Zions Bancorporation has filed a
registration statement (Registration Statement No. 333-132868, including a
prospectus) with the SEC for the offering to which this communication relates.
Before you invest, you should read the prospectus dated March 31, 2006 contained
in that registration statement, the preliminary prospectus supplement dated
April 10, 2008 and other documents Zions Bancorporation has filed with the SEC
for more complete information about Zions Bancorporation and this offering. You
may get these documents for free by visiting EDGAR on the SEC Web site at www.sec.gov.
Alternatively, Zions Bancorporation or a representative will arrange to send you
the prospectus and other documents Zions Bancorporation has filed with the SEC
if you request it by calling toll free 1-800-524-8875. You may also get these
documents at www.esoars.com.
Zions Bancorporation has caused
the following to be posted on the website www.auctions.zionsdirect.com,
on which website will be conducted a public auction for the registered offering
of the Issuers' Employee Stock Option Appreciation Rights Securities, Series
2008.
ESOARS™
Overview
|
ESOARS™
(Employee Stock Option Appreciation Rights Securities) provide a
market-based alternative to employee stock option valuation for FAS 123R.
ESOARS are tracking instruments that measure the cost of the underlying
option grant by making payments to holders when employees exercise their
options. A fair market value of ESOARS, and consequently the option grant,
is determined in a competitive online auction.
The
Securities and Exchange Commission staff has reviewed our ESOARS
instrument and concurs that it can be used for employee stock option grant
valuation. See Complete SEC Notification.
ESOARS
SECURITIES
ESOARS
are tracking securities. They track the value of an employee stock option
grant by making payments to holders when employees exercise options in the
reference pool of granted options. It is important to note that ESOARS are
not stock options. ESOARS holders do not have a right to exercise any
options but rather receive payment when employees exercise.
ESOARS
are fully registered and are most easily issued from a universal shelf
registration. The shelf must contain language allowing the issuance of
ESOARS. Shelf registrations that are already effective can be amended.
There are no restrictions on after-market trading or hedging of ESOARS.
The securities are deposited with Depository Trust Corporation (DTC) and
all clearing takes place using well-established mechanisms. The Zions Bank
Corporate Trust Department can serve as issuing and paying
agent.
ONLINE
AUCTION
A
fair-market value of ESOARS is determined in an online auction. The
auction is open to all suitable investors. Institutions and sophisticated
individual investors are the primary bidders. The auction is held on or
near the option grant date. The auction platform was developed by Grant
Street Group, a well-established provider of online securities auctions.
The auction is a modified Dutch auction similar to that used by the U.S.
Treasury. All winning bidders pay the market-clearing price. Unlike
Treasury auctions, which use sealed bids, bidders in ESOARS see the
market-clearing price and know whether they are currently in a winning
position.
ESOARS
auctions have a two-minute rule that extends the auction period by two
minutes from the time a bid is submitted that changes the market-clearing
price, beginning during the final two minutes of the auction and extending
until two minutes have elapsed with no change in price.
FAS
123R
FAS
123R governs the accounting for employee stock options. The pronouncement
favors the use of a market price for valuation of employee stock options.
Paragraph 23 reads, in part, "The fair value of an equity share option or
similar instrument shall be measured based on the observable market price
of an option with the same or similar terms and conditions, if one is
available."
PRE-VESTING
FORFEITURES
FAS
123R requires that reported compensation expense not exclude employee
stock options that do not vest. In order for the valuation of ESOARS to
reflect only options that vest, payments to holders of ESOARS are adjusted
so that payments reflect the value that would have been paid had all of
the options vested (assuming the same exercise pattern as vested options).
If all options are forfeited prior to vesting, the proceeds of the ESOARS
issuance are refunded, with interest.
ROLE
OF ZIONS
Zions
will assist in all aspects of the issuance of ESOARS. We have prepared a
turnkey solution including language for a shelf registration, a prospectus
supplement template and other necessary legal documents and agreements. We
will assist with SEC filings. With the help of Grant Street Group, we have
customized and designed an auction platform. We have identified a set of
interested bidders. Zions Direct (FINRA/SIPC), a non-bank broker-dealer
subsidiary of Zions First National Bank, will act as auction
agent.
ESOARS
EXAMPLE
In
May 2007, Zions Bancorporation held an ESOARS auction. The auction was
held to derive a value for the Company's employee stock option grant. The
Company intends to use the valuation for FAS 123R purposes.
