SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. 2)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-12
First Banks America, Inc.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
Common stock of First Banks America, Inc.
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(2) Aggregate number of securities to which transaction applies: 798,753
shares -------
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): $40.54 per
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share (Represents the agreed-upon buyout price of the common shares
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held publicly)
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(4) Proposed maximum aggregate value of transaction: $32,381,446.62
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(5) Total fee paid: $2,979.09
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[ ] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid: $2,979.09
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(2) Form, Schedule or Registration Statement No.: Schedule 13E-3
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(3) Filing Party: First Banks, Inc.
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(4) Date Filed: October 8, 2002
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JOHN S. DANIELS
ATTORNEY AT LAW
6440 NORTH CENTRAL EXPRESSWAY
SUITE 503
DALLAS, TEXAS 75206
(214) 368-9405
November 26, 2002
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: First Banks America, Inc. ("Registrant") preliminary proxy
materials for Annual Meeting of Stockholders
Ladies and Gentlemen:
Pursuant to Rule 14a-6 under the Securities Exchange Act of 1934,
enclosed on behalf of my client, First Banks America, Inc., are a Notice of
Annual Meeting, a preliminary Proxy Statement and form of Proxy in the form that
such materials are intended to be mailed to stockholders on or about December
___, 2002. Also enclosed is a Schedule 14A Information cover sheet setting forth
required information. The filing fee was previously paid with a Schedule 13E-3
filed by First Banks, Inc. in accordance with Commission procedures.
If you require additional information regarding this filing, please
contact the undersigned at (214) 368-9405.
Sincerely,
/s/ John S. Daniels
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John S. Daniels
First Banks America, Inc.
550 Montgomery Street
San Francisco, California 94111
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
(Preliminary Copy)
To Be Held ____________, December ___, 2002
To the Stockholders of First Banks America, Inc.:
Notice is hereby given that the 2002 Annual Meeting of Stockholders
(the "Annual Meeting") of First Banks America, Inc., a Delaware corporation
("FBA"), will be held at 135 North Meramec, Clayton, Missouri, on _________,
December ___, 2002 at ______ __.m., local time, for the following purposes:
(1) To approve and adopt an Agreement and Plan of Merger dated
September 23, 2002 by and among FBA, First Banks and FBA
Acquisition whereby FBA Acquisition will be merged with and into
FBA, the stockholders of FBA (other than First Banks) will be
paid $40.54 per share for each share of FBA common stock which
they own, and FBA will become a wholly-owned subsidiary of First
Banks;
(2) To elect seven directors to serve until the next Annual Meeting
and until their successors have been duly elected and qualified;
and
(3) To transact any and all other business as may properly be
presented at the meeting and any adjournment(s) thereof.
The board of directors has fixed the close of business on November 1,
2002 as the record date for the determination of stockholders entitled to notice
of and to vote at the Annual Meeting and any adjournment(s) thereof. The stock
transfer books will not be closed. A list of stockholders entitled to vote at
the meeting will be available for examination at 135 North Meramec, Clayton,
Missouri 63105 for ten (10) days prior to the meeting.
You should be aware that approval of the merger proposal and the
election of the board nominees are assured because First Banks presently owns
93.78% of FBA's outstanding voting stock. You are cordially invited to attend
the Annual Meeting. However, whether or not you plan to be present, you are
urged to promptly mark, sign, date and return the accompanying proxy in the
enclosed, self-addressed, stamped envelope, so that your shares may be voted in
accordance with your wishes.
Your proxy will be returned to you if you should request such return in
the manner provided for revocation of proxies on page 68 of the enclosed Proxy
Statement. Your prompt response will reduce the time and expense of
solicitation.
By Order of the Board of Directors,
San Francisco, California ALLEN H. BLAKE
December ___, 2002 Secretary
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE TRANSACTION DISCUSSED HEREIN, PASSED
UPON THE MERITS OR FAIRNESS OF THE TRANSACTION, OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THE DISCLOSURE HEREIN. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
SUMMARY TERM SHEET........................................................................................ 1
The Companies........................................................................................ 1
The Annual Meeting................................................................................... 2
The Merger........................................................................................... 2
The Merger Agreement................................................................................. 5
Election of Directors................................................................................ 6
QUESTIONS AND ANSWERS REGARDING THE ANNUAL MEETING
AND THE MERGER......................................................................................... 6
The Annual Meeting................................................................................... 6
The Merger........................................................................................... 7
Elections of FBA's Board of Directors................................................................ 9
PROPOSAL NUMBER 1......................................................................................... 10
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT............................................................. 10
SPECIAL FACTORS........................................................................................... 10
Background of and Reasons for the Merger............................................................. 10
Consideration of the Merger.......................................................................... 20
Opinion of the Financial Advisor to the Special Committee............................................ 33
Analysis of the Fairness of the Merger............................................................... 39
THE MERGER................................................................................................ 44
Interests of Directors and Officers in the Merger.................................................... 44
Federal Income Tax Consequences...................................................................... 45
Appraisal Rights..................................................................................... 46
Regulatory Approvals................................................................................. 48
Recent Purchases of Stock............................................................................ 48
Accounting Treatment................................................................................. 50
Estimated Expenses; Financing........................................................................ 50
THE MERGER AGREEMENT...................................................................................... 51
Representations and Warranties....................................................................... 51
Conditions to the Consummation of the Merger......................................................... 53
Conduct of Business Pending the Merger............................................................... 53
Additional Agreements................................................................................ 54
Termination; Damages................................................................................. 55
Amendment and Waiver................................................................................. 55
Expenses............................................................................................. 55
PROPOSAL NUMBER 2......................................................................................... 56
ELECTION OF DIRECTORS..................................................................................... 56
Nominees............................................................................................. 56
Executive Officers................................................................................... 57
Committees and Meetings of the Board of Directors.................................................... 58
Director Compensation................................................................................ 58
Family Relationships................................................................................. 58
Certain Relationships and Related Transactions....................................................... 58
EXECUTIVE COMPENSATION.................................................................................... 59
Summary Compensation Table........................................................................... 59
STOCK PERFORMANCE GRAPH................................................................................... 60
COMPENSATION COMMITTEE REPORT............................................................................. 61
AUDIT COMMITTEE REPORT.................................................................................... 62
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION............................................... 63
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE................................................... 64
SUMMARIZED FINANCIAL INFORMATION.......................................................................... 65
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS.............................................................. 66
General.............................................................................................. 66
Security Ownership of Management and of Controlling Stockholder...................................... 67
SOLICITATION AND REVOCABILITY OF PROXIES.................................................................. 68
FORWARD-LOOKING STATEMENTS IN THIS PROXY STATEMENT........................................................ 69
INDEPENDENT AUDITORS...................................................................................... 69
AVAILABLE INFORMATION..................................................................................... 70
INCORPORATION OF INFORMATION BY REFERENCE................................................................. 70
STOCKHOLDER PROPOSALS..................................................................................... 71
First Banks America, Inc.
550 Montgomery Street
San Francisco, California 94111
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
To Be Held on December ___, 2002
(Preliminary Copy)
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SUMMARY TERM SHEET
This summary term sheet highlights selected information from this
proxy statement and may not contain all of the information that is important to
you. We encourage you to carefully read this entire proxy statement, including
the appendices, and the other documents we refer to for a more complete
understanding of the merger, described in more detail under the heading
"PROPOSAL NUMBER 1." In addition, we incorporate by reference important business
and financial information about FBA into this proxy statement.
The Companies
FBA is a bank holding company headquartered in San Francisco,
California. Approximately 93.78% of the voting stock of FBA is owned by First
Banks, Inc., which is also a bank holding company (described below);
accordingly, First Banks controls FBA. To avoid confusion, we refer throughout
this proxy statement to First Banks, Inc. as "First Banks" and First Banks
America, Inc. as "FBA."
FBA conducts business through our bank subsidiary, First Bank & Trust,
which has 49 offices located in California and 8 offices in Texas. As of
September 30, 2002, FBA had total stockholders' equity of $317.1 million, total
assets of $3.14 billion, total net loans of $2.31 billion and total deposits of
$2.58 billion. First Bank & Trust is based in San Francisco, California. A
description of the business of FBA and First Bank & Trust appears in FBA's
Annual Report on Form 10-K for the year ended December 31, 2001, one of the
documents incorporated by reference in this proxy statement. FBA's principal
executive offices are located at 550 Montgomery Street, San Francisco,
California 94111, and the telephone number at that address is (415) 781-7810.
Additional information regarding FBA is contained in its Annual Report
on Form 10-K for the year ended December 31, 2001 and its Quarterly Reports on
Form 10-Q for the quarterly periods ended March 31, 2002, June 30, 2002 and
September 30, 2002, all of which are incorporated by reference herein. See
"AVAILABLE INFORMATION" and "INCORPORATION OF INFORMATION BY REFERENCE."
First Banks is based in St. Louis, Missouri. As of September 30, 2002,
First Banks had total stockholders' equity of $506.2 million, total assets of
$7.17 billion, total net loans of $5.46 billion and total deposits of $6.03
billion. First Banks acquired control of a majority of the voting stock of FBA
in 1994 and, since that time, has controlled FBA and the election of a majority
of the members of FBA's board of directors.
FBA Acquisition Corporation ("FBA Acquisition") is a Delaware
corporation formed and wholly-owned by First Banks solely for the purpose of
engaging in the merger. FBA Acquisition has not engaged in any business
activities except in contemplation of the merger and, if the merger is
consummated, its separate corporate existence will terminate.
The Annual Meeting
Date, Time and Place (see page 68)
The annual meeting will be held at 135 North Meramec, Clayton,
Missouri on __________, December ___, 2002 at _____ __.m. local time.
Proposals to be Considered (see pages 10 and 56)
There are two proposals scheduled for consideration at the annual
meeting:
o PROPOSAL #1: approval and adoption of an Agreement and Plan of
Merger dated September 23, 2002 by and among FBA, First Banks and
FBA Acquisition (the "merger agreement"), whereby FBA Acquisition
will be merged with and into FBA, the stockholders of FBA (other
than First Banks) will be paid $40.54 per share for each share of
FBA common stock which they own, and FBA will become a
wholly-owned subsidiary of First Banks; and
o PROPOSAL #2: the election of seven nominees for the board of
directors of FBA.
Vote Required for Approval (see page 66)
FBA's Certificate of Incorporation provides a merger involving an
affiliated party such as First Banks must be approved and adopted by the vote of
at least 75% of the combined outstanding common stock and Class B common stock.
In the election of directors, the seven nominees receiving the largest number of
votes cast will be elected.
Holders of shares of FBA common stock and Class B common stock
(including First Banks) are entitled to one vote for each share owned, and they
are permitted to exercise cumulative voting in a contested election of
directors. See "VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS."
Because First Banks already owns approximately 93.78% of FBA's
outstanding voting stock and intends to vote in favor of the merger and the
election of the seven nominees named herein, approval and adoption of the merger
agreement and the election of the nominees is assured.
The Merger
Background; Special Committee (see page 10)
In April 2002, First Banks proposed to FBA that they enter into a
transaction by which First Banks would acquire all of the FBA shares held by its
public stockholders. Because of First Banks' control of FBA, the board of
directors of FBA appointed a special committee (described below), consisting of
the three FBA directors who are not affiliated with First Banks, to consider the
terms of the merger and make a recommendation to the board of directors
regarding the advisability of the transaction.
Structure of the Transaction (see page 44)
FBA, First Banks and FBA Acquisition entered into the merger agreement
on September 23, 2002, providing for First Banks to acquire all of the
outstanding common stock of FBA which it does not already own. The merger
agreement provides that FBA Acquisition will merge with and into FBA, with the
result that FBA will become a wholly-owned subsidiary of First Banks and all of
the stockholders of FBA except First Banks (generally referred to herein as the
public stockholders) will be entitled to receive $40.54 per share for each share
of common stock of FBA which they own immediately prior to the closing of the
merger. We urge you to read the merger agreement, which is attached as Appendix
A to this proxy statement, carefully and in its entirety.
Reasons for the Transaction (see page 10)
FBA's special committee reviewed and considered the following reasons
as a basis for recommending approval of the proposed transaction to FBA's board
of directors:
o The financial benefit of common stock ownership by public
stockholders may not correspond to the underlying economic value
of FBA.
o FBA has generally not been successful in using its common stock
in acquisitions.
o The financial reporting and regulatory requirements may cause
inconsistencies between the interests of First Banks and the
public stockholders.
o The expenses associated with maintaining a publicly owned company
are excessive relative to the amount of FBA common stock
outstanding.
o The special committee believes that the agreed price is fair to
the public stockholders and represents an optimum exit for
unaffiliated stockholders in light of overall market and economic
uncertainties, as well as the prevailing lack of liquidity for
the shares of FBA.
Recommendation of FBA's board of directors (see page 20)
After consulting with an independent financial advisor, and having
been advised by independent legal counsel, the members of the special committee
unanimously approved the merger agreement, and recommended that the board of
directors also do so. The board of directors then unanimously approved the
merger agreement and recommends that the stockholders vote to approve and adopt
it.
Opinion of Baxter Fentriss (see page 33)
The special committee retained Baxter, Fentriss and Company ("Baxter
Fentriss") as its financial advisor to assist the special committee in
evaluating the merger, including the price to be paid to FBA's unaffiliated
stockholders (the public stockholders, excluding officers and directors of FBA).
Baxter Fentriss delivered an opinion to the special committee that, as of the
date of the opinion and based on the procedures followed, factors considered and
assumptions made by Baxter Fentriss, and subject to the limitations set forth in
the opinion, the merger is fair to the unaffiliated stockholders of FBA from a
financial point of view. The complete opinion of Baxter Fentriss is attached as
Appendix B to this proxy statement. We urge you to read it in its entirety.
Position of First Banks, FBA Acquisition and James F. Dierberg as to the
Fairness of the Merger (see page 42)
Rules of the Securities and Exchange Commission ("SEC") require First
Banks, FBA Acquisition and James F. Dierberg (controlling shareholder of First
Banks) to express a belief regarding the fairness of the merger to the
unaffiliated stockholders of FBA. Each of such parties believes that the merger
is fair to such stockholders, based on their own analyses of the terms of the
merger agreement and also on the deliberations of the special committee, the
negotiations which occurred in order to arrive at the price and other material
terms of the merger agreement and the analysis provided by Baxter Fentriss.
Interests of Directors and Officers in the Merger (see page 45)
Certain of the directors and officers of FBA are owners of FBA common
stock (see the table herein entitled "VOTING SECURITIES AND PRINCIPAL
STOCKHOLDERS"). At the effective time of the merger, they will each receive
$40.54 per share, the same price payable to the public stockholders, for each
share of FBA common stock that they own.
You should also be aware that directors and officers of FBA have
interests in the merger that are in addition to, or different from, those of the
public stockholders of FBA. You may wish to take those interests into account in
determining what weight, if any, to give to the recommendations of the special
committee and the board of directors. These interests can lead to
inconsistencies between the objectives of the officers and directors and those
of the public stockholders, as follows:
o Mr. Dierberg and members of his immediate family will be the
beneficial owners of all of the outstanding equity of FBA
following the merger and will therefore obtain the benefit of any
future earnings and growth of FBA and its assets;
o FBA officers and directors who are officers of First Banks will
continue their roles in managing FBA or its successor following
the merger, while the public stockholders will receive cash for
their shares if the merger is consummated and will have no
further interest in FBA;
o FBA's officers and directors are generally entitled to be
indemnified for liabilities arising from their conduct in those
capacities, and First Banks and FBA maintain insurance for the
purpose of protecting them against such liabilities. Furthermore,
the members of the special committee are parties to
indemnification agreements with FBA and First Banks, which
provide generally for indemnification against liabilities which
they may incur as a result of their services as directors of FBA
or as members of the special committee; and
o each member of the special committee has received a fee of
$10,000 for serving on the special committee, and will be
reimbursed for reasonable expenses incurred in connection with
the performance of their responsibilities on the special
committee. Such fees and expenses were payable whether or not the
special committee recommended approval of the merger agreement
and whether or not the merger is consummated.
Material Federal Income Tax Consequences (see page 45)
The receipt by an FBA stockholder of cash for FBA shares will be a
taxable transaction for United States federal income tax purposes. An FBA
stockholder will generally recognize gain or loss in an amount equal to the
difference between the cash received by the stockholder and the stockholder's
tax basis in the FBA shares surrendered in the merger. That gain or loss will be
a capital gain or loss if the FBA shares are held as a capital asset by the
stockholder. Because the tax consequences of the merger may vary depending
upon your particular circumstances, we recommend that you consult with your tax
advisor regarding the tax consequences of the merger.
Appraisal Rights of FBA Stockholders (see page 46)
You will be entitled to appraisal rights under Section 262 of the
Delaware General Corporation Law ("DGCL") in connection with the merger so long
as you take all steps necessary to protect those rights. Section 262 is
reprinted in its entirety as Appendix C to this proxy statement. You will not be
entitled to exercise appraisal rights if you vote in favor of the merger.
The Merger Agreement
Conditions to Completion of the Merger (see page 53)
The obligations of FBA and First Banks to complete the merger are
subject to the prior satisfaction or waiver of certain conditions. The following
conditions must be satisfied or waived before completion of the merger:
o no injunction or order preventing consummation of the merger may
be in effect, and the merger shall not have been made illegal;
o all legally necessary approvals, consents and authorizations,
including approval by FBA's stockholders and any required
regulatory approvals, shall have been obtained. In that regard,
no approval by federal or state banking regulatory authorities is
required, because First Banks already controls FBA. If it is
determined that any notices to any regulatory authority is
required or desirable, First Banks is required by the merger
agreement to seek such approvals, and FBA is required to
cooperate with respect to such notifications and provide any
information reasonably required in connection therewith; and
o the special committee shall have received an opinion of Baxter
Fentriss to the effect that the merger is fair to the
unaffiliated stockholders of FBA from a financial point of view,
and such opinion shall not have been withdrawn. The fairness
opinion (which appears as Appendix B) was received on September
23, 2002, and we do not have any reason to believe that it will
be withdrawn.
In addition, there are certain additional conditions that must be
satisfied or waived in order for FBA (but not First Banks) to be required to
complete the merger, as follows:
o the representations and warranties made by First Banks and FBA
Acquisition in the merger agreement must be true in all material
respects;
o First Banks and FBA Acquisition must comply with its agreements
in the merger agreement; and
o FBA shall have received all documents required to be received
from First Banks and FBA Acquisition.
Termination of the Merger Agreement (see page 55)
The merger agreement may be terminated before completion of the merger
by First Banks and FBA acting jointly, or by either FBA or First Banks if:
o a breach of the agreement by the other party occurs, which is not
cured within thirty days after receipt of written notice of such
breach;
o any of the conditions to the obligations are not satisfied or
waived on or prior to the closing date and after the expiration
of any applicable cure period;
o the merger is not completed by March 31, 2003; or
o a required regulatory approval is finally denied.
Election of Directors
PROPOSAL NUMBER 2 at the annual meeting is for the election of
directors. The seven nominees for FBA's board of directors are the seven
incumbent directors. Information regarding the nominees and other relevant
information regarding the election of directors appears in this proxy statement
under the heading `PROPOSAL NUMBER 2: ELECTION OF DIRECTORS."
QUESTIONS AND ANSWERS REGARDING
THE ANNUAL MEETING AND THE MERGER
The Annual Meeting
Q: When and where is the annual meeting?
A: The annual meeting of stockholders of FBA will be held on December ___,
2002 at ____ o'clock __.m., local time at 135 North Meramec, Clayton,
Missouri.
Q: What am I to vote on?
A: Two proposals are to be voted on by FBA's stockholders of record as of
November 1, 2002: the proposed buyout of FBA through a merger with a
subsidiary of First Banks, and the annual election of the board of
directors of FBA.
Q: Once I have voted, may I change my vote or revoke my proxy?
A: Yes, you may change your vote or revoke your proxy up to the time your
shares are voted at the annual meeting. You may do this in any of three
ways: by giving written notice of revocation to the Secretary of FBA at
our principal executive offices, by executing and delivering a
later-dated proxy, or by attending the annual meeting and voting your
shares in person. Additional information regarding these procedures
appears on page 68 of this proxy statement.
Q: What does the board of directors of FBA recommend?
A: The board of directors recommends that you vote
o FOR approval and adoption of the merger agreement, and
o FOR the election of the seven nominees for director named in this
proxy statement.
In considering the recommendation of the board of directors, you should
take into account that the directors have some interests in the merger
in addition to or different from yours. See the section entitled
"INTEREST OF DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER" for
additional information.
Q: How can I obtain additional information?
A: This proxy statement incorporates certain documents by reference which
you may want to review. Information regarding how to obtain copies of
such documents is set forth under the headings "AVAILABLE INFORMATION"
and "INFORMATION INCORPORATED BY REFERENCE" in this proxy statement.
Any request for information or documents from FBA should be delivered
to us at least ten days prior to the annual meeting.
The Merger
Q: What is the nature of the proposed transaction?
A: The merger will result in
o FBA's becoming a wholly-owned subsidiary of First Banks; and
o each FBA stockholder (other than First Banks) being entitled to
receive $40.54 in cash per share for his or her shares, shortly
after the completion of the merger.
Q: How were the merger price and other terms determined?
A: Because of the relationship between First Banks and FBA, the FBA board
of directors (a majority of whom are affiliated with First Banks)
recognized that the merger should be considered by a special committee
composed solely of directors who are not affiliated with First Banks.
The special committee (Messrs. Charles A. Crocco, Jr., Albert M.
Lavezzo and Edward T. Story, Jr.) was authorized by the board of
directors to analyze the terms on which such a transaction might be
conducted, and to retain its own advisors, including legal and
financial advisors, to assist it in performing such analysis.
The special committee, whose members have received a fee of $10,000
plus reasonable expenses for serving on the special committee,
irrespective of whether any transaction is approved or completed,
engaged independent legal counsel and a financial advisor. Having
considered the information and advice provided by its advisors, the
special committee and its legal counsel negotiated the merger price and
other material terms of the merger agreement with First Banks and its
legal counsel.
For additional information regarding the special committee and its
deliberations and recommendation, see "APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT - Consideration of the Merger."
Q: What are the tax consequences of the merger?
A: The receipt by a stockholder of FBA of cash for his or her shares will
be a taxable transaction for United States federal income tax purposes.
An FBA stockholder will generally recognize gain or loss in an amount
equal to the difference between the cash received by the stockholder
and the stockholder's tax basis in the shares of FBA common stock
surrendered in the merger. That gain or loss will be a capital gain or
loss if the FBA shares are held as a capital asset by the stockholder.
Because the tax consequences of the merger may vary depending upon your
particular circumstances, we recommend that you consult with your tax
advisor regarding the tax consequences of the merger.
Q: What vote is required to approve and adopt the merger agreement?
A: The affirmative vote of 75% or more of the outstanding voting stock of
FBA is required in order to approve and adopt the merger agreement.
Because First Banks owns approximately 93.78% of FBA's voting stock and
intends to vote in favor of the proposal, such approval and adoption is
assured.
Q: What if I oppose the merger? Do I have appraisal rights?
A: If you object to the merger, and if you comply with procedures required
by Delaware law, you may elect to pursue appraisal rights to receive
the "fair value" of your shares as determined under the DGCL. That
"fair value" may be more or less than the merger price of $40.54 per
share of FBA common stock. In order to be eligible to pursue these
rights, you must not vote for approval and adoption of the merger
agreement and you must comply with the procedures and deadlines set
forth in Section 262 of the DGCL.
For additional information regarding the procedures that must be
followed to exercise your rights to an appraisal, see "THE MERGER -
Appraisal Rights." In addition, Appendix C to this proxy statement sets
forth the text of Section 262 of the DGCL, which governs the exercise
of appraisal rights.
Q: When will the merger be completed? Is it subject to conditions?
A: We estimate that the merger will be completed as soon as practicable
following the annual meeting, and during the fourth quarter of 2002.
However, the timing of completion is subject to change and could be
delayed.
Completion of the merger is subject to certain conditions. See "THE
MERGER AGREEMENT - Conditions to the Merger" for additional
information.
Q: Should I send in my FBA stock certificates now?
A: No. If the merger is completed, shortly thereafter you will receive a
letter of transmittal from our exchange agent, with instructions
informing you how to send in your stock certificates. Unless you are
seeking to pursue your appraisal rights, you should use the letter of
transmittal (following the instructions that will accompany it) to
transmit your certificates for the $40.54 per share merger
consideration to which you will be entitled when the merger is
consummated. You should not send in any stock certificates now.
Elections to FBA's Board of Directors
Q: Who are the nominees?
A: The seven nominees all currently serve as directors of FBA and are
being nominated for re-election. Information about the nominees appears
under "PROPOSAL NUMBER 2 - ELECTION OF DIRECTORS - Nominees."
PROPOSAL NUMBER 1:
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
SPECIAL FACTORS
This portion of the proxy statement presents a detailed discussion of
the proposed merger, beginning with an explanation of the background and reasons
for the merger from the perspectives of both FBA and First Banks. Following that
discussion are sections describing, among other things, the following:
o the process by which the merger and the terms of the merger
agreement were developed;
o the role of and conclusion reached by the financial advisor to
the special committee of our board of directors;
o analysis of the fairness of the merger;
o interests of our directors and executive officers in the merger,
which in some cases are in addition to, or different from, those
of unaffiliated stockholders;
o federal income tax consequences of the merger;
o your appraisal rights under Delaware law;
o information regarding transactions in FBA's common stock by FBA
and First Banks;
o a table showing estimated expenses of the transaction; and
o a description of significant provisions of the merger agreement
(a complete copy of the merger agreement appears in Appendix A).
We encourage you to read the entire discussion, as well as the
appendices, to obtain a complete understanding of the merger.
Background of and Reasons for the Merger
First Banks acquired a majority of FBA's voting stock in 1994 by
purchasing 2,500,000 shares of newly issued class B common stock, representing
approximately 65% of the total shares of voting stock outstanding at the time.
Since First Banks does not have any publicly held voting stock, it was
anticipated that the FBA common stock could be used to engage in acquisitions of
other financial institutions in which the purchase price would be wholly or
partially in the form of common stock, an alternative that had not previously
been pursued by First Banks.
However, shortly after First Banks acquired its interest in FBA, a
combination of restructuring expenses and asset quality issues arose, causing
FBA to incur net losses for the years 1994 and 1995. Since this had a negative
effect on the market price of FBA stock, there was little incentive for sellers
to exchange their bank stock for a stock with a depressed market value in a
highly competitive acquisition market in which pricing had become somewhat
aggressive. Consequently, it was not until November 1996 that FBA completed its
first acquisition, Sunrise Bancorp, located in Roseville, California. This
acquisition was structured as an all cash transaction after the sellers rejected
the suggestion that FBA common stock be included as part of the acquisition
price. In FBA's second acquisition, Surety Bank in Vallejo, California, the
sellers accepted a transaction in which approximately 265,000 shares of FBA
common stock and $3.8 million in cash were exchanged for the stock of the bank
after FBA increased the aggregate purchase price above its proposal for an all
cash transaction.
Throughout this period, FBA's strategy was to grow primarily through
acquisitions, because management and the board of directors believed that FBA
would not have sufficient size to be competitive in the evolving financial
services industry unless it could expand more rapidly than internally generated
growth could achieve.
Since First Banks acquired control of FBA, management of the two
companies has been conducted jointly, with most members of senior management of
FBA composed of senior officers of First Banks. Corporate functions of FBA such
as accounting, information technology, internal audit, loan review,
asset/liability management and investment services, loan servicing and other
management and administrative functions, have been provided by First Banks
pursuant to written agreements. Accordingly, when there are references in this
proxy statement to actions taken by "management," this is referring to personnel
who perform management functions for both First Banks and FBA.
In February 1998, FBA acquired First Commercial Bancorp, Inc. ("FCB")
headquartered in Sacramento, California, in exchange for approximately 752,000
shares of FBA stock. At the time of the transaction, First Banks owned
approximately 61.5% of FCB. Although its acquisitions and internal growth
increased FBA's total assets by $388.2 million to approximately $720.0 million
by year-end 1998 from approximately $331.8 million at year-end 1995, profit
performance was not sufficiently strong, nor did it have an adequate history of
profitability, to instill greater confidence in its stock. Consequently, while
the stock reached a trading range of $21.31 to $25.19 in the first quarter of
1998, by the fourth quarter of 1998, it had decreased to a range of $16.75 to
$19.50.
In 1999 and 2000, FBA completed seven cash acquisitions in California.
Of these, the majority stockholders of five of the acquired banks were not
residents of the United States, and for various reasons were interested only in
cash transactions. The other two acquisitions were believed to be too small to
justify the expense and time required to complete stock transactions. In
addition, in 1999 First Banks had increased its ownership of FBA to over 80%,
enabling FBA to be included in First Banks' consolidated income tax returns.
This allowed FBA to begin utilizing certain income tax loss carryforwards that
either the level of its taxable income or limitations with respect to its
carryforwards had previously precluded. However, if FBA were to issue sufficient
shares of its stock in an acquisition, other than to First Banks, it could cause
First Banks' ownership to decrease below 80%, triggering a deconsolidation of
its tax returns, thereby reducing the opportunity to utilize the carryforwards.
Furthermore, once a tax deconsolidation occurs, FBA could not again be
consolidated into First Banks tax returns for five tax years. Accordingly, FBA
did not pursue acquisitions for stock in 1999 and 2000 until the acquisition of
First Bank & Trust.
On October 31, 2000, FBA acquired First Bank & Trust, a wholly owned
subsidiary of First Banks headquartered in Newport Beach, California. Prior to
this acquisition, First Banks held 84.42% of FBA's common stock, with the
remaining 15.58% held publicly. In the transaction, First Banks received
approximately 6.5 million shares of newly issued common stock of FBA, thereby
increasing its ownership of FBA to 92.82%. Public ownership after this
transaction consisted of approximately 865,000 shares out of a total of 12.1
million shares outstanding.
During October 2000, trading of FBA shares was sporadic, with trading
volume between zero and 15,000 shares daily, although average daily trading
volume was approximately 3,100 shares. The closing market prices of the stock
during the month had varied between approximately $17.50 per share and $14.00
per share, closing the month at $15.875 per share. During November and December
2000, the trading range of FBA shares was between $15.875 and $17.625 per share
on daily volume averaging less than 600 shares. In that time period, there were
only 27 days on which FBA shares traded.
Beginning in mid-January 2001, management of FBA observed there was an
increase in trading volume accompanied by a consistent daily increase in market
price. This continued through February, with the closing market price increasing
from $17.94 on January 17, 2001 to $22.45 on February 28, 2001. After that, the
market price appeared to stabilize through early May 2001, although on higher
than normal trading volume. However, beginning on May 11, 2001, the market price
increased from $22.90 per share to $29.50 per share on May 31, 2001, on average
trading volume of approximately 7,900 shares per day.
Management became concerned about this unusual trading, and had several
conversations during this time regarding the nature and source of this trading
with representatives of its market maker, the New York Stock Exchange (the
"NYSE") and a stockbroker familiar with FBA stock. Although some possible
explanations were suggested, no substantive reasons for the fluctuations in
volume and price could be determined.
In early June 2001, it was announced that FBA stock was being
considered for inclusion in the Russell 2000 stock index, and in late June 2001,
the determination was made that it would, in fact, be included. Consequently,
FBA management attributed the substantial trading volume, which reached a high
of 57,500 shares on June 29, 2001, to buyers anticipating this change. Because
of this, it was not a surprise that daily trading volumes throughout the
remainder of 2001 continued to be higher than they had historically been, and
the closing stock market prices increased to a high of $32.85 in October 2001,
closing 2001 at $31.52 per share.
