate list of each
bank, trust company, savings association or other financial institution with
which the Bank or any Bank Subsidiary has an account or safe deposit box and the
names and identification of all persons authorized to draw thereon or to have
access thereto.
4.25 Deposits. Except as set forth in Schedule 4.25, none of the Bank's
Branch Deposits is a Brokered Deposit. Except as set forth in Schedule 4.25, no
portion of the Branch Deposits represents a deposit by any Affiliate of Bank.
"Brokered Deposits" shall mean all deposits of Bank for which Bank has paid a
commission or an interest rate substantially above that paid by Bank to the
general depositors of Bank at the time of issuance of the deposit.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers and Bank as follows:
5.1 Organization and Related Matters. Buyer is a corporation duly
organized and validly existing in good standing under the laws of the state of
Delaware. The Purchaser will, at the time of Closing, be a bank or savings bank
duly organized and validly existing under the laws of the jurisdiction of its
organization and will have the requisite power and authority to own, operate and
lease its properties and to carry on its business.
5.2 Authority; No Violation.
(a) Buyer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby and at the
Closing Date, each of Purchaser and Buyer will have full corporate power and
authority to execute and deliver the Related Documents to which it is a party
and to consummate the transactions contemplated thereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly approved by all requisite corporate action on
the part of Buyer, and no other corporate proceedings on the part of Buyer are
necessary to approve this Agreement or the Related Documents and to consummate
the transactions contemplated hereby and the transactions contemplated by this
Agreement and the Related Documents will be duly and validly approved by all
requisite corporate action on the part of the Purchaser. This Agreement and the
Related Documents have been or will be duly and validly executed and delivered
by Buyer and Purchaser and (assuming the due authorization, execution and
delivery of this Agreement by Sellers and Bank) constitute a valid and binding
obligation of Buyer, enforceable against Buyer in accordance with their
respective terms, except as may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and except
as may be limited by general principles of equity whether applied in a court of
law or a court of equity.
(b) Neither the execution and delivery of this Agreement by Buyer or the
Related Documents to which Buyer or Purchaser is a party nor the consummation by
Buyer and Purchaser of the transactions contemplated hereby, nor compliance by
Buyer with any of the terms or provisions hereof will or the execution or
delivery by the Purchaser or Buyer of the Related Documents to which it is a
party (i) violate any provision of the certificate of incorporation or bylaws of
Buyer or Purchaser or (ii) assuming that the Requisite Regulatory Approvals and
consents and approvals referred to in Section 5.3 hereof are duly obtained, (x)
violate in any material respect any Applicable Law applicable to either Buyer or
Purchaser, or any of its respective properties or assets, or (y) violate,
conflict with, result in a breach of any provision of or the loss of any benefit
under, constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in the termination of or a right
of termination or cancellation under, accelerate the performance required by, or
result in the creation of any Encumbrance upon any of the respective properties
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or assets of Buyer or Purchaser under, any of the terms, conditions or
provisions of any Contract to which either Buyer or Purchaser is a party or by
which either Buyer or Purchaser, or any of its properties or assets may be bound
or affected, except for such consents and approvals the failure of which to
obtain will not, individually or in the aggregate, materially adversely affect
the ability of either Buyer or Purchaser to consummate the transactions
contemplated by this Agreement.
5.3 Consents and Approvals. Except for the Requisite Regulatory Approvals
to be obtained by Sellers and Buyer, the consents and approvals to be obtained
by Sellers and the matters set forth on Schedule 5.3, no consents or approvals
of or filings or registrations with any Governmental Entity or with any third
party are necessary in connection with the execution and delivery by Buyer of
this Agreement or the consummation by Buyer or Purchaser of the transactions
contemplated hereby (including, without limitation, the consummation of the
Purchase and Assumption).
5.4 Financing; Capital. Buyer has current assets, irrevocable credit
lines, or guaranties or other financial arrangements such that at the Closing,
Buyer (or Purchaser) will have funds sufficient to enable them to carry out
their obligations under this Agreement. After giving effect to the transactions
contemplated hereby, Buyer (or Purchaser) will have sufficient shareholders'
equity to comply with all regulatory capital adequacy requirements and will be
in compliance, in all material respects, with all other banking laws,
regulations, and guidelines applicable to its respective business as of the
Closing.
5.5 Broker's or Finder's Fees. No agent, broker, investment or commercial
banker or other Person acting on behalf of Buyers will have any claim against
Sellers or Bank for any broker's or finder's fee or any other commission or
similar fee directly or indirectly in connection with any of the transactions
contemplated in this Agreement.
5.6 Proxy Statement. None of the information regarding Buyer and its
subsidiaries supplied by Buyer for inclusion in the proxy statement to be used
in connection with the shareholders' meeting at which the Purchase and
Assumption will be considered will on the date mailed be false or misleading
with respect to any material fact, or omit to state any material fact necessary
to make the statements therein not misleading, or at the time of the
shareholders' meeting at which the Purchase and Assumption is considered to be
false or misleading with respect to any material fact, or omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of any proxy for such meeting.
ARTICLE 6.
COVENANTS
The parties covenant and agree that during the period prior to the Closing
or, to the extent expressly herein provided, thereafter:
6.1 Access. Upon the reasonable request to Parent, Sellers and Bank shall
give Buyer and its representatives reasonable access during normal business
hours to all properties, documents, accounts, books and records of Bank and the
Subsidiaries and furnish Buyer with such financial, operating and environmental
data and other information with respect to the same as Buyer shall from time to
time reasonably request, and provide Buyer with access to Sellers' officers,
employees, accountants, counsel and other representatives, and the officers,
employees, accountants, counsel and other representatives of the Bank and the
Subsidiaries, in each case subject to Applicable Laws relating to the exchange
of information. Buyer shall have the right at its own expense to make copies of
the above-described corporate records, reports and other documents, subject to
Applicable Laws relating to the exchange of information. In addition, except as
may be otherwise agreed by the parties, Sellers shall provide Buyer with Phase I
environmental reports for each parcel of Real Property owned by the Bank
(excluding residential DPC Property). Oral reports of such environmental
assessments shall be delivered to Buyer as soon as practicable, provided Sellers
use their best efforts to provide such reports no later than six (6) weeks from
the date of this Agreement and written reports shall be delivered to Buyer as
soon as practicable, provided Sellers shall use their
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best efforts to provide such reports no later than ten (10) weeks from the date
of this Agreement. Sellers shall also obtain (except as may be otherwise agreed
by the parties) Phase II environmental reports for properties identified by
Buyer on the basis of the results of such Phase I environmental reports. The
costs and expenses of all Phase II environmental reports shall be shared equally
by Buyer and Sellers. Bank shall obtain a survey and assessment of all potential
asbestos containing material in owned properties (other than DPC property) and a
written report of the results shall be delivered to Buyer as soon as
practicable, provided Sellers shall use their best efforts to obtain a report
within six (6) weeks of execution of this Agreement. During the period prior to
the Closing, Buyer shall furnish to Sellers such relevant information as Sellers
may reasonably request regarding the ability of Buyer to perform its obligations
under this Agreement.
6.2 Conduct of Business of Bank. During the period from the date of this
Agreement and continuing until the Closing Date, except as required by
Applicable Law or as expressly permitted by this Agreement, or with the prior
written consent of Buyer, Sellers shall cause Bank and the Bank Subsidiaries to
carry on their respective businesses in the usual and ordinary course, in
accordance with present practices and policies and Applicable Law, and to use
commercially reasonable efforts to pursue their relationships with customers,
suppliers and others having business dealings with them and to maintain the
services of the Employees. Without limiting the generality of the foregoing, and
except as set forth in Schedule 6.2 or as otherwise expressly permitted by this
Agreement or consented to in writing by Buyer, Sellers shall not permit Bank or
any of the Bank Subsidiaries to:
(a) Engage or participate in any material transaction, or incur or
sustain any material obligation, except in the ordinary course of business;
(b) Except for the Branch to be constructed at Crossroads, Henderson,
Nevada, open, close or relocate any Branch or Operating Site, or acquire or
sell or agree to acquire or sell any Branch or Operating Site;
(c) Change its interest rate or fee pricing policies, or materially
alter the mix of rate, terms and account types, with respect to Branch
Deposits, other than in the ordinary course of business;
(d) Make or agree to make any improvements to the Branches or the
Operating Sites, except with respect to commitments for such made on or
before the date of this Agreement and normal maintenance or refurbishing
made in the ordinary course of business;
(e) Amend, terminate or cancel, or take any other action that may
result in an amendment, termination or cancellation of any Lease or any
other Material Contract of Bank and the Subsidiaries or enter into any
Material Contract (except for the renewal of Contracts with respect to
Technology Systems for terms not to exceed June 30, 1996, or for month to
month periods thereafter);
(f) Foreclose upon or otherwise acquire any real property securing any
Loan except in accordance with the Bank's customary policy with respect to
any such Loan;
(g) Deviate in any material respect from policies and procedures
existing as of the date hereof with respect to (i) classification of
assets, (ii) accrual of interest on assets, (iii) underwriting, pricing,
originating, warehousing, selling and servicing or buying or selling rights
to service, any Loans or Serviced Mortgage Loans, (iv) hedging (which term
includes both buying futures and forward commitments from financial
institutions) its mortgage loan positions or commitments, and (v) obtaining
financing and credit;
(h) Change its method of accounting in effect at October 31, 1995,
except as required by changes in Applicable Law, GAAP or regulatory
accounting principles as concurred to by Buyer's independent auditors;
(i) Except as required by Applicable Law or to maintain qualification
pursuant to the Code and except as required by Section 6.12 of this
Agreement, (i) adopt, amend, renew or terminate any Employee Benefit Plan
or Employee Program, between Bank or any of the Bank
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Subsidiaries and one or more of its Employees, except that Bank and the
Bank Subsidiaries may hire or terminate one or more of its Employees in the
ordinary course of business, (ii) increase in any manner the compensation
or fringe benefits of any director, officer or Employee or pay any benefit
not required by any Employee Program as in effect as of the date hereof,
except for normal merit increases with respect to Employees in the ordinary
course of business consistent with past practice, or (iii) enter into or
modify any Contract providing for the payment to any director, officer or
Employee of the Bank or any Bank Subsidiaries of compensation or benefits
contingent, or the terms of which are materially altered, upon the
occurrence of any of the transactions contemplated by this Agreement
("Management Contracts"), provided that the foregoing shall not prohibit
the renewal of any such Management Contracts for a one year term at the
same terms and conditions as currently in effect; or (iv) increase in any
manner the compensation of any Person who is a party to a Management
Contract not required by any Employee Program as in effect on the date
hereof;
(j) Terminate or unilaterally fail to renew any existing insurance
coverage or bonds;
(k) Amend or modify its charter or bylaws;
(l) Declare or pay any cash or property dividends or distributions;
provided that Bank may pay a cash dividend on Bank Stock in an amount not
to exceed $250,000 for the quarter ending December 31, 1995, $375,000 for
the quarter ending March 31, 1996 and $375,000 for the quarter ending June
30, 1996 if the Purchase and Assumption is not consummated by such date,
and dividends at a rate equal to $1,000,000 for the month ending July 31,
1996 and $1,250,000 for each of the months ending August 31, 1996 and
September 30, 1996, which amounts shall be pro rated for each day after
July 1, 1996 that the Closing Date does not occur;
(m) Declare or distribute any stock dividend, effect any stock split,
or authorize, issue, or make any distribution of its capital stock or any
other securities, grant or issue any right or option to acquire any such
additional securities, or effect any recapitalization, exchange, or
reclassification of shares;
(n) Merge with or into, consolidate with, any other Person;
(o) Except as contemplated by Section 6.11, make any direct or
indirect redemption, purchase or other acquisition of any of its Equity
Interests;
(p) Except for the Branch under construction or to be constructed at
Crossroads in Henderson, Nevada, make any capital expenditures, including
any capitalized lease obligation, in amounts individually in excess of
$50,000 or in the aggregate in excess of $100,000;
(q) Make any new loan having a principal amount of $2,000,000 or more,
increase the principal amount of any outstanding loan to $2,000,000 or more
or make any commitment for any such loan or increase; provided, however,
that Buyer shall be deemed to have consented in writing to any such loan,
increase or commitment if it has not declined to give its consent within
three (3) Business Days after receipt by Buyer of a request for such
consent, accompanied by all of the credit information used by the Bank in
determining to approve such loan or commitment; provided, that Sellers will
cause Bank, promptly after the making thereof by Bank, to supply Buyer with
all reasonably requested information concerning loans in amounts less than
$2,000,000 but greater than $1,000,000;
(r) Make any investments or enter into any derivative contracts except
investments made in the ordinary course of business for terms of up to one
year and in amounts of $100,000 or less or investments made in the ordinary
course of business with terms of ten Business Days or less;
(s) Authorize or incur any long term debt (other than deposit
liabilities and Federal Home Loan Bank advances incurred in the ordinary
course of business, consistent with past practices);
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(t) Mortgage, pledge or subject to lien or other encumbrance any of
its assets or of any assets of its Bank Subsidiaries, except in the
ordinary course of business;
(u) Sell or otherwise dispose of any of its or the Bank Subsidiaries'
assets or properties other than in the ordinary course of business;
(v) Make any capital contribution to any Subsidiary; or
(w) Agree (by contract or otherwise) to do any of the foregoing;
6.3 Regulatory Approvals: Consents of Third Parties.
(a) During the period prior to the Closing, Buyer, Purchaser, Sellers and
Bank shall cooperate, in preparing, submitting and filing all applications for
all Requisite Regulatory Approvals, and obtaining such Requisite Regulatory
Approvals and taking such other actions as may be required by Applicable Laws or
court or administrative proceedings with respect to the transactions
contemplated by this Agreement, and shall use all reasonable efforts to obtain
such approvals and to accomplish such actions as expeditiously as possible. As
promptly as practicable after the date of this Agreement, Buyer and Sellers
shall prepare, submit and file or cause to be filed the applications for
Requisite Regulatory Approvals set forth on Schedule 1.1(k). Buyer and Sellers
shall have the right to review in advance, and to the extent practicable each
will consult the other on, in each case subject to Applicable Laws relating to
the exchange of information, all the information which appears in any filing
made with, or written materials submitted to, any third party or any
Governmental Entity in connection with the transactions contemplated by this
Agreement other than any portion of such filings or submissions that are
customarily accorded confidential treatment. In exercising the foregoing right,
each of the parties hereto shall act reasonably and as promptly as practicable.
The parties hereto agree that they will consult and cooperate with each other
with respect to the obtaining of all Requisite Regulatory Approvals and consents
or approvals of third parties necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the other
apprised of the status of matters relating to completion of the transactions
contemplated herein. Each of the Sellers and Buyer shall use reasonable efforts
to take, or cause to be taken, all actions necessary to comply promptly with all
legal requirements which may be imposed on such party or the Bank and the
Subsidiaries with respect to the transactions contemplated hereby and, subject
to the conditions set forth in Article 7 hereof, to consummate such
transactions. Buyer will furnish to Parent all information concerning Buyer and
Purchaser required for inclusion in a proxy statement or statements to be sent
to the shareholders of Parent or in any statement or application made by Parent
in connection with obtaining any Requisite Regulatory Approvals to be obtained
by it pursuant to this Agreement.
(b) Each party shall, upon request, furnish each other with all information
concerning themselves, their subsidiaries, directors, officers and shareholders
and such other matters as may be reasonably necessary or advisable in connection
with any statement, filing, notice or application made by or on behalf of any
party or any of their respective subsidiaries to any Governmental Entity in
connection with the transactions contemplated by this Agreement.
