February 27, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, DC 20549
Attention: Ms. Amy Moss Trombly
Stop 3-11
Re: First Banks, Inc.
Schedule 13E-3 Filed February 8, 1996
SEC File No.: 5-44569
Dear Ms. Trombly:
On behalf of our client, First Banks, Inc. ("First Banks") and its
wholly owned subsidiary CCB Bancorp Inc., we are filing herewith Amendment No. 1
to the above-captioned Transaction Statement on Schedule 13E-3 (the "Transaction
Statement"). By letter dated February 23, 1996, the staff (the "Staff") of the
Securities and Exchange Commission commented upon the Transaction Statement.
Set forth below, in bold italicized print, are such comments followed
by First Banks' and CCB's responses thereto, in regular print. Unless otherwise
indicated, capitalized terms used herein have the meaning ascribed to them in
the Transaction Statement. We are providing members of the Staff, as indicated
below, courtesy copies of this letter and the accompanying Amendment No. 1
marked to show all changes made to the Transaction Statement as originally
filed. Page references herein are to the pages in the courtesy copies of
Amendment No. 1.
General
1. Include the financial information required by Instruction 2 to Rule
13e-3(e) in the document disseminated to shareholders.
Item 14 of the Transaction Statement has been amended to include the
financial information required by Instruction 2 to Rule 13e-3(e) in the
document disseminated to shareholders. (Pages 20 and 21)
Item 7. Purposes, Alternatives, Reasons and Effects.
2. Reference is made to paragraph (d). Please discuss all material factors
contributing to the increase in book value and net earnings from
September to December 1995. Additionally, the staff notes in the
September 30, 1995 Form 10-Q that the net loss to date was (3,190,000).
Please reconcile this difference with the Schedule 13e-3.
Item 7(d) of the Transaction Statement has been revised to include a
discussion of all material factors contributing to the increase in book
value and net earnings from September to December 1995. We note, in
this regard, that the amount of the net earnings (losses) of the
Company has been revised to read $(3,190,000) for the nine months ended
September 30, 1995 and $(3,604,000) for the year ended December 31,
1995. (Pages 9 and 10)
3. Reference is made to the last sentence in the eighth paragraph in this
section. Please remove the implication that shareholders cannot
rely on the federal tax information provided.
The last sentence in the new ninth paragraph of Item 7 has been
deleted. (Page 10).
4. Please address the federal tax implications of shareholders exercising
their right to dissent.
A discussion of the federal tax implications of shareholders exercising
their right to dissent has been added to the new ninth paragraph of
Item 7. (Page 10).
Item 8. Fairness of the Transaction.
5. The staff notes that the fairness opinion primarily uses September
30, 1995 information. Supplementally advise the staff, in light of the
substantial increase in book value as of December 1995, what
consideration has been given to obtaining a new fairness opinion.
Further,disclose whether the increase in book value impacted the
fairness determination.
As discussed in the response to Comment No. 2, above, the increase
in the book value per share of Company Common from September 30,
1995 to December 31, 1995 was due primarily to the conversion of $2.4
million of the Debenture into Company Common. The Findley Group was
aware of the Debenture conversion and, as discussed in the
Transaction Statement, provided the Company with an opinion as to the
fairness to shareholders from a financial standpoint of setting
the conversion price of the Debenture at $0.05 per share.
Accordingly, First Banks and CCB do not believe that a new fairness
opinion is necessitated by the differential in the Septmeber 30 and
December 31 book value amounts. A discussion of the effect of the
increase in book value upon the determination by the Company, First
Banks and CCB of the fairness of the Merger Consideration is set forth
in Item 8(b) of the Transaction Statement. (Pages 12 and 13).
6. Provide a detailed discussion of each factor considered by each
filing person in making their fairness determination and how such
factor impacted the fairness determination. Quantify, to the extent
practicable, each factor considered. For example, quantify the current
and historical market prices.
Item 8(b)has been revised to include a detailed discussion of each
factor considered by the Company, CCB and First Banks in making their
fairness determination and how such factor affected the fairness
determination. (Pages 11 - 13)
7. Provide the disclosure required by Items 8(c) and (d). If the answer
is in the negative, so state. Further, disclose the basis for fairness
in the absence of such procedural safeguards.
Items 8(c) and (d) have been revised to provide the required
disclosure. A discussion of the basis for fairness in the absence of
such procedural safeguards is set forth in Item 8(d). (Pages 13 and 14)
Item 13. Other Provisions of the Transaction.
8. Please provide a cite to the relevant statute(s) regarding the
shareholders' right to dissent.
Item 13 has been revised to provide a cite to Chapter 13 of the
California Corporations Code. (Page 18)
* * *
Please direct any inquiries to the undersigned at (314) 444-7651 or to
Timothy E. Kastner of this office at (314) 444-7808.
Sincerely,
Leonard J. Essig
Attachments
cc: Allen H. Blake,
First Banks, Inc.
Thomas C. Erb, Esq.
Timothy E. Kastner, Esq.
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
Amendment No. 1
to
SCHEDULE 13E-3
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
QCB BANCORP
(Name of the Issuer)
FIRST BANKS, INC.
CCB BANCORP, INC.
(Name of Person(s) Filing Statement)
Common Stock, no par value
(Title of Class of Securities)
(None)
(CUSIP Number of Class of Securities)
Allen H. Blake Thomas C. Erb, Esq.
Senior Vice President Lewis, Rice & Fingersh, L.C.
First Banks, Inc. 500 North Broadway, Suite 2000
11909 Olive Boulevard St. Louis, Missouri 63102
St. Louis, Missouri 63141 (314) 444-7600
(314) 995-5700
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. [ ] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of 1933.
c. [ ] A tender offer.
d. [X] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [ ]
Item 1. Issuer and Class of Security Subject to the Transaction.
(a) The name of the issuer of the class of equity security which is the
subject of the Rule 13e-3 transaction is QCB Bancorp (the "Company"). The
address of the Company is 4201 Long Beach Boulevard, Long Beach, California
90807. The Company is the bank holding company parent and sole shareholder of
Queen City Bank, N.A., Long Beach, California ("Queen City Bank").
