<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
WESTAMERICA BANCORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 6021 942156203
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1108 FIFTH AVENUE, SAN RAFAEL, CALIFORNIA 94901 (415) 725-2200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DAVID L. PAYNE
WESTAMERICA BANCORPORATION
1108 FIFTH AVENUE
SAN RAFAEL, CALIFORNIA 94901
(415) 257-8000
(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 GARY STEVEN FINDLEY
MCCUTCHEN, DOYLE, BROWN & ENERSEN, LLP GARY STEVEN FINDLEY & ASSOCIATES
THREE EMBARCADERO CENTER 1470 NORTH HUNDLEY ST.
SAN FRANCISCO, CALIFORNIA 94111 ANAHEIM, CA 92806
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT IS DECLARED
EFFECTIVE.
------------------------
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>
<S> <C> <C> <C> <C>
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value.... 800,000 shares Not applicable $16,428,660 $4,337.17
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</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 average of the bid and ask price for shares of Common Stock, no par
value, of First Counties Bank as of April 12, 2000.
------------------------
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 8(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> 2
DRAFT DATED APRIL 17, 2000 SUBJECT TO CHANGE
<TABLE>
<S> <C>
PROSPECTUS OF PROXY STATEMENT OF
WESTAMERICA BANCORPORATION FIRST COUNTIES BANK
1108 FIFTH AVENUE 15145 LAKESHORE DRIVE
SAN RAFAEL, CALIFORNIA 94901 CLEARLAKE, CALIFORNIA 95422
</TABLE>
This proxy statement/prospectus is being furnished to the shareholders of
First Counties Bank in connection with the solicitation of proxies by the board
of directors of First Counties to be used in voting at the Annual Meeting of
Shareholders of First Counties to be held on [meeting date], 2000. This proxy
statement/prospectus is first being mailed to holders of common stock of First
Counties on or about [mailing date], 2000.
The meeting has been called to consider and vote upon proposals:
1. To approve the Agreement and Plan of Reorganization and Merger (the
"merger agreement") dated March 14, 2000, among First Counties, Westamerica
Bancorporation and Westamerica's wholly owned subsidiary Westamerica Bank;
2. To elect eight directors; and
3. To act upon such other matters as may properly come before the
meeting or any adjournment thereof.
The specific details of the merger agreement are more fully discussed under
the heading "Proposal One -- The Merger" in this proxy statement/prospectus, and
in the merger agreement which is set forth in full in Appendix A to this proxy
statement/prospectus.
The affirmative vote of the holders of a majority of the issued and
outstanding shares of First Counties common stock is required to approve the
merger.
NEITHER THIS TRANSACTION NOR THE SECURITIES OF WESTAMERICA 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 proxy statement/prospectus is , 2000.]
<PAGE> 3
FIRST COUNTIES BANK
15145 LAKESHORE DRIVE
CLEARLAKE, CALIFORNIA 95422
(707) 995-5236
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C>
Time [meeting time] on Thursday, [meeting date], 2000
Place 15145 Lakeshore Drive
Clearlake, California 95422
Items of business (1) To approve the Agreement and Plan of Reorganization and
Merger (the "merger agreement") dated March 14, 2000, among
First Counties, Westamerica Bancorporation and Westamerica's
wholly owned subsidiary Westamerica Bank;
(2) To elect eight directors; and
(3) To consider such other business as may properly come
before the meeting.
Record date You are entitled to vote if you were a stockholder at the
close of business on [record date], 2000.
Voting by proxy Please submit a proxy by mail as soon as possible so that
your shares can be voted at the meeting in accordance with
your instructions. For specific instructions, please refer
to the Questions and Answers beginning on page iii of this
proxy statement and the instructions on the proxy card.
BY ORDER OF THE BOARD OF DIRECTORS
Corporate Secretary
</TABLE>
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Questions and Answers About the Merger...................... iii
Summary..................................................... 1
First Counties shareholders will receive 0.8880 of a share
of Westamerica common stock in the merger.............. 1
Comparative market price data............................. 1
The merger is intended to be a tax-free transaction in
which First Counties shareholders will not recognize
gain or loss........................................... 2
First Counties board recommends shareholder approval...... 2
Financial advisor gives opinion that consideration is fair
to First Counties shareholders......................... 2
Annual shareholders meeting to be held on [meeting date],
2000................................................... 2
Record date set at [record date], 2000; vote required for
approval of merger and election of directors........... 2
Dissenters' rights of appraisal........................... 3
Information regarding Westamerica and First Counties...... 3
Westamerica to use purchase accounting treatment.......... 3
Benefits to certain officers and directors in the
merger................................................. 3
Conditions that must be satisfied for the merger to
occur.................................................. 4
Regulatory approvals we must obtain for the merger to
occur.................................................. 4
Termination of the merger agreement....................... 4
Selected financial information about Westamerica.......... 6
Selected financial information about First Counties....... 7
Comparative per Common Share Data......................... 8
Information Regarding Forward-Looking Statements............ 9
Annual Meeting of First Counties Bank Shareholders.......... 10
Date, time and place of meeting........................... 10
The meeting............................................... 10
Record date and voting rights............................. 10
Vote required............................................. 11
Voting by proxy........................................... 11
Revocability of proxies................................... 11
Adjournments.............................................. 11
Solicitation of proxies................................... 11
Other matters............................................. 11
Proposal One -- The Merger.................................. 13
General................................................... 13
Background of merger...................................... 13
Reasons for the merger; recommendation of the board of
directors.............................................. 14
Opinion of financial advisor.............................. 16
Regulatory approvals required............................. 20
Nasdaq listing............................................ 21
Interests of certain officers and directors in the
merger................................................. 21
Effect on First Counties' employee benefit plans.......... 21
Accounting treatment...................................... 21
Certain federal income tax consequences................... 22
Dissenters' rights of appraisal........................... 23
Resales of Westamerica common stock....................... 24
</TABLE>
i
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Merger Agreement........................................ 25
Structure of the merger; effective time................... 25
Conversion of First Counties common stock................. 25
Options................................................... 26
Exchange agent; exchange procedure........................ 27
Representations and warranties............................ 27
Conduct of business pending the merger.................... 28
Conditions to completion of the merger.................... 30
Extension; waiver......................................... 31
Termination............................................... 31
Expenses; liquidated damages.............................. 31
Amendment................................................. 32
Operations Following the Merger............................. 33
Information about Westamerica............................... 34
General................................................... 34
The effect of government policy on banking................ 37
Regulation and supervision of bank holding companies...... 37
Bank supervision and regulation........................... 39
Capital standards......................................... 40
Information about First Counties Bank....................... 41
General................................................... 41
Competition............................................... 43
Management's Discussion and Analysis of Financial Condition
and Results of Operations of First Counties............... 45
Financial Condition......................................... 50
Market Price and Dividend Information....................... 64
Market quotations......................................... 64
Dividends and dividend policy............................. 64
Description of Westamerica Common Stock..................... 66
Common stock.............................................. 66
Preferred stock and Class B common stock.................. 66
Debt agreement............................................ 66
Automatic dividend reinvestment service and employee stock
purchase plan.......................................... 67
Description of First Counties Common Stock.................. 67
Certain Differences in Rights of Shareholders............... 68
General................................................... 68
Declaration of dividends.................................. 68
Cumulative voting......................................... 68
Classified board of directors............................. 68
Dissenters' rights in mergers and other reorganizations... 69
Shareholders rights plan.................................. 69
Proposal Two -- Election of Directors....................... 71
Independent Public Accountants.............................. 76
Other Matters............................................... 76
Experts..................................................... 76
Legal Matters............................................... 76
Information Concerning Westamerica Management............... 76
Where You Can Find Additional Information................... 77
</TABLE>
ii
<PAGE> 6
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY HAVE YOU SENT ME THIS DOCUMENT?
A: This proxy statement/prospectus contains important information regarding this
proposed merger, as well as information about Westamerica and First Counties.
It also contains important information about what the First Counties board of
directors and management considered in evaluating this proposed merger. We
urge you to read this proxy statement/prospectus carefully, including its
appendices. You may also want to review the documents listed under "Where You
Can Find More Information" on page 78. This document also contains other
information about the matters to be voted on a First Counties Annual Meeting
of Shareholders to be held on [meeting date], 2000 (page 10).
Q: WHY IS THIS MERGER PROPOSED?
A: First Counties is proposing this merger because its board of directors has
concluded that this merger is in the best interest of its shareholders and
that the combined companies can offer First Counties' customers a broader
array of services and products than First Counties could offer on its own.
Q: WHAT WILL I RECEIVE IN THIS MERGER?
A: Under the merger agreement, you will have the right to receive 0.8880 of a
share of Westamerica common stock for each share of First Counties common
stock that you own. This ratio is subject to certain adjustments described
below.
Q: WHAT WILL HAPPEN TO FIRST COUNTIES IN THIS MERGER?
A: Immediately after the merger, First Counties will merge with a subsidiary of
Westamerica and continue to operate as "First Counties Bank." Within several
months it will be merged with Westamerica Bank. The resulting bank will
continue under the name "Westamerica Bank" as a wholly owned subsidiary of
Westamerica.
Q: HOW DO I VOTE?
A: Simply indicate on your proxy card how you want to vote and then sign and
mail your proxy card in the enclosed return envelope as soon as possible so
that your shares may be represented at the First Counties Annual Meeting.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will not vote your shares for you unless you provide instructions
to your broker on how to vote. It is important therefore that you follow the
directions provided by your broker regarding how to instruct your broker to
vote your shares. If you fail to instruct your broker how to vote your
shares, the effect will be the same as a vote against the merger agreement.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You may change your vote at any time before your proxy is voted at the
Annual Meeting. If your shares are held in your name you may do this in one
of three ways. First, you may send a written notice stating that you would
like to revoke your proxy. Second, you may complete and submit a new proxy
card. If you choose either of these two methods, you must submit your notice
of revocation or your new proxy card to First Counties at the address at the
top of the Notice of
iii
<PAGE> 7
Annual Meeting in time so as to receive it prior to the vote at the Annual
Meeting. Third, you may attend the meeting and vote in person if you tell the
Secretary that you want to cancel your proxy and vote in person. Simply
attending the First Counties Annual Meeting, however, will not revoke your
proxy. If you have instructed a broker to vote your shares, you must follow
directions received from your broker to change your vote or to vote at the
First Counties Annual Meeting.
Q: SHOULD I SEND IN MY CERTIFICATES NOW?
A: No. After the merger is completed, we will send you written instructions for
exchanging your stock certificates.
Q: WHEN DO YOU EXPECT THIS MERGER TO BE COMPLETED?
A: We are working toward completing this merger as quickly as possible. We
currently expect to complete this merger in mid-2000.
iv
<PAGE> 8
SUMMARY
This summary, together with the "Questions and Answers" on the preceding
pages, highlights important selected information from this proxy
statement/prospectus. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire document and the other information available to you. We have included
page references in parentheses to direct you to a more complete description of
the topics presented in this summary.
FIRST COUNTIES SHAREHOLDERS WILL RECEIVE 0.8880 OF A SHARE OF WESTAMERICA COMMON
STOCK IN THE MERGER (PAGE 25)
When the merger is completed, you will receive 0.8880 of a share of
Westamerica common stock for each share of First Counties common stock that you
hold, subject to certain possible adjustments. For example, if you hold 100
shares of First Counties common stock, you will have the right to receive 88.8
shares of Westamerica common stock in the merger. You will receive cash instead
of fractional shares. Therefore, you would only receive 88 shares of Westamerica
common stock. You would also receive a check in an amount equal to 0.8 of a
share multiplied by the closing price of the Westamerica common stock on the
trading day before the "closing date," the date on which the transactions
relating to the merger are completed.
If Westamerica's average closing price before the closing date is greater
than $25.59, the exchange ratio will be reduced so that the product of the
exchange ratio and Westamerica's average closing price will be $22.72. If
Westamerica's average closing price before closing is less than $18.91, the
exchange ratio will be increased so that the product of the exchange ratio and
Westamerica's average closing price will be $16.79. If Westamerica's average
closing price before closing is less than $18.00, Westamerica may, but is not
required to, increase the exchange ratio as described in the preceding sentence;
if it does not, the boards of Westamerica and First Counties may agree on any
exchange ratio that is mutually acceptable to them. To determine adjustments in
the number of Westamerica shares to be issued, the stock will be valued at its
average closing price for the 20 trading days ending three business days before
the effective date of the merger.
COMPARATIVE MARKET PRICE DATA
Westamerica common stock is quoted on the Nasdaq National Market. First
Counties common stock is thinly traded in the over-the-counter market, is quoted
in the "Electronic Bulletin Board" and is not quoted on Nasdaq.
The following table sets forth historical per share market values for
Westamerica common stock and First Counties common stock. It also shows the
equivalent pro forma market values (i) on March 14, 2000, the last trading day
prior to public announcement of the merger and (ii) on , 2000. The
historical values represent the last sale prices on or before the dates
indicated. The values for Westamerica may be higher or lower than the average
closing price of Westamerica common stock as that term is defined in the merger
agreement. The equivalent pro forma market value per share of First Counties
common stock reflects an Exchange Ratio of 0.8880 and assumes an
1
<PAGE> 9
average closing price equivalent to the market price for Westamerica common
stock shown in the table.
<TABLE>
<CAPTION>
FIRST COUNTIES
HISTORICAL MARKET PRICE EQUIVALENT
---------------------------- PRO FORMA
WESTAMERICA FIRST COUNTIES MARKET VALUE
----------- -------------- --------------
<S> <C> <C> <C>
March 14, 2000..................................... $21.81 $11.25 $19.37
, 2000................................
</TABLE>
- -------------------------
(1) The historical market price for First Counties' common stock is based on
information provided to management by various sources, but not verified by
First Counties. First Counties has not been a party to any trades reflected
in that information.
Westamerica cannot assure you that the price of its stock will be the same
or greater than the prices shown in the table at the time of the merger, or at
any time after the completion of the merger. Once First Counties is acquired by
Westamerica, there will be no further public market for First Counties' common
stock. However, Westamerica common stock will continue to be traded on the
Nasdaq National Market.
THE MERGER IS INTENDED TO BE A TAX-FREE TRANSACTION IN WHICH FIRST COUNTIES
SHAREHOLDERS WILL NOT RECOGNIZE GAIN OR LOSS (PAGE 22)
The merger is intended to be a tax-free reorganization so that no gain or
loss will be recognized by either Westamerica or First Counties or their
respective shareholders for federal income tax purposes, except for the cash
that First Counties shareholders will receive instead of fractional shares.
FIRST COUNTIES BOARD RECOMMENDS SHAREHOLDER APPROVAL (PAGE 14)
First Counties' board of directors believes that the merger is in the best
interests of First Counties and its shareholders and has unanimously approved
the merger agreement. First Counties' board recommends that you vote "FOR"
approval of the merger agreement.
FINANCIAL ADVISOR GIVES OPINION THAT CONSIDERATION IS FAIR TO FIRST COUNTIES
SHAREHOLDERS (PAGE 15)
In deciding to approve the merger, the First Counties board of directors
considered the opinion of its financial advisor, The Findley Group, dated as of
March 14, 2000, about the fairness of the merger to First Counties shareholders
from a financial point of view. This opinion is attached as Appendix B to this
proxy statement/prospectus. We encourage you to read it carefully. Under an
agreement with First Counties, Findley Group will receive a fee of $75,000 when
the merger closes.
ANNUAL SHAREHOLDERS MEETING TO BE HELD ON [MEETING DATE], 2000 (PAGE 10)
We will hold the Annual Meeting of Shareholders at [meeting time] on
Thursday, [meeting date], 2000, at 15145 Lakeshore Drive, Clearlake, California.
At the Annual Meeting, you will be asked (1) to approve the merger agreement and
(2) to elect eight people to the board of directors to serve until the merger is
completed or until the next Annual Meeting.
RECORD DATE SET AT [RECORD DATE], 2000; VOTE REQUIRED FOR APPROVAL OF MERGER
(PAGE 11) AND ELECTION OF DIRECTORS (PAGE 11)
You can vote at the Annual Meeting if you owned First Counties common stock
at the close of business on [record date], 2000. A majority of the outstanding
shares of First Counties common
2
<PAGE> 10
stock must vote to approve the merger agreement in order for the merger to
occur. In the election of directors, the eight nominees receiving the greatest
number of votes will be elected.
DISSENTERS' RIGHTS OF APPRAISAL (PAGE 23 AND APPENDIX C)
You may be entitled to cash equal to the fair value of your First Counties
shares before announcement of the merger if you perfect your dissenters' rights.
INFORMATION REGARDING WESTAMERICA AND FIRST COUNTIES (PAGES 34 AND 42)
Westamerica Bancorporation
1108 Fifth Avenue
San Rafael, CA 94901
(415) 257-8000
www.westamerica.com
Westamerica Bancorporation is a bank holding company registered under the
Bank Holding Company Act of 1956 ("BHC Act"). The company was incorporated under
the laws of the State of California as "Independent Bankshares Corporation" on
February 11, 1972. It is the parent of Westamerica Bank and Bank of Lake County.
The banks have 90 branches throughout northern and central California.
Westamerica is the 12th largest bank, measured by deposits, in California. At
December 31, 1999, it had total assets of $3.9 billion, deposits of $3.1 billion
and shareholders' equity of $301 million.
First Counties Bank
15145 Lakeshore Drive
Clearlake, CA 95422
(707) 995-5236
www.FCOK.com
First Counties is a state banking corporation licensed by the California
Department of Financial Institutions (the "DFI") as a commercial bank. It was
originally incorporated as a national bank in 1985 as Clear Lake National Bank.
It is headquartered in Clearlake, Lake County, California. First Counties
conducts a general commercial banking business through its main office and four
branches. At December 31, 1999, First Counties had assets of approximately $91
million, deposits of approximately $81 million and shareholders' equity of
approximately $8.8 million.
WESTAMERICA TO USE PURCHASE ACCOUNTING TREATMENT (PAGE 21)
Westamerica expects to account for the merger as a purchase. Under the
purchase accounting method, Westamerica will revalue on its books the assets and
liabilities of First Counties at their fair market values, and the amount by
which the aggregate merger consideration exceeds the net fair values of the
assets of First Counties will be recorded as intangible assets called goodwill
or core deposit intangible.
BENEFITS TO CERTAIN OFFICERS AND DIRECTORS IN THE MERGER (PAGE 21)
In considering the recommendation of the board of directors of First
Counties to approve the merger agreement, you should be aware that certain
officers and directors of First Counties have certain interests in, and will
receive benefits as a consequence of, the merger that are different from the
benefits to First Counties shareholders generally. These interests include:
- Certain officers and employee-directors of First Counties will receive
options to acquire Westamerica common stock in place of existing options
to acquire First Counties common stock;
3
<PAGE> 11
- David Perry and Millie Hammes, who are the President and Chief Executive
Officer and the Chief Financial Officer, respectively, of First Counties
will receive certain payments under their salary continuation agreements;
- David Perry will receive compensation for certain consulting services
following completion of the merger.
CONDITIONS THAT MUST BE SATISFIED FOR THE MERGER TO OCCUR (PAGE 30)
We will not complete the merger unless a number of conditions are met.
These include:
- approval of the merger agreement by First Counties shareholders,
- receipt of all required regulatory approvals,
- absence of material adverse changes in the parties, and
- absence of any orders suspending the effectiveness of the registration
statement filed by Westamerica to register the shares to be issued to
First Counties shareholders.
REGULATORY APPROVALS WE MUST OBTAIN FOR THE MERGER TO OCCUR (PAGE 20)
The merger requires the prior approval of the Board of Governors of the
Federal Reserve System (the "FRB") and the California Department of Financial
Institutions (the "DFI").
TERMINATION OF THE MERGER AGREEMENT (PAGE 31)
The merger agreement may be terminated before completion as follows:
- by the mutual consent of the respective boards of directors;
- by Westamerica on or after September 29, 2000, if any of the conditions
to the obligations of Westamerica has not been fulfilled or waived
(subject to an extension to October 31 for regulatory waiting periods),
if there is any material adverse change in First Counties or its
properties, operations or financial condition, First Counties materially
fails to comply with its obligations under the merger agreement, First
Counties enters into a transaction with someone other than Westamerica
providing for the acquisition of all or a substantial part of First
Counties or its assets; or
- by the board of directors of First Counties on or after September 29,
2000, if any of the conditions to the obligations of First Counties has
not been fulfilled or waived (subject to an extension to October 31 for
regulatory waiting periods), if there is any material adverse change in
Westamerica or its properties, operations or financial condition,
Westamerica materially fails to comply with its obligations under the
merger agreement, Westamerica or its affiliates enter into a business
combination with any other entity which does not expressly contemplate
the performance by Westamerica or its successor in interest of
Westamerica's obligations under the merger agreement.
If either party breaches the merger agreement, the other party may
terminate the merger agreement and becomes entitled to be paid $300,000 by the
party who breached. In addition, each party remains liable for its other
expenses as set forth in Section 10 of the merger agreement. If First Counties
enters into, solicits or encourages a competing transaction, Westamerica may
terminate the merger agreement and First Counties will be liable for a break-up
fee of $1,750,000. If Westamerica enters into a competing transaction that
precludes Westamerica from completing the merger, First Counties may terminate
the merger agreement and Westamerica will be liable for a break-up fee of
$1,000,000.
4
<PAGE> 12
Either Westamerica or First Counties can terminate the merger agreement
without penalty if Westamerica's average closing price for the 20-trading day
measurement period ending three business days before the closing is less than
$18.00, unless:
- Westamerica agrees to increase the exchange ratio so that the product of
the average closing price and the exchange ratio is $16.79; or
- Westamerica and First Counties mutually agree to a different exchange
ratio.
5
<PAGE> 13
SELECTED FINANCIAL INFORMATION ABOUT WESTAMERICA
The table set forth below presents selected supplemental historical
financial information for Westamerica for each of the five years in the period
ended December 31, 1999. Such information has been derived from and should be
read in conjunction with the supplemental consolidated financial statements of
Westamerica including the notes thereto, which are incorporated by reference
elsewhere in this document.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Interest income................... $ 257,656 $ 266,820 $ 270,670 $ 274,182 $ 283,704
Interest expense.................. 78,456 86,665 88,054 91,700 95,627
Net interest income............... 179,200 180,155 182,616 182,482 188,077
Provision for loan losses......... 4,780 5,180 7,645 12,306 15,229
Non-interest income............... 40,174 37,805 37,013 36,307 34,227
Non-interest expense.............. 100,133 101,408 137,878 136,051 141,960
Income before income taxes........ 114,461 111,372 74,106 70,432 65,115
Provision for income taxes........ 38,373 37,976 25,990 23,605 21,930
Net income.................... $ 76,088 $ 73,396 $ 48,116 $ 46,827 $ 43,185
Earnings per share:
Basic........................... $ 1.97 $ 1.76 $ 1.12 $ 1.10 $ 0.99
Diluted......................... 1.94 1.73 1.10 1.08 0.98
Per share:
Dividends paid.................. $ 0.66 $ 0.52 $ 0.36 $ 0.30 $ 0.25
Book value at December 31....... 8.10 9.25 9.51 8.84 8.12
Average common shares
outstanding..................... 38,588 41,797 43,040 42,759 43,747
Average diluted common shares
outstanding..................... 39,194 42,524 43,827 43,358 44,274
Shares outstanding at December
31.............................. 37,125 39,828 42,799 42,889 43,228
AT DECEMBER 31:
Loans, net...................... $2,269,272 $2,246,593 $2,211,307 $2,236,319 $2,204,495
Total assets.................... 3,893,187 3,844,298 3,848,444 3,866,774 3,880,979
Total deposits.................. 3,065,344 3,189,005 3,078,501 3,228,700 3,270,907
Short-term borrowed funds....... 462,345 203,671 264,848 167,447 175,622
Debt financing and notes
payable....................... 41,500 47,500 52,500 58,865 40,932
Shareholders' equity............ 300,592 368,596 407,152 379,279 351,058
FINANCIAL RATIOS:
For the year:
Return on assets................ 1.99% 1.94% 1.28% 1.24% 1.14%
Return on equity................ 23.31% 19.48% 12.71% 13.22% 12.73%
Net interest margin(1).......... 5.46% 5.52% 5.63% 5.54% 5.68%
Net loan losses to average
loans......................... 0.20% 0.20% 0.35% 0.51% 0.59%
Efficiency ratio(2)............. 43.19% 44.25% 60.15% 60.08% 63.86%
AT DECEMBER 31:
Equity to assets................ 7.72% 9.59% 10.58% 9.81% 9.05%
Total capital to risk-adjusted
assets........................ 11.75% 13.79% 14.76% 14.95% 14.39%
Loan loss reserve to loans...... 2.22% 2.23% 2.24% 2.23% 2.15%
</TABLE>
- -------------------------
(1) Fully taxable equivalent (FTE)
(2) The ratio of non-interest expenses to the sum of net interest income (FTE)
and non-interest income.
6
<PAGE> 14
SELECTED FINANCIAL INFORMATION ABOUT FIRST COUNTIES
This financial information for First Counties for the years 1995 to 1999 is
only a summary. You should read it with the audited consolidated financial
statements and the accompanying notes of First Counties. First Counties'
financial statements as of December 31, 1999 and 1998, and for the three years
in the period ended December 31, 1999 are included in this document. For more
information, see "Where You Can Find More Information" on page 78.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATE)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest income.................. $ 7,215 $ 6,881 $ 6,345 $ 5,582 $ 4,822
Interest expense................. 2,608 2,507 2,559 2,287 1,974
Net interest income.............. 4,607 4,374 3,786 3,295 2,848
Provision for loan losses........ 241 380 332 350 201
Noninterest income............... 1,345 869 978 1,006 719
Noninterest expense.............. 4,206 3,692 3,350 3,188 2,694
Income before income taxes....... 1,505 1,171 1,082 763 672
Provision for income taxes....... 552 442 421 228 251
Net income....................... 953 729 661 535 421
Basic earnings per share......... $ 1.16 $ 0.99 $ 1.16 $ 0.94 $ 0.74
Number of shares used in basic
earnings per share
calculation.................... 819,034 736,648 569,372 569,372 569,372
Diluted earnings per share....... $ 1.15 $ 0.97 $ 1.14 $ 0.93 $ 0.72
Number of shares used in diluted
earnings per share
calculation.................... 825,678 753,877 577,553 576,887 583,642
BALANCE SHEET (END OF PERIOD)
Total assets..................... 90,884 85,984 77,867 69,353 61,466
Net loans........................ 59,721 56,653 50,706 50,459 42,710
Deposits......................... 81,057 77,272 71,671 64,020 56,687
Shareholders' equity............. 8,843 8,045 5,323 4,761 4,278
FINANCIAL RATIOS
Tier 1 risk-based capital........ 15.2% 14.0% 10.3% 10.3% 11.5%
Total risk-based capital......... 16.5% 15.3% 11.6% 11.5% 12.8%
Leverage ratio................... 9.8% 9.8% 6.9% 6.5% 6.7%
Allowance for loan losses/period
end loans...................... 1.95% 1.81% 1.93% 1.63% 1.50%
Return on average assets......... 1.05% 0.90% 0.88% 0.79% 1.11%
Return on average equity......... 11.39% 10.36% 13.18% 9.45% 9.28%
Nonperforming assets to total
assets......................... 0.08% 3.20% 3.06% 1.96% 1.56%
</TABLE>
7
<PAGE> 15
COMPARATIVE PER COMMON SHARE DATA
We have summarized below the historical per share information for
Westamerica and First Counties and additional information as if the companies
had been combined for the period shown ("pro forma") calculated based on an
exchange ratio of 0.8880 of a share of Westamerica common stock per share of
First Counties common stock.
You should read this information with Westamerica's historical financial
statements and related notes contained in the Annual Reports on Form 10-K that
we have filed with the Securities and Exchange Commission. See "Where You Can
Find More Information" on page 78.
First Counties equivalent pro forma share amounts are calculated by
multiplying the pro forma book value per share and net income per share and
Westamerica's historical per share dividends by the exchange ratio so that the
per share amounts equate to the respective values for one share of First
Counties common stock. You should not rely on the pro forma information as being
indicative of the historical results that we would have had or the future
results that will occur after the merger. The equivalent pro forma data reflects
the purchase method of accounting, including amortization of goodwill, but does
not reflect potential cost savings or revenue enhancements that may be achieved.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------
WESTAMERICA FIRST COUNTIES
----------------------- ------------------------
PRO FORMA EQUIVALENT
HISTORICAL COMBINED HISTORICAL PRO FORMA
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Book value.................................. $8.10 $8.39 $10.71 $7.45
Cash dividends.............................. 0.66 0.66 0.05 0.59
Net income (basic).......................... 1.97 1.94 1.16 1.72
Net income (diluted)........................ 1.94 1.91 1.15 1.70
</TABLE>
8
<PAGE> 16
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains certain forward-looking statements
with respect to the financial condition, results of operations and business of
Westamerica and First Counties in the future, including statements relating to
the cost savings which we expect to realize from the merger, the expected impact
of the merger on Westamerica's financial performance, earnings estimates for the
combined company and the market value of Westamerica common stock in the future
(see "The Merger -- Reasons for the merger; recommendations of the board of
directors" on page 14). These forward-looking statements involve certain risks
and uncertainties. Factors that may cause actual results to differ materially
from those contemplated by such forward-looking statements include, among
others, the following possibilities:
- expected cost savings from the merger cannot be fully realized;
- deposit attrition, customer loss or revenue loss following the merger is
greater than expected;
- competitive pressure in the banking industry increases significantly;
- costs or difficulties related to the integration of the business of
Westamerica and First Counties are greater than expected;
- changes in the interest rate environment reduce margins;
- general economic conditions, either nationally or regionally, are less
favorable than expected, resulting in, among other things, a
deterioration in credit quality;
- changes in the regulatory environment;
- changes in business conditions and inflation; and
- changes in the securities markets.
The forward-looking earnings estimates included in this proxy
statement/prospectus have not been examined or compiled by the independent
public accountants of Westamerica or First Counties nor have such accountants
applied any procedures thereto. Accordingly, such accountants do not express an
opinion or any other form of assurance on them. Further information on other
factors which could affect the financial results of Westamerica after the merger
is included in the SEC filings incorporated by reference herein.
9
<PAGE> 17
ANNUAL MEETING OF FIRST COUNTIES BANK SHAREHOLDERS
DATE, TIME AND PLACE OF MEETING
The Annual Meeting of Shareholders of First Counties Bank will be held on
[meeting date], 2000, at [meeting time] local time at 15145 Lakeshore Drive,
Clearlake, California.
THE MEETING
At the meeting, the shareholders of First Counties Bank will be asked to
consider and vote on the merger agreement dated March 14, 2000 among Westamerica
Bancorporation, Westamerica Bank and First Counties. The merger agreement is
included as Appendix A to this proxy statement/ prospectus and is incorporated
herein by reference. Under the merger agreement:
- First Counties will merge with a separate subsidiary of Westamerica and
later, after information systems and facilities conversions are
completed, with Westamerica Bank; and
- each share of First Counties common stock would be converted into the
right to receive 0.8880 shares of common stock of Westamerica, subject to
decrease if Westamerica's average closing stock price before closing is
above $25.59 or increase if Westamerica's average closing price before
closing is below $18.91.
THE BOARD OF DIRECTORS OF FIRST COUNTIES HAS, BY UNANIMOUS VOTE, APPROVED
THE MERGER AGREEMENT AND RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
In addition to the proposal to approve the merger agreement, at the Annual
Meeting you will be asked to:
- elect eight directors to serve until their successors are elected or
until completion of the merger; and
- act upon such other matters as may properly come before the meeting.
RECORD DATE AND VOTING RIGHTS
Only holders of record of First Counties common stock at the close of
business on [record date], 2000 are entitled to notice of and to vote at the
meeting. At the Record Date, there were approximately 300 shareholders of record
and 825,871 shares of First Counties common stock outstanding and entitled to
vote. Directors and executive officers of First Counties and their affiliates
owned beneficially as of the Record Date an aggregate of 204,736 shares of First
Counties common stock (excluding exercisable stock options), or approximately
24.8% of the outstanding First Counties common stock.
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 and is entitled to as many votes as shall equal the
number of shares held multiplied by the number of directors to be elected and
such shareholder 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 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.
10
<PAGE> 18
VOTE REQUIRED
Approval of the merger by First Counties shareholders requires the
affirmative vote of the holders of a majority of the outstanding shares. The
eight director nominees receiving the most votes will be elected.
VOTING BY PROXY
Shareholders of First Counties 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 meeting in accordance with
the instructions indicated or, if no instruction is indicated, in favor of the
merger and for the election of the nominees for director. The execution of a
proxy will not affect the right of a shareholder to attend the meeting and vote
in person.
REVOCABILITY OF PROXIES
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 the meeting will not, by itself,
revoke a proxy.
ADJOURNMENTS
The 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. In the absence of a quorum at the meeting, no other business may be
transacted at the 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, 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.
SOLICITATION OF PROXIES
The proxy relating to the meeting is being solicited by the board of
directors of First Counties. First Counties will bear the cost of printing and
distributing the proxy statement/prospectus. Copies of solicitation material
will be furnished to brokerage houses, fiduciaries and custodians holding in
their names shares of First Counties common stock beneficially owned by others
to forward to such beneficial owners. First Counties may reimburse such persons
representing beneficial owners of its shares for their expenses in forwarding
solicitation material to beneficial owners. Solicitation of proxies by mail may
be supplemented by telephone, telegram or personal solicitation by directors,
officers or other regular employees of First Counties, who will not receive any
additional compensation for such efforts.
OTHER MATTERS
The board of First Counties is not aware of any matters to come before the
Annual Meeting other than as set forth above. If any other matters should be
brought before the Meeting, or any adjournment thereof, upon which a vote
properly may be taken, the proxy holders will vote in their discretion unless
otherwise provided in the proxies. If the merger is completed, First Counties
will not hold an Annual Meeting of Shareholders in 2001. In the event the merger
is not completed, the
11
<PAGE> 19
proxy holders may vote in their discretion all proxies solicited for First
Counties' Annual Meeting on any matter raised at that meeting of which First
Counties did not have notice by at least January 15, 2001. Any proposals which
shareholders intend to present at the 2001 Annual Meeting of Shareholders, if
such a meeting is held, must be received by the Secretary of First Counties by
January 15, 2001, in order to be considered for inclusion in First Counties'
2001 proxy materials.
12
<PAGE> 20
PROPOSAL ONE -- THE MERGER
GENERAL
The board of directors of First Counties has approved the merger agreement,
which provides for the merger of First Counties with and into Westamerica Bank.
This section of the proxy statement/prospectus describes certain aspects of the
merger, including the background of the merger and First Counties' reasons for
the merger.
In the merger, each outstanding share of First Counties common stock will
be converted into the right to receive 0.8880 of a share of Westamerica common
stock. This figure may be decreased if Westamerica's average closing stock price
for the 20 trading days ending three days before closing is greater than $25.59
or increased if Westamerica's average closing stock price for this period is
less than $18.91. Based on the number of shares of First Counties common stock
outstanding on the record date, Westamerica will issue approximately 750,000
shares of Westamerica common stock in the merger, representing approximately 2%
of the number of shares of Westamerica common stock that will be outstanding
immediately after the merger.
The merger agreement also provides that before the merger, Westamerica may
specify that the parties to the merger agreement and First Counties enter into
transactions that are structured differently from the merger described in this
section. To minimize the disruption in customer service that might result from
the conversion of First Counties' information systems and facilities to those of
Westamerica, Westamerica intends to break the integration of First Counties into
Westamerica Bank down into two steps as follows:
- At the closing, First Counties will merge with a newly formed Westamerica
subsidiary created solely for this purpose. At this time, the exchange of
First Counties common stock for Westamerica common stock will begin.
First Counties will be the surviving entity and will operate as a
separate subsidiary of Westamerica for several months while work on the
conversion proceeds.
- Once the conversion is complete, First Counties will be merged with
Westamerica Bank. We expect this to occur near the end of September of
2000.
No such change, however, may materially and adversely affect the timing of
the completion of the merger or adversely affect the economic benefits, the form
of consideration or the tax effect of the merger to you.
BACKGROUND OF THE MERGER
First Counties, based in Lake County, California, has conducted general
banking operations to serve individuals and small to medium-sized businesses
since 1985. In serving individuals and small businesses, First Counties
historically has focused on a community-based approach to banking.
In early November, 1999 as part of its strategic planning retreat, the
board of directors evaluated the banking marketplace, the economic cycle and the
historically high acquisition prices being paid for banks of First Counties'
size. The board of directors was concerned about the rapid changes occurring in
the banking industry in California. Tremendous consolidation had taken place,
especially in 1996 through 1999. To effectively compete with other, more
efficient financial institutions, First Counties' board of directors and
management knew that they had to continue to increase its core deposit base as
well as its loan portfolio, or substantially modify its business practices to a
less costly process. Although the board believed that First Counties was in a
position to do this, the board agreed to entertain offers for purchasing the
bank as well as looking at possible acquisitions. Over the last few years, First
Counties had meetings and discussions with respect to potential acquisitions and
13
<PAGE> 21
business combinations. One of the institutions with which First Counties had
discussions was Westamerica.
At the November, 1999 strategic planning retreat, the board of directors of
First Counties determined that First Counties should contact several financial
institutions concerning their interest in possibly acquiring First Counties. The
board of directors of First Counties retained the services of The Findley Group
("Findley") in order to disseminate information out to prospective acquirers of
First Counties. In mid-November, 1999, approximately 25 financial institutions
were contacted to determine whether they had interest in reviewing a
confidential information package concerning First Counties. Of the 25 banking
institutions contacted, 12 institutions executed confidentiality agreements and
were forwarded financial and related information concerning First Counties.
Those institutions that signed confidentiality agreements were given until
January 10, 2000 to provide an indication of interest in the acquisition of
First Counties and to indicate a proposed price. Four banking institutions
submitted offers to the board of directors of First Counties. On January 20,
2000 the board of directors reviewed the four offers with Findley and determined
that three institutions should be permitted to complete due diligence
examination of First Counties. During late January and early February, each of
the three institutions conducted due diligence examinations at First Counties.
On February 14, 2000, two financial institutions reconfirmed their proposal for
the acquisition of First Counties after the completion of due diligence. One
institution decided to withdraw its offer. On February 17, 2000, the board of
directors of First Counties met to review the two remaining proposals. The
financial terms of the proposal submitted by Westamerica were clearly superior
to the other offer.
At the February 17, 2000 meeting of the First Counties board of directors,
the members of the board of directors and advisors to First Counties discussed
in detail the proposed merger terms and plans for First Counties' officers and
staff following the proposed merger. The First Counties board considered this
information and then authorized representatives of First Counties to continue
negotiating a tentative merger agreement between First Counties and Westamerica.
Negotiations continued between representatives of First Counties and
Westamerica, and on March 13, 2000, the First Counties board deliberated at
length concerning the transaction. The First Counties board reviewed the merger
agreement and related documents, its strategic alternatives, the competitive
banking environment in California, and the prospects for First Counties if it
remained independent. At this meeting, Findley discussed with the First Counties
board its analysis of the merger and delivered to the First Counties board its
opinion that the consideration to be received in the merger was fair to the
First Counties shareholders from a financial point of view. Thereafter, the
First Counties board unanimously approved and authorized the execution of the
merger agreement.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
Westamerica believes that the merger will provide it with an attractive
opportunity to expand its operations in Lake and Napa counties. Westamerica
believes that First Counties' locations and business mix complement
Westamerica's existing presence in Lake County and will enable it to offer its
broad array of products and services to customers of First Counties.
The First Counties board believes that the terms of the merger are fair and
are in the best interests of First Counties and its shareholders and recommends
that the shareholders of First Counties vote FOR approval of the merger.
In reaching its conclusion, the First Counties board considered information
provided at its meetings in January, February and March, 2000, including, among
other things:
- information concerning the financial performance and condition, business
operations, capital levels, asset quality, loan portfolio breakdown, and
prospects of Westamerica;
14
<PAGE> 22
- the structure of the transaction, including the fact that the First
Counties shareholders would receive approximately 2% of the common stock
of Westamerica;
- the terms of the merger agreement and other documents to be executed in
connection with the merger, including the substantial premium over book
value and the substantial multiple of earnings of First Counties which
Westamerica will pay to First Counties' shareholders;
- the presentation of Findley and the opinion of Findley that the merger is
fair to the shareholders of First Counties from a financial point of
view;
- the prices paid and the terms of other recent comparable combinations of
banks and bank holding companies;
- the board's review with its legal and financial advisors of alternatives
to the merger, the range of possible values to First Counties
shareholders obtainable through implementation of alternatives and the
timing and likelihood of the same;
- the current and prospective economic environment and increasing
regulatory and competitive burdens and constraints facing community
banks;
- the pro forma financial statements of the combined companies and the
capitalization of the combined companies;
- the geographic distribution of Westamerica offices in relation to First
Counties' banking offices and strategic plan;
- the advantages of being part of a larger entity, including the potential
for operating efficiencies, the effect of a higher lending limit on First
Counties' customers and prospective customers, and the generally higher
trading multiples of larger financial institutions;
- the business strategies, the strength and depth of management of the
combined entity and the extent of their interest in continuing First
Counties' significant business relationships in Lake, Napa and Colusa
counties;
- the ability of a larger institution to compete in the banking environment
and to leverage overhead costs;
- the anticipated positive effect of the merger on existing shareholders,
employees, officers and customers of First Counties;
- the ability of First Counties and Westamerica to achieve operating
efficiencies;
- the anticipated impact on the communities served by First Counties and
Westamerica in the merger, and the increased ability to serve the
communities through the larger branch network;
- the unprecedented consolidation currently underway in the banking
industry and increased competition from larger independent banks in
California;
- the value of the consideration offered by Westamerica compared to the
value of the consideration offered in other acquisitions of financial
institutions in California in 1996 - 1999 and the prospects for enhanced
value of the combined entity in the future;
- the tax-free nature of the Westamerica offer;
- the liquidity of Westamerica common stock; and
- the prospects for First Counties on a stand alone basis and on the basis
of alternative stand alone strategies, such as dividends, share
repurchases, restructurings and growth through acquisitions.
15
<PAGE> 23
In addition to the advantages, discussed in the previous paragraph, of a
merger with a larger financial institution, the board of directors and
management of First Counties also discussed the various risks of combining with
Westamerica, including:
- the disadvantages of being part of a larger entity, including the
potential for decreased customer service; and
- the integration of First Counties and Westamerica will divert the
combined entities' management from other activities.
However, after weighing the advantages and disadvantages of a merger with
Westamerica, the First Counties board of directors determined that the
advantages clearly outweighed the disadvantages.
The foregoing discussion of the information and factors considered by the
First Counties board of directors is not intended to be exhaustive, but
constitutes the material factors considered by the First Counties board of
directors. In reaching its determination to approve and recommend the merger,
the First Counties board of directors did not assign relative or specific
weights to the foregoing factors and individual directors may have weighed such
factors differently.
For reasons set forth above, the First Counties board of directors has
unanimously approved the merger agreement as in the best interest of First
Counties and its shareholders and unanimously recommends that the First Counties
shareholders approve the merger.
OPINION OF FINANCIAL ADVISOR
First Counties retained Findley to act as its financial advisor in
connection with the merger pursuant to an oral agreement entered into in
November 1999 and confirmed in an engagement letter dated March 13, 2000.
Findley has rendered to the board of directors of First Counties its written
opinion dated March 14, 2000, as affirmed on [mailing date], 2000, pursuant to
the terms of the agreement that, subject to the assumptions and limitations set
forth therein, the exchange ratio is fair, from a financial point of view, to
the holders of the shares of First Counties common stock. A copy of the opinion
of Findley dated March 14, 2000 is attached as Appendix B to this proxy
statement/prospectus and should be read in its entirety. The following summary
is qualified in its entirety by reference to the full text of the opinion. This
opinion is addressed to the board of directors of First Counties and does not
constitute a recommendation to any shareholder of First Counties as to how such
shareholder should vote at the First Counties meeting.
In connection with its fairness opinion, Findley, among other things:
(a) reviewed certain publicly available financial and other data with
respect to First Counties and Westamerica, including the consolidated
financial statements for recent years, and certain other relevant financial
and operating data relating to First Counties and Westamerica made
available to Findley from published sources and from the internal records
of First Counties;
(b) reviewed the merger agreement;
(c) reviewed certain historical market prices and trading volumes of
First Counties common stock and Westamerica common stock;
(d) compared First Counties and Westamerica from a financial point of
view with certain other banks and bank holding companies that Findley
deemed to be relevant;
(e) considered the financial terms, to the extent publicly available,
of selected recent business combinations of banks and bank holding
companies that Findley deemed to be comparable, in whole or in part, to the
merger;
16
<PAGE> 24
(f) reviewed and discussed with representatives of the management of
First Counties certain information of a business and financial nature
regarding First Counties and Westamerica furnished to Findley by First
Counties, including financial forecasts and related assumptions of First
Counties;
(g) made inquiries regarding and discussed the merger and the merger
agreement and other matters related thereto with First Counties' counsel;
and
(h) performed such other analyses and examinations as Findley deemed
appropriate.
For its evaluation Findley used an exchange ratio under the terms of the
merger agreement of 0.8880, which is based upon Westamerica having an Average
Closing Price, as defined in the merger agreement, of between $18.91 and $25.59.
Contribution Analysis. Findley analyzed the contribution of each First
Counties and Westamerica to, among other things, common equity and net income of
the pro forma combined companies for the period ending December 31, 1999. This
analysis showed, among other things, that based on pro forma combined balance
sheets and income statements for First Counties and Westamerica as of December
31, 1999, First Counties would have contributed approximately 2.58% of the
deposits, 2.86% of the shareholder equity of the combined companies (before
costs savings and revenue enhancements), 2.56% of net loans and 1.24% of 1999
net income. Based upon the stock consideration to be paid in the merger as
provided in the merger agreement, the First Counties shareholders would own
approximately 2.0% of the combined company before giving effect to all
outstanding options.
Discounted Cash Flow Analysis. Findley examined the results of a discounted
cash flow analysis designed to compare the exchange ratio with the present
value, under certain assumptions, that would be attained if First Counties
remained independent through 2002, at which time First Counties was acquired by
a larger financial institution. The cash flows for the combined companies
assumed that the exchange ratio equals 0.8880 shares of Westamerica common stock
for each share of First Counties common stock. The results produced in the
analyses are not necessarily indicative of actual values or expected values of
First Counties or the combined companies at such future date.
The discount rates used ranged from 10% to 14%. For the First Counties
stand alone analysis, the terminal price multiples applied to the 2002 estimated
earnings per share ranged from 10.0 to 20.0. The lower levels of the price to
earnings values multiples range reflected an estimated future trading range of
First Counties, while the higher levels of the price to earnings value multiples
range were more indicative of a future sale of First Counties to a larger
financial institution.
For the First Counties stand alone analysis, the cash flows were comprised
of no dividends in years 2000 through 2002 plus the terminal value of First
Counties common stock at the year-end 2002 (calculated by applying each one of
the assumed terminal price to earnings value multiples as stated above to the
2002 projected First Counties earnings per share). An analysis was done for
Westamerica based upon a 20% increase in Westamerica market value per year from
2000 to 2002, assuming a starting price of $23.50 and the continuation of cash
dividends at an indicated rate of $0.72 per year per share of Westamerica common
stock. The discount rates described above were then applied to these cash flows
to obtain the present values per share of First Counties common stock.
Under a most likely scenario, the Findley analysis assumed that projected
earnings for First Counties would be achieved; that the market value of
Westamerica stock would increase a minimum of 20% per annum, a present value
discount rate of 12% and a terminal price to earnings value multiple of 20.0.