Zions
Bancorporation's Employee Stock Option Grant
On
May 4, 2007, Zions' board of directors approved an employee stock option
grant of 994,180 options. The strike price of $83.25 was set at the market
closing price on that day. The options have a seven-year life and vest
one-third each year over three years.
Auction
Timing
The
Zions ESOARS auction opened on May 4, the option grant date, and closed on
May 7, 2007.
Size
of ESOARS Issuance
Zions'
ESOARS issuance was sized to represent 10% of the value of its employee
stock option grant. 99,418 ESOARS units were sold in the auction and
holders are entitled to 10% of the net intrinsic value realized by
employees as they exercise their options ([price at exercise - strike
price of options] x number of options exercised), adjusted for pre-vesting
forfeitures.
Results
of Auction
43
bidders submitted a total of 874 bids. 235 of the bids were submitted
during the two-minute rule extension. There were 21 winning bidders with a
market-clearing price of $12.06 per ESOARS unit. Institutional investors
purchased 97% of the units.
In
future auctions we may reduce the time the auction is open and limit
two-minute rule extensions.
|
ESOARS
Structural Overview
Auction
Calendar
Current
Auctions of ESOARS™
|
Auction
Close Date
|
Issuer
|
Security
Type
|
Term
|
Market-Clearing
Price/Yield
|
|
|
4/25
12:00 PM ET
|
Zions
Bancorporation
|
ESOARS™
|
$
0.01
|
Auction
Upcoming
|
|
|
· ESOARS™
· 180,000
units to be issued
Auction
Rules | Prospectus | Issuer's Homepage
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Page
1 of 1
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Auction
Rules
General
Auction Rules:
|
1.
|
For
all products not purchased using the "Buy Today!" feature, a bidder that
submits a Winning Bid(s) is irrevocably obligated to purchase up to the
number of units for which that Bidder has bid at the Market-Clearing
Price. A Bid is not a Winning Bid until formally accepted by the Auction
Agent.
|
|
2.
|
For
products purchased using the "Buy Today!" feature, the registered user is
obligated to purchase up to the number of units for which that registered
user has submitted and confirmed at the pre-set price and
yield.
|
|
3.
|
The
Auction Agent is not responsible for technical difficulties that result in
loss of a Bidder's internet connection to the bidding site, slowness in
transmission of Bids through the internet or facsimile or other technical
problems.
|
|
4.
|
If
for any reason a Bidder is disconnected from the Auction bid submittal
page during an Auction after having submitted a Winning Bid, such Winning
Bid shall be valid and binding upon that Bidder, unless the Issuer or the
Auction Agent exercises its right in its sole and absolute discretion to
reject the Bid, as described in the Offering
Material.
|
|
5.
|
The
Auction Agent will not accept a Bid that generates an error message until
the error is corrected and that Bid is
resubmitted.
|
|
6.
|
By
participating in the Auction, each Bidder accepts, and agrees to abide by,
all terms and conditions specified in the Offering Material related to the
Auction in which the Bidder
participates.
|
|
7.
|
The
Auction Agent shall not be responsible for any defect or inaccuracy in the
Offering Material related to each Auction, as it appears on the Auction
web site.
|
|
8.
|
Only
a Bidder who is registered and qualified by the Auction Agent may submit
Bids. The Auction Agent reserves right to deny access to the Auction web
site to any Bidder, whether or not
registered.
|
|
9.
|
The
Bidder has the responsibility of protecting the Bidder's password. Neither
the Auction Agent nor the Auction Administrator shall be responsible for
protecting the confidentiality of a Bidder's
password.
|
|
10.
|
A
Bidder who submits a Bid by clicking the "Submit"' button must confirm
that Bid by reviewing the confirmation page and then clicking the "Submit"
button to confirm. In general, once a Bidder has submitted and confirmed a
Bid, the Bid will be binding and may not be rescinded or
revoked.
|
Product-Specific
Auction Rules:
ESOARS™
|
11.
|
The
purpose of ESOARS™ Auctions administered by Zions Direct is to establish a
market value for employee stock options. Each bidder certifies, upon
entering each ESOAR™ auction, that they are not bidding in conjunction
with any other registered bidder or bidders with the intent to manipulate
the final ESOARS™ market clearing
price.
|
Frequently Asked Questions
Auction
Basics
|
1.
|
Who
can participate in the auctions?
|
|
2.
|
How
do I register to bid on the
auctions?
|
|
3.
