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Rule 424(b)(3), 1933 Act
CIK No. 0000009672; File No. 1-7377
Registration No. 33-51333
LIBERTY BANK
January 14, 1994
To the Shareholders of
Liberty Bank:
You are cordially invited to attend a Special Meeting of Shareholders of
Liberty Bank, to be held at our Main Office, 99 North King Street, Honolulu,
Hawaii on February 9, 1994 at 2:00 P.M.
At the Special Meeting you will be asked to consider and approve a Plan and
Agreement of Merger and the related Merger Agreement (collectively, the "Merger
Agreement"), pursuant to which Liberty Bank, a Hawaii banking corporation
("Liberty"), will be merged (the "Merger") with and into Bank of America, FSB,
a federal savings association ("FSB"), which is a wholly-owned subsidiary of
BankAmerica Corporation, a Delaware corporation ("BAC"). It is expected that
this Merger will allow Liberty's shareholders to participate in one of the
nation's largest financial institutions, provide expanded opportunities for
Liberty's employees, and afford Liberty's customers the access and enjoyment of
a broader spectrum of financial services.
Pursuant to the Merger, if approved, each share of Liberty Bank common stock
outstanding at the time that the Merger becomes effective (other than
"dissenting" shares within the meaning of the Hawaii Business Corporations Act,
Sections 415-80 and 415-81) will be converted automatically into the right to
receive consideration in the form of BAC common stock ($1.5625 par value per
share), cash, or a combination thereof, based upon the market value (the
"Market Value") of BAC's stock. The Market Value of BAC's stock for the purpose
of determining the type and amount of consideration to be received by Liberty's
shareholders will be determined by adding the high and low sales prices of
BAC's common stock on the 10 trading days immediately prior to the twentieth
day before the closing date of the transaction, and dividing that total by 20.
Consummation of the Merger and payment of the consideration is subject to the
conditions and limitations set forth in the Plan and Agreement of Merger which
is described more fully in the accompanying Proxy Statement/Prospectus.
Liberty's Board of Directors has determined that the Merger is in the best
interests of the Liberty shareholders. The Board of Directors received an
opinion of Montgomery Securities, an investment banking firm, which has
determined, as of the date of its opinion, that the consideration to be
received by the shareholders, other than dissenting shareholders of Liberty, is
fair from a financial point of view to the shareholders of Liberty.
Accordingly, the Board of Directors has adopted and approved the Merger
Agreement and the Merger and unanimously recommends approval by the
shareholders.
The enclosed Notice of Special Meeting and Proxy Statement/Prospectus explain
the Merger Agreement and the Merger, and provide specific information relating
to the Special Meeting. Please carefully read these materials and thoughtfully
consider the information contained in them. Your vote is important.
Sincerely,
/S/ Lawrence S.L. Ching /S/ Mark E. Buchman
- --------------------------- ------------------------------
Lawrence S.L. Ching Mark E. Buchman
Chairman of the Board President and Chief Executive
Officer
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LIBERTY BANK
99 NORTH KING STREET
HONOLULU, HI 96817
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 9, 1994
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Meeting")
of Liberty Bank ("Liberty") has been called by the Board of Directors of
Liberty and will be held at the office of Liberty at 99 North King Street,
Honolulu, Hawaii, on Wednesday, February 9, 1994, at 2:00 P.M., for the
following purpose:
To consider and vote upon a proposal to approve the Plan and Agreement of
Merger among BankAmerica Corporation, Bank of America, FSB, and Liberty and the
related Merger Agreement, (collectively, the "Merger Agreement"), which among
other things, provide for:
(1) the merger (the "Merger") of Liberty, a Hawaii banking corporation,
with and into Bank of America, FSB, a federal savings association ("FSB"),
and a wholly-owned subsidiary of BankAmerica Corporation, a Delaware
corporation ("BAC"), with FSB continuing as the surviving corporation;
(2) the outstanding shares of Liberty common stock, par value $5.00 per
share, held by Liberty shareholders of record on December 30, 1993,
exclusive of shares held by holders of Liberty common stock who effectively
exercise dissenters' rights, to be converted into BAC common stock, par
value $1.5625 per share, cash or a combination thereof based upon the
following conditions and formulas:
(a) If the Market Value (as defined below) of BAC common stock is not
less than $40.00 per share, each shareholder of record shall receive
such number of shares of BAC common stock as is calculated by
multiplying the number of shares of Liberty common stock held by
$28.54, and dividing such total by the Market Value of BAC's common
stock, with the value of any fractional shares to be paid in cash; or,
(b) If the Market Value of BAC common stock is less than $40.00 per
share, each such shareholder of record shall receive, at the option of
BAC: (i) shares of BAC common stock as calculated in (a) above, (ii) an
amount of cash equal to $28.54 for each share of Liberty common stock
converted, or (iii) a combination thereof.
(c) The Market Value of BAC common stock is defined as the sum of the
high and low sales prices of BAC's common stock on the 10 trading days
immediately prior to the twentieth day before the closing date of the
transaction, divided by 20.
Additionally, each such shareholder of record, exclusive of those who
effectively exercise dissenters' rights, will receive a proportionate undivided
interest in a liquidating trust, which on September 30, 1993, had a book value
per share of $2.91.
No other business may be transacted at the Meeting.
The Board of Directors has fixed December 30, 1993 as the record date for the
determination of shareholders entitled to notice of and to vote at the Meeting
and any adjournment(s) thereof. The Merger Agreement and the Merger must be
approved by persons holding at least 66 2/3% of Liberty common stock entitled
to vote.
Any person giving a proxy in the form accompanying the Proxy
Statement/Prospectus has the power to revoke or suspend it before its exercise.
It may be revoked before the Meeting by sending written notice or a duly
executed proxy bearing a later date to Reuben K. S. Zane, Corporate Secretary
of Liberty, at the principal executive offices of Liberty. In addition, a
shareholder giving the enclosed proxy may revoke it by attending the Meeting
and electing to vote in person, before any vote is taken. Attendance at the
Meeting will not of itself constitute revocation of a proxy. Unless otherwise
instructed, each valid proxy returned that is not revoked will be voted FOR
approval and adoption of the Merger Agreement and in favor of the Merger.
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PROXY STATEMENT/PROSPECTUS
LIBERTY BANK
PROXY STATEMENT
----------------
BANKAMERICA CORPORATION
PROSPECTUS
588,375 SHARES OF COMMON STOCK
This Proxy Statement/Prospectus is being furnished to the shareholders of
Liberty Bank ("Liberty") in connection with the solicitation of proxies by the
Board of Directors of Liberty for use at a special meeting (the "Meeting") of
shareholders to be held on February 9, 1994, and at any adjournments or
postponements of such Meeting. The Meeting will be held at 2:00 p.m., Hawaiian
Standard Time, at the offices of Liberty, 99 North King Street, Honolulu,
Hawaii. This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to shareholders of Liberty on or about January 14, 1994.
Shareholders of Liberty ("Liberty Shareholders") will vote upon a proposal to
approve the Plan and Agreement of Merger dated as of October 8, 1993 among
BankAmerica Corporation ("BAC"), Bank of America, FSB ("FSB") and Liberty, the
related Merger Agreement (collectively, the "Merger Agreement") and the
transactions contemplated thereby. Pursuant to the Merger Agreement, Liberty
will merge (the "Merger") with FSB, a wholly owned subsidiary of BAC. Upon
consummation of the Merger, unless BAC elects to pay cash under the
circumstances described herein, each outstanding share of Liberty common stock,
$5.00 par value per share (the "Liberty Common Stock"), will be converted into
a number of shares of BAC common stock, $1.5625 par value per share (the "BAC
Common Stock"), calculated on the basis of an exchange ratio of shares of BAC
Common Stock for each share of Liberty Common Stock. The exact ratio will
depend on the average of the high and low sales prices for BAC Common Stock for
each of the ten trading days immediately prior to the twentieth day before the
closing date of the Merger as described in this Proxy Statement/Prospectus and
as more fully set forth in the Merger Agreement. The text of the Merger
Agreement is attached as Appendix B to this Proxy Statement/Prospectus.
On November 30, 1993, the closing price of BAC Common Stock on the New York
Stock Exchange ("NYSE") Composite Transactions Tape as reported in the Western
Edition of The Wall Street Journal was $44.50 and as of November 30, 1993, the
book value of Liberty Common Stock was approximately $24.47 per share.
This Proxy Statement/Prospectus also serves as a Prospectus for BAC under the
Securities Act of 1933, as amended (the "Securities Act"), for the issuance of
the shares of BAC Common Stock (including the associated preferred share
purchase rights described under "DESCRIPTION OF BAC CAPITAL STOCK-- BAC Common
Stock and Rights" issued with respect to such shares) in the Merger.
----------------
THE SECURITIES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. THE FEDERAL DEPOSIT INSURANCE CORPORATION HAS NOT PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS.
----------------
The date of this Proxy Statement/Prospectus is January 14, 1994.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Summary................................................................... 4
The Meeting.............................................................. 4
Proxies.................................................................. 4
The Merger............................................................... 4
Vote Required for Approval of the Merger Agreement....................... 8
Market Price and Dividend Data........................................... 8
Summary Historical Financial Data........................................ 9
Introduction.............................................................. 13
General.................................................................. 13
Proposals................................................................ 13
Record Date and Voting Rights............................................ 13
Shareholder Vote Required................................................ 13
Proxies.................................................................. 13
Other Matters............................................................ 14
The Merger................................................................ 14
General.................................................................. 14
Background of and Reasons for the Merger................................. 14
Fairness Opinion......................................................... 15
Recommendations of the Board of Directors of Liberty..................... 20
Terms of the Merger...................................................... 20
Liquidating Trust........................................................ 21
Conditions to the Merger................................................. 23
Business Pending the Merger.............................................. 24
Amendment of the Merger Agreement........................................ 25
Termination of the Merger Agreement...................................... 25
Interests of Certain Persons in the Merger............................... 26
Federal Income Tax Consequences.......................................... 26
The Warrant.............................................................. 28
The Voting Agreements.................................................... 30
Accounting Treatment..................................................... 30
Listing and Resale of BAC Common Stock................................... 31
Expenses of the Merger................................................... 31
Operations After the Merger.............................................. 31
Rights of Dissenting Liberty Shareholders................................ 31
BankAmerica Corporation................................................... 34
Recent Financial Developments............................................. 34
BAC...................................................................... 34
Liberty.................................................................. 42
</TABLE>
<TABLE>
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PAGE
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<S> <C>
Description of BAC Capital Stock.......................................... 42
General.................................................................. 42
BAC Common Stock and Rights.............................................. 43
Outstanding Preferred Stock.............................................. 44
Comparison of the Rights of Shareholders of BAC and Liberty............... 47
Special Meetings of Shareholders; Action by Consent...................... 47
Notice of Shareholder Business........................................... 47
Notice of Director Nominations........................................... 47
Voting Rights............................................................ 48
Liquidation Rights....................................................... 48
Removal of Directors..................................................... 48
Transactions Involving Directors and Officers............................ 49
Dissenters' or Appraisal Rights.......................................... 49
Inspection of Shareholder Ledger......................................... 49
Dividend Rights.......................................................... 49
Limitation on Liability and Indemnification of Directors and Officers.... 50
Potential "Anti-Takeover" Provisions..................................... 51
Approval of Certain Business Combinations................................ 51
Pro Forma Combined Financial Information.................................. 52
Capitalization of BankAmerica Corporation................................. 53
Experts................................................................... 53
Legal Matters............................................................. 54
Other Matters............................................................. 54
Independent Public Accountants............................................ 54
Stockholder Proposals..................................................... 55
APPENDICES
</TABLE>
<TABLE>
<S> <C> <C>
APPENDIX A Section 415-80
et.seq. of Hawaii
Revised Statutes
APPENDIX B Plan and Agreement of
Merger and Merger
Agreement
APPENDIX C Fairness Opinion of
Montgomery Securities
APPENDIX D Quarterly Report on
Form F-4 of Liberty
</TABLE>
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NO PERSON IS AUTHORIZED BY BAC OR LIBERTY TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS, IN CONNECTION WITH THE OFFERING AND THE SOLICITATION MADE
BY THIS PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY, OR AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES IN ANY
JURISDICTION IN WHICH SUCH SOLICITATION OR OFFERING MAY NOT LAWFULLY BE MADE.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION
OF SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF BAC OR LIBERTY SINCE THE DATE
HEREOF.
AVAILABLE INFORMATION
Under the rules and regulations of the Securities and Exchange Commission
(the "SEC"), the solicitation of Liberty Shareholders to approve the Merger
Agreement and the Merger constitutes an offering of BAC Common Stock to be
issued in conjunction with the Merger. Accordingly, BAC has filed with the SEC
a registration statement on Form S-4 (together with any amendments thereto, the
"Registration Statement") under the Securities Act with respect to such
offering. This Proxy Statement/Prospectus does not contain all the information
set forth in the Registration Statement and the exhibits thereto, certain
portions of which have been omitted as permitted by the rules and regulations
of the SEC. Copies of the Registration Statement are available from the SEC,
upon payment of prescribed rates. Statements contained in this Proxy
Statement/Prospectus or in any document incorporated by reference in this Proxy
Statement/Prospectus as to the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
BAC and Liberty are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). In accordance
with the Exchange Act, proxy statements, reports and other information are
filed with the SEC by BAC and are filed with the Federal Deposit Insurance
Corporation (the "FDIC") by Liberty. Material filed by BAC can be inspected and
copied at the SEC's Office at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the SEC's Regional Offices in Chicago (500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511) and in New York (Seven World
Trade Center, 13th Floor, New York, New York 10048) and copies of such material
can be obtained by mail from the Public Reference Section of the SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, with
respect to BAC, such material can be inspected at the offices of the New York,
Pacific and Chicago Stock Exchanges, where BAC Common Stock is listed. Material
filed by Liberty can be inspected and copied at the FDIC at 550 Seventeenth
St., N.W., Washington, D.C. 20429, and the Registration and Disclosure Section,
Room F-643, 1776 "F" Street, N.W., Washington, D.C. 20006. Copies of such
information are also available at the libraries of the Federal Reserve Bank of
San Francisco at 101 Market Street, San Francisco, California 94105, the
Federal Reserve Bank of New York at 33 Liberty Street, New York, New York 10045
and the Federal Reserve Bank of Chicago at 230 South La Salle Street, Chicago,
Illinois 60690.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
BAC incorporates herein by reference (a) BAC's Annual Report on Form 10-K for
the year ended December 31, 1992, (b) BAC's quarterly reports on Form 10-Q for
the quarters ended March 31, 1993, June 30, 1993 and September 30, 1993, (c)
BAC's current reports on Form 8-K dated January 26, 1993, February
2
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1, 1993, March 16, 1993, March 22, 1993, April 22, 1993, May 17, 1993, July 22,
1993 and October 20, 1993, (d) the description of BAC Common Stock set forth in
the Registration Statement on Form 8-A dated May 25, 1976 (as amended by Forms
8 dated June 14, 1976, August 18, 1976 and September 10, 1976), and (e) the
description of BAC's Preferred Share Purchase Rights set forth in the
Registration Statement on Form 8-A dated April 13, 1988 (as amended by Form 8
dated August 20, 1991). See "DESCRIPTION OF BAC CAPITAL STOCK."
The following documents previously filed with the FDIC pursuant to the
Exchange Act and filed with the SEC as exhibits to the Registration Statement
are hereby incorporated by reference in this Proxy Statement/Prospectus: (a)
Liberty's Amended Annual Report on Form F-2 for the fiscal year ended December
31, 1992; (b) Liberty's Amended and Restated Quarterly Reports on Form F-4 for
the quarterly periods ended March 31, 1993, June 30, 1993 and September 30,
1993; (c) Liberty's Current Report on Form F-3 dated October 20, 1993; (d) the
following information contained in Liberty's 1992 Annual Report to Shareholders
(the "Annual Report"): (i) the audited consolidated financial statements of
Liberty and the Report of Independent Auditors set forth at pages 2 through 11
of the Annual Report, (ii) the selected financial information set forth at page
12 of the Annual Report, (iii) Management's Discussion and Analysis set forth
at pages 13 through 15 of the Annual Report, and (iv) Liberty's Subsidiaries
set forth on the back inside cover page of the Annual Report; and (e) the
following information contained in Liberty's 1993 Proxy Statement: (i) Security
Ownership of Certain Beneficial Owners and Management, (ii) Directors of the
Bank, and (iii) Management Compensation and Transactions.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THERE WILL BE PROVIDED WITHOUT
CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A PROXY
STATEMENT/PROSPECTUS IS DELIVERED, UPON ORAL OR WRITTEN REQUEST OF ANY SUCH
PERSON, A COPY OF ANY OR ALL DOCUMENTS INCORPORATED BY REFERENCE HEREIN
(EXCLUDING EXHIBITS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN). WITH RESPECT TO BAC'S DOCUMENTS, REQUESTS SHOULD BE DIRECTED
TO BANKAMERICA CORPORATION, CORPORATE SECRETARY'S OFFICE, P.O. BOX 37000, SAN
FRANCISCO, CALIFORNIA 94137 (TELEPHONE (415) 622-3530). WITH RESPECT TO
LIBERTY'S DOCUMENTS, REQUESTS SHOULD BE DIRECTED TO REUBEN K.S. ZANE, CORPORATE
SECRETARY, LIBERTY BANK, 99 NORTH KING STREET, HONOLULU, HAWAII 96817
(TELEPHONE (808) 548-5000). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS
IN ADVANCE OF THE MEETING TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATES, ANY
SUCH REQUEST SHOULD BE MADE BY JANUARY 28, 1994.
All reports and definitive proxy or information statements filed by BAC and
Liberty pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act
subsequent to the date of this Proxy Statement/Prospectus and prior to the
termination of the offering of the BAC Common Stock to which this Proxy
Statement/Prospectus relates shall be deemed to be incorporated by reference
into this Proxy Statement/Prospectus from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement/Prospectus.
ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS RELATING TO BAC
AND FSB HAS BEEN SUPPLIED BY BAC, AND ALL INFORMATION RELATING TO LIBERTY HAS
BEEN SUPPLIED BY LIBERTY.
3
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in the
Proxy Statement/Prospectus. Reference is made to, and this summary is qualified
in its entirety by, the more detailed information contained elsewhere in this
Proxy Statement/Prospectus, in the attached Appendices, including the Plan and
Agreement of Merger and the related Merger Agreement, a copy of which is
attached hereto as Appendix B and incorporated herein by this reference, and in
the other documents incorporated herein by reference. Shareholders are urged to
read carefully this Proxy Statement/Prospectus and the attached Appendices in
their entirety.
THE MEETING
The Meeting will be held on February 9, 1994, at 2:00 p.m. Hawaii Standard
Time, at the offices of Liberty, 99 North King Street, Honolulu, Hawaii. Only
Liberty Shareholders of record at the close of business on December 30, 1993
(the "Record Date") are entitled to notice of and to vote at the Meeting. As of
the Record Date, there were approximately 782,390 shares of Liberty Common
Stock outstanding and entitled to vote held by approximately 1,000 record
holders. See "--Vote Required for the Merger."
At the Meeting, Liberty Shareholders will be asked to consider and vote upon
the Merger Agreement and the transactions contemplated thereby. The Merger
Agreement provides, among other things, for the Merger of Liberty with a
wholly-owned subsidiary of BAC. See "THE MERGER--Terms of the Merger."
PROXIES
Each properly completed proxy returned in time for voting at the Meeting will
be voted in accordance with the instructions indicated on the proxy, or, if no
instructions are provided, will be voted FOR the proposal to approve the Merger
Agreement and in favor of the Merger. In connection with any other business to
come properly before the Meeting, each proxy will be voted in the judgment of
the persons named in the proxy to vote on matters incident to the conduct of
the Meeting.
A Liberty Shareholder may revoke a proxy at any time before it is voted by
filing with the Corporate Secretary of Liberty either an instrument revoking
the proxy or a duly executed proxy bearing a later date, or by attending the
Meeting and voting in person. Such filing shall be made to the attention of
Reuben K.S. Zane at Liberty's executive offices located at 99 North King
Street, Honolulu, Hawaii 96817. Attendance at the Meeting will not of itself
constitute revocation of a proxy.
THE MERGER
The Parties. BAC is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended (the "Bank Holding Company Act"), and was
incorporated in the state of Delaware in 1968. BAC, through its banking and
other subsidiaries, provides banking and financial services throughout the
United States and in selected overseas markets to consumers and business
customers including corporations, governments, and other institutions. See
"BANKAMERICA CORPORATION." BAC is headquartered at 555 California Street, San
Francisco, California 94104 (telephone (415) 622-3530).
FSB is a federal savings association organized under the Home Owner's Loan
Act in 1990. FSB is a wholly-owned subsidiary of BAC and its principal business
is its Bank of America Hawaii division. Bank of America Hawaii provides banking
and financial services in Hawaii through 31 branch locations. FSB's
headquarters is located at 121 SW Morrison Street, Portland, Oregon 97204
(telephone (503) 275-1009).
Liberty is a Hawaii banking corporation organized under the laws of the State
of Hawaii and is subject to the Hawaii Code of Financial Institutions. Liberty
was incorporated in the Territory of Hawaii on February 11, 1922. Liberty is a
full service banking corporation engaged in the usual depository functions of
4
<PAGE>
a commercial bank with individual and commercial checking accounts, savings
accounts and time deposits. Liberty makes commercial, real estate and
installment loans, issues letters of credit, buys and sells foreign monies and
bills of exchange, provides safe deposit facilities and offers other customary
banking services. The executive offices of Liberty are located at 99 North King
Street, Honolulu, Hawaii 96817 (telephone: 808-548-5000).
The Proposed Merger. Under the terms of the Merger Agreement, Liberty will be
merged with and into FSB, with FSB as the surviving entity. Unless BAC elects
to pay all or part of the purchase price in cash (the "Cash Consideration")
under the circumstances described below, all outstanding shares of Liberty
Common Stock, excluding any shares as to which dissenters' rights under Hawaii
law are exercised ("Dissenting Shares"), will be converted, without any action
on the part of the holder thereof, into the right to receive shares of BAC
Common Stock in accordance with the calculation described below (the "Stock
Consideration"). The Merger will become effective at the time that the Articles
of Merger with respect to the Merger are filed with the Office of Thrift
Supervision (the "OTS"), provided that all requirements of applicable law to
legally effect the Merger are fulfilled. The time of effectiveness of the
Merger is referred to in this Proxy Statement/Prospectus as the "Effective
Time" and the date on which the Effective Time occurs as the "Closing Date." It
is anticipated that the Closing Date will occur during the first quarter of
1994.
Each share of Liberty Common Stock, other than Dissenting Shares, will be
converted upon consummation of the Merger into the right to receive the
following: (i) if the sum of each of the high and low sales prices for BAC
Common Stock as reported in the Western Edition of The Wall Street Journal as
New York Stock Exchange Composite Transactions for each of the ten consecutive
trading days immediately prior to the twentieth day before the Closing Date,
divided by twenty (the "Market Value") is greater than or equal to $40.00, each
Liberty Shareholder will receive the number of shares of BAC Common Stock as is
determined by multiplying the number of shares of Liberty Common Stock owned of
record on December 30, 1993 by such Liberty Shareholder by $28.54 and dividing
the resulting product by the Market Value; and (ii) if the Market Value is less
than $40.00, each Liberty Shareholder will receive, at the option of BAC (A)
shares of BAC Common Stock calculated pursuant to (i) above, (B) Cash
Consideration equal to $28.54 for each share of Liberty Common Stock owned of
record at such time by such Liberty Shareholder or (C) a combination thereof.
SEE "THE MERGER--TERMS OF THE MERGER"; AND SEE "THE MERGER--FEDERAL INCOME TAX
CONSEQUENCES" FOR A DISCUSSION OF THE SIGNIFICANT DIFFERENCES IN THE FEDERAL
INCOME TAX EFFECTS OF RECEIVING STOCK VERSUS CASH IN THE MERGER.
In addition, Liberty Shareholders may receive separately up to $2.91 per
share of Liberty Common Stock upon the sale of certain assets held in a
liquidating trust. See "THE MERGER--Liquidating Trust."
No certificates for fractional shares of BAC Common Stock will be issued as a
result of the Merger. In lieu thereof, each Liberty Shareholder otherwise
entitled to a fractional interest will receive an amount in cash based on the
Market Value of BAC Common Stock and will have no other rights with respect to
such fractional interest. See "THE MERGER--Terms of the Merger."
It is intended that the Merger shall constitute a tax-free reorganization.
Any payment of cash to Liberty Shareholders, either as Cash Consideration, upon
the exercise of dissenters' rights or in lieu of fractional shares, will be
taxable to the extent of any gain realized by Liberty Shareholders. See "THE
MERGER--Federal Income Tax Consequences." Any payment of other property to
Liberty Shareholders on the deemed receipt of assets transferred to the
Liquidating Trust (as defined below) will be taxable to the extent of any gain
realized by Liberty Shareholders. See "THE MERGER--Liquidating Trust."
Background of and Reasons for the Merger; Recommendation. Liberty's Board of
Directors, with the advice of its financial advisor, has concluded that the
terms of the Merger are fair to and in the best interests
5
<PAGE>
of Liberty Shareholders. In evaluating the terms of the Merger, Liberty's Board
of Directors considered a variety of factors, including the value of the
consideration that Liberty Shareholders will receive in exchange for their
shares of Liberty Common Stock; the recent historical and anticipated future
market performance of, and dividends payable on, BAC Common Stock; the impact
of the Merger upon Liberty's depositors, customers and employees; the long-term
prospects for Liberty in a rapidly changing banking and financial services
industry; the anticipated ability of the combined entity to provide competitive
and comprehensive services in the market area; the compatibility of the
respective businesses and management philosophies of Liberty and BAC; and the
financial terms of other recent business combinations in the financial services
industry. See "THE MERGER--Background of and Reasons for the Merger."
ACCORDINGLY, THE BOARD OF DIRECTORS OF LIBERTY UNANIMOUSLY RECOMMENDS THAT
THE LIBERTY SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT AND IN
FAVOR OF THE MERGER.
Fairness Opinion. Liberty retained Montgomery Securities ("Montgomery"), an
investment banking firm, to act as its financial advisor with respect to the
Merger. On October 5, 1993, Montgomery delivered its opinion to the Board of
Directors of Liberty to the effect that, as of such date and based upon and
subject to the considerations and qualifications described in such opinion, the
consideration to be received by the Liberty Shareholders, other than dissenting
Liberty Shareholders, in the Merger is fair to the Liberty Shareholders from a
financial point of view taken as a whole. For additional information concerning
the matters considered by Montgomery in reaching its opinion, a description of
the methodologies utilized in rendering its opinion, the conclusions reached
for each of the methodologies utilized, the limitations on its review and the
fees received or to be received by it, and for information on BAC's engagement
of Montgomery in connection with certain other matters, see "THE MERGER--
Fairness Opinion." A copy of Montgomery's opinion dated December 2, 1993 is
attached as Appendix C to this Proxy Statement/Prospectus.
The Warrant. In order to facilitate the transactions contemplated by, and in
consideration of BAC's entry into, the Merger Agreement, Liberty issued to BAC
a warrant dated as of October 8, 1993 (the "Warrant") pursuant to which BAC has
the right, exercisable only under certain specified circumstances, to purchase
up to 195,985 newly issued shares of Liberty Common Stock (equal to 24.3% of
the number of shares outstanding immediately following such issuance and 19.6%
of the number of shares that would be outstanding immediately after exercise)
at a price of $25.05 per share, which represents the book value of Liberty
Common Stock on the date the Warrant was granted. See "--Market Price and
Dividend Data" and "THE MERGER--The Warrant." The Warrant could have the effect
of discouraging persons who now or prior to the Effective Time might be
interested in acquiring all of or a significant interest in Liberty from
considering or proposing such an acquisition, even if such persons were
prepared to pay more consideration per share for Liberty Common Stock than the
consideration per share payable under the Merger Agreement. In addition,
certain provisions of the Merger Agreement could have the effect of
discouraging persons from acquiring, or considering or proposing an acquisition
of, all of or a significant interest in, Liberty. See "THE MERGER--Business
Pending the Merger."
The Voting Agreements. In order to induce BAC to enter into the Merger
Agreement and consummate the Merger, Lawrence S.L. Ching, Chairman of the Board
and a director of Liberty; John E. Finney, a director of Liberty; Kenneth K.
Lau, a director of Liberty; Reuben K.S. Zane, a director and the Corporate
Secretary of Liberty; Lillian Tom Loo; Taihook Associates; Watumull Brothers,
Ltd.; and Zane and Zane, Inc., entered into voting agreements with, and
executed irrevocable proxies in favor of, BAC (collectively the "Voting
Agreements"). The Voting Agreements provide that an aggregate of 269,112 shares
of Liberty Common Stock held by such persons will be voted in favor of the
Merger Agreement and against any proposal that would delay or impede the
Merger. Such shares represent approximately 34.4% of the total number of shares
of Liberty Common Stock issued and outstanding on the Record Date. See "THE
MERGER--The
6
<PAGE>
Voting Agreements." BAC and Liberty anticipate that Liberty's other directors
and executive officers also will vote in favor of the Merger Agreement and the
Merger.
Rights of Dissenting Shareholders. Any Liberty Shareholder may dissent from
the Merger pursuant to Sections 415-80 and 415-81 of the Hawaii Business
Corporations Act (the "Act") and may receive payment of the fair value of such
Liberty Shareholder's shares in cash by (i) delivering to Liberty, prior to the
vote on the Merger Agreement at the Meeting, a written notice of such Liberty
Shareholder's intent to demand payment for such Liberty Shareholder's shares if
the Merger is consummated, and (ii) not voting in favor of the Merger Agreement
at the Meeting, and (iii) delivering to the surviving corporation in the Merger
a demand for payment in cash of the fair value of such Liberty Shareholder's
shares of Liberty Common Stock not earlier than 30 days nor later than 60 days
after the delivery of the surviving corporation's notice to dissenting Liberty
Shareholders that the Merger is consummated. The fair value of such shares
shall be determined as of the date immediately prior to the consummation of the
Merger and shall not include any appreciation or depreciation in anticipation
of the Merger. A copy of the relevant provisions of the Act is attached hereto
as Appendix A and incorporated herein by reference. See "THE MERGER--Rights of
Dissenting Liberty Shareholders."
Conditions of the Merger. Consummation of the Merger is subject to various
conditions. No assurance can be given as to whether such conditions will be
satisfied or waived by the party permitted to do so. Accordingly, there can be
no assurance that the Merger will be completed. In the event that conditions to
the Merger remain unsatisfied and the Merger has not been effected by July 1,
1994, the Merger Agreement may be terminated by any party to the Merger
Agreement, provided that the terminating party is not in default under the
Merger Agreement. See "THE MERGER--Termination of the Merger Agreement."
The Merger will occur only if the Merger Agreement is approved by the
affirmative vote of at least 66 2/3% of the outstanding shares of Liberty
Common Stock entitled to vote at the Meeting. In addition, the obligations of
the parties to the Merger Agreement to proceed with the Merger are subject to
various conditions, including, without limitation, the following: (i) the
Merger and the transactions contemplated by the Merger Agreement must not
violate any order, decree or judgment of any court or governmental body having
competent jurisdiction, and no law, rule or regulation shall have been adopted
by any such body that prohibits or enjoins the Merger; (ii) no action, suit or
proceeding before any court or governmental body may be pending or threatened
challenging the legality of the Merger or the other transactions contemplated
by the Merger Agreement or seeking to restrain their consummation; and (iii)
unless less than a majority of the purchase consideration received by Liberty
Shareholders in the Merger consists of BAC Common Stock, Liberty shall receive
an opinion of tax counsel to BAC as to the tax-free status of the Merger.
Various applications for approval of the Merger have been filed with the
Hawaii Commissioner of Financial Institutions (the "Hawaii Commissioner"), the
OTS, the Board of Governors of the Federal Reserve System (the "FRB") and other
appropriate federal and state regulatory authorities. It is a condition to the
obligations of Liberty to proceed with the Merger and the other transactions
contemplated by the Merger Agreement that all regulatory approvals necessary
for the consummation of the Merger be obtained. In addition, it is a condition
to BAC's and FSB's obligations to proceed with the Merger and the other
transactions contemplated by the Merger Agreement that all regulatory approvals
necessary for the consummation of the Merger be obtained without the imposition
of any condition that BAC in good faith determines to be materially burdensome
upon the conduct of the business of BAC or FSB or any other subsidiary of BAC
or the businesses of Liberty and its subsidiary as conducted at the time such
approvals are granted or as anticipated to be conducted in the future. If any
such condition is imposed, the Merger Agreement permits BAC and FSB to
terminate the Merger Agreement. The regulatory approvals necessary for the
consummation of the Merger have not been obtained as of the date of mailing of
this Proxy Statement/Prospectus and are not expected to be obtained until after
the Meeting.
7
<PAGE>
Amendments. The Merger Agreement may be amended or supplemented at any time
by written agreement of the parties, whether before or after the Meeting. To
the extent permitted under applicable law, any such waiver or amendment may be
made without further approval of the Liberty Shareholders.
Federal Income Tax Consequences. Unless the Market Value is less than $40.00
and BAC elects to pay Cash Consideration such that cash and the fair market
value of the assets transferred to the Liquidating Trust constitute a majority
of the purchase, consummation of the Merger is conditioned upon the receipt of
a satisfactory opinion of tax counsel to BAC to the effect that the Merger will
constitute a tax-free reorganization for federal income tax purposes. Tax
counsel's delivery of such opinion is expressly conditioned upon the receipt by
tax counsel of certain factual representations certified by (i) authorized
officers of BAC, FSB, and Liberty and (ii) each Liberty Shareholder who owns 5%
or more of the outstanding Liberty Common Stock at any time during the period
commencing with the date of this Proxy Statement/Prospectus and ending with the
Closing Date. Any gain realized by a Liberty Shareholder upon the exchange of
Liberty Common Stock pursuant to the Merger Agreement will be recognized for
federal income tax purposes only to the extent of any cash received and the
fair market value of the assets transferred to the Liquidating Trust. (It is
contemplated that only BAC Common Stock, cash and/or the fair market value of
the assets transferred to the Liquidating Trust will constitute the
consideration to be received by Liberty Shareholders pursuant to the Merger
Agreement.) Liberty Shareholders will not be permitted to recognize any loss
for federal income tax purposes upon their exchange of Liberty Common Stock.
See "THE MERGER--Federal Income Tax Consequences." Immediately prior to the
Effective Time, certain Liberty assets will be transferred into the Liquidating
Trust for the benefit of Liberty Shareholders. Any gain realized by a Liberty
Shareholder will be recognized for federal income tax purposes to the extent of
any cash received and the amount of the Liberty Shareholder's pro rata portion
of the fair market value of the assets transferred to the Liquidating Trust.
See "THE MERGER--Liquidating Trust."
Interests of Certain Persons in the Merger. Under the terms of the Merger
Agreement, options representing 21,625 shares of Liberty Common Stock
previously issued to Liberty officers and employees (each a "Company Option")
shall be exercised by the holder or cancelled by Liberty or the shares
thereunder must be purchased by Liberty prior to the Effective Time. If any
Company Option is properly exercised, the holder will exchange the shares of
Liberty Common Stock so received as a result of such exercise for BAC Common
Stock pursuant to the Merger. If the Company Option holder does not so exercise
the option and Liberty does not have the right to cancel the Company Option,
Liberty has agreed to purchase the Company Option. The purchase price for each
such Company Option shall be the difference between the exercise price of such
Company Option and $28.54 multiplied by the number of shares represented by
such Company Option. Because $28.54 is above the exercise price of the Company
Options, certain executive officers of Liberty, including Messrs. Buchman and
Ching, the President and Chief Executive Officer and the Chairman of the Board,
respectively, may benefit from the purchase of the Company Options if they do
not exercise their Company Options. See "THE MERGER--Interests of Certain
Persons in the Merger."
VOTE REQUIRED FOR APPROVAL OF THE MERGER AGREEMENT
The approval of the Merger Agreement requires the affirmative vote of the
holders of at least 66 2/3% of the outstanding shares of Liberty Common Stock
entitled to vote at the Meeting. As of the Record Date, directors and executive
officers of Liberty held in the aggregate approximately 44.3% of the
outstanding Liberty Common Stock entitled to notice of, and to vote at, the
Meeting. BAC and Liberty anticipate that each of Liberty's directors and
executive officers will vote in favor of the proposal to approve the Merger
Agreement and in favor of the Merger.
MARKET PRICE AND DIVIDEND DATA
BAC Common Stock is listed for trading on the New York, Chicago, Pacific,
London and Tokyo Stock Exchanges. Liberty Common Stock is not listed on any
regular or over-the-counter market and there is no established trading market
for Liberty Common Stock.
8
<PAGE>
The following table sets forth, for the periods indicated, the range of high
and low sales prices per share for BAC Common Stock as reported on the NYSE
Composite Transactions Tape as reported in the Western Edition of The Wall
Street Journal and the range of high and low bid prices per share for Liberty
Common Stock based upon estimates provided by Abel-Behnke Corporation, the
principal broker handling transactions in Liberty Common Stock. This
information has not been verified and is not likely to cover all sales of
Liberty Common Stock during the periods indicated. Because Liberty Common Stock
has not been actively traded, the prices in the table may not be indicative of
the fair market value of Liberty Common Stock. The Liberty Common Stock prices
may not reflect retail mark-ups, mark-downs or commissions. The table also sets
forth, for the periods indicated, the quarterly cash dividends per share paid
by BAC and Liberty, respectively, on such shares.
<TABLE>
<CAPTION>
CASH DIVIDENDS
BAC LIBERTY PER SHARE OF
COMMON STOCK COMMON STOCK COMMON STOCK
------------- ---------------- --------------
HIGH LOW HIGH BID LOW BID BAC LIBERTY
------ ------ -------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
1991
First Quarter.................. $37.00 $23.13 $20.50 $18.00 $0.300 $ --
Second Quarter................. 40.38 35.13 25.13 20.00 0.300 0.200
Third Quarter.................. 44.50 33.00 26.25 25.13 0.300 --
Fourth Quarter................. 44.75 30.63 26.00 20.13 0.300 --
1992
First Quarter.................. 46.25 35.38 20.25 20.00 0.325 --
Second Quarter................. 49.75 38.13 20.00 17.00 0.325 0.200
Third Quarter.................. 46.75 40.25 18.00 17.00 0.325 --
Fourth Quarter................. 48.25 40.88 17.00 15.00 0.325 --
1993
First Quarter.................. 55.50 43.00 19.33 18.42 0.350 --
Second Quarter................. 53.88 40.50 19.75 19.42 0.350 --
Third Quarter.................. 49.13 43.38 22.04 20.92 0.350 --
Fourth Quarter (through
November 30, 1993)............ 45.63 40.38 25.50 24.00 -- --
</TABLE>
The following table sets forth the last reported sales prices per share of
BAC Common Stock and the last reported high and low bid price for Liberty
Common Stock, reported as described above, on October 7, 1993, the last trading
day before announcement of the Merger Agreement, and on November 30, 1993, the
latest practicable trading day before printing this Proxy Statement/Prospectus:
<TABLE>
<CAPTION>
BAC LIBERTY
COMMON STOCK COMMON STOCK
------------ -------------
HIGH LOW
PRICE BID BID
----- ------ ------
<S> <C> <C> <C>
October 7, 1993................................ $44.38 $25.50 $24.13
November 30, 1993.............................. 44.50 28.50 24.13
</TABLE>
On October 31, 1993, there were approximately 165,879 holders of record of
BAC Common Stock, and there were approximately 1,000 holders of record of
Liberty Common Stock.
Liberty Shareholders are urged to obtain current market quotations for BAC
Common Stock and, to the extent available, for Liberty Common Stock.
SUMMARY HISTORICAL FINANCIAL DATA
BAC's book value per share, cash dividends per share and income per share for
the fiscal year ended December 31, 1992 and any interim period since December
31, 1992 and the date of this Proxy Statement/Prospectus would not be
materially affected if such financial statements were presented on a pro forma
basis to reflect the acquisition of Liberty using the purchase method of
accounting and hence no such pro forma presentation is made in this Proxy
Statement/Prospectus. Set forth below is certain summary financial information
for Liberty and BAC and certain pro forma equivalent per share data for
Liberty.
9
<PAGE>
The following information should be read in conjunction with and is qualified
in its entirety by the consolidated financial statements and accompanying notes
of BAC and Liberty included in the documents described under "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE." Interim results are not necessarily indicative
of the results to be expected for the year ending December 31, 1993.
BAC CONSOLIDATED HISTORICAL SUMMARY FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ------------------------------------------------
(DOLLAR AMOUNTS IN
MILLIONS, EXCEPT PER 1993(A) 1992(A) 1992(A) 1991 1990 1989 1988
SHARE DATA) -------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF
OPERATIONS
Interest income......... $ 8,751 $ 8,542 $ 11,613 $ 9,860 $ 10,249 $ 9,559 $ 8,430
Interest expense........ 3,175 3,755 4,895 5,388 6,097 5,536 4,744
-------- -------- -------- -------- -------- ------- -------
Net interest income..... 5,576 4,787 6,718 4,472 4,152 4,023 3,686
Provision for credit
losses................. 610 730 990 805 905 770 645
-------- -------- -------- -------- -------- ------- -------
Net interest income
after provision for
credit losses.......... 4,966 4,057 5,728 3,667 3,247 3,253 3,041
Noninterest income...... 3,154 2,637 3,649 2,408 2,074 1,830 1,751
Noninterest expense..... 5,552 4,862 6,695 4,202 3,922 3,735 3,850
-------- -------- -------- -------- -------- ------- -------
Income before income
taxes and extraordinary
credit................. 2,568 1,832 2,682 1,873 1,399 1,348 942
Provision for income
taxes.................. 1,110 813 1,190 749 522 528 395
-------- -------- -------- -------- -------- ------- -------
Income before
extraordinary credit... 1,458 1,019 1,492 1,124 877 820 547
Extraordinary credit
resulting from
previously unrecognized
tax benefits........... -- -- -- -- 238 283 179
-------- -------- -------- -------- -------- ------- -------
Net income.............. $ 1,458 $ 1,019(b) $ 1,492(b) $ 1,124 $ 1,115 $ 1,103 $ 726
======== ======== ======== ======== ======== ======= =======
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE
Income before
extraordinary credit... $ 3.58 $ 3.03 $ 4.24 $ 4.81 $ 3.85 $ 3.79 $ 2.77
Extraordinary credit
resulting from
previously unrecognized
tax benefits........... -- -- -- -- 1.10 1.40 1.02
-------- -------- -------- -------- -------- ------- -------
Net income.............. $ 3.58 $ 3.03(b) $ 4.24(b) $ 4.81 $ 4.95 $ 5.19 $ 3.79
======== ======== ======== ======== ======== ======= =======
EARNINGS PER COMMON
SHARE-ASSUMING FULL
DILUTION
Income before
extraordinary credit... $ 3.56 $ 3.01 $ 4.21 $ 4.78 $ 3.84 $ 3.74 $ 2.77
Extraordinary credit
resulting from
previously unrecognized
tax benefits........... -- -- -- -- 1.10 1.37 1.02
-------- -------- -------- -------- -------- ------- -------
Net income.............. $ 3.56 $ 3.01(b) $ 4.21(b) $ 4.78 $ 4.94 $ 5.11 $ 3.79
======== ======== ======== ======== ======== ======= =======
STOCK DATA
Dividends declared per
common share........... $ 1.05 $ 0.975 $ 1.30 $ 1.20 $ 1.00 $ 0.60 $ --
Book value per common
share(c)............... 38.69 34.99 35.88 30.78 27.21 23.31 18.43
Average number of common
shares outstanding at
period end (in
thousands)............. 357,343 347,297 348,603 218,880 213,364 210,319 185,537
CONSOLIDATED BALANCE
SHEET DATA(C)
Loans (net of unearned
income and allowance
for credit losses)..... $124,767 $128,441 $124,523 $ 86,368 $ 85,765 $75,861 $69,022
Total assets............ 187,109 186,574 180,646 115,509 110,728 98,764 94,647
Deposits................ 140,969 140,805 137,883 94,067 92,321 81,186 77,150
Long-term debt.......... 14,008 13,936 14,326 3,101 2,648 2,699 2,380
Subordinated capital
notes.................. 933 2,070 2,069 1,277 1,283 1,376 1,438
Total shareholders'
equity................. 16,805 14,892 15,488 8,063 6,419 5,534 4,149
RETURN ON AVERAGE
Total assets............ 1.05%(d) 0.85%(d) 0.90% 0.99% 1.04% 1.14% 0.76%
Total shareholders'
equity................. 12.11 (d) 11.55 (d) 11.84 15.78 18.68 23.10 20.02
AVERAGE TOTAL
SHAREHOLDERS' EQUITY TO
AVERAGE TOTAL ASSETS... 8.71% 7.39% 7.60% 6.25% 5.55% 4.91% 3.81%
</TABLE>
- -------
(a) This financial information reflects the effects of the merger with Security
Pacific Corporation ("SPC") subsequent to its consummation on April 22,
1992.
(b) Earnings and earnings per share were affected by the net effect of
nonrecurring items, including the accrual of restructuring expenses related
to the merger with SPC and a net gain on the sale of the payroll processing
business of Bank of America National Trust & Savings Association ("Bank of
America"). If the nonrecurring items had been excluded from the results of
operations, net income would have been $1,194 million and $1,682 million
for the nine months ended September 30, 1992 and the year ended December
31, 1992, respectively. In addition, earnings per common and common
equivalent share would have been $3.61 and earnings per common share,
assuming full dilution, would have been $3.58 for the nine months ended
September 30, 1992, while earnings per common and common equivalent share
would have been $4.85 and earnings per common share, assuming full
dilution, would have been $4.81 for the year ended December 31, 1992.
(c) As of period end.
(d) Percentages for the nine-month periods ended September 30, 1992 and 1993
were annualized for purposes of comparison.
10
<PAGE>
LIBERTY CONSOLIDATED HISTORICAL SUMMARY FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- -------------------------------------------------
(DOLLAR AMOUNTS IN
THOUSANDS, EXCEPT PER 1993 1992 1992 1991 1990 1989 1988
SHARE DATA) -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF
OPERATIONS
Interest income......... $ 15,022 $ 17,923 $ 23,343 $ 26,921 $ 28,292 $ 25,854 $ 21,429
Interest expense........ 6,086 8,072 10,595 13,793 15,133 14,039 10,327
-------- -------- -------- -------- -------- -------- --------
Net interest income..... 8,936 9,851 12,748 13,128 13,159 11,815 11,102
Provision for credit
losses................. 270 255 1,770 236 210 195 625
-------- -------- -------- -------- -------- -------- --------
Net interest income
after provision for
credit losses.......... 8,666 9,596 10,978 12,892 12,949 11,620 10,477
Noninterest income...... 3,079 2,915 4,324 3,991 3,356 2,895 2,802
Noninterest expense..... 12,314 12,010 16,655 15,712 14,955 13,624 11,918
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
cumulative effect of
change in accounting
principle.............. (569) 501 (1,353) 1,171 1,350 891 1,361
Provision (credit) for
income taxes........... (92) 161 (131) 308 344 159 256
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
cumulative effect of
change in accounting
principle.............. (477) 340 (1,222) 863 1,006 732 1,105
Extraordinary credit
resulting from
cumulative effect of
change in accounting
principle.............. 469 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ (8) $ 340 $ (1,222) $ 863 $ 1,006 $ 732 $ 1,105
======== ======== ======== ======== ======== ======== ========
EARNINGS (LOSS) PER
COMMON SHARE
Income (loss) before
income taxes and
cumulative effect of
change in accounting
principle.............. $ (0.61) $ 0.44 $ (1.58) $ 1.19 $ 1.49 $ 1.08 $ 1.65
Cumulative effect of
change in accounting
principle.............. 0.60 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ (0.01) $ 0.44 ($ 1.58) $ 1.19 $ 1.49 $ 1.08 $ 1.65
======== ======== ======== ======== ======== ======== ========
STOCK DATA
Dividends declared per
common share........... $ 0.00 $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20
Book value per common
share(a)............... 24.78 26.80 24.78 26.56 25.74 24.46 23.63
Average number of common
shares outstanding..... 775,890 775,685 775,719 726,211 676,408 672,500 669,750
CONSOLIDATED BALANCE
SHEET DATA(A)
Loans (net of unearned
income and allowance
for credit losses)..... $215,628 $235,613 $231,206 $225,326 $216,960 $189,538 $184,002
Total assets............ 302,958 334,748 325,868 313,711 318,623 299,061 265,708
Deposits................ 270,392 284,421 277,721 286,612 292,309 275,554 243,149
Long-term debt.......... 10,589 24,414 23,805 -- -- -- --
Subordinated capital
notes.................. -- 1,000 1,000 1,000 2,500 2,500 2,500
Total shareholders'
equity................. 19,223 20,793 19,230 20,594 17,421 16,513 15,823
RETURN ON AVERAGE
Total assets............ (0.01)%(b) 0.14%(b) (0.38)% 0.28% 0.33% 0.26% 0.45%
Total shareholders'
equity................. (0.06) (b) 2.21 (b) (5.95) 4.59 6.00 4.52 7.23
AVERAGE TOTAL
SHAREHOLDERS' EQUITY
TO AVERAGE TOTAL
ASSETS................. 6.29% 6.46% 6.40% 6.13% 5.57% 5.84% 6.26%
</TABLE>
- --------
(a) As of period end.
