<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1996
REGISTRATION NO. 333-03174
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CAPITAL CORP OF THE WEST
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
CALIFORNIA 6022 77-0405791
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
1160 WEST OLIVE AVENUE, SUITE A, MERCED, CALIFORNIA 95348 (209) 725-2200
(Address, including ZIP code, and telephone number,
including area code, of registrant's principal executive offices)
THOMAS T. HAWKER
CAPITAL CORP OF THE WEST
1160 WEST OLIVE AVENUE, SUITE A
MERCED, CALIFORNIA 95348
(209) 725-2200
(Name, address, including ZIP code, and telephone number,
including area code, of agent for service)
------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
Thomas G. Reddy Robert E. Triebsch
James M. Rockett Triebsch, Frampton, Dorius & Lima
McCutchen, Doyle, Brown & Enersen, LLP 300 North Palm Street
Three Embarcadero Center P.O. Box 709
San Francisco, California 94111 Turlock, California 95381
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: , 1996
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE (1) PRICE (1) FEE (2)
<S> <C> <C> <C> <C>
Common Stock, no par value.... 290,000 shares $14.38 $4,170,200 $1,438
</TABLE>
(1) In accordance with Rule 457(f)(1), the amount used to determine the proposed
maximum aggregate offering price and the registration fee has been based on
the last reported sale price of shares of Common Stock, no par value, of
Town and Country Finance and Thrift Company as of March 29, 1996.
(2) The registration fee has previously been paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 9(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
CAPITAL CORP OF THE WEST
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
HEADING IN FORM S-4 REGISTRATION
ITEM STATEMENT LOCATION IN PROSPECTUS
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<C> <S> <C>
1 Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus............................. Outside Front Cover
2 Inside Front and Outside Back Cover
Pages of Prospectus.................... Available Information; Information
Incorporated by Reference; Table of
Contents; Other Matters
3 Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.......... Summary
4 Terms of the Transaction................ Introduction; Summary; Proposal One: The
Merger; Description of Capital Corp
Capital Stock; Certain Differences in
Rights of Shareholders
5 Pro Forma Financial Information......... Summary; Unaudited Pro Forma Combined
Financial Information
6 Material Contacts with the Company Being
Acquired............................... Proposal One: The Merger
7 Additional Information Required for
Reoffering by Persons and Parties
Deemed To Be Underwriters.............. INAPPLICABLE
8 Interest of Named Experts and Counsel... INAPPLICABLE
9 Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................ Certain Differences in Rights of
Shareholders
10 Information with Respect to S-3
Registrants............................ INAPPLICABLE
11 Incorporation of Certain Information by
Reference.............................. INAPPLICABLE
12 Information with Respect to S-2 or S-3
Registrants............................ Available Information; Information
Incorporated by Reference; Summary;
Unaudited Pro Forma Combined Financial
Information; Town & Country Audited
Financial Statements
13 Incorporation of Documents by
Reference.............................. Information Incorporated by Reference
14 Information with Respect to Registrants
Other Than S-2 or S-3 Registrants...... INAPPLICABLE
15 Information with Respect to S-3
Companies.............................. INAPPLICABLE
16 Information with Respect to S-2 or S-3
Companies.............................. INAPPLICABLE
17 Information with Respect to Companies
Other Than S-2 or S-3 Companies........ Summary; Information about Town &
Country; Market Price and Dividend
Information; Town & Country
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Town & Country Audited
Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HEADING IN FORM S-4 REGISTRATION
ITEM STATEMENT LOCATION IN PROSPECTUS
- ---- ---------------------------------------- ----------------------------------------
<C> <S> <C>
18 Information if Proxies, Consents or
Authorization Are To Be Solicited...... Information Incorporated by Reference;
Summary; The Annual Meetings of
Shareholders of Capital Corp and of
Town & Country -- Voting and Proxies;
Capital Corp Proposal Two: Election of
Directors; Capital Corp Proposal Three;
Capital Corp Proposal Four; Capital
Corp Proposal Five; Capital Corp
Proposal Six; Town & Country Proposal
Two: Election of Directors
19 Information if Proxies, Consents or
Authorizations Are Not To Be Solicited
or in an Exchange Offer................ INAPPLICABLE
</TABLE>
<PAGE>
CAPITAL CORP OF THE WEST
1160 WEST OLIVE AVENUE
MERCED, CALIFORNIA 95348
MAY , 1996
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders of
Capital Corp of the West (the "Company") to consider and vote upon (1) a
proposal to approve and adopt an Agreement and Plan of Acquisition dated as of
March 22, 1996, between the Company and Town and Country Finance and Thrift
Company ("Town & Country") and the related Merger Agreement, pursuant to which
Town & Country would become a subsidiary of the Company (the "Merger"), (2) a
proposal to elect 11 directors; (3) a proposal to approve an amendment to the
Bylaws to eliminate cumulative voting; (4) a proposal to approve an amendment to
the Bylaws to classify the Board of Directors and change the authorized range of
directors; (5) a proposal to approve an amendment to the Articles of
Incorporation to eliminate action by the shareholders by written consent without
a meeting; (6) a proposal to approve an amendment to the Articles of
Incorporation to require a supermajority vote of shareholders to approve certain
business combinations; and (7) such other business as may properly come before
the meeting.
The meeting will take place at 7:00 p.m. local time on June 20, 1996 at the
Italo-American Lodge, West 18th and U Streets, Merced, California.
We are seeking your approval and adoption of this Merger, which has received
the approval and recommendation of your Board of Directors and the approval of
the Board of Directors of Town & Country, as well as your approval of the other
proposals described above. If the Merger is completed, each share of Town &
Country common stock will be converted in the right to receive a combination of
cash and shares of Capital Corp common stock with an aggregate value of $33.05.
Enclosed are the Secretary's Notice of this meeting, a Proxy, a Joint Proxy
Statement/Prospectus describing the Merger and the other proposals and a return
envelope. Also enclosed is a copy of the Company's 1995 annual report to
shareholders. This additional material is incorporated by reference in the Joint
Proxy Statement/Prospectus.
We encourage you to attend this meeting. Whether or not you are able to
attend, please complete, date, sign, and return promptly the enclosed Proxy so
that your shares will be represented at the meeting. I look forward to seeing
you on June 20, 1996.
Very truly yours,
Thomas T. Hawker
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
CAPITAL CORP OF THE WEST
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of the shareholders of Capital Corp of the West ("Capital
Corp") will be held on June 20, 1996, at 7:00 p.m. local time at the
Italo-American Lodge, West 18th and U Streets, Merced, California. The meeting
will be held for the following purposes:
1. To approve an Agreement and Plan of Acquisition dated as of March 22,
1996 by and between Capital Corp and Town & Country (the "Agreement"), pursuant
to which Town & Country would merge with a subsidiary of Capital Corp and become
a wholly owned subsidiary of Capital Corp (the "Merger");
2. To elect 11 directors;
3. To approve an amendment to the Bylaws to eliminate cumulative voting;
4. To approve an amendment to the bylaws to classify the Board of Directors
and to change the authorized range of directors;
5. To approve an amendment to the Articles of Incorporation to eliminate
action by the shareholders by written consent without a meeting;
6. To approve an amendment to the Articles of Incorporation to require a
supermajority vote of shareholders to approve certain business combinations; and
7. To act upon such other matters as may properly come before such meeting
or any adjournment thereof.
The Agreement and the Merger Agreement are set forth in full in Annex A to
the accompanying Joint Proxy Statement/Prospectus. Holders of common stock of
Capital Corp of record at the close of business on May 10, 1996, are entitled to
notice and to vote at the meeting. The affirmative vote of the holders of a
majority of the issued and outstanding shares of Capital Corp common stock is
required to approve the Merger and to approve the proposed amendments to the
Articles of Incorporation and Bylaws, with the exception of Proposal Six, which
will require the affirmative vote of 66.67% of the outstanding shares. The 11
candidates for directors who receive the highest number of votes will be
elected.
YOUR VOTE IS IMPORTANT. Please sign and date the enclosed proxy card and
return it promptly in the envelope provided, whether or not you plan to attend
the meeting. This Joint Proxy Statement/ Prospectus is being distributed by, and
the enclosed proxy is solicited on behalf of, the Board of Directors of Capital
Corp. The Board of Directors recommends a vote FOR the proposal to approve the
Merger, FOR the proposed amendments to the Articles of Incorporation and the
Bylaws and FOR the election of the nominees for director.
By Order of the Board of Directors
--------------------------------------
Karen Venditti, SECRETARY
<PAGE>
TOWN AND COUNTRY FINANCE AND THRIFT COMPANY
410 EAST OLIVE AVENUE
TURLOCK, CALIFORNIA 95380
MAY , 1996
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders of
Town and Country Finance and Thrift Company ("Town & Country") to consider and
vote upon (1) a proposal to approve and adopt an Agreement and Plan of
Acquisition dated as of March 22, 1996, between Town & Country and Capital Corp
of the West ("Capital Corp") and the related Merger Agreement, pursuant to which
Town & Country would be become a subsidiary of Capital Corp (the "Merger"), (2)
a proposal to elect five directors, the names of whom are set forth in the
accompanying Joint Proxy Statement/Prospectus, to serve until the next annual
meeting; and (3) such other business as may properly come before the meeting. If
the Merger is approved and completed, each share of Town & Country common stock
would be converted into the right to receive a combination of Capital Corp
common stock and cash valued at $33.05. The allocation between cash and Capital
Corp common stock will depend on a Cash/Stock Election to be made available to
Town & Country shareholders upon completion of the Merger.
The meeting will be held on June 18, 1996 at 7:00 p.m. at Turlock Golf &
Country Club, 10532 North Golf Link Road, Turlock, California.
We are seeking your approval and adoption of this Merger, which has received
the approval and recommendation of your Board of Directors and the approval of
the Board of Directors of Capital Corp.
Enclosed are the Secretary's Notice of this meeting, a Proxy, a Joint Proxy
Statement/Prospectus describing the Merger and providing information related to
the election of directors and a return envelope. Also enclosed are copies of
Capital Corp's 1995 annual report to its shareholders. This additional material
is incorporated by reference in the Joint Proxy Statement/Prospectus.
We encourage you to attend this meeting. Whether or not you are able to
attend, please complete, date, sign, and return promptly the enclosed Proxy so
that your shares will be represented at the meeting. I look forward to seeing
you on June 18, 1996.
Very truly yours,
D. Dale Pinkney
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
TOWN AND COUNTRY FINANCE AND THRIFT COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of the shareholders of Town and Country Finance and
Thrift Company ("Town & Country") will be held on June 18, 1996, at 7:00p.m.
local time at Turlock Golf & Country Club, 10532 North Golf Link Road, Turlock,
California. The meeting will be held for the following purposes:
1. To approve and adopt an Agreement and Plan of Acquisition dated as of
March 22, 1996, between Town & Country and Capital Corp of the West ("Capital
Corp") and the related Merger Agreement, pursuant to which Town & Country would
be merged with and become a subsidiary of Capital Corp (the "Merger");
2. To elect five directors to serve until the next annual meeting; and
3. To conduct such other business as may properly come before the meeting.
If the Merger is approved and completed, each share in Town & Country would
be converted into the right to receive a combination of Capital Corp common
stock and cash valued at $33.05. Allocation of the consideration between stock
and cash dividend on a Cash/Stock Election to be made available to Town &
Country shareholders upon completion of the Merger.
The Agreement and the Merger Agreement are set forth in full in Annex A to
the accompanying Proxy Statement/Prospectus. Holders of common stock of Town &
Country of record at the close of business on May 10, 1996, are entitled to
notice and to vote at the meeting. The affirmative vote of the holders of a
majority of the issued and outstanding shares of Town & Country common stock is
required to approve the Merger. The five candidates for directors who receive
the highest number of votes will be elected.
YOUR VOTE IS IMPORTANT. Please sign and date the enclosed proxy card and
return it promptly in the envelope provided, whether or not you plan to attend
the meeting. This Joint Proxy Statement/ Prospectus is being distributed by, and
the enclosed proxy is solicited on behalf of, the Board of Directors of Town &
Country. The Board of Directors recommends a vote FOR the proposal to approve
and adopt the Agreement and the Merger Agreement and FOR the election of the
nominees for director.
By Order of the Board of Directors
--------------------------------------
Mary Mason, SECRETARY
<PAGE>
JOINT PROXY STATEMENT -- SUBJECT TO COMPLETION
DATED MAY , 1996
CAPITAL CORP OF THE WEST TOWN AND COUNTRY FINANCE
1160 WEST OLIVE AVENUE, SUITE A AND THRIFT COMPANY
MERCED, CALIFORNIA 95348 410 EAST OLIVE AVENUE
TURLOCK, CALIFORNIA 95380
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PROSPECTUS OF CAPITAL CORP OF THE WEST
This Joint Proxy Statement/Prospectus is being furnished to the shareholders
of Capital Corp of the West ("Capital Corp") and to the shareholders of Town and
Country Finance and Thrift Company ("Town & Country") in connection with the
solicitation of proxies by the Board of Directors of Capital Corp to be used in
voting at the annual meeting of shareholders of Capital Corp to be held on June
20, 1996 (the "Capital Corp Meeting") and by the Board of Directors of Town &
Country to be used in voting at the annual meeting of shareholders of Town &
Country to be held on June 18, 1996 (the "Town & Country Meeting"). This Joint
Proxy Statement/Prospectus is first being mailed to holders of common stock of
Capital Corp and Town & Country on or about May , 1996.
The Capital Corp Meeting has been called to consider and vote upon
proposals:
1. To approve an Agreement and Plan of Acquisition dated as of March 22,
1996 by and between Capital Corp and Town & Country (the "Agreement"), pursuant
to which Town & Country would merge with a subsidiary of Capital Corp and become
a wholly owned subsidiary of Capital Corp (the "Merger");
2. To elect 11 directors;
3. To approve an amendment to the Bylaws to eliminate cumulative voting;
4. To approve an amendment to the Bylaws to classify the Board of Directors
and to change the authorized range of directors;
5. To approve an amendment to the Articles of Incorporation to eliminate
action by the shareholders by written consent without a meeting;
6. To approve an amendment to the Articles of Incorporation to require a
supermajority vote of shareholders to approve certain business combinations; and
7. To act upon such other matters as may properly come before such meeting
or any adjournment thereof.
The Town & Country Meeting has been called to consider and vote upon
proposals:
1. To approve the Agreement, pursuant to which Town & Country would merge
with a subsidiary of Capital Corp and become a wholly owned subsidiary of
Capital Corp (the "Merger");
2. To elect five directors; and
3. To act upon such other matters as may properly come before such meeting
or any adjournment thereof.
This Joint Proxy Statement/Prospectus covers a maximum of 290,000 shares of
Capital Corp common stock which are to be issued to shareholders of Town &
Country in exchange for shares of Town & Country common stock. If the Merger is
completed, each share of Town & Country common stock will be converted into the
right to receive a combination of cash and shares of Capital Corp common stock
(valued at the average of the closing bid and ask prices as reported on the
Nasdaq National Market for each trading day in the calendar month preceding the
month in which the Merger is completed) with an aggregate value equal to $33.05.
On May 3, 1996, the closing sale price of Capital Corp common stock on the
Nasdaq National Market was $14.50. The specific details of the Agreement are
more fully discussed under the heading "PROPOSAL ONE: THE MERGER" in this Joint
Proxy Statement/Prospectus, and the Agreement and the Merger Agreement are set
forth in full in Annex A to this Joint Proxy Statement/Prospectus.
<PAGE>
The affirmative vote of the holders of a majority of the issued and
outstanding shares of Capital Corp common stock and a majority of the issued and
outstanding shares of Town & Country common stock are required to approve the
Merger.
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
Capital Corp under the Securities Act of 1933, as amended (the "1933 Act"), for
the public offering of the shares of Capital Corp common stock to be issued in
exchange for Town & Country common stock in the Merger. This Joint Proxy
Statement/Prospectus does not cover any resales of Capital Corp common stock to
be received by the shareholders of Town & Country or Capital Corp in the Merger,
and no person is authorized to make any use of this Joint Proxy
Statement/Prospectus in connection with any such resale.
NEITHER THIS TRANSACTION NOR THE SECURITIES OF CAPITAL CORP HAVE BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is [May ], 1996.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION WITH RESPECT TO THE MATTERS DESCRIBED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH
RESPECT TO SUCH MATTERS NOT CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY CAPITAL CORP OR TOWN & COUNTRY. THIS JOINT PROXY
STATEMENT/ PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES OR THE SOLICITATION OF A PROXY OR AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CAPITAL CORP OR
TOWN & COUNTRY SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS JOINT PROXY
STATEMENT/PROSPECTUS OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATES HEREOF OR THEREOF.
AVAILABLE INFORMATION
Capital Corp is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith has, since December 19, 1995, filed reports and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by Capital Corp with the Commission can
be inspected and copied at the Public Reference Room of the Commission, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the public
reference facilities of the Chicago Regional Office, Room 3190, John C.
Kluczynski Building, 230 South Dearborn Street, Chicago, Illinois 60604, and the
New York Regional Office, 75 Park Place, New York, New York, 10007. Copies of
such material also can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W. Washington D.C. 20549 at prescribed rates.
Before such date, County Bank, as Capital Corp's predecessor, was subject to the
same requirements and filed reports and other information with the Federal
Deposit Insurance Corporation ("FDIC"). Such reports and information can be
inspected at, and copies obtained from, the Registration and Insurance Section
of the FDIC, 1776 F Street N.W., Room 643, Washington, D.C. 20429 at prescribed
rates. These documents may also be inspected at the Federal Reserve Bank of San
Francisco, 101 Market Street, San Francisco, California.
Capital Corp has filed with the Commission a Registration Statement on Form
S-4 as amended (No. 333-03174) under the 1933 Act relating to the shares of
Capital Corp common stock to be issued in connection with the Merger (the
"Registration Statement"). This Joint Proxy Statement/Prospectus also
constitutes the Prospectus of Capital Corp filed as part of the Registration
Statement and does not contain
2
<PAGE>
all the information set forth in the Registration Statement and Exhibits
thereto. The Registration Statement and the Exhibits thereto may be inspected
and copied, at prescribed rates, at the public reference facilities maintained
by the Commission at the addresses set forth above.
ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT/ PROSPECTUS WITH RESPECT
TO CAPITAL CORP AND ITS SUBSIDIARIES HAS BEEN SUPPLIED BY CAPITAL CORP AND ALL
INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT TO TOWN &
COUNTRY HAS BEEN SUPPLIED BY TOWN & COUNTRY.
INFORMATION INCORPORATED BY REFERENCE
The following documents previously filed or to be filed with the Commission
pursuant to the Exchange Act are hereby incorporated by reference in this Joint
Proxy Statement/Prospectus:
(a) Capital Corp's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 (the "Capital Corp 10-K");
(b) Capital Corp's Current Report on Form 8-K filed with the Commission
on April 29, 1996;
(c) Capital Corp's Current Report on Form 8-K filed with the Commission
on May 8, 1996; and
(d) All documents filed by Capital Corp pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Joint
Proxy Statement/Prospectus and prior to the date of the Capital Corp Meeting
shall be deemed to be incorporated by reference herein and to be a part
hereof from the date of filing thereof.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS RELATING
TO CAPITAL CORP WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE
DOCUMENTS (OTHER THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS) ARE AVAILABLE WITHOUT
CHARGE UPON REQUEST FROM KAREN VENDITTI, SECRETARY, CAPITAL CORP OF THE WEST,
1160 WEST OLIVE AVENUE SUITE A, MERCED, CALIFORNIA 95348. ALL DOCUMENTS
REQUESTED WILL BE SENT BY FIRST CLASS MAIL WITHIN ONE BUSINESS DAY OF THE
RECEIPT OF THE REQUEST. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY JUNE 5, 1996.
This Joint Proxy Statement/Prospectus is accompanied by a copy of Capital
Corp's 1995 Annual Report to Shareholders ("Capital Corp Annual Report"). The
following information contained in the above documents is specifically
incorporated by reference herein: (a) management's discussion and analysis of
financial condition and results of operations, set forth on pages 20 through 23
of the Capital Corp Annual Report; (b) the audited financial statements of
Capital Corp and its subsidiaries and the independent auditors' report set forth
on pages 11 through 19 and page 23 of the Capital Corp Annual Report; and (c)
the selected financial information set forth on page 24 of the Capital Corp
Annual Report.
Any statement contained in a Capital Corp document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement/ Prospectus to the extent that a
statement contained herein, or in any other subsequently filed document that
also is or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Joint Proxy Statement/Prospectus.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION...................................................................................................... 2
INFORMATION INCORPORATED BY REFERENCE...................................................................................... 3
SUMMARY.................................................................................................................... 4
The Parties to the Merger.................................................................................................. 4
Date, Time and Place of the Meeting........................................................................................ 4
Purpose of the Meetings.................................................................................................... 4
Persons Entitled to Vote................................................................................................... 5
Vote Required.............................................................................................................. 5
Principal Terms of the Merger; Exchange Ratio.............................................................................. 5
Cash/Stock Election........................................................................................................ 6
Conditions and Regulatory Approvals........................................................................................ 6
Potential Limitation on Issuance of Investment Certificates................................................................ 7
Termination and Amendment; Termination Payment............................................................................. 7
Federal Income Tax Consequences............................................................................................ 8
Effective Date of the Merger............................................................................................... 8
Recommendations of the Board of Directors.................................................................................. 8
Fairness Opinions.......................................................................................................... 8
Dissenters' Rights of Appraisal............................................................................................ 9
Differences in Charter Documents and Applicable Law........................................................................ 9
Interests of Certain Persons in the Merger................................................................................. 9
Market Price Data.......................................................................................................... 9
Dividend Policy............................................................................................................ 10
Recent Developments........................................................................................................ 10
Selected Financial Information............................................................................................. 11
THE ANNUAL MEETINGS OF SHAREHOLDERS OF CAPITAL CORP AND OF
TOWN & COUNTRY............................................................................................................ 16
INTRODUCTION............................................................................................................... 16
VOTING AND PROXIES......................................................................................................... 16
Date, Time and Place of Meeting.......................................................................................... 16
Record Date and Voting Rights............................................................................................ 16
Voting by Proxy.......................................................................................................... 17
Adjournments............................................................................................................. 17
Solicitation of Proxies.................................................................................................. 18
PROPOSAL ONE: THE MERGER................................................................................................... 18
Background................................................................................................................. 18
Reasons for the Merger and Recommendation.................................................................................. 18
Fairness Opinions.......................................................................................................... 19
Interests of Certain Persons in the Merger................................................................................. 28
</TABLE>
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Principal Terms of the Merger.............................................................................................. 28
General.................................................................................................................. 28
Effective Date of Merger................................................................................................. 28
Exchange Amount and Exchange Ratio....................................................................................... 29
Cash/Stock Election...................................................................................................... 30
Rights of Holders After Effective Date; Dividends........................................................................ 31
Exchange of Town & Country Stock Certificates; Fractional Interests...................................................... 31
Conduct of Business Prior to the Merger.................................................................................. 31
Representations and Warranties........................................................................................... 32
Conditions to the Merger................................................................................................. 32
Required Regulatory Approvals.............................................................................................. 32
Dissenters' Rights of Appraisal............................................................................................ 33
Non Solicitation Covenants................................................................................................. 35
Federal Income Tax Consequences............................................................................................ 35
Accounting Treatment....................................................................................................... 36
Termination and Amendment; Termination Payment............................................................................. 37
Expenses................................................................................................................... 37
Resales of Capital Corp Common Stock....................................................................................... 37
Conduct of Business of Capital Corp and Town & Country Following the Merger................................................ 38
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS.......................................................................... 39
CAPITAL CORP PROPOSAL TWO: ELECTION OF DIRECTORS........................................................................... 43
PROPOSED AMENDMENTS OF CAPITAL CORP'S ARTICLES OF INCORPORATION AND BYLAWS TO ADOPT CERTAIN ANTI-TAKEOVER MEASURES......... 51
CAPITAL CORP PROPOSAL THREE: AMENDMENT TO BYLAWS TO ELIMINATE CUMULATIVE VOTING............................................ 52
CAPITAL CORP PROPOSAL FOUR: AMENDMENT TO THE BYLAWS TO CLASSIFY THE BOARD OF DIRECTORS AND CHANGE THE AUTHORIZED RANGE OF
DIRECTORS................................................................................................................. 53
CAPITAL CORP PROPOSAL FIVE: AMENDMENT TO ARTICLES TO ELIMINATE ACTIONS OF THE SHAREHOLDERS BY WRITTEN CONSENT WITHOUT A
MEETING................................................................................................................... 54
CAPITAL CORP PROPOSAL SIX: AMENDMENT TO THE ARTICLES TO REQUIRE A SUPERMAJORITY VOTE TO APPROVE CERTAIN BUSINESS
COMBINATIONS.............................................................................................................. 55
TOWN & COUNTRY PROPOSAL TWO: ELECTION OF DIRECTORS......................................................................... 57
INFORMATION ABOUT CAPITAL CORP OF THE WEST................................................................................. 60
INFORMATION ABOUT TOWN & COUNTRY........................................................................................... 63
TOWN & COUNTRY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................... 64
DESCRIPTION OF CAPITAL CORP CAPITAL STOCK.................................................................................. 74
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF TOWN & COUNTRY CAPITAL STOCK................................................................................ 74
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS.............................................................................. 75
MARKET PRICE AND DIVIDEND INFORMATION...................................................................................... 77
EXPERTS.................................................................................................................... 78
LEGAL MATTERS.............................................................................................................. 78
SHAREHOLDER PROPOSALS...................................................................................................... 78
OTHER MATTERS.............................................................................................................. 79
</TABLE>
iii
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/ Prospectus. This summary does not contain a complete
statement of all material features of the Merger and is qualified in its
entirety by reference to the full text of this Joint Proxy Statement/Prospectus
and the Annexes hereto. Capital Corp shareholders and Town & Country
shareholders are urged to read this Joint Proxy Statement/Prospectus and the
accompanying Annexes in their entirety.
THE PARTIES TO THE MERGER.
Capital Corp is a corporation organized in 1995 under the laws of the State
of California. It is registered as a bank holding company under the Bank Holding
Company Act of 1956 (the "BHC Act"). Capital Corp became the holding company for
County Bank, a state-licensed nonmember commercial bank, on November 1, 1995,
when each outstanding share of County Bank stock was exchanged for one share of
Capital Corp common stock. County Bank has two subsidiaries; Merced Area
Investment and Development, Inc., a real estate development company, and County
Asset Advisers, Inc., which is currently inactive. In April 1996 Capital Corp
formed Capital West Group, a new subsidiary that intends to engage in the
financial institutions advisory business, subject to the approval of the Board
of Governors of the Federal Reserve System (the "FRB"). At December 31, 1995,
Capital Corp had consolidated assets of approximately $209 million and
shareholders' equity of approximately $15.1 million. Capital Corp's principal
office is located in Merced, California. County Bank has five banking offices in
Merced County, one in Stanislaus County and one in Tuolumne County and a loan
production office in Stanislaus County. Financial information of Capital Corp in
this Joint Proxy Statement/Prospectus reflects financial information of County
Bank for periods before November 1, 1995.
Town & Country is a California corporation licensed by the California
Department of Corporations as an industrial loan company, more commonly known as
a thrift and loan company. It was incorporated under the laws of the State of
California in 1957 and is headquartered in Turlock, California. Town & Country
conducts a general consumer lending (primarily financing automobile contracts)
and deposit-taking business through its three offices serving Turlock, Modesto
and Visalia, and it has filed an application for approval to establish a branch
office in Fresno. At December 31, 1995, Town & Country had assets of
approximately $26.3 million and shareholders' equity of $3.6 million.
County Bank and Town & Country have their deposits insured by the Federal
Deposit Insurance Corporation ("FDIC") up to applicable limits.
If the Merger had been consummated on December 31, 1995, the combined
companies would have had, on a pro forma basis, total assets of $237.4 million
and shareholders' equity of approximately $19.1 million, and for the year ended
December 31, 1995 would have had net income of approximately $429,000. This
figure reflects Capital Corp's complete write-down in 1995 of its $2.9 million
investment in its real estate development subsidiary. See "INFORMATION ABOUT
CAPITAL CORP -- Write-Down of Real Estate Development Investment."
DATE, TIME AND PLACE OF THE MEETING
The Capital Corp Meeting will be held on June 20, 1996, at 7:00 p.m. local
time at the Italo-American Lodge, West 18th and U Streets, Merced, California.
The Town & Country Meeting will be held on June 18, 1996 at 7:00 p.m. at
Turlock Golf & Country Club, 10532 North Golf Link Road, Turlock, California.
PURPOSE OF THE MEETINGS
At the Capital Corp Meeting, the shareholders of Capital Corp will be asked
to (1) consider and vote on the Agreement and the Merger Agreement (which
Agreements are included as Annex A to this Joint Proxy Statement/Prospectus and
are incorporated herein by reference), under which Town & Country will merge
with T & C Merger Thrift Company, a proposed wholly owned subsidiary of Capital
Corp, and become a wholly owned subsidiary of Capital Corp; (2) elect 11
directors; (3) approve an amendment to the Bylaws to eliminate cumulative
voting; (4) approve an amendment to the Bylaws to classify the Board of
Directors and
4
<PAGE>
change the authorized range of directors; (5) approve an amendment to the
Articles of Incorporation to eliminate action by the shareholders by written
consent without a meeting; (6) approve an amendment to the Articles of
Incorporation to require a supermajority vote of shareholders to approve certain
business combinations; and (7) act upon such other matters as may properly come
before such meeting or any adjournment thereof.
At the Town & Country Meeting, the shareholders of Town & Country will be
asked to (1) consider and vote upon the Agreement and the Merger Agreement; (2)
elect five directors; and (3) consider and vote upon such other business as may
properly come before the Town & Country Meeting.
THE BOARD OF DIRECTORS OF CAPITAL CORP RECOMMENDS THAT SHAREHOLDERS VOTE
THEIR SHARES OF CAPITAL CORP COMMON STOCK IN FAVOR OF THE MERGER PROPOSAL, FOR
MANAGEMENT'S NOMINEES FOR DIRECTORS, AND FOR THE FOUR PROPOSALS TO AMEND THE
ARTICLES AND BYLAWS. THE BOARD OF DIRECTORS OF TOWN & COUNTRY RECOMMENDS THAT
SHAREHOLDERS VOTE THEIR SHARES OF TOWN & COUNTRY COMMON STOCK IN FAVOR OF THE
MERGER PROPOSAL AND FOR MANAGEMENT'S NOMINEES FOR DIRECTORS.
PERSONS ENTITLED TO VOTE
Capital Corp has fixed the close of business on May 10, 1996 as the record
date for determining persons entitled to notice of and to vote at the Capital
Corp Meeting. At the close of business on February 28, 1996, there were
outstanding and entitled to vote 1,334,956 shares of Capital Corp common stock.
Town & Country has fixed the close of business on May 10, 1996 as the record
date for determining persons entitled to notice of and to vote at the Town &
Country Meeting. At the close of business on February 28, 1996, there were
outstanding and entitled to vote 168,156 shares of Town & Country common stock.
See "VOTING AND PROXIES."
VOTE REQUIRED
Under the Agreement and applicable law, approval of the Merger by an
affirmative vote of the holders of a majority of the outstanding shares of
Capital Corp common stock and by a majority of the outstanding shares of Town &
Country common stock is a condition to completion of the Merger. In the election
of directors by Capital Corp, the 11 directors receiving the most votes will be
elected. Proposals Three, Four and Five amend the Articles of Incorporation and
Bylaws of Capital Corp require the affirmative vote of the holders of a majority
of the outstanding shares of Capital Corp common stock. Proposal Six to amend
the Articles of Incorporation to adopt a supermajority provision requires the
affirmative vote of the holders of two-thirds of the outstanding shares of
Capital Corp common stock. In the election of directors by Town & Country, the
five directors receiving the most votes will be elected. In the election of
directors, shareholders of both companies are entitled to request cumulative
voting. See "VOTING AND PROXIES -- Record Date and Voting Rights."
As a group, executive officers and directors of Capital Corp and the
affiliates of such officers and directors beneficially owned 225,162 shares
(including shares subject to options exercisable within 60 days), or
approximately 15.1%, of Capital Corp common stock outstanding as of May 6, 1996.
No executive officer or director of Capital Corp or any affiliate of any such
officer or director beneficially owned any shares of Town & Country common stock
as of such date.
As a group, executive officers and directors of Town & Country and the
affiliates of such officers and directors beneficially owned 25,096 shares, or
approximately 14.9%, of Town & Country common stock outstanding as of May 6,
1996. No executive officer or director of Town & Country or any affiliate of any
such officer or director beneficially owned any shares of Capital Corp common
stock as of such date.
PRINCIPAL TERMS OF THE MERGER; EXCHANGE RATIO
Upon completion of the Merger, Town & Country will be merged with T & C
Merger Thrift Company, a proposed wholly owned subsidiary of Capital Corp. The
surviving corporation in the Merger ("New Town & Country") will be licensed as
an industrial loan company and renamed "Town and Country Finance and Thrift
Company" and continue to operate as a wholly owned subsidiary of Capital Corp.
5
<PAGE>
On the Effective Date, by virtue of the Merger and without any action on the
part of Town & Country shareholders, each outstanding share of Town & Country
common stock (other than any shares as to which dissenters' rights have been
perfected) shall be converted into the right to receive a combination of cash
and shares of the common stock, no par value, of Capital Corp with an aggregate
value (the "Exchange Amount") equal to $33.05 per share. The aggregate cash
component (the "Cash Component") of the Exchange Amount will be not less than
$1,600,000 (or an average of $9.52 per share) and not more than $1,800,000 (or
an average of $10.70 per share), and the balance of the Exchange Amount will be
in Capital Corp common stock (the "Stock Component"). The number of shares of
Capital Corp common stock to be exchanged for the Stock Component will be equal
to the Stock Component divided by the Market Value of Capital Corp common stock.
For this purpose, the Market Value will be equal to the average of bid and ask
prices at closing of Capital Corp common stock as reported on the Nasdaq
National Market for each of the trading days in the calendar month preceding the
completion of the Merger, regardless of whether any actual trades took place on
such days. The closing sale price of Capital Corp common stock as of May 3, 1996
was $14.50. No fractional shares of Capital Corp common stock shall be issued to
holders of Town & Country common stock; cash will be paid in lieu of fractional
shares based on the Market Value of Capital Corp common stock.
For a more complete description of the Exchange Amount, see "PROPOSAL ONE:
THE MERGER -- Principal Terms of the Merger."
CASH/STOCK ELECTION
The Exchange Amount will be allocated to the Stock Component and the Cash
Component in accordance the following election and procedures (the "Cash/Stock
Election").
A Town & Country shareholder may elect to receive the Exchange Amount in
either all Capital Corp shares or all cash. If no election is made, the
shareholder will receive a Per Share Cash Component equal to $1,600,000/number
of outstanding shares (or $9.52 per share), and the balance (or $23.53 per
share) in Capital Corp shares, subject to adjustment as described below.
The Cash/Stock Election is subject to the limitation that the aggregate Cash
Component for all Town & Country shareholders may not be less than $1,600,000 or
more than $1,800,000. If the aggregate Cash Component is undersubscribed, the
unsubscribed portion of this minimum aggregate Cash Component will be allocated
pro rata (by number of shares) among all Town & Country shareholders; if the
aggregate Cash Component is oversubscribed, the Cash Component of each Town &
Country shareholder receiving cash will be reduced pro rata (by number of
shares) so that the aggregate Cash Component of all Town & Country shareholders
will equal $1,800,000. The total of the Cash Component and the Stock Component
will always equal the Exchange Amount.
A Town & Country shareholder need not, and may not, make a Cash/Stock
Election until after the Merger has been completed. If the Merger is completed,
Capital Corp will send to each Town & Country shareholder a letter of
transmittal describing the Cash/Stock Election in more detail and providing
forms for making the Cash/Stock Election, if desired.
The Cash/Stock Election, if made, must be made for all shares held in the
name of the Town & Country shareholder. A Town & Country shareholder who holds
shares in two or more capacities or in different names may make a separate
Cash/Stock Election for each name or capacity in which shares are held. However,
shares represented by a single certificate may make only one Cash/Stock
Election.
There are certain differences in the rights of holders of Town & Country
common stock and the rights of holders of Capital Corp common stock. See
"CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS."
CONDITIONS AND REGULATORY APPROVALS
Consummation of the Merger is subject to the satisfaction of various
conditions, including approval of the Merger by the FRB, the FDIC and the
California Commissioner of Corporations (the "Commissioner"), the licensing of
New Town & Country by the Commissioner as an industrial loan company, receipt of
a legal
6
<PAGE>
or accounting opinion as to the qualification of the Merger as a tax-free
reorganization with respect to the Stock Component, the absence of any material
adverse change (as defined in the Agreement) in the business or financial
condition of Capital Corp and Town & Country and various other conditions. See
"PROPOSAL ONE: THE MERGER -- Representations and Warranties; Conditions to the
Merger." A draft copy of Capital Corp's application to the FRB under the BHC Act
has been reviewed by the Federal Reserve Bank of San Francisco. Based on the
comments which resulted from that review, Capital Corp filed its final FRB
application on May 10, 1996. Town & Country's applications to the FDIC and the
Commissioner for approval of the merger, as well as Capital Corp's application
to the Commissioner to operate New Town & Country as an industrial loan company,
have been submitted to the FDIC and the Commissioner and are currently being
reviewed. Except as to any condition the satisfaction of which is required by
law, the Boards of Directors of Capital Corp and Town & Country have the
corporate power and authority to waive satisfaction of the conditions to their
respective company's obligation to consummate the Merger.
POTENTIAL LIMITATION ON ISSUANCE OF INVESTMENT CERTIFICATES
In effect, New Town & Country as the surviving corporation in the Merger
will be the successor to and continuation of Town & Country's business and
operations. Legally, it will be a new corporation with a new thrift and loan
charter from the Commissioner. California's Industrial Loan Company Law (the
"ILC Law") limits the amount of investment certificates and certificates of
deposit that a thrift and loan company may issue to six times its capital and
surplus during its first year of operation, with annual increases up to
multiples of eight, 12, 15 and 17 times capital and surplus in the next four
years. If the Commissioner were to require that New Town & Country limit its
investment certificates and certificates of deposits to the levels applicable to
a new thrift and loan company, it would be required to divest a substantial
amount of assets and liabilities to comply. This reduction in size might
substantially impair the future earnings of New Town & Country for the first
five years after the Merger. Capital Corp has spoken to representatives of the
Commissioner and on the basis of such discussions believes that, if the
operations of Town & Country are continued by New Town & Country in the manner
contemplated by the parties and as described herein, the Commissioner will treat
New Town & Country as the continuation of Town & Country for purposes of the
limitations on issuance of investment certificates and certificates of deposits.
However, neither Capital Corp nor Town & Country can give any assurances that
the Commissioner will ultimately adopt this position. Favorable treatment from
the Commissioner on this issue is not a condition to completion of the Merger.
See "INFORMATION ABOUT TOWN & COUNTRY -- Potential Limitation on Issuance of
Investment Certificates."
TERMINATION AND AMENDMENT; TERMINATION PAYMENT
The Agreement may be terminated at any time prior to consummation of the
Merger by mutual consent of the Boards of Directors of Capital Corp and Town &
Country. The Agreement may also be terminated by either Town & Country or
Capital Corp if (i) the Merger is not consummated by December 31, 1996 (subject
to extension for one year under certain circumstances); (ii) it becomes aware of
any undisclosed facts having a materially adverse effect on the other party, or
a materially adverse change in the other party's condition occurs; (iii) by
December 31, 1996, the other party fails to perform its obligations or satisfy
any conditions under the Agreements; (iv) the other party enters into certain
transactions with any third party providing for the acquisition of such other
party on terms not permitted by the Agreement; and (v) for certain other
reasons.
If Capital Corp terminates the Agreement as a result of Town & Country's
entry into a transaction or series of transactions providing for the acquisition
of all or a substantial part of Town & Country by a third party, Capital Corp
will become entitled to a payment of $750,000 from Town & Country. If Town &
Country terminates the Agreement as a result of Capital Corp's entry into a
merger or similar business combination with a third party and such transaction
does not expressly contemplate performance by Capital Corp of its obligations
under the Agreement, Town & Country will become entitled to a payment of
$750,000 from Capital Corp. In each case, the payment is intended to be
consideration or liquidated damages for expenses incurred and the lost
opportunity cost for time devoted to the transactions contemplated by the
Agreement. See "PROPOSAL ONE: THE MERGER -- Termination and Amendment;
Termination Payment."
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<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
An opinion letter (the "Tax Opinion") has been obtained from KPMG Peat
Marwick LLP ("KPMG") regarding all material federal income tax consequences of
the Merger. Such an opinion is a condition to consummation of the Merger.
Assuming the opinion is not withdrawn or changed before the Effective Date, the
material federal income tax consequences of the Merger, in the opinion of KPMG,
will be as follows:
(a) The Merger will constitute a "reorganization" within the meaning of
sections 368(a)(1)(A) and 368(A)(2)(D) of the Code.
(b) No gain or loss will be recognized by Town & Country, Capital Corp or
T&C Merger Thrift Company in the Merger and T&C Merger Thrift Company will
succeed to the carryover basis and the holding period of the assets of Town &
Country.
(c) Town & Country shareholders will recognize no gain or loss upon their
exchange of Town & Country stock SOLELY for shares of Capital Corp stock.
(d) Gain or loss will be recognized to shareholders who receive cash
pursuant to the Cash/Stock Election or as consideration for fractional shares or
dissenter's shares.
(e) The basis of the Capital Corp stock received by the shareholders of Town
& Country will be the same as the basis of the Town & Country stock surrendered
in exchange therefor decreased by the amount of cash received by the shareholder
and increased by the amount, if any, that was treated as a dividend and/or the
amount of gain recognized to the shareholder on the exchange.
(f) The holding period of the Capital Corp stock received by Town & Country
shareholders will include the period during which the Town & Country stock
surrendered in exchange therefor was held by the Town & Country shareholders,
provided that the Town & Country stock surrendered was a capital asset in the
hands of the Town & Country shareholders on the date of the exchange.
(g) The taxable year of Town & Country will end on the effective date of the
Merger.
(h) T&C Merger Thrift Company will succeed to and take into account the
items of Town & Country described in section 381(c) of the Code, subject to the
provisions and limitations specified in sections 381, 382, 383, and 384 of the
Code and the regulations thereunder.
(i) Town & Country's method of accounting for bad debt reserves will carry
over to T&C Merger Thrift Company, pursuant to sections 1.381(c)(4)-1(a) and
1.381(c)(4)-1(b)(4) of the Treasury Regulations. The Merger will not cause Town
& Country's bad debt reserves to be restored to the income of Town & Country or
T&C Merger Thrift Company.
(j) As provided by section 381(c)(2) of the Code and section 1.381(c)(2)-1
of the Treasury Regulations, T&C Merger Thrift Company will succeed to and take
into account the earnings and profits, or deficit in earnings and profits, of
Town & Country as of the date of the transfer. Any deficit in earnings and
profits of Town & Country or T&C Merger Thrift Company will be used only to
offset earnings an profits accumulated after the date of transfer.
ALL SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC CONSEQUENCES TO THEM OF THE MERGER UNDER FEDERAL STATE, LOCAL
AND ANY OTHER APPLICABLE TAX LAWS. See "PROPOSAL ONE: THE MERGER --
Federal Income Tax Consequences."
EFFECTIVE DATE OF THE MERGER
The Merger will become effective on the date (the "Effective Date") that the
Merger Agreement is filed with the Secretary of State of the State of
California. Assuming all conditions to the Merger are met, the parties
anticipate that the Effective Date will be on or about June 28, 1996, or as soon
thereafter as practicable.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The Boards of Directors of Capital Corp and Town & Country believe that the
Merger is in the best interests of their respective companies and shareholders.
The Boards are of the opinion that combining the
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business of Capital Corp and Town & Country will enhance the prospects of each
company. The Boards of Directors of Capital Corp and of Town & Country voted to
recommend to their respective shareholders a vote FOR approval of the Merger.
See "PROPOSAL ONE: THE MERGER -- Reasons for the Merger and Recommendations."
FAIRNESS OPINIONS
Capital Corp has received from Brookstreet Securities Corporation an opinion
that the terms of the proposed Merger are fair from a financial point of view to
the shareholders of Capital Corp. Town & Country has received from Williams
Gregg, Inc. an opinion that the consideration to be paid and the other terms of
the proposed Merger are fair from a financial point of view to the shareholders
of Town & Country. See "PROPOSAL ONE: THE MERGER -- Fairness Opinions" and Annex
B. Each company's receipt of such fairness opinion is a condition to completion
of the Merger.
DISSENTERS' RIGHTS OF APPRAISAL
If the Merger is consummated, shareholders of Capital Corp and shareholders
of Town & Country who follow certain statutory procedures may demand dissenters'
rights under California law. A shareholder's vote against approval of the Merger
alone is not sufficient to preserve a dissenting shareholder's right to receive
such dissenters' rights. A dissenting shareholder must affirmatively complete
certain procedures including giving notice to the company within certain
statutory time frames in order to preserve the dissenter's rights of appraisal.
See "PROPOSAL ONE: THE MERGER -- Dissenters' Rights of Appraisal" and Annex C,
which sets forth the relevant sections of the California General Corporation
Law.
DIFFERENCES IN CHARTER DOCUMENTS AND APPLICABLE LAW
Capital Corp and Town & Country are both organized under the corporate law
of California. However, there are certain differences in the charter documents
and law applicable to the two companies. Capital Corp's Articles of
Incorporation and Bylaws generally provide for broader indemnification of its
directors and executive officers and eliminate the liability of directors for
monetary damages to a greater extent than do those of Town & Country. Under
California law, Capital Corp shareholders have limited dissenters' rights in
mergers and other reorganizations. Capital Corp is eligible to eliminate
cumulative voting and to adopt a classified board of directors, while Town &
Country is not eligible to take these actions. Capital Corp proposes to take
these actions if its shareholders approve Proposal Three and Proposal Four,
respectively, at the Capital Corp Meeting. See "CERTAIN DIFFERENCES IN RIGHTS OF
SHAREHOLDERS."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Directors of Town & Country hold a substantial number of Town & Country
shares and will benefit to the same extent as all Town & Country shareholders
from the conversion of Town & Country shares to Capital Corp Shares. Directors
of Town & Country will continue to act as directors of Town & Country after the
Merger. Capital Corp has agreed to provide Town & Country's directors with
indemnification against certain claims and expenses that might be brought
against them after completion of the Merger. On the Effective Date, Capital Corp
will offer a contract of employment to D. Dale Pinkney, president of Town &
Country. Terms of the contract will include a base salary of $72,300, a term of
three years, a granting of options under Capital Corp's incentive option plan to
acquire up to 10,000 shares of Capital Corp common stock at an exercise price
equal to fair market value at the time of the grant, participation in Capital
Corp's incentive program and a one-time bonus of $10,000. See "PROPOSAL ONE: THE
MERGER -- Interests of Certain Persons in the Merger."
MARKET PRICE DATA
Capital Corp common stock has been quoted on the Nasdaq National Market
since January 18, 1996 under the symbol "CCOW." Before such date, Capital Corp
common stock was traded in the over-the-counter market and was quoted in the
Over the Counter Electronic Bulletin Board but was not quoted on Nasdaq. Town &
Country common stock is thinly traded in the over-the-counter market and is
quoted in the Over-the-Counter Electronic Bulletin Board and is not quoted on
Nasdaq.
The following table sets forth historical per share market values for
Capital Corp common stock and Town & Country common stock and the equivalent pro
forma market values (i) on January 15, 1996, the last
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<PAGE>
trading day prior to public announcement of the Merger and (ii) on May 3, 1996.
The historical per share market values shown below for Capital Corp common stock
and Town & Country common stock represent the last sale prices on the dates
indicated; such values for Capital Corp may be higher or lower than the "Market
Value" of Capital Corp common stock as such term is defined in the Agreement for
purposes of determining the Exchange Amount. The equivalent pro forma market
value per share of Town & Country common stock reflects the fixed Exchange
Amount of $33.05 per share, assuming the average minimum Cash Component of $9.52
per share and a Market Value equivalent to the market price for Capital Corp
common stock shown in the table.
<TABLE>
<CAPTION>
MARKET PRICE
------------------------------
HISTORICAL HISTORICAL TOWN EQUIVALENT PRO FORMA
CAPITAL CORP & COUNTRY MARKET VALUE
------------- --------------- ---------------------
<S> <C> <C> <C> <C>
January 10, 1996 $ 12.63 $ 20.00 Cash Component $ 9.52
Stock Component 23.53
Total 33.05
May 3, 1996 14.50 20.00 Cash Component 9.52
Stock Component 23.53
Total 33.05
</TABLE>
No assurance can be given that Capital Corp's Market Value will not be lower
or higher than the amounts shown in the above table or that actual stock prices
for Capital Corp's common stock will be equal to or greater than such Market
Value at any time after completion of the Merger. Following the Merger, New Town
& Country (as the surviving corporation in the Merger and the legal successor to
Town & Country) will be a wholly owned subsidiary of Capital Corp, and there
will be no further public market for Town & Country common stock. Capital Corp
common stock will continue to be quoted on the Nasdaq National Market.
DIVIDEND POLICY
Historically, Capital Corp (and County Bank as its predecessor) has retained
all retained earnings to support growth. Capital Corp paid 15% stock dividends
in June 1994 and June 1995 but has not paid cash dividends. Town & Country paid
cash dividends of $1.00 per share in 1994, 1995 and 1996. Each company's Board
of Directors considers the advisability and amount of proposed dividends
periodically. Future dividends will be determined in light of earnings,
financial condition, any restrictions contained in outstanding debt instruments,
future capital needs, regulatory requirements and such other factors as the
Board of Directors deems relevant. Capital Corp's primary source of funds for
payment of dividends to its shareholders will be the receipt of management fees
and dividends from its subsidiaries. The payment of dividends by banks and
industrial loan companies is subject to various legal and regulatory
restrictions.
RECENT DEVELOPMENTS
Capital Corp had net income of $501,000 for the three months ending March
31, 1996, compared to $421,000 for the same period in 1995, a 19% increase. On a
per share basis, this is equal to $.38 per share in 1996 versus $.32 in 1995.
Annualized return on average assets was .99% and return on beginning equity was
13.3%, compared with .96% and 12.1% returns, respectively, in the first quarter
of 1995. Stronger earnings are primarily the result of asset growth, an
improvement in the Bank's net interest margin and improvements in fee income.
This is in part offset by increased loan loss provisions and increased expenses
as a result of the Company's expansion.
Total assets at March 31, 1996 were $214 million, an increase of $29 million
or 16% over March 31, 1995. At March 31, 1996, total gross loans were $138
million, an increase of $22 million or 19% over March 31, 1995. As of April 1,
1996, County Bank opened its seventh branch in Sonora, California.
Capital Corp had equity capital of $15.2 million as of March 31, 1996. Book
value per share was $11.41 as of that date. The Company's tangible capital ratio
stood at 7.5% at March 31, 1996.
Loan loss reserves were $1.9 million, or 1.3% of total loans, as of March
31, 1996. There were no net losses for the first quarter of 1996. Non-performing
assets totaled $5,540,000 as of March 31, 1996 or 32.3% of total equity capital
and loan loss reserves. This compares with non-performing assets of $4,673,000
as of December 31, 1995 or 29.0% of total equity capital and loan loss reserves.
Included in the non-performing
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assets is a large real estate loan that has recently been restructured but is
still shown as a non-performing asset and a large agricultural loan that is in
the process of liquidation. It is anticipated that a majority of the liquidation
will be completed without material loss by June 30, 1996.
In addition, the Bank had purchased a portfolio of lease receivables in 1994
that as of March 31, 1996 totaled $1,793,000. The company which packages and
sells these leases to financial institutions filed a Chapter 11 reorganization
in April 1996 and its chief financial officer has been charged by the Securities
and Exchange Commission with participating in securities fraud in the sale of
certain leases. More than 360 banks nationwide have acquired similar lease
receivable contracts. The Bank has retained counsel jointly with other
California banks and is currently analyzing its position to ascertain the extent
of loss, if any, the Bank may incur. The bankruptcy court has released
approximately $500,000 in Capital Corp's lease receivables from the effect of
the bankruptcy proceeding. Because the bankruptcy proceedings are likely to
delay the regular payments under the leases, County Bank placed $1,200,000 of
these receivables on non-accrual status on May 3, 1996. This amount is not
included in non-performing assets as of March 31, 1996. Although public reports
indicate that some of the lease receivables sold to banks and other investors
were fraudulent, the Bank has no information that would lead it to conclude that
the leases it acquired are not genuine. The bankruptcy trustee has advised the
bankruptcy court that he will make an early investigation of the general
position of the creditor banks, including County Bank, and will take appropriate
action upon making his determination. As further information becomes available,
the Bank will re-evaluate its position and, if necessary, make appropriate
provisions if any loss is expected in connection with the leases.
Town & Country reported earnings of $31,000 for the three-month period ended
March 31, 1996. This compares with $89,000 for the same period in 1995, a 65.1%
decrease. On a per share basis, this is equal to $.18 per share versus $.53 per
share in 1995.
This results in an annualized return on average assets of .48% and a return
on beginning equity of 3.4%, as compared with 1.54% and 6.4%, respectively, in
the first quarter of 1995. Lower earnings are primarily the result of increased
expenses relating to the pending merger transaction, increased loan loss
provisions and a moderate decrease in net interest margin. Merger expenses were
$45,000 for the first quarter. Loan loss provisions for the first quarter of
1996 increased $32,000 from the same period in 1995.
Total assets at March 31, 1996 were $27,395,000, a $3,697,000 or 15.6%
increase over March 31, 1995. Net receivables outstanding were $17,272,000 and
total deposits were $23,850,000 as of March 31, 1996.
Equity capital was $3,486,000 as of March 31, 1996. Book value per share
totaled $20.73. Town & Country's leverage ratio was 12.8% as of March 31, 1996.
Loan loss reserves totaled $160,000 or .93% of total loans. Non-performing loans
totaled $185,000 as of March 31, 1996, or 5.3% of equity capital and loan loss
reserves.
SELECTED FINANCIAL INFORMATION
The following tables present selected historical, unaudited pro forma
combined condensed and unaudited pro forma equivalent consolidated financial
information, including per share information, for Capital Corp and Town &
Country. The following financial data should be read in conjunction with the
consolidated financial statements of Capital Corp included or incorporated by
reference in this Joint Proxy Statement/Prospectus and the financial statements
of Town & Country included in this Joint Proxy Statement/Prospectus, the
unaudited pro forma combined condensed financial information of Capital Corp and
Town & Country appearing herein, and the notes to such statements and
information. The unaudited pro forma combined condensed information presents
selected financial information based on the historical financial statements of
the parties, giving effect to the proposed combination under the purchase method
of accounting and the assumptions and adjustments in the notes thereto.
Equivalent pro forma per share amounts are calculated by multiplying the pro
forma income per share before non-recurring charges or credits directly
attributable to the transaction and pro forma book value per share of Capital
Corp by the Exchange Ratio so that the per share amounts are equated to the
respective values for one share of Town & Country common stock. The equivalent
pro forma dividends per share reflect only the historic dividends of Capital
Corp. Since Capital Corp has not paid any cash dividends, no equivalent pro
forma dividends per share are shown. The unaudited pro forma combined condensed
financial statements do not necessarily indicate the results that would have
occurred if the Merger had been in effect on the date indicated or that may
occur in the future.