(c) The parties shall use all reasonable efforts to obtain all approvals,
waivers and/or consents of third parties required to consummate the transactions
contemplated by this Agreement (it being understood that Sellers shall be
responsible for obtaining all such approvals, waivers and consents from such
parties with whom Bank or any of the Subsidiaries is in contractual privity to
the extent necessary to consummate the Purchase and Assumption). If any required
consent of or waiver by such third parties (excluding Governmental Entities) is
not obtained prior to the Closing, the parties, each without cost, expense or
liability to the other shall cooperate in good faith to develop an alternative
arrangement to achieve the economic results intended, and the failure to obtain
such consent or waiver shall not constitute a failure to satisfy any condition
to Closing set forth in Article 7 of this Agreement, unless material to the
transactions contemplated hereby.
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(d) Each party represents that at the date hereof, it does not know of any
facts that would reasonably cause it to believe that all Requisite Regulatory
Approvals could not be obtained and agrees not to take any action or enter into
any agreement or arrangement that reasonably would be expected to delay or
jeopardize its ability to obtain such Requisite Regulatory Approvals; provided,
however, (i) that nothing herein shall require Buyer to agree to any conditions
to the consummation of the Purchase and Assumption imposed by any Governmental
Entity with jurisdiction over the Purchase and Assumption that are, individually
or together with any other conditions, reasonably deemed by Buyer in good faith
to be unreasonably burdensome upon Buyer or the Purchaser ("Buyer's Burdensome
Conditions") and (ii) that nothing herein shall require Sellers to agree to any
conditions to the consummation of the transactions contemplated by this
Agreement imposed by any Governmental Entity that are, individually or together
with any other condition, reasonably deemed by Parent in good faith to be
unreasonably burdensome upon Sellers or Bank ("Sellers' Burdensome Conditions").
(e) To the extent that the assignment of any contract or any license,
permit, approval or qualification issued or to be issued by any government or
agency or instrumentality thereof relating to the business of the Bank or the
Purchased Assets to be assigned to Purchaser pursuant to this Agreement shall
require the consent of any other party, this Agreement shall not constitute a
contract to assign the same if an attempted assignment would constitute a breach
thereof. Sellers and Bank shall use their reasonable efforts at the expense of
Buyer, and shall cooperate with Purchaser where appropriate, to obtain any
consent necessary to any such assignment. If any such consent is not obtained,
then Sellers and the Bank shall cooperate with Buyer and Purchaser at the
expense of Buyer in any reasonable arrangement requested by Purchaser designed
to provide to Purchaser the benefits under any such contract, license, permit,
approval or qualification, including enforcement of any and all rights of the
Bank against the other party thereto arising out of breach or cancellation
thereof by such other party or otherwise. Sellers and Bank shall obtain the
consent of Buyer before incurring any expense in connection with the foregoing
terminations or consents.
(f) At the reasonable request of Buyer, the Bank will give notice to
terminate any Contract to be included in the Purchased Assets, provided that the
Bank shall not be required to terminate any such Contract (i) if it believes
that such termination may unreasonably disrupt the operation of the business of
Bank or any Bank Subsidiary and (ii) unless it obtains satisfactory
indemnification from Buyer and the Purchaser, which shall survive the
termination of this Agreement, against any related costs or liabilities. Sellers
and Bank shall obtain the consent of Buyer before incurring any expense in
connection with the foregoing terminations or consents.
6.4 Public Announcements. Parent and Buyer shall consult with each other
before issuing any press releases or otherwise making any public statements with
respect to this Agreement or the transactions contemplated hereby, and neither
of them shall issue or permit any Affiliate to issue any such press release or
make any such public statement prior to such consultation unless reasonably
satisfactory to the other parties hereto, except as may be required by law or by
the rules or regulations of any Governmental Entity or securities exchange.
6.5 Further Assurances. Subject to the terms and conditions of this
Agreement, Sellers, Bank and Buyer shall, and shall cause Purchaser to, do all
things reasonably necessary or desirable and within their control to effect the
consummation of the transactions contemplated hereby and cause their respective
Affiliates to take such action as is contemplated hereby or required hereunder.
6.6 Notification of Certain Matters. Each party shall give prompt notice
to the other party of (a) the occurrence, or failure to occur, of any event or
existence of any condition that would be likely to cause any of its
representations or warranties contained in this Agreement to be untrue or
inaccurate in any material respect on the Closing Date, and (b) any failure on
its part to comply with or satisfy, in any material respect, any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement.
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6.7 Corporate Records, Contracts and Financial Statements. From the date
hereof through the Closing Date:
(a) Bank will promptly furnish Buyer with copies of the minutes of
each meeting of the shareholder or directors (including committees) of Bank
or the Bank Subsidiaries held after the date of this Agreement and any
Material Contract entered into after the date of this Agreement.
(b) Bank will promptly provide Buyer with copies of all regularly
prepared monthly board reports substantially in the same form as prepared
at the date of this Agreement and quarterly financial statements of Bank
and the Bank Subsidiaries for each month and quarterly period ending
between the date of this Agreement and the Closing Date. Such financial
statements shall be verified by the chief financial officer of Bank and
will be prepared in accordance with GAAP or applicable regulatory
accounting principles, except for the omission of normal recurring year-end
audit adjustments (if any) and notes thereto.
6.8 Delivery of Records at Closing. At or prior to the Closing, to the
extent not otherwise located at any Branch or Operating Site, Sellers shall
deliver to Buyer all Records (other than corporate minutes and organizational
documents) of the Bank and Bank Subsidiaries.
6.9 Shareholder Approval. Parent shall call a meeting of its shareholders
in conformance with California law to be held as soon as practicable, but in any
event prior to July 17, 1996, for the purpose of voting on the approval of this
Agreement and the transactions contemplated hereby and shall direct that this
Agreement and Purchase and Assumption be submitted to a vote at that meeting.
The board of directors of Parent shall recommend shareholder approval of this
Agreement and such transactions and use its best efforts to solicit from
Parent's shareholders proxies in favor thereof, except to the extent, based upon
the advice of counsel, the board of directors of Parent determines in good faith
that to do so would or is likely to violate its fiduciary duties under
applicable law. Neither Parent, nor any director, officer, representative or
agent thereof, will directly or indirectly, solicit, authorize the solicitation
of or, except to the extent based on the advice of counsel the board of
directors of Parent determines in good faith that failure to do so would or is
likely to violate its fiduciary duties under applicable law, enter into any
discussions with any corporation, partnership, person or other entity or group
(other than Buyer) concerning any offer or possible offer (an "Acquisition
Proposal") (i) to purchase any shares of common stock, any option or warrant to
purchase any shares of common stock, any securities convertible into any shares
of such common stock, or any other equity security of Bank (ii) to purchase,
lease or otherwise acquire the assets of Bank or any Bank Subsidiary except in
the ordinary course of business, or (iii) to merge, consolidate or otherwise
combine with Bank or any Bank Subsidiary (an "Acquisition Event"). If any
corporation, partnership, person or other entity or group makes an offer or
inquiry to Sellers or Bank or any Bank Subsidiary concerning any of the
foregoing, Sellers, Bank or such Bank Subsidiary will promptly disclose such
offer or inquiry, including the terms thereof, to Buyer.
6.10 Resignations. Sellers shall obtain the resignations, to be effective
at the Closing, of the directors of the Bank Subsidiaries.
6.11 Taxes. Immediately prior to the Closing Date, Sellers shall make a
cash payment to Bank which shall constitute a Purchased Asset, in an amount
equal to the amount set forth on Schedule 6.11 ("Deferred Tax Amount"). It is
agreed that for purposes of Schedule 6.11, that the contingent tax liability
related to real estate shall not exceed the total contingent tax liability
recorded on the books of Bank and the Bank Subsidiaries. Sellers will, upon
filing of their consolidated Tax Return for the year including the Closing Date,
disclose to Buyer the actual Deferred Tax Amount claimed on said return
("Claimed Amount"). If the Claimed Amount is more than 10% greater or less than
the Deferred Tax Amount shown on Schedule 6.11, then, within 30 days after
filing such return (i) Sellers shall pay to Buyer such amount if greater than
the amount shown on Schedule 6.11 and (ii) Buyer shall pay to Sellers such
amount if less than the amount shown on Schedule 6.11, said payments to be in
immediately available funds.
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6.12 Termination and Amendment of Certain Employee Benefit Plans. At the
request of Buyer, Sellers and the Bank shall use their reasonable efforts, at
the sole cost and expense of Buyer, with respect to the following Employee
Benefit Plans, to terminate the following plans and to the extent necessary
under the terms of the Plans, obtain consent of participants in each for lump
sum distributions:
(i) The Executive Deferral Plan;
(ii) The Director Deferral Plan;
(iii) The Supplemental Executive Retirement Plan, I;
(iv) The Supplemental Executive Retirement Plan II;
(v) Long-Term Incentive Compensation Plan; and
(vi) Severance Agreement for Sherman Miller.
Notwithstanding the foregoing, it shall not be a condition of Buyer's obligation
to consummate the Purchase and Assumption that the above-referenced Employee
Benefit Plans are terminated or that the consents of participants for lump sum
distributions are obtained. Sellers shall obtain the consent of Buyer before
incurring any expense in connection with the foregoing terminations.
6.13 Amendment of Contracts. Sellers and Bank shall their reasonable
efforts to take such actions as may be necessary to (i) amend the Agent Bank
Agreement between Bank and National City Bank dated January 3, 1994, as of the
Closing Date, on terms acceptable to the Buyer, to clarify that the
non-competition and/or termination provisions of such contract will not prevent
any of Buyer's Affiliates from issuing credit cards in any state, and (ii) to
terminate as of the Closing Date the contracts listed on Schedule 6.13.
Notwithstanding the foregoing, it shall not be a condition of Buyer's obligation
to consummate the Purchase and Assumption that the Agent Bank Agreement be
amended or the Contacts set forth on Schedule 6.13 be terminated as of the
Closing Date. Sellers shall obtain the consent of Buyer before incurring any
expense in connection with the foregoing terminations.
6.14 Employees. As of the Closing Date, Buyer shall cause Purchaser to
employ each Employee who is employed by the Bank on the day before the Closing
Date. The Assumed Liabilities shall include, among other things, all obligations
of Bank and the Bank Subsidiaries for compensation, wages, bonuses, severance
pay, vacation time, pay in lieu of vacation, sickness and accident benefits,
leaves of absence and similar employee benefits provided by Bank or the Bank
Subsidiaries to the Employees prior to the Closing Date and any obligations
relating to the termination of employment of any such Employee as of the Closing
Date or thereafter.
ARTICLE 7.
CONDITIONS TO CLOSING
7.1 Reciprocal Conditions. The obligations of each of the Sellers, Bank,
Buyer and Purchaser to effect the Closing shall be subject to the following
conditions which, to the extent permitted by Applicable Law, may be waived in
writing by such party as a condition to its own obligations:
(a) No legal administrative, arbitration, investigatory or other
proceedings by any Governmental Entity shall have been instituted and, on
what otherwise would have been the Closing Date, remain pending, to
restrain or prohibit in any material respect the transactions contemplated
by this Agreement, nor shall there be in effect on such date an injunctive
order or decree of a court of competent jurisdiction restraining or
prohibiting in any material respect the transactions contemplated by this
Agreement.
(b) All Requisite Regulatory Approvals shall have been obtained or
made and shall remain in full force and effect, and all necessary waiting
periods under Applicable Law shall have
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expired; except in any case for matters not material to the transactions
contemplated by this Agreement. All other material statutory or regulatory
requirements for the valid consummation of the transactions contemplated by
this Agreement shall have been satisfied, including any filings required to
be made under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the expiration of any waiting periods thereunder or under the
Bank Holding Company Act of 1956, as amended, or the Savings and Loan
Holding Company Act or otherwise.
(c) All approvals or consents of any other third party required in
order to consummate the transactions contemplated by this Agreement shall
have been obtained and remain in full force and effect, except in any case
for matters not material to the transactions contemplated by this Agreement
and except to the extent otherwise provided in Section 6.3(c).
(d) This Agreement and the transactions contemplated hereby shall have
been approved by the affirmative vote of the holders of the percentage of
the outstanding shares of Parent required for approval of this Agreement in
accordance with the provisions of Parent's Articles of Incorporation and
the California General Corporations Law.
7.2 Conditions to Buyer's Obligations. The obligations of Buyer and
Purchaser to effect the Closing shall be subject to the following additional
conditions which may be waived in writing by Buyer:
(a) The representations and warranties of Sellers contained in this
Agreement shall be true in all material respects as of the date of this
Agreement and on the Closing Date with the same effect as though made at
such time; Sellers and Bank shall have performed all obligations and
complied in all material respects with all covenants and conditions
required by this Agreement to be performed or complied with by them at or
prior to the Closing Date; and Sellers and Bank shall have delivered to
Buyer and Purchaser a certificate dated the Closing Date and signed in
their respective names and on their respective behalf by their respective
chief executive officer and principal financial officer to the foregoing
effect to the best knowledge of such officers;
(b) Opinions of O'Melveny & Myers, counsel to Sellers and Bank, and of
Sellers' in-house counsel, covering the matters contemplated by Exhibit C-1
and C-2, respectively, shall have been delivered to Buyer;
(c) During the period from the date of this Agreement to the Closing
Date, there shall not have been any material adverse change in Bank and the
Bank Subsidiaries taken as a whole, or any injunctions, orders, judgments
or decrees which are material to Bank and the Bank Subsidiaries taken as a
whole and Buyer shall have received a certificate dated the Closing Date
signed by the chief executive officer and the chief financial officer of
Bank attesting to such fact to the best knowledge of such officers;
(d) In connection with any Requisite Regulatory Approvals, no Buyer's
Burdensome Conditions shall be imposed.
(e) Bank shall have duly authorized, executed, and delivered to the
Purchaser the Bill of Sale dated as of the Closing Date.
7.3 Conditions to Sellers' Obligations. The obligation of Sellers and Bank
to effect the Closing shall be subject to the following additional conditions
which may be waived in writing by Sellers:
(a) The representations and warranties of Buyer contained in this
Agreement shall be true in all material respects as of the date of this
Agreement and on the Closing Date with the same effect as though made at
such time; Buyer and Purchaser shall have performed all obligations and
complied with all material covenants and conditions required by this
Agreement to be performed or complied with by them at or prior to the
Closing Date; and Buyer shall have delivered to Sellers a certificate,
dated the Closing Date and signed in its name and on its behalf
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by its chief executive and principal financial officer to the foregoing
effect to the best knowledge of such officers;
(b) Opinion of Buyer's General Counsel or Senior Counsel, covering the
matters contemplated by Exhibit D, shall have been delivered to Sellers;
and
(c) In connection with any Requisite Regulatory Approvals, no Sellers'
Burdensome Conditions shall be imposed.
(d) The Purchaser shall have duly authorized, executed and delivered
to the Bank the Assumption Agreement dated as of the Closing Date.
ARTICLE 8.