However, during March 2002, the performance of FBA stock in the market
again became erratic. For the first 14 trading days the volume and closing
prices per share were as follows:
Date Price Volume
---- ----- ------
03/01/02 $ 33.90 3,000
03/04/02 35.30 13,500
03/05/02 35.91 4,700
03/06/02 37.70 15,500
03/07/02 41.40 41,300
03/08/02 39.75 155,100
03/11/02 39.20 59,800
03/12/02 37.80 101,900
03/13/02 39.40 146,800
03/14/02 41.00 70,500
03/15/02 41.01 22,100
03/18/02 41.30 44,400
03/19/02 40.80 16,400
03/20/02 40.40 3,500
Management of FBA was concerned about this level of activity relative
to the 811,000 shares of common stock held publicly at that time. Numerous
discussions were held between management and representatives of its market
maker, the NYSE, and various stockbrokers that trade FBA shares, although no
apparent explanation for the activity was identified. On March 11, 2002, FBA
issued a press release observing that the trading was occurring and indicating
that management had no knowledge of any reason for it. Finally, management of
FBA requested the NYSE to investigate the activity to attempt to identify any
causes for it. The representatives of the NYSE were receptive to this request,
although they informed management that they would not be reporting back to FBA
about any findings that may result.
During the period from January, 2001 through March, 2002, FBA did not
believe that its financial performance justified such large changes in trading
volume and market prices, particularly in view of the severe bear market that
was prevalent at the time. It was in this context that First Banks proposed to
FBA's board of directors that the two companies enter into a transaction by
which First Banks would acquire all of the outstanding shares of FBA stock held
by FBA's public stockholders.
FBA's Reasons for the Merger
FBA's board of directors had also observed the rapid increase in price
and trading volume of FBA shares. They noted that the price increases had
occurred during a period in which FBA was experiencing an increase in problem
loans and charge-offs, and a decrease in earnings. They were concerned that the
incongruity of these factors might indicate that the expectations of
stockholders and potential stockholders may not be consistent with FBA's current
performance.
At the same time, FBA's board of directors considered whether an
adequate strategy existed for the public stockholders to realize the benefits of
their ownership. Generally stockholders would expect to realize their benefits
in the following forms:
o dividends paid on their shares;
o a viable public market with sufficient float to dispose of their
shares should they choose;
o appreciation in the value of their shares over time, commensurate
with the financial results of a growing company with increasing
income; and/or
o a potential gain from the sale or merger of the company at some
time in the future.
In the past, FBA had elected to forego the payment of dividends to its
stockholders. This was necessitated long before First Banks acquired control of
FBA by FBA's poor earnings performance, and later by a relatively aggressive
acquisition strategy designed to improve FBA's financial performance and
strengthen its competitive position in its markets. FBA has grown substantially
since 1994, and was able to report large increases in its earnings performance
through 2001, from a loss of $222,000 in 1995 to net income of $27.8 million in
2000 and $39.6 million in 2001. However, from 1997 until 2001, FBA benefited
from stable asset quality, and therefore was not required to make substantial
provisions for loan losses. Beginning in the second half of 2001, and continuing
into 2002, FBA has witnessed an increasing amount of past due loans, and, during
the first quarter of 2002, much larger loan charge-offs then it had experienced
in recent years. In fact, FBA's provision for loan losses of $7.7 million for
the three months ended March 31, 2002 exceeded that of any entire year from 1997
through 2001.
Furthermore, since FBA is considered a "second tier bank holding
company" to First Banks for regulatory purposes, during most of the period since
1994, regulatory authorities did not apply regulatory capital guidelines to FBA.
However, beginning in 2000, regulators indicated that it was expected that such
a second tier holding company would maintain capital at least at a level to be
considered "adequately capitalized" for regulatory purposes. It was for this
reason that First Banks was required to acquire $26.0 million of FBA common
stock in October 2001 as a condition to closing the acquisition of BYL Bancorp.
The board of directors anticipated that FBA would continue to have a
fairly aggressive acquisition strategy. Furthermore, they observed that the
recent decline in asset quality and earnings performance is likely to create
some additional pressures on FBA to maintain sufficient regulatory capital.
Therefore, FBA did not expect to initiate the payment of dividends in the
foreseeable future.
The recent increases in market value of FBA shares, accompanied by
substantial trading volumes would appear to indicate a rather robust market for
FBA. This would suggest that public FBA stockholders have the ability to dispose
of their shares, if they choose, at fairly attractive prices. However, the board
of directors noted that relative to the total number of shares of FBA stock held
publicly, these trading volumes were clearly beyond a normal range. They were
concerned that these volumes, in themselves, could have been a significant
contributor to the increase in prices. Because of this, if the trading volume
were to return to a more normal level, the upward pressure on market values
might disappear, causing the price to adjust to a sustainable level, which might
well be lower than its current level. Consequently, the board of directors was
concerned that the volatility that had occurred in the trading of FBA stock
might not continue to operate for the benefit of FBA's public stockholders.
The board of directors also observed that following a long period of
gradually increasing market values for FBA stock, in the last two years the
price has approximately doubled. While this has been beneficial for the public
stockholders, it is a performance that is unlikely to recur in the future. In
fact, if FBA continues to incur increases in problem assets and decreases in
earnings for an extended period of time, this could lead to decreases in market
value until a recovery in earnings performance is assured. Furthermore, the need
to maintain adequate regulatory capital will be an impediment to FBA's
aggressive growth strategy that was not previously a consideration.
Consequently, it is likely that FBA's growth will not continue at the rate it
has achieved in recent years. With this, it is likely that even after FBA gets
past its current asset quality issues, earnings growth will not be as robust as
in 2001. To the extent that current market values may be measured by
expectations of a future earnings stream, this may limit increases in market
values in the future.
The board also considered the possibility of a sale of FBA at some time
in the future. However, given the ownership of approximately 93% of FBA's stock
by First Banks and Mr. Dierberg's consistent statements that he did not intend
to sell First Banks or FBA, this was dismissed as highly unlikely for the
foreseeable future.
In view of these considerations, the FBA board of directors felt it was
appropriate to appoint a special committee of directors not affiliated with
First Banks to evaluate the proposed transaction.
FBA's special committee reviewed the merits of a potential transaction
in which all of the outstanding shares of FBA stock held by FBA's public
stockholders would be acquired by First Banks to determine if such a transaction
would be beneficial to FBA's public stockholders, and, if so, on what terms a
transaction should occur. In doing so, the special committee considered that
economic value to the public stockholders is a product of dividends they receive
on their shares and appreciation in value over time. The issue then became
whether FBA's public stockholders would benefit from receiving a price upon
consummation of a transaction in cash, or from receiving the future benefits of
dividends, if any, and capital appreciation. FBA's special committee reviewed
and considered the following reasons as a basis for recommending approval of the
merger to FBA's board of directors:
1. The financial benefit of common stock ownership by public
stockholders may not correspond to the underlying economic value
of FBA.
The market value of FBA common stock has, at times, been
relatively weak, reflecting a greater amount of stock for sale in
the market than potential buyers wish to purchase. This has
frequently been mitigated through FBA's share repurchase programs
through which the excess supply has been acquired by FBA. More
recently there have been periods in which the market has been
inexplicably strong, resulting in rapid price increases. For
example:
o In 1997, FBA stock experienced a rapid increase in market
value on abnormally large trading volume. After
approximately two weeks of increasing market prices, it was
discovered that an internet investment advisory newsletter
had erroneously calculated FBA book value per share,
resulting in its market price being shown as a fraction of
the calculated book value. Once this was identified, the
issuer of the newsletter was contacted to correct the
calculation. Thereafter, the volume decreased, and the
market price began to return to its previous level.
o In early 2001, as described above, FBA again experienced a
rapid increase in market value on abnormally large trading
volume. We believe that this was speculation in anticipation
of the inclusion of FBA stock in the Russell 2000 stock
index.
o Again in March 2002, as described above, trading in FBA
stock became erratic. Although FBA attempted to determine
the cause of this, no explanation was ever determined.
Although these abnormalities might not greatly affect other
publicly traded securities, the limited float involved for FBA
stock creates a situation in which larger than normal trading
volume causes the market price to increase dramatically. Since a
later decline in trading volume has frequently led to a reduction
in market price, it is not clear that this volatility is
beneficial to FBA or its public stockholders.
FBA has elected to reinvest all of its earnings to support its
growth objectives, as indicated above. In addition to its
reinvested earnings, FBA has issued $46.0 million of guaranteed
preferred beneficial interests in FBA subordinated debentures,
and has borrowed $37.0 million under its line of credit with
First Banks to enable it to make acquisitions. In the context of
this and FBA's decrease in earnings performance in 2002, it is
unlikely that FBA would consider initiating the payment of
dividends to its stockholders for the foreseeable future. As
acquisitions continue, it is probable that this time frame would
be extended.
In the event FBA were to commence the payment of dividends to its
stockholders, the Class B common stock, which is owned by First
Banks, would receive dividends only to the extent that dividends
on the common stock exceed $0.45 per share annually.
Consequently, the differentiation in dividend rates between the
common stock and the Class B common stock creates an economic
disincentive to the declaration of dividends from First Banks'
perspective.
The existence of a controlling shareholder limits the potential
opportunity for an acquisition premium from a subsequent buyout.
There are various types of investors who elect not to purchase
shares in companies that have a controlling shareholder or do not
pay dividends. Since both of these attributes apply to FBA, there
exists a segment of the investing public that is unwilling to
acquire FBA's common stock, thereby limiting the demand for
shares in the market.
2. FBA has generally not been successful in using its stock in
acquisitions.
FBA has approached several investment bankers representing
selling banks about including its stock as all or part of the
investment consideration in a proposed transaction, particularly
between 1995 and 1998. In general, these were dismissed by the
sellers because: (a) with the relatively small number of shares
of common stock in the market, there is limited liquidity for a
stockholder; (b) an issuance of a large number of new public
shares might adversely impact the market value; (c) the presence
of a majority owner means that the public stockholders could not
control the direction of FBA; and (d) FBA did not have a
sufficient history of strong, consistent earnings on which to
base a valuation. Consequently, although FBA was willing to
acquire banks solely for stock or in transactions with a stock
component, FBA has only been successful in using its stock in
three acquisitions (two of which involved First Banks as the
seller):
o In 1997, FBA acquired Surety Bank, Vallejo, California, in a
transaction that was 51% stock and 49% cash. Surety Bank was
not previously affiliated with First Banks or FBA;
o In 1998, FBA acquired FCB, Sacramento, California, in an
all-stock transaction. Approximately 61.5% of FCB was owned
by First Banks at the time; and
o In 2000, FBA acquired First Bank & Trust, Newport Beach,
California, in an all-stock transaction. First Bank & Trust
was wholly owned by First Banks.
While the Surety Bank and FCB transactions increased the amount
of publicly held shares of FBA stock, the public float was still
relatively limited.
In late 1998, it became apparent that FBA had not been able to
utilize all of its tax loss carryforwards on a timely basis,
either because the level of its taxable income was not
sufficient, or the limitations with respect to its carryforwards
were not met. The most effective method of correcting this and
thereby enhancing FBA's after-tax income was to include FBA in
First Banks' consolidated income tax returns, which could only be
done if First Banks were to increase its ownership of FBA above
80%. This was accomplished in early 1999 by a tender offer by
First Banks in which it acquired approximately 360,000 shares of
FBA common stock. Since that time, FBA has utilized all of the
tax loss carryforwards that are currently eligible, including
some that had not been utilized in prior years. However, FBA
still has unused tax loss carryforwards that are subject to
annual limitations that may be utilized over approximately the
next eleven years.
Since FBA still has a significant amount of unused tax loss
carryforwards, it would not be beneficial either to FBA or First
Banks for FBA to issue sufficient additional shares to cause
First Banks' ownership to decrease below 80%, thereby triggering
a deconsolidation of FBA's federal tax returns from those of
First Banks. Once such a deconsolidation occurs, FBA could not be
consolidated again with First Banks' income tax returns for five
taxable years, and FBA would again be subject to limitations on
the utilization of tax loss carryforwards. This makes it unlikely
that either First Banks or FBA would benefit from a stock
acquisition in which a large number of additional shares of FBA
were issued.
Consequently, neither FBA nor First Banks views a stock
acquisition as a viable alternative for the foreseeable future.
3. The financial reporting and regulatory requirements may
cause inconsistencies between the interests of First Banks
and the public stockholders.
Certain regulatory and financial reporting requirements with
respect to First Banks' ownership of FBA are disadvantageous to
First Banks if its ownership percentage should be reduced to less
than 80%. In some acquisitions, a tax-free exchange of stock is
the preferred form to the sellers. A potential exists for
situations in which such an acquisition would be advantageous to
FBA's public stockholders, but disadvantageous to First Banks.
Consequently, this creates the opportunity for the objectives of
the public stockholders to conflict with those of First Banks.
Under regulatory capital guidelines with respect to bank holding
companies, FBA is considered a "second tier" bank holding company
of First Banks. Because of this, First Banks was viewed as
providing the capital strength for FBA and, prior to 2000, FBA
was allowed to maintain regulatory capital ratios that were lower
than those required for First Banks, or other first tier holding
companies. This enabled FBA to achieve returns on equity that
were higher than FBA might otherwise have been able to achieve.
However, beginning in 2000, regulatory authorities began
requiring increased capital levels for second tier holding
companies, thereby reducing this advantage substantially.
4. The expenses associated with maintaining a publicly owned company
are excessive relative to the amount of FBA common stock
outstanding.
FBA incurs numerous expenditures associated with maintaining its
status as a publicly owned company. In particular, some of the
more significant expenditures associated with FBA's public status
are as follows:
o Separate annual and quarterly reports, including
preparation, review by external accountants and counsel,
printing and distribution to stockholders;
o Separate Securities and Exchange Commission filings,
including but not limited to Forms 10-K, 10-Q and 8-K;
o Annual and special stockholders meetings, including
preparation of materials, filing fees, printing and
distribution of Proxy materials to stockholders;
o Separate annual audits and quarterly reviews performed by
FBA's external accounting firm;
o Separate board of directors and Audit Committee, which
requires fees associated with compensating members of the
Board and the Audit Committee, conducting quarterly meetings
(including travel and other related expenses), and preparing
and distributing Board materials;
o New York Stock Exchange listing fees and related expenses;
and
o Administrative and internal staff expenditures associated
with maintaining separate accounting records and financial
reporting including but not limited to: intercompany
recordkeeping and billing required for personnel, services
and supplies used by FBA; data processing and information
technology fees and services; internal audit services;
income tax preparation and assistance; accounting services;
and other management and administrative functions.
o FBA has estimated the annual expenditures associated with
maintaining its status as a publicly owned company to be in
the range of $500,000 - $750,000.
First Banks' Reasons for the Merger
First Banks' board of directors reviewed and considered the following
reasons as a basis for recommending the proposed transaction to FBA's board of
directors:
1. The financial objectives of stock ownership by First Banks and
the public stockholders may not coincide.
The financial objectives of First Banks and the public
stockholders may not coincide primarily due to the following
issues:
o FBA does not pay dividends on its common stock. In the event
FBA were to commence the payment of dividends to its
stockholders, the Class B common stock would receive
dividends only to the extent that dividends on the common
stock exceed $0.45 per share annually. Consequently, the
differentiation in dividend rates between the common stock
and the Class B common stock creates an economic
disincentive to the declaration of dividends from First
Banks' perspective.
o Certain regulatory, financial reporting and tax requirements
with respect to First Banks' ownership of FBA are
disadvantageous to First Banks if its ownership percentage
should be reduced to less than 80%. In some acquisitions, a
tax-free exchange of stock is the preferred form to the
sellers. A potential exists for situations in which this
would be advantageous to FBA's public stockholders, but
disadvantageous to First Banks. Consequently, this creates
the opportunity for a divergence of objectives to arise.
o In order to preserve the separate structure of FBA, First
Bank & Trust must operate independently from First Banks'
other banking interests. If the proposed merger is
consummated, First Banks anticipates merging First Bank &
Trust into First Banks' wholly owned subsidiary, First Bank.
It is anticipated that this will allow certain
administrative and operational economies not available while
the two banks maintain separate charters.
2. FBA has generally not been successful in using its stock in
acquisitions.
When First Banks acquired approximately 65% of ownership of FBA
in 1994, one of its objectives was for FBA to use its stock in
acquisitions in which the purchase price would be wholly or
partially in the form of common stock. Since First Banks does not
have any publicly held voting stock, this was an alternative that
had not previously been pursued by First Banks. However, this met
with only limited success. In 1994 and 1995, a combination of
restructuring expenses and asset quality problems arose that
caused FBA to incur net losses for those years. Although FBA has
suggested the use of its stock for some or all of the
consideration in several proposed transactions between 1995 and
1998, this has generally been dismissed because: (a) the
relatively small number of shares of common stock in the market
provides limited liquidity for a public stockholder; (b) an
issuance of a large number of new public shares might adversely
impact the market value; (c) the presence of a majority owner
means that the public stockholders could not control the
direction of FBA; and (d) FBA did not have a sufficient history
of strong, consistent earnings.
Consequently, although FBA was willing to acquire banks solely
for stock or in transactions with a stock component, FBA has
only been successful in using its stock in three acquisitions
(two of which involved First Banks as the seller):
o In 1997, FBA acquired Surety Bank, Vallejo, California, in a
transaction that was 51% stock and 49% cash. Surety Bank was
not previously affiliated with First Banks or FBA;
o In 1998, FBA acquired FCB, Sacramento, California, in an
all-stock transaction. Approximately 61.5% of FCB was owned
by First Banks at the time; and
o In 2000, FBA acquired First Bank & Trust, Newport Beach,
California, in an all -stock transaction. First Bank & Trust
was wholly owned by First Banks.
Although the Surety Bank and FCB transactions increased the
amount of publicly held shares of FBA stock, the public float was
still relatively limited.
Since 1999, First Banks has owned over 80% of FBA common stock,
allowing FBA to be included in First Banks' federal income tax
returns. This has enabled FBA to begin utilizing certain income
tax loss carryforwards that either the level of its taxable
income or limitations with respect to its carryforwards had
previously precluded. If FBA were to issue sufficient shares of
its stock in an acquisition, other than to First Banks, to cause
First Banks' ownership to decrease below 80%, it would trigger a
deconsolidation of its tax returns, thereby reducing the
opportunity to utilize the carryforwards. In addition, once a tax
deconsolidation has occurred, FBA could not again be consolidated
into First Banks' returns for five tax years, and FBA would again
be subject to limitations on the utilization of tax loss
carryforwards. Since some of FBA's tax loss carryforwards are
subject to annual limitations, they may be utilized over
approximately the next eleven years. Consequently, it would not
be beneficial either to FBA or First Banks to allow such a
deconsolidation, making it improbable that a significant stock
acquisition would be pursued.
3. Stock market conditions may lead to undue litigation or
reputation risks for First Banks that may not be related to
economic or financial issues.
First Banks may be subjected to potential undue litigation and
reputation risks associated with fluctuations in the market value
of FBA's publicly held common stock. For example, during 2000,
FBA was unable to repurchase common stock through its authorized
stock repurchase program as a result of pending acquisitions.
During that same time period, the absence of other buyers in the
market led to a depressed market value that was inconsistent with
FBA's financial performance. In early 2002, FBA's common stock
experienced unusually large trading volumes and inordinate
increases in market value that could not be correlated with
financial performance. Circumstances such as these could lead to
dissatisfaction among stockholders, selling stockholders and
buying stockholders. For these reasons and other similar
potential scenarios, First Banks could be exposed to risks that
it has limited opportunity to control.
4. The expenses associated with maintaining a publicly owned company
are excessive relative to the amount of FBA common stock
outstanding.
First Banks, through its existing ownership in FBA, incurs
numerous expenditures associated with maintaining FBA's status as
a publicly owned company. In particular, some of the more
significant expenditures associated with FBA's public status are
as follows:
o Separate annual and quarterly reports, including
preparation, review by external accountants and counsel,
printing and distribution to stockholders;
o Separate Securities and Exchange Commission filings,
including but not limited to Forms 10-K, 10-Q and 8-K;
o Annual and special stockholders meetings, including
preparation of materials, filing fees, printing and
distribution of Proxy materials to stockholders;
o Separate annual audits and quarterly reviews performed by
FBA's external accounting firm;
o Separate board of directors and Audit Committee, which
requires fees associated with compensating members of the
Board and the Audit Committee, conducting quarterly meetings
(including travel and other related expenses), and preparing
and distributing Board materials;
o New York Stock Exchange listing fees and related expenses;
and
o Administrative and internal staff expenditures associated
with maintaining separate accounting records and financial
reporting including but not limited to: intercompany
recordkeeping and billing required for personnel, services
and supplies used by FBA; data processing and information
technology fees and services; internal audit services;
income tax preparation and assistance; accounting services;
and other management and administrative functions.
Reasons of the Other Filing Persons
In addition to First Banks and FBA, FBA Acquisition and James F.
Dierberg have joined in filing with the SEC a Schedule 13E-3, which is required
in a "going private" transaction such as the merger. Each filing person is
required to state its purposes and reasons for supporting the merger.
FBA Acquisition is a new corporation organized and wholly owned by
First Banks. It has not engaged in any business activity, except as necessary to
enable it to engage in the merger, and it does not expect to engage in any other
activity. Upon consummation of the merger, it will no longer exist as a separate
corporation.
Mr. Dierberg and members of his immediate family are the sole owners
of equity interests in First Banks, and Mr. Dierberg acts on behalf of the
Dierberg family in making decisions regarding First Banks. His purposes and
reasons for supporting the merger are the same as those attributed above to
First Banks.
Consideration of the Merger
On April 25, 2002, First Banks owned 93.69% of the outstanding voting
stock of FBA. At the meeting of FBA's board of directors on that date, Mr.
Dierberg, on behalf of First Banks, proposed to FBA that the two companies enter
into a transaction by which First Banks would acquire the outstanding shares of
FBA currently held by the public stockholders of FBA. First Banks was prompted
to make this proposal by the factors discussed above under "Background and
Reasons for the Merger" and "First Banks' Reasons for the Merger."
The board of directors of FBA then created a special committee of its
board consisting of independent directors with no affiliation with First Banks.
The board appointed Albert M. Lavezzo, Charles A. Crocco and Edward T. Story,
Jr. as members of the special committee. The members appointed Mr. Lavezzo as
chairman of the special committee. The board gave the special committee the
authority to consider and negotiate, on behalf of FBA, the terms of the
transaction proposed by First Banks and to make a recommendation to the full
board of directors of FBA with respect to such a proposed transaction.
The special committee was also authorized to engage professional
advisors, including a financial advisor and legal counsel of its own selection.
The special committee identified four law firms with experience in representing
financial institutions and special committees in connection with bank mergers.
The special committee solicited proposals from these four firms and conducted
telephonic interviews with each of them. The special committee confirmed that
the candidate firms had not previously represented First Banks, FBA or any of
their affiliates in any current or previous transactions. On May 29, 2002, the
special committee determined to engage the firm of McCutchen Doyle Brown &
Enersen, LLP (which on July 1 became Bingham McCutchen LLP as a result of a
merger) of San Francisco.
On May 30, counsel for First Banks informed the special committee's
counsel that it proposed that FBA forego a previously announced rights offering
to its public stockholders, and First Banks proposed instead that the price to
be paid to the public stockholders (if an agreement could be reached regarding a
merger) include an additional increment attributable to the value of the rights
that would have been issued to FBA's public stockholders in a rights offering.
If carried out, the rights offering would have given each holder of FBA common
stock (other than First Banks) the right to purchase, at $32.50 per share,
approximately 0.0715 shares for each share already owned. The rights offering
had been planned in order to give FBA's unaffiliated stockholders the right to
purchase shares at the same price ($32.50 per share) as First Banks' purchase of
803,757 shares of FBA common stock in October, 2001, in proportion to each
stockholder's interest in FBA. The price paid by First Banks was based on recent
market prices at the time of the transaction, which was necessary to provide FBA
with funding to acquire a California bank holding company. Prior to the
discussion of the merger, FBA had planned to conduct the rights offering (which
required, among other things, registration with the SEC) in the first half of
2002. First Banks and the special committee agreed that including the economic
value of the rights offering in the merger price would be more efficient and
less confusing than conducting a rights offering, requiring each stockholder to
exercise his or her purchase rights and then effectively repurchasing those
shares in the merger. In fact, they believed this approach was more favorable to
FBA's unaffiliated stockholders than conducting the rights offering, because (i)
every unaffiliated stockholder would receive the benefit, whereas in a rights
offering only those stockholders who exercised their rights and were able to
receive $40.00 or more per share upon sale of stock bought in the rights
offering would receive a benefit equal to that offered as part of the merger
consideration, and (ii) none of the stockholders would have to pay to exercise
the rights and incur any related costs of carry. First Banks proposed that the
increment be equal to the difference between $32.50, the price at which First
Banks had purchased shares of FBA in a private placement in the fourth quarter
of 2001, and the price negotiated for the acquisition of the shares held by the
public stockholders.
In May 2002, the chairman of the special committee solicited proposals
from five investment banking firms to act as financial advisor to the special
committee in connection with the proposed transaction. The special committee
identified investment banking firms based on their experience in advising
financial institutions in connection with similar transactions. The five
investment banking firms submitted proposals, and the chairman circulated copies
of all of the proposals to the members of the committee and counsel.
On June 7, the special committee conducted a meeting to consider the
proposals of the financial advisors. The special committee considered the
relevant experience of each candidate, the familiarity of the committee members
with the candidate, the fees and expenses proposed to be charged by each
candidate, and each candidate's independence from any current or past financial
relationship with First Banks.
At the conclusion of the meeting, the special committee selected
Baxter Fentriss as its financial advisor, subject to the confirmation of the
absence of any financial connections between Baxter Fentriss and First Banks.
Upon receiving such confirmation, the special committee engaged Baxter Fentriss
as its financial advisor. This decision was based on several factors, including
the firm's extensive involvement with and knowledge of bank and thrift merger
and acquisition transactions, the members' familiarity with Baxter Fentriss'
performance of services similar to those required, and the special committee's
assessment of the value of the services to be provided in relation to the costs
to be incurred by FBA for such services.
On June 19, the special committee held a meeting to discuss the
schedule for proposed negotiations, the combining of the rights offering value
with the transaction in lieu of a separate rights offering, the due diligence
that Baxter Fentriss desired to perform in order to assist the special committee
in its deliberations and related matters. Counsel and representatives of Baxter
Fentriss attended the meeting as well. The special committee confirmed that it
had no objection to including the rights offering value as an additional
increment to any purchase price that it might ultimately agree to in the course
of negotiations with First Banks. The special committee asked counsel to advise
it with respect to the appropriate measure of value of the rights offering.
Counsel provided the special committee with a letter addressing this issue on
July 16. At this meeting and others, the special committee considered whether
alternatives to the merger might be available. Possible alternatives included
seeking an acquirer for all of FBA and declining to consider or approve the
merger. Since First Banks had indicated its desire to increase its ownership of
FBA and Mr. Dierberg had consistently stated that he did not intend to sell
First Banks or FBA, the special committee discounted a sale as unachievable.
Because of the historically low trading volume in the market for FBA common
stock and the existence of a controlling stockholder, the special committee
believed that a merger at a fair price would be preferable to taking no action.
On July 19, the special committee members received written materials
from Baxter Fentriss describing its analysis of the value of common stock of FBA
and presenting several valuation methods. The materials, which were in draft
form at the time, described assumptions made by Baxter Fentriss in preparing the
materials and arriving at its conclusions.
On July 22, the special committee held a committee meeting to review
the analysis prepared by Baxter Fentriss. The committee's counsel and James
Baxter and Brian Johnson of Baxter Fentriss also attended by telephone.
Representatives of Baxter Fentriss made a presentation to the members of the
special committee and discussed their methodology, assumptions and conclusions
as set forth in their written report.
In connection with preparing its presentation to the special
committee, Baxter Fentriss performed a variety of financial analyses. In
conducting its analyses, Baxter Fentriss considered such financial and other
factors as it deemed appropriate under the circumstances including the
following: (i) the historical and current financial condition and results of
operations of FBA including interest income, interest expense, provision for
loan losses, noninterest income, noninterest expense, earnings, book value,
returns on assets and equity, capitalization, the reserve for loan losses and
possible tax consequences resulting from the transaction; (ii) the business
prospects of FBA; (iii) the economies of FBA's respective market areas; (iv) the
historical and current market for FBA common stock; and (v) the nature and terms
of certain other merger transactions that it believed to be relevant. Baxter
Fentriss also considered its assessment of general economic, market, financial
and regulatory conditions and trends, as well as its knowledge of the financial
institutions industry.
In connection with its presentation, Baxter Fentriss reviewed (i)
FBA's Annual Reports to stockholders, including the audited financial statements
of FBA, for the years ended December 31, 1999, 2000 and 2001; (ii) consolidated
reports of condition ("call reports") on First Bank & Trust filed with the
Federal Deposit Insurance Corporation for the years ended December 31, 1999,
2000 and 2001; (iii) budgeted financial information and projections provided by
management for the years ending December 31, 2002 and 2003 for FBA; (iv)
unaudited quarterly financial information as of March 31, 2002; and (v) certain
additional financial and operating information with respect to the business,
operations and prospects of FBA as it deemed appropriate. Baxter Fentriss also
(a) held discussions with members of the senior management of FBA regarding its
historical and current business operations, financial condition and future
prospects; (b) compared the results of operations of FBA with those of certain
banking companies that it deemed to be relevant; (c) analyzed the pro forma
financial impact of the merger on First Banks; and (d) conducted such other
studies, analyses, inquiries and examinations as Baxter Fentriss deemed
appropriate.
In performing its analyses, Baxter Fentriss made numerous assumptions
with respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of FBA. The analyses performed by
Baxter Fentriss are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses. Additionally, analyses relating to the values of businesses do
not purport to be appraisals or to reflect the prices at which businesses
actually may be sold. In preparing its presentation, Baxter Fentriss assumed
that any regulatory consideration of the merger would not result in the
imposition of any conditions that will have a material adverse effect on the
contemplated benefits of the merger, on a pro forma basis, to FBA or First
Banks.
The following is a summary of the analyses performed by Baxter
Fentriss in connection with its presentation.
1. Comparison to Publicly Traded Financial Institutions. This analysis
was performed to make a determination of value for the unaffiliated shares of
FBA using the financial data of publicly traded financial institutions from
select markets across the United States. Baxter Fentriss compared certain
trading multiples of select financial institutions and compared them to the
value offered by First Banks. This peer group consisted of fifty-nine publicly
traded banks with assets between $2 billion and $10 billion as of March 31,
2002. These 59 institutions were chosen based on asset size relative to that of
FBA and whether the institution was publicly traded, either on NASDAQ, AMEX or
the NYSE. The average asset size of these institutions was approximately $4.2
billion. Banks that were the target of a merger or acquisition were excluded
from the peer group.
Baxter Fentriss selected the trading multiples used in its analysis
based upon the current and historical use of such multiples within the financial
institutions industry for the purposes of comparison and valuation between
different companies. The source of the data used in this analysis was SNL
Financial, a well-respected information and research firm which specializes in
the financial institutions industry. The multiples used were price to earnings
for the latest quarter, price to earnings for the latest twelve months ("LTM"),
price to book value, price to tangible book value, price to deposits and price
to assets. The ranges of the multiples compiled from the peer group were as
follows: the low and high price to earnings multiples were 12.1x and 29.9x; the
low and high price to LTM earnings multiples were 12.7x and 24.7x, the low and
high price to book multiples were 1.22x and 4.41x; the low and high price to
tangible book multiples were 1.45x and 4.70x; the low and high price to assets
percentages were 8.9% and 34.2%; while the low and high price to deposits
percentages were 11.0% and 42.9%.
The averages of the statistics compiled for the peer group were as
follows: the average price to earnings multiple was 15.9x; the average price to
LTM earnings multiple was 17.0x; the average price to book multiple was 2.27x;
the average price to tangible book multiple was 2.60x; the average price to
assets percentage was 18.8%; and the average price to deposits percentage was
24.8%.
These averages were used to establish valuation parameters for the
unaffiliated shares of FBA. The values produced by this analysis were as
follows: $43.70 based on price to FBA's adjusted earnings, $44.01 based on price
to adjusted LTM earnings, $50.49 based on price to book value, $36.96 based on
price to tangible book value, $43.73 based on price to assets, and $47.82 based
on price to deposits.
These values ranged from a low of $36.96 to a high of $50.49 while the
average of these values is $44.45.
2. Discounted Free Cash Flow / Net Present Value. Baxter Fentriss made
a determination of the value of FBA's unaffiliated shares based on FBA's
earnings capacity, operating cash flow, and its theoretical capacity to pay
dividends while still retaining equity to support future, sustainable growth.
