PROXY STATEMENT
FOR APPROVAL OF CONVERSION FROM NATIONAL CHARTER TO STATE
LICENSED BANK
NFORMATION CONCERNING THE SOLICITATION
The accompanying Proxy is solicited by, and on behalf of, the Board of Directors of
__________ & __________, a national banking association (the “Bank”), for use at the Special
Meeting of Shareholders to be held at the Bank’s principal office at ___ __________ Avenue,
__________, __________ at __:__ p.m. on __________, __________ __, _____ (the “Special
Meeting”). Only shareholders of record on __________ __, _____ (the “Record Date”) will be
entitled to notice of and to vote at the Special Meeting. At the close of business on that date, the
Bank had outstanding __________ shares of its __________ par value Common Stock (the
“Bank Common Stock”).
Voting Securities . Shareholders of Bank Common Stock are entitled to one vote for each
share held. Approval of the Plan of Conversion requires the affirmative vote of __________
(___) of the outstanding shares of Bank Common Stock.
Voting of Proxies . Any person giving a Proxy in the form accompanying this Proxy
Statement has the power to revoke or suspend it prior to its exercise. It is revocable prior to the
Special Meeting by an instrument revoking it or by a duly executed Proxy bearing a later date,
delivered to the Secretary of the Bank. It is also revoked if the shareholder is present at the
Special Meeting and elects to vote in person. Unless otherwise instructed by the shareholder,
each valid, returned Proxy which is not revoked will be voted AFOR@ Proposal No. 1 as
described in this Proxy Statement and, at the proxy holders’ discretion, on such other matters, if
any, which may properly come before the Special Meeting (including any proposal to postpone
or adjourn the Special Meeting).
Solicitation of Proxies . The Bank will bear the entire cost of preparing, assembling,
printing and mailing proxy materials furnished by the Board of Directors to shareholders. Copies
of proxy materials will be furnished to brokerage houses, fiduciaries and custodians to be
forwarded to the beneficial owners of the Bank Common Stock. In addition to the solicitation of
Proxies by use of the mail, some of the officers, directors and regular employees of the Bank
may (without additional compensation) solicit Proxies by telephone or personal interview, the
costs of which the Bank will bear.
Dissenters Rights of Appraisal Subject to certain conditions, shareholders of the Bank
who perfect their dissenters’ rights may dissent from the Conversion and claim rights and
remedies of dissenting shareholders provided by the laws of the United States. Bank shareholders
must follow the procedures of Title 12 United States Code '214a(b) to preserve their rights. See
PROPOSAL NO. 1 APPROVAL OF PLAN OF CONVERSION – Dissenters’ Rights of
Appraisal and Appendix B that sets forth the relevant section of the United States Code.
PRINCIPAL SHAREHOLDERS
As of the Record Date, no individual known to the Bank owned beneficially more
than five percent (5%) of the outstanding shares of its Common Stock, except as set forth below:
Percent of Class Beneficially
Name and Address Amount Beneficially Owned Beneficially Owned (1)
__________ __________ _____% ____________________
__________ __________ _____% ______________________________
(1) Except as indicated in the footnotes to this table, the persons named in the table have sole
voting and investment power with respect to all shares of Bank Common Stock shown as
beneficially owned by them, subject to community property laws, when applicable.
(2) Includes __ shares held by spouse, __________ shares in the Bank’s Profit Sharing Plan,
745 shares in a 401(k) Plan, __________ shares in an IRA account, __________ shares held in
the Schmitt Family Trust, of which __________ is co-trustee, and options to purchase
__________ shares exercisable within ___ days of __________ __, _____.
(3) Includes __________ shares held by spouse and __________ shares held in trust.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to (i) each director of the
Bank, (ii) the Chief Executive Officer and the four mostly highly compensated executive officers
of the Bank whose salary and bonus for the year ended __________ __, ____ exceeded
__________, and (iii) all directors and executive officers as a group. All of the shares of Bank
Common Stock shown in the following table are owned both of record and beneficially except as
indicated in the notes to the table.
Shares Beneficially Owned as of
__________ _______
Percent
Director Officer Number of Class
____________ __________ _____%
____________ __________ _____%
____________ __________ _____%
____________ __________ _____%
____________ __________ _____%
____________ __________ _____%
____________ __________ _____%
____________ __________ _____%
____________ __________ _____%
____________ __________ _____%
____________ __________ _____%
____________ __________ _____%
____________ __________ _____%
____________ __________ _____%
All Current Directors
and Executive Officers
as a Group (14 persons) __________ _____%
(Notes)
(1) Includes __________ shares in the Bank’s Profit Sharing Plan, __________ shares in
a 401(k) Plan and options to purchase __________ shares exercisable within ___ days of __________ __, _____.