TAX MATTERS
8.1 Liability for Taxes.
(a) Liability of Sellers. SC and, to the extent permitted by Applicable
Law, Parent and Bank shall be liable for and indemnify Buyer and Purchaser
against all Taxes imposed with respect to the Purchased Assets (i) for any
taxable year or period that ends on or before the Closing Date or (ii) with
respect to any taxable year or period beginning before and ending after the
Closing Date, the portion of such taxable year or period ending on and including
the Closing Date, except to the extent such Taxes are accrued on the balance
sheet of the Bank and the Bank Subsidiaries contained in the Financial
Statements as of October 31, 1995, adjusted to reflect (1) payments or refunds
made or received by Bank or the Bank Subsidiaries after October 31, 1995 and
prior to the Closing Date, (2) payments under Section 6.11, (3) previous
payments or refunds under this Article 8, and (4) accruals for Taxes related to
operations subsequent to October 31, 1995 and prior to the Closing Date.
(b) Liability of Buyer. Buyer shall be liable for and indemnify the Sellers
and Bank against all Taxes imposed with respect to the Purchased Assets for (i)
any taxable year or period that begins after the Closing Date and (ii) with
respect to any taxable year or period beginning before and ending after the
Closing Date, the portion of such taxable year beginning on the day after the
Closing Date.
(c) Accrued Refunds. Buyer shall be entitled to receive any Tax refunds
related to Bank or the Bank Subsidiaries which constitute Tax receivables
accrued on the balance sheet of the Bank and the Bank Subsidiaries contained in
the Financial Statements as of October 31, 1995, adjusted to reflect (1) refunds
received by Bank or the Bank Subsidiaries after October 31, 1995 and prior to
the Closing Date, (2) payments under Section 6.11, and (3) previous payments or
refunds under this Article 8.
(d) Accrued Payments. To the extent that Taxes are accrued on the balance
sheet of the Bank and the Bank Subsidiaries contained in the Financial
Statements as of October 31, 1995, adjusted to reflect (1) payments or refunds
made or received by Bank or the Bank Subsidiaries after October 31, 1995 and
prior to the Closing Date, (2) payments under Section 6.11, (3) previous
payments or refunds under this Article 8, and (4) accruals for Taxes related to
operations subsequent to October 31, 1995 and prior to the Closing Date, Buyer
shall be obligated to make payments for such Taxes.
8.2 Survival. The obligations of the parties under this Article 8 shall
survive until expiration of the applicable statute of limitations (or any
extension).
8.3 Transfer Taxes. All stamp, transfer, documentary, sales, use,
registration and other such taxes and fees (including any penalties and
interest) incurred in connection with the Purchase and Assumption Option
(collectively, the "Transfer Taxes") shall be paid by Purchaser and Bank shall
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properly file on a timely basis all necessary tax returns and other
documentation with respect to any Transfer Tax.
8.4 Tax Cooperation. Buyer and Purchaser shall: (a) cooperate fully in
preparing for any audits of or disputes with taxing authorities regarding, any
Taxes imposed on Bank or the Bank Subsidiaries with respect to matters arising
prior to the Closing Date or Taxes imposed on Sellers or Bank as a result of the
consummation of the transactions contemplated hereby; (b) make available to the
other and to any taxing authority, as reasonably requested by Sellers and Bank,
all information, records and documents relating to Taxes imposed on Bank or the
Bank Subsidiaries with respect to matters arising prior to the Closing Date or
Taxes imposed on Sellers or Bank as a result of the consummation of the
transactions contemplated hereby; and (c) provide timely notice to Parent in
writing of any pending or threatened audits or assessments relating to Taxes
imposed on the Bank or the Bank Subsidiaries with respect to matters arising
prior to the Closing Date. Sellers, Bank, Purchaser and Buyer shall each (y)
cooperate in the preparation of any Tax Returns which the other is responsible
for preparing and filing; and (z) furnish the other with copies of all
correspondence received from any taxing authority in connection with any audit
or information request with respect to Taxes imposed on the Bank or the Bank
Subsidiaries with respect to matters prior to the Closing Date.
ARTICLE 9.
TERMINATION/SURVIVAL/INDEMNIFICATION/TERMINATION FEE
9.1 Termination. This Agreement may be terminated by either of the
parties, if the Closing has not yet occurred, on the Final Termination Date
(unless the failure of such occurrence shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe all of the agreements
contained herein required to be performed or observed prior to the Closing),
unless extended by the written consent of Sellers and Buyer, and this Agreement
may be terminated at any other time prior to the Closing Date as follows and in
no other manner:
(a) by consent of the parties evidenced by their written agreement;
(b) by Sellers and Bank or by Buyer, as the case may be, upon written
notice to the other, if the Bank Regulators, or any other Governmental
Entity having jurisdiction over the transactions contemplated by this
Agreement, shall notify Buyer or Sellers in writing that by its final
determination it will refuse to grant an approval or consent to any
material aspect of the transactions necessary to the consummation thereof,
unless within 30 days after receipt of notice of such action, the party
against whom the action was taken shall agree to submit or resubmit an
application to, or appeal the decision of the Bank Regulator or
Governmental Entity which denied or refused to grant approval thereof;
(c) by Sellers and Bank upon written notice of termination to Buyer if
Buyer shall not have filed applications with the Bank Regulators, for
approval of the Purchase and Assumption by March 22, 1996, unless Buyer's
failure to file such applications shall be primarily the result of a breach
of Sellers' covenants under Section 6.3 hereof;
(d) by Sellers and Bank upon written notice of termination to Buyer if
any event occurs which makes it impossible to satisfy, by the Final
Termination Date, one or more of the conditions to the obligations of
Sellers set forth in Section 7.1 or 7.3, and such failure is not waived by
Sellers;
(e) by Buyer upon written notice of termination to Sellers and Bank if
any event occurs which makes it impossible to satisfy, by the Final
Termination Date, one or more of the conditions to the obligations of Buyer
set forth in Section 7.1 or 7.2, and such failure is not waived by Buyer;
(f) by Buyer pursuant to Section 9.7; and
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(g) by Buyer upon written notice of termination to Sellers and Bank if
Bank shall not have filed or attempted to file in good faith applications
with the Bank Regulators set forth on Schedule 9.1(g) by March 22, 1996.
Any such termination shall be without liability to either party, provided
that no such termination shall relieve a party of liability for default in the
performance of any of its obligations or breach of any of its representations
and warranties. Notwithstanding the foregoing, if this Agreement is terminated
for any reason other than as set forth in clause (e) above or Section 9.7, Buyer
shall reimburse Bank for all expense incurred by Bank pursuant to Section 6.12
and 6.13.
9.2 Survival of Representations and Warranties. Except for covenants with
respect to obligations to be performed post-Closing, the respective
representations and warranties and covenants of Sellers, Bank and Buyer
contained herein shall survive for a period of one year after the Closing Date;
provided, however, that any representations and warranties contained in Section
4.11, the covenants of SC and Bank set forth in Section 9.3(c), the covenants
set forth in Section 9.5 and Section 9.6 and the covenants of the parties set
forth in Section 6.14 and Article 8 shall survive the Closing or until the
expiration of any applicable statutes of limitation (as extended). Following
such termination of such representations and warranties and covenants, no party
shall have any liability whatsoever with respect thereto.
9.3 Indemnification.
(a) From and after the Closing Date, each Seller and Bank shall indemnify
Buyer and Purchaser and hold Buyer and Purchaser harmless from and against any
and all Loss that Buyer may suffer, incur or sustain to the extent arising out
of (i) any breach of any representation or warranty made by such Sellers
pursuant to Article 4 of this Agreement, and (ii) any breach of any agreement to
be performed by Sellers or Bank pursuant to this Agreement.
(b) From and after the Closing Date, Buyer and Purchaser shall indemnify
Sellers and Bank and hold them harmless from and against any and all Loss that
either Sellers or Bank may suffer, incur or sustain to the extent arising out of
(i) any representation or warranty made by Buyer pursuant to Article 5 of this
Agreement, (ii) any breach of any agreement to be performed by Buyer or
Purchaser pursuant to this Agreement, and (iii) the Assumed Liabilities (except
to the extent such Loss is as a result of a breach of any representation or
warranty made by Sellers pursuant to Article 4 of this Agreement or any breach
of any Agreement to be performed by Sellers or Bank pursuant to this Agreement).
(c) From and after the Closing Date, SC and Bank shall indemnify Buyer and
Purchaser and hold them harmless against any and all Losses relating to or
arising out of the Retained Liabilities. In no event shall SC's or Bank's
obligations hereunder in the aggregate exceed $175,000,000.
(d) To exercise its indemnification rights under Section 9.3 as the result
of the assertion against it of any claim or potential liability for which
indemnification is provided, the indemnified party shall promptly notify the
indemnifying party of the assertion of such claim, discovery of any such
potential liability or the commencement of any action or proceeding in respect
of which indemnity may be sought hereunder. The indemnified party shall afford
the indemnifying party the opportunity, at the indemnifying party's sole cost
and expense, to defend against such claims for liability. In any such action or
proceeding, the indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at its own expense
unless (i) the indemnifying party and the indemnified party mutually agree to
the retention of such counsel or (ii) the named parties to any such suit action,
or proceeding (including any impleaded parties) include both the indemnifying
party and the indemnified party, and in the reasonable judgment of the
indemnified party, based upon a written opinion of counsel, representation of
the indemnifying party and the indemnified party by the same counsel would be
inadvisable due to conflicts of interests between them.
(e) The indemnified party shall have the right to settle or compromise any
claim or liability subject to indemnification under Section 9.3, and to be
indemnified from and against all Loss
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resulting therefrom, unless the indemnifying party, within 30 calendar days
after receiving written notice of the claim or liability in accordance with
Section 9.3(d) above, notifies the indemnified party that it intends to defend
against such claim or liability and undertakes such defense, or, if required in
a shorter time than 30 calendar days, the indemnifying party makes the requisite
response to such claim or liability asserted. Notwithstanding the foregoing,
neither Buyer nor Bank shall be entitled to settle or compromise any claim or
liability arising out of the Real Estate Liabilities without the written consent
of SC, which shall not be unreasonably withheld or delayed.
(f) The indemnified party shall at all times use its reasonable efforts (at
the indemnifying party's expense) to mitigate the Loss for which the
indemnifying party may be liable pursuant to this Agreement. With respect to any
matter for which the indemnifying party may be liable pursuant to the provisions
of this Agreement, the indemnified party shall (at the indemnifying party's
expense) diligently pursue (including, without limitation, the commencement and
pursuit of litigation) any and all rights and remedies under agreements and
contracts, including, without limitation, insurance policies, with third parties
pursuant to which the indemnified party has rights of recourse or is indemnified
or the beneficiary of a guaranty.
(g) Sellers and Bank shall not be required to indemnify Buyer or Purchaser
under Section 9.3(a) unless the aggregate of all amounts for which indemnity
would otherwise be payable thereunder by Sellers exceed $1,000,000, and in such
event Sellers shall be responsible only for the amount in excess of such
$1,000,000. In no event shall Sellers' obligations under Section 9.3(a) exceed
$5,000,000.
(h) Buyer and Purchaser shall not be required to indemnify Sellers or Bank
under Section 9.3(b) (i) or (ii) unless the aggregate of all amounts for which
indemnity would otherwise be payable thereunder by Buyer exceed $1,000,000, and
in such event Buyer shall be responsible only for the amount in excess of such
$1,000,000. In no event shall Buyer's and Purchaser's obligations under Sections
9.3(b) (i) and 9.3(b)(ii) exceed $5,000,000 and in no event shall Buyer's
obligations under Section 9.3(b) (iii) exceed $175,000,000 less any amounts paid
by Purchaser or any of its successors and assigns with respect thereto.
(i) Any amounts payable by an indemnifying party hereunder shall be net of
the dollar amount of any insurance proceeds recovered by the indemnified party
with respect to such Loss.
(j) The remedies provided in Article 8 and in this Article 9 shall
constitute the sole and exclusive remedy with respect to the matters set forth
in Section 9.3.
9.4 Confidentiality Agreement. The Confidentiality Agreement shall
terminate on the Closing Date, other than with respect to any Evaluation
Material (as defined in the Confidentiality Agreement) concerning Parent, SC or
the Real Estate Subsidiaries.
9.5 Limitations on Dividends from SC, Etc. SC and Bank shall not, and
Parent shall not permit SC or Bank (i) to pay a dividend to Parent or loan the
proceeds of this transaction to Parent in any manner that would cause SC or Bank
to be unable to satisfy its obligations under Sections 8.1(a) or 9.3(c), (ii)
sell SC or otherwise transfer, merge, consolidate or dissolve SC (other than to
or with Bank) or (iii) sell or subject to Encumbrance or otherwise dispose of
any of SC's or Bank's assets other than to SC or Bank unless the proceeds of
such sale, Encumbrance or disposition are retained by SC or Bank or used by SC
or Bank to satisfy its obligations under Sections 8.1(a) or 9.3(c). In the event
that, notwithstanding the foregoing, SC or Bank is unable to satisfy its
obligations under Sections 8.1(a) and 9.3(c) as a result of the payment of a
dividend or loan to Parent or the actions taken in subclauses (ii) or (iii),
Parent shall promptly repay to Bank and SC the amount which Bank or SC are
unable to pay as a result of the payment of such dividends or loan or the
actions taken in subsection (i) or (ii).
9.6 Insurance Claims.
(a) To the extent that any policies of insurance of Sellers provide defense
and/or indemnity for claims or losses which occurred with respect to Bank prior
to the Closing Date, Buyer and
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Purchaser will have the right to manage such claims/losses and receive any
protection afforded thereunder. Buyer shall promptly notify Parent, SC and Bank
of all material events which have occurred in connection with the prosecution of
such claims.
(b) At the request of Buyer, Sellers shall use their reasonable efforts to
amend any of Sellers' insurance policies in effect on the date hereof which
provide for coverage only on a "claims made" basis to an "occurrence" basis or
to provide for an extended discovery period thereunder (in either case for a
period not less than seven years following the Closing Date) for Bank
liabilities that are based on acts or omissions occurring on or prior to the
Closing Date, the cost of which shall be the responsibility of Purchaser and
Buyer. In addition, Parent shall provide to Buyer a certified copy of each such
policy. Sellers shall advise Buyer before incurring any out of pocket expense
related to any such amendment.
(c) Nothing in this Article 9 shall be deemed to limit or supercede any
insurance coverage available to or provided on behalf of any party hereto.
(d) Buyer shall cause each Bank Subsidiary to make all claims for Losses
which any Bank Subsidiary may suffer, incur or sustain with respect to matters
covered by insurance policies for which Bank is the insured and which are
disclosed on Schedule 4.13 of which a Bank Subsidiary is aware and in effect on
or prior to the Closing Date and shall do all such things as may be reasonably
requested in connection with the prosecution of such claims. Buyer shall
promptly notify Parent and SC of any such claims which have been filed and of
all material events which occur in connection with the prosecution of such
claims.
9.7 Termination Fee. If (a) an Acquisition Proposal is made, (b) the board
of directors of the Parent fails to recommend shareholder approval of this
Agreement or withdraws or modifies such recommendation in a manner adverse to
Buyer, and (c) either (i) this Agreement is not approved by the affirmative vote
of the holders of the percentage of the outstanding shares of Parent required
for approval of this Agreement in accordance with the provisions of Parent's
Articles of Incorporation and the California General Corporations Law, or (ii)
the meeting of shareholders of the Parent at which approval of this Agreement
and the transactions contemplated hereby is sought does not occur on or before
August 16, 1996, or (d) an Acquisition Event occurs prior to termination of this
Agreement, then Buyer may terminate this Agreement by written notice of
termination to Sellers and Bank, whereupon no party shall have any liability to
any other party except that Sellers shall pay to Buyer, within ten Business Days
after receipt by Sellers of Buyer's written notice of termination or the
occurrence of an Acquisition Event, the amount of $5,250,000, plus documented
expenses incurred by Buyer in connection with this Agreement and the
transactions contemplated herein, including reasonable accounting and legal fees
(for a total of all expenses not to exceed $1,250,000) such payments to be in
immediately available funds to an account or accounts specified in writing by
Buyer to Seller.
