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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 1997
REGISTRATION NO. 333-21937
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NUMBER 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------------
TEMPLE-INLAND INC.
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 2631 75-1903917
(Primary Standard Industrial (I.R.S. Employer Identification
(State or Other Jurisdiction of Classification No.)
Incorporation or Organization) Code Number)
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303 SOUTH TEMPLE DRIVE
DIBOLL, TEXAS 75941
(409) 829-2211
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
---------------------
M. RICHARD WARNER, ESQ.
TEMPLE-INLAND INC.
303 SOUTH TEMPLE DRIVE
DIBOLL, TEXAS 75941
(409) 829-2211
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
---------------------
With Copies To:
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HENRY L. JUDY, ESQ.
THOMAS D. PHELPS, ESQ. THOMAS F. COONEY, III, ESQ.
MANATT, PHELPS & PHILLIPS, LLP KIRKPATRICK & LOCKHART LLP
11355 WEST OLYMPIC BOULEVARD 1800 MASSACHUSETTS AVENUE, N.W.
LOS ANGELES, CALIFORNIA 90064 WASHINGTON, D.C. 20036
TEL: (310) 312-4141 TEL: (202) 778-9000
FAX: (310) 312-4224 FAX: (202) 778-9100
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
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. [ ]
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF
CALIFORNIA FINANCIAL HOLDING COMPANY
TO BE HELD MONDAY, APRIL 28, 1997
To the Stockholders of California Financial Holding Company:
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting (the "Meeting") of the
stockholders of California Financial Holding Company, a Delaware corporation
("California Financial"), will be held at the Haggin Museum, 1201 North Pershing
Avenue, Stockton, California 95203, on Monday, April 28, 1997, at 2:00 p.m.,
local time, for the purpose of considering and voting upon the following
matters:
1. A proposal to approve a merger (the "Merger") of California
Financial with and into Temple-Inland Inc., a Delaware corporation
("Temple-Inland"), and the related Agreement and Plan of Merger between
California Financial and Temple-Inland dated as of December 8, 1996 (the
"Agreement"), a copy of which is attached as Appendix A to the accompanying
Proxy Statement-Prospectus and incorporated herein by this reference. Each
holder of California Financial Common Stock, as defined below, who objects
to the Merger is entitled to appraisal rights as provided in Section 262 of
the General Corporation Law of the State of Delaware, a copy of which is
attached hereto as Appendix C. Stockholders exercising their right to an
appraisal may receive value for their shares that is more or less than, or
equal to, the value received by other stockholders in the Merger. See
"Proposal Requesting Approval of the Merger -- Appraisal Rights."
2. A proposal to reelect two directors for terms of office ending in
2000.
3. The transaction of such other business as may properly come before
the Meeting and any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on March 7, 1997 as
the record date (the "Record Date") for determining the stockholders entitled to
receive notice of, and to vote at, the Meeting.
Each share of common stock, par value $0.01 per share, of California
Financial (the "California Financial Common Stock") will entitle the holder
thereof to one vote on all matters that come before the Meeting. Approval of the
Merger will require the affirmative vote of a majority of the issued and
outstanding shares of California Financial Common Stock. Directors receiving a
plurality of votes will be elected in the order of the number of votes received.
Whether you intend to attend the Meeting, and regardless of the number of
shares you own, your vote is important. Please take a moment to complete, date
and sign the enclosed proxy card. Your proxy may be revoked by notice to the
Secretary of California Financial or by executing and delivering a later dated
proxy to the Secretary prior to the Meeting. A complete list of stockholders of
record of California Financial on the Record Date will be available for
examination by any stockholder, for any purpose germane to the Meeting, during
ordinary business hours, for the 10-day period prior to the Meeting, at the
executive offices of California Financial, 501 West Weber Avenue, Stockton,
California 95203.
THE BOARD OF DIRECTORS OF CALIFORNIA FINANCIAL HAS UNANIMOUSLY APPROVED THE
AGREEMENT, THE MERGER AND THE RELATED MATTERS AND THE TRANSACTIONS CONTEMPLATED
BY THE AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE
THE AGREEMENT AND THE MERGER AT THE MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ DENNIS DONALD GEIGER
------------------------------------
Dennis Donald Geiger
Secretary
Stockton, California
March 20, 1997
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION; DATED MARCH 17, 1997
PROXY STATEMENT
CALIFORNIA FINANCIAL HOLDING COMPANY
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 28, 1997
PROSPECTUS
TEMPLE-INLAND INC.
2,000,000 SHARES OF
COMMON STOCK, PAR VALUE $1.00 PER SHARE
This Proxy Statement-Prospectus is being furnished to the holders of common
stock, par value $0.01 per share (the "California Financial Common Stock") of
California Financial Holding Company, a Delaware corporation ("California
Financial"), in connection with the solicitation of proxies by the Board of
Directors of California Financial for use at the annual meeting of stockholders
(the "Meeting") to be held at 2:00 p.m., local time, on Monday, April 28, 1997,
at the Haggin Museum, 1201 North Pershing Avenue, Stockton, California 95203,
and at any adjournments or postponements thereof.
At the Meeting, the holders of record of California Financial Common Stock
as of the close of business on March 7, 1997 (the "Record Date") will consider
and vote upon (1) a proposal to approve the merger (the "Merger") of California
Financial with and into Temple-Inland Inc., a Delaware corporation
("Temple-Inland"), and the related Agreement and Plan of Merger dated December
8, 1996 (the "Agreement") between California Financial and Temple-Inland, and
(2) a proposal to reelect two directors for terms of office ending in 2000. Upon
consummation of the Merger, each outstanding share of California Financial
Common Stock, except for shares as to which appraisal rights have been perfected
and not withdrawn or otherwise forfeited, will be converted into the right to
receive cash and the number of shares of Temple-Inland's Common Stock, par value
$1.00 per share (the "Temple-Inland Common Stock"), in amounts determined in the
manner described below under the heading "Proposal Requesting Approval of the
Merger -- Terms of the Merger," with cash being paid in lieu of any fractional
share interests. For a description of the Agreement, which is included in its
entirety as Appendix A to this Proxy Statement-Prospectus, see "Proposal
Requesting Approval of the Merger."
This Proxy Statement-Prospectus also constitutes a prospectus of
Temple-Inland with respect to the shares of Temple-Inland Common Stock to be
issued pursuant to the Agreement if the Merger is consummated. The actual number
of shares of Temple-Inland Common Stock to be issued will be determined in
accordance with the terms of the Agreement. See "Proposal Requesting Approval of
the Merger -- Terms of the Merger."
The outstanding shares of Temple-Inland Common Stock are listed on The New
York Stock Exchange, Inc. (the "NYSE") and the Pacific Stock Exchange (the
"PSE"). The reported last sale price of Temple-Inland Common Stock on the NYSE
Composite Transactions Reporting System on March 14, 1997, was $55 1/2 per
share.
This Proxy Statement-Prospectus and the accompanying proxy card are first
being mailed to stockholders of record of California Financial on or about March
21, 1997.
No person is authorized to give any information or to make any
representations other than those contained in this Proxy Statement-Prospectus,
and if given or made, such information or representations may not be relied upon
as having been made by Temple-Inland or California Financial. This Proxy
Statement-Prospectus does not constitute an offer to sell or solicitation of an
offer to buy by Temple-Inland, nor will there be any sale of Temple-Inland
Common Stock offered hereby, in any state in which, or to any person to whom, it
would be unlawful to make such an offer or solicitation prior to registration or
qualification under applicable state law.
THESE SECURITIES HAVE NOT 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 SHARES OF TEMPLE-INLAND STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
THE DATE OF THIS PROXY STATEMENT-PROSPECTUS IS MARCH , 1997.
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TABLE OF CONTENTS
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PAGE
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INTRODUCTION................................................ 1
AVAILABLE INFORMATION....................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 2
SUMMARY..................................................... 3
MEETING INFORMATION......................................... 12
General................................................... 12
Solicitation and Revocation of Proxies.................... 12
Votes Required............................................ 13
Recommendation............................................ 13
PROPOSAL REQUESTING APPROVAL OF THE MERGER.................. 13
Background of and Reasons for the Merger.................. 13
Recommendation of California Financial Board of Directors;
Reasons for the Merger................................. 17
Terms of the Merger....................................... 18
Opinion of Financial Advisor.............................. 21
Surrender and Exchange of Stock Certificates.............. 27
Employee Benefits......................................... 27
Expenses.................................................. 27
Representations and Warranties; Conditions to the Merger;
Waiver................................................. 28
Regulatory and Other Approvals for the Merger............. 28
Bank Merger............................................... 28
Business Pending the Merger............................... 29
Effective Date of the Merger; Termination................. 29
Stock Option Agreement.................................... 29
Shareholders Agreement.................................... 30
Management and Operations After the Merger................ 30
Certain Differences in Rights of Stockholders............. 31
Interests of Certain Persons in the Merger................ 32
Material Tax Consequences................................. 33
Resale of Temple-Inland Common Stock...................... 37
Appraisal Rights.......................................... 38
Dividend Reinvestment Plan................................ 40
Accounting Treatment...................................... 41
Certain Regulatory Considerations......................... 41
PRO FORMA FINANCIAL INFORMATION............................. 42
CERTAIN INFORMATION RELATING TO CALIFORNIA FINANCIAL........ 46
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF............. 46
PROPOSAL FOR ELECTION OF DIRECTORS.......................... 47
Information Concerning the California Financial Board of
Directors.............................................. 48
Remuneration and Other Transactions with Management and
Others................................................. 50
Report of the Compensation/Stock Option Committee on
Executive Compensation................................. 51
Compensation Committee Interlocks and Inside
Participation.......................................... 52
Change in Control Agreements.............................. 55
RELATIONSHIP WITH INDEPENDENT AUDITORS...................... 63
VALIDITY OF SHARES.......................................... 63
EXPERTS..................................................... 63
OTHER MATTERS............................................... 63
STOCKHOLDER PROPOSALS....................................... 63
APPENDIX A -- AGREEMENT AND PLAN OF MERGER
APPENDIX B -- OPINION OF MERRILL LYNCH & CO.
APPENDIX C -- SELECTED PROVISIONS OF DELAWARE LAW RELATING TO APPRAISAL
RIGHTS
APPENDIX D -- OPINION OF MANATT, PHELPS & PHILLIPS, LLP REGARDING
CERTAIN TAX MATTERS
APPENDIX E -- STOCK OPTION AGREEMENT
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INTRODUCTION
This Proxy Statement-Prospectus relates to 2,000,000 shares of common
stock, par value $1.00 per share, of Temple-Inland (the "Temple-Inland Common
Stock") that may be issued in connection with the Merger of California Financial
with and into Temple-Inland. The shares of Temple-Inland Common Stock offered
hereby will be exchanged along with cash in the aggregate amount of
approximately $150 million, upon consummation of the Merger, for the outstanding
shares of common stock, $0.01 par value, of California Financial (the
"California Financial Common Stock").
Stockholders of California Financial will be asked to approve the Merger at
the Meeting to be held on April 28, 1997. The proxy statement relating to such
Meeting is included in this Proxy Statement-Prospectus.
The terms of the Merger are described in this Proxy Statement-Prospectus,
and a copy of the Agreement is attached hereto as Appendix A for reference.
This Proxy Statement-Prospectus contains forward-looking statements that
involve risks and uncertainties. THE ACTUAL RESULTS ACHIEVED BY TEMPLE-INLAND
MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH DIFFERENCES INCLUDE GENERAL ECONOMIC,
MARKET, OR BUSINESS CONDITIONS; THE OPPORTUNITIES (OR LACK THEREOF) THAT MAY BE
PRESENTED TO AND PURSUED BY TEMPLE-INLAND AND ITS SUBSIDIARIES; THE AVAILABILITY
AND PRICE OF RAW MATERIALS USED BY TEMPLE-INLAND AND ITS SUBSIDIARIES;
COMPETITIVE ACTIONS BY OTHER COMPANIES; CHANGES IN LAWS OR REGULATIONS; AND
OTHER FACTORS, MANY OF WHICH ARE BEYOND THE CONTROL OF TEMPLE-INLAND AND ITS
SUBSIDIARIES.
AVAILABLE INFORMATION
Temple-Inland is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices located at 7
World Trade Center, Suite 1300, New York, New York 10007 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web Site that contains reports, proxy and information statements and
other information and the address of that site is http://www.sec.gov. In
addition, reports, proxy statements and other information concerning
Temple-Inland may be inspected at the offices of The New York Stock Exchange,
Inc. (the "NYSE"), 20 Broad Street, New York, New York 10005, and the Pacific
Stock Exchange (the "PSE"), 301 Pine Street, San Francisco, California 94104, on
which exchanges the shares of Temple-Inland Common Stock are listed.
Temple-Inland has filed with the Commission a registration statement on
Form S-4 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Temple-Inland Common Stock offered hereby. This Proxy
Statement-Prospectus does not contain all of the information set forth in the
Registration Statement. For further information with respect to Temple-Inland
and the Temple-Inland Common Stock offered hereby, reference is hereby made to
the Registration Statement. Statements contained in this Proxy Statement-
Prospectus concerning the provisions of certain documents are not necessarily
complete and, in each instance, reference is made to the copy of the document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. Copies of all or any part of the
Registration Statement, including exhibits thereto, may be obtained, upon
payment of the prescribed fees, at the offices of the Commission and the NYSE,
as set forth above.
<PAGE> 6
All information contained in this Proxy Statement-Prospectus relating to
Temple-Inland and its subsidiaries has been supplied by Temple-Inland, and all
information relating to California Financial and its subsidiaries has been
supplied by California Financial.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated by reference in this Proxy Statement-Prospectus are the
following documents filed with the Commission pursuant to the Exchange Act:
A. Documents filed by Temple-Inland:
(1) The Annual Report on Form 10-K for the year ended December 28,
1996, and
(2) The Proxy Statement dated March 17, 1997, related to
Temple-Inland's 1997 Annual Meeting of Stockholders to be held on May 2,
1997, except for the information contained therein under the headings
"Executive Compensation -- Report of the Executive Compensation Committee"
and "-- Stock Performance Graph," which are expressly excluded from
incorporation in this Registration Statement.
B. Documents filed by California Financial:
(1) The Annual Report on Form 10-K for the year ended December 31,
1996.
All documents subsequently filed by either Temple-Inland or California
Financial with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this Proxy Statement-Prospectus and prior to
the termination of the offering of Temple-Inland Common Stock made hereby shall
be deemed to be incorporated by reference in this Proxy Statement-Prospectus and
to be a part hereof from the date such documents are filed, except that any and
all information included in any proxy statement filed by Temple-Inland under the
headings "Executive Compensation -- Report of the Executive Compensation
Committee" and "-- Stock Performance Graph" are hereby expressly excluded from
such incorporation by reference. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein modifies or
supersedes the statement set forth herein. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement-Prospectus.
Temple-Inland will provide, without charge, to each person to whom this
Proxy Statement-Prospectus is delivered, on the written or oral request of any
such person, a copy of any or all of the information incorporated herein by
reference other than exhibits to such information (unless such exhibits are
specifically incorporated by reference into such information). Written or oral
requests should be directed to Temple-Inland Inc., 303 South Temple Drive,
Diboll, Texas 75941, Attention: Corporate Secretary, Telephone (409) 829-2211.
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SUMMARY
This summary is necessarily general and abbreviated and has been prepared
to assist stockholders of California Financial in their review of this Proxy
Statement-Prospectus. This summary is not intended to be a complete explanation
of the matters covered in this Proxy Statement-Prospectus and is qualified in
its entirety by reference to the more detailed information contained elsewhere
in this Proxy Statement-Prospectus, the Appendices hereto and the documents
incorporated herein by reference, all of which stockholders are urged to read
carefully prior to the Meeting.
PARTIES TO THE MERGER
TEMPLE-INLAND
Temple-Inland is a holding company that conducts all of its operations
through its subsidiaries. Temple-Inland holds interests in corrugated container,
bleached paperboard, building products, timber and timberlands, and financial
services. Temple-Inland's Paper Group consists of the corrugated container and
bleached paperboard operations. The corrugated container operations of
Temple-Inland are vertically integrated and consist of four linerboard mills,
three corrugated medium mills, 43 box plants, and six specialty converting
plants. The bleached paperboard operation consists of one large mill located in
Evadale, Texas.
Temple-Inland's Building Products Group manufactures a wide range of
building products including lumber, plywood, particleboard, gypsum wallboard,
and fiberboard. Forest resources include approximately 2.2 million acres of
timberland in Texas, Louisiana, Georgia, and Alabama. The Financial Services
Group of Temple-Inland consists of savings bank activities, mortgage banking,
real estate development, and insurance brokerage.
Temple-Inland is a Delaware corporation that was organized in 1983. Its
principal subsidiaries include Inland Paperboard and Packaging, Inc. ("Inland"),
Temple-Inland Forest Products Corporation ("Temple-Inland FPC"), Temple-Inland
Financial Services Inc. ("Financial Services"), Guaranty Federal, and
Temple-Inland Mortgage Corporation ("Temple-Inland Mortgage").
The principal executive offices of Temple-Inland are located at 303 South
Temple Drive, Diboll, Texas 75941. Its telephone number is (409) 829-2211. For
additional information concerning the business and financial condition of
Temple-Inland, reference should be made to the Temple-Inland reports
incorporated herein by reference. See "Available Information."
CALIFORNIA FINANCIAL
California Financial, incorporated in Delaware on June 1, 1988, is a
financial services holding company engaged primarily in the savings and loan
business through its wholly owned subsidiary, Stockton Savings Bank, F.S.B.
("Stockton Savings"). No business activities are conducted by California
Financial; therefore, unless indicated otherwise, discussion of business
activities and corresponding results relates primarily to Stockton Savings.
Stockton Savings' business consists predominantly of attracting savings
deposits from the general public through a network of 24 Northern California
retail branches and 2 loan centers originating, for its own portfolio and for
sale to others, loans secured by mortgages on residential and other real estate.
The home office of California Financial is located in Stockton, California.
Originally organized as a state mutual association, Stockton Savings was
converted to a federal mutual charter in 1982. In 1983, Stockton Savings became
a federally chartered stock association with the issuance of 2,760,000 shares of
common stock. Stockton Savings converted to a California-chartered stock
association in April 1986. In June 1986, an additional 977,500 shares of common
stock were sold. In 1990, Stockton Savings converted to a federally-chartered
savings bank.
The income of Stockton Savings is derived primarily from interest charged
on real estate and other types of loans. To a lesser extent, additional income
is obtained through interest on investment securities and fees received in
connection with loan and deposit activities. Although not on a consistent basis,
income is also generated through the sale of loans and investments and from the
sale of real estate held for development. The
3
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major expenses are interest paid on deposits and borrowings and general and
administrative expenses. The general economic and interest rate environments
have a material effect on the financial performance of Stockton Savings. Deposit
flows and costs of funds are influenced by market rates and alternative
investments available in the marketplace. Lending activity levels are also
dependent on interest rates, the demand for mortgage financing, and the overall
health of the real estate market in Stockton Savings' primary lending
territory -- California's Central Valley. In addition, regulatory policies and
procedures promulgated by the Office of Thrift Supervision ("OTS"), the Board of
Governors of the Federal Reserve System ("FRB"), and the Federal Deposit
Insurance Corporation ("FDIC") substantially impact Stockton Savings.
The principal executive offices of California Financial are located at 501
West Weber Avenue, Stockton, California 95203. Its telephone number is (209)
948-1675. For additional information concerning the business and financial
condition of California Financial, reference should be made to the reports of
California Financial incorporated herein by reference. See "Available
Information."
THE PROPOSED MERGER
Terms of the Agreement provide for California Financial stockholders to
receive a combination of Temple-Inland Common Stock and cash valued at $30 per
share of California Financial Common Stock (the "Proposed Merger
Consideration"), for a total consideration paid in the Merger of approximately
$150 million. Subject to certain limitations, California Financial stockholders
will be given the election to have the consideration for their shares paid in
Temple-Inland Common Stock, cash or a combination of the two. Temple-Inland,
however, will not be obligated to issue more than 1,692,000 shares of
Temple-Inland Common Stock in the Merger, except under certain circumstances.
The Agreement permits California Financial to terminate the transaction if the
price of Temple-Inland Common Stock, as calculated, is below $40 per share,
provided that the number of shares of Temple-Inland Common Stock issued in the
Merger has not been increased. When the transaction is completed and subject to
regulatory approval, the operations of Stockton Savings, a direct wholly owned
subsidiary of California Financial, will be merged (the "Bank Merger") into
Guaranty Federal Bank, F.S.B., an indirect wholly owned subsidiary of
Temple-Inland ("Guaranty Federal"), pursuant to a separate Agreement of Bank
Merger (the "Agreement of Bank Merger") substantially in the form of Exhibit B
to the Agreement.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
California Financial and Stockton Savings will cease to exist after the
Merger with all of the operations of Stockton Savings being assumed by Guaranty
Federal. The composition of the Board of Directors of Temple-Inland is not
expected to change as a result of the Merger. As required by the Agreement,
Temple-Inland and California Financial have selected a member of the Board of
Directors of California Financial, Mr. Robert V. Kavanaugh, to serve on the
Board of Directors of Guaranty Federal. In addition, Mr. Kavanaugh has accepted
an offer of employment as the President of the Stockton Division of Guaranty
Federal following the Merger.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF CALIFORNIA FINANCIAL HAS APPROVED THE AGREEMENT,
BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF THE STOCKHOLDERS OF
CALIFORNIA FINANCIAL AND RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE MERGER
AND THE RELATED AGREEMENT. The Board of Directors of California Financial has
received from Merrill Lynch & Co. ("Merrill") an opinion that the terms of the
Merger are fair, from a financial point of view, to the stockholders of
California Financial. See "Proposal Requesting Approval of the Merger -- Opinion
of Financial Advisor." California Financial's Board believes that the Merger
will provide significant value to all California Financial stockholders and will
enable them to participate in opportunities for growth that California
Financial's Board believes the Merger makes possible. In recommending the Merger
to the stockholders, California Financial's Board of Directors considered, among
other factors, the opinion of Merrill relating to the Proposed Merger
Consideration, the financial terms of the Merger, the non-taxable nature of the
transaction, competitive conditions of and trends in the financial institutions
market, and other factors. See "Proposal Requesting Approval of the
Merger -- Background of and Reasons for the Merger."
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BASIS FOR THE TERMS OF THE MERGER
A number of factors were considered by the Board of Directors of California
Financial in approving the terms of the Merger, including without limitation,
the opinion of Merrill relating to the terms of the Merger; the consideration to
be received by California Financial stockholders in relation to California
Financial's earnings and book value; information concerning the financial
condition, results of operations and prospects of Temple-Inland, California
Financial, Guaranty Federal and Stockton Savings; the ability of the combined
entity to compete in the relevant financial services markets; the anticipated
tax-free nature of the Merger to California Financial's stockholders for federal
income tax purposes; and non-financial factors, including without limitation,
the impact of the Merger on the various constituencies served by California
Financial. See "Proposal Requesting Approval of the Merger -- Background of and
Reasons for the Merger."
ADVICE AND OPINION OF FINANCIAL ADVISOR
Merrill, California Financial's financial advisor, has rendered a written
opinion that the Proposed Merger Consideration to be received by the
stockholders of California Financial is fair to such stockholders (other than
Temple-Inland or its affiliates). A copy of the opinion of Merrill is attached
hereto as Appendix B and should be read in its entirety with respect to the
assumptions made therein and other matters considered. See "Proposal Requesting
Approval of the Merger -- Opinion of Financial Advisor" for further information
regarding, among other things, the selection of such firm and its compensation
in connection with the Merger.
VOTES REQUIRED
Approval of the Merger requires the affirmative vote of the holders of a
majority of the issued and outstanding shares of California Financial Common
Stock. Directors receiving a plurality of votes will be elected in the order of
the number of votes received. The Board of Directors of California Financial has
fixed the close of business on March 7, 1997, as the Record Date for determining
the stockholders entitled to receive notice of, and to vote at, the Meeting.
Directors of California Financial and their spouses have voting power with
respect to 523,798 shares of California Financial Common Stock, representing
11.0% of the California Financial Common Stock issued and outstanding as of the
Record Date. See "Voting Securities and Principal Holders Thereof."
SHAREHOLDER AGREEMENT
The directors of California Financial and their spouses have agreed to vote
their stock in favor of approval of the Merger and the related Agreement at any
meeting of California Financial's stockholders at which the Merger is
considered, unless they are legally required to abstain from voting or to vote
against the Merger in the written opinion of their counsel. See "Meeting
Information -- Votes Required" and "Voting Securities and Principal Holders
Thereof."
CONDITIONS; ABANDONMENT; AMENDMENT
Consummation of the Merger is subject to the satisfaction of a number of
conditions, including approval of the Agreement by the stockholders of
California Financial and the OTS. In addition, applicable law provides that the
Bank Merger may not be consummated until at least 15, but no more than 120, days
after approval of the OTS is obtained. See "Proposal Requesting Approval of the
Merger -- Representations and Warranties; Conditions to the Merger; Waiver" and
"-- Regulatory and Other Approvals."
Substantially all of the conditions to consummation of the Merger (except
for required stockholder and regulatory approvals) may be waived at any time by
the party for whose benefit they were created, and the Agreement may be amended
or supplemented at any time by written agreement of the parties. Any material
change to the Agreement after the date of the Meeting, including reducing the
ratio of Temple-Inland Common Stock to California Financial Common Stock to be
issued in the Merger (the "Exchange Rate"), would require a resolicitation of
California Financial's stockholders for the purpose of voting on the transaction
as amended. In addition, the Agreement may be terminated, either before or after
stockholder approval, under
5
<PAGE> 10
certain circumstances. See "Proposal Requesting Approval of the
Merger -- Representations and Warranties; Conditions to the Merger; Waiver" and
" -- Effective Date of the Merger; Termination."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The executive officers and members of the California Financial Board of
Directors have interests in the Merger that are in addition to their interests
as stockholders of California Financial. Mr. Robert V. Kavanaugh has been
selected to serve on the Board of Directors of Guaranty Federal and has accepted
an offer of employment as the President of the Stockton Division of Guaranty
Federal following the Merger. Additional benefits include, among others, the
continuation of certain employee benefits generally, provisions in the Agreement
relating to the indemnification of officers, directors and employees of
California Financial for certain liabilities up to certain aggregate limitations
and payments to be received by directors and executive officers pursuant to
agreements with California Financial. See "Proposal Requesting Approval of the
Merger -- Employee Benefits" and " -- Interests of Certain Persons in the
Merger."
EMPLOYEE BENEFITS
Temple-Inland and Guaranty Federal have agreed as part of the Agreement
that Guaranty Federal will offer to all employees of California Financial who
are employed by Guaranty Federal after the effective date of the Merger the same
employee benefits as those offered by Guaranty Federal to its employees, except
that employees of California Financial will not be required to wait for any
period in order to be eligible to participate in Temple-Inland's flex plan
(including its medical and dental coverage). Guaranty Federal will also give
California Financial employees full credit for their years of service (for both
eligibility and vesting) with California Financial for purposes of
Temple-Inland's 401(k) plans. Temple-Inland has also agreed to pay or provide
certain other benefits to employees of California Financial and/or Stockton
Savings. In connection with the agreed termination of the Stockton Savings
Pension Plan, California Financial or Stockton Savings will contribute $800,000
to the plan. To the extent that such contribution is in excess of the maximum
deductible contribution allowed for such year under applicable laws and
regulations, such excess amount shall be considered to be a contribution for the
1996 plan year. See "Proposal Requesting Approval of the Merger -- Employee
Benefits."
MATERIAL TAX CONSEQUENCES
It is a condition to consummation of the Merger that the parties receive an
opinion of counsel to the effect that the Merger when consummated in accordance
with the terms of the Agreement will constitute a tax deferred reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), that the Merger shall not result in gain or loss to
Temple-Inland, California Financial, or Stockton Savings, and that the exchange
of California Financial Common Stock for Temple-Inland Common Stock will not
give rise to the recognition of gain or loss for federal income tax purposes to
California Financial's stockholders with respect to such exchange. The parties
have received such an opinion from Manatt, Phelps & Phillips, LLP, who served as
legal counsel for Temple-Inland in connection with the Merger. The federal
income tax consequences of the Merger to a stockholder of California Financial
will depend on whether the stockholder receives cash, shares of Temple-Inland
Common Stock or a combination of both. A copy of such opinion is attached hereto
as Appendix D. See "Proposal Requesting Approval of the Merger -- Material Tax
Consequences."
Because of the complexities of the tax laws and because the tax
consequences may vary depending upon a holder's individual circumstances or tax
status, it is recommended that stockholders of California Financial consult
their tax advisors concerning the federal (and any applicable state, local or
other) tax consequences of the Merger.
STOCK OPTION AGREEMENT
In connection with the execution of the Agreement, California Financial
granted to Temple-Inland an option, exercisable under certain circumstances, to
purchase 940,095 shares of California Financial Common
6
<PAGE> 11
Stock, representing approximately 19.9 percent of such shares presently
outstanding, at a price of $27.25 per share. A copy of the Stock Option
Agreement is included as Appendix E to this Proxy Statement-Prospectus.
APPRAISAL RIGHTS
Each holder of California Financial Common Stock who objects to the Merger
is entitled to appraisal rights as provided in Section 262 of the General
Corporation Law of the State of Delaware, a copy of which is attached hereto as
Appendix C. Stockholders exercising their right to an appraisal may receive
value for their shares that is more or less than, or equal to, the value
received by other stockholders in the Merger. See "Proposal Requesting Approval
of the Merger -- Appraisal Rights."
DIFFERENCES IN STOCKHOLDERS' RIGHTS
Upon completion of the Merger, stockholders of California Financial, to the
extent they receive shares of Temple-Inland Common Stock in the Merger, will
become stockholders of Temple-Inland and their rights as such will be governed
by Temple-Inland's Certificate of Incorporation and Bylaws. The rights of
stockholders of Temple-Inland are different in certain respects from the rights
of stockholders of California Financial. See "Proposal Requesting Approval of
the Merger -- Certain Differences in Rights of Stockholders."
ACCOUNTING TREATMENT
The parties intend the Merger to be treated as a purchase for financial
accounting purposes. See "Proposal Requesting Approval of the
Merger -- Accounting Treatment."
MARKETS AND MARKET PRICES
The last reported sales price per share of Temple-Inland Common Stock on
the NYSE on December 6, 1996, the last trading day prior to the announcement of
the proposed Merger was $54 and on March 14, 1997 was $55 1/2. There can be no
assurance of the market price of Temple-Inland Common Stock on the Closing Date.
The last reported bid and ask price on December 6, 1996 for California Financial
Common Stock was $28 1/8 and $29.00, respectively, and on March 14, 1997 was
$28 7/8 and $29 1/4, respectively.
STOCKHOLDERS OF CALIFORNIA FINANCIAL SHOULD NOT FORWARD ANY STOCK
CERTIFICATES WITH THEIR PROXY CARDS. IF THE MERGER IS APPROVED AT THE MEETING,
STOCKHOLDERS WILL RECEIVE INSTRUCTIONS ON HOW TO MAKE THE ELECTIONS REFERRED TO
HEREIN AND ON HOW TO EXCHANGE THEIR STOCK CERTIFICATES FOR THE PROPOSED MERGER
CONSIDERATION.
7
<PAGE> 12
SELECTED FINANCIAL INFORMATION
Selected Financial Information for Temple-Inland and California Financial
is set forth below. Temple-Inland's financial data is shown in millions while
California Financial's financial data is shown in thousands.
The following table sets forth certain consolidated financial information
for Temple-Inland. The historical information is based on the historical
financial statements and related notes of Temple-Inland contained in its Annual
Report on Form 10-K for the year ended December 28, 1996.
TEMPLE-INLAND INC.
SELECTED FINANCIAL INFORMATION*
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS
---------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total revenues........................... $ 3,460 $ 3,495 $ 2,967 $ 2,762 $ 2,734
Manufacturing net sales.................. 2,645 2,731 2,335 2,127 2,096
Net income............................... 133 281 131 117(a) 147
Capital expenditures:
Manufacturing.......................... 275 386 463 340 359
Financial services..................... 15 34 20 14 11
Depreciation and depletion:
Manufacturing.......................... 244 208 200 191 167
Financial services..................... 10 8 8 6 5
Earnings per share....................... 2.39 5.01 2.35 2.11(a) 2.65
Dividends per common share............... 1.24 1.14 1.02 1.00 .96
Average shares outstanding............... 55.5 56.1 55.9 55.5 55.5
Common shares outstanding at end of
period................................. 55.4 55.7 56.0 55.5 55.2
AT END OF PERIOD
---------------------------------------------------
Total assets............................. $12,947 $12,764 $12,251 $11,959 $10,766
Long-term debt:
Parent company......................... 1,522 1,489 1,316 1,045 964
Financial services..................... 133 113 82 76 99
Ratio of total debt to total
capitalization -- parent company....... 43% 43% 43% 38% 38%
Stockholders' equity..................... 2,015 1,975 1,783 1,700 1,633
</TABLE>
- ---------------
(a) Includes a credit of $50 million or $.90 per share from cumulative effect of
accounting changes.
* Reclassified to conform to 1996 presentation related to the realignment into
three business segments, which includes (1) the consolidation of the
corrugated container and bleached paperboard operations into a single Paper
Group, and (2) the transfer of the Rome sawmill from the corrugated
container operation to the Building Products Group.
8
<PAGE> 13
The following table sets forth certain consolidated financial information
for California Financial. The historical information is based on the historical
financial statements and related notes of California Financial contained in its
Annual Report on Form 10-K for the year ended December 31, 1996.
CALIFORNIA FINANCIAL HOLDING COMPANY
SELECTED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION
INFORMATION
Total assets.......................... $1,337,379 $1,257,585 $1,275,127 $1,103,648 $1,058,409
Loans receivable, net................. 959,409 921,070 916,757 846,489 799,622
Mortgage-backed securities............ 103,007 118,265 166,591 80,405 84,603
Savings deposits...................... 957,834 960,148 1,001,070 885,058 892,501
Borrowings............................ 283,050 204,371 182,876 125,343 82,217
Stockholders' equity.................. 89,877 85,602 83,217 81,462 72,939
SELECTED OPERATIONS INFORMATION
Interest income....................... $ 98,763 $ 91,128 $ 81,127 $ 79,600 $ 85,569
Interest expense...................... 58,944 59,373 46,851 43,331 50,134
Net interest income................... $ 39,819 $ 31,755 $ 34,276 $ 36,269 $ 35,435
Provision for loan losses............. 1,261 1,634 281 2,985 3,765
Fee income............................ 5,911 5,407 5,004 5,345 4,718
Other income (loss)................... 1,185 (7,282) (6,910) 1,560 (838)
SAIF insurance recapitalization....... 6,614 -- -- -- --
Other expenses........................ 27,033 24,818 25,271 23,325 22,895
Income before taxes and accounting
change.............................. $ 12,007 $ 3,428 $ 6,818 $ 16,864 $ 12,655
Income tax provision.................. 5,102 1,530 2,316 7,465 5,318
Income before accounting change....... $ 6,905 $ 1,898 $ 4,502 $ 9,399 $ 7,337
Accounting change..................... -- -- -- -- 1,000
Net income............................ $ 6,905 $ 1,898 $ 4,502 $ 9,399 $ 8,337
Earnings per share.................... $ 1.44 $ 0.40 $ 0.96 $ 2.04 $ 1.84
Dividends per share................... $ 0.44 $ 0.44 $ 0.44 $ 0.44 $ 0.40
SELECTED OTHER INFORMATION
Ratio of net income to average
assets.............................. 0.53% 0.15% 0.37% 0.87% 0.80%
Ratio of net income to average
stockholders' equity................ 7.89% 2.26% 5.42% 12.07% 11.96%
Ratio of general and administrative
expenses to average assets.......... 2.51% 1.86% 2.01% 2.05% 2.08%
Interest rate spread-end of year...... 2.72% 2.62% 2.23% 2.82% 3.23%
Branch offices........................ 26 22 23 22 22
</TABLE>
- ---------------
Per share calculations for 1992 have been adjusted for a 10% stock dividend in
1993.
9
<PAGE> 14
PRO FORMA COMBINED SELECTED FINANCIAL INFORMATION
(UNAUDITED)
The following table sets forth unaudited pro forma combined selected
financial information for Temple-Inland, after giving effect to the Merger with
California Financial. The pro forma information, which reflects the Merger using
the purchase method of accounting, is presented for informational purposes only
and should not be construed as indicative of the actual operations that would
have occurred had the Merger been consummated at the beginning of the period
indicated or that may be obtained in the future. See "Proposal Requesting
Approval of the Merger -- Pro Forma Financial Information" contained elsewhere
herein.
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 28,
1996
------------
<S> <C>
For Period Ended
Total revenues.............................................. $ 3,567.0
Manufacturing net sales..................................... $ 2,645.0
Net income.................................................. $ 141.3
Earnings per share.......................................... $ 2.47
Average shares outstanding.................................. 57.2
At Period End
Total assets................................................ $14,287.9
Long-term debt:
Parent Company............................................ $ 1,522
Financial Services........................................ $ 133
Ratio of total debt to total capitalization -- parent
company................................................... 42%
Stockholders' equity........................................ $ 2,109.8
</TABLE>
10
<PAGE> 15
COMPARATIVE PER SHARE INFORMATION
(UNAUDITED)
The following table sets forth for Temple-Inland Common Stock certain
historical and pro forma per share financial information for the year ended
December 28, 1996. The information presented under the heading "Historical" is
derived from the historical financial statements of Temple-Inland contained in
its Annual Report on Form 10-K for the year ended December 28, 1996.
Information under the column entitled "Pro Forma" is based upon the pro
forma financial statements and related notes contained elsewhere herein. Such
pro forma combined information, which reflects the Merger, is presented for
informational purposes only and should not be construed as indicative of the
actual operations that would have occurred had the Merger been consummated at
the beginning of the periods indicated or that may be obtained in the future.
The pro forma per share data is based upon the weighted average number of shares
assuming that 1,692,000 shares of Temple-Inland Common Stock are issued in the
Merger.
HISTORICAL AND PRO FORMA PER SHARE DATA OF TEMPLE-INLAND
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
------------ ------------
DECEMBER 28, DECEMBER 28,
1996 1996
------------ ------------
<S> <C> <C>
Book value per share........................................ $36.88 $36.34
Cash dividends declared per share........................... $ 1.24 $ 1.24
Income per share from continuing operations................. $ 2.47 $ 2.39
</TABLE>
11
<PAGE> 16
MEETING INFORMATION
GENERAL
This Proxy Statement-Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of California Financial for
use at the Meeting. Each copy of this Proxy Statement-Prospectus mailed to
holders of California Financial Common Stock is accompanied by a proxy card
furnished in connection with the California Financial Board's solicitation of
proxies for use at the Meeting and at any adjournments or postponements thereof.
The Meeting is scheduled to be held at 2:00 p.m., local time, on Monday, April
28, 1997, at the Haggin Museum, 1201 North Pershing Avenue, Stockton, California
95203. Only holders of record of California Financial Common Stock at the close
of business on the Record Date are entitled to receive notice of and to vote at
the Meeting. At the Meeting, stockholders will consider and vote upon (a) a
proposal to approve the Merger and the related Agreement, (b) a proposal to
reelect two directors for terms of office ending in 2000, and (c) such other
matters as may properly be brought before the Meeting or any adjournment or
postponement thereof.
HOLDERS OF CALIFORNIA FINANCIAL COMMON STOCK ARE REQUESTED TO COMPLETE,
DATE AND SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE
ENCLOSED, POSTAGE PAID ENVELOPE.
SOLICITATION AND REVOCATION OF PROXIES
Any holder of California Financial Common Stock who has delivered a proxy
may revoke it any time before it is voted by attending the Meeting and voting in
person, or by giving notice of revocation in writing to the Secretary of
California Financial prior to the date of the Special Meeting or submitting a
signed proxy card bearing a later date before the Meeting. The shares of
California Financial Common Stock represented by properly executed proxy cards
received at or prior to the Meeting and not subsequently revoked will be voted
as directed by the stockholders submitting such proxies. If instructions are not
given, executed proxy cards received by California Financial will be voted FOR
approval of the Merger and the related Agreement and FOR the proposal to reelect
the designated nominees for directors. If any other matters are properly
presented at the Meeting for consideration, the persons named in the proxy card
enclosed herewith will have discretionary authority to vote on such matters in
accordance with their best judgment. The California Financial Board is unaware
of any matter to be presented at the Meeting other than the proposals to approve
the Merger and the related Agreement and the reelection of the designated
nominees for director.
Temple-Inland and California Financial have agreed that all expenses
(except for the printing of this Proxy Statement-Prospectus) incurred in
connection with or related to the Agreement, shall be borne by the party that
incurred such expenses. The parties have agreed to share equally the cost of
printing this Proxy Statement-Prospectus. California Financial has retained
Morrow & Co., Inc. ("Morrow") to aid in the solicitation of proxies at a fee of
$5,000 plus out-of-pocket expenses. Solicitations of proxies will be made by
mail but also may be made by telephone or other means of telecommunications or
in person by the directors, officers and employees of California Financial (who
will receive no additional compensation for doing so). If California Financial
determines that additional efforts by Morrow are necessary for the solicitation
of proxies, California Financial may increase the amount it pays to Morrow.
STOCKHOLDERS OF CALIFORNIA FINANCIAL SHOULD NOT FORWARD ANY STOCK
CERTIFICATES WITH THEIR PROXY CARDS. IF THE MERGER IS APPROVED AT THE MEETING,
STOCKHOLDERS WILL RECEIVE INSTRUCTIONS ON HOW TO MAKE THE ELECTIONS REFERRED TO
HEREIN AND ON HOW TO EXCHANGE THEIR STOCK CERTIFICATES FOR THE PROPOSED MERGER
CONSIDERATION.
VOTES REQUIRED
Approval of the Merger requires the affirmative vote of the holders of a
majority of the issued and outstanding shares of California Financial Common
Stock. Directors receiving a plurality of votes will be elected in the order of
the number of votes received. The California Financial Board has fixed the close
of business on March 7, 1997, as the Record Date for the determination of
stockholders entitled to notice of and
12
<PAGE> 17
to vote at the Meeting. As of the Record Date, there were 4,763,330 shares of
California Financial Common Stock outstanding and entitled to vote at the
Meeting, with each share being entitled to one vote.
A majority of the outstanding shares of California Financial Common Stock
constitutes a quorum for purposes of the Meeting. An abstention will be
considered present for quorum purposes, but will have the same effect as a vote
against the proposals to be considered at the Meeting. A broker non-vote (i.e.,
shares of California Financial Common Stock held by brokers or nominees as to
which instructions have not been received from the beneficial owners or the
persons entitled to vote such shares and the broker or nominee does not have the
necessary discretionary voting power) will not count for quorum or voting
purposes because brokers will not have discretionary authority to vote with
respect to the proposals and, therefore, a broker non-vote will count as a vote
"against" the Merger but will have no effect on the proposal to elect two
directors.
As of the Record Date, the directors of California Financial and their
spouses have voting power with respect to a total of 523,798 shares, or
approximately 11.0% of the outstanding shares of California Financial Common
Stock, which they have agreed to vote in favor of the Merger and the related
Agreement, unless they are legally required to abstain from voting or to vote
against the Merger and the related Agreement.
RECOMMENDATION
FOR THE REASONS DESCRIBED HEREIN, THE CALIFORNIA FINANCIAL BOARD HAS
APPROVED THE AGREEMENT, BELIEVES THE MERGER IS IN THE BEST INTERESTS OF
CALIFORNIA FINANCIAL AND ITS STOCKHOLDERS AND RECOMMENDS THAT HOLDERS OF
CALIFORNIA FINANCIAL COMMON STOCK VOTE FOR APPROVAL OF THE MERGER AND THE
RELATED AGREEMENT AND FOR APPROVAL OF THE NOMINEES FOR DIRECTORS OF CALIFORNIA
FINANCIAL. IN MAKING ITS RECOMMENDATION TO STOCKHOLDERS, THE CALIFORNIA
FINANCIAL BOARD CONSIDERED, AMONG OTHER THINGS, THE OPINION OF CALIFORNIA
FINANCIAL'S FINANCIAL ADVISOR, MERRILL, THAT THE CONSIDERATION TO BE RECEIVED BY
THE HOLDERS OF CALIFORNIA FINANCIAL COMMON STOCK PURSUANT TO THE MERGER IS FAIR
TO SUCH STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW. SEE "BACKGROUND OF AND
REASONS FOR THE MERGER" AND "OPINION OF FINANCIAL ADVISOR" UNDER "PROPOSAL
REQUESTING APPROVAL OF THE MERGER."
PROPOSAL REQUESTING APPROVAL OF THE MERGER
This section of the Proxy Statement-Prospectus describes certain aspects of
the Merger. The following description does not purport to be complete and is
qualified in its entirety by reference to the Agreement, which is attached as
Appendix A to this Proxy Statement-Prospectus and is incorporated herein by
reference. All stockholders are urged to read the Agreement and the Exhibits
thereto carefully and in its entirety.
BACKGROUND OF AND REASONS FOR THE MERGER
From the date of its conversion from a mutual to a publicly held
institution in 1983, Stockton Savings and, continuing with its formation in 1988
as the holding company for Stockton Savings, California Financial followed a
policy of remaining independent and increasing stockholder value through
improved operating results and expansion of the Stockton Savings branch network.
During this period, California Financial monitored the increasing consolidation
of financial institutions on both a national and regional level, the competition
of financial institutions in California Financial's marketplace, the entrance
into California Financial's marketplace of additional financial institutions,
the impact on financial institutions of the recession and the adverse real
estate market in California, and the limitations on California Financial's
ability to expand its business and operations through selective mergers and
acquisitions. California Financial also recognized during this period the
importance of California Financial's marketplace to other financial institutions
seeking growth opportunities and the value of California Financial's franchise
in its marketplace. Nevertheless, through periodic review of these factors,
together with management's assessments of California Financial's
13
<PAGE> 18
business and financial prospects, California Financial continued to adhere to
its core strategy to remain independent.
By 1995, California Financial became concerned, based upon activities in
California generally and in its marketplace and based upon discussions with
knowledgeable persons in the thrift industry and investment banking community,
that it could receive a hostile or otherwise unsolicited offer from a third
party to engage in a business combination. Accordingly, during 1995, the Board
of Directors met with representatives of Kirkpatrick & Lockhart LLP
("Kirkpatrick & Lockhart"), its outside special counsel, to review, among other
things, California Financial's ability to respond to a hostile acquisition
proposal and California Financial's duties and obligations with respect to
responding to an unsolicited acquisition proposal. On the basis of the
discussions and review conducted, the California Financial Board of Directors
reaffirmed its policy to remain independent, subject to an appropriate review
and consideration of any acquisition proposal actually received by California
Financial to determine whether such proposal might be in the best interests of
California Financial's stockholders. California Financial took no action with
respect to its Certificate of Incorporation, Bylaws, employment agreements or
other material contracts or rights that would have the effect of discouraging,
or making it more difficult to effect, any business combination proposal.
In December 1995, David K. Rea, Chairman and Chief Executive Officer of
California Financial, received an unsolicited letter from the Chairman and Chief
Executive Officer of a banking institution ("Initial Bank") in which Initial
Bank indicated its preliminary interest in acquiring California Financial at a
price of approximately $24 cash per share. Mr. Rea, along with representatives
from Kirkpatrick & Lockhart, discussed this preliminary indication of interest,
and the Board's legal obligations in responding to Initial Bank, at a California
Financial Board of Directors meeting held in December 1995. California Financial
subsequently discussed with Merrill Lynch & Co. ("Merrill"), California
Financial's financial advisor, Initial Bank's preliminary indication of
interest, as well as other investment banking issues in connection with Initial
Bank's indication of interest.
In January 1996, the Board again met to review and consider Initial Bank's
preliminary indication of interest. At that meeting, Merrill discussed with the
Board the current trends in the financial institution industry and valuation
information regarding California Financial. The Board, after consultation with
Merrill and discussion with Kirkpatrick & Lockhart of its legal obligations and
duties, advised Initial Bank that it saw no current reason to depart from
California Financial's long-term policy to remain independent.
In April 1996, a representative of Temple-Inland initiated a telephone
discussion with Mr. Rea regarding Temple-Inland's desire to expand its financial
services capabilities, as carried on through its Texas-based subsidiary,
Guaranty Federal, within the state of California. At such representative's
request, Mr. Rea arranged a meeting of California Financial's Executive
Committee and representatives of Temple-Inland's financial services group for
purposes of preliminary discussions among the two institutions. As a result of
that meeting, Temple-Inland's representatives indicated that they would be
interested in continuing such discussions if California Financial's Board
believed such discussions were appropriate. At a subsequent Board meeting held
in April, Merrill reviewed with the California Financial Board certain
background information regarding Temple-Inland and Guaranty Federal. The Board
determined that continuing discussions with Temple-Inland to permit the two
institutions to learn more about each other was an appropriate next step.
In May 1996, at Temple-Inland's invitation, Robert V. Kavanaugh, President
and Chief Operating Officer of California Financial, traveled to Texas and met
with representatives of Temple-Inland and Guaranty Federal. The California
Financial Board was advised by Mr. Kavanaugh that his discussions with Temple-
Inland were general in nature. In addition, Mr. Kavanaugh relayed to the Board
Temple-Inland's request to conduct limited due diligence; the Board received no
other indications from Temple-Inland regarding its interest in California
Financial. After review and consideration of this request with its financial and
legal advisors, the Board rejected Temple-Inland's request.
Near the end of May 1996, the California Financial Board received, through
Guaranty Federal, Temple-Inland's formal indication of interest, in which it
suggested a possible acquisition price of $28 per share. After discussing with
Merrill the various factors related to the long-term financial prospects of
California Financial and the related issues of stockholder value, the California
Financial Board advised Merrill to continue
14
<PAGE> 19
informal discussions with Temple-Inland. In addition, the Board authorized
Kirkpatrick & Lockhart to negotiate with Temple-Inland a confidentiality and
standstill agreement.
In July 1996, Mr. Kavanaugh executed on behalf of California Financial a
confidentiality and standstill agreement with Temple-Inland. Pursuant to this
agreement, California Financial provided Temple-Inland with certain due
diligence information. At the same time, California Financial's Board instructed
Merrill to obtain further details regarding Temple-Inland's preliminary
indication of interest.
On August 16, 1996, Mr. Rea received a letter from Temple-Inland in which
Temple-Inland indicated an interest in acquiring all of the outstanding
California Financial Common Stock at $26.92 per share, in either an all-stock or
all-cash transaction. Merrill reviewed with the California Financial Board the
terms of the proposal and its structure. Merrill also discussed with the Board
certain information regarding Temple-Inland, its subsidiaries and its industry.
After considering all of this information, the Board rejected the $26.92
proposal as inadequate and instructed Merrill to advise Temple-Inland of the
Board's views regarding value and structure in any potential business
combination.
Later that month, Temple-Inland submitted a modified proposal to purchase
all of the outstanding California Financial Common Stock at an increased price
per share in an all-cash transaction. This proposal was conditioned on, among
other things, the transaction receiving certain tax treatment, the effect of
which was to decrease materially the value of the proposal to California
Financial's stockholders. The California Financial Board rejected this proposal,
again instructing Merrill to convey the views of the Board to Temple-Inland
regarding price and structure.
In September 1996, the California Financial Board held extensive
discussions with its financial and legal advisors regarding options available to
pursue a possible strategic alliance with various financial institutions. The
California Financial Board reviewed the issues involved in such a course of
action, including its obligations to its stockholders and the possible ways to
achieve such a strategic alliance. The California Financial Board instructed
Merrill to contact a limited number of institutions believed to be potentially
interested in, and able to pursue, an all-stock or partial-stock transaction.
Also in September, California Financial received a revised proposal from
Temple-Inland. This revised proposal met some of the California Financial
Board's concerns regarding a potential strategic alliance. After review and
consideration of this revised proposal, and additional updated information
presented by Merrill, the California Financial Board advised Temple-Inland that
several issues still needed to be resolved if an agreement between the parties
was to be reached. The California Financial Board requested Merrill to contact
Temple-Inland or its investment banker, Salomon Brothers Inc, to continue
negotiating matters of concern to the Board regarding a possible business
combination between the parties.
In October 1996, Temple-Inland through Guaranty Federal proposed to
California Financial that Guaranty Federal acquire all of the outstanding
California Financial Common Stock for $30 cash per share. Merrill subsequently
discussed with the California Financial Board the details of this latest
proposal. The California Financial Board reiterated its belief that a strategic
merger involving an all-stock or partial-stock transaction at an acceptable
value was in the best interests of California Financial's stockholders.
Also in October, the Board reviewed and considered management's projections
for improved financial results for subsequent periods for California Financial
and Stockton Savings, Stockton Savings' strong position in its marketplace,
technological issues confronting Stockton Savings, and the condition of, and
improving trends in, California's economy and the local economy.
Merrill advised the California Financial Board of its discussions with
other institutions involving a possible strategic alliance with California
Financial. Merrill noted that certain institutions had expressed limited
interest in pursuing a transaction. One large financial institution indicated an
interest in a transaction with a potential value that might prove to be
acceptable. The California Financial Board authorized Kirkpatrick & Lockhart to
negotiate a confidentiality and standstill agreement with such institution
("Second Bank"). After reviewing all such matters, projections and proposals,
the California Financial Board advised Temple-Inland of its continued interest
and instructed Merrill to continue discussions involving acquisition issues.
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At the end of October 1996, the Board authorized Kirkpatrick & Lockhart to
negotiate a confidentiality and standstill agreement with another financial
institution ("Third Bank") that had been contacted by Merrill and that indicated
to Merrill a preliminary interest in discussing a possible business combination
with California Financial.
Also at the end of October, Temple-Inland indicated an interest in
acquiring all of the outstanding California Financial Common Stock for $30 per
share in a cash-election transaction, subject to further due diligence. The
Transactions Committee of California Financial's Board of Directors met during
the first week of November and reviewed the revised acquisition price and
structure of the proposed transaction, and recommended pursuing further
discussions with Temple-Inland and providing Temple-Inland with additional due
diligence materials. At its next meeting, the California Financial Board
considered Temple-Inland's revised proposal, and after consultation with
Merrill, adopted the Transactions Committee's recommendations.
In the beginning of November 1996, Third Bank executed a confidentiality
and standstill agreement and due diligence materials were provided to it. Third
Bank subsequently informed California Financial that it would not make a
proposal to engage in a business combination with California Financial.
Also in November, the California Financial Board received an indication of
interest from a financial institution in its marketplace ("In-Market Bank")
regarding a strategic merger with California Financial. Mr. Kavanaugh and Jane
Butterfield, Chief Financial Officer of California Financial, met with
representatives of In-Market Bank to discuss In-Market Bank's interest. At
California Financial's mid-November Board meeting, after consultation with
Merrill, the California Financial Board determined that such a business
combination was not practicable due to transaction structure and related
financial considerations. As a result, no further discussions with In-Market
Bank were pursued.
At this meeting Merrill updated the California Financial Board on its
continuing discussions with Second Bank. The Board instructed Merrill to advise
Second Bank that circumstances were changing and that if it was interested in
pursuing a possible business combination with California Financial, it should
execute promptly the previously distributed confidentiality and standstill
agreement. Second Bank thereupon executed a confidentiality and standstill
agreement, and due diligence materials were subsequently provided to it.
At the same meeting, the California Financial Board considered
Temple-Inland's most recent proposal in which Temple-Inland set forth fully the
terms of its proposal. Representatives from Merrill discussed with the Board the
changes in the structure of the transaction, pricing considerations and further
background materials regarding Temple-Inland. Representatives from Kirkpatrick &
Lockhart discussed the legal obligations of the Board in connection with the
current options available for consideration by the California Financial Board.
The Board also considered information with respect to various non-financial
issues, such as treatment of California Financial's and Stockton Savings'
employees and other constituencies served by California Financial. At the
conclusion of this meeting, the Board instructed its advisors to commence
negotiations with Temple-Inland's and Guaranty Federal's legal counsel to
determine whether an acceptable definitive acquisition agreement could be
prepared.
Near the end of November, Second Bank advised California Financial that it
would not make a proposal to engage in a business combination with California
Financial.
Representatives of California Financial, Stockton Savings, Temple-Inland
and Guaranty Federal met toward the end of November to begin negotiating a
definitive acquisition agreement. Subsequent to these initial negotiations, the
representatives met again during the first week in December. On December 4, the
California Financial Board of Directors met with its financial and legal
advisors to discuss the progress being made with regard to the proposed
definitive acquisition agreement with Temple-Inland. Kirkpatrick & Lockhart
advised the Board that substantial progress had been made with respect to
several of the Board's key concerns, but that there remained several outstanding
issues. Merrill provided the Board information regarding recent changes in the
market price of California Financial Common Stock, as well as updated valuation
information.
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The Board discussed and reviewed individual acquisition issues at this
meeting as well as the overall issue of whether to enter into a business
combination with Temple-Inland or remain independent based upon the best
interests of the stockholders. In reviewing information with respect to
remaining independent, the Board considered, based in part on the analyses of
Merrill, a range of possible values to California Financial's stockholders that
could potentially be achieved by California Financial remaining independent and
realizing possible future earnings. In this regard, the Board considered the
considerable risks of remaining independent that could affect California
Financial's ability to realize future earnings, including, but not limited to,
the impact of potential changes in the level of general interest rates, the
possibility of a correction in the capital markets affecting the price of
California Financial Common Stock, economic conditions in California, increased
competition for deposits and loans in California Financial's marketplace and the
effect of an increase industry-wide in the use of advanced technology. In
reviewing information with respect to merging with Temple-Inland, California
Financial considered factors affecting the value represented by the proposed
transaction, including, but not limited to, certain analyses of Merrill
regarding the fairness of the proposed merger consideration to California
Financial's stockholders from a financial point of view, the terms of the
proposed merger agreement and the related stock option agreement, including
those terms that increased the likelihood that the transaction would close but
that would otherwise discourage an offer by a third party, if any, that might be
interested in acquiring California Financial, the fact that the transaction
would be tax deferred to those stockholders who receive and hold Temple-Inland
Common Stock in the Merger and the economic interests of executive officers and
directors of California Financial and/or Stockton Savings in the transaction.
Based on its review and consideration of these factors, and the other factors
described below, the California Financial Board determined that the best
interests of the stockholders would be served by obtaining the $30 value per
share in a cash-election transaction payable in the Merger, subject to
preparation of an acceptable definitive acquisition agreement and further
analysis regarding recent changes in the price of California Financial Common
Stock.
Representatives from California Financial, Stockton Savings, Temple-Inland
and Guaranty Federal met December 5 through December 7 to negotiate and prepare
a definitive merger agreement. During the same period Merrill reported to the
members of the California Financial Board regarding the recent changes in the
price of California Financial Common Stock.
At a special meeting of the California Financial Board of Directors held on
the evening of December 8, 1996, the Board reviewed the terms and conditions of
the proposed merger agreement and received the written opinion of Merrill that
as of that date the consideration to be received in the proposed merger with
Temple-Inland was fair, from a financial point of view, to the holders of
California Financial Common Stock. The Board then approved, by unanimous vote,
the proposed merger and the definitive acquisition agreement and related
matters, finding the proposed transaction to be in the best interests of
California Financial and its stockholders. The Agreement was executed shortly
thereafter, and the transaction was publicly announced the next morning.
RECOMMENDATION OF CALIFORNIA FINANCIAL BOARD OF DIRECTORS; REASONS FOR THE
MERGER
The Board of Directors of California Financial believes the Merger is in
the best interests of California Financial's stockholders and has unanimously
approved the Agreement and the transactions contemplated thereby. As discussed
above, and as additionally described below, based upon the factors considered by
the Board of Directors, the Board concluded that the Proposed Merger
Consideration of $30 per share in either cash or stock or a combination of the
two was fair, from a financial point of view, to the stockholders. THEREFORE,
THE BOARD OF DIRECTORS OF CALIFORNIA FINANCIAL UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF CALIFORNIA FINANCIAL VOTE FOR ADOPTION AND APPROVAL OF THE
AGREEMENT.
The terms of the proposed Merger are the result of arms-length negotiations
by representatives of California Financial and representatives of Temple-Inland,
culminating in the signing of the Agreement on
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December 8, 1996. In arriving at its decision to merge with Temple-Inland and
approve and recommend the Agreement, the Board of Directors considered a number
of factors, including, but not limited to, the following:
(i) The opinion of Merrill, California Financial's financial advisor,
that as of December 8, 1996, the Proposed Merger Consideration was fair,
from a financial point of view, to the holders of California Financial
Common Stock (other than Temple-Inland or its affiliates). See "Opinion of
Financial Advisor."
(ii) California Financial's business, results of operations, financial
condition and prospects.
(iii) Information provided by Merrill regarding, among other issues,
the relationship of the $30 per share Proposed Merger Consideration to the
recent and then current market value, book value, tangible book value and
earnings per share of California Financial Common Stock and the prices and
premiums paid in certain other similar transactions involving financial
institutions. See "Opinion of Financial Advisor."
(iv) Non-financial factors, such as the impact of the Merger on
California Financial's employees and the various constituencies served by
California Financial.
(v) The terms of the proposed Agreement, including, among other
things, the conditions to closing and the rights of termination set forth
therein, including limitations generally on Temple-Inland's right to
terminate the Agreement for a breach of representation or warranty unless
such breach constitutes a "Material Adverse Effect" and the definition of a
"Material Adverse Effect" (the occurrence of which could give Temple-Inland
the right to terminate the Agreement) and the potential impact of the no
solicitation clause on a third party that might be interested in making an
offer to acquire California Financial.
(vi) The terms of the Stock Option Agreement, including the exercise
price determined prior to the public announcement of the Merger, the number
of shares subject to the Option and the circumstances under which the
Option can be exercised (all of which are described in more detail in "The
Stock Option Agreement") and the Board's view of the effect of granting
such Option on an offer by a third party to acquire California Financial if
any third party were interested in making such an offer. See "The Stock
Option Agreement."
(vii) The general economic and competitive conditions of the market in
which California Financial operates, trends in the consolidation of
financial institutions in that market, and the need to make a material
capital investment in advanced technology to remain competitive in such
market.
(viii) The possibility of a correction in the capital markets and the
impact of potential changes in the level of general interest rates on
California Financial's prospects.
(ix) Other possible strategic alternatives (see "Background of the
Merger"), and the Board's views that it was not likely that a better offer
could be obtained in the short-term.
(x) The financial resources of Temple-Inland and the likelihood of
receiving the requisite regulatory approvals in a timely manner.
(xi) The fact that the Merger would not be a taxable transaction for
those California Financial stockholders who receive and hold Temple-Inland
Common Stock in the Merger.
(xii) The interests of executive officers and directors of California
Financial and/or Stockton Savings in the Merger.
In reaching its determination to approve and recommend the Merger,
California Financial's Board of Directors did not assign any relative or
specific weights to the foregoing factors, and individual directors may have
given different weights to different factors.
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TERMS OF THE MERGER
Each share of California Financial Common Stock will be converted into the
right to receive $30 of value in cash, Temple-Inland Common Stock, or a
combination of the two for a total consideration of approximately $150 million.
Temple-Inland, however, will not be obligated to issue more than 1,692,000
shares of Temple-Inland Common Stock in the Merger, except under certain
circumstances. The number of shares of Temple-Inland Common Stock into which a
share of California Financial Common Stock will be converted (the "Exchange
Rate") will be determined by the following formula (subject to certain possible
changes to the Exchange Rate discussed below): $30 divided by the Average Market
Price of Temple-Inland Common Stock (as defined below). The Average Market Price
of Temple-Inland Common Stock for this purpose is the average of the daily
closing price of one share of Temple-Inland Common Stock for the ten consecutive
trading days ending on the fifth trading day prior to the effective date of the
Merger, as reported in the Wall Street Journal.
In the event that the Average Market Price of Temple-Inland Common Stock is
less than $40, Temple-Inland will have the election (the "Top-Up Option") to
issue additional shares of Temple-Inland Common Stock in the Merger, in which
case the Exchange Rate will be determined as set forth above. If Temple-Inland
declines to exercise the Top-Up Option, California Financial will have the
option to terminate the Merger. If Temple-Inland elects not to exercise the
Top-Up Option and California Financial does not terminate the Merger, then the
Exchange Rate will be determined by the following formula:
$30-[($0.3375x($40-Average Market Price)]
--------------------------------------------------
Average Market Price
Accordingly, if Temple-Inland's Average Market Price were $56, the Exchange
Rate would be $30 / $56 or .5357 shares of Temple-Inland Common Stock. If the
Average Market Price were $35, Temple-Inland does not exercise the Top-Up Option
and California Financial does not terminate the Agreement, the Exchange Rate
will be determined using the formula set forth above and will equal .8089.
If the Record Date had been the effective date of the Merger, the Average
Market Price of Temple-Inland Common Stock would have been $55.575 per share,
and the Exchange Rate would have been .5398 shares of Temple-Inland Common Stock
for each share of California Financial Common Stock. There can be no assurance
as to the actual Exchange Rate at this time, as the price of Temple-Inland
Common Stock may increase or decrease over the period from the Record Date to
the effective date of the Merger (which is anticipated to be June 30, 1997).
If the Merger is approved at the Meeting, each stockholder of California
Financial will receive an election form pursuant to which the stockholder shall
elect to receive either (i) Temple-Inland Common Stock with respect to all of
such stockholder's shares of California Financial Common Stock, (ii) cash with
respect to all of such stockholder's shares of California Financial Common
Stock, or (iii) Temple-Inland Common Stock for a specified number of shares of
California Financial Common Stock and cash for the remaining shares of
California Financial Common Stock held by such stockholder.
Effect of the Merger. Upon the effectiveness of the Merger (the "Effective
Time"), the California Financial Common Stock shall cease to exist and shall
represent only a right to receive the compensation discussed above. The
conversion to Temple-Inland Common Stock will be deemed automatic upon the
effective date of the Merger, and California Financial stockholders will
automatically be entitled to all of the rights and privileges afforded to
Temple-Inland stockholders as of such date to the extent their shares would be
converted into shares of Temple-Inland Common Stock. However, the exchange of
California Financial Common Stock certificates for certificates representing
Temple-Inland Common Stock will occur after the effective date of the Merger.