(b) The class of securities that is the subject of the Rule 13e-3
transaction is the Company's common stock, no par value per share ("Company
Common"). As of November 30, 1995, 49,673,596 shares of Company Common were
issued and outstanding, and there were 444 holders of record of Company Common
as of September 30, 1995.
(c) There is currently no established market for shares of Company Common
(excluding limited or sporadic quotations).
(d) The Company has paid no dividends with respect to shares of Company
Common during the past two years. The ability of the Company to pay dividends to
its shareholders is subject to the restrictions set forth in the California
Corporation Code (the "California Code"). The California Code provides that a
corporation may make a distribution to its shareholders if the corporation's
retained earnings equal at least the amount of the proposed distribution. The
California Code further provides that, in the event that sufficient retained
earnings are not available for the proposed distribution, a corporation may
nevertheless make a distribution to its shareholders if it meets two conditions,
which generally are as follows: (i) the corporation's assets equal at least 1
1/4 times its liabilities; and (ii) the corporation's current assets equal at
least its current liabilities or, if the average of the corporation's earnings
before taxes on income and before interest expense for the two preceding fiscal
years was less than the average of the corporation's interest expense for such
fiscal years, then the corporation's current assets equal at least 1 1/4 times
its current liabilities. As of December 31, 1994 and September 30, 1995, the
Company reported negative retained earnings and then did not meet these tests
and was not legally permitted to pay dividends. Upon conversion of the Debenture
(as defined below), the Company now has positive retained earnings and would
legally be permitted to pay a dividend to the extent of such retained earnings.
The Company was also unable to pay dividends because the source of
funds for such a dividend would have had to come from a dividend paid by Queen
City Bank to the Company. Queen City Bank has been restricted from paying any
dividends by an agreement with the OCC, although this restriction has recently
been lifted. In addition, the Company's and Queen City Bank's policy has been to
retain earnings and not to pay dividends. Further, as a bank holding company,
the Company is subject to the supervision and regulation of the Board of
Governors of the Federal Reserve System and the Federal Reserve Bank of San
Francisco (the "Reserve Bank"). Due to the marginal financial condition of Queen
City Bank, the Reserve Bank, by letter dated September 30, 1994, imposed a
number of restrictions on the activities and operations of the Company,
including, among other matters, prohibiting the Company from paying any
dividends or repurchasing any of its stock without prior Reserve Bank approval.
(e) None of the Company, CCB Bancorp, Inc., Santa Ana, California
("CCB") (which owns approximately 96.6% of the issued and outstanding shares of
Company Common), or First Banks, Inc., St. Louis, Missouri ("First Banks")
(which is the sole shareholder of CCB) has made an underwritten public offering
of shares of Company Common for cash during the past three years which was
registered under the Securities Act of 1933 or exempt from registration
thereunder pursuant to Regulation A.
(f) Pursuant to a Debenture Purchase and Operating Agreement (the
"Debenture Agreement"), dated March 21, 1995, between First Banks and Company,
First Banks acquired, on July 21, 1995, from Company and subsequently
transferred to CCB, a debenture (the "Debenture") in the original principal
amount of $5,528,082. The Debenture, together with any accrued but unpaid
interest thereon, is convertible into shares of Company Common at any time in
the sole discretion of the holder thereof and at a conversion price based upon
the book value per share of Company Common. On November 30, 1995, CCB converted
$2.4 million of principal and accrued interest of the Debenture at a conversion
price of $0.05 per share, into 48.0 million shares of Company Common.
Item 2. Identity and Background.
(a) through (g) This statement is filed by First Banks, which is a
Missouri corporation, and CCB, which is a Delaware corporation. First Banks is a
registered bank and savings and loan holding company with subsidiary banks and
savings associations located in California, Illinois, Missouri and Texas. The
address of First Banks is 135 North Meramec Avenue, Clayton, Missouri 63105. The
controlling shareholders of First Banks are (i) Mary W. Dierberg and James F.
Dierberg, II, trustees under the living trust of James F. Dierberg, II, dated
July 24, 1989, (ii) Mary W. Dierberg and Michael James Dierberg, trustees under
the living trust of Michael James Dierberg, dated July 24, 1989, (iii) Mary W.
Dierberg and Ellen C. Dierberg, trustees under the living trust of Ellen C.
Dierberg, dated July 17, 1992, and (iv) James F. Dierberg, trustee of the James
F. Dierberg living trust, dated October 8, 1985. Mr. James F. Dierberg and Mrs.
Mary W. Dierberg are husband and wife, and Messrs. James F. Dierberg, II,
Michael James Dierberg and Miss Ellen C. Dierberg are their children (the
"Dierberg Family").
The directors and executive officers of First Banks are as follows:
James F. Dierberg Chairman of the Board of Directors, President and
Chief Executive Officer
Allen H. Blake Senior Vice President, Chief Financial Officer,
Secretary and Director
John A. Schreiber Senior Vice President, Chief Lending Officer
Thomas A. Bangert Vice President, Senior Operations Officer
Laurence J. Brost Vice President, Controller
Mark T. Turkcan Senior Vice President, Retail and Mortgage Banking
Donald W. Williams Senior Vice President, Chief Credit Officer
Donald Gunn, Jr. Director
George Markos Director
CCB is a registered bank holding company that owns 100% of the issued
and outstanding common stock of First Bank & Trust, Santa Ana, California, a
California-chartered bank ("First Bank & Trust"), and approximately 96.6% of the
issued and outstanding common stock of the Company. The address of CCB is 2900
South Harbor Boulevard, Santa Ana, California 92704. All of the issued and
outstanding capital stock of CCB is owned by First Banks.
The directors and executive officers of CCB are as follows:
Donald W. Williams Chairman of the Board of Directors, Chief Executive
Officer, President
James F. Dierberg Director
Messrs. Williams and Dierberg are Directors of the Company
The information required by this Item 2 with respect to First Banks,
CCB, the Dierberg Family and each of the above-named persons is attached hereto
as Exhibit 2, and is incorporated herein by this reference. The information
disclosed in Exhibit 2 is included pursuant to General Instruction D to Schedule
13E-3.
Item 3. Past Contacts, Transactions or Negotiations.
On January 27, 1995, the Company and First Banks executed a letter of
intent under which First Banks agreed in principle to contribute $5,000,000 to
the Company in exchange for a convertible debenture to be issued by the Company.