Assuming First Counties remains independent through 2002 and is then acquired by
a larger financial institution, at an earnings value multiple of 20.0, a holder
of one share of First
17
<PAGE> 25
Counties common stock today would receive cash flows with a present value of
$18.93. Assuming the merger is consummated and that the combined companies
remain independent through 2002 and the market value of Westamerica shares
increases a minimum of 20% per year, a holder of one share of First Counties
common stock today would receive cash flows with a present value of at least
$30.11. In comparison to these ranges of value, the value for Westamerica common
stock on March 14, 2000, the last trading day before the announcement of the
merger, was its closing price of $21.81 per share. Based upon an exchange ratio
of 0.8880, the equivalent value based upon Westamerica common stock on March 13,
2000 was $19.31. On , 2000, the closing price for a share of
Westamerica common stock was $ . Based upon an exchange ratio of 0.8880
the equivalent value was $ . These analyses are not necessarily
indicative of actual values or expected values of the shares of First Counties
common stock. Discounted present value analysis is a widely used valuation
methodology which relies on numerous assumptions, including asset and earnings
growth rates, dividend payout rates, terminal values and discount rates. The
analysis showed that use of a higher (lower) level of projected earnings raised
(lowered) the resulting present value for a given level of First Counties
earnings, on a pro forma combined basis. The analysis also showed that use of a
lower (higher) discount rate or a higher (lower) terminal price-to-earnings per
share multiple raised (lowered) the calculated present values.
Analysis of Selected Bank Merger Transactions. Findley reviewed the
consideration paid in recently completed transactions whereby certain banks and
bank holding companies were acquired. Specifically, Findley reviewed 130
transactions involving acquisitions of selected banks in California completed
since January 1, 1996 (the "California Acquisitions"). For each bank acquired in
such transactions, Findley compiled figures illustrating, among other things,
the ratio of the premium (i.e., purchase price in excess of book value) to
deposits, purchase price to book value, and purchase price to previous year's
earnings. The figures for all banks acquired in the California Acquisitions
produced: (a) a median percentage of premium to deposits of 11.99%; (b) a median
ratio of purchase price to book value of 1.82; and (c) a median ratio of
purchase price to previous year's earnings of 18.10.
Findley also analyzed California bank merger and acquisition transactions
where the total target asset size was more than $50 million and less than $160
million for the period January 1, 1999 to February 22, 2000. The transactions
analyzed were: Antelope Valley Bank by Eldorado Bankshares; Bank of Stockdale
FSB by VIB Corp.; Lake Community Bank by Western Sierra Bancorp; Bay Area Bank
by Greater Bay Bancorp; First Central Bank, N.A. by East West Bank; Frontier
State Bank by City Holdings; City Commerce Bank by Mid-State Bancshares;
Saratoga Bank by SJNB Financial Corp.; Kings River Bank by VIB Corp.; The Bank
of Hollywood by Peoples Bank of California and East County Bank by CivicBank of
Commerce. The figures for these 11 banks acquired in California in 1999 and 2000
produced: (a) a median percentage of premium to deposits of 12.88%; (b) a median
ratio of purchase price to book value of 2.31; and (c) a median ratio of
purchase price to previous year's earnings of 19.04.
In comparison, assuming that the price to be paid in the merger equals
$20.65 per share (using a value for Westamerica of $23.25 per share) recent
trades for Westamerica stock have been $ per share, Findley determined that
the exchange ratio in the merger based upon December 31, 1999 information and
including First Counties stock options represented a percentage of premium to
deposits of 10.79%, a ratio of purchase price to book value of 1.88 and a ratio
of purchase price to 1999 earnings of 19.67. While two of First Counties'
acquisition ratios are below the figures for the 11 banks identified above,
Findley determined that the value was reasonable based upon the location of
First Counties' business in a rural area and the liquidity of Westamerica common
stock in the market.
No other company or transaction used in the above analysis as a comparison
is identical to First Counties, Westamerica or the merger. Accordingly, an
analysis of the results of the foregoing is not
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mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading value of the
companies to which First Counties, Westamerica and the merger are being
compared.
Comparable Company Analysis. Using public and other available information,
Findley compared certain financial ratios of First Counties and Westamerica
(including the ratio of net income to average total assets ["return on average
assets"], the ratio of net income to average total equity ["return on average
equity"], the ratio of average equity to average assets and certain credit
ratios for the years ending December 31, 1998 and December 31, 1999 to a peer
group consisting of 20 selected banks and bank holding companies located in
California. No company used in the analysis is identical to First Counties or
Westamerica. The analysis necessarily involved complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies. The results of this analysis indicated that First Counties
performed consistently with peer group levels on the basis of profitability in
1998 and 1999 and Westamerica performed ahead of peer group levels on the basis
of profitability in 1998 and 1999. First Counties' return on average assets and
return on average equity for 1998 and 1999 were similar to peer group levels,
inclusive of its interest spread factors (interest earned on assets minus
interest paid on liabilities). Westamerica's performances in 1998 and 1999
showed better than peer group levels concerning return on average assets, return
on average equity and non-performing assets. First Counties' non-interest
expense, inclusive of payroll expense, quarters expense and other related
non-interest expenses were higher than peer group level. Westamerica's
non-interest expense levels for 1998 and 1999 were better than peer group
levels.
The foregoing summarizes the material portions of Findley's report, but
does not purport to be a complete description of the presentation by Findley to
First Counties' board of directors or of the analyses performed by Findley. The
preparation of a fairness opinion is not necessarily susceptible to partial
analysis or summary description. Findley believes that its analyses and the
summary set forth above must be considered as a whole and that selecting a
portion of its analyses and of the factors considered, without considering all
analyses and factors, would create an incomplete view of the process underlying
the analyses set forth in its presentation to the First Counties board of
directors.
In performing its analyses, Findley made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Westamerica or First Counties.
The analyses performed by Findley are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
part of Findley's analysis of the fairness, from a financial standpoint, of the
merger to First Counties' shareholders and were provided to the First Counties
board of directors in connection with the delivery of Findley's opinion. The
analyses do not purport to be appraisals or to reflect the prices at which any
securities may trade at the present time or at any time in the future. Findley
used in its analyses various projections of future performance prepared by the
management of First Counties. The projections are based on numerous variables
and assumptions which are inherently unpredictable and must be considered not
certain of occurrence as projected. Accordingly, actual results could vary
significantly from those set forth in such projections.
In rendering its fairness opinion, Findley relied upon and assumed without
independent verification the accuracy and completeness of all of the financial
and other information reviewed by Findley for purposes of its opinion. Findley
did not make an independent evaluation or appraisal of the assets and
liabilities of Westamerica, First Counties or any of their respective
subsidiaries. First Counties did not impose any limitations or restrictions with
respect to the scope of Findley's investigation or the procedures or methods it
followed, or with regard to any other matters relating to
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<PAGE> 27
Findley's rendering of the opinion regarding the fairness of the merger. Findley
did participate in negotiations regarding the merger agreement.
First Counties' board of directors selected Findley as financial advisor
and instructed Findley to render an opinion with respect to the fairness of the
merger to First Counties' shareholders from a financial point of view based on
its belief that Findley is experienced and qualified in such matters. Findley
has extensive experience in the evaluation of banks in connection with mergers
and acquisitions, and valuations for corporate and other purposes. In over 40
years of bank consulting, Findley has been involved in creating, developing,
merging and acquisition of hundreds of financial institutions.
Pursuant to the engagement letter, First Counties agreed to pay Findley a
fee of $75,000 for Findley's services rendered to First Counties in connection
with the transaction and the issuance of the fairness opinion, plus expenses
identified with the merger. First Counties has agreed to indemnify Findley
against certain liabilities and expenses in connection with its services as
financial advisor to First Counties.
Gary Steven Findley, director of Findley, is also the principal of Gary
Steven Findley & Associates, attorneys for First Counties. Gary Steven Findley &
Associates has served as legal counsel for First Counties since the inception of
business. Gary Steven Findley & Associates is being paid for legal services
related to the merger. Gary Steven Findley owns 11,296 shares of First Counties
common stock.
REGULATORY APPROVALS REQUIRED
The merger is subject to approval by the FRB under both the BHC Act and the
Bank Merger Act. These laws provide 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
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.
A transaction approved by the FRB may not be consummated for 15 days after
such approval. During this 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 the 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 and the Bank Merger Act provide for the publication of notice
and the opportunity for administrative hearings relating to the applications for
approval and authorize 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 approvals required for consummation of
the merger.
The merger also must be approved by the California Commissioner of
Financial Institutions (the "Commissioner") pursuant to the California Financial
Code. The factors that the Commissioner will consider in determining whether to
grant its approval include the competitive effects of the merger, the
convenience and needs of the community, Westamerica's financial condition, the
fairness of the
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merger to the depositors, creditors and shareholders of the parties and the
competence, experience and integrity of Westamerica's management.
Based on current precedents, First Counties and Westamerica 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.
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 First Counties or Westamerica.
NASDAQ LISTING
The shares of Westamerica common stock to be issued in the merger will be
included for listing on the Nasdaq National Market.
INTERESTS OF CERTAIN OFFICERS AND DIRECTORS IN THE MERGER
Certain directors and officers of First Counties may receive benefits from
the merger that are different from or in addition to the benefits received by
other shareholders. These benefits include the following:
Certain officers and directors of First Counties hold options to acquire
54,371 shares of First Counties common stock. In the merger, these options will
be replaced by options to acquire Westamerica common stock, with the number of
shares and exercise price adjusted to reflect the exchange ratio.
David Perry, CEO of First Counties, will enter into a consulting agreement
with Westamerica under which he will receive commissions on new construction
loans generated by him over two years. In addition, under his existing salary
continuation agreement with First Counties, he will receive payments of
approximately $750,000 over a 15-year period beginning in June 2002, and under
his existing employment agreement he will receive a severance payment of
approximately $232,000 when the merger is completed.
Millie Hammes, CFO of First Counties, has a salary continuation agreement
with First Counties. In connection with the merger, she will receive
approximately $200,000 in settlement of her rights under this agreement and an
additional severance payment of approximately $34,000.
EFFECT ON FIRST COUNTIES' EMPLOYEE BENEFIT PLANS
First Counties employees will be eligible to participate in Westamerica's
employee benefit plans. Westamerica may require First Counties to terminate one
or more of its employee benefits plans immediately before the closing.
ACCOUNTING TREATMENT
The merger will be subject to the purchase method of accounting. Under this
method of accounting, First Counties' assets and liabilities will be reflected
on Westamerica's future financial statements at their fair market values, and
the excess of the aggregate merger consideration above the fair market value of
acquired assets and liabilities will be reflected as goodwill, except
approximately $2.0 million (subject to further valuation) that will be recorded
as core deposit intangible. Goodwill is an intangible asset that will be
amortized over 20 years. The core deposit intangible will be amortized over a
period of approximately seven to ten years, depending on the results of
Westamerica's valuation.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
First Counties and Westamerica expect that the merger will have the
following consequences for federal income tax purposes:
- The merger will not result in any recognized gain or loss to First
Counties or Westamerica, and Westamerica will succeed to the carryover
basis and the holding period of the assets of First Counties;
- Except for any cash received in lieu of any fractional share or on
account of dissenting shares, no gain or loss will be recognized by
holders of First Counties common stock who receive Westamerica common
stock in exchange for the shares of First Counties common stock which
they hold;
- The holding period of Westamerica common stock exchanged for First
Counties common stock will include the holding period of the First
Counties common stock for which it is exchanged, assuming that the shares
of First Counties common stock are capital assets in the hands of the
holder thereof at the effective date; and
- The basis of the Westamerica common stock received in the exchange will
be the same as the basis of the First Counties common stock for which it
was exchanged, less any basis attributable fractional shares for which
cash is received.
A shareholder who perfects dissenters' rights and receives payment for his
or her First Counties shares will be treated as if such shares were redeemed. In
general, if the shares are held as a capital asset at the time of the merger,
the dissenting shareholder will recognize a capital gain or loss measured by the
difference between the amount of cash received and the basis of the shares in
the hands of the dissenting shareholder. However, if the dissenting shareholder
owns, directly or indirectly through the application of Section 318 of the
Internal Revenue Code, any shares of common stock as to which dissenters' rights
are not exercised and perfected and which are therefore exchanged for
Westamerica common stock in the merger, the shareholder may be treated as having
received a dividend in the amount of cash paid to the shareholder in exchange
for the shares as to which dissenter's rights were perfected. 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 a related person) has the right to
acquire upon exercise of an option or conversion right held by such individual
(or a related person). Each First Counties shareholder who intends to dissent
from the merger (see "The merger -- dissenters' rights of appraisal" on page 23)
should consult his or her own tax advisor with respect to the application of the
constructive ownership rules to the shareholder's particular circumstances.
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 and 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.
This proxy statement/prospectus does not provide information about the tax
consequences of the merger under any state, local or foreign tax laws. The
shareholders of First Counties are urged to
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consult their own tax advisors with respect to all tax consequences of the
merger. 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 First Counties or Westamerica.
DISSENTERS' RIGHTS OF APPRAISAL
Shareholders of First Counties who vote against the merger may be entitled
to certain dissenters' appraisal rights under Chapter 13 of the California
General Corporation Law. Relevant excerpts of Chapter 13 are set forth in
Appendix C.
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 discussion is not a complete statement of the law relating to
dissenters' rights and is qualified in its entirety by reference to Appendix C.
This discussion and Appendix C should be reviewed carefully by any shareholder
of First Counties 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 First Counties 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
First Counties has determined that the fair market value of First Counties
common stock for this purpose is $11.25. See "Summary -- comparative market
price data" on page 1.
In order to qualify for dissenters' rights, First Counties shareholders (i)
must make a written demand on First Counties within 30 days after First Counties
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.
A written demand by a First Counties shareholder should be sent to First
Counties Bank, 15145 Lakeshore Drive, Clearlake, California 95422, 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
First Counties 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 First Counties at that price.
If the merger is approved, First Counties will, within ten days after the
meeting, 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. This notice of approval will set forth the price
determined by First Counties 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 First Counties within 30 days after the date on
which the notice of approval was mailed to the 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.
The statements in the notice of approval will constitute an offer by First
Counties to purchase from its shareholders any dissenting shares at the price
stated, but only if the merger is consummated. However, the determination by
First Counties 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
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during a period of six months following the mailing of the notice of approval to
file 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 First Counties in the notice of approval or the consideration
provided for in merger agreement, and any such determination would be binding on
the dissenting shareholder or shareholders involved in the lawsuit and on First
Counties and Westamerica. 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. No shareholder who has appraisal
rights under Chapter 13 will 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 First Counties shares may lose their status as such if any of
the following events occurs:
- the merger is abandoned (in which case First Counties must pay on demand
to dissenting shareholders who have 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 First
Counties for endorsement;
- the dissenting shareholder withdraws his or her demand with the consent
of First Counties; or,
- in the absence of agreement between the dissenting shareholder and First
Counties as to the price of his or her shares, the First Counties
shareholder fails to file suit 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" on page 22.
RESALES OF WESTAMERICA COMMON STOCK
The shares of Westamerica common stock to be issued to shareholders of
First Counties under the merger agreement have been registered under the
Securities Act, so these shares may be freely traded without restriction by
people who will not be affiliates of Westamerica after the merger or who were
not affiliates of First Counties on the date of the Annual Meeting. All
directors and certain officers of First Counties may be deemed to have been
affiliates of First Counties within the meaning of such rules. Those people may
resell shares of Westamerica common stock to be received by them in the merger
only if the shares are registered for resale under the Securities Act or an
exemption from such registration under the Securities Act is available. Those
people may be permitted to resell the Westamerica shares under the safe harbor
provisions of Rule 145 under the Securities Act (or Rule 144 in the case of such
persons who become affiliates of Westamerica) or as otherwise permitted under
the Securities Act. People who may be deemed affiliates of First Counties or
Westamerica generally include individuals or entities that control, are
controlled by, or are under common control with, First Counties or Westamerica,
and may include certain officers and directors of such entities as well as
principal shareholders of First Counties or Westamerica. We encourage any such
person to obtain advice of securities counsel before reselling any Westamerica
shares.
At the time the parties signed the merger agreement, each director and
executive officer of First Counties executed and delivered a written agreement
to the effect that such person will not offer or sell or otherwise dispose of
any Westamerica common stock received in the merger in violation of the
Securities Act or the rules and regulations thereunder.
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THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger
agreement, a copy of which is attached to this proxy statement/prospectus as
Appendix A. The merger agreement is incorporated by reference into this proxy
statement/prospectus. You are urged to read the merger agreement in its
entirety.
STRUCTURE OF THE MERGER; EFFECTIVE TIME
The merger agreement contemplates the merger of First Counties with and
into Westamerica Bank. Westamerica Bank will be the surviving corporation in the
merger and will continue its corporate existence under California law. The
merger will become effective upon the filing of an agreement of merger with the
Secretary of State of the State of California, or at such time thereafter as is
provided in such agreement of merger. The closing of the merger will take place
on a date to be specified by the parties, which will be the earliest practicable
day after satisfaction of all of the conditions set forth in the merger
agreement, unless another time or date is agreed to in writing by Westamerica
and First Counties. The merger agreement may be terminated by either Westamerica
or First Counties if, among other reasons, the merger shall not have been
consummated on or before September 29, 2000 (subject to an extension to October
31 if the parties are awaiting the expiration of regulatory waiting periods).
See "-- Conditions to the completion of the merger" and "-- Termination" below.
The merger agreement provides that Westamerica may change the structure of
the merger, such as by initially merging First Counties with a different
Westamerica subsidiary and later merging it with Westamerica Bank. The alternate
structure, however, may not materially and adversely affect the timing of the
merger, or adversely affect the economic benefits, the form of consideration or
the tax effect of the merger to you.
CONVERSION OF FIRST COUNTIES COMMON STOCK
If you are a shareholder of First Counties common stock as of the effective
time of the merger, each of your shares of First Counties common stock will be
converted into the right to receive 0.8880 of a share of Westamerica common
stock, subject to certain possible adjustments. Your shares of First Counties
common stock will no longer be outstanding and will be automatically canceled
and retired and will cease to exist. Your stock certificate previously
representing shares of First Counties common stock will be exchanged for a
certificate representing whole shares of Westamerica common stock.
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The following table indicates the exchange ratio as a function of a
possible range of average closing prices for the Westamerica common stock and
the corresponding merger consideration per share of First Counties common stock
expressed in dollars (shown as the "Exchange Amount"). No assurance can be given
that the actual value of each share of Westamerica common stock upon completion
of the merger will be equal to the average closing price used to determine the
exchange ratio.
<TABLE>
<CAPTION>
AVERAGE CLOSING PRICE OF
WESTAMERICA EXCHANGE EXCHANGE
COMMON STOCK(1) RATIO AMOUNT
- ------------------------ -------- --------
<S> <C> <C>
$17.00(2) 0.9876 $16.79
18.00 0.9328 16.79
18.91 0.8880 16.79
19.00 0.8880 16.87
20.00 0.8880 17.76
21.00 0.8880 18.65
22.00 0.8880 19.54
23.00 0.8880 20.42
24.00 0.8880 21.31
25.00 0.8880 22.20
25.59 0.8880 22.72
26.00 0.8738 22.72
27.00 0.8415 22.72
28.00 0.8114 22.72
</TABLE>
- -------------------------
(1) This price, which will be used to determine any adjustments to the exchange
ratio, is based on the average of the closing prices of Westamerica shares
for the 20 trading days ending three business days before the closing of the
merger.
(2) If Westamerica's average closing price is less than $18.00, either party has
the right to terminate the merger unless Westamerica agrees to increase the
exchange ratio to a figure that produces an exchange amount of $16.79 or the
parties mutually agree to a different exchange ratio.
You will not receive any fractional shares of Westamerica common stock. If
you are entitled to a fraction of a share of Westamerica common stock you will,
instead, receive an amount in cash. The cash amount will be equal to the closing
price as reported on the Nasdaq National Market for the Westamerica common stock
on the trading day immediately preceding the closing date, multiplied by the
fraction of a share of Westamerica common stock to which you would otherwise
been entitled. You will not be entitled to dividends, voting rights, interest on
the value of, or any other rights in respect of a fractional share. In the event
Westamerica pays, declares or otherwise effects a stock split, reverse stock
split, reclassification or stock dividend or stock distribution with respect to
Westamerica common stock between the date of the merger agreement and the
effective time of the merger, appropriate adjustments will be made to the
average Westamerica closing price of Westamerica common stock.
OPTIONS
At the effective time of the merger, each option to acquire First Counties
common stock which is outstanding and unexercised will be converted
automatically into an option to purchase shares of Westamerica common stock. The
number of shares to be subject to the new option will be equal to the product of
the number of shares of First Counties common stock subject to the original
option and the exchange ratio, rounded down to the nearest share. The exercise
price per share of Westamerica common stock under the new option will be equal
to the exercise price per share of
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First Counties common stock under the original option divided by the exchange
ratio. The exercise price will be rounded up to the nearest cent. In the case of
any options which are "incentive stock options," as defined in Section 422 of
the Internal Revenue Code, the exercise price, the number of shares purchasable
pursuant to such options and the terms and conditions of such options will be
determined in order to comply with Section 424(a) of the Internal Revenue Code.
The duration and other terms of the new options will be the same as those of the
original option.
EXCHANGE AGENT; EXCHANGE PROCEDURE
Under the merger agreement, Westamerica has agreed to appoint Harris Trust
Company of California or its successor, or any other bank or trust company
mutually acceptable to First Counties and Westamerica, as exchange agent for the
purpose of exchanging certificates representing the Westamerica common stock
which are to be issued pursuant to the merger agreement. Computershare Investor
Services LLC will acquire the shareholder services business of Harris Trust
Company of California on July 1, 2000, and will thereafter act as exchange
agent. As soon as practicable after the effective time of the merger, upon the
surrender of your First Counties shares certificate for cancellation, you will
be entitled to receive a certificate representing the number of shares of
Westamerica common stock determined in accordance with the merger agreement and
a payment in cash with respect to any fractional shares. Do not send in your
certificates at this time. Please wait until you receive a transmittal letter
with more specific instructions on exchanging your certificates.
You will not receive any dividends or other distributions of any kind which
are declared payable to shareholders of record of the shares of Westamerica
common stock after the effective time of the merger until you surrender your
certificate for shares of First Counties common stock. Upon such surrender of
your First Counties certificate, you will be paid, without interest, any
dividends or other distributions with respect to the shares of Westamerica
common stock as to which the record date and payment date occurred on or after
the effective time of the merger and on or before the date on which you
surrendered your certificate for shares of First Counties common stock.
If you would like your certificate for shares of Westamerica common stock
to be issued in a name other than the name or names in which your exchanged
First Counties certificate is registered, you will have to pay to the exchange
agent any transfer costs, taxes or other expenses required by reason of the
issuance of certificates for such shares of Westamerica common stock in a name
other than the registered holder of the exchanged First Counties certificate.
All dividends or distributions, and any cash to be paid instead of
fractional shares, if held by the exchange agent for payment or delivery to the
holders of unsurrendered First Counties certificates representing shares of
First Counties common stock and unclaimed at the end of one year from the
effective time of the merger, shall (together with any interest earned thereon)
at such time be paid or redelivered by the exchange agent to Westamerica. After
such time, if you still have not surrendered your First Counties certificate,
you must look as a general creditor only to Westamerica for payment or delivery
of such dividends or distributions or cash, as the case may be.
Neither Westamerica nor the surviving corporation shall be liable to you
for such shares (or dividends or distributions thereon) or cash payable instead
of fractional shares delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
REPRESENTATIONS AND WARRANTIES
In the merger agreement, Westamerica and First Counties make certain
customary representations, including those related to the following:
- Incorporation, valid existence and authority to conduct business;
- Necessary licenses and permits;
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- Authorization to enter into the merger agreement, and the absence of any
material conflict between the merger agreement and other agreements to
which each is a party;
- Capital structure;
- The accuracy of information in regulatory filings;
- The accuracy of representations in the merger agreement, financial
statements and this proxy statement/prospectus;
- Compliance with applicable laws;
- The performance of contractual obligations; and
- The absence of any material adverse change or undisclosed liabilities.
First Counties makes additional representations concerning the following
matters:
- The absence of material litigation involving it;
- The absence of any regulatory agreements affecting it;
- The status of its insurance coverage and claims;
- Title to its assets;
- The filing of tax returns and payment of taxes;
- The status of its loan and investment portfolios;
- Its responsibility for broker's fees;
- Identification of all material contracts to which it is a party;
- Compliance with ERISA;
- The absence of hazardous materials on any its properties;
- The number and terms of stock options outstanding;
- The absence of any severance arrangements that would constitute
"parachute payments" under the Internal Revenue Code; and
- The absence of any derivatives or similar hedging instruments in its
investment portfolio.
CONDUCT OF BUSINESS PENDING THE MERGER
In the merger agreement, Westamerica and First Counties make certain
covenants. Each agrees to do the following:
- Take all necessary action to complete the merger;
- Cooperate in preparing and filing a registration statement with the SEC
to register the Westamerica common stock being offered to shareholders of
First Counties under this proxy statement/prospectus; and
- Give each other notice of a material adverse change or other event that
might prevent the merger from occurring.
In the merger agreement, First Counties agrees to the following additional
actions:
- Give Westamerica reasonable access to its books and records, subject to a
confidentiality obligation;
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- Conduct a shareholders meeting no later than July 1, 2000, to consider
approval of the merger agreement;
- Conduct its operations in the ordinary course of business;
- Maintain its licenses and insurance coverage;
- Comply with legal and contractual obligations;
- Maintain its assets in good condition, reasonable wear and tear accepted;
- Advise Westamerica of any accumulation by any person or group of five
percent or more of the outstanding shares of First Counties' common
stock;
- Maintain an adequate allowance for loan losses;
- Provide Westamerica with copies of all board materials and loan
underwriting packages; and
- Advise Westamerica of any new classified loans.
Without the prior written consent of Westamerica, which Westamerica shall
not unreasonably withhold, First Counties has agreed not to take any of the
following actions:
- Make a dividend or similar distribution on account of its common stock;
- Sell any new shares of common stock or grant any new options;
- Amend its articles or bylaws;
- Encourage or cooperate with any party intending to make a competing
proposal to acquire or merge with First Counties;
- Sell any material assets except in the ordinary course;
- Incur any debt except in the ordinary course;
- Make new loans over $50,000 without prior notice to Westamerica and
resolution of any objection that Westamerica might have;
- Increase the compensation of any officers or employees;
- Loosen its loan underwriting standards;
- Make any capital expenditure over $20,000 per item or $100,000 in the
aggregate;
- Enter into any new employment agreement;
- Terminate any employee plans;
- Change its fiscal year or accounting method;
- Foreclose on any commercial real property without an environmental report
regarding the property;
- Incur merger expenses in excess of $200,000, except for an additional
$17,500 that may be expended for employee retention payments under
certain circumstances; or
- Materially change its loan or deposit pricing practices.
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In the merger agreement, Westamerica agrees to timely file all regulatory
reports and tax returns and file regulatory applications related to the merger
no later than May 15, 2000. In addition, Westamerica agrees that without First
Counties' prior written consent it will not:
- Pay any extraordinary dividend;
- Take any action that would result in any of its representations becoming
untrue, any conditions to the merger not being satisfied, or otherwise
materially delay or impair completion of the merger; or
- Take any action that would disqualify the merger as a tax-free
reorganization.
CONDITIONS TO COMPLETION OF THE MERGER
Completion of the merger is subject to satisfaction of certain conditions.
The obligations of both parties to proceed are subject to the following
conditions:
- Receipt of approval by the shareholders of First Counties;
- Receipt of required regulatory approvals and third party consents;
- The absence of any legal impediment or burdensome condition to completion
of the merger;
- Receipt of an order from the SEC declaring the registration statement of
Westamerica effective;
- Receipt of an opinion that the merger will qualify as a tax-free
reorganization under the Internal Revenue Code;
- Receipt of customary legal opinions; and
- The absence of any injunction or other legal proceeding restraining the
merger.
In addition, Westamerica's obligation to complete the merger is subject to
satisfaction of the following conditions:
- The representations of First Counties shall be accurate;
- First Counties will have performed its obligations under the merger
agreements;
- The parties will have obtained all required consents from third parties;
- First Counties will not have suffered any material adverse change since
December 31, 1999;
- Westamerica will have received the Affiliate Agreements and Director
Shareholder Agreements from the directors of First Counties;
- First Counties will have shareholders' equity equal to at least its 1999
year-end shareholders' equity plus at least 85% of budgeted 2000 net
income, less permitted merger expenses; and
- First Counties will have incurred merger expenses not to exceed $200,000
plus an additional $17,500 for employee retention payments under certain
circumstances.
The obligation of First Counties to complete the merger is subject to
satisfaction of the following conditions:
- The representations of Westamerica shall be accurate;
- Westamerica shall have performed its obligations under the merger
agreement;
- Westamerica shall have taken necessary steps to provide substitute stock
options to First Counties' option holders;
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- Westamerica shall not have suffered any material adverse change; and
- First Counties shall have received a fairness opinion from its financial
advisor which is not thereafter revoked before mailing of this proxy
statement/prospectus.
EXTENSION; WAIVER
At any time prior to the closing of the merger, the parties, by action
taken or authorized by their respective board of directors, may, to the extent
legally allowed, (1) extend the time for the performance of any of the
obligations or other acts of the other parties, (2) waive any inaccuracies in
the representations and warranties contained in the merger agreement or in any
document delivered pursuant to it, and (3) waive compliance with any of the
agreements or conditions contained in the merger agreement. To "waive" means to
give up rights. Any agreement on the part of a party to the merger agreement to
any such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party.
TERMINATION
The merger agreement may be terminated under the following circumstances:
- by mutual consent of the parties' boards of directors;
- by either party if the conditions to completion of the merger are not
satisfied through no fault of the terminating party;
- by Westamerica if First Counties enters into or publicly supports a
proposal by a third party for a competing transaction for the acquisition
of or merger with First Counties;
- by either party if the other party breaches the merger agreement or the
other party's representations are untrue, the other party cannot cure the
breach or inaccuracy and the breach or inaccuracy has or is reasonably
likely to have a material adverse effect on the nonbreaching party or on
the merger;
- by either party if the other party suffers a material adverse change in
its business or financial condition;
- by either party if the merger is not completed by September 29, 2000, or
by October 31, 2000, if any applicable waiting period for a regulatory
approval requires additional time;
- by Westamerica if First Counties' fairness opinion is revoked;
- by either party if Westamerica's average closing price is less than
$18.00, unless:
- Westamerica elects to increase the exchange ratio to equal (i)
$16.7943, divided by (ii) Westamerica's average closing price, or
- the boards of directors of Westamerica and First Counties mutually
agree to an exchange ratio that is higher than 0.8880 but lower than
the exchange ratio in the preceding item.
EXPENSES; LIQUIDATED DAMAGES
Generally, each party has agreed to bear its own expenses in this
transaction. However, First Counties will be liable to Westamerica for
liquidated damages of $300,000 if:
- Either First Counties or Westamerica terminates the merger agreement
because First Counties' fairness opinion is revoked;
- Westamerica terminates the merger agreement because First Counties'
shareholders do not approve the merger, a representation of First
Counties is materially inaccurate, First Counties
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materially breaches the merger agreement or First Counties' closing
disclosure schedule shows a material adverse event affecting First
Counties.
Westamerica will be liable to First Counties for liquidated damages of
$300,000 if First Counties terminates the merger agreement because a
representation of Westamerica is materially inaccurate, Westamerica materially
breaches the merger agreement or Westamerica's closing disclosure schedule shows
a material adverse event affecting Westamerica.
If, either while the merger agreement is in effect or within one year after
it is terminated, First Counties enters into a competing transaction or publicly
announces its support for a competing transaction for the acquisition of or
merger with First Counties, it will be liable to Westamerica for liquidated
damages of an additional $1,450,000, for a total of $1,750,000. First Counties
will not owe the larger amount if the merger agreement was previously terminated
on account of a breach or misrepresentation by Westamerica or because a
condition was not satisfied through neither party's fault.
If First Counties terminates the merger agreement because Westamerica
enters into a competing transaction that precludes Westamerica from completing
the merger with First Counties, Westamerica will be liable to First Counties for
liquidated damages of $1,000,000 rather than $300,000.
AMENDMENT
The merger agreement may be amended by the parties at any time before or
after approval of the merger agreement by the shareholders of First Counties.
However, after the approval by the shareholders of First Counties, no amendment
shall be made which by law requires further approval by such shareholders
without such further approval. First Counties has the authority to agree to a
different exchange ratio without further shareholder approval under the
circumstances described in "The merger agreement: conversion of First Counties
common stock" on page 25. The merger agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
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OPERATIONS FOLLOWING THE MERGER
Westamerica may operate First Counties as a separate bank subsidiary for
several months following completion of the merger while completing the
conversion of information systems and facilities. In that case, the directors
and officers of Westamerica Bank, or persons designated by them, will become the
directors and officers of First Counties as of the closing. When Westamerica
completes this conversion, First Counties will merge with and into Westamerica
Bank.
Although we cannot assure you that any specific level of cost savings will
be achieved or as to the timing thereof, Westamerica currently expects the
surviving corporation to achieve certain cost savings in combined operations
following completion of the merger. Westamerica expects to achieve savings
through consolidation of branch operations where First Counties and Westamerica
have branches in the same immediate vicinity and through elimination of certain
administrative positions.
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INFORMATION ABOUT WESTAMERICA
GENERAL
Westamerica Bancorporation is a bank holding company registered under the
BHC Act. The company was incorporated under the laws of the State of California
as "Independent Bankshares Corporation" on February 11, 1972. Its principal
executive offices are located at 1108 Fifth Avenue, San Rafael, California
94901, and its telephone number is (415) 257-8000. The principal communities
served are located in northern and central California, from Mendocino, Lake and
Nevada counties in the North, to Kern and San Luis Obispo counties in the South.
The company's strategic focus is on the banking needs of small businesses. The
company chose this particular focus in the late 1980's, as it recognized that
concentrating on a few niche markets was the key to the company's profitable
survival in the consolidating banking business.
Westamerica provides a full range of banking services to individual and
corporate customers in Northern and Central California through its subsidiary
banks, Westamerica Bank and Bank of Lake County. The banks are subject to
competition from other financial institutions and regulations from certain
agencies, and undergo periodic examinations by those regulatory authorities. In
addition, Westamerica also owns 100% of the capital stock of Westamerica
Commercial Credit, Inc., a company engaged in financing accounts receivable and
inventory lines of credit and term business loans, and 100% of Community Banker
Services Corporation, a company engaged in providing the Company and its
subsidiaries data processing services and other support functions.
Westamerica was originally formed pursuant to a plan of reorganization
among three previously unaffiliated banks: Bank of Marin; Bank of Sonoma County;
and First National Bank of Mendocino County (formerly First National Bank of
Cloverdale). The reorganization was consummated on December 31, 1972 and, on
January 1, 1973, the company began operations as a bank holding company.
Subsequently, the company acquired Bank of Lake County (a California chartered
bank) in 1974, Gold Country Bank in 1979 and Vaca Valley Bank in 1981, in each
case by the exchange of its common stock for the outstanding shares of the
acquired banks.
In mid-1983, Westamerica consolidated the six subsidiary banks into a
single subsidiary bank. The consolidation was accomplished by the merger of the
five state-chartered banks (Bank of Marin, Bank of Sonoma County, Bank of Lake
County, Gold Country Bank and Vaca Valley Bank) into First National Bank of
Mendocino County, which subsequently changed its name to Westamerica Bank, a
national banking association organized and existing under the laws of the United
States.
In August, 1988, Westamerica formed a new bank, but named it Bank of Lake
County, National Association, and effected the sale of Westamerica Bank's assets
and liabilities of its three Lake County branches to the newly formed bank.
In August, 1988, the sale of Bank of Lake County, National Association to
Napa Valley Bancorp was consummated.
On February 28, 1992, Westamerica acquired John Muir National Bank through
a merger of such bank with and into Westamerica Bank in exchange for the
issuance of the Company's common stock for all the outstanding shares of John
Muir National Bank. The business transaction was accounted for on a
pooling-of-interests basis.
On April 15, 1993, Westamerica acquired Napa Valley Bancorp, a bank holding
company, whose subsidiaries included Napa Valley Bank, 88% interest in Bank of
Lake County, 50% interest in Sonoma Valley Bank, Suisun Valley Bank and Napa
Valley Bancorp Services Corporation, which was established to provide data
processing and other services to Napa Valley Bancorp's subsidiaries. This
business transaction was accounted for on a pooling-of-interests basis. Shortly
after, Suisun Valley
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Bank was merged into Westamerica Bank, the name of Napa Valley Bancorp Services
Corporation was changed to Community Banker Services Corporation and the Company
sold its 50 percent interest in Sonoma Valley Bank. The company retained its 88%
interest in Bank of Lake County.
In June 1993, Westamerica accepted from Westamerica Bank a dividend in the
form of all outstanding shares of capital stock of the bank's subsidiary,
Weststar Mortgage Corporation, a California corporation established to conduct
mortgage banking activities. Immediately after the receipt of this dividend, the
company contributed all of the capital stock of Weststar Mortgage Corporation to
its subsidiary, Community Banker Services Corporation.
Westamerica Bank and Bank of Lake County became state-chartered banks in
June 1993 and December 1993, respectively.
In December 1994, Westamerica completed the purchase of the remaining 12%
investment in Bank of Lake County from outside investors, becoming the sole
owner of Bank of Lake County.
On January 31, 1995, Westamerica acquired PV Financial, parent company of
PV National Bank, through a merger of such bank with and into Westamerica Bank
in exchange for the issuance of shares of the Company's common stock for all the
outstanding shares of PV Financial. The business combination was accounted for
on a pooling-of-interests basis.
On June 6, 1995, the merger of CapitolBank Sacramento with and into
Westamerica Bank became effective. Under the terms of the merger, Westamerica
issued shares of its common stock in exchange for all of CapitolBank
Sacramento's common stock. The business combination was accounted for on a
pooling-of-interests basis.
On July 17, 1995, Westamerica acquired North Bay Bancorp, parent company of
Novato National Bank. Under the terms of the merger agreement, the company
issued shares of its common stock in exchange for all of the outstanding shares
of common stock of North Bay Bancorp. The subsidiary bank was merged with and
into Westamerica Bank. The business combination was accounted for on a
pooling-of-interests basis.
On April 12, 1996, Napa Valley Bank was merged into Westamerica Bank.
In November 1996, Westamerica finalized the formation of a new subsidiary,
Westamerica Commercial Credit, Inc., which engages in financing accounts
receivable and inventory lines of credit and term business loans.
On April 12, 1997, Westamerica acquired ValliCorp Holdings, Inc., parent
company of ValliWide Bank, the largest independent bank holding company
headquartered in Central California. The acquisition became effective through
the issuance of shares of the Company's common stock in exchange for all of the
outstanding shares of ValliCorp Holdings, Inc. The business combination was
accounted for on a pooling-of-interests basis. ValliWide Bank remained as a
separate subsidiary bank of Westamerica. On June 20, 1997, ValliWide Bank ceased
to exist as a subsidiary of the Company, when it was merged with and into
Westamerica Bank.
On January 22, 1998, the board of directors of the company authorized a
three-to-one split of the company's common stock in which each share of the
company's common stock was converted into three shares, with record and
effective dates of February 10 and February 25, 1998, respectively.
At December 31, 1999, Westamerica had consolidated assets of approximately
$3.89 billion, deposits of approximately $3.07 billion and shareholders' equity
of approximately $300.6 million.
CERTAIN ADDITIONAL BUSINESS RISKS
The company's business, financial condition and operating results can be
impacted by a number of factors including, but not limited to, those set forth
below, any one of which could cause the
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company's actual results to vary materially from recent results or from the
company's anticipated future results.
Shares of Westamerica common stock eligible for future sale could have a
dilutive effect on the market for its common stock and could adversely affect
the market price. The articles of incorporation of the company authorize the
issuance of 150 million shares of common stock (and two classes of 1 million
shares each, denominated "Class B Common Stock" and "Preferred Stock,"
respectively) of which approximately 37.1 million were outstanding at December
31, 1999. Pursuant to its stock option plans, at December 31, 1999, the company
had exercisable options outstanding of 1.5 million. As of December 31, 1999, 1.1
million shares of Company Common Stock remained available for grants under the
company's stock option plans (and stock purchase plan). Sales of substantial
amounts of company common stock in the public market could adversely affect the
market price of common stock.
A portion of the loan portfolio of Westamerica is dependent on real estate.
At December 31, 1999, real estate served as the principal source of collateral
with respect to approximately 56% of the company's loan portfolio. A worsening
of current economic conditions or rising interest rates could have an adverse
effect on the demand for new loans, the ability of borrowers to repay
outstanding loans, the value of real estate and other collateral securing loans
and the value of the available-for-sale securities portfolio, as well as the
company's financial condition and results of operations in general and the
market value of the company's common stock. Acts of nature, including
earthquakes and floods, which may cause uninsured damage and other loss of value
to real estate that secures these loans, may also negatively impact the
company's financial condition.
The company is subject to certain operations risks, including, but not
limited to, data processing system failures and errors and customers or employee
fraud. The company maintains a system of internal controls to mitigate against
such occurrences and maintains insurance coverage for such risks, but should
such an event occur that is not prevented or detected by the company's internal
controls, uninsured or in excess of applicable insurance limits, it could have a
significant adverse impact on the company's business, financial condition or
results of operations.
EMPLOYEES
At December 31, 1999, the company and its subsidiaries employed 1,094
full-time equivalent staff. Employee relations are believed to be good.
BRANCH OFFICES AND FACILITIES
Westamerica's banks are engaged in the banking business through 90 offices
in 22 counties in Northern and Central California, including eleven offices in
Marin County, eleven in Fresno County, nine in Sonoma County, eight in Napa
County, six in Solano County, six in Kern County, five in Stanislaus County,
five in Contra Costa County, four in Lake County, four in San Luis Obispo
County, three in Mendocino County, three in Sacramento County, two in Nevada
County, two in Placer County, two in Tulare County, two in Tuolumne County, one
in San Francisco County, one in Kern County, one in Madera County, one in Merced
County, one in Yolo County, one in Kings County and one in Alameda County. All
offices are constructed and equipped to meet prescribed security requirements.
The company owns 37 branch office locations and one administrative building
and leases 52 banking offices. Most of the leases contain multiple renewal
options and provisions for rental increases, principally for changes in the cost
of living index, property taxes and maintenance.
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THE EFFECT OF GOVERNMENT POLICY ON BANKING
The earnings and growth of Westamerica are affected not only by local
market area factors and general economic conditions, but also by government
monetary and fiscal policies. Such policies influence the growth of loans,
investments and deposits and also affect interest rates charged on loans and
paid on deposits. The nature and impact of future changes in such policies on
the business and earnings of Westamerica cannot be predicted. Additionally,
state and federal tax policies can impact banking organizations. As a
consequence of the extensive regulation of commercial banking activities in the
United States, the business of Westamerica is particularly susceptible to being
affected by the enactment of federal and state legislation which may have the
effect of increasing or decreasing the cost of doing business, modifying
permissible activities or enhancing the competitive position of other financial
institutions. Any change in applicable laws or regulations may have a material
adverse effect on the business and prospects of Westamerica.
REGULATION AND SUPERVISION OF BANK HOLDING COMPANIES
The following is not intended to be an exhaustive description of the
statutes and regulations applicable to the Company's or its subsidiary banks'
business. The description of statutory and regulatory provisions is qualified in
its entirety by reference to the particular statutory or regulatory provisions.
Moreover, major new legislation and other regulatory changes affecting
Westamerica, its subsidiaries, banking, and the financial services industry in
general have occurred in the last several years and can be expected to occur in
the future. The nature, timing and impact of new and amended laws and
regulations cannot be accurately predicted. The company is a bank holding
company subject to the BHC Act. The company reports to, registers with, and may
be examined by, the FRB. The FRB also has the authority to examine Westamerica's
subsidiaries. The company is also a bank holding company within the meaning of
Section 3700 of the California Financial Code. As such Westamerica and its
subsidiary banks are subject to examination by, and may be required to file
reports with, the Commissioner.
The FRB has significant supervisory and regulatory authority over
Westamerica and its affiliates. The FRB requires Westamerica to maintain certain
levels of capital. See "Capital Standards." The FRB also has the authority to
take enforcement action against any bank holding company that commits any unsafe
or unsound practice, or violates certain laws, regulations or conditions imposed
in writing by the FRB.
Under the BHC Act, a company generally must obtain the prior approval of
the FRB before it exercises a controlling influence over a bank, or acquires
directly or indirectly more than 5% of the voting shares or substantially all of
the assets of any bank or bank holding company. Thus, Westamerica is required to
obtain the prior approval of the FRB before it acquires, merges or consolidates
with any bank or bank holding company; any company seeking to acquire, merge or
consolidate with Westamerica also would be required to obtain the prior approval
of the FRB. The company is generally prohibited under the BHC Act from acquiring
ownership or control of more than 5% of the voting shares of any company that is
not a bank or bank holding company and from engaging directly or indirectly in
activities other than banking, managing banks or providing services to
affiliates of the holding company.
FINANCIAL SERVICES MODERNIZATION LEGISLATION
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act of 1999, also referred to as Financial Services
Modernization Act. The Financial Services Modernization Act repeals the two
affiliation provisions of the Glass-Steagall Act: Section 20, which restricted
the affiliation of Federal Reserve member banks with firms "engaged principally"
in specified securities activities; and Section 32, which restricts officer,
director or employee interlocks between a member
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bank and any company or person "primarily engaged" in specified securities
activities. In addition, the Financial Services Modernization Act also contains
provisions that expressly preempt any state law restricting the establishment of
financial affiliations, primarily related to insurance. The general effect of
the law is to establish a comprehensive framework to permit affiliations among
commercial banks, insurance companies, securities firms, and other financial
services providers by revising and expanding the BHC Act framework to permit a
holding company system to engage in a full range of financial activities through
a new entity known as a Financial Holding Company. "Financial activities" is
broadly defined to include not only banking, insurance and securities
activities, but also merchant banking and additional activities that the FRB, in
consultation with the Secretary of the Treasury, determines to be financial in
nature, incidental to such financial activities or complementary activities that
do not pose a substantial risk to the safety and soundness of depository
institutions or the financial system generally.
Generally, the Financial Services Modernization Act:
- Repeals historical restrictions on, and eliminates many federal and state
law barriers to, affiliations among banks, securities firms, insurance
companies, and other financial services providers;
- Provides a uniform framework for the functional regulation of the
activities of banks, savings institutions and their holding companies;
- Broadens the activities that may be conducted by national banks, banking
subsidiaries of bank holding companies and their financial subsidiaries;
- Provides an enhanced framework for protecting the privacy of consumer
information;
- Adopts a number of provisions related to the capitalization, membership,
corporate governance, and other measures designed to modernize the
Federal Home Loan Bank system;
- Modifies the laws governing the implementation of the Community
Reinvestment Act, sometimes referred to as CRA; and
- Addresses a variety of other legal and regulatory issues affecting both
day-to-day operations and long-term activities of financial institutions.
In order for a company to take advantage of the ability to affiliate with
other financial services providers, it must become a "Financial Holding Company"
as permitted under an amendment to the BHC Act. To become a Financial Holding
Company, a company would file a declaration with the FRB, electing to engage in
activities permissible for Financial Holding Companies and certifying that the
company is eligible to do so because all of its insured depository institution
subsidiaries are well-capitalized and well-managed (see the section "Capital
Standards"). In addition, the FRB must also determine that each of a holding
company's insured depository institution subsidiaries has at least a
"satisfactory" CRA rating. Westamerica meets the requirements to make an
election to become a Financial Holding Company and management is examining
strategic business plans to determine whether, based upon market conditions,
relative financial condition, regulatory capital requirements, general economic
conditions, and other factors, it would be desirable to utilize any of the
expanded powers provided in the Financial Services Modernization Act. No such
election has been made as of the date of this document.
The Financial Services Modernization Act also permits national banks to
engage in expanded activities through the formation of financial subsidiaries. A
national bank may have a subsidiary engaged in any activity authorized for
national banks directly or any financial activity, except for insurance
underwriting, insurance investments, real estate investment or development, or
merchant banking, which may only be conducted through a subsidiary of a
Financial Holding Company. Financial activities include all activities permitted
under new sections of the BHC Act or permitted by regulation.