STOCKHOLDERS OF CALIFORNIA FINANCIAL SHOULD NOT FORWARD ANY STOCK
CERTIFICATES WITH THEIR PROXY CARDS. IF THE MERGER IS APPROVED AT THE MEETING,
STOCKHOLDERS WILL RECEIVE INSTRUCTIONS ON HOW TO MAKE THE ELECTIONS REFERRED TO
HEREIN AND ON HOW TO EXCHANGE THEIR STOCK CERTIFICATES FOR THE PROPOSED MERGER
CONSIDERATION.
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For a discussion of the appraisal rights, see "Proposal Requesting Approval
of the Merger -- Appraisal Rights."
Election and Proration Procedures. If the Merger is approved at the
Meeting, each stockholder will receive an election form pursuant to which each
stockholder of California Financial shall elect (an "Election") to receive
either, (i) Temple-Inland Common Stock (a "Stock Election") with respect to all
of such holder's California Financial Common Stock, or (ii) cash (a "Cash
Election") with respect to all of such holder's California Financial Common
Stock, or (iii) Temple-Inland Common Stock for a specified number of shares of
California Financial Common Stock and cash for the remaining number of shares of
California Financial Common Stock held by such holder (a "Combination
Election"). Any shares of California Financial Common Stock, other than shares
as to which appraisal rights have been requested, with respect to which the
First Chicago Trust Company of New York, acting as exchange agent (the "Exchange
Agent") has not received an effective, properly completed election form prior to
the Election Deadline (as defined below) shall be deemed to be "Undesignated
Shares."
It is currently expected that the deadline for submitting a properly
completed election form will be 5:00 p.m., Pacific time, on June 2, 1997 (the
"Election Deadline"). The actual Election Deadline will be announced by
Temple-Inland and California Financial at least 35 days prior to the Effective
Time of the Merger. Any election form may be revoked or changed by the person
submitting such election form at or prior to the Election Deadline. The Exchange
Agent shall have reasonable discretion to determine whether any Election,
revocation or change has been properly or timely made and to disregard
immaterial defects in the Election Forms, and any decisions of California
Financial and Temple-Inland required by the Exchange Agent and made in good
faith in determining such matters shall be binding and conclusive.
As promptly as practicable but not later than ten calendar days after the
Effective Time Temple-Inland shall cause the Exchange Agent to effect the
allocation among the holders of California Financial Common Stock of rights to
receive Temple-Inland Common Stock or cash in the Merger in accordance with the
election forms as follows:
(i) if the aggregate number of shares of California Financial Common
Stock as to which Stock Elections and Combination Elections shall have
effectively been made times the Exchange Rate exceeds the Base Stock Amount
(defined below), then:
(A) All Undesignated Shares shall be deemed to have made Cash
Elections; and
(B) Each holder of California Financial Common Stock who made an
effective Stock Election or Combination Election shall be entitled to a
prorated number of shares of Temple-Inland Common Stock calculated in
accordance with the terms of the Agreement with a corresponding increase
in cash.
(ii) if the aggregate number of shares of California Financial Common
Stock as to which Stock Elections and Combination Elections have been
effectively made times the Exchange Rate shall be less than the Base Stock
Amount, then:
(A) the Exchange Agent shall select by random such number of
Undesignated Shares to receive Temple-Inland Common Stock as shall be
necessary so that the number of such shares when added to the number of
shares for which a Stock Election and Combination Election has been made
or is deemed to be made when multiplied by the Exchange Rate shall equal
or exceed the Base Stock Amount. If all the Undesignated Shares plus all
shares as to which Stock Elections and Combination Elections have been
made together, when multiplied by the Exchange Rate, are less than the
Base Stock Amount, then:
(B) the Exchange Agent shall select by random a sufficient number
of shares as to which Cash Elections were made until the number of
shares of California Financial Common Stock times the Exchange Rate,
when added to the number of shares of California Financial Common Stock
represented by the Undesignated Shares, Stock Elections and Combination
Elections times the Exchange Rate, exceeds the Base Stock Amount. The
remaining makers of Cash Elections not so selected will receive cash.
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So long as the Average Market Price of Temple-Inland Common Stock is above
$40 per share, "Base Stock Amount" means the number of shares of Temple-Inland
Common Stock equal to the quotient obtained by dividing (x) 45 percent of the
product of $30 multiplied by the number of shares of California Financial Common
Stock issued and outstanding immediately prior to the Effective Time of the
Merger by (y) $40. For example, using the 4,763,330 issued and outstanding
shares of California Financial Common Stock as of the Record Date, the Base
Stock Amount would have been 1,607,624 shares of Temple-Inland Common Stock.
If Manatt, Phelps & Phillips, LLP determines that, as a result of the
number of shares of Temple-Inland Common Stock calculated to be issued in the
process described above, the Merger may fail to satisfy the continuity of
interest requirements under applicable federal income tax principles relating to
reorganizations under Section 368(a) of the Code, then the Exchange Agent shall
select at random, first from holders of Undesignated Shares, and then, if
necessary, from holders making Cash Elections, a sufficient number of holders to
receive Temple-Inland Common Stock so as to reduce the amount of cash to be
delivered in the Merger.
HOLDERS OF CALIFORNIA FINANCIAL COMMON STOCK ARE UNLIKELY TO RECEIVE THE
PRECISE PROPORTION OF TEMPLE-INLAND COMMON STOCK AND/OR CASH INDICATED BY SUCH
HOLDER'S ELECTION.
OPINION OF FINANCIAL ADVISOR
California Financial retained Merrill to act as its exclusive financial
advisor in connection with a possible business combination with one or more
parties. Pursuant to the terms of its engagement, Merrill agreed to assist
California Financial in analyzing, structuring, negotiating and effecting a
transaction with Temple-Inland. California Financial selected Merrill because
Merrill is a nationally recognized investment banking firm with substantial
experience in transactions similar to the Merger and is familiar with California
Financial and its business. As part of its investment banking business, Merrill
is continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions.
As part of its engagement, representatives of Merrill attended the meeting
of the California Financial Board held on December 8, 1996 at which the
California Financial Board considered and approved the Agreement. At that
meeting, Merrill rendered its written opinion that, as of such date, the
proposed consideration was fair to the holders of shares of California Financial
(other than Temple-Inland or its affiliates) from a financial point of view.
Such opinion was reconfirmed in writing as of the date of this Proxy
Statement-Prospectus.
The full text of Merrill's written opinion dated as of the date this Proxy
Statement-Prospectus is attached hereto as Appendix B to this Proxy
Statement-Prospectus and is incorporated herein by reference. The description of
the opinion set forth herein is qualified in its entirety by reference to
Appendix B. California Financial stockholders are urged to read the opinion in
its entirety for a description of the procedures followed, assumptions made,
matters considered, and qualifications and limitations on the review undertaken
by Merrill in connection therewith.
MERRILL'S OPINION IS DIRECTED TO THE CALIFORNIA FINANCIAL BOARD AND
ADDRESSES ONLY THE PROPOSED CONSIDERATION TO BE RECEIVED BY CALIFORNIA FINANCIAL
STOCKHOLDERS. IT DOES NOT ADDRESS THE UNDERLYING BUSINESS DECISION TO PROCEED
WITH THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY CALIFORNIA
FINANCIAL STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE MEETING OR
ANY OTHER MATTER IN CONNECTION THEREWITH.
Merrill has informed California Financial that in arriving at its written
opinion, Merrill, among other things: (1) reviewed California Financial's Annual
Reports to Shareholders, Annual Reports on Form 10-K and related audited
financial information for the three fiscal years ended December 31, 1996; (2)
reviewed Temple-Inland's Annual Reports to Shareholders, Annual Reports on Form
10-K and related audited financial information for the three fiscal years ended
December 28, 1996; (3) reviewed certain information,
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including financial forecasts in the case of California Financial, relating to
the respective businesses, earnings, assets and prospects of California
Financial and Temple-Inland furnished to Merrill by California Financial and
Temple-Inland; (4) conducted certain discussions with members of senior
management of California Financial and Temple-Inland concerning their respective
businesses, financial condition, earnings, assets and prospects and senior
management's views as to future financial performance of California Financial
and Temple-Inland, as the case may be; (5) reviewed the historical market prices
and trading activity for the California Financial Common Stock and the
Temple-Inland Common Stock and compared them with those of certain publicly
traded companies that Merrill deemed to be relevant; (6) compared the results of
operations of California Financial and Temple-Inland with those of certain
companies that Merrill deemed to be relevant; (7) compared the proposed
financial terms of the Merger with the financial terms of certain other mergers
and acquisitions that Merrill deemed to be relevant; (8) reviewed the Agreement
and the Stock Option Agreement; and (9) reviewed such other financial studies
and analyses and performed such other investigations and took into account such
other matters as Merrill deemed necessary.
In preparing its opinion, Merrill, with California Financial's consent,
assumed and relied upon the accuracy and completeness of all financial and other
information supplied or otherwise made available to it for purposes of its
opinion, and Merrill did not assume any responsibility for independently
verifying such information or undertaking an independent evaluation or appraisal
of the assets or liabilities of California Financial or Temple-Inland or any of
their subsidiaries, nor was it furnished any such evaluations or appraisals.
Merrill also assumed and relied upon the senior management of California
Financial referred to above as to the reasonableness and achievability of
California Financial's financial and operating forecasts (and the assumptions
and bases therefore) provided to Merrill. In that regard, Merrill has assumed
with California Financial's consent that such forecasts, including without
limitation financial forecasts and projections regarding underperforming and
non-performing assets, net charge-offs and adequacy of reserves, reflect the
best currently available estimates and judgments of such senior management as to
the future financial performance of California Financial. Merrill is not an
expert in the evaluation of allowances for loan losses, and did not make an
independent evaluation of the adequacy of the allowances for loan losses of
Stockton Savings or Guaranty Federal nor did it review any individual credit
files, and it assumed that the aggregate allowances for loan losses of Stockton
Savings and Guaranty Federal are adequate to cover such losses. Merrill's
opinion was necessarily based on economic, market and other conditions as in
effect on, and the information made available to it as of, the respective dates
of its opinion.
Merrill's opinion was rendered without regard to the necessity for, or
level of, any restrictions, obligations, undertakings or divestitures that may
be imposed or required in the course of obtaining regulatory approvals for the
Merger.
In connection with rendering its opinion dated December 8, 1996, Merrill
performed a variety of financial analyses, including those summarized below. The
summary set forth below does not purport to be a complete description of the
analyses performed by Merrill in this regard, although it describes all material
analyses performed by Merrill. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to a
partial analysis or summary description. Accordingly, notwithstanding the
separate factors summarized below, Merrill believes that its analyses must be
considered as a whole and that selecting portions of its analyses and factors
considered by it, without considering all analyses and factors, or attempting to
ascribe relative weights to some or all such analyses and factors, could create
an incomplete view of the evaluation process underlying Merrill's opinion.
In performing its analyses, Merrill made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond California Financial's control. The analyses
performed by Merrill 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 Merrill's
analysis of the fairness to California Financial stockholders of the proposed
consideration to be paid pursuant to the Agreement and were provided to the
California Financial Board in connection with the delivery of Merrill's opinion.
Merrill gave the various analyses described below approximately similar weight
and did not draw any specific conclusions from or with regard to any one method
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of analysis. With respect to the comparison of selected companies analysis and
the analysis of selected thrift merger transactions summarized below, no public
company utilized as a comparison is identical to California Financial.
Accordingly, an analysis of publicly traded comparable companies and comparable
business combinations is not mathematical; rather it involves complex
considerations and judgments concerning the differences in financial and
operating characteristics of the companies and other factors that could affect
the public trading values of the companies concerned. The analyses do not
purport to be appraisals or to reflect the prices at which California Financial
might actually be sold or the prices at which any securities may trade at the
present time or at any time in the future. In addition, as described above,
Merrill's opinion was just one of many factors taken into consideration by the
California Financial Board.
The projections furnished to Merrill and used by it in certain of its
analyses were prepared by the senior management of California Financial.
California Financial does not publicly disclose internal management projections
of the type provided to Merrill in connection with its review of the Merger, and
as a result, such projections were not prepared with a view towards public
disclosure. The projections were based on numerous variables and assumptions
that are inherently uncertain, including, without limitation, factors related to
general economic and competitive conditions, and accordingly, actual results
could vary significantly from those set forth in such projections.
The following is a summary of the material analyses presented by Merrill to
California Financial's Board of Directors on December 8, 1996 (the "Merrill
Lynch Report"), in connection with its fairness opinion.
Summary of Proposal. Merrill reviewed the terms of the proposed
transaction, including the proposed consideration to be paid by Temple-Inland
pursuant to the Agreement and the aggregate transaction value. Based on the
transaction value per share of $30.00, Merrill calculated the price to market,
price to book, price to tangible book and price to earnings multiples, and the
implied deposit premium paid (defined as the transaction value minus the
tangible book value divided by total deposits) in the contemplated transaction.
This analysis yielded a price to market multiple of 1.05x on December 5, 1996, a
price to market multiple 30 days prior of 1.28x, a price to book value multiple
of 1.69x, a price to tangible book value multiple of 1.70x, price to earnings
multiples of 17.03x (based on California Financial earnings, excluding the
impact of the special assessment imposed on savings associations for the Savings
Association Insurance Fund ("SAIF Assessment"), for the twelve months ended
September 30, 1996) and 13.03x (based on California Financial annualized
earnings, excluding the impact of the SAIF Assessment, for the three months
ended September 30, 1996), and an implied deposit premium of 6.41%.
Discounted Dividend Stream Analysis -- California Financial. Using a
discounted dividend stream analysis, Merrill estimated the present value of the
future streams of after tax cash flows that California Financial could produce
on a stand-alone basis from 1997 through 2002 and distribute to stockholders
("dividendable net income"). In this analysis, Merrill assumed that California
Financial performed in accordance with the earnings forecasts provided to
Merrill by California Financial's senior management and that California
Financial's tangible common equity to tangible asset ratio would be maintained
at a minimum 6.4% level (based upon California Financial's present ratio).
Merrill estimated the terminal values for the California Financial Common Stock
at 8.0, 8.5, and 9.0 times California Financial's 2002 estimated operating
income (defined as net income before intangible amortization). The dividendable
net income streams and terminal values were then discounted to present values
using different discount rates (ranging form 13% to 15%) chosen to reflect
different assumptions regarding required rates of return of holders or
prospective buyers of California Financial Common Stock. This discounted
dividend stream analysis indicated a reference range of between $23.73 and
$27.57 per share for California Financial Common Stock. The analysis was based
upon California Financial senior management's projections, which were based upon
many factors and assumptions, many of which are beyond the control of California
Financial. As indicated above, this analysis is not necessarily indicative of
actual values or actual future results and does not purport to reflect the
prices at which any securities may trade at the present or at any time in the
future. Merrill noted that the discounted dividend stream analysis was included
because it is a widely used valuation methodology, but noted that the results of
such methodology are highly dependent upon the numerous assumptions that must be
made, including earnings growth rates, dividend payout rates, terminal values
and discount rates.
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Analysis of Selected Thrift Merger Transactions -- California
Financial. Merrill reviewed publicly available information regarding nine thrift
merger transactions with a value greater than $50 million and less than $500
million that had occurred in the Western United States since January 1, 1994.
These transactions included: AMFED Financial Inc. and First Western Financial;
First Interstate Bancorp and Sacramento Savings Bank; First Interstate Bancorp
and University Savings Bank; Norwest Corporation and AMFED Financial Inc.;
MacAndrews & Forbes Holdings Inc. and SFFed Corp; MacAndrews & Forbes Holdings
Inc. and Home Federal Financial Corp.; Norwest Corporation and Primerit Bank
FSB; Washington Federal, Inc. and Metropolitan Bancorp; and Washington Mutual,
Inc. and United Western Financial Group, Inc. Merrill compared the price to
market value 30 days prior to announcement, price to book value, price to
tangible book value and price to earnings ratios and the implied deposit premium
paid in the contemplated transaction and in such selected thrift merger
transactions. This analysis yielded a range of price to market (30 days prior to
announcement) multiples of 1.11x to 1.42x with a mean of 1.27x and a median of
1.32x (compared with a transaction multiple of 1.28x for California Financial),
a range of price to book value multiples of 0.97x to 1.83x with a mean and
median of 1.43x (compared with a transaction multiple of 1.69x for California
Financial), a range of price to tangible book value multiples of 1.31x to 1.85x
with a mean of 1.56x and a median of 1.55x (compared with a transaction multiple
of 1.70x for California Financial), a range of price to trailing twelve months
earnings multiples of 7.01x to 20.42x with a mean of 12.33x and a median of
13.01x (compared with a transaction multiple of 17.03x for California
Financial), a range of price to latest quarter annualized earnings multiples of
10.47x to 14.96x with a mean of 12.98x and a median of 13.25x (compared with a
transaction multiple of 13.03x for California Financial) and a range of implied
deposit premiums paid of 2.66% to 9.63% with a mean of 5.30% and a median of
5.01% (compared with a transaction multiple of 6.41% for California Financial).
This analysis yielded an overall imputed reference range per share of California
Financial common stock of $12.34 to $36.38, and $21.70 to $30.39 based on the
mean and median imputed range.
Merrill also reviewed publicly available information regarding four thrift
merger transactions with a value greater than $25 million that had occurred in
California since January 1, 1996. These transactions included: Luther Burbank
Savings and Loan Association and NHS Financial; Cathay Bancorporation and First
Public Savings Bank; Washington Mutual, Inc. and Keystone Holdings; and
MacAndrews and Forbes Holding, Inc. and Cal Fed Bancorp. Merrill compared the
price to market value 30 days prior to announcement, price to book value, price
to tangible book value and price to earnings ratios and the implied deposit
premium paid in the contemplated transaction and in such selected thrift merger
transactions. This analysis yielded a range of price to market (30 days prior to
announcement) multiples of 1.24x to 1.31x with a mean and median of 1.28x
(compared with a transaction multiple of 1.28x for California Financial), a
range of price to book value multiples of 1.17x to 1.71x with a mean of 1.45x
and a median of 1.46x (compared with a transaction multiple of 1.69x for
California Financial), a range of price to tangible book value multiples of
1.17x to 1.71x with a mean of 1.45x and a median of 1.46x (compared with a
transaction multiple of 1.70x for California Financial), a range of price to
trailing twelve months earnings multiples of 11.05x to 17.53x with a mean of
13.66x and a median of 12.40x (compared with a transaction multiple of 17.03x
for California Financial), a range of price to latest quarter annualized
earnings multiples of 5.34x to 15.18x with a mean of 11.11x and a median of
11.96x (compared with a transaction multiple of 13.03x for California Financial)
and a range of implied deposit premiums paid of 2.95% to 5.46% with a mean of
3.98% and a median of 3.75% (compared with a transaction multiple of 6.41% for
California Financial). This analysis yielded an overall imputed reference range
per share of California Financial Common Stock of $12.24 to $34.83, and $21.82
to $29.02 based on the mean and median imputed range.
No company or transaction used in the above analysis as a comparison is
identical to California Financial or the contemplated transaction. Accordingly,
an analysis of the results of the forgoing necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of the companies to which they are being compared.
Comparison of Selected Comparable Companies -- California
Financial. Merrill compared selected operating and stock market results of
California Financial to the publicly available corresponding data of
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certain other companies located in the Western United States that Merrill deemed
to be relevant, including American First Financial Fund, CENFED Financial Corp.,
Downey Financial Corp. and First Republic Bancorp (collectively the "California
Financial Western Composite"). This comparison showed, among other things, that
(i) as of December 5, 1996, the ratio of California Financial's market price to
fully taxed earnings (excluding the impact of the SAIF Assessment) for the
twelve months ended September 30, 1996 was 16.19x, compared to a mean of 11.98x
for the California Financial Western Composite, (ii) as of December 5, 1996, the
ratio of California Financial's market price to book value per share at
September 30, 1996, was 1.56x, compared to a mean of 1.22x for the California
Financial Western Composite, (iii) as of December 5, 1996, the ratio of
California Financial's market price to tangible book value per share at
September 30, 1996, was 1.56x, compared to a mean of 1.23x for the California
Financial Western Composite, (iv) as of December 5, 1996, the ratio of
California Financial's market price to estimated earnings for the twelve month
period ending December 31, 1997, was 10.36x, compared to a mean of 10.22x for
the California Financial Western Composite (assuming reported average earnings
estimates based on data from First Call, for both California Financial and the
California Financial Western Composite), (v) for the nine month period ended
September 30, 1996, California Financial's annualized return on average assets
(excluding the impact of the SAIF Assessment) was 0.85% compared to a mean of
0.74% for the California Financial Western Composite, (vi) for the nine month
period ended September 30, 1996, California Financial's annualized return on
average equity was 12.64% compared to a mean of 11.77% for the California
Financial Western Composite, (vii) at September 30, 1996, California Financial's
ratio of nonperforming loans to total loans was 1.10% compared with a mean of
1.21% for the California Financial Western Composite and (viii) at September 30,
1996, California Financial's ratio of loan loss reserves to nonperforming assets
was 45.60% compared with a mean of 47.87% for the California Financial Western
Composite.
Merrill also compared selected operating and stock market results of
California Financial to the publicly available corresponding data of certain
other companies that Merrill deemed to be relevant, including York Financial
Corp., Andover Bancorp, Reliance Bancorp, D&N Financial Corp., St. Francis
Capital, First Palm Beach Bancorp, MASSBANK, Magna Bancorp, Eagle Financial
Capital Corp., First Federal Capital Corp., American Federal Bank, First
Financial Holdings, Haven Bancorp and Interwest Bancorp. (collectively the
"California Financial Nationwide Composite"). This comparison showed, among
other things, that (i) as of December 5, 1996, the ratio of California
Financial's market price to fully taxed earnings (excluding the impact of the
SAIF Assessment) for the twelve months ended September 30, 1996, was 16.19x,
compared to a mean of 11.97x for the California Financial Nationwide Composite,
(ii) as of December 5, 1996, the ratio of California Financial's market price to
book value per share at September 30, 1996, was 1.56x, compared to a mean of
1.51x for the California Financial Nationwide Composite, (iii) as of December 5,
1996, the ratio of California Financial's market price to tangible book value
per share at September 30, 1996, was 1.56x, compared to a mean of 1.62x for the
California Financial Nationwide Composite, (iv) as of December 5, 1996, the
ratio of California Financial's market price to estimated earnings for the
twelve month period ending December 31, 1997, was 10.36x, compared to a mean of
10.77x for the California Financial Nationwide Composite (assuming reported
average Wall Street earnings estimates for both California Financial and the
California Financial Nationwide Composite), (v) for the nine month period ended
September 30, 1996, California Financial's annualized return on average assets
(excluding the impact of the SAIF Assessment) was 0.85% compared to a mean of
1.02% for the California Financial Nationwide Composite, (vi) for the nine month
period ended September 30, 1996, California Financial's annualized return on
average equity was 12.64% compared to a mean of 13.16% for the California
Financial Nationwide Composite, (vii) at September 30, 1996 California
Financial's ratio of nonperforming loans to total loans was 1.10% compared with
a mean of 1.07% for the California Financial Nationwide Composite and (viii) at
September 30, 1996, California Financial's ratio of loan loss reserves to
nonperforming assets was 45.60% compared with a mean of 102.02% for the
California Financial Nationwide Composite.
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Mark-to-Market Analysis -- California Financial. Merrill evaluated the
estimated market value of key components of California Financial's balance
sheet, including, among other things, California Financial's investment
securities and mortgage-backed securities portfolios, loan portfolio, and other
borrowings. This analysis indicated a valuation of approximately $22.01 per
share of California Financial common stock (on a fully diluted basis), before
any credit quality adjustments related to the portfolios analyzed or deposit
premium attributable to the franchise.
Discounted Cash Flow Analysis -- Temple-Inland. Using a discounted cash
flow analysis, Merrill estimated the present value of the future streams of
after tax flows that Temple-Inland could produce on a stand-alone basis from
1997 through 2002. In this analysis, Merrill used the normalized projected net
income for Temple-Inland, which was based on Temple-Inland's average of the
assumed peak income (based on the earnings of 1995) and trough income (based on
the average Wall Street earnings estimate of 1996 grown at 8% through 2002).
Merrill estimated the terminal values based on growth rates in perpetuity for
the Temple-Inland Common Stock of 6.0%, 6.5% and 7.0% of Temple-Inland's 2002
estimated unlevered free cash flow (defined as normalized pre-tax net income
effected at 38% plus estimated interest expense, depreciation and depletion,
deferred taxes and capital expenditures). The unlevered free cash flow streams
and terminal values were then discounted to present values using different
discount rates (ranging from 12% to 13%) chosen to reflect different required
rates of return of holders or prospective buyers of Temple-Inland Common Stock.
This discounted cash flow analysis indicated a reference range of between $51.31
and $78.40 per share for Temple-Inland Common Stock as compared to the $54.00
per share value it closed at on the NYSE on December 6, 1996. As indicated
above, this analysis did not purport to be indicative of actual values or actual
future results and does not purport to reflect the prices at which any
securities may trade at the present or at any time in the future.
Comparison of Selected Comparable Companies -- Temple-Inland. Merrill also
compared selected operating and stock market results of Temple-Inland to the
publicly available corresponding data of certain other companies that Merrill
deemed to be relevant, including Georgia-Pacific, International Paper, Jefferson
Smurfit, Union Camp, Weyerhaeuser and Willamette Industries (collectively the
"Temple-Inland Composite"). This comparison showed, among other things that (i)
as of December 5, 1996, the ratio of Temple-Inland's market price to fully taxed
earnings for the twelve months ended December 31, 1995, was 13.0x, compared to a
mean of 11.1x for the Temple-Inland Composite, (ii) as of December 5, 1996, the
ratio of Temple-Inland's market price to estimated earnings for the twelve month
period ended December 31, 1996, was 21.3x compared to a mean of 23.9x for the
Temple-Inland Composite (assuming reported average Wall Street earnings
estimates for both Temple-Inland and the Temple-Inland Composite), (iii) as of
December 5, 1996, the ratio of Temple-Inland's market price to estimated
earnings for the twelve month period ending December 31, 1997, was 17.4x,
compared to a mean of 18.6x for the Temple-Inland Composite (assuming reported
average Wall Street earnings estimates for both Temple-Inland and the
Temple-Inland Composite).
In connection with its opinion dated as of the date of this Proxy
Statement, Merrill performed procedures to update, as necessary, certain of the
analyses described above and reviewed the assumptions on which such analyses
described above were based and the factors considered in connection therewith.
Merrill did not perform any analyses in addition to those described above in
updating its December 8, 1996 opinion.
Merrill has been retained by the Board of Directors of California Financial
as an independent contractor to act as financial adviser to California Financial
with respect to the Merger. Merrill is a nationally recognized investment
banking firm that, among other things, regularly engages in the valuation of
businesses and securities, including banking institutions, in connection with
mergers and acquisitions. In addition, within the past three years, Merrill has
provided financial advisory, investment banking and other services to California
Financial and has received customary fees for the rendering of such services. In
the ordinary course of its securities business, Merrill and its affiliates may
trade debt and/or equity securities of California Financial or Temple-Inland for
its own account and the account of its customers, and accordingly, may from time
to time hold a long or short position in such securities.
Compensation of Financial Advisor. California Financial and Merrill have
entered into a letter agreement dated July 16, 1996, relating to the services to
be provided by Merrill in connection with the Merger.
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California Financial has agreed to pay Merrill fees as follows: (i) a cash fee
of $75,000, which was paid upon the execution of the letter agreement, (ii) a
cash fee of $200,000, which was payable upon execution of the Agreement; and
(iii) an additional cash fee of $1,263,254 payable at the closing of the Merger.
In such letter, California Financial also agreed to reimburse Merrill for its
reasonable out-of-pocket expenses incurred in connection with its advisory work
including the reasonable fees and disbursements of its legal counsel, and to
indemnify Merrill against certain liabilities relating to or arising out of the
Merger, including liabilities that might also arise under the federal securities
laws.
SURRENDER AND EXCHANGE OF STOCK CERTIFICATES
If the Merger is approved at the Meeting, each stockholder will receive a
Form of Election/Letter of Transmittal that contains instructions for the
exchange of California Financial Common Stock certificates for cash and/or
certificates representing Temple-Inland Common Stock. Until so exchanged, each
certificate representing California Financial Common Stock outstanding
immediately prior to the effective date of the Merger shall be deemed for all
purposes to evidence ownership of the number of shares of Temple-Inland Common
Stock and the amount of cash into which such shares have been converted on the
effective date of the Merger.
California Financial stockholders who cannot locate their California
Financial Common Stock certificates are encouraged to contact Dennis Donald
Geiger, Secretary, California Financial Holding Company, 501 West Weber Avenue,
Stockton, California 95203, telephone: (209) 948-1675 prior to the Meeting. New
certificates will be issued to California Financial stockholders who have
misplaced their certificates only if the stockholder executes an affidavit
certifying that the certificate cannot be located and agreeing to indemnify
California Financial and Temple-Inland (as its successor), against any claim
that may be made against either of them by the owner of the lost certificate(s).
California Financial or Temple-Inland (as its successor) may require a
stockholder to post a bond in an amount sufficient to support the stockholder's
indemnification obligation. Stockholders who have misplaced their stock
certificates and stockholders who hold certificates in names other than their
own are encouraged to resolve those matters prior to the Effective Date of the
Merger in order to avoid delays in receiving their Proposed Merger Consideration
if the Merger is approved and consummated.
EMPLOYEE BENEFITS
Temple-Inland and Guaranty Federal have agreed as part of the Agreement
that Guaranty Federal will offer to all employees of California Financial and
Stockton Savings who are employed by Guaranty Federal after the Effective Date
the same employee benefits as those offered by Guaranty Federal to its
employees, except that employees of California Financial and Stockton Savings
will not be required to wait for any period in order to be eligible to
participate in the Temple-Inland flex plan (including its medical and dental
coverage). Guaranty Federal will also give California Financial and Stockton
Savings employees full credit for their years of service (for both eligibility
and vesting) with California Financial and Stockton Savings for purposes of
Temple-Inland's 401(k) plans (to the extent permitted under the terms of the
plans). In connection with the agreed termination of the Stockton Savings
Pension Plan, California Financial or Stockton Savings will contribute $800,000
to the plan. To the extent that such contribution is in excess of the maximum
deductible contribution allowed for such year under applicable laws and
regulations, such excess amount shall be considered to be a contribution for the
1996 plan year.
California Financial and Stockton Savings maintain an employee severance
policy to encourage their employees to continue their employment. Pursuant to
such severance policy, employees will upon termination receive severance
benefits based on years of service and level of compensation. Pursuant to the
Agreement, Temple-Inland and Guaranty Federal have agreed to assume and pay
without modification for a period of twelve months after the effective date of
the Merger all obligations of California Financial and Stockton Savings under
the severance policy.
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EXPENSES
Temple-Inland and California Financial have agreed that all expenses
(except for the printing of this Proxy Statement-Prospectus) incurred in
connection with or related to the Agreement, shall be borne by the party that
incurred such expenses. The parties have agreed to share equally the cost of
printing this Proxy Statement-Prospectus. California Financial has retained
Morrow & Co., Inc. to aid in the solicitation of proxies at a fee of $5,000 plus
out-of-pocket expenses. If California Financial determines that additional
efforts by Morrow are necessary for the solicitation of proxies, California
Financial may increase the amount it pays to Morrow.
REPRESENTATIONS AND WARRANTIES; CONDITIONS TO THE MERGER; WAIVER
The Agreement contains representations and warranties by California
Financial regarding, among other things, its organization, authority to enter
into the Agreement, capitalization, properties, financial statements, pending
and threatened litigation, contractual obligations and contingent liabilities.
The Agreement also contains representations and warranties by Temple-Inland
regarding, among other things, its organization, authority to enter into the
Agreement, capitalization, financial statements and public reports. Except as
otherwise provided in the Agreement, these representations and warranties will
not survive the effective date of the Merger.
The obligations of Temple-Inland and California Financial to consummate the
Merger are conditioned upon, among other things, approval of the Agreement by
California Financial's stockholders; the receipt of necessary regulatory
approvals, including the approval of the OTS; the receipt of an opinion to the
effect that the Merger, when consummated in accordance with the terms of the
Agreement, will constitute a tax deferred reorganization within the meaning of
Section 368 of the Code, that the Merger shall not result in gain or loss to
Temple-Inland or California Financial, and that, to the extent California
Financial Common Stock is exchanged for Temple-Inland Common Stock, California
Financial's stockholders will recognize no gain or loss for federal income tax
purposes with respect to such exchange; the effectiveness under the Securities
Act of a registration statement relating to the Temple-Inland Common Stock to be
issued in connection with the Merger and the absence of a stop order suspending
such effectiveness; the absence of an order, decree or injunction enjoining or
prohibiting the consummation of the Merger; the receipt of all required state
securities law permits or authorizations; the accuracy of the representations
and warranties set forth in the Agreement as of the Closing Date; the listing of
the Temple-Inland Common Stock to be issued in the Merger on the NYSE; the
receipt of certain opinions of counsel; and in the case of California Financial,
the receipt of the fairness opinion of Merrill.
Except with respect to any required stockholder or regulatory approval,
substantially all of the conditions to consummation of the Merger may be waived
at any time by the party for whose benefit they were created, and the Agreement
may be amended or supplemented at any time by written agreement of the parties.
Any material change in the terms of the Merger after the Meeting, including
reducing the Exchange Rate, would require a resolicitation of votes from
California Financial stockholders.
REGULATORY AND OTHER APPROVALS FOR THE MERGER
Temple-Inland is a registered thrift holding company and as such is
regulated by the OTS. The approval of the OTS of the Merger is required in order
to consummate the Merger, and the Merger must be consummated within 120 calendar
days after such approval is obtained. An application for approval of the Merger
by the OTS was filed on February 24, 1997.
The issuance of the shares of Temple-Inland Common Stock offered pursuant
to the Proxy Statement-Prospectus will be registered with the Commission and the
state securities regulators in those states that require such registration. The
shares will also be listed on the NYSE and the PSE.
The regulatory approvals sought in connection with the Merger may be
obtained or denied prior to or after the Meeting. The vote on the Merger at the
Meeting is not dependent or conditioned upon receipt of any such approvals prior
to the Meeting. Even if the Merger is approved at the Meeting, there is a
possibility that
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it will not be consummated. Failure to receive the requisite regulatory
approvals will result in a termination of the Agreement.
BANK MERGER
The approval of the OTS is also required to consummate the Bank Merger.
Guaranty Federal and Stockton Savings must wait at least 15 days after the date
of the OTS approval of the Bank Merger before they may consummate the Bank
Merger. During this 15-day period, the Department of Justice may object to the
Merger on antitrust grounds.
BUSINESS PENDING THE MERGER
Under the terms of the Agreement, neither California Financial nor Stockton
Savings may, without the prior written consent of Temple-Inland or as otherwise
provided in the Agreement: (i) issue, sell, or grant any additional shares of
capital stock or any options or other rights to purchase or acquire shares of
capital stock; (ii) declare, set aside or pay any dividend or other distribution
on the California Financial Common Stock other than regular quarterly dividends
not to exceed $0.11 per share; (iii) enter into employment contracts with
directors, officers or employees or otherwise agree to increase the compensation
of or pay any bonus to such persons except in accordance with existing
agreements, past practices or as provided for in the Agreement; (iv) enter into
or substantially modify any employee benefits plans; (v) amend their Certificate
of Incorporation, Federal Stock Charter or Bylaws; (vi) close any existing
branch locations or establish any branch or other banking offices; (vii) make
any capital expenditure(s) in excess of $50,000; (viii) merge with any other
company or bank or liquidate or otherwise dispose of its assets; or (ix) acquire
another company or bank (except in connection with foreclosures of bona fide
loan transactions). In addition, California Financial may not solicit bids or
other transactions that would result in a merger of California Financial or
Stockton Savings with an entity other than Temple-Inland or Guaranty Federal.
EFFECTIVE DATE OF THE MERGER; TERMINATION
After all conditions to consummation of the Merger have been satisfied or
waived, the effective date of the Merger shall be the date and time specified in
the certificate of merger relating to the Merger filed with the Secretary of
State of the State of Delaware (the "Effective Date").
Prior to the Effective Date, the Agreement may be terminated by either
party, whether before or after approval of the Agreement and the Merger by
California Financial's stockholders, for the following reasons: (i) in the event
that a breach by the other party of any representation, warranty or covenant
that has not been cured within the period allowed by the Agreement results in a
material adverse effect; (ii) if any of the conditions precedent to the
obligations of such party to consummate the Merger have not been satisfied,
fulfilled or waived as of the Effective Date; (iii) if any application for any
required federal or state regulatory approval has been denied, and the time for
all appeals of such denial has expired; (iv) if the stockholders of California
Financial fail to approve the Merger at the Meeting; or (v) if the Merger is not
consummated by September 30, 1997. The Agreement also may be terminated at any
time by the mutual consent of the parties. In the event of termination, the
Agreement becomes null and void, except that certain provisions thereof relating
to expenses and confidentiality and the accuracy of information provided for
inclusion in the Registration Statement of which this Proxy Statement-Prospectus
is a part will survive any such termination and any such termination does not
relieve any breaching party from liability for any uncured breach of any
covenant or agreement giving rise to such termination.
STOCK OPTION AGREEMENT
In connection with the execution of the Agreement, California Financial
granted to Temple-Inland an option (the "Option"), exercisable under certain
circumstances, to purchase 940,095 shares of California Financial Common Stock,
representing approximately 19.9 percent of such shares presently outstanding, at
a price of $27.25 per share. A copy of the Stock Option Agreement is included as
Appendix E to this Proxy Statement-Prospectus.
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Temple-Inland may exercise the Option, in whole or in part, in accordance
with and to the extent permitted by applicable law at any time or from time to
time but only upon or after the occurrence of a Purchase Event (as that term is
defined below); provided, that to the extent the Option shall not have been
exercised, it shall terminate and be of no further force and effect upon the
earliest to occur (such earliest date, the "Expiration Date") of (i) the
termination of the Agreement under certain circumstances; (ii) the effective
date of the Merger, or (iii) eighteen months following the occurrence of the
earliest to occur of (A) the date of any termination of the Agreement under
reasons other than those described in (i) above or (B) the date of first
occurrence of a Purchase Event, as defined below. Notwithstanding the foregoing,
California Financial shall not be obligated to issue any shares upon exercise of
the Option (i) in the absence of any required governmental or regulatory waiver,
consent or approval necessary for California Financial to issue such shares or
for Temple-Inland or any transferee to exercise the Option or prior to the
expiration or termination of any waiting period required by law, or (ii) so long
as any injunction or other order, decree or ruling issued by any federal or
state court of competent jurisdiction is in effect which prohibits the sale or
delivery of the shares to be issued upon exercise of the Option.
As used in the Stock Option Agreement, a "Purchase Event" shall have
occurred when: (i) California Financial or Stockton Savings enters into an
agreement with any person (other than Temple-Inland or any of its subsidiaries)
pursuant to which such person would: (x) merge or consolidate with, or enter
into any similar transaction with California Financial or Stockton (y) purchase,
lease or otherwise acquire all or substantially all of the assets of California
Financial or Stockton Savings or (z) purchase or otherwise acquire securities
representing 10 percent or more of the voting shares of California Financial or
Stockton Savings (the transactions referred to in subparagraph (x), (y) and (z)
are referred to as an "Acquisition Transaction"); (ii) any person or group of
persons (other than Temple-Inland or any of its subsidiaries) acquires the
beneficial ownership or the right to acquire beneficial ownership of securities
representing 15 percent or more of the voting shares of California Financial or
Stockton Savings; (iii) the stockholders of California Financial fail to approve
the Merger, or under certain circumstances, the withdrawal or modification (in a
manner adverse to Temple-Inland) of the recommendation of the California
Financial Board of Directors that the stockholders of California Financial
approve the Merger; (iv) California Financial or Stockton Savings shall have
willfully breached any covenant or obligation contained in the Agreement in
anticipation of engaging in a Purchase Event, and following such breach,
Temple-Inland would be entitled to terminate the Agreement; or (v) a public
announcement by California Financial or Stockton Savings of the authorization,
recommendation or endorsement by California Financial of an Acquisition
Transaction, exchange offer or tender offer or a public announcement by
California Financial of an intention to authorize, recommend or announce an
Acquisition Transaction, exchange offer or tender offer. As of the date hereof,
no Purchase Event has occurred.
SHAREHOLDERS' AGREEMENT
In connection with the Agreement, each of the directors of California
Financial and their spouses, together holding an aggregate of 523,798 shares or
11.0% of California Financial Common Stock, as of the Record Date, have entered
into a Shareholders' Agreement with Temple-Inland (the "Shareholders'
Agreement"). Pursuant to the Shareholders' Agreement, such persons have agreed
to vote or cause to be voted all shares of California Financial Common Stock
owned or acquired by them, in favor of the Merger and the Agreement and other
matters contemplated by the Agreement. In addition, such persons have agreed to
advise all holders of California Financial Common Stock to reject any subsequent
proposal or offer relating to any Competing Transaction, as defined in the
Agreement. Such persons have also agreed not to sell, transfer or otherwise
dispose of any of their shares of California Financial Common Stock without the
prior written consent of Temple-Inland.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
On the Effective Date, California Financial will be merged with and into
Temple-Inland and Stockton Savings will be merged with and into Guaranty
Federal. The composition of the Board of Directors of Temple-Inland is not
expected to change as a result of the Merger, although Temple-Inland and
California Financial
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have agreed that Mr. Robert V. Kavanaugh, a current member of the Board of
Directors of California Financial, will be elected to serve on the Board of
Guaranty Federal. In addition, Mr. Kavanaugh has been offered employment as the
President of the Stockton Division of Guaranty Federal following the Merger.
Certain information regarding the directors of Temple-Inland nominated for
election at its annual meeting of stockholders to be held on May 2, 1997, is
contained in documents incorporated herein by reference. See "Available
Information."
CERTAIN DIFFERENCES IN RIGHTS OF STOCKHOLDERS
If the stockholders of California Financial approve the Merger and the
Merger is subsequently consummated, all stockholders of California Financial who
receive shares of Temple-Inland Common Stock in the Merger, which excludes any
stockholders who exercise and perfect appraisal rights, will become stockholders
of Temple-Inland. As stockholders of Temple-Inland, their rights will be
governed by and subject to Temple-Inland's Certificate of Incorporation and
Bylaws, rather than California Financial's Certificate of Incorporation and
Bylaws. The following is a summary of the principal differences between the
rights of stockholders of California Financial and Temple-Inland not described
elsewhere in this Proxy Statement-Prospectus. Both Temple-Inland and California
Financial are Delaware corporations. Therefore, as stockholders of
Temple-Inland, the stockholders of California Financial will have the same basic
rights except as discussed below.
Stock. The total number of shares of all classes of stock that
Temple-Inland shall have authority to issue is 225 million, of which 25 million
shares shall be designated as Preferred Stock, par value $1.00 per share, and
200 million shares shall be designated as Common Stock, par value $1.00 per
share. The rights, preferences and privileges with respect to shares of Series A
Junior Participating Preferred Stock are set forth in a certificate of
designation filed February 17, 1989. The rights, preferences and privileges with
respect to any other series of Preferred Stock may be determined by the
Temple-Inland Board of Directors. Consequently, shares of Preferred Stock could
be issued in circumstances in which it would make an attempted acquisition of
Temple-Inland more difficult. California Financial is authorized to issue 16
million shares of capital stock, 12 million of which shall be common stock, par
value $0.01 per share, and 4 million of which shall be shares of preferred
stock, par value $0.01 per share.
Liquidity of Stock. The shares of California Financial Common Stock are
traded on the Nasdaq Stock Market. The issuance of the shares of Temple-Inland
Common Stock in the Merger will be registered under applicable securities laws
and may therefore be freely resold by persons who are not "affiliates" of
California Financial or Temple-Inland. See "-- Resale of Temple-Inland Stock."
In addition, the Temple-Inland Common Stock is listed on the NYSE and the PSE
and actively traded on those exchanges. Current quotes of the market price of
Temple-Inland Common Stock are available from brokerage firms and other
securities professionals, as well as other sources, and are published in major
newspapers on a daily basis.
Directors' Qualifications. No individual shall be eligible for election as
a director of Temple-Inland who has attained the age of 72 prior to the date of
such election. No individual who is or becomes a business competitor or who is
or becomes affiliated with, employed by or a representative of any individual,
corporation, association, partnership, firm, business enterprise or other entity
or organization that the Temple-Inland Board determines to be in competition
with Temple-Inland shall be eligible for election as a director of Temple-
Inland. Any financial institution having branches or affiliates within any state
in which Guaranty Federal or any of its subsidiaries operates or having
(together with its affiliates) total assets or total deposits exceeding $500
million shall be presumed to be a business competitor of Temple-Inland, unless
the Temple-Inland Board determines otherwise. California Financial has no
director qualifications specified in their charter documents.
Number of Directors. The number of Temple-Inland directors shall be as
determined, from time to time, by resolution of the Board of Directors, but in
no event shall there be fewer than three directors. The California Financial
Board shall consist of that number of directors, not less than five nor more
than twenty-five, as may from time to time be prescribed by the California
Financial Board.
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Notice of Stockholders' Meeting. Written notice of the place, day and hour
of a California Financial meeting, and in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given not less
than 10 nor more than 60 days before the date of the meeting, either personally
or by mail, to each stockholder entitled to vote at the meeting. Temple-Inland
has similar provisions.
Removal of Directors. Stockholders of Temple-Inland may remove a director
for cause (defined as willful and continuous failure to substantially perform
such director's duties to the corporation or the willful engagement in gross
misconduct materially and demonstrably injurious to Temple-Inland) by the vote
of a majority of the total voting power. One or more directors of California
Financial may be removed, with cause or without cause, by the affirmative vote
of a majority of the shares entitled to vote on the election of directors
present at a meeting expressly called for that purpose.
Amendment of Charter and Bylaws. Temple-Inland's Certificate of
Incorporation may be amended by a vote of a majority of the voting power present
at any meeting called for that purpose, with the exception of certain provisions
dealing with transactions with interested parties, classes of directors, and
denial of the ability of the stockholders to act by written consent, which
require a vote of 80% of the voting power. California Financial's Certificate of
Incorporation may be amended by a vote of two-thirds of the issued and
outstanding shares of California Financial Common Stock.
The Bylaws of Temple-Inland may be amended or repealed by a vote of 80% of
the total voting power outstanding or by a vote of the majority of the directors
of Temple-Inland. The California Financial Bylaws may be altered, amended, or
repealed and new Bylaws may be adopted by a vote of two-thirds of the total
voting power outstanding or by a vote of two-thirds of the directors of
California Financial.
Special Meetings of Stockholders. Except as may otherwise be required by
law, special meetings of the stockholders of Temple-Inland may be called by the
Chairman of the Board or the Secretary at the request of a majority of the Board
of Directors. A special meeting of stockholders of California Financial may be
called at any time by the Chairman of the Board and shall be called by the
president, vice president, or the secretary upon the request of the holders of
not less than ten percent (10%) of all shares entitled to vote at such meeting.
Stockholder Proposals. Temple-Inland's Bylaws contain certain provisions
expressly allowing stockholders to submit stockholder proposals and to nominate
individuals for election as directors, under certain circumstances and provided
the stockholder complies with all of the conditions set forth in those
provisions. California Financial's Bylaws contain no specific provisions
relating to stockholder proposals.
Inspection Rights. At least ten days before each meeting of California
Financial stockholders, the officer or agent having charge of the stock transfer
books shall prepare a complete list of California Financial stockholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, including the address of each stockholder and the number of
voting shares held by each stockholder. For a period of ten days prior to such
meeting, such list shall be kept on file at the registered office of California
Financial and shall be subject to inspection by any stockholder during usual
business hours. Such list shall be produced at such meeting, and at all times
during such meeting shall be subject to inspection by any stockholder. Similar
rights exist for Temple-Inland stockholders.
Election of Directors. California Financial's Bylaws state that any
directorship to be filled by reason of an increase in the number of directors
shall be filled by election at an annual meeting of stockholders or at a special
meeting called for that purpose, or may be filled by the Board of Directors for
a term of office continuing until the next election of one or more directors by
the stockholders; provided, however, that the Board of Directors may not fill
more than two directorships created by an increase in the Board during the
period between any two successive annual meetings of stockholders.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The terms of the Agreement include certain provisions that protect the
officers and directors of California Financial and Stockton Savings from and
against liability for actions arising while they served in those capacities for
California Financial. The Agreement provides for indemnification of such persons
to the greatest extent permitted by Delaware law as in effect on the Effective
Date or, to the extent any amendment to such law may expand such indemnification
rights, as hereinafter in effect.
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Messrs. J. Corbin Shepherd and C.J. Hironymous, who are currently serving
Stockton Savings in the capacity of Directors Emeriti, and Messrs. David K. Rea,
Thomas Egan and Jerald Kirsten, who have qualified for Emeritus status, shall
each receive a single lump-sum payment in the amount of $26,000 from California
Financial immediately prior to the Effective Date in consideration for the
termination of their status as directors emeriti. Following the Closing,
Guaranty Federal has agreed to provide to Messrs. Shepherd, Hironymous, Rea,
Egan and Kirsten health insurance benefits comparable to the health insurance
benefits provided as of the date hereof by California Financial to such
individuals. In the event Guaranty Federal is unable prior to Closing to provide
such benefits, each such individual shall be entitled to receive a lump-sum
payment of $10,500 from California Financial or Stockton Savings prior to the
Effective Time and Temple-Inland shall have no further obligation to provide
such health benefits. Mr. Rea has entered into a non-competition agreement in
consideration for the receipt of such benefits.
As contemplated by the Agreement, California Financial will contribute the
sum of $800,000 in cash into the trust fund for the Stockton Savings Bank
Defined Benefit Pension Plan (the "Stockton Pension Plan") for the 1995 plan
year. To the extent that such contribution is in excess of the maximum
deductible contribution allowed for such year under applicable laws and
regulations, such excess amount shall be considered to be a contribution for the
1996 plan year. Prior to the Effective Date, California Financial shall take
such action as may be necessary or appropriate to "freeze" the net benefit
liability (in excess of plan assets) under the Stockton Pension Plan to the
approximate $2.5 million liability that existed as of July 1, 1996.
California Financial's Incentive Stock Plan (the "Option Plan") provides
that in the event of a change of control, including that which will occur upon
consummation of the Merger, each optionee may exercise his stock options with
respect to the full number of shares without regard to any vesting provisions
contained in the optionee's agreement. As of the Effective Date, all outstanding
stock options will be exercised, canceled, or cashed out.
Messrs. David K. Rea, Robert V. Kavanaugh, Mark Barawed, W. Henry Claussen,
Morris W. Knight, Robin Wooten and Mesdames Jane R. Butterfield and Janet M.
Williams have severance agreements with California Financial that provide for
certain payments in the event of a change of control of California Financial,
such as that which would occur pursuant to the Merger. As a result, these
individuals will be entitled to payments equal to an aggregate of approximately
$2.4 million. Mr. Robert V. Kavanaugh has been selected to serve on the Board of
Directors of Guaranty Federal and has accepted an offer of employment as the
President of the Stockton Division of Guaranty Federal following the Merger. Mr.
Kavanaugh will continue to receive his current annual base salary of $255,000
with the opportunity for bonus as determined by Guaranty Federal's Board of
Directors.
Immediately prior to the Effective Date, California Financial shall pay all
benefits accrued and owed under the Executive Compensation Plan ("ECP") to Mr.
Robert Kavanaugh and Ms. Janet Williams, respectively, from January 1, 1997,
through the time of such payment. Upon making such payment, California Financial
shall take appropriate action to terminate the ECP. The parties anticipate that
Mr. Kavanaugh will receive $22,500 and Ms. Williams will receive $12,000 under
the ECP.
MATERIAL TAX CONSEQUENCES
The following summary description of the material income tax consequences
of the Merger is not intended to be a complete description of the federal income
tax consequences of the Merger. Tax laws are complex, and each stockholder's
individual circumstances may affect the tax consequences to such stockholder. In
addition, no information is provided with respect to the tax consequences of the
Merger under applicable state, local or other tax laws. Each stockholder is
therefore urged to consult that person's own tax advisor regarding the tax
consequences of the Merger.
Consummation of the Merger is conditioned upon the receipt of an opinion to
the effect that the Merger, when consummated in accordance with the terms of the
Agreement, will constitute a tax-deferred reorganization within the meaning of
Section 368 of the Code, that the Merger shall not result in gain or loss to
Temple-Inland, California Financial or Stockton Savings, and that the exchange
of California Financial Common Stock for Temple-Inland Common Stock will not
give rise to the recognition of gain or loss for federal income
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tax purposes to California Financial's stockholders with respect to such
exchange. See "Proposal Requesting Approval of the Merger -- Representations and
Warranties; Conditions to the Merger; Waiver."
If the Merger constitutes a reorganization within the meaning of Section
368 of the Code: (i) no gain or loss will be recognized by California Financial,
Stockton Savings, Temple-Inland or Guaranty Federal by reason of the Merger;
(ii) a stockholder of California Financial will not recognize any gain or loss
for federal income tax purposes to the extent Temple-Inland Common Stock is
received in the Merger in exchange for California Financial Common Stock; (iii)
the tax basis in the Temple-Inland Common Stock received by a stockholder of
California Financial will be the same as the tax basis in the California
Financial Common Stock surrendered in exchange therefor; and (iv) the holding
period, for federal income tax purposes, for Temple-Inland Common Stock received
in exchange for California Financial Common Stock will include the period during
which the stockholder held the California Financial Common Stock surrendered in
the exchange, provided that the California Financial Common Stock was held as a
capital asset at the Effective Date.
The parties have received the opinion of Manatt, Phelps & Phillips, LLP, to
the effect that the Merger, if consummated in accordance with the terms of the
Agreement, will constitute a reorganization for purposes of Section 368 of the
Code as required by the Agreement. A copy of the form of opinion of Manatt,
Phelps & Phillips, LLP, in this regard is attached hereto as Appendix D. As
noted in the opinion, the opinion is based upon certain representations and
assumptions described therein. Stockholders of California Financial are urged to
review the full text of the opinion of Manatt, Phelps & Phillips, LLP, attached
hereto as Appendix D with regard to the tax consequences of the Merger to them.
Subject to the assumptions discussed above, the federal income tax
consequences of the Merger to a stockholder of California Financial will depend
on whether the stockholder receives cash, shares of Temple-Inland Common Stock,
or both in exchange for his or her shares of California Financial Common Stock.
This will depend, in part, on certain elections available to the stockholders.
If a stockholder of California Financial receives cash in exchange for all
shares of California Financial Common Stock actually owned by him or her, the
federal income tax consequences will also depend on whether any shares of
California Financial Common Stock constructively owned by that stockholder
(pursuant to the constructive ownership rules of Section 318 of the Code) are
exchanged for cash or for shares of Temple-Inland Common Stock. If a stockholder
of California Financial receives both cash and shares of Temple-Inland Common
Stock in exchange for California Financial Common Stock actually owned by that
stockholder, the federal income tax consequences may also depend both upon
whether he or she already owns any shares of Temple-Inland Common Stock and
whether any such stock may be attributed to him or her pursuant to the
constructive ownership rules of Section 318 of the Code. Therefore, a
stockholder of California Financial must take into account the consideration
received in exchange for shares of California Financial Common Stock actually
owned by him or her (including shares of California Financial Common Stock owned
by him or her that are held on his or her behalf by brokerage firms, banks or
other agents) and may also be required to take into account (1) the
consideration received by certain individuals and entities whose stock ownership
is attributed to that stockholder (as described in "Constructive Ownership"
below) in exchange for their shares of California Financial Common Stock and (2)
any shares of Temple-Inland Common Stock from whatever source of which the
stockholder is the actual owner or constructive owner (as described in
"Constructive Ownership" below).
Receipt of Temple-Inland Common Stock for all California Financial Common
Stock Actually Owned. A stockholder of California Financial who receives shares
of Temple-Inland Common Stock in exchange for all the shares of California
Financial Common Stock actually owned by that stockholder (without regard to any
cash received in lieu of a fractional share of Temple-Inland Common Stock) will
recognize no gain or loss as a result of the Merger (except with respect to any
cash received in lieu of a fractional share). The basis of the Temple-Inland
Common Stock received by that stockholder (including any fractional interest)
will be the same as the basis of the shares of the California Financial Common
Stock exchanged therefor, and the holding period of those shares of
Temple-Inland Common Stock will include the holding period of the California
Financial Common Stock surrendered in the exchange, provided the latter shares
were held by the stockholder as a capital asset. The foregoing result will
obtain regardless of whether the stockholder is treated as owning other shares
under the constructive ownership rules described in "Constructive Ownership"
below.
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Receipt of Cash for All California Financial Common Stock Actually Owned.
If cash is received for all shares of California Financial Common Stock actually
owned by a stockholder of California Financial and either: (1) that stockholder
is not treated as owning any additional shares of California Financial Common
Stock pursuant to the constructive ownership rules of Section 318 of the Code;
or (2) none of the shares of California Financial Common Stock treated as owned
by that stockholder, pursuant to the constructive ownership rules of Section 318
of the Code, is exchanged for shares of Temple-Inland Common Stock in the
Merger, that stockholder will recognize gain or loss in an amount equal to the
difference between the cash received by the stockholder and the basis for the
shares of California Financial Common Stock exchanged. That gain or loss will be
capital gain or loss if the shares of California Financial Common Stock are held
as a capital asset at the time of the Merger.
However, if a stockholder of California Financial receives cash for all of
the California Financial Common Stock actually owned by the stockholder, but
some or all of the shares of California Financial Common Stock treated as
constructively owned by that stockholder (pursuant to Section 318 of the Code)
are exchanged for shares of Temple-Inland Common Stock in the Merger, that
stockholder will recognize gain or loss with respect to the California Financial
Common Stock actually owned by him or her in the manner described in the
preceding paragraph only if the receipt of cash by that stockholder does not
have the effect of a distribution of a dividend under Section 302 of the Code.
See "Impact of Section 302 of the Code" below. If none of the three tests of
Section 302 of the Code for sale or exchange treatment (as described below) is
satisfied, a stockholder of California Financial described in this paragraph
will be treated as having received a dividend to the extent of the lesser of the
cash received or the amount of that stockholder's ratable share of California
Financial's earnings and profits (both current and accumulated) through the date
of the Merger.
Receipt of Both Shares of Temple-Inland Common Stock and Cash for
California Financial Common Stock Actually Owned. A stockholder of California
Financial who, in the Merger, receives both shares of Temple-Inland Common Stock
and cash (other than cash received in lieu of a fractional share of Temple-
Inland Common Stock) in exchange for all of the shares of California Financial
Common Stock actually owned by that stockholder, will not be permitted to
recognize any loss as a result of the Merger, but will be required to recognize
gain (if any) equal to the lesser of: (1) the amount of cash so received (other
than cash received in lieu of a fractional share of Temple-Inland Common Stock);
and (2) the gain realized (i.e., the amount by which the sum of the amount of
cash so received and the market price on the date of the Merger of the shares of
Temple-Inland Common Stock received, including any fractional interest, exceeds
that stockholder's basis for the shares of California Financial Common Stock
surrendered). The characterization of any such gain will depend upon whether the
receipt of cash by that stockholder has the effect of a distribution of a
dividend under Section 302 of the Code with respect to Temple-Inland Common
Stock. See "Impact of Section 302 of the Code" below. In general, Section 302 of
the Code sets forth three tests for determining the character of the gain.
Provided that any one of the three tests for sale or exchange treatment is
satisfied, the gain so recognized will be capital gain if that stockholder's
shares of California Financial Common Stock, and hence Temple-Inland Common
Stock, are held as a capital asset at the time of the Merger. If none of the
three sale or exchange tests is satisfied, the entire amount of gain required to
be recognized by that stockholder will be treated as a dividend to the extent of
the stockholder's ratable share of the accumulated earnings and profits of
California Financial (or, possibly, the accumulated earnings and profits of
Temple-Inland) and any remaining amount of recognized gain will be characterized
in accordance with the preceding sentence. The tax basis of the shares of
Temple-Inland Common Stock received by such a stockholder will be the same as
the basis of the shares of California Financial Common Stock surrendered in
exchange therefor, increased by the amount recognized as either dividend income
or capital gain, and decreased by the amount of cash received, other than cash
received in lieu of a fractional share of Temple-Inland Common Stock, and by any
basis allocable to such a fractional share of Temple-Inland Common Stock. The
holding period of the shares of Temple-Inland Common Stock received by that
stockholder in the Merger will include the holding period of the shares of
California Financial Common Stock exchanged therefor, provided the shares of
California Financial Common Stock are held as a capital asset at the time of the
Merger.
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Impact of Section 302 of the Code. As described in the preceding section
and below, the manner in which Section 302 of the Code is applied depends upon
whether a California Financial stockholder receives only cash or both cash and
shares of Temple-Inland Common Stock in exchange for the shares of California
Financial Common Stock actually owned by that stockholder. The receipt of cash
by a stockholder of California Financial who receives only cash will be
considered to be in connection with a sale or exchange and not to have the
effect of a distribution of a dividend under Section 302 only if, after giving
effect to the constructive ownership rules of Section 318 of the Code and, if
applicable, the exception thereto provided in Section 302(c)(2) of the Code, the
receipt of that cash is: (1) "not essentially equivalent to a dividend," (2) a
"substantially disproportionate redemption" with respect to that stockholder, or
(3) a "complete termination of the stockholder's interest" in all the shares of
California Financial Common Stock actually and constructively owned by that
stockholder.
The determination whether any of the three tests of Section 302 for sale or
exchange treatment is satisfied is made by treating the exchange as if all the
shares of California Financial Common Stock actually and constructively owned by
the stockholder had been exchanged solely for shares of Temple-Inland Common
Stock, and the shares of Temple-Inland Common Stock that were not in fact
received had then been redeemed by Temple-Inland for cash (the "hypothetical
redemption of Temple-Inland Common Stock"). The rules of Section 302 will then
be applied by comparing a stockholder's hypothetical stock ownership in
Temple-Inland before the hypothetical redemption of Temple-Inland Common Stock
with that stockholder's stock ownership in Temple-Inland after the Merger.
Whether the receipt of cash by a stockholder of California Financial will
be "not essentially equivalent to a dividend" depends on the facts and
circumstances of the individual stockholder of California Financial. The receipt
of cash by a California Financial stockholder in exchange for the shares of
California Financial Common Stock actually owned by that stockholder should not
be taxable as a dividend if the stockholder's relative stock interest in
Temple-Inland is minimal, the stockholder exercises no control over
Temple-Inland's affairs, and the hypothetical redemption of Temple-Inland shares
described above causes the stockholder to undergo some reduction in equity
interest in Temple-Inland (taking into account the hypothetical redemption of
Temple-Inland Common Stock) in relation to all Temple-Inland stockholders taken
as a group. It is not clear what constitutes a "minimal" stock interest for this
purpose, nor how much reduction in relative equity interest is required. Because
of the uncertainty in this area, stockholders are strongly urged to consult
their own tax advisors as to whether their receipt of cash qualifies for capital
gain treatment under this test.
Whether the receipt of cash by a stockholder of California Financial will
constitute a "substantially disproportionate redemption" within the meaning of
Section 302 of the Code is determined by the application of certain numerical
tests. If cash is received for shares of California Financial Common Stock
actually owned by a stockholder, those numerical tests are applied as follows:
First, immediately, after the exchange, the stockholder must own, both actually
and constructively, less than 50% of the total combined voting power of all
classes of Temple-Inland Common Stock entitled to vote. Second, the ratio that
the voting stock of Temple-Inland owned, both actually and constructively, by
the stockholder immediately after the exchange bears to all the voting stock of
Temple-Inland outstanding at that time must be less than 80% of the ratio that
the voting stock of Temple-Inland owned, both actually and constructively, by
the stockholder immediately before the hypothetical redemption of Temple-Inland
Common Stock described above bears to all the voting stock of Temple-Inland
outstanding at that time. In making the calculations required to determine
whether the hypothetical redemption of Temple-Inland Common Stock is
"substantially disproportionate" the constructive ownership rules described
below apply. See "Constructive Ownership" below.
The receipt of cash by a stockholder of California Financial will be a
"complete termination of interest" only if the stockholder receives cash for all
of the shares of California Financial Common Stock actually and constructively
owned by that stockholder at the time of the Merger. For these purposes, the
attribution rules of Section 318 of the Code will apply as described below.
However, Section 302(c)(2) provides that, for the purpose of determining whether
there is a "complete termination of interest," the family attribution rules of
Section 318(a)(1) of the Code (described in "Constructive Ownership" below) will
not apply if certain conditions are met. If those conditions are met, a
California Financial stockholder will not be deemed to own
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shares of California Financial Common Stock owned or deemed to be owned by
family members for the purpose of determining whether there is a complete
termination of that stockholder's interest.
The Agreement permits California Financial stockholders to make certain
elections regarding their preferred mix of cash and Temple-Inland Common Stock
to be received in the Merger. In planning which election to make, stockholders
of California Financial should take into account the rules regarding Section 302
of the Code described above. The factors determining whether a particular
stockholder will obtain sale or exchange treatment (as opposed to dividend
treatment) with respect to any cash received must be analyzed on a
stockholder-by-stockholder basis. In addition, the relative benefits of
receiving sale or exchange treatment (as opposed to dividend treatment) with
respect to any cash received must be determined and weighed on a
stockholder-by-stockholder basis. In planning for such an election, each
stockholder should consult with his or her own tax advisor.
Constructive Ownership. Under Section 318 of the Code, a stockholder of
California Financial will be deemed to own California Financial Common Stock
that is owned or deemed to be owned by certain members of his or her family and
other related parties including, for example, certain entities in which the
stockholder has a direct or indirect interest (including partnerships, estates,
trusts and corporations) as well as shares of California Financial Common Stock
that the stockholder (or a related person) has the right to acquire upon
exercise of an option or conversion right held by the stockholder (or a related
person). Similarly, a stockholder of Temple-Inland, including a former
stockholder of California Financial after the Merger, will be deemed to own
Temple-Inland Common Stock that is owned or deemed to be owned as described in
the preceding sentence, including any Temple-Inland Common Stock received in
exchange for California Financial Common Stock as a result of the Merger.