The transaction was to take effect pursuant to a definitive agreement to be
negotiated between the parties, and, on March 21, 1995, First Banks and the
Company executed the Debenture Agreement. The transaction contemplated by the
Debenture Agreement was subject to a number of conditions, which included the
requirement that the Company obtain the approval of its shareholders and that
the parties obtain the prior regulatory approval of the Board of Governors of
the Federal Reserve System. On July 21, 1995, First Banks and the Company
consummated the transactions contemplated by the Debenture Agreement, and the
Company issued to First Banks the Debenture in the original principal amount of
$5,528,082. The additional $528,082 investment represented the amount of
principal and accrued interest outstanding on two debentures, issued by the
Company and held by Raymond Heady and David Goren, which were retired pursuant
to the Debenture Agreement. Messrs. Heady and Goren were directors of the
Company who resigned upon the closing of the transactions contemplated by the
Agreement.
The Debenture bears interest at 1 1/2% above the "Current Prime Rate"
(as defined below), adjusted quarterly, with a maximum rate of 10%. The "Current
Prime Rate" is defined as the rate published in the "Money Rates" table in the
Wall Street Journal as the base rate on corporate loans posted by at least 75%
of the nation's thirty largest banks. If multiple prime rates are quoted in the
table, the lowest prime rate will be the Current Prime Rate. In the event that
the prime rate is no longer published in the Money Rates table, then the Board
of Directors of Company will choose a substitute Current Prime Rate based upon
comparable information. Interest is payable when, in the sole discretion of
Company's Board of Directors, Company has sufficient funds available to make
such payments, and the payments would comply with all applicable legal and
regulatory requirements. For the period beginning January 1, 1996, the interest
rate on the Debenture was 10%.
The Debenture is not registered or transferable by the holder without
the prior consent of Company, except for certain limited transfer rights to
affiliates of First Banks. On September 30, 1995, First Banks assigned the
Debenture to CCB.
The Debenture, together with any accrued but unpaid interest thereon,
is convertible into shares of Company Common at any time in the sole discretion
of its holder at a conversion price based upon the book value per share of the
Company Common. The initial conversion price of the Debenture was $1.10 per
share, based on the September 30, 1994 book value of Company of $2.03 per share.
This conversion price adjusts proportionately to the extent that the book value
of the Company Common declines below $2.03 per share. As of September 30, 1995,
the book value of Company was ($0.28) per share. In light of this negative book
value per share (which would have resulted, upon conversion of the Debenture, in
CCB effectively acquiring 100% of the Company Common and leaving the
pre-existing shareholders of the Company with no value in their shares) and
CCB's desire to convert a portion of the Debenture to Company Common, CCB and
Company agreed to execute an Amendment No. 1 to QCB Bancorp Debenture on
November 15, 1995 (collectively with the Debenture, the "Debenture") to set the
conversion price at $0.05 per share if and when the book value of the Company
Common was equal to $0.00 or less. The Findley Group, Anaheim, California ("The
Findley Group"), an independent consulting firm and investment banking company
specializing in the banking industry, rendered an opinion, a copy of which is
attached hereto as Exhibit 3, that a conversion price of $0.05 per share was
fair, from a financial point of view, to the holders of Company Common. On
November 30, 1995, CCB converted $2.4 million of the principal and accrued
interest on the Debenture into 48.0 million shares of Company Common, resulting
in CCB owning 96.6% of the issued and outstanding shares of Company Common.
None of the officers or directors of First Banks or CCB have acquired
any shares of Company Common since January 1, 1994, the commencement of the
second full fiscal year preceding the date of this Schedule except as follows:
(1) pursuant to a Stock Option Agreement, dated September 9, 1994, by and
between the Company and Fred D. Jensen, President and Chief Executive Officer,
the Company awarded Mr. Jensen options to purchase 30,000 shares of Company
Common at an exercise price of $1.00 per share; (2) pursuant to a Stock Option
Agreement, dated October 27, 1994, by and between the Company and Terrance M.
McCarthy, Executive Vice President and Senior Credit Officer, the Company
awarded Mr. Jensen options to purchase 25,000 shares of Company Common at an
exercise price of $1.22 per share; and (3) on May 12, 1995, Mr. Jensen acquired
1,000 shares of Company Common at a price of $1.00 per share for the purpose of
satisfying his obligation under federal banking law to own qualifying shares of
Company Common in connection with his service as a member of the board of
directors of Queen City Bank. Messrs. Jensen and McCarthy are now directors and
officers of First Bank & Trust in addition to their service to the Company. The
strike price of stock options is currently well in excess of the current fair
value of Company Common.
Item 4. Terms of the Transaction.
At a meeting held on December 20, 1995, the Board of Directors of CCB
adopted resolutions pursuant to section 1110 of the California Corporations Code
(the "California Code") and section 253 of the General Corporation Law of
Delaware authorizing the "short-form" merger of the Company with and into CCB.
At a meeting also held on December 20, 1995, the Board of Directors of the
Company adopted similar resolutions approving the fairness of the consideration
to be received for each share of Company Common not owned by CCB. Pursuant to
these resolutions, the Company and CCB have entered into an Agreement and Plan
of Merger, dated December 20, 1995 (the "Merger Agreement") (a copy of which is
attached hereto as Exhibit 4), providing for the merger of the Company with and
into CCB.
Pursuant to the Merger Agreement and the corporate laws of California
and Delaware, the Company will merge with and into CCB (the "Merger"), with CCB
being the surviving entity of the Merger and the corporate identity and
existence of the Company, separate and apart from CCB, will cease on
consummation of the Merger. At the effective time of the Merger (the "Effective
Time") each share of Company Common issued and outstanding immediately prior to
the Effective Time and held of record by persons other than CCB will be
converted into the right to receive cash in the amount of $0.06 (the "Merger
Consideration"). At the Effective Time, all of the shares of Company Common, by
virtue of the Merger and without any action on the part of the holders thereof,
will no longer be outstanding and will be canceled and retired and will cease to
exist, and each holder, other than CCB, of any certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Company Common (the "Certificates") will thereafter cease to have any rights
with respect to such shares, except the right of such holders to receive,
without interest, the Merger Consideration upon the surrender of such
Certificate or Certificates to Boatmen's Trust Company, St. Louis, Missouri,
which will act as the exchange agent (the "Exchange Agent") in the Merger. The
issued and outstanding shares of the capital stock of CCB will be unaffected by
the Merger.