(b) Percentages for the nine-month periods ended September 30, 1992 and 1993
were annualized for purposes of comparison.
11
<PAGE>
LIBERTY PRO FORMA EQUIVALENT PER SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED
1993 DECEMBER 31, 1992
----------------- -----------------
<S> <C> <C>
Earnings (loss) per common share
Historical (a)............................ $ 0.23 $ (1.58)
Pro forma equivalents (b):
Earnings per Common and Common Equivalent
Share.................................... 2.30 2.72
Earnings per Common Share--Assuming Full
Dilution................................. 2.28 2.70
Dividends per common share
Historical................................ 0.00 0.20
Pro forma equivalent (b).................. 0.67 0.83
Book value per common share at period end
Historical (a)............................ 25.02 24.78
Pro forma equivalent (b).................. 24.81 23.01
</TABLE>
- --------
(a) Excludes nonrecurring expenses related to the Merger.
(b) Based on BAC historical amounts, which approximate BAC pro forma combined
amounts. BAC historical amounts were multiplied by a conversion ratio of
0.64135, which represents $28.54 divided by BAC's Common Stock price at
November 30, 1993 of $44.50. The actual conversion ratio may differ from
the ratio above based on the Market Value of BAC Common Stock.
12
<PAGE>
INTRODUCTION
GENERAL
This Proxy Statement/Prospectus is being furnished to Liberty Shareholders in
connection with the solicitation of proxies by the Board of Directors of
Liberty for use at the Meeting which is to be held on February 9, 1994 and at
any adjournments or postponements of such Meeting. The Meeting will be held at
2:00 p.m., Hawaiian Standard Time, at the offices of Liberty, 99 North King
Street, Honolulu, Hawaii.
PROPOSALS
The purpose of the Meeting is to consider and vote upon the Merger Agreement
and the transactions contemplated thereby.
RECORD DATE AND VOTING RIGHTS
Only holders of record of Liberty Common Stock at the close of business on
December 30, 1993 (the "Record Date") will be entitled to notice of and to vote
at the Meeting. At the close of business on the Record Date, there were
approximately 782,390 shares of Liberty Common Stock outstanding. Each such
share of Liberty Common Stock will be entitled to one vote.
Liberty has granted to BAC the Warrant dated as of October 8, 1993 to
purchase, under certain circumstances, 24.3% of the number of shares of Liberty
Common Stock outstanding after issuance (19.6% of the number of shares of
Liberty Common Stock outstanding after exercise). BAC is not entitled to vote
the shares subject to the Warrant until the Warrant is exercised. See "THE
MERGER--The Warrant."
In order to induce BAC to enter into the Merger Agreement and consummate the
Merger, Lawrence S.L. Ching, Chairman of the Board and a director of Liberty;
John E. Finney, a director of Liberty; Kenneth K. Lau, a director of Liberty;
Reuben K.S. Zane, a director and Corporate Secretary of Liberty; Lillian Tom
Loo; Taihook Associates; Watumull Brothers, Ltd.; and Zane and Zane, Inc.
entered into the Voting Agreements with BAC. The Voting Agreements provide that
an aggregate of 269,112 shares of Liberty Common Stock held by them will be
voted in favor of the Merger Agreement and against any proposal that would
delay or impede the Merger. Such shares represent approximately 34.4% of the
total number of shares of Liberty Common Stock issued and outstanding on the
Record Date. See "THE MERGER--The Voting Agreements." As of the Record Date,
all of Liberty's directors and executive officers held in the aggregate
approximately 44.3% of the outstanding Liberty Common Stock entitled to notice
of, and to vote at, the Meeting. BAC and Liberty anticipate that each of
Liberty's directors and executive officers will vote in favor of the proposal
to approve the Merger Agreement and in favor of the Merger.
SHAREHOLDER VOTE REQUIRED
The approval of the Merger Agreement requires the affirmative vote of the
holders of at least 66 2/3% of the outstanding shares of Liberty Common Stock
entitled to vote at the Meeting. Each Liberty Shareholder is entitled to one
vote for each share of Liberty Common Stock which he or she owns. Approval of
the Merger Agreement by Liberty Shareholders is a condition to the Merger.
PROXIES
Each properly completed proxy returned in time for voting at the Meeting will
be voted in accordance with the instructions indicated on the proxy, or, if no
instructions are provided, will be voted FOR the proposal to approve the Merger
Agreement and the transactions contemplated thereby and in favor of the Merger.
In connection with any other business to come properly before the Meeting, each
proxy will be voted in the judgment of the persons named in the proxy. The
filing of a proxy shall also confer discretionary authority on the persons
named in the proxy to vote on matters incident to the conduct of the Meeting.
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<PAGE>
A Liberty Shareholder may revoke a proxy at any time before it is voted by
filing with the Corporate Secretary of Liberty either an instrument revoking
the proxy or a duly executed proxy bearing a later date, or by attending the
Meeting and voting in person. Such filing shall be made to the attention of
Reuben K.S. Zane at Liberty's executive offices, located at 99 North King
Street, Honolulu, Hawaii 96817. Attendance at the Meeting will not of itself
constitute revocation of a proxy.
LIBERTY SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY
CARDS. A TRANSMITTAL FORM WITH INSTRUCTIONS WITH RESPECT TO THE SURRENDER OF
LIBERTY STOCK CERTIFICATES WILL BE MAILED TO EACH LIBERTY SHAREHOLDER AS SOON
AS PRACTICABLE AFTER THE EFFECTIVE TIME. See "THE MERGER--Rights of Dissenting
Shareholders."
OTHER MATTERS
The cost of the solicitation of proxies will be borne by Liberty. In addition
to solicitation by mail, directors, officers and regular employees of Liberty
may solicit proxies personally or by telefax or telephone, but will not be
entitled to receive additional compensation for such services.
THE MERGER
GENERAL
The following description of the material aspects of the Merger does not
purport to be a complete description thereof and is qualified in its entirety
by reference to the Merger Agreement, a copy of which is attached to this Proxy
Statement/Prospectus as Appendix B and incorporated herein by reference. All
Liberty Shareholders are urged to read the Merger Agreement carefully in its
entirety. Liberty Shareholders are being asked to approve the Merger Agreement
and the Merger at the Meeting.
BACKGROUND OF AND REASONS FOR THE MERGER
Liberty's Board of Directors, with the advice of its financial advisor, has
concluded that the terms of the Merger are fair to and in the best interests of
Liberty's Shareholders. In evaluating the terms of the Merger, the Board of
Directors considered a variety of factors, including the value of the
consideration that Liberty Shareholders will receive in exchange for their
shares of Liberty Common Stock; the recent historical and anticipated future
market performance of, and dividends payable on, BAC Common Stock; the impact
of the Merger upon Liberty's depositors, customers and employees; the long-term
prospects for Liberty in a rapidly changing banking and financial services
industry; the anticipated ability of the combined entity to provide competitive
and comprehensive services in the market area; the compatibility of the
respective businesses and management philosophies of Liberty and BAC; and the
financial terms of other recent business combinations in the financial services
industry. In addition, the Liberty Board of Directors considered the opinion
rendered by Montgomery, as further described below, to the effect that the
consideration, taken as a whole, to be received by Liberty Shareholders, other
than dissenting Liberty Shareholders, in the Merger is fair from a financial
point of view to the Liberty Shareholders.
Liberty's Board of Directors also considered the current economic environment
of Hawaii, the trend toward consolidation of financial institutions, the
increasing regulatory pressures and the anticipated benefits to Liberty of
being affiliated with a larger bank holding company structure, including
greater access to capital.
The terms of the Merger Agreement are the result of arm's-length negotiations
between representatives of Liberty and BAC. The following is a brief discussion
of the events that led to the execution of the Merger Agreement.
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<PAGE>
In July 1992, BAC acquired H.F. Holdings, Inc. and its subsidiary, HonFed
Bank, a federal savings bank with 29 branches located in Hawaii. BAC's banking
operations in Hawaii are now doing business as Bank of America Hawaii and are a
division of FSB. Subsequent to that acquisition, BAC became interested in
increasing its market share in Hawaii in order to improve profitability through
achieving greater economies of scale. In March 1993, the Liberty Board of
Directors engaged Montgomery to act as its financial advisor in connection with
the possible sale or merger of Liberty. During the second quarter of 1993,
Montgomery assisted Liberty in soliciting and reviewing various offers of
interest. When BAC was contacted by Montgomery, it responded that it was
interested in a possible transaction with Liberty. On July 8, 1993, BAC
submitted to Liberty through Montgomery a non-binding indication of interest in
the acquisition of Liberty. On July 13, 1993, the Liberty Board of Directors
began negotiations with BAC.
In July and August 1993, representatives of BAC and FSB conducted due
diligence examinations of Liberty. Based upon those examinations,
representatives of BAC and Liberty negotiated the terms of a proposed
definitive merger agreement, including the payment of the Stock Consideration
or under certain circumstances the payment of Cash Consideration, the treatment
of outstanding Company Options, whether to utilize the services of Liberty's
executive management after the Merger and the value to be given to certain
specific Liberty assets.
The BAC Board of Directors met on August 2, 1993, and the FSB Board of
Directors met on August 23, 1993 to review the status of negotiations of a
definitive merger agreement. Each board voted unanimously to continue
negotiations and to pursue a definitive agreement with Liberty. The FSB Board
of Directors also authorized a special committee of the board (the "FSB
Committee") to approve, if appropriate, the terms of the final Merger
Agreement. By October 4, 1993 negotiations on the Merger Agreement were
substantially completed, therefore, the BAC Board of Directors and the FSB
Committee met on that date and, after consideration of all factors deemed
relevant, each determined that the Merger would be in the best interest of its
shareholders and unanimously approved the Merger Agreement and the transactions
related thereto.
On October 5, 1993, the members of the Board of Directors of Liberty present
at the board meeting unanimously approved the Merger Agreement and the
transactions related thereto.
FAIRNESS OPINION
Pursuant to an engagement letter dated May 1, 1993 (the "Engagement Letter"),
Liberty engaged Montgomery to act as its financial advisor in connection with
advising Liberty concerning opportunities for the sale of Liberty and
participating on Liberty's behalf in negotiations resulting from those
opportunities. Montgomery is a nationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
valuation of businesses and their securities in connection with merger
transactions and other types of acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
Liberty selected Montgomery as its financial adviser on the basis of its
experience and expertise in transactions similar to the Merger and its
reputation in the banking and investment communities.
At the October 5, 1993 meeting of Liberty's Board of Directors, Montgomery
delivered its oral opinion, subsequently confirmed in writing on December 2,
1993, that the consideration to be received by the Liberty Shareholders, other
than dissenting Liberty Shareholders, in the Merger is fair to the Liberty
Shareholders from a financial point of view. No limitations were imposed by
Liberty on Montgomery with respect to the investigations made or procedures
followed in rendering its opinion. THE FULL TEXT OF MONTGOMERY'S WRITTEN
OPINION TO THE LIBERTY BOARD OF DIRECTORS IS ATTACHED HERETO AS APPENDIX C AND
IS INCORPORATED HEREIN BY REFERENCE AND SHOULD BE READ CAREFULLY AND IN ITS
ENTIRETY IN CONNECTION WITH THIS PROXY STATEMENT/PROSPECTUS. THE FOLLOWING
SUMMARY OF MONTGOMERY'S OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THE OPINION. MONTGOMERY'S OPINION IS ADDRESSED TO THE LIBERTY
BOARD OF DIRECTORS ONLY AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY LIBERTY
SHAREHOLDER AS TO HOW SUCH LIBERTY SHAREHOLDER SHOULD VOTE AT THE MEETING.
In connection with its opinion, Montgomery, among other things: (i) reviewed
certain publicly available financial and other data with respect to Liberty and
BAC including the consolidated financial statements for recent years and
interim periods to June 30, 1993, and certain other relevant financial and
operating data
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<PAGE>
relating to Liberty and BAC made available to Montgomery from published sources
and from the internal records of Liberty; (ii) reviewed the Merger Agreement;
(iii) reviewed certain historical market prices and trading volumes of BAC
Common Stock as reported by the NYSE; (iv) compared Liberty and BAC from a
financial point of view with certain other companies in the financial services
industry that Montgomery deemed to be relevant; (v) considered the financial
terms, to the extent publicly available, of selected recent acquisitions of
financial institutions that Montgomery deemed to be comparable, in whole or in
part, to the Merger and Liberty; (vi) reviewed and discussed with
representatives of the management of Liberty and BAC certain information of a
business and financial nature regarding Liberty and BAC, furnished to
Montgomery by Liberty and BAC, including financial forecasts and related
assumptions of Liberty; (vii) made inquiries regarding and discussed the Merger
and the Merger Agreement and other matters related thereto with Liberty's
counsel; (viii) reviewed and discussed the assets to be held in the Liquidating
Trust with representatives of management of Liberty; and (ix) performed such
other analyses and examinations as Montgomery deemed appropriate.
In connection with its review, Montgomery did not independently verify any of
the foregoing information, and relied on such information and assumed such
information was complete and accurate in all material respects. With respect to
the financial forecasts for Liberty provided to Montgomery by Liberty's
management, Montgomery assumed for purposes of its opinion that they were
reasonably prepared on bases reflecting the best available estimates and
judgments of Liberty's management at the time of preparation as to the future
financial performance of Liberty and that they provided a reasonable basis upon
which Montgomery could form its opinion. Montgomery also assumed that there
were no material changes in Liberty's or BAC's assets, financial condition,
results of operations, business or prospects since the respective dates of the
last financial statements made available to Montgomery. Montgomery relied on
advice of counsel to Liberty as to all legal matters with respect to Liberty,
the Merger and the Merger Agreement. In addition, Montgomery did not make an
independent evaluation, appraisal or physical inspection of the assets or
individual properties of Liberty or BAC, nor was Montgomery furnished with any
such appraisals. Further, Montgomery's opinion was based on economic, monetary
and market conditions existing as of October 8, 1993.
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<PAGE>
Set forth below is a brief summary of the report presented by Montgomery to
the Liberty Board on October 5, 1993 in connection with its opinion.
Comparable Company Analysis
Using public and other available information, Montgomery compared certain
financial ratios of Liberty (including the ratio of net income to average total
assets ("return on average assets"), the ratio of net income to average total
equity ("return on average equity"), the ratio of average equity to average
assets, the ratio of noninterest expense to the sum of net interest income and
other income ("cost control") and certain credit ratios) for each of the years
ended December 31, 1988, 1989, 1990, 1991 and 1992 and for the six months ended
June 30, 1993, to a national proxy group consisting of 13 selected national
banks which Montgomery considered comparable to Liberty (the "National Bank
Proxy Group"), to a western bank proxy group consisting of approximately 50
banks located in the Western region of the United States (the "Western Bank
Proxy Group"), and to BAC. The following table summarizes certain results of
the comparison of Liberty to the proxy groups and to BAC:
<TABLE>
<CAPTION>
NATIONAL BANK WESTERN BANK
LIBERTY PROXY GROUP PROXY GROUP BAC
-------- ------------- ------------ -----
<S> <C> <C> <C> <C>
Return on Average Assets
Six Months Ended June 30,
1993....................... 0.10% 1.15% 0.71% 1.06%
Year Ended 1992............. Negative 0.98% 0.63% 0.90%
Year Ended 1991............. 0.28% 0.84% 0.71% 0.99%
Year Ended 1990............. 0.33% 0.84% 1.03% 1.04%
Year Ended 1989............. 0.27% 0.18% 1.06% 1.14%
Year Ended 1988............. 0.45% 1.11% 0.86% 0.76%
Return on Average Equity
Six Months Ended June 30,
1993....................... 1.70% 15.24% 9.07% 12.35%
Year Ended 1992............. Negative 15.54% 8.54% 11.84%
Year Ended 1991............. 4.58% 13.84% 10.02% 15.78%
Year Ended 1990............. 6.00% 14.79% 15.22% 18.68%
Year Ended 1989............. 4.55% 2.64% 16.08% 23.10%
Year Ended 1988............. 7.23% 18.83% 13.19% 20.02%
Average Equity to Average
Assets
Six Months Ended June 30,
1993....................... 6.12% 6.85% 7.78% 8.59%
Year Ended 1992............. 6.40% 6.11% 7.41% 7.60%
Year Ended 1991............. 6.13% 6.04% 7.05% 6.25%
Year Ended 1990............. 5.57% 5.72% 6.77% 5.55%
Year Ended 1989............. 5.84% 6.05% 6.55% 4.91%
Year Ended 1988............. 6.26% 6.04% 6.33% 3.81%
Cost Control
Six Months Ended June 30,
1993....................... 103.00% 59.90% 71.50% 63.35%
Year Ended 1992............. 97.55% 61.90% 67.30% 64.58%
Year Ended 1991............. 91.78% 62.49% 64.70% 61.08%
Year Ended 1990............. 90.60% 60.79% 62.40% 62.99%
Year Ended 1989............. 92.60% 59.74% 62.80% 63.81%
Year Ended 1988............. 85.70% 57.72% 65.30% 70.81%
</TABLE>
No company used in the analysis is identical to Liberty or BAC. The analysis
necessarily involved complex considerations and judgments concerning
differences in financial and operating characteristics of the companies.
Analysis of Selected Bank and Thrift Merger Transactions
Montgomery reviewed the consideration paid in recently announced transactions
whereby certain banks and thrifts were acquired. Specifically, Montgomery
reviewed 92 transactions involving acquisitions of banks in the Western region
of the United States (including Arizona, California, Colorado, Idaho, Montana,
Nevada, New Mexico, Oregon, Utah, Washington and Wyoming) announced since
January 1990, acquisitions of 48 selected California banks announced since
February 1986, and acquisitions of 5 selected Hawaiian banks
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<PAGE>
and thrifts announced since November 1989, emphasizing the transactions
involving the acquisitions of the Hawaiian banks and thrifts. The selected
acquisitions of the Hawaiian banks and thrifts included CB Bancshares'
announced acquisition of International Holding Capital Corp., First Hawaiian,
Inc.'s acquisition of Pioneer Fed BanCorp, BAC's acquisition of HF Holdings,
Inc., First Hawaiian, Inc.'s acquisition of First Interstate of Hawaii, and
Bancorp Hawaii, Inc.'s acquisition of FirstFed America (collectively, the
"Hawaii Focus Group"). For each bank and thrift acquired in such transactions,
Montgomery compiled figures illustrating, among other things, the return on
average equity, return on average assets and nonperforming assets to total
assets. For each such transaction Montgomery compiled figures illustrating,
among other things, the ratio of the premium (i.e., purchase price in excess of
book value) to core deposits, purchase price to book value and purchase price
to last twelve-months' ("LTM") earnings.
The figures for the acquired western region banks, selected California banks
and the Hawaii Focus Group yielded (i) median return on average equity of
11.04%, 13.00% and 13.09%, respectively, (ii) median return on average assets
of 0.88%, 0.89% and 1.07%, respectively, and (iii) median nonperforming assets
to total assets of 1.48%, 0.93% and 1.02%, respectively. In comparison,
Montgomery determined that for the six months ended June 30, 1993, Liberty's
return on average equity was 1.70%, its return on average assets was 0.10%, and
its nonperforming assets to total assets were 2.66%.
The figures for the western region bank, California bank and Hawaii Focus
Group transactions yielded (i) a median percentage of premium to core deposits
of 5.48%, 7.24% and 6.92%, respectively, (ii) a ratio of purchase price to book
value of 1.59, 1.76 and 1.51, respectively, and (iii) a ratio of purchase price
to LTM earnings of 12.3, 15.6 and 14.7, respectively. For purposes of comparing
these transactions to the Merger, Montgomery considered the Stock Consideration
and/or Cash Consideration having a total value of $28.54 per share of Liberty
Common Stock, and the additional value of up to $2.91 per share of Liberty
Common Stock which may be received by Liberty Shareholders from the Liquidating
Trust. Using the two values of $28.54 and $31.45 per share of Liberty Common
Stock, Montgomery determined that the consideration to be received by the
Liberty Shareholders in the Merger represented a percentage of premium to core
deposits of 1.14% and 2.02%, respectively, a ratio of price to book value of
1.14 and 1.26, respectively, and a ratio of price to estimated 1994 earnings
per share of 38.2 and 42.1, respectively.
No other company or transaction used in the above analysis as a comparison is
identical to Liberty, BAC or the Merger. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of the companies to which Liberty, BAC and the Merger are being
compared.
Contribution Analysis
Montgomery analyzed the contribution of each of Liberty and BAC to, among
other things, common equity and net income of the proforma combined companies
for the years ended December 31, 1991 and 1992 and for the six-month period
ended June 30, 1993. This analysis showed, among other things, that based on
proforma combined balance sheets and income statements for Liberty and BAC as
of December 31, 1991 and 1992 and as of June 30, 1993, Liberty would have
contributed 0.30%, 0.15% and 0.14%, respectively, of the common equity, and for
the year ended December 31, 1991 and for the six months ended June 30, 1993,
Liberty would have contributed 0.08% and 0.02%, respectively, of the net income
of the combined companies. For the year ended December 31, 1992, Liberty
reported a net loss. Assuming all Liberty Shareholders are paid the Stock
Consideration with a Market Value of $40.63 for BAC Common Stock, the Liberty
Shareholders would own approximately 0.16% of the combined companies, based on
fully-diluted shares outstanding on June 30, 1993.
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<PAGE>
Dilution Analysis
Using estimates prepared by Liberty management for Liberty and analysts'
estimates for BAC, Montgomery compared the calendar years 1993 and 1994
estimated earnings per share of Liberty Common Stock and BAC Common Stock to
the calendar years 1993 and 1994 estimated earnings per share of the common
stock of the proforma combined companies. Based on such analysis and assuming
all Liberty Shareholders are paid Stock Consideration with a Market Value of
$40.63, the proposed transaction would be dilutive to BAC's earnings per share
in 1993, prior to projected cost savings, and accretive to Liberty's earnings
per share in the amount of $3.29 per Liberty share for 1993 and $3.03 per
Liberty share for 1994.
The summary set forth above does not purport to be a complete description of
the presentation by Montgomery to the Liberty Board or of the analyses
performed by Montgomery. The preparation of a fairness opinion is not
necessarily susceptible to partial analysis or summary description. Montgomery
believes that its analyses and the summary set forth above must be considered
as a whole and that selecting portions of its analyses and of the factors
considered, without considering all analyses and factors, would create an
incomplete view of the process underlying the analyses set forth in its
presentation to the Liberty Board. In addition, Montgomery may have given
certain analyses more or less weight than other analyses, and may have deemed
various assumptions more or less probable than other assumptions, so that the
ranges of valuations resulting from any particular analysis described above
should not be taken to be Montgomery's view of the actual value of Liberty or
the combined companies. The fact that any specific analysis has been referred
to in the summary above is not meant to indicate that such analysis was given
greater weight than any other analysis.
In performing its analyses, Montgomery made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Liberty or BAC. The analyses
performed by Montgomery are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of
Montgomery's analysis of the fairness of the consideration to be received by
Liberty Shareholders in the Merger and were provided to the Liberty Board in
connection with the delivery of Montgomery's opinion. The analyses do not
purport to be appraisals or to reflect the prices at which a company might
actually be sold or the prices at which any securities may trade at the present
time or at any time in the future. Montgomery used in its analyses various
projections of future performance prepared by the management of Liberty. The
projections are based on numerous variables and assumptions which are
inherently unpredictable and must be considered not certain of occurrence as
projected. Accordingly, actual results could vary significantly from those set
forth in such projections.
As described above, Montgomery's opinion and presentation to the Liberty
Board were among the many factors taken into consideration by the Liberty Board
in making its determination to approve the Merger.
Pursuant to the Engagement Letter, Liberty has paid Montgomery a $25,000
retainer, which will be credited against any fee to be paid to Montgomery
pursuant to the Engagement Letter. Pursuant to the Engagement Letter,
Montgomery may be paid a fee equal to the greater of $200,000 or 1.5% of the
total consideration involved in the Merger. Upon delivery of Montgomery's oral
opinion, Liberty became obligated to pay Montgomery one-half of the fee. If the
Merger is consummated, Liberty will be obligated to pay Montgomery the
remainder of the fee. Liberty has also agreed to reimburse Montgomery for its
reasonable out-of-pocket expenses. Pursuant to a separate letter agreement,
Liberty has agreed to indemnify Montgomery, its affiliates, and their
respective partners, directors, officers, agents, consultants, employees and
controlling persons against certain liabilities, including liabilities under
the federal securities laws.
In the ordinary course of its business, Montgomery actively trades equity
securities of BAC for its own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
In 1991 and 1992, Montgomery provided investment banking services to BAC
relating to certain branch deposit and asset sale transactions necessary for
the consummation of the merger of SPC into BAC, for which it received a fee of
$2,327,063.73. Montgomery did not perform any services for BAC during 1993. In
January 1994, Montgomery was engaged by BAC to provide investment banking
advisory services for a fee not expected to exceed $1,500,000. Such services do
not include finding or informing BAC of potential merger or acquisition
candidates.
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RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF LIBERTY
THE BOARD OF DIRECTORS OF LIBERTY HAS UNANIMOUSLY DETERMINED THAT THE MERGER
IS IN THE BEST INTERESTS OF LIBERTY AND ITS SHAREHOLDERS AND HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE MERGER. THE BOARD OF DIRECTORS OF LIBERTY
UNANIMOUSLY RECOMMENDS THAT THE LIBERTY SHAREHOLDERS VOTE "FOR" THE APPROVAL OF
THE MERGER AGREEMENT AND IN FAVOR OF THE MERGER.
TERMS OF THE MERGER
Under the terms of the Merger Agreement, Liberty will be merged with and into
FSB, with FSB as the surviving entity, and unless the Market Value is less than
$40.00 and BAC elects to pay Cash Consideration for all or part of the purchase
price, all outstanding shares of Liberty Common Stock, excluding any Dissenting
Shares, will, without any action on the part of the holders thereof, be
converted into the right to receive BAC Common Stock. As a result of the
Merger, Liberty Shareholders, other than those who duly exercise dissenters'
rights (as described below, see "--Rights of Dissenting Shareholders"), will
become stockholders of BAC.
The Merger will become effective at the time the Articles of Merger with
respect to the Merger are filed with the OTS, provided that all requirements of
applicable law to legally effect the Merger are fulfilled. The Merger Agreement
provides that the filing of the Articles of Merger with respect to the Merger
will occur on a date to be agreed to by the parties to the Merger Agreement,
or, in the absence of such an agreement, on the last business day of the month
in which the last of the Regulatory Approvals (as hereinafter defined, see "--
Conditions to the Merger") necessary for the Merger have been obtained and all
applicable waiting periods have expired, but no later than the Termination Date
(as hereinafter defined, see "--Termination of the Merger Agreement").
(1) Stock Consideration and Cash Consideration. At the Effective Time, each
share of Liberty Common Stock, other than Dissenting Shares, will be converted
into the right to receive the Stock Consideration and/or the Cash Consideration
generally determined as follows: (i) if the Market Value is greater than or
equal to $40.00, each Liberty Shareholder will receive the number of shares of
BAC Common Stock as is determined by multiplying the number of shares of
Liberty Common Stock owned of record by such Liberty Shareholder by $28.54 and
dividing the resulting product by the Market Value; and (ii) if the Market
Value is less than $40.00, each Liberty Shareholder will receive, at the option
of BAC: (A) shares of BAC Common Stock calculated pursuant to (i) above, (B)
Cash Consideration equal to $28.54 for each share of Liberty Common Stock owned
of record by such Liberty Shareholder at such time, or (C) a combination
thereof.
If the Market Value is less than $40.00, BAC has the option, but not the
obligation, to pay Cash Consideration for all or any portion of the purchase at
the rate of $28.54 per share of Liberty Common Stock. In exercising such
option, BAC will elect the option that it believes to be in its best interests.
A vote FOR the approval of the Merger Agreement will be deemed to be an
agreement to receive Cash Consideration in lieu of BAC Common Stock for all or
a portion of the purchase, should the Market Value be less than $40.00 and BAC
exercise its option to pay Cash Consideration. SEE "--FEDERAL INCOME TAX
CONSEQUENCES" FOR THE SIGNIFICANT DIFFERENCES IN THE FEDERAL INCOME TAX EFFECTS
OF RECEIVING CASH VERSUS STOCK IN THE MERGER.
It is intended that the Merger shall constitute a tax-free reorganization to
the extent that the Liberty Shareholders receive the Stock Consideration in the
Merger. Any payment of cash to Liberty Shareholders, either as Cash
Consideration, upon the exercise of dissenters' rights or in lieu of fractional
shares, will be taxable to the extent of any gain realized by Liberty
Shareholders. See "--Federal Income Tax Consequences." Any amount deemed
received by Liberty Shareholders upon the transfer of assets to the Liquidating
Trust will be taxable to the extent of any gain realized by Liberty
Shareholders.
See "--Liquidating Trust."
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<PAGE>
(2) Cash in Lieu of Fractional Shares. No certificates for fractional shares
of BAC Common Stock will be issued; in lieu thereof, each Liberty Shareholder
otherwise entitled to a fractional share will receive an amount in cash equal
to the product determined by multiplying such fraction by the Market Value of
one share of BAC Common Stock and will have no other rights with respect to
such fractional share.
(3) Capitalization Changes. If BAC shall at any time during the ten trading
days when the Market Value is determined pay or distribute any stock dividend,
stock distribution, stock split, reverse stock split, extraordinary dividend or
partial or liquidating distribution, then the BAC Common Stock price of $40.00
per share under which BAC shall have the option to pay Cash Consideration for
all or a portion of the purchase will forthwith be proportionally increased or
decreased as the case may be. Notwithstanding the foregoing, no such adjustment
shall occur with respect to any cash dividend declared or paid during such
period, provided no other cash dividend has been declared and paid during the
same calendar quarter.
(4) Exchange of Stock Certificates. As soon as practicable after the
Effective Time, Chemical Trust Company of California (the "Exchange Agent")
will mail or otherwise make available to all Liberty Shareholders a form letter
of transmittal, together with instructions for the exchange of the certificates
that prior to the Effective Time represented Liberty Common Stock for
certificates representing BAC Common Stock. LIBERTY SHAREHOLDERS SHOULD NOT
SEND IN THEIR LIBERTY COMMON STOCK CERTIFICATES UNTIL THEY RECEIVE WRITTEN
INSTRUCTIONS FROM THE EXCHANGE AGENT. LIBERTY SHAREHOLDERS SHOULD NOT RETURN
STOCK CERTIFICATES WITH THE ENCLOSED PROXY. Upon valid surrender to the
Exchange Agent of a certificate that prior to the Effective Time represented
Liberty Common Stock, together with a letter of transmittal, duly executed, and
any other required documents, the holder surrendering such certificates will be
entitled to receive in exchange therefor certificates representing the Stock
Consideration (together with cash in lieu of fractional shares, if any), or, if
applicable, the Cash Consideration to which he or she is entitled in accordance
with the terms of the Merger Agreement as described above. No holder of
certificates that prior to the Effective Time represented Liberty Common Stock
will be entitled to receive any securities or payments in exchange therefor
until valid surrender of such holder's certificates is made.
Each certificate that prior to the Effective Time represented shares of
Liberty Common Stock (other than Dissenting Shares) will, on and after the
Effective Time, evidence for all corporate purposes only the right to receive
the Stock Consideration (together with cash in lieu of fractional shares, if
any) or, if applicable, the Cash Consideration payable in accordance with the
terms of the Merger Agreement.
All BAC Common Stock issued pursuant to the Merger will be deemed issued as
of the Effective Time. No distributions or dividends paid upon shares of BAC
Common Stock after the Effective Time will be paid to holders of Liberty Common
Stock until such holders have surrendered their certificates that, prior to the
Effective Time, represented Liberty Common Stock, at which time accumulated
dividends and distributions since the Effective Time, without interest, will be
paid.
LIQUIDATING TRUST
Immediately prior to the Effective Time, certain assets on the books of
Liberty will be transferred into a liquidating trust (the "Liquidating Trust")
formed by Liberty for the benefit of the Liberty Shareholders, excluding
Liberty Shareholders who exercise dissenters' rights. The trust assets shall
consist of an amount up to $50,000 (as specified below), a loan participation
with respect to a non-performing extension of credit, and all proceeds and
income from investment and reinvestment in respect thereof (collectively, the
"Trust Property"). Since October 8, 1993 and prior to the Effective Time, all
principal payments received by Liberty in connection with the Trust Property
shall be accounted for separately and shall be placed into the Liquidating
Trust. Consent of a third party may be required to transfer the Trust Property
to the Liquidating Trust. Such consent has not yet been obtained, but cannot be
unreasonably withheld.
The Liquidating Trust will be established by Liberty for the sole purpose of
holding the Trust Property on behalf of the former Liberty Shareholders,
excluding Liberty Shareholders who exercise dissenters' rights,
("Beneficiaries"), enforcing the rights of the Beneficiaries in the Trust
Property, collecting the income
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thereon, liquidating and distributing the Trust Property to the Beneficiaries,
and taking such other action as is necessary to conserve and protect the Trust
Property. Operation of the Liquidating Trust is governed by the terms of a
Liquidation Trust Agreement (the "Trust Agreement") to be entered into by and
between Liberty and one or more persons who will serve as trustee ("the
Trustees").
The Trustees shall receive and hold all the Trust Property and shall, at
least annually, distribute to Beneficiaries on a pro rata basis any cash
received as the result of any recoveries of principal of and interest on the
Trust Property or any proceeds from the sale or investment of the Trust
Property in excess of a reasonable amount to meet contingent liabilities,
including reserves. The Liquidating Trust shall terminate upon payment to the
Beneficiaries of all of the Trust Property or on the third anniversary of the
Trust Agreement, whichever occurs first; provided, however, that upon approval
of a majority of the Trustees, the Trust Agreement may be extended, for a
period not to exceed an additional three years.
If at the time the Trust is terminated, any Trust Property is distributable
to a missing Beneficiary, the Trustees shall deposit such Trust Property with
the appropriate official of the State of Hawaii in accordance with the escheat
laws of Hawaii concerning the disposition of assets distributable to unknown or
unlocated shareholders of a corporation upon the dissolution of the
corporation.
The value of the Trust Property to be transferred into the Liquidating Trust
will be its fair market value at the time of transfer. As of September 30,
1993, the net book value (book value less reserves) of the Trust Property as
reflected on the books of Liberty was $2,287,591. In addition, an amount up to
$50,000 shall be placed in the Liquidating Trust, which shall be used to pay
fees of the Liquidating Trust. Accordingly, if the Trust Property distributed
to Beneficiaries was based on the net book value reflected on the books of
Liberty as of September 30, 1993, each Beneficiary could receive, on a pro rata
basis, up to $2.91 per share of Liberty Common Stock held. However, because net
book value is not necessarily indicative of the fair market value of the Trust
Property and because the Trust Property will be valued at the time of transfer,
no assurance can be given as to the value, if any, of the Trust Property which
may be available for distribution to Beneficiaries.
For federal income tax purposes, Liberty's transfer of the Trust Property to
the Liquidating Trust will be treated as if Liberty distributed the Trust
Property directly to the Beneficiaries, followed by a deemed transfer of such
property by the Beneficiaries to the Liquidating Trust.
The Liquidating Trust is intended to be treated as a grantor trust for
federal income tax purposes. Accordingly, each Beneficiary will be subject to
tax on his or her share of any income, deduction, or credit of the Liquidating
Trust as if such Beneficiary directly received the item of income, deduction,
or credit (even if the amount is not currently distributed to the Beneficiary).
Thus, interest payments received by the Liquidating Trust on any debt
obligation held by the Liquidating Trust will be taxable as ordinary income to
each Beneficiary when received or accrued by the Liquidating Trust, depending
on the Beneficiary's method of accounting.
In the event the Liquidating Trust acquires the loan participation at a
discount, the Liquidating Trust and the Beneficiaries will be subject to the
"market discount" rules. Under these rules, each Beneficiary will recognize
accrued market discount as principal payments are collected on the debt
obligation, or when the debt obligation is disposed of. Such market discount
generally is treated as interest income taxable at ordinary income rates.
Generally, a debt obligation will have market discount equal to the excess (if
any) of the principal amount of the debt obligation over the trust's tax basis
in the debt obligation (which will be the fair market value of the debt
obligation on the date the debt obligation is transferred to the Liquidating
Trust). If principal on a debt obligation is received by the Liquidating Trust
in one lump sum, all accrued market discount will be recognized when and if the
debt obligation is collected.
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EACH LIBERTY SHAREHOLDER IS STRONGLY ADVISED TO CONSULT WITH HIS OR HER OWN
TAX ADVISOR AS TO THE TAX TREATMENT OF THE RECEIPT OF HIS OR HER SHARE OF ANY
INCOME, DEDUCTION OR CREDIT OF THE LIQUIDATING TRUST.
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to various conditions. No assurance can
be given as to whether such conditions will be satisfied, or waived by the
party permitted to do so. Accordingly, there can be no assurance that the
Merger will be completed. In the event that conditions to the Merger remain
unsatisfied and the Merger has not been effected on or before the Termination
Date, the Merger Agreement may be terminated by any party to the Merger
Agreement provided the terminating party is not in default under the Merger
Agreement. See "--Termination of the Merger Agreement."
(1) Conditions to the Obligations of All Parties. The consummation of the
Merger is conditioned upon the approval of the Merger Agreement by the
affirmative vote of at least 66 2/3% of the outstanding shares of Liberty
Common Stock entitled to vote at the Meeting.
The obligations of all parties to the Merger Agreement to proceed with the
Merger are also subject to various other conditions, including, without
limitation, the following: (i) the Merger and the transactions contemplated by
the Merger Agreement must not violate any order, decree or judgment of any
court or governmental body having competent jurisdiction, and no law, rule or
regulation shall have been adopted by any such body that prohibits or enjoins
the Merger Agreement or the transactions contemplated thereby; and (ii) no
action, suit, or proceeding before any court or governmental authority may be
pending or threatened challenging the legality of the Merger or the
transactions contemplated by the Merger Agreement or seeking to restrain their
consummation.
(2) Additional Conditions. The obligations of BAC and FSB to proceed with the
Merger and the transactions contemplated by the Merger Agreement are also
subject to various other conditions, including without limitation, the
following: (i) the representations and warranties of Liberty and its
subsidiary, Liberty Properties, Inc., contained in the Merger Agreement must be
true and correct in all material respects on and as of the Closing Date; (ii)
Liberty must perform and satisfy in all material respects all covenants and
conditions required by the Merger Agreement to be performed and satisfied by
it; (iii) BAC and FSB must receive certain certificates, opinions of counsel
and other documents; (iv) unless the Market Value is less than $40.00 and BAC
elects to pay Cash Consideration such that cash and interests in the
Liquidating Trust constitute a majority of the purchase price in the Merger,
BAC and FSB must receive an opinion from tax counsel to BAC as to the tax-free
status of the Merger; (v) all of the Company Options must be exercised or
cancelled or purchased by Liberty; (vi) Liberty must cause the amendment or
termination on terms satisfactory to BAC of any employee benefit or other plans
designated by BAC; (vii) Liberty must obtain the consent, approval or other
authorization from each of its landlords and all other parties from whom
consent is required in order to permit FSB to occupy each of Liberty's branch
premises, and to operate such branches as branches of FSB immediately following
the Effective Time; (viii) Liberty must have entered into agreements with
specified service providers with regard to the continuation or termination, as
the case may be, of such services subsequent to the Effective Time; (ix) the
written resignation and release of claims of a specified officer of Liberty
shall have been obtained by Liberty; (x) Liberty must have transferred to the
Liquidating Trust certain specified assets; and (xi) there must not have been
any occurrence, development or event of any nature, that has had or may
reasonably be expected to have, together with all such other occurrences,
developments and events, a materially adverse effect upon the business,
operations, properties or financial condition of Liberty.
The obligations of Liberty to proceed with the Merger and the transactions
contemplated by the Merger Agreement are also subject to various other
conditions, including without limitation, the following: (i) the
representations and warranties of BAC and FSB contained in the Merger Agreement
must be true and correct in all material respects on and as of the Closing
Date; (ii) BAC and FSB must perform and satisfy in all material respects all
covenants and conditions required by the Merger Agreement to be performed and
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<PAGE>
satisfied by them; (iii) Liberty must receive various certificates and opinions
of counsel; and (iv) unless the Market Value is less than $40.00 and BAC elects
to pay Cash Consideration such that cash and interests in the Liquidating Trust
constitute a majority of the purchase price in the Merger, Liberty must receive
an opinion from tax counsel to BAC, reasonably satisfactory to Liberty, as to
the tax-free status of the Merger. See "--Federal Income Tax Consequences--(1)
Tax Opinion."
BAC and FSB, on the one hand, and Liberty, on the other hand, have made
various representations and warranties to each other with respect to, among
other things, capitalization, ownership of subsidiaries, financial statements
and public disclosure material furnished in connection with the proposed
Merger. Liberty has made certain other representations and warranties to BAC
and FSB with respect to, among other things, compliance with applicable laws,
contracts and commitments, real and personal property, the absence of material
adverse changes, litigation, undisclosed liabilities, insurance, taxes, labor,
employment and employee benefit matters, hazardous materials, loans and
allowance for credit losses.
BAC and FSB, on the one hand, and Liberty, on the other hand, have undertaken
various covenant obligations in the Merger Agreement, with respect to, among
other things, obtaining all required Regulatory Approvals and all other
consents and approvals required for the Merger and taking various other actions
in connection with the Merger.
(3) Regulatory Approvals. Consummation of the Merger will require the
approval of, or in certain instances, waivers or other actions by or filings
with, the FRB, the Hawaii Commissioner and the OTS. Collectively, the foregoing
governmental approvals, actions and waivers and all other required governmental
approvals are sometimes referred to herein as the "Regulatory Approvals." It is
a condition to the obligations of Liberty to proceed with the Merger and the
other transactions contemplated by the Merger Agreement that all Regulatory
Approvals necessary for the consummation of the Merger be obtained. In
addition, it is a condition to the obligations of BAC and FSB to proceed with
the Merger and the other transactions contemplated by the Merger Agreement that
all Regulatory Approvals necessary for the consummation of the Merger be
obtained without the imposition of any condition that BAC in good faith
determines to be burdensome upon the conduct of the business of BAC, FSB or the
business of Liberty as conducted at the time such approvals are granted or as
reasonably anticipated to be conducted in the future. If any such condition is
imposed, the Merger Agreement permits BAC to terminate the Merger Agreement.
There can be no assurance that all Regulatory Approvals will be obtained or
that such Regulatory Approvals will not impose a condition that will enable BAC
and FSB to terminate the Merger Agreement.
BUSINESS PENDING THE MERGER
Liberty Shareholders will retain their equity interest in Liberty until the
Effective Time. The Merger Agreement provides that, until the Effective Time,
Liberty will conduct its affairs only in the ordinary course of business
consistent with prudent banking practice and in accordance with applicable
laws, including, without limitation, using all reasonable efforts to preserve
intact its present business organization, to keep available the services of its
present officers and employees and to preserve its relationships and goodwill
with all persons having business dealings with it.
(1) Certain Actions. In addition, under the Merger Agreement, Liberty has
agreed, unless BAC otherwise consents in writing, to among other things (i)
refrain from declaring or paying any dividend on, or making any other
distribution on or purchasing or redeeming any shares of Liberty capital stock,
except for purchases of Company Options; (ii) refrain from issuing or selling
or obligating itself to issue or sell any shares of its capital stock or any
warrants, rights or options to acquire, or any securities convertible into, any
shares of its capital stock, except for shares issued or to be issued upon the
exercise of Company Options outstanding on the date of the Merger Agreement;
(iii) refrain from closing or relocating any branch office, or acquiring or
selling or agreeing to acquire or sell, any branch office or deposit
liabilities, and otherwise consult with and seek the advice of BAC with respect
to basic policies relating to branching, site location and relocation; (iv) not
enter into, amend or terminate any material contract or agreement, except in
the ordinary course of
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business; (v) not increase the compensation payable or to become payable by
Liberty or its subsidiary to any of their respective officers, directors,
employees or agents, other than normal cost-of-living, merit and regularly
scheduled increases (provided, however, that Liberty is not prohibited from
funding any employee benefit or other plan or making any payments to
beneficiaries under such plans in the ordinary course of business, consistent
with past practice and in compliance with such plans); (vi) not establish any
new employee benefit plan or make any material modification of any currently
existing employee benefit plan; (vii) not amend the charter documents, bylaws
or other organizational documents of Liberty; (viii) not change accounting
principles or methods, except as required to comply with generally accepted
accounting principles or as required by FDIC regulations; (ix) not sell,
transfer or otherwise dispose of any properties or assets material to Liberty
or its subsidiary except in the ordinary course of business; (x) not foreclose
upon or otherwise acquire any real property subject to hazardous materials or
any nonresidential property prior to receipt and approval by BAC of a Phase I
environmental review for the property; (xi) not change its deposit account
interest rate pricing policies or its loan pricing policies except interest
rate changes which are made in the ordinary course of business and consistent
with past practices; and (xii) not deviate from policies and procedures
existing as of the date of the Merger Agreement with respect to (A)
classification of assets; and (B) accrual of interest on assets, except as
otherwise required by the provisions of the FDIC or the Division of Financial
Institutions of the Department of Commerce and Consumer Affairs of the State of
Hawaii (the "Hawaii Division").
(2) Acquisition Proposals. Liberty has agreed that it will not, directly or
indirectly, through any officer, director, employee, agent or otherwise,
solicit, initiate, or encourage or, except as otherwise required in the opinion
of its counsel, Lillick & Charles, in order for its Board of Directors to
fulfill its fiduciary duties, participate in any negotiation in respect of, or
cooperate with any proposal for, a merger or other business combination
involving Liberty or for the acquisition of a controlling equity interest in,
or a substantial portion of the assets of, Liberty (an "Acquisition Proposal").
Liberty has agreed to notify BAC promptly in the event any information is
requested from, or any inquiry with respect to such an Acquisition Proposal is
received by, Liberty and to provide BAC with a reasonably detailed description
thereof.
Liberty has further agreed that (i) no Acquisition Proposal may be accepted,
approved, adopted or recommended by the Board of Directors of Liberty or
presented by Liberty, or by its Board of Directors or management, to the
Liberty Shareholders for vote or approval by written consent, and no such
meeting of shareholders may be called by Liberty or noticed for purposes of
taking shareholder action with respect to any Acquisition Proposal; (ii) the
Board of Directors of Liberty may not rescind the approval of the Merger
Agreement or any of the transactions contemplated thereby; and (iii) except as
otherwise required by any governmental authority having jurisdiction with
respect to a party, Liberty may not prepare or assist in the preparation of or
file or assist in the filing of any notice or application to any governmental
authority pertaining to or seeking approval of any change in control incident
to or which would result from any Acquisition Proposal. See "--The Warrant."
AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be amended or supplemented at any time by written
agreement of the parties whether before or after the Meeting. To the extent
permitted under applicable law, any such waiver or amendment or supplement may
be made without further approval of the Liberty Shareholders.
TERMINATION OF THE MERGER AGREEMENT
(1) Termination Provisions. If the Merger has not been consummated by July 1,
1994 (the "Termination Date"), then at any time thereafter any party not in
default can terminate the Merger Agreement by giving written notice to the
other parties thereto, unless the Merger Agreement has been extended by mutual
consent.
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The Merger Agreement also may be terminated at any time prior to the
Effective Time, whether before or after approval by the Liberty Shareholders,
as follows: (i) by mutual consent of the parties to the Merger Agreement; (ii)
by any party upon expiration of 15 days after the FRB, OTS, Hawaii Commissioner
or any other regulatory body having jurisdiction over the Merger denies in
writing any approval, consent, qualification or ruling necessary for
consummation of the Merger; (iii) after 30 days prior notice has been given by
BAC or FSB to Liberty of a material breach by Liberty of the Merger Agreement
or of the failure by Liberty to satisfy any condition to the Merger, or of a
material misrepresentation by Liberty in respect of (or of a material breach
of) any warranty or representation contained in the Merger Agreement, provided
that such termination shall have no effect if Liberty fully and completely
corrects the grounds for termination specified in such notice prior to the
expiration of the notice period or the Termination Date, whichever first
occurs; or (iv) after 30 days prior notice has been given by Liberty to BAC and
FSB of a material breach by BAC or FSB of the Merger Agreement or of the
failure by either of them to satisfy any condition to the Merger, or of a
material misrepresentation by either of them in respect of (or of a material
breach of) any warranty or representation contained in the Merger Agreement,
provided that such termination shall have no effect if BAC or FSB fully and
completely corrects the grounds for termination specified in such notice prior
to the expiration of the notice period or the Termination Date, whichever first
occurs.