(2) Includes __________ shares held in an IRA and options to purchase ______ shares
exercisable within ___ days of __________ __, _____.
(3) Includes options to purchase __________ shares exercisable within ___ days of
__________ __, _____.
(4) Includes __________ shares held by minor child, __________ in the Bank’s Profit
Sharing Plan, __________ shares in a 401(k) Plan and options to purchase __________ shares
exercisable within ___ days of __________ __, _____.(5) Includes __________ shares held in the Meier Family Trust, of which Linda R.
Meier is co-trustee, and options to purchase __________ shares exercisable within ___ days of __________ __, _____.
(6) Includes options _______ shares exercisable within ___ days of __________ __,
_____. (7) Includes __________ shares held in an IRA, __________ shares held in spouse’s
IRA and options to purchase __________ shares exercisable within 60 days of __________ __, _____.
(8) Includes __________ shares in the Bank’s Profit Sharing Plan, __________ shares in
a 401(k) Plan, __________ shares in a rollover 40 1(k) Plan, __________ shares held in trust and
options to purchase __________ shares exercisable within ___ days of __________ __, _____.
(9) Includes options to purchase __________ shares exercisable within ___ days of
__________ __, _____.
(10) Includes ___________ shares held in a profit sharing plan and options to purchase
200 shares exercisable within ___ days of __________ __, _____.
(11) Includes __________ shares in the Bank’s Profit Sharing Plan, __________ shares in
a 401(k) Plan and options to purchase ___________ shares exercisable within ___ days of __________ __, _____.
(12) Includes options to purchase 200 shares exercisable within ____ days of __________
__, _____.
(13) Includes __________ shares held by spouse, __________ shares in the Bank’s Profit
Sharing Plan, __________ shares in a 40 1(k) Plan, __________ shares in an IRA account,
__________ shares held in the Schmitt Family Trust of which __________ is co-trustee, and
options to purchase __________ shares exercisable within ___ days of __________ __, _____.
(14) Includes __________ shares owned of record by the __________, of
which___________ is co-trustee, __________ shares owned by spouse and options to purchase
___________ shares exercisable within __ days of __________ __, _____.
(15) Includes options to purchase __________ shares exercisable within __ days of
__________ __, _____.
PROPOSAL NO. 1
APPROVAL OF PLAN OF CONVERSION
Provisions of the __________ Financial Code and regulations of the __________ Superintendent
of Banks (the “Superintendent”) allow a national banking association, such as the Bank, to
convert into a __________ licensed bank. The Board of Directors has determined that it is in the
best interests of the Bank to undertake such a conversion (the “Conversion”). Following the
Conversion, the Bank will be known as __________ & __________ (the “State Bank”).
The Conversion was approved by the Board of Directors of the Bank on __________ __, _____
and requires the approval of the Bank’s shareholders, the Superintendent and the Board of
Governors of the Federal Reserve System (the “FRB”).The Bank does not propose to make any changes in the operations or management of the
Bank as a result of the Conversion except insofar as may be required from time to time to
comply with the requirements of state and federal law and the regulations of the Superintendent
or any other applicable regulatory agency promulgated thereunder. The Board of Directors of the
State Bank will be identical to the Board of Directors of the Bank, assuming that the Conversion
is approved by the shareholders, except that Director __________ has chosen not to stand for
election to the Board of the State Bank.
The Bank has filed an Application for Conversion (the “Application”) with the
Superintendent, which has been approved subject to shareholder approval. Approval of the
Application by the Superintendent does not constitute a recommendation for or endorsement of
the Conversion. As the State Bank, like the Bank, will be a member of the Federal Reserve
System, an application for membership in the Federal Reserve System has also been filed with
the FRB.
The Bank anticipates that the Conversion will become effective shortly after the Special
Meeting but not later than __________ __, _____.
Reason for the Conversion
The Board of Directors of the Bank has determined that as a __________ licensed bank which is
a member of the Federal Reserve System (“state member bank”), the State Bank would have
greater flexibility with respect to corporate and banking matters, including, but not limited to,
branching, operation of a courier service, expansionary procedures such as mergers and
acquisitions, and general corporate governance. See Description of State Bank Capital Stock and
Comparison of Rights of Holders of State Bank Common Stock and Bank Common Stock.”
Additionally, the Board of Directors has determined that the Conversion would result in a cost
savings to the Bank as yearly assessments and fees imposed by the Office of the Comptroller of
the Currency (“0CC”), the Bank’s primary regulator, have been consistently higher than those
imposed by the Superintendent. For example, while the OCC’s annual assessment of the Bank
over the past 12 months totaled $__________, as a __________ state licensed bank, such
assessment would have been $__________. Also, while the 0CC charges $__________ per hour
for a trust examination, the Superintendent charges $__________ per day.