Because application of these constructive ownership rules could affect the
application of Section 302 to a stockholder of California Financial, each
stockholder should consult his or her own tax advisor with respect to the
application of the constructive ownership rules to his or her particular
circumstances prior to making an election pursuant to the terms of the Merger.
Fractional Shares. Any stockholder of California Financial who receives
cash in lieu of a fractional share of Temple-Inland Common Stock will be treated
as if that stockholder received the fractional share of Temple-Inland Common
Stock in the Merger, which fractional share was then redeemed by Temple-Inland.
Other Considerations Applicable to Stockholders of California Financial.
Stockholders of California Financial will be required to provide their social
security numbers or their taxpayer identification numbers or, in some
circumstances, certain other information to the Exchange Agent in order to avoid
the "backup withholding" requirements that might otherwise apply under the Code.
Shares Issued in Connection with Stock Options or the Performance of
Services. The preceding discussion of federal income tax consequences may not be
applicable to a stockholder of California Financial who acquires shares of
California Financial Common Stock: (1) pursuant to the exercise of any incentive
stock option that was granted less than two years prior to the date of the
Merger; (2) pursuant to the exercise of an incentive stock option that was
exercised less than one year prior to the date of Merger; or (3) in connection
with the performance of services where the shares of California Financial Common
Stock continue to be subject to a "substantial risk of forfeiture" (or are
substantially non-vested), as of the date of the Merger. Such a stockholder of
California Financial may be treated as having received compensation (taxable as
ordinary income) as a result of the Merger. Accordingly, any such stockholder
should consult his or her own tax advisor with respect to the federal income tax
consequences of the Merger.
The foregoing discussion of the expected federal income tax consequences of
the Merger is based on current authorities. There is no assurance that
legislative or administrative changes or court decisions may not be forthcoming
that would significantly change these expected consequences. Any such changes
may or may not be retroactive with respect to transactions prior to the date of
those changes.
THE SUMMARY FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY. IT DOES NOT CONSTITUTE TAX ADVICE OR AN OPINION OF TAX
COUNSEL. EACH STOCKHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER
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APPLICABLE TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL,
STATE, LOCAL AND OTHER TAX LAWS.
For information regarding the federal income tax consequences of cash
payments received by dissenting stockholders, see "Proposal Requesting Approval
of the Merger -- Appraisal Rights."
RESALE OF TEMPLE-INLAND COMMON STOCK
The issuance of the shares of Temple-Inland Common Stock to stockholders of
California Financial upon consummation of the Merger has been registered under
the Securities Act. It is a condition to closing of the Merger that all shares
of Temple-Inland Common Stock issued in connection with the Merger be approved
for listing, upon official notice of issuance, on the NYSE. Such shares may be
traded freely by those stockholders not deemed to be "affiliates" of California
Financial as that term is defined under the Securities Act. The term "affiliate"
generally means each person who controls, or is a member of a group that
controls, or who is under common control with, California Financial, and for
purposes hereof could be deemed to include all executive officers, directors and
10% stockholders of California Financial.
Temple-Inland Common Stock received and beneficially owned by those
stockholders who are deemed to be affiliates of California Financial may be
resold without registration as provided by Rule 145 under the Securities Act
("Rule 145"), or as otherwise permitted under the Securities Act. Such
affiliates, provided they are not also affiliates of Temple-Inland, may publicly
resell Temple-Inland Common Stock received by them in the Merger if they
register the resale of those shares or they comply with the restrictions of Rule
145. Anyone who is or may be an affiliate of California Financial should
carefully consider the resale restrictions imposed by Rule 145, prior to
attempting to transfer any shares of Temple-Inland Common Stock after the
Merger.
The Agreement requires California Financial to identify those persons who
may be deemed to be affiliates of California Financial and to use its
commercially reasonable efforts to cause each person so identified to deliver to
Temple-Inland a written agreement providing that such person will not dispose of
California Financial Common Stock or Temple-Inland Common Stock received in the
Merger except in compliance with the Securities Act and the rules and
regulations promulgated thereunder. In addition, Temple-Inland intends to place
stop transfer instructions with its transfer agent regarding Temple-Inland
Common Stock issued to affiliates of California Financial.
APPRAISAL RIGHTS
Under the General Corporation Law of the State of Delaware (the "DGCL"),
any stockholder who does not wish to accept the consideration provided for in
the Agreement has the right to demand appraisal of, and to be paid the fair
value for, such stockholder's shares of California Financial Common Stock
(exclusive of any element of value arising from the accomplishment or
expectation of the Merger), provided that the stockholder complies with the
provisions of Section 262 of the DGCL ("Appraisal Rights").
The following is intended as a brief summary of certain provisions of the
statutory procedures required to be followed by a stockholder in order to demand
and perfect the stockholder's Appraisal Rights. THIS SUMMARY, HOWEVER, IS NOT A
COMPLETE STATEMENT OF ALL APPLICABLE REQUIREMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SECTION 262 OF THE DGCL, THE TEXT OF WHICH IS SET FORTH
IN APPENDIX C TO THIS PROSPECTUS-PROXY STATEMENT.
If any stockholder elects to demand appraisal of such stockholder's shares
of California Financial Common Stock, the stockholder must satisfy each of the
following conditions:
(i) the stockholder must deliver to California Financial a written
demand for appraisal of such stockholder's shares of California Financial
Common Stock before the vote on the Agreement is taken (this written demand
for appraisal must be in addition to and separate from any proxy or vote
abstaining from or against the Agreement; voting against or failing to vote
for the Agreement by itself does not constitute a written demand for
appraisal); and
38
<PAGE> 43
(ii) the stockholder must not vote in favor of the Agreement (an
abstention or failure to vote will satisfy this requirement, but a vote in
favor of the Agreement, by proxy or in person, will constitute a waiver of
the stockholder's Appraisal Rights in respect of the shares of California
Financial Common Stock so voted and will nullify any previously filed
written demand for appraisal).
If any stockholder fails to comply with either of these conditions and the
Merger becomes effective, the stockholder will be entitled to receive the
consideration provided for in the Agreement, but will have no Appraisal Rights
with respect to such stockholder's shares of California Financial Common Stock.
All written demands for appraisal should be delivered either in person to the
Corporate Secretary at the Meeting or by mail (certified mail, return receipt
requested, is recommended) to: Corporate Secretary, California Financial Holding
Company, 501 West Weber Avenue, Stockton California 95203, before the vote on
the Agreement is taken at the Meeting, and should be executed by, or on behalf
of, the holder of record of the shares of California Financial Common Stock. The
demand must reasonably inform the California Financial Corporate Secretary of
the identity of the stockholder and the intention of the stockholder to demand
appraisal of such stockholder's shares of California Financial Common Stock.
In addition, a holder of shares of California Financial Common Stock
wishing to exercise Appraisal Rights must hold such shares of record on the date
the written demand for appraisal is made and must hold such shares continuously
through the Effective Date. To be effective, a written demand for appraisal must
be made by or in the name of the registered stockholder, fully and correctly, as
the stockholder's name appears on such stockholder's stock certificate(s) and
cannot be made by the beneficial owner if the beneficial owner does not also
hold the shares of California Financial Common Stock of record. The beneficial
holder must, in such cases, have the registered owner submit the required demand
in respect of such shares of California Financial Common Stock.
If shares of California Financial Common Stock are owned of record in a
fiduciary capacity, such as trustee, guardian or custodian, execution of a
demand for appraisal should be made in such a capacity, and if the shares of
California Financial Common Stock are owned of record by more than one person,
as in joint tenancy or tenancy in common, the demand should be executed by or
for all joint owners. An authorized agent, including one for two or more joint
owners, may execute the demand for appraisal for a stockholder of record;
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, he or she is a nominee for
others. A record holder, such as a broker, who holds shares as nominee for
several beneficial owners may exercise his or her rights of appraisal with
respect to the shares of California Financial Common Stock held for one or more
beneficial owners, while not exercising this right for other beneficial owners.
In such case, the written demand should state the number of shares of California
Financial Common Stock as to which appraisal is sought. Where no number of
shares of California Financial Common Stock is expressly mentioned, the demand
will be presumed to cover all shares of California Financial Common Stock held
in the name of such record owner.
Within ten days after the Effective Date, Temple-Inland, the continuing
corporation in the Merger, must provide notice of the date upon which the Merger
became effective to each stockholder who so filed a written demand for appraisal
and who did not vote in favor of the Agreement. Within 120 days after the
Effective Date, but not thereafter, either Temple-Inland or any stockholder who
has complied with the requirements of Section 262 may file a petition in the
Delaware Court of Chancery (the "Court") demanding a determination of the fair
value of the shares of California Financial Common Stock held by all
stockholders entitled to appraisal. Temple-Inland does not presently intend to
file such a petition. Inasmuch as Temple-Inland has no obligation to file such a
petition, the failure of a stockholder to do so within the period specified
could nullify such stockholder's previously written demand for appraisal. At any
time within 60 days after the Effective Date, a stockholder has the right to
withdraw the demand and to accept the payment of the consideration provided for
in the Agreement.
If a petition for appraisal is duly filed by a stockholder and a copy
thereof is delivered to Temple-Inland, Temple-Inland will then be obligated
within 20 days thereafter to provide the Court with a duly verified list
containing the names and addresses of all stockholders who have demanded an
appraisal of their shares of California Financial Common Stock. After notice to
such stockholders, the Court is empowered to conduct a
39
<PAGE> 44
hearing upon the petition, to determine those stockholders who have complied
with Section 262 and who have become entitled to Appraisal Rights. The Court may
require the stockholders who have demanded payment for their shares of
California Financial Common Stock to submit their stock certificates to the
Register in Chancery for notation thereon of the pendency of the appraisal
proceeding; and if any stockholder fails to comply with such direction, the
Court may dismiss the proceeding as to such stockholder.
After determination of the stockholders entitled to an appraisal, the Court
will appraise the shares of California Financial Common Stock, determining their
fair value exclusive of any element of value arising from the accomplishment or
expectation of the Merger. In determining fair value, the Court is required to
take into account all relevant factors. When the value is so determined, the
Court will direct the payment by Temple-Inland of such value, with interest
thereon accrued during the pendency of the proceeding if the Court so
determines, to the stockholders entitled to receive the same, upon surrender to
Temple-Inland by such holders of the certificates representing such shares of
California Financial Common Stock.
Stockholders considering seeking appraisal should be aware that, if the
Merger is consummated, the fair value of their shares of California Financial
Common Stock determined under Section 262 could be more, the same, or less than
the consideration that they would be entitled to receive pursuant to the
Agreement if they do not demand appraisal of their shares of California
Financial Common Stock.
Costs of the appraisal proceeding may be imposed upon the parties thereto
(i.e., Temple-Inland and the stockholders participating in the appraisal
proceeding) by the Court as the Court deems equitable in the circumstances. Upon
the application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and
expenses of experts, to be charged pro rata against the value of all shares of
California Financial Common Stock entitled to Appraisal Rights.
Any stockholder who demands Appraisal Rights will not, after the Effective
Date, be entitled to vote shares of California Financial Common Stock subject to
such demand for any purpose or to receive payments of dividends or any other
distribution with respect to such shares of California Financial Common Stock
(other than with respect to payment as of a record date prior to the Effective
Date) or to receive the consideration provided for in the Agreement; however, if
no petition for appraisal is filed within 120 days after the Effective Date, or
if such stockholder delivers a written withdrawal of such stockholder's demand
for appraisal and an acceptance of the Merger, either within 60 days after the
Effective Date, or thereafter with the written approval of Temple-Inland, then
the right of such stockholder to appraisal will cease and such stockholder will
be entitled to receive the consideration provided for in the Agreement without
interest.
THE FOREGOING IS ONLY A SUMMARY OF THE STATUTORY APPRAISAL RIGHTS OF THE
HOLDERS OF CALIFORNIA FINANCIAL COMMON STOCK. ANY HOLDER OF CALIFORNIA FINANCIAL
COMMON STOCK WHO INTENDS TO EXERCISE APPRAISAL RIGHTS SHOULD CAREFULLY REVIEW
THE TEXT OF THE APPLICABLE PROVISIONS OF THE DGCL SET FORTH IN APPENDIX C TO
THIS PROSPECTUS-PROXY STATEMENT AND SHOULD ALSO CONSULT WITH SUCH HOLDER'S
ATTORNEY. THE FAILURE OF A HOLDER OF CALIFORNIA FINANCIAL COMMON STOCK TO FOLLOW
PRECISELY THE PROCEDURES SUMMARIZED ABOVE AND SET FORTH IN APPENDIX C MAY RESULT
IN LOSS OF APPRAISAL RIGHTS. NO FURTHER NOTICE OF THE EVENTS GIVING RISE TO
APPRAISAL RIGHTS OR ANY STEPS ASSOCIATED THEREWITH WILL BE FURNISHED TO HOLDERS
OF CALIFORNIA FINANCIAL COMMON STOCK, EXCEPT AS INDICATED ABOVE OR OTHERWISE
REQUIRED BY LAW.
In general, any stockholder who demands and perfects such holder's
appraisal rights to be paid the fair value of such holder's California Financial
Common Stock in cash will recognize taxable gain or loss for federal income tax
purposes upon receipt of such cash.
40
<PAGE> 45
DIVIDEND REINVESTMENT PLAN
Promptly after execution of the Agreement, California Financial terminated
its Dividend Reinvestment Plan. Temple-Inland maintains a Dividend Reinvestment
Plan through which stockholders of Temple-Inland who participate in the plan may
reinvest dividends in Temple-Inland Common Stock. Shares are purchased for
participants in the plan at their market value as determined by the market price
of the stock as listed on the NYSE. The plan also permits participants to
purchase additional shares with cash at the then-current market price. All
shares purchased through the plan are held in a separate account for each
participant maintained by Temple-Inland's transfer agent. Stockholders who
participate in the Dividend Reinvestment Plan purchase shares through the plan
without paying brokerage commissions or other costs ordinarily associated with
open market purchases of stock. It is anticipated that the Dividend Reinvestment
Plan will continue after the Effective Date and that stockholders of California
Financial who become stockholders of Temple-Inland will have the same
opportunity to participate in the plan as other stockholders of Temple-Inland.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for as a purchase for
financial accounting purposes. Under this method of accounting, the purchase
price will be allocated to assets acquired and liabilities assumed based upon
their estimated fair values as of the consummation of the Merger. Deferred tax
assets and liabilities will be adjusted for the difference between the tax basis
of the assets and liabilities and their estimated values. The excess, if any, of
the total acquisition cost over the sum of the assigned fair values of the
tangible and identifiable intangible assets acquired less liabilities assumed
will be recorded as goodwill.
CERTAIN REGULATORY CONSIDERATIONS
As a thrift holding company, Temple-Inland is subject to the regulation and
supervision of the OTS. Under applicable federal law, an entity may not directly
or indirectly acquire the ownership or control of more than 5% of the voting
shares or substantially all of the assets of any thrift or thrift holding
company, without the prior approval of the OTS.
Guaranty Federal is subject to supervision and examination by applicable
federal and state regulatory agencies. Guaranty Federal is a federally chartered
savings association subject to the regulation and supervision of the OTS.
Guaranty Federal is also subject to various requirements and restrictions under
federal and state law, including requirements to maintain reserves against
deposits, restrictions on the types and amounts of loans that may be granted and
the interest that may be charged thereon and limitations on the types of
investments that may be made and the types of services that may be offered.
Various consumer laws and regulations also affect the operations of Guaranty
Federal. In addition to the impact of regulation, savings associations are
affected significantly by the actions of the Federal Reserve Board as it
attempts to control the money supply and credit availability in order to
influence the economy.
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<PAGE> 46
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined financial statements give effect
to the Merger, assuming it is accounted for using the purchase method of
accounting. The unaudited pro forma combined balance sheet as of December 28,
1996, gives effect to the Merger as if it had been consummated on December 28,
1996. The unaudited pro forma combined income statement for the year ended
December 28, 1996, gives effect to the Merger as if it had been consummated as
of the beginning of the fiscal year presented.
The information as of and for the year ended December 28, 1996, in the
column titled "Temple-Inland" is summarized from the consolidated financial
statements of Temple-Inland filed in Temple-Inland's Annual Report on Form 10-K
for the year ended December 28, 1996.
The information contained in the column titled "California Financial" is
summarized from the consolidated financial statements of California Financial
filed in California Financial's Annual Report on Form 10-K for the year ended
December 31, 1996.
The unaudited pro forma combined balance sheet and income statement are
presented for informational purposes only and are not necessarily indicative of
the combined financial position or results of operations that would actually
have occurred if the Merger had been consummated in the past or that may be
obtained in the future. The pro forma adjustments are based on available
information and assumptions Temple-Inland's management believes are reasonable.
These adjustments are directly attributable to the Merger and are expected to
have a continuing impact on the financial position and results of operations of
Temple-Inland.
The unaudited pro forma combined financial statements should be read in
conjunction with the historical financial statements and related notes of
Temple-Inland and California Financial contained in their Annual Reports on Form
10-K for the years ended December 28, 1996, and December 31, 1996, respectively.
42
<PAGE> 47
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 28, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
TEMPLE- CALIFORNIA PRO
INLAND FINANCIAL ADJUSTMENTS FORMA
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Assets
Loans receivable, net........................... $ 5,658.0 $ 959.4 $(14.0)(1) $ 6,603.4
Mortgage-backed and investment securities....... 2,783.0 304.1 -- 3,087.1
Property and equipment, net..................... 2,931.0 20.3 (4.0)(2) 2,947.3
Other assets.................................... 1,575.0 53.6 21.5(3) 1,650.1
--------- -------- ------ ---------
Total Assets............................ $12,947.0 $1,337.4 $ 3.5 $14,287.9
========= ======== ====== =========
Liabilities
Deposits........................................ $ 6,263.0 $ 957.8 $ (1.9)(4) 7,218.9
Securities sold under agreements to repurchase
and Federal Home Loan Bank advances.......... 1,992.0 283.1 0.5(4) 2,275.6
Long-term debt.................................. 1,655.0 -- -- 1,655.0
Accrued expenses and other liabilities.......... 1,022.0 6.6 -- 1,028.6
--------- -------- ------ ---------
Total Liabilities....................... $10,932.0 $1,247.5 $ (1.4) $12,178.1
--------- -------- ------ ---------
Stockholders' Equity
Common stock.................................... $ 61.0 $ -- $ 1.7(5) $ 62.7
Additional paid-in-capital...................... 305.0 27.5 65.6(5) 398.1
Retained earnings and other..................... 1,813.0 62.4 (62.4)(5) 1,813.0
Cost of shares held in the treasury............. (164.0) -- -- (164.0)
--------- -------- ------ ---------
Total stockholders' equity.............. 2,015.0 89.9 4.9 2,109.8
--------- -------- ------ ---------
Total liabilities and stockholders'
equity................................ $12,947.0 $1,337.4 $ 3.5 $14,287.9
========= ======== ====== =========
</TABLE>
43
<PAGE> 48
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 28, 1996
-----------------------------------------------
TEMPLE- CALIFORNIA PRO
INLAND FINANCIAL ADJUSTMENTS FORMA
-------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenue
Financial services................................ $ 815.0 $105.9 $ 1.1(6) $ 922.0
Manufacturing net sales........................... 2,645.0 -- -- 2,645.0
-------- ------ ----- --------
Total revenue.................................. 3,460.0 105.9 1.1 3,567.0
-------- ------ ----- --------
Costs and expenses
Financial services................................ 752.0 93.9 (2.8)(7) 843.1
Manufacturing costs and expenses.................. 2,447.0 -- -- 2,447.0
-------- ------ ----- --------
Total costs and expenses....................... 3,199.0 93.9 (2.8) 3,290.1
-------- ------ ----- --------
Operating income.................................... 261.0 12.0 3.9 276.9
Parent company interest, net and other............ (105.0) -- -- (105.0)
-------- ------ ----- --------
Income before taxes................................. 156.0 12.0 3.9 171.9
Taxes on income................................... 23.0 5.1 2.5(8) 30.6
-------- ------ ----- --------
Net Income................................... $ 133.0 $ 6.9 $ 1.4 $ 141.3
======== ====== ===== ========
Earnings Per Share(9)
Primary
Earnings per share................................ $ 2.39 $ 1.44 $ 2.47
Weighted average shares outstanding............... 55.5 4.8 57.2
Fully Diluted
Earnings per share................................ $ 2.39 $ 1.44 $ 2.47
Weighted average shares outstanding............... 55.6 4.8 57.3
</TABLE>
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<PAGE> 49
NOTES TO PRO FORMA FINANCIAL INFORMATION
The following pro forma adjustments give effect to the Merger using the
purchase method of accounting. The aggregate purchase price of $143.6 million is
estimated to consist of $47.4 million in cash, 1,692,000 shares of Temple-Inland
Common Stock valued at $56 per share ($94.8 million) and transactional costs of
$1.4 million.
(1) Represents the difference between the book value and the estimated fair
value of loans receivable. Fair value estimates are based upon a limited
review of loans by Guaranty Federal. Guaranty Federal's current strategy
regarding the ultimate recovery of certain portions of the loan portfolio
may differ from that of California Financial.
(2) Represents the difference between the book value and estimated fair value of
property and equipment acquired. The difference relates primarily to
Guaranty Federal's expected use of certain California Financial real estate
properties as office rental property to third party tenants. Guaranty
Federal's management performed an in-house appraisal based upon current
market rates for similar office space.
(3) Represents:
(a) the difference between book value and estimated fair value of
mortgage servicing rights ($4.2 million) and the core deposit intangible
($9.6 million) acquired,
(b) reductions of cash for expected payments aggregating $7.8 million,
net of tax, relating to brokerage fees, funding and termination of a
California Financial retirement plan, cash-out termination of certain
California Financial stock options, and contractual and involuntary
termination benefits concurrent with the Merger consummation,
(c) reduction of cash reflecting the estimated cash portion of the
purchase price ($47.4 million) and related transactional costs ($1.4
million),
(d) goodwill ($63.2 million) representing the excess of purchase price
over net tangible and identifiable intangible assets acquired, and
(e) an increase in deferred tax assets for the effect of taxable pro
forma adjustments at a 39% effective income tax rate ($1.1 million).
(4) Represents the difference between the book value and estimated fair value of
California Financial's deposits and borrowings.
(5) Represents the reversal of California Financial's stockholders' equity and
issuance of the estimated stock portion of the purchase price (1,692,000
shares of Temple-Inland Common Stock).
(6) Represents discount accretion resulting from the adjusted carrying values on
the loan portfolio. Discount is accreted over the estimated remaining life
of the portfolio using the interest method.
(7) Represents (a) expected reductions in employment compensation and benefits
from consolidation of redundant California Financial and Guaranty Federal
functions ($6.1 million) and (b) adjustments to amortization and
depreciation resulting from the adjusted carrying values of assets ($3.3
million). Goodwill and the core deposit intangible are amortized using the
straight-line method over 25 and 7 years, respectively. Mortgage servicing
rights are amortized using the income forecast method.
(8) The income tax effect of taxable pro forma adjustments is computed using an
effective income tax rate of 39%.
(9) Historical primary and fully diluted earnings per share is based upon the
weighted average number of outstanding shares of Temple-Inland Common Stock
and California Financial Common Stock before the Merger. Pro forma primary
and fully diluted earnings per share is based upon the weighted average
number of shares assuming the shares to be issued pursuant to the Merger
(1,692,000 shares) are issued as of the beginning of the fiscal year
presented.
45
<PAGE> 50
CERTAIN INFORMATION RELATING TO CALIFORNIA FINANCIAL
Additional information concerning California Financial can be found in the
Annual Report on Form 10-K for California Financial for the year ended December
31, 1996.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
At March 7, 1997, 4,763,330 shares of California Financial Common Stock
were outstanding. As of February 5, 1997, no persons or groups within the
meaning of Section 13(d)(3) of the Exchange Act were known by management to
beneficially own more than five percent of the California Financial Common Stock
except as follows:
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF SHARES OF OUTSTANDING
CALIFORNIA FINANCIAL CALIFORNIA FINANCIAL
NAME AND ADDRESS COMMON STOCK COMMON STOCK
---------------- -------------------- --------------------
<S> <C> <C>
Dimensional Fund Advisors Inc..................... 275,510(1) 5.84%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
</TABLE>
- ---------------
(1) Of these 275,510 shares, 52,870 shares are owned beneficially by DFA
Investment Dimensions Group Inc. (the "Fund") and 40,630 shares are owned
beneficially by The DFA Investment Trust Company (the "Trust"). Dimensional
Fund Advisors Inc. is the investment manager of the Fund and the Trust and
thus has sole voting and dispositive power with respect to the shares
beneficially owned by the Fund and the Trust as well as the remaining
shares. This information is based on a Schedule 13G dated February 5, 1997.
The number of shares of California Financial Common Stock held as of the
Record Date, by each director of California Financial, each nominee for
reelection as a director, each executive officer named in the "Summary
Compensation Table," and by all executive officers and directors of California
Financial and Stockton Savings, as a group is set forth below. All of the shares
shown in the following table are shares of California Financial Common Stock
owned both of record and beneficially by the person named, and the person named
possesses sole voting and investment power, except as otherwise indicated in the
footnotes to the table.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF OUTSTANDING
BENEFICIAL CALIFORNIA FINANCIAL
NAME OF BENEFICIAL OWNER OWNERSHIP(1)(2) COMMON STOCK
------------------------ --------------- --------------------
<S> <C> <C>
Gerald L. Barton...................................... 22,000 (5)
Jane R. Butterfield................................... 36,345(4) (5)
W. Henry Claussen..................................... 17,851(6) (5)
G. Thomas Egan (3).................................... 60,390(7) 1.3%
Dennis Donald Geiger.................................. 11,550 (5)
Robert V. Kavanaugh................................... 168,426(8) 3.5%
Jerald Kirsten........................................ 96,800 2.0%
Morris W. Knight...................................... 18,906 (5)
David K. Rea (3)...................................... 164,632(9) 3.5%
Executive Officers and Directors as a group
(10 persons)........................................ 607,746 12.44%
</TABLE>
- ---------------
(1) In accordance with Rule 13d-3 of the Exchange Act, a person is deemed to be
the beneficial owner of a security if he or she has or shares voting power
or investment power with respect to such security or has the right to
acquire such ownership within 60 days.
(2) Includes shares of California Financial Common Stock subject to options
issued pursuant to California Financial's Incentive Stock Plan and held as
follows: Mr. Rea, options to purchase 13,082 shares;
46
<PAGE> 51
Mr. Kavanaugh, options to purchase 38,197 shares; Mr. Barton, options to
purchase 11,000 shares; Senior Vice President Jane R. Butterfield, options
to purchase 17,421 shares; Senior Vice President W. Henry Claussen, options
to purchase 17,009 shares; Senior Vice President Morris W. Knight, options
to purchase 16,142 shares; and Senior Vice President Mark Barawed, options
to purchase 10,761 shares.
(3) Nominee for reelection as a director.
(4) Does not include 1,846 shares owned by Ms. Butterfield's husband, as to
which Ms. Butterfield disclaims beneficial ownership.
(5) Less than 1%
(6) Includes 720 shares beneficially owned by Mr. Claussen's minor son.
(7) Includes 37,290 shares owned by a trust of which Mr. Egan is a beneficiary
and 23,100 shares owned by Connell Motor Truck Co., Inc.
(8) Includes 129,399 shares owned by a trust of which Mr. Kavanaugh is a
beneficiary and 550 shares owned with Mr. Kavanaugh's wife as community
property.
(9) Includes 151,550 shares owned by a trust of which Mr. Rea is a beneficiary.
Does not include 3,300 shares owned by Mr. Rea's wife, as to which Mr. Rea
disclaims beneficial ownership.
PROPOSAL FOR ELECTION OF DIRECTORS
The directors of California Financial are the same persons who currently
serve as the directors of Stockton Savings. The term of office of Mr. Egan on
the Board of Directors of California Financial will expire at the Meeting. Mr.
Egan has been nominated by the California Financial Board of Directors for
reelection to the Board to serve for a three-year term. In order to maintain
balance among the classes of directors of California Financial, Mr. Rea has been
nominated by the California Financial Board of Directors for reelection to the
Board to serve a three-year term resulting from a vacancy on the Board created
by the resignation of one director. Mr. Rea's current term expires at California
Financial's Annual Meeting in 1998.
There are no arrangements or understandings between California Financial
and any person pursuant to which such person has been elected as a director or
selected as a nominee. If any nominee becomes unavailable for any reason, or if
any other vacancy in the class of directors to be elected at the Meeting should
occur before the election, the shares represented by the proxy will be voted for
the person, if any, who is designated by the California Financial Board of
Directors to replace the nominee or to fill such other vacancy on the Board. The
California Financial Board of Directors has no reason to believe that any of the
nominees will be unavailable or that any other vacancy on the Board will occur.
The nominees have consented to be named and have indicated their intent to serve
if elected.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE NOMINEES
FOR REELECTION AS DIRECTORS AS SET FORTH ABOVE.
47
<PAGE> 52
INFORMATION CONCERNING THE CALIFORNIA FINANCIAL BOARD OF DIRECTORS
The directors of California Financial are currently classified into three
classes, which are elected on a staggered basis. Each director serves for a
three-year term and until his successor is duly elected and qualified. The
current members of the California Financial Board of Directors are set forth
below:
<TABLE>
<CAPTION>
DIRECTOR OF DIRECTOR OF
STOCKTON CALIFORNIA
SAVINGS FINANCIAL TERM POSITION(S) CURRENTLY HELD WITH
NAME SINCE SINCE EXPIRES CALIFORNIA FINANCIAL
---- ----------- ----------- ------- -------------------------------
<S> <C> <C> <C> <C>
David K. Rea(1).............. 1955 1988 1998 Chairman of the Board and Chief
Executive Officer
Gerald L. Barton(2).......... 1996 1996 1999 Director
G. Thomas Egan(1)............ 1974 1988 1997 Director
Dennis Donald Geiger......... 1989 1989 1998 Director and Secretary
Robert V. Kavanaugh.......... 1988 1988 1998 Director, President and Chief
Operating Officer
Jerald Kirsten............... 1975 1988 1999 Director
</TABLE>
- ---------------
(1) Nominees for reelection
(2) On January 17, 1996, Mr. Barton was elected by California Financial's and
Stockton Savings' Boards of Directors to fill the vacancy created by the
retirement of Robert F. McKeegan, who was appointed a director emeritus.
DAVID K. REA, 78, has been a director and employee of Stockton Savings
since 1955, President of Stockton Savings from 1973 to 1991, Chief Executive
Officer of Stockton Savings from 1955 to May 1994, and Chairman of the Board of
Directors of Stockton Savings since 1980. Mr. Rea has also been the Chairman of
the Board and Chief Executive Officer of California Financial since its
incorporation in 1987, and served as President of California Financial from its
incorporation in 1987 until 1993.
GERALD L. BARTON, 63, is the President of Barton Ranch, Inc., which manages
farming interests in San Joaquin and Stanislaus counties in California.
G. THOMAS EGAN, 69, was, until his retirement, President of Connell Motor
Truck Co., Inc. and Lift Truck Service Corporation. Mr. Egan is Honorary Board
Chairman of Connell Motor Truck Co., Inc. Mr. Egan also is a former President of
the Greater Stockton Chamber of Commerce.
DENNIS DONALD GEIGER, 53 is a partner of Bray Geiger Rudquist & Nuss, the
general counsel for California Financial, and is a former President of the San
Joaquin County Bar Association. In 1991, Mr. Geiger became Secretary of
California Financial and Stockton Savings.
ROBERT V. KAVANAUGH, 60, was the Executive Vice President and Treasurer of
Stockton Savings from 1986 to 1991, was Chief Operating Officer from 1987 to May
1994, and became Chief Executive Officer in May 1994. In 1991, Mr. Kavanaugh
became President of Stockton Savings. From 1960 to 1984, Mr. Kavanaugh served as
Stockton Savings' Controller and Chief Financial Officer and from 1984 to 1986
he served as Stockton Savings' Chief Financial Officer. Mr. Kavanaugh served as
the Executive Vice President and Chief Operating Officer of California Financial
from its incorporation in 1987 until 1993 and served as Treasurer of California
Financial from 1987 to 1991. Since 1993, he has served as President and Chief
Operating Officer of California Financial. Mr. Kavanaugh is a director of M.J.
Hall & Co. (excess lines insurance company) and of Credit Bureau of San Joaquin
County.
JERALD KIRSTEN, 72 a retired Certified Public Accountant, is also a real
estate investor. He is a former Mayor of the City of Lodi, a past President of
the San Joaquin Chapter of the California Society of Certified Public
Accountants, a past President of the Stockton Estate Planning Council, a past
Master of Lodi Lodge #256, Free and Accepted Masons, and a retired U.S. Naval
Reserve Captain.
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<PAGE> 53
Compensation of Directors. In 1996, directors of California Financial
received compensation of $1,000 per meeting with respect to three meetings of
the California Financial Board held during November and December in connection
with the Merger. Except for these three meetings, directors of California
Financial received no compensation from California Financial for services in
1996. Each director of Stockton Savings received compensation of $1,000 per
meeting attended for his services in 1996, with no additional amount paid for
committee assignments. Beginning in March 1994, employee directors no longer
received a fee for service as a director of California Financial or Stockton
Savings.
Nonemployee directors and their spouses also are provided with health
insurance by Stockton Savings. The approximate annual cost to Stockton Savings
is $2,100 per director.
Nonemployee directors also receive a one-time grant of a stock option.
Under the California Financial Holding Company Incentive Stock Plan (the
"Incentive Stock Plan"), each director of California Financial who is not, and
has not for all or any part of the preceding twelve-month period been, a
full-time employee of California Financial or Stockton Savings (or any of their
subsidiaries) (an "Outside Director") is automatically granted a single
nonstatutory option with terms fixed by the provisions of the Incentive Stock
Plan. Each then nonemployee director of Stockton Savings was granted an option
as of June 1, 1988, the date California Financial became the holding company for
Stockton Savings. Each person who is subsequently elected as an Outside Director
by the stockholders of California Financial is also granted a nonstatutory
option on the same terms.
Each such single nonstatutory option granted to an Outside Director is for
11,000 shares of California Financial Common Stock. All nonstatutory options
granted to Outside Directors have an exercise price per share equal to the
greater of (1) the fair market value of a share of California Financial Common
Stock on the date of stockholder approval of the Incentive Stock Plan (or, if
the optionee is first elected as an Outside Director by the stockholders
thereafter, on the date he or she is elected and has qualified) or (2) 85% of
the fair market value of one share of California Financial Common Stock on the
date such nonstatutory option is actually granted. All such nonstatutory options
are exercisable for a period of five years from the date of stockholder approval
of the Incentive Stock Plan (or, if the optionee is first elected an Outside
Director by the stockholders thereafter, from the date he or she is elected and
has qualified). All nonstatutory options granted to Outside Directors are
exercisable at any time during such five-year period notwithstanding the prior
termination of the optionee's status as an Outside Director. If, however, such
an optionee should die prior to the expiration of the five-year exercise period
(without regard to whether such optionee is an Outside Director at the time of
his or her death), his or her nonstatutory option may be exercised at any time
and from time to time, to the extent that it was exercisable at the time of his
or her death and prior to the expiration of the five-year exercise period, by
his or her personal representatives or the persons to whom the option has been
transferred by will or the laws of descent and distribution.
Directors of Stockton Savings who cease to serve as directors and who have
reached age 70 with 10 years of continuous service as a director of Stockton
Savings may be elected by Stockton Savings' Board of Directors as a director
emeritus. A director emeritus serves for life or until removed as such by the
Board, with or without cause. A director emeritus may attend regular Board
meetings, if invited, and discuss matters with the Board. However, a director
emeritus cannot cast a vote as a director. For a discussion regarding the
interests of certain directors emeriti in the Merger, see "Proposal Requesting
Approval of the Merger -- Interests of Certain Persons in the Merger."
During the term of a director emeritus, he or she receives the same Board
fees as are paid to other directors of Stockton Savings, whether or not he or
she attends Board meetings or otherwise provides services to Stockton Savings. A
director emeritus is also provided with health insurance if the Board determines
that such insurance is available.
Board of Directors and Committees. Meetings of the Board of Directors of
California Financial are held regularly each month and as required. During 1996,
the Board of Directors of California Financial held
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<PAGE> 54
21 meetings. The following are the committees of the Boards of Directors of
California Financial and Stockton Savings:
(1) The Audit Committee of California Financial and Stockton Savings
is currently composed of directors Gerald L. Barton, G. Thomas Egan and
Jerald Kirsten. The functions of the Audit Committee include: recommending
to the Board of Directors the engaging and discharging of the independent
auditors; directing and supervising special investigations; reviewing with
the independent auditors the planning and results of their audit
examination; reviewing the scope and results of the internal audit
examinations; approving each professional service provided by the
independent auditors prior to the performance of such services; considering
the range of audit and nonaudit fees of the independent auditors and
reviewing the adequacy of California Financial's system of internal
accounting controls. The Audit Committee met 4 times in 1996.
(2) The Compensation/Stock Option Committee of California Financial is
currently composed of directors G. Thomas Egan, Gerald L. Barton and Jerald
Kirsten. This Committee administers the Incentive Stock Plan and reviews
various pension matters, the compensation of officers and recommends
changes in officers' compensation to the full Board of Directors. This
Committee held 4 meetings in 1996.
(3) The Loan Committee of Stockton Savings is currently composed of
directors Gerald L. Barton, Dennis Donald Geiger, Robert V. Kavanaugh and
David K. Rea (ex officio). The Loan Committee reviews all new loans
together with the entire Board at regular monthly meetings.
(4) The Transactions Committee of California Financial is currently
composed of directors Gerald L. Barton, Jerald Kirsten, Robert V.
Kavanaugh, and David K. Rea. Matters relating to possible transactions
involving California Financial were discussed with the Transactions
Committee and the full Board of Directors. The Transactions Committee met 5
times in 1996.
(5) The Executive Committee of California Financial and Stockton
Savings is currently composed of directors Dennis Donald Geiger, Robert V.
Kavanaugh and David K. Rea. The Executive Committee, when the Board is not
in session, may exercise all of the authority of the Board with certain
limitations. The Executive Committee held 4 meetings in 1996.
California Financial has no standing nominating committee. The full Board
of Directors acts to nominate persons for positions on the Board.
No current member of the Board of Directors attended fewer than
seventy-five percent (75%) of the meetings of the Board of Directors and
committees of the Board of Directors on which he served during 1996.
Section 16 Filings. Directors and executive officers of California
Financial are required to file certain reports (on Forms 3, 4 and 5) with the
Commission under Section 16(a) of the Exchange Act showing transactions in
California Financial Common Stock. Due to an oversight, Ms. Butterfield failed
to file timely a Form 5 relating to the purchase of California Financial Common
Stock in connection with her participation in California Financial's 401(k)
plan. This report was subsequently filed. All of such other filings were made in
accordance with the Exchange Act and the rules and regulations thereof.
REMUNERATION AND OTHER TRANSACTIONS WITH MANAGEMENT AND OTHERS
Since the formation of California Financial, none of its executive officers
has received any separate compensation from California Financial. David K. Rea,
Robert V. Kavanaugh, Jane R. Butterfield and Morris W. Knight are the only
executive officers of California Financial, and they also hold positions with
Stockton Savings. California Financial's executive officers are elected each
year by California Financial's Board of Directors and may be removed by the
Board of Directors whenever in its judgment the best interests of California
Financial will be served thereby. Biographical information with respect to
Messrs. Rea and Kavanaugh is provided above. See "Information Concerning the
California Financial Board of Directors." Biographical information regarding the
other executive officers of California Financial and Stockton Savings is as
follows:
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<PAGE> 55
MARK BARAWED, 46, has served Stockton Savings as Senior Vice President and
Chief Administrative Officer since 1995. Previously, he served Stockton Savings
as Vice President and Manager, Human Resources, from 1991 to 1995, as
Administrative Coordinator from 1990 to 1991, and as Financial Analyst from 1988
to 1990.
JANE R. BUTTERFIELD, 39, is Senior Vice President, Chief Financial Officer
and Treasurer of California Financial. In 1991, Ms. Butterfield became treasurer
of Stockton Savings and has served as its Senior Vice President and Chief
Financial Officer since 1988. Ms. Butterfield served as the Controller of
Stockton Savings from 1984 through 1988.
W. HENRY CLAUSSEN, 45, has served Stockton Savings as Senior Vice President
and Loan Manager since 1991. Previously, he served as Assistant Loan Manager of
Stockton Savings from 1984 through 1991.
MORRIS W. KNIGHT, 53, is Vice President of California Financial. Mr. Knight
has been Marketing Manager of Stockton Savings since 1983 and Vice President
since 1986. In December 1990, Mr. Knight was named Retail Banking Manager and
became a Senior Vice President in January 1991.
REPORT OF THE COMPENSATION/STOCK OPTION COMMITTEE ON EXECUTIVE COMPENSATION
As members of the Compensation/Stock Option Committee, it is our duty to
review the compensation levels of management, to evaluate the performance of
management, and to consider management succession and related matters. The
Compensation/Stock Option Committee does not decide the issues before it but
formulates options and recommendations for decision by the Board of Directors.
Before decisions are made, the Committee reviews with the Board in detail all
aspects of compensation for the executive officers.
Philosophy. The general philosophy of the Compensation/Stock Option
Committee is to provide levels of compensation that are competitive with those
provided at institutions that are considered to be comparable with California
Financial, so as to attract and retain qualified executives for California
Financial and Stockton Savings. In recent years, the Compensation/Stock Option
Committee has sought to align, to a greater degree, each executive's total
compensation package with overall corporate performance and individual
achievement.
Salary. In December 1994, the Compensation/Stock Option Committee reviewed
the salaries of the five executive officers of California Financial and Stockton
Savings. (All of these officers are employees of Stockton Savings.) The
Compensation/Stock Option Committee compared their salary levels with the salary
levels of officers of comparable institutions holding similar positions by
considering both the comparative compensation data provided by various sources,
including the California Financial Institutions Compensation Survey, the
California League of Savings Institutions Survey, the SNL Executive Compensation
Review 1993 for Thrift Institutions, the Sheshunoff Bank Executive and Director
Compensation Survey for 1993, and outside consultants, as well as data prepared
by members of the Compensation/Stock Option Committee themselves. The
compensation data reviewed by the Compensation/Stock Option Committee covered
substantially more companies, including some nonfinancial institutions that are
included in the Nasdaq Financial Index used in the Stock Performance Graph.
As in 1994 and 1995, Mr. Rea advised the Compensation/Stock Option
Committee that he wished to have a more flexible work schedule and would elect
to receive no salary increase in 1996. The Committee and the Board concurred in
Mr. Rea's election.
In 1994, the Compensation/Stock Option Committee contracted for the
services of Strategic Compensation Associates to review management compensation
and to provide recommendations with respect to compensation program design and
implementation. The Committee received a comprehensive report from Strategic
Compensation Associates and reviewed it in detail with a representative of
Strategic Compensation Associates.
In November 1996, the Compensation/Stock Option Committee recommended, and
the Board of Directors subsequently approved, a 10.5% salary increase for Chief
Operating Officer, Robert V. Kavanaugh, based upon the recommendation of its
outside compensation consultants. Salaries of the remaining four executive
officers were increased 4% based on the conclusion that such a raise was
appropriate given Stockton Savings' performance.
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<PAGE> 56
Bonus. In 1994, in order to more closely align short-term incentives with
corporate performance, the Compensation/Stock Option Committee recommended, and
the Board of Directors adopted, an Incentive Plan for Stockton Savings
employees. The structure of the Incentive Plan conformed to recommendations made
by the Performance and Compensation Management Division of KPMG Peat Marwick
LLP. Under the Incentive Plan, specific corporate performance factors (return on
equity, return on assets, risk-based capital and nonperforming assets) are
utilized to determine the level of short-term incentive. In 1995, the
Compensation/Stock Option Committee replaced the performance category risk-based
capital with efficiency ratio. Individual performance of the executive is also
taken into consideration. In 1996 bonuses were paid based on the overall
performance of Stockton Savings and the previously specified performance
factors.
Incentive Stock Plan. The Incentive Stock Plan is administered by the
Compensation/Stock Option Committee. The Compensation/Stock Option Committee has
in the past awarded options to all of California Financial's executive officers
because the members of the Compensation/Stock Option Committee believe that
grants of stock options serve to more closely link executive compensation to
stockholder returns. No options were granted in 1996.
401(k) Plan. On June 30, 1995, Stockton Savings curtailed future benefit
accruals under its noncontributory defined benefit pension plan. Effective
August 1, 1995, Stockton Savings modified its 401(k) Plan to permit employer
matching contributions and employer contributions in the form of cash and
California Financial Common Stock.
Executive Compensation Plan. Effective July 1, 1995, Stockton Savings
adopted the ECP. The purpose of the ECP is to restore most of the retirement
benefits of certain executive officers of Stockton Savings as the result of the
curtailment of benefit accruals under the pension plan as of June 30, 1995.
Robert Kavanaugh is currently the sole executive officer participant in the ECP.
Under the ECP, Mr. Kavanaugh's account is credited on the last day of each month
with $3,750; however, his account in the ECP can never exceed $263,789.
Deductibility of Compensation in Excess of $1 Million. Section 162(m) of
the Code limits the ability of a public company, such as California Financial,
to deduct, in 1994 and subsequent years, compensation paid to an executive
officer who is named in its "Summary Compensation Table" in excess of $1 million
per year unless certain conditions are met. Currently, no executive officer of
California Financial is paid compensation exceeding $1 million per annum and it
is not anticipated that any executive officer will be paid in excess of $1
million in 1997. Accordingly, the Compensation/Stock Option Committee has
determined that none of California Financial's compensation programs need to be
revised to comply with Section 162(m) at this time.
Members of the Compensation/Stock Option
Committee
G. Thomas Egan
Gerald L. Barton
Jerald Kirsten
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation/Stock Option Committee are G.
Thomas Egan, Gerald L. Barton and Jerald Kirsten. No member of the
Compensation/Stock Option Committee is a current or former officer or employee
of California Financial or Stockton Savings. Mr. Geiger is not an employee of
California Financial or Stockton Savings Mr. Geiger is a partner in the law firm
of Bray Geiger Rudquist & Nuss, general counsel to California Financial. During
1996, California Financial paid $44,259 to Bray Geiger Rudquist & Nuss for legal
services rendered.
Stockton Savings offers loans to its directors, officers and employees upon
the security of their homes. Prior to the enactment of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), loans
were made on substantially the same terms as those prevailing at the time for
comparable transactions, except that loans to directors and executive officers
were made at an interest rate 1/2%
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<PAGE> 57
above Stockton Savings' monthly cost of funds. Interest rates on loans to
directors and executive officers were adjusted monthly. Loans to employees,
other than directors and executive officers, were made at the same interest rate
as loans to members of the general public but at a reduced loan origination fee.
As a result of the enactment of FIRREA, Section 22(h) of the Federal
Reserve Act, 12 U.S.C. 375b ("FRA"), applies to savings associations as if they
were member banks. Section 22(h) of the FRA requires, among other things, that
loans to directors and executive officers of Stockton Savings be made on
substantially the same terms, including interest rates and collateral, as those
prevailing for other transactions. Thus, the current policy of Stockton Savings
with respect to loans to its directors and executive officers is that such loans
will be made in compliance with Section 22(h) of the FRA.
All loans made by Stockton Savings to California Financial's directors and
executive officers (1) were made in ordinary course of business, (2) were made
on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons, and
(3) did not involve more than the normal risk of collectability or present other
unfavorable features.
STOCK PERFORMANCE GRAPH
The following graph compares the change on an annual basis in California
Financial's cumulative total return on California Financial Common Stock with
(a) the change in the cumulative total return on the stocks included in the
Nasdaq Composite Index for U.S. Companies and (b) the change in the cumulative
total return on the stocks included in the Nasdaq Financial Index, assuming an
initial investment of $100 on December 31, 1991. All of these cumulative total
returns are computed assuming the reinvestment of dividends at the frequency
with which dividends were paid during the period. The California Financial
Common Stock price performance shown below should not be viewed as being
indicative of future performance.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
California
Measurement Period Financial Nasdaq Nasdaq
(Fiscal Year Covered) Holding Co Financial Index Composite Index
<S> <C> <C> <C>
1991 100 100 100
1992 130.89 143.03 116.38
1993 189.62 166.23 133.60
1994 147.19 166.62 130.59
1995 258.11 242.62 184.66
1996 370.58 311.07 227.15
</TABLE>
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<PAGE> 58
PRICE RANGE OF CALIFORNIA FINANCIAL COMMON STOCK AND DISTRIBUTIONS TABLE
The following table sets forth the high ask and low bid prices for
California Financial Common Stock for the periods indicated as reported by the
Nasdaq Stock Market and the distributions paid by California Financial with
respect to each such period.
<TABLE>
<CAPTION>
HIGH/ASK LOW/BID DISTRIBUTIONS
-------- -------- -------------
<S> <C> <C> <C>
1995
First Quarter.................................... $15 $12 $0.11
Second Quarter................................... $17 1/2 $14 $0.11
Third Quarter.................................... $20 1/4 $15 3/8 $0.11
Fourth Quarter................................... $22 $18 3/8 $0.11
1996
First Quarter.................................... $21 3/8 $19 $0.11
Second Quarter................................... $22 1/4 $20 $0.11
Third Quarter.................................... $24 1/4 $21 3/4 $0.11
Fourth Quarter................................... $29 3/4 $22 5/8 $0.11
1997
First Quarter (through March 14, 1997)........... $29 1/4 $28 3/4 $0.11
</TABLE>
SUMMARY COMPENSATION TABLE
The following table provides a three-year summary of compensation for the
chief executive officer ("CEO") and four most highly compensated executive
officers other than the CEO of California Financial whose aggregate salary and
bonus exceeded $100,000 in 1996 (the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
-------------------------------------------------- SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1) OPTIONS(#) COMPENSATION($)
------------------ ---- --------- -------- ------------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
David K. Rea.......... 1996 $107,400 $ 0(3) -- 0 $ 0
Chairman of the Board 1995 $107,400 $ 0(3) -- 0 $ 774(5)(8)
and Chief Executive 1994 $120,900(2) $ 0(3) -- 0 $ 2,166(5)(7)(8)
Officer
Robert V. Kavanaugh... 1996 $230,856 $57,714 -- 0 $128,653(6)(8)
President and Chief 1995 $230,904 $ 0 -- 0 $ 55,927(6)(8)
Operating Officer 1994 $174,290 $ 0 -- 7,271(4) $ 2,166(7)(8)
Jane R. Butterfield... 1996 $135,250 $34,125 -- 0 $ 16,752(9)(10)
Senior Vice President, 1995 $129,000 $ 0 -- 0 $ 10,679(9)(10)
Chief Financial
Officer 1994 $108,000 $ 0 -- 4,326(4) $ 581(9)
and Treasurer
W. Henry Claussen..... 1996 $131,088 $33,126 -- 0 $ 21,319(11)(12)
Senior Vice President 1995 $124,006 $ 0 -- 0 $ 11,407(11)(12)
and Loan Manager 1994 $103,800 $ 0 -- 4,158(4) $ 581(11)
Morris W. Knight...... 1996 $105,103 $26,503 -- 0 $ 23,152(13)(14)
Senior Vice President 1995 $100,006 $ 0 -- 0 $ 10,258(13)(14)
1994 $ 84,000 $ 0 -- 3,365(4) $ 581(13)
</TABLE>
- ---------------
(1) Stockton Savings furnishes automobiles, provides financial planning
services, and provided, through 1994, and reimbursed the officer for, in
1996 and 1995, club memberships and provides other personal benefits to
certain executive officers. The estimated value of such benefits to each
named executive officer is less than $50,000 or 10% of such officer's
salary and bonus for the relevant year.
(2) Mr. Rea became a part-time employee in March 1994.
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<PAGE> 59
(3) In December 1990, Mr. Rea waived his membership in the Stockton Savings
Bank Pension Plan effective July 1, 1988. Mr. Rea waived receipt of a
supplemental pension payment in 1994, 1995 and 1996.
(4) These options were granted on December 19, 1994, at an exercise price of
$12.75 per share, the fair market value of the California Financial Common
Stock on the date of grant.
(5) Does not include the value of the life insurance policy purchased on Mr.
Rea's behalf. Stockton Savings had agreed to pay, upon the death of Mr. Rea
prior to age 75, $200,000 over ten years to his surviving spouse or
children. This obligation was funded by Stockton Savings' purchase of a
single premium life insurance policy in 1984 at a cost of $50,000. This
policy was terminated in 1995.
(6) Includes in 1996 $13,851 contributed by Stockton Savings to his account in
Stockton Savings' 401(k) plan, $67,500 paid with respect to his account in
Stockton Savings' ECP and $40,844 paid as compensation for excess
sick-leave. Includes in 1995 $26,178 paid as compensation for excess sick-
leave, $6,349 contributed by Stockton Savings to his account in Stockton
Savings' 401(k) Plan and $22,500 accrued with respect to his account in
Stockton Savings' ECP.
(7) Includes $2,000 for services as a director of Stockton Savings in 1994.
(8) Includes $774 in 1995 with respect to Mr. Rea, $6,458 in 1996 and $900 in
1995 with respect to Mr. Kavanaugh, and $166 in 1994, representing the
dollar value of term life insurance paid for by Stockton Savings with
respect to which the executive may designate the beneficiary.
(9) Includes $607 in 1996, $900 in 1995 and $581 in 1994, representing the
dollar value of term life insurance paid for by Stockton Savings with
respect to which Ms. Butterfield may designate the beneficiary.
(10) Includes $8,030 in 1996 and $6,231 in 1995 paid as compensation for excess
sick-leave and $8,115 in 1996 and $3,548 in 1995 contributed by Stockton
Savings to her account in Stockton Savings' 401(k) Plan.
(11) Includes $938 in 1996, $894 in 1995 and $581 in 1994, representing the
dollar value of term life insurance paid for by Stockton Savings with
respect to which Mr. Claussen may designate the beneficiary.
(12) Includes $12,516 in 1996 and $7,103 in 1995 paid as compensation for excess
sick-leave and $7,865 in 1996 and $3,410 in 1995 contributed by Stockton
Savings to his account in Stockton Savings' 401(k) Plan.
(13) Includes $2,355 in 1996, $722 in 1995 and $581 in 1994, representing the
dollar value of term life insurance paid for by Stockton Savings with
respect to which Mr. Knight may designate the beneficiary.
(14) Includes $14,491 in 1996 and $6,785 in 1995 paid as compensation for excess
sick-leave and $6,306 in 1996 and $2,751 in 1995 contributed by Stockton
Savings to his account in Stockton Savings' 401(k) Plan.
CHANGE IN CONTROL AGREEMENTS
As of June 21, 1993 ("Change in Control Date"), Stockton Savings entered
into change in control agreements with each of the Named Executive Officers.
Effective March 18, 1996 ("New Change in Control Date"), the change in control
agreements for Mr. Kavanaugh, Ms. Butterfield, Mr. Claussen and Mr. Knight were
amended and restated. Mr. Rea's change in control agreement was not amended and
restated at that time (although it was amended as of November 21, 1994).
Mr. Rea's change in control agreement provides that, if his employment with
Stockton Savings is terminated:
(1) by Stockton Savings contemporaneously with or within one year
after the happening of a "Change in Control" for any reason other than (A)
for "Cause," (B) upon his death or disability, or (C) due to the request or
demand of any regulatory authority; or
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<PAGE> 60
(2) by him, contemporaneously with or within one year after a Change
in Control, for "Good Reason,"
he shall, notwithstanding such termination, be treated by Stockton Savings as an
employee for all purposes for a period of one year commencing on the date such
termination of employment is otherwise effective. This means that, among other
things:
(1) Stockton Savings shall pay to Mr. Rea his regular base salary, at
the rate then in effect (unless a reduction in compensation has preceded
his resignation or retirement for Good Reason, in which case the rate of
base salary payable under the change in control agreement shall be the rate
in effect prior to such reduction) for one year at the times and in
installments consistent with Stockton Savings' payroll practices then in
effect;
(2) at Stockton Savings' expense, he shall participate in and be
covered by all employee benefit and compensation plans, programs, policies
or arrangements of Stockton Savings applicable to executive employees,
whether funded or unfunded, for a period of one year; and
(3) Stockton Savings shall pay to Mr. Rea an amount equal to the bonus
he received under Stockton Savings' bonus plan with respect to the
preceding fiscal year.
The payments under Mr. Rea's change in control agreement are subject to and
conditioned upon their compliance with 12 U.S.C. Section 1828(k) and any
regulations promulgated thereunder. As consideration for entering into the
change in control agreement, Mr. Rea agreed to remain in the employ of Stockton
Savings until June 21, 1994.
Under Mr. Rea's change in control agreement, the term "Cause" is defined as
his personal dishonesty, incompetence, willful misconduct, breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, or regulation (other than traffic violations
or similar offenses) or final cease-and-desist order, or material breach of any
provision of the change in control agreement. The term "Good Reason" is defined,
absent his written consent to the contrary, to be:
(1) any material breach by Stockton Savings of its obligations
contained in the change in control agreement;
(2) the assignment to him of any duties inconsistent with the status
of his position with Stockton Savings on the day immediately preceding the
happening of a Change in Control or an alteration in the nature or status
of his duties and responsibilities that renders his position to be of less
dignity, responsibility or scope from that which existed on the day
immediately preceding the happening of a Change in Control;
(3) a reduction by Stockton Savings in his annual base salary as in
effect on the day immediately preceding the happening of a Change in
Control or as the same may be increased from time to time, except for
proportional across-the-board salary reductions similarly affecting all
employees of Stockton Savings;
(4) the relocation of Stockton Savings' principal executive offices to
a location other than Stockton, California, or Stockton Savings' requiring
him to be based anywhere other than Stockton Savings' principal executive
offices except for required travel on Stockton Savings' business to an
extent substantially consistent with his present business travel
obligations; or
(5) any material reduction by Stockton Savings or California Financial
of the benefits enjoyed by him under any of Stockton Savings' or California
Financial's pension, retirement, profit sharing, savings, life insurance,
medical, health-and-accident, disability or other employee benefit plans,
programs or arrangements as in effect from time to time, the taking of any
action by Stockton Savings or California Financial that would directly or
indirectly materially reduce any of such benefits or deprive him of any
material fringe benefits, or the failure by Stockton Savings to provide him
with the number of paid vacation days to which he is entitled on the basis
of years of service with Stockton Savings in accordance
56
<PAGE> 61
with Stockton Savings' normal vacation policy, other than any proportional
across-the-board reduction or action similarly affecting all employees of
Stockton Savings or California Financial.
A "Change in Control" is defined in Mr. Rea's change in control agreement
as the occurrence, after the Change in Control Date, of any of the following
events, directly or indirectly or in one or more series of transactions:
(1) A consolidation or merger of Stockton Savings or California
Financial with any entity unless Stockton Savings or California Financial
is the entity surviving in such merger or consolidation;
(2) A transfer of all or substantially all of the assets of Stockton
Savings or California Financial;
(3) Any person, entity or group, directly or indirectly, through one
or more subsidiaries or transactions or acting in concert with one or more
persons or entities, (A) acquires more than 20% of any class of voting
stock of Stockton Savings or California Financial; (B) acquires irrevocable
proxies representing more than 20% of any class of voting stock of Stockton
Savings or California Financial; (C) acquires any combination of voting
stock and irrevocable proxies representing more than 20% of any class of
voting stock of Stockton Savings or California Financial; (D) acquires the
ability to control in any manner the election of a majority of the
directors of Stockton Savings or California Financial; or (E) acquires the
ability to directly or indirectly exercise a controlling influence over the
management or policies of Stockton Savings or California Financial;
(4) Any election has occurred of persons to the Board of Directors of
California Financial that causes a majority of the Board of Directors of
California Financial to consist of persons other than (A) persons who were
members of the Board of Directors of California Financial on the Change in
Control Date and/or (B) persons who were nominated for election as members
of such Board by the Board of Directors of California Financial (or a
committee of such Board) at a time when the majority of such Board (or of
such committee) consisted of persons who were members of the Board of
Directors of California Financial on the Change in Control Date; or
(5) A determination is made by the OTS, the Federal Deposit Insurance
Corporation ("FDIC"), the Commission or any similar agency having
regulatory control over Stockton Savings or California Financial that a
change in control, as defined in the banking, insurance, or securities laws
or regulations then applicable to Stockton Savings or California Financial,
has occurred.
The change in control agreements with Mr. Kavanaugh, Ms. Butterfield, Mr.
Claussen and Mr. Knight provide that, if the executive officer's employment with
Stockton Savings is terminated:
(1) by Stockton Savings, contemporaneously with or within the
"Applicable Number of Months" after a "Change in Control," for any reason
other than (A) for "Cause" or (B) upon the death or "Disability" of the
executive officer;
(2) by the executive officer, contemporaneously with or within the
Applicable Number of Months after a Change in Control, for "Good Reason";
or
(3) before a Change in Control occurs either (A) by Stockton Savings
other than for Cause or upon the death or Disability of the executive
officer, or (B) by the executive officer for Good Reason, and in either
case it is reasonably demonstrated that the termination of employment (i)
was at the request of a "Third Party" that has taken steps reasonably
calculated to effect a Change in Control or (ii) otherwise arose in
connection with or in anticipation of a Change in Control,
then the executive officer shall be entitled to receive certain payments.
"Applicable Number of Months" means thirty-six months for Mr. Kavanaugh, and
twenty-four months for Messrs. Knight and Claussen and Ms. Butterfield, which
twenty-four months is based on twelve months plus one month for each full year
of service with Stockton Savings prior to termination of employment, up to a
maximum of twenty-four months in the aggregate.
57
<PAGE> 62
Under these change in control agreements, Stockton Savings is obligated to
pay the executive officer:
(1) within ten days after the termination of his or her employment, a
lump sum payment equal to the aggregate of the future base salary payments
the executive officer would have received if he or she had continued in
Stockton Savings' employ until the Applicable Number of Months following
the date his or her employment is terminated (unless a reduction in
compensation preceded the executive officer's resignation or retirement for
Good Reason, in which case Stockton Savings shall pay the executive officer
a lump sum payment based on his or her highest base salary in effect during
the twelve-month period preceding the termination of employment),
discounted to present value;
(2) within ten days after the termination of his or her employment, a
lump sum payment equal to his or her projected bonus for the current year,
which shall be computed assuming that the executive officer had remained in
the employ of Stockton Savings until the end of the current year and that
all performance goals or other performance measures have been met at the
then current level for the remainder of the year; and
(3) during the Applicable Number of Months following the date the
executive officer's employment is terminated, at Stockton Savings' expense,
the executive officer shall participate in and be covered by all employee
benefit plans, programs, policies or arrangements of Stockton Savings
applicable to executive employees, whether funded or unfunded.
The payments under these change in control agreements are subject to and
conditioned upon their compliance with 12 U.S.C. Section 1828(k) and any
regulations promulgated thereunder. In addition, if any portion of any payment
by Stockton Savings or California Financial under a change in control agreement
or otherwise would constitute an "excess parachute payment," then the payments
to be made to the executive officer under the agreement will be reduced such
that the value of the aggregate payments that executive officer is entitled to
receive under the agreement and any other agreement, plan or program of Stockton
Savings and/or California Financial shall be $1 less than the maximum amount of
payments that executive officer may receive without becoming subject to the tax
imposed by Section 4999 of the Code. As consideration for entering into the
amended and restated change in control agreements, the executive officers agreed
to remain in the employ of Stockton Savings until March 18, 1997.
In these change in control agreements, the term "Cause" is defined as the
executive officer's personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule, or regulation (other
than traffic violations or similar offenses) or final cease-and-desist order, or
material breach of any provision of the agreement. The term "Disability" is
defined as the complete inability of the executive officer to perform his or her
duties by reason of his or her total and permanent disability, as determined by
an independent physician selected with the approval of Stockton Savings' Board
of Directors and the executive officer. The term "Good Reason" is defined,
absent the executive officer's written consent to the contrary, to be:
(1) any material breach by Stockton Savings of its obligations
contained in the change in control agreement;
(2) the assignment to the executive officer of any duties inconsistent
with the status of his or her position with Stockton Savings on the day
immediately preceding the happening of a Change in Control or an alteration
in the nature or status of his or her duties and responsibilities that
renders his or her position to be of less dignity, responsibility or scope
from that which existed on the day immediately preceding the happening of a
Change in Control; however, in the event the executive officer terminates
his or her employment prior to a Change in Control, the assignment or
alteration must have occurred reasonably contemporaneously with such
termination of employment;
(3) a reduction by Stockton Savings in the executive officer's annual
base salary as in effect on the day immediately preceding the happening of
a Change in Control or as the same may be increased from time to time,
except for proportional across-the-board salary reductions similarly
affecting all of Stockton Savings' employees; however, in the event the
executive officer terminates his or her employment prior to
58
<PAGE> 63
a Change in Control, the reduction in annual base salary must have occurred
reasonably contemporaneously with such termination of employment;
(4) the relocation of Stockton Savings' principal executive offices to
a location other than Stockton, California or Stockton Savings' requiring
the executive officer to be based anywhere other than Stockton Savings'
principal executive offices except for required travel on Stockton Savings'
business to an extent substantially consistent with his or her present
business travel obligations; or
(5) any material reduction by Stockton Savings or California Financial
of the benefits enjoyed by the executive officer under any of Stockton
Savings' or California Financial's pension, retirement, profit sharing,
savings, life insurance, medical, health-and-accident, disability or other
employee benefit plans, programs or arrangements as in effect from time to
time, the taking of any action by Stockton Savings or California Financial
that would directly or indirectly materially reduce any of such benefits or
deprive the executive officer of any material fringe benefits, or the
failure by Stockton Savings to provide the executive officer with the
number of paid vacation days to which he or she is entitled on the basis of
years of service with Stockton Savings in accordance with Stockton Savings'
normal vacation policy, other than proportional across-the-board reduction
or action similarly affecting all employees of Stockton Savings or
California Financial.