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A national bank seeking to have a financial subsidiary, and each of its
depository institution affiliates, must be "well-capitalized" and
"well-managed." The total assets of all financial subsidiaries may not exceed
the lesser of 45% of a bank's total assets, or $50 billion. A national bank must
exclude from its assets and equity all equity investments, including retained
earnings, in a financial subsidiary. The assets of the subsidiary may not be
consolidated with the bank's assets. The bank must also have policies and
procedures to assess financial subsidiary risk and to protect the bank from such
risks and potential liabilities.
Management does not believe that the Financial Services Modernization Act
will have a material adverse effect on Westamerica's operations in the
near-term. However, to the extent that it permits banks, securities firms and
insurance companies to affiliate, the financial services industry may experience
further consolidation. The Act may result in increased competition among smaller
companies offering financial products and larger ones, many of which may have
substantially more financial resources.
The FRB generally prohibits a bank holding company from declaring or paying
a cash dividend which would impose undue pressure on the capital of subsidiary
banks or would be funded only through borrowing or other arrangements that might
adversely affect a bank holding company's financial position. The FRB's policy
is that a bank holding company should not continue its existing rate of cash
dividends on its common stock unless its net income is sufficient to fully fund
each dividend and its prospective rate of earnings retention appears consistent
with its capital needs, asset quality and overall financial condition.
Transactions between Westamerica and its bank subsidiaries are subject to a
number of other restrictions. FRB policies forbid the payment by bank
subsidiaries of management fees which are unreasonable in amount or exceed the
fair market value of the services rendered (or, if no market exists, actual
costs plus a reasonable profit). Westamerica may only borrow from the banks if
the loan is secured by marketable obligations with a value of a designated
amount in excess of the loan. Further, Westamerica may not sell a low-quality
asset to a depository institution subsidiary.
Comprehensive amendments to federal regulation governing bank holding
companies and change in bank control ("Regulation Y") became effective in 1997,
and are intended to improve the competitiveness of bank holding companies by,
among other things:
- expanding the list of permissible nonbanking activities in which well-run
bank holding companies may engage without prior FRB approval,
- streamlining the procedures for well-run bank holding companies to obtain
approval to engage in other nonbanking activities and
- eliminating most of the anti-tying restrictions imposed upon bank holding
companies and their nonbank subsidiaries.
Amended Regulation Y also provides for a streamlining and expedited review
process for bank acquisition proposals submitted by well-run bank holding
companies and eliminates certain duplicative reporting requirements when there
has been a further change in bank control or in bank directors or officers after
an earlier approved change. These changes to Regulation Y are subject to
numerous qualifications, limitations and restrictions. In order for a bank
holding company to qualify as "well-run," both it and the insured depository
institutions that it controls must meet the "well capitalized" and "well
managed" criteria set forth in Regulation Y.
BANK SUPERVISION AND REGULATION
Westamerica Bank and Bank of Lake County are California chartered banks
insured by the Federal Deposit Insurance Corporation (the "FDIC"), and as such
are subject to regulation,
39
<PAGE> 47
supervision and regular examination by the DFI and the FDIC. As members of the
Federal Reserve System, the banks' primary federal regulator is the FRB. The
regulations of these agencies affect most aspects of their business and
prescribe permissible types of loans and investments, the amount of required
reserves, requirements for branch offices, the permissible scope of their
activities and various other requirements.
In addition to federal banking law, the banks are also subject to
applicable provisions of California law. Under California law, a state chartered
bank is subject to various restrictions on, and requirements regarding, its
operations and administration including the maintenance of branch offices and
automated teller machines, capital and reserve requirements, deposits and
borrowings, stockholder rights and duties, and investments and lending
activities.
California law permits a state chartered bank to invest in the stock and
securities of other corporations, subject to a state-chartered bank receiving
either general authorization or, depending on the amount of the proposed
investment, specific authorization from the Commissioner. The FDIC Improvement
Act ("FDICIA"), however, imposes limitations on the activities and equity
investments of state chartered, federally insured banks. FDICIA also prohibits a
state bank from engaging as a principal in any activity that is not permissible
for a national bank, unless the bank is adequately capitalized and the FDIC
approves the activity after determining that such activity does not pose a
significant risk to the deposit insurance fund. The FDIC rules on activities
generally permit subsidiaries of banks, without prior specific FDIC
authorization, to engage in those that have been approved by the FRB for bank
holding companies because such activities are so closely related to banking to
be a proper incident thereto. Other activities generally require specific FDIC
prior approval, and the FDIC may impose additional restrictions on such
activities on a case-by-case basis in approving applications to engage in
otherwise impermissible activities.
CAPITAL STANDARDS
The federal banking agencies have risk-based capital adequacy guidelines
intended to provide a measure of capital adequacy that reflects the degree of
risk associated with a banking organization's operations for both transactions
reported on the balance sheet as assets and transactions, such as letters of
credit and recourse agreements, which are recorded as off balance sheet items. A
banking organization's risk-based capital ratios are obtained by dividing its
qualifying capital by its total risk-adjusted assets and off balance sheet
items. The regulators measure risk-adjusted assets and off balance sheet items
against both total qualifying capital (the sum of Tier 1 capital and limited
amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital generally consists
of common stock, retained earnings, and certain types of qualifying preferred
stock, less most other intangible assets. Tier 2 capital may consist of a
limited amount of the allowance for loan and lease losses, certain types of
preferred stock not qualifying as Tier 1 capital, term subordinated debt and
certain other instruments with some characteristics of equity. The federal
banking agencies require a minimum ratio of qualifying total capital to
risk-adjusted assets and off balance sheet items of 8%, and a minimum ratio of
Tier 1 capital to adjusted average risk-adjusted assets and off balance sheet
items of 4%.
In addition to the risk-based guidelines, federal banking regulators
require banking organizations to maintain a minimum amount of Tier 1 capital to
adjusted average total assets, referred to as the leverage capital ratio. For a
banking organization rated in the highest of the five categories used by
regulators to rate banking organizations, the minimum leverage ratio of Tier 1
capital to total assets must be 3%. For all banking organizations not rated in
the highest category, the minimum leverage ratio must be at least 100 to 200
basis points above the 3% minimum. The effective minimum leverage ratio, for all
practical purposes, must be at least 4% or 5%. As of December 31, 1999,
Westamerica's and the Banks' respective ratios exceeded applicable regulatory
requirements.
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<PAGE> 48
INFORMATION ABOUT FIRST COUNTIES BANK
GENERAL
First Counties was originally organized as a national banking association
under the name of Clear Lake National Bank, and commenced operations on April
22, 1985. First Counties converted its charter to a state-chartered commercial
bank, incorporated under the laws of the state of California and changed its
name to First Counties Bank on January 28, 1998. First Counties' deposits are
insured to the maximum amount permitted by law under the FDIC. Its primary
regulators are the DFI and the FDIC. First Counties conducts its operations and
its administrative headquarters are located at its main office at 15145
Lakeshore Drive, Clearlake, California. Its branch offices are located at 13300
East Highway 20, Clearlake Oaks, California, 21058 Calistoga Road, Middletown,
California, 1255 Lincoln Avenue, Calistoga, California and 457 7th Street,
Williams, California. First Counties has an inactive subsidiary, FCOBCBIA, which
was formed in order to invest in Community Bankers Insurance Agency, LLC, for
the purpose of providing non-deposit products to First Counties customers.
Although First Counties conducts substantially the same business operations
as a typical independent bank, its special emphasis has been in the commercial
banking, agricultural and real estate construction areas, providing such
services to small to medium-sized businesses and industries. Its operations
include the acceptance of checking and savings deposits, and the making of
commercial, installment and term extensions of credit. First Counties offers
travelers' checks, safe deposit boxes, notary public and other customary bank
services to its customers. At December 31, 1999, First Counties had assets of
$91 million and shareholders' equity of $8.8 million.
BANKING SERVICES
First Counties is a locally owned and operated commercial bank, and its
primary service areas are Lake, Napa and Colusa counties.
The mission of First Counties is to profitably deliver high quality
customer services that meet the financial needs of its community, its businesses
and its citizens. Products are designed, and employees are hired and trained, to
meet the needs of customers.
First Counties offers a broad range of products and services, including
commercial checking, business loans (secured and unsecured), merchant banking,
treasury tax deposits, coin and currency service, SBA loans and a full range of
agricultural loans and consumer loans, as well as all the traditional personal
deposits and loans of a commercial bank.
First Counties' marketing stresses the "local" aspect of its operations.
First Counties makes loan decisions locally, offers competitive interest rates,
offers friendly, flexible service and is committed to the community.
First Counties takes pride in providing personalized service to the local
community. First Counties offers a wide variety of business and personal loans
designed to meet individual financial needs, including commercial loans,
equipment loans, lines of credit, consumer loans, real estate construction, long
term financing and agricultural loans. First Counties offers traditional
personal services, such as certificates of deposit, IRA accounts, direct
deposit, and several types of checking accounts, business checking and merchant
account services, as well as ATM's at each branch.
Most of First Counties deposits have traditionally been obtained from
individuals, professionals, and small businesses. At December 31, 1999, First
Counties had a total of 9,741 accounts consisting of: noninterest-bearing
accounts with an average balance of approximately $4,800, money market checking
and savings accounts with an average balance of approximately $5,097, regular
certificates of
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<PAGE> 49
deposit with an average balance of approximately $19,935, and jumbo certificates
of deposit with an average balance of approximately $116,213. First Counties has
not obtained any deposits through deposit brokers and has no present intention
of using brokered deposits. There is no concentration of deposits or any
customer with 5% or more of First Counties' deposits.
First Counties conducts a commercial deposit and loan business which
includes accepting demand, savings and time deposits and making commercial, real
estate, agricultural and installment loans. It issues cashiers checks, sells
travelers checks, and provides safe deposit boxes and other customary banking
services. First Counties does not offer trust services or international banking
services and does not plan to do so in the near future. There have been no
significant changes in the kinds of services rendered, the principal markets
for, or the methods of distribution of, such services during the last three
fiscal years.
The following is a general description of its loan programs.
Commercial Loans. Commercial loans are made for the purpose of providing
working funds, financing the purchase of equipment or inventory and for other
business purposes. Such loans include loans with maturities ranging from 30 to
360 days, and "term loans", which are loans with maturities normally ranging
from one to five years. Short term business loans are generally used to finance
current transactions and typically provide for periodic interest payments, with
principal being payable at maturity or periodically. Term loans normally provide
for monthly payments of both principal and interest.
First Counties occasionally extends lines of credit to business customers.
On business credit lines, First Counties specifies a maximum amount which it
stands ready to lend to the customer during a specified period in return for
which the customer agrees to maintain its primary banking relationship with
First Counties. The purpose for which such loans will be used and the security
therefore, if any, are generally determined before First Counties' commitment is
extended. Normally, First Counties does not make loan commitments in material
amounts for periods in excess of one year.
Real Estate Loans. Real estate loans are primarily made for the purpose of
purchasing, improving or constructing single family residences, and commercial
and industrial properties.
Construction loans are generally written with terms of six to twelve months
and usually do not exceed a loan to appraised value ratio of 75 to 80%. The risk
associated with the speculative construction lending includes the borrower's
inability to complete and sell the project, the borrower's incorrect estimate of
necessary construction funds and/or time for completion, and economic changes,
including depressed real estate values and increased interest rates. Management
has established underwriting criteria to minimize losses on speculative
construction loans by lending only to experienced developers with proven track
records. To date First Counties has not suffered any losses through its
speculative real estate construction loans.
Agricultural Loans. Agricultural loans are made for the purpose of
providing production loans and for financing the purchase of agricultural
equipment and agricultural real estate. Such loans are provided to well
established agricultural borrowers. Such loans include loans with maturities
ranging from 30 to 360 days, and term loans, which are loans with maturities
normally ranging from one to twenty years. Production loans are used to finance
current year crop expenses and typically provide for periodic interest payments,
with principal being payable at maturity or periodically. Term loans normally
provide for payments of both principal and interest. Repayment may be normally,
quarterly, semi-annually or annually.
Consumer Loans. Most consumer loans are short-term loans, made for a period
of up to five years. Automobile loans are normally made with up to a five-year
amortization period.
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<PAGE> 50
EMPLOYEES
At December 31, 1999, First Counties employed 58 employees (54.31 full-time
equivalents). First Counties believes its employee relations are excellent.
PROPERTIES
First Counties owns the real property located at 457 7th Street, Williams,
California. The building situated on this property consist of approximately
5,000 square feet, and houses First Counties' Williams branch as well as its
agricultural lending office.
First Counties leases the premises of its administrative office and head
office located at 15145 Lakeshore Drive, Clearlake, California. The lease is
presently for a term expiring March 31, 2005. The office space at this branch
consists of approximately 10,000 square feet. First Counties leases the premises
of the Clearlake Oaks branch. The lease is presently for a term expiring on July
28, 2001. The office space at this branch consists of approximately 2,200 square
feet. The Middletown branch lease expires April 30, 2003. The office space is
approximately 1,800 square feet. The Calistoga office of First Counties is
leased from Russell D. Jeter, a director of First Counties. The building is
approximately 1,656 square feet and has an adjoining parking lot. The option
period (one of two five year options) expires August 31, 2004. Total lease
expenses for all of First Counties' leased premises were $192,812 and $170,197
for the years ended December 31, 1999, and 1998.
LEGAL PROCEEDINGS
First Counties is not involved in any legal proceedings other than in the
normal course of business to collect delinquent loans.
SUPERVISION AND REGULATION
As a California state-licensed bank, First Counties is subject to
regulation, supervision and periodic examination by the DFI and the FDIC. First
Counties is not a member of the Federal Reserve System, but is nevertheless
subject to certain regulations of the FRB. First Counties' deposits are insured
by the FDIC to the maximum amount permitted by law, which is currently $100,000
per depositor in most cases. The regulations of these state and federal bank
regulatory agencies govern most aspects of First Counties' business and
operations, including but not limited to, the scope of its business, its
investments, its reserves against deposits, the nature and amount of any
collateral for loans, the timing of availability of deposited funds, the
issuance of securities, the payment of dividends, bank expansion and bank
activities, including real estate development and insurance activities, and the
maximum rates of interest allowed on certain deposits. First Counties is also
subject to the requirements and restrictions of various consumer laws and
regulations.
COMPETITION
The banking business in California generally, and in the primary service
area of First Counties specifically, is highly competitive with respect to
loans, leases, and deposits, and is dominated by a relatively small number of
major banks with many offices operating over a wide geographic area. Among the
advantages such major banks have over First Counties is the ability to finance
wide-ranging advertising campaigns and to allocate their investment assets to
regions of highest yield and demand. Such banks offer certain services such as
trust services and international banking services which are not offered directly
by First Counties (but are offered indirectly through correspondent
institutions) and, by virtue of their greater total capitalization (legal
lending limits to an individual customer are limited to a percentage of a bank's
total capital accounts), such banks have substantially higher lending limits.
Other entities, both governmental and in private industry, seeking to raise
capital through the issuance and sale of debt or equity securities, as well as
money market
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<PAGE> 51
mutual funds, also provide competition for First Counties in the acquisition of
deposits. Those competitors include savings and loan associations and finance
companies that provide consumer loans, loan production offices, and financial
conglomerates which provide deposit-like investment plans and credit and
checking services that can attract bank customers. In addition, thrift and loans
and credit unions in California offer competitive deposit and lending services.
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<PAGE> 52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF FIRST COUNTIES
The following discussion should be read in conjunction with the financial
statements, including the notes thereto, of First Counties (the bank), which are
included in this proxy statement/prospectus.
RESULTS OF OPERATIONS
SUMMARY
1999 Compared to 1998. Net income increased to $953 thousand in 1999,
representing an increase of 30.7% over net income of $729 thousand in 1998.
Basic earnings per share in 1999 were $1.16 ($1.15 diluted) compared to $.99
($.97 diluted) in 1998. During 1999, the bank benefited from a decrease in the
provision for loan losses of $139 thousand, which resulted from an improvement
in credit quality and a general slow down in net loan growth, and an increase in
non-interest income resulting from the recovery of costs on repossessed assets
totaling $471 thousand. Although non-interest expenses increased by $514
thousand over 1998, the bank's efficiency ratio increased only slightly to 69.6%
in 1999 from 68.2% in 1998.
1998 Compared to 1997. Net income increased to $729 thousand in 1998,
representing an increase of 10.3% over net income of $661 thousand in 1997.
Basic earnings per share in 1998 were $0.99 ($.97 diluted) compared to $1.16
($1.14 diluted) in 1997. The decrease in earnings per share resulted from an
increase in the weighted-average common stock outstanding from the issuance of
common stock during 1998. Total non-interest income remained relatively
consistent with 1997 and included a $149 thousand decrease in gain on sale of
loans. Cost control measures implemented during 1998 led to an increase of only
$342 thousand in non-interest expenses, which resulted in a decrease in the
efficiency ratio to 68.2% in 1998 from 69.4% in 1997.
NET INTEREST INCOME
First Counties' primary source of revenue is net interest income, which is
the difference between interest income and fees derived from loans and other
earning assets and the interest paid by First Counties on deposits and other
interest-bearing liabilities. Net interest income of $4.6 million in 1999
increased by 5.3% over net interest income of $4.4 million in 1998. Interest
income increased by $334 thousand in 1999 over 1998, primarily due to increases
in the average balances of Federal funds sold and investments of $3.0 million
and $4.6 million, respectively. These increases were partially offset by a 40
basis point decrease in the average yield on Federal funds sold and a 24 basis
point decrease in the average yield on investments. Average loans for 1999
increased $1.6 million over 1998, but the corresponding revenue increase was
offset by a 30 basis point decrease in the average yield. The decreases in
average yields were reflections of increased competition and economic market
conditions during 1999. Net interest expense increased by $101 thousand in 1999,
primarily due to increases in average balances of time deposits of $3.8 million,
which was offset by a 36 basis point decrease in the average yield on time
deposits and a 17 basis point decrease in the average yield on NOW and money
market deposits.
Net interest income of $4.4 million in 1998 increased by 15.5% over net
interest income of $3.8 million in 1997. Interest income increased by $536
thousand in 1998 over 1997, primarily due to increases in the average balances
of Federal funds sold and loans of $1.5 million and $2.5 million, respectively,
coupled with a 34 basis point increase in the average yield on loans. A 9 basis
point decrease in the average yield on Federal funds sold and a 29 basis point
decrease in the average yield on investments offset the increases. Net interest
expense decreased by $52 thousand in 1998, primarily due to a decrease in the
average balance of time deposits of $404 thousand, coupled with a 20 basis point
decrease in the average yield on time deposits.
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<PAGE> 53
The following schedule presents, for the periods indicated, unaudited
information regarding average earning assets, liabilities and shareholders'
equity, the amounts of interest income and expense and the yields on earning
assets and rates on deposits.
SUMMARY OF AVERAGE BALANCES, YIELDS, RATES AND INTEREST DIFFERENTIAL
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------- ---------------------------- ----------------------------
INTEREST RATES INTEREST RATES INTEREST RATES
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID BALANCE EXPENSE PAID BALANCE EXPENSE PAID
------- -------- ------- ------- -------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing time
deposits..................... $ 467 $ 24 5.14% $ 436 $ 23 5.28% $ 426 $ 24 5.63%
Federal funds sold............. 9,376 458 4.88 6,349 335 5.28 4,819 259 5.37
Investment securities.......... 15,167 812 5.35 10,523 588 5.59 9,968 586 5.88
Loans.......................... 58,713 5,907 10.06 57,129 5,921 10.36 54,647 5,474 10.02
FHLB stock..................... 258 14 5.43 242 14 5.79 86 2 6.13
------- ------ ------- ------ ------- ------
Total earning assets....... 83,981 7,215 8.59 74,679 6,881 9.21 69,946 6,345 9.02
Nonearning assets, net of
allowance for loan losses.... 7,081 6,031 5,326
------- ------- -------
Total assets............... $91,062 $80,710 $75,272
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
NOW and money market......... $23,520 $ 377 1.60% $19,913 $ 353 1.77% $17,745 $ 318 1.79%
Savings...................... 6,727 135 2.01 5,906 118 2.00 5,390 108 2.00
Time......................... 41,695 2,096 5.02 37,851 2,036 5.38 38,255 2,133 5.58
------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities.............. 71,942 2,608 3.63 63,670 2,507 3.94 61,389 2,559 4.17
------ ------ ------
Demand deposits................ 9,936 9,135 8,100
Other liabilities.............. 815 868 768
------- ------- -------
Total liabilities.......... 82,693 73,673 70,257
Shareholders' equity........... 8,369 7,037 5,013
------- ------- -------
Total liabilities and
shareholders' equity..... $91,062 $80,710 $75,272
======= ======= =======
Net interest income............ $4,607 $4,374 $3,786
====== ====== ======
Net interest margin............ 5.49% 5.86% 5.41%
----- ----- -----
</TABLE>
Average loan balances include nonperforming loans. Interest income includes
proceeds from loans on nonaccrual status only to the extent cash payment have
been received and applied as interest income. Tax-exempt securities are not
material and yields thereon are calculated at their nominal values.
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<PAGE> 54
The following table sets forth a summary of the changes in interest income
and interest expense from changes in average assets and liability balances
(volume) and changes in average interest rates for the periods indicated.
Changes not solely attributable to volume or rates have been allocated in
proportion to the respective volume and rate components.
ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSES
<TABLE>
<CAPTION>
INCREASE (DECREASE) DUE TO CHANGE IN
---------------------------------------------------
1999 OVER 1998 1998 OVER 1997
------------------------ -----------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ----- ----- ------ ---- -----
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE)IN INTEREST
INCOME:
Interest-bearing time
deposits -- other banks............ $ 2 $ (1) $ 1 $ (1) $ -- $ (1)
Federal funds sold................... 163 (40) 123 78 (2) 76
Securities........................... 262 (38) 224 43 (29) 14
Loans................................ 132 (146) (14) 241 206 447
---- ----- ---- ---- ---- ----
Total average earning assets....... $559 $(225) $334 $361 $175 $536
---- ----- ---- ---- ---- ----
INCREASE (DECREASE) IN INTEREST
EXPENSE:
NOW and money market................. $ 79 $ (54) $ 25 $ 39 $ (5) $ 34
Savings deposits..................... 14 3 17 10 -- 10
Time certificates.................... 251 (192) 59 (21) (75) (96)
---- ----- ---- ---- ---- ----
Total average interest-bearing
liabilities..................... 344 (243) 101 28 (80) 52
---- ----- ---- ---- ---- ----
Net increase (decrease) in interest
income............................. $215 $ 18 $233 $333 $255 $588
==== ===== ==== ==== ==== ====
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses corresponds directly to the level of the
allowance that management deems sufficient to offset potential loan losses. The
balance in the loan loss allowance reflects the amount which, in management's
judgment, is adequate to provide for these potential loan losses after weighting
the mix of the loan portfolio, current economic conditions, past loan experience
and such other factors as deserve recognition in estimating loan losses.
Management allocated $241 thousand as a provision for loan losses in 1999
compared to $380 thousand in 1998 and $332 thousand in 1997. The reduction in
the provision from 1999 to 1998 and the increase in 1998 from 1997 were
primarily the result of the changes in the level of charged off loans which
totaled $105 thousand in 1999 compared to $331 thousand in 1998 and $178
thousand in 1997. The level of classified assets remained consistent during 1999
and 1998 at approximately 40% of total capital, up from approximately 38% of
total capital at December 31, 1997. The provision also includes allocations for
the 5.6% growth in the loan portfolio in 1999 from 1998 and the 11.5% growth
between 1998 and 1997. For further information regarding the allowance for loan
losses, see the "Summary of loan loss experience" on page 53.
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<PAGE> 55
NON-INTEREST INCOME
The following table sets forth the components of non-interest income.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998 1997
------- ----- -----
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Service charges on deposit accounts......................... $ 487 $460 $466
Gain on sale of government-guaranteed loans................. -- 55 204
Cost recoveries on repossessed assets....................... 471 -- --
Merchant card discount and ATM fees......................... 85 74 56
Gains on sale of other real estate.......................... 45 36 40
Earnings on cash surrender value of insurance policies...... 35 34 34
Commissions on sale of non-deposit investment products...... 12 13 5
Other....................................................... 210 197 173
------ ---- ----
Total..................................................... $1,345 $869 $978
====== ==== ====
</TABLE>
Non-interest income totaled $1.3 million in 1999 which was $476 thousand,
or 54.8%, greater than in 1998. This increase was primarily the result of the
recovery of $471 thousand in costs related to a loan to rehabilitate 74 modular
homes which went into default in 1998. The bank took possession of the modular
homes and incurred holding costs, including the write down of the units to their
recoverable value, interest, park space rental fees, legal fees, administrative
costs and the costs of ultimately selling the units at auction in December of
1999. Because there were subordinate lien holders on the collateral, the bank
was only allowed to recover its principal and any related costs. Service charges
and fees related to deposit account activity increased slightly to $487 thousand
in 1999 from $460 thousand in 1998. Other non-interest income increased to $386
thousand in 1999 from $354 thousand in 1998 primarily due to increased merchant
card discount and ATM fees which totaled $85 thousand in 1999 and $74 thousand
in 1998. Other significant components of non-interest income were gains realized
on the sale of other real estate, totaling $45 thousand in 1999 and $36 thousand
in 1998, earnings on the cash surrender value of life insurance policies,
totaling $35 thousand in 1999 and $34 thousand in 1998 and commissions from the
sale of non-deposit investment products totaling $12 thousand in 1999 and $13
thousand in 1998.
Non-interest income decreased $109 thousand, or 11.1%, to $869 thousand in
1998 from $978 thousand in 1997 primarily due to the bank's change in strategies
regarding the sale or retention of government-guaranteed loans. During 1997, the
bank originated $4.2 million in government-guaranteed loans and sold the
guaranteed portion, totaling $3.6 million, in the secondary market recognizing a
gain of $204 thousand. While $3.6 million in such loans were originated in 1998,
the guaranteed portion sold totaled only $891 thousand which resulted in gains
of $55 thousand. The remaining loans were retained in the bank's loan portfolio
to generate interest income. The bank continued this strategy in 1999 and
retained all $2.2 million in originated government-guaranteed loans. Service
charges and fees related to deposit account activity remained stable and other
non-interest income increased to $354 thousand in 1998 from $309 thousand in
1997. Significant components of non-interest income were gains realized on the
sale of other real estate, totaling $36 thousand in 1998 and $40 thousand in
1997, earnings on the cash surrender value of life insurance policies, totaling
$34 thousand in 1998 and 1997 and commissions from the sale of non-deposit
investment products totaling $13 thousand in 1998 and $5 thousand in 1997.
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<PAGE> 56
NON-INTEREST EXPENSE
The following table compares the various elements of non-interest expense
in dollars for the years ended December 31, 1999, 1998, and 1997, and as a
percentage of average assets. Total non-interest expense, as a percentage of
average assets, was 4.62% in 1999, 4.57% in 1998, and 4.45% in 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Average assets................. $91,062 $80,710 $75,272
</TABLE>
<TABLE>
<CAPTION>
EXPENSES AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Salaries and related
benefits..................... $2,006 2.20% $1,805 2.24% $1,715 2.28%
Occupancy and operations....... 879 0.97% 731 0.91% 619 0.82%
Professional................... 140 0.15% 151 0.19% 113 0.15%
Other.......................... 1,181 1.30% 1,005 1.24% 903 1.20%
------ ---- ------ ---- ------ ----
Total........................ $4,206 4.62% $3,692 4.57% $3,350 4.45%
====== ==== ====== ==== ====== ====
</TABLE>
Non-interest expense of $4.2 million in 1999 was $514 thousand higher than
1998. This 13.9% increase was primarily due to expenses related to the continued
growth of the bank. Salaries and employee benefits increased by $201 thousand in
1999, reflecting additional staff in the administrative area as well as salary
adjustments to existing employees to be competitive within the industry and
reward performance. Occupancy and equipment expense increased by $148 thousand
in 1999, reflecting increased depreciation expense of $81 thousand and increased
rent expense of $23 thousand related primarily to the new Williams branch. Other
expenses also increased by $176 thousand in 1999, primarily due to increased
costs associated with loan collection and other real estate of $85 thousand and
telephone costs of $27 thousand.
Non-interest expense of $3.7 million in 1998 was $342 thousand greater than
1997. This 10.2% increase was primarily due to expenses related to the continued
growth of the bank. Salary and benefits expense increased $90 thousand in 1998,
reflecting additional staff for the Williams branch which opened in 1998, and
salary adjustments. Occupancy and equipment expense increased $112 thousand in
1998, reflecting increased depreciation expense of $59 thousand, increased
maintenance contract expense of $16 thousand and other expenses associated with
opening the Williams branch. Other expenses also increased by $102 thousand in
1998, primarily due to increased professional fees due to a stock offering and
the change from a national to a state-chartered bank, as well as increased
advertising expense and supplies associated with the opening of the Williams
branch.
INCOME TAXES
Income tax expense was $552 thousand in 1999, $442 thousand in 1998 and
$421 thousand in 1997, with effective tax rates of 36.6%, 37.7% and 38.9%,
respectively.
49
<PAGE> 57
FINANCIAL CONDITION
SUMMARY
1999 Compared to 1998. Total assets at December 31, 1999 were $90.9
million, representing a 5.7% increase over total assets of $86.0 million at
December 31, 1998. This increase was primarily due to an increase in net loans
of $3.1 million and an increase in investments of $1.1 million, which were
offset by a decrease in other real estate and repossessed assets of $741
thousand. Loan growth was the result of increased marketing efforts with local
business and the purchase of participation loans from other financial
institutions, which resulted in a $1.8 million net increase in commercial loans.
Total deposits at December 31, 1999 were $81.1 million, representing a 4.9%
increase over total deposits of $77.3 million at December 31, 1998. The net
increase in interest bearing deposits of $2.6 million was primarily due to
growth in money market and NOW accounts of $2.7 million, which was offset by a
decrease in time deposits of $582 thousand. Non-interest bearing deposits
remained relatively stable with an increase of $1.2 million.
Total shareholders' equity at December 31, 1999 was $8.8 million compared
to $8.0 million at December 31, 1998, a 9.9% increase. This increase in the
bank's capital was due to total comprehensive income of $699 thousand and the
exercise of stock options by employees totaling $140 thousand.
1998 Compared to 1997. Total assets at December 31, 1998 were $86.0
million, representing a 10.4% increase over total assets of $77.9 million at
December 31, 1997. This increase was primarily due to an increase in net loans
of $5.9 million, an increase in Federal funds sold of $1.0 million, an increase
in other real estate of $366 thousand and an increase in premises and equipment
of $293 thousand. These increases were offset by a decrease in investments of
$508 thousand. Loan growth was the result of increased focus on the agricultural
and real estate construction markets, which resulted in a $5.9 million net
increase in loans. The increase in premises and equipment resulted from a
strategic decision to purchase land and a building in Williams, California.
Total deposits at December 31, 1998 were $77.3 million, representing a 7.8%
increase over total deposits of $71.7 million at December 31, 1997. The net
increase in interest bearing deposits of $4.3 million resulted from growth in
all categories, to include an increase in savings, money market and NOW accounts
of $3.2 million and an increase in time deposits of $1.1 million. Growth in non-
interest bearing deposits remained consistent with an increase of $1.3 million.
Total shareholders' equity at December 31, 1998 was $8.0 million compared
to $5.3 million at December 31, 1997, a 51.1% increase. The increase in equity
was due to the issuance of common stock through a public offering totaling $2.0
million, total comprehensive income of $727 thousand and the exercise of stock
options by employees totaling $44 thousand.
INVESTMENT PORTFOLIO
First Counties maintains a securities portfolio consisting of U.S.
Treasuries, U.S. Government agencies, state and political subdivisions and other
debt securities. Investment securities are held in safekeeping by an independent
custodian.
The objective of the investment securities held to maturity is to
strengthen the portfolio yield and to provide collateral to pledge for federal,
state and local deposits. The investments held to maturity had an average term
to maturity of 75 months at December 31, 1999. All held to maturity investments
are fixed rate securities.
50
<PAGE> 58
Investment securities available for sale are generally used to supplement
the bank's liquidity. Unrealized net gains and losses on these securities are
recorded in other comprehensive income (loss) as an adjustment to shareholders'
equity, net of taxes, and are not reflected in current earnings. If a security
is sold, any gain or loss is recorded as a charge to earnings and the equity
adjustment is reversed. At December 31, 1999, the bank held $13.9 million
classified as investment securities available for sale. At December 31, 1999, an
unrealized loss of $400 thousand, net of taxes of $151 thousand related to these
securities, was recognized as other comprehensive loss in shareholders' equity.
The bank had no trading securities at December 31, 1999 and 1998.
For more information on investment securities, see Notes 1 and 2 to the
consolidated financial statements.
The following table shows the amortized cost of the bank's investment
securities as of December 31, 1999 and 1998.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
U.S. Treasuries............................................. $ 3,036 $ 2,514
U.S. Government agencies.................................... 9,492 8,445
Municipals.................................................. 2,089 2,198
Other investments........................................... 181 163
FHLB stock.................................................. 265 248
------- -------
Total..................................................... $15,063 $13,568
======= =======
</TABLE>
The following table sets forth the relative maturities and yields of the
bank's investment securities (stated at amortized cost) at December 31, 1999 and
1998. Weighted average yields have been computed by dividing annual interest
income, adjusted for amortization of premium and accretion of discount, by the
amortized cost of the related security. Yields on securities of state and
political subdivisions have not been adjusted to a fully taxable equivalent
basis.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------------------------------------------------
ONE YEAR AFTER ONE YEAR AFTER FIVE YEARS AFTER TEN
OR LESS TO FIVE YEARS TO TEN YEARS YEARS TOTAL
-------------- -------------- ---------------- -------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------- ------ ------ ----- ------- -----
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasuries........... $1,005 4.53% $2,031 5.49% $ 3,036 5.17%
U.S. Government
agencies................ 647 5.84% 6,845 5.38% $2,000 6.64% 9,492 5.68%
Municipals................ 158 3.60% 423 4.03% 752 4.43% 1,333 4.21%
Other..................... 156 6.19% 156 6.19%
------ ------ ------ -------
Total................... $1,810 4.92% $9,455 5.36% $2,752 6.04% -- -- $14,017 5.44%
====== ==== ====== ==== ====== ==== ======= ====
HELD TO MATURITY
Municipals................ $ 145 4.43% $ 100 3.04% $ 412 4.77% $100 5.5% $ 757 4.54%
------ ------ ------ ---- -------
Total................... $ 145 4.43% $ 100 3.04% $ 412 4.77% $100 5.5% $ 757 4.54%
====== ==== ====== ==== ====== ==== ==== ==== ======= ====
</TABLE>
51
<PAGE> 59
LOAN PORTFOLIO
The following table shows the composition of the bank's loan portfolio by
type of loan for the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Commercial........................................ $12,432 $10,623 $12,206
Agricultural...................................... 9,122 9,112 6,405
Real estate mortgage.............................. 28,337 27,210 25,950
Real estate construction.......................... 5,503 5,605 2,419
Consumer.......................................... 5,794 5,376 4,933
------- ------- -------
Total........................................ 61,188 57,926 51,913
Less:
Deferred loan fees.............................. 303 245 228
Allowance for loan losses....................... 1,164 1,028 979
------- ------- -------
Total net loans.............................. $59,721 $56,653 $50,706
======= ======= =======
</TABLE>
The bank's largest historical lending categories continue to be commercial
and residential real estate loans, commercial loans and agricultural loans.
These categories represented the following percentages of total loans:
approximately 46%, 20% and 15% at December 31, 1999, 47%, 18% and 16% at
December 31, 1998 and 50%, 24% and 12% at December 31, 1997. The decrease of
$1.6 million in commercial loans in 1998 from 1997 was a result of increased
competition in First Counties' market area. Management determined that to
maintain the proper mix in the portfolio, adjustments were necessary, primarily
to retain government guaranteed loans rather than sell into the secondary
market. This resulted in the $1.8 million increase in commercial loans in 1999
over 1998. Real estate-mortgage loan increases are attributed to management's
decision to supplement local loan demand with participation purchases from
lenders outside the bank's market area. Management intends to continue to
diversify the mix of its loan portfolio by increasing its agricultural loans in
the coming year. To accomplish this growth, the bank established a branch in the
agricultural community of Williams, California in 1998 and has added staff
specialized in this lending area.
The following table sets forth the amounts of commercial, agricultural and
real estate construction loans outstanding as of December 31, 1999 which, based
on the remaining scheduled repayments of principal, have the ability to be
repriced or are due in less than one year, in one to five years, or in more than
five years. It also shows the amounts of total loans outstanding as of December
31, 1999 which have fixed interest rates and floating interest rates and have
remaining
52
<PAGE> 60
scheduled repayments of principal in less than one year, in one to five years,
or in more than five years.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------
AFTER 1 BUT
WITHIN WITHIN AFTER
1 YEAR 5 YEARS 5 YEARS TOTAL
------- ----------- ------- -------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Commercial............................. $ 7,964 $ 3,873 $ 595 $12,432
Agricultural........................... 4,347 3,061 1,714 9,122
Real estate construction............... 5,133 248 124 5,505
Loans with fixed interest rates........ 3,611 8,717 1,161 13,489
Loans with floating interest rates..... 35,586 10,345 1,768 47,699
</TABLE>
The following table shows the bank's loan commitments at the dates
indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998 1997
------- ------ ------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Commercial.......................................... $ 4,548 $2,498 $2,232
Agricultural........................................ 1,563 2,393 2,172
Real estate......................................... 6,231 2,994 2,398
Consumer............................................ 1,553 1,514 1,069
------- ------ ------
Total............................................. $13,895 $9,399 $7,871
======= ====== ======
</TABLE>
Based upon prior experience and prevailing economic conditions, it is
anticipated that approximately 90% of the commitments at December 31, 1999 will
be exercised during 2000. All commercial commitments in the preceding table are
commitments to grant such loans. The commitments related to agricultural loans
are generally drawn down and repaid during the year.
SUMMARY OF LOAN LOSS EXPERIENCE
As a natural corollary to the bank's lending activities, some loan losses
are experienced. The risk of loss varies with the type of loan being made and
the creditworthiness of the borrower over the term of the loan. To the extent
possible, the degree of perceived risk is taken into account in establishing the
structure of, and interest rate and security for, specific loans and for various
types of loans. First Counties attempts to minimize its credit risk exposure by
the use of thorough loan application and approval procedures.
First Counties maintains an internal program of systematic review of
existing loans. Loans are initially graded for their overall quality at
origination, and the grades are subsequently reevaluated when potential issues
are identified. First Counties also utilizes the services of an external loan
file review firm to evaluate its assigned grades. Loans that management has
determined require further monitoring are included on First Counties' Management
Watch List and Classified Loan Report. In addition, all problem loans are
reviewed on a monthly basis by the Directors' Loan Committee.
53
<PAGE> 61
The bank's classified assets for the periods indicated are summarized
below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Classified loans..................................... $3,526 $2,014 $1,118
Other real estate and repossessed assets............. 424 1,165 798
------ ------ ------
Total.............................................. $3,950 $3,179 $1,916
====== ====== ======
</TABLE>
The majority of the bank's classified loans are secured by real estate or
crops, the value of which are taken into consideration in determining the
allocation for these loans in the allowance for loan losses. In addition, First
Counties aggressively marketed the properties it held in other real estate
during 1999, selling six properties for total proceeds of $471 thousand. Of the
remaining six properties, three closed escrow in January 2000. In addition,
modular homes held as repossessed assets at December 31, 1998, with a carrying
value of $600 thousand, were sold at auction during December 1999. First
Counties recovered all related principal and costs.
Loans for which it is probable that First Counties will be unable to
collect all amounts due (including principal and interest) are considered to be
impaired. The average recorded investment in impaired loans totaled $411
thousand and $398 thousand at December 31, 1999 and 1998, respectively. In
addition, when principal or interest on a loan is past due 90 days or more,
loans are placed on non-accrual status unless the loans are both well secured
and in the process of collection. Interest previously accrued on loans placed on
non-accrual status is charged against interest income. When the ability to fully
collect non-accrual loan principal is in doubt, cash payments received are
applied against the principal balance of the loans until such time as full
collection of the remaining recorded balance is expected. Any additional
payments received after that point are recorded as interest income on a cash
basis. Performing non-accrual loans are reinstated to accrual status when
improvements in credit quality eliminate the doubt as to the full collectibility
of both interest and principal. First Counties also classifies certain loans on
non-accrual status as impaired.
The following table summarizes the bank's non-accrual loans at the dates
indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1999 1998
---- ------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Commercial.................................................. $168 $ 51
Real estate................................................. 574 2,624
Consumer.................................................... -- 75
---- ------
Total nonaccrual.......................................... $742 $2,750
==== ======
</TABLE>
First Counties had no loans which were 90 days or more past due and still
accruing interest or troubled debt restructurings at December 31, 1999 and 1998,
respectively. The reduction in non-accrual loans in 1999 was primarily the
result of one significant government-guaranteed loan totaling $1.7 million which
performed in accordance with the terms of the contract for a twelve-month period
and was placed back on accrual status.
First Counties' allowance for loan losses provides for loan losses which
can be reasonably anticipated. The amount of the allowance is determined by the
bank's management after considering the current financial condition of its
borrowers, the value of collateral securing loans, recommendations of the
regulatory agencies, the bank's historical loss experience, prevailing economic
conditions
54
<PAGE> 62
and their impact on various industries and borrowers and other factors. The
allowance for loan loses is established through charges to operating expenses in
the form of provisions for loan losses. Because these estimates and evaluations
are primarily based on judgmental factors, no assurance can be given that First
Counties may not sustain loan losses substantially higher in relation to the
size of the allowance or that subsequent evaluations of the loan portfolio may
not require substantial changes in the allowance.
In June 1998, following an examination of the bank by the FDIC, First
Counties charged off $240 thousand related to a loan to rehabilitate modular
homes. In October 1998, on the basis of additional support for the carrying
value of this loan, First Counties reversed approximately $193 thousand of this
amount. The reversed amount is included in the recoveries noted above.
Management believes that the bank has adequately reserved for all individual
items in its portfolio which may result in a material loss to the bank.
At December 31, 1999, 1998 and 1997, the allowance was 1.90%, 1.77% and
1.89%, respectively, of the loans then outstanding.
55
<PAGE> 63
The following schedule summarizes the loan loss experience of the bank for
the years indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
BALANCES
Loans:
Average loans........................................... $57,130 $55,640 $53,266
Loans at end of period.................................. 59,721 56,653 50,706
Allowance at beginning of period.......................... 1,028 979 824
Loans charged off:
Commercial.............................................. 0 391 9
Agricultural............................................ 0 0 0
Real estate -- mortgage................................. 109 146 180
Real estate -- construction............................. 0 0 0
Consumer................................................ 40 20 28
------- ------- -------
Total loans charged off.............................. 149 557 217
Recoveries of loans previously charged off:
Commercial.............................................. 5 196 32
Agricultural............................................ 0 0 0
Real estate -- mortgage................................. 38 24 0
Real estate -- construction............................. 0 0 0
Consumer................................................ 1 6 8
Total recoveries..................................... 44 226 40
------- ------- -------
Net loans charged off................................ 105 331 177
Provision for loan losses................................. 241 380 332
------- ------- -------
Allowance at end of period................................ $ 1,164 $ 1,028 $ 979
======= ======= =======
RATIOS:
Net loan charge-offs to average loans..................... 0.18% 0.59% 0.33%
Net loan charge-offs to loans at end of period............ 0.18% 0.58% 0.35%
Allowance for loan losses to average loans................ 2.04% 1.85% 1.84%
Allowance for loan losses to loans at end of period....... 1.95% 1.81% 1.93%
Net loan charge-offs to allowance for loan losses......... 9.02% 32.20% 18.18%
Net loan charge-offs to provision for loan losses......... 43.57% 87.11% 53.61%
</TABLE>
56
<PAGE> 64
The following table presents the allocation of the allowance for loan
losses as of December 31 for the years indicated:
<TABLE>
<CAPTION>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
AT DECEMBER 31,
---------------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
% OF % OF % OF
TOTAL TOTAL TOTAL
LOANS IN LOANS IN LOANS IN
AMOUNT CATEGORY AMOUNT CATEGORY AMOUNT CATEGORY
------ -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Commercial............................. $ 230 20% $ 213 18% $336 24%
Agricultural........................... 253 15 173 16 85 12
Real estate mortgage................... 528 46 504 47 453 50
Real estate construction............... 69 9 65 10 32 5
Consumer............................... 84 10 73 9 73 9
------ --- ------ --- ---- ---
Total........................ $1,164 100% $1,028 100% $979 100%
====== === ====== === ==== ===
</TABLE>
DEPOSITS
First Counties primarily attracts deposits from small and middle-market
agricultural and commercial businesses and individuals living in its
geographical service area, as well as through retail certificates of deposit,
savings and checking accounts.
The following table shows the bank's average deposits for each of the
periods indicated below, based upon average daily balances:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997
------------------ ------------------ ------------------
AVERAGE PERCENT AVERAGE PERCENT AVERAGE PERCENT
BALANCE OF TOTAL BALANCE OF TOTAL BALANCE OF TOTAL
------- -------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits....................... $ 9,936 12% $ 9,135 13% $ 8,100 11%
NOW accounts.......................... 17,636 22 13,733 19 10,886 16
Savings deposits...................... 6,727 8 5,906 8 5,390 8
Money market deposits................. 5,884 7 6,180 8 6,859 10
Time deposits......................... 41,695 51 37,851 52 38,254 55
------- --- ------- --- ------- ---
Total deposits.............. $81,878 100% $72,805 100% $69,489 100%
======= === ======= === ======= ===
</TABLE>
In 1999, total average deposits increased 12.5% from 1998 primarily due to
increases in NOW accounts and time deposits as a result of new programs to
attract deposits and general growth. Average NOW accounts increased $3.9
million, or 28.4%, from 1998, while average savings and time deposits increased
$0.8 million, or 13.9%, and $3.8 million, or 10.2%, respectively, over 1998.
Time deposits of less than $100 thousand increased $6.7 million, or 21.9%,
primarily as a result of programs offering competitively priced rates on these
deposits. Average time deposits of $100 thousand or more decreased by $2.8
million, or 39.3%. First Counties does not try to attract time deposits of $100
thousand or more, as large depositors sought higher yields in the stock market.
The average balance of non-interest bearing demand deposits also increased 8.8%
over 1998 as a result of requiring deposit relationships from loan customers.
57
<PAGE> 65
In 1998, total average deposits increased 4.8% from 1997 primarily due to
increases in NOW accounts and non-interest bearing demand deposit accounts as a
result of general growth due to requiring deposit relationships from loan
customers. Average NOW accounts increased $2.8 million, or 26.2%, from 1997, and
average demand deposit accounts increased $1.0 million, or 12.8%. These
increases were primarily due to requiring deposit relationships from loan
customers. Total average time deposits decreased only 1.1%, primarily due to
runoff of time deposits of $100 thousand or more, as large depositors sought
higher yields in the stock market.
ASSET AND LIABILITY MANAGEMENT
Liquid assets consist of cash and due from banks, deposits in other
financial institutions, available-for-sale investments not previously pledged,
federal funds sold and loans available-for-sale. Liquidity of the bank was
29.6%, 27.3% and 35.6% at December 31, 1999, 1998 and 1997, respectively, based
on liquid assets divided by total liabilities. The bank's management believes it
maintains adequate liquidity levels.
The bank's profitability generated additional liquidity from its operations
in 1999, 1998 and 1997 indicated by net cash provided from operations of $1.4
million, $809 thousand and $1.7 million, respectively. Significant additional
cash flows are provided by financing activities including the acceptance of
customer deposits, the sale of stock and the exercise of stock options totaling
$3.9 million, $7.6 million and $7.5 million for 1999, 1998 and 1997,
respectively.