(2) Effect of Termination. If the Merger Agreement is terminated for any of
the foregoing reasons, there shall be no liability as a result thereof on the
part of the parties to the Merger Agreement or the directors, officers,
employees or agents of any of them, except in the case of termination described
in (iii) or (iv) above as the result of a breach of the Merger Agreement or any
misrepresentation thereunder.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
(1) Certain Employment Agreements. Pursuant to the terms of the Merger
Agreement, Liberty has agreed to amend the employment contract between Liberty
and Donald M.S. Young to provide for Mr. Young's employment as Senior Vice
President through the Closing Date, and thereafter to permit, without cause or
notice, termination of the contract at any time without penalty.
(2) Stock Options. The Merger Agreement provides that as a condition of
closing the Merger, all Company Options granted under Liberty's Incentive Stock
Option Plan ("Option Plan") must be exercised by the optionee and/or the option
must be cancelled by Liberty (if it is permitted to do so) or the shares
thereunder must be purchased by Liberty. The Board of Directors of Liberty
intends to amend its Option Plan and the related stock option agreements
accordingly.
If an optionee elects not to exercise his or her options and receive shares
of Liberty Common Stock which would then be exchanged in the Merger and the
Company Option cannot be cancelled by Liberty, Liberty will purchase the
Company Option for a price equal to an amount no greater than the difference
between the exercise price and $28.54 multiplied by the number of shares
represented by such Company Option.
Mr. Buchman, President and Chief Executive Officer of Liberty, has an
outstanding Company Option to purchase 6,000 shares of Liberty Common Stock at
an exercise price of $14.875 per share. Mr. Lawrence S.L. Ching, Chairman of
the Board of Liberty, has an outstanding Company Option to purchase 3,000
shares at an exercise price of $24.40 per share and an outstanding Company
Option to purchase 1,000 shares at an exercise price of $22.00. If both of
these individuals elected not to exercise their Company Options, Liberty would
be obligated to purchase the shares thereunder for an aggregate amount of
approximately $101,000. Any such payments will be deemed to be costs associated
with the Merger.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences of
the Merger and certain other federal income tax aspects of the BAC Common Stock
to be received by Liberty Shareholders pursuant to the Merger. The summary is
included for general information only and is based entirely upon the Internal
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Revenue Code of 1986 (as amended, the "Code"), regulations and rulings now in
effect or proposed thereunder, current administrative rulings and practice and
judicial authority, all of which are subject to change. Any such change, which
may or may not be retroactive, could alter the tax consequences to Liberty
Shareholders set forth herein.
(1) Tax Opinion. The consummation of the Merger is subject to the condition,
unless waived in accordance with the terms of the Merger Agreement, that
Liberty and BAC receive an opinion of tax counsel to BAC to the effect that the
Merger as contemplated by the Merger Agreement will constitute a tax-free
reorganization under Section 368(a) of the Code. The receipt of such opinion is
expressly conditioned upon (i) Liberty Shareholders receiving a majority of
their consideration pursuant to the Merger Agreement in the form of BAC Common
Stock and (ii) the receipt by tax counsel of certain factual representations
certified by (A) authorized officers of BAC, FSB and Liberty and (B) each
Liberty Shareholder who owns 5% or more of the outstanding Liberty Common Stock
at any time during the period commencing with the date of this Proxy
Statement/Prospectus and ending with the Closing Date.
Such an opinion of counsel may be subject to conditions stated therein and
will also rely upon the facts set forth or referred to therein, including facts
stated by a responsible officer or officers of Liberty, BAC and FSB. An opinion
of counsel is not binding upon the IRS or the courts. Because the IRS is not
expected to issue a ruling on the tax effects of the Merger, and no such ruling
has been requested, it is expected that the tax opinion will be delivered as
described herein.
As a tax-free reorganization, the Merger will result in the following federal
income tax consequences to Liberty Shareholders:
(i) A Liberty Shareholder will recognize no gain or loss as a result of
the exchange of his or her Liberty Common Stock for shares of BAC Common
Stock pursuant to the Merger except that any gain realized on the exchange
(as measured by the difference between the amount realized by such Liberty
Shareholder pursuant to the Merger and such Liberty Shareholder's tax basis
in the Liberty Common Stock exchanged) will be recognized to the extent of
(A) any cash received and (B) the fair market value of his or her
beneficial interest in the Liquidating Trust as of the date of its
distribution to such Liberty Shareholder (hereinafter, amounts described in
(A) and (B) will be referred to as "boot"). Any recognized gain will be
treated as short- or long-term gain for federal income tax purposes
depending upon such Liberty Shareholders' holding period for the Liberty
Common Stock exchanged, provided that the shares are held as capital assets
and provided further that the payment does not have the effect of a
dividend distribution. (See, however, (iv), below, regarding the treatment
of cash in lieu of fractional shares.) Generally, a distribution of boot
will not have the effect of a dividend distribution if (A) it reduces, by
more than 20%, the Liberty Shareholder's interest in BAC which the Liberty
Shareholder would have acquired if the exchange was entirely for BAC Common
Stock or (B) it results in a meaningful reduction in the Liberty
Shareholder's proportionate interest in BAC. (In this regard, the IRS has
ruled that a partial redemption of a minority shareholder's deminimus
interest in a publicly held corporation which reduces the shareholder's
voting rights and his or her future participation in the earnings of the
business is not essentially equivalent to a dividend, even though the
redemption does not reduce the shareholder's interest in the corporation by
more than 20%.) Because the determination of whether a payment of boot will
be treated as having the effect of a dividend distribution will generally
depend upon the circumstances of each Liberty Shareholder, Liberty
Shareholders should consult their tax advisors with respect to the
characterization of boot received in the Merger.
(ii) The tax basis of the shares of BAC Common Stock received by each of
the Liberty Shareholders in the Merger (including, for this purpose,
fractional shares settled in cash) will, in each case, equal the tax basis
of the shares of Liberty Common Stock surrendered in exchange therefor, (A)
decreased by (i) the fair market value of any property (other than BAC
Common Stock) received, (ii) any cash received and (iii) the amount of
loss, if any, recognized on the exchange; and (B) increased by (i) the
amount treated as a dividend and (ii) the amount of gain, if any,
recognized on the exchange (not including any portion of such gain which
was treated as a dividend).
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(iii) The holding period of the shares of BAC Common Stock received by
the holders of Liberty Common Stock in the Merger will include the period
during which the Liberty Common Stock was held by such Liberty
Shareholders, provided that such shares of Liberty Common Stock were held
as capital assets on the date of the Merger.
(iv) The payment of cash in lieu of fractional shares interests of BAC
Common Stock will be treated as if the fractional shares had been
distributed as part of the exchange and then redeemed by BAC. These cash
payments will be treated as having been received as distributions in full
payment in exchange for the stock redeemed. Such amounts will be treated as
capital gain, provided that the stock redeemed is held as a capital asset
on the date of the Merger.
(v) Any Liberty Shareholder who exercises dissenters' rights and receives
a cash payment in exchange for his or her shares of Liberty Common Stock
will be treated as having received a distribution in redemption of his or
her shares of Liberty Common Stock. If, as a result of the redemption, the
Liberty Shareholder does not actually or constructively own any shares of
BAC Common Stock, such Liberty Shareholder will recognize short- or long-
term capital gain or loss for federal income tax purposes depending upon
the Liberty Shareholder's holding period for the Liberty Common Stock,
measured by the difference between the Liberty Shareholder's basis in such
shares and the amount of cash received, provided that the shares are held
as capital assets.
(2) Tax Consequences to Liberty Shareholders should the Merger not be a Tax-
Free Reorganization. If the Merger is not a tax free reorganization because,
for example, BAC elects to pay Cash Consideration for a majority of the shares
of Liberty Common Stock, the Merger will be taxable to the Liberty
Shareholders. In that case, each Liberty Shareholder will recognize gain or
loss measured by the difference between (i) the amount realized by such Liberty
Shareholder pursuant to the Merger (including (A) amounts deemed received upon
transfer of property to the Liquidating Trust and (B) consideration in the form
of BAC Common Stock) and (ii) such Liberty Shareholder's tax basis in the
Liberty Common Stock exchanged. Such gain or loss will be treated as short-term
or long-term capital gain depending upon such Liberty Shareholder's holding
period for the shares of Liberty Common Stock exchanged, provided that the
shares are held as a capital asset.
(3) Treatment of the Liquidating Trust to Liberty Shareholders. See "--
Liquidating Trust."
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS FOR GENERAL INFORMATION
ONLY. IT DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE
MERGER. THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE
INTERNAL REVENUE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER
AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING
ARE SUBJECT TO CHANGE WITH OR WITHOUT RETROACTIVE EFFECT AND ANY SUCH CHANGE
COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. THIS DISCUSSION MAY
NOT BE APPLICABLE TO A LIBERTY SHAREHOLDER WHO ACQUIRED SHARES OF LIBERTY
COMMON STOCK PURSUANT TO THE EXERCISE OF AN EMPLOYEE STOCK OPTION OR OTHERWISE
AS COMPENSATION. EACH LIBERTY SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN
TAX ADVISOR CONCERNING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH
LIBERTY SHAREHOLDER, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS.
THE WARRANT
In order to facilitate the transactions contemplated by, and in consideration
of BAC's entry into, the Merger Agreement, Liberty issued the Warrant to BAC on
October 8, 1993. The Warrant entitles the holder to purchase up to 195,985
newly issued shares of Liberty Common Stock (equal to 24.3% of the number of
shares outstanding immediately following such issuance and 19.6% of the number
of shares of Liberty
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Common Stock that would be outstanding immediately after exercise), subject to
an antidilution adjustment in the event of any subsequent issuance of Liberty
Common Stock other than the 21,625 shares subject to existing Company Options.
The exercise price of the Warrant is $25.05 per share, subject to an
antidilution adjustment in the event of (i) any change in the Liberty Common
Stock by reason of a stock dividend, stock split, reverse stock split,
reclassification, recapitalization, reorganization or other similar event or
(ii) any issuance, or agreement to issue, by Liberty of any shares of Liberty
Common Stock at a price less than the exercise price of the Warrant. Such
exercise price represents the book value of Liberty Common Stock on the date
the Warrant was granted.
The Warrant may be exercised in whole or in part only after the occurrence of
a "Triggering Event." A Triggering Event means the occurrence of any of the
following events: (i) prior to the termination of the Merger Agreement, any
person or group of persons, other than BAC or any of its subsidiaries, shall
have commenced a bona fide tender or exchange offer for 10% or more of the
outstanding shares of Liberty Common Stock; (ii) prior to the termination of
the Merger Agreement, the acquisition by any person or group of persons, other
than BAC or any of its subsidiaries, of the beneficial ownership or the right
to acquire beneficial ownership of 10% or more of the outstanding shares of
Liberty Common Stock; (iii) prior to the termination of the Merger Agreement,
the filing of an application or notice, other than by BAC or any of its
subsidiaries, under Hawaii law, the federal Change in Bank Control Act, the
federal Bank Holding Company
Act, the federal Bank Merger Act, or Section 14(d) of the Exchange Act with
respect to the acquisition or proposed acquisition of 10% or more of the
outstanding shares of Liberty Common Stock; (iv) prior to the termination of
the Merger Agreement, (A) the failure of the Liberty Shareholders to approve
the Merger Agreement at a meeting called to consider such Merger Agreement, if
such meeting shall have been preceded by the public announcement by any person
or group of persons (other than BAC or any of its subsidiaries) of a bona fide
offer or bona fide proposal to acquire, merge or consolidate with Liberty; or
(B) the acceptance by Liberty's Board of Directors of, or the public
recommendation by the Liberty Board of Directors that the Liberty Shareholders
accept, an offer or proposal from any person or group of persons (other than
BAC or any of its subsidiaries) to acquire 10% or more of the outstanding
shares of Liberty Common Stock or of the consolidated assets of Liberty; or (v)
the occurrence of any of the events described in (i), (ii), (iii) or (iv)
(without regard to the provision that such event occur prior to the termination
of the Merger Agreement) within six months following the termination of the
Merger Agreement if such termination is preceded by the occurrence of any event
or circumstance which would permit BAC (but not Liberty) to terminate the
Merger Agreement due to Liberty's material breach of a representation or
warranty or of a covenant contained in the Merger Agreement.
If prior to the termination of the Merger Agreement any Triggering Event
shall have occurred, the holder of the Warrant may, at its election, tender the
Warrant to Liberty, and, in such event, Liberty must within two business days
pay to the holder in immediately available funds the difference between (A) the
highest per share price paid or offered by such person or group for any shares
of Liberty Common Stock and (B) the exercise price of the Warrant, multiplied
by the total number of shares subject to the Warrant less the number of shares,
if any, as to which the Warrant has theretofore been exercised. Such payment
extinguishes all other rights of BAC under the Warrant.
The Warrant provides that BAC may transfer the Warrant, any shares of Liberty
Common Stock issuable upon the exercise thereof, or any interest in the Warrant
or such shares: (i) at any time, without the written consent of Liberty, to a
direct or indirect wholly owned subsidiary of BAC; (ii) following the
occurrence of a Triggering Event, in one or more transactions exempt from the
registration requirements of Section 5 of the Securities Act or in any
transaction subject to the registration requirements of Section 5 of the
Securities Act. The Warrant also requires Liberty, if requested by BAC after a
Triggering Event, to file and keep current a registration statement under the
Securities Act covering the Warrant and the shares issuable upon the exercise
thereof for a period ending 24 months from the date of the request in order to
permit the sale or other disposition of the Warrant or such shares; provided
that Liberty is not required to prepare and file any such registration
statement in connection with any proposed sale of Liberty Common Stock held by
BAC under circumstances in which Liberty's counsel renders an opinion that no
such registration is required under the Securities Act.
29
<PAGE>
The right to require Liberty to prepare, file and keep current a registration
statement may only be exercised by request of BAC to Liberty.
Liberty made certain representations and warranties to BAC in the Warrant,
including that Liberty would not, by amendment of its Articles of Incorporation
or Bylaws (including amendments which would adversely affect the voting or
other rights of shares issuable pursuant to exercise of the Warrant), agree to
a reorganization, consolidation, merger, dissolution or sale of assets, or by
any other voluntary act, avoid or seek to avoid the observance or performance
of any of the covenants, stipulations or conditions to be performed by Liberty
under the Warrant.
The Warrant, and the rights to acquire shares of Liberty Common Stock
pursuant thereto, expire upon the first to occur of (i) the consummation of the
Merger; (ii) the mutual consent of Liberty and BAC to terminate the Warrant;
(iii) the expiration of a six-month period after the termination of the Merger
Agreement, unless a Triggering Event has occurred; (iv) the expiration of a 24-
month period following the occurrence of a Triggering Event; or (v) following
the occurrence of the Triggering Event, any termination by Liberty of the
Merger Agreement due to a material misrepresentation or breach of covenant by
BAC or FSB under the Merger Agreement, so long as the misrepresentation or
breach is not attributable to the existence of the Triggering Event.
The Warrant could have the effect of discouraging persons who now or prior to
the Effective Time might be interested in acquiring all of or a significant
interest in Liberty from considering or proposing such an acquisition, even if
such persons were prepared to pay more consideration per share for Liberty
Common Stock than the consideration per share payable under the Merger
Agreement.
THE VOTING AGREEMENTS
To induce BAC to enter into the Merger Agreement and to consummate the Merger
the following Liberty Shareholders entered into Voting Agreements with BAC:
Lawrence S.L. Ching, Chairman of the Board and a director of Liberty; John E.
Finney, a director of Liberty; Kenneth K. Lau, a director of Liberty; Reuben
K.S. Zane, Corporate Secretary and a director of Liberty; Lillian Tom Loo;
Taihook Associates; Watumull Brothers, Ltd.; and Zane and Zane, Inc. The Voting
Agreements require, among other things, that the 269,112 shares of Liberty
Common Stock owned by such persons individually will be voted (i) in favor of
the Merger Agreement and (ii) against any proposal or transaction that would in
any manner impede, frustrate, prevent or nullify the Merger, the Merger
Agreement or any of the other transactions contemplated by the Merger
Agreement. Such shares represent approximately 34.4% of the total number of
shares of Liberty Common Stock issued and outstanding on the Record Date. The
Voting Agreements provide that the signatories may not transfer their shares of
Liberty Common Stock or any interest therein subject to the related irrevocable
proxy. The Voting Agreements provide that their terms are binding upon any
person to whom legal or beneficial ownership of such shares of Liberty Common
Stock may pass by operation of law or otherwise and will extend to any shares
of Liberty Common Stock acquired by the signatories after the execution
thereof. BAC and Liberty anticipate that Liberty's other directors and
executive officers will vote in favor of the Merger Agreement.
ACCOUNTING TREATMENT
The Merger will be accounted for by BAC under the purchase method of
accounting in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations," as amended ("APB No. 16"). Under this method of
accounting, the purchase price will be allocated to assets acquired and
liabilities assumed based on their estimated fair values at the Closing Date.
Income of the combined company will not include income (or loss) of Liberty
prior to the Closing Date.
30
<PAGE>
LISTING AND RESALE OF BAC COMMON STOCK
(1) Listing on Stock Exchanges. BAC has agreed to list the shares of BAC
Common Stock to be issued pursuant to the Merger on the New York and Pacific
Stock Exchanges, subject to notice of issuance. Applications for such listings
will soon be filed. BAC also intends to list such shares on the Chicago, London
and Tokyo Stock Exchanges.
(2) Restrictions on Resale by Affiliates. The BAC Common Stock issuable in
connection with the Merger has been registered under the Securities Act, but
this registration does not cover resales by any Liberty Shareholder who
directly or indirectly through one or more intermediaries controls or is
controlled by or is under common control with Liberty at the time the Merger
Agreement is submitted to the Liberty Shareholders for approval ("Affiliates").
Affiliates may not sell shares of BAC Common Stock acquired in connection with
the Merger except pursuant to an effective registration statement under the
Securities Act covering such shares, in accordance with Paragraph (d) of Rule
145 promulgated thereunder or pursuant to an exemption from registration under
the Securities Act. Certain Affiliates of Liberty have entered into letter
agreements with BAC, pursuant to which such Affiliates have represented to BAC
that, among other things, they have been advised regarding their potential
status as Affiliates and the corresponding restrictions such status imposes on
the resale of the BAC Common Stock received by them in the Merger.
EXPENSES OF THE MERGER
The Merger Agreement provides generally that the parties thereto will each
pay their respective fees and expenses in connection with the Merger, whether
or not the Merger is consummated, except as otherwise provided below. The
parties estimate that the aggregate fees and expenses in connection with the
Merger will be approximately $485,000, excluding fees paid to Montgomery.
In the event that the Merger Agreement is terminated (i) by mutual consent of
the parties, (ii) due to the failure to obtain any Regulatory Approval, or
(iii) due to the failure to consummate the Merger on or before the Termination
Date, then each party shall bear its own costs and expenses relating to the
preparation, filing, shipping and distribution of the Registration Statement
and this Proxy Statement/Prospectus and to the pursuit of the Regulatory
Approvals, except for printing costs, which shall be divided equally between
Liberty and BAC.
A termination of the Merger Agreement due to the material misrepresentation
in respect of or material breach of or material failure to satisfy any
warranty, representation, covenant or agreement therein by any party thereto,
shall not relieve any party of any liability for breach of the Merger Agreement
or constitute a waiver of any remedy available for such breach or
misrepresentation. In such event, the prevailing party shall be entitled to
reasonable attorneys' fees and expenses.
OPERATIONS AFTER THE MERGER
Upon consummation of the Merger, the separate corporate existence of Liberty
will cease and FSB will continue as the surviving entity. All rights,
franchises and interests of Liberty and every type of property of Liberty,
except for the assets transferred prior to the Effective Time to the
Liquidating Trust, will be transferred to and vested in FSB. All liabilities
and obligations of Liberty will be assumed by FSB, as the surviving
corporation. The Board of Directors of FSB prior to the Merger will continue to
serve as the Board of Directors of FSB upon consummation of the Merger.
RIGHTS OF DISSENTING LIBERTY SHAREHOLDERS
Shareholders of Liberty who wish to dissent and obtain payment for their
shares are entitled to certain rights under Sections 415-80 and 415-81 of the
Hawaii Business Corporations Act (the "Act"). A shareholder wishing to dissent
must file with Liberty, prior to the vote on the Merger, written notification
that the shareholder elects to be paid the fair value for his or her shares and
must refrain from voting such shares in approval of the action. A shareholder
who fails in either respect shall acquire no right to payment for the
31
<PAGE>
shares under either Section 415-80 or Section 415-81 of the Act. Sections 415-
80 and 415-81 are reprinted in their entirety as Appendix A to this Proxy
Statement/Prospectus. Please note that all references in Sections 415-80 and
415-81 and in this section to a "shareholder" are to the record holder of
dissenting shares of Liberty Common Stock. A person or persons having a
beneficial interest in shares of Liberty Common Stock held of record in the
name of another person or persons, such as a broker or nominee, and wishing to
exercise dissenters' rights should act promptly to cause the shareholder of
record properly to follow the steps summarized below and in a timely manner to
perfect dissenters' rights with respect to such shares.
IMPORTANT DETAILS CONCERNING THESE REQUIREMENTS ARE SET
FORTH BELOW; FAILURE TO TAKE THESE ACTIONS TIMELY
AND PROPERLY WILL RESULT IN THE LOSS OF
DISSENTERS' RIGHTS.
The following discussion is not a complete statement of the law relating to
dissenters' rights and is qualified in its entirety by Appendix A. This
discussion and Appendix A should be reviewed carefully by any shareholder who
wishes to exercise dissenters' rights or who wishes to preserve the right to do
so since failure to comply with the procedures set forth in Sections 415-80 and
415-81 will result in the loss of dissenters' rights.
If the Merger is consummated, those shareholders of Liberty who elect to
exercise their dissenters' rights and who properly and timely perfect such
rights will be entitled to receive the fair value in cash of their shares. Such
cash payment would be in lieu of the amount of the BAC Common Stock which they
would otherwise receive pursuant to the Merger Agreement and any amounts
distributed from the Liquidating Trust. Pursuant to Sections 415-80 and 415-81
of the Act, such fair value means the value of the shares immediately before
the consummation of the Merger, excluding any appreciation or depreciation in
anticipation of the Merger, unless such exclusion would be inequitable.
Liberty will mail to those shareholders of record who submitted a written
notice of intention to demand dissenters' rights and who refrained from voting
their shares in approval of the Merger, a notice that the required shareholder
approval of the Merger was obtained (the "Notice of Approval"). The Notice of
Approval shall: (1) state where and when a demand for payment must be sent and
share certificates must be deposited in order to obtain payment; (2) supply a
form for demanding payment which includes a request for certification of the
date on which the shareholder, or the person on whose behalf the shareholder
dissents, acquired beneficial ownership of the shares; and (3) be accompanied
by a copy of Sections 415-80 and 415-81 of the Act.
The determination by Liberty of the fair value of Liberty Common Stock is not
binding on its shareholders, and if a dissenting shareholder chooses not to
accept the offer, he or she has the right during a period of 30 days following
the mailing of the Notice of Approval to mail to Liberty the dissenter's own
estimate of fair value and any accrued interest thereon, and demand payment
therefor. However, not more than 60 days after receiving any such notice of
demand for payment, Liberty may file an appropriate court petition requesting
that the fair value of the shares and interest thereon be determined by the
court. All dissenters, wherever resident, whose demands have not been settled
shall be made parties to these proceedings and any such court determination
would be binding on such dissenting shareholders.
ANY HOLDER OF RECORD OF LIBERTY COMMON STOCK WHO WISHES TO EXERCISE
DISSENTERS' RIGHTS MUST MAKE WRITTEN DEMAND UPON LIBERTY WITHIN 30 DAYS AFTER
THE DATE ON WHICH THE NOTICE OF APPROVAL WAS MAILED TO SUCH SHAREHOLDER THAT
LIBERTY PAY SUCH SHAREHOLDER IN CASH THE FAIR VALUE OF HIS OR HER DISSENTING
SHARES. Such demand should be sent to Liberty Bank, 99 North King Street,
Honolulu, Hawaii 96817, Attention: President/Chief Executive Officer. Such
written demand must state the number of shares held of record by such
shareholder and the number of shares which such shareholder
32
<PAGE>
demands Liberty purchase for cash. A PROXY CARD DIRECTING A VOTE AGAINST THE
MERGER IS NOT SUFFICIENT TO MEET THE REQUIREMENTS FOR A WRITTEN DEMAND. SUCH
WRITTEN DEMAND AND THE SHAREHOLDER'S SHARE CERTIFICATE(S) MUST BE RECEIVED BY
LIBERTY WITHIN 30 DAYS AFTER THE DATE ON WHICH THE NOTICE OF APPROVAL WAS
MAILED TO SUCH SHAREHOLDER.
If the shareholder votes in favor of the Merger (either in person or by
proxy) or if Liberty does not receive such shareholder's written demand within
30 days after the Notice of Approval was mailed to the shareholder (or if the
shareholder otherwise fails to comply in a timely manner with the procedures of
Sections 415-80 and 415-81 as described herein or contained in Appendix A),
such shareholder shall be bound by the terms of the Merger Agreement and shall
lose the right as a dissenter to receive the fair value of his or her shares in
cash. Any shares which lose their status as dissenting shares shall be, or be
deemed to have been, converted into the right to receive shares of BAC Common
Stock as provided in the Merger Agreement.
If, within 60 days after the date set for demanding payment and depositing
certificates, Liberty has not consummated the Merger and remitted payment to
dissenting shareholders, Liberty shall return any certificates that have been
deposited. Immediately upon consummation of the Merger, or upon receipt of
demand for payment if the Merger already has been consummated, Liberty shall
remit to dissenters who have properly made their demand and deposited their
certificates, the amount which Liberty estimates to be the fair value of the
shares, with interest if any has accrued.
If Liberty fails to remit as set forth above or if the dissenter believes
that the amount remitted is less than the fair value, or that the interest is
not correctly determined, the dissenter may send to Liberty his or her own
estimate of the value of the shares or of the interest, and demand payment of
the deficiency. If the dissenter does not file such an estimate within 30 days
after Liberty's mailing of the remittance, the dissenter shall be entitled to
no more than the amount remitted.
Within 60 days of receiving notice from a dissenting shareholder that he or
she is in disagreement with the fair value of Liberty Common Stock in
accordance with the terms of Sections 415-80 and 415-81 of the Act, Liberty may
file an action in an appropriate court in the County of Honolulu, Hawaii asking
for a determination of the fair value of the shares, or may intervene in any
other action arising from the same issues. The court may appoint one or more
persons as appraisers to recommend a decision on the question of fair value.
Dissenters shall be entitled to discovery in the same manner as parties in
other civil suits. Any party to the action may appeal from the judgment of such
action.
A failure on the part of Liberty to file suit in the time frame specified
above following notification from a dissenting shareholder of a fair value
which differs from Liberty's offer will result in the requirement of Liberty to
pay such dissenting shareholder(s) the amount(s) so requested.
The cost of such action(s) may be assessed or apportioned as the court
considers fair. Fees and expenses of counsel and expert witnesses of dissenting
shareholders will be assessed against Liberty, except if such actions by
shareholders were deemed in noncompliance with the requirements of Sections
415-80 and 415-81, or the fair value requested by the dissenting shareholders
or the actions of any dissenter should be deemed to be arbitrary, vexatious or
in bad faith with respect to their rights under Sections 415-80 and 415-81,
then such costs may be apportioned against such dissenters as the court deems
appropriate.
The foregoing summarizes certain provisions of Sections 415-80 and 415-81 of
the Act but shareholders of Liberty considering exercising their rights under
those sections should read in full Sections 415-80 and 415-81, and should
consult their own legal advisors. The receipt of cash payment for dissenting
shares will result in recognition of gain or loss for federal income tax
purposes by such dissenting shareholders. See "--Federal Income Tax
Consequences."
33
<PAGE>
BANKAMERICA CORPORATION
BAC is a bank holding company registered under the Bank Holding Company Act
of 1956, as amended, and was incorporated in the State of Delaware in 1968.
BAC, through its banking and other subsidiaries, provides banking and financial
services throughout the United States and in selected overseas markets to
consumers and business customers including corporations, governments and other
institutions.
Bank of America became a subsidiary of BAC on April 1, 1969. Bank of America
began business in San Francisco, California, as Bank of Italy in 1904 and
adopted its present name in 1930. The capital stock of Bank of America is, and
is expected to continue to be, the principal asset of BAC.
On April 22, 1992, SPC was merged with and into BAC. SPC's principal
subsidiary, Security Pacific National Bank, was also merged with and into Bank
of America on that date.
BAC also owns all of the capital stock of Seafirst Corporation ("Seafirst"),
a registered bank holding company whose principal asset is the capital stock of
Seattle-First National Bank ("SFNB"). SFNB is a national banking association
headquartered in the State of Washington. As part of the SPC merger into BAC,
Security Pacific Bank Washington, formerly Rainier National Bank, was merged
with and into SFNB.
BAC has further expanded its presence in the western United States through
several acquisitions beginning in 1989. For example, in July 1992, BAC acquired
H.F. Holdings, Inc. and its subsidiary HonFed Bank, a federal savings bank with
30 branches in Hawaii, which BAC now operates as Bank of America Hawaii, a
division of FSB. As a result of these acquisitions, BAC's subsidiaries now
operate approximately 2,000 branches in ten states.
BAC continues to explore opportunities for possible acquisitions of financial
institutions and related businesses, including those involving failed
institutions held by federal agencies, as well as other independent entities.
In some cases, BAC may submit binding or non-binding bids in competition with
other interested parties. Generally, BAC does not make any public announcement
about any acquisition opportunity on which it may be bidding or for which it
may be negotiating until an agreement has been signed or an announcement has
been made by a regulatory agency.
BAC's principal executive offices are located at 555 California Street, San
Francisco, California 94104 (telephone (415) 622-3530).
RECENT FINANCIAL DEVELOPMENTS
Set forth below is unaudited information with respect to the results of
operations for the first nine months of 1993, and unaudited balance sheet
information as of September 30, 1993, with respect to BAC. The information set
forth for BAC reflects the analysis by BAC's management with respect to BAC's
results of operations and balance sheet. Information with respect to Liberty's
unaudited consolidated financial statements as of and for the period ended
September 30, 1993 is included in Liberty's Amended and Restated Quarterly
Report on Form F-4 for the period ended September 30, 1993 which accompanies
this Proxy Statement/Prospectus as Appendix D.
BAC
BAC's earnings for the first nine months of 1993 were $1,458 million, or
$3.58 per common share, compared with $1,019 million, or $3.03 per common
share, in the same period last year. Earnings for the first nine months of 1992
were reduced by nonrecurring and certain other items, primarily related to the
merger with SPC ("SPC Merger"), which is discussed below. Excluding these
nonrecurring and certain other items, earnings for the first nine months of
1992 totaled $1,194 million, or $3.61 per common share.
34
<PAGE>
The five organizational units that contributed the most to BAC's total
earnings for the first nine months of 1993 were U.S. Division, Seafirst,
Residential Lending Division, California Retail Banking Division, and Asia
Division. Together, these units accounted for approximately two-thirds of BAC's
earnings for that period. The diversity of BAC's franchise was demonstrated by
the fact that no single organizational unit contributed more than 20% to BAC's
earnings for that period.
Economists generally agree that a recovery is underway in most regions of the
nation. However, economic weakness, especially in California, which is one of
BAC's more significant markets, continues to constrain growth in BAC's overall
business volume. Management believes that as long as economic uncertainties
persist, BAC's ongoing results of operations will continue to be affected.
Results of Operations
CONSOLIDATED SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1993 1992
(IN MILLIONS) -------- --------
<S> <C> <C>
Interest income.............................................. $ 8,751 $ 8,542
Interest expense............................................. 3,175 3,755
-------- --------
Net interest income........................................ 5,576 4,787
Provision for credit losses.................................. 610 730
-------- --------
Net interest income after provision for credit losses...... 4,966 4,057
Noninterest income........................................... 3,154 2,637
Noninterest expense.......................................... 5,552 4,862
-------- --------
Income before income taxes................................. 2,568 1,832
Provision for income taxes................................... 1,110 813
-------- --------
Net income................................................. $ 1,458 $ 1,019*
======== ========
</TABLE>
- --------
*Earnings were affected by the net effect of nonrecurring items, including
the accrual of restructuring expenses related to the SPC Merger and a net
gain on the sale of the payroll processing business of Bank of America. If
the nonrecurring items had been excluded from the results of the operations,
net income would have been $1,194 million.
Taxable-equivalent net interest income totaled $5,592 million for the first
nine months of 1993, up $790 million from $4,802 million during the same period
in 1992. This increase was primarily due to SPC Merger-related increases in
average earning assets. For the first nine months of 1993, BAC's net interest
margin was 4.76%, up from 4.65% for the same period last year.
Noninterest income for the first nine months of 1993 included $38 million of
nonrecurring income representing previously unrecognized post-SPC Merger 1992
earnings of Bank of America (Asia) Limited, formerly Security Pacific Asia
Bank, Ltd. ("SPABL"), which was recognized during the first quarter of 1993.
Noninterest income for the first nine months of 1992 included a nonrecurring
gain of $157 million related to the sale of Bank of America's payroll
processing business. Excluding nonrecurring items, noninterest income for the
first nine months of 1993 increased $636 million over the amount reported in
the same period in 1992, primarily due to increased revenues from fees and
commissions, resulting from SPC Merger-related growth in the volume of existing
fee-generating services, as well as higher trading-related income and other
noninterest income.
35
<PAGE>
NONINTEREST INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1993 1992
(IN MILLIONS) -------- --------
<S> <C> <C>
Fees and Commissions
Deposit account fees....................................... $ 896 $ 748
Credit card fees........................................... 259 256
Trust fees................................................. 222 150
Other fees and commissions................................. 815 673
-------- --------
2,192 1,827
Trading Related
Net trading account related................................ 198 113
Foreign exchange trading related........................... 270 206
-------- --------
468 319
Other
Net securities gains....................................... 45 10
Net gain (loss) on sales of subsidiaries and operations.... (4) 156
Net gain on sales of assets*............................... 61 88
Other income............................................... 392 237
-------- --------
494 491
-------- --------
$3,154 $ 2,637
======== ========
</TABLE>
- --------
*Net gain on sales of assets includes gains and losses from disposition of
loans, premises and equipment, and certain other assets.
Total fees and commissions, the largest component of noninterest income,
amounted to $2,192 million for the first nine months of 1993, up $365 million
from the corresponding period in 1992. This increase was largely due to higher
revenues from deposit account fees and other fees and commissions. Included in
other fees and commissions for the first nine months of 1993 were $137 million
of loan servicing fees and $71 million of mutual fund commissions, up from $96
million and $19 million, respectively, from the same period last year. Also
contributing to the growth in total fees and commissions for the first nine
months of 1993 over the corresponding period in 1992 were higher revenues from
trust fees. These increases in fees and commissions primarily resulted from
SPC Merger-related growth in the volume of transactions and the number of
deposit accounts.
Trading-related noninterest income for the first nine months of 1993 grew
$149 million over the same period in 1992, primarily due to the expansion of
BAC's customer base in selected global markets and to favorable positions
taken during periods of increased volatility in the first half of 1993.
Other noninterest income for the first nine months of 1993 included the
first-quarter recognition of nonrecurring income related to the consolidation
of SPABL, while other noninterest income for the first nine months of 1992
included the second-quarter 1992 gain on the sale of Bank of America's payroll
processing business. Excluding these nonrecurring gains, other noninterest
income increased $122 million for the first nine months of 1993 over the first
nine months of 1992, primarily due to higher venture capital gains and growth
in income from assets pending disposition, as well as to higher net securities
gains. The aggregate effect of these increases was partially offset by a lower
net gain on sales of assets.
Noninterest expense for the first nine months of 1993 included $26 million
of nonrecurring additional salary expense related to a special recognition
award given to employees in the third quarter of 1993. Noninterest expense for
this period also included additional employee benefits expense related to the
adoption
36
<PAGE>
of Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions," and additional
amortization of intangibles due to the adoption of SFAS No. 109, "Accounting
for Income Taxes," as well as the incremental ongoing operating expenses
related to the First Gibraltar Bank, FSB ("FGB") transaction concluded in
February 1993. During the first nine months of 1992, total noninterest expense
included nonrecurring SPC Merger-related restructuring charges of $410 million
and net additions to operating loss reserves, primarily related to legal
matters, of $62 million. Excluding nonrecurring items and net additions to
operating loss reserves, noninterest expense for the first nine months of 1993
increased $1,136 million over the same period in 1992, largely due to the SPC
Merger.
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1993 1992
(IN MILLIONS) -------- --------
<S> <C> <C>
Salaries..................................................... $ 2,157 $ 1,845
Employee benefits............................................ 435 368
Occupancy.................................................... 502 400
Equipment.................................................... 436 374
Amortization of intangibles.................................. 306 147
Communications............................................... 249 220
Regulatory fees and related expenses......................... 235 191
Professional services........................................ 195 141
Net expense related to other real estate..................... 142 39
Merger-related restructuring expense......................... 9 410
Other expense................................................ 886 727
-------- --------
$ 5,552 $ 4,862
======== ========
</TABLE>
Salaries and employee benefits ("personnel expense") totaled $2,592 million
for the first nine months of 1993, an increase of $379 million from the
corresponding period in 1992. Excluding the nonrecurring special employee
recognition award and the additional employee benefits expense related to the
adoption of SFAS No. 106 discussed earlier, personnel expense for the first
nine months of 1993 was $319 million higher than the amount reported for the
first nine months of 1992. Personnel expense for the first nine months of 1992
reflected higher staff levels resulting from the SPC Merger and other 1992
acquisitions for only the months subsequent to their respective consummation
dates.
BAC's staff level on a full-time-equivalent ("FTE") basis was approximately
80,200 in September 1993, compared with approximately 83,500 in September
1992. The decrease in BAC's FTE staff level since September 1992 was largely
due to branch divestitures, consolidations and other staff reductions,
partially offset by the FGB transaction. BAC had approximately 98,000
employees in September 1993.
Amortization of intangibles was $306 million for the first nine months of
1993, compared with $147 million for the first nine months of 1992.
Amortization of intangibles for the first nine months of 1992 reflected
amortization of goodwill and identifiable intangibles related to the SPC
Merger and other 1992 acquisitions for only the months subsequent to their
respective consummation dates, and did not include the effect of the first-
quarter 1993 adoption of SFAS No. 109, as discussed above.
As a result of the SPC Merger, BAC expects to achieve reductions in certain
operating expenses through consolidation of certain operations and elimination
of redundant costs. SPC Merger-related operating expenses for purposes of
making the reduction estimates do not include items such as regulatory fees
and related expenses, amortization of intangibles, and net expense related to
other real estate. In addition, SPC Merger-related operating expense
reductions exclude the effects of operating expenses of acquisitions
37
<PAGE>
completed subsequent to the announcement of the SPC Merger, as well as the
effects of operating expenses related to post-SPC Merger growth in certain
operations.
BAC realized SPC Merger-related operating expense reductions of approximately
$748 million during the first nine months of 1993. Management continues to
expect that by the end of the second twelve-month period following the
consummation of the SPC Merger, SPC Merger-related operating expense reductions
will have increased to an ongoing annual rate of approximately $1.2 billion.
BAC recently announced expected staff level reductions of 3,000 to 3,750
positions by the end of 1994. Many of these reductions are expected to result
from the elimination of open positions. Some of these reductions are SPC
Merger-related and will help BAC achieve its $1.2 billion objective.
The year-to-date effective tax rates as of September 30, 1993 and 1992 were
43.2% and 44.4%, respectively. These effective tax rates are not comparable
since BAC prospectively adopted SFAS No. 109 on January 1, 1993, and the year-
to-date 1993 tax provision includes the effect of enacted federal tax
legislation signed into law in August 1993.
Balance Sheet Analysis.
CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1993 1992
(IN MILLIONS) ------------- ------------
<S> <C> <C>
Loans (net of unearned income)(a).................... $124,767 $124,523
Allowance for credit losses.......................... 3,715 3,921
In-substance repossessions........................... 893 1,186
Real estate acquired in satisfaction of debt......... 589 652
Assets pending disposition........................... 1,606 4,240
Goodwill, net........................................ 4,097 3,929
Identifiable intangibles, net........................ 2,249 1,640
Total assets(b)...................................... 187,109 180,646
Deposits............................................. 140,969 137,883
Long-term debt....................................... 14,008 14,326
Subordinated capital notes........................... 933 2,069
Total liabilities.................................... 170,304 165,158
Total stockholders' equity........................... 16,805 15,488
</TABLE>
- --------
(a) Includes loan outstandings related to highly leveraged transactions of
$2,126 million and $2,572 million at September 30, 1993 and December 31,
1992, respectively.
(b) Includes loan outstandings and other interest-bearing assets on nonaccrual
status of $3,035 million and $4,049 million at September 30, 1993 and
December 31, 1992, respectively.
Total assets increased $6.5 billion between December 31, 1992 and September
30, 1993 primarily due to a $5.1 billion combined increase in securities held
for investment and securities available for sale, caused primarily by the
acquisition of securities in connection with the first-quarter FGB transaction,
and a $4.4 billion increase in trading account assets. Partially offsetting
these increases were a $2.6 billion decrease in assets pending disposition and
a $1.4 billion decrease in cash and due from banks.
Earning assets totaled $160.0 billion, or 86% of total assets, at September
30, 1993, up $10.0 billion from $150.0 billion, or 83% of total assets, at
year-end 1992. This increase was primarily due to the increases in securities
held for investment, securities available for sale, and trading account assets.
Assets pending disposition totaled $1.6 billion at September 30, 1993,
compared with $4.2 billion at December 31, 1992. Assets pending disposition
excluding loans held for sale in the normal course of business
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decreased $2.6 billion during the first nine months of 1993, primarily due to
continuing sales and paydowns of such assets, including the sale of $0.7
billion of real-estate-related assets to a partnership controlled by The Morgan
Stanley Real Estate Fund, L.P. ("MSREF"), as discussed below. Also contributing
to this decrease were the reclassification of $0.5 billion of tax effects from
assets pending disposition to deferred income taxes in connection with the
first-quarter adoption of SFAS No. 109 and to the previously discussed decision
not to sell SPABL. Of the reclassified net tax effects, $0.3 billion related to
assets sold in connection with the MSREF transaction.
The transaction in which subsidiaries of BAC sold certain assets pending
disposition excluding loans held for sale in the normal course of business to a
partnership controlled by MSREF occurred on June 30, 1993. These assets were
recorded at $707 million immediately prior to the sale. Substantially all of
the assets purchased by the partnership were acquired in connection with the
SPC Merger.
At September 30, 1993, total intangible assets, net of accumulated
amortization, amounted to $6.3 billion, including net goodwill of $4.1 billion
and net identifiable intangibles of $2.2 billion. At December 31, 1992, total
intangible assets, net of accumulated amortization, amounted to $5.6 billion,
including net goodwill of $3.9 billion and net identifiable intangibles of $1.7
billion. The largest component of identifiable intangibles at September 30,
1993 and December 31, 1992 was core deposit intangibles ("CDI"), which totaled
$1.8 billion and $1.3 billion, respectively.
Identifiable intangibles increased between December 31, 1992 and September
30, 1993 mostly due to the reclassification of $715 million of purchase-
accounting-related net tax effects to deferred income taxes in connection with
BAC's first-quarter adoption of SFAS No. 109, as well as to the first-quarter
addition of $158 million of CDI, primarily due to the FGB transaction. These
increases in identifiable intangibles were partially offset by adjustments
recorded during the first nine months of 1993, including valuation refinements
related to other acquisitions and reversals attributable to second-quarter
branch divestitures. In addition, amortization of $175 million was recorded
during the first nine months of 1993.
Goodwill increased between year-end 1992 and September 30, 1993 primarily due
to the first-quarter addition of $265 million resulting from the finalization
of the purchase-accounting process for the SPC Merger, as well as the addition
of $135 million, primarily related to the FGB transaction. These additions were
partially offset by a second-quarter net reduction of $65 million related to
valuation refinements of certain assets acquired and liabilities assumed from
SPC, and to a lesser extent, by purchase accounting refinements related to
other acquisitions. In addition, amortization of $131 million was recorded
during the first nine months of 1993.
During the first nine months of 1993, interest-bearing deposits in foreign
offices increased $4.8 billion, while total deposits in domestic offices
decreased $1.4 billion, partially reflecting a shift in BAC's funding sources.
The increase in interest-bearing deposits in foreign offices was primarily due
to expansion in selected global markets and to the previously discussed
consolidation of SPABL.
Loans.
BAC's loan portfolio totaled $124.8 billion at September 30, 1993, up
slightly from $124.5 billion at December 31, 1992. The increase in total loans
between December 31, 1992 and September 30, 1993 was largely due to an increase
in foreign loans, primarily resulting from the previously-discussed
consolidation of SPABL effective January 1, 1993, and the FGB transaction. The
increase in foreign loans was partially offset by decreases in most categories
of domestic loans, including the reclassification of approximately $0.8 billion
of net tax effects to deferred income taxes in connection with BAC's first-
quarter adoption of SFAS No. 109.
At both September 30, 1993 and December 31, 1992, domestic consumer loans
represented the largest component of BAC's total loan portfolio, accounting for
49% and 50%, respectively. At September 30, 1993, domestic commercial loans
accounted for 35% of total loan outstandings, down from 36% at year-end 1992,
while foreign loans increased to 16% of total loan outstandings from 14% at
year-end 1992.
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<PAGE>
Domestic consumer loan outstandings totaled $61.2 billion at September 30,
1993, down $0.9 billion from year-end 1992. This decline was primarily due to
decreases of $1.5 billion in installment loans and $1.0 billion in credit card
loans, partially offset by increases in consumer loans secured by first
mortgages on residential properties and individual lines of credit of $1.3
billion and $0.4 billion, respectively. Installment loans decreased primarily
due to high levels of paydowns during the second and third quarters of 1993,
while credit card loans declined mostly due to high levels of paydowns during
the first quarter. Although consumer loan paydowns continued at relatively high
levels throughout the first nine months of 1993, the rate of originations in
the residential real estate sector outpaced the level of paydowns in the second
and third quarters of 1993.
During the first nine months of 1993, BAC's consumer loan delinquency ratios
(the percentage of loan outstandings in each portfolio that are past due 60
days or more) continued at relatively high levels, primarily reflecting
economic weakness in the U.S., particularly in parts of California. At
September 30, 1993, the delinquency ratio on residential real estate loans was
2.36%, up from 1.93% at December 31, 1992. However, the delinquency ratio on
credit cards declined 71 basis points since year-end 1992 to 2.48% at September
30, 1993.
At September 30, 1993, domestic commercial loans totaled $43.9 billion, down
$1.5 billion from December 31, 1992, primarily as a result of a continued low
demand for loans among qualified borrowers reflecting the weakened U.S.
economy. This decline consisted of decreases in most categories of domestic
commercial loans, partially offset by an increase in loans for purchasing or
carrying securities.
At September 30, 1993, domestic commercial and industrial loans totaled $20.1
billion, compared with $21.6 billion at December 31, 1992. Commercial and
industrial loans accounted for 16% and 17% of total loans at September 30, 1993
and December 31, 1992, respectively.
Included in commercial and industrial loans is BAC's portfolio of highly
leveraged transactions ("HLT"). At September 30, 1993, BAC's HLT portfolio
totaled $2.1 billion, or 1.7% of total loan outstandings, down from $2.6
billion, or 2.1% of total loan outstandings, at year-end 1992. In addition, at
September 30, 1993, unfunded HLT commitments totaled $1.0 billion and HLT loans
on nonaccrual status totaled $190 million.
At September 30, 1993, commercial loans secured by real estate totaled $9.2
billion and construction and development loans totaled $4.4 billion, down from
$9.9 billion and $5.8 billion, respectively, at December 31, 1992. Commercial
loans secured by real estate and construction and development loans accounted
for 7% and 4%, respectively, of BAC's total loan portfolio at September 30,
1993, compared with 8% and 5% at December 31, 1992.
At September 30, 1993, BAC's foreign loans totaled $19.7 billion, up 15% from
$17.1 billion at December 31, 1992. This increase was primarily due to
increases in other foreign loans in connection with the previously discussed
first-quarter consolidation of SPABL. Also contributing to the increase in
foreign loans since year-end 1992 was growth in foreign commercial and
industrial loans.
Allowance for Credit Losses.
The allowance for credit losses at September 30, 1993 was $3,715 million, or
2.98% of loan outstandings, compared with $3,921 million, or 3.15%, at December
31, 1992. At September 30, 1993, BAC's ratio of the allowance for credit losses
to total nonaccrual assets was 122%, up from 97% at December 31, 1992. In
addition, BAC's ratio of the allowance for credit losses to nonaccrual assets
exclusive of those related to restructuring countries increased to 131% at
September 30, 1993 from 101% at year-end 1992.
Net credit losses for the first nine months of 1993 were $860 million, up $76
million from the amount reported for the same period in 1992. This increase
resulted largely from lower net credit recoveries related
40
<PAGE>
to loans to borrowers in restructuring countries and higher net credit losses
on other consumer loans and commercial and industrial loans, partially offset
by lower net credit losses on construction and development loans.