A "Change in Control" is defined as the occurrence, after the New Change in
Control Date, of any of the following events, directly or indirectly or in one
or more series of transactions:
(1) A consolidation or merger of Stockton Savings or California
Financial with any third party (which includes a single person or entity or
a group of persons or entities acting in concert) not wholly owned directly
or indirectly by Stockton Savings or California Financial (a "Third
Party"), unless Stockton Savings or California Financial is the entity
surviving such merger or consolidation;
(2) A transfer of all or substantially all of the assets of Stockton
Savings or California Financial to a Third Party or a complete liquidation
or dissolution of Stockton Savings or California Financial;
(3) A Third Party, directly or indirectly, through one or more
subsidiaries or transactions or acting in concert with one or more persons
or entities: (A) acquires beneficial ownership of more than 20% of any
class of voting stock of Stockton Savings or California Financial; (B)
acquires irrevocable proxies representing more than 20% of any class of
voting stock of Stockton Savings or California Financial; (C) acquires any
combination of beneficial ownership of voting stock and irrevocable proxies
representing more than 20% of any class of voting stock of Stockton Savings
or California Financial; (D) acquires the ability to control in any manner
the election of a majority of the directors of Stockton Savings or
California Financial; or (E) acquires the ability to directly or indirectly
exercise a controlling influence over the management or policies of
Stockton Savings or California Financial;
(4) Any election has occurred of persons to the Board of Directors of
California Financial ("Board") that causes a majority of the Board to
consist of persons other than (A) persons who were members of the Board on
the New Change in Control Date and/or (B) persons who were nominated for
election as members of the Board by the Board (or a committee of the Board)
at a time when the majority of the Board (or of such committee) consisted
of persons who were members of the Board on the New Change in Control Date;
or
(5) A determination is made by the OTS, the FDIC, the Commission or
any similar agency having regulatory control over Stockton Savings or
California Financial that a change in control, as defined in the banking,
insurance, or securities laws or regulations then applicable to Stockton
Savings or California Financial, has occurred.
See "Proposal Requesting Approval of The Merger -- Interests of Certain
Persons in The Merger," for a discussion of the payments to be made pursuant to
these agreements as a result of the Merger.
59
<PAGE> 64
PENSION PLAN
Stockton Savings maintains a defined benefit pension and disability plan
for all of its eligible employees ("Pension Plan"). An employee is eligible for
participation in the Pension Plan if he or she has: (i) attained the age of 20
and (ii) completed at least six months of eligible service. The Pension Plan
provides normal retirement benefits in an amount equal to the sum of (a) 2.5% of
monthly compensation for each year of service and (b) .5% of monthly
compensation in excess of $700 for each year of service times (c) the number of
years of benefit service. Monthly compensation is the participant's basic rate
of compensation as of March 31 of the current plan year. The Pension Plan also
provides for early retirement benefits at age 60 and disability benefits.
The following table sets forth the estimated annual benefits payable under
the Pension Plan on retirement at normal retirement (age 65) for the
compensation levels and number of years of service noted (assuming the
limitation under Section 415 of the Code is adjusted from time to time by the
Secretary of the Treasury to be greater than $150,000 in effect for plan-years
1994 and 1995 and/or the grandfathered limit of $235,840 in effect for plan-year
1993 that is used to calculate benefits):
<TABLE>
<CAPTION>
YEARS OF SERVICE(2)
-------------------------------------------------------
REMUNERATION(1) 15 20 25 30 35
--------------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 10,200................... $ 3,960 $ 5,280 $ 6,600 $ 7,920 $ 9,240
$ 18,000................... 7,470 9,960 12,450 14,940 17,430
$ 36,000................... 15,570 20,760 25,950 31,140 36,330
$ 72,000................... 31,770 42,360 52,950 63,540 74,130
$108,000................... 47,970 63,960 79,950 95,940 111,930
$144,000................... 64,170 85,560 106,950 128,340 149,730
$180,000................... 80,370 107,160 133,950 160,740 187,530
$200,000................... 89,371 119,160 148,950 178,740 208,530
</TABLE>
- ---------------
(1) Compensation is based upon a participant's salary as of March 31 of the
current plan year and includes regular salary but excludes all bonuses,
incentive pay and overtime payments.
(2) Maximum annual pension benefits are limited under Section 415 of the Code to
$120,000 currently (subject to further adjustment by the Secretary of the
Treasury based on cost of living factors). The Pension Plan provides for
elections as to form of payment (e.g., lump sum distribution or annuities).
The benefits listed are not subject to offset for payments received from
other sources.
The Pension Plan provides for vesting as follows:
<TABLE>
<CAPTION>
PERCENTAGE
YEARS OF PARTICIPATION VESTED
---------------------- ----------
<S> <C>
Zero-Two.................................................... 0%
Two......................................................... 20%
Three....................................................... 40%
Four........................................................ 60%
Five........................................................ 80%
Six or more................................................. 100%
</TABLE>
Years of service credited to the Pension Plan for the Named Executive
Officers were: Mr. Kavanaugh, 36 years, Ms. Butterfield, 11 years, Mr. Knight,
14 years and Mr. Claussen, 16 years. As of June 30, 1988, Mr. Rea was no longer
covered by the Pension Plan.
On June 30, 1995, Stockton Savings curtailed future benefit accruals and
service under the Pension Plan by "freezing" the Pension Plan under the
provisions of Statement of Financial Accounting Standards No. 88. For a
discussion of the impact of the Agreement on the Pension Plan, see "Proposal
Requesting Approval of the Merger -- Interests of Certain Persons in the
Merger."
60
<PAGE> 65
EXECUTIVE COMPENSATION PLAN
Effective July 1, 1995, Stockton Savings adopted an Executive Compensation
Plan. The purpose of the ECP is to restore most of the retirement benefits of
certain selected executive officers of Stockton Savings as the result of the
curtailment of benefit accruals under the pension plan as of June 30, 1995.
Named Executive Officer participation in the ECP is currently limited to Mr.
Kavanaugh.
Under the ECP, Mr. Kavanaugh's account is credited on the last day of each
month with $3,750; however, his account in the ECP can never exceed $263,789.
Because of Mr. Kavanaugh's years of service with Stockton Savings, his account
in the ECP is fully vested.
In the event Mr. Kavanaugh retires from service with Stockton Savings after
reaching age 65 (or at such earlier date as may be approved by the
Compensation/Stock Option Committee), he may elect to receive the value of his
account in the ECP in the form of a lump sum payment or in installments over a
12 to 36 month period. In the event of his death, his beneficiary receives the
value of his account in the ECP in a lump sum. In the event Mr. Kavanaugh
otherwise terminates his employment with Stockton Savings, Stockton Savings
determines whether he receives the value of his account in the ECP in the form
of a lump sum payment or in installments over up to 36 months. Pursuant to the
Agreement, certain payments shall be made with respect to the ECP, and the ECP
shall be terminated prior to the Effective Date. See "Proposal Requesting
Approval of the Merger -- Interests of Certain Persons in the Merger."
401(K) PLAN
Effective August 1, 1995, Stockton Savings modified its 401(k) Plan. Prior
to August 1, the 401(k) Plan was funded entirely by employee contributions. On
August 1, 1995 the 401(k) Plan became a defined contribution profit sharing
plan. Stockton Savings makes a monthly cash contribution equal to 5 percent of
each employee's base salary and an employer matching contribution of .25 percent
for each 1 percent of employees contribution up to a maximum contribution of
1.00 percent by Stockton Savings. Stockton Savings also contributes 1.50 percent
of each employee's base salary in California Financial Common Stock on a monthly
basis. Stockton Savings' total contribution ranges from 6.50 percent of base
salary to 7.50 percent of base salary, depending on the level of employee
contribution. The assets of the 401(k) Plan are maintained by a trustee and
administered by Stockton Savings. Pursuant to the Agreement, Temple-Inland and
Guaranty Federal intend to merge the Stockton Savings 401(k) Plan into
Temple-Inland's 401(k) plan. See "Proposal Requesting Approval of the
Merger -- Employee Benefits."
61
<PAGE> 66
OPTIONS AND STOCK APPRECIATION RIGHTS GRANTED DURING THE YEAR ENDED DECEMBER 31,
1996
The following table contains certain information regarding options granted
during 1996 to the Named Executive Officers. No stock appreciation rights
("SARs") were granted to any Named Executive Officer during 1996.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZED
--------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/ PRICE APPRECIATION FOR
UNDERLYING SARS GRANTED EXERCISE OR OPTION TERM
OPTIONS/SARS TO EMPLOYEES BASE PRICE EXPIRATION ----------------------
NAME GRANTED(#) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ------------ -------------- ----------- ----------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
David K. Rea............ 0 -- -- -- -- --
Chief Executive Officer
Robert V. Kavanaugh..... 5,591 39.5% $19.625 February 10, 2006 $69,004 $174,870
President and Chief
Operating Officer
Jane R. Butterfield..... 3,124 22.10% $19.625 February 10, 2006 $38,557 $ 97,710
Senior Vice President,
Chief Financial
Officer and Treasurer
W. Henry Claussen....... 3,003 21.24% $19.625 February 10, 2006 $37,063 $ 93,925
Senior Vice President
and Loan Manager
Morris W. Knight........ 2,422 17.13% $19.625 February 10, 2006 $29,892 $ 75,753
Senior Vice President
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN 1996 AND OPTION/SAR VALUES AT DECEMBER 31,
1996
The following table contains certain information regarding options
exercised by the Named Executive Officers in 1996. No Named Executive Officer
holds any SARs.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, AT DECEMBER 31,
1996(#) 1996($)
SHARES -------------------- --------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- -------------------- --------------------
<S> <C> <C> <C> <C>
David K. Rea....................... 0 $ 0 13,082/0(1) $270,738/$0
Robert V. Kavanaugh................ 4,000 $ 82,780(2) 38,199/0(1) $614,144/$0
Jane R. Butterfield................ 0 $ 0 26,417/0(1) $436,152/$0
W. Henry Claussen.................. 0 $ 0 17,011/0(1) $272,275/$0
Morris W. Knight................... 5,472 $113,253(3) 16,142/0(1) $248,022/$0
</TABLE>
- ---------------
(1) In the event of a change of control of California Financial, all options
become immediately exercisable.
(2) Based on fair market value on date of exercise, December 20, 1996, of
$29.1875 per share and exercise price of $8.18 per share.
(3) Based on fair market value on date of exercise, December 26, 1996, of
$29.1875 per share and exercise price of $8.18 per share.
62
<PAGE> 67
RELATIONSHIP WITH INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has continuously served as the independent auditor
for California Financial from 1987 through the present. A representative of KPMG
Peat Marwick LLP is expected to be present at the Meeting, will have an
opportunity to make a statement if he desires and will be available to respond
to appropriate questions.
VALIDITY OF SHARES
The validity of the shares of Temple-Inland Common Stock offered hereby
will be passed upon for Temple-Inland by Manatt, Phelps & Phillips, LLP, as
counsel to Temple-Inland.
EXPERTS
The consolidated financial statements of Temple-Inland and subsidiaries
incorporated by reference in Temple-Inland's Annual Report (Form 10-K) for the
year ended December 28, 1996, and the related financial statement schedule
included therein, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their reports thereon incorporated by reference or included
therein and incorporated herein by reference. Such consolidated financial
statements and schedule are incorporated herein by reference in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of California Financial incorporated
by reference in California Financial's Annual Report (Form 10-K) for the year
ended December 31, 1996, have been audited by KPMG Peat Marwick LLP, independent
auditors, as set forth in their report thereon incorporated by reference therein
and incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing. The report of KPMG
Peat Marwick LLP dated February 21, 1997 refers to the adoption by California
Financial of the Financial Accounting Standards Board's Statement of Financial
Accounting Standard No. 122, Accounting for Mortgage Servicing Rights.
OTHER MATTERS
As of the date of this Proxy Statement-Prospectus, California Financial
knows of no business other than that described herein that will be presented for
consideration at the Meeting. If, however, any other business shall properly
come before the Meeting, the proxy holders intend to vote the proxies as
determined by a majority of the Board of Directors of California Financial.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting of Stockholders of California Financial must be received by California
Financial no later than December 5, 1997, to be considered for inclusion in
California Financial's Proxy Statement and form of proxy relating to such
meeting.
63
<PAGE> 68
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TEMPLE-INLAND INC.,
CALIFORNIA FINANCIAL HOLDING COMPANY,
GUARANTY FEDERAL BANK, F.S.B.
AND
STOCKTON SAVINGS BANK, F.S.B.
DECEMBER 8, 1996
<PAGE> 69
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
DEFINITIONS........................................................ 2
1.1 "Adjusted Price Per Share".................................. 2
1.2 "Affiliate"................................................. 2
1.3 "Affiliated Group".......................................... 2
1.4 "Agreement of Bank Merger".................................. 2
1.5 "Aggregate Deal Value"...................................... 2
1.6 "Applicable Exchange Ratio"................................. 2
1.7 "Applicable Price Per Share"................................ 2
1.8 "Applicable TI Stock Amount"................................ 2
1.9 "Bank Merger"............................................... 2
1.10 "Base Stock Amount"......................................... 3
1.11 "Cal/Fin Development"....................................... 3
1.12 "Cash and Stock Certificate"................................ 3
1.13 "Certificate of Merger"..................................... 3
1.14 "CFHC Conflicts and Consents List".......................... 3
1.15 "CFHC Contract List"........................................ 3
1.16 "CFHC Derivatives List" has the meaning set forth in Section
4.31........................................................ 3
1.17 "CFHC Dividend Reinvestment Plan"........................... 3
1.18 "CFHC Employee Plan List"................................... 3
1.19 "CFHC Environmental Compliance List"........................ 3
1.20 "CFHC Filings".............................................. 3
1.21 "CFHC Indemnification List"................................. 3
1.22 "CFHC Insurance List"....................................... 3
1.23 "CFHC Investment Securities List"........................... 3
1.24 "CFHC Intellectual Property List"........................... 3
1.25 "CFHC List"................................................. 3
1.26 "CFHC Litigation List"...................................... 4
1.27 "CFHC Loan List"............................................ 4
1.28 "CFHC Material Adverse Effect List"......................... 4
1.29 "CFHC Offices List"......................................... 4
1.30 "CFHC Option"............................................... 4
1.31 "CFHC Option List" has the meaning set forth in Section
4.2(a)...................................................... 4
1.32 "CFHC Personal Property List"............................... 4
1.33 "CFHC Pledgee List"......................................... 4
1.34 "CFHC Property"............................................. 4
1.35 "CFHC Real Property List"................................... 4
1.36 "CFHC Stockholders' Meeting"................................ 4
1.37 "CFHC Stock Option Plan".................................... 4
1.38 "CFHC Stock"................................................ 4
1.39 "CFHC Subsidiaries"......................................... 4
1.40 "CFHC Tax List"............................................. 4
1.41 "CFHC Undisclosed Liabilities List"......................... 4
1.42 "Classified Credits" has the meaning set forth in Section
4.29. ...................................................... 4
1.43 "Closing"................................................... 5
1.44 "Closing Date".............................................. 5
1.45 "Code"...................................................... 5
1.46 "Combination Cash Election"................................. 5
1.47 "Combination Stock Election"................................ 5
</TABLE>
A-i
<PAGE> 70
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1.48 "Competing Transaction"..................................... 5
1.49 "Covered Person" has the meaning set forth in Section
4.27........................................................ 5
1.50 "Delaware Secretary"........................................ 5
1.51 "Derivatives Contract"...................................... 5
1.52 "Dissenting Shares"......................................... 5
1.53 "Effective Time of the Bank Merger"......................... 5
1.54 "Effective Time of the Holding Company Merger".............. 5
1.55 "Election".................................................. 5
1.56 "Election Deadline"......................................... 5
1.57 "Election Form"............................................. 5
1.58 "Election Form Record Date"................................. 5
1.59 "Encumbrance"............................................... 6
1.60 "Environmental Regulations"................................. 6
1.61 "ERISA"..................................................... 6
1.62 "Ernst & Young"............................................. 6
1.63 "Exchange Act".............................................. 6
1.64 "Exchange Agent"............................................ 6
1.65 "Exchange Fund" has the meaning set forth in Section
2.7. ....................................................... 6
1.66 "FDIC"...................................................... 6
1.67 "Final TI Stock Price"...................................... 6
1.68 "Financial Statements of CFHC".............................. 6
1.69 "Financial Statements of TI"................................ 6
1.70 "Governmental Entity"....................................... 6
1.71 "Guaranty Stock"............................................ 6
1.72 "Hazardous Materials"....................................... 7
1.73 "HOLA"...................................................... 7
1.74 "Holding Company Merger".................................... 7
1.75 "Immediate Family".......................................... 7
1.76 "Investment Security"....................................... 7
1.77 "IRS"....................................................... 7
1.78 "List"...................................................... 7
1.79 "Mailing Date".............................................. 7
1.80 "Material Adverse Effect" has the meaning set forth in
Section 14.3. .............................................. 7
1.81 "Mergers"................................................... 7
1.82 "NYSE"...................................................... 7
1.83 "OTS"....................................................... 7
1.84 "OTS Regulations"........................................... 7
1.85 "Peat Marwick".............................................. 7
1.86 "Person".................................................... 7
1.87 "Proxy Statement"........................................... 7
1.88 "Related Group of Persons".................................. 7
1.89 "S-4 Registration Statement"................................ 7
1.90 "Scheduled Contracts"....................................... 8
1.91 "SEC"....................................................... 8
1.92 "Securities Act"............................................ 8
1.93 "Stock Election"............................................ 8
1.94 "Stockton Financial"........................................ 8
1.95 "Stockton Securities"....................................... 8
1.96 "Stockton Service".......................................... 8
1.97 "Stockton Stock"............................................ 8
1.98 "Surviving Bank"............................................ 8
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1.99 "Tank"...................................................... 8
1.100 "Taxes"..................................................... 8
1.101 "Tax Return"................................................ 8
1.102 "Tax Sharing Agreement"..................................... 8
1.103 "TI Conflicts and Consents List"............................ 9
1.104 "TI Material Adverse Effect List"........................... 9
1.105 "TI List"................................................... 9
1.106 "TI Stock".................................................. 9
1.107 "Top Up Stock Amount"....................................... 9
1.108 "Top Up Option"............................................. 9
ARTICLE II
THE MERGERS AND RELATED MATTERS.................................... 9
2.1 The Holding Company Merger.................................. 9
2.2 Top Up Option............................................... 10
2.3 Fractional Shares........................................... 10
2.4 Treatment of CFHC Options................................... 10
2.5 Election and Proration Procedures........................... 10
2.6 Computation and Confirmation of Certain Items............... 13
2.7 Exchange Procedures......................................... 14
2.8 Dissenting Shares........................................... 16
2.9 Adjustments for Dilution and Other Matters.................. 16
2.10 Effect of the Holding Company Merger........................ 16
2.11 Name of Corporation Surviving the Holding Company Merger.... 16
2.12 Certificate of Incorporation and Bylaws of Corporation
Surviving the Holding Company Merger........................ 16
2.13 Directors and Officers of Corporation Surviving the Holding
Company Merger.............................................. 16
ARTICLE III
THE CLOSING........................................................ 17
3.1 Closing Date................................................ 17
3.2 Execution of Merger Agreements.............................. 17
3.3 Documents to be Delivered................................... 17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CFHC AND STOCKTON................ 17
4.1 Incorporation, Standing and Power........................... 17
4.2 Capitalization.............................................. 18
4.3 Subsidiaries................................................ 19
4.4 Financial Statements........................................ 20
4.5 Reports and Filings......................................... 20
4.6 Authority of CFHC and Stockton.............................. 20
4.7 Insurance................................................... 21
4.8 Title to Assets............................................. 22
4.9 Real Estate................................................. 22
4.10 Litigation.................................................. 22
4.11 Taxes....................................................... 22
4.12 Compliance with Laws and Regulations........................ 25
4.13 Performance of Obligations.................................. 26
4.14 Employees................................................... 27
4.15 Registration Obligation..................................... 27
4.16 Brokers and Finders......................................... 27
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4.17 Material Contracts.......................................... 27
4.18 Certain Material Changes.................................... 29
4.19 Licenses and Permits........................................ 30
4.20 Undisclosed Liabilities..................................... 30
4.21 Employee Benefit Plans...................................... 30
4.22 Corporate Records........................................... 32
4.23 Community Reinvestment Act.................................. 32
4.24 Regulatory Actions.......................................... 32
4.25 Insider Loans; Other Transactions........................... 33
4.26 Accounting Records.......................................... 33
4.27 Indemnification............................................. 34
4.28 Offices and ATMs............................................ 34
4.29 Loan Portfolio.............................................. 34
4.30 Investment Securities....................................... 34
4.31 Derivatives Contracts; Structured Notes; Etc. .............. 35
4.32 Power of Attorney........................................... 35
4.33 Material Interests of Certain Persons....................... 35
4.34 Tax Matters................................................. 35
4.35 Facts Affecting Regulatory Approvals........................ 35
4.36 Disclosure Documents and Applications....................... 35
4.37 Certain Regulatory Matters.................................. 36
4.38 Corporate Approval.......................................... 36
4.39 Intellectual Property....................................... 36
4.40 Accuracy and Currentness of Information Furnished........... 36
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TI AND GUARANTY.................. 37
5.1 Incorporation, Standing and Power........................... 37
5.2 Authority of TI and Guaranty................................ 37
5.3 Tax Representations......................................... 38
5.4 Disclosure Documents and Applications....................... 38
5.5 Reports and Filings......................................... 38
5.6 Corporate Approval.......................................... 39
5.7 Absence of Certain Changes or Events........................ 39
5.8 Access to Funds............................................. 39
5.9 Facts Affecting Regulatory Approvals........................ 39
5.10 Accuracy and Currentness of Information Furnished........... 39
ARTICLE VI
COVENANTS OF CFHC AND STOCKTON PENDING EFFECTIVE TIME OF THE
MERGERS.......................................................... 39
6.1 Limitation on CFHC's and Stockton's Conduct Prior to
Effective Time.............................................. 39
6.2 Affirmative Conduct of CFHC and Stockton Prior to Effective
Time........................................................ 44
6.3 Access to Information....................................... 45
6.4 Filings..................................................... 46
6.5 Notices; Reports............................................ 47
6.6 CFHC Stockholders' Meeting.................................. 47
6.7 Bank Merger................................................. 47
6.8 Applications................................................ 47
6.9 Certain Loans and Other Extensions of Credit................ 48
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6.10 Affiliates and Five Percent Stockholders.................... 48
6.11 Director and Officer Resignations........................... 49
6.12 Cal/Fin Development......................................... 49
ARTICLE VII
COVENANTS OF TI AND GUARANTY PENDING EFFECTIVE TIME OF THE
MERGERS.......................................................... 49
7.1 Limitation on TI's and Guaranty's Conduct Prior to Effective
Time........................................................ 49
7.2 Affirmative Conduct of TI and Guaranty Prior to Effective
Time........................................................ 50
7.3 Filings..................................................... 50
7.4 Access to Information....................................... 50
7.5 Applications................................................ 51
7.6 Blue Sky.................................................... 51
7.7 Notices; Reports............................................ 51
7.8 Indemnification............................................. 52
7.9 Removal of Conditions....................................... 52
ARTICLE VIII
ADDITIONAL COVENANTS............................................... 53
8.1 Best Efforts................................................ 53
8.2 Public Announcements........................................ 53
8.3 Cancellation of Stock Options and Termination of Stock
Option Plans................................................ 53
8.4 Cancellation of Dividend Reinvestment Plan.................. 53
8.5 Environmental Assessment.................................... 53
8.6 Execution of the Stock Option Agreement..................... 54
8.7 Identification of Designated Director....................... 54
ARTICLE IX
CONDITIONS PRECEDENT TO THE HOLDING COMPANY MERGER................. 54
9.1 Shareholder Approval........................................ 54
9.2 No Judgments or Orders...................................... 54
9.3 Regulatory Approvals........................................ 54
9.4 Securities Laws............................................. 55
9.5 Listing..................................................... 55
9.6 Tax Opinions................................................ 55
ARTICLE X
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CFHC AND STOCKTON....... 55
10.1 Legal Opinion............................................... 55
10.2 Representations and Warranties; Performance of Covenants.... 56
10.3 Authorization of Mergers.................................... 56
10.4 Absence of Certain Changes.................................. 56
10.5 Third Party Consents........................................ 56
10.6 Officers' Certificate....................................... 56
10.7 Fairness Opinion............................................ 56
10.8 Appointment of Director..................................... 57
ARTICLE XI
CONDITIONS PRECEDENT TO OBLIGATIONS OF TI AND GUARANTY............. 57
11.1 Legal Opinion............................................... 57
11.2 Representations and Warranties; Performance of Covenants.... 57
11.3 Authorization of Mergers.................................... 57
11.4 Regulatory Approvals and Related Conditions................. 57
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11.5 Third Party Consents........................................ 58
11.6 Absence of Certain Changes.................................. 58
11.7 Officers' Certificate....................................... 58
11.8 Stockholders' Agreements.................................... 58
11.9 CFHC Options and Stock Option Plans......................... 58
11.10 Employee Benefit Plans...................................... 58
11.11 Dividend Reinvestment Plan.................................. 58
11.12 Pending Litigation.......................................... 58
11.13 Expense Report.............................................. 58
11.14 Loan Loss Reserve........................................... 59
11.15 Remediation................................................. 59
11.16 Resignations................................................ 59
ARTICLE XII
EMPLOYEE BENEFITS.................................................. 59
ARTICLE XIII
TERMINATION........................................................ 59
13.1 Termination................................................. 59
13.2 Termination Date............................................ 60
13.3 Effect of Termination....................................... 61
13.4 Force Majeure............................................... 61
ARTICLE XIV
MISCELLANEOUS...................................................... 61
14.1 Expenses.................................................... 61
14.2 Notices..................................................... 62
14.3 Standards................................................... 63
14.4 Successors and Assigns...................................... 63
14.5 Counterparts................................................ 63
14.6 Effect of Representations and Warranties.................... 64
14.7 Third Parties............................................... 64
14.8 Lists; Exhibits; Integration................................ 64
14.9 Knowledge................................................... 64
14.10 Governing Law............................................... 64
14.11 Captions.................................................... 65
14.12 Severability................................................ 65
14.13 Waiver and Modification; Amendment.......................... 65
14.14 Attorneys' Fees............................................. 65
EXHIBIT LIST....................................................... 68
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER ("Agreement") is made and entered into as
of the 8th day of December, 1996 by and among Temple-Inland Inc., a Delaware
corporation ("TI"), California Financial Holding Company, a Delaware corporation
("CFHC"), Guaranty Federal Bank, F.S.B., a federally chartered savings bank
("Guaranty") and indirect wholly owned subsidiary of TI, and Stockton Savings
Bank, F.S.B., a federally chartered savings bank ("Stockton") and wholly owned
subsidiary of CFHC.
RECITALS
WHEREAS, TI, CFHC, Guaranty and Stockton desire to effect (i) the
acquisition of CFHC by TI by means of a merger of CFHC with and into TI in
accordance with the terms of this Agreement and (ii) immediately thereafter, the
acquisition of Stockton by Guaranty by means of a merger of Stockton with and
into Guaranty in accordance with the terms of this Agreement and the Agreement
of Bank Merger (as defined herein).
WHEREAS, the parties intend that the Mergers (as defined herein) will be
treated for federal income tax purposes as tax-deferred reorganizations within
the meaning of Section 368 of the Code (as defined herein).
WHEREAS, as an inducement to TI to enter into this Agreement, CFHC desires
to grant TI a stock option to purchase 19.9% of the outstanding shares of CFHC,
under certain circumstances, and pursuant to that certain Stock Option Agreement
attached hereto as Exhibit A.
WHEREAS, TI, CFHC, Guaranty and Stockton desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated by this Agreement.
NOW, THEREFORE, on the basis of the foregoing recitals and in consideration
of the mutual representations, warranties, covenants and agreements contained
herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Except as otherwise expressly provided for in this Agreement, or unless the
context otherwise requires, as used throughout this Agreement the following
terms shall have the respective meanings specified below:
1.1 "Adjusted Price Per Share" means $30.00 less the product of (x) .3375
times (y) the difference between $40.00 and the Final TI Stock Price.
1.2 "Affiliate" of, or a Person "Affiliated" with, a specific Person is a
Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Person
specified.
1.3 "Affiliated Group" means, with respect to any entity, a group of
entities required or permitted to file consolidated, combined, or unitary Tax
Returns.
1.4 "Agreement of Bank Merger" means the Agreement of Bank Merger to be
entered into between Guaranty and Stockton substantially in the form of Exhibit
B hereto, but subject to any changes that may be necessary to conform to any
requirements of any Governmental Entity having authority over the Bank Merger.
1.5 "Aggregate Deal Value" means the amount obtained by multiplying the
Applicable Price Per Share times the number of shares of CFHC Stock issued and
outstanding immediately prior to the Effective Time of the Holding Company
Merger.
1.6 "Applicable Exchange Ratio" means the number obtained by dividing the
Applicable Price Per Share by the Final TI Stock Price.
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1.7 "Applicable Price Per Share" means (x) $30.00, if the Final TI Stock
Price is $40.00 or more, or, if the Final TI Stock Price is less than $40.00 but
TI elects the Top Up Option or (y) the Adjusted Price Per Share if the Final TI
Stock Price is less than $40.00, TI does not elect the Top Up Option and CFHC
does not terminate this Agreement pursuant to Section 13.1(h) hereof.
1.8 "Applicable TI Stock Amount" means (x) the Base Stock Amount if the
Final TI Stock Price is $40.00 or more, (y) the Top Up Stock Amount if the Final
TI Stock Price is less than $40.00 and TI elects the Top Up Option, or (z) the
number of shares of TI Stock equal to the quotient obtained by dividing (i) .45
times the Aggregate Deal Value by (ii) the Final TI Stock Price if the Final TI
Stock Price is less than $40.00, TI does not elect the Top Up Option and CFHC
does not terminate this Agreement pursuant to Section 13.1(h) of this Agreement.
1.9 "Bank Merger" means the merger of Stockton with and into Guaranty.
1.10 "Base Stock Amount" means the number of shares of TI Stock equal to
the quotient obtained by dividing (x) the Aggregate Deal Value times .45 by (y)
$40.00.
1.11 "Cal/Fin Development" means Cal/Fin Development Company, a California
corporation and wholly owned subsidiary of CFHC.
1.12 "Cash and Stock Certificate" has the meaning set forth in Section
2.6.
1.13 "Certificate of Merger" means that certificate filed with the
Delaware Secretary pursuant to Section 252 of the Delaware General Corporation
Law to effect the Holding Company Merger.
1.14 "CFHC Conflicts and Consents List" has the meaning set forth in
Section 4.6.
1.15 "CFHC Contract List" has the meaning set forth in Section 4.17.
1.16 "CFHC Derivatives List" has the meaning set forth in Section 4.31.
1.17 "CFHC Director Compensation List" has the meaning set forth in
Section 6.1(f).
1.18 "CFHC Dividend Reinvestment Plan" shall mean that certain plan of
CFHC adopted on July 15, 1991 by the CFHC Board of Directors providing for the
issuance of additional stock of CFHC at a 3% discount from prevailing market
prices.
1.19 "CFHC Employee Plan List" has the meaning set forth in Section 4.21.
1.20 "CFHC Environmental Compliance List" has the meaning set forth in
Section 4.12.
1.21 "CFHC Filings" has the meaning set forth in Section 4.5.
1.22 "CFHC Indemnification List" has the meaning set forth in Section
4.27.
1.23 "CFHC Insurance List" has the meaning set forth in Section 4.7.
1.24 "CFHC Intellectual Property List" has the meaning set forth in
Section 4.39.
1.25 "CFHC Investment Securities List" has the meaning set forth in
Section 4.30.
1.26 "CFHC List" means any list required to be furnished by CFHC and/or
Stockton to TI and Guaranty under this Agreement including but not limited to
the CFHC Conflicts and Consents List, the CFHC Contract List, the CFHC
Derivatives List, the CFHC Director Compensation List, the CFHC Employee Plan
List, the CFHC Environmental Compliance List, the CFHC Indemnification List, the
CFHC Insurance List, the CFHC Intellectual Property List, the CFHC Investment
Securities List, the CFHC Litigation List, the CFHC Loan List, the CFHC Material
Adverse Effect List, the CFHC Offices List, the CFHC Option List, the CFHC
Personal Property List, the CFHC Pledgee List, the CFHC Real Property List, the
CFHC Tax List and the CFHC Undisclosed Liabilities List.
1.27 "CFHC Litigation List" has the meaning set forth in Section 4.10.
1.28 "CFHC Loan List" has the meaning set forth in Section 4.29.
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1.29 "CFHC Material Adverse Effect List" has the meaning set forth in
Section 4.18.
1.30 "CFHC Offices List" has the meaning set forth in Section 4.28.
1.31 "CFHC Option" means any option issued pursuant to the CFHC Stock
Option Plan.
1.32 "CFHC Option List" has the meaning set forth in Section 4.2(a).
1.33 "CFHC Personal Property List" has the meaning set forth in Section
4.8.
1.34 "CFHC Pledgee List" has the meaning set forth in Section 4.3.
1.35 "CFHC Property" has the meaning set forth in Section 4.12(b).
1.36 "CFHC Real Property List" has the meaning set forth in Section 4.9.
1.37 "CFHC Stockholders' Meeting" means the meeting of CFHC's stockholders
referred to in Section 6.6 hereof.
1.38 "CFHC Stock Option Plan" means the California Financial Holding
Company Incentive Stock Plan.
1.39 "CFHC Stock" means the common stock, par value $.01 per share, of
CFHC.
1.40 "CFHC Subsidiaries" means Cal/Fin Development, Stockton Securities,
Stockton Financial, and Stockton Service.
1.41 "CFHC Tax List" has the meaning set forth in Section 4.11.
1.42 "CFHC Undisclosed Liabilities List" has the meaning set forth in
Section 4.20.
1.43 "Classified Credits" has the meaning set forth in Section 4.29.
1.44 "Closing" means the consummation of the Holding Company Merger
followed by consummation of the Bank Merger on the Closing Date at the offices
of Manatt, Phelps & Phillips, LLP, 11355 West Olympic Boulevard, Los Angeles,
California, or at such other place as the parties may agree upon.
1.45 "Closing Date" means the last business day of the month in which the
last of the following events occur: (i) the approval of this Agreement and the
transactions contemplated hereby by the stockholders of CFHC, (ii) the receipt
of all permits, authorizations, approvals and consents specified in Section 9.3
hereof, and (iii) the expiration of all applicable waiting periods under all
laws, or such other date as the parties may agree upon, but in no event shall
such date be later than September 30, 1997, unless otherwise agreed to by the
parties hereto.
1.46 "Code" means the Internal Revenue Code of 1986, as amended.
1.47 "Combination Cash Election" has the meaning set forth in Section
2.5(a).
1.48 "Combination Stock Election" has the meaning set forth in Section
2.5(a).
1.49 "Competing Transaction" has the meaning set forth in Section 6.1(n).
1.50 "Covered Person" has the meaning set forth in Section 4.27.
1.51 "Delaware Secretary" means the Secretary of State of Delaware.
1.52 "Derivatives Contract" has the meaning set forth in Section 4.31.
1.53 "Dissenting Shares" means any shares of CFHC Stock that are (i)
issued and outstanding immediately prior to the Effective Time of the Holding
Company Merger and (ii) which have "appraisal rights" as that term is defined in
Section 262 of the Delaware General Corporation Law.
1.54 "Effective Time of the Bank Merger" means the date and time the OTS
specifies for the Bank Merger pursuant to the OTS Regulations.
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1.55 "Effective Time of the Holding Company Merger" means the date and
time specified in the Certificate of Merger as filed with the Delaware
Secretary.
1.56 "Election" has the meaning set forth in Section 2.5(a).
1.57 "Election Deadline" has the meaning set forth in Section 2.5(b).
1.58 "Election Form" has the meaning set forth in Section 2.5(a).
1.59 "Election Form Record Date" has the meaning set forth in Section
2.5(a).
1.60 "Employee Benefit Plans" has the meaning set forth in Section 4.21.
1.61 "Encumbrance" means any option, pledge, security interest, lien,
charge, encumbrance or restriction (whether on voting or disposition or
otherwise), whether imposed by agreement, law or otherwise.
1.62 "Environmental Regulations" has the meaning set forth in Section
4.12(b).
1.63 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
1.64 "Ernst & Young" means Ernst & Young, LLP, independent accountants for
TI, or such other nationally recognized accounting firm as TI shall employ.
1.65 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
1.66 "Exchange Agent" means The First Chicago Trust Company of New York,
or such other comparable entity selected by TI to effect the exchange of CFHC
Stock for TI Stock and cash.
1.67 "Exchange Fund" has the meaning set forth in Section 2.7(a).
1.68 "Executive Officers" shall mean: Robert V. Kavanaugh, Mark Barawed,
Jane Butterfield, Henry Claussen, Morris Knight or such other person(s)
succeeding to the same or similar position as these persons occupy as of the
date hereof.
1.69 "Expenses" has the meaning set forth in Section 14.1.
1.70 "FDIC" means the Federal Deposit Insurance Corporation.
1.71 "Final TI Stock Price" means the average of the daily closing prices
of a share of TI Stock on the NYSE as reported in the Wall Street Journal for
the ten (10) consecutive trading days ending on the fifth trading day prior to
the Closing Date.
1.72 "Financial Statements of CFHC" means (i) the audited consolidated
financial statements and notes thereto of CFHC and the related opinions thereon
included in CFHC's Annual Reports on Form 10-K for the years ended December 31,
1994 and 1995 and (ii) the unaudited consolidated interim financial statements
and notes thereto of CFHC included in CFHC's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996.
1.73 "Financial Statements of TI" means (i) the audited consolidated
financial statements and notes thereto of TI and the related opinions thereon
included in TI's Annual Reports on Form 10-K for the years ended December 31,
1994 and December 30, 1995 and (ii) the unaudited consolidated interim financial
statements and notes thereto of TI included in TI's Quarterly Report on Form
10-Q for the quarter ended September 28, 1996.
1.74 "Governmental Entity" means any court or tribunal in any jurisdiction
or any United States federal, state, municipal, foreign or other administrative
agency, authority or instrumentality.
1.75 "Guaranty Stock" means the common stock, par value $1 per share, of
Guaranty.
1.76 "Hazardous Materials" has the meaning set forth in Section 4.12(b).
1.77 "HOLA" means the Home Owners' Loan Act of 1933, as amended.
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1.78 "Holding Company Merger" means the merger of CFHC with and into TI
pursuant to this Agreement.
1.79 "Immediate Family" has the meaning set forth in Rule 16a-1(e)
promulgated under the Exchange Act.
1.80 "Investment Security" means any equity security or debt security as
defined in Statement of Financial Accounting Standards No. 115.
1.81 "IRS" means the Internal Revenue Service.
1.82 "List" means any one of the CFHC Lists or the TI Lists.
1.83 "Mailing Date" has the meaning set forth in Section 2.5(a).
1.84 "Material Adverse Effect" has the meaning set forth in Section 14.3.
1.85 "Mergers" means the Holding Company Merger and Bank Merger.
1.86 "NYSE" means the New York Stock Exchange, Inc.
1.87 "OTS" means the Office of Thrift Supervision.
1.88 "OTS Regulations" means the rules and regulations of the OTS under
HOLA.
1.89 "Peat Marwick" means KPMG Peat Marwick, LLP, independent accountants
to CFHC, or such other nationally recognized independent accounting firm as CFHC
shall employ.
1.90 "Person" means any natural person, corporation, trust, association,
unincorporated body, partnership, joint venture, other entity, government or
governmental department or agency.
1.91 "Plans" has the meaning set forth in Section 4.21.
1.92 "Proxy Statement" has the meaning set forth in Section 6.8.
1.93 "Related Group of Persons" means Affiliates, members of an Immediate
Family or Persons the obligations of whom would be attributed to another Person
pursuant to the regulations promulgated by the SEC.
1.94 "S-4 Registration Statement" means the Registration Statement on Form
S-4, including the Proxy Statement to be mailed to stockholders of CFHC, to vote
upon the Holding Company Merger and to register the distribution of the shares
of TI Stock to be issued in the Holding Company Merger with the SEC.
1.95 "Scheduled Contracts" has the meaning set forth in Section 4.17.
1.96 "SEC" means the Securities and Exchange Commission.
1.97 "Securities Act" means the Securities Act of 1933, as amended.
1.98 "Stock Election" has the meaning set forth in Section 2.5(a).
1.99 "Stockton Financial" means Stockton Financial Corporation, a
California corporation and wholly owned subsidiary of Stockton.
1.100 "Stockton Securities" means Stockton Securities Corporation, a
California corporation and wholly owned subsidiary of Stockton.
1.101 "Stockton Service" means Stockton Service Corporation, a California
corporation and wholly owned subsidiary of Stockton.
1.102 "Stockton Stock" means the common stock, $.01 par value per share,
of Stockton.
1.103 "Surviving Bank" means the federally chartered savings association
surviving the Bank Merger.
1.104 "Tank" has the meaning set forth in Section 4.12(b).
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1.105 "Taxes" means (i) all federal, state, local or foreign taxes,
charges, fees, imposts, levies or other assessments, including, without
limitation, all net income, gross receipts, capital, sales, use, ad valorem,
value added, transfer, franchise, profits, inventory, capital stock, license,
withholding, payroll, employment, social security, unemployment, excise,
severance, stamp, occupation, property, corporation and estimated taxes, custom
duties, fees, assessments and charges of any kind whatsoever; (ii) all interest,
penalties, fines, additions to tax or additional amounts imposed by any taxing
authority in connection with any item described in clause (i); and (iii) any
transferred liability in respect of any items described in clauses (i) and/or
(ii).
1.106 "Tax Return" means all returns, declarations, reports, estimates,
information returns and statements required to be filed in respect of any Taxes.
1.107 "Tax Sharing Agreement" means an agreement (whether or not in
writing) pursuant to which tax losses of one entity are made available to
another entity of the Affiliated Group or Affiliates for purpose of Taxes.
1.108 "TI Conflicts and Consents List" has the meaning set forth in
Section 5.2.
1.109 "TI Material Adverse Effect List" has the meaning set forth in
Section 5.7.
1.110 "TI List" means any list required to be furnished by TI to CFHC and
Stockton under this Agreement including but not limited to the TI Conflicts and
Consents List and the TI Material Adverse Effect List.
1.111 "TI Stock" means the common stock, par value $1 per share, of TI.
1.112 "Top Up Option" means the right of TI to elect to issue the Top Up
Stock Amount if the Final TI Stock Price is less than $40.00.
1.113 "Top Up Stock Amount" means the number of shares of TI Stock equal
to the quotient obtained by dividing (x) the Base Stock Amount times $40.00 by
(y) the Final TI Stock Price.
ARTICLE II
THE MERGERS AND RELATED MATTERS
2.1 The Holding Company Merger. The Holding Company Merger shall become
effective upon the date specified in the Certificate of Merger as filed with the
Delaware Secretary in accordance with the provisions of the Delaware General
Corporation Law. At the Effective Time of the Holding Company Merger, the
following transactions will be deemed to have occurred simultaneously:
(a) CFHC shall be merged with and into TI and the separate corporate
existence of CFHC shall cease.
(b) Each share of TI Stock issued and outstanding immediately prior to the
Effective Time of the Holding Company Merger shall remain an issued and
outstanding share of common stock of TI and shall not be converted or otherwise
affected by the Holding Company Merger.
(c) Subject to the other provisions of this Article II, each share of CFHC
Stock issued and outstanding immediately prior to the Effective Time of the
Holding Company Merger, other than Dissenting Shares, shall, on and after the
Effective Time of the Holding Company Merger, be automatically canceled and
cease to be an issued and outstanding share of CFHC Stock and shall be converted
into the right to receive, at the election of the holder thereof, either:
(i) a fraction of a share of TI Stock equal to the Applicable Exchange
Ratio; or
(ii) cash in the amount equal to the Applicable Price Per Share.
2.2 Top Up Option. If the Final TI Stock Price is less than $40.00 per
share, TI may, but shall not be required to, elect the Top Up Option. TI shall
notify CFHC in writing, within two business days from the date of the
calculation of the Final TI Stock Price, whether TI will exercise the Top Up
Option. If TI elects not to exercise the Top Up Option, CFHC may terminate this
Agreement pursuant to Section 13.1(h) or continue
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this Agreement at the Adjusted Price Per Share. CFHC shall notify TI in writing
of its decision within two business days following its receipt of notice of TI's
decision whether to exercise the Top Up Option.
2.3 Fractional Shares. Notwithstanding any other provisions of this
Agreement, no fractional shares of TI Stock shall be issued in the Holding
Company Merger. In lieu thereof, each holder of CFHC Stock who would otherwise
be entitled to receive a fractional share shall receive an amount in cash,
rounded to the nearest cent, equal to the product obtained by multiplying (a)
the Final TI Stock Price by (b) the fraction (calculated to the nearest
thousandth) of the share of TI 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.
2.4 Treatment of CFHC Options. Unless exercised prior to the Effective
Time of the Holding Company Merger, each of the CFHC Options shall be cashed out
by CFHC immediately prior to the Effective Time of the Holding Company Merger by
a cash payment to the holder of the CFHC Option in an amount equal to the
excess, if any, between (a) the Applicable Price Per Share and (b) the exercise
price of each CFHC Option times the number of shares of CFHC Stock subject to
Options. TI and Guaranty agree to waive, upon the completion of such payment and
solely for purposes of consummating the transactions contemplated by this
Agreement, in all respects, the conditions to Closing contained in Sections
11.2, 11.3, 11.4, 11.5, 11.6, 11.10, 11.11, 11.12, 11.13 and 11.14 of this
Agreement.
2.5 Election and Proration Procedures.
(a) Election Forms and Types of Election. An election form and other
appropriate and customary transmittal materials (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
theretofore representing shares of CFHC Stock shall pass, only upon proper
delivery of such certificates to the Exchange Agent in such form as TI and CFHC
shall mutually agree) ("Election Form") shall be mailed no less than thirty days
prior to the anticipated Effective Time of the Holding Company Merger or on such
other date as TI and CFHC shall mutually agree ("Mailing Date") to each holder
of record of CFHC Stock as of five business days prior to the Mailing Date
("Election Form Record Date"). TI shall make available one or more Election
Forms as may be reasonably requested by all persons who become holders (or
beneficial owners) (the term "beneficial owner" and "beneficial ownership" for
purposes of this Agreement shall have the meaning set forth in Section 13(d) of
the Exchange Act) of CFHC Stock after the Election Form Record Date and prior to
the Election Deadline, and CFHC shall provide to the Exchange Agent all
information reasonably necessary for it to perform its obligations as specified
herein. Each Election Form shall permit the holder (or the beneficial owner
through appropriate and customary documentation and instructions) to elect (an
"Election") to receive either (i) TI Stock (a "Stock Election") with respect to
all of such holder's CFHC Stock, or (ii) cash (a "Cash Election") with respect
to all of such holder's CFHC Stock, or (iii) TI Stock for a specified number of
shares of CFHC Stock (a "Combination Stock Election") and cash for the remaining
number of shares of CFHC Stock held by such holder (a "Combination Cash
Election"). Any CFHC Stock, other than Dissenting Shares, with respect to which
the Exchange Agent has not received an effective, properly completed Election
Form prior to the Election Deadline shall be deemed to be "Undesignated Shares"
hereunder.
CFHC stockholders who have made Cash Elections or Combination Cash
Elections may also elect to divide their holdings of CFHC Stock into blocks of
5,000 shares of CFHC Stock ("Cash Electee Blocks") or more (with any shares not
exactly divisible by the selected block amount being added to one of the blocks)
for purposes of the allocation procedures, as set forth in Section 2.5(c), if
necessary. Those who have made Cash Elections or Combination Cash Elections but
have not made such an election for a Cash Electee Block or who hold less than
5,000 shares of CFHC Stock will have all of their holdings treated as a single
Cash Electee Block for purposes of the allocation procedures, as set forth in
Section 2.5(c), if necessary.
(b) Proper and Timely Election. Any Election shall have been properly made
and effective only if the Exchange Agent shall have actually received a properly
completed Election Form by 5:00 p.m., Pacific Time, by the 30th day following
the Mailing Date (or such other time and date as TI and CFHC may mutually agree)
(the "Election Deadline"). An Election Form shall be deemed properly completed
only if an Election is indicated for each share of CFHC Stock covered by such
Election Form and if accompanied by one or more certificates (or customary
affidavits and indemnification regarding the loss or destruction of such
certificates or
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the guaranteed delivery of such certificates) representing all shares of CFHC
Stock covered by such Election Form, together with duly executed transmittal
materials included in or required by the Election Form. Any Election Form may be
revoked or changed by the person submitting such Election Form at or prior to
the Election Deadline. In the event an Election Form is revoked prior to the
Election Deadline, the shares of CFHC Stock representing such Election Form
shall automatically become Undesignated Shares unless and until a new Election
is properly made with respect to such shares on or before the Election Deadline,
and CFHC shall cause the certificates representing such shares of CFHC Stock to
be promptly returned without charge to the person submitting the revoked
Election Form upon written request to that effect from the holder who submitted
such Election Form. Subject to the terms of this Agreement and of the Election
Form, the Exchange Agent shall have reasonable discretion to determine whether
any Election, revocation or change has been properly or timely made and to
disregard immaterial defects in the Election Forms, and any decisions of CFHC
and TI required by the Exchange Agent and made in good faith in determining such
matters shall be binding and conclusive. Neither CFHC nor the Exchange Agent
shall be under any obligation to notify any person of any defect in an Election
Form.
(c) Proration. As promptly as practicable but not later than ten calendar
days after the Effective Time of the Holding Company Merger, TI shall cause the
Exchange Agent to effect the allocation among the holders of CFHC Stock of
rights to receive TI Stock or cash in the Holding Company Merger in accordance
with the Election Forms as follows:
(i) if the aggregate number of shares of CFHC Stock as to which Stock
Elections and Combination Stock Elections shall have effectively been made
times the Applicable Exchange Ratio exceeds the Applicable TI Stock Amount
then:
(A) All Undesignated Shares shall be deemed to have made Cash
Elections; and
(B) A stock proration factor (the "Stock Proration Factor") shall
be determined by dividing the Applicable TI Stock Amount by the product
obtained by multiplying the (y) total number of shares of CFHC Stock
with respect to which effective Stock Elections and Combination Stock
Elections were made and (z) the Applicable Exchange Ratio. Each holder
of CFHC Stock who made an effective Stock Election and Combination Stock
Election shall be entitled to:
1) the number of shares of TI Stock equal to the product of the
(x) Applicable Exchange Ratio, multiplied by (y) the number of shares
of CFHC Stock covered by such Stock Election or Combination Stock
Election, multiplied by (z) the Stock Proration Factor; and
2) cash in an amount equal to the product of (x) the Applicable
Price Per Share, multiplied by (y) the number of shares of CFHC Stock
covered by such Stock Election or Combination Stock Election,
multiplied by (z) one minus the Stock Proration Factor.
(ii) if the aggregate number of shares of CFHC Stock as to which Stock
Elections and Combination Stock Elections have been effectively made times
the Applicable Exchange Ratio shall be less than the Applicable TI Stock
Amount, then:
(A) the Exchange Agent shall select by random such number of
Undesignated Shares to receive TI Stock as shall be necessary so that
the number of such shares when added to the number of shares for which a
Stock Election and Combination Stock Election has been made or is deemed
to be made when multiplied by the Applicable Exchange Ratio shall equal
or exceed the Applicable TI Stock Amount. If all the Undesignated Shares
plus all shares as to which Stock Elections and Combination Stock
Elections have been made together, when multiplied by the Applicable
Exchange Ratio, are less than the Applicable TI Stock Amount, then:
(B) the Exchange Agent shall select by random a sufficient number
of Cash Electee Blocks until the number of shares of CFHC Stock
represented by such Cash Electee Blocks times the Applicable Exchange
Ratio, when added to the number of shares of CFHC Stock represented by
the Undesignated Shares, Stock Elections and Combination Stock Elections
times the Applicable
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Exchange Ratio, exceeds the Applicable TI Stock Amount. The remaining
holders of Cash Electee Blocks not so selected will receive the
Applicable Price Per Share in cash.
The pro rata allocation process or the random selection process to be used
by the Exchange Agent shall consist of such procedures as shall be mutually
determined by TI and CFHC.
(d) Final Adjustments. If, after the calculations under this Section 2.5
have been made, the opinions referred to in Section 9.6 cannot be delivered (as
reasonably determined by Manatt, Phelps & Phillips) as a result of the Holding
Company Merger potentially failing to satisfy the continuity of interest
requirements under applicable federal income tax principles relating to
reorganizations under Section 368(a) of the Code, then the Exchange Agent shall
select at random, first from holders of Undesignated Shares, and then, if
necessary, from holders of Cash Electee Blocks, a sufficient number of holders
to receive TI Stock so as to reduce, to the extent necessary to enable the
opinions referred to in Section 9.6 to be rendered, the amount of cash to be
delivered to holders of CFHC Stock, and in lieu thereof deliver to such holders
such number of shares of TI Stock equal to (x) the amount of the cash reduction
required to render the opinions referred to in Section 9.6, divided by (y) the
closing price of a share of TI Stock on the NYSE on the business day before the
Closing Date as reported in the Wall Street Journal.
2.6 Computation and Confirmation of Certain Items. The Applicable Exchange
Ratio, Applicable Price Per Share, Applicable TI Stock Amount and the Final TI
Stock Price shall be calculated by TI prior to the Effective Time of the Holding
Company Merger and shall be set forth in a certificate (the "Cash and Stock
Certificate") executed by the Chief Financial Officer of TI and furnished to
CFHC at least three business days prior to the Effective Time of the Holding
Company Merger showing the manner of calculation in reasonable detail.
CFHC and Peat Marwick shall be entitled to review and approve the Cash and
Stock Certificate from the time of delivery until the day which is no later than
two business days prior to the Effective Time of the Holding Company Merger. In
the event of disagreement as to the information contained in the Cash and Stock
Certificate, the parties shall negotiate in good faith to resolve any such
disputed matters, and upon the failure to resolve any such matters, such dispute
shall be resolved by an independent accounting firm of national standing
mutually satisfactory to both TI and CFHC.
2.7 Exchange Procedures.
(a) Deposit with Exchange Agent. As of the Effective Time of the Holding
Company Merger, TI shall have deposited with the Exchange Agent for the benefit
of the holders of shares of CFHC Stock, for exchange in accordance with this
Section 2.7, certificates representing the shares of TI Stock and cash issuable
pursuant to Section 2.1 in exchange for shares of CFHC Stock outstanding
immediately prior to the Effective Time of the Holding Company Merger and funds
in an amount not less than the amount of cash payable in lieu of fractional
shares of TI Stock which would otherwise be payable in connection with Section
2.1, but for the operation of Section 2.3 of this Agreement (collectively, the
"Exchange Fund").
(b) Exchange Procedures. After completion of the allocation procedure set
forth in Section 2.5, each holder of a certificate ("Certificate") formerly
representing CFHC Stock (other than Dissenting Shares) who surrenders or has
surrendered such Certificate (or customary affidavits and indemnification
regarding the loss or destruction of such Certificate), together with duly
executed transmittal materials included in or required by the Election Form, to
the Exchange Agent, shall, upon acceptance thereof, be entitled to (i) a
certificate representing TI Stock and/or (ii) cash into which the shares of CFHC
Stock shall have been converted pursuant to Section 2.1 and 2.5, as well as cash
in lieu of fractional shares of CFHC Stock to which such holder would otherwise
be entitled. Former stockholders of record of CFHC shall be entitled to vote
after the Effective Time of the Holding Company Merger at any meeting of TI
stockholders the number of whole shares of TI Stock into which their respective
shares of CFHC Stock are converted, regardless of whether such holders have
exchanged their Certificates representing CFHC Stock for certificates
representing TI Stock in accordance with the provisions of this Agreement. The
Exchange Agent shall accept such Certificate upon compliance with such
reasonable and customary terms and conditions as the Exchange Agent may impose
to effect an orderly exchange thereof in accordance with normal practices. Until
surrendered as
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contemplated by this Section 2.7, each Certificate representing CFHC Stock shall
be deemed from and after the Effective Time of the Holding Company Merger to
evidence only the right to receive cash and/or TI Stock, as the case may be,
upon such surrender. TI shall not be obligated to deliver the consideration to
which any former holder of CFHC Stock is entitled as a result of the Holding
Company Merger until such holder surrenders his Certificate or Certificates for
exchange as provided in this Section 2.7. If any certificate for shares of TI
Stock, or any check representing cash and/or declared but unpaid dividends, is
to be issued in a name other than that in which a Certificate surrendered for
exchange is issued, the Certificate so surrendered shall be properly endorsed
and otherwise in proper form for transfer and the person requesting such
exchange shall affix any requisite stock transfer tax stamps to the Certificate
surrendered or provide funds for their purchase or establish to the satisfaction
of the Exchange Agent that such taxes are not payable.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time of the Holding Company
Merger with respect to TI Stock with a record date after the Effective Time of
the Holding Company Merger shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of TI Stock represented thereby, and no
cash payment in lieu of fractional shares shall be paid to any such holder
pursuant to Section 2.3 until the holder of record of such Certificate shall
surrender such Certificate. Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be paid to the record holder of
the certificates representing whole shares of TI Stock issued in exchange
thereof, without interest, (i) at the time of such surrender, the amount of any
cash payable in lieu of a fractional share of TI Stock to which such holder is
entitled pursuant to Section 2.3 and the amount of dividends or other
distributions with a record date after the Effective Time of the Holding Company
Merger theretofore paid with respect to such whole shares of TI Stock, and (ii)
at the appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time of the Holding Company Merger but
prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of TI Stock.
(d) No Further Ownership Rights in CFHC Stock. All cash and shares of TI
Stock issued upon the surrender for exchange of shares of CFHC Stock in
accordance with the terms hereof (including any cash paid pursuant to Section
2.3) shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of CFHC Stock, and there shall be no further
registration of transfers on the stock transfer books of TI, after the Holding
Company Merger, of the shares of CFHC Stock which were outstanding immediately
prior to the Effective Time of the Holding Company Merger. If, after the
Effective Time of the Holding Company Merger, Certificates are presented to TI
for any reason, they shall be canceled and exchanged as provided in this
Agreement.
(e) Termination of Exchange Fund. Any portion of the Exchange Fund,
including any interest thereon, which remains undistributed to the stockholders
of CFHC following the passage of twenty-four months after the Effective Time of
the Holding Company Merger shall be delivered to TI, upon demand, and any
stockholders of CFHC who have not theretofore complied with this Section 2.7
shall thereafter look only to TI for payment of their claim for cash and TI
Stock, any cash in lieu of fractional shares of TI Stock and any dividends or
distributions with respect to TI Stock.
(f) No Liability. Neither CFHC nor TI shall be liable to any holder of
shares of CFHC Stock or TI Stock, as the case may be, for such shares (or
dividends or distributions with respect thereto) or cash from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(g) No Ownership Rights. The Exchange Agent shall not be entitled to vote
or exercise any rights of ownership with respect to the shares of TI 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 TI Stock for the account of the Persons entitled thereto.
(h) Affiliates. Certificates surrendered for exchange by any Person
constituting an "Affiliate" of CFHC for purposes of Rule 144(a) under the
Securities Act shall not be exchanged for certificates representing whole shares
of TI Stock until TI has received a written agreement from such person as
provided in Section 6.10.
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2.8 Dissenting Shares. Notwithstanding anything to the contrary contained
in this Agreement, Dissenting Shares of CFHC Stock which have not effectively
withdrawn or lost their rights under Section 262 of the Delaware General
Corporation Law shall not be converted pursuant to Section 2.1(c), but shall be
entitled to receive such consideration as shall be determined pursuant to
Section 262 of the Delaware General Corporation Law.
2.9 Adjustments for Dilution and Other Matters. If prior to the Effective
Time of the Holding Company Merger, (a) CFHC or TI shall declare a stock
dividend or distribution on the CFHC Stock or TI Stock, or subdivide, split up,
reclassify or combine the CFHC Stock or TI Stock, or declare a dividend, or make
a distribution, on the CFHC Stock or TI Stock in any security convertible into
CFHC Stock or TI Stock (provided that no such action may be taken by CFHC
without TI's prior written consent as provided in Section 6.1) or (b) the
outstanding shares of CFHC Stock or TI Stock shall have been increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities, in each case as a result of a reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
similar change in CFHC's capitalization or TI's capitalization, then an
appropriate adjustment or adjustments, will be made to the Applicable Exchange
Ratio.
2.10 Effect of the Holding Company Merger. By virtue of the Holding
Company Merger and at the Effective Time of the Holding Company Merger, all of
the rights, privileges, powers and franchises and all property and assets of
every kind and description of CFHC and TI shall be vested in and be held and
enjoyed by TI, without further act or deed, and all the estates and interests of
every kind of CFHC and TI, including all debts due to either of them, shall be
as effectively the property of TI as they were of CFHC and TI, and the title to
any real estate vested by deed or otherwise in either CFHC or TI shall not
revert or be in any way impaired by reason of the Holding Company Merger; and
all rights of creditors and liens upon any property of CFHC and TI shall be
preserved unimpaired and all the liabilities and duties of CFHC and TI shall be
debts, liabilities and duties of TI 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 Holding Company Merger.
2.11 Name of Corporation Surviving the Holding Company Merger. The name of
the corporation surviving the Holding Company Merger shall be "Temple-Inland
Inc."
2.12 Certificate of Incorporation and Bylaws of Corporation Surviving the
Holding Company Merger. The Certificate of Incorporation and Bylaws of TI as in
effect immediately prior to the Effective Time of the Holding Company Merger
shall continue to be the Certificate of Incorporation and Bylaws of TI after the
Holding Company Merger.
2.13 Directors and Officers of Corporation Surviving the Holding Company
Merger. At the Effective Time of the Holding Company Merger, the then directors
of TI shall continue to be the directors of TI until their successors have been
chosen and qualified in accordance with the Certificate of Incorporation and
Bylaws of TI. The officers of TI immediately prior to the Effective Time of the
Holding Company Merger shall continue to be the officers of TI until they resign
or are replaced or terminated by the Board of Directors of TI or otherwise in
accordance with the TI's Certificate of Incorporation and Bylaws.
ARTICLE III
THE CLOSING
3.1 Closing Date. The Closing shall take place on the Closing Date.
3.2 Execution of Merger Agreements. Prior to Closing, the Certificate of
Merger shall be executed by TI and CFHC and the Agreement of Bank Merger shall
be executed by Guaranty and Stockton. On or before the Closing Date, the
Certificate of Merger shall be duly filed with the Delaware Secretary as
required by applicable laws and regulations to render the Holding Company Merger
effective as of the Closing Date.
3.3 Documents to be Delivered. At the Closing, the parties hereto shall
deliver, or cause to be delivered, such documents or certificates as may be
necessary, in the reasonable opinion of counsel for any of the parties,
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to effectuate the transactions contemplated by this Agreement. From and after
the Effective Time of the Holding Company Merger, each of the parties hereto
hereby covenants and agrees, without the necessity of any further consideration
whatsoever, to execute, acknowledge and deliver any and all other documents and
instruments and take any and all such other action as may be reasonably
necessary or desirable to effectuate the transactions set forth herein or
contemplated hereby, and the officers and directors of the parties hereto shall
execute and deliver, or cause to be executed and delivered, all such documents
as may reasonably be required to effectuate such transactions.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF CFHC AND STOCKTON
Subject to the provisions of Section 14.3 of this Agreement, CFHC and
Stockton, jointly and severally, represent and warrant to TI and Guaranty as
follows:
4.1 Incorporation, Standing and Power. CFHC is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is registered as a savings and loan holding company under HOLA.
Stockton is a federal savings bank duly organized, validly existing and in good
standing under the laws of the United States and is authorized by the OTS to
conduct a federal savings bank business. Each of the CFHC Subsidiaries is duly
organized, validly existing and in good standing under the laws of the State of
California. The Certificate of Incorporation or Articles of Incorporation, as
applicable, and Bylaws of each of CFHC and the CFHC Subsidiaries, and the
Federal Stock Charter and Bylaws of Stockton, all as amended to date, are in
full force and effect. Stockton's deposits are insured by the FDIC in the manner
and to the fullest extent provided by law. CFHC, Stockton and the CFHC
Subsidiaries have all requisite corporate power and authority to own, lease and
operate their respective properties and assets and to carry on their respective
businesses as presently conducted. Neither the scope of the business of CFHC,
Stockton or the CFHC Subsidiaries nor the location of any of their respective
properties requires that CFHC, Stockton or the CFHC Subsidiaries be licensed to
do business in any jurisdiction other than the State of California where the
failure to be so licensed would, individually or in the aggregate, have a
Material Adverse Effect.
4.2 Capitalization.
(a) As of the date of this Agreement, the authorized capital stock of CFHC
consists of 12,000,000 shares of CFHC Stock, of which 4,724,095 shares are
outstanding, and 4,000,000 shares of serial preferred stock of which no shares
are outstanding. All of the outstanding shares of CFHC Stock are duly
authorized, validly issued, fully paid and nonassessable. As of the date of this
Agreement, except for CFHC Options covering 295,443 shares of CFHC Stock granted
pursuant to the CFHC Stock Option Plan and the option granted to TI pursuant to
the Stock Option Agreement, attached hereto as Exhibit A, there are no
outstanding options, warrants or other rights in or with respect to the unissued
shares of CFHC Stock nor any securities convertible into such stock, and CFHC is
not obligated to issue any additional shares of its common stock or any
additional options, warrants or other rights in or with respect to the unissued
shares of such stock or any other securities convertible into such stock
(including, without limiting the generality of the foregoing, obligations to
issue shares of CFHC Stock under the CFHC Dividend Reinvestment Plan). CFHC has
furnished TI a list (the "CFHC Option List") setting forth the name of each
holder of a CFHC Option, the number of shares of CFHC Stock covered by each such
CFHC Option, the vesting schedule of such CFHC Option, and the exercise price
per share and the expiration date of each such CFHC Option. CFHC has taken all
necessary action to prevent the creation of further rights under the CFHC
Dividend Reinvestment Plan.