During 1998, the bank sold 200 thousand shares of common stock, which
infused $2.0 million, net of stock offering costs, into capital. During 1999,
1998 and 1997, cash flows from deposits increased $3.8 million, $5.6 million and
$7.7 million, respectively. Cash was utilized in 1999 and 1997 to pay dividends
to its shareholders of $39 thousand and $103 thousand, respectively.
The bank uses cash to invest in loans and investment securities. Net
disbursements of loans were $3.4 million, $7.4 million and $985 thousand in
1999, 1998 and 1997, respectively. In 1999 and 1997, the investment portfolio
was increased by net purchases of $1.5 million and $4.0 million, while the
investment portfolio decreased by $570 thousand in 1998. The bank's strategy is
to increase loan volume without increasing credit risk. Excess cash flows are
invested in lower-risk investment securities or other liquid assets.
The bank has Federal funds lines of credit with its correspondent banks,
Union Bank of California and Pacific Coast Bankers' Bank, of $2.5 million. The
bank also has a line of credit with the Federal Home Loan Bank subject to
various pledging options. The amount of the credit line varies according to the
bank's mortgage loan base and other factors. When the bank has excess funds over
its reserve requirements or short-term liquidity needs, the bank increases/or
decreases its securities investments and/or sells federal funds.
Policies have been developed by the bank's management and approved by the
board of directors which establish guidelines for the investments and liquidity
of the bank. These policies include an Investment Policy and an Asset/Liability
Policy. The goals of these policies are to provide liquidity to meet the
financial requirements of the bank's customers, maintain adequate reserves as
required by regulatory agencies and maximize earnings of the bank.
58
<PAGE> 66
It is management's policy to restrict the maturities of a majority of its
certificates of deposit in denominations of $100 thousand or more to less than
one year. The maturities of such time certificates of deposit ("TCD's"), as well
as other time deposits, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------
TCD'S OVER OTHER
$100 THOUSAND TIME DEPOSITS
------------- -------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Less than three months...................................... $3,101 $12,035
Over three months through twelve months..................... 3,782 18,941
Over twelve months through five years....................... 206 1,540
Over five years............................................. -- --
------ -------
Total............................................. $7,089 $32,516
====== =======
</TABLE>
While the deposits of the bank may fluctuate up and down somewhat with
local and national economic conditions, management of the bank does not believe
that such deposits, or the business of the bank in general, are seasonal in
nature. Liability management is monitored by the bank's board of directors which
meets monthly.
Although the bank's Year 2000 transition did not present any material
business disruption, there are some remaining Year 2000 related risks.
Management believes that appropriate actions to address these remaining Year
2000 issues and contingency plans are in place to minimize the financial impact
to the bank. Management, however, cannot be certain that Year 2000 issues
affecting customers, suppliers or service providers of the bank will not have a
material adverse impact on it.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
rates. The bank's market risk arises primarily from interest rate risk inherent
in its loan and deposit functions and management actively monitors and manages
this interest rate risk exposure. The bank does not have any market risk
sensitive instruments entered into for trading purposes. Management uses several
different tools to monitor its interest rate risk. One measure of exposure to
interest rate risk is gap analysis. A positive gap for a given period means that
the amount of interest-earning assets maturing or otherwise repricing within
such period is greater than the amount of interest-bearing liabilities maturing
or otherwise repricing within the same period.
The bank's overall cumulative positive gap is the result of the majority of
loans held in the portfolio having longer maturity dates. On the liability side,
the majority of the bank's time deposits have average terms of approximately
nine months while savings accounts and other interest-bearing transaction
accounts are recorded for gap analysis in the next day to three month category
because they do not have a contractual maturity date.
Taking into consideration that savings accounts and other interest-bearing
transaction accounts typically do not react immediately to changes in interest
rates, management has taken the following steps to manage its positive gap
position. The bank has reduced interest rates on time deposits and focused on
increasing noninterest-bearing deposits and floating rate loans. In addition,
the bank holds the majority of its investment securities in the
available-for-sale category for purposes of liquidity and asset and liability
management.
59
<PAGE> 67
The following table sets forth the distribution of repricing opportunities
of the bank's interest-earning assets and interest-bearing liabilities, the
interest rate sensitivity gap (i.e. interest rate sensitive assets less interest
rate sensitive liabilities), the cumulative interest rate sensitivity gap and
the cumulative gap as a percentage of total interest-earning assets as of
December 31, 1999. The table also sets forth the time periods during which
interest-earning assets and interest-bearing liabilities will mature or may
reprice in accordance with their contractual terms. The interest rate
relationships between the repriceable assets and repriceable liabilities are not
necessarily constant. The table should, therefore, be used only as a guide as to
the possible effect changes in interest rates might have on the net margins of
the bank.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------------------
OVER THREE
MONTHS OVER
NEXT DAY THROUGH ONE YEAR
TO THREE TWELVE THROUGH OVER
MONTHS MONTHS FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
ASSETS:
Federal funds sold.................... $ 6,010 $ -- $ -- $ -- $ 6,010
Interest-bearing deposits............. 100 396 -- -- 496
Investment securities................. -- 1,955 9,555 3,264 14,774
Loans................................. 28,563 10,634 19,062 2,929 61,188
FHLB stock............................ 265 -- -- -- 265
-------- -------- ------- ------- -------
Total interest-earning
assets..................... 34,938 12,985 28,617 6,193 82,733
-------- -------- ------- ------- -------
LIABILITIES:
Savings deposits...................... 30,514 -- -- -- 30,514
Time deposits......................... 15,139 22,721 1,745 -- 39,605
-------- -------- ------- ------- -------
Total interest-bearing
liabilities................ 45,653 22,721 1,745 -- 70,119
-------- -------- ------- ------- -------
Net (interest-bearing liabilities)
interest-earning assets............... $(10,715) $ (9,736) $26,872 $ 6,193 $12,614
Cumulative net (interest-bearing
liabilities) interest-earning assets
(GAP)................................. $(10,715) $(20,451) $ 6,421 $12,614
Cumulative GAP as a percentage of total
interest-earning assets............... (12.95)% (24.72)% 7.76% 15.25%
</TABLE>
60
<PAGE> 68
The following table sets forth the distribution of the expected maturities
of the bank's interest-earning assets and interest-bearing liabilities as of
December 31, 1999 as well as the fair value of these instruments. Expected
maturities are based on contractual agreements. Savings accounts and
interest-bearing transaction accounts, which have no stated maturity, are
included in the 2000 maturity category.
EXPECTED MATURITIES
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE
------- ------ ------ ------ ------ ---------- ------- ----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold.................... $ 6,010 -- -- -- -- -- $ 6,010 $ 6,010
Weighted average rate............... 5.66% 5.66%
Interest-bearing deposits in banks.... $ 496 -- -- -- -- -- $ 496 $ 496
Weighted average rate............... 6.01% 6.01%
Investment securities(1).............. $ 1,955 $3,002 $4,164 $1,000 $1,389 $3,264 $14,774 $14,666
Weighted average rate............... 4.88% 5.35% 5.35% 5.55% 5.11% 5.85% 5.39%
Fixed rate loans...................... $ 3,611 $3,015 $2,206 $1,634 $1,862 $1,161 $13,489 $15,043
Weighted average rate............... 8.79% 9.26% 9.42% 9.35% 9.28% 9.56% 9.21%
Variable rate loans(2)................ $35,586 $2,703 $3,118 $2,202 $2,322 $1,768 $47,699 $47,699
Weighted average rate............... 10.25% 10.33% 9.63% 9.95% 8.81% 9.16% 10.10%
FHLB stock............................ $ 265 -- -- -- -- -- $ 265 $ 265
Weighted average rate............... 5.29% 5.29%
Total interest-bearing assets......... $47,923 $8,720 $9,488 $4,836 $5,573 $6,193 $82,733 $84,179
Savings deposits(3)................... $30,514 -- -- -- -- -- $30,514 $30,514
Weighted average rate............... 2.01% 2.01%
Time deposits......................... $37,859 $1,381 $ 365 -- -- -- $39,605 $39,585
Weighted average rate............... 5.02% 5.45% 5.45% 5.04%
Total interest-bearing liabilities.... $68,373 $1,381 $ 365 -- -- -- $70,119 $70,099
</TABLE>
- -------------------------
(1) Interest rates on tax exempt obligations have not been tax effected to
include the related tax benefits in calculating the weighted average yield.
(2) All variable rate loans reprice in one year or less.
(3) Savings deposits include interest-bearing transaction accounts.
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<PAGE> 69
In addition, the bank utilizes a model to project changes in net interest
income that would occur based on forecasted changes in the interest rate
environment. The model compares net interest margin in a flat interest rate
scenario to forecasted financial results based on interest rates with an
increase of 200 basis points and a decrease of 200 basis points over a 12 month
forecast period. The model shows that the bank's net interest income will
benefit from increasing interest rates, while decreasing interest rates will
have an adverse impact on earnings. The projected drop in net interest income of
6.7% with a 200 basis point drop in interest rates is within reasonable
tolerances. The following table summarizes the simulated change in net interest
income, based on the 12-month period ending December 31, 2000:
<TABLE>
<CAPTION>
ESTIMATED INCREASE
CHANGES IN INTEREST ESTIMATED NET INTEREST (DECREASE) IN NET INTEREST
RATES (BASIS POINTS) INCOME AMOUNT INCOME AMOUNT PERCENT
- -------------------- ---------------------- -------------------------- -------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
+200 $5,480 $ 323 6.3%
-- 5,157 --
-200 4,812 (345) (6.7)
</TABLE>
The bank analyzes its position to be able to maintain its net interest
margin while ensuring adequate liquidity in times of both rising and falling
interest rates. In adjusting the bank's asset/ liability position, management
monitors its interest rate risk while striving to enhance net interest margins.
Depending on the level of interest rates, the relationship between long- and
short-term interest rates, market conditions and competitive factors, management
may increase the interest rate risk position in order to increase its net
interest margin. The bank's results of operations and net portfolio values
remain vulnerable to increases in the interest rate environment and to
fluctuations in the margin between long- and short-term interest rates.
CAPITAL RESOURCES
The current and projected capital position of the bank and the impact of
capital plans and long term strategies are reviewed regularly by management. The
bank's capital position represents the level of capital available to support
continued operations and expansion.
The bank's primary capital resource is shareholders' equity, which
increased $798 thousand or 9.9% at December 31, 1999 from December 31, 1998.
This increase in equity is primarily attributable to 1999 net income of $953
thousand less cash dividends paid of $39 thousand. Shareholders' equity accounts
increased $2.7 million or 51.1% from December 31, 1997 to December 31, 1998.
This increase in equity was primarily attributable to net income of $783
thousand and the proceeds from a public stock offering of approximately $2
million. Additional capital was raised in order to expand the bank's service
area by opening a branch in Williams, California.
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<PAGE> 70
The bank is subject to various regulatory requirements administered by
federal banking agencies. Under capital adequacy guidelines, the bank must meet
specific capital guidelines that involve quantitative measures of the bank's
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The following table sets forth the leverage, tier 1
risk-based capital, and total risk-based capital ratios as of December 31, 1999
and 1998:
<TABLE>
<CAPTION>
MINIMUM
REGULATORY
1999 1998 REQUIREMENT
----- ----- -----------
<S> <C> <C> <C>
Leverage Ratio.................................... 9.8% 9.8% 4.0%
Tier 1 Risk-Based Capital Ratio................... 15.2% 14.0% 4.0%
Total Risk-Based Capital Ratio.................... 16.5% 15.3% 8.0%
</TABLE>
All ratios exceed the regulatory minimum requirements as well as the
regulatory minimum requirements for a "well capitalized" institution.
63
<PAGE> 71
MARKET PRICE AND DIVIDEND INFORMATION
MARKET QUOTATIONS
Westamerica's common stock is traded on the Nasdaq National Market
("Nasdaq") under the symbol "WABC." First Counties' common stock is thinly
traded in the over-the-counter market on the OTC Bulletin Board under the symbol
"FTCB." The following table sets forth for Westamerica common stock the high and
low sale prices, as reported on Nasdaq, and for First Counties the high and low
bid prices as reported to First Counties by brokers handling trades in its
common stock. The quotations shown have been adjusted to reflect stock dividends
and represent inter-dealer prices, without retail mark-up, mark-down or
commissions and, to the extent they represent bid prices, may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
WESTAMERICA FIRST COUNTIES
COMMON STOCK COMMON STOCK
---------------- ----------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
1998
First Quarter...................................... $35.25 $30.67 $ 9.30 $ 9.07
Second Quarter..................................... 36.38 28.50 12.02 10.77
Third Quarter...................................... 33.63 23.63 11.56 10.88
Fourth Quarter..................................... 37.25 23.88 9.76 9.05
1999
First Quarter...................................... $37.50 $31.63 $12.26 $10.12
Second Quarter..................................... 37.13 30.00 11.88 10.00
Third Quarter...................................... 36.50 28.94 11.38 10.38
Fourth Quarter..................................... 35.13 26.63 11.75 10.88
2000
First Quarter...................................... $27.75 $21.00 $20.50 $10.75
Second Quarter (through )........... 27.81 26.06 18.38 17.13
</TABLE>
As of December 31, 1999, there were 8,754 shareholders of record of
Westamerica's common stock.
DIVIDENDS AND DIVIDEND POLICY
Westamerica has paid cash dividends on its common stock in every quarter
since its formation in 1972. Although Westamerica's board of directors will
consider the advisability and amount of proposed dividends each quarter, it is
currently the intention of the board of directors of Westamerica to continue
payment of cash dividends on a quarterly basis. Future dividends will be
determined in light of Westamerica's earnings, financial condition, future
capital needs, regulatory requirements and such other factors as the board of
directors may deem relevant. There is no assurance, however, that any dividends
will be paid because they are dependent upon earnings, financial condition and
capital requirements of Westamerica and its subsidiaries. As of December 31,
1999, $118.7 million was available for payment of dividends by Westamerica to
its shareholders, under applicable laws and regulations.
64
<PAGE> 72
The following table sets forth the per share cash dividend declared by
Westamerica and by First Counties during each quarter since January 1, 1998.
<TABLE>
<CAPTION>
FIRST
WESTAMERICA COUNTIES
----------- --------
<S> <C> <C>
1998
First Quarter............................................... $0.12 $ --
Second Quarter.............................................. 0.12 --
Third Quarter............................................... 0.14 --
Fourth Quarter.............................................. 0.14 --
1999
First Quarter............................................... $0.16 $ --
Second Quarter.............................................. 0.16 --
Third Quarter............................................... 0.16 0.05
Fourth Quarter.............................................. 0.18 --
2000
First Quarter............................................... $0.18 $ --
Second Quarter (through )...................... -- --
</TABLE>
Westamerica'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. First Counties paid a cash dividend of $0.05 per share
in 1999.
65
<PAGE> 73
DESCRIPTION OF WESTAMERICA COMMON STOCK
The authorized capital stock of Westamerica consists of 150,000,000 shares
of common stock, no par value, 1,000,000 shares of Class B common stock and
1,000,000 shares of preferred stock. As of December 31, 1999, there were
37,124,734 shares of common stock outstanding and no shares of either Class B
common stock or preferred stock outstanding. In addition, options to acquire an
additional 1,066,707 shares of Westamerica common stock were issued and
outstanding.
COMMON STOCK
Holders of Westamerica common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of shareholders, except that,
upon giving the notice required by the Westamerica bylaws, shareholders may
cumulate their votes for the election of directors. Shareholders are entitled to
receive ratably such dividends as may be legally declared by Westamerica's board
of directors. There are legal and regulatory restrictions on the ability of
Westamerica to declare and pay dividends. See "Market Price and Dividend
Information -- Dividends and Dividend Policy." Westamerica is also subject to
certain restrictions on its ability to pay dividends and the amount thereof
under the terms a certain debt agreement. See "-- Debt Agreement." In the event
of a liquidation, common shareholders are entitled to share ratably in all
assets remaining after payment of liabilities and liquidation preference for
securities with a priority over the Westamerica common stock. Attached to each
outstanding share of Westamerica common stock is a Right which entitles the
holder to certain rights as set forth in the Amended and Restated Rights
Agreement. See "Certain differences in rights of shareholders -- shareholder
rights plan" on page 69. Shareholders of Westamerica common stock have no
preemptive or conversion rights. Westamerica common stock is not subject to
calls or assessments. The transfer agent and registrar for Westamerica common
stock is Harris Trust Company of California. Computershare Investor Services LLC
will replace Harris Trust Company of California as transfer agent on July 1,
2000.
PREFERRED STOCK AND CLASS B COMMON STOCK
The Westamerica board of directors is authorized to fix the rights,
preferences, privileges and restrictions of the preferred stock and the Class B
common stock and may establish series of such 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 Westamerica common stock
upon the payment of dividends, upon liquidation of Westamerica, in respect of
voting rights and in the redemption of the capital stock of Westamerica. The
Westamerica articles of incorporation provide that except as otherwise provided
by law or by the Westamerica board of directors, shares of Class B common stock
shall have no voting rights. The issuance of any preferred stock or Class B
common stock may have the effect of delaying, deferring or preventing a change
in control of Westamerica without further action of its shareholders. The
issuance of such stock with voting and conversion rights may adversely affect
the voting power of the holders of Westamerica common stock. Westamerica has no
present plans to issue any shares of preferred stock or Class B common stock.
DEBT AGREEMENT
Westamerica is a party to a certain debt agreement containing restrictions
on the payment of dividends and the amount thereof, as well as financial and
other covenants, as described below. In 1996 Westamerica issued and sold
$22,500,000 aggregate principal amount of its 7.11% Senior Notes due February 1,
2006, payable semiannually, pursuant to a Senior Note Agreement dated as of
February 1, 1996. The Senior Notes require that commencing February 1, 2000 and
ending February 1, 2005 Westamerica shall make principal repayments of the
lesser of $3,214,286 or the principal amount then outstanding. The Senior Note
Agreement contains covenants and other
66
<PAGE> 74
provisions usual and customary for senior indebtedness of this type including,
but not limited to, capital debt maintenance ratios, maintenance of specified
levels of consolidated tangible net worth, limitations on indebtedness, a fixed
charge coverage ratio and restrictions on the payment of dividends or other
distributions. Westamerica is in full compliance with the terms of the Debt
Agreement. The Senior Note Agreement does not prohibit Westamerica from
executing and delivering the merger agreement or consummating the merger, nor
does it currently limit the payment of regular quarterly dividends.
AUTOMATIC DIVIDEND REINVESTMENT SERVICE AND EMPLOYEE STOCK PURCHASE PLAN
Pursuant to the Westamerica Automatic Dividend Reinvestment Service and the
Employee Stock Purchase Plan, Westamerica provides eligible shareholders and
employees of Westamerica and its subsidiaries a method of investing cash
dividends and optional cash payments in additional shares of Westamerica common
stock without payment of any brokerage commission or service charge. The
Automatic Dividend Reinvestment Service and the Employee Stock Purchase Plan
include certain dollar limitations on optimal cash payments.
DESCRIPTION OF FIRST COUNTIES COMMON STOCK
The authorized capital stock of First Counties consists of 10,000,000
shares of common stock, no par value. As of March 14, 2000, there were 825,871
shares of common stock outstanding. In addition, options to acquire an
additional 77,423 shares of First Counties common stock were issued and
outstanding.
COMMON STOCK
Holders of First Counties common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of shareholders, except
that, upon giving the notice required by the First Counties bylaws, shareholders
may cumulate their votes for the election of directors. Shareholders are
entitled to receive ratably such dividends as may be legally declared by First
Counties board of directors. There are legal and regulatory restrictions on the
ability of First Counties to declare and pay dividends. See "Market Price and
Dividend Information -- Dividends and Dividend Policy" on page 64. In the event
of a liquidation, common shareholders are entitled to share ratably in all
assets after payment of creditors. Shareholders of First Counties common stock
have no preemptive or conversion rights. First Counties common stock is not
subject to calls or assessments. The transfer agent and registrar for First
Counties common stock is U. S. Stock Transfer Corporation.
67
<PAGE> 75
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
The following is a general discussion of the material differences between
the rights of Westamerica shareholders under the Westamerica articles and bylaws
and the rights of First Counties shareholders under the First Counties articles
and bylaws and applicable California law.
GENERAL
Westamerica is incorporated under and subject to all the provisions of the
General Corporation Law of California. First Counties is incorporated under and
subject to all of the provisions of the California Banking Law and substantially
all of the provisions of the California General Corporation Law. Upon
consummation of the merger, except for those persons, if any, who dissent from
the merger and perfect appraisal rights under the California Law or receive all
cash in the merger, the shareholders of First Counties will become shareholders
of Westamerica.
DECLARATION OF DIVIDENDS
Under California Law, the directors of Westamerica may declare and pay
dividends upon the shares of its capital stock either (i) out of its retained
earnings, or (ii) out of capital, provided the company would, after making the
distribution, meet two conditions, which generally stated are as follows: (i)
the corporation's assets must equal at least 125% of its liabilities; and (ii)
the corporation's current assets must equal at least its current liabilities or,
if the average of the corporation's earnings before taxes on income and before
interest expense for the two preceding fiscal years was less than the average of
the corporation's interest expense for such fiscal years, then the corporation's
current assets must equal at least 125% of its current liabilities.
Under the California Banking Law, First Counties may pay a dividend equal
to its retained earnings or its net income from the last three years, whichever
is less, or, with the prior approval of the Commissioner, it may pay dividends
up to the greatest of its retained earnings, its net income for its last fiscal
year or its net income for its current fiscal year.
CUMULATIVE VOTING
Shareholders of both Westamerica and First Counties 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
Westamerica's common stock is quoted on the Nasdaq National Market, it qualifies
as a listed corporation. Such an amendment requires the approval of holders of a
majority of the outstanding shares of Westamerica common stock. Westamerica has
no present plan to propose an amendment to eliminate cumulative voting.
CLASSIFIED BOARD OF DIRECTORS
At present, the Westamerica bylaws and the First Counties bylaws provide
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. Such an amendment requires the approval of holders of a majority of
the outstanding shares of Westamerica common stock. Because Westamerica common
stock is quoted on
68
<PAGE> 76
the Nasdaq National Market, it qualifies as a listed corporation. Westamerica
has no present plan to propose an amendment to provide for a classified board of
directors.
DISSENTERS' RIGHTS IN MERGERS AND OTHER REORGANIZATIONS
Under 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 General 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 National Market System of the Nasdaq
Stock Market. Westamerica common stock is listed on Nasdaq National Market.
Westamerica shareholders generally have more limited dissenters' rights in
connection with business combinations than do First Counties 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.
SHAREHOLDERS RIGHTS PLAN
In December 1986, Westamerica declared a dividend distribution of one
common share purchase right (a "Right") for each outstanding share of common
stock. The terms of the Rights were amended and restated on September 28, 1989.
On March 23, 1995, the board of directors of Westamerica approved a further
amendment and restatement of Rights. The Amended and Restated Rights Agreement
entitles the holders of each share of Westamerica common stock to the right
(each, a "Westamerica Right"), when exercisable, to purchase from Westamerica
one share of its common stock at a price of $21.667 per share, subject to
adjustment in certain circumstances. A Westamerica Right is attached to each
share of Westamerica common stock. The Westamerica Rights only become
exercisable and trade separately from Westamerica common stock following the
earlier of (i) a public announcement that a person or a group of affiliated or
associated persons has become the beneficial owner of Westamerica securities
having 15% or more of Westamerica's voting power (an "Acquiring Person") or (ii)
10 days following the commencement of, or a public announcement of an intention
to make, a tender or exchange offer which would result in any person having
beneficial ownership of securities having 15% or more of such voting power. Upon
becoming exercisable, each holder of a Westamerica Right (other than an
Acquiring Person whose rights will become null and void) will, for at least a
60-day period thereafter, have the right (subject to the following sentence),
upon payment of the exercise price of $21.667, to receive upon exercise that
number of shares of Westamerica common stock having a market value of twice the
exercise price of the Westamerica Right, to the extent available. Subject to
applicable law, the board of directors, at its option, may at any time after a
Person becomes an Acquiring Person (but not after the acquisition by such Person
of 50% or more of the outstanding Westamerica common stock), exchange all or
part of the then outstanding and exercisable Westamerica Rights (except for
Westamerica Rights which have become void) for shares of Westamerica common
stock equivalent to one share of Westamerica common stock per Westamerica Right
or, alternatively, for substitute consideration consisting of cash, securities
of Westamerica or other assets (or any combination thereof).
As a precaution to ensure that it continues to be able to take appropriate
action to protect the interests of Westamerica and its shareholders,
Westamerica's board of directors approved the amendment of its existing
Shareholder Rights Plan on October 28, 1999, to become effective November 19,
1999, to update the existing plan and extend its maturity until December 31,
2004. The new amended plan is very similar in purpose and effect to the plan as
it existed prior to amendment. It would help the Board to maximize shareholder
value in the event of a change of control of Westamerica and otherwise to resist
actions that the board considers likely to injure
69
<PAGE> 77
Westamerica or its shareholders. The Shareholder Rights Plan as amended and
restated is referred to as the "1999 Rights Agreement."
In addition to extending the maturity date of the plan an additional five
years, the other material changes reflected in the 1999 Rights Agreement
include: (1) an increase in the exercise price to $75; (2) a decrease in the
redemption price of each Right to $.001; (3) a reduction of the amount of
securities required to be acquired or a person or entity to become an "Acquiring
Person", thus triggering the shareholders' rights, from 15% to 10%; and (4) the
replacement of ChaseMellon Shareholder Services, LLC (successor in interest to
Chemical Trust Company of California) with Harris Trust and Savings Bank (now
Harris Trust Company of California) as the Rights Agent. Westamerica intends to
substitute Computershare Investor Services LLC as Rights Agent on or about July
1, 2000.
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<PAGE> 78
PROPOSAL TWO -- ELECTION OF DIRECTORS
There are eight nominees for election to the First Counties Board this
year. The nominees are Salah M. Darwish, Russell D. Jeter, R. Alyn Johnson,
James E. Jonas, Jerry L. Maltby, Calvin D. McCarley, David G. Perry and Dennis
P. Pluth. Information regarding the business experience of each nominee is
provided below. All directors are elected annually to serve until the next
Annual Meeting and until their respective successors are elected. THE BOARD OF
DIRECTORS OF FIRST COUNTIES RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES.
INFORMATION ON DIRECTORS AND NAMED EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
as well as the named executive officers of First Counties:
<TABLE>
<CAPTION>
YEAR FIRST PRINCIPAL OCCUPATION DURING
NAME AND TITLE AGE APPOINTED LAST FIVE YEARS
-------------- --- ---------- ---------------------------
<S> <C> <C> <C>
(DIRECTOR NOMINEES)
Salah M. Darwish 56 1986 President and Chief Executive Officer of Thompson and
Director Darwish Cardiopulmonary Contractors, Inc.
Russell D. Jeter 43 1985 Real Estate Developer and contractor with Jeter
Director Construction.
R. Alyn Johnson 63 1994 Retired with part-time position in public relations for V.
Director Sattui Winery.
James E. Jonas 61 1985 President and co-owner of Jim Jonas, Inc., a petroleum
Chairman products distributor.
Jerry L. Maltby 55 1998 Rice farmer and cattle rancher with Broken Box Ranch;
Director president of Prentis Rice Corporation.
Calvin D. McCarley 64 1986 Retired. Also, a rancher and private investor.
Director
David G. Perry 60 1990 President and Chief Executive Officer of the Bank.
Director, President & CEO
Dennis P. Pluth 63 1994 Broker/Associate and former Owner and President of Shore
Director Line Realty, Inc.
(EXECUTIVE OFFICERS)
Thomas E. Becker, 52 1995 Senior Vice President/Branch Administrator of First
Senior Vice President, Counties since May, 1999. Vice President
Branch Administrator
Evelyn Jean Chrisman, 46 1991 Executive Vice President/Chief Credit Officer of First
Executive Vice President, Counties since May, 1999. Senior Vice President of First
Chief Credit Officer Counties since January, 1998. Compliance Officer of First
Counties since 1996 and CRA Officer of First Counties since
1991.
Millie A. Hammes, 43 1985 Executive Vice President/Chief Financial Officer of First
Executive Vice President, Counties since May, 1999. Senior Vice President/Chief
Chief Financial Officer Financial Officer since 1995.
</TABLE>
None of the directors were selected pursuant to any arrangement or
understanding other than with the directors and executive officers of First
Counties acting within their capacities as such. There are no family
relationships between any of the directors of First Counties. No director of
First Counties serves as a director of any company which has a class of
securities registered under, or which is subject to the periodic reporting
requirements of, the Exchange Act, or of any company registered as an investment
company under the Investment Company Act of 1940.
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<PAGE> 79
FIRST COUNTIES' BOARD OF DIRECTORS AND COMMITTEES
First Counties' board of directors held 14 meetings during 1999. In
addition to meeting as a group to review First Counties' business, members of
the board of directors devoted their time and talents to certain standing
committees. None of the directors attended less than 75% of the board of
directors' meetings and committee meetings (of which they were a member) that
were held in 1999.
First Counties has an Audit Committee which met four times during 1999. The
Audit Committee consisted of Messrs. Johnson (chairman), Darwish, Jeter, Jonas,
Maltby, McCarley and Pluth. The Audit Committee is responsible for overseeing
the internal auditing functions and interfacing with First Counties' independent
outside auditors.
First Counties also has a Personnel Committee which met twice in 1999. The
Personnel Committee consists of all of the members of the board of directors.
The Personnel Committee is responsible for determining the compensation of the
executive officers and setting the guidelines for the compensation of the
employees of First Counties.
During 1999 First Counties did not have a Nominating Committee.
SHAREHOLDINGS OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Management of First Counties knows of no person who owns, beneficially or
of record, either individually or together with associates, 5 percent or more of
the outstanding shares of common stock, except as set forth in the table below.
The following table sets forth, as of March 22, 2000, the number and percentage
of shares of common stock beneficially owned, directly or indirectly, by each of
First Counties' directors, named executive officers and principal shareholders
and by the directors and executive officers of First Counties as a group. The
shares "beneficially owned" are determined under SEC Rules, and do not
necessarily indicate ownership for any other purpose. In general, beneficial
ownership includes shares over which the person has sole or shared voting or
investment power and shares which such person has the right to acquire within 60
days of March 22, 2000. Unless otherwise indicated, the persons listed below
have sole voting and investment powers of the shares beneficially owned.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
HELD CLASS(1)
------------ -----------
<S> <C> <C>
DIRECTORS
Salah M. Darwish............................................ 32,818(2) 4.0%
Russell D. Jeter............................................ 62,126(3) 7.5
R. Alyn Johnson............................................. 1,212 Less than 1%
James E. Jonas.............................................. 20,522(4) 2.5
Jerry L. Maltby............................................. 10,684(5) 1.3
Calvin D. McCarley.......................................... 36,552(6) 4.4
David G. Perry.............................................. 45,506(7) 5.4
Dennis P. Pluth............................................. 12,437 1.5
All Directors and Executive Officers as a Group (11 in
all)...................................................... 259,107(8) 29.4
PRINCIPAL SHAREHOLDER
Pat Hopper.................................................. 80,074(9) 9.7
</TABLE>
- -------------------------
(1) Includes shares subject to options held by the executive officers that are
exercisable within 60 days of the record date. These are treated as issued
and outstanding for the purpose of computing the percentage of Mr. Perry and
the directors and executive officers as a group, but not for the purpose of
computing the percentage of class of any other person.
72
<PAGE> 80
(2) Mr. Darwish has shared voting and investment powers as to 15,145 of these
shares.
(3) Mr. Jeter has shared voting and investment powers as to 40,776 of these
shares. Mr. Jeter's address is: c/o First Counties Bank, 15145 Lakeshore
Drive, Clearlake, California 95422.
(4) Mr. Jonas has shared voting and investment powers as to 17,664 of these
shares.
(5) Mr. Maltby has shared voting and investment powers as to 7,928 of these
shares.
(6) Mr. McCarley has shared voting and investment powers as to 12,185 of these
shares.
(7) Mr. Perry has 21,045 shares acquirable by exercise of stock options. Mr.
Perry's address is: c/o First Counties Bank, 15145 Lakeshore Drive,
Clearlake, California 95422.
(8) Includes 54,371 shares acquirable by exercise of stock options within 60
days of March 22, 2000 held by the executive officers of the First Counties.
(9) Mr. Hopper's address is 2624 Pebble Gold Avenue, Henderson, Nevada
89014-1950.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
From January 1999 through May 1999, the directors of First Counties, other
than Mr. Jonas, received $400 per board meeting attended. During this period,
Mr. Jonas received $450 per board meeting attended as First Counties' Chairman
of the Board. Also during this period, the directors other than Mr. Perry
received $50 per each committee meeting attended which was not held in
conjunction with a board meeting.
From June 1999 through December 1999, the directors of First Counties,
other than Mr. Jonas, received $600 per board meeting attended. During this
period, Mr. Jonas received $700 per meeting attended. Also, the directors other
than Mr. Perry received $50 per committee meeting attended which was not held in
conjunction with a board meeting. Further, the chairman of the Directors Loan
Committee received $100 per month in addition to the regular $50 per meeting
attended.
During 2000, directors will receive the same fees as those received in June
1999.
The following table describes the compensation paid to the chief executive
officer in the last three years (excluding directors' fees described above). No
other officer was paid $100,000 in total compensation in 1999.
<TABLE>
<CAPTION>
SHARES
OTHER ANNUAL ALL OTHER UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION(1) COMPENSATION(2) OPTIONS GRANTED
- --------------------------- ---- -------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
David G. Perry.............. 1999 $112,960 $ 750 $1,512 19,950
President, CEO and 1998 110,320 5,500 1,512 1,102
Director of First Counties 1997 105,570 6,000 1,625
</TABLE>
- -------------------------
(1) Consists of an annual automobile allowance.
(2) Represents First Counties' contribution for the cost of premiums for
disability insurance and 401(k) employer matching contribution.
The following table provides information on options granted to Mr. Perry in
1999.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER OF SHARES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES IN EXERCISE EXPIRATION
NAME OPTIONS FISCAL YEAR PRICE DATE
---- ------------------ ------------------ -------- ----------
<S> <C> <C> <C> <C>
David G. Perry...................... 19,950 34.5% $10.11 March 2009
</TABLE>
73
<PAGE> 81
The following table describes the aggregated option exercises by Mr. Perry
in 1999 and the value of unexercised options held by him at December 31, 1999.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED ON YEAR END (#) YEAR END ($)
EXERCISE VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
---- ----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
David G. Perry.............. 20,456 $119,667 21,052/0 $213,447/0
Options only
</TABLE>
Employment Agreement. Mr. Perry has an employment agreement with First
Counties to serve as its President and Chief Executive Officer. The agreement
provides for Mr. Perry to serve for a term of five years beginning June 9, 1998,
at a base annual salary of $110,000 per year with adjustments in the discretion
of First Counties' board of directors. The agreement also provides Mr. Perry
with disability, medical and dental insurance benefits and a suitable automobile
for use in the performance of his duties. Mr. Perry shall also receive
director's fees for monthly board meetings at the same level of fees paid to
outside directors.
In the event Mr. Perry is terminated by First Counties without cause, he
will be entitled to severance pay equal to twelve months of his then current
base annual salary and will be provided with insurance benefits for twelve
months following the date of termination. In addition, in the event of any
merger or consolidation where First Counties is not the surviving or resulting
corporation, or upon transfer of all or substantially all of the assets of First
Counties, and Mr. Perry is not retained by the resulting corporation in a
position satisfactory to him, Mr. Perry shall be paid twice the base annual
income and shall have the right to exercise all outstanding stock options within
90 days.
Executive Salary Continuation Agreement. On January 2, 1997, First
Counties' Board of Directors entered into an Executive Salary Continuation
Agreement with Mr. Perry. The purpose of the Executive Salary Continuation
Agreement is to provide special incentive to Mr. Perry for his continuing
employment with First Counties on a long term basis. The Executive Salary
Continuation Agreement provides Mr. Perry with salary continuation benefits of
up to $50,000 per year for 15 years after retirement. Normal retirement in the
Executive Salary Continuation Agreement is age 65. In the event of death prior
to retirement, Mr. Perry's beneficiary will receive the full salary continuation
benefits. In the event of disability wherein Mr. Perry does not continue
employment with First Counties, Mr. Perry is entitled to a total yearly payment
equal to $6,250 per year of service beginning January 2, 1997, up to a total
yearly payment of $50,000. If Mr. Perry terminates employment with First
Counties for a reason other than death, disability, or cause, prior to the
normal retirement age, he will be entitled to salary continuation benefits
calculated as set forth above for disability. In the event of a transfer of
controlling ownership or sale of First Counties, Mr. Perry will be paid in cash
in a lump sum on the date of the consummation of the transfer of controlling
ownership or sale of First Counties, the present value of $50,000 being paid for
a period of 15 years in 180 monthly installments beginning on the first day of
the month following the consummation of the transfer of controlling ownership or
sale of First Counties. In connection with the merger agreement, the parties
amended this agreement to provide for payments of $50,000 per year to begin on
June 30, 2002, instead of a lump sum payment upon completion of the merger.
CERTAIN TRANSACTIONS
Some of the First Counties' directors and executive officers and their
immediate families, as well as the companies with which they may have interest
in, have had loans with First Counties in the
74
<PAGE> 82
ordinary course of the First Counties' business. In addition, First Counties
expects to have loans with these persons in the future. In management's opinion,
all these loans and commitments to lend were made in the ordinary course of
business, were made in compliance with applicable laws on substantially the same
terms, including interest rates and collateral, as those prevailing for
comparable transactions with other persons of similar creditworthiness and, in
the opinion of management, did not involve more than a normal risk of
collectibility or present other unfavorable features. The outstanding balance
under extensions of credit by First Counties to directors and executive officers
of First Counties and to the companies that these directors and executive
officers may have an interest was $1,123,902, and $769,994 as of December 31,
1999 and 1998, respectively.
The Calistoga office of First Counties located at 1255 Lincoln Ave.,
Calistoga, California, is leased from Russell D. Jeter, a director of First
Counties. The building is approximately 1,656 square feet and has an adjoining
parking lot. The option period, (one of two five-year options) expires August
31, 2004. The annual base rental is currently $30,000. First Counties paid Mr.
Jeter $26,865 in rent in 1999 and $25,297 in rent in 1998.
Other than as disclosed above, there have been no transactions since
January 1, 1999, nor are there any presently proposed transactions, to which
First Counties was or is to be a party in which any of First Counties officers
and directors had or have a direct or indirect material interest other than the
proposed merger.
75
<PAGE> 83
INDEPENDENT PUBLIC ACCOUNTANTS
The board of directors of First Counties selected the firm of Perry-Smith
LLP, independent public accountants, to audit and express an opinion on its
consolidated financial statements for the years ended December 31, 1999 and
1998. Representatives of Perry-Smith LLP are expected to be present at the
meeting with the opportunity to make a statement, if they desire to do so, and
they are expected to be available to respond to appropriate questions.
Audit services performed by Perry-Smith LLP for the year ended December 31,
1999, consisted of their examinations of the consolidated financial statements
of First Counties and its subsidiaries, consultation on financial, accounting,
and reporting matters.
OTHER MATTERS
The board of directors of First Counties knows of no other matters which
will be brought before the meeting, but if such matters are properly presented,
proxies solicited relating to the meeting 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 meeting.
EXPERTS
The consolidated financial statements of Westamerica as of December 31,
1999 and 1998 and for each of the years in the three-year period ended December
31, 1999, incorporated by reference in this proxy statement/prospectus have been
incorporated by reference herein and in the registration statement in reliance
upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
The consolidated financial statements of First Counties as of December 31,
1999 and 1998 and for each of the years in the three-year period ended December
31, 1999, included in this proxy statement/prospectus have been audited by
Perry-Smith LLP, independent certified public accountants, as stated in their
reports with respect thereto, and are included herein in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
LEGAL MATTERS
Certain legal matters with respect to Westamerica, including the validity
of the Westamerica common stock to be issued in connection with the merger, will
be passed upon for Westamerica by McCutchen, Doyle, Brown & Enersen LLP, San
Francisco, California. Certain legal matters with respect to First Counties will
be passed upon by Gary Steven Findley & Associates, Anaheim, California.
INFORMATION CONCERNING WESTAMERICA MANAGEMENT
Information concerning:
- directors and executive officers,
- executive compensation,
- principal stockholders,
76
<PAGE> 84
- certain relationships and related transactions, and
- and other related matters concerning Westamerica
is included or incorporated by reference in its annual report on Form 10-K for
the year ended December 31, 1999. Westamerica's annual report on Form 10-K is
incorporated by reference into this proxy statement/prospectus.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Westamerica files annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy any reports, statements or other information that Westamerica files at
the Commission's public reference rooms in Washington, D.C., New York, New York
and Chicago, Illinois. You may also obtain copies of this information by mail
from the Public Reference Section of the Commission, 450 5th Street, N.W., Room
1024, Washington, DC 20545 at prescribed rates. Please call the Commission at
(800) SEC-0330 for further information on the public reference rooms. The
Commission also maintains an Internet World Wide Web site at
"http://www.sec.gov" at which reports, proxy and information statements and
other information regarding Westamerica are available. Reports, proxy statements
and other information concerning First Counties may be inspected at the offices
of the Nasdaq Stock Market, 1735 K Street, Washington, DC 20006.
Westamerica has filed with the Securities and Exchange Commission a
registration statement on Form S-4 under the Securities Act relating to the
shares of Westamerica common stock to be issued in connection with the merger.
This proxy statement/prospectus also constitutes the prospectus of Westamerica
filed as part of the registration statement and does not contain all the
information set forth in the registration statement and exhibits thereto. You
may copy and read the registration statement and its exhibits at the public
reference facilities maintained by the Securities Exchange Commission at the
address set forth above.
The Commission allows Westamerica to "incorporate by reference" information
into this proxy statement/prospectus, which means that Westamerica can disclose
important information to you by referring you to another document filed
separately with the Commission. The information incorporated by reference is
deemed to be part of this proxy statement/prospectus, except for any information
superseded by information contained directly in this proxy statement/prospectus.
This proxy statement/prospectus incorporates by reference the documents set
forth below that Westamerica has previously filed with the Commission. These
documents contain important information about Westamerica and its financial
condition.
<TABLE>
<CAPTION>
WESTAMERICA COMMISSION FILINGS
(FILE NO. 001-09383) PERIOD
------------------------------ ------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1999
Current Reports on Form 8-K Dated March 17, 2000
Proxy Statement Dated March 20, 2000
Registration Statement on Form 8-A Filed March 23, 1995
Amendment No. 3 to Registration Statement, Form 8-A/A Filed November 19, 1999
</TABLE>
Westamerica incorporates by reference any additional documents that it may
file with the Commission between the date of this proxy statement/prospectus and
the date of the First Counties meeting. These include periodic reports, such as
annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports
on Form 8-K, as well as proxy statements. Westamerica has supplied all
information contained or incorporated by reference in the proxy
statement/prospectus relating to Westamerica and First Counties has supplied all
such information relating to First Counties.
77
<PAGE> 85
This proxy statement/prospectus incorporates by reference documents
relating to Westamerica which are not presented in this proxy
statement/prospectus or delivered herewith. Those documents relating to
Westamerica are available from Westamerica without charge, excluding all
exhibits unless specifically incorporated by reference in this proxy
statement/prospectus, by requesting them in writing or by telephone from
Westamerica Bancorporation, Kris Irvine, Assistant Corporate Secretary, 4550
Mangels Boulevard, Fairfield, California 94585, (707) 863-6826. If you would
like to request documents from Westamerica, please do so by , 2000,
to receive them before the meeting.
In deciding how to vote on the merger, you should rely only on the
information contained or incorporated by reference in this proxy
statement/prospectus. Neither Westamerica nor First Counties has authorized any
person to provide you with any information that is different from what is
contained in this proxy statement/prospectus. This proxy statement/prospectus is
dated , 2000. You should not assume that the information contained
in this proxy statement/prospectus is accurate as of any date other than such
date, and neither the mailing to you of this proxy statement/prospectus nor the
issuance to you of shares of Westamerica common stock will create any
implication to the contrary. This proxy statement/prospectus does not constitute
an offer to sell or a solicitation of any offer to buy any securities, or the
solicitation of a proxy in any jurisdiction in which, or to any person to whom,
it is unlawful.