Item 5. Plans or Proposals of the Issuer or Affiliate.
As described above, CCB has determined to cause the merger of the
Company with and into CCB, which will terminate the existence of the Company as
a separate entity and will, as an effect of the Merger, terminate the Company's
obligation to file reports under the Exchange Act. CCB has also determined to
cause the merger of Queen City Bank with and into First Bank & Trust (the "Bank
Merger"). The Bank Merger, however, will take place after the Merger of the
Company with and into CCB, provided the Bank Merger has received prior
regulatory approval from the FDIC and California Department of Banking.
Item 6. Source and Amounts of Funds or Other Consideration.
CCB will finance the acquisition of the shares of Company Common not
already held by CCB through internal sources. No part of such funds is, or is
expected to be, directly or indirectly borrowed.
CCB anticipates that it will incur expenses of approximately $25,000 in
connection with the Merger, including legal fees of approximately $10,000,
appraisal fees of approximately $6,500 and printing and mailing fees of
approximately $4,000.
Item 7. Purpose(s), Alternatives, Reasons and Effects.
(a) The objectives of CCB in causing the Merger are to (i) acquire the
entire equity interest in the Company and (ii) create operational efficiencies
and economies of scale by eliminating many of the duplicative administrative and
operational expenses associated with maintaining separate corporate and banking
entities. The Company has functioned in the past as the holding company for
Queen City Bank. This function now substantially duplicates the function of CCB
but provides no benefit to First Banks and CCB; it does, however, result in
certain costs that, in the absence of the minority shareholder interest, could
be eliminated. These costs include costs associated with staff, franchise tax,
audit expense and federal and state securities law compliance, as well as the
necessity of maintaining certain corporate procedures such as shareholder
meetings, separate year-end audits and communications with shareholders.
The Merger will also facilitate the Bank Merger by causing Queen City
Bank and First Bank & Trust to become wholly owned subsidiaries of CCB. The Bank
Merger will also create operational efficiencies and economies of scale by
eliminating many of the duplicative administrative and operational expenses
associated with maintaining separate banking entities. Queen City Bank and First
Bank & Trust operate in relatively close geographic proximity; by merging these
banks, CCB and First Bank & Trust expect to realize significant savings.
(b) and (c) CCB and the Company have determined that a statutory short
form merger would be the most efficient method of achieving the purposes
discussed above and that delaying the Merger beyond the first quarter of 1996
would substantially reduce the amount of cost savings that could otherwise be
realized. The parties considered alternative means to accomplish the purposes of
the Merger but do not believe that alternative structures would accomplish such
purposes in a timely and efficient manner. The primary alternatives considered
were a standard, "long-form" merger of the Company and CCB and a reverse stock
split. Each of theses alternatives is discussed briefly below.
Long-Form Merger. A standard, long-form merger under the California
Code would require the approval of the shareholders of the Company at a meeting
called for the purpose of considering such merger. As the long-form merger would
require the Company to undertake the expense of calling and holding the
shareholders' meeting to vote upon the merger and the results of the vote (in
light of CCB's ownership interest) would be a foregone conclusion, CCB and the
Company determined to pursue a short-form merger. As discussed in more detail
below, the right of the shareholders of the Company to dissent from the Merger
remains available notwithstanding the lack of a shareholder vote thereon.
Reverse Stock Split. In a reverse stock split, the interest of the
Company's minority shareholders would be acquired by CCB pursuant to an
amendment to the Company's Certificate of Incorporation to reduce the number of
issued and outstanding shares of Company Common such that all existing minority
shareholders of the Company would own less than one full share of Company
Common. CCB would then distribute cash for the resulting fractional share
interests. The necessary amendment to the Company's Certificate of Incorporation
would require the approval of the Company's shareholders. As with the long-form
merger, the Company would be required to undertake the expense of calling and
holding the shareholders' meeting to vote upon the merger, and the results of
the vote (in light of CCB's ownership interest) would be a foregone conclusion.
The shareholders of the Company, however, would not have dissenters' rights. In
light of the expense of calling and holding the required shareholders' meeting
and the absence of any formalized procedure to be followed by shareholders who
may object to the reverse split, CCB and the Company determined not to undertake
a reverse stock split.
(d) As described above, upon consummation of the Merger, the corporate
identity and existence of the Company, separate and apart from CCB, will cease,
and CCB will acquire the entire equity interest in the Company and achieve
the purposes of the Merger described above. Accordingly, CCB will hold
a 100% interest in the net book value and net earnings (losses) of the
Company, which as of September 30, 1995 were $(470,000) and $(3,190,000),
respectively, and as of December 31, 1995 were $2,207,000 and $(3,604,000),
respectively. The improvement in operating results for the fourth quarter of
1995 (although still a loss of $414,000), in comparison to the nine month
period ended September 30, 1995, relates primarily to a decrease in the
amount of the required provision for loan losses for the three months ended
December 31, 1995. For the fourth quarter of 1995, this amount was $129,000, in
comparison to an average of $583,000 for each of the preceding three quarters.
The increase in the net book value of the Company is attributable primarily to
the capital contribution from CCB of $2.4 million in connection with the partial
conversion of the Debenture and the resulting application of purchase accounting
adjustments in light of the 96.6% interest in the Company acquired in connection
with the conversion. In addition, QCB incurred a net loss of $178,000 for the
period subsequent to the acquisition of QCB for the month ended December 31,
1995. The excess cost over the net assets acquired was $465,000 and is being
amortized over 10 years.
CCB estimates that, upon consummation of the Merger, it will achieve
savings within a range of approximately $200,000 to $400,000 annually.
Also as described above, upon consummation of the Merger, each share of
Company Common issued and outstanding immediately prior to the Effective Time
and held of record by persons other than CCB will be converted into the right to
receive the Merger Consideration. The following description of the federal
income tax consequences of the Merger is included solely for the general
information of the shareholders of the Company. The tax consequences for any
particular shareholder may be affected by matters not discussed herein, and
shareholders should consult their personal tax advisors in determining the
consequences of the application of state and local tax law.