ARTICLE 10
EMPLOYEE BENEFIT PLANS
Each person who is an employee of Bank as of the Closing Date ("Bank
Employees") shall be eligible for participation in the employee welfare and
retirement plans of Buyer, as in effect from time to time, as follows:
(a) Employee Welfare Benefit Plans. Each Bank Employee shall be eligible
for participation in the employee welfare benefit plans of Buyer listed below
subject to any eligibility requirements applicable to such plans (but not
subject to any pre-existing conditions or exclusions except for the Norwest Long
Term Care Plan) and shall enter each plan not later than the first day of the
calendar quarter which begins at least 32 days after the Closing Date, provided,
however, that until the effective date of coverage for Bank Employees under the
Buyers' employee welfare benefit plans listed below, the employee welfare
benefit plans of Bank, as in effect prior to the Closing Date, shall
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be maintained for the benefit of Bank Employees on the terms and conditions
previously in effect, including with respect to employer contributions, to
ensure that no gap in coverage occurs:
Medical Plan
Dental Plan
Vision Plan
Short Term Disability Plan
Long Term Disability Plan
Long Term Care Plan
Flexible Benefits Plan
Basic Group Life Insurance Plan
Group Universal Life Insurance Plan
Dependent Group Life Insurance Plan
Business Travel Accident Insurance Plan
Accidental Death and Dismemberment Plan
Severance Pay Plan
Vacation Program
For the purpose of determining each Bank Employee's benefits for the year in
which the Closing occurs under Buyer's vacation program, vacation taken by a
Bank Employee in the year in which the Purchase and Assumption occurs will be
deducted from the total Buyer's benefit. After the Closing Date, Bank Employees
will be subject to Buyer's Vacation Program in accordance with the terms of that
Program, with full credit for years of past service to Bank and the Bank's
Subsidiaries. For purposes of the Short Term Disability Plan and Severance
Policy, Bank Employees will receive full credit for years of past service with
Bank and the Bank Subsidiaries. Each Bank Employee whose employment is
terminated on or after the Closing Date shall be eligible to receive benefits
under Buyer's Severance Pay Plan on the terms and conditions stated therein with
full credit for years of past service with Bank and the Bank Subsidiaries.
Bank Employees shall not be entitled to past service credit with regard to
retiree medical benefits.
(b) Employee Retirement Benefit Plans.
Each Bank Employee shall be eligible for participation in the Norwest
Savings Investment Plan (the "SIP"), subject to any eligibility requirements
applicable to the SIP (with full credit for years of past service to Bank to the
extent such service was credited in the Bank 401(k) for the purpose of
satisfying any eligibility and vesting periods applicable to SIP), and shall
enter the SIP not later than the first day of the calendar quarter which begins
at least 32 days after the Closing Date.
Each Bank Employee shall be eligible for participation in the Norwest
Pension Plan under the terms thereof with full credit for years of past service
to Bank and the Bank Subsidiaries to the extent such service was credited in the
Bank Pension Plan for the purpose of satisfying any eligibility and vesting
periods applicable to the Norwest Pension Plan (but not for benefit purposes).
ARTICLE 11.
MISCELLANEOUS
11.1 Expenses; Attorneys' Fees. Except as otherwise expressly provided
herein, each party shall bear its own expenses and all fees and out-of-pocket
expenses of outside counsel, independent public accountants, investment bankers,
brokers, finders and other consultants shall be paid or provided for by the
party employing such person; provided that Buyer shall be responsible for any
additional costs incurred in connection with any transaction contemplated by
Buyer after the Purchase and Assumption and Sellers shall be responsible for the
out-of-pocket expenses of outside counsel, independent public accountants,
investment bankers, brokers, finders and other
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<PAGE> 99
consultants incurred prior to the Closing Date by Bank in connection with this
Agreement, except as otherwise provided in this Agreement; provided further
Buyer shall reimburse Sellers for any and all documented out-of-pocket expenses
incurred by Sellers or Bank, including reasonable legal and accounting fees and
expenses, in connection with (i) Sellers' or Bank's efforts to obtain the
regulatory approvals set forth in Schedule 1.1(k) required to be obtained by
Sellers or Bank and the approvals, waivers and/or consents of third parties
required to consummate the transactions contemplated by this Agreement but not
the Acquisition Agreement and (ii) the Bank ceasing to be regulated as an
insured depository institution or savings and loan association. Sellers shall
use their reasonable efforts to consult with Buyer before incurring any expenses
referred to in the last proviso.
11.2 Amendments. The provisions of this Agreement and any Exhibit or
Schedule attached hereto (or agreement entered into concurrently herewith) may
be amended or waived only in writing by agreement of the parties hereto except
as otherwise provided by law.
11.3 Schedules; Exhibits. Each Schedule and Exhibit delivered in
connection with or pursuant to this Agreement shall be in writing and shall
constitute a part of this Agreement, although such Schedule or Exhibit need not
be attached to each copy of this Agreement. Disclosure of any fact or item in
any Schedule referenced by a particular section of this Agreement shall be
deemed to have been disclosed for any and all purposes under this Agreement. The
specification of any dollar amount in the representations and warranties
contained in this Agreement or the inclusion of any specific items in any
Schedules hereto is not intended to imply that such amounts, or higher or lower
amounts, or the items so included or other items, are or are not material, and
neither party shall use the fact of the setting of such amounts or the inclusion
of any such item in any dispute or controversy between the parties as to whether
any obligation, item or matter not described herein or included in a Schedule,
or otherwise, is or is not material for purposes of this Agreement. Unless
otherwise specified, definitions given to terms in this Agreement or the
Exhibits and Schedules shall apply to all parts of this Agreement including the
Exhibits and Schedules.
11.4 Integration. To the extent provided in Section 9.4, this Agreement
supersedes any and all prior agreements or understandings of the parties in
connection herewith or with respect to the subject matter hereof.
11.5 Governing Law. This Agreement, the legal relations between the
parties and the adjudication and the enforcement thereof shall be governed by
and interpreted and construed in accordance with the substantive laws of the
State of California, and, to the extent applicable, federal law.
11.6 Notices. All notices hereunder shall be in writing, and shall be
deemed given when (a) delivered in person, (b) transmitted by telecopy, provided
that any notice so given is also mailed as provided in clause (c), or (c) mailed
by certified or registered mail, postage prepaid, return receipt requested,
addressed as follows:
If to Buyer:
Norwest Corporation
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-1026
Attention: Secretary
If to Sellers:
Southwest Gas Corporation
5241 Spring Mountain Road
Las Vegas, Nevada 89102
Attention: Chief Financial Officer
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<PAGE> 100
With a copy to:
O'Melveny & Myers
400 South Hope Street
Los Angeles, California 90071-2899
Telecopy: (213) 669-6407
Attention: Frances E. Lossing, Esq.
11.7 No Assignment. Neither this Agreement nor any rights hereunder may be
assigned by any party without the written consent of the other parties hereto;
provided, however, that the Buyer and the Purchaser may assign their respective
rights and obligations (other than Buyer's obligation to pay or cause to be paid
the Purchase and Assumption Purchase Price) hereunder to each other or any of
Buyer's direct or indirect subsidiaries; provided, however, that Buyer shall
guarantee, in a form reasonably satisfactory to Sellers, the performance of the
obligations of any of its assignees under this Agreement or any of the Related
Documents.
11.8 Headings. The descriptive headings of the sections of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
11.9 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which taken together shall
constitute one and the same agreement.
11.10 Severability. If any provision of this Agreement is determined to be
invalid, illegal or unenforceable by any Governmental Entity, the remaining
provisions of this Agreement shall remain in full force and effect, provided
that the essential terms and conditions of this Agreement for both parties
remain valid, binding and enforceable.
11.11 Alternative Dispute Resolution. If a dispute arises between the
parties relating to this Agreement, the following procedure shall be implemented
before either party pursues other available remedies, except that either party
may seek injunctive relief from a court, where appropriate, in order to maintain
the status quo while this procedure is being followed:
(a) The parties shall meet within ten days after either party notifies
the other party in writing of the existence of a dispute to attempt in good
faith to negotiate a resolution of the dispute. The meeting shall be
attended by persons with authority to settle the dispute; provided,
however, that no such meeting shall be deemed to vitiate or reduce the
obligations and liabilities of the parties or be deemed a waiver by either
party of any remedies to which such party otherwise would be entitled.
(b) If within 15 days after such meeting, the parties have not
succeeded in negotiating a resolution of the dispute, the dispute shall be
determined by arbitration. The arbitration shall be conducted in accordance
with the United States Arbitration Act (Title 9, U.S. Code) and under the
Commercial Rules of the American Arbitration Association; provided,
however, that with respect to Section 30, failure of any party to appear or
respond in the arbitration proceeding shall result in a default award
against such party. The arbitrator(s) shall give effect to statutes of
limitation in determining any claim. Any controversy concerning whether an
issue is arbitrable shall be determined by the arbitrator(s). The award
rendered by the arbitrator(s) shall set forth findings of the facts and
conclusions of law and shall be final, and the judgment may be entered in
any court having jurisdiction thereof. A failure by the arbitrator(s) to
make findings of fact and conclusions of law shall be grounds for
overturning the award.
(c) In any arbitration proceeding, the arbitrator(s) is (are)
authorized to apportion costs and expenses, including investigation, legal
and other expense, which will include, if applicable, a reasonable estimate
of allocated costs and expense or in-house legal counsel and legal staff.
Such costs and expenses are to be awarded only after the conclusion of the
arbitration and will not be advanced during the course of such arbitration.
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<PAGE> 101
(d) Any arbitration hereunder shall take place in the City of Las
Vegas, Nevada, unless otherwise agreed by the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
SOUTHWEST GAS CORPORATION:
/s/ MICHAEL O. MAFFIE
Name: Michael O. Maffie
Title: President and CEO
/s/ FAYE J. RINGLER
Name: Faye J. Ringler
Title: Assistant Corporate Secretary
THE SOUTHWEST COMPANIES:
/s/ MICHAEL O. MAFFIE
Name: Michael O. Maffie
Title: President and CEO
/s/ FAYE J. RINGLER
Name: Faye J. Ringler
Title: Assistant Corporate Secretary
PRIMERIT BANK, FEDERAL SAVINGS BANK:
/s/ DAN J. CHEEVER
Name: Dan J. Cheever
Title: President and CEO
/s/ HARRY E. HINDERLITER
Name: Harry E. Hinderliter
Title: Executive Vice President, Chief
Administrative Office & General
Counsel
NORWEST CORPORATION:
/s/ LES BILLER
Name: Les Biller
Title: Executive Vice President
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<PAGE> 102
EXHIBIT A
ASSUMPTION AGREEMENT
ASSUMPTION AGREEMENT made as of , 19 by
, an corporation (the "Purchaser").
WHEREAS, Norwest Corporation has entered into an Agreement dated as of
, 1996 (the "Purchase Agreement"), among PriMerit Bank, Federal
Savings Bank, a federal savings bank (the "Bank"), The Southwest Companies, a
Nevada corporation, and Southwest Gas Corporation, a California corporation,
which Purchase Agreement provides, inter alia, for the sale to the Purchaser of
the Purchased Assets (as defined in the Purchase Agreement) and the due
execution and delivery of this Assumption Agreement by the Purchaser at the
Closing (as defined in the Purchase Agreement);
NOW, THEREFORE, the Purchaser hereby agrees as follows:
1. Definitions. Any capitalized term used herein which is not defined
herein but is defined in the Purchase Agreement shall have the meaning specified
in the Purchase Agreement.
2. Assumption. The Purchaser hereby assumes and agrees to pay and
discharge in accordance with their terms the Assumed Liabilities. With respect
to any legal, administrative, arbitral or other proceeding, claim, action or
governmental or regulatory investigation of any nature against or affecting
Bank, or any of the Bank Subsidiaries or any of their respective properties or
assets existing on the date of this Assumption Agreement or subsequently brought
or threatened with respect to or arising out of, or alleged to be with respect
to or arising out of, actions taken or not taken prior to the date of this
Assumption Agreement, other than with respect to the Retained Liabilities, the
Purchaser shall defend and hold Bank and Sellers harmless.
3. Further Assurances. The Purchaser shall, from time to time after the
delivery of this Agreement, at the Bank's request and without further
consideration, take all steps reasonably necessary to assume the Assumed
Liabilities, and shall execute and deliver such other instruments of assumption
and take such action as the Bank or any applicable third party may reasonably
require more effectively to assume the Assumed Liabilities.
4. Notices. Any notice, request or other document to be given with respect
hereto shall be given in the manner specified in Section 11.6 of the Purchase
Agreement.
5. Severability. If any provision of this Assumption Agreement shall be
declared by any court of competent jurisdiction to be illegal or unenforceable,
the other provisions shall not be affected, but shall remain in full force and
effect.
6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada.
IN WITNESS WHEREOF, the Purchaser has caused this Assumption Agreement to
be executed by its duly authorized officer as of the day and year first above
written.
--------------------------------------
By:
--------------------------------------
Its:
--------------------------------------
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<PAGE> 103
EXHIBIT B
BILL OF SALE
BILL OF SALE made as of , 19 by PriMerit Bank, Federal Savings
Bank, a federal savings bank (the "Bank").
WHEREAS, the Bank has entered into an Agreement, dated as of ,
1996 (the "Purchase Agreement"), among the Bank, Norwest Corporation ("Norwest")
and others, which Purchase Agreement provides, inter alia for the sale by the
Bank to , a wholly-owned bank or thrift subsidiary of
Norwest (the "Purchaser") of the Purchased Assets (as defined in the Purchase
Agreement) and the due execution and delivery of this Bill of Sale by the Bank
to the Purchaser at the Closing (as defined in the Purchase Agreement);
NOW, THEREFORE, the Bank hereby agrees as follows:
1. Definitions. Any capitalized term used herein which is not defined
herein but is defined in the Purchase Agreement shall have the meaning specified
in the Purchase Agreement.
2. Transfer of the Purchased Assets. The Bank hereby sells, conveys,
assigns, transfers and delivers to the Purchaser, its successors and assigns,
all of the Bank's right, title and interest in and to the Purchased Assets, to
have and to hold, and all of the Purchased Assets are hereby sold, conveyed,
assigned, transferred and delivered to the Purchaser, its successors and
assigns, forever. The only representations and warranties made in connection
with this Bill of Sale are those expressly set forth in and subject to the terms
of, the Purchase Agreement.
3. Further Assurances. The Bank shall, from time to time after the
delivery of this Bill of Sale, at the Purchaser's request and without further
consideration, take all steps reasonably necessary to put the Purchaser, or its
successors or assigns, in actual possession and control of the Purchased Assets,
and shall execute and deliver such other instruments of conveyance and transfer,
consents, bills of sale, assignments, releases, powers of attorney and
assurances and take such action as the Purchaser may reasonably require more
effectively to sell, convey, assign, transfer and deliver the Purchased Assets.
4. Notices. Any notice, request or other document to be given with respect
hereto shall be given in the manner specified in Section 11.6 of the Purchase
Agreement.