78
<PAGE> 86
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
and Shareholders
First Counties Bank
We have audited the accompanying consolidated balance sheet of First
Counties Bank as of December 31, 1999 and 1998 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
First Counties Bank as of December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ PERRY-SMITH LLP
CERTIFIED PUBLIC ACCOUNTANTS
Sacramento, California
February 2, 2000,
except for Note 16, as to which
the date is March 14, 2000
F-1
<PAGE> 87
FIRST COUNTIES BANK
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 5,883,643 $ 3,986,339
Federal funds sold.......................................... 6,010,000 6,600,000
Interest-bearing deposits in banks.......................... 496,000 496,000
Investment securities (market value of $14,666,300 in 1999
and $13,603,300 in 1998) (Note 2)......................... 14,663,663 13,576,669
Loans, less allowance for loan losses of $1,164,273 in 1999
and $1,028,261 in 1998 (Notes 3, 7 and 11)................ 59,720,909 56,652,546
Other real estate and repossessed assets.................... 423,835 1,164,740
Bank premises and equipment, net (Note 4)................... 851,727 954,397
Accrued interest receivable and other assets (Notes 3, 10,
12 and 13)................................................ 2,834,428 2,553,291
----------- -----------
$90,884,205 $85,983,982
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing...................................... $10,937,976 $ 9,731,007
Interest bearing (Note 5)................................. 70,119,421 67,540,815
----------- -----------
Total deposits.................................... 81,057,397 77,271,822
Accrued interest payable and other liabilities.............. 983,763 667,303
----------- -----------
Total liabilities................................. 82,041,160 77,939,125
Commitments and contingencies (Note 7)
Shareholders' equity (Note 8):
Common stock -- no par value; authorized -- 10,000,000
shares;
issued and outstanding -- 825,801 shares in 1999 and
761,757 shares in 1998................................. 5,876,948 5,319,770
Retained earnings......................................... 3,214,936 2,719,569
Accumulated other comprehensive (loss) income (Notes 2 and
14).................................................... (248,839) 5,518
----------- -----------
Total shareholders' equity........................ 8,843,045 8,044,857
----------- -----------
$90,884,205 $85,983,982
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 88
FIRST COUNTIES BANK
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans.......................... $5,907,056 $5,920,834 $5,474,172
Interest on Federal funds sold...................... 458,086 334,885 259,325
Interest on deposits in banks....................... 24,032 23,052 23,537
Interest on investment securities:
Taxable.......................................... 728,462 516,581 532,176
Exempt from Federal income taxes................. 97,187 85,591 55,974
---------- ---------- ----------
Total interest income....................... 7,214,823 6,880,943 6,345,184
Interest expense on deposits (Note 5)................. 2,607,823 2,506,721 2,559,205
---------- ---------- ----------
Net interest income......................... 4,607,000 4,374,222 3,785,979
Provision for loan losses (Note 3).................... 241,000 380,353 332,450
---------- ---------- ----------
Net interest income after provision for loan
losses................................... 4,366,000 3,993,869 3,453,529
---------- ---------- ----------
Non-interest income:
Service charges and fees............................ 487,208 459,543 465,508
Gain on sale of loans............................... 55,204 203,755
Cost recoveries on repossessed assets............... 471,484
Other income........................................ 386,133 354,183 308,948
---------- ---------- ----------
Total non-interest income................... 1,344,825 868,930 978,211
---------- ---------- ----------
Other expenses:
Salaries and employee benefits (Notes 3 and 13)..... 2,006,397 1,805,194 1,714,755
Occupancy and equipment (Notes 4 and 7)............. 878,531 731,426 618,972
Other (Note 9)...................................... 1,320,540 1,154,995 1,015,778
---------- ---------- ----------
Total other expenses........................ 4,205,468 3,691,615 3,349,505
---------- ---------- ----------
Income before income taxes..................... 1,505,357 1,171,184 1,082,235
Income taxes (Note 10)................................ 552,000 442,000 421,000
---------- ---------- ----------
Net income..................................... $ 953,357 $ 729,184 $ 661,235
========== ========== ==========
Basic earnings per share (Note 8)..................... $ 1.16 $ .99 $ 1.16
========== ========== ==========
Diluted earnings per share (Note 8)................... $ 1.15 $ .97 $ 1.14
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 89
FIRST COUNTIES BANK
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
--------------------- PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME(LOSS) EQUITY INCOME
-------- ---------- ----------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997....... 516,437 $1,291,092 $ 1,654,618 $1,810,883 $ 4,611 $4,761,204
Comprehensive income:
Net income................... 661,235 661,235 $ 661,235
Other comprehensive income,
net of tax:
Unrealized gains on
available-for-sale
investment securities
(Note 14).............. 3,485 3,485 3,485
---------
Total comprehensive
income............... $ 664,720
=========
Cash dividend, $.20 per
share........................ (103,287) (103,287)
-------- ---------- ----------- ---------- --------- ----------
Balance, December 31, 1997..... 516,437 1,291,092 1,654,618 2,368,831 8,096 5,322,637
Comprehensive income:
Net income................... 729,184 729,184 $ 729,184
Other comprehensive loss, net
of tax:
Unrealized losses on
available-for-sale
investment securities
(Note 14).............. (2,578) (2,578) (2,578)
---------
Total comprehensive
income............... $ 726,606
=========
Reclassification due to
organizational change to a
state-chartered bank......... 1,654,618 (1,654,618)
Sale of common stock, net of
stock offering costs of
$46,993...................... 200,000 1,953,007 1,953,007
Issuance of common stock under
stock option plan (Note 8)... 9,195 44,247 44,247
5% stock dividend.............. 36,282 378,446 (378,446)
Fractional shares redeemed..... (157) (1,640) (1,640)
-------- ---------- ----------- ---------- --------- ----------
Balance, December 31, 1998..... 761,757 5,319,770 2,719,569 5,518 8,044,857
Comprehensive income:
Net income................... 953,357 953,357 $ 953,357
Other comprehensive loss, net
of tax:
Unrealized losses on
available-for-sale
investment securities
(Note 14).............. (254,357) (254,357) (254,357)
---------
Total comprehensive
income............... $ 699,000
=========
Issuance of common stock under
stock option plan (Note 8)... 25,105 140,137 140,137
5% stock dividend.............. 39,111 418,879 (418,879)
Fractional shares redeemed..... (172) (1,838) (1,838)
Cash dividend, $.05 per
share........................ (39,111) (39,111)
-------- ---------- ----------- ---------- --------- ----------
Balance, December 31, 1999..... 825,801 $5,876,948 $ -- $3,214,936 $(248,839) $8,843,045
======== ========== =========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 90
FIRST COUNTIES BANK
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 953,357 $ 729,184 $ 661,235
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses............................... 241,000 380,353 332,450
Depreciation and amortization........................... 412,933 272,190 264,755
Deferred loan origination fees and costs, net........... 57,334 17,601 34,214
Gain on called investment securities.................... (377) (802) (1,634)
Loss (gain) on sale or write down of other real estate,
net................................................... 12,057 127,526 (2,144)
Recoveries on repossessed assets........................ (421,016)
Decrease (increase) in servicing assets, net............ 23,614 47,639 (20,815)
(Decrease) increase in unamortized discount on retained
portion of sold loans, net............................ (21,762) (35,313) 42,358
Increase in cash surrender value of life insurance
policies.............................................. (29,869) (29,608) (20,200)
Dividends on Federal Home Loan Bank stock............... (16,600) (13,900)
Decrease (increase) in accrued interest receivable and
other assets.......................................... 96,855 (381,294) 145,699
Increase (decrease) in accrued interest payable and
other liabilities..................................... 316,460 (206,361) 302,087
Deferred taxes.......................................... (253,000) (98,000) (71,000)
----------- ----------- -----------
Net cash provided by operating activities............. 1,370,986 809,215 1,667,005
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from matured and called available-for-sale
investment securities................................... 4,920,000 17,400,000 4,250,000
Proceeds from matured and called held-to-maturity
investment securities................................... 600,000 1,125,000 1,405,509
Proceeds from sale of stock in Federal Reserve Bank....... 89,886
Purchases of available-for-sale investment securities..... (7,009,214) (18,044,880) (9,044,290)
Purchases of held-to-maturity investment securities....... (412,861)
Purchase of Federal Home Loan Bank stock.................. (234,300)
Net increase in interest-bearing deposits in banks........ (1,000) (99,000)
Net increase in loans..................................... (3,435,353) (7,352,598) (985,230)
Purchases of equipment.................................... (264,160) (589,439) (245,666)
Proceeds from sale of equipment........................... 10,000 1,500
Purchases of other real estate............................ (63,663)
Proceeds from sale of other real estate................... 487,235 549,360 182,437
Proceeds from sale of repossessed assets.................. 807,811
Capitalized cost on repossessed assets.................... (54,764)
Insurance deposits in connection with salary continuation
plans................................................... (470,000)
----------- ----------- -----------
Net cash used in investing activities................. (3,948,445) (6,813,671) (5,715,564)
----------- ----------- -----------
Cash flows from financing activities:
Net increase in demand, interest bearing and savings
deposits................................................ 4,367,906 4,565,580 2,734,256
Net (decrease) increase in time deposits.................. (582,331) 1,035,096 4,916,786
Proceeds from exercise of stock options................... 140,137 44,247
Cash paid for fractional shares........................... (1,838) (1,640)
Net proceeds from the sale of stock....................... 1,953,007
Cash paid for dividends................................... (39,111) (103,287)
----------- ----------- -----------
Net cash provided by financing activities............. 3,884,763 7,596,290 7,547,755
----------- ----------- -----------
Increase in cash and cash equivalents................. 1,307,304 1,591,834 3,499,196
Cash and cash equivalents at beginning of year.............. 10,586,339 8,994,505 5,495,309
----------- ----------- -----------
Cash and cash equivalents at end of year.................... $11,893,643 $10,586,339 $ 8,994,505
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest expense........................................ $ 2,628,048 $ 2,489,684 $ 2,463,836
Income taxes, net of refunds............................ $ 397,000 $ 886,941 $ 310,000
Non-cash investing activities:
Real estate and other assets acquired through foreclosure
and repossession, net................................... $ 228,917 $ 1,294,750 $ 645,537
Receivable in connection with sale of repossessed
assets.................................................. $ 50,468
Net change in unrealized gain on available-for-sale
investment securities................................... $ (408,715) $ (4,233) $ 5,589
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 91
FIRST COUNTIES BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
First Counties Bank (the "Bank") operates five branches in Clearlake,
Clearlake Oaks, Williams, Middletown and Calistoga, California. The Bank's
primary source of revenue is providing loans to customers who are predominately
small and middle-market agricultural and commercial businesses and individuals
living in the Bank's geographical service area. The accounting and reporting
policies of the Bank conform with generally accepted accounting principles and
prevailing practices within the banking industry.
During 1999, FCOBCBIA Corporation was incorporated as a wholly-owned
subsidiary of the Bank to invest in Community Bankers Insurance Agency, LLC and
provide insurance and other products which are not insured by the Federal
Deposit Insurance Corporation.
Principles of Consolidation
The consolidated financial statements include the accounts of the Bank and
its wholly-owned subsidiary. All material intercompany transactions and accounts
have been eliminated in consolidation.
Investment Securities
Investments are classified into the following categories:
- Available-for-sale securities, reported at fair value, with
unrealized gains and losses excluded from earnings and reported, net
of taxes, as accumulated other comprehensive income (loss) within
shareholders' equity.
- Held-to-maturity securities, which management has the positive
intent and ability to hold, reported at amortized cost, adjusted for
the accretion of discounts and amortization of premiums.
Management determines the appropriate classification of its investments at
the time of purchase and may only change the classification in certain limited
circumstances. All transfers between categories are accounted for at fair value.
Gains or losses on the sale of securities are computed on the specific
identification method. Interest earned on investment securities is reported in
interest income, net of applicable adjustments for accretion of discounts and
amortization of premiums. In addition, unrealized losses that are other than
temporary are recognized in earnings for all investments.
Loans
Loans are stated at principal balances outstanding. Interest is accrued
daily based upon outstanding loan balances. However, when, in the opinion of
management, loans are considered to be impaired and the future collectibility of
interest and principal is in serious doubt, a loan is placed on nonaccrual
status and the accrual of interest income is suspended. Any interest accrued but
unpaid is charged against income. Payments received are applied to reduce
principal to the extent necessary to ensure collection. Subsequent payments on
these loans, or payments received on nonaccrual loans for which the ultimate
collectibility of principal is not in doubt, are applied first to earned but
unpaid interest and then to principal.
F-6
<PAGE> 92
FIRST COUNTIES BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loans (continued)
An impaired loan is measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a practical
matter, at the loan's observable market price or the fair value of collateral if
the loan is collateral dependent. A loan is considered impaired when, based on
current information and events, it is probable that the Bank will be unable to
collect all amounts due (including both principal and interest) in accordance
with the contractual terms of the loan agreement.
Substantially all loan origination fees, commitment fees, direct loan
origination costs and purchase premiums and discounts on loans are deferred and
recognized as an adjustment of yield, to be amortized to interest income over
the contractual term of the loan. The unamortized balance of deferred fees and
costs is reported as a component of net loans.
Allowance for Loan Losses
The allowance for loan losses is maintained to provide for losses related
to impaired loans and other losses that can be expected to occur in the normal
course of business. The allowance is based on estimates made by management, to
include consideration of the character of the loan portfolio, specifically
identified problem loans, potential losses inherent in the portfolio taken as a
whole and business and economic conditions in the Bank's service area. These
estimates are particularly susceptible to changes in the economic environment
and market conditions. The allowance is established through a provision for loan
losses which is charged to expense.
Sales and Servicing of Government Guaranteed Loans
Sales of loans are recognized when the transferred loans are put beyond the
reach of the Bank and its creditors, even in receivership. Servicing rights
acquired through 1) a purchase or 2) the origination of loans which are sold
with servicing rights retained are recognized as separate assets or liabilities.
Servicing assets or liabilities are recorded at the difference between the
contractual servicing fees and adequate compensation for performing the
servicing, and are subsequently amortized in proportion to and over the period
of the related net servicing income or expense. Servicing assets are
periodically evaluated for impairment. Fair values are estimated using
discounted cash flows based on current market interest rates. For purposes of
measuring impairment, servicing assets are stratified based on note rate and
term. The amount of impairment recognized is the amount by which the servicing
assets for a stratum exceed their fair value.
In addition, assets (accounted for as interest-only (IO) strips) are
recorded at the fair value of the difference between note rates and rates paid
to purchasers (the interest spread) and contractual servicing fees, if
applicable. IO strips are carried at fair value with gains or losses recorded as
a component of shareholders' equity, similar to available-for-sale investment
securities.
The Bank's investment in the loan is allocated between the retained portion
of the loan, the servicing asset, the IO strip, and the sold portion of the loan
based on their relative fair values on the date the loan is sold. The gain on
the sold portion of the loan is recognized as income at the time of sale. The
carrying value of the retained portion of the loan is discounted based on the
estimated value of a comparable non-guaranteed loan. The servicing asset is
amortized over the estimated life of the
F-7
<PAGE> 93
FIRST COUNTIES BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Sales and Servicing of Government Guaranteed Loans (continued)
related loan. Significant future prepayments of these loans will result in the
recognition of additional amortization of related servicing assets and an
adjustment to the carrying value of related IO strips.
Included in the portfolio are loans which are 85% to 90% guaranteed by the
Small Business Administration, Farmers Home Administration and Federal Mortgage
Acceptance Corporation. The guaranteed portion of these loans may be sold to a
third party, with the Bank retaining the unguaranteed portion. The Bank
generally receives a premium in excess of the adjusted carrying value of the
loan at the time of sale. The Bank may be required to refund a portion of the
sales premium if the borrower defaults or the loan prepays within ninety days of
the settlement date. At December 31, 1999 the Bank had not received any premiums
which were subject to these recourse provisions.
Loans Serviced for Others
Government guaranteed loans with unpaid balances of approximately
$10,385,000 and $8,954,000 were being serviced for others at December 31, 1999
and 1998, respectively. In addition, other loans with unpaid balances of
approximately $1,449,000 were also being serviced for others at December 31,
1998. There were no other loans being serviced for others at December 31, 1999.
Other Real Estate
Other real estate includes real estate acquired in full or partial
settlement of loan obligations. When property is acquired, any excess of the
Bank's recorded investment in the loan balance and accrued interest income over
the estimated fair market value of the property is charged against the allowance
for loan losses. A valuation allowance for losses on other real estate is
maintained to provide for temporary declines in value. The allowance is
established through a provision for losses on other real estate which is
included in other expenses. Subsequent gains or losses on sales or writedowns
resulting from permanent impairments are recorded in other income or expenses as
incurred.
Bank Premises and Equipment
Bank premises and equipment are carried at cost. Depreciation is determined
using the straight-line method over the estimated useful lives of the related
assets, which range from three to fifteen years. Leasehold improvements are
amortized over the life of the asset or the life of the related lease, whichever
is shorter. When assets are sold or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is recognized in income for the period. The cost of maintenance and
repairs is charged to expense as incurred.
Income Taxes
Deferred tax assets and liabilities are recognized for the tax consequences
of temporary differences between the financial statement and tax basis of
existing assets and liabilities. On the balance sheet, net deferred tax assets
are included in accrued interest receivable and other assets.
F-8
<PAGE> 94
FIRST COUNTIES BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash Equivalents
For the purpose of the statement of cash flows, cash and due from banks and
Federal funds sold are considered to be cash equivalents. Generally, Federal
funds are sold for one day periods.
Earnings Per Share
Basic earnings per share (EPS), which excludes dilution, is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock, such as stock options, result in the issuance of common stock which
shares in the earnings of the Bank. The treasury stock method has been applied
to determine the dilutive effect of stock options in computing diluted EPS.
Stock-Based Compensation
Stock options are accounted for under the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. Accordingly, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Bank's stock at the date of
grant over the exercise price. However, if the fair value of stock-based
compensation computed under a fair value based method, as prescribed in
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, is material to the financial statements, pro forma net income and
earnings per share are disclosed as if the fair value method had been applied.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
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 these estimates.
New Financial Accounting Standard
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activity, which was
subsequently amended by SFAS 137 to delay the effective date to all fiscal
quarters of fiscal years beginning after June 15, 2000. This Statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that entities recognize all derivatives as
either assets or liabilities on the balance sheet and measure those instruments
at fair value. Management does not believe that the adoption of SFAS 133 will
have a significant impact on its financial position and results of operations
when implemented.
Reclassifications
Certain reclassifications have been made to prior years' balances to
conform to classifications used in 1999.
F-9
<PAGE> 95
FIRST COUNTIES BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities at
December 31, 1999 and 1998 consisted of the following:
Available-for-Sale:
<TABLE>
<CAPTION>
1999
---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities................ $ 3,036,362 $ (51,062) $ 2,985,300
U.S. Government agencies................ 9,491,893 (319,293) 9,172,600
Obligations of states and political sub-
divisions............................. 1,332,716 (26,316) 1,306,400
Federal Home Loan Bank stock............ 264,800 264,800
Other investments....................... 180,591 (3,091) 177,500
----------- -------- --------- -----------
$14,306,362 $ -- $(399,762) $13,906,600
=========== ======== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
1998
---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities................. $ 2,014,366 $14,388 $ (2,854) $ 2,025,900
U.S. Government agencies................. 8,444,766 1,689 (26,255) 8,420,200
Obligations of states and political
subdivisions........................... 1,340,007 16,793 1,356,800
Federal Home Loan Bank stock............. 248,200 248,200
Other investments........................ 162,508 5,192 167,700
----------- ------- -------- -----------
$12,209,847 $38,062 $(29,109) $12,218,800
=========== ======= ======== ===========
</TABLE>
Net unrealized (losses) gains on available-for-sale investment securities
totaling $(399,762) and $8,953 were recorded, net of $150,923 and $(3,435) in
tax benefits (liabilities), as accumulated other comprehensive (loss) income
within shareholders' equity at December 31, 1999 and 1998, respectively.
There were no sales or transfers of available-for-sale investment
securities for the years ended December 31, 1999, 1998 and 1997.
Held-to-Maturity:
<TABLE>
<CAPTION>
1999
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Obligations of states and political
subdivisions............................... $757,063 $4,143 $(1,506) $759,700
======== ====== ======= ========
</TABLE>
F-10
<PAGE> 96
FIRST COUNTIES BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT SECURITIES (CONTINUED)
Held-to-Maturity: (continued)
<TABLE>
<CAPTION>
1998
-------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities...................... $ 499,832 $ 168 $ 500,000
Obligations of states and political
subdivisions................................ 858,037 26,463 884,500
---------- ------- ------- ----------
$1,357,869 $26,631 $ -- $1,384,500
========== ======= ======= ==========
</TABLE>
There were no sales or transfers of held-to-maturity investment securities
for the years ended December 31, 1999, 1998 and 1997.
The amortized cost and estimated market value of investment securities at
December 31, 1999 by contractual maturity are shown below. Expected maturities
will differ from contractual maturities because the issuers of the securities
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------------- ---------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Within one year............................. $ 1,810,287 $ 1,793,100 $145,023 $145,200
After one year through five years........... 9,454,659 9,196,900 100,000 101,600
After five years through ten years.......... 2,751,616 2,626,800 412,040 410,900
After ten years............................. 100,000 102,000
----------- ----------- -------- --------
14,016,562 13,616,800 757,063 759,700
Federal Home Loan
Bank stock................................ 264,800 264,800
Other investments........................... 25,000 25,000
----------- ----------- -------- --------
$14,306,362 $13,906,600 $757,063 $759,700
=========== =========== ======== ========
</TABLE>
Investment securities with amortized costs totaling $2,011,800 and
$2,003,900 and market values totaling $1,980,300 and $2,018,400 were pledged to
secure public deposits at December 31, 1999 and 1998, respectively.
F-11
<PAGE> 97
FIRST COUNTIES BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LOANS
Outstanding loans are summarized below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Commercial................................. $12,432,216 $10,623,387
Agricultural............................... 9,121,842 9,111,977
Real estate -- mortgage.................... 28,337,384 27,209,807
Real estate -- construction................ 5,503,000 5,605,188
Installment................................ 4,859,160 4,145,354
Other...................................... 934,593 1,230,773
----------- -----------
61,188,195 57,926,486
Deferred loan fees and costs, net.......... (303,013) (245,679)
Allowance for loan losses.................. (1,164,273) (1,028,261)
----------- -----------
$59,720,909 $56,652,546
=========== ===========
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
Balance, beginning of year.................. $1,028,261 $ 979,011 $824,131
Provision charged to operations............. 241,000 380,353 332,450
Losses charged to allowance................. (149,389) (556,896) (216,934)
Recoveries.................................. 44,401 225,793 39,364
---------- ---------- --------
Balance, end of year...................... $1,164,273 $1,028,261 $979,011
========== ========== ========
</TABLE>
The recorded investment in loans that were considered to be impaired
totaled $113,600 and $167,200 at December 31, 1999 and 1998, respectively. The
related allowance for loan losses for these loans at December 31, 1999 and 1998
was $11,400 and $16,700, respectively. The average recorded investment in
impaired loans for the years ended December 31, 1999, 1998 and 1997 was
$410,800, $397,600 and $890,700, respectively. The Bank recognized no interest
income on these loans during those same periods.
At December 31, 1999 and 1998, nonaccrual loans totaled $742,000 and
$2,750,000, respectively. The portion of these nonaccrual loans guaranteed by
the Farmers Home Administration at December 31, 1999 and 1998 is $331,000 and
$1,985,000, respectively. Interest foregone on nonaccrual loans totaled $65,000,
$56,000 and $222,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
Salaries and employee benefits totaling $168,965, $152,587 and $153,320
have been deferred as loan origination costs for the years ended December 31,
1999, 1998 and 1997, respectively.
F-12
<PAGE> 98
FIRST COUNTIES BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LOANS (CONTINUED)
Sales and Servicing of Government Guaranteed Loans
A summary of the activity in government guaranteed loans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Loans originated.............................. $2,227,161 $3,637,463 $4,192,200
Loans sold (guaranteed portion)............... $ 891,031 $3,573,341
Premium received at sale...................... $ 61,398 $ 255,087
Servicing assets recognized................... $ 17,449 $ 48,348
Amortization charged against earnings......... $ 23,614 $ 65,088 $ 27,533
Balance of servicing assets at year end....... $ 146,792 $ 170,406 $ 218,045
</TABLE>
Servicing assets were recognized based on an allocation of the investment
in the loan between the sold portion of the loan, the retained portion of the
loan and the servicing assets based on the relative fair value of each
component. For servicing contracts in effect prior to January 1, 1997,
previously recognized excess servicing receivables that did not exceed
contractually specified servicing fees were combined with servicing assets
recognized in 1998. The interest-only strip component of loans sold for the
years ended December 31, 1999, 1998 and 1997 was not material and was combined
with servicing assets. No impairment gains or losses were recognized.
4. BANK PREMISES AND EQUIPMENT
Bank premises and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Land........................................... $ 4,590 $ 4,590
Building....................................... 237,306 186,561
Furniture, fixtures and equipment.............. 1,937,845 1,727,923
Leasehold improvements......................... 196,540 193,047
----------- -----------
2,376,281 2,112,121
Less accumulated depreciation and
amortization.............................. (1,524,554) (1,157,724)
----------- -----------
$ 851,727 $ 954,397
=========== ===========
</TABLE>
Depreciation and amortization included in occupancy and equipment expense
totaled $366,830, $286,168 and $227,273 for the years ended December 31, 1999,
1998 and 1997, respectively.
F-13
<PAGE> 99
FIRST COUNTIES BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INTEREST-BEARING DEPOSITS
Interest-bearing deposits consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Savings...................................... $ 6,836,364 $ 6,407,505
Money market................................. 8,223,653 6,378,300
NOW accounts................................. 15,454,636 14,567,911
Time, $100,000 or more....................... 7,089,015 5,621,609
Other time................................... 32,515,753 34,565,490
----------- -----------
$70,119,421 $67,540,815
=========== ===========
</TABLE>
Aggregate annual maturities of time deposits are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
2000............................................... $37,859,392
2001............................................... 1,380,767
2002............................................... 364,609
-----------
$39,604,768
===========
</TABLE>
Interest expense recognized on interest-bearing deposits consisted of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Savings....................................... $ 134,608 $ 117,924 $ 107,826
Money market.................................. 180,619 162,172 147,186
NOW accounts.................................. 197,194 190,299 171,377
Time, $100,000 or more........................ 226,094 405,966 509,496
Other time.................................... 1,869,308 1,630,360 1,623,320
---------- ---------- ----------
$2,607,823 $2,506,721 $2,559,205
========== ========== ==========
</TABLE>
6. SHORT-TERM BORROWING ARRANGEMENT
The Bank is eligible to borrow a total of $2,500,000 on an overnight basis
from two of its correspondent banks. Interest on borrowings is based on the
daily Federal funds rate. The Bank also has a line of credit with the Federal
Home Loan Bank subject to various pledging options. The amount of the credit
line varies according to the Bank's mortgage loan base and other factors. There
were no short-term borrowings outstanding at December 31, 1999 or 1998.
7. COMMITMENTS AND CONTINGENCIES
Federal Reserve Requirements
Banks are required to maintain reserves with the Federal Reserve Bank equal
to a percentage of their reservable deposits. Reserve balances held with the
Federal Reserve Bank totaled $557,000 and $503,000 at December 31, 1999 and
1998, respectively.
F-14
<PAGE> 100
FIRST COUNTIES BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Leases
The Bank leases certain premises under noncancelable operating leases.
Under the terms of the leases, the Bank is responsible for property taxes and
common area maintenance. Monthly rent may be increased annually based upon
increases in the consumer price index.
The Bank has two five-year options to renew its Clearlake branch lease
after the current lease ends April 1, 2005. The Bank has an option to renew its
Calistoga branch lease for a term of five years after the current lease ends
August 1, 2004. The Bank also has two two-year options to renew its Clearlake
Oaks branch lease after the current lease ends July 28, 2001.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
2000................................................ $177,624
2001................................................ 166,614
2002................................................ 151,200
2003................................................ 151,200
2004................................................ 141,200
Thereafter............................................ 75,300
--------
$863,138
========
</TABLE>
Rental expense included in occupancy and equipment expense totaled
$192,812, $170,197 and $170,910 for the years ended December 31, 1999, 1998 and
1997, respectively. One branch facility is leased from a member of the Board of
Directors. Rent paid to the Director totaled $26,865, $25,277 and $25,297 for
the years ended December 31, 1999, 1998 and 1997, respectively.
Financial Instruments With Off-Balance-Sheet Risk
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business in order to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit and letters of
credit. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized on the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the
other party for commitments to extend credit and letters of credit is
represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and letters of credit as it does for
loans included on the balance sheet.
The following financial instruments represent off-balance-sheet credit
risk:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- ----------
<S> <C> <C>
Commitments to extend credit.................. $13,790,000 $9,339,000
Letters of credit............................. $ 105,000 $ 60,000
</TABLE>
F-15
<PAGE> 101
FIRST COUNTIES BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Financial Instruments With Off-Balance-Sheet Risk (continued)
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.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the borrower. Collateral held varies, but may include
accounts receivable, inventory, equipment, income-producing commercial and
agricultural properties and residential properties.
Letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.
At December 31, 1999, commercial loan commitments represent 32% of total
commitments. Approximately 56% of these commitments are secured by various forms
of collateral and the remaining 44% are unsecured. Agricultural loan commitments
represent 11% of total commitments and represent agricultural production lines
of credit secured by liens on crops and equipment. Real estate loan commitments
represent 40% of total commitments and are generally secured by property with a
loan-to-value ratio not to exceed 80%. Secured and unsecured consumer
commitments represent the remaining 17% of total commitments. In addition, the
majority of the Bank's commitments have variable interest rates.
Significant Concentrations of Credit Risk
The Bank grants real estate mortgage, real estate construction, commercial,
agricultural and consumer loans to customers throughout Lake, Colusa and Napa
counties.
Although the Bank has a diversified loan portfolio, a substantial portion
of its portfolio is secured by commercial, agricultural and residential real
estate. However, personal and business income represent the primary source of
repayment for a majority of these loans.
Correspondent Banking Agreements
The Bank maintains funds on deposit with other federally insured financial
institutions under correspondent banking agreements. Uninsured deposits totaled
$307,800 at December 31, 1999.
8. SHAREHOLDERS' EQUITY
Stock Dividends
On May 20, 1999, the Board of Directors declared a 5% stock dividend,
payable June 18, 1999 to shareholders of record on May 30, 1999. All data with
respect to earnings per share and weighted average number of shares outstanding
has been retroactively adjusted to reflect the stock dividends.
F-16
<PAGE> 102
FIRST COUNTIES BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SHAREHOLDERS' EQUITY (CONTINUED)
Dividends
Upon declaration by the Board of Directors, all shareholders of record will
be entitled to receive dividends. The California Financial Code restricts the
total dividend payment of any bank in any calendar year to the lesser of (1) the
bank's retained earnings or (2) the bank's net income for its last three fiscal
years, less distributions made to shareholders during the same three-year
period. At December 31, 1999, retained earnings of $2,201,378 were free of such
restrictions.
Stock Options
During 1995, the Bank established a stock option plan for which 110,117
shares of common stock are reserved. The plan includes both incentive and
non-qualified options.
The plan requires that the option price may not be less than the fair
market value of the stock at the date the option is granted, and that the stock
must be paid for in full at the time the option is exercised. All options expire
on a date determined by the Board of Directors, but not later than ten years
from the date of grant. During 1999, the Board of Directors determined that all
options which had previously been exercisable at the Board's direction were
fully vested and immediately exercisable.
The Bank has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. Accordingly, no compensation expense has been recognized in
connection with the stock option plan. Had compensation cost been determined
based on the fair value at grant date for awards in 1999, 1998 and 1996
consistent with the disclosure provisions of SFAS 123, the Bank's net income and
income per share would have been decreased to the pro forma amounts indicated
below. Compensation cost is included in pro forma income when options are
vested.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Net earnings -- as reported................................ $953,357
Net earnings -- pro forma.................................. $743,803
Basic earnings per share -- as reported.................... $ 1.16
Basic earnings per share -- pro forma...................... $ .91
Diluted earnings per share -- as reported.................. $ 1.15
Diluted earnings per share -- pro forma.................... $ .90
</TABLE>
F-17
<PAGE> 103
FIRST COUNTIES BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SHAREHOLDERS' EQUITY (CONTINUED)
Stock Options (continued)
The weighted average fair value of options granted in 1999 and 1998 is
estimated to be $4.73 and $4.94, respectively, using an option-pricing model and
the following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ---------------
<S> <C> <C>
Dividend yield............................. N/A N/A
Expected volatility........................ 54% to 62% 60% to 65%
Risk-free interest rate.................... 5.40% 5.00%
Expected option life....................... 10 years 8.5 to 10 years
</TABLE>
A summary of the combined activity within the plans follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding beginning of
year.............................. 48,805 $ 7.87 45,676 $ 5.90 45,676 $5.90
Options granted................... 55,000 $10.35 22,900 $10.48
Options exercised................. (25,105) $ 5.35 (9,195) $ 4.37
Options canceled.................. (2,048) $10.48 (12,900) $ 8.05
Options resulting from stock
dividend....................... 4,161 $10.07 2,324 $ 7.87
------- ------ ------- ------ ------ -----
Options outstanding, end of year.... 80,813 $10.39 48,805 $ 7.87 45,676 $5.90
======= ====== ======= ====== ====== =====
Options exercisable, end of year.... 80,813 $10.39 20,682 $ 5.85 6,600 $8.62
======= ====== ======= ====== ====== =====
</TABLE>
Weighted average exercise prices are adjusted for stock dividends.
A summary of information about options outstanding at December 31, 1999
follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED NUMBER OF
OPTIONS AVERAGE OPTIONS
OUTSTANDING REMAINING EXERCISABLE
DECEMBER 31, CONTRACTUAL DECEMBER 31,
RANGE OF EXERCISE PRICES 1999 LIFE 1999
------------------------ ------------ ----------- ------------
<S> <C> <C> <C>
$ 9.30....................................... 2,092 6.8 years 2,092
$10.58....................................... 23,152 8.5 years 23,152
$10.11....................................... 19,950 9.2 years 19,950
$10.48....................................... 35,619 9.4 years 35,619
------ ------
80,813 80,813
====== ======
</TABLE>
Regulatory Capital
The Bank is subject to certain regulatory capital requirements administered
by the Federal Deposit Insurance Corporation (FDIC). Failure to meet these
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if
F-18
<PAGE> 104
FIRST COUNTIES BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SHAREHOLDERS' EQUITY (CONTINUED)
Regulatory Capital (continued)
undertaken, could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets and of Tier 1 capital to average assets. Each of
these components is defined in the regulations. Management believes that the
Bank meets all its capital adequacy requirements as of December 31, 1999.
In addition, the most recent notifications from the FDIC as of December 31,
1999, 1998 and 1997 categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based
and Tier 1 leverage ratios as set forth below. There are no conditions or events
since that notification that management believes have changed the Bank's
category.
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
LEVERAGE RATIO
First Counties Bank............. $8,975,148 9.8% $7,915,165 9.8% $5,201,641 6.9%
Minimum requirement for "Well-
Capitalized" institution...... $4,556,000 5.0% $4,029,000 5.0% $3,757,000 5.0%
Minimum regulatory
requirement................... $3,645,000 4.0% $3,223,000 4.0% $3,006,000 4.0%
TIER 1 RISK-BASED CAPITAL RATIO
First Counties Bank............. $8,975,148 15.2% $7,915,165 14.0% $5,201,641 10.3%
Minimum requirement for "Well-
Capitalized" institution...... $3,538,000 6.0% $3,394,000 6.0% $3,044,000 6.0%
Minimum regulatory
requirement................... $2,359,000 4.0% $2,263,000 4.0% $2,029,000 4.0%
TOTAL RISK-BASED CAPITAL RATIO
First Counties Bank............. $9,755,776 16.5% $8,622,269 15.3% $5,835,845 11.6%
Minimum requirement for "Well-
Capitalized" institution...... $5,897,000 10.0% $5,625,000 10.0% $5,039,000 10.0%
Minimum regulatory
requirement................... $4,717,000 8.0% $4,500,000 8.0% $4,031,000 8.0%
</TABLE>
F-19
<PAGE> 105
FIRST COUNTIES BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SHAREHOLDERS' EQUITY (CONTINUED)
Earnings Per Share
A reconciliation of the numerators and denominators of the basic and
diluted earnings per share computations is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NET NUMBER OF PER SHARE
FOR THE YEAR ENDED INCOME SHARES OUTSTANDING AMOUNT
------------------ -------- ------------------ ---------
<S> <C> <C> <C>
DECEMBER 31, 1999
Basic earnings per share.................. $953,357 819,034 $1.16
=====
Effect of dilutive stock options.......... 6,644
-------- -------
Diluted earnings per share................ $953,357 825,678 $1.15
======== ======= =====
DECEMBER 31, 1998
Basic earnings per share.................. $729,184 736,648 $ .99
=====
Effect of dilutive stock options.......... 17,229
-------- -------
Diluted earnings per share................ $729,184 753,877 $ .97
======== ======= =====
DECEMBER 31, 1997
Basic earnings per share.................. $661,235 569,372 $1.16
=====
Effect of dilutive stock options.......... 8,181
-------- -------
Diluted earnings per share................ $661,235 577,553 $1.14
======== ======= =====
</TABLE>
Options to purchase 23,153 shares of common stock at $10.58 per share were
outstanding during the first and second quarters of 1999 and 37,800 shares of
common stock at $10.48 per share were outstanding the second quarter of 1999
which were not included in the computation of diluted earnings per share because
their exercise price was equal to or greater than the average market price of
the common shares. In 1998, options to purchase 23,153 shares of common stock at
$10.58 per share were outstanding during the fourth quarter of 1998 which were
not included in the computation of diluted earnings per share because their
exercise price was greater than the average market price of the common shares.
9. OTHER EXPENSES
Other expenses consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Stationery and supplies................... $ 179,753 $ 173,464 $ 130,781
Professional fees......................... 140,123 151,143 113,000
Advertising and promotion................. 69,173 59,218 41,853
Loan collection and other real estate
costs................................... 190,001 104,907 84,542
Telephone................................. 87,279 60,511 51,582
Other operating expenses.................. 654,211 605,752 594,020
---------- ---------- ----------
$1,320,540 $1,154,995 $1,015,778
========== ========== ==========
</TABLE>
F-20
<PAGE> 106
FIRST COUNTIES BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
The provision for income taxes for the years ended December 31, 1999, 1998
and 1997 consisted of the following:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
-------- -------- --------
<S> <C> <C> <C>
1999
Current........................................ $566,000 $239,000 $805,000
Deferred....................................... (203,000) (50,000) (253,000)
-------- -------- --------
Income tax expense............................. $363,000 $189,000 $552,000
======== ======== ========
1998
Current........................................ $393,000 $147,000 $540,000
Deferred....................................... (72,000) (26,000) (98,000)
-------- -------- --------
Income tax expense............................. $321,000 $121,000 $442,000
======== ======== ========
1997
Current........................................ $358,000 $134,000 $492,000
Deferred....................................... 4,000 (75,000) (71,000)
-------- -------- --------
Income tax expense............................. $362,000 $ 59,000 $421,000
======== ======== ========
</TABLE>
Deferred tax assets (liabilities) are comprised of the following at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses....................... $433,000 $370,000
Unrealized loss on available-for-sale investment
securities................................... 151,000
Deposit purchase premium........................ 51,000 43,000
Future benefit of State tax deduction........... 72,000 46,000
Deferred compensation........................... 70,000 41,000
Other real estate............................... 112,000 28,000
Bank premises and equipment..................... 31,000
-------- --------
Total deferred tax assets.................... 920,000 528,000
-------- --------
Deferred tax liabilities:
Unrealized gain on available-for-sale investment
securities................................... (3,000)
Bank premises and equipment..................... (12,000)
Future liability of State deferred tax asset.... (52,000) (34,000)
Adjustment for change in tax accounting
method....................................... (26,000) (51,000)
Other........................................... (12,000) (7,000)
-------- --------
Total deferred tax liabilities............... (90,000) (107,000)
-------- --------
Net deferred tax assets.................... $830,000 $421,000
======== ========
</TABLE>
F-21
<PAGE> 107
FIRST COUNTIES BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
The provision for income taxes differs from amounts computed by applying
the statutory Federal income tax rates to operating income before income taxes.
The items comprising these differences for the years ended December 31, 1999,
1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
RATE
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal income tax expense, at statutory rate.............. 34.0% 34.0% 34.0%
State franchise tax, net of Federal tax effect............. 7.0% 7.0% 7.5%
Benefit of tax-exempt income............................... (3.8)% (4.2)% (3.2)%
Other...................................................... (.6)% .9% .6%
---- ---- ----
Total income tax expense................................. 36.6% 37.7% 38.9%
==== ==== ====
</TABLE>
11. RELATED PARTY TRANSACTIONS
During the normal course of business, the Bank enters into transactions
with related parties, including Directors and officers. These transactions
include borrowings from the Bank with substantially the same terms, including
rates and collateral, as loans to unrelated parties. The following is a summary
of the aggregate activity involving related party borrowers during 1999:
<TABLE>
<S> <C>
Balance, January 1, 1999................................... $ 1,076,714
Disbursements............................................ 7,242,362
Amounts repaid........................................... (7,195,174)
-----------
Balance, December 31, 1999................................. $ 1,123,902
===========
Undisbursed commitments to related parties, December 31,
1999..................................................... $ 896,400
===========
</TABLE>
The Bank also leases a branch facility from a member of the Board of
Directors (see Note 7).
12. INTANGIBLES
Deposit premiums of $205,000 and $50,000 in related capitalized legal
expenses resulting from the acquisition of assets and liabilities of other banks
are included on the balance sheet in accrued interest receivable and other
assets and are being amortized over seven years. Amortization expense totaled
$35,621 for the year ended December 31, 1999 and $36,401 for each of the years
ended December 31, 1998 and 1997.
13. EMPLOYEE BENEFIT PLAN
Salary Deferral Plan
Effective May 1, 1995, the Bank adopted the Employee 401(k) Salary Deferral
Plan which is available to employees meeting certain age and service
requirements. Under the Plan, employees are able to defer a selected percentage
of their annual compensation. The Bank's contribution consists of the following:
- A contribution which matches the participant's contribution based on a
percentage determined by the Board of Directors.
F-22
<PAGE> 108
FIRST COUNTIES BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. EMPLOYEE BENEFIT PLAN (CONTINUED)
Salary Deferral Plan (continued)
For the years ended December 31, 1999, 1998 and 1997, the Bank's
contribution totaled $16,000, $13,931 and $13,400, respectively.
Salary Continuation Plans
In December 1996, the Board of Directors approved salary continuation plans
for two key executives. Under these plans, the Bank is obliged to provide the
executives, or designated beneficiaries, with annual benefits for fifteen years
after retirement or death. These benefits are substantially equivalent to those
available under insurance policies to be purchased by the Bank on the lives of
the executives. In addition, the estimated present value of the future benefits
are accrued until the employees' expected retirement dates. The expense
recognized under these plans totaled $63,116, $46,116 and $46,116 for the years
ended December 31, 1999, 1998 and 1997, respectively.
In connection with the plans, the Bank has purchased life insurance
policies with cash surrender values totaling $672,177 and $642,308 at December
31, 1999 and 1998, respectively, which are included on the balance sheet in
accrued interest receivable and other assets. The income earned on these
policies totaled $34,958, $34,164 and $34,164 for the years ended December 31,
1999, 1998 and 1997, respectively.
14. COMPREHENSIVE INCOME
Comprehensive income is reported in addition to net income for all periods
presented. Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of other comprehensive income (loss) that
historically has not been recognized in the calculation of net income.
Unrealized gains and losses on the Bank's available-for-sale investment
securities are included in other comprehensive income (loss). Total
comprehensive income and the components of accumulated other comprehensive
income (loss) are presented in the Statement of Changes in Shareholders' Equity.
At December 31, 1999, 1998 and 1997, the Bank held securities classified as
available-for-sale which had unrealized (losses) gains as follows:
<TABLE>
<CAPTION>
TAX
BEFORE BENEFIT AFTER
TAX (EXPENSE) TAX
--------- --------- ---------
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1999
Other comprehensive loss:
Unrealized holding losses.................. $(408,715) $154,358 $(254,357)
========= ======== =========
FOR THE YEAR ENDED DECEMBER 31, 1998
Other comprehensive loss:
Unrealized holding losses.................. $ (4,233) $ 1,655 $ (2,578)
========= ======== =========
FOR THE YEAR ENDED DECEMBER 31, 1997
Other comprehensive income:
Unrealized holding gains................... $ 5,589 $ (2,104) $ 3,485
========= ======== =========
</TABLE>
F-23
<PAGE> 109
FIRST COUNTIES BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair values are disclosed for financial instruments for which it
is practicable to estimate fair value. These estimates are made at a specific
point in time based on relevant market data and information about the financial
instruments. These estimates do not reflect any premium or discount that could
result from offering the Bank's entire holdings of a particular financial
instrument for sale at one time, nor do they attempt to estimate the value of
anticipated future business related to the instruments. In addition, the tax
ramifications related to the realization of unrealized gains and losses can have
a significant effect on fair value estimates and have not been considered in any
of these estimates.
Because no market exists for a significant portion of the Bank's financial
instruments, fair value estimates are based on judgments regarding current
economic conditions, risk characteristics of various financial instruments and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect the
fair values presented.
The following methods and assumptions were used by the Bank to estimate the
fair value of its financial instruments at December 31, 1999 and 1998:
Cash and cash equivalents: For cash and cash equivalents, the carrying
amount is estimated to be fair value.
Interest-bearing deposits in banks: The fair values of interest-bearing
deposits in banks are estimated by discounting their future cash flows using
rates at each reporting date for instruments with similar remaining maturities
offered by comparable financial institutions.
Investment securities: For investment securities, fair values are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are estimated using quoted market prices for similar
securities and indications of value provided by brokers.
Loans: For variable-rate loans that reprice frequently with no significant
change in credit risk, fair values are based on carrying values. The fair values
for other loans are estimated using discounted cash flow analyses, using
interest rates being offered at each reporting date for loans with similar terms
to borrowers of comparable creditworthiness. The carrying amount of accrued
interest receivable approximates its fair value.
Life insurance deposits: The fair values of life insurance deposits are
based on the current cash surrender value provided by the insurers.
Deposits: The fair values for demand deposits are, by definition, equal to
the amount payable on demand at the reporting date represented by their carrying
amount. Fair values for fixed-rate certificates of deposit are estimated using
discounted cash flow analyses using interest rates being offered at each
reporting date by the Bank for certificates with similar remaining maturities.
The carrying amount of accrued interest payable approximates its fair value.
Commitments to extend credit and letters of credit: The fair values of
commitments to extend credit and letters of credit are primarily for variable
rate loans. For these commitments, there is no difference between the committed
amounts and their fair values. Commitments to fund fixed rate loans and letters
of credit are at rates which approximate fair value.
F-24
<PAGE> 110
FIRST COUNTIES BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Bank's financial instruments are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks.............. $ 5,883,643 $ 5,883,643 $ 3,986,339 $ 3,986,339
Federal funds sold................... 6,010,000 6,010,000 6,600,000 6,600,000
Interest-bearing deposits in banks... 496,000 496,000 496,000 496,000
Investment securities................ 14,663,663 14,666,300 13,576,669 13,603,300
Loans................................ 59,720,909 61,275,000 56,652,546 58,135,000
Accrued interest receivable.......... 784,605 784,605 756,846 756,846
Life insurance deposits.............. 672,177 672,177 642,308 642,308
----------- ----------- ----------- -----------
$88,230,997 $89,787,725 $82,710,708 $84,219,793
=========== =========== =========== ===========
Financial liabilities:
Deposits............................. $81,057,397 $81,037,000 $77,271,822 $77,570,000
Accrued interest payable............. 404,810 404,810 425,035 425,035
----------- ----------- ----------- -----------
$81,462,207 $81,441,810 $77,696,857 $77,995,035
=========== =========== =========== ===========
Off-balance-sheet financial
instruments:
Commitments to extend credit......... $13,790,000 $13,790,000 $ 9,339,000 $ 9,339,000
Letters of credit.................... 105,000 105,000 60,000 60,000
----------- ----------- ----------- -----------
$13,895,000 $13,895,000 $ 9,399,000 $ 9,399,000
=========== =========== =========== ===========
</TABLE>
16. SUBSEQUENT EVENT
On March 14, 2000, the Boards of Directors of First Counties Bank and
Westamerica Bancorporation executed an agreement and plan of reorganization and
merger between the two companies. As a result, First Counties Bank will be
merged with and into Westamerica Bank, a wholly-owned subsidiary of Westamerica
Bancorporation. Under the agreement, each share of First Counties Bank will be
converted into the right to receive .888 shares of the common stock of
Westamerica Bancorporation, subject to adjustment based on the average closing
price of Westamerica Bancorporation's common stock for twenty days prior to the
close of the merger. The transaction will be accounted for under the purchase
method of accounting. It is expected that this merger will be accomplished in
the third quarter of 2000, subject to shareholder and regulatory approval.
F-25
<PAGE> 111
APPENDIX A
AGREEMENT AND PLAN
OF REORGANIZATION AND MERGER
DATED: MARCH 14, 2000
BY AND AMONG
WESTAMERICA BANCORPORATION,
WESTAMERICA BANK
AND
FIRST COUNTIES BANK
<PAGE> 112
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (the "Agreement") is
entered into as of March 14, 2000, by and among WESTAMERICA BANCORPORATION, a
California corporation ("WEST"); WESTAMERICA BANK, a California banking
corporation and wholly owned subsidiary of WEST ("WAB") and FIRST COUNTIES BANK,
a California banking corporation ("FCOB").
RECITALS:
WHEREAS, the respective Boards of Directors of FCOB and WEST have
determined that it is in the best interests of FCOB and WEST and their
respective shareholders for FCOB to be merged with WAB, upon the terms and
subject to the conditions set forth in this Agreement and in accordance with the
California Corporations Code, the California Financial Code and other applicable
laws;
WHEREAS, each of the Boards of Directors of FCOB and WEST have approved
this Agreement and the transactions contemplated hereby;
WHEREAS, FCOB's Board of Directors has resolved to recommend approval of
the merger of FCOB and WAB to its shareholders; and
WHEREAS, upon the consummation of the Merger of FCOB with and into WAB, WAB
shall remain a wholly-owned subsidiary of WEST.
NOW, THEREFORE, in consideration of these premises and the representations,
warranties and agreements herein contained, FCOB and WEST hereby agree as
follows:
ARTICLE 1.