This approach requires projecting cash flows for an extended period of time,
estimating a terminal value, and discounting the future free cash flows and
terminal value back to the valuation date. The discounted cash flow calculation
consists of three major components: (1) future free cash flows and/or potential
equity flows; (2) a terminal value; and (3) the required rate of return.
The future cash flows are projected by forecasting earnings growth and
potential dividend payout. While various growth rates can produce different
results, it is best to view a range of growth estimates in order to choose a
"likely" scenario. Economic conditions in general, as well as local economic
conditions, competition, management, and other non-quantifiable variables can
impact future real growth. The range of discount rates, growth rates and capital
levels were chosen based upon what Baxter Fentriss, in its judgment, considered
to be appropriate taking into account among other things, FBA's past and current
financial performance and conditions, the general level of inflation, rates of
return for fixed income and equity securities in the marketplace generally and
particularly in the banking industry.
The normalized projections prepared by Baxter Fentriss and utilized in
this analysis are as follows:
Projected Projected
Year Ending Year Ending
12/31/02 12/31/03
------------- --------------
(dollars expressed in thousands)
Income Statement Data:
----------------------
Net income $ 35,358 $ 39,778
=========== ===========
Profitability and Operating Ratios:
-----------------------------------
Return on average assets 1.09% 1.09%
Return on average equity 11.67 11.68
Average Balance Sheet Data:
---------------------------
Total assets $3,252,300 3,658,837
Total stockholders' equity 302,996 340,564
Common stockholders' equity as
a percentage of total assets 9.31% 9.30%
Generally, the required rate of return is the expected return required
by investors for investments with similar risk profiles. Typically, the required
rates of return of publicly traded banks are approximately 500-700 basis points
over the U.S. Treasury 10-year note. As of July 5, 2002, the U.S. Treasury
10-year note was yielding 4.83%. This analysis incorporates a discount rate of
11.00%.
The terminal value in this analysis was calculated by treating the
free cash flow in the final time period as a perpetuity and then discounting it
to obtain a present value. The discount rate of 11.00% was used to discount the
perpetuity to determine the present value of the final period's cash flow. The
terminal value calculated using this methodology was $1.920 million or $401.3
million after discounting back the present value.
The valuation for FBA common stock using this analysis was $44.10.
Using this valuation, the pricing statistics for the common stock of FBA would
be as follows: the price to LTM earnings multiple is 17.03x; the price to book
value multiple is 1.99x; the price to tangible book value multiple is 3.11x; the
price to deposits percentage is 22.89%; and the price to assets percentage is
18.98%.
As indicated herein, this analysis is not necessarily indicative of
the actual values or actual future results and does not purport to reflect the
prices at which any securities may trade at the present or at any time in the
future. Discounted free cash flow analysis is a widely used valuation
methodology, but the results of such methodology are highly dependent upon the
numerous assumptions that must be made, including earnings, assets, growth
rates, terminal values and discount rates.
3. Sale of Enterprise Valuation. Baxter Fentriss considered the
potential acquisition of FBA by another financial institution in order to
determine a fair market value for the whole bank or control position in FBA.
Certain assumptions were made regarding the financing rates, amortization
periods, tax rates, core deposit intangible valuations, the level of discount
for a minority interest and the level of cost savings an acquiror might achieve,
as well as dilution levels it might accept. The assumptions applied are deemed
appropriate for an organization such as FBA, the types of institutions which are
capable of acquiring FBA, and for FBA's current financial condition. The
assumptions made regarding these different variables were made based upon what
Baxter Fentriss, in its judgment, considered to be appropriate taking into
account among other things, FBA's past and current financial performance and
conditions, the general level of inflation, rates of return for fixed income and
equity securities in the marketplace generally and particularly in the banking
industry. Baxter Fentriss also considered its knowledge, in general, of the
financial institutions industry, its experience in analyzing merger and
acquisition transactions involving financial institutions, and its general
knowledge of corporate finance.
Based on these assumptions, this analysis produced a value for FBA of
$51.22 per share, for the controlling interest in the company. The current
ownership structure of FBA does not allow the unaffiliated stockholders to
effect a decision to make such a transaction occur. In addition, the controlling
stockholders have stated it is not their intent for such a transaction to occur.
The proposed transaction is to acquire the public ownership position; therefore,
the valuation was discounted by 15% to reflect a lack of control on behalf of
the unaffiliated stockholders. Various financial studies have produced discounts
for minority interests that ranged from a low of 13% to a high of 49%. Baxter
Fentriss chose a value in the lower portion of this range based upon the fact
that the common stock of FBA is listed and quoted on the NYSE. After applyting
this discount, this analysis resulted in a value for FBA's public shares of
$43.54. Using this valuation, the pricing statistics for FBA would be as
follows: the price to LTM earnings multiple is 16.81x; the price to book value
multiple is 1.96x; the price to tangible book value is 3.07x, the price to
deposits percentage is 18.74%; and the price to assets percentage is 22.60%.
Using publicly available information, Baxter Fentriss considered the
impact of the merger on First Banks. Its analysis indicated that the merger
would not materially dilute First Banks' capital and earnings capacity and
would, therefore, likely not be opposed by the banking regulatory agencies from
a capital perspective. First Banks currently is the majority stockholder of FBA
and reports the financial performance and condition of FBA in its consolidated
financial statements. First Banks has effective control over FBA's management,
policies and election of directors. Baxter Fentriss has relied, without any
independent verification, upon the accuracy and completeness of all financial
and other information reviewed. Baxter Fentriss has assumed that all estimates,
including those as to projected future earnings, were reasonably prepared by
management and reflect their best current judgments. Baxter Fentriss did not
make an independent appraisal of the assets or liabilities of FBA, and has not
been furnished such an appraisal.
No company or transaction used as a comparison in the above analysis
is identical to FBA or First Banks, or the merger. Accordingly, an analysis of
the results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value of
the companies used for comparison in the above analysis.
Baxter Fentriss discussed possible prices based on (i) a comparison to
peer trading values; (ii) a discounted cash flow analysis; and (iii) a
comparable acquisition analysis. In its discussion, Baxter Fentriss also
emphasized the importance of the use of projected earnings assumptions for FBA
and that its valuation was sensitive to any changes in these projections. The
committee discussed with Baxter Fentriss a range of possible share prices
resulting from these methods. In particular, the committee noted the fact that
the public stockholders held less than 7% of the outstanding shares and the
relative thinness of the trading market for the shares; the current market
price, which began the year at $32.00 and now was approximately $40.00; and the
improbability of FBA entering into a transaction to be acquired by a third party
at a premium to market value. The analysis of Baxter Fentriss suggested average
values of $44.45 (based on comparable trading values of $36.96 to $50.49),
$44.10 (based on discounted cash flow analysis) and $43.54 (based on potential
acquisition analysis), for an average value on a going concern basis of $44.03.
The special committee reached a consensus that a reasonable approach to take in
negotiations with First Banks would be to support a price not less than the
current market price and including a premium of approximately 15% to 20% of
market price, or approximately $46.00 to $48.00 per share.
On July 25, the special committee met with counsel and Mr. Baxter of
Baxter Fentriss for a final review and preparation for negotiations with First
Banks with respect to the proposed transaction. Later that same day, the members
of the special committee met with James Dierberg, Chairman and Chief Executive
Officer of First Banks, Allen Blake, President and Chief Financial Officer of
First Banks, and Mark Ross of Stifel, Nicolaus & Company ("Stifel"), an informal
consultant to First Banks, with respect to this matter to discuss the proposed
transaction. Stifel is a stock brokerage and investment banking company
headquartered in St. Louis, Missouri. During approximately the last ten years,
Stifel has been involved with First Banks, FBA, or an affiliate of them in
various capacities. This included:
o Underwriting various public offerings of securities for either
First Banks or FBA, including the 1998 issuance of $46.0 million
of trust preferred securities by a subsidiary of FBA and the
related guaranteed preferred beneficial interest in FBA
subordinated debentures;
o Following FBA common stock in the public market, including
issuance of research reports and investment ratings with respect
to FBA's stock;
o Representing sellers of various financial institutions in which
First Banks was one of the possible acquirers; and
o Performing brokerage functions in the sale of stock in various
financial institutions to Mr. Dierberg or other entities
controlled by the Dierberg family.
Consequently, neither Stifel, nor Mr. Ross, were ever considered to be
independent with respect to First Banks, FBA, or the proposed transaction either
by First Banks or the special committee.
In early July 2002, Mr. Blake requested that Mr. Ross provide him with
data concerning recent pricing of acquisitions of financial institutions to
enable him to have a more informed basis for discussing with the special
committee the proposed purchase of the public shares of FBA. Mr. Ross was not
requested to perform a detailed valuation analysis, submit a formal report or
provide any opinion as to the fairness of the transaction. Furthermore, there
was no contractual relationship established with respect to Mr. Blake's request,
and neither Stifel nor Mr. Ross ever sought or received compensation for it.
During the period prior to the meeting on July 25, Mr. Blake discussed FBA's
financial position with Mr. Ross to enable him to provide meaningful comparisons
and calculations. In this process, it became apparent to Mr. Blake that he would
not be capable of discussing this in detail with the special committee or its
investment advisor without the assistance of Mr. Ross. Therefore, he requested
that Mr. Ross join him for the meeting on July 25.
Negotiations at the July 25 meeting continued in stages for several
hours. Initially, the special committee indicated its desire to obtain a premium
of 20% over the current market price, or $48.00 per share. On behalf of First
Banks, Mr. Dierberg suggested that he believed a market price of between $27.00
and $35.00 per share would be more appropriate. Although Mr. Dierberg had not
prepared any financial analyses supporting his belief, he based his position on
(a) over 35 years as Chairman of the Board, Chief Executive Officer and/or
President of First Banks during which time he was responsible for negotiating
and consummating over 90 acquisitions of financial institutions; (b) over 45
years experience as a successful personal investor in the public securities of
financial institutions, as well as entities in other industries; and (c) his
practice during this time of generally keeping up-to-date about the financial
institutions sector, the pricing of acquisitions and the market values of
financial institutions and their securities. In addition, he stated that Mr.
Blake had requested Stifel to provide additional information to First Banks to
assist it in evaluating the proposed transaction. Mr. Blake pointed out that
this was not a formal valuation of FBA stock, and that it had been done at First
Banks' request in a short time period, with limited opportunity for Stifel to
review and research data about FBA. It was intended solely to provide some
additional data for First Banks to consider and use in its discussions with the
special committee.
Mr. Ross began by discussing the recent trading ranges of FBA stock in
the market. He indicated that because of the unexplained trading volume earlier
in 2002 and the limited number of shares held by public stockholders, the
present market price might not be indicative of a sustainable value over a
longer period of time. To illustrate this, he compared the market price of FBA
stock on July 24 of $39.70 per share with three banks of comparable size and
profitability operating in California and seven banks of comparable size and
profitability operating throughout the United States. The comparisons were based
on the ratios of market price to: (a) book value; (b) tangible book value; (c)
stockholders' equity adjusted to 6.5% of assets; (d) estimated 2002 earnings per
share; (e) estimated 2003 earnings per share; (f) total assets; and (g)
deposits.
He observed that a contributing factor to FBA's high trading price
compared to those of the other three banks might be the relatively high earnings
of FBA in 2001, which include a significant non-recurring adjustment of the
deferred tax valuation reserve. Because the level of earnings influences not
only the 2001 earnings, but also the trend of increasing earnings over time, he
suggested that the level of 2001 earnings may have led to excessive expectations
of earnings growth in the future by some potential investors. He pointed out
that, in fact, not only do earnings for the first six months of 2002 not include
the non-recurring item, but asset quality issues have arisen that have caused
FBA to record substantially larger provisions for loan losses than in recent
years, and consequently have depressed earnings from those of the previous year.
Because of this, Mr. Ross suggested that it might not be appropriate
to emphasize current market prices as a determining factor in the proposed
transaction. He then discussed the various methods used by investment advisors
in determining a valuation for a transaction such as that proposed for FBA. He
pointed out that there are certain methods that are generally consistent among
most advisors. The primary differences between them would normally be in the
underlying assumptions. He referred to various assumptions included in the
analyses, but observed that one of the most important assumptions is the future
earnings stream. He indicated that this was particularly true for FBA due to the
unusually high earnings in 2001 followed by depressed net income for the first
six months of 2002. Furthermore, discussions with FBA management indicated that
the asset quality issues that have led to the lower earnings level are expected
to continue for the remainder of 2002, with some residual effects on
2003 earnings.
Mr. Ross then reviewed the analyses that he had performed relative to
FBA, reiterating that he did not have the time or level of detailed information
to perform all the analyses and research normally required to render a valuation
report or support a fairness opinion. Consequently, this was only intended to
provide FBA with some additional data to consider. Mr. Ross discussed his
analyses based on the following:
o Current and recent bank merger environment for all banks in the
United States, excluding mergers-of-equals and removing from the
controlling interest valuation a control premium of 35%. At the
50th percentile, this implied a per share valuation between
$20.64 and $32.86.
o Current and recent bank merger environment for all banks in
California (where most of FBA's operations are conducted),
excluding mergers-of-equals and removing from the controlling
interest valuation a control premium of 35%. At the 50th
percentile, this implied a per share valuation between $18.91 and
$29.08.
o Discounted cash flow analysis, presenting the cash available for
dividends in future years, based on estimated future operating
performance and required capital levels. The present value was
calculated using discount rates from 12.5% to 16.5% and a range
of trading multiples from 12.0x to 16.0x. All tangible common
equity in excess of 6.5% of assets was assumed to be paid as
dividends. This analysis indicated a present value of the future
cash flows per share between $26.37 and $40.34.
o Present value analysis, calculating the present value of FBA,
including dividends, in 2007, discounted at rates between 15.0%
and 22.5%, and assuming earnings growth rates between 13.1% and
21.1%. Applying this to FBA management's projections of earnings
through 2006, an 18% compound annual growth rate from estimated
2002 net income, and a 12% increase in 2007, this results in a
2007 stock market price between $52.20, at 12.0x earnings, and
$69.60, at 16.0x earnings. Discounting this to 2002 results in
valuations between $25.95 and $34.60, at a 15.0% discount rate,
and $18.92 and $25.23, at a 22.5% discount rate.
Mr. Ross summarized these by indicating that overall these analyses
suggested a range of values between $14.74 and $40.34 per share. Stifel's report
is available for public inspection and copying by contacting Lisa K. Vansickle
at First Banks, Inc., 600 James S. McDonnell Boulevard, Mail Code M1-199-014,
Hazelwood, Missouri 63042.
The special committee indicated it was not prepared at that time to
recommend a price lower than current trading prices. Mr. Dierberg stated his
belief that the market price had risen from less than $32.00 at the beginning of
the year to $40.00 only because of speculative trading in FBA stock and that the
current market price could not be sustained in the absence of the proposed
merger. The committee restated its position that it would not recommend a price
less than the market price.
After this, Mr. Ross left the meeting and negotiations continued
between the committee members and Messrs. Dierberg and Blake. The gap between
the prices asked and offered gradually decreased but the parties were unable to
reach agreement. The parties then met separately to assess their positions, and
the special committee asked Mr. Baxter to join the discussion. After this break,
Mr. Baxter met with Mr. Blake and Mr. Ross to discuss the basis for First Banks'
belief that a price below market price could be a fair price. In discussing the
differing conclusions regarding valuation, it was determined that there were
three elements on which Messrs. Blake and Ross differed from Mr. Baxter as
follows:
o In discounting the future cash flows in the valuation analysis of
FBA, Messrs. Baxter and Ross had assumed different discount
rates. Mr. Baxter stated that the rates of return of publicly
traded banks tend to be in a range of approximately 500 to 700
basis points over the 10-year Treasury note rate. The mid-point
of that range at the time of the anlysis was approximately 11.0%,
which was the rate used in his analysis. Mr. Ross believed a
higher discount rate was more appropriate. Mr. Ross suggested
that a range of 15% to 22.5% would be more typical for an
analysis of an equity security such as FBA's common stock.
o In applying a minority discount to the valuation in a sale of the
enterprise, Mr. Baxter had applied a discount rate of 15%,
whereas Mr. Ross believed a discount rate of 35% to be more
appropriate. Mr. Baxter stated that discounts for minority
interests produced by various financial studies had ranged
between 13% and 49%. Because FBA common stock is listed on the
NYSE and, although generally thinly traded, has an established
market and is included in the Russell 2000 Index, Mr. Baxter
believed that the discount applied should be at the low end of
the range. Mr. Ross stated that the 35% discount rate which he
used was the median acquisition premium to the seller's stock
price one month prior to the announcement paid over the last five
years.
o Mr. Blake observed that while these factors were significant
contributors to the difference between the conclusions, probably
a more fundamental element is the difference in projections of
future income. Because this is an underlying assumption for most
of the analyses, an earnings projection that is higher or lower
can influence many aspects of the valuation, including what is
considered to be reasonable assumptions in some instances.
Although both projections had been provided by management of FBA,
the projections were made at different times. The projections
provided to Mr. Baxter were principally the FBA detailed budget
for 2002, with general projections of growth and increases in
income thereafter. These were given to Mr. Baxter in May 2002,
before it became apparent that further asset quality
deterioration was occurring, causing the earnings for the year
2002 to be less optimistic than originally anticipated. However,
because Mr. Ross began his analysis in July 2002, the continuing
deterioration in asset quality and the resulting ongoing effect
on earnings had become apparent.
Consequently, Mr. Blake suggested that rather than emphasize the
differences discussed in discount rate and minority discount assumptions at this
time, it may be more productive to discuss the differences in the projected
income stream. Mr. Blake indicated that in developing projections from FBA's
historic data, there were four primary factors that should be considered:
o In 2001, there was an adjustment of the deferred income tax
valuation reserve that increased net income by $8.1 million. This
will not be recurring, and consequently should not be included
for purposes of projections. Mr. Baxter indicated that this had
been considered in the projected 2002 earnings for his analysis.
o In the last half of 2001 and continuing in 2002, FBA has
encountered substantially increased asset quality problems
resulting in higher provisions for loan losses and nonperforming
assets. Originally, management had believed that most of these
issues had surfaced by the first quarter of 2002. However, more
recently it has become apparent that the continuing economic
downturn, particularly in Northern California, is leading to
further deterioration in asset quality. It appears that the
higher level of loan charge-offs and provisions for loan losses
may well continue into 2003. Mr. Baxter observed that he was
aware of the problems encountered through the first quarter of
2002, but, consistent with his discussions with FBA management at
the time, he had assumed asset quality would be improving during
the remainder of 2002, and not be a negative factor in 2003.
o FBA has experienced some contraction of its net interest rate
margin due to the continuing low level of interest rates. Much of
this has been mitigated by the use of various hedging techniques,
particularly interest rate swaps. However, if the current rate
environment continues into 2003, and particularly if further rate
decreases occur, management believes that FBA will probably
encounter further interest margin compression, thereby negatively
affecting net income.
o Finally, the combination of declining asset quality and a weak
economy have resulted in a dramatic slowing of loan growth, and
correspondingly, deposit growth. This appears to be partially a
factor of borrowers, and potential borrowers, refraining from
expansion in a weak economic environment. They seem to be more
prone to reduce existing debt, than to assume an increased amount
of debt. At the same time, lending officers were forced to focus
on improving the quality of their existing loan portfolio and
collecting loans that became marginal or problems, rather than on
generating new loans. Consequently, total loans outstanding
actually declined by $41.1 million between December 31, 2001 and
June 30, 2002. To compensate for the lower loan balances, deposit
pricing was less aggressive than it might have been in a period
of robust loan growth, causing a similar decline in deposits.
With the expectation that this will continue at least through the
remainder of 2002, FBA will begin 2003 with loan and deposit
balances significantly below those originally projected, and net
interest income will be reduced accordingly.
For these reasons, Mr. Blake believed the income projections used by
Baxter Fentriss were no longer realistic. Mr. Baxter conveyed to the special
committee members this information and his preliminary conclusion that while he
was unable to agree on certain issues noted above, based on the changes in
circumstances indicating lower earnings projections would be more realistic,
these lower earnings projections could reduce his conclusions as to a fair price
to approximately $40.00. The committee members and Mr. Baxter acknowledged to
First Banks that, if management's assessment of FBA's earnings prospects was
reasonable, the committee could not reasonably expect First Banks to pay a
premium substantially above the current market price. Accordingly, the committee
members asked that management provide documentary support for its assessment.
Management provided the following support to Baxter Fentriss in
support of its assessment of FBA's earnings prospects:
o Actual monthly balance sheets for January 2002 through June 2002,
including the following ratios: (1) Allowance for loan losses to
total loans; (2) Loans to deposits; and (3) Debt to equity;
o Projected monthly balance sheets for July 2002 through December
2003, including the following ratios: (1) Allowance for loan
losses to total loans; (2) Loans to deposits; and (3) Debt to
equity;
o Actual monthly statements of income for January 2002 through June
2002, including the following ratios: (1) Efficiency ratio; (2)
Noninterest expenses to average assets; (3) Return on average
assets; and (4) Return on average stockholders' equity;
o Projected monthly statements of income for July 2002 through
December 2003, including the following ratios: (1) Efficiency
ratio; (2) Noninterest expenses to average assets; (3) Return on
average assets; and (4) Return on average stockholders' equity;
o Actual monthly interest and yields on interest-earning assets and
interest-bearing liabilities for January 2002 through June 2002,
including interest spread and interest margin;
o Projected monthly interest and yields on interest-earning assets
and interest-bearing liabilities for July 2002 through December
2003, including interest spread and interest margin;
o Actual FBA, Inc. parent-company summary of cash receipts and cash
disbursements for the years ended December 31, 2000 and 2001, and
the six months ended June 30, 2002;
o Projected FBA, Inc. parent-company monthly summary of cash
receipts and cash disbursements for July 2002 through December
2002 and projected parent-company total summary of cash receipts
and cash disbursements for the year ending December 31, 2002.
First Banks and FBA do not normally publicly disclose financial
projections. The financial projections described herein were prepared by
management based on assumptions regarding FBA's future performance, using
information available as of approximately July 29, 2002. The financial
projections do not take into account any circumstances or events occurring after
the date they were prepared (and, in fact, subsequent to the preparation of the
projections, additional negative information came to the attention of
management, as a result of which financial results for the quarter ended
September 30, 2002, as reported in FBA's quarterly report on Form 10-Q for the
quarter ended September 30, 2002, were more negative than assumed in the
projections). First Banks and FBA do not intend to provide Baxter Fentriss with
any updated or revised financial projections in connection with the merger.
Factors such as industry performance, general business, economic, regulatory,
market and financial conditions, as well as changes to the business, financial
condition or results of operations of FBA, including without limitation such
changes as may occur as a result of the factors identified by FBA in this proxy
statement and in its other filings with the SEC, are likely to cause the
financial projections and/or the underlying assumptions to be materially
inaccurate. As a result, the financial projections are not indicative of future
results. See "FORWARD-LOOKING STATEMENTS IN THIS PROXY STATEMENT."
Projected Projected
Year Ending Year Ending
12/31/02 12/31/03
------------- -------------
(dollars expressed in thousands)
Income Statement Data:
----------------------
Net interest income $ 129,539 139,460
Provision for loan losses 22,700 14,400
Noninterest income 21,425 22,057
Noninterest expense 87,473 90,965
----------- -----------
Income before taxes 40,791 56,152
Income tax provision 15,759 21,694
----------- -----------
Net income $ 25,032 $ 34,458
=========== ===========
Profitability and Operating Ratios:
-----------------------------------
Return on average assets 0.82% 1.02%
Return on common equity 8.39 10.00
Return on average equity 8.39 10.00
Net interest margin 4.72 4.72
Noninterest expense as a percentage of total revenue 57.94 56.32
Average Balance Sheet Data:
---------------------------
Total assets $3,042,407 3,254,910
Net loans 2,280,997 2,472,087
Total deposits 2,522,999 2,725,785
Total stockholders' equity 298,310 328,649
Common stockholders' equity as
a percentage of total assets 9.81% 10.10%
During the discussion on July 25, First Banks raised its offer to a
range of $38.00 to $39.00, and the special committee reduced its demand to
$41.00 plus an increment for the rights offering. Mr. Dierberg indicated he did
not believe a price higher than $40.00 per share was justified. Assuming that
managment would provide the documentation supporting its position on FBA's
reduced earnings prospects, the special committee concluded that $40.00 plus an
increment for the rights offering represented a fair price as well as the best
available price for all of the public stockholders. Once it became clear that
First Banks and the special committee could agree on the price of $40.00, both
parties agreed that it was not necessary to come to an agreement on the
discrepancies in judgment regarding the the appropriate discount rate to apply
and the appropriate amount of a "minority discount"). First Banks and the
special committee ultimately reached a tentative agreement that $40.00 per share
represented a fair price for the shares held by the public stockholders and that
$0.54 per share represented a fair value for forgoing the rights offering. First
Banks and the special committee determined that $0.54 per share represented a
fair value for the foregone rights offering as it represented the difference
between the tentative per share agreement price of $40.00 per share and the
$32.50 per share that First Banks paid in conjunction with its purchase of FBA
shares in October 2001 (See "THE MERGER - Recent Purchases of Stock - Purchase
by First Banks") multiplied by the per share conversion factor of the foregone
rights offering of 0.0715. This factor represents the fractional share that
could be purchased by each stockholder for each share of FBA common stock owned,
in order to provide the same proportionate benefit as First Banks had received
in its purchase of FBA common stock. This factor was derived by dividing the
number of FBA common shares purchased by First Banks in October 2001 by the
total number of FBA common shares and Class B common shares owned by First Banks
at the time. Exclusive of these negotiations and the initial proposal of the
merger transaction on April 25, 2002, Mr. Dierberg did not have any additional
contact with the special committee, its counsel or financial advisor.
This agreement was subject to receipt and review of the confirming
documentation from management.
On August 7, members of the committee noted that the market price of
$41.50 for common stock of FBA was $0.96 higher than the conditional price of
$40.54 agreed to by the special committee and First Banks at their negotiation
meeting on July 25. Committee members discussed among themselves whether the
agreed price was appropriate in light of the current market price. The committee
members concluded that the market price was in part a function of the very light
volume of trading (the average daily trading volume from Monday, July 29,
through Wednesday, August 7, was fewer than 1,600 shares; this average reflects
no trading at all on August 1 and 2), and that any attempt by public
stockholders to sell a significant portion of their approximately 800,000 shares
in the public market would most likely result in a rapid decline in the market
price. Committee members also believed that public announcement of lower
earnings expectations (and later announcement of lower actual earnings) would
likely result in a decline in the market price below $40.00. Therefore, they
determined that a brief increase in the market price above the negotiated price
on extremely light trading volume did not impair the soundness of the
committee's decision to accept $40.54 per share.
Shortly thereafter, Baxter Fentriss advised counsel to the committee
that it had received the confirming documentation from management. On August 12,
the special committee met again with counsel and representatives of Baxter
Fentriss by telephone to review Baxter Fentriss' analysis of the revised
earnings projections. Baxter Fentriss indicated that the information supported
the position taken by First Banks at the July 25 negotiating meeting and that,
in light of this information, a share price of $40.54 would be fair to the
public stockholders. Baxter Fentriss indicated that it would send its revised
report reflecting the information provided by First Banks for overnight delivery
to the special committee members. The committee then adjourned until later the
following day so that committee members would have an opportunity to review the
revised report of Baxter Fentriss.
On the morning of August 13, the committee members received and
reviewed the revised report. That afternoon, the special committee met again
with counsel and representatives of Baxter Fentriss by telephone to review the
revised report. Baxter Fentriss explained the significance of the documentation
provided by management and its effect on the analysis and conclusions of Baxter
Fentriss with respect to the value of the common stock of FBA. The revised
report was based on lower earnings projections resulting from margin
compression, lower asset quality, increased loan losses and reduced asset
growth. Lower projected earnings caused Baxter Fentriss to revise the
calculations in each of its valuation analyses. The primary difference between
the normalized earnings projections made by Baxter Fentriss in its initial
analyses and the revised earnings projections provided by FBA's management is a
difference in the level of provision for loan losses. In its initial analysis,
Baxter Fentriss used a normalized provision of $1.7 million versus the $7.7
million reported by FBA for the first quarter of 2002. Baxter Fentriss based
this normalized provision level on FBA's five-year average net charge-off level
of 0.30% of average loans. As part of the revised budget information provided to
Baxter Fentriss, FBA's management indicated that they believed the net
charge-off level would be closer to 0.50% due to a continuing deterioration in
credit quality. They also indicated that in the past, recoveries were higher
than expected and that this level could not be anticipated in the future. Baxter
Fentriss revised its normalized earnings projections to incorporate the higher
net charge-off levels projected by FBA's management. This had an obvious
negative impact on earnings and corresponding valuation levels. In addition,
FBA's management further indicated that earnings would be negatively impacted by
lower than expected loan demand. The revised analyses suggested average
comparable prices of $40.77 (based on peer trading values), $39.11 (based on
discounted cash flow analysis) and $37.48 (based on comparable acquisition
values), with a resulting overall average value on a going concern basis of
$39.12. Baxter Fentriss confirmed that, on this basis, it considered $40.00 per
share, together with $0.54 per share related to the foregone rights offering, to
be fair from a financial point of view to the unaffiliated stockholders of FBA.
The committee members confirmed among themselves that this information was
consistent with the basis on which they had reached a tentative agreement of
$40.54 per share on July 25. Members of the special committee then unanimously
approved the price as negotiated at the July 25 meeting. The chairman called Mr.
Blake of First Banks to inform him of the special committee's decision, and the
committee's counsel advised counsel to First Banks at the same time.
FBA and First Banks issued a press release describing the principal
terms of the agreement on the morning of August 14. The attorneys for First
Banks and the special committee then commenced preparation of a draft of a
merger agreement setting forth the terms that the special committee had
approved.
The merger agreement was approved by the special committee on
September 20 and by the full board of directors of FBA on September 23, 2002.
Thereafter, it was signed and announced in a press release on September 23,
2002.
Opinion of the Financial Advisor to the Special Committee
Baxter Fentriss has acted as financial advisor to the special
committee in connection with the Merger. On September 23, 2002, Baxter Fentriss
delivered to the special committee its opinion that as of such date, and on the
basis of matters referred to herein, the consideration is fair, from a financial
point of view, to the unaffiliated holders of FBA common stock. In rendering its
opinion, Baxter Fentriss consulted with the management of FBA and reviewed the
merger agreement, certain publicly-available information, certain additional
materials made available by management, and drafts of this proxy statement. In
addition, Baxter Fentriss discussed with the management of FBA its businesses
and outlook. Baxter Fentriss' reports are available for public inspection and
copying by contacting Lisa K. Vansickle at First Banks, Inc., 600 James S.
McDonnell Boulevard, Mail Code M1-199-014, Hazelwood, Missouri 63042.
No limitations were imposed by FBA's board of directors or the special
committee upon Baxter Fentriss with respect to the investigation made or
procedures followed by it in rendering its opinion. The full text of Baxter
Fentriss' written opinion is attached as Appendix B to this proxy statement and
should be read in its entirety with respect to the procedures followed,
assumptions made, matters considered, and qualifications and limitations on the
review undertaken by Baxter Fentriss in connection therewith.
Baxter Fentriss' opinion is directed to the special committee, and is
directed only to the fairness, from a financial point of view, of the
consideration received by the unaffiliated stockholders of FBA. It does not
address FBA's underlying business decision to effect the proposed merger, nor
does it constitute a recommendation to any FBA stockholder as to how such
stockholder should vote with respect to the merger at the annual meeting or as
to any other matter.
Baxter Fentriss' opinion was one of many factors taken into
consideration by the special committee in making its determination to approve
the merger agreement, and the receipt of Baxter Fentriss' opinion is a condition
precedent to the obligations of both FBA and First Banks to consummate the
merger. The opinion of Baxter Fentriss does not address the relative merits of
the merger as compared to any alternative business strategies that might exist
for FBA or the effect of any other business combination in which FBA might
engage.
Baxter Fentriss, as part of its investment banking business, is
continually engaged in the valuation of financial institutions and their
securities in connection with mergers and acquisitions and valuations for
estate, corporate and other purposes. Baxter Fentriss is a nationally recognized
advisor to firms in the financial services industry on mergers and acquisitions.