(b) As of the date of this Agreement, the authorized capital stock of
Stockton consists of 6,000,000 shares of Stockton Stock, and 3,000,000 shares of
preferred stock, of which one share of Stockton Stock is outstanding and owned
of record and beneficially by CFHC. The outstanding share of Stockton Stock is
duly authorized, validly issued, fully paid and nonassessable. There are no
outstanding options, warrants or other rights in or with respect to the unissued
shares of Stockton Stock or any other securities convertible into such stock,
and Stockton is not obligated to issue any additional shares of its common stock
or any options, warrants
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or other rights in or with respect to the unissued shares of its common stock or
any other securities convertible into such stock.
(c) As of the date of this Agreement, the authorized capital stock of
Cal/Fin Development consists of 10,000,000 shares of common stock, of which no
shares are outstanding, and 10,000,000 shares of preferred stock, of which no
shares are outstanding. There are no outstanding options, warrants or other
rights in or with respect to the unissued shares of such common stock or any
other securities convertible into such stock, and Cal/Fin Development is not
obligated to issue any additional shares of its common stock or any options,
warrants or other rights in or with respect to the unissued shares of its common
stock or any other securities convertible into such stock.
(d) As of the date of this Agreement, the authorized capital stock of
Stockton Securities consists of 10,000 shares of common stock, of which 10,000
shares are outstanding and owned of record and beneficially by Stockton. All the
outstanding shares of such common stock are duly authorized, validly issued,
fully paid and nonassessable. There are no outstanding options, warrants or
other rights in or with respect to the unissued shares of such common stock or
any other securities convertible into such stock, and Stockton Securities is not
obligated to issue any additional shares of its common stock or any options,
warrants or other rights in or with respect to the unissued shares of its common
stock or any other securities convertible into such stock.
(e) As of the date of this Agreement, the authorized capital stock of
Stockton Financial consists of 1,000 shares of common stock, of which six shares
are outstanding and owned of record and beneficially by Stockton. All the
outstanding shares of such common stock are duly authorized, validly issued,
fully paid and nonassessable. There are no outstanding options, warrants or
other rights in or with respect to the unissued shares of such common stock or
any other securities convertible into such stock, and Stockton Financial is not
obligated to issue any additional shares of its common stock or any options,
warrants or other rights in or with respect to the unissued shares of its common
stock or any other securities convertible into such stock.
(f) As of the date of this Agreement, the authorized capital stock of
Stockton Service consists of 10,000 shares of common stock, of which 930 shares
are outstanding and owned of record and beneficially by Stockton. All the
outstanding shares of such common stock are duly authorized, validly issued,
fully paid and nonassessable. There are no outstanding options, warrants or
other rights in or with respect to the unissued shares of such common stock or
any other securities convertible into such stock, and Stockton Service is not
obligated to issue any additional shares of its common stock or any options,
warrants or other rights in or with respect to the unissued shares of its common
stock or any other securities convertible into such stock.
4.3 Subsidiaries. Except for Stockton and the CFHC Subsidiaries, CFHC does
not own, directly or indirectly, the outstanding stock or equity or other voting
interest in any corporation, partnership, joint venture or other entity. Except
for the CFHC Subsidiaries, other than Cal/Fin Development, Stockton does not
own, directly or indirectly (except as pledgee pursuant to loans or upon
acquisition in satisfaction of debt previously contracted, which are disclosed
on a List provided by CFHC to TI (the "CFHC Pledgee List")), the outstanding
stock or equity or other voting interest in any corporation, partnership, joint
venture or other entity, except for the shares of capital stock, par value $100
per share, of the Federal Home Loan Bank of San Francisco.
4.4 Financial Statements. CFHC has previously furnished to TI a copy of
the Financial Statements of CFHC. The Financial Statements of CFHC: (a) present
fairly the consolidated financial condition of CFHC as of the respective dates
indicated and its consolidated results of operations and changes in cash flows,
for the respective periods then ended, subject, in the case of the unaudited
consolidated interim financial statements, to normal recurring adjustments; (b)
have been prepared in accordance with generally accepted accounting principles
and/or applicable regulatory accounting principles or banking regulations
consistently applied (except as otherwise indicated therein); (c) set forth as
of the respective dates indicated adequate reserves for loan and lease losses
and other contingencies; and (d) are based upon the books and records of CFHC,
Stockton and the CFHC Subsidiaries. Stockton's allowance for loan and lease
losses as of November 30, 1996 is $7,348,924.
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4.5 Reports and Filings. CFHC, Stockton and the CFHC Subsidiaries have
filed all reports, returns, registrations and statements (such reports and
filings referred to as "CFHC Filings"), together with any amendments required to
be made with respect thereto, that were required to be filed with (a) the SEC,
(b) the OTS, (c) the FDIC and (d) any other applicable Governmental Entity,
including taxing authorities, except where the failure to file such reports,
returns, registrations or statements has not had and is not reasonably expected
to have a Material Adverse Effect. No material adverse administrative actions
have been taken or orders issued in connection with such CFHC Filings. As of
their respective dates, each of such CFHC Filings (y) complied in all material
respects with all laws and regulations enforced or promulgated by the
Governmental Entity with which it was filed (or was amended so as to be in
compliance promptly following discovery of any such noncompliance); and (z) did
not 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. Any
financial statement contained in any of such CFHC Filings fairly presented the
financial position of CFHC, Stockton or the CFHC Subsidiaries and was prepared
in accordance with generally accepted accounting principles and/or applicable
regulatory accounting principles or banking regulations consistently applied,
except as stated therein, during the periods involved. CFHC has furnished TI
with true and correct copies of all CFHC Filings filed by CFHC with the SEC,
OTS, FDIC and any other federal or state securities or banking authority since
January 1, 1993.
4.6 Authority of CFHC and Stockton. The execution and delivery by CFHC and
Stockton of this Agreement and by Stockton of the Agreement of Bank Merger,
subject to the requisite approval of the stockholders of CFHC and the sole
shareholder of Stockton, and the consummation of the transactions contemplated
hereby and thereby, have been duly and validly authorized by all necessary
corporate action on the part of CFHC and Stockton, and this Agreement is and the
Agreement of Bank Merger will be, upon due execution and delivery by the
respective parties thereto, a valid and binding obligation of CFHC or Stockton
or both of them, as the case may be, enforceable in accordance with their
respective terms, except as the enforceability thereof may be limited by
bankruptcy, liquidation, receivership, conservatorship, insolvency, moratorium
or other similar laws affecting the rights of creditors generally and by general
equitable principles and by Section 8(b)(6)(D) of the Federal Deposit Insurance
Act, 12 U.S.C. Section 1818(b)(6)(D). Except as set forth in a list furnished by
CFHC and Stockton to TI (the "CFHC Conflicts and Consents List"), neither the
execution and delivery by CFHC and Stockton of this Agreement or by Stockton of
the Agreement of Bank Merger, the consummation of the Holding Company Merger or
Bank Merger or the transactions contemplated herein or therein, nor compliance
by CFHC and Stockton with any of the provisions hereof or thereof, will: (a)
conflict with or result in a breach of any provision of the respective Articles
of Incorporation, as amended, Certificate of Incorporation, as amended, or
Bylaws, as amended, of CFHC or the CFHC Subsidiaries or the Federal Stock
Charter or Bylaws of Stockton; (b) constitute a breach of or result in a default
(or give rise to any rights of termination, cancellation or acceleration, or any
right to acquire any securities or assets) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, franchise, license, permit,
agreement or other instrument or obligation to which CFHC, Stockton or the CFHC
Subsidiaries is a party, or by which CFHC, Stockton or the CFHC Subsidiaries or
any of their respective properties or assets is bound; (c) result in the
creation or imposition of any Encumbrance on any of the properties or assets of
CFHC, Stockton or the CFHC Subsidiaries; (d) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to CFHC, Stockton or
the CFHC Subsidiaries or any of their respective properties or assets. Except as
set forth in the CFHC Conflicts and Consents List, no consent of, approval of,
notice to or filing with any Governmental Entity, and no consent of, approval of
or notice to any other Person, is required in connection with the execution and
delivery by CFHC and Stockton of this Agreement or by Stockton of the Agreement
of Bank Merger, the consummation by CFHC and Stockton of the Holding Company
Merger or Bank Merger or the transactions contemplated hereby or thereby, except
(i) the approval of this Agreement, the Agreement of Bank Merger and the Holding
Company Merger and the transactions contemplated hereby and thereby by the
stockholders of CFHC and the sole shareholder of Stockton; (ii) such approvals
as may be required by the OTS and the FDIC; (iii) the filing and declaration of
effectiveness of the S-4 Registration Statement with the SEC; and (iv) the
filing of the Certificate of Merger and the Agreement of Bank Merger with the
Delaware Secretary and the OTS, respectively.
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4.7 Insurance. Except as set forth in a list furnished by CFHC and
Stockton to TI, (the "CFHC Insurance List"): (a) CFHC, Stockton and the CFHC
Subsidiaries have, and have had since December 31, 1993, policies of insurance
and bonds with respect to their respective assets and businesses against such
casualties and contingencies and in such amounts, types and forms as are
customary for their respective businesses, operations, properties and assets;
(b) no insurer under any policy or bond maintained by CFHC, Stockton or the CFHC
Subsidiaries has canceled or indicated an intention to cancel or not to renew
any such policy or bond or generally disclaimed liability thereunder and all
such policies and bonds are in full force and effect; and (c) neither CFHC,
Stockton nor the CFHC Subsidiaries is in default under any such policy or bond
and all material claims thereunder have been filed in a timely fashion. Set
forth in the CFHC Insurance List is a list of all policies of insurance carried
and owned by CFHC, Stockton and the CFHC Subsidiaries, showing the name of the
insurance company, the nature of the coverage, the policy limit, the annual
premiums and the expiration dates. There has been delivered to TI a copy of each
such policy of insurance.
4.8 Title to Assets. CFHC, Stockton and the CFHC Subsidiaries have good
and marketable title to all their respective material, non-real estate,
properties and assets, owned or stated to be owned by CFHC, Stockton or the CFHC
Subsidiaries, free and clear of all Encumbrances except: (a) as set forth in the
Financial Statements of CFHC; (b) for Encumbrances for current Taxes not yet
due; (c) for Encumbrances incurred in the ordinary course of business; (d) for
Encumbrances that are not substantial in character, amount or extent and that do
not materially detract from the value, or interfere with present use, of the
property subject thereto or affected thereby, or otherwise materially impair the
conduct of business of CFHC on a consolidated basis; or (e) as set forth in a
list furnished by CFHC and Stockton to TI (the "CFHC Personal Property List.")
4.9 Real Estate. CFHC and Stockton have furnished TI a list (the "CFHC
Real Property List") of real property, including leaseholds and all other
interests in real property (other than security interests), owned by CFHC,
Stockton or the CFHC Subsidiaries. CFHC has duly recorded or caused to be
recorded, in the appropriate county, all recordable interests in such real
property. CFHC, Stockton or the CFHC Subsidiaries have good and marketable title
to the real property, and valid leasehold interests in the leaseholds, described
in the CFHC Real Property List, free and clear of all Encumbrances, except: (a)
for rights of lessors, co-lessees or sublessees in such matters that are
reflected in the lease; (b) for current Taxes not yet due; (c) for such
Encumbrances, if any, as do not materially detract from the value of or
materially interfere with the present use of such property; and (d) as described
in the CFHC Real Property List. CFHC has furnished TI with true and correct
copies of all leases included in the CFHC Real Property List, all title
insurance policies and all documents evidencing recordation of all recordable
interests in real property included in the CFHC Real Property List.
4.10 Litigation. Except as set forth in the CFHC Filings or in a list
furnished by CFHC and Stockton to TI (the "CFHC Litigation List"), there is no
private or governmental suit, claim, action or proceeding pending, nor to CFHC's
or Stockton's knowledge threatened, against CFHC, Stockton or the CFHC
Subsidiaries or against any of their respective directors, officers or employees
relating to the performance of their duties in such capacities or against or
affecting any properties of CFHC, Stockton or CFHC Subsidiaries which, if
adversely determined, would have a Material Adverse Effect. Also, except as
disclosed in the CFHC Filings or in the CFHC Litigation List, there are no
material judgments, decrees, stipulations or orders against CFHC, Stockton or
the CFHC Subsidiaries or enjoining any of them or any of their respective
directors, officers or employees in respect of, or the effect of which is to
prohibit, any business practice or the acquisition of any property or the
conduct of business in any area.
4.11 Taxes.
(a) Except as set forth in a list furnished by CFHC and Stockton to TI (the
"CFHC Tax List"), (A) all material Tax Returns required to be filed by or on
behalf of CFHC, the CFHC Subsidiaries, Stockton or the Affiliated Group(s) of
which any of them is or was a member, have been duly and timely filed with the
appropriate taxing authorities in all jurisdictions in which such Tax Returns
are required to be filed (after giving effect to any valid extensions of time in
which to make such filings), and all such Tax Returns were true, complete and
correct in all material respects; (B) all Taxes payable by or on behalf of CFHC,
Stockton
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or the CFHC Subsidiaries, either directly, as part of an Affiliated Group Tax
Return, or otherwise, have been fully and timely paid, except to the extent
adequately reserved therefor in accordance with generally accepted accounting
principles and/or applicable regulatory accounting principles or banking
regulations consistently applied on the CFHC balance sheet, and adequate
reserves or accruals for Taxes have been provided in the CFHC balance sheet with
respect to any period through the date thereof for which Tax Returns have not
yet been filed or for which Taxes are not yet due and owing; and (C) no
agreement, waiver or other document or arrangement extending or having the
effect of extending the period for assessment or collection of Taxes (including,
but not limited to, any applicable statute of limitation) has been executed or
filed with any taxing authority by or on behalf of CFHC, Stockton or the CFHC
Subsidiaries, or any Affiliated Group(s) of which any of them is or was a
member.
(b) CFHC, Stockton and the CFHC Subsidiaries have complied in all material
respects with all applicable laws, rules and regulations relating to the payment
and withholding of Taxes and have duly and timely withheld from employee
salaries, wages and other compensation and have paid over to the appropriate
taxing authorities all amounts required to be so withheld and paid over for all
periods under all applicable laws.
(c) TI has received complete copies of (i) all material income or franchise
Tax Returns of CFHC, Stockton and the CFHC Subsidiaries relating to the taxable
periods since January 1, 1992 and (ii) any audit report issued within the last
three years relating to any material Taxes due from or with respect to CFHC,
Stockton or the CFHC Subsidiaries, with respect to their respective income,
assets or operations.
(d) Except as set forth in the CFHC Tax List, no claim has been made by a
taxing authority in a jurisdiction where CFHC, Stockton or the CFHC Subsidiaries
do not file an income or franchise Tax Return such that CFHC, Stockton or the
CFHC Subsidiaries are or may be subject to taxation by that jurisdiction.
(e) Except as set forth in the CFHC Tax List: (i) all deficiencies asserted
or assessments made as a result of any examinations by any taxing authority of
the Tax Returns of or covering or including CFHC, Stockton and/or the CFHC
Subsidiaries have been fully paid, and there are no other audits or
investigations by any taxing authority in progress, nor have CFHC, Stockton or
the CFHC Subsidiaries received any notice from any taxing authority that it
intends to conduct such an audit or investigation; (ii) no requests for a ruling
or a determination letter are pending with any taxing authority; and (iii) no
issue has been raised in writing by any taxing authority in any current or prior
examination which, by application of the same or similar principles, could
reasonably be expected to result in a proposed deficiency against CFHC, Stockton
or any CFHC Subsidiary for any subsequent taxable period that could be material.
(f) Except as set forth in the CFHC Tax List, neither CFHC, Stockton, any
CFHC Subsidiary nor any other Person on behalf of CFHC, Stockton or any CFHC
Subsidiary has (i) filed a consent pursuant to Section 341(f) of the Code or
agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code)
owned by CFHC, Stockton or any CFHC Subsidiary, (ii) agreed to or is required to
make any adjustments pursuant to Section 481(a) of the Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by CFHC, Stockton or any CFHC Subsidiary or has any knowledge
that the Internal Revenue Service has proposed any such adjustment or change in
accounting method, or has any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of CFHC, Stockton or any CFHC Subsidiary, or (iii)
executed or entered into a closing agreement pursuant to Section 7121 of the
Code or any predecessor provision thereof or any similar provision of state,
local or foreign law with respect to CFHC, Stockton or any CFHC Subsidiary.
(g) Except as set forth in the CFHC Tax List, no property owned by CFHC,
Stockton or any CFHC Subsidiary is (i) property required to be treated as being
owned by another Person pursuant to provisions of Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended and in effect immediately prior to the
enactment of the Tax Reform Act of 1986, (ii) constitutes "tax exempt use
property" within the meaning of Section 168(h)(1) of the Code or (iii) is
"tax-exempt bond financed property" within the meaning of Section 168(g) of the
Code.
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(h) Neither CFHC (except with one or more CFHC Subsidiaries or Stockton)
nor any CFHC Subsidiary nor Stockton (except with CFHC) is a party to any Tax
Sharing Agreement or similar agreement or arrangement (whether written or not
written) pursuant to which it will have any obligation to make any payments
after the Closing.
(i) Except as set forth in the CFHC Tax List, there is no contract,
agreement, plan or arrangement covering any Person that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible by CFHC, Stockton, the CFHC Subsidiaries or their respective
affiliates by reason of Section 280G of the Code, or would constitute
compensation in excess of the limitation set forth in Section 162(m) of the
Code.
(j) There are no liens as a result of any unpaid Taxes upon any of the
assets of CFHC, Stockton or any CFHC Subsidiary.
(k) Except as set forth in the CFHC Tax List, CFHC, Stockton and the CFHC
Subsidiaries have no elections in effect for federal income tax purposes under
Sections 108, 168, 338, 441, 472, 1017, 1033, or 4977 of the Code.
(l) Except as set forth in the CFHC Tax list, none of the members of CFHC's
Affiliated Group has any net operating loss carryovers.
(m) CFHC, the CFHC Subsidiaries and Stockton agree to cooperate with tax
counsel in furnishing reasonable and customary written tax representations to
tax counsel for purposes of supporting tax counsel's opinion that the Holding
Company Merger and the Bank Merger both qualify as tax-deferred reorganizations
within the meaning of Section 368(a) of the Code as contemplated in Section 9.6
hereof. Such Persons acknowledge that their inability or unwillingness to
provide such reasonable and customary written representations could preclude tax
counsel from rendering such opinion, with consequences specified elsewhere
herein.
4.12 Compliance with Laws and Regulations.
(a) To CFHC's and Stockton's knowledge, neither the CFHC Subsidiaries nor
either of them is in default under or in breach of any provision of their
respective Certificate of Incorporation, as amended, Articles of Incorporation,
as amended, Federal Stock Charter, or Bylaws, as amended, or law, ordinance,
rule or regulation promulgated by any Governmental Entity. The properties and
operations of CFHC, Stockton and the CFHC Subsidiaries are and have been
maintained and conducted, in all material respects, in compliance with all
applicable laws and regulations.
(b) Except as set forth on a list furnished by CFHC and Stockton to TI (the
"CFHC Environmental Compliance List"), and without limiting Section 4.12(a), to
CFHC's and Stockton's knowledge: (i) CFHC, Stockton and CFHC Subsidiaries are in
compliance with all Environmental Regulations; (ii) there are no Tanks on or
above CFHC Property; (iii) there are no Hazardous Materials on, below or above
the surface of, or migrating from CFHC Property that would reasonably expect to
give rise to a Material Adverse Effect; (iv) CFHC and Stockton have no loans
outstanding secured by real property that are not in compliance with
Environmental Regulations or which has a Tank or upon which there are Hazardous
Materials on or migrating from; and (v) without limiting Section 4.10 or the
foregoing representations and warranties contained in clauses (i) through (iv),
as of the date of this Agreement, there is no claim, action, suit, or proceeding
or notice thereof before any Governmental Entity pending against CFHC, Stockton
or the CFHC Subsidiaries or concerning property securing CFHC or Stockton loans
and there is no outstanding judgment, order, writ, injunction, decree, or award
against or affecting CFHC Property or property securing CFHC or Stockton loans,
relating to the foregoing representations (i) - (iv). For purposes of this
Section 4.12(b), the term "Environmental Regulations" shall mean all applicable
statutes, regulations, rules, ordinances, codes, licenses, permits, orders,
approvals, plans, authorizations, concessions, franchises, and similar items, of
all Governmental Entities and all applicable judicial, administrative, and
regulatory decrees, judgments, and orders relating to the protection of human
health or the environment, including, without limitation: all requirements,
including, but not limited to those pertaining to reporting, licensing,
permitting, investigation, and remediation of emissions, discharges, releases,
or threatened releases of Hazardous Materials, chemical substances, pollutants,
contaminants, or hazardous or toxic substances, materials or wastes whether
solid, liquid, or
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gaseous in nature, into the air, surface water, groundwater, or land, or
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of chemical substances, pollutants,
contaminants, or hazardous or toxic substances, materials, or wastes, whether
solid, liquid, or gaseous in nature and all requirements pertaining to the
protection of the health and safety of employees or the public. "CFHC Property"
shall mean real estate owned, leased, or otherwise used by CFHC, Stockton or any
CFHC Subsidiary, or in which CFHC, Stockton or any CFHC Subsidiary has an
investment (by sale and lease-back or otherwise) in each case, which real estate
is owned, leased, or otherwise used on the date of this Agreement, including,
without limitation, properties under foreclosure and properties held by CFHC,
Stockton or a CFHC Subsidiary in its capacity as a trustee or otherwise. "Tank"
shall mean treatment or storage tanks, sumps, gas or oil wells and associated
piping transportation devices. "Hazardous Materials" shall mean any substance
the presence of which requires investigation or remediation under any federal,
state or local statute, regulation, ordinance, order action, policy or common
law; or which is or becomes defined as a hazardous waste, hazardous substance,
hazardous material, used oil, pollutant or contaminant under any federal, state
or local statute, regulation, rule or ordinance or amendments thereto including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Section 9601, et seq.); the Resource Conservation and
Recovery Act (42 U.S.C. Section 6901, et seq.); the Clean Air Act, as amended
(42 U.S.C. Section 7401, et seq.); the Federal Water Pollution Control Act, as
amended (33 U.S.C. Section 1251, et seq.); the Toxic Substances Control Act, as
amended (15 U.S.C. Section 9601, et seq.); the Occupational Safety and Health
Act, as amended (29 U.S.C. Section 651 et seq.); the Emergency Planning and
Community Right-to-Know Act of 1986 (42 U.S.C. Section 11001, et seq.); the Mine
Safety and Health Act of 1977, as amended (30 U.S.C. Section 801, et seq.); the
Safe Drinking Water Act (42 U.S.C. Section 300f, et seq.); and all comparable
state and local laws, including without limitation, the Carpenter-Presley-Tanner
Hazardous Substance Account Act (State Superfund), the Porter-Cologne Water
Quality Control Act, Section 25140, 25501(j) and (k), 25501.1,25281 and 25250.1
of the California Health and Safety Code and/or Article I of Title 22 of the
California Code of Regulations, Division 4, Chapter 30; laws of other
jurisdictions or orders and regulations; or the presence of which causes or
threatens to cause a nuisance, trespass or other common law tort upon real
property or adjacent properties or poses or threatens to pose a hazard to the
health or safety of persons or without limitation, which contains gasoline,
diesel fuel or other petroleum hydrocarbons; polychlorinated biphenyls (PCBs),
asbestos or urea formaldehyde foam insulation.
(c) CFHC and Stockton have provided to TI phase I environmental assessments
with respect to each interest in real property set forth on the CFHC Real
Property List as to which such a phase I environmental investigation has been
prepared by or on behalf of CFHC or Stockton. The CFHC Real Property list
discloses each such property as to which such an assessment has not been
prepared on behalf of CFHC, Stockton or the CFHC Subsidiaries.
4.13 Performance of Obligations. CFHC, Stockton and the CFHC Subsidiaries
have performed in all material respects all of the obligations required to be
performed by them to date and are not in default under or in breach of any term
or provision of any covenant, contract, lease, indenture or any other covenant
to which either of them 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 default or breach, where such default or breach
would have a Material Adverse Effect. Except for loans and leases made by
Stockton in the ordinary course of business, to CFHC's or Stockton's knowledge,
no party with whom CFHC, Stockton or the CFHC Subsidiaries has an agreement that
is of material importance to the business of CFHC on a consolidated basis is in
material default thereunder.
4.14 Employees. There are no controversies pending or threatened between
CFHC, Stockton or the CFHC Subsidiaries and any of their respective employees
that are likely to have a Material Adverse Effect. Neither CFHC, Stockton nor
the CFHC Subsidiaries is a party to any collective bargaining agreement with
respect to any of their respective employees or any labor organization to which
their respective employees or any of them belong.
4.15 Registration Obligation. Neither CFHC, Stockton or any CFHC
Subsidiary is under any obligation, contingent or otherwise, to register any of
their respective securities under the Securities Act.
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4.16 Brokers and Finders. Except for the obligation to Merrill Lynch & Co.
as set forth in a letter agreement, dated July 16, 1996, a copy of which has
been delivered to TI, neither CFHC, Stockton nor any of the CFHC Subsidiaries is
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 nor the consummation of the transactions provided for herein or
therein will result in any liability to any broker or finder.
4.17 Material Contracts. Except as set forth in a list furnished by CFHC
and Stockton to TI (the "CFHC Contract List") hereto (all items listed or
required to be listed in such CFHC Contract List being referred to herein as
"Scheduled Contracts"), neither CFHC, the CFHC Subsidiaries nor Stockton is a
party or otherwise subject to:
(a) any employment, deferred compensation, bonus or consulting contract
that (i) has a remaining term, as of the date of this Agreement, of more than
one year in length of obligation on the part of CFHC, Stockton or the CFHC
Subsidiaries and is not terminable by CFHC, Stockton or the CFHC Subsidiaries
within one year without penalty or (ii) requires payment by CFHC, Stockton or
the CFHC Subsidiaries of $50,000 or more per annum;
(b) any advertising, brokerage, licensing, dealership, representative or
agency relationship or contract requiring payment by CFHC, Stockton or the CFHC
Subsidiaries of $50,000 or more per annum;
(c) any contract or agreement that restricts CFHC, Stockton or the CFHC
Subsidiaries (or would restrict any Affiliate of any of them (including TI and
its subsidiaries) after the Effective Time of the Holding Company Merger) from
competing in any line of business with any Person or using or employing the
services of any Person;
(d) any lease of real or personal property providing for annual lease
payments by or to CFHC, Stockton or CFHC Subsidiaries in excess of $50,000 per
annum other than (A) financing leases entered into in the ordinary course of
business in which CFHC, Stockton or the CFHC Subsidiaries is lessor and (B)
leases of real property presently used by Stockton as banking offices;
(e) any mortgage, pledge, conditional sales contract, security agreement,
option, or any other similar agreement with respect to any interest of CFHC,
Stockton or the CFHC Subsidiaries (other than as mortgagor or pledgor in the
ordinary course of their banking business or as mortgagee, secured party or deed
of trust beneficiary in the ordinary course of their business) in personal
property having a value of $50,000 or more;
(f) other than as described in the CFHC Filings or as set forth in the CFHC
Employee Plan List, any stock purchase, stock option, stock bonus, stock
ownership, profit sharing, group insurance, bonus, deferred compensation,
severance pay, pension, retirement, savings or other incentive, welfare or
employment plan or material agreement providing benefits to any present or
former employees, officers or directors of CFHC, Stockton or the CFHC
Subsidiaries;
(g) any agreement to acquire equipment or any commitment to make capital
expenditures of $50,000 or more;
(h) other than agreements entered into in the ordinary course of business,
including sales of other real estate owned, any agreement for the sale of any
property or assets in which CFHC, Stockton or the CFHC Subsidiaries has an
ownership interest or for the grant of any preferential right to purchase any
such property or asset;
(i) any agreement for the borrowing of any money (other than liabilities or
interbank borrowings made in the ordinary course of their banking business and
reflected in the financial records of CFHC, Stockton or the CFHC Subsidiaries);
(j) any restrictive covenant contained in any deed to or lease of real
property owned or leased by CFHC, Stockton or the CFHC Subsidiaries (as lessee)
that materially restricts the use, transferability or value of such property;
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(k) any guarantee or indemnification which involves the sum of $50,000 or
more, other than letters of credit or loan commitments issued in the normal
course of business;
(l) any supply, maintenance or landscape contracts not terminable by CFHC,
Stockton or CFHC Subsidiaries without penalty on 30 days or less notice and
which provides for payments in excess of $50,000 per annum;
(m) other than as disclosed with reference to subparagraph (k) of this
Section 4.17, any material agreement which would be terminable other than by
CFHC, Stockton or the CFHC Subsidiaries as a result of the consummation of the
transactions contemplated by this Agreement;
(n) any contract of participation with any other financial institution in
any loan in excess of $50,000 or any sales of assets of CFHC or Stockton with
recourse of any kind to CFHC or Stockton except the sale of mortgage loans,
servicing rights, repurchase or reverse repurchase agreements, securities or
other financial transactions in the ordinary course of business;
(o) any agreement providing for the sale or servicing of any loan or other
asset which constitutes a "recourse arrangement" under applicable regulation or
policy promulgated by a Governmental Entity (except for agreements for the sale
of guaranteed portions of loans guaranteed in part by the U. S. Small Business
Administration and related servicing agreements);
(p) any contract relating to the provision of data processing services to
CFHC, Stockton or the CFHC Subsidiaries;
(q) any other agreement of any other kind which involves future payments or
receipts or performances of services or delivery of items requiring payment of
$50,000 or more to or by CFHC, Stockton or the CFHC Subsidiaries other than
payments made under or pursuant to loan agreements, participation agreements and
other agreements for the extension of credit in the ordinary course of their
business.
True copies of all Scheduled Contracts, including all amendments and
supplements thereto, have been delivered to TI.
4.18 Certain Material Changes. Except as specifically required, permitted
or effected by this Agreement or as otherwise set forth in a list delivered by
CFHC and Stockton to TI (the "CFHC Material Adverse Effect List"), and except
for any special assessments associated with the Savings Association Insurance
Fund ("SAIF"), since December 31, 1995, there has not been, occurred or arisen
any of the following (whether or not in the ordinary course of business unless
otherwise indicated):
(a) Any change in any of the assets, liabilities, permits, methods of
accounting or accounting practices, business, or manner of conducting business,
of CFHC, Stockton, or the CFHC Subsidiaries, or any other event or development
that has had or may reasonably be expected to have a Material Adverse Effect;
(b) Any damage, destruction or other casualty loss (whether or not covered
by insurance) that has had or may reasonably be expected to have a Material
Adverse Effect;
(c) Any amendment, modification or termination of any existing, or entry
into any new, material contract or permit that has had or may reasonably be
expected to have a Material Adverse Effect on the business, financial condition,
results of operations or prospects of CFHC on a consolidated basis; or
(d) Any direct or indirect redemption, purchase or other acquisition by
CFHC, Stockton or the CFHC Subsidiaries of any equity securities or any
declaration, setting aside or payment of any dividend (except, in the case of
the declaration, setting aside or payment by CFHC of a regular quarterly cash
dividend consistent with past practice) or other distribution on or in respect
of CFHC Stock whether consisting of money, other personal property, real
property or other things of value.
4.19 Licenses and Permits. CFHC, Stockton and CFHC Subsidiaries have all
material licenses and permits that are necessary for the conduct of their
respective businesses, and such licenses are in full force and effect. The
respective properties, assets, operations and businesses of CFHC, Stockton and
the CFHC
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Subsidiaries are and have been maintained and conducted, in all material
respects, in compliance with all applicable licenses and permits.
4.20 Undisclosed Liabilities. Neither CFHC, Stockton nor the CFHC
Subsidiaries has any liabilities or obligations, either accrued or contingent,
that are material to CFHC on a consolidated basis and that have not been: (a)
reflected or disclosed in the Financial Statements of CFHC; or (b) disclosed in
a list furnished by CFHC and Stockton to TI (the "CFHC Undisclosed Liabilities
List") or on any other CFHC List. Neither CFHC, Stockton nor the CFHC
Subsidiaries knows of any reasonable basis for the assertion against any of them
of any liability, obligation or claim (including, without limitation, that of
any regulatory authority) that is likely to result in or cause a Material
Adverse Effect that is not accurately reflected in the Financial Statements of
CFHC or otherwise disclosed in this Agreement.
4.21 Employee Benefit Plans.
(a) Existence of Plans. For purposes of this Agreement, the term "Plans"
shall mean (i) all "Employee Benefit Plans" (as such term is defined in Section
3(3) of ERISA) of which CFHC or any member of the same controlled group of
corporations, trades or businesses as CFHC within the meaning of Section
4001(a)(14) of ERISA, including, but not limited to, Stockton and CFHC
Subsidiaries (for purposes of this Section, an "ERISA Affiliate") is a sponsor
or participating employer or as to which CFHC or any of its ERISA Affiliates
makes contributions or is required to make contributions and (ii) any similar
employment, severance or other arrangement or policy of CFHC or of any of its
ERISA Affiliates (whether written or oral) providing for insurance coverage
(including self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits, or for profit sharing, deferred compensation, bonuses, stock options,
stock appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits. Except as is disclosed in the "CFHC
Employee Plan List," (i) neither CFHC nor any of its ERISA Affiliates maintains
or sponsors, or makes or is required to make contributions to, any Plans, (ii)
none of the Plans is a "multiemployer plan," as defined in Section 3(37) of
ERISA, (iii) none of the Plans is a "defined benefit pension plan" within the
meaning of Section 3(35) of ERISA, and (iv) each of the Plans is, and at all
times since its inception has been, in compliance with all provisions of ERISA,
the Code, the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA")
and all other applicable laws. Notwithstanding any statement or indication in
this Agreement to the contrary, and except as otherwise provided for in the
letter required pursuant to Article XII of this Agreement, there are no Plans as
to which CFHC or its ERISA Affiliates will be required to make any
contributions, whether on behalf of any of the current employees of the CFHC,
its ERISA Affiliate or on behalf of any other person, after the Closing. With
respect to each of such Plans, at the Closing there will be no unrecorded
liabilities with respect to the establishment, implementation, operation,
administration or termination of any such Plan, or the termination of the
participation in any such Plan by the CFHC or any of its ERISA Affiliates.
Neither CFHC nor any ERISA Affiliate has any formal plan or commitment, whether
legally binding or not, to create any additional Plan, or modify or change any
existing Plan that would affect any employee or terminated employee of CFHC or
any ERISA Affiliate, except as disclosed on the CFHC Employee Plan List. CFHC
has delivered to TI true and complete copies of: (i) each of the Plans and any
related funding and service agreements thereto (including insurance contracts,
investment managing agreements, subscription and participation agreements and
recordkeeping contracts) including all amendments, all of which are legally
valid and binding and in full force and effect and there are no defaults
thereunder, (ii) the currently effective Summary Plan Description, Summary of
Material Modifications and all material employee communications pertaining to
each of the Plans, (iii) the three most recent annual reports for each of the
Plans (including all relevant schedules), (iv) the most recently filed PBGC Form
1 (if applicable), and (v) the most recent Internal Revenue Service
determination letter for each Plan which is intended to constitute a qualified
plan under Section 401 of the Code and each amendment to each of the foregoing
documents and any requests for rulings, determinations, or opinions pending with
the Internal Revenue Service or any other governmental agency.
(b) Present Value of Benefits. Except as otherwise provided for in the
letter required pursuant to Article XII of this Agreement, the present value of
all accrued benefits under any Plans subject to Title IV of ERISA shall not, as
of the Closing Date, exceed the value of the assets of such Plans allocated to
such
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accrued benefits, based upon the applicable provisions of the Code and ERISA.
With respect to each Plan that is subject to Title IV of ERISA (i) no amount is
due or owing from CFHC or its ERISA Affiliates to the Pension Benefit Guaranty
Corporation or to any "multiemployer plan" as defined in Section 3(37) of ERISA
on account of any withdrawal therefrom and (ii) no such Plan has been terminated
other than in accordance with ERISA or at a time when the Plan was not
sufficiently funded. The transactions contemplated hereunder, including without
limitation the termination of the Plans at or prior to the Closing, shall not
result in any such withdrawal or other liability under any applicable laws.
(c) Penalties; Reportable Events. None of the Plans, nor any trust created
thereunder nor any trustee, fiduciary or administrator thereof, has engaged in
any transaction which might subject any of the Plans, any such trust, or any
trustee, fiduciary or administrator thereof, or any party dealing with the Plans
or any such trust, to the tax or penalty on prohibited transactions imposed by
Section 4975 of the Code or to any civil penalty imposed by Section 502 of
ERISA. None of the Plans subject to Title IV of ERISA has, since September 2,
1974, been completely or partially terminated nor has there been any "reportable
event," as such term is defined in Section 4043(b) of ERISA, with respect to any
of the Plans since the effective date of ERISA nor has any notice of intent to
terminate been filed or given with respect to any such Plan. There has been no
(i) withdrawal by CFHC or any of its ERISA Affiliates that is a substantial
employer from a single-employer plan which is a Plan and which has two or more
contributing sponsors at least two of whom are not under common control, as
referred to in Section 4063(b) of ERISA, or (ii) cessation by CFHC or any of its
ERISA Affiliates of operations at a facility causing more than 20% of Plan
participants to be separated from employment, as referred to in Section 4062(f)
of ERISA.
(d) Deficiencies; Qualification. None of the Plans nor any trust created
thereunder has incurred any "accumulated funding deficiency" as such term is
defined in Section 412 of the Code, whether or not waived, since the effective
date of said Section 412. Furthermore, neither CFHC nor any of its ERISA
Affiliates has any unfunded liability under ERISA in respect of any of the
Plans. Each of the Plans which is intended to be a qualified plan under Section
401(a) of the Code has received a favorable determination letter from the
Internal Revenue Service and CFHC does not know of any fact which could
adversely affect the qualified status of any such Plan. All of the Plans have
been administered and maintained in compliance with ERISA, COBRA, the Code and
all other applicable laws. All contributions required to be made to each of the
Plans under the terms of the Plan, ERISA, the Code, COBRA or any other
applicable laws have been timely made. The Financial Statements properly reflect
all amounts required to be accrued as liabilities to date under each of the
Plans. There is no contract, agreement or benefit arrangement covering any
employee of CFHC which, individually or collectively, could give rise to the
payment of any amount which would constitute an "excess parachute payment" (as
defined in Section 280G of the Code).
(e) Litigation. There have occurred and there exists (i) no pending
litigation or controversies against the Plans or against CFHC or any of its
ERISA Affiliates as the "Employer" or "Sponsor" under the Plans or against the
trustee, fiduciaries or administrators of any of the Plans and (ii) no pending
or threatened investigations, proceedings, lawsuits, disputes, actions or
controversies involving the Plans, the administrator or trustee of any of the
Plans with any of the Internal Revenue Service, Department of Labor, Pension
Benefit Guaranty Corporation, any participant in the Plans or any other person
whatsoever. Without limiting the generality of the foregoing, there are no
lawsuits or other claims, pending or threatened (other than routine claims for
benefits under a Plan) against (i) any Plan, or (ii) any "Fiduciary" of such
Plan (within the meaning of Section 3(21)(a) of ERISA) brought on behalf of any
participant, beneficiary or Fiduciary thereunder, nor is there a reasonable
basis for any such claim.
4.22 Corporate Records. The minute books of CFHC and Stockton since 1982,
and the CFHC Subsidiaries since their respective dates of incorporation,
accurately reflect all material actions taken to this date by the respective
stockholders, boards of directors and committees of CFHC, Stockton and the CFHC
Subsidiaries and contain true and complete copies of the Certificates of
Incorporation, as amended, Articles of Incorporation, as amended, Federal Stock
Charter, Bylaws and other charter documents, and all amendments thereto. True
and complete copies of CFHC's, Stockton's and the CFHC Subsidiaries'
Certificates of Incorporation, as amended, Articles of Incorporation, as
amended, Federal Stock Charter, Bylaws and other charter documents, and all
amendments thereto, have been delivered to TI on the date hereof.
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4.23 Community Reinvestment Act. Stockton received a rating of
"satisfactory" in its most recent examination or interim review with respect to
the Community Reinvestment Act. CFHC or Stockton have not been advised of any
supervisory concerns regarding any of Stockton's compliance with the Community
Reinvestment Act.
4.24 Regulatory Actions.
(a) As of the date hereof, and to CFHC's and Stockton's actual knowledge,
CFHC and Stockton are in compliance with all applicable federal, state, local
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders or
decrees applicable thereto or to the employees conducting such businesses,
including, without limitation, the Equal Credit Opportunity Act, the Bank
Secrecy Act, the Fair Housing Act, the Community Reinvestment Act, the Home
Mortgage Disclosure Act, the Americans with Disabilities Act, and all other
applicable fair lending laws or other laws relating to discrimination, and to
CFHC's and Stockton's actual knowledge, neither CFHC nor Stockton is the subject
of a referral to either the United States Department of Justice or the
Department of Housing and Urban Development for alleged violations of the Fair
Lending Acts.
(b) Except as set forth in a list (the "CFHC Regulatory Actions List"), to
the knowledge of CFHC and Stockton, each material violation, criticism, or
exception by any Governmental Entity with respect to any examinations of CFHC or
Stockton has been responded to or is in the process of being responded to, and
neither CFHC nor Stockton has been advised by any Governmental Entity that its
response is inadequate.
(c) Neither CFHC, Stockton nor the CFHC Subsidiaries is a party to any
cease and desist order, written agreement or memorandum of understanding with,
or a party to any commitment letter or similar undertaking to, or is subject to
any order or directive by, or is a recipient of any extraordinary supervisory
letter from, or has adopted any board resolutions at the request of, any
Governmental Entity nor has it been advised by any Governmental Entity that it
is contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, directive, written agreement, memorandum
of understanding, extraordinary supervisory letter, commitment letter, board
resolutions or similar undertaking.
4.25 Insider Loans; Other Transactions. CFHC has previously provided TI
with a listing, current as of November 30, 1996, of all extensions of credit
made to CFHC, Stockton and the CFHC Subsidiaries and each of its and their
executive officers and directors and their related interests (all as defined
under Federal Reserve Board Regulation O), all of which have been made in
compliance with Regulation O, which listing is true, correct and complete in all
material respects. Neither CFHC, Stockton nor any CFHC Subsidiary owes any
amount to, or has any contract or lease with or commitment to, any of the
present Executive Officers or directors of CFHC, Stockton or any CFHC Subsidiary
(other than for compensation for current services not yet due and payable,
reimbursement of expenses arising in the ordinary course of business, options
available under the CFHC Stock Option Plan, or any amounts due pursuant to
CFHC's Employee Benefit Plans).
4.26 Accounting Records. CFHC, Stockton and the CFHC Subsidiaries maintain
accounting records which fairly and accurately reflect, in all material
respects, their transactions and accounting controls exist sufficient to provide
reasonable assurances that such transactions are, in all material respects, (i)
executed in accordance with their management's general or specific
authorization, and (ii) recorded as necessary to permit the preparation of
financial statements in conformity with generally accepted accounting procedures
and/or applicable regulatory accounting principles or banking regulations
consistently applied. Such records, to the extent they contain important
information pertaining to CFHC, Stockton and the CFHC Subsidiaries which is not
easily and readily available elsewhere, have been stored and maintained in
compliance with OTS Regulations.
4.27 Indemnification. Other than pursuant to the provisions of its charter
or bylaws, neither CFHC, Stockton nor the CFHC Subsidiaries is a party to any
indemnification agreement with any of its present directors, officers,
employees, agents or other persons who serve or served in any other capacity
with any other enterprise at the request of CFHC (a "Covered Person"), and to
the knowledge of CFHC, there are no claims for which any Covered Person would be
entitled to indemnification under Section 7.8 if such provisions were
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deemed in effect, except as set forth in a list furnished by CFHC and Stockton
to TI (the "CFHC Indemnification List").
4.28 Offices and ATMs. CFHC and Stockton have furnished to TI a list (the
"CFHC Offices List") setting forth the headquarters of Stockton (identified as
such) and each of the offices and automated teller machines ("ATMs") maintained
and operated by Stockton (including, without limitation, representative and loan
production offices and operations centers) and the location thereof. Except as
set forth on the CFHC Offices List, Stockton maintains no other office or ATM
and conducts business at no other location, and Stockton has not applied for nor
received permission to open any additional branch nor operate at any other
location.
4.29 Loan Portfolio.
(a) CFHC and Stockton have furnished to TI a list (the "CFHC Loan List")
that sets forth as of November 30, 1996 a description of (a) each loan, lease,
other extension of credit or commitment to extend credit by Stockton in excess
of $25,000; (b) all loans, leases, other extensions and commitments to extend
credit by Stockton of $25,000 or more, that have been classified by any bank
regulatory authority or any unit of CFHC or Stockton or by any other Person as
"Criticized," "Specially Mentioned," "Watch List," "Substandard," "Doubtful,"
"Loss" or any comparable classification ("Classified Credits"); and (c) all
consumer loans due to Stockton as to which any payment of principal, interest or
any other amount is 90 days or more past due. There is no material disagreement
with any regulatory agency as to any classification referred to herein.
(b) Each loan, other than loans the aggregate amount of which to any one
borrower and its related interests reflected as an asset on CFHC's most recent
balance sheet does not exceed $25,000, and each balance sheet date subsequent
thereto (i) is evidenced by notes, agreements or other evidence of indebtedness
which are true, genuine and what they purport to be, and (ii) is the legal,
valid and binding obligation of the obligor named therein, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
conveyance and other laws of general applicability relating to or affecting
creditors' rights and to general equity principles. All such loans and
extensions of credit that have been made by Stockton and that are subject to
Section 11 of HOLA comply therewith.
4.30 Investment Securities. CFHC and Stockton have furnished to TI a list
(the "CFHC Investment Securities List") setting forth a description of each
Investment Security held by CFHC, Stockton or the CFHC Subsidiaries on November
30, 1996 and on the date of this Agreement. The CFHC Investment Securities List
sets forth, with respect to each such Investment Security: (i) the issuer
thereof; (ii) the outstanding balance or number of shares; (iii) the maturity,
if applicable: (iv) the title of issue; and (v) the classification under SFAS
No. 115. Neither CFHC, Stockton nor the CFHC Subsidiaries holds any Investment
Security classified as trading.
4.31 Derivatives Contracts; Structured Notes; Etc. Except as set forth in
a list furnished by CFHC and Stockton to TI, (the "CFHC Derivatives List")
neither CFHC, Stockton nor the CFHC Subsidiaries, is a party to 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 derivative
contract (including various combinations thereof) (each a "Derivatives
Contract") or owns securities that are referred to generically as "structured
notes," "high risk mortgage derivatives," "capped floating rate notes," or
"capped floating rate mortgage derivatives."
4.32 Power of Attorney. Neither CFHC, Stockton nor the CFHC Subsidiaries
has granted any Person a power of attorney or similar authorization that is
presently in effect or outstanding.
4.33 Material Interests of Certain Persons. Except as disclosed in CFHC's
proxy statement for its 1996 annual meeting of stockholders, no officer or
director of CFHC, or any associate thereof (as such term is defined in Rule
12b-2 under the Exchange Act) has any material interest in any material contract
or property (real or personal) tangible or intangible, used in or pertaining to
the business of CFHC, Stockton or the CFHC Subsidiaries.
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4.34 Tax Matters. Neither CFHC, Stockton or the CFHC Subsidiaries, nor, to
the knowledge of CFHC or Stockton, any of their respective Affiliates has taken
or agreed to take any action that would prevent the business combinations to be
effected by the Mergers from qualifying as reorganizations under Section 368(a)
of the Code.
4.35 Facts Affecting Regulatory Approvals. To the knowledge of CFHC and
Stockton, there is no fact, event or condition applicable to CFHC, Stockton or
the CFHC Subsidiaries which will, or reasonably could be expected to, adversely
affect the likelihood of securing the requisite approvals or consents of any
Governmental Entity to the Mergers and transactions contemplated by this
Agreement.
4.36 Disclosure Documents and Applications. None of the information
supplied or to be supplied by or on behalf of CFHC or Stockton ("CFHC Supplied
Information") for inclusion in (a) the Proxy Statement to be mailed to the
stockholders of CFHC in connection with obtaining the approval of the
stockholders of CFHC of this Agreement, the Holding Company Merger and the other
transactions contemplated hereby, and (b) any other documents to be filed with
the SEC, the OTS, the FDIC or any other Governmental Entity in connection with
the transactions contemplated in this Agreement, will, at the respective times
such documents are filed or become effective, or with respect to the Proxy
Statement when mailed, contain any untrue statement of a material fact, or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
4.37 Certain Regulatory Matters.
(a) Stockton is a qualified thrift lender under Section 10(m) of the HOLA
and is a member of the Federal Home Loan Bank of San Francisco; and
(b) Stockton has not paid any dividends to CFHC that (i) caused the
regulatory capital of Stockton to be less than the amount then required by
applicable law or (ii) exceeded any other limitation on the payment of dividends
imposed by law, agreement or regulatory policy. Other than as required by
applicable law or OTS Regulations, there are no restrictions on the payment of
dividends by Stockton or CFHC.
4.38 Corporate Approval
(a) The affirmative vote of the holders of a majority of the outstanding
shares of CFHC Stock is required to adopt this Agreement and approve the Holding
Company Merger and the other transactions contemplated hereby. No other vote of
the stockholders of CFHC is required by law, the Certificate of Incorporation or
Bylaws of CFHC or otherwise to adopt this Agreement and approve the Holding
Company Merger and the other transactions contemplated hereby; and
(b) At a duly constituted meeting of the Board of Directors of CFHC and
Stockton, directors constituting at least two-thirds of the directors then in
office respectively authorized CFHC's and Stockton's entry into this Agreement
and the transactions contemplated hereby.
4.39 Intellectual Property. Except as set forth in a list furnished by
CFHC and Stockton to TI (the "CFHC Intellectual Property List"), CFHC, Stockton
and the CFHC Subsidiaries own or possess valid and binding licenses and other
rights to use without payment all material patents, copyrights, trade secrets,
trade names, service marks and trademarks used in their respective businesses;
and CFHC, Stockton and the CFHC Subsidiaries have not received any notice with
respect thereto that asserts the rights of others. CFHC, Stockton and the CFHC
Subsidiaries have in all material respects performed all the obligations
required to be performed by them, and are not in default in any material respect
under any license, contract, agreement, arrangement or commitment relating to
any of the foregoing.
4.40 Accuracy and Currentness of Information Furnished. The
representations and warranties made by CFHC and Stockton hereby or in the Lists
or schedules hereto do not contain any untrue statement of a material fact or
omit to state any material fact which is necessary under the circumstances under
which they were made to prevent the statements contained herein or in such Lists
or schedules from being misleading.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TI AND GUARANTY
Subject to the provisions of Section 14.3 of this Agreement, TI and
Guaranty, jointly and severally, represent and warrant to CFHC and Stockton as
follows:
5.1 Incorporation, Standing and Power. TI is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, has all requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its business as presently
conducted, and is registered as a savings and loan holding company under HOLA.
Guaranty is a federal savings bank duly incorporated, validly existing and in
good standing under the laws of the United States and is authorized by the OTS
to conduct a federal savings bank business. The Certificate of Incorporation and
Bylaws of TI, and the Federal Stock Charter and Bylaws of Guaranty, each as
amended to date, are in full force and effect. Guaranty's deposits are insured
by the FDIC in the manner and to the fullest extent provided by law. TI and
Guaranty are duly qualified and in good standing as a foreign corporation, and
are authorized to do business, in all states or other jurisdictions in which
such qualification or authorization is necessary, except where the failure to be
so qualified or authorized would not, individually or in the aggregate, have a
Material Adverse Effect.
5.2 Authority of TI and Guaranty. The execution and delivery by TI and
Guaranty of this Agreement and by Guaranty of the Agreement of Bank Merger, and
subject to the requisite approval of the shareholder of Guaranty of this
Agreement and the transactions contemplated hereby, the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of TI and Guaranty, and
this Agreement is and the Agreement of Bank Merger will be upon execution by all
parties, a valid and binding obligation of TI and Guaranty, enforceable in
accordance with their respective terms, except as the enforceability thereof may
be limited by bankruptcy, liquidation, receivership, conservatorship,
insolvency, moratorium or other similar laws affecting the rights of creditors
generally and by general equitable principles and by Section 8(b)(6)(D) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1818(b)(6)(D). Except as set
forth in a list furnished by TI to CFHC (the "TI Conflicts and Consents List"),
neither the execution and delivery by TI or Guaranty of this Agreement or the
Agreement of Bank Merger, as the case may be, the consummation of the
transactions contemplated herein or thereby, nor compliance by TI or Guaranty
with any of the provisions hereof or thereof, will (a) conflict with or result
in a breach of any provision of the Certificate of Incorporation or Bylaws, as
amended, of TI, or the Federal Stock Charter or Bylaws, as amended, of Guaranty;
(b) constitute a breach of or result in a default (or give rise to any rights of
termination, cancellation or acceleration, or any right to acquire any
securities or assets) under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, franchise, license, permit, agreement or other
instrument or obligation to which TI or Guaranty is a party, or by which TI or
Guaranty or any of their respective properties or assets is bound; (c) result in
the creation or imposition of any Encumbrance on any of the properties or assets
of TI or Guaranty; or (d) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to TI or Guaranty or any of their respective
properties or assets. Except as set forth in the TI Conflicts and Consents List,
no consent of, approval of, notice to or filing with any Governmental Entity
having jurisdiction over any aspect of the business or assets of TI, and no
consent or approval of any other Person, is required in connection with the
execution and delivery by TI of this Agreement, or the consummation by TI of the
transactions contemplated hereby or thereby, except (i) the approval of this
Agreement and the transactions contemplated hereby by the shareholder of
Guaranty; (ii) such approvals as may be required by the OTS and the FDIC; (iii)
filing of the Certificate of Merger with the Delaware Secretary pursuant to the
Delaware General Corporation Law; (iv) the declaration of effectiveness by the
SEC of the S-4 Registration Statement; and (v) such approvals as may be required
by the NYSE to approve for inclusion on the NYSE the TI Stock to be issued in
the Holding Company Merger.
5.3 Tax Representations. TI, Guaranty and their Affiliates agree to
cooperate with tax counsel by furnishing reasonable and customary written
representations to tax counsel for purposes of supporting tax counsel's opinion
that the Holding Company Merger and the Bank Merger both qualify as tax-deferred
reorganizations within the meaning of Section 368(a) of the Code as contemplated
in Section 9.6 hereof.
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5.4 Disclosure Documents and Applications. None of the information
supplied or to be supplied by or on behalf of TI ("TI Supplied Information") for
inclusion in (a) the S-4 Registration Statement, and (b) any other documents to
be filed with the OTS, the FDIC or any other Governmental Entity in connection
with the transactions contemplated in this Agreement will, at the respective
times such documents are filed or become effective, or with respect to the S-4
Registration Statement when mailed, contain any untrue statement of a material
fact, or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
5.5 Reports and Filings. TI and Guaranty have filed all reports, returns,
registrations and statements (such reports and filings referred to as "TI
Filings"), together with any amendments required to be made with respect
thereto, that were required to be filed with (a) the SEC, (b) the OTS, (c) the
FDIC and (d) any other applicable Governmental Entity, including taxing
authorities, except where the failure to file such reports, returns,
registrations or statements has not had and is not reasonably expected to have a
Material Adverse Effect. No material adverse administrative actions have been
taken or orders issued in connection with such TI Filings. As of their
respective dates, each of such TI Filings (y) complied in all material respects
with all laws and regulations enforced or promulgated by the Governmental Entity
with which it was filed (or was amended so as to be in compliance promptly
following discovery of any such noncompliance); and (z) did not 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. Any financial
statement contained in any of such TI Filings fairly presented the financial
position of TI and was prepared in accordance with generally accepted accounting
principles and/or applicable regulatory accounting principles or banking
regulations consistently applied, except as stated therein, during the periods
involved. TI has furnished CFHC with true and correct copies of all TI Filings
filed by TI with the SEC, OTS, and the FDIC since January 1, 1993.
5.6 Corporate Approval. At a duly constituted meeting of the Board of
Directors of Guaranty, directors constituting at least two-thirds of the
directors then in office authorized Guaranty's entry into this Agreement and the
transactions contemplated hereby, and, at a duly constituted meeting of the
Board of Directors of TI, directors constituting at least a majority of the
directors then in office authorized TI's entry into this Agreement and the
transactions contemplated hereby.
5.7 Absence of Certain Changes or Events. Except as may be set forth in a
list furnished by TI to CFHC (the "TI Material Adverse Effect List"), or as
otherwise contemplated by this Agreement, since December 30, 1995, and as of the
date hereof, no event has occurred which has had a Material Adverse Effect.
5.8 Access to Funds. TI has, or on the Closing Date will have, a
sufficient number of authorized shares of TI Stock and all funds necessary to
consummate the Holding Company Merger.
5.9 Facts Affecting Regulatory Approvals. To the knowledge of TI and
Guaranty, there is no fact, event or condition applicable to TI or Guaranty
which will, or reasonably could be expected to, adversely affect the likelihood
of securing the requisite approvals or consents of any Governmental Entity to
the Mergers and transactions contemplated by this Agreement.
5.10 Accuracy and Currentness of Information Furnished. The
representations and warranties made by TI and Guaranty hereby or in the Lists or
schedules hereto do not contain any untrue statement of material fact or omit to
state any material fact which is necessary under the circumstances to prevent
the statements contained herein or in such Lists or schedules from being
misleading.
ARTICLE VI
COVENANTS OF CFHC AND STOCKTON PENDING EFFECTIVE TIME OF THE MERGERS
CFHC and Stockton covenant and agree with TI and Guaranty as follows:
6.1 Limitation on CFHC's and Stockton's Conduct Prior to Effective
Time. Between the date hereof and the Effective Time of the Holding Company
Merger, except as contemplated by this Agreement and subject to requirements of
law and regulation generally applicable to federally chartered savings banks and
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savings and loan holding companies, CFHC and Stockton agree to conduct, and CFHC
agrees to cause Stockton and the CFHC Subsidiaries to conduct, their respective
businesses in the ordinary course in substantially the manner heretofore
conducted and in accordance with sound banking practices, and CFHC, Stockton and
the CFHC Subsidiaries shall not, without prior written consent of TI (which
consent shall not be unreasonably withheld and which consent shall be deemed
granted if within five (5) business days of TI's receipt of written notice of a
request for prior written consent, written notice of objection is not received
by CFHC):
(a) issue, sell or grant any CFHC Stock (except pursuant to the exercise of
CFHC Options outstanding as of the date hereof), CFHC preferred stock, Stockton
Stock, any other securities (including long term debt) of CFHC, Stockton or the
CFHC Subsidiaries or any rights, options or securities to acquire any CFHC Stock
(except pursuant to the Stock Option Agreement attached hereto as Exhibit A),
CFHC preferred stock, Stockton Stock, or any other securities (including long
term debt) of CFHC or Stockton or the CFHC Subsidiaries;
(b) declare, set aside or pay any dividend or make any other distribution
upon or split, combine or reclassify any shares of capital stock or other
securities of CFHC, Stockton or any CFHC Subsidiaries other than, by CFHC, the
declaration, setting aside and payment of quarterly cash dividends consistent
with past practice, and not to exceed $0.11 per share of CFHC Stock for each
quarterly period;
(c) purchase, redeem or otherwise acquire any capital stock or other
securities of CFHC, Stockton or the CFHC Subsidiaries or any rights, options, or
securities to acquire any capital stock or other securities of CFHC, Stockton or
CFHC Subsidiaries; provided, however, that CFHC may cancel outstanding CFHC
Options and pay the holders of such CFHC Options an amount not greater than an
amount of cash computed in accordance with Section 2.4;
(d) except as may be required to effect the transactions contemplated
herein, amend their Certificate of Incorporation or Articles of Incorporation,
as applicable, Federal Stock Charter, or Bylaws;
(e) grant any general or uniform increase in the rate of pay of employees
or employee benefits except pursuant to the plan approved on November 25, 1996
by the Compensation/Stock Options Committee of CFHC's Board of Directors
providing for an overall base salary increase of 4%;
(f) grant any: (i) bonus, incentive compensation or related employee
benefits to any Person except for those of a nondiscretionary nature granted in
the ordinary course of business and consistent with past practices or as
required by an existing written employment agreement, and except as otherwise
permitted by this Agreement; (ii) increase in salary except as set forth in
Section 6.1(e) hereof or except upon a promotion, in which latter case such
increase shall not exceed 5% of base pay; (iii) compensation to Robert V.
Kavanaugh in excess of that approved pursuant to that certain resolution dated
November 25, 1996 of the Compensation/ Stock Options Committee of CFHC's Board
of Directors; or (iv) compensation or other benefits to any director in excess
of the amounts previously disclosed to TI and Guaranty and as identified on a
list delivered by CFHC to TI (the "CFHC Director Compensation List")
(g) make any capital expenditure or commitments with respect thereto in
excess of $50,000 in the aggregate for any specific project or purpose, except
for ordinary repairs, renewals and replacements, and except for those payments
to be made in connection with the opening of a branch of Stockton in Modesto and
the purchase of eight Automated Teller Machines, all as identified on a list
delivered by CFHC to TI (the "CFHC Material Expenditure List");
(h) compromise or otherwise settle or adjust any assertion or claim of a
deficiency in Taxes (or interest thereon or penalties in connection therewith),
extend the statute of limitations with any tax authority or file any pleading in
court in any tax litigation or any appeal from an asserted deficiency, or file
or amend any federal, foreign, state or local tax return, or make any tax
election;
(i) grant or commit to grant any extension of credit if such extension of
credit, together with all other credit then outstanding to the same Person and
all Affiliated Persons: (i) if unsecured, would exceed
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$100,000, or, (ii) if secured by a lien on real estate (excluding any government
insured loans), would exceed $1,000,000 or have a loan-to-value ratio in excess
of 80% (unless insured by private mortgage insurance);
(j) change any method or period of accounting unless and until required by
generally accepted accounting principles or a Governmental Entity;
(k) grant or commit to grant any extension of credit or amend the terms of
any such credit outstanding on the date hereof to any Executive Officer,
director or holder of ten percent (10%) or more of the outstanding CFHC Stock,
or any Affiliate of such Person, if such credit would exceed $25,000;
(l) close any offices at which business is conducted or open any new
offices, except for the opening of those branches identified in the CFHC
Material Expenditure List and the opening of Stockton's branch in Oakdale,
pursuant to the terms of CFHC's agreement with Sentinel Savings and Loan
Association;
(m) adopt or enter into any new employment agreement or other employee
benefit plan or arrangement or amend or modify any employment agreement or
employee benefit plan or arrangement of any such type except for such amendments
as are required by law, and except as otherwise permitted by this Agreement;
(n) initiate, solicit, or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal which constitutes, or may reasonably be
expected to lead to, any Competing Transaction (as such term is defined below),
or negotiate with any person in furtherance of such inquiries or to obtain a
Competing Transaction, or agree to or endorse any Competing Transaction, or
authorize or permit any of its officers, directors, or employees or any
investment banker, financial advisor, attorney, accountant, or other
representative retained by CFHC, Stockton or any of their Affiliates to take any
such action, and CFHC shall promptly notify TI (orally and in writing) of all of
the material facts relating to all inquiries and proposals which it may receive
relating to any of such matters. For purposes of this Agreement, "Competing
Transaction" shall mean any of the following involving CFHC or Stockton: any
merger, consolidation, share exchange or other business combination; a sale,
lease, exchange, mortgage, pledge, transfer or other disposition of assets of
CFHC or Stockton representing ten percent (10%) or more of the consolidated
assets of CFHC; a sale of shares of capital stock (or securities convertible or
exchangeable into or otherwise evidencing, or any agreement or instrument
evidencing, the right to acquire capital stock), representing ten percent (10%)
or more of the voting power of CFHC; a tender offer or exchange offer for at
least ten percent (10%) of the outstanding shares of CFHC; a solicitation of
proxies in opposition to approval of the Holding Company Merger by CFHC's
shareholders; or a public announcement of a bona fide proposal, plan, or
intention to do any of the foregoing. CFHC, Stockton and the CFHC Subsidiaries
will immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties (other than TI and Guaranty)
conducted heretofore with respect to any of the foregoing. CFHC and Stockton
will take the necessary steps to inform promptly the appropriate individuals or
entities referred to above of the obligations undertaken in this Section. CFHC
and Stockton agree that they will notify TI and Guaranty immediately if any such
inquiries, proposals or offers are received by, any such information is
requested from, or any such negotiations or discussion are sought to be
initiated or continued with CFHC, Stockton or the CFHC Subsidiaries. CFHC and
Stockton also agree that they shall promptly request each other person, other
than TI and Guaranty, that has heretofore executed a confidentiality agreement
in connection with its consideration of acquiring CFHC, Stockton or the CFHC
Subsidiaries to return all confidential information heretofore furnished to such
person by or on behalf of CFHC, Stockton or any of the CFHC Subsidiaries and
enforce any such confidentiality agreements. Notwithstanding any other provision
in this Section 6.1(n) or elsewhere in this Agreement, the obligations of CFHC
in this Agreement are subject to the continuing fiduciary duties of the Board of
Directors of CFHC to the stockholders of CFHC. In the event the Board of
Directors of CFHC receives a bona fide offer for a Competing Transaction with
another entity, and reasonably determines, upon advice of counsel, that as a
result of such offer, any duty to act or to refrain from doing any act pursuant
to this Agreement is inconsistent with the continuing fiduciary duties of said
Board of Directors to the stockholders of CFHC, such failure to act or refrain
from doing any act shall not constitute the failure of any condition, breach of
any covenant or otherwise constitute any breach of this Agreement, except that
any such failure to act or refrain from doing any act shall entitle TI to
terminate this Agreement pursuant to Section 13.1(i) hereof;
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(o) other than in the ordinary course of business, consistent with past
practice, incur any indebtedness for borrowed money or assume, guarantee,
endorse or otherwise as an accommodation become responsible for the obligations
of any other person;
(p) change any of CFHC's or Stockton's basic policies and practices with
respect to liquidity management and cash flow planning, marketing, deposit
origination, lending, budgeting, profit and tax planning, personnel practices or
any other material aspect of CFHC's business or operations on a consolidated
basis;
(q) grant any Person a power of attorney or similar authority;
(r) make any investment by purchase of stock or securities (including an
Investment Security), contributions to capital, property transfers or otherwise
in any other Person, except for federal funds or obligations of the United
States Treasury or an agency of the United States government the obligations of
which are entitled to or implied to have the full faith and credit of the United
States government and which have an original maturity not in excess of one year,
in any case, in the ordinary course of business consistent with past practices
and which are not designated as trading;
(s) settle any claim, action or proceeding involving any liability of CFHC,
Stockton or the CFHC Subsidiaries for money damages in excess of $75,000
exclusive of insurance coverage, or involving restrictions upon the operations
of CFHC or any of the CFHC Subsidiaries;
(t) amend or modify any Scheduled Contract or enter into any agreement or
contract that would be a Scheduled Contract under Section 4.17, except as
otherwise permitted by this Agreement;
(u) waive or release any material right or collateral or cancel or
compromise any extension of credit or other debt or claim, except for actions
taken in the resolution of extensions of credit or other debts or claims that do
not result in a reduction in excess of $15,000 of the amount CFHC is otherwise
entitled to pursuant to such right, collateral, credit or other debt or claim,
and in a manner consistent with past practice;
(v) enter into any new activities or lines of business, or cease to conduct
any material activities or lines of business that it conducts on the date
hereof, or conduct any material business activity not consistent with past
practice;
(w) sell, transfer, mortgage, encumber or otherwise dispose of any assets
or release or waive any claim, except in the ordinary course of business and
consistent with past practices;
(x) take any action which would or is reasonably likely to (i) adversely
affect the ability of CFHC or Stockton to obtain any necessary approval of any
Governmental Entity required for the transactions contemplated hereby; (ii)
adversely affect CFHC's or Stockton's ability to perform its covenants and
agreements under this Agreement; or (iii) result in any of the conditions to the
performance of CFHC's or Stockton's obligations hereunder, as set forth in
Articles IX or X herein not being satisfied;
(y) make any special or extraordinary payments to any Person, except as
otherwise permitted by this Agreement;
(z) reclassify any Investment Security from hold-to-maturity or available
for sale to trading;
(aa) sell any security other than in the ordinary course of business;
(bb) take title to any real property without conducting prior thereto an
environmental investigation (which at a minimum shall consist of a phase I
environmental report), which investigation shall disclose the absence of any
suspected environmental contamination, except with respect to real property on
which there is located a 1-4 family residence (unless CFHC or Stockton has
reasonable cause to believe any Hazardous Materials may exist on such property);
(cc) take or cause to be taken any action which would disqualify the
Mergers as "tax-deferred reorganizations" within the meaning of Section 368(a)
of the Code;
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(dd) notwithstanding any recoveries received with respect to loans
previously charged off, reduce the allowance for loan and lease losses, except
as a result of chargeoffs, nor increase the allowance for loan and lease losses
greater than the tax base year reserve; or
(ee) agree or make any commitment to take any actions prohibited by this
Section 6.1.