|
What
information do I need to provide in order to
register?
|
|
4.
|
How
and when do I pay for Financial Instruments/Securities won in the
auction?
|
|
5.
|
Will
the identity of winning bidders be made
public?
|
|
6.
|
How
do I find out about future
auctions?
|
|
7.
|
How
does the auction work?
|
|
8.
|
What
is a unit?
|
|
9.
|
Are
there minimum or maximum bid
quantities?
|
|
10.
|
Are
there minimum or maximum bid
prices/yields?
|
|
11.
|
How
do I place a bid?
|
|
12.
|
Can
I submit more than one bid?
|
|
13.
|
Can
I lower or retract my "In the Money"
bid?
|
|
14.
|
How
are the Financial Instruments/Securities
priced?
|
|
15.
|
How
are Units allocated?
|
|
16.
|
Is
my bid binding?
|
|
17.
|
Why
do I have to confirm my bid?
|
|
18.
|
How
will I know if I have won?
|
|
19.
|
What
is the two-minute rule?
|
|
20.
|
What
type of auction will be used?
|
|
21.
|
When
will the auctions be held?
|
|
22.
|
How
do you handle tie bids?
|
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23.
|
Why
do you reserve the right to reject
bids?
|
Product-Specific
FAQs
CDs
|
1.
|
How
do I bid for CDs?
|
|
2.
|
Are
auctioned CDs insured?
|
|
3.
|
What
is bidding on Yield?
|
|
4.
|
How
frequently will payments be made?
|
|
5.
|
What
is "Buy Today!" ?
|
|
6.
|
Why
would I use "Buy Today!" instead of bidding in the
auction?
|
|
7.
|
Does
my "Buy Today!" purchase affect my bid limit for the
auction?
|
|
8.
|
When
do I get my "Buy Today!" CDs?
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ESOARS™:
Basics
|
1.
|
What
are ESOARS™?
|
|
2.
|
Where
can I find more information about
ESOARS™?
|
ESOARS™:
Option-Granting Companies
|
3.
|
Why
issue ESOARS™?
|
|
4.
|
Which
companies might benefit from issuing
ESOARS™?
|
|
5.
|
What
does a company need to do to issue
ESOARS™?
|
|
6.
|
What
are the relevant accounting
pronouncements?
|
|
7.
|
What
has the Securities and Exchange Commission (SEC) said about using a market
price to value employee stock
options?
|
ESOARS™:
Investors / Bidders
|
8.
|
Who
can invest in ESOARS™?
|
|
9.
|
What
are some of the risks of investing in
ESOARS™?
|
|
10.
|
What
is the purpose of the ESOARS™ auction
market?
|
|
11.
|
Under
what conditions will I receive payments from
ESOARS™?
|
|
12.
|
What
happens when employee stock options are
forfeited?
|
|
13.
|
How
frequently will payments be made?
|
|
14.
|
Will
my ESOARS™ payments be in cash or shares of
stock?
|
|
15.
|
Will
my ESOARS™ appear on my brokerage account
statement?
|
|
16.
|
Can
I sell or transfer my ESOARS™ to another
investor?
|
|
17.
|
How
much should I bid for ESOARS™?
|
|
18.
|
What
information will be provided about previous option
grants?
|
|
19.
|
What
are the tax implications of investing in
ESOARS™?
|
|
20.
|
Will
purchasers receive physical ESOARS™
certificates?
|
|
21.
|
What
happens to ESOARS™ if the employee stock option grant is
modified?
|
Individuals
and institutions that register with the site and are approved by Zions Direct
will be able to participate in the specific Auction for which they have
completed the qualification requirements. Zions Direct may assign a maximum bid
amount to each bidder in order to ensure a broad participation in the offering.
If you do not currently have a Zions Direct account you may need to provide
additional information regarding your tax bracket, annual income, net worth,
liquid net worth/investable assets, and any other pertinent information that
Zions Direct may require. Institutional bidders may be required to submit
certain financial statements in order to establish bid limits.
Back to
Top
Registration
is accomplished by completing the online form found on the Registration page.
After completing the registration, Zions Direct will notify you regarding your
eligibility to bid and your maximum bid amount.
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Top
All
bidders must provide their name and contact information. Zions Direct account
holders must provide their Zions Direct account number. Winning bidders who do
not have a Zions Direct account must open a Zions Direct bidding
account.
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Top
Settlement
dates will be listed in the Offering Material. Institutions will pay Zions
Direct by delivery versus payment, as per the purchaser’s delivery instructions.