11
<PAGE>
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CAPITAL CORP (HISTORICAL)
Interest income........................................... $ 15,873 $ 12,807 $ 11,483 $ 11,370 $ 12,240
Interest expense.......................................... 5,717 3,850 3,061 3,948 5,419
Net income................................................ 335 1,736 1,783 1,166 712
Dividends declared........................................ -- -- -- -- --
Book value per share...................................... 11.31 10.56 9.48 8.15 7.27
Weighted average shares outstanding....................... 1,333,923 1,333,456 1,333,414 1,333,414 1,333,414
TOWN & COUNTRY (HISTORICAL)
Interest income........................................... $ 2,430 $ 2,988 $ 3,857 $ 3,928 $ 3,323
Interest expense.......................................... 1,010 963 1,304 1,488 1,520
Net income................................................ 231 431 680 762 518
Dividends declared........................................ 168 168 252 168 84
Book value per share...................................... 21.55 21.17 19.60 17.07 13.53
Weighted average shares outstanding....................... 168,156 168,156 168,156 168,156 168,156
CAPITAL CORP AND TOWN & COUNTRY (UNAUDITED)
PER SHARE DATA (PRO FORMA COMBINED) (1), (2)
Net income per share...................................... $ .27
Dividends declared per share.............................. .10
Book value per share...................................... 11.87
Weighted average shares outstanding....................... 1,604,432
TOWN & COUNTRY (UNAUDITED) (PRO FORMA COMBINED EQUIVALENT
PER SHARE) (3)
Net income per share...................................... $ .43
Dividends declared per share.............................. --
Book value per share...................................... 19.09
</TABLE>
12
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FINANCIAL INFORMATION 1995 1994 1993 1992 1991
- ---------------------------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CAPITAL CORP (HISTORICAL)
RESULTS OF OPERATIONS
Interest income............................... $ 15,873 $ 12,807 $ 11,483 $ 11,370 $ 12,240
Interest expense.............................. 5,717 3,850 3,061 3,948 5,419
Net interest income........................... 10,156 8,957 8,422 7,422 6,812
Provision for loan losses..................... 228 -- 254 162 273
Noninterest income (loss)..................... (1,224) 805 679 884 859
Noninterest expense........................... 8,146 6,923 6,459 6,302 6,342
Net income.................................... 335 1,736 1,783 1,166 712
BALANCE SHEET (END OF PERIOD)
Total assets.................................. $ 209,033 $ 178,121 $ 155,178 $ 141,988 $ 133,711
Net loans..................................... 132,035 111,979 105,377 95,719 84,381
Deposits...................................... 192,601 163,199 141,740 130,508 123,514
Other borrowed funds.......................... 107 107 -- -- --
Shareholders' equity.......................... $ 15,093 $ 14,082 $ 12,633 $ 10,853 $ 9,693
FINANCIAL RATIOS
Tier 1 risk-based capital..................... 9.22% 10.50% 10.20% 9.40% 9.20%
Total risk-based capital...................... 10.27 11.7 11.4 10.8 10.7
Leverage ratio................................ 7.43 8.4 8.4 7.7 7.5
Allowance for loan losses/period end loans.... 1.27 1.43 1.63 1.66 1.97
Return on average assets...................... .18 1.05 1.24 .86 .56
Return on average equity...................... 2.16 12.81 15.06 11.37 7.42
Nonperforming assets to total loans........... 3.46 .62 1.02 1.24 2.21
TOWN & COUNTRY (HISTORICAL)
RESULTS OF OPERATIONS
Interest income............................... $ 2,430 $ 2,988 $ 3,857 $ 3,928 $ 3,323
Interest expense.............................. 1,010 963 1,304 1,488 1,520
Net interest income........................... 1,420 2,025 2,553 2,440 1,803
Provision for loan losses..................... 100 271 446 130 54
Noninterest income............................ 217 275 417 456 358
Noninterest expense........................... 1,199 1,310 1,349 1,397 560
Net income.................................... 231 431 680 762 518
BALANCE SHEET (END OF PERIOD)
Total assets.................................. $ 26,285 $ 24,927 $ 31,887 $ 32,462 $ 26,166
Net loans..................................... 16,938 16,837 23,455 26,298 22,213
Deposits...................................... 22,545 21,189 28,268 29,164 23,394
Shareholders' equity.......................... 3,624 3,560 3,297 2,870 2,276
FINANCIAL RATIOS
Tier 1 risk-based capital..................... 18.51% 17.33% 12.72% 10.39% 9.60%
Total risk-based capital...................... 19.30 18.73 14.15 11.26 10.46
Leverage ratio................................ 13.61 12.54 10.11 9.43 9.52
Allowance for loan losses/period end loans.... .89 1.33 1.59 .93 .90
Return on average assets...................... .90 1.50 1.64 2.50 2.16
Return on average equity...................... 6.54 12.58 22.04 29.63 24.66
Nonperforming assets to total loans........... .40 3.33 3.00 8.37 1.26
</TABLE>
13
<PAGE>
FINANCIAL INFORMATION 1995
- ----------------------------------------------------------------- ----------
CAPITAL CORP AND TOWN & COUNTRY (UNAUDITED) (PRO FORMA COMBINED)
(2)
RESULTS OF OPERATIONS
Interest income.................................................. $ 18,366
Interest expense................................................. 6,873
Net interest income.............................................. 11,493
Provision for loan losses........................................ 328
Noninterest income............................................... (1,007)
Noninterest expense.............................................. 9,490
Net income....................................................... 429
BALANCE SHEET (END OF PERIOD)
Total assets..................................................... $ 237,376
Net loans........................................................ 148,289
Deposits......................................................... 215,146
Other borrowed funds............................................. 1,832
Shareholders' equity............................................. 19,050
FINANCIAL RATIOS
Tier 1 risk-based capital........................................ 10.50%
Total risk-based capital......................................... 11.54
Leverage ratio................................................... 8.82
Allowance for loan losses/period end loans....................... 1.23
Return on average assets......................................... .22
Return on average equity......................................... 2.42
Nonperforming assets to total loans.............................. 3.35
14
<PAGE>
NOTES TO SELECTED FINANCIAL INFORMATION
(1) The unaudited pro forma combined net income and dividends per share data
have been calculated using Capital Corp's average number of common shares
outstanding for the period presented increased by 270,509 Capital Corp
shares to be issued to Town & Country shareholders using an Exchange Amount
of $5,557,555, a Cash Component of $1,600,000 (the minimum under the
Agreement), and an Exchange Ratio for the Stock Component of 1.6086 Capital
Corp shares (assuming a Capital Corp. Market Value of $14.63) for each Town
& Country share outstanding at December 31, 1995, as if these shares were
outstanding for the period presented, with cash reduced by the minimum Cash
Component of $1,600,000. The unaudited combined pro forma book value per
share data has been calculated by using Capital Corp's common shares
outstanding increased by the Capital Corp shares to be issued to Town &
Country shareholders using an Exchange Ratio of 1.6086 Capital Corp shares
for each Town & Country share outstanding at December 31, 1995, as if these
shares were outstanding for the period presented. Such unaudited pro forma
per share data assumes no dissenting Capital Corp or Town & Country
shareholders and no exercise of outstanding Capital Corp stock options.
(2) The unaudited pro forma combined information reflects the purchase method of
accounting. The excess of the purchase price over the fair market value of
the assets acquired is estimated to be $2,243,000 at December 31, 1995, of
which $460,000 has been allocated to core deposit intangible and $1,783,000
to goodwill. For income statement purposes, goodwill is being amortized on a
straightline basis over an 18-year life and core deposit intangible over a
10-year life. The fair value adjustment for loans is being amortized on a
straightline basis over a three-year life.
(3) Town & Country unaudited pro forma equivalent per share data is based on
Capital Corp and Town & Country pro forma combined per share data multiplied
by an Exchange Ratio of 1.6086. The Exchange Ratio is calculated by dividing
the number of shares of Capital Corp common stock to be issued (as
determined by the Stock Component divided by the Market Value) by the number
of Town & Country common shares outstanding. The number of shares of Capital
Corp common stock to be issued was determined by taking the Exchange Amount
of $5,557,555; subtracting the minimum Cash Component of $1,600,000, leaving
a result of $3,957,555; and dividing this amount by the assumed Market Value
of $14.63 ($3,957,555/$14.63=270,509). The Exchange Ratio is calculated by
dividing the number of shares of Capital Corp common stock to be issued by
the number of outstanding shares of Town & Country common stock
(270,509/168,1156=1.6086). Different Market Values for Capital Corp common
stock will result in different Exchange Ratios and in different pro forma
combined equivalent per share data for Town & Country shareholders. The
following supplemental table assumes the minimum aggregate Cash Component of
$1,600,000 and shows a range of pro forma combined equivalent per share data
based on a range of Market Values for Capital Corp common stock.
<TABLE>
<CAPTION>
TOWN & COUNTRY (UNAUDITED)
(PRO FORMA COMBINED EQUIVALENT PER SHARE)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Market Value............................... $ 13.00 $ 13.50 $ 14.00 $ 15.00 $ 16.00
Exchange Ratio............................. 1.8103 1.7433 1.6810 1.5690 1.4711
Net income................................. $ .49 $ .47 $ .45 $ .42 $ .40
Dividends declared......................... -- -- -- -- --
Book value per share....................... 21.49 20.69 19.95 18.62 17.46
</TABLE>
15
<PAGE>
THE ANNUAL MEETINGS OF SHAREHOLDERS
OF CAPITAL CORP AND OF TOWN & COUNTRY
INTRODUCTION
This Joint Proxy Statement/Prospectus is furnished in connection with (a)
the solicitation by the Board of Directors of Capital Corp of proxies to be
voted at the Annual Meeting of Shareholders of Capital Corp (the "Capital Corp
Meeting") and any adjournments or postponements thereof and (b) the solicitation
by the Board of Directors of Town & Country of proxies to be voted at the Annual
Meeting of Shareholders of Town & Country (the "Town & Country Meeting") and any
adjournments or postponements thereof. This Joint Proxy Statement/Prospectus
also serves as the Prospectus of Capital Corp with regard to the offering of
shares of Capital Corp common stock to shareholders of Town & Country in
connection with the Merger.
At the Capital Corp Meeting, the shareholders of Capital Corp will be asked
to (1) consider and vote on the Agreement and the Merger Agreement (see Annex
A), under which Town & Country will merge with T & C Merger Thrift Company, a
proposed wholly owned subsidiary of Capital Corp, and will become a wholly owned
subsidiary of Capital Corp; (2) elect 11 directors; (3) approve an amendment to
the Bylaws to eliminate cumulative voting; (4) approve an amendment to the
Bylaws to classify the Board of Directors and change to authorized range of
directors; (5) approve an amendment to the Articles of Incorporation to
eliminate action by the shareholders by written consent without a meeting; (6)
approve an amendment to the Articles of Incorporation to require a supermajority
vote of shareholders to approve certain business combinations; and (7) act upon
such other matters as may properly come before such meeting or any adjournment
thereof.
At the Town & Country Meeting, the shareholders of Town & Country will be
asked to (1) consider and vote upon the Agreement and the Merger Agreement; (2)
elect five directors; and (3) consider and vote upon such other business as may
properly come before the Town & Country Meeting.
VOTING AND PROXIES
DATE, TIME AND PLACE OF MEETING
The Capital Corp Meeting will be held on June 20, 1996, at 7:00 p.m. local
time at the Italo-American Lodge, West 18th and U Streets, Merced, California.
The Town & Country Meeting will be held on June 18, 1996 at 7:00 p.m. local
time at Turlock Golf & Country Club, 10532 North Golf Link Road, Turlock,
California.
RECORD DATE AND VOTING RIGHTS
Only holders of record of Capital Corp common stock at the close of business
on May 10, 1996 (the "Capital Corp. Record Date") are entitled to notice of and
to vote at the Meeting. At the Capital Corp Record Date, there were
approximately 1,200 shareholders of record and 1,334,956 shares of Capital Corp
common stock outstanding and entitled to vote. Directors and executive officers
of Capital Corp and their affiliates owned beneficially as of the Record Date an
aggregate of 225,162 shares of Capital Corp common stock (including shares
subject to vested options), or approximately 15.1% of the outstanding Capital
Corp common stock.
Only holders of record of Town & Country common stock at the close of
business on May 10, 1996 (the "Town & Country Record Date") are entitled to
notice of and to vote at the Meeting. At the Town & Country Record Date, there
were approximately 80 shareholders of record and 168,156 shares of Town &
Country common stock outstanding and entitled to vote. Directors and executive
officers of Town & Country and their affiliates owned beneficially as of the
Town & Country Record Date an aggregate of 25,096 shares of Town & Country
common stock, or approximately 14.9% of the outstanding Town & Country common
stock.
For both Capital Corp and Town & Country, each shareholder is entitled to
one vote for each share of common stock he or she owns, except that in the
election of directors each shareholder has cumulative voting rights. Under
cumulative voting, a shareholder is entitled to as many votes as shall equal the
number of directors to be elected multiplied by the number of shares held and
may cast all his or her votes for a single candidate or distribute such votes
among any or all of the candidates as he or she chooses. However, no
16
<PAGE>
shareholder may cumulate votes unless the shareholder has given notice at the
meeting prior to the voting of the shareholder's intention to cumulate votes. If
any shareholder gives such notice, all shareholders may cumulate votes for
candidates in nomination. An opportunity will be given at each Meeting, before
the voting, for any shareholder who desires to do so to announce his or her
intention to cumulate his or her votes. Under the terms of the Agreement and
California law, approval of the Merger by the Town & Country shareholders
requires the affirmative vote of the holders of a majority of the outstanding
shares of Town & Country common stock, and approval of the Merger by the Capital
Corp shareholders requires the affirmative vote of the holders of a majority of
the outstanding shares of Capital Corp common stock. Approval of Capital Corp
Proposals Three, Four and Five requires the affirmative vote of the holders of a
majority of the outstanding shares of Capital Corp common stock. Approval of
Capital Corp Proposal Six requires the affirmative vote of the holders of
two-thirds of the outstanding shares of Capital Corp common stock.
CAPITAL CORP SHAREHOLDER APPROVAL OF THE MERGER IS A CONDITION TO THE
MERGER. BECAUSE APPROVAL OF THE MERGER AND OF PROPOSALS THREE, FOUR, FIVE AND
SIX BY THE SHAREHOLDERS OF CAPITAL CORP REQUIRES THE AFFIRMATIVE VOTE OF THE
HOLDERS OF A SPECIFIED PERCENTAGE OF THE OUTSTANDING CAPITAL CORP COMMON STOCK,
ABSTAINING AND BROKER NON-VOTES WILL HAVE THE SAME EFFECT AS A NEGATIVE VOTE.
ACCORDINGLY, THE BOARD OF DIRECTORS OF CAPITAL CORP URGES EVERY SHAREHOLDER OF
CAPITAL CORP TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY IN
THE ENCLOSED PREPAID ENVELOPE.
TOWN & COUNTRY SHAREHOLDER APPROVAL OF THE MERGER IS A CONDITION TO THE
MERGER. BECAUSE APPROVAL OF THE MERGER BY THE SHAREHOLDERS OF TOWN & COUNTRY
REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING
TOWN & COUNTRY COMMON STOCK, ABSTAINING AND BROKER NON-VOTES WILL HAVE THE SAME
EFFECT AS A NEGATIVE VOTE. ACCORDINGLY, THE BOARD OF DIRECTORS OF TOWN & COUNTRY
URGES EVERY SHAREHOLDER OF TOWN & COUNTRY TO COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY PROMPTLY IN THE ENCLOSED PREPAID ENVELOPE.
VOTING BY PROXY
Shareholders of each company may use the enclosed proxy if they are unable
to attend the Meeting in person or wish to have their shares voted by proxy even
if they attend the Meeting. All proxies that are properly executed and returned,
unless revoked, will be voted at the respective Meetings in accordance with the
instructions indicated thereon or, if no direction is indicated, in favor of the
Merger and for the election of the respective management's nominees as
directors. The execution of a proxy will not affect the right of a shareholder
of either company to attend that company's Meeting and vote in person. A person
who has given a proxy may revoke it any time before it is exercised at the
Meeting by filing with the Secretary of the company, a written notice of
revocation or a proxy bearing a later date or by attendance at the Meeting and
voting in person. Attendance at a Meeting will not, by itself, revoke a proxy.
ADJOURNMENTS
Either Meeting may be adjourned, even if a quorum is not present, by the
vote of the holders of a majority of the shares represented at the Meeting in
person or by proxy. Proxies voting against the Agreement and granting
discretionary authority may not be voted by the proxy holders in favor of an
adjournment to solicit additional proxies. In the absence of a quorum at a
Meeting, no other business may be transacted at that Meeting.
Notice of the adjournment of a Meeting need not be given if the time and
place thereof are announced at the Meeting at which the adjournment is taken,
provided that if the adjournment is for more than 45 days (in the case of the
Capital Corp Meeting), or if after the adjournment a new record date is fixed
for the adjourned Meeting, a notice of the adjourned Meeting shall be given to
each shareholder of record entitled to vote at the Meeting. At an adjourned
Meeting, any business may be transacted which might have been transacted at the
original Meeting.
17
<PAGE>
SOLICITATION OF PROXIES
The proxy relating to the Town & Country Meeting is being solicited by the
Board of Directors of Town & Country, and the proxy relating to the Capital Corp
Meeting is being solicited by the Board of Directors of Capital Corp. Town &
Country and Capital Corp will share the cost of printing and distributing the
Registration Statement and this Joint Proxy Statement/Prospectus in proportion
to the estimated number of Capital Corp shares that will be held immediately
after completion of the Merger by their respective pre-Merger shareholders.
Copies of solicitation material will be furnished to brokerage houses,
fiduciaries and custodians holding in their names shares of Town & Country
common stock and Capital Corp common stock beneficially owned by others to
forward to such beneficial owners.
Capital Corp and Town & Country may reimburse such persons representing
beneficial owners of their respective shares for their expenses in forwarding
solicitation material to such beneficial owners. Solicitation of proxies by mail
may be supplemented by telephone, telegram or personal solicitation by
directors, officers or other regular employees of Capital Corp and Town &
Country, who will not be additionally compensated therefor.
PROPOSAL ONE: THE MERGER
BACKGROUND
The terms of the Agreement are the result of arm's-length negotiations
between representatives of Capital Corp and Town & Country. The following is a
brief description of the events that led to the execution of the Agreement.
Capital Corp decided to pursue an expansion strategy in June 1995 in
connection with the proposal to form a bank holding company for County Bank. In
August 1995, representatives of Capital Corp and Town & Country held preliminary
discussions regarding a potential business combination of the two companies.
Discussions continued and Capital Corp and Town & Country entered into a
non-binding letter of intent on January 10, 1996, providing for the Merger. The
parties publicly announced the letter of intent on January 16, 1996.
Negotiations and due diligence continued through March 1996, and negotiations
and drafting of a definitive agreement began on or about February 1, 1996.
During this time, the parties discussed the appropriate level of the allowance
for loan losses for each company. They also considered establishing a fixed
Exchange Amount rather than a variable Exchange Amount that might fluctuate up
until the Effective Date. During that time the Boards of Directors of Town &
Country and Capital Corp met several times to consider the Merger. The Town &
Country Board of Directors approved the Merger on March 22, 1996. The Capital
Corp Board of Directors approved the Merger on March 21, 1996. The parties
executed the Agreement as of March 22, 1996. During this period, neither Capital
Corp nor Town & Country considered merging with any other entities.
REASONS FOR THE MERGER AND RECOMMENDATION
Town & Country's Board of Directors has concluded that the terms of the
Merger are fair to, and in the best interests of, Town & Country's shareholders.
In evaluating the terms of the Merger, the Board of Directors considered the
cash and number of shares of Capital Corp common stock to be issued in exchange
for each outstanding share of Town & Country common stock, the impact of the
Merger upon their depositors, customers and employees, the overall compatibility
of their offices and branch structures, the long-term prospects for both
organizations in a rapidly changing banking and financial services industry, the
anticipated ability of the combined entity to compete more effectively in its
market area and the tax-free nature of the Merger. Town & Country's Board of
Directors also considered greater liquidity for Capital Corp common stock. Town
& Country's Board of Directors also reviewed, among other things, the method of
calculating the Exchange Amount and the Exchange Ratio in relation to the market
value, book value and earnings per share of Town & Country common stock and
Capital Corp common stock, information concerning the financial condition,
results of operations and prospects of Capital Corp and Town & Country, the
benefits of economies of scale and the financial terms of other recent business
combinations in the California banking industry.
18
<PAGE>
In addition, the Board of Directors of Town & Country have requested an
opinion from Williams Gregg, Inc. as to whether the Merger is fair to the Town &
Country shareholders from a financial point of view as further described below.
In summary, the Board of Directors of Town & Country, without assigning any
relative or specific weight to the factors considered, concluded the following:
(i) The Exchange Amount represents a fair multiple of Town & Country per
share book value and historical and projected earnings;
(ii) The Merger will be tax-free for Federal income tax purposes for the
shareholders of Town & Country (other than the cash portion of the Exchange
Amount, cash paid in lieu of fractional shares and cash paid on account of
the exercise of dissenters' rights);
(iii) Capital Corp shares have greater market liquidity than Town &
Country shares; and
(iv) The due diligence examination of Capital Corp by Town & Country
representatives indicated that Capital Corp has strong management and
capital.
The Board of Directors of Capital Corp determined that the Merger is in its
best interests and the best interests of its shareholders. It also considered
the method of determining the Exchange Amount and the Exchange Ratio in relation
to its own capital and managerial resources and prospects for future operations.
Among the important factors it considered are the following:
(i) It has conducted a due diligence examination of Town & Country which
indicates that Town & Country is a well capitalized institution with strong
management and good earnings potential;
(ii) Town & Country will benefit from the management expertise, expanded
menu of products and services and other resources available through the
holding company structure, thereby improving Town & Country's ability to
serve its customers, as well as increasing its potential for growth and
increased earnings;
(iii) The geographic markets served by Town & Country complement the
markets served by Capital Corp's existing subsidiary, County Bank, and
encompass areas into which Capital Corp would like to expand its services;
(iv) The types of lending activities engaged in and products offered by
Town & Country complement the lending activities and products of County
Bank, and will allow Capital Corp to significantly increase its consumer
lending capabilities;
(v) The ability of County Bank and Town & Country to cross-market
products and services will benefit consumers by increasing competition in
the markets served by each institution; and
(vi) The diversification of Capital Corp's customer base and loan
portfolio that will result from the Merger will help diversify risk in the
Capital Corp organization, enabling Capital Corp to better act as a source
of strength to its subsidiary companies.
FAIRNESS OPINIONS
THE FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITH
RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF
CAPITAL CORP AND TOWN & COUNTRY FOLLOWING THE MERGER, INCLUDING A DESCRIPTION OF
OR REFERENCE TO CERTAIN FINANCIAL AND OPERATING FORECASTS, PROJECTIONS AND
PROJECTED COST SAVINGS,PLANS TO PAY CASH DIVIDENDS AND STOCK DIVIDENDS, FUTURE
STOCK PRICES AND TRADING VOLUME, AND FUTURE BOOK VALUE, EARNINGS AND DIVIDENDS
PER SHARE. IN THE CASE OF CASH DIVIDENDS, CAPITAL CORP HAS NO CURRENT INTENTION
OF PAYING CASH DIVIDENDS IN THE FORESEEABLE FUTURE; REFERENCES TO PAYMENTS OF
CASH DIVIDENDS ARE INCLUDED AS PART OF THE PRO FORMA ANALYSIS OF THE PARTY
PROVIDING THE FAIRNESS OPINION. IN THE CASE OF STOCK DIVIDENDS, CAPITAL CORP
REEVALUATES THE PLANNED LEVEL OF STOCK DIVIDENDS, IF ANY, ON AN ONGOING BASIS
BASED ON ACTUAL OPERATING RESULTS. IN THE CASE OF THESE AND OTHER
FORWARD-LOOKING STATEMENTS, THEY INVOLVE CERTAIN RISKS AND UNCERTAINTIES THAT
MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
FORWARD-LOOKING STATEMENTS. THESE RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS,
THE
19
<PAGE>
FOLLOWING: (A) CAPITAL CORP OR TOWN & COUNTRY MAY EXPERIENCE A DETERIORATION IN
ASSET QUALITY BELOW THE LEVELS CURRENTLY ANTICIPATED; (B) CAPITAL CORP MAY NOT
BE ABLE TO CROSS-SELL ITS BANKING PRODUCTS AND SERVICES TO TOWN & COUNTRY'S
CUSTOMER BASE IN ANTICIPATED VOLUMES; (C) TOWN & COUNTRY'S OWN ASSET LEVEL,
WHICH HAS RECENTLY DECLINED, MAY NOT INCREASE AS ANTICIPATED OR AT ALL; AND (D)
TRADING VOLUME AND STOCK PRICES MAY NOT INCREASE AS CONTEMPLATED BY THE PARTY
PREPARING THE FAIRNESS OPINION REFERRING TO SUCH CHARACTERISTICS. EACH OF THESE
RISKS IS RELATED TO MARKET AND GENERAL ECONOMIC CONDITIONS BEYOND THE CONTROL OF
MANAGEMENT, AS WELL AS TO THE QUALITY OF MANAGEMENT AND OPERATIONS OF THE TWO
COMPANIES. CAPITAL CORP HOPES TO REDUCE CERTAIN COSTS IN THE ACCOUNTING
DEPARTMENT OF TOWN & COUNTRY, BUT CAPITAL CORP HAS NOT PREVIOUSLY COMPLETED AN
ACQUISITION AND MAY NOT BE ABLE TO ACHIEVE THE SAVINGS OR ECONOMIES OF SCALE
THAT IT NOW ANTICIPATES. IN ADDITION, THE DEPARTMENT MAY NOT APPROVE TREATMENT
OF NEW TOWN & COUNTRY AS A CONTINUATION OF TOWN & COUNTRY AND MAY THEREFORE
EFFECTIVELY REQUIRE NEW TOWN & COUNTRY TO REDUCE ITS ASSET SIZE FOR UP TO FIVE
YEARS.
OPINION OF WILLIAMS GREGG, INC.
Town & Country has retained the consulting firm of Williams Gregg, Inc.
("Gregg") of Irvine, California, to render an opinion to Town & Country's Board
of Directors as to whether the consideration to be paid and the other terms of
the proposed Merger are fair from a financial point of view to Town & Country
shareholders. No limitations were imposed by Town & Country with respect to the
investigations made or procedures followed by Gregg in rendering its opinion.
Gregg provides consulting services for banks, savings and loans, and thrift
and loan companies, among others. Its officers have provided such services to
financial institutions in the western U.S. for more than 12 years. Town &
Country's Board of Directors selected Gregg on the basis of Gregg's expertise
and experience in the banking industry. Town & Country has agreed to pay Gregg a
fee of $7,500 and has agreed to reimburse it for reasonable out-of-pocket
expenses for its services in rendering its opinion as to the fairness of the
Merger. Town & Country has also agreed to indemnify Gregg against certain
liabilities, including liabilities under federal securities laws. Town & Country
has also agreed to pay Gregg $15,000 for assisting Town & Country with its due
dilligence review of Capital Corp and County Bank.
Gregg delivered its opinion dated April 2, 1996, that the consideration to
be paid and the other terms of the Merger are fair from a financial point of
view to Town & Country shareholders. Gregg's opinion addresses only the fairness
of the consideration to be paid and the other terms of the Merger from a
financial point of view and it does not constitute a recommendation to any
holder of Town & Country shares as to how to vote at the Meeting. The full text
of the opinion of Gregg, which sets forth certain assumptions made, matters
considered and limitations on the review undertaken, is attached as part of
Annex B to the Joint Proxy Statement/Prospectus, and Town & Country shareholders
are urged to read it in its entirety. The following summary of the opinion of
Gregg is qualified in its entirety by reference to the opinion.
In connection with its opinion, Gregg has (i) reviewed the terms of the
Agreement and Plan of Reorganization; (ii) reviewed annual reports to
shareholders and annual reports on Form 10-K of Capital Corp and year-end call
reports of Town & Country for the five years ended December 31, 1995; (iii)
reviewed certain other publicly available financial and other information
concerning Town & Country and Capital Corp and the trading markets for the
publicly traded securities of Town & Country and Capital Corp; and (iv) reviewed
publicly available information concerning other banks and bank holding
companies, the trading markets for their securities and the nature and terms of
certain other merger transactions believed by Gregg to be relevant to its
inquiry. In addition, Gregg held discussions with senior management of Town &
Country and Capital Corp concerning their past and current operations, financial
condition and prospects as well as the results of regulatory examinations.
In conducting its review and arriving at its opinion, Gregg relied upon and
assumed the accuracy and completeness of the financial and other information
provided to it or publicly available. They relied upon the managements' of Town
& Country and Capital Corp as to the reasonableness and achievability of the
financial and operating forecasts, projections and projected operating cost
savings (and the assumptions and basis therefor) that were provided to Gregg and
they assumed that such forecasts, projections and projected
20
<PAGE>
operating cost savings reflect the best currently available estimates and
judgments of the applicable managements and that such forecasts, projections and
projected operating cost savings will be realized in the amounts and in the time
periods currently estimated. As part of its due diligence review of County Bank,
Gregg evaluated the adequacy of the aggregate allowance for loan losses for
Capital Corp which it considered in rendering its opinion. Its opinion is based
upon economic, market and other conditions as in effect on, and the information
made available to it through the date of the opinion.
The following is a brief summary of the analysis performed by Gregg.
PRO FORMA MERGER AND CONTRIBUTION ANALYSIS. Gregg analyzed the changes in
the amount of earnings, book value and indicated dividends attributable to one
share of Town & Country common stock before the merger as compared to the shares
of Capital Corp common stock for which such shares of Town & Country would be
exchanged. For this analysis, Gregg relied upon past results and future earnings
projections for 1996 through 1998 provided to it by Town & Country senior
management and projected earnings for the same time period for Capital Corp
provided by Capital Corp senior management.
The Town & Country projections assumed that Capital Corp would pay out cash
dividends during the projections period. The projections and Gregg's analysis
assume a dividend payout consistent with Town & Country's recent historical
dividend payout. The following tables summarize the results of the last three
years for Town & Country and management's projections for Town & Country relied
upon by Gregg:
<TABLE>
<CAPTION>
ACTUAL
-----------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Book value per share.......................................... $ 19.61 $ 21.17 $ 21.55
Earnings per share............................................ 4.04 2.56 1.38
Cash dividends per share...................................... 1.50 1.00 1.00
Projected return per average book capital..................... 22.12% 12.61% 6.46%
<CAPTION>
PROJECTED
-----------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Book value per share.......................................... $ 22.38 $ 24.17 $ 26.82
Earnings per share............................................ 1.83 2.80 3.65
Cash dividends per share...................................... 1.00 1.00 1.00
Projected return per average book capital..................... 8.33% 12.03% 14.32%
</TABLE>
Gregg observed that Town & Country's earnings per share have declined over
the past three years from $4.04 in 1993 to $1.38 in 1995. Gregg attributed this
decrease primarily to declines in both loan demand and interest yield on
outstanding loans and contracts; at the end of 1993, net loan receivables were
$23,500,000 or 89% of total deposits while at the end of 1995, net loan
receivables were only $16,900,000 or 67% of total deposits. Gregg attributed the
decline in loan volume to the failure of five automobile dealerships which were
sources of high yielding auto contracts. Additionally, Town & Country
experienced other credit losses in 1993 and 1994, a sizable portion of which
were later offset by significant recoveries from the sale of collateral. Town &
Country has not been able to replace scheduled loan runoffs since the failure of
the dealerships.
Gregg also observed that Town & Country's loan yield has fallen from 16.41%
in 1993 to 14.24% in 1994 and then to 12.93% in 1995. Gregg attributed this to
an increase in lower yielding liquid assets from $7,500,000 in at the end of
1994 to $8,900,000 million at the end of 1995. Gregg noted that Town & Country's
overhead costs, which were reduced from $1,349,000 in 1993 to $1,199,000 in
1995, could support a larger asset base. Additionally, Gregg observed that loan
losses have historically remained within acceptable levels for higher yielding
auto contracts and have not been a major factor in the decline in earnings per
share. The reduction in the loan portfolio was accompanied by a corresponding
reduction in the provisions for loan losses to $100,000 in 1995 from $271,000 in
1994 and $446,000 in 1993.
21
<PAGE>
Town & Country's average return on book capital for the past three calendar
years has been 13.73% and the $1 per share cash dividend paid for 1994 and 1995
corresponds to payout ratios of 39% and 73%, respectively. In Gregg's opinion
this dividend was high but Town & Country remains well capitalized with a fiscal
year end book capital ratio of 13.79% of total assets.
The management of Town & Country projected earnings per share of $1.83,
$2.80 and $3.65 over the next three years. Based on its analysis, Gregg
concluded that management's three year earnings projections appear conservative
and attainable. Based on these figures, Town & Country shares are projected to
receive an average capital return of 11.25% each year. To accomplish this,
however, Gregg advises that low yielding investments will have to be converted
to higher yielding quality receivables. Town & Country plans to open a branch
office in Fresno, California, having identified this market as a source for new
consumer loans, and Gregg suggests that this could possibly offset the negative
impact of the dealership failures in Visalia.
Gregg analyzed the changes in the amount of earnings, book value and
indicated dividends attributable to one share of Capital Corp common stock
before the Merger to those attributable to one share of Capital Corp common
stock as a result of the proposed Merger. The analysis assumes no cash dividend
payouts but payments of stock dividends of 15%, 5% and 5% for 1996, 1997 and
1998. The following schedules summarizes the Capital Corp/County Bank's results
over the last three years and Capital Corp management's projections for the next
three years underlying Gregg's analysis:
<TABLE>
<CAPTION>
ACTUAL
-----------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Book value per share.......................................... $ 12.60 $ 12.14 $ 11.31
Earnings per share............................................ 1.34 1.30 0.25
Stock dividends............................................... 10.0% 15.0% 15.0%
Projected return per average book capital..................... 11.20% 10.51% 2.13%
<CAPTION>
PROJECTED
-----------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Book value per share.......................................... $ 9.95 $ 11.25 $ 12.71
Earnings per share............................................ 1.38 1.86 2.14
Stock dividends............................................... 15.0% 5.0% 5.0%
Projected return per average book capital..................... 10.63% 17.54% 17.86%
</TABLE>
Capital Corp's earnings improved from $0.53 per share in 1991 to the $1.30
per share level in 1993 and 1994. The complete write-off of County Bank's MAID
subsidiary for $2,881,000 severely impacted 1995 results, however. Because
amount and date of a recovery, if any, on its investment in MAID are not known,
no discounted value can be reasonably estimated at this time. Gregg observed
that Capital Corp's earnings per share for 1995 would have been approximately
$1.30 per share without the MAID write-off, which is quite similar to the 1993
and 1994 results. County Bank operated under a Memorandum of Understanding
issued by the FDIC and the State Banking Department from August 20, 1992 to
September, 1994 largely because of the poor asset quality of MAID.
Gregg noted that over the past three calendar years, Capital Corp
shareholders have realized an average return on book capital of 7.93%. Again,
the complete write-off of the MAID subsidiary had an significant impact on
equity return which was only 2.10% for 1995 following 11.2% and 10.5% for 1993
and 1994, respectively.
Capital Corp paid no cash dividends in the last three years but stock
dividends of 10%, 15% and 15% were paid over this period. Acccording to Gregg,
management does not project any cash dividends over the next three years but
plans (subject to revision in management's discretion) a 15% stock dividend for
1996 and a 5% stock dividend for both 1997 and 1998.
Capital Corp's stand alone business plan calls for annual growth of
approximately 20% for the next three years. Planned loan growth for each of
these three years is 17%, 21% and 15%, respectively. Projected net profits of
$2,111,000, $2,999,000 and $3,610,000 over each of the next three years result
in a return per average book value per share of 10.63%, 17.54% and 17.86% for
1996, 1997 and 1998, respectively. Gregg
22
<PAGE>
believes that the 1997 and 1998 results are somewhat aggressive but that the
three year earnings projections appear reasonable and suggests that with the
recent improvement in the California economy an average return of 15% is
attainable.
Over the past three years, Town & Country's earnings performance and average
returns to shareholders have exceeded that of Capital Corp. Town & Country's net
earnings are, however, in a steep downward trend. Gregg believes that Town &
Country's projected average equity return of 11.25% over the next three years
would be possible if Town & Country continued as an independent entity but notes
that the cost of doing business is becoming increasingly more difficult for
small institutions.
Gregg characterized Capital Corp's three year earnings projections as
somewhat optimistic, noting that County Bank did not reach similar earnings
levels in the prior three years. Capital Corp's projections call for no cash
dividends and full earnings retention to book equity capital while Town & County
projects cash dividends. Finally, Gregg observed that Town & Country stock has a
very limited market while Capital Corp common stock should have much broader
trading on the Nasdaq national market which will have an impact on the price of
Capital Corp shares.
COMPARABLE TRANSACTION ANALYSIS. Gregg performed an analysis of 30 bank
merger and acquisition transactions in California where the total consideration
paid had a value of up to $25,000,000 for the periods January 1, 1994 to
December 31, 1995. The bank merger and acquisition transactions considered
included the following:
<TABLE>
<CAPTION>
ACQUIRER ACQUIREE
- ------------------------------------------------- -------------------------------------------------
<S> <C>
First Interstate Bancorp First State Bank of the Oaks
CVB Financial Corporation Western Industrial National Bank
TriCo Bancshares Country National Bank
MCB Financial Corp. Bank of Hayward
California State Bank Bank of Anaheim
SJNB Financial Corp Business Bancorp
Guaranty Bank of California United American Bank
Mid-Peninsula Bank San Mateo Country Bancorp
Redwood Empire Bancorp Codding Bank
ValliCorp Holdings, Inc. Bank One, Fresno N.A.
California Bancshares, Inc. Old Stone Bank of California, FSB
Business & Professional Bank Sacramento First National Bank
California Bancshares, Inc. Bank of Livermore
First Interstate Bank Bank of A. Levy
FP Bancorp, Inc. Overland Bank
Metrobank National Bank of Long Beach
First Banks, Inc. HNB Financial Group
Westamerica Bancorp CapitalBank Sacramento
First Banks, Inc. Irvine City Financial
California Bancshares, Inc. First Community Bancshares, Inc.
Western Bank Bank of Encino
Santa Lucia National Bank Central Coast National Bank
First Banks, Inc. Queen City Bank
Westamerica Bancorporation North Bank Bancorp
United Security Bank, N.A. Golden Oak Bank
First Banks, Inc. La Cumbre Savings Bank
Bank of Santa Maria Templeton National Bank
Eldorado Bancorp Mariners Bancorp
Bank of Los Angeles World Trade Bank, N.A.
Peninsula National Bank Bay Cities National Bank
</TABLE>
23
<PAGE>
With the exception of First Banks, Inc. which is located in Missouri, each
of the acquirers and acquirees considered was located in California. Of these
acquisitions, four were accomplished by outside capital injections which gave
control to the outside investors; Gregg excluded these four acquisitions from
its analysis.
Five banks were purchased for less than book value and two were purchased at
a price equal to book value on a stock swap basis. The purchase prices for the
remaining 19 banks exceeded book value. Half of the 30 banks were purchased for
cash; 10 were purchased with stock and the remaining three were purchased for a
combination of cash and stock. Gregg concluded that there was no apparent
correlation between the purchase price and whether the purchase price was paid
in stock, cash or a combination of stock and cash.
(a) Multiple of Book Value Approach
One method of valuation that Gregg used in its analysis is the multiple of
book value approach. This approach compares the consideration paid to the
purchase prices and multiples of book values of other recent transactions. Gregg
determined that the purchase price to book value for the 26 acquisitions
analyzed ranged from a low of 0.76x to a high of 1.82x, with the average book
value multiple for financial institutions at approximately 1.40x and the median
multiple approximating 1.35x.
Of the 26 acquisitions included in the analysis, Gregg considered two to be
very similar in nature to the Merger. The first of these was Mid-Peninsula
Bank's purchase of San Mateo County Bancorp in 1994. Mid-Peninsula Bank, which
was located in Palo Alto, had a net profit of $234,000 for the 1993 fiscal year
and was purchased for $5,000,000 which was equal to a book value multiple of
1.36x. The second similar transaction was Templeton National Bank's acquisition
by Bank of Santa Maria in September of 1995. Templeton National Bank had total
assets of $28,000,000, and earnings of $295,000 for the fiscal year ended 1994.
The purchase price was $5,600,000 in stock which was equal to a book value of
1.15x. Although this was a book for book transaction, at the time the
acquisition was consummated, Bank of Santa Maria's stock was trading at 1.5x
book value which meant that the actual purchase price had a book value equal to
equal to 1.63x. Gregg viewed these acquisitions to be similar to the Merger
because the Exchange Amount is estimated to be $5,557,555 which is equal to 1.53
times Town & Country's book value. Gregg therefore concluded that the Exchange
Amount is fair viewed from a multiple of book value approach.
(b) Multiple of Equity Return Approach
Gregg also considered the fairness of the consideration based on a
comparison of the multiple of equity returns. In this approach, Gregg compared
purchase prices to a mature institution's previous year's return on average
equity. The conclusion was that, in a stabilized banking environment, the
purchase price for the acquisition of sound and profitable banking institutions
was in the range of 12 to 16 times the equity return for such institutions.
Gregg calculated the multiple of return on equity in this transaction to be
24.06x. Although high, Gregg viewed this multiple as not far outside the normal
range. This higher multiple was attributed in large part to Town & Country's
lower profitability for 1995. Based on a two year average of equity return, the
multiple of return on equity drops to 16.79x, and further declines to 12.43x
based on a three year average. Based on this analysis, Gregg concluded the
consideration to be fair.
COMPARABLE COMPANY ANALYSIS. Gregg also ranked Capital Corp and Town &
Country based on return on average equity within their respective peer groups
comprised of California depository intuitions of similar asset size. Gregg
compared Capital Corp to institutions ranging in size from $150,000,000 to
$250,000,000. Town & Country was compared with peers ranging in size from
$5,000,000 to $50,000,000. Gregg ranked Capital Corp as 11th out of 53
institutions in return on average equity for the year ended December 31, 1994,
and 31st of 87 for the nine months ended September 30, 1995. Gregg noted that
for all of 1995, Capital Corp dropped to approximately the 40th position or the
bottom 25th percentile of its peer group after taking a write-off for the MAID
subsidiary. For the year ended December 31, 1994, Town & Country ranked 15th out
of 91 institutions and for the nine months ended September 30, 1995, ranked 31st
out of 53 institutions in return on average equity. Gregg noted that recent
results indicate that both institutions are average performers for their asset
size.
24
<PAGE>
ANALYSIS OF THE IMPACT ON TOWN & COUNTRY SHAREHOLDERS. For this analysis,
Gregg noted that the most recent trade of Town & Country stock occurred in
November, 1995 at $20 per share while its book value was $21.35 per share and
that the Exchange Amount per share of Town & Country stock is $33.05 or 1.53
times Town & Country's book value per share. Gregg calculated the premium or the
portion of the estimated Exchange Amount above book value to be $1,933,915, of
which $1,600,000 to $1,800,000 will be paid to Town & Country shareholders in
cash.
Gregg calculated that Town & Country shareholders would receive an aggregate
total of approximately 257,133 shares of Capital Corp, assuming a Cash Component
of $1,700,000 and a $15.00 market value for Capital Corp Common Stock. Based on
these same figures, Town & Country shareholders would control 16.15% of Capital
Corp after the Merger. As of December 31, 1995, there were 186,608 outstanding
options for Capital Corp Common Stock issued under the 1992 Stock Option Plan at
a weighted average exercise price of $10.56 per share. Gregg determined that
full conversion of all Capital Corp stock options would lower the Town & Country
shareholders' book value per share at December 31, 1995 from $12.41 per share to
$11.76 per share and dilute its ownership share of Capital Corp to 14.46%. Any
movement in the market price of Capital Corps stock prior to the Effective Date
could have an impact the number of shares to be received by Town & Country
shareholders.
Gregg made certain assumptions in conducting its analyses. Gregg assumed the
completeness and accuracy of the financial information provided to it by Capital
Corp and Town & Country; the reasonableness of the financial projections
supplied to it by Capital Corp and Town & Country and that such projections of
each company reflect the best estimates and judgment of such company at the time
of preparation; the adequacy of County Bank's and Town & Country's loan and
lease loss reserves following the Merger; the absence of any material adverse
change to either company's financial condition, assets, results of operations,
business or prospects since the date of the financial statements provided to
Gregg; the advice of Town & Country's counsel with regard to legal matters
concerning the Agreement; and the economic, monetary and market conditions as of
the date of the opinion, April 2, 1996. No assurance can be given that these
assumptions will prove to be correct.
GREGG'S CONCLUSION. In summary, Gregg evaluated the fairness of the
consideration to be paid and other terms of the Merger by utilizing four methods
of analysis. It was Gregg's opinion that each analysis supported the fairness of
the transaction. The Pro Forma Merger and Contribution Analysis indicated
attainable, albeit optimistic, projections for performance by both institutions
which should result in improved operations after the Merger.
The Comparable Transaction Analysis was supported by similar recent
transactions. The Exchange Amount slightly exceeds the average offer of the
similar recent transactions considered by Gregg under both the Multiple of Book
Value approach and the Multiple of Equity Return approach.
The Comparable Company Analysis concluded that both institutions could best
be described as average performers for their asset size and that a merger would
likely enhance performance as opposed to adversely affecting the resulting
institution. This analysis also supported Gregg's opinion.
The last analysis of the impact on Town & Country shareholders supported the
proposed transaction in that the Merger will result in shareholders of Town &
Country having a broader market for their resulting stock ownership in Capital
Corp as well as receiving a premium of approximately $1,900,000 for their
present holdings in Town & Country.
After conducting analyses under all the different approaches to acquisitions
and analyzing both companies' financial condition and operating results, Gregg
determined that the Exchange Amount of $33.05 per share for all the shares of
Town & Country Common Stock is fair to the shareholders of Town & Country.
OPINION OF BROOKSTREET SECURITIES CORPORATION
Capital Corp has retained the investment banking firm of Brookstreet
Securities Corporation ("Brookstreet") of Irvine, California, to render an
opinion to Capital Corp's Board of Directors as to whether the
25
<PAGE>
terms of the proposed Merger are fair from a financial point of view to Capital
Corp shareholders. No limitations were imposed by Capital Corp with respect to
the investigations made or procedures followed by Brookstreet in rendering its
opinion.
Capital Corp's Board of Directors selected Brookstreet on the basis of
Brookstreet's expertise and experience in the banking industry. The responsible
professional of Brookstreet has over 25 years experience in the securities
industry, including research, corporate finance and management positions and
consulting for community banks. Capital Corp has agreed to pay Brookstreet a fee
of $8,500 and has agreed to reimburse it for reasonable out-of-pocket expenses
for its services in rendering its opinion as to the fairness of the Merger.
Capital Corp has also agreed to indemnify Brookstreet against certain
liabilities, including liabilities under federal securities laws.
On April 5, 1996, Brookstreet provided a written opinion to the directors of
Capital Corp that the terms of the Merger are fair from a financial point of
view to Capital Corp shareholders. Brookstreet's opinion does not constitute a
recommendation to any holder of Capital Corp shares as to how to vote at the
Meeting. The full text of the opinion of Brookstreet, which sets forth certain
assumptions made, matters considered and limitations on the review undertaken,
is attached as part of Annex B to the Joint Proxy Statement/ Prospectus and
Capital Corp shareholders are urged to read it in its entirety. The following
summary of the opinion of Brookstreet is qualified in its entirety by reference
to the opinion.
In conducting its analysis, Brookstreet considered (i) the status of the
area's banking industry; (ii) the general economic environment, (iii) Town &
Country's financial and general condition; (iv) Capital Corp's financial and
general condition; (v) Town & Country's capitalization structure; (vi) Capital
Corp's strategic plan; (vii) the trading history of Capital Corp Common Stock;
(viii) the trading history of Town & Country Common Stock; (ix) a comparison of
the valuation of peers. Brookstreet's conclusions are based on Town & Country's
shareholder equity of $3,623,641 as at December 31, 1995 and that the Exchange
Amount will have a book value multiple of approximately 1.5x. In addition,
Brookstreet held discussions with senior management of Town & Country and
Capital Corp concerning their past and current operations, financial condition
and prospects as well as the results of regulatory examinations.
In conducting its review and arriving at its opinion, Brookstreet relied
upon and assumed the accuracy and completeness of the financial and other
information provided to it or publicly available. They relied upon the
managements of Town & Country and Capital Corp as to the reasonableness and
achievability of the financial and operating forecasts, projections and
projected operating cost savings (and the assumptions and basis therefor) that
were provided to Brookstreet and they assumed that such forecasts, projections
and projected operating cost savings reflect the best currently available
estimates and judgments of the applicable managements and that such forecasts,
projections and projected operating cost savings will be realized in the amounts
and in the time periods currently estimated. Brookstreet did not make any
independent evaluation as to the adequacy of the aggregate allowance for loan
losses for Town & Country or Capital Corp. Its opinion was based upon economic,
market and other conditions in effect, and the information made available to it,
through the date of the opinion. In conducting its analyses, Brookstreet assumed
that after the Merger, Town & Country may become more profitable as a result of
reduced overhead and an expanded franchise; the operations of Town & Country as
a subsidiary of Capital Corp would result in increased earnings to Capital Corp,
potentially increasing the market value of Capital Corp shares; added value to
Capital Corp resulting from its acquisition of Town and Country will be
reflected in Capital Corp's market-makers' quotes; Capital Corp's acquisition of
Town & Country would probably not be viewed by the investment community as an
isolated event and multiples of share price to book value and earnings could
increase as a result; in a reasonably liquid market and under normal conditions
Town & Country shares should trade in the range of 1.2x to 1.4x book value; a
transaction resulting in a change in control may be expected to involve a higher
price to book value ratio; the shareholder equity of $3,623,641 at December 31,
1995 was reflective of the value of Town & Country as of that date, and the
shareholder equity value at the Effective Date will also reflect a
representative book value. No assurance can be given that these assumptions will
prove to be accurate.
26
<PAGE>
BOOK VALUE ANALYSIS. Brookstreet performed an analysis of 27 recent bank
merger and acquisition transactions in California which closed or have been
announced during the period January 1, 1994 through 1996. Brookstreet considered
the merger and/or acquisition of the following California banking institutions:
<TABLE>
<CAPTION>
BANK ACQUIRED CITY
- ------------------------------------------------- -------------------------------------------------
<S> <C>
First State Bank of the Oaks Thousand Oaks
San Diego Trust & Savings Bank San Diego
Pacific Western Bank San Jose
MBC Corporation Modesto
Western Industrial National Bank South El Monte
County National Bank Redding
Bank of Anaheim Anaheim
Golden Gate Bank San Francisco
Bank of Hayward Hayward
Western National Bank San Mateo
California Business Bank, N.A. San Jose
United American Bank Westminster
Codding Bank Rohnert Park
Bank One Fresno, N.A. Fresno
Mineral King National Bank Visalia
Sacramento First National Bank Sacramento
Bank of Livermore Livermore
Pacific Valley National Bank Modesto
Bank of A. Levy Ventura
National Bank of Long Beach Long Beach
Commercial Center Bank Santa Ana
Overland Bank Temecula
University Bank & Trust Co. Palo Alto
Mariners Bank San Clemente
Marine National Bank Irvine
Citizens Bank of Paso Robles Paso Robles
Landmark Bank La Habra
</TABLE>
The transactions considered included bank mergers and acquisitions where
consideration was paid in the form of cash, stock or a combination of cash and
stock. Although the transactions considered involved only banks, Brookstreet
believes the values reflect the acquisition value ranges of community financial
institutions generally and are therefore relevant in its analysis of the
Exchange Amount to be paid to the Town & Country shareholders despite the fact
that Town & Country is an industrial loan company rather than a bank. This is
due to the commonality of deposit basis and the growing overlap of business
services to the local area. Brookstreet noted higher values for institutions in
the northern portion of California resulting from the relatively strong economy
of the region, as compared to the southern portion of California where financial
institutions' earnings results have generally been lagging. Brookstreet's
analysis showed that the purchase price to book value in these transactions
ranged from 0.76x to 2.89x, with the median at approximately 1.49x, compared to
1.5x for the subject transaction. Because the median was approximately equal to
the ratio of purchase price to book value in this transaction, the book value
analysis supported Brookstreet's conclusion as to the fairness of the terms of
the proposed Merger.
In addition to analyzing the book value multiples of other relevant
transactions, Brookstreet considered the qualitative factors of the Merger.
Brookstreet observed that the acquisition of Town & Country will allow Capital
Corp to expand its corporate service base. Operating Town & Country as a wholly
owned subsidiary will allow Capital Corp to benefit from Town & Country's
customer base and create the potential for cross service expansion. Brookstreet
also speculates that Town & Country may become more profitable after the
27
<PAGE>
Merger as result of the reductions in its operating costs and expanding its
franchise. Brookstreet believes that Capital Corp's increased earnings following
the Merger could increase the trading price of Capital Corp Common Stock.
Based on its comparisons of book value multiples and its qualitative
analysis, Brookstreet concluded that a fair value range for the Merger would be
a book value of 1.4x to 1.8x Town & Country's book value.
MARKET VALUE APPROACH. Brookstreet analyzed the recent tracing history of
Town & Country Common Stock. Brookstreet's market value analysis revealed that
little market activity has occurred recently in Town & Country shares.
Brookstreet compared Town & Country's market valuation to that of industry
peers. This approach considers an analysis of the overall economic environment
as it relates to the community banking industry. Share price comparisons may be
made on either of two bases: price to earnings ratio comparisons or price to
book value per share comparisons. Brookstreet utilized the book value comparison
method because, in its opinion, sporadic income flow has been common to
California banks and thrifts and, as a result, comparisons of price to earnings
are less appropriate. In its review, Brookstreet reviewed the price-to-book
value ratios of the following 16 financial institutions:
<TABLE>
<CAPTION>
BANK LOCATION
- ---------------------------------------- --------------------------------------
<S> <C>
American Independent Bank Gardena
Bank of Commerce San Diego
Bank of Yorba Linda Yorba Linda
City Commerce Bank Santa Barbara
Eldorado Bancorp Tustin
Fallbrook National Bank Fallbrook
First Valley Bank Lompoc
Goleta National Bank Goleta
Heritage Oaks Bank Paso Robles
Monarch Bancorp Laguna Niguel
North County Bancorp Escondido
Peninsula Bank San Diego
Rancho Santa Fe National Bank Rancho Santa Fe
Scripps Bank La Jolla
Valley De Oro San Diego
Valley Oaks National Bank Solvang
</TABLE>
Each of the comparison institution has assets under $300 million with the
exceptions of Bank of Commerce and Eldorado Bancorp, which have assets of
approximately $310 million and $380 million, respectively. Each of the
comparison institutions has a relatively low trading volume. Trading in Town &
Country Common Stock has been very thin. For the above banks, the range of
price-to-book value was .71x to 1.32x, with the median ratio at approximately
1.0x. Brookstreet's opinion is that, in a market with reasonable supply and
demand volume, Town & Country should trade from 1.2x to 1.4x book value in
normalized market conditions.
In a transaction where a change of control is involved, the multiple of book
value of the purchase price typically increases. Brookstreet attributes this to
the skewing of supply and demand and the added value of qualitative factors.
Brookstreet anticipates that added qualitative value of Capital Crop as a result
of the acquisition of Town & Country could be reflected in the market quotes of
Capital Corp Common Stock. Additionally, the Merger should result in a broader
shareholder base. Brookstreet also notes that the trading market may not view
the Merger as an isolated event and that additional acquisitions may follow,
leading to multiples of share price to book value and earnings expanding as a
result.
Based on its analysis of the quantitative and qualitative factors relating
to its market valuation approach to the Merger as it related to Capital Corp
shareholders, it is Brookstreet's view that a fair value range for the
acquisition of Town & Country by Capital Corp is 1.4x to 1.9x book value as of
the Effective Date.
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<PAGE>
Because the ratio of purchase price to book value is approximately 1.5, or in
the lower half of the fair value range under this analysis, Brookstreet has
concluded that the terms of the Merger are fair from a financial point of view
to the shareholders of Capital Corp.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
TOWN & COUNTRY SHARE OWNERSHIP. As of December 31, 1995, the directors and
executive officers of Town & Country owned an aggregate of 25,096 shares of Town
& Country common stock which, if owned by them at the Effective Date, will be
converted into cash and shares of Capital Corp common stock with an approximate
aggregate market value of $829,400.
EMPLOYMENT CONTRACT. On the Effective Date, Capital Corp will offer a
contract of employment to D. Dale Pinkney, currently president and chief
executive officer of Town & Country. Terms of the contract will include a base
salary of $72,300, a term of three years, a granting of options under Capital
Corp's incentive option plan to acquire up to 10,000 shares of Capital Corp
common stock, at an exercise price equal to fair market value at the time of the
grant, participation in Capital Corp's incentive program and a one-time bonus of
$10,000.
INDEMNIFICATION OF TOWN & COUNTRY DIRECTORS. Pursuant to the Agreement,
Capital Corp has agreed that it will indemnify any director of Town & Country
who is hereafter made or threatened to be made a party to any proceeding by
reason of the fact that the director is or was an agent of Town & Country, to
the extent permitted and in the manner specified by California Corporations Code
Section 317, provided the director acted in good faith and in a manner that the
director reasonably believed was in the best interests of Town & Country and had
no reasonable cause to believe that his conduct was unlawful; provided, however,
that no such indemnification shall be provided for any of the acts or conduct
for which indemnification is prohibited as specified in Sections 204(a)(10),
204(a)(11) or 317 of the California Corporations Code. As of the Effective Date,
Capital Corp will request that its insurance carrier for directors' and
officers' liability insurance add Town & Country as a named subsidiary for
purposes of such insurance coverage.
PRINCIPAL TERMS OF THE MERGER
GENERAL. The following description of the principal terms of the Merger is
subject to and qualified in its entirety by reference to the terms of the
Agreement and the Merger Agreement, copies of which are annexed to this Joint
Proxy Statement/Prospectus as Annex A.
EFFECTIVE DATE OF MERGER. The Agreement provides that the Merger will be
consummated upon the filing of the Merger Agreement with the California
Secretary of State and the Superintendent in accordance with the laws of
California. It is contemplated that the date on which the Merger will be
effective (the "Effective Date") will occur on or about June 28, 1996, or as
soon thereafter as practicable, assuming the conditions set forth in the Merger
Agreement are fully satisfied or waived. See "THE MERGER -- Terms of the Merger
- -- Representations and Warranties; Conditions to the Merger."
EXCHANGE AMOUNT AND EXCHANGE RATIO. For purposes of the Agreement,
capitalized terms have the following meanings:
<TABLE>
<S> <C>
Town & Country Shares: Issued and outstanding shares of Town & Country
common stock as of the Effective Date (168,156 on
the date of this Joint Proxy Statement/Prospectus)
Exchange Amount: $33.05 per Town & Country Share or $5,557,556 in the
aggregate
Cash Component: Cash portion of the Exchange Amount equal to
$1,600,000 to $1,800,000, depending on the results
of the Cash/Stock Election
Stock Component: Newly issued shares of Capital Corp common stock
with an aggregate Market Value equal to the Exchange
Amount less the Cash Component
Per Share Cash Component: The aggregate Cash Component divided the number of
outstanding Town & Country Shares on the Effective
Date
</TABLE>
29
<PAGE>
<TABLE>
<S> <C>
Per Share Stock Component: The aggregate Stock Component divided the number of
outstanding Town & Country Shares on the Effective
Date
Exchange Ratio: The Per Share Stock Component divided by the Market
Value
Market Value: The average of bid and ask prices at closing of
Capital Corp common stock as reported on the Nasdaq
National Market over all trading days in the
calendar month preceding the anticipated Effective
Date, as mutually established by Capital Corp and
Town & Country
Determination Date: The last business day of the calendar month
preceding the anticipated Effective Date, as
mutually established by Capital Corp and Town &
Country
Effective Date: The date on which the Merger becomes effective by
filing of the Merger Agreement with the California
Secretary of State
</TABLE>
On the Effective Date, by virtue of the Merger and without any action on the
part of the holder of any Town & Country Shares, each outstanding Town & Country
Share (other than any shares as to which dissenters' rights have been perfected)
shall be converted into the right to receive a combination of cash and shares of
Capital Corp common stock with an aggregate value equal to the Exchange Amount
of $33.05. The aggregate Cash Component of the Exchange Amount will be not less
than $1,600,000 (or an average of $9.52 per share) and not more than $1,800,000
(or an average of $10.70 per share); the exact amount of the Cash Component will
determined by the results of the Cash/Stock Election that will be made available
to holders of Town & Country Shares after completion of the Merger. The balance
of the Exchange Amount will be in Capital Corp common stock (the "Stock
Component").