The special committee selected Baxter Fentriss as its financial advisor because
it is an investment banking firm focusing on bank and thrift transactions and
because of the firm's extensive experience and expertise in transactions similar
to the merger. Baxter Fentriss is not affiliated with FBA or First Banks. Baxter
Fentriss has represented from time to time certain financial institutions that
have ultimately been merged with or acquired by FBA and First Banks. In
addition, Baxter Fentriss advised a special committee of the board of directors
of FBA in 2000 with regard to a transaction in which FBA acquired First Bank &
Trust from First Banks, in exchange for 6,530,769 shares of FBA common stock.
Baxter Fentriss received approximately $73,000 in compensation and out-of-pocket
expenses for the services it provided in 2000 to the special committee appointed
by FBA.
In connection with rendering its opinion to the special committee,
Baxter Fentriss performed a variety of financial analyses. In conducting its
analyses and arriving at its opinion as expressed herein, Baxter Fentriss
considered such financial and other factors as it deemed appropriate under the
circumstances including the following: (i) the historical and current financial
condition and results of operations of FBA including interest income, interest
expense, provision for loan losses, noninterest income, noninterest expense,
earnings, book value, returns on assets and equity, capitalization, the reserve
for loan losses and possible tax consequences resulting from the transaction;
(ii) the business prospects of FBA; (iii) the economies of FBA's respective
market areas; (iv) the historical and current market for FBA common stock; and
(v) the nature and terms of certain other merger transactions that it believed
to be relevant. Baxter Fentriss also considered its assessment of general
economic, market, financial and regulatory conditions and trends, as well as its
knowledge of the financial institutions industry. Baxter Fentriss' experience in
connection with similar transactions, its knowledge of securities valuation
generally, and its knowledge of merger transactions throughout the United States
were also important in its analysis of the merger.
In connection with rendering its opinion, Baxter Fentriss reviewed (i)
the merger agreement; (ii) drafts of this proxy statement; (iii) FBA's Annual
Reports to stockholders, including the audited financial statements of FBA, for
the years ended December 31, 1999, 2000 and 2001; (iv) consolidated reports of
condition ("call reports") on First Bank & Trust filed with the Federal Deposit
Insurance Corporation for the years ended December 31, 1999, 2000 and 2001; (v)
budgeted financial information and projections provided by management for the
years ending December 31, 2002 and 2003 for FBA; (vi) unaudited quarterly
financial information as of March 31, 2002 and June 30, 2002; and (vii) certain
additional financial and operating information with respect to the business,
operations and prospects of FBA as it deemed appropriate. Baxter Fentriss also
(a) held discussions with members of the senior management of FBA regarding its
historical and current business operations, financial condition and future
prospects; (b) compared the results of operations of FBA with those of certain
banking companies that it deemed to be relevant; (c) analyzed the pro forma
financial impact of the merger on First Banks; and (d) conducted such other
studies, analyses, inquiries and examinations as Baxter Fentriss deemed
appropriate.
The preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Moreover, the evaluation of fairness, from a financial point of
view, of the consideration received by the unaffiliated stockholders of FBA
common stock was to some extent a subjective one based on the experience and
judgment of Baxter Fentriss and not merely the result of mathematical analysis
of financial data. Accordingly, notwithstanding the separate factors summarized
below, Baxter Fentriss believes that its analyses must be considered as a whole
and that selecting portions of its analyses and/or the factors considered by it,
without considering all analyses and factors, could create an incomplete view of
the evaluation process underlying its opinion. The ranges of valuations
resulting from any particular analysis described below should not be taken to be
Baxter Fentriss' view of the actual value of FBA.
In performing its analyses, Baxter Fentriss made numerous assumptions
with respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of FBA. The analyses performed by
Baxter Fentriss are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses. Additionally, analyses relating to the values of businesses do
not purport to be appraisals or to reflect the prices at which businesses
actually may be sold. In rendering its opinion, Baxter Fentriss assumed that any
regulatory consideration of the merger would not result in the imposition of any
conditions that will have a material adverse effect on the contemplated benefits
of the merger, on a pro forma basis, to FBA or First Banks.
The following is a summary of the analyses performed by Baxter
Fentriss in connection with its opinion. The analyses take into consideration
the revised financial projections provided to Baxter Fentriss by First Banks
(see "Consideration of the Merger").
1. Comparison to Publicly Traded Financial Institutions. This analysis
was performed to make a determination of value for the unaffiliated shares of
FBA using the financial data of publicly traded financial institutions from
select markets across the United States. Baxter Fentriss compared certain
trading multiples of select financial institutions and compared them to the
value offered by First Banks. This peer group consisted of sixty publicly traded
banks with assets between $2 billion and $10 billion as of June 30, 2002. These
60 institutions were chosen based on asset size relative to that of FBA and
whether the institution was publicly traded, either on NASDAQ, AMEX or the NYSE.
The average asset size of these institutions was approximately $4.3 billion.
Banks that were the target of a merger or acquisition were excluded from the
peer group. A list of these institutions is as follows:
1st Source Corporation Glacier Bancorp, Inc.
Alabama National BanCorporation Gold Banc Corporation, Inc.
Allegiant Bancorp, Inc. Greater Bay Bancorp
AMCORE Financial, Inc. Hancock Holding Company
BancFirst Corporation Integra Bank Corporation
BancorpSouth, Inc. International Bancshares Corporation
Bank of Hawaii Corporation Irwin Financial Corporation
Banner Corporation Local Financial Corporation
Bay View Capital Corporation MB Financial, Inc.
Capitol Bancorp Limited Old National Bancorp
Cathay Bancorp, Inc. Pacific Capital Bancorp
Chemical Financial Corporation Pacific Northwest Bancorp
Citizens Banking Corporation Park National Corporation
City Holding Company Republic Bancorp Inc.
Community First Bankshares, Inc. Republic Bancshares, Inc.
Community Trust Bancorp, Inc. Silicon Valley Bancshares
Corus Bankshares, Inc. Sky Financial Group Inc.
Cullen/Frost Bankers, Inc. South Financial Group, Inc. (The)
CVB Financial Corp. Southwest Bancorporation of Texas, Inc.
East West Bancorp, Inc. Sterling Bancshares, Inc.
F.N.B.Corporation Texas Regional Bancshares, Inc.
Wintrust Financial Corporation Trustmark Corporation
First Charter Corporation UCBH Holdings, Inc.
First Financial Bancorp UMB Financial Corporation
First Financial Corporation United Bankshares, Inc.
First Indiana Corporation United Community Banks, Inc.
First Merchants Corporation Unizan Financial Corporation
First Midwest Bancorp, Inc. WesBanco, Inc.
First Republic Bank Westamerica Bancorporation
GBC Bancorp Whitney Holding Corporation
Baxter Fentriss selected the trading multiples used in its analysis
based upon the current and historical use of such multiples within the financial
institutions industry for the purposes of comparison and valuation between
different companies. The source of the data used in this analysis was SNL
Financial, a well-respected information and research firm which specializes in
the financial institutions industry. The multiples used were price to earnings
for the latest quarter, price to earnings for the LTM, price to book value,
price to tangible book value, price to deposits and price to assets. The ranges
of the multiples compiled from the peer group were as follows: the low and high
price to earnings multiples were 9.0x and 21.2x; the low and high price to LTM
earnings multiples were 9.6x and 31.2x, the low and high price to book multiples
were 1.01x and 3.97x; the low and high price to tangible book multiples were
1.27x and 4.27x; the low and high price to assets percentages were 6.8% and
31.2%; while the low and high price to deposits percentages were 9.3% and 38.7%.
The averages of the statistics compiled for the peer group were as
follows: the average price to earnings multiple was 14.2x; the average price to
LTM earnings multiple was 16.1x; the average price to book multiple was 2.01x;
the average price to tangible book multiple was 2.32x; the average price to
assets percentage was 17.3%; and the average price to deposits percentage was
23.1%.
These averages were used to establish valuation parameters for the
unaffiliated shares of FBA. The values produced by this analysis were as
follows: $34.59 based on price to FBA's adjusted earnings, $40.50 based on price
to adjusted LTM earnings, $47.13 based on price to book value, $35.75 based on
price to tangible book value, $41.26 based on price to assets, and $45.38 based
on price to deposits.
These values ranged from a low of $34.59 to a high of $47.13 while the
average of these values is $40.77. The value of the consideration to be received
by the unaffiliated stockholders of FBA is within the range of value developed
from this analysis.
2. Discounted Free Cash Flow / Net Present Value. Baxter Fentriss made
a determination of the value of FBA's unaffiliated shares based on FBA's
earnings capacity, operating cash flow, and its theoretical capacity to pay
dividends while still retaining equity to support future, sustainable growth.
This approach requires projecting cash flows for an extended period of time,
estimating a terminal value, and discounting the future free cash flows and
terminal value back to the valuation date. The discounted cash flow calculation
consists of three major components: (1) future free cash flows and/or potential
equity flows; (2) a terminal value; and (3) the required rate of return.
The future cash flows are projected by forecasting earnings growth and
potential dividend payout. While various growth rates can produce different
results, it is best to view a range of growth estimates in order to choose a
"likely" scenario. Economic conditions in general, as well as local economic
conditions, competition, management, and other non-quantifiable variables can
impact future real growth. The range of discount rates, growth rates and capital
levels were chosen based upon what Baxter Fentriss, in its judgment, considered
to be appropriate taking into account among other things, FBA's past and current
financial performance and conditions, the general level of inflation, rates of
return for fixed income and equity securities in the marketplace generally and
particularly in the banking industry.
Generally, the required rate of return is the expected return required
by investors for investments with similar risk profiles. Typically, the required
rates of return of publicly traded banks are approximately 500-700 basis points
over the U.S. Treasury 10-year note. During the months of July and August 2002,
the yield on the U.S. Treasury 10-year note fluctuated from a high of 4.86% to a
low of 4.06%. This analysis incorporates a range of discount rates of between
10.50% and 11.50%.
The terminal value in this analysis was calculated by treating the
free cash flow in the final time period as a perpetuity and then discounting it
to obtain a present value. The range of discount rates of 10.50% to 11.50% were
used to discount the perpetuity to determine the present value of the final
period's cash flow. The table herein presents the terminal values as calculated
in this analysis:
Discount Rate Terminal Value in Millions Present Value in Millions
------------- -------------------------- --------------------------
10.50% $1,703.9 $381.1
11.00% $1,627.0 $340.2
11.50% $1,558.2 $304.4
The range of valuations for FBA common stock using this analysis was
from $36.12 to $42.51. The mid-point of this range was $39.32. Using a mid-point
as a hypothetical value for the unaffiliated shares, the pricing statistics for
the common stock of FBA would be as follows: the price to adjusted earnings
multiple is 16.18x; the price to LTM earnings multiple is 15.67x; the price to
book value multiple is 1.67x; the price to tangible book value multiple is
2.55x; the price to deposits percentage is 19.99%; and the price to assets
percentage is 16.48%.
The value of the consideration to be received by the unaffiliated
stockholders of FBA is within the ranges developed by this valuation
methodology. As indicated above, this analysis is not necessarily indicative of
the actual values or actual future results and does not purport to reflect the
prices at which any securities may trade at the present or at any time in the
future. Discounted free cash flow analysis is a widely used valuation
methodology, but the results of such methodology are highly dependent upon the
numerous assumptions that must be made, including earnings, assets, growth
rates, terminal values and discount rates.
3. Sale of Enterprise Valuation. Baxter Fentriss considered the
potential acquisition of FBA by another financial institution in order to
determine a fair market value for the whole bank or control position in FBA.
Certain assumptions were made regarding the financing rates, amortization
periods, tax rates, core deposit intangible valuations, the level of discount
for a minority interest and the level of cost savings an acquiror might achieve,
as well as dilution levels it might accept. The assumptions applied are deemed
appropriate for an organization such as FBA, the types of institutions which are
capable of acquiring FBA, and for FBA's current financial condition. The
assumptions made regarding these different variables were made based upon what
Baxter Fentriss, in its judgment, considered to be appropriate taking into
account among other things, FBA's past and current financial performance and
conditions, the general level of inflation, rates of return for fixed income and
equity securities in the marketplace generally and particularly in the banking
industry. Baxter Fentriss also considered its knowledge, in general, of the
financial institutions industry, its experience in analyzing merger and
acquisition transactions involving financial institutions, and its general
knowledge of corporate finance.
Based on these assumptions, this analysis produced a range of values
for FBA of $39.36 to $53.61, for the controlling interest in the company. The
current ownership structure of FBA does not allow the unaffiliated stockholders
to effect a decision to make such a transaction occur. In addition, the
controlling stockholders have stated it is not their intent for such a
transaction to occur. The proposed transaction is to acquire the public
ownership position; therefore, the valuation was discounted by 15% to reflect a
lack of control on behalf of the unaffiliated stockholders. Various financial
studies have produced discounts for minority interests that ranged from a low of
13% to a high of 49%. Baxter Fentriss chose a value in the lower portion of this
range based upon the fact that the common stock of FBA is listed and quoted on
the NYSE. After applying this discount, this analysis resulted in a range of
values for FBA's public shares of $33.46 to $45.57. The midpoint of this range
was $39.52. Using the mid-point as a hypothetical value for the unaffiliated
shares, the pricing statistics for FBA would be as follows: the price to
adjusted earnings multiple is 16.26x; the price to LTM earnings multiple is
15.74x; the price to book value multiple is 1.68x; the price to tangible book
value is 2.57x; the price to deposits percentage is 20.09%; and the price to
assets percentage is 16.57%.
Using publicly available information, Baxter Fentriss considered the
impact of the merger on First Banks. Its analysis indicated that the merger
would not materially dilute First Banks' capital and earnings capacity and
would, therefore, likely not be opposed by the banking regulatory agencies from
a capital perspective. First Banks currently is the majority stockholder of FBA
and reports the financial performance and condition of FBA in its consolidated
financial statements. First Banks has effective control over FBA's management,
policies and election of directors. Baxter Fentriss has relied, without any
independent verification, upon the accuracy and completeness of all financial
and other information reviewed. Baxter Fentriss has assumed that all estimates,
including those as to projected future earnings were reasonably prepared by
management and reflect their best current judgments. Baxter Fentriss did not
make an independent appraisal of the assets or liabilities of FBA, and has not
been furnished such an appraisal.
No company or transaction used as a comparison in the above analysis
is identical to FBA or First Banks, or the merger. Accordingly, an analysis of
the results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value of
the companies used for comparison in the above analysis.
Baxter Fentriss has been, or will be, paid (i) an advisory fee of
$10,000, (ii) an evaluation and negotiation fee of $15,000, (iii) a fairness
opinion fee of $40,000, and (iv) reasonable out-of-pocket expenses for its
services. Such fees are not contingent on the results of its findings. FBA has
agreed to indemnify Baxter Fentriss against certain liabilities, including
certain liabilities under federal securities laws.
Analysis of the Fairness of the Merger
FBA
In voting to approve the merger agreement, the special committee
unanimously reached the conclusion that the merger and the merger agreement are
fair substantively and procedurally to the unaffiliated stockholders of FBA.
This conclusion was based on information provided to the special committee by
Baxter Fentriss, the oral opinion (subsequently confirmed in writing) of Baxter
Fentriss to the effect that, subject to the matters discussed in its opinion,
the merger consideration of $40.54 per share is fair from a financial point of
view to the unaffiliated FBA stockholders, and other factors which the members
of the special committee deemed relevant. These factors included, without
limitation, the following:
o the financial data and analysis on which Baxter Fentriss based
its opinion, including comparisons to other publicly held bank
stocks based on trading multiples, the analysis of the discounted
free cash flow attributable to FBA based on projected cash flows,
and the data indicating a potential sale of enterprise valuation
for FBA. The members of the special committee took all of these
analyses into account and agreed with Baxter Fentriss' conclusion
that the merger price is fair. They also relied on their own
knowledge and experience in deciding that the merger price is
fair;
o information concerning the recent and historical market prices
for FBA common stock (see "Background of and Reasons for the
Merger") and the nature of the market for such stock, including
the very limited volume of trading which has generally been
prevalent for the stock, and the resulting limited liquidity
available to FBA stockholders;
o the certainty of value available to FBA stockholders in a
transaction for all cash consideration, and the liquidity
provided by the merger;
o the special committee believes that the agreed price is fair to
the public stockholders and represents an optimum exit for
unaffiliated stockholders in light of overall market and economic
uncertainties, as well as the prevailing lack of liquidity for
the shares of FBA. In that regard, Mr. Dierberg has stated
repeatedly that he does not intend to sell First Banks or FBA;
o the financial position of First Banks and its access to financing
in an amount sufficient to make timely completion of the merger
highly likely;
o the limited number of conditions required to be satisfied in
order for First Banks to complete the merger, which enhances the
probability of timely completion of the merger;
o the provisions in the merger agreement that limit potential
liability of FBA in the event that the merger is not completed;
o the special committee noted that the merger price is higher than
the highest price paid by FBA to repurchase its stock at any time
in 2002 (see the table of stock repurchases on page 49);
o the fact that the special committee was given broad latitude as
to how to evaluate the proposed transaction, as well as the
authority to choose independent legal and financial advisors
responsible solely to, and directed solely by, the special
committee;
o the process by which the merger price and other terms of the
merger were arrived at, including the opportunity for the members
of the special committee to consult with the special committee's
advisors and to obtain information sufficient to form their
decision and to satisfy themselves regarding the fairness of the
transaction; and
o the fact that FBA stockholders have the legal right to demand
appraisal of their FBA stock if they are not satisfied with the
merger price.
The special committee's review of the information and analysis
provided by Baxter Fentriss included consideration of the relationship of the
merger price to FBA's June 30, 2002 reported net book value per share of $23.50
and Baxter Fentriss' analysis of its going concern value and the appropriate
discount applicable thereto. Based on this review, the special committee adopted
the analyses of net book value and going concern value in reaching the
committee's ultimate conclusion that the merger price is fair. The special
committee did not attempt to estimate a liquidation value for FBA, because they
did not believe that liquidation of the company or of First Bank & Trust was a
reasonable possibility. There were no offers received by FBA or the special
committee which would have allowed a comparison of the merger price to what a
third party was willing to pay for the minority interests owned by the
unaffiliated stockholders.
The special committee's choices were (1) to negotiate a merger at a
fair price, or (2) to reject First Banks' proposal for a merger. The special
committee did not have the option of seeking and negotiating an acquisition of
FBA by a third party or of liquidating FBA by seeking purchasers of its various
assets and liabilities.
The special committee believes that, in general, purchasers of
financial institutions are willing to pay a higher price for a whole institution
than the aggregate price for which the various assets and liabilities can be
sold in a liquidation, because a sale of the entire business is less likely to
disrupt customer relationships and therefore more likely to preserve the
company's goodwill. Liquidation also requires coordination of multiple
transactions and leaves the company more vulnerable if it completes the
disposition of less than all of its assets and liabilities. The special
committee was aware that liquidation of a financial institution rarely occurs
except in the context of a receivership by the FDIC or a similar proceeding in
which stockholders receive little or nothing for their equity interests.
As discussed above, the special committee believes that First Banks
and Mr. Dierberg have no intention of selling First Banks or FBA in the
foreseeable future. The special committee believes that the unlikelihood of a
sale decreases the weight that should be given to potential sale value. It also
makes sale value more speculative because any eventual sale would occur, if at
all, remotely in the future. FBA's sale value in the future would depend less on
current assets, earnings, management and other current factors and more on the
company's assets, earnings, management and similar factors at some indeterminate
time in the future.
Even though the special committee could not seek a sale of the whole
company and did not wish to seek a liquidation, it believed it could agree on a
merger at a fair price. It had the power to exercise the second option, i.e., to
reject First Banks' proposal. If it had done so, First Banks would have had two
choices: (i) accept the status quo, or (ii) effect a short form merger at a
price determined unilaterally by First Banks. In the former case, First Banks
would fail to realize the objectives it sought when it proposed the merger. In
the latter case, the unaffiliated stockholders would receive First Banks' price
or exercise appraisal rights. To achieve a price greater than that offered by
First Banks through exercise of appraisal rights, the unaffiliated stockholders
might have been subjected to the expense, delay and uncertainties of litigation.
First Banks never threatened or suggested that it would seek a short form
merger, but the special committee knew that it had the legal right to do so. The
special committee believed that the price and terms it negotiated were fair and
preferable both to the status quo (from the standpoint of the unaffiliated
stockholders) and to a potential short form merger, with no certainty as to the
merger price or the outcome of any appraisal proceedings.
The board of directors of FBA, including all of the directors who are
not employees of FBA, unanimously approved the merger agreement, adopting the
conclusion and analyses of the special committee. Among the factors chiefly
considered by the board of directors were the factors cited above, and also the
following:
o the fact that the members of the special committee are
independent, sophisticated and experienced in undertaking the
type of analysis necessary in order to evaluate the merger;
o the familiarity of each of the members of the special committee
with the operations, financial condition, and history of FBA (all
three members of the special committee have served as directors
of FBA for more than four years, and two of the three have served
for approximately 15 years; and
o the fact that the members of the special committee are owners of
FBA common stock and thus have interests substantially aligned
with those of FBA's public stockholders, because they will
receive the same consideration for their shares as that payable
to all public stockholders.
The members of the special committee and the board also considered
potentially negative factors that might offset or outweigh the foregoing
benefits of the merger, but they concluded that the benefits described above
were ultimately more significant. Among potential negative factors considered
were the following:
o the merger compels FBA's public stockholders to sell their shares
and forego any future interest in FBA's assets and earnings,
whether or not any particular stockholder desires to dispose of
his or her shares;
o the sale of the shares by FBA's public stockholders will, in
general, be a taxable event as more fully described under "THE
MERGER - Federal Income Tax Consequences"); and
o the merger consideration did not represent a premium to the
recent market price of FBA common stock (for example, as
discussed on page 32), the closing price on August 7 was $0.96,
or 2.4%, higher than the merger price of $40.54. In that regard,
the special committee and the board have been aware that the
market for FBA's stock does not necessarily reflect the financial
performance or other fundamental indications of FBA's value, and
the market price has fluctuated over time without any apparent
relationship to underlying performance. In 2002, market prices
have been unusually high compared to historical prices, but at
other times the stock price has been well below what management
and the board viewed as its intrinsic value. Such fluctuations
have also been observed relative to other bank and thrift stocks.
Members of the board concluded that, on balance, the market price
at a given point in time has not been a reliable indicator of
value, and that the recent market price should not be given as
much weight as other factors in determining the current value.
The special committee and FBA's board of directors also considered the
benefit that would be realized by all of FBA's public stockholders as a result
of the manner in which the rights offering is addressed in the merger. If the
rights offering had proceeded as originally planned, stockholders would have had
the opportunity to exercise rights to purchase their pro rata percentages of new
shares of FBA common stock for $32.50 per share, subject to the filing with the
SEC and effectiveness of a registration statement. In order to do so, a
stockholder would have been required to exercise his or her individual rights
and to pay in cash for all shares purchased. Stockholders who did not respond in
a timely manner would have not received any benefit. Upon completion of the
rights offering, each stockholder would have been able to sell shares acquired
in the rights offering at prevailing market prices, which might fluctuate
significantly, particularly if a significant number of stockholders sought to
sell shares in a short time.
Under the terms of the merger agreement, all of FBA's public
stockholders will receive the difference between the price at which stock would
have been offered ($32.50) and the merger price without regard to the rights
offering ($40.00), without having to exercise the rights, pay for the stock or
sell the shares subject to risk of fluctuations in price.
First Banks, FBA Acquisition and James F. Dierberg
Mr. Dierberg makes significant decisions on behalf of First Banks and
FBA Acquisition (a corporation organized solely for the purpose of engaging in
the merger), subject in the case of First Banks to the concurrence of its board
of directors. Mr. Dierberg and the other filing persons believe that the merger
is fair substantively and procedurally to the unaffiliated stockholders of FBA
for substantially the same reasons that FBA's board of directors reached that
conclusion. Mr. Dierberg joined the other board members of FBA in adopting the
conclusion and analyses of the special committee. In addition, he also
considered the following consideration: at the outset of the transactions and in
negotiations with the special committee (see "Consideration of the Merger"), Mr.
Dierberg's consistent view was an appropriate price for First Banks to pay was
up to $35.00, and he was reluctant to agree for First Banks to pay more than
that in part because he believed that FBA's market price in 2002 was
unrealistically high due to speculative trading. In determining that price, Mr.
Dierberg took into account the financial information discussed herein under the
caption "Opinion of the Financial Advisor to the Special Committee" and his
overall knowledge of FBA and its financial condition and performance. He also
relied upon his experience and knowledge gained from over 35 years in the
banking business, including the negotiation of numerous acquisitions on behalf
of First Banks and FBA.
The discussions and negotiations with the special committee and its
financial advisor on July 25 convinced Mr. Dierberg, however, that it would be
necessary for First Banks to agree to a higher price than he believed was
appropriate in order to satisfy the special committee regarding the fairness of
the price. After considering the effects of the price of $40.54 per share on the
economics of the transaction and his assessment of the general effect that
paying that price would have on First Banks, Mr. Dierberg agreed to support the
transaction at that price. Inasmuch as he believes that a lower price would have
been fair to FBA's public stockholders, he is convinced that the price of $40.54
is also fair. These determinations were subsequently approved by the boards of
directors of First Banks and FBA Acquisition. Each of those entities adopted the
analyses and reasoning of Mr. Dierberg.
Voting by FBA's Executive Officers and Directors
FBA has been advised that the executive officers and directors of FBA
who have the power to vote or direct the vote of shares of FBA common stock (see
the table of beneficial ownership on page 67) each currently intend to vote in
favor of the merger.
Other Factors Considered
The SEC also requires FBA and the other filing persons to state
whether the conclusions stated herein regarding the fairness of the merger are
valid where certain other procedural steps are not adopted.
In considering the fairness of the merger, the filing persons did not
give significant consideration to the requirement, which is sometimes included
in going private transactions, for approval of the merger by a majority of the
unaffiliated stockholders of FBA. The effect of not having such a provision is
that, once First Banks votes in favor of the merger, its approval is assured,
whether or not unaffiliated stockholders vote in favor of it. The principal
reasons why a requirement for approval by a majority of the unaffiliated
stockholders was not given more consideration or adopted for the merger were the
following:
o Delaware law, which governs the merger, does not require that
such a "majority of the minority" approval be obtained;
o such approval might increase the costs and time involved in
completing the merger, and neither First Banks nor the special
committee believed that such a requirement would provide a
significant benefit to FBA's unaffiliated stockholders. With
regard to the potential for additional costs and/or delay, the
parties were aware that a large number of FBA's stockholders hold
relatively small amounts of stock (FBA believes that there are
approximately 5,000 beneficial owners of its common stock, with an
average holding of approximately 160 shares), and FBA has often
received few responses to previous stockholder communications such
as proxy solicitations;
o if a "majority of the minority" provision had been included in the
merger agreement, the special committee would have been obligated
to perform the same analyses which they performed using the same
degree of care, with the advice of the committee's financial
advisor, and to negotiate the terms of the merger so as to protect
the interests of the unaffiliated stockholders. The members of the
special committee believe that they would have taken all of the
same actions, for all of the same reasons, if such a provision had
been included in the merger agreement, and that the same merger
price of $40.54 per share would have been agreed upon; and
o in previous transactions in 1998 and 2000 involving FBA and First
Banks, special committees of FBA's board of directors had acted
on FBA's behalf to represent the interests of the unaffiliated
stockholders. In each case, FBA's special committee, with the
assistance of an independent financial advisor, had determined
the fairness of the transaction to FBA's unaffiliated
stockholders. These transactions, in which FBA acquired FCB and
First Bank & Trust, respectively, resulted in significant growth
of FBA's assets and banking operations (additional assets of
$192.5 million from FCB and $1.10 billion from First Bank &
Trust), and, in the opinions of the filing persons, they
contributed significantly to FBA's increased earnings beginning
in 1998. These experiences were useful in informing the special
committee and the filing persons that the procedures followed
were adequate to protect the interests of unaffiliated
stockholders.
The special committee members utilized the work and analyses performed
by Baxter Fentriss to provide a substantial amount of the information which they
considered important, but they also relied upon their own knowledge and
experience. The special committee did not find it necessary to utilize any third
parties to assist them in negotiating the terms of the merger, because they
understood the relevant issues and were capable of representing the interests of
the unaffiliated stockholders. First Banks, FBA Acquisition and Mr. Dierberg
observed the efforts of the special committee members in negotiating the merger
price and the other terms of the merger (First Banks and Mr. Dierberg also had
participated in previous negotiations with the special committee members in
connection with FBA's acquisitions of FCB in 1998 and First Bank & Trust in
2000), and they were convinced that the special committee members provided
effective representation of the unaffiliated stockholders.
The conclusions of the special committee and the other filing persons
that the merger is fair to the unaffiliated stockholders are not influenced by
the fact that the merger agreement does not grant to unaffiliated stockholders
access to the corporate books and records of the filing persons, including FBA
and First Banks. The members of the special committee and the other filing
persons do not believe that such access is necessary as they believe the
negotiation of the merger terms was conducted fairly, and unaffiliated
stockholders are given access in this proxy statement and appendices hereto, and
the related Schedule 13E-3 and exhibits thereto, to all of the information which
a reasonable investor would take into account in making an investment and voting
decision under these circumstances. They also considered that there is no legal
requirement to provide for such access.
The special committee considered each of the factors listed in the
section below entitled "Interests of Directors and Officers in the Merger" in
arriving at its recommendation. The committee is aware that the merger is by its
nature a "going private" transaction, and that all risks and rewards of
ownership of FBA in the future will necessarily fall to First Banks. Public
stockholders will be exchanging thinly traded stock in a public company of which
First Banks already owns more than 93%. The merger price represents a market
price that, in the opinion of the committee members, would most likely not be
available to all stockholders equally if many of them should attempt to sell in
the public market. The committee members believe that indemnification and
additional fees of $10,000 each are reasonable compensation and protection for
the additional services required of the members of the committee in connection
with the merger negotiations. Since indemnification and special fees are not
contingent on approval of the merger agreement or completion of the merger, the
committee members do not believe that these considerations had any influence on
the deliberations or recommendation of the special committee. With respect to
indemnification, the committee members believed that they should not be at
personal risk for undertaking the role of members of the special committee in a
transaction proposed by the controlling stockholder of FBA. The filing persons
reached the same conclusions as the special committee with respect to the
foregoing issues.
The foregoing discussion of the factors considered is not intended to
be exhaustive, and different members of the special committee and the board may
have emphasized different factors as they considered all of the information they
deemed relevant. Neither the special committee nor the board assigned specific
weight to any of the factors cited, and individual members may not agree on the
significance of all of the factors discussed.
THE MERGER
The following information summarizes the material terms of the merger.
Insofar as it relates to matters contained in the merger agreement, this
discussion is qualified in its entirety by reference thereto, a copy of which is
attached hereto as Appendix A and incorporated herein by reference.
The merger agreement provides for the merger of FBA Acquisition with
and into FBA. Upon consummation of the merger, the legal existence of FBA
Acquisition and FBA will be combined, FBA will become a wholly-owned subsidiary
of First Banks, and each outstanding share of FBA common stock (except for
shares owned by First Banks) will be converted into the right to receive $40.54
in cash.
Following the merger, First Banks intends to cause FBA to be merged
into First Banks and First Bank & Trust to be merged into First Banks'
wholly-owned banking subsidiary, First Bank, which is headquartered in Missouri,
so that all of First Banks' banking operations will be conducted in a single
bank subsidiary. However, these subsequent transactions are not part of the
proposal to be voted on by FBA's stockholders.
Interests of Directors and Officers in the Merger
As of the record date, some of the directors and officers of FBA owned
shares of FBA common stock, as reflected in the table on page 67 entitled
"SECURITY OWNERSHIP OF MANAGEMENT AND OF CONTROLLING STOCKHOLDER" and in the
footnotes to the table. When the merger is completed, such holders will receive
$40.54 per share in cash, the same consideration payable to public stockholders
generally.