Net credit losses in the domestic consumer portfolio, the largest component
of BAC's net credit losses, amounted to $575 million for the nine months ended
September 30, 1993, up $25 million from the amount reported in the same period
in 1992. This increase was primarily related to an increase in net credit
losses on other consumer loans, partially offset by a decrease in net credit
losses on credit card outstandings.
Net credit losses in the domestic commercial loan portfolio for the nine
months ended September 30, 1993 totaled $318 million, down $21 million from the
amount reported for the same period of 1992. This decrease was primarily
related to lower net credit losses related to construction and development
loans, partially offset by higher net credit losses on commercial and
industrial loans.
Nonaccrual Assets, Restructured Loans, and Loans Past Due 90 days or More and
Still Accruing Interest.
At September 30, 1993, nonaccrual assets were $3,035 million, down $1,014
million, or 25%, from $4,049 million at December 31, 1992. Nonaccrual assets
related to restructuring countries were $345 million at September 30, 1993,
down from $375 million at December 31, 1992, mainly due to sales of loans.
Nonaccrual assets other than those related to restructuring countries totaled
$2,690 million at September 30, 1993, down $984 million, or 27%, from $3,674
million at December 31, 1992. This decrease was largely due to improvements in
most segments of the credit portfolio, particularly in the construction and
development loan, commercial and industrial loan, and foreign asset portfolios.
Decreases due to improvements in credit quality were partially offset by a
growth in nonaccrual consumer loans reflecting continued weakness in the
residential real estate market.
The improvement in BAC's credit quality during the first nine months of 1993
was also reflected in BAC's nonperforming assets ratios. At September 30, 1993,
the ratio of nonaccrual loans to total loans was 2.42%, down from 3.25% at
December 31, 1992. In addition, the ratio of total nonperforming assets
(comprised of nonaccrual assets, in-substance repossessions ("ISR"), and real
estate acquired in satisfaction of debt) to total assets declined 85 basis
points since year-end 1992 to 2.41% at September 30, 1993.
In-Substance Repossessions and Real Estate Acquired in Satisfaction of Debt.
At September 30, 1993, ISRs, which consist primarily of loans secured by
construction and development properties, totaled $893 million, down 25% from
$1,186 million at December 31, 1992. The aggregate carrying value of ISRs
represented approximately 51% and 55% of the aggregate contractual amount of
the related loans at September 30, 1993 and December 31, 1992, respectively.
Real estate acquired in satisfaction of debt amounted to $589 million at
September 30, 1993, down from $652 million at year-end 1992. The net decline in
ISRs and real estate acquired in satisfaction of debt resulted primarily from
sales, paydowns and the reclassification of net tax effects to deferred income
taxes in connection with BAC's previously discussed first-quarter adoption of
SFAS No. 109, as well as from write-downs due to subsequent declines in the
fair values of certain properties. These reductions were partially offset by
transfers from loans upon foreclosure or in-substance repossession.
Liquidity.
Liquid assets consist of cash and due from banks, interest-bearing deposits
in banks, federal funds sold, securities purchased under resale agreements,
trading account assets, and securities available for sale. At September 30,
1993, liquid assets totaled $28.9 billion, up $4.1 billion from $24.8 billion
at December 31, 1992. This growth in liquid assets included increases in
trading account assets, federal funds sold, and securities available for sale
of $4.4 billion, $1.0 billion, and $0.9 billion, respectively, partially offset
by decreases in all other categories of BAC's liquid assets.
41
<PAGE>
Capital.
At September 30, 1993, total stockholders' equity was $16.8 billion, up from
$15.5 billion at December 31, 1992. This increase in total stockholders' equity
was largely attributable to earnings net of preferred and common dividends, as
well as to the issuance of common stock valued at $125 million in connection
with the first-quarter 1993 FGB transaction. BAC's ratio of total stockholders'
equity to total assets was 8.98% at September 30, 1993, up from 8.57% at
December 31, 1992.
Common stockholders' equity was $13.8 billion at September 30, 1993, up from
$12.5 billion at December 31, 1992. BAC's ratio of common stockholders' equity
to total assets was 7.39% at September 30, 1993, up from 6.92% at December 31,
1992.
BAC and its domestic banking subsidiaries are subject to risk-based capital
regulations. The Federal Reserve Board has established guidelines that call for
a minimum 8% total risk-based capital ratio, including a Tier 1 capital ratio
of 4%. Beginning in 1993, bank holding companies that had acquired CDI and
certain other identifiable intangibles subsequent to February 19, 1992 were
required to deduct such intangibles from Tier 1 capital.
At September 30, 1993, BAC's total and Tier 1 risk-based capital ratios were
11.60% and 7.19%, respectively, up from 11.48% and 6.82%, at December 31, 1992.
However, the Tier 2 capital ratio at September 30, 1993 was down 25 basis
points from December 31, 1992, reflecting a reduction in Tier 2 capital
resulting from the redemption of a portion of BAC's subordinated debt. BAC's
Tier 1 leverage ratio was 6.42% and 6.37%, respectively, at September 30, 1993
and December 31, 1992.
Due to BAC's adoption of SFAS No. 109 in the first quarter of 1993, CDI and
other identifiable intangibles that are normally deducted from Tier 1 capital
under the current guidelines were $516 million higher at September 30, 1993,
with a corresponding increase in deferred taxes. The federal banking regulators
have not issued final capital regulations on the adoption of SFAS No. 109 and
are currently considering whether such increased intangibles should be deducted
from capital. Management believes that the increased amounts of CDI and other
identifiable intangibles resulting from the adoption of SFAS No. 109 do not
pose a risk to BAC's capital and should not be deducted from capital in
determining capital ratios. Pending final resolution of this issue by the
banking regulators, such amounts have not been deducted from capital in
determining the September 30, 1993 capital ratios mentioned above.
LIBERTY
Liberty's unaudited consolidated financial statements as of and for the
period ended September 30, 1993 are incorporated by reference from Liberty's
Amended and Restated Quarterly Report on Form F-4 for the period ended
September 30, 1993 which accompanies this Proxy Statement/Prospectus as
Appendix D.
DESCRIPTION OF BAC CAPITAL STOCK
GENERAL
BAC's authorized capital stock consists of 700,000,000 shares of BAC Common
Stock, par value $1.5625 per share, and 70,000,000 shares of preferred stock,
without par value ("BAC Preferred Stock"). At October 31, 1993, there were
approximately 357,593,000 shares of BAC Common Stock outstanding and 49,397,457
shares of BAC Preferred Stock outstanding.
Descriptions of the material terms of BAC's capital stock are set forth
below. Such descriptions are not complete and are subject in all respects to
the Delaware General Corporation Law and BAC's Certificate of Incorporation,
including the certificates of designation pursuant to which the outstanding
shares of BAC Preferred Stock were issued.
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<PAGE>
BAC COMMON STOCK AND RIGHTS
The description of the BAC Common Stock should be read carefully by the
Liberty Shareholders because, unless BAC elects to pay only the Cash
Consideration under the circumstances described in "THE MERGER--Terms of the
Merger" at the Effective Time, the issued and outstanding shares of Liberty
Common Stock will be converted into rights to receive shares of BAC Common
Stock.
Subject to any prior rights of the BAC Preferred Stock then outstanding,
holders of BAC Common Stock are entitled to such dividends as may be declared
from time to time by BAC's Board of Directors out of the funds legally
available therefor.
Each holder of BAC Common Stock is entitled to one vote for each share owned
by him or her on all matters submitted to a vote of the shareholders of BAC.
Such shares are not entitled to any cumulative voting rights. In the event of
any liquidation, dissolution or winding up of BAC, the holders of BAC Common
Stock are entitled to share equally and ratably in any assets remaining after
the payment of all debts and liabilities subject to the prior rights, if any,
of holders of BAC Preferred Stock. Holders of BAC Common Stock have no
preemptive or other subscription or conversion rights. BAC Common Stock is not
subject to redemption and the outstanding shares are, and the shares issued in
connection with the Merger will be, fully paid and nonassessable.
Each share of BAC Common Stock, including those to be issued to Liberty
Shareholders in connection with the Merger, is accompanied by one preferred
share purchase right (a "BAC Right"). Each BAC Right entitles the registered
holder to purchase from BAC one one-hundredth of a share of Cumulative
Participating Preferred Stock, Series E, without par value (the "BAC Series E
Preferred"), of BAC, at a price of $50 per one one-hundredth of a preferred
share (the "BAC Rights Purchase Price"), subject to adjustment. The description
and terms of the BAC Rights are set forth in a Rights Agreement (the "BAC
Rights Agreement") between BAC and Manufacturers Hanover Trust Company of
California (now Chemical Trust Company of California), as Rights Agent (the
"BAC Rights Agent"), as amended by Amendment No. 1 to the BAC Rights Agreement
dated as of August 11, 1991.
Certificates for shares of BAC Common Stock issued in connection with the
Merger will contain a notation incorporating the BAC Rights Agreement by
reference.
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (a "BAC Acquiring
Person") has acquired beneficial ownership of 20% or more of the outstanding
BAC Common Stock, or (ii) 10 business days (or such later date as may be
determined by action of the BAC Board of Directors prior to such time as any
person becomes a BAC Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer, the
consummations of which would result in the beneficial ownership by a person or
group of persons of 20% or more of such outstanding BAC Common Stock (the
earlier of such dates being called the "BAC Distribution Date"), the BAC Rights
will be evidenced by the certificates representing BAC Common Stock. In
addition, the BAC Rights Agreement provides that, until the BAC Distribution
Date, the BAC Rights will be transferred with and only with shares of BAC
Common Stock.
The BAC Rights are not exercisable until the BAC Distribution Date.
BAC Series E Preferred purchasable upon exercise of the BAC Rights will be
redeemable by BAC at a formula price. Each share of BAC Series E Preferred will
be entitled to an aggregate dividend of 100 times the dividend declared per
share of BAC Common Stock. In the event of liquidation, the holders of the BAC
Series E Preferred will be entitled to a minimum preferential liquidation
payment of $100 per share, plus accrued and unpaid dividends, but will be
entitled to an aggregate payment of 100 times the payment made per share of BAC
Common Stock. Each share of BAC Series E Preferred will have 100 votes, voting
together with shares of BAC Common Stock. Finally, in the event of any merger,
consolidation or other transaction
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<PAGE>
in which shares of BAC Common Stock are exchanged, each share of BAC Series E
Preferred will be entitled to receive 100 times the amount received per share
of BAC Common Stock. These rights are protected by customary antidilution
provisions.
Because of the nature of the BAC Series E Preferred's dividend, liquidation
and voting rights, the value of the one one-hundredth interest in a share of
BAC Series E Preferred purchasable upon exercise of each BAC Right should
approximate the value of one share of BAC Common Stock.
In the event that BAC is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are
sold, proper provision will be made so that each holder of a BAC Right will
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the right, that number of shares of common stock of
the acquiring company which at the time of such transaction will have a market
value of two times the exercise price of the BAC Right. In the event that any
person or group of affiliated or associated persons acquires beneficial
ownership of 20% or more of the outstanding shares of BAC Common Stock (unless
such person increased its beneficial ownership from less than 20% to 80% or
more of the outstanding shares of BAC Common Stock by a purchase pursuant to a
tender offer for all of the shares of BAC Common Stock for cash), proper
provisions shall be made so that each holder of a BAC Right, other than BAC
Rights beneficially owned by such person or group of affiliated or associated
persons (which will thereafter be void), will thereafter have the right to
receive upon exercise that number of shares of BAC Common Stock having a market
value of two times the exercise price of the BAC Right.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding
shares of BAC Common Stock, the Board of Directors of BAC may redeem the BAC
Rights in whole, but not in part, at a price of $0.001 per BAC Right (rounded
upward for each holder to the nearest $0.01). In addition, the BAC Rights may
be subject to automatic redemption in certain circumstances upon approval of
the majority of the outstanding shares of BAC Common Stock entitled to vote
thereon at a special meeting to be held in connection with certain acquisition
offers.
On August 11, 1991, BAC and the BAC Rights Agent executed Amendment No. 1 to
the BAC Rights Agreement ("Amendment No. 1"), which (i) permitted the merger
with SPC to be consummated without triggering a distribution under the BAC
Rights Agreement and (ii) made certain other technical changes to the BAC
Rights Agreement.
Copies of the BAC Rights Agreement and Amendment No.1 have been filed with
the SEC as an exhibit to a Registration Statement on Form 8-A dated April 13,
1988, and as an exhibit to the amendment to such Registration Statement filed
on Form 8 dated August 20, 1991, respectively.
The foregoing description of the material terms of the BAC Common Stock and
the BAC Rights does not purport to be a complete description of all of the
terms of the BAC Common Stock and the BAC Rights and is qualified in its
entirety by reference to the terms of the BAC Common Stock and the BAC Rights,
which are incorporated herein by reference and are set forth in full in Article
Fourth of BAC's Certificate of Incorporation and the BAC Rights Agreement,
respectively.
OUTSTANDING PREFERRED STOCK
Under BAC's Certificate of Incorporation, the BAC Board of Directors is
authorized without further stockholder action to provide for the issuance of up
to 70,000,000 shares of BAC Preferred Stock in one or more series with such
voting powers, full or limited, and with such designation, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be set forth in resolutions
providing for the issue thereof adopted by the BAC Board of Directors.
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<PAGE>
As of October 31, 1993, BAC had outstanding 5,178,000 shares of Cumulative
Adjustable Preferred Stock, Series A (the "BAC Series A Preferred"), 3,546,100
shares of Cumulative Adjustable Preferred Stock, Series B (the "BAC Series B
Preferred"), 7,250,000 shares of 9 5/8% Cumulative Preferred Stock, Series F
(the "BAC Series F Preferred"), 4,998,357 shares of 6 1/2% Cumulative
Convertible Preferred Stock, Series G (the "BAC Series G Preferred");
11,250,000 shares of 9% Cumulative Preferred Stock, Series H (the "BAC Series H
Preferred"); 200,000 shares of 11% Preferred Stock, Series I (the "BAC Series I
Preferred"); 400,000 shares of 11% Preferred Stock, Series J (the "BAC Series J
Preferred"); 14,600,000 shares of 8 3/8% Cumulative Preferred Stock, Series K
(the "BAC Series K Preferred"); 800,000 shares of 8.16% Cumulative Preferred
Stock, Series L (the "BAC Series L Preferred"); 700,000 shares of 7 7/8%
Cumulative Preferred Stock, Series M (the "BAC Series M Preferred"); and
475,000 shares of 8 1/2% Cumulative Preferred Stock, Series N (the "BAC Series
N Preferred"). The holders of all outstanding series of BAC Preferred Stock
rank on parity with each other, and prior to the holders of the BAC Common
Stock, with respect to dividends and liquidation.
If the equivalent of six quarterly dividends payable on any series of the BAC
Preferred Stock are in default (whether or not declared or consecutive), the
holders of all outstanding series of BAC Preferred Stock, voting as a single
class without regard to series, will be entitled to elect two directors until
all dividends in default have been paid or declared and set apart for payment.
Except as provided below, the affirmative vote of the holders of at least
two-thirds of the outstanding shares of the BAC Preferred Stock, voting as a
single class without regard to series, will be required (i) for any amendment
of the BAC Certificate of Incorporation (or any certificate supplemental
thereto providing for the capital stock of BAC) or Bylaws that will materially
and adversely change the preferences, privileges, rights or powers of the BAC
Preferred Stock, but in any case in which one or more, but not all series of
BAC Preferred Stock would be so affected as to their preferences, privileges,
rights or powers, only the consent of holders of at least two-thirds of the
shares of each series that would be so affected, voting separately as a class,
shall be required or (ii) to issue any class of stock that shall have
preference as to dividends or distribution of assets over any outstanding
series of BAC Preferred Stock. So long as the dividends thereon have been paid,
shares of BAC Series I Preferred and BAC Series J Preferred have no voting
power, except that the vote or consent of holders of at least two-thirds of all
outstanding shares of BAC Series I Preferred and BAC Series J Preferred, each
voting separately as a class, is required to authorize any amendment to BAC's
Certificate of Incorporation or to the Certificate of Designations for the BAC
Series I Preferred and BAC Series J Preferred, respectively; provided, however,
that any increase or decrease in the amount of authorized preferred stock or
the creation and issuance of other series of preferred stock, or any increase
or decrease in the amount of authorized shares or issued shares of the BAC
Series I Preferred and BAC Series J Preferred or of any other series of
preferred stock, in each case ranking on a parity with or junior to such series
of the BAC Series I Preferred and BAC Series J Preferred with respect to the
payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up, will not be deemed to materially and adversely
affect the powers, preferences, privileges or rights of the BAC Series I
Preferred and BAC Series J Preferred.
In the event of voluntary or involuntary liquidation, dissolution or winding
up of BAC, the holders of BAC Preferred Stock are entitled to receive out of
the assets of BAC available for distribution to shareholders, before any
distribution of assets is made to holders of BAC Common Stock, an amount equal
to the stated value per share, plus accrued and unpaid dividends. Except as
required by law, the holders of BAC Preferred Stock are not entitled to vote
except under limited circumstances. The BAC Preferred Stock is not convertible
into shares of other capital stock, except for the BAC Series G Preferred
Stock. The BAC Preferred Stock does not have preemptive rights and is not
subject to any sinking fund or other obligation of BAC to repurchase or retire
the BAC Preferred Stock.
BAC Series A Preferred. The BAC Series A Preferred has a stated value of
$50.00 per share. The BAC Series A Preferred provides for cumulative dividends
payable quarterly at adjustable rates based on the discount rates and average
yields of certain United States government securities. The BAC Series A
Preferred
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<PAGE>
is subject to redemption, in whole or in part, at the option of BAC, at $50.00
per share plus accrued and unpaid dividends.
BAC Series B Preferred. The BAC Series B Preferred has a stated value of
$100.00 per share. The BAC Series B Preferred provides for cumulative dividends
payable quarterly at adjustable rates based on the discount rates and average
yields of certain United States government securities. The BAC Series B
Preferred is subject to redemption, in whole or in part, at the option of BAC,
at $100.00 per share, plus accrued and unpaid dividends.
BAC Series F Preferred. The BAC Series F Preferred has a stated value of
$25.00 per share. The BAC Series F Preferred provides for cumulative dividends
payable quarterly at the rate of 9 5/8% per annum calculated as a percentage of
the stated value. The BAC Series F Preferred is subject to redemption, in whole
or in part, at the option of BAC at $25.00 per share on and after April 15,
1996, plus accrued and unpaid dividends.
BAC Series G Preferred. The BAC Series G Preferred has a stated value of
$50.00 per share. The BAC Series G Preferred provides for cumulative dividends
payable quarterly at the rate of 6 1/2% per annum calculated as a percentage of
the stated value. The BAC Series G Preferred is subject to redemption, in whole
or in part, at the option of BAC at $51.95 per share beginning May 31, 1995, at
decreasing prices thereafter through May 30, 2001, and at $50 per share
thereafter, in each case plus accrued and unpaid dividends.
The BAC Series G Preferred is convertible, at any time, unless previously
redeemed, into BAC Common Stock at a conversion rate of 1.09649 shares of BAC
Common Stock for each share of BAC Series G Preferred (equivalent to a
conversion price of $45.60 per share of BAC Common Stock). The conversion rate
is protected by customary antidilution provisions.
BAC Series H Preferred. The BAC Series H Preferred has a stated value of
$25.00 per share. The BAC Series H Preferred provides for cumulative dividends
payable quarterly at the rate of 9% per annum calculated as a percentage of the
stated value. The BAC Series H Preferred is subject to redemption, in whole or
in part, at the option of BAC at $25.00 per share on and after January 15,
1997, plus accrued and unpaid dividends.
BAC Series I Preferred. The BAC Series I Preferred has a stated value of
$500.00 per share. The BAC Series I Preferred provides for cumulative dividends
payable quarterly at a rate of 11% per annum calculated as a percentage of the
stated value. The BAC Series I Preferred is subject to redemption, in whole or
in part, at the option of BAC at $527.50 per share beginning September 30,
1995, at decreasing prices thereafter through September 29, 2000, and at
$500.00 per share thereafter, in each case plus accrued and unpaid dividends.
BAC Series J Preferred. The BAC Series J Preferred has a stated value of
$500.00 per share. The BAC Series J Preferred provides for cumulative dividends
payable quarterly at a rate of 11% per annum calculated as a percentage of the
stated value. The BAC Series J Preferred is subject to redemption, in whole or
in part, at the option of BAC at $527.50 per share beginning March 31, 1996, at
decreasing prices thereafter through March 30, 2001, and at $500.00 per share
thereafter, in each case plus accrued and unpaid dividends.
BAC Series K Preferred. The BAC Series K Preferred has a stated value of
$25.00 per share. The BAC Series K Preferred provides for cumulative dividends
payable quarterly at a rate of 8 3/8% per annum calculated as a percentage of
the stated value. The BAC Series K Preferred is subject to redemption, in whole
or in part, at the option of BAC on or after February 15, 1997, at $25.00 per
share plus accrued and unpaid dividends.
BAC Series L Preferred. The BAC Series L Preferred has a stated value of
$500.00 per share. The BAC Series L Preferred provides for cumulative dividends
payable quarterly at a rate of 8.16% per annum calculated as a percentage of
the stated value. The BAC Series L Preferred is subject to redemption, in whole
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<PAGE>
or in part, at the option of BAC on or after July 13, 1997, at $500.00 per
share plus accrued and unpaid dividends.
BAC Series M Preferred. The BAC Series M Preferred has a stated value of
$500.00 per share. The BAC Series M Preferred provides for cumulative dividends
payable quarterly at a rate of 7 7/8% per annum calculated as a percentage of
the stated value. The BAC Series M Preferred is subject to redemption, in whole
or in part, at the option of BAC on or after September 30, 1997, at $500.00 per
share plus accrued and unpaid dividends.
BAC Series N Preferred. The BAC Series N Preferred has a stated value of
$500.00 per share. The BAC Series N Preferred provides for cumulative dividends
payable quarterly at a rate of 8 1/2% per annum calculated as a percentage of
the stated value. The BAC Series N Preferred is subject to redemption, in whole
or in part, at the option of BAC on or after December 15, 1997, at $500.00 per
share plus accrued and unpaid dividends.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF BAC AND LIBERTY
At the Effective Time, unless the Market Value is less than $40.00 and BAC
elects to pay only the Cash Consideration in the Merger under the limited
circumstances described herein, Liberty Shareholders, other than dissenting
Liberty Shareholders, will become holders of BAC Common Stock, and their rights
as stockholders will be determined by the Delaware General Corporation Law and
by BAC's Certificate of Incorporation and Bylaws. The following is a brief
summary of all material differences in the rights of Liberty Shareholders and
the holders of BAC Common Stock under their respective Certificate or Articles
of Incorporation, Bylaws and statutory provisions. The summary does not purport
to be a complete description of the differences between the statutory and other
rights of Liberty Shareholders and holders of BAC Common Stock and is qualified
in its entirety by reference to the Hawaii Business Corporations Act (the
"Act"), the Delaware General Corporation Law, the case law decided under those
statutes and the Articles of Incorporation and Bylaws of Liberty and the
Certificate of Incorporation and Bylaws of BAC.
SPECIAL MEETINGS OF SHAREHOLDERS; ACTION BY CONSENT
Section 415-28 of the Act provides that special meetings of shareholders for
any purpose or purposes may be called by the Board of Directors or by the
holders of not less than one-tenth of all the shares entitled to vote at the
meeting. Holders of BAC Common Stock do not have the right to call special
meetings.
The Delaware General Corporation Law provides that, unless otherwise
restricted in the Articles or Certificate of Incorporation or the Bylaws, a
valid action of shareholders by written consent in lieu of action taken at a
meeting of shareholders requires the consent of the percentage of shareholders
whose vote would be required at the meeting (but not less than a majority of
the then-outstanding shares) to accomplish the same action. BAC's Certificate
of Incorporation prohibits stockholder action by written consent and requires
that any stockholder action be taken at a meeting of shareholders.
Actions without a meeting by Liberty Shareholders are governed by Section
415-145 of the Act, which provides that any action which may be taken at a
meeting of shareholders may be taken by written consent if such consent sets
forth the action so taken and is signed by all of the shareholders entitled to
vote on the action. Because Liberty's Articles and Bylaws are silent as to this
matter, the provisions of the Act control.
NOTICE OF SHAREHOLDER BUSINESS
Under the BAC Bylaws, a stockholder must give 30 to 60 days' prior notice to
BAC's Corporate Secretary of any business the stockholder wishes to bring
before a meeting of shareholders for a vote. The notice must contain a brief
description of the business, the reason for conducting such business at the
meeting,
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the name and address of the stockholder proposing the business, the class and
number of shares of BAC stock the stockholder owns and any material interest of
the stockholder in the business.
Liberty's Articles of Incorporation and Bylaws are silent as to the manner in
which a Liberty Shareholder may bring a matter before a meeting of shareholders
for a vote. Liberty Shareholders wishing to present a proposal must comply with
the provisions of FDIC Regulations set forth at Title 12 of the Code of Federal
Regulations, Part 335.211, including, but not limited to, receipt by Liberty of
a proposal to be submitted at an annual meeting of the shareholders not less
than 90 days in advance of a date corresponding to the date of Liberty's proxy
statement released to shareholders in connection with the previous year's
annual meeting of shareholders.
NOTICE OF DIRECTOR NOMINATIONS
Under the BAC Bylaws, a stockholder must give 30 to 60 days' prior notice to
BAC's Corporate Secretary if the stockholder wishes to nominate any person for
election as a BAC director at BAC's annual meeting of shareholders. The notice
must contain the following: with respect to each person the stockholder wishes
to nominate, all information relating to the person required to be disclosed in
solicitations for proxies for election pursuant to Regulation 14A under the
Exchange Act; the name and address of the stockholder making the nomination;
and the class and number of shares of BAC stock the stockholder owns.
Liberty's Articles of Incorporation and Bylaws are silent as to the manner in
which nominations for members of the Board of Directors may be made. However,
it has been Liberty's practice since 1983 to delegate to an ad hoc nominating
committee composed of members of Liberty's Board of Directors the functions of
recommending and screening potential candidates for nomination to the Board of
Directors of Liberty. The committee also will consider nominations for
directors made by Liberty Shareholders, which nominations should be in writing,
signed by the proposing shareholder(s), and submitted by mail or personal
delivery to Liberty's President on or before the date by which shareholder
proposals are to be submitted.
VOTING RIGHTS
Under the Delaware General Corporation Law, stockholders only possess
cumulative voting rights in the election of directors if the corporation's
Certificate of Incorporation specifically provides such rights. BAC's
Certificate of Incorporation does not provide for cumulative voting rights in
the election of directors, which means that the holders of a majority of the
shares of BAC Common Stock entitled to vote for the election of directors can
elect all of the directors.
Notwithstanding any provision contained in a corporation's Articles of
Incorporation or Bylaws, unless the corporation's securities are registered
pursuant to the Exchange Act, and are either listed on a national securities
exchange or traded over-the-counter on the National Market of NASDAQ,
shareholders of Hawaii corporations possess cumulative voting rights under
Section 415-33 of the Act. Since Liberty's Common Stock is not listed on a
national securities exchange or traded over-the-counter on the National Market
of NASDAQ, Liberty Shareholders possess cumulative voting rights.
Both the Act and the Delaware General Corporation Law afford holders of the
outstanding shares of a class of securities the right to vote as a class on
certain amendments to the corporation's Articles or Certificate of
Incorporation which affect the class, whether or not such holders are entitled
to vote thereon by the terms of the Articles or Certificate of Incorporation.
LIQUIDATION RIGHTS
Liberty amended its Articles of Incorporation in 1991 to permit the issuance
of preferred as well as Liberty Common Stock. Liberty's Board of Directors,
however, has not authorized any issuance of any class of stock other than the
Liberty Common Stock. In the event of liquidation of Liberty, the holders of
the Liberty Common Stock are entitled to share ratably in the assets of Liberty
remaining after proper provision
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<PAGE>
is made for unpaid liabilities. BAC's capital structure, on the other hand,
consists of both Preferred Stock and Common Stock. In the event of liquidation
of BAC, the holders of all shares of BAC Preferred Stock of all series shall be
entitled to be paid in full the liquidation preferences established for such
series without priority between the different series, plus accrued but unpaid
dividends, prior to any payment to the holders of BAC Common Stock, but after
proper provision is made for unpaid liabilities. After payment of such unpaid
liabilities and the preferences and dividends to the holders of the BAC
Preferred Stock, the holders of the BAC Common Stock shall be entitled to share
ratably in all remaining assets of BAC to be distributed.
REMOVAL OF DIRECTORS
The Articles of Incorporation and Bylaws of Liberty are silent as to the
manner in which directors may be removed. Therefore, the provisions of the Act
control. The Act allows the removal of a director from office by the vote of
shareholders owning not less than a majority of the outstanding shares entitled
to vote in the election of directors. The Act does not permit shareholders to
remove a director by less than a majority percentage shareholder vote nor does
it permit the Board of Directors to remove another director from office by any
percentage vote.
Under the Delaware General Corporation Law, a director may be removed with or
without cause by the vote of a majority of the outstanding shares entitled to
vote upon the election of directors.
TRANSACTIONS INVOLVING DIRECTORS AND OFFICERS
Under the Act, a corporation has the power to contract and transact business
with its directors and officers, provided that (i) the fact of the relationship
or interest is disclosed or known to the board of directors or committee which
authorizes, approves, or ratifies the contract or transaction by a vote or
consent sufficient for the purpose without counting the votes or consents of
the interested director or directors; or (ii) the fact of the relationship or
interest is disclosed or known to the shareholders entitled to vote and they
authorize, approve, or ratify the contract or transaction by vote or written
consent; or (iii) the contract or transaction is fair and reasonable to the
corporation.
Under the Delaware General Corporation Law, a corporation may contract or
transact business with its directors and officers without stockholder approval
of such action if, in the judgment of the directors, such action may reasonably
be expected to benefit the corporation.
DISSENTERS' OR APPRAISAL RIGHTS
The Act provides that any shareholder has the right to dissent from any
merger, consolidation or exchange to which the corporation is a party and
receive the fair value of his or her shares in cash as of the day prior to the
consummation of the merger, consolidation or exchange and exclusive of any
appreciation or depreciation of value arising from such action unless such
exclusion would be otherwise inequitable.
The Delaware General Corporation Law does not require dissenters' rights of
appraisal with respect to (i) the sale, lease or exchange of all or
substantially all of the assets of a corporation, (ii) a merger by a
corporation, the shares of which are either listed on a national securities
exchange or held by more than 2,000 shareholders, if such shareholders receive
shares of the surviving corporation or of a listed or widely held corporation,
or (iii) shareholders of a corporation surviving a merger if no vote of such
shareholders is required to approve the merger in the circumstances described
in (i), (ii) and (iii) below under "--Approval of Certain Business
Combinations."
INSPECTION OF SHAREHOLDER LEDGER
The Act generally provides that any shareholder shall be entitled, upon
demand, to inspect in person or by agent or attorney during usual business
hours the stock ledger of the corporation and to obtain a certified
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transcript of anything contained therein to any shareholder applying therefor
provided that the shareholder pays a reasonable charge for the preparation of
the certified transcript.
The Delaware General Corporation Law allows any stockholder to inspect the
stockholder list for a purpose reasonably related to such person's interest as
a stockholder. The stockholders' list also must be open to inspection by any
stockholder for a period of at least ten days prior to, and during the whole
time of, any meeting of stockholders, such inspection being for any purpose
germane to the meeting.
DIVIDEND RIGHTS
Both Liberty Shareholders and BAC stockholders are entitled to receive
dividends as and when declared by their respective Boards of Directors out of
funds legally available for the payment of such dividends. The Act restricts
the payment of dividends to shareholders if, after giving effect to the payment
thereof, (i) the corporation would be unable to pay its debts as they become
due; or (ii) total assets would be less than the sum of total liabilities plus
the amounts required to satisfy any liquidation preference.
Section 412:3-403 of the Code of Financial Institutions of the State of
Hawaii under which Liberty as a bank is regulated further restricts the payment
of dividends if the dividends would serve to reduce the capital and surplus of
Liberty below $5,000,000, or generally, if the Hawaii Commissioner should so
restrict such payment. Liberty also has agreed with the FDIC to refrain from
declaring and paying cash dividends without the FDIC's prior consent.
The Delaware General Corporation Law permits the payment of dividends out of
paid-in and earned surplus or out of net profits for the current and preceding
fiscal years. Capital may not be reduced under Delaware law unless the assets
of the corporation remaining after such reduction are sufficient to pay any
debts of the corporation for which payment has not been otherwise provided.
The payment of dividends by Liberty is also dependent upon the statutory and
regulatory limitations imposed on Liberty as a banking company. Under Hawaii
law, dividends of Hawaii state-chartered banks must be declared from the
retained earnings of such banks, subject to certain prescribed accounting
adjustments, and only to the extent that such dividends would not reduce the
banks' capital and surplus below $5,000,000. BAC's subsidiary banks also have
statutory and regulatory limitations on the payment of dividends. In addition,
BAC has outstanding various series of Preferred Stock with various dividend
rates fixed for each series. Dividends on BAC Preferred Stock, when and as
declared by the Board of Directors, are payable in cash on a quarterly basis on
such dates as may be fixed by the Board of Directors. Such dividends are
cumulative. After full cumulative dividends on the outstanding BAC Preferred
Stock of all series have been paid for the current dividend period and all
prior dividend periods, BAC may declare dividends, out of legally available
funds, on the BAC Common Stock in the discretion of the Board of Directors.
LIMITATION ON LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Both Hawaii and Delaware corporations are permitted to adopt a provision in
their charter documents eliminating the monetary liability of a director to the
corporation or its stockholders for certain breaches of duty. Liberty's
Articles of Incorporation and BAC's Certificate of Incorporation limit their
respective directors' monetary liability to the extent permitted by law. In
addition, Liberty's Articles of Incorporation indemnify directors, officers,
employees and agents of Liberty to the extent permitted by Hawaii law and allow
the purchase of insurance by Liberty for itself and indemnifiable persons
against liabilities and expenses, whether or not Liberty would have had the
power to indemnify under Hawaii law. BAC's Bylaws authorize indemnification of
directors, officers and employees of BAC to the fullest extent authorized by
Delaware law, which also permits a corporation to purchase insurance for
indemnifiable persons against liabilities and expenses, whether or not such
corporation would have had the power to indemnify under Delaware law.
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The BAC Bylaws do not specify procedures for establishing entitlement to
indemnification. Under Delaware law, such a determination may generally be made
by the Board of Directors, independent legal counsel or the shareholders.
Delaware law does not specify different procedures following a change in
control.
The Act is similar to Delaware law as far as indemnity is concerned, and
Liberty's Articles of Incorporation contain the broadest indemnity possible
under Hawaii law. The procedures to be followed to permit indemnification are
as stated in Hawaii law, and such a determination is made generally by the
Board of Directors, independent legal counsel or the shareholders.
Under the BAC Bylaws, BAC must advance expenses incurred by a director,
officer, employee or agent in defending an action prior to final disposition of
such action. Officers and directors, but not employees and agents, are required
to give an undertaking to repay amounts advanced if it is ultimately determined
that they were not entitled to be indemnified.
Hawaii law and Liberty's Articles of Incorporation permit the advancement of
expenses by appropriate action of the Board of Directors, but in all cases,
such advance whether made to a director, officer, employee or agent of Liberty
must be repaid if it is ultimately determined that such person was not entitled
to be indemnified. Liberty has an agreement with a former officer to indemnify
such officer and to undertake his defense so long as independent counsel
determines that indemnification would be appropriate under Liberty's Articles
of Incorporation.
The SEC has expressed its opinion that the indemnification of directors,
officers and controlling persons against liabilities arising under the
Securities Act is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
POTENTIAL "ANTI-TAKEOVER" PROVISIONS
Liberty has no provisions in its Articles of Incorporation or Bylaws or
otherwise that are intended to have an anti-takeover effect with the exception
of the ability to issue authorized preferred stock. The issuance of preferred
stock may have the effect of delaying, deferring or preventing a change in
control of Liberty. The Board of Directors may authorize the issuance of a
class or series of preferred stock to which the Board may grant rights,
preferences and privileges that could discourage or make more difficult an
attempt to obtain control of Liberty through a merger, tender offer or proxy
contest. The Act subjects certain "share acquisitions" by an "acquiring person"
to a one-year moratorium unless certain conditions are met. These provisions
are similar to, but more restrictive in certain areas than, Section 203 of the
Delaware General Corporation Law discussed below (e.g., the "acquiring person"
threshold is 10% rather than 15%).
The provisions of the BAC Certificate of Incorporation and Bylaws described
above under "Notice of Stockholder Business," "Notice of Director Nominations"
and "Special Meetings of Stockholders; Action by Consent" may make it more
difficult to effect a change in control of BAC and may discourage or deter a
third party from attempting a takeover. In addition, under Section 203 of the
Delaware General Corporation Law ("Section 203"), certain "business
combinations" with "interested stockholders" of Delaware corporations are
subject to a three-year moratorium unless specified conditions are met.
Section 203 prohibits a Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for three years following the
date that a person becomes an "interested stockholder." With certain
exceptions, an "interested stockholder" is a person who owns 15% or more of the
corporation's outstanding voting stock, or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock of
the corporation at any time within the previous three years or is an affiliate
or associate of that person.
The three-year moratorium imposed on business combinations by Section 203
does not apply if:
(i) prior to a person becoming an interested stockholder, the Board of
Directors approves the business combination or the transaction which
resulted in the person becoming an interested stockholder, or
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(ii) the interested stockholder owns 85% of the corporation's voting
stock upon consummation of the transaction which made him or her an
interested stockholder (excluding from the 85% calculation shares owned by
directors who are also officers and shares held by employee stock plans
which do not permit employees to decide confidentially whether to accept a
tender offer), or
(iii) on or after the date a person becomes an interested stockholder,
the board approves the business combination and it is also approved at a
meeting by two-thirds of the voting stock not owned by the interested
stockholder.
Section 203 has the effect of encouraging potential acquirors to negotiate
with target companies. It also discourages certain potential acquirors
unwilling to comply with its provisions.
BAC has in place a Preferred Share Purchase Rights Plan that may also have
the effect of encouraging potential acquirors to negotiate with it and may also
discourage potential acquirors in certain circumstances. SEE "DESCRIPTION OF
BAC CAPITAL STOCK--BAC Common Stock and Rights."
APPROVAL OF CERTAIN BUSINESS COMBINATIONS
The Delaware General Corporation Law generally provides that an agreement of
merger or consolidation or a sale of all or substantially all of the assets of
a corporation must be approved by the affirmative vote of the holders of a
majority of the shares entitled to vote thereon. The Hawaii Code of Financial
Institutions generally provides that an agreement of merger or consolidation or
a sale of all or substantially all of the assets of a financial institution, if
approved by the Hawaii Commissioner and by the holders of at least 66 2/3% of
the outstanding shares entitled to vote at a meeting of stockholders,
will be authorized. Under Hawaii law, if a class of shares is entitled to vote
thereon as a class, the plan must be approved by the affirmative vote of the
holders of a majority of the shares of each class of shares entitled to vote as
a class and of the total shares entitled to vote. A class of shares is entitled
to vote as a class if the plan of merger or consolidation contains any
provision which, if contained in a proposed amendment to the corporation's
Articles of Incorporation, would entitle such class of shares to vote as a
class. Although permitted to be issued in Liberty's Articles of Incorporation,
Liberty has only one class of stock issued and outstanding: Liberty Common
Stock. Delaware law does not require the separate vote of each class of stock
unless the Certificate of Incorporation of the corporation so provides.
Neither Hawaii nor Delaware law requires a vote of the stockholders of the
surviving corporation to approve a merger, unless its Articles or Certificate
of Incorporation provides otherwise, if (i) the agreement of merger does not
amend in any respect the surviving corporation's Articles or Certificate of
Incorporation; (ii) each share of the corporation's stock outstanding
immediately prior to the effective date is to be an identical outstanding or
treasury share of the surviving corporation after the effective date; and (iii)
the number of shares of the surviving corporation's common stock to be issued
or delivered in the merger plus the number of shares of common stock into which
any other securities to be issued or delivered in the merger are initially
convertible does not exceed 20% of its common stock outstanding immediately
prior to the effective date of the merger.
PRO FORMA COMBINED FINANCIAL INFORMATION
BAC's book value per share, cash dividends per share and income per share for
the fiscal year ended December 31, 1992 and any interim period between December
31, 1992 and the date of this Proxy Statement/Prospectus would not be
materially affected if such financial statements were presented on a pro forma
basis to reflect the acquisition of Liberty using the purchase method of
accounting and hence no such pro forma presentation is made in this Proxy
Statement/Prospectus.
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CAPITALIZATION OF BANKAMERICA CORPORATION
The consolidated capitalization of BAC at September 30, 1993 and the adjusted
consolidated capitalization of BAC after giving effect to the Merger is set
forth below.
<TABLE>
<CAPTION>
HISTORICAL AS ADJUSTED(A)
---------- -------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C>
Long-term Debt:
Senior Debt
BAC.................................................... $ 9,331 $ 9,331
Subsidiary Obligations................................. 362 362
------- -------
9,693 9,693
------- -------
Subordinated Debt
BAC.................................................... 4,315 4,315
Subsidiary Obligations................................. -- --
------- -------
4,315 4,315
------- -------
Total Long-Term Debt................................. $14,008 $14,008
======= =======
Subordinated Capital Notes (b)........................... $ 933 $ 933
======= =======
Preferred Stock (authorized: 70,000,000 shares; issued
49,397,457 shares)...................................... $ 2,979 $ 2,979
======= =======
Common Shareholders' Equity:
Common Stock, par value $1.5625 (authorized:
700,000,000 shares; issued 357,910,924 shares
(historical), 358,426,577 shares (as adjusted))(c).... $ 559 $ 560
Additional paid-in capital(c).......................... 7,094 7,116
Retained earnings...................................... 6,187 6,187
Common stock in treasury, at cost (568,002 shares)..... (14) (14)
------- -------
Total Common Shareholders' Equity.................... $13,826 $13,849
======= =======
Total Capitalization of BAC........................ $31,746 $31,769
======= =======
</TABLE>
- --------
(a) Subsequent to September 30, 1993, the capitalization of BAC and its
consolidated subsidiaries has been affected by various issuances,
redemptions, repurchases and maturities which are not reflected in this
table.
(b) Issuances of common and preferred stock of $718 million have been dedicated
to retire or redeem subordinated capital notes. BAC intends to dedicate the
remaining amounts required to retire or redeem all of these notes by their
respective maturities.
(c) Pursuant to the Merger Agreement, each share of Liberty Common Stock will
be converted into a number of shares of BAC Common Stock based upon an
exchange ratio of shares of BAC Common Stock for each share of Liberty
Common Stock unless the Market Value is less than $40.00 and BAC elects to
pay all or part of the purchase price in cash. For purposes of this
capitalization table, it was assumed that no cash will be paid and common
stock and additional paid-in capital were adjusted based on BAC Common
Stock market price of $44.50 at November 30, 1993 and the issuance of
515,653 shares of BAC Common Stock.
EXPERTS
The consolidated financial statements of BAC and subsidiaries for the year
ended December 31, 1992, appearing in BAC's Annual Report on Form 10-K have
been audited by Ernst & Young, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
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The consolidated financial statements of SPC and subsidiaries as of December
31, 1991 and 1990 and for each of the years in the three year period ended
December 31, 1991, appearing in SPC's Annual Report on Form 10-K for the year
ended December 31, 1991, which was incorporated by reference as an exhibit to
the Corporation's Annual Report on Form 10-K for the year ended December 31,
1992, have been incorporated herein in reliance upon the report of KPMG Peat
Marwick, independent auditors, incorporated by reference herein and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements incorporated in this Proxy
Statement/Prospectus by reference from Liberty's Annual Report on Form F-2 for
the year ended December 31, 1992 have been audited by Ernst & Young,
independent auditors, as set forth in their report thereon incorporated herein
by reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of BAC Common Stock offered hereby will be passed
upon for BAC by Michael J. Halloran, Executive Vice President and General
Counsel of BAC. As of November 30, 1993, Mr. Halloran had a direct or indirect
interest in 1,873 shares of BAC Common Stock and had options to purchase 52,832
additional shares, of which 21,166 options were exercisable.
Certain legal matters relating to tax aspects of the Merger will be passed
upon for BAC by Raymond W. McKee, Senior Vice President and General Tax Counsel
of Bank of America. As of November 30, 1993, Mr. McKee did not own any shares
of BAC Common Stock, but had options to purchase 18,444 additional shares, of
which 6,558 shares were exercisable.
Certain legal matters relating to the Merger will be passed upon for Liberty
by Lillick & Charles, San Francisco, California.
OTHER MATTERS
The Board of Directors of Liberty is not aware of any other business to be
presented at the Meeting other than the matters described in this Proxy
Statement/Prospectus. If any other matter should properly come before the
Meeting, the persons named as proxies on the accompanying proxy card will have
the discretionary authority to vote the shares of Liberty Common Stock
represented by proxy in accordance with the discretion and judgment of the
person or persons voting the proxies as to the best interests of Liberty and
Liberty Shareholders.
The cost of the solicitation of proxies will be borne by Liberty. In addition
to solicitation by mail, directors, officers and regular employees of Liberty
may solicit proxies personally or by telegraph or telephone but will not be
entitled to receive additional compensation for such services.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Ernst & Young is engaged as Liberty's independent accountants for
the current year and were for the most recently completed fiscal year.
Representatives from the accounting firm of Ernst & Young will be present at
the Meeting of Liberty Shareholders, will be afforded the opportunity to make a
statement if they desire to do so, and will be available to respond to
appropriate questions.
54
<PAGE>
STOCKHOLDER PROPOSALS
If the Merger is consummated within the period currently contemplated
(assuming all conditions, including the approval of the Merger Agreement by the
Liberty Shareholders at the Meeting, are met), the Liberty Shareholders will
become holders of BAC Common Stock prior to the next scheduled Annual Meeting
of Stockholders of BAC. Holders of BAC Common Stock must submit proposals to
BAC for formal consideration at the 1994 Annual Meeting of Stockholders of BAC
on or before November 28, 1994. In the event that the Merger is not consummated
on or before the 1994 Annual Meeting of Shareholders of Liberty, Liberty
Shareholders must submit proposals to Liberty for formal consideration at the
1994 Annual Meeting of Shareholders of Liberty, such proposals to be received
by Liberty a reasonable time before the solicitation is made.
55
<PAGE>
APPENDIX A
HAWAII REVISED STATUTES
(S)415-80 Right of shareholders to dissent. (a) Any shareholder of a
corporation shall have the right to dissent from, and to obtain payment for his
shares in the event of, any of the following corporate actions:
(1) Any plan of merger or consolidation to which the corporation is a
party, except as provided in subsection (c);
(2) Any sale or exchange of all or substantially all of the property and
assets of the corporation not made in the usual and regular course of its
business, including a sale in dissolution, but not including a sale
pursuant to an order of a court having jurisdiction in the premises or a
sale for cash on terms requiring that all or substantially all of the net
proceeds of sale be distributed to the shareholders in accordance with
their respective interests within one year after the date of sale;
(3) Any plan of exchange to which the corporation is a party as the
corporation the shares of which are to be acquired;
(4) Any amendment of the articles of incorporation which materially and
adversely affects the rights appurtenant to the shares of the dissenting
shareholder in that it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of the
redemption of such shares, including a provision respecting a sinking
fund for the redemption or repurchase of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities; or
(D) Excludes or limits the right of the holder of the shares to vote
on any matter, or to cumulate his votes, except as the right may be
limited by dilution through the issuance of shares or other securities
with similar voting rights; or
(5) Any other corporate action taken pursuant to a shareholder vote with
respect to which the articles of incorporation, the bylaws, or a resolution
of the board of directors directs that dissenting shareholders shall have a
right to obtain payment for their shares.
(b)(1) A record holder of shares may assert dissenters' rights as to less
than all of the shares registered in his name only if he dissents with respect
to all the shares beneficially owned by any one person, and discloses the name
and address of the person or persons on whose behalf he dissents. In that
event, his rights shall be determined as if the shares as to which he has
dissented and his other shares were registered in the names of different
shareholders.
(2) A beneficial owner of shares who is not the record holder may assert
dissenters' rights with respect to shares held on his behalf, and shall be
treated as a dissenting shareholder under the terms of this section and section
415-31 if he submits to the corporation at the time of or before the assertion
of these rights a written consent of the record holder.
(c) The right to obtain payment under this section shall not apply to the
shareholders of the surviving corporation in a merger if a vote of the
shareholders of the corporation is not necessary to authorize the merger.
(d) A shareholder of a corporation who has a right under this section to
obtain payment for his shares shall have no right at law or in equity to attack
the validity of the corporate action that gives rise to his right to obtain
payment, nor to have the action set aside or rescinded, except when the
corporate action is unlawful or fraudulent with regard to the complaining
shareholder or to the corporation.
(S)415-81 Rights of Dissenting Shareholders. (a) As used in this section:
"Dissenter" means a shareholder or beneficial owner who is entitled to
and does assert dissenters' rights under section 415-80, and who has
performed every act required up to the time involved for the assertion of
such rights.