The range of the Cash Component, Stock Component and Exchange Ratio as a
function of the Market Value of Capital Corp's common stock on the Determination
Date is shown by the following tables.
<TABLE>
<CAPTION>
ASSUMING AGGREGATE CASH COMPONENT OF
----------------------------------------------------
$1,600,000 $1,800,000
AGGREGATE/PER SHARE AGGREGATE/PER SHARE
------------------------- -------------------------
<S> <C> <C> <C> <C>
Exchange Amount...................................... $ 5,557,556 $ 33.05 $ 5,557,556 $ 33.05
Cash Component....................................... 1,600,000 9.52 1,800,000 10.70
Stock Component...................................... 3,957,556 23.53 3,757,556 22.35
EXCHANGE RATIO
IF MARKET VALUE IS:
- -----------------------------------------------------
$10.............................................. 2.3540 2.2350
$12.............................................. 1.9617 1.8625
$14.............................................. 1.6814 1.5964
$16.............................................. 1.4713 1.3969
$18.............................................. 1.3078 1.2417
</TABLE>
The Agreement does not impose a floor or ceiling on the Market Value, so
Market Value as of the Determination Date may be lower or higher than the lowest
and highest values for Market Value shown in the above table. On May 3, 1996,
the last sales price of Capital Corp common stock as reported by the Nasdaq
National Market was $14.50. As of the Determination Date, the Market Value of
Capital Corp common stock may be higher or lower than such price. There can be
no assurance that Town & Country shareholders who receive Capital Corp Shares in
the Merger will be able to sell Capital Corp Shares at prices equal to the
Market Value, as the term is defined for purposes of the Exchange Ratio.
CASH/STOCK ELECTION. The Exchange Amount will be allocated to the Stock
Component and the Cash Component in accordance the following election and
procedures (the "Cash/Stock Election").
A Town & Country shareholder may elect to receive the Exchange Amount in
either all Capital Corp shares or all cash. If no election is made, the
shareholder will receive a Cash Component equal to
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<PAGE>
$1,600,000/number of outstanding shares ($9.52 as of May 3, 1996) and the
balance of the Exchange Amount ($23.53 per share) in the Stock Component, or
shares of Capital Corp common stock, subject to adjustment as described below.
The Cash/Stock Election is subject to the limitation that the aggregate Cash
Component for all Town & Country shareholders may not be less than $1,600,000 or
more than $1,800,000. If the aggregate Cash Component is undersubscribed, the
unsubscribed portion of this minimum aggregate Cash Component will be allocated
pro rata (by number of shares) among all Town & Country shareholders; if the
aggregate Cash Component is oversubscribed, the Cash Component of each Town &
Country shareholder receiving cash will be reduced pro rata (by number of
shares) so that the aggregate Cash Component of all Town & Country shareholders
will equal $1,800,000. The total of the Cash Component and the Stock Component
will always equal the Exchange Amount.
A Town & Country shareholder need not, and may not, make a Cash/Stock
Election until after the Merger has been completed. If the Merger is completed,
Capital Corp will send to each Town & Country shareholder a letter of
transmittal describing the Cash/Stock Election in more detail and providing
forms for making the Cash/Stock Election, if desired.
The Cash/Stock Election, if made, must be made for all shares held in the
name of the Town & Country shareholder. A Town & Country shareholder who holds
shares in two or more capacities or in different names may make a separate
Cash/Stock Election for each name or capacity in which shares are held. However,
shares represented by a single certificate may make only one Cash/Stock
Election.
TOWN & COUNTRY SHAREHOLDERS WHO MAKE A CASH/STOCK ELECTION HAVE NO ASSURANCE
THAT THEY WILL IN FACT RECEIVE ALL CASH OR ALL STOCK. THEY WILL RECEIVE CASH IN
EXCESS OF $10.70 PER SHARE ONLY THE EXTENT EXCESS CASH IS AVAILABLE UNDER THE
LIMITATION SET FORTH ABOVE, AND THEY WILL RECEIVE ALL STOCK ONLY IF OTHER TOWN &
COUNTRY SHAREHOLDERS ELECT AT LEAST AN AGGREGATE OF $1,600,000 IN CASH.
RIGHTS OF HOLDERS AFTER EFFECTIVE DATE; DIVIDENDS. Promptly after the
consummation of the Merger, Capital Corp shall appoint a commercial bank or
trust company with assets exceeding $50,000,000 (the "Exchange Agent"), who will
forward a letter of transmittal to former shareholders of Town & Country
containing detailed instructions for the Cash/Stock Election and for the
surrender of certificates representing Town & Country common stock. Certificates
should not be surrendered by shareholders until the letter of transmittal is
received. For purposes of voting and establishing record ownership of Capital
Corp common stock for the period from and after the Effective Date, any holder
of Town & Country common stock who does not surrender the certificates
representing such shares to the Exchange Agent, as discussed above, (i) shall be
deemed to hold that number of shares of Capital Corp common stock that such
holder would otherwise be entitled to receive if such certificates had been
surrendered, and (ii) shall be entitled to vote in regard to any matter
submitted to the Capital Corp shareholders for their approval, including,
without limitation, election of directors of Capital Corp, as if such holder had
received the Capital Corp common stock to which he or she was entitled. Persons
entitled to receive such certificates for Capital Corp common stock will not
receive the cash portion of the Exchange Amount or any dividends or other
distributions of any kind which are declared payable to shareholders of record
of the Capital Corp common stock after the Effective Date until such persons
have surrendered their certificates representing Town & Country common stock.
Upon surrender of such certificates, the holder shall be paid, without interest,
the cash portion of the Exchange Amount and any dividends or other distributions
with respect to the Capital Corp common stock as to which the record date and
payment date occurred on or after the Effective Date. Except as described in
this paragraph, after the Effective Date, the holders of certificates formerly
representing Town & Country common stock shall have no rights with respect to
such shares other than any dissenters' rights they have perfected under
California Law.
EXCHANGE OF TOWN & COUNTRY STOCK CERTIFICATES; FRACTIONAL INTERESTS. After
the Effective Date, each holder of a certificate or certificates representing
shares of Town & Country common stock immediately prior to the Merger will, upon
the surrender thereof to the Exchange Agent, be entitled to receive a
certificate or certificates representing the number of whole shares of Capital
Corp common stock into which shares of Town & Country common stock will have
been converted and a payment in cash with respect to the cash portion of the
Exchange Amount and fractional shares, if any, determined as described below.
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<PAGE>
No fractional shares of Capital Corp common stock shall be issued to holders
of Town & Country common stock. In lieu thereof, each such holder entitled to a
fraction of a share of Capital Corp common stock shall receive, at the time of
surrender of the certificate or certificates representing such holder's Town &
Country common stock, an amount in cash equal to the Market Value per share of
the common stock of Capital Corp, multiplied by the fraction of a share of
Capital Corp common stock to which such holder otherwise would be entitled. No
such holder shall be entitled to dividends, voting rights, interest on the value
of, or any other rights in respect of a fractional share.
As promptly as practicable after the Effective Date and completion of the
Cash/Stock Election, letters of transmittal will be mailed to holders of
certificates representing shares of Town & Country common stock for use in
exchanging such certificates for cash and shares of Capital Corp common stock.
TOWN & COUNTRY SHAREHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES FOR
EXCHANGE UNTIL THEY HAVE BEEN NOTIFIED THAT THE MERGER HAS BEEN CONSUMMATED AND
THEY HAVE RECEIVED A LETTER OF TRANSMITTAL.
CONDUCT OF BUSINESS PRIOR TO THE MERGER. The Agreement contains mutual
covenants concerning the obligations of each party to use its best efforts to
consummate the Merger, the right of each party to review the other party's books
and records, and other customary matters.
The Agreement requires each party, until the Effective Date, to preserve its
business and relationships with customers and others having business relations
with it and to conduct its business in the ordinary course, and neither party
may, without the prior written consent of the other: sell, lease, pledge,
assign, encumber or otherwise dispose of any of its assets except assets
acquired by foreclosure other than in the ordinary course of business; declare
or pay any dividend other than regular quarterly dividends substantially
equivalent to those paid over the last two years, if any; or enter into any loan
transaction with related parties, except in the ordinary course of business and
consistent with established loan procedures. The Agreement provides that Town &
Country will not, without the prior written consent of Capital Corp, among other
things: amend its articles of incorporation or bylaws (except as provided in the
Agreement); issue or purchase any shares of its capital stock or issue any
options, warrants or rights to acquire any shares of its capital stock; settle
legal proceedings or claims involving more than a specified amount; make any
capital expenditures not contained in existing capital budgets provided to and
approved by Capital Corp; grant any unusual increase in compensation to its
employees; or open new branches other than its proposed branch in Fresno; or
(subject to fiduciary obligations under applicable law) solicit or encourage
submission of proposals for its merger with or acquisition by another person in
a manner inconsistent with the proposed Merger. The Agreement also requires Town
& Country to notify Capital Corp of any indication of interest by any third
party in a business combination with Town & Country.
REPRESENTATIONS AND WARRANTIES. The Agreement contains representations and
warranties by Capital Corp and Town & Country regarding, among other things,
their respective organizations, authorization to enter into the Agreements,
capitalization, financial statements, compliance with applicable laws, payments
of taxes, absence of undisclosed liabilities and pending and threatened
litigation. The Agreement provides that these representations and warranties
must be true immediately prior to the consummation of the Merger but will not
survive beyond the Effective Date except to the extent they relate to covenants
or obligations to be performed after the Effective Date.
CONDITIONS TO THE MERGER. The Merger will occur only if the Merger is
approved by the requisite vote of Capital Corp shareholders and Town & Country
shareholders. Consummation of the Merger is subject to satisfaction of certain
other conditions. Such conditions include, but are not limited to, the
following, applicable to both parties: (i) all necessary regulatory approvals,
including the FRB, FDIC and the Department, shall have been received, provided
that such approvals do not impose any limitation or requirement that either
party reasonably considers materially burdensome (see "Required Regulatory
Approvals" below); (ii) the Registration Statement shall have been declared
effective by the Commission and there shall be no stop order suspending its
effectiveness; (iii) Capital Corp and Town & Country shall have received a
letter from each other's independent certified public accountants regarding
certain financial information and other matters; (iv) Capital Corp and Town &
Country shall have received certain opinions from each other's legal counsel;
(v) the Merger shall not be illegal or violate any order, decree or judgment of
any court or
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<PAGE>
governmental body; (vi) Town & Country and Capital Corp shall have received an
opinion of a law firm or accounting firm to the effect that the Merger will
constitute a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code") and
that the exchange of shares of Town & Country common stock for Capital Corp
common stock pursuant to the Merger will be tax-free to the Town & Country
shareholders and Capital Corp shareholders, respectively; (vii) each party shall
have delivered certain financial statements to the other party, (viii) no
material adverse change in the business of the other party shall have occurred
since December 31, 1995; and (ix) each party shall have received any consents
required under any material agreements to which it is a party. In addition, each
company's obligations to complete the Merger are subject to its receipt of an
opinion from its financial advisor to the effect that the Merger is fair to it
and its shareholders from a financial point of view. The Board of Directors of
each party may waive any conditions to that party's performance of the Agreement
unless doing so would violate applicable law.
REQUIRED REGULATORY APPROVALS. The Merger is subject to approval by the FRB
under the BHC Act and by the FDIC under the Bank Merger Act. The BHC Act
provides that no transaction may be approved which would result in a monopoly or
which would be in furtherance of any combination or conspiracy to monopolize or
to attempt to monopolize the business of banking in any part of the United
States, or the effect of which in any section of the country may be
substantially to lessen competition, or to tend to create a monopoly or which in
any other manner might restrain trade, unless it is determined that the
anticompetitive effects of the proposed transaction are clearly outweighed in
the public interest by the probable effect of the transaction in meeting the
convenience and needs of the community to be served. In conducting a review of
any application for approval, the FRB is required to consider the financial and
managerial resources and future prospects of the company or companies and the
banks concerned and the convenience and needs of the community to be served. An
application may be denied if it is determined that the financial or managerial
resources of the acquiring entity are inadequate. The Bank Merger Act imposes
similar standards.
A transaction approved by the FRB or FDIC may not be consummated for 15 days
after such approval. During such period, the Department of Justice may commence
legal action challenging the transaction under the antitrust laws. If, however,
the Justice Department does not commence a legal action during such 15-day
period, it may not thereafter challenge the transaction except in an action
commenced under the antimonopoly provisions of Section 2 of the Sherman
Antitrust Act.
The BHC Act provides for the publication of notice and the opportunity for
administrative hearings relating to the application for approval under the BHC
Act and authorizes the FRB to permit interested parties to intervene in the
proceedings. If an interested party is permitted to intervene, such intervention
could substantially delay the regulatory approval required for consummation of
the Merger.
The Merger also must be approved by the Commissioner pursuant to the
California Financial Code. The Financial Code requires the Commissioner to
consider factors and standards substantially similar to those under the BHC Act.
Because of the requirements for a tax-free exchange under the Code, New Town
& Country rather than Town & Country will be the surviving legal entity in the
Merger. The parties have applied on behalf of New Town & Country for a license
from the Commissioner to operate New Town & Country an industrial loan company
under the name Town and Country Finance and Thrift Company.
A draft copy of Capital Corp's application to the FRB under the BHC Act has
been reviewed by the Federal Reserve Bank of San Francisco. Based on the
comments which resulted from that review, Capital Corp filed its final FRB
application on May 10, 1996. Town & Country's applications to the FDIC and the
Commissioner for approval of the merger, as well as Capital Corp's application
to the Commissioner to operate New Town & Country as an industrial loan company,
have been submitted to the FDIC and the Commissioner and are currently being
reviewed.
Based on current precedents, the management of Capital Corp and Town &
Country believe that the Merger will be approved by the appropriate regulatory
agencies and will not be subject to challenge by the Department of Justice under
the antitrust laws and that the Commissioner will grant an industrial loan
33
<PAGE>
company license to New Town & Country. However, no assurance can be provided
that the regulatory agencies or the Department of Justice will concur in this
assessment or that any approval by the regulatory agencies will not contain
conditions which are materially burdensome to Capital Corp or Town & Country.
DISSENTERS' RIGHTS OF APPRAISAL. Shareholders of Town & Country and
shareholders of Capital Corp who vote against the Merger may be entitled to
certain dissenters' appraisal rights under Chapter 13 of the California General
Corporation Law ("Chapter 13"). Chapter 13 is set forth in full in Annex C to
this Joint Proxy Statement/Prospectus. IMPORTANT DETAILS CONCERNING THESE
REQUIREMENTS ARE SET FORTH BELOW; FAILURE TO TAKE THESE ACTIONS IN A TIMELY AND
PROPER FASHION WILL RESULT IN THE LOSS OF DISSENTERS' APPRAISAL RIGHTS.
The following is a discussion of the material provisions of California law
with which dissenting shareholders must comply to preserve their dissenters'
rights but is not a complete statement of the law relating to dissenters' rights
and is qualified in its entirety by reference to Annex C. This discussion and
Annex C should be reviewed carefully by any shareholder of Capital Corp or of
Town & Country who wishes to exercise dissenters' rights or who wishes to
preserve the right to do so, since failure to comply with the procedures set
forth in Chapter 13 will result in the loss of dissenters' rights.
If the Merger is consummated, those shareholders of Capital Corp or of Town
& Country who elect to exercise their dissenters' rights and who in a timely and
proper fashion perfect such rights will be entitled to receive the "fair market
value" of their shares in cash. Pursuant to Section 1300(a) of the California
General Corporation Law, such "fair market value" would be determined as of the
day before the first announcement of the terms of the Merger, excluding any
appreciation or depreciation caused by the Merger. The Board of Directors of
Town & Country has determined that the fair market value of Town & Country
common stock for this purpose is $21.38, and the Board of Directors of Capital
Corp has determined that the fair market value of Capital Corp common stock for
this purpose is $12.63. See "SUMMARY -- Market Price Data."
In order to qualify for dissenters' rights, Town & Country shareholders (i)
must make a written demand on Town & Country within 30 days after Town & Country
mails to shareholders the notice of approval of the Merger and the procedure to
be followed, and (ii) must not vote their shares in favor of the Merger. In
order to qualify for dissenters' rights, Capital Corp shareholders must make a
written demand on Capital Corp on or before the date of the Capital Corp Meeting
and must vote their shares against the Merger, either in person or by proxy;
provided, unless holders of at least 5% of the outstanding shares of Capital
Corp make written demand for payment on or before the Capital Corp Meeting and
vote against the Merger, no Capital Corp shareholders will be entitled to
dissenters' rights except those whose shares are subject to restrictions on
transfer. At present, only shares held by directors and executive officers of
Capital Corp are subject to restrictions on transfer.
A written demand by a Town & Country shareholder should be sent to Town &
Country Finance & Loan Company, 410 East Olive Avenue, Turlock, California
95380, Attention: Corporate Secretary. A written demand by a Capital Corp
shareholder should be sent to Capital Corp of the West, 1160 West Olive Avenue,
Merced, California 95348, Attention: Corporate Secretary. The written demand
must (i) state the number and class of shares held of record by such shareholder
which the shareholder demands that the company purchase for cash, and (ii)
contain a statement of the amount which the shareholder claims to be the fair
market value of the dissenting shares as of the day before announcement of the
proposed Merger. That statement will constitute an offer by the shareholder to
sell his or her dissenting shares to the company at that price.
If the Merger is approved, Capital Corp and Town & Country will each, within
ten days after the respective Meetings, mail to any shareholder who has a right
to require the company to purchase his or her shares a notice that the required
shareholder approval of the Merger was obtained (the "Notice of Approval"). The
Notice of Approval will set forth the price determined by the company to
represent the "fair market value" of any dissenting shares, and will set forth a
brief description of the procedures to be followed by dissenting shareholders
who wish to pursue further their statutory rights. The dissenting shareholder
must deliver his or her share certificate(s) for receipt by the company within
30 days after the date on which the Notice of Approval was mailed to such
shareholder. The certificate(s) will be stamped or endorsed with a statement
that the shares are dissenting shares and will be returned to the dissenting
shareholder.
34
<PAGE>
The statements in the Notice of Approval will constitute an offer by Capital
Corp or Town & Country, as applicable, to purchase from its shareholders any
dissenting shares at the price stated, but only if the Merger is consummated.
However, the determination by the company of fair market value is not binding on
its shareholders, and if a dissenting shareholder chooses not to accept such
offer, he or she has the right during a period of six months following the
mailing of the Notice of Approval to commence a lawsuit to have the fair market
value, as described in Section 1300(a), determined by a court. The fair market
value of dissenting Shares as determined by the court in those circumstances
could be higher or lower than the amount offered by the company in the Notice of
Approval or the consideration provided for in the Agreements, and any such
determination would be binding on the dissenting shareholder or shareholders
involved in the lawsuit and on the company. Any party may appeal from the
judgment. However, the court action to determine the fair market value of shares
will be suspended if litigation is instituted to test the sufficiency or
regularity of the votes of the shareholders in authorizing the Merger.
Furthermore, no shareholder who has appraisal rights under Chapter 13 shall have
any right to attack the validity of the Merger except in an action to test
whether the number of shares required to authorize the Merger has been legally
voted in favor of the Merger.
Dissenting Capital Corp shares and dissenting Town & Country shares may lose
their status as such if any of the following events occurs: the Merger is
abandoned (in which case each company shall pay on demand to their respective
dissenting shareholders who has initiated proceedings in good faith as provided
under Chapter 13 all necessary expenses and reasonable attorneys' fees incurred
in such proceedings); the dissenting shares are transferred before being
submitted to the company for endorsement; the dissenting shareholder withdraws
his or her demand with the consent of the company; or, in the absence of
agreement between the dissenting shareholder and the company as to the price of
his or her shares, such Town & Country shareholder fails to file suit against
the company or otherwise fails to become a party to such suit within six months
following the mailing of the Notice of Approval.
The receipt of a cash payment for dissenting shares will result in
recognition of gain or loss for federal and California state income tax purposes
by dissenting shareholders. See "THE MERGER -- Certain Federal Income Tax
Consequences."
NON SOLICITATION COVENANTS. Subject to the fiduciary obligations of its
Board of Directors, Town & Country has agreed that neither it nor any of its
officers, directors, affiliates or other agents shall initiate negotiations
toward, or otherwise effect or agree to effect, any proposal for any merger,
sale of capital stock resulting in a change of control, sale of all or
substantially all of the assets, or any other means of acquisition of
substantially all the outstanding capital of any entity (a "Business
Combination") of Town & Country. The Agreement also requires Town & Country to
notify the other party immediately of the receipt by it of any unsolicited
proposal to effect a Business Combination with another entity. As of the date of
this Joint Proxy Statement/Prospectus, Town & Country has not received such a
proposal since the announcement of the proposed Merger.
FEDERAL INCOME TAX CONSEQUENCES.
Capital Corp and Town & Country have received a Tax Opinion from KPMG Peat
Marwick LLP regarding all material federal income tax consequences of the
Merger. Such an opinion is a condition to consummation of the Merger. Assuming
the opinion is not withdrawn or changed before the Effective Date, the material
federal income tax consequences of the Merger, in the opinion of KPMG, will be
as follows:
(a) The proposed Merger of Town & Country with and into T&C Merger
Thrift Company qualifies as a statutory merger. Therefore, the acquisition
by T&C Merger Thrift Company of substantially all of the assets of Town &
Country solely in exchange for Capital Corp stock, cash, and the assumption
by T&C Merger Thrift Company of the liabilities of Town & Country plus the
liabilities to which the Town & Country assets may be subject, will qualify
as a reorganization under sections 368(a)(l)(A) and 368(a)(2)(D) of the
Code. KPMG is relying upon the legal opinion (the "Legal Opinion") of the
law firm of McCutchen, Doyle, Brown & Enersen, LLP, in rendering this
opinion.
(b) No gain or loss will be recognized by Town & Country, Capital Corp
or New Town & Country in the Merger and New Town & Country will succeed to
the carryover basis and the holding period of the assets of Town & Country.
(c) Town & Country shareholders will recognize no gain or loss upon
their exchange of Town & Country stock SOLELY for shares of Capital Corp
stock.
35
<PAGE>
(d) If a Town & Country shareholder receives both cash and Capital Corp
stock for his Town & Country stock, gain will be recognized, but not in an
amount in excess of the amount of cash received. If the exchange has the
effect of the distribution of a dividend (determined with the application of
section 318), then the amount of gain recognized that is not in excess of
the Town & Country shareholder's ratable share of undistributed earnings and
profits of Town & Country will be treated as a dividend. The determination
of whether the exchange has the effect of the distribution of a dividend
will be made on a shareholder by shareholder basis. No loss will be
recognized.
(e) The basis of the Capital Corp stock received by the shareholders of
Town & Country will be the same as the basis of the Town & Country stock
surrendered in exchange therefor decreased by the amount of cash received by
the shareholder and increased by the amount, if any, that was treated as a
dividend and the amount of gain recognized to the shareholder on the
exchange (not including any portion of such gain that is treated as a
dividend).
(f) The holding period of the Capital Corp stock received by Town &
Country shareholders will include the period during which the Town & Country
stock surrendered in exchange therefor was held by the Town & Country
shareholders, provided that the Town & Country stock surrendered was a
capital asset in the hands of the Town & Country shareholders on the date of
the exchange.
(g) If a shareholder elects to receive a Cash Component or dissents to
the transaction and receives solely cash in exchange for Town & Country
stock, such cash will be treated as having been received as a distribution
in redemption of the Town & Country stock, subject to the provisions of
Section 302 of the Code. Where, as a result of such distribution, a
shareholder owns no Capital Corp stock, either directly or by reason of the
application of section 318, the redemption will be a complete termination of
interest within the meaning of section 302(b)(3),1 and such cash will be
treated as a distribution in full payment in exchange for his or her Town &
Country stock as provided in section 302(a). Such shareholders will
recognize gain or loss under Section 1001 measured by the difference between
the amount of cash received and the adjusted basis of the Town & Country
stock surrendered. Under Section 318 of the Code, an individual is deemed to
own stock that is actually owned (or deemed to be owned) by certain members
of his or her family (spouse, children, grandchildren and parents, with
certain exceptions) and other related parties, including, for example,
certain entities in which the individual has a direct or indirect interest
(including partnerships, estates, trusts and corporations), as well as stock
that such individual (or related person) has the right to acquire upon
exercise of an option or conversion right held by such individual (or
related person).
(h) Cash received by shareholders of Town & Country in lieu of
fractional shares will be treated as a distribution in redemption of their
fractional share interests subject to the provisions and limitations of
Section 302 of the Code.
(i) The taxable year of Town & Country will end on the effective date of
the Merger.
(j) T&C Merger Thrift Company will succeed to and take into account the
items of Town & Country described in section 381(c) of the Code, subject to
the provisions and limitations specified in sections 381, 382, 383, and 384
of the Code and the regulations thereunder.
(k) Town & Country's method of accounting for bad debt reserves will
carry over to T&C Merger Thrift Company, pursuant to sections
1.381(c)(4)-1(a) and 1.381(c)(4)-1(b)(4) of the Treasury Regulations. The
Merger will not cause Town & Country's bad debt reserves to be restored to
the income of Town & Country or T&C Merger Thrift Company.
(l) As provided by section 381(c)(2) of the Code and section
1.381(c)(2)-1 of the Treasury Regulations, T&C Merger Thrift Company will
succeed to and take into account the earnings and profits, or deficit in
earnings and profits, of Town & Country as of the date of the transfer. Any
deficit in earnings and profits of Town & Country or T&C Merger Thrift
Company will be used only to offset earnings and profits accumulated after
the date of transfer.
The Tax Opinion was issued on April 18, 1996. In developing its opinion,
KPMG relied upon the Legal Opinion, assumptions and representations by the
managements of Capital Corp and Town & Country (including, in general, to the
best of the knowledge of the Boards of Directors of Capital Corp and Town &
36
<PAGE>
Country, the absence of any plan or intention of Town & Country shareholders to
sell or otherwise dispose of any amount of Capital Corp Stock received in the
Merger that would violate certain precedents regarding continuity of interest
required to exist in a reorganization). KPMG made no independent determination
with respect to these assumptions and representations. In addition, KPMG's
opinion is based upon the analysis of the current Code, the Regulations
thereunder, current case law, and published rulings. The foregoing are subject
to change, and such change may be retroactively effective. If so, KPMG's
opinion, as set forth above, may be affected and may not be relied upon. KPMG
assumes no responsibility to update its opinion after the Effective Date of the
Merger because of such change. Further, any variation or differences in the
facts or representations, for any reason, might affect KPMG's opinion, perhaps
in an adverse manner, and make it inapplicable.
For federal tax purposes, the highest marginal tax rate for individuals on
ordinary income is 39.6%, compared to 28% for capital gain, and the highest
marginal tax rate for corporations is 35% on ordinary income an capital gain.
Capital losses are treated differently than ordinary losses. Essentially, a
capital loss for any taxable year may be deducted by a corporation in that year
only to the extent of capital gain, and by an individual in that year only to
the extent of capital gain plus up to $3,000 of ordinary income. Capital losses
not deductible in the year they occur may be carried forward indefinitely by
individuals and may be carried back up to three years and forward up to five
years by corporations.
ALL SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE SPECIFIC CONSEQUENCES TO THEM OF THE MERGER UNDER FEDERAL,
STATE, LOCAL AND ANY OTHER APPLICABLE TAX LAWS. EXPENSES INCURRED
BY ANY SHAREHOLDER ARISING FROM DISPUTES WITH THE IRS OR ANY STATE
OR FOREIGN TAX AGENCY OVER THE TAX CONSEQUENCES OF THE MERGER WILL
NOT BE BORNE BY TOWN & COUNTRY OR CAPITAL CORP.
ACCOUNTING TREATMENT. The management of Town & Country and Capital Corp
expect that the Merger will be subject to the purchase method of accounting.
Under this method of accounting, Town & Country's assets and liabilities will be
reflected on Capital Corp's future financial statements at their fair market
value, and the excess of the aggregate Exchange Amount, if any, above the fair
market value of acquired assets and liabilities will be reflected as goodwill,
except $460,000 that will be recorded as core deposit intangible. Goodwill is an
intangible asset that will be amortized over 18 years. The core deposit
intangible will be amortized over 10 years.
The unaudited pro forma results of this accounting treatment are shown in
the unaudited pro forma financial data included elsewhere in this Joint Proxy
Statement/Prospectus. See "UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS."
TERMINATION AND AMENDMENT; TERMINATION PAYMENT. The Agreements may be
terminated any time prior to the Effective Date as follows:
(a) by mutual consent of the Boards of Directors of Capital Corp and
Town & Country;
(b) by either Town & Country or Capital Corp if conditions to a party's
obligations are not satisfied or waived by December 31, 1996 (except that if
Capital Corp is engaged at the time in litigation relating to an attempt to
obtain one or more of the Governmental Approvals or if Capital Corp is
contesting in good faith any litigation which seeks to prevent consummation
of the Merger, Town & Country shall not be entitled to terminate the
Agreement until the earlier of December 31, 1997); it becomes aware of any
materially adverse facts regarding the other party of which it was not aware
as of the date the Agreement was signed, or any materially adverse change
occurs in the business of the other party after December 31, 1995; or any
material representation or warranty of the party was untrue when made or
became untrue at a later time; or the other party fails to materially
perform such party's obligations or satisfy any conditions under the
Agreements; or
(c) by the Board of Directors of Capital Corp if Town & Country or its
affiliates enter into any transaction with any third person providing for
the acquisition of all or a substantial part of the assets of Town &
Country.
37
<PAGE>
If Capital Corp terminates the Agreement as a result of Town & Country's
entry into a transaction or series of transactions providing for the acquisition
of all or a substantial part of Town & Country by a third party, Capital Corp
will become entitled to a payment of $750,000 from Town & Country. If Town &
Country terminates the Agreement as a result of Capital Corp's entry into a
merger or similar business combination with a third party and such transaction
does not expressly contemplate performance by Capital Corp of its obligations
under the Agreement, Town & Country will become entitled to a payment of
$750,000 from Capital Corp. In each case, the payment is intended to be
consideration or liquidated damages for expenses incurred and the lost
opportunity cost for time devoted to the transactions contemplated by the
Agreement.
Subject to applicable law, the Agreements may be amended, modified or
supplemented at any time prior to the Effective Date, and any of the
obligations, covenants, agreements or conditions therein may be waived by the
party entitled to the benefit thereof, except that the terms and conditions
related to the form or amount of consideration to be paid for Town & Country
common stock may not be changed without obtaining the further approval of Town &
Country shareholders.
EXPENSES. Whether or not the Merger is consummated, each party will pay its
own expenses in connection with the Merger and related transactions, except that
expenses related to the printing and distribution of this Joint Proxy
Statement/Prospectus and the Registration Statement will be divided between
Capital Corp and Town & Country in proportion to the estimated number of Capital
Corp shares that will be held immediately after completion of the Merger by
their respective pre-Merger shareholders. If, however, Capital Corp or Town &
Country elects to terminate the Agreement in the event that the other party
violates the Agreement by entering into a transaction with a third person that
is inconsistent with the terms of the Agreement, the party entering into such
transaction shall pay the party electing to terminate the Agreement the sum of
$750,000.
RESALES OF CAPITAL CORP COMMON STOCK. The shares of Capital Corp common
stock to be issued to Town & Country shareholders in connection with the Merger
have been registered under the 1933 Act. Such shares will be freely transferable
under the 1933 Act, except for shares issued to each person who may be deemed to
be an "affiliate" of Town & Country within the meaning of Rule 145 under the
1933 Act (each an "Affiliate"). The shares of Capital Corp common stock received
by Affiliates may not be sold without additional registration under the 1933 Act
unless an exemption (including the exemption provided by Rule 145) from such
registration requirement is available. The Affiliates have entered into
agreements concerning the foregoing restrictions on transfer with respect to the
shares of Capital Corp common stock they will receive in connection with the
Merger. The exemption under Rule 145 permits sale of shares if the issuer is
current in its filings required under the Exchange Act, the Affiliate does not
sell more than the greater of 1% of the issuer's outstanding shares or the
number of shares equal to the weekly average trading volume over the preceding
four weeks in any three-month period, all sales are conducted as "broker's
transactions" or with a market maker and, in the case of persons who become
Affiliates of Capital Corp after the Merger, the Affiliate files Form 144 with
the Commission upon placing a sell order.
CONDUCT OF BUSINESS OF CAPITAL CORP AND TOWN & COUNTRY FOLLOWING THE
MERGER. When the Merger is consummated, the directors and officers of Capital
Corp will remain its officers and directors, and the directors and officers of
Town & Country will remain the directors and officers of New Town & Country.
After the Merger, New Town & Country will become the wholly-owned subsidiary of
Capital Corp. Capital Corp as sole shareholder of New Town & Country intends to
increase the number of directors on New Town & Country's Board of Directors from
five to six and to appoint Thomas T. Hawker as a director of New Town & Country.
New Town & Country will continue to engage in the thrift and loan business in
its existing service area. Capital Corp believes that New Town & Country will be
treated by the Commissioner as the continuation of Town & Country and not as a
newly chartered industrial loan company for purposes of California Financial
Code provisions that limit the dollar volume of investment certificates that a
new industrial loan company can issue during the first five years of its
operation. See "INFORMATION ABOUT TOWN & COUNTRY -- Potential Limitation on
Issuance of Investment Certificates." However, no assurance can be given that
the Commissioner will take a favorable view on this issue. If New Town Country
is subject to this limitation, the limitation might adversely affect the
earnings of New Town & Country for the first five years after completion of the
Merger. Favorable treatment from the Department on this issue is not a condition
to completion of the Merger.
38
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined balance sheet at
December 31, 1995, and pro forma condensed combined statement of income for the
year ended December 31, 1995, combine the historical balance sheets of Capital
Corp and Town & Country as if the Merger had been been effective on December 31,
1995, and the income statements of Capital Corp and Town & Country as if the
Merger had been effective on January 1, 1995. The pro forma information also
gives effect to the cancellation of 168,156 shares of Town & Country common
stock, no par value, outstanding at December 31, 1995, with an aggregate value
(Exchange Amount) equal to $33.05 per share in exchange for Capital Corp common
stock, no par value, and cash consideration. Share information was calculated
using an aggregate Cash Component of $1,600,000 and an Exchange Ratio of 1.6086
shares, which corresponds to a Capital Corp per share Market Value of $14.63
(closing price as of March 29, 1996). Such pro forma per share data assumes no
dissenting Capital Corp or Town & Country shareholders and excludes the exercise
of outstanding Capital Corp stock options. The pro forma adjustments are based
upon available information and upon certain assumptions that management believes
are reasonable under the circumstances. The Merger is accounted for under the
purchase method of accounting, after giving effect to the pro forma adjustments
described in the accompanying notes. Under this method of accounting, the
purchase price has been allocated to the assets and liabilities of Town &
Country based on preliminary estimates of fair values as of the date of
acquisition. The actual fair values will be determined upon consummation of the
Merger.
These unaudited pro forma combined financial statements should be read in
conjunction with the historical consolidated financial statements and the
related notes thereto of Capital Corp and the historical financial statements
and related notes thereto of Town & Country incorporated by reference or
included in this Joint Proxy Statement/Prospectus. The unaudited pro forma
statements of income are not necessarily indicative of operating results which
would have been achieved had the Merger been consummated as of the beginning of
the first period presented and should not be construed as representative of
future operations.
39
<PAGE>
CAPITAL CORP AND TOWN & COUNTRY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
TOWN & ------------------------------ PRO FORMA
CAPITAL CORP COUNTRY DEBIT CREDIT COMBINED
------------ ---------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Cash and due from banks.................. $ 18,967 $ 8,941 $ 1,725(c) $ 1,725(a) $ 27,908
Total cash and cash equivalents........ 18,967 8,941 1,725 1,725 27,908
Securities...............................
Available for sale....................... 45,302 -- 45,302
Total securities....................... 45,302 -- 45,302
------------ ---------- ------------
Loans.................................... 134,237 17,090 185(b) 151,142
Allowance for loan losses.............. 1,701 152 1,853
------------ ---------- -------------- ------------
Net loans.............................. 132,536 16,938 185 149,289
Premises and equipment, net.............. 4,138 194 4,332
Interest receivable and other assets..... 8,090 212 8,302
Intangible assets........................ -- -- 2,243(b) 2,243
------------ ---------- -------------- -------------- ------------
Total assets........................... 209,033 26,285 3,968 1,910 237,376
------------ ---------- -------------- -------------- ------------
------------ ---------- -------------- -------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing demand.............. 39,726 -- 39,726
Savings and interest-bearing
demand.................................. 124,556 7,432 131,988
Time certificates, $100,000
and over................................ 6,402 2,111 8,513
Other time............................... 21,917 13,002 34,919
------------ ---------- ------------
Total deposits......................... 192,601 22,545 215,146
Other borrowed funds..................... 107 -- 1,725(c) 1,832
Interest payable and other
liabilities............................. 1,232 116 1,348
------------ ---------- ------------
Total liabilities...................... 193,940 22,661 218,326
Preferred stock.......................... -- --
Common stock............................. 9,870 2,700 2,700(b) 3,957(a) 13,827
Capital surplus.......................... -- --
Retained earnings........................ 4,911 924 924(b) 4,911
Net unrealized gain on available for sale
securities.............................. 312 -- 312
------------ ---------- -------------- ------------
Total shareholders' equity............. 15,093 3,624 3,624 3,957 19,050
------------ ---------- -------------- -------------- ------------
Total liabilities and shareholders'
equity................................ 209,033 26,285 3,624 5,682 237,376
Shares outstanding....................... 1,334,956 168,156 270,509(f) 168,156(f) 1,605,465
</TABLE>
40
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADJUSTMENTS
TOWN & ------------------------------ PRO FORMA
CAPITAL CORP COUNTRY DEBIT CREDIT COMBINED
------------ ---------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Interest and fees on loans............... $ 12,969 $ 2,022 $ $ 63(d) $ 15,054
Interest on securities................... 2,546 -- 2,546
Other interest income.................... 358 408 766
------------ ---------- -------------- ------------
Total interest income.................. 15,873 2,430 63 18,366
Interest on deposits..................... 5,706 1,010 6,716
Interest on other borrowed funds......... 11 -- 146(c) 157
------------ ---------- -------------- -------------- ------------
Total interest expense................. 5,717 1,010 146 6,873
Net interest income...................... 10,156 1,420 146 63 11,493
Provision for loan losses................ 228 100 328
Net interest income after provision for
loan losses............................. 9,928 1,320 146 63 11,165
Service charges on deposit accts......... 920 -- 920
Other operating income................... (2,144) 217 (1,927)
------------ ---------- ------------
Total noninterest income............... (1,224) 217 (1,007)
Salaries and employee benefits........... 4,161 676 4,837
Occupancy and equipment expense.......... 1,401 148 1,549
Other operating expense.................. 2,584 375 2,959
Amortization of intangibles.............. 145(d) 145
------------ ---------- -------------- ------------
Total noninterest expense.............. 8,146 1,199 145 9,490
Income before provision for taxes........ 558 338 291 63 668
Provision for taxes...................... 223 107 91(e) 239
------------ ---------- -------------- -------------- ------------
Net Income............................... 335 231 291 154 429
------------ ---------- -------------- -------------- ------------
------------ ---------- -------------- -------------- ------------
Net Income per share..................... .25 1.38 .27
Weighted average common shares
outstanding............................. 1,333,923 168,156 270,509 168,156 1,604,432
</TABLE>
41
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(a) The merger will be accounted for using the purchase method of
accounting. The total purchase cost will be allocated to the tangible and
identifiable intangible assets and liabilities of Town & Country based on their
respective fair values and the remainder will be allocated to goodwill, if any.
The aggregate purchase price was determined as follows:
<TABLE>
<S> <C>
Cash Component.................................. $1,600,000
Acquisition fees and expenses................... 125,000(1)
------------
Total cash purchase price....................... 1,725,000
Add: Issuance of 270,509 shares of Capital Corp
Common Stock at a Market Value of $14.63 per
share.......................................... 3,957,000
------------
$5,682,000
------------
------------
- ------------------------
(1) Includes legal, accounting, printing and other direct
expenses to be incurred with the Merger.
</TABLE>
(b) The following adjustments represent those necessary to allocate the
purchase price to be paid to the fair market value of the net assets to be
acquired by Capital Corp:
<TABLE>
<S> <C> <C>
Equity of Town and Country:
Common stock.................................. $2,700,000
Retained earnings............................. 924,000
------------
$3,624,000
Fair value adjustments:
Loans receivable................................ $ (185,000)
Core deposit intangible......................... 460,000
------------
275,000
------------
Fair value of net assets acquired............... 3,899,000
Purchase price.................................. 5,682,000
------------
Excess of fair value of net assets acquired over
purchase cost.................................. $1,783,000
------------
------------
</TABLE>
(c) Capital Corp anticipates that the total cash purchase price of
$1,725,000 will be financed by a loan from another financial institution.
Estimated interest expense has been included on the pro forma combined statement
of income.
(d) When applicable, fair value adjustments are amortized against (accreted
to) net income as follows:
<TABLE>
<CAPTION>
AMORTIZATION
-----------------------
TOTAL LIFE FIRST YEAR PER QUARTER
------------ --- ---------- -----------
<S> <C> <C> <C> <C>
Goodwill........................................ $ 1,783,000 18 $ 99,000 $ 25,000
Core deposit intangible......................... 460,000 10 46,000 11,500
Fair value adjustment-loans..................... (185,000) 3 (63,000) (15,000)
------------ ---------- -----------
Total......................................... $ 2,058,000 $ 82,000 $ 21,500
</TABLE>
(e) Income tax expense has been adjusted in the pro forma computation to
reflect historical tax expense rate of 40%.
(f) Pro forma combined per share date for net income has been calculated
using Capital Corp's weighted average number of common shares outstanding
increased by 270,509 shares to be issued using an Exchange Amount of $5,558,000,
a Cash Component of $1,600,000 and exchange ratio of 1.6086 shares, which
corresponds to Capital Corp common stock per share Market Value of $14.63, and
cancellation of 168,156 common stock shares of Town & Country.
42
<PAGE>
CAPITAL CORP PROPOSAL TWO: ELECTION OF DIRECTORS
The Bylaws of Capital Corp provide that the number of directors of Capital
Corp may be no less than six and no more than 11; the exact number may be
changed within this range by action of the Board of Directors or the
shareholders. The number of directors is currently fixed at 11.
The 11 persons named below will be nominated for election as directors to
serve until the next Annual Meeting and until their successors are duly elected
and qualified. However, if Proposal Four is approved and the Board of Directors
is classified into three classes with staggered three year terms (see "CAPITAL
CORP PROPOSAL FOUR: AMENDMENT TO THE BYLAWS TO CLASSIFY THE BOARD OF DIRECTORS
AND CHANGE THE AUTHORIZED RANGE OF DIRECTORS"), Class I Directors will be
elected for an initial one-year term, Class II Directors will be elected for an
initial two-year term and Class III Directors will be elected for an initial
three-year term. Votes by Capital Corp's proxy holders will be cast in such a
way as to effect the election of all nominees or as many as possible under the
rules of cumulative voting. If any nominee should become unable or unwilling to
serve as a director, the proxies will be voted for such substitute nominees as
shall be designated by the Board of Directors. The Board presently has no
knowledge that any of the nominees will be unable or unwilling to serve.
The following table provides information with respect to each person
nominated and recommended to be elected by the current Board of Directors of
Capital Corp. Reference is made to the section "Security Ownership of Certain
Beneficial Owners and Management" for information pertaining to stock ownership
of the nominees. The column headed "Name/Class" indicates whether the nominee is
nominated as a Class I, Class II or Class III director in the event Proposal
Four is approved.
<TABLE>
<CAPTION>
NAME/CLASS AGE DIRECTOR SINCE BUSINESS EXPERIENCE DURING PAST FIVE YEARS
- --------------------- --- ---------------- ---------------------------------------------------------------------
<S> <C> <C> <C>
(Class I)
Lloyd H. Ahlem 66 1995 Psychologist
Dorothy L. Bizzini 61 1992 Owner, Bizzini Real Estate
Jerry E. Callister 53 1991(1) Partner, Callister & Hendricks, Inc., a law firm, and Chairman and
Secretary of Pacific Color Nurseries, a wholesale nursery
(Class II)
Jack F. Cauwels 62 1977 President, Insurance Center of Merced
Henry DuPertuis 74 1977 In 1992, Partner of DuPertuis & Hesse Architecture; from 1992 to
February 1996, Partner of DuPertuis, Pratt, Navarro Architecture;
from February, 1996, a self-employed architectural consultant
John D. Fawcett 47 1995 President, Fawcett Farms, Inc.
Thomas T. Hawker 53 1991 President and Chief Executive Officer, Capital Corp and County Bank;
prior to that President and Chief Executive Officer of Concord
Commercial Bank
(Class III)
Robert E. Holl 53 1977 Owner, Bob Holl Sheet Metal, an air conditioning contractor
Bertyl W. Johnson 64 1977 Tree crop farmer and nut processor
James W. Tolladay 64 1991 President, Tolladay, Fremming & Parson, a civil engineering
consulting firm
Tapan Munroe 60 1996 Chief Economist, Pacific Gas & Electric Company
</TABLE>
- ------------------------
(1) Previously served on Board of Directors from 1977 to 1985.
No family relationships exist among the directors of the Bank.
No director or person nominated or chosen by the Board of Directors to
become a director of the Bank is a director of any company with a class of
securities registered pursuant to Section 12 of the Securities and Exchange Act
of 1934, as amended.
43
<PAGE>
DESIGNATION OF CLASSES IF PROPOSAL FOUR IS APPROVED
If one or more persons other than management's nominees are nominated and
receive sufficient votes to be elected and Proposal Four is approved, such
person or persons will be deemed elected to the class of directors for which
management's nominee who was not elected was proposed. If two or more of
management's nominees are not elected, the other persons elected shall be
entitled to select, in order of the number of votes cast in their favor, the
class to which they are elected from the classes to which fewer than all of
management's nominees were elected. Accordingly, a person other than a nominee
of management may receive more votes than any of management's nominees for a
particular class, e.g., Class III, but if all of management's nominees for Class
III are among the 11 candidates receiving the greatest number of votes, such
nominees will be elected as Class III directors and the other person elected to
the Board must select from a class to which fewer than all of management's
nominees were elected.
RECOMMENDATION OF MANAGEMENT
THE BOARD OF DIRECTORS INTENDS TO VOTE ALL PROXIES HELD BY IT IN FAVOR OF
ELECTION OF EACH OF THE NOMINEES.
COMMITTEES OF THE BOARD OF DIRECTORS; DIRECTOR ATTENDANCE
For 1995, the Capital Corp, including County Bank as its predecessor before
November 1995, Board of Directors held 12 regularly scheduled and five special
meetings. Each director attended at least 75% of the aggregate of the total
number of meetings of the Board of Directors and the total number of meetings of
committees of the Board on which they served (during the period for which they
served).
The Board of Directors maintains, among others, an Audit Committee, of which
directors DuPertuis (Chairman), Callister, Fawcett and Holl are members. During
1995, the Audit Committee held four meetings. The purpose of the Audit Committee
is to review the internal controls, external loan review reports, and accounting
and financial reporting practices of Capital Corp. It is also the responsibility
of the Audit Committee to make a recommendation to the Board of Directors
regarding the selection of independent accountants for Capital Corp.
While the Board has no Compensation Committee, it has an Executive Committee
of which directors Callister (Chairman), Tolladay, Holl, Hawker and Johnson are
members. During 1995, the Executive Committee held a total of 13 meetings. The
primary function of the Executive Committee is to act as an vehicle for
communication between the Board and the President and Chief Executive Officer.
It also establishes compensation for the Chief Executive Officer and evaluates
and recommends to the Board compensation for other executive officers of Capital
Corp upon the recommendation of the Chief Executive Officer.
The Company has no Nominating Committee. The entire Board of Directors
performs the functions of a nominating committee.
During 1995, nonemployee directors received $200 per meeting for their
attendance at regular Board meetings, $300 per meeting for attendance at special
Board meetings, $165 per committee meetings and a $400 monthly retainer fee, and
a $50 monthly car allowance. The Chairman of the Board receives $400 per month
in addition to fees received for attendance at Board and Committee meetings.
Capital Corp and County Bank paid a total of $121,115 in directors' fees during
1995.
44
<PAGE>
EXECUTIVE OFFICERS OF CAPITAL CORP AND THE BANK
Set forth below is certain information with respect to each of the executive
officers of Capital Corp and the Bank.
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER
NAME AGE POSITIONS AND OFFICES SINCE
- ---------------------- --- ------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
Thomas T. Hawker 53 President, Chief Executive Officer and Director 1991
Carol L. Wix 59 Executive Vice President and Chief Credit Officer 1992
Janey Boyce 35 Vice President and Chief Financial Officer 1992
Robert W. Perry 46 Senior Vice President and Chief Banking Officer 1994
Jerome M. Murphy 57 Senior Vice President and Chief Administrative Officer 1995
</TABLE>
A brief summary of the background and business experience of the executive
officers is set forth below.
THOMAS T. HAWKER became the Bank's President and Chief Executive Officer in 1991
and President and Chief Executive Officer of Capital Corp in 1995. Prior to that
he served as President and Chief Executive Officer of Concord Commercial Bank
from 1986 to 1991.
CAROL L. WIX became the Bank's Executive Vice President and Chief Credit Officer
in 1994. Prior to that she served as Senior Vice President and Credit
Administrator to the Bank in 1992. Prior to that she served as Regional Vice
President and Manager of First National Bank of Central California and as the
Executive Vice President and Senior Loan Officer of Pajaro Valley Bank, which
merged with First National in 1991, from 1982 to 1992.
JANEY E. BOYCE became the Bank's Chief Financial Officer in 1992 and Capital
Corp's Chief Financial Officer in 1995. Prior to that she served as the Bank's
controller for the previous six years. She has worked for the Bank since 1984.
ROBERT W. PERRY became the Bank's Chief Banking Officer in December 1994. Prior
to that he served as the Bank's Acting Chief Administrative Officer since
October 1994. Prior to that he served as the Bank's Vice President, Senior
Branch Manager since March of 1993 and as the Los Banos Branch Manager since
1989. Prior to that he worked as a branch manager for First Interstate Bank for
six years and for ten years in various other positions with First Interstate
Bank.
JEROME M. MURPHY became the Bank's Chief Administrative Officer in May 1995.
Prior to that he served as Senior Vice President and Chief Financial Officer for
Pacific Bay Bank for four years and for 20 years in various positions with
Barclay's Bank of California.
45
<PAGE>
BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table shows the nominees for Directors of Capital Corp and the
number and percentage of shares each beneficially owned as of April 1, 1996.
<TABLE>
<CAPTION>
BENEFICIALLY OWNED (1)
------------------------
NOMINEE AMOUNT PERCENTAGE
- ----------------------------------------------------------------- --------- -------------
<S> <C> <C>
Lloyd H. Ahlem (2)............................................... 5,855 *
Dorothy L. Bizzini (3)........................................... 13,364 *
Jerry E. Callister (4)........................................... 11,075 *
Jack F. Cauwels (5).............................................. 20,522 1.4%
Henry DuPertuis (6).............................................. 19,687 1.3%
John D. Fawcett (7).............................................. 3,725 *
Thomas T. Hawker (8)............................................. 38,149 2.6%
Robert E. Holl (9)............................................... 37,607 2.5%
Bertyl W. Johnson (10)........................................... 36,564 2.5%
James W. Tolladay (11)........................................... 12,213 *
Tapan Munroe (12)................................................ 1,071 *
All Directors and Executive Officers of Capital Corp
as a group (15 in number)....................................... 228,347 15.1%
</TABLE>
- ------------------------
* Less than 1%
(1) Includes shares beneficially owned, directly and indirectly, together with
associates and includes vested but unexercised stock options. Subject to
applicable community property laws and shared voting and investment power
with a spouse, the persons listed have sole voting and investing power with
respect to such shares unless otherwise noted. The address for all persons
is: Capital Corp of the West, 1160 West Olive Avenue, Suite A, Merced, CA
95348-1952.
(2) Includes 4,130 shares held in Living Trust with wife and 1,725 shares of
vested stock options which have not been exercised to date.
(3) Includes 3,250 shares held as joint tenancy with husband, 5,750 shares held
by the Bizzini Family Trust and 4,364 shares of vested stock options which
have not been exercised to date.
(4) Includes 2,347 shares held by the Callister Family Trust, of which Mr.
Callister is trustee and 8,728 shares of vested stock options which have not
been exercised to date.
(5) Includes 10,907 shares held by the Cauwels Family Trust, of which Mr.
Cauwels is co-trustee, 887 shares held as co-trustee and co-beneficiary of
the Cockerell Cauwels Ward Employee Profit Sharing Plan and 8,728 shares of
vested stock options which have not been exercised to date.
(6) Includes 10,959 shares held as joint tenancy with wife and 8,728 shares of
vested stock options which have not been exercised to date.
(7) Includes 1,000 shares held as joint tenancy with wife, 1,000 shares held by
Fawcett Farms of which he owns 50%, and 1,725 shares of vested stock options
which have not been exercised to date.
(8) Includes 4,389 shares held by Thomas T. Hawker's individual retirement
account, 669 shares held in trust for a child with Mr. Hawker as trustee,
29,095 shares of vested stock options which have not been exercised to date,
2,125 shares held by the employee in the Bank's 401(k) Plan and 1,386 shares
held in the Bank's ESOP Plan.
(9) Includes 31,656 shares held as joint tenancy with wife and 5,951 shares of
vested stock options which have not been exercised.
46
<PAGE>
(10) Includes 22,700 shares held at joint tenancy with wife, 6,136 shares held
in Johnson's individual retirement account, and 7,728 shares of vested stock
options which have not been exercised to date.
(11) Includes 1,904 shares held by James Tolladay's individual retirement
account, 1,581 shares held in joint tenancy with wife and 8,728 shares of
vested stock options which have not been exercised to date.
(12) Includes 321 shares held and 750 shares of vested stock options which have
not been exercised to date.
PRINCIPAL SHAREHOLDERS
As of February 28, 1996, no individuals known to the Board of Directors of
Capital Corp owned of record or beneficially five percent (5%) or more of the
outstanding shares of common stock of Capital Corp, except as described below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENTAGE OF OUTSTANDING
NAME AND ADDRESS OWNED STOCK BENEFICIALLY OWNED
- ---------------------------------------------------------- ----------------- ----------------------------
<S> <C> <C>
Capital Corp of the West ESOP
P.O. Box 552, Merced, CA 95341 95,263 7.1%
</TABLE>
COMPENSATION AND OTHER TRANSACTIONS WITH MANAGEMENT AND OTHERS
CASH COMPENSATION
The following information is furnished with respect to the aggregate cash
compensation paid to the chief executive officer during 1995. No other executive
officer of Capital Corp received aggregate cash compensation of $100,000 or more
in 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------------- ------------------------- -----------
(E) (F) (G) (H)
(A) (B) (C) (D) OTHER ANNUAL RESTRICTED OPTIONS/ LTIP
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) STOCK AWARDS SARS PAYOUTS
- ---------------------------- --------- ---------- --------- --------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas T. Hawker, 1995 $ 147,875 $ 32,768 $ 8,602 -- -- --
President and CEO 1994 143,828 36,000 15,391 -- -- --
1993 145,070 22,500 10,776 -- -- --
<CAPTION>
(I)
(A) ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION
- ---------------------------- ------------
<S> <C>
Thomas T. Hawker, --
President and CEO --
--
</TABLE>
- ------------------------
(1) Other annual compensation includes premiums for term life insurance and
disability insurance provided to Mr. Hawker.
In the interests of attracting and retaining qualified personnel, the Bank
furnishes to executive officers certain incidental personal benefits. The
incremental cost to the Bank of providing such benefits to Mr. Hawker did not,
for the fiscal year ended December 31, 1995, exceed 10% of his compensation
reported above.
Pursuant to his employment contract effective August 28, 1993, through
February 28, 1997, Mr. Hawker receives a base salary of $135,000, adjusted
annually for cost of living allowances and other salary increases if approved,
use of a bank-owned automobile, various forms of insurance benefits and
participation in the company's other compensation plans such as its incentive
compensation program, 401(k) plan, stock option plan and ESOP plan. Pursuant to
such employment contract, should Mr. Hawker be terminated for reasons other than
"for cause," Mr. Hawker would receive a severance payment equal to one year's
then-current salary. In addition, in the event of an acquisition of County Bank,
Mr. Hawker's employment contract will automatically terminate and Mr. Hawker
will receive an acquisition payment equal to six month's then-current salary.
In addition, County Bank provides Mr. Hawker with a salary continuation
plan. This is a non-qualified executive benefit plan in which the Bank has
agreed to pay retirement benefits to him in return for continued satisfactory
performance of the executive. It is an unfunded plan; Mr. Hawker has no rights
under the agreement beyond those of a general creditor of the Bank. If Mr.
Hawker leaves the Bank's employ, either
47
<PAGE>
voluntarily or involuntarily, the agreement terminates and Mr. Hawker receives
no benefits except those already vested. Upon continued employment with the Bank
at August 28, 1996, Mr. Hawker will become 40% vested in retirement benefit
payments. He shall become vested thereafter in an additional 10% of said
payments for each full succeeding year of employment thereafter and be 100%
vested on August 21, 2001 provided he has been continuously employed for ten
full years. The plan is intended to provide Mr. Hawker $35,000 annually for a
period of ten years, when he reaches the age of 65. The Plan is informally
linked with a single premium universal life insurance policy. The Bank is the
owner and beneficiary of the policy. At inception in November of 1994, the Bank
purchased two such policies totaling $288,000.
No options or stock appreciation rights were granted in 1995 to persons
included in the Summary Compensation Table.