6.2 Affirmative Conduct of CFHC and Stockton Prior to Effective Time.
Between the date hereof and the Effective Time of the Holding Company Merger,
CFHC and Stockton shall, and CFHC shall cause Stockton and the CFHC Subsidiaries
to:
(a) use their respective commercially reasonable efforts consistent with
this Agreement to maintain and preserve intact their respective present business
organizations and to maintain and preserve their respective relationships and
goodwill with account holders, borrowers, employees and others having business
relationships with CFHC, Stockton or the CFHC Subsidiaries;
(b) use their respective commercially reasonable efforts to keep in full
force and effect all of the existing material permits and licenses of CFHC,
Stockton or the CFHC Subsidiaries;
(c) use their respective commercially reasonable efforts to maintain
insurance coverage at least equal to that now in effect on all properties for
which they are responsible and on their respective business operations;
(d) perform their respective material contractual obligations and not
become in material default on any such obligations;
(e) duly observe and conform to all lawful requirements applicable to their
respective businesses, except for any failure to so observe and conform that
would not have a Material Adverse Effect;
(f) maintain their respective assets and properties in good condition and
repair, normal wear and tear excepted;
(g) promptly advise TI in writing of any event or any other transaction
within CFHC's or Stockton's knowledge whereby any Person or Related Group of
Persons acquires, directly or indirectly, record or beneficial ownership or
control (as defined in Rule 13d-3 promulgated by the SEC under the Exchange Act)
of five percent (5%) or more of the outstanding CFHC Stock prior to the record
date fixed for the CFHC Stockholders' Meeting or any adjourned meeting thereof
to approve this Agreement and the transactions contemplated herein;
(h) promptly notify TI regarding receipt from any tax authority of any
notification of the commencement of an audit, any request to extend the statute
of limitations, any statutory notice of deficiency, any revenue agent's report,
any notice of proposed assessment, or any other similar notification of
potential adjustments to the tax liabilities of CFHC, or the CFHC Subsidiaries
or Stockton, or any actual or threatened collection enforcement activity by any
tax authority with respect to tax liabilities of CFHC, Stockton or the CFHC
Subsidiaries, and make available to TI the calculation work papers for federal
income tax estimated payments;
(i) make available to TI monthly unaudited consolidated balance sheets and
consolidated income statements of CFHC within twenty-five (25) days after the
close of each calendar month;
(j) not later than the 20th day of each calendar month, amend or supplement
the CFHC Lists prepared and delivered pursuant to Article IV to ensure that the
information set forth in the CFHC Lists accurately reflects the then-current
status of the information provided therein, and deliver such amendments or
supplements to TI no later than the 20th day of each calendar month. CFHC shall
further amend or supplement the CFHC Lists as of the Closing Date if necessary
to reflect any additional information that needs to be included in the CFHC
Lists. No amendment or supplement to the CFHC Lists needs to be provided to the
extent there has been no change or update in such CFHC List;
(k) use their respective commercially reasonable efforts to obtain any
third party consent with respect to any contract, agreement, lease, license,
amendment, permit or release that is material to the business of
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CFHC on a consolidated basis or that is contemplated in this Agreement as
required in connection with the Holding Company Merger or Bank Merger; and
(l) maintain an allowance for loan and lease losses consistent with
practices and methodology as in effect on the date of the execution of this
Agreement.
6.3 Access to Information.
(a) CFHC and Stockton will afford, and CFHC shall cause the CFHC
Subsidiaries to afford, upon reasonable notice, to TI and its representatives,
counsel, accountants, agents and employees reasonable access during normal
business hours to all of their respective businesses, operations, properties,
books, files and records and will do everything reasonably necessary to enable
TI and its representatives, counsel, accountants, agents and employees to make a
complete examination of the financial statements, businesses, assets and
properties of CFHC, the CFHC Subsidiaries and Stockton and the condition thereof
and to update such examination at such intervals as TI shall deem appropriate.
Such examination shall be conducted in cooperation with the officers of CFHC,
the CFHC Subsidiaries and Stockton and in such a manner as to minimize any
disruption of, or interference with, the normal business operations of CFHC, the
CFHC Subsidiaries and Stockton. Upon the request of TI, CFHC will request Peat
Marwick to provide reasonable access by Ernst & Young to auditors' work papers
with respect to the businesses and properties of CFHC, Stockton and the CFHC
Subsidiaries, including tax accrual work papers prepared for CFHC and/or
Stockton during the preceding sixty (60) months or any future completed audits
or completed reviews of CFHC or Stockton, other than (i) books, records and
documents covered by the attorney-client privilege, or that are attorneys' work
product, and (ii) books, records and documents that CFHC, Stockton and the CFHC
Subsidiaries are legally obligated to keep confidential. No examination or
review conducted under this section shall constitute a waiver or relinquishment
on the part of TI of the right to rely upon the representations and warranties
made by CFHC and Stockton herein. TI covenants and agrees that it and its
representatives, counsel, accountants, agents and employees will hold in strict
confidence all documents and information concerning CFHC, Stockton and the CFHC
Subsidiaries received from any of them so obtained (except to the extent that
such documents or information are a matter of public record or require
disclosure in the S-4 Registration Statement or any of the public information of
any applications required to be filed with any Governmental Entity to obtain the
approvals and consents required to effect the transactions contemplated hereby),
and if the transactions contemplated herein are not consummated, such confidence
shall be maintained and all such documents shall be returned to CFHC, Stockton
and the CFHC Subsidiaries.
(b) A representative of TI, selected by TI in its sole discretion, shall be
authorized and permitted to review each loan, lease, or other credit funded or
renewed by CFHC or Stockton after the date hereof, and all information
associated with such loan, lease or other credit within three business days of
such funding or renewal, such review to take place, if possible, on Stockton's
premises.
(c) A representative of TI, selected by TI in its sole discretion, shall be
permitted by CFHC and Stockton to attend all regular and special Board of
Directors' and committee meetings of CFHC and Stockton from the date hereof
until the Effective Time of the Holding Company Merger; provided, however, that
the attendance of such representative shall not be permitted at any meeting, or
portion thereof, for the sole purpose of discussing the transactions
contemplated by this Agreement or the obligations of CFHC or Stockton under this
Agreement, or information covered by the attorney-client privilege;
6.4 Filings. CFHC and Stockton agree that through the Effective Time of
the Holding Company Merger, each of their respective reports, registrations,
statements and other filings required to be filed with any applicable
Governmental Entity will comply in all material respects with all the applicable
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
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. Any financial statement contained in any
such report, registration, statement or other filing that is intended to present
the financial position of the entity or entities to which it relates will fairly
present the financial position of such entities or entity and will be prepared
in accordance with generally accepted
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accounting principles and/or applicable regulatory accounting principles or
banking regulations consistently applied during the periods involved.
6.5 Notices; Reports. CFHC and Stockton will promptly notify TI and
Guaranty of any event of which CFHC or Stockton obtains knowledge which has had
or may have a Material Adverse Effect or in the event that CFHC or Stockton
determines that either is unable to fulfill any of the conditions to the
performance of TI's or Guaranty's obligations hereunder, as set forth in
Articles IX or XI herein, and CFHC and Stockton will furnish TI (i) as soon as
available, and in any event within ten (10) days after it is prepared, any
report by CFHC or Stockton for submission to the Board of Directors of CFHC or
Stockton or committee thereof, except to the extent such report (or, in the case
of a portion of a report, the relevant portion thereof) has been prepared for
the sole purpose of discussing the transactions contemplated by this Agreement
or the obligations of CFHC or Stockton under this Agreement or information
covered by the attorney-client privilege, provided, however, that this exception
shall not excuse any of CFHC's or Stockton's other obligations under this
Agreement; (ii) as soon as available, all proxy statements, information
statements, financial statements, reports, letters and communications sent by
CFHC to its stockholders or other security holders, and all reports filed by
CFHC or Stockton with, or received by CFHC or Stockton from, the SEC, OTS, FDIC
or any other Governmental Entity, and (iii) such other existing reports as TI
may reasonably request relating to CFHC or Stockton.
6.6 CFHC Stockholders' Meeting. CFHC will take action necessary in
accordance with applicable law and its Certificate of Incorporation and Bylaws
to convene a meeting of its stockholders to consider and vote upon this
Agreement and the transactions contemplated hereby. The Board of Directors of
CFHC shall, subject to its fiduciary duties, recommend that its stockholders
approve this Agreement and the transactions contemplated hereby, and the Board
of Directors of CFHC shall, subject to its fiduciary duties, use its best
efforts to obtain the affirmative vote of the holders of the largest possible
percentage of the outstanding CFHC Stock to approve this Agreement and the
transactions contemplated hereby.
6.7 Bank Merger. CFHC and Stockton shall, at the request of TI (i) take
all necessary corporate and other action, to adopt and approve the Bank Merger;
(ii) execute, deliver and, where appropriate, file any and all documents
necessary or desirable to permit the Bank Merger immediately following
consummation of the Holding Company Merger; and (iii) take and cause to be taken
any other action to permit the consummation of any transactions contemplated in
connection with the Bank Merger. Neither CFHC nor Stockton shall take any action
that would prevent performance of the Agreement of Bank Merger or any other
transactions contemplated in connection with the Bank Merger.
6.8 Applications. CFHC and Stockton will cooperate with TI in the
preparation of the S-4 Registration Statement, including the Proxy Statement to
be mailed to CFHC stockholders to vote upon the Holding Company Merger, and the
statements or applications to be filed to obtain the necessary regulatory
approvals to consummate the transactions contemplated by this Agreement. After
the S-4 Registration Statement is declared effective under the Securities Act,
CFHC shall thereafter mail the Proxy Statement to its stockholders. CFHC and
Stockton covenant and agree that all information furnished by CFHC or Stockton
for inclusion in the S-4 Registration Statement and in all applications or
statements filed with the appropriate regulatory authorities for approval of, or
consent to, the Holding Company Merger and Bank Merger will comply in all
material respects with the provisions of applicable law, and will not contain
any untrue statement of material fact or omit to state material fact required to
be stated therein or necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading.
6.9 Certain Loans and Other Extensions of Credit. Stockton will promptly
inform TI of the amounts and categories of any Classified Credits. Stockton will
furnish TI, as soon as practicable, and in any event within 20 days after the
end of each calendar month, schedules including the following: (a) Classified
Credits (including with respect to each credit its classification category and
the originating unit); (b) nonaccrual credits (including the originating unit);
(c) accrual exception credits that are delinquent 90 or more days and have not
been placed on nonaccrual status (including its originating unit); (d) credits
delinquent as to payment of principal or interest (including its originating
unit), including an aging into current-to-29, 30-59, 60-89, and 90+ day
categories; (e) participating loans and leases, stating, with respect to each,
whether it is
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purchased or sold and the originating unit; (f) loans or leases (including any
commitments) by CFHC or Stockton to any CFHC or Stockton director, officer at or
above the senior vice president level, or shareholder holding ten percent (10%)
or more of the capital stock of CFHC, including with respect to each such loan
or lease the identity and, to the knowledge of CFHC, the relation of the
borrower to CFHC or Stockton, and the outstanding and undrawn amounts; (g)
letters of credit (including the originating unit); (h) loans or leases wholly
or partially charged off during the previous month (including with respect to
each loan or lease, the originating amount, the write-off amount and its
originating unit); and (i) other real estate or assets acquired in satisfaction
of debt.
6.10 Affiliates and Five Percent Stockholders.
(a) Within 15 days of the date of this Agreement, and again on the date
this Agreement is submitted for approval to the stockholders of CFHC, CFHC shall
deliver to TI a letter identifying all persons who are "affiliates" of CFHC for
purposes of Rule 145 under the Securities Act. CFHC shall use commercially
reasonable efforts to cause each such affiliate to deliver to TI no less than 30
days prior to the Effective Time of the Holding Company Merger a written
"Affiliates" agreement, in the form attached hereto as Exhibit D, providing that
such person shall dispose of the TI Stock to be received by such person in the
Holding Company Merger only in accordance with applicable law.
(b) At least 10 business days prior to the issuance of the opinions to be
provided for in Section 9.6, CFHC shall use commercially reasonable efforts to
cause each person or group of persons who holds more than five percent (5%) of
CFHC's Stock (regardless of whether such person is an "Affiliate") to deliver to
the law firm delivering the opinion pursuant to Section 9.6 a letter stating
that such shareholder(s) have no present plan or intention to dispose of TI
Stock he or she or they will receive in the Holding Company Merger, and
committing that he, she or they will not dispose of such TI Stock in such a
manner as to cause a violation of the "continuity of shareholder interest"
requirements of Treasury Regulation 1.368-1.
6.11 Director and Officer Resignations. Subject to Section 11.14, CFHC and
Stockton shall deliver or cause to be delivered to TI at the Closing, the
resignations of the members of the Board of Directors and Executive Officers of
CFHC and Stockton and the CFHC Subsidiaries effective at the Closing.
6.12 Cal/Fin Development. Promptly after execution of this Agreement, CFHC
shall use all means necessary to dissolve Cal/Fin Development as a corporation,
effective prior to the Closing.
ARTICLE VII
COVENANTS OF TI AND GUARANTY
PENDING EFFECTIVE TIME OF THE MERGERS
TI and Guaranty covenant and agree with CFHC and Stockton as follows:
7.1 Limitation on TI's and Guaranty's Conduct Prior to Effective Time.
Between the date hereof and the Effective Time of the Holding Company Merger,
except as contemplated by this Agreement and subject to requirements of law and
regulation generally applicable to federally chartered savings banks and savings
and loan holding companies, TI and Guaranty shall not, without prior written
consent of CFHC, (which consent shall not be unreasonably withheld, and which
consent shall be deemed granted if within five (5) business days of CFHC's
receipt of written notice of a request for prior written consent, written notice
of objection is not received by TI):
(a) take any action which would or is reasonably likely to (i) adversely
affect the ability of TI or Guaranty to obtain any necessary approval of any
Governmental Entity required for the transactions contemplated hereby; (ii)
adversely affect TI's or Guaranty's ability to perform its covenants and
agreements under this Agreement; or (iii) result in any of the conditions to the
performance of TI's or Guaranty's obligations hereunder, as set forth in
Articles IX or XI herein not being satisfied;
(b) take or cause to be taken any action which would disqualify the Mergers
as "taxdeferred reorganizations" within the meaning of Section 368(a) of the
Code.
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(c) amend TI's or Guaranty's Certificate of Incorporation, Federal Stock
Charter, or Bylaws, as the case may be, in any respect which would materially
and adversely affect the rights and privileges attendant to the TI Stock;
(d) enter into any agreement to acquire, merge or consolidate with another
entity which transaction any Governmental Entity advises TI in writing would
result in the disapproval of the transactions contemplated in this Agreement or
the delay thereof until after September 30, 1997; or
(e) agree or make any commitment to take any actions prohibited by this
Section 7.1.
7.2 Affirmative Conduct of TI and Guaranty Prior to Effective Time.
Between the date hereof and the Effective Time of the Holding Company Merger, TI
and Guaranty shall:
(a) duly observe and conform to all lawful requirements applicable to their
respective businesses except for any failure to so observe and conform that
would not have a Material Adverse Effect;
(b) use their respective commercially reasonable efforts to obtain any
third party consent with respect to any contract, agreement, lease, license,
arrangement, permit or release that is material to the business of TI on a
consolidated basis or that is contemplated in this Agreement as required in
connection with the Holding Company Merger and the Bank Merger; and
(c) not later than the 20th day of each calendar month, amend or supplement
the TI Lists prepared and delivered pursuant to Article V to ensure that the
information set forth in the TI Lists accurately reflects the then-current
status of the information provided therein., and deliver such amendments or
supplements to CFHC no later than the 20th day of the each calendar month. TI
shall further amend or supplement the TI Lists as of the Closing Date if
necessary to reflect any additional information that needs to be included in the
TI Lists. No amendment or supplement to the TI Lists needs to be provided to the
extent there has been no change or update in such TI List.
7.3 Filings. TI and Guaranty agree that through the Effective Time of the
Holding Company Merger, each of their respective reports, registrations,
statements and other filings required to be filed with any applicable
Governmental Entity will comply in all material respects with all of the
applicable 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 such report, registration, statement or other filing
that is intended to present the financial position of the entities or entity to
which it relates will fairly present the financial position of such entities or
entity and will be prepared in accordance with generally accepted accounting
principles and/or applicable regulatory accounting principles or banking
regulations consistently applied during the periods involved.
7.4 Access to Information. TI and Guaranty will afford, upon reasonable
notice to TI, access to their respective books of account, records, reports, and
other papers, and to discuss their respective affairs, finances and accounts
with their respective executive officers at such reasonable times as may be
reasonably requested in connection with the transactions contemplated by this
Agreement. CFHC and Stockton hereby acknowledge that they are aware and that
their respective subsidiaries, affiliates, agents, representatives or employees
have been or will be advised that the securities laws of the United States
prohibit any person who has material nonpublic information about a publicly
traded company from purchasing or selling securities of such company. CFHC and
Stockton hereby represent and warrant that as of the date hereof they are not
the beneficial owner (as such term is defined in accordance with Rule 13d-3
promulgated under the Exchange Act) of any securities of TI. Any information
about TI and its Affiliates that is provided to CFHC and Stockton and is not
otherwise publicly available will be kept confidential and shall not, without
the prior written consent of TI, be disclosed by CFHC, Stockton, the CFHC
Subsidiaries, Affiliates, agents, representatives or employees, other than in
connection with the transactions contemplated by this Agreement. Moreover, CFHC
agrees to reveal any such information only to its subsidiaries, Affiliates,
agents, representatives and employees who need to know the information for the
purpose of providing services in connection with the transactions contemplated
by this Agreement. CFHC agrees to inform any such recipients of the confidential
nature of the information.
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7.5 Applications. TI and Guaranty will promptly prepare and file or cause
to be prepared and filed (i) an application for approval of the Holding Company
Merger and Bank Merger with the OTS, and (ii) with CFHC, the S-4 Registration
Statement, including the Proxy Statement, to be mailed to CFHC Stockholders to
vote upon the Holding Company Merger. TI shall afford CFHC a reasonable
opportunity to review the S-4 Registration Statement and all such applications
(except the confidential portions thereof relating to TI or its subsidiaries)
and all amendments and supplements thereto before the filing thereof. TI
covenants and agrees that the S-4 Registration Statement and all applications to
the appropriate regulatory agencies for approval or consent to the Holding
Company Merger and Bank Merger will comply in all material respects with the
provisions of applicable law, and will not contain any untrue statement of
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. TI and Guaranty will
use their respective commercially reasonable efforts to obtain all regulatory
approvals or consents necessary to effect the Holding Company Merger and Bank
Merger.
7.6 Blue Sky. TI agrees to use commercially reasonable efforts to have the
shares of TI Stock to be issued in connection with the Holding Company Merger
qualified or registered for offer and sale, to the extent required, under the
securities laws of each jurisdiction in which stockholders of CFHC reside.
7.7 Notices; Reports. TI and Guaranty will promptly notify CFHC and
Stockton of any event of which TI or Guaranty obtains knowledge which has had or
may have a Material Adverse Effect or in the event that TI or Guaranty
determines that it is unable to fulfill any of the conditions to the performance
of CFHC's and Stockton's obligations hereunder, as set forth in Articles IX or X
herein, and TI will furnish CFHC (i) as soon as available, and in any event
within ten (10) days after it is prepared, any report by TI for submission to
the Board of Directors of TI or committees thereof, except to the extent such
report (or in the case of a portion of a report, the relevant portion thereof)
has been prepared for the sole purpose of discussing the transactions
contemplated by this Agreement or the obligations of TI or Guaranty under this
Agreement or information covered by the attorney-client privilege, provided,
however, that this exception shall not excuse any of TI's or Guaranty's other
obligations under this Agreement; (ii) as soon as available, all proxy
statements, information statements, financial statements, reports, letters and
communications sent by TI to its stockholders or other security holders, and all
reports filed by TI with the SEC; and (iii) such other existing reports as CFHC
may reasonably request, any of which relate to TI's or Guaranty's inability to
fulfill any of the conditions to the performance of CFHC's and Stockton's
obligations hereunder.
7.8 Indemnification. TI agrees that all rights to indemnification or
exculpation now existing in favor of the directors, officers, employees and
agents of CFHC and Stockton as provided in their respective charters, bylaws,
indemnification agreements or otherwise in effect as of the date hereof, with
respect to matters occurring prior to the Effective Time of the Holding Company
Merger shall survive the Holding Company Merger and shall continue in full force
and effect. TI further agrees that following consummation of the Holding Company
Merger (a) to the greatest extent permitted by Delaware law or the banking laws
and regulations applicable to, and organizational documents or bylaws of, CFHC
or Stockton as in effect on the date hereof, or, to the extent that any
amendment to such law or regulation may expand such indemnification rights, as
hereinafter in effect, it shall indemnify, defend and hold harmless individuals
who were officers and directors of CFHC or Stockton as of the date hereof or
immediately prior to the Effective Time of the Holding Company Merger for any
claim or loss arising out of their actions while a director or officer,
including any acts relating to this Agreement, and shall pay the expenses,
including attorneys' fees, of such individuals in advance of the final
resolution of any claim, provided such individuals shall first execute an
undertaking acceptable to TI to return such advances in the event it is finally
concluded such indemnification is not allowed under applicable law; and (b) TI
shall ensure that such individuals shall be covered by directors' and officers'
liability insurance for a period of four (4) years following the Holding Company
Merger covering acts or omissions occurring prior to the Effective Time of the
Holding Company Merger which is no less protective in terms of coverage or
limitations than that now possessed by CFHC or Stockton and which shall include
coverage for actions related to this Agreement, provided, however, that the
annual premiums for such coverage will not exceed 150% of the annual premiums
currently paid by CFHC or Stockton for such coverage. To the extent that the
cost of the insurance coverage to be obtained by TI exceeds 150% of the annual
premium
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amount currently paid by CFHC or Stockton, TI will use its best efforts to
obtain the maximum amount of coverage that may be purchased for a price equal to
150% of the current annual premium amount. The provision of insurance coverage
described herein is not intended to alter or reduce the right of indemnity in
favor of the directors, officers, employees and agents of CFHC and Stockton as
provided in their respective charters, bylaws, indemnification agreements or
otherwise in effect as of the date hereof.
7.9 Removal of Conditions. In the event of the imposition of a condition
to any regulatory approvals which TI deems to materially adversely affect it or
to be materially burdensome as provided in Section 11.4 hereof, TI shall use its
commercially reasonable efforts for purposes of obtaining the removal of such
condition.
ARTICLE VIII
ADDITIONAL COVENANTS
The parties hereto hereby mutually covenant and agree with each other as
follows:
8.1 Best Efforts. Subject to the terms and conditions of this Agreement,
each party will use its best efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the transactions contemplated by
this Agreement as promptly as practical.
8.2 Public Announcements. No press release or other public disclosure of
matters related to this Agreement or any of the transactions contemplated hereby
shall be made by TI or Guaranty, on the one hand, or CFHC or Stockton, on the
other hand, unless the other parties shall have provided their prior consent to
the form and substance thereof; provided, however, that nothing herein shall be
deemed to prohibit any party hereto from making any disclosure which its counsel
deems necessary or advisable in order to fulfill such party's disclosure
obligations imposed by law.
8.3 Cancellation of Stock Options and Termination of Stock Option Plans.
Subject to Section 2.4, each of the CFHC Options not previously exercised shall
be cashed out by CFHC prior to the Effective Time of the Holding Company Merger
by a cash payment to the holder of the CFHC Option in an amount equal to the
excess, if any, between (a) the Applicable Price Per Share and (b) the exercise
price of the CFHC Option and CFHC shall terminate the CFHC Stock Option Plan,
effective at the Effective Time of the Holding Company Merger. CFHC and Stockton
hereby agree to use their best efforts, and obtain any necessary approvals of
any Governmental Entity, to ensure that sufficient funds are available at CFHC
to make the payments provided for in this Section 8.3, whether through the
retention of a loan, through a dividend payment by Stockton to CFHC, or
otherwise. In the event CFHC is unable to obtain the funds required to make all
or any portion of the payments provided for in this Section 8.3, TI and Guaranty
agree that either TI or Guaranty shall pay such amounts which CFHC is unable to
pay.
8.4 Cancellation of Dividend Reinvestment Plan. CFHC will take all
necessary action to cancel and terminate the Dividend Reinvestment Plan
concurrently with execution of this Agreement.
8.5 Environmental Assessment. TI may cause to be prepared at TI's sole
cost and expense within 60 days of the date of this Agreement one or more phase
I environmental investigations with respect to any property on the CFHC Real
Property List. In the event any such phase I environmental investigation report,
or any similar report submitted to TI pursuant to Section 4.12(c) of this
Agreement, or any information from a Governmental Entity discloses facts which,
in the sole discretion of TI, warrant further investigation, TI shall provide
written notice to CFHC and Stockton, and CFHC and Stockton shall use
commercially reasonable efforts to cause to be completed within 60 days of such
written notice, at the sole cost and expense of TI, a phase II environmental
investigation and report with respect to such property. TI agrees to keep
confidential and not to disclose any nonpublic information obtained in the
course of such environmental investigation relating to environmental
contamination or suspected contamination of any property on the CFHC Real
Property List, except as required by law.
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8.6 Execution of the Stock Option Agreement. Simultaneously with the
execution of this Agreement and as a condition thereto, CFHC and TI shall have
executed and delivered a stock option agreement (the "Stock Option Agreement")
which grants to TI an option to acquire up to 19.9% of the issued and
outstanding shares of CFHC Stock upon the occurrence of certain circumstances,
substantially in the form attached hereto as Exhibit A.
8.7 Identification of Designated Director. Within 30 business days after
the date of this Agreement, TI and CFHC jointly shall select one of the
directors of CFHC or Stockton as of the date of this Agreement to serve as a
director of the Surviving Bank after the Effective Time of the Bank Merger. Upon
the selection by TI of such person and the acceptance by such person to serve in
such capacity, such person shall be deemed a "Designated Director." TI agrees to
take all necessary action including, if necessary, increasing the authorized
number of its directors to appoint the Designated Director to the Board of
Directors of the Surviving Bank.
ARTICLE IX
CONDITIONS PRECEDENT TO THE HOLDING COMPANY MERGER
The obligations of each of the parties hereto to consummate the
transactions contemplated herein are subject to the satisfaction or waiver by
each of the parties, on or before the Closing Date, of the following conditions:
9.1 Shareholder Approval. The Agreement and the transactions contemplated
hereby shall have received all requisite approvals of the stockholders of
Guaranty, CFHC and Stockton.
9.2 No Judgments or Orders. No judgment, decree, injunction, order or
proceeding shall be outstanding or threatened by any Governmental Entity which
prohibits the effectuation of, or threatens to invalidate or set aside, the
Holding Company Merger or Bank Merger substantially in the form contemplated by
this Agreement, or would have a Material Adverse Effect, unless counsel to the
party against whom such action or proceeding was instituted or threatened
renders to the other parties hereto a favorable opinion that such judgment,
decree, injunction, order or proceeding is without merit.
9.3 Regulatory Approvals. To the extent required by applicable law or
regulation, all approvals or consents of any Governmental Entity, including,
without limitation, those of the OTS and FDIC shall have been obtained or
granted for the Holding Company Merger and Bank Merger and the transactions
contemplated hereby and the applicable waiting period under all laws shall have
expired. All other statutory or regulatory requirements for the valid completion
of the transactions contemplated hereby shall have been satisfied and no
statute, rule, regulation, order, injunction or decree shall have been enacted,
entered, promulgated, interpreted, applied or enforced by any Governmental
Entity which prohibits or makes illegal the consummation of the Holding Company
Merger or Bank Merger or any other transaction contemplated by this Agreement,
or would have a Material Adverse Effect.
9.4 Securities Laws. The S-4 Registration Statement shall have been
declared effective by the SEC, or the SEC shall have determined not to review
the S-4 Registration Statement, and no stop order suspending the effectiveness
of such S-4 Registration Statement shall have been issued and no proceedings for
that purpose shall have been initiated. TI shall have received all state
securities or "Blue Sky" permits and other authorizations necessary to issue the
TI Stock to consummate the Holding Company Merger.
9.5 Listing. The TI Stock issuable in the Holding Company Merger shall
have been included for listing on the NYSE, subject to official notice of
issuance.
9.6 Tax Opinion. TI and CFHC shall have received from Manatt, Phelps &
Phillips, LLP an opinion reasonably satisfactory to TI and CFHC to the effect
that the Holding Company Merger and the Bank Merger are tax-deferred
reorganizations within the meaning of Section 368(a) of the Code and shall not
result in the recognition of gain or loss for federal income tax purposes to TI,
CFHC or Stockton, nor shall the issuance of the TI Stock result in the
recognition of gain or loss by the holders of CFHC Stock who receive such stock
in connection with the Holding Company Merger, dated prior to the date the S-4
Registration Statement is first
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mailed to the stockholders of CFHC and TI, and such opinion shall be confirmed
in writing, and not have been withdrawn or modified in any material respect, as
of the Closing Date.
ARTICLE X
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CFHC AND STOCKTON
All of the obligations of CFHC and Stockton to effect the transactions
contemplated hereby shall be subject to the satisfaction, on or before the
Closing Date, of the following conditions, any of which may be waived in writing
by CFHC or Stockton:
10.1 Legal Opinion. CFHC and Stockton shall have received the opinion of
Manatt, Phelps & Phillips, LLP attorneys for TI and Guaranty, dated as of the
Closing Date, in substantially the form of Exhibit E hereto.
10.2 Representations and Warranties; Performance of Covenants. All
covenants, terms and conditions of this Agreement to be complied with and
performed by TI and Guaranty at or before the Closing Date shall have been
complied with and performed in all respects, except where the failure to comply
with any covenant, term or condition does not constitute a Material Adverse
Effect. Each of the representations and warranties of TI and Guaranty contained
in Article V hereof shall have been true and correct in all respects on and as
of the date of this Agreement and on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
the Closing Date, except where the failure of a representation or warranty to be
true and correct in all respects does not cause a Material Adverse Effect. It is
understood and acknowledged that the representations being made on and as of the
Closing Date shall be made without giving effect to any update with respect to
the TI Lists in accordance with Section 7.2(c).
10.3 Authorization of Mergers. All actions necessary to authorize the
execution, delivery and performance of this Agreement and the Agreement of Bank
Merger, by TI and Guaranty, and the consummation of the transactions
contemplated hereby and thereby, shall have been duly and validly taken by the
Board of Directors of TI and Guaranty to the extent required by applicable law,
and TI and Guaranty shall have full power and right to merge pursuant to this
Agreement and the Agreement of Bank Merger, respectively.
10.4 Absence of Certain Changes. Between the date of this Agreement and
the Effective Time of the Holding Company Merger and the Effective Time of the
Bank Merger, there shall not have occurred any event that has had or could
reasonably be expected to have a Material Adverse Effect, whether or not such
event, change or effect is reflected in the TI Lists as amended or supplemented
after the date of this Agreement.
10.5 Third Party Consents. TI and Guaranty shall have obtained all
consents of other parties to their respective material mortgages, notes, leases,
franchises, agreements, licenses and permits as may be necessary to permit the
Holding Company Merger and Bank Merger and the transactions contemplated herein
to be consummated without a material default, acceleration, breach or loss of
rights or benefits thereunder.
10.6 Officers' Certificate. There shall have been delivered to CFHC and
Stockton on the Closing Date a certificate executed by the Chief Executive
Officer and the Chief Financial Officer of TI and Guaranty, respectively,
certifying, to their knowledge, compliance with all of the provisions of
Sections 10.2, 10.3, 10.4 and 10.5.
10.7 Fairness Opinion. CFHC shall have received a letter from Merrill
Lynch & Co., or such other nationally recognized investment banking firm
selected by CFHC, dated as of a date within five (5) business days of the
mailing of the Proxy Statement to the stockholders of CFHC, to the effect that
the proposed consideration in the Holding Company Merger is fair from a
financial point of view to the stockholders of CFHC and such letter shall not
have been withdrawn or modified in any material respect as of the Closing Date.
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10.8 Appointment of Director. All necessary action shall have been taken
to have the Designated Director elected or appointed to serve, from and after
the Effective Time of the Bank Merger, as a director of the Surviving Bank.
ARTICLE XI
CONDITIONS PRECEDENT TO OBLIGATIONS OF TI AND GUARANTY
All of the obligations of TI and Guaranty to effect the transactions
contemplated hereby shall be subject to the satisfaction, on or before the
Closing Date, of the following conditions, any of which may be waived in writing
by TI and Guaranty:
11.1 Legal Opinion. TI and Guaranty shall have received the opinion of
Kirkpatrick & Lockhart LLP dated as of the Closing Date, attorneys for CFHC and
Stockton, in substantially the form of Exhibit F hereto.
11.2 Representations and Warranties; Performance of Covenants. All
covenants, terms and conditions of this Agreement to be complied with and
performed by CFHC or Stockton at or before the Closing Date shall have been
complied with and performed in all respects except where the failure to comply
with any covenant, term or condition does not constitute a Material Adverse
Effect. Each of the representations and warranties of CFHC and Stockton
contained in Article IV hereof shall have been true and correct in all respects
on and as of the date of this Agreement and on and as of the Closing Date with
the same effect as though such representations and warranties had been made on
and as of the Closing Date, except where the failure of a representation or
warranty to be true and correct in all respects does not cause a Material
Adverse Effect. It is understood and acknowledged that the representations being
made on and as of the Closing Date shall be made without giving effect to any
update with respect to the CFHC Lists in accordance with Section 6.2(j).
11.3 Authorization of Mergers. All actions necessary to authorize the
execution, delivery and performance of this Agreement by CFHC and Stockton and
of the Agreement of Bank Merger by Stockton and the consummation of the
transactions contemplated hereby and thereby shall have been duly and validly
taken by the Boards of Directors and stockholders of CFHC and Stockton, and CFHC
shall have full power and right to merge pursuant to this Agreement.
11.4 Regulatory Approvals and Related Conditions. Any governmental and
regulatory approvals and consents which are referred to in this Agreement and
are required to consummate the Holding Company Merger and Bank Merger shall have
been granted without the imposition of conditions that are or would have become
applicable to TI and that TI, in its reasonable opinion, concludes would have a
Material Adverse Effect.
11.5 Third Party Consents. CFHC and Stockton shall have obtained all
consents of other parties to their respective material mortgages, notes, leases,
franchises, agreements, licenses and permits as may be necessary to permit the
Holding Company Merger and Bank Merger and the transactions contemplated herein
to be consummated without a material default, acceleration, breach or loss of
rights or benefits thereunder.
11.6 Absence of Certain Changes. Between the date of this Agreement and
the Effective Time of the Holding Company Merger and the Effective Time of the
Bank Merger, there shall not have occurred any event that has had or could
reasonably be expected to have a Material Adverse Effect, whether or not such
event, change or effect is reflected in the CFHC Lists as amended or
supplemented after the date of this Agreement.
11.7 Officers' Certificate. There shall have been delivered to TI on the
Closing Date a certificate executed by the President and the Chief Financial
Officer of each of CFHC and Stockton, respectively, certifying, to their
knowledge, compliance with all of the provisions of Sections 11.2, 11.3, 11.4,
11.5, and 11.6.
11.8 Stockholders' Agreements. Concurrently with the execution of this
Agreement, the directors of CFHC and Stockton shall have executed and delivered
to TI agreements substantially in the form of
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Exhibit C agreeing to vote their shares of CFHC in favor of the Agreement and
the transactions contemplated hereby.
11.9 CFHC Options and Stock Option Plan. All CFHC Options shall have
either been exercised, canceled or cashed out and the CFHC Stock Option Plan
shall have been terminated.
11.10 Employee Benefit Plans. TI shall have received satisfactory evidence
that all CFHC's or Stockton's employee benefit plans, programs and arrangements,
including, without limitation, the Plans, have been treated as provided in the
letter referred to in Article XII of this Agreement.
11.11 CFHC Dividend Reinvestment Plan. TI and Guaranty shall have received
satisfactory evidence that the CFHC Dividend Reinvestment Plan has been
terminated and canceled.
11.12 Expense Report. At least five business days prior to the Closing
Date, all attorneys, accountants, investment bankers and other advisors and
agents for CFHC and Stockton shall have submitted to CFHC and Stockton (with a
copy to TI) estimates of their fees and expenses for all services rendered in
any respect in connection with the transactions contemplated hereby. Based on
such estimates, CFHC shall have prepared and submitted to TI a summary of such
expenses for the transaction. Prior to the Closing (i) such advisors shall have
submitted their final bills for such fees and expenses to CFHC and Stockton for
services rendered with a copy to be delivered to TI, and based on such summary
CFHC and Stockton shall have prepared and submitted to TI a final calculation of
such fees and expenses and (ii) CFHC or Stockton, as applicable, shall have
accrued and paid the amount of such fees and expenses as calculated above after
TI has been given an opportunity to review all such bills and the calculation of
such fees and expenses, and (iii) such advisors shall have released CFHC,
Stockton, TI (both before and after the Holding Company Merger) and the
Surviving Bank from liability for any fees or expenses to such advisors, or
shall have advised them in writing that, upon payment in full of such amounts,
they shall have no liability for any fees or expenses to such advisors.
11.13 Loan Loss Reserve. CFHC shall have in effect on the Closing Date an
allowance for loan and lease losses in an amount not less than the amount
determined by the method customarily utilized by CFHC.
11.14 Resignations. There shall have been delivered to TI and Guaranty
resignations of the directors and Executive Officers of CFHC and Stockton
effective as of the Closing, provided, however, that such resignations shall not
alter the obligations of TI, Guaranty, CFHC or Stockton to make payments with
respect to severance agreements in accordance with the terms of the letter
described in Article XII.
ARTICLE XII
EMPLOYEE BENEFITS
The parties hereto agree that matters respecting employee benefits shall be
dealt with in a letter, dated the date hereof, between the parties and hereby
incorporated and made a part hereof.
ARTICLE XIII
TERMINATION
13.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time of the Holding Company Merger upon the occurrence of any of
the following:
(a) By mutual agreement of the parties, in writing;
(b) By TI immediately upon the failure of the stockholders of CFHC to give
the requisite approval of this Agreement and the transactions contemplated
hereby;
(c) By CFHC or Stockton immediately upon expiration of twenty (20) days
from delivery of written notice by CFHC or Stockton to TI or Guaranty of TI's or
Guaranty's breach of or failure to satisfy any covenant or agreement contained
herein resulting in a reduction in the benefits of the transactions contemplated
by the Agreement in so significant a manner that CFHC and Stockton, in their
reasonable, good
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faith judgment, would not have entered into the Agreement had the inability of
TI or Guaranty to satisfy such covenant or agreement been known at the time
hereof (provided that such breach has not been waived by CFHC and Stockton or
cured by TI or Guaranty prior to expiration of such twenty (20) day period);
(d) By TI or Guaranty immediately upon expiration of twenty (20) days from
delivery of written notice by TI or Guaranty to CFHC or Stockton of CFHC's or
Stockton's breach of or failure to satisfy any covenant or agreement contained
herein resulting in a reduction in the benefits of the transactions contemplated
by the Agreement in so significant a manner that TI and Guaranty, in their
reasonable, good faith judgment, would not have entered into the Agreement had
the inability of CFHC or Stockton to satisfy such covenant or agreement been
known at the time hereof (provided that such breach has not been waived by TI or
Guaranty or cured by CFHC or Stockton, as the case may be, prior to expiration
of such twenty (20) day period);
(e) By CFHC or TI upon the expiration of thirty (30) days after any
Governmental Entity denies or refuses to grant any approval, consent or
authorization required to be obtained in order to consummate the transactions
contemplated by this Agreement unless, within said thirty (30) day period after
such denial or refusal, all parties hereto agree to resubmit the application to
the regulatory authority that has denied, or refused to grant the approval,
consent or qualification requested;
(f) By CFHC or TI if any conditions set forth in Article IX shall not have
been met by September 30, 1997;
(g) By CFHC if any of the conditions set forth in Article X shall not have
been met, or by TI if any of the conditions set forth in Article XI shall not
have been met, by September 30, 1997, or such earlier time as it becomes
apparent that such condition shall not be met, provided, however, that this
Agreement shall not be terminated pursuant to this Section 13.1(g) if the
relevant condition shall have failed to occur as a result of any act or omission
by the party seeking to terminate.
(h) By CFHC under the circumstances set forth in Section 2.2; or
(i) By TI if CFHC or Stockton shall have breached any of the obligations
contained in Section 6.1(n).
13.2 Termination Date. This Agreement shall be terminated if the Closing
Date shall not have occurred by September 30, 1997 unless extended in writing by
the parties, provided, however, that this Agreement shall not terminate by
operation of this Section 13.2 as a result of the breach of any covenant or
obligation contained in this Agreement by the party seeking to terminate.
13.3 Effect of Termination. In the event of termination of this Agreement
by either CFHC, Stockton, Guaranty or TI as provided in Section 13.1 or pursuant
to Section 13.2, neither CFHC, Stockton, Guaranty nor TI shall have any further
obligation or liability to the other party except (a) with respect to the last
sentences of each of Section 6.3(a) and Section 8.5; (b) with respect to Section
14.1; (c) to the extent such termination results from a party's willful and
material breach of the warranties and representations made by it, or willful and
material failure in performance of any of its covenants, agreements or
obligations hereunder; and (d) as described in the Stock Option Agreement
attached hereto as Exhibit A, which is governed by its own terms as to
termination.
13.4 Force Majeure. CFHC, TI, Guaranty and Stockton agree that,
notwithstanding anything to the contrary in this Agreement, in the event this
Agreement is terminated as a result of a failure of a condition, which failure
is due to a natural disaster or other act of God, or an act of war, and provided
neither party has failed to observe the material obligations of such party under
this Agreement, neither party shall be obligated to pay to the other party to
this Agreement any expenses or otherwise be liable hereunder.
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ARTICLE XIV
MISCELLANEOUS
14.1 Expenses.
(a) CFHC hereby agrees that if the Agreement is terminated by TI pursuant
to Section 13.1(b) with respect to the failure of CFHC stockholders to approve
the Agreement and the transactions contemplated hereby as a result of a
Competing Transaction, or pursuant to Section 13.1(d) or Section 13.1(i), CFHC
shall promptly and in any event within 10 days after such termination pay TI all
Expenses of TI and Guaranty, but not to exceed $2,000,000.
(b) TI hereby agrees that if the Agreement is terminated by CFHC pursuant
to Section 13.1(c), TI shall promptly and in any event within 10 days after such
termination pay CFHC all Expenses of CFHC and Stockton, but not to exceed
$2,000,000.
(c) Except as otherwise provided herein, all Expenses incurred by TI, CFHC,
Stockton and Guaranty in connection with or related to the authorization,
preparation and execution of this Agreement, the solicitation of shareholder
approvals and all other matters related to the closing of the transactions
contemplated hereby, including, without limitation of the generality of the
foregoing, all fees and expenses of agents, representatives, counsel and
accountants employed by either such party or its affiliates, shall be borne
solely and entirely by the party which has incurred the same. Notwithstanding
the foregoing, TI and CFHC shall share equally the cost of printing the S-4
Registration Statement.
(d) "Expenses" as used in this Agreement shall include all reasonable
out-of-pocket expenses (including all fees and expenses of attorneys,
accountants, investment bankers, experts and consultants to the party and its
Affiliates) incurred by the party or on its behalf in connection with the
consummation of the transactions contemplated by this Agreement.
14.2 Notices. Any notice, request, instruction or other document to be
given hereunder by any party hereto to another shall be in writing and delivered
personally or by confirmed facsimile transmission or sent by overnight courier,
registered or certified mail, postage prepaid, with return receipt requested,
addressed as follows:
To TI or Guaranty: Temple-Inland Inc.
303 South Temple Drive
Diboll, Texas 75941
Attention: M. Richard Warner
Facsimile Number: (409) 829-3333
Guaranty Federal Bank, F.S.B.
8333 Douglas Avenue
Dallas, Texas 75225
Attention: Kenneth M. Jastrow, II
Facsimile Number: (512) 434-1701
With a copy to: Manatt, Phelps & Phillips, LLP
11355 West Olympic Boulevard
Los Angeles, California 90064
Attention: Thomas D. Phelps, Esq.
Facsimile Number: (310) 312-4224
To CFHC or Stockton: California Financial Holding Company
501 W. Weber Avenue
Stockton, California 95203-3169
Attention: Robert V. Kavanaugh
Facsimile Number: (209) 547-7771
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With a copy to: Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
Attn: Henry L. Judy, Esq.
Facsimile Number: (202) 778-9100
Any such notice, request, instruction or other document shall be deemed
received on the date delivered personally or delivered by confirmed facsimile
transmission, or on the third business day after it was sent by registered or
certified mail, postage prepaid. Any of the persons shown above may change its
address for purposes of this section by giving notice in accordance herewith.
14.3 Standards.
(a) Except for the representations and warranties set forth in Sections
4.1, 4.2, 4.3, 4.15, 4.16, 4.23, 4.37(a), 4.38, 5.1, 5.6, 5.8 and the first
sentence of Section 4.6 and 5.2, no representation or warranty of TI, Guaranty,
CFHC or Stockton contained in Article IV or V shall be deemed untrue or
incorrect, and no party hereto shall be deemed to have breached a representation
or warranty, on account of the existence of any fact, circumstance or event
unless, as a consequence of such fact, circumstance or event, individually or
taken together with all other facts, circumstances or events inconsistent with
any paragraph of Article IV or V, as applicable, there is reasonably likely to
occur a "Material Adverse Effect," as defined below.
(b) For purposes of this Agreement, the term "Material Adverse Effect"
shall mean an effect which (i) is material and adverse to the business,
financial condition, results of operations or prospects of TI, Guaranty, and
their respective subsidiaries taken as a whole, on the one hand, and CFHC,
Stockton and their respective subsidiaries taken as a whole, on the other hand,
as the context may dictate; (ii) significantly and adversely affects the ability
of TI, Guaranty, CFHC or Stockton, or any of them, to consummate the Mergers by
September 30, 1997 or to perform their respective material obligations
hereunder; or (iii) enables any Person to prevent consummation by September 30,
1997 of the Mergers; provided, however, that in determining whether a Material
Adverse Effect has occurred there shall be excluded any effect the cause of
which is: (A) any change, which is made or becomes effective after the date
hereof, in banking or similar laws of general applicability or interpretations
thereof by courts or Governmental Entities; (B) any change, which is made or
becomes effective after the date hereof, in generally accepted accounting
principles and/or applicable regulatory accounting principles or banking
regulations consistently applied, and applicable to savings associations or
savings and loan holding companies; (C) any action or omission of TI or
Guaranty, on the one hand, or CFHC or Stockton, on the other hand, taken with
the prior written consent of the other, as applicable, in contemplation of the
Mergers; (D) any changes in general economic conditions affecting financial
institutions generally, including, without limitation, general changes in market
interest rates; (E) in the case of members of the SAIF of the Federal Deposit
Insurance Corporation, the funding of the SAIF; (F) any action not taken or
omission made by CFHC or Stockton because the consent thereto reasonably
requested by CFHC or Stockton from TI or Guaranty was denied or not acted upon
in a timely manner by TI or Guaranty; and (G) any expenses reasonably incurred
in connection with the transactions contemplated by this Agreement.
14.4 Successors and Assigns. All terms and conditions of this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective transferees, successors and assigns; provided, however, that
this Agreement and all rights, privileges, duties and obligations of the parties
hereto may not be assigned or delegated by any party hereto and any such
attempted assignment or delegation shall be null and void.
14.5 Counterparts. This Agreement and any exhibit hereto may be executed
in one or more counterparts, all of which, taken together, shall constitute one
original document and shall become effective when one or more counterparts have
been signed by the appropriate parties and delivered to each party hereto.
14.6 Effect of Representations and Warranties. The representations and
warranties contained in this Agreement or in any List shall terminate
immediately after the Effective Time of the Holding Company Merger.
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14.7 Third Parties. Each party hereto intends that this Agreement shall
not benefit or create any right or cause of action to any person other than
parties hereto. As used in this Agreement the term "parties" shall refer only to
TI, CFHC, Guaranty or Stockton as the context may require.
14.8 Lists; Exhibits; Integration. Each List, exhibit and letter delivered
pursuant to this Agreement shall be in writing and shall constitute a part of
the Agreement, although Lists and letters need not be attached to each copy of
this Agreement. This Agreement, together with such Lists, exhibits and letters,
constitutes the entire agreement between the parties pertaining to the subject
matter hereof and supersedes all prior agreements and understandings of the
parties in connection therewith.
14.9 Knowledge. Whenever any statement herein or in any List, certificate
or other document delivered to any party pursuant to this Agreement is made "to
the knowledge" of any party or another Person, such knowledge shall mean facts
and other information which any director, executive officer or controller knows
as a result of the performance of his or her duties and includes such diligent
inquiry as is reasonable under the circumstances.
14.10 Governing Law. This Agreement shall be governed by, and interpreted
in accordance with, the laws of the State of Delaware without regard to the
conflict of law principles thereof. The parties hereby irrevocably submit to the
jurisdiction of the courts of the State of Delaware and the federal courts of
the United States of America located in the State of Delaware solely in respect
of the interpretation and enforcement of the provisions of this Agreement and of
the documents referred to in this Agreement, and in respect of the transactions
contemplated herein and therein, and hereby waive, and agree not to assert, as a
defense in any action, suit or proceeding for the interpretation or enforcement
hereof or of any such document, that it is not subject thereto or that such
action, suit or proceeding may not be brought or is not maintainable in said
courts or that the venue thereof may not be appropriate or that this Agreement
or any such document may not be enforced in or by such courts, and the parties
hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such Delaware state or federal
court. The parties hereby consent to and grant any such court jurisdiction over
the person of such parties and over the subject matter of such dispute and agree
that mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 14.2 or in such other manner as may
be permitted by law, shall be valid and sufficient service thereof.
14.11 Captions. The captions contained in this Agreement are for
convenience of reference only and do not form a part of this Agreement and shall
not affect the interpretation hereof.
14.12 Severability. If any portion of this Agreement shall be deemed by a
court of competent jurisdiction to be unenforceable, the remaining portions
shall be valid and enforceable only if, after excluding the portion deemed to be
unenforceable, the remaining terms hereof shall provide for the consummation of
the transactions contemplated herein in substantially the same manner as
originally set forth at the date this Agreement was executed.
14.13 Waiver and Modification; Amendment. No waiver of any term, provision
or condition of this Agreement, whether by conduct or otherwise, in any one or
more instances, shall be deemed to be or construed as a further or continuing
waiver of any such term, provision or condition of this Agreement. Except as
otherwise required by law, this Agreement and the Agreement of Bank Merger, when
executed and delivered, may be modified or amended by action of the Boards of
Directors of TI, Guaranty, CFHC or Stockton without action by their respective
stockholders. This Agreement may be modified or amended only by an instrument of
equal formality signed by the parties or their duly authorized agents.
14.14 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, controversy, 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, the parties to this Agreement have duly executed this
Agreement as of the day and year first above written.
TEMPLE-INLAND INC.
By:
------------------------------------
Chairman of the Board and
Chief Executive Officer
GUARANTY FEDERAL BANK, F.S.B.
By:
------------------------------------
President and Chief Executive
Officer
CALIFORNIA FINANCIAL HOLDING
COMPANY
By:
------------------------------------
Chairman of the Board and
Chief Executive Officer
STOCKTON SAVINGS BANK, F.S.B.
By:
------------------------------------
President and Chief Executive
Officer
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<PAGE> 121
EXHIBIT LIST
A STOCK OPTION AGREEMENT
B AGREEMENT OF BANK MERGER
C FORM OF SHAREHOLDER'S AGREEMENT
D FORM OF AFFILIATE LETTER
E FORM OF OPINION OF COUNSEL FOR TI AND GUARANTY
F FORM OF OPINION OF COUNSEL FOR CFHC AND STOCKTON
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EXHIBIT A
STOCK OPTION AGREEMENT
This AGREEMENT is dated as of December 8, 1996, between Temple-Inland Inc.
("TI"), a Delaware corporation, and California Financial Holding Company, a
Delaware corporation ("CFHC").
WITNESSETH:
WHEREAS, the Boards of Directors of TI and CFHC have approved an Agreement
and Plan of Merger (the "Merger Agreement") dated as of the date hereof which
contemplates the acquisition of CFHC by TI and the acquisition of Stockton
Savings Bank, F.S.B. by Guaranty Federal Bank, F.S.B.;
WHEREAS, as a condition to TI's entry into the Merger Agreement and to
induce such entry, CFHC has agreed to grant to TI the option set forth herein to
purchase shares of CFHC's authorized but unissued common stock, par value $.01
per share ("Common Stock");
Unless otherwise provided in this Agreement, capitalized terms shall have
the meanings ascribed to such terms in the Merger Agreement.
NOW, THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth herein,
CFHC hereby grants to TI an option (the "Option") to purchase up to 940,095
shares of Common Stock (the "Option Shares"), at a price of $27.25 per share
(the "Exercise Price"); provided, however, that in the event CFHC issues or
agrees to issue any shares of Common Stock to an Acquiring Person (as that term
is defined in Section 6 herein) at a price less than $27.25 per share, the
Exercise Price shall be equal to such lesser price.
2. Exercise of Option.
(a) TI may exercise the Option, in whole or in part, in accordance with and
to the extent permitted by applicable law at any time or from time to time but
only upon or after the occurrence of a Purchase Event (as that term is defined
in Paragraph (b) below of this section); provided, that to the extent the Option
shall not have been exercised, it shall terminate and be of no further force and
effect upon the earliest to occur (such earliest date, the "Expiration Date") of
(i) the termination of the Merger Agreement pursuant to Section 13.1 (a) or (h)
thereof; (ii) the date of termination pursuant to Section 13.1 (b), (c), (e), or
(f) thereof if such date is prior to a Purchase Event; (iii) the effective time
of the acquisition of CFHC by TI pursuant to the Merger Agreement, or (iv)
eighteen months following the occurrence of the earliest to occur of (A) the
date of any termination of the Merger Agreement other than as described in (i)
or (ii) above or (B) the date of first occurrence of a Purchase Event.
Notwithstanding the foregoing, CFHC shall not be obligated to issue the Option
Shares upon exercise of the Option (i) in the absence of any required
governmental or regulatory waiver, consent or approval necessary for CFHC to
issue such Option Shares or for TI or any transferee to exercise the Option or
prior to the expiration or termination of any waiting period required by law, or
(ii) so long as any injunction or other order, decree or ruling issued by any
federal or state court of competent jurisdiction is in effect which prohibits
the sale or delivery of the Option Shares.
(b) As used herein, a "Purchase Event" shall have occurred when: (i) CFHC,
Stockton or any subsidiary of CFHC, (without the prior written consent of TI)
enters into an agreement with any person (other than TI or any of its
subsidiaries) pursuant to which such person would: (x) merge or consolidate
with, or enter into any similar transaction with CFHC, Stockton or any
subsidiary of CFHC, (y) purchase, lease or otherwise acquire all or
substantially all of the assets of CFHC or Stockton or (z) purchase or otherwise
acquire (by merger, consolidation, share exchange or any similar transaction)
securities representing 10 percent or more of the voting shares of CFHC or
Stockton (the transactions referred to in subparagraph (x), (y) and (z) are
referred to as an "Acquisition Transaction"); (ii) any person or group of
persons (other than TI or any of its subsidiaries) acquires the beneficial
ownership or the right to acquire beneficial ownership of securities
representing 15 percent or more of the voting shares of CFHC or Stockton (the
term "beneficial ownership" for purposes of this Agreement shall have the
meaning set forth in Section 13(d) of the Securities
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Exchange Act of 1934, as amended (the "Exchange Act"), and the regulations
promulgated thereunder); (iii) the shareholders of CFHC fail to approve the
business combination between CFHC and TI contemplated by the Merger Agreement at
any meeting of such shareholders which has been held for that purpose or any
adjournment or postponement thereof, the failure of such a shareholder meeting
to occur prior to termination of the Merger Agreement, or the withdrawal or
modification (in a manner adverse to TI) of the recommendation of CFHC's Board
of Directors of the Holding Company Merger and Merger Agreement that the
shareholders of CFHC approve the Holding Company Merger and the Merger
Agreement, in each case, after there shall have been a public announcement that
any person (other than TI or any of its subsidiaries), shall have (A) made, or
publicly disclosed an intention to make, a proposal to engage in an Acquisition
Transaction, (B) commenced a tender offer, as defined herein, or filed a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to an exchange offer, as defined herein, or (C)
filed an application (or given a notice), whether in draft or final form, with
the Office of Thrift Supervision or other federal or state bank regulatory
authority, which application or notice has been accepted for processing, for
approval to engage in an Acquisition Transaction; (iv) any person (other than TI
or other than in connection with a transaction which TI has given its prior
written consent), shall have filed an application or notice with the Office of
Thrift Supervision or other federal or state bank regulatory authority, which
application or notice has been accepted for processing, for approval to engage
in an Acquisition Transaction, exchange offer or tender offer; (v) CFHC or
Stockton shall have willfully breached any covenant or obligation contained in
the Merger Agreement in anticipation of engaging in a Purchase Event, and
following such breach TI would be entitled to terminate the Merger Agreement
(whether immediately or after the giving of notice or passage of time or both);
or (vi) a public announcement by CFHC or Stockton of the authorization,
recommendation or endorsement by CFHC of an Acquisition Transaction, exchange
offer or tender offer or a public announcement by CFHC of an intention to
authorize, recommend or announce an Acquisition Transaction, exchange offer or
tender offer. If a Purchase Event has occurred, the Option shall continue to be
exercisable until its termination in accordance with Section 2(a) hereof. CFHC
shall notify TI promptly in writing upon learning of the occurrence of a
Purchase Event, it being understood that the giving of such notice by CFHC shall
not be a condition to the right of TI to transfer or exercise the Option. As
used in this Agreement, "person" shall have the same meaning set forth in the
Merger Agreement. As used in this paragraph "exchange offer" or "tender offer"
shall mean the filing of a registration statement under the Securities Act with
respect to, a tender offer or exchange offer, respectively, to purchase shares
of CFHC Stock such that, upon consummation of such offer, such person would own
or control 10 percent or more of the then-outstanding shares of CFHC Stock.
(c) In the event a Purchase Event occurs, TI may elect to exercise the
Option. If TI wishes to exercise the Option, it shall send to CFHC a written
notice (the date of which shall be referred to herein as the "Notice Date")
which specifies (i) the total number of Option Shares to be purchased, and (ii)
a place and date not earlier than two business days nor later than ten business
days from the Notice Date for the closing (the "Closing") of such purchase (the
"Closing Date"); provided, however, that if prior notification to or approval of
the Office of Thrift Supervision or any other regulatory agency is required in
connection with such purchase, the Holder, as defined below, shall promptly file
the required notice or application for approval, shall promptly notify CFHC of
such filing, and shall expeditiously process the same and the period of time
that otherwise would run pursuant to this sentence shall run instead from the
date on which any required notification periods have expired or been terminated
or such approvals have been obtained and any requisite waiting period or periods
shall have passed. Any exercise of the Option shall be deemed to occur on the
Notice Date relating thereto.
3. Payment and Delivery of Certificates; TI Representation.
(a) If TI elects to exercise the Option, then at the Closing, TI shall pay
to CFHC the aggregate purchase price for the Option Shares purchased pursuant to
the exercise of the Option in immediately available funds by a wire transfer to
a bank designated by CFHC.
(b) At such Closing, simultaneously with the delivery of the purchase price
for the Option Shares as provided in Paragraph (a) hereof, CFHC shall deliver to
TI a certificate or certificates, registered in the name
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of TI or its designee, representing the number of Option Shares purchased by TI.
Such certificates may be endorsed with a legend which shall read as follows:
THE SALE OF THE SHARES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ARE
ACCORDINGLY SUBJECT TO RESALE RESTRICTIONS ARISING UNDER THE ACT. THE TRANSFER
OF SUCH SHARES IS SUBJECT TO CERTAIN PROVISIONS OF AN AGREEMENT BETWEEN THE
REGISTERED HOLDER HEREOF AND THE ISSUER, A COPY OF WHICH AGREEMENT IS ON FILE AT
THE PRINCIPAL OFFICE OF THE ISSUER. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO
THE HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A REQUEST
THEREFOR.
Any such legend shall be removed by delivery of a substitute certificate without
such legend if TI shall have delivered to CFHC an opinion of counsel, in form
and substance satisfactory to CFHC, that such legend is not required for
purposes of assuring compliance with applicable securities or other law or with
this Agreement.
(c) Except as otherwise provided herein, TI hereby represents and warrants
to CFHC that the Option is being, and any Option Shares issued upon exercise of
the Option will be, acquired by TI for its own account and not with a view to
any distribution thereof, and TI will not sell any Option Shares purchased
pursuant to exercise of the Option except in compliance with applicable
securities and other laws.
4. Representations. CFHC hereby represents and warrants to TI as follows:
(a) CFHC has all requisite corporate power and authority to enter into and
perform all of its obligations under this Agreement. The execution, delivery and
performance of this Agreement and all of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of CFHC.
This Agreement has been duly executed and delivered by CFHC and constitutes a
valid and binding agreement of CFHC, enforceable against CFHC in accordance with
its terms, except as the enforceability hereof may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting the rights of creditors
generally or by equitable principles, whether such enforcement is sought in law
or equity.
(b) The execution and delivery by CFHC of this Agreement and the
consummation of the transactions herein contemplated do not and will not violate
or conflict with CFHC's Certificate of Incorporation or Bylaws, any statute,
regulation, judgment, order, writ, decree or injunction applicable to CFHC
(other than as may be effected by TI's ownership of CFHC Common Stock exceeding
certain limits set forth by statute or regulation) or its properties or assets
and do not and will not violate, conflict with, result in a breach of,
constitute a default (or an event which with due notice and/or lapse of time
would constitute a default) under, result in a termination of, accelerate the
performance required by, or result in the creation of any lien, pledge, security
interest, charge or other encumbrance upon any of the properties or assets of
CFHC under the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, or loan agreement or other agreement, instrument or
obligation to which CFHC is a party, or by which CFHC or any of its properties
or assets may be bound or affected.
(c) CFHC has taken all necessary corporate action to authorize and reserve
and to permit it to issue, and at all times from the date hereof through the
termination of this Agreement in accordance with its terms, will have reserved
for issuance upon the exercise of the Option a number of shares of Common Stock
sufficient to satisfy the exercise of the Option in full, all of which Common
Stock, upon issuance pursuant hereto, shall be duly authorized, validly issued,
fully paid and nonassessable, and shall be delivered free and clear of all
claims, liens, encumbrances, security interests and preemptive rights.
5. Adjustment Upon Changes in Capitalization.
(a) In the event of any dividend, stock split, split-up, recapitalization,
reclassification, combination, exchange of shares or similar transaction or
event with respect to Common Stock, the type and number of shares or securities
subject to the Option and the Exercise Price therefor, shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction so that TI shall receive, upon exercise of the Option, the
number and class of shares or other securities or property that TI would have
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received in respect of Common Stock if the Option had been exercised immediately
prior to such event, or the record date thereof, as applicable. If any shares of
Common Stock are issued after the date of this Agreement (other than pursuant to
an event described in the first sentence of this Section 5(a)), the number of
shares of Common Stock subject to the Option shall be adjusted so that, after
such issuance, it, together with any shares of Common Stock previously issued to
TI pursuant hereto, equals 19.9 percent of the number of shares of Common Stock
then issued and outstanding, without giving effect to any shares subject to or
issued pursuant to this Option.