Accordingly, the Board of Directors deems it to be in the best interests and to the advantage of
the Bank and its shareholders to convert from a national banking association to a state member
bank.
Aspects of the Conversion
The Plan of Conversion and Exchange of Shares
A copy of the Plan of Conversion appears as Appendix A to this Proxy Statement. The Plan of
Conversion provides that the State Bank will be the legal successor to the Bank for purposes of
creditor obligations. The Plan of Conversion sets forth a mechanism by which the outstanding
shares of Bank Common Stock will be exchanged on a one-for-one basis for shares of common
stock of the State Bank, so that the existing shareholders of the Bank thereafter will be
shareholders of the State Bank.The Plan of Conversion was submitted to and approved by the Board of Directors of the Bank
and must be approved by __________ of the outstanding shares of Bank Common Stock as a
condition of the approval of the Conversion by the Superintendent. The approval of the
shareholders of this PROPOSAL NO. 1 will constitute the approval of the Plan of Conversion.
Articles and Bylaws of the State Bank
Upon conversion to the State Bank, the State Bank will be governed by new Articles of
Incorporation and Bylaws, copies of which may be obtained on request of the Bank. The Bank
has submitted its proposed Articles of Incorporation and Bylaws to the Superintendent for
comment and approval as a part of the Application. The Superintendent may request changes to
the proposed Articles of Incorporation or Bylaws. Shareholder approval of this PROPOSAL
NO. 1 will constitute approval of the State Bank’s Articles of Incorporation, a copy of which is
attached as Exhibit A to the Plan of Conversion, and, to the extent that changes requested by the
Superintendent are not material, approval of this PROPOSAL NO. 1 will be deemed to
constitute approval of such requested changes.
Dissenters’ Right of Appraisal
Shareholders of the Bank who dissent from the Conversion may obtain the rights and remedies
of dissenting shareholders by following the procedures set forth in Title 12 United States Code
'214a(b), set forth in full in Appendix B, hereto.
IMPORTANT DETAILS CONCERNING THESE PROCEDURES ARE SET FORTH
BELOW; FAILURE TO TAKE THESE ACTIONS TIMELY AND PROPERLY WILL
RESULT IN THE LOSS OF DISSENTERS RIGHTS OF APPRAISAL.
To obtain the rights of a dissenting shareholder, a shareholder must either (a) vote against
the Conversion or (b) give notice of his or her dissent in writing to the Bank at or prior to
the Special Meeting. Once a shareholder has taken the foregoing steps, his or her dissenter’s
rights will be perfected and such shareholder will be entitled to receive the cash value of his or
her shares of the Bank Common Stock by following the procedures set forth below.
Immediately upon the effectiveness of the Conversion, the State Bank will forward to each
shareholder who has perfected dissenter’s rights a notice stating that the Conversion has been
consummated. A form requesting a cash payment for shares of the Bank’s Common Stock (the
“Cash Payment Request”) will accompany the notice and must be signed by the shareholder and
promptly returned to the State Bank in order to receive such cash payment.
Dissenting shareholders must return the Cash Payment Request form to the State
Bank within thirty (30) days of the consummation of the Conversion in order to receive the
cash value of their shares.
The value of the dissenting shareholders’ shares of Bank Common Stock will be determined as
of __________ __, _____, the date of the Special Meeting, and the valuation will be made by a
committee of __________ (___) persons, one of whom is elected by the dissenting shareholders,
one of whom is elected by the State Bank and the third of whom is appointed by the other two.
Should a dissenting shareholder object to this valuation, he or she may appeal to the 0CC for a
reappraisal within __________ (___) days of notification of the valuation. Such reappraisal by
the 0CC will be final and binding upon the dissenting shareholder. The expenses of any such
reappraisal will be paid by the State Bank.
The receipt of a cash payment for dissenting shares will result in recognition of gain or loss for
federal income tax purposes by such dissenting shareholders. See “Tax Consequences”, herein.
The foregoing purports only to summarize a complex area of law and shareholders
considering exercising dissenters’ rights should read in full Appendix B hereto and should
consult their own legal and tax advisors.
Description of State Bank Capital Stock and Comparison of Rights of Holders of
State Bank Common Stock and Bank Common Stock
Description of State Bank Capital Stock
The State Bank will be authorized by its Articles of Incorporation to issue __________
(__________) shares of common stock, no par value (the “State Bank Common Stock”). The
Bank currently is authorized to issue __________ (__________) shares of Common Stock. The
Board of Directors has determined that it is in the best interests of the Bank to increase the
number of shares of common stock that the State Bank will be authorized to issue. The Board of
Directors of the Bank/State Bank has no present intention to issue additional shares of common
stock. As of __________ __, _____, there were __________ shares of Bank Common Stock
issued and outstanding. Also, at __________ __, _____, there were __________ shares subject
to outstanding options under the Bank’s Stock Option Plan and __________ shares subject to
outstanding options granted under the Bank’s Directors’ Stock Option Plan, at a exercise prices
ranging from $__________ to $__________ per share. An additional __________ and
__________ shares of Bank Common Stock have been reserved for future grants of options
under the Bank’s Stock Option Plan and Directors’ Stock Option Plan, respectively, and will be
so reserved under State Bank’s successor stock option plans.