The following table shows information about options and stock appreciation
rights exercised in 1995 and the value of unexercised options held by persons
included in the Summary Compensation Table.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(E)
(D) VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FYE AT FYE
(B) (C) ------------ ------------
(A) SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------ --------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C>
Thomas T. Hawker -- -- 29,095/0 72,010/0
</TABLE>
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Board of Directors of Capital Corp has established, under Sections
401(a) and 501(a) of the Internal Revenue Code of 1986, a qualified Employee
Stock Ownership Plan ("ESOP") effective December 31, 1984. The purpose of the
ESOP is to provide all eligible employees with an additional incentive to
maximize their job performance by providing them with an opportunity to acquire
or increase their proprietary interest in Capital Corp and to provide
supplemental income upon retirement. The ESOP is designed primarily to invest
Capital Corp's contributions in shares of Capital Corp's Common Stock. All
assets of the ESOP are held in trust for the exclusive benefit of participants
and are administered by a committee appointed by the directors of Capital Corp.
However, each participant has the right to direct the trustees as to the manner
in which those shares of Capital Corp's stock which are credited to the account
of each participant are to be exercised with respect to a corporate matter or
the Bylaws of Capital Corp. The company has made and in the future intends to
make periodic contributions to the ESOP in amounts determined by the Board of
Directors. It is anticipated that as contributions are made by Capital Corp,
shares of Capital Corp's Common Stock will be acquired from time to time through
open market purchases and privately negotiated transactions. Any effect on the
market quotations of, or on the market in general for, Capital Corp's common
stock which could result from the fact that the ESOP may make acquisitions of
Capital Corp's shares in the future is not possible to determine in advance. The
amount of contributions for the benefit of Mr. Hawker is included in the Summary
Cash Compensation table in the column entitled "Other Annual Compensation."
401(K) PLAN
The Board of Directors has established an employee profit sharing plan under
Section 401(k) of the Internal Revenue Code of 1986. The purpose of the employee
profit sharing plan is to provide all eligible employees with supplemental
income upon retirement and increase their proprietary interest in Capital Corp.
Eligible employees may make contributions to the plan subject to the limitations
of Section 401(k) of the Internal Revenue Code of 1986. The company provides a
discretionary matching contribution equal to a percentage of the amount the
employee elected to contribute. For the 1995 year, the Bank and Capital Corp
48
<PAGE>
provided a 25% matching contribution not to exceed 6% of the employee's salary,
made payable in the form of Capital Corp common stock subject to the limitation
of Section 401(k) of the Internal Revenue Code of 1986. The Plan trustees,
consisting of members of Bank management, administer the Plan.
The amount of contributions for the benefit of Mr. Hawker is included in the
Summary Cash Compensation table in the column entitled "Other Annual
Compensation."
STOCK PERFORMANCE GRAPH
The following graph compares the change on an annual basis in Capital Corp's
cumulative total return on its common stock with (a) the change in the
cumulative total return on the stocks included in the Nasdaq Composite Index for
U.S. Companies and (b) the change in the cumulative total return on the stocks
included in the SNL Securities "Western Bank Index," a peer industry group,
assuming an initial investment of $100 on December 31, 1990. All of these
cumulative total returns are computed assuming the reinvestment of dividends at
the frequency with which dividends were paid during the period. The common stock
price performance shown below should not be viewed as being indicative of future
performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SNL WESTERN BANKS CAPITAL CORP-CA NASDAQ TOTAL RETURN
<S> <C> <C> <C>
12/31/90 100.00 100.00 100.00
12/31/91 133.11 142.86 160.56
12/31/92 177.77 99.39 186.86
12/31/93 204.68 130.43 214.51
12/31/94 202.21 161.49 209.68
12/31/95 339.79 175.00 296.30
</TABLE>
PERIOD ENDING
<TABLE>
<CAPTION>
12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
SNL Western Banks..................................... 100.00 133.11 177.77 204.68 202.21 339.79
Capital Corp - CA..................................... 100.00 142.86 99.39 130.43 161.49 175.00
Nasdaq Total Return................................... 100.00 160.56 186.86 214.51 209.68 296.30
</TABLE>
49
<PAGE>
COMPENSATION COMMITTEE REPORT
The following is the report of Capital Corp's compensation committee with
respect to compensation of executive officers of the company.
The Executive Committee serves as the compensation committee for the
Company. It is the duty of the Executive Committee to administer the
Company's incentive program, benefits plans, stock option plan and
long-term compensation programs. In addition, the Committee reviews the
compensation levels of members of management, provides input on the
performance of management and considers management succession and
related matters.
The Committee reviews the reasonableness of compensation paid to senior
officers of the Company. In doing so, the members of the Committee
review surveys from various sources in regards to compensation levels
for those senior officers.
The Company's Chief Executive Officer's base salary and other benefits
for 1995 were based principally on the terms established under his
employment agreement with the Company dated February 28, 1994 as
described in the Company's proxy statement.
The Company's incentive program is based upon the achievement of certain
financial objectives. Those financial objectives are established by
Management and approved by the Board of Directors prior to the start of
the fiscal year. For the year 1995, the incentive program was based in
part on the level of return on equity achieved by the Company excluding
the impact of the Company's wholly owned real estate subsidiary. In
addition for the senior officers of the Bank, incentive compensation
levels were established based upon a series of multiple goals for the
Company which included net interest margin, loan and deposit growth, a
productivity target, certain loan quality targets and strategic planning
objectives. The Committee also has the authority to provide additional
incentive compensation based upon the Committee's overall assessment of
the Company's performance and the individual officer's performance. In
the case of the Company's Chief Executive Officer, the incentive
compensation level is determined upon the basis of the Company's overall
achievement of the financial objectives previously discussed as well as
data provided in regards to the incentive awards provided to other CEOs
of comparable institutions based upon surveys and other various studies
and the Board of Directors' overall assessment of the performance of the
Company's Chief Executive Officer.
The granting of stock options is determined based upon the officer's
responsibilities and relative position in the Company.
No voting member of the Committee is a former or current officer of the
Company or any of its subsidiaries. The Company's Chief Executive
Officer is a non-voting member of the compensation committee.
Jerry E. Callister
Robert E. Holl
James W. Tolladay
Bertyl W. Johnson
Thomas T. Hawker (non-voting)
INDEBTEDNESS OF MANAGEMENT
Some of Capital Corp's directors and executive officers, as well as their
immediate family, associates and companies in which they have a financial
interest, are customers of, and have had banking transactions with, the Bank in
the ordinary course of the Bank's business, and the Bank expects to have such
ordinary banking transactions with these persons or entities in the future. In
the opinion of the Bank's management, the Bank made all loans and commitments to
lend included in such transactions in compliance with applicable laws and on
substantially the same terms, including interest rates and collateral, as those
prevailing for comparable transactions with other persons or entities of similar
credit worthiness, and these loans do not involve more than a normal risk of
collectibility or present other unfavorable features.
50
<PAGE>
TRANSACTIONS WITH MANAGEMENT
There are no other existing or proposed material transactions between
Capital Corp and any of its directors, executive officers, nominees for election
as a director, or the immediate family or associates of any of the foregoing
persons except as follows: Jack F. Cauwels, a director of Capital Corp, is the
President of the Insurance Center of Merced which sold County Bank insurance
products during 1995 and expects to provide additional insurance products to
County Bank during 1996. The aggregate amount of insurance premiums paid by
County Bank to the Insurance Center of Merced during 1995 was $111,974.
Henry DuPertuis, a director of Capital Corp, is the founder of the
architectural firm of DuPertuis, Scott Architects, which provided architectural
work to County Bank during 1995 and expects to provide additional architectural
services to County Bank during 1996. The aggregate amount of payments for
services rendered paid by County Bank to DuPertuis, Scott Architects during 1995
was $60,079.
In accordance with its policies, Capital Corp obtains competitive bids for
the kinds of products and services referred to above from independent parties
before selecting a vendor of such products and services.
REPORTS REQUIRED UNDER SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 ("Exchange Act")
requires of each person (i) who owns more than 10% of any class of security
which is registered or (ii) who is a director or an officer of the issuer of
such security to file with the Commission or, in the case of the Bank before
formation of Capital Corp, the FDIC, certain reports regarding the beneficial
ownership of such person of the registered security. Capital Corp has
established a procedure to aid persons who are officers and directors of Capital
Corp in timely filing reports required by the Exchange Act.
The Board of Directors is required to disclose unreported filings from prior
years of which the Board of Directors has knowledge. The Board of Directors has
no knowledge of any late filings or any unreported filings from prior years
which relate to any transactions required to be disclosed pursuant to the
Exchange Act.
PROPOSED AMENDMENTS OF CAPITAL CORP'S ARTICLES OF INCORPORATION AND BYLAWS TO
ADOPT CERTAIN ANTI-TAKEOVER MEASURES
The Board of Directors of Capital Corp has voted unanimously to authorize
amendments to Capital Corp's Articles of Incorporation and to recommend such
proposed amendments to the shareholders for adoption. The Board of Directors
believes that the proposed defensive measures are in the best interests of
Capital Corp and its shareholders. The proposed amendments are: (i) to eliminate
cumulative voting ("Proposal Three"); (ii) to classify the Board of Directors
into three classes serving staggered three-year terms ("Proposal Four"); (iii)
to provide that shareholder action may be taken only at annual or special
meetings of shareholders and not by shareholder written consent ("Proposal
Five"); and (iv) to require a supermajority vote of the shareholders to approve
business combinations that have not been previously approved by a majority vote
of the Board of Directors ("Proposal Six"). The purpose and intended effect of
the proposed amendments are to render Capital Corp a less attractive target for
unfriendly acquisition by an outsider by making it more difficult for such a
person to obtain control of Capital Corp. The overall impact of the amendment
may be to render more difficult or discourage a merger or tender offer (even if
such transaction is favorable to the interests of the shareholders).
The Board believes that companies can be and are acquired and changes in
control of companies can and do occur at prices below realistically achievable
levels when boards do not have measures in place to require an acquiror to
negotiate directly with the board. Many companies, with shareholder approval,
have put similar provisions in place. While it is possible for such measures to
be misused to resist reasonable takeover actions contrary to a board's fiduciary
obligation, the Board of Directors of Capital Corp is aware of, and committed
to, its fiduciary obligations not to misuse such provisions.
These proposals are not made in response to any efforts of which Capital
Corp is aware to accumulate Capital Corp's stock or to obtain control of Capital
Corp. The Board of Directors does not currently contemplate recommending to the
shareholders for their approval any further measures which would affect
51
<PAGE>
the ability of third parties to change control of the company. However, the
Board of Directors is currently considering other anti-takeover measures that do
not require shareholder approval under California law. Such measures could
include the adoption of a shareholders' rights plan and the adoption of other
bylaw amendments such as a provision to prevent a person who is the nominee of
another financial institution from being qualified to stand for election to the
Board of Directors of Capital Corp.
Descriptions of possible anti-takeover effects of these provisions for
inclusion in the Articles of Incorporation and Bylaws are set forth below. The
following summary descriptions of the proposed amendments are not intended to be
complete and are qualified in their entirety by reference to the complete texts
of the amendments, which appear as Annex D.
Approval of Proposals Three, Four and Five requires the affirmative vote of
holders of a majority of the outstanding shares of Capital Corp's common stock
entitled to vote in person or by proxy at the Annual Meeting. Approval of
Proposal Six requires the affirmative vote of holders of two-thirds of the
outstanding shares of Capital Corp's common stock entitled to vote in person or
by proxy at the Annual Meeting.
Adoption of each of the proposed amendments also requires the approval of
the Board of Directors. The Board of Directors has unanimously voted to approve
each amendment.
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED AMENDMENTS ARE IN THE BEST
INTERESTS OF CAPITAL CORP AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE
FOR APPROVAL OF EACH OF THE PROPOSED AMENDMENTS.
CAPITAL CORP PROPOSAL THREE: AMENDMENT TO BYLAWS
TO ELIMINATE CUMULATIVE VOTING
Currently, under the Bylaws of Capital Corp, shareholders have the right to
cumulate votes for the election of directors. Under California law, a "listed
corporation" may adopt an amendment to eliminate cumulative voting. Since its
shares became traded on the Nasdaq National Market, Capital Corp qualifies as a
listed corporation and is eligible to adopt such an amendment. The Board of
Directors of Capital Corp has unanimously recommended that the shareholders
approve an amendment to the bylaws of Capital Corp to eliminate cumulative
voting.
After cumulative voting is eliminated, the holders of a majority of the
shares present at any annual meeting will be able to elect all of the directors
to be elected at that meeting. No nominee could be elected without the support
of a majority of the shareholders present and voting. Thus, if cumulative voting
is eliminated, a person or group of persons holding shares or proxies
representing less than a majority of the shares voting for the election of
directors will not be able to elect any directors, even though they might have
been able to do so if cumulative voting were available. For example, if 11
directors were to be elected, a shareholder or group of shareholders holding
more than one-twelfth of the shares voting at the meeting could, by voting
cumulatively, elect one director; without cumulative voting such shareholder or
group of shareholders would not be able to elect any directors unless they held
more than one-half of the shares voting at the meeting. Additionally, the
holders of a majority of the outstanding shares would be able to remove any or
all of the directors, even over the objections of shareholders holding a number
of shares that would be sufficient to prevent the removal of one or more
directors under cumulative voting. Accordingly, the elimination of cumulative
voting would (i) permit a majority of the shares voting to elect or remove every
director; and (ii) preclude a minority of the shares voting at a meeting from
electing or preventing the removal of any director. The elimination of
cumulative voting could therefore prevent minority shareholders (even those with
substantial holdings but less than a majority) from obtaining representation on
the Board of Directors. The elimination of cumulative voting may tend to make
achieving a change in control of Capital Corp more difficult by preventing
substantial minority shareholders from electing directors.
The Board of Directors believes that the elimination cumulative voting is in
the best interest of Capital Corp and its shareholders. Public companies are
potentially subject to attempts to acquire significant minority positions with
the intent either of obtaining actual control by electing their own slate of
directors, or achieving some other goal, such as the repurchase of their shares
by the company at a premium. Because it
52
<PAGE>
facilitates minority representation on the Board, cumulative voting makes it
easier for an uninvited acquiror or competitor to gain representation on Capital
Corp's Board. Even if such a person lacked sufficient shares to actually gain
control of Capital Corp, board representation would allow them access to
confidential corporate information and could be disruptive. The adoption of
Proposal Three will make it more difficult for such a person to gain
representation on Capital Corp's Board.
Another advantage of Proposal Three is that Capital Corp's Board will be
composed of persons representing a majority of the shareholders, rather than
directors elected by one or more separate factions of minority shareholders to
serve as guardians of narrow or limited interests. The Board, through its
nominating process, has selected directors based on their qualifications, their
business acumen and their divergent backgrounds. The Board thus selected
reflects the broad interests of Capital Corp and its shareholders without the
factionalization that can occur when minority shareholders combine to elect
board members to represent their special interests. By eliminating cumulative
voting, a unified Board, of divergent views and backgrounds, can, in the
exercise of its fiduciary duties, examine all options available to Capital Corp
and represent all shareholders in evaluating and pursuing those options.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL THREE.
CAPITAL CORP PROPOSAL FOUR: AMENDMENT TO THE BYLAWS TO CLASSIFY THE BOARD OF
DIRECTORS AND CHANGE THE AUTHORIZED RANGE OF DIRECTORS
The Board of Directors of Capital Corp proposes to amend Section 3.3
("Proposal Four") of Capital Corp's Bylaws to provide that the Board of
Directors be divided into three classes of directors serving staggered
three-year terms. Currently, directors are elected annually to serve one-year
terms. Under California law, a corporation may, after it has become a listed
corporation, classify its board of directors. Since its shares became traded on
the Nasdaq National Market, Capital Corp qualifies as a listed corporation and
is eligible to adopt such an amendment.
Proposal Four would create three classes of directors, each consisting as
nearly as possible of one-third of the Board, with one class to be elected each
year. Members of all three classes would be elected initially at the 1996
Capital Corp Meeting. If Proposal Four is approved and the slate of 11 directors
proposed for election at the 1996 Capital Corp Meeting is elected, they would be
elected in three separate classes as follows: three "Class I Directors" would be
elected for a term expiring at the 1997 Annual Meeting; four "Class II
Directors" would be elected for a term expiring at the 1998 Annual Meeting; and
four "Class III Directors" would be elected for a term expiring at the 1999
Annual Meeting. At each annual meeting after the 1996 Capital Corp Meeting, only
directors of the class whose term is expiring that year would be required to
stand for election, and upon election each such director would serve a
three-year term.
The number of directors to be elected at the 1996 Capital Corp Meeting is
11, which is the maximum number currently provided in Capital Corp's Bylaws for
the size of the Board and the present number of directors. The Board of
Directors has no present plans, arrangements, commitments or understandings with
respect to increasing or decreasing the size of the Board or any class of
directors.
If Proposal Four is approved, Capital Corp's bylaws will be amended to
replace Section 3.3. The text of Section 3.3 as proposed to be revised, is set
forth in Annex D.
California law requires a corporation with three classes of directors to
have at least nine directors. Capital Corp's Bylaws currently provide for a
range of six to 11 directors. If Proposal Four is approved, Capital Corp's
Bylaws will be amended to provided for a range of nine to 12 director,
satisfying the required legal minimum. Accordingly, by voting for Proposal Four,
the shareholders will also approve an amendment to Section 3.2 of Capital Corp's
Bylaws to establish the authorized number of directors at not less than nine nor
more than 12. The text of Section 3.2 as proposed to be revised is set forth in
Annex D.
REASONS FOR AND EFFECTS OF PROPOSAL FOUR
The Board of Directors of Capital Corp believes that the adoption of
Proposal Four is advantageous to Capital Corp and its shareholders for a number
of reasons.
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As discussed above, public companies are potentially subject to attempts by
various individuals and entities to acquire significant minority positions with
the intent either of obtaining actual control by electing their own slate of
directors, or of achieving some other goal, such as the repurchase of their
shares by the company at a premium. Public companies also are potentially
subject to inadequately priced or coercive bids for control through majority
share ownership. These prospective acquirors maybe in a position to elect the
majority of a company's board of directors (or, if cumulative voting is
eliminated, its entire board) through a proxy contest or otherwise, even though
they do not actually own a majority of the company's outstanding shares at the
time. If Proposal Four is approved, a majority of Capital Corp's directors could
not be replaced by such persons until at least two annual meetings of
shareholders have occurred, unless the proponent of removal achieved sufficient
votes to remove the entire Board of Directors pursuant to the provisions of
California Corporations Code Section 303. By eliminating the possibility of the
sudden removal of the Board, the incumbent Board will be given the time and
opportunity to evaluate any proposals and assess and develop alternatives
without the pressure created by the threat of imminent removal or loss of
control in a manner consistent with their responsibility to Capital Corp's
shareholders.
In addition, by allowing directors to serve three-year terms rather than
one-year terms, Proposal Four will enhance the continuity and stability of both
the composition of Capital Corp's Board of Directors and the policies formulated
by the Board. This will enhance the Board's ability to adopt and implement long
term business strategies aimed at increasing shareholder value. The Board
believes, therefore, that removing the threat of sudden removal will permit it
more effectively to represent the interests of all shareholders, including
responding to demands or actions by any shareholder or group.
If Proposal Four were adopted, it will generally take at least two annual
meetings of shareholders to elect a majority of the Board. Proposal Four may
therefore discourage persons from attempting to acquire control of Capital Corp
without the consent of the Board of Directors because its provisions would
operate to delay such person's ability to obtain control of the Board of
Directors. In addition, Proposal Four would similarly delay shareholders who do
not approve of policies of the Board in their attempt to replace a majority of
the directors, unless they obtained the requisite vote to remove the entire
Board. For the same reasons, the adoption of Proposal Four may also deter
certain mergers, tender offers or other takeover attempts which some or a
majority of holders of Capital Corp's voting stock may deem to be in their best
interests.
The Board of Directors of Capital Corp has no knowledge of any present
effort to gain control of Capital Corp or to organize a proxy contest. In
addition, Capital Corp has not experienced any problems in the past or at the
present time with the Board's continuity or stability. However, the Board
believes that adopting Proposal Four is prudent, advantageous and in the best
interests of shareholders because it will give the Board more time to fulfill
its responsibilities to shareholders and it will provide greater assurance of
continuity and stability in the composition and policies of the Board of
Directors. The Board also believes such advantages outweigh any disadvantages
relating to discouraging potential acquirors from attempting to obtain control
of Capital Corp.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
PROPOSAL FOUR.
CAPITAL CORP PROPOSAL FIVE: AMENDMENT TO ARTICLES TO ELIMINATE ACTIONS OF THE
SHAREHOLDERS BY WRITTEN CONSENT WITHOUT A MEETING
The Board of Directors of Capital Corp proposes to amend Capital Corp's
Articles of Incorporation to add a new provision requiring that shareholder
action be taken at an annual or special meeting of shareholders and prohibiting
shareholder action by written consent ("Proposal Five"). Under California law,
any actions required or permitted to be taken by shareholders may be taken
(unless a company's articles of incorporation otherwise provides) without a
meeting, without prior notice and without a shareholder vote if a written
consent setting forth the action to be taken is signed by the holders of stock
having the requisite number of votes. Capital Corp's existing Articles of
Incorporation do not prohibit such action by written
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<PAGE>
consent and Capital Corp's present Bylaws provide that action may be taken by
written consent. Consequently, unless Proposal Five is approved, a person or
group of persons holding a majority interest in Capital Corp could take
significant corporate action without giving all shareholders notice or the
opportunity to vote. Proposal Five would not effect voting by proxy.
The Board of Directors believes that it is in the best interest of
shareholders that all shareholders be advised in advance of any significant
corporate action that requires the approval of the shareholders and be given the
opportunity to vote. If action by written consent without a meeting is
permitted, a majority of the shareholders could consent in writing to certain
action without advance notice to other shareholders. Notice of such action
provides all shareholders the opportunity to express their views on the proposed
action and to persuade other shareholders and management of their support or
opposition. The Board of Directors believes that shareholder decisions reached
after all shareholders have received notice and such opportunity to express
their views will be informed decisions and more consistent with the Board's
notion of corporate democracy.
Action by written consent may, in some circumstances, permit the
shareholders to take action opposed by the Board of Directors more rapidly than
would be possible if a meeting were required. The Board of Directors nonetheless
believes that it is important that it be able to give advance notice of and
consideration to any such shareholder action and that shareholders be able to
discuss at a meeting matters which may affect their rights. Additionally,
California law and Capital Corp's Bylaws provide that the holders of not less
than ten percent of the shares entitled to vote always have the power to call a
special meeting of shareholders.
If shareholders approve Proposal Five, the Board of Directors will adopt
various conforming amendments to Capital Corp's Bylaws, including an amendment
that eliminates the provisions of Section 2.8 of the Bylaws providing for action
by written consent of shareholders holding a majority of the outstanding shares.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
PROPOSAL FIVE.
CAPITAL CORP PROPOSAL SIX: AMENDMENT TO THE ARTICLES TO REQUIRE A SUPERMAJORITY
VOTE TO APPROVE CERTAIN BUSINESS COMBINATIONS
The Board of Directors of Capital Corp proposes to amend to the Articles of
Incorporation so as to require that any business combination, as defined below,
that is proposed to the shareholders receive the affirmative vote of
shareholders holding at least 66.67% of the outstanding voting shares of Capital
Corp to become effective unless the business combination is first approved by a
majority of the Board of Directors. Such a provision is commonly referred to as
a "supermajority" requirement. Currently, only a majority of the outstanding
shares of Capital Corp are required to approve a merger in which Capital Corp is
not the surviving corporation or in which it issues a significant number of
shares (more than 16.67% of previously outstanding shares), a sale of
substantial assets of Capital Corp or a liquidation or dissolution of Capital
Corp (collectively, a "business combination"). This requirement is based in
California law. Proposal Six would amend Capital Corp's Articles of
Incorporation to require 66.67% of the outstanding voting shares to approve a
business combination, rather than a majority.
The 66.67% affirmative shareholder vote would not be required for a business
combination if the transaction has been approved by a majority of the Board of
Directors, provided that at least a majority of the Board was holding office
prior to commencement of proceedings or negotiations leading to the business
combination. In the case of the present Board of Capital Corp, which consists of
11 directors, six directors must have held office prior to the commencement of
such a proposed business combination and six directors must approve the proposed
business combination in order for the "supermajority" requirement of shareholder
approval to be inapplicable.
Finally, the proposed amendment provides that a vote of 66.67% or more of
the outstanding shares entitled to vote be required in order to amend or repeal
this provision.
55
<PAGE>
California law allows a corporation to adopt a supermajority voting
provision but only if it is approved by at least as large a proportion (but not
more than two-thirds) of the outstanding shares as is required by the provision
to approve the corporate action specified in such provision.
Accordingly, the adoption of Proposal Six will require the affirmative vote
of 66.67% of Capital Corp's outstanding shares. Additionally, under California
law, if Proposal Six is adopted, the supermajority requirement will only remain
effective for two years after the date Capital Corp files its amended Articles
of Incorporation with the California Secretary of State. The supermajority
requirement could be renewed for additional two year periods by Capital Corp's
shareholders during the year preceding the requirement's expiration. If the
supermajority requirement were not renewed and allowed to expire, a vote of only
the majority of Capital Corp's outstanding shares would be required to approve a
business combination after such time. Capital Corp's shareholders could,
however, adopt another supermajority provision after the expiration of this
supermajority provision.
FACTORS REGARDING THE PROPOSED AMENDMENT
BOARD OF DIRECTOR'S ABILITY TO EVALUATE BUSINESS COMBINATIONS. Many
companies have recently been the subject of tender offers or other acquisitions
of less than all of the outstanding stock. Such purchases may be followed by a
business combination.
The proposed amendment attempts to discourage such tender offers or
acquisitions by imposing a 66.67% shareholder approval requirement for certain
business combinations, unless the combination is approved by a majority of the
Board of Directors and provided that more than half of the Board has been in
office prior to the commencement of the business combination. Because of these
requirements, the Board of Directors believes that a person seeking to control
Capital Corp would either have to negotiate directly with Capital Corp
concerning the terms of the acquisition or gain the power to vote 66.67% or more
of Capital Corp's common stock through purchase, solicitation of proxies or
otherwise. The increased bargaining position of Capital Corp in such an event
should benefit all shareholders. The Board is of the view that negotiations
between Capital Corp and the purchaser would increase the likelihood that
shareholders would receive better terms (including a higher price) for their
shares from anyone who seeks to initiate such a business combination. Also, the
Board believes that it is in a better position to negotiate for the sale of
Capital Corp than individual shareholders and that its superior access to
corporate information makes it likely to be more knowledgeable than any
individual shareholder in assessing the business prospects of Capital Corp. The
Board's view of acceptable terms in a business combination, however, may not be
consistent with those of all shareholders.
-VETO POWER OF BOARD OVER BUSINESS COMBINATION. A possible effect of the
adoption of the proposed amendment might give the Board of Directors and the
holders of a minority of the shares outstanding de facto veto power over a
business combination, which a majority of shareholders may deem desirable and
beneficial. Proposal Six may also make it more difficult to accomplish certain
transactions, including a hostile tender offer, that would replace management
even if a majority of the shareholders so desired. Moreover, publicly held
corporations, such as Capital Corp, frequently have difficulty obtaining more
than a majority vote for a proposition even if it is supported by management.
Thus the 66.67% vote requirement might be regarded as effectively prohibiting
any business combinations which the Board of Directors opposes.
-CONTROL BY MANAGEMENT. Management of Capital Corp could, if the proposed
amendment is adopted, exercise its veto power in order to perpetuate its control
of Capital Corp. However, the Board of Directors has a fiduciary duty to act in
the best interests of the shareholders, rather than its own best interests, when
considering a proposed business combination. This proposal will not affect that
obligation.
-PROTECTION OF SHAREHOLDERS WHO DO NOT WISH TO SELL. The proposed amendment
protects shareholders who, in the event of a tender offer, do not tender or
otherwise sell their shares to a purchaser who is attempting to acquire control.
If Proposal Three (elimination of cumulative voting) is adopted, a purchaser who
acquires a majority of the outstanding shares will be able to elect all of
Capital Corp's directors and thereby control Capital Corp. In the absence of the
proposed amendment, a successful purchaser who
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<PAGE>
acquires majority control of Capital Corp could force minority shareholders to
sell or exchange their shares in a business combination at a price which might
effectively be set by such purchaser. This amendment could protect such
shareholders by requiring that the business combination be approved by a
supermajority of all voting shares rather than a simple majority.
-DISCOURAGING ACCUMULATION OF LARGE BLOCKS. If the proposed amendment does
in fact discourage purchasers who are not willing to purchase 66.67% of the
outstanding stock, it also should discourage purchasers whose objective is to
seek control of Capital Corp without paying a premium for control. This in turn
may tend to discourage the accumulations of large blocks of stock which the
Board of Directors believe could cause volatility in the trading of Capital
Corp's publicly held securities.
-EFFECT OF OFFERS AND ACQUISITIONS ON STOCK PRICE. Tender offers and other
substantial acquisitions of stock often involve purchases above the prevailing
market price of Capital Corp's stock. Acquisitions of stock in open market
purchases by persons attempting to acquire control may support the price of
Capital Corp common stock at a price higher than otherwise would be the case.
The proposed amendment may discourage such purchases, which might otherwise
benefit the holders of a majority of common stock.
-OWNERSHIP OF STOCK BY MANAGEMENT. The directors and executive officers of
Capital Corp beneficially owned, as of February 29, 1996, 15.1% of the
outstanding shares of Capital Corp Common Stock. If the directors and executive
officers of Capital Corp through acquisition of additional shares of Capital
Corp common stock or by acting in concert with others were to increase their
holdings in excess of 33.33%, the approval of at least some of the officers and
directors would be required for any action of the shareholders which is subject
to the 66.67% vote requirement, even if holders of a majority of the outstanding
Common Stock otherwise favor the action. In such a case, management would, in
effect, have a veto power over any proposed business combination.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
PROPOSAL SIX.
TOWN & COUNTRY PROPOSAL TWO: ELECTION OF DIRECTORS
Town & Country's Bylaws provide that the shareholders shall determine the
number of directors. At present, the authorized number of Directors to be
elected at the Town & Country Meeting is five. Each Director will hold office
until the next Annual Meeting of Shareholders. All proxies will be voted for the
election of the following nominees recommended by the Board of Directors, all of
whom are incumbent Directors, unless authority to vote for the election of
directors is withheld or there is an abstention. If any of the nominees should
unexpectedly decline or be unable to act as a Director, the proxies may be voted
for a substitute nominee to be designated by the Board of Directors. The Board
of Directors has no reason to believe that any nominee will become unavailable
and has no present intention to nominate persons in addition to or in lieu of
those named below. Except as otherwise indicated, there is no family
relationship between any of the directors and executive or principal officers.
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NOMINEES
The following table shows the nominees for Directors of the Town & Country,
their relationships to the Town & Country, the year when the nominee first
became a Director and the number and percentage of shares each beneficially owns
as of December 31, 1995.
<TABLE>
<CAPTION>
BENEFICIALLY OWNED
DIRECTOR ------------------------
NOMINEE AGE POSITIONS HELD WITH TOWN & COUNTRY SINCE AMOUNT PERCENTAGE
- ------------------------------------- --- ------------------------------------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
William E. Allen 73 Director 1988 8,160 4.8%
Roy P. Bethel 70 Director, Chairman of the Board 1976 2,052 1.2
H. Emory Bonander 74 Director 1985 4,320 2.6
Joash Paul 74 Director 1985 2,214 1.3
D. Dale Pinkney 64 Director, President 1976 6,815 4.1
All Directors and Executive Officers
of the Town & Country as a group (8
in number) 25,096 14.9
</TABLE>
If the Merger is completed, Capital Corp as sole shareholder intends to
increase the number of directors from five to six and to appoint Thomas T.
Hawker, president, chief executive officer and a director of Capital Corp, to
the Board of Directors of Town & Country.
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Town & Country has had, and expects to have in the future, banking
transactions in the ordinary course of its business with directors, executive
officers, principal shareholders and their associates on substantially the same
terms, including interest rates and collateral on loans, as those prevailing at
the same time for comparable transactions with others, and such transactions did
not, and will not, involve more than the normal risks of collectability or
present other unfavorable features. Town & Country had no loans outstanding to
its directors, executive officers, principal shareholders (10% or more) and
their associates on December 31, 1995 or 1994.
Town & Country purchased contracts receivable in the amount of $491,00 and
received payments of $317,000 in 1995 from a business owned and operated by Mr.
Bonander, a member of the Board of Directors. Balances remaining on contracts
purchased from his business were $659,000 and $485,000 at December 31, 1995 and
1994. Town & Country has received permission from the California Department of
Corporations to acquire these contracts from a director. All such purchases were
on market rate terms.
EXECUTIVE OFFICERS
The following table identifies the executive officers of Town & Country and
their business experience in the last five years.
<TABLE>
<CAPTION>
NAME TITLE BUSINESS EXPERIENCE
- --------------------- ---------------------------- -------------------------------------------------------------
<S> <C> <C>
D. Dale Pinkney President President of Town & Country since 1976
Charles Deshields Executive Vice President Executive Vice President of Town & Country since 1976, Branch
Manager of Modesto branch
Wendy Richardson Vice President Vice President and Branch Manager of Visalia branch of Town &
Country since 1994, Cashier since 1982
Mary Mason Secretary Vice President and Secretary of Town & Country since 1986,
Branch Manager of Turlock branch of Town & Country
</TABLE>
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EMPLOYMENT CONTRACTS
Town & Country has no employment contracts with any officer or employee
except with Mr. Pinkney. Upon completion of the Merger, Capital Corp has agreed
to enter into an employment contract with D. Dale Pinkney providing for a grant
of options to acquire up to 10,000 shares of Capital Corp common stock. See
"PROPOSAL ONE: THE MERGER -- Interest of Certain Persons in the Merger."
COMPENSATION AND OTHER TRANSACTIONS WITH MANAGEMENT AND OTHERS
CASH COMPENSATION
The following information is furnished with respect to the chief executive
officer and each other executive officer of Town & Country whose aggregate cash
compensation from the Bank during 1995 exceeded $100,000, if any.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------------- ------------------------- -----------
(E) (F) (G) (H)
(A) (B) (C) (D) OTHER ANNUAL RESTRICTED OPTIONS/ LTIP
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) STOCK AWARDS SARS PAYOUTS
- ---------------------------- --------- --------- ---------- --------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
D. Dale Pinkney, 1995 $ 68,500 $ 59,458 $ 2,245 -- -- --
President and CEO 1994 66,100 95,262 2,400 -- -- --
1993 64,400 110,964 2,200 -- -- --
<CAPTION>
(I)
(A) ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION
- ---------------------------- ------------
<S> <C>
D. Dale Pinkney, --
President and CEO --
--
</TABLE>
- ------------------------
(1) "Other annual compensation" consists of directors' fees.
OTHER COMPENSATION
Certain incidental personal benefits to executive officers of Town & Country
may result from expense incurred by Town & Country in the interest of attracting
and retaining qualified personnel. The incremental cost to Town & Country of
providing such incidental personal benefits to Mr. Pinkney in 1995 did not
exceed the lesser of $50,000 or 10% of the compensation reported in the Summary
Compensation Table.
COMPENSATION OF DIRECTORS
During 1995, all members of the Board of Directors of Town & Country
received $200 per board meeting and all outside directors received $25 per
Loan/Executive Committee meeting. The Chairman of the Board received $250 per
board meeting and $25 per Loan/Executive Committee meeting. Board fees paid to
the Board as a group through December 31, 1995 totaled $11,325.
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INFORMATION ABOUT CAPITAL CORP OF THE WEST
GENERAL
Capital Corp was incorporated in 1995 under the California General
Corporation Law for the principal purpose of engaging in activities permitted
for a bank holding company. Capital Corp became the holding company for County
Bank on November 1, 1995, when each outstanding share of County Bank stock was
exchanged for one share of Capital Corp common stock. The operations of Capital
Corp are conducted at the same location and in the same facilities as the
operations of the Bank. Capital Corp does not currently engage in activities
other than the operation of the Bank. Capital Corp receives all of its income
from dividends made to it by the Bank. The Bank has no formal dividend policy,
and dividends are issued solely in the discretion of the Bank's Board of
Directors. There can be no assurance as to when or whether such a dividend will
be paid or the amount thereof. Capital Corp may also receive management fees if
it provides management services to the Bank.
The activities of Capital Corp are subject to the supervision of the FRB.
Capital Corp may engage, directly or through subsidiary corporations, in those
activities closely related to banking which are specifically permitted under the
Bank Holding Company Act of 1956, as amended. Capital Corp has received
permission from the FRB to offer advisory services to financial institutions in
the western United States. Capital Corp has applied to the FRB for authority to
provide these services throughout the entire country through a new wholly owned
subsidiary, Capital West Group.
COUNTY BANK
County Bank was organized and commenced operation in 1977, as County Bank of
Merced, a California state banking corporation. In November 1992, the Bank
changed its legal name to County Bank. The Bank's deposits are insured under the
Federal Deposit Insurance Act, up to applicable limits thereof. It is not a
member of the Federal Reserve System.
The Bank engages in the general commercial banking business primarily in
Merced, Stanislaus and Tuolumne counties from its main office, located at 490
West Olive Avenue, Merced, California 95341; and full-service branch offices
located at 735 Bellevue Road, Atwater, California 95301; 606 West 19th Street,
Merced, California 95340; 953 West Pacheco Boulevard, Los Banos, California
93635; 8019 N. Lander Avenue, Hilmar, California 95365; 2001 Geer Road, Turlock,
California 95380; and 1281 Sanguinetti Road, Sonora, California 95370; and a
loan production office located at 909 - 14th Street, Modesto, California 95354.
The Bank's administrative headquarters are located at 1160 West Olive Avenue,
Suite A, Merced, California 95348, and its real estate department is located
1170 West Olive Avenue, Suite I, Merced, California 95348. The latter has also
been approved to be a full service branch banking office, although at present it
is only being used to serve real estate loan customers with construction
financing and permanent home mortgages. It also provides accommodations for the
activities of Merced Area Investment and Development ("MAID"), the Bank's wholly
owned real estate development subsidiary. Although approved to be a full service
branch banking office, the administrative headquarters facility is used solely
as the Bank's corporate headquarters.
The Bank conducts a general commercial banking business including the
acceptance of demand, savings and time deposits. The Bank also offers
commercial, real estate, personal, home improvement, home mortgage, automobile,
credit card and other installment and term loans. The Bank offers travelers'
checks, safe deposit boxes, banking-by-mail, drive-up facilities, 24-hour
automated teller machines, and other customary banking services to its
customers. Management and the Bank believe that there is no significant demand
for trust services in its service area, and the Bank does not operate a trust
department nor does it offer these services through a correspondent banking
relationship to its customers.
Most of the Bank's business originates from individuals, businesses and
professional firms located in and around Merced, Stanislaus and Tuolumne
Counties. The Bank is not dependent upon a single customer or group of related
customers for a material portion of its deposits, nor is a material portion of
the Bank's loans concentrated within a single industry or group of related
industries. As of December 31, 1995, the largest industries within the Bank's
loan portfolio are its real estate loans and dairy loans. Real estate loans
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<PAGE>
totaled approximately 31% of its loan portfolio, dairy loans were approximately
22% of the portfolio, commercial loans were approximately 15% and real estate
construction loans were approximately 9% of the portfolio as of that date. Thus,
the quality of these Bank assets and Bank earnings could be adversely affected
by a downturn in the local economy, including these industry sectors.
REAL ESTATE DEVELOPMENT ACTIVITIES
As authorized by Section 751.3 of the California Financial Code, California
state-chartered banks are allowed to engage in real estate development
activities either directly or through investment in a wholly-owned subsidiary.
The Bank established MAID, its wholly-owned subsidiary, as a California
corporation in 1987 pursuant to this authorization. However, the adoption of
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
severely limited the Bank's and MAID's ability to continue to engage in real
estate development or investment activities and could materially adversely
impact earnings in future periods.
Beginning in December, 1992, state banks and their subsidiaries were
prohibited from engaging, as principal, in activities not permissible to
national banks and their subsidiaries, unless the FDIC determines the activity
poses no significant risk to the Bank Insurance Fund ("BIF") and the state bank
is and continues to be adequately capitalized. Generally, national banks may not
engage in real estate development or investment. Final regulations adopted in
November, 1993 require divestiture of real estate activities by no later than
December 19, 1996. The Bank has received an extension until December 31, 2000,
for divestiture of its real estate development activities.
Pursuant to a plan of divestiture, the Bank in 1995 wrote off its investment
in real property development from $2,881,000 to zero. See "Management Discussion
and Analysis of Financial Condition and Results of Operations -- Asset Quality"
in Capital Corp's Annual Report to Shareholders delivered with this Joint Proxy
Statement/Prospectus and incorporated herein by reference, and "Write-Down of
Real Estate Development Investment" below.
WRITE-DOWN OF REAL ESTATE DEVELOPMENT INVESTMENT
MAID, Capital Corp's real estate development subsidiary, recorded provisions
for future losses on sales of real estate assets of $798,000 and $885,000 in
1994 and 1993. In late 1995, Capital Corp wrote down its entire remaining
investment in MAID in the amount of $2,881,000. The uncertainty about the effect
of the investment in MAID on the results of future operations caused management
to recognize the complete write-down in 1995. Furthermore, the general local
real estate market has experienced declines in value over the last several
years, especially in real estate values associated with the type of development
in which MAID is engaged. The decline in the general real estate market in the
Merced area is in part attributable to the closure of a large military facility
and is aggravated by the general extended downturn in the state economy. The
Bank has also noted that other financial institutions in its area have taken a
similar course of action in the wirte-down of similar properties.
Although the FRB did not require that Capital Corp take this action, the FRB
does not consider real estate development to be an activity closely related to
banking, and Capital Corp had previously committed itself to divesting its real
estate development assets by the end of 1996 as required by federal regulations.
At December 31, 1995, MAID held two real estate projects including improved and
unimproved land in various stages of development. MAID continues to market these
projects, and any amounts realized upon sale or other disposition of these
assets above their current carrying value of zero will result in non-interest
income at the time of such sale or disposition. Although Capital Corp expects
that sale or disposition of these assets will result in some positive
contribution to non-interest income at some time in the future, no assurance can
be given as to the amounts, if any, that Capital Corp will ultimately realize on
such assets or whether such amounts will exceed the future expenses required to
hold and complete development of the projects.
The Bank retains title to two properties. One project consists of 13
remaining improved lots and 117 unimproved lots. In 1995, MAID sold six homes in
the project. For the above reasons, provisions for the write-off of this
property of $1,225,000 were recorded in 1995. MAID does not intend to develop
the subsequent three phases (117 lots) of this project. The second project is
comprised of 230 unimproved lots,
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<PAGE>
of which 183 are remaining. A bulk sale of 47 lots occurred in 1995 in which an
agreement was made with the purchaser of the lots for an option to acquire
addtional 47 lots over the next 18 months. For the above reasons, provisions for
the write-off of this property of $1,626,000 were recorded in 1995.
MARKETS AND COMPETITION
The Bank's primary market area consists of Merced, Stanislaus and Tuolumne
counties and nearby communities of adjacent counties. The banking business in
California generally, and specifically in the Bank's primary market area, is
highly competitive with respect to both loans and deposits. The banking business
is dominated by a relatively small number of major banks which have many offices
operating over wide geographic areas. Many of the major commercial banks offer
certain services (such as international, trust and securities brokerage
services) which are not offered directly by the Bank or through its
correspondent banks. By virtue of their greater total capitalization, such banks
have substantially higher lending limits than the Bank and substantial
advertising and promotional budgets.
In the past, an independent bank's principal competitors for deposits and
loans have been other banks (particularly major banks), savings and loan
associations and credit unions. To a lesser extent, competition was also
provided by thrift and loans, mortgage brokerage companies and insurance
companies. Other institutions, such as brokerage houses, credit card companies,
and even retail establishments, have offered new investment vehicles, such as
money-market funds, which also compete with banks. The direction of federal
legislation in recent years favors competition between different types of
financial institutions and encourages new entrants into the financial services
market, and it is anticipated that this trend will continue.
To compete with major financial institutions in its service area, the Bank
relies upon specialized services, responsive handling of customer needs, local
promotional activity, and personal contacts by its officers, directors and
staff, as opposed to large multi-branch banks which compete primarily by rate
and location of branches. For customers whose loan demands exceed the Bank's
lending limits, the Bank seeks to arrange funding for such loans on a
participation basis with its correspondent banks or other independent commercial
banks. The Bank also assists customers requiring services not offered by the
Bank to obtain such services from its correspondent banks.
EMPLOYEES
As of December 31, 1995, the Bank employed a total of 116 full-time
equivalent employees, including five executive officers and a total of 43 other
officers. None of the Bank's employees is represented by a union or covered by a
collective bargaining agreement. The Bank believes its employee relations are
excellent.
SEASONAL NATURE OF THE BANK'S BUSINESS
Although the Bank does experience some immaterial seasonal trends in deposit
growth and funding of its dairy and construction loan portfolios, in general the
Bank's business is not seasonal.
LITIGATION
From time to time, Capital Corp is involved in litigation as an incident to
its business. In the opinion of management, no pending or threatened litigation
is likely to have a material adverse effect on Capital Corp's financial
condition or results of operations.
REGULATORY MATTERS
There are no loans classified for regulatory purposes as loss, doubtful,
substandard or special mention that have not been disclosed that represent or
result from trends or uncertainties which management expects will materially
impact future operating results, liquidity or capital resources. There are no
current recommendations by the regulatory authorities which, if they were
implemented, would have a material effect on Capital Corp's liquidity, capital
resources or results of operations.
62
<PAGE>
INFORMATION ABOUT TOWN & COUNTRY
GENERAL
Town & Country is a California corporation incorporated in 1957. It is
licensed by the California Department of Corporations as an industrial loan
company, also known as a thrift and loan company. Its headquarters is in
Turlock, California. It conducts a general consumer lending and deposit-taking
business from its three offices serving Turlock, Modesto and Visalia,
California, and has filed an application for authority to establish a branch in
Fresno. It specializes in direct loans to the public and the purchase of
financing contracts principally from automobile dealerships and furniture
stores. At December 31, 1995, Town & Country had assets of approximately $26.4
million and shareholders' equity of $3.6 million.
Town & Country is subject to extensive regulation, examination and control
by the Department pursuant to the ILC Law. This law imposes limitations and
requirements on the operations of a thrift and loan company, including the
amount, type and terms of loans and other extensions of credit that it makes or
purchases, the amount, type and terms of investment certificates and
certificates of deposit that it issues, the amount and terms on which it may
borrow money and numerous other matters.
Town & Country's deposits (technically known as investment certificates or
certificates of deposit rather than deposits) are insured by the FDIC up to
applicable limits. It is subject to extensive federal and state governmental
supervision, regulation and control. Under California law, a thrift and loan
company is permitted to pay dividends only to the extent that it maintains
unimpaired capital of at least $750,000 plus $50,000 for each branch office.
Under federal law, capital distributions would become prohibited, with limited
exceptions, if Town & Country were categorized as "undercapitalized" under
applicable FDIC regulations. Further, the FDIC has the authority to prohibit the
payment of dividends by Town & Country if it finds that such payment would
constitute an unsafe or unsound practice.
Town & Country's total assets at December 31, 1995 were $26,300,000. Its
highest year-end asset level was $32,500,000 at December 31, 1992. In 1993, Town
& Country lost the business of five auto dealerships at one branch due to the
bankruptcy of the dealerships. Town & Country had experienced moderate growth in
assets and net income for each of the seven years preceding 1993. No assurance
can be given that Town & Country will be able to sustain growth in the future.
From time to time, Town & Country is involved in litigation as an incident
to its business. In the opinion of management, no pending or threatened
litigation is likely to have a material adverse effect on Town & Country's
financial condition or results of operations.
POTENTIAL LIMITATION ON ISSUANCE OF INVESTMENT CERTIFICATES
The surviving corporation in the Merger ("New Town & Country") will be
subject to the ILC Law. The ILC Law limits the amount of investment certificates
and certificates of deposit that a thrift and loan company may issue to six
times its capital and surplus during its first year of operation and eight times
its capital and surplus during its second year of operation. A thrift and loan
company may, with the approval of the Department, issue investment certificates
and certificates of deposit of up to 12 times its capital and surplus during its
third and fourth years, up to 15 times capital and surplus during its fifth year
and, provided it has capital and surplus of at least $2,000,000 and meets
certain liquidity and reserve tests, up to 20 times its capital and surplus
thereafter. The Department's current policy is to approve a ratio of not more
than 17 times capital and surplus, which corresponds roughly with a capital
ratio under bank capital-adequacy guidelines of 6%. Town & Country has received
approval from the Department to issue investment certificates and certificates
of deposits in amounts up to 17 times its capital and surplus.
In effect, New Town & Country will be the successor to and a continuation of
Town & Country's business and operations, since it will inherit and maintain all
of Town & Country's assets, liabilities, operations and management. Legally,
however, it will be a new corporation with a new thrift and loan charter from
the Department. If Town & Country were to be the surviving corporation in the
Merger, the Merger could not qualify as a tax-free transaction with respect to
the Capital Corp shares to be received by Town & Country shareholders. If the
Department were to require that New Town & Country limit its investment
certificates and certificates of deposits to the levels applicable to a new
thrift and loan company,
63
<PAGE>
it would be required to divest a substantial amount of assets and liabilities.
This reduction in size would substantially impair the future earnings of New
Town & Country for the first five years after the Merger. Representatives of
Capital Corp have spoken to representatives of the Department and, on the basis
of such discussions, believe that, if the operations of Town & Country are
continued by the surviving corporation in the manner contemplated by the parties
and as described herein, the Department will treat New Town & Country as the
continuation of Town & Country for purposes of the limitations on issuance of
investment certificates and certificates of deposits. However, neither Capital
Corp nor Town & Country can give any assurances that the Department will adopt
this position.
TOWN & COUNTRY MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is designed to provide a better
understanding of the significant changes and trends related to Town & Country's
financial condition, operating results, liquidity and capital resources. The
following discussion should be read in conjunction with the Financial Statements
of Town & Country and the Notes thereto.
OVERVIEW. Total net income for 1995 was $231,000 compared to $431,000 in
1994 and $680,000 in 1993. Earnings per share were $1.38 in 1995 compared to
$2.56 in 1994 and $4.04 in 1993. The return on average assets was .90% in 1995
as compared with 1.50% in 1994 and 1.64% in 1993. Town & Country's return on
beginning equity for the same periods were 6.5%, 13.1% and 23.7%, respectively.
Total assets at December 31, 1995 reached $26,285,000, up $1,358,000 or 5.4%
from December 31, 1994. Net loans grew $101,000 or 6.% from December 31,1995 and
deposits grew to $22,545,000, a $1,356,000 or 6.4% increase. Total equity
capital grew to $3,624,000, a 1.8% increase, after dividends, over year end
1994.
LIQUIDITY. To maintain adequate liquidity requires that sufficient
resources be available at all times to meet cash flow requirements of Town &
Country. The need for liquidity in a banking institution arises principally to
provide for deposit withdrawals, the credit needs of its customers and to take
advantage of investment opportunities as they arise. Town & Country considers
cash and deposits held in other banks, other short term investments, maturing
loans and investments, payments of principal and interest on loans and
investments as sources of asset liquidity. Deposit growth and market sources of
funds are considered by Town & Country as sources of liability liquidity.
Town & Country reviews its liquidity position on a monthly basis based upon
its current position and expected trends of loans and deposits. Management
believes that Town & Country maintains adequate amounts of liquid assets to meet
its liquidity needs. These assets include cash and deposits in other banks. Town
& Country's liquid assets totaled $8,941,000 and $7,454,000 at December 31, 1995
and 1994, respectively, and constituted 34.0% and 29.9%, respectively, of total
assets on those dates.
CAPITAL RESOURCES. Capital serves as a source of funds and helps protect
depositors against potential losses. The primary source of capital for Town &
Country has been internally generated capital through retained earnings. Town &
Country's shareholders equity had a net increase of $64,000 in 1995, $263,000 in
1994, and $427,000 in 1993 totaling $753,000 for the three-year period ended
December 31, 1995. This net increase was the result of cumulative net income for
the three-year period of $1,342,000, less cash dividends paid to stockholders in
the amount of $589,000. Capital levels for Town & Country continue to remain
above established regulatory capital requirements. Town & Country is subject to
FDIC guidelines governing capital adequacy. Town & Country is required to
satisfy two separate capital requirements, risk-based and leverage ratio
capital. The risk-based rules call for a minimum risk-based capital of 8% (of
which at least 4% must be in the form of common shareholders equity or "Tier
1"), as defined. Town & Country's risk-based capital ratio at December 31, 1995
was 19.30% with "Tier 1" equal to 18.51%. Risk-based capital guidelines
categorize assets into different risk classes, including certain off-balance
sheet items and compare those to components of capital. The other capital
requirement is the leverage ratio. This requirement is designed to ensure that
all financial institutions, irrespective of their risk profile, maintain minimum
levels of core capital which by definition excludes the allowance for loan
losses. Core capital is then measured against average total assets for Town &
Country for the most recent quarter and is required to be at a minimum of 3% for
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<PAGE>
institutions which have been determined to be in the highest of five categories
used by federal regulators to rate financial institutions. All other
institutions, including Town & Country, are required to maintain leverage ratios
of at least 1 to 2 percentage points above the 3% minimum. Town & Country's
leverage ratio was 13.61% at December 31, 1995 compared to 12.54% as of December
31, 1994. Management believes that, under the current regulations, Town &
Country will continue to meet its minimum capital requirements in the
foreseeable future.
RESULTS OF OPERATIONS. Net income in 1995 was $231,000 compared to $431,000
in the prior year and $680,000 in 1993. This represents a 46.4% decrease in
earnings over 1994, preceded by a 36.6% decrease in 1994 over 1993 results.
Earnings per share were $1.38 in 1995, $2.56 in 1994 and $4.04 in 1993. The
decrease in earnings in 1995 and 1994 was a result primarily from the reduction
of receivables from five different auto dealerships which failed in 1993 and the
receivables were paid and not replaced in late 1994. The lower level of
outstanding receivables resulted in lower net interest income. No further
material losses or decreases in income are expected in connection with these
dealerships. Net interest income decreased $605,000 or 29.9% in 1995.
Noninterest income also decreased by $58,000 for 1995. Provisions for loss
decreased by $171,000 in 1995. The decrease in 1994 was due to the same factors
as in 1995. Net interest income decreased by $528,000 and noninterest income
decreased by $142,000 partially offset by a decrease in provision for losses of
$175,000.
Net income in the first quarter of 1996 was $31,000 compared to $89,000 in
the first quarter of 1995. The decrease was primarily attributed to
merger-related expenses of $45,000 and a $32,000 increase in the provision for
loan losses. See "SUMMARY -- Recent Developments."
When evaluating the earnings performance of banking organizations, two
measures of profitability commonly used are return on average assets and return
on beginning equity. Return on average assets measures a Company's ability to
profitably employ its resources. Return on average assets in 1995 was .90%. This
compares with 1.50% in 1994 and 1.64% in 1993. Return on beginning equity is a
measure of a financial institution's ability to generate income on the capital
invested in Town & Country by its shareholders. Return on beginning equity was
6.5% in 1995 as compared to 13.1% in 1994 and 23.7% in 1993. The decreases in
return on average assets and beginning equity in 1995 were generally attributed
to the decrease in the net interest margin and decreased receivables partially
offset by decreases in the provision for possible loan loss.
NET INTEREST INCOME. Town & Country's primary source of income is the
difference between interest income derived from earning assets and interest paid
on liabilities obtained to fund those assets. The difference between the two is
referred to as net interest income.
Total interest income decreased from $2,988,000 to $2,430,000, a $558,000 or
18.79% decrease for 1995. This compares with a $870,000 or 22.5% decrease in
1994, and a $71,000 or 1.8% increase in 1993. The level of net income is
affected by changes in the volume (growth) and the rates earned on
interest-earning assets. Interest-earning assets consist primarily of loans and
interest-bearing deposits with other financial institutions. The reduction in
net income in 1995 was primarily the result of a reduction in the volume of
interest-earning assets. Average interest-earning assets in 1995 were
$23,304,000 compared with $26,795,000 in 1994, a decrease of 3,671,000 or 15.8%.
Interest expense is a function of the volume of and rates paid for
interest-bearing liabilities. Interest-bearing liabilities consists of savings
and investment certificate deposits. Total average interest-bearing liabilities
in 1995 were $21,080,000 compared with $24,754,000 in 1994, a decrease of
$3,614,000 or 14.6%.
Total interest expense increased $47,000 or 4.9% in 1995 and decreased by
$342,000 or 26.2% in 1994. The 1995 increase was mainly the result of increases
in costs of these liabilities, from an average of 3.89% in 1994 to 4.79% in
1995. The 1994 decrease in interest expense of $342,000 was primarily the result
of a decrease in the volume of interest-bearing liabilities.
Town & Country's net interest margin, the ratio of net interest income
expressed as a percent of average interest-earning assets for 1995 was 6.09%.
This provides a measurement of Town & Country's ability to purchase and employ
funds profitably during the period being measured. This is a decrease of 1.47%
compared to the 1994 margin of 7.56%. This decrease was a result of an increase
in the cost of interest-
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<PAGE>
bearing liabilities and a decrease in yield on interest-earning assets and a
change in mix of interest-earning assets whereby loans comprised a smaller
percentage of interest-earning assets. Loans comprised an average of
approximately 70% of interest-earning assets in 1995 as compared to 73% in 1994,
and 75% in 1993.
ASSET AND LIABILITY MANAGEMENT. Asset and liability management is an
integral part of managing a company's primary source of income, net interest
income. Town & Country manages the balance between rate-sensitive assets and
rate-sensitive liabilities being repriced in any given period with the objective
of stabilizing net interest income during periods of fluctuating interest rates.
Town & Country considers its rate-sensitive assets to be those which mature
within one year. These assets include certain loans and interest-earning
deposits with other banks. Rate-sensitive liabilities are those which allow for
periodic interest rate changes such as maturing time certificates and certain
savings deposits. The difference between the aggregate amount of assets and
liabilities that are repricing at various time frames is called the "gap".