The conversion of shares of Company Common into the right to receive
the Merger Consideration pursuant to the Merger will be a taxable transaction
for federal income tax purposes. Each holder of shares of Company Common will
recognize gain or loss upon the surrender of that shareholder's Company Common
equal to the difference, if any, between (i) the sum of the cash payment of
$0.06 per share received in exchange for the shares of Company Common and (ii)
that shareholder's tax basis in the shares of Company Common. Holders of shares
of Company Common who exercise their right to dissent from the Merger will
recognize gain or loss equal to the difference, if any, between (i) the sum of
the cash payment received by the shareholder in exchange for his or her shares
of Company Common upon a final determination of the fair market value of such
shares and (ii) that shareholder's tax basis in the shares. Any gain or loss
will be treated as a capital gain or loss if the Company Common exchanged was
held as a capital asset in the hands of the shareholder.
The cash payments due to the holders of shares of Company Common upon
the exchange thereof pursuant to the Merger (other than certain exempt entities
and persons) will be subject to a backup withholding tax at the rate of 31%
under federal income tax law unless certain requirements are met. Generally, the
Exchange Agent will be required to deduct and withhold the tax on cash payments
due at the Effective Time if (i) the shareholder fails to furnish a taxpayer
identification number ("TIN" the TIN of an individual shareholder is his or her
Social Security number) to the Exchange Agent or fails to certify under penalty
of perjury that such TIN is correct; (ii) the Internal Revenue Service ("IRS")
notifies the Exchange Agent that the TIN furnished by the shareholder is
incorrect; (iii) the IRS notifies the Exchange Agent that the shareholder has
failed to report interest, dividends or original issue discount in the past; or
(iv) there has been a failure by the shareholder to certify under penalty of
perjury that such shareholder is not subject to the backup withholding tax. Any
amounts withheld by the Exchange Agent in collection of the backup withholding
tax will reduce the federal income tax liability of the shareholders from whom
such tax was withheld.
Item 8. Fairness of the Transaction.
(a) The Company and CCB believe that the Merger is fair to shareholders
of the Company, and the boards of directors of each of CCB and the Company have
unanimously approved the Merger, with no member of any of the foregoing boards
dissenting or abstaining from voting on the Merger.
(b) The Company, CCB and First Banks considered a number of factors in
determining the fairness of the Merger Consideration. The most significant of
these factors was the conclusion in the opinion of The Findley Group that the
fair value of the shares of Company Common held by persons other than CCB would
be $0.06 per share. The Company, CCB and First Banks consider The Findley Group
to be an experienced analyst of the California banking market. In reviewing The
Findley Group's report, the Company, CCB and First Banks noted the conclusions
reached using (1) the "premium on deposits" approach to valuing Queen City Bank
and (2) the "multiple of book value" approach taking into account the Company's
and Queen City Bank's troubled financial condition. The Company, CCB and First
Banks noted that the premium on deposits approach to valuing Queen City Bank
would be similar to assessing Queen City Bank's liquidation value and that
valuing the Company on the basis of the liquidation of Queen City Bank was
reasonable in light of the losses incurred by Queen City Bank and the Company
over the three most recent fiscal years that severely depleted the Company's and
Queen City Bank's net worth.
The Company, CCB and First Banks also agreed with the conclusion of The
Findley Group that, in determining the value of the Company, the amount of the
Company's liabilities separate from those of Queen City Bank (primarily the
remaining unconverted portion of the Debenture and the "Directors Debentures"
discussed in the response to Item 10) should be deducted from the value of Queen
City Bank.
In addition to the conclusions contained in the opinion, the Company,
CCB and First Banks reviewed certain additional factors, as follows:
Market value. The Company, CCB and First Banks noted that the
historical market value of shares of Company Common since January 1, 1993
ranged, after adjusting for stock splits and stock dividends declared by the
Company, from a high of $3.25 per share in the second and third quarters of
1993 to a low of $0.50 in the third quarter of 1994. It was also noted that,
due to the very few transactions in shares of Company Common during the past
year, it was difficult to assess the current market value of such shares
and that the most recent price at which shares of Company Common were traded
was $1.00 per share, although this transaction took place for the sole
purpose of satisfying regulatory requirements regarding Mr. Jensen's
qualifying shares as a director of Queen City Bank. In light of the thinly
traded nature of shares of Company Common and the fact that the historical
market prices of shares of Company Common occurred prior to the inception of
the Company's financial difficulties, the market value of shares of Company
Common (including the market values of such shares in the absence of
proceeds of the Debenture purchase), as indicated by trades of such shares in
the seconday market, was not a significant factor in the determination of the
fairness of the Merger Consideration.
Book value. The Company, CCB and First Banks also considered the
historical and current book values of shares of Company Common (including book
values of such shares in the absence of proceeds of the Debenture purchase). In
this regard, it was noted that the book value per share of Company Common
declined from $3.80 at December 31, 1993, to $1.21 at December 31, 1994 and to
$(0.28) at September 30, 1995 (the most recent quarter end prior to the partial
conversion of the Debenture). Further, although the book value increased to
$0.05 as of December 31, 1995, the increase in such value is due almost entirely
to the conversion of $2.4 million of the Debenture, and the proceeds of the
Debenture conversion constitute the entire net worth of the Company. CCB and
First Banks note that, although the $0.06 per share Merger Consideration is only
slightly higher than the December 31, 1995 book value per share, the book value
would continue to be negative if the Debenture had not been purchased and
and subsequently converted. The relationship of the Merger Consideration to the
book value per share of Company Common was a significant factor in the
determination by the Company, CCB and First Banks of the fairness of the Merger
Consideration, especially when the book value per share is calculated without
regard to the proceeds of the Debenture conversion.
Price per share paid by CCB. The final factor considered by the
Company, CCB and First Banks in determining the fairness of the Merger
Consideration was the price paid for shares of Company Common by CCB upon
partial conversion of the Debenture. In light of the negative book value of
shares of Company Common, the calculation of the conversion price per share
contained in the Debenture as originally issued by the Company would effectively
have given CCB the ability to convert the Debenture into 100% of Company Common,
leaving the public shareholders of the Company with no value for their shares.