The State Bank, like the Bank, will not be authorized to issue shares of preferred stock.
State Bank Common Stock
Each holder of State Bank common stock will be entitled to one vote for each share held on all
matters to be voted on by shareholders. In any election of directors, each shareholder will have
the right to cumulate votes, giving one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of shares held by the shareholder, or distributing
such number of votes among as many candidates as the shareholder sees fit. Shareholders will
have no preemptive rights or other rights to subscribe for additional shares. There will be no
conversion rights, redemption rights or sinking fund provisions with respect to shares of State
Bank common stock. All of the shares offered in exchange for shares of Bank Common Stock
pursuant to the Conversion will, when issued, be fully paid and will not be subject to further calls
or assessments, except as set forth in “Accessibility of State Bank Common Stock,” below.
1. The difference in the par value of the Bank and State Batik common stock is immaterial to the
rights of Batik shareholders.
Subject to the preferential rights, if any, of the holders of outstanding senior securities, the
holders of Common Stock are entitled to receive dividends when and as declared by State Bank’s
Board of Directors out of funds legally available therefor, subject to the restrictions set forth in
the __________ Corporations Code (the “Corporations Code”). For a description the provisions
of the Corporations Code and other restrictions with respect to the payment of dividends, see
“Comparison of Rights of Shareholders “Dividends,” herein.
Subject to the preferential rights, if any, of the holders of outstanding senior securities, if State
Bank were to liquidate, dissolve or wind up, the holders of State Bank common stock would be
entitled to receive pro rata the net assets of State Bank remaining after the payment of all of its
creditors.
Accessibility of State Bank Common Stock
Shares of State Bank common stock when issued will be non-assessable, except as provided in
Section 662 of the __________ Financial Code. Whenever it appears that the contributed capital
of a bank is impaired, Section 662 requires the Superintendent to order the bank to correct the
impairment within __________ (___) days. The contributed capital of a bank (total shareholders’
equity other than retained earnings) is considered impaired if the bank has deficit-retained
earnings in an amount exceeding ___% of contributed capital. Unless the impairment is
corrected, the directors of the bank must levy and collect an assessment on the outstanding shares
of stock of the bank. If the assessment is not paid, the shares may be sold or forfeited to satisfy
the assessment. Shareholders have no other personal liability for the assessment.
Comparison of Rights of Shareholders
The rights of the shareholders of Bank are governed by the terms of the National Bank Act and
regulations promulgated by the 0CC. Shareholders of State Bank, which is a __________
corporation, will have the rights set forth in the Corporations Code and the __________
Financial Code. Accordingly, the rights of Bank shareholders who receive State Bank common
stock in the Conversion will thereafter be governed by __________ law. Some of the significant
differences in the laws governing __________ corporations and national banks are discussed
below.
The following also summarizes certain terms of the Articles of Association and Bylaws of Bank
and the Articles of Incorporation and Bylaws of State Bank, and is in all respects qualified by the
provisions thereof. Similarly, the discussions herein of the provisions of the National Bank Act
and the Corporations Code are qualified in their entirety by the terms and provisions thereof and
should be read in conjunction therewith.Indemnification
The Bank’s Articles of Association permit the Bank to indemnify and reimburse any person for
reasonable expenses actually incurred in connection with any civil or criminal action, suit or
proceeding to which he or she is made a party by reason of being or having been an officer,
director or employee of the Bank. However, indemnification or reimbursement is not permitted
with respect to any action, suit or proceeding as to which the officer, director or employee is
ultimately found guilty of or liable for gross negligence, willful misconduct or criminal acts in
the performance of duties to the Bank. In addition, court approval is required, or alternatively the
affirmative vote of a majority of the shareholders or disinterested directors is required, for
payments made in respect of a settlement of such an action or proceeding. The Bank’s Articles of
Association specifically provide that the right of indemnification or reimbursement provided for
therein is not exclusive of any other rights, which may be provided by law.
State Bank’s Articles of Incorporation include a provision under __________ law authorizing
indemnification of its agents2 / in excess of the indemnification provided under __________ law
generally. State Bank’s Articles of Incorporation also limit the personal liability of directors for
monetary damages to State Bank or its shareholders to the fullest extent permitted by law,
including damages resulting from a breach of fiduciary duty, except in certain instances. These
provisions generally provide a broad ability to indemnify persons acting on State Bank’s behalf,
as well as protection for directors’ action taken in good faith.