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings set
forth below:
"Acquisition Event" shall mean any of the following:
(a) FCOB's Board of Directors shall have approved or FCOB shall have
authorized, recommended, publicly proposed or publicly announced an
intention to authorize, recommend or propose, or shall have entered or
announced an intention to enter into a letter of intent, an
agreement-in-principle or a definitive agreement with any Person (other
than WEST or any of its respective Subsidiaries) to effect, an Acquisition
Transaction or failed to publicly oppose a Tender Offer or an Exchange
Offer (as defined below). As used herein, the term "Acquisition
Transaction" shall mean (i) a merger, consolidation or similar transaction
involving FCOB, (ii) the disposition, by sale, lease, exchange, dissolution
or liquidation, or otherwise, of all or substantially all of the assets of
FCOB or any asset or assets of FCOB the disposition or lease of which would
result in a material change in the business or business operations of FCOB,
a transfer of any shares of stock or other securities of FCOB by FCOB, or a
material change in the assets, liabilities or results of operations or the
future prospects of FCOB, including, but not limited to a grant of an
option entitling any Person to acquire any shares of stock of FCOB or any
assets material to the business of FCOB; or (iii) the issuance, other than
pursuant to outstanding stock options, sale or other disposition by FCOB
(including, without limitation, by way of merger, consolidation, share
exchange or any similar transaction) of shares of FCOB Common Stock or
other Equity Securities, or the grant of any option, warrant or other right
to acquire shares of FCOB Common Stock or other Equity Securities,
representing directly, or on an as-exercised, as-exchanged or as-converted
basis (in the case of options, warrants, rights or
A-1
<PAGE> 113
exchangeable or convertible Equity Securities), 15% or more of the voting
securities of FCOB; or
(b) Prior to termination of this Agreement (i) any Person (other than
a person who is a party to a Director Shareholder Agreement) shall have
increased the number of shares of FCOB Common Stock over which such person
has beneficial ownership (as such term is defined in Rule 13d-3 promulgated
under the Exchange Act) by a number that is greater than 1% of the then
outstanding shares of FCOB Common Stock if, after giving effect to such
increase, such Person owns, beneficially, more than 5% of the outstanding
shares of FCOB Common Stock, or (ii) any "group" (as such term is defined
under the Exchange Act) shall have been formed which beneficially owns, or
has the right to acquire beneficial ownership of, more than 5% of the then
outstanding shares of FCOB Common Stock.
"Acquisition Proposal" shall have the meaning given such term in Section
6.2.5 and 6.4.12.
"Affected Party" shall have the meaning given to it in Section 5.7.
"Affiliate" or "affiliate" shall mean, with respect to any other Person,
any Person that, directly or indirectly, controls or is controlled by or is
under common control with such Person.
"Affiliate Agreements" shall have the meaning given such term in Section
5.3.3.
"Average Closing Price" shall mean the average of the daily closing price
of a share of WEST Common Stock reported on the NASDAQ National Market System
during the 20 consecutive trading days ending at the end of the third trading
day immediately preceding the Effective Time.
"Benefit Arrangement" shall have the meaning given such term in Section
3.21.4.
"BHCA" shall mean the Bank Holding Company Act of 1956, as amended.
"Business Day" shall mean any day, other than a Saturday, Sunday or any
other day, such as a legal holiday, on which California state banks in
California are not open for substantially all their banking business.
"CDFI" shall mean the California Department of Financial Institutions.
"California Corporations Code" shall mean the General Corporation Law of
the State of California.
"California Financial Code" shall mean the Financial Code of the State of
California.
"Classified Assets" shall have the meaning given to such term in Section
6.1.15.
"Closing" shall have the meaning given to such term in Section 2.1.
"Closing Date" shall have the meaning given to such term in Section 2.1.
"Closing Schedules" shall have the meaning given to such term in Section
5.7.
"Default" shall mean, as to any party to this Agreement, a failure by such
party to perform, in any material respect, any of the agreements or covenants of
such party contained in Articles 5 or 6.
"Derivatives Contract" shall have the meaning given such term in Section
3.26.
"Determination Date" shall mean the last business day of the calendar month
immediately preceding the calendar month in which the Effective Time occurs.
"Director Shareholder Agreement" shall have the meaning given such term in
Section 7.2.10.
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"Dissenting Shares" shall mean shares of FCOB Common Stock which come
within all of the descriptions set forth in Subparagraphs (1), (2), (3) and (4)
of Paragraph (b) of Section 1300 of the California Corporations Code.
"Dissenting Shareholder Notices" shall mean the notice required to be given
to record holders of Dissenting Shares pursuant to Paragraph (a) of Section 1301
of the California Corporations Code.
"Effective Time" shall have the meaning given such term in Section 2.1.
"Employee Plan" shall have the meaning given such term in Section 3.21.3.
"Environmental Laws" shall mean and include any and all laws, statutes,
ordinances, rules, regulations, orders, or determinations of any Governmental
Entity pertaining to health or to the environment, including, without
limitation, the Clean Air Act, as amended, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the
Federal Water Pollution Control Act Amendments, the Occupational Safety and
Health Act of 1970, as amended, the Resource Conservation and Recovery Act of
1976, as amended ("RCRA"), the Hazardous Materials Transportation Act of 1975,
as amended, the Safe Drinking Water Act, as amended, and the Toxic Substances
Control Act, as amended.
"Equity Securities" shall have the meaning given to such term in the
Exchange Act.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exchange Agent" shall mean Harris Trust Company of California or such
other Person as WEST shall have appointed to perform the duties set forth in
Section 2.8.
"Exchange Offer" shall mean the commencement (as such term is defined in
Rule 14d-2 under the Exchange Act) of an exchange offer or the filing by any
Person of a registration statement under the Securities Act with respect to an
exchange offer to purchase any shares of FCOB Common Stock such that, upon
consummation of such offer, such Person would own or control 15% or more of the
then outstanding shares of FCOB Common Stock.
"Exchange Ratio" shall mean 0.888 as adjusted by Section 2.6 or Section
8.1.13.
"FCOB" shall mean First Counties Bank.
"FCOB Certificates" shall have the meaning given such term in Section
2.8.1.
"FCOB Collateralizing Real Estate" shall have the meaning given such term
in Section 3.23.1.
"FCOB Common Stock" shall mean the common stock, no par value, of FCOB.
"FCOB Fairness Opinion" shall have the meaning given to such term in
Section 7.3.7.
"FCOB Filings" shall have the meaning given such term in Section 3.6.
"FCOB Financial Statements" shall have the meaning given to such term in
Section 3.7.3.
"FCOB Material Adverse Event" shall have the meaning given such term in
Section 8.1.8.
"FCOB Properties" shall have the meaning given such term in Section 3.23.1.
"FCOB Stock Options" shall mean any options to purchase any shares of FCOB
Common Stock or any other Equity Securities of FCOB granted on or prior to the
Effective Time, whether pursuant to the FCOB Stock Option Plan or otherwise.
"FCOB Stock Option Plan" shall mean FCOB's written Stock Option Plan as
described in Section 3.24 hereto.
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"FCOB Superior Proposal" shall have the meaning set forth in Section 6.2.5.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"FDI Act" shall mean the Federal Deposit Insurance Act.
"Federal Reserve" shall mean the Board of Governors of the Federal Reserve
System.
"GAAP" shall mean generally accepted accounting principles.
"Governmental Entity" shall mean any court, federal, state, local or
foreign government or any administrative agency or commission or other
governmental authority or instrumentality whatsoever.
"Hazardous Substances" shall have the meaning given such term in Section
3.23.4.
"IRC" shall mean the Internal Revenue Code of 1986, as amended.
"Proxy Statement/Prospectus" shall have the meaning given to such term in
Section 3.7.2.
"Knowledge" shall mean, with respect to any representation or warranty
contained in this Agreement; the actual knowledge, after reasonable inquiry, of
any director or executive officer of FCOB or WEST.
"Last Regulatory Approval" shall mean the final Requisite Regulatory
Approval required, from any Governmental Entity under applicable federal laws of
the United States and laws of any state having jurisdiction over the Merger, to
permit the parties to consummate the Merger.
"Material Adverse Effect" shall mean a material adverse effect: (i) on the
business, assets, results of operations, financial condition or prospects of a
Person and its subsidiaries, if any, taken as a whole (unless specifically
indicated otherwise); or (ii) on the ability of a Person that is a party to this
Agreement to perform its obligations under this Agreement or to consummate the
transactions contemplated by this Agreement.
"Merger" shall have the meaning set forth in Section 2.1.
"Merger Agreement" shall have the meaning given to such term in Section
2.1.
"New Certificates" shall have the meaning given to such term in Section
2.8.1.
"OCC" shall mean Office of the Comptroller of the Currency.
"OREO" shall have the meaning given such term in Section 3.13.
"Perfected Dissenting Shares" shall mean Dissenting Shares as to which the
recordholder has made demand on FCOB or WEST in accordance with Paragraph (b) of
Section 1301 of the California Corporations Code and has not withdrawn such
demand prior to the Effective Time.
"Persons" or "persons" shall mean an individual, corporation, partnership,
limited liability company, joint venture, trust or unincorporated organization,
Governmental Entity or any other legal entity whatsoever.
"Registration Statement" shall have the meaning given to such term in
Section 3.7.2.
"Regulatory Authority" shall mean any Governmental Entity, the approval of
which is legally required for consummation of the Merger.
"Requisite Regulatory Approvals" shall have the meaning set forth in
Section 7.1.2.
"Returns" shall mean all returns, declarations, reports, statements, and
other documents required to be filed with respect to federal, state, local and
foreign Taxes, and the term "Return" means any one of the foregoing Returns.
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"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Subsidiary" shall mean, with respect to any corporation (the "parent"),
any other corporation, association or other business entity of which more than
50% of the shares of the Voting Stock are owned or controlled, directly or
indirectly, by the parent or by one or more Subsidiaries of the parent, or by
the parent and one or more of its Subsidiaries.
"Surviving Corporation" shall have the meaning given to such term in
Section 2.1.
"Taxes" shall mean all federal, state, local and foreign net income, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, lease, service, service use, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, windfall profits, customs,
duties, or other taxes, together with any interest and any penalties, additions
to tax, or additional amounts with respect thereto, and the term "Tax" means any
one of the foregoing Taxes.
"Tax Filings" shall mean any applications, reports, statements or other
Returns related to any Persons taxes required to be filed with any local, state
or federal Governmental Entity before the Merger may become effective,
including, but not limited to, any filing required to be made with the
California Franchise Tax Board to obtain a Tax Clearance Certificate for the
Merger.
"Tender Offer" shall mean the commencement (as such term is defined in Rule
14d-2 under the Exchange Act) of a tender offer or the filing by any person of a
registration statement under the Securities Act with respect to, a tender offer
to purchase any shares of FCOB Common Stock such that, upon consummation of such
offer, such person would own or control 15% or more of the then outstanding
voting securities of FCOB.
"Understanding" shall have the meaning set forth in Section 6.1.5.
"Voting Securities" or "Voting Stock" shall mean the stock or other
securities or any other interest entitling the holders thereof to vote in the
election of the directors, trustees or Persons performing similar functions of
the Person in question, including, without limitation, nonvoting securities that
are convertible or exchangeable into voting securities, but shall not include
any stock or other interest so entitling the holders thereof to vote only upon
the happening of a contingency (other than a conversion or exchange thereof into
voting securities), whether or not such contingency has occurred.
"WAB" shall mean Westamerica Bank.
"WEST" shall mean Westamerica Bancorporation.
"WEST Common Stock" shall mean the common stock, no par value per share, of
WEST.
"WEST Filings" shall have the meanings given such term in Section 4.5.
"WEST Financial Statements" shall mean the financial statements of WEST for
the year ended December 31, 1999.
"WEST Market Value Per Share" shall mean the last trade of WEST Common
Stock prior to the Effective Time.
"WEST Material Adverse Event" shall have the meaning given to such term in
Section 8.1.9
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ARTICLE 2.
THE MERGER
SECTION 2.1 The Merger. Subject to the terms and conditions of this
Agreement, as promptly as practicable following the receipt of the Last
Regulatory Approval and the expiration of all applicable waiting periods, FCOB
shall be merged with WAB, with WAB being the Surviving Corporation of the
merger, all pursuant to the Agreement of Merger attached to this Agreement as
Exhibit 2.1 (the "Merger Agreement") and in accordance with the applicable
provisions of the California Financial Code and the California Corporations Code
(the "Merger"). The closing of the Merger (the "Closing") shall take place at a
location and time and Business Day to be designated by WEST and reasonably
concurred to by FCOB (the "Closing Date") which shall not, however, be later
than thirty (30) days after receipt of the Last Regulatory Approval, expiration
of all applicable waiting periods and FCOB shareholder approval. The Merger
shall be effective when the Merger Agreement (together with any other documents
required by law to effectuate the Merger) shall have been filed with the
Secretary of State of the State of California and the CDFI. When used in this
Agreement, the term "Effective Time" shall mean the time of filing of the Merger
Agreement with the Secretary of State and the CDFI, and "Surviving Corporation"
shall mean WAB.
SECTION 2.2 Effect of Merger. By virtue of the Merger and at the Effective
Time, all of the rights, privileges, powers and franchises and all property and
assets of every kind and description of FCOB and WAB shall be vested in and be
held and enjoyed by the Surviving Corporation, without further act or deed, and
all the estates and interests of every kind of FCOB and WAB, including all debts
due to either of them, shall be as effectively the property of the Surviving
Corporation as they were of FCOB and WAB immediately prior to the Effective
Time, and the title to any real estate vested by deed or otherwise in either
FCOB or WAB shall not revert or be in any way impaired by reason of the Merger;
and all rights of creditors and liens upon any property of FCOB and WAB shall be
preserved unimpaired and all debts, liabilities and duties of FCOB and WAB shall
be debts, liabilities and duties of the Surviving Corporation and may be
enforced against it to the same extent as if such debts, liabilities and duties
had been incurred or contracted by it, and none of such debts, liabilities or
duties shall be expanded, increased, broadened or enlarged by reason of the
Merger.
SECTION 2.3 Articles of Incorporation and Bylaws. The Articles of
Incorporation and Bylaws of WAB in effect immediately prior to the Effective
Time shall be the Articles of Incorporation and Bylaws of the Surviving
Corporation until amended and the name of the Surviving Corporation shall be
"Westamerica Bank."
Section 2.4 WAB Stock. The authorized and issued capital stock of WAB
immediately prior to the Effective Time, on and after the Effective Time,
pursuant to the Merger Agreement and without any further action on the part of
WAB shall remain unchanged and shall be held by WEST.
SECTION 2.5 Conversion of FCOB Stock Options. At the Effective Time, each
option with respect to FCOB Common Stock be converted into an option with
respect to WEST Common Stock and become exercisable for the number of WEST
Common Stock equal to the number of shares of FCOB Common Stock for which the
holder held options multiplied by the Exchange Ratio (except that WEST shall not
be required to issue or compensate the options holders for any fraction of a
share of WEST Shares which would result from exercise of all or any part of said
options), and be subject to the same unaccelerated vesting schedule and other
existing terms of the FCOB options and other comparable terms, including without
limitation a per share WEST exercise price equal to the former per share
exercise price of the FCOB options divided by the Exchange Ratio.
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SECTION 2.6 Conversion of FCOB Common Stock.
(a) Each share of FCOB Common Stock issued and outstanding prior to the
Effective Time shall be converted into the right to receive WEST Common Stock
equal to the amount of the Exchange Ratio. The Exchange Ratio shall be adjusted
as follows:
(i) If the Average Closing Price is greater than $25.59, then the
Exchange Ratio shall equal the product of (a) 0.888 and (b) a fraction, the
numerator is equal to $25.59 and the denominator is equal to the Average
Closing Price;
<TABLE>
<S> <C> <C> <C> <C>
$25.59
Exchange Ratio = 0.888 X
---------------------
Average Closing Price
</TABLE>
(ii) If the Average Closing Price is less than $18.91, then the
Exchange Ratio shall equal the product of (a) 0.888 and (b) a fraction, the
numerator is equal to $18.91 and the denominator is equal to the Average
Closing Price;
<TABLE>
<S> <C> <C> <C> <C>
$18.91
Exchange Ratio = 0.888 X
---------------------
Average Closing Price
</TABLE>
The Exchange Ratio is also subject to adjustment pursuant to Section 8.1.13
if applicable.
(b) The shares held by any shareholder who properly exercises dissenters'
rights provided under the California Corporations Code, shall not be so
converted and in lieu of such conversion shall be treated in accordance with the
provisions of the California Corporations Code.
SECTION 2.7 Fractional Shares. No fractional shares of WEST Common Stock
shall be issued in the Merger. In lieu thereof, each holder of FCOB Common Stock
who would otherwise be entitled to receive a fractional share shall receive an
amount in cash equal to the product (rounded to the nearest hundredth) obtained
by multiplying (a) WEST Market Value Per Share by (b) the fraction of a share of
WEST Common Stock to which such holder would otherwise be entitled. No such
holder shall be entitled to dividends or other rights in respect of any such
fraction.
SECTION 2.8 Exchange Procedures. On or as soon as practicable after the
Effective Time, (i) WEST will deliver to the Exchange Agent: (i) certificates
representing the number of shares of WEST Common Stock issuable in the Merger;
and (ii) cash for the payout of fractional shares.
2.8.1 Upon surrender to the Exchange Agent for cancellation of one or
more certificates for shares of FCOB Common Stock ("FCOB Certificates"),
accompanied by a duly executed letter of transmittal in proper form, the
Exchange Agent shall, as promptly as practicable thereafter, deliver to each
holder of such surrendered FCOB Certificates, certificates representing the
appropriate number of shares of WEST Common Stock ("New Certificates") and/or
checks for payment of cash in lieu of fractional shares, in respect of the FCOB
Certificates. In no event shall the holders of FCOB Certificates be entitled to
receive interest on cash amounts due them hereunder.
2.8.2 Until a FCOB Certificate has been surrendered and exchanged as
herein provided, each share of FCOB Common Stock represented by such FCOB
Certificate shall represent, on and after the Effective Time, the right to
receive the Exchange Ratio into which each such share of FCOB Common Stock shown
thereon has been converted as provided by Section 2.6, including the right to
vote such shares of WEST Common Stock. No dividends or other distributions that
are declared on any shares of WEST Common Stock into which any shares of FCOB
Common Stock have been converted at the Effective Time shall be paid to the
holder of such FCOB shares until the FCOB Certificates evidencing such FCOB
shares have been surrendered in exchange for New Certificates in the manner
herein provided, but upon such surrender, such dividends or other distributions,
from and after the Effective Time, will be paid to such holders. In no event
shall the
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holders be entitled to receive such dividends or other distributions be entitled
to receive interest on such dividends or other distributions.
2.8.3 No transfer taxes shall be payable by any shareholder in respect
of the issuance of New Certificates, except that if any New Certificate is to be
issued in a name other than that in which the FCOB Certificates surrendered
shall have been registered, it shall be a condition of such issuance that the
holder requesting such issuance shall properly endorse the certificate or
certificates and shall pay to WEST or the Exchange Agent any transfer taxes
payable by reason thereof, or of any prior transfer of such surrendered
certificate, or establish to the satisfaction of WEST or the Exchange Agent that
such taxes have been paid or are not payable.
2.8.4 Any WEST Common Stock or cash delivered to the Exchange Agent and
not distributed pursuant to this Section 2.8 at the end of nine months from the
Effective Time, shall be returned to WEST, in which event the Persons entitled
thereto shall look only to WEST for payment thereof.
2.8.5 Notwithstanding anything to the contrary set forth in Sections
2.8.2 and 2.8.3 hereof, if any holder of FCOB Common Stock shall be unable to
surrender such holder's FCOB Certificates because such FCOB Certificates have
been lost or destroyed, such holder may deliver in lieu thereof an affidavit and
indemnity undertaking in form and substance and, if required, with surety
satisfactory to the Exchange Agent and WEST.
2.8.6 The Exchange Agent shall not be entitled to vote or exercise any
rights of ownership with respect to the shares of WEST Common Stock held by it
from time to time hereunder, except that it shall receive and hold all dividends
or other distributions paid or distributed with respect to such shares of WEST
Common Stock for the account of the Persons entitled thereto.
2.8.7 After the Effective Time, there shall be no further registration
of transfers of the shares of FCOB Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time, FCOB
Certificates representing such shares of FCOB Common Stock are presented to
WEST, they shall be canceled and exchanged for WEST Common Stock as provided in
this Article 2.
SECTION 2.9 Board of Directors of WEST and WAB following the Effective
Time. At the Effective Time, the then existing Board of Directors of WEST shall
remain the Board of Directors. At the Effective Time, the Board of Directors of
WAB shall remain the Board of Directors of the Surviving Corporation.
SECTION 2.10 Change of Structure. WEST and FCOB agree that WEST may change
the structure of the Merger so long as the consideration received by FCOB
shareholders under Section 2.6 hereof is not modified and the Closing of the
Merger is not materially delayed.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF FCOB
FCOB represents and warrants to WEST as follows:
SECTION 3.1 Organization; Corporate Power; Etc. FCOB is a California state
chartered banking corporation duly organized, validly existing and in good
standing under the laws of the State of California and has all requisite
corporate power and authority to own, lease and operate its properties and
assets and to carry on its business substantially as it is being conducted on
the date of this Agreement. FCOB has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business
substantially as it is being conducted on the date of this Agreement, except
where the failure to have such power or authority would not have a Material
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Adverse Effect on FCOB or the ability of FCOB to consummate the transactions
contemplated by this Agreement. FCOB has all requisite corporate power and
authority to enter into this Agreement and, subject to obtaining all requisite
Regulatory Approvals, FCOB will have the requisite corporate power and authority
to perform its respective obligations hereunder with respect to the consummation
of the transactions contemplated hereby.
SECTION 3.2 Licenses and Permits. Except as disclosed on Schedule 3.2,
FCOB has all material licenses, certificates, franchises, rights and permits
that are necessary for the conduct of its business, and such licenses are in
full force and effect, except for any failure to be in full force and effect
that would not, individually or in the aggregate, have a Material Adverse Effect
on FCOB or on the ability of FCOB to consummate the transactions contemplated by
this Agreement. The properties, assets, operations and businesses of FCOB are
and have been maintained and conducted, in all material respects, in compliance
with all applicable licenses, certificates, franchises, rights and permits.
SECTION 3.3 Subsidiaries. Other than as set forth on Schedule 3.3, there
is no corporation, partnership, joint venture or other entity in which FCOB
owns, directly or indirectly (except as pledgee pursuant to loans or stock or
other interest held as the result of or in lieu of foreclosure pursuant to
pledge or other security arrangement) any equity or other voting interest or
position.
SECTION 3.4 Authorization of Agreement; No Conflicts.
3.4.1 The execution and delivery of this Agreement and the Merger
Agreement by FCOB, and the consummation of the transactions contemplated hereby
and thereby, have been duly authorized by all necessary corporate action on the
part of FCOB, subject only to the approval of this Agreement, the Merger
Agreement and the Merger by FCOB's shareholders. This Agreement has been duly
executed and delivered by FCOB and constitutes a legal, valid and binding
obligation of FCOB, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting the rights of creditors generally and by general
equitable principles. The Merger Agreement, upon the receipt of all Requisite
Regulatory Approvals and the due execution and filing of such Merger Agreement
in accordance with the applicable provisions of the California Corporations Code
and the California Financial Code, will constitute a legal, valid and binding
obligation of FCOB, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting the rights of creditors generally and by general
equitable principles.
3.4.2 Except as disclosed on Schedule 3.4, the execution and delivery
of this Agreement and the Merger Agreement, and the consummation of the
transactions contemplated hereby and thereby, do not and will not conflict with,
or result in any violation of or default or loss of a material benefit under,
any provision of the Articles of Incorporation or Bylaws of FCOB, any material
mortgage, indenture, lease, agreement or other material instrument or any
permit, concession, grant, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to FCOB or any of its assets or
properties, other than any such conflict, violation, default or loss which (i)
will not have a Material Adverse Effect on FCOB, or on WEST following
consummation of the Merger; or (ii) will be cured or waived prior to the
Effective Time.
SECTION 3.5 Capital Structure. The authorized capital stock of FCOB
consists of 10,000,000 shares of FCOB Common Stock, no par value per share. On
the date of this Agreement, 825,871 shares of FCOB Common Stock were outstanding
and 77,423 shares of FCOB Common Stock were reserved for issuance pursuant to
outstanding FCOB Stock Options under the FCOB Stock Option Plan. All outstanding
shares of FCOB Common Stock are validly issued, fully paid and nonassessable and
do not possess any preemptive rights and were not issued in violation of any
preemptive rights or any similar rights of any Person. Except for the FCOB Stock
Options described
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on Schedule 3.5 to this Agreement, FCOB does not have outstanding any options,
warrants, calls, rights, commitments, securities or agreements of any character
to which FCOB is a party or by which it is bound obligating FCOB to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of FCOB or obligating FCOB to grant, extend or enter into any such
option, warrant, call, right, commitment or agreement.
SECTION 3.6 FCOB Filings. Since January 1, 1997, FCOB has filed all
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that were required to be filed with (a) the FDIC;
(b) the CDFI; (c) the OCC; (d) any other applicable federal, state or local
governmental or regulatory authority. All such reports, registrations and
filings, and all reports sent to FCOB's shareholders during the three-year
period ended December 31, 1999 (whether or not filed with any Regulatory
Authority), are collectively referred to as the "FCOB Filings". Except to the
extent prohibited by law, copies of the FCOB Filings have been made available to
WEST. As of their respective filing or mailing dates, each of the past FCOB
Filings (a) was true and complete in all material respects (or was amended so as
to be so promptly following discovery of any discrepancy); and (b) complied in
all material respects with all of the statutes, rules and regulations enforced
or promulgated by the governmental or regulatory authority with which it was
filed (or was amended so as to be so promptly following discovery of any such
noncompliance) and none contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
SECTION 3.7 Accuracy of Information Supplied.
3.7.1 No representation or warranty of FCOB contained herein or any
statement, schedule, exhibit or certificate given or to be given by or on behalf
of FCOB to WEST in connection herewith and none of the information supplied or
to be supplied by FCOB to WEST hereunder contains or will contain any untrue
statement of material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
3.7.2 None of the information supplied or to be supplied by FCOB or
relating to FCOB and approved by FCOB which is included or incorporated by
reference in (i) the Registration Statement on Form S-4 to be filed with the SEC
by WEST in connection with the issuance of shares of WEST Common Stock in the
Merger (including the Proxy Statement of FCOB and the Prospectus of WEST ("Proxy
Statement/Prospectus") constituting a part thereof, (the "Registration
Statement") will, at the time the Registration Statement becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; (ii) the Proxy Statement/Prospectus and any amendment or
supplement thereto will, at all times from the date of mailing to shareholders
of FCOB through the date of the meeting of shareholders of FCOB to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; and (iii) the applications and forms to be filed with
securities or "blue sky" authorities, self regulatory authorities, or any
Governmental Entity in connection with the Merger, the issuance of any shares of
WEST Common Stock in connection with the Merger, or any Requisite Regulatory
Approvals will, at the time filed or at the time they become effective, contain
any untrue statement of a material fact or 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 were made, not misleading. The Proxy
Statement/Prospectus (except for such portions thereof that relate only to WEST
and its
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Subsidiaries) will comply in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder.
3.7.3 FCOB has delivered or will deliver to WEST copies of: (a) the
audited balance sheets as of December 31, 1999, 1998 and 1997 and the related
statements of income, changes in shareholders' equity and cash flows for the
years then ended and the related notes to such financial statements, all as
audited by Perry-Smith & Company, independent public accountants (the "FCOB
Financial Statements"), and FCOB will hereafter until the Closing Date deliver
to WEST copies of additional financial statements of FCOB as provided in
Sections 5.1.1(iii) and 6.1.11(iii). The FCOB Financial Statements have been
prepared (and all of said additional financial statements will be prepared) in
accordance with GAAP, or applicable regulatory accounting principles applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto) consistently followed throughout the periods covered by such
statements, and present (and, when prepared, will present) fairly the financial
position of FCOB as of the respective dates indicated and the results of
operations, cash flows and changes in shareholders' equity at the respective
dates and for the respective periods covered by such financial statements
(subject, in the case of the unaudited statements, to recurring adjustments
normal in nature and amount). In addition, FCOB has delivered or made available
to WEST copies of all management or other letters delivered to FCOB by its
independent accountants in connection with any of the FCOB Financial Statements
or by such accountants or any consultant regarding the internal controls or
internal compliance procedures and systems of FCOB issued at any time since
January 1, 1997, and will make available for inspection by WEST or its
representatives, at such times and places as WEST may reasonably request,
reports and working papers produced or developed by such accountants or
consultants.
SECTION 3.8 Compliance with Applicable Laws. Except as disclosed on
Schedule 3.8, to the Knowledge of FCOB, the respective businesses of FCOB are
not being conducted in violation of any law, ordinance or regulation, except for
violations which individually or in the aggregate would not have a Material
Adverse Effect on FCOB, or WEST at or following the Effective Time. Except as
set forth in Schedule 3.8, to the Knowledge of FCOB no investigation or review
by any Governmental Entity with respect to FCOB, other than regular bank
examinations, is pending or threatened, nor has any Governmental Entity
indicated to FCOB an intention to conduct the same.
SECTION 3.9 Litigation. Except as set forth in Schedule 3.9, to the
Knowledge of FCOB there is no suit, action or proceeding or investigation
pending or threatened against or affecting FCOB which, if adversely determined,
would have a Material Adverse Effect on FCOB; nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against FCOB that has, or which, insofar as reasonably can be foreseen, in the
future would have, any such Material Adverse Effect. Schedule 3.9 contains a
true, correct and complete list, including identification of the applicable
insurance policy covering such litigation, if any, subject to reservation of
rights, if any, the applicable deductible and the amount of any reserve
therefor, of all pending litigation in which FCOB is a named party of which FCOB
has Knowledge, and except as disclosed on Schedule 3.9, all of the litigation
shown on such Schedule is adequately covered by insurance in force, except for
applicable deductibles, or has been adequately reserved for in accordance with
FCOB's prior business practices.
SECTION 3.10 Agreements with Banking Authorities. Except as set forth in
Schedule 3.10, FCOB is not a party to any written agreement or memorandum of
understanding with, or order or directive from, any Governmental Entity.
SECTION 3.11 Insurance. FCOB has in full force and effect policies of
insurance with respect to their assets and businesses against such casualties
and contingencies and in such amounts, types and forms as are customarily
appropriate for their businesses, operations, properties and assets. Schedule
3.11 contains a list of all policies of insurance and bonds carried and owned by
FCOB.
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FCOB is not in default under any such policy of insurance or bond such that it
can be canceled and all material current claims outstanding thereunder have been
filed in timely fashion. FCOB has filed claims with, or given notice of claim
to, their insurers or bonding companies in timely fashion with respect to all
material matters and occurrences for which they believe they have coverage.
SECTION 3.12 Title to Assets other than Real Property. FCOB has good and
marketable title to or a valid leasehold interest in all properties and assets
(other than real property which is the subject to Section 3.13), used in its
business, free and clear of all mortgages, covenants, conditions, restrictions,
easements, liens, security interests, charges, claims, assessments and
encumbrances, except for: (a) rights of lessors, lessees or sublessees in such
matters as are reflected in a written lease; (b) encumbrances as set forth in
the FCOB Financial Statements; (c) current Taxes (including assessments
collected with Taxes) not yet due which have been fully reserved for; (d)
encumbrances, if any, that are not substantial in character, amount or extent
and do not detract materially from the value, or interfere with present use, or
the ability of FCOB or its Subsidiary to sell or otherwise dispose of the
property subject thereto or affected thereby; and (e) other matters as described
in Schedule 3.12. All such properties and assets are, and require only routine
maintenance to keep them, in good working condition, normal wear and tear
excepted.
SECTION 3.13 Real Property. Schedule 3.13 is an accurate list and general
description of all real property owned or leased by FCOB, including Other Real
Estate Owned ("OREO"). FCOB has good and marketable title to the real properties
that it owns, as described in such Schedule, free and clear of all mortgages,
covenants, conditions, restrictions, easements, liens, security interests,
charges, claims, assessments and encumbrances, except for (a) rights of lessors,
lessees or sublessees in such matters as are reflected in a written lease; (b)
current Taxes (including assessments collected with Taxes) not yet due and
payable; (c) encumbrances, if any, that are not substantial in character, amount
or extent and do not materially detract from the value, or interfere with
present use, or the ability of FCOB to dispose, of FCOB's interest in the
property subject thereto or affected thereby; and (d) other matters as described
in Schedule 3.13. FCOB has valid leasehold interests in the leaseholds they
respectively hold, free and clear of all mortgages, liens, security interest,
charges, claims, assessments and encumbrances, except for (a) claims of lessors,
co-lessees or sublessees in such matters as are reflected in a written lease;
(b) title exceptions affecting the fee estate of the lessor under such leases;
and (c) other matters as described in Schedule 3.13. To the best of FCOB's
Knowledge, the activities of FCOB with respect to all real property owned or
leased by them for use in connection with their operations are in all material
respects permitted and authorized by applicable zoning laws, ordinances and
regulations and all laws and regulations of any Governmental Entity. Except as
set forth in Schedule 3.13, FCOB enjoys quiet possession under all material
leases to which they are the lessees and all of such leases are valid and in
full force and effect, except as the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting the rights of
creditors generally and by general equitable principles. Materially all
buildings and improvements on real properties owned or leased by FCOB are in
good condition and repair, and do not require more than normal and routine
maintenance, to keep them in such condition, normal wear and tear excepted.
SECTION 3.14 Taxes.
3.14.1 Filing of Returns. Except as set forth on Schedule 3.14.1, FCOB
has duly prepared and filed or caused to be duly prepared and filed all federal,
state, and local Returns (for Tax or informational purposes) which were required
to be filed by or in respect of FCOB or any of their properties, income and/or
operations on or prior to the Closing Date. As of the time they were filed, the
foregoing Returns accurately reflected the material facts regarding the income,
business, asset, operations, activities, status, and any other information
required to be shown thereon. Except as set
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forth on Schedule 3.14.1, no extension of time within which FCOB may file any
Return is currently in force.
3.14.2 Payment of Taxes. Except as disclosed on Schedule 3.14.2 with
respect to all amounts in respect of Taxes imposed on FCOB or for which FCOB is
or could be liable, whether to taxing authorities (as, for example, under law)
or to other Persons (as, for example, under Tax allocation agreements), with
respect to all taxable periods or portions of periods ending on or before the
Closing Date, all applicable tax laws and agreements have been or will be fully
complied with in all material respects, and all such amounts required to be paid
by or on behalf of FCOB to taxing authorities or others on or before the date
hereof have been paid.
3.14.3 Audit History. Except as disclosed on Schedule 3.14.3, there is
no review or audit by any taxing authority of any Tax liability of FCOB
currently in progress of which FCOB has Knowledge. Except as disclosed on
Schedule 3.14.3, FCOB has not received any written notices within the three
years preceding the Closing Date of any pending or threatened audit, by the
Internal Revenue Service or any state, local or foreign agency, for any Returns
or Tax liability of FCOB for any period. FCOB currently has no unpaid
deficiencies assessed by the Internal Revenue Service or any state, local or
foreign taxing authority arising out of any examination of any of the Returns of
FCOB or any Subsidiaries filed for fiscal years ended on or after December 31,
1996 through the Closing Date, nor to the Knowledge of FCOB is there reason to
believe that any material deficiency will be assessed.
3.14.4 Statute of Limitations. Except as disclosed on Schedule 3.14.4,
no agreements are in force or are currently being negotiated by or on behalf of
FCOB for any waiver or for the extension of any statute of limitations governing
the time of assessments or collection of any Tax. No closing agreements or
compromises exist concerning Taxes of FCOB.
3.14.5 Withholding Obligations. Except as set forth on Schedule 3.14.5,
FCOB has withheld from each payment made to any of their respective officers,
directors and employees, the amount of all applicable Taxes, including, but not
limited to, income tax, social security contributions, unemployment
contributions, backup withholding and other deductions required to be withheld
therefrom by any Tax law and have paid the same to the proper taxing authorities
within the time required under any applicable Tax law.
3.14.6 Tax Liens. There are no Tax liens, whether imposed by any
federal, state, local or foreign taxing authority, outstanding against any
assets owned by FCOB except for liens for Taxes that are not yet due and
payable.
3.14.7 Tax Reserves. FCOB has made full and adequate provision and
reserve for all federal, state, local or foreign Taxes for the current period
for which Tax and information returns are not yet required to be filed. The FCOB
Financial Statements contain fair and sufficient accruals for the payment of all
Taxes for the periods covered by the FCOB Financial Statements and all periods
prior thereto.
3.14.8 IRC Section 382 Applicability. FCOB, including any party joining
in any consolidated return to which FCOB is not a member, has not undergone an
"ownership change" as defined in IRC Section 382(g) within the "testing period"
(as defined in IRC Section 382) ending immediately before the Effective Time,
and not taking into account any transactions contemplated by this Agreement.
3.14.9 Disclosure Information. Within 45 days of the date of this
Agreement, FCOB will deliver to WEST a schedule setting forth the following
information with respect to FCOB and as of the most recent practicable date (as
well as on an estimated pro forma basis as of the Closing giving effect to the
consummation of the transactions contemplated hereby): (a) FCOB's basis in its
assets;
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(b) the amount of any net operating loss, net capital loss, unused investment or
other credit, unused foreign tax, or excess charitable contribution allocable to
FCOB; and (c) the amount of any deferred gain or loss allocable to FCOB and
arising out of any deferred intercompany transactions.
SECTION 3.15 Performance of Obligations. FCOB has performed all material
obligations required to be performed by it to date and FCOB is not in material
default under or in breach of any term or provision of any covenant, contract,
lease, indenture or any other agreement, written or oral, to which any is a
party, is subject or is otherwise bound, and no event has occurred that, with
the giving of notice or the passage of time or both, would constitute such a
default or breach, where such default or breach or failure to perform would have
a Material Adverse Effect on FCOB. To the Knowledge of FCOB, and except as
disclosed on Schedule 3.15 or in the portion of Schedule 3.16 that identifies
90-day past due or classified or nonaccrual loans, no party with whom FCOB has
an agreement that is of material importance to the businesses of FCOB is in
default thereunder.
SECTION 3.16 Loans and Investments. Except as set forth on Schedule 3.16,
all loans, leases and other extensions of credit, and guaranties, security
agreements or other agreements supporting any loans or extensions of credit, and
investments of FCOB are, and constitute, in all material respects, the legal,
valid and binding obligations of the parties thereto and are enforceable against
such parties in accordance with their terms, except as the enforceability
thereof may be limited by applicable law and otherwise by bankruptcy,
insolvency, moratorium or other similar laws affecting the rights of creditors
generally and by general equitable principles. Except as described on Schedule
3.16, as of December 31, 1999, no loans or investments held by FCOB are: (i)
more than ninety (90) days past due with respect to any scheduled payment of
principal or interest, other than loans on a nonaccrual status; (ii) classified
as "loss," "doubtful," "substandard" or "specially mentioned" by FCOB or any
banking regulators; or (iii) on a nonaccrual status in accordance with FCOB's
loan review procedures. Except as set forth on Schedule 3.16, none of such
assets (other than loans) are subject to any restrictions, contractual,
statutory or other, that would materially impair the ability of the entity
holding such investment to dispose freely of any such assets at any time, except
restrictions on the public distribution or transfer of any such investments
under the Securities Act and the regulations thereunder or state securities laws
and pledges or security interests given in connection with government deposits.
All loans, leases or other extensions of credit outstanding, or commitments to
make any loans, leases or other extensions of credit made by FCOB to any
Affiliates of FCOB are disclosed on Schedule 3.16. For outstanding loans or
extensions of credit where the original principal amounts are in excess of
$50,000 and which by their terms are either secured by collateral or supported
by a guaranty or similar obligation, the security interests have been duly
perfected in all material respects and have the priority they purport to have in
all material respects, other than by operation of law, and, in the case of each
guaranty or similar obligation, each has been duly executed and delivered to
FCOB and to FCOB's Knowledge, is still in full force and effect.
SECTION 3.17 Brokers and Finders. Except as set forth on Schedule 3.17,
FCOB is not a party to or obligated under any agreement with any broker or
finder relating to the transactions contemplated hereby, and neither the
execution of this Agreement, or the Merger Agreement, nor the consummation of
the transactions provided for herein or therein, will result in any liability to
any broker or finder. FCOB agrees to indemnify and hold harmless WEST and its
affiliates, and to defend with counsel selected by WEST and reasonably
satisfactory to FCOB, from and against any liability, cost or expense, including
attorneys' fees, incurred in connection with a breach of this Section 3.17.
SECTION 3.18 Material Contracts. Schedule 3.18 to this Agreement contains
a complete and accurate written list of all material agreements, obligations or
understandings, written and oral, to which FCOB is a party as of the date of
this Agreement, except for loans and other extensions of
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credit made by FCOB in the ordinary course of its business and those items
specifically disclosed in the FCOB Financial Statements.
SECTION 3.19 Absence of Material Adverse Effect. Since January 1, 2000,
the business of FCOB has been conducted only in the ordinary course, in the same
manner as theretofore conducted, and no event or circumstance has occurred or is
expected to occur which to FCOB's Knowledge has had or which, with the passage
of time or otherwise, could reasonably be expected to have a Material Adverse
Effect on FCOB.
SECTION 3.20 Undisclosed Liabilities. Except as disclosed on Schedule
3.20, to FCOB's Knowledge FCOB has no liabilities or obligations, either
accrued, contingent or otherwise, that are material to FCOB and that have not
been: (a) reflected or disclosed in the FCOB Financial Statements; or (b)
incurred subsequent to December 31, 1999 in the ordinary course of business.
FCOB has no Knowledge of any basis for the assertion against FCOB of any
liability, obligation or claim (including without limitation that of any
Governmental Entity) that will have or cause, or could reasonably be expected to
have or cause, a Material Adverse Effect on FCOB that is not fully and fairly
reflected and disclosed in the FCOB Financial Statements or on Schedule 3.20.
SECTION 3.21 Employees; Employee Benefit Plans; ERISA.
3.21.1 All material obligations of FCOB for payment to trusts or other
funds or to any Governmental Entity or to any individual, director, officer,
employee or agent (or his or her heirs, legatees or legal representatives) with
respect to unemployment compensation benefits, profit-sharing, pension or
retirement benefits or social security benefits, whether arising by operation of
law, by contract or by past custom, have been properly accrued for the periods
covered thereby on the FCOB Financial Statements and paid when due. All material
obligations of FCOB, whether arising by operation of law, by contract or by past
custom for vacation or holiday pay, bonuses and other forms of compensation
which are payable to their respective directors, officers, employees or agents
have been properly accrued on the FCOB Financial Statements for the periods
covered thereby and paid when due. There are no unfair labor practice
complaints, strikes, slowdowns, stoppages or other controversies pending or, to
the Knowledge of FCOB, attempts to unionize or controversies threatened between
FCOB or any of its Affiliates and or relating to, any of their employees that
are likely to have a Material Adverse Effect on FCOB, taken as a whole. FCOB is
not a party to any collective bargaining agreement with respect to any of their
employees and, except as set forth on Schedule 3.21.1, FCOB is not a party to a
written employment contract with any of its employees and there are no
understandings with respect to the employment of any officer or employee of FCOB
which are not terminable by FCOB without liability on not more than thirty (30)
days' notice. Except as disclosed in the FCOB Financial Statements for the
periods covered thereby, all material sums due for employee compensation have
been paid and all employer contributions for employee benefits, including
deferred compensation obligations, and all material benefit obligations under
any Employee Plan (as defined in Section 3.21.3 hereof) or any Benefit
Arrangement (as defined in Section 3.21.4 hereof) have been duly and adequately
paid or provided for in accordance with plan documents. Except as set forth on
Schedule 3.21.1, no director, officer or employee of FCOB is entitled to receive
any payment of any amount under any existing agreement, severance plan or other
benefit plan as a result of the consummation of any transaction contemplated by
this Agreement or the Merger Agreement. To FCOB's Knowledge, FCOB has materially
complied with all applicable federal and state statutes and regulations which
govern workers' compensation, equal employment opportunity and equal pay,
including, but not limited to, all civil rights laws, Presidential Executive
Order 1124, the Fair Labor Standards Act of 1938, as amended, and the Americans
with Disabilities Act.
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3.21.2 FCOB has delivered as Schedule 3.21.2 a complete list of:
(a) All current employees of FCOB together with each employee's tenure
with FCOB, title or job classification, and the current annual rate of
compensation anticipated to be paid to each such employee; and
(b) All Employee Plans and Benefit Arrangements, including all plans
or practices providing for current compensation or accruals for active
employees, including, but not limited to, all employee benefit plans, all
pension, profit-sharing, retirement, bonus, stock option, incentive,
deferred compensation, severance, long-term disability, medical, dental,
health, hospitalization, life insurance or other insurance plans or related
benefits.
3.21.3 Except as disclosed on Schedule 3.21.3, FCOB does not maintain,
administer or otherwise contribute to any "employee benefit plan," as defined in
Section 3(3) of ERISA, which is subject to any provisions of ERISA and covers
any employee, whether active or retired, of FCOB or any of its Subsidiaries (any
such plan being herein referred to as an "Employee Plan"). True and complete
copies of each such Employee Plan, including amendments thereto, have been
previously delivered or made available to WEST, together with (i) all agreements
regarding plan assets with respect to such Employee Plans, (ii) a true and
complete copy of the annual reports for the most recent three years (Form 5500
Series including, if applicable, Schedules A and B thereto) prepared in
connection with any such Employee Plan, (iii) a true and complete copy of the
actuarial valuation reports for the most recent three years, if any, prepared in
connection with any such Employee Plan covering any active employee of FCOB or
its Subsidiaries, (iv) a copy of the most recent summary plan description of
each such Employee Plan, together with any modifications thereto, and (v) a copy
of the most recent favorable determination letter (if applicable) from the
Internal Revenue Service for each Employee Plan. None of the Employee Plans is a
"multiemployer plan" as defined in Section 3(37) of ERISA or a "multiple
employer plan" as covered in Section 412(c) of the IRC, and none of FCOB has
been obligated to make a contribution to any such multiemployer or multiple
employer plan within the past five years. None of the Employee Plans of FCOB is,
or for the last five years has been, subject to Title IV of ERISA. Each Employee
Plan that is intended to be qualified under Section 401(a) of the IRC is so
qualified and each trust maintained pursuant thereto is exempt from income tax
under Section 501(a) of the IRC, and FCOB is not aware of any fact which has
occurred that would cause the loss of such qualification or exemption.
3.21.4 Except as disclosed in Schedule 3.21.4, FCOB does not maintain
(other than base salary and base wages) any form of current or deferred
compensation, bonus, stock option, stock appreciation right, severance pay,
salary continuation, retirement or incentive plan or arrangement for the benefit
of any director, officer or employee, whether active or retired, of FCOB or for
any class or classes of such directors, officers or employees. Except as
disclosed in Schedule 3.21.4, FCOB does not maintain any group or individual
health insurance, welfare or similar plan or arrangement for the benefit of any
director, officer or employee of FCOB, whether active or retired, or for any
class or classes of such directors, officers or employees. Any such plan or
arrangement described in this Section 3.21.4, copies of which have been
delivered or made available to WEST, shall be herein referred to as a "Benefit
Arrangement."
3.21.5 All Employee Plans and Benefit Arrangements are operated in
material compliance with the requirements prescribed by any and all statutes,
governmental or court orders, or governmental rules or regulations currently in
effect, including but not limited to ERISA and the IRC, applicable to such plans
or arrangements, and plan documents relating to any such plans or arrangement,
materially comply with or will be amended to materially comply with applicable
legal requirements. Neither FCOB, nor any Employee Plan nor any trusts created
thereunder, nor any trustee, administrator nor any other fiduciary thereof has
engaged in a "prohibited transaction," as defined in Section 406 of ERISA and
Section 4975 of the IRC, that could subject FCOB or WEST
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to liability under Section 409 or 502(i) of ERISA or Section 4975 of the IRC or
that would adversely affect the qualified status of such plans; each "plan
official" within the meaning of Section 412 of ERISA of each Employee Plan is
bonded to the extent required by such Section 412; with respect to each Employee
Plan, to FCOB's Knowledge, no employee of FCOB, nor any fiduciary of any
Employee Plan, has engaged in any breach of fiduciary duty as defined in Part 4
of Subtitle B of Title I of ERISA which could subject FCOB or any of its
Subsidiaries to liability if FCOB or any such Subsidiary is obligated to
indemnify such Person against liability. Except as disclosed in Schedule 3.21.5,
FCOB has not failed to make any material contribution or pay any amount due and
owing as required by law or the terms of any Employee Plan or Benefit
Arrangement.