(b) In the event that CFHC, shall, prior to the Expiration Date, enter in
an agreement: (i) to consolidate with or merge into any person, other than TI or
one of its subsidiaries, and shall not be the continuing or surviving
corporation of such consolidation or merger, (ii) to permit any person, other
than TI or one of its subsidiaries, to merge into CFHC and CFHC shall be the
continuing or surviving corporation, but, in connection with such merger, the
then outstanding shares of Common Stock shall be changed into or exchanged for
stock or other securities of CFHC or any other person or cash or any other
property or the outstanding shares of Common Stock immediately prior to such
merger shall after such merger represent less than 50 percent of the outstanding
shares and share equivalents of the merged company; or (iii) to sell or
otherwise transfer all or substantially all of its assets to any person, other
than TI or one of its subsidiaries, then, and in each such case, the agreement
governing such transaction shall make proper provisions so that the Option
shall, upon the consummation of any such transaction and upon the terms and
conditions set forth herein, be converted into, or exchanged for, an option (the
"Substitute Option"), at the election of TI, of either (x) the Succeeding
Corporation (as defined below), (y) any person that controls the Succeeding
Corporation, or (z) in the case of a merger described in clause (ii), CFHC (in
each case, such person being referred to as the "Substitute Option Issuer.")
(c) The Substitute Option shall have the same terms as the Option,
provided, that, if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to TI. The Substitute Option Issuer shall also enter
into an agreement with the then-holder or holders of the Substitute Option in
substantially the form as this Agreement, which shall be applicable to the
Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
the Substitute Common Stock (as hereinafter defined) as is equal to the Assigned
Value (as hereinafter defined) multiplied by the number of shares of Common
Stock for which the Option was theretofore exercisable, divided by the Average
Price (as hereinafter defined). The exercise price of the Substitute Option per
share of the Substitute Common Stock (the "Substitute Option Price") shall then
be equal to the Exercise Price multiplied by a fraction in which the numerator
is the number of shares of the Common Stock for which the Option was theretofore
exercisable and the denominator is the number of shares for which the Substitute
Option is exercisable.
(e) The following terms have the meanings indicated:
(i) "Succeeding Corporation" shall mean (x) the continuing or
surviving corporation of a consolidation or merger with CFHC (if other than
CFHC), (y) CFHC in a merger in which CFHC is the continuing or surviving
person, and (z) the transferee of all or any substantial part of CFHC
assets (or the assets of its subsidiaries).
(ii) "Substitute Common Stock" shall mean the common stock issued by
the Substitute Option Issuer upon exercise of the Substitute Option.
(iii) "Assigned Value" shall mean the highest of (x) the price per
share of Common Stock at which a tender offer or exchange offer therefor
has been made by any person (other than TI or its subsidiaries) (y) the
price per share of Common Stock to be paid by any person (other than TI or
any of its subsidiaries) pursuant to an agreement with CFHC, and (z) the
highest closing sales price per share of Common Stock as quoted on the
Nasdaq National Market (or if Common Stock is not quoted on the Nasdaq
National Market, the highest bid price per share on any day as quoted on
the principal trading market or securities exchange on which such shares
are traded as reported by a recognized source chosen
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by TI) within the six-month period immediately preceding the agreement
referred to in (y); provided, that in the event of a sale of less than all
of CFHC's assets, the Assigned Value shall be the sum of the price paid in
such sale for such assets and the current market value of the remaining
assets of CFHC as determined by a nationally recognized investment banking
firm selected by TI and reasonably acceptable to CFHC, divided by the
number of shares of Common Stock outstanding at the time of such sale. In
the event that an exchange offer is made for Common Stock or an agreement
is entered into for a merger or consolidation involving consideration other
than cash, the value of the securities or other property issuable or
deliverable in exchange for the Common Stock shall be determined by a
nationally recognized investment banking firm mutually selected by TI and
CFHC (or if applicable, the Succeeding Corporation), provided that if a
mutual selection cannot be made as to such investment banking firm, it
shall be selected by TI.
(iv) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of the Substitute Common Stock on the day
preceding such consolidation, merger or sale, provided that if CFHC is the
issuer of the Substitute Option, the Average Price shall be computed with
respect to a share of common stock issued by CFHC, the person merging into
CFHC or by any company which controls or is controlled by such merging
person, as TI may elect.
(f) In no event pursuant to any of foregoing paragraphs shall the
Substitute Option be exercisable for more than 19.9 percent of the aggregate of
the shares of the Substitute Common Stock outstanding immediately prior to
exercise of the Substitute Option. In the event that the Substitute Option would
be exercisable for more than 19.9 percent of the aggregate of the shares of
Substitute Common Stock but for his clause (f), the Substitute Option Issuer
shall make a cash payment to TI equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (f)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (f). This difference in value shall be determined by a
nationally recognized investment banking firm selected by TI and the Substitute
Option Issuer.
(g) CFHC shall not enter into any transaction described in subsection (b)
of this Section 5 unless the Succeeding Corporation and any person that controls
the Succeeding Corporation assume in writing all the obligations of CFHC
hereunder and take all other actions that may be necessary so that the
provisions of this Section 5 are given full force and effect (including, without
limitation, any action that may be necessary so that the shares of Substitute
Common Stock are in no way distinguishable from or have lesser economic value
than other shares of common stock issued by the Substitute Option Issuer).
6. Purchase of Option Shares and Options by CFHC.
(a) From and after the first date a transaction specified in Section 5(b)
herein is consummated (the "Repurchase Event"), and subject to applicable
regulatory restrictions, TI or a holder or former holder of any Options (a
"Holder") who has exercised the Options in whole or in part shall have the right
to require CFHC to purchase some or all of the Option Shares at a purchase price
per share (the "Purchase Price") equal to the highest of (i) 100 percent of the
Exercise Price, (ii) the highest price paid or agreed to be paid for shares of
Common Stock by an Acquiring Person (as defined in Paragraph (b) of this
Section) in any tender offer, exchange offer or other transaction or series of
related transactions involving the acquisition of 10 percent or more of the
outstanding shares of Common Stock during the one-year period immediately
preceding the Purchase Date (as defined in Paragraph (d) of this Section) and
(iii) in the event of a sale of all or substantially all of CFHC's assets, (x)
the sum of the price paid in such sale for such assets and the current market
value of the remaining assets of CFHC as determined by a recognized investment
banking firm jointly selected by such Holder and CFHC, each acting in good
faith, divided by (y) the number of shares of Common Stock then outstanding,
provided, however, that the amount calculated pursuant to clauses (ii) and (iii)
of this Section 6(a) shall not exceed $10,100,000. In the event that any of the
consideration paid or agreed to be paid by an Acquiring Person for any shares of
Common Stock or for any of CFHC's assets consists in whole or in part of
securities, the value of such securities for purposes of determining the
Purchase
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<PAGE> 127
Price shall be determined (i) if there is an existing public trading market
therefor, by the average of the last sales prices for such securities on the ten
trading days ending three trading days prior to the payment of such
consideration (if such consideration has been paid) or prior to the date of
determination (if such consideration has not yet been paid) and (ii) if there is
no existing public trading market for such securities, by a recognized
investment banking firm jointly selected by the Holder and CFHC, each acting in
good faith. The Holder's right to require CFHC to purchase some or all of the
Option Shares under this Section shall expire on the day which is one year
following the Repurchase Event; provided, that if CFHC is prohibited under
applicable regulations from purchasing Common Stock as to which a Holder has
given notice hereunder, then the Holder's right to require CFHC to purchase such
shares shall expire on the date which is one year following the date on which
CFHC no longer is prohibited from purchasing such shares: provided further, that
CFHC shall use its best efforts to obtain any consent or approval and make any
filing required for CFHC to consummate as quickly as possible the purchase of
the Common Stock contemplated hereunder.
(b) For purposes of this Agreement, "Acquiring Person" shall mean a person
or group (as such terms are defined in the Exchange Act and the rules and
regulations thereunder) other than TI or a subsidiary of TI who on or after the
date of this Agreement engages in a transaction which gives rise to a Purchase
Event.
(c) Subject to applicable regulatory restrictions, from and after a
Repurchase Event or after TI receives official notice that an approval of the
Office of Thrift Supervision, or any other regulatory authority, required for
the exercise of the Option and purchase of the Option Shares will not be issued
or granted, a Holder shall have the right to require CFHC to purchase some or
all of the Options held by such Holder at a price equal to the Purchase Price
minus the Exercise Price on the Purchase Date (as defined in Paragraph (d) of
this Section) multiplied by the number of shares of Common Stock that may be
purchased on the Purchase Date upon the exercise of the Options elected to be
purchased, provided, however, that the amount calculated pursuant to this
Section 6(c) shall not exceed $10,100,000. Notwithstanding the termination date
of the Options, the Holder's right to require CFHC to purchase some or all of
the Options under this Section shall expire on the day which is one year
following the Repurchase Event; provided, that if CFHC is prohibited under
applicable regulations from purchasing the Options as to which an Holder has
given notice hereunder, then the Holder's right to require CFHC to purchase such
Options shall expire on the day which is one year following the date on which
CFHC no longer is prohibited from purchasing such Options; provided further,
that CFHC shall use its best efforts to obtain any consent or approval and make
any filing required for CFHC to consummate as quickly as possible the purchase
of the Options contemplated hereunder.
(d) A Holder may exercise its right to require CFHC to purchase the Common
Stock or Options (collectively, "Securities") pursuant to this Section by
surrendering for such purpose to CFHC, at its principal office or at such other
office or agency maintained by CFHC for that purpose, within the period
specified above, the certificates or other instruments representing the
Securities to be purchased accompanied by a written notice stating that it
elects to require CFHC to purchase all or a specified number of such Securities.
Within five business days after the surrender of such certificates or
instruments and the receipt of such notice relating thereto, to the extent it is
legally permitted to do so, CFHC shall deliver or cause to be delivered to the
Securities Holder (i) a bank cashier's or certified check payable to the
Securities Holder in an amount equal to the applicable purchase price therefor,
and (ii) if less than the full number of Securities evidenced by the surrendered
instruments are being purchased, a new certificate or instrument, for the number
of Securities evidenced by such surrendered certificates or other instruments
less the number of Securities purchased. Such purchases shall be deemed to have
been made at the close of business on the date (the "Purchase Date") of the
receipt of such notice and of such surrender of the certificates or other
instruments representing the Securities to be purchased and the rights of the
Securities Holder, except for the right to receive the applicable purchase price
therefor in accordance herewith, shall cease on the Purchase Date.
7. Demand Registration Rights. As promptly as practicable upon TI's request
after a Purchase Event, CFHC agrees to prepare and file not more than three
registration statements or prospectuses ("Registration Event") as appropriate,
under federal and any applicable state securities laws, with respect to any
proposed sale of any warrants, options or other securities representing any of
TI's rights under this Agreement or proposed dispositions by TI of any or all of
the Option Shares, if such registrations or filings are required by law or
regulation, and to use its best efforts to cause any such registration
statements or offering circulars to
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become effective as expeditiously as possible and to keep such registration
effective for a period of not less than 180 days unless, in the written opinion
of counsel to CFHC, addressed to TI and satisfactory in form and substance to TI
and its counsel, registration (or filing of a prospectus or offering circular)
is not required for such proposed transactions. All fees, expenses and charges
of any kind or nature whatsoever incurred in connection with any registration
of, or the preparation of any prospectus relating to, the Options or the Option
Shares pursuant to this Section 7 shall be borne and paid by CFHC. In the event
TI exercises its registration rights under this Section 7, CFHC shall provide
TI, its affiliates, each of their respective officers and directors and any
underwriters used by TI, with indemnifications, representations and warranties
and shall cause its attorneys and accountants to deliver to TI and any such
underwriters attorneys' opinions and "comfort letters", all of a type
customarily provided or delivered in connection with public underwritten
offerings of securities. In the event CFHC effects a registration of Common
Stock for its own account or for any other shareholder of CFHC, it shall allow
TI to participate in such registration. Notwithstanding the foregoing, CFHC
shall have the right to delay (a "Delay Right") a Registration Event for a
period of up to thirty (30) days, in the event it receives a request from TI to
effect a Registration Event, if CFHC (i) is involved in a material transaction,
or (ii) determines, in the good faith exercise of its reasonable business
judgment, that such registration and offering could adversely effect or
interfere with bona fide material financing plans of CFHC or would require
disclosure of information, the premature disclosure of which could materially
adversely affect CFHC or any transaction under active consideration by CFHC. For
purposes of this Agreement, the term "material transaction" shall mean a
transaction which would require CFHC to file a current report on Form 8-K with
the Securities Exchange Commission. CFHC shall have the right to exercise two
Delay Rights in any eighteen (18) month period.
8. Listing
If Common Stock or any other securities to be acquired upon exercise of the
Option are then authorized for quotation or trading or listing on the Nasdaq
National Market or any other securities exchange or automated quotation system,
CFHC, or any successor thereto, upon the request of the holder of the Option,
will promptly file an application, if required, to authorize for listing or
trading or quotation the shares of Common Stock or other securities to be
acquired upon exercise of the Option on the Nasdaq National Market or any other
securities exchange or automated quotation system and will use its best efforts
to obtain approval, if required, of such listing or quotation as soon as
possible.
9. Total Profit
Notwithstanding any other provision of this Agreement to the contrary, in
no event shall TI purchase under the terms of this Agreement that number of
Option Shares which have a Spread Value, as defined below, in excess of
$10,100,000. In the event the Spread Value exceeds $10,100,000, the number of
Option Shares which TI is entitled to purchase at the Closing Date shall be
reduced to the extent required such that the Spread Value following such
reduction is equal to or less than $10,100,000. "Spread Value" shall mean the
difference between (i) the product of (1) the sum of the total number of Option
Shares TI (x) intends to purchase at a Closing pursuant to the exercise of the
Option and (y) previously purchased pursuant to the prior exercise of the
Option, and (2) the closing price of CFHC Common Stock as quoted on the Nasdaq
National Market on the last trading day immediately preceding the Closing Date,
and (ii) the product of (1) the total number of Option Shares TI (x) intends to
purchase at the Closing Date pursuant to the exercise of the Option and (y)
previously purchased pursuant to the prior exercise of the Option and (2) the
applicable Option Price of such Option Shares.
10. Miscellaneous.
(a) Expenses. Each of the parties hereto shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
(b) Entire Agreement. Except as otherwise expressly provided herein, this
Agreement contains the entire agreement between the parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. The terms and conditions
of this
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Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and assigns. Nothing in this Agreement,
expressed or implied, is intended to confer upon any party, other than the
parties hereto, and their respective successors and assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided herein.
(c) Assignment. At any time after a Purchase Event occurs, TI may sell,
assign or otherwise transfer its rights and obligations hereunder, in whole or
in part, by issuing Options or otherwise, to any person or group of persons,
subject to applicable law, rule or regulation. In order to effectuate the
foregoing, TI (or any direct or indirect assignee or transferee of TI) shall be
entitled to surrender this Agreement to CFHC in exchange for two or more
Agreements entitling the holders thereof to purchase in the aggregate the same
number of shares of Common Stock as may be purchasable hereunder.
(d) Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or by confirmed facsimile transmission or sent by registered or certified mail
or overnight courier, postage prepaid, with return receipt requested, addressed
as follows:
If to TI:
Temple-Inland Inc.
303 South Temple Drive
Diboll, Texas 75941
Facsimile Number: (409) 829-3333
Attention: M. Richard Warner, Esq.
(with a copy to:
Manatt, Phelps & Phillips, LLP
11355 West Olympic Boulevard
Los Angeles, California 90064
Attention: Thomas D. Phelps, Esq.
Facsimile Number: (310) 312-4224
If to CFHC:
California Financial Holding Company
501 W. Weber Avenue
Stockton, California 95203-3169
Attention: Robert V. Kavanaugh
Facsimile Number: (209) 547-7771
(with a copy to:
Kirkpatrick & Lockhart, LLP
Attention: Henry L. Judy, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
Facsimile Number: (202) 778-9100
A party may change its address for notice purposes by written notice to the
other party hereto.
(e) Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(f) Specific Performance. The parties hereto agree that irreparable harm
would occur in the event that any of the provisions of this Agreement were not
performed by them in accordance with their specific terms or conditions or were
otherwise breached and that money damages are an inadequate remedy for breach of
this Agreement because of the difficulty of ascertaining the amount of damage
that will be suffered by the parties in the event that this Agreement is not
performed in accordance with its terms or conditions or otherwise
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breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement by the parties
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which it is entitled at law or in equity.
(g) Governing Law. This Agreement shall be governed by, and interpreted in
accordance with, the laws of the State of Delaware without regard to the
conflict of law principles thereof. The parties hereby irrevocably submit to the
jurisdiction of the courts of the State of Delaware and the federal courts of
the United States of America located in the State of Delaware solely in respect
of the interpretation and enforcement of the provisions of this Agreement and of
the documents referred to in this Agreement, and in respect of the transactions
contemplated herein and therein, and hereby waive, and agree not to assert, as a
defense in any action, suit or proceeding for the interpretation or enforcement
hereof or of any such document, that it is not subject thereto or that such
action, suit or proceeding may not be brought or is not maintainable in said
courts or that the venue thereof may not be appropriate or that this Agreement
or any such document may not be enforced in or by such courts, and the parties
hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such Delaware state or federal
court. The parties hereby consent to and grant any such court jurisdiction over
the person of such parties and over the subject matter of such dispute and agree
that mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 10 or in such other manner as may
be permitted by law, shall be valid and sufficient service thereof.
(h) Best Efforts. Each of TI and CFHC will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation applying to the Office of Thrift
Supervision for approval to acquire the shares issuable hereunder.
(i) Descriptive Headings. The descriptive headings herein are inserted for
convenience of reference and are not intended to be part of or to affect the
meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement,
as of the day and year first written above.
TEMPLE-INLAND INC.
By:
----------------------------------
Chairman of the Board and
Chief Executive Officer
CALIFORNIA FINANCIAL HOLDING COMPANY
By:
----------------------------------
Chairman of the Board and
Chief Executive Officer
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EXHIBIT B
AGREEMENT OF BANK MERGER
This Agreement of Bank Merger is made by and between Stockton Savings Bank,
F.S.B. ("Stockton") and Guaranty Federal Bank, F.S.B. ("Guaranty") in connection
with the transactions described in that Agreement and Plan of Merger, dated as
of December 8, 1996 (the "Merger Agreement") by and among, Temple-Inland Inc., a
Delaware corporation ("TI"), California Financial Holding Company, a Delaware
corporation ("CFHC"), Stockton and Guaranty. Terms not otherwise defined herein
shall have the meaning given them in the Merger Agreement.
As of the date hereof, Guaranty has authorized capital of 2,000,000 shares
of common stock, par value $1 per share (the "Guaranty Stock"). As of the date
hereof, 1,132,500 shares of Guaranty Stock are issued and outstanding. As of the
date hereof, Stockton has authorized capital stock of one share of common stock,
par value $.01 per share ("Stockton Stock") of which one share is issued and
outstanding.
As of the date hereof, Guaranty Holdings, Inc. I ("Guaranty Holdings") owns
directly and TI owns indirectly all the issued and outstanding stock of
Guaranty, and CFHC owns directly all of the issued and outstanding stock of
Stockton. Immediately prior to the Effective Time of the Bank Merger, CFHC shall
be merged with and into TI, with TI being the resulting corporation, so that as
of the Effective Time of the Bank Merger, TI shall own all of the Guaranty Stock
and all of the Stockton Stock.
Guaranty and Stockton hereby agree as follows:
1. Merger. At and on the Effective Time of the Bank Merger, Stockton shall
be merged with and into Guaranty in accordance with the terms hereof (the "Bank
Merger"). Guaranty, as the institution surviving the Bank Merger, shall be the
"Surviving Bank."
2. Effective Time. The effective time of the Bank Merger ("Effective Time")
shall be the date the articles of combination are endorsed by the Office of
Thrift Supervision (the "OTS") or such later date specified in such articles,
which shall be after approval of the Bank Merger by the OTS.
3. Name. The name of the Surviving Bank shall continue to be "Guaranty
Federal Bank, F.S.B."
4. Directors and Principal Officers. The directors and principal officers
of Guaranty immediately prior to the Effective Time of the Bank Merger shall
continue to serve as directors and principal officers of Guaranty after the
Effective Time of the Bank Merger. In addition, one member of the Board of
Directors of Stockton, who shall be selected by TI and CFHC, shall be elected to
the Board of Directors of Guaranty at the Effective Time of the Bank Merger.
Guaranty, as the Surviving Bank, shall have directors. There shall be three
classes of directors; members of each class shall have a three-year term. The
name, residential address and term of each director is set forth below:
<TABLE>
<CAPTION>
TERM
NAME RESIDENTIAL ADDRESS EXPIRES
---- ------------------- --------
<S> <C> <C>
</TABLE>
[INSERT CORRECT INFORMATION AT TIME OF EXECUTION]
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5. Offices. The location of the home office of the Surviving Bank shall
continue to be Dallas, Texas, and the offices of the Surviving Bank shall be:
<TABLE>
<CAPTION>
ADDRESS CITY OR TOWN STATE ZIP CODE
------- ------------ ----- --------
<S> <C> <C> <C>
</TABLE>
6. Terms and Conditions of Bank Merger.
At the Effective Time of the Bank Merger:
(a) Each share of Stockton Stock outstanding immediately prior to the
Effective Time of the Bank Merger shall at the Effective Time of the Bank
Merger, be converted into the right to receive shares of capital stock of
Guaranty.
(b) Each share of Guaranty Stock issued and outstanding immediately prior
to the Effective Time of the Bank Merger shall remain outstanding and unchanged
and shall continue to be owned by Guaranty Holdings.
7. Charter and Bylaws. At and after the Effective Time of the Bank Merger,
the Charter and Bylaws of Guaranty as in effect immediately prior to the
Effective Time of the Bank Merger shall continue to be the Charter and Bylaws of
the Surviving Bank until amended in accordance with law.
8. Rights and Duties of the Surviving Bank. At the Effective Time of the
Bank Merger, Stockton shall be merged with and into Guaranty, which, as the
Surviving Bank, shall be the same association as Guaranty. The business of the
Surviving Bank shall be that of a federal savings bank chartered under the laws
of the United States and as provided for in the Charter of Guaranty as now
existing, the business of which shall be continued at its head office and at its
legally established branches and other offices. All assets, rights, privileges,
powers, franchises and property (real, personal and mixed) shall be
automatically transferred to and vested in the Surviving Bank by virtue of the
Bank Merger without any deed or other document of transfer. The Surviving Bank,
without any order or action on the part of any court or otherwise and without
any documents of assumption or assignment, shall hold and enjoy all of the
properties, franchises and interests, including appointments, powers,
designations, nominations and all other rights and interest as agent or other
fiduciary in the same manner and to the same extent as such rights, franchises
and interest and powers were held or enjoyed by Guaranty and Stockton,
respectively. The Surviving Bank shall be responsible for all the liabilities of
every kind and description of both Guaranty and Stockton immediately prior to
the Effective Time of the Bank Merger, including liabilities for all debts,
savings accounts, deposits obligations, and contracts of Guaranty and Stockton,
respectively, matured or unmatured, whether accrued, absolute, contingent or
otherwise and whether or not reflected or reserved against on balance sheets,
books or accounts or records of either Guaranty or Stockton. All rights of
creditors and other obligees and all liens on property of either Guaranty or
Stockton shall be preserved and shall not be released or impaired.
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9. Execution. This Agreement of Bank Merger may be executed in any number
of counterparts each of which shall be deemed an original and all of such
counterparts shall constitute one and the same instrument.
Dated as of , 1997.
GUARANTY FEDERAL BANK, F.S.B.
By:
-----------------------------------------------------
President and Chief Executive Officer
By:
-----------------------------------------------------
Secretary
STOCKTON SAVINGS BANK, F.S.B.
By:
-----------------------------------------------------
President and Chief Executive Officer
By:
-----------------------------------------------------
Secretary
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EXHIBIT C
SHAREHOLDER'S AGREEMENT
This SHAREHOLDER'S AGREEMENT (this "Agreement"), dated as of December 8,
1996, is entered into by and between Temple-Inland Inc., a Delaware corporation
("TI") and (the "Shareholder").
RECITALS
A. TI, Guaranty Federal Bank, F.S.B., a federally chartered stock savings
bank, California Financial Holding Company, a California corporation and
Stockton Savings Bank, F.S.B., a federally chartered savings bank, entered into
that certain Agreement and Plan of Merger dated as of December 8, 1996 (the
"Merger Agreement").
B. The Shareholder is a beneficial shareholder of shares of the common
stock, $.01 par value, of CFHC (the "CFHC Stock").
C. As an inducement to TI to enter into the Merger Agreement, the
Shareholder desires to enter into this Agreement.
D. Unless otherwise provided in this Agreement, capitalized terms shall
have the meanings ascribed to such terms in the Merger Agreement.
NOW THEREFORE, in consideration of the premises and of the respective
representations, warranties and covenants, agreements and conditions contained
herein and in the Merger Agreement, and intending to be legally bound hereby, TI
and Shareholder agree as follows:
ARTICLE I
SHAREHOLDER'S AGREEMENT
1.1 Agreement to Vote. Shareholder shall vote or cause to be voted at any
meeting of shareholders of CFHC to approve the principal terms of the Merger
Agreement, the Holding Company Merger and the transactions contemplated thereby
(the "Shareholders' Meeting"), all of the shares of CFHC Stock as to which
Shareholder has sole or shared voting power (the "Shares") as of the record date
established to determine shareholders who have the right to vote at any such
Shareholders' Meeting (the "Record Date") "FOR" the Merger Agreement, the
Agreement of Bank Merger and the transactions contemplated thereby.
1.2 Legend. The Shareholder agrees to stamp, print or type (or to cause the
stamping, printing or typing) on the face of his certificates of CFHC Stock
evidencing the Shares the following legend:
"THE VOTING, SALE, ASSIGNMENT, TRANSFER, PLEDGE, HYPOTHECATION OR
OTHER ENCUMBRANCE OR DISPOSITION OF THE SHARES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO A SHAREHOLDER'S AGREEMENT DATED AS OF THE 8TH DAY
OF DECEMBER, 1996 BY AND BETWEEN TEMPLE-INLAND INC. AND (THE RECORD OWNER
HEREOF), COPIES OF WHICH ARE ON FILE AT THE OFFICES OF CALIFORNIA FINANCIAL
HOLDING COMPANY."
1.3 Restrictions on Dispositions. The Shareholder agrees that, from and
after the date of this Agreement and during the term of this Agreement, the
shareholder will not take any action that will alter or affect in any way the
right to vote the Shares, except (i) with the prior written consent of TI or
(ii) to change such right from that of a shared right of the Shareholder to vote
the Shares to a sole right of the Shareholder to vote the Shares.
1.4 Shareholder Approval. The Shareholder shall (i) recommend shareholder
approval of the Merger Agreement, the Agreement of Bank Merger and the
transactions contemplated thereby by the CFHC
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shareholders at the Shareholders' Meeting and (ii) advise the CFHC shareholders
to reject any subsequent proposal or offer received by CFHC relating to any
Competing Transaction or purchase, sale, acquisition, merger or other form of
business combination involving CFHC or any of its assets, equity securities or
debt securities and to proceed with the transactions contemplated by the Merger
Agreement; provided, however, that the Shareholder shall not be obligated to
take any action specified in clause (i) or (ii) if the Board of Directors of
CFHC is advised in writing by outside legal counsel (Kirkpatrick & Lockhart LLP,
or such other counsel that is reasonably acceptable to TI) that doing any act
pursuant to clause (i) or (ii) is inconsistent with the continuing fiduciary
duties of said Shareholder to the stockholders of CFHC.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
The Shareholder represents and warrants to TI that the statements set forth
below are true and correct as of the date of this Agreement, except those that
are specifically as of a different date:
2.1 Ownership and Related Matters.
(a) Schedule 2.1(a) hereto correctly sets forth the number of Shares and
the nature of Shareholder's voting power with respect thereto. Within five
Business Days after the Record Date, the Shareholder shall amend said Schedule
2.1(a) to correctly reflect the number of Shares and the nature of Shareholder's
voting power with respect thereto as of the Record Date.
(b) There are no proxies, voting trusts or other agreements or
understandings to or by which the Shareholder or the Shareholder's spouse is a
party or bound or that expressly requires that any of the Shares be voted in any
specific manner other than as provided in this Agreement.
2.2 Authorization and Binding Agreement. The Shareholder has the legal
right, power, capacity and authority to execute, deliver and perform this
Agreement, and this Agreement is the valid and binding obligation of the
Shareholder enforceable in accordance with its terms, except as the enforcement
thereof may be limited by general principles of equity.
2.3 Noncontravention. The execution, delivery and performance of this
Agreement by the Shareholder will not (a) conflict with or result in the breach
of, or default or actual or potential loss of any benefit under, any provision
of any agreement, instrument or obligation to which the Shareholder or the
Shareholder's spouse is a party or by which any of the Shareholder's properties
or the Shareholder's spouse's properties are bound, or give any other party to
any such agreement, instrument or obligation a right to terminate or modify any
term thereof; (b) require any consent of any Person; (c) result in the creation
or imposition of any Encumbrance on any of the Shares or any other assets of the
Shareholder or the Shareholder's spouse; or (d) violate any statute or law,
judgment, decree, injunction, order, regulation or rule of any Governmental
Entity to which the Shareholder or the Shareholder's spouse is subject.
ARTICLE III
GENERAL
3.1 Amendments. To the fullest extent permitted by law, this Agreement and
any schedule or exhibit attached hereto may be amended by agreement in writing
of the parties hereto at any time.
3.2 Integration. This Agreement constitutes the entire agreement between
the parties pertaining to the subject matter hereof and (except for other
documents to be executed pursuant to the Merger Agreement) supersedes all prior
agreements and understandings of the parties in connection therewith.
3.3 Specific Performance. The Shareholder and TI each expressly
acknowledge that, in view of the uniqueness of the obligations of the
Shareholder contemplated hereby, TI would not have an adequate remedy at law for
money damages in the event that this Agreement has not been performed by the
Shareholder in accordance with its terms, and therefore the Shareholder and TI
agree that TI shall be entitled to specific
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enforcement of the terms hereof in addition to any other remedy to which it may
be entitled at law or in equity.
3.4 Termination. This Agreement shall terminate automatically without
further action at the earlier of the Effective Time of the Holding Company
Merger or the termination of the Merger Agreement in accordance with its terms.
Upon such termination of this Agreement, the parties shall have no further
obligation or liability to one another, except in respect of a wilful and
material failure in the performance of any such party's agreements, covenants
and obligations hereunder.
3.5 No Assignment. Neither this Agreement nor any rights, duties or
obligations hereunder shall be assignable by TI or the Shareholder, in whole or
in part. Any attempted assignment in violation of this prohibition shall be null
and void. Subject to the foregoing, all of the terms and provisions hereof shall
be binding upon, and inure to the benefit of, the successors of the parties
hereto.
3.6 Headings. The descriptive headings of the several Articles and
Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
3.7 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 more counterparts have been signed by each
party hereto and delivered to each party hereto.
3.8 Notices. Any notice or communication required or permitted hereunder,
shall be deemed to have been given if in writing and (a) delivered in person,
(b) delivered by confirmed facsimile transmission, (c) sent by overnight
carrier, postage prepaid with return receipt requested, or (d) mailed by
certified or registered mail, postage prepaid with return receipt requested,
addressed as follows:
If to TI , addressed to:
Temple-Inland Inc.
303 South Temple Drive
Diboll, Texas 75941
Attention: M. Richard Warner, Esq.
Facsimile Number: (409) 829-3333
With a copy addressed to:
Manatt, Phelps & Phillips, LLP
11355 West Olympic Blvd.
Los Angeles, CA 90064
Attention: Thomas D. Phelps, Esq.
Telecopier No: (310) 312-4224
If to Shareholder, addressed to:
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
With a copy addressed to:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
Attention: Henry L. Judy, Esq.
Facsimile Number: (202) 778-9100
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or at such other address and to the attention of such other person as a party
may notice to the others in accordance with this Section 3.8. Any such notice or
communication shall be deemed received on the date delivered personally or
delivered by confirmed facsimile transmission, on the first Business Day after
it was sent by overnight carrier, postage prepaid with return receipt requested
or on the third Business Day after it was sent by certified or registered mail,
postage prepaid with return receipt requested.
3.9 Governing Law. This Agreement shall be governed by, and interpreted in
accordance with, the laws of the State of Delaware without regard to the
conflict of law principles thereof. The parties hereby irrevocably submit to the
jurisdiction of the courts of the State of Delaware and the federal courts of
the United States of America located in the State of Delaware solely in respect
of the interpretation and enforcement of the provisions of this Agreement and of
the documents referred to in this Agreement, and in respect of the transactions
contemplated herein and therein, and hereby waive, and agree not to assert, as a
defense in any action, suit or proceeding for the interpretation or enforcement
hereof or of any such document, that it is not subject thereto or that such
action, suit or proceeding may not be brought or is not maintainable in said
courts or that the venue thereof may not be appropriate or that this Agreement
or any such document may not be enforced in or by such courts, and the parties
hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such Delaware state or federal
court. The parties hereby consent to and grant any such court jurisdiction over
the person of such parties and over the subject matter of such dispute and agree
that mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 3.8 or in such other manner as may
be permitted by law, shall be valid and sufficient service thereof.
3.10 Severability. If any provision of this Agreement shall be held by a
court of competent jurisdiction to be unreasonable as to duration, activity or
subject, it shall be deemed to extend only over the maximum duration, range of
activities or subjects as to which such provision shall be valid and enforceable
under applicable law. If any provisions shall, for any reason, be held by a
court of competent jurisdiction to be invalid, illegal or unenforceable, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
3.11 Waiver of Breach. Any failure or delay by TI in enforcing any
provision of this Agreement shall not operate as a waiver of this Agreement. The
waiver by TI of a breach of any provision of this Agreement shall not operate as
a waiver of this Agreement. The waiver by TI of a breach of any provision of
this Agreement by the Shareholder shall not operate or be construed as a waiver
of any subsequent breach or violation thereof. All waivers shall be in writing
and signed by the party to be bound.
IN WITNESS WHEREOF, the parties to this Agreement have caused and duly
executed this Agreement as of the day and year first above written.
TEMPLE-INLAND INC.
By:
------------------------------------
Title:
------------------------------------
SHAREHOLDER
------------------------------------
(Shareholder's Name)
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<PAGE> 138
SPOUSAL CONSENT
I am the spouse of , the Shareholder in the
above Agreement. I understand that I may consult independent legal counsel as to
the effect of this Agreement and the consequences of my execution of this
Agreement and, to the extent I felt it necessary, I have discussed it with legal
counsel. I hereby confirm this Agreement and agree that it shall bind my
interest in the Shares, if any.
------------------------------------
(Shareholder's Spouse's Name)
5
<PAGE> 139
EXHIBIT D
FORM OF AFFILIATE LETTER ADDRESSED TO TEMPLE-INLAND INC.
Temple-Inland Inc.
Drawer N
Diboll, Texas 75941
Ladies and Gentlemen:
The undersigned has been advised that as of the date hereof I may be deemed
to be an "affiliate" of California Financial Holding Company, a Delaware
corporation ("CFHC") as the term "affiliate" is (i) defined for purposes of
paragraphs (c) and (d) of Rule 145 of the Rules and Regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"). I have been further advised
that pursuant to the terms of the Agreement and Plan of Merger, dated as of
December 8, 1996, by and among Temple-Inland Inc. ("TI"), CFHC, Guaranty Federal
Bank, F.S.B. and Stockton Savings Bank, F.S.B., CFHC will be merged with and
into TI, and that as a result of the Merger, the undersigned may receive shares
of TI Stock (as defined in the Merger Agreement) in exchange for shares of CFHC
Stock (as defined in the Merger Agreement), owned by me.
The undersigned represents, warrants and covenants to TI that in the event
I receive any TI Stock pursuant to the Merger:
A. The undersigned shall not make any sale, transfer or other disposition
of the TI Stock in violation of the Act or the Rules and Regulations.
B. The undersigned has carefully read this letter and the Merger Agreement
and discussed its requirements and other applicable limitations upon my ability
to sell, transfer or otherwise dispose of TI Stock to the extent I believed
necessary, with my counsel or with counsel for CFHC.
C. The undersigned has been advised that the issuance of TI Stock to the
undersigned pursuant to the Merger Agreement will be registered with the
Commission on a registration statement on Form S-4. However, the undersigned has
also been advised that, since at the time the Merger will be submitted to the
shareholders of CFHC for approval, the undersigned may be an "affiliate" of
CFHC, any sale or disposition by the undersigned of any of the TI Stock, may,
under current law, only be made in accordance with the provisions of paragraph
(d) of Rule 145 under the Securities Act, pursuant to an effective registration
statement under the Securities Act or pursuant to an exemption thereunder. I
agree that I will not sell, transfer, or otherwise dispose of TI Stock issued to
me in the Merger unless (i) such sale, transfer or other disposition has been
registered under the Act; (ii) such sale, transfer or other disposition is made
in conformity with the volume and other limitations of Rule 145 promulgated by
the Commission under the Act, or (iii) in the opinion of counsel reasonably
acceptable to TI, such sale, transfer or other disposition is otherwise exempt
from registration under the Act.
D. The undersigned understands that TI is under no obligation to register
the sale, transfer or other disposition of the TI Stock by the undersigned or in
the undersigned's behalf or to take any other action necessary to make
compliance with an exemption from registration available.
E. The undersigned understands that stop transfer instructions will be
given to TI's transfer agents with respect to TI Stock and that there will be
placed on the certificates for the TI Stock issued to me, or any substitutions
therefor, a legend stating in substance:
"The securities represented by this certificate have been issued in a
transaction to which Rule 145 promulgated under the Securities Act of 1933
applies and may be sold or otherwise transferred only in compliance with
the requirements of Rule 145 or pursuant to a registration statement under
said act or an exemption from such registration."
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F. I also understand that unless the transfer by me of my TI Stock has been
registered under the Act or is a sale made in conformity with the provisions of
Rule 145, TI reserves the right to put the following legend on the certificates
issued to my transferee:
"The sale of the shares represented by this certificate has not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), and the shares were acquired from a person who received such shares
in a transaction to which Rule 145 promulgated under the Securities Act
applies. The shares have been acquired by the holder not with a view to, or
for resale in connection with, any distribution thereof within the meaning
of the Securities Act and may not be sold, pledged or otherwise transferred
except in accordance with an exemption from the registration requirements
of the Securities Act."
It is understood and agreed that this letter agreement shall terminate and
be of no further force and effect and the legends set forth in E or F, as the
case may be, above shall be removed by delivery of substitute certificates
without such legend, and the related stop transfer of restrictions shall be
lifted forthwith, if (i) any such shares of TI Stock shall have been registered
under the Securities Act for sale, transfer or other disposition by me or on my
behalf and are sold, transferred or otherwise disposed of, or (ii) any such
shares of TI Stock are sold in accordance with the provisions of paragraphs (c),
(e), (f) and (g) of Rule 144 promulgated under the Securities Act, or (iii) I am
not at the time an affiliate of TI and have been the beneficial owner of the TI
Stock for at least two years (or such other period as may be prescribed by the
Securities Act and the rules and regulations promulgated thereunder), and TI has
filed with the Commission all of the reports it is required to file under the
Securities Exchange Act of 1934, as amended, during the preceding 12 months, or
(iv) I am not and have not been for at least three months an affiliate of TI and
have been the beneficial owner of the TI Stock for at least three years (or such
other period as may be prescribed by the Securities Act and the Rules and
Regulations), or (v) TI shall have received a letter from the Staff of the
Commission, or an opinion of counsel reasonably acceptable to TI, to the effect
that the stock transfer restrictions and the legend are not required.
Very truly yours,
Accepted this day of , 1997.
Temple-Inland Inc.
By:
---------------------------------------------------------
Name:
Title:
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<PAGE> 141
EXHIBIT E
FORM OF OPINION OF COUNSEL OF TI AND GUARANTY
The opinion of counsel required by Section 10.1 of the Agreement and Plan
of Reorganization ("Merger Agreement") shall be dated as of the Closing Date,
shall be in form and substance reasonably satisfactory to CFHC and Stockton, and
shall contain opinions substantially in the form set forth below. (All
capitalized terms not otherwise defined herein have the meaning specified in the
Merger Agreement).
1. TI is duly incorporated and validly existing as a corporation in good
standing under the laws of the State of Delaware and is a registered savings and
loan holding company under HOLA.
2. Guaranty is an indirect, wholly owned subsidiary of TI, duly
incorporated, validly existing and in good standing as a federal savings bank
chartered under Section 5 of HOLA. The deposits of Guaranty are insured by the
FDIC in the manner and to the fullest extent provided by law.
3. The TI Stock to be delivered pursuant to the Merger Agreement will be
duly authorized, validly issued, fully paid and nonassessable.
4. The TI Stock to be delivered pursuant to the Merger Agreement will be,
subject to official notice of issuance, included for listing on the NYSE.
5. The execution and delivery by TI of the Merger Agreement and by Guaranty
of the Merger Agreement and the Agreement of Bank Merger, and the consummation
of the transactions contemplated thereby, have been duly and validly authorized
by all necessary corporate action on the part of TI and Guaranty, as applicable.
Each of the Merger Agreement and the Agreement of Bank Merger, as applicable,
constitutes a valid and binding obligation of TI and Guaranty, enforceable in
accordance with their terms, except as the enforceability thereof may be limited
by: (i) bankruptcy, liquidation, receivership, conservatorship, insolvency,
moratorium or other similar laws affecting the rights of creditors generally;
(ii) general equitable principles or (iii) Section 8(b)(6)(D) of the Federal
Deposit Insurance Act, 12 U.S.C. Section 1818(b)(6)(D).
6. Neither the execution and delivery by TI of the Merger Agreement or by
Guaranty of the Merger Agreement or Agreement of Bank Merger, nor the
consummation of the transactions contemplated thereby, nor compliance by TI or
Guaranty with any of the provisions thereof, will conflict with or result in the
breach of, or default under (i) any provision of Guaranty's federal stock
charter, TI's certificate of incorporation or TI's or Guaranty's bylaws or (ii)
any material agreement, instrument or obligation, of we have actual knowledge,
to which TI or Guaranty is a party or by which any of the properties or assets
of TI or Guaranty is bound.
7. All consents and approvals of Governmental Entities under Delaware or
federal law required to be obtained by TI or Guaranty in order to permit the
consummation by them of the transactions contemplated by the Merger Agreement
and the Agreement of Bank Merger have been obtained.
8. The S-4 Registration Statement has become effective under the Securities
Act and, to the best of our knowledge, no stop order suspending the
effectiveness of the S-4 Registration Statement or preventing the use of the S-4
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated by the SEC or any state
securities or other regulatory authority; and
9. The portion of the Proxy Statement relating to TI and Guaranty for use
at the stockholders' meeting required pursuant to Section 6.6 of the Merger
Agreement, as of the date of mailing and the date of the stockholders' meeting,
complied as to form in all material respects with the requirements of the
Exchange Act and all applicable rules and regulations.
We shall further state that although we have necessarily assumed the
correctness and completeness of the statements made by TI or Guaranty in the
Proxy Statement and takes no responsibility therefor, we have, in the course of
the preparation of the Proxy Statement, had conferences with representatives of
TI and Guaranty with respect thereto, and that its examination of the Proxy
Statement and our discussions in the
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<PAGE> 142
above-mentioned conferences did not disclose to it any information which has
caused us to believe that the information relating to TI and Guaranty in the
Proxy Statement at the time of mailing and at the time of the meeting of CFHC's
shareholders contained any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein not misleading
(except that we need express no belief or opinion as to any information,
including financial statements, any notes thereto, or other financial or
statistical data or as to any information supplied by CFHC or Stockton).
In rendering its opinion, we may rely, to the extent that we deem reliance
necessary or appropriate, as to matters of fact, upon certificates of government
officials and of any officer or officers of TI's transfer agent. The opinion
need refer only to matters of Delaware and federal law, and we may expressly
exclude any opinions as to choice of law matters, antitrust matters and
securities law matters (except as set forth in paragraph 10) and may add other
qualifications and explanations of the basis of its opinion as may be reasonably
acceptable to CFHC and Stockton.
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EXHIBIT F
FORM OF OPINION OF COUNSEL OF CFHC AND STOCKTON
The opinion of counsel required by Section 11.1 of the Agreement and Plan
of Reorganization (the "Merger Agreement") shall be dated as of the Closing
Date, shall be in form and substance reasonably satisfactory to TI, and shall
contain opinions substantially in the form set forth below. (All capitalized
terms not otherwise defined herein have the meaning specified in the Merger
Agreement).
1. CFHC is a Delaware corporation duly organized, validly existing and in
good standing under the laws of the state of Delaware and is registered as a
savings and loan holding company under HOLA.
2. Stockton is a subsidiary of CFHC, and a federal stock savings bank, duly
organized, validly existing and in good standing as a federal stock savings bank
chartered under Section 5 of HOLA. The deposits of Stockton are insured by the
FDIC in the manner and to the extent provided by law.
3. The CFHC Subsidiaries are California corporations, each of which is duly
organized, validly existing and in good standing under the laws of the state of
California.
4. Each of CFHC, Stockton and the CFHC Subsidiaries has all necessary
corporate power to own or lease its properties and assets, and to carry on its
business as now conducted. Neither the scope of the business of CFHC, Stockton
or the CFHC Subsidiaries nor the location of any of their respective properties
requires that any of them be licensed to do business in any jurisdiction other
than the State of California.
5. The authorized capital of CFHC consists of 12,000,000 shares of CFHC
Stock, of which 4,724,095 shares are outstanding and 4,000,000 shares of serial
preferred stock of which no shares are outstanding. The authorized capital of
Stockton and of the CFHC Subsidiaries is as set forth in Section 4.2 of the
Merger Agreement. All of the outstanding shares of CFHC Stock, Stockton Stock
and the equity securities of each of the CFHC Subsidiaries are validly issued,
fully paid and nonassessable. To the best of our knowledge, except for the CFHC
Options referred to in Section 4.2 of the Merger Agreement, and the options
granted pursuant to the Stock Option Agreement, there are no outstanding
options, warrants or other rights in or with respect to the unissued shares of
CFHC Stock, Stockton Stock or the stock of the CFHC Subsidiaries or any other
securities convertible into CFHC Stock, Stockton Stock or the stock of the CFHC
Subsidiaries, and neither CFHC, Stockton nor the CFHC Subsidiaries is obligated
to issue any additional shares of CFHC Stock, Stockton Stock or the stock of the
CFHC Subsidiaries or any additional options, warrants or other rights in or with
respect to the unissued shares of such stock or securities convertible into such
stock.
6. The execution and delivery by each of CFHC and Stockton of the Merger
Agreement and the execution and delivery by Stockton of the Agreement of Bank
Merger and the consummation of the transactions contemplated thereby, have been
duly and validly authorized by all necessary action on the part of CFHC and
Stockton, as applicable. Each of the Merger Agreement and the Agreement of Bank
Merger, as applicable, constitutes a valid and binding obligation of CFHC and
Stockton, enforceable in accordance with their terms, except as the
enforceability thereof may be limited by: (i) bankruptcy, liquidation,
receivership, conservatorship, insolvency, moratorium or other similar laws
affecting the rights of creditors generally; (ii) general equitable principles;
or (iii) Section 8(b)(6)(D) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1818(b)(6)(D).
7. Neither the execution and delivery by CFHC of the Merger Agreement or by
Stockton of the Merger Agreement or the Agreement of Bank Merger, nor the
consummation of the transactions contemplated thereby, nor compliance by CFHC or
Stockton with any of the provisions thereof, will conflict with or result in the
breach of, or default under (i) any provision of the articles of incorporation
or bylaws of CFHC, the federal stock charter or bylaws of Stockton or the
articles of incorporation or bylaws of the CFHC Subsidiaries, (ii) any material
agreement, instrument or obligation known to such counsel to which CFHC,
Stockton or the CFHC Subsidiaries is a party or by which any of the properties
or assets of CFHC, Stockton or the CFHC Subsidiaries is bound.
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8. All consents and approvals of Governmental Entities under Delaware or
federal law, and all requisite stockholder approval, required to be obtained by
CFHC or Stockton in order to permit the consummation by them of the transactions
contemplated by the Merger Agreement and the Agreement of Bank Merger have been
obtained.
9. Except as disclosed in the schedules and Lists to the Merger Agreement
or in such opinion, to the best of our knowledge, there are no actions, suits or
proceedings pending or, to our best knowledge, threatened against CFHC, Stockton
or the CFHC Subsidiaries, or affecting any of the property of CFHC, Stockton or
the CFHC Subsidiaries, before any court or arbitration tribunal or before or by
any governmental or regulatory authority or body questioning or affecting the
transactions contemplated by the Merger Agreement that would have a Material
Adverse Effect on CFHC, Stockton or the CFHC Subsidiaries or the transactions
contemplated in the Merger Agreement.
10. The portion of the Proxy Statement relating to CFHC and Stockton for
use at the shareholders' meeting required pursuant to Section 6.6 of the Merger
Agreement, as of the date of mailing and the date of the shareholders' meeting,
complied as to form in all material respects with the requirements of the
Exchange Act and all applicable rules and regulations.
Counsel shall further state that although counsel has necessarily assumed
the correctness and completeness of the statements made by CFHC or Stockton in
the Proxy Statement and takes no responsibility therefor, such counsel has, in
the course of the preparation of the Proxy Statement, had conferences with
representatives of CFHC and Stockton with respect thereto, and that its
examination of the Proxy Statement and its discussions in the above-mentioned
conferences did not disclose to it any information which has caused such counsel
to believe that the Proxy Statement at the time of mailing and at the time of
the meeting of CFHC's shareholders contained any untrue statement of a material
fact or omitted to state a material fact necessary to make the statements
therein not misleading (except that such counsel need express no belief or
opinion as to financial statements, including any notes thereto, or other
financial or statistical data or as to any information supplied by TI or
Guaranty).
In rendering its opinion, such counsel may rely, to the extent that such
counsel deems reliance necessary or appropriate, as to matters of fact, upon
certificates of government officials and of any officer or officers of CFHC or
Stockton or CFHC's registrar and transfer agent. The opinion need refer only to
matters of Delaware and federal law, and such counsel may expressly exclude any
opinions as to choice of law matters, antitrust matters and (except as set forth
in paragraph 10) securities law matters and may add other qualifications and
explanations of the basis of its opinion as may be reasonably acceptable to TI
and Guaranty.
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<PAGE> 145
APPENDIX B
OPINION OF MERRILL LYNCH & CO.
<PAGE> 146
APPENDIX B
March 20, 1997
Board of Directors
California Financial Holding Company
501 West Weber Avenue
Stockton, CA 95203
Members of the Board:
California Financial Holding Company ("CFHC") and its wholly owned
subsidiary, Stockton Savings Bank, F.S.B. ("Stockton" and, together with CFHC,
the "Company"), and Temple-Inland Inc. ("TI") and its wholly owned subsidiary,
Guaranty Federal Bank, F.S.B. ("Guaranty" and, together with TI, the
"Acquiror"), have entered into an Agreement and Plan of Merger ("Agreement and
Plan of Merger") and a related Agreement of Bank Merger (the "Agreement of Bank
Merger" and, together with the Agreement and Plan of Merger, the "Merger
Agreement"). Pursuant to the Merger Agreement, CFHC will merge with and into TI,
with TI as the surviving corporation (the "Holding Company Merger"), and
immediately thereafter Stockton will merge with and into Guaranty and Guaranty
shall be the resulting association (the "Bank Merger" and, together with the
Holding Company Merger, the "Mergers"). The Merger Agreement provides, among
other things, that each outstanding share of CFHC's common stock (the "Shares")
will be converted into the right to receive, at the election of the holder
thereof, (i) a fraction of a share (the "Stock Consideration") of TI's common
stock equal to the Applicable Exchange Ratio (as determined pursuant to the
Agreement and Plan of Merger) or (ii) cash (the "Cash Consideration") in the
amount equal to the Applicable Price Per Share (as determined pursuant to the
Agreement and Plan of Merger), all as more fully described in the Agreement and
Plan of Merger. For purposes of this opinion, "Proposed Consideration" shall
refer to the Cash Consideration or the Stock Consideration payable to the
holders of the Shares as provided in the Agreement and Plan of Merger in
connection with the Holding Company Merger. In connection with the Holding
Company Merger, the parties have also entered into an option agreement (the
"Option Agreement") pursuant to which CFHC has granted to TI an option to
acquire up to 940,095 Shares (the "Option Shares"), representing approximately
19.9% of issued and outstanding Shares, all as more fully described in the
Option Agreement. The Holding Company Merger is expected to be considered and
voted upon by the shareholders of CFHC at a special shareholders' meeting to be
held as soon as practicable. The terms and condition of the Mergers are more
fully set forth in the Merger Agreement.
You have asked us whether, in our opinion, as of the date hereof, the
Proposed Consideration is fair to the holders of Shares of CFHC (other than the
Acquiror or its affiliates) from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
1. Reviewed CFHC's Annual Reports, CFHC's Annual Reports on Forms 10-K and
related audited financial information for the three fiscal years ended
December 31, 1996;
2. Reviewed TI's Annual Reports, TI's Annual Reports on Form 10-K and
related audited financial information for the three fiscal years ended
December 31, 1996;
3. Reviewed certain information, including financial forecasts, relating to
the respective businesses, earnings, assets and prospects of the Company
and the Acquiror furnished to us by the Company and the Acquiror;
4. Conducted certain discussions with members of senior management of the
Company and the Acquiror concerning their respective financial
condition, businesses, earnings, assets and prospects and such senior
management's views as to future financial performance of the Company and
the Acquiror, as the case may be;
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<PAGE> 147
5. Reviewed the historical market prices and trading activity for the
Shares and the shares of common stock of TI and compared them with those
of certain publicly traded companies which we deemed to be relevant;
6. Compared the results of operations of CFHC and TI with those of certain
companies which we deemed to be relevant;
7. Compared the proposed financial terms of the Holding Company Merger
contemplated by the Agreement and Plan of Merger with the financial
terms of certain other mergers and acquisitions which we deemed to be
relevant;
8. Reviewed the Agreement and Plan of Merger and the Option Agreement; and
9. Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary.
In preparing our opinion, we have, with your consent, assumed and relied
upon the accuracy and completeness of all financial and other information
supplied or otherwise made available to us for purposes of this opinion, and we
have not assumed any responsibility for independently verifying such information
or undertaking an independent evaluation or appraisal of the assets or
liabilities of CFHC or TI or any of their subsidiaries, nor have we been
furnished any such evaluations or appraisals. We have also assumed and relied
upon the senior management of the Company and the Acquiror referred to above as
to the reasonableness and achievability of the financial and operating forecasts
(and the assumptions and bases therefore) provided to us. In that regard, we
have assumed with your consent that such forecasts, including without limitation
financial forecasts and projections regarding underperforming and non-performing
assets, net charge-offs and the adequacy of reserves, reflect the best currently
available estimates and judgments of such senior management as to the future
financial performance of CFHC and TI. We are not experts in the evaluation of
allowances for loan losses, and we have not made an independent evaluation of
the adequacy of the allowances for loan losses of CFHC or TI nor have we
reviewed any individual credit files, and we have assumed that the aggregate
allowances for the respective loan losses of CFHC and TI are adequate to cover
such losses. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
Our opinion has been rendered without regard to the necessity for, or level
of, any restrictions, obligations, undertakings or divestitures which may be
imposed or required in the course of obtaining regulatory approvals for the
Holding Company Merger.
We have been retained by the Board of Directors of CFHC as an independent
contractor to act as financial advisor to CFHC with respect to the Holding
Company Merger and will receive a fee for our services. We have within the past
two years provided financial advisory, investment banking and other services to
the Company and have received customary fees for the rendering of such services.
In addition, in the ordinary course of our securities business, we may actively
trade debt and/or equity securities of CFHC and TI and their respective
affiliates for our own account and the accounts of our customers, and we
therefore may, from time to time, hold a long or short position in such
securities.
Our opinion is directed to the Board of Directors of CFHC and does not
constitute a recommendation to the Board of Directors of CFHC in connection with
any matter relating to the Holding Company Merger. This letter does not
constitute a recommendation to any shareholders of CFHC with respect to any
approval of the Holding Company Merger.
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On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Proposed Consideration is fair to the holders of
Shares of CFHC (other than the Acquiror or its affiliates) from a financial
point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By: /s/ MICHAEL F. BARRY
----------------------------------
Director -- Merrill Lynch & Co.
Investment Banking Group
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<PAGE> 149
APPENDIX C
DELAWARE CODE ANNOTATED
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
<PAGE> 150
DELAWARE CODE ANNOTATED
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
Copyright (C) 1975-1996 by The State of Delaware. All rights reserved.
Current through End of 1996 Reg. Sess.
SEC. 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to
sec. 251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or
sec. 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
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d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary
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or of the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or
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resulting corporation pursuant to subsection (f) of this section and who has
submitted his certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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APPENDIX D
OPINION OF MANATT, PHELPS & PHILLIPS, LLP
REGARDING CERTAIN TAX MATTERS
<PAGE> 155
March 10, 1997
Board of Directors
Temple-Inland Inc.
303 South Temple Drive
Diboll, Texas 75941
Board of Directors
California Financial Holding Company
501 W. Weber Avenue
Stockton, California 95203-3169
RE: CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER OF
CALIFORNIA FINANCIAL HOLDING COMPANY WITH AND INTO TEMPLE-INLAND
INC., AND THE MERGER OF STOCKTON SAVINGS BANK, F.S.B., WITH AND
INTO GUARANTY FEDERAL BANK, F.S.B.
Ladies and Gentlemen:
In accordance with your request, we provide the following analysis and
opinions relating to certain federal income tax consequences of the transaction
(the "Holding Company Merger") whereby California Financial Holding Company
("CFHC") will merge with and into Temple-Inland Inc. ("TI"), pursuant to that
certain Agreement and Plan of Merger dated as of December 8, 1996 (the
"Agreement"). Immediately after the Holding Company Merger, Stockton Savings
Bank, F.S.B. ("Stockton"), a wholly-owned subsidiary of CFHC, shall merge with
and into Guaranty Federal Bank, F.S.B. ("Guaranty"), an indirect wholly-owned
subsidiary of TI, pursuant to an Agreement of Bank Merger (the "Bank Merger").
Certain federal income tax consequences of the Bank Merger are also addressed
herein pursuant to your request. Terms used herein have the same meaning as in
the Agreement and the Agreement of Bank Merger.
In the Holding Company Merger, CFHC shall be merged with and into TI in a
statutory merger in accordance with the Delaware General Corporation Law and the
separate corporate existence of CFHC shall cease. TI shall be the surviving
entity. TI shall succeed, without other transfer, to all the rights and property
of CFHC and shall be subject to all the debts and liabilities of CFHC in the
same manner as if TI had itself incurred them. Each share of TI stock issued and
outstanding immediately prior to the Effective Time of the Holding Company
Merger shall remain an issued and outstanding share of common stock of TI and
shall not be converted or otherwise affected by the Holding Company Merger.
Subject to the provisions of the Agreement, each share of CFHC Stock issued
and outstanding immediately prior to the Effective Time of the Holding Company
Merger, other than Dissenting Shares, shall, on and after the Effective Time of
the Holding Company Merger, be automatically canceled and cease to be an issued
and outstanding share of CFHC Stock and shall be converted into the right to
receive, at the election of the holder thereof, either (a) a fraction of a share
of TI Stock equal to the Applicable Exchange Ratio, or (b) cash in the amount
equal to the Applicable Price Per Share.
No fractional shares of TI Stock shall be issued in the Holding Company
Merger. In lieu thereof, each holder of CFHC Stock who would otherwise be
entitled to receive a fractional share shall receive an amount in cash, rounded
to the nearest cent, equal to the product obtained by multiplying (a) the Final
TI Stock Price by (b) the fraction (calculated to the nearest thousandth) of the
share of TI Stock to which such holder would otherwise be entitled. No such
holder shall be entitled to dividends or other rights in respect to any such
fraction.
Dissenting Shares of CFHC Stock which have not effectively withdrawn or
lost their rights under Section 262 of the Delaware General Corporation Law
shall not be converted as described in the foregoing paragraph, but shall be
entitled to receive such consideration as shall be determined pursuant to
Section 262 of the Delaware General Corporation Law.
At and on the Effective Time of the Bank Merger, Stockton shall be merged
with and into Guaranty in accordance with the terms of the Agreement of Bank
Merger in a statutory merger under federal law and the
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separate corporate existence of Stockton shall cease. Guaranty shall be the
surviving entity. Guaranty shall succeed, without other transfer, to all the
rights and property of Stockton and shall be subject to all the debts and
liabilities of Stockton in the same manner as if Guaranty had itself incurred
them. Each share of Guaranty Stock issued and outstanding immediately prior to
the Effective Time of the Bank Merger shall remain an issued and outstanding
share of common stock of Guaranty and shall not be converted or otherwise
affected by the Bank Merger. Each share of Stockton Stock issued and outstanding
immediately prior to the Effective Time of the Bank Merger shall, on and after
the Effective Time of the Bank Merger, be automatically canceled and cease to be
an issued and outstanding share of Stockton Stock and shall be converted into
shares of stock of Guaranty with a value approximately equal to the value of the
Stockton Stock canceled in the Bank Merger.
Our analysis and the opinions set forth herein are based upon the facts as
set forth in that certain Agreement and that certain Agreement of Bank Merger
referred to above, including the exhibits thereto. Our analysis and opinions are
also based on certain representations in the Agreement and certain written
representations to us from TI and CFHC in letters of even date herewith. Our
analysis and opinions are further based on that certain Form S-4 Registration
Statement being filed with the Securities and Exchange Commission in connection
with the Holding Company Merger and the Bank Merger contemporaneously herewith
(the "Form S-4"). The facts contained in the above-referenced documents are
incorporated herein by reference as the operative facts underlying the tax
opinions set forth herein. One of our key assumptions for purposes of this
letter is that the facts set forth in those documents are accurate on the date
of this analysis and remain accurate to the date of the closing of the Holding
Company Merger and the Bank Merger and are otherwise true, complete, and
correct. Any change or inaccuracy in such facts may adversely affect our
opinions.
We have acted as special counsel to TI in connection with the Holding
Company Merger and the Bank Merger and are rendering these opinions to TI and
CFHC at their request. In rendering these opinions, we have examined such
documents, laws, regulations and other legal matters as we have considered
necessary or appropriate for purposes of the opinions expressed herein. We have
not made any independent investigation in rendering these opinions other than as
described herein.
Our opinions are based upon the Code as of the date hereof and currently
applicable Treasury Regulations promulgated under the Code (including proposed
Treasury Regulations), published administrative positions of the Internal
Revenue Service in revenue rulings and revenue procedures, and judicial
decisions. Such legal authorities are all subject to change, either
prospectively or retroactively. No assurance can be provided as to the effect of
any such change upon our opinions.
The opinions set forth herein have no binding effect on the Internal
Revenue Service or the courts. No assurance can be given that, if contested, a
court would agree with the opinions set forth herein. The opinions set forth
herein represent rather our best legal judgment as to the likely outcome of the
issues addressed herein if such issues were litigated.
In the case of transactions as complex as the Holding Company Merger and
the Bank Merger, many federal, state and local income and other tax consequences
arise. We have been asked only to address the issues specifically set forth
below. No opinion is expressed regarding any other issues.
This letter is being issued solely for the benefit of TI and CFHC and for
the benefit of the TI and CFHC shareholders as of the date of the Holding
Company Merger. It may not be relied upon by any other person without our prior
written consent.
Subject to the foregoing, it is our opinion that the Holding Company Merger
and the Bank Merger are tax-deferred reorganizations within the meaning of
Section 368(a) of the Code and shall not result in the recognition of gain or
loss for federal income tax purposes to TI, CFHC, Stockton or Guaranty, nor
shall the issuance of the TI Stock in the Holding Company Merger result in the
recognition of gain or loss by the holders of CFHC Stock who receive such stock
in connection with the Holding Company Merger.
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We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Form S-4 to be filed in connection with
the Holding Company Merger and the Bank Merger.
Very truly yours,
/s/ MANATT, PHELPS & PHILLIPS, LLP
--------------------------------------
Manatt, Phelps & Phillips, LLP
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APPENDIX E
STOCK OPTION AGREEMENT
<PAGE> 159
APPENDIX E
STOCK OPTION AGREEMENT
This AGREEMENT is dated as of December 8, 1996, between Temple-Inland Inc.
("TI"), a Delaware corporation, and California Financial Holding Company, a
Delaware corporation ("CFHC").
WITNESSETH:
WHEREAS, the Boards of Directors of TI and CFHC have approved an Agreement
and Plan of Merger (the "Merger Agreement") dated as of the date hereof which
contemplates the acquisition of CFHC by TI and the acquisition of Stockton
Savings Bank, F.S.B. by Guaranty Federal Bank, F.S.B.;
WHEREAS, as a condition to TI's entry into the Merger Agreement and to
induce such entry, CFHC has agreed to grant to TI the option set forth herein to
purchase shares of CFHC's authorized but unissued common stock, par value $.01
per share ("Common Stock");
Unless otherwise provided in this Agreement, capitalized terms shall have
the meanings ascribed to such terms in the Merger Agreement.
NOW, THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth herein,
CFHC hereby grants to TI an option (the "Option") to purchase up to 940,095
shares of Common Stock (the "Option Shares"), at a price of $27.25 per share
(the "Exercise Price"); provided, however, that in the event CFHC issues or
agrees to issue any shares of Common Stock to an Acquiring Person (as that term
is defined in Section 6 herein) at a price less than $27.25 per share, the
Exercise Price shall be equal to such lesser price.