Under Section 317 of the Corporations Code, a __________ corporation may adopt a provision
in its articles of incorporation eliminating the liability of a director to the corporation or its
shareholders for monetary damages from breach of the directors’ fiduciary duty of care. Such a
provision may not, under __________ law, eliminate or limit the liability of directors stemming
from acts of bad faith or an abdication of duty. Specifically, under __________ law, the articles
cannot limit or eliminate the liability of a director resulting from the following:
(i) acts or omissions that involve intentional misconduct or a knowing and culpable violation of
law;
(ii) acts or omissions that a director believes to be contrary to the best interests of the
corporation or its shareholders or that involve the absence of good faith on the part of the
director;
(iii) transactions from which a director derived an improper personal benefit;
(iv) acts or omissions that show a reckless disregard for the director’s duty to the corporation or
its shareholders in circumstances in which the director was aware, or should have been aware, in
the ordinary course of performing a director’s duties, of a risk of serious injury to the corporation
or its shareholders;
(v) acts or omissions that constitute an unexcused pattern of inattention that amounts to an
abdication of the director’s duty to the corporation or its shareholders;
(vi) acts which violate the provisions of Corporations Code Section 310 governing
transactions or contracts with or by the corporation in which a director has a material financial
interest; or
(vii)acts which violate the provisions under Corporations Code Section 316 governing
distributions to shareholders contrary to rules regulating such distributions and for the making of
prohibited loans or guarantees.
2/ “Agent” is defined in Section 317 of the __________ Corporations Code to
include, among others, any person who is or was a director, officer, employee or other agent of
the corporation.
The elimination of a director’s monetary liability applies only to claims against a director arisi ng
out of his or her role as a director and not, in the case of a director who also serves as an officer,
to claims against the person in the capacity of an officer or in any other non-director capacity.
Similarly, the limitations permitted by Section 317 apply only to derivative actions and not to
third party claims. This means that actions brought by State Bank’s customers, discharged
employees or regulatory agencies, for example, are not affected by this provision of State Bank’s
Articles of Incorporation. Further, the Articles provision does not eliminate or limit a director’s
liability based on a breach of the director’s duty of loyalty to State Bank or its shareholders
(which generally concerns directors’ self-interested dealings) or to liability arising under federal
or state securities laws or federal or state laws regulating bank holding companies.
Section 317 of the Corporations Code also permits indemnification of “agents” of a corporation.
State Bank’s Articles of Incorporation authorize State Bank, through bylaw provisions,
agreements or otherwise, to indemnify its corporate agents to the maximum extent permitted
under __________ law. State Bank has included a provision in its Bylaws providing for such
indemnification. Pursuant to Section 317, State Bank’s Articles of Incorporation also authorize
broader indemnification of its agents than that which is expressly permitted by Section 317 for a
breach of duty by the agent to State Bank and its shareholders under certain circumstances and
subject to certain limitations set forth in the Code. Because the indemnification provisions of
Section 317 are nonexclusive, it is possible that certain claims beyond the specific scope of
Section 317 may be indemnifiable.
Under Section 317 of the Corporations Code and pursuant to State Bank’s Bylaws, State Bank
shall indemnify an agent who was or is threatened to be made a party in a third party action
against expenses, judgments, fines, settlements and other amounts actually and reasonably
incurred in connection with such action. With respect to derivative actions, State Bank shall
indemnify an agent who was or is a party or is threatened to be made a party to any threatened,
pending or completed action against expenses actually and reasonably incurred in connection
with the defense or settlement of such derivative action. However, any specific instance of
indemnification must be approved either by a majority of the disinterested directors, upon receipt
of a legal opinion if a quorum of directors is not available, a majority of the disinterested shares
voting at a meeting or upon application to the court in which the action was pending.
In order to qualify for indemnification, the agent must have acted in good faith and in a manner
the agent believed (or reasonably believed in the case of third party actions) to be in the best
interests of State Bank and its shareholders.
Under the Corporations Code, State Batik may not provide indemnification for any liability
arising out of acts, omissions or transactions set forth in the seven exceptions to elimination of
director liability summarized in (i) to (vii) in the discussion above. In addition, State Bank
cannot indemnify an agent in the following two sets of circumstances:
(i) Indemnification of expenses is prohibited where the agent is found to be liable to the
corporation, unless and only to the extent that such indemnification of expenses is expressly
allowed by the court. If the action is settled without court approval, neither the settlement
amount nor expenses incurred in defending the action can be recovered through indemnification;
and
(ii) Indemnification is prohibited (with certain exceptions) if such indemnification would be
inconsistent with a provision of State Bank’s Articles of Incorporation, Bylaws, shareholder
resolutions or an agreement which prohibits or otherwise limits indemnification or would be
inconsistent with any condition expressly imposed by a court in approving a settlement.