Zions Direct account holders may pay through their Zions Direct
account.
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Top
No.
Bidders will be issued a bidder identification number at registration that is
not based on their name or user ID. User names will not be made public
information, but after the close of the auction individuals will be able to see
their user ID upon logging in to view the results.
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Top
Future
auctions are posted on the Calendar.
Back to
Top
|
o
|
After
registration and approval by Zions Direct, bidders will log in to the
listed auction on the Calendar page during the scheduled auction
period.
|
|
o
|
Bidders
submit bids for a quantity of units at a specified price or yield,
depending on the auction. Refer to the Offering Materials for Auction
bidding details.
|
|
o
|
Submitting
a bid is a two step process. Bidders first click “Submit” on the bid page.
A confirmation page then appears. Bidders must hit "Submit" again to
confirm their bid before the system accepts the
bid.
|
|
o
|
The
auction web page will indicate whether a bid is “in the money.” “In the
money" means that if the auction ended with no additional bidding activity
by other bidders, the “in the money” units would be awarded to the bidder
at the market-clearing price.
|
|
o
|
Bidders
may need to manually refresh the auction page to see whether the status of
their bid(s) has changed. This process continues until the end of the
auction period, at which point Zions Direct will review the submitted bids
and announce the auction winners.
|
|
o
|
Winners
will be contacted by Zions Direct in a reasonable amount of time following
regarding payment and settlement of auction
winnings.
|
Back to
Top
A unit is
the term of measurement for each Financial Instrument/Security. When referencing
CDs, one unit is equal to one CD. Units may refer to CDs, bonds, shares or
ESOARS™.
Back to
Top
Refer to
the Offering Material on the specific auction for details. Minimum or maximum
bid quantities may be established for each auction. However, typically the
minimum bid quantity will be one unit. The maximum bid quantity may be limited
by the auction size of maximum bid amount approved for the bidder.
Back to
Top
See the
Offering Materials specific to the Financial Instruments/Securities you are
bidding on. There may be minimum or maximum bid prices or yields.
Back to
Top
Bids are
submitted through the bid page after logging into the scheduled auction from the
Calendar page. Bidders enter the quantity of units and the price or yield for
each bid they wish to submit. After submitting the bid, bidders will be required
to review their bid to ensure that it is correct. Only after confirming the bid
will it become official and binding. In any bid row, once you have submitted and
confirmed a bid, you may not decrease the number of units, decrease the price,
or increase the yield unless that bid row is “outbid” and the market clearing
price climbs above your bid price (or market clearing yield drops below your bid
yield) so that your bid is no longer “in the money.”
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Top
Yes, if
more than one bid row is allowed per the Offering Material for that specific
auction. If multiple bid rows are available, bidders may place separate,
concurrent bids, each independent of the other. Each bid may be made for
different numbers of units and for different bid prices or bid yields. A bidder
will not be able to place an individual bid that exceeds that bidder's maximum
bid amount. A bidder will also not be able to exceed his or her maximum bid
amount in multiple bid rows. A bidder who has, for example, three active bids
will be able to bid up to his or her maximum bid amount with the highest bid
price counted against the maximum bid amount first, followed by the next highest
bid, then the next highest bid. The bid of a bidder who has placed multiple bids
may be deemed to be "in the money" only to the extent that the aggregate value
of the multiple bids is less than or equal to that bidder's maximum bid amount,
starting from the highest bid and then descending.
Back to
Top
No.
Bidders may only improve submitted and confirmed bids. Bidders may improve a bid
by increasing the Price, decreasing the Yield (where applicable) or increasing
the quantity bid. Once submitted and confirmed, bids are binding and may not be
retracted. Once that bid row is “outbid” and the Market Clearing Price climbs
above the bid Price (or the Market Clearing Yield drops below the bid Yield) so
that a Bidder's bid is no longer “in the money”, the bidder may change the
Price, Yield or number of units. This process continues until the end of the
Auction Window. Once the Auction Window closes, the Auction Agent will review
the submitted bids and announce the Winning Bidders for the particular
Auction.
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Top
The
auctioned Financial Instruments/Securities are priced through a competitive,
open auction process. The price paid by all winning bidders will be the
“market-clearing price.” The market-clearing price, or “stop price,” will be the
highest price at which all of the units offered in the auction are sold. Zions
Direct will move down the list of bids in descending order of price until the
total quantity of units bid for equals (or exceeds) the number of units being
offered.