5. Severability. If any provision of this Bill of Sale shall be declared
by any court of competent jurisdiction to be illegal or unenforceable, the other
provisions shall not be affected, but shall remain in full force and effect.
6. Governing Law. This Bill of Sale shall be governed by and construed in
accordance with the laws of the State of Nevada.
IN WITNESS WHEREOF, the Bank has caused this Bill of Sale to be executed by
its duly authorized officer as of the day and year first above written.
PriMerit Bank, Federal Savings Bank
By:
--------------------------------------
Its:
--------------------------------------
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<PAGE> 104
EXHIBIT C-1
MATTERS TO BE COVERED IN OPINION OF O'MELVENY & MYERS
(SUBJECT TO CUSTOMARY QUALIFICATIONS)
a. The Agreement and Related Documents have been duly authorized by all
necessary corporate action on the part of Parent, SC and Bank and have been duly
executed and delivered by Parent, SC and Bank. The Agreement constitutes a
legally valid and binding obligation of each of Parent, SC and Bank, enforceable
against each of them in accordance with its terms, except as limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting purchasers' or creditors' rights generally (including
rights of purchasers or creditors of depository or insured institutions), and
except that the enforceability of the Agreement is subject to the effect of
general principles of equity including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing and the possible
unavailability of specific performance or injunctive relief, regardless of
whether considered in a proceeding in equity or at law.
b. The execution and delivery by Parent, SC and Bank of, and performance on
or before the date of the opinion of their respective obligations under, the
Agreement and Related Documents do not (i) violate the articles of incorporation
or bylaws of Parent or SC or the charter or bylaws of Bank, (ii) violate any
California or federal statute, rule or regulation that such counsel would, in
its experience, reasonably recognize as directly applicable to Parent, SC or
Bank or to transactions of the type contemplated by the Agreement and Related
Documents, (iii) violate, breach or result in a default under, result in the
creation or imposition of any Encumbrance upon any of the assets of Parent, SC
or Bank or result in the ability to accelerate, any Material Contract (after
receipt of all consents referred to in Schedule 4.3), or (iv) breach or
otherwise violate any existing obligation of Parent, SC or Bank under any order,
judgment or decree of any court or governmental authority binding on Parent, SC
or Bank and identified to such counsel by Parent in a certificate, a copy of
which will be delivered with the opinion. Such counsel need express no opinion
with respect to the effect of the performance by Parent or SC or its obligations
in the Agreement on Parent's, SC's or Bank's compliance with financial covenants
contained in any of the Material Contracts referred to above.
c. All Requisite Regulatory Approvals required to be obtained by Parent, SC
and Bank in order to permit the consummation of the Purchase and Assumption have
been obtained and are in full force and effect, and no other orders, consents,
permits or approvals of any California or federal governmental authority that
such counsel would, in its experience, reasonably recognize as directly
applicable to Parent, SC or Bank or to transactions of the type contemplated by
the Agreement and related Documents are required to be obtained by Parent, SC or
Bank for the execution and delivery by Parent, SC and Bank of, and performance
on or before the date of the opinion of their respective obligations under, the
Agreement and Related Documents.
Except for the matters set forth in Schedule 4.7 or in such counsel's
opinion letter, such counsel has not, since January 1, 1995, given substantive
attention on behalf of Bank or any of the Subsidiaries to, or represented Bank
or any of the Subsidiaries in connection with, any actions, suits or proceedings
pending or threatened against Bank or any of the Subsidiaries before any court,
arbitrator or governmental agency. Such counsel may state that its engagement is
limited to specific matters as to which it is consulted by Bank or the
Subsidiaries.
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<PAGE> 105
EXHIBIT C-2
MATTERS TO BE COVERED IN OPINION OF COUNSEL TO SELLERS
(SUBJECT TO CUSTOMARY QUALIFICATIONS)
a. Each of Parent and SC has been duly incorporated and is validly existing
in good standing under the laws of the State of California and Nevada,
respectively, with corporate power and corporate authority to enter into and
consummate the transactions contemplated by the Agreement.
b. Bank has been duly incorporated and is validly existing in good standing
under the laws of the United States and has been authorized by the Office of
Thrift Supervision to conduct the business of a federal savings bank; Bank has
the corporate power and corporate authority to enter into and consummate the
transactions contemplated by the Agreement and the Purchase and Assumption; Bank
is a member in good standing of the Federal Home Loan Bank of San Francisco and
the savings accounts of the depositors in the Bank are insured by the Savings
Association Insurance Fund of the FDIC in accordance with the rules and
regulations of the FDIC.
c. Each of the Subsidiaries has been duly incorporated and is validly
existing in good standing under the laws of the jurisdiction of its
incorporation.
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<PAGE> 106
EXHIBIT D
MATTERS TO BE COVERED BY OPINION OF COUNSEL TO BUYER
(SUBJECT TO CUSTOMARY QUALIFICATIONS)
a. Buyer has been duly incorporated and is validly existing under the laws
of the State of Delaware, with corporate power and corporate authority to enter
into and consummate the transactions contemplated by the Agreement. Purchaser
has been duly incorporated and is validly existing under the laws of the United
States with corporate authority to consummate the transaction contemplated by
the Agreement.
b. The Agreement and the Related Documents have been duly authorized by all
necessary corporate action on the part of Buyer and Purchaser and have been duly
executed and delivered by Buyer and Purchaser. The Agreement constitutes a
legally valid and binding obligation of Buyer, enforceable against it in
accordance with its terms, except as limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
purchasers' or creditors' rights generally and except that the enforceability of
the Agreement is subject to the effect of general principles of equity
including, without limitation, concepts of materiality, reasonableness, good
faith and fair dealing and the possible unavailability of specific performance
or injunctive relief, regardless of whether considered in a proceeding in equity
or law.
c. The execution and delivery by Buyer and Purchaser of, and performance on
or before the date hereof of their obligations under, the Agreement and Related
Documents do not (i) violate the respective certificate of incorporation or
charter or bylaws of Buyer and Purchaser, (ii) violate any state or federal
statute, rule or regulation that such counsel would, in its experience,
reasonably recognize as directly applicable to Buyer and Purchaser or to
transactions of the type contemplated by the Agreement and Related Documents, or
(iii) breach or otherwise violate any existing obligation of Buyer and Purchaser
under any order, judgment or decree of any court or governmental authority
binding on Buyer and Purchaser and known to such counsel upon due inquiry of
appropriate officers of Buyer and Purchaser.
d. All Requisite Regulatory Approvals required to be obtained by Buyer and
Purchaser in order to permit the consummation of the Purchase and Assumption
have been obtained and are in full force and effect, and no other orders,
consents, permits or approvals of any state or federal governmental authority
that such counsel would, in its experience, reasonably recognize as directly
applicable to Buyer and Purchaser or to transactions of the type contemplated by
the Agreement and Related Documents are required to be obtained by Buyer and
Purchaser for the execution and delivery by Buyer and Purchaser of, and
performance on or before the date of the opinion of its obligations under the
Agreement and Related Documents.
A-40
<PAGE> 107
APPENDIX B
OPINION OF FINANCIAL ADVISOR
<PAGE> 108
[MERRILL LYNCH LETTERHEAD]
May 30, 1996
Board of Directors
Southwest Gas Corporation
5241 Spring Mountain Road
Las Vegas, Nevada 89102
Attention: Mr. Michael O. Maffie
President and Chief Executive Officer
Member of the Board:
Southwest Gas Corporation (the "Company") and its wholly-owned
subsidiary The Southwest Companies and PriMerit Bank, Federal Savings Bank (the
"Bank"), a wholly owned subsidiary of The Southwest Companies, have entered into
an agreement dated January 8, 1996 (the "Agreement") with Norwest Corporation
(the "Acquiror") pursuant to which the Acquiror, at its option, agreed to (i)
acquire all of the outstanding capital stock of the Bank (the "Sale of Stock")
in exchange for $175 million in cash (subject to adjustment pursuant to the
Agreement) or (ii) through a wholly-owned subsidiary, acquire certain assets
and assume certain liabilities of the Bank (the "Sale of Assets") in exchange
for $190.7 million in cash (subject to adjustment pursuant to the Agreement)
(the alternative structures, individually and collectively, referred to herein
as the "Transaction"). The cash to be received by the Company in the
Transaction is referred to herein as the "Consideration". On April 10, 1996,
the Acquiror elected to consummate the Transaction as a Sale of Assets. The
transaction is expected to be considered by the shareholders of the Company at a
shareholders meeting to be held prior to July 17, 1996.
You have asked us whether, in our opinion, the proposed Consideration
is fair to the Company from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
1. Reviewed the Company's Annual Reports, the Company's Annual Reports
on Forms 10-K and related audited financial information for the
three fiscal years ended December 31, 1995 and the Company's
quarterly reports on Form 10-Q and related unaudited financial
information for three months ended March 31, 1996;
2. Reviewed the Bank's Annual Reports and related audited financial
information for the three fiscal years ended December 31, 1995 and
unaudited financial information for the three months ended March 31,
1996;
B-1
<PAGE> 109
3. Reviewed certain information, including financial forecasts,
relating to the business, earnings, assets and prospects of the Bank
furnished to us by the Bank;
4. Conducted discussions with members of senior management of the Bank
concerning the business and prospects of the Bank;
5. Compared the results of operations of the Bank with those of
certain companies which we deemed to be relevant;
6. Compared the proposed financial terms of the transaction
contemplated by the Agreement with the financial terms of certain
other mergers and acquisitions which we deemed to be relevant;
7. Reviewed the Agreement dated January 8, 1996;
8. Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters
as we deemed necessary.
In preparing our opinion, we have assumed and relied upon the accuracy
and completeness of all financial and other information supplied or otherwise
made available to us for purposes of this opinion, and we have not independently
verified such information or undertaken an independent evaluation or appraisal
of the assets or liabilities of the Bank, and we have not been furnished any
such evaluation or appraisal. We are not experts in the evaluation of allowances
for loan losses, and we have not made an independent evaluation of the adequacy
of the allowance for loan losses of the Bank nor have we reviewed any individual
credit files, and we have assumed that the aggregate allowance for loan losses
of the Bank is adequate to cover such losses. We have assumed and relied upon
the senior management of the Bank referred to above as to the reasonableness and
achievability of the financial and operating forecasts furnished by the Bank
(and the assumptions and bases therefore). Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to us as of, the date hereof. We have assumed that the Consideration
for the Sale of Assets alternative is the after tax economic equivalent of the
Consideration for the Sale of Stock alternative based upon the estimate of the
Company and Norwest that the Company will be required to pay an additional $15.7
million in income taxes if the transaction is consummated as a Sale of Assets.
Our opinion has been rendered without regard to the necessity for, or
level of, any restrictions, obligations, undertakings or divestitures which may
be imposed or required in the course of obtaining regulatory approvals for the
Transaction.
We have been retained by the Board of Directors of the Company as an
independent contractor to act as financial advisor to the Company with respect
to the Transaction and will receive a fee for our services. We have within the
past two years provided financial advisory, investment banking and other
services to the Company and the Acquiror and have received customary fees for
the rendering of such services. In addition, in the ordinary course of our
securities business, we may actively trade debt and/or equity securities of the
Company and the Acquiror and their respective affiliates for our own account
and the accounts of our customers, and we therefore may, from time to time,
hold a long or short position in such securities. Our opinion is directed to
the Board of Directors of the Company and does not constitute a recommendation
to any shareholder of the Company as to how such shareholder should vote at any
shareholders meeting of the Company held in connection with the Transaction.
Our opinion is directed only to the fairness of the proposed Consideration to
the Company and does not take into account the use of the proposed Consideration
by the Company or the pro forma financial effect the Transaction would
B-2
<PAGE> 110
have on the Company. In addition, our opinion does not address the relative
merits of the Transaction and alternative business strategies.
On the basis of, and subject to the foregoing, we are of the opinion
that, as of the date hereof, the proposed Consideration is fair to the Company
from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ MICHAEL F. BARRY
--------------------------------
Director - Merrill Lynch & Co.
Investment Banking Group
B-3
<PAGE> 111
APPENDIX C
SOUTHWEST GAS CORPORATION
1996 STOCK INCENTIVE PLAN
<PAGE> 112
SOUTHWEST GAS CORPORATION
1996 STOCK INCENTIVE PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
1. THE PLAN........................................................................... C-1
1.1 Purpose..................................................................... C-1
1.2 Administration and Authorization; Power and Procedure....................... C-1
1.3 Participation............................................................... C-2
1.4 Shares Available for Options; Share Limits.................................. C-2
1.5 Grant of Option............................................................. C-3
1.6 Option Period............................................................... C-3
1.7 Limitations on Exercise and Vesting of Options.............................. C-3
1.8 No Transferability.......................................................... C-3
2. EMPLOYEE OPTIONS................................................................... C-4
2.1 Grants...................................................................... C-4
2.2 Option Price................................................................ C-4
2.3 Limitations on Grant and Terms of Incentive Stock Options................... C-4
2.4 Limits on 10% Holders....................................................... C-5
2.5 Cancellation and Regrant/Waiver of Restrictions............................. C-5
3. OTHER PROVISIONS................................................................... C-5
3.1 Rights of Eligible Employees, Participants and Beneficiaries................ C-5
3.2 Adjustments; Acceleration................................................... C-6
3.3 Effect of Termination of Employment......................................... C-6
3.4 Compliance with Laws........................................................ C-7
3.5 Tax Withholding............................................................. C-7
3.6 Plan Amendment, Termination and Suspension.................................. C-7
3.7 Privileges of Stock Ownership............................................... C-8
3.8 Effective Date of the Plan.................................................. C-8
3.9 Term of the Plan............................................................ C-8
3.10 Governing Law/Construction/Severability..................................... C-8
3.11 Captions.................................................................... C-9
3.12 Effect of Change of Subsidiary Status....................................... C-9
3.13 Non-Exclusivity of Plan..................................................... C-9
4. DEFINITIONS........................................................................ C-9
4.1 Definitions................................................................. C-9
5. NON-EMPLOYEE DIRECTOR OPTIONS...................................................... C-11
5.1 Participation............................................................... C-11
5.2 Annual Option Grants........................................................ C-12
5.3 Option Price................................................................ C-12
5.4 Option Period and Exercisability............................................ C-12
5.5 Termination of Directorship................................................. C-12
5.6 Adjustments................................................................. C-12
5.7 Acceleration Upon a Change in Control Event................................. C-13
5.8 Limitation on Amendments.................................................... C-13
</TABLE>
C-i
<PAGE> 113
SOUTHWEST GAS CORPORATION
1996 STOCK INCENTIVE PLAN
1. THE PLAN
1.1 Purpose.
The purpose of this Plan is to promote the success of the Company by
providing an additional means through the grant of Options to attract, motivate,
retain and reward key employees, including officers, whether or not directors,
of the Company with awards and incentives for high levels of individual
performance and improved financial performance of the Company and to attract,
motivate and retain experienced and knowledgeable independent directors through
the benefits provided under Article 5. "Corporation" means Southwest Gas
Corporation and "Company" means the Corporation and its Subsidiaries,
collectively. These terms and other capitalized terms are defined in Article 4.
1.2 Administration and Authorization; Power and Procedure.
(a) Committee. This Plan shall be administered by and all Options to
Eligible Employees shall be authorized by the Committee. Action of the Committee
with respect to the administration of this Plan shall be taken pursuant to a
majority vote or by written consent of its members.