2. Exercise of Option.
(a) TI may exercise the Option, in whole or in part, in accordance with and
to the extent permitted by applicable law at any time or from time to time but
only upon or after the occurrence of a Purchase Event (as that term is defined
in Paragraph (b) below of this section); provided, that to the extent the Option
shall not have been exercised, it shall terminate and be of no further force and
effect upon the earliest to occur (such earliest date, the "Expiration Date") of
(i) the termination of the Merger Agreement pursuant to Section 13.1 (a) or (h)
thereof; (ii) the date of termination pursuant to Section 13.1 (b), (c), (e), or
(f) thereof if such date is prior to a Purchase Event; (iii) the effective time
of the acquisition of CFHC by TI pursuant to the Merger Agreement, or (iv)
eighteen months following the occurrence of the earliest to occur of (A) the
date of any termination of the Merger Agreement other than as described in (i)
or (ii) above or (B) the date of first occurrence of a Purchase Event.
Notwithstanding the foregoing, CFHC shall not be obligated to issue the Option
Shares upon exercise of the Option (i) in the absence of any required
governmental or regulatory waiver, consent or approval necessary for CFHC to
issue such Option Shares or for TI or any transferee to exercise the Option or
prior to the expiration or termination of any waiting period required by law, or
(ii) so long as any injunction or other order, decree or ruling issued by any
federal or state court of competent jurisdiction is in effect which prohibits
the sale or delivery of the Option Shares.
(b) As used herein, a "Purchase Event" shall have occurred when: (i) CFHC,
Stockton or any subsidiary of CFHC, (without the prior written consent of TI)
enters into an agreement with any person (other than TI or any of its
subsidiaries) pursuant to which such person would: (x) merge or consolidate
with, or enter into any similar transaction with CFHC, Stockton or any
subsidiary of CFHC, (y) purchase, lease or otherwise acquire all or
substantially all of the assets of CFHC or Stockton or (z) purchase or otherwise
acquire (by merger, consolidation, share exchange or any similar transaction)
securities representing 10 percent or more of the voting shares of CFHC or
Stockton (the transactions referred to in subparagraph (x), (y) and (z) are
referred to as an "Acquisition Transaction"); (ii) any person or group of
persons (other than TI or any of its subsidiaries) acquires the beneficial
ownership or the right to acquire beneficial ownership of securities
representing 15 percent or more of the voting shares of CFHC or Stockton (the
term "beneficial ownership" for purposes of this Agreement shall have the
meaning set forth in Section 13(d) of the Securities
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Exchange Act of 1934, as amended (the "Exchange Act"), and the regulations
promulgated thereunder); (iii) the shareholders of CFHC fail to approve the
business combination between CFHC and TI contemplated by the Merger Agreement at
any meeting of such shareholders which has been held for that purpose or any
adjournment or postponement thereof, the failure of such a shareholder meeting
to occur prior to termination of the Merger Agreement, or the withdrawal or
modification (in a manner adverse to TI) of the recommendation of CFHC's Board
of Directors of the Holding Company Merger and Merger Agreement that the
shareholders of CFHC approve the Holding Company Merger and the Merger
Agreement, in each case, after there shall have been a public announcement that
any person (other than TI or any of its subsidiaries), shall have (A) made, or
publicly disclosed an intention to make, a proposal to engage in an Acquisition
Transaction, (B) commenced a tender offer, as defined herein, or filed a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to an exchange offer, as defined herein, or (C)
filed an application (or given a notice), whether in draft or final form, with
the Office of Thrift Supervision or other federal or state bank regulatory
authority, which application or notice has been accepted for processing, for
approval to engage in an Acquisition Transaction; (iv) any person (other than TI
or other than in connection with a transaction which TI has given its prior
written consent), shall have filed an application or notice with the Office of
Thrift Supervision or other federal or state bank regulatory authority, which
application or notice has been accepted for processing, for approval to engage
in an Acquisition Transaction, exchange offer or tender offer; (v) CFHC or
Stockton shall have willfully breached any covenant or obligation contained in
the Merger Agreement in anticipation of engaging in a Purchase Event, and
following such breach TI would be entitled to terminate the Merger Agreement
(whether immediately or after the giving of notice or passage of time or both);
or (vi) a public announcement by CFHC or Stockton of the authorization,
recommendation or endorsement by CFHC of an Acquisition Transaction, exchange
offer or tender offer or a public announcement by CFHC of an intention to
authorize, recommend or announce an Acquisition Transaction, exchange offer or
tender offer. If a Purchase Event has occurred, the Option shall continue to be
exercisable until its termination in accordance with Section 2(a) hereof. CFHC
shall notify TI promptly in writing upon learning of the occurrence of a
Purchase Event, it being understood that the giving of such notice by CFHC shall
not be a condition to the right of TI to transfer or exercise the Option. As
used in this Agreement, "person" shall have the same meaning set forth in the
Merger Agreement. As used in this paragraph "exchange offer" or "tender offer"
shall mean the filing of a registration statement under the Securities Act with
respect to, a tender offer or exchange offer, respectively, to purchase shares
of CFHC Stock such that, upon consummation of such offer, such person would own
or control 10 percent or more of the then-outstanding shares of CFHC Stock.
(c) In the event a Purchase Event occurs, TI may elect to exercise the
Option. If TI wishes to exercise the Option, it shall send to CFHC a written
notice (the date of which shall be referred to herein as the "Notice Date")
which specifies (i) the total number of Option Shares to be purchased, and (ii)
a place and date not earlier than two business days nor later than ten business
days from the Notice Date for the closing (the "Closing") of such purchase (the
"Closing Date"); provided, however, that if prior notification to or approval of
the Office of Thrift Supervision or any other regulatory agency is required in
connection with such purchase, the Holder, as defined below, shall promptly file
the required notice or application for approval, shall promptly notify CFHC of
such filing, and shall expeditiously process the same and the period of time
that otherwise would run pursuant to this sentence shall run instead from the
date on which any required notification periods have expired or been terminated
or such approvals have been obtained and any requisite waiting period or periods
shall have passed. Any exercise of the Option shall be deemed to occur on the
Notice Date relating thereto.
3. Payment and Delivery of Certificates; TI Representation.
(a) If TI elects to exercise the Option, then at the Closing, TI shall pay
to CFHC the aggregate purchase price for the Option Shares purchased pursuant to
the exercise of the Option in immediately available funds by a wire transfer to
a bank designated by CFHC.
(b) At such Closing, simultaneously with the delivery of the purchase price
for the Option Shares as provided in Paragraph (a) hereof, CFHC shall deliver to
TI a certificate or certificates, registered in the name
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of TI or its designee, representing the number of Option Shares purchased by TI.
Such certificates may be endorsed with a legend which shall read as follows:
THE SALE OF THE SHARES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ARE
ACCORDINGLY SUBJECT TO RESALE RESTRICTIONS ARISING UNDER THE ACT. THE TRANSFER
OF SUCH SHARES IS SUBJECT TO CERTAIN PROVISIONS OF AN AGREEMENT BETWEEN THE
REGISTERED HOLDER HEREOF AND THE ISSUER, A COPY OF WHICH AGREEMENT IS ON FILE AT
THE PRINCIPAL OFFICE OF THE ISSUER. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO
THE HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A REQUEST
THEREFOR.
Any such legend shall be removed by delivery of a substitute certificate without
such legend if TI shall have delivered to CFHC an opinion of counsel, in form
and substance satisfactory to CFHC, that such legend is not required for
purposes of assuring compliance with applicable securities or other law or with
this Agreement.
(c) Except as otherwise provided herein, TI hereby represents and warrants
to CFHC that the Option is being, and any Option Shares issued upon exercise of
the Option will be, acquired by TI for its own account and not with a view to
any distribution thereof, and TI will not sell any Option Shares purchased
pursuant to exercise of the Option except in compliance with applicable
securities and other laws.
4. Representations. CFHC hereby represents and warrants to TI as follows:
(a) CFHC has all requisite corporate power and authority to enter into and
perform all of its obligations under this Agreement. The execution, delivery and
performance of this Agreement and all of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of CFHC.
This Agreement has been duly executed and delivered by CFHC and constitutes a
valid and binding agreement of CFHC, enforceable against CFHC in accordance with
its terms, except as the enforceability hereof may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting the rights of creditors
generally or by equitable principles, whether such enforcement is sought in law
or equity.
(b) The execution and delivery by CFHC of this Agreement and the
consummation of the transactions herein contemplated do not and will not violate
or conflict with CFHC's Certificate of Incorporation or Bylaws, any statute,
regulation, judgment, order, writ, decree or injunction applicable to CFHC
(other than as may be effected by TI's ownership of CFHC Common Stock exceeding
certain limits set forth by statute or regulation) or its properties or assets
and do not and will not violate, conflict with, result in a breach of,
constitute a default (or an event which with due notice and/or lapse of time
would constitute a default) under, result in a termination of, accelerate the
performance required by, or result in the creation of any lien, pledge, security
interest, charge or other encumbrance upon any of the properties or assets of
CFHC under the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, or loan agreement or other agreement, instrument or
obligation to which CFHC is a party, or by which CFHC or any of its properties
or assets may be bound or affected.
(c) CFHC has taken all necessary corporate action to authorize and reserve
and to permit it to issue, and at all times from the date hereof through the
termination of this Agreement in accordance with its terms, will have reserved
for issuance upon the exercise of the Option a number of shares of Common Stock
sufficient to satisfy the exercise of the Option in full, all of which Common
Stock, upon issuance pursuant hereto, shall be duly authorized, validly issued,
fully paid and nonassessable, and shall be delivered free and clear of all
claims, liens, encumbrances, security interests and preemptive rights.
5. Adjustment Upon Changes in Capitalization.
(a) In the event of any dividend, stock split, split-up, recapitalization,
reclassification, combination, exchange of shares or similar transaction or
event with respect to Common Stock, the type and number of shares or securities
subject to the Option and the Exercise Price therefor, shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction so that TI shall receive, upon exercise of the Option, the
number and class of shares or other securities or property that TI would have
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received in respect of Common Stock if the Option had been exercised immediately
prior to such event, or the record date thereof, as applicable. If any shares of
Common Stock are issued after the date of this Agreement (other than pursuant to
an event described in the first sentence of this Section 5(a)), the number of
shares of Common Stock subject to the Option shall be adjusted so that, after
such issuance, it, together with any shares of Common Stock previously issued to
TI pursuant hereto, equals 19.9 percent of the number of shares of Common Stock
then issued and outstanding, without giving effect to any shares subject to or
issued pursuant to this Option.
(b) In the event that CFHC, shall, prior to the Expiration Date, enter in
an agreement: (i) to consolidate with or merge into any person, other than TI or
one of its subsidiaries, and shall not be the continuing or surviving
corporation of such consolidation or merger, (ii) to permit any person, other
than TI or one of its subsidiaries, to merge into CFHC and CFHC shall be the
continuing or surviving corporation, but, in connection with such merger, the
then outstanding shares of Common Stock shall be changed into or exchanged for
stock or other securities of CFHC or any other person or cash or any other
property or the outstanding shares of Common Stock immediately prior to such
merger shall after such merger represent less than 50 percent of the outstanding
shares and share equivalents of the merged company; or (iii) to sell or
otherwise transfer all or substantially all of its assets to any person, other
than TI or one of its subsidiaries, then, and in each such case, the agreement
governing such transaction shall make proper provisions so that the Option
shall, upon the consummation of any such transaction and upon the terms and
conditions set forth herein, be converted into, or exchanged for, an option (the
"Substitute Option"), at the election of TI, of either (x) the Succeeding
Corporation (as defined below), (y) any person that controls the Succeeding
Corporation, or (z) in the case of a merger described in clause (ii), CFHC (in
each case, such person being referred to as the "Substitute Option Issuer.")
(c) The Substitute Option shall have the same terms as the Option,
provided, that, if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to TI. The Substitute Option Issuer shall also enter
into an agreement with the then-holder or holders of the Substitute Option in
substantially the form as this Agreement, which shall be applicable to the
Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
the Substitute Common Stock (as hereinafter defined) as is equal to the Assigned
Value (as hereinafter defined) multiplied by the number of shares of Common
Stock for which the Option was theretofore exercisable, divided by the Average
Price (as hereinafter defined). The exercise price of the Substitute Option per
share of the Substitute Common Stock (the "Substitute Option Price") shall then
be equal to the Exercise Price multiplied by a fraction in which the numerator
is the number of shares of the Common Stock for which the Option was theretofore
exercisable and the denominator is the number of shares for which the Substitute
Option is exercisable.
(e) The following terms have the meanings indicated:
(i) "Succeeding Corporation" shall mean (x) the continuing or
surviving corporation of a consolidation or merger with CFHC (if other than
CFHC), (y) CFHC in a merger in which CFHC is the continuing or surviving
person, and (z) the transferee of all or any substantial part of CFHC
assets (or the assets of its subsidiaries).
(ii) "Substitute Common Stock" shall mean the common stock issued by
the Substitute Option Issuer upon exercise of the Substitute Option.
(iii) "Assigned Value" shall mean the highest of (x) the price per
share of Common Stock at which a tender offer or exchange offer therefor
has been made by any person (other than TI or its subsidiaries) (y) the
price per share of Common Stock to be paid by any person (other than TI or
any of its subsidiaries) pursuant to an agreement with CFHC, and (z) the
highest closing sales price per share of Common Stock as quoted on the
Nasdaq National Market (or if Common Stock is not quoted on the Nasdaq
National Market, the highest bid price per share on any day as quoted on
the principal trading market or securities exchange on which such shares
are traded as reported by a recognized source chosen
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by TI) within the six-month period immediately preceding the agreement
referred to in (y); provided, that in the event of a sale of less than all
of CFHC's assets, the Assigned Value shall be the sum of the price paid in
such sale for such assets and the current market value of the remaining
assets of CFHC as determined by a nationally recognized investment banking
firm selected by TI and reasonably acceptable to CFHC, divided by the
number of shares of Common Stock outstanding at the time of such sale. In
the event that an exchange offer is made for Common Stock or an agreement
is entered into for a merger or consolidation involving consideration other
than cash, the value of the securities or other property issuable or
deliverable in exchange for the Common Stock shall be determined by a
nationally recognized investment banking firm mutually selected by TI and
CFHC (or if applicable, the Succeeding Corporation), provided that if a
mutual selection cannot be made as to such investment banking firm, it
shall be selected by TI.
(iv) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of the Substitute Common Stock on the day
preceding such consolidation, merger or sale, provided that if CFHC is the
issuer of the Substitute Option, the Average Price shall be computed with
respect to a share of common stock issued by CFHC, the person merging into
CFHC or by any company which controls or is controlled by such merging
person, as TI may elect.
(f) In no event pursuant to any of foregoing paragraphs shall the
Substitute Option be exercisable for more than 19.9 percent of the aggregate of
the shares of the Substitute Common Stock outstanding immediately prior to
exercise of the Substitute Option. In the event that the Substitute Option would
be exercisable for more than 19.9 percent of the aggregate of the shares of
Substitute Common Stock but for his clause (f), the Substitute Option Issuer
shall make a cash payment to TI equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (f)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (f). This difference in value shall be determined by a
nationally recognized investment banking firm selected by TI and the Substitute
Option Issuer.
(g) CFHC shall not enter into any transaction described in subsection (b)
of this Section 5 unless the Succeeding Corporation and any person that controls
the Succeeding Corporation assume in writing all the obligations of CFHC
hereunder and take all other actions that may be necessary so that the
provisions of this Section 5 are given full force and effect (including, without
limitation, any action that may be necessary so that the shares of Substitute
Common Stock are in no way distinguishable from or have lesser economic value
than other shares of common stock issued by the Substitute Option Issuer).
6. Purchase of Option Shares and Options by CFHC.
(a) From and after the first date a transaction specified in Section 5(b)
herein is consummated (the "Repurchase Event"), and subject to applicable
regulatory restrictions, TI or a holder or former holder of any Options (a
"Holder") who has exercised the Options in whole or in part shall have the right
to require CFHC to purchase some or all of the Option Shares at a purchase price
per share (the "Purchase Price") equal to the highest of (i) 100 percent of the
Exercise Price, (ii) the highest price paid or agreed to be paid for shares of
Common Stock by an Acquiring Person (as defined in Paragraph (b) of this
Section) in any tender offer, exchange offer or other transaction or series of
related transactions involving the acquisition of 10 percent or more of the
outstanding shares of Common Stock during the one-year period immediately
preceding the Purchase Date (as defined in Paragraph (d) of this Section) and
(iii) in the event of a sale of all or substantially all of CFHC's assets, (x)
the sum of the price paid in such sale for such assets and the current market
value of the remaining assets of CFHC as determined by a recognized investment
banking firm jointly selected by such Holder and CFHC, each acting in good
faith, divided by (y) the number of shares of Common Stock then outstanding,
provided, however, that the amount calculated pursuant to clauses (ii) and (iii)
of this Section 6(a) shall not exceed $10,100,000. In the event that any of the
consideration paid or agreed to be paid by an Acquiring Person for any shares of
Common Stock or for any of CFHC's assets consists in whole or in part of
securities, the value of such securities for purposes of determining the
Purchase
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Price shall be determined (i) if there is an existing public trading market
therefor, by the average of the last sales prices for such securities on the ten
trading days ending three trading days prior to the payment of such
consideration (if such consideration has been paid) or prior to the date of
determination (if such consideration has not yet been paid) and (ii) if there is
no existing public trading market for such securities, by a recognized
investment banking firm jointly selected by the Holder and CFHC, each acting in
good faith. The Holder's right to require CFHC to purchase some or all of the
Option Shares under this Section shall expire on the day which is one year
following the Repurchase Event; provided, that if CFHC is prohibited under
applicable regulations from purchasing Common Stock as to which a Holder has
given notice hereunder, then the Holder's right to require CFHC to purchase such
shares shall expire on the date which is one year following the date on which
CFHC no longer is prohibited from purchasing such shares: provided further, that
CFHC shall use its best efforts to obtain any consent or approval and make any
filing required for CFHC to consummate as quickly as possible the purchase of
the Common Stock contemplated hereunder.
(b) For purposes of this Agreement, "Acquiring Person" shall mean a person
or group (as such terms are defined in the Exchange Act and the rules and
regulations thereunder) other than TI or a subsidiary of TI who on or after the
date of this Agreement engages in a transaction which gives rise to a Purchase
Event.
(c) Subject to applicable regulatory restrictions, from and after a
Repurchase Event or after TI receives official notice that an approval of the
Office of Thrift Supervision, or any other regulatory authority, required for
the exercise of the Option and purchase of the Option Shares will not be issued
or granted, a Holder shall have the right to require CFHC to purchase some or
all of the Options held by such Holder at a price equal to the Purchase Price
minus the Exercise Price on the Purchase Date (as defined in Paragraph (d) of
this Section) multiplied by the number of shares of Common Stock that may be
purchased on the Purchase Date upon the exercise of the Options elected to be
purchased, provided, however, that the amount calculated pursuant to this
Section 6(c) shall not exceed $10,100,000. Notwithstanding the termination date
of the Options, the Holder's right to require CFHC to purchase some or all of
the Options under this Section shall expire on the day which is one year
following the Repurchase Event; provided, that if CFHC is prohibited under
applicable regulations from purchasing the Options as to which an Holder has
given notice hereunder, then the Holder's right to require CFHC to purchase such
Options shall expire on the day which is one year following the date on which
CFHC no longer is prohibited from purchasing such Options; provided further,
that CFHC shall use its best efforts to obtain any consent or approval and make
any filing required for CFHC to consummate as quickly as possible the purchase
of the Options contemplated hereunder.
(d) A Holder may exercise its right to require CFHC to purchase the Common
Stock or Options (collectively, "Securities") pursuant to this Section by
surrendering for such purpose to CFHC, at its principal office or at such other
office or agency maintained by CFHC for that purpose, within the period
specified above, the certificates or other instruments representing the
Securities to be purchased accompanied by a written notice stating that it
elects to require CFHC to purchase all or a specified number of such Securities.
Within five business days after the surrender of such certificates or
instruments and the receipt of such notice relating thereto, to the extent it is
legally permitted to do so, CFHC shall deliver or cause to be delivered to the
Securities Holder (i) a bank cashier's or certified check payable to the
Securities Holder in an amount equal to the applicable purchase price therefor,
and (ii) if less than the full number of Securities evidenced by the surrendered
instruments are being purchased, a new certificate or instrument, for the number
of Securities evidenced by such surrendered certificates or other instruments
less the number of Securities purchased. Such purchases shall be deemed to have
been made at the close of business on the date (the "Purchase Date") of the
receipt of such notice and of such surrender of the certificates or other
instruments representing the Securities to be purchased and the rights of the
Securities Holder, except for the right to receive the applicable purchase price
therefor in accordance herewith, shall cease on the Purchase Date.
7. Demand Registration Rights. As promptly as practicable upon TI's request
after a Purchase Event, CFHC agrees to prepare and file not more than three
registration statements or prospectuses ("Registration Event") as appropriate,
under federal and any applicable state securities laws, with respect to any
proposed sale of any warrants, options or other securities representing any of
TI's rights under this Agreement or proposed dispositions by TI of any or all of
the Option Shares, if such registrations or filings are required by law or
regulation, and to use its best efforts to cause any such registration
statements or offering circulars to
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become effective as expeditiously as possible and to keep such registration
effective for a period of not less than 180 days unless, in the written opinion
of counsel to CFHC, addressed to TI and satisfactory in form and substance to TI
and its counsel, registration (or filing of a prospectus or offering circular)
is not required for such proposed transactions. All fees, expenses and charges
of any kind or nature whatsoever incurred in connection with any registration
of, or the preparation of any prospectus relating to, the Options or the Option
Shares pursuant to this Section 7 shall be borne and paid by CFHC. In the event
TI exercises its registration rights under this Section 7, CFHC shall provide
TI, its affiliates, each of their respective officers and directors and any
underwriters used by TI, with indemnifications, representations and warranties
and shall cause its attorneys and accountants to deliver to TI and any such
underwriters attorneys' opinions and "comfort letters", all of a type
customarily provided or delivered in connection with public underwritten
offerings of securities. In the event CFHC effects a registration of Common
Stock for its own account or for any other shareholder of CFHC, it shall allow
TI to participate in such registration. Notwithstanding the foregoing, CFHC
shall have the right to delay (a "Delay Right") a Registration Event for a
period of up to thirty (30) days, in the event it receives a request from TI to
effect a Registration Event, if CFHC (i) is involved in a material transaction,
or (ii) determines, in the good faith exercise of its reasonable business
judgment, that such registration and offering could adversely effect or
interfere with bona fide material financing plans of CFHC or would require
disclosure of information, the premature disclosure of which could materially
adversely affect CFHC or any transaction under active consideration by CFHC. For
purposes of this Agreement, the term "material transaction" shall mean a
transaction which would require CFHC to file a current report on Form 8-K with
the Securities Exchange Commission. CFHC shall have the right to exercise two
Delay Rights in any eighteen (18) month period.
8. Listing
If Common Stock or any other securities to be acquired upon exercise of the
Option are then authorized for quotation or trading or listing on the Nasdaq
National Market or any other securities exchange or automated quotation system,
CFHC, or any successor thereto, upon the request of the holder of the Option,
will promptly file an application, if required, to authorize for listing or
trading or quotation the shares of Common Stock or other securities to be
acquired upon exercise of the Option on the Nasdaq National Market or any other
securities exchange or automated quotation system and will use its best efforts
to obtain approval, if required, of such listing or quotation as soon as
possible.
9. Total Profit
Notwithstanding any other provision of this Agreement to the contrary, in
no event shall TI purchase under the terms of this Agreement that number of
Option Shares which have a Spread Value, as defined below, in excess of
$10,100,000. In the event the Spread Value exceeds $10,100,000, the number of
Option Shares which TI is entitled to purchase at the Closing Date shall be
reduced to the extent required such that the Spread Value following such
reduction is equal to or less than $10,100,000. "Spread Value" shall mean the
difference between (i) the product of (1) the sum of the total number of Option
Shares TI (x) intends to purchase at a Closing pursuant to the exercise of the
Option and (y) previously purchased pursuant to the prior exercise of the
Option, and (2) the closing price of CFHC Common Stock as quoted on the Nasdaq
National Market on the last trading day immediately preceding the Closing Date,
and (ii) the product of (1) the total number of Option Shares TI (x) intends to
purchase at the Closing Date pursuant to the exercise of the Option and (y)
previously purchased pursuant to the prior exercise of the Option and (2) the
applicable Option Price of such Option Shares.
10. Miscellaneous.
(a) Expenses. Each of the parties hereto shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
(b) Entire Agreement. Except as otherwise expressly provided herein, this
Agreement contains the entire agreement between the parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. The terms and conditions
of this
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Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and assigns. Nothing in this Agreement,
expressed or implied, is intended to confer upon any party, other than the
parties hereto, and their respective successors and assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided herein.
(c) Assignment. At any time after a Purchase Event occurs, TI may sell,
assign or otherwise transfer its rights and obligations hereunder, in whole or
in part, by issuing Options or otherwise, to any person or group of persons,
subject to applicable law, rule or regulation. In order to effectuate the
foregoing, TI (or any direct or indirect assignee or transferee of TI) shall be
entitled to surrender this Agreement to CFHC in exchange for two or more
Agreements entitling the holders thereof to purchase in the aggregate the same
number of shares of Common Stock as may be purchasable hereunder.
(d) Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or by confirmed facsimile transmission or sent by registered or certified mail
or overnight courier, postage prepaid, with return receipt requested, addressed
as follows:
If to TI:
Temple-Inland Inc.
303 South Temple Drive
Diboll, Texas 75941
Facsimile Number: (409) 829-3333
Attention: M. Richard Warner, Esq.
(with a copy to:
Manatt, Phelps & Phillips, LLP
11355 West Olympic Boulevard
Los Angeles, California 90064
Attention: Thomas D. Phelps, Esq.
Facsimile Number: (310) 312-4224
If to CFHC:
California Financial Holding Company
501 W. Weber Avenue
Stockton, California 95203-3169
Attention: Robert V. Kavanaugh
Facsimile Number: (209) 547-7771
(with a copy to:
Kirkpatrick & Lockhart, LLP
Attention: Henry L. Judy, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
Facsimile Number: (202) 778-9100
A party may change its address for notice purposes by written notice to the
other party hereto.
(e) Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(f) Specific Performance. The parties hereto agree that irreparable harm
would occur in the event that any of the provisions of this Agreement were not
performed by them in accordance with their specific terms or conditions or were
otherwise breached and that money damages are an inadequate remedy for breach of
this Agreement because of the difficulty of ascertaining the amount of damage
that will be suffered by the parties in the event that this Agreement is not
performed in accordance with its terms or conditions or otherwise
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breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement by the parties
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which it is entitled at law or in equity.
(g) Governing Law. This Agreement shall be governed by, and interpreted in
accordance with, the laws of the State of Delaware without regard to the
conflict of law principles thereof. The parties hereby irrevocably submit to the
jurisdiction of the courts of the State of Delaware and the federal courts of
the United States of America located in the State of Delaware solely in respect
of the interpretation and enforcement of the provisions of this Agreement and of
the documents referred to in this Agreement, and in respect of the transactions
contemplated herein and therein, and hereby waive, and agree not to assert, as a
defense in any action, suit or proceeding for the interpretation or enforcement
hereof or of any such document, that it is not subject thereto or that such
action, suit or proceeding may not be brought or is not maintainable in said
courts or that the venue thereof may not be appropriate or that this Agreement
or any such document may not be enforced in or by such courts, and the parties
hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such Delaware state or federal
court. The parties hereby consent to and grant any such court jurisdiction over
the person of such parties and over the subject matter of such dispute and agree
that mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 10 or in such other manner as may
be permitted by law, shall be valid and sufficient service thereof.
(h) Best Efforts. Each of TI and CFHC will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation applying to the Office of Thrift
Supervision for approval to acquire the shares issuable hereunder.
(i) Descriptive Headings. The descriptive headings herein are inserted for
convenience of reference and are not intended to be part of or to affect the
meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement,
as of the day and year first written above.
TEMPLE-INLAND INC.
By:
----------------------------------
Chairman of the Board and
Chief Executive Officer
CALIFORNIA FINANCIAL HOLDING COMPANY
By:
----------------------------------
Chairman of the Board and
Chief Executive Officer
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to limit the personal liability of its directors in certain cases.
Article Eleventh of Temple-Inland's Certificate of Incorporation provides that
no director of Temple-Inland shall be personally liable to Temple-Inland or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of such director's duty of loyalty to
Temple-Inland or its stockholders, (ii) for any acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which such director derived an improper personal benefit.
Section 145 of the Delaware General Corporation Law permits indemnification
in cases where a director or officer has been successful in defending any claim
or proceeding and permits indemnification, even if a director or officer has not
been successful, in cases where the director or officer acted in good faith and
in a manner that he reasonably believed was in, or not opposed to, the best
interest of the corporation. To be indemnified with respect to criminal
proceedings, the director or officer must also have had no reasonable cause to
believe that his conduct was unlawful. In the case of a claim by a third party
(that is, a party other than the corporation), the Delaware General Corporation
Law permits indemnification for judgments, fines and amounts paid in settlement,
as well as expenses. In the case of a claim by or in the right of the
corporation (including stockholder derivative suits), indemnification under the
Delaware General Corporation Law is limited to expenses, but does not cover
judgments or amounts paid in settlement, and no indemnification of expenses is
permitted if the director or officer is adjudged liable to the corporation,
unless a court determines that, despite such adjudication but in view of all the
circumstances, such indemnification is nonetheless proper. The Delaware General
Corporation Law also permits the advancement of expenses to directors and
officers upon receipt by the corporation of an undertaking to repay all amounts
so advanced if it is ultimately determined that the director or officer has not
met the applicable standard of conduct and is, therefore, not entitled to be
indemnified.
Article VI of Temple-Inland's By-Laws generally provides that, subject to
certain limitations, each person who was or is made a party or is threatened to
be made a party to or is involved in any threatened, pending or completed legal
action, suit or proceeding whether civil, criminal, administrative or
investigative by reason of the fact that he is or was a director, officer or
employee of Temple-Inland or is or was a director, officer or employee of
Temple-Inland or a direct or indirect wholly owned subsidiary of Temple-Inland
(except Guaranty Federal Bank, F.S.B.) or is or was serving at the request of
the corporation as a director, officer, employee or agent of any such subsidiary
or another company, savings and loan association, partnership, joint venture,
trust, employee benefit plan or other enterprise, shall be indemnified and held
harmless by the corporation, to the full extent authorized by the Delaware
General Corporation Law, against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection therewith, provided that such person acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of Temple-Inland (and with respect to a criminal action, had no
reason to believe his conduct was unlawful) except that with respect to actions
brought by or in the right of Temple-Inland, no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudicated to be liable to Temple-Inland, unless and only to the extent that
the applicable court determines, upon application, that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses. Such
indemnification shall continue as to a person who has ceased to be director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators. Article VI provides that Temple-Inland may pay the
expenses incurred in defending any such proceeding in advance of its final
disposition upon delivery to Temple-Inland of an undertaking, by or on behalf of
such
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director, officer, employee or agent to repay such amounts so advanced if it
shall ultimately be determined that such person is not entitled to be
indemnified under Article VI.
Both the Delaware General Corporation Law and Article VI of Temple-Inland's
By-laws specifically state that their indemnification provisions shall not be
deemed exclusive of any other indemnity rights a director may have.
Temple-Inland has entered into indemnification agreements with each of its
directors that are intended to assure the directors that they will be
indemnified to the fullest extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law permits a corporation
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such. Under an insurance policy maintained by Temple-Inland,
Temple-Inland is insured for certain amounts that it may be obligated to pay
directors and officers by way of indemnity, and each such director and officer
is insured against certain losses that he may incur by reason of his being a
director or officer and for which he is not indemnified by Temple-Inland.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers or persons controlling Temple-Inland pursuant to the foregoing
provisions, Temple-Inland has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.01 -- Agreement and Plan of Merger (Incorporated by reference
to Appendix A to the Prospectus-Proxy Statement included
in this Registration Statement.)
2.02 -- Stock Option Agreement (Incorporated by reference to
Appendix E to the Prospectus-Proxy Statement included in
this Registration Statement.)
3.01 -- Certificate of Incorporation of the Company(1), as
amended effective May 4, 1987(2), as amended effective
May 4, 1990(3)
3.02 -- Amended and Restated Bylaws of Temple-Inland(4)
4.01 -- Form of Specimen Common Stock Certificate of the
Company(5)
4.02 -- Indenture dated as of September 1, 1986, between the
Registrant and Chemical Bank, as Trustee(6), as amended
by First Supplemental Indenture dated as of April 15,
1988, as amended by Second Supplemental Indenture dated
as of December 27, 1990(7), and as amended by Third
Supplemental Indenture dated as of May 9, 1991(8)
4.03 -- Form of Specimen Medium-Term Note of the Company(6)
4.04 -- Form of Fixed-rate Medium Term Note, Series B, of the
Company(7)
4.05 -- Form of Floating-rate Medium Term Note, Series B, of the
Company(7)
4.06 -- Form of 9% Note due May 1, 2001, of the Company(9)
4.07 -- Form of Fixed-rate Medium Term Note, Series D, of the
Company(10)
4.08 -- Form of Floating-rate Medium Term Note, Series D, of the
Company (10)
4.09 -- Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock, dated
February 16, 1989(11)
4.10 -- Rights Agreement, dated February 3, 1989, between the
Company and NCNB Texas National Bank, Dallas, Texas, as
Rights Agent(12)
4.11 -- Form of 7.25% Note due September 15, 2004, of the
Company(13)
4.12 -- Form of 8.25% Debenture due September 15, 2022, of the
Company(13)
5.01 -- Opinion of Manatt, Phelps & Phillips, LLP(14)
8.01 -- Tax opinion of Manatt, Phelps & Phillips, LLP
(Incorporated by reference to Appendix D to the
Prospectus-Proxy Statement included in this Registration
Statement)
23.01 -- Consent of Ernst & Young LLP(14)
</TABLE>
II-2
<PAGE> 170
<TABLE>
<C> <S>
23.02 -- Consent of KPMG Peat Marwick LLP(14)
23.03 -- Consent of Manatt, Phelps & Phillips, LLP (contained in Exhibits 5.01 and 8.01)(14)
24.01 -- Powers of Attorney(14)
99.1 -- Form of Proxy Card(14)
</TABLE>
- ---------------
(1) Incorporated by reference to Registration Statement No. 2-87570 on Form S-1
filed by the Company with the Commission.
(2) Incorporated by reference to Post-effective Amendment No. 2 to Registration
Statement No. 2-88202 on Form S-1 filed by the Company with the Commission.
(3) Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement No. 33-25650 on Form S-8 filed by the Company with the
Commission.
(4) Incorporated by reference to the Company's Form 10-K for the year ended
January 2, 1993.
(5) Incorporated by reference to Registration Statement No. 33-27286 on Form
S-8 filed by the Company with the Commission.
(6) Incorporated by reference to Registration Statement No. 33-8362 on Form S-1
filed by the Company with the Commission.
(7) Incorporated by reference to the Company's Form 8-K filed with the
Commission on December 27, 1990.
(8) Incorporated by reference to Registration Statement No. 33-40003 on Form
S-3 filed by the Company with the Commission.
(9) Incorporated by reference to the Company's Form 8-K filed with the
Commission on May 2, 1991.
(10) Incorporated by reference to Registration Statement No. 33-43978 on Form
S-3 filed by the Company with the Commission.
(11) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1988.
(12) Incorporated by reference to the Company's Form 8-K filed with the
Commission on February 16, 1989.
(13) Incorporated by reference to Registration Statement No. 33-50880 on Form
S-3 filed by the Company with the Commission.
(14) Filed herewith.
ITEM 22. UNDERTAKINGS
(a)(1) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (as amended and the
rules and regulations thereunder, the "Securities Act"), each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (as amended and the rules and regulations
thereunder, the "Exchange Act") (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
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.
(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)
promulgated pursuant to the Securities 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-3
<PAGE> 171
(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 Securities Act and is used in
connection with an offering of securities subject to Rule 415 promulgated
pursuant to the Securities 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 Securities 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 Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions of this Item 22, or otherwise
(other than insurance), 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 Securities 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
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned registrant 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, 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.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or 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 Securities 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. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and (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.
(2) That, for the purpose of determining any liability under the
Securities 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.
(3) 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> 172
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned thereunto authorized, in the City of Diboll, State of
Texas, on March 17, 1997.
TEMPLE-INLAND INC.
(Registrant)
By: /s/ CLIFFORD J. GRUM
-----------------------------------
Clifford J. Grum,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ CLIFFORD J. GRUM Director, Chairman of the Board, March 17, 1997
- ----------------------------------------------------- and Chief Executive Officer
Clifford J. Grum
/s/ KENNETH M. JASTROW, II* Group Vice President and Chief March 17, 1997
- ----------------------------------------------------- Financial Officer
Kenneth M. Jastrow, II
/s/ DAVID H. DOLBEN Vice President and Chief March 17, 1997
- ----------------------------------------------------- Accounting Officer
David H. Dolben
/s/ PAUL M. ANDERSON* Director March 17, 1997
- -----------------------------------------------------
Paul M. Anderson
/s/ ROBERT CIZIK* Director March 17, 1997
- -----------------------------------------------------
Robert Cizik
/s/ ANTHONY M. FRANK* Director March 17, 1997
- -----------------------------------------------------
Anthony M. Frank
/s/ WILLIAM B. HOWES* Director March 17, 1997
- -----------------------------------------------------
William B. Howes
/s/ BOBBY R. INMAN* Director March 17, 1997
- -----------------------------------------------------
Bobby R. Inman
/s/ HERBERT A. SKLENAR* Director March 17, 1997
- -----------------------------------------------------
Herbert A. Sklenar
/s/ WALTER P. STERN* Director March 17, 1997
- -----------------------------------------------------
Walter P. Stern
/s/ ARTHUR TEMPLE III* Director March 17, 1997
- -----------------------------------------------------
Arthur Temple III
/s/ CHARLOTTE TEMPLE* Director March 17, 1997
- -----------------------------------------------------
Charlotte Temple
/s/ LARRY E. TEMPLE* Director March 17, 1997
- -----------------------------------------------------
Larry E. Temple
By: /s/ M. RICHARD WARNER
-------------------------------------------------
M. Richard Warner,
Attorney-in-fact
</TABLE>
II-5
<PAGE> 173
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.01 -- Agreement and Plan of Merger (Incorporated by reference
to Appendix A to the Prospectus-Proxy Statement included
in this Registration Statement.)
2.02 -- Stock Option Agreement (Incorporated by reference to
Appendix E to the Prospectus-Proxy Statement included in
this Registration Statement.)
3.01 -- Certificate of Incorporation of the Company(1), as
amended effective May 4, 1987(2), as amended effective
May 4, 1990(3)
3.02 -- Amended and Restated Bylaws of Temple-Inland(4)
4.01 -- Form of Specimen Common Stock Certificate of the
Company(5)
4.02 -- Indenture dated as of September 1, 1986, between the
Registrant and Chemical Bank, as Trustee(6), as amended
by First Supplemental Indenture dated as of April 15,
1988, as amended by Second Supplemental Indenture dated
as of December 27, 1990(7), and as amended by Third
Supplemental Indenture dated as of May 9, 1991(8)
4.03 -- Form of Specimen Medium-Term Note of the Company(6)
4.04 -- Form of Fixed-rate Medium Term Note, Series B, of the
Company(7)
4.05 -- Form of Floating-rate Medium Term Note, Series B, of the
Company(7)
4.06 -- Form of 9% Note due May 1, 2001, of the Company(9)
4.07 -- Form of Fixed-rate Medium Term Note, Series D, of the
Company(10)
4.08 -- Form of Floating-rate Medium Term Note, Series D, of the
Company (10)
4.09 -- Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock, dated
February 16, 1989(11)
4.10 -- Rights Agreement, dated February 3, 1989, between the
Company and NCNB Texas National Bank, Dallas, Texas, as
Rights Agent(12)
4.11 -- Form of 7.25% Note due September 15, 2004, of the
Company(13)
4.12 -- Form of 8.25% Debenture due September 15, 2022, of the
Company(13)
5.01 -- Opinion of Manatt, Phelps & Phillips, LLP(14)
8.01 -- Tax opinion of Manatt, Phelps & Phillips, LLP
(Incorporated by reference to Appendix D to the
Prospectus-Proxy Statement included in this Registration
Statement)
23.01 -- Consent of Ernst & Young LLP(14)
23.02 -- Consent of KPMG Peat Marwick LLP(14)
23.03 -- Consent of Manatt, Phelps & Phillips, LLP (contained in
Exhibits 5.01 and 8.01)(14)
24.01 -- Powers of Attorney(14)
99.1 -- Form of Proxy Card(14)
</TABLE>
- ---------------
(1) Incorporated by reference to Registration Statement No. 2-87570 on Form S-1
filed by the Company with the Commission.
(2) Incorporated by reference to Post-effective Amendment No. 2 to Registration
Statement No. 2-88202 on Form S-1 filed by the Company with the Commission.
(3) Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement No. 33-25650 on Form S-8 filed by the Company with the
Commission.
(4) Incorporated by reference to the Company's Form 10-K for the year ended
January 2, 1993.
(5) Incorporated by reference to Registration Statement No. 33-27286 on Form
S-8 filed by the Company with the Commission.
(6) Incorporated by reference to Registration Statement No. 33-8362 on Form S-1
filed by the Company with the Commission.
<PAGE> 174
(7) Incorporated by reference to the Company's Form 8-K filed with the
Commission on December 27, 1990.
(8) Incorporated by reference to Registration Statement No. 33-40003 on Form
S-3 filed by the Company with the Commission.
(9) Incorporated by reference to the Company's Form 8-K filed with the
Commission on May 2, 1991.
(10) Incorporated by reference to Registration Statement No. 33-43978 on Form
S-3 filed by the Company with the Commission.
(11) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1988.
(12) Incorporated by reference to the Company's Form 8-K filed with the
Commission on February 16, 1989.
(13) Incorporated by reference to Registration Statement No. 33-50880 on Form
S-3 filed by the Company with the Commission.
(14) Filed herewith.
<PAGE> 1
EXHIBIT 5.01
[MANATT, PHELPS & PHILLIPS LETTERHEAD]
March 17, 1997
Board of Directors
Temple-Inland Inc.
303 South Temple Drive
Diboll, Texas 75941
RE: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We have acted as special counsel to Temple-Inland Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing of
the Company's Registration Statement on Form S-4, as amended, (Registration No.
333-21937) (the "Registration Statement"), under the Securities Act of 1933, as
amended, relating to the proposed offering of up to 2,000,000 shares of common
stock, par value $1.00 per share ("Common Stock"), of the Company in connection
with the Company's acquisition of California Financial Holding Company.
We have examined all instruments, documents and records which we deemed
relevant and necessary for the basis of our opinion hereinafter expressed. We
have also obtained from the officers of the Company such certificates as to such
factual matters as we consider necessary for the purpose of this opinion, and
insofar as this opinion is based on such matters of fact, we have relied on such
certificates. In our examination, we have assumed the genuineness of all
signatures and the authenticity of all documents submitted to us as originals
and the conformity to the originals of all documents submitted to us as copies.
Based upon the foregoing, and subject to the limitations, qualifications
and assumptions set forth herein, we are of the opinion that the shares of the
Company's Common Stock to be offered pursuant to the Registration Statement have
been duly authorized, and, when issued in the manner described in the
Registration Statement, will be validly issued, fully paid and nonassessable.
The opinion expressed herein is limited to the General Corporation Law of
the State of Delaware. We assume no obligations to supplement this letter if any
applicable laws change after the date hereof or if we become aware of any facts
that might change the opinions expressed herein after the date hereof. The
opinions expressed herein are solely for your benefit and may not be relied upon
in any manner or for any purpose by any other person and may not be quoted in
whole or in part without our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm and this opinion under
the heading "Validity of Shares" in the prospectus comprising a part of such
Registration Statement and any amendment thereto. In giving such consent, we do
not hereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ MANATT, PHELPS & PHILLIPS, LLP
----------------------------------------
Manatt, Phelps & Phillips, LLP
MANATT, PHELPS & PHILLIPS, LLP
11355 West Olympic Boulevard, Los Angeles, California 90064-1614 --
310-312-4000 -- FAX 310-312-4224
Los Angeles -- Washington, D.C. -- Nashville
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Temple-Inland Inc.
for the registration of 2,000,000 shares of its common stock and to the
incorporation by reference therein of our reports dated January 31, 1997, with
respect to the consolidated financial statements of Temple-Inland Inc.
incorporated by reference in its Annual Report (Form 10-K) for the year ended
December, 28, 1996 and the related financial statement schedule included
therein, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Houston, Texas
March 13, 1997
<PAGE> 1
EXHIBIT 23.02
KPMG Peat Marwick LLP
400 Capitol Mall Telephone 916-448-4700 Telefax 916-554-1199
Sacramento, CA 95814
The Board of Directors
California Financial Holding Company:
We consent to incorporation by reference in the registration statement (No.
333-21937) on Amendment No. 1 to Form S-4 of Temple-Inland Inc. of our report
dated February 21, 1997 relating to the consolidated statements of financial
condition of California Financial Holding Company (the Company) as of December
31, 1996 and 1995, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996 and we also consent to the reference to our Firm
under the heading of "Experts".
Our report dated February 21, 1997 refers to the adoption by the Company of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standard No. 122, Accounting for Mortgage Servicing Rights.
/s/ KPMG Peat Marwick LLP
March 17, 1997
<PAGE> 1
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her capacity
as an officer or director of TEMPLE-INLAND INC., a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Clifford J. Grum, David H.
Dolben and M. Richard Warner, and each of them severally, as his true and lawful
attorneys-in-fact and agents, with full power to act with or without the others
and with full power of substitution and resubstitution for and on behalf of him
and in his name, place and stead, in any and all capacities, to perform any and
all acts and do all things and to execute any and all instruments that said
attorneys-in-fact and agents and each of them may deem necessary or desirable to
enable the Corporation to comply with the Securities Act of 1933, as amended
(the "Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission (the "SEC") thereunder in connection with the filing of the
accompanying registration statement under the Act for the registration of shares
of the common stock, par value $1.00 per share (the "Common Stock"), of the
Corporation on Form S-4 or such other Form or Forms as are then appropriate for
the registration of the Common Stock of the Corporation including without
limiting the generality of the foregoing, power and authority to sign such
registration statement, and any and all amendments, including post-effective
amendments, supplements and exhibits thereto (collectively, the "Registration
Statement") to be filed with the SEC, and to sign any and all instruments or
documents to be filed as a part of or in connection with such Registration
Statement, whether such instruments or documents are filed before or after the
effective date of such Registration Statement, to file such Registration
Statement so signed, together with any and all instruments or documents to be
filed as a part of or in connection with such Registration Statement, with the
SEC, and to appear before the SEC in connection with any matter relating
thereto, hereby granting to such attorneys-in-fact and agents, and each of them,
full power to do and perform any and all acts and things requisite and necessary
to be done in connection therewith as the undersigned might or could do in
person, and hereby ratifying and confirming all that said attorneys-in-fact and
agents and each of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of February 7, 1997.
/s/ KENNETH M. JASTROW, II
------------------------------------
Kenneth M. Jastrow, II
<PAGE> 2
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her capacity
as an officer or director of TEMPLE-INLAND INC., a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Clifford J. Grum, David H.
Dolben and M. Richard Warner, and each of them severally, as his true and lawful
attorneys-in-fact and agents, with full power to act with or without the others
and with full power of substitution and resubstitution for and on behalf of him
and in his name, place and stead, in any and all capacities, to perform any and
all acts and do all things and to execute any and all instruments that said
attorneys-in-fact and agents and each of them may deem necessary or desirable to
enable the Corporation to comply with the Securities Act of 1933, as amended
(the "Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission (the "SEC") thereunder in connection with the filing of the
accompanying registration statement under the Act for the registration of shares
of the common stock, par value $1.00 per share (the "Common Stock"), of the
Corporation on Form S-4 or such other Form or Forms as are then appropriate for
the registration of the Common Stock of the Corporation including without
limiting the generality of the foregoing, power and authority to sign such
registration statement, and any and all amendments, including post-effective
amendments, supplements and exhibits thereto (collectively, the "Registration
Statement") to be filed with the SEC, and to sign any and all instruments or
documents to be filed as a part of or in connection with such Registration
Statement, whether such instruments or documents are filed before or after the
effective date of such Registration Statement, to file such Registration
Statement so signed, together with any and all instruments or documents to be
filed as a part of or in connection with such Registration Statement, with the
SEC, and to appear before the SEC in connection with any matter relating
thereto, hereby granting to such attorneys-in-fact and agents, and each of them,
full power to do and perform any and all acts and things requisite and necessary
to be done in connection therewith as the undersigned might or could do in
person, and hereby ratifying and confirming all that said attorneys-in-fact and
agents and each of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of February 7, 1997.
/s/ PAUL M. ANDERSON
------------------------------------
Paul M. Anderson
<PAGE> 3
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her capacity
as an officer or director of TEMPLE-INLAND INC., a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Clifford J. Grum, David H.
Dolben and M. Richard Warner, and each of them severally, as his true and lawful
attorneys-in-fact and agents, with full power to act with or without the others
and with full power of substitution and resubstitution for and on behalf of him
and in his name, place and stead, in any and all capacities, to perform any and
all acts and do all things and to execute any and all instruments that said
attorneys-in-fact and agents and each of them may deem necessary or desirable to
enable the Corporation to comply with the Securities Act of 1933, as amended
(the "Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission (the "SEC") thereunder in connection with the filing of the
accompanying registration statement under the Act for the registration of shares
of the common stock, par value $1.00 per share (the "Common Stock"), of the
Corporation on Form S-4 or such other Form or Forms as are then appropriate for
the registration of the Common Stock of the Corporation including without
limiting the generality of the foregoing, power and authority to sign such
registration statement, and any and all amendments, including post-effective
amendments, supplements and exhibits thereto (collectively, the "Registration
Statement") to be filed with the SEC, and to sign any and all instruments or
documents to be filed as a part of or in connection with such Registration
Statement, whether such instruments or documents are filed before or after the
effective date of such Registration Statement, to file such Registration
Statement so signed, together with any and all instruments or documents to be
filed as a part of or in connection with such Registration Statement, with the
SEC, and to appear before the SEC in connection with any matter relating
thereto, hereby granting to such attorneys-in-fact and agents, and each of them,
full power to do and perform any and all acts and things requisite and necessary
to be done in connection therewith as the undersigned might or could do in
person, and hereby ratifying and confirming all that said attorneys-in-fact and
agents and each of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of February 7, 1997.
/s/ ROBERT CIZIK
------------------------------------
Robert Cizik
<PAGE> 4
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her capacity
as an officer or director of TEMPLE-INLAND INC., a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Clifford J. Grum, David H.
Dolben and M. Richard Warner, and each of them severally, as his true and lawful
attorneys-in-fact and agents, with full power to act with or without the others
and with full power of substitution and resubstitution for and on behalf of him
and in his name, place and stead, in any and all capacities, to perform any and
all acts and do all things and to execute any and all instruments that said
attorneys-in-fact and agents and each of them may deem necessary or desirable to
enable the Corporation to comply with the Securities Act of 1933, as amended
(the "Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission (the "SEC") thereunder in connection with the filing of the
accompanying registration statement under the Act for the registration of shares
of the common stock, par value $1.00 per share (the "Common Stock"), of the
Corporation on Form S-4 or such other Form or Forms as are then appropriate for
the registration of the Common Stock of the Corporation including without
limiting the generality of the foregoing, power and authority to sign such
registration statement, and any and all amendments, including post-effective
amendments, supplements and exhibits thereto (collectively, the "Registration
Statement") to be filed with the SEC, and to sign any and all instruments or
documents to be filed as a part of or in connection with such Registration
Statement, whether such instruments or documents are filed before or after the
effective date of such Registration Statement, to file such Registration
Statement so signed, together with any and all instruments or documents to be
filed as a part of or in connection with such Registration Statement, with the
SEC, and to appear before the SEC in connection with any matter relating
thereto, hereby granting to such attorneys-in-fact and agents, and each of them,
full power to do and perform any and all acts and things requisite and necessary
to be done in connection therewith as the undersigned might or could do in
person, and hereby ratifying and confirming all that said attorneys-in-fact and
agents and each of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of February 7, 1997.
/s/ ANTHONY M. FRANK
------------------------------------
Anthony M. Frank
<PAGE> 5
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her capacity
as an officer or director of TEMPLE-INLAND INC., a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Clifford J. Grum, David H.
Dolben and M. Richard Warner, and each of them severally, as his true and lawful
attorneys-in-fact and agents, with full power to act with or without the others
and with full power of substitution and resubstitution for and on behalf of him
and in his name, place and stead, in any and all capacities, to perform any and
all acts and do all things and to execute any and all instruments that said
attorneys-in-fact and agents and each of them may deem necessary or desirable to
enable the Corporation to comply with the Securities Act of 1933, as amended
(the "Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission (the "SEC") thereunder in connection with the filing of the
accompanying registration statement under the Act for the registration of shares
of the common stock, par value $1.00 per share (the "Common Stock"), of the
Corporation on Form S-4 or such other Form or Forms as are then appropriate for
the registration of the Common Stock of the Corporation including without
limiting the generality of the foregoing, power and authority to sign such
registration statement, and any and all amendments, including post-effective
amendments, supplements and exhibits thereto (collectively, the "Registration
Statement") to be filed with the SEC, and to sign any and all instruments or
documents to be filed as a part of or in connection with such Registration
Statement, whether such instruments or documents are filed before or after the
effective date of such Registration Statement, to file such Registration
Statement so signed, together with any and all instruments or documents to be
filed as a part of or in connection with such Registration Statement, with the
SEC, and to appear before the SEC in connection with any matter relating
thereto, hereby granting to such attorneys-in-fact and agents, and each of them,
full power to do and perform any and all acts and things requisite and necessary
to be done in connection therewith as the undersigned might or could do in
person, and hereby ratifying and confirming all that said attorneys-in-fact and
agents and each of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of February 7, 1997.
/s/ WILLIAM B. HOWES
------------------------------------
William B. Howes
<PAGE> 6
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her capacity
as an officer or director of TEMPLE-INLAND INC., a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Clifford J. Grum, David H.
Dolben and M. Richard Warner, and each of them severally, as his true and lawful
attorneys-in-fact and agents, with full power to act with or without the others
and with full power of substitution and resubstitution for and on behalf of him
and in his name, place and stead, in any and all capacities, to perform any and
all acts and do all things and to execute any and all instruments that said
attorneys-in-fact and agents and each of them may deem necessary or desirable to
enable the Corporation to comply with the Securities Act of 1933, as amended
(the "Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission (the "SEC") thereunder in connection with the filing of the
accompanying registration statement under the Act for the registration of shares
of the common stock, par value $1.00 per share (the "Common Stock"), of the
Corporation on Form S-4 or such other Form or Forms as are then appropriate for
the registration of the Common Stock of the Corporation including without
limiting the generality of the foregoing, power and authority to sign such
registration statement, and any and all amendments, including post-effective
amendments, supplements and exhibits thereto (collectively, the "Registration
Statement") to be filed with the SEC, and to sign any and all instruments or
documents to be filed as a part of or in connection with such Registration
Statement, whether such instruments or documents are filed before or after the
effective date of such Registration Statement, to file such Registration
Statement so signed, together with any and all instruments or documents to be
filed as a part of or in connection with such Registration Statement, with the
SEC, and to appear before the SEC in connection with any matter relating
thereto, hereby granting to such attorneys-in-fact and agents, and each of them,
full power to do and perform any and all acts and things requisite and necessary
to be done in connection therewith as the undersigned might or could do in
person, and hereby ratifying and confirming all that said attorneys-in-fact and
agents and each of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of February 7, 1997.
/s/ BOBBY R. INMAN
------------------------------------
Bobby R. Inman
<PAGE> 7
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her capacity
as an officer or director of TEMPLE-INLAND INC., a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Clifford J. Grum, David H.
Dolben and M. Richard Warner, and each of them severally, as his true and lawful
attorneys-in-fact and agents, with full power to act with or without the others
and with full power of substitution and resubstitution for and on behalf of him
and in his name, place and stead, in any and all capacities, to perform any and
all acts and do all things and to execute any and all instruments that said
attorneys-in-fact and agents and each of them may deem necessary or desirable to
enable the Corporation to comply with the Securities Act of 1933, as amended
(the "Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission (the "SEC") thereunder in connection with the filing of the
accompanying registration statement under the Act for the registration of shares
of the common stock, par value $1.00 per share (the "Common Stock"), of the
Corporation on Form S-4 or such other Form or Forms as are then appropriate for
the registration of the Common Stock of the Corporation including without
limiting the generality of the foregoing, power and authority to sign such
registration statement, and any and all amendments, including post-effective
amendments, supplements and exhibits thereto (collectively, the "Registration
Statement") to be filed with the SEC, and to sign any and all instruments or
documents to be filed as a part of or in connection with such Registration
Statement, whether such instruments or documents are filed before or after the
effective date of such Registration Statement, to file such Registration
Statement so signed, together with any and all instruments or documents to be
filed as a part of or in connection with such Registration Statement, with the
SEC, and to appear before the SEC in connection with any matter relating
thereto, hereby granting to such attorneys-in-fact and agents, and each of them,
full power to do and perform any and all acts and things requisite and necessary
to be done in connection therewith as the undersigned might or could do in
person, and hereby ratifying and confirming all that said attorneys-in-fact and
agents and each of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of February 7, 1997.
/s/ HERBERT A. SKLENAR
------------------------------------
Herbert A. Sklenar
<PAGE> 8
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her capacity
as an officer or director of TEMPLE-INLAND INC., a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Clifford J. Grum, David H.
Dolben and M. Richard Warner, and each of them severally, as his true and lawful
attorneys-in-fact and agents, with full power to act with or without the others
and with full power of substitution and resubstitution for and on behalf of him
and in his name, place and stead, in any and all capacities, to perform any and
all acts and do all things and to execute any and all instruments that said
attorneys-in-fact and agents and each of them may deem necessary or desirable to
enable the Corporation to comply with the Securities Act of 1933, as amended
(the "Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission (the "SEC") thereunder in connection with the filing of the
accompanying registration statement under the Act for the registration of shares
of the common stock, par value $1.00 per share (the "Common Stock"), of the
Corporation on Form S-4 or such other Form or Forms as are then appropriate for
the registration of the Common Stock of the Corporation including without
limiting the generality of the foregoing, power and authority to sign such
registration statement, and any and all amendments, including post-effective
amendments, supplements and exhibits thereto (collectively, the "Registration
Statement") to be filed with the SEC, and to sign any and all instruments or
documents to be filed as a part of or in connection with such Registration
Statement, whether such instruments or documents are filed before or after the
effective date of such Registration Statement, to file such Registration
Statement so signed, together with any and all instruments or documents to be
filed as a part of or in connection with such Registration Statement, with the
SEC, and to appear before the SEC in connection with any matter relating
thereto, hereby granting to such attorneys-in-fact and agents, and each of them,
full power to do and perform any and all acts and things requisite and necessary
to be done in connection therewith as the undersigned might or could do in
person, and hereby ratifying and confirming all that said attorneys-in-fact and
agents and each of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of February 7, 1997.
/s/ WALTER P. STERN
------------------------------------
Walter P. Stern
<PAGE> 9
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her capacity
as an officer or director of TEMPLE-INLAND INC., a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Clifford J. Grum, David H.
Dolben and M. Richard Warner, and each of them severally, as his true and lawful
attorneys-in-fact and agents, with full power to act with or without the others
and with full power of substitution and resubstitution for and on behalf of him
and in his name, place and stead, in any and all capacities, to perform any and
all acts and do all things and to execute any and all instruments that said
attorneys-in-fact and agents and each of them may deem necessary or desirable to
enable the Corporation to comply with the Securities Act of 1933, as amended
(the "Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission (the "SEC") thereunder in connection with the filing of the
accompanying registration statement under the Act for the registration of shares
of the common stock, par value $1.00 per share (the "Common Stock"), of the
Corporation on Form S-4 or such other Form or Forms as are then appropriate for
the registration of the Common Stock of the Corporation including without
limiting the generality of the foregoing, power and authority to sign such
registration statement, and any and all amendments, including post-effective
amendments, supplements and exhibits thereto (collectively, the "Registration
Statement") to be filed with the SEC, and to sign any and all instruments or
documents to be filed as a part of or in connection with such Registration
Statement, whether such instruments or documents are filed before or after the
effective date of such Registration Statement, to file such Registration
Statement so signed, together with any and all instruments or documents to be
filed as a part of or in connection with such Registration Statement, with the
SEC, and to appear before the SEC in connection with any matter relating
thereto, hereby granting to such attorneys-in-fact and agents, and each of them,
full power to do and perform any and all acts and things requisite and necessary
to be done in connection therewith as the undersigned might or could do in
person, and hereby ratifying and confirming all that said attorneys-in-fact and
agents and each of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of February 7, 1997.
/s/ ARTHUR TEMPLE, III
------------------------------------
Arthur Temple, III
<PAGE> 10
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her capacity
as an officer or director of TEMPLE-INLAND INC., a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Clifford J. Grum, David H.
Dolben and M. Richard Warner, and each of them severally, as his true and lawful
attorneys-in-fact and agents, with full power to act with or without the others
and with full power of substitution and resubstitution for and on behalf of him
and in his name, place and stead, in any and all capacities, to perform any and
all acts and do all things and to execute any and all instruments that said
attorneys-in-fact and agents and each of them may deem necessary or desirable to
enable the Corporation to comply with the Securities Act of 1933, as amended
(the "Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission (the "SEC") thereunder in connection with the filing of the
accompanying registration statement under the Act for the registration of shares
of the common stock, par value $1.00 per share (the "Common Stock"), of the
Corporation on Form S-4 or such other Form or Forms as are then appropriate for
the registration of the Common Stock of the Corporation including without
limiting the generality of the foregoing, power and authority to sign such
registration statement, and any and all amendments, including post-effective
amendments, supplements and exhibits thereto (collectively, the "Registration
Statement") to be filed with the SEC, and to sign any and all instruments or
documents to be filed as a part of or in connection with such Registration
Statement, whether such instruments or documents are filed before or after the
effective date of such Registration Statement, to file such Registration
Statement so signed, together with any and all instruments or documents to be
filed as a part of or in connection with such Registration Statement, with the
SEC, and to appear before the SEC in connection with any matter relating
thereto, hereby granting to such attorneys-in-fact and agents, and each of them,
full power to do and perform any and all acts and things requisite and necessary
to be done in connection therewith as the undersigned might or could do in
person, and hereby ratifying and confirming all that said attorneys-in-fact and
agents and each of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of February 7, 1997.
/s/ CHARLOTTE TEMPLE
------------------------------------
Charlotte Temple
<PAGE> 11
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her capacity
as an officer or director of TEMPLE-INLAND INC., a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Clifford J. Grum, David H.
Dolben and M. Richard Warner, and each of them severally, as his true and lawful
attorneys-in-fact and agents, with full power to act with or without the others
and with full power of substitution and resubstitution for and on behalf of him
and in his name, place and stead, in any and all capacities, to perform any and
all acts and do all things and to execute any and all instruments that said
attorneys-in-fact and agents and each of them may deem necessary or desirable to
enable the Corporation to comply with the Securities Act of 1933, as amended
(the "Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission (the "SEC") thereunder in connection with the filing of the
accompanying registration statement under the Act for the registration of shares
of the common stock, par value $1.00 per share (the "Common Stock"), of the
Corporation on Form S-4 or such other Form or Forms as are then appropriate for
the registration of the Common Stock of the Corporation including without
limiting the generality of the foregoing, power and authority to sign such
registration statement, and any and all amendments, including post-effective
amendments, supplements and exhibits thereto (collectively, the "Registration
Statement") to be filed with the SEC, and to sign any and all instruments or
documents to be filed as a part of or in connection with such Registration
Statement, whether such instruments or documents are filed before or after the
effective date of such Registration Statement, to file such Registration
Statement so signed, together with any and all instruments or documents to be
filed as a part of or in connection with such Registration Statement, with the
SEC, and to appear before the SEC in connection with any matter relating
thereto, hereby granting to such attorneys-in-fact and agents, and each of them,
full power to do and perform any and all acts and things requisite and necessary
to be done in connection therewith as the undersigned might or could do in
person, and hereby ratifying and confirming all that said attorneys-in-fact and
agents and each of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of February 7, 1997.
/s/ LARRY E. TEMPLE
------------------------------------
Larry E. Temple
<PAGE> 1
REVOCABLE PROXY
CALIFORNIA FINANCIAL HOLDING COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CALIFORNIA
FINANCIAL HOLDING COMPANY
The undersigned hereby appoints the Board of Directors, or any of them,
each with full power of substitution as the lawful proxies of the undersigned
and hereby authorizes them to represent and to vote as designated below all
shares of common stock of California Financial Holding Company ("Company") which
the undersigned would be entitled to vote if personally present at the Annual
Meeting of Stockholders of the Company ("Meeting") to be held on April 28, 1997,
and at any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED FOR PROPOSALS ONE AND TWO.
Whether or not you plan to attend the Meeting, you are urged to execute
and return this proxy, which may be revoked at any time prior to its use.
(Continued and to be dated and signed on the reverse side)
CALIFORNIA FINANCIAL HOLDING COMPANY
P.O. BOX 11063
NEW YORK, N.Y. 10203-0063
1. Proposal One: The merger of the Company with and into Temple-Inland Inc., a
Delaware corporation ("Temple-Inland"), and the related Agreement and Plan
of Merger between the Company and Temple-Inland dated as of December 8, 1996,
more fully described in the Proxy Statement-Prospectus dated March 20, 1997,
for the Meeting.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
<TABLE>
<S> <C> <C> <C>
2. Proposal Two: Election of FOR all nominees [ ] WITHHOLD AUTHORITY to [ ] *EXCEPTIONS [ ]
Directors for a term listed below. vote for all nominees
ending in 2000. listed below.
</TABLE>
Nominees: David K. Rea and G. Thomas Egan
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name in the space provided below.)
*Exceptions
---------------------------------------------------------------------
3. In their discretion on such other business as may properly come before the
meeting or any adjournment thereof.
Change of Address or [ ]
Comments Mark Here
Please sign your name exactly as it appears hereon. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Date: , 1997
---------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Signature of Shareholder)
- --------------------------------------------------------------------------------
(Signature of Additional Shareholder(s))
VOTES MUST BE INDICATED (x) IN BLACK OR BLUE INK. [X]
(PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE PREPAID
ENVELOPE.)