CCB offered to mitigate this effect by setting the conversion price at $0.05 per
share if the book value per share of Company Common was less than $0.00. It was
noted that the Merger Consideration of $0.06 per share was higher than the $0.05
per share price at which CCB converted a portion of the Debenture and was
also significantly higher than the price at which CCB would have been entitled
to convert the Debenture had CCB not offered to adjust the conversion price.
The relationship of the Merger Consideration to the price per share at which CCB
converted the Debenture was a significant factor in the determination by the
Company, CCB and First Banks of the fairness of the Merger Consideration.
In reaching its determination as to the fairness of the Merger, none
of the Company, First Banks or CCB assigned any relative or specific weights to
the foregoing factors, and individual members of the boards of directors of
these entities may have given differing weights to different factors.
(c) Section 1110 of the California Code expressly authorizes
"short-form" mergers of one corporation with another corporation (or a
subsidiary thereof) that controls at least 90% of the stock of the first
corporation. Under such circumstances, the merger may be effected pursuant to a
resolution of the board of directors of the parent corporation and without a
vote of the shareholders of either corporation. The minorityshareholders
of the Company, however, are afforded dissenters' rights. As such, the Merger
has not been structured so that approval of at least a majority of the holders
of Company Common other than CCB is required. CCB also notes that the
shareholders of the Company approved the Debenture Agreement and the issuance of
the Debenture thereunder at the Company's 1995 Annual Meeting of Shareholders
(the "Shareholders' Meeting"), which was held on May 23, 1995. The proxy
solicitation materials provided to shareholders in connection with the
Shareholders' Meeting disclosed that (i) if First Banks became the owner of more
than 90% of the Company Common, First Banks would be able to effect a short form
merger of the Company, under section 1110 of the California Code, without the
approval of the minority shareholders of the Company and (ii) the shareholders
of the Company at the time of the Shareholders' Meeting may not have another
opportunity to vote upon the issue of whether the Company should be acquired.
(d) A majority of the directors of QCB who are not employees of the
Company or affiliates of First Banks or CCB (the "Independent Directors") voted
to retain The Findley Group to prepare a report concerning the fairness of the
Merger. The Independent Directors did not retain The Findley Group or any other
person to act solely on behalf of holders of shares of Company Common for the
purpose of negotiating the terms of the Merger.
Although the terms of the Merger were not negotiated by a person acting
solely on behalf of unaffiliated shareholders and will not be subject to a vote
of such shareholders, First Banks and CCB believe the terms of the Merger are
fair to shareholders for the reasons set forth in the response to Item 8(b)
above, including, in particular, the conclusions set forth in the report of The
Findley Group. First Banks and CCB also note that shareholders of the Company
have the right to dissent from the Merger notwithstanding the lack of a
shareholder vote thereon.
(e) A majority of Independent Directors voted to approve the Merger at
the meeting of the Board of Directors of the Company on December 20, 1995.
(f) First Banks and CCB believe that no firm offers for a merger or
other extraordinary transactions with respect to the Company have been made
(other than the Merger) in the past 18 months.
Item 9. Reports, Opinions, Appraisals and Certain Negotiations.
(a) and (b) The Independent Directors retained The Findley Group to
provide an opinion as to the fairness to the Company's shareholders, from a
financial point of view, of establishing the conversion price of the Debenture
at $0.05 per share and, in connection therewith, to provide a valuation to the
shares of Company Common not held by CCB. No limitations were imposed by First
Banks, CCB or the Company, or any of their affiliates, with respect to the
opinion to be rendered, although The Findley Group was not authorized to solicit
other potential purchasers for the Company or Queen City Bank. For The Findley
Group's services to the Company, the Company has agreed to pay The Findley Group
a fee of $6,500.
The Findley Group's principals and affiliated companies have been
banking consultants in California since 1956. The sole shareholder and
Co-Director of The Findley Group, Gary Steven Findley, is a registered
investment advisor with the Commission and the California Department of
Corporations and a practicing attorney specializing in the representation of
banking institutions. Mr. Findley also edits The Findley Reports and the
California Banking Newsletter and Directors' Compass, a newsletter covering
mergers and acquisitions of California financial institutions. The Findley Group
and its affiliates have been a principal source for fairness opinions in
California banking transactions, having provided, in the past five years, stock
valuation opinions and consulting services in over 30 banking transactions
involving mergers, acquisitions and changes in control. No principal,
staff-member, or any affiliate of The Findley Group currently owns any shares
beneficially or of record of Company Common, nor are such persons affiliated in
any way with the Company.
The following summary of the Findley Group's report is qualified in its
entirety by reference to the full text of the report which is attached hereto as
Exhibit 8.
The basic data supporting the opinions of the Findley Group are as of
September 30, 1995, supported with financial and operating information for Queen
City Bank and the Company as of October 31, 1995. The Findley Group also
reviewed the Debenture Agreement, recent securities and bank regulatory filings
made by the Company and Queen City Bank, reports of examination of the Bank and
the Company prepared by the Office of the Comptroller of the Currency and the
Federal Reserve Bank of San Francisco, respectively, and certain other
materials. In addition, The Findley Group personnel have had conversations with
members of the senior management of the Company and Queen City Bank. The Findley
Group also reviewed Queen City Bank's outstanding loans and other assets, the
status of any other bank regulatory criticisms of Queen City Bank's operations
and internal controls, and all other factors that could inhibit or restrict
Queen City Bank in its operations or performance that would be relevant to The
Findley Group's analysis and valuation.
In its opinion, The Findley Group observed that certain factors that
influenced the pricing of bank stock, including the recent increase in the
failure of banking institutions operating in California, the authority of
federal bank regulatory agencies to influence and affect bank operations, and
the increase in costs associated in complying with federal banking laws. The
Findley Group also considered the nature of the business of the Company and
Queen City Bank, the financial history of Queen City Bank, local and general
economic factors, regulatory restraints and handicaps imposed by federal banking
regulators, the current and future marketability of the Company's stock, and the
securities market marketing histories and experience of comparable banks, bank
holding companies and banking institutions.