Further, the Board of Directors of State Bank may authorize State Bank to enter into
indemnification agreements with its agents. No such agreements presently exist.
Finally, under the Corporations Code, the State Bank may advance funds to cover the expenses
of defending an action or proceeding only upon receipt of an undertaking by or on behalf of the
agent to repay the amount advanced if it is ultimately determined that the agent is not entitled to
be indemnified as authorized by __________ law.
Removal of Directors
The National Bank Act contains no provision with respect to removal of Bank directors. Under
__________ law, a director may be removed from office for cause if he or she has been declared
of unsound mind by an order of court or has been convicted of a felony. A director of a
__________ corporation may be removed without cause upon the affirmative vote of a majority
of the outstanding shares of the corporation, except when the votes cast against removal or not
consenting in writing to the removal would be sufficient to elect the director if voted
cumulatively at an election at which the same total number of votes were cast. In other words,
the Corporations Code provides for certain protections against removal of directors who
represent minority shareholder interests.Supermajoritv Approval Requirements
The National Bank Act contains several provisions which require a __________ (___) vote of
the outstanding shares in order to authorize a particular activity or event. For example, a national
bank may only reduce or increase its capital upon the vote of __________ of the outstanding
shares of the bank, assuming that regulatory approval is obtained. Similarly, a national bank may
not merge with or into another financial institution without the approval of __________ of the
outstanding shares of such national bank. A national bank may elect to go into voluntary
liquidation and be closed only upon the vote of shareholders owning __________ of the
outstanding shares of the bank.
By contrast, the Corporations Code allows a corporation to increase its authorized capital stock
upon the vote of a majority of the outstanding shares of the corporation. Similarly, a __________
corporation may elect to voluntarily wind up and dissolve upon the vote of a majority of the
outstanding shares of the corporation. Under __________ law, a __________ corporation may
merge with another corporation upon the approval of a majority of the outstanding shares. In the
instance where after consummation of the merger the shareholders of a __________ corporation
would retain 5/6 of the voting power which such shareholders had prior to the merger, no
shareholder approval is required.
Stock Dividends and Stock Splits
Under the National Bank Act, an increase in capital through the payment of a stock dividend
requires the approval of __________ (___) of the outstanding shares, assuming that other
requirements are met. A stock split requires the approval of a majority of the bank’s shareholders
because of the reduction in par value which is effected thereby. By contrast under the
Corporations Code, a stock split may be approved by the __________ corporation’s board of
directors alone. Similarly, the distribution of a stock dividend under the Corporations Code does
not require the approval of the shareholders. Dividends
National banks are restricted from paying dividends until both a capital and earnings component
are met. With respect to capital, no dividend may be paid if it results in a withdrawal of capital.
In addition, a national bank may not pay a dividend if losses have been sustained which equal or
exceed the bank’s undivided profits then on hand. Similarly, cash dividends may not be paid in
an amount greater than the net profits then on hand, after deducting from net profits the losses
and bad debts of the bank. With respect to earnings requirements, no national bank may pay a
quarterly or semi-annual cash dividend as an initial matter until its surplus account equals its
common equity account, unless the bank carries to the surplus account an amount that is not less
than one-tenth of its profits for the preceding half year. In the case of annual dividends, the bank
may carry to surplus not less than one-tenth of its profits for the preceding year. 0CC approval is
required for cash dividends in an amount which exceeds the bank’s net profits of the current year
combined with its retained net profits for the preceding two years less any required transfers to
surplus.
A __________ chartered bank may not make a distribution to shareholders (which includes a
payment of dividends but not stock dividends) which exceeds the lesser of (a) the retained
earnings of the bank, or (b) the net income of the bank for its last three (3) fiscal years, less the
amount of any previous distributions during such period. With the approval of the
Superintendent, a __________ bank may make a distribution not exceeding its retained earnings,
its net income for the past fiscal year or its net income for the current fiscal year.Approval by Written Consent of Shareholders
The shareholders of a national bank are not permitted to consent in writing to actions which may
otherwise be taken at a meeting of shareholders. Except with respect to the election of a director
to a vacancy on the board of directors caused by the removal of a director, the Corporations Code
generally permits shareholders to consent in writing to any action which may be taken at an
annual or special meeting of shareholders, so long as the consent is signed by the holders of not
less than the minimum number of shares that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted, and so long as a
notice of the action so taken is given to any shareholders whose consents were not solicited or
received.
Dissenters’ Rights
Shareholders of a __________ chartered bank may be entitled to dissenters’ rights of appraisal in
the event that such bank is being sold to or merged with or into another bank or financial
institution, so that such bank is the “disappearing” bank. In such a case, shareholders of the bank
who do not vote in favor of a merger or other reorganization, either by voting against the merger
or other reorganization or by abstaining from voting, are entitled to certain rights under Chapter
13 of the Corporations Code.