Generally, if repricing assets exceed repricing liabilities in a time period
Town & Country would be deemed to be "asset-sensitive". If repricing liabilities
exceed repricing assets in a time period Town & Country would be deemed to be
"liability-sensitive". Generally, Town & Country seeks to maintain a balanced
position whereby there is no significant "asset or liability sensitivity" to
ensure net interest margin stability in times of volatile interest rates. This
is accomplished through maintaining a significant level of loans,
interest-earning deposits with other financial institutions and deposits
available for repricing within one year.
As of December 31, 1995 Town & Country had repricing liabilities which
exceeded repricing assets by $8,642,000, a gap of 32.8%. In general, based upon
Town & Country's mix of deposits, loans and investments, increases in interest
rates would be expected to moderately decrease Town & Country's net interest
margin. Decreases in interest rates would be expected to have the opposite
effect.
The change in net interest income may not, however, always follow the
general expectations of an asset-sensitive or liability-sensitive balance sheet
during periods of changing interest rates. This results from interest rates paid
changing by differing increments and at different time intervals for each type
of interest-sensitive asset and liability. For example, savings deposits
generally are not as rate-sensitive to changes in market rates as other types of
deposits, so liabilities may be less rate-sensitive in practice than the size of
the gap suggests.
ALLOWANCE AND PROVISION FOR LOAN LOSSES. Town & Country maintains an
allowance for loan losses at a level considered by management to be adequate to
cover the inherent risks of loss associated with its loan portfolio under
prevailing and anticipated economic conditions. In determining the adequacy of
the allowance for loan losses, management takes into consideration the overall
growth trend in the portfolio, examinations of bank supervisory authorities,
internal and external credit reviews, prior loan loss experience for Town &
Country, concentrations of credit risk, delinquency trends, general economic
conditions and the interest rate environment. The allowance is based on
estimates and ultimate future losses may vary from current estimates. It is
always possible that future economic or other factors may adversely affect Town
& Country's borrowers, and thereby cause loan losses to exceed the current
allowance.
The balance in the allowance is affected by the amounts provided from
operations, amounts charged off and recoveries of loans previously charged off.
Town & Country had provisions to the allowance in 1995 of $100,000 as compared
to $271,000 in 1994 and $446,000 in 1993. Town & Country's charge-offs, net of
recoveries, were $214,000 in 1995 as compared with $374,000 in 1994 and $325,000
in 1993. This represents loan loss experience ratios of 1.31%, 1.89% and 1.38%
in those respective years stated as a percentage of average net loans
outstanding for each year. As of December 31, 1995 the allowance for loan losses
was $152,000 or .89% of total loans outstanding. This compares with an allowance
for loan losses of $266,000 or 1.56% in 1994 and $368,000 or 1.57% in 1993.
ASSET QUALITY. Management recognizes the importance of asset quality as a
key ingredient to the successful financial performance of Town & Country. The
main measure of asset quality is "non performing" loans. These are loans in
which the borrower fails to perform under the original terms of the obligation
and are categorized as loans past due 90 days or more and loans on nonaccrual
status. Loans are generally placed on nonaccrual status and accrued but unpaid
interest is reversed against current year income when interest or principal
payments become 90 days past due unless the outstanding principal and interest
is adequately
66
<PAGE>
secured and, in the opinion of management, is deemed to be in the process of
collection. Additional loans which are not 90 days past due may also be placed
on nonaccrual status if management reasonably believes the borrower will not be
able to comply to the contractual loan repayment terms and the collection of
principal or interest. Town & Country had non-performing loans at December 31,
1995 of $70,000 as compared with $561,000 at year end 1994.
Total non-performing assets represented 46% of the allowance for loan losses
and shareholders equity as of December 31, 1995. This compares with
non-performing assets of 211% of the allowance for loan losses and total equity
as of December 31, 1994.
Net loans increased to $16,900,000 at December 31, 1995, a $101,000 or .6%
increase from the end of the prior year. Town & Country's loan portfolio
consists primarily of automobile contracts, automobile flooring accounts, and
consumer installment loans. Loan growth was principally in consumer loans and
flooring contracts. As of December 31, 1995, the loan portfolio mix was
comprised as follows: automobile contracts (71%), flooring accounts (12%) and
consumer loans (17%). The largest segment of Town & Country's portfolio is
automobile loans. These contracts are generated by auto dealerships on a with-
recourse basis. The above referenced loan portfolio mix has not materially
changed from the prior years.
As a result of Town & Country's loan portfolio mix, the future quality of
these assets could be affected by adverse trends in these local or regional
economic sectors, especially in the automobile industry.
NONINTEREST INCOME. Total noninterest income of $217,000 in 1995 is
primarily late charges on delinquent accounts and insurance commissions on the
placement of insurance on the individual auto contracts. This income shows a
decrease of $58,000 in 1995 due to the decrease and improvement of
non-performing assets. Noninterest income in 1994 of $275,000 represents a
decrease of $142,000 as compared with 1993. The decrease was primarily due to
the improvement of the loan quality of the auto contract portfolio and the
resulting decrease in late charges on delinquent accounts.
NONINTEREST EXPENSE. Total noninterest expense decreased $112,000 or 8.5%
in 1995 as compared with a decrease of $39,000 or 2.8% in 1994 as compared to
1993.
Salaries and related benefits decreased by $21,000 or 3.2% in 1995 as
compared with a decrease of $68,000 or 9.8% in 1994. This salary and related
benefits decrease in 1995 was primarily due to decreases in incentives to
management. This was caused by the decrease in profits. The decrease in salaries
and related benefits in 1994 is due to the same reasons as 1995.
Company occupancy expenses for the past three years are as follows $104,000,
$105,000, $104,000 for the years 1995, 1994 and 1993, respectively. All three
offices have long term leases with minor cost of living increases. Company
assessments by both the FDIC and the Department were $28,000, $77,000 and
$83,000 respectively in the years ended December 31, 1995, 1994 and 1993. The
decrease in 1995 was due to reduced FDIC premiums effective May of 1995. The
decrease in the previous year was the result of decreased deposits. Assessment
levels for Town & Country have been at the lowest level allowed by the FDIC for
all three years.
Town & Country's professional fees decreased by $21,000 or 27.7% in 1995 as
compared with a increase of $38,000 or 100.5% in 1994. Professional fees include
legal, consulting, audit and accounting fees. Legal fees in 1994 caused these
variances due to successfully defending a lawsuit on an auto accident in which
the company was not involved. Supplies increased by $12,000 in 1995 as compared
with an increase of $2,000 in 1994. Marketing expenses increased by $8,000 in
1995 as compared with an increase of $6,000 in 1994. Other operating expenses
decreased by $17,000. Decreases relate primarily to decreased insurance and bond
premium charges.
PROVISION FOR INCOME TAXES. Town & Country's provision for income taxes was
$107,000 in 1995, $287,000 in 1994 and $495,000 in 1993. The effective income
tax rate was 31.6% in 1995 as compared with 40.0% in 1994 and 42.1% in 1993. In
1993, Town & Country changed its method of accounting for income taxes to
conform to the requirements of Financial Accounting Standards Board Statement
No. 109, Accounting for Income Taxes.
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<PAGE>
IMPACT OF INFLATION. The primary impact of inflation on Town & Country is
its effect on interest rates. Town & Country's primary source of income is net
interest income which is affected by changes in interest rates. Town & Country
attempts to limit inflation's impact on its net interest margin through
management of rate-sensitive assets and liabilities and the analysis of interest
rate sensitivity. The effect of inflation on premises and equipment as well as
noninterest expenses has not been significant for the periods covered in this
report.
SELECTED STATISTICAL INFORMATION
The following tables present certain statistical information concerning the
business of the Town & Country. This information should be read in conjunction
with Town & Country's Financial Statements and the Notes for the year ended
December 31, 1995, included herein. Town & Country has not engaged in any
foreign activities. Statistical information below is generally based on average
daily amounts.
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------------- -------------------------------------- -----------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ INTEREST AVERAGE INCOME/ INTEREST AVERAGE
AVERAGE BALANCES AND RATES BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE
- ------------------------------------- ----------- ----------- ------------ ----------- ----------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Deposits with Other Depository
Institutions...................... $ 6,927 $ 409 5.90% $ 7,034 $ 312 4.44% $ 5,200
Loans, gross (1)................... 16,377 2,021 12.34% 19,761 2,676 13.54% 25,361
----------- ----------- ----- ----------- ----------- ----- -----------
Total interest earning assets:... 23,304 2,430 10.43% 26,795 2,988 11.15% 30,561
Allowance for loan losses.......... (186) (362) (307)
Cash and due from banks............ 1,177 1,378 1,572
Bank premises and equipment, net... 192 181 135
Interest receivable and other
assets............................ 192 379 354
----------- ----------- -----------
Total assets..................... $ 24,679 $ 28,371 $ 32,315
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES & SHAREHOLDERS' EQUITY
Savings deposits................... 8,067 264 3.27% 11,375 372 3.27% 12,859
Time deposits...................... 13,019 746 5.73% 13,379 591 4.42% 16,368
----------- ----------- ----- ----------- ----------- ----- -----------
Total interest-bearing
liabilities..................... 21,086 1,010 4.79% 24,754 963 3.89% 29,227
Accrued interest, taxes and other
liabilities....................... 54 225 50
----------- ----------- -----------
Total liabilities................ 21,140 24,979 29,277
Total shareholders' equity....... 3,539 3,392 3,038
----------- ----------- -----------
Total liabilities and
shareholders' equity............ $ 24,679 $ 28,371 $ 32,315
----------- ----------- -----------
----------- ----------- -----------
Net interest income and margin
(2)............................... $ 1,420 6.09% $ 2,025 7.56%
<CAPTION>
INTEREST AVERAGE
INCOME/ INTEREST
AVERAGE BALANCES AND RATES EXPENSE RATE
- ------------------------------------- ----------- ------------
<S> <C> <C>
ASSETS
Deposits with Other Depository
Institutions...................... $ 214 4.12%
Loans, gross (1)................... 3,643 14.36%
----------- -----
Total interest earning assets:... 3,857
Allowance for loan losses..........
Cash and due from banks............
Bank premises and equipment, net...
Interest receivable and other
assets............................
Total assets.....................
LIABILITIES & SHAREHOLDERS' EQUITY
Savings deposits................... 491 3.82%
Time deposits...................... 813 4.97%
----------- -----
Total interest-bearing
liabilities..................... 1,304 4.46%
Accrued interest, taxes and other
liabilities.......................
Total liabilities................
Total shareholders' equity.......
Total liabilities and
shareholders' equity............
Net interest income and margin
(2)............................... $ 2,553 8,35%
</TABLE>
- ------------------------------
(1) Amounts of interest earned includes finance charges on loans, and discounts
earned on contracts.
(2) Net interest margin is computed by dividing net interest income by total
average interest-earning assets.
The following tables set forth, for the periods indicated, a summary of the
changes in average asset and liability balances and interest earned and interest
paid resulting from changes in average asset and liability balances (volume) and
changes in average interest rates. The change in interest due to both rate and
volume has been allocated to volume and rate changes in proportion to the
relationship of the absolute dollar amount of the change in each. Nonaccruing
loans are included in the table for computational purposes, but the nonaccrued
interest thereon is excluded.
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NET INTEREST INCOME CHANGES DUE TO VOLUME AND RATE
<TABLE>
<CAPTION>
1995 VS. 1994 1994 VS. 1993
----------------------------------- ----------------------
INCREASE (DECREASE) INCREASE (DECREASE)
----------------------------------- ----------------------
DUE TO DUE TO TOTAL DUE TO DUE TO
VOLUME RATE CHANGE VOLUME RATE
----------- --------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest Income
Deposits with Other Financial Institutions......................... $ (5) $ 102 $ 97 $ 80 $ 18
Loans, gross....................................................... (431) (224) (655) (768) (199)
----- --------- ----- ----- ---------
Total.............................................................. (436) (122) (558) (688) (181)
Interest Expense:
Savings Deposits................................................... (108) -- (108) (53) (66)
Time Deposits...................................................... (15) 170 155 (138) (84)
----- --------- ----- ----- ---------
Total.............................................................. (123) 170 47 (191) (150)
Net Interest Income.................................................. $ (313) $ (292) $ (605) $ (497) $ (31)
----- --------- ----- ----- ---------
----- --------- ----- ----- ---------
<CAPTION>
TOTAL
CHANGE
-----------
<S> <C>
Interest Income
Deposits with Other Financial Institutions......................... $ 98
Loans, gross....................................................... (967)
-----
Total.............................................................. (869)
Interest Expense:
Savings Deposits................................................... (119)
Time Deposits...................................................... (222)
-----
Total.............................................................. (341)
Net Interest Income.................................................. $ (528)
-----
-----
</TABLE>
The interest rate gaps reported in the table that follows arise when assets
are funded with liabilities having different repricing intervals. Since these
gaps are actively managed and change daily as adjustments are made in interest
rate views and market outlook, positions at the end of any period may not be
reflective of Town & Country's interest rate sensitivity in subsequent periods.
Active management dictates that longer-term economic views are balanced against
prospects for short-term interest rate changes in all repricing intervals. For
purposes of the above analysis, repricing of fixed-rate instruments is based
upon the contractual maturity of the applicable instruments. Actual payment
patterns may differ from contractual payment patterns.
INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
BY REPRICING INTERVAL
----------------------------------------------------------------------
AFTER 3 AFTER 1
WITHIN MONTHS, YEAR, AFTER NONINTEREST
THREE WITHIN ONE WITHIN FIVE FIVE BEARING
MONTHS YEAR YEARS YEARS FUNDS TOTAL
--------- ----------- ----------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Deposits at Other Financial Institutions...... $ 1,999 $ 5,645 $ 99 -- -- $ 7,743
Loans......................................... 1,212 2,429 13,262 121 65 17,089
Noninterest earning assets and allowance for
loan losses.................................. -- -- -- -- 1,452 1,452
--------- ----------- ----------- --------- ----------- ---------
Total Assets................................ 3,211 8,074 13,361 121 1,517 26,284
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings deposits.............................. 7,432 -- -- -- -- 7,432
Time Deposits................................. 3,771 8,724 2,617 -- -- 15,112
Other liabilities and stockholders' equity.... 3,740 3,740
----------- ---------
Total Liabilities & Stockholders' Equity.... 11,203 8,724 2,617 -- 3,740 26,284
--------- ----------- ----------- --------- ----------- ---------
Interest Rate Sensitivity Gap................. (7,992) (650) 10,744 121 (2,223) --
Cumulative Interest Rate Sensitivity Gap...... $ (7,992) $ (8,642) $ 2,102 $ 2,223 -- --
</TABLE>
Town & Country has no investment securities -- only interest-bearing
deposits with other financial institutions.
69
<PAGE>
The following table shows the composition of the loan portfolio at December
31, 1995 and 1994:
LOANS OUTSTANDING
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
DOMESTIC BORROWERS
Commercial, Financial, and Agricultural............................... $ 2,043 $ 1,672
Real Estate-Mortgage.................................................. 228 328
Installment........................................................... 4,818 15,103
--------- ---------
Total................................................................. 17,089 17,103
Less: Allowance for possible loan losses................................ (152) (266)
--------- ---------
Total loans, net...................................................... $ 16,937 $ 16,837
</TABLE>
At December 31, 1995, and 1994, Town & Country had $499,000 in undisbursed
loan commitments, of which none related to real estate construction loans,
compared with $764,000 at December 31, 1994, of which none related to real
estate construction loans. There were no standby letters of credit for the year
ended December 31, 1994 or 1995.
Town & Country seeks to mitigate the risks inherent in its loan portfolio by
adhering to certain underwriting practices, including analysis of prior credit
histories, financial statements, tax returns and cash flow projections of its
potential borrowers.
Town & Country also has an internal loan review system as well as periodic
external reviews. Collection of delinquent loans is generally the responsibility
of the originating loan officer. The Board of Directors reviews the status of
delinquent and problem loans on a monthly basis. Town & Country's underwriting
and review practices notwithstanding, in the normal course of business, Town &
Country expects to incur loan losses in the future.
The following table shows the maturity distribution of the portfolio of
commercial, financial, and agricultural loans and real estate construction loans
on December 31, 1995, as well as sensitivity to changes in interest rates:
LOAN MATURITY DISTRIBUTION AND SENSITIVITY TO CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------
WITHIN ONE TO FIVE OVER FIVE
ONE YEAR YEARS YEARS TOTAL
-------- ------------ ------------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural Loans with
predetermined rates.............................. $2,043 $-- $-- $2,043
Real Estate-Construction.......................... -- -- -- --
Total........................................... $2,043 $-- $-- $2,043
-------- ----- ------
-------- ----- ------
</TABLE>
The following table summarizes Town & Country's nonaccrual loans and loans
90 day or more past due at December 31, 1995. At that date Town & Country had no
restructured loans or other real estate owned:
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1995 1994
----- ---------
(IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans........................................ $ 65 $ 119
Accruing loans past due 90 days or more................. 5 442
--- ---------
Total nonperforming assets............................ $ 70 $ 561
--- ---------
--- ---------
</TABLE>
70
<PAGE>
Town & Country generally places loans on nonaccrual status and accrued but
unpaid interest is reversed against the current year's income when interest or
principal payments become 90 days or more past due unless the outstanding
principal and interest is adequately secured and, in the opinion of management,
is deemed in the process of collection. Interest income on nonaccrual loans is
recorded on a cash basis. Payments may be treated as interest income or return
of principal depending upon management's opinion of the ultimate risk of loss on
the individual loan. Cash payments are treated as interest income where
management believes the remaining principal balance is fully collectible.
Additional loans not 90 days past due may also be placed on nonaccrual status if
management reasonably believes the borrower will not be able to comply with the
contractual loan repayment terms and collection of principal or interest is in
question.
Interest income on loans on nonaccrual status during the year ended December
31, 1995, that would have been recognized during that same year if the loans had
been current in accordance with their original terms was not material.
Nonperforming loans are those in which the borrower fails to perform under
the original terms of the obligation and are categorized as loans past due 90
days or more, loans on nonaccrual status and restructured loans. Nonperforming
loans on December 31, 1995 amounted to $70,000. As of December 31, 1994, such
loans were $561,000. At December 31, 1995 and 1994, Town & Country had no real
estate acquired through foreclosure.
Except for loans which are disclosed in the nonperforming asset table, there
are no assets as of December 31, 1995, where known information about possible
credit problems of borrower causes Management to have serious doubts as to the
ability of the borrower to comply with the present loan repayment terms and
which may become nonperforming assets. Any loans classified for regulatory
purpose as loss, doubtful, substandard or special mention do not represent or
result from trends or uncertainties which management reasonably expects will
materially impact future operating results, liquidity or capital resources.
Given the magnitude of Town & Country's loan portfolio, however, it is always
possible that current credit problems may exist that may not have been
discovered by management. There are no current recommendations by the regulatory
authorities which, if they were implemented, would have a material effect on
Town & Country's liquidity, capital resources or results of operations.
71
<PAGE>
RECONCILIATION OF ALLOWANCE FOR POSSIBLE CREDIT LOSSES
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at Beginning of Period...................................... $ 266 $ 368
Provision for Possible Loan Losses.................................. 100 271
Charge-Offs:
Commercial, Financial, and Agricultural........................... 134 --
Installment Loans to Individuals.................................. 193 774
----------- -----------
Total Loans Charged Off......................................... 327 774
Recoveries:
Commercial, Financial and Agricultural............................ 45 --
Installment Loans to Individuals.................................. 68 401
----------- -----------
Total Recoveries................................................ 113 401
Net Loans Charged Off............................................... 214 373
Balance at End of Period............................................ $ 152 $ 266
----------- -----------
----------- -----------
Loans:
Average Loans Outstanding During Period, Gross.................... 16,377 19,761
Total Loans at End of Period, Gross............................... 17,089 17,103
Ratio of net charge-offs to average loans outstanding............... 1.31% 1.89%
</TABLE>
The provision for possible loan losses represents management's determination
of the amount necessary to be added to the allowance for loan losses to bring it
to a level which is considered adequate in relation to the risk of foreseeable
losses inherent in the loan portfolio. Upon determination of a specific loss in
the portfolio, an adjustment to the loan loss reserve is made.
In making this determination, management takes into consideration the
overall growth trend in the loan portfolio, examinations of supervisory
authorities, internal and external credit reviews, prior loan loss experience
for Town & Country, concentrations of credit risk, delinquency trends, general
and local economic conditions and the interest rate environment.
The allowance for loan losses does not represent a specific judgment that
loan charge-offs of that magnitude will necessarily occur. It is always possible
that future economic or other factors may adversely affect Town & Country's
borrowers, and thereby cause loan losses to exceed the current allowance.
72
<PAGE>
The following table summarizes a breakdown of the allowance for loan losses
by loan category for the years ended December 31, 1995 and 1994:
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
% OF LOANS TO % OF LOANS TO
1995 AMOUNT TOTAL 1994 AMOUNT TOTAL
----------- ------------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural........... $ 34 11.9% $ 24 9.8%
Installment...................................... 118 86.7% 242 88.3%
Real Estate Mortgage............................. -- 1.4% -- 1.9%
----- ----- ----- -----
Total.......................................... $ 152 100.0% $ 266 100.0%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
The following table sets forth the average balance and the average rate paid
for the major categories of deposits for the years ended December 31, 1995
through December 31, 1991:
DEPOSITS
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------
1995 1994
---------------------- ----------------------
AMOUNT YIELD AMOUNT YIELD
--------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Savings deposits................................. $ 8,064 3.27% $ 11,375 3.72%
Time deposits under $100,000..................... 11,044 5.73 11,310 4.46
Time deposits $100,00 and more................... 1,975 5.75 2,069 4.40
Total deposits................................. $ 21,083 $ 24,754
--------- ---------
--------- ---------
</TABLE>
Maturities of time certificates of deposit of $100,000 or more outstanding
at December 31, 1995 are summarized as follows:
MATURITIES OF TIME CERTIFICATES OF DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
(IN THOUSANDS)
<S> <C>
Remaining Maturity:
Three months or less..................................................... $ 500
Over three through six months............................................ 611
Over six through twelve months........................................... 1,000
Over twelve months....................................................... --
------
Total.................................................................. $ 2,111
------
------
</TABLE>
73
<PAGE>
The following table sets forth certain financial ratios for the periods
indicated (averages are computed using actual daily figures):
RETURN ON AVERAGE EQUITY AND ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Return on average assets................................................. 0.90% 1.50%
Return on average equity................................................. 6.54% 12.58%
Dividend payout ratio.................................................... 72.7% 39.0%
Average equity to average assets......................................... 14.34% 11.95%
</TABLE>
Town & Country had no short term borrowing at December 31, 1995.
DESCRIPTION OF CAPITAL CORP CAPITAL STOCK
The authorized capital stock of Capital Corp consists of 20,000,000 shares
of common stock, no par value, and 10,000,000 shares of preferred stock, no par
value. As of December 31, 1995, there were 1,334,956 shares of Capital Corp
common stock outstanding and no shares of preferred stock outstanding. As of
such date, options to acquire 179,614 shares of Capital Corp common stock had
been issued and were outstanding, and an additional 163,886 shares of the
authorized Capital Corp common stock were available for grant under the 1992
Stock Option Plan. Capital Corp has also reserved 50,000 shares for issuance in
connection with its 401(k) plan and ESOP.
COMMON STOCK
Holders of Capital Corp Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of shareholders. Shareholders
have the right to cumulate their votes for the election of directors.
Shareholders are entitled to receive ratably such dividends as may be legally
declared by Capital Corp's Board of Directors. There are legal and regulatory
restrictions on the ability of Capital Corp to declare and pay dividends. See
"MARKET PRICE AND DIVIDEND INFORMATION." In the event of a liquidation,
shareholders are entitled to share ratably in all assets remaining after payment
of liabilities. Shareholders have no preemptive or conversion rights. Shares are
not subject to further call or assessment. The transfer agent and registrar for
Capital Corp common stock is Wells Fargo Bank, N.A.
PREFERRED STOCK
The Board of Directors of Capital Corp is authorized to fix the preferences,
limitations, relative rights, qualifications and restrictions of the preferred
stock and may establish series of preferred stock and determine the variations
between series. If and when any preferred stock is issued, the holders of
preferred stock may have a preference over holders of Capital Corp common stock
upon the payment of dividends, upon liquidation of Capital Corp, in respect of
voting rights and in the redemption of the capital stock of Capital Corp.
DESCRIPTION OF TOWN & COUNTRY CAPITAL STOCK
The authorized capital stock of Town & Country consists of 5,000,000 shares
of Town & Country common stock. Town & Country common stock is divided into
4,950,000 shares of Series A stock and 50,000 shares of Series B stock. As of
March 31, 1996, there were 168,156 shares of Town & Country common stock
outstanding, all of which was Series A stock.
Holders of Town & Country common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of shareholders, except
that shareholders may cumulate their votes in the election of directors.
Shareholders are entitled to receive ratably such dividends as may be legally
declared by Town & Country's Board of Directors. There are legal and regulatory
restrictions on the ability of Town & Country to declare and pay dividends. See
"MARKET PRICE AND DIVIDEND INFORMATION." In the event of a liquidation,
shareholders are entitled to share ratably in all assets remaining after payment
of liabilities. Shareholders have no preemptive or conversion rights. Shares are
not subject to further call or assessment. Town & Country is its own transfer
agent and registrar for Town & Country common stock.
74
<PAGE>
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
GENERAL
Capital Corp is incorporated under and subject to all the provisions of the
General Corporation Law of California. Town & Country is incorporated under and
subject to all of the provisions of the ILC Law and substantially all of the
provisions of the California General Corporation Law. Upon consummation of the
Merger, except for those persons who receive all cash dissent from the Merger
and perfect appraisal rights under the California Law, the shareholders of Town
& Country will become shareholders of Capital Corp.
The following is a general discussion of certain similarities and certain
differences between the rights of Capital Corp shareholders under the Capital
Corp Articles and Bylaws and the rights of Town & Country shareholders under the
Town & Country Articles and Bylaws, including certain differences that will
apply if Capital Corp Proposals Three and Four are approved at the Capital Corp
Meeting.
LIMITATION ON DIRECTORS' MONETARY LIABILITY
The Capital Corp Articles eliminate the liability of directors of Capital
Corp for monetary damages to the fullest extent permissible under California law
as it now exists or may be amended. The Town & Country Articles do not currently
provide for a similar limitation on directors' monetary liability.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
The Capital Corp Articles authorize the company, by bylaw, agreement or
otherwise to provide for indemnification of its agents, including directors and
officers, in excess of that expressly permitted by Section 317 of the California
Corporations Code. The Town & Country Articles have no comparable provision.
California law provides that rights to indemnification and advancement of
expenses need not be limited to those expressly provided by statute. As a
result, under the Capital Corp Articles, Capital Corp would be permitted to
indemnify its directors, executive officers and employees, within the limits
established by law and public policy, pursuant to an express contract, bylaw or
charter provision, stockholder vote, or otherwise.
The Capital Corp Bylaws provide that a director and officer of the company
who was or is made a party to, or is involved in, any action, suit or proceeding
by reason of the fact that he or she is or was a director or officer of Capital
Corp (or was serving at the request of Capital Corp as a director, officer or
employee of another entity) shall be indemnified and held harmless by Capital
Corp, to the fullest extent authorized by California law, against all expenses
and liabilities actually and reasonably incurred by such person in connection
with any investigation, lawsuit or other proceeding. They also provide that a
director or officer is entitled to have Capital Corp pay his or her expenses
incurred in defending such a claim in advance of final disposition of the claim,
subject to receipt of an underwriting to repay such expenses if it is ultimately
determined that the director or officer is not entitled to be indemnified. The
Capital Corp Bylaws also provide for permissive, rather than mandatory,
indemnification by Capital Corp of employees and agents (other than directors
and officers) in similar circumstances, but without any provision for paying
expenses of defending a claim in advance of final disposition of the claim.
The Town & Country Bylaws provide that a director and officer of the company
who was or is made a party to, or is involved in, any action, suit or proceeding
by reason of the fact that he or she is or was a director or officer of Town &
Country (or was serving at the request of Town & Country as a director, officer
or employee of another entity) shall be indemnified and held harmless by Town &
Country, to the fullest extent authorized by California law, against all
expenses and liabilities actually and reasonably incurred by such person in
connection with any investigation, lawsuit or other proceeding, except the Town
& Country Bylaws do not provide for indemnification of employees and agents
(other than directors and officers) or for the payment in advance of expenses
incurred in defending a claim.
The Capital Corp Bylaws provide that all rights to indemnification shall be
enforceable as contract rights. Repeal or modification of the Capital Corp Bylaw
provision would only be effective on a prospective basis and would not affect
rights to indemnification and advancement of expenses in effect at the time of
any such repeal or modification. Indemnification under any contract or agreement
entered into between Capital Corp and its directors and executive officers would
likewise not be affected by any such Capital Corp Articles
75
<PAGE>
repeal or modification. The indemnification provision of the Capital Corp
Articles will apply to proceedings arising from acts or omissions of indemnified
persons occurring before or after the Merger. The Town & Country Bylaws have no
comparable provision.
Some of Capital Corp's officers and directors have entered into
indemnification agreements with Capital Corp. The indemnification agreements
provide for partial indemnification of costs and expense in the event the
indemnified party is not entitled to full indemnification under the terms of the
indemnification agreements. Section 317 does not address this issue. It does,
however, provide that to the extent an indemnified party is successful on the
merits, he is entitled to indemnification. The indemnification agreements
incorporate future change in the laws that increase the protection to the
indemnitee. Such changes apply to Capital Corp without further shareholder
approval and may further impair shareholders' rights or subject Capital Corp's
assets to the risk of loss in the event of large indemnification claims. An
indemnification agreement may not be amended without the consent of the person
who is protected by it. Town & Country has not entered into any indemnification
agreements with its directors or officers.
Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to directors, officers and other agents of Capital Corp pursuant to
the foregoing provisions or otherwise, however, Capital Corp has been advised
that, in the opinion of the Commission, such indemnification is contrary to
public policy expressed in the 1933 Act and is therefore unenforceable, absent a
decision to the contrary by a court of competent jurisdiction.
CUMULATIVE VOTING
Shareholders of both Capital Corp and Town & Country are entitled to
cumulate their votes for the election of directors. Cumulative voting allows a
shareholder to cast a number of votes equal to the number of directors to be
elected multiplied by the number of shares held in the shareholder's name on the
record date. This total number of votes may be cast for one nominee or may be
distributed among as many candidates as the shareholder desires. The candidates
(up to the number of directors to be elected) receiving the highest number of
votes are elected.
A California corporation that is a "listed corporation" may, by amending its
articles or bylaws, eliminate cumulative voting for directors. Because Capital
Corp's common stock is quoted on the Nasdaq National Market, it qualifies as a
listed corporation. Capital Corp Proposal Three in this Joint Proxy Statement/
Prospectus is a proposed amendment to eliminate cumulative voting. Such an
amendment has been approved by the Board of Directors and requires the approval
of holders of a majority of the outstanding shares of Capital Corp common stock.
CLASSIFIED BOARD OF DIRECTORS
At present, the Capital Corp Bylaws and the Town & Country Bylaws provide
that directors will be elected for a one-year term at each annual meeting of
shareholders. A California corporation that is a "listed corporation" may, by
amending its articles or bylaws, provide for a staggered or classified Board of
Directors. Because Capital Corp common stock is quoted on the Nasdaq National
Market, it qualifies as a listed corporation. Capital Corp Proposal Four in this
Joint Proxy Statement is a proposal to adopt an amendment to provide for a
classified Board of Directors. Such an amendment has been approved by the Board
of Directors and requires the approval of holders of a majority of the
outstanding shares of Capital Corp common stock.
DISSENTERS' RIGHTS IN MERGERS AND OTHER REORGANIZATIONS
Under the California Corporation Law, a dissenting shareholder of a
corporation participating in certain business combinations may, under varying
circumstances, receive cash in the amount of the fair market value of his or her
shares in lieu of the consideration he or she would otherwise receive under the
terms of the transaction. The California Corporation Law generally does not
require dissenters' rights of appraisal with respect to shares which,
immediately prior to the merger, are (i) listed on any national securities
exchange certified by the Commissioner or (ii) listed on the list of
over-the-counter margin stock issued by the FRB. Capital Corp common stock is
listed on the list of over-the-counter margin stocks issued by the FRB. Capital
Corp shareholders generally have more limited dissenters' rights in connection
with
76
<PAGE>
business combinations than do Town & Country shareholders. Dissenters' rights
are not available to the
shareholders of a corporation surviving a merger if no vote of the shareholders
of the surviving corporation is required.
MARKET PRICE AND DIVIDEND INFORMATION
Capital Corp common stock is currently traded in the over-the-counter
market. Capital Corp common stock has been quoted on the Nasdaq National Market
under the symbol CCOW since January 18, 1996. Before that date it was quoted on
the Over the Counter Electronic Bulletin Board. Town & Country's common stock is
traded in the over-the-counter market, but is not quoted on the Nasdaq Stock
Market. As of March 31, 1996, there were approximately 1,200 holders of record
of Capital Corp common stock and approximately 80 holders of Town & Country
common stock. There are limited and sporadic quotations for the Town & Country
common stock and consequently there is no established public trading market for
Town & Country's common stock. The following table sets forth for Capital Corp
common stock the high and low bid prices, as reported on the Nasdaq National
Market since January 18, 1996 and before that as reported by the principal stock
brokerage firms handling transactions in Capital Corp common stock or otherwise
known to management, and for Town & Country common stock the actual high and low
sale prices of Town & Country's common stock of which Town & Country has
knowledge, based upon information provided by the principal stock brokerage
firms handling transactions of Town & Country's common stock or otherwise known
to management for the periods shown. The quotations shown have been adjusted to
reflect stock dividends and represent inter-dealer prices, without retail
mark-up, mark-down or commissions.
<TABLE>
<CAPTION>
CAPITAL CORP COMMON TOWN & COUNTRY
STOCK (1) COMMON STOCK
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1994
First Quarter.............................................................. $ 12.00 $ 10.00 $ 17.00 $ 17.00
Second Quarter............................................................. 12.50 11.75 19.00 19.00
Third Quarter.............................................................. 14.25 12.25 * *
Fourth Quarter............................................................. 14.38 14.00 * *
1995
First Quarter.............................................................. 13.50 12.00 * *
Second Quarter............................................................. 14.00 12.50 20.00 20.00
Third Quarter.............................................................. 13.25 12.00 * *
Fourth Quarter............................................................. 12.25 12.00 20.00 20.00
1996
First Quarter.............................................................. 14.63 12.50 * *
Second Quarter (through May 3, 1996)....................................... 14.63 14.00 * *
</TABLE>
- ------------------------
(1) Capital Corp's share prices are not adjusted for 15% stock dividends paid
in June 1994 and June 1995.
*Town & Country is unaware of any sales occurring in this quarter.
77
<PAGE>
The following table sets forth the per share cash dividend declared by
Capital Corp and by Town & Country during each quarter since January 1, 1994.
<TABLE>
<CAPTION>
CAPITAL CORP TOWN & COUNTRY
----------------- -----------------
<S> <C> <C>
1994
First Quarter........................................................... -- $ 1.00
Second Quarter.......................................................... -- --
Third Quarter........................................................... -- --
Fourth Quarter.......................................................... -- --
1995
First Quarter........................................................... -- $ 1.00
Second Quarter.......................................................... -- --
Third Quarter........................................................... -- --
Fourth Quarter.......................................................... -- --
1996
First Quarter........................................................... -- $ 1.00
Second Quarter (through May 3, 1996..................................... -- --
</TABLE>
Capital Corp's Board of Directors will consider the advisability and amount
of proposed dividends each quarter. Future dividends will be determined in light
of Capital Corp's earnings, financial condition, future capital needs,
regulatory requirements and such other factors as the Board of Directors may
deem relevant. Capital Corp's primary source of funds for payment of dividends
to its shareholders will be the receipt of dividends and management fees from
its subsidiaries. The payment of dividends by banks is subject to various legal
and regulatory restrictions.
EXPERTS
The consolidated financial statements of Capital Corp as of December 31,
1995 and 1994 and for each of the years in the three-year period ended December
31, 1995, incorporated by reference in this Joint Proxy Statement/Prospectus,
have been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing. Representatives of KPMG Peat Marwick
LLP will be present at the Capital Corp Meeting and will have the opportunity to
make a statement if they desire and will be available to respond to appropriate
questions.
The financial statements of Town & Country as of December 31, 1995 and 1994
and for each of the years in the three-year period ended December 31, 1995, are
included in this Joint Proxy Statement/Prospectus in reliance upon the report of
Atherton & Associates, independent certified public accountants, which is
included herein, and upon the authority of said firm as experts in accounting
and auditing. Representatives of Atherton & Associates will be present at the
Town & Country Meeting and will have the opportunity to make a statement if they
wish and will be available to respond to appropriate questions.
LEGAL MATTERS
Certain legal matters with respect to Capital Corp, including the validity
of the Capital Corp common stock to be issued in connection with the Merger,
will be passed upon for Capital Corp by McCutchen, Doyle, Brown & Enersen LLP,
San Francisco, California. Certain legal matters with respect to Town & Country
will be passed by Triebsch, Frampton, Dorius & Lima, Turlock, California.
SHAREHOLDER PROPOSALS
Subject to regulations promulgated under the Exchange Act, proposals of
shareholders intended to be presented at Capital Corp's 1997 Annual Meeting,
currently scheduled for May 20, 1997, must be received by Capital Corp not later
than January 8, 1997, to be included in the 1997 proxy statement.
78
<PAGE>
OTHER MATTERS
The Board of Directors of Capital Corp and Town & Country know of no other
matters which will be brought before their respective Meetings, but if such
matters are properly presented to either Meeting, proxies solicited hereby
relating to the Meetings will be voted in accordance with the judgment of the
persons holding such proxies. All shares represented by duly executed proxies
will be voted at the appropriate Meeting.
If any shareholder would like a copy of Capital Corp's Annual Report on Form
10-K for the fiscal year ended December 31, 1995, it can be obtained without
charge (except for certain exhibits) by contacting Janey E. Boyce, Chief
Financial Officer, County Bank, 1170 West Olive, Suite B, Merced, California
95348-1952.
79
<PAGE>
TOWN AND COUNTRY FINANCE
AND THRIFT COMPANY
FINANCIAL REPORT
DECEMBER 31, 1995
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INDEPENDENT AUDITOR'S REPORT............................................................................... F-1
FINANCIAL STATEMENTS
Balance Sheets........................................................................................... F-2
Statements of Income..................................................................................... F-3
Statements of Stockholders' Equity....................................................................... F-4
Statements of Cash Flows................................................................................. F-5
Notes to Financial Statements............................................................................ F-6
INDEPENDENT AUDITOR'S REPORT ON THE
ACCOMPANYING INFORMATION.................................................................................. F-13
ACCOMPANYING INFORMATION
Other Income............................................................................................. F-14
Other General and Administrative Expenses................................................................ F-15
Reserve for Loan Losses.................................................................................. F-16
INDEPENDENT AUDITOR'S SUPPLEMENTAL REPORT.................................................................. F-17
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
January 24, 1996
Board of Directors
Town and Country Finance
and Thrift Company
Turlock, California 95380
We have audited the accompanying balance sheets of Town and Country Finance
and Thrift Company as of December 31, 1995 and 1994, and the related statements
of income, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Town and Country Finance and
Thrift Company as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ ATHERTON & ASSOCIATES
F-1
<PAGE>
TOWN AND COUNTRY FINANCE
AND THRIFT COMPANY
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Cash.................................................................................. $ 1,197,634 $ 1,505,855
Interest bearing deposits in financial institutions................................... 7,742,949 5,948,620
------------ ------------
8,940,583 7,454,475
Loans and contracts receivable
Loans, interest bearing............................................................. 2,725,910 2,635,012
Real estate mortgages............................................................... 227,601 328,434
Conditional sales contracts......................................................... 15,178,689 15,499,051
Flooring contracts.................................................................. 2,043,177 1,671,752
------------ ------------
Total loans and contracts receivable.............................................. 20,175,377 20,134,249
------------ ------------
Less:
Unearned charges, loans............................................................. (488)
Unearned discounts, contracts....................................................... 1,875,770 1,952,634
Reserve for loan losses............................................................. 152,023 266,319
Dealer reserves and withholds....................................................... 1,209,626 1,078,849
------------ ------------
Total deductions.................................................................. 3,237,419 3,297,314
------------ ------------
Net loans and contracts receivable................................................ 16,937,958 16,836,935
------------ ------------
Income tax receivable................................................................. 66,016 208,577
Accrued interest receivable........................................................... 87,941 82,725
Improvements and equipment -- net of depreciation..................................... 193,984 205,674
Deferred income tax benefit........................................................... 51 068
Other assets.......................................................................... 58,248 87,109
------------ ------------
406,189 635,153
------------ ------------
Total assets...................................................................... $ 26,284,730 $ 24,926,563
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Full paid investment certificates..................................................... $ 15,112,770 $ 11,664,200
Installment investment certificates................................................... 7,431,842 9,525,058
Accrued interest payable.............................................................. 4,851 1,458
Accounts payable and accrued expenses................................................. 74,096 143,437
Deferred insurance commissions........................................................ 32,256 31,994
Deferred income tax liability......................................................... 5,274
------------ ------------
22,661,089 21,366,147
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 5)
Stockholders' equity:
Capital stock, no par or stated value:
Series A, authorized, 4,950,000 shares; issued and outstanding, 168,156 shares.... 1,350,000 1,350,000
Additional paid-in capital.......................................................... 1,350,000 1,350,000
Retained earnings................................................................... 923,641 860,416
------------ ------------
3,623,641 3,560,416
------------ ------------
Total liabilities and stockholders' equity........................................ $ 26,284,730 $ 24,926,563
------------ ------------
------------ ------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements
F-2
<PAGE>
TOWN AND COUNTRY FINANCE
AND THRIFT COMPANY
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
INTEREST INCOME
Finance charges earned on loans..................................................... $ 442,427 $ 523,213
Discounts earned on contracts....................................................... 1,396,988 1,943,521
Charges earned on flooring.......................................................... 181,344 209,293
Interest on investments............................................................. 408,907 311,808
------------ ------------
Total interest income............................................................. 2,429,666 2,987,835
------------ ------------
INTEREST EXPENSE
Interest on full paid investment certificates....................................... 745,414 590,647
Interest on installment investment certificates..................................... 264,081 372 143
------------ ------------
Total interest expense............................................................ 1,009,495 962,790
------------ ------------
Net interest income............................................................... 1,420,171 2,025,045
PROVISION FOR LOAN LOSSES............................................................. 100,064 271,403
------------ ------------
Net interest income after provision for loan losses............................... 1,320,107 1,753,642
------------ ------------
OTHER INCOME
Insurance commissions............................................................... 74,414 72,707
Extension and late charges.......................................................... 126,886 165,360
Miscellaneous....................................................................... 15,422 36,985
------------ ------------
216,722 275,052
------------ ------------
OTHER EXPENSES
Salaries and related costs.......................................................... 676,104 697,486
Occupancy costs..................................................................... 104,123 104,776
Data processing..................................................................... 25,681 33,712
Depreciation........................................................................ 44,096 49,119
Other general and administrative expenses........................................... 348,792 415,915
Miscellaneous interest.............................................................. 9,347
------------ ------------
Total other expenses.............................................................. 1,198,796 1,310,355
------------ ------------
Income before provision for income taxes.......................................... 338,033 718,339
PROVISION FOR INCOME TAXES............................................................ 106,652 287,066
------------ ------------
Net income........................................................................ $ 231,381 $ 431,273
------------ ------------
------------ ------------
EARNINGS PER SHARE.................................................................... $ 1.38 $ 2.56
------------ ------------
------------ ------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements
F-3
<PAGE>
TOWN AND COUNTRY FINANCE
AND THRIFT COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
CAPITAL ADDITIONAL
STOCK SERIES PAID-IN RETAINED
A CAPITAL EARNINGS TOTAL
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994.................................. $ 1,350,000 $ 1,350,000 $ 597,299 $ 3,297,299
Net income................................................ 431,273 431,273
Cash dividends paid ($1 per share)........................ (168,156) (168,156)
------------ ------------ ----------- ------------
Balance, December 31, 1994................................ 1,350,000 1,350,000 860,416 3,560,416
Net income................................................ 231,381 231,381
Cash dividends paid ($1 per share)........................ (168,156) (168,156)
------------ ------------ ----------- ------------
Balance, December 31, 1995................................ $ 1,350,000 $ 1,350,000 $ 923,641 $ 3,623,641
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements
F-4
<PAGE>
TOWN AND COUNTRY FINANCE
AND THRIFT COMPANY
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income........................................................................ $ 231,381 $ 431,273
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation.................................................................. 44,096 49,119
Gain on sale and disposal of assets........................................... (231)
Changes in:
Income taxes receivable......................................................... 142,561 (165,607)
Accrued interest receivable..................................................... (5,216) (11,826)
Other assets.................................................................... 28,861 (46,024)
Deferred income taxes........................................................... 56,342 85,467
Accounts payable and accrued expenses........................................... (65,948) (100,708)
Deferred insurance commissions.................................................. 262 (44,239)
Reserve for loan losses......................................................... (114,296) (102,116)
------------- -------------
Net cash provided by operating activities..................................... 318,043 95,108
------------- -------------
INVESTING ACTIVITIES
Net proceeds paid for interest bearing deposits................................... (1,794,329)
Net proceeds from interest bearing deposits....................................... 555,751
Decrease in loans and contracts receivable........................................ 13,273 6,720,024
Capital expenditures.............................................................. (32,406) (113,814)
------------- -------------
Net cash provided (consumed) by investing activities.......................... (1,813,462) 7,161,961
------------- -------------
FINANCING ACTIVITIES
Increase in investment certificates............................................... 1,355,354
Decrease in investment certificates............................................... (7,078,784)
Dividends paid.................................................................... (168,156) (168,156)
------------- -------------
Net cash provided (consumed) by financing activities.......................... 1,187,198 (7,246,940)
------------- -------------
NET INCREASE (DECREASE) IN CASH............................................. (308,221) 10,129
Cash at beginning of year........................................................... 1,505,855 1,495,726
------------- -------------
Cash at end of year................................................................. $ 1,197,634 $ 1,505,855
------------- -------------
------------- -------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements
F-5
<PAGE>
TOWN AND COUNTRY FINANCE
AND THRIFT COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL:
Town and Country Finance and Thrift Company is a licensed California
Industrial Loan Company specializing in direct loans to the public and the
purchase of financing contracts principally from car dealerships and furniture
stores. The company is subject to the regulations of certain federal and state
regulatory agencies and undergoes periodic examination by those regulatory
agencies.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
A material estimate that is particularly susceptible to significant change
relates to the determination of the reserve for loan losses. While management
uses available information to recognize losses on loans, future additions to the
allowances may be necessary based on changes in economic conditions. In
addition, regulatory agencies, as an integral part of their examination process,
periodically review the company's allowances for losses on loans. Such agencies
may require the company to recognize additions to the allowances based on their
judgments about information available to them at the time of their examination.
Because of these factors, it is reasonably possible that the reserve for loan
losses may change materially in the near term.
LOANS AND CONTRACTS RECEIVABLE:
The company recognizes discounts earned on contracts as income using a
sum-of-the-months-digits method over the life of the contract on an accrual
basis. Any initial fees charged on loans are recognized as income under a
sum-of-the-months-digits method over the life of the loan. Revenue from loans is
earned on a daily interest basis. The yield for loans and contracts was 12.93%
and 14.24% for 1995 and 1994, respectively. Generally accepted accounting
principles require that discounts and initial loan fees be recognized as income
using the simple interest method. The difference between these two methods is
immaterial to these financial statements.
Loans and contracts receivable are charged against the reserve for loan
losses when no full contractual payment has been received for six months or at
such earlier time as deemed necessary by management. The charges are reduced by
the estimated net realizable value of the collateral. The reserve for loan
losses has been established based upon guidelines issued by the F.D.I.C.
Loans and contracts receivable are placed on nonaccrual when a loan is
specifically determined to be impaired or when principal or interest is
delinquent for 90 days or more. Any unpaid interest previously accrued on those
loans is reversed from income. Interest income generally is not recognized on
specific impaired loans unless the likelihood of further loss is remote.
Interest payments received on such loans are applied as reduction of the loan
principal balance. Interest income on other non-accrual loans is recognized only
to the extent of interest payments received.
Nonaccrual loans with balances over $5,000 amounted to $64,957 and $127,311
at December 31, 1995 and 1994, respectively. The net amount of interest recorded
during the year on those loans and any specific loan loss allowance in
connection with impaired loans are immaterial to these financial statements.
F-6
<PAGE>
TOWN AND COUNTRY FINANCE
AND THRIFT COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPROVEMENTS AND EQUIPMENT:
Improvements and equipment, with lives that range from three to fifteen
years, are carried at cost. The company provides for depreciation on the
straight-line method by the estimated useful lives of assets.
INVESTMENT CERTIFICATES
Town & Country has two types of financing instruments; full paid investment
certificates and installment investment certificates. Full paid certificates are
similar in characteristics to time certificates issued by other financial
institutions. They are issued for a specific maturity and at a specific rate of
interest for the term of the certificate. Installment investment certificates
are similar in characteristics to savings account. They allow the depositor to
make additional deposits and limited withdrawals and are offered at a rate of
interest set by Town & Country that may change from time to time as determined
by Town & Country.
DEFERRED INSURANCE COMMISSIONS:
The company receives commissions for placing insurance for customers.
Commissions are recorded as deferred income when policies are written and
amortized to income on a monthly basis at a rate of 15.84% of the balance of
deferred income at the end of the month. This method approximates the
recognition of income over the period of the insurance policies.
CONCENTRATION OF CREDIT RISK:
Loans and contracts receivable primarily consist of used automobile loans
from borrowers in the San Joaquin Valley of California, mainly in the counties
of Stanislaus and Tulare. Contracts are purchased from dealers in these areas.
The corporation retains a security interest for most loans.
INCOME TAXES:
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of reserves for loan losses,
improvements and equipment, and deferred insurance commissions for financial and
income tax reporting. The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
EARNINGS PER SHARE:
Earnings per share is computed using Series A stock outstanding.
RECLASSIFICATION:
Certain reclassifications have been made to the 1994 financial statements in
order to conform with the 1995 presentation.
NOTE 2 -- CONCENTRATION OF RISK
The company maintains its cash balance and a money market account in one
bank. The accounts at this institution are insured by the Federal Deposit
Insurance Corporation up to a total $100,000. Total deposits at this bank on
December 31, 1995 equalled $1,528,301.
NOTE 3 -- RELATED PARTY TRANSACTIONS
At December 31, 1995 and 1994, there were $2,634,391 and $1,987,322
respectively, in investment certificates by employees, officers, directors and
shareholders of the company. These certificates are under the same terms and
conditions as other certificates made in the normal course of business.
F-7
<PAGE>
TOWN AND COUNTRY FINANCE
AND THRIFT COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 3 -- RELATED PARTY TRANSACTIONS (CONTINUED)
There were no loans or contracts with officers, directors or shareholders as
of December 31, 1995 and 1994.
The company purchased contracts receivable in the amount of $491,241 and
received payments of $317,134 in 1995 from a business owned and operated by a
member of the Board of Directors. Balances remaining were $659,314 and $485,207
for the years ended December 31, 1995 and 1994, respectively. The company has
received permission from the California Department of Corporations to acquire
these related party contracts.
NOTE 4 -- RESERVE FOR LOAN LOSSES
Analysis of the reserve for loan losses is as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Beginning balance................................................... $ 266,319 $ 368,435
Provision charged to operations..................................... 100,064 271,403
Receivables charged off............................................. (327,421) (774,622)
Recoveries on receivables previously charged off.................... 113,061 401,103
----------- -----------
Ending balance...................................................... $ 152,023 $ 266,319
----------- -----------
----------- -----------
</TABLE>
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are outstanding commitments to
extend credit which are not reflected in the financial statements. Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. The company uses the
same credit policies in making these commitments as it does for the loans and
contracts reflected in the financial statements. Commitments to extend credit
totalled approximately $408,700 at December 31, 1995.
NOTE 6 -- INCOME TAXES
The provision for income taxes from operations consists of the following
components:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Current tax expense................................................... $ 50,310 $ 201,599
Deferred tax expenses................................................. 56,342 85,467
---------- ----------
$ 106,652 $ 287,066
---------- ----------
---------- ----------
</TABLE>
The net deferred tax benefits in the accompanying balance sheets include the
following components:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax liabilities.............................................. $ (21,502) $ (20,939)
Deferred tax assets................................................... 16,228 72,007
---------- ----------
Net deferred tax benefit (liability).................................. $ (5,274) $ 51,068
---------- ----------
---------- ----------
</TABLE>
F-8
<PAGE>
TOWN AND COUNTRY FINANCE
AND THRIFT COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 7 -- IMPROVEMENTS AND EQUIPMENT
Improvements and equipment consist of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Leasehold improvements................................................ $ 50,902 $ 48,759
Furniture, fixtures and equipment..................................... 514,713 488,414
Vehicles.............................................................. 85,163 85,163
---------- ----------
650,778 622,336
Less accumulated depreciation......................................... 456,794 416,662
---------- ----------
$ 193,984 $ 205,674
---------- ----------
---------- ----------
</TABLE>
NOTE 8 -- INVESTMENT CERTIFICATES
Investment certificate balances at December 31, are summarized as follows:
<TABLE>
<CAPTION>
AVERAGE
RATE AT 1995 1994
DECEMBER 31, -------------------------- --------------------------
BALANCE BY INTEREST RATE 1995 AMOUNT PERCENTAGE AMOUNT PERCENTAGE
- -------------------------------------------- ------------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Fully paid investment certificates
5.40% - 6.50% 5.95% $ 2,397,770 10.64% $ 2,451,000 11.57%
5.25% - 6.00% 5.63 2,406,100 10.67 2,264,900 10.69
4.25% - 7.00% 5.63 1,866,500 8.28 627,500 2.96
5.00% - 7.00% 6.00 8,442,400 37.44 6,320,800 29.83
------------- ----------- ------------- -----------
15,112,770 67.03 11,664,200 55.05
------------- ----------- ------------- -----------
Installment investment certificates 3.25 7,431,842 32.97 9,525,058 44.95
------------- ----------- ------------- -----------
$ 22,544,612 100.00% $ 21,189,258 100.00%
------------- ----------- ------------- -----------
------------- ----------- ------------- -----------
</TABLE>
At December 31, 1995, scheduled maturities of fully paid investment
certificates are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------------------------
1996 1997 TOTAL
------------- ------------ -------------
<S> <C> <C> <C>
5.40% - 6.50% $ 2,397,770 $ 2,397,770
5.25% - 6.00% 2,406,100 2,406,100
4.25% - 7.00% 743,500 $ 1,123,000 1,866,500
5.00% - 7.00% 7,028,400 1,414,000 8,442,400
------------- ------------ -------------
$ 12,575,770 $ 2,537,000 $ 15,112,770
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
The aggregate amount of short-term certificates with a minimum denomination
of $100,000 was approximately $2,000,000 and $1,703,000 at December 31, 1995 and
1994, respectively. Interest expense on certificates of deposit exceeding
$100,000 was approximately $97,188 in 1995 and $81,800 in 1994.
NOTE 9 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards, No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS (SFAS No. 107), requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheets. Fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. The derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the
F-9
<PAGE>
TOWN AND COUNTRY FINANCE
AND THRIFT COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 9 -- FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
instruments. SFAS No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the company.
The following methods and assumptions were used in estimating the fair value
disclosures for financial instruments:
CASH AND INTEREST BEARING DEPOSITS IN FINANCIAL INSTITUTIONS: The
carrying amount reported in the balance sheets approximates the fair
market value.
LOANS AND CONTRACTS RECEIVABLE: The fair value of loans and
contracts receivable are estimated using discounted cash flow analysis,
based on interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. Loan fair value estimates
include judgements regarding future expected loss experience and risk
characteristics. The fair value of flooring loans is equal to the
carrying amounts. The carrying amount of accrued interest receivable
approximates its fair value.
INVESTMENT CERTIFICATES: The fair value of installment investment
certificates are equal to their carrying amounts. The fair value of
installments full paid certificates is estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated maturities on such time
deposits. The carrying amount of accrued interest payable approximates
fair value.
The estimated fair values of the company's financial instruments for 1995
are as follows:
<TABLE>
<CAPTION>
CARRYING
AMOUNT FAIR VALUE
------------- -------------
<S> <C> <C>
Financial assets:
Cash......................................................... $ 1,197,634 $ 1,197,634
Interest bearing deposits.................................... 7,742,949 7,742,949
Net loans and contracts receivable........................... 16,937,958 16,752,458
Financial liabilities:
Full paid investment certificates............................ $ 15,112,770 $ 15,573,353
Installment investment certificates.......................... 7,431,842 7,431,842
</TABLE>
The carrying amounts in the preceding table are included in the balance
sheets under the applicable captions.
NOTE 10 -- OPERATING LEASES
The company occupies its offices under various noncancelable operating lease
agreements through 2000. Certain leases contain provisions for increased rentals
based on the change in the consumer price index. Rent expense (included in
occupancy costs) was $78,815 and $75,734 in 1995 and 1994, respectively.
The following is a summary of the minimum future commitments under
noncancelable lease agreements:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31:
<S> <C>
1996....................................................................... $ 68,785
1997....................................................................... 52,668
1998....................................................................... 52,668
1999....................................................................... 52,620
2000....................................................................... 25,620
</TABLE>
F-10
<PAGE>
TOWN AND COUNTRY FINANCE
AND THRIFT COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 11 -- PROFIT SHARING
The company maintains a defined contribution profit sharing plan for
substantially all of its employees. For employees to contribute to the plan they
must have been employed for at least one year. The company will match employee
contributions at the rate of $.25 per $1.00 of contribution up to 6% of employee
gross wages. The company may make additional contributions at the discretion of
the Board of Directors. To participate in the additional contributions, an
employee must have been employed by the company for at least one year and have
worked for at least 1,000 hours during the year. The expense recognized related
to contributions to the plan was $25,257 and $20,753 for the years ended
December 31, 1995 and 1994, respectively.