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"Corporation" means the issuer of the shares held by the dissenter before
the corporate action, or the successor by merger or consolidation of that
issuer.
"Fair value" of shares means their value immediately before the
effectuation of the corporate action to which the dissenter objects,
excluding any appreciation or depreciation in anticipation of the corporate
action unless such exclusion would be inequitable.
"Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans, or, if none, at such rate as is
fair and equitable under all of the circumstances.
(b) If a proposed corporate action which would give rise to dissenters'
rights under section 415-80(a) is submitted to a vote at a meeting of
shareholders, the notice of meeting shall notify all shareholders that they
have or may have a right to dissent and obtain payment for their shares by
complying with the terms of this section, and shall be accompanied by a copy of
sections 415-80 and 415-81 of this chapter.
(c) If the proposed corporate action is submitted to a vote at a meeting of
shareholders, any shareholder who wishes to dissent and obtain payment for the
shareholder's shares must file with the corporation, prior to the vote, a
written notice of intention to demand that the shareholder be paid fair
compensation for the shareholder's shares if the proposed action is effectuated
and shall refrain from voting the shareholder's shares in approval of such
action. A shareholder who fails in either respect shall acquire no right to
payment for the shareholder's shares under this section or section 415-80.
(d) If the proposed corporate action is approved by the required vote at a
meeting of shareholders, the corporation shall mail a further notice to all
shareholders who gave due notice of intention to demand payment and who
refrained from voting in favor of the proposed action. If the proposed
corporate action is to be taken without a vote of shareholders, the corporation
shall send to all shareholders who are entitled to dissent and demand payment
for their shares a notice of the adoption of the plan of corporate action. The
notice shall: (1) state where and when a demand for payment must be sent and
certificates of certificated shares must be deposited in order to obtain
payment; (2) inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is received;
(3) supply a form for demanding payment which includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the shares;
and (4) be accompanied by a copy of sections 415-80 and 415-81 of this chapter.
The time set for the demand and deposit shall be not less than thirty days from
the mailing of the notice.
(e) A shareholder who fails to demand payment, or fails (in the case of
certificated shares) to deposit certificates, as required by a notice pursuant
to subsection (d) shall have no right under this section or section 415-80 to
receive payment for the shareholder's shares. If the shares are not represented
by certificates, the corporation may restrict their transfer from the time of
receipt of demand for payment until effectuation of the proposed corporate
action, or the release of restrictions under the terms of subsection (f). The
dissenter shall retain all other rights of a shareholder until these rights are
modified by effectuation of the proposed corporate action.
(f)(1) Within sixty days after the date set for demanding payment and
depositing certificates, if the corporation has not effectuated the proposed
corporate action and remitted payment for shares pursuant to paragraph (3), it
shall return any certificates that have been deposited, and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment.
(2) When uncertificated shares have been released from transfer restrictions,
and deposited certificates have been returned, the corporation may at any later
time send a new notice conforming to the requirements of subsection (d), with
like effect.
(3) Immediately upon effectuation of the proposed corporate action, or upon
receipt of demand for payment if the corporate action has already been
effectuated, the corporation shall remit to dissenters who
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have made demand and (if their shares are certificated) have deposited their
certificates the amount which the corporation estimates to be the fair value of
the shares, with interest if any has accrued. The remittance shall be
accompanied by:
(A) The corporation's closing balance sheet and statement of income for a
fiscal year ending not more than sixteen months before the date of
remittance, together with the latest available interim financial
statements;
(B) A statement of the corporation's estimate of fair value of the
shares; and
(C) A notice of the dissenter's right to demand supplemental payment,
accompanied by a copy of sections 415-80 and 415-81 of this chapter.
(g)(1) If the corporation fails to remit as required by subsection (f), or if
the dissenter believes that the amount remitted is less than the fair value of
the dissenter's shares, or that the interest is not correctly determined, the
dissenter may send the corporation the dissenter's own estimate of the value of
the shares or of the interest, and demand payment of the deficiency.
(2) If the dissenter does not file such an estimate within thirty days after
the corporation's mailing of its remittance, the dissenter shall be entitled to
no more than the amount remitted.
(h)(1) Within sixty days after receiving a demand for payment pursuant to
subsection (g), if any such demands for payment remain unsettled, the
corporation shall file in an appropriate court a petition requesting that the
fair value of the shares and interest thereon be determined by the court.
(2) An appropriate court shall be a court of competent jurisdiction in the
county of this State where the registered office of the corporation is located.
If, in the case of a merger or consolidation or exchange of shares, the
corporation is a foreign corporation without a registered office in this State,
the petition shall be filed in the county where the registered office of the
domestic corporation was last located.
(3) All dissenters, wherever residing, whose demands have not been settled
shall be made parties to the proceeding as in an action against their shares. A
copy of the petition shall be served on each such dissenter; if a dissenter is
a nonresident, the copy may be served on the dissenter by registered or
certified mail or by publication as provided by law.
(4) The jurisdiction of the court shall be plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
a decision on the question of fair value. The appraisers shall have such power
and authority as shall be specified in the order of their appointment or in any
amendment thereof. The dissenters shall be entitled to discovery in the same
manner as parties in other civil suits.
(5) All dissenters who are made parties shall be entitled to judgment for the
amount by which the fair value of their shares is found to exceed the amount
previously remitted, with interest.
(6) If the corporation fails to file a petition as provided in paragraph (1)
of this subsection, each dissenter who made a demand and who has not already
settled the dissenter's claim against the corporation shall be paid by the
corporation the amount demanded by the dissenter, with interest, and may sue
therefor in an appropriate court.
(i)(1) The costs and expenses of any proceeding under subsection (h),
including the reasonable compensation and expenses of appraisers appointed by
the court, shall be determined by the court and assessed against the
corporation, except that any part of the costs and expenses may be apportioned
and assessed as the court may deem equitable against all or some of the
dissenters who are parties and whose action in demanding supplemental payment
the court finds to be arbitrary, vexatious, or not in good faith.
(2) Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court may deem equitable against the corporation and in
favor of any or all dissenters if the corporation failed to
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comply substantially with the requirements of this section, and may be assessed
against either the corporation or a dissenter, in favor of any other party, if
the court finds that the party against whom the fees and expenses are assessed
acted arbitrarily, vexatiously, or not in good faith in respect to the rights
provided by this section and section 415-80.
(3) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and should not be
assessed against the corporation, it may award to these counsel reasonable fees
to be paid out of the amounts awarded to the dissenters who were benefitted.
(j)(1) Notwithstanding the foregoing provisions of this section, the
corporation may elect to withhold the remittance required by subsection (f)
from any dissenter with respect to shares of which the dissenter (or the person
on whose behalf the dissenter acts) was not the beneficial owner on the date of
the first announcement to news media or to shareholders of the terms of the
proposed corporate action. With respect to such shares, the corporation shall
upon effectuating the corporate action, state to each dissenter its estimate of
the fair value of the shares, state the rate of interest to be used (explaining
the basis thereof), and offer to pay the resulting amounts on receiving the
dissenter's agreement to accept them in full satisfaction.
(2) If the dissenter believes that the amount offered is less than the fair
value of the shares and interest determined according to this section, the
dissenter may within thirty days after the date of mailing of the corporation's
offer, mail the corporation the dissenter's own estimate of fair value and
interest, and demand their payment. If the dissenter fails to do so, the
dissenter shall be entitled to no more than the corporation's offer.
(3) If the dissenter makes a demand as provided in paragraph (2), the
provisions of subsections (h) and (i) shall apply to further proceedings on the
dissenter's demand.
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APPENDIX B
PLAN AND AGREEMENT OF MERGER
AMONG
BANKAMERICA CORPORATION
BANK OF AMERICA, FSB
AND
LIBERTY BANK
DATED AS OF OCTOBER 8, 1993
AND FORM OF
MERGER AGREEMENT
AMONG
BANKAMERICA CORPORATION
BANK OF AMERICA, FSB
AND
LIBERTY BANK
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RECITALS.................................................................. 1
I. THE MERGER............................................................. 1
1.1 Merger Agreement................................................... 1
1.2 Consideration...................................................... 1
1.3 Dissenters......................................................... 2
1.4 Letters of Transmittal............................................. 2
1.5 Shares Held in Treasury............................................ 2
1.6 Surrender of Company Stock Certificates............................ 2
1.7 BAC Warrant........................................................ 3
II. THE CLOSING........................................................... 3
2.1 The Closing........................................................ 3
2.2 Effective Time..................................................... 3
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................ 3
3.1 Organization, Etc.................................................. 3
3.2 Binding Effect..................................................... 4
3.3 Capitalization..................................................... 4
3.4 Financial Statements and Reports................................... 4
3.5 Books and Records; Other Information............................... 5
3.6 Subsidiary and CSI Investment...................................... 5
3.7 Properties; Contracts.............................................. 6
3.8 Compliance with Laws............................................... 8
3.9 Material Contract Defaults......................................... 8
3.10 Absence of Certain Changes......................................... 8
3.11 Litigation......................................................... 9
3.12 Contingent Liabilities............................................. 9
3.13 Taxes.............................................................. 9
3.14 Employee Benefit Plans; ERISA...................................... 11
3.15 Broker's and Finder's Fees......................................... 13
3.16 Labor Relations.................................................... 13
3.17 Registration Statement and Regulatory Applications................. 14
3.18 Insurance.......................................................... 14
3.19 Employment and Similar Agreements; Obligations Upon Change in
Control................................................................ 14
3.20 Offices and Branches............................................... 15
3.21 Hazardous Materials................................................ 15
3.22 Certain Interests.................................................. 15
3.23 Loans.............................................................. 16
3.24 Investment Securities.............................................. 16
3.25 Allowance for Losses............................................... 16
3.26 Accounting Records................................................. 16
3.27 Disclosure......................................................... 17
IV. REPRESENTATIONS AND WARRANTIES OF BAC AND FSB......................... 17
4.1 Organization, Etc.................................................. 17
4.2 Binding Effect..................................................... 17
4.3 Capitalization..................................................... 18
4.4 Financial Statements and Reports................................... 18
4.5 FSB Stock Ownership................................................ 18
4.6 Absence of Certain Changes......................................... 18
4.7 Registration Statement and Regulatory Applications................. 18
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
V. COVENANTS OF THE COMPANY, BAC AND FSB.................................. 19
5.1 Preparation of Registration Statement and Applications for Required
Consents............................................................... 19
5.2 Pursuit of Approvals............................................... 19
5.3 Other Consents..................................................... 20
5.4 Activities Pending Closing......................................... 20
5.5 Access to Information.............................................. 21
5.6 Confidentiality.................................................... 21
5.7 Meeting of Shareholders............................................ 21
5.8 BAC and FSB Board Approvals; FSB Shareholder Approval.............. 22
5.9 Investment Management Contract..................................... 22
5.10 Stock Listing...................................................... 22
5.11 Notification....................................................... 22
5.12 Indemnification.................................................... 22
5.13 No Shopping........................................................ 22
5.14 Future Information................................................. 22
5.15 Company Options.................................................... 23
5.16 Inventory of Furniture, Fixtures and Equipment..................... 23
5.17 Directors and Officers Liability Insurance......................... 23
5.18 Certain Accounting Adjustments..................................... 24
5.19 Lease Negotiations................................................. 24
5.20 Environmental Report............................................... 24
5.21 Transfer of Loan Participation..................................... 24
5.22 Certain Employment Agreements...................................... 24
5.23 Stockholder Agreements............................................. 24
5.24 Company Affiliate Agreements....................................... 25
5.25 Audit Letter....................................................... 25
VI. CONDITIONS TO CLOSING................................................. 25
6.1 Conditions to the Company's Obligation to Close.................... 25
6.2 Conditions to BAC's and FSB's Obligation to Close.................. 26
VII. TERMINATION.......................................................... 29
7.1 Termination........................................................ 29
7.2 Effect of Termination.............................................. 30
VIII. MISCELLANEOUS....................................................... 30
8.1 Notices............................................................ 30
8.2 Governing Law...................................................... 30
8.3 Entire Agreement................................................... 30
8.4 Amendments and Waivers............................................. 31
8.5 Severability....................................................... 31
8.6 Counterparts....................................................... 31
8.7 Headings........................................................... 31
8.8 Survival of Representations and Covenants.......................... 31
8.9 Expenses........................................................... 31
8.10 Certain Definitions................................................ 32
8.11 Attorneys' Fees.................................................... 32
8.12 Publicity.......................................................... 32
8.13 Binding Effect..................................................... 32
8.14 Further Action..................................................... 32
8.15 Third Party........................................................ 32
8.16 Gender; Number..................................................... 32
8.17 Arbitration........................................................ 32
</TABLE>
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EXHIBITS
EXHIBIT A--Merger Agreement
EXHIBIT B--BAC Warrant
EXHIBIT C--Form of Opinion of Counsel to BAC and FSB
EXHIBIT D--Form of Opinion of Counsel to the Company
EXHIBIT E--Form of Stockholder Agreement
EXHIBIT F--Company Affiliate Agreement
EXHIBIT G--Tax Representation Letters
EXHIBIT H--General Release and Settlement Agreement
SCHEDULES
Schedule 3.3--Incentive Stock Options and Beneficial Ownership
Schedule 3.4(a)--Financial Statements & Reports: Management Letters
Schedule 3.4(b)--Financial Statements & Reports: Regulatory Filings
Schedule 3.6(a)--Other Investments
Schedule 3.6(b)--CSI Notice
Schedule 3.7(a)--Real Properties Owned or Leased
Schedule 3.7(b)--Other Properties and Assets Under Lease
Schedule 3.7(c)--Material Contracts with Penalty for Termination and
Unfunded Loan Commitments
Schedule 3.7(d)(i)--Employee Insurance Plans
Schedule 3.7(d)(ii)--Indebtedness for Borrowed Money
Schedule 3.7(d)(iii)--Secrecy and Non Compete Agreements
Schedule 3.7(d)(iv)--Intellectual Property Licenses
Schedule 3.7(d)(v)--Capital Expenditure Contracts ($50,000 or More)
Schedule 3.7(d)(vi)--Service Bureau Contracts
Schedule 3.7(d)(vii)--Other Contracts ($50,000 or More)
Schedule 3.7(g)--Contracts for Loan Servicing for Others
Schedule 3.8(b)--Compliance With Laws
Schedule 3.8(c)--Compliance With Laws and Regulations
Schedule 3.10--Increases in Compensation to Officers/Employees
Schedule 3.11(a)--Litigation and Other Claims
Schedule 3.11(c)--Court or Regulatory Agency Orders
Schedule 3.14(a)--Employee Benefit Plans
Schedule 3.14(c)--Employee Benefit Plans; ERISA Reports and Forms Filed
Schedule 3.14(d)--Not Qualified Employment Plans
Schedule 3.18--Insurance Policies
Schedule 3.19--Employment Agreements
Schedule 3.20--Offices and Branches
Schedule 3.22--Director Compensation 12/91--7/93
Schedule 3.23--Loans
Schedule 3.24(a)--Investment Securities
Schedule 3.24(b)--Company Loans Secured by Stock
Schedule 3.26--Records Retention Policy
Schedule 5.19(b)--King & Kalakaua Lease Terms
Schedule 5.21--Transfer of Loan Participation
Schedule 5.23--Stockholder Agreements
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<PAGE>
PLAN AND AGREEMENT OF MERGER
AMONG
BANKAMERICA CORPORATION
BANK OF AMERICA, FSB
AND
LIBERTY BANK
This Plan and Agreement of Merger is entered into as of October 8, 1993 among
BankAmerica Corporation, a Delaware corporation ("BAC"), Bank of America, FSB,
a federal savings association ("FSB") and Liberty Bank, a Hawaii banking
corporation, (the "Company").
RECITALS
A. The parties hereto desire to effect a business combination pursuant to
which Liberty Bank will merge with and into FSB, the shareholders of the
Company (the "Shareholders") will receive the consideration provided for herein
and FSB shall be the surviving corporation (the "Merger"). The Merger shall be
accomplished by an agreement of merger which contains such provisions as are
required by applicable law and all regulatory authorities having jurisdiction
over the transaction, consistent with the terms specified herein.
B. The Merger requires certain board of directors, shareholder and regulatory
approvals as described herein. The Merger will be effected only after the
necessary approvals have been obtained.
Accordingly, the parties hereto agree as follows:
I. THE MERGER
1.1 Merger Agreement. The terms of the Merger are set forth in a Merger
Agreement attached hereto as Exhibit A (the "Merger Agreement"). At the
Effective Time (as that term is defined in Section 2.2 hereof), appropriate
articles of merger will be filed as provided in the Merger Agreement and the
transactions contemplated by this Agreement will be consummated. As provided in
the Merger Agreement, each share of Company common stock, $5.00 par value (the
"Company Common Stock"), outstanding immediately prior to the Effective Time
shall, without any action on the part of the holder thereof, be cancelled and
converted into the right to receive the number of shares of the common stock,
$1.5625 par value per share, of BAC (the "BAC Stock") determined as provided in
Section 1.2 hereof.
1.2 Consideration. As of the Effective Time each share of Company Common
Stock, excluding Dissenting Shares (as defined in Section 1.3), outstanding
immediately before the Effective Time shall, by virtue of the Merger and
without any action on the part of the Shareholders, be converted into the right
to receive shares of BAC Stock. The number of shares of BAC Stock to be issued
in connection with the Merger will be determined as follows:
(a) if the Market Value of BAC Stock is not less than $40.00 per share,
each Shareholder of record as of the close of business on the date on which
Effective Time occurs will receive such number of shares of BAC Stock as is
determined by multiplying the number of shares of Company Common Stock
owned of record by such Shareholder at such time by $28.54 and dividing the
resulting product by the Market Value; and
(b) if the Market Value of BAC Stock is less than $40.00 per share each
Shareholder will receive, at the option of BAC, either (i) shares of BAC
Stock calculated pursuant to Section 1.2(a), (ii) an amount of cash equal
to $28.54 for each share of Company Common Stock owned of record by such
Shareholder at such time or (iii) a combination thereof.
As used herein, the "Market Value" will be calculated by dividing (x) the sum
of each of the high and low sales prices of BAC Stock as reported in The Wall
Street Journal as New York Stock Exchange Composite Transactions on each of the
ten trading days immediately preceding the date which is twenty days
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<PAGE>
before the Closing Date by (y) twenty. For purposes of determining Market
Value, the term "trading day" shall mean a day on which trading generally takes
place on the New York Stock Exchange and on which trading in BAC Stock has not
been halted or suspended.
No fractional shares of BAC Stock shall be issued, but any Shareholder
otherwise entitled to receive a fractional share shall receive, in lieu
thereof, a cash adjustment for such fraction in an amount equal to the product
determined by multiplying such fraction by the Market Value for one full share
of BAC stock. In the event of any stock dividend, stock distribution, stock
split, reverse stock split, extraordinary dividend or partial or liquidating
distribution effected with respect to BAC Stock between the first of such
trading days and the last of such trading days, appropriate pro rata
adjustments will be made in the foregoing numbers. Nothing in the preceding
sentence shall apply to any cash dividend declared or paid during such period,
provided no other cash dividend has been declared and paid during the same
calendar quarter.
1.3 Dissenters. A "Dissenter" is a shareholder who is entitled to dissent
from corporate action under Hawaii Revised Statutes ("HRS") (S) 415.80 and who
exercises that right when and in the manner required by HRS (S) 415.81. Each
outstanding share of Company Common Stock that is held by a Dissenter (a
"Dissenting Share") shall be converted into the right to receive payment
pursuant to HRS (S) 415.81.
1.4 Letters of Transmittal. Certificates representing Company Common Stock
shall be delivered for replacement by certificates evidencing BAC Stock as
follows: BAC shall prepare a form (the "Form of Transmittal Letter") pursuant
to which each Shareholder shall transmit the certificate or certificates
representing such Shareholder's Company Common Stock to BAC for replacement by
the consideration provided under Section 1.2 hereof. As promptly as practicable
after the final determination of the Market Value, the Form of Transmittal
Letter shall be mailed to Shareholders.
1.5 Shares Held in Treasury. Each share of Company Common Stock outstanding
immediately prior to the Effective Time held in the treasury of the Company or
by any of its subsidiaries shall be cancelled and no payment shall be made or
other consideration delivered in respect thereof.
1.6 Surrender of Company Stock Certificates.
(a) Until surrender to Chemical Trust Company of California, as agent to
effect the exchange of the Company Common Stock for BAC Stock (the "Exchange
Agent"), together with a properly completed and executed Form of Transmittal
Letter, each certificate evidencing Company Common Stock (other than Dissenting
Shares) shall, on and after the Effective Time, be deemed for all corporate
purposes to represent and evidence only the right to receive BAC Stock, or
cash, as the case may be, in the amounts and at the times described herein.
Until any such certificate evidencing Company Common Stock shall have been so
surrendered, the holder of such Company Common Stock shall not have any right
to receive any certificates evidencing BAC Stock, or any cash, or any rights as
a BAC shareholder by virtue of holding the Company Common Stock. The Exchange
Agent shall be authorized to issue BAC Stock for any Company Common Stock
certificate which has been lost, stolen or destroyed upon receipt of
satisfactory evidence of ownership of the Company Common Stock represented
thereby, and after appropriate indemnification. After the Effective Time, no
holder of a certificate evidencing shares of Company Common Stock shall be
entitled to receive any dividends or other distributions otherwise payable to
holders of record of BAC Stock on any date subsequent to the Effective Time,
unless such holder is entitled to receive BAC Stock and in such event unless
such holder shall have surrendered such holder's certificates evidencing shares
of Company Common Stock in exchange for BAC Stock, provided that such surrender
shall not deprive such holder of any dividends or distributions to which such
holder is entitled as a record holder of Company Common Stock as of a date
prior to such surrender. Upon surrender of such certificates, there shall be
paid to the holder so surrendering such certificates the amount, without
interest, of any cash dividends and any other distributions which theretofore
and subsequent to the Effective Time had been distributed on the whole number
of shares of BAC Stock into which such Company Common Stock was converted at
the Effective Time.
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(b) If any check for cash, including cash in lieu of fractional shares, or
any certificate for BAC Stock, is to be issued hereunder in a name other than
that in which the certificate(s) for Company Common Stock surrendered in
exchange therefor is registered, it shall be a condition of such exchange that
the person requesting such exchange shall establish the right to receive such
shares or cash and pay to the Exchange Agent any transfer or other taxes
required by reason of the issuance of such check or such certificate for such
BAC Stock in a name other than the registered holder of the certificate
surrendered, or shall establish to the satisfaction of the Exchange Agent that
such tax has been paid or is not applicable.
1.7 BAC Warrant. In consideration of BAC's and FSB's entry into this
Agreement, the Company agrees to execute and deliver to BAC, simultaneously
with its execution and delivery of this Agreement, a warrant to purchase up to
24.3% of the Company Common Stock under certain circumstances (the "BAC
Warrant"), such BAC Warrant to be in the form attached hereto as Exhibit B. In
connection with the execution and delivery of the BAC Warrant, BAC represents
and warrants to the Company that it is acquiring the BAC Warrant (and the
Company Common Stock issuable upon the exercise thereof) for its own account
and not with a view to the distribution thereof except in a transaction or
transactions registered under the Securities Act of 1933, as amended, or
otherwise exempt from such registration requirement.
II. THE CLOSING
2.1 The Closing. The closing (the "Closing") of the transactions contemplated
by this Agreement shall take place on a date to which the Company, BAC and FSB
may agree (the "Closing Date"), provided that the absence of an agreement by
the parties to the contrary such Closing Date shall be the last business day of
the month in which the conditions to Closing set forth in Section 6.1(b) and
(d) and Section 6.2(b) and (d) are satisfied, but in no event shall the Closing
Date be later than June 30, 1994. The Closing shall be held at the offices of
FSB at 1099 Alakea Street, Honolulu, Hawaii, or at such other place as to which
the parties hereto shall agree.
2.2 Effective Time. On or prior to the Closing Date, appropriately prepared
and executed articles of merger with respect to the merger of the Company with
and into FSB shall be deposited in the Office of the Hawaii Commissioner of
Financial Institutions and the Office of Thrift Supervision (the "OTS") for
filing. The date and time of the latest of such filings of the articles of
merger with respect to the merger of the Company with and into FSB with the
Office of the Hawaii Commissioner of Financial Institutions of the State of
Hawaii and the OTS, or such later time as is specified in such filings, is
referred to in this Agreement as the "Effective Time." The Effective Time shall
occur on the Closing Date.
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company makes the following representations and warranties to BAC and
FSB, in each case except as otherwise disclosed to BAC and FSB in schedules
dated the date hereof and delivered by the Company to BAC and FSB concurrently
with the execution of this Agreement.
3.1 Organization, Etc.
(a) The Company is a banking corporation duly organized, validly existing and
in good standing under the laws of Hawaii. The Company has all requisite
corporate power and authority to carry on its businesses as now conducted and
is qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which such qualification is necessary under applicable
law, except to the extent that the failure to have such power or authority or
to be so qualified would not, individually or in the aggregate, have a Material
Adverse Effect (as defined in Section 8.10). The Company has the corporate
power and authority to execute and deliver this Agreement and perform its
obligations hereunder. The deposit accounts of the Company are insured by the
Federal Deposit Insurance Corporation (the "FDIC") to the fullest extent
permitted under applicable law.
(b) The Company is an Hawaii banking corporation pursuant to the Hawaii Code
of Financial Institutions.
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3.2 Binding Effect. Subject to approval of the Shareholders, this Agreement
has been duly and validly authorized, executed and delivered by the Company and
constitutes the valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting
the rights of creditors generally, by the availability of equitable remedies,
and by the discretion of the court or arbitrator before whom a proceeding may
be brought. In addition, enforceability may be limited by considerations of
public policy under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), due to the inclusion of Section 5.12 in this Agreement.
Neither the execution and delivery of this Agreement by the Company, nor the
consummation by it of the transactions contemplated hereby, nor compliance by
it with any of the provisions hereof will (i) conflict with or result in a
breach of any provision of the Company's Charter of Incorporation or Bylaws, or
(ii) constitute or result in the breach of any term, condition or provision of
or constitute a default under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation of any
lien, charge or encumbrance upon any property or assets of the Company pursuant
to any note, bond, mortgage, indenture, license, agreement, lease or other
instrument or obligation to which the Company is a party or by which any of its
properties or assets may be bound, except such notes, bonds mortgages,
indentures, licenses, agreements, leases and other instruments or obligations
the violation of which would not have, individually or in the aggregate, a
Material Adverse Effect, or (iii) violate any order, writ, injunction,
judgment, decree, statute, rule or regulation applicable to the Company or any
of its properties or assets, subject to obtaining the requisite Regulatory
Approvals (as defined in Section 5.2).
3.3 Capitalization. The authorized capital stock of the Company consists of
1,000,000 shares of preferred stock, $25.00 par value per share, of which no
shares are issued and outstanding, and 2,000,000 shares of common stock, $5.00
par value per share, of which 775,890 shares are issued and outstanding. The
Company has no stock appreciation or similar rights outstanding. Certain
officers and key employees of the Company have incentive or compensatory
options to purchase Company Common Stock (each, a "Company Option") pursuant to
the Company's Incentive Stock Option Plan, as amended. As of the date of this
Agreement the aggregate number of shares that such officers and employees could
purchase or receive pursuant to Company Options granted under such plan is
28,125. Schedule 3.3 sets forth a description of the exercise or purchase
prices, vesting schedules, expiration dates, and amounts of such Company
Options. As of the Effective Time, all of the Company Options shall have been
exercised by the holder, or cancelled or purchased by the Company pursuant to
Section 5.15. All of the issued and outstanding shares of the Company Common
Stock have been validly authorized and issued, are fully paid and nonassessable
and were not issued in violation of any preemptive rights. All outstanding
Company Common Stock has been duly and validly registered pursuant to Section
12(g) of the Exchange Act, which registration is in full force and effect. All
of the issued and outstanding shares of Company Common Stock, and all of the
Company Options, have been issued, granted and sold in compliance with the
Securities Act of 1933, as amended, (the "Securities Act") and the rules and
regulations promulgated thereunder, and with all applicable state securities
laws, rules and regulations. Other than the Company Options referred to above,
there are no outstanding subscriptions, options, rights, warrants, convertible
securities or other agreements or commitments obligating the Company to issue
any additional shares of the Company's capital stock, and no unissued shares of
Company Common Stock are subject to any preemptive rights. There are no
outstanding contractual obligations of the Company to repurchase, redeem or
otherwise acquire any outstanding shares of capital stock of or other ownership
interest in the Company. Except as set forth in Schedule 3.3, as of the date
hereof no person holds of record, or to the best knowledge of the Company,
beneficially, 5% or more of the outstanding shares of the Company Common Stock.
3.4 Financial Statements and Reports.
(a) The Company has delivered to BAC and FSB the Company's audited
consolidated statements of financial condition as of December 31, 1992 and
1991, and consolidated statements of operations, statements of cash flows and
statements of changes in stockholders' equity for the years ended December 31,
1992, 1991 and 1990, and the Company's unaudited consolidated statements of
condition, operations and cash flows and
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changes in stockholders' equity as of and for the three month period ended
March 31, 1993, and the six month period ended June 30, 1993. Such financial
statements have been prepared from the books and records of the Company and its
sole subsidiary, Liberty Properties, Inc. (the "Subsidiary"), present fairly
the financial condition and operating results of the Company and the Subsidiary
as of the dates and for the periods indicated and have been prepared in
accordance with generally accepted accounting principles and with the
regulations promulgated by applicable regulatory authorities, to the extent
then applicable, consistently applied throughout the periods covered and
disclose all liabilities required to be disclosed therein except liabilities
which are not, individually or in the aggregate, material to the Company and
the Subsidiary taken as a whole. In addition, Schedule 3.4(a) contains a true,
correct and complete list of all management letters delivered to the Company or
the Subsidiary by Ernst & Young (or any predecessor thereto) relating to the
internal controls of the Company or the Subsidiary during any period from and
after January 1, 1990. At the time of providing Schedule 3.4(a) to BAC, true,
correct and complete copies of all such management letters will be provided to
BAC. The Company shall promptly make available to BAC true, correct and
complete copies of all other letters delivered to the Company or the Subsidiary
by Ernst & Young (or any predecessor) that relate to the results of operations
or financial statements of the Company or the Subsidiary during such period.
(b) No registration statement, information statement, offering circular,
proxy statement, schedule or report filed and not withdrawn since January 1,
1990, by the Company or any predecessor with the FDIC, the Division of
Financial Institutions of the Department of Commerce and Consumer Affairs of
the State of Hawaii (the "Hawaii Division"), under the Exchange Act, FDIC rules
and regulations or the HRS, on the date of effectiveness in the case of such
registration statements or offering circulars, or on the date of filing in the
case of such reports or schedules, or on the date of mailing or the relevant
meeting date in the case of such proxy statements, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein, or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Since January 1,
1990, the Company, and any predecessor has filed all documents required to be
filed by the Company with the FDIC under the Exchange Act and the Company and
any predecessor has filed all documents required to be filed by them with the
FDIC, the Board of Governors of the Federal Reserve System (the "FRB") and the
Hawaii Division under various federal and state banking laws and regulations,
except to the extent that all failures so to file would not, individually or in
the aggregate, have a Material Adverse Effect; and all such documents, as
finally amended or corrected, complied in all material respects as to form with
applicable requirements of law except as set forth in Schedule 3.4(b). Except
to the extent stated in the financial statements, all financial statements and
related schedules included in the documents referred to in the preceding
sentence were prepared in accordance with generally accepted accounting
principles or such other regulatory accounting requirements as were applicable
thereto, consistently applied throughout the periods covered, and fairly
presented the information purported to be shown therein.
3.5 Books and Records; Other Information. The minute books of the Company and
the Subsidiary constitute materially true and accurate records of all meetings
and actions taken by the Boards of Directors and shareholders of the Company
and the Subsidiary. The copies of the Charter of Incorporation and Bylaws of
the Company and the Certificate of Incorporation and Bylaws of the Subsidiary
and amendments thereto, delivered to BAC and FSB are true and complete copies,
and such Charter of Incorporation, and Certificate of Incorporation and Bylaws
are in full force and effect. All documents and other information as to
existing facts relating to the Company and the Subsidiary (excluding
projections) provided to BAC and FSB by the Company and documents and other
information provided to BAC and FSB by Montgomery Securities relating to the
Company and the Subsidiary are, taken as a whole, accurate and complete in all
material respects.
3.6 Subsidiary and CSI Investment.
(a) The Subsidiary is authorized to issue 85,300 shares of common stock,
$10.00 par value per share, all of which are issued and outstanding and are
owned directly by the Company, free and clear of all security
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interests, liens, charges and encumbrances. There are no other classes of
capital stock of, or equity or other ownership interests in, the Subsidiary,
and none of the shares of common stock is held in treasury. The Company has no
direct or indirect equity interest or investment in any other firm,
corporation, partnership, joint venture or business enterprise, except as set
forth in Section 3.6(b) and in Schedule 3.6(a). Schedule 3.6(a) shall for each
interest or investment identify the business enterprise, the nature of the
interest or investment, the amount and value of the interest or investment, any
voting rights resulting therefrom and any other material terms of the interest
or investment. The ownership interests of the Company in the Subsidiary are not
subject to any legal, contractual or other limitations or restrictions. There
are no outstanding options, warrants or other rights to subscribe for or
purchase from the Company, the Subsidiary, or any plans, contracts or
commitments providing for the issuance of, or the granting of rights to
acquire, (i) any capital stock of or other ownership interest in the Subsidiary
or (ii) any securities convertible into or exchangeable for any capital stock
of or other ownership interest in the Subsidiary. All of the outstanding shares
of the capital stock of each class of the Subsidiary have been validly
authorized and issued, are fully paid and nonassessable and were not issued in
violation of any preemptive rights.
(b) The Company also owns 22,200 shares of common stock, $1.00 par value per
share, which equals 33.33% of all of the issued and outstanding shares of
common stock, of Computer Systems International, Ltd. ("CSI"), which shares are
owned directly by the Company, free and clear of all security interests, liens,
charges and encumbrances. There are no other classes of capital stock of, or
equity or other ownership interests in, CSI and none of the shares of common
stock of CSI is held in treasury. The ownership interest of the Company in CSI
is not subject to any legal, contractual or other limitations or restrictions.
All of the shares of CSI owned by the Company have been validly authorized and
issued, are fully paid and non assessable and were not issued in violation of
any preemptive rights. In particular, the Company acknowledges that various
capital and other contributions were made to CSI by the Company as a CSI
stockholder in the past. These contributions were not legally required to be
made, there is no requirement, contractual or otherwise, that any such
contribution be made in the future and the Company has provided written notice
to CSI, a copy of which is included in Schedule 3.6(b), advising CSI that no
further contributions will be made by the Company.
3.7 Properties; Contracts.
(a) The Company or the Subsidiary has good and marketable title to its own
properties, or a valid and enforceable leasehold interest in, or a contract
vendee's interest in, the real properties used in the business of the Company
or the Subsidiary, including the real property reflected in the June 30, 1993
financial statements referred to in Section 3.4(a), free and clear of all
security interests, liens, charges or other encumbrances, except those related
to real property taxes, local improvement district assessments (if any),
easements, covenants, restrictions and other matters of record which do not
individually or in the aggregate materially adversely affect the use and
enjoyment of the relevant real property. Schedule 3.7(a) lists all real
properties owned or leased by the Company or the Subsidiary and shall specify
for each whether the Company (i) owns the real property; (ii) leases the real
property; (iii) owns the buildings on such property; or (iv) leases the
buildings on such property.
(b) All properties and assets held by the Company or the Subsidiary under
lease are held under valid instruments enforceable in accordance with their
terms, except as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors generally or
equitable principles limiting the right to obtain specific performance, and
except as to such provisions the unenforceability of which would not have a
Material Adverse Effect. Schedule 3.7(b) lists all properties and assets held
by the Company or the Subsidiary under lease, and a true and correct copy of
each such lease has been delivered to BAC and FSB.
(c) Except for extensions of credit and commitments to extend credit as
specified on Schedule 3.7(c), all material contracts and agreements to which
the Company or the Subsidiary is a party are terminable without penalty on 90
or fewer days' notice. Schedule 3.7(c) lists all unfunded loan commitments,
with single family home loan commitments listed in the aggregate only,
outstanding as of the date hereof.
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(d) Except as provided elsewhere herein, Schedule 3.7(d) sets forth a
complete and correct list of all of the agreements and other documents in the
following classifications to which the Company or the Subsidiary is a party or
by which the Company or the Subsidiary or any material amount of either of
their assets is bound; complete and correct copies (in the case of any of the
following that are in writing) of each of such agreements and documents, as in
effect on the date hereof, have been delivered to BAC and FSB:
(i) any plan, contract or arrangement providing for insurance for any
officer, consultant, director, or employee of the Company or the Subsidiary
or members of their families (other than directors' and officers' liability
policies);
(ii) any contract, agreement or instrument evidencing or relating to any
outstanding indebtedness of the Company or the Subsidiary for borrowed
money (except insured deposits) or the deferred purchase price of property,
or any direct or indirect guarantee by the Company or the Subsidiary of any
such indebtedness in any such case, in an amount in excess of $50,000, or
under which the Company or the Subsidiary has the right or obligation to
incur any such indebtedness or guarantee in an amount in excess of $50,000;
(iii) any secrecy, noncompetition or other agreement that (A) restricts
the right of the Company or the Subsidiary to engage in any place in any
line of business or (B) would restrict the right of BAC, FSB or any of
their subsidiaries to engage in any place in any line of business after the
Closing;
(iv) any license, sublicense or other agreement to which the Company or
the Subsidiary is a party (whether as licensor or licensee) relating to
"Intellectual Property" that is used in and is material to the business of
the Company or the Subsidiary. "Intellectual Property" means patents,
patent applications, trade names, trademarks (whether or not registered),
trademark applications, service marks (whether or not registered),
copyrights (whether registered or unpublished), copyright applications,
inventions, processes and other trade secret and proprietary intellectual
property, including without limitation proprietary computer software,
whether in object or source form;
(v) any contract, commitment or agreement that involves (A) capital
expenditures by the Company or the Subsidiary after June 30, 1993 of more
than $50,000 or (B) disposition after June 30, 1993 of any material amount
of the assets of the Company or the Subsidiary not in the ordinary course
of business consistent with past practice;
(vi) any contracts with any service bureau providing data processing or
other services to the Company; or
(vii) any other contract, agreement, plan, commitment or instrument
(other than real property leases which have been provided to BAC and FSB
pursuant to Section 3.7(b) of this Agreement) not of a type covered by or
specifically excluded from the coverage of any of the other items of this
Section 3.7(d) and (A) involving future payment by the Company or the
Subsidiary over the life of such contract of more than $50,000 in the
aggregate or (B) having a remaining term of more than 12 months and not
terminable on less than 90 days' notice.
There is no breach, violation or default, or allegation or assertion of such,
by the Company, the Subsidiary or by any other party under any such contract
listed in Schedule 3.7(d) and consummation of the Merger will not result in any
such breach, violation or default.
(e) All buildings and other facilities owned by the Company and the
Subsidiary are adequately maintained and are free from defects which could
materially interfere with the current or future use of such facilities. All
buildings and other facilities leased by the Company or the Subsidiary are
maintained in accordance with the applicable lease obligations. All water,
sewer, gas, electricity, telephone and other utilities required by law or
necessary for the operations of such business are supplied to such buildings
and facilities and are presently installed and operating, and all installation
and connection charges have been paid in full or accrued. All material
assessments for public improvements that have been made against the properties
of the Company or the Subsidiary have been paid or provided for, except that in
the case of any assessments that are payable in installments, all installments
due as of the date hereof have been paid or accrued.
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(f) Except for authorizations given in the ordinary course of business and
consistent with existing policies, practices and procedures, no powers of
attorney or similar authorizations have been issued by the Company which are
outstanding and effective.
(g) Attached in Schedule 3.7(g) is a list of all loans or other extensions of
credit owned in whole or in part by others which are serviced by the Company
along with all contracts for the servicing of such loans or extensions of
credit.
3.8 Compliance with Laws.
(a) Each of the Company or the Subsidiary is in compliance with all laws,
regulations, reporting and licensing requirements and orders applicable to its
business or properties or any of its employees (because of such employee's
activities on behalf of it), including, without limitation, those relating to
wage and hour, labor and employment practices, equal opportunity, affirmative
action and the Immigration Reform and Control Act, the Americans with
Disabilities Act, the breach or violation of which could, individually or in
the aggregate, have a Material Adverse Effect.
(b) Except as specified in Schedule 3.8(b), neither the Company nor the
Subsidiary has received any notification from any agency or department of any
federal, state, local or foreign government or any regulatory authority or the
staff thereof asserting that the Company or the Subsidiary is not presently in
compliance with any of the statutes, regulations or ordinances that such
governmental or regulatory authority enforces, noncompliance with which could
have, individually or in the aggregate, a Material Adverse Effect, nor is the
Company or the Subsidiary aware of any basis for any such assertion. Except as
specified in Schedule 3.8(b), neither the Company nor the Subsidiary is subject
to any agreement with any regulatory authority with respect to its assets or
business that imposes any material restriction on the conduct of its business.
Neither the Company nor the Subsidiary has any material uncorrected deficiency
from any federal or state banking regulatory examination report, except with
respect to matters, if any, that are specified in Schedule 3.8(b).
(c) Except as specified in Schedule 3.8(c) for the last three years from the
date of this Agreement, the Company has materially complied with all applicable
laws and regulations (i) regarding charges, and the waiver of such charges, for
checking account overdrafts or checks returned due to insufficient funds, and
(ii) regarding the calculation of interest on loans and deposits.
3.9 Material Contract Defaults. Neither the Company nor the Subsidiary is in
default under any contract, agreement, indenture, mortgage, deed of trust, loan
instrument, commitment, arrangement, lease, insurance policy or other
instrument to which it is a party or by which its respective properties or
assets may be bound or affected or under which it or its respective business,
properties or assets receive benefits, which default would be likely,
individually or in the aggregate for all such defaults, to have a Material
Adverse Effect, and, to the best knowledge of the Company and the Subsidiary,
there has not occurred any event that with the lapse of time or the giving of
notice or both would constitute such a default.
3.10 Absence of Certain Changes. There has not been since June 30, 1993:
(a) any change in the business, financial condition, results of operations or
prospects of the Company or the Subsidiary that has had or may reasonably be
expected to have, together with all other such changes, a Material Adverse
Effect;
(b) any direct or indirect redemption, purchase, or other acquisition of
shares of the Company's capital stock, convertible securities or securities
exercisable for capital stock of the Company by the Company or the Subsidiary
or any declaration, setting aside or payment of any dividend, except for the
purchase of any Company Options pursuant to Section 5.15;
(c) any increase in the compensation payable or to become payable by the
Company or the Subsidiary to any of their respective officers, employees or
agents, other than as set forth in employment agreements, a list
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of which is included in Schedule 3.10 and copies of which have been delivered
to BAC and FSB, and normal cost-of-living, merit and regularly scheduled
increases;
(d) any amendment or termination of any note, bond, mortgage, indenture,
contract, license, agreement, lease or other instrument or obligation to which
the Company or the Subsidiary is a party or by which any of their properties or
assets may be bound, other than amendments or terminations which do not and
will not, individually or in the aggregate, have a Material Adverse Effect;
(e) any establishment of any new or material modification of any currently
existing Plan (as defined in Section 3.14 hereof);
(f) except as required by this Agreement, any amendment to the Charter of
Incorporation or Bylaws of the Company or the Certificate of Incorporation or
Bylaws of the Subsidiary;
(g) any change by the Company or the Subsidiary in accounting principles or
methods, except as required to comply with generally accepted accounting
principles or as required by FDIC regulations (in which case timely notice
thereof shall have been given to BAC and FSB);
(h) any disposition by the Company or the Subsidiary of an asset or assets
material to the Company and the Subsidiary, except sales of foreclosed
properties in the ordinary course of business; or
(i) any damage, destruction or other casualty loss (whether or not covered by
insurance) which has or can reasonably be expected to have a Material Adverse
Effect.
3.11 Litigation.
(a) Schedule 3.11(a) contains a complete list as of the date of this
Agreement of all pending or, to the best knowledge of the Company and the
Subsidiary, threatened, private or governmental suits, claims, actions,
proceedings, or investigations against the Company or the Subsidiary. Except
for normal regulatory examinations and visits (with respect to which the
Company and the Subsidiary are not aware of any material matters under
discussion with any relevant governmental authorities), there are no pending
or, to the best knowledge of the Company and the Subsidiary, threatened,
private or governmental suits, claims, actions, proceedings, arbitrations or
investigations against the Company or the Subsidiary, which, if determined
adversely to the Company or the Subsidiary would be likely to have a Material
Adverse Effect.
(b) Neither the Company nor the Subsidiary, nor, to the best knowledge of the
Company, any officer, director or employee of either, has been permanently or
temporarily enjoined by any order, judgment or decree of any court or other
tribunal or any governmental or regulatory agency, authority or body from
engaging in or continuing any conduct or practice in connection with the
business, assets or properties of the Company or the Subsidiary.
(c) Except as set forth in Schedule 3.11(c), there is no order, judgment or
decree of any court or other tribunal or any governmental or regulatory agency,
authority or body ordering the Company or the Subsidiary to take any action of
any kind with respect to its business, assets or properties or otherwise
involving the Company or the Subsidiary or any of their assets or properties.
3.12 Contingent Liabilities. Neither the Company nor the Subsidiary is
subject to any material contingent liabilities of any nature (whether or not
required to be accrued or disclosed under Statement of Financial Accounting
Standards ("SFAS") No. 5) other than those reflected in or adequately reserved
against in the Company's financial statements referred to in Section 3.4.
3.13 Taxes.
(a) Definitions. For purposes of this Section 3.13, the following definitions
shall apply:
(1) The term "Group" shall mean, individually and collectively, (i) The
Company, (ii) the Subsidiary, and (iii) any individual, trust, corporation,
partnership or any other entity as to which the Company is liable for Taxes
incurred by such individual or entity either as a transferee, or pursuant
to
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Treasury Regulations Section 1.1502-6, or pursuant to any other provision
of federal, territorial, state, local or foreign law or regulations.
(2) The term "Taxes" shall mean all taxes, however denominated, including
any interest, penalties or other additions that may become payable in
respect thereof, imposed by any federal, territorial, state, local or
foreign government or any agency or political subdivision of any such
government, which taxes shall include, without limiting the generality of
the foregoing, all income or profits taxes (including, but not limited to,
federal income taxes and state income taxes), payroll and employee
withholding taxes, unemployment insurance, social security taxes, sales and
use taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts
taxes, business license taxes, occupation taxes, real and personal property
taxes, stamp taxes, environmental taxes, transfer taxes, workers'
compensation, Pension Benefit Guaranty Corporation premiums or other
governmental charges, and other obligations of the same or of a similar
nature to any of the foregoing, which the Group is required to pay,
withhold or collect.
(3) The term "Returns" shall mean all reports, estimates, declarations of
estimated tax, information statements and returns relating to, or required
to be filed in connection with, any Taxes.
(b) The Group has timely filed all Returns required to be filed, except where
the failure to make any such filing or filings would not have a Material
Adverse Effect, and the information contained in each such Return is complete
and accurate in all material respects.
(c) The Group has paid, or has set up adequate reserves for the payment of,
all Taxes required to be paid in respect of the periods covered by such Returns
and has set up adequate reserves for the payment of all other Taxes payable in
respect of the period subsequent to the last of such periods, and the Group has
no material liability for such Taxes (and, to the best knowledge of the Company
and the Subsidiary, there is no potential material liability in respect of
deductions, costs or other allowances taken for federal income tax purposes
likely to be disallowed in any audit by the Internal Revenue Service (the
"Service") or other taxing authority) in excess of the amounts so paid or
reserves so established.
(d) The Group is not delinquent in the payment of any Taxes, and it has not
requested any extension of time within which to file any Returns that have not
since been filed, and no material deficiencies for any Taxes have been claimed,
proposed or assessed. Since December 31, 1991, the Group has not agreed to any
extension of time for the assessment or payment of any Taxes payable by it.
(e) There are no pending or, to the best of the Group's knowledge, threatened
tax audits, investigations or claims for or relating to any material liability
in respect of Taxes, and there are no matters under discussion with any
governmental authorities with respect to Taxes that are likely to result in a
material further tax liability. No security interests, liens, encumbrances,
attachments or similar interests exist on or with respect to any of the assets
of the Group that arose in connection with any failure or alleged failure to
pay any Taxes.
(f) The Group's federal income tax returns from the year ended December 31,
1981 through the year ended December 31, 1989 have not been audited by the
Service, and its Hawaii tax returns for any year during such period have not
been audited by the Department of Revenue of the State of Hawaii.
(g) No member of the Group has made an election under Section 338 of the
Internal Revenue Code (the "Code") or has taken any action that would result in
any income tax liability to any member of the Group as a result of a deemed
election within the meaning of Section 338 of the Code. The Group is not a
party to any safe harbor lease within the meaning of Section 168(f)(8) of the
Code, as in effect prior to amendment by the Tax Equity and Fiscal
Responsibility Act of 1982. Neither BAC nor FSB is required to withhold tax on
the purchase of the stock of the Company by reason of Section 1445 of the Code.