3.21.6 Except as set forth on Schedule 3.21.6, no Employee Plan or
Benefit Arrangement has any material liability of any nature, accrued or
contingent, including, without limitation, liabilities for federal, state, local
or foreign taxes, interest or penalty other than liability for claims arising in
the course of the administration of each such Employee Plan. Except as set forth
on Schedule 3.21.6, to FCOB's Knowledge there is no pending or threatened legal
action, proceeding or investigation against any Employee Plan that could result
in material liability to such Employee Plan, other than routine claims for
benefits, and there is no basis for any such legal action, proceeding or
investigation.
3.21.7 Each Benefit Arrangement which is a group health plan (within
the meaning of such term under IRC Section 4980B(g)(2)) materially complies and
has materially complied with the requirements of Section 601 through 608 of
ERISA or Section 4980B of the IRC governing continuation coverage requirements
for employee-provided group health plans.
3.21.8 Except as disclosed in Schedule 3.21.8, FCOB does not maintain
any Employee Plan or Benefit Arrangement pursuant to which any benefit or other
payment will be required to be made by FCOB or Affiliates or pursuant to which
any other benefit will accrue or vest in any director, officer or employee of
FCOB or Affiliate thereof, in either case as a result of the consummation of the
transactions contemplated by this Agreement or the Merger Agreement.
SECTION 3.22 Powers of Attorney. No power of attorney or similar
authorization given by FCOB thereof is presently in effect or outstanding other
than powers of attorney given in the ordinary course of business with respect to
routine matters.
SECTION 3.23 Hazardous Materials. Except as set forth on Schedule 3.23:
3.23.1 Except for ordinary and necessary quantities of cleaning, pest
control and office supplies, and other small quantities of Hazardous Substances
that are used in the ordinary course of the respective businesses of FCOB and in
compliance with applicable Environmental Laws, or ordinary rubbish, debris and
nonhazardous solid waste stored in garbage cans or bins for regular disposal
off-site, or petroleum contained in and de minimus quantities discharged from
motor vehicles in their ordinary operation on any of the FCOB Properties (as
defined below), FCOB has not engaged in the generation, use, manufacture,
treatment, transportation, storage (in tanks or otherwise), or the disposal, of
Hazardous Substances other than as permitted by and only in compliance with
applicable law. To FCOB's Knowledge, no material amount of Hazardous Substances
has been released, emitted or disposed of, or otherwise deposited, on, in or
from any real property which is now or has been previously owned since January
1, 1997, or which is currently or during the past three years was leased, by
FCOB, including OREO (collectively, the "FCOB Properties"), or to FCOB's
Knowledge, on or in any real property in which FCOB now holds any security
interest, mortgage or other lien or interest ("FCOB Collateralizing Real
Estate"), except for (i) matters disclosed on Schedule 3.23; and (ii) ordinary
and necessary quantities of cleaning, pest control and office supplies used and
stored in compliance with applicable Environmental Laws, or ordinary rubbish,
debris and nonhazardous solid waste stored in garbage cans or bins for regular
disposal off-site, or petroleum contained in, and de minimus quantities
discharged from, motor
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vehicles in their ordinary operation on such FCOB Properties. To FCOB's
Knowledge, no activity has been undertaken on any of the FCOB Properties since
January 1, 1997, and to the Knowledge of FCOB no activities have been or are
being undertaken on any of the FCOB Collateralizing Real Estate, that would
cause or contribute to:
(a) any of the FCOB Properties or FCOB Collateralizing Real Estate
becoming a treatment, storage or disposal facility within the meaning of
RCRA or any similar state law or local ordinance;
(b) a release or threatened release of any Hazardous Substances under
circumstances which would violate any Environmental Laws; or
(c) the discharge of Hazardous Substances into any soil, subsurface
water or ground water or into the air, or the dredging or filling of any
waters, that would require a permit or any other approval under the Federal
Water Pollution Control Act, 33 U.S.C. sec. 1251 et seq., the Clean Air
Act, as amended, 42 U.S.C. sec. 7401 et seq., or any similar federal or
state law or local ordinance; the cumulative effect of which would have a
material adverse effect on the FCOB Property or FCOB Collateralizing Real
Estate involved.
3.23.2 Except as disclosed on Schedule 3.23, to the Knowledge of FCOB,
there are not, and never have been, any underground storage tanks located in or
under any of the FCOB Properties or the FCOB Collateralizing Real Estate.
3.23.3 FCOB has not received any written notice of, and to the
Knowledge of FCOB has not received any verbal notice of, any pending or
threatened claims, investigations, administrative proceedings, litigation,
regulatory hearings or requests or demands for remedial or responsive actions or
for compensation, with respect to any of the FCOB Properties or FCOB
Collateralizing Real Estate, alleging noncompliance with or violation of any
Environmental Law or seeking relief under any Environmental Law and none of the
FCOB Properties or FCOB Collateralizing Real Estate is listed on the United
States Environmental Protection Agency's National Priorities List of Hazardous
Waste Sites, or, to the Knowledge of FCOB, any other list, schedule, log,
inventory or record of hazardous waste sites maintained by any federal, state or
local agency.
3.23.4 "Hazardous Substances" shall mean any hazardous, toxic or
infectious substance, material, gas or waste which is regulated by any local,
state or federal Governmental Entity, or any of their agencies.
SECTION 3.24 Stock Options. Schedule 3.5 to this Agreement contains a
description of the FCOB Stock Option Plan and list of all FCOB Stock Options
outstanding, indicating for each: (a) the grant date; (b) whether vested or
unvested; (c) exercise price; and (d) a vesting schedule by optionee.
SECTION 3.25 Parachute Payments. Except as set forth in Schedule 3.25, the
consummation of the Merger will not entitle any director, officer or employee of
FCOB to any payment that would constitute a parachute payment under IRC 280G
SECTION 3.26 Risk Management Instruments. Neither FCOB nor any Subsidiary
of FCOB is a party or has agreed to enter into an exchange traded or
over-the-counter equity, interest rate, foreign exchange or other swap, forward,
future, option, cap, floor or collar or any other contract that is not included
on the balance sheet and is a derivatives contract (including various
combinations thereof) (each, a "Derivatives Contract") or owns securities that
(i) are referred to generally as "structured notes," "high risk mortgage
derivatives," "capped floating rate notes" or "capped floating rate mortgage
derivatives" or (ii) are likely to have changes in value as a result of interest
or exchange rate changes that significantly exceed normal changes in value
attributable to interest or exchange rate changes, except for those Derivatives
Contracts and other instruments legally
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purchased or entered into in the ordinary course of business consistent with
safe and sound banking practices and regulatory guidance and previously
disclosed to WEST.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF WEST
WEST and WAB represents and warrants to FCOB that:
SECTION 4.1 Organization; Corporate Power; Etc. WEST is a California
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all requisite corporate power and authority
to own, lease and operate its properties and assets and to carry on its business
substantially as it is being conducted on the date of this Agreement. WEST is a
bank holding company registered under the BHCA. Each of WEST's Subsidiaries has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business substantially as it is being conducted
on the date of this Agreement, except where the failure to have such power or
authority would not have a Material Adverse Effect on WEST taken as a whole or
the ability of WEST to consummate the transactions contemplated by this
Agreement. WEST has all requisite corporate power and authority to enter into
this Agreement and, subject to obtaining all Requisite Regulatory Approvals,
WEST will have the requisite corporate power and authority to perform its
respective obligations hereunder with respect to the consummation of the
transactions contemplated hereby. WEST is the sole shareholder of WAB. WAB is a
state chartered banking corporation licensed to conduct banking business in
California. WAB is a member of the Federal Reserve System. WAB's deposits are
insured by the FDIC in the manner and to the full extent provided by law.
SECTION 4.2 Licenses and Permits. Except as disclosed on Schedule 4.2,
WEST and WAB have all material licenses, certificates, franchises, rights and
permits that are necessary for the conduct of their respective businesses, and
such licenses are in full force and effect, except for any failure to be in full
force and effect that would not, individually or in the aggregate, have a
Material Adverse Effect on WEST taken as a whole, or on the ability of WEST to
consummate the transactions contemplated by this Agreement.
SECTION 4.3 Authorization of Agreement; No Conflicts
4.3.1 The execution and delivery of this Agreement and the Merger
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of WEST. This Agreement has been duly executed and delivered by WEST and
constitutes a legal, valid and binding obligation of WEST, enforceable in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, moratorium or other similar laws affecting the rights
of creditors generally and by general equitable principles. The Merger
Agreement, upon the receipt of all Requisite Regulatory Approvals and the due
execution and filing of such Merger Agreement in accordance with the applicable
provisions of the California Corporations Code, will constitute a legal, valid
and binding obligation of WEST and WAB, enforceable in accordance with its
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting the rights of creditors
generally or by general equitable principles.
4.3.2 Except as discussed on Schedule 4.3, the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
does not and will not result in any violation of or default or loss of a
material benefit under, any provision of the Articles of Incorporation or Bylaws
of WEST, or any material mortgage, indenture, lease, agreement or other material
instrument, or any permit, concession, grant, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to WEST or
any of its assets or properties or any
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of its Subsidiaries, other than any such conflict, violation, default or loss
which (i) will not have a Material Adverse Effect on WEST taken as a whole; or
(ii) will be cured or waived prior to the Effective Time.
SECTION 4.4 Capital Structure of WEST. The authorized capital stock of
WEST consists of 150,000,000 shares of WEST Common Stock, no par value per
share, 1,000,000 shares of WEST Class "B" Common Stock and 1,000,000 shares of
WEST preferred stock. On December 31, 1999 37,124,734 shares of WEST Common
Stock were outstanding, 1,066,707 shares of WEST Common Stock were reserved for
issuance pursuant to employee stock option and other employee stock plans (the
"WEST Stock Plans"), and no shares of WEST Class "B" Common Stock and WEST
preferred stock were outstanding or were reserved for issuance by WEST. All
outstanding shares of WEST Common Stock are validly issued, fully paid and
nonassessable and do not possess any preemptive rights and were not issued in
violation of any preemptive rights or any similar rights of any Person. The
issuance of the shares of WEST Common Stock proposed to be issued pursuant to
this Agreement at the Effective Time will have been duly authorized by all
requisite corporate action of WEST, and such shares, when issued as contemplated
by this Agreement, will constitute duly authorized, validly issued, fully paid
and nonassessable shares of WEST Common Stock, and will not have been issued in
violation of any preemptive or similar rights of any Person. As of the date of
this Agreement, and except for this Agreement, the WEST Stockholders Rights Plan
and the WEST Stock Plans, WEST does not have outstanding any options, warrants,
calls, rights, commitments, securities or agreements of any character to which
WEST is a party or by which it is bound obligating WEST to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock of WEST or obligating WEST to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement.
SECTION 4.5 WEST Filings. Since January 1, 1997, WEST has filed all
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that were required to be filed with (a) the
Federal Reserve or any Federal Reserve Bank; (b) the CDFI; (c) the SEC; and (d)
any other applicable federal, state or local governmental or regulatory
authority. All such reports, registrations and filings including the WEST
Financial Statements are collectively referred to as the "WEST Filings". Except
to the extent prohibited by law, copies of the WEST Filings have previously been
made available to FCOB. As of their respective filing or mailing dates, each of
the past WEST Filings (a) was true and complete in all material respects (or was
amended so as to be so promptly following discovery of any discrepancy); and (b)
complied in all material respects with all of the statutes, rules and
regulations enforced or promulgated by the governmental or regulatory authority
with which it was filed (or was amended so as to be so promptly following
discovery of any such noncompliance) and none contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
SECTION 4.6 Accuracy of Information Supplied.
4.6.1 No representation or warranty of WEST contained herein or any
statement, schedule, exhibit or certificate given or to be given by or on behalf
of WEST or any of its Subsidiaries to FCOB in connection herewith and none of
the information supplied or to be supplied by WEST to FCOB hereunder contains or
will contain any untrue statement of material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
4.6.2 None of the information supplied or to be supplied by WEST or
relating to WEST which is included or incorporated by reference in (i) the
Registration Statement in connection the issuance of shares of WEST Common Stock
in the Merger will, at the time the Registration Statement becomes effective
under the Securities Act, contain any untrue statement of a material
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fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; (ii) the Proxy Statement/Prospectus and any amendment
or supplement thereto will, at all times from the date of mailing to
shareholders of FCOB through the date of the meeting of shareholders of FCOB to
be held in connection with the Merger, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; and (iii) the applications and forms to be
filed with securities or "blue sky" authorities, self regulatory authorities, or
any Governmental Entity in connection with the Merger, the issuance of any
shares of WEST Common Stock in connection with the Merger, or any Requisite
Regulatory Approvals will, at the time filed or at the time they become
effective, contain any untrue statement of a material fact or 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 were made, not
misleading. The Registration Statement (except for such portions thereof that
relate only to FCOB) will comply in all material respects with the applicable
provisions of the Securities Act and the Exchange Act and the rules and
regulations thereunder.
4.6.3 WEST has delivered or will deliver to FCOB copies of: (a) the
audited balance sheets of WEST and its Subsidiaries as of December 31, 1999,
1998 and 1997 and the related statements of income, changes in shareholders'
equity and cash flows for the years then ended and the related notes to such
financial statements, all as audited by KPMG, LLP and its predecessors,
independent public accountants (the "WEST Financial Statements"). The WEST
Financial Statements have been prepared (and all of said additional financial
statements will be prepared) in accordance with GAAP, or applicable regulatory
accounting principles, applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) consistently followed
throughout the periods covered by such statements, and present (and, when
prepared, will present) fairly the financial position of WEST and its
Subsidiaries as of the respective dates and for the respective periods covered
by such financial statements (subject, in the case of the unaudited statements,
to recurring adjustments normal in nature and amount).
SECTION 4.7 Compliance With Applicable Laws. Except as disclosed on
Schedule 4.7, to the best of WEST's Knowledge, the respective businesses of WEST
and its Subsidiaries are not being conducted in violation of any law, ordinance
or regulation, except for violations which individually or in the aggregate
would not have a Material Adverse Effect on WEST and its Subsidiaries, taken as
a whole. No investigation or review by any Governmental Entity with respect to
WEST is pending or, to the Knowledge of WEST, threatened, nor has any
Governmental Entity indicated to WEST an intention to conduct the same, other
than regular bank examinations and those the outcome of which, as far as can be
reasonably foreseen, will not have a Material Adverse Effect on WEST and its
Subsidiaries, taken as a whole.
SECTION 4.8 Performance of Obligations. WEST has performed all material
obligations required to be performed by them to date and WEST is not in material
default under or in material breach of any term or provision of any covenant,
contract, lease, indenture or any other agreement, written or oral, to which it
is a party, is subject or is otherwise bound, and no event has occurred that,
with the giving of notice or the passage of time or both, would constitute such
a default or breach, where such default or breach or failure to perform would
have a Material Adverse Effect on WEST.
SECTION 4.9 Absence of Material Adverse Effect. Since January 1, 2000, no
event or circumstance has occurred or is expected to occur which to WEST's
Knowledge has had or which, with the passage of time or otherwise, could
reasonably be expected to have a Material Adverse Effect on WEST and its
Subsidiaries, taken as a whole.
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SECTION 4.10 Undisclosed Liabilities. Except as disclosed on Schedule
4.10, none of WEST or any of its Subsidiaries to WEST's Knowledge has any
liabilities or obligations, either accrued, contingent or otherwise, that are
material to WEST and its Subsidiaries, taken as a whole, and that have not been:
(a) reflected or disclosed in the WEST Financial Statements; or (b) incurred
subsequent to December 31, 1999 in the ordinary course of business. WEST has no
Knowledge of any basis for the assertion against WEST or any of its
Subsidiaries, of any liability, obligation or claim (including without
limitation that of any Governmental Entity) that will have or cause, or could
reasonably be expected to have or cause, a Material Adverse Effect on WEST and
its Subsidiaries, taken as a whole, that is not fairly reflected in the WEST
Financial Statements or on Schedule 4.10.
ARTICLE 5.
ADDITIONAL AGREEMENTS
SECTION 5.1 Access to Information, Due Diligence, etc.
5.1.1 Upon reasonable notice, FCOB shall permit WEST and its
accountants, counsel and other representatives reasonable access to their
officers, employees, properties, books, contracts, commitments and records and
from the date hereof through the Effective Time, and shall furnish or provide
access to WEST as soon as practicable, (i) a copy of each of FCOB's Filings
filed subsequent to the date of this Agreement promptly after such document has
been filed with the appropriate Governmental Entity, provided, however, that
copies of any Returns relating to Taxes of FCOB shall be furnished to WEST at
least 15 Business Days prior to the proposed date of filing thereof and shall
not be filed without the prior approval of WEST, which approval shall not be
unreasonably withheld or delayed; (ii) unless otherwise prohibited by law, a
copy of each report, schedule and other documents filed or received by FCOB
during such period with any Regulatory Authority or the Internal Revenue
Service, as to documents other than related to employees or customers and other
than those distributed to banks generally; (iii) as promptly as practicable
following the end of each calendar month after the date hereof, a balance sheet
of FCOB as of the end of such month; and (iv) all other information concerning
FCOB's business, properties, assets, financial condition, results of operations,
liabilities, personnel and otherwise as WEST may reasonably request.
5.1.2 Until the Effective Time, a representative of WEST shall be
entitled and shall be invited to attend meetings of the Board of Directors of
FCOB and of the Loan Committee of FCOB, and at least five (5) days' prior
written notice of the dates, times and places of such meetings shall be given to
WEST except that in the case of special meetings WEST shall receive the same
number of days' prior notice as FCOB's directors receive for such meetings;
provided, however, that such representative shall excuse himself or herself from
any portion of any such meetings that (i) relate to approval of, or the exercise
of any rights under, this Agreement by FCOB, (ii) involve discussions between
such Board of Directors or such Loan Committee and legal counsel for FCOB that
are entitled to be protected from disclosure under an attorney-client privilege
which would be lost due to the presence of such representative of WEST, or (iii)
constitute the Executive Session of any Board of Directors meeting.
5.1.3 WEST and FCOB each agrees to keep confidential and not divulge to
any other party or Person (other than to the employees, attorneys, accountants
and consultants of each who have a need to receive such information and other
than as may be required by law) any information received from the other, unless
and until such documents and other information otherwise becomes publicly
available or unless the disclosure of such information is authorized by each
party. In the event of termination of this Agreement for any reason, the parties
shall promptly return, or at the
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election of the other party destroy, all nonpublic documents obtained from the
other and any copies or notes of such documents (except as otherwise required by
law) and, upon the request of the other party, confirm such destruction to the
other in writing.
SECTION 5.2 Shareholder Approval.
5.2.1 FCOB shall promptly call a meeting of its shareholders to be held
at the earliest practicable date after the date on which the initial
Registration Statement is declared effective by the SEC, but in no event later
than July 1, 2000, for the purpose of approving this Agreement and authorizing
the Merger Agreement and the Merger. FCOB's Board of Directors will recommend to
the shareholders approval of this Agreement, the Merger Agreement and the
Merger; provided, however, that FCOB's Board of Directors may withdraw its
recommendation if such Board of Directors believes in good faith (based on a
written opinion of a financial advisor that is experienced in evaluating the
fairness of Acquisition Proposals) that a FCOB Superior Proposal (defined below)
has been made and shall have determined in good faith, after consultation with
and based on written advice of its outside legal counsel, that the withdrawal of
such recommendation is necessary for FCOB's Board of Directors to comply with
its fiduciary duties under applicable law.
5.2.2 If the Merger is approved by vote of the shareholders of FCOB,
then, within ten (10) days thereafter FCOB shall send a Dissenting Shareholder
Notice to each recordholder of any Dissenting Shares.
SECTION 5.3 Taking of Necessary Action
5.3.1 Subject to the terms and conditions of this Agreement, each of
the parties hereto agrees, subject to applicable laws and the fiduciary duties
of FCOB's or WEST's Boards of Directors, as advised in writing by their
respective counsel, to use all reasonable efforts promptly to take or cause to
be taken all action and promptly to do or cause to be done all things necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement and the Merger
Agreement, including, without limitation, the delivery of any certificate or
other document reasonably requested by counsel to a party to this Agreement.
Without limiting the foregoing, WEST and FCOB will use their reasonable efforts
to obtain all consents of third parties and Government Entities necessary or, in
the reasonable opinion of WEST or FCOB advisable for the consummation of the
transactions contemplated by this Agreement. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the Merger Agreement, or to vest the Surviving
Corporation with full title to all properties, assets, rights, approvals,
immunities and franchises of FCOB, the proper officers or directors of WEST, WAB
or FCOB, as the case may be, shall take all such necessary action.
Notwithstanding the foregoing, nothing in this Agreement shall be construed to
require FCOB to take any action (or omit to take any action) which may affect
the Exchange Ratio, except as may be specifically provided for or required by
this Agreement.
5.3.2 The obligations of FCOB contained in Section 6.2.5 of this
Agreement shall continue to be in full force and effect despite any Default
under Section 6.2.5 or FCOB's receipt of a FCOB Superior Proposal (defined
below) and any Default under Section 6.2.5 by FCOB shall entitle WEST to such
legal or equitable remedies as may be provided in this Agreement or by law
notwithstanding that any action or inaction of the Board of Directors or
officers of the defaulting party which is required to enable such party to
fulfill such obligations may be excused based on the continuing fiduciary
obligations of such party's Board of Directors and officers to its shareholders.
5.3.3 FCOB shall use its best efforts to cause each director, executive
officer and other person who is an "Affiliate" of FCOB (for purposes of Rule 145
under the Securities Act) to deliver to WEST, on the date of this Agreement, a
written agreement in the form attached hereto as Exhibit 5.3 (the "Affiliates
Agreement").
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SECTION 5.4 Registration Statement and Applications.
5.4.1 WEST and FCOB will cooperate and jointly prepare and file as
promptly as practicable the Registration Statement, the statements,
applications, correspondence or forms to be filed with appropriate State
securities law regulatory authorities, and the statements, correspondence or
applications to be filed to obtain the Requisite Regulatory Approvals to
consummate the transactions contemplated by this Agreement. Each of WEST and
FCOB shall use all reasonable efforts to have the S-4 Registration Statement
declared effective under the Securities Act as promptly as practicable after
such filing, and FCOB shall thereafter mail the Proxy Statement/Prospectus to
the shareholders of FCOB. Each party will furnish all financial or other
information, certificates, consents and opinions of counsel concerning it and
its Subsidiaries received by such party.
5.4.2 Each party shall provide to the other at the request of the other
party: (i) immediately prior to the filing thereof, copies of all material
statements, applications, correspondence or forms to be filed with state
securities law regulatory authorities, the SEC and other appropriate regulatory
authorities to obtain the Requisite Regulatory Approvals; and (ii) promptly
after delivery to, or receipt from, such regulatory authorities all written
communications, letters, reports or other documents relating to the transactions
contemplated by this Agreement.
SECTION 5.5 Expenses.
5.5.1 Whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring the same.
5.5.2 FCOB shall use its best efforts to ensure that its attorneys,
accountants, financial advisors, investment bankers and other consultants
engaged by them in connection with the transaction contemplated by this
Agreement submit full and final bills on or before the Closing Date and that
such expenses are properly reflected on the books of FCOB.
SECTION 5.6 Notification of Certain Events.
5.6.1 FCOB shall provide to WEST, as soon as practicable, written
notice (sent via facsimile and overnight mail or courier) of the occurrence or
failure to occur of any of the events, circumstances or conditions that are the
subject of Sections 6.1 and 6.2, which notice shall provide reasonable detail as
to the subject matter thereof.
5.6.2 WEST shall provide to FCOB, as soon as practicable, written
notice (sent via facsimile and overnight mail or courier) of the occurrence or
failure to occur of any of the events, circumstances or conditions that are the
subject of Section 6.3 and 6.4, which notice shall provide reasonable detail as
to the subject matter thereof.
5.6.3 Each party shall promptly advise the others in writing of any
change or event which could reasonably be expected to have a Material Adverse
Effect on such party or on its ability to consummate the transactions
contemplated by this Agreement or the Merger Agreement.
5.6.4 FCOB and WEST shall immediately notify the other in writing in
the event that such party becomes aware that the Registration Statement or Proxy
Statement/Prospectus at any time contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary in order to make the statement therein, in light of the circumstances
under which they were made, not misleading or that the Registration Statement or
the Proxy Statement/Prospectus otherwise is required to be amended and
supplemented, which notice shall specify, in reasonable detail, the
circumstances thereof. WEST shall promptly amend and supplement such materials
and disseminate the new or modified information so as to fully comply with the
Securities Act. If the amendment or supplement so required relates to
information concerning or
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provided by FCOB, the out-of-pocket costs and expenses of preparing, filing and
disseminating such amendment or supplement shall be borne by FCOB.
SECTION 5.7 Closing Schedules. FCOB has delivered to WEST on or before the
date of this Agreement all of the Schedules to this Agreement which FCOB is
required to deliver to WEST hereunder (the "FCOB Schedules"). WEST has delivered
to FCOB on or before the date of this Agreement all of the Schedules to this
Agreement which WEST is required to deliver to FCOB hereunder ( the "WEST
Schedules"). Immediately prior to the Closing Date, FCOB shall have prepared
updates of the FCOB Schedules provided for in this Agreement and shall deliver
to WEST revised schedules containing the updated information (or a certificate
signed by FCOB's Chief Executive Officer stating that there have been no changes
on the applicable schedules); and WEST shall have prepared updates of the WEST
Schedules provided for in this Agreement and shall deliver to FCOB revised
Schedules containing updated information (or a certificate signed by WEST's
Chief Executive Officer stating that there has been no change on the applicable
schedules). Such updated schedules shall sometimes be referred to collectively,
as the "Closing Schedules." The Closing Schedules shall be dated as of the day
prior to the Closing Date and shall contain information as of the day prior to
the Closing Date or as of such earlier date as is practicable under the
circumstances. In the event the Closing Schedules disclose an event, occurrence
or circumstance that has had or could reasonably be expected to have a Material
Adverse Effect on FCOB, on the one hand, or on WEST, on the other hand, or on
consummation of the transactions contemplated by this Agreement, that was not
disclosed in the previously delivered Schedules hereto, the party delivering
such Closing Schedules (the "Affected Party") shall so notify the other party in
the letter of transmittal for such Closing Schedules, the Closing Date shall be
delayed for seven (7) Business Days and such other party shall be entitled to
terminate this Agreement within five (5) Business Days after receiving such
Closing Schedules that disclose such event, occurrence or circumstance. In the
event of any such termination, the terminating party shall have no liability for
such termination. The Affected Party shall have no liability to the terminating
party in such an event unless (i) as a result of the existence of such event,
occurrence or circumstance so disclosed in the Closing Schedules any of the
representations or warranties of the Affected Party contained in this Agreement
are found to have been untrue in any material respect as of the date of this
Agreement, or (ii) the event, occurrence or circumstance could have been
prevented in the exercise of reasonable diligence by any officers or directors
of the Affected Party, in either of which cases the Affected Party shall be
liable to the terminating party for Liquidated Damages as provided in Section
8.5 hereof.
SECTION 5.8 Additional Accruals/Appraisals. Immediately prior to the
Closing Date, at WEST's request, FCOB shall, consistent with GAAP and applicable
banking regulations, establish such additional accruals and reserves as may be
necessary to conform FCOB's accounting and credit and OREO loss reserve
practices and methods to those of WEST, provided, however, that no accrual or
reserve made by FCOB pursuant to this Section 5.8, or any litigation or
regulatory proceeding arising out of any such accrual or reserve, or any other
effect on FCOB resulting from FCOB's compliance with this Section 5.8, shall
constitute or be deemed to be a breach, violation of or failure to satisfy any
representation, warranty, covenant, condition or other provision of this
Agreement or otherwise be considered in determining whether any such breach,
violation or failure to satisfy shall have occurred.
SECTION 5.9 Employee Plans. Immediately prior to the Closing Date, at
WEST's request, FCOB shall terminate any Employment Plan or Benefit arrangement,
provided, however, that no accrual or reserve made by FCOB as a result of a
termination requested by WEST pursuant to this Section 5.9, or any litigation or
regulatory proceeding arising out of any such accrual or reserve, or any other
effect on FCOB resulting from FCOB's compliance with this Section 5.9, shall
constitute or be deemed to be a breach, violation of or failure to satisfy any
representation, warranty, covenant,
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condition or other provision of this Agreement or otherwise be considered in
determining whether any such breach, violation or failure to satisfy shall have
occurred.
ARTICLE 6.
CONDUCT OF BUSINESS
SECTION 6.1 Affirmative Conduct of FCOB. During the period from the date
of execution of this Agreement through the Effective Time, FCOB shall carry on
its business, and shall cause each of its respective Subsidiaries to carry on
its business, in the ordinary course in substantially the manner in which
heretofore conducted, subject to changes in law applicable to all
state-chartered banks or all nonmember banks insured by the FDIC and directives
from regulators, and use all commercially reasonable efforts to preserve intact
its business organization, keep available the services of its officers and
employees, (other than terminations in the ordinary course of business) and
preserve its relationships with customers, depositors, suppliers and others
having business dealings with it; and, to these ends, shall fulfill each of the
following:
6.1.1 Use its commercially reasonable efforts, or cooperate with
others, to expeditiously bring about the satisfaction of the conditions
specified in Article 7 hereof;
6.1.2 Advise WEST promptly in writing of any change that would have a
Material Adverse Effect on it, or of any matter which would make the
representations and warranties set forth in Article 3 hereof not true and
correct in any material respect as of the effective date of the Registration
Statement and at the Effective Time;
6.1.3 Keep in full force and effect all of its existing material
permits and licenses and those of its Subsidiaries;
6.1.4 Use its commercially reasonable efforts to maintain insurance or
bonding coverage on all material properties for which it is responsible and on
its business operations, and carry not less than the same coverage for fidelity,
public liability, personal injury, property damage and other risks equal to that
which is in effect as of the date of this Agreement; and notify WEST in writing
promptly of any facts or circumstances which could affect its ability, or that
of any of its Subsidiaries, to maintain such insurance or bonding coverage;
6.1.5 Perform its contractual obligations and not breach or come into
default on any of such obligations, and not amend, modify, or, except as they
may be terminated in accordance with their terms, terminate any material
contract, agreement, understanding, commitment, or offer, whether written or
oral, (collectively referred to as an "Understanding") or materially default in
the performance of any of its obligations under any Understanding where such
default would have a Material Adverse Effect on FCOB;
6.1.6 Duly observe and conform to all legal requirements applicable to
its business, except for any failure to so observe and conform that would not,
individually or in the aggregate, and, in the future will not, have a Material
Adverse Effect on FCOB;
6.1.7 Duly and timely file as and when due all reports and Returns
required to be filed with any Governmental Entity;
6.1.8 Maintain its tangible assets and properties in good condition and
repair, normal wear and tear excepted in accordance with prior practices;
6.1.9 Promptly advise WEST in writing of any event or any other
transaction within the Knowledge of FCOB, whereby any Person or related group of
Persons acquires, or proposes to acquire, after the date of this Agreement,
directly or indirectly, record or beneficial ownership (as defined in Rule 13d-3
promulgated by the SEC pursuant to the Exchange Act) or control of 5% or
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more of the outstanding shares of FCOB Common Stock either prior to or after the
record date fixed for the FCOB shareholders' meeting or any adjourned meeting
thereof to approve the transactions contemplated herein;
6.1.10 (a) Maintain a reserve for loan and lease losses ("Loan Loss
Reserve") at a level which is adequate to provide for all known and reasonably
expected losses on loans, leases and other extensions of credit outstanding and
other inherent risks in FCOB's portfolio of loans and leases, in accordance with
GAAP and applicable regulatory accounting principles and banking laws and
regulations;
(b) Charge off all loans, receivables and other assets, or portions
thereof, deemed uncollectible in accordance with GAAP, regulatory accounting
principles, and applicable law or regulation, or which have been classified as
"loss" or as directed by any regulatory authority, unless such classification or
direction has been disregarded in good faith by FCOB, FCOB has submitted in
writing to such regulatory authority the basis upon which it has so disregarded
such classification or direction, and such regulatory authority retracts its
direction requiring such charge-off;
6.1.11 Furnish to WEST, as soon as practicable, and in any event within
fifteen (15) days after it is prepared: (i) a copy of any report submitted to
the Board of Directors of FCOB and access to the working papers related thereto,
provided, however, that FCOB need not furnish WEST any materials relating to
deliberations of FCOB's Board of Directors with respect to its approval of this
Agreement, communications of FCOB's legal counsel with the Board of Directors or
officers of FCOB regarding FCOB's rights against or obligations to WEST or its
Subsidiaries under this Agreement, or books, records and documents covered by
the attorney-client privilege or which are attorneys' work product; (ii) copies
of all material reports, renewals, filings, certificates, statements,
correspondence and other documents specific to FCOB or filed with or received
from any CDFI, FDIC or any Governmental Entity; (iii) monthly unaudited balance
sheets, statements of income and changes in shareholders' equity for FCOB and
quarterly unaudited balance sheets, statements of income and changes in
shareholders' equity for FCOB, in each case prepared on a basis consistent with
past practice; and (iv) such other reports as WEST may reasonably request (which
are otherwise deliverable under this Section 6.1.11) relating to FCOB. Each of
the financial statements of FCOB delivered pursuant to this Section 6.1.11 shall
be accompanied by a certificate of the Chief Financial Officer of FCOB to the
effect that such financial statements fairly present the financial information
presented therein of FCOB for the periods covered and as of the dates indicated,
subject to recurring adjustments normal in nature and amount, necessary for a
fair presentation and are prepared on a basis consistent with past practice;
6.1.12 FCOB agrees that through the Effective Time, as of their respect
dates, (i) each FCOB Filing will be true and complete in all material respects;
and (ii) each FCOB Filing will comply in all material respects with all of the
statutes, rules and regulations enforced or promulgated by the Governmental
Entity with which it will be filed and none will contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they will be made, not misleading. Any financial statement contained in
any of such FCOB Filings that is intended to present the financial position of
FCOB during the periods involved to which it relates will fairly present in all
material respects the financial position of FCOB and will be prepared in
accordance with GAAP or consistent with applicable regulatory accounting
principles and banking law and banking regulations, except as stated therein;
6.1.13 Maintain reserves for contingent liabilities in accordance with
GAAP or applicable regulatory accounting principles and consistent with past
practices;
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6.1.14 Inform WEST of the amounts and categories of any loans, leases
or other extensions of credit, or other assets, that have been classified by any
bank regulatory authority as "Specially Mentioned," "Renegotiated,"
"Substandard," "Doubtful," "Loss" or any comparable classification ("Classified
Assets"). FCOB will furnish to WEST, as soon as practicable, and in any event
within fifteen (15) days after the end of each calendar month, schedules
including the following: (i) Classified Assets by type (including each credit or
other asset in an amount equal to or greater than $10,000), and its
classification category; (ii) nonaccrual credits by type (including each credit
in an amount equal to or greater than $10,000); (iii) renegotiated loans by type
(loans on which interest has been renegotiated to lower than market rates
because of the financial condition of the borrowers); (iv) delinquent credits by
type (including each delinquent credit in an amount equal to or greater than
$10,000), including an aging into 30 - 89 and 90+ day categories; (v) loans or
leases or other assets charged off, in whole or in part, during the previous
month by type (including each such loan or lease or other asset in an amount
equal to or greater than $10,000); and (vi) OREO or assets owned stating with
respect to each its type;
6.1.15 Furnish to WEST, upon WEST's request, schedules with respect to
the following: (i) participating loans and leases, stating, with respect to
each, whether it is purchased or sold and the loan or lease type; (ii) loans or
leases (including any commitments) by FCOB to any director or officer (at or
above the Vice President level) of FCOB or to any Person holding 5% or more of
the capital stock of FCOB, including, with respect to each such loan or lease,
the identity and, to the best Knowledge of FCOB, the relation of the borrower to
FCOB, the loan or lease type and the outstanding and undrawn amounts; and (iii)
standby letters of credit, by type, (including each letter of credit in a face
amount equal to or greater than $10,000); and
6.1.16 Make available to WEST copies of each credit authorization
package, consisting of all applications for and financial information regarding
loans, renewals of loans or other extensions of credit of $50,000 or more (on a
noncumulative basis) for secured loans or secured extensions of credit, $50,000
in the case of unsecured loans or unsecured extensions of credit, and renewals
of any classified or criticized loans which are considered by FCOB after the
date of this Agreement, concurrently with submission to FCOB's loan committee.
SECTION 6.2 Negative Covenants of FCOB. During the period from the date of
execution of this Agreement through the Effective Time, FCOB agrees that without
WEST's prior written consent, it shall not and its Subsidiaries shall not:
6.2.1 (a) Declare or pay any dividend or make any other distribution in
respect of any of its capital stock; (b) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock; or
(c) repurchase or otherwise acquire any shares of its capital stock;
6.2.2 Take any action that would or might result in any of the
representations and warranties of FCOB set forth in the Agreement becoming
untrue in any material respect or any of the conditions to the Merger set forth
in Article 7 not being satisfied, except to the extent such actions are required
to be undertaken by applicable law, regulation or at the direction of any
Regulatory Authority;
6.2.3 Issue, deliver, sell, or grant, or authorize the issuance,
delivery, sale or grant of, or purchase, any shares of the capital stock of FCOB
or any securities convertible or exercisable into or exchangeable for such
capital stock, or any rights, warrants or options, including options under any
stock option plans or enter into any agreements to do any of the foregoing,
except in connection with the issuance of FCOB Common Stock pursuant to the
exercise of FCOB Stock Options;
6.2.4 Amend its Articles of Incorporation or Bylaws, except as required
by applicable law or by the terms of this Agreement;
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6.2.5 Authorize or knowingly permit any of its representatives,
directly or indirectly, to solicit or encourage any Acquisition Proposal (as
hereinafter defined) or participate in any discussions or negotiations with, or
provide any nonpublic information to, any Person or group of persons (other than
WEST, and its representatives) concerning any such solicited Acquisition
Proposal. FCOB shall notify WEST immediately if any inquiry regarding an
Acquisition Proposal is received by FCOB, including the terms thereof. For
purposes of this Section 6.2.5, "Acquisition Proposal" shall mean any (a)
proposal pursuant to which any Person other than WEST would acquire or
participate in a merger or other business combination or reorganization
involving FCOB; (b) proposal by which any Person or group, other than WEST,
would acquire the right to vote ten percent (10%) or more of the capital stock
of FCOB entitled to vote for the election of directors; (c) acquisition of the
assets of FCOB other than in the ordinary course of business; or (d) acquisition
in excess of ten percent (10%) of the outstanding capital stock of FCOB, other
than as contemplated by this Agreement. Notwithstanding the foregoing, nothing
contained in this Agreement shall prevent FCOB or FCOB's Board of Directors from
(i) furnishing nonpublic information to, or entering into discussions or
negotiations with, any person or entity in connection with an unsolicited bona
fide written Acquisition Proposal by such person or entity, or recommending an
unsolicited bona fide written Acquisition Proposal to the shareholders of FCOB,
if and only to the extent that (A) the Board of Directors of FCOB has determined
and believes in good faith (after consultation with and the concurrence of its
financial advisor) that such Acquisition Proposal would, if consummated, result
in a transaction materially more favorable, from a financial point of view, to
FCOB's shareholders than the transaction contemplated by this Agreement (any
such more favorable Acquisition Proposal being referred to in this Agreement as
a "FCOB Superior Proposal") and FCOB's Board of Directors has determined in good
faith, after consultation with and based on written advice from its outside
legal counsel, that such action is necessary for FCOB to comply with its
fiduciary duties to shareholders under applicable law, and (B) prior to
furnishing such nonpublic information to, or entering into discussions or
negotiations with, such person or entity, FCOB's Board of Directors has received
from such person or entity an executed confidentiality agreement, with terms no
more favorable to such party than those contained in the Confidentiality
Agreement between FCOB and WEST, or (ii) complying with Rule 14e-2 promulgated
under the Exchange Act with regard to an Acquisition Proposal, if such Rule is
applicable thereto;
6.2.6 Acquire or agree to acquire by merging, consolidating with, or by
purchasing all or a substantial portion of the assets of, or in any other
manner, any business or any Person or otherwise acquire or agree to acquire any
assets which are material to FCOB, other than in the ordinary course of business
consistent with prior practice;
6.2.7 Sell, lease or otherwise dispose of any of its assets which are
material, individually or in the aggregate, to FCOB, except in the ordinary
course of business consistent with prior practice and after Notice to and
consultation with WEST. WEST shall respond to FCOB within five (5) business days
of Notice by FCOB which contains all appropriate documents;
6.2.8 Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of FCOB or guarantee any debt
securities of others other than in the ordinary course of business consistent
with prior practice;
6.2.9 Enter into any Understanding, except: (a) deposits incurred, and
short-term debt securities (obligations maturing within one year) issued, in its
ordinary course of business consistent with prior practice, and liabilities
arising out of, incurred in connection with, or related to the consummation of
this Agreement; (b) commitments to make loans or other extensions of credit in
the ordinary course of business consistent with prior practice; and (c) loan
sales in the ordinary course of business, without any recourse, provided that no
commitment to sell loans shall extend beyond the Effective Time;
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6.2.10 Make or enter into a commitment to make any loan or other
extension of credit in a secured amount in excess of $50,000, and an unsecured
amount in excess of $50,000 and a renewal of any criticized or classified loan;
provided further for purposes of this Section 6.2.10, if WEST has not provided
written objection to FCOB within five (5) days of Notice by FCOB, WEST shall
have consented to such commitment, loan or extension of credit. Notice by FCOB
for this Section 6.2.10 shall mean WEST's receipt of all written material
presented to FCOB's loan committee or other persons authorized to approve such
loans. Any objection of WEST for any loan or extension of credit under this
Section 6.2.10 shall be in writing and shall include a full description of the
rationale for objection. Further provided that WEST shall not object to any
commitment, loan or extension of credit that is made by FCOB in the ordinary
course of business and consistent with safe and sound underwriting practices. In
case of any disagreement with respect to approval of a loan or extension of
credit made under this Section 6.2.10, the disagreement shall be referred to
FCOB's third party loan review consultant, whose decision shall bind the
parties;
6.2.11 Except in the ordinary course of business consistent with prior
practice or as required by an existing contract, and provided prior disclosure
thereof has been made in Schedule 6.2.11, grant any general or uniform increase
in the rates of pay of employees or employee benefits or any increase in salary
or employee benefits of any officer, employee or agent or pay any bonus to any
Person;
6.2.12 Sell, transfer, mortgage, encumber or otherwise dispose of any
assets or other liabilities except in the ordinary course of business consistent
with prior practice or as required by any existing contract;
6.2.13 Make the credit underwriting policies, standards or practices
relating to the making of loans and other extensions of credit, or commitments
to make loans and other extensions of credit, or the Loan Loss Reserve policies,
less stringent than those in effect on December 31, 1999 or reduce the amount of
the Loan Loss Reserves or any other reserves for potential losses or
contingencies;
6.2.14 Make any capital expenditures, or commitments with respect
thereto, except those in the ordinary course of business which do not exceed
$20,000 individually or $100,000 in the aggregate;
6.2.15 Renew, extend or amend any existing employment contract or
agreement, enter into any new employment contract or agreement or make any bonus
or any special or extraordinary payments to any Person;
6.2.16 Acquire any investment security, other than U.S. Treasury
Securities with a term to maturity of less than one year;
6.2.17 Except as otherwise required to correct a prior filing,
compromise or otherwise settle or adjust any assertion or claim of a deficiency
in Taxes (or interest thereon or penalties in connection therewith) or file any
appeal from an asserted deficiency except in a form previously approved by WEST,
which approval will not be unreasonably withheld, in writing, or file or amend
any federal, foreign, state or local Tax Return or report or make any tax
election or change any method or period of accounting unless required by GAAP or
applicable law and, then, only after submitting such Tax return or report or
proposed Tax election or change in any method or period of accounting, to WEST
for its approval, which it shall not unreasonably withhold or delay;
6.2.18 Except as contemplated in this Agreement, terminate any Employee
Plan or Benefit Arrangement;
6.2.19 Change its fiscal year or methods of accounting in effect at
December 31, 1999, except as required by changes in GAAP or regulatory
accounting principles as concurred to by FCOB's independent public accountants
or by Section 5.8 of this Agreement;
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6.2.20 Take or cause to be taken any action which would disqualify the
Merger as a "reorganization" within the meaning of Section 368(a) of the IRC as
a tax-free reorganization;
6.2.21 Take or cause to be taken into OREO any commercial property
without an environmental report reporting no adverse environmental condition on
such property, with a copy of such report delivered to WEST prior to taking such
property into OREO;
6.2.22 Make any new elections with respect to Taxes or any changes in
current elections with respect to Taxes affecting the assets owned by FCOB. WEST
shall be deemed to have consented in writing to any election FCOB shall desire
to make if: (i) the electing Person shall have notified the Chief Executive
Officer of WEST in writing of its desire to make such election, including in
such notice a reasonably complete summary of the election it desires to make and
the reasons it desires to make such election at least 20 Business Days prior to
the due date (including extensions thereof) for filing such election; and (ii)
WEST shall not have responded in writing to such notice by the fifth Business
Day prior to the due date (including extensions thereof) for filing such
election;
6.2.23 Incur any merger-related expenses (including attorneys',
accountants' and advisors' fees, meeting costs, printing and mailing costs, and
retention payments to employees not made under existing contract provisions),
but not including contractual change-of-control payments to employees under
existing agreements, in excess of $200,000 in the aggregate; provided, if FCOB
determines in good faith that compliance with other terms of this Agreement
requires it to make additional noncontractual retention payments to employees,
FCOB may, after reasonable notice to and consultation with WEST, make such
additional payments not to exceed $17,500 in the aggregate; or
6.2.24 Materially change its pricing practices on loans or deposit
products.
SECTION 6.3 Affirmative Conduct of WEST. During the period from the date
of execution of this Agreement through the Effective Time, WEST shall carry on
its business in a reasonable manner consistent with applicable laws and use all
commercially reasonable efforts to preserve intact its business organization and
preserve its relationships with customers; and, to these ends, shall fulfill
each of the following:
6.3.1 Use its commercially reasonable efforts, or cooperate with
others, to expeditiously bring about the satisfaction of the conditions
specified in Article 7 hereof;
6.3.2 Advise FCOB promptly in writing of any change that would have a
Material Adverse Effect on it or of any matter which would make the
representations and warranties set forth in Article 4 hereof not true and
correct in any material respect as of the effective date of the Registration
Statement and at the Effective Time;
6.3.3 Duly observe and conform to all legal requirements applicable to
its business, except for any failure to so observe and conform that would not,
individually or in the aggregate, and, in the future will not, have a Material
Adverse Effect on FCOB;
6.3.4 Duly and timely file as and when due all material regulatory
reports and Returns required to be filed with any Governmental Entity; and
6.3.5 File all necessary applications with the Federal Reserve and CDFI
for the transaction as soon as possible, but no later than May 15, 2000 and
furnish to FCOB, as soon as practicable, and in any event within fifteen days
after it has prepared all applications to be submitted to the Federal Reserve
and CDFI for approval of the Merger.
SECTION 6.4 Negative Covenants of WEST. During the period from the date of
execution of this Agreement through the Effective Time, WEST agrees that without
FCOB's prior written consent, it shall not and its Subsidiaries shall not:
6.4.1 Declare or pay any extraordinary dividend;
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6.4.2 Take any action that would or might result in any of the
representations and warranties of WEST set forth in the Agreement becoming
untrue in any material respect or any of the conditions to the Merger set forth
in Article 7 not being satisfied or otherwise materially delay or impair
completion of the Merger, except to the extent such actions are required to be
undertaken by applicable law, regulation or at the direction of any Regulatory
Authority; or
6.4.3 Take or cause to be taken any action which would disqualify the
Merger as a "reorganization" within the meaning of Section 368(a) of the IRC as
a tax-free reorganization.
ARTICLE 7.