In reaching its conclusion as to the value of the shares of Company
Common held by unaffiliated shareholders of the Company, The Findley Group first
determined, in light of the Company's position as essentially a shell company
whose only significant asset was the capital stock of Queen City Bank, the
reasonable market value of Queen City Bank as a whole. The Findley Group
employed three basic approaches to determine the acquisition value of Queen City
Bank: premium on deposits, multiple of equity return and multiple of book value.
Premium on Deposits. The premium on deposits approach treats the
approximate market value of the assets and deposit liabilities as added or
deducted value factors to Queen City Bank's capital accounts. This factor is
unique to banking and is primarily identified with a liquidation value. The
Findley Group concluded, using the premium on deposits approach, that the
acquisition value of Queen City Bank would be approximately $6,748,000.
Multiple of Equity Return. As the Company and Queen City Bank have
experienced a negative return on equity over the past several years, The Findley
Group concluded that the multiple of equity return approach could not be used as
part of a valuation of Queen City Bank.
Multiple of Book Value. The multiple of book value approach is based
upon the purchase prices and multiples of book values of comparable transactions
recently consummated or in the process of consummation. Recent bank acquisitions
in California reviewed by The Findley Group indicated that the average multiple
of book value for banks was approximately 1.46 and the median was approximately
1.40. The Findley Group determined that a multiple factor of 1.45 would be a
fair representation of the current values of sound, healthy and profitable
banks.
In light of Queen City Bank's troubled financial condition, however,
The Findley Group also reviewed the stock acquisition prices paid for California
banks with loan and operating problems and determined that such prices varied
between 0.33 and 1.10 as a multiple of book value. After comparing acquisitions
of comparable banks with classified assets of over 100% of shareholder equity
and loan loss reserves and a listing of market value to book value for financial
institutions with similar operating problems as the Company and Queen City Bank,
The Findley Group concluded that Queen City Bank, absent the significant capital
infusion resulting from the issuance of the Debenture, would have no earnings
potential and would be a candidate for receivership and a complete loss of the
Company's shareholders equity and that a multiple of book value factor of 1.10
for Queen City Bank would be applicable and reasonable due to its condition.
Using this approach, The Findley Group determined that the acquisition value of
Queen City Bank as of September 30, 1995 would be $6,501,000.
Based upon the evaluation of the three methods of valuation described
above, The Findley Group concluded that the valuation of the entirety of Queen
City Bank would be approximately $6,700,000. After taking into account the fact
that the Queen City Bank is the only significant asset of the Company and the
extent of the Company's liabilities separate from those liabilities of Queen
City Bank, The Findley Group concluded that the value of the Company's
shareholders equity is $2,865,000 and that the value of the shares held by the
unaffiliated shareholders of the Company would be 3.347% of such amount (i.e.,
the approximate pro rata interest of such shareholders relative to CCB's
approximate 96.6% interest), or approximately $96,000 or $0.06 per share after
the payment of all liabilities.
(c) A copy of the report of The Findley Group is available for
inspection and copying at the principal executive office of the Company, 4201
Long Beach Boulevard, Long Beach, California, and at the principal executive
office of CCB Bancorp, 2900 South Harbor Boulevard, Santa Ana, California,
during regular business hours by any interested shareholder of the Company or a
representative of such a shareholder who has been so designated in writing.
Item 10. Interest in Securities of the Issuer.
(a) CCB owns of record 48,000,000 shares of Company Common,
representing approximately 96.6% of the issued and outstanding shares of such
stock. In addition, CCB continues to hold the unconverted portion of the
Debenture, with a principal amount of $3,329,516.43, and First Banks holds
additional debentures acquired from certain directors of Company (the "Director
Debentures"), with a principal amount of $500,000 and accrued but unpaid
interest of approximately $46,164. The Director Debentures were issued by
Company in December 1994 and are convertible into Company Common at a price
based upon the book value per share of Company Common. Company does not have a
sufficient number of authorized but unissued shares of Company Common Stock to
permit the conversion of a material amount of the remaining, unconverted portion
of the Debenture or of the Director Debentures.
(b) All transactions in the shares of the Company Common effected by
First Banks and CCB during the past 60 days are described in the responses to
Item 1(f), above.
Item 11. Contracts, Arrangements or Understandings With Respect to the Issuer's
Securities.
Other than as described in this transaction statement and the
remaining, unconverted principal amount of the Debenture and the accrued but
unpaid interest thereon, there is no contract, arrangement, understanding or
relationship (whether or not legally enforceable) in connection with the Merger
between First Banks or CCB, any of the directors or executive officers or
shareholders of First Banks or CCB and any other person with respect to any
securities of the Company.
Item 12. Present Intention and Recommendation of Certain Persons With
Regard to the Transaction.
(a) As the transaction discussed herein will be a merger pursuant to
the corporation laws of the States of California and Delaware, all of the shares
of Company Common held by persons other than CCB will be converted into the
right to receive cash in the amount of $0.06 per share. First Banks and CCB do
not anticipate that any of the directors or any executive officer, director or
affiliate of the Company will dissent from the Merger.
(b) The Board of Directors of the Company, including a majority of the
Independent Directors, have approved the Merger.
Item 13. Other Provisions of the Transaction.
(a) Under the Chapter 13 of California Code (Cal. Corp. Code,
Title 1, Division 1, Chap. 13), holders of shares of Company Common have the
right to dissent from the Merger and obtain payment of
the value of their shares of Company Common. If any such shareholder wishes to
do so, he or she must make a written demand for purchase of his or her shares in
cash that is received by the Company or its transfer agent within 30 days after
the mailing of a notice of the Merger required under the California Code. The
demand must include a statement of the price which claimed to be the fair market
value of the shares of Company Common, and certificates for such shares must be
delivered to the Company or its transfer agent within the same 30 day period so
that the certificate may be stamped as representing dissenting shares and
returned to the shareholder. If the Company and the shareholder do not agree on
the price per share of Company Common, the shareholder must file suit in the
appropriate California superior court for a determination of the price. In
certain cases, the corporation can be required to pay the shareholder's
attorneys and appraiser fees. Such suit must be filed within 6 months after the
mailing of the notice described above. If the Company and the shareholder agree
on a price or if a price is fixed by the court, the shareholder must surrender
his or her share certificate in order to receive payment for such shares.