For
example, assume that 100,000 CD units are being offered and that bidders have
bid as follows:
|
Bidder
|
CDs
Units Represented by Bid
|
Bid
Price
|
|
A
|
50,000
|
99
|
|
B
|
50,000
|
98
|
|
C
|
50,000
|
97
|
In this
example, 99 is not the market-clearing price because only 50,000 of the CD units
offered could be sold at that price. Furthermore, 97 is not the market-clearing
price because, although all of the CDs being offered are sold for prices over
97, this is not the highest price at which all of the CD units offered could be
sold. Instead, all of the CD units being offered in this example will be sold at
the higher price of 98. Therefore, 98 is the market-clearing price. The entire
issue of CD units will be sold at the market-clearing price. Even the CDs that
were bid for at 99, would have been sold for 98. In this auction, the winning
bidders would pay $980.00 for each CD, which have $1,000.00 par
value.
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Top
Units are
allocated first according to the price (yield) bid, then according to the
timestamp of the bid. Bids above the market-clearing price (or below the
market-clearing yield) will be allocated the entire quantity of “in the money”
units (as designated by the auction site and subject to the bidder’s maximum bid
amount). Bids at the market-clearing price will be allocated as follows: (1) if
only one bid is at the market-clearing price, that bid will be allocated the
quantity of units that clears the market; or (2) if multiple bids are at the
market-clearing price, units will be allocated according to timestamp, with the
earliest bids being filled first. For example, assume that 100,000 CD Units are
being offered, and that the following bidders have bid as follows:
|
Bidder
|
CD
Units Represented by Bid
|
Bid
Timestamp
|
Bid
Price
|
|
A
|
40,000
|
10:00
AM
|
102
|
|
B
|
40,000
|
9:00
AM
|
101
|
|
C
|
40,000
|
9:30
AM
|
101
|
In this
example, 101 is the market-clearing price because it is the highest price at
which all of the CD units offered could be sold. Bidder A is allocated all
40,000 CDs bid. This leaves 60,000 CD units to be allocated to the bidders that
bid at the market-clearing price. The remaining 60,000 CD units are allocated on
the basis of timestamp, first to Bidder B who had the earlier timestamp, and
then to Bidder C. In this example, Bidder B would receive all of the 40,000
units bid, and Bidder C would be allocated the remaining 20,000 CD
units.
In the
event that a single bidder bids at the market-clearing price but the available
quantity is less than that for which the bidder bid, the bidder will receive the
available quantity.
Back to
Top
Yes. Bids
submitted and confirmed by you are binding, unless your bid is below the
market-clearing price.
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Top
Confirmation
of your bid gives you an opportunity to verify that you have entered your bid
correctly. It will also compute the total dollar amount bid (price times
quantity).
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Top
Winning
bidders will be identified on the auction web site by their bidder IDs shortly
after the auction is finished. Winning bidders will also be notified by the
Auction Agent.
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Top
As
described in the Offering Material, if any bid received in the final two minutes
of an auction changes the market-clearing price, the auction will automatically
be extended for two minutes from the receipt of that bid. Please refer to the
Offering Material for maximum amount of time an auction may be extended, if
applicable
Back to
Top
The
auction used is frequently referred to as a modified Dutch auction. The auction
is modeled after that used by the U.S. Treasury with a few notable differences.
To aid in price discovery, auctions are open, meaning that bidders can enter
bids, determine if their bids are “in the money,” and make adjustments, if
desired. Treasury auctions are closed, or sealed bid. Also, the Treasury auction
allows noncompetitive bids (a buyer agrees to buy a quantity at whatever the
market clearing price turns out to be) while our Auctions do not.
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Top
See the
calendar or Offering Materials for specific dates and times of upcoming
auctions.
Back to
Top
See
question 15, above.
Back to
Top
Zions
Direct may reject a bid to preserve the validity of the auction process and the
price determined by it.
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Top
Product-Specific
FAQs
Each
investor must determine how much to bid. You may bid by entering a price or
yield. You may use one bid row or up to five bid rows. Price bids are entered as
dollars per $100. For example, a bid price of $97.75 represents a bidder's
willingness to pay $977.50 for the CD with a par value of $1,000.00. Yield bids
are entered as a percent. The yield bid calculates the price per CD, given the
CD's coupon, such that the annualized return to the investor equals the yield.