CONDITIONS PRECEDENT TO CLOSING
SECTION 7.1 Conditions to the Parties' Obligations. The obligations of all
the parties to this Agreement to effect the Merger shall be subject to the
fulfillment of the following conditions:
7.1.1 This Agreement, the Merger Agreement and the Merger shall have
been validly approved by the holders of a majority of the outstanding shares of
FCOB Common Stock entitled to vote;
7.1.2 All permits, approvals and consents required to be obtained, and
all waiting periods required to expire, prior to the consummation of the Merger
under applicable federal laws of the United States or applicable laws of any
state having jurisdiction over the transactions contemplated by this Agreement
and the Merger Agreement shall have been obtained or expired, as the case may be
(all such permits, approvals and consents and the lapse of all such waiting
periods being referred to as the "Requisite Regulatory Approvals"), without the
imposition of any condition which in the reasonable judgment of any party to be
affected by such condition is materially burdensome upon such party or its
respective Affiliates or the Surviving Corporation;
7.1.3 There shall not be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger, by any Government Entity which: (i) makes the consummation of the Merger
illegal; (ii) requires the divestiture by WEST of any material asset or of a
material portion of the business of WEST; or (iii) imposes any condition upon
WEST or its Subsidiaries (other than general provisions of law applicable to all
banks and bank holding companies) which in the judgment of WEST would be
materially burdensome;
7.1.4 The Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and shall remain in effect. No
legal, administrative, arbitration, investigatory or other proceeding by any
Governmental Entity or any other Person shall have been instituted and, at what
otherwise would have been the Effective Time, remain pending by or before any
Governmental Entity to restrain or prohibit the transactions contemplated
hereby;
7.1.5 WEST and FCOB shall have received an opinion from KPMG, LLP,
dated the Effective Time, subject to assumptions and exceptions normally
included, and in form and substance reasonably satisfactory to WEST and FCOB, to
the effect that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the IRC and that WEST and
FCOB will each be a party to that reorganization within the meaning of Section
368(b) of the IRC;
7.1.6 WEST and FCOB shall have received opinions of counsel for the
other party in substantially the forms previously agreed to by the parties as
set forth in Exhibits 7.1.6A and 7.1.6B, respectively, dated as of the Closing
Date;
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7.1.7 No action, suit or proceeding shall have been instituted or
threatened before any court or governmental body seeking to challenge or
restrain the transactions contemplated by this Agreement or the Merger Agreement
which presents a substantial risk that such transactions will be restrained or
that either party hereto may suffer material damages or other relief as a result
of consummating such transactions; and
SECTION 7.2 Conditions to WEST's Obligations. The obligations of WEST to
effect the Merger shall be subject to the fulfillment (or waiver, in writing, by
WEST) of each of the following conditions:
7.2.1 Except as otherwise provided in this Section 7.2, (a) the
representations and warranties of FCOB contained in Article 3 shall be true in
all material respects as of the Effective Time as though made at the Effective
Time, except to the extent they expressly refer to an earlier time and except
where the failure to be true, individually or in the aggregate, would not have
or would not be reasonably likely to have, a Material Adverse Effect on the
Surviving Corporation or upon the consummation of the transactions contemplated
hereby; (b) FCOB shall have duly performed and complied in all material respects
with all agreements and covenants required by this Agreement to be performed or
complied with by it prior to or at the Effective Time, except where the failure
to so perform and comply, individually or in the aggregate, would not have or
would not be reasonably likely to have a Material Adverse Effect on FCOB, or
upon the consummation of the transactions contemplated hereby; (c) none of the
events or conditions entitling WEST to terminate this Agreement under Article 8
shall have occurred and be continuing; and (d) FCOB shall have delivered to WEST
certificates dated the date of the Effective Time and signed by the President
and Chief Executive Officer to the effect set forth in Subsections 7.2.1(a), (b)
and (c);
7.2.2 There shall have been obtained, without the imposition of any
material burden or restriction on any of the parties hereto not in existence on
the date hereof, each consent to the consummation of the Merger required to be
obtained from any Person under any agreement, contract or license to which FCOB
is a party or by or under which it is bound or licensed, the withholding of
which might have a Material Adverse Effect on FCOB, the Surviving Corporation or
WEST at or following the Effective Time, or on the transactions contemplated by
this Agreement;
7.2.3 FCOB shall have delivered its Closing Schedules to WEST on the
day immediately preceding the Closing Date and none of such Closing Schedules
shall reflect any item that was not on the FCOB Schedules (or in the FCOB
Financial Statements) delivered on the date of execution of this Agreement that
has had, would have, or could be reasonably likely to have, a Material Adverse
Effect on FCOB, the Surviving Corporation or WEST at or after the Effective
Time, or on the consummation of the transactions contemplated hereby;
7.2.4 Between the date of this Agreement and the Effective Time, no
event or circumstance shall have occurred which has had or could reasonably be
expected to have a Material Adverse Effect on FCOB, and WEST shall have received
a certificate signed on behalf of FCOB by the President and Chief Executive
Officer of FCOB to such effect;
7.2.5 Counsel for WEST shall have approved, in the exercise of
counsel's reasonable discretion, the validity of all transactions herein
contemplated, as well as the form and substance of all opinions, certificates,
instruments of transfer and other documents to be delivered to WEST hereunder or
that are reasonably requested by such counsel;
7.2.6 The sale of the WEST Common Stock resulting from the Merger shall
have been qualified or registered with the appropriate State securities law or
"blue sky" regulatory authorities of all States in which qualification or
registration is required under the State securities laws, and such
qualifications or registration shall not have been suspended or revoked;
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7.2.7 FCOB shall have delivered to WEST not later than the date of this
Agreement all of the executed Affiliate Agreements in the form attached hereto
as Exhibit 5.3.
7.2.8 FCOB shall not be subject to any memorandum of understanding,
cease and desist order, or other agreement with any Governmental Entity
restricting the conduct of any of its respective businesses, prospects and
operations, so as to have a Material Adverse Effect;
7.2.9 All of FCOB's director-shareholders shall have delivered to WEST
on the date of this Agreement the Director-Shareholder Agreements in the form
attached hereto as Exhibit 7.2.9; and
7.2.10 FCOB's shareholders' equity as of the Determination Date shall
be no less than the December 31, 1999 shareholders' equity of FCOB plus eighty
five percent (85%) of the budgeted income for FCOB as of such date pursuant to
the Year 2000 budget provided by FCOB to WEST. For purposes of this Section
7.2.10 and the calculation of shareholders' equity as of the Determination Date,
FCOB shall not be required to expense the following: (a) merger-related expenses
permitted under Section 6.2.23 up to $200,000; (b) contractual change-of-control
payments to employees under existing agreements; or (c) any other item that WEST
agrees in writing need not be expensed for purposes of this Section 7.2.10. To
confirm compliance with this Section, a reasonable period before Closing FCOB
shall provide to WEST a certificate of its chief financial officer, dated after
the Determination Date, as to FCOB's shareholders' equity as of the
Determination Date, calculated in accordance with this Section, and written
assurance of FCOB's independent accountants under, or consistent with the
standards of, SAS 71 to the effect that the accountants are not aware that the
financial statements of FCOB from which shareholders' equity is determined for
purposes of this Section require any material modifications in order to comply
with GAAP. WEST shall be permitted reasonable review and inquiry with respect to
the calculation of shareholders' equity and the supporting certificate and
accountant's assurance.
SECTION 7.3 Conditions to FCOB's Obligations. The obligations of FCOB to
effect the Merger shall be subject to the fulfillment (or waiver, in writing, by
FCOB) of each of the following conditions:
7.3.1 Except as otherwise provided in this Section 7.3, (a) the
representations and warranties of WEST contained in Article 4 shall be true in
all material respects as of the Effective Time as though made at the Effective
Time, except to the extent they expressly refer to an earlier time and except
where the failure to be true, individually or in the aggregate, would not have
or would not be reasonably likely to have, a Material Adverse Effect on WEST or
upon consummation of the transactions contemplated hereby; (b) WEST shall have
duly performed and complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with it prior
to or at the Effective Time, except where the failure to so perform and comply,
individually or in the aggregate, would not have or would not be reasonably
likely to have a Material Adverse Effect on WEST, taken as a whole, or upon the
consummation of the transactions contemplated hereby; (c) none of the events or
conditions entitling FCOB to terminate this Agreement under Article 8 shall have
occurred and be continuing; and (d) WEST shall have delivered to FCOB
certificates dated the date of the Effective Time and signed by a duly
authorized officer to the effect set forth in Subsections 7.3.1(a), (b) and (c);
7.3.2 Counsel for FCOB shall have approved, in the exercise of
counsel's reasonable discretion, the validity of all transactions herein
contemplated, as well as the form and substance of all opinions, certificates,
instruments of transfer and other documents to be delivered to FCOB hereunder or
that are reasonably requested by such counsel;
7.3.3 WEST has taken such action as appropriate to convert FCOB stock
options to WEST stock options adjusted for the Exchange Ratio;
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7.3.4 WEST shall have delivered its Closing Schedules to FCOB on the
day immediately preceding the Closing Date and none of such Closing Schedules
shall reflect any item that was not on the WEST Schedules (or in the WEST
Financial Statements) delivered on the date of execution of this Agreement that
has had, or would have a Material Adverse Effect on WEST and its Subsidiaries,
taken as a whole, at or after the Effective Time, or on the consummation of the
transactions contemplated hereby;
7.3.5 The fairness opinion (the "FCOB Fairness Opinion") commissioned
by FCOB's Board of Directors shall provide as of the date of mailing the Proxy
Statement/Prospectus to FCOB's shareholders that the terms of the Merger, from a
financial standpoint, are fair to the shareholders of FCOB, and shall not have
been revoked, at any time prior to the meeting of FCOB's shareholders at which
the Merger is to be voted on. WEST shall be provided immediate notification by
FCOB of the revocation of the FCOB Fairness Opinion; and
7.3.6 The sale of the WEST Common Stock resulting from the Merger shall
have been qualified or registered with the appropriate State securities law or
"blue sky" regulatory authorities of all States in which qualification or
registration is required under the State securities laws, and such
qualifications or registration shall not have been suspended or revoked.
ARTICLE 8.
TERMINATION, AMENDMENTS AND WAIVERS
SECTION 8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time:
8.1.1 By mutual consent of the Boards of Directors of WEST and FCOB;
8.1.2 By WEST or FCOB upon the failure to satisfy any conditions
specified in Section 7.1 if such failure is not caused by any action or inaction
of the party requesting termination of this Agreement;
8.1.3 By WEST if an Acquisition Event involving FCOB shall have
occurred;
8.1.4 By FCOB if there shall have been a material breach of any of the
representations or warranties of WEST set forth in this Agreement, which breach,
in the reasonable opinion of FCOB, by its nature cannot be cured or is not cured
prior to the Closing and which breach would, in the reasonable opinion of FCOB,
individually or in the aggregate, have, or be reasonably likely to have, a
Material Adverse Effect on WEST or upon the consummation of the transactions
contemplated hereby;
8.1.5 By WEST if there shall have been a material breach of any of the
representations or warranties of FCOB set forth in this Agreement, which breach,
in the reasonable opinion of WEST, by its nature cannot be cured or is not cured
prior to the Closing and which breach would, in the reasonable opinion of WEST,
individually or in the aggregate, have, or be reasonably likely to have, a
Material Adverse Effect on FCOB or upon the consummation of the transactions
contemplated hereby;
8.1.6 By FCOB after the occurrence of a Default by WEST and the
continuance of such Default for a period of 20 Business Days after written
notice of such Default, if such Default, in the reasonable opinion of FCOB,
cannot be cured prior to the Closing or, even though curable by the Closing, it
is not cured prior to the Closing;
8.1.7 By WEST after the occurrence of a Default by FCOB and the
continuance of such Default for a period of 20 Business Days after written
notice of such Default, if such Default, in the
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reasonable opinion of WEST, cannot be cured prior to the Closing or, even though
curable by the Closing, it is not cured prior to the Closing;
8.1.8 By WEST if the Closing Schedules delivered by FCOB disclose the
occurrence of an event or the existence of any facts or circumstances, not
disclosed in the Schedules or the FCOB Financial Statements delivered to WEST on
or before the date hereof, that has had or could reasonably be expected to have
a Material Adverse Effect on FCOB or after the Effective Time, on WEST, or on
the consummation of the transactions contemplated hereby (a "FCOB Material
Adverse Event");
8.1.9 By FCOB if the Closing Schedules delivered by WEST disclose the
occurrence of an event or the existence of any facts or circumstances, not
disclosed in the Schedules or the WEST Financial Statements delivered to FCOB on
or before the date hereof, that has had or could reasonably be expected to have
a Material Adverse Effect on WEST or on the consummation of the transactions
contemplated hereby (a "WEST Material Adverse Event");
8.1.10 By FCOB upon the failure of any of the conditions specified in
Section 7.3 to have been satisfied prior to September 29, 2000 (or October 31,
2000 if any applicable waiting period for Requisite Regulatory Approval requires
additional time) provided that FCOB may not terminate this Agreement under this
Section 8.1.10 if the relevant condition shall have failed to occur as a result
of any act, delay or omission by FCOB;
8.1.11 By WEST upon the failure of any of the conditions specified in
Section 7.2 to have been satisfied prior to September 29, 2000 (or October 31,
2000 if any applicable waiting period for Requisite Regulatory Approval requires
additional time) provided that WEST may not terminate this Agreement under this
Section 8.1.11 if the relevant conditions shall have failed to occur as a result
of any act, delay or omission by WEST;
8.1.12 By WEST if FCOB's Fairness Opinion is revoked;
8.1.13 By WEST or FCOB, if the Average Closing Price is less than
$18.00. However, if FCOB elects to exercise its termination right pursuant to
the immediately preceding sentence, it shall give written notice to WEST no
later than the end of the first Business Day following the Determination Date.
Prior to the Effective Time, WEST shall have the option of adjusting the
Exchange Ratio to equal the quotient obtained by dividing (i) $16.7943 by (ii)
the Average Closing Price or a lower Exchange Ratio agreeable to a majority of
the members of the Board of Directors of FCOB. If WEST makes an election
contemplated by the preceding sentence, it shall give prompt written notice of
such election and the revised Exchange Ratio, whereupon no termination shall
have occurred pursuant to this Section 8.1.13 and this Agreement shall remain in
effect in accordance with its terms (except as the Exchange Ratio shall have
been so modified), and any references in this Agreement to the "Exchange Ratio"
shall thereafter be deemed to refer to the Exchange Ratio as adjusted pursuant
to this Section 8.1.13.
SECTION 8.2 Effect of Termination; Survival. Except as provided in Section
8.5, no termination under Section 8.1 for any reason or in any manner shall
release, or be construed as so releasing, any party hereto from its obligations
pursuant to Sections 5.1.3, 5.5, 8.5 or 9.5 hereof or from any liability or
damage to any other party hereto arising out of, in connection with, or
otherwise relating to, directly or indirectly, said party's material breach,
Default or failure in performance of any of its covenants, agreements, duties or
obligations arising hereunder, or any breaches of any representation or warranty
contained herein arising prior to the date of termination of this Agreement.
SECTION 8.3 Amendment. This Agreement may be amended by the parties
hereto, at any time before or after approval hereof by the shareholders of FCOB;
provided, however, that after any such
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approval by such shareholders, no amendments shall be made which by law require
further approval by such shareholders without such further approval.
SECTION 8.4 Waiver. Any term or provision of this Agreement, other than
regulatory approval or any of the provisions required by law, may be waived in
writing at any time by the party which is, or whose shareholders are, entitled
to the benefits thereof.
SECTION 8.5 Liquidated Damages; Cancellation Fee.
8.5.1 In the event of the occurrence of an Acquisition Event involving
FCOB, then FCOB shall pay to WEST the sum of One Million Seven Hundred Fifty
Thousand Dollars ($1,750,000) in cash.
8.5.2 In the event of termination of this Agreement by FCOB pursuant to
Section 8.1.10 or by WEST pursuant to Section 8.1.12 as a result of the
revocation of the FCOB Fairness Opinion; or a termination of this Agreement by
WEST pursuant to (i) Section 8.1.2 (no approval by FCOB shareholders), or (ii)
pursuant to Section 8.1.5 (breach of representations or warranties of FCOB) or
Section 8.1.7 (Default) or Section 8.1.8 (disclosure in the Closing Schedules of
a FCOB Material Adverse Event), where such breach of representation or warranty,
Default or FCOB Material Adverse Event shall have been caused in whole or in
material part by any action or inaction within the control of FCOB or any of its
Subsidiaries, or any of their directors or executive officers (it being
understood that any FCOB Material Adverse Event that occurred after the date of
this Agreement and was outside of the control of FCOB, its directors and
executive officers shall not come within this Section 8.5.2), then, FCOB shall
pay to WEST the sum of Three Hundred Thousand Dollars ($300,000), in cash;
provided, however, that if an Acquisition Event occurs involving FCOB within one
year following any termination by WEST to which this Section 8.5.2 applies, FCOB
shall pay to WEST an additional One Million Four Hundred Fifty Thousand Dollars
($1,450,000) in cash.
8.5.3 In the event of a termination of this Agreement by FCOB pursuant to
8.1.4 (breach of representations and warranties of WEST) or Section 8.1.6
(Default), or Section 8.1.9 (disclosure in Closing Schedules of a WEST Material
Adverse Event), where such breach of representation or warranty, or such Default
or WEST Material Adverse Event shall have been caused in whole or in material
part by any action or inaction within the control of WEST or any of its
Subsidiaries, or any of their directors or executive officers (it being
understood that any WEST material adverse effect that occurs after the date of
this Agreement and was outside of the control of WEST, its Subsidiaries and
their directors and executive officers, shall not come within this Section
8.5.3), then, WEST shall pay to FCOB the sum of Three Hundred Thousand Dollars
($300,000) in cash; provided, however, if this Agreement is terminated by WEST
or FCOB due to the fact that WEST enters into another merger or acquisition
transaction where WEST as a condition to such transaction cannot complete the
Merger or such action shall cause unreasonable delay, WEST shall pay to FCOB the
sum of One Million Dollars ($1,000,000) in cash.
8.5.4 The parties have determined that the occurrence of any of the
events or circumstances set forth in Sections 8.5.1, 8.5.2 and 8.5.3 would cause
a substantial damage and loss and lost business opportunities to the party
terminating this Agreement as a result thereof and that the payments
contemplated by Sections 8.5.1, 8.5.2 and 8.5.3 above provide reasonable and
fair compensation for such damage, loss and lost business opportunities and are
not intended to be and do not constitute a penalty or forfeiture. Such payments
will be made within 10 Business Days following a termination of the Agreement
that gives rise to the payment of such liquidated damages pursuant to Sections
8.5.1, 8.5.2 or 8.5.3, as applicable. Upon the making and receipt of payments
due under this Section 8.5, neither party, nor any Affiliates of any party,
shall have any further obligation or liability of any kind under this Agreement
to the other party, except pursuant to Section 5.1.3, 5.5, 8.5.2 (in case of an
Acquisition Event) and 9.5.
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8.5.5 In the event of the termination of this Agreement by WEST or FCOB
and for any reason other than as specified in Sections 8.5.1, 8.5.2 or 8.5.3
above, none of the parties hereto, nor any Affiliates of any such parties, shall
have any further obligation or liability of any kind to the other party, except
pursuant to Sections 5.1.3, 5.5 and 9.5.
ARTICLE 9.
GENERAL PROVISIONS
SECTION 9.1 Nonsurvival of Representations and Warranties. None of the
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for those covenants and agreements contained herein and therein
which by their terms apply in whole or in part after the Effective Time or to a
termination of this Agreement.
SECTION 9.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, mailed by
registered or certified mail (return receipt requested), sent by confirmed
overnight courier or telecopied (with electronic confirmation and verbal
confirmation for the person to whom such telecopy is addressed), on the date
such notice is so delivered, mailed or sent, as the case may be, to the parties
at the following addresses (or any such other address for a party as shall be
specified by like notice):
If to FCOB at:
First Counties Bank
15145 Lakeshore Drive
Clearlake, California 95422
Fax No. (707) 995-4008
Attention: David G. Perry, President/CEO
with a copy to:
Gary Steven Findley & Associates
1470 North Hundley Street
Anaheim, California 92806
Fax No. (714) 630-7910
Attention: Gary Steven Findley, Esq.
If to WEST at:
Westamerica Bancorporation
4550 Mangels Boulevard
Fairfield, California 94585-1200
Fax No. (707) 863-6226
Attention: David L. Payne, Chairman
with a copy to:
McCutchen, Doyle, Brown & Enersen, LLP
Three Embarcadero Center #1800
San Francisco, CA 94111
Fax No. (415) 393-2286
Attention: Thomas G. Reddy
SECTION 9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or
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more counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
SECTION 9.4 Entire Agreement/No Third Party Rights/Assignment. This
Agreement (including the documents and instruments referred to herein): (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof; (b) except as expressly set forth herein, is not intended
to confer upon any person other than the parties hereto any rights or remedies
hereunder; (c) shall not be assigned by a party, by operation of law or
otherwise, without the consent of the other parties; and (d) subject to the
foregoing, shall be binding upon and shall inure to the benefit of the parties
hereto and their permitted successors and assigns.
SECTION 9.5 Nondisclosure of Agreement. WEST and FCOB agree, except as
required by law or the rules of the NASDAQ, so long as this Agreement is in
effect, not to issue any public notice, disclosure or press release with respect
to the transactions contemplated by this Agreement without seeking the consent
of the other party, which consent shall not be unreasonably withheld.
SECTION 9.6 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of California, without regard to any
applicable conflicts of law.
SECTION 9.7 Headings/Table of Contents. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
SECTION 9.8 Enforcement of Agreement. The parties hereto agree that
irreparable damage will occur in the event that any of the provisions of this
Agreement or the Bank Merger Agreement is not performed in accordance with its
specific terms or is otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the State of California or any state having jurisdiction, this
being in addition to any remedy to which they are entitled at law or in equity.
SECTION 9.9 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
SECTION 9.10 Attorneys' Fees. If any legal action or any arbitration upon
mutual agreement is brought for the enforcement of this Agreement or because of
an alleged dispute, breach or default in connection with this Agreement, the
prevailing party shall be entitled to recover reasonable attorneys' fees and
other costs and expenses incurred in that action or proceeding, in addition to
any other relief to which it may be entitled.
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IN WITNESS WHEREOF, WEST and FCOB have caused this Agreement to be signed
by their respective officers thereunto duly authorized, all as of the date first
above written.
<TABLE>
<S> <C> <C> <C>
WESTAMERICA BANCORPORATION FIRST COUNTIES BANK
By: By:
-------------------------------- --------------------------------
Name: Name:
-------------------------------- --------------------------------
By: By:
-------------------------------- --------------------------------
Name: Name:
-------------------------------- --------------------------------
WESTAMERICA BANK
By:
--------------------------------
Name:
--------------------------------
By:
--------------------------------
Name:
--------------------------------
</TABLE>
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APPENDIX B
March 14, 2000
Members of the Board of Directors
First Counties Bank
15145 Lakeside Drive
Clearlake, California 95422
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the shareholders of First Counties Bank,
Clearlake, California ("FCOB") of the terms of the proposed merger of FCOB with
Westamerica Bancorporation, Fairfield, California ("WEST") and its wholly-owned
subsidiary, Westamerica Bank, Fairfield, California ("WAB") and FCOB
shareholders receivingshares of common stock of WEST as defined in the Agreement
and Plan of Merger and Reorganization (the "Agreement") entered into as of March
14, 2000. Pursuant to the Agreement and subject to the terms and conditions
therein, each share of FCOB Stock issued and outstanding immediately prior to
the Effective Time of the Merger shall, on and at the Effective Time of the
Merger, pursuant to the Agreement and without any further action on the part of
FCOB or the holders of FCOB Common Stock, be exchanged for and converted into
the right to receive 0.888 shares of WEST Common Stock, the Exchange Ratio. The
Exchange Ratio is subject to adjustment under the terms of the Agreement based
upon Average Closing Price of WEST at the Effective Time. The Exchange Ratio is
modified pursuant to a calculation contained in the Agreement.
As part of its investment banking business, The Findley Group is
continually engaged in the valuation bank, bank holding company and thrift
securities in connection with mergers and acquisitions nationwide. We have
previously provided financial advisory and consulting services to FCOB.
In arriving at our opinion, we have reviewed and analyzed, among other
things, the following: (i) the Agreement; (ii) certain publicly available
financial and other data with respect to FCOB and WEST, including consolidated
financial concerning FCOB and WEST and the trading markets for the publicly
traded securities of FCOB and WEST; (iv) 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 we
believe relevant to our inquiry; and (v) evaluations and analyses prepared and
presented to the Board of Directors of FCOB or a committee thereof in connection
with the Merger. We have held discussions with senior management of FCOB and
WEST concerning their past and current operations, financial condition and
prospects.
We have reviewed with the senior management of FCOB earnings projections
for FCOB, provided by FCOB, as a stand-alone entity, assuming the Merger does
not occur. We also reviewed with the senior management of FCOB the earnings
projections for WEST that are publicly available and have estimated the cost
savings expected to be achieved in each year resulting from the Merger. Certain
financial projections for the combined companies and for FCOB as a stand-alone
entity were derived by us based partially upon the projections and information
described above, as well as our own assessment of general economic, market and
financial conditions.
In conducting our review and in arriving at our opinion, we have relied
upon and assumed the accuracy and completeness of the financial and other
information provided to us or publicly available, and we have not assumed any
responsibility for independent verification of the same. We have relied upon the
management of FCOB as to the reasonableness of the financial and operating
forecasts,
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projections and projected operating cost savings and earnings enhancement
opportunities (and the assumptions and bases therefor) provided to us, and we
have assumed that such forecasts, projections and projected operating cost
savings and earnings enhancement opportunities reflect the best currently
available estimates and judgements of FCOB management. We have also assumed,
without assuming any responsibility for the independent verification of the
same, that the aggregate allowances for loan losses for FCOB and WEST are
adequate to cover such losses. We have not made or obtained any evaluations or
appraisals of the property of FCOB or WEST, nor have we examined any individual
loan credit files. For purposes of this opinion, we have assumed that the Merger
will have the tax, accounting and legal effects described in the Agreement and
assumed the accuracy of the disclosures set forth in the Agreement. Our opinion
as expressed herein is limited to the fairness, from a financial point of view,
to the holders of the shares of FCOB Stock of the terms of the proposed merger
of FCOB with and into WAB, with FCOB shareholders receiving shares of WEST
Common Stock and does not address FCOB's underlying business decision to proceed
with the Merger.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including among others the following: (i)
the historical and current financial position and results of operations of FCOB
and WEST, including interest income, interest expense, net interest income, net
interest margin, provision for loan losses, non-interest income, non-interest
expense, earnings, dividends, internal capital generation, book value,
intangible assets, return on assets, return on shareholders' equity,
capitalization, the amount and type of non-performing assets, loan losses and
the reserve for loan losses, all as set forth in the financial statements for
FCOB and WEST; (ii) the assets and liabilities of FCOB and WEST, including the
loan and investment portfolios, deposits, other liabilities, historical and
current liability sources and costs and liquidity; and (iii) the nature and
terms of certain other merger transactions involving banks and bank holding
companies. We have also taken into account our assessment of general economic,
market and financial conditions and our experience in other transactions, as
well as our experience in securities valuation and our knowledge of the banking
industry generally. Our opinion is necessarily based upon conditions as they
exist and can be evaluated on the date hereof.
Based upon and subject to the foregoing, we are of the opinion as
investment bankers that, as of the date hereof, the terms of the Merger of FCOB
with and into WAB, with FCOB shareholders receiving shares of WEST Common Stock
equal to the Exchange Ratio as set forth in the Agreement, are fair, from a
financial point of view, to the holders of the shares of FCOB Common Stock.
This opinion may not be used or referred to by FCOB or quoted or disclosed
to any person in any manner without our prior written consent, except that we
consent to the submission of this opinion to the regulatory agencies as part of
the applications and to the inclusion of this opinion in the Registration
Statement of West to be filed with the Securities and Exchange Commission and in
the related proxy materials provided to shareholders of FCOB in relation to
approval of the Merger. This opinion is not intended to be and shall not be
deemed to be a recommendation to any shareholder of FCOB as to how such
shareholder should vote with respect to the Merger.
Respectfully submitted,
THE FINDLEY GROUP
/s/ GARY STEVEN FINDLEY
Gary Steven Findley
Director
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CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION CODE
SEC. 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-form 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-form 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 National Market System of the
NASDAQ Stock Market, and the notice of meeting of shareholders to act upon
the reorganization summarizes 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-form 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.
SEC. 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, 1303, 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
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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.
(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) 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.
SEC. 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.
SEC. 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.
C-2
<PAGE> 156
SEC. 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.
(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.
C-3
<PAGE> 157
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 $20,000,000.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION OF EXHIBIT
- -------- ----------------------
<C> <S>
2 Agreement and Plan of Reorganization and Merger dated March
14, 2000 (included in Part I as Appendix A).
3(a) Articles of incorporation (incorporated by reference to
Exhibit 3(a) of the registrant's annual report on Form 10-k
for the year ended December 31, 1998) Amended and Restated
Shareholder Rights Agreement dated as of November 19, 1999
between the registrant and Harris Trust and Savings Bank,
(incorporated by reference to the registrant's current
report on Form 8-K/A, Amendment No. 3, filed November
19,1999).
3(b) Bylaws (incorporated by reference from the registrant's
Annual Report on Form 10-K for the year ended December 31,
1999).
4(a) Amended and Restated Rights Agreement dated November 19,
1999, incorporated herein by reference to Exhibit 99 to the
Registrant's Form 8-A/A, Amendment No. 3, filed with the
Securities and Exchange Commission on November 19, 1999.
5 Opinion of McCutchen, Doyle, Brown & Enersen, LLP.
8 Form of opinion of McCutchen, Doyle, Brown & Enersen, LLP
regarding tax matters (to be provided by amendment).
10(a) 1995 Stock Option Plan, incorporated herein by reference to
Exhibit 10(a) to the registrant's Registration Statement on
Form S-8, filed with the Securities and Exchange Commission
on June 6, 1995.*
10(b) Employment Agreement with E. Joseph Bowler dated January 7,
1987, incorporated herein by reference to Exhibit 10 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, filed with the Securities and
Exchange Commission on March 31, 1999.*
10(c) Employment Agreement with Robert W. Entwisle dated January
7, 1987, incorporated herein by reference to Exhibit 10 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, filed with the Securities and
Exchange Commission on March 31, 1999.*
10(d) Senior Note Agreement of Westamerica Bancorporation dated
February 1, 1996, of $22,500,000 at 7.11 percent
(incorporated herein by reference to Exhibit 10-j of
registrant's annual report on Form 10-K/A for the fiscal
year ended December 31, 1995, filed with the Securities and
Exchange Commission on May 1, 1996).
</TABLE>
II-1
<PAGE> 158
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION OF EXHIBIT
- -------- ----------------------
<C> <S>
10(e) Westamerica Bancorporation Chief Executive Officer Deferred
Compensation Agreement by and between Westamerica
Bancorporation and David L. Payne, dated December 18, 1998
(incorporated by reference from the exhibits to the
registrant's Annual Report on Form 10-K for the year ended
December 31, 1999).*
11 Statement re computation of earnings per share, included in
Note 1 of the consolidated financial statements included in
the registrant's Annual Report on Form 10-K for the year
ended December 31, 1999 and incorporated herein by
reference.
13(a) The registrant's Annual Report on Form 10-K for the year
ended December 31, 1999, incorporated herein by reference.
13(b) Westamerica's 1999 Annual Report to Shareholders, included
in its Annual Report on Form 10-K for the year ended
December 31, 1999, and incorporated herein by reference.
21 Subsidiaries of the registrant (incorporated by reference
from the registrant's Annual Report on Form 10-K for the
year ended December 31, 1999).
23(a) Consent of KPMG LLP.
23(b) Consent of Perry-Smith LLP.
23(c) Consent of McCutchen, Doyle, Brown & Enersen, LLP (included
in their opinion filed as Exhibit 5).
23(d) Consent of The Findley Group (included in its opinion
attached to Part I as Appendix B).
23(e) Consent of McCutchen, Doyle, Brown & Enersen, LLP re tax
opinion (to be included in their opinion filed as Exhibit
8).
24 Power of Attorney of directors of Westamerica (included in
this Part II).
99 Proxy card of First Counties Bank.
</TABLE>
- -------------------------
* Indicates management contract or compensatory plan or arrangement.
(b) Financial Statement Schedules.
[Included in Westamerica's Form 10-K for the year ended December 31, 1999,
incorporated herein by reference].
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.
II-2
<PAGE> 159
(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 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) Westamerica hereby undertakes that, for purposes of determining
any liability under the 1933 Act, each filing of Westamerica'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) Westamerica 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) Westamerica hereby undertakes to supply by means of a
post-effective amendment all information concerning its merger transaction
with Mercantile Bank that was not the subject of and included in this
Registration Statement when it became effective.
(8) Westamerica 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;
II-3
<PAGE> 160
(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-4
<PAGE> 161
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 Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized in the
City of San Rafael, California, on April 13, 2000.
WESTAMERICA BANCORPORATION
By /s/ DAVID L. PAYNE
------------------------------------
David L. Payne
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
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>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DAVID L. PAYNE President and Chief Executive April 13, 2000
- ----------------------------------------------------- Officer and Director
David L. Payne (Principal Executive Officer)
/s/ JENNIFER J. FINGER Senior Vice President and April 13, 2000
- ----------------------------------------------------- Chief Financial Officer
Jennifer J. Finger (Principal Financial and
Accounting Officer)
/s/ ETTA ALLEN Director April 13, 2000
- -----------------------------------------------------
Etta Allen
/s/ LOUIS E. BARTOLINI Director April 13, 2000
- -----------------------------------------------------
Louis E. Bartolini
/s/ DON EMERSON Director April 13, 2000
- -----------------------------------------------------
Don Emerson
/s/ LOUIS H. HERWALDT Director April 13, 2000
- -----------------------------------------------------
Louis H. Herwaldt
/s/ ARTHUR C. LATNO, JR. Director April 13, 2000
- -----------------------------------------------------
Arthur C. Latno, Jr.
/s/ PATRICK D. LYNCH Director April 13, 2000
- -----------------------------------------------------
Patrick D. Lynch
/s/ CATHERINE COPE MACMILLAN Director April 13, 2000
- -----------------------------------------------------
Catherine Cope MacMillan
</TABLE>
II-5
<PAGE> 162
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ PATRICK J. MON PERE Director April 13, 2000
- -----------------------------------------------------
Patrick J. Mon Pere
/s/ RONALD A. NELSON Director April 13, 2000
- -----------------------------------------------------
Ronald A. Nelson
/s/ CARL R. OTTO Director April 13, 2000
- -----------------------------------------------------
Carl R. Otto
/s/ MICHAEL J. RYAN, JR. Director April 13, 2000
- -----------------------------------------------------
Michael J. Ryan, Jr.
/s/ EDWARD B. SYLVESTER Director April 13, 2000
- -----------------------------------------------------
Edward B. Sylvester
*By
------------------------------------------------
Attorney-in-fact
</TABLE>
II-6
<PAGE> 163
POWER OF ATTORNEY
Know all men by these presents that each of the undersigned does hereby
make, constitute and appoint David L. Payne and Jennifer J. Finger, or either of
them, 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, each of the undersigned has duly executed this Power of
Attorney.
<TABLE>
<CAPTION>
SIGNATURE DATE
--------- ----
<S> <C>
/s/ ETTA ALLEN April 13, 2000
- -----------------------------------------------------
Etta Allen
/s/ LOUIS E. BARTOLINI April 13, 2000
- -----------------------------------------------------
Louis E. Bartolini
/s/ DON EMERSON April 13, 2000
- -----------------------------------------------------
Don Emerson
/s/ LOUIS H. HERWALDT April 13, 2000
- -----------------------------------------------------
Louis H. Herwaldt
/s/ ARTHUR C. LATNO, JR. April 13, 2000
- -----------------------------------------------------
Arthur C. Latno, Jr.
/s/ PATRICK D. LYNCH April 13, 2000
- -----------------------------------------------------
Patrick D. Lynch
/s/ CATHERINE COPE MACMILLAN April 13, 2000
- -----------------------------------------------------
Catherine Cope MacMillan
/s/ PATRICK J. MON PERE April 13, 2000
- -----------------------------------------------------
Patrick J. Mon Pere
/s/ RONALD A. NELSON April 13, 2000
- -----------------------------------------------------
Ronald A. Nelson
/s/ CARL R. OTTO April 13, 2000
- -----------------------------------------------------
Carl R. Otto
</TABLE>
II-7
<PAGE> 164
<TABLE>
<CAPTION>
SIGNATURE DATE
--------- ----
<S> <C>
/s/ MICHAEL J. RYAN, JR. April 13, 2000
- -----------------------------------------------------
Michael J. Ryan, Jr.
/s/ EDWARD B. SYLVESTER April 13, 2000
- -----------------------------------------------------
Edward B. Sylvester
</TABLE>
II-8
<PAGE> 165
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION OF EXHIBIT PAGE
- -------- ---------------------- ----
<S> <C> <C>
5 Opinion of McCutchen, Doyle, Brown & Enersen, LLP...........
8 Form of opinion of McCutchen, Doyle, Brown & Enersen, LLP
regarding tax matters.......................................
23(a) Consent of KPMG LLP.........................................
23(b) Consent of Perry-Smith LLP..................................
23(c) Consent of McCutchen, Doyle, Brown & Enersen, LLP (included
in their opinion filed as Exhibit 5)........................
23(d) Consent of The Findley Group (included in its opinion
attached to Part I as Appendix B)...........................
23(e) Consent of McCutchen, Doyle, Brown & Enersen, LLP re tax
opinion (to be included in their opinion filed as Exhibit
8)..........................................................
24 Power of Attorney of directors of Westamerica (included in
Part II)....................................................
99 Proxy card of First Counties Bank...........................
</TABLE>
<PAGE> 1
EXHIBIT 5
April 17, 2000 Direct: (415) 393-2188
[email protected]
Westamerica Bancorporation
4550 Mangels Boulevard
Fairfield, CA 94585
Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel for Westamerica Bancorporation, a
California corporation (the "Company"), in connection with the Registration
Statement on Form S-4 filed by the Company under the Securities Act of 1933, as
amended, relating to the registration of up to 800,000 shares of Common Stock,
no par value, of the Company to be issued to shareholders of common stock of
First Counties Bank in accordance with that certain Agreement and Plan of
Reorganization and Merger dated as of March 14, 2000, among the Company,
Westamerica Bank and First Counties Bank.
We are of the opinion that the foregoing securities have been
duly authorized and, when sold pursuant to the terms described in the
Registration Statement, will be duly and validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5
to the Registration Statement and to the use of our name under the caption
"Legal Matters" in the Registration Statement and in the proxy
statement/prospectus included therein.
Very truly yours,
McCUTCHEN, DOYLE, BROWN & ENERSEN, LLP
By /s/ Thomas G. Reddy
A Member of the Firm
<PAGE> 1
EXHIBIT 8
April ___, 2000
Westamerica Bancorporation
4550 Mangels Boulevard
Fairfield, CA 94585-1200
First Counties Bank
15145 Lakeshore Drive
Clearlake, CA 95422
MERGER OF FIRST COUNTIES BANK WITH [NEWCO]
Ladies and Gentlemen:
We have acted as counsel for Westamerica Bancorporation, a
California corporation ("Westamerica"), in connection with the merger of
[NEWCO], a California banking corporation and wholly owned subsidiary of
Westamerica ("Merger Sub") with and into First Counties Bank, a California
banking corporation ("FCOB"), pursuant to the Agreement and Plan of
Reorganization and Merger dated as of March 14, 2000 (the "Agreement"). This
opinion is delivered to you pursuant to Section 7.1.5 of the Agreement.
Capitalized terms used in this letter without definition have the respective
meanings given them in the Agreement.
The Agreement provides that at the Effective Time, Merger Sub
will be merged with and into FCOB, pursuant to the applicable provisions of the
California Financial Code and the California Corporations Code, with FCOB as the
surviving corporation (the "Merger"). In the Merger, each share of FCOB stock
will be exchanged for the right to receive 0.888 shares (as adjusted pursuant to
Section 2.6 or Section 8.1.13 of the Agreement) of Westamerica common stock. No
fractional shares of Westamerica common stock will be issued in the Merger, but
FCOB shareholders who would otherwise be entitled to receive fractional shares
will receive cash in lieu thereof. We understand that Westamerica plans to cause
FCOB to be merged with and into Westamerica Bank, a California banking
corporation and wholly owned subsidiary of Westamerica ("WAB"), several months
following the Merger (the planned merger of FCOB with and into WAB being the
"Subsequent Merger").
<PAGE> 2
April ___, 2000
Page 2
In rendering the opinions expressed in this letter, we have
assumed that (i) the transactions described in the Agreement will be carried out
in all respects as provided therein; (ii) each of Merger Sub and WAB is a
wholly-owned first tier subsidiary of Westamerica; (iii) the total fair market
value of all consideration other than Westamerica common stock to be received by
shareholders of FCOB (including, without limitation, cash paid to shareholders
of FCOB in connection with the exercise of dissenters' rights or cash paid in
lieu of fractional shares of FCOB stock) will be less than twenty percent (20%)
of the aggregate fair market value of all FCOB stock outstanding immediately
prior to the Merger; (iv) FCOB will acquire substantially all of the properties
of Merger Sub in the Merger (other than stock of Westamerica distributed in the
Merger) and except for the Subsequent Merger, Westamerica has no plan or
intention to sell or otherwise dispose of any of the assets of FCOB or any of
the assets of Merger Sub to be acquired by FCOB in the Merger, except for
dispositions made in the ordinary course of business; (v) FCOB has not redeemed
any of its shares or otherwise disposed of any of its assets in contemplation of
the Merger, except for dispositions in the ordinary course of its business; (vi)
WAB has no plan or intention to issue additional shares of its stock and except
for the Subsequent Merger, Westamerica has no plan or intention to dispose of
stock of FCOB OR WAB in a transaction or series of transactions that would
result in Westamerica losing control of FCOB OR WAB, within the meaning of
Section 368(c) of the Internal Revenue Code of 1986, as amended (the "Code");
(vii) neither Westamerica nor any corporation related (within the meaning of
Treasury Regulation section 1.368-1(e)(3)) to Westamerica will acquire any of
the FCOB stock to be received in the Merger; and (viii) the Subsequent Merger,
if consummated, will constitute a statutory merger under applicable law and will
qualify as a reorganization under Section 368(a)(1)(A) of the Code provided it
is viewed independently of the Merger.
Based upon our understanding of the transaction as described
above and the above assumptions, and upon existing statutes, regulations, court
decisions and published rulings of the Internal Revenue Service, it is our
opinion that, for Federal income tax purposes:
1. The merger of Merger Sub into FCOB and the issuance of
Westamerica common stock in the transaction as described in the Agreement will
qualify as a reorganization under Sections 368(a) of the Code.
2. Westamerica and FCOB will each be a party to that
reorganization within the meaning of Section 368(b) of the Code.
<PAGE> 3
April ___, 2000
Page 3
We hereby consent to the filing of this opinion as an exhibit to
the Westamerica Registration Statement on Form S-4 and the reference to the name
of our firm therein and under the captions "Certain Federal Income Tax
Consequences" and "Legal Matters" in the Proxy Statement/Prospectus furnished in
connection with the solicitation of proxies by the Board of Directors of
Westamerica.
Very truly yours,
McCUTCHEN, DOYLE, BROWN & ENERSEN, LLP
By
A Member of the Firm
<PAGE> 1
EXHIBIT 23.1
The Board of Directors
Westamerica Bancorporation:
We consent to the incorporation by reference in this registration statement on
Form S-4 of Westamerica Bancorporation of our report dated January 18, 2000 with
respect to the consolidated balance sheets of Westamerica Bancorporation and
subsidiaries as of December 31, 1999 and 1998 and the related consolidated
statements of income and comprehensive income, changes in shareholders' equity
and cash flows for each of the years in the three year period ended December 31,
1999, which report is also incorporated by reference herein and to the reference
to our firm under the caption "Experts" in the Proxy Statement/Prospectus.
/s/ KPMG LLP
- -------------------------------
KPMG LLP
San Francisco, California
April 14, 2000
<PAGE> 1
EXHIBIT 23(b)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in this Registration Statement on Form S-4
for Westamerica Bancorporation of our report dated February 2, 2000, except in
Note 16, as to which the date is March 14, 2000 relating to the financial
statements of First Counties Bank and Subsidiary for the years ended December
31, 1999, 1998 and 1997, and to the reference to our Firm under the caption
"Experts" in the Registration Statement.
/s/ Perry-Smith LLP
Perry-Smith, LLP
Sacramento, California
April 13, 2000
<PAGE> 1
EXHIBIT 99
REVOCABLE PROXY
The undersigned holder of common stock acknowledges receipt of the Notice of
Annual Meeting of Shareholders of First Counties Bank, a California banking
corporation ("First Counties"), and the accompanying proxy statement/prospectus
dated ________, 2000, and revoking any proxy heretofore given, hereby
constitutes and appoints ___________ and _____________, and each of them, with
full power of substitution, as attorney and proxy to appear and vote all of the
shares of common stock of First Counties standing in the name of the undersigned
which the undersigned could vote if personally present and acting at the Annual
Meeting of the Shareholders of First Counties to be held at Clearlake,
California, on____________, 2000 at _____ local time or at any adjournments
thereof, upon the following items as set forth in the Notice of Annual Meeting
and more fully described in the proxy statement/prospectus.
SEE REVERSE
SIDE
<PAGE> 2
1. PROPOSAL ONE: THE MERGER. To approve the Agreement and Plan of Reorganization
and Merger dated March 14, 2000 among Westamerica Bancorporation, Westamerica's
wholly owned subsidiary Westamerica Bank and First Counties.
FOR AGAINST ABSTAIN
/ / / / / /
2. PROPOSAL TWO: ELECTION OF DIRECTORS.
1. To elect as directors the nominees set forth below:
FOR all nominees listed WITHHOLD AUTHORITY
(except as marked to the to vote for all
contrary below). nominees listed below
/ / / /
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW:
Salah Darwish Russel D. Jeter R. Alyn Johnson James E. Jonas
Jerry D. Maltby Calvin D. McCarley David G. Perry Dennis P. Pluth
3. OTHER BUSINESS: The proxies are authorized to vote in their discretion on
such other business as may properly come before the meeting or any adjournments
or postponements thereof.
FOR AGAINST ABSTAIN
/ / / / / /
THIS PROXY IS SOLICITED BY, AND ON BEHALF OF, THE BOARD OF DIRECTORS AND MAY
BE REVOKED PRIOR TO ITS EXERCISE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE AND
ADOPT THE MERGER AGREEMENT AND "FOR" EACH OF THE DIRECTOR NOMINEES LISTED ABOVE.
THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED TO FIRST COUNTIES, WILL BE VOTED
IN THE MANNER DIRECTED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR"
THE MERGER AGREEMENT AND "FOR" THE ELECTION OF EACH OF THE DIRECTOR NOMINEES
LISTED ABOVE. IF OTHER BUSINESS IS PRESENTED, THIS PROXY SHALL BE VOTED IN
ACCORDANCE WITH THE BEST JUDGMENT OF THE PROXYHOLDERS.
To assure a quorum, you are urged to date and sign this Proxy and mail it
promptly in the enclosed envelope, which requires no additional postage if
mailed in the United States or Canada.
I/We do_____ or do not _____ expect to attend this meeting.
SHAREHOLDER(S)
(Signature)___________________________ (Signature)______________________________
(No. of Common Shares) _____________ Date_______________, 2000
Please sign exactly as your name(s) appear(s). When signing as attorney,
executor, administrator, trustee, officer, partner, or guardian, please give
full title. If more than one trustee, all should sign. WHETHER OR NOT YOU PLAN
TO ATTEND THIS MEETING, PLEASE SIGN AND RETURN THIS PROXY AS PROMPTLY AS
POSSIBLE IN THE ENCLOSED POST-PAID ENVELOPE.