(b) Plan Awards; Interpretation; Powers of Committee. Subject to the
express provisions of this Plan, the Committee shall have the authority:
(i) to determine from among those persons eligible the particular
Eligible Employees who will receive any Options;
(ii) to grant Options to Eligible Employees, determine the price at
which securities will be offered and the amount of securities to be offered
to any of such persons, and determine the other specific terms and
conditions of such Options consistent with the express limits of this Plan,
and establish the installments (if any) in which such Options shall become
exercisable or shall vest, or determine that no delayed exercisability or
vesting is required, and establish the events of termination of such
Options;
(iii) to approve the forms of Option Agreements (which need not be
identical either as to type of award or among Participants);
(iv) to construe and interpret this Plan and any agreements defining
the rights and obligations of the Company and Participants who are granted
Options under Article 2 of this Plan, further define the terms used in this
Plan, and prescribe, amend and rescind rules and regulations relating to
the administration of this Plan;
(v) to cancel, modify, or waive the Corporation's rights with respect
to, or modify, discontinue, suspend, or terminate any or all outstanding
Options held by Eligible Employees, subject to any required consent under
Section 3.6;
(vi) to accelerate or extend the exercisability or extend the term of
any or all such outstanding Options within the maximum ten-year term of
Options under Section 1.6; and
(vii) to make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable for the
administration of this Plan and the effectuation of its purposes.
Notwithstanding the foregoing, the provisions of Article 5 relating to
Non-Employee Director Options shall be automatic and, to the maximum extent
possible, self-effectuating, and the discretion of the Committee shall not
extend to such Options in any manner that would be impermissible under Rule
16b-3(c)(2).
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(c) Binding Determinations. Any action taken by, or inaction of, the
Corporation, any Subsidiary, the Board or the Committee relating or pursuant to
this Plan shall be within the absolute discretion of that entity or body and
shall be conclusive and binding upon all persons. No member of the Board or
Committee, or officer of the Corporation or any Subsidiary, shall be liable for
any such action or inaction of the entity or body, of another person or, except
in circumstances involving bad faith, of himself or herself. Subject only to
compliance with the express provisions hereof, the Board and Committee may act
in their absolute discretion in matters within their authority related to this
Plan.
(d) Reliance on Experts. In making any determination or in taking or not
taking any action under this Plan, the Committee or the Board, as the case may
be, may obtain and may rely upon the advice of experts, including professional
advisors to the Corporation. No director, officer or agent of the Company shall
be liable for any such action or determination taken or made or omitted in good
faith.
(e) Delegation. The Committee may delegate ministerial, non-discretionary
functions to individuals who are officers or employees of the Company.
1.3 Participation.
Options may be granted by the Committee only to those persons that the
Committee determines to be Eligible Employees. An Eligible Employee who has been
granted an Option may, if otherwise eligible, be granted additional Options if
the Committee shall so determine. Non-Employee Directors shall only be eligible
to receive NonQualified Stock Options granted automatically without action of
the Committee under the provisions of Article 5.
1.4 Shares Available for Options; Share Limits.
(a) Shares Available. Subject to the provisions of Section 3.2, the capital
stock that may be delivered under this Plan shall be shares of the Corporation's
authorized but unissued Common Stock and any shares of its Common Stock held as
treasury shares. The shares may be delivered for any lawful consideration.
(b) Share Limits. The maximum number of shares of Common Stock that may be
delivered pursuant to all Options (including both Nonqualified Stock Options and
Incentive Stock Options) granted under this Plan shall not exceed 1,500,000
shares (the "Share Limit"). The maximum number of shares of Common Stock that
may be delivered pursuant to options qualified as Incentive Stock Options
granted under this Plan is 1,500,000 shares. The maximum number of shares of
Common Stock that may be delivered to Non-Employee Directors under the
provisions of Article 5 shall not exceed 350,000 shares. The maximum number of
shares subject to those options that are granted during any calendar year to any
Eligible Employee shall be limited to 100,000. Each of the four foregoing
numerical limits shall be subject to adjustment as contemplated by this Section
1.4 and Section 3.2.
(c) Share Reservation; Replenishment and Reissue of Unvested Options. No
Option may be granted under this Plan unless, on the date of grant, the sum of
(i) the maximum number of shares issuable at any time pursuant to such Option,
plus (ii) the number of shares that have previously been issued pursuant to
Options granted under this Plan, other than reacquired shares available for
reissue consistent with any applicable limitations under Rule 16b-3, plus (iii)
the maximum number of shares that may be issued at any time after such date of
grant pursuant to Options that are outstanding on such date, does not exceed the
Share Limit. Shares that are subject to or underlie Options which expire or for
any reason are cancelled or terminated, are forfeited, fail to vest, or for any
other reason are not paid or delivered under this Plan, as well as reacquired
shares, shall again, except to the extent prohibited by Rule 16b-3, be available
for subsequent Options under the Plan. Except as limited by Rule 16b-3, if an
Option is settled only in cash and satisfies the requirements for exemption
under Rule 16b-3 or for exclusion from the definition of derivative security
under Rule 16a-1(c)(3)(ii), such Option need not be counted against any of the
limits under this Section 1.4.
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1.5 Grant of Option.
Subject to the express provisions of this Plan, the Committee shall
determine the number of shares of Common Stock subject to each Option and the
price to be paid for the shares. Each Option shall be evidenced by an Option
Agreement signed by the Corporation and, if required by the Committee, by the
Participant.
1.6 Option Period.
Each Option and all executory rights or obligations under the related
Option Agreement shall expire on such date (if any) as shall be determined by
the Committee, but not later than ten (10) years after the Option Date.
1.7 Limitations on Exercise and Vesting of Options.
(a) Provisions for Exercise. Unless the Committee otherwise expressly
provides, no Option shall be exercisable or shall vest until at least six months
after the initial Option Date, and once exercisable an Option shall remain
exercisable until the expiration or earlier termination of the Option.
(b) Procedure. Any exercisable Option shall be deemed to be exercised when
the Secretary of the Corporation receives written notice of such exercise from
the Participant, together with any required payment made in accordance with
Section 2.2(a) or 5.3, as the case may be.
(c) Fractional Shares/Minimum Issue. Fractional share interests shall be
disregarded, but may be accumulated. The Committee, however, may determine in
the case of Eligible Employees that cash, other securities, or other property
will be paid or transferred in lieu of any fractional share interests. No fewer
than 100 shares may be purchased on exercise of any Option at one time unless
the number purchased is the total number at the time available for purchase
under the Option.
1.8 No Transferability.
(a) Limit On Exercise. Unless otherwise expressly permitted by the
Committee and by applicable law (including (if applicable) Rule 16b-3) and the
express terms of an Option Agreement, Options may be exercised only by, and
shares issuable pursuant to an Option shall be paid only to (or for the account
of), the Participant or, if the Participant has died, the Participant's
Beneficiary or, if the Participant has suffered a Total Disability, the
Participant's Personal Representative, if any, or if there is none, the
Participant. The Committee may permit Options to be exercised by certain persons
or entities related to the Participant who are transferees of the Participant
without consideration pursuant to such conditions and procedures as the
Committee may establish and (for Options intended to satisfy the conditions of
Rule 16b-3) as may be permitted under Rule 16b-3.
(b) Limit On Transfer. No right or similar benefit granted under this Plan
or any Option, shall be transferrable by the Participant or shall be subject in
any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge (other than to the Corporation), except (i) by will or the
laws of descent and distribution, or (ii) pursuant to a QDRO or pursuant to any
other exception to transfer restrictions expressly permitted by the Committee
and set forth in the Option Agreement (or an amendment thereto) and, in the case
of Options intended to satisfy the conditions of Rule 16b-3, to the extent
permitted by Rule 16b-3 (or, in the case of Options not intended to satisfy Rule
16b-3, as may be not inconsistent with the issue of Options under this Plan that
do satisfy the Rule), or (iii) in the case of Incentive Stock Options, as
permitted by the Code. Any attempted transfer in violation of these provisions
shall be void and the Corporation shall disregard any attempt at transfer,
assignment or other alienation prohibited hereby.
(c) Designation of Beneficiary. The designation of a Beneficiary hereunder
shall not constitute a transfer prohibited by the foregoing provisions.
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(d) Exceptions. The restrictions on exercise and transfer above shall not
be deemed to prohibit the authorization by the Committee of "cashless exercise"
procedures with unaffiliated third parties who provide financing for the purpose
of (or who otherwise facilitate) the exercise of Options consistent with
applicable legal restrictions and Rule 16b-3, nor, to the extent permitted by
the Committee, transfers for estate and financial planning purposes,
notwithstanding that the inclusion of such features may render the particular
Options ineligible for the benefits of Rule 16b-3, nor, in the case of
Participants who are not Section 16 Persons, transfers to such other persons or
in such other circumstances as the Committee may in the Option Agreement or
other writing signed by the Corporation expressly permit.
2. EMPLOYEE OPTIONS.
2.1 Grants.
One or more Options may be granted under this Article to any Eligible
Employee. Each Option granted may be either an Option intended to be an
Incentive Stock Option, or not so intended, and such intent shall be indicated
in the applicable Option Agreement.
2.2 Option Price.
(a) Pricing Limits. The purchase price per share of the Common Stock
covered by each Option shall be determined by the Committee at the time of the
grant, but in the case of Incentive Stock Options shall not be less than 100%
(110% in the case of a Participant who owns or is deemed to own under Section
424(d) of the Code more than 10% of the total combined voting power of all
classes of stock of the Corporation) of the Fair Market Value of the Common
Stock on the date of grant.
(b) Payment Provisions. The purchase price of any shares purchased on
exercise of an Option granted under this Article shall be paid in full at the
time of each purchase in one or a combination of the following methods: (i) in
cash or by electronic funds transfer; (ii) by check payable to the order of the
Corporation; (iii) by notice and third party payment in such manner as may be
authorized by the Committee; or (iv) by the delivery of shares of Common Stock
of the Corporation already owned by the Participant, provided, however, that the
Committee may in its absolute discretion limit the Participant's ability to
exercise an Option by delivering such shares. Shares of Common Stock used to
satisfy the exercise price of an Option shall be valued at their Fair Market
Value on the date of exercise.
2.3 Limitations on Grant and Terms of Incentive Stock Options.
(a) $100,000 Limit. To the extent that the aggregate "fair market value" of
stock with respect to which incentive stock options first become exercisable by
a Participant in any calendar year exceeds $100,000, taking into account both
Common Stock subject to Incentive Stock Options under this Plan and stock
subject to incentive stock options under all other plans of the Company or any
parent corporation, such options shall be treated as nonqualified stock options.
For this purpose, the "fair market value" of the stock subject to options shall
be determined as of the date the options were awarded. In reducing the number of
options treated as incentive stock options to meet the $100,000 limit, the most
recently granted options shall be reduced first. To the extent a reduction of
simultaneously granted options is necessary to meet the $100,000 limit, the
Committee may, in the manner and to the extent permitted by law, designate which
shares of Common Stock are to be treated as shares acquired pursuant to the
exercise of an Incentive Stock Option.
(b) Option Period. Each Option and all rights thereunder shall expire no
later than ten years after the Option Date.
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(c) Other Code Limits. There shall be imposed in any Option Agreement
relating to Incentive Stock Options such terms and conditions as from time to
time are required in order that the Option be an "incentive stock option" as
that term is defined in Section 422 of the Code.
2.4 Limits on 10% Holders.
No Incentive Stock Option may be granted to any person who, at the time the
Option is granted, owns (or is deemed to own under Section 424(d) of the Code)
shares of outstanding Common Stock possessing more than 10% of the total
combined voting power of all classes of stock of the Corporation, unless the
exercise price of such Option is at least 110% of the Fair Market Value of the
stock subject to the Option and such Option by its terms is not exercisable
after the expiration of five years from the date such Option is granted.
2.5 Cancellation and Regrant/Waiver of Restrictions.
Subject to Section 1.4 and Section 3.6 and the specific limitations on
Options contained in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, for the benefit of any Eligible Employee
any adjustment in the number of shares subject to, the restrictions upon or the
term of, an Option granted under this Article by cancellation of an outstanding
Option and a subsequent regranting of an Option, by amendment, by substitution
of an outstanding Option, by waiver or by other legally valid means. Such
amendment or other action may provide for a greater or lesser number of shares
subject to the Option, or provide for a longer or shorter vesting or exercise
period.
3. OTHER PROVISIONS.
3.1 Rights of Eligible Employees, Participants and Beneficiaries.
(a) Employment Status. Status as an Eligible Employee shall not be
construed as a commitment that any Option will be made under this Plan to an
Eligible Employee or to Eligible Employees generally.
(b) No Employment Contract. Nothing contained in this Plan (or in any other
documents related to this Plan or to any Option) shall confer upon any Eligible
Employee or other Participant any right to continue in the employ or other
service of the Company or constitute any contract or agreement of employment or
other service, nor shall interfere in any way with the right of the Company to
change such person's compensation or other benefits or to terminate the
employment of such person, with or without cause, but nothing contained in this
Plan or any document related hereto shall adversely affect any independent
contractual right of such person without his or her consent thereto.
(c) Plan Not Funded. Awards payable under this Plan shall be payable in
shares or from the general assets of the Corporation, and (except as provided in
Section 1.4(c)) no special or separate reserve, fund or deposit shall be made to
assure payment of such Awards. No Participant, Beneficiary or other person shall
have any right, title or interest in any fund or in any specific asset
(including shares of Common Stock, except as expressly otherwise provided) of
the Company by reason of any Option hereunder. Neither the provisions of this
Plan (or of any related documents), nor the creation or adoption of this Plan,
nor any action taken pursuant to the provisions of this Plan shall create, or be
construed to create, a trust of any kind or a fiduciary relationship between the
Company and any Participant, Beneficiary or other person. To the extent that a
Participant, Beneficiary or other person acquires a right to receive payment
pursuant to any Option hereunder, such right shall be no greater than the right
of any unsecured general creditor of the Company.
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3.2 Adjustments; Acceleration.
(a) Adjustments. If there shall occur any extraordinary dividend or other
extraordinary distribution in respect of the Common Stock (whether in the form
of cash, Common Stock, other securities, or other property), or any
recapitalization, stock split (including a stock split in the form of a stock
dividend), reverse stock split, reorganization, merger, combination,
consolidation, split-up, spin-off, combination, repurchase, or exchange of
Common Stock or other securities of the Corporation, or there shall occur any
other like corporate transaction or event in respect of the Common Stock or a
sale of substantially all the assets of the Corporation as an entirety, then the
Committee shall, in such manner and to such extent (if any) as it deems
appropriate and equitable (1) proportionately adjust any or all of (a) the
number and type of shares of Common Stock (or other securities) which thereafter
may be made the subject of Options (including the specific numbers of shares set
forth elsewhere in this Plan), (b) the number, amount and type of shares of
Common Stock (or other securities or property) subject to any or all outstanding
Options, (c) the exercise price of any or all outstanding Options, or (d) the
securities, cash or other property deliverable upon exercise of any outstanding
Options, or (2) in the case of an extraordinary dividend or other distribution,
merger, reorganization, consolidation, combination, sale of assets, split up,
exchange, or spin off, make provision for a cash payment or for the substitution
or exchange of any or all outstanding Options or the cash, securities or
property deliverable to the holder of any or all outstanding Options based upon
the distribution or consideration payable to holders of the Common Stock of the
Corporation upon or in respect of such event; provided, however, in each case,
that with respect to Incentive Stock Options, no such adjustment shall be made
which would cause the Plan to violate Section 424(a) of the Code or any
successor provisions thereto without the written consent of holders materially
adversely affected thereby. In any of such events, the Committee may take such
action sufficiently prior to such event if necessary to permit the Participant
to realize the benefits intended to be conveyed with respect to the underlying
shares in the same manner as is available to shareholders generally.