For example, a yield bid of 6.20% on a 9-month CD with a coupon of 5.25% gives a
price per CD of 99.3, or $993.00.
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Top
Your CDs
are insured by the FDIC, an independent agency of the U.S. Government, to a
maximum amount of $100,000 (including principal and interest) for all deposits
held in the same capacity per insured financial institution. Any accounts or
deposits that you may maintain directly with a particular insured financial
institution, or through any other intermediary in the same capacity in which the
CDs are maintained, would be aggregated with the CDs for purposes of the
$100,000 limit. In the event an insured financial institution fails, interest
bearing CDs are insured, up to the $100,000 limit, for principal and interest
accrued to the date the insured financial institution is closed. Zero Coupon CDs
are insured to the extent of the original offering price plus interest at the
rate quoted to the depositor on the original offering, accreted to the date of
the closing of the Bank. Interest is determined for insurance purposes in
accordance with federal law and regulations. The original offering price of a
Zero Coupon CD plus accreted interest is hereafter called the “Accreted
Value.”
Securities
Investor Protection Corporation protection is unavailable for CDs insured by the
FDIC.
Under
certain circumstances, if you become the owner of CDs or other deposits at an
insured financial institution because another depositor dies, beginning six
months after the death of the depositor the FDIC will aggregate those deposits
for purposes of the $100,000 limit with any other CDs or deposits that you own
in the same capacity at the insured financial institution. Examples of accounts
that may be subject to this FDIC policy include joint accounts, “payable on
death” accounts and certain trust accounts. The FDIC provides the six month
“grace period” to permit you to restructure your deposits to obtain the maximum
amount of deposit insurance for which you are eligible.
YOU ARE
RESPONSIBLE FOR MONITORING THE TOTAL AMOUNT OF DEPOSITS THAT YOU HOLD WITH ONE
INSURED FINANCIAL INSTITUTION IN ORDER FOR YOU TO DETERMINE THE EXTENT OF
DEPOSIT INSURANCE COVERAGE AVAILABLE TO YOU ON YOUR DEPOSITS, INCLUDING THE CDS.
THE AUCTION AGENT IS NOT RESPONSIBLE FOR ANY INSURED OR UNINSURED PORTION OF THE
CDS OR ANY OTHER DEPOSITS. IF YOU CHOOSE TO PURCHASE THE CDS OF ONE INSURED
FINANCIAL INSTITUTION IN EXCESS OF THE MAXIMUM APPLICABLE DEPOSIT INSURANCE
AMOUNT, YOU DO SO AT YOUR OWN RISK.
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In CD
auctions, Bidders have the option to bid for the Yield they would like to
receive on the CD. During an open auction, a bidder can bid on both Price and
Yield at the same time by utilizing the arrows under the bid Price to flip
between the two fields.
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Payments
will be made as described in the CDs' term sheet. CDs may pay monthly,
quarterly, semi-annually, or at maturity.
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Some
auctions may have a pre-set "Buy Today!" price and yield. This gives a
registered user the option to purchase CDs at that price and yield without
placing an "in-the-money" bid.
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"Buy
Today!" removes the uncertainty from the auction process. You are guaranteed the
units you want at the pre-set price and yield.
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Yes. Your
bid limit is reduced by the cost of the units you allocate to "Buy
Today!".
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"Buy
Today!" CDs are delivered on settlement date. Please refer to the auction term
sheet for the specific settlement date.
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ESOARS™
is an acronym for Employee Stock Option Appreciation Rights Securities. ESOARS™
are securities designed to help companies that grant employee stock options
establish a fair market value of their options. ESOARS™ are tracking securities,
meaning they track the value of a reference pool of employee stock options by
making payments to holders as options in the reference pool are exercised. Each
ESOARS™ unit entitles the holder to receive, over the term of the options in the
reference pool, the average of the net realized value, or intrinsic value,
realized upon the exercise of options in the reference pool that
vest.
For
example, suppose a company grants 1,000,000 new employee stock options (the
"reference pool") and issues 100,000 ESOARS™ units. Further suppose that 900,000
of the employee stock options vest and are exercised and receive on average $10
per option for a total of $9,000,000 of net realized value. The net realized
value is the amount by which the company's stock price at the time of exercise
exceeds the exercise price (also commonly referred to as the “strike price”) of
the options, multiplied by the number of options exercised. In this example, the
holder of each ESOARS™ unit would receive $10 over the life of the ESOARS™
($9,000,000 net realized value divided by 900,000 vested reference
options).