FBA stockholders should also be aware that directors and officers of
FBA have interests in the merger that are in addition to, or different from,
those of the public stockholders of FBA. You may wish to take those interests
into account in determining what weight, if any, to give to the recommendations
of the special committee and the board of directors. These interests can lead to
inconsistencies between the objectives of the officers and directors and those
of the public stockholders, as follows:
o First Banks' controlling shareholder, James F. Dierberg, and
members of his immediate family will own, through First Banks,
all of the outstanding equity of FBA following the merger and
will therefore obtain the benefit of any future earnings and
growth of FBA and its assets;
o FBA officers and directors who are officers of First Banks will
continue their roles in managing FBA or its successor following
the merger, while the public stockholders will receive cash for
their shares if the merger is consummated and will have no
further interest in FBA;
o FBA's officers and directors are generally entitled to be
indemnified for liabilities arising from their conduct in those
capacities, and First Banks and FBA maintain insurance for the
purpose of protecting them against such liabilities. Furthermore,
the members of the special committee are parties to
indemnification agreements with FBA and First Banks, which
provide generally for indemnification against liabilities which
they may incur as a result of their services as directors of FBA
or as members of the special committee; and
o each member of the special committee has received a fee of
$10,000 for serving on the special committee, and will be
reimbursed for reasonable expenses incurred in connection with
the performance of their responsibilities on the special
committee. Such fees and expenses are payable whether or not the
special committee recommended approval of the merger agreement
and whether or not the merger is consummated.
Federal Income Tax Consequences
This summary of the material United States federal income tax
consequences of the merger to FBA stockholders is based on the law as currently
in effect. This summary does not discuss all of the tax consequences that may be
relevant to any particular stockholder in light of his or her particular
circumstances or to stockholders subject to special rules, such as financial
institutions, broker-dealers, tax-exempt organizations, stockholders that hold
their shares as part of a straddle, hedging or conversion transaction, or
stockholders who acquired their shares through the exercise of a stock option or
otherwise as compensation. FBA stockholders are urged to consult their own tax
advisors as to the particular tax consequences to them of the merger, including
the effect of United States state and local tax laws or, if applicable, foreign
tax laws.
In general, the receipt in the merger by a stockholder of cash for FBA
shares will be a taxable transaction for United States federal income tax
purposes. A stockholder will recognize gain or loss in an amount equal to the
difference between the cash received in the merger by the stockholder and the
stockholder's tax basis in the shares surrendered in the merger. That gain or
loss will be a capital gain or loss if the shares are held as a capital asset by
the stockholder, and will be a long term capital gain or loss if the shares have
been held for more than one year at the time of the merger. A stockholder may be
subject to backup withholding at a rate of 31% unless, at the time he or she
surrenders shares in the merger, the stockholder provides a taxpayer
identification number and certifies that the number is correct, or unless an
exemption is demonstrated to apply. Backup withholding is not an additional tax.
An amount so withheld can be refunded or credited against the federal income tax
liability of the stockholder, provided appropriate information is forwarded to
the Internal Revenue Service in a timely manner.
There are no material federal income tax consequences on FBA or its
affiliates as a result of the merger.
Appraisal Rights
Under Section 262 of the DGCL, if you comply with the conditions
established by Section 262, you will be entitled to dissent and elect to have
the "fair value" of your shares, exclusive of any element of value arising from
the accomplishment or expectation of the merger, together with a fair rate of
interest, if any, judicially determined by the Delaware Court of Chancery and
paid to you in cash. The following is a summary of the law pertaining to
appraisal rights under the DGCL and is qualified in its entirety by applicable
Delaware case law and the full text of Section 262, a copy of which is provided
as Appendix C to this proxy statement. All references in Section 262 and in this
summary to a "stockholder" are to the record holder of the shares of FBA stock
as to which appraisal rights may be asserted. If you have a beneficial interest
in shares of stock held of record in the name of another person, such as a
broker or nominee, you will be required to act promptly to cause the record
holder to follow the steps summarized below properly and in a timely manner to
perfect your appraisal rights.
Under Section 262, a stockholder must deliver to FBA, before the
taking of the vote on the merger, a written demand for appraisal of such
stockholder's shares; a proxy or vote at the annual meeting against the merger
does not constitute such a required demand. Within ten days after the effective
date of the merger, FBA must notify each stockholder who has made a proper
demand and who has not voted in favor of the merger of the date on which the
merger became effective. At that time, if you wish to exercise your appraisal
rights or wish to preserve the right to do so, you should review carefully
Section 262 and seek advice of legal counsel, since failure to comply fully with
the procedures of Section 262 will result in the loss of appraisal rights.
Only a holder of record of shares of FBA stock will be entitled to
make the written demand described above and to assert appraisal rights for the
shares of stock registered in that holder's name. A demand for appraisal should
be executed by or on behalf of the stockholder of record, fully and correctly,
as that stockholder's name appears on the stock certificates, and the demand
should specify the stockholder's name and mailing address, the number of shares
of stock owned and that the stockholder intends thereby to demand appraisal of
the stockholder's shares. If your shares are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the written
demand should be made in that capacity. If your shares are owned of record by
more than one person as in a joint tenancy or tenancy in common, the demand
should be executed by or on behalf of all owners. An authorized agent, including
one or more joint owners, may execute a demand for appraisal on behalf of a
stockholder; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, the agent is acting
as agent for the owner or owners. A record holder such as a broker who holds
shares of FBA stock as nominee for several beneficial owners may exercise
appraisal rights with respect to the shares of FBA stock held for one or more
beneficial owners while not exercising those rights with respect to the shares
of FBA stock held for one or more other beneficial owners; in that case, the
written demand should set forth the number of shares of FBA stock as to which
appraisal is sought, and where no number of shares is expressly mentioned, the
demand will be presumed to cover all shares of FBA stock held in the name of the
record owner.
If you hold your shares of FBA stock in brokerage accounts or other
nominee forms and wish to exercise appraisal rights, you are urged to consult
promptly with the person or entity holding the shares to determine the
appropriate procedures for the making of a timely demand for appraisal by the
nominee.
Within 120 days after the completion of the merger, but not
thereafter, either FBA or any holder of dissenting shares who has complied with
the requirements of Section 262 may file a petition in the Delaware Chancery
Court demanding a determination of the fair value of all shares of FBA stock
held by dissenting stockholders. FBA is under no obligation to and has no
present intent to file a petition for appraisal, and you should not assume that
FBA will file a petition or initiate any negotiations with respect to the fair
value of the shares. Accordingly, if you desire to have your shares appraised,
you should take any actions necessary for the perfection for your appraisal
rights within the time periods and in the manner prescribed in Section 262.
Within 120 days after the completion of the merger, any stockholder
who has complied with the provisions of Section 262 will be entitled to receive
from FBA, upon written request, a statement setting forth the aggregate number
of shares of FBA stock for which demands for appraisal have been received by FBA
and the aggregate number of holders of the shares. FBA must mail this statement
to the stockholder within 10 days of receipt of a request or within 10 days
after the expiration of the period for the delivery of demands as described
above, whichever is later. Within 120 days after the effectiveness of the
merger, any FBA stockholder complying with Section 262 and who is otherwise
entitled to appraisal rights may file a petition in the Delaware Chancery Court
demanding a determination of the value of the stock of all such holders.
A stockholder timely filing a petition for appraisal with the Delaware
Chancery Court must deliver a copy to FBA, which will then be obligated within
20 days to provide the Delaware Chancery Court with a duly verified list
containing the names and addresses of all stockholders who have demanded
appraisal of their shares and with whom agreements as to the value of their
shares have not been reached with FBA. After notice to the stockholders, the
Delaware Chancery Court is empowered to conduct a hearing on the petition to
determine which stockholders are entitled to appraisal rights. The Delaware
Chancery Court may require stockholders who have demanded appraisal and who hold
stock represented by certificates to submit their certificates to the Register
in Chancery for notation thereon of the pendency of the appraisal proceedings,
and if any stockholder fails to comply with the requirement, the Delaware
Chancery Court may dismiss the proceedings as to that stockholder. After
determining the stockholders entitled to an appraisal, the Delaware Chancery
Court will appraise the "fair value" of their shares, exclusive of any element
of value arising from the accomplishment or expectation of the merger, together
with a fair rate of interest, if any, to be paid upon the amount determined to
be the fair value. The costs of the action may be determined by the Delaware
Chancery Court and taxed upon the parties as the Delaware Chancery Court deems
equitable. Upon application of a holder of dissenting shares, the Delaware
Chancery Court may also order that all or a portion of the expenses incurred by
any stockholder in connection with the appraisal proceeding, including
reasonable attorneys' fees and the fees and expenses of experts, be charged pro
rata against the value of all of the shares entitled to appraisal.
If you consider seeking appraisal, you should be aware that the fair
value of your shares as determined under Section 262 could be more than, the
same as or less than the merger consideration you would receive under the merger
agreement if you did not seek appraisal of your shares. In determining fair
value and, if applicable, a fair rate of interest, the Delaware Chancery Court
is to take into account all relevant factors. In Weinberger v. UOP, Inc., the
Delaware Supreme Court discussed the factors that could be considered in
determining fair value in an appraisal proceeding, stating that "proof of value
by any techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered, and
that "fair price obviously requires consideration of all relevant factors
involving the value of a company." The Delaware Supreme Court stated that, in
making this determination of fair value, the court must consider market value,
asset value, dividends, earnings, prospects, the nature of the enterprise and
any other facts that could be ascertained as of the date of the merger that
throw any light on future prospects of the merged corporation. The Delaware
Supreme Court further stated that "elements of future value, including the
nature of the enterprise, which are known or susceptible of proof as of the date
of the merger and not the product of speculation, may be considered. Section 262
provides that a fair value is to be "exclusive of any element of value arising
from the accomplishment or expectation of the merger."
Any stockholder who has duly demanded appraisal in compliance with
Section 262 will not, after the completion of the merger, be entitled to vote
the shares subject to this demand for any purpose or to receive payment of
dividends or other distributions on those shares (except dividends or other
distributions payable to holders of record of shares as of a record date prior
to the completion of the merger). If any stockholder who demands appraisal under
Section 262 fails to perfect, or effectively withdraws or loses, the right to
appraisal, the stockholder's shares will be converted into the right to receive
the merger consideration in cash in accordance with the merger agreement,
without interest. A stockholder will fail to perfect, or effectively lose or
withdraw, the right to appraisal if no petition for appraisal is filed within
120 calendar days after the completion of the merger. A stockholder may withdraw
a demand for appraisal by delivering to FBA a written withdrawal of the demand
for appraisal and acceptance of the merger consideration, except that any such
attempt to withdraw made more than 60 calendar days after the completion of the
merger will require the written approval of FBA. Once a petition for appraisal
has been filed, the appraisal proceeding may not be dismissed as to any
stockholder, without the approval of the Delaware Chancery Court.
Regulatory Approvals
Acquisitions of banks and bank holding companies are generally subject
to the prior approval of the federal and state bank regulatory agencies with
jurisdiction over the operations of those entities. First Banks has previously
obtained the regulatory approvals necessary to enable it to control FBA and
First Bank & Trust. Accordingly, under applicable laws and regulations, no
application is required to be submitted to federal or state regulatory agencies
prior to the consummation of the merger. First Banks has made the applicable
regulatory agencies aware of its intention to acquire the outstanding public
interests in FBA and will file any notices or other communications required or
requested by such agencies.
Recent Purchases of Stock
Purchases by FBA
For several years, FBA has had an ongoing program of purchasing common
stock in the open market from time to time, depending on market conditions,
access to funds, and other factors. FBA's board of directors, through various
resolutions passed from 1995 to 2000, has authorized the purchase of up to a
cumulative total of 1,094,797 shares of common stock. At September 30, 2002, FBA
could purchase approximately 221,000 additional shares of common stock under the
existing authorization.
In the past two years, FBA has purchased 77,300 shares of common stock
pursuant to the repurchase program, at average prices and in price ranges shown
in the following table:
Number of Shares
Purchased during Average Prices Range of Prices Paid
Quarter Ended the Quarter Paid Per Quarter during the Quarter
------------- ----------- ---------------- ------------------
12/31/00 12,500 $15.09 $14.00 - $17.00
03/31/01 37,600 $21.66 $19.75 - $22.50
06/30/01 2,300 $21.66 $21.66
09/30/01 16,000 $24.49 $24.49
12/31/01 -- -- --
03/31/02 -- -- --
06/30/02 8,900 $36.72 $36.22 - $38.00
09/30/02 600 $38.84 $38.00 - $40.25
In the 60-day period preceding the date of this proxy statement, FBA
purchased the shares reflected in the table below, in transactions effected
through a broker-dealer on the NYSE:
Date Number of Shares Price Per Share
---- ---------------- ---------------
09/25/02 200 $40.25
09/26/02 200 $40.25
09/27/02 2,200 $40.25
09/30/02 300 $40.20
Purchase by First Banks
On October 31, 2001, First Banks purchased 803,757 shares of FBA
common stock for $32.50 per share in a private placement for an aggregate
purchase price of $26,122,103. The price was based on recent market prices at
the time of the transaction. The purpose of the transaction was to provide
capital with which FBA funded its acquisition of BYL Bancorp, a California bank
holding company. As a result of this transaction, First Banks' ownership
percentage in the voting stock of FBA increased 0.42% from 93.27% to 93.69%.
Common Stock Prices
The common stock of FBA is traded on the New York Stock Exchange with
the ticker symbol "FBA." The high and low common stock prices and dividend
declarations for the past two years are shown in the following table:
Quarter Ended High Low Dividend Declaration
------------- ---- --- --------------------
12/31/00 $17.63 $14.00 N/A
03/31/01 $22.75 $17.75 N/A
06/30/01 $29.53 $21.00 N/A
09/30/01 $30.75 $22.65 N/A
12/31/01 $32.93 $29.65 N/A
03/31/02 $41.40 $31.46 N/A
06/30/02 $42.09 $35.72 N/A
09/30/02 $41.70 $39.00 N/A
Accounting Treatment
It is anticipated that the merger, when consummated, will be accounted
for using the purchase method of accounting. The excess of the purchase price
over the book value of the FBA common stock acquired in the transaction will be
recorded by First Banks as goodwill and will not be amortized, but instead will
be periodically tested for impairment in accordance with existing accounting
pronouncements.
The following table summarizes First Banks' interest (in dollars and
as a percentage) in the net book value and net earnings of FBA as of and for the
nine months ended September 30, 2002 and on a pro forma basis giving effect to
the merger as if it had been consummated on September 30, 2002.
As Reported
September 30, 2002 Pro Forma Basis
------------------------- --------------------------
Dollars Percentage Dollars Percentage
------------------------- -------------------------
(dollars expressed in thousands)
Net book value $297,339 93.76% $304,526 100.00%
Net earnings 15,930 93.76 16,996 100.00
Estimated Expenses; Financing
The estimated expenses of the merger, including those associated with
this proxy statement, are estimated to be as follows:
Filing fees $ 6,500
Fees and expenses of financial advisor 75,000
Legal fees and expenses 75,000
Accounting fees 5,000
Printing and mailing 35,000
Miscellaneous expenses 13,500
----------
Total $210,000
========
Expenses attributable to FBA, such as the costs of preparing, mailing
and printing the proxy statement and the fees and expenses of counsel to the
special committee, will be paid by FBA. First Banks will pay expenses
attributable to it.
First Banks intends to use available working capital plus proceeds
from its existing line of credit with a group of unaffiliated banks to fund the
costs of the merger, including the merger consideration in the aggregate amount
of approximately $32.5 million. First Banks' line of credit provides a $90
million revolving loan facility and a $20 million letter of credit facility to
be used for acquisitions and other corporate requirements. Both the line of
credit facility and the letter of credit facility are collateralized by the
stock of First Banks' second tier holding companies, FBA and Union Financial
Group, Ltd., The San Francisco Company, ("SFCo"), FBA's wholly owned subsidiary
bank holding company, and First Bank, Union Financial Group, Ltd.'s wholly owned
bank subsidiary, and First Banks' intercompany note receivable from FBA. The
intercompany note receivable is collateralized by the stock of First Bank &
Trust, SFCo's wholly-owned bank subsidiary. If the balances outstanding under
the line of credit are accruing at the Prime Rate, interest is to be paid
monthly. At the option of First Banks, funds may be borrowed at the London
InterBank Offering Rate ("LIBOR") with interest payable based on the one, two,
three or six-month LIBOR rates as determined by First Banks. The rate is the sum
of the selected LIBOR plus an applicable margin based on the performance of
First Banks for the preceding four calendar quarters and the principal amounts
outstanding under the line of credit. As of September 30, 2002, First Banks did
not have any outstanding borrowings under the revolving loan facility, and had
one letter of credit in the amount of $5.0 million outstanding under the letter
of credit facility. The line of credit matures on August 21, 2003.
THE MERGER AGREEMENT
The following is a summary of all material provisions of the merger
agreement, a copy of which is attached as Appendix A to this proxy statement.
The merger agreement is incorporated herein by reference, and this summary is
qualified in its entirety by reference to the specific provisions of the merger
agreement.
The merger agreement provides that, following the approval of the
merger agreement by FBA's stockholders, the receipt of any required regulatory
approvals and the satisfaction or waiver of the other conditions to the merger,
FBA Acquisition will be merged with and into FBA. The merger will become
effective when a Certificate of Merger is filed with the office of the Secretary
of the State of Delaware, or at a later time specified in such Certificate, and
all outstanding shares of FBA common stock (other than shares owned by First
Banks) will be converted into the right to receive $40.54 in cash.
Representations and Warranties
Representations and Warranties of FBA. The merger agreement contains
representations and warranties of FBA made to First Banks including, but not
limited to:
o the organization and corporate status of FBA and its
subsidiaries;
o the authorization, execution, delivery and enforceability of the
merger agreement;
o the delivery of FBA's financial statements;
o the material accuracy, as of the dates of the merger agreement
and of this proxy statement, of information provided by FBA, and
the material compliance with law of the documents which FBA is
responsible for filing with governmental entities in connection
with the merger;
o the incurrence by FBA and its subsidiaries of fees for brokers or
finders in connection with the merger;
o the adequacy of FBA's allowance for loan losses;
o except as otherwise disclosed, the absence since September 30,
2002 of changes or other events requiring disclosure to make
FBA's financial statements not misleading or involving a material
adverse change in the financial condition, the results of
operations or the business of FBA;
o the absence of material litigation against FBA and its
subsidiaries except as otherwise disclosed;
o identification of FBA's subsidiaries;
o the absence of any regulatory actions against FBA or any of its
subsidiaries, and compliance by FBA and its subsidiaries with
applicable laws and regulations;
o identification of contracts, employee arrangements and other
agreements meeting certain criteria specified in the merger
agreement;
o the filing of all required reports by FBA and its subsidiaries
with governmental agencies, and the compliance of such reports
with applicable requirements;
o proper accounting for the securities in FBA's investment
portfolio;
o the status of the loans in FBA's loan portfolio and the
documentation relating thereto;
o the status of employee benefit plans affecting employees of FBA
and its subsidiaries;
o the absence of undisclosed liabilities;
o legal title to FBA's properties and the existence and nature of
insurance relating thereto; and
o the nature and status of any loans, contracts and other
arrangements with any of FBA's officers, directors or employees
or any of their related interests.
Representations and Warranties of First Banks and FBA Acquisition. The
merger agreement contains representations and warranties of First Banks and FBA
Acquisition made to FBA including, but not limited to:
o the organization and corporate status of First Banks and FBA
Acquisition;
o the authorization, execution, delivery and enforceability of the
merger agreement;
o the material accuracy, as of the dates of the merger agreement
and of this proxy statement, of information provided by First
Banks, and the material compliance with law of the documents
which First Banks is responsible for filing with governmental
entities in connection with the merger;
o the incurrence by First Banks of any fees for brokers or finders
in connection with the merger;
o the absence of litigation against First Banks or FBA Acquisition
which, if adversely determined, would prevent, delay or
materially interfere with the consummation of the merger;
o the absence of any regulatory actions against First Banks or FBA
Acquisition; and
o First Banks' access to sufficient funds to enable it to pay the
merger consideration and all fees and expenses arising from the
merger.
Conditions to the Consummation of the Merger
Conditions to the Obligations of All of the Parties. The obligations
of the parties to the merger agreement to effect the merger are subject to the
following conditions (which may be waived):
o there shall not be any injunction or restraining order preventing
the consummation of the merger in effect, nor shall any
proceeding by any governmental entity seeking the same be
pending, nor shall the merger be illegal under any applicable
law;
o all necessary governmental approvals for the merger shall have
been obtained, and any waiting periods imposed by any applicable
law or regulation for the consummation of the merger shall have
expired; and
o the special committee shall have received an opinion from Baxter
Fentriss to the effect that the merger is fair to the holders of
FBA common stock (other than First Banks) from a financial point
of view, and such opinion shall not have been withdrawn. This
opinion was received by the special committee on September 23,
2002, and we do not have any reason to believe that it will be
withdrawn.
Conditions to the Obligations of FBA. The obligation of FBA to effect
the merger is subject to the fulfillment or waiver, at or prior to the effective
time of the merger, of the following additional conditions:
o as of the closing date of the merger, the representations and
warranties of First Banks and FBA Acquisition set forth in the
merger agreement shall be true in all material respects;
o First Banks and FBA Acquisition shall have performed in all
material respects their respective obligations under the merger
agreement; and
o FBA shall have received certain documents required to be
delivered by First Banks and FBA Acquisition.
Conduct of Business Pending the Merger
Pursuant to the terms of the merger agreement, FBA and its
subsidiaries are generally required to conduct their businesses only in the
ordinary and usual course consistent with past practices. Furthermore, the
merger agreement contains certain specific restrictions upon the conduct of
FBA's business pending the merger. In particular, the merger agreement provides
that FBA and its subsidiaries will not, except with First Banks' consent:
o declare or pay any dividend or make any other distribution to
stockholders, whether in cash, stock or other property;
o issue capital stock or rights relating thereto;
o effect a reclassification, recapitalization, split-up, exchange
of shares, readjustment or other similar change in or to any
capital stock, or otherwise reorganize or recapitalize;
o change their certificate or articles of incorporation or bylaws,
or enter into any agreement to merge or sell a significant
portion of their assets.
o grant any increase (other than ordinary and normal increases
consistent with past practices) in the compensation payable or to
become payable to officers or employees, grant any stock options
or, except as required by law, adopt or make any change in any
employee benefit plan, agreement, payment or arrangement made to,
for or with any such officers or employees;
o borrow funds except in the ordinary course of business,
o make or commit to make any new loan or letter of credit or any
new or additional discretionary advance under any existing line
of credit, except in the ordinary course of business;
o enter into any agreement, contract or commitment having a term in
excess of three months other than letters of credit, loan
agreements, deposit agreements, and other lending, credit and
deposit agreements and documents made in the ordinary course of
business;
o except in the ordinary course of business, place on any of its
assets or properties any mortgage, pledge, lien, charge, or other
encumbrance;
o except in the ordinary course of business, cancel or accelerate
any material indebtedness owing to such entity or any claims
which such entity may possess, or waive any material rights of
substantial value;
o sell or otherwise dispose of any real property or any material
amount of any tangible or intangible personal property, other
than properties acquired in foreclosure or otherwise in the
ordinary collection of indebtedness;
o violate any law, statute, rule, governmental regulation or order,
which violation might have a material adverse effect on such
entity's business, financial condition, or earnings; or
o increase or decrease the rate of interest paid on time deposits
or on certificates of deposit, except in a manner consistent with
past practices.
The parties to the merger agreement are also required to use their
best efforts to perform and fulfill all conditions and obligations under the
merger agreement and to effect the merger in accordance with the terms and
provisions thereof. The merger agreement requires each party to furnish to the
other in a timely manner all information, data and documents requested to obtain
any necessary regulatory or other approvals of the merger and for FBA to deliver
certain financial information covering periods prior to the closing date to
First Banks, as well as all other financial reports or statements submitted to
regulatory authorities.
Additional Agreements
Additional Covenants of FBA, First Banks and FBA Acquisition. The
merger agreement contains additional covenants of FBA, First Banks and FBA
Acquisition, among other things:
o to consult with the other party as to the form of any press
release or other public disclosures related to the merger;
o to promptly notify the other parties in the event of any breach
of the merger agreement and use their best efforts to prevent or
remedy such a breach;
o to use their best efforts to perform and fulfill their respective
obligations under the merger agreement; and
o to maintain the confidentiality of information received from the
other parties.
Additional Covenants of FBA. The merger agreement requires FBA:
o to prepare, file and distribute this proxy statement and to hold
a meeting of the stockholders of FBA to vote on the merger
agreement, and to use its best efforts to obtain the approval
thereof by the stockholders of FBA;
o to permit First Banks to have reasonable access to FBA's books,
records and other documents; and
o to use its best efforts to obtain all consents required for the
consummation of the merger.
Termination; Damages
Termination. The merger agreement may be terminated at any time prior
to the closing date, either before or after approval by the stockholders of FBA,
by the mutual consent of the parties; or by either FBA or First Banks at any
time if:
o the other party materially breaches any of its representations,
warranties and agreements made under the merger agreement and the
breach is not cured within 30 days after written notice has been
provided to the breaching party;
o the conditions to the obligations of a party are not satisfied or
waived prior to the closing date and any applicable 30-day cure
period has lapsed, after written notice has been provided by such
party to the other party, or any required regulatory approval is
finally denied; or
o the effective time has not occurred prior to March 31, 2003.
Effect of Termination. The merger agreement provides that, upon a
termination, the merger agreement shall become void, and no obligation or
liability would exist on the part of any party, except for willful violation of
certain specified provisions thereof.
Amendment and Waiver
The merger agreement may be amended at any time by all of the parties
thereto, and each party may extend the time for performance of the obligations
of the other parties, waive inaccuracies in representations and warranties and
waive compliance with any agreements or conditions contained in the merger
agreement.
Expenses
Whether or not the merger is consummated, all costs and expenses
incurred in connection with the merger agreement and the transactions
contemplated thereby are to be paid by the party incurring such expense.
PROPOSAL NUMBER 2:
ELECTION OF DIRECTORS
Our board of directors recommends that the stockholders vote to
re-elect Messrs. Blake, Crocco, Dierberg, Lavezzo, McCarthy and Story and Mrs.
Schepman as directors, each for a one-year term.
Nominees
Our board of directors consists of seven members, who are identified
in the following table which sets forth the information indicated as of the
record date. Each of the directors was elected or appointed to serve a one-year
term and until his or her successor has been duly qualified for office.
Name Age Director Since
-------------------------------------------------------------------------------------------------
Allen H. Blake 59 1994
Charles A. Crocco, Jr. (2) 64 1988
James F. Dierberg 65 1994
Albert M. Lavezzo (2) 66 1998
Terrance M. McCarthy 48 2001
Ellen D. Schepman (1) 28 1999
Edward T. Story, Jr. (2) 58 1987
- -------------------
(1) Mrs. Schepman is the adult daughter of James F. Dierberg; see "Family
Relationships."
(2) Member of the Audit Committee.
Allen H. Blake has been Executive Vice President of FBA since 1998,
its Chief Operating Officer from 1999 to July 2002; its Chief Financial Officer
from 1994 to September 1999 and since June 2001; and Secretary since 1994. Mr.
Blake has been the President of First Banks since October 1999, its Chief
Operating Officer from 1998 to July 2002; its Chief Financial Officer from 1984
to September 1999 and since June 2001; and its Secretary since 1988.
Charles A. Crocco, Jr. has practiced law in the New York City area
since 1970. He has been Counsel to the law firm of Crocco & DeMaio, P.C., Mount
Kisco, New York since April 2000. He previously was Counsel to Jackson & Nash,
LLP in New York City from January 1999 until April 2000, Counsel to Crocco &
DeMaio, P.C. in 1998, and a Partner in Crocco & DeMaio, P.C. prior to 1998. Mr.
Crocco is also a director of The Hallwood Group Incorporated, a merchant banking
firm.
James F. Dierberg has been the Chairman of the board of directors,
President and Chief Executive Officer of FBA since 1994 and the Chairman of the
board of directors and Chief Executive Officer of First Banks since 1988. Mr.
Dierberg has also been a director of First Banks since 1979 and its President
from 1979 until 1992 and from 1994 to October 1999.
Albert M. Lavezzo has been President and Chief Operating Officer of
the law firm of Favaro, Lavezzo, Gill, Caretti & Heppell, Vallejo, California,
since 1974. Mr. Lavezzo was the Chairman of the board of directors of Surety
Bank in Vallejo, California for 15 years prior to its acquisition by FBA in 1997
and is the President of North Bay Exchange Co., Inc.
Terrance M. McCarthy has been Executive Vice President of FBA since
1999 and its Chief Operating Officer since July 2002. Mr. McCarthy has been
Executive Vice President of First Banks since 1999 and its Chief Operating
Officer since July 2002. He has also served as Chairman of the board of
directors, President and Chief Executive Officer of First Bank & Trust since
1998. Prior to 1998, Mr. McCarthy was employed in various executive capacities
with First Banks.
Ellen D. Schepman has been a Retail Marketing Officer of First Banks
since May 1999. She was a Retail Marketing Specialist with First Bank & Trust
from 1997 to May 1999.
Edward T. Story, Jr. has been the President, Chief Executive Officer
and a Director of SOCO International, plc, a corporation engaged in
international oil and gas operations, since 1991. Mr. Story is also a Director
of Cairn Energy plc and Hallwood Realty Corporation.
The nominees have consented to being named in this proxy statement and
have agreed to serve as directors if elected. Although we do not anticipate that
any nominee will refuse or be unable to serve as a director, the persons named
in the enclosed form of proxy intend, if any nominee becomes unavailable, to
vote the shares represented by the proxy for the election of another person or
persons nominated or designated by management, unless you direct them in your
proxy to do otherwise.
Assuming the presence of a quorum, the seven nominees receiving the
largest number of the votes cast, including those cast by holders of the common
stock and the Class B common stock represented at the Annual Meeting, will be
elected as directors. FBA's By-Laws require that any nominations by a
stockholder comply with certain procedural and disclosure requirements,
including advance written notice to the Secretary of FBA.
Executive Officers
Our executive officers as of the record date were as follows:
Name Age Office(s) Held
- ------------------------------------------------------------------------------------------------
James F. Dierberg 65 Chairman of the Board of Directors, President and Chief Executive
Officer.
Allen H. Blake 59 Executive Vice President; Chief Financial Officer and Secretary.
Terrance M. McCarthy 48 Executive Vice President; Chief Operating Officer; Chairman of the Board
of Directors, President and Chief Executive Officer of First Bank &
Trust.
Donald W. Williams 55 Executive Vice President and Chief Credit Officer
The executive officers were each elected by the board of directors to
the office indicated.
Committees and Meetings of the Board of Directors
Three members of our board of directors serve on the Audit Committee;
there are no other committees of the Board. See "AUDIT COMMITTEE REPORT" for
additional information regarding our Audit Committee.
Board and Committee Meetings. The board of directors held four
meetings in 2001, including regular and special meetings, and there were four
meetings of the Audit Committee. During 2001, all of our directors attended more
than 75% of the aggregate of the number of meetings of the board of directors
and the meetings held by all committees of the board of directors on which they
served.
Director Compensation
Directors who are not our officers or affiliated with First Banks
(Messrs. Crocco, Lavezzo and Story) were paid a fee of $2,000 for each meeting
of our board of directors attended, and a fee of $500 for each committee meeting
attended. For their services as directors in 2001, Messrs. Crocco, Story and
Lavezzo received aggregate fees of $10,000. In addition, each of these
individuals was paid a fee of $10,000 for his participation on a special
committee of our board of directors created during 2002 for the purpose of
conducting an independent evaluation of our acquisition of 801,653 shares of our
common stock held publicly. Mrs. Schepman, who serves as a Retail Marketing
Officer of First Banks, but who is not an officer of FBA, also received $8,000
for her service as a director in 2001. Furthermore, Mr. Lavezzo received $1,500
as a member of the board of directors of First Bank & Trust.