(b) Acceleration of Options Upon Change in Control. As to any Participant
who has been granted an Option pursuant to Article 2, unless prior to a Change
in Control Event the Committee determines that, upon its occurrence, there shall
be no acceleration of benefits under Options or determines that only certain or
limited benefits under Options shall be accelerated and the extent to which they
shall be accelerated, and/or establishes a different time in respect of such
Change in Control Event for such acceleration, then upon the occurrence of a
Change in Control Event each Option shall become immediately exercisable
provided, however, that in no event shall any Option be accelerated as to any
Section 16 Person to a date less than six months after the Option Date of such
Award. The Committee may override the limitations on acceleration in this
Section 3.2(b) by express provision in the Option Agreement and may accord any
Eligible Employee a right to refuse any acceleration, whether pursuant to the
Option Agreement or otherwise, in such circumstances as the Committee may
approve. Any acceleration of Options shall comply with applicable regulatory
requirements, including without limitation Section 422 of the Code.
(c) Possible Early Termination of Accelerated Awards. If any Option under
this Plan (other than an Option granted under Article 5) has been fully
accelerated as permitted by Section 3.2(b) but is not exercised prior to (i) a
dissolution of the Corporation, or (ii) a reorganization event described in
Section 3.2(a) that the Corporation does not survive, or (iii) the consummation
of reorganization event described in Section 3.2(a) that results in a Change in
Control Event approved by the Board, and no provision has been made for the
survival, substitution, exchange or other settlement of such Option, such Option
shall thereupon terminate.
3.3 Effect of Termination of Employment.
The Committee shall establish in respect of each Option granted to an
Eligible Employee the effect of a termination of employment on the rights and
benefits thereunder and in so doing may make distinctions based upon the cause
of termination.
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3.4 Compliance with Laws.
This Plan, the granting and vesting of Options under this Plan and the
issuance and delivery of shares of Common Stock and/or the payment of money
under this Plan or under Options granted hereunder are subject to compliance
with all applicable federal and state laws, rules and regulations (including but
not limited to state and federal securities law and federal margin requirements)
and to such approvals by any listing, regulatory or governmental authority as
may, in the opinion of counsel for the Corporation, be necessary or advisable in
connection therewith. Any securities delivered under this Plan shall be subject
to such restrictions, and the person acquiring such securities shall, if
requested by the Corporation, provide such assurances and representations to the
Corporation as the Corporation may deem necessary or desirable to assure
compliance with all applicable legal requirements.
3.5 Tax Withholding.
(a) Cash or Shares. Upon any exercise of any Option or upon the disposition
of shares of Common Stock acquired pursuant to the exercise of an Incentive
Stock Option prior to satisfaction of the holding period requirements of Section
422 of the Code, the Company shall have the right at its option to (i) require
the Participant (or Personal Representative or Beneficiary, as the case may be)
to pay or provide for payment of the amount of any taxes which the Company may
be required to withhold with respect to such Option event or payment or (ii)
deduct from any amount payable in cash the amount of any taxes which the Company
may be required to withhold with respect to such cash payment. In any case where
a tax is required to be withheld in connection with the delivery of shares of
Common Stock under this Plan, the Committee may in its sole discretion grant
(either at the time of the Option or thereafter) to the Participant the right to
elect, pursuant to such rules and subject to such conditions as the Committee
may establish, to have the Corporation reduce the number of shares to be
delivered by (or otherwise reacquire) the appropriate number of shares valued at
their then Fair Market Value, to satisfy such withholding obligation.
(b) Tax Loans. The Company may, in its discretion, authorize a loan to an
Eligible Employee in the amount of any taxes which the Company may be required
to withhold with respect to shares of Common Stock received (or disposed of, as
the case may be) pursuant to a transaction described in subsection (a) above.
Such a loan shall be for a term, at a rate of interest and pursuant to such
other terms and conditions as the Company, under applicable law may establish.
3.6 Plan Amendment, Termination and Suspension.
(a) Board Authorization. The Board may, at any time, terminate or, from
time to time, amend, modify or suspend this Plan, in whole or in part. No
Options may be granted during any suspension of this Plan or after termination
of this Plan, but the Committee shall retain jurisdiction as to Options then
outstanding in accordance with the terms of this Plan.
(b) Shareholder Approval. If any amendment would (i) materially increase
the benefits accruing to Participants under this Plan, (ii) materially increase
the aggregate number of securities that may be issued under this Plan, or (iii)
materially modify the requirements as to eligibility for participation in this
Plan, then to the extent then required by Rule 16b-3 to secure benefits
thereunder or to avoid liability under Section 16 of the Exchange Act (and Rules
thereunder) or required under Section 425 of the Code or any other applicable
law, or deemed necessary or advisable by the Board, such amendment shall be
subject to shareholder approval.
(c) Amendments to Options. Without limiting any other express authority of
the Committee under but subject to the express limits of this Plan, the
Committee by agreement or resolution may waive conditions of or limitations on
Options to Eligible Employees that the Committee in the prior exercise of its
discretion has imposed, without the consent of a Participant, and may make other
changes to the terms and conditions of Options that do not affect in any manner
materially adverse to the Participant, his or her rights and benefits under an
Option. Notwithstanding anything else
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contained herein to the contrary, the Committee shall not, without prior
shareholder approval (i) authorize the amendment of outstanding Options to
reduce the exercise price, as applicable, except as contemplated by Section 3.2,
or (ii) cancel and replace outstanding Options with similar Options having an
exercise or base price which is lower, except as contemplated by Section 3.2.
(d) Limitations on Amendments to Plan and Options. No amendment, suspension
or termination of the Plan or change of or affecting any outstanding Option
shall, without written consent of the Participant, affect in any manner
materially adverse to the Participant any rights or benefits of the Participant
or obligations of the Corporation under any Option granted under this Plan prior
to the effective date of such change. Changes contemplated by Section 3.2 shall
not be deemed to constitute changes or amendments for purposes of this Section
3.6.
3.7 Privileges of Stock Ownership.
Except as otherwise expressly authorized by the Committee or this Plan, a
Participant shall not be entitled to any privilege of stock ownership as to any
shares of Common Stock not actually delivered to and held of record by him or
her. No adjustment will be made for dividends or other rights as a shareholder
for which a record date is prior to such date of delivery.
3.8 Effective Date of the Plan.
This Plan shall be effective as of March 5, 1996, the date of Board
approval, subject to shareholder approval within 12 months thereafter.
3.9 Term of the Plan.
No Option shall be granted more than ten years after the effective date of
this Plan (the "termination date"). Unless otherwise expressly provided in this
Plan or in an applicable Option Agreement, any Option theretofore granted may
extend beyond such date, and all authority of the Committee with respect to
Options hereunder shall continue during any suspension of this Plan and in
respect of outstanding Options on such termination date.
3.10 Governing Law/Construction/Severability.
(a) Choice of Law. This Plan, the Options, all documents evidencing Options
and all other related documents shall be governed by, and construed in
accordance with the laws of the State of California.
(b) Severability. If any provision shall be held by a court of competent
jurisdiction to be invalid and unenforceable, the remaining provisions of this
Plan shall continue in effect.
(c) Plan Construction.
(1) Rule 16b-3. It is the intent of the Corporation that this Plan and
Options hereunder satisfy and be interpreted in a manner that in the case
of Participants who are or may be subject to Section 16 of the Exchange Act
satisfies the applicable requirements of Rule 16b-3 so that such persons
(unless they otherwise agree) will be entitled to the benefits of Rule
16b-3 or other exemptive rules under Section 16 of the Exchange Act and
will not be subjected to avoidable liability thereunder. If any provision
of this Plan or of any Award would otherwise frustrate or conflict with the
intent expressed above, that provision to the extent possible shall be
interpreted and deemed amended so as to avoid such conflict, but to the
extent of any remaining irreconcilable conflict with such intent as to such
persons in the circumstances, such provision shall be disregarded.
(2) Section 162(m). It is the further intent of the Company that
Options with an exercise price not less than Fair Market Value on the date
of grant shall qualify as performance-based compensation under Section
162(m) of the Code, and this Plan shall be interpreted consistent with such
intent.
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(d) Transition Period Provisions. During the transition period under new
Rule 16b-3, any derivative security the grant of which is intended to be exempt
form Rule 16b-3 shall not be transferable other than as permitted by former Rule
16b-3(d)(ii), and the consideration for any grant or award shall conform to any
additional limitations under former Rule 16b-3.
3.11 Captions.
Captions and headings are given to the sections and subsections of this
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
3.12 Effect of Change of Subsidiary Status.
For purposes of this Plan and any Option hereunder, if an entity ceases to
be a Subsidiary a termination of employment shall be deemed to have occurred
with respect to each employee of such Subsidiary who does not continue as an
employee of another entity within the Company.
3.13 Non-Exclusivity of Plan.
Nothing in this Plan shall limit or be deemed to limit the authority of the
Board or the Committee to grant awards or authorize any other compensation, with
or without reference to the Common Stock, under any other plan or authority.
4. DEFINITIONS.
4.1 Definitions.
(a) "Beneficiary" shall mean the person, persons, trust or trusts
designated by a Participant or, in the absence of a designation, entitled by
will or the laws of descent and distribution, to receive the benefits specified
in the Option Agreement and under this Plan in the event of a Participant's
death, and shall mean the Participant's executor or administrator if no other
Beneficiary is designated and able to act under the circumstances.
(b) "Board" shall mean the Board of Directors of the Corporation.
(c) "Change in Control Event" shall mean any of the following:
(1) Approval by the shareholders of the Corporation of the dissolution
or liquidation of the Corporation;
(2) Approval by the shareholders of the Corporation of an agreement to
merge or consolidate, or otherwise reorganize, with or into one or more
entities that are not wholly owned by the Corporation, as a result of which
less than 50% of the outstanding voting securities of the surviving or
resulting entity immediately after the reorganization are, or will be,
owned by shareholders of the Corporation immediately before such
reorganization (assuming for purposes of such determination that there is
no change in the record ownership of the Corporation's securities from the
record date for such approval until such reorganization and that such
record owners hold no securities of the other parties to such
reorganization);
(3) Approval by the shareholders of the Corporation of the sale of
substantially all of the Corporation's business and/or assets to a person
or entity which is not a Subsidiary;
(4) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act but excluding any person described in and satisfying the
conditions of Rule 13d-1(b)(1) thereunder), becomes the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Corporation representing more than 50% of the combined
voting power of the Corporation's then outstanding securities entitled to
then vote generally in the election of directors of the Corporation; or
(5) A majority of the Board not being comprised of Continuing
Directors.
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(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(e) "Commission" shall mean the Securities and Exchange Commission.
(f) "Committee" shall mean a subcommittee of the Nominating and
Compensation Committee appointed by the Board to administer this Plan, which
committee shall be comprised only of three [or, effective September 1, 1996 (or
such other date as the Committee may determine or the Commission may designate
as the expiration of the transition period with respect to former Rule 16b-3
under the Exchange Act), two] or more directors or such greater number of
directors as may be required under applicable law, each of whom, during such
time as one or more Participants may be subject to Section 16 of the Exchange
Act, shall be Disinterested and "outside" within the meaning of Section 162(m)
of the Code.
(g) "Common Stock" shall mean the Common Stock of the Corporation and such
other securities or property as may become the subject of Options, or become
subject to Options, pursuant to an adjustment made under Section 3.2 of this
Plan.
(h) "Company" shall mean, collectively, the Corporation and its
Subsidiaries.
(i) "Continuing Directors" shall mean persons who are members of the Board
on March 5, 1996 or nominated for election or elected to the Board with the
affirmative vote of at least three-fourths of the directors who were Continuing
Directors at the time of such nomination or election.
(j) "Corporation" shall mean Southwest Gas Corporation, a California
corporation and its successors.
(k) "Disinterested" shall mean disinterested within the meaning of any
applicable regulatory requirements, including Rule 16b-3.
(l) "Eligible Employee" shall mean an officer (whether or not a director)
or other key employee of the Company.
(m) "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
(n) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(o) "Fair Market Value" shall mean (i) if the stock is listed or admitted
to trade on a national securities exchange, the closing price of the stock on
the Composite Tape, as published in the Western Edition of The Wall Street
Journal, of the principal national securities exchange on which the stock is so
listed or admitted to trade, on such date, or, if there is no trading of the
stock on such date, then the closing price of the stock as quoted on such
Composite Tape on the next preceding date on which there was trading in such
shares; (ii) if the stock is not listed or admitted to trade on a national
securities exchange, the last price for the stock on such date, as furnished by
the National Association of Securities Dealers, Inc. ("NASD") through the NASDAQ
National Market Reporting System or a similar organization if the NASD is no
longer reporting such information; (iii) if the stock is not listed or admitted
to trade on a national securities exchange and is not reported on the National
Market Reporting System, the mean between the bid and asked price for the stock
on such date, as furnished by the NASD or a similar organization; or (iv) if the
stock is not listed or admitted to trade on a national securities exchange, is
not reported on the National Market Reporting System and if bid and asked prices
for the stock are not furnished by the NASD or a similar organization, the value
as established by the Committee at such time for purposes of this Plan.
(p) "Incentive Stock Option" shall mean an Option which is designated as an
incentive stock option within the meaning of Section 422 of the Code, the award
of which contains such provisions (including but not limited to the receipt of
shareholder approval of this Plan, if the award is made prior to such approval)
and is made under such circumstances and to such persons as may be necessary to
comply with that section.
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(q) "Nominating and Compensation Committee" shall mean the standing
committee of the Board charged, among other things, with the responsibility to
advise the Board on all benefit and compensation program for Directors, Officers
and all Company employees.
(r) "Nonqualified Stock Option" shall mean an Option that is designated as
a Nonqualified Stock Option and shall include any Option intended as an
Incentive Stock Option that fails to meet the applicable legal requirements
thereof. Any Option granted hereunder that is not designated as an incentive
stock option shall be deemed to be designated a nonqualified stock option under
this Plan and not an incentive stock option under the Code.
(s) "Non-Employee Director" shall mean a member of the Board of Directors
of the Corporation who is not an officer or employee of the Company.
(t) "Option" shall mean an option to purchase Common Stock granted under
this Plan. The Committee shall designate any Option granted to an Eligible
Employee as a Nonqualified Stock Option or an Incentive Stock Option. Options
granted under Article 5 shall be Nonqualified Stock Options.
(u) "Option Agreement" shall mean any writing setting forth the terms of an
Option that has been authorized by the Committee.
(v) "Option Date" shall mean the date upon which the Committee took the
action granting an Option or such later date as the Committee designates as the
Option Date at the time of the Option or, in the case of Options under Article
5, the applicable dates set forth therein.
(w) "Option Period" shall mean the period beginning on an Option Date and
ending on the expiration date of such Option.
(x) "Participant" shall mean an Eligible Employee who has been granted an
Option under this Plan and a Non-Employee Director who has been granted an
Option under Article 5 of this Plan.
(y) "Personal Representative" shall mean the person or persons who, upon
the disability or incompetence of a Participant, shall have acquired on behalf
of the Participant, by legal proceeding or otherwise, the power to exercise the
rights or receive benefits under this Plan and who shall have become the legal
representative of the Participant.