No member of the Group is a "consenting corporation" under Section 341(f) of
the Code. The Group has not entered into any compensatory agreements with
respect to the performance of services under which any payment would result in
a nondeductible expense to the Group pursuant to Section 280G of the Code or an
excise tax to the recipient of such payment pursuant to Section 4999 of the
Code. The Group has disclosed on its federal
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income tax returns all positions taken therein that could give rise to a
substantial understatement penalty of federal income tax within the meaning of
Code Section 6662. To the Group's knowledge, neither the Company nor its
Subsidiary has ever been (and does not have any liability because it once was)
a member of an affiliated group (other than the affiliated group consisting of
the Company and its Subsidiary as of the date of this Agreement) during any
part of any consolidated return year. Neither the Company nor its Subsidiary
has ever been a member of any unitary group for state income or franchise tax
purposes and does not file unitary returns for state income or franchise tax
purposes in any state, local or territorial jurisdiction. No member of the
Group is required to file any Returns, or is liable for any taxes in any state,
local, territorial or foreign taxing jurisdiction other than Hawaii and
political subdivisions thereof. Neither the Company nor its Subsidiary is (nor
has ever been) a party to any tax allocation agreement within the meaning of
Section 1502 of the Code and the regulations thereunder, or any similar
provision of state law.
(h) The Group has withheld and paid all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any officer, director,
employee or agent (including, without limitation, any independent contractor,
foreign person or other third person) in compliance with all tax withholding
provisions of applicable federal, state, local and foreign law (including,
without limitation, income, social security, employment tax withholding, and
withholding under Code Sections 1441 through 1445). The Group has timely
complied with all requirements under applicable laws relating to information,
reporting and withholding and other similar matters for customer and other
accounts (including back-up withholding and furnishing of Forms 1099 and all
similar reports).
(i) The amount of the Group's liability for unpaid taxes for all periods
ending on or before the Closing Date (including accruals for any exposure item)
shall not, in the aggregate, exceed the amount of the liability accruals for
Taxes (excluding reserves for deferred Taxes) as such accruals are reflected on
the Group's balance sheet. All such accruals are, or will be, recorded in
accordance with generally accepted accounting principles.
(j) The Group has provided BAC (i) true, correct and complete copies of the
Group's federal and state income tax Returns for all periods that are open for
federal and state tax purposes and (ii) true, correct and complete copies of
all other Returns and other reports and statements relating to federal and
state income taxes arising during such periods, including, without limitation,
income tax audit reports, statements of income or gross receipts tax, franchise
tax, sales tax and transfer tax, deficiencies, and closing or other agreements
relating to income or gross receipts tax, franchise tax, sales tax and transfer
tax received by the Group or on behalf of the Group, as well as draft federal
and state income or gross receipts tax returns for the Group for all periods
ending on and after December 31, 1992 and on or before the Closing Date. The
Group will promptly furnish to BAC true, complete and correct copies of any
other Returns filed by any member of the Group prior to the Closing Date.
(k) The Group has provided BAC (or will, if required, provide prior to
Closing) as of the date hereof as well as on an estimated basis as of the
Closing Date: (i) a complete schedule of the tax and book differences of the
Company and its Subsidiary in their respective assets; (ii) a complete listing
of the amount of any net operating loss, net capital loss, unused investment or
other credits, unused foreign tax credits, or excess charitable contributions
allocable to the Company or its Subsidiary; and (iii) a complete listing of the
amount of any material deferred gain or loss allocable to the Company or its
Subsidiary arising out of any deferred intercompany transaction. The Group
shall provide BAC with sufficient access to its tax records and personnel to
enable BAC to determine the tax and book basis of the Company and its
Subsidiary in their respective assets.
3.14 Employee Benefit Plans; ERISA.
(a) The Company has delivered to BAC true and complete signed copies of all
Plans (as defined below) to which Company or the Subsidiary is a party and in
which any current or former officer, director, employee or agent of Company or
the Subsidiary participates. All such Plans are set forth on Schedule 3.14(a).
There
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are no Plans of Company or Subsidiary which are not evidenced by such written
documents. The term "Plan" shall include (i) any "employee benefit plan" within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), (ii) any profit sharing, pension, deferred
compensation, bonus, stock option, stock purchase, severance, retainer,
consulting, "cafeteria" benefits under Section 125 of the Code, health, welfare
or incentive plan or agreement, whether legally binding or not, including any
post-employment benefits, (iii) any plan, agreement, contract, program,
arrangement, or policy providing for "fringe benefits" to its employees,
including but not limited to vacation, paid holidays, personal leave, employee
discount, educational benefit or similar programs, or (iv) any employment
agreement.
(b) Neither the Company nor the Subsidiary (i) has made any contributions to,
(ii) has ever been a member of a controlled group which contributed to, or
(iii) has ever been under common control with an employer that contributed to
any "multiemployer plan" as that term is defined in Section 3(37) of ERISA.
(c) Except as set forth in Schedule 3.14(c), all reports, forms and other
documents required to be filed with any governmental authority or distributed
to plan participants with respect to any Plan subject to ERISA (including,
without limitation, summary plan descriptions, Forms 5500 and summary annual
reports) have been prepared in substantial compliance with ERISA and timely
filed (if applicable) and distributed (if applicable). The Company has
delivered to BAC copies of all such reports, forms and documents required to
have been filed or distributed for the three years immediately preceding the
date of this Agreement.
(d) Except as set forth in Schedule 3.14(d), each Plan that is intended to
qualify under Section 401(a) of the Code and Section 501(a) of the Code and its
related trust, if any, comply in form and in operation with Section 401(a) and
501(a) of the Code and have been determined by the Service to so qualify, and
nothing has occurred to the best knowledge of the Company and the Subsidiary
since the date of such determination to cause the loss of the Plan's
qualification.
(e) All contributions to each Plan for all periods ending prior to the
Closing Date will be made prior to the Closing Date by the Company in
accordance with past practice and the recommended contribution in any
applicable actuarial report (except for periods from the first day of the plan
year in which the Closing Date occurs to the date immediately preceding the
Closing Date).
(f) All insurance premiums have been paid in full, subject only to normal
retrospective adjustments in the ordinary course, with regard to the Plans for
policy years or other applicable policy periods ending before the Closing Date
and have been paid as required under the policies for policy years or other
applicable policy periods beginning on or before the Closing Date and ending on
or after the Closing Date.
(g) As of the Closing Date, no Plan subject to Title IV of ERISA has benefit
liabilities (as defined in Section 4001(a)(16) of ERISA) exceeding the assets
of such plan or has been completely or partially terminated.
(h) With respect to each Plan:
(1) it has been administered in accordance with its terms or in
substantial compliance with applicable laws and regulations, including
ERISA and the Code, and to the best knowledge of the Company and the
Subsidiary no event has occurred which, through the passage of time or the
giving of notice, or both, would constitute a default of a term or
condition thereunder or would cause the acceleration of any obligation of
any part thereto;
(2) no action or claims (other than routine claims for benefits made in
the ordinary course of Plan administration for which Plan administrative
review procedures have not been exhausted) are pending, threatened or
imminent with respect to the Plan, against the Plan, any employer who is
participating (or who has participated) in any Plan or any fiduciary of the
Plan; and
(3) neither the Company nor the Subsidiary nor any fiduciary is aware to
the best of its knowledge of any facts which could give rise to any such
action or claim.
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(i) To the best knowledge of the Company and the Subsidiary with respect to
each Plan which is an employee benefit plan, as defined under Section 3(3) of
ERISA:
(1) no prohibited transactions (as defined in Section 406 of ERISA or
Section 4975 of the Code) have occurred;
(2) no accumulated funding deficiency (within the meaning of Section 302
of ERISA or Section 412 of the Code) has been incurred with respect to any
Plan, whether or not waived; and
(3) no reportable event (as defined in Section 4043 of ERISA) has
occurred as to which a notice would be required to be filed with the
Pension Benefit Guaranty Corporation.
(j) To the best knowledge of the Company and the Subsidiary the Company and
the Subsidiary have no liability and are not threatened with any liability (i)
for the termination of any single employer plan under Sections 4062 or 4064 of
ERISA or any multiple employer plan under Section 4063 of ERISA, (ii) for any
lien imposed under Section 302(f) of ERISA or Section 412(m) of the Code, (iii)
for any interest payments required under Section 302(e) of ERISA or Section
412(m) of the Code, (iv) for any excise tax imposed by Sections 4971, 4975,
4976, 4977 or 4979 of the Code, (v) for any minimum funding contributions under
Section 302(c)(11) of ERISA or Section 412(c)(11) of the Code, (vi) for a fine
under Section 502 of ERISA, or (vii) for any transaction within the meaning of
Section 4069 of ERISA.
(k) To the best knowledge of the Company and the Subsidiary each health care
plan of the Company and the Subsidiary, to the extent applicable, is in
compliance with the continuation of group health coverage provisions contained
in the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and
the Medicare as secondary payor requirements for group health plans at 42
U.S.C. 1395y(b)(1).
(l) To the best knowledge of the Company and the Subsidiary there are no
negotiations, demands or proposals which are pending or have been made which
concern matters now covered, or that would be covered, by the type of
agreements that would be Plans as defined in Section 3.14(a).
(m) All expenses and liabilities relating to all of the Plans have been, and
will on the Closing Date be, fully and properly accrued on the Company's or the
Subsidiary's books and records and disclosed in accordance with generally
accepted accounting principles and, except for the period from the first day of
the Plan year in which the Closing Date occurs to the date immediately
preceding the Closing Date, in Plan financial statements.
(n) Neither the Company, the Subsidiary, nor any current or former officer,
director, employee or agent has made any promises, commitments or
representations concerning post-employment health care or insurance to any
employee, former employee or retiree of Company or the Subsidiary.
3.15 Broker's and Finder's Fees. Except for payments to Montgomery Securities
which has been engaged by the Company as its financial advisor and investment
banker pursuant to an agreement (a copy of which has been provided to BAC and
FSB), neither the Company nor the Subsidiary, nor anyone acting on their behalf
has or will have any liability to any broker, finder, agent or other person
(other than legal and accounting advisors), nor have any of them agreed to pay
any brokerage fee, finder's fee or commission, with respect hereto or to the
transactions contemplated hereby.
3.16 Labor Relations. Neither the Company nor the Subsidiary is a party to
any collective bargaining agreement or any dispute or controversy with a union
representing or seeking to represent its employees or with respect to
unionization or collective bargaining on behalf of its employees. To the best
knowledge of the Company, as of the date hereof, no National Labor Relations
Board election nor union organizing activities have occurred with respect to
the Company or the Subsidiary. As of the date hereof, no material labor
dispute, strike or other work stoppage by employees of the Company has occurred
and is continuing or has been threatened with respect to the Company or the
Subsidiary.
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<PAGE>
3.17 Registration Statement and Regulatory Applications.
(a) When the Prospectus/Proxy Statement referred to in Section 5.1, or any
amendment or supplement thereto, shall be mailed to the Shareholders, and at
all times subsequent to such mailing up to and including the Company Meeting
Date, (i) such Prospectus/Proxy Statement and all amendments or supplements
thereto, with respect to all information set forth therein provided by, and
relating to, the Company and the Subsidiary and in respect of this Agreement,
will comply in all material respects with the provisions (to the extent
applicable) of the Securities Act, and the Exchange Act and the rules and
regulations of the Securities and Exchange Commission (the "SEC") thereunder,
and (ii) the information relating to the Company and the Subsidiary and in
respect of this Agreement set forth in the Prospectus/Proxy Statement as filed
with the SEC under the Securities Act and the Exchange Act and the Registration
Statement as filed with the SEC under the Securities Act, will not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements contained therein not
misleading or to correct any earlier communication with respect to the same
meaning or subject matter.
(b) When each of the applications for the Regulatory Approvals (as defined in
Section 5.2) is filed, or amended or supplemented, the information provided by,
or relating to, the Company and the Subsidiary and in respect of this Agreement
will comply in all material respects with the relevant laws and regulations and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading or to correct any earlier statements with respect to the
same application or subject matter.
(c) The execution, delivery and performance of this Agreement by the Company
do not, and the consummation by the Company of the Merger will not, require any
filing by the Company or the Subsidiary with, or approval, consent,
authorization or other action with respect to the Company or the Subsidiary by,
any governmental agency, other than (i) the filing by BAC and FSB of the
articles of merger with the Office of Thrift Supervision and Commissioner of
Financial Institutions of the State of Hawaii, (ii) the filing of an
application jointly with BAC and FSB with the Hawaii Division and (iii) the
filing of the Proxy Statement/Prospectus with the FDIC.
3.18 Insurance. The Company and the Subsidiary are insured against all risks
normally insured against by corporations in similar lines of business. All such
insurance policies and bonds maintained by the Company and the Subsidiary are
listed in Schedule 3.18 and are in full force and effect. As of the date
hereof, neither the Company nor the Subsidiary has received any notice of
cancellation or material amendment of any such insurance policy or bond or is
in default under any such insurance policy or bond, no coverage thereunder is
being disputed, and all material claims thereunder have been filed in timely
fashion.
3.19 Employment and Similar Agreements; Obligations Upon Change in Control.
Except as set forth in Schedule 3.19, there are no employment, consulting,
severance or indemnification arrangements, agreements or understandings
("Employee Agreements") between either or both of the Company and the
Subsidiary, and any officer (including "executive officers" as defined under
the Exchange Act) or employee of the Company or of the Subsidiary or any other
party. Except as set forth in Schedule 3.19, there are no such Employee
Agreements or other arrangements, or agreements (i) under which the change in
control resulting from the Merger will require any payment by the Company, the
Subsidiary, BAC or FSB to any director, officer (including executive officers)
or employee of the Company or of the Subsidiary, or any other party, or (ii)
under which there will occur any acceleration or change in the award, grant,
vesting or determination of options, warrants, rights, severance payments, or
other contingent obligations of any nature whatsoever of the Company or the
Subsidiary in favor of any such parties. Without limiting the foregoing, no
payment to be made by the Company or the Subsidiary prior to or after the
Closing pursuant to the Employment Agreements will be characterized as an
"excess parachute payment" within the meaning of Section 280G(b)(1) of the
Code. Except as set forth in Schedule 3.19, the Company has no knowledge of any
agreements or understandings with any employee, which are inconsistent with the
status of all employees, including officers of the Company or the Subsidiary,
being at-will.
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3.20 Offices and Branches. Each of the offices, branches and automatic teller
machines maintained and operated by the Company and the Subsidiary is listed in
Schedule 3.20. Each lease with respect to such office, branch and machine is in
full force and effect and no default by the Company thereunder has occurred.
With respect to each office, branch or automated teller machine which is owned
in fee simple or leased by the Company or the Subsidiary, except as specified
on Schedule 3.20, there are no liens or encumbrances on the Company's or
Subsidiary's interest in such property. Except as set forth in Schedule 3.20,
neither the Company nor the Subsidiary maintains any other office or conducts
business at any other location, whether through an automated teller machine or
otherwise, nor has the Company applied for or received permission to open any
additional branches or operate at any other location.
3.21 Hazardous Materials. Neither the Company, nor the Subsidiary, nor any
other person having an interest in property that the Company, or such
subsidiary, owns or leases or has owned or leased or in which the Company or
any subsidiary holds any security interest, mortgage, or other lien or interest
("Property") has engaged in the generation, use, manufacture, treatment,
transportation, storage in tanks or otherwise, or disposal of Hazardous
Material (as defined below) which violates Environmental Laws (as defined
below) on or from such Property, and no (i) presence, release, threatened
release, discharge, spillage or migration of Hazardous Material, (ii) condition
that could result in any use, ownership or transfer restriction, or (iii)
condition of nuisance has occurred on or from such Property, which,
individually or in the aggregate, would constitute a Material Adverse Effect,
and neither the Company nor any such subsidiary has received notice of, or has
reason to know of, a condition that could give rise to any private or
governmental suit, claim, action, proceeding or investigation against the
Company, any such subsidiary, any other person or such Property as a result of
any of the foregoing events. With respect to any Property in which the Company
or a subsidiary holds a security interest, mortgage or other lien or interest
and which neither the Company nor the Subsidiary owns or has previously owned
or has previously leased, the Company makes the foregoing representation and
warranty based upon its knowledge. With respect to all other Property, the
Company makes the foregoing representation and warranty to the best of its
knowledge. "Hazardous Material" shall mean any chemical, compound, material,
mixture, living organism or substance that is now or hereafter defined or
listed in, or otherwise classified or regulated in any way pursuant to, any
Environmental Laws as "hazardous waste," "hazardous substance," "hazardous
material," "extremely hazardous waste," "infectious waste," "toxic substance,"
"toxic pollutant" or any other formulation intended to define, list, or
classify substances by reason of hazardous properties, including without
limitation, ignitability, corrosivity, reactivity, carcinogenicity, or
toxicity, such materials to include, without limitation, oil, waste oil,
petroleum, waste petroleum, polychlorinated biphenyls (PCBs), asbestos or
asbestos-containing materials, radon, natural gas, natural gas liquids,
liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural
gas and such synthetic gas). As used herein, "Environmental Laws" means all
laws, statutes, codes, acts, ordinances, orders, judgments, decrees,
injunctions, rules, regulations, permits, licenses, authorizations, directions
and requirements of all governments, departments, commissions, boards, courts,
governments, federal, state, county and municipal, ordinary or extraordinary,
including all laws pertaining to health and safety and pollution and protection
of the environment, the Resource Conservation and Recovery Act (42 U.S.C.
(S) 6901 et seq.), as amended by the Hazardous and Solid Waste Amendments of
1984, the Comprehensive Environmental Response, Compensation and Liability Act
(42 U.S.C. (S) 9601 et seq.), as amended by the Superfund Amendments and
Reauthorization Act of 1986, the Hazardous Materials Transportation Act (49
U.S.C. (S) 1801 et seq.), the Clean Air Act (42 U.S.C. (S) 1251 et seq.), the
Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. (S) 136 et seq.),
the Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.), and all
applicable federal, state and local environmental laws, including obligations
under the common law, ordinances, rules and regulations, as any of the
foregoing may have been or may be from time to time amended, supplemented or
supplanted, now or hereafter existing relating to regulation or control of
Hazardous Substances or environmental health and safety, which now or at any
time hereafter may be applicable to the Property.
3.22 Certain Interests. Except as specified in Schedule 3.22 or in arm's
length transactions pursuant to normal commercial terms and conditions, no
officer, director or employee of the Company or the Subsidiary, or any
affiliate (as defined below) thereof, or any entity controlled by such person
or affiliate (as defined below)
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<PAGE>
has any material interest in any property, real or personal, tangible or
intangible, used in or pertaining to the business of the Company or the
Subsidiary; no such person is indebted to the Company or the Subsidiary except
for normal business expense advances; and neither the Company nor the
Subsidiary is indebted to any such person except for amounts due under normal
salary or reimbursement of ordinary business expenses. Schedule 3.22 includes a
description of the compensation and expense reimbursements which have been
provided since December 31, 1991 to directors of the Company and the
Subsidiary. As used in this Section, "affiliate" means the spouse and children
of a person, and any relative of the person or the spouse living in the
person's home, and any "entity controlled by such person or affiliate" means
any corporation, partnership or other entity of which (i) the person is an
officer, director, general partner and the owner of 10% or more of any class of
voting stock or other equity interest, directly or indirectly or (ii) the
person is the owner of 25% or more of any class of voting stock or other equity
interest, directly or indirectly.
3.23 Loans. Except as disclosed in Schedule 3.23, (i) each outstanding loan,
lease or other extension of credit or commitment to extend credit of the
Company or the Subsidiary is a legal, valid and binding obligation, is in full
force and effect and is enforceable in accordance with its terms except as may
be limited by bankruptcy, insolvency, moratorium, receivership,
conservatorship, reorganization or similar laws affecting the rights of
creditors generally or equitable principles limiting the right to obtain
specific performance or other similar relief, (ii) each of the Company and the
Subsidiary has duly performed in all material respects all of its respective
obligations thereunder to the extent that such obligations to perform have
accrued; (iii) all documents and agreements necessary for the Company or the
Subsidiary to enforce such loan, lease or other extension of credit are in
existence; (iv) no claims, counterclaims, set-off rights or other rights exist,
nor do the grounds for any such claim, counterclaim, set-off rights or other
rights exist, with respect to any such loans, leases or other extensions of
credit which could impair the collectability thereof, and (v) each such loan,
lease and extension of credit has been, in all material respects, originated,
underwritten and serviced in accordance with the Company or the Subsidiary's
then applicable underwriting guidelines, the terms of the relevant credit
documents and agreements and applicable law.
3.24 Investment Securities.
(a) Schedule 3.24(a) contains a true, correct and complete list of all
securities owned by the Company and the Subsidiary of record or beneficially as
of the date thereof (except securities held in any fiduciary or agency
capacity), including, without limitation, securities issued by the United
States or any instrumentality thereof, or any state or political subdivision
thereof.
(b) Each of the Company and the Subsidiary has good title to all securities
held by it (except securities sold under repurchase agreements or held in any
fiduciary or agency capacity), free and clear of any mortgage, lien, pledge or
encumbrance, except to the extent such securities are pledged in the ordinary
course of business consistent with prudent banking practice to secure
obligations of the Company or the Subsidiary. Such securities are valued on the
books of the Company in accordance with generally accepted accounting
principles. Schedule 3.24(b) contains a true, correct and complete list of all
obligations of the Company and the Subsidiary that are secured by securities
held by the Company or the Subsidiary (except repurchase agreements and state
and municipal deposits entered into in the ordinary course of business).
3.25 Allowance for Losses. The Company's consolidated allowance for possible
credit losses (i) is adequate in relation to the outstanding loans, leases and
other extensions of credit of the Company and its Subsidiary, (ii) is
maintained in accordance with the accounting principles contained in SFAS 5 and
all applicable laws and regulations and (iii) is maintained consistent with the
requirements of the FDIC resulting from its examination of the Company
concluded on August 5, 1993.
3.26 Accounting Records.
(a) The Company and the Subsidiary on a consolidated basis maintain records
that accurately, validly and fairly reflect their transactions and dispositions
of assets and maintain a system of internal accounting
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<PAGE>
controls, policies and procedures sufficient to insure that (i) such
transactions are executed in accordance with its management's general or
specific authorization, (ii) such transactions are recorded in conformity with
generally accepted accounting principles and in such a manner as to permit
preparation of financial statements in accordance with generally accepted
accounting principles and any other criteria applicable to such statements and
to maintain accountability for assets, (iii) access to assets is permitted only
in accordance with management's general or specific authorization, (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences, and (v) records of such transactions are retained, protected and
duplicated in accordance with prudent banking practices and applicable
regulatory requirements.
(b) The data processing equipment, data transmission equipment, related
peripheral equipment and software used by the Company and the Subsidiary in the
operation of their businesses (including any disaster recovery facility) are
adequate to generate and retrieve such records (whether owned or leased by the
Company or the Subsidiary, or provided under any agreement or other arrangement
with a third party for data processing services).
(c) Schedule 3.26(c) sets forth the Company's record retention policies.
3.27 Disclosure. No representation or warranty by the Company in this
Agreement and no statement by the Company contained in any certificate,
agreement, schedule or other document furnished by the Company in connection
with the transactions contemplated by this Agreement, contains or will contain
any untrue statement of material fact or omits or will omit to state any
material fact necessary in order to make such representation, warranty or
statement not misleading.
IV. REPRESENTATIONS AND WARRANTIES OF BAC AND FSB
BAC and FSB jointly and severally make the following representations and
warranties to the Company:
4.1 Organization, Etc. BAC is a corporation and FSB is a federal savings bank
duly organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation or organization. BAC and FSB have all
requisite corporate power and authority to carry on their businesses as now
conducted and are qualified to do business as a foreign corporation and are in
good standing in each jurisdiction in which such qualification is necessary
under applicable law, except to the extent that the failure to have such power
or authority or to be so qualified would not, individually or in the aggregate,
have a Material Adverse Effect. Subject to ratification by the Board of
Directors of BAC and FSB and by the stockholder of FSB, each of BAC and FSB has
the corporate power and authority to execute and deliver this Agreement and
perform its respective obligations hereunder.
4.2 Binding Effect. Subject to ratification by the Boards of Directors of BAC
and FSB and by the stockholder of FSB, this Agreement has been duly and validly
authorized, executed and delivered by BAC and FSB and constitutes the valid and
binding obligation of BAC and FSB, enforceable against BAC and FSB in
accordance with its terms, except as may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the rights of creditors
generally, by the availability of equitable remedies, and by the discretion of
the court or arbitrator before whom a proceeding may be brought. In addition,
enforceability may be limited by considerations of public policy under the
Securities Act and the Exchange Act, due to the inclusion of Section 5.12 in
the Agreement. Neither the execution and delivery of this Agreement by BAC or
FSB, nor the consummation by either of them of the transactions contemplated
hereby, nor compliance by either of them with any of the provisions hereof will
(i) conflict with or result in a breach of any provision of BAC's or FSB's
Certificate of Incorporation or Bylaws, or (ii) constitute or result in the
breach of any term, condition or provision of, or constitute a default under,
or give rise to any right of termination, cancellation or acceleration with
respect to, or result in the creation of any lien, charge or encumbrance upon
any property or assets of BAC or FSB pursuant to any note, bond, mortgage,
indenture, license, agreement, lease or other instrument or obligation to which
BAC or FSB is a party or by which any
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<PAGE>
of their properties or assets may be bound, except such notes, bonds mortgages,
indentures, licenses, agreements, leases and other instruments or obligations
the violation of which would not have, individually or in the aggregate, a
Material Adverse Effect or (iii) violate any order, writ, injunction, judgment,
decree, statute, rule or regulation applicable to BAC or any of its properties
or assets, subject to obtaining the requisite Regulatory Approvals.
4.3 Capitalization. The authorized capital stock of BAC consists of
70,000,000 shares of preferred stock, without par value, of which 49,397,457
shares were issued and outstanding on June 30, 1993, and 700,000,000 shares of
BAC Stock, of which 355,758,160 shares were issued and outstanding as of June
30, 1993. The BAC Stock to be issued to the Shareholders pursuant to the
provisions of this Agreement has been duly authorized, will be validly issued,
fully paid and nonassessable and will not be issued in violation of any
preemptive rights.
4.4 Financial Statements and Reports. BAC has delivered to the Company BAC's
audited consolidated balance sheets as of December 31, 1992 and 1991, and its
statements of operations, statements of cash flows and statements of changes in
stockholders' equity for each of the three years in the period ended December
31, 1992, and BAC's unaudited consolidated balance sheet as of, and statements
of operations, statements of cash flows and statements of changes in
stockholders' equity for, the three month period ended March 31, 1993, and the
six month period ended June 30, 1993. Such financial statements have been
prepared from the books and records of BAC and its subsidiaries, present fairly
the financial condition and operating results of BAC and its subsidiaries as of
the dates and for the periods indicated and have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods covered, except as stated therein.
4.5 FSB Stock Ownership. BAC owns directly or indirectly all of the
outstanding capital stock of, and all other ownership interests in, FSB.
4.6 Absence of Certain Changes. Except as has been disclosed prior to the
date hereof in filings with the SEC, copies of which have been delivered to the
Company, there has not been since June 30, 1993, any change in the business,
financial condition, results of operations or prospects of BAC or FSB that has
had or may reasonably be expected to have, together with all other such
changes, a Material Adverse Effect.
4.7 Registration Statement and Regulatory Applications.
(a) When the Prospectus/Proxy Statement referred to in Section 5.1, or any
amendment or supplement thereto, shall be mailed to the Shareholders, and at
all times subsequent to such mailing up to and including the Company Meeting
Date, (i) such Prospectus/Proxy Statement and all amendments or supplements
thereto, with respect to all information set forth therein provided by, and
relating to, BAC and its subsidiaries, will comply in all material respects
with the provisions (to the extent applicable) of the Securities Act and the
Exchange Act and the rules and regulations of the SEC thereunder, and (ii) the
information relating to BAC and its subsidiaries set forth in the
Prospectus/Proxy Statement as filed with the SEC under the Securities Act and
the Exchange Act and the Registration Statement as filed with the SEC under the
Securities Act, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements contained therein not misleading or to correct any earlier
statements with respect to the Prospectus/Proxy Statement.
(b) When each of the applications for the Regulatory Approvals is filed, or
amended or supplemented, the information relating to BAC and its subsidiaries
and in respect of this Agreement will comply in all material respects with the
relevant laws and regulations and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or to correct any
earlier statements with respect to the same application or subject matter.
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V. COVENANTS OF THE COMPANY, BAC AND FSB
5.1 Preparation of Registration Statement and Applications for Required
Consents. The Company and BAC contemplate that a Registration Statement on Form
S-4 (the "Registration Statement") will be filed with the SEC under the
Securities Act for registration of the BAC Stock to be issued in connection
with the transactions contemplated hereby, and the Company contemplates that a
Proxy Statement will be filed with the FDIC which will solicit Shareholder
approval of the Merger, and that the parties will, as soon as practicable after
the execution of this Agreement, prepare and file a related Prospectus/Proxy
Statement (the "Prospectus/Proxy Statement") to be mailed to the Shareholders.
The parties will cooperate with each other in preparing such Registration
Statement and Prospectus/Proxy Statement, will comply with the provisions of
and the rules and regulations under the Securities Act and the Federal Deposit
Insurance Act in preparing the Prospectus/Proxy Statement, and each party will
mark for purposes of Section 5.12 and deliver to the other party a final copy
of the Prospectus/Proxy Statement to specify the disclosures that were made on
behalf of that party. The parties will use their reasonable efforts to obtain
the clearance of the SEC, the FDIC and any other required Regulatory Approvals,
to issue such Prospectus/Proxy Statement. Without limiting the generality of
the foregoing, nothing shall be contained in the Prospectus/Proxy Statement or
any proxy soliciting materials with respect to any party unless approved in
advance by such party, which approval shall not be unreasonably withheld.
5.2 Pursuit of Approvals.
(a) Subject to Section 6.1(b) and Section 6.2(b), the parties shall cooperate
with each other in using their reasonable efforts to obtain all necessary
governmental approvals required to consummate the Merger, including the
furnishing of any reasonable undertaking or commitments which may be required
to obtain the Regulatory Approvals. The parties shall provide each other with
copies of any applications and all correspondence relating thereto prior to
filing, other than material filed in connection therewith under a reasonable
claim of confidentiality. If any regulatory authority shall require the
modification of any of the terms, provisions or the Merger as currently
structured as a condition to granting any Regulatory Approval, the parties
hereto will negotiate in good faith to seek a mutually agreeable adjustment to
the terms of the transactions contemplated hereby, such agreement not to be
unreasonably withheld. Regulatory Approvals include approval by:
(i) the FRB, pursuant to 12 U.S.C. (S) 1842;
(ii) the OTS, pursuant to 12 U.S.C. (S)(S) 1828(c) and 1815(d)(3); and
(iii) to the extent required, the Hawaii Division, pursuant to HRS
(S) 3.603 and (S) 3.609.
In addition, the consummation of the transactions contemplated hereby are
subject to:
(x) the expiration of any waiting period required (including any
extensions thereof) pursuant to any of the foregoing approvals;
(y) the declaration of effectiveness of the Registration Statement, which
on the Closing Date must not be the subject of a stop order or threatened
stop order; and
(z) the shares of BAC Stock being delivered by BAC to the Shareholders in
exchange for their shares of Company Common Stock having been qualified or
registered for offering and sale under the securities or "blue sky" laws of
each jurisdiction within the United States in which the Shareholders reside
(or exempted therefrom).
Such approvals, together with any other governmental approvals that are
necessary to effectuate the Merger, are referred to herein as the "Regulatory
Approvals."
(b) Subject to Section 6.1(b) and Section 6.2(b), the parties hereto shall
cooperate and shall use their reasonable efforts to obtain all the Regulatory
Approvals and to do all other things which are or may be reasonably necessary
to consummate the Merger. BAC and FSB shall have primary responsibility for the
preparation of all applications and filings required in connection with
subparagraphs (a)(i) and (ii) above and
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the parties will be jointly responsible with regard to the applications and
filings required in connection with subparagraph (iii) above. Each party shall
cooperate with the other in preparation of all applications for such Regulatory
Approvals and will furnish promptly upon request all documents, information,
financial statements or other materials as may be required in order to complete
such applications. In addition, BAC and FSB shall furnish the Company and its
counsel with copies of the non-confidential portions of all such applications
promptly after they are filed. Should the appearance of any of the officers,
directors, employees or counsel of any of the parties hereto be requested by
any of the parties or by any governmental agency at any hearing or otherwise in
connection with any such application, such party shall promptly use its
reasonable efforts to arrange for those appearances. The parties hereto shall
afford the others reasonable opportunity to review all such applications and
all amendments and supplements thereto before filing.
5.3 Other Consents. The Company agrees to apply for and utilize reasonable
efforts to obtain all written consents and approvals of other persons in
connection with its leases and other agreements, the benefits of which cannot
be retained upon the consummation of the transactions contemplated hereby
without the written consent of such persons; provided however that the Company
shall not be obligated to incur significant monetary obligations or
expenditures in connection with the obtaining of such consents.
5.4 Activities Pending Closing. From the date hereof to and including the
Effective Time, unless BAC and FSB otherwise consent in writing or except as
otherwise provided or anticipated herein, the Company shall:
(a) Conduct its affairs only in the ordinary course of business
consistent with past practice and in material compliance with applicable
laws, regulations and rules, and use all reasonable efforts to preserve
intact its present business organization, keep available the services of
its present officers and employees and preserve its relationships and
goodwill with all persons having business dealings with it;
(b) Refrain from declaring or paying any dividend on or making any other
distribution on, or purchasing or redeeming, any shares of the Company's
capital stock except for the purchase of any Company Options pursuant to
Section 5.15 and the transfer of the Loan Participation pursuant to Section
5.21;
(c) Refrain from issuing or selling or obligating itself to issue or sell
any shares of its capital stock or any warrants, rights or options to
acquire, or any securities convertible into, any of its capital stock;
(d) Except as otherwise required by law, refrain from entering into, or
recommending the adoption by the Shareholders of, any agreements involving
the possible merger or other business combination concerning the Company or
the acquisition of a substantial equity interest in, or a substantial
portion of the assets of, the Company by any other person not party to this
Agreement;
(e) Except as otherwise required by law, refrain from accepting or
recommending to the Shareholders any tender offer to purchase any of the
Company's outstanding shares of Company Common Stock;
(f) Refrain from closing or relocating, or filing any application to
close or relocate, any of its branches, offices and other facilities;
(g) Not enter into, amend or terminate any material contract or
agreement, except in the ordinary course of business and not to enter into
any loan commitment or other agreement to lend money in excess of
$1,000,000 to any one person or entity without first providing written
notice thereof to BAC and FSB;
(h) Refrain from foreclosing upon or otherwise acquiring (whether by deed
in lieu of foreclosure or otherwise) any real property securing any loan
(other than 1 to 4 family residential properties in the ordinary course of
business) prior to receipt by BAC or FSB of a Phase I environmental review
pertaining to such real property and approval thereof by BAC and FSB;
(i) Refrain from introducing at its branches any new deposit account
product or changing any feature (other than interest rate changes which are
made in the ordinary course of business and consistent with past practice)
of any existing deposit account product;
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<PAGE>
(j) Comply with all policies and procedures existing on the date hereof
with respect to classification of assets and accrual of interest on assets,
except as required by the FDIC or the Hawaii Division;
(k) Take all actions, including but not limited to reclassification of
assets, required to comply with the treatment of in-substance foreclosures
mandated by Call Report requirements or generally accepted accounting
principles;
(l) Take all steps necessary in order to comply with the Worker
Adjustment and Retraining Notification Act upon receiving timely and
adequate notice from BAC or FSB and the Hawaii Dislocated Worker's Act; and
(m) Not permit any of the things listed in Sections 3.10(b) through (h)
to occur.
5.5 Access to Information. During the period of this Agreement and until the
Effective Time, the Company shall furnish and shall use its reasonable efforts
to cause its independent auditor and any service bureaus under contract to it
to furnish, to BAC and FSB or their authorized representatives, on reasonable
notice and during ordinary business hours, full access to its premises and all
of its books, records and properties, including, but not limited to, all loan,
investment, accounting, tax and property records and files including, without
limitation, all files, computer records and customer information, whether held
by the Company, the Subsidiary, the independent auditor or any service bureau.
The Company will provide its cooperation and reasonable assistance to BAC in
its review of the Company's assets, books, records and properties. The Company
will provide reasonable access to allow BAC and FSB to communicate with
employees of the Company and the Subsidiary, after receiving Company approval
of any such communications. The Company shall provide reasonable access to
allow BAC and FSB or their authorized representatives with access to any and
all real properties securing loans made by it, to the extent legally
permissible. Such examination shall be made in a manner that will not
unreasonably interfere with the conduct of the business of the party being
examined and shall not affect any of the representations and warranties
hereunder. The Company shall provide and use its reasonable efforts to cause
its independent auditor and any service bureaus to provide, adequate space and
facilities and the cooperation of their personnel, including copying
facilities, to the end that such examination shall be completed expeditiously,
completely and accurately. Subsequent to the date on which all Regulatory
Approvals have been received but prior to the Closing Date, the Company shall
provide reasonable access to BAC and FSB for the purpose of training employees,
installing telecommunications and other equipment and other matters consistent
with the Merger. Without limitation of the foregoing, BAC and FSB or their
authorized representatives shall be specifically entitled to conduct
environmental reviews, investigation and testing at their own expense as to the
presence of Hazardous Materials in or on any Property.
5.6 Confidentiality. Except as contemplated by this Agreement or as necessary
to carry out the transactions contemplated herein, all information or documents
furnished hereunder by any party to any other party shall be kept confidential
by the party to whom it is furnished, and in the event such transactions are
not consummated, each shall return or certify as destroyed to the other all
information furnished hereunder and shall not use the same for its advantage
until such time as such information becomes publicly available, except to the
extent (i) it was known by such other party when received, or (ii) it is or
thereafter becomes lawfully obtainable from other sources, or (iii) it is
necessary or appropriate to disclose the same to any regulatory authority
having jurisdiction over the parties or their subsidiaries or as otherwise may
be required by law or (iv) such duty of confidentiality is waived by the other
party. Without limiting the foregoing, information and documents furnished by
or on behalf of the Company hereunder may be disclosed by BAC and FSB to the
FRB, the OTS, the Hawaii Division and any other governmental agency whose
approval, consent, authorization or other action is necessary for the
consummation of the Merger and the transactions contemplated hereby.
5.7 Meeting of Shareholders. The Company shall duly call a meeting of its
Shareholders for the purpose of obtaining the approval by the Shareholders of
the Merger, this Agreement, the Merger Agreement and all other matters
necessary to consummate the transactions contemplated by this Agreement, which
meeting
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shall be held not later than 45 days following the date upon which the
Registration Statement shall have been declared effective. In connection with
such meeting, the Board of Directors of the Company shall, to the extent
consistent with their fiduciary duties, recommend approval of the transactions
contemplated by this Agreement and indicate the determination by the Board of
Directors that the Merger is in the best interests of the Shareholders. Notice
of the meeting to be held by the Company shall be accompanied by the
Prospectus/Proxy Statement. Prior to mailing the Prospectus/Proxy Statement,
the Company shall deliver to BAC and FSB a comfort letter from its accountants
to the effect set forth in Section 6.2(g)(i) to (iv), and dated as of a date
not earlier than five days prior to the date of such mailing of the
Prospectus/Proxy Statement.
5.8 BAC and FSB Board Approvals; FSB Shareholder Approval. BAC and FSB agree
to present this Agreement to their respective Boards of Directors for approval
and ratification. FSB agrees to obtain the approval of this Agreement from its
shareholder.
5.9 Investment Management Contract. At least 30 days prior to the Closing
Date the Company shall provide notice of termination, effective as of the
Closing Date, of the investment management contract between the Company and
Trust Company of the West.
5.10 Stock Listing. BAC shall use its reasonable efforts to list, prior to
the Effective Time, on the New York and Pacific Stock Exchanges, subject only
to official notice of issuance, the shares of BAC Stock to be issued pursuant
to the Merger.
5.11 Notification. Each party to this Agreement shall notify each other party
promptly after becoming aware of the occurrence of, or the impending or
threatened occurrence of, any event that would constitute a breach on its part
of any obligation under this Agreement or the occurrence of any event that
would cause any representation or warranty made by it herein to be false or
misleading, or if it becomes a party or is threatened with becoming a party to
any legal or equitable proceeding or governmental investigation or upon the
occurrence of any event that in each case would result in a material change in
the circumstances of such party described in the representations and warranties
contained herein.
5.12 Indemnification. Each party agrees to indemnify and hold harmless each
other party (including such other party's directors, officers, employees and
agents) against, and with respect to, any liability, damages, losses, expenses
or costs arising from or by virtue of any material misstatement by such party
or omission to state any fact which is required to be disclosed by such party
for purposes of the inclusion of such information in any regulatory filing made
on behalf of the parties hereto for the purpose of effecting the terms of this
Agreement, including, but not limited to, the Registration Statement, the
Prospectus/Proxy Statement and any amendment thereto.
5.13 No Shopping. Except as otherwise required by law, the Company shall not,
directly or indirectly, through any officer, director or agent or otherwise,
solicit, initiate, encourage, participate in any negotiation in respect of or
cooperate with (including by way of furnishing any nonpublic information
concerning the business, properties or assets of the Company or the Subsidiary)
any Acquisition Proposal (as hereinafter defined), except as may be required by
law or for actions reasonably considered by the Company's Board of Directors
based upon the written advice of Lillick & Charles, counsel to the Company, to
be required in order to fulfill the Board's fiduciary obligations. The Company
will notify BAC and FSB promptly by telephone, and thereafter promptly confirm
such notification in writing, if any such information is requested from, or any
Acquisition Proposal or inquiry with respect to any Acquisition Proposal is
received by, the Company or the Subsidiary. The term "Acquisition Proposal"
means any proposal for a merger or other business combination involving the
Company or for the acquisition of a "controlling interest" (as defined by
applicable federal law) in, or a substantial portion of the assets of, the
Company or the Subsidiary.
5.14 Future Information. The Company shall provide to BAC and FSB as soon as
practicable and to the extent permitted by law, but in no event later than 15
days following the end of each calendar month
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from the date hereof through the Closing Date, (a) copies of all financial
statements and other written information provided to the boards of directors of
the Company or the Subsidiary (other than matters covered by the
attorney/client privilege or matters reasonably deemed by the Company to be
confidential, (b) all reports filed with federal or state regulatory agencies,
(c) a list of the holders of the Company's Common Stock, certified by the
Company's transfer agent and (d) schedules showing the following: (i) each
asset in an amount of $100,000 or greater that is classified "Other Assets
Especially Mentioned," "Substandard," "Doubtful," "Loss" or any comparable
classification indicating its classification category and type, and, with
respect to assets in amounts less than $100,000 each that are so classified,
the aggregate dollar amount of each type of asset in each classification
category; (ii) each nonaccrual asset in an amount equal to or greater than
$100,000, indicating its type, and the aggregate dollar amount of nonaccrual
assets that are less than $100,000; (iii) each asset in an amount greater than
$100,000 that is delinquent 90 or more days and that has not been placed on
nonaccrual status indicating its type, and the aggregate dollar amount of such
accrual exception assets of less than $100,000; (iv) each delinquent asset in
an amount equal to or greater than $100,000, indicating its type and including,
without limitation, an aging into 30-59, 60-89, 90-119, and 120+ day
categories, and the aggregate dollar amount of delinquent assets of less than
$100,000; (v) each asset in an amount of $100,000 or greater that is classified
as a "troubled debt restructuring" as defined in SFAS No. 15 indicating its
type, and the aggregate dollar amount of such troubled debt restructurings that
are less than $100,000; (vi) all participation loans and leases, stating, with
respect to each, whether it was purchased or sold and the loan or lease type;
(vii) all loans or leases (and any commitments) and other information that
would be required to be disclosed in Schedule 3.22; (viii) each letter of
credit, guarantee or other similar obligation having a face amount equal to or
greater than $100,000 indicating its type, and the aggregate dollar amount of
all letters of credit, guarantees or other similar obligations having a face
amount of less than $100,000; (ix) each loan or lease charged off during the
previous month in an amount equal to or greater than $100,000 indicating its
type, and the aggregate dollar amount of such loans or leases of less than
$100,000; (x) each loan or lease in excess of $100,000 written down during the
previous month, including, without limitation, the original amount, the write-
down amount and its type; (xi) all material changes to real estate owned since
the last report (including acquisition or disposition thereof, write-downs or
increases to specific reserves in connection therewith or change in the "fair
value" or anticipated cost of disposition thereof); and (xii) all material
changes in the status of litigation since the last report (or since the
preparation of Schedule 3.11(a) or 3.11(c)).
5.15 Company Options. All outstanding Company Options will be exercised by
the holder, or cancelled or purchased by the Company, prior to the Closing. In
the event the Company Options have not been exercised or cancelled, the Company
shall, prior to the closing, purchase all outstanding Company Options for a
price per share of Company Common Stock represented by each such option equal
to an amount no greater than the difference between the exercise price of such
option and $28.54. In order to permit the exercise of Company Options prior to
the Closing, the Company may, in the ordinary course of its business, make
loans (with a maturity date not to exceed 90 days subsequent to the Closing
Date) to holders of the Company Options secured by Company Stock received upon
exercise of such Company Option (and subsequent to the Closing by BAC Stock
received in exchange therefor), or by other valuable and appropriate
collateral. BAC shall have no obligation to issue any shares of BAC Stock in
respect of Company Options.
5.16 Inventory of Furniture, Fixtures and Equipment. Within 60 days after the
date of this Agreement, the Company shall conduct a physical inventory of all
furniture, fixtures and equipment located at the branches, offices and other
facilities of the Company, and shall provide a detailed listing of such items
to BAC and FSB, together with such other information regarding such items as
FSB or BAC shall reasonably request.
5.17 Directors and Officers Liability Insurance. Prior to the Closing Date,
the Company shall obtain from the insurer on the existing directors and
officers liability insurance policy covering directors and officers of the
Company and the Subsidiary, the maximum extension reasonably obtainable (taking
into consideration the cost of any such extension) of the period of time
following the Closing during which claims may be made
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<PAGE>
under such policy relating to periods of time prior to the Closing. The Company
shall promptly deliver to BAC and FSB a copy of each representation made to the
insurer by the Company, the Subsidiary and any of their directors or officers
in connection with such extension.
5.18 Certain Accounting Adjustments. After all of the Regulatory Approvals
have been obtained, the Company and the Subsidiary shall, if requested by BAC,
make such accounting entries prior to the Effective Time as BAC may reasonably
request in order to conform the accounting records of the Company and the
Subsidiary to the accounting policies and practices of BAC and its
Subsidiaries, such adjustments to be effective immediately prior to the
Effective Time. No such adjustment shall of itself constitute grounds for
termination of this Agreement or an acknowledgement by the Company and the
Subsidiary (i) of any adverse circumstances for purposes of determining whether
the conditions to BAC's obligations under this Agreement have been satisfied,
or (ii) that such adjustment is required for purposes of determining
satisfaction of the condition to BAC's obligations under this Agreement set
forth in Section 6.2(a) hereof.
5.19 Lease Negotiations.
(a) The Company shall exercise the one-year lease extension for the Navy
Barbers Point ATM lease, and use its reasonable efforts to negotiate a two-year
extension for the Ala Moana branch lease on terms reasonably acceptable to BAC.
(b) The Subsidiary's lease for the Company's King & Kalakaua Branch shall be
formally extended by written agreement between the Subsidiary as sublessee and
the owners of the ground lease, as sublessor, to February 28, 1998 under the
terms contained in Schedule 5.19(b).
5.20 Environmental Report. The Company shall have completed a Phase I
environmental review with regard to the real property securing the extension of
credit to the borrower specified in Schedule 5.20 and shall also have completed
any additional or supplemental environmental reviews, investigation or testing
recommended by such Phase I review.
5.21 Transfer of Loan Participation. Immediately prior to the Effective Time,
that certain Loan Participation specified in Schedule 5.21 (the "Loan
Participation") shall be transferred by grant without representation or
warranty of any kind or nature whatsoever from the Company into a liquidating
trust (the "Trust") formed by the Company for the benefit of Company
stockholders. The amount of the Loan Participation at September 30, 1993 as
reflected on the books of the Company is $2,358,341. In addition, an amount up
to $50,000, which shall be utilized to pay the fees and expenses of the Trust,
and any principal payments made on the Loan Participation between the date of
this Agreement and the Effective Time (the "Trust Funds") shall be placed in
the Trust. The Loan Participation and the Trust Funds will not be on the books
of the Company at the Effective Time and therefore will not be transferred to
BAC or FSB as a result of the Merger. Neither BAC nor FSB shall have any
responsibility to Company stockholders with regard to the management or
collection of the Loan Participation or payment of the Trust Funds to the
Trust.