Messrs. Crocco, Story and Lavezzo and Mrs. Schepman also participated
in our 1993 Directors' Stock Bonus Plan, or our Stock Bonus Plan, which provided
for an annual grant of 500 shares of common stock to each such director. The
maximum number of shares that could be issued was limited to 16,667 shares, and
the plan expired on July 1, 2001. Directors' compensation expense of $46,000 was
incurred in 2001 in connection with our Stock Bonus Plan.
None of our three directors who are also executive officers of First
Banks (Messrs. Dierberg, Blake and McCarthy) receive any compensation from FBA
or our subsidiaries for services as a director, nor do they participate in our
Stock Bonus Plan or any of our other compensation plans or those of our
subsidiaries. First Banks, of which Messrs. Dierberg, Blake and Williams are
directors and executive officers and Mr. McCarthy is an executive officer,
provides various services to us and our subsidiaries for which it is compensated
(see "Compensation Committee Interlocks and Insider Participation").
Family Relationships
Mrs. Schepman is the adult daughter of Mr. Dierberg; except for that
relationship, there is no family relationship between any of the nominees for
director or our directors or executive officers or those of our subsidiaries.
Certain Relationships and Related Transactions
First Bank & Trust has had in the past, and may have in the future,
loan transactions in the ordinary course of business with our directors or their
affiliates. These loan transactions have been and will be on the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unaffiliated persons and did not and will not
involve more than the normal risk of collectibility or present other unfavorable
features. First Bank & Trust does not extend credit to our officers or its own
officers, except extensions of credit secured by mortgages on personal
residences, loans to purchase automobiles and other consumer-type loans.
Certain of our directors and officers and their respective affiliates
have deposit accounts with First Bank & Trust. It is the policy of First Bank &
Trust not to permit any of its officers or directors or their affiliates to
overdraw their respective deposit accounts unless that person has been
previously approved for overdraft protection under a plan whereby a credit limit
has been established in accordance with First Bank & Trust's standard credit
criteria.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding
compensation earned during the year ended December 31, 2001, and specified
information with respect to the two preceding years, by Mr. McCarthy, who is our
only executive officer whose annual compensation in 2001 from FBA and our
subsidiaries exceeded $100,000.
Presently, Messrs. Dierberg, Blake, Williams and McCarthy do not
receive any compensation directly from either FBA or our subsidiaries. FBA and
First Bank & Trust have entered into various contracts with First Banks, of
which Messrs. Dierberg, Blake and Williams are directors and executive officers
and Mr. McCarthy is an executive officer, pursuant to which services are
provided to First Bank & Trust and us (see "Compensation Committee Interlocks
and Insider Participation" for additional information regarding contracts with
First Banks).
SUMMARY COMPENSATION TABLE FOR YEAR ENDED DECEMBER 31, 2001
- -------------------------------------------- --------- -------------- ------------ ---------------------------------
Salary Bonus All Other
Name and Principal Position Year $$ (1) $$ Compensation $$ (2)
- -------------------------------------------- --------- -------------- ------------ ---------------------------------
- -------------------------------------------- --------- -------------- ------------ ---------------------------------
Terrance M. McCarthy 2001 220,000 38,000 5,200
Executive Vice President;
Chief Operating Officer; 2000 180,000 25,000 6,650
Chairman of the Board of Directors,
President and Chief Executive Officer of 1999 147,500 20,000 4,950
First Bank & Trust
- --------------------------
(1) The total of all other annual compensation for Mr. McCarthy is less than
the amount required to be reported, which is the lesser of (a) $50,000 or
(b) ten percent (10%) of the total of the annual salary and bonus paid to
that person.
(2) All other compensation reported represents matching contributions to our
401(k) Plan for the year indicated and ownership interests granted in units
of Star Lane Trust, First Banks' unit investment trust that was created on
January 21, 2000.
We have omitted from this Proxy Statement tables that would disclose
information regarding stock options granted during 2001, stock options exercised
during 2001 and long term incentive plan awards. No options were granted to or
exercised by executive officers in 2001, and we do not have a long-term
incentive plan.
STOCK PERFORMANCE GRAPH
The following graph sets forth a comparison of the cumulative total
stockholder returns of our common stock, the New York Stock Exchange Market
Value Index and the Index of Regional Banks located in the Pacific region
published by Media General Financial Services ("MGFS") for the five year period
from December 31, 1996 through December 31, 2001. The securities of 112 other
banks are included in the MGFS index.
In previous years, our performance graph included a comparison with a
different group of regional banks (those generally located in the Southwest
region of the United States), because we originally operated in Texas. However,
in light of the increasing size and importance of California in our operations
(particularly since our acquisition of First Bank & Trust in 2000), we believe
that an index composed of banks in the Pacific region is more relevant than the
index previously used.
The graph and the table which follow are based on the assumption that
the value of the investment in our common stock and in each index was $100 at
December 31, 1996 and that all dividends were reinvested (we did not pay any
dividends during the period).
[STOCK PERFORMANCE GRAPH]
[OBJECT OMITTED]
- ------------------------------------------- ----------- ------------ ----------- ----------- ----------- ------------
12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
-------- -------- -------- -------- -------- --------
- ------------------------------------------- ----------- ------------ ----------- ----------- ----------- ------------
First Banks America, Inc. 100.00 229.01 192.59 180.25 174.07 311.31
- -------------------------------------------- ------------ ----------- ----------- ----------- ------------ ----------
NYSE Market Value Index 100.00 180.06 168.64 171.94 198.96 225.87
- -------------------------------------------- ------------ ----------- ----------- ----------- ------------ ----------
MGFS Regional Banks - Pacific Region 100.00 131.56 156.55 171.42 175.51 159.87
- -------------------------------------------- ------------ ----------- ----------- ----------- ------------ ----------
COMPENSATION COMMITTEE REPORT
FBA does not have a Compensation Committee. Consequently, FBA's entire
board of directors performs the functions that would generally be performed by a
Compensation Committee. Four of the current directors, including Mr. Dierberg,
who is Chairman of the Board, Chief Executive Officer and President, Mr. Blake,
who is Executive Vice President, Chief Financial Officer and Secretary, and Mr.
McCarthy, who is Executive Vice President and Chief Operating Officer, are
affiliated with First Banks, which is compensated for their services under the
provisions of a management fee agreement between FBA and First Banks. None of
the current directors has ever been compensated by FBA as an executive officer.
The Compensation Committee considers the levels and components of
executive compensation relative to those generally available in its market
place, to the overall long-term objectives of FBA and to the interest of its
stockholders. By maintaining appropriate balance in these factors, the
Compensation Committee believes it will be most effective in attracting and
retaining well-qualified executives who will be capable of contributing to the
success of FBA and enhancing the value of FBA to its stockholders.
The paramount objective of FBA is building the long-term value of the
stockholders' investment, within the framework of operating its subsidiary
financial institution in a safe and sound manner. This is accomplished by
achieving substantial improvements and consistency in earnings, strengthening
the subsidiary banking franchise, and entering into strategic,
economically-viable acquisitions of other financial institutions. Consequently,
the compensation of executives should be structured to attract individuals
capable of contributing to the achievement of these objectives and to align the
welfare of those individuals with that of the stockholders.
The Compensation Committee periodically reviews the various components
of FBA's executive compensation programs. The individual components of
compensation to executives are evaluated taking into consideration the factors
discussed below. However, the Compensation Committee does not give specific
weights to particular factors and subjectively adjusts the compensation levels
of the executive officers based, in part, on non-quantifiable considerations.
The compensation adjustments, while influenced by the evaluation factors, are
not determined by applying a mathematical formula to any individual performance
measurements.
Base Salary. In determining the appropriate base salaries of its
executive officers, the Compensation Committee evaluates the performance of FBA,
considering general business and industry conditions, among other factors, and
the contributions of specific executives toward that performance. Particular
measurements to which the Compensation Committee assigns significance are net
income, earnings per share, expense control, net interest margin, credit
quality, and regulatory exam results. The Compensation Committee also evaluates
each officer's areas of responsibility and FBA's performance in those areas.
Finally, FBA considers the level of compensation paid to comparable executives
by other financial institutions of comparable size in its market places.
Bonus. The Compensation Committee may elect to award bonuses to
selected executive officers based largely upon the same criteria as the
evaluations of base salaries, emphasizing the need to maintain competitive
compensation packages and the desire to recognize outstanding performance by the
officers.
Along with the need to improve operating results, FBA evaluated its
management structure, recognizing the additional management resources available
from First Banks. This evaluation resulted in a realignment of FBA's executive
officers and presently, none of FBA's current executive officers receive any
compensation from FBA (see "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION").
The Compensation Committee reviewed the performance of FBA for 2001
relative to its net income, earnings per share, external growth, business
development and asset quality. Net income for the year ended December 31, 2001
was $39.6 million (as compared to $27.8 million in 2000), while diluted earnings
per share totaled $3.25 (as compared to $2.29 in 2000). FBA's total assets
increased to $3.06 billion at December 31, 2001 from $2.74 billion at December
31, 2000, reflecting both external growth through acquisitions and expanded
business development efforts. Additionally, nonperforming assets totaled $20.1
million and $15.7 million at December 31, 2001 and 2000, respectively.
The Compensation Committee determined that improvement had been
achieved in the performance measurement areas, that significant inroads were
accomplished in enhancing FBA's banking franchise and its prospects for
progressive and profitable growth, and that these improvements should be
recognized in terms of compensation. As a result, the Compensation Committee
concluded that an increase in Mr. McCarthy's base compensation was warranted and
that an increased bonus was appropriate.
COMPENSATION OF CHIEF EXECUTIVE OFFICER. As noted above, Mr. Dierberg,
the Chief Executive Officer of FBA, does not receive any compensation from FBA
or First Bank & Trust. First Banks receives fees from FBA pursuant to data
processing and management fee agreements (see "COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION").
The foregoing Report has been presented by the entire board of
directors consisting of Messrs. Blake, Crocco, Dierberg, Lavezzo, McCarthy and
Story and Mrs. Schepman.
AUDIT COMMITTEE REPORT
The Audit Committee, which is comprised of Messrs. Crocco, Lavezzo and
Story (who serves as Chairman) is responsible for oversight of our financial
reporting process on behalf of the board of directors. The board of directors
has adopted a written charter for the Audit Committee and has determined the
members of the Audit Committee are independent as defined in Sections
303.01(B)(2)(a) and (3) of the New York Stock Exchange's listing standards.
Management has primary responsibility for our financial statements and financial
reporting, including internal controls, subject to the oversight of the Audit
Committee and the board of directors. In fulfilling its responsibilities, the
Audit Committee reviewed the audited consolidated financial statements with
management and discussed the acceptability of the accounting principles used,
the reasonableness of significant judgments made and the clarity of disclosures.
The Audit Committee reviewed with the independent auditors, who are
responsible for planning and carrying out a proper audit and expressing an
opinion on the conformity of our audited consolidated financial statements with
accounting principles generally accepted in the United States of America, their
judgments as to the acceptability of the accounting principles we use, and such
other matters as are required to be discussed with the Audit Committee. In
addition, the Audit Committee discussed with the independent auditors their
independence from management and FBA, including the matters required by Standard
No. 1 of the Independence Standards Board, and the Audit Committee considered
the compatibility of nonaudit services provided by the independent auditors with
the auditors' independence.
The Audit Committee discussed with our internal and independent
auditors the overall scope and plans for their respective audits. The Audit
Committee met with the internal and independent auditors, with and without
management present, to discuss the results of their examinations, their
evaluations of FBA's internal controls and the overall quality of the FBA's
financial reporting.
In reliance on the reviews and discussions referred to above, the
Audit Committee recommended to the board of directors that the audited
consolidated financial statements be included in the FBA's Annual Report on Form
10-K as of and for the year ended December 31, 2001, and the board of directors
approved that recommendation. The Audit Committee also recommended, and the
board of directors authorized, the selection of KPMG LLP ("KPMG") as our
independent auditors for the year ending December 31, 2002.
Charles A. Crocco, Jr. Albert M. Lavezzo Edward T. Story, Jr.
Chairman - Audit Committee
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
Messrs. Dierberg, Blake and Williams, who are executive officers of
FBA but do not receive any compensation for their services as such, are also
executive officers and members of the board of directors of First Banks. Mr.
McCarthy, who is an executive officer of FBA and an executive officer of First
Banks, no longer receives compensation from First Bank & Trust as he became
directly employed by First Banks in July 2002. First Banks does not have a
compensation committee, but its board of directors performs the functions of
such a committee. Except for the foregoing, none of our executive officers
served during 2001 as a member of the Compensation Committee, or any other
committee performing comparable functions, or as a director of another entity,
any of whose executive officers or directors served on our board of directors or
Compensation Committee.
We purchase certain services and supplies from or through First Banks.
Our financial position and operating results could significantly differ from
those that would be obtained if our relationship with First Banks did not exist.
First Banks provides management services to FBA and our subsidiaries
under a management fee agreement whereby we compensate First Banks for our use
of its personnel for various functions including internal audit, loan review,
income tax preparation and assistance, accounting, asset/liability management
and investment services, loan servicing and other management and administrative
services. Fees paid under this agreement were $8.0 million, $5.2 million and
$4.4 million for the years ended December 31, 2001, 2000 and 1999, respectively.
First Services L.P., a limited partnership indirectly owned by First
Banks' Chairman and his adult children, provides information technology and
various related services to First Bank & Trust under the terms of data
processing agreements. Fees paid under these agreements were $9.2 million, $6.8
million and $5.3 million for the years ended December 31, 2001, 2000 and 1999,
respectively.
First Bank & Trust had $93.1 million and $108.2 million in whole loans
and loan participations outstanding at December 31, 2001 and 2000, respectively,
that were purchased from First Bank, a wholly owned subsidiary of First Banks.
In addition, First Bank & Trust had sold $137.6 million and $146.1 million in
whole loans and loan participations to First Bank at December 31, 2001 and 2000,
respectively. These loans and loan participations were acquired and sold at
interest rates and terms prevailing at the dates of their purchase or sale and
under standards and policies followed by First Bank & Trust.
We have a $100.0 million revolving note payable to First Banks, the
proceeds of which are used in our acquisitions and for other corporate purposes.
At December 31, 2001 and 2000, the amounts outstanding under our note payable
were $71.0 million and $98.0 million, respectively.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our executive officers and
directors, and persons who beneficially own more than ten percent of a
registered class of our equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and the New
York Stock Exchange. Based upon a review of the reports we received and the
written representations from certain reporting persons that no Forms 5 were
required for such persons, we believe that during the year ended December 31,
2001, all executive officers, directors and ten percent beneficial owners
complied with the applicable filing requirements.
SUMMARIZED FINANCIAL INFORMATION
The summarized financial information set forth below for the years
ended December 31, 2001 and 2000 is derived from our consolidated financial
statements, which have been audited by KPMG LLP. The summarized financial
information for the nine months ended September 30, 2002 is unaudited. This
information is qualified by reference to our consolidated financial statements
incorporated herein by reference and should be read in conjunction with such
consolidated financial statements, the related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." See
"INCORPORATION OF INFORMATION BY REFERENCE. "
As of or for the As of or for the
Nine Months Ended Year Ended
September 30, (1)(2) December 31, (1)
------------------------ ----------------
2002 2001 2000
---- ---- ----
(dollars expressed in thousands, except per share data)
Income Statement Data:
Interest income......................................... $ 141,787 208,347 177,248
Interest expense........................................ 43,552 86,924 75,533
---------- -------- ---------
Net interest income....................................... 98,235 121,423 101,715
Provision for loan losses................................. 22,700 5,010 1,877
---------- -------- ---------
Net interest income after provision for loan losses....... 75,535 116,413 99,838
---------- -------- ---------
Noninterest income........................................ 17,475 27,140 12,077
Noninterest expense....................................... 65,464 89,668 66,111
---------- -------- ---------
Income before provision for income taxes,
minority interest in income of subsidiary
and cumulative effect of change
in accounting principle............................... 27,546 53,885 45,804
Provision for income taxes................................ 10,550 13,811 18,007
---------- -------- ---------
Income before cumulative effect of
change in accounting principle....................... 16,996 40,074 27,797
Cumulative effect of change in accounting principle,
net of tax........................................... -- (459) --
---------- -------- ---------
Net income............................................... $ 16,996 39,615 27,797
========== ======== =========
Per Share Data:
Earnings per common share:
Basic:
Income before cumulative effect of change in
accounting principle............................... $ 1.32 3.29 2.29
Cumulative effect of change in accounting principle,
net of tax............................................ -- (0.04) --
---------- -------- ---------
Basic................................................... $ 1.32 3.25 2.29
========== -------- ---------
Diluted:
Income before cumulative effect of change
in accounting principle............................ $ 1.32 3.29 2.29
Cumulative effect of change in
accounting principle, net of tax................... -- (0.04) --
---------- ---------- ---------
Diluted................................................. $ 1.32 3.25 2.29
========== ========== =========
Weighted average common stock outstanding................. 12,852 12,204 12,129
Book value per common share............................... $ 24.69 22.19 16.27
Balance Sheet Data:
Investment securities..................................... $ 393,543 368,207 335,219
Loans, net of unearned discount........................... 2,310,588 2,323,263 2,058,677
Total assets.............................................. 3,139,170 3,060,988 2,741,379
Total deposits............................................ 2,582,478 2,555,261 2,306,356
Note payable.............................................. 37,000 71,000 98,000
Guaranteed preferred beneficial interest in First Banks
America, Inc. subordinated debentures................... 45,373 44,342 44,280
Stockholders' equity...................................... 317,123 285,317 196,909
Ratio of Earnings to Fixed Charges: (3)
Including interest on deposits............................ 1.54x 1.57x 1.56x
Excluding interest on deposits............................ 3.04 3.93 4.62
- --------------------------
(1) The comparability of the selected data presented is affected by the
acquisitions of 7 banks during the two-year period ended December 31, 2001,
and two purchases of branch offices during the nine-month period ended
September 30, 2002. These acquisitions were accounted for as purchases and,
accordingly, the selected data includes the financial position and results
of operations of each acquired entity only for the periods subsequent to its
respective date of acquisition.
(2) On January 1, 2002, FBA adopted Statement of Financial Accounting Standards
("SFAS") No. 142 - Goodwill and Other Intangible Assets, which requires that
goodwill and other intangible assets with indefinite useful lives no longer
be amortized, but instead be tested for impairment at least annually.
SFAS No. 142 also requires that intangible assets with definite useful lives
be amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 144
- Accounting for the Impairment or Disposal of Long-Lived Assets.
Consequently, the amortization of goodwill ceased upon adoption of SFAS
No. 142.
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
General
Only holders of record of outstanding shares of common stock and Class
B common stock as of the record date are entitled to notice of, and to vote, in
person or by proxy, at the Annual Meeting and any adjournment(s) thereof. As of
the record date, there were issued and outstanding 10,343,860 shares of common
stock and 2,500,000 shares of Class B common stock.
Holders of shares of common stock and Class B common stock are
entitled to one vote for each share held of record on the record date. Holders
of common stock and Class B common stock are permitted to exercise cumulative
voting in a contested election of directors. This means that, if there were more
nominees for director than positions to be elected, each holder would be
permitted to cast as many votes as equals the product of the number of directors
to be elected (i.e., seven at the Annual Meeting) times the number of shares
held by such holder, and to cast all these votes for one candidate or to divide
the votes among two or more candidates in any amounts chosen by the stockholder.
First Banks would also have the right to utilize cumulative voting with respect
to its shares of common stock and Class B common stock. The proxy holders
authorized to vote in favor of nominees listed herein under the caption
"ELECTION OF DIRECTORS" will be permitted to vote cumulatively in the absence of
instructions to the contrary.
FBA's Certificate of Incorporation provides that a merger involving an
affiliated party such as First Banks must be approved and adopted by the vote of
at least 75% of the combined outstanding common stock and Class B common stock.
In the election of directors, the seven nominees receiving the largest number of
votes cast will be elected.
The presence, in person or by proxy, of the holders of a majority of
the issued and outstanding shares of voting stock, including the common stock
and the Class B common stock, is necessary to constitute a quorum to transact
business at the Annual Meeting and any adjournment(s) thereof.
On each proposed action, proxies marked as withheld votes or
abstentions and broker non-votes will not be voted but will be treated as
present and entitled to vote. Such proxies will therefore have the same effect
as votes against the proposed action.
Security Ownership of Management and of Controlling Stockholder
The following table sets forth as of the record date certain
information with respect to the beneficial ownership of common stock and Class B
common stock by each person known by FBA to be the beneficial owner of more than
five percent of the outstanding shares of either class of stock, by each
director, by executive officers and by all of our executive officers and
directors as a group:
- -------------------------- ---------------------------- -------------------------------------- -------------
Title of Name of Number of Shares and Nature of Percent of
Class Beneficial Owner Beneficial Ownership Class
- -------------------------- ---------------------------- -------------------------------------- -------------
Class B common stock First Banks, Inc. 2,500,000 (1)(2)(3) 100.0%
135 North Meramec
Clayton, Missouri 63105
Class B common stock James F. Dierberg 2,500,000 (1)(2)(3) 100.0
Common stock First Banks, Inc. 9,545,107 (1)(2)(3) 92.3
Common stock James F. Dierberg 9,545,107 (1)(2)(3) 92.3
Common stock Allen H. Blake 1,000 (4) (*)
Common stock Charles A. Crocco, Jr. 8,272 (4) (*)
Common stock Albert M. Lavezzo 10,710 (4) (*)
Common stock Terrance M. McCarthy 2,000 (4) (*)
Common stock Ellen D. Schepman 1,500 (2)(3)(4) (*)
Common stock Edward T. Story, Jr. 11,182 (4) (*)
Common stock Donald W. Williams 100 (4) (*)
All executive officers 9,579,871 shares 92.6% of
and directors as a group Common stock Common stock
(8 persons)
100.0% of
2,500,000 shares Class B
Class B common stock common stock
- -------------------------------
(*) Less than one percent.
(1) The shares shown as beneficially owned by First Banks and James F. Dierberg
comprise 100% of the outstanding shares of Class B common stock and 92.3%
of the outstanding shares of common stock. Each share of common stock and
Class B common stock is entitled to one vote on matters subject to
stockholder vote. All of the shares of Class B common stock and common
stock owned by First Banks are pledged to secure a loan to First Banks from
a group of unaffiliated lenders. The related credit agreement contains
customary provisions which could ultimately result in transfer of such
shares if First Banks were to default in the repayment of the loan and such
default were not cured, or other arrangements satisfactory to the lenders
were not made, by First Banks.
(2) The controlling stockholders of First Banks are (i) the James F. Dierberg
II Family Trust, dated December 30, 1992; (ii) Irrevocable Trust of Michael
J. Dierberg, dated May 1, 1998; (iii) the Ellen C. Dierberg Family Trust,
dated December 30, 1992; (iv) James F. Dierberg, trustee of the James F.
Dierberg living trust, dated October 8, 1985; (v) the Michael J. Dierberg
Family Trust, dated December 30, 1992; and (vi) First Trust (Mary W.
Dierberg and First Bank, Trustees) established U/I James F. Dierberg, dated
December 30, 1992. Mr. James F. Dierberg and Mrs. Mary W. Dierberg are
husband and wife, and Messrs. James F. Dierberg, II, Michael J. Dierberg
and Mrs. Ellen D. Schepman, formerly Ellen C. Dierberg, are their adult
children. No other persons own any voting securities of First Banks.
(3) Due to the relationships among James F. Dierberg, Mary W. Dierberg, First
Bank and the three adult children of James F. and Mary W. Dierberg, Mr.
Dierberg is deemed to share voting and investment power over all of the
outstanding voting stock of First Banks, which in turn exercises voting and
investment power over the shares of common stock and Class B common stock
attributed to it in the table.
(4) All of the shares attributed in the table to Mrs. Schepman and Messrs.
Blake, Crocco, Lavezzo, McCarthy, Story and Williams are owned by them
directly.
SOLICITATION AND REVOCABILITY OF PROXIES
This proxy statement is being furnished to stockholders of FBA in
connection with the solicitation by FBA's board of directors of proxies to be
voted at the 2002 Annual Meeting of Stockholders (the "Annual Meeting") to be
held on ________, December ___, 2002, at the time and place and for the purposes
set forth in the accompanying Notice of Annual Meeting of Stockholders, and at
any adjournment(s) thereof. This proxy statement and the enclosed form of proxy
are first being mailed to the stockholders on or about December ___, 2002.
The accompanying form of proxy is designed to permit each holder of
FBA common stock, par value $.15 per share, (1) to vote for or against the
approval and adoption of the merger agreement, as described herein (see the
discussion under the caption "PROPOSAL NUMBER 1"); (2) to vote for or withhold
voting for any or all of the seven nominees for director listed on the proxy
(see "PROPOSAL NUMBER 2"); and (3) to authorize the named proxies to vote in
their discretion with respect to any other proposal properly presented at the
Annual Meeting, provided that FBA was not aware that the matter in question was
to be presented at the meeting a reasonable period of time before mailing this
proxy statement.
As of November 1, 2002, the record date for determining the
stockholders entitled to vote at the Annual Meeting, there were 12,843,860
shares of voting stock outstanding, consisting of 2,500,000 shares of Class B
common stock and 10,343,860 shares of common stock. All of the outstanding
shares of Class B common stock and 9,545,107 of the outstanding shares of common
stock are owned by First Banks. Each share of Class B common stock and of common
stock is entitled to one vote in the election of each director. By virtue of its
ownership of the Class B common stock and common stock referred to above, First
Banks controlled 93.78% of all shares entitled to vote at the Annual Meeting as
of the record date.
First Banks is owned by trusts created and administered by and for the
benefit of James F. Dierberg and members of his immediate family. Mr. Dierberg
is the Chairman of the Board, Chief Executive Officer and President of FBA. Mr.
Dierberg is also Chairman of the Board and Chief Executive Officer of First
Banks. FBA's other executive officers and directors were the record holders of
34,764 shares of common stock as of the record date.
When a stockholder's proxy specifies a choice with respect to a voting
matter, the shares will be voted accordingly. If no such specification is made,
the accompanying form of proxy will be voted at the Annual Meeting and any
adjournment(s) thereof FOR the approval and adoption of the merger agreement and
FOR the election of the nominees listed herein under the caption "ELECTION OF
DIRECTORS" and at the discretion of the proxies on any other business properly
presented at the Annual Meeting and any adjournment(s) thereof.
We encourage your personal attendance at the Annual Meeting, and
execution of the accompanying proxy will not affect your right to attend the
Annual Meeting and to vote in person. Any stockholder giving a proxy has the
right to revoke it by giving written notice of revocation to the Secretary of
FBA at 600 James S. McDonnell Blvd., Mail Code #M1-199-014, Hazelwood, Missouri
63042 at any time before the proxy is voted, or by executing and delivering a
later-dated proxy, or by attending the Annual Meeting and voting his or her
shares in person. No such notice of revocation or later-dated proxy, however,
will be effective until we receive it at or prior to the Annual Meeting. Such a
revocation will not affect a vote on any matters taken prior to our receipt of
the revocation. Simply attending the Annual Meeting will not revoke a proxy.
The total cost of the solicitation of proxies pursuant to this proxy
statement will be borne by FBA. Proxies may be solicited by our directors,
officers and employees without special remuneration. We will reimburse banks,
brokerage houses and other custodians, nominees and fiduciaries who forward
soliciting material to the beneficial owners of shares of common stock entitled
to vote at the meeting for their out-of-pocket expenses. In addition to the
mails and other delivery services, we may solicit proxies by personal
interviews, telephone or other methods.
We previously mailed our Annual Report to Stockholders covering the
fiscal year ended December 31, 2001, including audited consolidated financial
statements, to our stockholders. The Annual Report does not form any part of the
proxy solicitation material. You may obtain an additional copy of the 2001
Annual Report to Stockholders without charge upon written request to Allen H.
Blake, Secretary, First Banks America, Inc., 600 James S. McDonnell Blvd., Mail
Code #M1-199-014, Hazelwood, Missouri 63042.
FORWARD-LOOKING STATEMENTS IN THIS PROXY STATEMENT
This proxy statement and the documents incorporated by reference
contain some forward-looking statements with respect to FBA's financial
condition, results of operations and business and on the expected effects and
timing of the merger. Words such as "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates" and similar expressions identify
forward-looking statements. These forward-looking statements are not guarantees
of future performance and are subject to risks and uncertainties that could
cause actual results to differ materially from the results contemplated by the
forward-looking statements. In evaluating the merger, you should carefully
consider the discussions of such risks and uncertainties that appear on page 3
of FBA's Annual Report to Stockholders for the year ended December 31, 2001 and
on page 13 of the Quarterly Report on Form 10-Q for the nine months ended
September 30, 2002. Both documents are incorporated by reference in this proxy
statement.
INDEPENDENT AUDITORS
KPMG served as our independent public accountant for the year ended
December 31, 2001 and has been selected by the board of directors to serve for
the current year. Representatives of KPMG are expected to be present at the
Annual Meeting, and they will have the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
During 2001, KPMG served as FBA's independent auditors and provided
additional services to FBA and our affiliates. The following table sets forth
KPMG's fees for 2001 in connection with (1) the audit of FBA's annual
consolidated financial statements and reviews of the various consolidated
financial statements included in our Quarterly Reports on Form 10-Q ("Audit
Fees"); (2) consulting services relating to the design and implementation of
systems that aggregate data underlying, or generate information significant to,
our financial statements ("Financial Information Systems Design and
Implementation Fees"); and (3) all other services, including audit-related
services, rendered by KPMG ("All Other Fees").
Financial Information
Systems Design and
Audit Fees Implementation Fees All Other Fees
---------- ------------------- --------------
$257,500 $0 $0
AVAILABLE INFORMATION
FBA is subject to the informational reporting requirements of the
Securities Exchange Act of 1934 and, in accordance with such Act, it files
reports, proxy statements and other information with the SEC. These reports,
proxy statements and other information may be inspected and copies made at the
Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549 and the SEC's regional office at 175 W. Jackson Blvd., Suite 900, Chicago,
Illinois 60604. Copies of these materials can also be obtained from the Public
Reference Room of the SEC at its Washington address at prescribed rates.
Information regarding the operation of the Public Reference Room may be obtained
by calling the SEC at 1-800-SEC-0330. Copies of these materials may also be
accessed through the SEC's website at www.sec.gov. FBA's common stock trades on
the New York Stock Exchange under the symbol "FBA."
The filing persons have filed a Schedule 13E-3 and Amendment No. 1 to
Schedule 13E-3 (collectively, the "Schedule 13E-3") with the SEC with respect to
the merger. As permitted by the SEC, this proxy statement omits certain
information contained in the Schedule 13E-3. The Schedule 13E-3, including any
amendments and exhibits filed or incorporated by reference as a part of it, is
available for inspection or copying as set forth below in the section entitled
"INCORPORATION OF INFORMATION BY REFERENCE." Statements contained in this proxy
statement or in any document incorporated in this proxy statement by reference
regarding the contents of any contract or other document are not necessarily
complete and each of these statements is qualified in its entirety by reference
to that contract or other document filed as an exhibit with the SEC.
You should rely only upon the information contained in, or
incorporated by reference in, this proxy statement. FBA has not authorized
anyone to provide you with information that is different from the information
contained in and incorporated by reference herein.
This proxy statement is dated December __, 2002. You should not assume
that the information contained herein is accurate as of any other date, and the
mailing of this proxy statement to stockholders does not create any implication
to the contrary. This proxy statement does not constitute a solicitation of a
proxy in any jurisdiction in which such a solicitation is unlawful.
INCORPORATION OF INFORMATION BY REFERENCE
FBA's Annual Report on Form 10-K for the year ended December 31, 2001,
its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002, June
30, 2002 and September 30, 2002, and its Current Reports on Form 8-K dated
January 18, 2002, April 25, 2002, August 18, 2002 and September 24, 2002, each
filed with the SEC (Commission File No. 0-8937), are incorporated by reference
in this proxy statement. Such documents are not presented in or delivered with
this proxy statement, but are available without charge, without exhibits (unless
the exhibits are specifically incorporated by reference in this proxy
statement), to any person, including the beneficial owner, to whom this proxy
statement is delivered, upon written or telephonic requested directed to Lisa K.