(z) "Plan" shall mean this 1996 Stock Incentive Plan.
(aa) "QDRO" shall mean a qualified domestic relations order as defined in
Section 414(p) of the Code or Title I, Section 206(d)(3) of ERISA (to the same
extent as if this Plan were subject thereto), or the applicable rules
thereunder.
(bb) "Rule" shall mean any Rule promulgated by the Commission pursuant to
the Exchange Act, as amended from time to time.
(cc) "Section 16 Person" shall mean a person subject to Section 16(a) of
the Exchange Act.
(dd) "Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
(ee) "Subsidiary" shall mean any corporation or other entity a majority of
whose outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Corporation.
(ff) "Total Disability" shall mean a "permanent and total disability"
within the meaning of Section 22(e)(3) of the Code and (except in the case of a
Non-Employee Director) such other disabilities, infirmities, afflictions or
conditions as the Committee by rule may include.
5. NON-EMPLOYEE DIRECTOR OPTIONS.
5.1 Participation.
Options under this Article 5 shall be made only to Non-Employee Directors
and shall be evidenced by Option Agreements substantially in the form of Exhibit
A hereto.
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5.2 Annual Option Grants.
(a) Time of Initial Option. Persons who are Non-Employee Directors in
office at the time this Plan is first approved by the shareholders of the
Corporation shall be granted without further action an Option to purchase 3,000
shares of Common Stock (the Option Date of which shall be the date of
shareholder approval of this Plan). After approval of this Plan by the
shareholders of the Corporation, if any person who is not then an officer or
employee of the Company shall become a director of the Corporation, there shall
be granted automatically to such person (without any action by the Board or
Committee) a Nonqualified Stock Option (the Option Date of which shall be the
date such person takes office) to purchase that number of shares of Common Stock
determined by multiplying 2,000 by a fraction, the numerator of which is the
number of days between the Option Date and the next annual shareholders meeting,
and the denominator of which is 365.
(b) Subsequent Annual Options. On the date of each annual shareholders
meeting in each year during the term of the Plan, commencing with the annual
meeting occurring in 1997, there shall be granted automatically (without any
action by the Committee or the Board) a Nonqualified Stock Option (the Option
Date of which shall be such date) to each Non-Employee Director then continuing
in office to purchase 2,000 shares of Common Stock.
(c) Maximum Number of Shares. Annual grants that would otherwise exceed the
maximum number of shares under Section 1.4(a) shall be prorated within such
limitation. A Non-Employee Director shall not receive more than one Nonqualified
Stock Option under this Section 5.2 in any calendar year.
5.3 Option Price.
The purchase price per share of the Common Stock covered by each Option
granted pursuant to Section 5.2 hereof shall be 100 percent of the Fair Market
Value of the Common Stock on the Option Date. The exercise price of any Option
granted under this Article shall be paid in full at the time of each purchase in
cash or by check or in shares of Common Stock valued at their Fair Market Value
on the date of exercise of the Option, or partly in such shares and partly in
cash, provided that any such shares used in payment shall have been owned by the
Participant at least six months prior to the date of exercise.
5.4 Option Period and Exercisability.
Each Option granted under this Article 5 and all rights or obligations
thereunder shall expire ten years after the Option Date and shall be subject to
earlier termination as provided below. Each Option granted under Section 5.2
shall become exercisable in three installments as follows: (i) 40% on the first
anniversary of the Option Date, (ii) 30% on the second anniversary of the Option
Date, and (iii) 30% on the third anniversary of the Option Date.
5.5 Termination of Directorship.
If a Non-Employee Director's service as a member of the Board of Directors
terminate for any reason other than retirement, any portion of an Option granted
pursuant to this Article which is not then exercisable shall terminate and any
portion of such Option which is then exercisable may be exercised for two years
after the date of such termination or until the expiration of the stated term,
whichever first occurs. If a Non-Employee Director retires (terminates service
on or after age 65 and after ten years of service as a Director), all Options
granted pursuant to this Article shall become exercisable and may be exercised
for two years after the date of retirement or until the expiration of the stated
term, whichever first occurs.
5.6 Adjustments.
Options granted under this Article 5 shall be subject to adjustment as
provided in Section 5.2, but only to the extent that (a) such adjustment and the
Committee's actions in respect thereof satisfy applicable criteria under Rule
16b-3, (b) such adjustment in the case of a Change in Control
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Event is effected pursuant to the terms of a reorganization agreement approved
by shareholders of the Corporation, and (c) such adjustment is consistent with
adjustments to Options held by persons other than executive officers or
directors of the Corporation.
5.7 Acceleration Upon a Change in Control Event
Upon the occurrence of a Change in Control Event, each Option granted under
Section 5.2 hereof shall become immediately exercisable in full; provided,
however, that none of the Options granted under Section 5.2 shall be accelerated
to a date less than six months after the Award Date of such Option. To the
extent that any Option granted under this Article 5 is not exercised prior to
(i) a dissolution of the Corporation or (ii) a merger or other corporate event
that the Corporation does not survive, and no provision is (or consistent with
the provisions of Section 5.7 can be) made for the assumption, conversion,
substitution or exchange of the Option, the Option shall terminate upon the
occurrence of such event.
5.8 Limitation on Amendments.
The provisions of this Article 5 shall not be amended more than once every
six months (other than as may be necessary to conform to any applicable changes
in the Code or the rules thereunder), unless such amendment would be consistent
with the provisions of Rule 16b3(c)(2)(ii)(or any successor provision).
SOUTHWEST GAS CORPORATION
By
Michael O. Maffie
President and
Chief Executive Officer
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<PAGE> 126
EXHIBIT A
SOUTHWEST GAS CORPORATION
ELIGIBLE DIRECTOR
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT dated as of the ______ day of ______________, 19___, between
Southwest Gas Corporation, a California corporation (the "Corporation"), and
______________ (the "Director").
W I T N E S S E T H
WHEREAS, the Corporation has adopted and the shareholders of the
Corporation have approved the Southwest Gas Corporation 1996 Stock Incentive
Plan (the "Plan"); and
WHEREAS, pursuant to Article 5 of the Plan, the Corporation has granted an
option (the "Option") to the Director upon the terms and conditions evidenced
hereby, as required by the Plan, which Option is not intended as and shall not
be deemed to be an incentive stock option within the meaning of Section 422 of
the Code;
NOW, THEREFORE, in consideration of the services rendered and to be
rendered by the Director, the Corporation and the Director agree to the terms
and conditions set forth herein as required by the terms of the Plan.
1. Option Grant. This Agreement evidences the grant to the Director, as of
_______________, _____________ (the "Option Date"), of an Option to purchase
an aggregate of _____________ shares of Common Stock, $1.00 par value, under
Article 5 of the Plan, subject to the terms and conditions and to adjustment
as set forth herein or in pursuant to the Plan.
2. Exercise Price. The Option entitles the Director to purchase (subject to
the terms of Sections 3 through 5 below) all or any part of the Option shares at
a price per share of $___________, which amount represents the Fair Market
Value of the shares on the Option Date.
3. Option Exercisability and Term. The Option shall first become and remain
exercisable as to ________________ of the shares on _______________ and as to
an additional _____________ shares on each of the following dates: ___________,
199___, ____________, 199___ and _____________, 199___, in each case subject
to adjustments under Section 5.6 of the Plan and acceleration under Section
5.7 of the Plan. The Option shall terminate on , 19 ,** unless
earlier terminated in accordance with the terms of Sections of the Plan.
4. Service and Effect of Termination of Service. The Director agrees to
serve as a director in accordance with the provisions of the Corporation's
Articles of Incorporation, bylaws and applicable law. If the Director's services
as a member of the Board shall terminate, this Option shall terminate at the
times and to the extent set forth in Section 5.5 of the Plan.
5. General Terms. The Option and this Agreement are subject to, and the
Corporation and the Director agree to be bound by, the provisions of the Plan
that apply to the Option. Such provisions are incorporated herein by this
reference. The Director acknowledges receiving a copy of the Plan and reading
its applicable provisions. Capitalized terms not otherwise defined herein shall
have the meaning assigned to such terms in the Plan.
- - - - - - ---------------
*insert day before tenth anniversary of date of grant.
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<PAGE> 127
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
SOUTHWEST GAS CORPORATION
(a California corporation)
By
Title
DIRECTOR
--------------------------------------
(Signature)
--------------------------------------
(Print Name)
--------------------------------------
(Address)
--------------------------------------
(City, State, Zip Code)
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CONSENT OF SPOUSE
In consideration of the execution of the foregoing Nonqualified Stock
Option Agreement by Southwest Gas Corporation, I, ________________, the spouse
of the Director therein named, do hereby agree to be bound by all of the terms
and provisions thereof and of the Plan.
DATED: ________________, 19___.
--------------------------------------
Signature of Spouse
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<PAGE> 129
APPENDIX D
PROPOSED AMENDMENTS TO ARTICLE IV OF
THE RESTATED ARTICLES OF INCORPORATION
<PAGE> 130
PROPOSED AMENDMENTS TO ARTICLE IV
OF THE RESTATED ARTICLES OF INCORPORATION
If proposals 4 and 5 are approved, Article IV of the Company's Restated
Articles of Incorporation will read as follows:
"ARTICLE IV
This corporation is authorized to issue three classes of shares of stock,
to be designated respectively, as "Preferred Stock"; "Preference Stock"; and
"Common Stock." The total number of shares which this corporation shall have
authority to issue is 52,000,000 and the aggregate par value of all shares that
are to have a par value shall be $85,000,000. The number of shares of Preferred
Stock shall be 5,000,000 and without par value; the number of shares of
Preference Stock shall be 2,000,000 and shall have a par value of each share of
said class of $20; the number of shares of Common Stock shall be 45,000,000 and
shall have a par value of each share of said class of $1.
1. PREFERRED STOCK:
Except as otherwise provided by law, shares of Preferred Stock, in
preference to the holders of the Preference Stock and the Common Stock, may be
issued from time to time, in one or more series, and the Board of Directors of
the corporation is authorized to fix or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any such series.
2. PREFERENCE STOCK:
Except as otherwise provided by law, shares of Preference Stock, in
preference to the holders of the Common Stock, may be issued from time to time,
in one or more series, and the Board of Directors of the corporation is
authorized to fix or alter the dividend rights, dividend rates, conversion
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, or the liquidation preferences of
any wholly unissued series, together with the designation of any such series and
the number of shares which shall constitute any such unissued series, and to
increase or decrease (but not below the number of shares of such series then
outstanding) the number of shares of any series subsequent to the issue of that
series.
3. COMMON STOCK:
Except as otherwise provided by law, shares of Common Stock may be issued
from time to time, in one or more series, and the Board of Directors of the
corporation is authorized to fix the initial dividend rate of any wholly
unissued series together with the designation of any such series and the number
of shares which shall constitute any unissued series, and to increase or
decrease (but not below the number of shares of such series then outstanding)
the number of shares of any such series subsequent to the issuance of that
series.
Dividends on all series of Common Stock shall have the same record and
payment dates, and no dividends may be paid on any series unless dividends at
the rates required hereby are paid concurrently on all series. No series of
Common Stock shall have preference over any other series as to the payment of
dividends, but the amount of dividends paid may vary among the series
outstanding.
Subject to the voting rights and other rights, preferences and privileges
above provided in this Article IV with respect to the Preferred Stock and the
Preference Stock, and except as otherwise provided by law, shares of all series
of Common Stock and/or the holders thereof shall have full voting rights and
powers for the election of directors and for all other purposes, voting together
as a single class irrespective of series, and, subject to the provisions
specified hereinabove, shall be entitled to receive dividends as and when they
are declared by the Board of Directors. Upon liquidation, distribution or
winding up of the corporation, the assets of the corporation available for
distribution to the holders of the Common Stock shall be distributed ratably
among the holders of all shares of the Common Stock at the time outstanding
irrespective of and without reference to series. The Common Stock shall have no
conversion, subscription or preemptive rights, nor shall it be subject to
redemption, call or assessment."
D-1
<PAGE> 131
PROXY SOUTHWEST GAS CORPORATION PROXY
P.O. Box 98510, Las Vegas, Nevada 89193-8510
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Kenny C. Guinn and Lloyd T. Dyer as Proxies,
each with the power to appoint his substitute, and hereby authorizes them to
represent and to vote as designated below, all the shares of common stock of the
undersigned at the annual meeting of shareholders to be held on July 16, 1996,
at the Company's Headquarters at 5241 Spring Mountain Road, Las Vegas, Nevada,
and any adjournments thereof; and at their discretion, with authorization to
vote such shares on any other matters as may properly come before the meeting or
any adjournments thereof.
1. ELECTION OF DIRECTORS
<TABLE>
<S> <C> <C> <C>
Ralph C. Batastini Kenny C. Guinn Leonard R. Judd Carolyn M. Sparks
Manuel J. Cortez Thomas Y. Hartley James R. Lincicome Robert S. Sundt
Lloyd T. Dyer Michael B. Jager Michael O. Maffie
/ / FOR ALL / / FOR ALL EXCEPT*___________________ / / WITHHOLD AUTHORITY FOR ALL
</TABLE>
*NOTE: TO WITHHOLD AUTHORITY TO VOTE FOR A PARTICULAR NOMINEE, MARK THE "FOR ALL
EXCEPT" BOX AND ENTER THE NAME(S) OF THE EXCEPTIONS IN THE SPACE PROVIDED.
UNLESS AUTHORITY TO VOTE FOR ALL THE FOREGOING NOMINEES IS WITHHELD, THIS PROXY
WILL BE DEEMED TO CONFER AUTHORITY TO VOTE FOR EVERY NOMINEE WHOSE NAME IS NOT
LISTED.
2. APPROVE THE PRINCIPAL TERMS OF THE SALE OF PRIMERIT BANK
/ / FOR / / AGAINST / / ABSTAIN
3. APPROVE 1996 STOCK INCENTIVE PLAN
/ / FOR / / AGAINST / / ABSTAIN
4.APPROVE AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION TO INCREASE THE
AUTHORIZED SHARES OF COMMON STOCK
/ / FOR / / AGAINST / / ABSTAIN
(IMPORTANT--SIGNATURE REQUIRED ON REVERSE SIDE)
<PAGE> 132
5. APPROVE AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION TO AUTHORIZE A
NEW CLASS OF PREFERRED STOCK AND TO ELIMINATE AUTHORITY TO ISSUE SHARES OF
PREFERRED STOCK ($50 Par Value), CUMULATIVE PREFERRED STOCK ($100 Par Value),
SECOND PREFERENCE STOCK ($100 Par Value) AND SPECIAL COMMON STOCK
/ / FOR / / AGAINST / / ABSTAIN
6. TO APPROVE THE APPOINTMENT OF ARTHUR ANDERSEN LLP as the independent public
accountants of the corporation
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDERS. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2, 3, 4, 5 AND 6. FURTHER, IF CUMULATIVE VOTING RIGHTS
FOR THE ELECTION OF DIRECTORS (PROPOSAL 1) ARE EXERCISED AT THE MEETING, THE
PROXIES WILL CUMULATIVELY VOTE THEIR SHARES AS PROVIDED FOR IN THE PROXY
STATEMENT.
Dated: , 1996
-------------------------------
(Signature)
-------------------------------
(Signature if held jointly)
Please sign exactly as name
appears on this proxy card.
When shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or
guardian, please give full
title as such. If a
corporation, please sign in
full corporate name by
president or other authorized
officer. If a partnership,
please sign in partnership name
by authorized person.