THE FOREGOING SUMMARY DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF
THE PROVISIONS OF THE CALIFORNIA CORPORATIONS CODE RELATING TO THE RIGHTS OF
DISSENTING SHAREHOLDERS OF QCB BANCORP, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO CHAPTER 13 OF THE CALIFORNIA CORPORATIONS CODE, WHICH IS ATTACHED
HERETO AS EXHIBIT 13.
(b) First Banks and CCB have not made any arrangement to allow
unaffiliated shareholders to obtain access to corporate files of the Company or
to obtain counsel or appraisal services at the expense of First Banks, CCB or
the Company.
(c) The Merger does not contemplate the exchange of debt securities for
equity securities of the Company.
Item 14. Financial Information.
(a) The Company's audited financial statements for the fiscal years
ended December 31, 1994 and December 31, 1993 are incorporated herein by
reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994. The Company's unaudited balance sheets and comparative
year-to-date income statements and statements of cash flows and related earnings
per share amounts for the period ended September 30, 1995 are incorporated
herein by reference to the Company's Quarterly report on Form 10-Q for the
period ended September 30, 1995. The foregoing filings of the Company are
incorporated herein by reference pursuant to General Instruction D to Schedule
13 E-3.
The following summary presents selected consolidated historical data
for the Company:
Year Ended December 31,
1995 1994 1993
(unaudited)
(in thousands, except per share data)
Income Statement
Net interest income 3,173 4,323 4,951
Provision for possible
loan losses 1,879 2,327 1,324
Noninterest income 1,153 1,503 2,659
Noninterest expense 6,119 6,968 7,388
Net loss (3,604) (3,449) (934)
Balance Sheet
Investment securities 10,781 12,046 14,255
Loans, net 33,062 45,446 59,603
Total assets 54,790 66,281 86,640
Total deposits 48,171 62,890 79,578
Shareholders' equity 2,292 2,022 6,367
Per Share
Average number of shares
outstanding 5,673,596 1,673,596 1,673,596
Net loss per share (0.07) (2.06) (0.56)
Nine Months Ended September 30,
1995 1994
(unaudited)
(in thousands, except per share data)
Income Statement
Net interest income 2,463 3,288
Provision for possible
loan losses 1,750 1,881
Noninterest income 901 1,206
Noninterest expense 4,812 4,944
Net loss (3,190) (2,295)
Balance Sheet
Investment securities 10,610 14,244
Loans, net 35,977 48,921
Total assets 58,176 77,552
Total deposits 52,162 73,555
Shareholders' equity (470) 3,379
Per Share
Average number of shares
outstanding 1,673,596 1,673,596
Net loss per share (1.91) (1.36)
The Company has incurred a net loss of $3.6 million and $3.4 million
for the years ended December 31, 1995 and 1994, respectively, and $3.2 million
and $2.3 million for the nine months ended September 30, 1995 and 1994,
respectively. The fixed charges, consisting of interest expense, was $308,000
and $173,000 for the year ended December 31, 1995 and for the nine months ended
September 30, 1995, respectively. The fixed charges are not significant in
comparison to the net losses incurred for those same periods. Accordingly, the
ratio of earnings (loss) to fixed charges has not been provided as it is not
meaningful.
The book value per share as of December 31, 1994 was $1.21 and as of
September 30, 1995 was $(0.28).
(b) As the Company will be the disappearing entity in the Merger, pro
forma data disclosing the effect of the Merger on its balance sheet, statement
of income, earnings per share amounts, ratio of earnings to fixed charges and
book value per share is not provided.
Item 15. Persons and Assets Employed, Retained or Utilized.
(a) No officer, employee, class of employees or corporate asset of the
Company has been or is proposed to be employed, availed of or utilized by First
Banks, CCB or the Company in connection with the Merger. Messrs. Fred D. Jensen
and Terrance M. McCarthy, both of whom are executive officers of the Company and
Queen City Bank, have been appointed officers and members of the Board of
Directors of First Bank and Trust.
(b) No persons shall be employed, retained or compensated by First
Banks or CCB, or by any person on behalf of First Banks or CCB, to make
solicitations or recommendations in connection with the Merger.
Item 16. Additional Information.
On July 31, 1995, First Banks filed with the Commission a statement on
Schedule 13D reporting consummation of the transactions contemplated by the
Debenture Agreement and First Banks' acquisition of the Debenture. On December
8, 1995, First Banks filed with the Commission an Amendment No. 1 to such
Schedule 13D to report the conversion of a portion of the Debenture. The Company
files periodic reports and other information with the Commission pursuant to the
Securities Exchange Act of 1934 relating to its business, financial statements
and other matters. This statement and the exhibits thereto, First Banks'
statement on Schedule 13D, the Amendment No. 1 to Schedule 13D and the exhibits
thereto, as well as reports and other information of the Company may be
inspected at the Commission's office at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and the Commission's Regional Office in New
York (Suite 1300, 7 World Trade Center, New York, New York 10048), and copies of
such material can be obtained from the public reference section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at proscribed
rates.
Item 17. Material to be Filed as Exhibits.
Exhibit No. Description
2 Identity and Background of First Banks, Inc., CCB Bancorp,
Inc. and Affiliates
3 Opinion of The Findley Group on the Conversion Price of the
Debenture
4 Agreement and Plan of Merger
8 Opinion of the Findley Group on the Value of Shares of the
QCB Bancorp Common Stock
13 Chapter 13, California Corporations Code
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
FIRST BANKS, INC.
By:/s/Laurence J. Brost
Name:Laurence J. Brost
Title:Controller
Date: February 27, 1996
CCB BANCORP, INC.
By:/s/Allen H. Blake
Name: Allen H. Blake
Title:Secretary
Date: February 27, 1996
Exhibit Index
Exhibit No. Description Page
2 Identity and Background of First Banks, *
Inc., CCB Bancorp, Inc. and Affiliates
3 Opinion of The Findley Group on the *
Conversion Price of the Debenture
4 Agreement and Plan of Merger *
8 Opinion of the Findley Group on the Value *
of Shares of the QCB Bancorp Common Stock
13 Chapter 13, California Corporations Code *
- --------------------
* Previously filed.