Vansickle at 600 James S. McDonnell Boulevard, Mail Code M1-199-014, Hazelwood,
Missouri 63042, or (314) 592-6603. You should also contact Ms. Vansickle if you
wish to arrange for inspection or copying of information referred to above. To
receive timely delivery of any information requested, you should deliver your
request to FBA at least 10 days prior to the annual meeting.
STOCKHOLDER PROPOSALS
If the merger is consummated, FBA will no longer be subject to the
SEC's proxy rules. If for any reason the merger is not consummated, the
provisions of the SEC's Rule 14a-8 under the Securities Exchange Act of 1934
governing proposals made by stockholders for consideration at an annual meeting
would remain applicable. Pursuant to Rule 14a-8, stockholders would then be able
to present proper proposals for inclusion in FBA's proxy statement for
consideration at its annual meeting of stockholders by submitting proposals to
FBA in a timely manner. In order to be so included for the 2003 annual meeting
of stockholders, stockholder proposals must be received by FBA a reasonable time
before FBA begins to print and mail proxy materials and must otherwise comply
with the requirements of Rule 14a-8 and with FBA's By-laws.
By Order of the Board of Directors,
/s/ ALLEN H. BLAKE
-----------------------------------
San Francisco, California ALLEN H. BLAKE
December ___, 2002 Secretary
Appendix A
AGREEMENT AND PLAN OF MERGER
by and among
FIRST BANKS, INC.,
a Missouri corporation,
FBA ACQUISITION CORPORATION,
a Delaware corporation,
and
FIRST BANKS AMERICA, INC.,
a Delaware corporation
September 23, 2002
TABLE OF CONTENTS
ARTICLE I - TERMS OF THE MERGER & CLOSING; EXCHANGE OF SHARES
Section 1.01. The Merger............................................................................ 2
Section 1.02. Effect of the Merger.................................................................. 2
Section 1.03. Conversion of Shares.................................................................. 2
Section 1.04. The Closing........................................................................... 3
Section 1.05. The Closing Date; Effective Time...................................................... 3
Section 1.06. Actions At Closing.................................................................... 3
Section 1.07. Exchange Procedures; Certificates..................................................... 4
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF FBA
Section 2.01. Organization and Capital Stock; Standing and Authority................................ 4
Section 2.02. Authorization; No Defaults............................................................ 5
Section 2.03. FBA Subsidiaries...................................................................... 5
Section 2.04. Financial Information................................................................. 5
Section 2.05. Absence of Changes.................................................................... 6
Section 2.06. Regulatory Enforcement Matters........................................................ 6
Section 2.07. Litigation............................................................................ 6
Section 2.08. Properties, Contracts, Employee Benefit Plans and Other Agreements.................... 6
Section 2.09. Reports............................................................................... 7
Section 2.10. Investment Portfolio.................................................................. 7
Section 2.11. Loan Portfolio........................................................................ 7
Section 2.12. Employee Matters and ERISA............................................................ 8
Section 2.13. Title to Properties; Insurance........................................................ 8
Section 2.14. Compliance with Laws.................................................................. 9
Section 2.15. Brokerage............................................................................. 9
Section 2.16. No Undisclosed Liabilities............................................................ 9
Section 2.17. Statements True and Correct........................................................... 9
Section 2.18. Commitments and Contracts............................................................. 9
Section 2.19. Material Interest of Certain Persons................................................. 10
Section 2.20. Conduct to Date...................................................................... 10
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF FIRST BANKS AND NEWCO
Section 3.01. Organization and Authority........................................................... 11
Section 3.02. Authorization; No Defaults........................................................... 11
Section 3.03. Regulatory Enforcement Matters....................................................... 12
Section 3.04. Litigation........................................................................... 12
Section 3.05. Brokerage............................................................................ 12
Section 3.06. Statements True and Correct.......................................................... 12
Section 3.07. Financial Capacity................................................................... 12
ARTICLE IV - AGREEMENTS OF FBA
Section 4.01. Business in Ordinary Course.......................................................... 13
Section 4.02. Breaches............................................................................. 14
Section 4.03. Submission to FBA's Stockholders..................................................... 14
Section 4.04. Consummation of Agreement............................................................ 15
Section 4.05. Access to Information................................................................ 15
Section 4.06. Consents to Contracts and Leases..................................................... 15
Section 4.07. Subsequent Financial Statements...................................................... 15
ARTICLE V - AGREEMENTS OF FIRST BANKS AND NEWCO
Section 5.01. Regulatory Approvals................................................................. 16
Section 5.02. Breaches............................................................................. 16
Section 5.03. Consummation of Agreement............................................................ 16
ARTICLE VI - CONDITIONS PRECEDENT TO THE MERGER
Section 6.01. Conditions to the Obligations of First Banks and Newco............................... 16
Section 6.02. Conditions to the Obligations of FBA................................................. 17
ARTICLE VII - TERMINATION
Section 7.01. Mutual Agreement......................................................................18
Section 7.02. Breach of Agreements................................................................. 18
Section 7.03. Failure of Conditions................................................................ 18
Section 7.04. Denial of Regulatory Approval........................................................ 18
Section 7.05. Unilateral Termination............................................................... 18
Section 7.06. Effect of Termination................................................................ 18
ARTICLE VIII - GENERAL PROVISIONS
Section 8.01. Confidential Information............................................................. 19
Section 8.02. Publicity............................................................................ 19
Section 8.03. Return of Documents.................................................................. 19
Section 8.04. Notices.............................................................................. 19
Section 8.05. Nonsurvival of Representations, Warranties and Agreements............................ 20
Section 8.06. Costs and Expenses................................................................... 21
Section 8.07. Entire Agreement..................................................................... 21
Section 8.08. Headings and Captions................................................................ 21
Section 8.09. Waiver, Amendment or Modification.................................................... 21
Section 8.10. Rules of Construction................................................................ 21
Section 8.11. Counterparts......................................................................... 21
Section 8.12. Successors and Assigns............................................................... 21
Section 8.13. Governing Law........................................................................ 21
Signatures............................................................................................. 22
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, dated as of September 23, 2002, is
by and among First Banks, Inc., a bank holding company organized as a Missouri
corporation ("First Banks"), FBA Acquisition Corporation, a wholly owned
subsidiary of First Banks organized as a Delaware corporation ("Newco"), and
First Banks America, Inc., a bank holding company majority-owned by First Banks
and organized as a Delaware corporation ("FBA"). This Agreement and Plan of
Reorganization is hereinafter referred to as the "Agreement."
WHEREAS, First Banks acquired control of FBA in 1994 and is the owner
of approximately 93.76% of the outstanding voting stock of FBA, with the
remaining shares of common stock of FBA, constituting approximately 6.24% of
FBA's outstanding voting stock, owned by public stockholders; and
WHEREAS, in October, 2001, First Banks invested approximately
$26,000,000 in additional shares of common stock, par value $0.15 per share, of
FBA ("FBA Common") in order to fund FBA's acquisition of BYL Bancorp, a
California bank holding company, and FBA decided at the time of that investment
by First Banks to conduct a rights offering (the "Rights Offering") to allow
FBA's public stockholders the opportunity to purchase proportionate amounts of
FBA Common for $32.50 per share, the same price paid by First Banks in October,
2001; and
WHEREAS, in April, 2002, First Banks proposed to the Board of Directors
of FBA that First Banks and FBA consider a transaction in which FBA would be
merged with a wholly-owned subsidiary of First Banks, all of the FBA Common
currently owned by public stockholders would be acquired by First Banks, and the
public stockholders would be paid by First Banks for their shares of FBA Common.
First Banks further proposed that, if such a transaction were completed, the
Rights Offering would not be conducted, but FBA's public stockholders would
receive consideration for the cancellation of the Rights Offering, based on the
difference between the market price for FBA Common and the price paid by First
Banks for FBA Common in October, 2001; and
WHEREAS, the Board of Directors of FBA appointed a Special Committee of
the Board of Directors, composed solely of the three directors of FBA who are
not affiliated with First Banks, to analyze the terms of such a transaction on
behalf of FBA and its public stockholders, with the assistance of independent
legal and financial advisers selected by and reporting directly to the Special
Committee; and
WHEREAS, the Special Committee, assisted by its independent legal and
financial advisers, has negotiated with First Banks the terms of this Agreement,
providing for the merger of FBA with a wholly-owned subsidiary of First Banks
and the payment of $40.54 per share to FBA's public stockholders for all of
their shares of FBA Common, representing an agreed price of $40.00 per share as
the fair value of the publicly held shares of FBA Common, plus $0.54 per share
in additional consideration equal to the fair value of rights that could have
been exercised by FBA's public stockholders if the Rights Offering had been
completed;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, agreements and covenants contained herein, First Banks, Newco and
FBA hereby agree as follows:
ARTICLE I
TERMS OF THE MERGER & CLOSING; EXCHANGE
OF SHARES
Section 1.01. The Merger. Pursuant to the terms and provisions of this
Agreement, Newco shall merge with and into FBA, and FBA will be the surviving
corporation of the merger (the "Merger").
Section 1.02. Effect of the Merger. The Merger shall have all of the
effects provided by the General Corporation Law of the State of Delaware
("Corporate Law") and this Agreement. The separate corporate existence of Newco
shall cease on consummation of the Merger and be combined in FBA.
Section 1.03. Conversion of Shares.
(a) At the Effective Time:
(i) each of the shares of FBA Common issued and outstanding
immediately prior to the Effective Time, except for shares owned
by First Banks and shares held in the treasury of FBA or by any
direct or indirect subsidiary of FBA (the "Excluded Shares"),
shall be converted into the right to receive cash in the amount
of $40.54. The Excluded Shares and all of the shares of Class B
common stock, per value $0.15 per share, of FBA ("Class B
Shares") shall be canceled without consideration; and
(ii) each of the outstanding shares of Newco shall be
converted into one share of common stock of FBA.
(b) At the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, all of the FBA Common and Class B
Shares shall cease to be outstanding and shall be canceled. Upon the surrender
of any certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of FBA Common (other than the Excluded Shares),
each holder thereof shall cease to have any rights with respect to such shares,
except the right of the holder to receive the cash consideration into which the
shares of FBA Common represented by the certificate have been converted in
accordance with subsection (a).
(c) If holders of FBA Common are entitled to require appraisal of their
shares under applicable Corporate Law, shares held by a dissenting holder who
has perfected the right to obtain an appraisal of his shares shall not be
converted as described in this Section 1.03, but from and after the Effective
Time shall represent only the right to receive such consideration as may be
determined pursuant to applicable Corporate Law; provided, however, that each
share of FBA Common outstanding immediately prior to the Effective Time and held
by a dissenting holder who after the Effective Time shall withdraw his demand
for appraisal or lose his right of appraisal shall thereafter have only such
rights as are provided under applicable Corporate Law.
Section 1.04. The Closing. The closing of the Merger (the "Closing")
shall take place at the location mutually agreeable to the parties hereto at
10:00 a.m. local time on the Closing Date described in Section 1.05 of this
Agreement.
Section 1.05. The Closing Date; Effective Time. At First Banks'
election, the Closing shall take place on either (i) one of the last five (5)
business days of the month, or (ii) the first business day of the month
following the month, in each case, during which each of the conditions in
Sections 6.01 and 6.02 is satisfied or waived by the appropriate party, or on
such other date as First Banks and FBA may agree (the "Closing Date"). The
Merger shall be effective upon the filing of an appropriate Certificate of
Merger with the Secretary of State of the State of Delaware or at a later time
specified therein (the "Effective Time").
Section 1.06. Actions At Closing. (a) At the Closing, FBA shall deliver
to First Banks:
(i) a certificate signed by an appropriate officer of FBA stating
that all of the conditions set forth in Section 6.01 have been
satisfied or waived as provided therein;
(ii) certified copies of resolutions of the Board of Directors and the
stockholders of FBA, establishing the requisite approvals under
applicable corporate law of this Agreement and the Merger; and
(iii) evidence reasonably satisfactory to First Banks and Newco
regarding the legality of the Merger and the satisfaction or waiver of
the conditions set forth in Section 6.01.
(b) At the Closing, First Banks and Newco shall deliver to FBA:
(i) certificates signed by appropriate officers of First Banks and
Newco stating that (A) each of the representations and warranties
contained in Article III is true and correct in all material respects
at the time of the Closing (except for those made as of a specified
date), with the same force and effect as if such representations and
warranties had been made at the Closing, and (B) all of the conditions
set forth in Section 6.02 have been satisfied or waived as provided
therein;
(ii) certified copies of resolutions of the Boards of Directors of
First Banks and Newco, and of First Banks in its capacity as the sole
stockholder of Newco, establishing the requisite approvals under
applicable corporate law of this Agreement and the Merger; and
(iii) evidence reasonably satisfactory to FBA regarding the legality of
the Merger and the satisfaction or waiver of the conditions set forth
in Section 6.02.
Section 1.07. Exchange Procedures; Certificates. As soon as reasonably
practicable after the Effective Time, First Banks shall (i) surrender to Newco
its certificates representing the Excluded Shares and all of the Class B Shares,
and (ii) cause the transfer agent for FBA Common to mail to each record holder
of shares of FBA Common (other than Excluded Shares) a letter of transmittal in
a form reasonably satisfactory to FBA (which shall specify that delivery shall
be effected, and risk of loss and title to certificates shall pass, only upon
proper delivery of the certificates to First Banks and shall be in such form and
have such other provisions as First Banks may reasonably specify) and
instructions for use in effecting the surrender of certificates. First Banks
shall promptly pay the appropriate consideration to former holders of FBA Common
who make proper delivery of certificates or comply with First Banks' reasonable
instructions and requirements with respect to any certificate that has been lost
or stolen.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF FBA
FBA represents and warrants to First Banks and Newco as follows:
Section 2.01. Organization and Capital Stock; Standing and Authority.
(a) FBA is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, with full corporate power to
own all of its property and assets, to incur all of its liabilities and to carry
on its business as now being conducted.
(b) As of the date hereof, the authorized capital stock of FBA consists
of 15,000,000 shares of FBA Common, of which 10,346,760 are outstanding, duly
and validly issued, fully paid and non-assessable; and 4,000,000 Class B Shares,
of which 2,500,000 are outstanding, duly and validly issued, fully paid and
non-assessable. None of the outstanding FBA Common or Class B Shares has been
issued in violation of any preemptive rights.
(c) Except as disclosed in Section 2.01 of that certain document
delivered by FBA to First Banks entitled the "Disclosure Schedule" and executed
by both FBA and First Banks concurrently with the execution and delivery of this
Agreement (the "Disclosure Schedule"), there are no shares of capital stock or
other equity securities of FBA issued or outstanding and no outstanding options,
warrants, rights to subscribe for, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, shares of the capital stock of FBA or contracts, commitments,
understandings or arrangements by which FBA is or may be obligated to issue
additional shares of its capital stock.
Section 2.02. Authorization; No Defaults. The Board of Directors of FBA
has by all requisite action approved this Agreement and the Merger and
authorized the execution and delivery hereof on behalf of FBA and the
performance of its obligations hereunder. Nothing in the Certificate of
Incorporation or Bylaws of FBA, or any other agreement, instrument, decree,
proceeding, law or regulation (except as specifically referred to in or
contemplated by this Agreement) by or to which FBA is bound or subject would
prohibit FBA from consummating this Agreement and the Merger on the terms and
conditions herein contained. This Agreement has been duly and validly executed
and delivered by FBA and constitutes a legal, valid and binding obligation,
enforceable in accordance with its terms. Neither FBA nor any of its direct or
indirect subsidiaries (hereinafter referred to singly as an "FBA Subsidiary" and
collectively as the "FBA Subsidiaries") is in default under or violation of any
provision of its articles of incorporation, certificate of incorporation,
bylaws, or any promissory note, indenture or any evidence of indebtedness or
security therefor, lease, contract, purchase or other material commitment or
agreement.
Section 2.03. FBA Subsidiaries. Each of the FBA Subsidiaries, the names
and jurisdictions of incorporation of which are disclosed in Section 2.03 of the
Disclosure Schedule, is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Each of the FBA
Subsidiaries has the corporate power to own its properties and assets, to incur
its liabilities and to carry on its business as now being conducted. The number
of issued and outstanding shares of capital stock of each FBA Subsidiary and the
ownership of such shares is set forth in Section 2.03 of the Disclosure
Schedule. All of such shares are owned by FBA or an FBA Subsidiary, free and
clear of all liens, encumbrances, rights of first refusal, options or other
restrictions. There are no options, warrants or rights outstanding to acquire
any stock of any FBA Subsidiary, and no person or entity has any other right to
purchase or acquire any unissued shares of stock of any FBA Subsidiary, nor does
any FBA Subsidiary have any obligation of any nature with respect to its
unissued shares of stock. Except as disclosed in Section 2.03 of the Disclosure
Schedule, neither FBA nor any FBA Subsidiary is a party to any partnership or
joint venture or owns an equity interest in any other business or enterprise.
Section 2.04. Financial Information. All of (i) the audited
consolidated balance sheets of FBA and the FBA Subsidiaries as of December 31,
2001 and related consolidated statements of income and statements of changes in
stockholders' equity and of cash flows for the three years ended December 31,
2001, together with the notes thereto, included in FBA's Annual Report on Form
10-K for the year ended December 31, 2001, as currently on file with the
Securities and Exchange Commission ("SEC"); (ii) the unaudited consolidated
balance sheets of FBA and the FBA Subsidiaries as of June 30, 2002 and related
consolidated statements of income and statements of changes in stockholders'
equity and of cash flows for the six months ended June 30, 2002, together with
the notes thereto, included in FBA's Quarterly Report on Form 10-Q for the six
months ended June 30, 2002 as currently filed with the SEC; and (iii) the
year-end and quarter-end Reports of Condition and Reports of Income of FBA's
banking subsidiary, First Bank & Trust, a California banking corporation
("FB&T"), for 2001 and for the six month period ended June 30, 2002, as filed
with the appropriate federal regulatory agency (such financial statements and
notes collectively referred to herein as the "FBA Financial Statements"), have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as disclosed therein and except for
regulatory reporting differences required for reports of FB&T) and fairly
present the consolidated financial position and the consolidated statements of
income, changes in stockholders' equity and cash flows of the respective entity
and its consolidated subsidiaries as of the dates and for the periods indicated.
Section 2.05. Absence of Changes. Since June 30, 2002 there has not
been any material adverse change in the financial condition, the results of
operations or the business or prospects of FBA and its subsidiaries taken as a
whole, nor have there been any events or transactions having such a material
adverse effect which should be disclosed in order to make the FBA Financial
Statements not misleading. Since June 30, 2002 there has been no material
adverse change in the financial condition, the results of operations or the
business of FB&T, except for changes as are disclosed in its Reports of
Condition and Income filed with the appropriate regulatory agency since such
date.
Section 2.06. Regulatory Enforcement Matters. Neither FBA nor any FBA
Subsidiary is subject to any order, agreement, memorandum of understanding or
other regulatory enforcement action or proceeding with or by any federal or
state agency charged with the supervision or regulation of banks or bank holding
companies or engaged in the insurance of bank deposits.
Section 2.07. Litigation. Except as disclosed in Section 2.07 of the
Disclosure Schedule, there is no litigation, claim or other proceeding (i)
involving an amount in controversy in excess of $1,000,000 pending or, to FBA's
knowledge, threatened against FBA or any of the FBA Subsidiaries, or to which
the property of FBA or any of the FBA Subsidiaries is or would be subject; or
(ii) which, if adversely determined, would prevent, delay or materially
interfere with the consummation of the Merger.
Section 2.08. Properties, Contracts, Employee Benefit Plans and Other
Agreements. Section 2.08 of the Disclosure Schedule specifically identifies the
following:
(a) all loan and credit agreements, conditional sales contracts or
other title retention agreements or security agreements relating to money
borrowed by FBA or an FBA Subsidiary, exclusive of deposit agreements with
customers entered into in the ordinary course of business, agreements for the
purchase of federal funds, advances from the Federal Home Loan Bank of San
Francisco and repurchase agreements;
(b) all agreements, loans, contracts, leases, guaranties, letters of
credit, lines of credit or commitments of FBA or any FBA Subsidiary not referred
to elsewhere in this Section 2.08 which:
(i) (except for loans, loan commitments or lines of credit)
involve payment by FBA or any FBA Subsidiary of more than
$500,000;
(ii) involve payments based on profits of FBA or any FBA
Subsidiary;
(iii) relate to the future purchase of goods or services in
excess of the requirements of its respective business at
current levels or for normal operating purposes;
(iv) were not made in the ordinary course of business; or
(v) materially affect the business or financial condition of FBA
or any FBA Subsidiary;
(c) all leases, subleases or licenses with respect to real or personal
property, whether as lessor, lessee, licensor or licensee, with annual rental or
other payments due thereunder in excess of $250,000; and
(d) all agreements for the employment, retention or engagement, or with
respect to the severance, of any officer, employee, agent, consultant or other
person or entity which by its terms is not terminable by FBA or an FBA
Subsidiary on thirty (30) days written notice or less without any payment by
reason of such termination.
Copies of each document, plan or contract identified in Section 2.08 of
the Disclosure Schedule have been made available for inspection by First Banks
and shall remain available at all times prior to the Closing Date.
Section 2.09. Reports. FBA and the FBA Subsidiaries have filed all
reports and statements, together with any amendments required to be made with
respect thereto, required to be filed with the SEC, the Federal Reserve Board,
the Department of Financial Institutions of the State of California, the FDIC
and all other governmental authorities with jurisdiction over FBA or any FBA
Subsidiary. As of the dates indicated thereon, each of such reports and
documents, including any financial statements, exhibits and schedules thereto,
complied in all material respects with the relevant statutes, rules and
regulations enforced or promulgated by the regulatory authority with which they
were filed, and did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
Section 2.10. Investment Portfolio. All United States Treasury
securities, obligations of other United States Government agencies and
corporations, obligations of States and political subdivisions of the United
States and other investment securities held by FBA or an FBA Subsidiary, as
reflected in the latest consolidated balance sheets of FBA included in the FBA
Financial Statements, are carried in accordance with generally accepted
accounting principles.
Section 2.11. Loan Portfolio. (i) All loans and discounts reflected in
the FBA Financial Statements at June 30, 2002 or which were or will be entered
into after June 30, 2002 but before the Closing Date were and will be made in
all material respects for good, valuable and adequate consideration in the
ordinary course of business, in accordance in all material respects with sound
lending practices, and they are not subject to any material known defenses,
setoffs or counterclaims, including without limitation any such as are afforded
by usury or truth in lending laws, except as may be provided by bankruptcy,
insolvency or similar laws or by general principles of equity; (ii) the notes
and other evidences of indebtedness evidencing such loans and all forms of
pledges, mortgages and other collateral documents and security agreements are
and will be in all material respects enforceable, valid, true and genuine and
what they purport to be; and (iii) FBA and the FBA Subsidiaries have complied
and will through the Closing Date comply with all laws and regulations relating
to such loans, or to the extent there has not been such compliance, such failure
to comply will not materially interfere with the collection of any loan. All
loans and loan commitments extended by the FBA Subsidiaries and any extensions,
renewals or continuations of such loans and loan commitments were made in
accordance with their customary lending standards in the ordinary course of
business. Such loans are evidenced by appropriate and sufficient documentation
based upon customary and ordinary past practices. The reserve for loan losses
reflected in the FBA Financial Statements as of June 30, 2002 is adequate in all
material respects under the requirements of generally accepted accounting
principles to provide for losses on loans outstanding as of June 30, 2002.
Section 2.12. Employee Matters and ERISA.
(a) Neither FBA nor any FBA Subsidiary has entered into any collective
bargaining agreement with any labor organization with respect to any group of
employees of FBA or any FBA Subsidiary, and to the knowledge of FBA there is no
present effort nor existing proposal to attempt to unionize any group of
employees of FBA or any FBA Subsidiary.
(b) All arrangements of FBA and the FBA Subsidiaries relating to
employees, including all benefit plans and deferred compensation, bonus, stock
or incentive plans for the benefit of current or former employees (the "Employee
Plans") are administered by First Banks. All costs, liabilities and obligations
arising from the Employee Plans are properly reflected in accordance with
generally accepted accounting principles in the FBA Financial Statements.
Section 2.13. Title to Properties; Insurance. (i) FBA and the FBA
Subsidiaries have marketable title, insurable at standard rates, free and clear
of all liens, charges and encumbrances (except taxes which are a lien but not
yet payable and liens, charges or encumbrances reflected in the FBA Financial
Statements and easements, rights-of-way, and other restrictions which are not
material, and further excepting in the case of other real estate owned, as such
real estate is internally classified on the books of FBA and the FBA
Subsidiaries, rights of redemption under applicable law) to all of their real
properties; (ii) all leasehold interests for real property and any material
personal property used by FBA or a FBA Subsidiary in its business are held
pursuant to lease agreements which are valid and enforceable in accordance with
their terms; (iii) all such properties comply in all material respects with all
applicable private agreements, zoning requirements and other governmental laws
and regulations relating thereto, and there are no condemnation proceedings
pending or, to the knowledge of FBA, threatened with respect to any of such
properties; (iv) FBA and the FBA Subsidiaries have valid title or other
ownership rights under licenses to all material intangible personal or
intellectual property used by FBA or any FBA Subsidiary in its business, free
and clear of any material claim, defense or right of any other person or entity,
subject only to rights of the licensors pursuant to applicable license
agreements, which rights do not materially and adversely interfere with the use
of such property; and (v) all material insurable properties owned or held by FBA
or a FBA Subsidiary are adequately insured by financially sound and reputable
insurers in such amounts and against fire and other risks insured against by
extended coverage and public liability insurance, as is customary with bank
holding companies of similar size.
Section 2.14. Compliance with Laws. FBA and the FBA Subsidiaries have
all licenses, franchises, permits and other governmental authorizations that are
legally required to enable them to conduct their respective businesses in all
material respects, are qualified to conduct business in every jurisdiction in
which such qualification is legally required and are in compliance in all
material respects with all applicable laws and regulations.
Section 2.15. Brokerage. Except for fees payable by FBA to Baxter
Fentriss and Company, neither FBA nor any FBA Subsidiary has incurred any claims
or obligations for brokerage commissions, finders' fees, financial advisory
fees, investment banking fees or similar compensation in connection with the
transactions contemplated by this Agreement.
Section 2.16. No Undisclosed Liabilities. Neither FBA nor any FBA
Subsidiary has any material liability, whether known or unknown, asserted or
unasserted, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, and whether due or to become due (and there is no past or present
fact, situation, circumstance, condition or other basis for any present or
future action, suit or proceeding, hearing, charge, complaint, claim or demand
against FBA or any FBA Subsidiary giving rise to any such liability), except for
(i) liabilities reflected in the FBA Financial Statements, and (ii) liabilities
of the same type incurred in the ordinary course of business of FBA and the FBA
Subsidiaries since June 30, 2002.
Section 2.17. Statements True and Correct. None of the information
supplied or to be supplied by FBA for inclusion in any document to be filed with
the SEC or any banking or other regulatory authority in connection with the
transactions contemplated hereby will, at the respective times such documents
are filed, and, in the case of the Proxy Statement, when mailed to the
stockholders of FBA and at the time of the Stockholders' Meeting (as such terms
are defined in Section 4.03), be false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements therein not misleading or required to be stated in order to correct
any statement in an earlier communication made to such stockholders with respect
to the Stockholders' Meeting. All documents that FBA is responsible for filing
with the SEC or any other regulatory authority in connection with the
transactions contemplated hereby will comply as to form in all material respects
with the provisions of applicable law and the rules and regulations thereunder.
Section 2.18. Commitments and Contracts. Except as disclosed in Section
2.18 of the Disclosure Schedule (and with a true and correct copy of the
document or other item in question having been made available to First Banks for
inspection), neither FBA nor any FBA Subsidiary is a party or subject to any of
the following (whether written or oral, express or implied):
(i) any agreement, arrangement or commitment not made in the ordinary
course of business;
(ii) any agreement, indenture or other instrument not reflected in the
FBA Financial Statements relating to the borrowing of money or the
guarantee by FBA or any FBA Subsidiary of any obligation, other than
(A) trade payables or instruments related to transactions entered into
in the ordinary course of business, such as deposits, federal funds
borrowings and repurchase agreements or (B) agreements, indentures or
instruments providing for annual payments of less than $250,000; or
(iii) any contract containing covenants which limit the ability of FBA
to compete in any line of business or with any person or containing
any restriction of the geographical area in which, or method by which,
FBA or any FBA Subsidiary may carry on its business.
Section 2.19. Material Interest of Certain Persons. (a) Except as
disclosed in Section 2.19 of the Disclosure Schedule, no officer or director of
FBA or any "associate" (as such term is defined in Rule 14a-1 under the Exchange
Act) of any such officer or director, has any material interest in any contract
or property (real or personal, tangible or intangible), used in or pertaining to
the business of FBA or an FBA Subsidiary.
(b) All outstanding loans from FBA or any FBA Subsidiary to any of
their officers, directors, employees or any associate or related interest of any
such persons were approved by or reported to the Board of Directors in
accordance with all applicable laws and regulations.
Section 2.20. Conduct to Date. Except as disclosed in Section 2.20 of
the Disclosure Schedule, from and after June 30, 2002 through the date of this
Agreement, neither FBA nor any FBA Subsidiary has:
(i) failed to conduct its business in the ordinary and usual
course consistent with past practices;
(ii) issued, sold, granted, conferred or awarded any common or other
stock, or any corporate debt securities which would be classified
under generally accepted accounting principles applied on a consistent
basis as long-term debt on the balance sheets of FBA or an FBA
Subsidiary;
(iii) effected any stock split or adjusted, combined, reclassified or
otherwise changed its capitalization;
(iv) declared, set aside or paid any dividend or other distribution in
respect of its capital stock;
(v) incurred any material obligation or liability (absolute or
contingent), except normal trade or business obligations or
liabilities incurred in the ordinary course of business, or subjected
to lien any of its assets or properties other than in the ordinary
course of business consistent with past practice;
(vi) discharged or satisfied any material lien or paid any material
obligation or liability (absolute or contingent), other than in the
ordinary course of business;
(vii) sold, assigned, transferred, leased, exchanged, or otherwise
disposed of any of its properties or assets other than for a fair
consideration in the ordinary course of business;
(viii) except as required by contract or law, (A) increased the rate of
compensation of, or paid any bonus to, any of its directors, officers,
or other employees, except merit or promotion increases in accordance
with existing policy, (B) entered into any new, or amended or
supplemented any existing, employment, management, consulting, deferred
compensation, severance or other similar contract, (C) entered into,
terminated or substantially modified any of the Employee Plans or (D)
agreed to do any of the foregoing;
(ix) suffered any material damage, destruction, or loss, whether as
the result of fire, explosion, earthquake, accident, casualty, labor
trouble, requisition, or taking of property by any regulatory
authority, flood, windstorm, embargo, riot, act of God or the enemy,
or other casualty or event, and whether or not covered by insurance;
(x) canceled or compromised any debt, except for debts charged off or
compromised in accordance with past practice; or
(xi) entered into any material transaction, contract or commitment
outside the ordinary course of its business.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
FIRST BANKS AND NEWCO
First Banks and Newco represent and warrant to FBA as follows:
Section 3.01. Organization and Authority. First Banks and Newco are
corporations duly organized, validly existing and in good standing under the
laws of the States of Missouri and Delaware, respectively. Each of such
corporations has the power to own all of its property and assets, to incur all
of its liabilities and to carry on its business as now conducted.
Section 3.02. Authorization; No Defaults. The Boards of Directors of
First Banks and Newco have by all requisite action approved this Agreement and
the Merger and authorized the execution and delivery hereof on behalf of such
corporations and the performance of their respective obligations hereunder.
First Banks, in its capacity as the sole holder of outstanding capital stock of
Newco, has approved this Agreement and the Merger. Nothing in the Articles of
Incorporation of First Banks, the Certificate of Incorporation of Newco, the
Bylaws of either entity, or any other agreement, instrument, decree, proceeding,
law or regulation (except as specifically referred to in or contemplated by this
Agreement) by or to which either entity is bound or subject would prohibit
either of such corporations from consummating this Agreement and the Merger on
the terms and conditions herein contained. This Agreement has been duly and
validly executed and delivered by First Banks and Newco and constitutes a legal,
valid and binding obligation of each of them, enforceable against them in
accordance with its terms. Neither First Banks nor Newco is in default under nor
in violation of any provision of its articles of incorporation, certificate of
incorporation, bylaws, or any promissory note, indenture or evidence of
indebtedness or security therefor, lease, contract, purchase or other material
commitment or agreement.