It is important
to note that ESOARS™ are not stock options. ESOARS™ holders do not have a
right to exercise any stock options. Instead, ESOARS™ holders receive payments
only if and when employees exercise their options and realize a gain. ESOARS™
holders will only receive payment if the company's stock price exceeds the
exercise price set for the reference pool and the employees choose to exercise
their options.
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Additional
questions can be directed to auctions@zionsdirect.com, or call (800) 554-1688
and speak to a Representative.
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ESOARS™
are designed to be used for employee stock option valuation for FAS 123R
purposes by establishing an open and competitive market where self-interested
bidders aid in price discovery of the value of these complex instruments.
ESOARS™ are an alternative to existing model-based approaches, some of which may
not sufficiently account for the differences between employee stock options and
the traded options for which valuation models were originally
designed.
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Any
public company that issues employee stock options can potentially benefit from
issuing ESOARS™. The best ESOARS™ candidates are companies with an effective
WKSI (well-known seasoned issuer) or universal shelf registration statement or
the ability to file an automatic shelf registration statement.
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Zions can
assist with the entire ESOARS™ issuance process, including post-auction payments
and reporting to holders. The issuance of ESOARS™ requires the disclosure of
certain information about your company and its past option grants. ESOARS™ will
be offered by prospectus or prospectus supplement. Certain modifications to your
shelf registration statement may be necessary.
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FAS 123R
governs the accounting for employee stock options. The pronouncement indicates a
preference for the use of a market–based valuation of employee stock options.
Paragraph 22 reads, in part, "The fair value of an equity share option or
similar instrument shall be measured based on the observable market price of an
option with the same or similar terms and conditions, if one is
available."
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In
September 2005, SEC Chairman Christopher Cox along with the Chief Accountant and
the Office of Economic Analysis issued statements encouraging the development of
market-based valuation methods for employee stock options. See Chairman Cox's
announcement, an analysis by the Office of Economic Analysis, and comments by
the Chief Accountant.
In
September 2006, Zions submitted to the Office of the Chief Accountant (OCA) of
the SEC a request for their consideration of ESOARS™ as a valid method for
employee stock option grant valuation. See Zions' Submission.
On
January 25, 2007, the Office of the Chief Accountant responded to our submission
and concurred with our view that ESOARS™ are sufficiently designed to use for
FAS 123R purposes. See OCA Response.
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Individuals
and institutions that complete the Prospective Bidder Registration form will be
able to participate in ESOARS™ auctions. Zions Direct will assign each bidder an
initial bid limit; details of the limit can be found in the prospectus
supplement. If you would like to increase your bid limit, you can call the Zions
Direct Investment Center at (800) 524-8875 or contact Zions Direct by e-mail at
auctions@zionsdirect.com. If you do not currently have a Zions Direct account
you may need to provide information regarding your tax bracket, annual income,
net worth, liquid net worth/investable assets, and any other pertinent
information that Zions Direct may require. Institutional bidders may be required
to submit certain financial statements in order to establish bid
limits.
Individuals
do not need to be accredited investors. However, this investment is not
appropriate for every individual as it may require complex valuation models and
entails unusual risks.
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9.
|
How do I find out about future
auctions?
|
Future
ESOARS™ auctions are posted on the calendar found on the ESOARS™ internet
homepage.
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There is
a high degree of risk in investing in ESOARS™. There is no guarantee that
ESOARS™ holders will receive any payment or return of capital invested. ESOARS™
may lose some or all of their value. There may not be an active secondary market
for ESOARS™; therefore, holders may not be able to find a buyer for their
securities or may have to sell them at a loss. The amount and timing of
payments, if any, to ESOARS™ holders is uncertain and will be affected by
numerous variables including, but not limited to, underlying stock price
movements, the amounts and timing of employee option exercises and employee
terminations. A modification of the terms of the underlying employee stock
options (as defined in FAS 123R) may result in the termination of the ESOARS™,
resulting in the ESOARS™ holders receiving a payment based upon an independent
valuation of the ESOARS™.
Investment
in ESOARS™ may not be appropriate for all investors. ESOARS™ are unusual and
complex securities that may require sophisticated pricing models and/or
investment strategies.
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ESOARS™
are issued in order to obtain a market valuation of employee stock options. FAS
123R requires companies to expense employee stock options. Currently, companies
use models such as the Black-Scholes-Merton option-pricing formula or the
binomial (lattice) method to determine the value of employee stock options.