NOTE 12 -- THRIFT RATIO COMPLIANCE
On May 20, 1992, the company obtained permission from the Department of
Corporations to maintain a maximum ratio of thrift investment certificates to
base capital, defined as the aggregate of capital stock and additional paid-in
capital, of 17.0 to 1, with certain restrictions. The ratio was approximately
8.4 to 1 and 7.8 to 1 (after adjusting the thrift balance by deposits used as
collateral for loans) on December 31, 1995 and 1994, respectively.
NOTE 13 -- FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
(FDICIA) AND
FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT OF 1989
(FIRREA)
FDICIA was signed into law on December 19, 1991. Regulations implementing
the prompt corrective action provisions of FDICIA became effective on December
19, 1992. In addition to the prompt correct action requirements, FDICIA includes
significant changes to the legal and regulatory environment for insured
depository institutions, including reductions in insurance coverage for certain
kinds of deposits, increased supervision by the federal regulatory agencies,
increased reporting requirements for insured institutions, and new regulations
concerning internal controls, accounting, and operations.
The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in declining
order, are "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized."
FIRREA was signed into law on August 9, 1989; regulations for savings
institutions' minimum capital requirements went into effect on December 7, 1989.
In addition to its capital requirements, FIRREA includes provisions for changes
in the federal regulatory structure for institutions, including a new deposit
insurance system, increased deposit insurance premiums, and restricted
investment activities with respect to noninvestment grade corporate debt and
certain other investments.
F-11
<PAGE>
TOWN AND COUNTRY FINANCE
AND THRIFT COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 13 -- FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
(FDICIA) AND
FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT OF 1989
(FIRREA) (CONTINUED)
The following table reconciles generally accepted accounting principles to
regulatory capital, sets out the company's various regulatory capital categories
and compares capital requirements as computed to regulatory minimum capital
requirements. At December 31, 1995, the company exceeded all minimum capital
requirements.
<TABLE>
<CAPTION>
CAPITAL AS CORE/ TIER 1 TOTAL
OF DECEMBER TANGIBLE LEVERAGE RISK-BASED RISK-BASED
31, 1995 EQUITY CAPITAL CAPITAL CAPITAL
------------ --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Per GAAP............................................ $ 3,624 $ 3,624 $ 3,624 $ 3,624 $ 3,624
------------
------------
Reserve for loan losses............................. 152
--------- --------- ----------- -----------
Regulatory capital.................................. $ 3,624 $ 3,624 $ 3,624 $ 3,776
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Total assets........................................ $ 26,285
------------
------------
Adjusted total assets............................... $ 25,513 $ 25,513
--------- ---------
--------- ---------
Risk weighted assets................................ $ 19,281 $ 19,281
----------- -----------
----------- -----------
Capital ratio....................................... 13.74% 14.20% 14.20% 18.79% 19.58%
------------ --------- --------- ----------- -----------
------------ --------- --------- ----------- -----------
Regulatory capital category:
Well capitalized if greater than or
equal to......................................... 5.00% 6.00% 10.00%
--------- ----------- -----------
--------- ----------- -----------
Minimum ratio to be considered "adequately
capitalized"..................................... 2.00% 4.00% 4.00% 8.00%
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
NOTE 14 -- CASH FLOWS
For purposes of the statement of cash flows, interest bearing deposits in
other financial institutions are not considered to be cash equivalents.
Actual cash paid for interest and income taxes were as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ----------
<S> <C> <C>
Interest............................................................ $ 1,006,102 $ 975,501
Income taxes........................................................ 3,042 367,206
</TABLE>
NOTE 15 -- SUBSEQUENT EVENT
On January 16, 1996, the company and Capital Corp of the West, a bank
holding company, announced the signing of a letter of intent that would result
in Town and Country becoming a wholly owned subsidiary of Capital Corp. The
proposed acquisition is subject to numerous conditions and to shareholder and
regulatory approval.
F-12
<PAGE>
INDEPENDENT AUDITOR'S REPORT
January 24, 1996
Board of Directors
Town and Country Finance
and Thrift Company
Turlock, California 95380
Our report on our audits of the basic financial statements of Town and
Country Finance and Thrift Company for 1995 and 1994 appears on page F-1. Those
audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying information shown on Schedules I,
II, and III is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/S/ ATHERTON & ASSOCIATES
F-13
<PAGE>
TOWN AND COUNTRY FINANCE
AND THRIFT COMPANY
OTHER INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
SCHEDULE I
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Insurance commissions..................................................................... $ 74,414 $ 72,707
Extension and late charges................................................................ 126,886 165,360
Points on loans over $10,000.............................................................. 6,807
Contract fees............................................................................. 537
Acquisition fees, loans under $2,500...................................................... 385 1,645
Miscellaneous............................................................................. 15,037 27,996
---------- ----------
$ 216,722 $ 275,052
---------- ----------
---------- ----------
</TABLE>
F-14
<PAGE>
TOWN AND COUNTRY FINANCE
AND THRIFT COMPANY
OTHER GENERAL AND ADMINISTRATIVE EXPENSES
YEARS ENDED DECEMBER 31, 1995 AND 1994
SCHEDULE II
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Office expense............................................................................ $ 90,759 $ 78,350
Taxes and licenses........................................................................ 55,611 64,851
Legal and accounting...................................................................... 54,718 75,679
FDIC assessment........................................................................... 25,710 63,028
Insurance and bond premiums............................................................... 36,478 47,137
Dues and subscriptions.................................................................... 6,454 5,415
Credit reports............................................................................ 11,250 10,300
Directors' and officers' expense.......................................................... 16,212 13,939
State supervisory examination and assessment.............................................. 1,887 13,776
Collection................................................................................ 13,184 12,505
Travel allowance.......................................................................... 4,870 4,596
Advertising............................................................................... 17,028 9,047
Miscellaneous............................................................................. 14,631 17,292
---------- ----------
$ 348,792 $ 415,915
---------- ----------
---------- ----------
</TABLE>
F-15
<PAGE>
TOWN AND COUNTRY FINANCE
AND THRIFT COMPANY
RESERVE FOR LOAN LOSSES
YEARS ENDED DECEMBER 31, 1995 AND 1994
SCHEDULE III
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Balance, January 1...................................................................... $ 266,319 $ 368,435
Provision charged to operations......................................................... 100,064 271,403
Receivables charged off................................................................. (327,421) (774,622)
Recoveries on receivables previously charged off........................................ 113,061 401,103
----------- -----------
Balance, December 31.................................................................... $ 152,023 $ 266,319
----------- -----------
----------- -----------
</TABLE>
F-16
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTAL INFORMATION
January 24, 1996
The Board of Directors
Town and Country Finance
and Thrift Company
Turlock, California 95380
We have audited, in accordance with generally accepted auditing standards,
the balance sheet of Town and Country Finance and Thrift Company as of December
31, 1995 and the related statements of income, stockholders' equity, and cash
flows for the year then ended, and have issued our report thereon dated January
24, 1996.
We reviewed, on a test basis, the files on loans made and contracts acquired
during the year. Based on our tests, the files appear to be complete as to
application for credit, signed note or contract, security interest, insurance,
appraisal, and other necessary loan documentation.
Investment certificates, loans receivable and contracts receivable were
confirmed, to the extent necessary for forming an opinion on the basic financial
statements taken as a whole, through the use of both positive and negative
confirmations. See the attached Confirmation Statistics for a recapitulation of
the results of the confirmation process.
We reviewed of the adequacy of the reserve for loan losses. Our examination
of this area revealed that management is making the necessary charge-offs at the
time of such review. Based on historical trends, and analytical procedures in
evaluating the delinquent status of accounts as a whole, it appears that the
reserve for losses is adequate.
Town and Country Finance and Thrift Company does not refinance or extend
accounts that are delinquent for 30 days or more unless they are satisfied that
the borrower(s) can meet the requirements of the new plan.
Unearned charges and discounts on contracts and precomputed loans are
reflected in the company's balance sheet as a contra asset account to the
related receivables. The full amount of unearned charges and discounts is
credited to this account at the origination of the contract and is then
amortized into income on a monthly basis under the sum-of-the-months digits
method over the life of the contract or loan. Revenue on loans on which unearned
financial charges are not precomputed is recognized or accrued monthly.
Whenever a contract or loan receivable is paid in full before maturity, a
reduction of unearned interest on finance charges is computed under the Rule of
78's with consideration given to such initial charges as are permissible under
various California loan laws.
Interest bearing deposits at other financial institutions at December 31,
1995 consisted primarily of certificates of deposit of $100,000 or less with
federally insured institutions. Therefore, the market values of these
investments were equal to their costs. Also included in this category was a
$312,949 deposit in a money market account.
Town and Country Finance and Thrift Company had no restricted retained
earnings at December 31, 1995.
In planning and performing our audit of the financial statements of Town and
Country Finance and Thrift Company for the year ended December 31, 1995 we
considered its internal control structure in order to determine our auditing
procedures for the purpose of expressing our opinion on the financial statements
and not to provide assurance on the internal control structure.
F-17
<PAGE>
Certain significant features of the internal controls are as follows:
a) Bank reconciliations, general ledger maintenance, reconciliation of loan
and thrift trial balances to general ledger control accounts and other
reconciliation functions are performed by a person who has no check
signature authority, loan authorization or teller responsibilities.
b) Tellers are responsible for balancing out cash daily to the transactions
recorded on the computer. They have sole access to their cash drawers
during the day.
c) Credit is granted only by authorized personnel and limits are
established for each person by the Board of Directors.
d) The company has a program whereby each branch is periodically visited
and selected files are reviewed to determine the extent of compliance
with industry regulations and company policies.
e) The company's in-house computer system automatically produces delinquent
notices for past due accounts. These notices are processed by personnel
outside the loan/teller process.
f) The company has authorized certain employees to sign checks, and two
signatures are needed for amounts in excess of $5,000.
We further inform you that, to the best of our knowledge and belief, neither
the firm of Atherton & Associates nor any of its partners has any direct or
indirect financial interest in Town and Country Finance and Thrift Company or is
connected with the company in the capacity of a director, officer, employee, or
person performing similar functions, other than being retained as independent
accountants.
This report is intended solely for the information and use of the Board of
Directors and management of Town and Country Finance and Thrift Company, the
Commissioner of the State of California Department of Corporations, and the
Federal Deposit Insurance Corporation, and should not be used for any other
purpose.
/S/ ATHERTON & ASSOCIATES
F-18
<PAGE>
TOWN AND COUNTRY FINANCE
AND THRIFT COMPANY
CONFIRMATION STATISTICS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
FULL-PAID INVESTMENT INSTALLMENT
LOANS CONTRACTS CERTIFICATES CERTIFICATES
---------------------- ----------------------- ----------------------- -----------
NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT NUMBER
----------- --------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total outstanding................... 1,138 $4,996,688 2,804 $15,178,689 454 $15,112,770 1,275
Positive confirmations
Confirmations sent................ 12 $ 420,251 64 $1,347,552 149 $9,746,700 35
Percentage confirmed.............. 1.05% 8.41% 2.28% 8.88% 32.82% 64.49% 2.75%
Total replies received............ 9 $ 284,206 47 $1,071,761 141 $9,192,700 31
Percentage of replies received.... 75.00% 67.63% 73.44% 79.53% 94.63% 94.32% 88.57%
Unreconciled exceptions........... None None 1 $ 423 None None None
Negative confirmations
Confirmations sent................ 71 $ 602,845 158 $1,472,062 31 $ 461,770 96
Percentage confirmed.............. 6.24% 12.06% 5.63% 9.70% 6.83% 3.06% 7.53%
Total replied received............ 4 $ 43,590 6 $ 44,664 2 $ 35,000 11
Percentage of replies received.... 5.63% 7.23% 3.80 3.03% 6.45% 7.58% 11.46%
Unreconciled exceptions........... None None None None None None None
Total confirmations
Confirmations sent................ 83 $1,023,096 222 $2,819,614 180 $10,208,470 131
Percentage confirmed.............. 7.29% 20.47% 7.91% 18.58% 39.65% 67.55% 10.28%
Unreconciled exceptions........... None None 1 $ 423 None None None
<CAPTION>
AMOUNT
---------
<S> <C>
Total outstanding................... $7,431,842
Positive confirmations
Confirmations sent................ $2,422,819
Percentage confirmed.............. 32.60%
Total replies received............ $2,118,522
Percentage of replies received.... 87.44%
Unreconciled exceptions........... None
Negative confirmations
Confirmations sent................ $ 969,522
Percentage confirmed.............. 13.05%
Total replied received............ $ 148,084
Percentage of replies received.... 15.27%
Unreconciled exceptions........... None
Total confirmations
Confirmations sent................ $3,392,341
Percentage confirmed.............. 45.65%
Unreconciled exceptions........... None
</TABLE>
F-19
<PAGE>
AGREEMENT AND PLAN OF ACQUISITION
BY AND BETWEEN
CAPITAL CORP OF THE WEST
AND
TOWN AND COUNTRY FINANCE AND THRIFT COMPANY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 1. THE ACQUISITION................................................................................................. 1
1.1 Effective Date.................................................................................................. 1
1.2 Effect of the Acquisition....................................................................................... 1
Section 2. CONVERSION AND CANCELLATION OF SHARES........................................................................... 2
2.1 Exchange Amount; Conversion of Shares of Town & Country Common Stock............................................ 2
2.2 Cash/Stock Election............................................................................................. 2
2.3 Fractional Shares............................................................................................... 3
2.4 Surrender of Town & Country Shares.............................................................................. 3
2.5 No Further Transfers of Town & Country Shares................................................................... 4
2.6 Adjustments..................................................................................................... 4
2.7 Personnel Matters............................................................................................... 4
Section 3. COVENANTS OF THE PARTIES........................................................................................ 5
3.1 Mutual Covenants................................................................................................ 5
(a) Government Approvals........................................................................................ 5
(b) Notification of Breach of Representations, Warranties and Covenants......................................... 5
(c) Financial Statements........................................................................................ 5
(d) Press Releases.............................................................................................. 6
(e) 401(k) Plans................................................................................................ 6
(f) Access to Properties, Books and Records; Confidentiality.................................................... 6
3.2 Covenants of Town & Country..................................................................................... 7
(a) Approval by Shareholders.................................................................................... 7
(b) Compensation................................................................................................ 7
(c) Conduct of Business in the Ordinary Course.................................................................. 7
(d) No Acquisition or Solicitation.............................................................................. 9
(e) Changes in Capital Stock; Dividends......................................................................... 9
(f) Employee Welfare Benefit Plans.............................................................................. 10
(g) Shareholder Lists and Other Information..................................................................... 10
(h) Capital Commitments and Expenditures........................................................................ 10
3.3 Covenants of Capital Corp....................................................................................... 10
(a) Conduct of Business in the Ordinary Course.................................................................. 10
(b) Changes in Capital Stock; Dividends......................................................................... 11
(c) Indemnification; Insurance.................................................................................. 11
Section 4. REPRESENTATIONS AND WARRANTIES OF TOWN & COUNTRY................................................................ 11
4.1 Corporate Status and Power to Enter Into Agreements............................................................. 11
4.2 Articles, Bylaws, Books and Records............................................................................. 11
4.3 Compliance With Laws, Regulations and Decrees................................................................... 12
4.4 Capitalization.................................................................................................. 12
4.5 Equity Interest in Any Entity................................................................................... 12
4.6 Financial Statements, Regulatory Reports........................................................................ 12
4.7 Tax Returns..................................................................................................... 13
4.8 Material Adverse Change......................................................................................... 13
4.9 No Undisclosed Liabilities...................................................................................... 13
4.10 Properties and Leases........................................................................................... 14
4.11 Material Contracts.............................................................................................. 14
4.12 Loans........................................................................................................... 15
4.13 Restrictions on Investments..................................................................................... 15
4.14 Employment Contracts and Benefits............................................................................... 15
4.15 Compliance With ERISA........................................................................................... 16
4.16 Collective Bargaining and Employment Agreements................................................................. 16
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
4.17 Compensation of Officers and Employees.......................................................................... 16
4.18 Legal Actions and Proceedings................................................................................... 16
4.19 Execution and Delivery of the Agreement......................................................................... 17
4.20 Retention of Broker or Consultant............................................................................... 17
4.21 Insurance....................................................................................................... 17
4.22 Loan Loss Reserves.............................................................................................. 18
4.23 Transactions With Affiliates.................................................................................... 18
4.24 Information in Capital Corp Registration Statement.............................................................. 18
4.25 Accuracy of Representations and Warranties...................................................................... 18
Section 5. REPRESENTATIONS AND WARRANTIES OF CAPITAL CORP.................................................................. 18
5.1 Corporate Status and Power to Enter Into Agreements............................................................. 18
5.2 Articles, Bylaws, Books and Records............................................................................. 19
5.3 Compliance With Laws, Regulations and Decrees................................................................... 19
5.4 Capitalization.................................................................................................. 19
5.5 Financial Statements, Regulatory Reports........................................................................ 19
5.6 Tax Returns..................................................................................................... 20
5.7 Material Adverse Change......................................................................................... 20
5.8 Legal Actions and Proceedings................................................................................... 20
5.9 Execution and Delivery of the Agreement......................................................................... 20
5.10 No Undisclosed Liabilities...................................................................................... 21
5.11 No Material Environmental Liabilities........................................................................... 21
5.12 No Material Liabilities Under ERISA............................................................................. 21
5.13 Retention of Broker or Consultant............................................................................... 21
5.14 Loan Loss Reserves.............................................................................................. 21
5.15 Information in Capital Corp Registration Statement.............................................................. 22
5.16 Accuracy of Representations and Warranties...................................................................... 22
Section 6. SECURITIES ACT OF 1933; SECURITIES EXCHANGE ACT OF 1934......................................................... 22
6.1 Preparation and Filing of Registration Statement................................................................ 22
6.2 Effectiveness of Registration Statement......................................................................... 22
6.3 Sales and Resales of Common Stock............................................................................... 22
6.4 Rule 145 and Related Matters.................................................................................... 22
Section 7. CONDITIONS TO THE OBLIGATIONS OF CAPITAL CORP................................................................... 23
7.1 Representations and Warranties.................................................................................. 23
7.2 Compliance and Performance Under Agreement...................................................................... 23
7.3 Material Adverse Change......................................................................................... 23
7.4 Approval of Agreement........................................................................................... 23
7.5 Officer's Certificate........................................................................................... 23
7.6 Opinion of Counsel.............................................................................................. 23
7.7 Absence of Legal Impediment..................................................................................... 23
7.8 Effectiveness of Registration Statement......................................................................... 24
7.9 Government Approvals............................................................................................ 24
7.10 Tax Opinion..................................................................................................... 24
7.11 Accountant's Comfort Letters.................................................................................... 24
7.12 Unaudited Financials............................................................................................ 24
7.13 Rule 145 Undertaking............................................................................................ 25
7.14 Closing Documents............................................................................................... 25
7.15 Consents........................................................................................................ 25
7.16 Noncompete Agreements........................................................................................... 25
Section 8. CONDITIONS TO THE OBLIGATIONS OF TOWN & COUNTRY................................................................. 25
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
8.1 Representations and Warranties.................................................................................. 25
8.2 Compliance and Performance Under Agreement...................................................................... 25
8.3 Material Adverse Change......................................................................................... 25
8.4 Approval of Agreement........................................................................................... 26
8.5 Officer's Certificate........................................................................................... 26
8.6 Opinion of Counsel.............................................................................................. 26
8.7 Absence of Legal Impediment..................................................................................... 26
8.8 Effectiveness of Registration Statement......................................................................... 26
8.9 Government Approvals............................................................................................ 26
8.10 Tax Opinion or Ruling........................................................................................... 26
8.11 Accountant's Comfort Letter..................................................................................... 26
8.12 Unaudited Financials............................................................................................ 26
8.13 Closing Documents............................................................................................... 26
8.14 Fairness Opinion................................................................................................ 26
Section 9. CLOSING......................................................................................................... 27
9.1 Closing Date.................................................................................................... 27
9.2 Delivery of Documents........................................................................................... 27
9.3 Filings......................................................................................................... 27
Section 10. EXPENSES........................................................................................................ 27
Section 11. AMENDMENT; TERMINATION.......................................................................................... 27
11.1 Amendment....................................................................................................... 27
11.2 Termination..................................................................................................... 27
11.3 Termination..................................................................................................... 28
11.4 Breach of Obligations........................................................................................... 28
11.5 Termination and Expenses........................................................................................ 28
Section 12. Miscellaneous................................................................................................... 29
12.1 Notices......................................................................................................... 29
12.2 Binding Agreement............................................................................................... 29
12.3 Survival of Representations and Warranties...................................................................... 29
12.4 Governing Law................................................................................................... 29
12.5 Attorneys' Fees................................................................................................. 29
12.6 Entire Agreement; Severability.................................................................................. 29
12.7 Counterparts.................................................................................................... 29
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF ACQUISITION
THIS AGREEMENT AND PLAN OF ACQUISITION, dated as of March 22, 1996
("Agreement"), is made by and between Capital Corp of the West, a California
corporation and a bank holding company under the Federal Bank Holding Company
Act ("Capital Corp") and Town and Country Finance and Thrift Company, a
California industrial loan company ("Town & Country").
WITNESSETH:
A. The Boards of Directors of Capital Corp and Town & Country deem it
advisable and in the best interests of Capital Corp, Town & Country and its
shareholders that Capital Corp and Town & Country enter into a business
combination whereby Capital Corp will form a subsidiary which will be licensed
as an industrial loan company by the State of California (the "Subsidiary") to
be licensed as an industrial loan company and merged with Town & Country (the
"Acquisition"), and Town & Country shall become a wholly-owned subsidiary of
Capital Corp.
B. The Merger Agreement attached as Exhibit A is intended to be filed with
the California Secretary of State (the "Merger Agreement") when it has been
approved by the Boards of Directors of Capital Corp, Town & Country and
Subsidiary, and this Agreement and the Merger Agreement will be submitted for
approval of the shareholders of Capital Corp and Town & Country at special
meetings of their respective shareholders.
C. The Acquisition is intended to qualify as a tax free reorganization
within the meaning of the provisions of Section 368 of the Internal Revenue Code
of 1986, as amended (the "IRC").
D. Pursuant to the Acquisition, each Town & Country shareholder will
receive, in exchange for each share of Town & Country common stock, cash and the
number of shares of Capital Corp common stock determined in accordance with the
Exchange Ratio as more fully set forth in this Agreement (the "Exchange Ratio").
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, the parties hereto agree as follows:
SECTION 1. THE ACQUISITION.
1.1 EFFECTIVE DATE. Subject to the terms and conditions of this Agreement,
the Acquisition shall become effective at the date on which an executed copy of
the Merger Agreement has been filed with the California Secretary of State (the
"Effective Date").
1.2 EFFECT OF THE ACQUISITION. Subject to the terms and conditions of this
Agreement, on the Effective Date, Subsidiary shall be merged with Town & Country
and the Subsidiary shall be renamed "Town and Country Finance and Thrift
Company" and shall be the surviving corporation ("Surviving Corporation") in the
merger. All assets, rights, privileges, immunities, power, franchises and
interests of Town & Country in and to every type of property (real, personal and
mixed) and choses in action, as they exist as of the Effective Date, including
appointments, designations and nominations and all other rights and interests as
trustee, executor, administrator, registrar of stocks and bonds, guardian of
estate, assignee, receiver and in every other fiduciary capacity, shall pass and
be transferred to and vest in the Subsidiary as the Surviving Corporation by
virtue of the Acquisition on the Effective Date without any deed, conveyance or
other transfer; the separate existence of Town & Country shall cease and the
corporate existence of Subsidiary as the Surviving Corporation under Town &
Country's name shall continue unaffected and unimpaired by the merger; and the
Surviving Corporation shall be deemed to be the same entity as each of Town &
Country and Subsidiary and shall be subject to all of their duties and
liabilities of every kind and description. The Surviving Corporation shall be
responsible and liable for all the liabilities and obligations of each of
Subsidiary and Town & Country; and any claim existing or action or proceeding
pending by or against Subsidiary or Town & Country may be prosecuted as if the
Acquisition had not taken place, or the Surviving Corporation may be substituted
in its place. Neither the rights of creditors nor any liens upon the property of
Capital Corp, Subsidiary or Town & Country shall be impaired by reason of the
Acquisition. The articles of
1
<PAGE>
incorporation of Subsidiary shall be the articles of incorporation of the
Surviving Corporation and the bylaws of Town & Country shall be the bylaws of
the Surviving Corporation. On the Effective Date, Subsidiary shall assume the
operations of, as successor to, Town & Country. On the Effective Date Capital
Corp, as the sole shareholder of Subsidiary, will elect at a special meeting of
shareholders all existing board members of Town & County to the board of
Subsidiary in which capacity such directors, together with such other directors
as may be elected by Capital Corp, will continue to serve until successors are
duly elected and qualified. Subsidiary shall remain a wholly-owned subsidiary of
Capital Corp.
SECTION 2. CONVERSION AND CANCELLATION OF SHARES.
2.1 EXCHANGE AMOUNT; CONVERSION OF SHARES OF TOWN & COUNTRY COMMON STOCK
(a) For purposes of this Agreement, capitalized terms have the following
meanings:
<TABLE>
<S> <C>
Town & Country Shares Issued and outstanding shares of Town & Country common stock
as of the Effective Date
Exchange Amount The Exchange Amount, consisting of a Cash Component and a
Stock Component, shall be $33.05 multiplied by the total
outstanding Town & Country Shares
Cash Component Cash portion of the Exchange Amount equal to $1,600,000 to
$1,800,000, depending on the results of the Cash/Stock
Election, as may be adjusted pursuant to Section 2.1(c)
Stock Component Newly issued shares of Capital Corp common stock with an
aggregate Market Value equal to the Exchange Amount less
the Cash Component
Per Share Cash Component The aggregate Cash Component divided by the number of
outstanding Town & Country Shares on the Effective Date
Per Share Stock Component The aggregate Stock Component divided by the number of
outstanding Town & Country Shares on the Effective Date
Exchange Ratio The Per Share Stock Component divided by the Market Value
Market Value The average of bid and ask prices at closing of Capital Corp
common stock as reported on Nasdaq National Market over all
trading days in the calendar month preceding the
anticipated Effective Date, as mutually established by
Capital Corp and Town & Country
Determination Date The last business day of the calendar month preceding the
anticipated Effective Date, as mutually established by
Capital Corp and Town & Country
</TABLE>
(b) On the Effective Date, by virtue of the Acquisition and without any
action on the part of the holder of any Town & Country Shares, each outstanding
Town & Country Share (other than any shares as to which dissenters' rights have
been perfected) shall be converted into the right to receive a combination of
cash and shares of the common stock, no par value, of Capital Corp ("Capital
Corp common stock" or "Capital Corp Shares") with an aggregate value equal to
the Exchange Amount. The aggregate Cash Component of the Exchange Amount will be
not less than $1,600,000 and not more than $1,800,000; the exact amount of the
Cash Component will determined by the results of the Cash/Stock Election that
will be made available to holders of Town & Country Shares before completion of
the Acquisition. The balance of the Exchange Amount will be in Capital Corp
common stock (the "Stock Component").
2.2 CASH/STOCK ELECTION
The Exchange Amount will be allocated to the Stock Component and the Cash
Component in accordance the following election and procedures (the "Cash/Stock
Election").
2
<PAGE>
Town & Country shareholders may elect to receive the Exchange Amount in
either all Capital Corp shares or all cash. If no election is made, the
shareholder will receive a Cash Component equal to $1,600,000/number of
outstanding Town & Country Shares and the balance in Capital Corp shares.
The Cash/Stock Election is subject to the limitation that the aggregate Cash
Component for all Town & Country shareholders may not be less than $1,600,000 or
more than $1,800,000. If the aggregate Cash Component is undersubscribed, the
unsubscribed portion of this minimum aggregate Cash Component will be allocated
pro rata (by number of shares) among all Town & Country shareholders; if the
aggregate Cash Component is oversubscribed, the Cash Component of each Town &
Country shareholder electing to receive cash will be reduced pro rata (by number
of shares electing to receive cash) so that the aggregate Cash Component of all
Town & Country shareholders will equal $1,800,000. The total of the Cash
Component and the Stock Component will always equal the Exchange Amount.
A Town & Country shareholder need not, and may not, make a Cash/Stock
Election until after the Acquisition has been completed. If the Acquisition is
completed, Capital Corp will send to each Town & Country shareholder a letter of
transmittal describing the Cash/Stock Election in more detail and providing
forms for making the Cash/Stock Election, if desired.
The Cash/Stock Election, if made, must be made for all shares held in the
name of the Town & Country shareholder. A Town & Country shareholder who holds
shares in two or more capacities or in different names may make a separate
Cash/Stock Election for each name or capacity in which shares are held. However,
shares represented by a single certificate may make only one Cash/Stock
Election.
All Town & Country shareholders who do not make a Cash/Stock Election will
receive the Exchange Amount consisting of at least $1,600,000/number of
outstanding shares per Town & Country common share, regardless of the Cash/Stock
Election made by any other Town & Country shareholders. Town & Country
shareholders who make a Cash/Stock Election have no assurance that they will in
fact receive all cash or all stock. They will receive cash in excess of the
above amount per share only to the extent excess cash is available under the
limitation set forth above, and they will receive all stock only if other Town &
Country shareholders elect at least an aggregate of $1,600,000 in cash.
2.3 FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of Capital Corp common stock shall be issued to holders of
Town & Country Shares. In lieu thereof, each such holder entitled to a fraction
of a share of Capital Corp common stock shall receive, at the time of surrender
of the certificate or certificates representing such holder's Town & Country
Shares, an amount in cash equal to the Market Value per share of the common
stock of Capital Corp, multiplied by the fraction of a share of Capital Corp
common stock to which such holder otherwise would be entitled. No such holder
shall be entitled to dividends, voting rights, interest on the value of, or any
other rights in respect of a fractional share.
2.4 SURRENDER OF TOWN & COUNTRY SHARES.
(a) Prior to the Effective Date, Capital Corp shall appoint any bank or
trust company (having capital of at least $50 million) mutually acceptable to
Town & Country and Capital Corp, as exchange agent (the "Exchange Agent") for
the purpose of exchanging certificates representing the Town & Country Shares at
and after the Effective Date, Capital Corp shall issue and deliver to the
Exchange Agent certificates representing the Capital Corp Shares, as shall be
required to be delivered to holders of Town & Country Shares. As soon as
practicable after the Effective Date, each holder of Town & Country Shares
converted pursuant to Section 2.1, upon surrender to the Exchange Agent of one
or more certificates for such Town & Country Shares for cancellation, will be
entitled to receive a certificate representing the number of Capital Corp Shares
determined in accordance with Section 2.1 and a payment in cash with respect to
the Cash Component and fractional shares, if any, determined in accordance with
Section 2.3.
(b) No dividends or other distributions of any kind which are declared
payable to stockholders of record of the Capital Corp Shares after the Effective
Date will be paid to persons entitled to receive such certificates for Capital
Corp Shares until such persons surrender their certificates representing Town &
Country Shares. Upon surrender of such certificate representing Town & Country
Shares, the holder thereof
3
<PAGE>
shall be paid, without interest, any dividends or other distributions with
respect to the Capital Corp Shares as to which the record date and payment date
occurred on or after the Effective Date and on or before the date of surrender.
(c) If any certificate for Capital Corp Shares is to be issued in a name
other than that in which the certificate for Town & Country Shares surrendered
in exchange therefor is registered, it shall be a condition of such exchange
that the person requesting such exchange shall pay to the Exchange Agent any
transfer costs, taxes or other expenses required by reason of the issuance of
certificates for such Capital Corp Shares in a name other than the registered
holder of the certificate surrendered, or such persons shall establish to the
satisfaction of Capital Corp and the Exchange Agent that such costs, taxes or
other expenses have been paid or are not applicable.
(d) All dividends or distributions, and any cash to be paid pursuant to the
Cash Component or Section 2.3 in lieu of fractional shares, if held by the
Exchange Agent for payment or delivery to the holders of unsurrendered
certificates representing Town & Country Shares and unclaimed at the end of one
year from the Effective Date, shall (together with any interest earned thereon)
at such time be paid or redelivered by the Exchange Agent to Capital Corp, and
after such time any holder of a certificate representing Town & Country Shares
who has not surrendered such certificate to the Exchange Agent shall, subject to
applicable law, look as a general creditor only to Capital Corp for payment or
delivery of such dividends or distributions or cash, as the case may be.
2.5 NO FURTHER TRANSFERS OF TOWN & COUNTRY SHARES. At the Effective Date,
the stock transfer books of Town & Country shall be closed and no transfer of
Town & Country Shares theretofore outstanding shall thereafter be made.
2.6 ADJUSTMENTS. If, between the date of this Agreement and the Effective
Date, the outstanding Capital Corp common stock shall have been changed into a
different number of shares or a different class by reason of any
reclassification, recapitalization, split up, combination, exchange of shares or
readjustment, or a stock dividend thereon shall be declared with a record date
within such period, the number of Capital Corp Shares to be issued and delivered
in the Acquisition in exchange for each outstanding Town & Country Share shall
be correspondingly adjusted.
2.7 PERSONNEL MATTERS.
(a) EMPLOYMENT AT EFFECTIVE DATE. From the day of the Effective Date or any
time thereafter, former employees of Town & Country may be terminated by Capital
Corp, with or without cause, for any reason not prohibited by statute, except
for those employees under an agreement previously consented to by Capital Corp.
Capital Corp shall assume the obligations of those contracts and shall make the
payments provided therein.
(b) RETIREMENT BENEFITS.
(i) Employees of Subsidiary formerly employed by Town & Country on the
Effective Date shall be eligible for participation in the Capital Corp
401(k) plan on the first day following the Effective Date, so long as such
employees then meet the eligibility requirements for participation in the
Capital Corp plan.
(ii) For purposes of determining eligibility and vesting under the
Capital Corp 401(k) plan, employees of Subsidiary formerly employed by Town
& Country on the Effective Date will receive vesting credit for length of
service with Town & Country as if they had been employees of Capital Corp.
This provision shall not obligate Capital Corp to make any additional
contribution to the Capital Corp 401(k) plan for former Town & Country
employees for any period before the Effective Date.
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(c) OTHER BENEFIT PLANS.
(i) After the Effective Date, any or all Town & Country welfare benefit
plans shall be terminated by Capital Corp. Subsidiary employees formerly
employed by Town & Country immediately prior to the Effective Date shall be
eligible for participation in any existing Capital Corp plan, so long as
such employee would otherwise be eligible to participate in such plan.
(ii) Employees of Subsidiary formerly employed by Town & Country on the
Effective Date will receive credit for length of service with Town & Country
for determination of eligibility or participation in the Capital Corp (i)
health service plans, (ii) long-term disability, voluntary accident and life
insurance plans, or (iii) any other benefit plan of Capital Corp.
(d) OTHER BENEFITS.
(i) Employees of Subsidiary formerly employed by Town & Country on the
Effective Date will retain vacation benefits accrued with Town & Country
prior to the Effective Date, subject to Capital Corp's maximum accrual and
carryover limitations for such benefits; and will also retain the amount of
sick leave benefit eligibility on Town & Country's records prior to the
Effective Date, to be available subject to Capital Corp's policy for sick
leave benefits; provided, however, Town & Country shall have accrued the
cost of such benefits on the books of Town & Country .
(ii) Employees of Subsidiary formerly employed by Town & Country on the
Effective Date will be subject to the severance policies in effect for all
Capital Corp employees.
(e) CONTRACT ON EFFECTIVE DATE. On the Effective Date, Capital Corp will
offer a three year contract of employment to D. Dale Pinkney the terms of which
will be agreed upon between Mr. Pinkney and Capital Corp.
SECTION 3. COVENANTS OF THE PARTIES.
3.1 MUTUAL COVENANTS.
(a) GOVERNMENT APPROVALS. Each party will use its best efforts in good faith
to take or cause to be taken as promptly as practicable all such steps within
their reasonable control to obtain (i) the prior approval of the Acquisition by
the Board of Governors of the Federal Reserve System (the "FRB") under the Bank
holding Company Act of 1956, as amended, (ii) the prior approval of the State of
California Department of Corporations ("DOC") to the Acquisition; (iii) the
issuance by the DOC of an industrial loan company license to Subsidiary, and
(iv) all other consents and approvals of government agencies as are required by
law or otherwise, and shall do any and all acts and things necessary or
appropriate in order to cause the Acquisition to be consummated on the terms
provided in the Merger Agreement and this Agreement as promptly as practicable.
The approvals referred to in clauses (i)-(iv) of this Section 3.1(a) are
hereinafter referred to as the "Government Approvals." Each party shall respond
to a written request for information sought by the other for the purpose of
obtaining the Government Approvals promptly and in all cases within 10 days
after receipt of such request.
(b) NOTIFICATION OF BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
Each party shall promptly give written notice to the other party upon becoming
aware of the occurrence or impending or threatened occurrence of any event which
would cause or constitute a breach of any of the representations, warranties or
covenants of that party contained or referred to in the Acquisition Agreement or
this Agreement and shall use its best efforts to prevent the same or remedy the
same promptly.
(c) FINANCIAL STATEMENTS.
(i) Each party has delivered or shall deliver to the other party
promptly after they become available true and correct copies of audited
financial statements as of such date and covering such period as may be
necessary to satisfy the minimum requirements of the Securities and Exchange
Commission and other governmental authorities having approval authority over
the Acquisition. The financial statements for such year ends have been or
shall be audited by their respective independent certified public accounting
firms which have been engaged in the past and include or shall include an
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unqualified opinion of each such accounting firm, to the effect that such
financial statements have been prepared in accordance with GAAP consistently
applied and present fairly, in all material respects, the consolidated
financial position, results of operations and cash flows of the respective
parties at the dates indicated and for the periods then ending.
(ii) Each party shall provide to the other party promptly after they
become available copies of all financial statements and proxy statements
issued or to be issued to either party's shareholders and/or directors after
December 31, 1995, and at or prior to the Effective Date.
(iii) Each party has delivered or shall deliver, to the other party true
and complete copies of its Annual Report to Shareholders for the years ended
December 31, 1995, 1994 and 1993, all periodic reports (including interim
quarterly financial statements) since December 31, 1993, all proxy
statements and other written material furnished to its shareholders since
December 31, 1993, and all other material reports, including year-end call
reports, relating to Capital Corp and Town & Country filed by Capital Corp
and Town & Country with the FRB , the DOC or the Federal Deposit Insurance
Corporation ("FDIC") during 1993 through 1996 and in 1996 prior to the
Effective Date. As of its date, each of the documents described in the
preceding sentence complied or shall comply in all material respects with
all legal and regulatory requirements applicable thereto.
(iv) Each party shall deliver to the other party, as soon as practicable
after the end of each calendar month, copies of its month-end financial
statements and management reports as prepared for internal use by such
party's management.
(d) PRESS RELEASES. Neither party shall issue any press release or written
statement for general circulation relating to this Agreement unless previously
provided to the other party for review and approval (which approval will not be
unreasonably withheld or delayed) and shall cooperate with the other party in
the development and distribution of all news releases and other public
information disclosures with respect to the Acquisition, this Agreement or the
Merger Agreement; provided that either party may, without the consent of the
other party, make any disclosure with regard to this Agreement that it
determines is required under any applicable law or regulation.
(e) 401(K) PLANS. Both parties agree that Town & Country's 401(k) plan shall
be merged into Capital Corp's 401(k) plan on or after the Effective Date, as
determined by the Surviving Corporation at no expense to Town & Country. Capital
Corp shall pay all expenses and charges in connection with the merger of Town &
Country's 401(k) plan into Capital Corp's 401(k) plan.
(f) ACCESS TO PROPERTIES, BOOKS AND RECORDS; CONFIDENTIALITY. Prior to the
Effective Date, each party shall (except as may be prohibited by applicable law)
give the other party and its officers, employees, agents and representatives
full access, during normal business hours and upon reasonable notice, to all of
its properties, books, contracts, records and facilities including, but not
limited to, the corporate, financial and operational records, papers, reports,
instructions, procedures, tax returns and filings, tax settlement letters,
material contracts or commitments, regulatory examinations and correspondences.
Each party shall also use its best efforts to cause its independent accounting
firm to make available to the other party, its accountants, counsel and other
agents, to the extent reasonably requested in connection with such review, such
firm's work papers and documentation relating to its work papers and its audits
of the books and records of each party. Each party shall make available to the
other originals or copies, at the responding party's election, of such documents
and records as the other may reasonably request. The availability or actual
delivery of such information about either party shall not affect the covenants,
representations and warranties of either party contained in this Agreement and
in the Merger Agreement. Each party shall respond to any written request for
information promptly and in all cases within 10 days after receipt of such
request. Each party shall use its best efforts to cause its officers, directors,
employees, auditors and attorneys to cooperate with the other in its reasonable
requests for information. Each party shall treat as confidential all such
information in the same manner as each party treats similar confidential
information of its own, and if this Agreement is terminated, each party shall
continue to treat all such information as confidential and to cause its
employees to keep all such information confidential and shall return such
documents therefore delivered by the other party as the other party shall
request, and shall use such information, or cause it to be used, solely for the
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purposes of evaluating and completing the transactions contemplated hereby;
provided that each party may disclose any such information to the extent
required by federal or state securities laws or otherwise required by any
governmental agency or authority, or by generally accepted accounting
principles. The foregoing confidentiality obligations shall not apply in respect
of any information publicly available or to any information previously known to
the party in question, the use of which is not otherwise restricted.
3.2 COVENANTS OF TOWN & COUNTRY.
(a) APPROVAL BY SHAREHOLDERS. Town & Country shall cause the Acquisition,
this Agreement and the Merger Agreement to be submitted promptly for the
approval of its shareholders at a meeting to be called and held in accordance
with applicable laws. In connection with the call of such meeting, Capital Corp
and Town & Country shall cause an appropriate registration statement and proxy
statement/prospectus (the "Proxy Materials") to be prepared and filed with
appropriate regulatory authorities as promptly as practicable and, when approved
or otherwise deemed effective, with any amendments thereto that may in the
judgment of its counsel be necessary or desirable, to be mailed to shareholders
of Town & Country. Subject to the fiduciary duty of the Board of Directors of
Town & Country, the Proxy Materials shall include therein a recommendation that
Town & Country shareholders vote to approve the proposed Acquisition. The Proxy
Materials shall be subject to prior approval by Capital Corp. Town & Country
shall in any event hold such shareholder meeting no later than June 20, 1996,
unless prevented from doing so by the Commission or by delays in obtaining or
conditions imposed by the Government Approvals. Subject to its continuing
fiduciary duty to the shareholders of Town & Country, the members of the Board
of Directors of Town & Country shall at all times prior to and during such
meeting of its shareholders recommend that the transactions contemplated hereby
be adopted and approved and, subject to such duty, use its best efforts to cause
such adoption and approval.
(b) COMPENSATION. Except for annual anniversary date review of employees and
the normal wage increases incident thereto and the annual bonuses for 1995 which
have been accrued on the books of Town & Country, Town & Country shall not make
or approve any increase in the compensation payable or to become payable by it
to any of its directors, officers, employees or agents (including but not
limited to compensation through any profit sharing, pension, retirement,
severance, incentive or other employee benefit program or arrangement), nor
shall any bonus payment or any agreement or commitment to make a bonus payment
be made, nor shall any stock option, warrant or other right to acquire capital
stock be granted, or employment agreement (other than any such employment
agreement that may arise by operation of law upon the hiring of any new
employee) or consulting agreement be entered into by Town & Country with any
such directors, officers, employees or agents unless Capital Corp has given its
prior written consent. Without the prior consent of Capital Corp, Town & Country
shall not hire any new employee at an annual rate in excess of current customary
practice or, in any event, in excess of $40,000 per year, except with the prior
written consent of Capital Corp. Nothing herein shall prevent Town & Country
from (i) granting increase(s) in compensation or bonuses to the extent that such
increase(s) do not cause average annual compensation per employee to increase
more than 5% of the average annual compensation per employee by Town & Country
in 1996 prorated to the Effective Date, not including increased compensation
levels arising by reason of additional employees hired to oversee the proposed
Fresno branch; (ii) providing employees with regular salary increases,
commissions and bonuses consistent with past practices in connection with
regular salary reviews as heretofore disclosed to Capital Corp; or (iii) the
engagement of Williams Gregg, Inc. as Town & Country's financial advisor.
(c) CONDUCT OF BUSINESS IN THE ORDINARY COURSE. Prior to the Effective Date:
(i) Town & Country shall conduct its businesses in the Ordinary Course
as heretofore conducted. For purposes of this Agreement, the "Ordinary
Course" of Town & Country shall consist of the industrial loan company and
related businesses as presently conducted by it and permitted under
applicable laws. Unless Capital Corp has given its previous written consent
to any act or omission to the contrary (which Capital Corp shall not
unreasonably withhold), Town & Country shall, until the Effective Date,
cause its officers to:
(A) preserve its business and business organizations intact;
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(B) preserve the good will of customers and others having business
relations with it and take no action that would impair the benefit to the
other party of the goodwill of it or the other benefits of the
Acquisition;
(C) consult with Capital Corp as to the making of any decisions or
the taking of any actions in matters other than in the Ordinary Course;
(D) maintain its properties in customary repair, working order and
condition (reasonable wear and tear excepted);
(E) comply with all laws, regulations and decrees applicable to the
conduct of its business;
(F) keep in force at not less than its present limits all policies of
insurance, including deposit insurance of the FDIC, to the extent
reasonably practicable in light of the prevailing market conditions in
the insurance industry;
(G) keep available to the other party the services of its present
officers and employees (it being understood that both parties shall have
the right to terminate the employment of any of its officers or employees
in accordance with its established employment procedures);
(H) comply with all orders, agreements and memoranda of understanding
with respect to it made by or with any regulatory authority of competent
jurisdiction, and promptly forward to the other party all communications
received from any such authority that are not prohibited by such
authority from being so disclosed and inform the other party of any
material restrictions imposed by any governmental authority on its
business;
(I) file in a timely manner (taking into account any extensions duly
obtained) all reports, tax returns and other documents required to be
filed with federal, state, local and other authorities;
(J) conduct an environmental audit prior to foreclosure on any
property concerning which it has knowledge, or should have knowledge,
that asbestos or asbestos-containing material, PCB's or PCB-contaminated
materials, any petroleum product, or hazardous substance or waste (as
defined under any applicable environmental laws) was or is present,
manufactured, recycled, reclaimed, released, stored, treated, or disposed
of, and provide the results of such audit to and consult with the other
party regarding the significance of the audit prior to the foreclosure on
any such property;
(K) not sell, lease, pledge, assign, encumber or otherwise dispose of
any of its assets except other real estate owned or other property in the
Ordinary Course, in each case for adequate value, without recourse and
consistent with its customary practice;
(L) not make, renegotiate, renew, increase, extend or purchase any
loans, advances or loan commitments, in each case to any of its officers,
directors or any affiliated or related persons of such directors or
officers except in the Ordinary Course consistent with its established
loan procedures and in compliance with FRB Regulation O;
(M) with the exception of the creation of the Fresno branch which
must be completed and opened expeditiously, not take any action to
create, relocate or terminate the operations of any banking office or
branch, or to form any new subsidiary or affiliated entity;
(N) not settle or otherwise take any action to release or reduce any
of its rights with respect to any litigation involving a claim of more
than $50,000 in which it is a party; and
(O) maintain an allowance for loan losses which, in addition to
meeting the requirements of Section 2.1(c), shall be in substantial
compliance with the comments of the FDIC in its most recent Report of
Examination dated April 24, 1995.
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(ii) Town & Country shall not, without first having obtained the written
consent of Capital Corp, cause its officers to:
(A) commit itself to any loan with a principal amount in excess of
$40,000 if unsecured, or in excess of $80,000 and with a loan-to-value
ratio above 75% if secured by real property, provided that Capital Corp's
consent shall be deemed given unless it objects and states the basis of
its objection in writing, or verbally with prompt written confirmation,
within one business day after receipt of written notice directed to the
Chief Credit Officer of Capital Corp, together with sufficient supporting
information to allow Capital Corp to make an informed judgment, and
Capital Corp shall not unreasonably withhold its consent; provided,
further, that any consent given by Capital Corp shall be binding only if
given by authorized personnel of Capital Corp;
(B) purchase or sell any investment security with a maturity in
excess of three years; or
(C) issue any certificate of deposit with a rate of interest in
excess of 50 basis points above average for the same maturity using the
Meyers Report.
(d) NO ACQUISITION OR SOLICITATION.
(i) Prior to the Effective Date, Town & Country and its Board of
Directors and officers shall not initiate negotiations toward, or otherwise
effect or agree to effect, any Business Combination involving Town &
Country, acquire or agree to acquire any of its own capital stock or the
capital stock (except in a fiduciary capacity) or assets (except in the
Ordinary Course) of any other entity, or commence any proceedings for
winding up and dissolution affecting it. "Business Combination" shall mean
any Acquisition, sale or purchase of a subsidiary, sale or purchase of a
substantial portion of any entity's assets, or tender offer or other means
of acquisition of substantially all the outstanding capital stock of any
entity.
(ii) Prior to the Effective Date, neither Town & Country nor any
officer, director or affiliate of Town & Country, nor any investment banker,
attorney, accountant or other agent, advisor or representative retained by
Town & Country shall (A) solicit or initiate, directly or indirectly, any
inquiries, discussions or proposals for, continue, propose or enter into
discussions or negotiations looking toward, or enter into any agreement or
understanding providing for, any Business Combination with Town & Country;
or (B) disclose, directly or indirectly, any nonpublic information to any
corporation, partnership, person or other entity or group concerning Town &
Country's business and properties or afford any such other party access to
Town & Country's properties, books or records or otherwise assist or
encourage any such other party in connection with the foregoing; or (C)
furnish or cause to be furnished any information concerning the business,
financial condition, operations, properties or prospects of Town & Country
to another person, having any actual or prospective role with respect to any
such transaction, provided, however, that the Town & Country shall not be
prohibited from reviewing or responding in any way to unsolicited proposals
involving such transactions.
(iii) Town & Country shall notify Capital Corp immediately of the details
of any indication of interest of any person, corporation, firm, association
or group to acquire by any means a controlling interest in it or engage in
any Business Combination with it.
(e) CHANGES IN CAPITAL STOCK; DIVIDENDS. At or after the date hereof and at
or prior to the Effective Date, except with the prior written consent of Capital
Corp or as otherwise provided in this Agreement:
(i) Town & Country shall not amend its Articles of Incorporation or
Bylaws; make any change in its authorized, issued or outstanding capital
stock or any other equity security; issue, sell, pledge, assign or otherwise
encumber or dispose of, or purchase, redeem or otherwise acquire, any of its
shares of capital stock or other equity securities or enter into any
agreement, call or commitment of any character to do so; grant or issue any
stock option relating to, right to acquire, or security convertible into,
shares of its capital stock or other equity security; purchase, redeem,
retire or otherwise acquire (other than in a fiduciary capacity) any shares
of, or any security convertible into, capital stock or other equity security
of its companies, or agree to do any of the foregoing, except as expressly
provided herein; and
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(ii) Except as permitted in Section 3.3(b), Town & Country shall not
declare, set aside or pay any cash or stock dividend or other distribution
in respect of its common stock other than its regular annual cash dividend
on its common stock in amounts paid in accordance with its policy as
described to Capital Corp.
(f) EMPLOYEE WELFARE BENEFIT PLANS. Town & Country agrees that its employee
welfare benefit plans, as defined in Section 3(1) of ERISA, may be terminated,
frozen, modified or merged into Capital Corp's employee welfare benefit plans as
of or after the Effective Date, as determined by Capital Corp, in each case
consistent with Section 4980B of the Internal Revenue Code ("IRC"). On the
Effective Date, Town & Country employees will commence participation in Capital
Corp's welfare benefit plans on the same terms as Capital Corp employees, with
credit for their period of employment by Town & Country.
(g) SHAREHOLDER LISTS AND OTHER INFORMATION. After execution hereof, Town &
Country shall from time to time make available to Capital Corp, upon request, a
list of its shareholders and their addresses, a list showing all transfers of
the its common stock and such other information as Capital Corp shall reasonably
request regarding both the ownership and prior transfers of Town & Country's
common stock.
(h) CAPITAL COMMITMENTS AND EXPENDITURES. After the execution of this
Agreement, except for the Fresno branch which Town & Country has agreed to
proceed with and which has been approved by Capital Corp, no new capital
commitments shall be entered into and no capital expenditures shall be made by
Town & Country, including but not limited to creation of any new branches and
acquisitions or leases of real property, except commitments or expenditures
within existing operating and capital budgets furnished to and approved by
Capital Corp and commitments and expenditures not exceeding $15,000 in the
aggregate.
3.3 COVENANTS OF CAPITAL CORP.
(a) CONDUCT OF BUSINESS IN THE ORDINARY COURSE. Prior to the Effective Date:
(i) In the event that Capital Corp undertakes any transaction or series
of transactions outside the ordinary course of business prior to the
Effective Date, as soon as is practicable following the determination to
proceed with such a transaction or transactions, Capital Corp shall advise
the board of directors of Town & Country of such determination. For purposes
of this Agreement, the "Ordinary Course" of Capital Corp shall consist of
the banking and related businesses as presently conducted by it and its
subsidiaries and permitted under applicable banking laws. Unless Town &
Country has given its previous written consent to any act or omission to the
contrary, Capital Corp shall, until the Effective Date, cause its officers
to:
(A) preserve its business and business organizations intact;
(B) preserve the good will of customers and others having business
relations with it and take no action that would impair the benefit to the
other party of the goodwill of it or the other benefits of the
Acquisition;
(C) maintain its properties in customary repair, working order and
condition (reasonable wear and tear excepted);
(D) comply with all laws, regulations and decrees applicable to the
conduct of its business;
(E) use its best efforts to keep in force at not less than its
present limits all policies of insurance, including deposit insurance of
the FDIC, to the extent reasonably practicable in light of the prevailing
market conditions in the insurance industry;
(F) comply with all orders, agreements and memoranda of understanding
with respect to it made by or with any regulatory authority of competent
jurisdiction;
(G) file in a timely manner (taking into account any extensions duly
obtained) all reports, tax returns and other documents required to be
filed with federal, state, local and other authorities;
(H) not sell, lease, pledge, assign, encumber or otherwise dispose of
any of its assets except for adequate value, without recourse and
consistent with its customary practice; and
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(I) not make, renegotiate, renew, increase, extend or purchase any
loans, advances or loan commitments, in each case to any of its officers,
directors or any affiliated or related persons of such directors or
officers except in the Ordinary Course consistent with its established
loan procedures and in compliance with FRB Regulation O.
(b) CHANGES IN CAPITAL STOCK; DIVIDENDS. At or after the date hereof and at
or prior to the Effective Date, except with the prior written consent of Town &
Country or as otherwise provided in this Agreement, Capital Corp shall not
declare, set aside or pay any cash dividend or other distribution in respect of
its common stock other than, in the discretion of the board of directors of
Capital Corp, for the year 1996 a cash dividend not to exceed $0.10 per share on
its common stock; provided, however, in the event that the Acquisition has not
been consummated and the failure to consummate the Acquisition is through no
fault or action or inaction of Town & Country, then the board of directors of
Capital Corp shall delay the record date of such dividend to a date following
the Effective Date, but not later than September 30, 1996. Should the
consummation of the Acquisition be delayed beyond September 30, 1996 through no
fault or action or inaction of Town & Country, then Capital Corp may proceed to
declare and distribute the dividend contemplated hereby provided that, in such
case, Town & County will be permitted immediately preceding the Effective Date
to declare and distribute to its shareholders a per share dividend equal to the
aggregate amount the Town & Country shareholders would have received on account
of such dividend if the Acquisition had been completed before payment of Capital
Corp's dividend (based on the computation of the Stock Component as set forth in
Section 2.1(a) and assuming a Cash Component of $1,800,000) divided by the total
outstanding shares of Town & Country, provided that the aggregate amount of such
dividend shall not exceed the after tax earnings of Town & Country from June 30,
1996 through the Effective Date.
(c) INDEMNIFICATION; INSURANCE. Capital Corp shall immediately or shall
cause Town & Country or its successors or assigns to indemnify the director(s)
of Town & Country who are hereafter made or threatened to be made a party to any
proceeding by reason of the fact that the director(s) is or was an agent of Town
& Country, to the extent permitted and in the manner specified by California
Corporations Code (the "Code") Section 317, provided such director(s) acted in
good faith and in a manner that the director(s) reasonably believed was in the
best interests of Town & Country, and such director(s) had no reasonable cause
to believe that his or her conduct was unlawful; provided, however, that no such
indemnification shall be provided for any of the acts or conduct for which
indemnification is prohibited as specified in Sections 204(a)(10), 204(a)(11) or
317 of the Code. As of the Effective Date, Capital Corp will request that its
insurance carrier for directors' and officers' liability insurance add Town &
Country as a named subsidiary for purposes of such insurance coverage.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF TOWN & COUNTRY.
Town & Country represents and warrants to Capital Corp that, except as set
forth on a Schedule attached to this Agreement and corresponding in number with
the applicable section:
4.1 CORPORATE STATUS AND POWER TO ENTER INTO AGREEMENTS. (i) Town & Country
is a corporation duly incorporated, validly existing and in good standing under
California law, (ii) subject to the Government Approvals and to the approval of
this Agreement and the transactions contemplated hereby by the shareholders of
Town & Country, Town & Country has all necessary corporate power to enter into
this Agreement and the Merger Agreement and to carry out all of the terms and
provisions hereof and thereof to be carried out by it, (iii) Town & Country
holds a currently valid license issued by the California Commissioner of
Corporations (the "Commissioner") to engage in the industrial loan company
business in California at its principal office in Turlock, California, and at
each of its existing branch offices and (iv) Town & Country is not subject to
any order of the FDIC, the Commissioner or any other regulatory authority having
jurisdiction over its business or any of its assets or properties. Neither the
scope of the business of Town & Country nor the location of its properties
requires it to be licensed to do business in any jurisdiction other than the
State of California. Town & Country's deposits are insured by the FDIC to the
maximum extent permitted by applicable law and regulation.