If the transaction is consummated, those shareholders who elect to exercise their dissenters’
rights and who properly and timely perfect such rights are entitled to receive the “fair market
value” in cash of their shares in lieu of the amount of consideration which they would otherwise
receive pursuant to the transaction. Unlike a national bank, where the value of dissenting shares
is determined as of the date of shareholder approval, in the case of a __________ corporation,
the value of the dissenting shares is determined the day before the first announcement of the
terms of the transaction, excluding any appreciation or depreciation caused as a consequence of
the transaction.
Under __________ law, the parties to the transaction determine the fair market value of shares of
the respective corporation’s common stock. however, the determination by the respective
corporations of fair market value is not binding of their respective shareholders, and if a
dissenting shareholder chooses not to accept that offer, he or she has the right during a period of
___________ (___) months following the mailing of a Notice of Approval to commence a
lawsuit to have the fair market value determined by a court.
The Corporations Code also provides that no shareholder of a __________ corporation is entitled
to dissenters’ rights in certain transactions to which dissenters’ rights would apply, if the
corporation, or the shareholders of the corporation immediately before the transaction, shall own,
immediately after the transaction, equity securities possessing more than ____________ (___) of
the voting power of the surviving or acquiring corporation.
Moreover, with respect to a corporation, such as State Bank, whose stock will be listed on the
NASDAQ National Market System, no dissenters’ rights are applicable in any transaction unless
demands for payment are filed with the corporation, not later than the date of the shareholders
meeting, with respect to 5% or more of the outstanding shares, and such shares are voted against
the transaction.
Amendment of Articles
Under the National Bank Act, the Articles of Association of a national bank may be amended by
approval of shareholders owning a majority of the national bank’s common stock. However,
certain amendments, such as amendments increasing the national bank’s authorized, but unissued
common stock require the approval of shareholders owning __________ (___) of the outstanding
shares.
Under the Corporations Code, any amendment to the Articles of Incorporation of a __________
corporation may be made with the approval of a majority of the outstanding voting shares of the
corporation, unless the Articles require a greater vote. The Articles of Incorporation of State
Bank do not contain such a supermajority provision.
Tax Consequences
Exchange of Shares
The Bank believes that the Conversion will constitute a tax-free reorganization for federal
income tax purposes and that shareholders will recognize no gain or loss as a result thereof. The
federal income tax consequences of the Conversion are complex, and shareholders are urged to
consult their own tax advisors as to the precise federal, state, local or other tax consequences of
the Conversion.
Payments on Dissenters’ Shares
Where a shareholder of the Bank dissents to the Conversion and receives solely cash in exchange
for his or her shares, such cash will be treated as having been received by the shareholder as a
distribution in redemption of his or her shares subject to the provisions and limitations of Section
302 of the Internal Revenue Code of 1986, as amended (the “Code”). Generally, such
distribution will be treated as payment in exchange for stock as provided in Section 302(a) of the
Code if (a) the redemption is not essentially equivalent to a dividend; (b) the distribution is
substantially disproportionate to the shareholder; or (c) the redemption results in a complete
termination of the shareholder’s interest in the corporation. If the redemption is treated as an
exchange under any of the foregoing tests, and if the shares are held as a capital asset at the
effective time of the Conversion, such Bank shareholder will recognize capital gain or loss
measured by the difference between the amount of cash received and his or her adjusted basis in
the shares of Bank Common Stock surrendered. If, however, the distribution does not qualify as
an exchange under Section 302 of the Code, a dissenting shareholder will be treated as having
received a dividend to the extent of the lesser of the cash received or said shareholder’s ratable
share of the amount of the Bank’s earnings and profits (both current and accumulated). Such a
dividend will be treated as ordinary income.
In determining whether the foregoing tests for exchange treatment are met, the constructive
ownership rules of Section 318 of the Code apply. Generally, under Section 318 of the Code: (a)
a dissenting shareholder may be considered to own stock that is owned by such shareholder’s
spouse, children, grandchildren and parents; (b) a shareholder will be treated as owning stock
owned, directly or indirectly, by or for a trust of which such shareholder is a beneficiary in
proportion to the actuarial interest of such shareholder in such trust; (c) a shareholder is
considered as owning stock owned, directly or indirectly, by a partnership in which the
shareholder is a partner; (d) a shareholder which owns __% or more of a corporation is treated as
owning a proportionate amount of any stock held by the corporation; and (e) a shareholder is
considered to own shares underlying any option to purchase stock. In some cases, stock
constructively owned by a shareholder under the foregoing rules is considered as actually owned
by the shareholder for purposes of again applying the constructive ownership rules.