5.22 Certain Employment Agreements. The Company shall:
(a) amend in a manner reasonably satisfactory to BAC and FSB the
employment contract between the Company and Donald Young dated March 7,
1991 to provide for Mr. Young's continued employment through the Closing
Date and thereafter to permit the termination thereof at any time without
cause or notice without penalty; and
(b) provide written notice to Mark Buchman at least 30 days prior to the
Closing Date that his employment contract dated February 11, 1993 shall be
terminated in accordance with its provisions on the Closing Date.
5.23 Stockholder Agreements. Concurrently with the execution of this
Agreement, and as a material inducement for BAC and FSB to enter into this
Agreement, the holders of not less than 33% of the Company Common Stock, from
among those Shareholders specified in Schedule 5.23 (who shall be fewer than
ten in
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number), shall enter into an agreement with BAC substantially in the form of
Exhibit E hereto pursuant to which such stockholders shall agree to vote or
cause to be voted all such shares of Company Common Stock with respect to which
such stockholder has voting power on the date hereof or hereafter to approve
the Merger and all requisite matters related thereto.
5.24 Company Affiliate Agreements. The Company agrees to cause each person
who is a Company "affiliate" as defined pursuant to Rule 145 of the Securities
Act, at least 60 days prior to the Effective Time to enter into an Affiliate
Agreement, the form of which is attached hereto as Exhibit F.
5.25 Audit Letter. Within 30 days after the execution of this Agreement the
Company will furnish a copy of the most recent letters to it from its outside
counsel with regard to the probability and estimate of the amount of loss, if
any, in accordance with the ABA Statement of Policy Regarding Lawyers Responses
to Auditor's Request for Information, which is expected to be incurred with
regard to the liability litigation matters specified on Schedule 3.11(a).
VI. CONDITIONS TO CLOSING
6.1 Conditions to the Company's Obligation to Close. The obligation of the
Company to consummate the transactions contemplated by this Agreement is
subject to the satisfaction or waiver on or before the Closing Date (or as
otherwise provided below) of all of the following conditions:
(a) Continued Accuracy of Warranties and Representations. All
representations and warranties of BAC and FSB contained in this Agreement
shall be true in all material respects on and as of the Closing Date with
the same effect as though such representations and warranties had been made
on and as of the Closing Date; BAC and FSB shall have performed and
satisfied in all material respects all covenants and conditions required by
this Agreement to be performed and satisfied by either of them at or prior
to the Closing Date; and there shall have been delivered to the Company on
the Closing Date, a certificate executed by a duly authorized officer of
each of BAC and FSB, certifying, to the best of the officer's knowledge,
compliance with all the provisions of this Section 6.1(a).
(b) Regulatory Approvals. All of the Regulatory Approvals for the
transactions contemplated by this Agreement shall have been obtained; such
approvals shall be in effect and no proceedings shall have been initiated
or threatened with respect thereto; all applicable waiting periods with
respect to such approvals shall have expired; and all conditions and
requirements prescribed by law or by such Regulatory Approvals shall have
been satisfied.
(c) Registration Statement. The Registration Statement, as it may have
been amended or supplemented, shall have become effective, and no stop
order suspending the effectiveness of such Registration Statement shall
have been issued and shall remain in effect, and no proceedings for that
purpose shall have been initiated or threatened by the SEC the basis for
which shall remain in effect.
(d) Board and Shareholder Approval.
(i) The Shareholders of more than 66 2/3% of the outstanding shares
of Company Common Stock entitled to vote shall have approved this
Agreement, the Merger, the Merger Agreement and the transactions
contemplated hereby; and
(ii) BAC and FSB shall have furnished the Company with:
(A) a certified copy of each of the resolutions duly adopted by
the Boards of Directors of BAC and FSB, or a duly authorized
committee thereof, approving this Agreement, the Merger, the Merger
Agreement and the transactions contemplated hereby and, in the case
of FSB, directing the submission thereof to a vote of its
shareholder; and
(B) a certified copy of resolutions duly adopted by the holders of
at least 66 2/3% of the outstanding shares of FSB entitled to vote
thereon approving this Agreement, the Merger, the Merger Agreement
and the transactions contemplated hereby.
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(e) No Violation of Law. The transactions contemplated by this Agreement
shall not violate any order, decree or judgment of any court or
governmental body having competent jurisdiction, and no law, rule or
regulation shall have been adopted by any such body that prohibits or
enjoins the actions contemplated by this Agreement. No action, suit or
proceeding before any court or governmental body shall be pending or
threatened challenging the legality of the transactions contemplated by
this Agreement, or seeking to restrain their consummation.
(f) Tax Opinion. Unless the provisions of Section 1.2 result in less than
a majority of the consideration delivered to Shareholders being BAC Stock,
BAC and FSB shall have obtained from tax counsel to BAC and FSB (who may be
the General Tax Counsel of Bank of America National Trust and Savings
Association) and delivered to the Company, an opinion addressed to BAC and
FSB in the form and substance reasonably satisfactory to the Company and
its counsel to the effect that for federal income tax purposes (i) the
transactions contemplated hereby will constitute a reorganization within
the meaning of Section 368(a) of the Code; (ii) no gain or loss will be
recognized to the Shareholders who receive BAC Stock in exchange for their
Company Common Stock, except to the extent cash is received; (iii) the
basis of the Shareholders in the BAC Stock received in the Merger will be
the same as the basis of the Company Common Stock surrendered in exchange
therefor (reduced by the excess, if any, of the cash received over the
amount of gain recognized on the exchange); and (iv) the holding period of
the shares of BAC Stock received by a Shareholder will include the holding
period of the shares of the Company Common Stock surrendered therefor,
provided that such Company Common Stock was held as a capital asset by such
Shareholder. In order to render such an opinion, such tax counsel will have
obtained from the Company and every Person holding 5% or more of the
Company Common Stock a certificate in the form of Exhibits G-1 and G-2.
(g) Opinion of Counsel. The Company shall have received an opinion
addressed to it of counsel to BAC and FSB (who may be, or who may rely on
the opinion of, officers of BAC or FSB or counsel in the Legal Department
of Bank of America National Trust and Savings Association or FSB), dated
the Closing Date, substantially in the form of Exhibit C hereto.
(h) Letters for Accountants. BAC and FSB shall each provide to Ernst &
Young two representation letters conforming with the requirements of
Statement on Auditing Standards No. 72, Letters for Underwriters and
Certain Other Requesting Parties. One of the letters shall be delivered to
Ernst & Young prior to the mailing of the Prospectus/Proxy Statement to
Company shareholders in order for Ernst & Young to issue a comfort letter
as set forth in Section 5.7, and one letter shall be delivered to Ernst &
Young as a condition to Closing in order for Ernst & Young to issue a
comfort letter as set forth in Section 6.2(g) of the Agreement.
6.2 Conditions to BAC's and FSB's Obligation to Close. The obligation of BAC
and FSB to consummate the transactions contemplated by this Agreement is
subject to the satisfaction or waiver on or before the Closing Date (or as
otherwise provided below) of all of the following conditions:
(a) Continued Accuracy of Warranties and Representations. All warranties
and representations of the Company and the Subsidiary contained in this
Agreement shall be true in all material respects on and as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of the Closing Date; the Company shall have performed
and satisfied in all material respects all covenants and conditions
required by this Agreement to be performed and satisfied by it at or prior
to the Closing Date; and there shall have been delivered to BAC and FSB on
the Closing Date a certificate executed by the President and Chief
Executive Officer of the Company certifying, to the best of such officer's
knowledge, compliance with all the provisions of this Section 6.2(a).
(b) Regulatory Approvals. All the Regulatory Approvals for the
transactions contemplated by this Agreement shall have been obtained
without the imposition of any conditions which BAC or FSB in good faith
determines to be materially burdensome upon (i) the conduct of the business
of BAC or FSB as the same are being conducted at the time such approval is
granted, or as the same are then anticipated to be conducted in the future,
(ii) the Merger transaction or (iii) the conduct of the business of the
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Company; such approvals shall be in effect and no proceedings shall have
been instituted or threatened with respect thereto; all applicable waiting
periods with respect to such approvals shall have expired; and all
conditions and requirements prescribed by law or by such Regulatory
Approvals shall have been satisfied.
(c) Registration Statement. The Registration Statement, as it may have
been amended, required in connection with the shares of BAC Stock to be
issued to Shareholders pursuant to Section 1.2 and as described in Section
5.1, shall have become effective and no stop order suspending the
effectiveness of such Registration Statement shall have been issued and
shall remain in effect, and no proceedings for that purpose shall have been
initiated or threatened by the SEC the basis for which shall remain in
effect.
(d) Board and Shareholder Approval.
(i) The Company shall have furnished BAC and FSB with:
(A) a certified copy of the resolutions duly adopted by the Board
of Directors of the Company approving this Agreement, the Merger,
the Merger Agreement and the transactions contemplated hereby and
directing the submission thereof to a vote of its shareholders; and
(B) a certified copy of resolutions duly adopted by the holders of
more than 66 2/3% of the outstanding shares of the Company entitled
to vote thereon approving this Agreement, the Merger, the Merger
Agreement and the transactions contemplated hereby.
(ii) The conditions described in Section 6.1(d)(ii)(A) and (B) shall
have been fulfilled.
(e) No Violation of Law. The transactions contemplated by this Agreement
shall not violate any order, decree or judgment of any court or
governmental body having competent jurisdiction, and no law, rule or
regulation shall have been adopted by any such body that prohibits or
enjoins the actions contemplated by this Agreement. No action, suit or
proceeding before any court or governmental body shall be pending or
threatened challenging the legality of the transactions contemplated by
this Agreement, or seeking to restrain their consummation.
(f) Opinion of Counsel. BAC and FSB shall have received an opinion
addressed to it of Lillick & Charles, counsel to the Company, dated the
Closing Date, substantially in the form of Exhibit D hereto.
(g) Comfort Letter. In addition to the letter to be provided pursuant to
Section 5.7, BAC and FSB shall have received a "comfort" letter from Ernst
& Young, dated not more than five days prior to the Closing Date, in the
form and substance satisfactory to BAC and FSB and substantially to the
effect that:
(i) it is an independent public accounting firm with respect to the
Company and its subsidiaries within the meaning of the Securities Act
and the Exchange Act and the rules and regulations of the SEC
thereunder, and the information appearing in the Registration Statement
as it relates to such firm is correct;
(ii) in its opinion the audited consolidated financial statements of
the Company and the Company's subsidiaries examined by it and included
in the Registration Statement or incorporated therein by reference
comply as to form in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and the
applicable published rules and regulations of the SEC thereunder with
respect to registration statements on the form employed;
(iii) on the basis of specified procedures, which do not constitute
an examination in accordance with generally accepted auditing standards
but which do include a reading of the unaudited consolidated financial
statements, if any, of the Company and its subsidiaries included or
incorporated by reference in such Registration Statement and of the
latest available unaudited consolidated financial statements of the
Company and its subsidiaries, inquiries of officers responsible for
financial and accounting matters of the Company and its subsidiaries
and a reading of the minutes of meetings of shareholders and the Board
of Directors of the Company and its subsidiaries, nothing has come to
its attention that causes it to believe (A) that the unaudited
consolidated financial statements, if any, of the Company and its
subsidiaries included or
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<PAGE>
incorporated by reference in such Registration Statement do not comply
as to form in all material respects with the applicable accounting
requirements of the Securities Act and the Exchange Act and the rules
and regulations of the SEC thereunder, (B) that the unaudited
consolidated financial statements of the Company and its subsidiaries
from which any unaudited quarterly financial information set forth in
such Registration Statement has been derived and the then latest
available unaudited financial statements of the Company and its
subsidiaries are not fairly presented in conformity with generally
accepted accounting principles on a basis substantially consistent with
that of prior audited consolidated financial statements, or (C) that,
as of a designated date not more than five business days prior to the
Closing Date, there has been any change in the capital stock of the
Company, or any decrease in excess of 5% in total stockholders' equity
(excluding any costs associated with the Merger, which shall include
but not be limited to costs associated with the purchase of Company
Options pursuant to Section 5.15 or the transfer of the Loan
Participation and Trust Funds pursuant to Section 5.21) of the Company
and its subsidiaries on a consolidated basis, in each case in
comparison with the amount shown for each of the foregoing items in the
most recent information presented in the Registration Statement and in
the financial statements as of and for the six months ended June 30,
1993; and
(iv) it has compared with the general accounting records of the
Company and its subsidiaries and other data prepared by the Company and
its subsidiaries, to the extent specified in such letter certain
information of an accounting, financial or statistical nature (which is
limited to accounting, financial or statistical information derived
from general accounting records of the Company or its subsidiaries) set
forth in the Registration Statement and, except as set forth in such
letter, has found such amounts and percentages constituting such
information to be in agreement.
(h) Tax Opinion. BAC and FSB shall have obtained from their tax counsel
an opinion in form and substance reasonably satisfactory to the Company and
its counsel and to BAC and FSB to the effect that for federal income tax
purposes (i) the transactions contemplated hereby will constitute a
reorganization within the meaning of Section 368(a) of the Code; (ii) no
gain or loss will be recognized to the Shareholders who receive BAC Stock
in exchange for their Company Common Stock, except to the extent cash is
received; (iii) the basis of the Shareholders in the BAC Stock received in
the Merger will be the same as the basis of the Company Common Stock
surrendered in exchange therefor (reduced by the excess, if any, of the
cash received over the amount of gain recognized on the exchange); and (iv)
the holding period of the shares of BAC Stock received by a Shareholder
will include the holding period of the shares of the Company Common Stock
surrendered therefor, provided that such Company Common Stock was held as a
capital asset by such Shareholder.
(i) CSI Relationship. The Company shall have entered into a written
agreement with CSI providing for CSI to continue to provide data processing
and related services to the Company and to FSB following the Merger, until
June 30, 1994 (with one two-month extension permitted) on such terms
reasonably acceptable to BAC and FSB, which agreement can be terminated by
the Company or FSB at any time upon 90 days' written notice to CSI, and can
be terminated by CSI only upon a default by the Company or FSB in the
payment of amounts due thereunder; and such agreement shall be in full
force and effect. In addition, all shares of CSI stock owned by the Company
shall be sold or otherwise disposed of prior to the Effective Time, and the
Company shall have no further obligation as a shareholder of CSI, whether
under the Agreement dated as of November 24, 1972 among the shareholders of
CSI, as subsequently amended or supplemented, or otherwise.
(j) CompuTab Agreement. The agreement dated December 4, 1989 between the
Company and CompuTab, Inc., shall be amended to delete any restrictions or
penalties that may be imposed by performance of BAC's and FSB's existing
credit card processing and other activities and the assumption of such
credit card processing and other activities specified in the agreement by
FSB, BAC or others.
(k) MBNA Agreement. The agreement dated September 6, 1991 among the
Company, MBNA America Bank, N.A. and Trans National Group Services shall
have been terminated, and the Company shall have paid all amounts due, and
shall have duly performed and discharged all of its obligations,
thereunder.
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(l) Lease Assignments. All consents, approvals, assignments or other
authorizations from landlords and all other parties required to permit FSB
to occupy each of the Company's branches, and to operate such branches as
branches of FSB immediately following the Closing, shall have been
obtained.
(m) Company Options. All outstanding Company Options shall have been
exercised by the holder, or cancelled or purchased by the Company.
(n) Employee Benefit Plans. The Company shall have executed and
delivered, and shall have caused the Subsidiary to execute and deliver,
such instruments and take such other actions as BAC may reasonably require
in order to cause the amendment, assumption or termination of the Plans on
terms satisfactory to BAC and effective as of the Closing Date. In
addition, the Company shall have amended each of its Plans which are
intended to qualify under Section 401(a) of the Code prior to the Closing
Date (and on a retroactive basis when required) to meet all of the
requirements under the Code applicable to such plans as of the Closing
Date. The Company shall have permitted BAC to review, upon request, such
amendments prior to adoption. The Company shall have prepared and submitted
to the Service a request for a determination letter for each such Plan and
shall have provided a copy of such request to BAC. The Company shall have
amended the ESOP to delete, as of the Closing Date, the provision
permitting participants to put their stock to the Company for purchase.
(o) Officer Resignation. The written resignation of Lawrence Ching as an
officer of the Company shall have been received and accepted by the Company
and the Company shall have received from Mr. Ching a written release in the
form of Exhibit H hereto of any and all claims which Mr. Ching may have
against the Company, BAC or FSB, or their affiliates, officers, directors,
employees or agents by reason of his employment with and his service as a
director of the Company.
(p) Absence of Certain Events. Between the date hereof and the Closing
Date, there shall not have been any occurrence, development or event of any
nature, that has had or may reasonably be expected to have, together with
all such other changes and effects, a Material Adverse Effect.
VII. TERMINATION
7.1 Termination. This Agreement and the obligations of the parties hereunder
may be terminated:
(a) By mutual written consent of the parties at any time whether or not
theretofore approved by their respective shareholders;
(b) By either party upon the expiration of fifteen days after the FRB,
OTS, the Hawaii Division or any other governmental authority having
jurisdiction over any of the transactions set forth herein, in writing
denies or refuses to grant any approval, consent, qualification or ruling
required to be obtained under applicable law;
(c) Immediately upon the expiration of 30 days from the date that either
BAC or FSB has given notice to the Company of the Company's material
misrepresentation in respect of any of its representations and warranties
or material breach of or failure to satisfy any condition, covenant or
agreement herein; provided, however, that no such termination shall take
effect unless it is reasonably evident that the Company cannot or will not
fully and completely correct the grounds for termination as specified in
the aforementioned notice on or before the Closing Date;
(d) Immediately upon the expiration of 30 days from the date that the
Company has given notice to BAC and FSB of BAC's or FSB's material
misrepresentation in respect of or material breach of or failure to satisfy
any condition, warranty, representation or agreement herein; provided,
however, that no such termination shall take effect unless it is reasonably
evident that BAC or FSB, as the case may be, cannot or will not fully and
completely correct the grounds for termination as specified in the
aforementioned notice on or before the Closing Date; or
(e) Immediately by a party hereto that is not in default hereunder, if
the Closing has not occurred by July 1, 1994.
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7.2 Effect of Termination. In the event of a termination under Section 7.1,
this Agreement shall become void, and there shall be no liability on the part
of either party or any of such party's directors, officers, employees or agents
to the other party or such other party's shareholders; provided that the
obligations of Sections 5.6, 5.12, 8.9 and 8.12 shall survive the termination
of this Agreement; and provided further that a termination under Section 7.1(c)
or (d) shall not relieve any party of any liability for breach of this
Agreement or for any misrepresentation hereunder or be deemed to constitute a
waiver of any remedy available for such breach or misrepresentation. In such
event the prevailing party shall be entitled to reasonable attorneys' fees
(including allocated costs and expenses of in-house legal counsel and legal
staff) and expenses.
VIII. MISCELLANEOUS
8.1 Notices. Any notice or other communication required or permitted
hereunder shall be made in writing and shall be delivered personally or sent by
an overnight delivery or courier service, by certified or registered mail
(postage prepaid), by facsimile transmission as follows:
To BAC: BankAmerica Corporation
555 California Street
47th Floor, #3262
San Francisco, CA 94104
Attn: Manager, Corporate Development
Fax: (415) 953-0390
To FSB: Bank of America, FSB
555 California Street, 28th Floor
San Francisco, CA 94104
Attn: Chief Administrative Officer
Fax: (415) 953-2250
With a copy to: BankAmerica Corporation
555 California Street, 8th Floor
Legal Dept. (3017)
San Francisco, CA 94104
Attn: General Counsel
Fax: (415) 953-0944
To the Company: Liberty Bank
99 North King Street
Honolulu, Hawaii 96817
Attn: CEO and President
Fax: (808) 527-9215
With a copy to: Lillick & Charles
Two Embarcadero Center
San Francisco, CA 94111-3996
Attn: Ronald W. Bachli, Esq.
Fax: (415) 421-4799
Such notice or other communication shall be deemed given when so delivered
personally, sent by facsimile transmission, or, if sent by overnight delivery
or courier service, the day after it is sent from within the United States, or
if mailed, four days after the date of deposit in the United States mail.
8.2 Governing Law. This Agreement and the legal relations between the parties
shall be governed by and construed in accordance with the internal laws of the
State of California without taking into account provisions regarding choice of
law, except to the extent certain matters may be governed as a matter of law by
the law of the State of Hawaii (as the state of incorporation of the Company)
or by the law of the State of Delaware (as the state of incorporation of BAC).
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<PAGE>
8.3 Entire Agreement. The parties intend that the terms of this Agreement
shall be the final expression of their agreement with respect to the subject
matter hereof and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement shall
constitute the complete and exclusive statement of its terms and that no
extrinsic evidence whatsoever may be introduced in any judicial, administrative
or other legal proceeding involving this Agreement. This Agreement, including
all schedules and exhibits hereto, constitutes the entire agreement between the
parties and supersedes all prior negotiations, undertakings, representations
and agreements, if any, of the parties hereto.
8.4 Amendments and Waivers. This Agreement may not be amended except upon the
written consent of all parties hereto. By an instrument in writing, any party
may waive compliance by any other party with any term or provision of this
Agreement that such other party was or is obligated to comply with or perform,
provided, however, that such waiver shall not operate as a waiver of, or
estoppel with respect to, any other or subsequent failure. No failure to
exercise and no delay in exercising any right, remedy or power hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, remedy or power provided herein or by law or in equity. The waiver by
any party of the time for performance of any act or condition hereunder does
not constitute a waiver of the act or condition itself.
8.5 Severability. If any provision of this Agreement, or the application
thereof to any person, place or circumstance, shall be held by a court of
competent jurisdiction to be invalid, unenforceable or void, the remainder of
this Agreement, and such provisions as applied to other persons, places and
circumstances shall remain in full force and effect.
8.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall constitute one and the same instrument.
8.7 Headings. The article, section and other headings used in this Agreement
are for reference purposes only and shall not constitute a part hereof or
affect the meaning or interpretation of this Agreement.
8.8 Survival of Representations and Covenants. None of the representations,
warranties, conditions and covenants of the Company contained in this Agreement
or in any instrument of transfer or other document delivered in connection with
the transactions contemplated by this Agreement shall survive the Closing, and
neither party, nor any of its directors, officers, employees or shareholders
shall be under any liability whatsoever with respect to such representations,
warranties, conditions and covenants, except that the obligations set forth in
Article I and Sections 5.6, 8.9 and 8.12 hereof and the Merger Agreement shall
survive the closing and that the obligations set forth in Section 5.12 will
survive the termination, but not the Closing of this Agreement.
8.9 Expenses. Subject to Section 7.2 hereof, the parties agree that fees and
out-of-pocket expenses incurred by the parties in connection with the
transactions contemplated by this Agreement shall be paid as follows:
(a) Fees and disbursements of counsel, consultants and accountants
(including the fees and disbursements in connection with the accountants's
comfort letters required by Sections 5.7 and 6.2(g) hereof) shall be paid
by the party employing such persons. The Company shall arrange for such
persons to render statements for such fees and disbursements not less
frequently than monthly.
(b) Each of BAC, FSB and the Company shall bear its and their respective
subsidiaries' own expenses in connection with obtaining approval of the
transactions contemplated hereby by the Shareholders of the Company,
including proxy solicitation costs.
(c) Other expenses in connection with any necessary qualifications of BAC
Stock under state securities of Blue Sky laws shall be paid by BAC.
(d) Except as otherwise provided above, expenses in connection with the
printing of this Agreement and related documents and the Registration
Statement and Prospectus/Proxy Statement shall be divided equally between
the Company and FSB, except that legal expenses and the expenses referred
to in clause (a) above shall be paid by the party incurring such expenses.
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(e) All other fees and out-of-pocket expenses incurred in connection with
the transactions contemplated hereby shall be paid by the party incurring
such expenses.
(f) For purposes of this Section 8.9, the terms "costs, fees and
expenses" do not include damages that may otherwise be recoverable by any
party as a result of the material breach of this Agreement by any other
party.
8.10 Certain Definitions.
(a) "Material Adverse Effect" shall mean any change in or effect on the
business of the Company or the Subsidiary, or BAC or any of its subsidiaries,
as the case may be, that is materially adverse to the business, operations,
properties or financial condition of the Company and the Subsidiary taken as a
whole or BAC and its subsidiaries taken as a whole, as the case may be.
(b) A "subsidiary" of an entity shall mean any corporation, a majority of the
outstanding voting securities of which are owned directly or indirectly by such
entity.
(c) The term "person" shall include any individual, partnership, joint
venture, corporation, trust or unincorporated organization, any other business
entity and any government or any department or agency thereof, whether acting
in an individual, fiduciary or other capacity.
8.11 Attorneys' Fees. If any legal action or any arbitration pursuant to
Section 8.17 is brought for the enforcement of this Agreement or because of an
alleged dispute, breach or default in connection with this Agreement, the
prevailing party shall be entitled to recover reasonable attorneys' fees
(including allocated costs and expenses of in-house legal counsel and legal
staff) and other costs incurred in such action or proceeding, in addition to
any other relief to which it may be entitled.
8.12 Publicity. The parties hereto will consult with each other with regard
to the terms and substance of any and all press releases, announcements or
other public statements with respect to the transactions contemplated hereby.
The parties agree further that none of them will release any such press
release, announcement or other public statement without the prior approval of
the other parties, unless such release is required by law and the parties
cannot approve a mutually acceptable form of release, in which event the party
releasing the information, announcement or public statement shall not be deemed
to be in breach of this Agreement. The parties agree further that such approval
will not be unreasonably withheld, and they pledge to make a good faith effort
to reach agreement expeditiously on the terms of any such press release,
announcement or other public statement.
8.13 Binding Effect. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns,
provided, however, that this Agreement may not be assigned by any party without
the prior written consent of the other parties.
8.14 Further Action. The parties hereto each agree to execute and deliver
such documents, certificates, agreements and other writings and to take such
other actions as may be necessary or desirable, and not inconsistent herewith,
in order to consummate expeditiously the transactions contemplated by this
Agreement.
8.15 Third Party. Except as specifically provided herein, each party intends
that this Agreement shall not benefit or create any right or cause of action in
any person other than the parties to this Agreement.
8.16 Gender; Number. Whenever the context of this Agreement requires, the
masculine gender shall include the feminine or neuter, and the singular number
shall include the plural, and vice versa.
8.17 Arbitration. Any controversy or claim arising out of or relating to this
Agreement, or the breach hereof, shall be settled by arbitration to take place
in San Francisco, California, in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, and judgment upon the award
rendered by the arbitrator or arbitrators may be entered in any court having
jurisdiction thereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
BANKAMERICA CORPORATION
TERESA S. TOMPKINS
By __________________________________
Vice President
Its: ________________________________
BANK OF AMERICA, FSB
TERESA S. TOMPKINS
By __________________________________
Authorized Person
Its: ________________________________
LIBERTY BANK
LAWRENCE S.L. CHING
By __________________________________
Chairman of the Board
Its: ________________________________
MARK E. BUCHMAN
By __________________________________
President and Chief Executive
Officer
Its: ________________________________
REUBEN K.S. ZANE
By __________________________________
Secretary
Its: ________________________________
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MERGER AGREEMENT
This Merger Agreement (this "Merger Agreement") dated as of , is
between BankAmerica Corporation, a Delaware corporation ("BAC"), Bank of
America, FSB, a federal savings association ("FSB"), and Liberty Bank, a Hawaii
banking corporation (the "Company"). FSB and the Company are sometimes called
the "constituent corporations."
Witnesseth
Whereas, BAC, FSB and the Company have entered into a Plan and Agreement of
Merger (the "Agreement"), dated as of October 8, 1993, providing for the merger
of the Company into FSB upon the terms and conditions provided in the Agreement
and this Merger Agreement and in accordance with 12 U.S.C. (S) 1815(d)(3) and
(S) 1828(c) and, to the extent required, (S)(S) 3.603 and 3.609 of the Hawaii
Revised Statutes (the "HRS") (the "Merger");
Whereas, FSB has an authorized capital stock of 451,500 shares of Common
Stock, $0.01 par value per share, of which at the date hereof 500 shares are
outstanding;
Whereas, the Company has an authorized capital stock of 1,000,000 shares of
preferred stock, $25.00 par value per share, of which at the date hereof no
shares are outstanding and 2,000,000 shares of voting Company common stock,
$5.00 par value per share ("Company Common Stock"), of which at the date hereof
775,890 shares are outstanding, and
Whereas, BAC has an authorized capital stock of 70,000,000 shares of
Preferred Stock, without par value, of which 49,397,457 were outstanding as of
June 30, 1993 and 700,000,000 shares of Common Stock, par value $1.5625 per
share ("BAC Stock"), of which 355,758,160 were outstanding as of June 30, 1993;
and
Whereas, the directors, or a majority of them, of each constituent
corporation, respectively, deem it advisable and in the best interests of the
respective constituent corporations and their respective shareholders or
shareholders that the Merger be so consummated.
Now, Therefore, FSB and the Company, subject to the conditions set forth in
the Agreement, in consideration of the premises and of the mutual covenants and
agreements contained therein and herein and of the benefits to accrue to them,
hereby agree that the constituent corporations be merged into a single
corporation which shall be FSB, and hereby agree, prescribe and set forth
(among other provisions) the terms and conditions of the Merger, the mode of
carrying the same into effect and the manner and basis of converting the shares
of each of the constituent corporations as follows:
ARTICLE I
Merger
Section 1.1 Subject to the conditions set forth in the Agreement, the Company
shall be merged into FSB in accordance with the applicable provisions of the
Office of Thrift Supervision (the "OTS") and the HRS upon the filing of
appropriate Articles of Merger with the OTS and the Hawaii Commissioner of
Financial Institutions. The effective time of the latter of such filings, or
such later time as is specified in such filings, is referred to as the
Effective Time. At the Effective Time, the separate existence of the Company
shall cease except to the extent provided by law in the case of a corporation
after its merger into another corporation and FSB shall continue under the laws
of Hawaii as the surviving corporation (the "surviving corporation").
ARTICLE II
Certificate of Incorporation and
Bylaws of Surviving Corporation
Section 2.1 The Certificate of Incorporation of FSB as in effect immediately
prior to the Effective Time shall continue in full force and effect as the
Certificate of Incorporation of the surviving corporation until thereafter duly
amended.
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Section 2.2 The Bylaws of FSB as in effect immediately prior to the Effective
Time shall continue in full force and effect as the Bylaws of the surviving
corporation until thereafter duly amended.
ARTICLE III
Board of Directors and Officers of
Surviving Corporation
Section 3.1 As of the Effective Time, the members of the Board of Directors
and the officers of FSB as constituted immediately prior to the Effective Time
shall continue as members of the Board of Directors and the officers of the
surviving corporation. If a vacancy shall exist on the Board of Directors of
the surviving corporation by reason of the failure or inability of any of the
above-described persons to serve as a director, such vacancy will be filled in
the manner provided in the Certificate of Incorporation and the Bylaws of the
surviving corporation.
ARTICLE IV
Manner of Converting Shares of Stock
of Constituent Corporations
Section 4.1 As of the Effective Time, each share of Company Common Stock,
excluding dissenters' shares, which is held immediately prior to the Effective
Time by the shareholders of record of the Company (each, a "Shareholder"),
shall, by virtue of the Merger and without any action on the part of the holder
thereof, be converted into the right to receive the number of shares of BAC
Stock determined as follows:
(a) if the Market Value of BAC Stock is not less than $40.00 per share,
each Shareholder of record as of the close of business on the date on which
the Effective Time occurs will receive such number of shares of BAC Stock
as is determined by multiplying the number of shares of Company Common
Stock owned of record by such Shareholder at such time by $28.54 and
dividing the resulting product by the Market Value; and
(b) if the Market Value of BAC Stock is less than $40.00 per share, each
Shareholder will receive at the option of BAC, either (i) shares of BAC
Stock calculated pursuant to Section 4.1(a), (ii) an amount of cash equal
to $28.54 for each share of Company Common Stock owned of record by such
Shareholder at such time or (iii) a combination thereof.
As used herein, the "Market Value" will be calculated by dividing (x) the sum
of each of the high and low sales prices of BAC Stock as reported in The Wall
Street Journal as New York Stock Exchange Composite Transactions on each of the
ten trading days immediately preceding the date which is twenty days before the
Closing Date by (y) twenty. For purposes of determining Market Value, the term
"trading day" shall mean a day on which trading generally takes place on the
New York Stock Exchange and on which trading in BAC Stock has not been halted
or suspended. No fractional shares of BAC Stock shall be issued, but any
Shareholder otherwise entitled to receive a fractional share shall receive, in
lieu thereof, a cash adjustment for such fraction in an amount equal to the
product determined by multiplying such fraction by Market Value for one full
share of BAC Stock. In the event of any stock dividend, stock distribution,
stock split, reverse stock split, extraordinary dividend or partial or
liquidating distribution effected with respect to BAC Stock between the first
of such trading days and the last of such trading days, appropriate pro rata
adjustments will be made in the foregoing numbers. Nothing in the preceding
sentence shall apply to any cash dividend declared or paid during such period,
provided no other cash dividend has been declared and paid during the same
calendar quarter.
Section 4.2 Each share of capital stock of FSB issued and outstanding
immediately prior to the Effective Date shall not be converted as a result of
the Merger and shall continue to be one share of capital stock of the surviving
corporation.
B-35
<PAGE>
ARTICLE V
Submission to Stockholders and Effectiveness
Section 5.1 This Merger Agreement shall be submitted for consideration and
vote by the shareholders of each of the constituent corporations as required by
HRS, and, if adopted by the requisite votes of the shareholders of each of the
constituent corporations, subject to the conditions set forth in the Agreement,
appropriate Articles of Merger shall be delivered to the OTS and the Hawaii
Commissioner of Financial Institutions for filing, all in accordance with the
applicable provisions of federal law and the HRS, and the officers of each of
the constituent corporations shall execute all such other documents and shall
take all such other actions as may be necessary to effect the Merger in
accordance with this Merger Agreement.
ARTICLE VI
Transfer of Assets and Liabilities
Section 6.1 Upon and after the Effective Time, the surviving corporation
shall possess all the rights, privileges, powers and franchises, of a public as
well as of a private nature, and be subject to all restrictions, disabilities
and duties, of the constituent corporations; and all the rights, privileges,
powers and franchises of the constituent corporations, and all property, real,
personal and mixed, and all debts due to either of the constituent corporations
on whatever account, as well for stock subscriptions as all other things in
action or belonging to each of the constituent corporations, shall be vested in
the surviving corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest, shall be thereafter as
effectually the property of the surviving corporation as they were of the
constituent corporations, and the title to any real estate vested by deed or
otherwise in either of the constituent corporations shall not revert or be in
any way impaired by reason of the Merger; but all rights of creditors and all
liens upon any property of either of the constituent corporations shall
thenceforth attach to the surviving corporation, and may be enforced against it
to the same extent as if said debts, liabilities and duties had been incurred
or contracted by it.
Section 6.2 If at any time after the Effective Time the surviving corporation
shall consider or be advised that any further deeds, assignments or assurances
in law or any other things are necessary, desirable or proper to vest, perfect
or confirm, of record or otherwise, in the surviving corporation, the title to
any property or rights of the constituent corporations acquired or to be
acquired by reason of, or as a result of, the Merger, the constituent
corporations agree that the surviving corporation and its proper officers and
directors shall execute and deliver all such property, deeds, assignments and
assurances in law and do all things necessary, desirable or proper to vest,
perfect or confirm title to such property or rights in the surviving
corporation and otherwise to carry out the purposes of this Merger Agreement,
and that the proper officers and directors of the constituent corporations and
the proper officers and directors of the surviving corporation are fully
authorized in the name of the constituent corporations or otherwise to take any
and all such action.
ARTICLE VII
Termination of Agreement and Abandonment of Merger
Section 7.1 This Merger Agreement and the Merger contemplated hereby may be
terminated and abandoned, as provided in the Agreement, at any time before
appropriate Articles of Merger have been filed with the OTS and the Hawaii
Commissioner of Financial Institutions, whether before or after approval of
this Merger Agreement by the respective shareholders of the Company or FSB, or
both of them, and shall automatically terminate without further action by
either of the parties hereto in the event the Agreement is terminated in
accordance with its terms.
Section 7.2 At any time prior to the filing of appropriate Articles of Merger
with the OTS and the Hawaii Commissioner of Financial Institutions, the parties
hereto may, by written agreement approved by
B-36
<PAGE>
their Boards of Directors and subject to Article VII of the Agreement, (i)
extend the time for the performance of any of the obligations or other acts of
the parties hereto, (ii) waive compliance with any of the conditions, covenants
or agreements contained in this Merger Agreement, or (iii) amend or modify any
of the provisions of this Merger Agreement.
Section 7.3 If for any reason this Merger Agreement ceases to be binding upon
the constituent corporations because of termination as provided herein or
otherwise, it shall thereafter be void without further action by the
shareholders of either of the constituent corporations.
ARTICLE VIII
Miscellaneous
Section 8.1 This Merger Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which counterparts
collectively shall constitute one instrument representing the Merger Agreement.
Section 8.2 Except as otherwise provided in this Merger Agreement, nothing
herein expressed or implied is intended, or shall be construed, to confer upon
or give any person, firm or corporation, other than the constituent
corporations and their respective security holders and their successors and
assigns, any rights or remedies under or by reason of this Merger Agreement.
Section 8.3 This Merger Agreement and the legal relations between the parties
shall be governed by and construed in accordance with the internal laws of the
State of California without taking into account provisions regarding choice of
law, except to the extent certain matters may be governed as a matter of law by
the law of the State of Hawaii (as the state of incorporation of the Company),
or by the law of the State of Delaware (as the state of incorporation of BAC).
In Witness Whereof, BAC, FSB and the Company have caused this Merger
Agreement to be signed in their respective names by their authorized officers
and attested by their respective Secretaries or Assistant Secretaries as of the
date first above written.
BankAmerica Corporation
Attest
- ------------------------------------- By __________________________________
Secretary
(Seal)
Bank of America, FSB
Attest
- ------------------------------------- By __________________________________
Secretary
(Seal)
Liberty Bank
- ------------------------------------- By __________________________________
Secretary
(Seal)
B-37
<PAGE>
APPENDIX C
(LOGO OF MONTGOMERY SECURITIES) 600 Montgomery Street
San Francisco, CA 94111
(415)627-2000
December 2, 1993
Board of Directors
Liberty Bank
99 North King Street
Honolulu, Hawaii
Members of the Board:
We understand that Liberty Bank, a Hawaii banking corporation (the
"Company"), BankAmerica Corporation, a Delaware corporation ("Acquiror"), and
Bank of America, FSB, a wholly-owned subsidiary of Acquiror ("Acquisition
Sub"), have entered into a Plan and Agreement of Merger dated as of October 8,
1993 (the "Agreement"), pursuant to which the Company will be merged with and
into Acquisition Sub (the "Merger"), with Acquisition Sub as the surviving
entity. Pursuant to the Merger as more fully described in the Agreement, we
understand shareholders of the Company, other than Dissenters (as defined in
the Agreement), will be entitled to receive with respect to each share of the
common stock, $5.00 par value per share, of the Company ("Company Common
Stock"): (i) the number of shares of common stock, $1.5625 par value per share,
of Acquiror ("Acquiror Common Stock") determined by dividing $28.54 by the
Market Value (as defined in the Agreement) of Acquiror Common Stock ("Stock
Consideration") or (ii) if the Market Value of Acquiror Common Stock is less
than $40.00 per share, at the option of the Acquiror, either (A) Stock
Consideration, (B) cash of $28.54 per share (the "Cash Consideration") or (C)
any combination of Stock Consideration and Cash Consideration, and (iii) up to
$2.91 per share of Company Common Stock upon the sale of certain assets to be
held by a liquidating trust (collectively, the "Consideration").
You have asked for our opinion as to whether the Consideration to be received
by the shareholders of the Company, other than Dissenters, pursuant to the
Merger is fair to the shareholders of the Company, from a financial point of
view, taken as a whole, as of the date of the Agreement.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available financial and other data with respect to the Company
and Acquiror, including the consolidated financial statements for recent years
and interim periods to June 30, 1993 and certain other relevant financial and
operating data relating to the Company and Acquiror made available to us from
published sources and from the internal records of the Company; (ii) reviewed
the Agreement; (iii) reviewed certain historical market prices and trading
volumes of Acquiror Common Stock as reported by the New York Stock Exchange;
(iv) compared the Company and Acquiror from a financial point of view with
certain other companies in the financial services industry which we deemed to
be relevant; (v) considered the financial terms, to the extent publicly
available, of selected recent acquisitions of companies in the financial
services industry which we deemed to be comparable, in whole or in part, to the
Company and the Merger; (vi) reviewed and discussed with representatives of the
management of the Company and Acquiror certain information of a business and
financial nature regarding the Company and Acquiror, furnished to us by them,
including financial forecasts and related assumptions of the Company; (vii)
made inquiries regarding and discussed the Merger and the Agreement and other
matters related thereto with the Company's counsel; (viii) reviewed and
discussed the assets to be held in the liquidating trust with representatives
of management of the Company; and (ix) performed such other analyses and
examinations as we have deemed appropriate.
In connection with our review, we have not independently verified any of the
foregoing information with respect to the Company or Acquiror, have relied on
all such information, and have assumed that all such
C-1
<PAGE>
information is complete and accurate in all material respects. With respect to
the financial forecasts for the Company provided to us by the Company's
management we have assumed for purposes of our opinion that they have been
reasonably prepared on bases reflecting the best available estimates and
judgments of the Company's management at the time of preparation as to the
future financial performance of the Company and that they provide a reasonable
basis upon which we can form our opinion. We have also assumed that there have
been no material changes in the Company's or Acquiror's assets, financial
condition, results of operations, business or prospects since the respective
dates of their last financial statements made available to us. We have relied
on advice of counsel to the Company as to all legal matters with respect to the
Company, the Merger and the Agreement. In addition, we have not made an
independent evaluation, appraisal or physical inspection of the assets or
individual properties of the Company or Acquiror, nor have we been furnished
with any such appraisals. Further, our opinion is based on economic, monetary
and market conditions existing as of the date of the Agreement.
In the ordinary course of our business, we actively trade the equity
securities of Acquiror for our own account and the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
We have also performed various investment banking services for Acquiror.
Based upon the foregoing, and in reliance thereon, it is our opinion that, as
of the date of the Agreement, the Consideration to be received by the
shareholders of the Company, other than Dissenters, pursuant to the Merger is
fair to such shareholders from a financial point of view, taken as a whole.
This opinion is furnished pursuant to our engagement letter, dated May 1,
1993, and is solely for the benefit of the Board of Directors of the Company.
Except as provided in such engagement letter, this opinion may not be used for
referred to by the Company or quoted or disclosed to any person in any manner
without our prior written consent.
Very truly yours,
/s/ Montgomery Securities
-------------------------------------
MONTGOMERY SECURITIES
C-2
<PAGE>
APPENDIX D
FORM F-4
AMENDED AND RESTATED
UNITED STATES
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
FDIC insurance certificate number: 17056-9
LIBERTY BANK
(exact name of registrant as specified in its charter)
HAWAII 99-0046430
------ ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
99 NORTH KING STREET, HONOLULU, HAWAII 96817
---------------------------------------------
(Address of principal executive offices)
(808) 548-5000
--------------
(Registrant's telephone number, including area code)
NONE
----
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON STOCK, $5.00 PAR VALUE
775,890 SHARES OUTSTANDING AS OF NOVEMBER 1, 1993
THIS REPORT INCLUDES A TOTAL OF 30 PAGES
THE EXHIBIT INDEX IS AT PAGE 29
(Sequential numbering appears in the middle of each page)
<PAGE>
INDEX
LIBERTY BANK
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Unaudited Consolidated Balance Sheets -
September 30, 1993 and December 31, 1992................................ 3
Unaudited Consolidated Statements of Income -
Three Months and Nine Months Ended
September 30, 1993 and 1992............................................. 4
Unaudited Consolidated Statements of
Shareholders' Equity - Three Months and Nine
Months Ended September 30, 1993 and 1992................................ 5
Unaudited Consolidated Statements of Cash Flows -
Three Months and Nine Months Ended
September 30, 1993 and 1992............................................. 6
Notes to Unaudited Consolidated Financial
Statements - September 30, 1993......................................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................... 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form F-3............................... 29
SIGNATURES.............................................................. 30
Page 2
<PAGE>
LIBERTY BANK
UNAUDITED CONSOLIDATED BALANCE SHEETS
[CAPTION]
<TABLE>
September 30, December 31,
1993 1992
------------- ------------
(In thousands, except share data)
<S> <C> <C>
Assets
Cash and due from banks $ 14,798 $ 18,925
Interest bearing deposits in other banks 14,841 2,482
Federal funds sold 6,000 9,500
-------- --------
Cash and cash equivalents 35,639 30,907
Investment securities:
Trading portfolio, at market 3,232 3,900
Held to maturity (market value $38,042
in 1993 and $50,468 in 1992) 37,600 50,146
-------- --------
Total investment securities 40,832 54,046
Loans 219,571 235,384
Allowance for possible credit losses (3,943) (4,178)
-------- --------
Net loans 215,628 231,206
Premises and equipment, net 4,140 3,834
OREO 1,031 701
Accrued interest receivable 1,654 1,811
Other assets 4,034 3,363
-------- --------
Total assets $302,958 $325,868
======== ========
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Noninterest bearing transaction accounts $ 57,721 $ 60,700
Interest bearing transaction and
savings accounts 134,873 132,456
Certificates of deposit, $100,000 or over 32,083 35,409
Other time deposits 45,715 49,156
-------- --------
Total deposits 270,392 277,721
Federal Home Loan Bank advances 10,589 23,805
Capital notes - 1,000
Accrued interest payable 706 1,060
Liability on acceptances 209 334
Other liabilities 1,839 2,717
-------- --------
Total liabilities 283,735 306,637
Shareholders' Equity
Preferred stock, $25 par value; authorized
1,000,000 shares, none issued - -
Common stock, $5 par value, authorized
2,000,000 shares, issued and outstanding
775,890 shares in 1993 and 1992 3,880 3,880
Surplus 11,001 11,001
Retained earnings 4,342 4,350
-------- --------
Total shareholders' equity 19,223 19,231
-------- --------
Total liabilities and shareholders' equity $302,958 $325,868
======== ========
</TABLE>
See notes to unaudited consolidated financial statements
Page 3
<PAGE>
LIBERTY BANK
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1993 1992 1993 1992
------- ------- ------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income
Loans, including fees $4,215 $4,912 $13,174 $15,269
Investment securities 401 805 1,553 2,439
Deposits in other banks 146 8 171 24
Federal funds sold and other 43 86 124 191
------- ------- ------- -------
Total interest income 4,805 5,811 15,022 17,923
Interest expense
Deposits 1,700 2,268 5,294 7,581
Other 180 339 792 491
------- ------- ------- -------
Total interest expense 1,880 2,607 6,086 8,072
------- ------- ------- -------
Net interest income 2,925 3,204 8,936 9,851
Provision for possible credit losses 90 105 270 255
------- ------- ------- -------
Net interest income after
provision for possible credit losses 2,835 3,099 8,666 9,596
Other income
Service charges 729 713 1,968 2,051
Gain on sale of securities 0 392 227 392
Other 315 182 884 472
------- ------- ------- -------
Total other income 1,044 1,287 3,079 2,915
Other expenses
Salaries and employee benefits 1,711 1,816 5,487 5,611
Occupancy and maintenance 779 747 2,205 2,228
Other 1,538 1,419 4,622 4,171
------- ------- ------- -------
Total other expenses 4,028 3,982 12,314 12,010
Income (loss) before income taxes
and cumulative effect of change
in accounting principle (149) 404 (569) 501
Provision (credit) for income taxes 23 140 (92) 161
------- ------- ------- -------
Income (loss) before cumulative effect of
change in accounting principle (172) 264 (477) 340
Cumulative effect of change in
accounting principle - - 469 -
------- ------- ------- -------
Net income (loss) ($172) $264 ($8) $340
======= ======= ======= =======
Earnings (loss) per share
Income (loss) before cumulative effect of
change in accounting principle ($0.22) $0.34 ($0.61) $0.44
Cumulative effect of change in
accounting principle 0.00 0.00 0.60 0.00
------- ------- ------- -------
Net income (loss) per share ($0.22) $0.34 ($0.01) $0.44
======= ======= ======= =======
Weighted average shares outstanding 775,890 775,890 775,890 775,685
======= ======= ======= =======
</TABLE>
See notes to unaudited consolidated financial statements
Page 4
<PAGE>
LIBERTY BANK
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Number Common Retained
of Shares Stock Surplus Earnings Total
--------- ------ ------- -------- -------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1991 775,353 $3,877 $10,990 $5,727 $20,594
Sale of common stock 537 3 11 - 14
Net income 76 76
Cash dividend (155) (155)
------- ------ ------- ------ -------
Balance at June 30, 1992 775,890 3,880 11,001 5,648 20,529
Net income 264 264
------- ------ ------- ------ -------
Balance at September 30, 1992 775,890 3,880 11,001 5,912 20,793
Net loss (1,562) (1,562)
------- ------ ------- ------ -------
Balance at December 31, 1992 775,890 3,880 11,001 4,350 19,231
Net income 164 164
------- ------ ------- ------ -------
Balance at June 30, 1993 775,890 3,880 11,001 4,514 19,395
Net loss (172) (172)
------- ------ ------- ------ -------
Balance at September 30, 1993 775,890 $3,880 $11,001 $4,342 $19,223
======= ====== ======= ====== =======
</TABLE>
See notes to unaudited consolidated financial statements
Page 5
<PAGE>
LIBERTY BANK
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1993 1992 1993 1992
------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Operating activities
Net income (loss) ($172) $264 ($8) $340
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Provision for possible credit losses 90 105 270 255
Depreciation and amortization 159 170 483 517
Gain on sales of investment securities - (393) (227) (392)
Loss (gain) on sales of loans (46) - (138) 36
Unrealized loss (gain) on trading portfolio 21 - (100) -
Decrease (increase) in accrued interest
receivable (161) 172 157 381
Increase (decrease) in accrued interest
payable 55 24 (354) (428)
Increase in other assets (617) (4,828) (1,000) (4,240)
Increase (decrease) in other liabilities 633 (387) (878) (1,530)
------- ------- ------- -------
Net cash used in operating activities (38) (4,873) (1,795) (5,061)
Investing activities
Proceeds from sales of investment securities - 5,314 19,135 5,314
Proceeds from maturities of investment securities 5,750 4,958 10,552 19,601
Purchases of investment securities (12,733) (9,392) (16,146) (23,716)
(Increase) decrease in loans, excluding loan
participations and mortgages sold 1,247 1,630 6,180 (16,150)
Loan participations purchased (31) (13) (581) (1,731)
Proceeds from sales of mortgage loans 4,089 248 9,847 7,320
Purchase of premises and equipment (658) (231) (790) (424)
------- ------- ------- -------
Net cash provided by (used in)
investing activities (2,336) 2,514 28,197 (9,786)
Financing activities
Increase (decrease) in deposits 4,568 (6,127) (7,454) (6,444)
Principal payments on capital notes - - (1,000) -
Increase (decrease) in long-term debt (183) 6,920 (13,216) 24,414
Stock options exercised - - - 14
Dividends paid - - - (155)
------- ------- ------- -------
Net cash provided by (used in)
financing activities 4,385 793 (21,670) 17,829
------- ------- ------- -------
Increase (decrease) in cash and cash equivalents 2,011 (1,566) 4,732 2,982
Cash and cash equivalents at beginning of period 33,628 32,782 30,907 28,234
------- ------- ------- -------
Cash and cash equivalents at end
of period $35,639 $31,216 $35,639 $31,216
======= ======= ======= =======
- ----------------------------------------------------------------------------------------------
Supplemental cash flow information
Interest received $4,600 $6,026 $15,072 $18,387
Interest paid 1,831 2,565 6,422 8,461
Income taxes paid - 122 11 230
Transfer of loans to other real estate - - 350 -
- ----------------------------------------------------------------------------------------------
</TABLE>
See notes to unaudited consolidated financial statements.