4.2 ARTICLES, BYLAWS, BOOKS AND RECORDS. The copies of the Articles of
Incorporation and Bylaws of Town & Country heretofore delivered to Capital Corp
are complete and accurate copies thereof as in effect
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on the date hereof. The minute books of Town & Country made available to Capital
Corp contain a complete and accurate record of all meetings of Town & Country's
Board of Directors (and committees thereof) and shareholders. The corporate
books and records (including financial statements) of Town & Country fairly
reflect the material transactions to which Town & Country is a party or by which
its properties are subject or bound, and such books and records have been
properly kept and maintained.
4.3 COMPLIANCE WITH LAWS, REGULATIONS AND DECREES. Town & Country (i) has
the corporate power to own or lease its properties and to conduct its business
as currently conducted, (ii) has complied with, and is not in default of any
laws, regulations, ordinances, orders or decrees applicable to the conduct of
its business and the ownership of its properties, including but not limited to
all federal and state laws (including but not limited to the Bank Secrecy Act),
rules and regulations relating to the offer, sale or issuance of securities, and
the operation of an industrial loan company other than where such noncompliance
or default is not likely to result in a material limitation on the conduct of
its business or is not likely to otherwise have a material adverse effect on
Town & Country taken as a whole, (iii) has not failed to file with the proper
federal, state, local or other authorities any material report or other document
required to be filed, and (iv) has all approvals, authorizations, consents,
licenses, clearances and orders of, and has currently effective all
registrations with, all governmental and regulatory authorities which are
necessary to the business and operations of Town & Country as now being
conducted.
4.4 CAPITALIZATION. The authorized capital stock of Town & Country consists
of 5,000,000 shares of Town & Country common stock, no par value, of which
168,156 are duly authorized, validly issued, fully paid and nonassessable and
currently outstanding. Said stock has been issued in compliance with all
applicable securities laws. There are no outstanding (A) options, agreements,
calls or commitments of any character which would obligate Town & Country to
issue, sell, pledge, assign or otherwise encumber or dispose of, or to purchase,
redeem or otherwise acquire, any Town & Country common stock or any other equity
security of Town & Country, or (B) warrants or options relating to, rights to
acquire, or debt or equity securities convertible into, shares of Town & Country
common stock or any other equity security of Town & Country.
4.5 EQUITY INTEREST IN ANY ENTITY. Except as collateral for outstanding
loans held in its loan portfolio, Town & Country does not own, directly or
indirectly, any equity interest in any bank, corporation or other entity.
4.6 FINANCIAL STATEMENTS, REGULATORY REPORTS. No financial statement or
other document to be provided to Capital Corp by Town & Country under this
Agreement, as of the date of such document, contained, or as to documents to be
delivered after the date hereof, will contain, any untrue statement of a
material fact, or, at the date thereof, omitted or will omit to state a material
fact necessary in order to make the statements contained therein, in light of
the circumstances under which such statements were or will be made, not
misleading; provided, however, that information as of a later date shall be
deemed to modify information as of any earlier date. Town & Country has filed
all material documents and reports required to be filed by it with the FDIC, the
Commissioner and any other governmental authority having jurisdiction over its
business or any of its assets or properties. All such reports conform in all
material respects with the requirements promulgated by such regulatory agencies.
All compliance or corrective action relating to Town & Country required by
governmental authorities and regulatory agencies having jurisdiction over Town &
Country have been taken, including compliance with the requirements concerning
the maintenance of the allowance for loan losses as required by the FDIC in its
most recent Report of Examination dated April 24, 1995. Town & Country has not
received any notification, formally or informally, from any agency or department
of any federal, state or local government or any regulatory agency or the staff
thereof (i) asserting that it is not in compliance with any of the statutes,
regulations or ordinances which such government or regulatory authority
enforces, or (ii) threatening to revoke any license, franchise, permit or
governmental authorization. Town & Country has paid all assessments made or
imposed by any governmental agency. Town & Country has delivered to Capital Corp
copies of all annual management letters and opinions, and has made available to
Capital Corp for inspection all reviews, correspondence and other documents in
the files of Town & Country prepared by its independent accounting firm
delivered to Town & Country since December 31, 1995. The financial records of
Town & Country have been, and are being and
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shall be, maintained in all material respects in accordance with all applicable
legal and accounting requirements sufficient to insure that all transactions
reflected therein are, in all material respects, executed in accordance with
management's general or specific authorization and recorded in conformity with
generally accepted accounting principles at the time in effect. The data
processing equipment, data transmission equipment, related peripheral equipment
and software used by Town & Country in the operation of its business to generate
and retrieve its financial records are adequate for the current needs of Town &
Country.
4.7 TAX RETURNS.
(i) Town & Country has timely filed all federal, state, county, local
and foreign tax returns required to be filed by it, including, without
limitation, estimated tax, use tax, excise tax, real property and personal
property tax reports and returns, employer's withholding tax returns, other
withholding tax returns and Federal Unemployment Tax Returns, and all other
reports or other information required or requested to be filed by it, and
each such return, report or other information was, when filed, complete and
accurate in all material respects. Town & Country has paid all taxes, fees
and other governmental charges, including any interest and penalties
thereon, when they have become due, except those that are being contested in
good faith, which contested matters have been disclosed to Capital Corp.
Town & Country has not been requested to give or has given any currently
effective waivers extending the statutory period of limitation applicable to
any tax return required to be filed by it for any period. Other than as
disclosed in writing to Capital Corp, there are no claims pending against
Town & Country for any alleged deficiency in the payment of any taxes, and
Town & Country does not know of any pending or threatened audits,
investigations or claims for unpaid taxes or relating to any liability in
respect of any taxes. As to such tax claims, Town & Country has accrued on
its books an amount that is believed to be sufficient to pay all such taxes,
including interest and penalties that may be due, and has reduced tangible
shareholders' equity by such amount. There has been no event, including a
change in ownership, that would result in a reappraisal and establishment of
a new base-year full value for purposes of Article XIII.A of the California
Constitution, of any real property owned in whole or in part by Town &
Country or to the best of Town & Country's knowledge, of any real property
leased by Town & Country.
(ii) Town & Country has delivered to Capital Corp copies of all its tax
returns with respect to taxes payable to the United States of America and
the State of California for the fiscal years ended December 31, 1993 and
1994.
(iii) No consent has been filed relating to Town & Country pursuant to
Section 341(f) of the IRC.
4.8 MATERIAL ADVERSE CHANGE. Except as heretofore disclosed in writing by
Town & Country to Capital Corp, since December 31, 1995, there has been (i) no
material adverse change in the business, assets, licenses, permits, franchises,
results of operations or financial condition of Town & Country (whether or not
in the Ordinary Course), (ii) no change in any of the assets, licenses, permits
or franchises of Town & Country that has had or can reasonably be expected to
have a material adverse effect on any of the items listed in clause (i) above,
(iii) no damage, destruction, or other casualty loss (whether or not covered by
insurance) that has had or can reasonably be expected to have a material adverse
effect on any of the items listed in clause (i) above, (iv) no amendment,
modification, or termination of any existing, or entering into of any new,
contract, agreement, plan, lease, license, permit or franchise that is material
to the business, financial condition, assets, liabilities or operations of Town
& Country, except in the Ordinary Course; and (v) no disposition by Town &
Country of one or more assets that, individually or in the aggregate, are
material to Town & Country, except sales of assets in the Ordinary Course.
4.9 NO UNDISCLOSED LIABILITIES. Except for items for which reserves have
been established in the audited balance sheets of Town & Country as of December
31, 1995, Town & Country has not incurred or discharged, and is not legally
obligated with respect to any indebtedness, liability (including, without
limitation, a liability arising out of an indemnification, guarantee, hold
harmless or similar arrangement) or obligation (accrued or contingent, whether
due or to become due, and whether or not subordinated to the claims of its
general creditors), other than as a result of operations in the Ordinary Course
after such date. No agreement pursuant to which any loans or other assets have
been or will be sold by Town & Country
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entitled the buyer of such loans or other assets, unless there is material
breach of a representation or covenant by the seller, to cause Town & Country to
repurchase such loan or other asset or the buyer to pursue any other form of
recourse against Town & Country. Town & Country has not knowingly made and shall
not make any representation or covenant in any such agreement that contained or
shall contain any untrue statement of a material fact or omitted or shall omit
to state a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which such representations and/ or
covenants were made or shall be made, not misleading. Other than the dividend
specifically provided for in Section 3.2(e)(ii), no cash, stock or other
dividend or any other distribution with respect to the stock of Town & Country
has been declared, set aside or paid, nor have any shares of the stock of Town &
Country been purchased, redeemed or otherwise acquired, directly or indirectly,
by Town & Country since December 31, 1995.
4.10 PROPERTIES AND LEASES.
(a) Town & Country has good and marketable title, free and clear of all
liens and encumbrances and the right of possession, subject to existing
leaseholds, to all real properties and good title, free and clear of all liens
and encumbrances, to all other property and assets, tangible and intangible,
reflected in the Town & Country balance sheet as of December 31, 1995 (except
property held as lessee under leases disclosed in writing prior to the date
hereof and except personal property sold or otherwise disposed of since December
31, 1995, in the Ordinary Course), except (i) liens for taxes or assessments not
delinquent, (ii) such other liens and encumbrances and imperfections of title as
do not materially affect the value of such property as reflected in the Town &
Country balance sheet as of December 31, 1995, or as currently shown on the
books and records of Town & Country and which do not interfere with or impair
its present and continued use, or (iii) exceptions disclosed in title reports
and preliminary title reports, copies of which have been provided to Capital
Corp. All tangible properties of Town & Country conform in all material respects
with all applicable ordinances, regulations and zoning laws. All tangible
properties of Town & Country are in a good state of maintenance and repair and
are adequate for the current business of Town & Country. No properties of Town &
Country, and, to the best of Town & Country's knowledge, no properties in which
it holds a collateral or contingent interest or purchase option, are the subject
of any pending or threatened investigation, claim or proceeding relating to the
use, storage or disposal on such property of or contamination of such property
by any toxic or hazardous waste material or substance. To the best of Town &
Country's knowledge, Town & Country does not own, possess or have a collateral
or contingent interest or purchase option in any properties or other assets
which contain or have located within or thereon any hazardous or toxic waste
material or substance unless the location of such hazardous or toxic waste
material or other substance or its use thereon conforms in all material respect
with all federal, state and local laws, rules, regulations or other provisions
regulating the discharge of materials into the environment. As to any asset not
owned or leased by Town & Country, Town & Country has not controlled, directed
or participated in the operation or management of any such asset or any
facilities or enterprise conducted thereon, such that it has become an owner or
operator of such asset under applicable environmental laws.
(b) All properties held by Town & Country under leases are held by it under
valid, binding and enforceable leases, with such exceptions as are not material
and do not interfere with the conduct of the business of Town & Country, and
Town & Country enjoys quiet and peaceful possession of such leased property.
Town & Country is not in default in any respect under any material lease,
agreement or obligation regarding its properties to which it is a party or by
which it is bound.
(c) Except as disclosed to Capital Corp in writing, all of Town & Country's
rights and obligations under the leases referred to in Section (b) above do not
require the consent of any other party to the transactions contemplated by this
Agreement and the Merger Agreement. Where required, Town & Country shall obtain,
prior to the Effective Date, the consent of all parties to any such transaction.
4.11 MATERIAL CONTRACTS. Except as previously disclosed to Capital Corp in
writing and excluding loans, lines of credit, loan commitments or letters of
credit to which Town & Country is a party, Town & Country is not a party to or
bound by any contract or other agreement made in the Ordinary Course which
involves aggregate future payments by or to Town & Country of more than $20,000
and which is made for a
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fixed period expiring more than one year from the date hereof, and Town &
Country is not a party to or bound by any agreement not made in the Ordinary
Course which is to be performed at or after the date hereof. Each of the
contracts and agreements disclosed to Capital Corp pursuant to this Section is a
legal and binding obligation (subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and subject, as to
enforceability, to equitable principles of general applicability), and no
material breach or default (and no condition which, with notice or passage of
time, or both, could become a material breach or default) exists with respect
thereto.
4.12 LOANS. Town & Country has disclosed to Capital Corp in writing prior
to the date hereof, and will promptly inform Capital Corp of the amounts of all
loans, leases, other extensions of credit or commitments, or other
interest-bearing assets of Town & Country, that have been classified as of the
date hereof or hereafter by any internal bank examiner or any bank regulatory
agency or the Commissioner as "Other Loans Specially Mentioned," "Special
Mention," "Substandard," "Doubtful," "Loss," or words of similar import in the
case of loans (or that would have been so classified, in the case of other
interest-bearing assets, had they been loans). Town & Country has furnished and
will continue to furnish to Capital Corp true and accurate information
concerning the loan portfolio of Town & Country, and no material information
with respect to the loan portfolio has been or will be withheld from Capital
Corp. All loans and investments of Town & Country are legal, valid and binding
obligations enforceable in accordance with its terms and are not subject to any
setoffs, counterclaims or disputes (subject to applicable bankruptcy, insolvency
and similar laws affecting creditors' rights generally and subject, as to
enforceability, to equitable principles of general applicability), except as
disclosed to Capital Corp in writing or reserved for in the unaudited balance
sheet of Town & Country as of December 31, 1995, and were duly authorized under
and made in compliance with applicable federal and state laws and regulations.
Town & Country does not have any extensions of credit, investments, guarantees,
indemnification agreements or commitments for the same (including without
limitation commitments to issue letters of credit, to create acceptances, or to
repurchase securities, federal funds or other assets) other than those
documented on the books and records of Town & Country.
4.13 RESTRICTIONS ON INVESTMENTS. Except for pledges to secure public and
trust deposits and repurchase agreements in the Ordinary Course, none of the
investments reflected in the Town & Country unaudited balance sheet as of
December 31, 1995, and none of the investments made by Town & Country since
December 31, 1995, is subject to any restriction, whether contractual or
statutory, which materially impairs the ability of Town & Country to freely
dispose of such investment at any time except as restricted by any applicable
banking, securities or government regulations.
4.14 EMPLOYMENT CONTRACTS AND BENEFITS.
(a) Town & Country shall deliver to Capital Corp an accurate list setting
forth all bonus, incentive compensation, profit-sharing, pension, retirement,
stock purchase, stock option, deferred compensation, severance, hospitalization,
medical, dental, vision, group insurance, death benefits, disability and other
fringe benefit plans, trust agreements, arrangements and commitments of Town &
Country (including but not limited to such plans, agreements, arrangements and
commitments applicable to former employees or retired employees, or for which
such persons are eligible), if any, together with copies of all such plans,
agreements, arrangements and commitments that are documented, any and all
contracts of employment and has made available to Capital Corp any Board of
Directors' minutes (or committee minutes) authorizing, approving or guaranteeing
such plans and contracts.
(b) All contributions, premiums or other payments due from Town & Country
and its subsidiaries to (or under) any plan listed in subsection (a) have been
fully paid or adequately provided for on its audited financial statements for
the year ended December 31, 1995. All accruals thereon (including, where
appropriate, proportional accruals for partial periods) have been made in
accordance with generally accepted accounting principles consistently applied on
a reasonable basis.
(c) To the best of Town & Country's knowledge, each plan listed in
subsection (a) complies with all applicable requirements of (i) the Age
Discrimination in Employment Act of 1967, as amended, and the regulations
thereunder and (ii) Title VII of the Civil Rights Act of 1964, as amended, and
the regulations thereunder.
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(d) To the best of Town & Country's knowledge, each plan listed in
subsection (a) complied with all applicable requirements of the health care
continuation coverage provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 and the regulations thereunder.
(f) Town & Country has heretofore disclosed in writing to Capital Corp the
names of each director, officer and employee of Town & Country.
4.15 COMPLIANCE WITH ERISA. Town & Country has not, since its inception,
either maintained or contributed to an employee pension benefit plan, as defined
in Section 3(2) of ERISA, including multi-employer plans, other than the Town &
Country 401(k) Profit Sharing Plan (the "Town & Country Plan") which was
originally adopted by Town & Country on January 1, 1988 and amended and restated
as of June 12, 1991, and a true and accurate copy of which has been provided to
Capital Corp. With respect to the Town & Country Plan and its related trust (the
"Town & Country Trust"), as of the Effective Date (i) the Town & Country Plan
will in all material respects be (and currently is) in compliance with all the
applicable requirements of Section 401(a) of the IRC, and the Town & Country
Trust will be exempt from income tax under Section 501(a) of the IRC; (ii) the
Town & Country Plan is a adaptation of a prototype document which has received a
favorable opinion letter from the IRS, the qualified status of the Town &
Country Plan as adopted, under Section 401(a) of the IRC will be determined upon
the filing with the IRS of a request for a favorable determination to be made
before September 26, 1991, or such other date prescribed by the IRS, and the IRS
has not raised any question on audit or otherwise with respect to the qualified
status of the Town & Country Plan or the Town & Country Trust prior to the
Effective Date; (iii) Town & Country shall not have amended the Town & Country
Plan or administered the Town & Country Plan in such a manner that would
preclude the issuance of a favorable Determination Letter to the Town & Country
Plan and Trust; (iv) no contributions have exceeded the limitations set forth in
Section 415 of the IRC; (v) all required and necessary filings with the IRS,
Department of Labor and any other governmental agencies with respect to the Town
& Country Plan and Town & Country Trust for all periods ending at or prior to
the Effective Date will have been made on a timely basis by Town & Country and
the plan administrator; (vi) there shall have been no material violation of
Parts 1 and 4 of Subtitle B of Title I of ERISA or of Section 4975 of the IRC;
and (vii) there shall have been no action, claim or demand of any kind known to
Town & Country brought or threatened by any potential claimant or representative
of such claimant under the Town & Country Plan or Town & Country Trust where
Town & Country may be either (A) liable directly on such action, claim or
demand, or (B) obligated to indemnify any person, group of persons or entity
with respect to such action, claim or demand, unless such action, claim or
demand is covered by adequate reserves reflected in Town & Country's December
31, 1995 unaudited financial statements or an insurer of Town & Country has
agreed to defend against and pay the amount of any resulting liability without
reservation.
4.16 COLLECTIVE BARGAINING AND EMPLOYMENT AGREEMENTS. Except as provided in
this Agreement or as previously disclosed to Capital Corp in writing, Town &
Country does not have any union or collective bargaining or written employment
agreements, contracts or other agreements with any labor organization or with
any member of management, or any management or consultation agreement not
terminable at will by Town & Country without liability and no such contract or
agreement has been requested by, or is under discussion by management with, any
group of employees, any member of management or any other person. There are no
material controversies pending between Town & Country and any current or former
employees, and to the best of Town & Country's knowledge, there are no efforts
presently being made by any labor union seeking to organize any of such
employees.
4.17 COMPENSATION OF OFFICERS AND EMPLOYEES. Except as previously disclosed
to Capital Corp in writing, (i) no officer or employee of Town & Country is
receiving aggregate direct remuneration at a rate exceeding $60,000 per annum,
and (ii) the consummation of the transactions contemplated by this Agreement and
the Merger Agreement will not (either alone or upon the occurrence of any
additional or further acts or events) result in any payment (whether of
severance pay or otherwise) becoming due from Town & Country or Capital Corp to
any employee of Town & Country.
4.18 LEGAL ACTIONS AND PROCEEDINGS. Except as previously disclosed to
Capital Corp in writing, Town & Country is not a party to, or so far as either
of them is aware, threatened with, and to Town &
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Country's knowledge, there is no reasonable basis for, any legal action or other
proceeding or investigation before any court, any arbitrator of any kind or any
government agency, and Town & Country is not subject to any potential adverse
claim, the outcome of which could involve the payment or receipt by Town &
Country of any amount in excess of $50,000, unless an insurer of Town & Country
has agreed to defend against and pay the amount of any resulting liability
without reservation, or, if any such legal action, proceeding, investigation or
claim will not involve the payment by Town & Country of a monetary amount, which
could materially adversely affect Town & Country or its business or property or
the transactions contemplated hereby. Town & Country has no knowledge of any
pending or threatened claims or charges under the Community Reinvestment Act,
before the Equal Employment Opportunity Commission, the California Department of
Fair Housing & Economic Development, the California Unemployment Appeals Board,
or any human relations commission. There is no labor dispute, strike, slow-down
or stoppage pending or, to the best of the knowledge of Town & Country,
threatened against Town & Country.
4.19 EXECUTION AND DELIVERY OF THE AGREEMENT.
(a) The execution and delivery of this Agreement have been duly authorized
by the Board of Directors of Town & Country and, when the Acquisition, this
Agreement and the Merger Agreement have been duly approved by the affirmative
vote of the holders of a majority of the outstanding shares of Town & Country
common stock at a meeting of shareholders duly called and held, the Acquisition,
this Agreement and the Merger Agreement will be duly and validly authorized by
all necessary corporate action on the part of Town & Country.
(b) This Agreement has been duly executed and delivered by Town & Country
and (assuming due execution and delivery by Capital Corp) constitutes, and the
Merger Agreement upon its execution and delivery by Town & Country (and assuming
due execution and delivery by Capital Corp) will constitute, legal and binding
obligations of Town & Country in accordance with its terms.
(c) The execution and delivery by Town & Country of this Agreement and the
Merger Agreement and the consummation of the transactions herein and therein
contemplated (i) do not violate any provision of the Articles of Incorporation
or Bylaws of Town & Country or, to the best of Town & Country's knowledge, any
provision of federal or state law or any governmental rule or regulation
(assuming (A) receipt of the Government Approvals, (B) receipt of the requisite
Town & Country shareholder approval, (C) due registration of the Capital Corp
Shares under the Securities Act of 1933, as amended (the "1933 Act"), (D)
receipt of appropriate permits or approvals under state securities or "blue sky"
laws, and (E) accuracy of the representations of Capital Corp set forth herein),
and (ii) to the best of Town & Country's knowledge, do not require any consent
of any person under, conflict with or result in a breach of, or accelerate the
performance required by any of the terms of, any material debt instrument,
lease, license, covenant, agreement or understanding to which Town & Country is
a party or by which it is bound or any order, ruling, decree, judgment,
arbitration award or stipulation to which Town & Country is subject, or
constitute a default thereunder or result in the creation of any lien, claim,
security interest, encumbrance, charge, restriction or right of any third party
of any kind whatsoever upon any of the properties or assets of Town & Country.
4.20 RETENTION OF BROKER OR CONSULTANT. No broker, agent, finder,
consultant or other party (other than legal, compliance, loan auditors and
accounting advisors) has been retained by Town & Country or is entitled to be
paid based upon any agreements, arrangements or understandings made by Town &
Country in connection with any of the transactions contemplated by this
Agreement or the Merger Agreement, except that Town & Country has engaged
Williams Gregg, Inc. to act as its financial advisor and to render an opinion
regarding the fairness of the Acquisition. Town & Country shall provide Capital
Corp with a true and accurate copy of its agreement(s) with such firm.
4.21 INSURANCE. Town & Country is and continuously since its inception has
been, insured with reputable insurers against all risks normally insured against
by thrift and loan companies, and all of the insurance policies and bonds
maintained by Town & Country are in full force and effect, Town & Country is not
in default thereunder and all material claims thereunder have been filed in due
and timely fashion. In the best judgment of the management of Town & Country,
such insurance coverage is adequate for Town &
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Country. Except as disclosed to Capital Corp in writing, there has not been any
damage to, destruction of, or loss of any assets of Town & Country not covered
by insurance that could materially and adversely affect the business, financial
condition, properties, assets or results of operations of Town & Country.
4.22 LOAN LOSS RESERVES. To the knowledge of Town & Country's management,
the allowance for loan losses in the Town & Country balance sheet dated December
31, 1995, and as of the Effective Date are and will be adequate in all material
respects under the requirements of all applicable state and federal laws and
regulations to provide for possible loan losses on outstanding loans, net of
recoveries, including compliance with the comments of the FDIC in its most
recent Report of Examination dated April 24, 1995.
4.23 TRANSACTIONS WITH AFFILIATES. Except as may arise in the Ordinary
Course, Town & Country has not extended credit, committed itself to extend
credit, or transferred any asset to or assumed or guaranteed any liability of
the employees or directors of Town & Country, or any spouse or child of any of
them, or to any of their "affiliates" or "associates" as such terms are defined
in Rule 405 under the 1933 Act. Town & Country has not entered into any other
transactions with the employees or directors of Town & Country or any spouse or
child of any of them, or any of their affiliates or associates, except as
disclosed in writing to Capital Corp. Any such transactions have been on terms
no less favorable to Town & Country than those which would prevail in an
arms-length transaction with an independent third party.
4.24 INFORMATION IN CAPITAL CORP REGISTRATION STATEMENT. The information
pertaining to Town & Country which has been or will be furnished to Capital Corp
for or on behalf of Town & Country for inclusion in the Capital Corp
Registration Statement and the Proxy Materials, or in the applications to be
filed to obtain the Government Approvals (the "Applications"), does not and will
not contain any untrue statement of any material fact or omits or will omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading; provided, however, that information of a later date shall be deemed
to modify information as of an earlier date. All financial statements of Town &
Country included in the Proxy Materials will present fairly the financial
condition and results of operations of Town & Country at the dates and for the
periods covered by such statements in accordance with generally accepted
accounting principles consistently applied throughout the periods covered by
such statements. Town & Country shall promptly advise Capital Corp in writing if
prior to the Effective Date Town & Country shall obtain knowledge of any facts
that would make it necessary to amend or supplement the Capital Corp
Registration Statement, the Proxy Materials or the Applications, in order to
make the statements therein not misleading or to comply with applicable law.
4.25 ACCURACY OF REPRESENTATIONS AND WARRANTIES. No representation or
warranty by Town & Country, and no statement by Town & Country in any
certificate, agreement, schedule or other document furnished in connection with
the transactions contemplated by this Agreement or the Merger Agreement,
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary to make such representation,
warranty or statement not misleading to Capital Corp; provided, however, that
information as of a later date shall be deemed to modify information as of an
earlier date.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF CAPITAL CORP.
Capital Corp represents and warrants to Town & Country that, except as set
forth on a Schedule attached to this Agreement and corresponding in number to
the appropriate section:
5.1 CORPORATE STATUS AND POWER TO ENTER INTO AGREEMENTS. (i) Capital Corp
is a corporation duly incorporated, validly existing and in good standing under
California law, and is a registered bank holding company under the Bank holding
Company Act of 1956, as amended, (ii) subject to the approval of this Agreement
and the transactions contemplated hereby by the FRB, Capital Corp has all
necessary corporate power to enter into this Agreement and the Merger Agreement
and to carry out all of the terms and provisions hereof and thereof to be
carried out by it, (iii) Capital Corp's bank subsidiary is duly licensed to
engage in the commercial banking business as now conducted by it, and (iv)
neither Capital Corp nor any of its subsidiaries is subject to any order of the
FRB, the FDIC, the Superintendent of Banking for the State of
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California ("Superintendent") or any other regulatory authority having
jurisdiction over its business or any of its assets or properties. Neither the
scope of the business of Capital Corp nor the location of its properties
requires it to be licensed to do business in any jurisdiction other than the
State of California.
5.2 ARTICLES, BYLAWS, BOOKS AND RECORDS. The copies of the Articles of
Incorporation and Bylaws of Capital Corp made available to Town & Country are
complete and accurate copies thereof as in effect on the date hereof. The minute
books of Capital Corp contain a complete and accurate record of all meetings of
Capital Corp's Board of Directors (and committees thereof) and shareholders. The
corporate books and records (including financial statements) of Capital Corp
fairly reflect the material transactions to which Capital Corp is a party or by
which its properties are subject or bound, and such books and records have been
properly kept and maintained.
5.3 COMPLIANCE WITH LAWS, REGULATIONS AND DECREES. Capital Corp (i) has the
corporate power to own or lease its properties and to conduct its business as
currently conducted, (ii) has complied with, and is not in default of any laws,
regulations, ordinances, orders or decrees applicable to the conduct of its
business and the ownership of its properties, including but not limited to all
federal and state laws (including but not limited to the Bank Secrecy Act),
rules and regulations relating to the offer, sale or issuance of securities, and
the operation of a commercial bank, other than where such noncompliance or
default is not likely to result in a material limitation on the conduct of the
business of Capital Corp or is not likely to otherwise have a material adverse
effect on Capital Corp taken as a whole, (iii) has not failed to file with the
proper federal, state, local or other authorities any material report or other
document required to be to filed, and (iv) has all approvals, authorizations,
consents, licenses, clearances and orders of, and has currently effective all
registrations with, all governmental and regulatory authorities which are
necessary to the business and operations of Capital Corp as now being conducted.
5.4 CAPITALIZATION. The authorized capital stock of Capital Corp consists
of 20,000,000 shares of Capital Corp common stock, no par value, of which
1,334,956 are duly authorized, validly issued, fully paid and nonassessable and
currently outstanding and 10,000,000 shares of preferred stock, none of which
are issued or outstanding. Said stock has been issued in compliance with all
applicable securities laws. There are currently outstanding options to purchase
186,608 shares of Capital Corp common stock, at a weighted average exercise
price of $10.56 per share, issued pursuant to its 1992 Stock Option Plan. Said
options were issued and, upon issuance in accordance with the terms of the
outstanding options said shares shall be issued, in compliance with all
applicable securities laws. Otherwise, there are no outstanding (i) options,
agreements, calls or commitments of any character which would obligate Capital
Corp to issue, sell, pledge, assign or otherwise encumber or dispose of, or to
purchase, redeem or otherwise acquire, any Capital Corp common stock or any
other equity security of Capital Corp, or (ii) warrants or options relating to,
rights to acquire, or debt or equity securities convertible into, shares of
Capital Corp common stock or any other equity security of Capital Corp. The
outstanding common stock of Capital Corp has been duly and validly registered
with the Commission pursuant to the 1934 Act, to the extent required thereunder.
5.5 FINANCIAL STATEMENTS, REGULATORY REPORTS. No financial statement or
other document to be provided to Town & Country by Capital Corp under this
Agreement, as of the date of such document, contained, or as to documents to be
delivered after the date hereof, will contain, any untrue statement of a
material fact, or, at the date thereof, omitted or will omit to state a material
fact necessary in order to make the statements contained therein, in light of
the circumstances under which such statements were or will be made, not
misleading; provided, however, that information as of a later date shall be
deemed to modify information as of any earlier date. Capital Corp has filed all
material documents and reports required to be filed by it with the FRB, the
Commission and any other governmental authority having jurisdiction over its
business or any of its assets or properties. All such reports conform in all
material respects with the requirements promulgated by such regulatory agencies.
All compliance or corrective action relating to Capital Corp required by
governmental authorities and regulatory agencies having jurisdiction over
Capital Corp or any of its bank subsidiaries have been taken. Capital Corp has
not received any notification, formally or informally, from any agency or
department of any federal, state or local government or any regulatory agency or
the staff thereof (i) asserting that it is not in compliance with any of the
statutes, regulations or ordinances which such government or regulatory
authority enforces, or (ii) threatening to revoke any license,
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franchise, permit or governmental authorization of Capital Corp. Capital Corp
has paid all assessments made or imposed by any governmental agency. Capital
Corp has delivered to Town & Country copies of all annual management letters and
opinions, and has made available to Town & Country for inspection all reviews,
correspondence and other documents in the files of Capital Corp prepared by KPMG
Peat Marwick or any other certified public accountant engaged by Capital Corp
and delivered to Capital Corp since December 31, 1995. The financial records of
Capital Corp have been, are being and shall be maintained in all material
respects in accordance with all applicable legal and accounting requirements
sufficient to insure that all transactions reflected therein are, in all
material respects, executed in accordance with management's general or specific
authorization and recorded in conformity with generally accepted accounting
principles at the time in effect. The data processing equipment, data
transmission equipment, related peripheral equipment and software used by
Capital Corp in the operation of its business to generate and retrieve its
financial records are adequate for the current needs of Capital Corp.
5.6 TAX RETURNS.
(a) Capital Corp has timely filed all federal, state, county, local and
foreign tax returns required to be filed by it, including, without limitation,
estimated tax, use tax, excise tax, real property and personal property tax
reports and returns, employer's withholding tax returns, other withholding tax
returns and Federal Unemployment Tax Returns, and all other reports or other
information required or requested to be filed by each of them, and each such
return, report or other information was, when filed, complete and accurate in
all material respects. Capital Corp has paid all taxes, fees and other
governmental charges, including any interest and penalties thereon, when they
have become due, except those that are being contested in good faith, which
contested matters have been disclosed to Town & Country. Except as set forth
below, neither Capital Corp nor any of its subsidiaries has been requested to
give or has given any currently effective waivers extending the statutory period
of limitation applicable to any tax return required to be filed by either of
them for any period. Except as set forth below, there are no claims pending
against Capital Corp or any of its subsidiaries for any alleged deficiency in
the payment of any taxes, and Capital Corp does not know of any pending or
threatened audits, investigations or claims for unpaid taxes or relating to any
liability in respect of any taxes.
(b) No consent has been filed relating to Capital Corp pursuant to Section
341(f) of the IRC.
5.7 MATERIAL ADVERSE CHANGE. Except as heretofore disclosed in writing by
Capital Corp to Town & Country, since December 31, 1995, there has been no
material adverse change in the business, assets, licenses, permits, franchises,
results of operations or financial condition of Capital Corp (whether or not in
the Ordinary Course).
5.8 LEGAL ACTIONS AND PROCEEDINGS. Except as previously disclosed to Town &
Country in writing, Capital Corp is not a party to, or so far as either of them
is aware, threatened with, and to Capital Corp's knowledge, there is no
reasonable basis for, any legal action or other proceeding or investigation
before any court, any arbitrator of any kind or any government agency, and
Capital Corp is not subject to any potential adverse claim, the outcome of which
could involve the payment or receipt by Capital Corp of any amount in excess of
$200,000, unless an insurer of Capital Corp has agreed to defend against and pay
the amount of any resulting liability without reservation, or, if any such legal
action, proceeding, investigation or claim will not involve the payment by
Capital Corp of a monetary amount, which could materially adversely affect
Capital Corp or its business or property or the transactions contemplated
hereby. Capital Corp has no knowledge of any pending or threatened claims or
charges under the Community Reinvestment Act, before the Equal Employment
Opportunity Commission, the California Department of Fair Housing & Economic
Development, the California Unemployment Appeals Board, or any human relations
commission. There is no labor dispute, strike, slow-down or stoppage pending or,
to the best of the knowledge of Capital Corp, threatened against Capital Corp.
5.9 EXECUTION AND DELIVERY OF THE AGREEMENT.
(a) The Acquisition, this Agreement and the Merger Agreement have been duly
and validly authorized by all necessary corporate action on the part of Capital
Corp.
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(b) This Agreement has been duly executed and delivered by Capital Corp and
(assuming due execution and delivery by Town & Country) constitutes, and the
Merger Agreement, upon its execution and delivery by Capital Corp (and assuming
due execution and delivery by Town & Country) will constitute, legal and binding
obligations of Capital Corp in accordance with its terms.
(c) The execution and delivery by Capital Corp of this Agreement and the
Merger Agreement and the consummation of the transactions herein and therein
contemplated (i) do not violate any provision of the Articles of Incorporation
or Bylaws of Capital Corp or, to the best of Capital Corp's knowledge, any
provision of federal or state law or any governmental rule or regulation
(assuming (A) receipt of the Government Approvals, (B) due registration of the
Capital Corp Shares under the 1933 Act, (C) receipt of appropriate permits or
approvals under state securities or "blue sky" laws, and (D) accuracy of the
representations of Town & Country set forth herein), and (ii) to the best of
Capital Corp's knowledge, do not require any consent of any person under,
conflict with or result in a breach of, or accelerate the performance required
by any of the terms of, any material debt instrument, lease, license, covenant,
agreement or understanding to which Capital Corp is a party or by which it is
bound or any order, ruling, decree, judgment, arbitration award or stipulation
to which Capital Corp is subject, or constitute a default thereunder or result
in the creation of any lien, claim, security interest, encumbrance, charge,
restriction or right of any third party of any kind whatsoever upon any of the
properties or assets of Capital Corp.
5.10 NO UNDISCLOSED LIABILITIES. Except for items for which reserves have
been established in the audited balance sheets of Capital Corp as of December
31, 1995, Capital Corp has not incurred or discharged, and is not legally
obligated with respect to any indebtedness, liability (including, without
limitation, a liability arising out of an indemnification, guarantee, hold
harmless or similar arrangement) or obligation (accrued or contingent, whether
due or to become due, and whether or not subordinated to the claims of its
general creditors), which would have a material effect on the capital or
earnings of Capital Corp other than as a result of operations in the Ordinary
Course after such date. Other than a possible cash dividend by Capital Corp
payable to shareholders of record as of July, 1996, no cash, stock or other
dividend or any other distribution with respect to the stock of Capital Corp has
been declared, set aside or paid, nor have any shares of the stock of Capital
Corp been purchased, redeemed or otherwise acquired, directly or indirectly, by
Capital Corp since December 31, 1995.
5.11 NO MATERIAL ENVIRONMENTAL LIABILITIES. To the best of Capital Corp's
knowledge, Capital Corp does not own, possess or have a collateral or contingent
interest or purchase option in any properties or other assets which contain or
have located within or thereon any hazardous or toxic waste material or
substance unless the location of such hazardous or toxic waste material or other
substance or its use thereon conforms in all material respect with all federal,
state and local laws, rules, regulations or other provisions regulating the
discharge of materials into the environment the liability of remediation for
which would cause a material adverse change in the capital or earnings of
Capital Corp.
5.12 NO MATERIAL LIABILITIES UNDER ERISA. No governmental agency or
claimant or representative of such claimant have alleged a material violation of
ERISA by Capital Corp the liability for which, if adversely determined, would
result in a material adverse change in the capital or earnings of Capital Corp.
5.13 RETENTION OF BROKER OR CONSULTANT. No broker, agent, finder,
consultant or other party (other than legal, compliance, loan auditors and
accounting advisors) has been retained by Capital Corp or is entitled to be paid
based upon any agreements, arrangements or understandings made by Capital Corp
in connection with any of the transactions contemplated by this Agreement or the
Merger Agreement, except that Capital Corp has retained Brookstreet Securities
Corporation to provide certain financial advisory services, including a fairness
opinion as to the Acquisition.
5.14 LOAN LOSS RESERVES. To the knowledge of Capital Corp's management, the
allowance for loan losses in the Capital Corp balance sheet dated December 31,
1995, and as of the Effective Date are and will be adequate in all material
respects under the requirements of all applicable state and federal laws and
regulations to provide for possible loan losses on outstanding loans, net of
recoveries, including compliance with the comments of the FDIC in its most
recent Report of Examination.
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5.15 INFORMATION IN CAPITAL CORP REGISTRATION STATEMENT. The information
pertaining to Capital Corp which has been or will be furnished for or on behalf
of Capital Corp for inclusion in the Capital Corp Registration Statement or the
Proxy Materials, or in the Applications, does not and will not contain any
untrue statement of any material fact or omits or will omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading; provided, however, that information of a later date shall be deemed
to modify information as of an earlier date. All financial statements of Capital
Corp included in the Proxy Materials will present fairly the financial condition
and results of operations of Capital Corp at the dates and for the periods
covered by such statements in accordance with generally accepted accounting
principles consistently applied throughout the periods covered by such
statements. Capital Corp shall promptly advise Town & Country in writing if
prior to the Effective Date Capital Corp shall obtain knowledge of any facts
that would make it necessary to amend the Capital Corp Registration Statement,
the Proxy Materials or any Application, or to supplement the prospectus, in
order to make the statements therein not misleading or to comply with applicable
law.
5.16 ACCURACY OF REPRESENTATIONS AND WARRANTIES. No representation or
warranty by Capital Corp, and no statement by Capital Corp in any certificate,
agreement, schedule or other document furnished in connection with the
transactions contemplated by this Agreement or the Merger Agreement, contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary to make such representation, warranty or
statement not misleading to Town & Country; provided, however, that information
as of a later date shall be deemed to modify information as of an earlier date.
SECTION 6. SECURITIES ACT OF 1933; SECURITIES EXCHANGE ACT OF 1934.
6.1 PREPARATION AND FILING OF REGISTRATION STATEMENT. Capital Corp shall
promptly prepare and file with the Commission a registration statement on the
appropriate form (the "Capital Corp Registration Statement") under and pursuant
to the provisions of the 1933 Act for the purpose of registering the Capital
Corp Shares to be issued in the Acquisition. Capital Corp and Town & Country
shall promptly prepare Joint Proxy Materials for the purpose of submitting the
Acquisition, this Agreement and the Merger Agreement to the respective
shareholders of Capital Corp and Town & Country for approval. Capital Corp and
Town & Country shall cooperate in all reasonable respects with regard to the
preparation of the Capital Corp Registration Statement and the Joint Proxy
Materials. The Joint Proxy Materials in definitive form are expected to serve as
the prospectus to be included in the Capital Corp Registration Statement.
Capital Corp and Town & Country shall each provide promptly to the other such
information concerning its business and financial condition and affairs as may
be required or appropriate for inclusion in the Capital Corp Registration
Statement or the Joint Proxy Materials, and shall cause its counsel and auditors
to cooperate with the other's counsel and auditors in the preparation of the
Capital Corp Registration Statement and the Joint Proxy Materials.
6.2 EFFECTIVENESS OF REGISTRATION STATEMENT. Capital Corp and Town &
Country shall use their best efforts to have the Capital Corp Registration
Statement and any amendments or supplements thereto declared effective under the
1933 Act as soon as practicable, and thereafter Capital Corp and Town & Country
shall distribute the Joint Proxy Materials to holders of their common stock in
accordance with applicable laws.
6.3 SALES AND RESALES OF COMMON STOCK. Capital Corp shall not be required
to maintain the effectiveness of the Capital Corp Registration Statement for the
purpose of sale or resale of the Capital Corp Shares by any person.
6.4 RULE 145 AND RELATED MATTERS. At Capital Corp's option, securities
representing Capital Corp Shares issued to affiliates of Town & Country (as
determined by counsel to Capital Corp and Town & Country) under Rule 145 of the
Rules and Regulations under the 1933 Act pursuant to the Merger Agreement will
be subject to stop transfer orders and will bear a restrictive legend in
substantially the following form:
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The security represented by this instrument has been issued or
transferred to the registered holder as the result of a
transaction to which Rule 145 under the 1933 Act applies. The
security issue represented by this instrument may not be sold,
hypothecated, transferred or assigned, and the issuer shall not be
required to give effect to any attempted sale, hypothecation,
transfer or assignment, except (i) pursuant to a then current
effective registration under the 1933 Act, or (ii) in a
transaction which, in the opinion of counsel satisfactory to the
issuer is not required to be registered under the 1933 Act.
Should any opinion of counsel described in clause (ii) of the foregoing legend
indicate that the legend and any stop transfer order then in effect with respect
to the shares may be removed, Capital Corp will upon request substitute
unlegended securities and remove any stop transfer orders.
SECTION 7. CONDITIONS TO THE OBLIGATIONS OF CAPITAL CORP.
The obligations of Capital Corp under this Agreement are, at its option,
subject to fulfillment at or prior to the Effective Date of each of the
following conditions; provided, however, that any one or more of such conditions
may be waived by the Board of Directors of Capital Corp at any time at or prior
to the Effective Date:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Town & Country in Section 4 hereof shall be true and correct in all material
respects on and as of the Effective Date, with the same effect as though such
representations and warranties had been made on and as of such date except as to
any representation or warranty which specifically relates to an earlier date.
7.2 COMPLIANCE AND PERFORMANCE UNDER AGREEMENT. & Country shall have
performed and complied in all material respects with all terms of this Agreement
and the Merger Agreement required to be performed or complied with by it at or
prior to the Effective Date.
7.3 MATERIAL ADVERSE CHANGE. No materially adverse change shall have
occurred since December 31, 1995, in the business, financial condition or
results of operations of Town & Country and Town & Country shall not be a party
to or, so far as Town & Country is aware, threatened with, and to Town &
Country's knowledge there is no reasonable basis for, any legal action or other
proceeding before any court, any arbitrator of any kind or any Government agency
if, in the reasonable judgment of Capital Corp, such legal action or proceeding
could materially adversely affect Town & Country, or its business, financial
condition or results of operations.
7.4 APPROVAL OF AGREEMENT. The Acquisition, this Agreement and the Merger
Agreement shall have been duly approved by the affirmative vote of the holders
of a majority of the outstanding shares of Capital Corp and Town & Country
common stock at meetings of shareholders duly called and held after distributing
the Proxy Materials to all shareholders entitled to vote at such meetings as
required by Section 3.2(a) hereof.
7.5 OFFICER'S CERTIFICATE. Capital Corp shall have received a certificate,
dated the Effective Date, signed on behalf of Town & Country by its President to
the effect that the conditions in Sections 7.1-7.4 have been satisfied.
7.6 OPINION OF COUNSEL. Town & Country shall have delivered to Capital Corp
such documents as may reasonably be requested by Capital Corp to evidence
compliance by Town & Country with the provisions of this Agreement and the
Merger Agreement, including an opinion of its counsel reasonably satisfactory to
Capital Corp.
7.7 ABSENCE OF LEGAL IMPEDIMENT. No legal impediment to the Acquisition
shall have arisen in the reasonable opinion of Capital Corp and no litigation,
proceeding or investigation shall be pending or threatened before any court or
government agency relating to the transactions contemplated by this Agreement
and the Merger Agreement which affords a material basis in the reasonable
opinion of Capital Corp, for a determination that it would be inadvisable or
inexpedient to continue to carry out the terms of, or to attempt to consummate
the transactions contemplated by, this Agreement or the Merger Agreement.
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7.8 EFFECTIVENESS OF REGISTRATION STATEMENT. The Capital Corp Registration
Statement and any amendments or supplements thereto shall have become effective
under the 1933 Act. No stop order suspending the effectiveness of such
Registration Statement shall be in effect and no proceedings for such purpose
shall have been initiated or threatened by or before the Commission. All state
securities and "blue sky" permits or approvals required to consummate the
transactions contemplated by this Agreement and the Merger Agreement shall have
been received.
7.9 GOVERNMENT APPROVALS. All Government Approvals shall be in effect, and
all conditions or requirements prescribed by law or by any such Governmental
Approval shall have been satisfied; provided, however, that no Government
Approval shall be deemed to have been received if it shall require the
divestiture or cessation of any of the present businesses or operations
conducted by either of the parties hereto or shall impose any other condition or
requirement, which Capital Corp in its reasonable judgment shall deem to be
materially burdensome (in which case Capital Corp shall promptly notify Town &
Country). For purposes of this Agreement no condition shall be deemed to be
"materially burdensome" if such condition does not materially differ from
conditions regularly imposed by the FRB, the Commissioner, or FDIC in orders
approving transactions of the type contemplated by this Agreement and compliance
with such condition would not:
(a) require the taking of any action inconsistent with the manner in
which Capital Corp or Town & Country has conducted its business previously;
(b) have a material adverse effect upon the business, financial
condition or results of operations of Capital Corp or Town & Country; or
(c) preclude satisfaction of any of the conditions to consummation of
the transactions contemplated by this Agreement.
7.10 TAX OPINION. Capital Corp and Town & Country shall have received an
opinion of counsel or accountants satisfactory to both parties, subject to
assumptions and exceptions normally included, in form and substance reasonably
satisfactory to both parties, substantially to the effect that under federal
income tax law and California income and franchise tax law:
(a) The Acquisition will not result in any recognized gain or loss to
Capital Corp or Town & Country;
(b) Except for the Cash Component of the Exchange Amount and any cash
received in lieu of any fractional share, no gain or loss will be recognized
by holders of Town & Country Shares who receive Capital Corp Shares in
exchange for the Town & Country Shares which they hold;
(c) The holding period of Capital Corp Shares exchanged for Town &
Country Shares will include the holding period of the Town & Country Shares
for which they are exchanged, assuming the shares of Town & Country Shares
are capital assets in the hands of the holder thereof at the Effective Date;
and
(d) The basis of the Capital Corp Shares received in the exchange will
be the same as the basis of the Town & Country Shares for which they are
exchanged, less any basis attributable to the Cash Component or to
fractional shares for which cash is received.
7.11 ACCOUNTANT'S COMFORT LETTERS. On the effective date of the Capital
Corp Registration Statement and as of the Effective Date, at its option and
cost, Capital Corp shall have received a letter addressed to Capital Corp from
Town & Country's independent public accountants, in form and substance
satisfactory to Capital Corp. The prescribed procedures on which such is based
shall be agreed upon prior to commencement of work by the accountants.
7.12 UNAUDITED FINANCIALS. Not later than five business days prior to the
Effective Date, Town & Country shall have furnished Capital Corp a copy of its
most recently prepared unaudited year-to-date consolidated financial statements,
including a balance sheet and year-to-date statement of income of Town &
Country.
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7.13 RULE 145 UNDERTAKING. Set forth in a schedule to be approved by
Capital Corp and Town & Country are the names of each of the persons who, in the
opinion of Capital Corp's and Town & Country's counsel, might be deemed to be
affiliates of Town & Country under Rule 145. No such person will offer, sell or
transfer any Capital Corp Shares to be received pursuant to the Acquisition,
except that each such person may offer, sell or transfer such Capital Corp
shares:
(a) pursuant to a then-current effective registration under the 1933
Act; or
(b) in a transaction which, in the opinion of counsel satisfactory to
Capital Corp, is not required to be registered under the 1933 Act.
Capital Corp shall have received at least 30 days prior to the Effective Date
from each person who, in the opinion of Capital Corp's and Town & Country's
counsel, might be deemed to be an affiliate of Town & Country or Capital Corp
under Rule 144 or 145, a signed undertaking that will include an agreement to
the effect that such person will not offer, sell or transfer, publicly or
privately, any shares of Capital Corp common stock except in a manner consistent
with the foregoing restrictions.
7.14 CLOSING DOCUMENTS. Capital Corp shall have received such certificates
and other closing documents as counsel for Capital Corp shall reasonably
request.
7.15 CONSENTS. Town & Country shall have received, or Capital Corp shall
have satisfied itself that Town & Country will receive, all consents of other
parties to and required by material mortgages, notes, leases, franchises,
agreements, licenses and permits applicable to Town & Country, in each case in
form and substance reasonably satisfactory to Capital Corp, and no such consent
or license or permit shall have been withdrawn or suspended.
7.16 NONCOMPETE AGREEMENTS. All existing directors of Town & Country shall
have entered into a written agreement not to engage in a business competitive to
that of Capital Corp or Town & Country in Stanislaus, Merced, and Fresno
Counties for a period of five years from the closing of the Acquisition.
Restricted activities shall include participation in organizing or any stock
ownership in a new bank, acquisition of equity securities of any competing bank
with less than $5 billion of assets and acting as a director of any competing
institution within such area for such period.
SECTION 8. CONDITIONS TO THE OBLIGATIONS OF TOWN & COUNTRY.
The obligations of Town & Country under this Agreement are, at its option,
subject to the fulfillment at or prior to the Effective Date of each of the
following conditions provided, however, that any one or more of such conditions
may be waived by the Board of Directors of Town & Country at any time at or
prior to the Effective Date:
8.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Capital Corp in Section 5 hereof shall be true and correct in all material
respects on and as of the Effective Date with the same effect as though such
representations and warranties had been made on and as of such date except as to
any representation or warranty which specifically related to an earlier date.
8.2 COMPLIANCE AND PERFORMANCE UNDER AGREEMENT. Capital Corp shall have
performed and complied in all material respects with all of the terms of this
Agreement and the Merger Agreement required to be performed or complied with by
them at or prior to the Effective Date.
8.3 MATERIAL ADVERSE CHANGE. No materially adverse change shall have
occurred since December 31, 1995, in the business, financial condition, results
of operations or properties of Capital Corp and its subsidiaries taken as a
whole, and Capital Corp shall not be engaged in, or a party to or so far as
Capital Corp is aware, threatened with, and to Capital Corp's knowledge no
grounds shall exist for, any legal action or other proceeding before any court,
any arbitrator of any kind or any government agency if, in the reasonable
judgment of Town & Country, such legal action or proceeding could materially
adversely affect Capital Corp or its business, financial condition, results of
operations or assets.
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8.4 APPROVAL OF AGREEMENT. The Acquisition, this Agreement and the Merger
Agreement shall have been duly approved by the affirmative vote of the holders
of a majority of the outstanding shares of Capital Corp and Town & Country
common stock at meetings of shareholders duly called and held after distributing
the Proxy Materials to all shareholders entitled to vote as such meetings as
required by Section 3.2(a) hereof.
8.5 OFFICER'S CERTIFICATE. Town & Country shall have received a
certificate, dated the Effective Date, signed on behalf of Capital Corp by its
President and Chief Financial Officer, certifying to the fulfillment of the
conditions stated in Sections 8.1-8.4 hereof.
8.6 OPINION OF COUNSEL. Capital Corp shall have delivered to Town & Country
such documents as may reasonably be requested by Town & Country to evidence
compliance by Capital Corp with the provisions of this Agreement and the Merger
Agreement, including an opinion of its counsel reasonably satisfactory to Town &
Country.
8.7 ABSENCE OF LEGAL IMPEDIMENT. No legal impediment to the Acquisition
shall have arisen in the reasonable opinion of Town & Country and no litigation,
proceeding or investigation shall be pending or threatened before any court or
Government agency relating to the transactions contemplated by this Agreement
and the Merger Agreement which affords a material basis, in the reasonable
opinion of Town & Country, for a determination that it would be inadvisable or
inexpedient to continue to carry out the terms of, or to attempt to consummate
the transactions contemplated by, this Agreement or the Merger Agreement.
8.8 EFFECTIVENESS OF REGISTRATION STATEMENT. The Capital Corp Registration
Statement and any amendments or supplements thereto shall have become effective
under the 1933 Act. No stop order suspending the effectiveness of the Capital
Corp Registration Statement shall be in effect and no proceedings for such
purpose shall have been initiated or threatened by or before the Commission. All
state securities and "blue sky" permits or approvals required to consummate the
transactions contemplated by this Agreement and the Merger Agreement shall have
been received.
8.9 GOVERNMENT APPROVALS. The Government Approvals shall have been received
and shall be in effect, and all conditions or requirements prescribed by law or
by any such approval shall have been satisfied; provided, however that no
Government Approval shall be deemed to have been received if it shall require
the divestiture or cessation of any of the present business or operations
conducted by either of the parties hereto or shall impose any other condition or
requirement, which Town & Country in its reasonable judgment shall deem to be
materially burdensome (in which case Town & Country shall promptly notify
Capital Corp).
8.10 TAX OPINION OR RULING. Capital Corp and Town & Country shall have
received the opinion referred to in Section 7.10 hereof which opinion shall meet
the requirements of such section.
8.11 ACCOUNTANT'S COMFORT LETTER. On the effective date of the Capital Corp
Registration Statement and as of the Effective Date, at its option and cost,
Town & Country shall have received a letter addressed to Town & Country from
Capital Corp's independent public accountants in form and substance satisfactory
to Town & Country. The prescribed procedures on which such letter is based shall
be agreed upon prior to the commencement of work by the accountants.
8.12 UNAUDITED FINANCIALS. Not later than five business days prior to the
Effective Date, Capital Corp shall have furnished Town & Country a copy of its
most recently prepared unaudited year-to-date consolidated financial statements,
including a balance sheet and year-to-date statement of income of Capital Corp.
8.13 CLOSING DOCUMENTS. Town & Country shall have received such
certificates and other closing documents as counsel for Town & Country shall
reasonably request.
8.14 FAIRNESS OPINION. The Board of Directors of Town & Country shall have
received an opinion of its financial advisor, dated the Effective Date of the
Proxy Materials, to the effect that the terms of the Acquisition are fair, from
a financial point of view, to Town & Country and its shareholders.
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SECTION 9. CLOSING.
9.1 CLOSING DATE. The closing of the transactions contemplated by this
Agreement (the "Closing") shall, unless another date, time or place is agreed to
in writing by Capital Corp and Town & Country, be held at 8:00 a.m. at the
offices of Capital Corp in Merced, California on the Effective Date.
9.2 DELIVERY OF DOCUMENTS. At the Closing, the opinions, certificates and
other documents required to be delivered by this Agreement shall be delivered.
9.3 FILINGS. At the Closing, Capital Corp and Town & Country shall instruct
its representatives to make or confirm such filings as shall be required in the
opinion of counsel to Capital Corp and Town & Country to give effect to the
Acquisition.
SECTION 10. EXPENSES.
Each party hereto agrees to pay, without right of reimbursement from the
other party and whether or not the transactions contemplated by this Agreement
or the Merger Agreement shall be consummated, the costs incurred by such party
incident to the performance of its obligations under this Agreement and the
Merger Agreement, including without limitation, costs incident to the
preparation of the Merger Agreement, this Agreement, the Capital Corp
Registration Statement and the Proxy Materials (including the audited financial
statements of the parties contained therein) and incident to the consummation of
the Acquisition and of the other transactions contemplated herein and in the
Merger Agreement, including the fees and disbursements of counsel, accountants,
consultants and financial advisers employed by such party in connection
therewith. Town & Country shall pay a proportionate amount of the printing costs
of the Capital Corp Registration Statement and the Proxy Materials and all fees
payable pursuant to state "blue-sky" securities laws, fees related to obtaining
a tax opinion, the fee required to be paid to the Commission to register the
Capital Corp Shares and the costs of distributing the Proxy Materials and other
information relating to these transactions to shareholders of Town & Country.
Town & Country's portion shall be based upon the percentage of shares of Capital
Corp, computed as set forth in Section 2.1(a) ("Stock Component"), to be owned
by the shareholders of Town & Country as of the Effective Date, assuming a Cash
Component of $1,600,000.
SECTION 11. AMENDMENT; TERMINATION.
11.1 AMENDMENT. This Agreement and the Merger Agreement may be amended by
Capital Corp and Town & Country at any time prior to the Effective Date without
the approval of the shareholders of Town & Country with respect to any of their
terms except, after Town & Country shareholders have approved the Acquisition,
the terms relating to the form or amount of consideration to be delivered to the
Town & Country shareholders in the Acquisition.
11.2 TERMINATION. This Agreement and the Merger Agreement may be terminated
as follows:
(a) By the mutual consent of the Boards of Directors of both Capital Corp
and Town & Country at any time prior to the consummation of the Acquisition.