However, these approaches are typically used to value exchange-traded options,
which have significant differences from employee stock options. Zions believes
that a market-based valuation can be used to measure the cost of the options.
The Financial Accounting Standards Board and the Securities and Exchange
Commission have both indicated that such an approach is acceptable for valuing
grants of employee stock options.
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ESOARS™
holders will only receive payments under three circumstances: (1) if the
company's stock price exceeds the exercise price for the options in the
reference pool and the employees choose to exercise their employee stock
options, (2) in the event that all of the employee stock options in the
reference pool are forfeited prior to vesting, as described below in question
10, and (3) if the options in the reference pool are modified and the valuation
agent determines that the options have a positive value, as described in
question 7.
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Payments
to ESOARS™ holders include adjustments intended to eliminate the effect of any
forfeiture of options in the reference pool. Details of the method of
calculating payments can be found in the prospectus supplement. If, upon
completion of the first annual vesting period, all of the options in the
reference pool have been forfeited prior to vesting, holders will receive a
payment equal to the initial offering price for the ESOARS™, plus interest, and
the ESOARS™ will thereafter be canceled. The rate of interest will be disclosed
in the offering documents. ESOARS™ holders will not receive any payment for
employee stock options in the reference pool that are canceled after they have
vested, including any that are unexercised at expiration of the
options.
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14.
|
How frequently will payments be
made?
|
Payments
will be made following each calendar quarter end if employee stock options in
the reference pool have been exercised during that quarter. It is currently
anticipated that payments will be made within 15 days of the end of the
applicable calendar quarter. The final payment will be made within 15 days of
the expiration of the employee stock options, after which no additional payments
will be made. If, upon completion of the first annual vesting period, all of the
options in the reference pool have been forfeited prior to vesting, the
associated payment to holders, as described in question 10 above, will be made
within 15 days of the end of the quarter in which all of the options are
forfeited.
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Payments
to ESOARS™ holders may be in cash, shares of stock or both, depending on the
terms and conditions set forth in the ESOARS™ prospectus or prospectus
supplement.
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Winning
bidders will be required to give delivery instructions or their Zions Direct
account number. It is anticipated that ESOARS™ will be included on holders'
brokerage account statements.
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There are
no restrictions on the transfer or sale of ESOARS™. However, ESOARS™ will not be
listed on an exchange and there may not be an active secondary market for
ESOARS™.
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Each
investor must determine how much to bid. The purpose of the ESOARS™ auction is
to determine how much the market will pay for the ESOARS™, leading to a
market-based valuation of the underlying employee stock options. Among the
factors that will likely influence pricing are expectations about a company's
future stock price and expectations about employee termination and option
exercise patterns.
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To
facilitate analysis of options exercise patterns, summarized information for
past option grants will be included in the applicable registration statement,
prospectus, prospectus supplement or other offering material. This information
may include information on each grant, a year-by-year summary of options
exercised, average exercise price, and intrinsic value realized, as well as a
graph showing cumulative percentage of options exercised over time.
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The
applicable registration statement, prospectus, prospectus supplement or other
offering material may contain information on the potential tax treatment of
ESOARS™. Those considering an investment in ESOARS™ should contact their
independent tax advisor.
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No.
ESOARS™ will be held in book-entry form (electronic rather than paper) at the
Depository Trust Company (DTC).
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Under FAS
123R, paragraph 51, a modification of employee stock options, such as resetting
the strike price, is considered a cancellation of the original option and a new
option issuance. ESOARS™ holders will receive a payment based on an independent
valuation of the ESOARS™ at the time of modification.
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Forward-Looking
Statements
In
addition to historical information, this free writing prospectus contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include
statements regarding the timing and benefits of the proposed auction. Such
statements encompass Zions Bancorporation’s beliefs, expectations, hopes or
intentions regarding future events. Words such as “expects,” “intends,”
“believes,” “anticipates,” “should,” “likely” and similar expressions identify
forward-looking statements. All forward-looking statements included in this
communication are made as of the date hereof and are based on information
available to Zions Bancorporation as of such date. Zions Bancorporation assumes
no obligation to update any forward-looking statement. Risk factors, cautionary
statements and other conditions which could cause actual results to differ from
management’s current expectations are contained in Zions Bancorporation’s
filings with the SEC, including the section of Zions Bancorporation’s
preliminary prospectus supplement dated April 10, 2008, entitled “Risk
Factors.”