Under current law, as amended by the Revenue Reconciliation Act of _____, individuals are
subject to a maximum federal income tax rate on long-term capital gains of ___% and ordinary
income is taxed at a maximum rate of ____%. Generally, corporations are subject to a maximum
___% rate on all income (whether ordinary income or capital gain).
The Board of Directors recommends a vote FOR the Conversion. The Conversion must be
approved by the affirmative vote of at least __________ of the outstanding shares of the Bank’s
Common Stock.FINANCIAL INFORMATION
The following documents are incorporated herein by reference and copies of which are being
provided to shareholders together with this Proxy Statement:
1. Appendix C, the Bank’s Annual Report to Shareholders for the fiscal year ended
__________ __, _____; and
2. Appendix D, the Bank’s Quarterly Report on Form 10-0 for the fiscal quarter ended __________ __, _____.OTHER MATTERS
The Board of Directors knows of no other matters which will be brought before the Special
Meeting but if such matters are properly presented to the Special Meeting, Proxies solicited
hereby will be voted in accordance with the best judgment of the persons holding such Proxies.
All shares represented by duly executed Proxies will be voted at the Special Meeting.
PLAN OF CONVERSION
1. & __________ (the “bank”) shall convert into a __________ state commercial bank with a
trust department (the “State Bank”). This conversion of the Bank into a State Bank is subject to
the approval of the shareholders of the Bank, the __________ Superintendent of Banks (the
“Superintendent”) and the Board of Governors of the Federal Reserve System. Upon conversion,
the State Bank will be the legal successor of the Bank for purposes of creditor obligations.
2. Following conversion, the State Bank will be known as __________ & __________.
3. Upon conversion, the State Bank will be governed by new Articles of Incorporation, a copy
of which is attached hereto as Exhibit A and incorporated herein by reference. 4. At the time the conversion of the Bank into the State Bank becomes effective, the
issued and outstanding shares of the Bank’s common stock shall be converted on a one-to-one
basis for shares of State Bank common stock. Upon this exchange, the existing shareholders of
the Bank’s common stock will become shareholders of the State Bank’s common stock .
5. The conversion of the Bank to a state-licensed bank known as __________ & __________
Company, shall become effective when the Superintendent issues to the State Bank a certificate
of authority authorizing it to engage in commercial banking and trust business.
6. Any shares not taken by dissenting shareholders of the Bank shall be deemed to be securities
of the State Bank, and no new certificates shall be issued.
Ch. 2 CONVERSION INTO STATE BANKS (b) Rights at dissenting stockholders
A shareholder of a national banking association who votes against the conversion, merger.
or consolidation, or who has given notice in writing to the bank at or prior to such meeting that
he dissents from the plan. Shall be entitled to receive in cash the value of the shares held by him,
if and when the conversion, merger, or consolidation is consummated, upon written request made
to the resulting State bank at any time before thirty days after the date of consummation of such
conversation, merger, or consolidation, accompanied by the surrender of his stock certificates.
The value of such shares shall be determined as of the date on which the shareholders’ meeting
was held authorizing the conversion, merger, or consolidation, by a committee of three persons,
one to be selected by majority vote of the dissenting shareholders entitled to receive the value of
their shares, one by the directors of the resulting State bank, and the third by the two so chosen.
The valuation agreed upon by any two of three appraisers thus chosen shall govern: but, if the
value so fixed shall not be satisfactory to any dissenting shareholder who has requested payment
as provided herein, such shareholder may within five days after being notified of the appraised
value of his shares appeal to the Comptroller of the Currency, who shall cause a reappraisal to be
made, which shall be final and binding as to the value of the shares of the appellant. If, within
ninety days from the date of consummation of the conversion, merger, or consolidation, for any
reason one or more of the appraisers is not selected as herein provided, or the appraisers fail to
determine the value or such shares, the Comptroller shall upon written request of any interested
party, cause an appraisal to be made, which shall be final and binding on all parties. The
expenses of the Comptroller in making the reappraisal, or the appraisal as the case may be, shall
be paid by the resulting State bank. The plan of conversion, merger, or consolidation shall
provide the manner of disposing of the shares of the resulting State bank not taken by the
dissenting shareholders of the national banking association.
(Aug. 17. 1950. c. 729. ' 2. 64 Stat. 455: June ii. 1960. Pub.L. 86-507. 1(10), 74 Stat. 200: Mar.
31, 1980. Pub.L. 96C221. Title VII. ' 706, 94 Stat.188.)
HISTORICAL AND STATUTORY NOTES
Revision Noes and Legislative Reports 1960 Act. Senate Report
1950 Act. Senate Report No. 1104, 1960 U.S. Code Cong. and Adm.
see 1950 U.S. Code Cong. and Adm.News. News. p. 2356. 3012.