(b) By the Board of Directors of Capital Corp on or after December 31, 1996,
if (i) any of the conditions in Section 7 to which the obligations of Capital
Corp are subject have not been fulfilled, or (ii) such conditions have been
fulfilled or waived by Capital Corp and Town & Country shall have failed to
complete the Acquisition.
(c) By the Board of Directors of Capital Corp if (i) it has become aware of
any facts or circumstances of which it was not aware on the date hereof and
which materially adversely affect Town & Country or its properties, operations
or financial condition, (ii) a materially adverse change shall have occurred
since December 31, 1995, in the business, financial condition, results of
operations or properties of Town & Country, or (iii) there has been material
failure or prospective material failure on the part of Town & Country to comply
with its obligations under this Agreement or the Merger Agreement, or any
material failure or prospective failure to comply with any of the conditions set
forth in Section 7 hereof.
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(d) By the Board of Directors of Capital Corp in the event that Town &
Country enters into a transaction or series of transactions with a third person
or group providing for the acquisition of all or a substantial part of Town &
Country, whether by way of merger, exchange or purchase of stock, sale of assets
or otherwise.
(e) By the Board of Directors of Town & Country on or after December 31,
1996, if (i) any of the conditions contained in Section 8 to which the
obligations of Town & Country are subject have not been fulfilled, or (ii) such
conditions have been fulfilled or waived but Capital Corp shall have failed to
complete the Acquisition; provided, however, that if Capital Corp is engaged at
the time in litigation (including an administrative appeal procedure) relating
to an attempt to obtain one or more of the Governmental Approvals or if Capital
Corp shall be contesting in good faith any litigation which seeks to prevent
consummation of the transactions contemplated hereby, such nonfulfillment shall
not give Town & Country the right to terminate this Agreement until the earlier
of (A) December 31, 1996, and (B) 60 days after the completion of such
litigation and of any further regulatory or judicial action pursuant thereto,
including any further action by a governmental agency as a result of any
judicial remand, order or directive or otherwise or any waiting period with
respect thereto provided such date shall not occur beyond December 31, 1997.
(f) By the Board of Directors of Town & Country if (i) it has become aware
of any facts or circumstances of which it was not aware on the date hereof and
which can or do materially adversely affect Capital Corp or its properties,
operations or financial condition, (ii) a materially adverse change shall have
occurred since December 31, 1995 in the business, financial condition, results
of operations or assets of Capital Corp, or (iii) there has been a material
failure or prospective material failure on the part of Capital Corp to comply
with its obligations under this Agreement or the Merger Agreement, or any
material failure or prospective material failure to comply with any condition
set forth in Section 8.
(g) By the Board of Directors of Town & Country in the event Capital Corp or
its affiliates enter into a Business Combination with any other entity which
does not expressly contemplate the performance by Capital Corp or its successor
in interest of Capital Corp's obligations under this Agreement and Capital Corp
indicates it will not consummate this Agreement.
11.3 TERMINATION. The power of termination hereunder may be exercised by
Capital Corp or Town & Country, as the case may be, only by giving written
notice, signed on behalf of such party by its Chief Executive Officer or
President, to the other party.
11.4 BREACH OF OBLIGATIONS. If there has been a material breach by either
party in the performance of any of the obligations herein which shall not have
been cured within ten business days after written notice thereof has been given
to the defaulting party, the nondefaulting party shall have the right to
terminate this Agreement upon written notice to the other party. In any event,
the nondefaulting party shall have no obligation to consummate any transaction
or take any further steps toward such consummation contemplated hereunder until
such breach is cured.
11.5 TERMINATION AND EXPENSES.
(a) If this Agreement is terminated for any reason, the Merger Agreement
shall automatically terminate. Termination of this Agreement shall not terminate
or affect the obligations of the parties to pay expenses as provided in Section
10, to maintain the confidentiality of the other party's information pursuant to
Section 3.1(f), or the provisions of this Section 11.5 or of Sections 12.1-12.7.
(b) If Capital Corp terminates this Agreement pursuant to Section 11.2(d),
Town & Country shall pay to Capital Corp, on demand, the sum of $750,000. If
Town & Country terminates this Agreement pursuant to Section 11.2(g), Capital
Corp shall pay to Town & Country, on demand, the sum of $750,000. In each case,
the amount indicated shall be deemed consideration or liquidated damages for
expenses incurred and the lost opportunity cost for time devoted to the
transactions contemplated by this Agreement.
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SECTION 12. MISCELLANEOUS.
12.1 NOTICES. Any notice or other communication required or permitted under
this Agreement shall be effective only if it is in writing and delivered
personally, or by overnight courier, or by facsimile or sent by first class
United States mail, postage prepaid, registered or certified mail, addressed as
follows:
<TABLE>
<S> <C>
To Capital Corp: To Town & Country:
Capital Corp of the West 1160 West Town and Country Finance and Thrift Company
Olive, Suite A 410 East Olive Avenue
Merced, CA 95341 Turlock, CA 95380
Attention: Thomas T. Hawker Attention: D. Dale Pinkney
President & CEO President & CEO
With a copy to: With a copy to:
McCutchen, Doyle, Brown & Enersen Triebsch, Frampton, Dorius & Lima
Three Embarcadero Center 300 North Palm St.
San Francisco, CA 94111 Turlock, CA 95381
Attention: James M. Rockett Attention: Robert E. Triebsch
</TABLE>
or to such other address as either party may designate by notice to the other,
and shall be deemed to have been given upon receipt.
12.2 BINDING AGREEMENT. This Agreement is binding upon and is for the
benefit of Capital Corp and Town & Country and its successors and permitted
assigns. This Agreement is not made for the benefit of any person, firm,
corporation or association not a party hereto, and no other person, firm,
corporation or association shall acquire or have any right under or by virtue of
this Agreement. No party may assign this Agreement or any of its rights,
privileges, duties or obligations hereunder without the prior written consent of
the other party to this Agreement.
12.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. No investigation by
Capital Corp or Town & Country made before or after the date of this Agreement
shall affect the representations and warranties which are contained in this
Agreement and such representations and warranties shall survive such
investigation, provided that representations, warranties, covenants and
agreements of Capital Corp and Town & Country contained in this Agreement shall
not survive the Closing.
12.4 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
12.5 ATTORNEYS' FEES. In any action at law or suit in equity in relation to
this Agreement, the prevailing party in such action or suit shall be entitled to
receive a reasonable sum for its attorneys' fees and all other reasonable costs
and expenses incurred in such action or suit.
12.6 ENTIRE AGREEMENT; SEVERABILITY. This Agreement and the documents,
certificates, agreements, letters, schedules and exhibits attached or required
to be delivered pursuant hereto set forth the entire agreement and
understandings of the parties in respect of the transactions contemplated
hereby, and supersede all prior agreements, arrangements and understanding
relating to the subject matter hereof. Each provision of this Agreement shall be
interpreted in a manner to be effective and valid under applicable law, but if
any provision hereof shall be prohibited or ruled invalid under applicable law,
the validity, legality and enforceability of the remaining provisions shall not,
except as otherwise required by law, be affected or impaired as a result of such
prohibition or ruling.
12.7 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
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IN WITNESS WHEREOF, Capital Corp and Town & Country have each caused this
Agreement and Plan of Acquisition to be signed by its Chief Executive Officer or
Chairman as of the day and year first above written.
<TABLE>
<S> <C>
TOWN AND COUNTRY FINANCE AND CAPITAL CORP OF THE WEST
THRIFT COMPANY
By s/ D. Dale Pinkney By s/ Thomas T. Hawker
------------------------------------- -------------------------------------
D. Dale Pinkney Thomas T. Hawker
PRESIDENT AND CHIEF EXECUTIVE PRESIDENT AND CHIEF EXECUTIVE OFFICER
OFFICER
</TABLE>
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MERGER AGREEMENT
This merger agreement ("Merger Agreement") dated as of , 1996
between T&C Merger Thrift Company ("Subsidiary"), a California industrial loan
company, and Town and Country Finance and Thrift Company ("Town & Country"), a
California industrial loan company is entered into as follows:
SECTION 1. OUTSTANDING SHARES.
(a) Town & Country is a California industrial loan company chartered by the
California Department of Corporations. Town & Country has 5,000,000 authorized
shares of common stock of which 168,156 are outstanding. Town & Country has no
outstanding shares of preferred stock, options or warrants.
(b) Subsidiary is a California industrial loan company chartered by the
California Department of Corporations. Subsidiary has 1,000 authorized,
outstanding shares of common stock. Subsidiary has no outstanding shares of
preferred stock, options or warrants.
SECTION 2. THE MERGER.
Town & Country shall be merged into Subsidiary ("Merger"). It is the
intention of the parties that the Merger will be treated as a tax free
reorganization pursuant to Section 368 of the Internal Revenue Code.
SECTION 3. CONVERSION OF SHARES.
Upon consummation of the Merger, (i) each outstanding share of Town &
Country, other than shares held by shareholders who perfect their rights as
dissenting shareholders under California law, shall be converted into the right
to receive the per share exchange amount of $33.05 ("Per Share Exchange Amount")
comprised of a Cash Component and a Stock Component computed in accordance with
that Agreement and Plan of Acquisition and Merger dated as of March 22, 1996;
(ii) the outstanding shares of Subsidiary shall remain the outstanding shares of
the Surviving Corporation and are not effected by the Merger; and there will be
no other outstanding shares, options, warrants or other stock rights to acquire
any shares of Town & Country.
SECTION 4. ARTICLES OF INCORPORATION AND BY-LAWS.
(a) The Articles of Incorporation of Subsidiary shall, upon the Effective
Date, be the Articles of Incorporation of the Surviving Corporation.
(b) The By-Laws of Town & Country, as they exist on the Effective Date,
shall be the By-Laws of the Surviving Corporation until the same are amended.
SECTION 5. EXCHANGE OF SHARES.
The conversion of shares as provided in the Merger Agreement shall occur
automatically upon the Effective Date without action by the holders thereof.
Each holder of Town & Country Shares shall on or after the Effective Date
surrender each certificate representing Town & Country Shares to the Exchange
Agent appointed by the parties and shall be entitled to receive in exchange
therefor the Per Share Exchange Amount
SECTION 6. EFFECT OF MERGER AND EFFECTIVE DATE.
The effect of the Merger and the Effective Date of the Merger are as
prescribed by law.
SECTION 7. OFFICERS AND DIRECTORS
The directors and officers of Town & Country holding office on the Effective
Date shall become the directors and officers of the Surviving Corporation until
removed as provided by law or until the election of their respective successors.
SECTION 8. ACTS OF MERGING CORPORATION
Town & Country, as the merging corporation, shall from time to time, as and
when requested by the Surviving Corporation, execute and deliver all such
documents and instruments and take all such action necessary or desirable to
evidence or carry out this Merger.
All capitalized term herein shall have the meanings ascribed to them in this
Merger Agreement; provided, however, if no meaning is separately ascribed to
such capitalized terms in this Merger Agreement, then such terms will have the
meanings ascribed to them in the Agreement and Plan of Acquisition dated March
22, 1996.
<PAGE>
In witness whereof the parties have executed this Merger Agreement.
Town and Country Finance and Thrift
Company
By ___________________________________
By ___________________________________
T & C Merger Thrift Company
By ___________________________________
By ___________________________________
2
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ANNEX B
[WILLIAMS GREGG, INC. LETTERHEAD]
April 2, 1996
Board of Directors
Town and Country Finance and Thrift Company
410 E. Olive
Turlock, Ca. 95380
Dear Board Members:
You have requested our opinion as to the fairness to Town and Country
Finance and Thrift Company ("T&C") and its stockholders from a financial point
of view, of the terms and conditions of the proposed acquisition of all of the
outstanding shares of T&C by Capital Corp of the West ("CCOW") through a merger
vehicle which will result in T&C becoming a wholly owned subsidiary of CCOW.
QUALIFICATIONS OF THE APPRAISER
Williams Gregg, Inc. ("WGI") provides consulting services for, but not
limited to, banks, savings and loans, and thrift and loan companies in its
normal course of business. These services include regulatory consulting, loan
review, applications, due diligence and rendering opinions concerning fairness.
The officers of WGI have been providing these services to financial institutions
across the Western United States for more than twelve years.
PROCEDURE
In connection with our opinion, we have, among other things:
(i) Reviewed the Definitive Agreement known as the Agreement and Plan of
Acquisition ("Agreement") including the terms and conditions of the
acquisition.
(ii) Reviewed annual reports to shareholders and annual reports on Form
10-K of CCOW and year-end call reports of T&C for the five years ended
December 31, 1995.
(iii) Reviewed certain other publicly available financial and other
information concerning T&C and CCOW and the trading markets for the publicly
traded securities of T&C and CCOW.
(iv) Reviewed publicly available information concerning other banks and
bank holding companies, the trading markets for their securities and the
nature and terms of certain other merger transactions believed to be
relevant by WGI to its inquiry.
(v) Reviewed and discussed with certain representatives of management of
T&C and CCOW information concerning their past and current operations,
financial condition and prospects as well as the results of regulatory
examinations.
(vi) Reviewed the adequacy of County Bank's loan loss reserve.
(vii) Reviewed and discussed the Agreement with T&C's counsel.
(viii) Performed such other analyses and examinations as we have deemed
appropriate.
In connection with our review, we assumed the financial and other
information provided to us was complete and accurate in all material respects.
With respect to T&C's and CCOW's financial forecasts provided to us by
management, we have assumed for purposes of our opinion that they have been
reasonably prepared on bases reflecting the best available estimates and
judgments of T&C's and CCOW's management at the time of preparation as to the
future financial performance of the two companies and that they provide a
reasonable basis upon which we can form our opinion. We have not independently
verified the adequacy of the consolidated allowance for loan and lease losses
for the resultant holding company. We have
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also assumed that there has been no material change in T&C's and CCOW's assets,
financial condition, results of operations, business or prospects since the date
of the last financial statements made available to us. We have relied on advice
of counsel of T&C as to all legal matters with respect to the Agreement.
Further, our opinion is based on economic, monetary and market conditions
existing as of the date hereof.
Based upon the foregoing, and reliance thereon, it is our opinion that, as
of the date hereof, the consideration to be received pursuant to the Agreement
and the terms and conditions that exist as of the date hereof, taken as a whole,
are fair to Town and Country Finance and Thrift Company and its stockholders.
Our opinion should not be construed in any way as a valuation of CCOW or as a
recommendation to participate in the acquisition. Further, any material changes
in the terms and conditions of the proposed offer prior to closing would render
this opinion invalid.
Sincerely,
/s/ WILLIAMS GREGG, INC.
Williams Gregg, Inc.
2
<PAGE>
[BROOKSTREET SECURITIES CORPORATION LETTERHEAD]
April 5, 1996
Board of Directors
Capital Corp of the West
1160 W. Olive Avenue, Suite A
Merced, CA 95348-1952
Attention: Janey Boyce, Chief Financial Officer
Dear Directors:
You have requested that I provide you with my professional opinion
concerning the fairness of the proposed acquisition of Town and Country Finance
and Thrift Company by Capital Corp of the West as it relates to the shareholders
of Capital Corp of the West.
This report covers my analysis, conclusions, and opinions regarding this
assignment.
A professional synopsis and references opining the qualifications of James
R. Miller to perform this assignment are attached to this report.
The basic data supporting this opinion are as of December 31, 1995. Other
dating of material used is of the most recent available per category.
In fulfilling this assignment, I have conducted appropriate research and
analysis of the relevant financial, organizational, and operational data and
information identified with the Banks, inclusive of senior management interviews
and probes and discussions with other parties informed and knowledgeable of the
Banks' current and reasonably predictable future financial status.
Additional factors considered include:
- The status of the area's banking industry
- The general economic environment
- Town and Country Finance and Thrift Company's financial and general
condition
- Capital Corp of the West's financial and general condition
- Town and Country Finance and Thrift Company's capitalization structure
- Capital Corp of the West's capitalization structure
- The strategic plan of Capital Corp of the West of the West
- The trading history of Capital Corp of the West's stock
- The trading history of Town and Country Finance and Thrift Company
- A comparison of peer market valuations
The proposed acquisition of Town and Country Finance and Thrift Company by
Capital Corp of the West is outlined in a definitive merger agreement whereby
Capital Corp of the West will acquire, by merger, all the outstanding shares of
Town and Country Finance and Thrift Company, and Town and Country Finance and
Thrift Company would become a subsidiary of Capital Corp of the West.
The Agreement provides that, upon completion of the Acquisition, each share
of Common Stock of Town and Country Finance and Thrift will be converted into a
right to receive cash and stock in Capital Corp of the West subject to the
provisions of the Agreement of Acquisition at a ratio of approximately 1.5x the
Book Value of Town and Country Finance and Thrift.
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<PAGE>
The fairness of this acquisition to Capital Corp of the West shareholders is
the subject of this opinion. This assessment must be made on both a qualitative
and quantitative basis.
The quantitative analysis is simply addressing the fairness of the offer by
the Capital Corp of the West of approximately 1.5x Book Value for each share of
Town and Country Finance and Thrift Company. It is this basic pricing structure
that will be quantitatively considered.
Valuation of shares of Financial Institutions may be determined through two
basic approaches: Book Value and Market Value. The Market Value Approach relates
to the publicly traded shares of Town and Country Finance and Thrift Company and
its assessment process. Book Value must relate to two separate designations:
Book Value as set out in financial statements provided by the Company, and
Adjusted Book Value.
Exhibits in this report set out detailed analysis of elements of Town and
Country Finance and Thrift Company balance sheet and income statements relating
to Book Value determination. Given recent due diligence procedures, operating
history of Town and Country Finance and Thrift Company, and loan portfolio
performance, it appears that the shareholder equity presented at December 31,
1995 of $3,623,641 is a fairly reflective value at that date. It may therefore
be inferred that the shareholder equity value at the Effective Date of the
Acquisition Agreement will also reflect a representative Book Value. This
conclusion is also the result of the detailed presentation in this report
relating to historic:
-- Rate sensitivity analysis
-- Securities analysis
-- Peer group detailed comparison
-- Balance sheet analysis
Exhibit "A" in this report reflects recent California Bank acquisitions and
mergers. While the subjects of this report are banks, it is fair to state that
the values reflect the acquisition value ranges for community financial
institutions. This is due to the commonality of deposit basis and the growing
overlap of business services to the local area. As can be noted, the higher
values are located in the northern sector of the state due to the relatively
strong economic base of the area. This is opposed to the southern portion of
California where financial institutions' earnings results have been in general
lagging those of the north.
In addition to using the ratios of price to book values of recently merged
institutions as a quantitative benchmarking approach, the Qualitative factors of
a merger must be addressed in assessing fairness of a transaction.
With the acquisition of Town and Country Finance and Thrift Company, Capital
Corp of the West will expand its corporate service base. It will operate Town
and Country Finance and Thrift Company as a wholly owned subsidiary thereby
benefitting from Town and Country Finance and Thrift Company's customer base for
potential cross service expansion. It appears the profitability of Town and
Country Finance and Thrift Company operations may benefit from the merger due to
potential reduced overhead factors and expanded franchise. It is a reasonable
expectation that increased earnings to Capital Corp of the West due to the
operations of Town and Country Finance and Thrift Company will benefit Capital
Corp of the West shareholders by a factor of the price earnings multiple of the
traded shares of Capital Corp of the West thus potentially increasing share
price in the market place.
Based on the qualitative and quantitative factors relating to a book
valuation base of this transaction to Capital Corp of the West shareholders, it
is this analyst's opinion that a fair value range for the acquisition of Town
and Country Finance and Thrift Company by Capital Corp of the West is 1.4x to
1.8x Book Value at effective date.
The Market Value Approach in this instance reflects that little market
activity has occurred in the shares of Town and Country Finance and Thrift
Company over the near term. Documentation in this report displays recent trading
history of Town and Country Finance and Thrift Company shares and an inspection
of peer institutions' market valuations as they relate to their fundamental
company performance. Additionally, this
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<PAGE>
approach considers an analysis of the overall economic environment as it relates
to the community banking industry. In relating the share price of Town and
Country Finance and Thrift Company to itself and peers, there are two basic
choices: price to earnings ratio and price to book value per share. Due to the
fact that sporadic income flow has been a common outcome to operations for
California banks and thrifts, the price to book value comparison has been chosen
as the most representative ratio.
Exhibit "B" reflects various representative bank shares and their valuation
in the market place. It may be stated that any of the cited banks' stock trading
involves relatively low volume. In the case of Town and Country Finance and
Thrift Company, trading has been extremely thin. It is the opinion of this
analyst that in a market with reasonable supply and demand volume, Town and
Country Finance and Thrift Company shares should trade from 1.2x to 1.4x Book
Value, in normalized market conditions.
In a transactional situation situation where change of control is involved,
there would be an anticipated additional increment in price to book in market
valuation. This is due to the obvious skewing of supply and demand relationship
and the added value of qualitative factors. Capital Corp of the West has three
leading firms in the field of market makers in community bank shares; Ryan Beck,
Sutro & Company and Hoeffer and Arnett. It may be anticipated that added
qualitative value to Capital Corp of the West as a result of the acquisition of
Town and Country Finance and Thrift Company may be reflected in the markets
quoted by these firms. Additionally, the addition of shareholders as a result of
the merger may serve to broaden shareholder base. It would be logical to also
recognize the probability that the acquisition of Town and Country Finance and
Thrift Company by Capital Corp of the West may be viewed by the investment
community as not an isolated event. It may be concluded that similar expansion
scenarios could follow and that multiples of share price to book value and
earnings may expand as a result.
Based on the quantitative and qualitative factors relating to the market
valuation approach to this transaction as it relates to Capital Corp of the West
shareholders, it is this analyst's opinion that a fair value range for the
acquisition of Town and Country Finance and Thrift Company by Capital Corp of
the West is 1.4x to 1.9x Book Value at Effective Date.
It is my professional opinion that based on the discussions and calculations
presented in this report, the terms of the acquisition of Town and Country
Finance and Thrift Company by Capital Corp of the West as outlined in The
Agreement and Plan of Acquisition are fair from a financial point of view to the
shareholders of Capital Corp of the West.
James R. Miller does not own any shares of Town and Country Finance and
Thrift Company or Capital Corp of the West.
It has been a pleasure to be of service. I am available to discuss this
report and evaluation if desired.
Respectfully submitted,
/S/ JAMES R. MILLER
James R. Miller
5
<PAGE>
ANNEX C
CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION CODE
SECTION 1300. RIGHT TO REQUIRE PURCHASE -- "DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation in a short-
term merger may, by complying with this chapter, require the corporation in
which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-term
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the Federal Reserve System, and the notice of meeting of shareholders to
act upon the reorganization summarizes the provisions of this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provisions
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to any
class of shares described in subparagraph (A) or (B) if demands for payment
are filed with respect to 5 percent or more of the outstanding shares of
that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-term merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
SECTION 1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1304 and this section, a statement of the price determined
by the corporation to represent the fair market value of the dissenting shares,
and a brief description of the procedure to be followed if the shareholder
desires to exercise the shareholder's right under such sections. The statement
of price constitutes an offer by the corporation to purchase at the price stated
any dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
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(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) [SIC] of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SECTION 1303. AGREED PRICE -- TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
SECTION 1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
2
<PAGE>
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine the fair market value of the shares.
SECTION 1305. APPRAISERS' REPORT -- PAYMENT -- COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION 1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SECTION 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SECTION 1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incidents to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
3
<PAGE>
SECTION 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SECTION 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Section 1304 and 1305 shall be suspended until final determination of such
litigation.
SECTION 1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of reorganization or merger.
SECTION 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another
4
<PAGE>
party to the reorganization or short-form merger shall have the burden of
proving that the transaction is just and reasonable as to the shareholders of
the controlled party, and (2) a person who controls two or more parties to a
reorganization shall have the burden of proving that the transaction is just and
reasonable as to the shareholders of any party so controlled.
5
<PAGE>
ANNEX D
TEXT OF PROPOSED AMENDMENTS TO
CAPITAL CORP ARTICLES OF INCORPORATION AND BYLAWS
TEXT OF AMENDMENT TO BYLAWS TO ELIMINATE CUMULATIVE VOTING (PROPOSAL THREE):
Section 2.12 of the Bylaws shall be replaced in its entirety as
follows:
SECTION 2.12. NO CUMULATIVE VOTING.
Cumulative voting for the election of directors is not permitted at
any time when this corporation is a "listed corporation" as defined
in Corporations Code Section 301.5 or any successor statute.
TEXT OF AMENDMENT TO BYLAWS TO CLASSIFY THE BOARD OF DIRECTORS AND CHANGE THE
RANGE OF AUTHORIZED DIRECTORS (PROPOSAL FOUR):
Section 3.3 of the Bylaws shall be replaced in its entirety as
follows:
SECTION 3.3. ELECTION AND TERM OF DIRECTORS.
The directors shall be divided into three classes, designated Class
I, Class II and Class III. Each class shall consist, as nearly as
may be possible, of one-third of the total number of directors
constituting the entire Board of Directors. At the 1996 annual
meeting of stockholders, Class I directors shall be elected for a
one-year term, Class II directors for a two-year term and Class III
directors for a three-year term. At each succeeding annual meeting
of shareholders beginning in 1997, successors to the class of
directors whose term expires at that annual meeting shall be
elected for a three-year term. If the number of directors is
changed, any increase or decrease shall be apportioned by the Board
of Directors among the classes so as to maintain the number of
directors in each class as nearly equal as possible, and any
additional director of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but
in no case will a decrease in the number of directors shorten the
term of any incumbent director. A director shall hold office until
the annual meeting for the year in which his or her term expires
and until his other successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement,
disqualification or removal from office. A majority of total
directors shall constitute a quorum for the transaction of
business. Except as otherwise required bylaw, any vacancy on the
Board of Directors that results from a increase in the number of
directors shall be filled only by a majority of the Board of
Directors then in office, provided that a quorum is present, and
any other vacancy occurring in the Board of Directors shall be
filled by a majority of the directors then in office, even if less
than a quorum, or by a sole remaining director. Any director
elected to fill a vacancy not resulting from an increase in the
number of directors shall have the same remaining term as that of
his or her predecessor.
This classification of the board of directors shall be effective at
such times as the corporation is a "listed corporation" as defined
in Corporations Code Section 301.5 or any successor statute.
Section 3.2. of the Bylaws shall be replaced in its entirety as
follows:
SECTION 3.2. NUMBER OF DIRECTORS.
The authorized number of directors shall be not less than nine nor
more than twelve. The exact number may be changed within those
limits by action of the Board or the shareholders.
1
<PAGE>
The minimum and maximum numbers may not be changed, nor can a fixed
number be substituted for the minimum and maximum numbers, except
by an amendment to this bylaw approved by a majority of the
outstanding shares entitled to vote.
TEXT OF AMENDMENT TO THE ARTICLES OF INCORPORATION TO ELIMINATE ACTIONS OF THE
SHAREHOLDERS BY WRITTEN CONSENT WITHOUT A MEETING (PROPOSAL FIVE):
The Articles of Incorporation of Capital Corp shall be amended by
adding Article VIII thereto as follows:
ARTICLE VIII
Any action required or permitted to be taken by the shareholders of
this corporation must be taken at a duly called annual meeting or
special meeting of the shareholders of the corporation and no
action may be taken by the written consent by the shareholders.
TEXT OF AMENDMENT TO THE ARTICLES OF INCORPORATION TO REQUIRE A SUPERMAJORITY
VOTE TO APPROVE CERTAIN BUSINESS COMBINATIONS NOT PREVIOUSLY APPROVED BY A
MAJORITY OF THE BOARD OF DIRECTORS (PROPOSAL SIX):
The Articles of Incorporation of Capital Corp shall be amended by
adding Article IX thereto as follows:
ARTICLE IX
In the event that it is proposed that this corporation enter into a
merger, sale of assets or other business combination for which the
approval of the shareholders is required under the California
Corporations Code, the affirmative vote of the holders of not less
than sixty-six and sixty-seven one hundredths percent (66.67%) of
the outstanding shares of Common Stock and the outstanding shares
of Preferred Stock entitled to vote on each matter on which the
holders of record of Common Stock shall be entitled to vote, such
Common Stock and Preferred Stock voting together and not by
separate classes, shall be required for the approval of any such
proposal; provided, however, that the foregoing shall not apply to
any such merger, sale of assets or other business combination which
was previously approved by resolutions of a majority of the members
of the Board of Directors of this corporation as constituted at the
time the business combination was first proposed to this
corporation. This Article may only be amended by the affirmative
vote of not less than sixty-six and sixty-seven hundredths percent
(66.67%) of the outstanding shares of Common Stock and the
outstanding shares of Preferred Stock entitled to vote on such
amendment, such Common Stock and Preferred Stock voting together
and not by separate classes.
2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20 INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 317 of the California General Corporation Law permits
indemnification of directors, officers and employees of corporations under
certain conditions and subject to certain limitations. Article VI of the
Articles of Incorporation of the registrant contains provisions limiting the
monetary liability of directors for breaches of the duty of care. Article VII of
the Articles of Incorporation of the registrant contains provisions for the
indemnification of directors, officers and employees to the fullest extent
permitted, and in excess of that authorized, under Section 317. In addition, the
registrant maintains officers and directors liability insurance for an annual
aggregate maximum of $2,000,000.
ITEM 21 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION OF EXHIBITS PAGE
- ----------- ------------------------------------------------------------------------------------------------- -----
<S> <C> <C>
2.1 Agreement and Plan of Acquisition dated as of March 22, 1996, between the Company and Town &
Country Finance and Thrift Company (attached as Annex A to Proxy Statement/Prospectus included
in this Registration Statement).
3.1 Articles of Incorporation, included in exhibits to Capital Corp's Registration Statement on Form
8-A, File 0-27384, filed November 23, 1995 and incorporated herein by reference.
3.2 Bylaws, included in exhibits to Capital Corp's Registration Statement on Form 8-A, File 0-27384,
filed November 23, 1995 and incorporated herein by reference.
5.1 Opinion of McCutchen, Doyle, Brown & Enersen, LLP. *
8.1 Opinion of KPMG Peat Marwick LLP regarding tax matters.
8.2 Opinion of McCutchen Doyle Brown & Enersen LLP re merger. *
10.1 1992 Stock Option Plan, included in exhibits to Capital Corp's Annual Report on Form 10-K for the
year ended December 31, 1995 and incorporated herein by reference.
10.2 Employment Agreement between Thomas T. Hawker and County Bank, included in exhibits to Capital
Corp's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein
by reference.
10.3 Lease Agreement for Downtown Merced Branch, included in exhibits to Capital Corp's Annual Report
on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.
10.4 Lease Agreement for Administrative Offices, included in exhibits to Capital Corp's Annual Report
on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.
10.5 Lease Agreement for Los Banos Branch, included in exhibits to Capital Corp's Annual Report on
Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.
10.6 Lease Agreement for Sonora Branch, included in exhibits to Capital Corp's Annual Report on Form
10-K for the year ended December 31, 1995 and incorporated herein by reference.
10.7 Architectural Agreement for Administrative Office, included in exhibits to Capital Corp's Annual
Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.
10.8 Employment Agreement with D. Dale Pinkney (draft). *
11 Statement re computation of earnings per share, included in Note 1 of the consolidated financial
statements included in Capital Corp's Annual Report on Form 10-K for the year ended December 31,
1995 and incorporated herein by reference.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION OF EXHIBITS PAGE
- ----------- ------------------------------------------------------------------------------------------------- -----
13.1 Capital Corp's Annual Report on Form 10-K for the year ended December 31, 1995, incorporated
herein by reference.
<S> <C> <C>
13.2 Capital Corp's 1995 Annual Report to Shareholders, included in its Annual Report on Form 10-K for
the year ended December 31, 1995, and incorporated herein by reference.
21 List of significant subsidiaries of Capital Corp. *
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Atherton Associates.
23.3 Consent of Williams Gregg, Inc.
23.4 Consent of Brookstreet Securities Corporation.
23.5 Consent of McCutchen, Doyle, Brown & Enersen (included in their opinion filed as Exhibit 5.1).
23.6 Consent of KPMG Peat Marwick LLP re tax opinion (included in their opinion filed as Exhibit 8.1). *
24 Power of attorney.
99.1 Letter to shareholders of Capital Corp to accompany this Joint Proxy Statement/ Prospectus
(included in Part I of this Registration Statement).
99.2 Notice of Annual Meeting of the Shareholders of Capital Corp (included in Part I of this
Registration Statement).
99.3 Form of proxy for Annual Meeting of Shareholders of Capital Corp. *
99.4 Letter to shareholders of Town & Country to accompany this Joint Proxy Statement/ Prospectus
(included in Part I of this Registration Statement).
99.5 Notice of Annual Meeting of the Shareholders of Town & County (included in Part I of this
Registration Statement).
99.6 Form of proxy for Annual Meeting of Shareholders of Town & County. *
</TABLE>
- ------------------------
* Previously filed as an exhibit to Capital Corp's Registration Statement
filed on April 3, 1996 (Registration No. 333-03174) and incorporated herein
by reference.
(b) Financial Statement Schedules.
Not applicable.
ITEM 22
Undertakings.
(1) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the Prospectus, to each person to whom the Prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934 (the "1934 Act"); and, where interim financial information required to be
presented by Article 3 of Regulation S-X of the 1934 Act are not set forth in
the Prospectus, to deliver, or cause to be delivered to each person to whom the
Prospectus is sent or given, the latest quarterly report that is specifically
incorporated by reference in the Prospectus to provide such interim financial
information.
(2) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c) of
the Securities Act of 1933, as amended (the "1933 Act"), the issuer undertakes
that such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
Items of the applicable form.
(3) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (2) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the 1933 Act and is used
II-2
<PAGE>
in connection with an offering of securities subject to Rule 415 of the 1933
Act, will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the 1933 Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the 1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
(5) Capital Corp hereby undertakes that, for purposes of determining any
liability under the 1933 Act, each filing of Capital Corp's annual report
pursuant to Section 13(a) or Section 15(d) 1934 Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the 1934 Act) that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(6) Capital Corp hereby undertakes to respond to requests for information
that is incorporated by reference into the Prospectus pursuant to Items 4,
10(b), 11, or 13 of this Form S-4 within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
(7) Capital Corp hereby undertakes to supply by means of a post-effective
amendment all information concerning its merger transaction with MBC that was
not the subject of and included in this Registration Statement when it became
effective.
(8) Capital Corp hereby undertakes:
(a) To file during any period in which offers of sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
1933 Act;
(ii) to reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(b) That, for the purpose of determining any liability under the 1933
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Merced, State of California, on May 10, 1996.
CAPITAL CORP OF THE WEST
(Registrant)
By /s/ THOMAS T. HAWKER
------------------------------------
Thomas T. Hawker
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to registration statement has been signed below by the following persons
on behalf of the registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
DATE SIGNATURE TITLE
- --------------- ---------------------------------------- ------------------------------------------------------
<C> <C> <S>
/s/ THOMAS T. HAWKER
May 10, 1996 ------------------------------- President and Chief Executive Officer and Director
Thomas T. Hawker (Principal Executive Officer)
/s/ JANEY E. BOYCE
May 10, 1996 ------------------------------- Vice President and Chief Financial Officer (Principal
Janey E. Boyce Financial and Accounting Officer)
/s/ JERRY E. CALLISTER*
May 10, 1996 ------------------------------- Director and Chairman
Jerry E. Callister
/s/ HENRY DUPERTUIS*
May 10, 1996 ------------------------------- Director
Henry Dupertuis
/s/ ROBERT E. HOLL*
May 10, 1996 ------------------------------- Director
Robert E. Holl
/s/ BERTY W. JOHNSON*
May 10, 1996 ------------------------------- Director
Berty W. Johnson
/s/ DOROTHY L. BIZZINI*
May 10, 1996 ------------------------------- Director
Dorothy L. Bizzini
/s/ WENDELL J. OLSON*
May 10, 1996 ------------------------------- Director and Chairman
Wendell J. Olson
------------------------------- Director
James W. Tolladay
------------------------------- Director
Jack F. Cauwels
/s/ JOHN FAWCETT*
May 10, 1996 ------------------------------- Director
John Fawcett
/s/ TAPAN MUNROE*
May 10, 1996 ------------------------------- Director
Tapan Munroe
*By /s/ THOMAS T. HAWKER
---------------------------
Thomas T. Hawker
AS ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
POWER OF ATTORNEY
Know all men by these presents that the undersigned does hereby make,
constitute and appoint Thomas T. Hawker or Janey E. Boyce as the true and lawful
attorney-in-fact of the undersigned, with full power of substitution and
revocation, for and in the name, place and stead of the undersigned, to execute
and deliver the Registration Statement on Form S-4, and any and all amendments
thereto, including without limitation pre-effective and post-effective
amendments thereto; such Form S-4 and each such amendment to be in such form and
to contain such terms and provisions as said attorney or substitute shall deem
necessary or desirable; giving and granting unto said attorney, or to such
person as in any case may be appointed pursuant to the power of substitution
herein given, full power and authority to do and perform any and every act and
thing whatsoever requisite, necessary or, in the opinion of said attorney or
substitute, able to be done in such matter as the undersigned might or could do
if personally present, hereby ratifying and confirming all that said attorney or
such substitute shall lawfully do or cause to be done by virtue hereof.
In witness whereof, the undersigned has duly executed this Power of
Attorney.
<TABLE>
<S> <C>
Dated: March 29, 1996 /S/ JERRY E. CALLISTER
--------------------------------------------
Jerry E. Callister
Dated: March 29, 1996 /S/ HENRY DUPERTUIS
--------------------------------------------
Henry DuPertuis
Dated: March 29, 1996 /S/ ROBERT E. HOLL
--------------------------------------------
Robert E. Holl
Dated: March 29, 1996 /S/ BERTY W. JOHNSON
--------------------------------------------
Berty W. Johnson
Dated: March 29, 1996 /S/ DOROTHY L. BIZZINI
--------------------------------------------
Dorothy L. Bizzini
Dated: March 29, 1996 /S/ WENDELL J. OLSON
--------------------------------------------
Wendell J. Olson
Dated: March 29, 1996 --------------------------------------------
James W. Tolladay
Dated: March 29, 1996 --------------------------------------------
Jack F. Cauwels
Dated: March 29, 1996 /S/ JOHN FAWCETT
--------------------------------------------
John Fawcett
Dated: March 29, 1996 /S/ TAPAN MUNROE
--------------------------------------------
Tapan Munroe
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION OF EXHIBITS PAGE
- ---------- ------------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
8.1 Opinion of KPMG Peat Marwick LLP regarding tax matters...........................................
23.1 Consent of KPMG Peat Marwick LLP.................................................................
+23.2 Consent of Atherton Associates...................................................................
</TABLE>
<PAGE>
[Peat Marwick LLP Letterhead]
Exhibit 8.1
April 18, 1996
PRIVATE
The Board of Directors
Capital Corp of the West
1160 West Olive Avenue, Suite A
Merced, California 95348-1952
Board Members:
You have asked KPMG Peat Marwick LLP ("KPMG") to opine on certain federal
income tax consequences resulting from the proposed merger of Town and
Country Finance and Thrift Co. ("Town & Country") with and into T&C Merger
Thrift Company in exchange for stock of Capital Corp of the West ("Capital
Corp"), cash or a combination thereof (the "Merger,") as described in the
AGREEMENT AND PLAN OF ACQUISITION (the "Plan.") Specifically, you have
requested us to opine that the form and substance of the Merger will
substitute a tax-free reorganization under sections 368(a)(1)(A) and
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code.")
FACTS AND REPRESENTATIONS
Capital Corp is a publicly traded bank holding company created and existing
under the laws of California. Capital Corp owns one banking subsidiary,
County Bank, a state licensed non-member commercial bank. County Bank has two
subsidiaries, Merced Area Investment and Development, Inc., a real estate
development company, and County Asset Advisors, Inc., which is currently
inactive. Capital Corp reports its income on a calendar year basis using the
accrual method of accounting. Capital Corp has 20,000,000 shares of common
stock authorized, 1,334,956 shares of which are issued and outstanding.
Capital Corp also has authorized 10,000,000 shares of preferred stock, none
of which are issued or outstanding. Capital Corp's stock is listed on the
National Association of Securities Dealers Automated Quotation System.
T&C Merger Thrift Company, a corporation wholly owned by Capital Corp, has
been organized in California for the purpose of engaging in the merger of
Town & Country with and into T&C Merger Thrift Company.
Town & Country is a licensed California industrial loan company, more
commonly known as a thrift and loan company. Its principal place of business
is in California. Town & Country has 4,950,000 shares of Series A common
stock authorized, 168,156 of which are issued and outstanding, and 50,000
shares of Series B common stock authorized, none of which are issued or
outstanding.
Town & Country will merge with and into T&C Merger Thrift Company under the
applicable laws of the state of California. The law firm of McCutchen, Doyle,
Brown & Enersen, LLP ("McCutchen") has reviewed the Plan as well as the
applicable laws of the state of California as they pertain to qualification
as a statutory merger. As a result of their review, McCutchen has furnished
KPMG with their written legal opinion (the "Legal Opinion") that the merger
of Town & Country with and into T&C Merger Thrift Company will qualify as a
statutory merger under applicable law. KPMG is relying on the Legal Opinion
in rendering its opinions herein.
The parties to the Merger represent that there is a bona fide corporate
business purpose for the proposed transaction, which consists of the
following steps:
<PAGE>
The Board of Directors
Capital Corp of the West
April 18, 1996
Page 2
(i) On the effective date of the merger, Town & Country will merge with and
into T&C Merger Thrift Company. T&C Merger Thrift Company will be the
surviving corporation and shall continue its corporate existence under
the name of Town & Country Finance and Thrift Company. At that time, the
separate corporate existence of Town & Country will cease and all assets
and property then owned by Town & Country will become the property of T&C
Merger Thrift Company. Pursuant to the Merger, Town & Country shareholders
will be entitled to receive shares of Capital Corp stock, cash, or a
combination thereof in exchange for their shares of Town & Country stock.
(ii) Dissenting shareholders will receive cash from Town & Country equal to
the fair market value their shares of Town & Country stock (the
"Dissenting Shares.")
(iii)The cash consideration for the shares of Town & Country stock will be no
less than $1,600,000 and no more than $1,800,000 (the "Cash Component.")
The number of shares of Town & Country stock to be converted into shares
of Capital Corp stock (the "Stock Component") must equal the number of
shares of Town & Country stock issued and outstanding immediately prior
to the effective date of the merger minus the sum of: the shares exchanged
for the Cash Component, the number of Dissenting Shares and the number of
share exchanged for cash in lieu of fractional shares. THE Cash Component,
the Stock Component, cash paid to dissenting shareholders and in lieu of a
fractional share equal, in total, the "Total Consideration."
The Plan provides an allocation formula for the conversion of the Cash
Component and the Stock Component in the event that the Town & Country
shareholders elect to receive cash in excess or deficient of the designated
Cash Component range. Once the Cash Component is established, the Stock
Component will equal the difference between the total agreed-upon
consideration and the Cash Component. The number of shares of Capital Corp
common stock to be exchanged as the Stock Component will equal the Stock
Component divided by the market value of the Capital Corp common stock as
determined under the Plan.
In connection with the proposed transaction, the following representations
have been made:
(a) The fair market value of the Capital Corp stock and other consideration
received by each Town & Country shareholder pursuant to the Merger will
be approximately equal to the fair market value of the Town & Country
Stock surrendered in the exchange.
(b) To the best of the knowledge of the Boards of Directors of Capital Corp
and Town & Country, there is no plan or intention by the shareholders of
Town & Country to sell, exchange, or otherwise dispose of a number of
shares of Capital Corp stock received in the transaction that would
reduce the Town & Country shareholders' ownership of Capital Corp stock
to a number of shares having a value, as of the date of the transaction,
of less than 50 percent of the value of all of the formerly outstanding
stock of Town & Country as of the same date. For purposes of
<PAGE>
The Board of Directors
Capital Corp of the West
April 18, 1996
Page 3
this representation, shares of Town & Country stock exchanged for cash and
other property, surrendered by dissenters, or exchanged for cash in lieu of
fractional shares will be treated as outstanding Town & Country stock on the
date of the transaction. Moreover, shares of Town & Country stock and shares
of Capital Corp stock held by Town & Country shareholders and otherwise
sold, redeemed, or disposed of prior or subsequent to the transaction will
be considered in making this representation.
(c) T&C Merger Thrift Company will acquire at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair market
value of the gross assets held by Town & Country immediately prior to the
transaction. For purposes of this representation, amounts paid by Town &
Country to dissenters, amounts paid by Town & Country to shareholders who
receive cash or other property, Town & Country assets used to pay its
reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends) made by Town & Country immediately preceding the
transfer, will be included as assets of Town & Country held immediately
prior to the transaction.
(d) Prior to the transaction, Capital Corp will be in control of T&C Merger
Thrift Company within the meaning of section 368(c) of the Internal
Revenue Code.
(e) Following the transaction, T&C Merger Thrift Company will not issue
additional shares of its stock that would result in Capital Corp losing
control of T&C Merger Thrift Company within the meaning of section 368(c)
of the Code.
(f) Capital Corp has no plan or intention to reacquire any of its stock
issued in the transaction.
(g) Capital Corp has no plan or intention to liquidate T&C Merger Thrift
Company; to merge T&C Merger Thrift Company with and into another
corporation; to sell or otherwise dispose of the stock of T&C Merger Thrift
Company; or to cause T&C Merger Thrift Company to sell or otherwise
dispose of any of the assets of Town & Country acquired in the
transaction, except for dispositions made in the ordinary course of
business or transfers described in section 368(a)(2)(C) of the Code.
(h) The liabilities of Town & Country assumed by T&C Merger Thrift Company
and the liabilities to which the transferred assets of Town & Country
are subject were incurred by Town & Country in the ordinary course of its
business.
(i) Following the transaction, T&C Merger Thrift Company will continue the
historic business of Town & Country or use a significant portion of Town
& Country's historic business assets in a business.
<PAGE>
The Board of Directors
Capital Corp of the West
April 18, 1996
Page 4
(j) Capital Corp, T&C Merger Thrift Company, Town & Country and the Town &
Country shareholders will pay their respective expenses, if any,
incurred in connection with the transaction.
(k) There is no intercorporate indebtedness existing between Capital Corp and
Town & Country or between T&C Merger Thrift Company and Town & Country
that was issued, acquired, or will be settled at a discount.
(l) No two parties to the Merger are investment companies as defined in
section 368(a)(2)(F)(iii) and (iv) of the Code.
(m) Town & Country is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 368(a)(3)(A) of the Code.
(n) The fair market value of the assets of Town & Country transferred to T&C
Merger Thrift Company will equal or exceed the sum of the liabilities
assumed by T&C Merger Thrift Company, plus the amount of liabilities, if
any, to which the transferred assets are subject.
(o) No stock of T&C Merger Thrift Company will be issued in the transaction.
(p) The payment of cash in lieu of fractional shares of Capital Corp stock is
solely for the purpose of avoiding the expense and inconvenience to
Capital Corp of issuing fractional shares and does not represent
separately bargained-for consideration. The total cash consideration that
will be paid in the transaction to the Town & Country shareholders
instead of issuing fractional shares of Capital Corp stock will not
exceed 1 percent of the total consideration that will be issued in the
transaction to the Town & Country shareholders in exchange for their
shares of Town & Country stock. The fractional share interest of each
Town & Country shareholder will be aggregated and no Town & Country
shareholder will receive an amount equal to or greater than the value of
one full share of Capital Corp stock.
(q) None of the compensation received by any shareholder-employees of Town &
Country will be separate consideration for, or allocable to, any of their
shares of Town & Country stock; none of the shares of Capital Corp stock
received by any shareholder-employees will be separate consideration for,
or allocable to, any employment agreement; and compensation paid to any
shareholder-employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at
arm's-length for similar services.
(r) Shares of Capital Corp issued as part of the Stock Component will have a
fair market value that is less than 50 percent of the fair market value
of all the outstanding shares of Capital Corp immediately after the
Merger.
<PAGE>
The Board of Directors
Capital Corp of the West
April 18, 1996
Page 5
(s) The fair market value of the Stock Component will equal or exceed 50
percent of the fair market value of the Total Consideration.
(t) Prior to the Merger, Town & Country qualifies under section 585 of the
Code to maintain a reserve for bad debts and immediately after the Merger,
T&C Merger Thrift Company will qualify under section 585 of the Code to
maintain a reserve for bad debts.
OPINION
Based solely on the FACTS AND PRESENTATIONS stated above and based upon the
Legal Opinion, it is the opinion of KPMG that:
(1) Provided the proposed merger of Town & Country with and into T&C Merger
Thrift Company qualifies as a statutory merger under applicable law, the
acquisition by T&C Merger Thrift Company of substantially all of the
assets of Town & Country solely in exchange for Capital Corp stock, cash,
and the assumption by T&C Merger Thrift Company of the liabilities of Town
& Country plus the liabilities to which the Town & Country assets may be
subject, will qualify as a reorganization under sections 368(a)(1)(A) and
368(a)(2)(D) of the Code. For purposes of this opinion, "substantially all"
means at least 90 percent of the fair market value of the net assets and
at least 70 percent of the fair market value of the gross assets of Town &
Country immediately prior to the proposed transaction. For this purpose,
amounts used by Town & Country to pay reorganization expenses and
dissenting shareholders, if any, will be included as assets held by Town &
Country immediately prior to the proposed transaction. Cash paid by Capital
Corp to Town & Country shareholders in lieu of shares of Capital Corp stock
will not be taken into account in determining whether the "substantially
all" requirement of section 368(a)(2)(D) is met (Rev. Rul.77-307, 1977-2
C.B. 117). Town & Country, Capital Corp, and T&C Merger Thrift Company
will each be "a party to a reorganization" within the meaning of
section 368(b).
(2) No gain or loss will be recognized to Town & Country upon the transfer of
substantially all of its assets to T&C Merger Thrift Company in exchange
for Capital Corp stock, cash, and T&C Merger Thrift Company's assumption
of Town & Country's liabilities (sections 361 and 357(a)).
(3) No gain or loss will be recognized by either Capital Corp or T&C Merger
Thrift Company upon the acquisition by T&C Merger Thrift Company of
substantially all of the assets of Town & Country in exchange for Capital
Crop stock, cash, and the assumption of Town & Country's's liabilities by
T&C Merger Thrift Company (Rev. Rul. 57-278, 1957-1 C.B. 124).
<PAGE>
The Board of Directors
Capital Corp of the West
April 18, 1996
Page 6
(4) The basis of the Town & Country assets acquired by T&C Merger Thrift
Company pursuant to the Merger will be the same in the hands of T&C Merger
Thrift Company as the basis of such assets in the hands of Town & Country
immediately prior to the exchange (section 362(b)).
(5) The holding period of the assets of Town & Country received by T&C Merger
Thrift Company pursuant to the Merger will in each instance include the
period for which such assets were held by Town & Country (section 1223(2)).
(6) The basis of T&C Merger Thrift Company stock in the hands of Capital Corp
will be increased by an amount equal to the basis of the Town & Country
assets acquired by T&C Merger Thrift Company pursuant to the Merger and
decreased by the sum of the amount of the liabilities of Town & Country
assumed by T&C Merger Thrift Company and the amount of liabilities to which
the assets of Town & Country are subject (section 1.358-6(c)(1) of the
Treasury Regulations).
(7) Town & Country shareholders will recognize no gain or loss upon their
exchange of Town & Country stock solely for shares of Capital Crop stock
(section 354(a)).
(8) If a Town & Country shareholder receives both cash and Capital Corp stock
for his Town & Country stock, gain will be recognized, but not in an amount
in excess of the amount of cash received. Section 356(a)(1) of the Code.
With regard to any Town & Country shareholder, if the exchange has the
effect of the distribution of a dividend (determined with the application
of section 318), then the amount of gain recognized that is not in excess
of such Town & Country shareholder's ratable share of undistributed
earnings and profits of Town & Country will be treated as a dividend.
Section 356(a)(2). The determination of whether the exchange has the
effect of the distribution of a dividend will be made on a shareholder by
shareholder basis in accordance with the principles enunciated in
COMMISSIONER v. CLARK, 109 S. Ct. 1455 (1989). No loss will be recognized.
Section 356(c).
(9) The basis of the Capital Corp stock received pursuant to the Merger by
the shareholders of Town & Country (including fractional shares) will be
the same as the basis of the Town & Country stock surrendered in exchange
therefor decreased by the amount of cash received by the shareholder and
increased by the amount, if any, that was treated as a dividend and the
amount of gain recognized to the shareholder on the exchange (not including
any portion of such gain that is treated as a dividend.) Section 358(a)(1)
of the Code.
(10)The holding period of the Capital Corp stock received pursuant to the
Merger by Town & Country shareholders will include the period during which
the Town & Country stock surrendered in exchange therefor was held by the
Town & Country shareholders, provided that the Town & Country stock
surrendered was a capital asset in the hands of the Town & Country
shareholders on the date of the exchange (section 1223(1)).
<PAGE>
The Board of Directors
Capital Corp of the West
April 18, 1996
Page 7
(11) If a shareholder elects and receives solely a Cash Component or
dissents to the transaction and receives solely cash in exchange for
Town & Country stock, such cash will be treated as having been received
as a distribution in redemption of the Town & Country stock, subject to
the provisions of section 302 of the Code. Where, as a result of such
distribution, a shareholder owns no Capital Corp stock, either directly
or by reason of the application of section 318, the redemption will be a
complete termination of interest within the meaning of section 302(b)(3),
and such cash will be treated as a distribution in full payment in
exchange for his or her Town & Country stock as provided in section 302(a)
provided Town & Country is not a collapsible corporation within the
meaning of section 341(b). Such shareholders will recognize gain or loss
under section 1001 measured by the difference between the amount of cash
received and the adjusted basis of the Town & Country stock surrendered.
Rev. Rul. 74-515, 1974-2 C.B. 118.
(12) Cash issued in lieu of fractional share interests of Capital Corp stock
will be treated as if the fractional shares of Capital Corp stock were
actually issued to the Town & Country shareholders and then redeemed by
Capital Corp for cash. Rev. Rul. 66-365, 1966-2 CB 116. Such cash will
be treated as received in full payment in exchange for the Capital Corp
fractional share under section 302(a). Rev. Proc. 77-41, 1977-2 CB 574.
(13) The taxable year of Town & Country will end on the effective date of
the merger. Section 381(b)(1) of the Code.
(14) T&C Merger Thrift Company will succeed to and take into account the
items of Town & Country described in section 381(c) of the Code,
subject to the provisions and limitations specified in sections 381,
382, 383, and 384 of the Code and the regulations thereunder.
(15) Town & Country's method of accounting for bad debt reserves will carry
over to T&C Merger Thrift Company, pursuant to sections
1.381(c)(4)-1(a) and 1.381(c)(4)-1(b)(4) of the Treasury Regulations. The
Merger will not cause Town & Country's bad debt reserves to be restored
to the income of Town & Country or T&C Merger Thrift Company. T&C
Merger Thrift Company will succeed to and take into account Town &
Country's bad debt reserves as of the date of the merger, and such
reserves will have the same character in the hands of T&C Merger Thrift
Company as they would have had in the hands of Town & Country if no
transfer had occurred. Section 1.381(c)(4)-1(a)(ii) of the Treasury
Regulations.
(16) As provided by section 381(c)(2) of the Code and section 1.381(c)(2)-1
of the Treasury Regulations, T&C Merger Thrift Company will succeed to
and take into account the earnings and profits, or deficit in earnings
and profits, of Town & County as of the date of the transfer. Any
deficit in earnings and profits of Town & Country or T&C Merger Thrift
Company will be used only to offset earnings and profits accumulated
after the date of transfer.
<PAGE>
The Board of Directors
Capital Corp of the West
April 18, 1996
Page 8
SCOPE OF THE OPINION
The opinions expressed in this letter are rendered only with respect to the
specific sixteen holdings provided herein, and we express no opinion with
respect to any other legal, federal or state income tax aspect of this
transaction. Specifically, we express no opinion regarding the tax
consequences to any person of entity resulting from the 1992 Stock Option
Plan Modification, the 401(k) Plan Modification, or the ESOP Modification.
You have submitted for our consideration certain representations as to
the proposed transaction and the Agreement and Plan of Acquisition. Our opinion
is also based upon the facts and representations set forth in this letter. If
any of the above-stated facts, circumstances, or representations are not
entirely complete or accurate, it is imperative that we be informed in writing
immediately, as the inaccuracy could have a material effect on our
conclusions, and we have not independently verified each of the above facts
or representations.
The above opinions are not binding upon the Internal Revenue Service (IRS,)
any state tax authority, or any court. No assurance can be given that the
IRS, state tax authority, or court will not reach a different conclusion.
In rendering our opinion, we are relying upon the relevant provisions of the
Internal Revenue Code of 1986, as amended; the regulations thereunder, and
judicial and administrative interpretations thereof, all as of the date of
this letter, all of which are subject to change or modification by subsequent
legislative, regulatory, administrative or judicial decisions. Such change
could be retroactive in effect and also have an effect on our conclusions.
KPMG undertakes no responsibility to update our conclusions in the event of
any change or modifications in tax law or in the facts and representations
stated above subsequent to the issuance of this letter.
Very truly yours,
KPMG Peat Marwick LLP
/s/ Teresa H. Castanias
Teresa H. Castanias
Partner
THC:sh
<PAGE>
EXHIBIT 23.1
The Board of Directors
Capital Corp of the West:
We consent to the use of our reports incorporated by reference and to the
reference to our firm under the heading "Experts" and "Certain Federal Income
Tax Consequences" in the S-4 Registration Statement (No. 333-3174).
/S/ KPMG PEAT MARWICK LLP
Sacramento, California
May 10, 1996
<PAGE>
EXHIBIT 23.2
[LETTERHEAD]
May 10, 1996
The Board of Directors
Town and Country Finance and
Thrift Company
We consent to the use of our reports included herein (or incorporated
herein by reference) and to the reference to our firm under the heading
"Experts" in the S-4 Registration Statement (No. 333-03174).
Very truly yours,
ATHERTON & ASSOCIATES
/s/ RODNEY K. SAKAGUCHI
Rodney K. Sakaguchi
RKS/bso