Page 6
<PAGE>
LIBERTY BANK
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Liberty Bank ("Liberty" or the "Bank") and its wholly-owned
subsidiary Liberty Properties, Inc. All significant intercompany accounts and
transactions have been eliminated in consolidation.
These unaudited financial statements have been prepared in accordance with
generally accepted accounting principles on a basis consistent with the audited
financial statements included in Liberty's Annual Report on Form F-2 for the
year ended December 31, 1992. They do not, however, include all information and
footnotes required by generally accepted accounting principles and should
therefore be read in conjunction with Liberty's Annual Report on Form F-2. In
the opinion of management, the unaudited interim financial statements reflect
all adjustments (of a normal, recurring nature) necessary for a fair statement
of the results for the interim periods presented. Operating results for the
interim periods presented are not necessarily indicative of the results for the
year as a whole.
Certain reclassifications have been made to 1992 balances to conform to the 1993
presentation shown.
NOTE 2 - PENDING MERGER
On October 8, 1993 Liberty entered into a Plan and Agreement of Merger (the
"Agreement") among BankAmerica Corporation ("BAC") and Bank of America, FSB, a
federal savings association ("FSB"), a wholly-owned subsidiary of BankAmerica
Corporation. Pursuant to the Agreement, Liberty will be merged (the "Merger")
with and into FSB.
The Merger is subject to approval by 66.6% of the Liberty shareholders and
receipt of appropriate regulatory approvals. Pursuant to the Agreement, if
approved, each share of Liberty Common Stock, $5.00 par value, outstanding at
the time the Merger becomes effective (other than dissenting shares) will
automatically be converted, at BAC's option, into the right to receive BAC,
$1.5625 par value, Common Stock; cash; or a combination thereof. The amount and
form of consideration to be received could be affected by the "Market Value" of
BAC's Common Stock; which is defined as the sum total of the high and low sales
price of BAC's, $1.5625 par value, Common Stock, on the 10 trading days
immediately prior to the 20 days before the closing date of the transaction,
divided by 20, and will be determined as follows:
Page 7
<PAGE>
LIBERTY BANK
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - PENDING MERGER (CONT'D)
(a) If the Market Value of BAC's Common Stock is not less than $40.00 per
share, each Liberty shareholder of record shall receive such number of
shares of BAC Common Stock as calculated by multiplying the number of
shares of Liberty Common Stock held by $28.54, and dividing such total by
the Market Value of BAC's Common Stock, with the value of any fractional
shares to be paid in cash, or,
(b) If the Market Value of BAC's Common Stock is less than $40.00 per
share, at the option of BAC, either: (i) shares of BAC Common Stock as
calculated above; (ii) an amount of cash equal to $28.54 for each share of
Liberty Common Stock converted; or (iii) a combination thereof.
In addition, Liberty shareholders of record, except for those shareholders who
exercise dissenters' rights, will be entitled to receive a dividend consisting
of a pro-rata undivided interest in a liquidating trust (the "Trust") composed
of certain assets which Liberty anticipates selling which BAC elected not to
purchase in accordance with the Agreement.
As of September 30, 1993 certain costs related to the pending Merger
approximating $190,000 had been incurred by Liberty. These costs were expensed
during the third quarter ended September 30, 1993, and are included in other
expenses.
NOTE 3 - INVESTMENT SECURITIES
In May 1993 the Financial Accounting Standards Board adopted SFAS No. 115
entitled "Accounting for Certain Investments in Debt and Equity Securities".
Such Statement will be effective for fiscal years beginning after December 15,
1993 and, among other things, will require that certain investments in debt and
equity securities be classified under three categories: held to maturity;
trading securities; and securities available for sale. Securities classified as
held to maturity are to be reported at amortized cost; securities classified as
trading securities are to be reported at fair value with unrealized gains and
losses included in earnings; and securities classified as available for sale are
to be reported at fair value with unrealized gains and losses excluded from
earnings and reported as a separate component of stockholders' equity. Liberty
does classify certain investment securities as "Trading". Liberty has not
adopted SFAS No. 115. However, the impact of its adoption on stockholders'
equity at September 30, 1993 would not have been significant.
Page 8
<PAGE>
LIBERTY BANK
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INVESTMENT SECURITIES (CONT'D)
A comparison of the amortized cost and approximate fair value of Liberty's
Trading Portfolio at September 30, 1993 and December 31, 1992 follows:
<TABLE>
<CAPTION>
September 30, 1993 December 31, 1992
------------------ ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------ --------- ------
<S> <C> <C> <C> <C>
(In thousands)
U.S. Treasury securities $ - $ - $ - $ -
U.S. Government agencies - - - -
U.S. Government agency
mortgage-backed
securities 3,132 3,232 3,900 3,900
States of U.S. and
political subdivisions - - - -
Federal Home Loan Bank stock - - - -
------ ------ ------ ------
Total $3,132 $3,232 $3,900 $3,900
====== ====== ====== ======
</TABLE>
A comparison of the amortized cost and approximate fair value of Securities Held
to Maturity at September 30, 1993 and December 31, 1992 follows:
<TABLE>
<CAPTION>
September 30, 1993 December 31, 1992
------------------- -------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------- --------- -------
<S> <C> <C> <C> <C>
(In thousands)
U.S. Treasury securities $ 8,209 $ 8,336 $13,204 $13,303
U.S. Government
agencies 11,102 11,209 12,904 12,872
U.S. Government agency
mortgage-backed
securities 15,120 15,259 18,228 18,267
States of U.S. and
political subdivisions 769 838 3,644 3,860
Federal Home Loan Bank stock 2,400 2,400 2,166 2,166
------- ------- ------- -------
Total $37,600 $38,042 $50,146 $50,468
======= ======= ======= =======
</TABLE>
NOTE 4 - LOANS
In May 1993, the Financial Accounting Standards Board adopted SFAS No. 114
entitled "Accounting by Creditors for Impairment of a Loan". The Statement
requires that impaired loans, as defined, be measured based on the present value
of expected future cash flows discounted at the loan's effective interest rate
or, as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. Liberty has not
adopted this Statement. However, the financial statement impact of adopting
this Statement at September 30, 1993 would not have been material.
Page 9
<PAGE>
LIBERTY BANK
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - LOANS (CONT'D)
Loans consisted of the following as of the indicated dates:
<TABLE>
<CAPTION>
September 30, December 31,
1993 1992
-------------- ------------
(In thousands)
<S> <C> <C>
Commercial, financial and
agricultural $ 46,700 $ 50,320
Real estate - construction 160 350
Real estate - mortgage 163,949 171,825
Installment 9,417 13,418
Other 157 196
-------- --------
Gross Loans $220,383 $236,109
Less: Unearned Income 812 724
-------- --------
Total Loans $219,571 $235,385
======== ========
</TABLE>
NOTE 5 - FEDERAL HOME LOAN BANK ADVANCES
At September 30, 1993 Liberty had a Blanket Pledge Agreement with the Federal
Home Loan Bank of Seattle. The agreement allows the Bank a line of credit equal
to 10% of the Bank's assets. The Blanket Pledge Agreement requires the Bank to
maintain qualifying loans or collateral, as defined in the agreement, of at
least 120% of advances. At September 30, 1993 the Bank's total available credit
was approximately $31,000,000, of which $10,589,000 was utilized. At December
31, 1992 the Bank's total available credit was approximately $32,000,000, of
which $23,805,000 was utilized.
The weighted average rate of the outstanding advances was 6.3% at September 30,
1993 and 6.85% at December 31, 1992. Maturities of the borrowings at September
30, 1993 vary from September 1994 through June 1998. The balance at January 31,
1993 was $23,585,000, which represented the highest month end balance during the
year.
During the end of the first quarter of 1993, the Bank prepaid approximately
$12,000,000 of the outstanding balance on these borrowings in order to reduce
interest expense and lessen the Bank's exposure to interest rate risk. The Bank
paid a prepayment penalty of $499,000 in association with this balance sheet
restructuring. This prepayment penalty is included in other expenses for the
nine months ended September 30, 1993.
Page 10
<PAGE>
LIBERTY BANK
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - INCOME TAXES
Effective for the quarter ending March 31, 1993, Liberty revised its income tax
accounting policy by adopting FASB Statement No. 109, "Accounting for Income
Taxes". SFAS No. 109 replaces the income statement orientation inherent in the
previous income tax accounting policy with a balance sheet approach. SFAS No.
109 allowed Liberty to recognize the consequences of certain deferred timing
differences in the year of adoption which would have otherwise been recognized
in future periods. Liberty has opted for not restating prior periods to reflect
the impact of the adoption of this Statement. Accordingly, net income for the
nine months ended September 30, 1993 reflects an increase of $469,000;
comprising the cumulative effect which this change in accounting method would
have had on prior years income had the Statement been previously adopted.
Page 11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Liberty Bank's ("Liberty" or the "Bank") had net losses of $172,000, or $.22 per
share, and $8,000, or $.01 per share, for the three and nine month periods ended
September 30, 1993. This represented a decline in net income of $436,000 ($.56
per share) and $348,000 ($.45 per share), respectively, from the comparable
periods of 1992. The primary factors which contributed to this decline in
earnings were an overall decrease in net interest income resulting from a
decrease in earning assets coupled with a decline in Liberty's net interest
margin, a decline in gains derived from the sales of investment securities, a
charge to other expenses associated with a prepayment penalty on the retirement
of borrowings from the Federal Home Loan Bank, and approximately $190,000 of
expenses incurred during the third quarter of 1993 in connection with the
Merger. The effect of those items was partially offset by the cumulative effect
at January 1, 1993 of adopting SFAS No. 109, "Accounting for Income Taxes".
PENDING MERGER
The Plan and Agreement of Merger, dated October 8, 1993, provides for the merger
(the "Merger") of Liberty Bank with and into Bank of America, FSB, a wholly-
owned subsidiary of BankAmerica Corporation (BAC). The merger is subject to the
vote of Liberty's shareholders and approval by regulatory authorities.
BankAmerica Corporation, the second largest bank holding company in the United
States, had total assets of $180.6 billion at December 31, 1992, and operations
encompassing approximately 2,000 branches in ten states. Its wholly-owned
subsidiary, Bank of America, FSB, is the third largest depository institution in
Hawaii, and operates 30 branches as Bank of America Hawaii.
Pursuant to the Plan and Agreement of Merger (the "Agreement"), unless BAC
elects to pay cash, each outstanding share of Liberty common stock, $5.00 par
value, other than dissenting shares, upon consummation of the Merger will be
converted into a number of shares of BAC common stock, $1.5625 par value,
calculated on the basis of an exchange ratio of shares of BAC Common Stock for
each share of Liberty Common Stock. The exact ratio will depend on the average
of the mean between the high and low sales prices for BAC Common Stock for each
of the ten trading days immediately preceding the date which is twenty days
before the closing date of the Merger (the "Market Value").
Page 12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PENDING MERGER (CONT'D)
Generally, the number of shares of BAC Common Stock to be received by Liberty
Shareholders who do not exercise dissenters' rights will be determined as
follows: (i) if the Market Value is greater than or equal to $40.00, each
Liberty Shareholder will receive the number of shares of BAC Common Stock as is
determined by multiplying the number of shares of Liberty Common Stock owned of
record by such Liberty Stockholder by $28.54 and dividing the resultant product
by the Market Value; or (ii) if the Market Value is less than $40.00 each
Liberty Shareholder will receive, at the option of BAC, either (A) shares of BAC
Common Stock calculated pursuant to (i) above, (B) Cash Consideration equal to
$28.54 for each share of Liberty Common Stock owned by such Liberty Shareholder
at such time or (C) a combination thereof.
Each Liberty Shareholder of record, who did not elect to exercise dissenters'
rights, in addition to the number of shares of BAC Common Stock which they will
receive in exchange for their Liberty Common Stock, will also be entitled to
receive a dividend consisting of up to $2.91 per share upon the sale of certain
trust assets.
No certificates for fractional shares of BAC Common Stock will be issued as a
result of the Merger. Each Liberty Shareholder entitled to a fractional interest
will receive an amount in cash based on the Market Value of BAC Common Stock as
of the Effective Time.
In exchange for payment of $1,000 and entering into the Agreement, Liberty has
granted to BAC a warrant to purchase newly issued shares of Liberty Common Stock
in an amount up to 24.3% of the issued and outstanding shares of Liberty Common
Stock on the date exercised (or 19.6% immediately thereafter), at a cash price
of $25.05 per share (subject to certain antidilution provisions). This warrant
may only be exercised upon the occurrence of a "Triggering Event", as outlined
in the agreement, such events principally relating to any change in control of
10% or more of Liberty's Common Stock. In connection with the Warrant, certain
shareholders of Liberty holding approximately 34% of Liberty's Common Stock
entered into an Agreement Among Stockholders, pursuant to which they agreed not
to transfer their shares of Liberty Common Stock without first obtaining BAC's
consent.
Page 13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Bank incurred lossses of $172,000 and $8,000 for the three and nine month
periods ended September 30, 1993. This represents a decline of $436,000
(165.1%) and $348,000 (102.4%) from the corresponding periods in 1992. This
decline in earnings principally resulted from: a decline in net interest income
by $279,000 (8.7%) and $915,000 (9.3%) for the respective three and nine month
periods; a decline in gains from the sales of investment securities by $392,000
(100.0%) and $165,000 (42.1%) for the respective three and nine months periods;
expenses in the third quarter of 1993 approximating $190,000 related to the
Merger; and a one time charge during the first quarter of $499,000 associated
with the prepayment of certain liabilities to the Federal Home Loan Bank of
Seattle. These decreases offset a decline in other expenses, exclusive of those
one time charges, of $144,000 (3.6%) and $385,000 (3.2%) for the respective
three and nine month periods ended September 30, 1993. Additionally, the decline
in operating income between periods was partially offset by the cumulative
effect at January 1, 1993 of adopting SFAS No. 109, "Accounting for Income
Taxes", which resulted in a one time credit to income of $469,000.
NET INTEREST INCOME
Liberty's primary source of revenue is net interest income, representing the
difference between the interest income from interest-earning assets and interest
expense on interest-bearing liabilities. The change in the level of interest
income is affected by changes in the volume of and the yields earned on
interest-earning assets. Interest expense is a function of the volume of and
rates paid on interest-bearing liabilities. Net interest income before provision
for possible credit losses decreased $279,000 (8.7%) and $915,000 (9.3%) for the
respective three and nine month periods ended September 30, 1993.
The decrease in net interest income for the three months ended September 30,
1993 was comprised of a decline of $1,006,000 (17.3%) in total interest income,
which was partially offset by a decline of $727,000 (27.9%) in total interest
expense. The Bank's net interest margin decreased to 4.25% for the three months
ended September 30, 1993 from 4.37% during the same period in 1992. The net
interest margin declined principally because average interest earning assets
declined by $17,669,000 while average interest-bearing liabilities declined by
only $16,424,000 from the same period in 1992. Additionally the change in the
yield on average interest-earning assets and the cost of funds on average
interest-bearing liabilities each declined by approximately 95 basis points.
Page 14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET INTEREST INCOME (CONT'D)
The decrease in net interest income for the nine months ended September 30, 1993
was comprised of a decline of $2,901,000 (16.2%) in total interest income, which
was partially offset by a decline in total interest expense of $1,986,000
(24.6%). The Bank's net interest margin decreased to 4.36% in 1993 from 4.63%
during the comparable period of 1992. This decrease principally resulted from
the decline in average interest-earning assets by $10,536,000 during the period
compared to a decline by only $6,931,000 in total interest-bearing liabilities
during the same period. There was a decline in the yield on interest-earning
assets during the period by 1.09%, however, this decline was closely matched by
a decline in the cost of interest-bearing liabilities of 1.01%.
Following is a summary analysis of the changes in interest income and interest
expense for the comparable three and nine month periods ended September 30,
1993. This analysis, by major earning category, defines the changes in net
interest income which resulted from changes in the volume of interest-earning
assets and interest-bearing liabilities, and those changes resulting from
changes in rates earned on interest-earning assets and rates paid on interest-
bearing liabilities.
NET INTEREST INCOME VARIANCE ANALYSIS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
Amount of change resulting from the changes in:
Volume Rate Total Volume Rate Total
------ ------ ------ ------ -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on (1):
Loans ($310) ($387) ($697) ($525) ($1,570) ($2,095)
Investment securities (2) (138) (266) (404) (290) (596) (886)
Deposits in other banks 137 1 138 146 1 147
Federal funds sold (37) (6) (43) (48) (19) (67)
------ ------ ------ ------ -------- --------
Total (348) (658) (1,006) (717) (2,184) (2,901)
Interest paid on (1):
Savings and interest-bearing
transaction accounts 53 (243) (190) 64 (1,044) (980)
Certificates of deposit,
under $100,000 (51) (147) (198) (207) (468) (675)
Certificates of deposit,
$100,000 or more (101) (78) (179) (292) (340) (632)
Other borrowed funds (125) (35) (160) 326 (26) 300
------ ------ ------ ------ -------- --------
Total (224) (503) (727) (109) (1,878) (1,987)
------ ------ ------ ------ -------- --------
Net interest income ($124) ($155) ($279) ($608) ($306) ($914)
====== ====== ====== ====== ======== ========
</TABLE>
(1) A change due both to volume and rate has been allocated to the change in
volume and rate in proportion to the relationship of the dollar amount of
the change in each.
(2) Changes calculated on nontaxable securities have not considered tax
equivalent effects.
Page 15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table presents for the periods indicated the distribution of
average assets, liabilities and shareholders' equity as well as the total dollar
amount of interest income from average interest-earning assets and resultant
yields, and the dollar amounts of interest expense and average interest-bearing
liabilities, expressed both in dollars and in rates.
<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------------------------------------------
1993 1992
--------------------------------- --------------------------------
Average Yield/ Average Yield/
Balance Rate Interest Balance Rate Interest
-------- ------ -------- ------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans(1) $215,411 7.76% $4,215 $231,264 8.43% $4,912
Investment securities(2) 35,812 4.44% 401 48,072 6.64% 805
Interest bearing deposits in other banks 16,482 3.51% 146 1,159 2.74% 8
Federal funds sold 5,609 3.04% 43 10,488 3.25% 86
-------- ------ -------- ------
Total interest-earning assets 273,314 6.97% 4,805 290,983 7.92% 5,811
Allowance for possible credit losses (4,378) (3,339)
Nonearning assets:
Cash and due from banks 19,558 19,855
Nonaccrual loans 6,358 5,971
Premises and equipment, net 3,867 3,699
Other assets 7,174 7,762
-------- --------
Total average assets $305,893 $324,931
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Savings and interest-bearing
transaction accounts $140,383 2.52% $890 $131,969 3.25% $1,080
Certificates of deposit, under $100,000 48,626 4.51% 553 53,080 5.61% 751
Certificates of deposit, $100,000 or over 30,518 3.34% 257 42,567 4.06% 436
Federal funds purchased 352 3.38% 3 0 0.00% 0
Other borrowings 11,657 6.02% 177 20,344 6.63% 340
-------- ----- -------- ------
Total interest-bearing liabilities 231,536 3.22% 1,880 247,960 4.17% 2,607
Noninterest-bearing liabilities:
Transaction accounts 54,146 53,908
Other liabilities 782 2,451
-------- --------
Total liabilities 286,464 304,319
Shareholders' equity:
Common stock 3,880 3,880
Surplus 11,001 11,001
Retained earnings 4,548 5,731
-------- --------
Total shareholders equity 19,429 20,612
-------- --------
Total liabilities and
shareholders' equity $305,893 $324,931
======== ========
Net interest income $2,925 $3,204
====== ======
Interest income as a percentage
of average earning assets 6.97% $4,805 7.92% $5,811
Interest expense as a percentage
of average earning assets 2.73% 1,880 3.55% 2,607
------ ------
Net interest margin 4.25% $2,925 4.37% $3,204
====== ======
</TABLE>
(1) Amount excludes nonaccrual loans.
(2) Applicable nontaxable securities yields have not been calculated on a
taxable-equivalent basis because they are not significant.
Page 16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table presents for the periods indicated the distribution of
average assets, liabilities and shareholders' equity as well as the total dollar
amount of interest income from average interest-earning assets and resultant
yields, and the dollar amounts of interest expense and average interest-bearing
liabilities, expressed both in dollars and in rates.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------------------------------------
1993 1992
---------------------------------- ---------------------------------
Average Yield/ Average Yield/
Balance Rate Interest Balance Rate Interest
------- ------ -------- ------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans(1) $221,122 7.97% $13,174 $229,932 8.88% $15,269
Investment securities(2) 38,829 5.35% 1,553 46,073 7.08% 2,439
Interest bearing deposits in other banks 8,794 2.60% 171 1,265 2.54% 24
Federal funds sold 5,181 3.20% 124 7,192 3.55% 191
-------- ------- -------- ------
Total interest-earning assets 273,926 7.33% 15,022 284,462 8.42% 17,923
Allowance for possible credit losses (4,289) (3,307)
Nonearning assets:
Cash and due from banks 19,786 20,010
Nonaccrual loans 6,872 5,679
Premises and equipment, net 3,781 3,779
Other assets 7,135 7,396
-------- --------
Total average assets $307,211 $318,019
======== ========
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Savings and interest-bearing
transaction accounts $135,301 2.67% $2,701 $132,074 3.73% $3,681
Certificates of deposit, under $100,000 49,141 4.83% 1,774 54,856 5.97% 2,448
Certificates of deposit, $100,000 or over 31,771 3.45% 819 43,088 4.50% 1,451
Federal funds purchased 418 3.20% 10 159 4.20% 5
Other borrowings 16,276 6.42% 782 9,661 6.74% 487
-------- ------ -------- ------
Total interest-bearing liabilities 232,907 3.49% 6,086 239,838 4.50% 8,072
Noninterest-bearing liabilities:
Transaction accounts 53,825 54,850
Other liabilities 1,169 2,790
-------- --------
Total liabilities 287,901 297,478
Shareholders' equity:
Common stock 3,880 3,880
Surplus 11,001 11,001
Retained earnings 4,429 5,660
-------- --------
Total shareholders equity 19,310 20,541
-------- --------
Total liabilities and
shareholders' equity $307,211 $318,019
======== ========
Net interest income $8,936 $9,851
====== =======
Interest income as a percentage
of average earning assets 7.33% $15,022 8.42% $17,923
Interest expense as a perentage
of average earning assets 2.97% 6,086 3.79% 8,072
------- -------
Net interest margin 4.36% $ 8,936 4.63% $ 9,851
======= =======
</TABLE>
(1) Amount excludes nonaccrual loans.
(2) Applicable nontaxable securities yields have not been calculated on
a taxable-equivalent basis because they are not significant.
Page 17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET INTEREST INCOME (CONT'D)
A changing interest rate environment can have a significant impact on the Bank's
net interest margin as measured against average earning assets and its interest
rate spread. Management monitors its net interest margin by repricing its loan
and deposit products after giving effect to such factors as competition in the
market place and expected maturities in the loan, investment and deposit
portfolios.
OTHER INCOME
Total other income declined $243,000 (18.9%) for the three months ended
September 30, 1993. This decline resulted principally from a decline by
$392,000 in gains from sales of investment securities during the period. Total
other income for the period other than gains from sales of investment securities
increased by $149,000, or 16.6%.
Total other income increased $164,000 (5.6%) for the nine months ended September
30, 1993. This increase was offset by a decline in gains from sales of
investment securities of $165,000 (42.1%). For the period, other income, except
from gains on sales of investment securities, increased $329,000 (13.0%).
For both the three and nine month periods ended September 30, 1993, total other
income, other than gains from sales of securities, increased as a result of an
increase in rates charged on services offered by the Bank to its customers.
OTHER EXPENSE
Total other expense for the three months ended September 30, 1993 increased
$46,000 (1.2%) when compared to the same period of 1992, and increased by
$304,000 (2.5%) for the nine months ended September 30, 1993 compared to the
same period of 1992. During the first quarter of 1993, Liberty retired early
approximately $12 million of borrowings from the Federal Home Loan Bank of
Seattle. In connection with this early retirement, the Bank was required to pay
an approximate $499,000 prepayment penalty which was recorded as an other
expense item. Exclusive of merger expenses, other expense for the three months
ended September 30, 1993, would reflect a decline of $144,000 (3.6%) compared to
the same period of 1992. Additionally, except for the effect of the FHLB debt
prepayment penalty and merger expenses, other expense for the nine month period
ended September 30, 1993 would reflect a decline of $385,000 (3.2%) from the
same period of 1992.
The decline in other expenses during 1993, exclusive of the items mentioned
above, has been the result of management's concerted effort to control costs
through employee attrition, restructuring and consolidation of operating
functions, and placing stricter budgetary controls on expenses.
page 18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total average interest-earning assets declined by 3.7% and total average
interest-bearing liabilities decreased by 2.9%, between the comparable nine
month periods ended September 30, 1993 and 1992. These changes reflect weak
loan demand resulting from the Hawaiian recession and the Bank's increased loan
interest rates relative to market conditions which both had the effect of
decreasing the volume of new loans funded, a situation that the Bank took
advantage of by decreasing its high cost funding sources in an effort to
improve the Bank's relative cost of funds. While these moves caused the Bank's
asset base to shrink, it improved the Bank's overall liquidity and capital
positions.
LOAN PORTFOLIO
Liberty concentrates its lending activities in four areas: commercial, financial
and agricultural; real estate-construction; real estate-mortgage; and
installment loans. Interest rates charged by the Bank vary with the degree of
risk, the size and maturity of the loan, the borrowers' depository relationships
with the Bank, and prevailing market rates. No loan concentrations exceeding
10% of total loans were not otherwise disclosed in "Notes to Unaudited
Consolidated Financial Statements".
The Bank has collateral management policies in place so that collateral lending
of all types is on a basis which it believes is consistent with regulatory
lending standards. Valuation analyses are utilized to take into consideration
the potentially adverse economic conditions under which liquidation of
collateral could occur. It is generally Liberty's policy to fully collateralize
all loans with loan to value ratios determined on an individual loan basis
taking into account the financial stability of each borrower and the value and
type of the collateral. In addition to real estate, other collateral accepted
as security against loans includes deposits, securities, accounts receivable,
inventories, equipment and other assets.
COMMERCIAL, FINANCIAL AND AGRICULTURAL LOANS
Liberty's commercial, financial and agribusiness loans, referred to herein as
commercial loans, totalled 21.3% and 21.4% of total loans at September 30, 1993
and December 31, 1992, respectively. Commercial loans consist primarily of
short to medium-term financing for small to medium-sized businesses and
professionals. Commercial loans are diversified as to industries and types of
businesses, with no material industry concentrations and have a profile which
the Bank believes generally reflects the economy of the Hawaiian islands. The
primary source of loan repayment is the cash flows from the commercial
businesses, with collateral taken as a secondary source of repayment in an
abundance of caution. Loan-to-value ratios generally range from approximately
40% to 80%, depending on the nature of the collateral.
Page 19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REAL ESTATE - CONSTRUCTION LOANS
Real estate-construction loans are primarily for the construction of residential
housing. These loans totaled less than 1% of the total loan portfolio at
September 30, 1993 and December 31, 1992, respectively. Loan-to-value ratios
generally depend on the nature of the collateral, ranging from less than 65% for
land acquisition, to less than 80% for single-family individual-borrower
construction loans.
REAL ESTATE - MORTGAGE LOANS
Liberty's real estate-mortgage loans, referred to herein as mortgage loans,
totaled 74.7% and 73.0% of total loans at September 30, 1993 and December 31,
1992. Over 90% of the Bank's mortgage loans are secured by 1-4 family
residential properties. Included in this category are home equity loans, home
equity lines of credit as well as first mortgages on residential properties.
These loans have loan-to-appraised-values of between 70% and 90%, depending upon
the underlying collateral and the intended use of funds. The remaining portion
of the portfolio is comprised of nonfarm, nonresidential commercial properties
which constitute "mini-perm" (medium-term) commercial real estate mortgages with
maturities generally ranging from five to seven years.
Real estate-mortgage and construction lending contain potential risks which are
not inherent in other types of commercial lending. These potential risks
include declines in market values of underlying real property collateral and,
with respect to construction lending, delays or cost overruns, which could
expose the Bank to loss. In addition, risks in commercial real estate lending
include declines in commercial real estate values and general economic
conditions. Because the Bank lends primarily within its market area, the real
property collateral for its loans is similarly concentrated, rather than
diversified over a broader geographic area. The Bank could therefore be
adversely affected by a decline in real estate values on the island of Oahu,
Hawaii, even if real estate values elsewhere in Hawaii generally remain stable
or increase.
INSTALLMENT LOANS
Installment loans aggregated 4.3% and 5.7% of total loans at September 30, 1993
and December 31, 1992. Included in this loan category are home improvement
loans, recreational vehicle loans, and automobile loans. Loans-to-appraised-
values range from up to 80% for home equity lines, up to 90% for home
improvement loans, and up to 100% for recreational vehicle and automobile loans.
Page 20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CREDIT RISK MANAGEMENT
Management believes that the objective of a sound credit policy is to extend
quality loans on a diversified basis to customers while controlling risks
affecting shareholders and depositors. Both Management and the Board of
Directors approve credit policy and review asset quality and compliance with
credit policy. Liberty maintains a loan review staff as part of its internal
audit function which examines the loan portfolios of the Bank for compliance
with established standards. Executive management, senior lending officers and
senior credit officers also perform reviews of loan quality and monitor on a
periodic basis the progress of watch list loans requiring an action plan for
rehabilitation or refinancing. In addition, credit underwriting guidelines are
periodically reviewed and adjusted to reflect current economic conditions.
Liberty places a loan on nonaccrual status when one of the following events
occurs: any installment of principal or interest is 90 days past due (unless
well-secured and in the process of collection); management determines the
ultimate collection of principal or interest on a loan to be unlikely;
management deems a loan to be an in-substance foreclosure resulting from the
Bank taking legal possession of the underlying collateral; or the terms of a
loan have been renegotiated to less than market rates due to a serious weakening
of the borrower's financial condition.
With respect to the Bank's policy of placing loans 90 days or more past due on
nonaccrual status, unless the loan is well-secured and in the process of
collection as determined by management, a loan is considered in the process of
collection if, based on a probable specific event, management expects that the
loan will be repaid or brought current. When a loan is placed on nonaccrual
status, the Bank's general policy is to reverse and charge against current
income previously accrued but unpaid interest. Income on such loans is
subsequently recognized only to the extent that cash is received and the future
collection of principal is probable. Loans for which collectibility of the
principal balance or interest is considered to be doubtful by management are
placed on nonaccrual status prior to becoming 90 days delinquent.
Loans that are deemed in-substance foreclosures, which includes only those loans
where the Bank has taken legal possession of the underlying real estate
collateral, are classified as "OREO" on Liberty's financial statements. In such
situations, the secured loan is reclassified on the balance sheet at the lesser
of the fair market value of the underlying collateral, less selling expenses, or
the recorded amount of the loan.
Page 21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CREDIT RISK MANAGEMENT (CONT'D)
Liberty values its OREO properties at their estimated fair values, less selling
expenses, based on appraisals generally performed at the time the property is
acquired. Management's objective is to dispose of these properties in an
expeditious time-frame in an effort to minimize holding costs, which may result
in the Bank realizing less than book value. Due to possible variations in real
estate values, management can give no assurance that the carried values of OREO
properties will ultimately be realized upon disposition.
NONPERFORMING ASSETS
The table below sets forth information about nonperforming assets and accruing
past due loans of thirty days or greater:
<TABLE>
<CAPTION>
December 31,
Sept. 30, --------------------------------------------
1993 1992 1991 1990 1989 1988
--------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
Nonaccrual loans $ 6,313 $ 7,282 $ 5,590 $6,109 $1,256 $ 706
OREO 1,031 701 620 - - -
------- ------- ------- ------ ------ ------
Total nonperforming
assets $ 7,344 $ 7,983 $ 6,210 $6,109 $1,256 $ 706
======= ======= ======= ====== ====== ======
Loans past due 30 days
and still accruing
interest $ 7,515 $ 7,242 $ 6,066 $2,261 $6,422 $3,820
======= ======= ======= ====== ====== ======
Total nonperforming
assets and past due
loans $14,859 15,225 $12,276 $8,370 $7,678 $4,526
======= ====== ======= ====== ====== ======
Total nonperforming
assets to total loans 3.34% 3.39% 2.72% 2.78% 0.65% 0.38%
======= ====== ======= ====== ====== ======
Total nonperforming
assets and past due
loans to total loans 6.77% 6.47% 5.37% 3.81% 4.00% 2.43%
======= ====== ======= ====== ====== ======
</TABLE>
At September 30, 1993, nonperforming assets consisted principally of four large
nonaccrual loans. All four credits are relatively well secured by commercial
and/or residential properties and are in various stages of collection, workout
or litigation. One of these loans, which had a book value of $687,000 at
September 30, 1993, was repaid in full in early October 1993. OREO consisted
principally of two properties.
While total loans past due at September 30, 1993 totaled approximately $7.5
million, only approximately $635,000 represented loans which were past due 90
days or greater.
Page 22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ALLOWANCE FOR POSSIBLE CREDIT LOSSES
Management's determination of the allowance for possible credit losses requires
the use of estimates and assumptions related to the risks inherent in the loan
portfolio which management believes are reasonable. Actual results could,
however, differ significantly from those estimates. Estimates that are
particularly susceptible to significant fluctuation relate to the valuation of
real estate acquired in connection with foreclosures or in satisfaction of loans
because in those circumstances management revalues the asset to the lower of
cost or fair value less selling expenses. In connection with the determination
of the allowance for possible credit losses and the valuation of OREO,
management generally obtains independent appraisals for significant properties.
Management believes its current appraisal policies generally conform to federal
regulatory guidelines.
An evaluation of the overall quality of the portfolio is performed to determine
the necessary level of the allowance for possible credit losses. This
evaluation takes into consideration the classification of loans and the
application of loss estimates to these classifications. Liberty designates
loans as pass, special mention, substandard, doubtful, or loss based on
classification criteria believed by management to be consistent with the
criteria applied by the Bank's banking examiners. These classifications and
loss estimates take into consideration all sources of repayment, underlying
collateral, the value of such collateral, and current and anticipated economic
conditions, trends and uncertainties. These processes provide management with
data that help to identify and estimate the credit risk inherent in the
portfolio so that management may identify potential problem loans on a timely
basis. The allowance for possible credit losses reflects the result of these
estimates.
The provision for possible credit losses for the three and nine months ended
September 30, 1993, respectively, of $90,000 and $270,000 reflect, in part,
management's continuing concern for the slow recovery of Hawaii's economy which
is resultant of the bursting of the "economic bubble" in Japan and continuing
recession in California, the two most significant sources of tourism and trade
for the state of Hawaii. During the fourth quarter of 1992 management provided a
provision for credit losses in the amount of $1,515,000 which reflected
management's determination as to the effect that the State's ongoing recession
could have on the Bank's ability to collect certain outstanding credits.
Based on information available at September 30, 1993, management believes the
$3,943,000 allowance for possible credit losses, which constituted 1.80% of
total loans, to be adequate as an allowance against foreseeable loan losses.
Page 23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ALLOWANCE FOR POSSIBLE CREDIT LOSSES (CONT'D)
While management uses all available information to recognize losses on loans and
OREO, future additions to the allowance may be necessary based on changes in
economic conditions and other factors. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowances for possible credit losses on loans and OREO. Such
agencies may require the Bank to recognize additions to the allowances based on
their judgments of information available to them at the time of their
examination.
CAPITAL RESOURCES
The Bank is subject to FDIC regulations governing capital adequacy.
RISK-BASED CAPITAL GUIDELINES
The FDIC regulations define capital in terms of "core capital elements"
(comprising Tier 1 capital) and "supplemental capital elements" (comprising
Tier 2 capital). Tier 1 capital is generally defined as the sum of the
core capital elements less goodwill. Risk-based capital ratios are
calculated with reference to risk-weighted assets, including both on and
off-balance sheet exposures, which are multiplied by certain risk weights
assigned by the FDIC to those assets. Nonmember banks, such as the Bank,
are required to maintain a minimum ratio of qualifying total capital to
risk-weighted assets of eight percent (8%), at least one-half of which must
be in the form of Tier 1 capital.
LEVERAGE CAPITAL GUIDELINES
The FDIC has established a minimum leverage ratio of three percent (3%)
Tier 1 capital to total assets for nonmember banks that have received the
highest composite regulatory rating and are not anticipating or
experiencing any significant growth. All other institutions will be
required to maintain a leverage ratio of at least 100 to 200 basis points
above the three percent (3%) minimum.
Set forth below are the Bank's risk based and leverage capital ratios as of
September 30, 1993 and December 31, 1992:
<TABLE>
<CAPTION>
Liberty Ratios Minimum
Sept. 30, Dec. 31, Capital
1993 1992 Ratios
--------- -------- -------
<S> <C> <C> <C>
Capital ratios:
Total risk-based capital ratio 10.70% 10.34% 8.00%
Tier 1 capital to risk-
weighted assets 9.44 8.63 4.00
Leverage ratio (1) 6.35 5.74 3.00
</TABLE>
(1) Tier 1 capital as a percentage of period end total assets, less
intangibles not included in Tier 1 capital.
Page 24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL POSITION AND RESULTS OF OPERATIONS
CAPITAL RESOURCES (CONT'D)
As required by FDICIA, the federal banking agencies have solicited comments on a
proposed method of incorporating an interest rate risk component into the
current risk-based capital guidelines, with the goal of ensuring that
institutions with high levels of interest rate risk have sufficient capital to
cover their exposures. Interest rate risk is the risk that changes in market
interest rates might adversely affect a bank's financial condition. Under the
proposal, interest rate risk exposures would be quantified by weighing assets,
liabilities and off-balance sheet items by risk factors which approximate
sensitivity to interest rate fluctuations. Institutions identified as having an
interest rate risk exposure greater than a defined threshold would be required
to allocate additional capital to support this higher risk. Higher individual
capital allocations would be required by bank regulators based on supervisory
concerns.
As the federal banking agencies have solicited comments on this proposal but
have not yet proposed regulations to implement any interest rate risk component
into the risk-based capital guidelines, the ultimate impact on the Bank of final
regulation in this area cannot be predicted at this time.
The primary reason for the increase in Liberty's capital ratios between year end
1992 and September 30, 1993 reflects the decline in total assets of the Bank
during this time period. The improvement in these ratios resulted from the
Bank's plan to improve liquidity and reduce its reliance on high cost and high
volatility funds. This was principally the result of weak loan demand brought
about by the recession in Hawaii resulting from the recessions in both Japan and
California, Hawaii's two biggest sources of tourism. This condition also allowed
the Bank to prepay certain Federal Home Loan Bank borrowings. The Bank's
capital ratios exceed the minimum regulatory guidelines.
LIQUIDITY MANAGEMENT
Liquidity management requires that sufficient cash be available at all times to
meet financial commitments. The Bank's need for liquidity arises principally
from loan funding requirements, as well as maturities of short-term money market
acounts, time certificates of deposit, and other deposit withdrawals.
Liberty maintains significant amounts of cash and marketable securities to cover
liquidity needs. Liquid assets, exclusive of pledged securities totaling
$35,247,000 and $41,698,000 constituted 16.1% and 16.4% of net deposits at
September 30, 1993 and December 31, 1992, respectively.
Page 25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL POSITION AND RESULTS OF OPERATIONS
LIQUIDITY MANAGEMENT (CONT'D)
Liberty, in order to provide for loan funding requirements, as well as seasonal
or unexpected fluctuations in its deposit base, has a line of credit with the
Federal Home Loan Bank of Seattle. This line allows the Bank funds equivalent
to 10% of its total assets. The Bank has pledged qualifying assets equivalent to
120% of the available line. At September 30, 1993, total funds available to
borrow under the line approximated $31 million, of which $10,589,000 was
utilized. At December 31, 1992 total funds available under the line approximated
$32 million, of which $23,805,000 was utilized. On an overall basis, management
believes liquidity is adequate.
ASSET AND LIABILITY MANAGEMENT
The primary function of asset/liability management is to assure adequate
liquidity and maintain an appropriate balance between interest-sensitive assets
and interest-sensitive liabilities. The Bank's policy has been to maintain an
adequate liquidity position which, in addition to cash and cash equivalents,
relies on cash inflows principally from earned interest, repayments of principal
on loans and investments, and collections from deposits. The Bank's principal
cash outflows are for loan origination, purchases of investment securities and
payment of operating expenses.
Asset/liability management seeks to avoid fluctuating net interest margins and
to enhance consistent growth of net interest income through periods of changing
interest rates. The difference between the amount of assets and liabilities
that are repricing in various time frames is called the "Gap". Generally, if
repricing assets exceed repricing liabilities in a given time period, the Bank
would be "asset sensitive", or if repricing liabilities exceed repricing assets,
the Bank would be "liability sensitive".
Based upon the following repricing schedule, at September 30, 1993, the Bank was
"asset sensitive" with respect to interest-earning assets and liabilities
repricing within one year. However, because approximately $89 million of
interest-bearing liabilities in excess of interest-earning assets reprice
immediately, management expects that, in the short-term, in a declining rate
environment, the Bank's net interest margin would be expected to increase as
liabilities generally reprice more quickly than assets, and in an increasing
rate environment the Bank's net interest margin would tend to decline. The Bank
manages its interest rate risk by emphasizing loan products which have variable
interest rates and deposit products which are short-term in duration. The
Bank's asset/liability policy seeks to maintain a cumulative ratio of rate
sensitive assets to rate sensitive liabilities of between .80% and 1.2% in a
twelve month time horizon. The projected rates between October 1, 1993 and
September 30, 1994 are a high of 1.64% and a low of .69%.
Page 26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ASSET AND LIABILITY MANAGEMENT (C0NT'D)
The following table sets forth the interest rate sensitivity of the Bank's
interest earning assets and interest-bearing liabilities at September 30, 1993,
the interest rate sensitivity gap, the cumulative interest rate sensitivity gap
and the cumulative interest rate sensitivity gap ratio.
<TABLE>
<CAPTION>
September 30, 1993
---------------------------------------------------------------------------
Next Day After Three After One
But With- Months But Year But After
in Three Within 12 Within Five Five
Immediately Months Months Years Years Total
----------- --------- ----------- ---------- ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest Rate Sensitivity Gap:
Loans (1) $ 29,782 $ 70,774 $77,528 $30,454 $11,033 $219,571
Investment securities (2) - 8,949 13,050 14,643 1,794 38,436
Other short-term investment
securities 15,841 5,000 - - - 20,841
-------- -------- ------- ------- ------- --------
Total interest-earning assets $ 45,623 $ 84,723 $90,578 $45,097 $12,827 $278,848
======== ======== ======= ======= ======= ========
Interest-bearing transaction accounts $ 55,287 $ - $ - $ - $ - $ 55,287
Savings accounts 79,586 - - - - 79,586
Certificates of deposit - 21,585 38,413 17,800 - 77,798
FHLB advances - 165 7,996 2,428 10,589
-------- -------- ------- ------- ------- --------
Total interest-bearing liabilities $134,873 $ 21,750 $46,409 $20,228 $ 0 $223,260
======== ======== ======= ======= ======= ========
Interest rate sensitivity gap $(89,250) $ 62,973 $44,169 $24,869 $12,827 $ 55,588
-------- -------- ------- ------- ------- --------
Cumulative gap $(89,250) $(26,277) $17,892 $42,761 $55,588
-------- -------- ------- ------- -------
Cumulative gap percentage to
earning assets at
September 30, 1993 -32.01% -9.42% 6.42% 15.33% 19.93%
======== ======== ======= ======= =======
</TABLE>
(1) Includes nonaccrual loans of $6,313,000.
(2) Excludes Federal Home Loan Bank Stock of $2,400,000.
Page 27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EFFECT OF CHANGING PRICES
The majority of assets and liabilities of a financial institution are monetary
in nature and, therefore, differ greatly from most commercial and industrial
companies that have significant investments in fixed assets or inventories.
However, inflation does have an important impact on growth of total assets in
the banking industry and the resulting need to increase equity capital in order
to maintain an appropriate equity-to-assets ratio. An important effect of this
has been the reduction in the proportion of earnings paid out as dividends by
some banking organizations. Another significant effect of inflation is on other
expenses, which tend to rise during periods of general inflation.
REGULATORY ACTIONS
On October 5, 1992, the Board of Directors of the Bank entered into an informal
Memorandum of Understanding with the Regional Directors, Federal Deposit
Insurance Corporation, and the Commissioner, Division of Financial Institutions,
State of Hawaii, with regard to various aspects of the Bank's operations and
condition.
This agreement requires the Bank to: fill certain senior management positions;
increase staffing in its loan review function; reduce its classified assets to
mutually agreeable levels within a prescribed time frame; revise its loan
policies and procedures; develop a capital maintenance plan; develop a five year
strategic plan; and develop a plan to control overhead expenses. The FDIC has
instituted limitations on the Bank's ability to distribute dividends to its
shareholders, and requires the Bank to seek approval of the FDIC prior to hiring
members of senior management.
Also, on August 19, 1993, the Bank entered into an MOU with regard to its
compliance practices. Significant progress has been made in correcting the
weaknesses addressed, which were principally: to enable the compliance officer
to independently oversee and coordinate the Bank's overall compliance efforts,
provide the compliance officer with necessary training, adopt a comprehensive
written compliance program and institute an acceptable internal review program.
Page 28
<PAGE>
LIBERTY BANK
ITEM 6. EXHIBITS AND REPORTS ON FORM F-3
(a) The following exhibits are attached hereto and furnished with this Report:
Page of
Exhibit Sequential
Designation Description of Exhibit Numbering
----------- ---------------------- ----------
10.1 Plan and Agreement of 29
Merger Among BankAmerica
Corporation, Bank of
America, FSB and
Liberty Bank, entered
into as of October 8,
1993.*
- ------------
*This exhibit is excluded here; however, it is filed with the Form S-4 as
Appendix B (Plan and Agreement of Merger and Merger Agreement).
Page 29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LIBERTY BANK
Date: January 12, 1994 By: MARK E. BUCHMAN
---------------- ___________________________
Mark E. Buchman
President and
Chief Executive Officer
(Principal Executive Officer)
Date: January 12, 1994 By: ARVIND A. MENON
---------------- ----------------------------
Arvind A. Menon
Senior Vice President
(Principal Financial and
Accounting Officer)
Page 30
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