Section 3.03. Regulatory Enforcement Matters. First Banks and Newco are
not subject to any order, agreement, memorandum of understanding or other
regulatory enforcement action or proceeding with or by any federal or state
agency charged with the supervision or regulation of banks or bank holding
companies or engaged in the insurance of bank deposits.
Section 3.04. Litigation. There is no litigation, claim or other
proceeding pending or, to the knowledge of First Banks or Newco, threatened
against either of them which, if adversely determined, would prevent, delay or
materially interfere with the consummation of the Merger.
Section 3.05. Brokerage. Except for fees payable by First Banks to
Stifel, Nicolaus & Company, Incorporated, neither First Banks nor Newco has
incurred any claims or obligations for brokerage commissions, finders' fees,
financial advisory fees, investment banking fees or similar compensation in
connection with the transactions contemplated by this Agreement.
Section 3.06. Statements True and Correct. None of the information
supplied or to be supplied by First Banks or Newco for inclusion in any document
to be filed with the SEC or any banking or other regulatory authority in
connection with the transactions contemplated hereby will, at the respective
times such documents are filed, and, in the case of the Proxy Statement, when
mailed to the stockholders of FBA and at the time of the Stockholders' Meeting,
be false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements therein not misleading
or required to be stated in order to correct any statement in an earlier
communication. All documents that First Banks or Newco is responsible for filing
with the SEC or any other regulatory authority in connection with the
transactions contemplated hereby will comply in all material respects with the
provisions of applicable law and the rules and regulations thereunder.
Section 3.07. Financial Capacity. As of the date of this Agreement
First Banks has, and on the Closing Date it will have, access to sufficient
funds to enable it to pay all of the consideration contemplated to be paid in
connection with the Merger and all fees and expenses payable by First Banks.
ARTICLE IV
AGREEMENTS OF FBA
Section 4.01. Business in Ordinary Course. (a) FBA agrees that FBA and
the FBA Subsidiaries will carry on their businesses and the discharge or
incurrence of obligations and liabilities only in the usual, regular and
ordinary course of business as heretofore conducted. By way of amplification and
not limitation, neither FBA nor any FBA Subsidiary will, without the prior
written consent of First Banks:
(i) declare or pay any dividend or make any other distribution to
stockholders, whether in cash, stock or other property, except for
dividends or reductions of capital payable to FBA or an FBA
Subsidiary; or
(ii) issue any FBA Common or other capital stock or any options,
warrants, or other rights to subscribe for or purchase FBA Common or
any other capital stock or any securities convertible into or
exchangeable for any capital stock; or
(iii) effect a reclassification, recapitalization, splitup, exchange of
shares, readjustment or other similar change in or to any capital
stock, or otherwise reorganize or recapitalize; or
(iv) change its certificate of articles of incorporation or bylaws,
nor enter into any agreement to merge or consolidate with, or sell a
significant portion of its assets to, any person or entity; or
(v) grant any increase (other than ordinary and normal increases
consistent with past practices) in the compensation payable or to
become payable to officers or salaried employees, grant any stock
options or, except as required by law, adopt or make any change in any
bonus, insurance, pension, or other Employee Plan, agreement, payment
or arrangement made to, for or with any of such officers or employees;
or
(vi) borrow or agree to borrow any amount of funds except in the
ordinary course of business, or directly or indirectly guarantee or
agree to guarantee any obligations of others; or
(vii) make or commit to make any new loan or letter of credit or any
new or additional discretionary advance under any existing line of
credit, except in the ordinary course of business in compliance with
applicable laws, regulations and lending policies of the entity making
the loan or advance; or
(viii) enter into any agreement, contract or commitment having a term
in excess of three (3) months other than letters of credit, loan
agreements, deposit agreements, and other lending, credit and deposit
agreements and documents made in the ordinary course of business; or
(ix) except in the ordinary course of business, place on any of its
assets or properties any mortgage, pledge, lien, charge, or other
encumbrance; or
(x) except in the ordinary course of business, cancel or accelerate any
material indebtedness owing to FB&T or any claims which FB&T may
possess, or waive any material rights of substantial value; or
(xi) sell or otherwise dispose of any real property or any material
amount of any tangible or intangible personal property, other than
properties acquired in foreclosure or otherwise in the ordinary
collection of indebtedness; or
(xii) violate any law, statute, rule, governmental regulation or order,
which violation might have a material adverse effect on the business,
financial condition, or earnings of FBA or FB&T; or
(xiii) increase or decrease the rate of interest paid on time deposits
or on certificates of deposit, except in a manner consistent with past
practices.
(b) FBA and the FBA Subsidiaries shall not, without the prior written
consent of First Banks, engage in any transaction or take any action that would
render untrue in any material respect any of the representations and warranties
of FBA contained in Article II hereof, if such representations and warranties
were given immediately following such transaction or action.
Section 4.02. Breaches. FBA shall, in the event it has knowledge of the
occurrence, or impending or threatened occurrence, of any event or condition
which would cause or constitute a breach (or would have caused or constituted a
breach had such event occurred or been known prior to the date hereof) of any of
its representations or agreements contained or referred to herein, give prompt
written notice thereof to First Banks and use its best efforts to prevent or
promptly remedy the same.
Section 4.03. Submission to FBA's Stockholders. (a) FBA shall promptly
(i) prepare and file a proxy statement ("the Proxy Statement") with the SEC for
a meeting of the stockholders of FBA to be held as soon as reasonably
practicable (the "Stockholders' Meeting"); (ii) hold the Stockholders' Meeting;
and (iii) use its best efforts to obtain the approval of this Agreement and the
Merger by the stockholders of FBA. The Special Committee of the Board of
Directors of FBA established to consider the transaction contemplated by this
Agreement (the "Special Committee") shall recommend such approval to FBA's
stockholders, and the Board of Directors shall adopt the same recommendation,
cause the Proxy Statement to be mailed to FBA's stockholders and use its best
efforts to obtain such stockholder approval; provided, however, that neither the
Special Committee nor the Board of Directors of FBA shall be obligated to make
such recommendation if, having consulted and considered the advice of outside
legal counsel, the Special Committee or the Board of Directors has reasonably
determined in good faith that the making of such recommendation would constitute
a breach of the fiduciary duties of the members of the Board of Directors or the
Special Committee under applicable law.
(b) FBA shall cooperate and use its best efforts (i) to prepare all
documentation, to effect all filings and to obtain all permits, consents,
approvals and authorizations of all third parties, regulatory authorities and
other authorities necessary to consummate the transactions contemplated by this
Agreement, and (ii) to cause the Merger to be consummated as expeditiously as
reasonably practicable.
Section 4.04. Consummation of Agreement. FBA shall use its best efforts
to perform and fulfill all conditions and obligations on its part to be
performed or fulfilled under this Agreement and to effect the Merger in
accordance with the terms and provisions hereof. FBA shall furnish to First
Banks in a timely manner all information, data and documents requested by First
Banks as may be required to obtain any necessary regulatory or other approvals
of the Merger and shall cooperate fully with First Banks in seeking such
approvals and in consummating the Merger.
Section 4.05. Access to Information. FBA shall permit First Banks
reasonable access, in a manner which will avoid undue disruption or interference
with FBA's normal operations, to its properties, and FBA shall disclose and make
available to FBA all books, documents, papers and records relating to the
assets, stock ownership, properties, operations, obligations and liabilities of
FBA and the FBA Subsidiaries including, but not limited to, all books of account
(including the general ledger), tax records, minute books of directors' and
stockholders' meetings, organizational documents, material contracts and
agreements, loan files, filings with any regulatory authority, accountants'
workpapers (if available and subject to the accountants' consent), litigation
files, plans affecting employees, and any other business activities or prospects
in which First Banks may have a reasonable and legitimate interest in
furtherance of the transactions contemplated by this Agreement. First Banks will
hold any such information which is nonpublic in confidence in accordance with
the provisions of Section 8.01 hereof.
Section 4.06. Consents to Contracts and Leases. FBA shall use its best
efforts to obtain all consents with respect to interests of FB&T in material
leases, licenses, contracts, instruments and rights, if any, which require the
consent of another person for the consummation of the Merger.
Section 4.07. Subsequent Financial Statements. As soon as available
after the date hereof, FBA shall deliver to First Banks the monthly unaudited
consolidated balance sheets and statements of income of FB&T prepared for its
internal use, the Report of Condition and Income of FB&T for each quarterly
period completed prior to the Closing, and all other financial reports or
statements submitted to regulatory authorities after the date hereof, to the
extent permitted by law (collectively, the "Subsequent FB&T Financial
Statements"). The Subsequent FB&T Financial Statements shall be prepared on a
basis consistent with past accounting practices, shall fairly present the
financial condition and results of operations for the dates and periods
presented and shall not include any material assets or omit to state any
material liabilities, absolute or contingent, or other facts, which inclusion or
omission would render such financial statements misleading in any material
respect.
ARTICLE V
AGREEMENTS OF FIRST BANKS AND NEWCO
Section 5.01. Regulatory Approvals. First Banks and Newco shall file or
cause to be filed all regulatory applications required in order to consummate
the Merger, including but not limited to the necessary applications for the
prior approval of the Federal Reserve Board. First Banks shall keep FBA
reasonably informed as to the status of such applications and provide to FBA
copies of such applications and any supplementally filed materials.
Section 5.02. Breaches. First Banks and Newco shall, in the event
either of them has knowledge of the occurrence, or impending or threatened
occurrence, of any event or condition which would cause or constitute a breach
(or would have caused or constituted a breach had such event occurred or been
known prior to the date hereof) of any of its representations or agreements
contained or referred to herein, give prompt written notice thereof to FBA and
use its best efforts to prevent or promptly remedy the same.
Section 5.03. Consummation of Agreement. First Banks and Newco shall
use their best efforts to perform and fulfill all conditions and obligations on
their parts to be performed or fulfilled under this Agreement and to effect the
Merger in accordance with the terms and provisions hereof. First Banks and Newco
shall furnish to FBA in a timely manner all information, data and documents
requested by FBA as may be required for the Proxy Statement and Stockholders'
Meeting and shall cooperate fully with FBA in consummating the Merger.
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.01. Conditions to the Obligations of First Banks and Newco.
The obligations of First Banks and Newco to effect the Merger shall be subject
to the satisfaction (or waiver by First Banks) prior to or on the Closing Date
of the following conditions:
(a) no temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger shall be in
effect, nor shall any proceeding by any bank regulatory authority or other
person seeking any of the foregoing be pending. There shall not be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger which makes the consummation of the Merger
illegal;
(b) all necessary approvals, consents and authorizations required by
law for consummation of the Merger, including the requisite approval of the
stockholders of FBA and all legally required regulatory approvals, shall have
been obtained, and all waiting periods required by law shall have expired; and
(c) the Special Committee shall have received within thirty (30) days
after the date of this Agreement an opinion of the financial advisor to the
Special Committee to the effect that the Merger is fair to the stockholders of
FBA from a financial point of view, and such opinion shall not have been
withdrawn.
6.02 Conditions to the Obligations of FBA. The obligation of FBA to
effect the Merger shall be subject to the satisfaction (or waiver by FBA) prior
to or on the Closing Date of the following conditions:
(a) the representations and warranties made by First Banks and Newco in
this Agreement shall be true in all material respects on and as of the Closing
Date (except for those made as of a specified date) with the same effect as
though such representations and warranties had been made or given on and as of
the Closing Date;
(b) First Banks and Newco shall have performed and complied in all
material respects with all of their obligations and agreements required to be
performed prior to the Closing Date;
(c) no temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger shall be in
effect, nor shall any proceeding by any regulatory authority or other person
seeking any of the foregoing be pending. There shall not be any action taken, or
any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger which makes the consummation of the Merger illegal;
(d) all necessary approvals, consents and authorizations required by
law for consummation of the Merger, including the requisite approval of the
stockholders of FBA and all legally required regulatory approvals, shall have
been obtained, and all waiting periods required by law shall have expired;
(e) FBA shall have received all documents required to be received from
First Banks and Newco on or prior to the Closing Date, all in form and substance
reasonably satisfactory to FBA; and
(f) the Special Committee shall have received within thirty (30) days
after the date of this Agreement an opinion of the financial advisor to the
Special Committee to the effect that the Merger is fair to the stockholders of
FBA from a financial point of view, and such opinion shall not have been
withdrawn.
ARTICLE VII
TERMINATION
Section 7.01. Mutual Agreement. This Agreement may be terminated by the
mutual written agreement of the parties at any time prior to the Closing Date,
regardless of whether approval of this Agreement and the Merger by the
stockholders of FBA shall have been previously obtained.
Section 7.02. Breach of Agreements. In the event that there is a
material breach of any of the representations and warranties or agreements of
First Banks or Newco, on the one hand, or FBA, on the other hand, which breach
is not cured within thirty days after notice to cure such breach is given to the
breaching party by the non-breaching party, then the non-breaching party,
regardless of whether approval of this Agreement and the Merger by the
stockholders of FBA shall have been previously obtained, may terminate and
cancel this Agreement by providing written notice of such action to the other
parties.
Section 7.03. Failure of Conditions. In the event that any of the
conditions to the obligations of a party are not satisfied or waived on or prior
to the Closing Date, and if any applicable cure period provided in Section 7.02
hereof has lapsed, then such party may, regardless of whether approval of the
Merger by the stockholders of FBA shall have been previously obtained, terminate
and cancel this Agreement by delivery of written notice of such action to the
other parties.
Section 7.04. Denial of Regulatory Approval. If any regulatory
application filed pursuant to Section 5.01 hereof should be finally denied or
disapproved by a regulatory authority, then this Agreement thereupon shall be
deemed terminated and canceled; provided, however, that a request for additional
information or undertaking by First Banks, as a condition for approval, shall
not be deemed to be a denial or disapproval so long as First Banks diligently
provides the requested information or undertaking. In the event an application
is denied pending an appeal, petition for review or similar such act on the part
of First Banks (hereinafter referred to as the "Appeal"), then the application
will be deemed denied unless First Banks prepares and timely files and continues
to pursue an Appeal seeking the necessary approval.
Section 7.05. Unilateral Termination. If the Closing Date does not
occur on or prior to March 31, 2003, then this Agreement may be terminated by
either First Banks or FBA by giving written notice of termination to the other
party.
Section 7.06. Effect of Termination. In the event of termination of
this Agreement in accordance with the provisions of this Article VII, this
Agreement shall become void and have no further effect, without any obligation
or liability on the part of any of the parties hereto, other than a liability
arising from a willful breach of Section 2.15, Section 3.05, the last sentence
of Section 8.01, Section 8.03, or Section 8.06.
ARTICLE VIII
GENERAL PROVISIONS
8.01 Confidential Information. The parties acknowledge the confidential
and proprietary nature of the "Information" (as herein defined) which has
heretofore been exchanged and which will be received from each other hereunder
and agree to hold and keep the same confidential. Such Information will include
any and all financial, technical, commercial, marketing, customer or other
information concerning the business, operations and affairs of a party that may
be provided to the others, irrespective of the form of the communications, by
such party's employees or agents. Such Information shall not include information
which is or becomes generally available to the public other than as a result of
a disclosure by a party or its representatives in violation of this Agreement.
The parties agree that the Information will be used solely for the purposes
contemplated by this Agreement and that such Information will not be disclosed
to any person other than employees and agents of a party who are directly
involved in implementing the Merger, who shall be informed of the confidential
nature of the Information and directed individually to abide by the restrictions
set forth in this Section 8.01.
Section 8.02. Publicity. First Banks and FBA shall cooperate with each
other in the development and distribution of all news releases and other public
disclosures concerning this Agreement and the Merger. Neither party shall issue
any news release or make any other public disclosure without the prior consent
of the other party, unless such is required by law upon the written advice of
counsel or is in response to published newspaper or other mass media reports
regarding the Merger, in which latter event the parties shall consult with each
other to the extent practicable regarding such responsive disclosure.
Section 8.03. Return of Documents. Upon termination of this Agreement
without the Merger becoming effective, each party shall deliver to the others
originals and all copies of all Information made available to such party and
will not retain any copies, extracts or other reproductions, in whole or in
part, of such Information.
Section 8.04. Notices. Any notice or other communication shall be in
writing and shall be deemed to have been given or made on the date of delivery,
in the case of hand delivery, or three (3) business days after deposit in the
United States Registered Mail, postage prepaid, or upon receipt if transmitted
by facsimile telecopy or any other means, addressed (in any case) as follows:
(a) if to FBA: Special Committee of the Board of Directors
First Banks America, Inc.
c/o Albert M. Lavezzo
Favaro, Lavezzo, Gill, Caretti & Heppell
300 Tuolumne Street, Suite A
Vallejo, California 94590
Facsimile: (707) 552-8913
and
First Banks America, Inc.
Attention: Lisa K. Vansickle
600 James S. McDonnell Boulevard
Mail Code M1-199-014
Hazelwood, Missouri 63042
Facsimile: (314) 592-6621
with a copy to: Bingham McCutchen LLP
Attention: Thomas G. Reddy
Three Embarcadero Center
San Francisco, CA 94111
Facsimile: (415) 393-2286
(b) if to First Banks or Newco:
First Banks, Inc.
Attention: Allen H. Blake, President
600 James S. McDonnell Boulevard
Mail Code M1-199-014
Hazelwood, Missouri 63042
Facsimile: (314) 592-6621
with a copy to: John S. Daniels
Attorney at Law
6440 North Central Expressway, Suite 503
Dallas, Texas 75206
Facsimile: (214) 368-9094
or to such other address as any party may from time to time designate by notice
to the others.
Section 8.05. Nonsurvival of Representations, Warranties and
Agreements. No representation, warranty or agreement contained in this Agreement
shall survive the Closing Date, and, except for the provisions of Sections 7.06,
8.01, 8.03 and 8.06 hereof, no provisions hereof shall survive the earlier
termination of this Agreement.
Section 8.06. Costs and Expenses. Except as may be otherwise provided
herein, each party shall pay its own costs and expenses incurred in connection
with this Agreement and the matters contemplated hereby, including without
limitation all fees and expenses of attorneys, accountants, brokers, financial
advisors and other professionals.
Section 8.07. Entire Agreement. This Agreement constitutes the entire
agreement among the parties and supersedes and cancels any and all prior
discussions, negotiations, undertakings, agreements in principle and other
agreements among the parties relating to the subject matter hereof.
Section 8.08. Headings and Captions. The captions of Articles and
Sections hereof are for convenience only and shall not control or affect the
meaning or construction of any of the provisions of this Agreement.
Section 8.09. Waiver, Amendment or Modification. The conditions of this
Agreement which may be waived may only be waived by a written instrument
delivered to the other party. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect the right
at a later time to enforce the same. This Agreement may not be amended or
modified except by a written document duly executed by the parties hereto.
Section 8.10. Rules of Construction. Unless the context otherwise
requires: (a) a term has the meaning assigned to it; (b) an accounting term not
otherwise defined has the meaning assigned to it in accordance with generally
accepted accounting principles; (c) "or" is not exclusive; and (d) words in the
singular may include the plural and in the plural include the singular.
Section 8.11. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which shall
be deemed one and the same instrument.
Section 8.12. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. There shall be no third party beneficiaries hereof.
Section 8.13. Governing Law. This Agreement shall be governed by the
laws of the State of Missouri, the General Corporation Law of the State of
Delaware, and any applicable federal laws and regulations.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized, all as of the date first
written above.
FIRST BANKS, INC.
By: /s/ Allen H. Blake
--------------------------------------
Its: President
--------------------------------------
FBA ACQUISITION CORPORATION
By: /s/ Lisa K. Vansickle
--------------------------------------
Its: President
--------------------------------------
FIRST BANKS AMERICA, INC.
By: /s/ Terrance M. McCarthy
--------------------------------------
Its: Executive Vice President
--------------------------------------
Appendix B
[Baxter Fentriss and Company Logo]
September 23, 2002
Special Committee of the Board of Directors
First Banks America, Inc.
c/o Mr. Albert M. Lavezzo
Favaro, Lavezzo, Gill, Caretti & Heppell
300 Tuolumne Street, Suite A
Vallejo, California 94590
Dear Members of the Special Committee of the Board:
First Banks, Inc., a bank holding company organized as a Missouri corporation
("First Banks") and First Banks America, Inc. ("FBA"), a bank holding company
majority owned by First Banks and organized as a Delaware corporation, have
entered into an agreement providing for the merger of FBA with and into a new
wholly owned subsidiary of First Banks (the "Merger"). The terms of the Merger
are set forth in the Agreement and Plan of Merger (the "Agreement").
The terms of the Merger provide that certain shares of FBA common stock which
are owned by stockholders other than First Banks, or any of its affiliates or
subsidiaries, and not held in the treasury of FBA (the "unaffiliated
stockholders"), will be converted into the right to receive $40.54 per share in
cash ( the "Consideration").
You have asked our opinion as to whether the proposed transaction, pursuant to
the terms of the Agreement, is fair to the respective unaffiliated stockholders
of FBA from a financial point of view.
In rendering our opinion, we have reviewed certain publicly available business
and financial information relating to FBA, as well as the Agreement. We have
also reviewed and relied upon without independent verification, certain other
information, including financial forecasts, provided to us by FBA, and have
discussed the business and prospects of FBA with management, as well as other
matters that may be relevant.
In addition, we have, among other things: (a) to the extent deemed relevant,
analyzed selected public information of certain other financial institutions and
compared FBA from a financial point of view to the other financial institutions;
(b) compared the terms of the Merger with the terms of certain other comparable
transactions to the extent information concerning such acquisitions was publicly
available; (c) made such other analyses and examinations as we deemed necessary.
We have not independently verified the financial and other information
concerning FBA, or other data which we have considered in our review, nor have
we conducted on site due diligence of FBA. We have assumed the accuracy and
completeness of all such information; however, we have no reason to believe that
such information is not accurate and complete. Our conclusion is rendered on the
basis of securities market conditions prevailing as of the date hereof and on
the conditions and prospects, financial and otherwise, of FBA as they exist and
are known to us as of June 30, 2002.
We have acted as financial advisor to the Special Committee of the Board of
Directors of FBA in connection with the Merger and will receive from FBA a fee
for our services, which is not contingent upon the consummation of the Merger.
It is understood that this opinion may be included in its entirety in any
communication by FBA or the Special Committee of the Board of Directors to the
stockholders of FBA. The opinion may not, however, be summarized, excerpted from
or otherwise publicly referred to without our prior written consent.
Based on the foregoing, and subject to the limitations described above, we are
of the opinion that the Consideration is fair to the unaffiliated shareholders
of FBA from a financial point of view.
Sincerely,
/s/Baxter Fentriss and Company
- ------------------------------
Baxter Fentriss and Company
Appendix C
Section 262 of the General Corporation
Law of the State of Delaware
Section 262 - Appraisal Rights
(a) Any stockholder of a corporation of this State who holds shares
of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the
merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor
of the merger or consolidation nor consented thereto in writing
pursuant to section 228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of the
stockholder's shares of stock under the circumstances described
in subsections (b) and (c) of this section. As used in this
section, the word "stockholder" means a holder of record of stock
in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what
is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument
issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation,
which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class
or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to section 251 (other than
a merger effected pursuant to section 251(g) of this title),
section 252, section 254, section 257, section 258, section 263
or section 264 of this title:
(1) Provided, however, that no appraisal rights under
this section shall be available for the shares of any class or series
of stock, which stock, or depository receipts in respect thereof, at
the record date fixed to determine the stockholders entitled to
receive notice of and to vote at the meeting of stockholders to act
upon the agreement of merger or consolidation, were either (i) listed
on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or (ii) held of record by
more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares
of any class or series of stock of a constituent corporation if the
holders thereof are required by the terms of an agreement of merger
or consolidation pursuant to sections 251, 252, 254, 257, 258, 263 and
264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under section 253 of
this title is not owned by the parent corporation immediately prior
to the merger, appraisal rights shall be available for the shares
of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be
available for the shares of any class or series of its stock as a
result of an amendment to its certificate of incorporation, any merger
or consolidation in which the corporation is a constituent corporation
or the sale of all or substantially all of the assets of the
corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth
in subsections (d) and (e) of this section, shall apply as nearly as
is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be submitted
for approval at a meeting of stockholders, the corporation, not less
than twenty (20) days prior to the meeting, shall notify each of its
stockholders who was such on the record date for such meeting with
respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent
corporations, and shall include in such notice a copy of this section.
Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the
taking of the vote on the merger or consolidation, a written demand
for appraisal of such stockholder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to demand
the appraisal of such stockholder's shares. A proxy or vote
against the merger or consolidation shall not constitute such a
demand. A stockholder electing to take such action must do so by a
separate written demand as herein provided. Within ten (10) days
after the effective date of such merger or consolidation, the
surviving or resulting corporation shall notify each stockholder of
each constituent corporation who has complied with this subsection
and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant
to section 228 or section 253 of this title, each constituent
corporation, either before the effective date of the merger or
consolidation or within ten days thereafter, shall notify each of the
holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of
this section. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within twenty (20) days
after the date of mailing of such notice, demand in writing from the
surviving or resulting corporation the appraisal of such holder's
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of
the merger or consolidation notifying each of the holders of any class
or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall
send such a second notice to all such holders on or within ten (10)
days after such effective date; provided, however, that if such second
notice is sent more than twenty(20) days following the sending of the
first notice, such second notice need only be sent to each stockholder
who is entitled to appraisal rights and who has demanded appraisal of
such holder's shares in accordance with this subsection. An affidavit
of the secretary or assistant secretary or of the transfer agent of
the corporation that is required to give either notice that such
notice has been give shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more
than ten (10) days prior to the date the notice is given, provided,
that if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective date.
If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the
day next preceding the day on which the notice is given.
(e) Within one hundred twenty (120) days after the effective date of
the merger or consolidation, the surviving or resulting
corporation or any stockholder who has complied with subsections
(a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within sixty (60) days
after the effective date of the merger or consolidation, any
stockholder shall have the right to withdraw such stockholder's
demand for appraisal and to accept the terms offered upon the
merger or consolidation within one hundred twenty (120) days
after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections
(a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate
number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder
within ten (10) days after such stockholder's written request for
such a statement is received by the surviving or resulting
corporation or within ten (10) days after expiration of the
period for delivery of demands for appraisal under subsection (d)
hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of
a copy thereof shall be made upon the surviving or resulting
corporation, which shall within twenty (20) days after such
service file in the office of the Register in Chancery in which
the petition was filed a duly verified list containing the names
and addresses of all stockholders who have demanded payment for
their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting
corporation. If the petition shall be filed by the surviving or
resulting corporation, the petition shall be accompanied by such
a duly verified list. The Register in Chancery, if so ordered by
the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown
on the list at the addresses therein stated. Such notice shall
also be given by one (1) or more publications at least one (1)
week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the
notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or
resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have
become entitled to appraisal rights. The Court may require the
stockholders who have demanded an appraisal for their shares and
who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value
exclusive of any element of value arising from the accomplishment
or expectation of the merger or consolidation, together with a
fair rate of interest, if any, to be paid upon the amount
determined to be the fair value. In determining such fair value,
the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all
relevant factors, including the rate of interest which the
surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon
application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding,
the Court may, in its discretion, permit discovery or other
pretrial proceedings and may proceed to trial upon the appraisal
prior to the final determination of the stockholder entitled to
an appraisal. Any stockholder whose name appears on the list
filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted such
stockholder's certificates of stock to the Register in Chancery,
if such is required, may participate fully in all proceedings
until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or
resulting corporation to the stockholders entitled thereto.
Interest may be simple or compound, as the Court may direct.
Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender
to the corporation of the certificates representing such stock.
The Court's decree may be enforced as other decrees in the Court
of Chancery may be enforced, whether such surviving or resulting
corporation be a corporation of this State or any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the
circumstances. Upon the application of a stockholder, the Court
may order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorney's fees and the
expenses of experts, to be charged pro rata against the value of
all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded appraisal rights as provided in
subsection (d) of this section shall be entitled to vote such
stock for any purpose or to receive payment of dividends or other
distributions on the stock (except dividends or other
distributions payable to stockholders of record at a date which
is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be
filed within the time provided in subsection (e) of this section,
or if such stockholder shall deliver to the surviving or
resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or
consolidation, either within sixty (60) days after the effective
date of the merger or consolidation as provided in subsection (e)
of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval
may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted
had they assented to the merger or consolidation shall have the
status of authorized and unissued shares of the surviving or
resulting corporation.
FORM OF PROXY CARD
(Preliminary Copy)
Please mark
your votes as
indicated in |X|
this example
1. Election of Directors
FOR all nominees WITHHOLD
listed below AUTHORITY
(except as marked to vote for all nominee(s)
below) listed below
|_| |_|
NOMINEES: 01 Allen H. Blake, 02 Charles A. Crocco, Jr., 03 James F. Dierberg,
04 Albert M.Lavezzo, 05 Terrance M. McCarthy, 06 Ellen D. Schepman,
07 Edward T. Story, Jr.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME BELOW.
- --------------------------------------------------------------------------------
2. To approve and adopt the merger agreement dated September 23, 2002, by and
among FBA, First Banks, Inc. and FBA Acquisition Corporation.
FOR AGAINST ABSTAIN
|_| |_| |_|
- --------------------------------------------------------------------------------
3. In their discretion, upon any other matters which may properly come before
the meeting or any adjournments thereof, and were not known by FBA a
reasonable period of time before the meeting, hereby revoking any proxy
heretofore given by the undersigned for such meeting.
Dated: , 2002
---------------------------------
- ---------------------------------------------
Signature
- ---------------------------------------------
Signature if held jointly
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
FIRST BANKS AMERICA, INC.
Annual Meeting of Stockholders - December ___, 2002
The undersigned hereby appoints Terrance M. McCarthy and Donald W. Williams, and
each of them, with full power of substitution, the attorney and proxy of the
undersigned to attend the Annual Meeting of Stockholders of First Banks America,
Inc. to be held in Clayton, Missouri on December ___, 2002, at ____ __.m. local
time and at any adjournment thereof, and to vote the stock of the undersigned
with all powers the undersigned would possess if present upon the following
matters and upon any other business that may properly come before the meeting or
any adjournment thereof.
The proxy when properly executed will be voted as specified herein. If no
specification is made with respect to any particular proposal, it is the
intention of the proxies to vote FOR each of the proposals.
SEE REVERSE SIDE
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
You can now access your First Banks America, Inc. account online.
Access your First Banks America, Inc. stockholder account online via Investor
ServiceDirect(SM) (ISD).
Mellon Investor Services LLC, agent for First Banks America, Inc., now makes it
easy and convenient to get current information on your stockholder account.
After a simple and secure process of establishing a Personal Identification
Number (PIN), you are ready to log in and access your account to:
o View account status
o View certificate history
o View book-entry information
o View payment history for dividends
o Make address changes
o Obtain a duplicate 1099 tax form
o Establish/change your PIN
Visit us on the web at http://www.melloninvestor.com
and follow the instructions shown on this page.
Step 1: FIRST TIME USERS - Establish a PIN
You must first establish a Personal Identification Number (PIN) online by
following the directions provided in the upper right portion of the web screen
as follows. You will also need your Social Security Number (SSN) available to
establish a PIN.
Investor ServiceDirect(SM) is currently only available for domestic individual
and joint accounts.
o SSN
o PIN
o Then click on the Establish PIN button
Please be sure to remember your PIN, or maintain it in a secure place for future
reference.
Step 2: Log in for Account Access
You are now ready to log in. To access your account, please enter your:
o SSN
o PIN
o Then click on the Submit button
If you have more than one account, you will now be asked to select the
appropriate account.
Step 3: Account Status Screen
You are now ready to access your account information. Click on the appropriate
button to view or initiate transactions.
o Certificate History
o Book-Entry Information
o Issue Certificate
o Payment History
o Address Change
o Duplicate 1099
For Technical Assistance Call 1-877-978-7778 between
9am-7pm Monday-Friday Eastern Time